mdf commerce inc.

Thank you for standing by. This is the conference operator. Welcome to the MDF Commerce first quarter fiscal 2023 investor conference call. Today's call will provide information and commentary on the company 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 Dumoulin, Chief Financial Officer. If you have questions following the call, you can reach MDF Commerce at the address at 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. 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, 2022, 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 measurements that are subject to important risk uncertainties. For more information on these risks and uncertainties, please see the reader advisory at the bottom of the MDF Commerce's news release, which is on their website and has been filed on www.cedr.com. The company's actual performance could differ materially from these statements. I will now hand the call over to Mr. Filiatro. Please go ahead, sir.

Well, thank you, Shannon, and good morning, everyone. Thank you for joining us on our Q1 Fiscal 23 Result Call. We'll 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 operations. MDF is a developer and operator of digital commerce platforms that facilitate billions of dollars a year of digital commerce transactions for well over 550,000 end-user companies, mostly in North America. Our mission is to enable the flow of commerce. As we enter the third year of our five-year strategic plan, our key operational drivers are focus and simplification to ensure the strong execution of the strategic priorities for the coming year. Before I cover an update on the state of operations, I'd like to mention that Deborah will provide remarks on the state of the company's balance sheet. We've had questions recently on the company's capital structure, particularly on long-term debt. I want to confirm that we are in compliance with the financial covenants of our credit agreement at June 30th. Our capital management strategy includes performing financial stress tests to assess the corporation's ability to meet its financial obligations, including the covenants in the credit agreement. Now, in terms of operations, our focus remains on our two core platforms, the eProcurement and the Unified Commerce, which includes e-commerce and supply chain solutions. Current market conditions are clearly favorable for our e-procurement technology, which targets government agencies across North America. Despite uncertain global macroeconomic conditions that are impacting many sectors of the economy, these government agencies show no signs of slowing down the process of digitizing their procurement functions. Our continued focus on revenue growth in this sector is core to our strategy. Our leadership position in North America e-procurement, combined with our innovative transactional model that we refer as TRX model, position us favorably to capitalize on this growing market, this growing segment of the market. Our top priority for e-procurement is to accelerate conversion of revenue opportunities in our pipelines. Interest in our technology is high. There were some operational barriers that have impacted conversions, which have been slower in Q1 than what we originally expected going into fiscal 23. Specific actions have been taken to address these operational barriers, which are beginning to accelerate our conversion cycles. Conversion remains a top priority. Onboarding buying agencies onto our eProcurement platform drives increased spend on our platforms, which, specifically for our TRX model, drives transaction-based revenues. Our full procure-to-pay ePro solution is already implemented in several US states. For unified commerce, and specifically e-commerce, the entire sector, including our platforms, is facing post-COVID headwinds. As a result, we've seen a reduction in volume-based revenues. Based on the current trends, we expect more limited volume-based growth in the coming quarters, especially in the e-grocery. In contrast, retail-based transactions, which have been less impacted. To counter this market shift, we are focusing our commercial efforts on our order management system, the OMS. which helps retailers ensure an optimal consumer experience with a hybrid shopping environment. This product does not require a client to fully replatform their e-commerce solution. It is out of the box already and can be easily layered onto existing tech stacks in a much shorter timeframe. It allows our clients to highly increase the inventory they have available online and allows them to increase their digital sales without much additional effort or cost. The e-commerce platform remains a strategic priority for MDF Commerce. The market downturn in the e-commerce sector requires us to manage profitably and to realign the cost structure. One of the first steps taken was to prioritize filling positions that are revenue generating that allow us to service our clients that generate revenue. With salaries that continue to be trending upward, inflation in our key markets at a 40-year high, and a downturn in e-commerce, we are looking at ways to improve our overall operational efficiencies. We are currently