Thank you, operator. Good afternoon, everyone. Welcome to the Dye & Durham Q4 and Fiscal 2022 Year-end Conference Call. Before we start, we'd like to remind you that all amounts discussed on this call are denominated in Canadian dollars unless otherwise indicated. Please note that statements made during this call may include forward-looking statements and information and future-oriented financial information regarding Dye & Durham and its business and disclosure regarding possible events, conditions or results that are based on information currently available to management, which indicate management's expectation of future growth, results of operations, business performance, and business prospects and opportunities. Such statements are made as of this date hereof, and Dye & Durham assumes no obligation to update or revise them to reflect events, disclosures, or circumstances, except as required by applicable securities laws.
Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results. A number of these risks or uncertainties could cause results to differ materially from the results discussed today. Given these risks and uncertainties, one should not place undue reliance on these statements information. Please refer to the forward-looking statements and information and future-oriented financial information section of our public filings without limitation, our MD&A, our earnings press release issued today for additional information. Joining us on the call today are Matt Proud, Dye & Durham Chief Executive Officer, and Frank Di Liso, Dye & Durham Chief Financial Officer. A question and answer session will follow the formal remarks for research analysts. I now turn the call over to Matt for his opening remarks. Matt?
Thanks, Ross, and good evening, everyone. Today we'll be reviewing recent developments at Dye & Durham and summarizing our financial and operating results for our Q4 and year-end of fiscal 2022 for the period ending June 30, 2022. However, before we begin, we're joined today by our most recent addition to our senior management team, Frank Di Liso, Chief Financial Officer at Dye & Durham. I'll be conducting the call today, but Frank is here available for any questions after the formal remarks, and he'll be an active presenter on future calls. We continue to execute our strategy of disciplined capital allocation to build a business of scale through acquisitions and investments in our existing platform. These acquisitions and investments drive enhancements and new capabilities of the platform that improve efficiency and productivity of our customers.
The business is dramatically larger today than it was at the time of IPO 24 months ago. In the fiscal year 2022, we generated revenue of CAD 475 million and adjusted EBITDA of CAD 276 million. During the Q4 of fiscal 2022, we generated CAD 130 million in revenue, up 54% from the same period in the prior year, and we delivered adjusted EBITDA of CAD 75 million, up 53% from the same period in the prior year. We continue to consistently deliver adjusted EBITDA margins above 50% with this strong growth. We're building a global leader in the B2B software and services space that supports legal and business professionals. We build a highly reliable business and resilient business that generates digital infrastructure cash flows.
The annuity-like nature of our revenue and relatively fixed cost of our cost base provides for a tremendous level of predictability in our revenue, as well as our 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 intend to continue to expand our market reach by entering adjacent ecosystems in Canada, the UK, and Australia through acquisitions. Our capital allocation strategy is clearly working. In just two years, we've scaled the business eightfold. We've deployed a total of CAD 1.74 billion in capital with an average purchase price of 16.2x EBITDA that we've compressed to approximately 6.7x in a rapid timeframe.
We continue to see new opportunities which would extend our reach in the ecosystems in and around our core business and help us diversify into other professional and legal workflow markets. Last week, we announced negotiations with the Link Group ended without an agreement to complete the acquisition. You know, it was a difficult decision for all parties, given the time put into the transaction, again, from all parties. From our perspective, the economics simply did not work for Dye & Durham if we had to carry the legacy liability of up to AUD 600 million related to Link's fund solution business and the Woodford issue. In our view, we put forth a structure to address this legacy liability in a fair way for Link shareholders, but it simply wasn't fair to Dye & Durham shareholders for them to own that liability moving forward.
Again, this is disappointing as Link had some very attractive businesses and assets like Corporate Markets and PEXA that we would have enjoyed to have ownership over. We're moving forward with our strategy to continue to diversify our core business with new acquisitions that address workflow and efficiency needs of professionals and legal markets. As of June 30 this year, we have available liquidity of approximately CAD 500 million for new acquisitions. This liquidity consists of cash, the revolving credit facility, and the delayed draw term loan. Our leverage ratio on a net basis is currently 2.6x as of the end of fiscal 2022. Again, that's June 30 or 2.3x for the Q4 annualized, which we believe provides sufficient headroom with our strong free cash flow conversion of 50%+.
We can tend to continue to deploy that capital towards new acquisitions. You know, we've demonstrated through multiple market cycles that we're able to manage the business, and we continue to execute our strategy of scaling through acquisitions. We've rapidly built a business that generates strong top-line growth within an industry that provide stable cash flow and a healthy margin profile. We look forward to updating you on our progress as we move forward. With that, I'll turn it to the operator for Q&A.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw yourself from the question queue, please press star followed by two. If you're using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you have any questions. Your first question will be from Robert Young at Canaccord Genuity. Please go ahead.
