Q4 Inc. Reports Strong Progress on Fourth Quarter and Full Year 2022 Results

Q4 Inc. (TSX:QFOR) (“Q4” or the “Company”), a leading capital markets communications platform, today announced its financial results for the three months and fiscal year ended December 31, 2022.

“I am proud of our progress during the fourth quarter and the significant efforts underway to achieve growth, market leadership, and profitability in 2023,” said Darrell Heaps, Founder and CEO of Q4 Inc. “With millions of investors engaging with thousands of our clients on the Q4 platform, we have a significant advantage in how we can leverage our data, analytics, and AI to provide a consistent stream of innovative products and insights to public companies and across the capital markets ecosystem. 2022 was a challenging year for the capital markets and for driving top line growth due to canceled IPOs, M&A, and take privates. I’m pleased with how we focused on what we were able to control. In Q2’22, we put in place our accelerated path to profitability. Since that decision, we have executed exceptionally well and have made significant progress as evidenced by today’s results. We remain committed to achieving positive adjusted EBITDA later in the year. Looking ahead, we are very well positioned - strategically, operationally, and financially to take advantage when momentum returns to the capital markets. Finally, as we close the books on 2022, I want to express my deep appreciation to the incredible team at Q4 for their focus on client satisfaction, unparalleled levels of service, and dedication to helping our clients win in the capital markets.”

Fourth Quarter 2022 Financial Highlights

• Delivered quarterly revenue of $14.2 million, representing growth of 3.3% year over year. The year ended with 11.8% normalized annual growth when excluding the discontinued operations from 2021.
• Meaningful enhancement to the gross margin profile, reaching 63.7% in the fourth quarter, was an improvement of 405 basis points year over year. Actions taken in 2022 to improve gross margin included the migration of clients to Q4’s proprietary virtual events platform, fixed data contracts, price increases, and the creation of our Latin American operating center.
• Expanded annual recurring revenue¹ to $55.5 million as of December 31, 2022 , an increase of 6.8% year over year. New client growth included 268 new subscription clients for the year who trust Q4’s integrated platform to transform their capital markets engagement.
• Average recurring revenue per account (ARPA) of $19,821 at the end of the fourth quarter grew 9.2% year over year, demonstrating the strength of our sales organization, larger new client engagements, and effective pricing strategies.
• Adjusted EBITDA² loss of $4.5 million in Q4 was a sequential improvement of 40.5% or $3.1 million. The actions taken in 2022 drove sustainable cost reductions and efficiency gains, resulting in a material fourth quarter reduction in operating expenses.
• For the fourth quarter, net loss of $6.4 million, or EPS of $(0.16). On an adjusted EBITDA basis EPS was $(0.11).
• As of December 31, 2022, the company had availability of $51.6 million to grow the business, which includes $21.5 million in cash and cash equivalents, $7.6 million in short-term investments, and a revolving credit facility of $22.5 million.

Fourth Quarter and Subsequent to Year-End Operational Highlights

• Completed Q4 with 2,662 total customers compared to 2,656 customers from the prior year period.
• Capital Connect, a unified data platform that provides a single user experience and unique insights, is now used by over 1,800 clients and agencies who rely on the platform daily to manage interactions with Q4 and the market. Capital Connect provides clients with innovative workflow, insights, and proprietary analytics designed to help issuers identify, attract, and engage with targeted investors. The company expects the majority of its 2,650+ clients to be on Capital Connect in 2023.
• Following the release of Engagement Analytics in Q2’22, the company recently launched benchmarking and institutional targeting as part of the Engagement Analytics suite. Built off the massive database of investor interactions generated by the millions of investors engaging with Q4 investor websites, virtual events, and email each month, these new features enable IR teams to understand the performance of their IR programs against their peers and to target institutional investors during the initial research phase of their investing process.
• In the fourth quarter, the number of investors creating Q4 accounts through the Q4 Login service grew nearly 80% from the previous quarter, by 83,000 new investor registrations, to a total of 190,000 investors.
• As of December 31, 2022, more than 97% of the events client base is now running on the Q4 Virtual Events platform, which boasts an industry leading 99% error free event rate. The company continues to lead the virtual event space with new features including customized webcast branding, event chaptering, speaker bios, and seamless integration with video communication applications, like Zoom and MS Teams, allowing companies to bring their own video to earnings calls.
• Completed the full integration and onboarding of the Latin American team members to create collaborative engagement and efficiency across the organization. To support these efforts, Q4 Inc. established status as a Mexican entity to support the continued local employment efforts.

