Q2 2024 Dye & Durham Ltd Earnings Call
Operator: Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dye & Durham second quarter fiscal 2024 earnings call. I would now like to turn the call over to Hoss Hirji.
Good morning, My name is <unk> and I'll be your conference operator today.
At this time I would like to welcome everyone to the time during the second quarter of fiscal 'twenty 'twenty four earnings call.
I would now like to turn the call over to Hawkeye G V.
Hoss Hirji: VPE Investor Relations, Dye & Durham. Mr. Hirji, you may begin your conference. Thank you, Lara, and good morning.
VP Investor Relations Diane Mr. Hogan you may begin your conference.
Thank you Laura and good morning, welcome to the Die in Durham Conference call before we start I'd like to remind you that all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated.
Hoss Hirji: Welcome to the Dye & Durham conference call. Before we start, we'd like to remind you that all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated. Please note that statements made during this call may include forward-looking statements and information and future-oriented financial information regarding Dye & Durham and its business and disclosure regarding possible events, conditions, or results that are based on information currently available to managers, which indicate management's expectation of future growth, results of operations, business performance, and business prospects, as well as opportunity. Such statements are made as of this date hereof, and Dye & Durham assumes no obligation to Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results. A number of these risks or uncertainties could cause results to differ materially from the results discussed today. Given these risks and uncertainties, one should not place undue reliance on these statements and information.
Please note that statements made during this call may include forward looking statements and information and future oriented financial information regarding giant German its business and disclosure regarding possible events conditions or results that are based on information currently available to management.
Indicate managements' expectations of future growth results of operations business performance and business prospects as well as opportunities.
Such statements made are made as of this date hereof.
<unk> assumes no obligation to update or revise them to reflect events disclosures or circumstances, except as required by applicable securities laws.
Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results.
A number of these rest orange during these could cause results to differ materially from the results discussed today, given these risks and uncertainties one should not place undue reliance on these statements and information.
Hoss Hirji: Please refer to the Forward-Looking Statements and Information and Future-Oriented Financial Information sections of our public filings, without limitation, our MD&A, and our Earnings Press Release issued today for additional information. Joining us on the call today are Matt Proud, Dye & Durham's Chief Executive Officer, and Frank DiLisio, Dye & Durham's Chief Financial Officer. The question and answer session will follow the formal remarks for research analysts. I will now turn the call over to Matt for opening remarks. Thanks, Tuck, and good morning, everybody.
Please refer to the forward looking statements and information and future oriented financial information section of our public filings without limitation, our MD&A and our earnings press release issued today for additional information.
Joining us on the call today are Matt proud that in Durham, Chief Executive Officer, and frankly, so I interim Chief Financial Officer.
A question and answer session will follow the formal remarks for research analysts I will now turn the call over to Matt for opening remarks.
Thanks, Scott and good morning, everybody.
Matt Proud: The business performed really well in what is typically a seasonally low quarter. We're up 17% in revenue, taking into account the impact of the PM divestiture, and we continue to grow our contracted revenue. Annual contracted revenue was $203 million, or 49% of total revenue, as of December 31, 2020. Contracted revenue consists of ARR, which was $112 million, as of December 31st, again representing 27% of our revenue, and other REC contracted revenue from contracts, overages, or service agreements, which was $93 million. We're building a business of scale, delivering mission-critical software to law firms and financial institutions. The Legal Technology Vertical was a $25 billion market in 2023 and is estimated to grow to $46 billion in 2030. This is according to third-party records.
The business performed really well in what is typically a seasonally low quarter. We're.
We're up 17% in revenue taking into account the impact from the divestiture.
We continue to grow our contracted revenue.
Annual contracted revenue was $203 million or 49% of total revenue as of December 31, 2023.
Contracted revenue consists of <unk>, which was $112 million.
As of December 31st again, representing 27% of our revenue and other contracted revenue and contracts Overages or service agreements, which was $93 million.
We're building a business of scale delivering mission critical software to law firms and financial institutions.
The legal technology vertical was at $25 billion market in 2023 and is estimated to grow to be 46 billion in 2030.
This is according to third parties of course, our practice management and data insights and due diligence solutions address the Mac market fastest growing needs.
Matt Proud: Our practice management, data insights, and due diligence solutions address the market's fastest growing needs. As such, we're well positioned to win in this market. Our practice management solutions help small and medium-sized law firms manage and grow their practices with key applications like case and matter management, as well as core business functions like accounting, billing, client onboarding, workflow management, and document management. Earlier this month, we announced the launch of our Unity Global Platform. We initially launched this in the UK and expect to launch it later in Australia and Canada this year.
We're well positioned to win in this market.
Our practice management solutions helps small and medium sized law firms manage and grow their practices with key applications like case in matter of management as well as core business functions like accounting billing client on boarding workflow management and document management.
Earlier this month, we announced the launch of our unique global platform.
We initially launched this in the U K export expect lab launch later in Australia and in Canada. That's later this year.
