Welcome to the ISC Q1 2023 earnings conference call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during this session, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jonathan Hackshaw, Director of Investor Relations in Capital Markets. Please go ahead.
Thank you, Antoine. Good morning to everyone joining us today. Welcome to ISC's conference call for the Q1 ended March 31st, 2023. On the call today with me are Shawn Peters, President and CEO, and Bob Antochow, Chief Financial Officer. This morning, Shawn will take you through some of the highlights of the quarter. Bob will provide some financial and operating as well as speak to some refinements to certain metrics before passing the call back over to Shawn for some closing remarks. Before we begin, we would like to remind everyone that we will only be summarizing results today. The company's financial statements and MD&A have been filed on SEDAR and are available on our website. We encourage you to review those reports in their entirety.
I would also like to remind you that any statement made today that are not historical facts are considered statements within the meaning of applicable securities laws. The statements may involve a number of risks and uncertainties that are described in detail in the company's SEDAR filings. Those risks and uncertainties may cause actual facts to differ materially from those stated. Today's comments are made as of today's date and will not be updated except as required under applicable securities laws. Today's conference call is being broadcast live over the Internet and will be archived for replay shortly after the call on the investor section of our website. I would now like to turn the call over to Shawn.
Thank you, Jonathan. Good morning to everyone joining us for today's call. Our start to the year has been positive and in line with our expectations. The acquisitions we completed in 2022 have made a positive contribution to our performance, more than offsetting the expected contraction in the Saskatchewan market. Our services business is well diversified and continues to grow organically, even in the face of changing Ontario Business Registry dynamics. For our technology solutions business, as we've described in our previous conference calls, we've seen a return to procurement activities by clients and jurisdictions. As a result of our success in those activities, I'm pleased that during the quarter we were active on two new exciting contracts. The first is an implementation of an integrated registry. The second is the next phase of an online register of charities and nonprofit organizations for the State of Guernsey.
We also noted that we completed the development of corporate registry technology for Bonaire, St. Eustatius, and as a service offering. The Cyprus project will deploy the registry of complex and significant government, the Department of Registrar of Companies and Intellectual Property, and is expected to revolutionize registry operations for the government of significant productivity increases, regulatory compliance, and streamlined user experiences for individuals and companies who interact with these registries. Total value of the contract to ISC over the life of the project is EUR 5.7 million, or approximately CAD 8.4 million. On the Guernsey project, in late 2022, the State of Guernsey launched the phase I of the online register of charities and nonprofit organizations to the public operating on the RegSys solution and transforming the way charities interact with the State of Guernsey.
That phase I of the project is an important milestone for Guernsey as RegSys will be used by Guernsey to demonstrate the complement money value valuation, which is an examination of measures taken in the financial, regulatory, and criminal justice sectors to combat anti-money laundering and terrorist financing in the European Union. The phase II of the project began in the Q1 of 2023, bringing the corporate beneficial ownership and intellectual property registers onto the new RegSys platform to provide an integrated solution for the State of Guernsey. The total value of the two-phase project, including implementation of support and maintenance, is expected to be GBP 7.7 million, or approximately CAD 12 point million. The revenue for these projects will be recognized in 2023 or begin to be recognized in 2023 as we deliver services against the contracts.
As we've indicated previously, we're excited about the opportunity for our technology solutions business. As the market continues to return to normal, we continue to see this increase in procurement activity. As an organization, we continue to focus on the delivery of our services and customer satisfaction while ensuring for ACO. As always, we look for growth that's complementary or adds additional or new competencies to our existing business, diversifying our revenue streams. The results for this quarter and the impact of our acquisitions in 2022 are a demonstration of the success of this strategy. I'll now turn the call over to Bob to discuss some financial highlights before providing some closing thoughts.
Thank you, Shawn, and good morning to everyone. As Shawn said, our 2022 results were in line with our expectations considering our exceptional 2021 and economic tightening that occurred in 2022. This performance was driven by a number of factors, but more specifically, revenue was CAD 49.1 million for the quarter, an increase of CAD 4.9 million or 11% compared to the Q1 of 2022 due to revenue from Registry Operations.
Ontario Assessment Services Division following the acquisition of Reamined Systems in June 2022. Continued growth in transactions and customers in the services segment also contributed to the overall increase in revenue over the prior year. This was partially offset by a decrease in the Saskatchewan Land Titles Registry revenue as transaction volumes trended toward pre-pandemic levels. Net income was CAD 6.9 million, or CAD 0.39 per basic and CAD 0.38 per diluted share, compared to CAD 7.4 million, or CAD 0.42 per basic share and CAD 0.41 per diluted share in the Q1 of 2022. The decrease in net income results from higher amortization related to intangible assets arising from acquisitions in 2022, as well as higher net finance expense.
