Year to Date Revenue 115% Higher Than Last Year Edmonton,
Edmonton, Alberta, Canada (November 21, 2019) – OneSoft Solutions Inc. (the “Company” or “OneSoft”) (TSX-V: OSS, OTCQB: OSSIF), a North American developer of cloud-based business solutions, is pleased to announce its financial results for the three and nine months ended September 30, 2019 (“Q3 2019”). Please refer to the interim unaudited condensed Consolidated Financial Statements and Management’s Discussion and Analysis (“MD&A”) for the three and nine months ended September 30, 2019 filed on SEDAR at www.sedar.com for more information.
Effective in 2018, the Company changed its financial year-end from February 28 to December 31. The information presented in this News Release is for the three and nine months ended September 30, 2019 (the “current period”) and for August 31, 2018 (the “comparative period”).
FINANCIAL SUMMARY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND AUGUST 31, 2018.
FINANCIAL HIGHLIGHTS OF Q3 2019
Financial highlights for the third quarter ended September 30, 2019 (“Q3 2019”) include the following:
- Revenue for the current quarter nearly doubled year over year, from $389,007 for the 3-month period ended August 31, 2018 to $770,099 for the period ended September 30, 2019. The revenue increase is due to increased usage of the Company’s software solutions by more clients in 2019, augmented by an increase in services revenue arising from assistance provided to a major client that commenced implementing CIM in April 2019.
- Revenue associated with the Company’s Cognitive Integrity ManagementTM (“CIM”) software-as-a-service (“SaaS”) solution in the nine months ended September 30, 2019 was $2.1 million, as compared to $1.3 million revenue generated in the ten months ended December 2018, approximately 80% of which was derived from two clients who collectively analyzed approximately 13,000 miles of pipeline data.
- Cash at quarter-end this year was $11,293,424, up from $2,015,428 at December 31, 2018, giving the Company ample cash to execute its current business plan.
- The Company has no debt and $9,052,958 of working capital.
OPERATIONAL HIGHTLIGHTS OF Q3 2019:
Operational highlights for the third quarter ended September 30, 2019 (“Q3 2019”) include the following:
- The Company’s commercially contracted client list increased during 2019, from two clients as at December 31, 2018 to six clients as at September 30, 2019, and now include one independent pipeline operator, four Fortune 500 companies, and one industry Super-major. These clients collectively operate approximately 51,000 miles of oil and gas pipeline infrastructure for which we anticipate data will be loaded into CIM on a staged timing basis.
- On July 22 and 23, 2019, the Company and Microsoft held a workshop entitled “Digital Transformation: Making Pipeline Failures a thing of the Past” at the Microsoft Training Center in Houston. The purpose of the event was to educate attendees regarding Microsoft’s cloud computing strategy and to demonstrate OneSoft’s CIM platform. Personnel from three of OneSoft’s clients and OneSoft personnel demonstrated CIM and hosted a workshop that allowed prospective clients to experience CIM as a user. We believe this event allowed us to present CIM in a very compelling manner, particularly because our clients’ personnel who use CIM on a daily basis presented it to their industry peers, from a software user perspective. Several sales leads are now in process of various follow-up actions, and we are optimistic that we will gain new clients as a result of this event.
- In accordance with prior communiques, the Company progressed a number of initiatives during the quarter to accelerate research and development (“R&D”) efforts, to maintain our first-mover advantage regarding machine learning software for the O&G pipeline industry and to increase our competitive moat. Market research was conducted to assess demand for new CIM companion products and discussions are ongoing with several parties who may potentially collaborate with OneSoft in furtherance of certain future projects. Several new personnel were hired, including Edmonton-based software developers and Houston-based senior sales and other customer-facing personnel who are ideally situated to cater to our USA-based clients and prospects.
SUBSEQUENT TO QUARTER-END
- OneSoft began the process of validating the assumptions that drive our value calculations with some of our clients, prospects and reseller partners, and certain industry-published metrics. We believe that the current CIM costs are small compared with the overall value realized by clients, and that the Company may be justified in commanding higher pricing for CIM
- OneSoft announced its first upstream oil and gas pipeline pilot with a Fortune 100 company that also operates midstream and downstream divisions and whose midstream division adopted the use of CIM in early 2019.
- On October 2-4, 2019, the Company exhibited at the Pipeline Technology Forum in Houston, Texas. Attendance at this event generated interest from several pipeline companies, which we believe will result in future business for the Company.
