OneSoft Solutions Inc.

Good morning and thank you for joining us for OneSoft Solutions financial conference call to discuss its financial results for the first fiscal quarter of 2024 ended March 31st, 2024. On the call today, we have OneSoft CEO, Dwayne Kushnaruk and CFO, Paul Johnston. This call is being recorded. Before management discusses the results, I would like to remind everyone that certain statements in this call may be forward-looking in nature. These include statements involving known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. For caveats about forward-looking statements and risk factors, Please see OneSoft's MD&A for the year ended December 31, 2023, and Q1 ended March 31, 2024, which can be accessed on the company's profile at CDAR Plus and on the company's website. I will now pass the call over to OneSoft's CEO, Duane Kushnaruk. Please go ahead.

Good morning and welcome to everyone on the call. I first want to note that Brandon Taylor, our president and COO who joins us to present these calls, is traveling internationally and unable to make this particular call. I have just a few remarks before Paul Johnston reviews financial information, then we'll wrap up by addressing investor questions. This is the fourth financial results conference call, and we are assuming that most attendees of today's meeting are familiar with the company. However, for those of you who want more detail regarding our history and progress to date, please log on to our website. If you want a quick summary of our company's history and progress, you can view our first conference call for the Q2 2023 report, the link for which is accessible as shown here. So just click on investor heading, then AGM and financial info, then Q2 earnings call. For those joining us for the first time, I want to provide some key points about our company and cognitive integrity management or SIM data platform. OneSoft develops and markets SIM as a SaaS or software as a service data platform that ingests, normalizes, aligns, and analyzes big data using machine learning, data science, and cloud computing. SIM typically competes with legacy processes that use on-premise computing systems and typically with a lot of reliance on Excel spreadsheets. SIM provides our customers with advantages that legacy systems cannot replicate, including increased operational efficiencies and safety, more capability to manage and maintain regulatory compliance in operating their businesses, and capability to maintain audit readiness at all times, as required by regulators. Also, better capability to reduce oil and gas pipeline failures through better data management and analyses. OneSoft has first mover advantage and a significant competitive moat regarding our technology and solutions. in that we are the first company worldwide to develop and commercialize a born in the cloud solution that uses machine learning and data science to analyze big data, which assists oil and gas pipeline operators to achieve their objectives of zero pipeline failures. We have now compiled what we believe may be the largest aggregation of pipeline integrity data. This includes information associated with about 150,000 miles of pipelines operated by 15 major customers and 20 pipeline operators. So this aggregation of big data is essential for application of machine learning and AI technologies. And OneSoft has first mover advantage in commercializing these new technologies for the oil and gas pipeline industry. CIM has undergone extensive validation efforts by many of the most progressive pipeline companies, including two of the industry's five super majors. We have customers in the US, Canada, and Australia, and are pursuing sales opportunities in several other regions, including South America, EMEA, and Asia. I want to point out some Q1 2024 highlights. Revenue was 2.9 million, a 32% increase over Q1 2023. Our cash and cash equivalents increased to 8 million at quarter end, which is up 2.4 million from the comparative quarter last year and up 3.2 million from December 2023, the prior quarter. We continue to evolve business development efforts in Q1 to investigate collaboration with third parties who have capability to become SIEM reseller partners and initiatives that will help us sell to customers in new markets, including Central South America and EMEA. Just to note, subsequent to the quarter end in early April, we announced establishment of sales operations in EMEA. Sales projects continue to progress and our sales pipeline continues to increase. Product development continued during the quarter, including for external corrosion management, crack management, probabilistic risk management, and geohazard strain modules. I'll now pass the call to Paul Johnston, CFO, to review the company's financial information. Paul?

