Dye & Durham Ltd

TSX:DND

Good afternoon, everybody. My name is Kelsey and I will be your operator for today. At this time, I would like to welcome everyone to the Dye & Durham Third Quarter Fiscal 2025 Earnings Call.

I would now like to turn the call over to Huss Hirji, VP Investor Relations of Dye & Durham. Mr. Hirji, you may begin your conference.

Great. Thank you and good afternoon. Welcome to the Dye & Durham 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 and 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 and our earnings press release issued today, for additional information.

Joining us on the call today are Sid Singh, Dye & Durham, Interim Chief Executive Officer and Frank Di Liso, Dye & Durham Chief Financial Officer. A question-and-answer period will follow the formal remarks for research analysts.

I'll now turn the call over to Sid for opening remarks.

Thank you, Huss. Good afternoon, everyone, and thank you for joining us today. This afternoon, we released our third quarter fiscal 2025 results. The business continues to perform well, despite the uncertainty in the broader environment as a result of the tariff and trade negotiations which are having an impact on real estate activity in Canada.

This quarter marks a turning point for Dye & Durham. In addition to today's financial results, which Frank will cover shortly, we have released our go-forward operating plan, restoring growth and market leadership built under the direction of our reconstituted Board and new leadership.

Since stepping into the Interim CEO role in February, I've worked closely with the team to assess the state of the business. We found a strong foundation but also critical issues that needed addressing. We're tackling those head on with a focused and disciplined approach.

I will now outline the 3 core strategy pillars under this new operating plan. Number one, Customers First. This is our #1 and topmost priority. We're actively rebuilding trust and credibility with our customers. Over the past 90 days, our team has engaged thousands of customers. We've reinstated Net Promoter Score. We've improved service responsiveness dramatically, including our customer e-mail response times by 75%, our phone response times by 85% in some of our key markets. And we've also implemented a regional operating model to create stronger local accountability.

This past quarter, I'm pleased to announce that we have named Colin Bohanna as Managing Director for our U.K. business. Colin joined the team last year and has played a key role in enhancing our global sales function, particularly in new sales. Having a dedicated regional leader in the U.K. allows us to deepen our understanding of our customer base and the products we offer, while establishing a strong leadership presence in this key region.

We are also hyper focused on retention as a key outcome. 23% of our 2022 contracts came up for renewal this quarter. We achieved over 85% gross retention. That is proof that our D&D customer base still values what we deliver when we show up the right way.

Our second pillar in the new strategy is Product Transformation. We are investing in product-led customer-driven innovation. Our core platform, Unity, has been redesigned with 100 plus improvements, and we're accelerating its launch in the British Columbia market, a major milestone later this calendar year.

To be clear, we are not pursuing 1 global platform for the entire global legal tech market. Instead, we are smartly investing in the region-specific product portfolio to drive local innovation. This is both capital efficient and quick to market. We are also embedding AI into our workflow and practice management solutions to help customers automate tasks, reduce risk and improve efficiency.

In parallel, we're executing a cloud-first modernization strategy, one that prioritizes usability, scalability and long-term competitiveness. We're also following a very disciplined investment and execution framework as it relates to these 2 pillars.

Our investments are very intentional. We have deployed over $4 million to enhance service, sales and product support, which helps us enable retention, faster delivery and long-term scaling. We're also managing our margin profile carefully, balancing short-term margin impact with long-term growth. EBITDA margins are expected to remain strong in the 50% range, supported by cost control as well as productivity gains.

Lastly, the third pillar of our strategy is Portfolio Optimization. Frank will expand on this, but I want to underscore we are no longer pursuing acquisitions. We are laser-focused on sharpening the portfolio and will divest non-core assets to reinvest in what matters, which is our customers, our people and organic growth. We will focus on driving growth in our core markets where we are best positioned to win. And as such, this will help improve the long-term financial profile of the business.

In closing, we are in the simplified phase of our turnaround. We're cutting complexity, we're restoring customer trust and aligning execution. Frank will now address the quarterly performance, our outlook and our Portfolio Optimization strategy. Frank?

Thank you, Sid, and good afternoon. This afternoon, we reported our third quarter 2025 results. Our results continue to demonstrate the underlying strength of our diversified business. ARR continues to grow despite the macroeconomic uncertainty, which has negatively impacted activity in the real estate market.

