Pivotree Inc.

Good morning, everyone, and welcome to the Pivotree Inc. fourth 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. Please click on the icon to raise your 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 relating to the 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 Pivotry CEO, Bill DiNardo.

Thank you, Dennis. Good morning, everyone. Thanks for joining us for our fourth quarter 2024 conference call. With me today is Moa Shurer, Chief Financial Officer. As we normally do every quarter, we've published a CEO letter in conjunction with our earnings results that is available on our website. It's filed on CDAR and I'll be covering a lot of that material here today. I'm going to start just with a quick year in review since this was the end of our fiscal year and then slide into the fourth quarter results. So as everybody knows by now, 2024 was a year full of change, but we did set ourselves up for success in 25 following some of those key changes. As we noted in our last earnings call, we executed changes that amounted to an annualized reduction of about $8.5 million in costs. And in what shouldn't be a surprise, we delivered $1.7 million of adjusted EBITDA in Q4. And that's a record high since going public in 2020. Again, I'll also point out, too, that the only adjustments are non-cash-based compensation. So adjusted EBITDA is a really good indicator. I'm happy to say that we delivered these results while continuing to invest in product and go-to-market initiatives. So let's talk about product for a sec. SKU Build in particular, this year we added 1.4 million SKUs to our SKU Build repository, bringing the total up to around 2 million total SKUs. And these additions were all done using our automation tools at a very low cost. Additionally, we've seen some great progress on the SKU building go to market. You'll see some of that reflected in our bookings for the quarter and the kind of conversations we're having with customers now, and that library is factoring into those conversations. Control Tower, and just as a quick reminder of Control Tower, it offers real-time observability. It's a dashboard across technologies and platforms. It's really a combination of monitoring and real-time reporting. Last year, we kind of reset that platform by adding new applications that we integrate to. So we completed integrations to VTechs, BigCommerce, and Precisely, which is formerly Enterworks, in addition to the original dashboard, which was Fluent. So now we have active dashboards across a number of the key elements in a commerce ecosystem. So your data systems, your commerce systems, and your order management systems. And we actually now have customers that straddle multiple dashboards. Our legacy managed services, and yeah, we're going to keep talking about this for a while. We've been talking about the decline in this category since 2020, and they continue today. In 24, we started exposing the revenue and bookings metrics just to shed more light on the segmentation of that business. So this segment continues to decline. It did so by about 30% this year. And again, we see further declines as customers migrate to new technologies. We did move more customers last year and onto platforms that we manage. And so we will see that revenue change from legacy to our more for growth segments. By the end of this year, we will be down to our last few customers in the at least Oracle ATG segment. And finally, it was a big year for filling some key roles in 24. Kyle joined us as our chief revenue officer in Q2, and that was a role that had been vacant for some time. And we did feel the pain point of not having an expert in the revenue side. He's brought new focus to the revenue ownership, and he's doing so with more capital efficient efforts in that area. Our TCV bookings in 2024 were up 8% compared to 23, and TCV bookings for our managed and IP solutions was up 14% over that same previous period. Cliff joined as our CPO in Q1 to take direction of our core products. Cliff's played a key role in creating a more agile engineering process for all of our products, and he's really improved on the process for capturing customer insights and converting them into delivery workloads. And he, as I said, he's really led the capabilities of building product in the way that the engineering teams are assembled and working now. So big year change for us, a lot of foundations being set. And I think you've seen the first set of results, which are, you know, step number one, let's see the bottom line improve. So across the business, we had a decent quarter of TCV bookings. It was up 8% compared to Q4 2023. I will detail some of the highlights from this quarter's bookings around MIPS in the next slide. We've seen positive indications in our MIPS category, and that's success really driven mostly by SKU build. We had a record quarter of 6.8 million in TCV bookings in this bucket. um i've been consistent though and i just again want to reiterate uh about the nature of this category right now is it's lumpy um these are some fairly large contracts uh you know they're not small ones uh when when they finally close um and the good news though for us at least is these contracts are now looking like multi-year so they're creating more visibility it does mean it'll you know flatten that revenue curve so you know don't expect we have a huge lift Next quarter, because we've got big bookings, what we're really starting to get is longer term visibility into this segment. And so that makes us happy because it also is easier to manage from a profitability perspective. And I just walked you through about 2024 was that significant transformation around EBITDA and all of those efforts. And again, this was a large effort by a great team to shift a lot of management layers out of the business and drove $1.7 million of adjusted EBITDA. So that's a 9% margin on adjusted EBITDA and it's 8 point something on an EBITDA basis. So, again, you can see good growth in the bottom line, and I think what you're also going to see is consistency there. Mix is, again, an important part of how these bookings are working. So TCV bookings in Q4 were down from our recent trend. I think I've articulated in the past we've been averaging 19 to 20. But I think what's really important to note is to see that progress in MIPS. That's one of our growth segments. And it's also important to note that the LMS is making up less of the bookings. So mix matters when you're looking at how the TCV bookings or total contract value is going. So again, really strong quarter of MIPS, $6.8 million, nearly doubling quarter over quarter and up 77% compared to Q4-23. For the full year, MIPS TCV bookings totaled 16.2, and that was up 14% versus last year. Again, really the key driver here was substantial long-term bookings in SKU build. And these large deals reinforce the strength of the offering. This is really a category that I would suggest. There are people that are doing manual solutions out there. The industry has existed for a long, long time. We're trying to disrupt it. And the key is proving our capabilities. And then what we're finding is once customers believe we can deliver, they want to start accelerating. So there's a little bit of a burn in up front for proving credibility. And then there's the ability to accelerate on the back. Q4 did mark a bit of a pullback in PSTCV bookings compared to our recent trending. We recorded 9.8 million of bookings in Q4. This is down quarter over quarter and versus 2023. But the full year PS bookings are only down about 3%. Again, we find PS is a bit lumpy and it goes in cycles. So it is down modestly. We are seeing some upside on the move forward. The LMS averaged 5.9 million in bookings through the first three quarters, but it was down to 1.6. And again, I think this is exactly indicative of what you would expect in a business that is declining. And we've been talking about it for years. You are going to see the tailing off now. And this is, again, I think a good first signal that at 1.6, the folks that we're going to resign, they've resigned in that 6, 5, 7, 1, and 4. And now we're down to the final small deals. And this will persist, I think, until we're completely finished. As Mo is going to share in more detail in a minute, we have sized our operations to manage within the revenue range of $17 to $19 million. And again, this is really looking forward into LMS declines, making sure with the changes we made that we run a positive EBITDA business in the $17 to $19 million. Now, we have the ability to produce the kind of EBITDA that we're showing you. There's upside on that at the higher end of the range. And we expect that higher end to come from our investment in sales and marketing, but not until really Q3 or Q4. So overall, we've set great foundations for 25. I think, you know, the first number you're seeing evidence of that is EBITDA. And as we've maintained for quite some time, keep an eye on the bookings. Bookings are going to tell you when and how revenue is rebounding and starting to get back on a growth path. So again, I think you've got all the metrics you need to know where we're heading. Pass it over to you, Moe.

