Dye & Durham Ltd

TSX:DND

Earnings Call Analysis

Dye & Durham shows steady performance amid strategic changes and external scrutiny.

In the first quarter of fiscal 2025, Dye & Durham reported revenues of $120 million, up 5% year-over-year, driven by a transition to annual contracted revenue, which constituted 54% of total earnings. Adjusted EBITDA stood at $66 million, maintaining a solid margin of 55%. The company anticipates continued growth with a guided focus on reducing its net debt below 4x adjusted EBITDA. Despite facing scrutiny from the Competition Bureau, Dye & Durham asserts its operations remain unaffected. A robust free cash flow of $28 million reflects a significant improvement, suggesting resilience in challenging market conditions.

Company Overview and Growth Trajectory

Dye & Durham, a leading software provider catering to legal professionals and financial institutions, has shown significant growth since going public in 2020. The company reported a solid performance in the first quarter of fiscal 2025, generating revenues of $120 million, up 5% from the previous year. This increase stems from a strategic shift from a transactional model to a contracted business model, enhancing predictable revenue streams. Approximately 32% of the company's revenue comes from annual recurring revenue (ARR), which has shown a remarkable growth of 43% year-over-year.

Financial Performance Highlights

During the first quarter, Dye & Durham achieved an adjusted EBITDA of $65.9 million, maintaining a strong EBITDA margin of 55%, within their target range of 50-60%. Moreover, the company reported a net debt reduction of $49 million to approximately $1.32 billion, aided by a $20 million voluntary payment towards their term loan facility. Their leveraged free cash flow improved significantly by $34.5 million year-over-year, reaching $28.2 million, reflecting improved operational efficiency and reduced capital expenditures.

Impact of Real Estate Transactions

The company's revenue associated with real estate transactions decreased, accounting for 48% of total revenue compared to 49% in the previous year. A notable reduction in Canada was recorded, with real estate transaction revenue dropping to 25% from 27%. Despite this, the overall reliance on real estate transactions continues to diminish, further illustrating the company's transitioning focus towards more stable, recurring revenues.

Strategic Initiatives and Market Positioning

Dye & Durham's strategic focus on expanding its product offerings, particularly through its Unity Global Platform, has proven successful. This platform enhances workflow efficiencies for legal firms, an essential factor in a market projected to grow at a CAGR of 10% through 2030. The company is well-positioned to capture market share in the U.K. and Australia, where they have recently penetrated with Unity Practice Management. The strong performance in October hints at continued upward momentum, with preliminary results showing double-digit growth.

Navigating Regulatory Challenges

Dye & Durham is currently under investigation by the Canadian Competition Bureau regarding market access to some of their products. However, the management reassured stakeholders that this is an investigational inquiry without any indication of wrongdoing. The potential financial implications of this investigation could range from $10 million to $15 million, though no wrongdoing has been evidenced. The company remains confident in its business practices and is navigating this challenge with transparency.

Outlook and Future Guidance

Despite some fluctuations in revenue streams, Dye & Durham is optimistic about its future performance. The management anticipates accelerated growth driven by ongoing improvements in macroeconomic conditions and continued investment in product integration and customer adoption. The expectation for the current quarter is a continuation of their strong results, with a notable increase in annual contracted revenue now at 54%. The focus on debt reduction and operational efficiency remains a priority, with a target to reduce net debt to adjusted EBITDA below 4x.

Earnings Call Transcript 2025-Q1

[Operator]

Good afternoon. My name is Constantine, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dye & Durham First Quarter Fiscal 2025 Earnings Call.

I would now like to turn the call over to Huss Hirji, VP, Investor Relations of in Dye & Durham. Mr. Hirji, you may begin your conference.

[Huss Hirji, executive]

Thank you, operator, and good afternoon. 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 businesses and disclosure regarding possible events, conditions or results that are based on information currently available to management, which indicate management's expectation of future growth, results of operations, business performance and business prospects and opportunities.

Such statements are made as of this date hereof, and Dye & Durham 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 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 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, Dye & Durham Chief Executive Officer; Frank Di Liso, Dye & Durham Chief Financial Officer; and Yves Denomme, Chief Executive Officer of our Financial Services division. A question-and-answer session will follow the formal remarks for research analysts.

I'll now turn the call over to Matt for opening remarks.

