Pivotree Inc.

Good morning, everyone, and welcome to the Pivotree second quarter 2025 earnings call. All participants are currently in listen mode. Following the presentation, we will open the line for a question and answer session for analysts. To ask a question, we would ask the analyst 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 forward-looking statements, please refer to Pivotry's public filings, which are available on CDAR. During the call, we will reference certain non-IFRS 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 measures, including for reconciliations to the nearest IFRS measures. Now, I'd like to turn over the call to Pivotry CEO, Bill DiNardo.

Thank you, Peter. Good morning, everyone. Thanks for joining us on our second quarter 2025 conference call. With me today, as usual, is Mo Ashour, our Chief Financial Officer. And as we normally do each quarter, we've published a CEO letter in conjunction with the earnings results that's available on our website and filed on CDAR. I'll be covering a lot of that material today. Start with the high level, continued strong bottom line as we've committed to with green shoots in the go-to-market. It's going to work backwards from the right. We've continued to deliver in and around that $1.5 million to $1.7 million, that 10% margin on EBITDA. Our adjusted EBITDA is $1.7 million. If you're looking at our financials, you will see that there are the benefits from the one-time gain. Just keep in mind the adjusted EBITDA is more reflective of our run rate. The MIPS and PS revenue continues to hold. It was down about 5% on a trailing 12 month. But the green shoots for us was really the bookings. The MIPS and PS TCV bookings over the last trailing 12 is up 15%. We've talked a lot about MIPS in particular being a little bit volatile just on the nature of the contracts we're signing. It's lumpy. So we have really been focusing more on trailing 12. And the trailing 12 has really healthy signs in the bookings. So overall, we're quite pleased with the results from this quarter. As I noted, MIPS and PS, TCB bookings, reasonably flat in Q2 versus the previous quarter, but compared to Q1, but up 19% versus Q2 2024. MIPS bookings were up 15% compared to Q2 2024, and we're starting to win longer-term deals in this category, offering improved line of sight to future revenue contribution. PS bookings rebounded to $11.3 million. Again, you can see the trend. We've broken the LMS off, so it's really broken out from the stack bar. And as you can see there as well, the PS bookings were up 15% sequentially and 20% compared to Q2 2024. The LMS bookings were down to less than $1 million in Q2, and we'll continue to only have modest contributions to total TCB bookings as the number of customers in this category continues to decline. While we're still finding momentum in our go-to-market, I'm encouraged by the quality of wins we found in our most important categories, that being MIPS and PS. And really that stacked yellow and dark blue bar chart is what we keep talking about. Pay attention to that. You're not going to get revenue growth without bookings growth. So this will be the leading indicator on how things are progressing. And again, we saw some nice lift on the PS and we've seen some good trailing 12-month indicators on the MIPS. Just some general observations I wanted to share with everyone as well. Since we've right-sized the business for profitability, we've been focused on a return to revenue growth. So we did spend a lot of 2024 getting the right-sizing right, settling in. We did some transformation in the go-to-market. And again, as a result of last year's focus on right-sizing, it didn't get the same investment and effort around the new logos. We did hire a CRO recently. He has been implementing a lot of changes, and we are starting to see again those green shoots. Now, we aren't demonstrating aggregate growth across the entire business, but there are encouraging pockets of momentum worth highlighting. We added just over 10 new logo customers during the trailing 12 months. I'd like to see that number increase by the end of 25, and based on what I'm seeing in the pipeline and the commitments our team is making on some deals, I feel really good about the new logo progression. New logos really are what deliver the long-term continued growth. And we did have an air pocket of that over 12 months ago. So you're seeing that reflected in the results. These new logos are inspiring some confidence. Our ability to deliver quick wins and value to new customers with some of the new entry point solutions is really what's allowing us to get these new logos into the mix. Look, over the same trailing 12 months, I keep talking about approximately one third of our customer base expanded their annual spend with us, representing over 50 percent growth. So, you know, I get a lot of questions about what are you seeing? What are you hearing? Is there any evidence that, you know, the market's starting to gain confidence? To me, this is one of those. I'd like to see, you know, more than that number, more than a third that are expanding. But seeing that expansion in budget and spend, I think, is an early indication folks are starting to get on with business. Um, I really am confident we've got a strong mix of offerings and winning additional new logos. It's going to set a strong foundation to begin to step towards delivering that aggregate, um, top line growth. Some of the data highlights that I think are really important. Um, it's one of the most exciting areas, uh, the data category where we recently launched our dirty data campaign. And I detailed that last quarter data remains a central theme in nearly every client conversation. as customers prepare to adopt the latest technologies that rely on accurate and complete data. And no surprise, commerce systems rely on accurate and complete data, so these things do go well together. This quarter, we secured four new logos in the category, including some of those new entry point solutions like initial data assessments. We did a SKU build POC, a data cleansing project and a control tower beta. So while there's smaller deals on contract value today, what we've seen, as I just mentioned above in those one third of our logos that expand, once you get customers in and the quality of work we do inspires them, we do see those new logos expand. And so we're really excited about getting more of these new logos and entry point solutions and then doing more for them over time. So, there's some really good leading indicators, again, in our client base, doing more with us, new logos, joining the client base. And really, some of the clients' profiles and some of the sales agility we're seeing, again, helping us identify segments that are resonating with what we're doing, and we're getting better and better with our go-to-market team in refining our sales process. So one of the things our CRO loves to point out is we're spending 60% less than we did last year in sales and marketing in some of these areas, and we're getting better results. So we're seeing sales efficiency, we're seeing confidence that by spending more as one of the capital allocation decisions we have to make, that we have more confidence we're going to get better returns. Two of the distinct customer profile segments that we've seen emerge are tech-enabled customers and tech-like customers. And it really is changing particularly our data business. Tech-enabled customers are really interesting in our tools. They have teams that can use our tools that are Again, highly automated, AI and ML oriented. TechLite customers don't have teams built out. And so as a result, it's starting to look more like a BPO where we use our tools to help them deliver a complete solution. Does change the sales process a little bit. Changes what you're selling and how you sell it. But the team is getting better and better at identifying who those customers are as we go into these conversations. So we are adapting our sales playbook accordingly. And we're, again, we're very confident that we are starting to see light at the end of the tunnel, that those bookings are going to keep moving the direction we need them to. With that, I'll pass it off to Mo to take you through some of the financial highlights.

