Thank you, operator, and good afternoon, everyone. We appreciate you taking the time to join our Q1 2022 earnings call.

We are off to a strong start in fiscal 2022 with quarterly revenues up 256% year-over-year, resulting in a record breaking $45 million topline. This strong financial quarter demonstrates good momentum on delivering the integrated value of the Catapult acquisition, continued organic growth in our Payments business and validation of our acquisition strategy as we focus on our one Quisitive interaction all evidenced by results.

It is only been a few short weeks since our last update, so we will keep our comments brief, but want to address both macro market as well as high level updates in our business. First, I'd like to talk about the broader market and key indicators.

As I alluded to on the last call, our team has been paying very close attention to the various macroeconomic headwinds that have affected virtually every single business in the world. The cool down and potential recession posed risk to all facets of the market, particularly on the front of inflation as money becomes more expensive and we see various commodities temporarily losing projected value.

That said, as I shared on our previous call, Quisitive successfully took proactive steps towards strengthening our executive team with industry leaders and diversifying our recurring revenue streams with the intention to gain resiliency during the natural cycling of the market. As Satya Nadella, CEO of Microsoft noted during his most recent earnings call, instead of businesses pulling back on digital transformation efforts, they are accelerating these moves with the knowledge that increasing investment in the quality of automation within a company's infrastructure results in a properly placed deflationary force against the market's current wins.

Investments in IoT, data and digital transformation are at all-time high and are continuing to grow. To provide additional context, Satya noted that Microsoft has not heard of businesses looking to their IT budgets or digital transformations projects as the place for cuts.

But on the contrary are places where they are looking to accelerate their growth efforts. To put it short, it's a shared idea that investment in enterprise software and services is a strong deflationary force and that's something we at Quisitive can confidently echo as well.

This puts us in an ideal situation to grab further market share as companies pivot their needs to services and solutions that we offer to ultimately ramp up their digital transformation strategies. In parallel to the enterprise business effects, there has been an impact on the average consumer purchase behavior.

Nevertheless, I wanted to take a moment to dive into something CEO of Visa, Alfred Kelly, shared on his most recent earnings call. In the topic surrounding volumes and transactions within the payments market, Alfred mentioned that despite the forces of the recent supply chain constraints caused by the Omicron surge and the war in Eastern Europe, credit card transactions continued to grow.

He profoundly noted that he had not seen a noticeable impact due to inflation, supply chain issues or the war in Ukraine. And that payment volume growth relative to three years ago has been stable and strong now for four quarters in a row, paving the way for payment networks to power both more traditional and newer ways to transact and move money.

Networks inside and out of Quisitive are still expanding and the acceleration of this growth is achievable with the measures we've taken to this point in the phase of the aforementioned headwinds. These market indicators are validated by our strong Q1 results, and we are experiencing similar demand as we progress through Q2.

I'd like to now shift gears and dive deeper into our Global Cloud Solutions business segment, where a combination of the organic growth and realization of acquisition-related contributions has brought about a strong set of results for Quisitive. Our internal efforts are again supported by the previously stated theme of today's market wide shift to hybrid business, fueled by a surging demand for technical data services and application modernization services to support enterprise customers and their digital transformation needs.

Quisitive has already begun to capitalize in the synergies with Catapult, including an integrated recruiting engine to fuel headcount growth, a joint security assessment offering and initial motions to cross-sell Catapult Managed Service offerings focused on security and managed Microsoft Azure services to existing Quisitive customers. This is the first full quarter we've been able to completely bake-in a full three months of Catapult's financial results into our own.

I am proud to say that the integration process has been going well and the partnership across the company to immerse Catapult into the one Quisitive vision is on track. To further quantify the relationship, I'm pleased to share that to this date there has been 19 existing Catapult customers with Quisitive assessments and services completed, in process, or in the pipeline and 25 Quisitive customers engaging in the upsell Catapult security assessments and services in similar stages.

Leveraging the cross-selling opportunities within the various Quisitive specialty segments has always been a key component of our growth strategy, and we intend to further capitalize on this initiative going forward. As a committed Microsoft partner focusing on expanding our capabilities and customer reach with our broad portfolio of cloud services, Quisitive has taken a direct interest in procuring the well respected line of Microsoft advanced specializations.

With that said, I am pleased to reiterate that we've achieved 11 advanced specializations in total and recently received the fourth and final security solutions specialization. To provide additional context around how we separate ourselves from the rest of the pack, there are only six other Microsoft partners out of thousands that have obtained all four of the security solutions specializations.

