Dye & Durham Ltd

TSX:DND

Earnings Call Transcript 2022-Q2

[Operator]

Good afternoon. My name is Pam, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Dye & Durham Second Quarter Fiscal 2022 Earnings Call. I'd now like to turn the call over to Mr. Ross Marshall, Investor Relations on behalf of Dye & Durham. Mr. Marshall, you may begin your conference.

[Ross Marshall]

Thank you, operator, and good afternoon, everyone. 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 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 law. 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-orientated financial information section of our public filings, without limitation our MD&A and our earnings press release issued this afternoon, for additional information. Joining us on the call today are Matt Proud, Dye & Durham's CEO; and Avjit Kamboj, Dye & Durham's CFO. A question-and-answer session will follow the formal remarks for research analysts. There is a slide deck on Dye & Durham's investor site that you can download to follow along with today's remarks. I will now turn the call over to Matt for his opening remarks. Matt?

[Matthew Proud, CEO & Director]

Thanks, Ross, and good evening, everyone. We're pleased to be here with you today to review recent developments at Dye & Durham as well as our financial and operating results for the second quarter of fiscal 2022, and that's for the period ending December 31, 2021. I mean the second quarter was a big quarter for Dye & Durham. It laid the groundwork in creating a global leader in the B2B software and services space that services legal and business professionals. The recently announced acquisition of TELUS Financial Solutions and Link Group demonstrates our deep commitment to enhancing our product capabilities for our customers by adding products which improve their efficiency and productivity. These acquisitions also brought in the product set of suites for existing customers and dramatically expand our customer bases in the U.K. and Australian markets. I'll address Link Group further in a moment. Starting on Page 3 of the presentation, recapping on the business, we built a highly reliable platform that generates digital infrastructure like cash flows. The annuity-like nature of our revenue and relatively fixed nature of our cost base provides for a tremendous level of predictability both for revenue and adjusted EBITDA. It also allows us to drive the high EBITDA margins we do because revenue can scale dramatically without a corresponding cost increase. Acquisition models are often faced with customer churn, but this is not the case for Dye & Durham. Our net revenue retention was more than 150% in the quarter, which demonstrates our ability to retain customers and grow with them as we optimize the value of the platform and the efficiency it generates for the people that use it. Today, the business is dramatically larger than it was at the time of IPO 18 months ago. In the last 12 months, we generated revenue of $376 million and adjusted EBITDA of $212 million. We continue to constantly drive -- to deliver on adjusted EBITDA margins above 50% despite the strong growth. Our products are used for a wide array of underlying transactions across major Western, English-speaking economies. We integrate workflows and processes that legal and business professionals use every day, sometimes multiple times a day, into one convenient platform. With the TELUS Financial Solutions and Link announcement, we've expanded our value proportion to customers by extending our reach into adjacent markets of their ecosystem and deepening our relationship with financial institutions. During the quarter, we entered into a definitive agreement to acquire Link Group, which trades on the ASX, for approximately CAD 3.2 billion. Like Dye & Durham, Link provides mission-critical software, servicing more than 6,000 clients globally across the financial services and corporate business segments. The Link acquisition positions Dye & Durham as a leader in the B2B software information services space with significantly larger scale in Australia and U.K. markets and a more diversified revenue mix. We also closed the acquisition of TELUS Financial Solutions, which complements Dye & Durham's existing real estate business in Canada with new capabilities that we intend to offer through the platform in the future. TELUS Financial Solutions is also the de facto national payment infrastructure in Canada, servicing consumers and businesses in all market segments. These acquisitions broaden our product offering with a complementary set of solutions that serve adjacent markets to our existing products, extend our position on the value chain with law firms and financial service providers. This creates opportunities to cross-sell into each of those 2 customer base. Between November 2021 and January 2022, we did implement price changes within our real estate business in Canada. These changes have generated significant levels of press for us. To be clear, these changes support the significant product enhancement and product investments we've made in the platform during the past year. We deliver a highly efficient means for our customers to execute transactions. The fee we charge are a relatively small portion of the total closing cost of a real estate transaction to ensure an efficient and secure housing transaction for what is likely the most important transaction in most Canadians' lives. We believe our platform is, by far, the most advanced real estate financing software in the world. We also believe customers should pay a fair price for a best-in-class product that significantly enhances their practice and also drives real financial values for their business as well. Now turning to Slide 6. Slide 6 describes our strategy: acquire good assets, integrate them efficiently and drive EBITDA. We put this strategy to work as a private company prior to 2020 and now effectively -- now very effectively since the IPO. We successfully raised equity and debt and deployed that capital in accretive acquisitions to drive $212 million adjusted EBITDA in the last 12 months, as I previously mentioned. Upon the closing of the Link Group acquisition, it will be a significant step forward to our Build to a Billion growth strategy. That progress towards Build to a Billion is highlighted on Slide 7. Starting on the right-hand side, we plot Dye & Durham's 1-year forward consensus of $358 million adjusted EBITDA. We add to it the consensus estimate for Link Group in financial 2023 as well as the $125 million in synergies that we announced at the time of the transaction. The sum of those 2 figures totals more than $700 million in adjusted EBITDA, meaning we're well on our way to the $1 billion target. Now let's take a look at the announced transaction of Link Group in