Thanks, Bill. So we've got the revenue charts here in a similar view to show PS and MIP separate from legacy managed services. I mean, I'll start talking about total revenues. It was $17.3 million in Q2. It's down 10% sequentially and down $3 million overall. or 15 percent year over year and again the primary driver continues to be the expected decline from our legacy managed services which is down 2 million or 40 percent on a year-on-year basis so when you look at the ps and mips the area we're focusing on and on in some of the key areas that bill was describing we'll be looking for the leading indicators and bookings PS and MIPS together totaled $14.2 million. That's down a modest 4% sequentially when excluding the, again, that's excluding the legacy managed service. This sequential decline is largely driven by foreign exchanges. Many of you have seen the U.S. dollar has been quite volatile from Q1 to Q2. On a constant currency basis, PS and MIPS revenues were relatively flat versus Q1 of 2025. MIPS revenue was $3.7 million in Q2. It's 2% growth on a sequential basis, again, compared to Q1 of 2025. It is down 7% compared to last year where we hit a high watermark of $4 million with specific requests for additional short-term volume around our SKU build. But in comparison, again, the most recent quarter, when you look at MIPS at a constant currency basis, it grew 5%, which is, again, the ramp up of some of the stronger bookings that we've seen in MIPS reported over the last couple of quarters. PS revenues were 10.5 million. It's down 5% year over year. What we are seeing demand and we are seeing the pipeline and opportunities to support that there continues to be demand for the support of technologies. And we continue to see focus and increased activities with new customers as well. That there again are strong leading indicators for us that there is still demand in the professional service spaces that we serve. Moving on to the next slide. Q2 margins was 46.2%. This was very strong for us from 44.2% last year. It's outperforming our recent results with PS margins being specifically strong. Looking at the chart on the right, Q2 adjusted EBITDA was 10% of total revenue. That's $1.7 million. It's up nearly $1.5 million compared to Q2 of last year, which also in Q2 includes a $600,000 FX loss as well. So absorbing that loss, we were still at 10% adjusted EBITDA profitability. Not included in the adjusted EBITDA was the $2.3 million, which was the gain on the sale of the WMS asset in Q2. Unadjusted, it would have been a $3.9 million EBITDA. But again, we adjusted it out to show a more normalized EBITDA for the quarter on operations. Net income increased due to the 2.3 gain on sale to 2.5 million in Q2. So I'm really pleased to report that the delivery team's performance through the margins they've been able to deliver in Q2, the continued disciplined approach that we've applied on our operating expenses, even while handling the legacy managed services decline and the gross profit associated with it, we still delivered a strong quarter from a bottom line profitability. This is the third quarter of strong EBITDA. It has continued to strengthen our balance sheet. And again, sustainable profitability will continue to receive focus and priority, the same that we've executed in the past quarters. Net income continues to be positive with the strong performance EBITDA. And we're expecting net income to benefit from reduced depreciation and amortization in future quarters, as we've pretty much reached the end of amortizing some of the capital expenditures that we've had over the past years. So let's turn to the balance sheet. We ended the quarter with cash of about 8.6 million. You can see within there, our core operating activities generated 1.5 million of cash in Q2. We've had a working capital impact of about million dollars. The driver being the recognition of we had some deferred revenues where it was prepaid in advance that we recognized in Q2. Again, cash collected prior to Q2. And then we've had some AR invoices that we typically collect in the quarter. We shifted into Q3. There isn't concern. We've collected it. These aren't any kind of indication of any concern around AR. So we continue to manage a healthy aging on our accounts receivable. So overall, no real concerns on the working capital front here. And then finally, we recorded a $1.9 million cash flow from the benefit of the sale from the WMS business during Q2. The business was operating cash flow positive, and we continue to make the necessary investments to support the growth of our business. And again, as a reminder, as I've done in prior quarters, we still have a line of credit. $8 million that is untapped. We have not used it with National Bank, and we have room to increase it through an accordion of up to $50 million. So I'll turn it back to Bill now for a closing summary.

