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spk01: Good day and thank you for standing by. Welcome to the ISC Third Quarter 2021 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. If you require further assistance during the conference, please press star zero. I would now like to hand the conference over to your speaker today, Jonathan Hakcho. Senior Director, Investor Relations and Capital Markets. Thank you. Please go ahead.
spk03: Thank you, Gail, and good morning, ladies and gentlemen. Welcome to ISE's conference call for the quarter ended September 30th, 2021. On the call today 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 operational and financial results for the quarter by Sean. Jeff will then make some closing remarks before we open the call up for the question and answer session. Before we begin, we would like to remind everyone that we will only be summarizing results today. ISCs and audited, condensed, consolidated interim financial statements and notes and management's discussion and analysis for the period ended September 30th, 2021 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 CEDAR filings, in particular in ISC's annual information form for the year ended December 31, 2020, 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, 2021. 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.
spk06: I will now hand the call over to Jeff. Thank you, Jonathan, and good morning to everyone joining us for today's call. IAC continued to deliver strong results in the third quarter of 2021, fueled by robust economic activity in the markets in which we operate. Our registry operations segment has been driven by a strong Saskatchewan real estate sector, resulting in increased transaction levels and additional high-value transactions in the land registry. In services, we saw an increased volume and transactions in the third quarter and year-to-date, a combination of favorable economic conditions and continued organic growth across our product lines, and a full quarter of Recovery Solutions results. We remain focused on the acquisition and onboarding of new customers, particularly with our new cloud-based Registry Complete software. Our technology solutions segment continues to be the most affected by COVID-19, which has impacted our progress on active projects and the commencement of potential new opportunities as governments around the world have been responding to the pandemic. However, in all of our segments, our customer-oriented approach and strong reputation are key factors in our achievements both for the quarter as well as year-to-date. During the quarter, our Board of Directors announced an increase to our annual dividend from $0.80 to $0.92. As many of you know, our dividend was established at the time of our IPO in July of 2013. Since then, we've been busy growing ISE to what it is today. The board's decision to increase the dividend reflects the strength of the company's current business and reaffirms ISE's commitment to continue to reward shareholders as we grow. In addition, we have also amended and extended our credit facility during the quarter to make sure we're well positioned to support the needs of our existing business as well as simplify the pricing structure. And with that, I'll ask Sean to summarize our financial and operating performance for the quarter.
spk04: 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. As Jeff said, our third quarter results were strong, and we continue to deliver excellent top and bottom line results. On a consolidated basis, revenue was $41.4 million for the quarter, up 11% compared to the third quarter of 2020, primarily due to the strong activity in Saskatchewan's real estate sector, which drove increased revenue in the land registry, coupled with continued organic growth in services, $1.4 million of additional revenue from our new recovery solutions division due to a complete quarter in the current year. Our consolidated expenses were $27.3 million, a decrease of $2.4 million compared to the same quarter last year on reduced professional and consulting services and share-based compensation expense, which combined with the revenue growth drove strong EBITDA and net income. Net income was $9.7 million or $0.55 per basic share and $0.53 per diluted share, compared to $5 million or $0.29 per basic and diluted share in the third quarter of 2020. EBITDA was $17.5 million compared to $10.9 million in the same quarter last year, with an EBITDA margin for the third quarter of 42.3% compared to 29.4% in the same quarter last year. Adjusted EBITDA was $17.3 million for the quarter compared to $13.2 million