Quisitive Technology Solutions Inc.

Good morning and welcome to Quisitive Third Quarter 2022 Earnings Conference Call. Joining us for today's call are Quisitive Chief Executive Officer Mike Reinhart and Chief Financial Officer Scott Merriweather. Following their remarks, we will open the call for your questions. Before we begin today, I'd like to remind everyone that during the conference call, management will be making statements that contain forward-looking statements within the meaning of applicable Canadian securities legislation. Please refer to the company's forward-looking information disclaimer statement, which can be found on the notice for this call, our website, and the third quarter 2022 earnings release. Now, I will turn the call over to Mike Reinhart. Sir, please proceed.

Thank you, operator, and good morning, everyone. We appreciate you taking the time to join our Q3 2022 earnings call. This quarter marked another period of significant growth as we recognized record high results in top line revenue and adjusted EBITDA figures, which are attributed to the continued momentum we generated across both the cloud and payment businesses. Additionally, despite irregular market conditions, We've heard from Microsoft that they affirm the growth of key segments directly impacting our business, including continued growth in Azure that supports our strategic trajectory. Scott will provide additional insight on the specific metrics later in the call. But now I want to start the discussion of our cloud solutions business. In cloud solutions, our focus in Q3 was the realization of acquisition synergies following key integration motions. We are seeing the synergies in cross-sell opportunities consistently turning to wins with greater breadth and customer impact than ever before. Our aligned leadership team and consolidated structure has created internal efficiencies across our marketing, sales, and delivery teams to enable cohesive experiences from prospecting through to close of projects to ensure customers are seeing the true value of our stated one inquisitive vision come to life in their engagement with our teams. This execution of our M&A thesis resulted in a 107% increase year-over-year of top-line growth in cloud solutions and additional recognition from Microsoft in the announcement of the Microsoft Business Applications Inner Circle Award that we received in September. Growth of this magnitude is possible because of cross-selling and upsell strategies that allow us to take legacy acquisition accounts and expand wallet share and opportunity that allows us to stretch accounts up to four times revenue by offering a more holistic value proposition to customers that fold into our industry expertise and IP, along with project and managed services. Additionally, as we have now begun to create not only breadth of services, but also scale, we are able to serve larger customers with our unique offerings. With this high-value bundled offering approach has been our goal throughout the year, we are moving from key examples validating success to a fully adopted go-to-market strategy. Across the board, we are now seeing key themes play out in customer accounts in a way that assures that these are not point-in-time individual creative actions, but the embodiment of a visionary strategy penetrating in each level of our sales and delivery execution cycle. In practice, this looks like consistently upselling deals to include security offerings, including our Spyglass IP solution to existing and new customers. or our business application customers extending their engagements with Quisitive beyond Microsoft Dynamics and Quisitive SaaS implementations to include ongoing support through our managed service offerings. And our healthcare customers are utilizing Quisitive industry thought leadership, our basic SaaS product, and turning to Quisitive to provide services to deploy Azure infrastructure and data services along with our security and managed services offerings. In the past, we have focused heavily within the cloud solutions group to bring our acquisition synergies to life, bundling services and IP across acquisitions to strengthen our value proposition to customers and enhance our reputation with Microsoft. As we move into 2023, we will take this same approach and continue to augment it so that these strategies are core tenants of our go-to-market strategy. Every acquisitive customer should experience the full breadth and depth of our services and their engagement with us, and see how we don't just address acute business problems, but are the true go-to partner for end-to-end digital transformation. Pivoting now to payments, I want to start by sharing a little bit about Ledger Pay's recent rebrand to PayIQ. The new brand identity and logo define PayIQ as a leading innovator in the payment space. The brand evokes intelligence and innovation and is a clear embodiment of our vision for acquisitive payment solutions. The refresh did not stem from any fundamental change within our core technology roadmap, but is a strategic move to position us for maximum brand equity and runway in coming months as we activate our innovative payments solution. To touch on one other recent press release, we are pleased to have just