Triterras, Inc.

Good morning and welcome to Ty Terrace's conference call to discuss its results for the first half of 2023 fiscal year ended August 31st, 2022. My name is Melissa and I will be your operator for today's call. Joining us for today's presentation are the company's chairman and chief executive officer, Serene Vasconero, chief financial officer, Elvin Tan, executive vice president, Jim Groh, and vice president of financial reporting, Perry Mangers. Following their remarks, we will address questions that have been submitted to the company. Now, I'd like to turn the call over to Jim Groh. Please go ahead, sir.

Thanks, Melissa, and thank all of you for joining us on the conference call today. Before we start, I would like to read the following in regard to our forward-looking statements disclaimers and note to investors disclaimers. Please note that certain information on the call today will include forward-looking statements about future events concerning the company, including without limitation, the company's future business strategy and financial and operating performance. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict and may cause the actual results to differ materially from those stated or implied by those statements. Certain of these risks and assumptions are discussed in TRITERAS SEC filings. These forward-looking statements reflect management's belief, estimates, and predictions as of the date of this live broadcast, November 30th, 2022. And TRITERAS undertakes no obligation to revise or update any forward-looking statements to reflect event or circumstances that occur on or after the date of this call, except as required by law. Joining me on the call today are our Chairman and CEO, Srinivas Konnero, our Chief Financial Officer, Alvin Tan, and our Vice President of Financial Reporting, Perry Mangers. For today's call, I am first going to provide a high-level overview of the Tri-Terras business model, then PERI will provide a review of the financial results for the first half of the 2023 fiscal year ended August 31st, 2022, which we publicly announced earlier today. Following this review, Srinivas Konnero, our chairman and CEO will provide an update on the market and our growth strategy. Alvin Tan, our CFO will discuss our company priorities going forward. Then I will respond to certain questions that were sent to the company prior to this call per the instructions provided in the calls announcement, which we issued on November 21st. We'd like to start our discussion today with a brief recap of our business over the last couple of years. As you may know, the Kratos platform was originally created with an initial focus on commodity traders. Our platform directly connects enterprises with lenders to source capital. We leverage advanced blockchain technology to transform trade and trade finance by digitizing the fundamentally paper-based systems exemplified in today's trade and trade finance transactions. This digitization drives efficiencies, lower cost, reduces transaction cycle times, and delivers a monumental improvement in the sustainability aspects of our industry. Our initial success that validated our technology and market, excuse me, let me repeat that. After initial success that validated our technology and market, we further concentrated on a value proposition targeted towards the SME or small and medium sized enterprise, commodity trader segment. We feel that this was a substantially underserved market as evidenced by the widely accepted $1.5 trillion shortfall in trade finance availability for SME traders. The reason that this market has been so substantially underserved is that it can be a difficult market to successfully access, especially through using only legacy solutions. So a breakthrough technology solution was needed to effectively penetrate this market. Our first mover advantage provided us with some early success in serving our targeted market. both in terms of attracting new customers and generating profits through fee based revenues generated from our Kratos platform. Furthermore, in the initial stages of the COVID-19 pandemic, our digitized platform actually offered our customers operational advantages for their businesses with remote capabilities, making our value proposition even more attractive to a growing customer base of SME commodity traders. The worldwide COVID pandemic has had a negative effect on the trade industry as a whole and the SME community of traders in particular. The business shutdowns and resulting supply chain disruptions caused great distress in our industry to both SME traders and their sources of financing alike. Trade credit insurance, a risk mitigation vehicle used by commodity trade finance lenders, became significantly less available and premiums increased. This was compounded by bankruptcies of trade credit lenders. For example, the failure of Greensill that further reduced finance resources available to the industry. Country shutdowns in connection with the COVID-19 outbreak further negatively impacted SME traders in the conduct of their business as trading centers like Singapore and Hong Kong imposed restrictions on travel and prevented businesses from operating. All of these combined factors have had a very detrimental effect to our SME trader clients by causing reduced trading activity, reduced liquidity, financial difficulties in the trade finance marketplace, and a great number of client business suspensions and liquidations. The net effect has been a significant impact on our original client base. As a result, we have seen our revenues decline along with the higher than expected uncollected amounts of accounts receivable balances although global trade flows have somewhat stabilized for the large traders many of our original smaller customers continue to suffer from the the effects of the pandemic i will now pass it over to my colleague perry mangers to take us through our financial results perry thanks jim starting first with trade transaction volume for the six months ended august 31 2022