in the same quarter last year. The increases due to the strong EBITDA, with a small adjustment for a reduction in the quarter for our total share-based compensation expense, which caused adjusted EBITDA to be marginally lower than EBITDA. Turning to our business segments, overall revenue in registry operations was $21.3 million for the quarter, up compared to $18.4 million in the same period of 2020. The increase was primarily due to growth in the land registry, where volume was driven by the strong activity in the Saskatchewan real estate sector, as well as an increase in high-value transactions. Revenue for the land registry was $16.2 million in the quarter, up 24% from Q3 of 2020. The increase is primarily due to the positive results in the land titles registry, which continued to experience brisk activity from the real estate sector, despite showing some early signs of slowing from recent record highs. For additional context, for the first three quarters of 2021, land titles registry revenue was higher by 40%, at $45 million compared to $32.2 million in the same period in 2020. This is primarily due to transaction volumes rising by 19%, greater revenue from high-value property registrations, along with a rise in average land values for regular land transfers during the period. However, based on current projected economic sentiment, we're unlikely to see the same volumes in 2022 as we've experienced in 2021. and revenues are expected to adjust more towards pre-pandemic levels. High-value property registration revenue was again robust at $1.7 million in the third quarter, more than double the $0.8 million received during the third quarter of 2020. Each high-value registration generates revenue of $10,000 or more and are typically seen in both commercial and larger agricultural transactions. In the personal property registry, revenue was $2.7 million for the quarter, down 4% compared to the same quarter in 2020. Registration revenue was down 9% compared to the same period in 2020. The decline was due to lower volume, which dropped nearly 14%, impacted by a reduction in Saskatchewan new motor vehicle sales volumes during the quarter. Revenue declined at a lesser rate than volumes due to pricing changes. An average term length for personal property security registration setups which impacts revenue was stable compared to the same quarter in 2020. Search revenue increased by 7% compared to the same quarter last year, again due to pricing changes. Transaction volume dropped a modest 1% during the quarter compared to the same period in 2020. Revenue for the corporate registry for the quarter was $2.5 million, flat compared to the same period in 2020. Search revenue, which is the smallest of the three revenue streams, was up 6%, while registration and maintenance revenue was just slightly higher than the same quarter in 2020. Expenses for registry operations decreased during the quarter, primarily resulting from reductions in share-based compensation plans expense allocated during the quarter. And that resulted that EBITDA for the quarter was $13.7 million, up 36% from the same period last year. Year to date, EBITDA was $35.5 million compared to $24 million last year. In services, revenue for the third quarter was $18.3 million, an increase of 11% compared to the same period in 2020. The increase is due to continued organic growth in regulatory and corporate solutions, as well as the inclusion of new revenue from recovery solutions. Our organic growth comes from the addition of new legal customers, increased KYC financial customers, and the uptake of new services from existing customers. Revenue in regulatory solutions for the quarter was $14.8 million, an improvement of 10% compared to $13.4 million for the same period in 2020. Revenue grew in the quarter as a result of renewed level of transactions in automotive financing and KYC, as well as organic growth in equipment financing, new legal customer acquisitions supported by our registry complete software, and continued organic growth in new KYC customer verification transactions and other existing customer contracts. For our recovery solutions division, I'd remind you that the 2020 financial data for recovery solutions only includes two months of the quarter. given that the assets of Paragon were acquired on July 31, 2020. As such, revenue in recovery solutions in the third quarter was $2.3 million, an increase from last year of $0.4 million. We've seen a steady increase in assignments from our bank partners. However, levels of recovery assignments continue to be impacted by last year's loan deferral programs and the ongoing stimulus