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.