we had trade transaction volume of nearly 1 billion compared to 4 billion in the prior comparable period. The decrease in trade transaction volume was due to challenges faced by the company from the impacts the COVID-19 pandemic has had on the global supply chain and our customers. Despite the reduction in transaction volume, we grew the number of users on our platform by 89%, 249 from 132 in the prior comparable period, which we believe demonstrates our ability to capture more of the market Trade finance volume represented 39.9% of total volume during the six months ended August 31, 2022, compared to 36.4% in the prior comparable period. Our average transaction fee percentage for the six months ended August 31, 2022 was 0.57%, which is unchanged from the prior comparable period. For the six months ended August 31, 2022, our revenues were $26.4 million, 15% higher than the $22.9 million we generated in the prior comparable period. The increase was due to the addition of trading revenue segment within the trade marketplace submodule, which did not exist in the prior comparable period and contributed $20.7 million in revenue during the six months ended August 31, 2022. platform fee revenue which decreased to 5.7 million in the six months ended august 31 22 from 22.9 million in the prior comparable period uh was in line with the reduction of the total transaction volume on our platform again due to global supply chain constraints and trade finance limitations in the industry cost of revenue for the six months ended august 31 2022 total 22.1 million which compares to $1.3 million for the prior year comparable period. The increase in cost of revenue was primarily due to $20.3 million in trading costs, and the six months ended August 31, 2022 within the Trade Marketplace submodule. General and administrative costs for the six months ended August 31, 2022 totaled $10 million, a 29% decrease from the prior year comparable period of $14 million. The decrease in general in administrative costs is primarily attributable to a decrease in legal expenses. During the six months ended August 31, 2022, we recorded a 14.4 million impairment in trade and loan receivables compared to a 3.9 million impairment in the prior year comparable period. The impairments relate to trade receivables, which was in large part due to liquidity issues faced by our customers because of the impacts of COVID-19 for the COVID-19 pandemic and contract costs as a result of third parties not making their customer referral targets under a prepaid subscription agreement. Net loss for the six months ended August 31, 22 totaled 21.6 million or 28 cents per share compared to net income of 27.3 million or 35 per share for the corresponding period last year. Net income for the six months ended August 31, 2022 included a $2 million non-cash loss related to the change in the fair value of warrant liabilities and $14.4 million in impairment charges. Net income for the comparable period last year included $25.3 million related to a non-cash gain on the change in fair value of warrant liabilities and a $3.9 million impairment charge. We will continue to record non-cash charges in the fair value of our warrants until such time as the warrants are either exercised or expire, but want to emphasize that this is a non-cash item. Adjusted EBITDA, which is a non-IFRS measure for the six months ended August 31, 2022 was a loss of 19.1 million compared to adjusted EBITDA of 4.1 million for the prior fiscal year comparable period. The decrease in adjusted EBITDA was due primarily to lower transaction volume and the increase in impairments that I previously mentioned. Lastly, regarding our balance sheet, in August 31, 2022, we had $33.9 million in cash and cash equivalents, and a working capital surplus of $77.8 million, continuing to put us in a strong financial position to execute on our business objectives. I will now pass it over to Srinivas, our chairman and CEO, to discuss our recent accomplishments.

