Good morning, and welcome to Quisitive's First Quarter 2023 Earnings Conference Call. Joining us for today's call are Quisitive Chief Executive Officer, Mike Reinhart, and Chief Financial Officer, Scott Meriwether. Following the remarks, we will open the call for your questions. Before we begin today, I'd like to remind everyone that during the conference call, management will be making statements that contain forward-looking statements within the meaning of applicable Canadian securities litigation. Please refer to the company's forward-looking information disclaimer statement, which can be found on the notice for this call, our website in the first quarter 2023 earnings release. I would like to turn the call over to Mike Reinhart. Sir, please proceed. Thank you, operator. Good morning, everyone. We appreciate you taking the time to join our Q1 2023 earnings call. The first quarter showcased progressive growth in our overall revenue, with a significant contribution coming from our Global Payment Solutions business. We were able to sustain operational momentum across various internal initiatives. We are steadily advancing toward our long-term financial objectives. First, we will discuss our Global Cloud Solutions business. Given the overarching economic landscape, we persist in staying flexible and responsive to the ever-changing market environment. In the first quarter, our recurring revenues from Global Cloud Solutions encompassing managed services, licensing, and software sales demonstrated an increase both on a quarter-over-quarter and year-over-year basis. This uptick showcases the positive inherent growth of our organization. We are unwavering in our commitment to invest in these solutions as they not only offer crucial buffers against unpredictable market situations, but also provide a reliable and enduring value to our clientele. The growth we are witnessing is encouraging, suggesting sustainable stability and scalability for the future. While our managed services and software solutions performed well in Q1, we underwent a few operational pivots in reaction to changes in the professional services market. Beginning in 2020, we saw a drastic shift in demand for professional services, where there was a marked increase in cloud services demand, with a particular emphasis on the tooling and infrastructure needed to support distributed workforces. This year, we are starting to see new trends settle in with a departure from a focus on digital workplace services and a higher emphasis on custom solutions, data, and AI, while foundation solutions like security and infrastructure persist. In light of these adjustments to the marketplace, and consistent with other IT services and technology firms, we have made corresponding adjustments in our cloud professional services groups to align our operational capacity to market demand. At the end of April, we removed over $4.5 million in annualized cost to support this adjustment, peeling back investment from lower demand areas. These adjustments will increase our short-term quarter-over-quarter growth, profit, and Adjusted EBITDA outlook. This refocusing within our professional services organization, together with the customer delays mentioned during our last call, resulted in a slight year-over-year decline in our cloud business. The operational adjustments implemented at the end of April, along with the continued strength in our sales pipeline, have enabled us to better align our operations with the market, mitigate future disruptions, and set the stage for a return to growth. We are intensifying our sales efforts to help customers finalize contracts promptly and continue investing in recurring revenue streams to alleviate the burden on the professional services sales engine as customers navigate through challenges. We remain committed to our successful cross and upselling strategies, aim to expand monthly recurring revenue for increased stability, and will continue to focus on key areas of innovation, including generative AI. AI remains a prominent focus within the industry. This is illustrated by key announcements from Microsoft regarding their Copilot solutions, which opens up opportunities for innovation and increases demand from our existing customers for guidance on leveraging generative AI, including but not limited to ChatGPT. We will soon provide more details about our investment in generative AI and its specific applications within our industry solutions suite. It's worth noting that while large language model-enabled generative AI is creating a buzz in the industry, Quisitive has been utilizing AI and customer solutions for quite some time. As demonstrated in a recently published case study with Greene Tweed, we successfully integrated AI into their smart factory, which uses AI, machine learning, and advanced predictive analytics for decision-making based on real-time data and predictive modeling. The system negated the need for manual part inspection, thereby saving costs for the customer while improving quality. AI has already started to make a difference for customers. We're excited about how this new wave of generative AI will further enhance companies' technology landscapes by improving efficiency and accuracy. We are confident that the genuine worth for our customers is found in initiatives like these, incorporating AI into their existing systems. This approach aligns perfectly with our aspiration to provide all-encompassing technology solutions that assist in achieving business objectives and provide value throughout the technology ecosystem. We are actively collaborating with Microsoft to spearhead efforts in activating Copilot for customers, broadening Quisitive solutions to incorporate Azure OpenAI Service, and assisting customers in assessing and implementing generative AI solutions within their business. regarding AI, we are excited to participate in the upcoming Innovate Theory to Commerciality Conference organized by Eight Capital in Montreal. We will be discussing the potential impacts of Microsoft Copilot and other AI tools on SaaS solutions. This emphasizes our commitment to staying in tune with advancements in AI, exploring how to integrate them into our current solutions, and delivering their value to our clients. We eagerly anticipate sharing updates on these initiatives with the market. As we look forward to Q2 in the cloud segment, we anticipate steady growth in a robust sales pipeline, as previously mentioned. These ongoing shifts within the industry are to be expected, and we will persist in our adaptability to address customer requirements and achieve our long-term objectives. Transitioning to our payment solutions business. As we previously mentioned, our payment segment was a major contributor to the total revenue growth for the