announced an expanded partnership of Visa and their CyberSource solution. Most importantly, this collaboration opens a new distribution channel for our PayIQ payment processing services, and expands the payment acceptance model for the PayIQ platform. This opportunity is a signifier that PayIQ is a provider of innovative payment solutions, and we believe it's indicative of the reputation we are building within the ecosystem. We're making steady progress on our PayIQ platform as we've successfully completed the first live transactions using the MasterCard network for authorization. These live authorization transactions mark a significant milestone with the platform, and we are very proud of our team for this accomplishment. We are now approved to have both MasterCard and Visa operating in our cloud production environments, and in parallel are continuing to advance the American Express and Discover certifications. As we have previously shared, the retail and payments industries all enforce a production freeze beginning in November and extending until mid-January due to the importance of the holiday season for most merchants. Our production and deployment of American Express and Discover will occur after this industry freeze period. While we are working through these final certification steps, we have also initiated a robust external security audit as a prudent readiness step for final commercialization. This audit is in addition to the PCI and ISO audits that we have previously conducted and felt it important to use this time to take extra steps before going live with customers. Finally, in our payment solution segment, our merchant services team through BankCard has continued to drive value and payment volume in the quarter consistent with our strong Q2 results and once again exceeded $1.1 billion this past quarter. In Q3, we kicked off internal efforts to integrate the BankCard USA employees and operations into the acquisitive umbrella, a key motion to precede the migration of merchants to PayIQ. Following the completion of these integration efforts in early 2023, the Merchant Services Group will transition its go-to-market service offerings to the PayIQ brand. We are encouraged by the continued growth and momentum offered by our Merchant Services team to date in 2022 as it validates our preparedness to serve customers on the PayIQ platform as we move to live transaction processing. Evidenced by our success across the BankCard Merchant Services results, and the cloud solution synergies I shared earlier, our M&A strategy continues to resonate and create positive forward motion. As such, we stay vigilant to new and creative opportunities with the end goal in mind to increase our share in our respective markets and provide lasting value to our shareholders. While I have no material updates to share at this time, our team is carefully watching the market as we look to 2023. Lastly, before I transition to Scott's portion, I want to share some brief notes on the general economic conditions and shed some light on the forward-looking guidance. As much of the tech industry has started to react to recessionary conditions with the announcement of layoffs, Quisitive has been fortunate that we've not experienced this downturn, as evidenced by our record high results in top-line revenue and EBITDA. Moreover, we continue to hire particularly technical talent in our consulting delivery organizations. In our cloud business, we remain diversified across customers, service lines, and industries to offer some protectionary factors against these uncertain markets. And we were encouraged to hear that in the most recent earnings call, Microsoft highlighted their revenues were up 42% on a constant currency basis in their Azure business, where we experienced the most overlap with their business, and that the areas where they were experiencing softness, namely PC and OEM sales, are not impactful on our partnership or business. In payments, payments industry leaders have continued to see strong demand for credit transactions and is consistent with our experience as well. We would like to note that while Q3 was a strong quarter for us, the fourth quarter always proves to be a little slower period for inquisitive in the broader cloud and payments industries. In the cloud services business, we experienced some seasonality given vacation time around the holidays, specifically both Thanksgiving and Christmas in the US. And the specific segments served by our merchant services group tend to have experienced a bit of slowdown at the tail end of the year. Regardless, at this time, we remain on track to meet our goals and retain strong progress despite volatility in the broader market. However, while we report strong Q3 results, I want to emphasize that our team is closely monitoring our internal and external indicators and strategically planning to be nimble enough to pivot in the event of greater market transitions. We will move into 2023 with these cautionary considerations at the forefront of our strategic planning to best position Quisitive for continued growth and success. Thank you all for joining us as shareholders and supporters. I'll turn it over now to our CFO, Scott Merriweather, to discuss our Q3 2022 financial results. Scott?