provided by the federal government in response to COVID-19. Revenue in Corporate Solutions, which is our smallest division in services, was $1.2 million for the quarter, up 7% compared to the third quarter of 2020. The improvement was due to organic growth from new customers onboarded since last year, as well as increased corporate filing volumes as the overall economy was more robust in the third quarter of 2021 compared to 2020. Expenses and services for the quarter were $13.6 million compared to $12.8 million in the same period in 2020. The increase for the quarter and year-to-date was largely due to the addition of our Recovery Solutions Division on July 31, 2020, and higher cost of goods sold related to increased revenue, partially offset by savings due to continued cost management. As a result, EBITDA for services was $4.7 million for the quarter, compared to $3.6 million for the same period last year. Finally, technology solutions saw revenue of $4.2 million for the quarter, compared to $4.8 million for the third quarter in 2020. Revenue from external parties for the quarter was $1.8 million, a decrease of $0.6 million compared to the prior year period. The decrease was due to the timing of solution implementation projects. which impacts the timing of revenue recognition in the quarter as compared to the same period last year. Our technology solution segment continues to be the most affected by COVID-19, which has impacted the commencement of potential new opportunities as well as progress on active projects, as governments around the world have been responding to the pandemic. While we continue to see progress on our in-flight solution delivery projects, certain milestones anticipated to be completed earlier this year have been delayed to the fourth quarter of this year and, in some cases, into 2022. Revenue on our solution implementation projects will continue to be recognized in the quarters in which deliverables and milestones are achieved. Revenue from internal parties in any quarter is dependent on resources used or consumed internally, particularly in registry operations, but revenue in the quarter and even year-to-date is largely consistent with the prior year. Expenses for technology solutions were down 0.3 million for the quarter compared to last year, helping to offset the lower revenue. As a result, EBITDA was 0.3 million for the quarter compared to 0.5 million in the third quarter of 2020. Turning to other items, our capital expenditures were 0.6 million for the quarter compared to 0.1 million for Q3 of 2020, and were 2 million year-to-date versus 0.7 million last year-to-date. Capital expenditures in the current year were primarily related to system development work across our business segments. With respect to our debt, at September 30, 2021, the company had $56 million of total debt outstanding, compared to $76.3 million at December 31, 2020. During the quarter, we made a $15 million voluntary prepayment against our revolving facility due to excess cash and the desire to minimize our interest expense. As Jeff noted earlier, we entered into an amended and extended credit agreement in connection with our secured credit facility in September. As a reminder, the aggregate amount available under the credit facility remains at $150 million, and the term of the credit facility has been extended from the previous expiry date of August 5, 2022 to September 17, 2026. In addition, the amended agreement simplifies the pricing structure. 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, 2021, we held $42.9 million in cash compared to $33.9 million at December 31, 2020. September 30, working capital was $28.3 million compared to $28.1 million at the end of last year. Consolidated free cash flow for the quarter was $13.3 million compared to $9.4 million for the same period in 2020. The increase primarily relates to higher cash flows provided by our operations, partially offset by an increase to current taxes associated with these results and higher capital expenditures this year. Finally, we also announced yesterday that our board of directors approved our quarterly cash dividend of $0.23 per share. The dividend will be payable on or before January 15, 2022 to shareholders of record as of December 31, 2021. As Jeff mentioned earlier, in September, our Board announced an increase to our annual dividend, and the increase in the quarterly payment is a reflection of that. For more information about the announcement, please refer to our news release dated September 21, 2021, which is available on our website. And I'll turn the call back over to Jeff for some concluding remarks.