EBITDA was CAD 14.7 million compared to CAD 13.8 million in the Q1 of 2022, primarily driven by increased EBITDA in registry operations and services, and a decrease in share-based compensation compared to the prior year quarter. EBITDA margin was 29.9% for the quarter, compared to 31.3% in the Q1 of 2022. The change in margin year-over-year was largely due to the return of the Saskatchewan Land Titles Registry volumes to pre-pandemic levels, accompanied by reduced EBITDA in technology solutions, partially offset by the decrease in share-based compensation due to the decline in the company's share price during the quarter. Adjusted EBITDA was CAD 14.5 million for the quarter, compared to CAD 14.6 million in 2022. Adjusted EBITDA margin was 29.5% compared to 30% in the Q1 of 2022.
The change in margin year-over-year is largely due to the return of the Saskatchewan Land Titles Registry volumes to pre-pandemic levels, accompanied by reduced EBITDA in technology solutions. free cash flow for the Q1 was CAD 10.1 million, flat compared to the Q1 of 2022, due to slightly higher cash provided by operating changes in working capital, offset by increased interest expense. I would also like to note that commencing January 1st, 2023, following a review of comparative financial information practices by other publicly traded companies, ISC elected to refine its definition of free cash flow to present ISC's free cash flow on a levered basis. As such, free cash flow now includes interest received and paid, interest paid on lease obligations and principal repayments on lease obligations.
The impact of this change to free cash flow in the prior period was a CAD 0.9 million decrease to the previously reported amount of CAD 11 million. We believe this will help provide a clear picture of our free cash flow position for shareholders in the market. Turning now to our balance sheet. With respect to our debt, as at March 31st, 2023, the company had CAD 56.1 million of total debt outstanding compared to CAD 41 million as at March 31st, 2020. During the quarter, we made a CAD 10 million voluntary prepayment against our revolving facility due to excess cash minimize interest expense. After all this, as at March 31st, 2023, we held CAD 24.2 million in cash compared to CAD 23.4 million as at March 31st, 2022.
Further details on our debt and our credit facilities can be found in our MD&A and financial statements. In February, we provided our outlook and guidance for 2023 and are reiterating our guidance. As a reminder, we've guided that for 2023, revenue is expected to be between CAD 200 million and CAD 205 million. Net income is expected to be between CAD 27 million and CAD 32 million. Earnings before interest, taxes, depreciation and amortization is expected to be between CAD 58 million and CAD 63 million. Adjusted EBITDA is expected to be between CAD 65 million and CAD 70 million. Before I turn the call back over to Shawn, I'd like to finish by highlighting that we also announced yesterday that our board of directors approved a quarterly cash dividend of CAD 0.23 per share.
That dividend will be payable on or before June 15th, 2023, to shareholders of record as of March 31st, 2023. We also filed an updated version of our MD&A this morning, with the correct land registry volumes chart. All the information provided in the MD&A is accurate as of the date of filing. I'll now turn the call back over to Shawn for some concluding remarks.
Thanks, Bob. As I stated at the outset, we're pleased with the start of the year. We expected some contraction in our Saskatchewan registry market with a higher interest rate environment, and that's what we've seen. We expect that will continue for the balance of the year, and we've factored that into our guidance. As you've seen, the business is still showing strong results. Similarly, our services business continues to grow and is now very much a core part of our business. Since acquiring ESC in 2015, we've been very deliberate about diversifying the revenue streams and services, knowing full well that at some point, access to the Ontario Business Registry would be expanded.
To date, that has meant that this has been less impactful for us due to our ability to continue to grow organically. We've continued our investment in people and technology in the Q1 , all geared to continue to serve our customers well and to be able to respond to new growth and to new opportunities. Naturally, there's still some concern in the market around economics. However, as we've proven consistently over the last 10 years, ISC remains a robust business and well-positioned to grow through our existing business as well as appropriate acquisitions. With that, I'll now turn the call back over to Jonathan.
Thank you, Shawn. Antoine, we'd now like to begin the question and answer session, please.
All right. Thank you. At this time, we will conduct the Q&A session. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Scott Fletcher from CIBC World Markets Inc.. Please go ahead.
Good morning. Good morning again. Excuse me. Thank you for taking my question. I wanted to ask a question on the reiterated guidance. I'm just wondering if where the land registry volumes came in, if those numbers were maybe slightly worse than expected, but the technology contracts and the better than expected performance and services sort of internally helped you, let you, sort of reiterate the guide. I'm just wondering if sort of there was some, maybe some mix in your internal forecast as to how to get to the total guided number.
