Pivotree Inc.

Good morning and welcome to Pivotree Inc's second quarter 2024 earnings call. All participants are currently in listen-only mode. Following the presentation, we will open the line for a question and answer session for the analysts. To ask a question, we would ask the analysts to click on the icon to raise their hand. Before we begin, Pivotree would like to remind listeners that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks, uncertainties, and assumptions related to forward-looking statements, please refer to Pivotree's public filings, which are available on CDAR. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, They're not recognized measures and do not have standardized meetings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including for reconciliations to the nearest IFRS measures. Now I'd like to turn the call over to Pivotree CEO, Bill DiNardo.

Thank you, Dennis. Good morning, everyone. Thanks for joining us on our second quarter 2024 conference call. With me today is Mo Ashour, our Chief Financial Officer. As we do normally each quarter, we've published a CEO letter in conjunction with the earnings results, and that's available on our website and filed on CDAR, and I'll be covering some of that material today. 2022 and 23 thus far have been periods of significant transformation across the business. I'm pleased to say that we delivered our seventh consecutive quarter of positive adjusted EBITDA while continuing to invest in our managed and IP solutions that we call MIPS for short. We've seen positive indications in MIPS where revenue is up 56% and bookings are up 19% on a rolling four-quarter basis. And while we continue to be awarded POCs, it's from a healthy pipeline of opportunities. We're spending more time with customers. I am getting out more frequently, especially this quarter, and reaffirming the opportunity that we have to help them simplify their digital environments, reduce operating costs, and position them to leverage the latest AI and ML technologies going forward. The team delivered a company high of $10.1 million of total managed service bookings. And this was largely driven by large multi-year renewals in the legacy managed service category. So that's the LMS category. That was up 309% year over year. Now, I think it's important to note that looks terrific. And these renewals offer great visibility to future revenues, but it's the legacy managed services. We know what that is doing. There's a reason we broke that out. So that's not going to translate into growth. It's just extending the timeline as that continues to slide. It's however important to note that completing the migration of the final customer out of our data centers, and we've closed those now and moved them to the cloud, that should provide and improve our ability to manage the profitability of those revenues going forward. It is a lot easier to turn off a cloud environment with a customer departure than it is to shut down a data center. So a huge credit to our team to have migrated customers. And again, a lot of those migrations led to those renewals and large bookings you saw. The MIPS bookings were flat sequentially. And I think I've talked about this a couple of times in the past when we started disclosing MIPS. It's lumpy. And while they appear down in Q2 or versus Q2 2023, we had an exceptionally large booking in that period. And I had indicated again that you should see lumpiness with the kind of deals that we're doing in there. Now, importantly, our trailing four quarter average is up 19%. And we continue to see late stage pipeline build in the MIPS category. And we've been focused on driving those opportunities to close. So again, I'm extremely optimistic about MIPS and in particular SKU build. The size of those deals is quite substantial and we're starting to see the length of contract is growing. Some of that, again, is coming from PS as well. So we have in this particular quarter, we have some what I'll call MIPS assisted PS bookings. So depending on the type of contract, we're fairly rigid about whether it falls into the managed and IP solutions bucket or into the PS bucket. We have some MIPS-assisted wins this quarter, rather substantial, in fact, close to a million dollars. We've included them in the PS bucket rather than in the MIPS bucket. And we believe some of those things will convert to our more traditional managed IP solutions or managed service bookings in the future. And there's a lot of positive signals. We've got a lot of POCs going on in there. And again, some really interesting industry verticals where we're starting to see some concentration. So again, quite excited about the prospects there. Now, P.S. had some success in new logo wins, but it was nine point four million. It's down sequentially and it's about three point three percent year over year. Now, there were some notable new logo wins in that. And that is always important for us longer term is to get the new logos because they start to expand and renew. And there were seven different new logos, including, as I said, a million dollar skew bill deal in there. But again, defined as P.S., Overall, we're seeing improvements in our sales organization, and that's critical. I've told everybody this is the category to keep an eye on. Bookings is going to precede the real turn for us. I don't think we've hit the turn yet. I think our pipeline looks healthy. But more importantly, our sales organization is really starting to transform. Our new logo win rate is up versus the same period last year. It's still not where it was in 2022. So again, we're seeing some green shoots, but again, way too early to declare victory. The speed to close deals has improved 10% year over year and 30% compared to 2022. But again, our new CRO feels like we should be fighting tougher battles. He thinks we're really closing the easier wins right now. So again, don't expect that these velocities to continue as we start to go after some of the tougher deals. The average deal size has started to improve. It's up almost 50% year over year. So again, we're seeing customers make bigger commitments. This has been fairly volatile for us. Prior to the economic doom and gloom that started 18 months ago, we were seeing very large deals. We then saw them shift to smaller quarterly type deals. We're starting to see them expand again. It's tough to say whether this is a permanent trend or just the types of deals that we happen to have in our pipeline right now. So again, we're seeing a bit of volatility around PS. We are continuing to focus on making sure we make money at whatever level these bookings are at. And I'm going to pass it over to Mo to give you some of those financial highlights.

