Operator: Good afternoon. My name is Kelsey and I will be your conference operator today. At this time, I would like to welcome everyone to the Dye & Durham Fiscal 2022 First Quarter Results Earnings Call. I would now like 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, Kelsey. Good afternoon, everyone. Welcome to Dye & Durham’s fiscal 2022 first quarter results conference call. Before we start, we would 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-orientated financial information regarding Dye & Durham and its business and disclosure regarding possible events. Conditions or results are based on information currently available to management, which indicate management’s expectation of future growth, results of operation, 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 of 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 information. Please refer to the forward-looking statements information and the 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 Matthew Proud, Dye & Durham’s Chief Executive Officer and Avjit Kamboj, Dye & Durham’s Chief Financial Officer. I will now turn the call over to Matt for his opening remarks.

Matthew Proud: Thanks, Ross and good afternoon everyone.

We are pleased to be with you today to review recent developments of Dye & Durham as well as our financial and operating results for the first quarter of fiscal 2022 for the period ended September 30, 2021. Starting on Page 4 of the presentation, we have built a highly reliable platform that generates digital infrastructure like cash flow. The annuity-like nature of our revenue and the 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. We have grown to more than 50,000 customers.

Acquisition growth models are often faced with customer churn. This is not the case for Dye & Durham. Our net revenue retention is an incredible 159% in the quarter, which demonstrates our ability to retain customers and grow with them as we optimize the value of the platform and the value of the efficiency it generates for the people that use it. The business today is dramatically larger than it was at the time of IPO. On a revenue and adjusted EBITDA basis, we are achieving a scale in the market.

Furthermore, our operational footprint has grown as well, with more than 1,500 people today working at Dye & Durham across the three major markets that we are in. We continue to execute on our strategy to acquire, integrate and operate to drive EBITDA. This afternoon, we reported revenue of approximately $113 million and adjusted EBITDA of more than $62 million in the first quarter. We continue to constantly deliver adjusted EBITDA margins of above 50% despite the strong growth. The growth we are delivering really comes into focus when you look at these figures on an annualized basis.

And you do that, it’s $452 million in revenue and nearly $250 million in adjusted EBITDA. To put that address – annualized adjusted EBITDA figure into perspective, that’s in line with what market expectations for our fiscal year 2023 are and we are already at that level in the first quarter of fiscal 2022 with much more growth to come. To-date, we have $1.7 billion of capital available to us to acquire new assets from the recent recapitalization we announced in October with Ares. And I can tell you we plan to deploy it. We have a pipeline with more than $500 million of incremental adjusted EBITDA and that factors in that we recently did two major acquisitions.

These opportunities fit with the model. We have built acquiring and operating mission-critical software that power the transactions in the economies we service. We have created a global leader in software that services legal and business professionals for workflow solutions and regulatory data and information. 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. We integrate workflows and processes that legal professionals use everyday, sometimes multiple times a day into one convenient platform.

And we are focused on expanding our value proposition to customers by extending our reach into adjacent markets of their ecosystem. During Q1, we continue our acquisition strategy with two more acquisitions and the deployment of approximately $320 million. We have now deployed just over $1.1 billion in acquisition since IPO. Of course, we prefer to pay less versus more, but the key metric we evaluate acquisitions on is how valuable is that asset in our hand. We target a post-synergy – we target a post-synergy metric of less than 5x EBITDA compared to the purchase price.

We have the capital to continue to execute on our Build to a Billion strategy as we continue to scale the business for the future. Our performance this quarter demonstrates that scale. We have grown revenues by more than 400% and adjusted EBITDA by nearly 400% year-over-year, while maintaining world class margins. That’s what we have done. But I am much more interested in where we’re going.

Slide 8 should be familiar to you. It’s the best way I can think of to describe our strategy, acquire good assets, integrate them efficiently and drive EBITDA. We have put this strategy to work as a private company prior to 2020 and now effectively since the IPO. We have raised $1.9 billion in equity and debt from June 2020 to March ‘21. We have deployed that capital into accretive acquisitions to drive 398% increase in adjusted EBITDA.

Today, as I mentioned, we have $1.7 billion of capital available to deploy new acquisitions and drive even more EBITDA as we Build to a Billion executed that strategy. Slide 9 breaks it down for you. At the time of IPO, we were doing approximately $40 million in adjusted EBITDA. We acquired a total of $76 million in incremental EBITDA in 11 acquisitions we completed since July 2020, but we have grown our adjusted EBITDA on an annualized basis to $250 million. The remainder of that being made up through us making these businesses much more efficient in our hands.

