NextSource Materials Inc. - Interim / Quarterly Report 2023

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Management’s Discussion and Analysis

For the third quarter ended December 31, 2022

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mdf commerce inc. Management’s Discussion and Analysis

Management’s Discussion and Analysis

For the third quarter ended December 31, 2022

1 Basis of presentation

This Management’s Discussion Analysis (“MD&A”), dated February 10, 2023, presents an analysis of the financial position and operating results of mdf commerce inc. (“mdf" or the “Corporation”) as at December 31, 2022 and December 31, 2021 and for the third quarters ended December 31, 2022 ("Q3 FY2023") and December 31, 2021 ("Q3 FY2022"). The MD&A should be read in conjunction with the unaudited interim condensed consolidated financial statements for the three and ninemonth periods ended December 31, 2022 and December 31, 2021 as well as the Corporation’s annual MD&A for the year ended March 31, 2022, the audited consolidated financial statements and notes thereto, for the years ended March 31, 2022 ("FY2022") and March 31, 2021 ("FY2021"). This MD&A compares performance for the quarters and the ninemonth periods ended December 31, 2022 and 2021. This MD&A was approved by the Board of Directors of the Corporation.

The Corporation prepares its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) and they were approved for issue by the Board of Directors on February 10, 2023.

The interim condensed consolidated financial statements 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 interim condensed consolidated financial statements do not include all of the information required for complete financial statements under IFRS, including the notes.

This document and the consolidated financial statements are expressed in Canadian dollars unless otherwise noted. Certain totals, subtotals and percentages may not reconcile due to rounding.

The Corporation presents nonIFRS financial measures and key performance indicators to assess operating performance. The Corporation presents Adjusted net profit (loss)[2] , Adjusted net profit (loss) per share[2] , net profit (loss) before interest, taxes, depreciation and amortization (“EBITDA”)[ 1] , Adjusted EBITDA[1] , Adjusted EBITDA Margin[1] , and certain Revenues presented on a Constant Currency basis[3] as nonIFRS measures and Recurring Revenue[4] and Monthly Recurring Revenues ("MRR")[4] as a key performance indicators. These nonIFRS measures and key performance indicators do not have standardized meanings under IFRS and are not likely to be comparable to 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 nonIFRS measures, in planning, overseeing and assessing the Corporation’s performance.

The terms and definitions associated with nonIFRS financial measures as well as a reconciliation to the most comparable IFRS measures, and key performance indicators are presented in Section 11 “NonIFRS Financial Measures and Key Performance Indicators” in this MD&A.

1 EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are nonIFRS financial measures. Refer to section 11 “NonIFRS Financial Measures and Key Performance Indicators”.

2 Adjusted net profit (loss) and Adjusted net profit (loss) per share (basic and diluted) are nonIFRS financial measures. Refer to section 11 “NonIFRS Financial Measures and Key Performance Indicators”.

3 Certain revenue figures and changes from prior period are analyzed and presented on a Constant Currency basis and are obtained by translating revenues from the comparable period of the prior year denominated in foreign currencies at the foreign exchange rates of the current period. Refer to section 11 “NonIFRS Financial Measures and Key Performance Indicators”.

4 Recurring revenue and Monthly Recurring Revenue (“MRR”) are key performance indicators. Refer to section 11 “NonIFRS Financial Measures and Key Performance Indicators”.

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mdf commerce inc. Management’s Discussion and Analysis

2 Forward-Looking Statements

In this MD&A, “mdf commerce”, the “Corporation” or the words “we”, “our” and “us” refer, depending on the context, either to mdf commerce inc. or to mdf commerce inc. together with its subsidiaries and entities in which it has an economic interest.

This MD&A is dated February 10, 2023, and unless specifically stated otherwise, all information disclosed herein is provided as at December 31, 2022, the end of the most recent quarter of the Corporation.