quarter. This reaffirms that our diversified approach, spanning both payments and cloud, continues to be a valuable asset to our business. As expected from our seasonal trends, we experienced a surge in volume growth from our direct portfolio and third-party portfolio, particularly in March, which set new records aligning with the performance of other major players in the industry. We are making steady progress with PayiQ. In April, I accompanied our payments leadership team to the ETA TRANSACT Payments Conference in Atlanta, where we had the chance to interact with leaders from all the major payment card networks. These discussions reinforced our confidence in our future roadmap and strategy with industry leaders expressing their belief in PayiQ's robust infrastructure and the progress made so far. At present, we anticipate commercialization around the middle to end of Q3 and expect merchant activity to begin in July as we onboard early merchants onto the platform and concurrently advance our relationships and complete the Amex and Discover certifications. Furthermore, as we announced in a press release last week, we plan to host a live demonstration of the PayiQ platform during our investor day in June. This demonstration will showcase live customer transactions processed through PayiQ and its distinctive merchant platform. During this event, we aim to exhibit the unique technology and opportunity that PayiQ offers to Quisitive and our partnered merchants. PayiQ aspires to provide a comprehensive value add from merchant to the end customer, and we are excited to present this to the market. Our partnership with Microsoft continues to flourish and provide new opportunities for our organization. As it is the Q4 for Microsoft, we are taking extra care to support joint sales and market motions with our partner team to close out the year well and align for a strong start to their new fiscal. We are collaborating with Microsoft in several ways to drive growth in their upcoming fiscal year. We are working closely with the Microsoft sales and marketing teams to jointly create and execute initiatives that target potential customers. This collaboration allows us to leverage each other's strengths and networks to increase our reach and efficiency. As Microsoft continues to innovate and expand its suite of products and services, we are staying in lockstep. We are investing in the training and resources needed to offer these new services to our customers, ensuring we can meet their evolving needs. In align with Microsoft's strategic focus, we are prioritizing areas like AI, managed services, security, and industry solutions in healthcare, manufacturing, and the public sector. By doing so, we are positioning ourselves to tap into high-growth markets and offer solutions that are in high demand. Our team is continually up to. continually updating their skills and gaining certifications in Microsoft technologies. This allows us to provide the most up-to-date and efficient solutions to our customers, keeping us competitive and enabling growth. By focusing on these areas, we believe we can continue to strengthen our partnership with Microsoft and drive significant growth in their new year. In line with our previous communication, Quisitive is vigilantly monitoring the market for valuations and opportunities that align with our M&A strategy. We have seen the value our past acquisitions have added, enhancing our sales capabilities, broadening our geographic footprint, and enriching our solutions portfolio. We regard these endeavors as crucial and value-adding to our future strategy, and we will continue to scout for promising prospects. As we progress, we anticipate gradual sequential growth throughout the year, having positioned the company to capitalize on emerging market opportunities. These initiatives will require time to mature, and we remain committed to strategically maintaining and extending our reach. Our focus will be on delivering the complete Quisitive experience to every customer, offering our comprehensive range of services and exceptional customer service to promote customer retention and expansion. We aim to address immediate business challenges while also realizing our vision of becoming the foremost end-to-end digital transformation partner in both cloud and payments. We are grateful to have you all as shareholders and supporters. Now, I'll hand it over to our CFO, Scott Meriwether, to discuss our Q1 2023 financial results. Scott? Thanks, Mike, and thank you to all who are joining us for today's call. The first quarter of 2023 delivered continued growth for Quisitive as revenue increased 8% to $48.3 million from $44.9 million for Q1 of 2022. Driven by the performance of our payment segment. All of our acquisitions have fully annualized, so the quarterly comparisons are clean. Gross margin increased 1% to $18.2 million in Q1 of 2023 over $17.9 million in Q1 of 2022. Gross margin as a percentage of revenue decreased to 37.6% from 39.9% in Q1 of 2022. The gross margin decrease was driven by our cloud segment. As Mike referenced earlier, the cloud segment had expected softness in Q1, and I'll cover more on that later. Adjusted EBITDA increased 10% to $7 million for Q1 of 2023 from $6.4 million for Q1 of 2022. Adjusted EBITDA as a percentage of revenues was 14.6% for Q1 of 2023, an increase from 14.3% in Q1 of 2022. We'll now move to discussing the specific performance of our segments. Revenue in our Global Cloud Solutions segment decreased 5.7% to $31.8 million for Q1 of 2023, from $33.7 million for Q1 of 2022. In line with the revenue decrease, the cloud segment's Adjusted EBITDA decreased 7% to $3.9 million for Q1 of 2023, from $4.2 million for Q1 of 2022. EBITDA margin decreased to 12.3% in Q1 of 2023 from 12.5% in Q1 of 2022. The decrease the cloud segment experienced was consistent with our expectations and consistent with trends we have seen across the IT services industry. Our professional services revenue within the first quarter was weaker as customers pushed large contracts out of Q1, primarily due to macroeconomic concerns and a desire to not commit to large projects until they had more visibility to their own projections. We have a strong sales pipeline. We maintained extra capacity so we could serve those customers when they were ready to start. As we had better visibility of the timing of our own pipeline, we ultimately made adjustments to our cost structure. Mike previously noted the cost reductions that we made in early Q2 that equate to approximately $4.5 million in annualized cost savings. The significant majority of this expense was allocated to the cloud segment. One trend we do want to highlight within our cloud business is the growth within our recurring revenue from the cloud segment. Our cloud