Partners who earned an advanced specialization further differentiate their organization from companies inside and out of the Microsoft ecosystem, ultimately providing additional marketing and brand equity value to Quisitive. Additionally, Microsoft is making a major investment in security and we are well aligned to be a go-to partner in this space.

Quisitive's offering in the security space Spyglass is a holistic solution that includes assessment, roadmapping, security alerts, remediation and coaching. It is a cross platform expert security support that enhances customers' existing security investments as well as identifies overlapping security solutions to provide opportunities for customers to actually decrease their costs while improving security.

The cybersecurity market has reached an inflection point. Our nation is facing a shortage of skilled labor with nearly one in three security jobs vacant in the United States.

This unfortunately has pushed the time for detection of breaches in closed networks to an alarming 287 days, a trend that Quisitive intends to help reverse. Microsoft continues to sharpen its knife on the Azure front.

As Azure machine learning has grown in consumer and business usage at a rate of 86% year-over-year, the usage and optimization of Azure is incredibly important to our organization as both our Cloud and Payment segments utilize that technology as the backbone of our platform and Software-as-a-Service offerings. The headways made on the Microsoft AI front greatly assists our team in continuing to deliver top of the line services through data analytics and native cloud applications, all the while acting as a foundational platform for our payments innovation initiatives.

On that note, our Global Payment Solutions segment continues to grow, highlighted by the ongoing efforts of our Merchant Services Group, formally known as BankCard USA. From a volume perspective, we had a phenomenal quarter, the best March on record as average daily volume exceeded $11 million.

One thing that I did want to share is that there is variability in the way of forecasted volume-related numbers month-to-month due to the seasonality of both the quantity of days in any given month and the quantity of transactions that occur during different spending periods. Nevertheless, reaching an all-time high for the month of March is a milestone worth commenting on as an encouraging example of the reference at the beginning of my remarks to the growing volume trends noted by Visa's CEO.

We have on-boarded over 500 new merchants over the past seven months and the contributed increase in volume from those merchants is nearly 23 million per month. The Payments industry from a broad view has not shown significant down trends since the waves that macroeconomic factors began impacting the U.S.

economy, which helps us remain focused and cautiously optimistic that our efforts in the market will continue to increasingly bear fruit. On brand with Payments volumes, LedgerPay is progressing well.

As we have received Mastercard certification and are in the later stages of active testing for Visa certification, we are also preparing for our pilot customers and expect to first to be on-boarded shortly after we finalize our Visa certification. We intend to accelerate our go-to-market strategy once the pilot phase is completed, which is currently expected in Q3 of this year.

This includes multi-channel marketing and sales to ISOs and ISVs and direct sales to merchants. With the support of the Microsoft sales channel, Quisitive's sales teams will begin promoting its Payment Solutions to potential customers as well as targeted large U.S.

merchants that would benefit from our innovative Payments Intelligence solution. In parallel to this Q3 go-to-market activity, we will also begin the migration of the existing merchant services customers to LedgerPay platform as shared during our last call.

This will all be followed by an expansion into the Canadian mark as announced earlier this year. We are also actively in discussion with prospective customers to conduct Payments Intelligence proof-of-concepts, consistent with the timelines that we had previously shared.

We continue to receive positive feedback on our technology and validation of the unique data insights our solution will provide to merchants to engage their consumers. We believe that this will be increasingly important as consumer purchase behavior changes imposed by market conditions will require merchants to be more precise in understanding their customer and be able to personalize the experiences and activate engagement.

Next, we will briefly discuss M&A activities for the company. The strong growth we have displayed on our organic efforts were fueled by the meticulous and calculated acquisitions over the past years and we view today's market is still viable for these opportunities.

We continue to have ongoing conversations with some very high quality companies and are actively monitoring valuations in the private sector given the current public market changes to multiples. Though, I have nothing material to share on this call, I want to reiterate that we are proactively tweaking our mindset given the shift in macro multiples versus the historic highs of valuations we saw over the previous two years.

We feel this is a prudent measure and reflects our focus on fiduciary responsibility and capitalizing on our inorganic growth strategy. On a closing note, I'll touch on the quality of our partnership with Microsoft.

As they have announced the elimination of their legacy programs for gold and silver competencies, creating a much more sophisticated model with the previously mentioned advanced specializations program. As a result, they are reducing their total portfolio of strategic partners going fewer and deeper in the process.

I'm proud to share that we are on that boat of existing partners and plan to dive deeper in our efforts with Microsoft. A recent happening I want to briefly touch on was the invitation we have received from Microsoft to travel across the U.S.

and engage with their field sales organizations across their industry teams in a co-sell partnership effort. The idea was to engage with their field sales org across the industry teams to identify key accounts in which the portfolio of services Quisitive offers can be leveraged to drive customized introductions and offerings as we move into Microsoft's new fiscal year beginning in July 1.

