Mr. Luc Filiatreault reports

MDF COMMERCE REPORTS SECOND QUARTER OF FISCAL 2024 FINANCIAL RESULTS

MDF Commerce Inc. has released its second quarter financial results for the three-month period ended Sept. 30, 2023 (second quarter (Q2) of fiscal year (FY) 2024). All dollar amounts are expressed in Canadian dollars unless otherwise indicated.

"We are particularly enthusiastic about the pipeline conversion this quarter, adding the State of Hawaii and numerous mid-market customers with multiyear contracts for our e-procurement solutions," said Luc Filiatreault, president and chief executive officer of MDF Commerce. "Our deep network of government agency customers and our full suite of end-to-end e-procurement solution offerings, including source, contact, procure, connect and shop, which are tailored for the public sector, provide a strong competitive advantage. We expect that government agencies will continue to focus on their digital transformation over the next few years and, with a large total addressable market, we believe that we are well positioned for strong growth for our e-procurement platform solutions."

The company welcomes new clients to its e-procurement community, including the State of Hawaii, the Texas Comptroller of Public Accounts, and the counties of Rockland, Chemung, Orange and Ulster in New York State, and multiple other cities and public agencies, joining over 6,500 public sector buying organizations in choosing MDF Commerce e-procurement solutions.

"Our strategic and operational focus on accelerating organic growth, increasing operational efficiency and profitability is showing traction in our Q2 FY 2024 results. We reported a fifth consecutive quarter of positive adjusted EBITDA and significantly reduced our net loss compared to Q2 FY 2023 and Q1 FY 2024," said Deborah Dumoulin, chief financial officer of MDF Commerce. "The positive impact of profitability improvements on cash flows and our confidence in the corporation's stable financial position, led the corporation to reduce the borrowing commitment available under our revolving facility from $50-million to $30-million on Sept. 29, 2023."

Second quarter fiscal 2024 financial results

Revenues for Q2 FY 2024 were $30.7-million compared with $33.2-million in Q2 FY 2023, a decrease of $2.5-million or 7.4 per cent. On a constant-currency basis, revenues decreased by $3.0-million or 8.8 per cent compared with $33.7-million in Q2 FY 2023.

Q2 year-over-year revenue grew by $1.0-million or 3.2 per cent when excluding InterTrade, a subsidiary that was sold on Oct. 4, 2022, and that had revenue of $3.4-million in Q2 FY 2023.

Recurring revenue was $24.4-million or 79.2 per cent of revenues in Q2 FY 2024, compared with $26.5-million or 79.0 per cent in Q2 FY 2023. Recurring revenue increased by $1.1-million, compared with Q2 FY 2023, when excluding the decrease in recurring revenue from the sale of InterTrade of $3.2-million. InterTrade had recurring revenue as a percentage of revenue in excess of 90 per cent.

Net loss and adjusted net loss were $800,000 for Q2 FY 2024, compared with a net loss of $89.8-million and an adjusted net loss of $4.8-million in Q2 FY 2023. Q2 FY 2023 included an impairment loss on goodwill of $85.0-million related to Periscope.

Adjusted EBITDA was $4.0-million in Q2 FY 2024, a significant improvement of $2.6-million from $1.4-million in Q2 FY 2023 and marking the fifth sequential quarter with positive adjusted EBITDA.

Revenue

The e-procurement platform revenues were $20.2-million for Q2 FY 2024, compared with $19.3-million in Q2 FY 2023, an increase of $900,000 or 4.8 per cent. The corporation's United States-based e-procurement revenue was $15.1-million for Q2 FY 2024, representing 74.8 per cent of total e-procurement revenue, an increase of $700,000 compared with $14.4-million and 74.7 per cent for Q2 FY 2023. In Q2 FY 2023, revenues were impacted by a $300,000 fair value adjustment on Periscope deferred revenues at the closing date of the acquisition on Aug. 31, 2021.

Recurring revenue as a percentage of total revenue for the e-procurement platform represented 88.4 per cent for Q2 FY 2024, compared with 86.3 per cent for Q2 FY 2023.