spk06: Thanks, Sean. As we head into the final months of the year, I'm really pleased with our performance. For the first nine months of 2021, our business has showcased the strength, resiliency, and efficiency of our two main segments, registry operations and services. Both have benefited from strong, positive economic conditions in the sectors we operate, and services has compounded that with a continued focus on organic growth. The results in the registry operations have been driven by remarkable activity in the Saskatchewan real estate sector, and we expect volumes to continue to show strength for the remainder of 2021 and a likely return to normal seasonality in the fourth quarter. As Sean mentioned, based on current projected economic sentiment, we are unlikely to see the same volumes in 2022 as we've experienced in 2021. and revenues are expected to adjust more towards pre-pandemic levels. Our focus on efficiency over the last 18 months, combined with already strong margins, means our registry operations segment will continue to be an extremely strong EBITDA and free cash flow generator for ISC, even if volumes return to trend at historic levels. We expect continued strength in the volumes in our services segments, regulatory, and corporate solutions divisions for the balance of the year. Our focus on our customers and our reputation in the markets in which we operate, combined with our enhanced technology offerings, continues to drive new customer acquisition, and we expect to continue in these divisions. In our recovery solutions division, volumes are anticipated to remain fairly static in the fourth quarter. However, an end to subsidy programs in the fourth quarter of 2021 combined with consumer uncertainty in 2022 could translate into increased activities in the recovery space in future quarters. In technology solutions, we continue to see progress on our solution delivery projects, though COVID-19 and other related delays have resulted in certain milestones being delayed. Expectations for overall activity in this segment remain lower than than for our other segments, as new sales continue to be impacted by the worldwide focus on COVID-19 since March 2020. We remain optimistic in this segment as we are starting to see signs of the recommencement of early stage procurement activity by some governments. As you know, in October, my decision to step down from my role as President and CEO of ISC was announced, along with the Board's decision to appoint Sean as my successor. effective February 1st, 2022. I'd like to take this opportunity to thank our board of directors, my executive team, all of our employees, partners for their support over the years. There's no question that Sean is the right person to succeed me, and I wish him every success. He and I are working closely together to ensure a smooth transition and the continued success of ISC. So this being my final quarterly conference call, I wanted to remind you that my confidence in ISC's forward performance and potential was as strong as it has ever been. While we recognize that the strong economic activity we've seen in 2021, particularly in Saskatchewan, may not continue indefinitely, and that uncertainty remains related to the continuing impact of COVID-19, this is a short-term condition. ISC has always been focused on the long-term, and we have therefore positioned the company well. by continually optimizing its performance, and most importantly, remain focused on our customers and our growth. These are all factors that will ensure our continued success. I'll now hand the call back to Jonathan.
spk03: Thanks, Jeff. Gail, we'd now like to begin the question and answer session, please.
spk01: As a reminder to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Paul Treiber from RBC Capital Markets. Your line is open.
spk07: Oh, thanks very much and good morning. I just wanted to touch on operating expenses specifically The decline in wages and salaries this quarter, what drove the decrease this quarter? Was anything unusual or temporary? And do you see it at a sustainable level going forward at these levels?
spk04: Yeah, Paul, thanks for the question. It's Sean. This quarter is a little bit of an anomaly because we saw just the way the share price moved during the quarter. We saw a reduction in share-based compensation expense, which actually acts as a negative against the wages and salaries, which maybe artificially looks like it pulls them down. The better number to look at really is year-to-date. And the answer to the second part of the question is we do expect – that we're going to see our salaries and wages go up slightly, probably as we go into 2022. We've talked in previous quarters that we're running pretty lean. We ran pretty lean during COVID, and that was intentional until we saw how it played out. But we know that we're interested in continuing to grow the business and invest in the business, and that'll take a little bit of addition to the people side.
spk07: That's helpful. Related to that, there's a disclosure that you closed, I think it was three customer service centres, Can you just remind us again, you know, how many are still open? And then, you know, with the closures to date or over the last couple of years, you know, what's the magnitude of cost reductions that you've seen as a result of that?
spk06: Paul, this is Jeff. Thanks for the question. Yeah, we closed. So when we came out at the IPO, we had technically eight service centers across the province we closed. three a few years back, and then closed three others. So we remain with two service centers, one in the two largest centers, one in Saskatoon and one in Regina, and likely we'll sort of have those for the foreseeable future. It really, we've talked about this in the past, this was just more, it wasn't as much cost-driven as much as it was consumer or customer behavior-driven. Our customer's weren't coming in to our bricks-and-mortar stores. They're focused online and have shifted online, and it just didn't make a lot of sense to have those facilities open. Now, the staff that were working the facilities were able to use and repurpose, if you will, in helping process the queue, so it wasn't like they were idle. But it's just having a bricks-and-mortar leases and office space That just didn't make a lot of sense. I'll flip it to Sean. He can talk a little bit about the sort of overall dollar value of that.
