NowVertical Group Inc.

Good morning, everybody. We will, it's 7.30 now or 9.30 Eastern time. We will begin our webinar. Really, I could just start out and say, well, thank you that you, you know, I'm pleased that you could join us for our first quarter 2024 financial webinar. I'm Glenn Nelson, Vice President of Investor Relations and Communication. And with us today, we have Sandeep Minderata, our CEO, Christine Nelson, our Interim CFO, and Andre Garber, our Chief Development Officer. All three will be available to answer questions at the end of the webinar. And just to give you an idea of the format, the webinar today will begin with some opening comments from Sandeep on our results. Then we'll hear from Andre Garber around our recent acquisition or our recent disposition of Allegiant, and as well as Christine Nelson will provide some insights into the financials. I would like to remind you all today that some of the things that we will present are non-IFRS. You can find those measures or a reconciliation to the closest IFRS measure in our MDMA that we filed on CDAR Plus last night. Also, a recording of this webinar will be available on our website in our investor relations section after the call. With that, I would like to also remind everyone that we may contain some forward-looking statements. These statements are as of management's use of today and may not be reflective at any other date. So with that, I would like to pass it over to Sandeep.

Thank you very much, Glenn, and a very warm welcome to everyone. I'm thrilled to have you join us today. For our Q1 24 updates, this is the agenda that we will be using. I'll be taking you through the now vertical overview. This is for any of our new investors joining us today. And just a quick reminder for our existing stakeholders. And Then we will go into the Q1 2024 strategic updates, what kind of developments have been happening, what we have been working on. So I'll share some of these updates with you. And finally, I'll hand it over to Christine Nelson, who's our interim CFO, to share with you some of the financial results from Q1. With that in mind, let's just get into what is the now vertical equation in the market. And it's quite interesting where our positioning is, the position of operating in a very strong and rapidly growing artificial intelligent market. And we know that the demand for these AI solutions are increasing quite rapidly and the pressure on the CEOs is growing so significantly to deliver the business outcomes using the AI technology to gain that competitive edge in the market. And what that also creates is The problem for the organizations to really adopt these technologies at the pace at which the leadership wants them to do it There are some of the organizational complexities that you would have. There are these ever-growing data complexities in every business that we come across. Then you have got the growth in the AI technology landscape and that is bringing in more complexity because of the lack of knowledge and understanding of this technology, the in-house capabilities in these organizations. And if you look at that whole intersection of it, which is how do you deliver that AI, the return on investment from your investment in the artificial intelligence technologies? This is exactly where the problems are being faced by these large enterprises. This is where Now Vertical operates. We bring in this value to our clients. The value we bring to them is that we help our clients transform data into tangible business value with artificial intelligence. And we do it fast. That's where we are operating in the market space. What this equates into for us is it has given us a very credible portfolio of 250 plus clients globally. And these are some of the household names that you would see that are on the screen. Out of these 250 clients, there are about 100 plus enterprise clients that we are dealing with, which is quite phenomenal for the size of the business that we have. And out of these clients, there is one very interesting metric that we have, which is 30 plus of our clients have delivered a customer lifetime value of more than $5 million for us over their lifetime of the engagement with us, which is quite phenomenal. But at the same time, the question is raised, you know, what about the rest of the clients? And this just presents the massive opportunity of us being able to grow all of our enterprise clients and all the clients that we work with to the customer lifetime value of $5 million or higher. And that's a wonderful opportunity space for Now Vertical. If you now look at the shift in the strategic direction that we are going through, what are we transitioning ourselves to? This is going from the inorganic, aggressive acquisition led strategy to focus on the very organic growth, which is helping us build that sustainable platform and the foundation. And this is where we are going from being a business that was led by the acquisitions that collected a lot of data businesses to being that one brand and one business. And this is the platform that we are moving to build. This platform of one brand, one business. This platform that will leverage the combined integrated strength of all the acquired businesses This platform that is going to be driven by sustainability and profitability. And at the same time, this platform is going to help us create the foundation for the future in organic growth as well. And we have talked about these four pillars, the four drivers, if you like, of our integration strategy. And what we would like to do is take you through some more details, deep dive into this integration strategy, give you more clarity around what this integration strategy means for Now Vertical. What kind of actions we have taken in each one of these pillars? What are our future plans? And we are going to do this via a webinar that we will be press releasing the date for. Most likely this date is going to be the end of June. And we really, I recommend and invite you to that webinar where we will be bringing a lot more details about what this integration strategy is going to look like for NowVertical in the coming months and quarters. Jumping straight into the Q1 strategic updates, as you know, this is our transition quarter. A lot of changes have happened in this quarter. This is going to be our transition year as well. I just want to give you some updates on the areas of the changes that we are bringing about. And of course, the very first one that I would like to talk about, the changes that we brought