mdf Commerce Inc
TSX:MDF
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mdf Commerce Inc
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Thank you for standing by. This is the conference operator. Welcome to the mdf commerce Q4 Fiscal 2021 Investor Conference Call. Today's call will provide information and commentary on the cooperation with a focus on the financial results released yesterday after the market closed. We will hear from Luc Filiatreault, President and Chief Executive Officer; and Deborah Dumoulin, Chief Financial Officer. If you have questions following the call, you can reach mdf commerce at the address of their website, www. mdfcommerce.com. First, here are a couple of housekeeping notices. [Operator Instructions] The call is being recorded, and we expect the recording to be available on the mdf commerce website later today. The information in today's remarks, including any forward-looking statements have been prepared as of June 9, 2021, unless otherwise indicated. mdf commerce assumes no obligation to update or revise the forward-looking statements to reflect any new events or circumstances except as may be required pursuant to securities law. We remind you that today's remarks will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reader advisory at the bottom of the mdf commerce news release, which is on their website and which has been filed on SEDAR. The corporation's actual performance could differ materially from those statements. The corporation presents non-IFRS financial performance measures and key performance indicators to assess operating performance. The cooperation presents adjusted profit loss, adjusted profit loss per share, net profit loss before interest, taxes, depreciation and amortization EBITDA, and adjusted EBITDA as non-IFRS measures and monthly recurring revenues as a key performance indicator. These non-IFRS measures and key performance indicators do not have standardized meetings, IFRS measures and key performance indicators are unlikely to be comparable to similarly designated measures reported by other corporations. The attendees on this call are cautioned that these measures are being reported in order to complement and not replace the analysis of financial results in accordance with IFRS management, uses both measures that comply with IFRS and non-IFRS measures in planning, overseeing and assessing the corporation's performance. The terms and definitions associated with non-IFRS measures as well as reconciliation to the most comparable IFRS measures and key performance indicators are presented in the section non-IFRS financial measures and key performance indicators in the company's management discussion and analysis for the fourth quarter of the year ended March 31, 2021. In the fourth quarter of fiscal 2021, the corporation amended the definition of adjusted EBITDA and comparative figures have been reclassified to conform with the current period presentation in the company's MD&A refer to the section non-IFRS financial measures and key performance indicators. I will now hand the call over to Mr. Filiatreault. Please go ahead, sir.
[Foreign Language] Thank you, Claudia. [Foreign Language] Good morning, everyone, and thanks for joining us for our Q4 fiscal 2021 results call. What a year we've had. We will turn to the results we filed yesterday in a moment. But first, I want to take a bit of time to tell you about mdf commerce and the state of our operations. Our mission at mdf commerce is to enable the flow of commerce, and we do so by developing and providing our commerce technology solutions to our clients. Our 3 platforms, Unified Commerce, Strategic Sourcing and emarketplaces and power businesses around the world, allowing them to generate billions of dollars in transactions on an annual basis. And this includes over 300,000 end user companies, mostly in North America. This past year marks the first of our 5-year strategic plan that we embarked on 1.5 years ago. At the heart of this plan is our transformation into a high-growth cloud base SaaS company. During an unprecedented global health and economic crisis brought on by the COVID pandemic, we've remained focused on delivering on the needs of our clients and creating value for our stakeholders. Our success is driven by our employees, and we celebrate their many accomplishments during that first year of our transformational journey. The management team is confident that our talented team will meet new challenges as we move forward into the second year of our strategic plan. I invite you to turn to Slide 5, which shows a diagram -- high level diagram of that Strat plan. The strategic plan was developed to guide the corporation in effectively competing in 2 significant and growing software markets that enable the flow of commerce, Unified Commerce, which includes e-commerce and supply chain collaboration and Strategic Sourcing. For Q4 2021, total revenue was $22 million, which represents a growth of 16.5% from the same quarter year-over-year. And our annual revenue for Fiscal '21 was $84.7 million, which is up 12.3% over the previous year. This is the highest level of annual growth recorded for any of the past 5 years. When we embarked on this strategic plan, the biggest challenge was to join with growth, and we've accomplished that significantly. And you can also see that, that growth keeps increasing quarter-after-quarter. So our year average is 12.3%, but fourth quarter was 16%. So certainly, trending in the right direction. What's particularly noteworthy is when we look at revenue growth of our strategic focus, namely e-commerce and the U.S. portion of our Strategic Sourcing, revenue from the e-commerce solution has grown 107%. That's massive. And our U.S. Strat plan Sourcing