Looking at our first half of 2022, we remain laser focused on the integration and launch of our LedgerPay payments platform along with the continued unlocking of Catapult's full range of value. All-in-all, I'm extremely pleased and encouraged with our execution of our plan.

Thank you all for joining us in this exciting growth journey as shareholders of Quisitive. I'll turn it over now to our CFO, Scott Meriwether, to discuss our Q1 2022 financial results.

Scott?

Thanks, Mike, and thank you to all of you who are joining us for today's call. We had a great start to the new fiscal year, as we said, a new quarterly revenue high watermark for the company as Mike previously noted.

Revenues for the first quarter ended in March increased 256% to $44.9 million from $12.7 million for Q1 of 2021, driven both by our acquisitions and our healthy organic growth. Gross margin increased 317% to $17.9 million in the first quarter of 2022 over $4.3 million in Q1 of 2021.

Our gross margin as a percentage of revenue increased to 40%, a slight uptick from the prior two quarters and significantly greater than the 34% we experienced in Q1 of 2021. As we noted last quarter, the current gross margin rate is more steady state for our current organization.

Our comparison to the prior years aided by the fact that Q1 of 2021 had weaker gross margins due to loss productivity from winter storms and the addition of some lower margin CSP business that was spread across a smaller total revenue base at that time. We will continue to focus on increasing our gross margin percentage as we integrate our acquisitions and focus on cross-selling activities.

Adjusted EBITDA increased 451% to $6.4 million for Q1 of 2022 from $1.2 million for Q1 of 2021. Adjusted EBITDA as a percentage of revenues was 14% for Q1 of 2022 similar to Q4 of 2021.

EBITDA margin was 9% for Q1 of 2021. This was our first full quarter with the Catapult acquisition.

And as we noted on last quarter's call, Catapult historically had a lower EBITDA margin profiles than the remainder of our company, but we believe recurring revenue product sales both the products from the Catapult portfolio and of our previously owned products into the Catapult portfolio will offset that impact in that throughout 2022, our EBITDA margins will blend towards our historical rates. We also continue to invest in our Payments division, building its scale as we near market readiness from LedgerPay, which has also impacted our consolidated adjusted EBITDA margin.

Q1 of 2022 was the last quarter in which the Mazik and BankCard acquisitions do not have prior year results included with Quisitive's historical results. Going forward those acquisitions will have lapped and period-over-period results will be evident within our financials.

We will now move to discussing the specific performance of our segments. Revenue in our Global Cloud Solutions segment increased to 176% to a new record of $33.8 million for Q1 of 2022 from $12.2 million for Q1 of 2021, driven by the Mazik and Catapult acquisitions and reflecting organic growth.

March has historically been one of the better months for our cloud business – our cloud businesses as there are no holidays and typically March has more billing days than other months. This quarter followed that trend and our expectations as March was a very strong month for our Cloud Solutions segment.

The segments adjusted EBITDA improved 462% to $4.5 million for Q1 of 2022 from $0.8 million for Q1 of 2021. After contributing negative EBITDA in Q4 of 2021, the impact of the Catapult acquisition is evident in this quarter's results.

We are confident in our ability to cross-sell and integrate our historical acquisitions and that pending macroeconomic conditions remaining steady, we can continue our growth base. Revenue for our Global Payment Solutions segment also set a quarterly record, increasing to $11.2 million for Q1 of 2022 from $0.4 million for Q1 of 2021.

Substantially, all of the Q1 revenue is from our BankCard acquisition. Within the Payments industry, January and February are often the two weakest months, typically from a post holiday slowdown and a short month of February.

March tends to be a good indicator of the remainder of the year. Our BankCard business follows some of these same trend lines.

Given the mix of merchants within their portfolio, March is expected to be the strongest month of the year. In 2022, the BankCard portfolio set a monthly charge volume record in March and produced strong results.

Adjusted EBITDA for our Global Payment Solutions segment increased to $1.9 million in Q1 of 2022 from $0.4 million for Q1 of 2021. BankCard contributed strong EBITDA results in the quarter, which were offset by our increased spending on the LedgerPay platform.

In total, the Payment Solutions segment had very similar quarter-over-quarter EBITDA contributions compared to Q4 of 2021. Operating costs related to LedgerPay will continue to rise throughout 2022 as we reach market readiness in the launch of the platform.

Accordingly, adjusted EBITDA as a percentage of revenue decreased in the segment, reflecting the increased costs related to the LedgerPay platform. Moving to the balance sheet.