about in Q1 are around the leadership and the governance. As you know, this is a new management team within Now Vertical. I joined as the chief exec of Now Vertical Group in January. Christine Nelson took over as the interim CFO in January. We have got Santiago, who's the EVP of LATAM. We have got Mostafa, who came in from Smartlytics, and he is now the EVP of products and tech. We have also promoted Shailesh Malia, who is now the EVP of solutions and services and focused on the growth of our strategic accounts in North America and EMEA. We also promoted Pankaj Khag, who is now responsible for the projects and the delivery. So he's the EVP of products and delivery and focused on North America and India. And there's a lot of integration work we have already done there. There were significant changes we brought about within the board of Now Vertical as well. Dave Sharon, he and Chris Ford, they joined us earlier in the year on the board as the non-exec members. I joined the board as well as the member of the executive team earlier this year. And we have also got David Doughty who has joined the board recently. And as you know, Andre Garber resigned from his board position, but he is acting as the chief development officer and still actively involved in many aspects of our business and the growth. Another important area, which is the go-to-market strategy. As we are changing our strategy, it's very important to articulate our position very clearly to the market space, because this is going to be our foundation of the organic growth. One of the things we are doing is we have already completed this consolidation, which is organizing ourselves around two markets. So we are no longer operating as the individual business units, those 12 businesses that have been acquired. We have now organized ourselves into two markets, that's LATAM, and the other market is North America and EMEA. It not only brings the significance of the revenue in the markets, but it also drives the accountability and focus in those markets for the leadership team. The other important and very critical aspect is our proposition strategy. As we are bringing all these business units together, it was critical for us to bring all of these best solutions and services that we have been delivering across the business. And we are joining them up, keeping in mind which ones are carrying the best potential of getting the traction from our clients in both the markets. And this is the solutions and services catalog that we are building up, which is then going to be reflected not only on all of our digital assets like website or social media, but all of the collaterals are going to be carrying these solutions and services catalog as the proposition. This is also going to be enabling the strategic accounts growth team. A lot of work has already happened, and we will be sharing this work soon. and how it's shaping up and what shape it has taken in the webinar, like I mentioned about the integration strategy. Some of the other strategic integration and restructuring that we have done. One is the corporate restructuring. I talked about this earlier in the month when we were delivering the results for 2023. This corporate restructuring of the streamline our costs and how we are organized in the corporate structure, which was the original roll-up strategy, this has changed quite significantly for us, and we are optimizing the cost in the corporate function. At the same time, we have completely restructured our products function. What used to be just a software assets within now vertical, now has transformed into a proper product structure, which again is gonna be integrated properly within both the markets and the solutions and services. So this has resulted in the cost benefit, the annualized cost benefit of about $3.1 million. This is coming down from $7.4 million of cost that we had in corporate structure and the product function. We have done a lot of renegotiations on the original SPAs after they were acquired as businesses. This was very critical for us because the integration and the collaboration of these business units within the integrated world was reliant on how the SPAs were structured earlier or not structured. The other notes were related completely to the performance of the individual business units. And where we want to see is the incentives of the leadership team and the management team being linked with the long-term value creation. And that's what we have been able to bring about with the SBA renegotiations. Some more work needs to be done here. But if you remember, this has given us the cost or it has given us the benefit of deferring our liabilities in tune of $2.6 million to 2025. This has come down from $5.1 million deferred liability we had when we started the year 2024. Another part is the operator-first structure. This is driving our integration strategy quite nicely. We are bringing in the operators of the business, the owners of the business who were very successfully running their business in each of the markets. This is giving us enhanced agility and the decision making capability already. And we know that these are the people who are very focused on the growth of the business and we are seeing the benefits already. And Christine will be sharing some of these numbers with you. Allegiant sale, something we announced earlier this week. Really proud of this decision and the management team and the board supporting this decision for us to move away from the non-core side of our business. And I think this really presents the right opportunity for us to grow the core business in the future. One of the things I would like to mention is that there is a lot that has happened in Q1, as you can see. And there's so much behind each one of the aspects of these three areas that I have mentioned. And when the new management team took over, they had to immediately get into the action mode. And at the same time, they had to look at the planning for the integration strategy as well. And we are transforming the business. As you know, the transformation of any of these business has the potential of bringing a lot of distractions for the team. What I'm glad to report is even though a lot of work has happened here, the leadership team and the management team stayed committed to deliver the run rate, the revenue run rate of 2023. Christine is going to be sharing that in a minute with you. But what I would like to do before we hand it over to Christine is let Andre take the stage and talk about briefly our Allegiant sale. Andre.

