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CIM Revenue More Than Doubles Year-over-Year; Balance Sheet Remains Very Strong
EDMONTON, AB / March 26, 2020 / OneSoft Solutions Inc. (the "Company" or "OSS") (TSXV:OSS)(OTCQB:OSSIF), a North American developer of cloud-based business solutions, provides a business update and announces its financial results for the year ended December 31, 2019. Please refer to the Audited Consolidated Financial Statements, Management's Discussion and Analysis ("MD&A") and the Annual Information Form for the year ended December 31, 2019 filed on SEDAR at www.sedar.com for more information. Unless otherwise stated, all dollar amounts are Canadian dollars.
Note to reader: Effective in 2018, the Company changed its financial year-end from February 28 to December 31. The change in year-end resulted in the Company filing a one-time, ten-month transition year financial statement covering the period of March 1, 2018 to December 31, 2018. Subsequent to the transition year, the Company's financial year is January 1 to December 31.
(in $,000)'s, per share in $Year ended December
2019Ten months ended
December 2018Increase /
(Decrease) $$%Revenue2,7124,328(37.3) Gross Profit2,0104,143(51.5)Comprehensive (loss) income(3,585)2951,316.3Weighted average common shares
outstanding - basic (000)'s108,974100,725 Weighted average common shares
outstanding - diluted (000)'s108,974105,120 Per share: Comprehensive income (loss) - basic(0.03)0.00 Comprehensive income (loss) - diluted(0.03)0.00 Cash and short-term investments10,5122,015421.6Working capital8,2212,419239.8
"2019 was a pivotal year for OneSoft, from several perspectives," said Dwayne Kushniruk, CEO of OneSoft. "Recurring revenue more than doubled this year, we on-boarded four new clients, enhanced our IP, and strengthened our balance sheet significantly. Client satisfaction with our solutions is high, sales processes with potential new customers are actively underway and our sales funnel continues to grow. We have aggregated what we believe to be the industry's widest and most integrated pool of integrity data coupled with vendor and technology-agnostic inline inspection results. This allows clients to leverage their historic asset and inline inspection data to make better data-driven decisions and potentially save millions of dollars in operational costs. We believe OneSoft is well-positioned, with first mover advantage and a strong competitive moat based on machine learning, data science and cloud computing on Microsoft's Azure platform, to continue to increase our lead in assisting industry players with digital transformation."
Mr. Kushniruk continued, "With the recent disruption of business caused by Covid-19, we are now witnessing some advantages of digital transformation for the industry. Interactions with our clients that have included CIM in their digital strategies confirm that they have been able to seamlessly shift to remote operations, allowing employees to access their systems and data in a secure manner while working from the safety of their homes. We look forward to the continued growth of our business in 2020 and sincerely thank all of our employees, clients and stakeholders for supporting our vision and objectives."
HIGHLIGHTS OF FISCAL 2019
Highlights for Fiscal 2019 include the following:
- Total revenue in Fiscal 2019 was $2.7 million, of which $2.5 million was annual recurring revenue (as defined in Fiscal 2020 Revenue Components on page 9 of the MD&A), more than double the $1.1 million annual recurring revenue generated in the ten months ended December 2018. In 2018, $3.0 million was earned from completing a software development project and no similar revenue occurred this year.
- The increase in revenue occurred as a result of increasing the Company's client count, from two as at December 31, 2018 to six clients as at December 31, 2019 that have entered into multi-year software-as-a-service ("SaaS") usage agreements. The clients include one independent pipeline operator, four Fortune 500 companies and one industry Super-major1 who collectively operate 51,000 miles of oil and gas ("O&G") pipeline infrastructure and now utilize the Company's Cognitive Integrity ManagementTM ("CIM") SaaS solution as the foundation for their pipeline integrity management processes.
- OneSoft closed a bought deal financing on April 25, 2019 which generated $8.4 million (net of financing expenses) that is being used to accelerate business growth and research and development initiatives designed to increase the Company's competitive moat. Approximately 75% of the capital raise was subscribed to by institutional investors.
- Cash and short-term investments at Fiscal 2019 year-end increased to $10.5 million, from $2.0 million at December 31, 2018, giving the Company sufficient cash to execute its current business plan. The Company has no debt and $8.2 million of working capital.
- The Company made significant progress in advancing its research and development ("R&D") roadmap by developing and adding new software functionality and enhancements requested by users; a "Dig Management" software module which increases the footprint usage of CIM for clients; initial structure for Direct Assessment (pipelines for which inline inspection ("ILI") data is not gathered); other enhancements to accommodate regulatory and security requirements and new tools to automate and scale on-boarding of new clients.
- 3,922 inline assessments were ingested into CIM during Fiscal 2019, resulting in 142 new learnings of dig selection criteria and more than 52 million features, across all data analyzed to date. Active client users of CIM who typically spend most of their workday in the application increased from approximately 20 in 2018 to 167 in 2019.
