Intouch Insight Ltd. (INX) Earnings Call Transcript & Summary

Good morning, and welcome to the Intouch Insight Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Joining me today is Cameron Watt, President and Chief Executive Officer; and Cathy Smith, Chief Financial Officer. Before we begin, I'd like to remind you that our remarks today contain forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those anticipated. Please refer to our regulatory filings for a full discussion of the risks and uncertainties that could affect our results. During this call, we will also discuss certain non-IFRS financial measures, including adjusted EBITDA. Reconciliations of these non-IFRS measures to the most comparable IFRS measures are included in our MD&A, which is available on SEDAR+. With that, I will turn the call over to Cameron Watt.

Thank you, James, and thank you all for joining us today. Last quarter, I told you that 2026 would be a year of deliberate investment and that we expected the growth curve to build as the year progressed. The second quarter is that story playing out. Revenue of about $7 million was up 8% from $6.5 million a year ago. That is our strongest quarterly growth rate in 7 quarters. It's also organic, and it's a step up from the 6% for the first quarter. The curve is bending the way we said it would. Each of our major product lines contributed, in fact, staff grew to 475,000, Recurring services was up to 6% to $5.9 million. Event Marketing Automation grew 8% to $573,000 in merchandising, which did not exist in the prior year contributed $83,000. Let me be direct about the profit line. Look, we recorded a net loss of $43,136 in the quarter. It's essentially breakeven, and it's in line with what we planned. In the first 6 months of the year, we generated $64,000 of net income, right, $580,000 of adjusted EBITDA, and I would flag that both figures include a foreign exchange gain of about $143,000. So excluding currency, we're modestly below breakeven instead of modestly above it. We have achieved effective breakeven while investing in our sales organization and organizational capabilities. So we have funded this program without issuing a single share. Our share count is exactly where it was at the start of the year. Adjusted EBITDA of $227,559 in the quarter is down from $370,812 a year ago and the [ $580,183 ] for the first half is down from $928,560 in the first. That gap has 3 parts, and I want to name all of them. The first is investment, which is deliberate. We have added materially to the sales organization exactly as we told you we would in February and again in May, and selling expense is up about $164,000 in the quarter. The second is general and administrative costs up about $181,000 excluding the currency swing, which Cathy will break down. The third is product development, up about $93,000 and Cathy will explain that it is almost entirely the absence of investment tax credits rather than new spend. Gross profit was essentially flat. Our margin percentage was 46.7% this quarter against 50.4% a year ago, which is product mix, including the merchandising work we're ramping. The revenue grew about $0.5 million and gross profit did not grow with it. I'm not going to address that up. What I would ask you to watch is whether absolute gross profit dollars start moving as the merchandising and the other revenues continue to build. Now let me walk through the 4 areas where we are putting the investment to work. First, software and SaaS. SaaS revenues were up 18% in the quarter. I want to give you an honest picture around that number. Part of it is new business. We signed expansion with existing clients. Part of it is foreign exchange, which moved in our favor through the year, and we've seen a small amount of client attrition, a handful of idiosyncratic situations. One client has point-of-sale vendor, bundled a comparable capability at no cost, another loss to consolidation where the acquirer simply didn't use the tool. Those are one-off situations, not a pattern, and we plan for normal level of attrition in any business regardless. Taken together, I would not have you model 18% growth for the full year in SaaS, however. What I would have you take away is that SaaS is healthy, it's contributing, and it's on track with our new strategy and approach. On the pipeline side, the 7-figure SaaS RFP in our core QSR vertical that I described last quarter is still moving slowly and not in our timetable, but it's moving. What I can tell you is that we have clearly every qualification -- sorry, we cleared every qualification date to date, and we remain in that process. We do not control their timing, and I would continue to think of that opportunity as a 2027 revenue event rather than a 2026 one. Second, from a merchandising standpoint, I'm going to give you the unvarnished version. Merchandising has quite simply been slower off the line than we wanted. We generated $37,000 in the first quarter and only $83,000 in the second. So about $120,000 for the first half of the year against the target for the full year of about $1 million. That's not where we plan to be at the halfway mark, but start-ups are unpredictable and they're lumpy. You have to have the discipline to trust your strategy and to be agile. During the second quarter, we've actually secured an additional merchandising customer, and we have contracted work in hand for the third quarter that exceeds the combined revenue for the first half of the year. We have also strengthened the sales organization dedicated to the business. And based on the contract signed to date, we expect third quarter merchandising revenue on its own to be much larger than what we did in the first 6 months. I want to be clear about why I'm comfortable saying that. This is not pipeline optimism. It's signed work in the field. Merchandising is also a business where programs can go from nothing to substantial in a matter of weeks, which is what makes it frustrating on the way up and powerful once it turns. We are holding our full year target of more than $1 million. The third area is new market expansion. Our push into grocery is progressing on schedule. We produced proprietary grocery research in partnership with Informa Connect and NexChapter. And earlier this week, Sarah Beckett, our VP of Sales and Marketing and myself, presented that research during the general session at GroceryNEXT in Chicago in front of an invitation-only audience of senior grocery operators. As I said last quarter, we do not expect grocery to move the revenue line in 2026. This is pipeline and credibility building for 2027 and beyond and it's tracking exactly to that plan. And fourth, thought leadership. This is not a marketing line item for us. It is how our sales team gets in the door. In the quarter, we published our 2026 C-store trends report and our 2026 emerging experience study on Mobile Order and earlier this month, we presented our annual convenience industry study, which encompasses almost 3,000 site visits across 14 leading brands I presented on the main stage of the Outlook Leadership Conference, where we also announced our top operator award in conjunction with CSP Daily News. This study has become the benchmark the industry measures itself against and it puts us in front of the executives who sign our contracts. And with that, I will now hand the call over to Cathy to review the financials in more detail.