grew by 20.8%, again, quite massive. So our global growth is certainly fueled by our strategic initiatives. But of course, we still have some older places, older pieces that are not growing as fast, and we'll discuss this a bit later. Overall, we're pleased with all that was accomplished during the last year, and we continue to make excellent progress in transforming mdf commerce into a high-growth SaaS digital company. So to effectively compete in these 2 growth markets, our strategy is focused on 5 transformational pillars. And here is how we've progressed in the past 12 months. The first pillar was to unite and becoming a single SaaS company. Over the past year, we have rebranded. We've elevated our profile, look at how many press releases we've published in the last 12 months compared to the last 5 years. We've greatly simplified and unified how we present our solutions. We've revised our brand architecture. It's now uniform. Our internal services, our technologies, our reporting and our planning have also been realigned to favor operational unity and efficiency. The second pillar is accelerating product development and adding innovation. We did this by adding new senior product strategists, IT resources that have considerable impact on accelerating our development cycles, strengthening our product innovation and further monetizing existing assets. All these improvements have been extremely well received by our customers. We have new versions of our e-commerce solutions as well as multiple innovations in our strategic sourcing platforms, which helps explain the growth. mdf commerce remains committed to investing in product development, that maintains our competitive edge and improves our ability to convert our pipeline. Thirdly, it was the scaling of customer acquisitions. Considerable efforts were put into developing our sales resources and processes. New sales leadership, ongoing sales training the past year, we've won major accounts, such as Aldi, Indigo, Aimco, the Canning group, the government of Newfoundland and Labrador, among others. We've onboarded over 92,000 suppliers for Strategic Sourcing and approximately 600 SMBs to our Unified Commerce solutions. Sales leadership dedicated to our high-growth platform is driving the implementation of our organic growth plan, which is focused on further strengthening our sales culture and leveraging cross-selling opportunities between our different platforms. Our fourth pillar is ongoing mergers and acquisitions and integration, which is our key element to our transformational plan. Our acquisition strategy revolves around the specific goals of expanding our geographic footprint and strengthening our product offering. We entered fiscal 2021, just having completed the integration of KE Commerce and have since acquired an integrated vendor registry, which added 70,000 new suppliers, 400 buying agencies and increased our coverage to 14 additional states in the U.S. These are 2 very good examples of executing on our strategy, strengthening our product offering for unified commerce and expanding our geographical reach for Strat Sourcing, with the end goal of further consolidating a very fragmented market. Looking ahead, our M&A road map is robust. We have targets for both unified commerce and strategic sourcing in our pipeline that we will be executing on. And last, but not least, it's actually probably the most important one, cultivating the culture of talent and productivity. As a software company, the main driver of our success is our people, their talents and our culture. Over the past year, considerable efforts have been made to bring life to a set of values that empower our teams to innovate, accelerate sales efforts, ensured better operational efficiency, better governance, diversity, inclusion, as the tech resource crunch intensifies in Canada and internationally. We've implemented multiple strategies and campaigns across Canada, in the U.S. and parts of Europe to source the new talent required to support our accelerating growth trajectory. This is just anecdotal, but our hybrid local recruiting campaign and our partnership in Ukraine, I was informed earlier this morning that we've actually recruited our 2 first candidates from these campaigns. It's starting to work. As we exit fiscal 2021 with the fastest growth trajectory experienced by mdf commerce in several years. Management has identified a few foundational elements that needs to be addressed in order to scale more efficiently in the future. Accelerated growth revealed that there are opportunities to improve efficiencies and margins by upgrading some technology in key area as we increase the number of large deployments. This requires us to invest in cloud transformation to improve metrics such as usage and transaction volume as it increases for our e-commerce solutions. At the end of Year 1, one of the most exciting aspects of our efforts is the marked growth acceleration in our areas of strategic focus, e-commerce, U.S.-based strategic sourcing. As I mentioned earlier, we believe these results are a good indicator of the potential for our growth strategy. Not only did we transform our operations, but we also strengthened our leadership team. We added 3 new members to our Board of Directors. Christian Dumont, from California; Clement Gignac, well-known in Québec and Canada; and more recently, Mary-Ann Bel, a great leader. With all the leaders we also added to the management team, our new Chief Financial Officer, Deborah; our new Chief Legal Officer, Nicolas; our new VP of Human Resources, Julie Belanger, as well as strengthening our team in e-commerce. It's been an extraordinary year. And with this, I will turn over the call to Deborah to discuss our Q4 and fiscal 2021 financial results.
