Information Services Corporation

On the call today with me are Jeff Stusik, President and CEO, and Sean Peters, Executive Vice President and Chief Financial Officer. Jeff will provide some opening comments about the quarter. This will be followed by a review of operation and financial results for the quarter by Sean. Jeff will then make some closing remarks before we open up the call for the question and answer session. Before we begin, we would like to remind everyone that we will only be summarizing results today. IFC's unaudited, condensed, consolidated interim financial statements and notes and management's discussion and analysis for the period ended September 30th, 2020 have been filed on CDAR and are also available in the investor relations section on our website under financial reports. We encourage you to review those reports in their entirety. I would also like to remind you that any statements made today that are not historical facts are considered to be forward-looking statements within the meaning of applicable securities laws. The statements may involve a number of risks and uncertainties that are described in detail in the company's CDAR filings, in particular in ISC's annual information form for the year ended December 31, 2019, and ISC's unaudited, condensed, consolidated interim financial statements and notes, and management's discussion and analysis for the three and nine months ended September 30, 2020. Those risks and uncertainties may cause actual results to differ materially from those stated. Today's comments are made as of today's date and will not be updated except as required under applicable securities legislation. Today's conference call is being broadcast live over the internet and will be archived for replay shortly after the call on the investor relations section of our website. I will now hand the call over to Jeff.

Thank you, Jonathan, and good morning to everyone joining us for today's call. The third quarter was a productive one for us. Our financial performance remained strong. and the resiliency of our business segments is evident in our results. During the quarter, we also completed the acquisition of substantially all of the assets used in the business of Paragon, whose primary focus is the facilitation and coordination of asset recovery on behalf of many of Canada's major banks. The addition of Paragon's assets will strengthen our current service offering and means that we'll be able to offer our clients a complete solution throughout the credit life cycle. The integration of these assets and new colleagues into our service business has gone well, and I'm excited about this addition. Our services business also continued to enhance its technology offerings with the completion of a soft launch of our newest technology platform, Registry Complete, a unified and streamlined platform that enables legal organizations to search and register with the various ministries across Canada in a secure cloud-based environment. This enhanced service allows legal organizations to take advantage of expanded API service offerings, improved tools, faster turnaround, and a greater array of services in the pursuit of exceptional and expedient due diligence checks and client service. With respect to our response to the impacts of COVID-19, we implemented certain measures to reduce operating costs and mitigate the impact of COVID-19, which has had a positive impact on our results. Across our business from Vernon to Dublin, the seamless transition we made to work from home is evident and I'd like to commend all of our employees for their continued professionalism and laser-like customer focus. My thanks also goes out to all of our customers as well for their continued support and to the new customers we onboarded in services during the quarter for putting their trust in us. Finally, We also increased our credit facility during the quarter to make sure we are well positioned to support the needs of our existing business, as well as be able to act quickly and execute on any opportunities that may come up in the near term, which support our growth strategy. With that, I'll now ask Sean to summarize our financial and operating performance for the quarter.

