Q4 Inc. Announces Solid First Quarter 2023 Results

Q4 Inc. (TSX:QFOR) (“Q4” or the “Company”), a leading capital markets access platform, today announced its financial results for the three-month period ended March 31, 2023. QFOR reports in U.S. dollars and in accordance with International Financial Reporting Standards (“IFRS”).

“I am proud of the team's ability to continue delivering organic growth in Q1 despite muted capital markets activity,” said Darrell Heaps, Founder and Chief Executive Officer. “Over half of our bookings were expansions with existing clients who continue adding new modules to their Q4 stack, such as engagement analytics, CRM and ESG add-ons. The result deepens our client relationships, drives loyalty and expands margins.”

First Quarter 2023 Financial Highlights

• Revenue of $14.5 million, up 4% compared with $13.9 million in Q1 2022;
• Annual recurring revenue¹ up 5.3% year-over-year, to $55.6 million;
• ARPA up 11% year-over-year to $20,411 driven primarily by existing clients adding new subscriptions;
• Gross margin up 802 basis points year over year to 65.4%;
• Adjusted EBITDA² of $(4.5) million, a 37% improvement compared with $(7.1) million in Q1 2022;
• Net loss of $(7.1) million, or $(0.18) per share; and
• As of March 31, 2023, the Company had $46.3 million in available liquidity, including $23.8 million in cash and cash equivalents, and an undrawn credit facility of $22.5 million.

“We ended Q1 with gross margins on target, reaching 65.4%, commented Darrell Heaps. This accomplishment is due to our successful execution on several initiatives, including, our virtual events platform, our fixed data contracts, the adoption of the web management app on Capital Connect, and the build up of our LATAM operations. These structural changes are permanent and sustainable and will have a lasting impact for continued gross margin expansion through the remainder of the year, exiting 2023 in the mid-70’s.”

Operational Highlights

• Over 1,800 clients and agencies active on the Q4 Capital Connect Platform in Q1, gaining new and unique insights while improving workflow;
• Launched the Engagement Analytics suite, an innovative benchmarking and investor targeting tool gleaned through millions of investor interactions;
• Initiated the integration of Generative AI across our products, proprietary data and real time analytics;
• Enhanced CRM with email integration and new mobile app, delivering expanded functionality that will strengthen outreach strategies for IR professionals;
• More than 100,000 new Q4 Accounts created during the first quarter, up more than 50% since the end of 2022. To date, more than 286,000 investors have signed up for this platform service;
• More than 16 million unique investors accessed Q4’s network of IR websites each month during the quarter; and
• Announced a partnership with Novisto that will enable companies to build their ESG narrative to be delivered through Q4’s innovative platform, providing clients with an ESG data management solution to enhance their sustainability reporting.

“Across the business, we continue pulling on multiple levers to accelerate towards profitable growth,“ said Donna de Winter, Chief Financial Officer. “We have taken deliberate actions to significantly lower our operating expenses, improving our visibility to both positive EBITDA and cash flow in 2023.”

Specifically, the Company is accelerating the implementation of the following strategic actions:

• Further traction in expansion sales and marketing, focused on introducing data analytics and enhanced CRM to existing clients globally;
• The expansion of its Latin America operations, aligning global delivery capabilities to best partner with clients; and
• Technology enabled scale in our core offerings allowing for labour reductions.

These actions are expected to lower annual operating expenses by at least $6.0 million with improvements expected to surface in Q2 and continue throughout the second half of 2023.

Normal Course Issuer Bid

The Company renewed its Normal Course Issuer Bid (“NCIB”) on March 29th, providing flexibility to repurchase up to 2,134,343 shares over the next twelve months. During the previous NCIB which ended in Q1, the Company repurchased and canceled 379,400 shares at an average price of $2.52.