1 Super-majors are considered to be the seven largest oil and gas pipeline companies world-wide.
HIGHLIGHTS SUBSEQUENT TO YEAR-END FISCAL 2019
The Company presented a "Repair Fraction" white paper at the Pipeline Pigging and Integrity Management ("PPIM") conference held in Houston, Texas in February, 2020, the oil and gas pipeline industry's primary global forum devoted exclusively to pigging for maintenance, inspection and integrity evaluation and repair. The Company was invited to present its first quantifiable study outlining the value proposition of clients using CIM, which demonstrates that the Repair Fraction of excavations for pipeline repairs identified by CIM can be greatly improved over determinations made by legacy solutions, thereby resulting in significant potential cost savings for pipeline operators.
Management believes that Fiscal 2019 was a successful year for OneSoft, from both operational and corporate perspectives. We doubled annual recurring revenues from 2018 (10 months) to 2019 (12 months), tripled our client base, developed new software functionality that increased our credibility and footprint in our market and developed tools to scale and automate the on-boarding of future clients. We also strengthened our balance sheet through a capital raise, enabling the Company to capitalize on its first mover advantage and increase our competitive moat. The combination of $10.5 million of cash and short-term investments on hand at Fiscal 2019 year end, no debt, $8.2 million in working capital, increasing and sticky annual recurring revenues and a strong sales pipeline collectively serve to support the Company's growing future opportunities and reduces risk for shareholders as the business matures.
Based on the comprehensive validation processes conducted by high-profile clients who on-boarded in 2019; communications with prospective customers who are currently investigating or engaged in proof of concept trials; and numerous interactions with other industry professionals and vendors, we believe that awareness and credibility of our Company and CIM platform are continuing to gain momentum within the U.S. oil and gas pipeline industry. Management is focusing efforts to meet Fiscal 2020 objectives as follows.
From a revenue and sales perspective:
- Our highest priority in 2020 is to sign new clients in pursuit of our "land and expand" growth strategy, as this effort will serve to increase our data ingestion and iterations of our algorithms, expanding our foundation and opportunity to increase revenues over the longer term.
- We anticipate that annual recurring revenue will again double year over year in 2020, as a result of some of our current clients increasing use of our solutions by on-boarding their regional affiliate operations, and through addition of new clients.
From a research and development ("R&D") perspective:
- With respect to maintaining our technological lead and competitive moat with machine learning IP, we intend to continue research and development of new modules for our CIM platform to increase our footprint of functionality that will support pipeline operators' requirements and initiatives as they pursue digital transformation strategies.
- To supplement our internal R&D efforts we intend to seek collaborative joint projects for our Innovation Lab with select clients, industry associations and third party industry vendors, to identify new synergistic white space opportunities to augment our intellectual property based on leveraging our machine learning, data science and cloud computing expertise.
- We intend to continue to aggregate big data to advance our algorithms, increase our database of learnings for the industry and investigate potential new alternatives to monetize such learnings.
- Based on our investigations at PPIM in February 2020, we believe we still have no direct competitors for our machine learning, cloud-based solution, and that our strategies and efforts will achieve our objective of increasing our competitive moat.
From a corporate perspective:
- We intend to improve awareness of our Company and opportunity with U.S. investors by increasing our participation in various investor and industry conferences, road show events and other initiatives targeting potential investors who pursue artificial intelligence; machine learning; SaaS; and environmental, social and governance-associated investments in microcap companies.
- Management will continue to operate the business with a strong focus on increasing shareholder value, by advancing the Company's intellectual property and addressing the multiple factors that we believe tend to enhance value for SaaS companies.
Potential Business Disruption Due to Volatile Oil Price and Covid-19 Virus
Although it is difficult to predict future scenarios that OneSoft may need to contend with in Fiscal 2020 as a result of the depressed oil price and Covid-19 virus epidemic, we believe the Company is well-positioned to deal with unusual business disruption that started to unfold in early 2020.
- With respect to depressed oil prices, our clients are midstream pipeline operators whose business is to transport oil and gas products and typically operate under long term contractual commitments based on fixed fee pricing for transporting products rather than pricing that fluctuates with the price of oil or gas. Product throughput must continue regardless of oil pricing volatility and assured revenues justify continuance of our clients' integrity management and digital transformation strategies. Unlike upstream companies (oil and gas producers) whose capital and operating expenditure budgets are more closely linked with the price of oil and gas, we anticipate less disruption to our business with midstream clients as a result of volatile commodity pricing. Furthermore, PHMSA regulations that mandate periodic collection of ILI data for U.S. O&G pipeline infrastructure are still required, and it is possible that we may even benefit as a result of industry financial concerns if customers potentially accelerate their investigation and adoption of more efficient and cost-effective methodologies to improve financial operating metrics, which we believe our solutions deliver. As well, new PHMSA rules that are scheduled to be effective July 1, 2020 are anticipated to not only require operators to improve data gathering and analysis processes but to also assess more pipelines that are not currently subject to federal operational mandates, thus potentially expanding our U.S. addressable market.
