Pivotree Inc.

Good morning, everyone, and welcome to the Pivotree first quarter 2025 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 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 meanings 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 on our first quarter 2025 conference call. With me today is Mo Ashour, our Chief Financial Officer. As we normally do each quarter, I've also published a CEO letter in conjunction with our earnings results. That's available on our website, It's filed on CDAR and I'll cover a lot of that material today as well. Obviously, we're pretty happy with the performance this quarter. You know, leading with adjusted EBITDA, we continue to track in this range that we've been describing that, you know, 1.7 to 2 million. We hit 10% margin this quarter and it's up quite significantly on a trailing 12-month basis. Our TCV bookings doing well over trailing 12. So again, we're seeing signs of growth. It's down quarter over quarter. We had a good quarter last quarter, particularly in our MIPS category. We'll talk a little bit more about that in a minute. And we saw a 5% increase in revenue versus the previous quarter, reaching 19.2. It's a little higher than the 17 to 19 million range that we've been planning around. But again, good quarter overall. We've always said pay attention to the bookings. The bookings really are, you know, what are going to be the leading indicator for when should we expect to start seeing the revenue growth that, you know, we're working towards. Now, the TCV bookings were down 4% quarter over quarter. But again, you can still see the healthy yellow and dark blue. That's our PS and MIPS. And again, we had another really solid quarter in MIPS bookings. So two in a row now, up 85% compared to Q1 2024. The only thing I'm going to reinforce for everyone, these are including large multi-year contracts and particularly in the MIPS category. So it sets a nice stable foundation for more predictable revenues. But unlike the PS, which you would expect to capture that revenue in a shorter time frame, longer term contracts means it's going to spread it over, again, one to two years. Again, what I like about that is it sets a solid foundation that we can expect to start seeing some compound growth if we keep up this level of bookings. PS bookings were down 13% year over year, but mostly flat quarter over quarter. Not a really big difference between the two and on a 12 month basis. We still have some work to do to get the PS bookings back to the high watermark we saw in 2024 around 11 million. And again, the team has some good programs. We'll talk a little bit about those in a minute. The LMS bookings are down substantially, and that shouldn't be a surprise to anyone. We've been hinting at it since we've gone public. Where you'll see this start to really affect is in the out-quarters of revenue. So, again, expect some lumpiness in this category. We do every once in a while get a customer to re-sign one of these LMS-type contracts for multi-year. You saw that in kind of Q2 and Q1. So we'll translate into revenue declines and we'll talk a little bit about that in the next slides. Overall bookings in this range that we're showing allows us to manage the business to deliver consistent, positive adjusted EBITDA. And we're going to talk more about that. Mo will share some of those, you know, outcomes as it relates to cash production. But this is a healthy range for us for bottom line performance, which we've said is our focus for this year. And again, gives us the capacity to invest for our future growth. A couple of things that I want to talk about in here is really about the industry trends that we're seeing and some of the things that I know come up regularly in our conversations. And the first one I'm going to talk about a little bit is the impact of tariffs. Now, we did start to see our first indications of the tariff impact on certain clients. Seasonal retailers who rely on offshore manufacturing or retailers with tighter inventory turns, again with offshore manufacturing, are getting caught in shorter-term buying cycles. This has definitely created some pressure on margins and will put some price elasticity to the test in some categories. But the other interesting thing we've seen is with our industrial manufacturing and distributors. And most of them have been indicating they have inventory to quote unquote wait it out. They've been reluctant to pass on any price hikes. And we haven't seen any real pullback from them. Again, we've seen some modest pullback from some of our retail segments. And we've also uncovered some opportunities. We've actually had some folks engage with us, particularly around data and presentation to talk about made in the USA, as an example, or made in Canada. So it is bringing some opportunities as well. And there's been some small pieces of business specifically related to tariff work. What I will tell you, though, is, again, when people start worrying about margin, they start looking and testing for opportunities to cut costs in other places. And this is where some of the themes we've addressed in the past, more automation to reduce manual efforts. Again, those things are playing well in the market. If we can save someone money in this climate, they're motivated and interested in hearing how. One of the key areas we do that is the dirty data campaign. And this has really been resonating in our target market. And what's been interesting about it, even though it has data in the tagline, what's been really key in some of the conferences we've been to lately is it's really affecting the way someone thinks about their entire ecosystem. So people that are coming to talk to us about their e-commerce implementations are reflecting on the fact that the data issues they're having are affecting their commerce market. results, especially e-commerce results. So a lot of this stems from SKUs missing attributes, dimensions, technical specs, descriptions, the kind of things that make them findable and buyable when people do searches, the kind of things that give them confidence to buy it when they do find it. So incomplete SKUs, bad data, this theme really has been resonating and we're finding a lot of our pipeline growth is coming from this campaign. So again, anything that can lower costs, automate the process of cleaning it up, and increase the probability of prospective clients finding what they're looking for, again, seems to be resonating across both our MDM, PIM, and commerce and supply chain businesses. You've heard us talk about the last piece of this, which is the legacy managed services. Again, nothing's changed there. It's going to continue to decline. It feels like an asymptote at times, approaching zero, but never quite getting there. We did recently announce we helped that process along a little bit with the divestiture of our WMS business. That's our legacy WMS business, as well as the software we're building. We packaged up and we sold that to Texas Tech. Now, while it's difficult to say goodbye to customers and the team, I'm confident they're in great hands with a Canadian leader in the WMS industry. Total purchase price was $2.7 million, and the total cash contribution from the transaction will be close to this figure after minor working capital deductions and fees. The impact to revenue would be about a million dollars, and all of it related to the legacy managed service category. And we continue to talk about that. So it's good for us on a number of levels. WMS in particular was not a part of our business that really fit snugly with the rest of our ICPs. Our order management business and supply chain does and continues to be a consistent message when we're going to market around the ecosystem. And so we will continue to stay in the supply chain space with OMS, but essentially we've exited the warehouse management space. The rest of the legacy managed service category is going to continue to see declines this year as the customers continue to roll off. We have more Oracle ATG customers coming off the platform this year, and some of the larger ones are finally getting the exit. We have successfully moved a few customers to some of our other platforms, and so we've managed to retain. And even in those cases where their customers are leaving our ATG platforms, they do have other business with us and as a customer will stay. So again, you'll see this more materially, more pronounced this year. It was a slower, steadier decline. Expect to see some of this stuff move off in bigger chunks. I'll pass this over to Mo now to take you through some of the financial highlights.