Certain statements in this MD&A and in the documents incorporated by reference herein constitute forwardlooking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause mdf commerce’s, or the Corporation’s industry’s actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any of the Corporation’s statements. Such factors may include, but are not limited to, risks and uncertainties that are discussed in greater detail in the “Risk Factors and Uncertainties” section of the Corporation’s Annual Information Form as at March 31, 2022. Forwardlooking statements generally can be identified by the use of forwardlooking terminology such as “may”, “will”, “should”, “could”, “expects”, “plans”, “anticipates”, “intends”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negatives of these terms or other comparable terminology. These statements are only predictions. Forwardlooking statements are based on management’s current estimates, expectations and assumptions, which management believes are reasonable as of the date hereof, and are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and are accordingly subject to changes after such date. Undue importance should not be placed on forwardlooking statements, and the information contained in such forwardlooking statements should not be relied upon as of any other date. Actual events or results may differ materially. We cannot guarantee future results, levels of activity, performance or achievement. We disclaim any intention, and assume no obligation, to update these forwardlooking statements, except as required by applicable securities laws.

3 Business overview

mdf commerce inc. (TSX: MDF) 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. Our platforms and services empower businesses around the world, allowing them to generate billions of dollars in transactions on an annual basis. Our eprocurement (formerly Strategic Sourcing), ecommerce and emarketplaces solutions are supported by a strong and dedicated team of approximately 700 employees based in Canada, the United States, Denmark, Ukraine and China.

Our mission is to Enable the Flow of Commerce .

Overview

Total revenues for Q3 FY2023 were $31.7 million, an increase of $1.0 million or 3.3% compared to $30.7 million reported in Q3 FY2022. Recurring revenue[4] represents $24.7 million or 77.8% of revenues for Q3 FY2023 compared to $25.0 million or 75.1% of revenues for Q3 FY2022. Q3 FY2023 Adjusted EBITDA[1] was $0.9 million compared to an Adjusted EBITDA[1] of $0.7 million in Q3 FY2022.

YTD Q3 FY2023 revenue was $97.1 million compared to YTD Q3 FY2022 $78.3 million, an increase of $18.8 million or 24.0%. Recurring revenue[4] represents $77.2 million or 78.2% of revenues for Q3 FY2023 compared to $60.7 million or 74.1% of revenues for Q3 FY2022. YTD Q3 FY2023 Adjusted EBITDA[1] was $1.2 million compared to a YTD Q3 FY2022 Adjusted EBITDA[1] loss of $1.2 million.

On October 4, 2022 we sold InterTrade Systems Inc. (“InterTrade”), a whollyowned subsidiary of the Corporation for total cash consideration of $65.8 million (US$48.5 million) which represents 5.0x revenues. The preliminary disposal consideration was $63.9 million (US$47.1 million), including closing cash, working capital and postclosing adjustments. The net cash proceeds received at the closing date were used to pay down longterm debt mainly related to the strategic acquisition of Periscope Intermediate Corporation (“Periscope”), which strengthened our overall balance sheet position. Upon the completion of certain transition services between the closing date of the transaction and July 2024, an escrow amount of up to $2.7 million (US$2.2 million) will be payable to the Corporation. The gain on disposal of InterTrade was $22.9 million (US$16.9 million). Refer to Section 4 “Financial Highlights – Q3 FY2023.”

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mdf commerce inc. Management’s Discussion and Analysis

Revenue from InterTrade for Q3 FY2023 was $0.4 million, which represents a decrease of $3.0 million in revenue compared to $3.4 million from both Q2 FY2023 and from Q3 FY2022. The decrease in revenue from the sale of this subsidiary, was partially offset by $0.9 million of revenue which was recorded in the quarter for postclosing transition services provided to the acquirer of InterTrade. Adjusted EBITDA[1] from InterTrade decreased by $0.7 million compared to Q2 FY2023 to nil for Q3 FY2023, and compared to $1.1 million in Q3 FY2022.

As we continue to focus and simplify operations for our two core platforms, eprocurement and ecommerce (previously Unified Commerce before the sale of InterTrade) our objective is to maintain positive Adjusted EBITDA[1] , with nearterm priorities being the reduction of operational costs and the improvement of margins and cash flows.

In response to macroeconomic conditions and shifting client priorities, headcount reduction has been implemented across the Corporation, where specific adjustments were made to rightsize and align with softer demand, practically eliminating the use of contractual consultants. From the beginning of October 2022 we have reduced our global workforce by approximately 10%. When added to the 9% workforce reduction from the sale of InterTrade, this represents a total workforce reduction of approximately 19%. The Board and Executive team have also evolved and are now operating with a simplified structure. These adjustments lower costs while adding a higher degree of focus and operational efficiency.

