EMERGE Commerce Ltd. (EMCMF) Earnings Call Transcript & Summary

Good morning, and welcome to the EMERGE Commerce's Third Quarter 2025 Results Conference Call. [Operator Instructions] This call is being recorded on November 26, 2025. Your hosts today are Ghassan Halazon, Founder and Chief Executive Officer; and Dasha Enenko, Chief Financial Officer. Before we begin, I'm required to provide the following statement respecting forward-looking information, which is made on behalf of EMERGE and all of its representatives on this call. Certain statements made on this call will contain forward-looking information. These forward-looking statements generally can be identified by the use of words such as intend, believe, could, expect, estimate, forecast, may and other words of similar meaning. This forward-looking information is based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Actual results could differ materially from a conclusion, forecast, expectation, belief or projection in the forward-looking information. Certain material factors and assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. We caution investors not to rely on the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information, are contained in EMERGE's filings with the Canadian provincial securities regulators. During today's call, all figures are in Canadian dollars unless otherwise stated. And with that, I'd like to turn the call over to Mr. Ghassan Halazon, Founder and CEO.

Thank you very much. Good morning, everyone. We appreciate you taking the time to participate in our third quarter 2025 conference call. Joining me today is Dasha Enenko, our CFO. This morning, I will walk through the exceptional progress we continue to make at EMERGE and share some insights across our key businesses, our more focused acquisition strategy as well as our Q4 and full year outlook among other updates. Following my remarks, Dasha will provide additional details on our financial results, after which, I will conclude the call with some closing remarks and open up the line for analyst questions. Let's get going. Q3 was another statement quarter for EMERGE. Revenue for the quarter grew by 58% to $7 million versus $4.4 million in Q3 2024, driven by the undeniable momentum we continue to see at T2G in its second quarter under EMERGE ownership, in addition to the continued positive growth we achieved at truLOCAL, our flagship grocery brand. Q3 marks our sixth consecutive quarter of positive organic revenue growth. Worth noting that while Q3 is usually a strong quarter historically for T2G during golf season, it tends to be a more seasonal quarter for some of our other brands, most notably truLOCAL, given it is not uncommon there some customers to pause memberships while on their summer vacation. Summer seasonality is a standard occurrence for subscription or membership e-commerce models. Notwithstanding, both truLOCAL and the golf vertical exhibited positive organic growth year-over-year, accompanied by much improved profitability, which is another key priority for us. T2G, in particular, drove high double-digit revenue growth in its second quarter under EMERGE. Put simply, T2G is really exceeding all our expectations so far. Q3 adjusted EBITDA for EMERGE improved to $261,000, a positive swing of $514,000 year-over-year and approximately 4.4% above the high end of the $200,000 to $250,000 EBITDA range we provided in our preliminary Q3 results announced last month. Year-to-date, through the first 3 quarters, EMERGE has delivered adjusted EBITDA of $1.25 million compared to an adjusted EBITDA loss of $485,000 for the comparative period in 2024, a substantial positive swing of $1.7 million year-over-year. This brings me to another point. Whereas 2024 was our first year of return to positive organic revenue growth, we can now say with confidence that 2025 will be our first year of return to positive adjusted EBITDA at EMERGE. Beyond the P&L, our cash position grew to $4.1 million at September 30, 2025, versus $1.6 million at September 30, 2024, an increase of $2.5 million over the last year, highlighting exceptional cash flow generation, another major priority for us. Notably, we delivered positive cash flow from operations of $919,000 in Q3 versus operating cash outflow of $414,000 in Q3 '24. Year-to-date, EMERGE has generated $2.5 million in cash flow from operations compared to cash [outflow] of negative $411,000 in the first 9 months of 2024. The cash buildup at EMERGE is a function of our overall sales and profit growth in addition to the favorable structuring of the T2G transaction, which included an 8-year inventory payment plan, further bolstering cash flow. It is important to state clearly that the cash flow generation we are seeing exceeds management's expectations, and that is, of course, always a good thing. Moving on, allow me to provide a brief update on some recent warrant expiries and exercises. A few days ago, on November 24, 2025, approximately 12.2 million debenture warrants, with an exercise price of $0.25, expired unexercised and were delisted. This follows our announcement in July '25 that approximately 12.3 [million] warrants expired unexercised. Combined, approximately 24.5 million warrants have expired unexercised between July and November 2025. Any remaining warrants are set to expire between now and year-end. At this time, the company expects to enter 2026 with 0 warrants outstanding. Of course, practically speaking, this translates to a dramatically more streamlined capital structure and minimize warrant overhang for shareholders. In addition, I should note, approximately 2.7 million out of the money warrants were exercised at $0.10 by a group of supportive long-term investors, raising approximately $270,000 in cash proceeds back in July of '25. As you may have seen, I also opted to exercise my 91,000 out-of-the-money options at $0.11 in alignment, although expiry of those securities is not until October 2027. Now for a brief update on the debt side. EMERGE maintains a long-standing relationship with our existing lender, dating back to November 2019, and we remain in good standing. Worth noting, our senior credit facility has been reduced from a peak of $25 million to $5.85 million as of today, a divi-ing debt reduction that took a lot out of us by all means, but we got it done. And that's all that matters. We believe that our materially improved profitability and balance sheet as well as our reduced net debt level, in a more favorable interest rate cycle, could lead to the possibility of securing cheaper, longer-term debt refinancing options, further driving savings and improving cash flow. We are currently in discussions with a number of major Canadian banks and other lenders exploring various possibilities. To be abundantly clear, we are not seeking to increase our debt. After all, we spent the last few years eliminating close to 80-plus percent of our net debt position. Our goal is to actually reduce our cost of capital, in other words, reduce interest expense and grow cash flow that we can pour back into our business to drive organic growth and into future accretive acquisitions similar to T2G. Speaking of acquisitions, building off our success in acquiring and accelerating T2G, which continued to perform exceptionally in Q3, EMERGE is selectively advancing accretive acquisition opportunities in our grocery and golf verticals where we have amassed deep expertise, brand awareness and substantial customer databases as well as adjacent B2B or e-commerce enablement technologies that can help supercharge the existing portfolio to new heights, both by driving organic growth and contributing consistent cash flows. EMERGE's focus is exclusively on profitable acquisition candidates with $750,000 to $2 million in adjusted EBITDA with a long-standing track record of revenue stability and cash flow generation. Similar to T2G, we intend to remain disciplined with acquisition pricing and structure. Ultimately, we also want to ensure that our next acquisition immediately enhances our balance sheet and specifically our net debt-to-EBITDA ratio for purposes of securing cheaper, longer-term debt refinancing, as previously outlined. Next up, a few words on our Q4 outlook and full year outlook. For Q4 2025, management expects to achieve another quarter of double-digit revenue growth and positive adjusted EBITDA. The Q4 holiday season is generally a high sales volume period, particularly at truLOCAL, including for B2B/corporate gifting orders as well as at UnderPar as golf courses introduce discounted preseason 2026 offers. EMERGE is now on track to achieve its full year 2025 objectives of strong revenue growth, positive adjusted EBITDA and positive cash flow. This will be the first time achieving all three milestones simultaneously under our new operating model. I will now turn the call over to Dasha for a review of our financial results.