Thanks, Luc. You could turn to Slide 6, where I'll start with the annual Fiscal '21 results. Total revenue, as Luc mentioned, was $84.7 million, that compares to $75 million reported in the previous year, an annual growth rate of 12.3%, and as Luc mentioned, the highest level of annual growth recorded in the past 5 years. We look at our revenues under strategic platforms. Unified Commerce represents about 44% of our revenue, Strategic Sourcing, 39%, and emarketplaces about 17%. Unified Commerce platform which includes our supply chain collaboration and our e-commerce solutions generated $37.3 million for fiscal 2021, an increase of 11 -- almost $12 million at 47% compared to our revenues of the previous year at $25.5 million. The Strategic Sourcing platform generated $32.7 million, an increase of $7.8 million compared to $30.3 million in the previous year. When we look at our emarketplaces platform, it generated $14.7 million for Fiscal '21, that's down 25.3% compared to revenues of the previous year of $19.7 million. If we focus on our 2 growth platforms, the unified commerce, which we saw the growth at 47% year-over-year and specifically, our U.S.-based strategic sourcing, these are the areas we see the highest growth potential. First, for unified commerce, which includes our, again, supply chain and our e-commerce solutions. On the e-commerce lever, we have 2 solutions, Orckestra, which is our larger enterprise solution, and it contributed $7.1 million of the year-over-year increase. And the increase in revenue in our Orckestra solution is really around organic growth, new clients and increased transaction-based revenues year-over-year. In e-commerce, which we acquired in December 2019, we strengthened our e-commerce solution offering, and it contributed $5.4 million to the year-over-year increase in revenue. Combined, the 2 e-commerce solutions generated a year-over-year revenue growth of an impressive 107%. Our e-commerce solutions often generates professional services revenue, primarily from implementation services and large deployment contracts. These are typically are lower margin revenue streams, they're lower margin than the recurring revenue from right-of-use licensing or our typical SaaS revenue. We introduced the partner strategies to decrease our focus on implementation services in favor of focusing on higher-margin SaaS revenue. In our supply chain collaboration, we saw a decrease in year-over-year revenue of $0.6 million. And this is mainly around certain retailers, which were negatively impacted due to the COVID-19 pandemic as this is really a lower volume business and where we saw lower transactions and volumes that is driving that revenue down year-over-year. If we turn to strategic sourcing, this is a solution where the public sector is at the heart of the value proposition and represent some of our highest quality and most efficient revenue streams. This year, it was in the U.S.-based strategic sourcing solutions that we saw the highest year-over-year growth, and that was 20.8%. The acquisition of Vendor Registry in fiscal '21 broadened our U.S. strategic sourcing, geography and our footprint there. We believe that the U.S. based government infrastructure spending will provide us a wonderful opportunity for pipeline growth and conversion. Turning to the e-market platform where we saw revenue for the year of 14.7%, but an overall decrease in growth of 25.3%. And here, this is a marketplace which has many different types of business. And we feel that the pandemic negatively impacted our emarketplaces solutions. Specifically in areas such as automotive parts like our [indiscernible] business, electronic component in, which is our broker forum, and of course, diamonds and jewelry in Polygon and even in job boom in the early days of the year, where we saw online recruitment slow down. Now ironically, as we'll discuss in a few minutes, the global job market and related recruitment activity has completely turned around as we exit 2021, and we're seeing unforeseen demand for top tech talent. Overall, we expect the emarketplace revenues will continue to have less of an impact on the corporation in the future as we focus on our higher growth solutions, namely the Strategic Sourcing and Unified Commerce platform. If you turn to Slide 7, we'll -- sorry, just before that, I'll cover the year-over-year results in terms of net loss for the year was $7.6 million. And that represents $0.38 per share. And adjusted EBITDA for the year was $5.7 million, and that compares to $10.3 million of the full year last year. We mentioned in the early part of the call that we did amend our definition of adjusted EBITDA to adjust for acquisition costs and restructuring costs, and we exclude these -- having trouble because we don't believe that they're representative of our core business. And we adjust them so that periods will be comparative from 1 to the other. Overall, adjusted EBITDA declined year-over-year due to increased foundational investments in operations, sales and marketing, R&D and professional services that support our implementation and strategic initiatives and our overall transformation plan. Foundational investments are expected to improve the scalability and efficiency over time. Now we can turn to Slide 7 for the Q4 2021 results. Total revenue was $22 million. Again, representing nice growth quarter-over-quarter at 16.5%, and that's up from $18.9 million in the previous year. The corporations, Unified Commerce and Strategic Sourcing saw again the highest growth in the fourth quarter, while emarketplaces was stable, they're declining in some of the marketplaces quarter-over-quarter. In Unified Commerce platform, where we saw a $9.7 million, that represented growth of $29.5 million. And again, in the e-commerce solutions that is part of Orckestra and k-eCommerce, we saw an increase of revenues of $2.4 million together compared to the same quarter of fiscal 2020. k-eCommerce, which was acquired by the corporation in December 2019 contributed $2.2 million in revenues in the fourth quarter compared to $1.6 million in the quarter before -- sorry, the Q4 of the previous year. The increased demand for e-commerce services, which accelerated in the context of COVID-19 has resulted in higher right-of-use revenues, higher professional services revenues that are supporting large customer deployments. For Strategic Sourcing, the revenue for the quarter was $8.7 million or up $15.4 million over the previous Q4. Revenue increased by $1.4 million, essentially over the Q4 this year versus Q4 last year. Again, we saw that the corporation's U.S.