Welcome to the EMERGE Commerce second quarter 2022 results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a Q&A session for analysts. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded today, 2022. Your hosts 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 statement respecting 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 Securities Administrators. During today's call, all figures are in Canadian dollars unless otherwise stated. With that, I would like to turn the call over to Ghassan Halazon, Founder and CEO. Please go ahead, sir.
Thank you very much. Good morning, everyone. We appreciate you taking the time to participate on our second quarter results conference call. Joining me today is Jonathan. This morning, I will walk you through EMERGE's second quarter results and share some insights on our business, as well as our key priorities for the balance of 2022. 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. I am pleased to report that EMERGE delivered strong second quarter results. Q2 marks the third consecutive quarter that EMERGE has delivered greater than CAD 1 million in adjusted EBITDA, demonstrating our continued commitment to disciplined operations.
Gross merchandise sales, or GMS for short, which represents the total dollar value of purchases on our platform, increased 144% year-over-year to CAD 28 million, which is the best Q2 GMS in the company's history. Q2 revenue grew to CAD 15.1 million. Again, a record for Q2 compared to CAD 6.8 million in the prior year, an increase of 120%. Q2 adjusted EBITDA grew to CAD 1.1 million from CAD 0.08 million, an increase of 1,238%. I am particularly proud that we have established a trend of positive adjusted EBITDA, as Q2 was our ninth quarter out of the last 10 quarters with positive adjusted EBITDA. Our second quarter results demonstrate the resilience of our platform and the quality of our brands.
During the pandemic, consumers shifted their purchasing patterns from physical retail to e-commerce, driving strong growth for the sector overall. As the economy has reopened, we have seen some consumers return to physical retail, which has caused the normalization of online spend as well documented. Despite this, we are pleased to report that our sales volume, driven by our diversified brand portfolio, remains substantially above pre-pandemic levels and is a testament to the quality of the businesses we've acquired and the team's efforts in unlocking this next phase of growth. In recent months, the macroeconomic outlook has become more uncertain, but we believe that over the long term, e-commerce will continue to gain share against traditional retail as consumers increasingly realize the savings and the convenience of the online model. Moving on to M&A. Our current pipeline of M&A opportunities remains robust.
In the current macro environment, we plan to be diligent, but are prepared to act decisively should we see accretive opportunities that enhance our cash flow profile in the immediate term. The company anticipates the recent market active acquisition opportunities and pricing as entrepreneurs are looking for alternatives to scale in a cost-effective manner, which aligns with EMERGE's business. To date, the company has successfully leveraged its existing CAD 25 million debt facility to finance acquisitions. In March 2022, EMERGE entered into an amendment with its existing lender, providing the company with an option to extend its debt facility to June 2023. EMERGE is currently advancing its plans to refinance its current debt facility. Moving to the remainder of the year.
In the wake of the challenging macro environment, management's operational priority for the balance of the year is to optimize for profitability and cash flow, including through synergies and cost savings where applicable. To wrap up, I would like to sincerely thank and congratulate our team, board of directors and trusted partners across Canada and the U.S. on yet another excellent quarter and rising to the challenge in the face of these trying times. I will now turn the call over to Jonathan for a review of our financial results.
Thanks, Ghassan. Good morning, everyone. Our gross merchandise sales, or GMS, for the second quarter increased 144% to CAD 28 million, up from CAD 11.5 million in the comparative period last year. This increase was primarily driven by the BattlBox group and WholesalePet acquisition. 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. For the second quarter, our revenue increased to CAD 15.1 million, up 120% from CAD 6.8 million in Q2 2021. Similar to our GMS, this was primarily driven by the BattlBox and WholesalePet acquisitions.
Gross profit for the quarter increased to CAD 6.1 million, compared to CAD 3 million in the comparative period, an increase of 106%. The net loss for the second quarter was CAD 0.8 million, compared to a net loss of CAD 2.2 million for the same quarter in the prior year. The decreased net loss for the year is primarily in transaction costs, as well as positive impacts from foreign exchange and remeasurement of contingent consideration. This was partially offset by higher finance costs related to interest expense paid in 2022 compared to 2021. The company reported adjusted EBITDA for the quarter of CAD 1.1 million compared to CAD 0.08 million in Q2 2021.
As Ghassan mentioned, this marks our third straight quarter of adjusted EBITDA greater than CAD 1 million and also is our ninth quarter of positive adjusted EBITDA in our last 10 quarters. Overall, we are pleased with the results this quarter and look forward to continuing to execute on our plans during the remainder of 2022. I will now pass it back to Ghassan for some closing comments.
