mdf commerce inc.

Thank you for standing by. This is the conference operator. Welcome to the MDF Commerce Q4 Fiscal 2021 Investor Conference Call. Today's call will provide information and commentary on the cooperation with a focus on the financial results released yesterday after the market closed. We will hear from Luke Filiatro, President and Chief Executive Officer, and Deborah Dumalian, Chief Financial Officer. If you have questions following the call, you can reach MDF Commerce at the address of their website, www.mdfcommerce.com. First, here are a couple of housekeeping notices. All participants are in listen-only mode for the duration of the call. The call is being recorded and we expect the recording to be available on the MDF Commerce website later today. The information in today's remarks including any forward-looking statements have been prepared as of June 9, 2021, unless otherwise indicated. MDF Commerce assumes no obligation to update or revise the forward-looking statements to reflect any new events or circumstances, except as may be required pursuant to securities law. We remind you that today's remarks will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reader advisory at the bottom of the MDF Commerce news release, which is on their website and which has been filed on CDAR. The corporation's actual performance could differ materially from those statements. The corporation presents none IFRS financial performance measures and key performance indicators to assess operating performance. The corporation presents adjusted profit loss, adjusted profit loss per share, net profit loss before interest, taxes, depreciation, and amortization EBITDA, and adjusted EBITDA as non-IFRS measures and monthly recurring revenues as a key performance indicator. These non-IFRS measures and key performance indicators do not have standardized meetings. IFRS measures and key performance indicators are unlikely to be comparable to similarly designated measures reported by other corporations. The attendees on this call are cautioned that these measures are being reported in order to complement and not replace The analysis of financial results in accordance with IFRS management uses both measures that comply with IFRS and non-IFRS measures in planning, overseeing, and assessing the corporation's performance. The terms and definitions associated with non-IFRS measures as well as reconciliation to the most comparable IFRS measures and key performance indicators are presented in the section non-IFRS financial measures and key performance indicators in the company's management discussion and analysis for the fourth quarter of the year ended March 31st, 2021. In the fourth quarter of fiscal 2021, the corporation amended the definition of adjusted EBITDA and comparative figures have been reclassified to conform with the current period presentation. In the company's MD&A, refer to the section Non-IFRS Financial Measures and Key Performance Indicators. I will now hand the call over to Mr. Filiatro. Please go ahead, sir.

Merci, Claudia. Thank you, Claudia. Bonjour tout le monde. Bon matin. Merci d'être avec nous. Good morning, everyone, and thanks for joining us for our Q4 Fiscal 2021 Result Call. What a year we've had. We will turn to the results we filed yesterday in a moment, but first I want to take a bit of time to tell you about MDF Commerce and the state of our operations. Our mission at MDF Commerce is to enable the flow of commerce, and we do so by developing and providing our commerce technology solutions to our clients. Our three platforms, Unified Commerce, Strategic Sourcing, and eMarketplaces, empower businesses around the world, allowing them to generate billions of dollars in transactions on an annual basis. And this includes over 300,000 end-user companies, mostly in North America. This past year marks the first of our five-year strategic plan that we embarked on a year and a half ago. At the heart of this plan is our transformation into a high-growth cloud-based SaaS company. During an unprecedented global health and economic crisis brought on by the COVID pandemic, we've remained focused on delivering on the needs of our clients and creating value for our stakeholders. Our success is driven by our employees, and we celebrate their many accomplishments during that first year of our transformational journey. The management team is confident that our talented team will meet new challenges as we move forward into the second year of our strategic plan. I invite you to turn to slide five, which shows a high-level diagram of that strat plan. The strategic plan was developed to guide the corporation in effectively competing in two significant and growing software markets that enable the flow of commerce. Unified commerce, which includes e-commerce and supply chain collaboration, and strategic sourcing. For Q4 2021, total revenue was $22 million, which represents a growth of 16.5% from the same quarter year over year. And our annual revenue for fiscal 21 was $84.7 million, which is up 12.3% over the previous year. This is the highest level of annual growth recorded for any of the past five years. When we embarked on this strategic plan, the biggest challenge was to join with growth, and we've accomplished that significantly. And you can also see that growth keeps increasing quarter after quarter. So our year average is 12.3%, but fourth quarter was 16. So certainly trending in the right direction. What's particularly noteworthy is when we look at revenue growth of our strategic focus, namely e-commerce and the U.S. portion of our strategic sourcing, revenue from the e-commerce solution has grown 107%. That's massive. And our U.S. strapland sourcing grew by 20.8%, again, quite