In aggregate, we have paid approximately 15x adjusted EBITDA for those acquisitions. And we have driven the group of them down to just over 5x EBITDA on a post-synergy basis. What’s most impressive is we have all done this in less than 15 months. That’s an incredible performance. We believe there is still synergies we captured on the acquisitions we have completed and we are well over our way to driving that number below 5x.

We are very serious about our Build-to-a-Billion strategy. Today, we have approximately $250 million on annualized adjusted EBITDA and as I have said a few times access to $1.7 billion in capital. We plan to deploy as much of capital that much capital, if not more, over the next 18 months as we did over the previous 18 months. As I previously mentioned, we have a pipeline of more than $500 million of incremental pre-synergized adjusted EBITDA. The opportunities in the pipeline vary in size, including transformational ones and are well-distributed in all the geographies we operate.

Today, we continue to target a 5x EBITDA post-synergy metric in all acquisitions we pursue. And as you saw on the previous slide, we demonstrated that we can deliver on a post-synergy basis to a multiple of just over 5.4x in just 1 year. And there is more to come out of that. So all that said, as we put to work the $1.7 billion in capital in our balance sheet, we are confident that we will be able to achieve the same 5x multiple post synergies, which we will equate to an incremental – which will equate to an incremental adjusted EBITDA of $320 million or a total EBITDA once deployed and synergized of $570 million once deployed. Now, I will turn the call over to Avjit Kamboj, our CFO.

Avjit Kamboj: Thank you, Matt and good evening everyone. Overall, it was another record quarter for us. We reported revenue of $112.6 million in Q1, up from $21.9 million a year ago. This represents a growth of 414%. We also generated adjusted EBITDA of $62.4 million, up from $12.5 million or 398% from Q1 of fiscal 2021.

In addition, we continue to maintain strong margins coming in at 55% this quarter, which is right in the middle of our target range of 50% to 60%. Significant top line growth has been fueled by both the acquisitions we completed, along with the integration activities and our organic growth, which includes the realization of synergies from price adjustments. Looking at revenue growth on a sequential quarter-over-quarter basis, revenue grew by $28.2 million compared to Q4 of fiscal 2021. As Matt mentioned, we completed two acquisitions during the quarter, GlobalX and TM Group, which contributed to this growth in revenue in addition to the price adjustment synergies. Total operating costs, which include direct costs, technology and operations, general and administrative, and sales and marketing costs, were $50.2 million for the quarter or 45% of revenue compared to $2.4 million for the first quarter prior year.

The increase in direct cost is directly tied to our revenues and will increase proportionately as our revenues increased. Increase in other operating cost is due to cost acquired from the acquisition 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 $12.6 million compared to cost of $22.7 million in the first quarter of prior year. Included in finance costs are changes in fair value of convertible debentures, contingent consideration and derivatives.

During the quarter, we recorded $19.6 million of non-cash gain on changes in these fair values. IFRS accounting rules require us to mark-to-market or fair value these instruments each quarter, so that we do expect this variability in our finance cost to continue. Acquisition, restructuring and other costs for the quarter were $10.6 million compared to $4.8 million in Q1 of last year. These costs will continue to fluctuate depending on the transaction activity each quarter. In addition to our regular acquisition and integration costs during the quarter, we also incurred significant costs, leading to the privatization transactions and legal costs associated with the CMA order.

We continue to maintain a low level of leverage in our current business with approximately only $240 million in debt, which excludes the convertible debentures. We believe the annuity life profile of our cash flows allows us to carry more leverage while still be cognizant of the capital markets conservative nature towards debt. Now, on Slide 16, we have built a resilient business. On this slide, you can see the consistent growth we have delivered on adjusted EBITDA during the past five quarters. We have managed puts and takes during this period to deliver outstanding performance.

As we all know, one headwind is the real estate market. It cooled off during our fiscal Q1 period when compared to Q4 of last fiscal year. We took decisive actions in short order and managed through this environment. Despite lower real estate market transactions, our revenue and adjusted EBITDA growth stayed strong driven by price adjustment synergies. It is a short-term example of how we can manage the business during cycles of still delivering for shareholders.

