Good morning. My name is Pam, and I will be your conference operator today. At this time, I'd like to welcome everyone to Dye & Durham's fiscal 2021 third quarter results earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press star, then the number two. Thank you. I'd now like to turn the conference over to Ross Marshall, Investor Relations, on behalf of Dye & Durham. Mr. Marshall, you may begin your conference.
Thank you, and good morning, everyone. Welcome to Dye & Durham's fiscal 2021 third quarter results 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-orientated financial information regarding Dye & Durham and its business, and disclosure regarding possible events, conditions, or results that are based on information currently available to management, which indicate management's expectation of future growth, results of operations, business performance, and business prospects and opportunities. Such statements are made as of this date hereof, and Dye & Durham assumes no obligation to update or revise them to reflect events, disclosure, or circumstances except as required by applicable securities laws.
Such statements involve significant risks and uncertainties that are not a guarantee of future performance or results. A number of these risks or uncertainties could cause results to differ materially from the results discussed today. Given these risks and uncertainties, one should not place undue reliance on these statements and information. Please refer to the forward-looking statements and information and future-orientated financial information section of our public filings without limitation our MD&A and our earnings press release issued today for additional information. To access the presentation that accompanies today's call, please visit our website at dyeanddurham.com/invest and download the Q3 webcast slides. Joining us on the call today are Matt Proud, Chief Executive Officer, and Avjit Kamboj, Chief Financial Officer. I'll now turn the call over to Mr. Proud for his opening remarks.
Thank you, Ross, and good morning, everyone. We're pleased to be here with you today to review recent developments as well as our financial and operating results for the third quarter. Overall, it was a tremendous quarter. We made significant progress on the integration and realization of synergies from recent acquisitions, and in addition to this, the markets that we served were resilient as economic transaction levels were stronger than anticipated. These factors resulted in revenue of CAD 68.9 million and adjusted EBITDA of CAD 37.6 million for the third quarter. We're pleased to report that our adjusted EBITDA was 25% greater than the quarterly guidance we previously provided. As many of you know, over the last few quarters, management has significantly scaled the company.
To put the size of this scale in perspective, in the third quarter, we generated an adjusted EBITDA of 120% more than the previous quarter, 267% more than the same quarter last year, and more adjusted EBITDA in the quarter than we did all of last fiscal year. Planned geographical expansion was also a key milestone for the quarter. We entered the Australian market with the acquisition of SAI Global's property division, and shortly thereafter announced the bolt-on acquisition of an in-market competitor, GlobalX. Together, these businesses will provide us with a meaningful Australian platform, financial scale in that market, and allow for significant synergy opportunities in fiscal 2022. We currently anticipate closing the GlobalX acquisition towards the end of the current quarter we're in, pending regulatory approval.
Now, to manage this scale, we've significantly expanded our management capability throughout the organization as well as strengthened our integration team, which now consists of over 10 dedicated people globally in our integration management office with specialists in various functional areas. We've created a very low-risk, repeatable integration process that allows us to integrate the businesses we acquire with a high degree of velocity. The result of our efficient integration process is clearly evident in the third quarter financial results. For example, for the DoProcess and SAI Global's property division acquisitions, we were able to integrate critical operational elements of the business rapidly, resulting in our ability to capture significant synergies in the third quarter despite only closing these acquisitions a couple of months ago. This performance is directly attributed to our strategy of acquiring, integrating, and operating businesses in our sector to drive EBITDA.
We've been doing this by significantly expanding the value proposition of our software platform as we unite other key parts of the software ecosystem around our customers. As we discussed at our recent investor day on April 20th this year, we've named our strategy Build to a Billion as we plan to scale Dye & Durham to a billion dollars of adjusted EBITDA. It's worth noting, in the quarter, we also significantly strengthened our balance sheet and ended the quarter with a very strong financial position. We currently have access to over CAD 1 billion in capital, which puts us in a very strong position to continue to execute on our Build to a Billion strategy. For those of you that have the presentation open, if you turn to slide four for a second, in February this year, we reported our second quarter 2021 financial results.