We reported revenues of $108.3 million, an increase of $1 million compared to the corresponding period in fiscal 2024. Organic revenue in the third quarter declined by 2%, taking into consideration the revenue adjustments in the prior year period relating to timing impacts of entering into 3-year contracts. Excluding these revenue impacts, organic growth increased by $1.5 million, while revenues from acquisitions completed in the prior 12-month period were $3 million in the quarter.

Annual contracted revenue or ACR, remains robust at 61% of total revenue compared to 53% at the same point in fiscal 2024. Contracted revenue includes minimum committed levels of ARR plus revenue from contracted overages and other service arrangements, mainly in our financial technology service lines. Sequentially, ACR grew by $10.6 million to $263 million as of March 31, 2025.

Annual recurring revenue contracted was 30% -- 36% of total revenues as of March 31, 2025, compared to 30% at the same point in the prior year. ARR was $154 million, up 23% or $28.4 million as of March 31, '25, compared to the same point last year. Sequentially, ARR grew by $1.5 million to $154 million as of March 31, '25.

Looking ahead, 2 dynamics will influence our ARR and exposure to real estate. As the interest rates have moved down, in normal periods, one would expect real estate activity would improve. However, given the uncertainty as a result of the global tariff and trade dynamics, real estate activity has softened in the early stages of calendar 2025. Structure of our minimum volume contracts in the practice management business enables us to capture a base level of revenues in periods of low activity and capture upside from increased real estate activity.

The minimum portion of these contracts are included in ARR. Any over usage is then included in annual contracted revenues. We introduced the minimum volume contracts offerings 3 years ago, the majority of those contracts were on 3-year terms, which means calendar 2025 is an important period for renewals.

As of March 31, 2025, 23% of the 3-year contracts signed in calendar 2022 have come up for renewal. As Sid mentioned, we are pleased to report that we have achieved more than an 85% gross retention rate on this first tranche of contract renewals as a result of more flexible contract terms and active engagement with our customers. When factoring contract renewals that occurred in April 2025, gross retention rates are now over 90%. Most of the remaining contracts come up for renewal over the next few months.

With the implementation of our Customer First strategy, which Sid mentioned earlier, the account team is focused on contract renewals through the remainder of this fiscal period. We generated adjusted EBITDA of $55.2 million, down 8% or $4.5 million in the third quarter of fiscal '25 compared to the previous period. The change was driven by lower revenues after direct costs caused by higher amounts of revenue recognition from executing on multi-year contracts in the prior period and lower practice management revenues in Canada driven by the recent macro conditions.

This was partially offset by the contributions of acquisitions and higher due diligence in Canadian financial services revenues. Excluding the timing impact of these non-cash multi-year contract recognitions in the prior year, the year-over-year performance in adjusted EBITDA would approximately be flat.

Adjusted EBITDA margins was 51% in the current quarter. With the investment strategy in the product team, we believe EBITDA margins will remain consistently in and around 50% to 55% range as compared to the 50% to 60% range under the previous strategy.

Total adjusted operating expenses, which includes direct costs, technology costs, G&A, sales and marketing, were $53.1 million in the quarter or 49% of revenues. Direct costs increased by $3.9 million this quarter, mainly due to new reseller relationship agreements signed, higher-than-anticipated third-party costs in the period and higher revenues.

We're working towards reducing direct costs from third-party vendors with active partner engagements and by replacing these with internal comparable data products. Excluding the impact from acquisitions and direct costs, adjusted operating expenses decreased by $0.4 million for the third quarter of 2025 as a result of cost reduction initiatives compared to the prior year.

Adjusted finance costs, which adjusts for changes in fair values and contingent consideration was $32.8 million, down $2.6 million from the prior period. On a year-to-date basis, adjusted finance costs were down over $15 million from the prior year. The improvement primarily reflects the savings from our refinancing transactions completed in April 2024 and the positive interest spread earned on investments held to retire the 2026 convertible debentures.