[Matthew Proud, executive]

Thanks, Huss, and good afternoon, everyone. Since going public in 2020, we built a leading software company that specializes in serving 2 large and growing end markets, legal practices and financial institutions. We've built significant scale within those 2 end markets with leading positions in our core markets of Canada, the U.K., Ireland and Australia. We have more than 60,000 customers across the world and more than 100 -- including more than 100 of the largest financial institutions in Canada and Australia using our financial and technology solutions.

First, I want to address some news that came out today. Earlier today, the Canadian Competition Bureau issued a press release, which I'm sure many of you have had the chance to read. Let me address this directly. We built a strong business that is the envy of many in the market. I like to be clear, the Competition Bureau is investigating market access to some of our products, not price. To give you background, we've been in communication with the Competition Bureau on many issues, including this one of interoperability of our product sets with our competitors since 2020.

Today's press release is by no way of finding a wrong doing, as is stated by the Competition Bureau themselves. While we can't speculate on the outcome at this stage, it's important to note a number of investigations have been opened, where no revenue was ever applied. This includes large companies such as Apple, mCare, Pfizer, [ Jason ] [indiscernible]. We remain confident in the integrity of our business practices, which align with the software industry and standards.

This investigation does not restrict our strategy or operations, including the ability to freely set our price and products. These links -- these processes can be usually multiyear years and take -- if not take longer.

Now turning over to the results for the quarter. Our business fundamentals are strong, and we're seeing the early signs of the macro environment conditions improving, it could result in accelerated growth for us. We generated $120 million of revenue and $66 million in adjusted EBITDA during the first quarter and $485 million and $255 million, respectively, for the last 12 months. Our consistent pro performance and the scale we've built in the past 4 years is a function of a sound strategy and a go-to-market approach in us delivering results.

But it starts before that. We have good results today because we have a world-class team delivering those results. You'll hear from Frank and me regularly. Last quarter, Martha Vallance joined us on the call. This afternoon, we've asked Yves Denomme, CEO of Financial Tech business, to join us to describe our financial technology business. It's a business at scale. In the first quarter, it represented 20% of our total revenue, which on our own is larger than many of the technology peers listed in Canada. It's also bigger than the business we took public in 2020.

Over the course of the past 2 years, we've purposely changed our go-to-market approach to move from a transactional-based business to a contracted business, leading with our software solution and minimum contract value approach. It's a strategy that's working. We continue to deliver organic growth, which was over 5% in the quarter and our churn rate is low at under 4%, with no customer concentration. Additionally, 54% of the business consisted of annual contracted revenue. And within that, 32% of the total revenue with annual recurring revenue as of the end of our first quarter.

ARR reached $156 million as of the end of September, which represented growth of 43% year-over-year and is 3x the level from just 2 years ago. The growth we delivered in these 2 key metrics provide greater certainty and transparency aligns with our ability of our business to generate a consistent free cash flow.

While we invested heavily in previous years to build out the product suite to where it is today, I heard clearly a year ago, investors' desire to see the business deliver levered free cash flow. The teams worked hard over the last 12 months on doing this. Leverage free cash flow was $28 million in the first quarter, an improvement of over $34 million from the same period last year. This improvement is ahead of our plan based on normal course business.

Dye & Durham provides mission-critical technology to law firms and financial institutions. They rely on our technology to form day-to-day tasks and transactions frequently and awfully spend their days in our applications. Legal technology represents a large addressable market that is forecasted to grow at 10% through 2030. Law firms are focused on driving productivity gains and increasingly complex higher volume workflow. The adoption of new technologies to support these workflows and reduce costs played directly into our offering.

Today, we're well positioned across tens of thousands of customers, who are looking for streamlined workflows delivered through central dashboards, and we've invested significant sums of money to make this a reality for our customers. This is paying off. Our Unity Global Platform provides customers with interoperability between different workflows and tasks to a single sign on in a single platform. We've been looking to convey a real estate matter, wrap the will for a customer, helps them manage in a state, onboard new clients, seamlessly perform account measurements or diligence or business registrations Dye & Durham can help.

Unity is where the market is going. We've already built and deployed the leading platform. Unity brings together all the tools of small- and medium-sized law firm needs and require us to run their practice. This saves our customers time and money and provides real operational cost efficiencies as well as the latest technologies in the market. This includes a real reliance on AI. We're focused on adding functionality for our existing customer base and driving increased adoption within that base.