massive. So our global growth is certainly fueled by our strategic initiatives, but of course, we still have some older pieces that are not growing as fast, and we'll discuss this a bit later. Overall, we're pleased. with all that was accomplished during the last year. And we continue to make excellent progress in transforming MDF Commerce into a high-growth SaaS digital company. So to effectively compete in these two growth markets, our strategy is focused on five transformational pillars. And here is how we've progressed in the past 12 months. The first pillar was to unite in becoming a single SaaS company. Over the past year, we have rebranded. We have elevated our profile. Look at how many press releases we've published in the last 12 months compared to the last five years. We've greatly simplified and unified how we present our solutions. We've revised our brand architecture. It's now uniform. our internal services, our technologies, our reporting, and our planning have also been realigned to favor operational unity and efficiency. The second pillar is accelerating product development and adding innovation. We did this by adding new senior product strategists, IT resources that have considerable impact on accelerating our development cycles, strengthening our product innovation, and further monetizing existing assets. All these improvements have been extremely well received by our customers. We have new versions of our e-commerce solutions, as well as multiple innovations in our strategic sourcing platforms, which helps explain the growth. MDF Commerce remains committed to investing in product development that maintains our competitive edge and improves our ability to convert our pipeline. Thirdly, it was the scaling of customer acquisitions. Considerable efforts were put into developing our sales resources and processes. New sales leadership, ongoing sales trainings, The past year, we've won major accounts such as Aldi, Indigo, AIMCO, the Canning Group, the government of Newfoundland and Labrador, among others. We've onboarded over 92,000 suppliers for strategic sourcing and approximately 600 SMBs to our unified commerce solutions. Sales leadership dedicated to our high-growth platform is driving the implementation of our organic growth plan, which is focused on further strengthening our sales culture and leveraging cross-selling opportunities between our different platforms. Our fourth pillar is ongoing mergers and acquisitions and integration, which is a key element to our transformational plan. Our acquisition strategy revolves around the specific goals of expanding our geographic footprint and strengthening our product offering. We entered fiscal 2021 just having completed the integration of KE Commerce and have since acquired an integrated vendor registry, which added 70,000 new suppliers, 400 buying agencies, and increased our coverage to 14 additional states. in the US. These are two very good examples of executing on our strategy, strengthening our product offering for unified commerce and expanding our geographical reach for strat sourcing with the end goal of further consolidating a very fragmented market. Looking ahead, our M&A roadmap is robust. We have targets for both unified commerce and strategic sourcing in our pipeline that we will be executing on. And last, but not least, it's actually probably the most important one, cultivating the culture of talent and productivity. As a software company, the main driver of our success is our people, their talent, and our culture. Over the past year, considerable efforts have been made to bring life to a set of values that empower our teams to innovate, accelerate sales effort, ensure better operational efficiency, better governance, diversity, inclusion. As the tech resource crunch intensifies in Canada and internationally, we've implemented multiple strategies and campaigns across Canada, in the U.S., and parts of Europe. to source the new talent required to support our accelerating growth trajectory. This is just anecdotal, but our hyperlocal recruiting campaign and our partnership in Ukraine, I was informed earlier this morning that we've actually recruited our two first candidates from these campaigns. It's starting to work. As we exit fiscal 2021, With the fastest growth trajectory experienced by MDF Commerce in several years, management has identified a few foundational elements that need to be addressed in order to scale more efficiently in the future. Accelerated growth revealed that there are opportunities to improve efficiencies and margins by upgrading some technology in key areas as we increase the number of large deployments. This requires us to invest in cloud transformation to improve metrics such as usage and transaction volume as it increases for our e-commerce solutions. At the end of year one, one of the most exciting aspects of our efforts is the marked growth acceleration in our areas of strategic focus. E-commerce, U.S.-based strategic sourcing. As I mentioned earlier, We believe these results are a good indicator of the potential for our growth strategy. Not only did we transform our operations, but we also strengthened our leadership team. We added three new members to our board of directors. Christian Dumont from California, Clément Gignac, well-known in Quebec and Canada, and more recently, Marianne Bell, a great leader. With all the leaders, we also added to the management team, our new Chief Financial Officer, Deborah, our new Chief Legal Officer, Nicolas, our new VP of Human Resources, Julie Belanger, as well as strengthening our team in e-commerce. It's been an extraordinary year. And with this, I will turn over the call to Deborah to discuss our Q4 and fiscal 2021 financial results.