Thanks, Mike, and thank you to all who are joining us for today's call. We continued our growth trajectory as we once again set new quarterly records for revenue and adjusted EBITDA. Revenues for the third quarter ended in September, increased 76% to $48.8 million from $27.8 million for Q3 of 21, driven by our acquisitions and our healthy organic growth. Gross margin increased 87% to $20.3 million in Q3 of 22, over $10.6 million in Q3 of 21. Our gross margin as a percentage of revenue was 41.6%, continuing our sequential quarter-over-quarter trend of increases. For comparison, our Q3 21 gross margin percentage was 39.1%. We will continue to focus on increasing our gross margin percentage as we integrate our acquisitions, focus on cross-selling activities, and begin to activate our PIQ payments channel. Adjusted EBITDA increased 47% to 7.6 million from Q3 of 22 from 5.2 million for Q2 of 21. Adjusted EBITDA's percentage of revenues was 15.6% for Q3 of 22. an increase from the 14.3% we produced in Q1 and the 14.4% we produced in Q2. Our EBITDA margins increased in both our cloud and payment segments as both segments had outstanding results. We'll now move to discussing the specific performance of our segments. Revenue in our global cloud solutions segment increased 108%, to another new record of $36.0 million for Q3 of 22 from $17.4 million for Q3 of 21, driven by the Catapult acquisition and reflecting 19% organic growth. Recurring revenue within the cloud segment eclipsed $11 million for the first time in the third quarter. Given the strong overall quarter from the cloud business, recurring revenue remained at 31% of our overall cloud revenue, but we are pleased with the continued growth of these revenue streams. The segments adjusted EBITDA improved 111% to $4.7 million for Q3 of 22 from $2.2 million for Q2 of 21. With our one-quisite approach within cloud and internal acquisition integration efforts, We've adjusted the calculation methodology for allocation of corporate costs to our segments to a revenue-driven allocation that we believe is more accurate. These allocation changes did not affect our consolidated results, but are simply changes between the cloud and payment segments. With the new methodology, EBITDA for cloud in Q1 was $4.6 million, Q2 was $4.5 million, and Q3 was $4.7 million. Revenue for our global clouds Our global payment segment also set a quarterly record, increasing to $12.8 million for Q3 of 22 from $10.4 million for Q3 of 21 and delivering organic growth of 23%. All of the Q3 revenue was from our bank card acquisition. Strong payments charge volume drove the strong revenue performance from this segment. Historically, our Q2 charge volume of bank card was our strongest quarter of the year. Q3 22 volume held steady with Q2, with only a slight dip of approximately half a percent. August was our second-strongest charge volume month of the year. The strong charge volume combined with a favorable customer mix resulted in Q3 revenue to sequentially increase over Q2. Our payments theme has managed our merchant portfolio to attrition rates that are well below market averages. This strong base of existing merchants, along with the new merchant sales, are driving the strong revenue and EBITDA results. Last year, Q4 of 21, charge volume increased slightly over Q3 of 21. Looking forward, we're expecting Q4 to hold relatively steady with Q3. Adjusted EBITDA for our global payment solution segment increased to $2.9 million in Q3 of 22, similar to the $2.9 million for Q3 of 21. With the methodology change I noted earlier, EBITDA for payments in Q1 was $1.8 million, Q2 was $2.4 million, and Q3 was $2.9 million. Baycard contributed a strong quarter of EBITDA with $4.7 million in Q3 of 22. The payments division includes increased spending on the PayIQ platform, which reduced the payments even above $1.6 million for Q3. We have noted on our previous calls that operating costs related to ledger pay would continue to increase through 2022 as we reach market readiness and launch the platform. Moving to the balance sheet, at September 30th, we had $80.6 million of term loans outstanding and $9.5 million of cash on hand. As of our last fall, we expanded our credit facility in August. We ultimately borrowed an additional $7.5 million for the expansion and then made our normal quarterly paydowns at the end of the quarter. As of September 30th, our total leverage ratio was 2.92X or 2.92 times. Even with the additional borrowings, our leverage ratio was slightly lower than last quarter. Our leverage ratio covenant limit was 3.25 times at September 30th, and the covenant ratio will step down to 3.0 at December 31st. Our quarterly paydowns now are $2.5 million. We are confident in our cash flow and working capital position. Cash flow for operations were $5.9 million in Q3. During Q3, we made large earn-out payments related to two acquisitions. $5 million of those earn-outs was paid with equity as for the contractual terms of the earn-out. For comparison purposes, we had $15.7 million of projected earn-out payments and short-term liabilities in the balance sheet at June 30th. At September 30th, we have $7.3 million accrued. This balance will be adjusted going forward as we have greater certainty of earn-outs being achieved. We previously noted we have an additional $2.1 million balance of projected earn-out compensation within accrued liabilities. This payment was made in Q4 using $1.3 million of cash and $0.8 million of equity. Our working capital deficit is September 30th of $0.6 million. It's arguably overstated as it includes earn-out amounts expected to be paid with equity. Overall, as we've previewed last quarter, our working capital looks much different at the end of Q3. It will improve throughout 2023 as our earn-out obligations begin to roll off. The current weighted average interest rate on our term loans is approximately 6.8%. We currently expect to convert between half and two-thirds of our adjusted EBITDA into free cash flow, which can either be used for acquisitions or debt repayment. We define free cash flow as adjusted EBITDA minus capital expenditures, internally capitalized software, cash interest, and cash taxes. As we close 2022, we remain confident in our ability to deliver strong results. We expect our payment segment to continue to get strong performance through this year and into 2023, especially as PIQ builds through 2023. Related to the cloud segment, we've all seen the news of many tech companies that are implementing hiring freezes or layoff programs as they forecast slowdowns, directly impacting our channel. Microsoft pulled back some of its guidance for 2023. However, as Mike noted earlier, Microsoft's softness was not in the areas where Quisitive works. Microsoft is relying on our product lines to drive this growth. And as a small cap company, we've never had the bladed head count as we have built our teams to meet our market demand. We remain in that state of hiring and growth to meet our current demand. Inevitably, we do expect some customers will delay projects or pull back spending as they evaluate current economic conditions. However, we remain confident in our pipeline and our ability to deliver strong organic growth rates. We remain excited about what 2023 will hold. This concludes our prepared remarks. Thank you all for your time this morning. We are very proud of our Q3 results, and we look forward to updating you on our progress going forward.