In Canada and in Ireland, we've already served the vast majority of that market. So further penetrating our existing customer base is a key driver. In the U.K. and Australia, in addition to driving usage across that same existing customer base, we're also looking to drive adoption with new users. We believe new users will be attracted to the security of Unity, and this will really help us win in the market. Now moving to our Fintech business platform.

I'm going to pass the call over to Yves, who's going to tell -- talk to you more about that business.

[Yves Denomme, executive]

Thank you, Matt, and good afternoon. Our Financial Solutions division operates globally as one business, serving more than 100 leading financial service providers in Canada and Australia and is being managed with a distinct focus beyond the core legal software that's traditionally known as Dye & Durham's core offering. Today, Financial Solutions, as Matt mentioned, represents a little over 20% of Dye & Durham globally.

What we do in a few words, we empower financial service providers through integrated technology solutions that connect them, the critical partners supporting the bill in tax payment and home buying journey. We also provide leading credit unions and alternative lenders with managed banking services. The consistent, reliable business with a strong value proposition and with virtually all revenue secured under long-term contracts.

We're pleased with our performance in the first quarter of fiscal 2025, and we're seeing year-over-year revenue growth of more than 20%. Let me briefly expand with a few more details about the business. We serve customers broadly across 3 segments: banks, credit unions and alternative lenders and others. We have long-standing relationships with all the large banks in Canada and Australia. Although we already partner with many of the leading credit unions, there's definitely more that we can do here and we believe that this segment presents us with good opportunities to acquire new customers.

The third group is alternative lenders and fintech. Think of retail-focused finance providers like Canadian Tire, alternate lenders, such as Go Easy and Challenger Bank. This is a growing and dynamic segment with demand for our solutions. We're excited about the number of positive conversations underway in our pipeline and have landed recently some good wins, such as the announced National Bank mortgage discharge service.

We run a platform as a service model, and our platforms provide end-to-end solutions, which includes customer onboarding, customer support and a fully contained technology infrastructure, that makes them simple for financial service providers, allowing them to focus on their core business. Our level of integration is such that in many cases, our platforms are a seamless extension of our customers' value proposition and brand experience. And their end customers rely on us every day to complete important transactions and move funds. That's a responsibility that we take very seriously.

Our 30-plus year relationships with several of the largest FIs is a testament to the trust placed in our solutions. We continually invest to ensure that our technology solutions are reliable, secure and compliant with the highest standards to ensure the efficient and cost-effective fulfillment of mission-critical financial transactions. And most of our revenue drivers are transactions. Some examples, if a customer uses online banking to make a bill payment or if a small business is remitting taxes to the Canada revenue agency using our tax platform, or if a bank is sending mortgage instructions to lawyers or the execution of a property settlement. These transactions happen in large numbers, consistently regardless of economic cycles and provide us with a reliable source of recurring revenue.

In summary, we have a strong value proposition that's anchored by long-standing relationships. We have deep integration with our customers in high-quality and robust solutions. Our technology platforms are reliable and trusted and for the most part, we're able to offer them to financial service providers as standard industry-wide digital infrastructure, which makes this business very scalable. Thank you.

And with that, I'll turn it back over to Matt.

[Matthew Proud, executive]

Thanks, Yves. Before turning over to Frank, it is important to address a few matters. Today, with the news and the Competition Bureau, we got a lot of inbound calls from shareholders and stakeholders asking, how do I quantify what this is. Repeat again, we don't believe we have done anything wrong here, and this is not a finding of guilt. It's just an investigation.

That said, to help give you a reference, the Bureau provided guidance with respect to the process and potential outcomes on its website. Again, while we fully believe we've done nothing wrong, for abuse of dominance, the maximum penalty range of 3% of revenue, which, in our case, is somewhere between $10 million to $15 million again.

Last month, we announced that we had expanded the scope for our previously announced strategic review process to consider additional opportunities to enhance shareholder value. I'm required to mention that no assurance can made that this process will result in a transaction or offer or any assurance of outcome or timing. What we've said publicly is we would believe a takeover volume of 0 premium is not in the interest of all shareholders and stakeholders.

We will continue to work constructively with all shareholders to engage thoughtfully to the benefit of all stakeholders towards the execution of our strategy and to drive value across the business. And to that end, last month, we continued with our process and board renewal. With the appointment of Luke McCormick to the Board of Directors in connection with our cooperation agreement with Black Sheep. Luke is an experienced investment manager with expertise in capital allocation and B2B software-as-a-service companies. Luke represents the third new member appointed or elected in the past year on the Board of Directors, onboard the total 7.