Thanks, Luc. You can turn to slide 6, where I'll start with the annual fiscal 21 results. Total revenue, as Luc mentioned, was $84.7 million. That compares to $75 million reported in the previous year, an annual growth rate of 12.3%, and as Luc mentioned, the highest level of annual growth recorded in the past five years. We look at our revenues under three categories. strategic platforms, unified commerce represents about 44% of our revenue, strategic sourcing 39%, and e-marketplace is about 17. The unified commerce platform, which includes our supply chain collaboration and our e-commerce solutions, generated $37.3 million for fiscal 2021, an increase of almost $12 million at 47% compared to our revenues of the previous year at 25.5 million. The strategic sourcing platform generated 32.7 million, an increase of 7.8 compared to 30.3 million in the previous year. When we look at our e-marketplaces platform, it generated 14.7 million for fiscal 21. That's down 25.3 compared to revenues of the previous year of 19.7. If we focus on our two growth platforms, the unified commerce, which we saw the growth at 47% year over year, and specifically our U.S.-based strategic sourcing, these are the areas we see the highest growth potential. First, for unified commerce, which includes our, again, supply chain and our e-commerce solutions. On the e-commerce lever, we have two solutions, orchestra, which is our larger enterprise solution, and it contributed $7.1 million of the year-over-year increase. And the increase in revenue in our orchestra solution is really around organic growth, new clients, and increased transaction-based revenues year-over-year. In e-commerce, which we acquired in December 2019, we strengthened our e-commerce solution offering, and it contributed $5.4 million to the year-over-year increasing revenue. Combined, the two e-commerce solutions generated a year-over-year revenue growth of an impressive 107%. Our e-commerce solutions often generate professional services revenue, primarily from implementation services and large deployment contracts. These are typically our lower margin revenue streams, They're lower margin than the recurring revenue from right of use licensing or our typical SAS revenue. We introduced a partner strategy to decrease our focus on implementation services in favor of focusing on higher margin SAS revenue. In our supply chain collaboration, we saw a decrease in year-over-year revenue of $0.6 million. And this is mainly around certain retailers which were negatively impacted due to the COVID-19 pandemic, as this is really a lower volume business and where we saw lower transactions and volumes that is driving that revenue down year over year. If we turn to strategic sourcing, this is a solution where the public sector is at the heart of the value proposition and represent some of our highest quality and most efficient revenue streams. This year, it was in the U.S.-based strategic sourcing solutions that we saw the highest year-over-year growth, and that was 20.8%. The acquisition of vendor registry in fiscal 21 broadened our U.S. strategic sourcing geography and our footprint there. We believe that the U.S.-based government infrastructure spending will provide us a wonderful opportunity for pipeline growth and conversion. Turning to the e-market platform where we saw revenue for the year of 14.7, but an overall decrease in growth of 25.3%. Here, this is a marketplace which has many different types of business. And we feel that the pandemic negatively impacted our e-marketplaces solutions, specifically in areas such as automotive parts, like our Taurus business, electronic components, which is our broker forum, and of course, diamonds and jewelry in Polygon. And even in job boom in the early days of the year, where we saw online recruitment slow down. Now, ironically, as we'll discuss in a few minutes, the global job market and related recruitment activity has completely turned around as we exit 2021, and we're seeing unforeseen demand for top tech talent. Overall, we expect the e-market place revenues will continue to have less of an impact on the corporation in the future as we focus on our higher growth solutions, namely the strategic sourcing and unified commerce platform. If you turn to slide seven, we'll Sorry, just before that, I covered the year-over-year results in terms of net loss for the year with 7.6, and that represents 38 cents per share. And adjusted EBITDA for the year was 5.7 million, and that compares to 10.3 of the full year last year. We mentioned in the early part of the call that we did amend our definition of adjusted EBITDA to adjust for acquisition costs and restructuring costs. And we exclude these, excuse me, exclude these, exclude these, having trouble, because we don't believe that they're representative of our core business. And we adjust them so that the periods will be comparative from one to the other. Overall, adjusted EBITDA declined year over year due to increased foundational investments in operations, sales and marketing, R&D and professional services that support our implementation and strategic initiatives and our overall transformation plan. Foundational investments are expected to improve scalability and efficiency over time. Now we can turn to slide seven for the Q4 2020 plan results. Total revenue was $22 million, again representing a nice growth quarter over quarter at 16.5%. and that's up from 18.9 million in the previous year. The corporation's unified commerce and strategic sourcing saw again the highest growth in the fourth quarter, while e-marketplaces were declining in some of the marketplaces quarter over quarter. In unified commerce platform, where we saw 