We're now ready to open the call for your questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. you may press star two if you would like to remove your question from the queue. As a reminder, each analyst will be limited to a maximum of two questions. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Our first question comes from the line of Christian

scroll from its capital please go ahead hi good morning and congrats on the stronger q3 quarter the first area i wanted to dig into it's where scott left off on the pipeline and demand environment on the cloud side it looks like you've got a good look into q4 here and some prudent comments here into 2023 but from where we stand today is there anything you'd call out across the services that are in demand or the end markets, see the customers, how that mix looks in your pipeline?

Yeah, I think in general, it's consistent with what we've been seeing throughout the back half of 2022. Continued interest in our security and managed services offerings and capturing those value points within customers. Continuing seeing momentum across data and analytics as organizations look to understand their silos of data and how to merge and bring those together to derive insights leveraging the Microsoft cloud capabilities. And lastly, we continue to see strong demand in healthcare led by our industry expertise combined with our basic care offering and then all the kind of blended offerings as we've described with the Microsoft cloud offerings across Azure and our managed services, et cetera.

Okay, great. And for my second question, I'll touch on The IP, the SaaS offering, you had mentioned the recurring revenues are at 31%, I believe, of the cloud business, and confirm if that's correct, of the cloud revenues. And then just some high-level commentary on traction on the recurring revenues, the mix across the growing IP and managed services, where you're seeing traction on the recurring side into the end of the year.

That 31% is 31% of cloud. Obviously, from an overall perspective, all the payments is recurring, so it drives our total recurring revenue percentage higher. But that 31% number we noted earlier was cloud only.