Thank you, Perry, and good morning, everyone. Despite the challenges of which Jim and Jerry spoke, we have taken proactive steps to mitigate them and strengthen our business. Early on, as a part of our original strategy, the company began initiatives to expand our client and geographic focus outside of Asia-Pac region of commodity traders. Our expansion efforts included creating a supply chain finance business, expanding our geographic focus into the Middle East and North Africa or the MENA region, and in doing so, building out the technology that would enable us to cater to these new areas. We have been actively working on this strategy for over two years and have had a good deal of success in building the technology and human resource platforms required to execute this strategy. I would like to point out some of the significant accomplishments in depositioning the company's client focus and expanding our geographic presence, which we believe is of utmost importance in giving Tritera the diversification and market breadth to mitigate some of the challenges we have recently experienced. Importantly, we have successfully transitioned away from a sole focus on commodity traders. We have built a pipeline of borrower clients on the platform that represents product ranges from commodities to semi-finished goods to finished goods. We have also augmented and enhanced our technology platform capabilities to enable a wider range of supply chain finance options and financing structures. Our platform can now cater to a wider range of transactions, with lending sizes from $5,000 to over $100 million. and can facilitate enterprise-level supply chain finance with large Western anchor buyers to providing micro-lending to the clients of e-commerce platforms like Amazon and Zomato. This flexibility in meeting a wide range of customers, both from a size and product standpoint, is directly attributable to our technology solutions that are highly scalable and can provide a lower cost profile than the archaic legal industry solutions. Our geographic focus in terms of our physical presence has also expanded to include MENA and Europe, apart from our initial focus in Asia. Looking forward, one of our very key priorities is to recruit additional lenders onto the platform to serve a growing pipeline of borrower customers. We believe that trade and supply chain finance lending on our platform offers a compelling opportunity to institutional lenders of all types. We would recommend to those of you interested in lending to visit our website, which features a video describing trade finance as an asset class. We believe supply chain finance transactions can offer outsized yield opportunities to institutional lenders, along with historically low loan default rates as a result of the protections that can be structured into the loan transactions. In the recruitment of lenders, our business development teams have focused well beyond traditional commodity trade finance lenders to a broad base of institutional lenders, including fixed income funds, credit funds, and multi-strategy asset funds. We have even augmented our platform, service capability, and value proposition to appeal to smaller regional banks looking for an advanced technology solution where we have had some early success. I'm happy to report that through the end of October 2022, we have five lenders who are lending to our clients that are on the platform. We hope that they will be scaling their lending volumes in the future months. In order to demonstrate the viability of our supply chain finance lending alternatives to potential new lenders, the company deployed its own assets into lending transactions through various transaction structures. from which we generated significant income and began establishing a track record of lending success that we can share with prospective third-party lenders. This has enabled our business development team to provide real-life data to prospective lenders on the trade finance lending opportunity. On the technology side of our business, our team has been in lockstep with our business development teams to generate innovative solutions that streamline the customer experience. Our team has built additional product solutions and simultaneously worked to enhance the security of the Kratos platform, which is of key concern to all our clients, lenders, and traders. We have secured ISO 27001 information security management certification, fully transitioned to AWS-managed hyperledger blockchain structure, and have instituted robust quarterly penetration testing protocols executed by third-party experts. We are also currently working on Kratos 2.0 project that is targeted on meeting a greater range of customer needs through a low or no-code software development platform. All in all, we believe that our technology solutions are very strong and represent a key differentiator against competitors. With that, I would like to turn the call over to our CFO, Alvin Tang.