reprioritizing many of our initiatives to adapt to the present market conditions by focusing on nearer-term priorities that have a higher impact on margins. Our goal is to reduce operational costs and improve margins as we push towards achieving profitability. Overall, our growth for the first quarter of fiscal 2023 is lower than expected due to market slowdown in the e-commerce sector and the lengthier than anticipated time to convert e-procurement opportunities which made your government clients. We quickly adapted to respond to these evolving challenges have taken definitive and clear steps to address them and therefore remain confident in our ability to execute on our strategy towards profitable growth. And one element that I'd like to comment on is the fact that the corporation is pleased to announce the nomination of Brian Nelson to stand for election to our board of directors at our upcoming Annual General Meeting, which is scheduled for September 20th, 2022. The addition of Brian will further strengthen and complement the current skills and capabilities of the Board. Brian has been a partner at Long Pat Partners, a privately owned investment firm, which owns approximately 11.14% of the shares of the corporation, and that invests in the limited number of high-quality businesses operating primarily in the enterprise software and business and information service markets since 2018. He currently serves as a co-portfolio manager of the Long Pat Smaller Companies Fund and the Long Pat Opportunities Fund. The corporation looks forward to welcoming Mr. Nelson upon his election. His experience and knowledge will be a valuable contribution to the Board of Directors. With a long history in public sector software as well as e-procurement software, Longpath brings a wealth of experience and knowledge to the table. We look forward to their continued support and strategic input as we grow our activities in government procurement. So Mr. Nelson will be joining both new members of the board, which were Pierre Chagy and Lester Fernandez, which were announced on our Q4 results just a few weeks ago. So now Debra will provide information on our company's Q1 fiscal 23 financial results. Debra?

Thanks, Luc, and good morning, everyone. I'll start with our balance sheets. Cash at June 30th was $5.9 million compared to $6 million at March 31st, 2022. The company's capital management strategy includes the use of long-term debt. At June 30th, long-term debt under the credit agreement includes a term loan, which is a $16 million U.S. facility or $20.6 million in Canadian dollars, which was available as a one-time borrowing and was used to finance the Periscope acquisition in August of 2021. The company also has a revolving facility with borrowings at June 30th of $35.4 million. Therefore, long-term debt net of cash balance is $49.5 million at June 30th, which compares to $43.7 at March 31st. The increase in total debt net of cash of $5.8 million during the quarter is due to several factors. Normal operating changes and non-cash working capital, which relates mainly to timing. Payment of the first tranche of the Periscope acquisition-related retention bonuses, which were made in April of 2022. The annual increase in the company's employee salary group, which occurred in Q1, and which increased the overall payroll-related cash outflow. We also want to note that from a short-term tax credit receivable perspective, and for those of you who are familiar, the e-business tax credit is available to qualifying business for development activities, and this is for many of our Quebec-based businesses. And these credits have taken longer than usual to collect from the Quebec government. We understand that the government tax agencies continues to experience some processing delays. However, we expect to collect $5.7 million over the next few months. The revolving facility has a maximum borrowing of $50 million and an accordion of $20 million, which is subject to lender's approval. The borrowing base under the revolving facility is based on a multiple of our monthly recurring revenue and on eligible accounts receivable as defined in the credit agreement. On June 30th, the actual borrowing base for the revolving facility is in excess of the maximum capacity of $50 million. The credit agreement requires that the corporation maintain two financial covenants, the fixed charge coverage ratio, which must be not less than 1.2 to 1, and a debt to capitalization ratio, which must be greater than less than 50. At June 30th, the corporation was in compliance with both of these financial covenants. The fixed charge coverage ratio makes use of last 12 months EBITDA as defined in the credit agreement. The corporation prepares financial forecast and stress test assumptions to evaluate the risk that significant differences could result in noncompliance with these covenants. Subsequent to quarter end, We initiated proactive discussions with the lender, and on August 11th, the credit agreement was amended to provide for a reset of the fixed charge coverage ratio from the 1.2 to 1 to 0.5 to 1 for the next three quarters, ending on September 30th, December 31st, and March 31st of 