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

Welcome to the Annual General and Special Meeting of the Shareholders of common voting shares of OneSoft Solutions Inc. Further to the notice of meeting filed on sedar.com on March 23, 2023, 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 am making reference 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 to David Tam to act as Secretary of the meeting and Pauline Osayande of Computershare Trust Company to act as scrutineer. My name is Doug Thompson, 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 businesses to be dealt with today has been voted with all votes submitted to our transfer agent Computershare Trust Company of Canada. Each holder of common voting shares is entitled to 1 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 questions into the meeting panel, which appears on the right of your computer screen. Management will receive the questions read them for the benefit of 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 that time that the business is being considered. However, if you wish to make a general comment or to ask a question not directly related to the matter under discussion, I would ask that you do so after the close of the formal part of the meeting. Guests will also be welcomed to ask questions after the formal meeting has concluded. The notice calling this meeting, management information circular and form of proxy were mailed on or about April 26, 2023, to all of OneSoft's shareholders of record as of April 17, 2023. 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 April 13, 2023, and the form of proxy, the 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 scrutineers report states that there are 119 shareholders present in person or represented by proxy at the meeting, representing 69,228,906 or 57.2% of the issued and outstanding common shares of OneSoft Solutions Inc. The scrutineers' 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 3, 2022, 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, 2022, and auditor's report have been approved by the Board of Directors and were made available to shareholders in accordance with regulatory requirements. I direct the secretary to file with the minutes of the meeting, a copy of the December 31, 2022, 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 6 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'll 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 5. The results of the voting are for, 99.2%, against, 0.8%. 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'd like to make a few comments before doing this. Pursuant to the incorporation documents of the corporation, the holders of common shares are entitled to elect the directors. On July 23, 2013, the shareholders approved bylaw #2 advanced notice bylaw. This bylaw fixes a deadline by which holders of record of common shares of the corporation must submit director nominations to the corporations 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. Dwayne Kushniruk, Ron Odynski, Doug Thompson, David Webster, Nizar Somji. I hereby declare nominations closed. We will now proceed to electing the directors of the corporation. Motions 2.1, 2.2, 2.3, 2.4 and 2.5 to elect Dwayne Kushniruk, Doug Thompson, Ron Odynski, David Webster and Nizar Somji respectively, as directors of the corporation. The results of the voting are 2.1, Dwayne Kushniruk, for, 89.9%; withhold 10.1%, Dwayne Kushniruk is declared elected. Doug Thompson, for, 96.1% withhold 3.9%, Doug Thompson is declared elected. Ron Odynski, 95.9% for, 4.1% withhold. Ron Odynski is declared elected. David Webster, 95.6% for, 4.4% withhold. David Webster is declared elected; Nizar Somji, 99% for, 1% withhold, Nizar Somji is declared elected. In summary, Dwayne Kushniruk, Doug Thompson, Ron Odynski, David Webster and Nizar Somji have each been elected as directors of the corporation for the ensuing year. I'd like to thank the directors for agreeing to stand for election and for overseeing the affairs of the corporation. I would also like to sincerely thank Randy Keith, who is stepping down from the Board for his years of service to the corporation in his director role from 2006 to 2023 and management capacities as President of the predecessor company from 2006 to 2014. The next motion is the appointment of Ernst & Young LLP as auditors of the corporation and authorizing the directors to fix their remuneration. The results of voting are, for, 99.6%, withhold 0.4%. 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 April 13, 2023, and substantially in the form as Appendix C, 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, 94.6%, against, 5.4%. I hereby declare the motion carried. The next motion is to approve an addendum to the stock option plan of the corporation as described in the Management Information Circular dated April 13, 2023, and substantially in the form as Appendix D whereby options granted under the stock option plan may be exercised using the cashless exercise method or the net exercise method. Shareholders deemed to be interested shareholders are ineligible to vote on this motion. The results of voting by the disinterested shareholders are, for, 88.4%, against, 11.6%, and I hereby declare the motion carried. The next motion is to approve a securities-based compensation plan for the corporation. As described in the Management Information Circular dated April 13, 2023, and substantially in the form as Appendix E, whereby under the securities-based compensation plan: one, a fixed amount of 10% of the corporation's issued and outstanding common shares will be reserved for issuance from time to time for security-based compensation other than stock options; two, a floating amount of 10% of the corporation's issued and outstanding common shares will be reserved for issuance from time to time for the granting of stock options and three, stock options will be allowed to be exercised using the cashless exercise method or the net exercise methods. Shareholders deemed to be interested shareholders are ineligible to vote on this motion. The results of voting by the disinterested shareholders are, for, 69.1%, against, 30.9%. I hereby declare the motion carried. We have now completed the formal business of this meeting. As there is no further formal business to be brought before the meeting, I ask that a motion be made to conclude the meeting.

