Information Services Corporation

Hello, and thank you for standing by. Welcome to ISC fourth quarter and year-end earnings conference call and webcast. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Jonathan Heckshaw. You may begin.

Thank you, Tawanda, and good morning to everyone joining us today. Welcome to ISE's conference call for the fourth quarter and year ended December 31st, 2023. On the call today with me are Sean Peters, President and CEO, and Bob Antichow, Chief Financial Officer. This morning, Sean will take you through some of the highlights of the year. Bob will then provide some financial and operating highlights for the year, as well as speak to our outlook. and guidance for 2024 before passing the call back over to Sean for some closing remarks, including the growth plan we announced today. Before we begin, we would like to remind everyone that we'll only be summarizing results today. The company's financial statements and MD&A have been filed on CDAR Plus and are available on our website. 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 statement may involve a number of risks and uncertainties that are described in detail in the company's CDAR Plus filings. Those risks and uncertainties may cause actual results that 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 laws. Today's conference call is being broadcast live over the Internet and will be archived for replay shortly after the call on the investor section of our website. With that, I would now like to turn the call over to Sean. Thank you, Jonathan, and good morning to everyone joining us for today's call. 2023 was one of the most significant years ISC has had as a public company. Securing an extension with the government of Saskatchewan for the exclusive right to operate the Saskatchewan registries until 2053 marked a milestone for ISC, projecting an estimated $1.3 billion in cash flow through the extended period and an impressive 90% increase in total assets. This achievement, the first to be successfully completed in the Canadian registry market since IFC secured its initial master services agreement with the government of Saskatchewan in 2013, underscores the company's commitment to registries and the opportunities for sustained growth and long-term stability that they represent. During the year, our expansion continued, adding the operational rights for two new registries, the Bank of Canada Bank Act Security Registry and the International Registry of Interest in Rolling Stock. These additions reflect our strategy to expand our service offerings, enhancing our presence in key registry sectors. We also attain notable success on the international front, securing multiple contracts for our technology solution segment. Contracts such as the State of Michigan, States of Guernsey, and the Department of Registrar of Companies and Intellectual Property in Cyprus demonstrate the company's global reach and reputation for delivering high-quality solutions. At the same time, our services segment continued to be the driver of organic growth in a market that continues to see strong demand for our solutions. In line with our focus on high-quality solutions and overall excellence, we also achieved ISO 27001 certification enterprise-wide. underscoring our dedication to maintaining the highest standards of security and reliability in our operations. The investments we made in 2023, while still delivering record revenue, record-adjusted EBITDA, and maintaining our robust quarterly cash dividend payments, has positioned us for the next stage of our growth, beginning in 2024, and underscores our strong financial performance and dedication to delivering shareholder value. I'll now turn the call over to Bob to discuss some financial highlights before providing some closing thoughts. Thank you, Sean, and good morning, everyone. As Sean said, 2023 was a record year for the company with new record highs in revenue and adjusted EBITDA. Results were very strong and aligned with the company's overall growth plan. This performance was driven by a number of factors, which I'll talk about. Revenue was a record $214.5 million for the year ended December 31st, 2023, an increase of 13% compared to $189.9 million in 2022. This growth was due to fee adjustments implemented in July for the Saskatchewan registries in registry operations, which offset reduced volume in the land registry, reflecting reduced activity in the Saskatchewan real estate sector due to a higher interest rate environment. a full year of revenue from the Ontario Property Tax Assessment Services Division of Registry Operations in the current year compared to seven months in the prior year, customer and transaction growth and services regulatory solutions division, and execution of third-party solution and implementation contracts and technology solutions. Net income was $25 million or $1.41 per basic share and $1.39 per diluted share for the year ended December 31, 2023, compared to $30.8 million or $1.75 per basic share and $1.71 per diluted share in 2022. The year-over-year decrease is due to a higher net finance cost, amortization expense, and acquisition, integration, and other costs related to our Saskatchewan contract extension and the commencement of registry enhancements, offset by increased adjusted EBITDA contributions from registry operations, services, and technology solutions. Next cash flow provided by operating activities was $56.8 million for the year ended December 31, 2023, an increase of $13.2 million compared to 2022. This was attributable to higher contributions from all operating segments, augmented