- With respect to Covid-19, most of our clients and prospective customers have by now implemented policies to minimize potential negative effects to operations, which impact travel and access to their employees for meetings. While face to face meetings with clients and prospective customers are currently restricted, we are well positioned to conduct meetings using on-line and video conferencing tools instead. Our Company has operated with remote home-based employees, rather than from a centralized office environment, since 2015. As a result, we do not anticipate slow-down of product development or expect material negative disruption to service our clients, as we are insulated from the potential quarantine and work stoppage scenarios that currently face businesses that use conventional office environments.
The extent of potential business disruption in Fiscal 2020 cannot be known with any degree of certainty. At this point in time, and given the information we have today, Management anticipates that business fallout from these factors will be disruptive for at least part of 2020, but not overly threatening to the Company's longer-term business and outlook. We intend to closely monitor the situation and adjust as necessary as events unfold.
Fiscal 2020 Outlook
Given the Company's priorities to focus on adding new clients, increasing data ingestion and analyses to augment our learnings database and accelerating new product development to increase our competitive moat and future opportunities, we expect to incur operational losses in 2020. Following the ramp-up of resource allocations to pursue these growth initiatives in 2019 the Company's cash consumption in operations before the effect of changes in working capital accounts was $2,535,359, or an average of $633,840 per quarter. This cash consumption was offset by the generation of $2,711,126 cash from working capital accounts, of which $991,324 arose from deferred revenue as customers prepaid next year's subscription to use CIM. Management believes they can, in part, finance a portion of the 2020 operational cash consumption in a similar manner.
Management's current expectation, based on our sales pipeline, is to double revenue in Fiscal 2020 over the prior year, providing purchase decisions are not postponed due to unforeseen industry budget curtailments resulting from the commodity price volatility and Covid-19 disruptions. If such disruption were to occur, we believe the worst-case scenario will be a delay in achieving our objectives until more normal business conditions prevail. We also believe that such disruption would likely delay development funding for potential competing solutions, so potential risk to our competitive moat would not be significant during this period of disruption. In any event, we will continue to enhance our solutions and build stronger value for our Company and investors, and given the Company's $10.5 million cash and short-term investments balance and current cash burn rate, we believe the Company is well-funded to pursue our business and strategies.
ON BEHALF OF THE BOARD OF DIRECTORS
ONESOFT SOLUTIONS INC.
For more information, please contact
Dwayne Kushniruk, CEO
Sean Peasgood, Investor Relations
This news release contains forward-looking statements relating to the future operations and profitability of the Company and other statements that are not historical facts. Forward-looking statements are often identified by terms such as "may", "should", "anticipate", "expects", "believe", "will", "intends", "plans" and similar expressions. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking information is provided to deliver information about management's current expectations and plans relating to the future. Investors are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions.
In respect of the forward-looking information and statements the Company has placed reliance on certain assumptions that it believes are reasonable at this time, including expectations and assumptions concerning, among other things: the effects of the COVID -19 world pandemic and related effects on the North American global economy, crude oil price fluctuations, interest and foreign exchange rates; planned synergies, capital efficiencies and cost-savings; applicable tax laws; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services; the efficacy of its software; our interpretation based on various industry information sources regarding the total miles of pipeline in the USA and globally, which segments are piggable; our understanding of metrics, activities and costs regarding evaluation, inspection and maintenance is in alignment with various industry information sources and costs of performing pipeline evaluation, inspection and maintenance in the USA are representative of those in the rest of the world, are reasonably accurate; the success of growth projects; future operating costs; that counterparties to material agreements will continue to perform in a timely manner; that there are no unforeseen events preventing the performance of contracts; and that there are no unforeseen material development or other costs related to current growth projects or current operations. Accordingly, readers should not place undue reliance on the forward-looking information contained in this press release. Since forward-looking information addresses future events and conditions, such information by its very nature involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to many factors and risks. These include but are not limited to the risks associated with the industries in which the Company operates in general such as: costs and expenses; interest rate and exchange rate fluctuations; competition; ability to access sufficient capital from internal and external sources; and changes in legislation, including but not limited to tax laws.
Readers are cautioned that the foregoing list of factors is not exhaustive. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement. The forward-looking statements contained in this news release are made as of the date of this news release, and the Company undertakes no obligation to update publicly or to revise any of the included forward-looking statements, whether because of new information, future events or otherwise, except as expressly required by Canadian securities law.
This news release does not constitute an offer to sell or the solicitation of an offer to buy any securities within the United States. The securities to be offered have not been and will not be registered under the U.S. Securities Act of 1933, as amended, or any state securities laws, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of such Act or other laws.
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