Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue in Q2 2024 increased by 24% compared to Q2 2023, driven by new and existing customers.
- Gross profit increased by 25%, maintaining a gross margin of 76%, identical to last year.
- The company generated $942,000 in cash during the first half of 2024, increasing cash balances to $5.75 million.
- No customer churn was reported in 2024, indicating strong customer retention.
- The pending sale to Earth represents a significant premium, with a 49% and 42% premium to the OSS market cap and share price, respectively.
Negative Points
- Net loss for Q2 2024 was $615,000, higher than the $558,000 loss in Q2 2023.
- Operating expenses increased by $329,000 due to new staff and cost of living adjustments.
- Other expenses rose by $203,000, primarily due to increased share-based compensation.
- Revenue from the IM operations group decreased by $263,000, attributed to timing differences in project completions.
- The company expects to achieve profitability in the second half of 2024, contingent on meeting sales forecasts, which introduces uncertainty.
Q & A Highlights
Q: The fiscal guidance for 2024 is a net loss of $435,000 to $178,000, but the first half of the year shows a net loss of $1,344,000. Does this mean management expects the company to achieve profitability in the second half of 2024?
A: The observation is accurate. The company does expect to achieve profitability in the second half of the year, provided the sales forecast occurs. (Paul Johnston, CFO)
Q: Why is the sale price so cheap? Why are we selling now?
A: The decision boiled down to either raising more capital to accelerate growth or accepting a fair return at a significant premium to market. Raising capital would have meant a discount to market and incurring risks. The sale provides a premium and certainty of outcome. (R. Dwayne Kushniruk, CEO)
Q: Why did you not hire an investment banker to run the process?
A: We consulted with investment bankers who indicated that raising money would be at a discount to market, and selling the company would align with market prices. We had already identified a deal surpassing median and average multiples, making it unnecessary to hire a banker. (R. Dwayne Kushniruk, CEO)
Q: Why would more capital be required to accelerate revenue?
A: We identified a large total addressable market and need more resources to address it. Raising $15 million would mean significant dilution for shareholders. Additionally, the competitive landscape is changing rapidly, necessitating faster development and expansion. (R. Dwayne Kushniruk, CEO)
Q: What exchange rate should US investors use to determine the value of OFSI shares?
A: The offer from Earth is for CAD0.88. The exchange rate of the day will be used to pay US shareholders the US equivalent of the CAD0.88 price. (Paul Johnston, CFO)
Q: Why would AI disrupt if you have proprietary data?
A: While we have extensive ILI data, AI models are evolving to aggregate different data sets. We need to stay ahead by integrating AI advancements like Microsoft Copilot, requiring additional resources. (Unidentified Participant)
Q: Why didn't you believe you could raise prices?
A: We have normalized our pricing model for scalability. Raising prices significantly could lead to customer pushback and potential loss, especially given the industry's small number of operators. (Brandon Taylor, President & COO)
Q: Have you had any inbound interest suggesting other parties are willing to pay a higher price?
A: No, but the agreement allows for the consideration of superior offers. Earth has the right of first refusal. (Paul Johnston, CFO)
Q: What happens if you don't get the majority of the minority vote for the transaction?
A: If the deal does not go through, the business will continue to run, and we will regroup to determine next steps. We have good confidence in the deal's acceptance by shareholders. (R. Dwayne Kushniruk, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
