Mr. Sachin Aggarwal reports

THINK RESEARCH CORPORATION ANNOUNCES THIRD QUARTER 2023 RESULTS

Think Research Corp. has released third quarter 2023 results. The company's management discussion and analysis (MD&A) along with unaudited consolidated interim financial statements for Q3 2023 are available on SEDAR+ and on Think's website.

Think's three core business lines, including software and data solutions (software-as-a-service solutions), clinical research (clinical trial studies), and clinical services (physical clinics), collectively drive its financial performance and results.

Sachin Aggarwal, chief executive officer of Think Research, said: "We are pleased with the 71-per-cent growth of recurring revenue in our software and data division. This division continues to be a major focus of operations and now represents more than 55 per cent of total revenue. That being said, unusual and unexpected delays and cancellations within the clinical research division have disrupted the rapid performance improvements that we have reported in the previous three quarters and set back this forward progress in the current period. However, we have acted quickly to mitigate the impacts in this division, while continuing to focus on growing our high-margin recurring revenue operations in order to regain our earnings momentum."

Think's software and data solutions are increasingly relied upon by acute care and community care doctors, nurses and pharmacists to support their practices. Think solutions now reach more than 331,000 clinicians. In certain jurisdiction-wide deployments, Think's platform connects clinicians to the health care networks that employ them, to patients for virtual care and to each other for referrals.

Think currently licenses its solutions to approximately 16,000 facilities with over three million patients and residents annually receiving better care due to the essential data that Think produces, manages and delivers.

Business outlook

Think's primary revenue stream of software and data solutions is built on recurring multiyear contracted commitments. Steady annual recurring revenue growth in the segment comes from SaaS contracts with pharmacies, health networks, long-term care facilities and pharmaceutical companies. From time to time, the company generates step-function increases in recurring revenue by way of platform-type agreements with governmental agencies and large enterprise clients. Examples of such agreements are with the Province of Nova Scotia and the Province of Ontario. The primary solutions drivers for continuing recurring revenue growth are Pharmapod, the learning management system (LMS) platform and the digital front door (DFD) platform.

Think's software and data solutions are currently solving urgent short-term health care service conditions, as well as looming long-term demographic challenges for health systems in Canada and abroad, including:

• Rapid changes in medical research and treatment options;
• Limited access to primary care and critically long wait times in emergency rooms;
• Increasing demand for health care services as populations age and people live longer, with increasing health complexity;
• A long-term shortage of health care workers, including doctors, nurses and pharmacists, and a flight of these critical health care workers to higher-paying urban jurisdictions.

As a result, Think's sales pipeline for its SaaS solutions shows significant revenue growth potential in the Canadian market and internationally.

The company plans to grow predictable and recurring revenue with improving margins by becoming an essential data solutions provider for health care systems globally so they can deliver the best outcomes for patients. The DFD solution can provide additional capacity for health care systems through third party care providers, such as doctors, nurses and care navigators from outside the client's network.

To fulfill this objective, Think's focus is to:

• Execute long-term agreements with new flagship enterprise and government customers for Think's core suite of software and data solutions, including its digital front door, learning management system (LMS) and Pharmapod solutions;
• Add more users to current customer agreements by promoting further adoption and usage. Currently, more than 331,000 clinicians, including doctors, nurses and pharmacists, can access Think's solutions;
• Extend the functionality of Think's platform through internal development, including the continuing expansion of artificial intelligence (AI) and through partnerships with care and technology providers. As more functionality is added and as usability continues to evolve, more users and care providers are onboarding. Over time, Think's solutions become more essential to health systems and customers;
• Manage expenses to maximize margins and future earnings as recurring revenue grows.

Think's rapid improvements in financial performance, including three sequential quarters of positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) prior to Q3 2023, helped to offset higher financing charges related to Think's floating interest rate associated with its long-term debt. The rapid strengthening of the software and data division's performance helped to offset the revenue declines in the clinical research division that were caused by unexpected delays and research cancellations during Q3, and out of the control of management. Although Think's ARR is growing, it has yet to sufficiently scale to cover unexpected performance variances within its other divisions, and Think is focused on streamlining costs to help minimize the impacts of revenue volatility. The company's path to consistently generate sufficient positive cash flow from operations to cover all non-operating expenses was disrupted this quarter by the decline in revenue in the clinical research division. However, with a solid pipeline of SaaS opportunities and continuing rationalization of operations in the clinical research and clinical services divisions, management is actively mobilizing to restore the company on its previous path toward positive cash flow.

