mdf commerce inc.

Greetings and welcome to the MDF Commerce third quarter 2021 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this call is being recorded. I will now turn the conference over to our host, Luc Filiatro, President and CEO for MDF Commerce. Thank you. You may begin.

Bonjour tout le monde et merci d'être avec nous pour cette conférence pour vous rapporter nos résultats du troisième trimestre de notre année fiscale 2021. Alors, dans quelques minutes, on va regarder les résultats en détail, mais je voudrais d'abord So just as a reminder, MDF Commerce is a developer and operator of the digital commerce platform. Our platform facilitates billions of dollars of transactions per year of digital commerce for well over 300,000 end-user companies, mostly in North America. We have made great progress in transforming MDF Commerce into a high-growth, fast digital commerce company with the potential to dominate key market sectors. As part of our transformation, we are adjusting our leadership team to align to our five-year transformation plan, and we are continuing to invest in people and processes along the way. With that in mind, I wanted to take a moment to welcome Deborah Dumoulin as our new Chief Financial Officer. Deborah was VP Finance and Financial Reporting at Sierra Capital Corporation, and prior to that, she was a partner with PwC. Deborah brings very strong capabilities and experience to the role that will help us to manage our accelerating scale over the next few years. Additionally, as we announced last week, we have also added Nicolas Vanas as Chief Legal Officer to help us facilitate our plan mergers and acquisition strategies. Nicolas brings over 20 years of experience in various chief legal and corp dev roles in high-growth companies such as Lumen Pulse and eData Structures. Aussi, il me fait plaisir de souhaiter la bienvenue à Monsieur Clément Gignac, qui se joint à notre conseil d'administration et qui a d'ailleurs assisté à son premier conseil d'administration hier. As we have noted in our previous conference calls, we are investing in two core growth platforms of our business because we believe that there are large opportunities to gain market share in both. To successfully compete we are investing to scale our sales and marketing capabilities to align with our peers who typically allocate approximately between 30 and 40% of their revenue to this function, which is critical to further accelerate growth. As we commenced our transformation about 15 months ago, we had less than 10% of our resources dedicated to sales and marketing. I am pleased to report that since then, We've doubled our sales and marketing team, and our intent is to continue to invest in our capacity to capture market share. The first growth platform that I want to discuss is Unified Commerce. It represents approximately 44% of our third quarter revenue base. This platform offers end-to-end commerce, including supply chain, for thousands of mid-size and large enterprise customers globally. As announced in January during the third quarter, we successfully deployed a significant grocery e-commerce project for over 200 stores. To put that undertaking into perspective, we implemented one of our largest grocery projects in less than three months. All that in the UK and in Ireland during the pandemic and entirely virtually. We never saw anybody physically from our customers. Due to the intensive deployment concentration associated with this and many other concurrent projects, our growth margins were temporarily compressed. Also, because of the increased professional services billing, which is not recurring, total revenue in unified commerce increased faster than monthly recurring revenue As a result, recurring revenue as a percentage of total revenue declined. This is temporary and we're confident that these big deployments will result in faster growth of future recurring revenue. To give you some context regarding the performance of the Unified Commerce Platform, revenue grew by 54% compared to last year, which is really solid. However, If we isolate the performance of our two e-commerce solutions, Orkestra and K-eCommerce, their combined revenue growth was actually 126% year over year. This growth is really exciting. And this doesn't include revenue associated with our recent deployment, which will be recognized in future quarters, so we are confident about future growth in these platforms. This is great progress. but we're not satisfied. We are investing in sales capabilities and channel development to expand our pipeline. We are investing in deployment technology and partnerships to more efficiently convert our pipeline. We would like investors to know that we're not sitting on our laurels. Instead, we're leveraging our recent successes to further exploit general upturn in demand for online commerce. The second growth platform that I want to highlight is strategic sourcing. This procurement and tendering platform accounts for approximately 39% of our total third quarter revenue. Over 3,500 government agencies and large enterprise buyers rely on our strategic sourcing platform to procure and tender from a North America-wide network of over 300,000 suppliers. These totals include network gains from the acquisition of vendor registry during the quarter. Vendor registry expanded our reach to 10 more states in the US, increased our supplier networks by 70,000, and added 400 procuring entities. Our primary strategy for this platform is to consolidate a fragmented market in North America by acquiring assets similar to vendor registry to improve our geographic reach, expand the platform, and deliver pricing power by cross-selling and upselling more services to the network. We are executing on this as we had announced prior. Finally, our eMarketplaces platform enables everything from wholesale diamond purchasing to job searching. Collectively, these online marketplaces account for approximately 17% of total revenue. Due to the growth rate of unified commerce and strat sourcing, e-marketplaces revenue will be declining as a portion of total NDF commerce revenue over time. I'd like to provide a high-level review of our performance in Q3 2021. Overall, we are pleased with our performance in the quarter. Total revenue 21.4 million was 18.4% higher than the 18.1 million reported in Q3 2020. Our Q3 recurring revenue grew by 9% to 16 million compared to 14.7 for the same period last year. Recurring revenue equates to approximately 75% of MDF Commerce's total revenue of 21.4 for Q3 fiscal 2021. generally in line with the 81% reported in Q3 2020. With the strategic sourcing platform recurring revenue representing 92% of total revenue, which we believe is close to the maximum recurring revenue available to that line of business. And now, I will turn the call over to Deborah Dumoulin, our new CFO, to discuss our Q3 fiscal 2021 financial results in more detail. So welcome, Debra, to your first earnings call with MDS.