- The Company also presented at the Microcap Rodeo Investor Conference in Austin, Texas on October 15-16, 2019, which provided a venue to meet new investor groups who typically engage with oil and gas (“O&G”) companies. Follow-up with several parties from this event are ongoing. An interview conducted during the seminar can be viewed here.
OneSoft continues to make good progress, in accordance with Management’s objectives and expectations. Since completing the April 2019 financing, additional personnel have been hired to accelerate sales and marketing activities, and R&D initiatives. We believe that our decision to raise additional capital to fund Company growth and accelerate advancement of our intellectual property (“IP”) will ultimately benefit all of our stakeholders, by expanding our first mover technological advantage and competitive moat and increasing our future market and revenue opportunities.
Commercializing CIM and Increasing Scalability to Onboard New Clients
The Company’s main operational objective in 2019 has involved advancement of CIM’s commercialization by onboarding four new CIM clients contracted in 2019. We believe growth is dependent upon determination and development of methodologies to scale additions of new clients in the future. As with deployment of any new technology, we encountered challenges. The three key issues we faced related to (a) historic data, much of which has required a significant amount of effort from both clients’ and OneBridge personnel to cleanse and re-format for ingestion into CIM; (b) numerous procedural and change management issues encountered in transitioning legacy integrity management processes (“IMP”) to fully digital systems and processes; and (c) determining how to incorporate and adapt the unique IMP used by individual clients into a horizontal single SaaS solution that addresses all clients’ functionality and process requirements. Resolution of these challenges required changes being made to the CIM solution and the development of numerous tools and processes to automate the onboarding of new clients. Our largest client (as measured by miles of pipeline operated) has required approximately seven months to reach the stage of initial implementation sign-off, prior to their commencement of user acceptance testing which is expected to require a further half year.
While the onboarding of new technology and adoption of new IMP processes has presented challenges for both our clients and Company personnel, this has provided an opportunity for OneSoft to develop and implement strategies to automate the implementation of CIM for future clients. Although the Company was only partially compensated for data cleansing and other service work associated with implementing CIM for these initial commercial clients, we anticipate that tools and efficiencies that were developed may help to increase services margins with future new clients, as a result of better automation of the onboarding process. We believe this experience represents an important step to increase our scalability to add new clients and reseller partners, and currently estimate that our consulting time and efforts might reduce significantly for future clients of similar size and scope to clients we added in 2019 that are members of Fortune 100 and 500 lists.
Three key factors that determine our revenue growth include the pace at which clients load data onto our CIM platform; the scheduling of pipeline inspections which drive variable elements of revenue; and the pace of adoption of our solutions by new clients. We believe that sales and revenue may be positively influenced by two recent positive developments – the October 1, 2019 announcement of new regulatory operational requirements by PHMSA; and OneSoft’s inclusion of sales metrics based on CIM cost/value that can be targeted at clients’ senior management teams (rather than targeting only the integrity management team), as discussed below.
- New Regulatory Operational Requirements Are Expected To Be Beneficial
The Pipeline and Hazardous Materials Safety Administration (“PHMSA”), the USA pipeline industry regulator, has published a new compliance rule (2019-20458) which is currently scheduled to take effect on July 1, 2020. This rule essentially mandates two new key requirements for O&G pipeline operators that we believe will be beneficial to the Company’s future opportunities. Firstly, O&G pipeline operators will need to collect, interpret and manage more data, which we believe our solutions are well-poised to address for clients. Secondly, certain gathering pipeline infrastructure that was previously exempt from certain operating requirements will be required to operate under certain new PHMSA regulations when the rule takes effect, similar to what our current (mid-stream) clients are addressing with CIM. We believe these new compliance requirements will effectively increase our total addressable market (“TAM”) within the USA, because more pipeline will need to be operated in compliance with PHMSA mandates.
We believe that both of these factors are beneficial to OneSoft because our CIM platform essentially addresses these requirements today with our “first mover” technology and functionality advantages, unlike legacy solutions that serve the industry today.