spk04: Yeah, just quickly, Paul. When we closed the first three service centers that Jeff talked about, we took a $1.2 million charge for that, and we expected to make that up in cost savings in less than a year. So that's sort of the magnitude of the first one. The second one is much, much smaller, as Jeff said. It was more a decision about how our customers were interacting. And in that case, all of the staff were already working from home and we already had that set up. So there'll be some very minor lease costs as we close out those locations. But really, all the staff continue to be employed and just working from home.
spk07: Thanks. That's helpful. Shifting to revenue, on the services, on a sequential basis, services were down a little bit sequentially. Is that seasonality or is there any sort of factors that we should be aware of? And then when you think about into 2022, the recovery or the sensitivity recovery services, how do we think about where that could rebound to? How do you sort of compare the current run rate versus what would sort of be a normal run rate?
spk04: So, yeah, so on the first part of the question on services revenue, so part of what you're seeing, we're still seeing strong growth in our services revenue. What you saw, as you said, in the trending in Q1 and Q2, we were building and adding customers all through COVID, so since mid and early 2020. You weren't really seeing the impact of that because the existing customer transactions we had were down, so adding the new customers was just staying fairly flat. What happened in Q1 and Q2 is all those new customers came online along with a pickup in the economy, so the growth in those two quarters, much like in our registry operations, was a bit unusual. you're seeing now those transactions are level and our growth is just the organic growth as we're adding customers. So I think this is probably more indicative of the ongoing trend as we continue to grow. Now we're focused on growth, so we'll work hard on that. On the second part of the question, which I think I've forgotten now actually. Sorry, Paul, what was the second part?
spk07: Just on recovery services, how do we think about the run rate where it is right now versus more of a normal level recovery? in the absence of subsidies?
spk04: Yeah, sorry about that. Yeah, on the recovery solution, so we bought that during COVID. It's performed pretty much the same since the day we bought it. We knew what those levels would be, and so it's been pretty stable. It's hard to predict exactly how far, but we would expect that business to continue to run at a pretty significant rate. growth rate. When we bought it, the LTM prior to that had seen significant growth, and that was in a fairly strong market. So as the market starts to pull back and we start to see recoveries increase, we think that can easily grow substantially. I'm hesitant to give you a number because I don't want to sort of put a guidance out there, but I think you can expect that it would grow maturely into 2022 if those subsidies start to come off and we start to see the defaults return back to even normal levels.
spk07: Okay, great. Thanks for taking my questions. I'll have fun.
spk01: Your next question comes from the line of Stephanie Price from CIBC. Your line is open.
spk00: Good morning. First off, I'd like to say congratulations, Sean, and best of luck, Jeff, on your next endeavors.
spk06: Thank you.
spk00: In terms of my questions, I maybe want to start off on the services side. You mentioned in the prepared remarks that slower new vehicle sales in Saskatchewan. Just curious if you could kind of give us a few metrics around that and whether you think most of that impact is in this quarter or if you expect it to move beyond this quarter as well.
spk04: Yeah, so Stephanie and Sean, The new vehicle sales in Saskatchewan were down. That affects our personal property registry, so not surprising. I think we're seeing that impact across all of our business, not just in Saskatchewan registry operations, although we do see some contradictory experience in some parts of services and collateral management where there was, you know, the new vehicles was really quite depressed during COVID, saw a bit of a pickup in Q1 and Q2, and now we're seeing a little bit pull back again just due to chip shortages and vehicle shortages and those types of problems. So I think it will probably continue to some degree, although it's not as prevalent in Ontario and Quebec where it looks like just to be honest, that most of the new vehicles supply is going first, and the new vehicles supply out in Saskatchewan just seems to be a little tighter, and that's affecting our registry part, but the services part, where there are still cars available in Ontario and Quebec, is doing a little better.