We expect to see a continued decrease in interest costs from the current lower variable rates on our Term Loan B floating portion and the benefits of a $218 million U.S. cross-currency swaps that we extended in April 2025, which will further serve to reduce our net effective interest payments moving forward. We anticipate reduced interest payments of between $5 million and $10 million in the next 12 months as compared to the last 12 months ended March 31, 2025.

Acquisition, restructurings, and other costs were $11 million for the quarter compared to $7.1 million in the prior year. This figure is significantly lower than the sequential period due to the costs related to the shareholder engagement in the lead up to the 2024 AGM. There are no material costs remaining related to that shareholder engagement beyond the third quarter. We expect this item to normalize below prior year levels, given the focus on organic growth, ongoing completion of integration activities and a suspension of new acquisitions. We anticipate savings more than $40 million on acquisition, restructuring and other costs in the next 12 months relative to the last 12 months ending March 31.

Leveraged free cash flow was $24.5 million, up $31.6 million for the third quarter compared to the negative $7.1 million in the prior year. This change is primarily a result of higher cash from operating activities, lower capital expenditures, lower cash taxes and lower interest costs paid in the quarter. Normalizing for the accrued semiannual bond interest impact of approximately $16 million in Q3, '25, leveraged free cash flow is still significantly up in the period.

Our net debt stood at approximately $1.35 billion as of March 31, unchanged as compared to December 31, '24. As I mentioned last quarter, we are now required to classify our 2028 outstanding convertible debt as current. This is to comply with IFRS presentation requirements. This results in a mismatch in our stated current ratio, while no such discrepancy exists in substance. We have sufficient resources to manage our debt and the business generates strong sustaining cash flows.

As Sid mentioned earlier, as part of our 100-day plan set out under the direction of the new Board, Portfolio Optimization is one of our 3 core pillars. All M&A activity has been paused. We are actively assessing non-core divestitures to sharpen our operational focus. We are taking a pragmatic approach. Unlike the Customer First pillar, which extends in the 1- to 3-year timeline and the Product Transformation pillar of our plan, which will be permanent, we expect to wrap up our portfolio optimization by the end of fiscal 2026, just more than a year from today.

We'll be measured in our approach to ensure we receive optimal value for shareholders. Proceeds from any potential divestiture will be used to reduce our leverage ratio. All capital allocation decisions will be taken with an aim to unlocking long-term value and improving the resiliency of the business. We are actively managing the business to drive key metrics.

We are targeting organic growth in the high single-digit plus range over the long term compared to the 3% we achieved in the last 12-month period. As I mentioned earlier, adjusted EBITDA margin target is in the range of 50% to 55%. We are targeting EBITDA cash flow from operation conversion of 85% plus, based on the strength of our business model and the recurring nature of our cash flows.

Both a material reduction in acquisition, restructuring and other charges, together with working capital improvements support us achieving that level of conversion. Organic growth, EBITDA margins, leverage and strong cash flow conversion are the key financial metrics we are measuring the progress of our strategy to restore growth and market leadership.

And with that, I'll turn it back to the operator for the Q&A session.

[Operator Instructions] Your first question is going to come from Robert Young from Canaccord Genuity.

I guess the first question would be, just an update on the CEO search. And Sid, if you could confirm whether or not you're still in contention for that, because I think investors are looking at potentially a longer period of maybe reassessment if a new CEO comes and steps into the role. So, just anything you can give on timeline and process and where you are in that process?

Yes. Thanks for the question. So, I would also point you to a letter that our Board of Directors has released directly addressing the specific point. We know it's top of mind for many of our analysts and stakeholders. So, as it stands today, we are nearing the completion of our search for a permanent CEO. Obviously, the search has lasted longer than expected. But as you can imagine, the Board wants the right individual who can lead Dye & Durham during this transformative period.

In the letter, you'd also see the priorities that the Board has laid out in partnership with the management team. So, again, I'll point us towards what really drives the company forward as an operating plan: it's Customers First, there is clear things we're doing under that pillar; it's Product Transformation, there is lot of innovation happening inside of that pillar; and then there's Portfolio Optimization. So we don't expect major changes to the strategy. And rest assured, the organization is, by no means, at a standstill while the CEO search is being finalized.

Okay. And then, I guess, are you still in contention for the role, Sid? I'm sorry to ask that question, but I mean, the potential for the business to continue forward uninterrupted versus a new CEO stepping in and maybe changing things, I mean that's a material piece of information, I think.