Webcast Information

Q4 will host a webcast with Darrell Heaps, CEO and Donna de Winter, CFO and COO to discuss the Company's financial results at 9:30 am ET on Wednesday, March 1, 2023. Participants can register in advance or access the webcast live at https://events.q4inc.com/attendee/712032670. Supplemental materials will be available at least fifteen minutes prior to the start of the event. A replay of the webcast will be available at investors.q4inc.com shortly after the event concludes.

Audience questions will be taken real-time via the Q4 Platform. Investors can also submit their questions in advance to ir@q4inc.com or via our IR website. We will do our best to respond to your questions either on the webcast, if time permits or shortly thereafter. We appreciate your interest.

Q4's audited annual consolidated financial statements and management's discussion and analysis for the three months and fiscal year ended December 31, 2022 will be available on Q4's IR website and will be filed on SEDAR at www.sedar.com.

Fourth Quarter 2022 Results

Selected Financial Measures

Revenue
		Three Months Ended December 31,								Fiscal Year Ended December 31,
		2022		2021		Change		Change		2022		2021		Change		Change
(U.S. dollars in thousands)		$		$		$		%		$		$		$		%
Capital markets platform		12,991		12,763		228		1.8%		51,329		51,897		(568)		(1.1)%
Platform services		1,188		972		216		22.2%		4,680		3,407		1,273		37.4%
Other		22		16		6				66		84		(18)
Total revenue		14,201		13,751		450		3.3%		56,075		55,388		687		1.2%
Gross profit		9,042		8,198		844		10.3%		33,186		31,588		1,598		5.1%
Percentage of total revenue		63.7%		59.6%						59.2%		57.0%

Key Performance Indicators

		December 31, 2022			December 31, 2021			Change			Change
(U.S. dollars, except ARR which is in millions)		$			$			$			%
Annual Recurring Revenue		$	55.5		$	51.9		$	3.6		6.8	%
Average Revenue per Account		$	19,821		$	18,144		$	1,677		9.2	%

Results of Operations

The following table outlines our consolidated statement of loss and comprehensive loss for the three months and fiscal year ended December 31, 2022 and 2021:

		Three Months Ended				Fiscal Year Ended
		December 31,				December 31,
		2022		2021		2022		2021
(U.S. dollars in thousands)		$		$		$		$
Revenue		14,201		13,751		56,075		55,388
Direct cost of revenue		5,159		5,553		22,889		23,800
Gross profit		9,042		8,198		33,186		31,588
Operating Expenses
Sales and marketing		4,453		4,612		21,747		17,984
Research and development		4,202		2,848		18,208		11,084
General and administrative		5,409		4,823		23,191		18,171
Depreciation and amortization		964		890		3,702		3,969
Foreign exchange (gain) loss		(58)		2,272		930		2,131
Other expenses		447		152		2,709		440
Total operating expenses		15,417		15,597		70,487		53,779
Loss from operations		(6,375)		(7,399)		(37,301)		(22,191)
Finance expenses		12		498		72		1,246
Finance income		(60)		(7)		(72)		(22)
(Gain) loss on derivative financial instruments		—		(1,462)		(1,221)		3,418
Loss before income taxes		(6,327)		(6,428)		(36,080)		(26,833)
Income taxes		61		(81)		289		48
Net loss		(6,388)		(6,347)		(36,369)		(26,881)
Other comprehensive income (loss)
Foreign exchange gain (loss) on foreign operations		92		(14)		(25)		(35)
Net loss and comprehensive loss		(6,296)		(6,361)		(36,394)		(26,916)
Basic and diluted loss per share		(0.16)		(0.20)		(0.91)		(1.71)
Weighted average number of common shares outstanding - basic and diluted		39,990		32,112		39,753		15,750

Key Balance Sheet Information

		December 31, 2022		December 31, 2021		Change		Change
(U.S. dollars in thousands)		$		$		$		%
Cash and cash equivalents		21,536		63,283		$(41,747)		(66.0)%
Total assets		73,832		109,117		(35,285)		(32.3)%
Total liabilities		29,459		30,415		(956)		(3.1)%
Total long-term liabilities		8,210		8,065		145		1.8%

Non-IFRS Measures and Reconciliation of Non-IFRS Measures

This press release makes reference to certain non-IFRS financial measures including key performance indicators used by management and typically used by our competitors with software-as-a-service (“SaaS”) business models. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore not necessarily comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS financial measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. These non-IFRS financial measures and industry metrics are used to provide investors with supplemental measures of our operating performance and liquidity and thus highlight trends in our business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS financial measures and industry metrics, in the evaluation of similar companies. Management also uses non-IFRS financial measures and industry metrics in order to facilitate operating performance comparisons from period to period, the preparation of annual operating budgets and forecasts and to determine components of executive compensation.

