Welcome to the Voxtur Q3 2022 earnings call. My name is Richard, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press zero one on your touchtone phone. As a reminder, the conference is being recorded. I'll now turn the call over to Mr. Jordan Ross, Chief Investment Officer. Jordan, you may begin.
Good morning, everyone. Thank you for joining us for the Voxtur third quarter earnings call, where we will discuss our financial results for the period ending September 30th, 2022. Please note that our results were released November 29th, 2022, after the market closed, and can be accessed on SEDAR or on our website at voxtur.com. Joining me today are Executive Chairman, Gary Yeoman, CEO, Jim Albertelli, and CFO, Angela Little. We will begin with prepared remarks and then move into a Q&A. If we are unable to get to your question, you are always welcome to contact us directly at jordan@voxtur.com. Angela Little will begin by reviewing our financial results. After that, Gary Yeoman and Jim Albertelli will provide updates as to how we are progressing towards our objectives through capital markets activities, organic growth initiatives, and operational efficiencies.
Before we get started, please be advised that some of the information that we will share on this call may contain forward-looking statements. We caution you not to place undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in our expectations. On today's call, we will report using both IFRS and non-GAAP financial measures. We use these non-GAAP financial measures internally for financial and operational decision-making purposes, as we believe that they provide a meaningful measurement of financial performance and valuation. These non-GAAP financial measures are presented in addition to and not as a substitute for financial measures calculated in accordance with IFRS.
To see the reconciliation of these non-GAAP measures, please refer to our press release distributed yesterday, November 29th, 2022, and our management's discussion and analysis, both of which are available at sedar.com and on our website at voxtur.com. A replay of today's call will also be posted on our website. Finally, please note that all references to amounts or currency during today's call are in Canadian dollars, unless otherwise stated. I will now turn the call over to our CFO, Angela Little.
Thank you, Jordan. Good morning, everyone, and thank you for joining us today. To start, I will provide a high-level summary of market conditions impacting Q3, and then provide a summary of our third quarter performance. Gary and Jim will go into more detail about the impact of the current macroeconomic conditions on the company, as well as the strategy for the remainder of 2022 and 2023. Q3 2022 continued to be a challenging environment for the U.S. housing and mortgage market. Interest rates increased by 75 basis points twice during the quarter, with the September increase marking the fifth rate hike of 2022, resulting in mortgage rates peaking in September and October at 7%+.
At the end of October, the Mortgage Bankers Association published year-over-year origination data showing purchase origination volumes down 27% year-over-year and refinance volumes down 77% year-over-year. Additionally, default rates remain historically low, ending the quarter with total delinquencies at 0.69%. In November, the Federal Reserve raised rates a sixth time. With recent news indicating inflation may have peaked, the last few weeks have reflected slightly reduced mortgage rates and a slight increase in mortgage applications. Despite this, year-over-year mortgage loan applications remain down over 40% and are not expected to increase significantly in the near term as many buyers and sellers remain on the sidelines waiting to see when and where conditions will level out.
With these conditions in mind, we are focused on controllable factors and continue to prioritize positive cash flow, positive adjusted EBITDA, and investments based on areas we believe will provide the greatest long-term benefits for our shareholders. I will now provide a brief summary of the Q3 results. For the third quarter, Voxtur's gross revenue was CAD 35 million. Gross profit was CAD 13.6 million, and adjusted EBITDA loss was CAD 1.4 million. Year-to-date 2022, Voxtur's gross revenue is CAD 114 million. Gross profit is CAD 40 million, and adjusted EBITDA loss is CAD 8.3 million. Revenue for Q3 2022 reflects a 44% increase over Q3 2021. Year-to-date 2022 revenue reflects a 100% increase over year-to-date 2021. Gross profit for Q3 2022 reflects a 42% increase over Q3 2021.
Year-to-date 2022 gross profit reflects a 60% increase over year-to-date 2021. Comparing Q3 2022 to Q2 2022, revenue for Q3 decreased only 6% over Q2, even with the significant reductions in origination volumes. This is a direct result of our robust sales efforts, increasing market share in many key areas. By way of example, revenue for our valuation business decreased only 2% from Q2 to Q3 2022. Gross profit margin increased from 33% in Q2 2022 to 38% in Q3 2022. This is a direct result of an increase in SaaS revenue from valuation technology and decreases in direct operating expenses. Finally, the company ended Q3 2022 with cash and cash equivalents of approximately $29 million. For Q3 and year-to-date 2022, approximately 95% of gross revenue came from U.S. Revenue sources.
