Emerge Commerce Ltd.

Good morning, and welcome to the Emerge Commerce Second Quarter 2026 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session for analysts. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on August 27, 2026. Your hosts today are Ghassan Halazon, Founder and Chief Executive Officer, and Mike Murphy, Chief Financial Officer. Before we begin, I am required to provide the following statement respecting forward-looking information, which is made on behalf of Enorge and all of its representatives on this call. Certain statements made on this call will contain forward-looking information. These forward-looking statements generally can be identified by the use of words such as intend, believe, could, expect, estimate, forecast, may, and other words of similar meaning. This forward-looking information is based on our opinions, estimates and assumptions, in light of our experience and perception of historical trends, current conditions, and expected future developments, as well as other factors that we currently believe are appropriate and reasonable. and the circumstances. Ashar results could differ materially by the conclusion, forecast, expectation, belief or projection in the forward-looking information. Certain material factors and assumptions were applied in drawing the conclusion or making the forecast or projection as reflected in the forward-looking information. The caution investors must rely on the forward-looking information. Additional information about the material factors that would cause factor results to differ materially from the conclusion, forecast or projection, in the form of zipping information, and material factors or assumptions that were applied in drawing a conclusion, or moving a forecast or projection as reflected in the form of zipping information, are contained in emergency filings with Canadian Provincial Securities Regulators. During today's call, all figures are increasing dollars unless otherwise stated. and with that, I would like to turn the call over to Mr. Ghassan Halazon, founder and CEO.

Thank you. Good morning, everyone. We appreciate you taking the time to participate in our second quarter 2026 conference call. Joining me today is Michael Murphy, our CFO. This morning, I will walk through our exceptional Q2 results that emerged and share some insights across our key businesses as well as our priorities for the balance of 2026. Following my remarks, Mike will provide additional details on our financial results, after which I will conclude the call with some closing remarks and open up the line for questions. Historically, Q2 has been our strongest quarter at Emerge. This Q2 proved to be no different. In fact, in many ways, this was our best quarter in years across revenue, gross margin, and adjusted EBITDA. with positive cash flow generation on full display. Let's dive in. Q2 revenue grew by 7.4% to $9.1 million, our ninth consecutive quarter of positive revenue growth. This is the first time the emergency eclipsed $9 million in revenue since early 2023 at the start of our turnaround efforts. Worth noting, T2 Green or T2G for short was acquired in early April 2025. So Q2 growth this year is more apples to apples as a result. As outlined in my shareholder letter at the start of 2026, the current eMERGE strategy entails combining moderate stable organic growth from our existing portfolio with higher growth rates driven by accretive acquisitions. Speaking of acquisitions, Q2 was Viral Loops' first full quarter under Emerge ownership, following our acquisition that was completed in late Q1. With that said, Viral Loops is a relatively low revenue contributor with approximately $1 million annual revenues and was primarily acquired to enhance our overall financial profile, to contribute positively to margins, profitability, and cash flow in addition to driving customer acquisition across our consumer e-commerce portfolio, all of which it did in Q2. Gross margins increased by 2.5% to 39% from 36.5%. Management anticipates that the year-over-year gross margin improvements achieved in Q2 2026 to continue in Q3, in part because of the higher margins contributed by Viral Loops, in addition to the conclusion of the fair value of inventory accounting at T2G that adversely impacted Emerges gross margins for most of 2025. Adjusted EBITDA improved to $1.03 million versus $962,000. marking the seventh consecutive quarter of positive adjusted EBITDA. Notably, this is the first time our adjusted EBITDA has officially eclipsed the $1 million mark since Q4 2021, which feels like a lifetime ago. Our cash position grew to $4.8 million at June 30, 2026, from $3.5 million last Q2, an increase of $1.3 million year over year. We're especially pleased that the business achieved positive all-in cash flow in both Q2 and year-to-date as we continue to build a stronger, more durable Emerge. Now, a few updates from some of our key brands. First, T2G. Now in its second year under Emerge, T2G continues to validate our Emerge Acquisition and Integration Playbook. Since acquiring the business in April 25, We've applied our operating model and digital capabilities to substantially accelerate growth, enhance profitability, and improve cash flow generation. Leveraging our broader golf ecosystem, including over 400,000 golf subscribers, helped drive T2G's revenue growth rate to nearly 10% or rather 10x its pre-acquisition growth rate. I'll say that again, to nearly 10x its pre-acquisition growth rate. The transaction's eight-year inventory payment structure also meaningfully strengthened our cash flow profile and balance sheet. In year two or so, so far, the business continues to perform exceptionally, and we continue to see additional growth opportunities through further optimization and deeper integration within our golf portfolio.

