Dye & Durham Ltd

TSX:DND

Earnings Call Transcript 2021-Q4

[Operator]

Good afternoon. My name is Callum, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Dye & Durham Fiscal 2021 Fourth Quarter Results Earnings Call. I would now like to turn the call over to Ross Marshall, Investor Relations on behalf of Dye & Durham. Mr. Marshall, you may begin your conference.

[Ross Marshall]

Thank you, operator, and good morning, everyone. Welcome to Dye & Durham's Fiscal 2021 Fourth Quarter Results Conference Call. Before we start, we'd like to remind you that all amounts discussed on the 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-orientated 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 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-orientated financial information section of our public filings, without limitation, our MD&A, 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 Avjit Kamboj, Dye & Durham's Chief Financial Officer. Given the timing of today's earnings call and the indication of interest from a shareholder group led by management to acquire the company, previously announced on May 31, 2021, management, after consulting with the Special Committee, will not be taking questions from analysts this afternoon. I will now turn the call over to Matt for opening remarks. Matt?

[Matthew Proud, CEO & Director]

Thank you, Ross, and good afternoon, 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 fourth quarter and fiscal year ended June 30, 2021. We continue to execute on our strategy to acquire, integrate and operate to drive EBITDA. This afternoon, we reported revenue of more than $84 million and adjusted EBITDA of more than $49 million in the fourth quarter ended June 30, 2021. These results are in line with our expectations and the pro forma annualized run rate guidance for adjusted EBITDA of $220 million, taking into consideration a full quarter of adjusted EBITDA contribution from our recently completed acquisitions. It's been just over a year since our initial public offering. The business has changed significantly since that time as we have considerably scaled the company during the past 12 months, generating more than 6x the adjusted EBITDA in the fiscal fourth quarter of 2021 than we generated in the same period last year. We've also expanded our geographical footprint, with a greater proportion of our revenue coming from the U.K. and Australian businesses, which are expected to contribute approximately 50% of the revenue on a go-forward basis. With this scale and expanded footprint, we've also diversified the business based on the acquisitions we made and the markets we address. Our products are used for a wide array of underlying transactions across major Western English-speaking economies, with the vast majority of revenue being driven by transactions in the real estate market. The annuity-like nature of revenue and the relatively fixed nature of our cost base provides for a tremendous level of predictability on both our revenue and adjusted EBITDA. We've been consistent since the time of our IPO that we intend to grow through acquisitions, and we continue to execute on this strategy in the fourth quarter and into the summer. Since the start of the fourth quarter, we've closed on 6 acquisitions. We continue to generate results and deliver for shareholders. We've been doing this by significantly expanding the value proposition of our software platform as we unite other key parts of the software ecosystem around our customers. This is our strategy. Despite these achievements, I believe the capital market's response to our execution has lagged the performance of the business, which in turn undermines our ability to access growth capital at a fair valuation to transact further on acquisitions from a robust pipeline. For us, it's important to maintain momentum and we intend to do so. Acquire, integrate, operate and drive EBITDA, this is our business model. We will continue to execute at a similar pace in the future. We appreciate those investors that continue to support the business and look forward to updating you on progress as we move forward. Now I will turn the call over to Avjit, our CFO.

[Avjit Kamboj, Chief Financial Officer]