Webcast Information

Q4 will host a webcast to discuss the Company's financial results at 9:30 am ET on Monday, May 15, 2023. Participants can register in advance or access the webcast live at https://events.q4inc.com/attendee/223412388. 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 unaudited interim consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2023 will be available on Q4's IR website and will be filed on SEDAR at www.sedar.com.

First Quarter 2023 Results

Selected Financial Measures

Revenue
	Three Months Ended March 31,
	2023	2022	Change	Change
(USD in thousands)	$	$	$	%
Capital markets platform	13,182	12,864	318	2.5%
Platform services	1,298	1,063	235	22.1%
Other	19	18	1
Total revenue	14,499	13,945	554	4.0%
Gross profit	9,486	8,006	1,480	18.5%
Percentage of total revenue	65.4%	57.4%

Key Performance Indicators

	March 31, 2023		March 31, 2022		Change		Change
(in USD)	$		$		$		%
Annual Recurring Revenue (in millions)	$	55.6	$	52.8	$	2.8	5.3%
Average Recurring Revenue per Account	$	20,411	$	18,404	$	2,007	10.9%

Results of Operations

The following table outlines our consolidated statement of loss and comprehensive loss for the three months ended March 31, 2023 and 2022:

	Three Months Ended
	March 31,
	2023	2022
(USD in thousands)	$	$
Revenue	14,499	13,945
Direct cost of revenue	5,013	5,939
Gross profit	9,486	8,006
Operating Expenses
Sales and marketing	4,880	5,144
Research and development	4,299	4,130
General and administrative	5,526	5,771
Depreciation and amortization	941	901
Foreign exchange loss (gain)	7	(597)
Other expenses	324	280
Total operating expenses	15,977	15,629
Loss from operations	(6,491)	(7,623)
Finance expenses	12	21
Finance income	(92)	(3)
Impairment loss	634	—
Gain on derivative financial instruments	—	(1,104)
Loss before income taxes	(7,045)	(6,537)
Income taxes	53	60
Net loss	(7,098)	(6,597)
Other comprehensive income (loss)
Foreign exchange gain (loss) on foreign operations	22	(11)
Net loss and comprehensive loss	(7,076)	(6,608)
Basic and diluted loss per share	(0.18)	(0.17)
Weighted average number of common shares outstanding - basic and diluted	39,919	39,624

Key Balance Sheet Information

	March 31, 2023	December 31, 2022	Change	Change
(USD in thousands)	$	$	$	%
Cash and cash equivalents	11,589	21,536	$(9,947)	(46.2)%
Short-term investments	12,222	7,607	4,615	60.7%
Total assets	67,402	73,832	(6,430)	(8.7)%
Total liabilities	29,574	29,459	115	0.4%
Total long-term liabilities	9,181	8,210	971	11.8%

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, severance and related costs, impairment loss, and management fee 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
	March 31,
	2023		2022
(USD in thousands)	$		$
Net loss	(7,098	)	(6,597	)
Depreciation and amortization	941		901
Finance expenses(1)	12		21
Finance income	(92	)	(3	)
Income taxes	53		60
EBITDA	(6,184	)	(5,618	)
Other adjustments
Share-based compensation expense(2)	426		148
Unrealized foreign exchange loss (gain)(3)	7		(597	)
Gain on derivative financial instruments(4)	—		(1,104	)
Impairment loss	634		—
Severance and related costs(5)	447		—
Management fee and other costs(6)	212		22
Adjusted EBITDA	(4,458	)	(7,149	)
EBITDA loss per share	(0.15	)	(0.14	)
Adjusted EBITDA loss per share	(0.11	)	(0.18	)

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 professional, consulting, advisory, and other fees that are non-recurring.

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
	March 31,
	2023	2022
(USD in thousands)	$	$
Cash flow from (used in) operating activities	(5,957)	(7,592)
Purchases of property and equipment	(42)	(279)
Free cash flow	(5,999)	(7,871)

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 March 31, 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 customer 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 customer 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 a leading capital markets access 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 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 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 www.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
Corporate Communications Manager
media@q4inc.com