EBITDA and Adjusted EBITDA

We define EBITDA as net loss, adjusted for depreciation and amortization, finance expenses, finance income and income taxes. Adjusted EBITDA is a supplemental measure used by management to assess our financial and operating performance without regards to financing methods or capital structure. Adjusted EBITDA represents EBITDA, adjusted for the following: share-based compensation, unrealized foreign exchange (gain) loss, (gain) loss on derivative financial instruments, costs associated with restructuring and other one-time expenses. We believe EBITDA and Adjusted EBITDA, two non-IFRS financial measures, are useful in assessing our operating cash flows as they eliminate the effects of non-cash expenses and one-time or non-recurring items recorded in the statements of loss and comprehensive loss. The Company’s definition of EBITDA and Adjusted EBITDA may be different than similarly titled measures used by other companies. The following table reconciles Adjusted EBITDA to net loss for the periods indicated.

		Three Months Ended						Fiscal Year Ended
		December 31,						December 31,
		2022			2021			2022			2021
(U.S. dollars in thousands)		$			$			$			$
Net loss		(6,388	)		(6,347	)		(36,369	)		(26,881	)
Depreciation and amortization		964			890			3,702			3,969
Finance expenses(1)		12			498			72			1,246
Finance income		(60	)		(7	)		(72	)		(23	)
Income taxes		61			(81	)		289			48
EBITDA		(5,411	)		(5,047	)		(32,378	)		(21,641	)
Other adjustments
Share-based compensation expense(2)		190			527			1,537			1,169
Unrealized foreign exchange (gain) loss(3)		(58	)		2,154			930			2,131
(Gain) loss on derivative financial instruments(4)		—			(1,462	)		(1,221	)		3,418
Restructuring and severance(5)		658			—			2,256			—
Other one-time expenses(6)		142			475			1,026			1,323
Adjusted EBITDA		(4,479	)		(3,353	)		(27,850	)		(13,600	)

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Note:
(1)		Finance expenses are primarily related to interest and accretion of financial liabilities.
(2)		Share-based compensation includes non-cash expenditures recognized in connection with the issuance of options under our Legacy Equity Incentive Plan to our employees and directors. Options granted under the Legacy Equity Incentive Plan have become options under our Omnibus Equity Incentive Plan (the “Omnibus Plan”) in connection with the IPO in 2021. This amount also includes the restricted share units ("RSUs"), performance share units ("PSUs") and deferred share units ("DSUs") granted under the Omnibus Plan.
(3)		These adjustments represent the change in the value of foreign currency denominated transactions that are recorded in financial statements prior to the settlement of invoices.
(4)		These adjustments represent fair value adjustments relating to outstanding warrants.
(5)		Represents restructuring and severance expenses in the current year, primarily related to employee compensation.
(6)		Other one-time expenses include expenses relating to our IPO, costs related to M&A activity for professional, legal, consulting and accounting fees that are non-recurring and would otherwise not have been incurred.

Free Cash Flow

Free cash flow represents cash flow from (used in) operating activities less additions to property and equipment. We use Free cash flow, a non-IFRS financial measure, to assess the amount of cash available for dividend payments, debt repayment and other investing and financing activities. We believe that this information is useful to certain investors and analysts to evaluate the Company’s performance with respect to its operating cash flow capacity to meet non-discretionary outflows of cash. The following tables reconciles our cash flow from (used in) operating activities to Free cash flow:

		Three Months Ended				Fiscal Year Ended
		December 31,				December 31,
		2022		2021		2022		2021
(U.S. dollars in thousands)		$		$		$		$
Cash flow from (used in) operating activities		(7,585)		(4,851)		(32,200)		(12,360)
Purchases of property and equipment		(312)		(146)		(820)		(460)
Free cash flow		(7,897)		(4,997)		(33,020)		(12,820)

Key Performance Indicators

This press release also makes reference to “Annual Recurring Revenue” or “ARR” and “Average Revenue Per Account” or “ARPA”, which are key performance indicators we use to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Our key performance indicators may be calculated in a manner different from similar key performance indicators used by other companies. Definitions of these key performance indicators can be found under the heading “Key Performance Indicators” in the Company’s management’s discussion and analysis for the three months and fiscal year ended December 31, 2022 and 2021.