Thank you, Cameron, and good morning, everyone. Total revenue for the second quarter was $7,015,784, an increase of 8% or $512,245 compared to the $6,503,539 in Q2 2025. By line, SaaS revenue was $474,999, up 18% from the $403,399 last year. Recurring services revenue was $5,879,676, up 6% from the $5,545,064 in the prior year. Event Marketing Automation revenue was $572,560, up 8% from $528,745. Merchandising revenue was $82,824 against nil in the prior year period. Nonrecurring services revenue was $5,725, down from $26,331 is not material to either period. Geographically, U.S. revenue was $5,839,165, up 15% and represented 83% of total revenue. Canadian revenue was $1,169,422, down 18%, with international revenue of $7,197, making up the small balance. Our U.S. revenue is reported in Canadian dollars and was affected by foreign exchange. Gross margin for the quarter was 46.7% compared to 50.4% in Q2 of 2025. In dollars, gross margin was $3,275,474, essentially flat against the $3,278,092 we reported a year ago. Cost of services rose 16% on 8% revenue growth, driven by staff and contractor expense and by delivery and communication costs, which rose 26% as merchandising activity increased. The margin percentage decline is a mix effect rather than a pricing range. Operating expenses continue to reflect the strategic investments Cameron described, I would note that the prior year comparison is not clean at the operating line. Q2 2025 total operating expenses of $4,299,212, included a noncash impairment charge of $1,193,484 against goodwill and intangible assets associated with the loss of an acquisition obtained customer. Excluding that item, Q2 2025 operating expenses were roughly $3.1 million and operating income was approximately $172,000 against $54,361 this quarter. Selling expenses were $845,670, up 24%, with salaries and benefits up 52% as we added sales capacity and travel up 39%. Marketing spend was $293,956, down slightly year-over-year. Product development expenses were $561,293, up 20%. I want to be clear about that increased product development salaries were essentially flat, up 1.4%. The majority of the change is the absence of investment tax credits and government contributions, which were $84,551 in the prior year quarter and nil this quarter. General and admin expenses were $1,814,150, down 7% as reported. That decrease is a foreign exchange effect. G&A this quarter includes a foreign exchange gain of $93,957 against a loss of $228,516 a year ago. Excluding that swing, underlying G&A was up about 10% year-over-year. The largest components of that underlying increase were investments in computer and AI-related capabilities, which accounted for approximately $78,000 and an increase in salaries of approximately $98,000 as we expand capacity. Turning to profitability. Adjusted EBITDA for the quarter was $227,559 compared to $370,812 in the prior year. Three things drive that decline against essentially flat gross profits. Selling expenses, which were up $164,000. Other G&A costs up about $181,000 excluding the currency swing and product development, which was up $93,000. Partly offsetting them is a favorable foreign exchange swing of about $322,000. I would note that adjusted EBITDA includes the foreign exchange gain I mentioned. So on a constant currency basis, the underlying decline is larger than the reported figures suggest. We recorded a net loss of $43,136 for the quarter or $0.00 per share compared to a net loss of $1,112,023 or $0.04 per share in Q2 2025, which, as I noted, included that impairment charge. On a year-to-date basis, we've generated net income of $64,1069 and an adjusted EBITDA of $580,183 compared to a net loss of $899,421 and adjusted EBITDA of $928,560 in the first half of 2025. Revenue for the first 6 months was $13,686,230 up 7% from $12,823,202. Now cash. Because the number moved, I want to address it directly. Cash used in operating activities was $403,631 in the quarter and $598,857 year-to-date against $136,190 generated in the first half of last year. Before changes in working capital, we generated $587,199 year-to-date. This swing is working capital. and specifically receivables, which grew $1,053,513 or 28% from year-end to $4,799,481 in days, that's roughly 62 days of revenue outstanding roughly 57% at year-end. So it's a 5-day move. I would point you to 2 things in the aging. First, effectively, all of the increase sits in the current 160-day buckets. Second, receivables more than 60 days past due actually fell 44% from $419,971 at year-end to $236,517. And our provision for expected credit losses came down as well. This is collection timing on a small number of larger accounts, not a change in the quality of our revenue, and we expect it to normalize. On the balance sheet, we ended the quarter with $954,386 in cash, down $644,774 from year-end and working capital of $4,597,524, up from $3,192,326 I want to be straightforward about what drives that working capital increase. It's the receivables build I just described, together with the March refinancing, which moved roughly $491,000 of debt out of the current portion. It is not operating cash generation. Our credit ratio is 4.021. The term facility we refinanced in March with our chartered bank is authorized to $2.6 million of which $1.965 million was drawn at quarter end, and the balance remains available, subject to disbursement conditions. Principal repayments on that facility are deferred until February 2028. We have mill drawn on our $3 million demand operating loan compared to a $380,000 balance at year-end. Between that undrawn facility and our receivables position, we do not anticipate raising equity to fund this organic growth program. With that, I'll pass it back to Cameron.

