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Good morning, ladies and gentlemen, and welcome to the EMERGE Commerce First Quarter 2023 Results Conference Call. [Operator Instructions] This call is being recorded today, May 30, 2023. Your hosts for today are Ghassan Halazon, Founder and Chief Executive Officer; and Jonathan Leong, Chief Financial Officer.
Before we begin, I am required to provide the following statements regarding forward-looking information, which is made on behalf of EMERGE and all of its representatives on this call. Certain statements made on this call will contain forward-looking information. These forward-looking statements generally can be identified by the use of words such as intend, believe, could, expect, estimate, forecast, may and other words of similar meaning.
This forward-looking information is based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Actual results could differ materially from a conclusion, forecast, expectation, belief or projection in the forward-looking information.
Certain material factors and assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. We caution investors not to rely on the forward-looking information.
Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in EMERGE's filings with Canadian provincial securities regulators. During today's call, all figures are in Canadian dollars unless otherwise stated.
And with that, it is my pleasure to turn the call over to Mr. Ghassan Halazon, Founder and Chief Executive Officer. Please go ahead, sir.
Thank you very much, Michelle. Good morning, everyone. We appreciate you taking the time to participate in our first quarter 2023 results conference call. Joining me today is Jonathan Leong, our CFO.
This morning, I will walk through EMERGE's results and share some insights on our business as well as our key priorities for the balance of 2023. Following my remarks, Jonathan will provide further details on our financial results, and we will conclude by opening up the call to analysts for questions.
Q1 2023 marks EMERGE's first financial report classifying BattlBox as discontinued operations with prior period results also restated to reflect the reclassification. The company completed its sale of BattlBox in April 2023.
Q1 revenue was $7 million compared to $9.7 million in Q1 2022. Revenue for Q1 2022 would have been $7.7 million when excluding revenue from truLOCAL's U.S. operations and trading that were eliminated in 2022 in an effort to improve margins and profitability.
As has generally been seen across the e-commerce sector, our Q1 revenue was down versus Q1 2022, a quarter during which some of our brands benefited from stay-at-home sales due to the Omicron variant prevalent at the time. Notwithstanding, our overall revenue remains significantly higher than pre-pandemic levels with some of our brands showing healthy organic growth. Notably, we are seeing strong double-digit growth in some of our discount-centric brands, which we believe are well suited for this weaker macro climate.
With respect to gross margins, we have taken and continue to take numerous steps to improve our gross margin, including exiting low-margin revenue streams and price increases through various measures with gross margins improving in Q1 2023 to 51.4% compared to 42.4% in Q1 2022.
The company was once again able to achieve positive adjusted EBITDA of $315,000, marking our sixth consecutive quarter of positive adjusted EBITDA and 12th out of 13 quarters. We would like to highlight that adjusted EBITDA in Q1 does not fully account for some of the recently announced cost-saving measures and synergies that were executed during and after the quarter.
The company continues to explore additional cost savings with a focus on nonrevenue-impacting areas. One of our main priorities this year is to drive stronger cash flow from operations, which increased to positive $800,000 in Q1 2023 from negative $1.3 million in Q1 2022, a positive swing of $2.1 million in cash flow from operations year-over-year.
Q1 is traditionally a seasonal quarter for a number of EMERGE's verticals following the peak holiday shopping season in Q4. Despite this, EMERGE drove positive EBITDA and meaningful -- drove positive adjusted EBITDA and meaningful improvements in gross margin, net income and positive cash flow from operations.
I will now provide a brief update on some of our progress subsequent to quarter end. First, an update on BattlBox. In April 2023, the sale of BattlBox was completed with the company receiving cash consideration of approximately USD 6 million, and the buyer assuming an aggregate of approximately USD 1.2 million in deferred consideration liabilities.
EMERGE no longer has any deferred payment obligations owed to former BattlBox shareholders. EMERGE originally acquired BattlBox Group in October 2021, which included both the BattlBox and Carnivore Club brands. Carnivore Club is not included in the transaction and will remain an EMERGE brand, working closely with truLOCAL under the Meat and Grocery vertical.
Following the transaction, EMERGE retains 7 brands across 4 main verticals: Pets, Meat and Grocery, Golf and Experiences in Canada and the U.S., namely WholesalePet, truLOCAL, Carnivore Club, UnderPar, JustGolfStuff, WagJag and BeRightBack. EMERGE's go-forward e-commerce portfolio is expected to approach $100 million in gross merchandise sales annually and remain profitable on an adjusted EBITDA basis.