Yeah, we're about 48, almost 50% recurring on a total basis. In terms of, you know, kind of the directional side, again, many services as we touched on exceeded 11 million for the quarter for the first time and continues to grow there. We're certainly seeing growth in both our first-party IP as well as some resale. Again, the resale is not a big part of our growth plan. We've got some of the CSP legacy, and we certainly have added to that, but it's not a core component. But the primary drivers are and continue to be managed services and our first-party SaaS offerings, Ember Farm, MasonCare, are growing a footprint of IP in support of that as we go forward.

That's all helpful. Thanks for taking my questions.

I'll pass the line here.

Thanks, Christian.

Thank you. Our next question comes from the line of Rob Doff from Echelon. Please go ahead.

Good morning, guys, and congratulations on an impressive beat for the quarter.

Thank you.

My first question would be on your balancing in terms of managing expenses to drive growth. You mentioned that you were hiring. Could you talk to how you see that balance of investing in growth versus margins as we go forward?

Yeah. So one of the good things about sort of the work we're doing, the cloud services side, there's certainly some investment in, you know, labor related resources to build product and things, but most of that is embedded in our existing expense model. The incremental headcount on the cloud side is often to add technical and project and consulting expertise that are to support revenue. So that's the beautiful part about that headcount ad. We're not creating a big bench of people that don't have work to do. We're hiring those to support the strength and pipeline we have as we grow and scale our revenue streams. In other areas on the payment side in particular, obviously, we are continuing to add headcount from an operations side as well as from a sales and marketing side, and we'll build that as we move through the quarters next year as well. It's not significant growth at this stage, obviously, but nonetheless, there is some there. But the bulk of our hiring is tied to production of revenue, which not only creates revenue, but also margin contribution in support of that to increase and support our EBITDA, which is part of what you saw in the Q3 results is that revenue growth from the headcount hiring and services that we're doing and it driving higher margins contributions as a result.

Okay, thank you. And you noted that the payment industry is sort of on freeze right now, focused on the busy season. Could you perhaps talk a bit more about what you were doing behind the scenes to prep PIQ in terms of establishing timelines for pilots or contracts?

Yeah, so a lot going on. The team is running as rapidly as ever. What we're working on are a series of things. The American Express certification process continues independent of going live with it, doing the steps and necessary things there. We're doing a series of things on validation of the settlement processes, clearing and settlement, which is part of what you do as a back-end processor to distribute those funds that are part of the transaction, not just authorization. We're finalizing some of those things. In addition to that, we are working on operational readiness. So a series of things that we're doing to get everything in place for onboarding of merchants and bringing all that together. And there's ongoing development, and this will continue to be the case for many, many months and quarters ahead. We have a whole roadmap of features set to continue to enhance the platform and along the way with different capabilities that we think will be unique. We're doing some unique things with launching our developer portal that is bringing to market a unique capability to integrate with Microsoft's marketplace experience tying in to ISVs and other kinds of things. We'll share more about that as we go forward. So we've got a team that we've launched working and actually doing a co-develop initiative with Microsoft centered around a developer platform that we're going to be bringing to market as well. A lot going on, all of it to be focused so that as we move into early into the new year that we get the other two certifications completed, activate customers and begin the migration process with the merchants that we have under the Vanguard brand as well.

Okay. Thank you very much, and congrats. Thanks, Rob. Thank you.

Our next question comes from the line of Rob Young from Canaccord, Genovese. Please go ahead.

Hi, good morning. I just wanted to dig a little deeper into the cyber source agreement that you had. I think they've got a significant volume of transactions, and I understand they're close under the Visa umbrella. And so if that's going to streamline on boarding for you as PayIQ comes to commercialization, what does that do for you? your ability to win new business, new merchants?

Yeah, so it's multifaceted. First of all, because they are now owned by Visa, certainly they already had a big footprint, but having that as an option as ISVs and others look to connect into payments, it streamlines that connection process for those software vendors to go. If they're already connected into Cybersource, they can choose us. as their processor and platform to do that. We're going to be embedded into that. Additionally, Visa is doing some new things where they are going to market and actually as a distribution model will give us opportunities to be introduced to market position and work with them on new merchants and gathering as part of that process. The other big thing is with Bank Card and other ISOs that we sell to in the process, Many of that merchant footprint will be using the Cybersource platform and it will streamline migration activities for us where we, once we've got the API connected into Cybersource, which is the other thing our team is working on, back to Rob's question earlier, but is working on that. Then as those merchants come over, all the integration work is already completed and it really streamlines that process. We'll see that as a really great opportunity Again, both for migrating merchants in our book, but also as we sign up ISOs and others, it will allow them to onboard merchants both organically as well as migrate those merchants much more rapidly as well.