Hi. Good evening. The first question I would like to ask is around the guidance you'd given in the past around fiscal 2023 EBITDA. Are you still targeting greater than CAD 350 million of EBITDA for 2023? I'm sorry if I missed that. I didn't see it in any of the materials that you released.
We've not provided any information disclosure that changes that number. Again, the drivers that really go into that are, you know, real estate market, you know, real estate transactions times price. We've done a good job of managing through, you know, a deterioration in market transactions with an increase of price per unit, plus, you know, EBITDA we buy and synergies we realize from businesses we buy from the capital we have available. At this point, we've not changed that number.
Okay. Thanks for that. Second question for me would be around the CAD 500 million of liquidity that you highlighted. Is that sufficient for your near-term plans? Maybe if you could just talk about how you feel about adding additional debt or capital in this market and what, you know, the potential uses of that capital would be. Is it entirely for M&A, or are there some other things that you might consider? If you could talk a little bit about that.
Look, I mean, we have a very strong business. The ability to add, you know, today we're only 2.3x, you know, levered on a run rate basis, which we think is pretty reflective of what you'd call kind of pro forma EBITDA. T here is ability to move that up, if you had an attractive acquisition. Again, for businesses like ours, that's an acceptable leverage profile. We could add to that if we needed, but without adding to that, we still have CAD 500 million of capital available, before we had to go to market to add debt if we choose. To your second point of your question, I would say that the primary use for our capital today is for acquisitions.
It might not be the only use.
Okay. Maybe another way to look at that question would be, are you looking at smaller acquisitions? Like what would be the, maybe preferred size of acquisition?
It really depends on you know, a few factors. I mean, size isn't the only thing we look at. Obviously, having to do a lot of small ones you know, often creates more work, and many cases more risk. Y ou know, we're looking at you know, if I look at our pipeline, there's various size of acquisitions in there ranging from small to larger ones. Again, we're targeting our return number, which is a five-year return on capital. As you've seen, we're currently, if you look at from the time of IPO, sitting at just under seven times, with obviously three years to go, to hit that five-year return on capital. We're feeling pretty good about hitting those numbers.
Maybe just on that last bit. Last question for me would be around the data you shared that the acquisitions that yielded 6.7x post synergy multiple of EBITDA, the target is 5x. Is there implied in that, are you saying that there is still opportunity for another two turns of EBITDA within that CAD 1.7 billion of past acquisitions?
Yes. That's correct what I'm saying.
Which of the acquisitions would have the most remaining synergies to access? Then I'll pass the line.
That's not disclosure we provide.
Okay. I'll pass the line.
Thank you. Next question will be from Thanos Moschopoulos at BMO Capital Markets. Please go ahead.
Hi. Good afternoon. Obviously from a macro perspective, there's lots of, you know, challenges and lots of noise in transaction volumes. Just if we think about the upcoming quarter, is it safe to assume that your revenue and EBITDA should be up sequentially, you know, given the mix of seasonality versus synergies that you're capturing from existing businesses versus the pricing dynamic? Would that be a fair assumption?
I'm not. You know, we're not providing guidance on our current quarter. Prefer to stay with that question.
Okay. Fair enough. In terms of the TM Group sale, any update there, you know, as far as what we should be thinking about in terms of timing?
We'll be making a decision quite quickly on what we're gonna do. I would say I'd call it a near-term decision. There's a process that we go through that with the CMA. They've reached their conclusion, and now we're considering, you know, what we do.
Okay. From an M&A perspective, you talked about focusing on your core geographies. Now, you know, with Link, we saw you know, obviously, being interested in an asset that would have taken you into a new market. As you look at your M&A pipeline, I mean, should we be thinking, is it more weighted towards things that are adjacent to your existing markets? Or could there be things like Link that would take you into, you know, markets that are maybe a little bit different?
It's both. I mean, we always consider diversification when we look at acquisition opportunities. I mean, I think what you saw in Link that we liked was it had, you know, there was assets they had that were directly tied to our, you know, our core business, as well as assets that diversified in similar industries. I t kind of checked two boxes for us, b ut to answer your question, it's both.
Okay. All right. I'll pass the line. Thanks.
Thank you. Next question will be from Stephen Boland at Raymond James. Please go ahead.
Thanks, Matt. First question is just about Australia. I presume now that with PEXA off the table, that you'll be retaining those operations. Maybe you could just talk about how they're performing. The employees there, the staff were under, I guess, thinking that they were gonna be sold. How is morale? Are the operations? Was there any disruption during this process with Link?
Yeah, no. Good question. Yes, we will be keeping our Australian business. Look, it's something we have to manage through. You know, it obviously creates uncertainty when you have an employee base, are they staying? Are they going? There's regulatory uncertainty around that. You know, through constant communication, more executives being in front of the employee base in Australia in person, we're managing through that.