This is up from 91% in Q3 2021 and 89% for year-to-date 2021, reflecting the company's continued expansion into the U.S. market from strategic acquisitions. Revenue from software and data licenses represents approximately 19% of Q3 revenue and 17% of year-to-date revenue. This is an increase from 10% on Q3 2021 and 14% year-to-date 2021. We expect this trend to continue as we further integrate the Blue Water business. Turning to acquisitions, the company completed two strategic acquisitions in Q3. MTE was completed in July, and Blue Water Financial Technologies was completed in September. Gary Yeoman will be discussing these in detail, including the synergistic opportunities and expansion into the capital markets. In connection with the Blue Water acquisition, Voxtur expanded its credit facility with the Bank of Montreal.
In October, the company completed a preferred share offering with BMO Capital Markets, evidencing a strong partnership between Voxtur and BMO. Finally, in further support of this point, BMO recently updated the company's loan covenants to reflect the changing market conditions, which have impacted original Q4 projections. BMO has provided a waiver for Q3 loan covenants and continues to work in partnership with Voxtur as we navigate these unprecedented market conditions. I will now turn to the company's 2022 financial guidance. As we end 2022 and go into 2023, management's expectation is that market conditions will remain challenging. Based on current conditions and related Q4 projections, we are reducing our revenue guidance to a range of CAD 140 million-CAD 150 million based on revenue streams included in the original guidance.
Although we are updating our guidance, the company remains laser-focused on positive cash flow, positive adjusted EBITDA and increased revenue from key products, synergistic revenue opportunities from completed acquisitions, and increased market share. As we reported at Q2, the company remains focused on efficiencies and cost reductions, having executed additional cost reductions in Q3. We remain vigilant in these efforts and nimble in order to make necessary adjustments as market conditions evolve. We will continue to rightsize as needed while remaining focused on efficiencies, synergies, consolidation, and process improvements. In this manner, management is looking at opportunities to shift to variable cost models where possible to allow for more flexibility and timely adjustments to market changes.
With regard to strategic new products, the company has onboarded or is in the process of actively onboarding 12 new clients for our Voxtur AOL product and has already begun recognizing revenue for Q4. We also anticipate new revenue from tax products in the Canadian market in early 2023, as well as the gradual return of default-driven products. I will now turn the call over to our Executive Chairman, Gary Yeoman.
Thank you, Angela Little. Good morning, everyone. Thank you for joining us. I want to begin by re-emphasizing that our focus remains on leveraging our data assets through various software platforms as a foundation for reducing costs and inefficiencies in real estate transactions, ultimately making homeownership more affordable. We are proud of the advances we have made thus far, but we still have a long way to go. In the meantime, I'm pleased to discuss a few noteworthy successes from the capital markets prior to turning it over to Jim Albertelli to discuss operational highlights. Early in the quarter, the company closed the acquisition of Municipal Tax Equity Consultants and MTE Paralegal Professional Corporation, which allowed for the consolidation of our largest competitor in Ontario, offering property tax analytics to municipalities throughout the country, and more specifically in Ontario.
This acquisition allows us to scale the rollout and adoption of our real property tax analytics platform. It also contributes positive EBITDA individually and incrementally and allows for additional cost synergies within our property tax business. Near the end of the quarter, the company closed the acquisition of Blue Water Financial Technologies. Blue Water is a leading provider of digital solutions to mortgage investors and lenders in the U.S. Specifically, Blue Water provides solutions for mortgage asset valuation and pricing, mortgage asset trading and distribution, and mortgage advisory and hedging.
Voxtur acquired the Blue Water business to diversify its revenue streams from the primary mortgage market, add an EBITDA and cash flow positive business, and create opportunity for new revenue streams for Voxtur's core products and data assets. Blue Water's stock-based solutions allow mortgage originators and investors to review their portfolios, analyze transactional data in real time, which is of the utmost importance in these market conditions. Al Qureshi, the founder of Blue Water, has joined Voxtur as the President of our Capital Markets and Secondary Mortgage Market business. Also, in connection with the acquisition, Al and the Blue Water team have become shareholders of the company. It is important to note that the stock issued in consideration for the acquisition will be issued in installments over 16 quarters following the transaction's closing.
We believe this transaction will be transformational for the company, both financially and as we continue our path to becoming a pure-play technology provider for the North American mortgage market. I want to acknowledge and thank our partner, BMO Financial Group, for continuing to believe in our vision, which allowed us to close the Blue Water acquisition. We are working hard to integrate our acquisitions with current Voxtur technologies to create innovative solutions, add new clients, and expand wallet share with existing clients and leverage cost synergies. I'll now turn it over to our CEO, Jim Albertelli.