spk00: Okay, that's a great comment, thanks. And then in the MD&A, there was a comment around recovery solutions, driving efficiency, and extending partnerships within the supplier network. Just curious if you could expand on that and just talk a little bit about the possibility to improve margins from here within that division.
spk04: Yeah, so we did take the opportunity, as I said in the previous answer, that recovery solutions You know, we bought it during COVID. It's a little bit slower. We'd expected those subsidies to come off quicker and pick up. But given that it didn't, we took the opportunity to invest more in our technology. There's still a fair amount of people in that process, as you can expect in the recovery of an asset and the project management of it. So we've taken the opportunity to invest in technology, and we actually are continuing to do that right now. So that's not a completed project. From a margin perspective, the margins in that business are already pretty strong, sort of north of 50%, as you know. So we might be nipping around the edges there to increase that, but we think that's worth it because it also improves the scalability of the business. So we would see that as that business really ramps up, even though there is some people-intensive parts to it, we would see that to be much less because of the technology changes that we've made.
spk00: Okay, great. And then just finally from me, can you remind us of that normal Q4 seasonality that you mentioned for the registry business and how we should think about that sequentially?
spk04: Yeah. So our normal seasonality there is we see strong second and third quarters really associated with when the higher activity is in the real estate market. We always joke that nobody likes to buy a house in Saskatchewan when it's minus 35. So it's usually slower in the fourth quarter and the first quarter. During COVID, that seasonality fell apart. We saw a slow first quarter, but then a slow second quarter because of the impact of COVID, and then strong third and fourth. This year, it actually has already, in the first three quarters, returned to that more normal. So we saw a good first quarter, but we saw a really strong second quarter. We've now seen a strong third quarter. And just the way the transactions are trending, it looks like fourth quarter will be lower, which is normal seasonality for us.
spk01: Great.
spk00: Thanks so much.
spk01: Next question comes from the line of Stephen Boland from Raymond James. Your line is open.
spk02: Thanks. I guess another question on your outlook in the registry operations. I guess I'm just curious when you say that revenues are expected to adjust towards pre-pandemic levels. Are you suggesting then that revenue in this segment will actually decline over 2021 or that it will return to kind of a pre-pandemic growth rate that you experienced in the registry in the past?
spk04: Yeah, Stephen, thanks for the question. A bit of both, actually. When we started 2020, maybe just a wee bit of context, as the last few years have been a little bit depressed in Saskatchewan, we saw volumes start to slow, starting in 2015, and that sort of gradually slowed all the way through into 2019. In 2020, we were starting to see a return. Those transactions were starting to pick up back into historic sort of levels pre-COVID and then suddenly COVID hit. 2020 is in the books. 2021 has been, as Jeff said, a remarkable year in terms of record levels of transactions for several months in 2021. So what we see is we do see that coming off a bit. Saskatchewan's economy just or a real estate market just can't sustain those record-level transactions. A lot of them were either pent up from the couple of months that things were shut down in COVID, or they're COVID-related, where people were upgrading or changing houses to adjust to the new remote work-from-home environment. And those are one-time transactions. So we do expect to come off the record level that we're at right now, which means there could be a reduction in revenue. And then back into the second part of your point, which is return to more normal levels of growth for Saskatchewan.
spk02: Okay. And just remind me again, how often you adjust the pricing? You know, you have your meeting with the government in terms of transaction fees and things like that. Could that partially offset some of this softness that you may expect?
spk04: Yeah, we adjust them every year, so we have an annual adjustment that adjusts prices by Saskatchewan CPI. So that will certainly play into that.
spk02: Okay. Second question, Jeff, and again, good luck on your next endeavors. Getting some questions whether this was a planned – you know, like internally, this was known that you were going to move on and, um, and also whether the succession, uh, was planned as well, um, you know, that you didn't resign and, you know, the board went out and did an external search and that, but you're kind of an internal candidate. Just wondering if you could touch on that.