Second, an update on True Local, our leading premium meat and seafood subscription service across Canada.

True Local was a big benefactor in 2025 with a bi-Canadian movement, gaining an influx of new customers, driving strong, cost-effective growth, in turn allowing us to reduce our ad spend and capture more profits. That resulted in True Local more than doubling its adjusted EBITDA in 2025. As the benefits and enthusiasm around peak support local subsided in Q1 and Q2, We are starting to see TrueLocal's cost per acquisition revert back to its historical norms. The brand still exhibits highly favorable CLTV to CAC ratios, just not as attractive as the peak levels we saw last year. We will continue to prioritize high ROI marketing initiatives. On the margin side, TrueLocal continues to see some cost pressures, including the rising cost of meat and some fuel surcharges as a result of the conflict in the Middle East. In general, True Local has exhibited strong pricing power with its loyal member base, and the team has already actioned various gross margin and SG&A reduction initiatives aimed at offsetting some of these variable costs. 2026 is True Local's 10th year in business, and we have launched a number of initiatives and giveaway contests powered by Viraloops to drive customer acquisition and celebrate this milestone with our members and suppliers. Now for an update on the debt side. Our senior credit facility matures in October 2027. The current outstanding balance on the credit facility is $5.85 million, down from $25 million originally. The variable interest rate currently sits at 11%. For clarity, this amendment does not preclude eMERGE from refinancing its credit facility at a cheaper rate at any time, should we secure more favorable terms. Emerge is making meaningful progress towards refinancing its senior debt, which remains one of our key priorities. Management is increasingly encouraged by the developments to date and believes a significantly improved financial profile of the business puts us in a strong position to secure a materially lower-cost, longer-term financing facility. Management views this as an important step in further strengthening our balance sheet and supporting Emerge's long-term growth objectives. We continue to maintain a strong long-term relationship with our lender dating back to 2019 and remain in excellent standing. Our focus now is on reducing our cost of capital, lowering interest expense, and directing incremental cash flow into organic growth opportunities and highly accretive acquisitions.

Next up, I'll share our Q3 outlook.

For Q3 26, Emerge expects to deliver another quarter of revenue growth, improved gross margins, and positive adjusted EBITDA. Management anticipates that the year-over-year gains in gross margin that we saw in Q2 will continue in Q3, in part because of the higher margins contributed by viral loops, in addition to the conclusion of the fair value of inventory accounting at TESA Green that adversely impacted Emerges gross margins for most of 2025. The company continues to make targeted investments across its portfolio, including at the HQ level to drive and support current and future growth, both organic and inorganic. Q3 is a seasonally strong quarter for the golf business, particularly teeth to green. While it is generally a slower period for True Local during the summer holiday period, seasonality at Viral Loops is less pronounced. Now I'll turn it over to Mike for some financial commentary.

Thanks Ghassan and good morning everyone.