9.7 million, that represented growth of 29.5, And again, in the e-commerce solutions, that is part of Orchestra and our K e-commerce, we saw an increase of revenues of $2.4 million together compared to the same quarter of fiscal 2020. K e-commerce, which was acquired by the corporation in December 2019, contributed $2 million in revenues in the fourth quarter compared to 1.6 in the quarter before, sorry, the Q4 of the previous year. The increased demand for e-commerce services, which accelerated in the context of COVID-19, has resulted in higher right-of-use revenues, higher professional services revenues that are supporting large customer deployment. For strategic sourcing, the revenue for the quarter was $8.7 million, or up $15.4 over the previous Q4. Revenue increased by 1.4 essentially over Q4 this year versus Q4 last year. Again, we saw that the corporation's U.S.-based solution, BidNet, contributed the majority of the revenue quarter over quarter, including the corporation's acquisition of vendor registry, which was in November 2020. Again, we say that the U.S.-based strategic sourcing solutions are really benefiting from organic growth, in revenues driven mainly by new buying agencies, which are driving up an increase in the number of paying suppliers and an overall increase in revenues compared to 2020. In e-marketplaces, we saw revenues at $3.6 million, a slight decline over the prior year, representing 6.7%. Overall, we see in the e-marketplaces platform slightly negatively impacted by the COVID-19 pandemic as most of the solutions experienced lower memberships or lower transaction volumes in their respective industries. Turning our attention to our margins, gross margins were about 61% compared to the prior year at 67%. The decrease in gross margin percentage is mainly due to professional fees that yield lower margins, and this relates to large customer deployment, mostly in e-commerce. We also saw higher costs of hosting and licensing from our cloud-based solutions. We expect that gross margin percentages will remain compressed temporarily until the ongoing deployments in e-commerce are delivered. Operating expenses were $16.7 million, and this compares to 14.9 in the fourth quarter of 2020, an increase of about 12%. The increase in operating expenses is primarily due to higher salaries and related expenses due to higher headcount and the cost of labour. Q4 salary expenses were offset by 0.7 million of wage subsidies from the Canadian government, that's the Canadian Emergency Wage Subsidy Programme. and for the year, the subsidy amount was $3.4 million. Concluding on Q4 with net loss, which was $2.9 million, or $0.12 per share, basic and diluted, and this compares to a loss of $6.8 million, or $0.45 a loss per share, basic and diluted, for the same quarter of fiscal 2020. Adjusted EBITDA was 200,000 for the fourth quarter of fiscal 21 compared to 700,000 reported in Q4 of 2020. The adjusted EBITDA decline year over year is mainly due to increased foundational investments where we saw operations, sales, and marketing, R&D, and again, professional services that were required to support the corporation in implementing its strategic initiatives transformation plans, and large customer deployment. We believe that as deployments accelerate over the coming quarters, personnel and professional service expenses will remain elevated, and we expect to continue to make foundational investments to improve our scalability as we grow. Margins might continue to be compressed as we make the required investments to improve our scalability. A few words on our balance sheet. In March this year, we completed a bought deal offering and raised $80 million of gross proceeds. This was the third bought deal equity financing in fiscal 2021. Combined with a new credit facility that's based on monthly recurring revenue and having paid down our long-term debt in Q3, we really strengthened our balance sheet and our overall financial position. In March, At the end of March, we had $110 million in cash and cash equivalents on the balance sheet. This capital will allow us to implement the key components of our transformation plan, including our M&A strategy, while remaining focused on maximizing return on invested capital. As we move into fiscal 2022, a key challenge is the scarcity of tech talent, sorry, and the growing cost of labor. To put things in perspective, adjusted EBITDA, which I mentioned was 5.7, it represented margins of 6.8 for the current year. And this compares to 10.3 million of adjusted EBITDA and 13.7% margins for the prior year. The demand for programmers and developers has accelerated exponentially reaching unparalleled levels at a time where businesses are seeking to accelerate the digital transformation and their e-commerce capabilities. The competition for resources is global, driving up the cost for tech labor to unforeseen levels. Over the past fiscal year, the impact of this extraordinary demand for talent has already contributed to a compression of our margins, which may experience some fluctuations quarter over quarter. As we move forward, our challenge will be to strike the right balance between managing our salary costs and staying in the race to capitalize on the window of opportunity brought on by this market acceleration. As the tech resource crunch intensifies in Canada and internationally, we've implemented multiple strategies and campaigns across Canada, in the U.S. and also in Europe, to help us in our growth trajectory, including the expansion of development capabilities in Ukraine. And as Luc mentioned earlier, it's already starting to at least gain some intention and hopefully some success. With that, I turn it over to Luc.