All right, thanks, Bill. So revenue was 18.2 million in Q4. It was down 2.8 million or 13% year over year. As Bill has been mentioning, the primary driver of the year over year change is the expected decline from our legacy managed services, which is down 27% year over year and 30% on a full year perspective. We expect to see this trend to continue with the LMS category making a smaller portion of our total revenue over time, as we've mentioned in the past. MIPS revenue was 3.4 million in Q4. It's an 11% sequential decline, a very modest increase on a full year perspective to 2023. With the record total contract value bookings in this category, we are seeing positive indication of future revenue growth, and it should support our expectation of growth in the coming quarters. During the second half of 2023, I want to mention last year, 2023, second half, we saw MIPS and we've mentioned this on prior results. We had a ramp up in SKU transaction volume and backlog SKU volumes the customers wanted us to work through and clear, which we have. And now we're seeing that stabilize in Q4. So that's really part of the ramp up that we saw in early part. And what we're seeing is kind of contributing to the sequential decline for MIPS. Professional services revenue, we're 10.4 million. It's up 2% sequential and flat year on year. We expect to continue to see new, we do see new demand in this segment to support new phases of work and in some cases, completely new projects. So we're optimistic, even with all the uncertainty that's out there, we're optimistic we're still seeing demand to support our PS services. Our Q4 gross margin was 44%, down from 46.7% last year. It's normalizing back in line with our results through 2024 with the exclusion of Q3, which we had numbers which contained, and we reported last quarter, contained one-time items that were now passed, and Q4 again is back to normal levels. Looking at the chart on the right, we represent the adjusted EBITDA OPEX, which reconciles to the reported adjusted EBITDA. Adjusted operating expense in Q4 was 6.3 million. It was down nearly 3 million from the prior year, Q4 2023, and down versus the recent 8.1 million in Q3 of 2024. These results were largely driven by the restructure. With the restructure efforts from last quarter, this Q4 contributed to delivering 1.7 million of the adjusted EBITDA, representing 9% of our revenues. Included in the 1.7 million was an FX benefit of half a million. During Q4, there was no restructuring-related add-backs to EBITDA, so EBITDA is closely aligned to adjusted EBITDA, as Bill had mentioned, with the adjustment for non-cash compensation. As Bill has noted, we have right-sized business to deliver healthy, single-digit adjusted EBITDA with a 17 to 19 million revenue business. Moving on to the balance sheet, we ended the quarter with cash of about $3.9 million that consumed about $1.6 million of cash from the previous quarter. The consumption is due to timing of working capital and the restructure payments. When you isolate those out, we are showing a trend towards generating cash. We generated 1.7 million in the green bar from core operations, which aligns closely to our adjusted EBITDA. We consumed 1.2 million of cash related to the accrued restructuring, which will be declining over the coming quarters. And there was 1.6 million tied up in working capital, which we have a clear path to recover on. As mentioned, the business is managing towards operating cash flow positive, and we believe this will be accomplished for the reasons I mentioned above, We expect to deliver this while continuing to make the necessary investments to grow our business. So as a reminder, in addition to the 3.9 million of cash, we have access to our credit facility with National Bank of Canada. We have recently decreased that line from 12 million to 8 million, plus we have access to an additional 15 million accordion. The decrease in the line was to align the credit facility to the current size of our business. and not oversubscribe for a line of credit that we wouldn't be able to access and what the business requires. And it also reduces our overall standby fees. I'll turn it back to Bill now for a closing summary.