Yes. Like I said, the strategies and the priorities are being agreed between the Board and the management team. So, those -- don't expect any changes there. I think there are always going to be tweaks and even the current management team will continue to tweak the finer points of the strategy. But the broad pillars are pretty much as we've outlined. These are part of the operating plan. There's a lot of work happening under these.

So, I want to make sure you all understand that these unlock really good, strong revenue growth potential for D&D. It has a good portfolio of products. And by allocating capital towards the most important aspects of our business, which is customers, the product innovation that's been starved for many, many months and quarters, I think will unlock value. And I think that's where I would encourage our analysts and shareholders to look towards, which is organic growth going forward.

Okay. And then in the subsequent notes in the financials, it says that you increased the debt by $13 million. You generated cash this quarter even after a contingent payment. So, I'm just curious, like, what was the decision to increase the debt? Like if EBITDA has declined or it's flat and debt is higher, then leverage would have necessarily increased. So, I'm curious about that decision and why you did that? And then, the $5 million to $10 million reduction in net interest payment, is that mostly due to the swap extension or was there some sort of a debt reduction that we would expect after the quarter?

Rob, it's Frank here. Thanks for the question, Rob. The subsequent event of the $13 million drawdown, that was really off a timing base, as you know, as we have the semiannual bond interest due in mid-April. So, that was done from a timing perspective to facilitate that payment. You're right to point out that we had some big payments on contingent considerations in the quarter that used up most of the free cash flow.

And your second question relating to where we expect the $5 million to $10 million, it's a combination of both the swap extension. So, extending longer into the term, given the lower interest rate curves that we're seeing in Canada and the U.S. as well as the current lower variable rates that we're experiencing on our variable float.

Okay. Last question, I'll pass the line after. You said that renewals, I think you said 23% of the 2022 vintage contracts renewed. You had 85% gross retention. Is that customer retention or dollar retention? And then, I think you said it was 90% after the quarter, so the retention has improved after March 31. Can you just clarify those churn statements and then I'll pass the line.

Yes. Rob, that's correct. So, through our March 31 results, which is our Q3 quarter, we had achieved a gross retention of 85%. And when you now include April into that metric, so call it, a calendar year-to-date basis, that has now increased to over 90%. And that is on a customer basis, measuring the number of deals that have renewed with a contract.

If I were to -- if you were to consider dollar retention, would it be better or worse than the 85%?

Yes. We're obviously -- we're not providing that metric externally right now, Rob. But right now, we're focused on measuring on a gross retention basis. And as part of my script, we are -- we are becoming more flexible with some of the ARR minimums that we provide, given the macro economy, but we are focused on just providing that metric on a gross retention basis now.

And your next question comes from Thanos Moschopoulos from BMO Capital Markets.

Can you provide some more color just in terms of the nature of the client discussions you had around renewals and your approach to securing those renewals? Was it primarily a function of more flexibility in contract terms? Just what were the concerns you heard from clients? And what was your strategy in addressing those to secure the renewals?

Yes. So, Thanos, as I mentioned in the script, we are looking at all terms in the contract, whether it'd contract length, it's one of them, actual amounts of commitments that -- on a go-forward basis as well as appropriate tiering. So obviously, the more volumes that customer commits, the bigger discount that they would get. So those are the primary 3 factors that basically are allowing us to achieve such a high retention ratio.

Okay. Can you clarify your comment regarding the prior period recognition impact that affects the revenue comparability year-over-year? What exactly does that pertain to?

Yes. Yes. So, it was a similar instance in what we reported in Q1, Thanos. So, we had, just basically on -- from various aftermaths of acquisitions and the timing of our desktop applications, they are renewed periodically. And so, in the prior year of 2024, Q3, we had renewed some of those desktop applications for multiyear periods, which essentially recognize the revenue based on the service provided all in that current quarter. So, it really is a function of the timing of these 3-year deals and when they actually get renewed that impacts that, that adjustment that you saw in the results.

Okay. So, term license revenue in the prior period. Got it.

Sorry?

