OneSoft Solutions Inc. (OSS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Annual General and Special Meeting of the Shareholders of common voting shares of OneSoft Solutions Inc. There will be two parts to this meeting, a formal portion wherein directors will be elected and motions are passed; followed by a presentation by company's CEO, Dwayne Kushniruk, reviewing company operations. Further to the notice of the meeting filed on sedar.com on March 24, 2021, this Annual General and Special Meeting will be held entirely by electronic means as permitted pursuant to the corporation's bylaws. As well due to technical constraints, voting at the meeting is not possible. All proxies that were submitted on time were accepted and tabulated by our transfer agent to ensure the integrity of voting at the meeting. For the purposes of this meeting, unless I otherwise state, when I refer to shareholders, I'm referring to the holders of the common voting shares of OneSoft. I also welcome all guests, if any. The meeting will now come to order, and I will request David Tam to act as Secretary of the meeting; and Pauline Osayande of Computershare Trust Company to act as scrutineer. My name is Doug Thomson, Chair of OneSoft Solutions Inc., and I will act as the Chair of the meeting. I thank each of you for taking the time to attend today's meeting. The Board and management sincerely appreciate your interest in the business matters of the corporation. Each item of business to be dealt with today has been voted with all votes submitted to our transfer agent Computershare Inc. Each holder of common voting shares is entitled to one vote per common voting share. As this meeting is being held via electronic means, shareholders and proxy holders wishing to ask questions must type their question into the chat window, which appears on the right hand side of your computer screen. Management will receive the questions, read them for the benefit for the audience and then reply verbally. It is possible that not all questions will be answered in the meeting due to time constraints, but we will endeavor to do our best. During the formal part of the meeting, only shareholders or proxy holders with a question on a specific item of business are welcome to ask it at the time that the business is being considered. [Operator Instructions] The notice meeting -- the notice calling this meeting, Management Information Circular and form of proxy were mailed on or about April 7, 2021, to all of OneSoft's shareholders of record as of March 25, 2021. Computershare's sworn affidavit of mailing attesting to the proper mailing of the notice of the meeting, together with the proxy information circular and form of proxy, has been filed with me by the Secretary. I direct that a copy of the affidavit of mailing be filed with the minutes of this meeting. I now table the notice of Annual General and Special Meeting of Shareholders, the Management Information Circular dated March 23, 2021, and the form of proxy, copies of which have been distributed to the appropriate security holders and regulatory authorities. Pursuant to the bylaws of OneSoft, a quorum for the transaction of business at this meeting is at least 2 persons present, each being a shareholder entitled to vote at the meeting or a duly appointed proxy holder and holding or representing in the aggregate at least 10% of the outstanding shares entitled to vote. The Scrutineer's report states that there are 172 shareholders present in person or represented by proxy at the meeting, representing 65,552,256 shares or 56.5% of the issued and outstanding common shares of OneSoft Solutions Inc. The Scrutineer's report will be filed with the records of this meeting. As notice of the meeting has been given and the Scrutineer's report indicates that a quorum is present, I declare the meeting as regularly called and properly constituted for the transaction of business. The minutes of the last Annual Meeting of Shareholders held on May 20, 2020, are available for inspection. We will dispense with the reading of the minutes of the last Annual Meeting of Shareholders and adopt them. The audited financial statements for the fiscal year ended December 31, 2020, and Auditor's Report have been approved by the Board of Directors and were made available to shareholders with the notice of this meeting and the Management Information Circular dated March 23, 2021. I direct the Secretary to file with the minutes of the meeting a copy of the December 31, 2020, financial statements of the corporation and the Auditor's Report thereon. I shall consider the audited financial statements received by the shareholders as submitted to the meeting. The next item of business is to consider the 4 motions stated on the Form of Proxy sent to all shareholders and on which all shareholders have been given the opportunity to vote their approvals for or against or for or withhold, where and as applicable. For expediency at this meeting, each motion has been duly motioned by David Tam, a shareholder and duly seconded by Paul Johnston, a shareholder of the corporation, both of whom are present at the meeting. All voting has been tabulated by Computershare Trust Company in their role as transfer agent for the corporation, and they have now supplied the results. I will read each motion, state the results of the voting and declare whether the motion has been carried or otherwise. The first motion is to set the number of directors of the corporation. The directors have proposed that the number of directors for the upcoming year be set at 4. The results of the voting are: for, 99.6%; against, 0.4%. I hereby declare the motion carried. It is now in order to proceed with the election of the directors for the ensuing year. However, I would like to make a few comments before doing so. Pursuant to the incorporation documents of the corporation, the holders of common shares are entitled to elect the directors. We also advise the bylaws of the corporation allow for the appointment of additional directors of the corporation between annual meetings up to a maximum of 1/3 of the then-existing number of directors. This would allow the appointment of one additional director prior to the next Annual General Meeting of Shareholders in calendar year 2022. On July 23, 2013, the shareholders approved Bylaw #2, advance notice bylaw. This bylaw fixes a deadline by which holders of record of common shares of the corporation must submit director nominations to the corporation prior to any annual or special meeting of shareholders and sets forth the information that a shareholder must include in the notice to the corporation. I advise no such notices have been received by the corporation either before or after the deadline. The following persons have been nominated for the position of Director of the corporation to hold office until the next Annual General Meeting of the Shareholders of the corporation. Ron Odynski; Dwayne Kushniruk; Randy Keith; Doug Thomson. I hereby declare nominations closed. We will now proceed to electing the directors of the corporation. Motions have been made to elect Ron Odynski; Dwayne Kushniruk; Randy Keith; and Doug Thomson, respectively, as directors of the corporation. The results of the voting are: Ron Odynski, 99.9% for; 0.1% withhold. Ron Odynski is declared elected. Dwayne Kushniruk, 90.9% for; 9.1% withhold. Dwayne Kushniruk is declared elected. Randy Keith, 99.9% for, withhold 0.1%. Randy Keith is declared elected. Doug Thomson, 99.9% for, 0.1% withhold. Doug Thomson is declared elected. In summary, Ron Odynski, Dwayne Kushniruk, Randy Keith and Doug Thomson have each been elected as directors of the corporation for the ensuing year. I would like to thank the directors for agreeing to stand for election and for overseeing the affairs of the corporation. The next motion is the appointment of Grant Thornton LLP as auditors of the corporation and authorizing the directors to fix their remuneration. The results of voting are: for, 99.8%; withhold, 0.2%, I hereby declare the motion carried. The next motion is to approve the stock option plan of the corporation as described in the Management Information Circular dated March 23, 2021, and substantially in the form as Appendix C thereto, whereby a maximum of 10% of the corporation's issued and outstanding common shares will be reserved for issuance from time to time. The results of voting are: for, 97.2%; withhold, 2.8%. I hereby declare the motion carried. I will now call on Paul Johnston to present questions or comments received pertaining to the business matters of this Annual General and Special Meeting, if any. Paul?