Thank you, Gary. Good morning, everyone, and thank you for joining us. Before I discuss operational highlights, I'd like to start by acknowledging that from a financial results perspective, this is certainly not where any of us thought we would be at the end of the third quarter. However, I'm extremely proud of our team and what we have accomplished based on the current market conditions. More specifically, I'm proud of how we have come together to find innovative solutions for clients and outperform our competitors to increase market share. Although we are relatively flat from a financial growth perspective, I'm considering the success as particularly compared to our peers, most of whom are seeing revenue decreases by more than 50%. With unprecedented macroeconomic conditions and historically high rates, we have accomplished no easy feat.
I want our shareholders to know that while we remain focused on strategic growth, we are prioritizing the integration and performance of our existing businesses over long-term opportunities. Furthermore, we continue our expense realignment efforts to adapt to market expectation and client demand. As the results will indicate, this all lends itself to our focus on being EBITDA and cash flow positive. I'd like to share some work that was highlighted in the third quarter. First, Voxtur AOL. As you know, AOL was already a Fannie Mae and Freddie Mac-approved alternative to traditional title insurance. Now that it's been approved by the VA, by the Veterans Administration. This is indicative of the momentum we're seeing in the market and another example of the appetite for change in the title insurance industry.
As agency acceptance continues and more and more lenders engage, Voxtur's goal of creating more affordable homeownership for all Americans becomes more of a reality. We are especially proud of the opportunity we now have to help our veterans save money and refinance or purchase residential real estate in the U.S. Although Voxtur AOL continues to bring new clients and experience high demand in the market, the ramp-up and implementation process has now taken longer than expected. It is important to note it is common for a new product and typically requires dedicated resources on the lender side, which has been difficult in a market where many lenders have been forced to downsize. Despite this, every lender we've signed continues to with implementation. That speaks to the viability of the product and a lender's key need for an alternative.
Additionally, the AOL is now revenue generating. We are excited to see it grow and scale with existing and new clients. With respect to the rest of the business line previously mentioned, we are keeping a close eye on how market conditions are impacting our clients and adjusting our resource and product road map accordingly. Although it may appear that these market conditions are having negative impacts on our business, we are growing our market share by onboarding new clients who recognize the need for more innovative and efficient ways to do business. These clients are turning to Voxtur to protect their hardest revenue sources, whether that is a mortgage portfolio or tax assessment. This market forces our clients to take pause and review their current processes and technology stack, allowing for a more fruitful environment for Voxtur to go add clients.
Lastly, I want to conclude by discussing our most recent and most exciting opportunity, Blue Water. It is important to understand that there's great demand by investors to take a position on these unprecedented interest rates and investing in and acquiring mortgage servicing rights, MSRs, is a great way to do so. Blue Water provides access to these investors through real-time pricing and the ability to transfer and diligence the assets electronically, digitally. The other reality is that many mortgage originators don't have the financial means to keep these mortgages on their books and are looking for ways to move these assets. Blue Water provides a cost-effective and efficient way to transact these trades. This is exactly what I mean when I say that we're bringing Wall Street to Main Street. Blue Water allows Voxtur to, one, diversify its revenues from the primary mortgage market to the secondary mortgage market.
Two, to create new revenue opportunities by way of a seamless integration and deliver of Voxtur's core solutions such as our Attorney Opinion Letter, our appraisal review product, RACR, and our other data products to enhance Blue Water's already powerful trading, pricing, and due diligence engine in real time. As we navigate this changing rate environment, our data-driven innovations are proving to be just what our clients need to save consumers money while increasing shareholder equity. Finally, I want you to reemphasize what I communicated to Tom Poole and the management team, who will ultimately be judging our performance and our potential. As a result, we remain focused on profits over growth. This is what the current market demands us, and we will respond accordingly. Thank you for joining us on the call today. We appreciate your time and your interest.
We'd be happy to answer any questions you may have at this time. I'll hand it over to the operator to start the Q&A.
Excuse me. It 's Gary Yeoman here, operator. I've gotten a number of texts back to say that unfortunately, Jim's connection was hard to, well, it was just he couldn't hear properly, kept breaking up. I'm going to ask everyone if they'll indulge, and I'll just read Jim's speech again so that the opportunity to have a, you know, clear insight into what Jim has proposed in operations. Unfortunately, and today with, you know, with technology and that, we do have interference from time to time. I will indulge, and I'll get through this again, and hopefully, it'll leave any clarity resolved.