Thank you, Jeff, and good morning, everyone. I'll provide you with some of the highlights of the quarter on a consolidated basis. and then provide some further commentary about each of our reporting segments and their performance for the reporting period. I'll also comment on our expanded reporting for our services segment. As Jeff said, our third quarter results were strong, especially considering the economic conditions created by the pandemic. The various restrictions that have been put in place to control the spread of COVID-19 have often negatively affected the ability of our customers and ultimately their customers to transact. This has had a direct impact on our revenue in EBITDA in our registry operations and services segments and ultimately our net income. However, we're pleased to report strong results for the third quarter in both our registry operations and services, with services seeing good organic growth and also benefiting from the addition of the assets of Paragon. On a consolidated basis, revenue was $37.1 million for the quarter, up 15.4% compared to the third quarter of 2019, driven by a combination of organic growth and our acquisition of Paragon. That income was $5 million, or $0.29 per basic and diluted share, compared to $3.3 million, or $0.19 per basic and diluted share, in the third quarter of 2019, due to our top-line growth accentuated by our cost management strategies, with reductions primarily in wages and salaries and occupancy costs. Our consolidated expenses were $29.7 million, a decrease of $2.8 million compared to the same quarter last year, which combined with our revenue growth drove EBITDA of $10.9 million compared to $8.6 million in the same quarter last year. The EBITDA margin for the third quarter was 29.4% compared to 26.7% in the same quarter of 2019. Adjusted EBITDA was $13.2 million for the quarter compared to $8.7 million in the same quarter last year, which is primarily impacted by acquisition and integration costs in the quarter related to Paragon. Turning to our business segments, overall revenue in registry operations was $18.4 million for the quarter, up compared to $17.6 million in the same period in 2019. Consistent with the improvement in activity that began in June following the phased reopening in Saskatchewan, volumes in the third quarter generally stabilized, albeit at a level below 2019. Total transaction volumes across all registries were lower on a year-over-year basis in the third quarter, mainly due to reduced search volumes across all registries. Despite these impacts from the COVID-19 pandemic, revenue increased, mainly in the land registry and personal property registry. Revenue for the land registry was $13 million in the quarter, up 4.9% from Q3 of 2019. The increase was due to an increase in regular land transfers and mortgage registrations during the quarter relative to the same period in 2019. In addition, we saw higher average land values for regular land transfers in the third quarter, which positively impacted the revenue. High-value property registration revenue, where each high-value registration generates revenue of $10,000 or more, was down slightly in the quarter at $0.75 million as compared to $0.8 million in the third quarter of 2019. In the personal property registry, revenue was $2.8 million for the quarter, up 3.8% compared to the same quarter in 2019. Overall volume was down 5.3% compared to the same period in 2019, as the registry felt the continued impacts related to COVID-19, although not as pronounced as the second quarter. Registration revenue was up by 6.2% in the quarter, while volumes were down 4.1%. Revenue rose because of annual pricing changes coupled with a higher average term length for personal property security registration setups, which generates greater revenue. Search revenue was down 2.6% on weaker volumes, which were down 6.1% compared to last year. Maintenance revenue was up 2.3% compared to the same period last year based on pricing changes, as volumes were down 3.8%. Revenue in the corporate registry for the quarter was $2.4 million, flat compared to the same period in 2019. Registration and maintenance revenue grew by 6.3% and 0.7% respectively compared to the same period last year. Year-over-year increases in the incorporation and registration of new business entities drove registration revenue growth, which was offset by the decline in search revenue, down 8.9% in the quarter due to lower search volumes. The net result is that EBITDA for registry operations for the quarter was $10.1 million, up from $8.3 million for the same period last year. The increase in the quarter was due to higher revenue and continued cost management. Year-to-date, EBITDA was $24 million compared to $25.1 million last year, a result of overall year-to-date revenue from the impact of COVID-19 partially offset by the reduction in expenses. For our services segment, We've made some changes in this quarter to the way we report our services revenue. Beginning in Q3, we've recategorized our reporting into three different divisions following the acquisition of the assets of Paragon, which closed on July 31st, 2020. Our offerings are now categorized into these three divisions, specifically corporate solutions, regulatory solutions, and recovery solutions. The table in our MD&A sets out the various offerings provided by our services segment I encourage you to take a look at it if you haven't done so already. You'll also find descriptions of each of the new reporting divisions in there as well. We believe this expanded detail will provide readers with a more comprehensive understanding of our services segment. With that in mind, services revenue for the second quarter was $16.4 million, an increase of 27.4% compared to the same period in 2019. Revenue was up in the quarter compared to last year due to organic growth in regulatory solutions, as well as additional revenue from the acquisition of Paragon, which is reported as recovery solutions. Revenue year-to-date is also up over last year for the same reasons, though somewhat offset by a reduction in overall volumes in the second quarter from the economic conditions created as a result of COVID-19. Revenue in corporate solutions, which is our smallest division in services, was $1.1 million for the quarter, flat compared to the same third quarter of 2019. For the first nine months of 2020, revenue was $3.4 million compared to $3.7 million last year, mostly due to the second quarter impact of COVID-19. Revenue in regulatory solutions for the quarter was $13.4 million, an increase of 14% compared to the same period in 2019, due to organic growth as we onboarded multiple new customers and numerous new users in the quarter. Revenue year-to-date was $35.3 million, up 4.3% compared to $33.9 million for the same period last year, as organic growth and the Paragon acquisition helped offset the impacts related to COVID-19 felt in the second quarter. Revenue and recovery solutions in the third quarter was $1.9 million, a result of two months of activity after the acquisition of the assets of Paragon. Expenses and services for the quarter were $12.8 million, an increase of $1.7 million compared to the same period in 2019, and were $32.6 million year-to-date compared to $32.4 million last year. The increase was due to additional wages and salaries and integration costs related to our acquisition of Paragon and increases in our cost of goods sold, consistent with our higher revenue. These were partially offset by our cost management activities resulting in EBITDA for services of $3.6 million for the quarter compared to $1.8 million for the same period last year, and $8 million year-to-date compared to $5.2 million last year. Finally, Technology Solutions saw revenue of $4.8 million for the quarter compared to $5.1 million for the third quarter of 2019. Revenue from external parties for the quarter was $2.3 million and year-to-date was $7 million, up year-over-year and year-to-date due to the completion of milestones on current contracts. Revenue from internal parties was down year-over-year and year-to-date as we continue to work to service internal requirements as efficiently and effectively as possible. Overall EBITDA for technology solutions increased $1 million for the quarter compared to the third quarter of 2019 and increased $2.3 million year-to-date compared to last year. primarily due to reduced expenses as we continue to work to decrease our cost of delivering information technology solutions overall, as well as some minor pandemic travel and other related cost reductions. Turning to other items, our capital expenditures were $0.1 million for the quarter compared to $0.8 million for Q3 of 2019, and were $0.8 million year-to-date versus $2.5 million last year-to-date. The reductions are due to our current work-from-home environment, which has resulted in the deferral of certain capital expenditures planned in 2020. With respect to our debt, at September 30, 2020, the company had $76.1 million of total debt outstanding, compared to $18 million at December 31, 2019. As reported earlier, and as Jeff noted, in August we announced an increase to our credit facility from $80 million to $150 million with a two-year term. The new facility is available on a revolving basis and was used to refinance amounts under the previous facilities with a balance available for future growth opportunities, capital expenditures, and general corporate purposes. Further details on our debt and our credit facilities can be found in our MD&A and financial statements. From a liquidity perspective, at September 30, 2020, we held $22.5 million in cash compared to $23.7 million at December 31, 2019. At September 30th, working capital was $19.8 million compared to $17.7 million at the end of the last year. The increase in working capital is primarily the result of increased accounts receivable related to revenue growth and the addition of the acquired Paragon business. Consolidated free cash flow for the quarter was $9.4 million compared to $6.6 million for the same period in 2019. The increase is due to higher operational results and less cash additions to assets this year compared to 2019. Finally, we also announced yesterday that our Board of Directors approved our quarterly cash dividend of 20 cents per share. The dividend will be payable on or before January 15th, 2021 to shareholders of record as of December 31st, 2020. I'll now turn the call back over to Jeff for some concluding remarks.