Matt Proud: We've built a business through acquisition, with a very large customer base, with multiple core product offerings in each of our markets. These offerings solve law firms' needs, which are critical to their business and customers. Building through acquisition means you don't necessarily have a uniform platform for clients to use across functions. The U.S. is also good.
We built the business through acquisition.
We are a very large customer base with multiple core product offerings in each of our markets.
These offerings solve law firms needs, which are critical to their business and customers.
Yes.
Building through acquisition means you don't necessarily have a uniform platform for clients to use a cross functions. The U S is also different.
Matt Proud: The customer experience is different, and it's more difficult to leverage the brand across different applications as well. The Unity Global Platform solves these challenges by bringing together all the acquisitions we've made in one seamless way for our customers. It was a big, big project for us, and the team delivered in a very big way. The Unity Global Platform makes it more streamlined for customers to access a range of products and services in one location; with one login, you get access to everything you need to manage your practice.
Customer experience is different it's more difficult to leverage the brand across different applications as well.
I usually go part for them is solves this solves these challenges by bringing together all the acquisitions, we've compiled in one seamless way for our customers.
It was a big Big project for Us and the team delivered in a very big way.
The unique global platform.
It more streamlined for customers to access a range of products and services in one location with one login.
Get access to everything you need to manage your practice.
Matt Proud: Law firms can now reduce their administrative burden and reclaim time to earn fees dedicated to client services and, in turn, grow their business faster with less effort. Our competitors don't offer the same capabilities across comprehensive applications that we do. For instance, the Uniglobal platform includes a fully integrated client onboarding solution, allowing law firms to quickly get binding engagement letters signed by their customers and, at the same time, allow them to seamlessly take their customers through the digital ID verification, KYC, and AML processes.
Law firms can they have reduced their administrative burden and reclaim time to earn fees dedicated to client services.
Trying to grow their business faster with less effort.
Our competitors don't offer the same capabilities across comprehensive applications that we offer.
For instance, the unit Golub platform includes a fully integrated client on boarding solution, allowing law firms to quickly get binding engagement letter signed by their customers and at the same time allows them to seamlessly take their customers through the digital IV verification K Y Z and AML process.
Matt Proud: We believe the world-class capabilities of the UND Global Platform position us effectively to compete and continue to win market share. By offering a single global platform for essential industry-leading software solutions, we're positioned more strongly than we ever have been to lead in the global technology industry. At the same time, we're designing, building, and launching new platforms.
We believe the world class capabilities of the global platform position us effectively to compete and continue to win market share.
By offering a single global platform for our central industry, leading software solutions, we're positioned more strongly than we ever have been to lead the lead in the global technology industry.
At the same time, we're designing building and launching new platforms. We've also taken.
Matt Proud: We've also taken a series of important steps as part of our larger plan to strengthen the business. First, we strengthened our balance sheet and restructured a large portion of our convertible debt, which, taken together, has significantly improved our capital structure and provided us with greater flexibility. Specifically, since our last call, we increased and completed the $160 million substantial issuer bid for the 2026 Tomorrow's Ventures. There is now $185 million left in principal amount outstanding on the 2026 list, compared to $345 million at the time of our last call. We also issued $140 million in new debentures due November 1, 2028. These new debentures do not have the same accelerated maturity as the 2026 convertibles.
A series of important steps as part of our larger plan to strengthen the business.
First we strengthened our balance sheet and restructured a large portion of our convertible debenture could've convertible debt, which taken together have significantly improved our capital structure and provides us greater flexibility.
Specifically since our last call, we increased and completed the $160 million substantial issuer bid for the 2026 zero Adventures.
There is now a $185 million.
The principal amount outstanding on the 2020 victims.
Compared to $345 million at the time of our last call.
We also issued 140 billion of new debentures due November one 2028.
These new debentures do not have the sand accelerated maturity is the 2026 convertibles.
Matt Proud: In effect, we've termed out $160 million for an increased yield to maturity of 2.4%. Additionally, earlier this month, we raised $145 million in cash through an equity-bought deal. The Capital Raise places us in a stronger position with more optionality in the method we use to continue to deliver. We are committed to driving our leverage ratio below 4x net debt to adjusted EBITDA, including the converts, as quickly as possible. The business is stronger today as a result of these transactions. During the second quarter, we also launched a strategic review of our non-core assets to expedite our priority to do so. The review is examining a variety of options and is ongoing.
In fact, we termed out $160 million for an increased yield maturity of two 4%.
Additionally.
Earlier this month, we raised $145 million in cash to equity bought deal.
The capital raised places us in a stronger position with more optionality and the message. The message. We continue to look in the method, we use to continue to deleverage.
We are committed to driving our leverage ratio below four times net debt to adjusted EBITDA, including the converts as quickly as possible.
The business is stronger today as a result of these transactions.
During the second quarter, we also launched a strategic review of our noncore assets to Expediate are our priority to deleverage.
The review is examining a variety of options and is ongoing.