We provided a corporate update where we provided financial guidance forecasts for the year ended June 30, 2022. This guidance was CAD 200 million of adjusted EBITDA and CAD 340 million of revenue. Given how much the business has scaled over the last few quarters, we believe providing a financial bridge to our June 30, 2022 adjusted EBITDA financial guidance of CAD 200 million will be helpful for people. The annuity-like nature of our revenue and relatively fixed nature of our cost base provides for an immense amount of predictability to forecast both revenue and adjusted EBITDA with a high degree of precision. Furthermore, our products are used for a wide array of underlying transactions across major Western English-speaking economies. There is not a lot of high degree of seasonality or cyclicality in our business as a result.
What this all means is, by annualizing the third quarter 2021 financial results, we get a more realistic view of the true run rate adjusted EBITDA of our business. As you can see from the chart on this slide, there remains a CAD 50 million, or 25% variance, to bridge the gap between where we were at at the end of last quarter and the CAD 200 million of adjusted EBITDA guidance we provided. We are confident that because of, one, the even stronger financial results we are seeing so far in the fourth quarter—that is the current quarter compared to last, the one that we are talking about today—the inclusion of EBITDA from the GlobalX business when the acquisition closes towards the end of the current quarter, and three, marginal organic growth, we will be at a run rate of CAD 200 million of adjusted EBITDA relatively quickly.
To be clear, we do not require any further acquisitions to meet this $200 million of adjusted EBITDA target, and the target is still five quarters away based on the current business forecasts. I hope people find this helpful in bridging from where we are today to our guidance. Now, I will turn the call over to Avjit Kamboj, our CFO.
Thank you, Matt, and good morning, everyone. Total revenue for the third quarter grew to CAD 68.9 million and an increase of CAD 52 million, or four times the revenue from the prior year. Up to CAD 52 million growth in revenue, approximately 42%, was from organic initiatives, which includes revenue synergies actioned post-acquisition. The remainder was inorganic from businesses we acquired. We acquired approximately CAD 30 million of revenue from the business acquisitions we made over the last 12 months. When combining this acquired revenue with our existing revenue, we managed to grow the combined revenue by 46%, or CAD 22 million. During the quarter, we also significantly diversified our revenue geographically to where Canada now represents 58% of our consolidated revenue compared to 94% in the comparable period last year, with the U.K. representing 25% and Australia with the remaining 17%.
Australia's share of the revenue is expected to grow further on closing of the GlobalX acquisition. Adjusted EBITDA for the quarter was CAD 37.6 million, resulting in a 267% increase compared to Q3 in fiscal 2020. The primary drivers of EBITDA growth outside of organic growth are our strategy of acquiring and integrating businesses in our market, and by doing so, improving the margins of these businesses. Q3 was no exception to this, as through our integration process, we drove significant adjusted EBITDA. Total operating costs, which include direct costs, technology and operations, general administrative, and sales and marketing, were CAD 31.3 million for the quarter. The primary driver for the increase in these costs is costs from the businesses we acquired and our significant investment in human capital to increase the bench strength of our teams and expand our management teams, enabling us to execute on our strategy.
Because we operate software as a service model, this allows us to drive significant operating leverage both in our current business and as we scale. This is evidenced by the fact that we grew the revenue four times year over year and our adjusted EBITDA margin was 55% for the current quarter, which remains within our target operating model of 50%-60%. Finance costs for the quarter were CAD 26 million, primarily due to the issuance of convertible debentures during the quarter. IFRS accounting rules require us to mark to market or fair value our convertible debentures each quarter, resulting in non-cash gain/loss fluctuations in our finance costs, which was CAD 6.9 million this quarter. Additionally, one-time transaction costs of CAD 11 million associated with the issuance of convertible debentures were also fully expensed during the quarter in accordance with the IFRS accounting requirements.
In the third quarter, as we looked to execute our strategy to Build to a Billion, we set out to strengthen our balance sheet. To do that, we increased the company's total borrowing capacity to CAD 700 million, comprised of a term loan facility of CAD 245 million and a revolving facility of CAD 455 million, and raised CAD 545 million in equity and convertible debentures. As of March 31, 2021, we had total cash of CAD 539 million and debt of CAD 245 million. As Matt mentioned earlier, this puts us in a position where we have access to over a billion dollars in capital, comprised of cash on hand and amounts available under our current credit facility of CAD 455 million to execute against strategic opportunities in our acquisition pipeline.
