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spk02: Thank you for standing by. This is the conference operator. Welcome to the MDF Commerce First Quarter Fiscal 2024 Financial Results Investor Conference Call. Today's call will provide information and commentary on the corporation with a focus on the financial results released yesterday after the market closed. We will hear from Luc Ciliatro, President and Chief Executive Officer, Deborah Dumoulin, Chief Financial Officer. If you have questions following the call, you can reach MDF Commerce at the address on 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 accept 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 30th, 2023, 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 measures that are subject to important risks and unsententious. For more information on the risks and unsententious, please see the reader advisory of the bottom of the MDF Commerce's new release. which is on their website and has been filled on www.cedarplus.com. The company's actual performance could differ materially from these statements. I will now hand the call over to Mr. Filiato. Please go ahead, sir.
spk00: Merci beaucoup, Sabrina.
spk01: Good morning, everyone, and thank you for joining us for our Q1 Fiscal 24 Financial Results Call. Before turning to the financial results that we file after the markets closed yesterday, I would like to provide an operational update. MDF is a developer and operator of digital commerce platforms that facilitate billions of dollars per 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. I'll present an overview of our company's performance and outlook for the future, beginning with a few Q1-24 financial highlights. Our revenue for the quarter were $31 million, with recurring revenue now representing 79% of total revenue. We achieved positive adjusted EBITDA of $2.6 million in this last quarter, a significant improvement of $3.7 million from the adjusted EBITDA loss of negative 1.1 million in Q1 of fiscal 23 a year ago. In fact, this quarter marks the fourth sequential quarter with positive adjusted EBITDA. This quarter has been exciting for us as we saw an acceleration of pipeline conversion for our comprehensive suite of products offered for e-procurement. I want to point out that e-procurement platform revenue grew by 13.5% year over year with recurring revenue for that platform now reaching 88.5%. We recently announced that Anoka County in Minnesota has chosen our full e-procurement solution. Pima County in Arizona chose our source to contract solution. We've also won awards in several U.S. cities and districts during the quarter. These agencies are joining over 6,500 public sector buying organizations in choosing MDF Commerce's solutions. In addition, very pleased to say that the Commonwealth of Massachusetts, which has been a client of ours for over 10 years now, has renewed their contract for our full e-procurement suite for another five years, resulting in a 15-year relationship. Maricopa County in Arizona upgraded its existing suite of MDF solutions to our full source-to-contract technology. Our opportunities pipeline reflects the growing demand for our integrated full source-to-pay integrated suite. These new wins and customer renewals are strong proof points to the value of our solution to states, counties, cities, and municipalities to support their procurement and is a testament to the enduring trust of our customers. The sales cycle for public procurement is often long, and over the past few quarters, we've been faced with a slower than anticipated conversion rate on new clients. In fact, many of our recent wins have come from proposals tendered as far back as 2021. It takes long to strike a deal, but as we've seen with Massachusetts, this is a very sticky business, and customers often last for more than a decade. We're currently actively engaged in multiple opportunities to provide public agencies procurement systems. These are at various stages of the sales cycle, including the largest province in Canada, as well as many of the largest states and counties in the U.S. We believe that we are well positioned to capitalize both on the larger Tier 1 state contracts and on the mid-market opportunities that lie ahead as public agencies digitize their procurement solutions. We continue to further solidify our leadership position in the North American public procurement market. We define our Tier 1 markets as states, provinces, and large counties that have a population approximately above 2 million individuals. up to states like California, which has a population of approximately 40 million individuals. When tier one customers use our full procurement solution suite, they can generate from approximately a half a million to several millions of dollars of annual recurring revenue, plus the initial implementation services revenue. Our mid-market customers consists of these larger cities, mid-sized counties, certain districts, water, power, turnpikes. And these customers typically generate from approximately 25,000 up to a few hundreds of thousands of dollars of annual recurring revenue for us, of course, plus the initial services required to implement the solutions. We also offer our source module, which you may be familiar with Merck's BidNet and the Periscope S2G technology, to a very large number of organizations for which the business model is a supplier paid membership system that allows suppliers to access our database of published RFPs across our whole network. From a product perspective, our continuous efforts in integrating all of our different modules into a comprehensive e-procurement suite have garnered significant attention from large states and local governments. As you can see on slide five of our presentation, we are powering the critical work of procurement by integrating our various procurement products offering in a common suite of products offered in the modules. We have a source module, a contract, procure, connect, and shop. This shows the various brands, if you look at the bottom of that slide, that you're all familiar with, that translate into the five modules of our end-to-end integrated suite of products. Not only will we have moved all of these to the cloud, but we are planning to complete most of this integration towards the end of the year. If you look at the slide, I'd like to put out a few comments. The two first modules are what we call our source to contract, and the three modules on the right are the procure to pay. So source to contract is really a combination of BidNet, Merckx, and Periscope that offer similar functionality. The contract piece is what used to be our ASC, Contract Lifecycle Management module. And in terms of Procure and Connect, there are two products that we combine, BitNet Direct, which addresses more of the mid-market and the smaller customers, and there's the Periscope ePro solution that addresses larger Tier 1 types of customers. And finally, this allows us to offer the marketplace products, which allows workers from various public agencies and organizations to shop contracts directly online. Now, in terms of our e-commerce and e-marketplaces division, our various offerings continue to perform well, and the rightsizing that we've completed over the last few quarters now put these in a positive contribution place. We continue to see demand from the B2B side of e-commerce, particularly from the Acumatica ERP clients. And now, Debra will comment on the corporation's financial results. Debra, the floor is yours.