Great. Thanks, Bill. I'll start off as usual with the revenues. And we prepared this chart as well to show you the trend of our revenue when you exclude legacy managed services, which as Bill describes, is declining. And you can see that we're starting to turn a corner. We're growing sequentially. We did 19.2 in Q1. That's up 5% sequentially, but it is down 1.8 million dollars. or 9% year over year. The primary driver consistent with what Bill was just talking about, the year over year change being the expected decline from legacy managed services, which was down 20% compared to prior year. When we look at these numbers, you can see the MIPS and the LMS revenue when excluding legacy managed services, which is our key areas of focus for growth, that's growing 8%. And it's signaling the area of where we're focused and the number that we're really looking at to drive our growth. MIPS revenue was 3.7 million in Q1, 8% growth on a sequential basis, down 8% versus last year. Following another strong bookings quarter in MIPS, we continue to see positive leading indicators for future revenue predictability in this category. Our professional services, 11.2 million, up 8% and down 3% year over year. We continue to see demand from existing customers and new customers increasing uh for this for the areas that we're focused in on to continue to support them with their strategies On the margin slide, it was 44.1% in Q1, down from 45.7% last year, but consistent with our most recent quarter results. Looking at the chart on the right, Q1 adjusted EBITDA was 10% of total revenue, or $2 million. It's up 15% over a strong performance of EBITDA in Q4, and it's up over 1.7 million compared to last year, Q1. Included in these Q1 results are added costs of variable compensation accruals, which we did not have in the prior year across all quarters. Q1 also includes typically seasonally higher employee benefit costs and social taxes. So we covered higher variable comp, higher seasonal employee costs and social taxes while still delivering improved EBITDA. So I'm pleased to report that in Q1, we reported also a positive net income of $232,000. I think this is a trend we can expect to continue to report and deliver on, especially where by the end of Q2 and we'll get the benefit in Q3, we've got some depreciation and amortization coming off the books that will be completed. There will be a direct benefit to maintaining positive net income. So after the effort that we've gone through to right-size their business, to be able to run profitably and generate cash in the 17 to 19 million revenue per quarter, we've been able to deliver strong adjusted EBITDA and that we'll continue to prioritize it in support of strengthening the cash on our balance sheet. Moving on to the last slide, The end of the quarter cash was $6.5 million, and this is prior to the subsequent event of the WMS divestiture, which added another $1.9 million of net proceeds is what we're expecting once we close out the working capital adjustment period. The driver of the cash generated in the quarter was $1.8 million from our core operations and $1.2 million from working capital, which we had shared in our Q4 results. And we're now able to recover some of the working capital impact that we had in Q4, and we're back to where we expect and better for our cash flow. The business is operating and will continue to operate targeting cash flow positive and will continue to make the necessary investments to support our growth priorities. So as a reminder, with the $8.4 million of cash, which is inclusive of the subsequent event, we also have the $8 million line of credit with National Bank plus access to a $15 million accordion. So I'll turn it back to Bill now for a closing summary.