Okay. Just a general one, Matt. You know, when you look at the conveyance market, I presume it's, you know, I'll say conveyance, but, you know, there's the regulators now at two jurisdictions have kind of, you know, I guess, halted any kind of further consolidation. You know, mentioning certainly TM Group and then, you know, the issue with PEXA. You know, is it fair to say that that segment of the market, which has been one of your bigger revenue drivers perhaps is shut down? For the most part, you're gonna have to look for complementary businesses to acquire.
No, I wouldn't say it's shut down. I think you look at why the Link deal ended up ultimately not proceeding. It had nothing to do with even our business. It was a legacy issue to do with Link and their fund solutions business in the UK that could have been solved with dollars at the end of the day. I don't know if that's an accurate analysis to draw. Look, at the end of the day, we have an active pipeline that does have a diversified amount of opportunities in there.
You know, when you look at our strategy of capital allocation and what we're really doing, we've done over the last two years is allocating capital and driving return for return on it. There's opportunities both within and without, within and outside of our core, as you call it, conveyancing, you know, business.
Okay. Maybe just a last one for me is, you know, I did notice that the acquisition restructuring expense was elevated this quarter. I presume that will carry on, maybe similar to bigger amounts in this quarter as well, just with the, cause Link was still ongoing and I presume TM Group. Is that a fair?
Yeah, that's right. There, you know, there's a lot of costs went into Link. It's fortunate it didn't happen. Guess it would've been a good opportunity, but for the reasons discussed, it didn't make sense. Yeah, this quarter we'll have a larger than normal restructuring and as such.
Okay. Appreciate that. Thanks, guys.
Thank you. Once again, ladies and gentlemen, if you do have a question, please press star followed by one on your touch tone phone. Your next question will be from Kevin Krishnaratne at Scotiabank. Please go ahead.
Hey there. Good evening, gentlemen. Question for you. Can you update us on the amount of recurring revenue in the business? I know you've been putting through some initiatives on a subscription, you know, pricing, in Canada. Can you give us an update on what that looks like?
We don't widely report on recurring revenue across the business. We have on previous calls talked about the minimum volume contract uptake in Canada, which is currently around 30% of our customers have signed up to it or that transact. That's where we are with that. We anticipate that growing throughout the year. We don't widely disclose our recurring revenue versus non-recurring revenue.
Gotcha. Yeah, maybe just on related to that, though, just a question on your pipeline and the composition there. Now, if you were able to add Link, that would have added a pretty good base of recurring revenue. I'm just curious, when you're looking at the pipeline, how those businesses may look if they kinda skew more recurring? Do they look transactional? I'm just trying to get a view of what the kinda makeup of the revenue profiles might look like for some of your targets you're thinking of looking at.
Yeah. Look, it's both. That's a good question. Look, in today's market, when we look at acquisitions, particularly with exposure to macro factors like real estate transactions, is looking to allocate our capital. You know, more recurring assets are obviously attractive to us, when you look at the diversification. It's something that we do focus on, when looking to deploy capital.
Right. How do those look like on a valuation basis? You've got, you know, your reference to 16.2x purchase multiples on average. Are they higher or, you know, is there some offsetting now just because of the general market, you know, softness? Are you seeing pricing coming down? Any commentary on that?
You know, it really is a mixed bag, is the best way to put it. We see valuations across like, I mean, across the spectrum. I mean, look at businesses we buy are businesses that make money. We're generally buying off of an EBITDA multiple, not a revenue multiple. You know, you're seeing things that range from kinda high single digits up into the teens. Again, we're willing to consider it all provided we see a clear path forward to walking it down to the 5x target. You know, looking at our business today, we are considering revenue diversification more and more.
Got it. Okay, thanks for that. Just one last small one from me then. Just on the capabilities that you got with TELUS Financial in Québec, the mortgage payment, pretty unique, something that's not really, I think available in the rest of Canada. Any updates there on initiatives there to roll that out and what might be involved in the process?
Yeah, look, I mean, it's something we are working on across the country, rolling that out. It's not a simple thing to do. We don't have a direct timeline to report on right now, but it is something we're actively working on from a product perspective and generally.
Right. That, so that would require some incremental investment or resources put towards that, you know, and then. Right? There'd be some time. It takes some time to get that done. I guess just trying to understand the amount of, you know, work and investment required to get that up and running.
Yeah, I don't have the exact numbers offhand on the investment. Again, we're not commenting on exact timeline right now, but it is something we're actively working on.
Got it. Okay, look, thanks a lot. I'll pass the line. Thank you.
Thank you. Once again, ladies and gentlemen.