Second, an update on the debt front. Following the closing of the BattlBox transaction, EMERGE repaid $7 million of its senior credit facility from the proceeds of the sale. Interest expense savings from debt repayments are expected to be $1 million annually.
The credit facility is currently at $16.5 million, down from $25 million in the prior year. The company remains in good standing with its existing lender, which it has worked with since November 2019. We continue to explore our options on the debt front.
Third, an update on our cost optimization and gross margin initiatives. Further to the anticipated savings previously announced in late 2022, we announced additional savings and cost reductions of $1 million for a combined annualized total of $2 million in anticipated savings implemented under this initiative.
As part of overall efforts to drive additional cash flow, the initiative includes reducing overhead expenses, improving margins, maximizing cross-functional synergies amongst EMERGE HQ and portfolio brands and eliminating unprofitable revenue streams. A large portion of these cost reductions and gross margin initiatives occurred in late 2022 and in Q1 2023.
As such, a meaningful number of these savings were not captured in Q4 and Q1. We expect that the cost measures and gross margin initiatives that we have executed in recent quarters will continue to support a healthier bottom line.
Finally, the company's top priorities in the near term remain to: one, continue to pay down debt and reduce interest expense; two, drive organic growth; three, extract further operational efficiencies; and four, enhance EBITDA to cash flow conversion.
To wrap up, I would like to sincerely thank our team, Board and trusted partners across North America for everyone's hard work as we execute on our plan to pave the way for our next chapter together.
I will now turn the call over to Jonathan for a review of our financial results. Jonathan?
Thanks, Ghassan. Good morning, everyone. With respect to BattlBox and its sale subsequent to period end, please note that it has been reflected as discontinued operations in our financial statements for this quarter with prior periods also reclassified to account for this.
Our gross merchandise sales, or GMS, for the quarter was just under $21 million, a decrease of 13% compared to the prior year at $24.2 million. When excluding GMS from U.S. operations and trading that were eliminated, last year's Q1 GMS would have been $22.2 million. As a reminder, GMS is a non-GAAP measure and represents the total dollar value of customer purchases of goods and services through our brands excluding applicable taxes and net of discounts and refunds.
Q1 revenue was $7 million versus $9.7 million in Q1 2022. Similar to GMS, when excluding revenue from U.S. operations and trading that were eliminated, the decrease in revenue would have been approximately $0.7 million or 9%.
Gross profit for the quarter decreased to $3.6 million versus $4.1 million in the prior year. We did see our gross margins increase to 51.4% from 42.4% as we continue to review and execute on a variety of initiatives aimed at improving our gross margins.
The net loss from continuing operations for Q1 was $2.1 million compared to $2.9 million for the same period in the prior year. The smaller net loss is mainly attributable to a remeasurement on contingent consideration and foreign exchange and other losses in the prior year.
Our adjusted EBITDA decreased to $315,000 from $485,000 in 2022. This decrease is mainly attributable to the lower overall sales compared to the prior year, while the decrease was partially offset by a reduction to SG&A through efficiencies realized during the quarter. As Ghassan mentioned, this marks the sixth straight quarter of positive adjusted EBITDA. And we continue to focus on improving profitability and cash flow.
I will now pass it back to Ghassan for some closing comments.
Thanks, Jonathan. In closing, while Q1 2023 faced a tough year-over-year comp due to the stay-at-home effect of Omicron in Q1 2022, we are generally pleased with our brand portfolio's resilience and ability to maintain the majority of our sales growth experienced during the pandemic, improved gross margins, positive adjusted EBITDA and enhanced cash flow from operations.
EMERGE is taking key steps to strengthen the company's balance sheet. And we believe both the cost reductions and gross margins implemented recently as well as the sale of BattlBox are 2 big steps in the right direction. With a diversified portfolio of quality brands in a largely resilient -- largely recession-resilient verticals, we plan to operate with rigor through the balance of 2023 and beyond. We believe a disciplined capital allocation approach and an inherently bottom line-focused playbook will come handy during this macro climate.
This concludes our prepared remarks. Operator, please open the line for questions.
[Operator Instructions] Your first question comes from Andy Nguyen at Raymond James.
