EMERGE Reports Second Quarter 2023 Results

• Q2 Revenue of $6.2M compared to $8.6M in Q2 2022. Revenue for Q2 2022 would have been $7.1M when excluding revenue from US operations and trading that were eliminated in 2022.
• Q2 Gross Margin improved to 51.3% compared to 44.1% in Q2 2022, marking the Company's 2^nd consecutive quarter with Gross Margin exceeding 50%
• Q2 Adjusted EBITDA¹ increased to $0.13M compared to $0.09M in Q2 2022, marking the Company's 7^th consecutive quarter of positive Adjusted EBITDA, and 13^th out of the last 14 quarters
• Q2 Cash Flow from Operations increased to $0.8M compared to $0.2M in Q2 2022
• Senior Credit Facility down to $15.85M from $25M a year ago

TORONTO, Aug. 28, 2023 /CNW/ - EMERGE Commerce Ltd. (TSXV: ECOM) ("EMERGE" or the "Company"), a diversified acquirer and operator of niche e-commerce brands, today announced results for its three and six months ended June 30, 2023. Copies of the interim financial statements and MD&A are available on the Company's profile on SEDAR at www.sedarplus.ca.

"Despite the macro climate, we're pleased to have delivered another quarter of positive Adjusted EBITDA and positive cash flow from operations, both exceeding last year. Q2 also marks our second consecutive quarter with gross margin exceeding 50%, reflecting the team's various gross margin enhancement initiatives. Our revenue in Q2 2023 was down vs. Q2 2022 in large part due to the unprofitable truLOCAL US operations and trading divisions eliminated in late 2022, in addition to what we view as more normalized post-pandemic revenue levels reflected in recent quarters. We expect the second half of 2023 to offer a more apples-to-apples revenue comparison. Notwithstanding, EMERGE'S overall revenue remains significantly higher than pre-pandemic levels (2019), with some of our brands showing healthy organic growth year over year," commented Ghassan Halazon, Founder and CEO, EMERGE.

Q2 2023 Financial Highlights

• Q2 GMS¹ was $20.2M compared to $22.1M in Q2 2022. GMS for Q2 2022 would have been $20.6M when excluding GMS from US operations and trading that were eliminated in 2022
• Q2 Revenue from continuing operations was $6.2M versus $8.6M in Q2 2022. Revenue for Q2 2022 would have been $7.1M when excluding revenue from US operations and trading that were eliminated in 2022
• Q2 Gross Margin improved to 51.3% compared to 44.1% in Q2 2022
• Q2 Adjusted EBITDA¹ of $0.13M for 2023, compared to $0.09M in 2022, marking the Company's 7^th consecutive quarter of positive Adjusted EBITDA, and 13^th out of the last 14 quarters
• Q2 Cash Flow from Operations increased to $0.8M compared to $0.2M in Q2 2022
• Net Loss from Continuing Operations of $1.6M for Q2 2023 compared to net loss of $0.9M in Q2 2022. The increase in net loss is primarily attributable to losses from foreign exchange and other gains (losses) of $0.5M in Q2 2023 compared to a gain on foreign exchange and other gains (losses) of $0.9M in Q2 2022
• Cash on hand at June 30, 2023 was $2.8M

This marks EMERGE's second financial report which classifies BattlBox as discontinued operations, with prior period results also restated to reflect the reclassification where noted. The Company completed its sale of BattlBox in April 2023.

Sale of WagJag

In July 2023, the Company entered into an agreement to sell WagJag and BeRightBack. In August 2023, pursuant to the sale of WagJag and BeRightBack (the "Transaction"), the Company received cash consideration of $1M on closing of the Transaction.

EMERGE originally acquired the business for $500,000 from Torstar Corp in 2017. The Company expects further HQ cost reductions in association with the sale of WagJag, given the reduced overheads required to service the go-forward brand portfolio.