At March 31, we had $77.6 million of term loans outstanding and $9.5 million of cash on hand. As of March 31, our total leverage ratio was 3.16x while the current constraint is 3.25x.

As a reminder, at March 31, our leverage covenant step down a quarter step from 3.5x. We have one more step down at June 30 to 3.0x where the leverage ratio will remain under the current credit agreement.

There were no significant changes to our capital structure, debtor equity, as this was a relatively steady state quarter. As a note to better understand our working capital position, at March 31, we had $15.6 million of projected earn-out payments and short-term liabilities on the balance sheet along with another $2.1 million of projected earn-out compensation within accrued liabilities.

These earn-outs will be paid within fiscal year of 2022. However, they will be paid with a mix of cash and stock.

The amounts reflected on the balance sheet will not have an equal impact to our working capital or our cash position. The current interest rate on our term loans is approximately 4.4% and we currently convert around half of our adjusted EBITDA into free cash flow, which can either be used for acquisitions or debt repayment.

We define free cash flow as adjusted EBITDA minus capital expenditures, internally capitalized software, cash interest and cash taxes. As we look into the remainder of the year, we remain confident in our ability to deliver strong results will remain wary of macroeconomic indicators of recession.

We did not currently see indicators of a slowdown in tech spending and we believe we will deliver continued growth. We are very pleased with our strong first quarter and believe it sets us up well for the remainder of the year.

This concludes our prepared remarks. Thank you all for your time this afternoon and we look forward to updating you on our progress going forward.

And we are now ready to open the call for your questions. Operator?

Hi. Good evening.

You gave a lot of great color around the demand environment and it sounds like you're very confident. So I guess there's some worry out there around recession and you don't seem to see any kind of indications of that, but maybe the second part of that would be just to maybe discuss your visibility, like how far out do you reasonably see demand.

And I mean, if there were signs of recession in the back end of the year or something like that, like when would – how far ahead would you see indications of that?

Yes. I mean – so if you think about it, we're always operating in a combination of detailed views a quarter ahead and macro level views kind of one to two quarters beyond that.

Combination of obviously part of what helps us is recurring revenue streams as a higher mix of our business and having visibility to those kinds of things that have some consistency. On the project services side of things, demand is very high and it continues to be.

The visibility to that obviously will be factored by less things in our direct control and obviously those things that might be impacting customers. We certainly – we operate in segments of the market that are less impacted today by some of those factors that might be leading to those that are having inventory challenges and reductions.

But back to our points at the moment, a lot of what's happening to these customers is the fact that they have been disrupted, whether it's through pandemic now, inflationary impact and other things happening to them. And optimization of their environments, their supply chain, their operations, they're doing hiring freezes, which for us is actually a positive indicator.

When companies – and this is historic, I've been doing this for 30 years when there have been recessions. I've mentioned this before professional services are more recession resistant because companies still need to advance their digital transformation initiatives in doing those things, but are less likely to hire significant full-time staff to execute on that because of those uncertainties and more frequently reach out to third-party providers like us to go do that.

So our visibility is, like I said, on a detail basis is at least a quarter plus out, and we've got a macro level view, and we'll continue to monitor that. And again, we have this close relationship with Microsoft and rely on their visibility as well.

And because of the close collaboration we do on pipeline execution together with them and reviews and all the things that were going on, we get visibility to their enterprise software views pretty far out as well. And that's a leading indicator for us.

If they saw big declines in theirs, we typically are impacted one or two quarters after that just because of kind of the way that software decision-making and services impact. So those are the kinds of things we'll be using as our leading indicators and help us have better visibility to that.

Okay. And then maybe just a quick clarification there and then my second question, if I could.

You said that there was acceleration in demand through Microsoft, if I read that right, but also a narrowing of the channel. So it sounds as though you're expecting to see more opportunities through the Microsoft channel through the remainder of the year.

Is that the way to read those comments?

Yes. I mean, we're seeing high demand now and do expect that in our strengthening partnership with Microsoft, we are being one of a smaller set of partners that they're looking to execute on their strategy and execution both from a sales and then delivery execution side.

So at the moment, yes, we believe that that statement is an accurate reflection of how we're interacting with Microsoft and the demand that we're seeing.

Okay. And then a clarification on the pilot customers on the payment side.

I was a little bit confused. I think did you say that you were waiting for the Visa certification before lighting up pilot customers?

Or are there already customers being piloted today? And then was that processing or is that Payments Intelligence pilots?

Maybe you could just sort of break that apart a little bit so – help me out there. And I will pass the line.

Yes. Because Visa is actually progressing at a much quicker rate than we had even announced last quarter, because we were talking about it happening a little further out.

