Mr. Ian Paterson reports

PLURILOCK SECURITY INC. REPORTS THIRD QUARTER FISCAL 2023 FINANCIAL RESULTS

Plurilock Security Inc. has released its financial results for the three and nine months ended Sept. 30, 2023. All dollar figures are stated in Canadian dollars, unless otherwise indicated.

"During the first nine months of fiscal 2023, we continued to produce significant revenues while optimizing for capital controls and efficiencies in all areas of our business," said Ian L. Paterson, chief executive officer of Plurilock. "While the economic outlook remains unclear, cybersecurity threats are on the rise and show no signs of slowing down. This growing global issue is one of the main drivers of our growing sales pipeline and resulted in three consecutive quarters of increased gross margins on a year-over-year basis."

Mr. Paterson added, "Given the difficult macroeconomic market, our focus remains on reaching cash flow break-even by securing additional high-margin software sales and expanding the delivery of our cybersecurity services to existing and new customers."

Key business milestones:

• Revenue increased to $48.0-million for the nine months ending Sept. 30, 2023, as compared with $46.8-million over the same period in 2022, directly attributable to the strategic acquisitions of Integra and Atrion in 2022, along with increased software and professional services sales as the company strategically shifts to higher-margin offers and away from low margin resell business.
• Gross margins increased to 10.3 per cent for the nine months ending Sept. 30, 2023, as compared with 6.7 per cent over the same period in 2022; Plurilock produced three consecutive quarters of gross margins that improved substantially year over year since the beginning of 2023, driven primarily by the company's 2022 acquisitions, pricing strategy and its focus on securing high-margin software sales.
• High-margin software sales and professional services for the nine months ending Sept. 30, 2023, increased by 421 per cent and 719 per cent, respectively, year over year, totalling $2.8-million in revenue.
• Plurilock achieved $133,000 in cost savings for the nine-month period as of Sept. 30, 2023, as a result of streamlining operations and unlocking new business synergies across all acquisitions as part of a plan that was enacted in August, 2023.

Third quarter fiscal 2023 financial highlights:

• Total revenue for the three and nine months ended Sept. 30, 2023, was $20,000,867 and $48,019,338, respectively, as compared with $30,750,548 and $46,810,147 for the same periods in the prior fiscal year ended Sept. 30, 2022. Revenue for nine months ended Sept. 30, 2023, is higher than the prior-year period ended Sept. 30, 2022, as a result of the acquisitions of the (INC), as well as the asset acquisitions of Atrion (ATR) and CloudCodes (CC), along with the increase in organic sales volume and cross-selling among the solutions and technology division.
• Hardware and systems sales revenue for the three and nine months ended Sept. 30, 2023, totalled $17,514,024 and $40,326,636, respectively, compared with $25,340,526 and $40,196,137 in the prior year for the same periods. Software, licence and maintenance sales revenue for the three and nine months ended Sept. 30, 2023, was $1,862,921 and $5,727,266, respectively, compared with $5,333,938 and $6,373,917, respectively, in the prior year for the same periods. Professional services revenue was $623,922 and $1,965,436, respectively, for the three and nine months ended Sept. 30, 2023, compared with $76,084 and $240,093, respectively, in the prior year for the same periods.
• Hardware and systems sales revenues for the three and nine months ended Sept. 30, 2023, accounted for 87.6 per cent and 84.0 per cent, respectively, of total revenues, compared with 82.4 per cent and 85.9 per cent for the three and nine months ended Sept. 30, 2022. Software, licence and maintenance sales revenues for the three and nine months ended Sept. 30, 2023, accounted for 9.3 per cent and 11.9 per cent, respectively, compared with 17.3 per cent and 13.6 per cent for the three and nine months ended Sept. 30, 2022. Professional services revenue for the three and nine months ended Sept. 30, 2023, accounted for 3.1 per cent and 4.1 per cent, respectively, of total revenues, compared with 0.2 per cent and 0.5 per cent for the three and nine months ended Sept. 30, 2022.
• Gross margin for the three and nine months ended Sept. 30, 2023, was 7.2 per cent and 9.4 per cent, respectively, compared with 5.8 per cent and 6.7 per cent in the prior year for the same periods.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the three and nine months ended Sept. 30, 2023, was negative $1,590,551 and negative $4,444,890, respectively, compared with negative $904,344 and negative $4,581,767 in the prior year for the same periods.
• Cash and cash equivalents and restricted cash on Sept. 30, 2023, was $3,713,374, compared with $2,853,107 on Dec. 31, 2022. During the three and nine months ended Sept. 30, 2023, the company used $2,457,065 and $1,627,839, respectively, of cash in operating activities, compared with $87,247 and $6,217,459 of cash used, respectively, in the prior year for the same periods.