Following the Transaction, EMERGE retains 5 brands across 3 main verticals (Pets, Grocery, and Golf) in Canada and the U.S., namely WholesalePet, truLOCAL, Carnivore Club, UnderPar, and JustGolfStuff. 

Senior Debt Update

The Company entered into an amendment agreement to the Company's amended and restated credit agreement dated October 27, 2022, with its existing lender (the "ARCA") pursuant to which, inter alia, the Company repaid the lender $400,000 from proceeds of the Transaction.

The Company's senior credit facility is currently at $15.85M, down from $25M a year ago.

The Company remains in good standing with its existing lender, which it has worked with since November 2019, and continue explore options to refinance the debt.

"Q2 was also a critical quarter to progress on debt paydown, in large part facilitated by the sale of BattlBox, and more recently supplemented by the sale of WagJag completed in Q3. Our senior debt facility now sits at $15.85M, down from $25M a year ago, expected to result in substantial interest savings, exceeding $1M on an annualized basis. We plan to continue to be relentless in both driving operational improvements and paying down debt. We have a valuable e-commerce brand portfolio, including multiple profitable businesses that deserve more attention, and we believe our recent streamlining efforts will help us focus on our most compelling opportunities," continued Halazon.

Top Priorities

The Company's top priorities in the near-term are to i) continue to pay down debt and reduce interest expense, ii) drive organic growth from existing portfolio, iii) extract further operational efficiencies, and iv) enhance EBITDA to cash flow conversion.

Conference Call

Management will host a conference call on Tuesday, August 29 at 8:30 am ET to discuss its second quarter results. To access the conference call, please dial [phone] or [phone] and provide conference ID 27428178.

Alternatively, the conference call can be accessed online at: https://app.webinar.net/Bj8ekNnknAv

Selected Financial Highlights

The tables below set out selected financial information and should be read in conjunction with the Company's consolidated financial statements and MD&A for the three and six months ended June 30, 2023, which are available on SEDAR.

		Three months ended June 30,	Three months ended June 30,	Six months ended June 30,	Six months ended June 30,
		2023 $	2022 $	2023 $	2022 $
Gross Merchandise Sales^1		20,162,035	22,059,810	41,135,852	46,306,388
Total revenue		6,165,929	8,632,604	13,190,175	18,340,736
Adjusted EBITDA^1		125,990	85,943	441,419	570,652
Net (loss) income from continuing operations		(1,648,252)	(908,455)	(3,763,144)	(3,827,703)
Net (loss) income		(1,954,819)	(820,833)	(4,084,532)	(3,645,953)
Basic and diluted (loss) per share from continuing operations and total		(0.02)	(0.01)	(0.04)	(0.04)

Results from BattlBox have been reclassified to discontinued operations.

(1)   Non-GAAP Financial Measure. Refer to section "Non-GAAP Financial Measures" below for additional information.

The following table highlights Adjusted EBITDA and a reconciliation of the Company's reported results to its adjusted measures:

	Three months ended June 30,	Three months ended June 30,	Six months ended June 30,	Six months ended June 30,
	2023 $	2022 $	2023 $	2022 $
Net (loss) income	(1,954,819)	(820,833)	(4,084,532)	(3,645,953)
Add back:
Finance costs	858,553	946,951	1,917,852	1,847,152
Income taxes	(608,141)	95,732	(731,003)	12,164
Amortization	1,222,941	1,216,707	2,450,188	2,409,592
EBITDA	(481,466)	1,438,557	(447,495)	622,955
Share-based compensation	38,359	93,084	115,564	226,899
Transaction cost	57,542	143,157	204,057	327,869
Foreign exchange and other losses (gains)	508,221	(931,667)	551,138	(479,103)
Fair value change in contingent consideration	(303,233)	(569,566)	(303,233)	53,782
Net loss (income) from discontinued operations	306,567	(87,622)	321,388	(181,750)
Adjusted EBITDA	125,990	85,943	441,419	570,652

The following table highlights GMS and a reconciliation of the Company's reported results to its adjusted measures:

	Three months ended June 30,	Three months ended June 30,	Six months ended June 30,	Six months ended June 30,
	2023 $	2022 $	2023 $	2022 $
Revenue	6,165,929	8,632,604	13,190,175	18,340,736
Adjusted for:
Merchant costs deducted from net revenue	14,131,053	13,800,796	28,649,255	28,986,884
Sales added to deferred revenue and value of orders fulfilled not included in revenue	1,720,662	1,385,498	3,314,377	3,109,486
Deferred and other adjustments to revenue recognized	(1,820,285)	(1,633,543)	(3,749,239)	(3,877,155)
Advertising revenue	(35,324)	(125,545)	(268,716)	(253,563)
GMS	20,162,035	22,059,810	41,135,852	46,306,388

About EMERGE

EMERGE is a diversified acquirer and operator of quality niche e-commerce brands in Canada and the U.S. Our subscription and marketplace e-commerce properties provide our members with access to offerings across our pets, premium meat/grocery, and golf verticals. EMERGE was named one of Canada's Top Growing Companies by Globe and Mail in 2022 (and 2020), and one of the fastest growing companies in Canada by the Startup 50 in 2020.

To learn more visit https://www.emerge-commerce.com/

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Cautionary notice

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Non-GAAP Measures

This press release makes reference to certain non-GAAP measures. These non-GAAP measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing a further understanding of results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the financial information of the Company reported under IFRS. Gross Merchandise Sales ("GMS"), EBITDA, and Adjusted EBITDA should not be construed as alternatives to revenue or net income/loss determined in accordance with IFRS. GMS, EBITDA and Adjusted EBITDA do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers.

GMS as defined by management is the total dollar value of customer purchases of goods and services, excluding applicable taxes and net of discounts and refunds. Management believes GMS provides a useful measure for the dollar volume of e-commerce transactions made through our platforms and an indicator for our business performance.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") and Adjusted EBITDA as defined by management means earnings before interest and financing costs, income taxes, depreciation and amortization, transaction costs, foreign exchange gains/losses, discontinued operations, unrealized gains/losses on contingent consideration and share-based compensation. Management believes that Adjusted EBITDA is a useful measure because it provides information about the operating and financial performance of EMERGE and its ability to generate ongoing operating cash flow to fund future working capital needs and fund future capital expenditures or acquisitions.

A reconciliation of the adjusted measures is included in the Company's management discussion & analysis for the three and six months ended June 30, 2023 in the section "Non-GAAP Financial Measures" available through SEDAR at www.sedarplus.ca.

Notice regarding forward-looking statements

This press release may contain certain forward-looking information and statements ("forward-looking information") within the meaning of applicable Canadian securities legislation, that are not based on historical fact, including without limitation statements containing the words "believes", "anticipates", "plans", "intends", "will", "should", "expects", "continue", "estimate", "forecasts" and other similar expressions. Readers are cautioned to not place undue reliance on forward-looking information.  Actual results and developments may differ materially from those contemplated by these statements.  The Company undertakes no obligation to comment on analyses, expectations or statements made by third-parties in respect of the Company, its securities, or financial or operating results (as applicable).  Although the Company believes that the expectations reflected in forward-looking information in this press release are reasonable, such forward-looking information has been based on expectations, factors and assumptions concerning future events which may prove to be inaccurate and are subject to numerous risks and uncertainties, certain of which are beyond the Company's control, including the risk factors discussed in the Company's MD&A, Prospectus Supplement and Annual Information Form and are available through SEDAR at www.sedarplus.ca. The forward-looking information contained in this press release are expressly qualified by this cautionary statement and are made as of the date hereof. The Company disclaims any intention and has no obligation or responsibility, except as required by law, to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

On Behalf of the Board
Ghassan Halazon
Director, President and CEO

SOURCE EMERGE Commerce Ltd.

Ghassan Halazon or Jonathan Leong, EMERGE Commerce Ltd., 416-479-9590, [email protected]