Matt Proud: I am required to say that no assurances can be made that this strategic review will result in any specific transaction or additional action, but I assure you we're committed to the process, and we'll continue to work through the review to identify and close on the best outcome for our shareholders. Free cash flow performance and cash flow conversion are priorities of the business in 2024 and beyond. Last quarter, we announced a plan that targets $70 million or more of free cash flow performance improvement by the end of Q3 FY24 compared to Q1 FY24. We're on track to meet this target with a $40 million improvement on an analyzed basis in Q2. This improvement was primarily due to price optimization, a reduction in capex, and improvement in Restructuring Other Costs and Lowering Adjusted Operating Costs.
I am required to say that no assurances can be made the dive strategic review will result in any specific transaction or additional actions, but I assure you. We're committed to the process and we'll continue to work through the review to identify and close on the best outcome for our shareholders.
Free cash flow performance and cash flow conversion of priorities of the bids in.
In 2024 M. B at last quarter, we announced a plan that targets 70 million or more of free cash flow performance improvements by the end of Q3 fiscal 'twenty four.
Q1 fiscal 'twenty four.
We're on track to meet this target with a $40 million improvement on an annualized basis in Q2.
This improvement was primarily due to price optimization, a reduction in capex and improvement in restructuring and other costs and lowering adjusted operating costs.
We've made.
Material progress in diversifying the business over the past 24 months.
Were illegal tech job technology company that supports law firms to manage and grow their practice practices faster with less effort, we're not a real estate company our exposure to Canadian real estate continues to shrink and now stands at just 19% of total revenue.
Matt Proud: We've made material progress in diversifying the business over the past 24 months. We're a legal technology company that supports law firms to manage and grow their practices faster with less effort, or it won't. Our exposure to Canadian real estate continues to shrink, and now stands at just 19% of total revenue, and we have even less exposure than that to resale transactions when you take into account refinancing. Put in perspective, some software companies have cut their exposure to Canadian real estate by as much as 50%. Revenue driven by global real estate transactions that law firms are working on was 44% in the quarter.
And we have even less explosion that two resale transactions when you take into account refinancings.
Put it in perspective, some software companies have customer concentration that is higher than that figure.
Revenue driven by global real estate transactions that law firms are working on with 44% in the quarter, that's great progress towards our goal to drive that figure down to 33% of total revenue within three years.
Yeah.
I also want to take a second to talk about our board refresh we added two new directors at the end of last year, calling Morehead and Peter brands and we're excited to have him on board and to bring their their capabilities and skill sets with them I'd also like to say, thank you to Mario D. Pietro who served on the board for many years, we wish Mary all the luck in the future.
Matt Proud: That's great progress towards our goal to drive that figure down to 33% of total revenue within three years. I also want to take a second to talk about our board refresh. We added two new directors at the end of last year, Colleen Moorhead and Peter Brim, and we're excited to have them on board and to bring their capabilities and skill sets with them.
Yeah.
The business is a great position today with the launch of the global unique platform a more diversified revenue base, a strong and growing base of <unk>, a strong balance sheet and an important improved capital structure.
Matt Proud: I'd also like to say thank you to Mario DiPietro, who served on the board for many years, and we wish Mario all the luck in his future endeavors. The business is in a great position today with the launch of the Global Unity Platform, a more diversified revenue base, a strongly growing base of ARR, a strong balance sheet, and an improved capital structure. I'll now turn it over to Frank to discuss the financial... Thank you, Matt, and good morning, everyone.
I'll now turn over to Frank to discuss the financials.
Yeah.
Thank you, Matt and good morning, everyone.
This morning, we reported our second quarter fiscal 2024 results. Our results continue to demonstrate the resiliency and diversification of the business.
As Matt mentioned.
To diversify our revenue base and enhance our practice management offering.
To reduce our reliance on real estate transactions and increase our annual recurring revenue primarily through our practice management solutions.
This quarter, we concluded a new metric annual contracted revenue, which further demonstrates the consistency of the business.
Frank DiLisio: This morning, we reported our second quarter's Disco 2024 results. Our results continue to demonstrate the resiliency and diversification of the business. As Matt mentioned, we will continue to diversify our revenue base and enhance our practice management offering, continue to reduce our reliance on real estate transactions, and increase our annual recurring revenue primarily through our practice management solutions. This quarter, we've included a new metric, Annual Contracted Revenue, which further demonstrates the consistency of the business. Revenue exposed to real estate transactions globally in Q2 was 44% compared to 54% in the same period of fiscal 23.
Revenues closed two real estate transactions globally in Q2 was 44% compared to 54% in the same period of fiscal 'twenty three.
While revenues close to real estate transactions in Canada was only 19% compared to 30% in the same period of last year.
Keep in mind that a portion of our 19% exposure in Canada includes refinancing transactions when we when excluded which further reduce this metric.
Annual recurring revenue contracted with 27% as of December 31, 2023, compared to just 16% at the same point last year.
There are components of our revenue, which we do not include any or are such as revenue from contracted old bridges and other revenues under contract with service agreements.
Annual contracted revenue in the second quarter was 49% inclusive inclusive of a R. R.
Okay.
We reported revenue of $10 million during the second quarter, an increase of 17% compared to the same period last year.