some more detail. The Link acquisition positions Dye & Durham with significantly larger scale in the Australia and U.K. and a more diverse revenue mix, and it provides highly recurring revenue compared to the highly reoccurring revenue -- or nature of the revenue we have in today's real estate transactions that we process. Under the terms of the agreement, the acquisition represents a 15% premium to the closing price of Link at the time of the announcement at AUD 50.50 (sic) [ AUD 5.50 ] per share, which implies an acquisition multiple of 8.9x EV to EBITDA, excluding Link stake and PEXA. With this transaction, we continue to target 5x EBITDA post synergies. As we clearly -- and as we've clearly demonstrated, we can deliver on that post-synergy acquisition multiple time and time again. Now turning to where we're at in the process to close the acquisition. We have now submitted all the major regulatory submissions with development authorities in Australia, the U.K., Europe and India related to this agreement to acquire Link. Dye & Durham and Link's management teams are also working together on the integration planning process of the 2 companies. For the transaction to close, it will require a 75% approval from Link shareholders. This shareholder will -- vote will happen after we receive approval from the required regulatory authorities. Link's Board of Directors has unanimously recommended that Link shareholders vote in favor of this transaction. We expect closing the transaction in the third quarter of calendar 2022 or sooner. Turning to slide -- or Page 10 of the presentation. This acquisition positions us to go to market with the businesses -- with 3 businesses of significant scale, each exceeding more than $300 million in revenue: our existing real estate and legal solutions software platform; Link's corporate market business, which provides a shareholder management and analytics and shareholder engagement software; and Link's retirement and superannuation solutions platform, commonly called RSS, which services pension funds in Australia, New Zealand and the U.K. Additionally to this, Link owns an approximately 43% interest in PEXA Group Limited. PEXA is publicly traded on ASX under the symbol PXA and is soon to be an ASX 200 company. PEXA operates Australia's leading digital property exchange network and helps lawyers, conveyancers and financial institutions settle transactions and file documents electronically. From an accounting perspective, PEXA is not consolidated into Link's financial statements, and therefore, the EBITDA number being presented today do not include any share of PEXA's EBITDA or financial performance for that matter. The 2 additional business that Link operates, banking and credit management and fund solutions, are considered down-core to us. These assets are divestiture candidates either prior to close or post-close. Specifically, the banking and credit management business is expected to be divested prior to the close of this transaction, and the fund solutions business is expected to be divested by us post-close and is expected to be recorded as an asset held for sale on our balance sheet at close. These businesses are highly complementary. Link Group enhances our product offering without any duplication on products. It services similar with the same customers in many cases, which provides us with opportunity to cross-sell. This is particularly true in their corporate markets segment. Talking of corporate markets, in the corporate markets space, law firms awfully influence the selection of stock transfer agents and service providers, and we have an established relationship with most of the large law firms in Australia, Canada and the U.K. Link's corporate market offer is industry-leading, and its products are ideally aligned for this audience. The Link Group acquisition gives us significant financial and operational scale across core geographies in Canada, Australia and the U.K. On a combined basis, we'll grow to approximately 8,000 employees from just 200 at the time of the IPO 18 months ago in 2020. Less than 20% of revenue will be generated from Canada, with approximately 50% coming from Australia and approximately 20% from the U.K. This profile speaks to the diversity and breadth of our business that we've built. The vast majority of our current revenue is primarily transactional in nature and is tied to the real estate market. The revenue that's highly likely to -- this revenue is highly likely to reoccur from a very sticky customer base. The Link Group acquisition expands our ecosystem beyond legal and real estate and further penetrates our reach into financial service providers. It transforms our revenue streams, too, with more than half of the combined revenue of the go-forward business comprising of recurring revenues. We look at it on a pro forma basis. In an effort to help paint a picture of what we'll look like on the close of this transaction, we've plotted out the pro forma EBITDA profile of the combined companies on Slide 14 of the presentation. The gray bars represent historical figures of Dye & Durham. For the future period, we've assumed the acquisition closes on July 1, 2022, and Link starts contributing from that point forward. We've used the market consensus EBITDA for each of Dye & Durham and Link for the future periods and combined them to give you a better sense of the company's pro forma performance. Based on the equity analyst modeling, adjusted EBITDA, including $125 million in synergies I mentioned earlier, we'll achieve more than $700 million in adjusted EBITDA in fiscal 2023, which is a significant step towards our Build to a Billion strategy of achieving more than $1 billion in adjusted EBITDA. And that's without any consideration for future acquisitions and growth -- sorry, acquisitions. We believe in the -- we believe scale in the market is important. On Slide 15, you can see the scale of the pro forma businesses. It's evident on this graph with this acquisition, Dye & Durham will become a global leader in B2B software and information services, rivaling the largest technology issuers on the TSX. And our growth rate, which is highlighted in pink on the table, stands out from the pack since 2019 with an EBITDA growth CAGR of nearly 130%. On Slide 16, we illustrate another way to think of that growth relative to a peer set. Here, we plot revenue growth on our Y-axis and adjusted EBITDA margin across the X-axis. You can clearly see where we perform in the upper right-hand quadrant relative to the peer set, which is clustered towards the middle of the 4 quadrants. Link is a transformative acquisition for us as we continue to scale the business globally, further demonstrating that Canada -- that Dye & Durham is an unparalleled Canadian success story. With that, I'll turn it over to Avjit.