As we mentioned at our recent investor day, we have approximately CAD 500 million of pre-synergy acquisition opportunities in the pipeline that our M&A team is currently working very hard on executing. For the fourth quarter, we expect our financial results will continue to accelerate given a resilient market and sizable synergies being realized earlier than expected from the recent acquisitions. This will significantly close the remaining gap to us achieving our CAD 200 million of adjusted EBITDA from a run rate perspective. We believe that our strong financial momentum and acquisition strategy and now a fortified balance sheet sets the stage for us to build this company to a billion dollars of adjusted EBITDA. With that, I will turn it over to the operator now to take some questions. Operator.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone- phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Robert Young with Canaccord Genuity. Please go ahead.
Hi, good morning. The EBITDA that you reported for the quarter is quite a bit ahead of your $30 million guide. I was wondering if you could just talk about what the drivers of that upside are. Was it organic growth, a better mortgage origination market, or would it be lower than expected churn in Ontario? Is there any color you can provide on the performance there?
Hey, Rob. Good question. It was a mix. I think, first and foremost, the markets we serve are very robust right now, and that helps. There's also the organic initiatives, which in our case often come through revenue synergies from our acquisitions that happened, I would say, somewhat ahead of schedule, again, due to us, I would say, again, being ahead of schedule on our integration process for some of the recent acquisitions. Those would be the two main drivers of the increase. I would add that churn remains very, very low. You mentioned a price increase. We do increase prices from time to time, but we would continue to see very low churn due to just the highly embedded nature of these products that we provide in the market.
Okay. In the release, I think that Avjit also mentioned that you're expecting the current quarter to be even stronger. Is there any context around that, given that the integration happened faster than you expected in Q3? Are you expecting Q4 to grow on the top and the bottom line? Are you expecting strength in revenue and EBITDA? Any color there, given that you pulled in some of the integration?
Yeah. Look, I will not give you precise guidance on where we're going to be in the current quarter. All I can say is that we do anticipate an acceleration in adjusted EBITDA from where we are today. You know what our target operating model is from a margin perspective, so that should be able to give you some kind of insight. All in all, our EBITDA will be above where it is today, as we believe it's going to significantly accelerate. Have you got anything there?
Yeah. Thanks, Matt. Hi, Rob. Good morning. The only thing I would add to what Matt just said is some certain synergies that we executed in the quarter in Q3 were done partway through the quarter, so they automatically flow into a full quarter of synergies in the fourth quarter that will drive higher revenues and higher EBITDA.
Okay. Maybe just to put a finer point on that, what was the actual date of the changes in the DoProcess pricing?
It was in mid-January.
That's right. Okay. The last question for me would just be around the pipeline of actionable targets you've got in your M&A pipe. You'd said $500 million in pre-synergy EBITDA. It's a pretty large number. It's hard to put arms around that. I was wondering if you could maybe pull that in to frame it a little bit more around the opportunity over maybe the next 12 months or something that just might be a little more near-term in nature, and then I'll pass the line.
Hey, Rob. We obviously can't comment on specific opportunities we're working on. We have been pretty transparent that we are looking for larger, more transformative acquisitions that help us continue to scale the business, as there are some opportunities that are quite strategic and will really help us work towards building that billion-dollar EBITDA business we're trying to do.
Okay. Thanks.
Your next question comes from Thanos Moschopoulos with BMO Capital Markets. Please go ahead.
Hi. Good morning. I appreciate you just said you can't comment on specific opportunities. Maybe I'll just ask anyway. There's been media reports about you looking at APEXA. Anything you want to say regarding that or no?
Look, again, I can't comment on specific acquisitions. No, I can't. APEXA is a great business and part of the ecosystem. I can tell you that, that we serve. That's all I can say at this point.
Fair enough. In terms of the acquisitions that you're integrating, where specifically are you focusing your integration efforts now? Sort of what remains to be integrated as you look at maybe the technology platforms for the back-end stuff? What ending are you in as far as capturing that?