Before I discuss operational highlights, I would like to start by acknowledging that from a financial results perspective, this is certainly not where any of us thought we would be at the end of the third quarter. However, I am extremely proud of our team and what we've accomplished in the face of current market conditions. More specifically, I am proud of how we have come together to find innovative solutions for our clients and outperform our competitors through increased market share. Although we are relatively flat from a financial growth perspective, I consider it a success, especially compared to our peers, most of whom have seen revenue decreases of more than 50%. With unprecedented macroeconomic conditions and historically high rates, what we have accomplished is no easy feat.
I want our shareholders to know that while we remain focused on strategic growth, we are prioritizing the integration and performance of our existing businesses over long-term opportunities. Further, we continue our expense realignment efforts to adapt to market expectations and client demands. As our results will indicate, this all lends itself to our focus on being EBITDA and cash flow positive. Now I'd like to share our business highlights for the third quarter. First, Voxtur AOL. As you know, AOL was already a Fannie Mae and Freddie Mac-approved alternative to traditional title insurance. Now it has also been approved by the VA, the Veterans Administration. This is indicative of the momentum we're seeing in the market, another example of the appetite for change in the title insurance industry.
As agency acceptance continues and more and more lenders engage, Voxtur's goal of creating more affordable homeownership for all Americans becomes more of a reality. We are especially proud of the opportunity we now have to help our veterans in the U.S. Voxtur AOL continues to bring new clients and experience high demand in the market, the ramp-up and implementation processes have taken longer than expected. It is important to note that this is common for a new product and typically requires dedicated resources on client lender side, which has proven difficult in a market where many lenders have been forced to downsize. Despite this, every lender that we've signed continues to forge ahead with implementation. That speaks to the viability of the product and the lender-perceived need for an alternative.
The AOL is now revenue generating, and we are excited to continue to grow and scale with existing and new clients. With respect to the rest of our business lines, as previously mentioned, we're keeping a close eye on how the market conditions are impacting our clients and adjusting our resources and product roadmaps accordingly. It may appear that these market conditions are having a negative impact on our business, we are growing our market share by onboarding new clients who recognize the need for more innovative and efficient ways to do business. These clients are turning to Voxtur to protect their largest revenue sources, whether that is a mortgage portfolio or property tax assessment. This market has forced our clients to take pause and review their current processes and technology stack, allowing for a more fruitful environment for Voxtur to add clients.
Lastly, I want to conclude by discussing our more recent and most exciting opportunity, Blue Water. It is important to understand that there is a great demand by investors to take a position on these unprecedented interest rates and investing in and acquiring mortgage servicing rights, or MSRs, as they're known. They're a great way to do so. Blue Water provides access to these investors through real-time pricing and the ability to transfer and diligence assets. The other reality is that many mortgage originators don't have the financial means to keep these mortgages on their books and are looking for ways to move these assets. Blue Water provides a cost-effective and efficient way to transact these trades. This is exactly what I mean when I say that we're bringing Wall Street to Main Street.
Furthermore, Blue Water allows Voxtur to diversify its revenue streams from the primary mortgage market to the secondary mortgage market, create new revenue opportunities by way of a seamless integration, and delivery of Voxtur's core solutions, such as our Attorney Opinion Letter, our appraisal review product called RACR, our other data products to enhance Blue Water's already powerful trading, pricing, and due diligence engine in real time. As we navigate this changing environment, our data-driven innovations are proving to be just what our clients need to save consumers money while increasing shareholder equity. Finally, I want to reemphasize what I have communicated to all our employees and management team. We will ultimately be judged on our performance, not our potential. As a result, we will remain focused on our profits over growth. This is what the current market demands of us, and we will respond accordingly.
Thank you for joining us on the call. We appreciate your time and interest. We're happy to answer any questions you may have at this time. I'll hand it over to the operator to start the Q&A.
Thank you. We will now begin the question-and-answer session. If you have a question, please press zero one on your touch-tone phone. If you wish to be removed from the queue, please press zero two. There will be a delay before the first question is announced. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question on the line, please press zero one on your touch-tone phone. We're standing by for your questions. Our first question in line comes from Frederic Blondeau from Laurentian Bank Securities. Please go ahead.