spk03: Thanks, Luke, and good morning, everyone. I'd like to remind you that you can find our Q1 financial results, including our press release, the MD&A, and our financial statements on our website or on www.cedarplus.com. Our Q1 2024 total revenues were $31 million, a decrease of 1.2% or 3.7% compared to Q1 of 2023. However, to provide the information on total revenues on a more comparative basis, and this is because we sold InterTrade subsidiary in October 2022, the Q1 year-over-year represents an increase in total revenues of $2.2 million or positive 7.7%. when excluding inter-trade revenues from Q1 last year, which were $3.4 million. The company's recurring revenue continues to trend towards 80% of total revenue, with recurring revenue at Q1 of 79.2% of revenues compared to 77.8% of revenues for Q1 2023. And you'll recall that inter-trade was in the prior year recurring revenues, with recurring revenue about 90% of revenue. So we're pleased that recurring revenue is trending positively. We've had significant improvements in profitability with our net loss improved by $1.2 million from $6.3 million loss in Q1 2023 to $5.1 million in Q1 of 2024. As Luke mentioned earlier, Q1 marks the fourth consecutive quarter with a positive adjusted EBITDA of $2.6 million. This is an increase of 3.7 million compared to the Q1 last year, which had an adjusted EBITDA loss of 1.1 million. Not only did we achieve positive adjusted EBITDA this quarter, but there have been increases over the last several quarters. If we compare adjusted EBITDA to Q4, which was 2.2 million, there's a sequential increase of 0.4 million. The workforce reductions, both in Q1 and in Q4, contributed to the improvement in profitability compared to Q4, highlighting certain variances between the sequential quarters. You'll recall that Q4 included a non-cash gain on lease modification of $1.7 million, while Q1 includes a non-cash impairment loss on a right-of-use asset and leasehold improvements totaling $0.7 million. Also, with respect to other revenue from the post-closing transition services to SPS related to the sale of InterTrade, those other revenues decreased from Q4 to Q1 by $0.3 million. Therefore, on a more comparative basis for Q4 versus Q1, by considering the variances that I just mentioned, the adjusted EBITDA increased sequentially by approximately $3.2 million since Q4. In Q1, we continued to make substantial progress in improving profitability and cash flows across all of our platforms. At the beginning of Q1, we right-sized operations and implemented global workforce reductions of approximately 40 people. We now have just under 650 employees as compared to 800 at this time last year. During the last few quarters, we've further streamlined our operations by proactively deprioritizing certain projects, lowering operating expenses, including our office costs by reducing our global lease footprint. And as Luc mentioned earlier, we have various product integration initiatives that are ongoing in e-procurement, and we plan to complete our cloud migration that is expected to generate additional savings by the end of fiscal 2024. We've seen an acceleration of e-procurement pipeline conversion, as Luc also mentioned, both in new contracts and significant contract renewals, and we believe that our opportunities pipeline provides confidence in a near to mid-term upside for our e-procurement solutions. During the quarter, workforce-related savings were partially offset by restructuring costs, mainly due to termination benefits. For other operational savings, including those relating to office reductions and the integration activities that we mentioned earlier, the full benefits of these which include, you know, better positive cash flow from a more positive cash flow to come are not fully reflected in our Q1 results. The further office space reductions will take effect at the maturity of our longer head office lease at the beginning of Q3 and with other US based lease reductions under negotiation and also expected around the Q3 timeframe. We expect to maintain a positive adjusted EBITDA on an increasing trajectory. So turning back to Q1 revenues, our Q1 right of use revenues, so what we would call our SAS subscription revenue, increased by 5.3% from Q1 prior year, which is typically recurring in nature. We benefited from other revenue of 0.4 million in Q1 2024 for the post-closing transition services that we provided to the acquirer of inter-trade. And despite growth in our right of use revenues, we did see a decrease compared to Q1 last year, of transaction fee revenue of 1.9 million compared to the prior year, but this is mainly relating to the sale of InterTrade. Professional services decreased by 0.8 million compared to Q1, and this was expected. It's mainly from our e-commerce platform. As large client deployments were completed, and certain clients slowed down projects in 2023, and also as we near the completion of some large implementations on our U.S.