Boardwalktech Software : Q3 2024 Earnings Conference Transcript

FINAL TRANSCRIPT

Boardwalktech Software Corp.

Third Quarter Fiscal 2024 Earnings Conference Call

February 28, 2024 - 4:30 a.m. E.T.

Length: 32 minutes

"W h ile Cisio n h a s u se d c o m m e rc ia lly re a so n a b le e ffo rt s t o p ro d u c e t h is t ra n sc rip t , it d o e s n o t re p re se n t o r w a rra n t t h a t th is t ra n sc rip t is e rro r-fre e . Cisio n w ill n o t b e re sp o n sib le fo r a n y d ire c t , in d ire c t , in c id e n t a l, sp e c ia l, c on se q u e n t ia l, lo ss o f p ro fit s o r o t h e r d a m a g e s o r lia b ilit ie s w h ic h m a y a rise o u t o f o r re su lt fro m a n y u se m a d e o f t h is t ra n sc rip t o r a n y e rro r c o n t a in e d t h e re in ."

« Bie n q u e Cisio n a it fa it d e s e ffo rt s c o m m e rc ia le m e n t ra iso n n a b le s a fin d e p rod u ire c e t t e t ra n sc rip t io n , la so c ié té n e p e u t a ffirm e r o u g a ra n t ir q u 'e lle n e c on t ie n t a u c u n e e rre u r. Cisio n n e p e u t ê t re te n u e re sp o n sa b le p o u r t o u t e p e rte d e p ro fit s o u a u t re s d o m m a g e o u re sp o n sa b ilit é c a u sé p a r ou d é c o u la n t d ire c t e m e n t , in d ire c t e m e n t ,

a c c e sso ire m e n t o u sp é c ia le m e n t d e t o u te e rre u r lié e à l'u t ilisa t io n d e c e t e xt e o u à t o u t e e rre u r q u 'il c on t ie n d ra it . »

CORPORATE PARTICIPANTS

Graham Farrell

Boardwalktech Software Corp. - Investor Relations

Andy Duncan

Boardwalktech Software Corp. - President & Chief Executive Officer

Charlie Glavin

Boardwalktech Software Corp. - Chief Financial Officer

CONFERENCE CALL PARTICIPANTS

Mike Stevens

Echelon Wealth Partners - Analyst

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PRESENTATION

Operator

Good afternoon, ladies and gentlemen, and welcome to the third quarter fiscal 2024 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct

1. question-and-answersession. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, February 28, 2024.

I would now like to turn the conference over to Graham Farrell. Please go ahead.

Graham Farrell - Investor Relations, Boardwalktech Software Corp.

Thank you, operator. Good afternoon and welcome, everyone, to Boardwalktech's quarterly conference call. This call will cover Boardwalktech's financial and operating results for the third quarter fiscal 2024 period ended December 31, 2023. Our call today will be led by Boardwalktech's President and Chief Executive Officer, Andy Duncan, along with the Company's Chief Financial Officer, Charlie Glavin.

Before we begin with our formal remarks, I would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the Company's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties. The Company's actual results may differ significantly from those projected or suggested in any forward-looking statement due to a variety of factors, which are discussed in detail in our regulatory filings.

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Today we issued our third quarter fiscal 2024 financial results, a copy of which is available in the investor relations section on our website, www.boardwalktech.com, and posted on SEDAR.

I would like to remind everyone that today's call is being recorded on Wednesday, February 28,

2024.

I will now turn the call over to President and Chief Executive Officer of Boardwalktech, Andy Duncan. Please go ahead, Andy.

Andy Duncan - President & Chief Executive Officer, Boardwalktech Software Corp.

Thank you, Graham. I would like to welcome everyone to Boardwalktech's quarterly earnings call to discuss the Company's financial results for the third quarter of fiscal 2024.

The December quarter turned out to be a double-edged quarter for Boardwalktech. As I speak with you today, Boardwalktech is in a better position than it has been in three years to four years. That isn't just our opinion, but feedback from new and existing customers. Very briefly, let me discuss some of the business highlights with you.

First, on our Digital Ledger product, land and expand continues to add revenue as we have new expansion opportunities that will be realized and announced between now and the spring at several of our major clients. You'll note some of the progress in our press release from last month.

