Q4 and Fiscal 2022 Revenues Increased 82% and 55%, Respectively, Year over Year
EDMONTON, AB / ACCESSWIRE / March 31, 2023 / OneSoft Solutions Inc. (the 'Company' or 'OneSoft') (TSXV:OSS)(OTCQB:OSSIF), a North American developer of cloud-based business solutions, announces its financial results for the year ended December 31, 2022 ('Fiscal 2022').
Please refer to the Audited Consolidated Financial Statements, Management's Discussion and Analysis ('MD&A') and the Annual Information Form for the year ended December 31, 2022, filed on SEDAR at www.sedar.com for more information. The MD&A contains a complete analysis of Fiscal 2022, the financial quarter ended December 31, 2022 ('Q4 2022') and other information. Unless otherwise specified, all dollar amounts are denominated in Canadian dollars.
Fiscal 2022 Highlights
Fiscal Year 2022
- Revenue increased 55% over the prior year to $6.9 million in Fiscal 2022, comprised of $5.9 million of Cognitive Integrity Management ('CIM') associated SaaS revenue, $0.8 million revenue from Integrity Management ('IM') Operations, and a $0.2 million gain from an increase in the foreign exchange rate. IM Operations was acquired June 30, 2022 and was fully incorporated into Company operations and accretive during the second half of 2022.
- Gross profit increased 48% over Fiscal 2021 from $3.3 million to $4.9 million in Fiscal 2022. Gross margin declined from 74.7% to 71.3%. The gross margin varies year to year based on the mix of new and existing customers who require staff services, the ratio of CIM SaaS revenue to IM Operations revenue as the latter uses proportionately higher staff labour, and the mix of products that bear royalty expense. Fiscal 2023 guidance assumes gross margin to increase marginally to about 75%.
- The net loss declined by $0.9 million from $3.9 million in Fiscal 2021 to $3.0 million in Fiscal 2022.
- Adjusted EBITDA, a Non-GAAP measure reconciled to the net loss in a table below, improved from a loss of $2.5 million in Fiscal 2021 to a loss of $2.0 million in Fiscal 2022.
- The net loss was financed, to a large degree, by an increase in deferred revenue and a drawdown on cash balances. Deferred revenue increased by $0.9 million over the prior year, to $2.1 million as at December 31, 2022. Cash balances declined $1.1 million over the prior year to $4.4 million as at December 31, 2022 ($5.5 million at December 31, 2021). Assuming no significant changes in current business strategies and cash consumption, management believes the Company has sufficient cash on hand to fund its business and growth strategies as previously communicated.
Fourth Quarter 2022
- Revenue in Q4 2022 increased by $1 million or 82% to $2.2 million, comprised of increases of $0.6 million and $0.4 million of CIM and IM Operations revenue, respectively. Revenue from IM Operations commenced in July 2022 ($nil in Fiscal 2021).
- Gross profit increased 78% or $0.7 million over Q4 2021 to $1.6 million in Q4 2022. Gross margin declined quarter over quarter from 73.3% to 71.5%, with the cost increase due primarily to the labour costs associated with IM Operations and CIM revenue.
- The net loss improved by $0.5 million or 41% from $1.1 million in Q4 2021 to $0.6 million in Q4 2022. Adjusted EBITDA improved by $0.3 million or 51% from a $0.7 million loss in Q4 2021 to $0.4 million loss in Q4 2022 (please see table below reconciling Adjusted EBITDA to Net loss).
Reconciliation of Net loss to Adjusted EBITDA
- The term Adjusted EBITDA does not have a standardized meaning under IFRS and therefore is unlikely to be comparable to similar measures presented by other companies. EBITDA represents earnings before interest, taxes, depreciation, and amortization. The Company includes stock-based compensation and impairment charges as an adjustment to earnings in this measure and therefore refers to the measure as Adjusted EBITDA. Adjusted EBITDA is used by OneSoft as an indirect measure for operating performance, and has targeted certain levels for it, as it is considered to be one of the key factors in measuring success of the business. The following is a reconciliation of Adjusted EBITDA to net loss for each of the annual periods presented.
Quarterly Revenue Historical Growth
The chart below shows revenue for the past twenty-six quarters. Quarterly revenue continues to increase through the continued addition of new customers, including new IM Operations customer additions during the last two quarters of FY 2022. Revenue has grown at a compounded annual growth rate of 76.4% over the last 6.5 years. Management is focused on increasing revenues to drive cash flow and profitability, which we believe will increase future shareholder value.
Fiscal 2022 News and Highlights
- The Company entered into two collaborative business arrangements with third parties in Fiscal 2022 to improve pipeline integrity practices, including one with inline inspection tool vendor Entegra LLP and one with Uptake. Joint projects were under discussion with no material revenue generation occurring from these projects during the year.