-based solutions, mid net contributed the majority of the revenue quarter-over-quarter. And including the corporation's acquisition of Vendor Registry, which was in November 2020. Again, we stated the U.S.-based Strategic Sourcing solutions are really benefiting from organic growth in revenues driven mainly by new buying agencies, which are driving up an increase in the number of paying suppliers and an overall increase in revenues compared to 2020. In Marketplace -- emarketplaces, we saw revenues at $3.6 million, a slight decline over the prior year, representing 6.7%. Overall, we see in the emarketplaces platform is slightly negatively impacted by the COVID-19 pandemic as most of the solutions experienced lower memberships or lower transaction volumes in their respective industries. Turning our attention to our margins. Gross margins were about 20 -- 61% compared to the prior year at 67%. The decrease in gross margin percentage is mainly due to professional fees revenue that yield lower margins, and this relates to large customer deployments, mostly in e-commerce. We also saw higher costs of hosting and licensing from our cloud-based solutions. We expect that gross margin percentages will remain compressed temporarily until the ongoing deployments in e-commerce are delivered. Operating expenses were $16.7 million, and this compares to $14.9 million in the fourth quarter of 2020, an increase of about 12%. The increase in operating expenses is primarily due to higher salaries and related expenses due to higher headcount and the cost of labor. Q4 salary expenses were offset by $0.7 million of wage subsidies from the Canadian government. That's the Canadian emergency wage subsidy program. And for the year, that amount was -- the subsidy amount was $3.4 million. Concluding on Q4 with net loss, which was $2.9 million or $0.12 per share basic and diluted, and this compares to a loss of $6.8 million or $0.45 loss per share basic and diluted for the same quarter of fiscal 2020. Adjusted EBITDA was $200,000 for the fourth quarter of fiscal '21 compared to $700,000 reported in Q4 of 2020. The adjusted EBITDA decline year-over-year is mainly due to increased foundational investments where we saw operations, sales and marketing, R&D, and again, professional services that were required to support the corporation of implementing its strategic initiatives, transformation plan and large customer deployment. We believe that as deployments accelerate over the coming quarters, personnel and professional service expenses will remain elevated, and we expect to continue to make foundational investments to improve our scalability as we grow. Margins might continue to be compressed as we make the required investments to improve our scalability. A few words on our balance sheet. In March, this year, we completed a bought deal offering and raised $80 million of gross proceeds. This was the third bought deal equity financing in fiscal 2021 combined with a new credit facility that was based on monthly recurring revenue and having paid down our long-term debt in Q3, we really strengthened our balance sheet and our overall financial position. In March -- at the end of March, we had $110 million in cash and cash equivalents on the balance sheet. This capital will allow us to implement the key components of our transformation plan, including our M&A strategy, and while remaining focused on maximizing return on invested capital. As we move into fiscal 2022, a key challenge is the scarcity of tech challenge -- tech talent, sorry, and the growing cost of labor. To put things in perspective, adjusted EBITDA, which I mentioned, was $5.7 million, it represented margins of 6.8% for the current year, and this compares to $10.3 million of adjusted EBITDA and 13.7% margins for the prior year. The demand for programmers and developers has accelerated exponentially reaching unparalleled levels at a time where businesses are seeking to accelerate the digital transformation and their e-commerce capabilities. The competition for resources is global, driving up the cost for tech labor to unforeseen levels. Over the past fiscal year, the impact of this extraordinary demand for talent has already contributed to a compression of our margins, which may experience some fluctuations quarter-over-quarter. As we move forward, our challenge will be to strike the right balance between managing our salary costs and staying in the race to capitalize on the window of opportunity brought on by this market acceleration. As the tech resource crunch intensifies in Canada and internationally, we've implemented multiple strategies and campaigns across Canada, in the U.S. and also in Europe, to help us in our growth trajectory, including the expansion of development capabilities in Ukraine. And as Luc mentioned earlier, it's already starting to at least gain some intention and hopefully, some success. With that, I turn it over to Luc.
