mdf commerce inc.

Thank you for standing by. This is the conference operator. Welcome to the MDF Commerce Q1 Fiscal 2022 Results Investor Conference Call. Today's call will provide information and commentary on the company with a focus on the financial results released today after the market closed. We will hear from Luke Filiatro, President and Chief Executive Officer, and Deborah Dumoulin, Chief Financial Officer. If you have questions following the call, you can reach MDF Commerce at the address at their website at www.mdfcommerce.com. First, here are a couple of housekeeping notices. All participants are in a listen-only mode for the duration of the call. This call is being recorded and we expect that the recording will be available on the MDF Commerce website later today. The information in today's remarks, including any forward-looking statements has been prepared as of June 30, 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 and non-IFRS financial measures and key performance indicators. 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 press release, which is on the website and has been filed on CDAR. The company's actual performance could differ materially from these statements. The terms and definitions associated with non-IFRS measures, as well as a 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 management's discussion and analysis for the first quarter ended June 30, 2021. I will now hand the call over to Mr. Filiatro. Please go ahead, sir.

Well, good evening, everyone, and thanks for joining us on this call for our discussion about our Q1 fiscal 2022 results call. So we will review the results that we filed earlier this evening in a few minutes. But first, I want to take a bit of time to update you on MDF Commerce activities, more specifically the acquisition of Periscope Holding that we just announced a few minutes ago and that we've all been waiting for. So MDF is a developer and operator of digital commerce platforms. Once we complete this acquisition of Periscope, our various platforms will transact and facilitate billions of dollars a year of digital commerce transactions between B2B and B2G for well over one million end-user companies, mostly in North America. So if we turn to the page five of our presentation, today we announced this transformational acquisition of Periscope. That advances our strategy of becoming a leading player in the B2B and the B2G market with one highly strategic acquisition. The purchase price of $207.3 million is a compelling valuation considering the scale and capabilities that we will gain and positions MDF Commerce to achieve near-term profitable growth and generate significant value for our shareholders. Periscope is an impressive organization that has been on our radar for quite some time now. Periscope brings with it an impressive track record of growth and a strong team of industry professionals that combined with MDF Commerce's leadership and existing platforms is well positioned to capitalize on significant public sector procurement opportunities. Moving to slide six, we present the key highlights of this transaction. The acquisition of Periscope is highly strategic for MDF Commerce as it positions us as a leading public e-procurement provider creating many opportunities. First, it broadens our offering through a fully integrated end-to-end procurement solution coupled with an innovative self-funded transactional solution. Second, it builds on our U.S. market presence. immediately enhancing our scale and adding a strong, well-connected team that will enable us to efficiently serve the full spectrum of government agencies across North America. Third, it allows us to leverage Periscope's innovative transaction fee solution, which is expected to drive predictable and scalable revenues at attractive economics. Fourth, We expect this acquisition to be highly synergistic, both on the revenue and on the cost front. And lastly, Periscope enhances MDF Commerce's financial profile, both in terms of scale and growth. This acquisition is highly strategic, and it reinforces our relentless focus on value creation for our shareholders. And I know we've been waiting a long time to get it. So turning to page seven, here are the underlying themes that we find really attractive about the space in which Periscope operates and why now is the right time to complete this transformational acquisition. Number one, existing trends to modernize legacy government procurement systems were highlighted and accelerated by the pandemic. Number two, many governments have ramped up spending campaigns in an effort to stimulate the economy. Number three, government agencies are increasingly looking for a consumer-like shopping experience to acquire the various goods and services that they need. Just Monday, the U.S. Senate just approved Biden's U.S. $1.2 trillion infrastructure bill. We believe that this will be fueling a large increase in public spending that will mostly have to go through these types of platforms that we have. This being said, existing procurement solutions are not purpose-built to meet the needs of government and agencies. Most of them are fragmented, they lack functionality, and they rely on legacy technologies. Periscope, that's joining us today, has over 20 years of experience in this space and offers solutions that were specifically built for the public sector's evolving needs. Our combined platform is well positioned to capture significant market share, especially from a government procurement spend perspective. Now let's go to page eight. which provides an overview of Periscope's underlying business and why we believe that it's so complementary to ours. Periscope boasts a large network of government agencies and suppliers across the U.S. with little to no overlap with our own network. Periscope offers a fully integrated end-to-end procurement solution with a modular architecture that is highly configurable to clients' specific needs, adding to MDF Commerce's existing strategic sourcing capabilities. Periscope services larger government agencies, whereas MDF Commerce primarily caters to the middle market, the smaller government agencies. They recently rolled out a very innovative transaction fee solution, which accomplishes several things. It allows customers to utilize our e-procurement solutions at no out-of-pocket cost and transforms MDF commerce from a vendor to a revenue-generating partner for these governments and agencies, thus saving taxpayers money. Once adopted at the state level, it opens up a B2G marketplace a business-to-government marketplace on which smaller agencies can piggyback on existing supplier agreements. It generates predictable revenues that scale with government procurement spending rather than only relying on annual subscription fees under a SaaS solution. Page 9 provides some insights into the recent performance of Periscope with everything I just described. As mentioned earlier, the business gained significant momentum in the first half of 2021 with a significant uptick in client onboarding and pipeline expansions, with the transaction fee solution being a notable driver behind this recent growth. Based on recent discussions with government agencies and suppliers, and given the great visibility we have on pipeline developments for 2021, we are confident this positive momentum will continue. We ourselves have seen significant growth in our U.S.