Mr. Chair, there are no comments or questions asked by any of the meeting attendees.

Thank you. So we have now completed the formal business of this meeting. As there is no formal -- as there is no further formal business to be brought before the meeting, I ask that a motion be made to conclude the meeting.

My name is David Tam, and I move that the meeting be concluded.

My name is Paul Johnston, and I second the motion.

Therefore, on a poll of the proxy holders at this meeting, I declare the motion carried and the meeting is terminated at 1:14 p.m. Dwayne Kushniruk, CEO, will now present an update on OneSoft. His presentation will appear on your screen, and we turn the floor over to him. [Operator Instructions] Dwayne, over to you.

Thanks Doug. Can you hear me okay?

Yes.

Okay. Great. I thought I'd check. I'd like to welcome everybody who is joining the meeting today. I intend to do a quick review of fiscal 2020. And I just want to point out that you could find more detail in the MD&A we published on March 23 on SEDAR. As we proceed with the presentation, please note any questions you might have, and we will address them following my presentation. So the screen you've been staring at, let's begin with a summary of the company's share metrics. As you can see by the share graph, 2020 was a challenging year for investors due to the pandemic and coupled with the plunging oil price early in the year. Although OneSoft's business as a software company is not connected to the price of oil, it is sometimes assumed that we are. This slide is our disclaimer, which you can quickly review. Let's get to some key fiscal 2020 financial metrics. Revenue increased 50% year-over-year and this was less than what was anticipated by management at the start of the year before the pandemic began to alter our business for the year. Sales activities were abruptly halted in March and this situation continued through the summer, essentially because prospective customers were focused on adapting their businesses to operate with remote employees rather than exploring new technology and products. Ironically, our clients who are already running CIM had no issues in moving to home-based employees to keep their businesses running. However, prospective customers who were not yet using cloud computing were scrambling to access systems and data remotely that they needed to keep their pipelines operating. These prospective customers simply had higher priorities than to investigate our solutions for half of the year. Gross margin on sales in 2020 was 77%. We estimate that this margin will elevate in the 80% range in the future as we optimize the onboarding of new customers. So the lower margin is really due to costs we incurred to provide services to ensure that new clients were able to onboard CIM quickly and with minimal disruption and frustration. As you can see, the company has a strong balance sheet with $7.4 million in cash and no debt as at March 31 quarter end. Cash increased by about $200,000 from the prior quarter ending December 31, 2020. You will note in the table that 95% of 2020 revenue was recurring or what we refer to as ARR. The somewhat lumpy quarter-over-quarter revenue results from the pace at which clients load data on to CIM, which generates revenue recognition. We believe the most important takeaway in the chart is the dotted trend line rather than any single quarterly revenue number. We expect that quarter-over-quarter revenues will stabilize in the future as we gain more clients and overall, CIM consumption stabilizes with more volume. We made significant progress in getting our technology and products more widely validated in 2020. Three interesting case studies were presented to the industry during the year. These are discussed in our last MD&A in full detail, but I'll summarize them here. Study #1 correlated a multiyear analysis of more than 5,000 ILI data sets with excavation and inspection data. This underscored the high value of using CIM predictive analytics and pit-to-pit matching of 100% of the anomalies versus the 6-millimeter and half-life methodologies that are commonly used in the industry today. Study #2, profiled the advantage of pit-to-pit modeling of each anomaly using CIM on an Australian pipeline, which is able to predict 10-year growth more accurately than conventional technology, and at significantly less cost. Study #3 profiles how CIM was able to surface and contextualize threats around spiral wells on a new pipeline in Europe that conventional methodologies miss. These growing threats that would normally not be known for years were detected and able to be surfaced with CIM, providing the potential opportunity for the pipeline operator to claim warranty that might be attributable to the effective construction process or materials. Our objective at OneSoft