Thanks, Deborah. So let's go over to Slide 8, where the times are really extraordinary. This has been another quarter of significant progress in building a solid foundation for accelerated growth. In the quarter, we added approximately 92,000 suppliers to the Strat Sourcing platform with hundreds of new active procuring entities, approximately 650 SMEs and 3 enterprise level mandates that were added to our Unified Commerce platform. A great indicator of the potential of our Strat plan is the tremendous growth generated by our e-commerce solution and U.S.-based Strat outsourcing, which is the focus of all of our efforts. Based on our growing sales pipeline, management believes that much of the acceleration for e-commerce caused by the COVID-19 pandemic will be permanent. This is reflected in the growth trajectories that we reported this quarter, and we plan to exploit the market trends to accelerate future growth of recurring revenue. Additionally, with the infrastructure builds on the way, we anticipate an increase in federal and other public sector agency spending across North America over the next several years, which will all be done through various procurement processes and platforms at all levels of government. Our Strat Sourcing platform which really is central to public procurement, is extremely well positioned to capitalize on the uptick in government spending throughout North America. From an M&A perspective, our strong balance sheet allows us to become more aggressive in the execution of our M&A strategies. Our target pipeline is strong for both Unified Commerce and Strat Sourcing. And we're actively working towards strategic outcomes very soon. As we exit fiscal 2021 with the fastest growth trajectory experienced by mdf commerce in several years, we have identified a few foundational elements that still need to be addressed in order to scale more efficiently in the future. Accelerated growth revealed that there are opportunities to improve efficiencies and margins by upgrading technology in certain key areas as we increase the number of these large deployments. I believe mdf has never been in a stronger position, both in terms of market position and financial strength to capitalize on the tremendous opportunities presented to us. We would like to thank all of our clients, all of our employees and all of our shareholders for being part of this amazing transformational journey. And with that, I'll hand over the call back to Claudia, our operator, to open the line for questions.
[Operator Instructions] And your first question comes from Nick Agostino from Laurentian Bank.
This is Salman Rana on behalf of Nick Agostino. So Luc, my first question is basically about what Deborah was talking about in the end about the tech talent crunch. So we notice that there is seen of job openings on mdf website. So are those job openings to fill new roles or to backfill old roles? Or said differently because of the tight labor market, are you having issues both finding as well as retaining existing employees?
Well, thank you for that question. And it certainly is that seems to be across all the tech sector. We're in touch with many peers. And the demand for basically, digital experts and programmers has just elevated exponentially. I'd say, probably starting around a little bit before Christmas. So the growth that you see in our numbers is obviously requires additional talent. And we still have quite a few job openings, and we have went outside of our usual ways of recruiting in order to fill the positions that we have, so we can deliver the various systems to the clients. We went into a very -- you may have noticed, very hyper local recruiting campaign where we're targeting specific, I would say, low-density areas around, for example, in Québec around the city of Sherbrooke, in and around Lax Anjan. We've also been very active in the Kitchener-Waterloo area. We've been active in Tennessee, where we already have a base with Vendor Registry. And we've recently signed a partnership with a company in Ukraine, which is helping us put together a fairly large development center. And as I mentioned anecdotally, although we just signed this a week ago, we're already seeing some input of new talent at a reasonable cost. But it is an unforeseen activity, which we're feeling both from the cost of the new people that we recruit are asking for sometimes salaries, which are quite higher than what we would have expected and we even see it in our jobboom platform, which quite interestingly, is itself seeing a level of demand that is beating records from 5, 6 years ago. So definitely, the job market is a challenge that we are undertaking, but we took various solutions to address this. And I'm very confident that we will be able to fill those positions in the appropriate time. And be able to deliver on our customers' orders because our pipeline is absolutely full, and this seems to be the case in many different sectors.
Okay. That's very helpful. And of course, you just mentioned the partnership in Ukraine as well. We're seeing that, that started to gain some momentum. Are you expecting any potential cost savings as a result from that partnership?
Still experimenting a little bit. The cost of resources as -- from what we can see is less than a similar person would cost in North America. And with the success that we've been having for the last 1.5 years about all working remote, it really -- we expect the same level of productivity. We don't expect any issues. And I have to mention, we already had about a dozen people in Ukraine and have had them for a long time. So this isn't completely new to us. We just increased the level of effort and made the conscious decision to look to grow that development center significantly.