Okay. And then in the prepared comments, you noted that your payments business, the current portfolio attrition rates are well below market averages. What would you attribute that to? Is that the internal sales force or is it? quality of the merchants that you have there? Maybe any color there would be helpful.

Yeah, sure. The attrition there is well below market average. A lot of that is how the risk team has just managed that portfolio. And then the sales team going after higher quality accounts. It's less of just a spray, take every merchant account possible type of sales approach. And the sales team is just very adept at identifying high quality merchant accounts that we want in the portfolio. And so our attrition rates are well below what we typically see in the payments market, and very, very pleased with the performance of the book and the performance of the sales and risk teams.

Okay. That's my two.

I'll get back to you. Thanks, Rob.

Thank you. Our next question comes from the line of Stephen Boland from Raymond James. Please go ahead.

Thanks. Maybe... Maybe just dive into a little bit about, you know, the Microsoft and Azure because, you know, we all saw that kind of their numbers and maybe their growth was slowing, but you've kind of indicated that it's not really in your segment. Maybe you could just explain why the pipeline in your segment is still strong compared to some of the other, I guess, sources.

Yeah, so if you look at what Microsoft announced, they announced slowing, but on a constant currency basis, they're still growing at 42%, which is only a slight decline from their historic growth rates, albeit on a much bigger number as well. So as you think about the place where they had the slowness, as I said, was in PCs, OEM, some gaming, some of the areas where while it impacts Microsoft's results, aren't the areas where we're working. So we're still seeing very strong growth at 42% on a very large number within Microsoft's ecosystem. And the work we're doing is all around helping people, you know, take advantage of the sophisticated capabilities in the cloud around data, modern applications, really bringing all that together. And then all the things we provide around security and managed services, customers have to be able to deal with the constant changing cloud environment, the security risk, all those kinds of things. And those offerings continue to be high profile and high priority items for customers. So as you think about what people are still trying to accomplish in their digital transformation, whether it's around their supply chain and the things that we're doing with our capabilities in healthcare, ways to streamline patient interaction across providers and do those things, all of those are still significant investment areas from a technology side that we do not see customers pulling away from. In fact, in many cases, they're investing more because it's how they need to navigate through these market conditions and better position themselves on the backside. So all of that being said around, you know, growth in cloud and growth in the areas of leveraging Azure as a data and application platform is still in high demand.

Yeah. Thanks for that, Culler. And then the second question is just on – there's something in the MD&A that mentions pay IQ. I guess I got to get used to saying that now. You mentioned spring. Like that was kind of the target. Is that a little bit later than expected? Or when you mean spring, is that second quarter? Or just kind of give us maybe a timeline of when you actually start.

Yeah. Some of what I was referencing there was centered around the brand change for merchant services to go from Paycard to PayIQ. But, yes, I mean, if you think about what we're doing to really commercialize the PayIQ platform, we've got to have all four card networks. Remember, if we go back a couple of years now, and part of what we were hoping to be able to do, there was a stage at which you could connect with Visa, and then Visa could gateway – you to the other card networks, and therefore we were going to have the ability to bring the product to life under the Visa certification and then stage the other direct card network connections later. That changed in the latter part of 2020 and early 20, I guess it was 2021 when that really occurred. So therefore we had to shift gears and now complete all the direct connections prior to full commercialization. So that was one of the big drivers of change. But yes, there's certainly, as we go through the process, we were hoping to get through some of those things prior to the November production freeze. But, you know, we're working with some really big companies, American Express, Visa, MasterCard, and Discover, and they don't always move at the same pace that we might like to. But at the same time, you know, it's advancing, we're completing things. those measures and each step of the way we're getting through them. But yeah, it's taking a little longer, but what we're doing is a significant undertaking that, as we've mentioned before, hasn't been done in what most people say over 10 years. And there's a reason why, because it's extremely difficult and hard, but we're making our way through it and very near the other side.