I, David Tam, moves at the meeting be concluded.

I, David Webster, second the motion.

On a poll of the proxy holders at this meeting, I declare the motion carried, and this meeting is terminated at 1:17 PM. Our CEO, Dwayne Kushniruk wishes to present an update on OneSoft. And I turn the floor over to Dwayne.

Thank you, Doug. Welcome to everybody who's attending. Thanks for taking the time. So looking at the attendee list, most or all of you are long-time followers of the company. Therefore, we will dispense with an overview of the company at this point. And I'm going to ask Paul Johnston, OneSoft CFO to review the Q1 2023 financial report that was published last week. And following Paul's remarks, we will address questions as they arise. So Paul?

Thank you very much, Dwayne. Zara, can you please make me the presenter? I'm just waiting for a clarification that my screen can be seen.

Paul, feel free to share your screen with us now.

Okay. Zara, can you confirm that it says showing on the screen is Q1 2023 financial review?

We're still waiting on that, Paul. We see your background. Feel free to share your presentation. Now we can see your screen.

Okay. Just one second here. Okay. You can now see Q1 2023 financial review?

No, we still see our desktop.

Zara, I'm sorry, I'm lost here.

You just have to move it to the other screen. You may have it.

Yes. I only have one screen. Zara, I think you're catching somebody else's desktop, not mine.

Okay. Let me.

Okay. I think you got it, Zara now. Okay, now it says Q1 2023 financial review.

yes. We can all see it now.

Okay. You can't see the GoTo Webinar panel, correct?

No. Feel free to start your presentation with us now.