Thank you, Srinivas. Thank you, Srinivas. Although we have accomplished much in terms of technology and business development, The financial results for the six months ended August 31st, 2022 have been disappointing to all of us. In recognition of this, the company has a clear view of its operating priorities going forward with the angle of maximizing shareholder value, which include the following. We will continue to focus on our business development efforts on recruiting new lenders to the platform. In terms of business growth, Increased lender funding on the platform is a significant limiting factor and as such receives the most attention. Simply put, to grow revenues, we need more lending on the platform from outside sources. Our revenue financial and commercial teams are focused on collecting the significant outstanding account receivable balances from our original commodity trader customer base before we understand the need to generate cash from accounts receivables. We will continue our efforts to enhance our trade marketplace, which is an alternative lending structure for the deployment of our trade finance loans. We are undergoing an extensive review of our budget to eliminate cash expenditures on all non-critical items while continuing to invest in business and technology development. We believe that we can achieve a reduction in the run rate of our SG&A without damaging our long-term business prospects. Lastly, we are still working on potential M&A projects that we feel can be accretive to long-term shareholder value and support our overall business expansion. Based on these plans, I would like to summarize the company's current outlook. For the remainder of this fiscal year, we expect to generate operating losses with the expectation that we can achieve a break-even run rate sometime in the next fiscal year. To achieve the expected growth in operating income, we will strive to establish a level of funding availability on the Crossroads platform to drive increased transaction volumes. In addition to this, the company is taking actions to reduce general and administrative expenses. However, there is no guarantee that the company can reach the level of funding and customer transaction volume necessary to achieve those results. In regard to liquidity, the company feels it has adequate cash resources to execute our plans over the next 12 months. We will seek to improve our liquidity position by taking, among others, the following actions. Collecting $4.25 million from our insurance queries related to the class action lawsuit settlement, Further, redeeming our $20 million investment in trade credit partners and improved collections of outstanding trade and loan receivables, as well as the actions we spoke of in terms of improving our operational results. I will now turn the call over to our CEO, Srinivas Kornel to wrap up management commentary before we get into questions.

Thanks, Alvin. In closing, we thank you all for your time and attention today. This morning, we published a form 6K, which provides the market with a detailed update on many items. We urge investors to review that document in detail. Please know that the board, management, and employees of Tritera recognize the challenges with which we are dealing, and we are singularly focused to do our utmost to improve our financial results and thereby to build a strong and vibrant company over the long term. Now, I will turn it over to Jim for Q&A.

Thank you, Srinivas. This concludes our prepared remarks, and we're now ready to address the questions that were submitted ahead of time. Like the last call, I will read the question and ask the appropriate member of our team to answer. Our first question is, number one, how has Triteris maintained or adapted the core business model in light of the global downturn? And I'm going to answer that, that the response to this question is addressed in both our Form 6K filing made with the Securities and Exchange Commission today, as well as during today's conference call. The second question, cash position dash burn rate slash plans going forward as needs grow. Alvin, would you please respond?

Yeah, so the response to this question is addressed in both our Form 6K filing made with the Securities and Exchange Commission today, as well as during today's conference call, which we outlined a number of plans with regards to improving profitability and managing the company's cash position.

Thank you. Third question was on user growth. Could we maybe even an active user metric, those with activity in the past month, quarter, et cetera? Srinivas, could you answer, please?

As of August 2022, we had a total of about 249 users.

Thank you. Next question. How is growth in lenders going? Are the lenders on the platform expanding their use? Where are you seeing success in new lenders? Srinivas, please.

We are pleased to report that as of October 2022, we added five lenders to the ecosystem. But many of them are in the early stages of their rollout. We hope that over time, they will have positive experience on the platform and will scale their lending.

Next question. Is the company pivoting from individual traders to banks as the customer? Srinivas?

We view our planning group as being compromised of lenders and traders who are the borrowers that come together on the Crotos ecosystem. In the lender segment, we have substantially increased our reach in that we traditionally were focused on trade finance specialty lenders, and now we are speaking with general credit funds, multi-strategy asset funds, and institutional lenders, among others. We also believe that we have a compelling technology solution for regional banks who could benefit from outsourcing their technology from criteria rather than building an in-house solution. Currently, we do have a regional bank as a lender.

Thank you. Next question, any updates on the relisting? I will answer that one. In the form 6K filing, which we made today with the Securities and Exchange Commission, the company provided an update on its overall listing process. We're not in a position to provide any estimates on if or when the company securities will be listed on NASDAQ or the OTC markets. Will, number seven, we have, will the company disclose more information and findings about the internal investigation from October 2021? Srinivas?

The company does not have any plans to disclose any additional information regarding the investigation at this time. Our form of announcement follows generally accepted protocols.