We have proven track record over the past many years of leveraging our strong cash flows and balance sheet to acquire an integrated company that will accelerate our organic revenue and adjusted EBITDA growth from synergies. And 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. As Matt mentioned, the $1.7 billion in capital available we have for future growth. Let’s dig one level down and see how deploying that impact on leverage ratio. Our leverage ratio today is extremely low approximately half a turn.

With the capital we secured from Ares transaction, there is $1.4 billion available net of fees and repayment of current credit facilities. When we evaluate that figure with the 5x post-synergy multiple we have established in our past acquisitions, we arrive at a leverage ratio of 2.9x, which we think of as conservative. Drawing down on delayed draw term loan, we gained another $40 million in adjusted EBITDA, which still keeps us at reasonable 3x of adjusted EBITDA to debt ratio. The key takeaway from this slide is as we deploy capital and drive incremental adjusted EBITDA our net debt ratio remains fairly consistent. There will be lags from time-to-time as we acquired asset and the multiple paid for the existing EBITDA until we achieved the 5x post-synergies multiple.

But as Matt described, we have a track record of executing on those synergies quickly in less than 15 months based on 11 acquisitions since the IPO. Based on the annuity-like attributes of cash flows, we are very confident in our ability to deliver and maintain a reasonable leverage ratio. On Slide 18, Matt mentioned the scale the business has achieved, it’s evidence on this graphics. Less than 50% of our revenue is now delivered from Canada, with the UK and Australia taking an increasingly larger share as we grow in those markets. One-third is coming from UK today and almost one-fifth from Australia.

It speaks to the diversity and breadth of our business that we have built. We have also managed a tremendous level of growth in our operational footprint from less than 200 employees at the time of the IPO only a year ago to more than 1,500 today, slightly up from where we ended the last quarter. The question we often get asked is how have we managed that goal successfully. Now on Slide 19, the core objective of every acquisition we do is synergy realization, value based pricing, just like we achieve to do process earlier this calendar year, cost reductions and back office integrations. We generally expect to achieve these synergies over 12 months to 18 months period, just as Matt described earlier.

We have a well designed and a proven integration blueprint. Our integration is effectively managed through a dedicated integration management office, with the representatives from each of the business areas including operations, finance, sales and marketing, HR, and IT. Given that the nature of our integration is primarily back office being Microsoft 365 tenant, we deploy the exact same accounting system, same policies and processes, our integrations are very low and do not interfere with the products and the services we provide to our customers. We have a proven track record of successfully applying these techniques to more than 20 acquisitions we have completed since 2013. The success of this strategy is clearly evident in the 5.4x the multiple that we have already achieved on the acquisitions since IPO that Matt described earlier.

We have positioned the company with the M&A pipeline, the capital required and the scale to drive $1 billion of adjusted EBITDA. With that, I will turn it to the operator for Q&A. Operator?

Operator: [Operator Instructions] Your first question does come from Thanos Moschopoulos from BMO Capital Markets. Please go ahead.

Thanos Moschopoulos: Hi, good afternoon.

Matt, I just want to clarify something you said in the prepared remarks. Did you say you were hoping to deploy $1.5 billion over the next 18 months or did I miss-hear that?

Matthew Proud: No. We said we are hoping to deploy as much capital over the last – the next 18 months as we did in the last 18 months, so closer to a $1 billion.

Thanos Moschopoulos: Okay. Thanks for clarifying.

And then as far as the $250 million pro forma EBITDA run rates. Just to clarify, can you confirm that that includes TM Group, but that does not include synergies that you can’t get capture until the TM review is done, is that how you think about it?

Matthew Proud: That’s correct. Yes.

Thanos Moschopoulos: Okay, great. From a quarterly perspective, anything we should be thinking about as far as seasonality, or I think the UK real estate market showing signs of a slowdown, you alluded to slowdown? I mean and you have mitigating ways, I think to offset that.

But I mean, just how do we think about maybe the linear progression as we think about the upcoming quarter?

Matthew Proud: So, there is a slight bit of seasonality in our business, but not a lot. So, Q2 would naturally be a bit softer than Q1. That said, as I think you have seen, we have demonstrated the ability, through realizing synergies, improving the business, the acquiring stuff to keep growing quarter-over-quarter. So, that’s how we think of it. And I hope that answers your question.

Thanos Moschopoulos: Okay, that does. And last one for me. For Avjit, R&D capitalization ticked up a little bit, I think it was $5.7 million this quarter. Is that a good run rate, or how should we think about that?