Third quarter fiscal 2023 operational highlights:

• On July 12, 2023, the company announced and accepted one additional subscription for 100,000 units at a subscription price of 14.5 cents per unit, for aggregate gross proceeds to the company of $14,500. Share issuance costs of $1,015 related to this non-broker private placement were incurred. An additional amount of broker warrants of $810 was issued as compensation for completing the financing.
• On July 11, 2023, the TSX Venture Exchange approved the repricing of 12,536,538 non-brokered private placement warrants and 765,000 convertible debenture warrants ranging from original exercise price of 25 cents to 40 cents to 20 cents.
• On Aug. 31, 2023, the company announced that it has established an information security advisory council, which comprises leading cybersecurity industry experts and academics, to provide expert guidance to the company on advancing its business development strategy and scaling its AI-focused (artificial intelligence) technology offering portfolio.
• On Sept. 6, 2023, the company announced the first sale of Plurilock AI PromptGuard to an exclusive financial services firm based in the northeastern United States, seeking to establish additional guardrails around AI use.
• On Sept. 7, 2023, the company announced the successful novation of a contract with the State of South Carolina, which was won after an open bidding process by Atrion Communications, the assets of which Plurilock successfully acquired in September, 2022.

Growth outlook for 2023

The company remains committed to reaching cash flow break-even by increasing its high-margin software sales and delivering more professional services, as well as identifying more opportunities to achieve financial and operational efficiencies across all business units. At the end of August, 2023, Plurilock enacted a plan in accordance with this strategy and expects to realize approximately $2.0-million in savings on an annualized basis. All actions taken are expected to have a broader impact on savings starting in Q4 2023, with $133,000 realized in Q3 2023.

Furthermore, Plurilock intends to continue advancing its technology portfolio by innovating new ground-breaking AI-driven solutions with an emphasis on zero-trust policy and securing the work force.

Subsequent to the second quarter of fiscal 2023:

• On Oct. 3, 2023, the company announced that it had received a $4.2-million (U.S.) two-year sale order from the U.S. Department of Health and Human Services.
• On Oct. 5, 2023, the company announced that it had received a $5.1-million (U.S.) five-year sale order from the U.S. Department of the Treasury.
• On Oct. 12, 2023, the company announced that it had received a notice of allowance from the U.S. Patent and Trademark Office (USPTO) for a U.S. patent application titled, "Side-Channel Communication Reconciliation of Biometric Timing Data for User Authentication During Remote Desktop Sessions."
• On Oct. 17, 2023, the company announced the increase to its Pathward line of credit (LOC) from up to $4-million (U.S.) to $7-million (U.S.) to its wholly owned subsidiary, Aurora Systems Consulting Inc. The interest rate of the loan is prime plus 4.25 per cent on any outstanding amount. The loan can be for up to 85 per cent of accounts receivable.
• On Nov. 13, 2023, the company announced that it would provide its advanced cybersecurity and disaster recovery services to a leading global semiconductor provider.
• On Nov. 14, 2023, the company announced its addition to the Works With YubiKey Catalog offered by YubiKey maker Yubico.

Non-IFRS (international financial reporting standards) measures

This news release presents information about EBITDA and adjusted EBITDA, both of which are non-IFRS financial measures, to provide supplementary information about operating performance. Plurilock defines EBITDA as net income or loss before interest, income taxes, depreciation and amortization. Adjusted EBITDA removes non-cash share-based compensation, financing and acquisition-related expenses from EBITDA. The company believes that EBITDA and adjusted EBITDA are a meaningful financial metrics for investors as they adjust income to reflect amounts that the company can use to finance working capital requirements, service future interest and principal debt repayments, and finance future growth initiatives. EBITDA and adjusted EBITDA are not intended as a substitute for IFRS measures. A limitation of utilizing these non-IFRS measures is that the IFRS accounting effects of the adjustments do in fact reflect the underlying financial results of Plurilock's business and these effects should not be ignored in evaluating and analyzing Plurilock's financial results. Therefore, management believes that Plurilock's IFRS measures of net loss and the same respective non-IFRS measure should be considered together. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable with similar measures presented by other companies. Readers should refer to the company's most recently filed MD&A for a more detailed discussion of these measures and their calculations.

Quarterly filings

The management's discussion and analysis, and the interim condensed consolidated financial statements and the notes thereto, for the fiscal period ended June 30, 2023, can be obtained from Plurilock's corporate website and under Plurilock's SEDAR+ profile.

About Plurilock Security Inc.

Plurilock provides identity-centric cybersecurity for today's work forces. Plurilock offers world-class cybersecurity solutions paired with AI-driven, cloud-friendly security technologies that deliver persistent identity assurance with unmatched ease of use. The Plurilock family of companies enables organizations to operate safely and securely, while reducing cybersecurity friction.

We seek Safe Harbor.