[Avjitpal Kamboj, Chief Financial Officer]

Thank you, Matt, and good evening, everyone. Thank you for joining us today. I'm very excited to announce that it was another record quarter for us. We reported revenue of $109.6 million during the second quarter, which tripled from revenue of $33.7 million a year ago. We also generated an adjusted EBITDA of $62.6 million, up from only $17.1 million a year ago or 267% growth year-over-year. In addition, we continue to maintain our strong EBITDA margins coming in at 57% this quarter, which is in line with our target range of 50% to 60%. Significant top line growth has been fueled by both the acquisitions we've completed, along with the integration activities and our organic growth, which includes the realization of synergies from high price adjustments. Total operating costs, which include direct cost, technology and operations costs and G&A and sales and marketing costs, were $47 million for the quarter or 42.9% of revenue compared to $16.6 million for the second quarter of prior year. The increase in direct cost is directly tied to our revenue and will increase proportionately as our revenues increase. Increase in other operating costs is due to costs acquired from the acquisitions completed during the period and our continued investment in human capital for scale. We expect our operating costs to continue to be within the 40% to 50% range. Net finance costs for the quarter was an income of $22.3 million compared to cost of $3.1 million in the second quarter of prior year. Included in the finance costs are changes in fair value of convertible debentures, contingent consideration and derivatives and a write-off of previously capitalized transaction fees from the refinancing of debt. During the quarter, we recorded $8.1 million of noncash finance costs on changes in lease fair value, including $4.3 million loss on change in fair value of our convertible debentures. As a reminder, IFRS accounting rules require us to mark-to-market or fair value these instruments each quarter. So we do expect this variability in our finance costs to continue. Acquisition, restructuring and other costs for the quarter were $9.8 million compared to $5.8 million in the second quarter of last year. Acquisition of Link Group and TELUS Financial Solutions business were the primary drivers of the acquisition cost during the quarter. These costs will also continue to fluctuate depending on the transaction activity each quarter. Now on to Slide 20. We've built a resilient business. On this slide, you can see the consistent growth we have delivered on our adjusted EBITDA during the past 5 quarters and our growth we have delivered in the last 12-month period. We've managed puts and takes during this period to deliver outstanding performance. As we all know, one headwind we continue to encounter is the real estate market. It has cooled off on a year-over-year basis and sequentially quarter-over-quarter basis. We took decisive actions in short order and managed through this environment. Despite the lower real estate market transactions, our adjusted EBITDA growth stayed strong. It is a short-term example of how we can manage the business during cycles while we still deliver shareholder value. Slide 21. Turning to balance sheet. We have a proven track record over the past many years of leveraging our strong cash flow and balance sheet to acquire an integrated company that will accelerate our organic growth and an adjusted EBITDA growth from synergies. This slide really shows the strategy at work as we identify strong acquisitions that are complementary to our existing business and provide enhanced value to our customers.On close of the Link acquisition, our leverage ratio will be around 4x net of cash and net of investment in PEXA. As we've mentioned many times before, our current business is like a digital-infrastructure-type business, and Link's business that Matt mentioned is no different. This gives us a highly predictable cash flow stream, enabling us to delever quickly. On close of the Link transaction, as I mentioned, our leverage is around 4x net of cash and net of PEXA investment. And as you can see, it quickly drops below 3x within 1 year and around 2.5x within 24 months after close. The key takeaway from this slide is as we deploy capital and drive incremental adjusted EBITDA, our net debt ratio rises in the short term until the incremental EBITDA comes through and as we drive synergies, which we have a track record of executing on quickly. The net debt ratio becomes back in line within short order. Based on the annuity-like attributes of our cash flows, we are very confident in our ability to deliver and maintain a reasonable leverage ratio. With that, I will turn it to the operator for Q&A. Operator?