Thank you, Matt, and good afternoon, everyone. Since IPO in July 2020, we have strengthened our balance sheet and have raised approximately $1.2 billion in equity and secured $700 million in credit facilities. We deployed over $900 million in fiscal 2021 in acquisitions and an additional $310 million subsequent to year-end, bringing the total number of acquisitions since IPO to 11 acquisitions with a total purchase price of over $1.2 billion, and we intend to continue this momentum. Before I jump into the financials, just a quick reminder that the operating results of acquisitions are only reflected in our consolidated results from the actual completion date of the acquisition. Our Q4 results only include partial results from the acquisitions completed during the quarter. For the fourth quarter of 2021, total revenue grew to $84.4 million, an increase of $70.2 million or 5x the revenue from the fourth quarter of fiscal 2020. For the full fiscal year, total revenue grew to $208.9 million, an increase of $143.4 million or more than 3x the revenue we generated in fiscal 2020. The significant revenue increases were primarily due to 3 key factors: one, an increase in transaction volume during the period in connection with the economic recovery following the relaxation of restrictions related to COVID-19; two, revenue acquired from recent acquisitions that closed in the previous 12 months; and lastly, organic growth, including the realization of synergies from price adjustments on acquisitions.We have significantly diversified our revenue geographically to where today, Canada is expected to represent approximately 50% of our consolidated revenue, which is a significant change in our revenue composition since IPO. Adjusted EBITDA for the fourth quarter grew to $49.1 million, an increase of $40.3 million or nearly 6x the adjusted EBITDA from the fourth quarter of fiscal 2020. For the full fiscal year, adjusted EBITDA grew to $116.4 million, an increase of approximately $80 million or more than 3x the adjusted EBITDA in the prior fiscal year. The primary driver of adjusted EBITDA growth is our strategy of acquiring, integrating and operating businesses. Our ability to deliver is directly tied to our software-as-a-service model, which allows us to drive significant operating leverage, both in our current business and the businesses we acquired. Despite growing the revenue 5x compared to Q4 last year, our adjusted EBITDA margin was 58%, which remains within our target operating model of 50% to 60%.Total operating costs, which include direct costs, technology and operations, general and administrative and sales and marketing were $35.2 million for the fourth quarter and $92.7 million for the full fiscal year compared to $6.1 million for the fourth quarter of prior year and $30.6 million for fiscal 2020. The significant increases are primarily due to 3 key factors: one, direct costs are directly tied to our revenue and will increase proportionally as our revenues increase; second, costs from the businesses we acquired during the period; and lastly, our significant investment in human capital to increase the bench strength of our team and expand our management teams enabling us to execute on our strategy. Finance costs for the quarter were $5.6 million and $57.3 million for the full fiscal year. Finance costs include interest on our loans and borrowings, transaction costs from issuance of convertible debentures, changes in fair value of derivatives and the onetime charges related to refinancing of our credit facilities immediately after IPO. Just a quick reminder on accounting for convertible debentures. IFRS accounting rules require us to mark to market or fair value our convertible debentures each quarter, resulting in expensing of $11.1 million in transaction costs from issuance of convertible debentures and the recognition of noncash gains or loss on fluctuations in our finance costs, which was $6.7 million for the quarter. Acquisition, restructuring and other costs were $9.1 million for the fourth quarter and $25.7 million for the full fiscal year. These costs will continue to fluctuate depending on transaction activity each quarter. In both periods, the increase was primarily due to acquisition integration costs related to acquisitions that closed during the period and the significant onetime costs incurred in the actual listing of our shares. In addition, acquisition costs for the fourth quarter also included significant amount of [ FDDCs ] that are required to be paid on each U.K. acquisition. As I mentioned before, we have significantly strengthened our balance sheet during fiscal 2021 to provide flexibility to execute our acquisition-based growth strategy. As of June 30, 2021, cash and cash equivalents were $429 million compared to only $3 million in the prior fiscal year. As of year-end, total debt outstanding at our credit facility was approximately $242 million, with our $455 million revolving credit facility completely undrawn. Subsequent to closing of GlobalX and TM Group acquisitions, which occurred after June 30, we have access to over $570 million in capital to execute against strategic opportunities in our acquisition pipeline. With that, I will turn it back to Ross Marshall. Ross?

[Ross Marshall]

Thank you to everyone for joining today's call. As we mentioned in our introductory remarks, we will not be taking questions on this call as a result of the expression of interest to acquire the company from a shareholder group led by certain members of management. As disclosed in the June 24, 2021 press release, it is the Special Committee's current intention not to disclose developments with respect to the strategic process unless and until the Board of Directors has approved the specific transaction on the recommendation of the Special Committee or otherwise determines that disclosure is necessary or appropriate. We appreciate your attendance today, and have a great week. Operator?

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.