Thank you and good morning. Maybe a quick question for Gary. Was wondering if you could give us a bit more color on the integration of Blue Water so far? Maybe, I guess, as a second question, you know, what you would be expecting in terms of financial contribution of Blue Water in Q4 and Q1 in the context of this market? Thank you.
Fred, I mean, I'm happy to answer that, but I'm gonna try Jim one more time and see if his connection is good. If not, then I'll take over. You know, obviously, Blue Water, you know, is an extremely important acquisition that we did. It not only brings technology, it not only EBITDA positive and cash flow positive, but most importantly, it also allows us to bring in a lot of the due diligence opportunities in our other service offerings, whether it's in tax, title or valuation. With respect to the future, I mean, obviously, you know, Blue Water is cash flow positive and EBITDA positive.
December is never really, and November for that matter, are never really great months because we almost lose a whole week because of Thanksgiving, and we almost lose a week and a half in Christmas and December. fourth quarter is never usually a robust month only because, you know, there's lots of holidays and reduced. Having said that, we're very optimistic with respect to what Alan Qureshi and his team are doing. Extremely talented. They created the marketplace for MSRs, HELOC, you know, non-QM. It's, you know, it's amazing platforms that they've done. They offer all of the solutions, and again, will continue to grow. Hesitant right now, Fred, to say what that's going to be because obviously, you know, we have high expectations, but we also like to moderate.
Let's just know that the acquisition that we have, is not only synergistic, it's accretive, and it's technology driven, and it will have significant impact to our bottom line as we go forward.
Just in your, I guess you took your overall revenue for 2023, sorry, 2022 from CAD 140 to CAD 115, if I understood you well. How much, how much contribution from Blue Water do you have in there?
Gary, I can take that.
Yeah.
This is Angela Little. Just to be clear, when we set our guidance for this year, it was prior to the Blue Water acquisition being, you know, even considered, quite frankly. Just to be transparent, the updated guidance includes only the original revenue streams. We do anticipate, obviously, some additional revenues from Blue Water. There's not much in Q3 because the acquisition closed on September 20th, it will have a meaningful contribution to Q4. We are in the process of finalizing our 2023 budget, we look forward to providing some additional guidance as we go into 2023 that will include, you know, complete integration of Blue Water.
In your expectation, I guess, revenue expectations for 2022, you don't have anything from Blue Water. Is that?
In resetting the original guidance. Our original guidance was CAD 170-CAD 190. We wanted to be consistent with those revenue streams in resetting the lower guidance. Yes, we do expect it to be a little bit higher as a result of the Blue Water acquisition in Q4.
Okay, that's great. Thank you.
Fred, it's Gary.
Just to be clear, I heard you say CAD 115 instead of CAD 150, but Angela has, you know, amended the guidance, not including Blue Water, from CAD 170-CAD 190 down to between CAD 140 and CAD 150 without the Blue Water contribution.
Okay. Yeah, got that.
That's 150, not 115.
Perfect. Thank you.
Thank you. We have the next question, moderator.
Our next question comes from Christian Sgro from Eight Capital. Christian Sgro, please go ahead. Your line's open.
Hi, good morning. I want to start with the mechanical question. The financial statements made reference to, the notice about potential claim, and it was just light on details. I was wondering what you might be able to share, around that as we head into Q4 here.
Sure. Hey, Christian.
Angela.
yeah. Hi, Christian. This is Angela. The company received a letter that could constitute a potential claim from a former employee. The letter was vague. The company is reviewing the, you know, the claims as well as the letter. Just given the timing of receipt of the claims and the U.S. holidays, the auditors were unable to complete all of their procedures. Again, it's a grievance from the former employee. It's vague in its claims. Based on the investigation and the review to date, we believe the ultimate resolution will not have any material adverse effects on the financial condition, results of operations or cash flows of the company.
Okay, thanks. That's all helpful color and context there. The next question I want to ask, and Seth already poked on this, but the Blue Water business and the secondary mortgage market business there is new to us. A lot of the current business is exposed to the primary market. Just in your view, Gary Yeoman, what drives growth in the secondary mortgage market? Is it taught to interest rates or other capital markets activity? Like, what will make, you know, Blue Water perform best in what environment?
Well, first.
Gary.
Yeah. Sorry. Hello?
Can you hear me now, Gary?
Can you hear me now?
It's really crackly, Jim. I think it probably just won't work, unfortunately. Sorry.
All right.