Thanks, Mo. The team continues to find ways to operate more efficiently, and we're seeing good leading indicators with our new solutions. So, you know, again, I'm really pleased with the performance of the team. They continue to execute on the tight controls and how we manage delivery on a day-to-day basis, and that's reflecting the bottom line. And I'm really, again, excited to see some of the new logo initiatives that are starting to bear fruit. We continue to invest this year in the growth of our managed and IP solutions revenue. More importantly, some of that is really reflected in the delivery methodologies that we are using that are becoming more and more automated. We do expect to see that reflected in the go forward quarters and margin improvement around MIPS. And I'm going to leave everybody with that final thought of, we made it a priority. The team's executed on it, but we're generating EBITDA and cashflow. And I think this is just another good quarter and demonstration of the team is focused on maintaining that bottom line as we crack the growth, the growth challenges that we've been facing for the last couple of quarters. So again, optimistic about the team, optimistic about the leading indicators, excited about the state of the business today and looking forward to seeing everybody in another quarter. With that, I turn it over to Peter to manage our analysts with their questions.

Thank you, Phil. We'll now take questions from our analysts. To ask a question, please click the icon to raise your hand. Our first question comes from Daniel Rosenberg at Paradigm Capital. Daniel, please go ahead.

Hi, good morning, Bill, Mo, and Peter. My first question was just around the new logos that you mentioned. I was just curious if there's anything to say around sector-specific wins, product-specific wins in terms of signing on new businesses.