Thanks, Luc, and good morning, everyone. Bonjour à tous. Here are the highlights of the third quarter fiscal 2021 results. Total revenue was $21.4 million, which is up 18.4% from the $18.1 million reported in Q3 2020. Total monthly recurring revenue, which we'll refer to sometimes in this call as MRR, was 76% of total revenue at $16 million. This percentage is consistent sequential in comparison to the second quarter of fiscal 2021. When compared to the third quarter of the previous year, total MRR increased by 9% from $14.2 million. In comparison to last year, MRR as a percentage of total revenue dropped by 5 percentage points from 81%. As Luc pointed out earlier in this call, this shift was mainly caused by an increase in professional services billing associated with large deployments during the quarter. Now I'd like to outline MRR for each of our main platforms. For the strategic sourcing platform, recurring revenue was 92% of total revenue, which was stable on both a sequential and year-over-year basis. Unified commerce recurring revenue was 57% as a percentage of total revenue, down 1% sequentially and 6% in comparison to last year. Looking at actual dollars of MRR revenue, unified commerce MRR for the quarter was $5.4 million compared to $4.4 million reported in the previous year quarter. That's an increase of 23%. Strategic sourcing MRR was $7.6 million compared to $7.1 million reported in the third quarter of last year, a 7% increase. To wrap up the MRR discussion, I want to point out that based on MRR existing at Q3, the implied annual recurring run rate for MDS MRR is approximately $65 million. Now I'll cover off total revenue contribution by each of our platforms. The Unified Commerce Platform, which includes supply chain management, supply chain management, excuse me, generated $9.4 million of revenue, which is a 54% increase over the 6.1 reported last year. It's also a 4.1 sequential increase over Q2 of 2021. I'd like to highlight that our e-commerce solutions, particularly Orchestra and KE Commerce, produced year-over-year growth of 126 compared to the previous year. I should, however, note that we only recognize six weeks of KU Commerce revenue during the third quarter of last year as it was an acquisition. The strategic sourcing platform generated 8.3 million of revenue for the quarter, a 9.2% increase over the 7.6 reported for the previous quarter, and a 2.9% growth sequentially. Turning to eMarketplace platform, it contributed 3.7 million of revenue or a 13.9% decrease from a 4.3 million reported in Q3 of previous year, and stable compared to Q2 2021. As a percentage of total revenues, e-marketplace revenue declined to 17.3 in Q3 2021 in comparison to a 23.8 share reported in Q3 of 2020. As revenue scales in strategic sourcing and unified commerce, e-marketplaces will continue to become less impactful on performance during the future reporting period. Turning now to gross margin operating loss adjusted EBITDA net profit or loss. Total gross margin was 62.7% compared to 70.4 reported in Q3 2020 and 66.7 for Q2 2021. As mentioned earlier, the decline in gross margin percentage is associated with the service mix and lower margin professional services revenue. that we recognize on major deployment contracts that we initiated during the quarter. We anticipate that gross margins will remain compressed temporarily until the ongoing deployments in e-commerce are delivered. Operating loss for the quarter was 2.7 million in comparison to an operating loss of 1.8 million in Q3 2020 and a 0.1 million operating loss in Q2 2021. The decline in operating profits closed directly from the professional services expenses restructuring costs and transaction costs associated with the acquisition of vendor registry. Total adjusted EBITDA loss reported for the quarter was 0.1 million, compared to a positive adjusted EBITDA of 0.2 million reported in Q3 2020. Although there were investments in sales and marketing and R&D expenses during the quarter, decline in adjusted EBITDA is primarily due to two items. First, increased professional services expenses required to support deployments of multiple contracts. And second, restructuring costs, acquisition-related transaction costs, totaling approximately $1.1 million, related also to the acquisition of vendor registry and to management changes that occurred in the quarter. I'd like to note that MDF Commerce definition of adjusted EBITDA does not make adjustments for acquisition-related costs and transaction costs. Net loss for Q3 2021 was a $2.9 million, or a $0.14 loss per share, both basic and diluted, compared to a net loss of $1.1 million, or $0.13 loss per share, which was reported in Q3 of 2020. Finally, turning to year-end to date results, total revenue for the first nine months of fiscal 2021 was $62.9 million, representing an 11% increase over 56.5 million reported last year over the same period. The nine-month year-to-date revenue reported for fiscal 2021 includes a disposed asset that represented 2.2 million of recognized revenue. If we adjust the revenue for this disposal, year-to-date revenue growth would calculate at 15.5%. Year-to-date net loss was 4.7 million, or 26 cents, loss per share, both basic and diluted, compared to net profit of $1.1 million or $0.07 per share, both basic and diluted in the previous period. For the first nine months of fiscal 2021, adjusted EBITDA was $4 million, compared to $8 million reported for the first nine months of 2020. The decline in adjusted EBITDA is attributed to professional services associated with the acceleration of our deployments, along with investments in sales, marketing, and R&D. And as I noted earlier, this also includes restructuring and transaction costs that are not adjusted in our definition of adjusted EBITDA. Finally, I'd like to review some progress we made from starting the quarter on strengthening our balance sheet. And that helps us to execute our strategic plan going forward and positions us favorably to take advantage of the opportunities ahead. During Q3, we executed a 50 million senior secured credit agreement based on recurring revenue and repaid the full amount of our debt under a previous credit agreement. We also closed a bought deal public offering with net proceeds of $47.8 million. And the company had $38.8 million in cash and cash equivalents on its balance sheet at December 2021, sorry, 2020. With that, I'll turn the call back over to Liz.