Okay. Thank you very much, regret for the technical difficulty, which slowed us down. So on the screen, you can see a recent stock chart showing the price of the company's shares. And beside you see a panel with numbers such as the capitalization of the company, et cetera. Just a couple of values we'd like to point out on the screen side is the cash we had at March 31 was $5.2 million. We have a small amount of debt of $0.4 million and insiders continue to own a large chunk of the shares being 30% of the issued and outstanding shares. And what I would ask is that if any attendees wish to ask questions, that you put it into the chat section of the GoTo Webinar panel. And when I conclude the review, then we'll peruse the questions and answer them at that time. We would state the disclaimer that there are forward-looking statements going to be made in this presentation. Those forward-looking statements are accurate as -- only as of today and that events beyond our control may make those change in the future. So I present the income statement on the screen, and we're going to go through various elements of it as we move along in these slides. First, I'd like to highlight the revenue in Q1 2023, our revenue was $2.2 million, which is an almost 72% increase over Q1 2022. And I'll just make some comments on the disclosure we had in the MD&A, where we attempted to highlight to the readers, the factors that caused the increase in the revenue. Firstly, in this first line, we had the customers that we had contracted prior to fiscal 2022, expanded their use of CIM during 2022 and continue to expand it in Q1 of 2023. So the company has a strategy of land and expand this group of customers that work. And so their increase in CIM usage was almost 390,000 Q1 2023 compared to Q1 2022. Secondly, we acquired the IM Group on June 30, 2022. So that group could not produce any revenue in Q1 2022, but did in Q1 2023, producing almost 315,000 in revenue. Thirdly, we have customers that contracted with us to use CIM after Q1 2022. That group of customers generated almost 241,000 and revenue in quarter 1, 2023. We had a small group of customers whose decrease -- whose CIM usage decreased in Q1 2023 compared to Q1 2022. Some of that is seasonal. Some of it is just lulls in their integrity management programs, et cetera. And that group of customers, their usage declined almost 15,000. And lastly, the foreign exchange rate, U.S. dollar to Canadian dollars increased in Q1 2023. And we had a foreign exchange effect of $80,000, which drove the increase in revenues. So all in, we had a $920,000 increase in revenue. And then secondly, we repeat the slide that was in our disclosures, showing the growth in revenue by quarter. over the period of time, and we're always happy to point out that the raised bars on the right-hand side of the screen showing revenue continuing to increase. We'll go to the next slide, and we'll talk about gross profit. Our gross profit increased commensurate with revenue. So it increased 73%. Our gross margin increased from 70.1% to 70.5%. And joining the slide, I just -- we show the element of our direct costs. And the biggest element of direct costs is people cost, salaries and employee benefits. And those are our staffs that are implementing customers, providing support, et cetera. So working with our customers in some manner. And in the comparative numbers, you can see that it increased dramatically since Q1 2022. In terms of our operating expenses, they increased 11.7% since Q1 2022. And again, as with people as our biggest asset, that's also where our biggest cost increase was of almost $139,000. And that is, as the comment shows staff additions to implement new customers and continue to support our existing customers to ensure that we keep everybody in the fold and continue to have a strong cadre of customers. Moving along, looking at other expenses, 2 comments here. The first comment is that these are almost all noncash costs. So stock-based compensation, amortization and depreciation and are all noncash costs. So I just wish to point out that noncash costs are a large portion of our expenses. And you can see that these were essentially flat Q1 '22 compared to Q1 2023. In summary of the income statement, here are the results in summarized fashion. Revenue, up almost $921,000 at 71.9%, the gross profit up 72.9% and operating expenses up $15.3 million and other expenses, a slight decrease of 4.6%. So our net loss improved from $1.64 billion in Q1 2022 to $652,000 in March in Q1 of 2023. Just wish to make a quick comment on the post reporting date event. On May 10, 2023, the company settled a lawsuit which has been running for the last 3 years. And we had a third-party Silo Technologies who had a software usage agreement, whereby they were using some old technology of OneBridge on a licensed basis, and they breached terms of the usage agreement. Management felt it was important to continue to protect the company and take action to restrict the breaches that had occurred. The results of that settlement where the company inherited 2 patents, which included elements of OneBridge technology previously used, not resident in the current version of CIM. We got -- we also received a full amount of unpaid royalties and then a number of other agreements and also a replacement software license agreement that will allow Silo to continue to use the whole technology on a go-forward basis. So this is an important event for management to get this item resolved and out of the way. And so we can move forward and focus -- continue to focus on our current business. I also present the balance sheet of the company. 3 elements I wanted to point out. We already talked about cash, $5.2 million as at March 31. Our trade receivables were nearing $2.3 million as at March 31. That's a very high number for the company. We had 2 large receivables which were due and have since been reduced. We had one for USD 400,000. That was paid in April. We had another one of USD 1.2 million, that's with a very large company with a large number of divisions, whereby invoices follow a bit of a touch with patent and getting approved and paid. That was USD 1.2 million as of March 31 that is now down below USD 700,000 as of today, and we believe it will be liquidated within the next 2 to 3 weeks. Moving down the balance sheet into the liabilities. We just wanted to make a comment on our deferred revenue and the elements of it. We started the year at $2.1 million, our new prepayments or deposits from customers for CIM usage during the year were $4.5 million in the quarter as compared to $5 million for all of last year 2022. That is not a seasonal number. It doesn't -- or sorry, a trending number. It will not repeat every quarter. A large number of customers have their contract renewals at the start of the year. But that's a very important number for the company as prepayment financed the company during the year. So new prepayment $4.5 million we applied $1.6 million or earned $1.6 million of the deferred revenue in the period and ended up the quarter at $4.9 million. So a very important number for the company to finance the company and secondly, to ensure that all our existing customers are renewing their contracts. Just a quick comment on guidance. So people who have seen our January 19, 2023, press release, we issued guidance for the company. Management has reviewed all the elements of guidance that we provided, and I provide those in the first table on the screen. And you can see the various elements. And at this point in time, there is no change to any of the guidance. Management believes that all of those elements of the guidance will be achieved. In the second panel, the number I wish to point out here is the pipeline miles generating revenue. The company's forecast by the end of the year would have almost 66,000 pipeline miles generating revenue. As of December 31, we were 53,000 and as at March 31, 57,000. So pipeline miles are continuing to grow. And then lastly, we presented guidance as to what we believe our cash and deferred revenue will be at the end of the year and no change in that guidance. So we're standing firm on those numbers at the present time. That concludes my presentation, and we invite any questions. Zara, are you seeing any questions? I'm looking in the panel which I have, and I do not see any.