We're feeling like it is very near. We are in very advanced stages with them.

It did make sense to do a pilot customer, just a Mastercard. We're going to go ahead and defer that and do the pilot customer with both Visa and Mastercard at the same time.

And it will just be for processing on a production basis where we're doing real time production processing. As I've tried to share before and reflected a little bit here, on the Payments Intelligence side, we're doing proof-of-concepts and proof-of-concepts as separate from a pilot.

A pilot is typically something where you're actually doing production execution in a limited way versus a proof-of-concept is something you're doing in a non-production environment, using data in the case of Payments Intelligence, taking data and doing things in an offline model to demonstrate the value of our Payments Intelligence platform before the customer takes the step to go ahead and activate a production pilot.

Okay. Thanks a lot.

That's very clear. Thank you for that clarification.

I'll pass the line.

Thanks, Robert.

Thank you very much, and congrats on a very strong quarter. As you look across the various units, can you talk to the underlying organic growth that you were seeing, be there within Catapult or BankCard or your traditional service solutions, right?

Yes. I'll let Scott talk to that as part of his analysis.

Yes. It's very similar to what we announced on the last call.

High teens in the cloud – sorry segment is what remains and we are confident in that trend right now and are holding to that trend. And the Payments business definitely double-digit on the volume growth, that's going to – they've been growing in the upper teens and 20% range as we begin to grow there.

It's going to be harder to maintain that with just that business without LedgerPay activating – I'm sorry, to hold that rate without LedgerPay activating just because the baseline denominator number is going to be bigger, but still remaining at double-digit growth on the Payments business.

One of the challenges towards Rob on that is when we do especially some of the smaller acquisitions, but many of them. There's a process typically we have to go through around GAAP to IFRS and gross net and all those things.

And when we do those pre-acquisition, they're done on a calendar and TTM-only basis, not on a quarterly, we don't go through the detail doing that for every quarter. So it gets a little tricky for us in stub period kinds of things to do that math that I could be confident I'm giving to you.

So that's why we focus it more just on an annualized basis because those quarterlies would be darts that we're throwing rather than detailed analysis, which is why we haven't typically done that just because I know that creates confusion. So anyways, that's one of the other reasons why we don't do it on these interim quarters for stub periods.

Okay. And Scott talked to the debt covenants stepping down to 3.25, and then stepping down again in June.

Can you talk to your perspective on those covenants and the ratio, I believe you gave us 3.16?

Right. We were 3.16 at March 31.

We step down as the 3.0 on June 30. We currently anticipate that we will be just fine at June 30 and passing our covenants, obviously we are keeping a close eye on it.

And then that was always going to be our tightest quarter for the year. And we get a lot more headroom under those covenants for the back half of the year.

So – but we currently with our current projections, foresee no issues in the coming quarter.

Very good. Thank you.

Thanks, Rob.

Hi, good afternoon. I wanted to ask a follow-on to Rob Young's question earlier around Visa certification and any other milestones we should be looking out for on the LedgerPay side of the business.

So if I understand correctly, Visa certification, it sounds like, it happen sooner than expected it's in the near-term and then pilots would commence, and then when we think of AMEX and Discover coming online, that'll be as pilots are ongoing. Is that sort of the way to think about the timeline and milestones of LedgerPay here on?

Yes. I didn't spend much time talking about American Express and Discover, I'll touch on that.

But yes, to your point, you're accurate on Visa. That it is pending very soon.

The American Express and Discover are a lighter lift. You've heard me talk before a lot about with both Mastercard and with Visa, the hardware that needs deployed network circuits and all those things into our data centers.

With American Express and Discover that's not necessary. They use a different mechanism.

It's a VPN software connection. So we're not dependent on some of those long-lead time items like from a supply chain and network perspective and things like that.

We'll be able to advance into testing very quickly. We're just not doing it in parallel with Visa because we don't want to distract our team.

And we also have some other things going on with proof-of-concepts and stuff like that on the Payments Intelligence side that we're trying to balance all that with our teams to advance each of those calls. But anyways, that will all occur and then starting the pilot customers, we're going to focus.

The first set of pilot customers will just be Visa and Mastercard and many of them – that's the vast majority of their volume anyways. So it's not really a big deal.

So we've selected customers that that's the case. As we layer in American Express, the Discover will start to bring those into the pilot groups, obviously, but more importantly, the big next step then would be beginning the migration of the BankCard merchant services customers that we have and started that migration as we talked about in Q3 to bring that across.

Okay, perfect. Thank you.

That's tons of helpful context. The second question here today, I'll ask on the payments side, again.

So March was very strong, the record for the company. Just wondering how that was impacted by maybe the merchant portfolio under BankCard.