- The Company entered into several multi-year SaaS contracts with new customers, including a large US-based global cooperative, a Fortune 50 supermajor, a U.S. company with international operations, and Jemena, our first Australian-based customer.
- The Company acquired IM Operations from Bass Engineering on June 30, 2022. This acquisition added risk software, high consequence area risk analysis and a highly experienced team of employees with deep domain risk expertise. IM Operations was integrated into OneBridge operations and was immediately accretive, having generated $836,633 in revenue in the last half of 2022.
- The Company released its Corrosion Management MVP product for general market use and the first phase of its pipeline Integrity-as-a-Service product in Fiscal 2022, which are now being trialed by certain customers. Management believes sales of these product may increase in future periods.
- The Company invested in the SOC 2 Type 2 qualification process, a widely recognized security standard for best practices in information systems security in service organizations, early in Fiscal 2022. Following a rigorous preparation process involving numerous hours of staff time and an independent CPA firm audit, certification was achieved in December 2022. Data security is highly important for our customers and compliance with this operational standard is recognized as the preferred practice to maximize information security and mitigate potential data breaches. In achieving SOC 2 Type 2 certification, OneSoft has raised the bar for all information technology and software vendors who service pipeline companies and also serves as another positive differentiator for the Company and its SaaS solutions.
- The Company has, and will continue to, augment its management team by attracting new staff who possess deep domain expertise in integrity management, engineering and business operations. The Company appointed new Sales and Marketing Vice-Presidents in 2022 to build and enhance the Company's strong sales funnel and generate new customer additions and revenues in Fiscal 2023 and beyond.
- The succession plan for the Board of Directors includes setting term limits for Directors and recruiting new Directors to optimize the Board's collective skillset and experience pool. The Company anticipates maintaining a five-person, diverse Board comprised of a majority of independent Directors with collective expertise and capability regarding oil and gas pipeline operations, capital markets, mergers and acquisitions and legal and financial matters.
- Management continued to promote the Company during 2022, conducting numerous communiques and meetings with shareholders and presented at various investor events including the Planet MicroCap Showcase in May, the CEM Kelowna conference in July, the LD Micro Main Event in October, and the Planet Microcap Showcase Virtual 2022 in December. The Company renewed the appointment of Sophic Capital Inc. to provide investor relations and capital markets advisory services in Fiscal 2023.
Fiscal 2023 Guidance
The Company issued a news release on January 24, 2023 which states 2019 through 2021 audited financial results, Fiscal 2022 estimated financial results and Fiscal 2023 guidance. Fiscal 2022 estimates that have been updated to actual results with no material differences and Fiscal 2023 guidance is presented below.
- Management is forecasting revenue of $10.1 million in Fiscal 2023, of which $9.2 million is expected from increased software use by existing customers, based on current and projected consumption of the Company's SaaS solutions and associated services. Certain customers plan to expand their CIM usage to newly acquired pipeline assets and those and other customers may adopt new products the Company expects to commercialize in 2023. $0.9 million of revenue is forecasted to be generated by new customers whom we expect to contract in 2023.
- Potential risks to these revenue forecasts include unforeseen factors that might negatively affect our customers' and prospects' decisions to purchase or expand the use of our solutions, not contracting with the expected number of prospective customers, not converting IM Operations customers to adopt CIM software, and IM Operations customers not purchasing the expected level of risk analysis studies. Potential regulatory changes to currently mandated deadlines for adoption of new data management standards may be changed by PHMSA, which might reduce pipeline companies' urgency to adopt the Company's solutions. Another risk may be changing economic conditions that might negatively affect pipeline operations and reduce industry spending, potentially resulting in delays of new CIM sales to prospective customers. The Company's new modules may not sell as expected by Management and customers may reduce CIM usage for other unexpected reasons.
- To mitigate the potential negative impact of a reduced Cdn to U.S. dollar exchange rate, the Company assumed an exchange rate of $1.25 Cdn to U.S. dollars in its Fiscal 2023 revenue forecast and budget. Exchange rates below and above this rate would reduce or increase the Canadian dollar equivalent of forecasted revenues, all of which are invoiced in U.S. dollars.
- Gross margin is expected to rise from 71% in Fiscal 2022 to 75% in Fiscal 2023. Certain expenses, such as cloud computing expense, are not expected to increase commensurately with higher revenue and revenue from new products will not bear the historical rate of royalty expense. Management believes labour efficiency will increase in 2023 as customers conclude implementations and become more proficient in the use of our software, allowing these costs as a percentage of sales to decrease in 2023.