As Ghassan mentioned, Emerge had a very successful second quarter where we continued this trend of year-over-year revenue and adjusted EBITDA growth. Our gross merchandise sales, or GMS, grew 4% to $11.8 million compared to $11.4 million in the first quarter of 2025. As a reminder, GMS is a non-GAAP measure. that provides useful measure for the dollar value of e-commerce transactions made through our platforms, which gives additional insight into business performance. GMS represents the total dollar value of customer purchases of goods and services through our brands, excluding applicable taxes and net of discounts and refunds. Note that GMS does not consider any retail sales, which is a growing part of our business via Teat Green. Revenue for the quarter grew over 7% to $9.1 million from $8.5 million in 2025. Revenue growth for the quarter was primarily driven by strong performance from Tea to Green, as well as inclusion of the Viraloops results for the first full quarter of operations post-acquisition. Overall, Emerge achieved positive overall organic growth in Q2. Gross profit for the quarter increased by $3.5 million. to $3.5 million versus $3.1 million in 2025. Gross margin percent for the quarter was $39 versus $36.5 in 2025, excluding one-time non-cash inventory fair value increment adjustments related to TD Green. Purchase equation of approximately $41,000 in the quarter. Gross margin would have been approximately 39.4% for the second quarter of 2026. Note that all of TD Green's fair value increment has now been recorded in cost of sales, and we expect TD Green's and the company's gross margin profile to revert back to historically higher levels. Net income from continuing operations for the quarter was $0.2 million, which is comparable to where it was in the first quarter of 2025. And for the quarter ended June 30, 2026, Emerge reported adjusted EBITDA of $1.03 million compared to adjusted EBITDA of $0.96 million, an improvement of $0.07 million, an increase of 7.3%. This reflects the company's efforts to prioritize a disciplined approach to managing overheads and marketing budgets in addition to making accretive acquisitions and importantly, constantly focusing on operational improvements. Q2 was historically a period of cash inflow as the golf vertical hits its peak golf season. During the quarter ended June 30th, 2026 and 25, the company generated $1.5 million and $2.1 million respectively from operating activities. The prior period cash flows were higher in large part due to the impact of the eight-year inventory payment plan associated with Tea to Green acquisition. which resulted in minimal cash flows used for inventory purchasing in the prior quarter 2025. Q2 2026 cash flows from investing activities were negative $0.2 million driven mainly by a deferred payment related to the deed of green acquisition and cash flows used in financing activities were $0.6 million which included interest payments, accretion, related to long-term debt, convertible debentures, and deferred acquisition costs, as well as a payment of some of the inventory payment plan related to the T-degree acquisition. Finally, cash on hand has improved in line with the improvement in the business. June 30, 2026, it was $4.8 million. versus $3.5 million at the end of Q2 2025. I will now pass the microphone back to Hassan for some closing comments.

Thanks, Mike. To wrap up, I would like to highlight three things. First, we are continuing to demonstrate that emerged turnaround is translating into durable, profitable growth. Q2 was a particularly strong quarter with revenue growth Gross Margin Expansion adjusted EBITDA eclipsing a million for the first time since Q4 2021 and positive all-in cash flow this quarter and year to date. Second, while there's still work to do, our balance sheet is in a meaningfully stronger position than it was a few years ago. Our next priority on this front is to lower our cost of capital and ultimately reduce interest expense and improve cash flow to drive future growth both organically and via opportunistic acquisitions Third, we remain focused on executing the Emerge 3.0 strategy with precision, driving healthy organic growth overall while selectively pursuing accretive acquisitions that can supercharge top-line margins and cash flow. We believe the progress we have made over the past several years has put Emerge in a much stronger position, and we are excited about the opportunities ahead. As always, I would like to take this opportunity to thank our board employees, customers, suppliers, lenders, and shareholders for their unwavering support. With that, operator, we can now open the line for any questions.

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 one in the question line. Should you wish to cancel your request, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one, Shatilesh Dasgikwesh. And your question is from Fred B. Gomesca. Your line is now open.

Hello Ghassan, it's Fred from DashGap. I'm going to make a quick, just a couple of questions please. First of all, congrats on a great quarter. Now with the recent outcomes of the trade war between Canada and the US, are you starting to see positive impacts for True Local as you had last year?

Thanks, appreciate it Fred. Nice to hear from you. It is an interesting one. I mean, we are obviously watching all the, you know, trade wars and the tariff headlines and the real impact it's having, you know, in real time, I might add. And from our business perspective, particularly, you know, True Local, I would say it's still a little too early to tell. I mean, we don't want to get ahead of ourselves. We obviously see spikes in traffic for searches related to local, local food, It's a bit early to call out, you know, major impact on customer acquisition or anything like that, but it's definitely something we're eyeing. It doesn't look like it's, you know, this rhetoric and frankly, some of these actions that are being taken now, you know, it doesn't look like that's about to cool down anytime soon. So we're watching it closely and, you know, if it continues, there might be a sort of a similar round two to that madness, which ultimately, as everyone knows, benefited True Local and other local DNA companies. I will say, though, that regardless, as I pointed out earlier, the customer lifetime value metrics that we're seeing on True Local relative to their customer acquisition cost remain very favorable. So in a sense, we're seeing that $2,000 plus CLTV on customers relative to, I would say broadly, the 150 to 175 customer acquisition cost rate. So we're deeply in the money with customers and if anything, we're already, regardless of whether we get an additional macro bump or not, starting to think about and drive higher marketing to build in more subscribers to a business model and a brand that we think deserves to scale more. So we are on it, and we're monitoring the situation.