All right. Thanks, Cathy. Before we turn to your questions, a quick word on the outlook. Our 2026 expectations are unchanged, and they are the same ones we set out in our MD&A, double-digit organic revenue growth by year-end merchandising revenue exceeding $1 million and continued investment into our strategy, which may result in an operating loss. On funding, we intend to fund those investments from cash generated by operations and our existing credit facilities, and we do not anticipate that shareholder dilution will be required. We went into this year expecting the growth curve to be back half weighted and the first half has come in essentially where we expected, 6% growth first quarter, 8% growth in the second, breakeven on the profitability side and no shareholder dilution. To reach double digits for the full year, the back half needs to be above 13% against roughly 7% in the first half. I know you can all do math, so we did it for you. And yes, that's a hill, but we have signed merchandising work in the third quarter, and we also have other agreements, and we're working towards that goal on the services and the software side. Is there risk to the exact number? There always is. But I would rather stand here and tell you that we are investing into a set of opportunities we can see in front of us that manage this company for a prettier quarterly print and leave market share on the table. The lifetime value of the contracts we are pursuing is worth considerably more than the optics of a small loss. This should not be a surprising quarter in either direction is what we said we do. And with that, we're ready to take your questions.

[Operator Instructions] And I do see the first one coming in here. 8% growth is your strongest in 7 quarters and fully organic? What changed in the business? And what makes you confident it holds through the back half.