- Fiscal 2023 budgeted expenditures reflect increased spending by approximately 9% over Fiscal 2022. Salaries and employee benefits will increase by 4% due to selective compensation increases; marketing expenses will decrease 10% as certain marketing initiatives previously conducted by third-parties will be conducted by internal resources; and general and administrative expense will increase 39% due to the inclusion of contingency expenses of $600,000, of which $500,000 is potentially allocated for additional product or other business development projects. As well, $100,000 may potentially be used to upgrade our internal controls to up-list to a tier one Canadian stock exchange and to amend our annual audit to comply with USA Public Company Accounting Oversite Board standards, which is a requirement should the Company decide to list its shares on a tier one U.S. stock exchange.
- Net Loss and Adjusted EBITDA for Fiscal 2019 to Fiscal 2022 and forecasted figures for Fiscal 2023 based on the operational budget are stated in the following table.
- The following table states the historical and forecasted Fiscal 2023 cash and deferred revenue balances as at fiscal year ends. The Company's debt, as at December 31, 2022, other than accounts payable, is $423,312 arising from the acquisition of the IM business unit on June 30, 2022.
- The projected cash balance for Fiscal 2023 year-end may vary materially if certain unforeseen scenarios occur during the year, including but not limited to: (i) revenue from new customers and new CIM modules not occurring as expected, which in turn will affect deferred revenue and cash balances; (ii) material variances in planned expenditures; (iii) the Company's current business plan being changed during the year; and/or (iv) the Company incurring a material expenditure such as an acquisition during the year. At this point in time, Management does not anticipate any requirement to raise additional capital in Fiscal 2023 if no such unforeseen events occur.
- Management anticipates that deferred revenue will continue to help finance operations in Fiscal 2023. Deferred revenue is forecasted to be approximately $1.8 million at Fiscal 2023 year-end. This figure may vary materially due to timing of cash receipts, CIM utilization by existing customers, and is also dependent upon achieving planned revenue and closing of sales to new customers during 2023 as anticipated.
CIM Use and Revenue Generating Data-miles
The following pipeline miles table estimates the miles of customers' pipeline assets that are subject to multi-year SaaS agreements and the approximate miles of pipeline data ingested into CIM on which revenue was earned ('data-miles').
- In Fiscal 2022, the Company amended its pricing strategy to price and budget CIM consumption revenue to ramp up for new customers typically over a 5 or 7 year period, which coincides with regulatory inline inspection schedules for liquid and gas pipelines, respectively. While some customers may onboard all of their pipeline assets over shorter or longer periods, we believe this consumption is generally reasonable to forecast revenue. For example, assuming a $100 per data-mile figure, revenue expectations for a customer with 10,000 miles of liquid pipeline would approximate $200,000 in year 1; $400,000 in year 2; $600,000 in year 3; $800,000 in year 4; and $1 million in the fifth and subsequent years. Readers are cautioned that this theoretical assumption will not be accurate for all customer scenarios and that pricing strategies may be changed, potentially affecting forecasted revenue generation timelines.
- Two other factors are expected to result in increasing revenue over time. Most multi-year customer contracts now include annual price escalation terms, allowing the Company to increase pricing in accordance with either a stated percentage (usually 10% or less) or increases in the U.S. CPI index. Also, because customers will be charged for new SaaS modules they commence using, maximum annual revenue from customers will occur only after all pipeline asset data have been ingested and all additional functionality modules have been fully implemented.
- 'Pipeline miles generating revenue' in the above table approximates the cumulative data-miles ingested into CIM that are revenue generating. '% of subscription miles generating revenue' is the percentage of revenue generating data-miles compared to total miles operated, cumulatively for all customers. 'Revenue per mile for revenue generating miles' is the calculation of total revenue divided by cumulative revenue generating data-miles. This calculation is only an approximation, as the revenue per data-mile figure will only be accurate when all customers' miles become revenue generating for the entire fiscal year and is subject to fluctuation due to customer pipeline maintenance schedules. Management uses this revenue per mile figure only as an approximation to determine trending analyses.
We believe that OneSoft's solutions are leading the SaaS market in cloud computing, data science and machine learning technologies for oil and gas pipeline operations and that our solutions are becoming the de facto standard for next generation computing solutions in our market niche. Our customer base is comprised of key industry leaders, including two industry supermajors with international operations, who have strongly validated our SaaS solutions as superior alternatives to replace legacy systems and processes that have been used for pipeline asset and integrity management for the past few decades. Our customers are sharing feedback and promoting the advantages of our solutions to industry peers and continue to provide input for development of new companion products they wish to implement. Based on interest and discussions currently underway, we anticipate that the Company may enter into collaborative arrangements with certain industry vendors who are considering benefits of leveraging OneSoft SaaS solutions in provision of services to their customers, as alternatives to continue with their legacy systems or commence development of competing products.