We have a clear growth strategy to drive value for shareholders that we believe is working. The Active's attempt at a wholesale place on the board and management team puts us extraordinary track record and future trajectory at risk. Let me spend a moment to explain the trajectory that we are seeing -- we are on and what we're seeing. In Q2, the current period, we're currently experiencing accelerated growth. Our October preliminary results were the best on record for this month. With double-digit revenue growth, we expect the current quarter to be one of the best on record as well.

Now I'll turn it over to Frank to discuss the financials.

[Frank Di Liso, executive]

Thank you, Matt, and good evening, everyone. This afternoon, we reported our first quarter 2025 results. Our results continue to demonstrate the underlying strength of our diversified business and its ability to deliver strong free cash flow performance. This strength is underpinned by our annual recurring revenue, which continues to grow and as a result, reduces the reliance on real estate transactions. Our annual contracted revenue remains robust, driven by both our practice management and our payment infrastructure service lines.

Revenue exposed to real estate transactions globally in Q1 was 48% compared to 49% in the same period of fiscal 2024. Seasonally, fiscal '24, followed by fiscal Q1 are our strongest seasonal periods for real estate transactions. Revenue exposed to real estate transactions in Canada was only 25% compared to 27% in the same period of last year. Our actual exposure to real estate transaction is even lower than 25% as the Canadian figure includes refinancing transactions.

Annual recurring revenue contracted was 32% as of September 30, 2024, compared to 25% at the same point in the prior year. Keep in mind that there are components of our revenue which we do not include in ARR, such as revenue from contracted overages and other revenues under contract service agreements. These are included in annual contracted revenue, which was 54% in the first quarter and including ARR compared to 46% in the prior period year.

We reported revenues of $120 million, up 5% compared to the corresponding period in fiscal '24. We're taking into consideration the sale of TMG in August of 2023. Revenue wasn't changed in Q1, including the impact of TMG in the prior period. Organic growth in the first quarter was 1% compared to the same period in fiscal 2024 and was 5% net of the impact of revenue adjustments primarily related to the recognition of revenue relating to new 3-year contracts following acquisitions made in the preceding 12-month period.

We generated EBITDA -- we generated adjusted EBITDA of $65.9 million in the first quarter of fiscal 2024 compared to $68.7 million in the same period of fiscal '20. We continue to maintain our strong EBITDA margins coming at 55% in the quarter, which is in line with our target range of between 50% and 60%.

Total adjusted operating expenses, which include direct costs, technology costs, G&A and sales and marketing were $54 million for the quarter or 45% of revenue. Direct costs increased by $5.5 million this quarter mainly due to new reseller relationship agreements signed in the U.K. during the period, higher-than-anticipated third-party data costs in the U.K., which we are actively looking to in-source and an impact from acquisitions in the prior period. Excluding the impact from acquisitions, divestitures and direct costs, adjusted operating expenses for Q1 2025 decreased by $2.8 million, with cost reductions being utilized when compared to the prior year.

Net finance costs were $21 million for the first quarter, down 41% compared to $35 million in the corresponding period of fiscal '24. The improvement in Q1 was primarily due to favorable unrealized foreign exchange impacts, particularly from our U.S. denominated debt as well as the net favorable revaluation impact on the embedded derivative asset. We also incurred lower interest costs and reduced the total holdback owing resulting in additional favorability.

Adjusted finance costs, which adjust for these changes in fair values and settlement losses was $30 million lower by $7 million versus the prior Q1 period, which primarily reflects the savings from our refinancing transactions completed in April 2024 and the positive interest spread earned on our 2026 convertible debentures. Acquisition restructurings and other costs were $8.7 million for the first quarter compared to $6.4 million in the prior period. We believe we can deliver additional improvements in this cost over time as we take additional actions to complete integration activities and increase our overall cash flow performance.

Leveraged free cash flow was $28.2 million in the first quarter, an improvement of $34.5 million compared to the corresponding period in fiscal '24. This improvement includes savings achieved in the reduction of capital expenditures, lower net interest costs as well as an increase of $5.1 million in cash flows from operations, mainly as a result of improved working capital. Even if we include the accrued bond interest, which was paid in October 2024, leveraged free cash flow would have been approximately $12 million, an increase of $19 million year-over-year. Now turning to our balance sheet.