[Operator]

[Operator Instructions] Your first question comes from Robert Young with Canaccord.

[Robert Young, Director]

The -- I didn't see any update to the guidance you provided after the TELUS acquisition in the release or any of the materials. The minimum $350 million of adjusted EBITDA, is that still a relevant expectation for -- I think it was fiscal '23?

[Avjitpal Kamboj, Chief Financial Officer]

Yes. That is correct, Rob.

[Robert Young, Director]

Okay. And in the release, you also said that the TM Group impact, either way, no matter how the regulatory process progresses, it's not material to the business. And so should we think of that guidance as being relevant irrespective of how the TM Group assessment goes?

[Avjitpal Kamboj, Chief Financial Officer]

Yes, yes. That is also correct. That is correct. On a go-forward basis, annualized, the TM Group or regardless of what decision is made as part of the CMA investigation, it is not expected to impact our results materially whatsoever.

[Robert Young, Director]

Okay. And then you said that you've seen a little bit of a volume headwind in the real estate market. And I was wondering if any commentary there on the organic drivers in Australia, U.K., Canada. Seasonality going into the March quarter usually sees a dip. And I was -- are there any thoughts that you'd like to share around where you see volumes going in the short run?

[Avjitpal Kamboj, Chief Financial Officer]

So historically, if we look at the month of December, primarily in Canada, Australia and the U.K., in the 3 markets, we do see a dip in transactional volume, primarily driven by all the holidays in the different regions. We do think that's a dip that's seasonal. We are starting to see volumes come back up. That being said, the volumes are still lower than what they were a year ago. And we're managing through it. And we are confident that we will be able to deliver on the guidance that we provided.

[Robert Young, Director]

Okay. And is that something that's relevant for Australia, the U.K., Canada? Is it in all regions? Or is it one that's stronger or weaker than the other?

[Avjitpal Kamboj, Chief Financial Officer]

I would say Australia region is staying strong, continues to be strong and has not dropped in previous years -- compared to previous years, whereas the Canadian market, we are seeing slowing down from a transaction volume perspective. There is still significant demand in the market. There's just not enough supply, resulting in a lower number of transactions. Now we do expect -- based on all the expectation in the market that's around real estate, we do expect the market to pick back up and go back to historical levels of transactional volume. In the U.K., there -- as you know, there was a stamp tax duty holiday that expired on June 30 of the last year. So we did see significant volume that happened before June 30 last year, which dropped slightly post June 30. Now we're starting to see that level of activity pick back up again.