In consideration.
Frank DiLisio: Well, revenue exposed to real estate transactions in Canada was only 19% compared to 30% in the same period last year. Keep in mind that a portion of our 19% exposure in Canada includes refinancing transactions, which when excluded would further reduce this metric. Annual recurring revenue contracted was 27% as of December 31, 2023, compared to just 16% at the same point last year. However, there are components of our revenue which we do not include in the ARR, such as revenue from contracted overages and other revenues under contract with service agreements. Annual contracted revenue in the second quarter was 49%, inclusive of ARR. We reported revenue of $110 million during the second quarter, an increase of 17% compared to the same period last year and taking into consideration the sale of TM Group on August 3, 2023. Revenue grew 3% year-over-year, including the impact of PM in the prior period. However, keep in mind that the Q2 and Q3 periods of our fiscal year are typically the weakest from a seasonality perspective. Q4 and Q1, in that order, are typically our strongest seasonal periods.
A T M group on August three 2023.
Revenue grew 3% year over year, including the impact of <unk> in the prior period.
Keep in mind that the Q2 and Q3 periods of our fiscal year are typically the weakest from a seasonality perspective Q.
Q4, and Q1 in that order are typically our strongest seasonal periods.
We generated adjusted EBITDA of 60 million in the second quarter of fiscal 2024, an increase of 9% or $5 million compared to the same period last year and taking into the consideration the selling of PM group.
Adjusted EBITDA grew 4% or $2 4 million, including the contribution of TM group in the prior year.
The improvement is primarily a result of the growth in revenues, both organic and inorganic as well as the early impacts from our business improvement plan.
We continue to maintain our strong EBITDA margins coming in at 54, 5% this quarter, which is in line with our target range of 50% to 60%.
Total adjusted operating expenses, which includes direct costs technology costs, G&A sales and marketing were $50 2 million for the quarter or 44, 5% of revenues.
We expect our ongoing operating cost to be within the 40% to 50% range of revenues.
Net of the impact of expenses from our last 12 months of acquisitions and the sale of TM group, our adjusted operating expenses for the quarter were lower by approximately $1 million from the prior year, which demonstrates the improvements from our business improvement plan announced in the previous quarter as.
As we acquire assets manage the broader business, we continually look for ways to drive cost synergies and eliminate redundancies.
Net finance costs for the quarter were $49 million compared to $38 4 million in the same period of fiscal 'twenty three.
Frank DiLisio: We generated adjusted EBITDA of $60 million in the second quarter of fiscal 2024, an increase of 9%, or $5 million, compared to the same period last year and taking into consideration the sale of TM Group. Adjusted EBITDA Group increased by 4%, or $2.4 million, including the contribution of TM Group in the prior year. The improvement is primarily a result of the growth in revenues, both organic and inorganic, as well as the early impacts from our business improvements. We continue to maintain our strong Vida margins, coming in at 54.5% this quarter, which is in line with our target range of 50-60%. Total Adjusted Operating Expenses, which includes direct costs, technology costs, G&A, sales, and marketing, were $50.2 million for the quarter, or 44.5% of revenue.
The increase was mainly due to an increase in interest rates higher debt balances as well as unfavorable noncash impacts from the change in fair value of our convertible debentures as compared to the prior period.
Acquisition restructuring and other costs for the quarter were $5 3 million.
This was a decrease from $15 6 million in the second quarter of fiscal 'twenty, three and we believe we can deliver additional improvements in this cost line item over time.
We're taking actions to increase our cash flow performance and placing a greater emphasis on this measure.
Q2 cash flow from operations was $44 6 million in the quarter of.
57% compared to the same period last year.
And an improvement in free cash flows of $9 million as compared to the previous quarter.
Turning to our balance sheet, our net debt excluding the convertible dentures stood at approximately 1.05 billion as of December 31 2023.
Subsequent to the end of the period, we increased the size of the substantial issuer bid that Matt talked about earlier and close the equity bought deal.
Frank DiLisio: We expect our ongoing operating costs to be within the 40-50% range of revenue. Net of the impact of expenses from our last 12 months of acquisitions and the sale of TM Group, our adjusted operating expenses for the quarter were lowered by approximately $1 million from the prior year, which demonstrates the improvements from our Business Improvement Plan announced in the previous quarter. As we acquire assets and manage the broader business, we continually look for ways to drive cost synergies and eliminate redundancy. Net finance costs for the quarter were $49 million, compared to $38.4 million in the same period of fiscal 2023. The increase is mainly due to an increase in interest rates, higher debt balances, as well as unfavorable non-cash impacts from the change in fair value of our convertible ventures as compared to the prior period. Acquisition, construction, and other costs for the corridor were $5.3 million.
Financing, which raised net proceeds of approximately $140 million.
Which was partially used to retire all of the outstanding revolving facility as of December 31, 2023.
We understand the importance of reducing our leverage ratio and we have set a clear target to reduce it below four times total net debt to adjusted EBITDA.
That said, we have sufficient resources to manage our debt levels.