Yeah, I think there's a bit of a mix, but the one that's got me most excited, Daniel, is the direct-to-client. So we've often in the past benefited from new logos with our go-to-market partners in the channels. A number of these new logos... are across a variety of the ICPs that we focus on. But the fact is the campaigns that are attracting them really focus on dirty data. So that seems to be resonating. The consistent theme is people are coming to us with, they know they have data problems. It's resulting in different types of solutions. A lot of them are, how do we clean their data? But it's also about where they house it. It's the infrastructure supporting it. So we're finding PIM projects, we're finding data cleaning projects that are coming through on these projects. I would say our industrial goods tends to be fairly strong, although we've we've seen, again, some retail starting to show up in some of these numbers, too.

Appreciate that. And it's good to see you guys holding the line on profitability. And I think you mentioned more effectiveness from the sales and marketing. So I'm curious how you know what you need to see in terms of. investing back in towards growth um do you want to see a year's worth of sustainable profit levels are there any targets you're thinking about thinking about in terms of um you know how you allocate resources and when you make those decisions yeah i would say that you know we've been fairly consistent about our desire to remain in the seven to ten percent eva da margin range

And I think the reason we give ourselves a bit of flexibility is as Kyle and team continue to prove effectiveness, I think some of the data they shared with the board recently shows a really high return on, you know, LTV to CAC or lifetime value of customer over cost of acquisition. As we get more confidence in that ratio being maintained, I think we would be inclined to start spending some of that EBITDA on accelerating more of the sales and marketing spend. So, again, maybe we would move down from 10% to the 7% in pursuit of perceived consistent growth. close deals so pipelines building we're seeing good activity I think what we're really looking for is the closes and as the closes start to come I think you'll start to see us get more confident about the spend in that area

And I guess this is a follow up on the customer dialogues that you're having. How much does the macro picture play into those conversations? Is there uncertainty in terms of budget spend? It sounds like you're seeing green shoots, but I'm just curious what the dialogue is around tariffs, etc.? ?

Yeah, I would say the one thing that hasn't changed is people aren't racing to sign million dollar contracts when they don't know you. And so one of the things we've changed is getting those entry point solutions, smaller contracts to initiate this relationship build and then build confidence. We can help guide customers through digital transformation decisions. That hasn't really changed. I wouldn't say that, you know, we've magically seen multimillion dollar projects just land on our desk. I think we've seen more. Let's get started. And that's where we're starting to get some of the wins on the new logos. And we are starting to see expansion from those new logos three, six months into the relationship. I will tell you one of the consistent themes and why I think Dirty Data is working is that I would say there's two types of macros. There's the economic macro and the uncertainty geopolitics. And then there is this other macro, which is the recognition of AI as a transformational technology and what it's going to do to change our economy. And I think a lot of people right now are very concerned that they don't know what to do. They don't know what comes next. And I think this is where we're starting to see these initial let's get to know you and your data problems and help guide you through that discussion. They're smaller projects. They're helping give people some confidence on where and how to spend. And I think we're seeing that macro trend picking up momentum, people getting ready for this long-term AI disruption. And we're in the really early innings. But I think we are seeing a lot of fear and uncertainty. And it's being overcome with, let's get started on helping you map some of this transformation.

Understood. Lastly, for me, I think it was mentioned that the professional services margins came in strong in the quarter. Was there anything specific to call out there? And how should we be thinking about that margin profile going forward? And then I'll pass the line. Thank you.

Yeah, I think Mo's probably in the best position because he spends almost every day looking at it with our head of delivery. So Mo, if you want to chime in on what's going on with the controls there.

Yeah, in Q2 specifically, we did have some projects that have been delivered successfully, went live, and were able to kind of generate good margin for us. Will it continue? I think the discipline that the PS group has in place should help at least sustain the margins there. So within each of our segments, PS, MIPS, there's room to improve. There's visibility that we do have levers that can improve and deliver strong. I think just the overall, because the weighting of legacy managed services is going to go down over time, the blended might still be somewhat similar to kind of what you've seen. So they'll improving within the key segments, but we're having less and less legacy managed service, which does generate over 50% gross margin. That weighting might impact the overall margin. So that's probably how I'd describe it.