[Robert Young, Director]

Okay. And maybe one last question just around the TELUS acquisition. I know it's still early. I don't think there was any contribution to this quarter you just reported. Maybe you could talk about the integration, and I think that you were looking for an opportunity to expand your presence in Quebec. Maybe you can talk a little bit about that and whether you're seeing any benefit from TELUS and opening up Quebec and then I'll pass the line.

[Matthew Proud, CEO & Director]

Okay. Robert, it's Matt. I'll take this one. So if it comes to financial performance, there was a small amount of -- we closed the acquisition in early December, first week of December. So there was a small amount of financial performance attributed from TELUS in the financials but it's only roughly 3 weeks. As it comes to integration planning, look, we're going through that process of planning and verifying how the process will look. We have -- those are the same process in every acquisition. So it's pretty repeatable. But look, this acquisition just closed. So it will take some time to kind of finalize everything and start executing. But some stuff is already underway. So it's a work in progress. As it relates to Quebec, I mean TELUS and the Assyst product, we both bought them, is a highly embedded part of the real estate process in Quebec and is involved in almost every transaction. So it really cements us in part of the real estate value chain that we look to be part of. So from that perspective, it does open up the Quebec market for us, which is one of the major markets in Canada.

[Robert Young, Director]

Great. And just to -- for the benefit of investors, just like how big was your presence in Quebec before this?

[Matthew Proud, CEO & Director]

When it came to real estate, we had no presence whatsoever. I mean it was kind of low single-digit revenue -- millions of revenue. And now we go to being -- to processing almost every real estate transaction in the market.

[Operator]

Your next question comes from Thanos Moschopoulos with BMO Capital Markets.

[Thanos Moschopoulos, VP & Analyst]

Just regarding the timing of Link, you're saying you expect it to close in calendar Q3. I think prior guidance have been for Q2. So can you just clarify if that's a change. You alluded to July 1 as well. So any color if you're thinking kind of earlier in Q3 -- earlier than Q3.

[Matthew Proud, CEO & Director]

So we did say Q3 earlier. I think like as we said before, like it could be anywhere really between kind of late spring to early summer. It does take time to go through the regulatory processes, and then you have the shareholder vote after that. So it's -- that time frame is the same. I think we have to word it differently.

[Thanos Moschopoulos, VP & Analyst]

Okay. So to be clear, you're not signaling that there's been any change versus prior expectations?

[Matthew Proud, CEO & Director]

Correct.

[Thanos Moschopoulos, VP & Analyst]

Okay. Can you give us an update in terms of where you are in integrating your Australian assets? I mean I know that you're kind of limited in what you could do there because of the CMA order, then that got lifted. So what's the status of the Australian integration?

[Matthew Proud, CEO & Director]

It's ongoing. We're going through the process right now. So it's to schedule.

[Thanos Moschopoulos, VP & Analyst]

Okay. And...

[Avjitpal Kamboj, Chief Financial Officer]

The only thing I'll add to that, Matt, is we -- it's actually progressing really, really well. We have been able to integrate majority of the employees, the businesses, how we interact in the market from front-end and the back-end systems. I think within the next few months, we should be near completion there.

[Matthew Proud, CEO & Director]

So we think that kind of full integration being complete, like everything done within 12 months. So by kind of the next -- sort of next fiscal year, we anticipate the whole thing being complete, which is, yes, there'll be 1 year -- kind of 1-year time being start to finish.

[Thanos Moschopoulos, VP & Analyst]

Okay. That's great. And just going back to your comments about TM Group not being material as far as the potential outcome with the CMA. I mean just remind us what your materiality threshold is.

[Matthew Proud, CEO & Director]

I don't think we've made public the materiality threshold, but it would not change the guidance we've given. What -- if we totally got rid of -- we did not -- we sold TM Group or another business, the people size we have, it would not impact that number, the $350 million.

[Thanos Moschopoulos, VP & Analyst]

But is that because you have other levers or because you would...

[Matthew Proud, CEO & Director]

That was with...

[Thanos Moschopoulos, VP & Analyst]

Other M&A or what's...

[Avjitpal Kamboj, Chief Financial Officer]

It's just that -- yes.

[Matthew Proud, CEO & Director]

It's not that -- go ahead, Avjit.

[Avjitpal Kamboj, Chief Financial Officer]

The TM Group contributes less than a double-digit to our EBITDA and revenue numbers. So you're talking about mid-single-digit type of impact, which is not material.

