Q4 Inc. Reports Continued Progress in Third Quarter 2023 Results

Q4 Inc. (TSX: QFOR) (“Q4” or the “Company”), the leading capital markets access platform, today announced its financial results for the three and nine months period ended September 30, 2023. QFOR reports in U.S. dollars and in accordance with International Financial Reporting Standards (“IFRS”).

Q3 2023 Year-over-Year Financial Highlights

• Revenue of $14.7 million, up 3.5% - driven by 5% subscription revenue growth;
• Annual recurring revenue¹ (“ARR”) of $56.4 million, up 3.1% or $1.7 million;
• Annual recurring revenue per account (“ARPA“) of $21,315, up 11.3%;
• Non-subscription Platform revenue and Platform services were seasonally flat YoY;
• Gross margin of 68.7%, up 970 basis points;
• Adjusted EBITDA² of $(1.9) million compared with $(7.5) million, an improvement of 75%;
• Adjusted EBITDA² per share $(0.05), an improvement of $0.14 per share;
• Net loss of $(3.7) million, an improvement of $8.2 million;
• Net loss per share of $(0.09), a $0.21 per share improvement;
• Operating cash consumption of $0.5 million compared to $6.7 million used in Q3 2022; and
• At September 30, 2023, the Company had available liquidity of $43.3 million, comprising $20.8 million in cash and an available and undrawn credit facility of $22.5 million.

“I am proud of our team’s ability to continue expanding subscription growth on the Q4 Platform, generating long-term high quality revenue and associated margins,” said Darrell Heaps, Founder and CEO of Q4 Inc. “The changes we have put in place over the last year, coupled with technology advancements, have paved our path towards profitability while significantly improving organizational efficiency and effectiveness, resulting in over $18 million in annualized savings. We anticipate achieving break-even run rate EBITDA by the end of this year, exiting 2023 with a gross margin in the 70s, and generating cash flow in 2024.”

“Furthermore, I am very pleased about this morning’s announcement regarding joining forces with Sumeru Equity Partners. The Sumeru team possesses a deep understanding of our business and their support will enable us to further build on our exceptional culture, while investing in our strategic initiatives, and expanding the Q4 Platform to help our customers win in the capital markets,” commented Heaps.

Q3 2023 Operational Highlights and Subsequent Events

• Over 88% of Q4 clients are actively using the Q4 Platform, gaining new and unique insights while improving workflow;
• Recognized as one of Canada’s Top Growing Companies by The Globe and Mail;
• Won multiple Stevie^® Awards in the 2023 International Business Awards^® Program;
• Won two Transform Awards recognizing the new Q4 brand for Best Corporate Brand Evolution and Best Brand to Reflect Change in Positioning;
• Subsequent to the quarter, Q4 was recognized for Best Tech-Driven Capital Markets Platform and Most Innovative IR Website by Global Brands Magazine;
• Added 73 new clients on to the platform in Q3, for a total of 216 YTD and ending the quarter with 2,580 clients;
• More than 81,000 investors created a Q4 account during the quarter, bringing the total to 452,000 investors worldwide who benefit from a Q4 account;
• More than 18 million unique investors interacted with Q4’s network of IR websites monthly during the quarter; and
• On November 13, 2023, Q4 Inc. entered into a definitive arrangement agreement with Sumeru Equity Partners who will acquire all of the issued and outstanding shares of the Company for CDN $6.05 in cash per Common Share, other than the Rolling Shareholders including Messrs. Darrell Heaps and Neil Murdoch and associates thereof and Ten Coves Capital, who represent approximately 34.1% of the issued and outstanding common shares.

Webcast Information

As a result of the announcement this morning, Monday, November 13, 2023, that Q4 Inc. has entered into a definitive arrangement agreement with Sumeru Equity Partners, the Company will not host a live webcast session with analysts.

Q4's unaudited interim consolidated financial statements and management's discussion and analysis for the three and nine months ended September 30, 2023 will be available on Q4's IR website and will be filed on SEDAR at www.sedar.com.

Third Quarter 2023 Results

Selected Financial Measures

Revenue
	Three Months Ended September 30,					Nine Months Ended September 30,
	2023	2022	Change	Change		2023	2022	Change	Change
(USD in thousands)	$	$	$	%		$	$	$	%
Capital markets platform	13,581	12,933	648	5.0%		40,332	38,338	1,994	5.2%
Platform services	1,090	1,232	(142)	(11.5)%		3,908	3,492	416	11.9%
Other	—	10	(10)	(100.0)%		28	44	(16)	(36.4)%
Total revenue	14,671	14,175	496	3.5%		44,268	41,874	2,394	5.7%
Gross profit	10,076	8,360	1,716	20.5%		29,880	24,143	5,737	23.8%
Percentage of total revenue	68.7%	59.0%				67.5%	57.7%

Key Performance Indicators

(in USD)	September 30, 2023			September 30, 2022			Change			Change
Annual Recurring Revenue (in millions)	$	56.4		$	54.7		$	1.7		3.1	%
Average Recurring Revenue per Account	$	21,315		$	19,154		$	2,161		11.3	%

