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spk02: 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 Filietro, 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, .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, have 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 .ceterplus.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.
spk05: Thank you, Giudice. 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 .2% of total revenues. Q3 24 and Q3 -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 and 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 state customers' spend on eligible fee bearing goods and services contracts. The cash generated on these models has increased in Q3 -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 e-procurement 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 revenue. Our fully integrated -to-end suite of e-procurement products are offered in modules. The 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 state, large cities, and for our mid-market agency customers, as well as for our supplier network.
spk06: We
spk05: have the
spk06: largest supplier network in North America,
spk05: suppliers, and over 6,500 buying organizations on our network. With this large customer base and a strong presence in the US states, we believe this positions us well for market growth. E-procurement revenue grew .5% Q3 over Q3, and .4% -to-date Q3 versus last year -to-date Q3, with recurring revenue in the procurement platform continuing to trend at 88% of total revenues.
spk06: We are pleased
spk05: with the offerings compared to Q3 prior year, with the exception of a normal level of churn from the legacy supplier platform 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 hundreds to a few thousand dollars per year, mostly on one year contract. 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 solutions, 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 were using six legacy platforms that we all migrated to a single bidnet 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
spk06: bid
spk05: opportunities directly from our buying agency's network. This consolidated effort provides one hub for our buying agencies to
spk06: reach
spk05: all of our suppliers while providing the supplier the benefit 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 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 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.
spk06: This
spk05: 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 full community. This month, we also renewed a large customer, 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've included my remarks on e-procurement, we are particularly enthusiastic about the recent acceleration in new e-procurement customers and the revenue growth that this will bring over the coming quarters. With a robust pipeline of opportunities, both in tier ones and in mid-markets, we believe that we are well positioned to capitalize on both larger state contracts and the mid-market opportunity that we believe is ahead as public agencies digitize their procurement solutions.
spk06: In our e-commerce, our platforms continue to
spk05: see headway as revenues generated from similar order volumes throughout our various retail and grocery clients is still trending at or under minimum threshold of our various. These online order volumes tend to follow the macroeconomic 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. Both -e-commerce, there's traction from our acumatic ERP e-commerce solution in the B2B space where transactional phasing 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 outbooking 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. JobBoom, which serves the job market in Quebec, has been unfavorable to our JobBoom revenue for which many companies are being laid off compared to the hiring spree that trended over the last few years. For BrokerForum, 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 e-marketplaces platform efficiently and profitably by maintaining competitive pricing and by managing costs. And now, Dara will comment on the corporation's financial results.
spk03: Good morning, everyone. You can find our two, three financial results, including the press release, MDNA and financial statements on our website and also on .cdarplus.com. As Nick mentioned earlier, Q3 fiscal 2024 total revenues were 30.2 million. This represents a decrease of 1.5 million, or .6% compared to Q3 2023. You'll recall that we sold the subsidiary last year on October 2nd, this was inter-trade. And if we exclude the inter-trade 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 -over-year growth of .5% compared to 19.8 million in Q3 of last year. The Q3 -to-date e-procurement revenues grew by .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 Luke 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 -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 consequential... Sorry, 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 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 has 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 -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 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 and 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, that's the number excluding inter-trade. 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 inter-trade. Recurring revenue compared to prior year was stable for e-commerce platforms, both for orchestra and K-commerce, with a year over year small declining professional services, mainly due to completing 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-commerce platform, there is traction in the B2B space for e-commerce solution for Acumenica 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-market platforms, sorry, 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 form 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 form, which is an electronic component parts marketplace, decreased $700,000 in Q3 of 2024 compared to Q3 of 2023. 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. The closure of a Réseau Comptact and Power Source 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 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 e-marketplaces revenue. I spoke briefly about job boom 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 in $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.
spk06: Thank
spk05: you, Deborah. So acceleration of growth in e-procurement is notable, and it's starting to show in our quarterly results. .5% in the quarter, .4% year to date. Positive cash flows from operation of $6 million in the quarter. That all makes us confident that we will continue to see top-line growth in recurring revenue over the coming quarters. It all bodes well for the future. Thank you very much. And we now like to open the line up for questions. Judith, please open it up.