Yes, we do. I'm going to read a few of these. And for time sake, if we don't come to -- get to your question, we will answer them in an e-mail. So please bear with us as we go through that. The first question is what is the probability of OneSoft entering into collaborative agreements with industry vendors? Could these agreements be more financially beneficial to OneSoft than the agreement with ENTEGRA and impact.

Well, the probability is, I think, pretty good. We are working on -- working with a number of third-party vendors who have interest in figuring out how they can integrate our solution into the offerings that they're providing for their customers. These agreements take a fair bit of time to work out and to get done. And the reason for that is that the third-party vendors that we're in discussions with are for the most part, using legacy systems and processes that they've been using for the past in some cases, a couple of decades. And so it takes a lot of consideration and work and so on to make that transition. So none of this happens as fast as all of us would like to see it happen, but there are -- this is underway with several third parties. With respect to PIG vendors, specifically, by and large, they're tied to their legacy way of doing things with their legacy systems and it's a difficult transition to make. Once it's made, it's great for us. But that does take time to get done.

Closure management was commercially released last June. How has it been received by your customer base? Is it now producing revenue?

No, it is not producing revenue now, significant revenue now, but we have keen interest from our existing clients and in fact, some potential clients are interested in looking at it. I think realistically, what's going to happen is we're going to -- we're expecting we will see things turn around at the -- after the end of this year. Our customers, by and large, go into budgeting cycles in the last quarter of the year. And once the solution is out there and they've played with it and used it on a trial basis, they will then consider that in their new budgets for next year. So we expect that these additional modules that we're working on, we'll expect to start seeing revenue from them in 2024. I should also mention that these modules that we're developing are a little different from what our core CIM product is. When we started to build out on our vision with CIM back in 2015, we really -- it was our internal teams who kind of figured out what it was we were going to build in terms of software and so on. And these other modules like corrosion and risk and so on. These are -- the reason we're building these out is because of feedback from existing customers. So we fully expect that most of our customers will deploy these solutions once they're commercially available. And we have -- we're optimistic that that's going to happen.

How is Integrity-as-a-Service for pipeline operators of less than 1,000 miles progressing?

We have, I guess, new customers coming on for Integrity-as-a-Service, the revenue still is not significant. In our financial statements, it's recorded in -- we don't consider that to be the SaaS revenue, the SaaS recurring revenue. So it would be included in the other revenue category. So that, along with services is where you'll find that reference in the financial statements. The customers who are using it essentially are using it as part of their trial programs and the idea is to get them hooked on doing alignment using Integrity-as-a-Service and hopefully move them up to become full CIM, SaaS, long-term customers.

We'll move on to the next question. What are your current thoughts regarding listings on the NASDAQ? Has a timetable been established for the listing?

No time table has been established and no commitment has been made to do so. We are exploring the alternative of uplisting to Tier 1 exchange. There are a lot of things to consider, not the least of which is cost. We have to make sure the cost benefit makes sense. At this point, that's still under consideration. We still have more research to do. And frankly, we need to -- part of that research is with capital market specialists. We don't want to go out there too early. And when we believe that the benefit will warrant the cost, that's when we'll look at doing that.

What's new on the road map.