Okay. Thanks, guys. Thanks, Steve.

Thank you. Our next question comes from the line of Divya Goel from Scotiabank. Please go ahead.

Good morning, guys. Good quarter. I wanted to get some color on the global cloud solutions front. So how is the Catapult integration coming along? Is that pretty much done? I did see some good cross-sell synergies coming out this time around. So how's that whole kind of – The two businesses, one is working together right now. If you could get some color on that.

Yeah, you know, actually it is, you know, for the most part, fully integrated. We made organizational changes beginning in Q2 of this year. At the beginning of the third quarter, we made the final steps to fully integrate teams across the organization. So Terry Burmeister, as we talked about, the former CEO of Catapult, is now leading is a big component of our cloud services, cloud solutions business around services, application data, managed services under her. And that team is all fully integrated under a common leadership, go-to-market approach. Our sales and marketing teams have all been merged together. And some of the results that we're getting in Q3 and the momentum is all because of that. I've got to give our team a lot of credit. We not only, you know, you think about Q1, Q2, and even in Q3 with the organizational change in July, there were a lot of internal moving parts with integration, changing in processes, and doing all those things. And yet the team stepped up and dealt with those while also performing at a very high level. So very, very proud of the team and thankful for a lot of hard work from that group. We have some final steps on some systems things that are around fully integrating our project operations and some of those activities. Our financial systems, Scott and team, we have gotten the Catapult team is now on our geo and financial systems as of November 1. That cutover has occurred, and the project operations integration steps will occur early either January 1st or February 1st. We're in final stages to lock that down. So that's the final step of what I'll call full integration. But brand, team, process, all those things have already unfolded and will continue to evolve like any other good company where we'll nurture and grow. But a lot of good steps, and the team has done a fantastic job.

That's good color. I have another question on AIQ. So with respect to this PayIQ's integration with Visa CyberSource, I was just curious if this particular specific, say, the CyberSource integration, does that give some additional benefits on the payment intelligence platform side of PayIQ as compared to if you were to start processing payments alongside with MasterCard, Amex, Discover as well? Are there any additional benefits with Visa CyberSource that come up?

Yeah, so it's important to kind of understand Cybersource is essentially a gateway platform that integrates with point of sale and shopping carts and all those kinds of things. And then behind Cybersource is Visa, or sorry, is First Data and T-SYS and the global payments component of T-SYS and WorldPay, et cetera. So the small number, the handful of processors are integrated to them. So we now become the next one of seven or eight processors that exist inside of that drop-down list to now be exposed to be available. So while Visa owns it, it's actually facilitating all of that back-end processing. So it's really about that flow. It is not really an enablement component for payments intelligence. It's really more about mid-market scale play on payments. Payments intelligence, as you remember, will be more the upper mid-market and enterprise-level customers. They're unlikely to be using gateways and things like that, like a cybersource or others. There will be some exceptions. More often than not, that's where we'll be leveraging our sophisticated cloud solutions team to do integrations into point-of-sale environments. and bringing that together to unlock that capability within the context of payments intelligence versus being able to enable scale play on a payment side in a small and mid-market segment.

That's very helpful, Color Mike. Thanks a lot. I'll pass the line.

Thanks, Divya. Thank you.

Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad Our next question comes from the line of Gabriel Lee Young from Beacon Securities. Please go ahead.

Good morning, and thanks for taking my questions. Mike, you alluded to some talent potentially freeing up as some of the other tech players, I guess, right-sized their business. Do you see that as an opportunity to – did you see that as a potential tailwind, sorry, for your services business? Did you add on additional personnel to help drive that additional top line? And do you see this potentially as, you know, helping to alleviate some of the wage inflation we've seen, you know, obviously over the past year?

