Boardwalktech Software Corp.

Good afternoon, ladies and gentlemen, and welcome to the Boardwalk Tech Software Corporation Fiscal First Quarter 2025 Quarterly Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, August 27, 2024. I would now like to turn the conference over to Graham Farrell. Investor Relations, please go ahead.

Thank you, operator. Good afternoon and welcome everyone to BoardWalk Tech's quarterly conference call.

This call will cover BoardWalk Tech's financial and operating results for the first quarter of fiscal 2025, period ended June 30th, 2024. Our call today will be led by BoardWalk Tech's President and Chief Executive Officer, Andy Duncan, along with the company's Chief Financial Officer, Charlie Glavin. Before we begin with our formal remarks, we would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested in any forward-looking statement due to a variety of factors which are discussed in detail in our regulatory filings. Today, the company issued its first quarter fiscal 2025 results, a copy of which is available in the investor relations section of our website, boardwalktech.com, and posted on CDAR. I would like to remind everyone that today's call is being recorded on Tuesday, August 27th, 2024. I will now turn the call over to the President's Chief Executive Officer of BoardWalk Tech, Andy Duncan. Please go ahead, Andy.

Thank you, Graham, and thank you to everyone who has joined us here today as we discuss BoardWalk Tech's quarterly financial results for the first quarter of fiscal year 2025. During our first quarter of fiscal 2025, Boardwalk has continued to strengthen its sales and distribution strategy, secured a credit facility to enhance liquidity, hired a new chief marketing officer, expanded its pipeline of new business through its recently announced teaming agreements, and continues to execute with our teaming partners on the delivery of its velocity solution across a top five bank in the United States. As you recall, in late 2024, the company made the strategic decision to rationalize its sales force as it took steps to further augment its direct sales model with a partner teaming model to accelerate deal closing times and reduce overhead costs. Over the past year, we have announced teaming agreements with several leading global IT services firms, including Tata Consulting Services, and we are close to realizing the benefits of this strategic shift. As with any strategic shift in corporate strategy, it takes time for the benefits to be realized. We are confident that we are on the right path of recognizing and reporting the benefits of this enhanced sales strategy. While we continue to sell via a direct sales team, since the beginning of this year, we have put the majority of the company's emphasis on our partner and teaming sales channels. While our engineering personnel is involved, these partners provide both established customer relationships and larger support staff that enable our software to be licensed quicker, and with greater operating leverage than our direct sales model alone. Not just for our Velocity product, but for our core digital ledger solution and our Unity Central product as well. As we build more traction in the financial services market with our Velocity solution, it is important to remember that the IT services firms, who are our partners, will be doing the majority of the delivery and services work. These delivery contracts, of which there are now three teaming partners working under contract at the large bank I earlier referred to, and we're currently rolling out to a lot of different areas within the bank, and these contracts can amount to millions of dollars and last for many years. One partner in particular just increased the size of their team which is paid for by the large bank from 30 to 60 full-time people, all focused on delivering the boardwalk velocity solution across the bank. Despite initial restructuring and other issues at this large bank that caused delays for the initial rollout, these teaming partners are now finally realizing the value and money that can be made by delivering the velocity solution to new banking prospects and are actively engaging with new opportunities as we continue to build our pipeline in the financial services market. Our agreements with these teaming partners are mutually beneficial. These partners are incentivized to drive growth in professional services revenue, while BoardWalk benefits by getting access to and licensing our products to large global firms that Boardwalk would otherwise not be able to penetrate. This also allows us to greatly reduce the cost for additional sales and support infrastructure. The most interesting aspect of this is that the teaming partners are now also not only using the Boardwalk Velocity product in-house, but are introducing us to new opportunities outside of the financial services area for the use of not only our Velocity product, but our Unity Central product as well. These opportunities are coming from many different sectors, including the BPO, which is business process outsourcing businesses, of these partners. Just in the past week, we added three new opportunities to the pipeline, including a huge aircraft manufacturer, a large and very familiar nationwide grocery store chain, and a $5 billion European consumer healthcare company. With the assistance of these partners, a new marketing plan in focus, with the addition of Elizabeth Fanafro as our chief marketing officer, and Jay Cherry, an expert in transformation in the financial services industry and former top 10 bank CTO, I am happy to report that our pipeline of new deals has expanded, and it would seem our typical sales cycle has been reduced, while conversion rates are poised to increase. We have several new Tier 1 banks in discussions for deployment of our Velocity product, as well as other household names engaged in discussions to use both our digital ledger and Unity Central products. The strategy is working. and we are convinced that in the coming quarters you will see the growth we have all been waiting for. I will now pass the call over to Charlie Glavin to walk you through details of the financial results for the quarter, and I look forward to taking your questions at the end of the call. Charlie, please go ahead.