Okay. I think the other thing too, last year we highlighted, we had a couple of projects that were some issues and it affected our gross margins. We got those projects behind us. We said that was going to happen. It happened. And we're starting to get into more normalized ranges and the teams that are leading and managing now just really disciplined. So we're just not allowing those kinds of projects to occur again. And so I think what you're just seeing is really good operating discipline out of that group now. And we're really pleased and our board is really pleased with how that team has performed.

good thanks for taking my questions yeah thank you daniel our next question comes from john chow at national bank financial john please go ahead good morning guys and thanks for taking my question

I heard some of the large e-commerce players like Shopify are actively using AI to cut costs. I know this is still probably early stage, but as the AI-related automation becomes the new normal in the e-commerce industry, I'm just curious what its implication is to your business from a revenue standpoint. Do you think this is going to be a net positive to PivotTree?

We do because, you know, I think if you look at our vision statement going back even five years, we were really clear. Machine learning and AI is the enabling technology for frictionless commerce. We've been investing in it in very practical, tactical ways. There's going to become, I think, an expansion of ways that we can apply the skills we have. as more and more companies are looking for how they apply and use it, whether it's for efficiency gains, whether it's for better customer engagement to drive top line revenue. But most of what we're seeing right now, being candid, is most of the customers we're working with, their data isn't really ready for truly leveraging AI. Fundamentally, AI only works with good quality data. So I think we're at the heart of the storm right now. Most people are realizing they want to be able to take advantage of the promise of AI, but what they have today in terms of accessible and clean data is not really ready. So I think this is going to be multi-phase, John. There's the aspiration of all the things you could do with AI in the future, and there's the practical reality of what it's going to take to get your data to the point where you can use it. I think we're elbows deep in a lot of that data cleaning, which is exciting for the team because that's more of what we're seeing coming in now, help clean the data.

Got it. Thanks for the color. And I also want to ask about your legacy managed services book in this quarter, which is at a much smaller scale now. Is this just a one off quarter and you expect some rebound going forward or does it kind of represent the longer term trend as you actively move away from that business?

Yeah, I think I highlighted at the end of last year that this year was going to be a big transformation year on the LMS. We've been seeing a slow, steady decline. This year was going to be a bit lumpier. And I think, as we've always maintained, watch the bookings because they're the best indication of where things are heading. So I think that's a really good indication of what we've been saying starting to manifest in bookings. You will still see some stuff come through even this coming quarter. There's still some customers that aren't moving yet. And so there will be some additional bumps in some of the LMS contracts. But this is indicative of what we've been talking about for a while. It's why we've broken all of those out so everybody can see what's happening in that. And it's really what we want to continue to focus on people's attention, what's going on in the PS and MIPS business. That's really the long-term indication of how we're doing. We're just giving you some visibility into the runoff on LMS.

Good. Maybe my last question is more to Mo. Given this booking, this quarter's legacy managed service booking number, how should we model this revenue line for Q3 and maybe Q4?

Yeah, I mean, this is the booking is an indication that that line is declining and without kind of given specific guidance on this call. But it is going to continue to be on a downward trajectory because the bookings we see there are the renewals as the renewals need to essentially come up and customers essentially make their choice whether they're going to continue or come off. But that will be a declining line. And that's why we like to look at PS and MIPS revenue growth. because that decline is going to be unique and at some point become a smaller portion of our overall revenue.

Thanks again. I'll pass the line.

I see no further questions, Bill, so I'll turn it back to you to close.

Yeah, I'm not sure if Daniel's hand is back up with further questions. Daniel, do you have another question? Nope. Okay. That's it for us for this quarter. As I said, I'm really pleased with the way that the team is operating and the results they're delivering on the bottom line. I'm excited to see how these new logos start to close and turn into customers and start to grow with us. So a lot of good things coming in the future. Really, again, cautiously optimistic and certainly not going to use the macroeconomic state as any excuse. I think our team is discovering good companies, figure out how to work through those things. So I think we're one of those companies. Thanks everybody for attending and we'll see you in another quarter.