spk06: Sure. Happy to, um, yeah, not, not necessarily planned like longterm. I think, uh, my, my intent is, was never to stay in the company forever. It just got to a point where I wanted to focus on some of the things that are, you know, I'm a football coach. I work in the community and wanted to spend some time there. You know, I'm not particularly old, I guess, relative to whom, I guess. But, you know, it was just time. Succession planning has always been a critical part of the way I approach leadership and business. and from the moment Sean started with us in 2012, you know, part of my plan was to make sure that he was, he had the tools and the experience and the opportunity to lead, and I think the company is in a perfect position because they have a leader just ready to hit the ground running, and I don't expect any, you know, transition bumps with that. Sean's Sean and I have made all the decisions in this company for the last nine years together, so I don't expect any sort of transition. Like I said, succession planning has always been part of this and has been an ongoing thing for the last nine years as it relates to Sean. So it wasn't with any particular date in mind, just it felt like the right time, and it wasn't for any other reason. The company is doing great. It has a very great future. It's an awesome spot, and I'm happy to be able to go out on a high. Not all CEOs get to leave on their own terms when the company is doing so great. So I'm at peace with the decision, and there's nothing to read in it other than it was just sort of time in my life that I needed to shift.
spk02: I appreciate that, and good luck in the future. Thanks, guys.
spk06: Thank you. Thank you.
spk01: Next question comes from the line of Jesse Pitlock from Cormark Securities. Your line is open.
spk08: Hey, good morning. Just a quick follow-up regarding recovery solutions. It obviously sounds like the business is primed to see a good pickup in volumes in 2022, but can you just remind us if through your fee structure, do you have some exposure to vehicle pricing as a recovery vehicle is auctioned off? Just kind of wondering if you might see some benefit given the auto pricing environment.
spk04: Yeah, very good question and observation. We do have exposure to it. Most of our contracts do have a provision in it where we get a percentage of the recovery We're incented to get the highest recovery possible. We have administration fees in there for the actual project management and the services we provide, but the end state is that we're incented to get a higher recovery We've actually seen that already. We talked earlier about the vehicle shortage and chip shortage. With the lower number of new cars coming into the market, the market for used vehicles has gone up substantially, and so in the assignments that we've been getting, we've been doing increasingly better on that. That is part of what's helped the recovery solutions to date because the recovery values have gone up fairly substantially for us, and we expect that will continue.
spk08: Okay, thank you. That's helpful. And then just shifting to tech solutions, in the outlook you commented that you're seeing some signs of early stage procurement activity reopen. Just wondering if you can maybe elaborate a bit more specifically on what you are seeing.
spk06: Yeah, other than getting into specific opportunities, which we don't do for obvious and competitive reasons, we're starting to see governments take a look at sort of the technology deficits that they are in. They're in early procurement stages. There's been a shift in the conversation. As you can imagine, most conversations with governments in the past 18 months have focused on either health or economy. And so now the conversation is starting to shift and we're starting to see some activity in that, which is great. And, you know, I think there's sort of a natural sort of gap or sort of lost time that everybody's had, but it could be just water that's backing up in a river, and so it's been dammed up, and I think it'll release, and we'll see more and more opportunities to sort of showcase ISC's technology strength going forward. So, you know, we're still confident in the business and the model. It just, as we all did, suffered through That particular side of the business has suffered through some COVID exposure for sure.
spk08: Okay, understood. That's all for me. I'll pass the line.
spk06: Thank you.
spk01: Your next question comes from the line of Trevor Reynolds from Acumen Capital. Your line is open.
spk05: Morning, guys. Good morning. Good morning. Hey, I'm curious within the services segment what that seasonality looks like, pro forma, the registry complete software offering, and also the recovery solutions. Obviously, we haven't seen full quarters of that without COVID, so just a little bit curious what that looks like moving forward.