Thanks, Andy. Before I begin, I'd like to take a moment to remind our listeners that all figures reported on today's call are in U.S. dollars and that are fiscal year ends March 31 with reported figures based on IFRS standards unless otherwise specified. Additional details can be found in our financial statements and MD&A filed on CDAR+. Total revenue for the first quarter of fiscal 2024 totaled one and a quarter million, which is a 20% decrease from the 1.55 million of revenue in the first quarter of last year. primarily due to a 48% decline in revenue from professional services and a 15% decline in software and subscription service revenue. Revenues for the first quarter decreased 12% from the 1.4 million of revenue reported in the fourth quarter of fiscal 2024, primarily due to a 15% decline in software and subscription services revenue offset by a 30, excuse me, along with a 39% decrease in professional services revenue. As of the June quarter end, the portion of revenue from software and subscription service licenses in the first quarter comprised 91% of total revenue, which is up from 85% in the first quarter of fiscal 2024, growing at a 20% compounded rate over the last two years, even when you factor out our Velocity and banking customers. including those, the growth rate is closer to 46% compounded. Our annualized recurring revenue, or ARR, at June 30th of 2024 was 4.8 million. As a reminder, we calculate ARR based on the past three months of recurring revenue, so this reflects our rate exiting the quarter. Gross margin for the first quarter of fiscal 2025 was 87.9% versus the 90% level in the first quarter of last year and 89.1% gross margin level in the fourth quarter, with the change in margin levels entirely due to the lower revenue levels. The company expects gross margins to return to the prior levels at or above the 90% level, but expects gross margins to fluctuate by quarter. The net loss for the first quarter of fiscal 2025 was $800,000, or a loss of one cent per basic and diluted share, which is a 14% improvement versus the $930,000 loss of 2 cents per share in the first quarter of last year. Adjusted operating expenses of 1.5 million have already declined by over $400,000 since last June, with additional operating leverage still expected. Even as we make selective expenditures in sales, marketing, and services, to enable upside growth as opportunities are beginning to outpace our resources. The point being that we will continue to be diligent in our spending, but not cutting our way out to profitability, but growing our way to success. The net IFRS net loss, as defined in our filed MBA for the first quarter of fiscal 2025, totaled $107,000, or loss of one cent per share, which is a modest change from the $516,000 of non-IFRS losses in the fourth quarter. Adjusted EBITDA for the quarter was a loss of $405,000 versus adjusted EBITDA loss of $511,000 in the June quarter of last year, which represents a 20% year-over-year improvement despite the lower revenue levers. Thus, as growth in recurring license resumes, we expect improvement in EBITDA to continue towards sustainable profitability. The company finished the first quarter with $1.7 million of cash and trade receivables as the collection of large license renewals occurred just after the quarter closed. We expect cash and deferred revenue to fluctuate less on a quarterly basis, and several large customers have negotiated the payment of their binding annual licenses on a quarterly basis, which in turn lowers absolute deferred levels compared to historical levels on a quarter-to-quarter basis. What BoardWalk got in return was longer-term commitments from these customers and less variability in deferred revenue and cash flows. In conclusion, given the company's forecast that Andy mentioned and the realignment actions that we have taken, Plus our new credit facility in place, the company believes it has the resources and now strategy to increase growth this year and in future years to come. And with that, I will now turn the call back over to the operator to open up for Q&A portion of this call.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys.

One moment, please, for your first question.

Your first question comes from the line of Craig Johnson, investor. Your line is now open.