Our product development roadmap is continually updated in collaboration with our customers who have expressed interest in adding certain companion software modules that integrate with the CIM SaaS platform. Our strategy is to develop minimally viable product ('MVP') modules that satisfy basic software functionality requirements and subsequently enhance them in accordance with customers' input and feedback and indicated willingness to purchase the functionality. The Company's Corrosion Management module achieved MVP status is 2022 and Risk Management and Crack Management MVP modules are currently in private preview use by early adopter customers, with commercial release-to-market scheduled for mid-2023. Although only limited revenue generation from these modules is forecasted in Fiscal 2023, we expect that material revenues from these modules will commence in Fiscal 2024, after validation by initial customers and following budgeting cycles for 2024 in which customers can plan for the additional investments in complementary SaaS solutions. A new module for geohazard risk management is in the research and prototyping phase in the Company's Innovation Lab and may potentially progress toward MVP status in late 2023 if sufficient customer interest warrants a decision to proceed with its development.
We believe that OneSoft is uniquely positioned with a significant competitive moat and opportunity to accelerate adoption of our revolutionary solutions by new customers. Sales efforts are currently underway with prospective customers in North and South America, Europe, Middle East and Australia and several U.S. based customers have initiated efforts to expand use of our solutions by their international operating divisions. OneSoft is poised for approximately 50% revenue growth in Fiscal 2023 over Fiscal 2022 and achieve near cash neutral monthly operations late in Fiscal 2023. Management believes there will be no requirement to raise additional capital to execute current business and operational plans.
WEBCAST: ANNUAL GENERAL AND SPECIAL MEETING OF THE SHAREHOLDERS MAY 23, 2023
The Annual General Meeting of the Shareholders will be held May 23, 2023 at 1:00 pm Mountain time and may be attended by clicking this link or by telephone access at 888-816-4438 using access code 682-314-015. After the formal portion of the Meeting, Management will review the Fiscal 2022 results and answer shareholder questions.
About OneSoft and OneBridge
OneSoft has developed software technology and products that have capability to transition legacy, on-premises licensed software applications to operate on the Microsoft Azure Cloud Platform. Our business strategy is to seek opportunities to incorporate Data Science and Machine Learning, business intelligence and predictive analytics to create cost-efficient, subscription-based software-as-a-service solutions. Visit www.onesoft.ca for more information.
OneSoft's wholly owned subsidiaries, OneBridge Solutions develops and markets revolutionary new SaaS solutions that use advanced Data Sciences and Machine Learning to analyze big data using predictive analytics to assist Oil & Gas pipeline operators to predict pipeline failures and thereby save lives, protect the environment, reduce operational costs, and address regulatory compliance requirements. Visit www.onebridgesolutions.com for more information.
For more information, please contact.
This news release contains forward-looking statements relating to the future operations and profitability of OneSoft Solutions Inc. (the 'Company') and other statements that are not historical facts. Forward-looking statements are often identified by terms such as 'may', 'should', 'anticipate', 'expects', 'believe', 'will', 'intends', 'plans' and similar expressions. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking information is provided to deliver information about management's current expectations and plans relating to the future. Investors are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions.
In respect of the forward-looking information and statements the Company has placed reliance on certain assumptions that it believes are reasonable at this time, including expectations and assumptions concerning, among other things: the impact of Covid-19 on the business operations of the Company and its current and prospective customers; the availability and cost of labor and services; the efficacy of its software; our interpretation based on various industry information sources regarding the total miles of pipeline in the USA and globally and which segments are piggable; our understanding of metrics, activities and costs regarding evaluation, inspection and maintenance is in alignment with various industry information sources and is reasonably accurate; that counterparties to material agreements will continue to perform in a timely manner; that there are no unforeseen events preventing the performance of contracts; that there are no unforeseen material development or other costs related to current growth projects or current operations; the success of growth projects; future operating costs; interest and foreign exchange rates; planned synergies, capital efficiencies and cost-savings; the sufficiency of budgeted capital expenditures in carrying out planned activities; and no changes in applicable tax laws. Accordingly, readers should not place undue reliance on the forward-looking information contained in this press release. Since forward-looking information addresses future events and conditions, such information by its very nature involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to many factors and risks. These include but are not limited to the risks associated with the industries in which the Company operates in general such as: costs and expenses; interest rate and exchange rate fluctuations; competition; ability to access sufficient capital from internal and external sources; and changes in legislation, including but not limited to tax laws.
Readers are cautioned that the foregoing list of factors is not exhaustive. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement. The forward-looking statements contained in this news release are made as of the date of this news release, and the Company undertakes no obligation to update publicly or to revise any of the included forward-looking statements, whether because of new information, future events or otherwise, except as expressly required by Canadian securities law.
This news release does not constitute an offer to sell or the solicitation of an offer to buy any securities within the United States. The securities to be offered have not been and will not be registered under the U.S. Securities Act of 1933, as amended, or any state securities laws, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of such Act or other laws.
The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.
SOURCE: OneSoft Solutions Inc.
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