Thanks, Ghassan. Fiscal Q3 2025 marked our second quarter of reporting with Tee 2 Green acquired in April 2025. In Q3, 2025, our gross merchandise sales or GMS for short, which is a non-GAAP measure representing the total dollar value of customer purchases of goods and services through our brands, excluding applicable taxes and net of discounts and refunds, grew 27% to $9.3 million compared to $7.3 million in the same period last year. Following the Tee 2 Green acquisition, sales between Tee 2 Green and JustGolfStuff were eliminated from reported GMS with only sales to external customers included. Revenue for the quarter increased by 58% to $7 million, up from $4.43 million in the prior year period, driven by the strong performance of T2G acquisition as well as positive organic growth at truLOCAL, which is EMERGE's largest business by revenue. Gross profit for the quarter was $2.4 million compared to $1.8 million in the comparative period. The reported gross profit includes a noncash fair value inventory increment of $170,000 recorded as part of the business acquisition accounting. Excluding this noncash accounting adjustment, gross profit would have been $2.6 million, translating to approximately 37% gross margin compared to 40% in the prior period. Net income from continuing operations improved to $20,000 compared to net loss of $700,000 in the prior period. Net income was $30,000 compared to a net loss of $730,000 in the same quarter last year. The reported net income from continuing operations and net income from the period include a noncash fair value inventory increment of $170,000 recorded as part of business acquisition accounting. Excluding this noncash accounting adjustment, net income from continuing operations would have been approximately $190,000. Adjusted EBITDA was $260,000, an improvement of approximately $500,000 from an adjusted EBITDA loss of $250,000 in the prior year period. These improvements reflect the strong performance of the T2G acquisition, positive organic growth across our grocery and golf verticals, reduced SG&A and the discontinuation of unprofitable business lines. Finally, cash on hand as of September 30, 2025, was $4.1 million compared to $1.6 million at the end of the same quarter last year. This improved cash balance was supported by $920,000 cash generated from operating activities in Q3 compared to cash outflow of $411,000 in the prior year period. I'll now pass the microphone back to Ghassan for some closing remarks.