Business generates strong sustainable cash flows.
We built a business of scale that is mission critical to small and medium sized law firms and financial institutions today's results and the recent actions we've taken demonstrate.
Just a few of the business and the opportunity in front of us with.
With that I'll turn it back to the operator for Q&A.
Thank you Sir.
Ladies and gentlemen, you will now begin the question and answer session. So do you have a question. Please press star followed by the number one on your touch down Sun you will hear I think Jon Komp acknowledging your request to <unk>.
Frank DiLisio: This was a decrease from $15.6 million in the second quarter of Fiscal 23, and we believe we could deliver additional improvements in this cost line item over time. We're taking actions to increase our cash flow performance and placing a greater emphasis on this measure. Our Q2 cash flow preparation was $44.6 million in the quarter, a 57% increase compared to the same period last year, and an improvement in free cash flows of $9 million as compared to the previous quarter. Turning to our balance sheet, our net debt, excluding the convertible ventures, stood at approximately $1.05 billion as of December 31, 2023.
The decline from the calling process. Please press star followed by the number Tim.
We're using a speaker phone please lift your handset before pressing on it.
We have our first question coming from the line of Robert Young from Canaccord Genuity. Please go ahead.
Our first question from me would be related to the delayed draw it looks like you drew down on that.
In the quarter and then you said that you are going to use proceeds from the recent deal to pay down the revolver does that include the delayed draw or do you think of the revolver is separate and what's the reason for the the drawdown on the delayed draw.
Hey, Rob it's Frank here, Yeah, we as I mentioned, we did.
We didn't draw down on the delayed draw we added a separate facilities as compared to the revolving credit facility absolutely completely eliminated the balance.
Frank DiLisio: Subsequent to the end of the period, we increased the size of the substantial issuer bid that Matt talked about earlier and closed the equity bought deal financing, which raised net proceeds of approximately $140 million, which will be partially used to retire all of the outstanding revolving facilities as of December 31, 2026. We understand the importance of reducing our leverage ratio, and we have set a clear target to reduce it below four times total net debt to keep it up. That said, we have sufficient resources to manage our debt level.
Very revolving facility that was outstanding as you recall it was approximately $30 million at the end of.
This December reversed.
Okay.
And then.
Maybe if you could talk about the focus on deleveraging and what happens after you reached four times leverage.
Maybe if you can just talk about how you view the strategy.
Yeah.
Once you hit that level.
Look we're I don't think our strategies to dramatically changed the business continuation continues to generate a lot of cash.
Operator: Generates Strong Sustainable Cash; We built a business of scale that is mission-critical to small and medium-sized law firms and financial institutions. Today's results and the recent actions we've taken demonstrate the opportunity in front of us. With that, I'll turn it back to the operator for Q&A. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift your hands up before pressing any key.
We'd like to.
Obviously, having less left gallery in parallel so having paying less interest enables us to redeploy that cash to continue to grow.
That's what our plans are to be.
If I could just add some slightly different Wally if if the.
Deleveraging goes a little faster than people expected.
Will you continue to focus on deleveraging is that going to continue to be important or will you ship more to more M&A.
We will continue to grow the business.
Alright, and then maybe last question for me.
You talked a little bit about our.
Expansion.
I think you said that you started in the U K and Australia last quarter, maybe you can just talk about the.
The areas of growth in the near term that dominate by Canada to date.
What.
Frank DiLisio: We have our first question coming from the line of Robert Young from Canterbury Dinuity. Please go ahead. The first question for me would be related to the delay draw. It looks like you drew down on that in the corridor, and then you said that you were going to use the proceeds from the recent deal to pay down the revolver. Does that include the delay draw, or do you think of the revolver as separate, and what's the reason for the drawdown on the delay draw? www.durham.ac.uk Hey, Rob, it's Frank here.
We're expanding role that our all our sales effort in the U K.
And despite it being early days, we're seeing great traction from.
The numbers of customers, taking up contracts again, we're going in with a cross sell between our data and insights business and unprecedented business.
And it's being very well received by being early days.
Okay. That's all for me thanks.
Our next question comes from the line of Finance Ms Chaparral from BMO capital markets. Please go ahead.
Hi, good morning.
It looks like you acquired credits during the quarter can frac. Some color on that business is that an <unk> type of business and more transaction driven and is there technology you can leverage in other geographies or is it primarily.
Frank DiLisio: Yeah, we, as I mentioned, we did, we didn't draw down on the delay draw facility. We added a separate facility as compared to the revolving credit facility. So we completely limited the balance of the revolving facility that was outstanding. As you recall, it was approximately $30 million at the end of December 31st. And then maybe if you could talk about the focus on deleveraging and what happens after you reach four times leverage, maybe you could talk about how you view the strategy once you hit that level. Look, Rob, I don't think our strategies have dramatically changed.
U K specifically policy.
Yes, with the client on boarding tool that's used.
Today, primarily in the U K it has large market share in that.
In that market.