Notable contracts and events in Q3 and year-to-date 2023:

• On March 7, 2023, Think announced a minimum five-year SaaS and services agreement with a new customer that is expected to total more than $40-million over its term. On Nov. 2, 2023, Think announced that this new customer is the government of Nova Scotia for the province's YourHealthNS initiative. Through this agreement, Think will provide the digital front door to help Nova Scotia address its urgent health care access and delivery challenges.
• On July 18, 2023, Think announced that its Pharmapod system was selected by Neighbourly Pharmacy, Canada's largest and fastest-growing network of community pharmacies, to manage medication safety for its approximately 300 locations across the country. On Oct. 5, 2023, Think announced that Pharmapod had also been selected by a major long-term care pharmacy chain and will be rolled out in over 400 additional long-term care homes to also help them manage medication safety.
• On Aug. 16, 2023, Think announced that it had received a $1.5-million non-convertible loan from Beedie Capital to use for working capital.
• On Sept. 12, 2023 Think announced that it is a technology partner supporting the Ontario Ministry of Health's rollout of its One Stop Talk/Parlons Maintenant (OST/PM) service to simplify navigation and increase availability of mental health services for children and youth throughout Ontario.
• On Sept. 29, 2023, Think announced that it would use the proceeds of a $3-million advance on its $25-million convertible loan facility from Beedie Capital to pay deferred consideration for prior-period acquisitions to avoid dilution to shareholders and for general working capital purposes. On Nov. 10, 2023, Think announced that it drew down $2-million of an additional tranche of up to $5-million of the convertible loan facility for general working capital purposes.

Financial highlights for Q3 and YTD 2023

The company recorded revenue of $19.2-million for Q3 2023, an increase of $800,000 or 4 per cent compared with $18.4-million for the third quarter of 2022. Year-to-date revenue of $63.5-million was up $6.5-million or 11 per cent from $57-million in the first nine months of the prior year. This year-over-year growth reflects the impact of organic growth in software and data solutions revenue that was offset by a decline in clinical services revenue, while clinical research revenue remained relatively flat year-over-year. The sequential $3.3-million, or 15-per-cent, decline in revenue for Q3 of 2023 compared with $22.5-million in Q2 related to a $3.2-million decline in Think's clinical research business, which was the result of the company's study sponsor clients rescheduling or cancelling contracts during the quarter for reasons unrelated to Think.

Annual recurring revenue (ARR) reached $24.6-million at the end of September, 2023, representing growth of 71 per cent compared with $14.4-million at the end of September, 2022. This growth in ARR stemmed primarily from signing the minimum five-year SaaS agreement with the Province of Nova Scotia, along with a steady conversion of multiyear licences for Think's SaaS solutions. Think's net retention rate for ARR, defined as the total of retained revenue from existing customers over a one-year period, was 105 per cent on Sept. 30, 2023.

Gross profit of $8.7-million for Q3 2023 was flat compared with $8.7-million in Q3 2022, while year-to-date gross profit of $31.8-million represents an increase of $4.6-million or 17 per cent compared with gross profit of $27.2-million in the year-to-date the prior year. Relative to the immediately preceding quarter, gross profit declined by 26 per cent. The flat year-over-year performance and the quarter-over-quarter decline reflects the high fixed-cost nature of cost of sales in Think's clinical research business. Gross margin of 45 per cent in Q3 2023 represents a decrease from 47 per cent in Q3 2022, again due to the high fixed costs in the company's clinical research business. Gross margin was 50 per cent in the nine-month period of 2023, an increase from 48 per cent in the same period in 2022 due to stronger performance in the first six months of the year. Operating expenses declined to $13.9-million in Q3 and $42.1-million in the year-to-date 2023, representing a decrease of 1 per cent and 5 per cent over the prior-year periods. As a percentage of revenue, operating expenses declined to 73 per cent and 66 per cent in the three and nine months ended Sept. 30, 2023, compared with 77 per cent and 78 per cent in the prior-year periods, due primarily to the cost optimization program executed by the company, partially offset by additional investments in the development and marketing of Think's flagship DFD and LMS products.