Well, I guess the best way to answer that is, I think it's less about what has changed, and really, it's more about what's starting to work. We've been working on the thought leadership and all surrounding sales efforts now for a number of years, right? We've increased investments in this area even recently, as you've seen. We are getting more opportunities, right? We're doing better in terms of closing those opportunities and getting more than our fair share of them. And I've always indicated that with those larger clients who are our targets, we're not trying to get the big guys, it does take longer than we'd like sometimes to close those deals and get them in the door from a sales cycle standpoint. And this is why doubling the business shows modest growth in 2026 with acceleration, right, expected as time goes on. The other area that's helped in the growth so far this year is the expansion with existing customers which is not only positive revenue, but obviously, it's also very positive testimonial towards our products. So the fact that the first half of the year, momentum is based on activity from the last 2 years, there's no reason for me to think that we don't continue to see momentum as we continue to accelerate that activity.

The next question here. Operating cash was negative $599,000 year-to-date, and cash is down $645,000. What in the receivables aging tells you this is collection timing rather than revenue quality?

I think questions for me. Sure. There are 3 things going on with receivables, and they are all pointing in the same direction. First, the receivables number is up $1.05 million from year-end. That is all sitting in either the current or 1- to 60-day buckets and those are invoices we've raised recently, not invoices that have been sitting around. Second, the older money is actually getting better. Anything more than 60 days past due has come down 44% actually from about $420,000 at year-end to $237,000. If we had a revenue quality problem, that bucket would be growing, not shrinking, so it's going the right way. Our provision for expected credit losses came down too from about $18,000 to $11,000. Third is the size of the move in days. We went from 57 at year-end to roughly 62, which is a 5-day shift. It's a small number of larger accounts and it's structural. And underneath it all, before working capital changes, we generated $587,000 of cash year-to-date. The business generated cash at the operating level, what moved is when it lands, and we expect it to normalize.

Great. Next question I see here, 83% of your revenue is in the U.S.A. and it is where your growth came from. Do you feel any risk from the current trade war?

There's a trade war? Yes. So here's a good news is that back in really what was the first term for President Trump. We could tell that American protectionism was likely to be on the horizon. And so we now have a structure that we are inside an American company in America. We do all of our business in the United States. We do it through an American Corporation out of Delaware. We pay -- we have American employees, we pay American taxes. So we're doing effectively exactly what the American administration wants companies to do, and that is do our work in America and Pay Americans and the American taxes. So I don't think we're at risk from that. In addition, we're in the services business. which are traditionally not something that are subject to a tariff regime. So I think that the fact that we're in something not typically on anyone's radar for a tariff doesn't make sense combined with the fact that we are a Canadian company, we operate in Canada, and we are an American company. We operate in America doing exactly what the administrations want us to do, we don't treat that as a significant risk on our side.

The next question, product development was up 20% and G&A down 7% as reported, how much of each is actual spend versus the investment tax credits, absence and foreign exchange swing.

Sure. I think that also is for me. It's a good question because the reported percentages do you go in opposite directions and neither one is really telling the right story. First, on product development. We reported a $93,000 increase or -- sorry, 20%. Of that $85,000 is simply the absence of investment tax credits and government contributions. Actual spend was only up about $8,000. Salaries are basically flat at 1.4% increase. and consulting flat. So it's really the absence of a credit not any new spending. On the G&A side, we have sort of the opposite story. We reported being down 7% or $142,000, but it's really a currency swing. We booked a $94,000 foreign exchange gain in the first -- in the second quarter. And we had a $229,000 loss last year -- this quarter last year. And so that swings about $322,000 favorably and it's sitting in that line. If you strip it out, the underlying G&A is up about $181,000 or 10.5%. The last 2 largest pieces, there are roughly $78,000 of computer and AI investment and $98,000 of salaries as we added capacity. So if you put selling product and G&A together on a real end basis, we invested about $353,000 more than last year. Reported operating expenses excluding prior year impairment are only up about $115,000, and the gap is really that $322,000 currency benefit, partially offset by the $85,000 worth of tax credits I just discussed. The reporting line understates that as we're actually -- it's misleading in both directions.