And we are looking to depending on the needs of the market every market has different ky's he needs and they're not just kind of country needs are at a kind of state by state Province by province basis, and so we'll continue to we are looking at other markets, where that technology can be leveraged, but when we launched the evening old platform you already integrated in.
Frank DiLisio: The business, www.dyeanddurham.com If I just ask in a slightly different way, if the deleveraging goes a little faster than people expected, will you continue to focus on deleveraging, like that's going to continue to be important, or will you shift more to more M&A? We'll continue to grow the business. Alright, and then maybe last question for me. You talked a little bit about ARR expansion. I think you said that you started in the UK and Australia last quarter. Maybe just talk about the areas of growth in the near term that are dominated by Canada to date. But how far have you been able to expand that?
And white labels Greta says the <unk> solution for our many many law firms that spend their days inside our platform already.
Okay.
Could you provide an update regarding the strategic review.
The Canadian financial infrastructure business or is there not much you can say on that front.
I said, what I'm allowed to say at the opening of five I should say at the beginning of the call, but we do remain committed to seeing where that person's Gus.
Matt Proud: We've rolled out our AR sales effort in the UK, and despite it being early days, we're seeing great traction from the numbers of customers taking up contracts. Again, we're going in with a cross sell between our data and insight business and our practice business, and it's being very well received, despite it being early days.
Okay Fair enough last one for me.
Just given that there seems to be signs of life and property transaction volumes.
In Canada, and just heading into the upcoming quarter is it safe to assume that.
We should expect to see some sequential uptick in the business in both revenue and EBITDA I mean, recognizing you don't provide guidance, but just directionally.
Operator: Okay, that's all for me. Our next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Please go ahead. Hi, good morning.
We sell software to law firms are going to come in the real estate market.
And then sadly.
We do we do disclose the real estate exposure metric.
Matt Proud: It looks like you acquired Credus during the quarter. Can you provide some color on that business? Is that an ARR type of business, more transaction-driven? And is there technology you can leverage in other geographies? Or is it primarily UK-specific technology?
So right now is that for Q2 was at 19%.
And that includes refinancing transaction, so as we continue to.
Bring customers on board with mineral and prescription volumes, our exposure will continue to decrease in.
Matt Proud: It's a cloud onboarding tool that's used today primarily in the UK. It has a large market share in that market. And we are looking to, depending on the needs of the market, every market has different KYC needs. And they're not just country needs, they're at a kind of state by state, province by province basis.
And generally I think.
I'd just reiterate like your sub 20% of your revenue today is coming from lawyers working on transactions that involve real estate in Canada.
So it maybe dramatically diversified the business.
Matt Proud: And so we'll continue to; we are looking at the markets where that technology can be leveraged. But, you know, when we launched the UMI Global Platform, we already integrated white-labeled Credus as the Dye & Durham solution for our many, many law firms that spend their days inside our platform already. Okay, and could you provide an update regarding the strategic review of the Canadian financial infrastructure business, or is there not much you can say on that front? I said what I'm allowed to say at 5, what I should say at the beginning of the call, but we do remain committed to seeing where that process goes. Fair enough. Last one for me.
Just wanted to just reiterate that.
Fair enough I'll pass the line thanks.
Our next question comes from the line of Kevin Kisner lines from Scotiabank. Please go ahead.
Hey, there.
Just quick question on the air or 27% I think that was kind of flat from that from the last quarter.
I mean, he explained why that may have been in the case of that within expectations in any ways to think about targets of where that could go over the next couple of quarters.
Yes, I mean in terms of targets, Kevin we are committed to seeing <unk> grow.
250% over the next two and a half years.
Matt Proud: Just given that there seems to be signs of life in property transaction volumes, at least in Canada, and just heading into the upcoming quarter, is it safe to assume that we should expect to see some sequential uptick in the business in both revenue and EBITDA? I mean, recognizing you don't provide guidance, but just directionally? We sell software to law firms; it's hard for me to comment on the real estate market. And we do, we do disclose the real estate exposure metric panel. So right now, its exposure to QT was at 19%, and that includes refinancing transactions. So as we continue to bring customers on board with minimum subscription volumes, our exposure will continue to decrease. Yeah, I think I would just reiterate, like, 20% of your revenue today is coming from, you know, lawyers working on transactions that involve real estate. So it dramatically, you know, diversified the business. Um, I just wanted to reiterate that. Fair enough; I'll pass the time.
So that we remain committed towards that and now that we've added a new metric on annual contracted revenue.
Always be one step higher than our <unk> metric.
So we have obviously in our in our results since he valley factors that would impact <unk>.
Which was the main reason why you'd see a flat amount.
Amount.
Quarter to quarter.
And some other revenue adjustments that were made.
Okay. Thanks for that kind of interesting on the contracted revenue can we can you dig in a little bit deeper maybe give us. Some examples are those you know how are those structured are they one year multiyear and any other color you can provide on that would be helpful.
Yeah, generally generally aircrafts our contracts are three year contracts.
Again, they generally have a lot of our new causes.
The recent acceptance we have one year. So we have a couple.
Five years.
But generally there are three year contracts all the news and in a lot of them have price escalators built into them.