Great. Thanks, Bill. So total revenue was $20.3 million in Q2. It's a slight decline sequentially, but it is down 11% or $2.4 million over the prior year. MIPS held steady sequentially and contributed $4 million in revenue, which is over 30% growth year over year. This was delivered through additional volume of SKUs that we've processed within a key customer and some key growth areas with application support that followed PS. Our legacy managed services, slight decline sequentially, but it's down 32% year over year. So along the lines of what we've been sharing in the past with the declining trend of our via Oracle and hosting business, and they made it the primary driver of the production on the year over year basis at a total revenue level. PS revenues were 11.1%, slightly down sequentially, and a 8% decline year over year. But I do want to highlight, as Bill had shared, within our PS revenue, we are recognizing some of the SKU build offering, where it's contracted more as a professional service that leverages our technology. These opportunities continue to position and expand our opportunities to be more oriented and offering outcome skew outcome offering and also an ongoing maintenance where it leverages our automation capabilities and therefore driving higher margins. Q2 gross margins was 44.2% compared to the prior year of 45.5. I think it's important to highlight within there, we did have some costs on milestone-based contracts that Bill had mentioned through his CEO letter as well. And with the revenue that we held back and we're deferring the revenue until the milestone signed off on normalized, that would improve that 44% to 47%. So we do have timing or revenues that we will catch up on in Q3. uh we expect also through our data center and legacy contract moves and legacy managed service that when we moved out of the data centers we're now shifting to a more variable model where we have better control of our costs in relation to those revenues looking at the chart on the right we present the adjusted opex trend which reconciles to the reported adjusted EBITDA Adjusted operating expense was $8.7 million. It's been reduced from $10.3 million of the prior year, and it's also down sequentially versus the $9.3 million of Q1 of 2024. So over time, as you've seen, we've incurred restructuring charges, which continue to support improving our OpEx run rate, while also creating capacity to continue our investment in our strategic products. We've completed the data center closures, as well as continuing to right-size our operation and increase the efficiency of our go-to-market initiatives. So despite the decline in revenue, we continue to deliver positive EBITDA, which also included the investments mentioned. Turning to the balance sheet, we ended the quarter with 6.2 million of cash. In Q2, we used about 1.1 million from operations. And you could see that a large contributor of that is the restructuring effort in Q2, which should improve our operating expenses moving forward. And we also had the additional working capital benefit as some expenses weren't paid out in relation to a similar restructure, which contribute to a 300K benefit in the quarter. In Q2, we did not purchase any shares under our NCIB program. We will continue to drive NCIB decisions using the balanced approach that considers our cash projections and available investment option that contribute to creating value for our shareholders. As mentioned, the business is moving towards operating cash positive, and we believe this will be accomplished while continuing to make the necessary investments to grow our product revenue. So as a reminder to the cash that we have, we also have access to the National Bank line of credit that continues to exist. In addition, it works up to $12 million and also access to a $15 million accordion. So with that, I'll pass it back to Bill for a closing summary and our questions.