Thanks, Sandeep. So we're thrilled to have completed the sale of our Allegiant business unit. And in addition to what Sandeep just mentioned, you can find more information in a video we which is accessible on our website. It does go into more detail on the sale rationale. And these deals don't happen overnight. So with that, we do want to thank everyone involved, including the Allegiant Business Unit CEO, Angel Diaz, who's a rock star, and the Allegiant executive team. We ran a planned process over a number of months to execute this disposition and could not have happened without a team effort. When we originally bought Allegiant, we paid about $2.3 million of our own cash. And so looking at the multiples, we paid about less than three times EBITDA on acquisition on their ending 21 EBITDA. And looking on exit, just on the gross closing proceeds alone, our exit multiple is 6x. But when you add in all of the contingencies and post-closing payments on a gross basis, our exit multiple ends up being approximately 8.8x 2023 EBITDA. It also nets about a 50% IRR since we acquired the Allegiant business in April 2022. So we're quite happy about the terms. Obviously, on this slide, you know, it shows a $3.8 million approximate debt pay down, which significantly reduces our global consolidated debt position, margin enhancements by, you know, getting rid of this sort of lower margin business as well. And we're really excited to see what the buyer does with this business, you know, building on the really strong pipeline and backlog we've developed since owning Allegiant for the last couple of years. And with that, I'll pass it over to Christine Nelson.

