Mr. Ghassan Halazon reports

EMERGE REPORTS SECOND QUARTER 2023 RESULTS

Emerge Commerce Ltd. has released results for its three and six months ended June 30, 2023. Copies of the interim financial statements and management discussion and analysis are available on the company's profile on SEDAR.

"Despite the macro climate, we're pleased to have delivered another quarter of positive adjusted [earnings before interest, taxes, depreciation and amortization] and positive cash flow from operations, both exceeding last year. Q2 also marks our second consecutive quarter with gross margin exceeding 50 per cent, reflecting the team's various gross margin enhancement initiatives. Our revenue in Q2 2023 was down versus Q2 2022 in large part due to the unprofitable truLOCAL U.S. operations and trading divisions eliminated in late 2022, in addition to what we view as more normalized postpandemic revenue levels reflected in recent quarters. We expect the second half of 2023 to offer a more apples-to-apples revenue comparison. Notwithstanding, Emerge's overall revenue remains significantly higher than prepandemic levels (2019), with some of our brands showing healthy organic growth year over year," commented Ghassan Halazon, founder and chief executive officer, Emerge.

Q2 2023 financial highlights:

• Q2 gross merchandise sales (1) was $20.2-million compared with $22.1-million in Q2 2022. GMS for Q2 2022 would have been $20.6-million when excluding GMS from U.S. operations and trading that were eliminated in 2022;
• Q2 revenue from continuing operations was $6.2-million versus $8.6-million in Q2 2022. Revenue for Q2 2022 would have been $7.1-million when excluding revenue from U.S. operations and trading that were eliminated in 2022;
• Q2 gross margin improved to 51.3 per cent compared with 44.1 per cent in Q2 2022;
• Q2 adjusted EBITDA (1) of $130,000 for 2023, compared with $90,000 in 2022, marking the company's seventh consecutive quarter of positive adjusted EBITDA and 13th out of the last 14 quarters;
• Q2 cash flow from operations increased to $800,000 compared with $200,000 in Q2 2022;
• Net loss from continuing operations of $1.6-million for Q2 2023 compared with net loss of $900,000 in Q2 2022. The increase in net loss is primarily attributable to losses from foreign exchange and other gains (losses) of $500,000 in Q2 2023 compared with a gain on foreign exchange and other gains (losses) of $900,000 in Q2 2022;
• Cash on hand at June 30, 2023, was $2.8-million.

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

Sale of WagJag

In July, 2023, the company entered into an agreement to sell WagJag and BeRightBack. In August, 2023, pursuant to the sale of WagJag and BeRightBack, the company received cash consideration of $1-million on closing of the transaction.

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

Following the transaction, Emerge retains five brands across three main verticals (pets, grocery and golf) in Canada and the United States, namely WholesalePet, truLOCAL, Carnivore Club, UnderPar and JustGolfStuff.

Senior debt update

The company entered into an amendment agreement to the company's amended and restated credit agreement dated Oct. 27, 2022, with its existing lender, pursuant to which, inter alia, the company repaid the lender $400,000 from proceeds of the transaction.

The company's senior credit facility is currently at $15.85-million, down from $25-million a year ago.

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

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

Top priorities

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

Conference call

Management will host a conference call on Tuesday, Aug. 29, at 8:30 a.m. ET to discuss its second quarter results. To access the conference call, please dial 416-764-8650 or 888-664-6383 and provide conference ID 27428178.

Alternatively, the conference call can be accessed on-line.

Selected financial highlights

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

About Emerge Commerce Ltd.

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

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