Yeah. Look, I mean, we do a lot of the heavy lifting upfront. So operationally, a lot of the integration has happened. I mean, by way of example, financial systems are, for the most part, now on our ERP. There is still some cleanup we're doing with other kind of back-end systems. Some of this stuff just takes longer. In some cases, these are carve-outs from other businesses, so there is still some work to be done. Overall, I think the message is we're ahead of schedule on the integration process, and that's led us to you can see it in the financial results as it flows through.
Okay. The stamp duty holding in the U.K. is slated to expire in June. Is that something that we should be mindful of as we model the business for later in the year, or is that something you think you can offset through cross-selling and pricing?
Look, our business is fairly well diversified. Our revenue streams are. I mean, as you just talked about, the amount of revenue that comes from the U.K., which is a minority. Even then, if you look back over the last many years, there are many different things that I've heard over time may cause downward pressure on transactions. Some of them do. Some of them do not. There can be some cyclicality around them. Overall, it is nothing we worry about. To your point, I think we can offset if there should be any kind of correction with price and revenue synergies.
Great. Just one last one for Avjit. It seems like R&D capitalization picked up this quarter. Would that be a good run rate, or how should we think about that going forward?
Hey, good morning, Thanos. That is correct. That is the run rate we're currently looking at, specifically from the acquisitions we've done. As you know, there are large platforms that we acquired as part of these acquisitions, and we continue to develop and expand on those platforms.
All right. Thanks, guys. You pass the line.
Your next question comes from Paul Steep with Scotia Capital. Please go ahead.
Hey, Morty. Could you talk a little bit about maybe organic growth in the period, Matt, and just specifically what the drivers were by GEO, whether it was end-market robust volume action or maybe pricing moves on your part?
Yeah. It was both. We did capture revenue synergies through the acquisitions that we've sort of touched on already. Overall, markets are robust. I'd say an example is the Australian real estate market remains probably one of the more robust ones that we service. Transaction levels across all our product lines are fairly healthy right now. The economy seems to be firing on all cylinders. If you look at what we do as a business model, we service these transactions in this economy, and we're clipping a coupon along the way every time a transaction happens, which is leading to some of the performance we're seeing. It is a combination of both, Paul, to answer your question.
Okay. Can you just remind us where we are today in terms of the mix of real estate versus other transactions or commercial transactions where we tilted in the quarter?
Paul, we're not disclosing that information.
Maybe just what would the max leverage target be overall? Just remind us what your comfort level would be in terms of taking debt up to sort of a maximum. I know you've talked also about quickly scaling it back down, but just where would you go sort of on a pro forma basis at the high end of the range? Next.
I think when you look at D&D, I think if three and a half, maybe four, if you had a really fantastic opportunity to quickly deleverage. I think at the D&D level, that's what we'd be comfortable with. That said, these businesses, I mean, it's annuity-like revenue, high degree of predictability and precision and forecasting. They could handle a significant amount more. Given we're a public company and the market's comfort with leverage, that's what we think the appropriate amount is.
Great. Thanks, guys.
Your next question comes from Steven Boland with Raymond James. Please go ahead.
Oh, morning. Matt, just one question. I apologize if you answered this already. Are you finding, now that it seems to be a very active market in the targets that you're looking at, are you finding that it's becoming more competitive or the pricing for targets is going up compared to, just say, six months ago or 12 months ago? I mean, certainly, you've announced your presence with a number of acquisitions. Has that changed at all, in your opinion, in the last little while?
Yeah. No, it has changed. You've seen an accretion in multiples across the board. There's no question about that. From our perspective, we're always looking at what we can do with these acquisitions as we take our software platform and the platforms or the capabilities required and put them together. We have a unique capability, unlike not all, but a lot of other buyers, to drive real and significant synergies in the near term. That enables us, hypothetically, to pay a lot more. Now, we don't want to be giving up all our synergies, but we always look at it from what can we do post-synergy and what are the realistic synergies we can execute on. That's how we derive our decision-making. Overall, of course, we've got to pay less for every acquisition. There are market norms that we have to operate within those constraints.
Okay. That's all I had. Thanks, Matt.
There are no further questions at this time. Please proceed.
Thank you everyone for your time. I appreciate it, and we look forward to talking again next quarter.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.