recurring revenue was $11.9 million in Q1 of 2023, an 18% growth rate, up from $10.2 million in Q1 of 2022 and also up sequentially from the $10.8 million we recognized in Q4 of 2022. One of our stated goals has been to increase our recurring revenue, which will be driven by our first-party IP and our managed service offerings. We are proud of our growth to date in these areas, and we'll continue to focus on increasing these recurring revenue streams. Given the strength of our pipeline, we anticipate that the gross margins within cloud will return to their historic levels. Our EBITDA margins will increase from the current level, especially as our recurring revenue streams continue to increase. Pivoting to the Global Payment segment, revenue once again set a quarterly record, increasing to $16.5 million for Q1 of 2023 from $11.2 million for Q1 of 2022 and delivering organic growth of 48%. All of the Q1 revenue is from our BankCard acquisition. Charge volume grew 3% year-over-year. Revenue growth significantly outpaced the charge volume growth as we added new revenue to third-party revenue streams for which we do not control or count the charge volume. These third-party revenue streams are more seasonal in nature than our historic base portfolio revenue. The third party portfolios increased through Q4 and hit their peak in Q1 of 2023. We do not expect that these revenue streams will contribute a similar proportion growth throughout all of fiscal 2023. While we're definitely happy with the revenue and the EBITDA impact in Q1, a 48% revenue growth rate is not expected for future quarters. These seasonal revenue streams also have a higher residual and commission split with our sales team than our historical averages, which also drives down our gross margin% for payments from historical averages. Adjusted EBITDA for our payment segment increased to $3.1 million in Q1 of 2023, an increase of 42% from the $2.2 million recognized in Q1 of 2022. BankCard contributed a strong quarter of EBITDA with $5.2 million in Q1 of 2023 before allocation of corporate costs. This is a $1.6 million or 43% increase over Q1 of 2022. The EBITDA for the payments division also includes spending on the PayiQ platform, which reduced payments EBITDA by $1.5 million in Q1 of 2023 compared to $1 million in Q1 of 2022. We have noted on our previous calls that operating costs related to PayiQ are expected to increase throughout fiscal year 2023 as we've reached market readiness on the launch of the platform. We expect our quarterly EBITDA losses from PayiQ will increase for the remainder of the year before reducing ultimately throughout fiscal year 2024 as increased revenue will begin to offset the existing spend throughout fiscal year 2024. Moving to the balance sheet, in March 31st, we had $75.8 million of term loans outstanding and $5.9 million of cash on hand. As of March 31st, our total leverage ratio was just below 2.5 x. Our quarterly debt paydowns are $2.4 million. On our previous earnings call, we noted that we amended our credit facility with BMO as of March 31st to lower our fixed charge coverage ratio from a ratio of 1.25 to one to 1.1 to one for fiscal year 2023. Our fixed charge coverage ratio is more than interest coverage as it includes adjustments for interest, CapEx, and other items. This covenant change gives us more flexibility to deliver our strategy during a time of rising interest rates. For the last three years, Q1 has been our weakest quarter for cash flows from operations. We experienced our expected seasonal trend this past quarter as cash flows from operations were $2.2 million. The results from Q1 of 2023 display the company's growth, as the $2.2 million in Q1 of 2023 is an improvement from zero cash flows from operations in Q1 of 2022 and negative $0.6 million in Q1 of 2021. We did not make any earn-out payments in the first quarter. We had $11.2 million of projected earn-out payments and short-term liabilities on the balance sheet at March 31st related to the BankCard and Menlo earn-outs. That $11.2 million includes $5.6 million of earn-outs that will ultimately be paid with equity per the contractual terms of the purchase agreements. There is another $2 million in accrued liabilities related to the Mazik earn-out, and Quisitive has discretion in how it will make that payment in cash and equity. Our working capital deficit at March 31st of $6.9 million is overstated, as it includes earn-out amounts expected to be paid with equity. The final earn-out payment for Menlo will be paid in Q2. The final earn-out payment for BankCard will be paid in Q3. The second earn-out for Mazik will be paid in Q3, and after those payments, we will only have the year three earn-out from Mazik remaining. It will be our only remaining earn-out for all these prior acquisitions. Our cash flow used in investing activities was $1.7 million. This run rate is a good baseline for fiscal year 2023. We expect our CapEx spending to increase slightly from this run rate in Q2 and Q3 as PayiQ nears market readiness. The current weighted average interest rate on our term loans is approximately 8.13%. Going forward, we expect to convert roughly half of our Adjusted EBITDA into free cash flow, which can either be used for acquisitions or for debt repayment. We define free cash flow as Adjusted EBITDA minus CapEx, internally capitalized software, cash interest, and cash taxes. Using Q1 as our baseline, we are confident in our ability to deliver growth in both the cloud and payment segment throughout fiscal 2023. We expect our payment segment to continue its strong performance, though at more historical growth rates than the 48% demonstrated this past quarter. The PayiQ platform remains on target to launch in the second half of fiscal year 2023. Our cloud pipeline is strong, and our growing recurring revenue base will help drive increased profitability. This concludes our prepared remarks. Thank you all for your time this morning, and we're now ready to open the call for your questions. Operator? Thank you, sir. As a reminder, each analyst will be limited to a maximum of two questions. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Thank you. Our first question comes from Christian Sgro with Eight Capital. Please proceed with your question. Hi, good morning, and thanks for taking my questions. For the line of questioning today, I'll start on the artificial intelligence topics. It's been, you know, in the mainstream this year at the, at the front of everyone's radar. My question would be, are customers, you know, more excited to engage you around AI? Is Microsoft pulling you in that direction to work more with customers on AI and machine learning solutions? Is there anything in your near-term or mid-term, you know, product roadmap IP that you think you can work on and develop on top of what Microsoft has? Yeah. Thanks, Christian. Yeah, obviously tremendous buzz around it. And as I said, we've been doing things using AI in predictive modeling for customers like Greene Tweed and others on an ongoing basis for the last several years. As you think about generative AI and the things happening there, we are seeing great interest in conversation with customers asking them. They don't really know where to start. They don't know how to think about applying the technology, where it's safe, where it's risky, you know, all those kinds of things. We are doing engagements with customers around helping them evaluate best use cases to think about how to apply generative AI, doing some proof of concepts with them. We're beginning those processes as we speak, and have active engagements with a number of customers in that regard. In fact, are building out a set of go-to-market offerings, both direct as well as in partnership with Microsoft, and can touch on that a little bit. In context of Microsoft, yes, almost every conversation we're having with Microsoft, as you can imagine, with all the things they're doing to embed Copilot into all of their products, including their security products, their development platforms with GitHub, their offerings within the context of Dynamics and Office and all those things, and how to use those and deploy those in the organization and activate the capabilities that it would bring to customers to solve business problems. By itself, it's not gonna solve them. It's gonna require advisory services as well as technical services to integrate into their environment, use their data and IP to make that happen. That'll be a big part of what we do. As we continue in the journey, we'll have a set of services that we bring together that are not only advisory services, heavy technical services to activate, because there's a big technical lift. Everybody thinks it's just about, you know, how do you use the modeling of natural language and things like that, and that's certainly a part of it. Where the real value comes in is where they're using it against the data that they have inside of their organization, and you have to take that data and put it in a form that can be reasoned on using these models. Again, that's where we have deep expertise. On our products, we do have active work going on, and we'll be sharing that with the market soon about embedding offerings of generative AI as part of our IP that we're bringing to market. We'll talk more about that in the very near future about how we see it in our products like MazikCare and some of the things from our managed services and Everwatch and Spyglass and other kinds of things that we're working on. Perfect. For my second question today, I'll stick to the cloud side of the business. I think you'd previously, you know, messaged that the year would build from Q1, and the commentary this morning has been that there were some delays, some push out into Q2. Just wondering if there's any additional color you could share directionally into the Q2 quarter, what visibility you have and how you see the cloud business trending through the year. Yeah. You know, obviously, in the professional service side of the cloud business, as we talked about, we made some adjustments. We have the Q1 revenue, saw some of the softness in the areas we did, and we made some adjustments with our organization and staffing, to be quite honest, as part of that cost reduction. It reduces our revenue generating capacity, in terms of professional services, headcount and things like that. Q1 cloud services revenue will be the baseline that we build and grow from there. You know, expect there to be modest growth as we move from Q1 into Q2, and then build and grow from there. That was very helpful, Mike. Thanks for time for taking my questions this morning. I'll pass the line. Thanks, Christian. Thank you. Our next question is from Rob Goff with Echelon. Please proceed with your question. Good morning, and congratulations on the quarter. Thanks, Rob. Could you perhaps dive into the outperformance at BankCard? I know Scott referenced the third-party revenues, but if we were to look at the 47.6% growth on the quarter, if we were to take out those third-party revenue streams, would it be more like the 15%-20% that we were looking for? How should we look at this quarter, and how should we look at the trending going forth? Yeah. You're right on with those growth rates, Rob. you know, it's revenue we're happy to have in Q1, but it's revenue that's a little more seasonal, and it's a higher level of seasonality than we've typically experienced in the past. Some of that revenue growth, we don't expect to be there in the back half of fiscal year 2023. Some of that was more nutraceutical focused. Obviously, there's some beginning of the year health goals that consumers have, and so that drove some of the volume within those, within that subset of customers. That was some outsized growth. We expect a little of that to carry into Q2, ultimately Q3, Q4 kind of normalize back-to-back growth rate we've experienced for the last year, which is in that 15% range, maybe up to 20, but much more comfortable with that 15% range. Happy to have that revenue, but we're not counting on it to continue that level of growth for the remainder of the year. Let's hope everyone remains fixated on nutraceuticals. Could you perhaps dive into the organic growth from the recurring revenue segment and your visibility on that looking into the year? Thank you. Yeah. We've put a lot of emphasis on that. Everything from, you know, operational excellence. We've got a good leadership team on that part of our business that's really put some great discipline around process and repeatability. We've improved some of our alignment of sales. As we talked about, we brought the Catapult business in. It was more part of the DNA of that business doing the managed services. The, you know, traditional Quisitive footprint, we had a lightweight managed services prior to that. We've spent a lot of time in 22 really then integrating that into sales motion and leadership, accountability and other kinds of things. We're seeing that start to yield a lot of good momentum for us. What's happening in that regard where we have, you know, nearly 20% organic growth, it's both retention of existing customers, but more importantly, retention and net revenue growth that we're seeing on both existing and net new customers as part of that. That's been strong. We're also extending contract terms, so we're working to get more and more, you know, multi-year contracts versus, you know, one-year contracts. We've seen good progress there. On the other side of our business, that's part of the recurring. There's certainly