spk02: Thank you. We will now begin the question and answer session. To ask a question, you may press start, and one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press start, and two. At this time, we will pause momentarily
spk01: to assemble our roster. The first question is from Kevin
spk02: Krishnarathne with Scotiabank. Please go ahead.
spk04: Hey there. Good morning. Thanks first for the color on the EBITDA going down. Answered a lot of questions. I just had a question on the cash flow. So I think you mentioned in the quarter, you had some benefits, working capital. Did you say that those continue into the next quarter? I think you said after year end, there's a couple of months lag between the filing and collection. So do we see another good working capital quarter in Q4 and then a reversion up on EBITDA as well, just on some of the business that you're seeing in the pipeline, just trying to get an understanding of what the cash flow from OPS could look like in the final quarter.
spk03: Thanks, Kevin. I'll give you a couple of more general answers. As we know, we don't give you guidance on actual numbers, but we are seeing favorable impacts on working capital. This has a lot to do with the cash we're collecting from our new customers as well as our transaction model customers. So we do anticipate that the cash flow will continue to be positive from that perspective. We did have favorable cash collection from e-business tax credits that we collect from our Quebec government, but this is relating to the end of the year fiscal 2023. So they pay us several months after the year end. We still have quite a bit to collect. We do believe we'll collect that in Q4. So again, something Q4, Q1 next year, we do think there'll be positive results there again. There is some choppiness in the timing of cash flows, though, when our large states pay us based on spend, it does vary in terms of weekly, monthly, how much is sent over. So there is timing differences, but we expect that overall positive cash flows will continue. With respect to EBITDA, the new contracts that we've signed will deploy at some point. And so we do expect that we will continue to be EBITDA favorable and that over time EBITDA will continue to increase without giving you any specific guidance on Q4.
spk04: That's helpful leading to sort of a next question. So these contracts, as you start to sign them, you know, they get signed and they'll deploy, you know, in the months afterwards. These are multi-year contracts of assuming that they're paid annually. I'm just trying to get an understanding of, you know, the flow, would we start to see nice moves up in the deferred revenue line as a leading indicator to help us sort of understand the forward quarter as they translate to revenue? Just can you, how do we think about, you know, the flow on the, you know, the financial statements as we start to really, really ramp these big opportunities?
spk03: Yeah, exactly. So any tier one customer, so large state customer that's on a typical SaaS arrangement or any of the mid-market customers are typically customers that pay us in advance and pay us in advance for a year. So you're correct. The cash flow comes in positively at the beginning and then the revenue gets deferred over the one-year contract period. Even when we sign multi-year contracts, typically they, some of them will renew, so will the cash will come in annually and the deferral will happen over 12 months. So you are correct. We would expect to see deferred revenue as a leading indicator of, you know, positive cash at the beginning and then future revenue to follow.
spk04: So as an example, like with the Hawaii win, which seems like a bigger one, is that in the deferred revenue right now? Or is it to come, I know, any, like is that in there right now? And you're going to start looking at... Hawaii
spk03: is a little bit different because you'll recall that Hawaii is a transaction model. So the way that works is from the point of view of the subscription revenue. We do recognize it when we enable the system and work with the client on it. So revenue has begun for that transaction model. However, because the transaction model is based on collection of spend on the state spend, it is not deferred revenue. It's not received in advance like a subscription. It's received as the customer spends for regular goods and services and we collect a portion of a fee on that. So it's not deferred revenue. In fact, it is what sits on our balance sheet is unbilled receivable until such time as it gets reported and we collect it.
spk05: Okay. If I can
spk06: just,
spk05: Deborah, for, you know, if we take some of our mature we do the early years of the contract, we do invest to get the solution and, you know, collection bills over time. So in the early years, we receive less than we book, but in the, towards the end of the contract, we received a lot more cash than we book. A little bit counterintuitive, but that's the way it works with the TRX model and that's contributing to the elevated cash flows that we see now because some of our contracts are now at that maturity point where, you know, everything's been installed, the suppliers are there using it, the customers is there using it and we receive large amounts of cash compared to the early years of the contract where we were actually implementing the solution.