Yeah. Thanks, Scott. It's Shawn. I'll maybe start on that. You know, I mean, we've reiterated guidance. It is the Q1 , we do have seasonality to our business. You know, to your question, were the land volumes sort of different than we expected? I think they're trending in the direction that we expected. We do see variances, as I said, for seasonality in Q1 . Q1 is often pretty early in the year to decide if those transaction volumes are gonna be off significantly. Overall, we're still confident in the land registry volumes that we predicted for the year. The technology contracts that we've talked about today, we had forecast that into our guidance as well.
I think, sort of across the board, we're pretty confident in all sectors of our business and all segments that, where we thought we were headed is where we're still headed.
Okay. That's helpful. Just wanted to ask on the services, the margin was strong in the quarter and, you know, an improvement sequentially. I understand there's some seasonality, but how should we be thinking about the services margins going forward, for the rest of the year?
Yes. Thanks for the question, Scott. Our services business, if you look at our historical margin profile, that's, you know, what you should consider. You know, we do have seasonality, and there's a product mix, you know, that we see from, over, you know, on a quarterly basis. You should think of it from the annual services margin perspective.
Okay, thanks. I will, I'll pass the line.
Thanks, Scott.
Thank you, Scott. One moment for the next question. Our next question comes from Jesse Pytlak from Cormark Securities. Please go ahead.
Hey, good morning. Just coming back to those technology solution project wins, can you just give us a sense on the timing on when you might start to recognize some of the first milestones?
Hi, Jesse. Bob here. You know, the majority of the work really is commenced, will be commencing in Q2 as we go forward. We'll be recognizing the revenue, you know, as the work progresses. You'll see the revenue, you know, pick up in the next quarter.
Okay. Then in terms of kind of the expense line in technology solutions, is there still further investment to go with these projects, or is this kind of a new run rate level?
Yeah. Yes, we are. We invested in you know people and some you know as to support these projects. Part of that cost increase is, however, in many ways we move forward with completing projects that we've got in the Q and advance on these new projects. There will be some additional investments in people, which we have factored into our guidance that we've provided.
Yeah. Jesse, I might just add, as we talked about late last year, we saw the return to procurement happening and so started, as Bob said, those investments in people. Part of what you're seeing in the expense line is the gearing up of that. I think we're getting fairly close to that, but as Bob said, there's probably a little more, a little incremental yet, given that we see a pretty exciting pipeline for technology this year. We're getting closer, you know, to your original question, to a more of a run rate for given the volume of business that we have participate.
Okay, that's great. Then maybe just one last one. Are you able to maybe quantify the impact this quarter from the changes in the OBR on services business?
Jesse, sorry. Jesse, just repeating for Bob, the change impact on services from the changes in the OBR with it opening up a bit.
Yeah.
If we're able to quantify that.
Yeah, we don't, unfortunately, we don't have an exact, you know, number on that, Jesse. You know, we're monitoring it. We, you know, we from a high level, we've been expanding our technology to provide more services to customers in that area to, you know, create the stickiness with them. We also have expanded services within our Registry Complete software to offer filing products across the country, as well as Ontario to, you know, support that stickiness. You know, at this point, we can't quantify. We'll be monitoring that is for the upcoming months. At this point, there is an impact.
In terms of the absolute dollar amounts, we're not able to quantify that at this point.
Yeah. I'd add as Bob said, you know, all those activities we've taken to diversify the business, you know, knowing that as I said that this would come at some point. As you've seen in our results, the impact to us is not material. It's not probably something that we'll disclose in the future, even once it's sort of quantifiable, but we don't expect it to be material to us.
Okay. Thanks for that. I'll pass the line.
Thank you, Jesse.
Thank you, Jesse. One moment for our next question. Our next question comes from Stephen Boland from Raymond James. Go ahead.
Morning, everyone. Is there I might have missed this. Is there other changes coming to the Ontario Business Registry? I can't remember if sorry if I read the MD&A. Is that the only changes now that have been put into effect?
Yeah. I mean.
I guess.
Thanks, Stephen. I mean, there's two phases sort of to the opening of the OBR. One happened some time ago and the second one is opening more now. I think it happened in March. I imagine that will continue to sort of open. There's no further changes other than the continuation of the project that they've started.
Okay. All right. Appreciate that. The second question is just on the land registry, the high value transactions took a big jump, and I know there was COVID hangover, you know, for a couple quarters that those transactions, you know. You know, is this a sustainable level in your view? It seems like it was a pretty material jump.
Yeah. Hey, Stephen. Yeah, Bob here. Yeah, it was, you know, for the quarter, we had some, high volume transactions, you know, a little bit higher than what we expected. You know, that fluctuates with economic activity in the province. You know, it's large transactions. It's hard to predict. It was higher than what we anticipated. We still expect a, you know, return to pre-pandemic levels is what we're seeing. Again, as, you know, that same impact acquisitions that happened in the economy.
you know, there was, you know, a couple transactions that occurred in this quarter and, but our expectation is that, you know, seeing that return to more pre-pandemic levels.