Thank you, Jonathan. In closing, we continue to make tremendous strides in scaling our business and graduating it from a marginally profitable business to a meaningfully profitable one with a diversified portfolio of category-defining e-commerce brands, as evidenced by the excellent growth in both revenue and adjusted EBITDA in the second quarter and the first half of the year versus 2021. We plan to operate with rigor through the balance of 2022 and beyond. We believe a disciplined capital allocation approach and an inherently bottom-line focused playbook will come handy during this macro climate. Our aspiration remains unchanged for EMERGE to rise as North America's preeminent acquirer of high-performing niche e-commerce brands, allowing acquired companies to take advantage of the benefits that come with our collective scale, unavailable to any individual bootstrapped e-commerce company with limited resources. This concludes our prepared remarks. Operator, please open the line for questions.
Thank you, sir. Ladies and gentlemen, we will now conduct a Q&A session for analysts. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Please stand by for your first question. Your first question will come from Andy Nguyen of Raymond James. Please go ahead.
Morning, Ghassan. Congrats on another great quarter. My first question is, could you give us some more color on the organic growth for truLOCAL and BattlBox for the most recent quarter?
Morning, Andy. Thanks for your questions. Good to hear from you. Yeah, certainly, you know, as you know, we don't give explicit guidance, per vertical, but happy to share a little bit of color around some of our units, specifically truLOCAL and BattlBox, as you're asking here. The big picture, Andy, is that truLOCAL, alongside both the direct-to-consumer business as well as the add-on initiatives that we've discussed in the past, including B2B, trading and otherwise, came out ahead on a quarter-over-quarter or year-over-year comparison rather. You know, generally I think we're pleased with the overall picture of truLOCAL.
That said, the D2C portion of the business continues to battle some of the issues that we've discussed in the past, including inflation, rising price of meat, et cetera. I would say overall, the organic picture is still intact that we discussed. I think similarly with BattlBox, you know, we don't see you know, necessarily different headwinds that I just mentioned. You know, inflation, supply chain, customer acquisition, all of those things remain challenges in the business. I would say overall, it was slightly down for the quarter. You know, I think generally what we're looking at from a profitability perspective, BattlBox came out quite strong.
Gotcha. I just wanna hone in to truLOCAL. I think you mentioned one of the strategy that you employ to mitigate the inflation risk is to raise the subscription price. What have you seen so far in terms of the consumer reaction? You've seen a lot of pushback, resistance, or the consumer are, you know, not that sensitive to that price change so far?
Yeah. It's a great question. As some of the listeners might recall, we raised prices back in October 2021. In fact, we raised the price per box by about CAD 10 which equates to about 4% increase. You know, we were at first very careful with testing and figuring out what levels made sense. Thankfully, I must say that this is a testament to the truLOCAL brand and community that the price increases were well received. We did not see any unusual, any of the key metrics of the business related to that price increase.
We can now say a bit more definitively as time has passed, that the price increase has not resulted in any meaningful differences to the metrics we've already been monitoring. I think again, it's a function of the truLOCAL apparently with their customers. Their customers actually, believe it or not, appreciated the fact that prices hadn't gone up in so long. There's tremendous buying or rather tremendous purchasing power at truLOCAL. It does not preclude us from exploring further price increases or increases elsewhere in the business model in terms of, you know, other charges or things that we could pass on to consumers. We are exploring all of these options.
Right now, I can say that price increase has not resulted in any meaningful change to churn dynamics or other key metrics.
Right.
Your next question comes from Aravinda Galappatthige of Canaccord. Please go ahead.
Good morning. Thanks for taking my questions. Hi, Ghassan.
Hi, Aravinda.
I wanted to actually maybe for Jonathan, after you obviously, clarify sort of the debt situation. I'm not sure if I misheard you. Have you already exercised the option to extend the facility to June 29th, 2023 at this point? Or it's still there, but you haven't pulled the trigger on it?
Yes. Hi, Aravinda. For our debt, we have the option. We haven't exercised that option yet, but we do have the option to extend it to June 2023. Prior to that, we are looking at potential options to refinance the debt in its entirety.
Okay. I guess, I mean, just looking at the risk side of things, is there any kind of risk that if you're not able to achieve that, you know, given I don't know how kind of cautious banks are these days? Is there any risk that if it doesn't get extended, you might have to look for an alternative facility elsewhere? I know that in the notes to the financial statements you talk about it's payable in cash or stock. Maybe just give us some insight as to what the terms are if you need to pay that back.
Sure. In terms of the option to extend, if we exercise that option there is an extension fee which is at our discretion payable in cash or shares at the time we exercise that option, we can pay in either shares or cash. Prior to that though, to your previous questions, you know, we are looking at various different options, whether it's with the Canadian banks or alternative lenders. Even with our existing lender as well, we are exploring, you know, what makes the most sense in this macro environment.