When Frank talks about Overages.
Matt Proud: Thanks. Our next question comes from the line of Kevin Cresnalon from Scotiabank. Please go ahead. Hey there, good morning.
There is really kind of three.
Three types of contracted revenue we have.
There is.
For user per month contracts over three years.
Frank DiLisio: Just a quick question on the ARR, 27%. I think that was kind of flat from the last quarter. Can you explain why that may have been the case, is that within expectations, and any ways to think about targets of where that could go over the next couple quarters? Yeah, I mean, in terms of targets, Kevin, we are committed to seeing recurring revenue grow to 50% over the next two and a half years, so we remain committed to that. And now that we've added a new metric on annual contracted revenue, that will always be one step higher than our ARR metric. So we have, obviously, in our results, some seasonality factors that would impact ARR, which was the main reason why you'd see a flat amount from quarter to quarter and some other revenue adjustments that were made. Okay, thanks for that. Interesting on the contract of revenue; can we can you dig in a little bit deeper? Maybe give us some examples. Are those, you know, how are those structured? Are they one year, multi-year, and any other color you can provide on that would be helpful.
One of your traditional subscription there are contract.
There is minimum spend contracts some people over it as take or pay contracts.
And then we have the overages.
Those take or pay contracts if they go over.
In that other category, which I'm counting overage, we also have contracts with our suppliers, particularly for big banks, we offer a service often exclusively our exclusive exclusive like it.
We provided on their behalf and we often often charged transactional 84 those services are driving the contract and so that's what we can share in the other bucket.
Got it okay. So so that would be the that the payments Telus financial sort of business would be kind of captured in there.
Yeah, Australia, we do the same things for banks. So this is a combination of like others supplier contracts, we have for banks.
And the Overages on our minimum standard contracts.
Okay.
Buckets, what we count as other.
Got it okay cool the last one for me if I if I try to think about you know free cash flow they take care.
Frank DiLisio: Yeah, generally, our customer contracts are generally three years. Again, they generally have auto-renew clauses. The recent exceptions, we have some one-years. So we have a couple, not many, a few five-years.
Ah you know deduct the interest cash tax working capital I think was softer again in a quarter you get close to sort of flat on that basis, but as we look forward I know you said capex and what are some of the other drivers that give you the confidence in and that's sort of like underlying free cash flow growth.
Frank DiLisio: But generally, they're three-year contracts at Auburn News, and a lot of them have price escalators built in them. Um, when Craig talks about overages, there is, you know, it's really kind of three types of contracted revenue we have. There are per user, per month contracts over three years with any of your traditional subscription based revenue contracts. There are minimum spam contracts.
How do we see working capital normalizing next few quarters.
Yes, so I mean, you have to get that.
The main drivers correct, Kevin So so working capital you have heard that there were some silver facts from the sale of TM.
That would have continued on into Q2.
Frank DiLisio: Some people have heard of take or pay contracts, and then we have the overages on those take or pay contracts if they go over. In that other category, which I'm counting as overages, we also have contracts where we are suppliers, particularly to big banks. We offer a service, often exclusively or exclusively like. So we provide them on their behalf, and we often charge transactionally for those services that we provide under contract, and so that's what we capture in the other bucket. Got it. Okay, so that would be the payments; the telefinancial sort of business would be kind of captured there. Yeah, Australia; we do the same things for banks. So it's a combination of those supplier contracts we have for banks and the overages on our minimum spend contract. Those pockets are what we count as others.
So there was that there was a slight hurt to Eric on the working capital side.
But as Matt mentioned in his opening remarks kind of a pricing optimization, our continued reduction of capex.
We started that.
You should expect more in Q3.
As well as a continued reduction in our onetime charges.
And as we continue to integrate the businesses that we've acquired over the last 18 months for the opportunities for integration.
Okay, Great I'll pass the line. Thank you.
Our next question comes from the line of Scott <unk> from CIBC. Please go ahead.
Hi, Good morning, I'm wondering if you could give us some color on how much of the 17% growth ex T M.
You could sort of break it into you know how much was from pricing versus contribution from M&A versus customer expansion I understand you probably can't share numbers, but if theres any sort of directional.
Buckets, you could share that'd be helpful.
Frank DiLisio: Got it. Okay, cool. The last one for me, if I try to think about, you know, free cash flow, I take your EBITDA, you know, deduct the interest, cash back to working capital, which I think was softer again in the quarter, you get close to sort of flat on that basis. But as we look forward, I know you said CapEx, what are some of the other drivers that give you confidence in the sort of like underlying free cash flow growth? I guess, you know, how do we see working capital normalizing in the next few quarters? Yeah, so I mean, you've got the main drivers, correct, Kevin?
Yeah, so the 17%.
Frankly pointed out Scott.
<unk> CN, we don't disclosed.
And the simple reason when we acquire a company.
We don't believe we don't keep some status quo, we will look at their pricing model, we will upscale their customers to our products and.
And so.
The vast majority of the growth that youre seeing year over year is that effort of upselling customers predetermine, the contracts optimizing the pricing structure.