Thank you. At the time of the last earnings release, you stated you expected to achieve cash flow or adjusted EBITDA break even in the next few quarters. Now, that's not exactly a specific timetable, but I'm just wondering based on, well, that was based on modest revenue growth assumptions. I'm wondering, given the current quarter's drop in revenue. Are you revising that? I notice you're saying now that it's the upcoming quarters. So are you thinking it will still be a few quarters or this year? Do you have anything you can clarify on that?

Craig, if I could, it's Charlie. We're going to defer giving a timeline off of that for a couple different reasons. One, as far as From the visibility as far as closing, particularly with these large banks and other large enterprises, we're not going to kid investors that we have that level of visibility that we can be precise. Thus, in terms of getting a specific target or specific guidance, we're refraining from that. Second of all, I don't think we'd want our customers to know that target. Otherwise, we lose certain negotiation leverage with them. But the idea is in terms of making progress, so even – and that's why I would highlight as far as the adjusted EBITDA. Yes, we did know in terms of the negotiations that we had with several of these customers that there might be a one-step back or a three-step forward in terms of some of the revenue. And that was incorporated when we included our previous comments. But in terms of giving any more specificity as far as that, What we're trying to do is let the numbers show that we are making the progress, and now will be the time when we execute as far as the closing of contracts, which Andy alluded to, as far as anticipating shorter cycles. But given our history, we want to refrain and err on the side of conservatism and caution.

Okay. Just one further question. That is, if it's not certain, regarding the timing. And if, you know, there's always delays and there's implementation as well. Are you expecting, I mean, do you have enough cash, I don't know, for maybe a couple more quarters? I'm just looking at the financials and trying to figure that out. Is it likely that you'll be seeking additional funds? Because certainly the stock price would make it difficult.

Well, yeah, and you are correct, Craig, and that's why we put in an AR-based credit facility with Celtic Bank, which we announced last quarter, which closed in the March time period to enable this so that we didn't necessarily have to go out to the market, particularly at these prices. Without deviating too much, if you look at the breadth of the trading, there's been some thin trading that has driven the stock down. We've been appreciative of those who have bought and supported the stock on the other side. But what we need to do is execute. And with those announcements, we think the stock should be able to rebound. But in terms of the resources, we do believe we have it necessary. Now, Craig, one of the things I do want to say is Remember, and this is something we've alluded to in prior calls, but given the size of some of the deals that we are taking a look at, it would just take one or two to be able to tip the balance in a, I would say, in a disproportionate fashion. That's some of that uncertainty is you get one or two closings of the elephants and that can be enough. And several of the banks that we're talking to do fit within that category. Thus, you know, given the size and the magnitude of the sort of swings, That is part of what's going on. So when I talk about timing, think about it from an expected value standpoint, not necessarily just in terms of temporal.

Okay, that's great. I see that you're limited to 60% of the $4 million loan. You're limited to 60% of your previous 12-month ARR, which means you have some room left. Correct. Another million dollars. I'm just guessing. So that... Is there room for additional credit? I mean, if it'll take a while before the trailing 12 months ARR picks you back up. So to a level where you could get more money out of the credit facility. But I'm just wondering, is there any additional opportunity for that facility to be expanded or?

Yeah, I would say within Celtic and our relationship with them, the answer is yes, but I don't want to speak on behalf of them. But in terms of their support for us, I would say that so long as we continue to execute and we have to show demonstration to them. So all of our payments have to go through Celtic overall. So they keep an active track on a monthly basis off of that. But I'm not going to indicate outside of Celtic has been a great partner for us. They are in this asset-based lending. That is their forte over it. So it's not a commercial bank that happens to be in annual recurring revenues, but rather this is as an industrial bank with commercial outreach to companies like us. This is their forte. So I would say cautiously optimistic that we could expand on it, but ultimately it's based upon our execution.

Great. Thank you so much. There are no further questions at this time.

I will now turn the call back to Andy Duncan. Please continue.

Thank you, Operator. I would like to acknowledge the patience of our investors while we continue to build boardwalk tech And I want to assure you that our commitment is to long-term success. We look forward to updating you with our progress, and we will speak with you in November when we report our Q2 of fiscal 2025. Thank you very much for attending the call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.