Understand. That's really helpful. To be clear, Jonathan, if you want, you can pay the entire thing in stock, but I wanna make sure that those are the exact terms.
Yeah, in terms of the extension fee, yes. We can pay the entire extension fee in stock. Yeah.
Oh, the extension fee. Okay. Just to be clear. Okay.
Yeah.
Maybe just getting to the core business. Maybe just, I mean, you've had some of these assets, Ghassan, for you to kind of, you know, maybe go deeper into it. Is there anything that's sort of coming up in terms of product innovation? Obviously, the founders that built these businesses, you know, have developed insights over the years. With your experience, you know, looking at a broader range of companies, you might be thinking, you know, there's maybe new markets for these businesses, maybe new product ideas. Anything that's come up along those lines that you care to discuss?
Yeah, absolutely, Aravinda. I think there's a couple of things to discuss. We didn't touch on it here on the earnings call, but you may have seen that, in this past quarter, for example, BattlBox launched Wander, which is its kids adventure subscription box, effectively a BattlBox junior type service that they've rolled out, of course, leveraging their existing team resources and facilities. So that's an interesting dynamic. We're finding that, you know, through the existing enthusiast member base of BattlBox, that there was potentially an extension to the product here that applies to kids in a world that's increasingly online. This is an application and a subscription box that encourages kids to be offline. This is kind of an interesting play there.
It's obviously still very early, but this is something that was launched full force. You know, sort of effort that got us to a launch in Q2, Q3 here. Of course, the other aspect is the geographical expansion. BattlBox launched in Canada. They were just as a reminder, they were available in the U.S. Of course, Carnivore Club, their sister brand, was available in Canada and the U.S., but BattlBox really sort of did a more formal launch in Canada. Again, still early days, but leveraging same resources over there, but also our audiences in Canada. That's something that we think BattlBox, you know, can, yeah, can see some good growth opportunity.
Similarly, WholesalePet.com, there are two aspects that are worth touching on. Number one, they too are looking at the Canadian market potentially through partnership. That has not obviously officially occurred yet, but the launch of WholesalePet.com in Canada is something that we think could realistically happen in 2023, hopefully sooner rather than later. Again, market dynamics will dictate. The other aspect to WholesalePet.com that we're finding some early promise and interest in, and by the way, that business continues to perform well, is the fact that that model historically has not relied on or had any impact from the challenges in the digital advertising landscape.
Things like Facebook marketing, Google marketing, all these themes that we hear about and see a lot of e-commerce companies dabble with and deal with, you know, because of the Apple privacy changes and so forth. That's not historically something that WholesalePet has had an issue with. But what we're seeing lately is a targeted B2B marketing campaign it could merit and unlock further growth opportunities. We are starting to consider and starting to spend small amounts, I would say, at WholesalePet marketing wise, to see if that can even be on sort of their CAGR of 20% over the last 20 years. That's another area. Of course, let me just touch on the fact that and highlight the fact. Look at and expand into Canada.
That's obviously where we have the strongest firepower from an audience and the resources perspective. For BattlBox and the consumer brands, obviously we're sitting on WagJag, and we're sitting on you know millions of subscribers that we can now sort of at least cross-sell some of these services that were historically in the U.S. Of course, same thing goes for facilities. If BattlBox Canada were to grow enough and One Lower to grow enough in Canada, we already have warehouse leverage that we were not able to when they were in the U.S. strictly.
Lastly, with truLOCAL, I think we've highlighted sort of the corporate gifting and the B2B trading, and these are areas, or at least let's just say, you know, sort of part of the B2B areas is fast-growing. I will say that it does come with growing pains and figuring out the right margin optimization. It's stuff that we're looking at. We really think there is opportunities to unlock by the fact that the supply side, the relationships with our vendors, with our local farmers, there's a lot we can do to connect them and add value to them on a B2B basis. Quite frankly, a lot of that inspiration has come from seeing WholesalePet.com's stickiness, seeing the B2B model, and trying to replicate some B2B aspects across the portfolio.
Great. That's really helpful, Ghassan. Thank you. Lastly, just on the I see that, you know, you've made some, there's been a sort of fair value gain on the change in contingent consideration. I suspect there isn't sort of a major change to expectations yet at this point in terms of sort of the contingent earn-out payments that are due for this year and next.
Correct. No change really. Jonathan, I don't know if you wanna comment further, but there's nothing material to change in terms of you know, what we're seeing.
Yeah. There's no major change. I mean, given the macro environment and current performance, you know, things may be tough for the first year, but there's no major change in expectations there.
Okay. Thank you. Bye for now.
There are no other questions at this time. I will turn the conference back to Mr. Halazon for closing remarks.
Great. Thank you very much everyone for joining us today and 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.