I apologize. Apologize to everyone that it's unfortunately, technology, you have to be adaptable. Christian, you know, Blue Water's business is healthy, you know, whether it's a profit business on the origination side or in times like this where interest rise, it's even, you know, more profit to the extent that banks need liquidity. There's tons of product that's coming on stream in the mortgage market. There's a little bit of hesitation with respect to people acquiring these servicing rights in that, you know, as Angela indicated earlier, the interest rates keep rising, rising, and people are waiting for a pause to say, "Well, you know, at what point, how do I price this?
More importantly, how do I get the returns that I'm expecting, going forward, and what impact do these continuing interest rates rise? What we're seeing right now is lots of product coming on the market, and we're also seeing that the business is starting, maybe not as profit as it was, but certainly there's lots of product and lots of opportunity. Alan Qureshi is working on lots of deals right now, so we're really optimistic, you know, this is gonna be very healthy for us. What's really, really important, Christian Sgro, that, you know, I told everyone that when we look at acquisitions, we have to have four main tenants. It has to be real estate, it has to have technology, it has to be accretive, and it has to be synergistic.
All of those, you know, tenants have been answered with the Blue Water deal. You know, we have that opportunity to be able to bring all of the service offerings because we digitize valuations, tax, and title. You can imagine every time you're selling, you know, servicing rights, people have to review it. They have to say, "Okay, what is the valuation compared to the mortgage?" We have to digitize, you know, that property tax. It needs to be reviewed, you know, if the tax is paid in full. The same with flood. You know, flood reviews take place and very, very important in the U.S. Then from a title perspective, they need to know that they got clear title. All of those things is that Voxtur has, we've digitized.
It's a really, really nice synergistic opportunity to augment our existing revenue services. Most importantly, Christian Sgro, it acts as an anti-cyclical cyclicality in our business, where you've seen some of our competitors, where their revenues have dropped by anywhere from 50%-85% between valuation and title. You know, we've shown that our valuation has held up strong and overall our business has held up very strong. The reason is that we've now integrated, you know, against, you know, combating cyclicality by moving very definitely from the primary market to the secondary market.
Thanks a lot of clarity, Gary. That's all from me. I'll pass it on.
Thank you. Thank you.
Thank you. Our next question online comes from Mariusz Skonieczny from U.S. Please go ahead.
I have a couple of questions. Maybe the first one, probably Angela would be best to answer. I looked at your balance sheet for all the quarters, and in the current liabilities, you have unearned revenue. For all the quarters since December 2021, that amount is about CAD 4.5 million. This quarter, it jumped to CAD 8.5 million. If you take the difference between that, it's about CAD 4 million. The question is, did you have a revenue during the quarter of about CAD 4 million that wasn't recognized during the quarter, and that's why it showed up as an increase of unearned revenue on the balance sheet?
Hi. Yeah, thanks. Twofold answer. There was some additional revenue increases in our taxation division that is project-driven and does sometimes, you know, result in deferred revenue that's recognized later. That's a small portion of it. A larger portion, probably around CAD 3 million of it, is part of our Strategy to resolve the related party AR by the end of the year. As a result of this strategy, we opted to defer the Q3 revenue. We expect to have a resolution by December 31st, and have that cleaned up. Just to be conservative, we deferred the Q3 revenue.
If that revenue was recognized, it looks to me like you would have probably shown a slight increase in revenue from quarter to quarter, and probably you would have been EBITDA positive. Am I right?
That is correct. Yes. If we had not deferred that revenue, we would have been slightly EBITDA positive and quarter-over-quarter revenue would have increased 3%.
Okay. Thank you for that. The second question that I have is also on the balance sheet. Your current portion of long-term debt showed up at CAD 61 million. I was wondering why is that? Is it because of the covenants? Is this going to move back to long-term liabilities? Please help me here.
Sure. Yeah, that's a great question.
Go ahead, Angela.
Because we were not in compliance with certain loan covenants, we are required under IFRS, even though BMO provided us a waiver of those covenants, we're still required to accelerate all of the debt to current. As I mentioned earlier, we just completed a renegotiation with BMO of new covenants, we do anticipate we will be in compliance. When you look at Q4 for the audit, that long-term portion will be reclassed out of current.
Okay. Thank you very much for this.
It's also high. I'm sure you've also noted it's higher in Q3 because of the expanded credit facility put in place for the Blue Water acquisition. It was $30 million.
Yeah. Okay. Thank you for that. I find it very interesting that going back to my first question, that if it wasn't for that, lack of recognition of the revenue, extra revenue of $3 million, you guys would have shown a positive revenue growth from quarter-over-quarter and EBITDA positive.