Also, as our hybrid work model has evolved, so has our need for office space. In December 2022 we closed our office in Laval and are presently looking at a significant reduction in office space at our headquarters in Longueuil. These adjustments are expected generate annual cash savings of $0.5 million starting in Q4 FY2023 and the annual cash savings is expected to increase over the next few quarters as lease end dates negotiations continue. The Corporation is also exploring further cost reduction options for our USbased leases.

These decisions were made as part of an effort to ensure the longterm sustainability and competitiveness of our business and improve profitability.

In the next quarters, our operational focus remains on our eprocurement platform, which targets government agencies across North America. Our goal is to further leverage our unique market position and ability to serve the needs of the public sector. To date, this sector is still focused on digitalizing their procurement processes and the interest level in our technology remains high, including for our transactional model (TRX model).

As such, we are pleased with the progress on pipeline conversion in eprocurement in Q3 FY2023 with the acceleration of several government contracts. Since the November 8th midterm elections in the U.S., the Corporation has signed new contracts in U.S. counties and cities that will be using our ePro and CLM (contract management) solutions with implementation activities beginning in over the next few quarters.

Another key development announced in October 2022 was our collaboration with Walmart in delivering an integrated shopping solution to the State of Arkansas. With the integration of Walmart.com to ARBuy, the transactional eprocurement system developed by mdf commerce for the State of Arkansas, buyers can now add items from Walmart to their cart and check out, all within the ARBuy system. This innovative collaboration makes it even more efficient for Arkansas buyers to shop while generating savings for the State and ensuring greater transparency and visibility.

Parallel to our efforts of onboarding new buying organizations, we continue to add suppliers via paid subscriptions to our supplier portals and are constantly looking at additional valueadd services which can generate higher revenue per customer and increase loyalty.

As for our ecommerce platform, in particular for Orckestra, after hiring rapidly over the past few years to keep up with customer demand for large deployments and solution integrations, we’ve seen large ecommerce customers cuttingback on their spending or delaying projects in Q3 FY2023. The impact of this market shift is felt primarily in professional services revenue, with some additional impact on volumebased revenue. To offset these impacts, we have recalibrated and rationalized headcount in professional services, significantly reducing contractual consultants, and curbing expenses.

The commercial focus for Orckestra remains our order management system (OMS), which helps retailers ensure an optimal consumer experience with a hybrid shopping environment. This product does not require a client to replatform, is outof thebox ready and can easily be layered onto existing tech stacks in a relatively short timeframe.

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mdf commerce inc. Management’s Discussion and Analysis

This approach increases our addressable market by allowing us to pivot from being a competitor to becoming a complementary valueadded partner to any ecommerce technology.

For kecommerce, which offers ecommerce solutions to SMBs in the B2B space, a new integrated payment solution (KIP) was launched in October 2022. This omnichannel payment processing software offers invoice payment and transaction processing, connects seamlessly with a client ERP and is offered at a highly competitive price. Another key achievement for kecommerce is our new partnership with Acumatica announced in January 2023. The kecommerce ERPintegrated ecommerce platform developed for Acumatica Cloud ERP users provides an allinone ecommerce, includes a CMS, cloud hosting, as well as a complete postimplementation service and training. The general availability of kecommerce for Acumatica on Acumatica Marketplace is scheduled for February 2023.

We remain confident in our ability to execute on our strategy towards profitable growth. Our efforts to add focus to and rightsize overall operations, combined with strengthening the commercial capabilities and approach for our eprocurement platform, we are pleased to report positive Adjusted EBITDA[1] again this quarter. Ongoing operational adjustments will continue, which will help us to maintain our path to sustained profitability.

Outlook

The sale of InterTrade, significantly improved our balance sheet, increased our operational focus, and positions mdf commerce favorably to deliver profitable growth despite current and foreseeable macroeconomic market conditions. Over the next few quarters, our strategic focus will continue to be cost containment, operational efficiency and focus as well as organic growth.

Considering the current macroeconomic environment as well as the opportunities related to government spending initiatives in the United States, growth efforts will be mainly focused on eprocurement. Pipeline conversion has picked up as expected and we are focused on exploiting opportunities for this market segment. Due to its unique leadership position in the public sector and firmly established footprint across North America, we expect our eprocurement platform to play a growing role in our ability to scale, and we are structuring operations accordingly.

As our business, market conditions and prevailing economic trends evolve, the Corporation will continue to review its strategy and implement the required steps to ensure shareholder value, customer satisfaction and employee engagement.