- Modeling CIM Cost/Value Metrics May Support Future Pricing Increases
As a result of sales research that OneSoft has been conducting during the past year, we are now developing metrics that we believe will be able to more precisely quantify the value that our clients can expect to achieve once they adopt CIM. Post quarter end, we began the process of validating the assumptions that drive the value calculations with some of our clients, prospects and reseller partners, and certain industry-published metrics. These calculations incorporate not only what is applicable to integrity management functions, but also consider several other factors that affect our clients holistically throughout their organization. These factors include number of pipeline excavations (“digs”) conducted annually, the number of digs where refurbishment or repair of the pipeline was positively found to be necessary (versus digs that were determined to not be actually required following excavation and inspection), resulting calculation of “dig/repair ratios”; costs per dig, for engineering, maintenance and repairs; barrels per day of product throughput lost due to shutdown of the pipeline during dig/repair events; revenue per barrel metrics for the pipeline, and certain other factors that contribute to the overall efficiencies of the IMP processes.
These metrics are collectively necessary to determine the benefits of using the CIM platform from a corporate overall cost/benefit perspective. Such analysis is not offered by legacy software solutions because of siloed data management practices typically used by pipeline operators today. For example, integrity management department personnel have little insight regarding associated workload costs incurred by other departments of their company, or revenue loss metrics that might occur as a result of pipelines being shuttered for repairs and maintenance. Our vision is to evolve our CIM platform with capability to ultimately aggregate, analyze and provide such business logistics, including certain quantifiable financial benefits. Based on preliminary estimated metrics from a sample of our CIM clients (which are anecdotal only at this point and not yet validated), and providing our assumptions are valid, we believe that we will be able to demonstrate significant cost savings for pipeline operators who adopt CIM in place of legacy solutions and practices.
We believe that the current CIM costs are small compared with the overall value realized by clients, and that the Company will be justified in commanding higher pricing for CIM (i.e., bolster revenue potential) in the future than is currently being charged to clients, once we are in the position of being able to disclose validated cost/value metrics. We believe this may have the desired effect of accelerating buying decisions and may potentially result in longer term SaaS contracts once buying decisions are made. We expect to validate and finalize the CIM cost/value metrics by the end of Q1, 2020.
Advancement of CIM Platform and IP
OneSoft has developed and commercialized the first machine learning solution (to our knowledge) for the O&G pipeline industry, which has now been validated by several US-based industry leaders. Some of our Fortune 100 and 500 clients have by now had opportunity to experience the advantages of machine learning, data science and cloud computing technologies that legacy systems and processes cannot replicate. We are now collaborating with these clients and certain industry partners to enhance our CIM platform by adding functionality that we believe might augment our future revenue opportunities. Our business strategy mandates that, regardless of the contributions or funding for projects that may be provided or paid by third parties, OneSoft intends to own all the IP that arises from such collaborations. Our objective is to continue to develop horizontal SaaS functionality, i.e., that which is typically required by most pipeline operators regardless of where they operate globally.
We intend to capitalize upon our data-as-a-service (“DaaS”) approach, wherein we expect to monetize learnings from pipeline associated data derived by our proprietary algorithms. To date we have analyzed tens of thousands of miles of pipeline data, involving learnings from more than 40 million data points. We believe this represents the most extensive aggregation of data and learnings collected by anyone in the O&G pipeline industry to date. We further believe that our CIM platform and capability to accelerate further data aggregation is well ahead of potential competitors, thereby serving to increase our competitive moat.
Our vision is to become the “ERP system” for O&G pipeline companies which involves integrating our initial CIM integrity management solution with complementary functionality modules, including enhanced risk management, Xbox style 3-D graphics and certain financial applications that collectively will improve decision making by incorporating large and varied data sets that have historically not been able to be used, but which the CIM platform can accommodate.
R&D efforts conducted in Fiscal 2019 have mostly been dedicated to advancing commercialization and scalability of CIM. We anticipate that new R&D development sprints will commence in Q4 of 2019 or Q1 of 2020, and recognition of revenue associated with future development sprints will not likely occur before the latter part of Fiscal 2020.
We believe that in 2019 and 2020, CIM SaaS recurring revenue, based on current functionality and pricing, will more than double over the respective prior year. This is based on the increasing loading of data and CIM usage by our current clients, and our expectation that we will gain new clients that are currently engaged in our sales processes.
Given that the Company accelerated investment in new product development and sales efforts in 2019, we expect to incur operational losses in 2019 and perhaps 2020; however, the Company is well-funded (through fiscal 2022, based on current operating metrics and revenue assumptions) to pursue accelerated development, marketing and sales initiatives. We believe the Company’s strategies, business, technology and operational plans will ultimately result in increasing shareholder value through achievement of two key objectives – advancing our technological lead and competitive moat, and increasing market potential and revenues.
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: 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.
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