Thank you. Next question, will the company consider to release quarterly business updates? Alvin?

It is not our plan to do so. As a foreign private issuer, the company is obligated to file an annual report with certain audited financial information in order to be compliant with OTC market requirements. Given the cost and time associated with quarterly filings, we currently do not intend to revise our reporting to a quarterly cadence.

Thank you. Uh, question we received is Mr. Canero have any intentions to step down as CEO and just be a non-executive chairman?

No, I do not.

Thank you. Number 10, would you consider to schedule a ER and I'm assuming that's earnings release release. and conference call on two separate days to allow your investors to prepare questions after reading the results. Alvin?

Yes, we would consider this as it would certainly be easier for the company to do so. However, it historically has seen the consensus view that the investment community prefers that business update to be given immediately after the release of results and the public following of the same.

Thank you. In the latest Form 20F, you state, our growth plans rely on our ability to increase the number of new and existing customers on our Kratos platform. The company has documented an agreement with a singular third party to which fees are paid for every successful customer referral. Beyond this agreement, what are the company's other customer acquisition strategies? Srinivas?

Triton is a business development team led by to Isidro Vice President with years of experience and reach in the marketplace to originate good deals. The origination pipeline is very healthy at this point in time. We are continuing to work on geographic extension and strategic M&A to expand our addressable market.

Thank you. How has the industry evolved over six months? And I'm going to give that answer because it's aggregated amongst interviews with many of our business partners. by commercial business colleagues. A couple of developments. Two platforms in the business, We Trade and Sarai, basically have ceased operation and discontinued. Borrowing costs have increased by 25 percent in the last six months and attributable to rising interest rates around the world and the war in Ukraine. And passing this price increase on to our customers has been a challenge. Given some of the recent geopolitical scenario and post-COVID applications, we continue to see many traders continue to struggle financially. Next question. What compelling reasons do customers cite for switching to or choosing Kratos? What aspects of the Triteras offer resonates with customers? Srinivas?

Kratos is a highly user-friendly platform that allows all the participants to exchange trade information freely, negotiate trade contracts, conclude deals, trigger agreed payments, track orders, capture order history, and generate reports. Kratos offers significant benefits for enterprises to boost their ability to identify potential financers and secure timely availability of funding for their succeeding trade transactions. Kratos reduces overhead caused by digitalization and automation of business processes, which also eliminates human errors or data tampering, thereby assuring an unmatched speed and efficiency for trading.

Thank you. The final question, the company's 2022 Form 20F made several statements concerning the marketing efforts of the company. However, when looking at publicly available information, such as on social media or search engines, It is difficult to discern what marketing activities the company has undertaken. Please provide some additional detail on marketing activities. I will answer that question. The company's marketing teams have completed several initiatives, and we're happy to outline a few of them here. First and foremost, we've made a number of changes to our website to enable the company to publish news items that don't rise to the level of requiring a press release. and also thought leadership pieces and announcements, as well as events. The company is also publishing a series of information videos on our YouTube channel, which are available on a new section of our website. Kind of the sum total of that is the cadence of content has increased significantly over the past few months. Speaking of websites, we are now working on a total revamp of our website which we hope to complete early next year. In addition to that, as far as marketing activities, we've also been running direct marketing campaigns on different social media platforms, which has generated leads for our business development teams. At this time, this concludes our question and answer session, and I have one more small announcement to make. I will be stepping down as the Executive Vice President of Investor Relations and the IR activity is going to be consolidated into other company departments. I will be remaining with the company on a part-time basis in an advisory and transitory role, mainly focused on marketing and communications. Thank you all for joining the call. We appreciate your support of our mission and confidence in our ability to achieve it. Stay safe, and we look forward to speaking with you soon. Have a great day. If you have any comments or questions, please contact Triteris Investor Relations team at trit at gatewayir.com. Operator?

Thank you. Ladies and gentlemen, thank you for joining us today for Triteris' conference call. You may now disconnect your lines and have a wonderful day.