Previously provided forward-looking financial information

Management had previously disclosed that it believed that it could realize estimated annual revenue synergies of at least $15 million and annual cost synergies of approximately $5 million within 3 years of the August 31, 2021 acquisition of Periscope.

Management continues to execute as planned on the integration of Periscope, and on adopting and leveraging the unique Transactional model for the eprocurement platform. Concurrently, management is accelerating and onboarding of new States and public agencies. As disclosed in Section 4. Financial Highlights – Goodwill Impairment Test, in Q2 FY2023 financial forecasts on the expected timing of achieving revenue growth objectives of Periscope were revised, which could result in the estimated annual revenue synergies taking longer than the 3year stated timeline and a revised estimate is 3 to 5 years.

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mdf commerce inc. Management’s Discussion and Analysis

Macro-economic factors

On March 11, 2020, the World Health Organization declared COVID19 a pandemic. The pandemic has created a period of unprecedented volatility and uncertainty with regards to global economic and market conditions which continues today. On February 24, 2022, Russia invaded Ukraine, which has prompted severe economic isolation and global sanctions against Russia, further disrupting the global economy. Beyond the ongoing global pandemic and, geopolitical tensions and the war in Ukraine, current headwinds include decadeshigh inflation, rising interest rates, slower global economic growth, and acute supply chain and labour shortages – any of which may influence the exact timing and rate of market recovery.

Although it is not possible to forecast with certainty, we expect that these macroeconomic pressures will persist for the foreseeable future. The Corporation continues to monitor the impacts of current global macroeconomic market risks on its business, financial conditions, and results of operations as macro events unfold.

Current overall economic conditions together with market uncertainty and volatility may have an adverse impact on demand for some of the Corporation’s products and services as industry may adjust quickly to exercise caution on capital spending. This uncertainty may impact the Corporation’s revenue. Despite these macroeconomic uncertainties, Management believes that the digital transformation of business processes will continue, and that the Corporation will be able to benefit from this trend through its main platforms. Our business solutions and industry expertise position us well to continue supporting our customers and to attract new customers as they stabilize their organizations and optimize their business transactions in unprecedented times.

The exchange rate of the U.S. dollar in comparison to the Canadian dollar continues to be an important factor affecting revenues and profitability as the Corporation derives approximately 60% of its business from U.S. customers while a greater portion of its cost base is in Canadian dollars. Refer to Section 9 “Derivative Financial Instruments”.

The Corporation will continue to adjust its business model to ensure that costs are aligned to its revenue expectations and economic reality to the extent possible.

The Corporation has sufficient available liquidity to satisfy its financial obligations for the foreseeable future. Refer to Section 8 “Liquidity and Capital Resources”. Despite this liquidity, the Corporation will see an impact on the cost of capital in the future because of disrupted credit markets.

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mdf commerce inc. Management’s Discussion and Analysis

4 Financial Highlights – Q3 FY2023

Financial Highlights In thousands of Canadian dollars, unless otherwise noted	Variance	Variance
	Q3 FY2023 Q3 FY2022 $ %	YTD Q3 FY2023 YTD Q3 FY2022 $ %
Revenues	31,652 30,652 1,000 3.3	97,064 78,305 18,759 24.0
Recurring Revenue4 Gross margin Net earnings (loss) Adjusted Net Loss2 Adjusted EBITDA1 (loss)	24,728 24,952 (224) (0.9) 17,832 17,202 630 3.7 15,082 (4,673) 19,755 N/A (7,804) (4,673) (3,131) 67.0 898 741 159 21.6	77,233 60,705 16,527 27.2 55,693 44,710 10,983 24.6 (81,010) (15,266) (65,744) 430.7 (18,896) (15,266) (3,630) 23.8 1,168 (1,172) 2,344 N/A