Okay. I apologize if this question is obvious, but when I look at, you know, your revenue and your adjusted EBITDA, you know, you're close to, you know, you did CAD 49 million. You're almost right in the range of CAD 200 million-CAD 205 million for the year, meaning pretty flat. There is a jump when you look at the EBITDA, adjusted EBITDA CAD 14 million. If you annualize that, it's well below your CAD 65 million-CAD 70 million. Maybe you've answered this in the past. Where's the margin increase? What segment is it coming from?
Yeah. Well, maybe I'll start on that and let Bob jump in. You know, I think the revenue is an increase over last year, not flat.
No, I just mean.
Adjusted EBITDA as well. You know, the increase in the margin, as Bob mentioned, earlier in the call, we do see seasonality in the business. Sometimes that's a shift in, either the seasons or the types of transactions that we see. When we budget it overall, that's what we're looking at, not so much on a per quarter basis. That's where if there's any adjustment in the margin, either up or down, that's because of the annualization of what... It's a little tough to take the Q1 and take it out by four, and, it doesn't totally work for us. I understand what you're getting at, but, there is the seasonality and different types of transactions involved.
Okay. The seasonality which, I guess, I mean, it's probably registry obviously. Is that the main, you know, the bucket that you see the seasonality or expected in your guidance?
Yeah. Stephen, Bob here. Registry operations accounts for roughly about 70% of, sort of, you know, it's the largest contributor. You know, quarter two and quarter three are, you know, the highest quarters, in that, in that business. Obviously, there's more of the summer, spring, there's a lot more real estate transactions that, you know, occur during, that time period. Those quarters will have, you know, higher EBITDA versus, you know, Q1 and Q4, historically. Okay, that's great, guys. Thank you.
Thanks, Stephen.
Thank you, Stephen. One moment for our next question. It looks like our last question is coming from Trevor Reynolds from Acumen Capital. Please go ahead.
Morning, guys.
Morning, Trevor.
Just on the technology contract, what's kind of the term of commissioning or deployment on that, in terms of revenue recognition, how long do you expect that contract to go for?
Yeah, it's typically they're very typical contracts. These are right in our sweet spot with the registered solution, you know, in the corporate registry, and we said it can be deployed in other ones. This is an IP and patent type registry, but they're very similar deployments of registers that we've seen in the past. They range anywhere from sort of 12 months to 18 months, and that's where you should see the revenue recognized.
Great. Do you see other opportunities in some of these tax haven countries? Do you see this as kind of a proof of concept for some of these countries and just kinda what the outlook is there on the technology front?
Yeah, we absolutely see opportunities. As we said, there is a return to procurement. We are seeing a lot more activity in that market and the deployment of our registry technology just continues to expand the use of the one project here where it's an IP registry. That's certainly technology that we can deploy in other jurisdictions and, you know, even become a standalone IP registry. We do see lots of opportunities. Activity is strong in the market. We're actively involved in that and so we're pretty excited about this space for ISC.
Great. Apologies if I missed this, but just maybe, an update on the recovery business, and where that kinda sits today relative to expectations and kinda where the credit cycle's at.
Trevor, you'll see that the revenue was basically essentially flat over the quarter. We are seeing assignments pick up, you know, which is a good indicator. You know, part of it is there how much versus sold. You know, we make our the margin profile is different on, you know, a case file that's redeemed versus sold, and we make the majority of our mar open amount of files. That's the piece that we're watching. It's positive we're getting more cases through the door. It's just the, you know, moving them to more of the sold is where we make the margin.
That's where we're seeing it trend towards more sold but, you know, that, you know, not significantly over what we've seen in the prior periods.
Got it. Maybe just the last one, just, how you guys are looking at the housing markets in Saskatchewan these days?
I think our view continues to be the same. We talked about the surge we saw during COVID and the activity and that would return to pre-pandemic levels. We're still above 2019 or predicting to be above 2019. The interest rate, as you all are aware, the interest rate does impact that, and so we see a little bit of contracting. There's no real danger signs in it. The most of the commentary around the market in Saskatchewan, I mean, we're leading in GDP here, and the actual housing market is expected to fare quite a bit better than the rest of Canada.
That continues to be. It has an impact on our registries as we've seen even this quarter, but the strength of the business helps offset that. It's still a good business, no matter what.
Great. Thanks for taking my questions.
Thanks, Trevor.
Thank you, Trevor. All right. As a reminder, if you wanna ask a question, press star 11 on your telephone. I'll give you a few more seconds to do that to queue up the Q&A. All right. Looks like we have no more questions, so I would like to pass it back over to Jonathan Hackshaw for closing remarks.
Thank you, Antoine. With no further questions, we'd like to thank you once again for joining us on today's call, and we look forward to speaking with you again at our next reporting period. Have a good day.
Thank you. Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Thank you.