Thanks, Andre. Okay, so I'd like to start by walking through some of the key 2024 metric highlights in comparison to the same quarter last year, 2023. So overall, all of these metrics are trending in the right directions. This is something we're really excited about. This has been a big transition quarter for the company, and it's going to be a big transition year. Sandy definitely spoke about it. We have a new CEO, restructured management team, new board members, and we're making a lot of positive changes as we execute our strategies. So we're really happy that all of these metrics are trending in the right direction. So revenue has increased by 3% over last year to 12.9%. And gross profit is increased by 2% to 6.3 million. Now, while these are only small increases year over year, they are in line with our 2023 annual run rate. And this really goes to show that the business is being supported by our strategy to move to an operator-first model. So this has been a big transition quarter. Management team is being restructured, lots of changes, significant headcount reduction. And with all of these changes that we're putting in place, you know, we're really proud that we're still able to meet that 2023 annual run rate. And while the revenue growth will always be a vital metric for us, we are focusing on other metrics and other growth metrics as well, specifically profitability and sustainability and what we can do to get there. And our, you know, our strategy to move from an operator first model is a key part of that. That leads perfectly into adjusted EBITDA, which was about $1.6 million this quarter. This is a 314% increase over last year. Huge, huge increase over last year. So we're really proud of this. Also, income from operations was $202,000 this year. which is a huge increase of 120% or 1.2 million over Q1 2023, which we actually had a loss last year. So huge improvement here. And this was driven by a decrease in admin expenses. So there was a 16% decrease or 1.1 million decrease year over year. So next slide I'll talk about, I'll go into the admin expenses in a bit more detail. So what you're looking at here are our consolidated admin expenses year over year. So it decreased from 7.2 to 6.1. And this consolidated admin includes our CGU admin, our corporate admin costs. And then we've also just broken out that corporate admin just to show the huge decrease that we've managed to obtain year over year. So last year, 1.9 million, this year, 1.1. And this is really driven by a 68% corporate headcount decrease year over year. Direct result of our strategy to move to an operator first model. You know, we are focusing on, you know, utilizing the expertise that we have in the local CGU's, capitalizing on that and reducing our corporate overhead to get to where we want to be for to be sustainable. and to promote growth and profitability. The strategy, of course, you know, we've said it a few times, I'm going to reiterate it. This strategy is in progress, right? You know, these things take time. And we're really proud that this is, you know, we can see some changes already happening, but we're expecting to see future cost reductions in the coming quarter. So next, I'd like to highlight the increase in adjusted EBITDA. So adjusted EBITDA is a metric that we use internally to measure the performance of all of our CGU. So I think it's a really important metric to highlight here. It increased by 314% or 1.2 million from up to 1.6 million this quarter. Also, that's a huge change in the margin as well. So not just the dollar value, but we're going from a 3% EBITDA margin to a 12% EBITDA margin. So big metric we're very, very proud of. This is mainly a result of the decrease in the admin costs that I spoke about previously, part of our strategy to move to that operator-first model, make us more sustainable, make us more profitable. So this really speaks to our efforts there. And then once again, this is a transition year. You know, this is going to be every quarter we're, you know, making changes, making positive changes. We're really happy with the positive trends that we've been seeing. And we're really looking forward to more positive metrics in the following quarters. And with that, I'll hand it back to Sandeep.

Thank you very much, Christine. As you see, there are some positive impact that we are already seeing. And like I said, the team has been completely committed on delivering the revenue as we go through a lot of changes as part of the new strategy that we are putting in place. And this is my belief that the potential we have in the business and what we have acquired as the 12 acquisitions in the past and the goodness it brings to us There is so much that we can keep working towards to keep improving the growth metrics of the business, both in terms of the revenue growth in different areas of the business, the efficiencies of the performance metrics, if you like, whether it's the EBITDA, whether it's the cost efficiencies, whether it's delivering higher margins. and moving towards generating more of the free cash flow in the business. But this is the equation that we believe. There is so much of leverage we have and we'll keep working towards improving this business and making it a grand success. On one side, we are absolutely focused on improving our cash position to capitalize on that market growth. Like we described last time as well, our cash position has changed quite significantly by deferring some of the liabilities from 24 to 25. We have improved our cost on the corporate structure as well as the products team. Like I mentioned, 3.1 million of the efficiencies there. And at the same time, we are working towards deferring some more liabilities to the future. The Allegiant sale has brought massive impact for our cash position as well. So this really helps us get the right runway for deploying the growth strategies into the business in 2024 itself without having the need to raise any capital for the working capital needs, if you like. So this is really a positive moment, I would say. And like Christine was saying, all the actions that we have put in place in Q1, they will be reflected in the positive metrics in Q2 and thereafter. And there are some more positive changes we are bringing about I think I lose the PowerPoint. The other thing that we are doing is unleashing the power of this group to enhance the delivery of the profitability for the business. And how do we deliver this value to our clients also? And essentially what it means is how do we maximize the shareholder value through all of our acquired assets? And this is where I just want to make this one last point here is that this new management team is taking control of this business and all the situations with confidence. And this management team is not going to shy away from making the right decisions for the business, even if they are tough decisions in certain ways. And I really thank for the collaboration of the whole leadership team, management team and the support from the board that we have received. this is going really in the right direction and we look forward to some more success in the future. Back to you, Glenn, for the questions and the answers from us.