Frank DiLisio: So, so working capital, there were some silver linings from the sale of TM. That would have continued into Q2. So, there was a slight hurt there on the working capital side. But, as Matt mentioned in his opening remarks, Pricing optimization, our continued reduction of CapEx where we've only started that. We should expect more in Q3 as well as continued reduction in our one-time charges. And as we continue to integrate the businesses that we've acquired over the last 18 months, there's further opportunities for integration. Okay, great. I'll pass the line.
That was large and also some increases in our Canadian financial institution services.
As well as our daily insight products in Canada also performed well year over year.
Okay. Thanks, and in other words, there was you had spoken about pricing increases coming through in the quarter across a number of the pieces of the business.
Were those fully reflected in the quarter or this is their.
Or is there anything that might hit more than Q3.
Yes.
Some of them were fully reflected in the quarter, but there were other elements there.
Operator: Thank you. Our next question comes from the line of Scott Fletcher from CIBC. Please go ahead. Hi, good morning.
Scott that we introduced in the middle of November in which case, you only see a month and a half impact in Q2. So there will be some more silver in the past when you look at it on a full quarter basis, which will be Q3.
Frank DiLisio: I'm wondering if you could give us some content color on how much of the 17% growth at KTM was from pricing versus contribution from M&A versus customer expansion. I understand you probably can't share numbers, but if there's any sort of direction, Buckets, you could share those. Yeah, so the 17%, as you correctly point out, Scott, it doesn't include CN. We don't disclose in organic marketing, and the simple reason is that when we acquire companies, we don't leave them; we don't keep them in the status quo.
Okay. Thanks.
And I just wanted to ask one question on the on the remaining 2026 converts that are outstanding I think we all understand that there's an intention to do that.
Deal with those.
Another buyback take a similar shape. If you were to if you were to take that approach would it be sort of a refinancing and additional issuance or does the equity raise change the calculus, there just potentially more cash consideration.
It could be a few ways to deal with it I mean hypothetically you could you could do what you said you could offer to buy them back either through a combination of cash or terming out.
Frank DiLisio: We will look at their pricing model, and we will upsell their customers on our products. And so the vast majority of the growth that you're seeing year over year is that effort of upselling customers, putting them into contracts, optimizing their pricing structure. And those are also some increases in our Canadian financial institutions services, as well as our data insight products in Canada, which also performed well year over year.
Offering to do converting assets.
Our leverage levels are also potentially getting to the level, we could refinance our debt.
So you can make a refinance to a credit facility, we do not have a springing maturity.
But you can leave it.
Frank DiLisio: Okay, thanks. And although there was, you had spoken about pricing increases coming through in the quarter across a number of pieces of the business. Were those fully reflected in the quarter, or was there anything that might have hit more in Q3? Yeah, some of them were fully reflected in the quarter, but there were other elements that Scott and I introduced in the middle of November, which case you only see a month and a half impact in Q2, so there will be some more silver impacts when you look at it on a full quarter basis, which will be Q3.
Outstanding were also buyback.
So we're exploring all options.
Take deleveraging seriously, we take having a lower cost of capital seriously.
One of the best ways to build value as they have.
The lowest possible cost of capital possible.
Alright, the most casualty Canada business in one of our biggest expense lines of the biggest is interesting today. So to the extent, we can we can reduce that.
That's good for the for the company good for the equity holder is good for the business.
Okay. Thanks, a lot.
Frank DiLisio: Okay, thanks. Then I just wanted to ask one question about the remaining 2026 converts that are outstanding. I think we all understand that there's an intention to deal with these. Would another buyback take a similar shape if you were to take that approach? Would it be sort of a refinancing and additional issuance, or does the equity raise change the calculus there, just potentially more cash consideration? There could be a few ways to deal with it. I mean, hypothetically, you could do what you said you could offer to buy them back either through a combination of cash or trimming out, you know, offering to do a conversion in Athens.
Thank you there are no further questions at this time I'd now like to turn the call back over to Mr. Ritchie for final closing comments.
Yes.
Thanks to all for attending and we look forward to connecting with you. During the Q3 results call in May I have a great day.
Okay.
Thank you, Sir ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a long time.
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Frank DiLisio: You know, our leverage levels are also potentially getting to the level where we could refinance our debt. You know, so you may be able to refinance to a credit facility we do not have a spring maturity on, which you could leave outstanding, or else we'll buy it back. So we're exploring all options. We take deleveraging seriously. We take having a lower cost of capital seriously. One of the best ways to build value is to have the lowest cost of capital possible. It's generally the most cash we can get on the business. One of our biggest expense lines, or our biggest, is interest payment today. So, to the extent we can reduce that, that's good for the company, good for the equity holders, and good for the business.
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Frank DiLisio: Okay, thanks. Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Hrti for his final closing comments. Thanks to all for attending, and we look forward to connecting with you during the Q3 results call in May. Have a great day! Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day, www.durham.ac.uk by TravelPod member daveandlou Durham, Durham by TravelPod member daveandlou
Okay.