by a net decrease of non-cash working capital of $2.6 million related to accounts payable and the timing of income tax payments. Adjusted net income was $34.2 million, or $1.92 per basic share and $1.90 per diluted share for the year end of December 31, 2023. compared to $33.3 million or $1.89 per basic share and $1.86 per diluted share for the year ended December 31, 2022. The year-over-year increase was due to increased contributions from all operating segments, partially offset by increased interest expense due to an increase in long-term debt to fund the upfront payment for our extension and higher interest rates as compared to the prior year. Adjusted EBITDA was a record $72.9 million for the year compared to $64.4 million last year. The growth in adjusted EBITDA relates to the same reasons I mentioned for the increase in revenue, partially offset by increased costs of goods sold associated with the growth in the services regulatory solutions division, along with increased investment in the corporate segment in people and technology. Adjusted EBITDA margin for the year was 34%, consistent with 2022. Adjusted free cash flow for the year ended December 31, 2023, was a record $50.8 million, which represented an increase of $6.4 million compared to $44.4 million in 2022. The increase was due to stronger results from our operating segments, partially offset by increased cash interest expense during the current year due to increased borrowings to fund the upfront payment and an increase in interest rates. Turning to our balance sheet, with respect to our debt as at December 31st, 2023, the company had $177.3 million of total debt outstanding compared to $66 million as at December 31st, 2022. mainly due to the borrowings associated with the extension agreement signed in July 2023. As part of the extension, the company increased its credit facility and entered into an amended and restated credit agreement to fund upfront payment to the government of Saskatchewan of $150 million. The company is focused on continuing sustainable growth and deleveraging its balance sheet towards a long-term net leverage target of 2 to 2.5 times. The prepayments described in management's discussion and analysis from the fourth quarter and year-end of December 31, 2023 are a reflection of the deleveraging plans. After all this, as at December 31, 2023, we held $24.2 million in cash compared to $34.5 million as at December 31, 2022. Further details on our debt and our credit facilities can be found in our MDMA and financial statements. In February, we provided our outlook and guidance for 2024, and this is also included in our MDMA, which I encourage you to read. As a reminder, we've guided that for 2024, revenue is expected to be between $240 million and $250 million, Adjusted EBITDA is expected to be between $83 million and $91 million. Before I turn the call back over to Sean, I'd like to finish by highlighting that we also announced yesterday that our Board of Directors approved a quarterly cash dividend of $0.23 per share. That dividend will be payable on or before April 15, 2024, to shareholders of record as of March 31, 2024. I will now turn the call back over to Sean for some concluding remarks. Thanks, Bob. I've been fortunate to have been part of the ISC journey over the last 10 years. As I reflect on that time and all of our accomplishments, one thing is obvious. ISC is a tremendous business, one which has gotten better and better over time and one which will get even stronger in the future. In our MD&A, you'll see that we've updated our strategy, outlining our goal for meaningful growth through our existing business augmented by further M&A. Notably, this is just an evolution of our previous strategy. When we completed our IPO in 2013, we had the building blocks to do something special with ISC. We partnered our strong business with a clear understanding of the market trends of the time and how we expected them to unfold in the years to come, and we executed against that. As a result, over the past 10 years, we've doubled the size of the company on a revenue and adjusted EBITDA basis. As discussed with shareholders and potential investors over the last couple of years, in 2022 and 2023, we deliberately invested in our people and our technology to be able to scale our growth, all while achieving record results. With that in place, we've outlined our goal for the next five years and our updated strategy, which includes substantial growth. Much of this will come from our focus on organic growth, especially from our services segment. which we started in 2015 and has spent the last eight years strengthening the offering and making us the partner of choice for our customers. The balance, as you'd expect, will be achieved through targeted M&A, which, as you know, has been underpinned by our prudent and proven approach. As it stands today and is reflected in our 2024 guidance, the first year will be driven by organic growth, mainly from our services segment, with support from our registry operations and technology solution segments. This is by design and a reflection of the strength of the house we've assembled using the building blocks we had at the start of our journey. As we move into our next phase, I know that if it's anything like our last, it will mirror our track record for consistent performance, but with an increased focus on growth, which will be to the benefit of all of our shareholders. I look forward to the journey. With that, I'll now turn the call back over to Jonathan.

Thank you, Sean. Towanda, we'd now like to begin the question and answer session, please.