Our net debt stood at approximately $1.32 billion as of September 30, 24, which has been reduced by approximately $49 million, since June 30 of 24. As a result of strong cash flows in the quarter, we made a voluntary payment of $20 million towards the term loan facility. In addition, we aligned our cross-currency swaps to maintain an 85% fixed interest rate hedge and 100% foreign exchange hedge, which protects us against volatility between the Canadian and U.S. dollar.

Lastly, effective July 1, 2024, we were acquired by IFRS to classify all of our outstanding convertible debt as current. And with this adoption of IAS 1, we have recasted the prior year's balance sheet prospectively. The maturity date of our convertible debt remains unchanged, but no modifications to any terms. We have $185 million in restricted assets and investments earmarked for the original debentures, which are classified as noncurrent assets.

While this creates an accounting mismatch, there is no such discrepancy and substance. We understand the importance of reducing our leverage, and we would set a target to reduce it below 4x net debt to adjusted EBITDA by suspending significant M&A activity and to move a level of M&A activity that supports a long-term target range of 2.5 to 3.5x. That said, we have sufficient resources to manage our data. The business generated strong sustainable cash flows.

And with that, I'll turn it back to the operator for Q&A.

[Operator]

[Operator Instructions] Your first question comes from the line of Robert Young from Canaccord Genuity.

[Robert Young, analyst]

Thanks for the context around the Competition Bureau announcement. One thing in there that might be worth clarifying. You said that the elements of concern are not pricing, but market access. And one of your releases today, you said that it was subscription contract terms, discounted pricing and product suite offerings. And maybe if you could just elaborate on those 2 things and maybe give us just a little more context there, if you could, or clarify the difference there?

[Frank Di Liso, executive]

Yes. No, thanks, Rob. I appreciate the question. I was referring to -- there have been some reference maybe related to the price increases, and that was not the case. It's related primarily to interoperability and length of contracts, et cetera, bundling. So that's what I meant there.

[Robert Young, analyst]

I think you just noted, Frank suspending M&A. And I think looking through the financials, there was an acquisition in the quarter I would believe that was the M&A announced in the subsequent events last quarter. Is there anything new that's unannounced? Any new -- any M&A? If you can clarify the relative priority between debt paydown and tuck-in M&A, that would be helpful.

[Frank Di Liso, executive]

Yes. No, thanks, Rob. There was no additional M&A in the quarter. And look, as we said before, we're focused on deleveraging the business. So that's our primary focus today and will be what we're spending our time trying to achieve.

[Robert Young, analyst]

Okay. Last question for me. Can you give us any sense of timing around the circular when that might be out? Then I'll pass the line.

[Frank Di Liso, executive]

It will be on the coming weeks.

[Operator]

Your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets.

[Thanos Moschopoulos, analyst]

Your revenue in Canada was down year-over-year, and that's despite the strong growth that you've seen in this business. Can you clarify what drove the decline?

[Frank Di Liso, executive]

Thanos, it's Frank here. So we did mention in this part of the organic revenue story that there was some new 3-year contracts that are entered into in the prior year. And so those primarily related to contracts signed in Canada.

[Thanos Moschopoulos, analyst]

Okay. So basically a tough year-over-year comp in that regard?

[Frank Di Liso, executive]

Correct, yes.

[Thanos Moschopoulos, analyst]

The gross margin was lighter. Was that a function of the expense factors you called out, it's just the higher third-party data costs? And if so, over what timeframe would you try to work that back up to historical levels?

[Frank Di Liso, executive]

Yes. That's something that has been hitting us over the last fiscal period. So we are actively trying to address that and reduce those costs accordingly. But as I mentioned in my script, we do still expect our target adjusted EBITDA margins to remain in that 50%, 60% range. So while we try to reduce those costs, that's still the applicable range.

[Thanos Moschopoulos, analyst]

Okay. And then maybe finally, just expanding on Matt's comments regarding the strong month of October. Is that a function of just higher transaction volumes and if that's the case, what your opportunities are you seeing that in?

[Frank Di Liso, executive]

Yes, Thanos. I could address that. So yes, in October, I mean, as you heard in some of the news outlets, we are -- we have commented on the stronger -- the stronger transaction volume that they're seeing in some of the larger urban areas in Canada such as Toronto, Vancouver. So we have seen that in our results as well. And so with that with the continued strength of the financial services business, and ARR growth, we are seeing all that transpire into a good uplift on record.