And if I remember correctly from last year, Q2 stays strong from Q1, maybe Q3 is the lighter summer month or summer quarter, sorry and then Q4 strong again. Is that the way to think about growth in the payment side of the business to the year?

Yes. So seasonality is multifaceted.

I'll talk about Q1 and in particular March and then, we can kind of extrapolate out from there, but there are a few different drivers in March. First of all, it's a 31 day month that has no holiday.

So in both segments of our business, that makes March a very strong month. There are other 31 day months, but there are very few that don't have a holiday when you look at it.

So you get into that factor. So that's one, because typically holidays – even in the payment side, holidays are typically lighter transaction volume and things like that from a payment side.

The second piece is there is some seasonality related to annual memberships as part of the portfolio. We have memberships to clubs, memberships across different types of organizations like that, that are part of the portfolio.

And they bill and transact on a credit card basis the annual membership, and much of that hits in March and some in April. So there's a little bit of that that is seasonal in that nature.

So that kind of a combination in March that increases volume, which is to Scott's comment is the highest volume month and has been for them for several years. As we move through, Q2 is typically a solid quarter.

And to your point, and again, we're still trying to figure out what post-pandemic seasonality really does look like. But at the moment, we anticipate to be shaped similarly what you saw from Q2 to Q3 and Q4 last year, but increased the volume based on the number of new merchants.

In my comments, I talked about 500 merchants over seven months, 23 million of incremental monthly volume from just those new merchants. So as additional new merchants and others, we do have some attrition and we're working to – work through some of those things, but our attrition is very low.

We've talked about that before that it's less than 10% on a customer basis. But that whole model is driving organic growth that has been the storyline since we acquired the BankCard business and continues to be the storyline this year as well.

And the team there has done a fantastic job of growing and expanding their volume and merchant base.

That's all. Very helpful.

Thanks for taking my questions and congrats on the quarter.

Thanks, Christian.

Thanks, guys. Mike, can you go over again, the cross-selling that's been happening between Catapult and Quis?

You mentioned a number of customer views, just maybe a little bit more detail on that?

Yes. So if you look at the portfolio services, I'll start with some of the things we've talked about.

Catapult has a unique set of offerings in the security space, which is a set of services that are – there's an assessment component to help organizations understand where they are in their security. There's incident response component, which is people go somebody hacked me, phished me something, can you come in.

And then there's a set of services that are about remediation, and then more importantly managed services, which are an ongoing operational component where we're their security arm, hardening their infrastructure and environment around Azure and M365 and using all the Microsoft tooling, that's a component of that and providing coaching and advising for their teams on how to secure their applications and all those good things. So that's all part of it along with then a set of managed services for Azure environments and the M365 environment stuff.

So one set of cross-selling is that set of capabilities are things that either Quisitive didn't have at all or Quisitive , and now we're taking and arming our sellers into our existing account base to go actively introduce and bring those. And that's where – in that case, there were about 25 accounts that we've already got either active engagements in some form that are either been completed or in process, et cetera.

On the other side, Quisitive has this much broader set of services around our, what we call our business applications group, which includes our industry capabilities and healthcare and manufacturing, our SaaS offerings, all the things around the Dynamics platform. And while there was a small component of the Catapult business that did that very, it was a 10, 12 person team versus we have hundreds of people that do that.

So you're seeing those kinds of things come across. As well as the programmatic motion that we have probably talked to you about in the past about these assessment offerings, and we've got our On-Ramp to Azure Data, On-Ramp to Azure application offerings that we go-to-market with Microsoft and have this very sophisticated program with is something that Catapult did not have that kind of motion with Microsoft.

So we're taking that engine and attacking it into their customer base and using those as activation to create new sources of revenue, new customer engagements and things like that. So those are the elements of that cross-selling and there's various other forms of it, but those are the key things.

Okay. And maybe just the quick follow-up on that.

Forgive me if you mentioned this, but have those sales teams been fully integrated or is that ongoing, like maybe just a general update on the integration?

Yes. So we've done a bunch of stuff.

I think we touched on a little bit last call, but I'll expand on a little bit. But yes, we have fully integrated the organization, Terri Burmeister, who was the CEO and President of Catapult is now taken over to lead what we call our cloud services and applications component of our Global Cloud Solutions, which includes fully integrated sales, fully integrated marketing, fully integrated delivery, fully integrated recruiting, bringing all of those together in a way that we have realigned territories to remove channel conflict with Microsoft, with customers, all those things.

So, yes, fully integrated from that perspective. We're still advancing in a few different areas.

Our marketing programs are being synthesized effective, July 1. We anticipate fully transitioning the brand over to the Quisitive brand.