Thank you, Dasha. In closing, Q3 underscores the very visible progress underway at EMERGE. We are executing with discipline, delivering consistent growth in top line and bottom line and quite simply generating cash at levels the company has never seen before. T2G's results continue to exceed all expectations in its second quarter under EMERGE ownership. truLOCAL is having a banner year as the power of its brand and community are in full display during the Support Local year. Our balance sheet is materially stronger than it has been in years. Our cash table is more streamlined than ever. These are not isolated results. They reflect a deliberate and durable shift in how we operate. Looking ahead, our focus is clear, continue to drive sustainable growth in our core verticals, expand profit margins through operational efficiencies, pursue disciplined and accretive acquisitions and lower our cost of capital to unlock even more cash flow. We are committed to executing with precision, this holiday shopping season and concluding what is turning out to be a truly transformative year for the company. Finally, I would like to offer my sincere gratitude to our resilience and determined team, Board, shareholders and trusted partners, as we deliver what we consider to be another exceptional quarter. Thank you all for your time today and interest in ECOM. We will now be open -- we will now open the call for analyst questions.

[Operator Instructions] Your first question comes from Doug Cooper with Beacon Security.

Congratulations on a great quarter. Understanding the seasonality in the business, but can you give me segment revenue by category, golf and grocery?

Yes. Thanks for the question. Just at a high level, these two verticals right now are split approximately 55% to 60% revenue on the truLOCAL side and about 40% to 45% golf. To be clear, that is the revenue picture, not the gross merchandise sales picture, which varies from that. Now seasonally, the mix of revenue differs. As we mentioned, Q3 would be a period where truLOCAL's revenue is a bit lower than other quarters given the summer seasonality. But overall, that's the general mix. So truLOCAL being the largest revenue effectively, call it, about 55% of overall. Tee 2 Green being, by the way, the largest golf business by revenue. We mentioned that last year, when we acquired it, it was about $6.4 million in last year's unaudited numbers. Obviously, we've seen tremendous double-digit growth this year. So I think investors can extrapolate accordingly. The rest would be UnderPar and JustGolfStuff.

Okay. So that's for the year. But do you have actual for -- the actuals for this quarter?

Right. Yes. So approximately this quarter, Q3, we're looking at about almost half of the revenue is truLOCAL and the rest is essentially golf, so approximately closer to 50-50 this quarter given truLOCAL is on the lower side.

Got it. Okay. And then Q4, the outlook, you expect another strong quarter, EBITDA positive. Is it possible to get a bit more qualitative in terms of directionally versus Q3, up, down, flat? And I'm assuming maybe truLOCAL picks up a little bit in Q4 and golf drops, I guess, in Q4, maybe you could just...

Yes, certainly. It's somewhat nuanced. I'll try to compartmentalize this for you, Doug. So big picture, directionally similar to Q3 and overall, truLOCAL, as we said, gains from not only the holiday gifting, but then you have the added layer of B2B and corporate ordering. So that business grows not only against Q3, but against most quarters of the year, with the exception of Q1, which is -- it tends to be one of truLOCAL's best quarters because it's sort of the new you, new health start of the year for protein and healthy living, which is what truLOCAL embodies. So you tend to get a bigger number out of truLOCAL. On the golf side, it's a nuanced because Tee 2 Green doesn't have its kind of golf season roadshows and pop-up stores that are front and center from about March, April to October, really. So we don't have that element, but we do make up for it somewhat with the UnderPar side of the business, as we mentioned, with the presales tickets for 2026. But overall, on a blended rate, somewhere in and around sort of what we see from Q3 is a reasonable assumption. And so like just to kind of connect the full dots as this picture evolves, Q2 is really the quarter where golf season starts and Tee 2 Green, in particular, as well as the rest of the golf has sort of an exceptionally strong quarter seasonally. And then the rest is quite somewhat balanced depending on brand, but overall balanced with what we just saw here.

Okay. Just on the truLOCAL side, the grocery side, given the economic environment, are you seeing any impact on that side of the business, positive or negative?