Thanks, Mo. You know, we're quite pleased to let our results do most of the talking this quarter. So I'm happy to wrap this up early and take questions. But the team continues to find ways to operate more efficiently. And we're seeing good leading indicators with our new solutions. And again, our priority this year really is generate EBITDA and cash flow. And you're seeing, you know, we're delivering on that commitment. We are continuing simultaneously to invest in the growth of managed and IP solutions. We are spending less now on R&D given that the WMS is no longer in the fold, but we are expecting to continue to push dollars into the products we're building that differentiate us and create long-term growth opportunities. So All of that to say, we're going to continue this cash flow building path as we execute on and close on our pipeline. The secondary goal now is to really find that inflection in the growth curve and start hitting some of those targets I know everyone's waiting to see. With that, I'm happy to open it up for questions. Thank you, Bill.

We'll now take questions from the analysts. To ask a question, please click on the icon to raise your hand. Our first question comes from Max Ingram at Canaccord Juneteenth.

Hey, thanks for taking my question. Bill, in your CEO letter you touched and you mentioned in your prepared remarks, the first indications of tariff impacts on certain clients. Can you just give us a bit more color on what that looks like? Is that conversation slowing, you know, to a halt or deals being pushed out? I just want to get an understanding of what that really looks like. And then a second part would be, does that change the 17 to 19 million kind of quarterly revenue range that you've communicated in the past?

No, I, in fact, um, What I can tell you is probably two months ago when all of this stuff kicked off, we did an internal gut check. What kind of impact could this have? Especially given we do have a large quantity of our customers in the retail segment. We did a multi-factor evaluation. We went and did some research on all of our customers. We were able to isolate and identify those that had some of the greatest tariff exposure and the ones we thought would have the greatest risk of starting to deliver some bad news. It turned out it was not a large percentage of our customer base. When we looked at the segmentation, there's maybe 10 customers that have some reasonably high exposure to tariff. In the 10, maybe two or three have material revenue implications for us. And when we talk about actual implications of the two or three, one of them has actually come forward with a slowdown in their expected projects for this year. So all in all, at this point, we feel like the impact is low. But, you know, it's always hard to tell with the way the economy is being run south of the border right now, what other surprises are in store. So I'd say we're being cautiously optimistic that, you know, the research is telling us this shouldn't impact us. But I don't want to eat my words in six months time. So I'm being careful about what what I project.

Yeah, that's helpful. And it's good to hear. I guess my second question is sort of related, which is on the pipeline. Recognizing some areas may be cautious, but how are things moving through the pipeline? Maybe some areas that are still moving well. I'd be curious how that has changed versus the last time that we spoke, recognizing that wasn't that long ago, but just curious on how things are moving through the pipe.