Great. Glad to hear it. Thanks for that. And on the financing side of things, it seems like management is upbeat about the possibility of a cheaper long-term debt financing. Are you able to share a sense of timing on that?

Yeah, I know, I recall, I can't remember if it was you who asked me a few quarters ago, but, you know, at the time we were positive on it and on our progress and we're even more positive now. And, you know, the reality is in our conversations, you know, with lenders, they tend to watch how is our EBITDA, you know, tracking and sort of what is the progress we're making, obviously viral loops, was in large part achieved to really elevate our financial profile and so when you add this sort of consistent EBITDA you know as well as consistent gross margin improvement and ultimately cash flow improvement um you know on a go-forward basis then we're really starting to feel like the picture is coming together we are encouraged uh by the work we're doing on the debt side we're not going to comment on particulars yet but just to be clear like this is for us, what I would view as a near-term goal and I think the sooner the better, frankly. So we're pushing ahead and let's just say we're seeing positive signs in terms of the progress we've made, top line to bottom line. So we'll keep advancing it and we think it's one of the key priorities as we've raised during the earnings call and in our PR today.

Great, great. Sounds good. And just one final question, please. Now, your cash has been going up, the cash on the balance sheet. Now, would you consider paying down some of the debt or maybe using that excess cash to do another acquisition?

Right.

So, it's a bit of an intertwined answer I'm going to give you because there are a few moving parts here. I'll say that realistically, if we enter a bank-style refinancing of our 5.85 million, if we enter a cheaper, longer-term facility as we've been wanting to, realistically, we're going to start setting aside cash to pay down debt over time. and others. Historically, we really haven't done so. We paid down debt when we sold a few non-core businesses a few prior years ago, but since then, the senior facility has been at 5.85. Realistically, we're thinking through how we're going to be paying this debt facility down over the next four, five, six, seven years once we hopefully successfully enter into and New Refinancing. So we wouldn't rush before then. If we think that's a near-term possibility, we're sort of exploring that to the max and advancing it to the max to hopefully come to fruition. But we're not rushing to take the cash we have right now to pay down debt, only to pay down debt again right as we enter this sort of facility. So it's something we would consider in terms of excess cash as we go. If we continue to generate more cash flow and sit on it. Obviously, the two main purposes, other than first and foremost operations and servicing working capital, which is in much better shape than it had been in prior years, now is the two buckets you mentioned is, you know, A, pay down of debt, B, acquisitions, and that's sort of the art of capital allocation and thinking through what's more valuable, right? If we can go buy a business for three to four times EBITDA, for example, again, much like we've done with teeth to green or viral loops where we've acquired companies below three times EBITDA. If we can get something opportunistic that adds another half a million or a million in EBITDA, perhaps that's more attractive than just paying down debt by 750K or a million. We have to make that assessment when we're live. And these are things we weigh and think about, but I would say the line of order here is advancing, are senior debt refinancing, figuring out what that looks like. Hopefully, once we're on the other side, understanding that this is our plan to pay down debt and make no question about it. So we're abundantly clear here with the audience. Our goals are to reduce our debt over time, even though our debt even does in much better shape. We think part of the cash flow generation needs to go to debt pay down. And that is part of what we're committing to. But we're thinking through how that's going to come together, what those Thank you. There are no further questions at this time. I will now hand the call back over to Ghassan Halazon for the closing remarks. Great, that's it for today. Once again, we appreciate everyone's time and interest in Emerge Commerce and the progress that we're making. Enjoy what's left of summer, and don't forget to shop local and buy Canadian, now more than ever. Thanks, everyone.

Thank you. This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.