And all of our external marketing communication, everything will be consolidated under one Quisitive.

Okay. That's all for me right now.

Thanks.

Thanks, Steve.

Thank you. Good afternoon, gentlemen.

Wonderful quarter. So I know Scott, you mentioned, debt piece.

Can you repeat that a little bit? And can you provide some more color on leverage and company's current capital standing and its capital allocation priorities as you go forward?

Yes, sure. So currently right now, $77.6 million at March 31 was our outstanding balance on the term loans.

The balance sheet has some debt issuance cost and that kind of thing, but when you add it in . But from a gross perspective of what's actually, it's $77.6 million.

We do have quarterly paydowns of about $2 million on those term loans and those will be continuing ongoing. Leverage was 3.16 against that 3.25 covenant.

The covenant sits down to 3 at June 30. And we currently project full compliance for the remainder of the year.

And clearly, our acquisitions and our growth continue. We get a little bit more headroom in the back end of the year under those covenants.

We always knew June 30 would be the tightest, but like we want to reiterate, there is no concerns that are on our side. And from a capital allocation perspective, a lot of the same with what we said.

We're going to continue to invest in LedgerPay. The current payments company, BankCard and then some of our cloud side is continuing to fund some continued investment on that side as we begin to get LedgerPay activated and built from a platform perspective.

But then as we go through the year and the platform is ready for launch, we will continue to allocate capital both from a capital expenditure perspective from software development, but also from an operational perspective of building out sales and marketing teams and operational support teams as we begin to launch and drive revenue growth on the back end of 2022. You'll see more of that contributing in 2023 than 2022, but we will be continuing to invest throughout 2022 to ready that platform and to make the impact that we want to make with it.

One of the other things that was kind of, I think, embedded in there, we talked about earn-outs, CRG is in its – we just completed their final year of earn-outs. So while we have those payments that are about to be made, all the free cash flow from EBITDA contributions from that business now going to free cash flow as Scott started to reference and create additional funding available, this is the final year of the Menlo earn-out as well.

So as we progress through this year into next, we'll start to free those up, which also then create additional available free cash flows for investments and/or potential acquisitions in the future.

Thank you. That's good color.

But correct me, if I'm wrong, that BankCards earn-outs are coming up soon as well then, right?

Correct. Yes.

We noted earlier that in total there's about $17.7 million of earn-outs on the balance sheet right now that are due throughout fiscal year 2022. But again, not all of those are due in pure cash.

They'll be paid in a mix of cash and stock. And so from a capital allocation perspective, we are comfortable in our current standing and our projection through the rest of the year.

And you're not looking to increase your debt line or raise any additional capital at this time?

Not at the moment. As Mike alluded to earlier, we will always be on the lookout for the right M&A opportunities.

We’re going to let the market settle down a little bit from a – both a multiples perspective and just the capital markets, the equity markets right now, we all know are struggling a little bit. So we're keeping a close eye on market conditions and we continue to work on M&A targets.

And we won't be afraid to act when the time is right, but at the current moment, I would say the time probably isn't perfect or right. But if it's right acquisition, we'll still find a way to pull it off.

That's awesome. So just one more question on the company's Spyglass or the cybersecurity platform.

Mike, I know you mentioned – talked about it briefly. Could you provide a little bit more color on how is that going and how is Quisitive sort of cross-selling Spyglass and how is Catapult benefiting from Quisitive’s platform there?

Yes. So the platform is a combination of methodology IP and then some very talented cyber and security resources, which are a key component of what we bring to the customer.

And it goes back to a set of what I kind of described as a set of things that we do to assess a current state with a customer remediate. Some of that remediation is proactive.

Some of that remediation can be reactive based on a customer having an event, which happens way too often. It's a great entree for us and to our customer when they've had that.

And then it's a set of things that we do for roadmapping to really secure and as I described harden their environment on many fronts, not only the Microsoft tooling and platform leveraging it, but when you start to think about application development. And it's actually a big, big area in the future, and you'll see us continue to expand our role in this around application security and how applications in a native cloud environment participate in a way that is not trying to be – because too much what you see in infrastructure being is trying to prevent access and those kinds of things.

And one of the real challenges, making sure the applications as they're deployed and this gets into the whole DevOps model and infrastructure, the code and all the kinds of things that go with that universe is making sure that you're deploying applications secure by design, not just at the edge and a lot of what you see is being done. So all that's the application, all the capabilities, that was a really strong foundation of what we acquired in Catapult, which is twofold.

One is really an important area at this time. Second is, it's all recurring revenues on an annual contract, recurring revenue stream kind of a basis.