is to assist pipeline operators to achieve zero failures. The industry continues to battle this problem with nearly 2 incidents on average occurring daily somewhere in the U.S. We are very pleased that our first client, that's Phillips 66, who adopted CIM in 2017 was awarded the distinguished Pipeline Safety Award by the API or American Petroleum Institute last week, for having realized on this objective of zero failures. Slide 6 summarizes some of the other milestones accomplished in 2020. We signed 11 customers to date and another 12 companies or so are currently involved in production trial or various advanced stages of the sales process. Our knowledge database, which can be leveraged by machine learning continues to increase with aggregated data from more than 5,000 ILI tool runs, more than 50,000 miles of pipeline and 63 million features. CIM can now do assessments for more than 215 regulatory and best practices conditions at the touch of a button. We've published 73 application results and 87 algorithm updates to date as we evolve CIM, all based on client involvement and shared learning. We spent considerable time in 2020 to investigate and assess new potential TAM, which is total addressable market opportunities. This chart summarizes the functionality road map, mileage opportunities and estimated revenue opportunities by function. This maps out the economic consumption business model that we are pursuing, wherein use of additional functionality by clients is expected to increase revenues. We kicked off our Innovation Lab in March of 2020, which is tasked with seeking new revenue, joint venture and M&A opportunities, all in support of business development and revenue growth. To select the best path forward, we explore the build versus buy versus license scenarios to integrate new functionality modules. We spent considerable time investigating our CIM platform for water and wastewater markets. The small table on the right shows the functionality components of CIM for oil and gas, which are now validated and which we believe can be transferred to the water, wastewater industry. We structured -- restructured our sales team in 2020 in order to scale future sales. Although sales efforts were hampered for a good part of the year because of the pandemic, we closed a number of new clients in the last few months of 2020 once pipeline operators were able to resume their businesses with remote employees and consider investigation of new business initiatives. We are very pleased that even with COVID, we were able to initiate sales efforts and production trials globally. These efforts are now underway in North and South America, EMEA and Australia, and we fully expect this activity to result in sales in future periods. Marketing efforts also increased in 2020, including white papers and technical webinars that were co-presented with Microsoft and certain industry experts and clients. We created a series of video guides to assist with training and onboarding of CIM. OneBridge and our CIM solution were profiled in a major industry publication. And our website traffic increased 80% year-over-year and our biweekly blog cadence increased 110% year-over-year. Regarding corporate news, OneSoft was ranked 112th on Canada's top growth company list in 2020. We continue to attend online investor conferences in 2020 and had numerous one-on-one meetings with shareholders. Our shareholder base increased in 2020 by about 975 U.S. and about 1,700 Canadian investors. Subsequent to the year-end, we finalized an acquisition of specialized probability of exceedance IP and entered into a JV with C-FER Technologies, which is now being integrated into CIM to accelerate delivery to clients of probabilistic risk functionality. Regarding business outlook for OneSoft, we are confident that our first-mover advantage and competitive moat continues to increase. We are unaware of any other competing machine learning solution that has been developed or commercialized anywhere in the world. Our competition still continues to be legacy systems that use on-premise computing, which we believe can't really compete with CIM. We made great progress in 2020 to garner validation of our technology and products and gained high interest and market traction in the U.S. and certain other international markets. Support from our clients has been very strong and encouraging, and we continue to collaborate with them to drive innovation and our business development strategies. OneSoft has a strong balance sheet and is well funded to pursue our business plans as envisioned, which fully support ESG considerations. In closing, I would like to thank everyone on behalf of our Board, management and employees for your continued support. We'll now address any questions that you might have. And Gina, I'll look to you for that.