spk04: Okay, great. Thanks for that color loop. Maybe the last one, the four and a half percent e-procurement growth in the quarter. How do we talk, how do you think about any impact from that, I think you call it churn, the bid net sort of migrations, is there any way to quantify some of the impact and what the growth would have been in the quarter, excluding that?
spk06: Well,
spk05: I didn't mention a note on that. As you saw, we retired all of our old supplier platforms and our supplier revenue is just a little higher than 50% of our total procurement revenue and we did see a bit more churn than usual because we were migrating customers from old legacy solutions to a much newer platform. Most of them stay and continue, some of them just use the opportunity to leave. We're seeing a little higher churn than usual and also our sales teams are busy converting these customers, talking to these customers, so there's a little bit less time to address net new customers. Yes, you could think that over the last few months we've had on the supplier business only, not on the agency business, but we've had churns which were a little higher than usual, but that should settle down and resume normal increases which we feel could be easily in the double digits going forward.
spk04: Okay,
spk01: thanks
spk06: so much for all that. I'll pass the line. Thank you.
spk02: The next question is from Jesse Pitlek with Cormark. Please go ahead.
spk07: Hi, good morning. Kevin already hit on most of the questions I wanted to ask, so I just have one. When I look at your US-based e-procurement revenue for the quarter, $15.5 million up from $15.1 million sequentially, I understand that obviously there'd be some churn impact on that, but it still seems rather modest compared to the number of new contract signings that you've had through the back half of the last calendar year. So I'm just wondering, how do we think about the cadence for e-procurement growth in the US business as you kind of bring on these new customers?
spk05: So the
spk07: question
spk05: is, Jesse will ask me this. Most of the customers are US-based, of the sheer size of the US government, general government compared to Canada. This is relatively slow to start booking everything. Obviously, on all of our contract, it starts with some services, and not only does the customer have to put together the team in order working and configuring the platforms, but that takes a... For government agencies, it takes more time than typical private businesses. So that's the factored ethics slow increase in recognized revenue, but that should accelerate over time as we kind of get going on the rhythm. But you can think that after contract signature, it could take up to two weeks, even a couple months before we can actually even start to do any work. So there's a natural delay there that we have to take into consideration.
spk07: Okay. And maybe just following from that, then given kind of the pacing of your signings last year, will there be one or two quarters where we'll actually maybe see a step change in growth, or should we expect it to just be more gradual?
spk06: I think it will continue to be gradual.
spk05: Maybe the odd exception could make a difference, but we're really seeing an escalation of these signed deals. Like I mentioned, on the mid-market, we currently have... We're just north of 60 new deals in the last few months. And where you could see a material step up is in finding a large state, either SAS or TRS, because of course, once that starts to activate, numbers are bigger and they come in in one quarter. And we do have quite a bit of pipeline in large tier one. Actually, our pipeline is probably four or five times the size it was last year at the time. So that's what can trigger a step up, because the contracts, as I mentioned, can be multimillion dollars per year of ARR. So factor that into any given quarter. A large one of these could easily bring a significant amount in one given quarter once it starts.
spk07: Okay. And then just on your comment there about your pipeline being four to five times the size it was last year ago. Is that just amongst tier ones or is that your overall deprocurement pipeline?
spk05: It's true overall deprocurement. It's been mentioned by numerous organizations, state governors addresses that digitizing their procurement is one of their top priorities pretty much across all of the US and into certain of the larger Canadian places. It's been publicly said by something called NASPO, which is the National Association of State Procurement Officials. You can find that on their website. Gartner also presents it as one of the last pieces of efficiency that governments can bring to their full economy. So we are seeing an increase in demand, which is accelerating. And we're obviously better and to serve our customer base with our integrated platform, simplified offerings. And we clearly have a very strong split in that market. That's
spk06: all for me. Thank you. Thank you, Jesse. Looking forward to meet.
spk01: Again, if you have a question, please press star then one. Mr. Filiatreux, there
spk02: are no more questions registered at this time. I would like to turn the conference back to you for any closing remarks.
spk05: Well, thank you, and thank you everyone for being with us this morning. As you can probably hear in our tone, we're excited over what we see coming in the future. Our government business is really at their right place, the right time, and the right markets. And our solution is really top notch. So we're very excited over what goes for the future.
spk06: Thank you all, and we'll speak soon.
spk02: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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