[Operator]

Your next question comes from the line of Kevin Krishnaratne from Scotiabank.

[Kevin Krishnaratne, analyst]

And Matt, thanks as well for the more color that you gave on the competition here. Just a couple of rounding out questions there. I know you mentioned -- and on the Competition Bureau website, they detail the max monitoring penalty, $10 million to $15 million. But in a case where, say, the CB does find you that you're required to pay that. Can you talk about like the next steps would you be required to then provide some remedies with those partners, integrations working? Just talk about sort of the next steps, if it were to go down that route?

[Matthew Proud, executive]

I appreciate the question. Look, it's really hard to speculate on that. I mean, at this point, all the competition bureau has done is asked us for data. That's what we really talking here are data request. So it's far, too premature to kind of get into hypotheticals of what could happen. I mean, nothing could happen, which is often the case, if you look back at what happens a lot of type of transactions. So we're going to work with them, provide the data and be very cooperative to make sure they get all the information they need.

Keep in mind, unlike yourself and some of our investors, who are experts on our space and our business and our industry, they're not. So part of this process is bring them up to speed and helping them understand what we do and how our business works. And look, we're confident that at the end of the day, we've done nothing wrong, and we hope to reach some conclusion once they have the data to do so.

[Kevin Krishnaratne, analyst]

Okay. Great. That's super helpful, Matt. Maybe one for Frank. Can you talk about some of the maybe puts and takes on free cash flow for the upcoming quarter. I know we've got some annual interest payment is also the deferred payment that will come through. But maybe I know you mentioned in the script, $8.7 million of cost -- integration costs in Q1 with a view to that moving down in time. But does the strategic review have any considerations for expenses that we may see through that line?

[Frank Di Liso, executive]

No, I don't -- there's nothing material there on strategic review in terms of free cash flow impacts. I mean obviously, the continued integration of our business will bleed into Q2. Keep in mind that one of their factors of the increased costs that we've seen in Q1 relative to Q4 prior period is some of the money we're spending on the activist activities and through legal and through our communications firm. So that likely will continue.

But you did hit on the major ones, which is the bond interest, which has been paid. And that's a bit of an anomaly because it impacts the last 2 quarters. So that 1 there, you could do the simple math on that, and that's the biggest change between the previous 2 quarters and what we expect for Q2.

[Kevin Krishnaratne, analyst]

Got it. Maybe just one last one just on the 3-year sort of revenue recognition from a year ago. I think it was something like $6 million last year, $1 million this year. Is there any more of that kind of year-over-year tough comp in the upcoming quarters? Or was that kind of it?

[Matthew Proud, executive]

Kev, this is Matt. Happy to kind of take that one just from a process perspective. So when we bought those practice, they had a small Canadian business that had a desktop component. The part of our integration process is to move visibly by when the subscription from either month-to-month or 1-year contracts or 3-year contracts. The net results in this case. It's a onetime revenue. It happens from time to time with some of the smaller desktop-based stuff we have around the business. But it's a very, very small part of our revenue, to be clear.

And there was a vast, vast majority is kind of cloud-based -- vast majority cloud-based revenue. I hope that provides some context on why from a business perspective. What happened there. We thought it was important to show it on a like-for-like basis, though, so you can see the true performance of organically of the business. But Frank, I'll let you add what I missed there.

[Frank Di Liso, executive]

Just the only other -- so I mean that these 3-year contracts, they are billed on a monthly basis. So while the recognition has happened in the prior year, we do get the benefit of the -- of the cash that is coming in, and you'll see that positive impact in our working capital for Q1.

[Operator]

The next question comes from the line of Stephen Boland from Raymond James.

[Stephen Boland, analyst]

Matt, you said something in your prepared remarks that you dealt with the Competition Bureau before over the years on different matters. But I don't think I've seen them actually press release an investigation I'm just wondering what -- I presume you knew this was coming. But I'm just curious what's different do you think this time than the conversations you've had in the past?

[Matthew Proud, executive]

When you say that you've not seen the press release, are you speaking in regards to Dye & Durham or in regards to any other companies, just for my clarity?

[Stephen Boland, analyst]

No, I think you said you've dealt with the Competition Bureau in the past. And so what the press release are out before on specifically you. So I'm just wondering what's different?

