Q4

Q4 Inc. (TSX:QFOR) (“Q4” or the “Company”), a leading capital markets communications platform, today announced its financial results for the three and nine months period ended September 30, 2022. All amounts are expressed in US dollars unless otherwise stated.

“The results of the third quarter reflect progress toward our overall strategic vision and the actions taken toward sustained profitable growth,” said Darrell Heaps, CEO of Q4. “We executed several initiatives to improve our sales efficiency and reduce costs, resulting in better margins and accelerating future operating leverage. The positive impact of these initiatives, combined with sustainable double-digit revenue growth, will better position the Company to capitalize on new opportunities that will drive profitability in 2023. In September, despite macro headwinds, our team achieved a record sales bookings month and we saw a significant increase in average deal size, all of which reinforces the value our customers receive from our Capital Connect platform.”

Third Quarter 2022 Financial Highlights

• Delivered revenue of $14.2 million, representing growth of 11.2% when excluding the discontinued virtual shareholder meeting (VSM) segment from Q3-2021 results. Including the VSM business impact on Q3-2021, revenue increased 8.8%.
• Expanded annual recurring revenue¹ as of September 30, 2022 to $54.7 million, an increase of 8.7% year over year, driven by 67 new subscription customers added and 96 existing customers purchasing additional products.
• Average recurring revenue per account (ARPA) grew 5.7% for the quarter, an increase over the preceding quarter's ARPA growth rate of 4.1%.
• Gross margins continued to improve, reaching 59.0%, an improvement of 212 basis points year over year, driven by new customers, higher average prices, and the expansion of our proprietary virtual events platform across all of our event clients. The company reiterates its expectation to exit the year with a gross margin above 60%, increasing to the mid-70% range in the latter half of 2023.
• There was a net loss of $11.9 million, or EPS of $(0.30) and Adjusted EBITDA² loss of $7.5 million. On an adjusted EBITDA basis EPS would be $(0.19).
• As of September 30, 2022, the company had availability of $60.0 million to grow the business, which includes $30.6 million in cash and cash equivalents, $7.0 million in short-term investments, and an untapped revolving credit facility of $22.5 million.

Third Quarter and Subsequent to Quarter-End Operational Highlights

• Completed Q3 with 2,679 total customers compared to 2,600 customers from the prior year period.
• Executed strategic initiatives to reduce operating expenses and accelerate the path to profitable growth, including:
  • Established a new Latin America centre of excellence, located in Mexico, to enhance our productivity and competitiveness by taking advantage of this highly skilled deep talent pool.
  • Completed a restructuring that reduced the workforce by 8% in order to right-size our sales and marketing efforts and research and development, and drive more efficient execution.
  • Redesigned our go-to-market strategy to focus on bundled sales and highlight the value of our platform approach. Q4 is leveraging multiple products, resulting in a healthier pipeline, higher conversion rate, and attainment of larger multi-year deals.
• Capital Connect, our unified data platform that provides a single user experience and unique insights, is now used by over 1,500 customers who rely on the platform daily to manage interactions with Q4 and the market. The company expects the majority of its 2,600+ customers to be on Capital Connect in 2023.
• Engagement Analytics, the unique data product based on Capital Connect interactions, rolled out to customers during the quarter. Initial feedback and reviews have been very positive with traction accelerating as new products are introduced across our larger and more diversified client base.
• Q4 Login, our unified investor login product for earnings calls, grew significantly in third quarter reaching 114,000 registered users, up 35% from 85,000 in the second quarter.
• Q4 was recognized as one of Canada’s Top Growing Companies by The Globe and Mail and recognized as A Great Place to Work for the third year in a row.

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 Friday, November 4, 2022. Participants can register in advance or access the webcast live at https://events.q4inc.com/attendee/328493037. 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 condensed consolidated financial statements and management's discussion and analysis for the three and nine months period ended September 30, 2022 will be available on Q4's IR website and will be filed on SEDAR at www.sedar.com.

Third Quarter 2022 Results

Selected Financial Measures

Key Performance Indicators

Results of Operations

The following table outlines our consolidated statement of loss and comprehensive loss for the three and nine months ended September 30, 2022 and 2021:

Key Balance Sheet Information

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.

Note:

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:

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 and nine months ended September 30, 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 discover, communicate and engage with each other. The Q4 end-to-end technology platform facilitates interactions across the capital markets through its IR website products, virtual events solutions, capital markets CRM, shareholder and market analytics tools. The firm is a trusted partner to more than 2,650 public companies globally including many of the most respected brands in the world. Q4 is based in Toronto, with offices in New York and London. Learn more at q4inc.com

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