[Operator]

Your next question comes from Stephen Boland with Raymond James.

[Stephen Boland, MD & Equity Research Analyst]

Yes. Just a couple of questions. One of your comments for the regulatory hurdles for Link mentions antitrust. Do you expect any kind of further diligence from the Australian regulator, maybe with the legal solutions business, your existing conveyance? Do they look at what's happening in the U.K. and maybe do a little bit more digging? And does that review include the ownership of PEXA, which I presume would give you a very dominant market share if you did get control of PEXA?

[Matthew Proud, CEO & Director]

So we've been advised that other regulatory process we may be going through will not impact this regulatory process. One of the regulatory -- regulators we do -- we are dealing with is the ACCC in Australia, which is their competition regulator. But we will not have -- we were buying a minority stake in that business. At present, we don't anticipate any issue in achieving that regulatory approval based on legal counsel's advice.

[Stephen Boland, MD & Equity Research Analyst]

Okay. And maybe just -- there was some negative press obviously with the price increases in Canada. We can all make our back-of-the-envelope estimate in terms of how this impacts your guidance. And were the price increases included in that previous guidance? And have you had any pushback from any of your larger customers?

[Matthew Proud, CEO & Director]

So yes, the guidance, that $350 million 1-year forward number of EBITDA, is included the impact of various pricing changes that we've made. I think if you go back to the customer point -- to the comment I made earlier, look, our platform is the most advanced real estate financing software platform in the world by far. It's our view. We also believe customers should pay a fair price for a best-in-class product that significantly enhances their practice and really does drive financial value for them, too. So we -- I mean we obviously had some customers complain. It's been in the press, but we don't anticipate any material trend from this.

[Stephen Boland, MD & Equity Research Analyst]

Okay. And just the last one from me. Just on the U.K. with this regulatory review going to the second phase and we're specifically looking at the real estate, I guess, conveyance business, which I would have thought was fairly decentralized in the U.K., but does this review impact your longer-term goal of consolidating that market? Or do you have to look outside of the strictly real estate conveyance market and look into environmental searches, maybe commercial searches, things that are maybe not just in that core market that they're looking at? Is that a fair comment?

[Matthew Proud, CEO & Director]

I think it is. Like I mean, look, obviously, there's a very narrow scope of what they're -- or a fairly narrow scope of what they're looking at as it relates to a certain product and the market share of that product, but it doesn't necessarily impact other parts of the real estate value chain that we may be interested in. So I think you have -- that is a fair comment.

[Operator]

[Operator Instructions] Your next question comes from Stephanie Price with CIBC.

[Stephanie Doris Price]

Just hoping you could talk a little bit about future M&A as you kind of work to close Link and integrate the acquisition. Should we expect a bit of a pause here on M&A? Or how are you thinking about M&A at this point?

[Matthew Proud, CEO & Director]

Look, I mean this Link acquisition will be transformational. It's going to take us time to integrate it. It is a bit more -- it is different than other acquisitions as you are putting 2 businesses of equal scale together -- or financial scale, and they have more people than us. And so in some parts, it will be reverse integration. Other parts, they'll be integrating to us, and that will take some time. I don't think we're going to pause M&A. M&A still is a great -- is a good source of growth for us, and our strategy works. But our focus will be initial period post-close towards integrating the businesses. That will be priority #1. We'll continue to tuck in M&A to keep growing the business.

[Stephanie Doris Price]

That's good color. And then I wanted to circle back on your comments on leverage. Can you talk a little bit about your target leverage ratio and how high you could go for a larger deal.

[Matthew Proud, CEO & Director]

Look, I mean Avjit touched on it a couple of minutes ago. If you look at that kind of pro forma consensus adjusted EBITDA at close, you're looking at 4x when you back off the -- like the stake in PEXA, which is a cash-like item, and it quickly goes down to 2.5 24 months later, get them below 3 in a year. So this business can handle significantly more leverage than that. This is a digital-infrastructure-like asset and has infrastructure-like characteristics. It can handle a lot of leverage. So the -- that said, I think the amount of leverage easing for PEXA is more than manageable. And it's the right solution at this time given what our cost of capital is to use debt for this acquisition.

[Stephanie Doris Price]

Okay. And...