That is correct.
That is pretty incredible considering how awful the real estate market is right now.
Absolutely. Yeah. I think it just speaks to what, you know, I kind of mentioned earlier that, you know, yeah, volumes are reducing, but we have been picking up market share. You know, we are doing cost reductions where we can. We're continuing to be strategic in that in certain areas where the volumes are, you know, continuing to be impacted. Yes, you're absolutely right.
Okay, thank you very much. I don't have any further questions.
Thank you.
Thank you. Our next question in line comes from Colin Fisher from Garrison Creek. Please go ahead.
Good morning, everyone.
Morning, Colin.
A couple of questions I think are on the burning edge of a lot of people's minds. The related party receivables, obviously, it has remained high. I know that the goal was originally to have it be current, fully current by the end of September as per the last call. Can you give me some clarity as to what's going on there? I noticed also that you've post the quarter, there has been some additional collection of around CAD 1.1 million based on the 9% additional collected. Can you give some clarity as to where that is? Maybe that also goes back to Mariusz's question vis-à-vis the deferred revenue.
Angela?
Yeah, sure. Yeah. I mean, obviously the related party issue is top of mind for everyone. It's, you know, it's always a sensitive issue. We want to be as completely transparent as possible. We have made some, you know, good collections, as you noted this quarter. We collected more than, you know, we invoiced. We are working on a wholesale plan for the end of the year to have that AR cleaned up. We're not really ready at this time to, you know, go into the details. Just know that, you know, when we issue our audit, you're not gonna see a related party balance quite that high.
Regarding the acquisitions that you do you capitalize all of the costs at the time of closing of acquisition, or do you expense any of those? And also, capitalize any of those and then bleed them into income costs later?
Under IFRS, we capitalize the majority of the acquisition costs as, you know, as appropriate. you know, some items are obviously expensed, but again, we just defer to the IFRS guidance on that. Generally with the acquisitions, we record everything on a provisional basis and then do a full purchase price analysis. Some of the more complex acquisitions we use outside consultants like Duff & Phelps to help make sure that, you know, we're valuing the intangibles and the goodwill appropriately. Yes, you know, we generally follow, you know, IFRS guidance and anything that would be expensed would be backed out, backed for adjusted EBITDA calculations.
Right. Can you give some color? In the last call, you guys had referred to some of the cost controls you guys were implementing, I think it was starting in September. I'm wondering if you could give some color on that. How that's looking on a go-forward basis?
Sure. Yeah, you know, kind of going back, we did pretty significant reduction in force in May. We did another pretty significant reduction in force in August. Since that time, we have done what I would call more sort of strategic reductions, targeting specific businesses that have been more impacted than others. We continue to do that. As you know, we're obviously looking at our forecast, you know, it's not just monthly now, it's almost daily. You know, we continue to make adjustments where needed. We're also doing other things. I mean, you know, continuing to try to integrate and consolidate the acquisitions to get efficiencies, particularly in the, you know, kind of administrative areas where you can centralize tasks.
We've looked at all of our project and product development, prioritized what we think, you know, in this environment makes the most sense to continue doing and, you know, kind of put on hold some of the other things that, you know, we'd like to do but probably aren't in the best interest right now in this market. We're just gonna continue to do that. You know, I think we've made some really good strides in, you know, the cost cuts that we've done. You know, hopefully between some of the synergies and process improvements, I think we're really bridging the gaps.
Can you guys give some color as to where you're at vis-a-vis break even or becoming profitable for Q4? Is that going to push into Q1?
Well-
We have-
I think-
Well, go ahead, Ange. Go ahead, Angela.
Well, I was just gonna say, yeah, because we, you know, the conditions obviously have been evolving so quickly, you know, we have internally updated our forecast for Q4 to reset the MO covenant. I think, you know, we are finalizing our 2023 budget. It's pretty close to being done. I think we'll be comfortable giving out guidance for 2023, hopefully in the near term.
Is that because the guidance you've given has dropped Q4 revenues based on previous business lines significantly? Is that primarily for covenant reasons?
Well, I think it's, you know, based on the market conditions, the volumes, you know, particularly in some of the business units, like in our title area, that's, you know, been more impacted from the refinancing, you know, some of the purchase origination volumes going down. You know, some of it's been timing of rolling out some of our new products. I think it's just indicative of, you know, just the overall market conditions.