Results of Operations

The following table outlines our consolidated statement of loss and comprehensive loss for the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2023	2022		2023	2022
(USD in thousands)	$	$		$	$
Revenue	14,671	14,175		44,268	41,874
Direct cost of revenue	4,595	5,815		14,388	17,731
Gross profit	10,076	8,360		29,880	24,143
Operating Expenses
Sales and marketing	4,076	5,645		13,667	17,294
Research and development	3,113	4,884		11,535	14,006
General and administrative	5,294	6,234		16,859	17,782
Depreciation and amortization	929	923		2,773	2,738
Foreign exchange loss (gain)	89	624		(51)	988
Other expenses	210	1,914		1,351	2,261
Total operating expenses	13,711	20,224		46,134	55,069
Loss from operations	(3,635)	(11,864)		(16,254)	(30,926)
Finance expenses	8	19		74	60
Finance income	(135)	(6)		(411)	(12)
Impairment loss	158	—		792	—
Gain on derivative financial instruments	—	—		—	(1,221)
Loss before income taxes	(3,666)	(11,877)		(16,709)	(29,753)
Income taxes	72	58		184	228
Net loss	(3,738)	(11,935)		(16,893)	(29,981)
Other comprehensive loss
Foreign exchange loss on foreign operations	(38)	(54)		(7)	(117)
Net loss and comprehensive loss	(3,776)	(11,989)		(16,900)	(30,098)
Basic and diluted loss per share	(0.09)	(0.30)		(0.42)	(0.75)
Weighted average number of common shares outstanding - basic and diluted	40,115	39,973		40,016	39,772

Key Balance Sheet Information

	September 30, 2023	December 31, 2022	Change	Change
(USD in thousands)	$	$	$	%
Cash and cash equivalents	20,772	21,536	(764)	(3.5)%
Short-term investments	—	7,607	(7,607)	(100.0)%
Total assets	54,644	73,832	(19,188)	(26.0)%
Total liabilities	25,978	29,459	(3,481)	(11.8)%
Total long-term liabilities	3,293	8,210	(4,917)	(59.9)%

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 on derivative financial instruments, severance and related costs, impairment loss, regulatory accruals and other costs. 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.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2023		2022			2023		2022
(USD in thousands)	$		$			$		$
Net loss	(3,738	)	(11,935	)		(16,893	)	(29,981	)
Depreciation and amortization	929		923			2,773		2,738
Finance expenses(1)	8		19			74		60
Finance income	(135	)	(6	)		(411	)	(12	)
Income taxes	72		58			184		228
EBITDA	(2,864	)	(10,941	)		(14,273	)	(26,967	)
Other adjustments
Share-based compensation expense(2)	293		325			1,176		1,347
Unrealized foreign exchange loss (gain)(3)	90		624			(51	)	988
Gain on derivative financial instruments(4)	—		—			—		(1,221	)
Impairment loss	158		—			792		—
Severance and related costs(5)	113		1,598			1,105		1,598
Regulatory and advisory fees(6)	334		862			1,153		884
Adjusted EBITDA	(1,876	)	(7,532	)		(10,098	)	(23,371	)
EBITDA loss per share	(0.07	)	(0.27	)		(0.36	)	(0.68	)
Adjusted EBITDA loss per share	(0.05	)	(0.19	)		(0.25	)	(0.59	)

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 ("LEIP") to certain employees and directors. Options granted under the LEIP have become options under our Omnibus Equity Incentive Plan (the “Omnibus Plan”) in connection with the 2021 IPO. 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 severance and related expenses included in G&A and other expenses.
(6)		These expenses relate to regulatory, consulting, advisory, and other fees that are non-operational.

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 table reconciles our cash flow from/(used in) operating activities to free cash flow:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2023	2022		2023	2022
(USD in thousands)	$	$		$	$
Cash flow from (used in) operating activities	(452)	(6,614)		(7,798)	(24,615)
Purchases of property and equipment	(30)	(77)		(230)	(508)
Free cash flow	(482)	(6,691)		(8,028)	(25,123)

Key Performance Indicators

This press release also makes reference to “Annual Recurring Revenue” or “ARR” and “Annual Recurring 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 ended September 30, 2023 and 2022.

Forward-Looking Information

This press release contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking information”) within the meaning of applicable securities laws. In some cases, forward-looking information generally can be identified by the use of terminology such as “expect”, “continue”, “anticipate”, “intend”, “aim”, “plan”, “believe”, “budget”, “estimate”, “forecast”, “foresee”, “close to”, “target” or negative versions thereof and similar expressions.

This forward-looking information relates to our future financial outlook and anticipated events or results and includes, but is not limited to, information regarding: the Company’s financial position, financial results, business strategy, performance, achievements, growth strategies; the Company’s budgets, operations, and taxes; judgments and estimates impacting our financial statements; the market in which the Company operates; industry trends and the Company’s competitive position; expansion of the Company’s product offerings; trends in research and development ("R&D") expenses and general and administrative ("G&A") expenses, each as a percentage of revenue; planned decreases in sales and marketing and R&D activities; the timing and pace for achieving profitability; and expectations regarding the growth of the Company’s client base, revenue and revenue generation potential.

Forward-looking information is based on certain assumptions, expectations and projections, and analyses made by the Company 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 assumptions, expectations, 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 client relationships and to continue to expand our clients’ 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 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.

Given these risks or uncertainties, investors are cautioned not to place undue reliance on forward-looking information, including any financial outlook. Any forward-looking information that is contained in this MD&A speaks only as of the date of such statement, and the Company undertakes no obligation to update any forward-looking information or to publicly announce the results of any revisions to any of those statements to reflect future events or developments, except as required by applicable securities laws. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. 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.

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 the leading capital markets access platform that is transforming how issuers, investors, and the sell-side efficiently connect, communicate, and engage with each other.

The Q4 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. The Q4 Platform is the only holistic capital markets access 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 2,600 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 investors.Q4inc.com.

__________________________

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

Investors
Edward Miller
Director, Investor Relations
(437) 291-1554
ir@q4inc.com

Media
Heather Noll
Manager, Corporate Communications
media@q4inc.com