The e-commerce platform revenues were $5.8-million for Q2 FY 2024, compared with $9.2-million for Q2 FY 2023, a decrease of $3.4-million or 37.2 per cent. The sale of InterTrade in Q2 FY 2023 represents $3.4-million of the decrease, which was offset by $300,000 in other revenue in Q2 FY 2024 from postclosing transition services. Right-of-use revenue increased by $200,000 compared with Q2 FY 2023, while professional services revenues decreased by $600,000.

Recurring revenue for the e-commerce platform was $2.6-million in Q2 FY 2024 and represented 45.4 per cent of platform revenues, compared with $5.9-million or 63.5 per cent in Q2 FY 2023, which included both e-commerce and InterTrade. The sale of InterTrade represents a decrease of $3.2-million in recurring revenue as compared with Q2 FY 2023. InterTrade had recurring revenue as a percentage of revenue in excess of 90 per cent.

The e-marketplaces platform revenues were stable at $4.7-million in Q2 FY 2024 and Q2 FY 2023. Recurring revenue as a percentage of total revenue for the e-marketplaces platform represented $3.9-million or 81.4 per cent for Q2 FY 2024, compared with $3.7-million or 78.8 per cent for Q2 FY 2023.

Gross margin for Q2 FY 2024 was $18.5-million or 60.0 per cent, compared with $19.4-million or 58.3 per cent for Q2 FY 2023. The gross margin percentage increased by 1.7 per cent compared with Q2 of prior year. The $900,000 decrease of gross margin for Q2 FY 2024 compared with Q2 FY 2023 is mainly due to lower revenues of $2.5-million, which grew by $1.0-million excluding the revenue reduction due to the sale of InterTrade of $3.4-million. Cost of revenues improved compared with Q2 FY 2023, due to lower salaries expenses of $1.1-million from work force reduction initiatives implemented across the corporation in FY 2023 and Q1 FY 2024, and due to the sale of InterTrade, and from lower professional services expenses of $500,000.

Operating expenses in Q2 FY 2024 were $20.5-million, a significant decrease of $2.8-million or 12.1 per cent, compared with $23.3-million in Q2 FY 2023. General and administrative expenses totalled $6.0-million in Q2 FY 2024, selling and marketing expenses were $7.2-million, and technology expenses were $7.3-million, compared with $6.5-million, $8.4-million and $8.5-million, respectively, for Q2 FY 2023. The reduction in operating expenses is mainly from $3.0-million of salary savings from work force reductions and from the sale of InterTrade. This was partially offset by lower e-business tax credits and lower capitalized internally development software, which together were $900,000 lower in Q2 FY 2024 due in part to the sale of InterTrade. Restructuring costs decreased by $500,000 from Q2 FY 2023.

The corporation significantly reduced its operating loss by $1.9-million at $2.0-million for Q2 FY 2024, compared with $3.9-million in Q2 FY 2023. This is mainly due to the decrease in operating expenses of $2.8-million, partially offset by the $900,000 decrease in gross margin, as explained previously.

Net loss was $800,000, or two cents per share (basic and diluted) for Q2 FY 2024, compared with a net loss of $89.8-million, which included a $85.0-million non-cash goodwill impairment loss, or a $2.04 net loss per share (basic and diluted), for Q2 FY 2023.

Adjusted net loss was equal to net loss for Q2 FY 2024 and was $4.8-million or 11 cents (basic and diluted) in Q2 FY 2023. As a result of the cost saving initiatives over the past few quarters to improve profitability, there was a significant improvement of $4.0-million in adjusted net loss and an improvement of adjusted net loss per share (basic and diluted) of nine cents per share in Q2 FY 2024 compared Q2 FY 2023.

Adjusted EBITDA was $4.0-million for Q2 FY 2024, a significant improvement of $2.6-million compared with $1.4-million for Q2 FY 2023. This marks the fifth sequential quarter of positive adjusted EBITDA. The significant improvement in adjusted EBITDA is mainly due to the decrease in operating expenses, following work force reductions and other cost saving initiatives, partially offset by a $2.5-million reduction in revenues, as explained previously, revenue grew by $1.0-million excluding the revenue reduction due to the sale of InterTrade of $3.4-million.

