mdf commerce inc.

Thank you for standing by. This is the conference operator. Welcome to the MDF Commerce Third 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 markets closed. We will hear from Luc Filiatro, President and Chief Executive Officer of Debra 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 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 the 31st of December, 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 uncertainties. For more information on these risks and uncertainties, please see the reader advisory at the bottom of the MDF Commerce's new release, which is on their website and has been filed on www.setterplus.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.

Thank you, Judith. Good morning, everyone, and thank you for joining us for our Q3 fiscal 24 financial results call. Before turning to the actual results that we filed after the markets closed yesterday, I'll present an overview of the corporation's performance and an operational update. Q3 revenue were $30.2 million. with recurring revenue as a percentage of total revenue representing more than 80%, actually 82.2% of total revenues. Q3 24 and Q3 year-to-date 24 results show significant improvements in profitability and cash flows from the same period the last year. This is a direct result of the various initiatives that we've undertaken to reduce costs and importantly, from new customer revenue growth, mainly in our e-procurement platforms. New sales in e-procurement and the e-procurement state transaction models, what we call our TRX models, are contributing positively to cash flow from operations. In our TRX model contracts, we collect fees based on a percentage of our estate customers' spend on eligible fee-bearing goods and services contracts. The cash generated on these models has increased in Q3 year-to-date versus the same period last year, and we expect the cash generation from these TRX models to continue to substantially increase over time. For over two decades now, our eProcurement solutions have been at the forefront of delivering best-of-breed procurement solutions to public sector organizations across North America. We have the required public sector expertise to serve clients of all sizes and scope, from small cities to large states and provinces, of course. Our e-procurement platform now represents approximately 69, almost 70% of total MDF revenues. Just as a reminder, when I joined four years ago, we were just under 40% of procurement revenues. Our fully integrated end-to-end suite of eProcurement products are offered in modules. Source, Contract, Procure, Connect, and Shop. These solutions enable a complete transformation program for public sector procurement. Our full suite of products uniquely supports digital transformation in the public sector, bringing efficiency transparency, and modernization to customer procurement processes and that positions us well for increased market penetration. Our solutions and the services that we provide to customers are tailored for public sector procurement and provide a strong competitive advantage for both states, large cities, and for our mid-market agency customers as well as for our supplier network. We have the largest supplier network in North America, suppliers, and over 6,500 buying organizations on our network. With this large customer base and a strong presence in the U.S. states, we believe this positions us well for market growth. eProcurement revenue grew 4.5% Q3 over Q3 and 7.4% year-to-date Q3 versus last year year-to-date Q3. With recurring revenue in the procurement platform continuing to trend at 88% of total revenues. We are pleased offerings compared to Q3 prior year with the exception of some normal level of churn from the legacy supplier platforms that we migrated on our more modern bid net direct during this year. Just as a reminder, we offer our products to three segments in e-procurement. First, to large tier one organizations, such as states, provinces, large counties, where we offer million dollar multi-year contracts. Second is to mid-market buying organizations such as cities, counties, districts, and certain departments that range from 10 to hundreds of thousands of dollars of annual recurring revenue with contracts usually in the three to five year range. And third, to suppliers where we offer RFP access to more than 650,000 suppliers for which we receive from a few hundred to a few thousand dollars per year, mostly on one-year contracts. During the third quarter, excuse me here, during the third quarter, we welcomed new market customers to our procurement community, including several multi-year contracts for our e-procurement solution, mainly focused on source, connect, and contract. Since we started offering that mid-market strategy in April of 2023, so just nine months ago, we have already signed up more than 50 customers to our set of products. Our mid-market strategy, we are not only successful converting agency customers that historically had free access to our source module, or it was the suppliers that paid for that production. but we're also seeing an increase in selling our solutions to new agency customers. There's a large aggressive demand for mid-market offerings. Demand for e-procurement digitization in the mid-market is strong, and we expect to see continued acceleration. As the mid-market offering gains traction with customers, pipeline conversion is a focus area to generate revenue growth. Since the beginning of the year, we have won several new buying agency customers, resulting in contracts which will have a positive impact on revenue growth over the next few quarters. We continue to focus on modernizing our full suite of e-procurement offerings to bring value to our customers. Over the past few months, we made significant progress in our strategy to consolidate our supplier platform technology which simplifies our product offering and will reduce our cost. Supplier-based customers, we're using six legacy platforms that we all migrated to a single bid net direct platform over the course of the year, and we have decommissioned these platforms. Those platforms provide a robust set of features used by government agencies to publish, distribute, and award contracts. By consolidating our legacy supplier offerings to one single platform, suppliers receive exclusive bid opportunities directly from our buying agencies' network. This consolidated effort provides one hub for our buying agencies to reach all of our suppliers while providing the suppliers the benefits from a single platform on which they access bid opportunities. For