Adjusted EBITDA declined to a loss of $1.5-million for Q3 2023 compared with an adjusted EBITDA loss of $700,000 for Q3 in the previous year. Adjusted EBITDA for the current year to date was $900,000, an improvement of $3.5-million over the adjusted EBITDA loss of $2.6-million in the comparative year-to-date period in 2022. The quarterly decline compared with 2022 was primarily due to the increased costs incurred to service new software and data services engagements, while costs associated with clinical research remained relatively stable despite lower revenue. The improvements compared with the prior-year-to-date period were primarily attributable to improvements in revenue combined with operating cost reductions. The resulting adjusted EBITDA margin was a loss of 8 per cent in Q3 and a profit of 1 per cent in the year-to-date 2023 compared with losses of 4 per cent in Q3 2022 and 4 per cent in the first nine months of the prior year.

Net loss was $3.8-million for Q3 and $9.7-million for year-to-date 2023 compared with $6.5-million and $20.1-million for the comparable periods in the prior year. The decrease in net loss when compared with 2022 is primarily due to a combination of higher revenue, lower operating costs, and lower acquisition and restructuring costs, partially offset by higher financing costs.

Q3 2023 revenue performance highlights by line of business

The company has three primary streams of revenue that include: (1) software and data solutions; (2) clinical research; and (3) clinical services.

Revenue from Think's software and data solutions business grew by $4.5-million or 72 per cent to $10.8-million from $6.3-million in Q3 2022. At 56 per cent, revenue from software and data solutions now represents a majority of Think's revenue stream, compared with 34 per cent in Q3 2022, which is largely attributable to the organic growth realized from Think's SaaS solutions.

Clinical research revenue decreased by $2.9-million or 32 per cent in Q3 2023 to $6-million compared with $8.9-million in Q2 2022. As previously outlined, this revenue declined in the quarter due to study delays and cancellations that were unrelated to Think or its performance.

Clinical services revenue declined by $800,000 or 25 per cent in Q3 2023 compared with the comparable period in 2022 due to operational challenges in sales and marketing. Sequentially, revenue declined by 17 per cent compared with Q2 2023.

Liquidity and capital resources

On Sept. 30, 2023, the company had a working capital deficiency of $40.4-million compared with a working capital deficiency of $39.3-million on Dec. 31, 2022. Of this deficiency on Sept. 30, 2023, $27.8-million relates to current long-term debt owed to the Bank of Nova Scotia and Beedie Capital that has a term ending in September, 2024.

The company is required to remain in compliance with certain monthly covenants under its credit facilities. The company received a waiver from its lenders for certain of these covenants related to the period up to Sept. 30, 2023, with which it would otherwise have not complied. During the period from Jan. 1, 2023, until Jan. 1, 2024, the covenants related to minimum EBITDA and maximum secured debt become more restrictive. On Oct. 31, 2023, the company determined that it was not in compliance with the minimum liquidity, minimum EBITDA and the secured debt to gross profit covenants as set out in its credit facilities and could potentially be in non-compliance with certain of those covenants set out in the Bank of Nova Scotia credit facility and the Beedie credit facility in certain future months. As a result of these covenant concerns, the company's lenders have the option to demand repayment of their debt. Although management does not expect the company's lenders to take this action, this possibility raises significant doubt about the company's ability to continue as a going concern. To address the covenant concerns, on Nov. 10, 2023, Think entered into an agreement with Beedie Capital to provide up to an additional $5-million of convertible debt under its $25-million facility. Think is also actively i) engaging in discussions with its lenders regarding waivers for covenant concerns as well as amendments to future covenants and ii) maintaining focus on Think's previously announced cost optimization program. Although a positive outcome cannot be assured, based on preliminary conversations with Think's lenders and past experience, management is optimistic for a successful resolution to the covenant concerns.

Conference call details

CEO Mr. Aggarwal and chief financial officer John Hayes will host a conference call to discuss the results, with a question-and-answer session to follow.

Time: 8:30 a.m. EST, Nov. 27, 2023

Conference call participant details:

Canada/United States toll-free: 1-800-319-4610

International toll: 1-604-638-5340

About Think Research Corp.

Think Research is an industry leader in delivering knowledge-based digital health software and data solutions. The company's evidence-based health care solutions support clinical decision-making, improve access to services, enable practitioners to gain better capabilities and knowledge, and help to standardize care to facilitate better health care outcomes. Think Research has gathered a significant amount of data by building its repository of knowledge through its digital solutions platform and group of companies. The company's focused mission is to become an essential platform that helps health care clinicians, institutions and networks to provide the best care and information.

We seek Safe Harbor.