Avjit Kamboj: No, that is a good run rate, Thanos. As we brought on the different acquisitions we have done, that is a good run rate for the current business we are at.

Thanos Moschopoulos: Alright. Thanks, guys. I will pass the line.

Operator: Your next question comes from Robert Young from Canaccord Genuity. Please, go ahead.

Robert Young: Hi, good evening. In the – as you look forward, the opportunities in the Canadian market, I noticed there was a price changes in British Columbia, I was wondering if you could give any kind of context around what that impact may be on the financial model going forward?

Matthew Proud: Look, as we continue to – across the business to make sure that we are pricing our various platforms and applications appropriately. And really, that pricing reflects the value that we are bringing on our customers. So, you will see that happen across all geographies across all quarters. We are constantly looking to keep improving.

I think as Avjit said, where he spoke a moment – a couple of moments ago, we have seen a cooling in the real estate market across the board. And so we use levers like the one you are referring to, to ensure that we keep consecutively growing the business. And that’s what you will see out of changes in the business like that.

Robert Young: And is there a way to put that just in the context of the $250 million of annualized EBITDA, I guess would that price change be included in that number, or would that be on top of it?

Matthew Proud: That price change is not included in that number. So to be clear, that pricing did not take in effect yet.

Avjit Kamboj: And Rob, the $250 million of adjusted EBITDA is simply taking Q1 actual EBITDA multiplied by four. And the price adjustments you are referring to were only communicated recently.

Robert Young: Okay. And then on the CMA order, sorry if I missed this earlier, but the limitation on your integration opportunities outside of the United Kingdom, is there any way just to maybe not quantitatively describe them, but qualitatively describe them? I mean how much of an impact that might have been, or if there was an impact?

Matthew Proud: Well, I think there was definitely an impact, you couldn’t do anything. That has been lifted this a week or two weeks ago.

So well, I don’t think you will see a lot of impact in this quarter coming into Q3, the next quarter, you will start seeing that that impact as we are able to make progress on some of the most – more recent acquisitions.

Robert Young: Okay. I mean, maybe just a little one, the dockets.ca acquisition, that you made, a little small one. Just curious if you could talk a little bit about the business development there in that business, how it relates to the Court systems across Canada starting to go digital. I know there was a deal in that space here in Ontario.

And I was wondering, maybe you could just talk about how you are thinking about dockets.ca relative to that? Maybe then I will pass the line. Thank you.

Matthew Proud: So, I think actually, like – sorry, I think you just outlined Rob, the kind of strategic rationale that we see in it, it is a fairly small business, a very small business. We – and we only own a slight majority of it. But we like what the guys are doing.

We think there is room – there is a lot of runway in the future for that business. But it’s not overly – was not material at all when taking in the kind of financial scale of our business.

Robert Young: Do you think of it as a business that could have larger scale in the future or should we just think of it as a small piece right now?

Matthew Proud: I think long, long-term, there is an opportunity. There is also competition for some of the RFPs they are bidding against. But for now, I think of it as extremely material.

Robert Young: Okay. Thank you.

Operator: Your next question comes from Stephen Boland from Raymond James. Please go ahead.

Stephen Boland: Alright.

Thanks, guys. Just two quick questions. I guess on Slide 16, that’s very helpful. The adjusted EBITDA that you are acquiring, or that you get to with deployment, that $529 million, I presume that’s assuming that you can acquire companies for, like, 15x. And I think that, in the past, you have said that these acquisitions are quite competitive now, multiples are moving up.

So, is it still possible to acquire businesses at 15x?

Matthew Proud: We have paid, that’s an average, and we have paid above 15x in the past to manage to get it down, below 5x. So again, it’s taken on a case-by-case basis. And again, obviously if I can pay less, that’s a great thing and I want to do it. But I also have to deal with the realities out of the market today. And I got to pay what I got to pay.

So, when we evaluate these acquisitions, it’s on a case-by-case basis, you put here a business case, that assumes we got to get there or not. If we can’t, it’s very likely you are not going to do.

Stephen Boland: Okay. And few questions, the increase in your run rate, $30 million, you said, revenue synergies were part of that, can you just give a little bit more description in terms of where those are being realized, is that price increases, is it cross-selling? And maybe, where the majority of that in terms of geography where it does, or has come from?

Matthew Proud: Yes. The main focus, we are optimizing the value of the platform.