Great. Thank you, Sandeep. I would like to remind everyone on the webinar today that you can answer questions by clicking the Q&A button at the bottom and we will go through those in the order that they come in. I will read out the question and We will try to answer all of those before we run out of time here. So the first question comes from Hernan Gomez. And the question is regarding the income statement, can you expand on the high impacts for both inflation effect and net monetary position and foreign currency translation adjustment items?

Yeah, I can handle that. So the inflation effect and the net monetary position increased quite a bit this quarter due to the Argentine subsidiary. So there was a huge increase in inflation. It increased from about 3,500 to 5,300 within one quarter. So just a huge increase. Now, It does affect, like, overall, it's kind of a nil impact because it's affecting revenue and expenses at the same rate. And so both revenue expenses are getting adjusted by that same inflation impact. But there was just a really large increase. Normally, we don't see an increase that large. So it's just a local CPI index in Argentina that's causing it. And as for the currency translation adjustments, The large increase is driven by, you know, in 2023, we acquired, you know, a material amount of companies globally that operate outside of the USD currency. So we acquired 810, they operate in Chile, in Mexico, in Brazil, and Aquatrend and Smartlytics, which operate in the UK and India and UAE. So just the intercompany transactions, and also the increased number of transactions and volume outside of USD has generated an increase in the currency translation adjustment due just to the number of currencies and the fluctuations in currency against the USD.

Great. Thank you, Christine. Again, from Hernan Gomez, regarding the segmented reporting, can you shed some light on lower than expected revenues for AcroTrend, Affinio, and other? Was Affinio business unit dissolved?

Yeah, so I think the simple answer to Afinio business unit is that, yes, it was dissolved last year. And I think, Christine, if you could give the exact dates and the revenue numbers there. But I can answer some of the other questions as well. Yes, we have seen some decline in the revenue on some of the business units, including AccuTrend. And this is more of the seasonality in certain ways for some of these business units. You will see that, depending on the budget cycles of the clients, you have the spike in either Q2, Q3, or Q4 at times. And sometimes the budget cycles, last year in Q4, we saw the budget cycles were fast forwarded for some of the clients and we won additional work in Q4. And that's why you saw a little bit of a slump in Q1. But the overall targets are definitely set with certain growth metrics for 2025, 2024.

And just to follow up on the Athenio note, yes, we sold Athenio Social last year in May. So there is no revenue this year because it was sold last year.

Great. Thank you. The next question is from Rob Goff. Could you review the cash and access available to now at this time?

Christine, that's for you.

Yeah, so as of yesterday, we had about 6.1 million in cash available globally in the banks. This is a kind of direct result from the Allegiant sale.

The next question is from Rob Goff. Could you address the timeline for free cash flow generation?

Yes, very good question. This is our ambition. Everybody is working towards generating positive free cash flow from the business. So every step, every action that we are taking in this integration strategy, which is driven by the sustainability and profitability, is working towards the free cash flow generation. And like you said, you know, we have taken a lot of steps in Q1. Q2 will see some more actions. And thereafter, we are going to be working relentlessly to do that. If we are able to achieve that free cash flow by end of Q3 or Q4, that would be fantastic. But the ambition is to move in that direction.

Great. Thank you. The next question is from Ted Stube. Congratulations on the quarter, guys. Seems like a lot of progress. Understanding that the current focus is on organic operations and integration, is the team also looking at strategic acquisitions to enter into other markets, i.e. APAC or Continental Europe? If so, is that a 2025 potential initiative?