Yeah, Colin, I think that the big, you know, the big impact for us is that Stacy and Jim have done a hell of a job as far as bringing AOL online, and we have an abundance of clients that we're working through. As you know, when you're dealing with major financial institutions, the integration and the testing and all that is moving at the pace of a sloth. It doesn't really indicate how vibrant and robust this business is going to be. Quite frankly, you know, if we've made an overzealous, you know, position, it was in our AOL that we felt that it was going to move a lot quicker than what it was.
It, it has moved a lot quicker, you know, in the way that we've been able to board new clients, but everything that we go through testing and piloting and all the other things just take some time. I mean, one of the reasons that we, for example, bought Clarocity seven years ago, because we inherited 150 master service agreements. You know, as most people know, logging a major bank can take up to one and a half years to get, you know, approved, you know, from a, you know, from a, you know, legal standpoint, a financial standpoint, the whole, the veracity of reviews that have to be done in order for you to, you know, receive the authorization with a master service agreement is extremely robust.
Bringing AOL on is much in the same way. It's just taking a little bit longer. Otherwise, I think we would have a, you know, a knockout quarter and year-end.
Thank you for that. Regarding the financial reporting, is there gonna be any movement towards breaking out the different business units to give some clarity as to what's moving what?
Angela?
Yeah, sure. Yeah, segment reporting is something that we have been discussing all year. Now that, you know, I think that we've kind of gotten through the, you know, all of the acquisitions, we are analyzing what's the best way to move forward with that. We will definitely be, in the future, providing a lot more data on, you know, specific lines of business.
Will you also be putting some sort of roadmap as to what you expect for future amortization and depreciation metrics so that we can get some more forward-looking guidance on that as well?
Sure. Yeah. I mean, that's obviously something that we have, and, you know, we're happy to provide that as well. I know it's a significant number because of the value of the intangibles and the goodwill on the balance sheet. Yeah, we will definitely be able to provide that.
One other question vis-a-vis the covenants. How material are the waivers, and how difficult or easy will it be for you guys to get back on side?
Well, you know, BMO has obviously been an outstanding partner for Voxtur for a very long time. You know, they have worked with us through all of the acquisitions and, you know, just sort of the evolution of the company. You know, it kind of goes without saying we can't thank them enough. You know, I think they recognize the long-term value of the company and they recognize, you know, the kind of unprecedented market conditions that are taking place right now. I think we have, you know, reset covenants recently in a very, you know, kind of reasonable and conservative manner that should get us through, you know, the next, you know, couple of years as, you know, these conditions probably continue to be challenging at least through 2023 and then hopefully start to rebound a bit in 2024.
Having said that. Excuse me, Colin. Having said that, we have utmost confidence that our repayment of interest and principal as we will engage in that over the course of the next, you know, 14 months is very attainable for us. We do believe that we'll have free cash flow after that. We're very confident as the bank is and for us being able to meet our thresholds.
Okay. I'd like to move maybe to a little softer items then. Vis-à-vis the TSX up listing, is that still on the table or has that been deferred or what's the plan on that?
We're moving forward with that, Colin. We've got a few, you know, administrative details to deal with, but the intention is that as soon as possible we'll move towards it.
In terms of communication, I know that there are certain criteria and limitations that you have. I mean, I think there's a big fear out in the marketplace that the next major update is gonna be sort of after Q4 or the annual, which is, I forget, it's June or whatever, May, June. Is there gonna be a bit more of an updating of the marketplace and what's actually happening with the AOL foreclosure, the tax, the A&L Voxtur Direct and the VoxturWealth? Is there gonna be a bit more of a communication from the firm on that type of information?
Well, Colin, I think that the biggest criticism that you have had, and I think, you know, the aspiration of everyone, is that we need to have more, you know, press releases, you know, or at least updates with respect to how we are progressing. We're certainly top of mind and, you know, as we, you know, log on with new clients when permitted and as we, you know, reach certain milestones, it's our intention to try and keep all of our shareholders up to date as humanly possible without, you know, breaching any requirements that we have with respect to the Securities Commission.
So, we know that providing our shareholders updated information as soon as possible, given, you know, the challenges of these economic times we're in now is of more. We will do our best to keep everyone updated as we are progressing.
Okay. That's it for me. Thanks very much.
Thank you very much.
Thank you. Again, for any questions, dial zero then one on your touchtone phone. Standing by. I'm showing we have no further questions in queue. I now turn it over to Gary for closing comments.
Yes. Okay. Thank you very much everyone for calling in today. This concludes our conference. Thank you for participating. You may now disconnect. Speakers, please stand by for your debrief. Thank you.