2023. Based on our financial forecast, the corporation has sufficient capital resources available to maintain its capacity to meet its working capital requirements, to finance its commitments for planned growth, to fund activities of its business plan, and to maintain an appropriate level of capital spending, as well as to comply with the financial covenants required under the credit agreement. So now let's move on to the financial highlights of the first quarter. Pew won revenue with $32.2 million. an increase of 9.6 million or 42.6% compared to 22 million, 22.6 in Q1 of 2022. On a constant currency basis, total revenue was increased by 9.8 or 43.6% compared to Q1 2022. Q1 recurring revenue represents 26 million or 77.8% of total revenue. and recurring revenue grew by 9.7 million compared to 16.4 million, or 72.5% of total revenue in Q1 of last year. Our total consolidated U.S.-based revenue represents 16.5 million, now 51% of the 32.2 million of total revenue for Q1, compared to 43% of Q1 revenue in the previous year. mainly from the acquisition of Periscope, which is a U.S.-based subsidiary in eProcurement that had revenues for Q1 of $8.1 million. Revenues for Q1 were impacted by a fair value adjustment of the Periscope deferred revenue, which occurred at the closing balance sheet as part of the acquisition accounting, and which resulted in a reduction of revenue for the quarter of $1.2 million, while this was not applicable in Q1 2022 because it was pre-acquisition. The e-procurement platform generated $17.9 million, an increase of $9 million or 101.4% compared to $8.9 million in Q1 of 2022. The corporation's U.S.-based e-procurement revenue grew by 187.5% or $8.6 million in up to 13.2 in Q1 2023 compared to 4.6 in the same quarter of the previous year. And again, mainly related to the Periscope acquisition. Monthly recurring revenue for the eProcurement platform represented 16.6 million or 86.8% of platform revenue for Q1 compared to 8 million and 89.9% in Q1 of the previous year. Our other core platform, Unified Commerce, which includes both e-commerce and supply chain collaboration solutions, generated $9.8 million for Q1 of this year, a slight decrease of $0.1 million or 1.2% compared to $9.9 million in Q1 of the previous year. Monthly recurring revenue for Unified Commerce platform represents $5 million, $5.8 million, or 59.6% of platform revenue. compared to 57.1 in Q1 of 2022. The eMarketplace platform generated revenues of $4.6 million for Q1 of the current year, an increase of $0.8 million, or 19.9%, compared to $3.8 million in Q1 of the previous year. Revenue growth in eMarketplaces was driven primarily by the broker forum, which is an electronics parts marketplace where volumes have continued to increase due to global supply chain shortages. Turning now to gross margin for Q1 of 2023, it was $18.5 million or $57.4 compared to $13.2 million or $58.7 for Q1 of the previous year. The slight decrease in the gross margin percentage is mainly due to higher total salary expense, higher headcount, higher professional services to support customer implementation, mainly consultants, on large deployments, and higher hosting and licensing costs directly related to the corporation's migration to a cloud strategy. For Q1 2023, operating expenses were $25.5 million, an increase of 45.3% compared to $17.5 million in Q1 of 2022. General administrative expenses were $7.3 million in Q1 of 2023. Selling and marketing expenses were $8.7 million, and technology expenses were $9.5 million, compared to $5 million for G&A, $6.1 million for sales and marketing, and $6.4 million for technology in the previous Q1. Higher total operating expenses in Q1 2023 are mainly due to the acquisition of Periscope. Q1 2023 amortization costs were significantly higher at 4.5 million compared to 2.3 million in Q1 of 22, mainly due to the acquired intangible assets from the Periscope acquisition. Other increases are the professional services relating to support the corporation, implementation of its strategic activities, its transformation plan, and to support large deployments of client contracts. Operating expenses for Q1 of prior year included a federal wage subsidy of $0.8 million with no subsidies claimed in Q1 of 2023. The corporation recorded an operating loss of $7 million in Q1 of the current year compared to 4.3 million loss in Q1 of 2022. The net loss was 6.3 million or 14 cents per share basic and diluted in Q1 of the current year compared to a loss of 4.3 million or 15 cents per share basic and diluted in Q1 of 2022. The adjusted EBITDA loss was $1.1 million for Q1 of 2023 compared to an adjusted EBITDA loss of $1.5 reported in Q1 of 2022. The company's annual salary increase took effect in Q1 of 2023 on a higher headcount than in prior year, mainly due to the Periscope acquisition. The $1.2 million impact in Q1 that I mentioned earlier on the fair value adjustment of the Periscope deferred revenues that occurred at the opening balance sheet of that acquisition, also had an unfavorable impact on revenues, but also gross margin, net loss, adjusted EBITDA loss, and loss per share during the quarter. With that, I'll turn it back over to Euler.