some elements of third party that we've talked about in the past, but that's not been a big piece of the growth that's, you know, for the most part, maintained with small growth. Obviously, the MazikCare business in particular, we've seen good progress in that licensing. If you remember, that was early stage when we acquired it. We've had some good wins, including some large healthcare companies, and other kinds of things. Those seat counts, from a subscription basis are growing. That's where the drivers really are coming from, and it's been a focus of us, building out both the capability, aligning sales and marketing to activate that. We're seeing the benefits of that and expect that to continue as we progress through 2023. Thank you very much. Good luck. Thanks, Rob. Thank you. As a reminder, if you would like to ask a question, it is star one on your telephone keypad. Our next question comes from Jérôme Dubreuil with Desjardins. Please proceed with your question. Hi, good morning. Thanks for taking my questions. First, I have is on your comments that on your maybe retooling or adjustment of the cloud business, looking to go where growth is. That makes sense. Thanks. You're talking about $4.5 million savings from past three years where demand is lower. Typically I would have expected that maybe if you're transitioning to adapt to demand, that that would probably mean investments as well. Maybe if you can comment on a net basis, what are the investments required in the new areas versus your savings? You know, you got to think about two things. One is we've been making ongoing investments. We've been making capital investments in not only PayiQ, but our MazikCare platform, some of the other areas, our Everwatch platform within our managed services and Spyglass capabilities. We've been doing those investments. Some of those show up in OpEx expense as well as some in capitalized labor costs and things like that we're doing as part of the business. Those investments have been there where we see the growth areas. There are some things that we have been doing on AI and bringing those services to light long before. Those costs were already, for the most part, embedded into the model. Really, where the cost savings came from is predominantly labor associated with professional services that, we, you know, needed to realign the skill set and capacity for the demand of those services. There shouldn't be much incremental investment necessary because that was already embedded in the organization, and we're continuing to make those. It's really more about the, you know, the removal of some of the labor costs associated with those services that we're not seeing the demand in. As we scale and grow, we will, you know, be hiring for the skills and capabilities where the demand is growing. That's where the new investment will be as we add professional services labor, which is generating incremental cost as well as incremental revenue that and margin contribution as a component of it. Great. That's very helpful. Thanks. Now second question would be on the cross-selling potential, you know, from your past M&A. Is there some cross-selling that remains to be done? I'm thinking maybe on the Catapult product, or since it's been a while since these acquisitions were realized, we're pretty much through with, yeah. No, there's actually still quite a bit of room there, we believe. As you think about construct of cybersecurity managed services, we still have many customer opportunities in legacy accounts on a cross-sell basis. Maybe they've had some incumbent that in some of our accounts that they're unhappy with, and we're gonna be able to do takeout of those in legacy acquisitive customers, or we haven't. The timing wasn't right for them to be introduced. We, we do see that as still a significant growth opportunity for us. The other areas that we're still observing, you know, especially in the Dynamics business application side of our business, increasingly, historically, again, you know, Catapult, as an example, had a small footprint of Dynamics, primarily focused on CE, but none of the ERP and other kinds of things. Now, as part of our business applications, that part of our business actually grew organically, both out of professional services and on a recurring revenue basis in our cloud dimension. We're seeing strong growth there. Again, really good cross-sell opportunities going into some of these customers and educating them on our expertise around all of the ERP offerings that we have within the Microsoft footprint for Dynamics 365 BC, as well as FNO, our MazikCare product, our PowerGov product, ShopFloor products, and bringing those things in. We actually have good ongoing cross-selling potential in the existing ecosystem, and we're looking to really focus and leverage that. We have seen positive organic growth on that as a result. Great. Then I'll squeeze one last in. You mentioned the recent payments conference in Atlanta. Wondering if you can provide a bit more color on the conversations you've had with the credit card companies, or maybe if you've seen some competing products there or use cases Visa and Mastercard are most excited to see. Yeah. The discussions were multifaceted. It's where everybody in the payments industry goes. It includes a deep group of ISOs and ISVs and all the card networks, and then obviously processors and edge use cases and PayFacs and all the different groups that are part of that. In the conversations we had with the network providers, it's about, you know, knowing and understanding the final steps that we have with them and their commitment to that. I mean, they were very committed to working side by side with us and getting this in market. Talked a lot about things where they're excited about as we commercialize the potential for us to do joint offerings together that the incumbents can't enable for those card networks. Can't get into any of those specifics, obviously, but that's one of the things that's really exciting for us is not only getting and establishing the platform. That's sort of the ante to the poker game, and it's a heavy lift, and very few people have done it, and all those great things that we've talked about, and we're, you know, inching closer and closer to that finish line. As part of that, they then see us having an agile platform built on kind of the fabric of microservices architecture, leveraging cloud and enablement. With that will come the ability for us to innovate and do some things together. We announced one of those things with Visa centered around their VPC platform and what we're doing there as they activate a new set of offerings and bring that together. We believe there's some opportunities with data that we've talked a lot about and combining things with the