Got it. And my next question is about Vendor Registry. So was the revenue in the quarter from Vendor Registry in line with expectations that were set at the time of acquisition?
Not only was it in line, it was better than the business case that we had built. We're having an incredible success at integrating Vendor Registry's clients into our global network. And that allows us to maintain that very strong organic growth in the U.S. If you would look at how it's been -- you can almost not distinguish the Vendor Registry teams from their Strat Sourcing peers now because we've really integrated completely the business, not just from a financial perspective but from an operations perspective, a process perspective, and it's going extremely well. And as I mentioned multiple times before, we feel that, that Strat Sourcing market is a highly fragmented market. And we wanted to develop this very strong recipe about integrating additional buying agencies and additional suppliers to our network, which gives us an immense amount of strength. And with the various stimulus programs that are coming out, both in the U.S. and in Canada and probably everywhere in the world, we think Strat Sourcing growth will be very strong. And as Deborah mentioned, it is the highest quality revenue that we have. And it's very, very distributed, no customer concentration. So we're very, very active on that Strap Sourcing front.
If I could add that, in that particular Strategic Sourcing, it's easier to adjust pricing by offering different packages. So we are benefiting from an increase in prices without necessarily just increasing prices. We're doing it through increased functionality and ability to effectively use the platform from a client experience. So it's allowed us to increase in pricing, which is helping also.
Your next question comes from Amr Ezzat from Echelon Partners.
I was a bit surprised with the pace of professional services during the quarter, doubling year-on-year, especially with the U.K. early in the quarter under lockdown? Can you maybe give us a bit of an update on the Aldi implementation then as well, maybe give us color on how the first batch of stores fared during the quarter?
Thanks for that, Amr. So obviously, the professional services to do some of these large deployments is a, I would say, is a temporary solution that we had to use because of the textile and crunch that we were talking about. So it's not a permanent thing. We're -- we actively got into different recruiting strategies. So we hope to have -- to see that lower gradually over time. As for the Aldi implementation, things are going very well. We now have added a significant number of stores in Ireland. We're still working with the Aldi folks to optimize the complete operation. As you indicated, the U.K. was locked down and locked down is even weak where it was completely shut for most of January to March. And this created some very good demand to the store, the number of stores that are still active. We would have wanted to, and Aldi would have also wanted to, deploy or to continue to deploy faster, but we still need to make sure that we finish the optimization. And the optimization is not just about the actual ordering and the digital software that we supply, but it's about the whole operation. The fact that the stores are in very highly dense population areas they're typically quite small from a square footage perspective, very packed and the picking of the articles and the store still requires some optimization. The temporary storage to put the goods while people come and pick it up or while we have them delivered is sometimes, I would say, a significant issue that needs to be dealt with. The availability of labor to do the picking in the stores is something we need to further optimize. So we're still experimenting with various, I would say, strategies before we do the complete rollout. But things are going well. The relationships with the customer is very good. Our recurring revenue has substantially increased from those stores. The demand for online groceries is still very strong. It hasn't come down any significantly once U.K. started to reopen. So things are good. But going, I have to be honest, a little slower than we expected.
But we did put Ireland on in the quarter. So...
Yes, Ireland is now on. And they're also -- they've got their first few stores and a little bit of optimization and the rollout should happen in the second half of the year.
Great. So are you guys like delaying, I guess, like rollout plans? Or do you still feel that you could get to I guess, like at a high level, you said like 1,000 stores, like, by year-end. Is that a little good estimate?
It's certainly the information that we have currently. It's -- but it's something we obviously do in collaboration with the client, right? Ultimately, we have the capacity, and you saw that in, what is it, the third quarter last year was deployed -- within about 3 months, we deployed a little over 250 stores successfully. So our capacity to deploy from an IT perspective, it's very fast. But the logistics and the human impacts are significant for the Aldi operations. So it's in collaboration, and it has to be timed. I mean, we basically put more software in the cloud. It's pretty easy to do. But they need to put feet on the street and acquire and do some construction, hire people, et cetera. So I think the pace is obviously controlled by our client. And much of it is nothing to do with digital, but something a lot to do with operation and getting the goods to the customers. This isn't a digital product. You can't buy grow -- you can buy grocery online. But somebody needs to handle the product to bring it to consumption. It's not like music. It would be a lot easier.
No. I understand. That's good color. Just back on the staffing, I guess, like record revenue quarter, but I'm just wondering how much is lack of staffing constraining your growth, can you put like numbers around that, especially when I'm looking out at fiscal '22? Is that, sort of a peak revenue number until you guys like are able to staff like more aggressively? Or how do I think about that?