Forward-Looking Information

This press release may contain “forward-looking information” within the meaning of applicable securities laws. Forward-looking information may relate to our future financial outlook and anticipated events or results and may include information regarding our financial position, business operations, business strategy, growth strategies, budgets, operations, financial results, taxes, dividend policy, plans and objectives. In certain cases, forward-looking statements that are predictive in nature, depend upon or refer to future events or conditions, and/or can be identified by the use of words such as “expect,” “continue,” “anticipate,” “intend,” “aim,” “plan,” “believe,” “budget,” “estimate,” “forecast,” “foresee,” “close to,” “target” or negative versions thereof and similar expressions, and/or state that certain actions, events or results “may,” “could,” “would,” “might” or “will” be taken, occur or be achieved. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events or circumstances.

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. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Certain assumptions underlying the forward-looking information in this MD&A include: our ability to continue investing in infrastructure to support our growth and brand recognition; our ability to continue maintaining and enhancing our technological infrastructure and the functionality of our platform; our ability to develop and implement new product offerings; our ability to capitalize on growth opportunities and implement our growth strategy; our ability to build our market share and enter new geographies; the total addressable market for our products; our ability to retain key personnel; our ability to maintain existing customer relationships and to continue to expand our customers’ use of our platform and products; our ability to maintain existing relationships on similar terms with our current service providers, suppliers, channel partners and other third parties; our ability to maintain and expand our geographic scope; our ability to execute on our expansion plans; our ability to obtain financing on acceptable terms or at all; the impact of competition; the successful integration of future acquisitions; the changes and trends in our industry or the global economy; changes in laws, rules, regulations, and global standards; and that the risks and uncertainties noted below will not materialize.

Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that we considered appropriate and reasonable as of the date such statements are made, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the following risk factors described in greater detail in the “Summary of Factors Affecting our Performance” and “Financial Instruments and Other Instruments” sections of this MD&A, and in the “Risk Factors” section of our Annual Information Form, which was filed on March 30, 2022, and is available under our profile on SEDAR at www.sedar.com.

If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. The opinions, estimates or assumptions referred to above are described in greater detail in "Summary of Factors Affecting our Performance" and should be considered carefully by prospective investors.

Although we have attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other risk factors not presently known to us or that we presently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. No forward-looking statement is a guarantee of future results. Accordingly, you should not place undue reliance on forward-looking information, which speaks only as of the date made. The forward-looking information contained in this MD&A represents our expectations as of the date of hereof (or as of the date they are otherwise stated to be made), and is subject to change after such date. However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

Additional information relating to Q4, can be found on SEDAR under the Company’s profile at www.sedar.com.

About Q4 Inc.

Q4 Inc. (TSX: QFOR) is a leading capital markets communications platform that is transforming the way publicly traded companies, investors, and investment banks make decisions to efficiently connect, communicate, and engage with each other. The Q4 Capital Connect platform facilitates interactions across the capital markets through IR website products, virtual events solutions, engagement analytics, investor relations CRM, shareholder and market analysis, surveillance, and ESG tools. Capital Connect is the only holistic capital markets platform that digitally drives connections, analyzes impact, and targets the right engagement to help public companies work faster and smarter. The company is a trusted partner to more than 2,650 public companies globally, including many of the most respected brands in the world, and maintains an award winning culture where team members grow and thrive. Q4 is headquartered in Toronto, with offices in New York and London. Learn more at q4inc.com.

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¹ Annual recurring revenue or “ARR” is a key performance indicator. See “Key Performance Indicators”
² Adjusted EBITDA is a non-IFRS measure. See “Non-IFRS Measures and Reconciliation of Non-IFRS Measures”

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Contact information

Investor Relations:
Sara Pearson, ir@q4inc.com

Media Inquiries:
Heather Noll, media@q4inc.com