Yeah, I'd say there's a combination of factors, but let me focus on one in particular. A business like ours, as you've seen over time, has benefited greatly from growth within its existing customer base. But if you want to sustain long-term growth, you have to keep adding to that customer base. You need the next generation of growers. And our CRO has been very focused on new logo attraction. So we have, in fact, been winning a considerable number of new logos compared to last year, and the pipeline has more new logos in it. This is a good leading indicator for us that future growth is now starting to form in the base. One of the other key learning observations is the larger the first deal, the longer the selling cycle. And so what our team has been working hard on is creating what he refers to as bite-sized chunks. How do we get smaller starter deals with these folks, these new logos, so they can get to know us, see our work, and then we can expand from there? So one of the things we're starting to track a little bit differently is normally you reflect pipeline on a weighted scale. weighted basis on its revenue, we're also looking really to track our progress and velocity on just absolute new logos and how they're moving through the pipeline. We're seeing actually an uptick in velocity on the speed at which we're closing new logos at smaller deal sizes. So that's been a positive indicator. The challenge, of course, is when you're trying to hit an absolute large target on that pipeline, those smaller deals aren't contributing as much. But I think you've got to dig underneath them and look at what the long-term lifetime value customer is going to be. Lots of good healthy indicators and some velocity improving in some key areas of that pipeline.

Appreciate the detail. And thanks for taking my questions. And I'll hop back in the queue.

Thanks, Mac. Thank you. Our next question is from John Shallon, National Bank Financial. Please go ahead, John.

Hey, good morning guys. Thanks for taking my question. Regarding your sale of the warehouse managed solutions to Texas, should we consider this move as a isolated case or should we expect more similar product or strategy realignments down the road?

Look, I think what you've seen from us over the years going the other direction, which is acquiring, we're pretty disciplined and we have... A framework that we use and apply when we're thinking about what to buy. And I would say the same is true in the other direction. In this particular case, we had a piece of business that wasn't performing as well inside our four walls. And we found a way for it in a place that is really focused in the segment, has success and was able to take some of the assets we built and we think do good things with it. It was a win for everybody, including our customers. And so those are great deals. Everybody's happy. Everybody comes out the back end of the deal feeling good about it. We generated cash. We generated more value than the market was giving us credit for. So that's a good deal. And if there's other good deals to be done, we'll look at them. But, you know, we're not in the habit of selling things at a discount or buying things at a premium. And you're not going to see that change as long as I'm running the business. So it could mean future deals if the right ones showed up. But I have nothing currently in the hopper that is going to transact anytime soon.

Okay, got it. That totally makes sense. And regarding your data product, that definitely looks like a low hanging fruit to me. So could you maybe help us understand how big that market opportunity is and maybe the current penetration among your customer base?

Yeah, what I get excited about with the data is how focused we are being at the moment. So we focus on three ICPs, ideal customer profiles, industrial manufacturing, electronic component parts, and automotive. Retail is in data as well, but I would say those other three are really the focus for our data products and our data services. And what we're finding is there's a very large spectrum of customer profiles in there. There's hundreds or thousands of small distributors, and there's probably sub-50 multi-billion dollar distributors and manufacturers. And what we're finding is the unique SKU count might be 10 million, 20 million in these categories. When you multiply that with the overlapping across all the customer base, There could be a billion SKU transactions to be done. And what's happening right now is we are winning some of the largest players in the space, helping build our library, getting a complete set. We're lowering our average acquisition cost dramatically through automation, and it's creating opportunities for us to now resell those SKUs and also, frankly, drive a more efficient process of acquiring new SKUs as they come out. So we think the opportunity is massive in just a couple of segments. We want to get those segments right. But the process of acquiring, cleaning and making these SKUs available for sale, that technology that we're building, it will be applicable across multiple segments. And so you think about how hyper focused we are today and getting smart inside the single ICPs. There's multiple ICPs our technology should be able to expand into. I'll tell you the second thing that's starting to happen is cleaning data. We started in PIM, but the process of deduplicating, cleaning, filling attributes, it's really, think about it more as a record. We started in product, but that process can apply to any form of data in any of the data domains. And we have started seeing customers ask us to look at their customer data, their vendor data, their location data, and see if we can do the same kind of work with the technology across more domains. So the upside in data is massive. People have a data challenge. There's never an argument about whether people have, you know, more dirty data than they'd like. The question is how effective our tools are getting at cleaning it better, cheaper, and faster than they can do right now.