Very good question, Ted. This is, first of all, our ambition is to really create that platform I talked about. The platform that has got the sustainability and the profitability embedded in it. Platform that's got one business, one brand. platform that's leveraging all of our capabilities from these acquired businesses jointly. And this is the platform. Once that's done, it will create a phenomenal potential and opportunities for the acquisitions and the inorganic growth. And we will absolutely want to get there as fast as we can. Would it be 2025? strategy or it could be a late 2024 strategy that has to be seen because there are certain milestones that we have to achieve so that the foundation is in place. And when we do the acquisitions at that point, we know how are we going to integrate that acquisition, the newly acquired business into this platform. And it's not just going to be for the revenue and the free cash flow. It is going to be to generate additional value in the business. So yeah, acquisition strategy will absolutely be on the cards, but we just want to make sure that there is that prerequisite of the right platform in place.

Great. Thank you. Next question, again from Rob Goff, will the government remain as a vertical?

100%, Rob. The government space is buzzing. It's really asking for a lot of help with the data analytics and AI solutions. One of the reasons I think this question is popping up from our sale of Allegiant, which was primarily in the US government, I assume that. That particular part of our business was not leveraging the data analytics and AI solutions. And that was one of the reasons we called it as our non-core business. And that is the reason for the disposition in that business. We are still working with a lot of government clients in LATAM. There are clients in the UK. There are clients in the Middle East that are in the public sector and the government space. And we absolutely are focusing to grow those clients. But the kind of work we do with government in these markets is all related with data analytics and AI. That work is transferable to the other countries and other markets as well. That work is in our core space. And that's why we will absolutely remain committed to the government and the public sector space.

Perfect. Thank you very much. I'd just like to remind people that they can submit questions on the Q&A tab at the bottom if they have any more questions to have Sandy from the team address. The next question comes from Julian Luke. In this current integration process, are you optimistic about the growth coming from key accounts? How is this currently evolving? 100%.

Julian, fantastic question. This is going to be one of the key metrics of growth. This is how we want to measure ourselves and we are measuring ourselves as well. And this is something we can dive deeper into that integration strategy webinar that I mentioned earlier, which hopefully we'll be posting by the end of June. And this is where we will showcase to you what exactly is our portfolio of these key strategic accounts look like. What kind of revenue it has delivered to now vertical in 2023? What strategies are we putting in place? What kind of accounts, strategic accounts, growth team we are bringing in place and how we are enabling these themes so that we can go and grow within these strategic accounts. So this is going to be one of the key metrics of this integration strategy.

I think the next, excuse me, the next question comes from Julian as well. I think we've addressed some of this, but maybe we could give a little more, you know, a little more insight. Could you give an explanation for some of the drop in sales and some of the business units like Core BI, other segments in the Acrotrend? Can you also include kind of that drop in profitabilities?

Yeah, I think I mentioned a little bit about the seasonality of the businesses as well. The one thing that I'm very sure of is we have got growth metrics for 2024 as well. Although it's a transition year, although it's, you know, a lot of changes are happening, the management team has got so much to handle at this point in time, but everybody is stepping up and working relentlessly on this integration strategy. So is the growth on cards? Yes, there may be some seasonality that you may have seen in Q1, but we are tracking the sales numbers every week, every day, and the whole team is working towards making this happen. So yeah, not bothered about some of the shifts that we may have seen only in Q1. I'm sure this is going to be compensated in the rest of the quarters.

Great, thank you. So I'll remind, give people one last opportunity to submit a question. I think that's it. So with that, I'll pass it back to Sandeep for closing.

I really want to thank you for all the support that you have offered to this business. This is a new management team. We are transitioning to a completely new strategy. The management team, leadership team is very excited about the growth potential that we have. People are getting invested into the business properly. The incentives of individuals are getting linked to the overall performance and the long-term value creation in the business. So everybody is really excited and I'm glad to be part of this team and leading this business through this phase of transition. So thank you very much for your support. And there have been many positive messages that we have received. So thanks for them. Keep them flowing. They really energize us as the management team. And yeah, thank you very much. Thank you, everybody. We will look forward to speaking to you again in June.