So, basically, it was term license revenue, like you're recognizing a term license over a 3-year period. Yes, yes. Okay. And then, the $11 million in acquisition, restructuring, other costs was higher than I would have thought. Just maybe clarify what the bulk of that pertains to. Is that the shareholder engagement activities? Was it kind of more focused-on restructuring internally? Just what does that pertain to?

Yes. So, the $11 million that you saw in the current quarter is a combination of a few factors. We -- obviously, we are spending some money on the Competition Bureau investigation, which we think will be non-recurring. There has been some restructuring charges from changes in our senior leadership team that essentially eliminated some of the positions and some further integration work with a third-party IT provider. Those were the 3 main factors.

And your next question comes from Kevin Krishnar from Scotiabank.

I have a question as well on the renewal activity so far. So, I think you said 23% of the way through Q1. How -- like, what's the -- what are the months where you've got the biggest level of activity remaining? Is it right now? Is it sort of like April-May, May-June? Just remind us there of how much the big chunk is when that's up for renewal?

Yes, the majority of the renewals will happen this quarter, so being Q4, Kevin. So, that would be through the next couple of months. April was a pretty big month as well. So, we'd be anticipating that we'd be done 2/3 of the deals through June.

Got it. And this is -- and I know you're not going to -- you're not willing to provide your views on revenue retention, but you have a bunch of big clients up for renewal and you're pretty confident of at least maintaining them as customers. Is that how you're thinking about when you talk about 90 -- over 90% renewal is just the fact that you're going to be not losing them altogether. But just trying to get any kind of color you can provide us on what you're doing to sort of preserve revenue. And I don't think you can do pricing as easily, but is it -- are you going to be selling them more services, different parts of your bundle? Just trying to get a bit more help here on how to think about your ability to preserve revenue.

Yes. I mean, you got to remember, Kevin, that a lot of these renewals are still multiyear deals. And a lot of them have various legal practice management wants and needs. So, in many of the deals, it's not just the conversation around conveyancing, it's a conversation amongst all facets of their business. So we will -- we're able to bundle in other products and services as part of the renewals that would essentially lift the net revenue retention ratio along with that.

So, we're not just focused obviously on transactions or conveyancing going forward. We're still focused on providing an all-encompassing solution to the customers that we're actively renewing.

Okay. Okay. That's helpful. A question on -- appreciate the description on the 3-year sort of plan, strategic plan. When Engine had put out their value creation plan, I think, is what they called it back in December. I think they were calling for a view of 10% organic growth split between 3% transaction, 3% pricing, 4% cross-sell/upsell. So, now you've landed on sort of high single digits. So, I'm just wondering if you can update us there on sort of what went into that decision and sort of how you think about your target on the growth algorithm for organic growth?

Yes. It's the same components that made up that high single-digit plus range. So, we're giving ourselves a bit more of a range there, Kevin. So, obviously, we're looking at market growth, we're looking at pricing levers, the ability to attract new logos, the ability to cross-sell/upsell as well as win backs, right?

So, we're looking at all of that and net of, obviously, current churn that we have been experiencing. So, those are all the relevant factors that made up that long-term target. But we're not in a position to disclose individual elements at this time.

Okay. The last one for me as well. So, I know you've given the target for EBITDA margin, 50% to 55%, Frank. I think you may have mentioned towards the 50% range in the near-term. I don't know if I misheard you, but just how do we think about what the margin profile might look like in Q4 and in Q1 as you're going through some of these CSR and product? I know the product investment is an ongoing one, but are you confident that you're going to stick around like at 50%? Is there a potential it can go lower? Just, how do we think about just the very near term on the model?

Yes. So, we're already been making investments, right, as we speak in Q3. So, some of that has trickled into Q3, Kevin. The comment I made before around $50 million to $60 million, that was the previous guidance range, and we're just essentially fine-tuning that to a more tighter range of 50% to 55%. And I mean, you got to look at that over a rolling period of time and certain quarters are going to be lower and certain quarters will be higher based on, obviously, the profile of our revenues, Q3 being one of our seasonally lower periods. So, it really is going to be more of a rolling 4-quarter amount.

In terms of the next quarter or so, I mean, obviously, we're heading into our seasonally high period. So -- but we are still making more investments, as Sid alluded to. So, we're confident that we're going to be in that range.