-based e-procurement customers. Our e-procurement platform performed well, with revenues of $20.3 million, representing an increase of 13.5% compared to $17.9 million in Q1 last year. Our U.S.-based e-procurement activities also contributed positively to revenue growth with an increase in revenue of 17% over the same period prior year. Recurring revenue as a percentage of total revenue for the e-procurement platform was 88.5% for Q1 compared to 86.8% in Q1 of the previous year. So the e-commerce platform, which we used to call unified commerce before the sale of InterTrade, It generated revenues of $5.9 million for Q1 this year, as compared to $3.8 million compared to Q1 prior year. There are two main reasons for the overall decrease in unified commerce. One is the sale of intertrade, which, as I mentioned earlier, accounts for $3.4 million of revenue decrease of the $3.8 million total. And again, partly offset by the other revenue that I mentioned earlier, $0.4 million. E-commerce also had the lower professional services, mainly in orchestra, as a result of completing the customer deployments. In our e-marketplaces platform, which generated $4.8 million for the quarter, that represents a 5.1% increase compared to Q1 of the previous year. Recurring revenue for e-marketplaces also increased from 8%. 83.9% from 79.4% in Q1 2023. Our e-marketplace platforms are well-established and mature, and our objective is to continue to operate them efficiently and profitably by maintaining competitive pricing and by managing our costs. And I invite you to look at our Appendix A in the slide deck for the reconciliation of net earnings and loss to adjusted EBITDA and adjusted net earnings. Finally, on a balance sheet position at June 30th, 2023, the cash position, net of debt drawn on the revolving facility, which was $5.7 million, less cash on hand, $6 million, represents a not cash position of $0.3 million compared to a net debt position of $3.4 million in March of 2023. Restructuring costs that were paid in the quarter relating to reducing our workforce had an unfavorable impact on our closing Q1 cash position. But with the various initiatives that we've taken, we anticipate improvements in our cash flow from operations in fiscal 2024 compared to 2023. And despite some levels of variability based on timing of working capital, including the timing of collecting e-business tax credits that we file annually. So there we go. With that, over to you, Vic.
spk01: Hey, thanks, Deborah. Quite impressive. Every KPI that we monitor has significantly bettered over the last few quarters. In closing, I'd like to emphasize that with the acceleration that we see in the conversion of our pipeline, with the savings that we've made but are not yet fully reflected in the current quarter, I'm confident that we will continue to see significant improvements in our financial performance and cash flows over the quarters to come. I'd like to now open the floor for questions. Sabrina, would you take over?
spk02: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to attend our roster. The first question comes from Kevin Krishnarathne of Scotiabank. Please go ahead.
spk06: Hey there. Good morning, team. Sorry, I joined the call a bit late, so I'm not sure if this question was asked, but just You know, in both of the unified commerce and strategic sourcing, did you see organic growth year over year or are you seeing the trend down year over year?
spk01: In e-procurement, Kevin, as we mentioned during the call, there was a 13.5% growth that is organic. In e-commerce, when you factor out the sale of inter-trade, there is a little bit of a reduction, mostly caused by the lowering of professional services for which various large implementation projects were completed. So the revenue from these professional services are no longer present.
spk06: Is that what you're saying? The 13.5% in enforcing, does that account for, do you add back the deferred impact in Periscope in last Q1, or is that what you're doing there?