Second, the Unity Central solution for supply chain visibility and perfect order management is no longer a future development but is happening now. In the December quarter, we finally executed our first

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long-term license with Meta, which continues to expand within Meta, and this is based upon delivered ROI. The enthusiasm we have around this product is high because this is not a one-off development. Unity Central is being very well received by new companies. We have several late-stage proposals out that are demonstrating a very strong ROI that we believe will get done in the next month or so, which will continue the momentum we are seeing for the Unity Central product.

To be clear, Unity Central is not a new siloed offering. We now have a more holistic platform solution based on the same core technology. So if a customer's bottlenecks are spreadsheet based, we have the Boardwalk Digital Ledger to help them with that. If the bottleneck is more document-centric, Unity Central can address it. But the reality is, for most companies, they struggle with both unstructured data in spreadsheets and documents and we can now offer a more complete solution covering all of this data. Sekisui Specialty Chemicals is a perfect example of a Boardwalk Digital Ledger customer that has now added Unity Central to their portfolio. We are now starting to see very nice reception from existing customers that we are now introducing Unity Central to.

The Velocity product for financial services sector, again built on our same core platform, continues to roll out at Citi with several new additional business units engaging to expand. Granted, the rollout within the banks have been slower than originally expected, but this was really out of Boardwalk's hands. We also were in final stages of contract negotiations with two additional teaming partners, one which is engaged with a new business unit at Citi for a proposed large deployment of the Velocity solution. Both of these new teaming partners are huge and quite well known and having them under contract will be an extremely positive thing for us, not only for continued expansion at Citi but also to cross-pollinate into other banks and financial institutions they are engaged with. We have added additional new banking

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opportunities to the pipeline and we think it's interesting to note that the U.S. Treasury's Office of the Comptroller of the Currency, the OCC, just two weeks ago issued a $65 million penalty on City National Bank, who is owned by RBC by the way, for several issues around lack of control and compliance. These are the exact areas that Velocity helps banks to address.

I did want to address questions regarding recent actions the Company has taken, as we realized that some of the operational moves we've made might have surprised investors. While the timing of these moves might not have been optimal, they were not just needed but have made the Company and its prospects better and stronger. Beginning last fall, we conducted an internal review to examine how we could improve our execution. We were as frustrated as investors about our lack of sales progress despite great opportunities. In light of the market headwinds and slower than expected execution, we came to the conclusion that we needed to take action in two areas. First, in order to close more deals in our pipeline and shorten the sales cycle, Boardwalktech needed to reallocate more resources towards sales and marketing and we also needed, second, to improve our balance sheet optics. Let me elaborate.

First, we needed to shake up our sales and marketing efforts. While we have made good progress, such as a 48% CAGR in our license revenue over the last three years, we are still underperforming to our potential. The status quo was not good enough. In an effort to inject new blood, the Company let go a number of underperforming employees, allowing for us to refocus and shift resources to sales and marketing. While the total annualized cash savings is projected to exceed $1 million, the reality is that the net savings realized to our P&L will be about US$500,000 this fiscal year as we selectively hire more effective heads in sales and marketing over the next few quarters. It's important to note that just last

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week we hired back an experienced sales executive who was our top performer in 2020 and 2021 who left us in 2021 [inaudible] outlook, decided to come back and is now in full-on sales mode.

Second, while we tried to avoid it, it became apparent that we needed growth equity to both improve our working capital and our optics. Slower than expected closing and feedback from customers indicated that our balance sheet had given customers pause. So while we did not lose any deals explicitly, it was making an impact with regard to timing. To not take action in this area would have jeopardized new deals, jeopardized long-term growth, and potentially financial results. For investors who wish to see more details about our use of funds from this financing, we encourage you to examine the life offering document that we have on file.

Despite tough market conditions and less than ideal timing, Boardwalktech was able to not just close, but upsize the deal, including a second tranche requested for those investors unable to execute in the first tranche, which closed December 28th of 2023. The financing included two well known, Toronto- based institutional investors and I should note that officers and directors, including myself, also participated in the recent financing because of our belief in the future of Boardwalktech. While both the operational changes and the financing were tough, Boardwalktech is better for it. We look forward to upcoming announcements that support these actions and our complete conviction.