And that comes across both that there is revenue synergies, it’s more kind of taking a product and making sure that value is optimized, less, so cross-selling.

Stephen Boland: Okay. Thanks Matt.

Operator: Your next question comes from Paul Steep from Scotia Capital. please go ahead.

Paul Steep: Hey, great. Could you maybe give us an update as to where you stand in terms of leverage targets? I know, at Investor Day, we talked about 2x to 3.5x I guess, given the upsizing of the facility, I want to see if that’s still the range, we should be thinking about longer term or if there has been maybe a change there?

Avjit Kamboj: It really depends like on what acquisitions we are looking at the time. When we first started this call, this business has turned into revenue and cash flows, in many cases that are infrastructure, like, the ability for this business to support leverages is huge. So, we can very comfortably go through if we need to, in the near-term to support a transformative acquisition. But we would aim to bring it right back down to those numbers you talked about in the medium to long-term as we are acutely aware of the markets appetite for not having too much leverage.

Paul Steep: Okay. And Matt, maybe just talking about how you are thinking about the mix of the business and thinking about that pipeline of potential transactions out there? Are you looking to shift the business, maybe away from real estate or shift towards, more of a government services type model? And is there maybe any geographic bent given that you are now surprisingly a little bit overweight, maybe in employees in the UK?

Matthew Proud: It’s fairly opportunistic. And what I mean by that is when I look at the pipeline of the opportunities, most accretive. That’s how we are deciding where to kind of spend our time and capital.

Paul Steep: And then maybe the last one for Avjit, how should we think Avjit about the FX exposure here? And I am only asking that given that the headcount number that you provided is fairly larger, are we actually net or sort of net exposed in UK pounds versus CAD at this point and thoughts on maybe hedging that?

Avjit Kamboj: We do have net exposures today with GBP and Australian dollars.

We do continue to evaluate our hedging strategies and what makes sense from a net investment perspective in each of the geographies we are in. So, we do look at that and where necessary, we put the appropriate hedging strategies in.

Paul Steep: Great. Thanks.

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

Please go ahead.

Stephanie Price: Hi, good evening, I was hoping you could talk a little bit about your M&A synergy model going forward, and whether you would see the same mix of price and cost synergies going forward, or do you expect changes to kind of that M&A synergy model?

Matthew Proud: Look, I think our model is proven to work. So, we don’t want to vary from it. There is lots of opportunities in our pipeline that enabled us to keep doing this. And as we say, if it’s not broke, don’t fix it.

Stephanie Price: Fair enough. You mentioned the normalizing housing market a few times as well. Can you talk a little bit about organic growth in the quarter? And how you would see it trending out in the current quarter and maybe your ability to adjust prices to offset and it has been in various geographies?

Matthew Proud: Yes. It’s, when we look at, we measure more on a year-over-year basis organic revenue growth. And it’s very strong and extremely strong.

That said, there was also a lot of acquisitions in there, which provided us the ability to kind of drive more efficiency at what we acquired and as well as our existing business. But I think Avjit spoke to it earlier, I know we did. I mean we have faced headwinds in just number of transactions in the market being less than they were in Q4 and we had to manage through that to make our business more efficient. And that enabled us to have the results that that we had. Look, we sell software products, a lot of our business is selling software products that real estate professionals, legal professionals that folks mostly rely on.

And it’s transactional base, there is less transactions in the market, there is less revenue. So, we have to kind of be more efficient with the model which we have done, which enabled us to keep that consecutive growth up.

Stephanie Price: It makes sense. And then just finally for me, maybe this one is for Avjit, can you talk a little bit about how we think the flow through from the integration synergies for the remainder of the year? Is due process integration pretty much complete here, and how should we kind of think about the integration of the various acquisitions at this point?

Avjit Kamboj: So, back end Office perspective, due process integration is complete, but as we go through there are more efficiencies to be realized probably to the acquisitions we have. As we – as Matt talked about the CMA order that’s really hindered our ability to realize synergies from the UK acquisitions.

So, as we work through the CMA, we will work on the UK acquisition synergies and we expect those to come in meaningfully in Q3 and Q4.

Stephanie price: Okay. Thank you very much.

Operator: We have no further questions at this time. Mr.

Proud, you may proceed.

Matthew Proud: Thank you everyone for their time today. We really appreciate it and I look forward to continue the conversation next quarter.

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