spk03: No, so that's the gap number, Kevin, so that if you go into the MD&A and you look at our e-procurement revenues, The numbers that we disclose would be the 13.5%, so it's the IFRS accounting. But you're correct that if you factor in the deferred revenue that we would have been able to record last year had we not had that adjustment, that percentage would be a bit lower.
spk06: Would be lower, yeah. Okay, no. And then just, okay, great on that. And then on both the segments then, you talked about the pipeline conversion. So do we... Kind of like take, if I look at your strategic sourcing 20.3 million, do we expect that to accelerate into the coming quarters or is it more of a back half weighted dynamic? Just what are you seeing in terms of the ability for that pipeline to convert?
spk01: As we mentioned, we've announced numerous contracts over the last quarter, last few months, I should say. and many of these tenders were actually presented shortly before we made the acquisition of Periscope or shortly after. We continued to present various proposals at various public organizations during those times, and it does seem like it's finally coming to fruition and the decisions are being made at our client's level to go ahead and invest in these procurement systems. So, yes, we expect to see a continued good news coming from various customers that are currently in our pipeline.
spk06: Okay, got it. And then the same thing, you know, again, looking at, you know, what you did in K e-commerce and in orchestra, do you see those, you know, steadily increasing? Over the coming quarters, it looks like at Orchestra, you were up from Q4 to Q1 at least.
spk01: In both our e-commerce property, these are highly sensitive to market conditions. So, Orchestra tailors more to large retailers, and we are not seeing an increase of volume, nor I would say numerous customers looking to either completely modernize their e-commerce platforms or solutions, or add further functionalities. On the B2B side, where K-Commerce specializes, because we sell there an e-commerce system that is integrated with the ERPs of mid to small businesses, we see a continued influx of new customers. However, these customers are relatively small in nature, and it would take a volume of these customers in order to increase. We don't see multi-million dollar contracts in e-commerce. Those are significantly smaller, but there is demand, and especially since we launched our integration with Acumatica, we are building up a nice pipeline there. Okay, got it.
spk03: Kevin, just to add that, I mean, you are correct that the revenues actually did increase from Q4, so we are up about almost 6% in that e-commerce platform from Q4.
spk06: Okay, got it. Thanks for that, Debra. That's helpful. And then maybe last one for me, probably for Debra. The $1.4 million in restructuring... that you booked in Q1, where do those, how do you think about where those are located in the various OpEx line items? And, you know, I'm trying to get a sense of how to take the Q1 sales and marketing R&D GNA and think about the run rate setting in the Q2, given that you've done all the restructuring.
spk03: Yeah, a large portion of that is relating to the salaries and termination benefits. So the answer would be it would follow the employees. So partially, partly in our cost of revenues and partly in G&A sales and marketing and tech. So don't have a specific headcount to give you an allocation. But let's say it would, I guess they were mostly cost of revenue and I guess tech, some G&A really was a cost The 40 people that we did lay off was really across the platform and in various areas. So it'd be hard for me to give you a split. You might want to divide it by four approximately.
spk06: Okay. So again, if I do the math here, your cost of sales as a percentage of revenue is almost 43%. So that will come down because there is some restructuring booked in there, right?
spk04: Yes.
spk06: That'll come down. And then if I look at your OpEx for Q1, it was in total $20.8 million. That'll move down as well. You're saying kind of just take that $1.4 million and split it?
spk03: four ways between those four buckets, the OPEX and the... Yeah, like, again, we don't give guidance on how many people we, you know, were affected in each of the departments. So, I mean, it was really a generalized workforce reduction, so probably a fair, you know, assumption to make.
spk06: And are there any more restructurings expected in Q2 that'll impact the adjusted EBITDA?
spk03: Nothing significant that we expect at this time.
spk04: Okay, great. Thanks a lot. I'll pass the line. Thank you.
spk02: As a reminder, if you wish to register for a question, please press star and 1 on your telephone.
spk05: For any further questions, please press star and 1 on your telephone.
spk02: This concludes our question and answer session. I would like to turn the conference back over to Mr. Filiato for any closing remarks.
spk01: Well, thank you again, Sabrina. Thank you all for being with us this morning. We're quite excited about the results that we are showing to you this morning, and we will continue to work towards improving these in the coming weeks and months. Have a great end of summer and we'll be, I guess, speaking to you when we announce Q2 mid-November. I don't have the date in front of me. Speak to you soon. Thank you all.
spk05: The conference has now concluded. Thank you for attending today's presentation. You may now
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