You've touched on some key points, Amr. You're very good at reading all this stuff. You're right. I mean, we could have grown faster in probably the last couple of quarters if we would have had, let's call it, normal access to recruiting. Because of the crunch, and we did recruit, by the way, a little over 200 people during the year, which is phenomenal because let's face it, we never could have imagined to recruit that many people without ever seeing them, right? We completely have to readapt our processes, but we still have a significant amount of open positions. And there comes a point where with the customers that we're signing, we're adjusting pricing because it's no longer about its about how fat at depends on the number of people you can make those -- you can get those implementations done. And it's not about software, it's not our software per se that requires all that work. It's the integration with all of the other customer systems. We typically sell -- I like to make the comparison with some other quite well-known e-commerce suppliers in Canada. And most of our customers are -- even the SME ones are much, much larger and they require integration with their ERPs, with their financial systems, with their warehousing systems with their inventories, many of them are B2B operations. So they have completely different offering for various customers. And all that requires some data input, et cetera. And that requires people to do. It pays off significantly in the recurring amount that it generates. But until the app is completely installed, well, it can almost -- it doesn't generate a lot of recurring revenue. So we're sort of trying to find the most efficient balance between either increasing our staffing costs to a point where, yes, we will capture the demand, but it will be hard on the margins. And slowing down -- or sorry, letting ourselves be desired a bit more and trying to get our customers to weight up a little longer to get their implementation. And in doing that, we were hoping to keep a little more healthier margins. So we're still looking for that right balance. But the various recruiting initiatives that we undertook in the probably last 2, 3 months are starting to work. It's definitely an unforeseen problem. And I have to say, I've been in IT business for a long time, and talent was always the most difficult challenge you had but it's now to a point that I've never seen before. We have to tell customers that we can't start their projects until 6 months or 9 months. And it's the reality. And it seems to be happening in every sector in this post-pandemic thing. Go try to find a plumber to fix your household stuff, and it's the same types of problems that we see.
No, I hear you. Okay. I mean, you spoke to, okay, staffing, obviously, and like the increased professional services like impacting your margins. But I'm just wondering how far are we in the process of reinvesting in the business? So when I'm looking at EBITDA margins for fiscal '22, okay, I get the message probably compressed for 2, 3 quarters, but do we start to see an uptick maybe by the end of fiscal '22? Is that fair?
That's -- with the information that we have, it seems quite fair. I'm not uncomfortable with what you're seeing. Obviously, I mean, the big dependency here is that the success that we will have in obtaining tech talent at reasonable pricing. And that's a factor that seems to vary significantly. And right now, I mean, I see it as somewhat unpredictable. And that's why we came up with these alternate solutions. I think offshore development is going to become pretty popular. And I -- we have to put a lid on these things because that's the big factor. That's very hard to -- I'd say, predict in advance. But from our operational constraints from our investments that we're making are most of it is quite in line with our expectations. So you're bang on.
Okay. Maybe one last one. Can you give us an update on capital deployment. You ended the quarter, obviously, with a very large cash position. And we're seeing platforms in your verticals get taken out at, call it, 15x to 25x revenues. How are you guys, like, competing in such an environment in light of what you guys, like, spoke about in the prepared remarks of ROIC and being focused on ROIC?
Two things, right? We're looking at 2 large, let's say, strategies for our M&A. And what you mentioned with the acquisitions we saw from our Montréal friends at light speed. They're acquiring platforms. In our case, right now, acquiring platforms in e-commerce is not very synergistic with us. It's hard to integrate, and we already have a platform that addresses large clients in very many different spaces, retail, grocery, B2B. And we also have a platform that addresses smaller companies, mostly in B2B and manufacturing. We don't feel we need other platforms. We right now are successful at winning new business, implementing new business is a little slower than we'd like, but we could use certain I would say, add on functionality that we could acquire, which do not go for those multiples, which we obviously would not want to invest our capital at 15x to 25x sales, or certainly not until we trade at that level. In Strat Sourcing, you saw that we acquired Vendor Registry at about a 5x multiple. You saw that Negometrix was acquired by Marcel. If I'm not mistaken, it was about at a 4.5 multiple. And unfortunately, they got it. So we're looking at, like we mentioned before, many opportunities also in Strat Sourcing, where we feel multiples, although are on the rise, are still a bit more reasonable. And as we mentioned before, the quality of business there is very high. It's very recurring revenue. It's not dependent on large customers, a lot less dependent on staffing because it is a network. So we're very active also on the Strategic Sourcing front to look at a pipeline. And we feel that there, our integration capabilities really makes the difference. And although, we're not trading at those multiples, the integration strategy, like we did with Vendor Registry, really creates a very strong return on the capital invested. So we're looking at both, but we're being prudent and patient about what we offer in order to complete the M&A strategy. Very happy to have a strong balance sheet because it allows us to really be much more active than some of our competitors, which don't have that facility for now.