-based strategic sourcing over the last few quarters, and we'll show you some numbers in our Q1 results later. So page 10 is a high-level transaction summary. The purchase price for Periscope is 207.25 million, including 200.8 of cash paid at closing, 3.3 million in rollover shares, and a 3.3 million retention bonus for employees of Periscope. The purchase price represents a multiple of 4.6 times Periscope's calendar year 2021 revenue including revenue synergies of 15 million, well below the 13x current average forward multiple for publicly listed procurement software suppliers. Financing is composed of 92 million of cash from our balance sheet, Canadian 92 million, Canadian 50 million of available liquidity from our amended and upsized credit facility, A 53 million private placement coming from Fonds de Solidarité and Investissement Québec, who are our current two largest investors and will remain our two largest investors. A Canadian $68 million bought deal public offering underwritten by Scotia Capital. And finally, 4 million in rollover shares, as well as the creation of a 4 million retention bonus for the Periscope folks. Existing cornerstone investors, FSTQ and IQ, account for nearly half of the equity proceeds, which we believe demonstrates the confidence that they have in us pursuing this transformational acquisition. The acquisition is expected to contribute positive cash flow on a per share basis, further highlighting the value it creates for our shareholders. As previously mentioned, the transaction is highly synergistic And we expect at least Canadian $15 million in revenue synergies and Canadian $5 million in cost synergies within three years. Subject to regulatory approvals, this transaction is expected to close in Q2 of fiscal 2022, which is September 30th in our case. Page 11 lists the key pillar underpinning the strategic rationale, which we will cover in more details over the next few pages. The key takeaway here is that the acquisition of Periscope transforms MDS Commerce into a leading North American e-procurement player. Page 12 illustrates the market's leading metrics of the combined company. As you can see, we will have an established presence in both Canada and in the U.S. with a prominent network of over 6,000 government agencies in states and provinces, and approximately a half a million active suppliers. We believe our combined network will build on the positive momentum as it provides scale and reinforces our leading position in the North American e-procurement market. Page 13 provides a high-level comparison of MDF Commerce and Periscope and really demonstrates how complementary those businesses are. As you can see, the acquisition broadens MDF's public sector offering into a fully integrated solution with modular capabilities, allowing us to service all types of government agencies and therefore expand our total addressable market over 100,000 government agencies across North America. Customers will be able to pick up the best-of-breed solution, I'm sorry, customers will be able to pick the best-of-breed solution to meet their specific needs, whether they're a large state, a small township, an urban school district, while maintaining total flexibility. We will be giving government officials consumer-like ability to transact online. Turning to page 14. Periscope currently offers both SaaS and transaction fee solutions. Under a transaction fee solution, state governments can self-fund their e-procurement system as they share transaction fees paid by suppliers rather than pay an annual SaaS subscription fee. Therefore, state customers become revenue-generating partners, creating incentives for them to onboard local government agencies to the statewide B2G marketplace and increase statewide transaction expense. Periscope is the first, the first public eProcurement provider to successfully implement a transaction fee solution at the U.S. state level, providing us with a valuable first mover advantage. This innovative solution generates highly predictable and scalable revenue with attractive economics and is a key driver behind Periscope's growth. On page 15, we highlight some of the key drivers of both revenue and cost synergy. As indicated previously, we expect this transaction to be highly synergistic with Canadian $15 million of annual revenue synergies and Canadian $5 million of annual cost synergies realized within the next three years. First, the revenue synergies resulting from the combination are primarily driven by the introduction of Periscope's ePro and Marketplace solution to MDS Commerce's network. We intend to leverage each other's customer base as well as key government relationships to sell ePro to additional U.S. states and Canadian provinces and federal governments. We also expect to offer Periscope's Marketplace solution to our existing network of over 3,500 government agencies and over 300,000 active suppliers. Think about this. It's almost like an Amazon Marketplace, but for government. Integrating the whole network together will offer more value to suppliers and broader access to government contracts, thus enabling additional revenue. Second, cost synergies are expected to be primarily driven by workforce-related initiatives alleviating the needs to hire additional talent for sales, product development, and other key functions. And we all know that talent right now is very important. rare, and difficult to get. Second, efficiencies gained through the harmonization of content aggregation systems and processes. And third, product integration eliminating reliance on third parties. I'll now pass it over to Debra, our CFO, to discuss the compelling combined company's financial profile on page 16.

The combined company exhibits a strong, combined financial profile. Periscope increases our scale and enhances our growth significantly. MDF Commerce revenues for fiscal 2021 were $84.7 million, increasing 36.6% to create a combined revenue of Canadian $115 million. Year-over-year growth increases from 13% to 18% for the last six months of June 2021. MDF commerce percentage of recurring revenue increases from our consolidated 76% to 80%. Combined adjusted EBITDA increases by 44% from 5.7 million to 8.3 million. And this is on the historical numbers. Strategic sourcing and unified commerce will now account for 87% of the combined revenues emphasizing our focus on core platforms and delivering our vision to enable the flow of e-commerce for business and government.