[Avjitpal Kamboj, Chief Financial Officer]

And I think as we have said before, Stephanie, we like to operate at sort of upper ends of 3.5x. But when it makes sense, we're not afraid to go over that limit as long as we can bring it down within our operating rates very quickly. And as Matt -- we just talked about, we can quickly delever this from 4x at close to around 2.5x within a very short period after close.

[Stephanie Doris Price]

Okay. And just final one from me. In terms of the requirement for 75% shareholder approval, with shareholder base do seem distributed, just wondering if you've had any indications of what major shareholders are thinking here.

[Matthew Proud, CEO & Director]

Nothing that we can comment on.

[Operator]

Your next question comes from Paul Steep with Scotia Capital. Paul, you may have us on mute.

[Paul Steep, Analyst]

Sorry about that. Avjit, on TELUS synergies, can you come back and just remind us the core assumptions there? Looking back to prior comments, you talked about it having very high or very similar margins to your business. So maybe talk about that goal to get to those synergies as well as just fresh us on the timing because I think the original transcript might have been a little muddied as, say, calendar and fiscal quarters.

[Avjitpal Kamboj, Chief Financial Officer]

Yes. So the synergies from the TELUS acquisition are combined with the synergies of our product offering that we have today. So we don't look at it on stand-alone synergies, but we look at it on a combined synergy basis. And as we mentioned before, the EBITDA margin on TELUS is in line with what we have today. But we do not break out synergies by acquisition.

[Paul Steep, Analyst]

Got it. Okay. So then on the U.K. seasonality, with the end of the stamp duty, what are you thinking about in terms of the number? Because obviously, the end of the year or your calendar Q2 or fiscal Q2 saw a significant drop in transactions. You mentioned the holiday period, but it seemed to be exaggerated this year. Your expectation, I assume, what does it look like sort of next year? Are you assuming back to normal? Or do we think there's sort of a lasting impact here?

[Avjitpal Kamboj, Chief Financial Officer]

No. We are actually already starting to see transaction volumes come back up back to normal levels. We view the stamp duty tax holiday in the U.K. as a onetime event that sort of pulled a bunch of transaction volume upfront that got used up over a period of the last 6 months' time frame. We are starting to see volumes come back in line with the historical trends.

[Paul Steep, Analyst]

And then just finally, I know it's a small launch, but you had a new registry in one region launch. Obviously, not all of the functionality is there, but Matt, any feedback or thoughts around how customers looked at that? It was an option. They -- or they could think about what's been maybe initial reaction to that barring sort of the other situation going on there but how people thought about it. Or is it mainly business as usual?

[Matthew Proud, CEO & Director]

So you're talking about the corporate registry in Ontario? Just for clarity.

[Paul Steep, Analyst]

Yes.

[Matthew Proud, CEO & Director]

Yes. Look, I mean, there were some issues with the launch. Look, we work kind of collectively and very, I would say, well with government in addressing the issues with the registry that launched. We provide support to the government and really kind of act as part of the front end of that registry, so dealing with customer calls and helping customers process transactions. There were some bugs. We worked through a lot of them with the government, and it seems to be getting better. But it was a real effort for our whole team, and I think everyone did a good job. But it's unfortunate that it happened, but everyone worked their hardest through it and it seems that that's behind us.

[Paul Steep, Analyst]

Sorry. The thought was more around -- yes, and understood you guys got through it and things worked well. It was more around the thought of potentially people going direct and it was going to be a small group of clients. And any feedback from post that in terms of just staying with what they had already maybe was more of the question if I'd reword it.

[Matthew Proud, CEO & Director]

Yes. I mean look, we thought that -- I mean what we've seen so far is that people continue to come to us. There's really been no change in kind of what -- the people that could go direct, which is often kind of B2C customers. We continue to process really the same on transactions now as we did before. We had thought that it may drop away and kind of consumers would go direct, but they seem to be still going through us. But that's not a material amount of revenue just -- or EBITDA just for clarity. You're talking low single -- low, low single-digit millions.

[Operator]

There are no further questions at this time. Mr. Marshall, you may proceed.

[Ross Marshall]

Thanks, everyone, for joining us this evening, and we look forward to updating you on our Q3 call in May. You may now disconnect.

[Operator]

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 great evening.