And the way we sell that is going into customers and again, often starting with an assessment. And again, often going back to some of the things that we uniquely do with Microsoft, Microsoft typically will pay us to go do that assessment because they know what's going to happen as we're going to uncover vulnerabilities, those vulnerabilities were going to help customers figure out how to solve it.

In many cases, its acquiring additional services from Microsoft's cloud offerings that help harden the environment or in other cases, it's a preventative thing. Microsoft may have already convinced them to buy it and have it, but they're not accurately applying it.

We see this quite often where people have bought some of the security offerings from Microsoft, but have done 10% of the integration or application of what is capable. And what we do is really help them think about how to holistically embed that.

So those services we got pre-sales expertise on the business, our sales op teams have been educated and trained on the offering. We're going to market through this joint marketing engine that we've built leveraging all the collateral pieces, taking that to market together through many different channels using our Microsoft joint account planning and selling processes.

I actually just met with one of the senior security team members on the retail side. And we're talking to them about this offering as a key way for them to go in and have different discussions with their customers.

And, oh, by the way, along the way, we're helping them understand how LedgerPay is a component of that value proposition in terms of how we think about using and applying that to data that we unlock from LedgerPay as well. So hopefully that gives you a little bit of context about that offering and how we're applying it.

Yes. That's very helpful.

Thank you.

Thanks, Divya.

Good afternoon. Thanks for taking my questions.

Just wanted to ask about operating expenses and how we should be thinking about the progression of operating expenses over the course of calendar 2022, given the current growth plans and how – and the concurrent impact on EBITDA margins? I guess, relative to the EBITDA margins just reported this quarter, how should we think about that over the course of the year?

Yes. Our goal is to – the goal we've told the entire market is that we're going to be trying to expand our EBITDA margins in time.

Especially, I think, if you look at it from the two different segments, from the cloud perspective, I think you're going to see EBITDA margins begin to slowly uptick there. We do have – like the entire world knows right now the cost of headcount is going up, we do have the ability to pass that on through rates in time.

And so we do expect as we continue to leverage the integration of Catapult and Quisitive together that there will be some operational efficiencies there. And that also, as we get more recurring revenue streams within the cloud side of the business, that our goal to get north of that 14%, it's currently at is – it’s an achievable goal.

But I think it holding in that 14% range is an expectation that you can plan on and that we are planning on, I'm sorry, goal is to expand that. Within the payment side, you're going to see those begin to shift down, frankly, over time.

I think on a blended perspective, we'll hold it as a company around where it currently is, but we will continue to invest more and more in headcount on the payment side, which will increase our OpEx. The goal there will be a little bit more EBITDA neutral, but it'll make EBITDA margins decrease, if that makes sense.

Just because the goal will be to expand revenue, but as we expand revenue, we'll also be investing in that business to build the platform it needs to be. So we can be expanding revenue and EBITDA at a higher rate in future years.

But as we're launching now and we're launching off what I would call a smaller base and smaller numbers, you'll see an outsized impact on the margin piece and I would think – I would look at payments more on a holistic EBITDA perspective on a baseline EBITDA instead of a percentage EBITDA, and just know that the LedgerPay is out of the house, we're not expecting to contribute significantly to bottom line EBITDA through this fiscal year because we'll need to be investing more as the year goes on.

Got it. Appreciate that feedback.

And secondly, just on the – in terms of cash flows, do you have a projection of what the calendar 2022 earn-outs will be in terms of the cash and share of split? That's the first part.

And the second part was, I did notice that receivables was bit of drain working capital this quarter. Just curious if that's sort of taking care of itself in the current quarter?

Yes. There's nothing to be worried about on the receivables perspective.

That's just some normal timing and mix things. So no concerns there, that's just a mix issue.

And then from overall split on the earn-outs, those are still in discussions and we don't have a number to give to the market on that.

Yes. So remember we just – we haven't enclosed the period yet on the first year for BankCard, which is the big one, for example.

So there's still scoring in things that we won't have yet for probably another month or more to even evaluate where they actually achieved on those earn-outs. So that's part of the reason we don't know exactly the thresholds and some of those things.

Even on the Mazik one, we have a preliminary, but because BankCard, if you don't – if you remember it was May 7, we won't have the financials for that period of May until end of June, which will be our first view to kind of look at full-year and all those kinds of things that the earn-out payment on that one is not due until late August, early September.

Got it. Thanks for all the feedback and congrats on the progress.

Thanks, Gabriel.

Thank you, and thanks, everyone for joining us today. I especially want to thank our employees, partners, investors and customers for their support.

We appreciate your continued interest in Quisitive and look forward to updating you on our next call. Operator?