The Periscope acquisition accounting adjustment to the fair value of deferred revenues at the acquisition date resulted in a reduction of revenue of $300,000 in Q2 FY 2023. The fair value adjustment, that was recorded as a reduction of revenues until Q4 FY 2023, had an unfavourable impact on gross margins, operating loss, net loss, adjusted EBITDA (loss), net loss per share (basic and diluted) and adjusted net loss per share (basic and diluted).

The company's Q2 FY 2024 financial results show the positive impacts of its focus on operational efficiency, profitability and cash flows, with significant Q2 year-over-year improvements in net loss, adjusted net loss and adjusted EBITDA.

Credit agreement

On Sept. 29, 2023, a fourth amendment to the credit agreement was executed, to extend the maturity date of the revolving facility from Aug. 31, 2024, to Oct. 1, 2025, and to reduce the revolving facility total commitment from $50-million to $30-million, at the corporation's request, while interest rates and other terms remain substantially unchanged. The corporation's decision to reduce the borrowing commitment available under the revolving facility by $20-million is attributable to the improvement in the corporation's liquidity position. Reducing the standby fees on the unused portion of the revolving facility is aligned with the company's focus on profitability and cost saving measures.

Closure of two e-marketplaces businesses

The corporation announces that it will discontinue the operations of Reseau Contact and Power Source Online, two businesses in the e-marketplaces platform, at the end of November, 2023. These platforms were not underperforming businesses, however, investments would have been necessary to ensure that these platforms were compliant with new privacy legislation in Canada in regard to the protection of personal information (Quebec's Law 25). The decision is well aligned with the company's strategy to focus on its core platforms.

A summary of consolidated results is provided in an attached table.

About MDF Commerce Inc.

MDF Commerce enables the flow of commerce by providing a broad set of software as a service (SaaS) solutions that optimize and accelerate commercial interactions between buyers and sellers. The company's platforms and services empower businesses around the world, allowing them to generate billions of dollars in transactions on an annual basis. Its e-procurement, e-commerce and e-marketplaces solutions are supported by a strong and dedicated team of approximately 650 employees based in Canada, the United States, Ukraine and China. For more information, please visit the company's website, follow the company on LinkedIn or call at 1-877-677-9088.

Non-IFRS (international financial reporting standards) financial measures and key performance indicators

The corporation's unaudited interim condensed consolidated financial statements for the three-month and six-month periods ended Sept. 30, 2023, and Sept. 30, 2022, have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, through the application of accounting principles that are compliant with IFRS. The unaudited interim condensed consolidated financial statements do not include all of the information required for complete financial statements under IFRS, including the notes.

The corporation presents non-IFRS financial measures and key performance indicators to assess operating performance. The corporation presents adjusted net earnings (loss), adjusted net earnings (loss) per share, net earnings (loss) before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA (loss), adjusted EBITDA margin, and certain revenues presented on a constant-currency basis as a non-IFRS financial measures and recurring revenue and monthly recurring revenues (MRR) as key performance indicators.

These non-IFRS measures and key performance indicators do not have standardized meanings under IFRS and are not likely to be comparable with similarly designated measures reported by other corporations. The reader is cautioned that these measures are being reported in order to complement, and not replace, the analysis of financial results in accordance with IFRS. Management uses both measures that comply with IFRS and non-IFRS measures, in planning, overseeing and assessing the corporation's performance. Certain additional disclosures including the definitions associated with non-IFRS financial measures as well as a reconciliation to the most comparable IFRS measures, and key performance indicators have been incorporated by reference and can be found in the MD&A for the second quarter ended Sept. 30, 2023, as presented in the Section 10 non-IFRS financial measures and key performance indicators. The MD&A for the second quarter ended Sept. 30, 2023, is available on SEDAR+ and on the corporation's website under the investors section.

Conference call for second quarter fiscal 2024 financial results

Date:  Wednesday, Nov. 8, 2023

Time:  9 a.m. Eastern Standard Time

To dial-in:  1-833-630-1956 or 412-317-1837 (for international)

A webcast will be available.

We seek Safe Harbor.