First, my first question is going to be on the Golf segment. So what you're seeing there in terms of the golf experience and as to the golf merchandise?
Yes. Thank you for your question. On the golf front, it remains a tale of 2 different stories. We've talked a little bit about this in the past. I would say largest development so far is that we are seeing high double-digit growth for multiple months in a row now on the JustGolfStuff side, which is the golf products business, golf apparel products and golf balls.
We have launched JustGolfStuff in the U.S. In fact, we announced that launch a while back, but really, it's only gained some steam lately as a contributor, but notwithstanding the JustGolfStuff Canada side of the business is seeing really nice growth, as I say, one of the fastest growers across the company.
And it was one of the companies we referenced when we mentioned the double-digit growth of some of these discount brands. So that business is looking nice. It's growing, and it's expanding into the U.S.
With respect to UnderPar, we continue to see supply side challenges as a result of golf courses being busier than usual. While I can point to certain trends that in any given month, we may see, for example, the U.S. side of the business up year-over-year. The next month, we may see the Canada business up year-over-year, but there's still quite a gap from where these revenues were pre-pandemic versus where we are at this moment in time. I would certainly say it is progress, but it is slower progress than we like.
Got you. And is that something you can expect going forward with the golf experience, the situation?
So we are hopeful, Andy, that the weakening economy, the softening consumer wallet ultimately trickles to the supply-demand economics of golf and results in golf courses seeking more discounts and seeking UnderPar services in a bigger capacity. If that were to be the case, if the thesis is that the economy will, in fact, weaken further and the -- and consumer wallet will weaken and people will look for more discounts in the Golf segment, then UnderPar stands to gain, yes.
And that would be a more pronounced comeback, if you will, because we're only seeing incremental gains in some cases right now. But to the extent that -- and I'll sort of remind you that UnderPar itself was established during last -- The Great Recession in 2008, 2009. As a result, other deal sites also became very prominent around that time. So effectively, if the economy weakens, we do believe there is upside, further upside or maybe a more pronounced comeback to UnderPar, but that remains to be seen.
However, on the JustGolfStuff side, obviously, given the rise of golf, it's kind of a contrarian play to UnderPar in the sense that people want more equipment, want apparel. There are a lot of newcomers to the sport. So we're seeing double-digit -- high double-digit growth with JustGolfStuff.
Got you. And my last questions will be on truLOCAL. And I think you mentioned that you -- your initiative to improve the gross margin as to exit truLOCAL trading.
Yes.
How material is the impact on truLOCAL top line because of this initiative?
Yes. So this was something we discussed loosely. We felt it was important to bring up more explicitly here in our Q1 call today as well as our PR to make sure people understand that the core business, Andy, once you strip out, let's say, the trading/the U.S. businesses, which were low margin and generally loss-making, you're looking at truLOCAL being still in the 2x range versus pre-pandemic.
So think of truLOCAL right now sort of in the $15 million to $16 million zone. Of course, we've included Carnivore Club now under truLOCAL. So would it be higher than that? Carnivore Club is probably a couple of million dollars' worth although it's a tight business, and I don't think we're looking to spend empty calories on growing it, right? It's just more synergistically truLOCAL.
But to answer your question, yes, I mean, the trading business at the end of the day, stripping that out, you're looking at truLOCAL being about 2x pre-pandemic. They were in and around the $8 million zone pre-pandemic. So that gives you a rough idea of where we see truLOCAL, which, in our view, kind of coming out of the pandemic, stabilizing it and now growing -- aiming to start growing again from where we are, I think, is kind of the view.
And I want to just expand on that briefly. The gross margin growth that we saw in the company from 51% plus -- sorry, from 42% to about 51% plus, a good part of that is a lot of the work we've been doing at truLOCAL as well as at WholesalePet and others.
But truLOCAL is a business that we've taken some costs out of. So some of the restructuring and savings that we've alluded to both on the cost saving synergies as well as the gross margin side, a good chunk of that is truLOCAL-based. So we can say revenues are right now quite, quite consistent and stable there, but we have a much better cost base for truLOCAL if that gives you some added color, yes.
[Operator Instructions] Mr. Halazon, there are no further questions from the phone line, sir. I'll turn it back to you for any closing remarks.
Thank you very much for joining us today and for your continued interest in EMERGE Commerce. We look forward to reporting on our progress throughout the balance of the year and beyond. Thank you.
Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.