Okay. Sounds good. All right. So the first question that's come -- came in is asking to talk more about the C-FER agreement and its anticipated impact to OneBridge or OneSoft?

Brandon, are you on the line? I'm going to ask Brandon to respond to that one if we can.

Sure. I'm here, Dwayne. So yes, the C-FER, we're really excited about that technology sharing agreement and implications that it has. To date, we have 2 of our customers who are going to participate in our initial early adopter program around that technology. We're actually in process within a development organization that's starting to incorporate their risk models in. So within the next 2 or so months, we should at least have kind of the first slice of that product and the vision done, so we can start communicating the prospects. But we've had a lot of inbound from not only current customers, but also from prospects, really excited about that opportunity that awaits us.

All right. Sorry.

Dwayne, do you want to show these charts?

Maybe you could just talk about what C-FER is going to do for us.

So go to that first slide, and I'll talk through that. So today, C-FER's been around as most individuals know for 24 years, and they're really a research organization geared on pipeline integrity and reliability. Over the years, they've built quantitative probabilistic risk models. And there's 9 threats that every operator and specific to the U.S. have to address. And these on the left are the 9 key threats. HB stands for historic based, and those are mostly related to the fact that there -- in a lot of cases, the data is not sufficient to run probabilistic, Monte Carlo-type simulations on. So if you do have those, you can run them. But these are the 9 threats that we're going to model within Cognitive -- within CIM. And really, what you're looking for when you run these are 2 main things, probability of failure. So that's a POEF on a leak or a rupture, rupture being a big leak. That's really where pipeline operators are looking to focus is where it might potentially going to have a leak. The outputs that we can -- if you go to the next slide Dwayne, the next is outputs, as you're anticipating within the workflow of not only doing the regulatory conditions within CIM and Dwayne talked on that today, we have 215 different conditions. As part of that normal process within the solution, we'll now be able to produce these 9 risk threat models. And so what you can see is each individual line here represents one of those, either historic or reliability models. The black line represents an aggregation of all of those together. And the important line here is this purple line that actually drives the organizational or the company-specific identify targeted liability threshold. And really what an operator would look for is wherever this black line crosses the purple line. One of our customers, 80% of their bigs are done on where this black line crosses this purple line. So not only we'll be able to do regulatory, but we'll be able to give operators complete visibility in where risk across their entire pipeline system, exceeds their reliability threshold and where they, as an organization, and then we'll be able to tie financials into it and to help them kind of balance, to go repairs these via bigs or we run extra tools. We'll be able to help them cross the entire pipeline system understand as an organization what risk and which specific systems all the way down to the anomaly level.

All right. Next question is should we expect a better overall growth in top line revenues in 2021 versus the 2020 growth?