spk04: Yes. Thanks, Trevor. Seasonality in services is a little less pronounced than what we see in our registry operations where we tend to have fairly definite historical patterns. But we do still experience it, particularly with new vehicle sales, which affects our collateral management business. So that tends to follow new vehicle promotions or financing manufacturers when they are looking to sell model years and those types of things. So we do see some seasonality in the collateral management side in a normal year just related to new model release and financing. On the recovery, that's less. less of a seasonality thing and more of an economic cycle thing so the only comment I would make in recovery is typically Q4 is a lower quarter because most of the recovery activities through financial institutions stop in December just for obvious reasons they don't want to be recovering assets during the holiday period so there is a little bit of seasonality in Q4 but other than that recovery solutions is more cycle driven than than anything, and then the balance of our business, which is in corporate registration, searches, PPSAs, and that. That's pretty consistent over the year, although we will see a little bit of an increase in the fourth quarter around corporate filings for year-end type of documents, but it's pretty consistent over the year.
spk05: Got it. And then I know you've touched on this a little bit, but just maybe what sort of costs we can look for coming back into the system as the COVID lockdowns and restrictions come to an end here?
spk04: I think we'll, you know, we have talked about the people side of it. I think that's really the biggest part for us. And again, we're not talking that these are going to be material changes to the expense lines. We've just run a little bit lean through it. We've taken advantage of attrition, certainly, and not added where we might have normally added to, you know, facilitate investment and growth. So we're going to see some in both registry operations and in services. We also have lots of opportunities and plans in services, and that needs to be sometimes supported by some people. So we're going to see that there. We're continuing to pay our lease costs and rent costs and occupancy costs like everybody, so there's really no change to that, except to the extent that we continue to optimize the closure that Jeff talked about. There's a little bit there for some small service centers. We did close our Montreal office during COVID, so we've seen some reduction there. right now we're carrying all the space so there's no addition and no reduction there and then we're going to we're going to see a pickup in travel again not a material amount but as Jeff talked about the the opening of some governments to conversations those are most effective when done in person and so we'll want to see some of our business development and sales team sort of back on the road and traveling a bit
spk05: Great. And then last question is just on, obviously can't get into specifics, but what you guys are seeing in terms of the acquisition pipeline, if that's picked up at all as restrictions are starting to come to an end as well.
spk06: Good question, Trevor. Yeah, obviously we don't talk about specifics. I think our approach to acquisitions remains consistent. remains the same, looking for companies and types of products and skills that we could add that sort of enhance our current offerings or get us into new markets that sort of are adjacent to what we do. Our acquisitions to date have predominantly been in the services business, and that likely is to continue, although We certainly have made acquisitions or an acquisition in the technology space, too. So, yeah, I don't know if there's a pickup or, you know, continued focus. We've never put pens down as far as acquisitions go. But, you know, we remain with the sort of mantra of it's got to be the right company at the right time and at the right price. And, you know, at the right price can be challenging through sort of uncertain times, too. So. You know, we're continuing to pound away and look for those right companies for us. And I wouldn't say, you know, that intent is to slow down in any way, shape or form and COVID hasn't caused it to slow down. We have been a one acquisition a year type of company, but there was no hard and fast rule about that. And so, you know, there have been years where we haven't done one and some years where we've done two. And that's okay because it's We're not serial acquirers. We're here to make sure the things we buy work and work well for our customers, work well financially, and I think we're batting 1,000 so far. So, so far, so good, and I expect that to continue. So, other than that, Trevor, that's probably the best color I could provide.
spk05: Perfect. Thanks, guys. Thank you. Thank you.
spk01: Again, as a reminder, to ask a question, you will need to press star 1 on your telephone. There are no further questions at this time. Turning the call back to Jonathan Hapshaw.
spk03: Thank you, Gail. With no further questions, we'd like to thank everyone once again for joining us on the call today. And wish you a good day, and we look forward to speaking with you again when we report our next quarter. Have a good day. Bye-bye.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.
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