offerings that they're doing as well as our third party. All that's a big part of what we think is the potential for us and see that as part of the future as we move from, you know, getting the platform activated and live to being really unlocking the value of data. Great. Thank you. Thank you. Our next question is from Robert Young with Canaccord Genuity. Please proceed with your question. Hi. Good morning. Maybe just to follow on questions around the cloud segment already. It'd be great if you could go over the gross margin impact and where you expect it to go. I think you said you made some utilization adjustments. I think that was after the quarter. You also said that you're maintaining pro server capacity. I'm just trying to reconcile those two things and maybe get a sense of where gross margins go in the short run. Yeah. Rob, we had a weaker Q1 gross margin because we had excess capacity. Our utilization was lower than our historical averages. After some of these cost reductions that were made, I think you'll see our cloud gross margin return to its historical levels, kind of around that 40% mark. We were hovering just under 38% in Q1. These adjustments were made in May 1, so we'll have a little bit of weakness carried to the very first part of Q2. I think the back half of Q2 and then the remainder of Q3, Q4, Both within just the cost structure and then also with the sales pipeline we have, we anticipate we'll be back at our historical margins within the cloud segment. Okay. There's also, you noted the year-end for Microsoft and how it lines up in supporting the sales and market motions. Is that also another impact there on the cost structure in Q2, or is that something that drives near-term opportunities? It's really positioning for us the back half of the year. It's for them getting deals locked and loaded, and then it's the stuff that starts to activate our Q3 and Q4 as they finish their quarter. There's always a bit of a lag, right? While we're working generally with Microsoft to, you know, engage with customers, position the Microsoft platform, position our offerings, whether they be our IP or managed services, et cetera. Bringing in those to closure gives Microsoft the visibility to their future revenue streams, as well as for us then our ongoing revenue streams across the different services and bundled offerings that we're bringing into them. They are laser-focused to bring those numbers in at the end of the year. It's different than the old days where, you know, you could close a deal on the last day of the month and recognize revenue. Even Microsoft can't do that. They're typically signing and renewing enterprise agreements. That's still part of the construct, and those enterprise agreements are renewals of the three-year commitments. These conversations we're having with customers, with Microsoft right now are about the workloads they wanna activate leveraging Azure. How they might begin to apply generative AI over the next one to three years. How they're going to expand the use of data and analytics over the next one to three years. That commit level that that customer will make with Microsoft influences their pricing and the negotiation. That's the stuff that's in intense focus right now, is that kinda three-year horizon that Microsoft's working to get commitments from those customers. Customers are motivated to do it because they're gonna get discounting based on that level of commitment. That commitment to get discounts means you gotta use more and more of the service, which then creates more and more need for our professional services, our offerings of IP, managed services, et cetera, to help them enable that. That's what that focus in Q4 is all about. They have heavy EA renewals in that time period and really creating the vision for the next two to three years as customers look to, you know, optimize their investment in the Microsoft Cloud Platforms. Thanks a lot for all that color. Last little one, sorry if I missed it, but the Amex and Discover certification. I know you don't have complete control over this, but did you say July and then monetization would start concurrently, or is that the comment? In July, we're gonna start. We'll be demonstrating a live customer here actually in early June. We'll start onboarding some merchants in the July and August timeframe that are focused predominantly on Visa, Mastercard. While we're completing the Amex, we expect the Amex and Discover stuff to be completed mid to late Q3, and then more broad onboarding and migration of merchants on the backside of that. Okay. Thanks a lot for that. Thanks, Rob. Thank you. Our next question is from Gabriel Leung with Beacon Securities. Please proceed with your question. Good morning, thanks for taking my questions. Mike, in the Q4 call, I guess again in Q1, you had talked about some customers deferring some of the larger professional services contracts, or delaying them, I guess, because of the economic uncertainty. Just given the reduction in your professional services revenue capacity, I guess, with the cost adjustment, is the implication that some of these large deals have been pushed out further or maybe in some cases been canceled? Very little been canceled. The, the positive sign there is that we've had very little of that be cancellation. It has been deferred. We did a balancing act of taking and re-removing some of the capacity, but not all of the capacity. The reality of it is, you know, if we land all those deals and they all come in, we will be aggressively hiring. The good news is the market is conducive to that today. There is a significant capacity available, and so, you know, that's both the good and the bad of the professional services side. The ability to ramp up, ramp down, while painful both ways, is something that is, you know, our engine is built for. We've got a very strong recruiting engine, we have a strong network, we have a great brand position with Microsoft. As we require that capacity to service demand, we will be able to activate it and scale it, and continue to use that as a mechanism to scale and grow. We do use some contingent labor as a variable in that with our third parties and other kinds of things, but we try to minimize that as part of the model. We do use some of that for, you know, certain skill sets or other kinds of things if we need quick demand. Gotcha. Thanks for that. Secondly, just as it relates to PayiQ, I think, Scott, you had mentioned the EBITDA burn from PayiQ is about one and a half million this quarter. What should we expect that sort of EBITDA burn to peak out at, as you get closer to the commercialization of the platform later this year? Should we also expect maybe a, an uptick on the addition to tangibles as well associated with that? I think we'll see