Okay, thanks. And maybe one last question regarding one of the remarks in your letter about maintaining a just EBITDA trend with reduce LMS revenues or do you intend to maintain the same EBITDA margin or the EBITDA dollar amount or just the positive EBITDA?

Go ahead, Mo. Yeah, I think we've got, and the letter later kind of describes with the, even with the reduced revenue, we should still be able to generate positive EBITDA and positive, generate, you know, in direct relation to generating operating cashflow. So I think the comment is around generating positive EBITDA, but again, not just for the sake of positive EBITDA, but the sake of positive operating cash flow.

Okay, got it. Thank you.

Thanks, Sean. Thank you. Our next question is from Daniel Rosenberg at Paradigm Capital. Please go ahead, Daniel. Yeah, go ahead.

Hi, good morning, Billimo. My first question was around just the intentions of getting towards growth. It seems like you really hit an interesting point in your cost structure and have some you know, a good base to start focusing on, increasingly focused on potential growth. So I'm wondering, you know, what are the key elements that get you there between going deeper in your client base, new product sets, doubling down on data like you just spoke about? You know, how are you thinking about that path forward?

Yeah, I just refer to this slide, Daniel, again. The key for us long-term, both in value creation and in growth, really feels like that dark blue MIPS bucket, right? So this is our managed and IP solutions. This is control tower. This is our SKU building. This is our machine learning and AI around data cleaning. And we are seeing impact, right? With increased focus, with demonstration of differentiation, we doubled bookings effectively in the last couple of quarters. We've had some really complex, interesting deals start to show up in this category. And I believe this is where growth is going to come from if we can continue to maintain. Still going to be lumpy for a little bit. Some of these contracts are quite large and they are going to take time to build confidence with customers with new processes. But we are seeing the evidence in that dark blue area. I think in the yellow, the professional services, we are seeing fewer major platform shifts, right? With the last couple of our customers moving off of ATG, we're seeing fewer RFPs for big PS shifts. But what we are seeing and more of our effort going into the PS longer term, we call it functional application support. It's really about optimizing and extending the life of existing platforms. It's taking the same skill sets we have and applying them in different use cases. And again, I think the team is starting to hone in on the tie between data and commerce. How do we extend the life, improve the quality of your commerce experience, tying that to data? But these two things are going to go hand in hand. Our dirty data campaign is driving PS and PS is exposing dirty data opportunities. So I think those two things together are driving our future growth.

And you mentioned, you know, some momentum or improvements in new logo wins. Was it specific product sets that were around those wins? Or could you comment on how broadly were the products in those wins?

Yeah. Control Tower now is embedded in almost every solution that we provide to customers, particularly as it relates to ongoing services. um we did mention like some of the really big bookings uh were specifically related to our skew build contract so um those are clearly driving some of this increase in bookings and will start to show up in revenue in the coming quarters um And we've had a couple of large projects that might be in the commerce space, but then also included day-to-day to clean up and the kind of work we do in SKU build. So we're seeing the attach rate with SKU build on many of the things we do. Sometimes it's the lead, sometimes it's an attach, but we are seeing penetration of both of our products in a lot of what we do. And we are using it candidly to differentiate. I mean, these are things we're doing that others are not in our space. And so we are leveraging those capabilities as differentiators in most of what we take to market.

Thanks for taking my questions. I'll pass the line.

Thanks, Daniel. Thank you. I see no further questions, Bill, so I'm going to turn it back to you.

Thanks, everyone. We were pretty excited about sharing our results for Q1. And, you know, we'll look forward to seeing everybody again. A little bit longer time frame this time. So we get a full 90 days between these these quarterly updates. But thanks, everyone, for attending and have a great summer.