All in all, it's an extremely busy time for Boardwalktech. It's a good busy, with lots of activity on land and expand, activity on Unity Central opportunities, a lot of work with Citibank, and new teaming partners and new opportunities for the Velocity product in financial services.

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I will now pass the call over to our CFO, Charlie Glavin, who will provide more details on this, and then we look forward to taking your questions after our prepared remarks. Charlie, please go ahead.

Charlie Glavin - Chief Financial Officer, Boardwalktech Software Corp.

Thanks, Andy.

Before I begin, I'd like to take a moment to remind our listeners that all figures reported on today's call are in U.S. dollars and that our fiscal year ends March 31 with reported figures based on IFRS standards unless otherwise specified. Additional details can be found in our financial statements and MD&A filed on

SEDAR.

Total revenue for the third quarter of fiscal 2024 was $1.48 million, which is a 4% decrease from the $1.53 million of revenue we reported in the second quarter and a 20% decrease from the $1.8 million of revenue in the third quarter of last year; however, these declines are all attributed to shifts in professional services revenue, which declined 42% sequentially and 76% year over year, respectively. More importantly, the revenue from new and recurring SaaS licenses grew 6% both sequentially and year over year.

Due to the slower closings of new deals that Andy alluded to, professional service levels continue to be lower than originally forecasted and are expected to continue to fluctuate on a quarter-by-quarter basis. Last quarter, professional services accounted for just 9% of total revenue, which is lower than our long-term target, so investors should expect a modest rebound in absolute dollars but, longer term, we still expect that to stay in the 10% to 20% range. Recurring revenue from SaaS licenses has grown 48% on

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a CAGR basis over the last three years and, based on recent customer engagements that Andy alluded to, we believe that this is a growth rate that we can return to or exceed once our strategic actions take full effect.

The Company defines annualized recurring revenue, ARR, a non-IFRS metric, as the annual recurring revenue expected based on license subscriptions and recurring services recognized in the recent quarter, not on an MRR basis. ARR at the end of December was $5.7 million, but this does not include either the full impact from our new Meta license revenue alluded to, nor the customer expansion announcement that we made last month.

Gross margin for the third quarter of fiscal 2024 was 89.1%, which is slightly lower than comparable periods due to the lower professional services revenue and slightly higher hosting expenses. We do expect gross margins to rebound and return to comparable 90% levels we have previously reported and guided to.

Net loss for the third quarter of fiscal 2024 was a loss of $783,000 or a loss of $0.02 per basic and diluted share versus a $730,000 loss last quarter and a $647,000 loss last year as the Company did do a catch up on non-cash based share compensation expenses in the third quarter; however, adjusted operating expenses, which factors that out, was down slightly from last quarter sequentially and was down $225,000 over last year.

Non-IFRS loss as defined in our filed MDA in the third quarter totaled a loss of $412,000 or $0.01 per basic and diluted share versus a $377,000 loss last quarter and $252,000 last year. Meanwhile, our adjusted EBITDA this quarter was a loss of $386,000 versus $359,000 last quarter. Two things I'd like to

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note. First, the impact to these results was due primarily to the lower professional services revenue, not our SaaS business license, which continues to grow. If you back out revenue from our Velocity bank channel along with Meta, our core Digital Ledger license revenue has grown 37% over the last two years. That said, it should be noted that the figures we reported in the third quarter today do not include any impact from the resource allocation actions that we announced last month, but those savings will begin to take effect in the current fourth quarter and continue over the next year.

As of December 31st, the Company finished the quarter with cash and share subscription receipts of $1.3 million. Since we closed the first tranche of our financing on December 28th, there was approximately $540,000 of share subscription receivables which were effectively electronic payments that were initiated as of the financing close date but as of the 31st of December had not actually reached and cleared our bank and settled into cash. However, all outstanding share subscription receivables did settle into cash in early 2024, in January, prior to the closing of the second tranche of our upsized private placement this month. Finally, given these, excuse me, these are some of the factors why the Company feels more confident that our breakeven goal has been pulled in since our last conference call.

And with that, let me turn it back over to Andy.

Andy Duncan - President & Chief Executive Officer, Boardwalktech Software Corp.

Thank you, Charlie.

We have told our investors that every day our team wakes up looking to increase our ARR by providing new and existing customers with a high-ROI solution to address their issues, especially in the

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