Yeah, so yes on both fronts. So on the availability of talent, we certainly monitor any of those announcements. And like everybody, look for opportunities – And there's always two components to that. It's not only the people that have been let go, but it's the people that are still there that are afraid of being let go next that are often great targets for us. And by the way, this is true on both the cloud side as well as the payment side, if you've noted Stripe. A lot of these, you know, we're different. And Scott alluded to this in his comments, and I thought they were really well stated. But if you look at a lot of these, especially Silicon Valley and other companies, became very bloated because they had access to this really easy money. Nobody cared whether they made a profit. And so they scaled up people and resources and now have to, you know, remove all that to try to come back and deliver value to shareholders in terms of profitability. We've always taken a different approach. And it is part of why sometimes maybe we're a little slower to get things to market and doing some of those things. We've always had this very balanced mindset that we need to be a profit-generating company while building scale and capability, investing in products, including the PayIQ and MacyCare and all those things, and balancing all that and still giving back to our shareholders value that we're creating and demonstrating that. That's a very different kind of component to it. So as we go forward, we'll continue to be very prudent in that way in hiring. But back to your comments about the market, there's no question on both cloud and payments, the opportunity for us to use and secure that talent. In terms of labor costs, I think it'll help keep it from escalating. Certainly, I don't anticipate seeing it in any way decline costs of salaries and things. Highly skilled, leading-edge technology folks, whether it's in cloud or payments, are going to still have, you know, kind of high value compensation, but I do think it's going to reduce some of that escalation that we have been seeing.

Gotcha. Thanks for that. And secondly, just moving to the payment side, how should we think about, I guess, top line growth and margin accretion in calendar 23, you know, particularly as we start to get into the commercialization stage of the PIQ and I guess the first half of next year. Obviously, I think the organic growth on the payment side this quarter was 20, 20-odd percent. The EBITDA margin profile was likewise strong, 22 percent or so. I mean, directionally, you know, how should we think about, you know, both the growth and the margin profile as we go to 23?

Yeah, I'll touch on it, and then, Scott, you can layer in. You know, the The whole focus, we continue to see good opportunity leveraging our sales engine within our merchant service and bank card team and expect organic growth to continue within reason. Again, we've always said 15% to 20% growth we think is a reasonable target for that business for the foreseeable future to scale and grow and expect that to continue to happen. Certainly, we'll start to unlock the accretive value as we bring pay IQ into both new merchants as well as migration. That migration activity is likely going to begin in the Q2 timeframe and building momentum. Our intent is to, we'll begin to capture some revenue in Q1 and early Q2, but where it starts to have some substance to it will be as we move through the middle part of the year. Scott, I know as we're doing some things on modeling and things, maybe just give kind of a high-level view of kind of how you're seeing macro-level indicators for 23.

Yeah, I mean, not a lot to add to what Mike put there. So continuing to experience that 15% to 20% organic growth on the baseline for bank card, which is what our current revenue stream is, kind of accelerating in Q2 with some expansion as migration begins, and then really beginning at, let's call it Q3 and Q4, activation of PIQ in the broader market. And that's where you'll see growth rates jump past the current rates of just what our baseline business and baseline sales teams are producing. But that said, it's still going to be coming from zero. So it'll be a pretty big increase from the PIQ side, but it's going to take some time to build and onboard and get that. So Q4 will be stronger than Q3 from just as that ramp begins and builds through Q23.

Got you. Thanks for all the feedback, and congrats on the program. Thanks, Kevin. Thank you.

At this time, this concludes the company's question and answer session. If your question was not taken, you may contact Quizzitive Investor Relations Team at quiz at gatewayir.com. I'd now like to turn the call back over to Mr. Reinhart for his closing remarks. Thank you, Operator.

Thanks to everyone for joining us today. I especially want to thank our employees, partners, investors, and customers for their ongoing support. We appreciate your continued interest in Quisitive and look forward to updating you on our next call. Operator?

Thank you for joining us today for Quisitive's third quarter 2022 earnings conference call. You may now disconnect your lines.