And your next question comes from Gavin Fairweather from Cormark.

Maybe just to start on the upcoming BC rollout of Unity, can you just describe how the user experience will change versus [ conveyancer ], which I think is your product in that market? And generally, how you're kind of approaching that rollout and whether we should think about some type of pricing left associated with this?

I can start there and Frank can chime in. One thing we have done is, we've spent a ton of time with our customers in the BC market. And there's one consistent feedback we get. They love the D&D product set. They're very well managed in terms of workflow. They're well connected from an ecosystem perspective in terms of how data exchange take place.

So there's a lot to offer them with the new platform. And one of the things we are focused on is incorporating a ton of innovation, but without dramatically changing the day-to-day workflow of these customers. So, it's a balance that we are taking. And the way we're validating that is going through an alpha, which gets us early feedback from customers.

We are launching our beta, which then expands the number of users to a larger pool of customers that give us even more feedback. So, we're working hand-in-hand with these customers to make sure the launch is actually accretive to their business.

Frank, did you want to jump in on the pricing side? Should we think about ARPU moving up? Or is it mostly just a switchover?

Yes. No, I mean, I think we're competitively priced today in the market. Part of our ARR growth in the quarter is continuing to attract new clients and conversions to existing transactional. So, the current pricing, we believe, is adequate, and we're looking at this more of a functionality play as opposed to a pricing play at the current time.

Yes. One thing we're not doing, just to add a finer point, is forcing any customer migrations. So, we will offer this platform, and we will make sure customers see the value on it, and we'll work with them to make sure that they move from this platform or their existing platform to Unity BC. But we're, by no means, shutting down our existing platforms. This gives customers more optionality and gives them time to manage their workflows and operations. So this is a very positive move for our customer base in the BC market.

Appreciate that color. Quite helpful. And then, maybe on the macro, I mean we can all see the Canadian home sales numbers. But one area that we can't really see is the refinancing transactions in the market. And there's obviously been a lot of news articles about the kind of upcoming refinancing wave. So, curious if you could just put kind of your expectations into context for us in terms of how many refi transactions have you seen moving through the platform in recent years? And how are you thinking about the potential upside in calendar '25 and'26?

Yes. I mean, obviously, Gavin, the 5-year -- we're approaching the 5-year mark since COVID, and that will hit us over the next 12 months. So, a lot of people would have taken those 5-year deals on their mortgages just after COVID when it was super low on the fixed side. Our percentage of refinancing transactions has remained consistent. It's roughly 1/4 of the volumes. And we're also optimistic, as you are, on some of the refinancing that are coming our way in the Canadian market over the next 12 months. So that is something that we're going to be ready for as it hits.

And your next question comes from Scott Fletcher from CIBC.

There was some more concrete language around non-core asset divestitures. Just wondering if you could share anything -- any incremental details on what that might be, whether that's geography, assets? And then -- yes, maybe I'll just leave it there.

Yes. I appreciate the question. At this stage, unfortunately, we cannot go into that level of detail. But I can tell you that there is a tremendous amount of portfolio analysis we've undertaken. We've looked at more than 60 different product applications that are within Dye & Durham globally. We've looked at the assets which we believe we can grow, and we've looked at the assets which we believe don't belong inside of D&D, like we're not the best owners. So, we are actively working to figure out the right market, the right value for these assets. And we'll keep you all updated as those conversations progress into something more definitive.

The one thing I do want to call out is that you fast forward 12 months from now, as Frank alluded to in his comments, we would not be operating with the same number of software assets as we have today.

Okay, that helps. And then you mentioned earlier in the call, some costs related to the Competition Bureau investigation. Is there anything you can share update-wise on the timing of that or how it's progressing?

Well, yes, we're required to deliver the first set of documents, Scott, at the end of February. And so all the effort there has been devoted towards getting to that deadline, and we've met that. And so moving forward now, we're obviously fielding some Q&A back, but no meaningful update to share at this point.

[Operator Instructions] And your last question comes from Stephen Boland from Raymond James.

All right. Always last. That's okay. I guess this is beaten to death, but I want to just kind of go back to the retention. It seems like -- again, I appreciate the company has gone through a lot of turmoil over the last 18 months, but 85%, 90% retention, like why are these customers leaving? It seems like it's being celebrated as a good number, but like any company that loses 10% of their customers, there would be a lot of panic and maybe that's kind of why the stock is where it is.