the last 20 years, we focused our attention on building a supplier-based business model, which generates revenues of a few hundred to a few thousand dollars per year for each supplier that needed access to our network. While this accounted for the majority of our revenues until 2021, we were obtaining small-dollar contracts from a large number of suppliers. Over the last two years, we have consolidated our product offering to offer a fully digitized government, sorry, procurement platform that offers buying agencies such as states, counties, cities, et cetera, the ability to gain efficiencies associated with the implementation of our technology. This has shifted annual recurring revenue from tens of thousands of dollars to hundreds of thousands and even millions for larger organizations. By shifting the focus to buying agencies, we're leveraging our existing network to add a completely new source of revenue, which allows big dollars from all of our buying agencies. Overall, we have many new customer wins over the past month, including the State of Hawaii, which was announced last quarter, and those are starting to show in our financial results as customer deployments ramp up. The State of Hawaii contract is a multi-year contract agreement for the use of our entire procurement suite, including our innovative shop module. The shop module offers a marketplace environment where public organizations can shop off state contracts, feeding savings to all governments that wasn't to benefit from the state purchasing power for various goods and services. This shop module offered to all of our state transaction model agreement customers allows the buying authorities in each of these states to easily shop off of statewide procurement contracts and leverage the buying power of the flow community. This month, we also renewed a large state customer for another four years. This customer has been using our procurement solution since July of 2017, and we expect to renew our first original transaction model state in the coming weeks. As I conclude my remarks on eProcurement, we are particularly enthusiastic about the recent acceleration in new eProcurement customers and the revenue growth that this will bring over the coming quarters. With a robust pipeline of opportunities, both in Tier 1s and in mid-markets, we believe that we are well positioned to capitalize on both larger estate contracts and the mid-market opportunity that we believe is ahead as public agencies digitize their procurement solutions. In our e-commerce, our platforms continue to see headwinds as revenues generated from customer order volumes throughout our various retail and grocery clients is still trending at or under the minimum threshold of our various customers. These online order volumes tend to follow the microeconomic trends in the environment. We see much higher orders on days like Black Friday, Cyber Monday, Boxing Day, and even on some cold winter days when retail customers shop and grocery customers order more online. For K e-commerce, there's traction from our Acumatica ERP e-commerce solution in the B2B space where transactional stakes for savings to manufacturing and distribution customers. We participated in the Acumatica Summit in January, and I can tell you that we're enthusiastic about the opportunities for our solution. The large number of companies using the Acumatica ERP and also looking for the e-commerce solution is impressive. This gives us confidence that this is a vector of growth for our e-commerce platform. In e-marketplaces, our platforms continue to deliver strong profitability across all solutions, although two of our platforms have been increasingly impacted by the current economy. Job boom, which serves the job market in Quebec, has been unfavorable to our job boom revenue, for which many companies are experiencing layoffs compared to the hiring spree that trended over the last few years. For broker forums, The high growth that we saw over the past years, where severe supply chain issues resulted in worldwide shortages of electronic component parts and suppliers and buyers, would then turn to our solutions to locate inventory. And we unfortunately see that that has started to ease off. We operate our eMarketplaces platform efficiently and profitably by maintaining competitive pricing and by managing cost. And now, Dara will comment on the corporation's financial results.

Good morning, everyone. You can find our Q3 financial results, including the press release, MD&A, and financial statements on our website and also on www.cdarplus.com. As Rick mentioned earlier, Q3 fiscal 2024 total revenues were $30.2 million. This represents a decrease of $1.5 million. or 4.6% compared to Q3 2023. You'll recall that we sold a subsidiary last year on October 2nd. This was InterTrade. And if we exclude the InterTrade revenues, including other revenue from the post-closing transition services that we offered, the decrease in revenues is quite a bit smaller at $200,000 or 0.6%. The e-procurement platform performed well with revenues of $20.7 million. This represents Q3 year-over-year growth of 4.5% compared to $19.8 million in Q3 of last year. The Q3 year-to-date e-procurement revenues grew by 7.4% compared to the same period prior year, and recurring revenues for the e-procurement platform continues to trend at 88% of total revenues. New customer wins in the fiscal year, including the State of Hawaii, which we announced last quarter, And the acceleration of wins within our mid-market strategy that Luc spoke to earlier are starting to show in our financial results as customer deployments ramp up. We note that the full impact of these new customer accounts, many of which are agency customers that we have signed with multiple-year contracts, is not yet fully reflected in our Q3 financial results. It is typical for sales with government agencies that implementation work is started several weeks or even several months after the contract is signed. We've started the onboarding process with the state of Hawaii, and over the last year, we've successfully completed the most significant components of implementation milestones for our first three states, the Transaction Model Agreements, the TRX. Therefore, as expected, the professional services revenue from these large implementation projects have decreased as compared to the prior year, while the subscription and managed services revenue are recurring in nature. The cash generated on these TRX models increased in Q3 year-to-date versus the same period prior year. And once implementation is complete, the cost related to operating these programs decreases significantly. Before I turn to our other platforms, e-commerce and e-marketplace, I'll highlight the significant improvements in profitability and cash flow that we've achieved compared to Q3 prior year. Q3 2024 had adjusted EBITDA of $2.5 million. This is a significant improvement of $1.6 million compared to $900,000 in Q3 2023, and this marks the sixth sequential quarter with a positive adjusted EBITDA. Adjusted net loss saw a significant improvement of $3.6 million. It was $4.2 million in Q3 2023. 