Thank you, Duane. I will present the financial results for the first quarter of 2024. All figures reported today are in Canadian dollars. We continue to be proud of continued revenue growth this company has produced. I wish to highlight the progress OneSoft has made in growing revenues over the past seven and three-quarter years. This chart illustrates revenues increasing sequentially quarter over quarter. We're extremely proud that our SIM solution and IAM operations have produced a compound annual growth rate of 43.1% over the last seven and three quarter years, or by 13.8% per quarter over the last 31 quarters. Some discerning observers may note the revenue bar for March 2024 is slightly less than that for December 2023. In U.S. dollars, revenue in Q1 2024 increased marginally over December 2023, However, the average exchange rate fell, causing the Canadian dollar value revenue to decrease by 27,200, and that's a bar of slightly less height. In Q4 2023, a number of HCA and similar risk projects were completed for customers. In Q1 2024, that same work has not yet been done. However, other revenues more than offset the absence of that revenue. The majority of our revenue is annual recurring revenue, or ARR. In Q1 2024, ARR comprised 83% of revenue, and it was 85% of revenue in Q1 2023. The high ARR is due to the nature of our software products. Our customers continually use the software again and again to analyze new data sets generated by their pipeline integrity operations. In Q1 2024, revenue increased by 698,000 or 31% over Q1 2023. The addition of new SIM customers and by existing customers expanding their use of SIM drove $720,000 of the increase. Revenue decreased with other customers and a reduced foreign exchange rate reduced that increase to $698,000 as stated in the table on the screen. Gross profit increased by $618,000, or 40%. The increase was due to the higher sales volume, which generated $492,000 of additional gross profit, and a moderation in direct costs contributed a further $126,000 of gross profit and allowed the gross margin to increase to 75% from 70%. Operating expenses increased net of cost capitalization increased by $601,000. The main drivers of the increase are salaries and employee benefits increasing by $169,000. As the company has increased, the number of staff since December 2023 and wage increases have been selectively granted. General and administrative costs increased by $340,000 due to the occurrence of legal, accounting, and taxation expenses to investigate potential M&A scenarios. In the quarter, capitalized software development costs increased to $98,000 as the company continued to develop its risk management, pipeline corrosion, and geohazard and pipeline strain measuring products. Other expenses increased by $93,000 quarter over quarter, Included in this is an additional $261,000 in stock compensation expense arising from the grant of 2.7 million restricted share units in September 2023. Partially offsetting this cost increase was a foreign exchange gain of $115,000 generated by changing foreign exchange rates. While revenue and gross profit rose, the increase in expenses more than offset that and the net income declined by $77,000. The occurrence of the unusual expenses related to investigating M&A scenarios was a significant contributor to the net loss not decreasing in Q1 2024. On this slide, we're showing our adjusted EBITDA, or earnings before interest, tax, depreciation, amortization, and stock compensation expense. Many people like to use adjusted EBITDA as a proxy for a company's ability to generate cash. In Q1 2024, adjusted EBITDA was negative $244,000, which was an improvement of $135,000 over Q1 2023. Looking at our statement of financial position, cash increased by $3,160,000, due to customers renewing their SIM contracts and paying their subscription fees up front for the year. Trade accounts receivable increased and invoices for contract renewals were collected after the quarter closed. The company's only debt was the acquisition price of $243,000. This will be paid in two equal installments on June 24 and June 2025. Working capital on March 31, 2024 was $1,109,000 versus $1,522,000 on December 31, 2023. The company believes its cash balances and expected future cash receipts will be sufficient to finance company operations for the year, and there will be no need to incur additional financing unless a special situation occurs such as an acquisition or merger opportunity, were to arise. With reference to cash flow, we first point out the company continues to incur large amounts of non-cash expense, being $544,000 in Q1 2024. In the current quarter, the company generated $3.5 million cash from its operating assets and liabilities. Components of this figure were the company increasing its investment in accounts receivable by $602,000. Offsetting this were increases in accounts payable of $518,000 and deferred revenue balances by $3.8 million, the latter of which was due to customers prepaying their subscriptions for 2024 in advance. In total, operating activities generated $3.9 million cash which was $2.5 million greater than that generated in that period last year. Investing activities in Q1 2024 consumed $104,000 cash, which represented costs invested into new software development. In total, the company generated cash flow of $3.2 million in Q1 2024, an improvement in cash generation over that in Q1 2023 by $2.4 million. We wish to make a few remarks on the guidance for 2024 we published in February of this year. Revenue in Q1 2024 was below expectations as we did not sign and receive revenue from the prospective customers as we had expected. There were administrative delays at several prospective customers, which we believe will be overcome and allow revenue to be earned in 2024 to make up the gap. The net loss was greater than expectations due to the occurrence of the $344,000 spent investigating M&A scenarios. Lastly, we expect cash and deferred revenue more aligned to guidance estimates as the year progresses. In summation, we are not changing our guidance estimates at this time, but we'll revisit these figures at the conclusion of Q2 2024. Please refer to our Q1 2024 Financial Statements and Management Discussions and Analysis published on CDAR Plus for more information. This concludes my overview of the financial results. I will now pass the call back to the operator to start the question and answer sessions.