But where are these customers going? And why are they leaving? Is it service? Is it the pricing? I'm just trying to get a better idea of why you're losing 10% or 15% depending on when the measurement takes place.

Yes. So, it's a good question. What I would point you towards, if you look at industry benchmarks in industry-specific software or vertical SaaS, especially in the typical average customer size that we deal with, 90% gross retention is considered reasonably good. I think in the context of what you just outlined, the company has gone through, especially -- and you all have seen the customer reports, the news publications, et cetera, around sentiment in general of how the company has increased prices over the last 2 or 3 years.

I think there is a sentiment that has to be overcome. Now what I'm seeing across hundreds of customer conversations and me as well as the executive leadership team are actively having direct customer conversations is that customers actually like our workflow product. It manages a ton of complexity.

There's a lot of training and retraining required of their staff to learn a new platform. We have very clear indication from our customers that the new platforms are nowhere close to D&D from a functionality perspective. At the same time, we have also unlocked new resources to continue to innovate on the platform.

So, considering all of those factors, I think these metrics are very encouraging, although we are early in this innings, right? We're like less than 1/3 of our way in. But these metrics in a vertical SaaS business, at our size of ARR, I would say these are reasonably good numbers.

And would you say like, are they leaving? Like when a customer goes in and you're -- maybe it was conveyance that they had purchased and a couple of other services, are they like leaving all products or some products or are they getting unbundled? I'm just trying to get a better idea of that.

Yes. I mean we're referencing specifically the conveyancing products when we talk about these renewals, although I'm sure when you go across hundreds of contracts, there's going to be a lot of variation in there where customers do have other products from us and they're part of a multi-year deal. What we definitely see in these negotiations is that customers don't want to leave D&D.

And if anything, what we're hearing from the customers is that this is a new chapter in the company. We're focused on the right priorities. And most of them, as you can imagine, 90% plus actually want to work with us and want to continue to buy more products and services from us. And we are actually confident that with increased investments in our go-to-market motion, which is sales and marketing, we do expect in fiscal '26 to actually start winning back some of the customers we have lost. So expect more updates on win backs as we progress through the next quarterly updates as well.

Okay. Second question is, in your MD&A, you say you're rehiring employees. Does this indicate, like I'm not trying -- I was trying to figure out like number of people, cost and are these mid account managers, senior, like senior -- partly senior leadership, vice presidents, and rehiring these people that were laid off or fired or coming back to work? I'm just trying to get an idea of the churn there.

Yes. I think you're referring to the Board letter to shareholders where we had that statement in there, Stephen? Yes. Okay. So, it means, there is no specific positions or class. I mean, it's across the board. I think we're seeing -- we have a, as Sid mentioned, we have a rich product suite of products that require a lot of institutional knowledge.

And as we're actively developing those products, we have invited some employees to come back to fill some of those vacancies or to fill some of those incremental investments. And obviously, we're always going to pick the best candidate for the given position. And in many cases, these have been former employees.

Okay. And then last question, just on the automated -- on the banking technology revenue, thank you for splitting that up. That was great. I don't remember and I haven't had time to go back and check, but what would you say the revenue was at acquisition a few years ago when you bought that business? I don't know if that's -- is it higher, lower, similar? I don't know -- or margin, can you provide anything on that business now?

Yes. We've seen some good growth on the financial services side, Stephen. So I don't have the numbers handy 4 years ago or 3 years ago when we acquired that. But a lot of the organic growth is coming from Canadian financial services, mainly in the mortgage instruction and discharge business, where we have a substantial share across Canada, including Quebec. And if you look at the [ Korea data ], it's -- Quebec market is still net positive year-over-year from that perspective. So, I know it's been ticking up over the last several quarters, but I would imagine we were lower when we first acquired that business.

And there are no further questions at this time. I would now like to turn the call back over to Mr. Hirji. Please continue.

Great. Thanks for all who attended, and we look forward to connecting with you for our Q4 full year '25 results to be communicated later in the near future. Until then, have a great day. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation and ask that you do please disconnect. Have a great day.