Your next question comes from the line of Ben Franklin from Riverstyx Capital.
I just have one quick question. You mentioned multiple times about updating technology. Can you just kind of quantify the magnitude? Or should we expect some large CapEx in the next year, some idea of what that will cost? And that's my only question.
Thanks, Ben, for that question. We're not expecting large amounts of capital expenditure. We're probably in similar levels that we were in prior years. A lot of those, I would say, optimizations are from having moved some of our technology in the cloud. As you're aware, I mean the cloud offers multiple optimization possibilities. And we run some systems on AWS and some others on Azure, and they work somewhat differently. And the great thing about the cloud is that you can scale up almost instantaneously, sorry. But if you do that, your cost of cloud become too high. So there needs to be some optimization in terms of how much CPU you use, how much memory you use and that type of thing, which was -- which is the type of work that we need to do. So it's really optimizing micro servicing -- or sorry, wrapping our certain of our systems in micro services so that when we scale, and we do see large spikes of scaling. We have to make sure that our cloud costs stay in line with our expectations. So that's mostly that type of work, which is done with our existing staff for now.
Your next question comes from the line of Richard Tse from National Bank Financial.
This is Maher Ral calling in for Richard. So I just wanted to touch a bit on the gross margins. So I know you guys have been saying that gross margin is being pressured by the professional services. Just wondering, once that stabilizes, what do you expect gross margins to be?
Right. So the gross margins, remembering here that we're talking about the sort of cost of sales margins, the professional fees we are being paid for the professional fees. So typically, there's a revenue and an expense, obviously, for our staff. So those are where the margins are more compressed. When we get back into the more typical SaaS revenue, then it's a licensing fee. And really, the cost of sales aren't really -- aren't there. When we look at the adjusted EBITDA type of margins, that's where the biggest fluctuation is going to be the timing of salaries costs. So as we look to accelerate, bring on clients, we need to have talent in place. We know that the talent cost is increasing. So that's where it's harder to predict where we're going on the EBITDA margins. But certainly, from the cost of sales-type gross margins, then we feel comfortable that those will improve just naturally as we finish deployments and get back into the SaaS revenue.
Okay. So -- sorry, just to clarify, so what they go back to about like mid- to high-60s level? Is that kind of what the aim would be?
Yes. So -- yes, for sure. So before we were getting into these very, very large implementations, which we do have healthy positive margins on. They're just a lower margin than the SaaS revenue. So when we think about our year, we had professional services revenue of $12 million, and that's going to be just that slightly lower margin than we would have had -- or that we would have on a pure recurring revenue. So for sure, once we get passed now, in another sense, we hope that we're going to continue to do new client wins, and therefore, we will have deployments. So that could be a good news story going forward. So -- but for existing clients, then for sure, those margins will start to increase as stores, for example, Aldi or other clients where the implementations are complete, and we get back into doing our main business of SaaS-type revenue.
Okay. And then just one last question. So I know you guys mentioned there was some weakness in the supply chain solutions. Just wondering as the U.S. has opened up a bit. Are you guys seeing any trends there that are notable in terms of not picking up again?
Definitely. We -- I mean, we -- what's happening in supply chain is, unfortunately, there are some suppliers that didn't make it through. We're gaining new suppliers for our large ecosystems, and they're coming on board. We see consumption, we see the amount of traffic increasing. And you see a flat, a little bit decline in revenue, but there's a lot of additional new clients, new suppliers who are using the systems. And what's happening is that, although it's flat declining, it's actually a mixture of those suppliers that just went off because they shut down or they closed that are being replaced. So we've replenished significantly the supply chain line of business.
We've had a lot of our luxury business, luxury retail in there. So that slowed down, obviously, in the current year, but then other things, think of the client like something like Indigo, where now there's a lot -- the volumes are picking up at some new clients. So we think that the pandemic did have an impact there. And hopefully, we'll see some return to the normal increase in that.
I show no further questions at this time. I will turn the call back to Mr. Filiatreault.
Well, thank you very much for being with us this morning. [Foreign Language] Thanks to all of our staff, our clients and our investors for supporting us, and we're excited to continue the journey that we're on and looking forward to meeting some of you in person, hopefully soon. Have a great rest of day, guys.
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This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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