our burn kind of peak out around $2 per quarter, about $2 million range. Revenue, like we said, will begin primarily Q4. It won't really impact Q4 that much. It's much more a fiscal year 2024 item as revenue begins to build. You will see increased, you know, we put kind of our baseline on our CapEx as this Q1 number. I think you'll see it increase marginally from this number, not significantly, but it will also increase up maybe a couple hundred thousand through the remainder of the fiscal year of 2023. Really at that point, with kind of holding steady, kind of within the range of today and maybe ±$200,000 or $300,000 from today's ranges, as we move really through the back half of 2023 and fiscal year 2024. Just part of that is just remember the capitalized labor and intangibles is not just PayiQ. We've got investments we're doing in our cloud IP and various things that are a component of that, and obviously those will continue as well. Going live with our first customers and getting through AMEX, the AMEX certification at the back end of Q3, there is further development on the platform. There are additional modules that we intend to bring to market. We will continue to be investing, and so we will continue to have capital expenditures for PayiQ for the foreseeable future, but definitely for the next two or three years as we round out that platform and offer more to our customers. Wanna make sure everyone doesn't expect that that CapEx disappears after we go live. It'll definitely continue for a period of several years. Gotcha. Thanks for taking my questions. Thanks, Gabriel. Thank you. Our next question is from Gavin Fairweather with Cormark. Please proceed with your question. Oh, hey, good morning. Thanks for taking my question. Just a quick one for me on cloud services. Can you just discuss bookings and the book-to-bill kinda in Q1 and maybe quarter to date here in Q2? I'm curious whether these kinda project kickoff delays are ultimately leading to an increased backlog, which may ultimately get released at some point as these projects get going. Yeah. I mean, obviously we don't report hard bookings. Part of that, to be honest, is because we've been operating on, you know, multiple systems across. We just went live in April with a consolidated platform that has been a big part of the internal efforts that we've been working on for all of our time, project, operations, as well as then billing and all those good things. We'll start to have some of those metrics that we'll be better able to use and serve. As you look at it, what's happening is, you know, we manage things through a pipeline process that has stage gates about where we are in the decision process, budget allocation, and then obviously ultimately when we think it's gonna close and when we think it's gonna start, and then what the shape of that backlog is gonna look like because it's not flat lined. It's typically some sort of bell curve where you start, ramp up, and then taper down on a project basis in particular. We obviously have great line of sight to our bookings and backlog on managed services and our licensing, and again, have great confidence in that now being 38% of our revenues gives us more visibility to that backlog of business. On the professional services side, there's no question that, we could have that growing backlog, which I kinda referenced, we would end up having to go and hire capacity quickly to serve. You know, we'll take that opportunity and deal with it as that comes, but at the same time, you know, wanna be smart and cautious about it so that if, you know, those delays in any way continue, that we've, you know, managed the business closely and, you know, we'll continue to do that as we go forward. We're very mindful of that and look at those backlog metrics both in terms of bookings, in terms of probability of deals in pipeline. 'Cause it's easy to see the true backlog of closed signed business. That doesn't change much. It's really the bookings associated with, you know, late-stage probability pipeline conversion, that we're working on getting better metrics to. Again, easier to do in times where customers tell you they have to have something. You know, it's interesting, we talk to these customers, they say, "This is a critical initiative for our business. We have to go do it. There's no chance." In fact, many of them have a date that might be regulatory or other that they have to have it completed by, but they're still gonna push that to the edge right now and only start it on the very last minute, which ultimately could mean that we have to do it twice as fast as we had originally planned and could end up consuming the dollars in a more rapid timeframe. All those things are, you know, pretty standard in this industry and getting that bookings and backlog is something we're working to refine, and feel good about Q2 and preliminary Q3, and looking to try to get a little better time horizon on that. In professional services in general, you know, a quarter to, you know, a quarter and a half is kind of the hard timeline that you can see. We feel good where we are in Q2 today and working to build Q3. Got it. That's it for me. Thank you. Thanks, Gavin. Thank you. Our next question is from Divya Goyal with Scotiabank. Please proceed with your question. Good morning, everyone. Thanks a lot for taking my questions. I just wanted to build on this cloud discussion that we are having here. Other than healthcare, are there certain sectors, industries where you're seeing the most traction or you see gaps, and how do you expect to fill them? Is M&A a consideration? On that same M&A topic, is generative AI-related M&A more a focus than anything else right now? Certainly healthcare, we see great demand, and it's one of our fastest-growing. Public sector, to be honest, is actually a rapidly growing. Our pipeline has strong opportunities, large multi-year contracts, all the kinds of things, a combination of professional services and managed services. A part of that is driven by Microsoft sees that as an enormous opportunity right now as well. We're working very closely with them in the public sector, and we talked a little bit about that in some of our press releases, the kind of work that we're securing there. The other place is financial services. Obviously, it's niches within financial services, but we are seeing some interesting demand in various banking and other scenarios where they're really looking at where and how they're adapting to various scenarios around different ways to engage consumers and use data and some of those kinds of things. There's manufacturing. There are pockets, and, you know, especially as you start to think about things like generative AI, we actually see significant opportunity in manufacturing. As you think