[Matthew Proud, executive]

Yes. Look, I mean, there has been media reports about the Competition Bureau having conversations with us in the past. And we may have commented on it. The difference here is, as I said to Kevin earlier, they're going through a process to learn about our business and collect data. We've been very collaborative with them so far and provide the data, but there's a formal process they have to go through as they get in order to get more data and they -- part of their practice is to announce that to the market. So again, we are somewhat perplexed by the reaction today to it. We want to help the bureau little more than our business because we -- at the end of the day, I don't believe we've did anything wrong, we have a great business.

[Stephen Boland, analyst]

Okay. And then I apologize for my [ lack ] but do you said there was some pressure on some elevated costs on new reseller agreements. I'm not -- maybe somebody could explain that to me?

[Matthew Proud, executive]

Yes. We entered into a new contract with a customer of ours in the U.K. who's reselling our product on our behalf, and that resulted in elevated direct costs. The other item that to take in account there is one of our data suppliers increased our price, and we're actually working to kind of use 1 of our internal suppliers and flyers 100% i.e. product we own versus theirs. And in the coming quarters, that should bring down that direct cost as well. So those were 2 of the main drivers.

[Stephen Boland, analyst]

Okay. And then I know you probably can't answer this now, but I'm going to ask it anyhow. Heading into this meeting in 5 or 6 weeks, it is now, I mean, are you confident? Can you talk about -- I know you say that you've been working with all your shareholders, which is good to hear. But obviously, this is going to come down to [ votes ] if it does come down to that. So I'm just wondering how are you feeling going into this meeting? If you can answer it.

[Matthew Proud, executive]

It's a fair question. Look, I like to stand behind our performance that we've achieved I mean, where we're going and our strategy. And I think the numbers prove that is working. We don't want to have this contested election. We never have. We've always been willing to compromise with other side as we think it's really a waste of time and money.

That said, we ask the shareholders to kind of judge us on our performance and our merit. And based on that, we think we'll succeed. But again, at any point in time, we're willing to sit down with other side and kind of try to find a way not to have this fight. As we think it is -- at this point, it's -- we're not sure what we're fighting over here.

[Stephen Boland, analyst]

I appreciate that comment. I know that's not easy to discuss.

[Operator]

[Operator Instructions] Your next question comes from Scott Fletcher from CIBC.

[Scott Fletcher, analyst]

Mostly everything has been covered off at this point. So I just -- I'll ask another question on the geographic mix. The U.K. looked stronger in the quarter. Just anything you can call it there. And then on the other revenue, obviously, it's lumpy, but it was weaker in the quarter. So just some geographic commentary would be helpful.

[Frank Di Liso, executive]

Scott, Frank here. So a couple of factors in the U.K. We are seeing some good momentum on the practice management side. So these are the licenses that we sell as part of long-term to everyday practice management needs right in terms of license adoption and some of the PPU growth that we've -- that we've seen following the acquisitions that we've made in '23.

The other factor would be entering into search commitment contracts, and that was a factor for the increased ARR in the quarter. And then thirdly is the -- obviously, the FX rate, there's obviously a strengthening of the U.K. pound, which affects our bottom line.

[Operator]

Your next question comes from Robert Young from Canaccord Genuity.

[Robert Young, analyst]

In your commentary, you said that in Canada and in Ireland, Unity was already serving the vast majority of the market and the next label growth, if I heard correctly, would be driven by the U.K. and Australia. Could you flesh out that comment -- have you started to enter the U.K. with Unity, where are you in that rollout? Maybe just a little more information there because given the strong growth in ARR, maybe there's another leg.

[Matthew Proud, executive]

Yes. I might have kind of somewhat misspoke there, Rob, so apologies. We do have Unity Practice Management in the U.K. and our Unity Global Practice Search platform. So I might have just misspoke, so apologies for that.

[Robert Young, analyst]

So at this stage, is Unity fully rolled out in the U.K. and in Australia or maybe just revisit where you are in that rollout.

[Matthew Proud, executive]

It's fully rolled out in the U.K. and Australia, we have Unity practice management and Unity Search though they are not integrated together. You can access them both on our website by logging to one or the other, but they're not fully integrated the same way it would be in, say, the U.K.

[Operator]

There are no further questions at this time. I'd like to turn the call back over to Huss Hirji for some closing remarks. Please go ahead.

[Huss Hirji, executive]

Thanks for all who attended, and we look forward to connecting with you for our Q2 full year '25 results to be communicated at a later date in the near future. Until then, have a great day. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference. Thank you very much for your participation. You may now disconnect.