2024 compared to $7.8 million loss for Q3 2023. For Q3 2024, the net loss position is mainly driven by depreciation and amortization on our various intangible assets. And you can see this if you refer to Appendix A on the slide deck that provides the reconciliation of net earnings and loss to adjusted EBITDA and to adjusted net earnings and loss. The numerous business activities that we've taken over the last year to improve our financial results have led to notable improvements in profitability and have also had a positive impact on cash flows. We reported positive net cash generated from operating activities of $6.4 million for the third quarter, which compares to a net use in operating activities of $2.8 million in Q3 prior year. This strong improvement in cash flows over the prior years has been used to reduce long-term debt. There was a favorable change in non-working capital for the third quarter of fiscal 2024. And we've seen higher year-over-year cash flows generated from our e-procurement transaction model agreements, the TRX models, that are state contracts that use this program, and these programs are beginning to mature. The TRX program effectively drives the consolidation of spend on statewide contracts. And as a reminder for these TRX models, we collect fees over the term of the contract based on a percentage of our state customers' actual spend on eligible goods and services. During the quarter, we also benefited from favorable timing of collecting certain e-business tax credits that are receivable from the Quebec government. The claims for these credits are filed annually and are typically collected several months after year-end. We closed Q3 2020 with over $5 million of cash and $1.5 million in borrowings drawn on the revolving facility under the credit agreement, which together represented a positive net cash position of $3.5 million. This is a notable improvement when we compare it to where we started the year at March 31st, with cash and cash equivalents of $4 million and $7.1 million drawn on the revolving facility, therefore a net debt position of $3.4 million. Some levels of variability are expected in our business. It can impact cash, working capital, and borrowing on the credit facility. If I turn now to the other platforms, our e-commerce platform had revenues of $5.4 million for Q3 this year compared to $5.5 million for Q3 prior year. And if we exclude inter-trade, So that's the number excluding intertrade. But in our public reporting, we do refer to total unified commerce that had revenue of $6.8 million in Q3, and those numbers are the ones that include intertrade. Recurring revenue compared to prior year was stable for e-commerce platforms, both for orchestra and K-commerce, with a year-over-year small decline in professional services, mainly due to the completion of some customer integrations. The orchestra platform continues to see market headwinds, as mentioned by Luke earlier. This is on new sales, but also on the revenues generated from customer order volumes through our various retail and grocery clients, with most clients currently trending at minimum volume orders. For the K e-commerce platform, there is traction in the B2B space for e-commerce solution for Acumatica ERP that gives us confidence that there's a vector of future growth. The e-commerce platform is modern, scalable, and we're optimistic about future growth potential. In our e-marketplace platforms, revenue was $4.1 million for the quarter. This is a decrease of $900,000 compared to Q3 of last year. Recurring revenue for the e-marketplace platforms is high and continues to be high at 88.9%. compared to 81% in Q3 of 2023. In recent years, certain marketplaces' solutions, such as the broker forum and job boom, benefited from the macroeconomic conditions. Yet, as expected, we've seen the landscape changing over the last few quarters. As the worldwide supply chain issues experienced over the last few years subside, revenues from the broker forum, which is an electronic component parts marketplace, decreased $700,000 in Q3-24 compared to Q3-2023. And a softer labor market in 2024 has impacted job boom, which saw a $200,000 decrease in revenue from Q3 this year over Q3 last year. And the closure of Réseau Contact and PowerSource Online, which was at the end of November 2023, contributed to a $100,000 decrease in revenues compared to Q3 of last year. Revenues for the other e-marketplaces solutions were stable compared to Q3 last year. Our e-marketplace platforms are mature. They generate significant profitability and cash. And as Luke mentioned earlier, we're going to continue to operate those effectively, efficiently, and profitable. Finally, before I close my remarks, I do want to address the Q3 adjusted EBITDA of $2.5 million, which is lower than the $4 million reported in Q2, so a sequential decrease. $600,000 of this is really relating to eMarketplace's revenue. We spoke briefly about JotBoom and the broker forum. There was also sponsorship revenue, which was non-recurring, relating to a trade show included in those numbers in Q2. Our e-commerce platform had the $100,000 decrease. That was professional services. And the inter-trade non-recurring revenue was $300,000. So these decreases were really offset by a nice increase of $500,000 in our e-procurement platform, which, as we mentioned earlier, continues to perform well. Finally, sequential decrease in EBITDA has to do with wages and salaries, about $700,000. And while our workforce is stable, the sequential decreases are not about change in total headcount, and it really has more to do with the higher vacation that was taken in the summer months, which essentially draws down the vacation accrual rather than impacting the salary expense. And finally, we did see a small increase in web hosting costs sequentially, and this is as we continue to complete our cloud migration strategy which is scheduled for completion at the end of February, and also from some of the new customers that we've onboarded recently. With that, I'll turn it back over to Luke.