about the enormous data artifacts across supply chain, across shop floor management, and other kinds of things, using IoT at the edge to consume data and create optimized processes, we think some of those are gonna be very interesting around AI and, to be honest, for quite some time, but now leveraging some of the other capabilities. As we think about M&A, obviously, we'll organically hire to many of these. We'll continue to look for opportunities. You know, right now there is virtually no company, other than the really big ones that you hear, that are Silicon Valley funded, that are truly generative AI companies. Everybody's telling you what they are, and you look under the hood, and they have very little that's substantive today. From an M&A side, I think you're still a ways out from people that have any meaningful generative AI offerings, that bring to bear. What I will say is the footprint of data skills and those kinds of things necessary to activate generative AI in customers will absolutely be candidates for us. As you think about applying generative AI, again, there's the interesting thing about using generative AI in this consuming and leveraging the models against the internet and all the cool things we see there. The real value to customers is taking all that capability and combining it with their proprietary data inside of their universe, their customer estate, their supply chain, and using these powerful models to reason and interact with that data estate. That requires very sophisticated technical skill, data science capabilities, and things like that to bring that together and apply that to the value add to the customer versus I wanna push some sort of natural language query leveraging ChatGPT in the public cloud. They don't want any of that data and all of that reasoning to ever be exposed to the public cloud. That's where Microsoft's Azure OpenAI Service, which leverages those models in an Azure context within a customer, is where a huge opportunity is for a company like ours, both building products as well as helping customers build their own solutions and capabilities. Acquisition of both skill sets as well as potential companies that have fundamental capabilities will be a big part of what we focus on. That's incredible color here, Mike. Just trying to understand, like, you know, obviously, it sounds like a lot that you're thinking about and a lot in the pipeline there. Is there, like, from a capital allocation standpoint, is there a big push from an internal investment standpoint, and has that been accounted for alongside the payment investment or PayiQ investments that we are modeling in our, at our end? Yeah. We've got an internal task force that we are working with, building out our set of offerings. We're doing everything from helping organizations understand legal and compliance to services to help them understand how to apply. We are investing in our products and doing those things. We're working with Microsoft around a whole readiness program to actually prepare our organization for the future of generative AI and embedding it in every service and everything we do. We have all that going on. In terms of your thing around investment, there's a couple really important things. First is we have significant investment, as I've already talked about, in OpEx as well as CapEx, and we are reprioritizing some of that planned expenditure outside of PayiQ to be allocated to that and have begun that already more than three or four months ago, where some of that already has occurred in some of those products you'll be hearing about very soon. Secondly, again, this unique position we have with Microsoft. As I talked about readiness and bringing all that together, Microsoft will co-fund that through programmatic motion, through resource allocation, and other kinds of things that will be dollars you never see in our P&L, but significant value add to us being able to mature. You'll see that come through in marketing investments with us as we market and bring that to market. Similarly, we've talked about with PayiQ, where they had engineering help us co-develop pieces, where they're going to leverage and help us activate those things. Those are dollars that are invisible to the P&L that we don't have to go and make capital investment or other OpEx investment to activate, that we get through that partnership with Microsoft that both is a cost savings on one hand, but also creates and deepens and strengthens our partnership with Microsoft. We're so embedded with them that they naturally view us as the only partner to even consider when going to market with generative AI. We're positioning ourselves very quickly. As I went to Microsoft, talked to them about this readiness initiative and some of those kinds of things. They said, "We're so excited you're the first partner to come to us to activate that, and we're very eager to really work with you guys to figure out how to do this best." Those are the kinds of things I think that are embedded in the DNA. Our sellers are talking to their sellers about how to position Copilot. What is it our technical teams are talking about Copilot and generative AI and how we apply it to existing work we're doing with customers. Again, we have a unique asset in that relationship that won't show up in the P&L, that will foster investment, but we also will reallocate hard dollars in our P&L that are already there versus significant incremental. That's helpful. Thanks, Mike. I'll pass the line. Thanks, Divya. At this time, this concludes the company's question and answer session. If your question was not taken, you may contact Quisitive investor relations team at quis@gatewayir.com. I'd now like to turn the call back over to Mr. Reinhart for his closing comments. Thank you. In conclusion, I'd like to extend our deepest gratitude to our dedicated team, our supportive shareholders, and our loyal customers for their unwavering trust and commitment to Quisitive. We remain steadfast in our mission to deliver the best cloud and payment solutions in the market, and our team is excited about the opportunities that lie ahead. We're eager to embark on the next phase of growth, and we're confident that our strategy and execution will continue to produce results that drive value for our shareholders. We're excited for what the future holds and look forward to sharing our journey with all of you. Thank you for joining us today to review our first quarter 2023 financial results, and we look forward to updating you on our progress throughout the year. Please stay safe, stay healthy, and have a great day. Operator. Thank you for joining us today for Quisitive's first quarter 2023 earnings conference call. Thank you for your participation. 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