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Q3 FY2023 Q3 FY2022
Recurring Recurring
Revenue as Revenue as
Revenues by platform and Recurring Revenue [4] Total Recurring a % of Total Recurring a % of
In thousands of Canadian dollars, unless otherwise noted Revenues Revenue revenues Revenues Revenue revenues []
eprocurement 19,831 17,700 88.6 16,902 16,157 83.0
Unified Commerce 6,783 2,948 43.5 9,798 5,815 59.3
emarketplaces 5,038 4,080 81.0 3,952 2,980 75.4
Total 31,652 24,728 77.8 30,652 24,952 75.1
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YTD Q3 FY2023 YTD Q3 FY2022
Recurring Recurring
Revenue as Revenue as
Revenues by platform and Recurring Revenue [4] Total Recurring a % of Total Recurring a % of
In thousands of Canadian dollars, unless otherwise noted Revenues Revenue revenues Revenues Revenue revenues []
eprocurement 56,951 51,179 87.3 37,020 34,916 86.0
Unified Commerce 25,810 14,646 56.7 29,737 17,237 58.0
emarketplaces 14,303 11,408 79.8 11,548 8,552 74.1
Total 97,064 77,233 78.2 78,305 60,705 74.1
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*Recurring Revenue comparative figures have been restated.

Revenues and Recurring Revenue[4]

Revenues for Q3 FY2023 were $31.7 million, an increase of $1.0 million or 3.3% compared to $30.7 million for Q3 FY2022. On a Constant Currency[3] basis, revenues decreased by $0.4 million or 1.1% compared to Q3 FY2022. Recurring revenue[4] represents $24.7 million or 77.8% of revenues for Q3 FY2023 compared to $25.0 million or 75.1% of revenues for Q3 FY2022. Revenues for Q3 FY2023 were impacted by a fair value adjustment on Periscope deferred revenues at the closing date of the acquisition on August 31, 2021 and which resulted in a reduction in revenues of $0.1 million compared to $2.6 million for Q3 FY2022.
The eprocurement platform generated revenues of $19.8 million, an increase of $2.9 million or 17.3 % compared to $16.9 million in Q3 FY2022. The USbased eprocurement network, contributed positively to revenue growth with an increase in revenues of $2.8 million or 23.2%. Recurring Revenue[4] for the eprocurement platform represented 88.6% for Q3 FY2023 compared to 83.0% for Q3 FY2022.
The Unified Commerce platform, which included both ecommerce and Supply Chain Collaboration solutions (until the sale of InterTrade), generated revenues of $6.8 million for Q3 FY2023, a decrease of $3.0 million or 30.8% compared to $9.8 million for Q3 FY2022. The sale of InterTrade represented a decrease of $3.0 million, offset by $0.9 million in other revenue from postclosing transition services in Q3 FY2023, and professional services revenues in Orckestra decreased by $0.7 million. Recurring Revenue[4] for the Unified Commerce platform, which includes only ecommerce for Q3 FY2023 following the sale of InterTrade, represented 43.5% of platform revenues, compared to 59.3% for Q3 FY2022 which included both ecommerce and Supply Chain Solutions.

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mdf commerce inc. Management’s Discussion and Analysis

Gross margin, Net Earnings (Loss), Adjusted Net Loss[2] and Adjusted EBITDA[1] (loss)

Gross margin for Q3 FY2023 was $17.8 million or 56.3% compared to $17.2 million or 56.1% for Q3 FY2022. The increase of gross margin is mainly due to lower professional services expenses and computer and software maintenance expenses.
Net earnings were $15.1 million, or $0.34 net earnings per share (basic and diluted) for Q3 FY2023, compared to a net loss of $4.7 million, or $0.11 net loss per share (basic and diluted) for Q3 FY2022.
The increase in net earnings for Q3 FY2023 of $15.1 million compared to net loss of $89.8 million for Q2 FY2023 is mainly due to the gain on disposal of a subsidiary of $22.9 million recognized in Q3 FY2023 related to the sale of InterTrade, and to a $85.0 million goodwill impairment loss recognized in Q2 FY2023. Refer to Section 4 “Financial Highlights – Q3 FY2023” for more details.
Adjusted net loss[2] was $7.8 million or $0.18 per share (basic and diluted) in Q3 FY2023, compared to $4.7 million or $0.11 (basic and diluted) in Q3 FY2022 and compared to $4.8 million or $0.11 (basic and diluted) in Q2 FY2023.
The increase of Adjusted net loss[2] and Adjusted net loss per share[2] (basic and diluted) in Q3 FY2023 compared to Q3 FY2022 is mainly attributable to an increase of operating expenses of $1.0 million, mainly explained by lower capitalized internally developed software which increased technology expenses, an increase of foreign exchange loss of $0.6 million, an increase of termination benefits expense of $0.7 million related to workforce reduction, and an increase of transactionrelated expenses of $0.5 million related to the sale of InterTrade.
Adjusted EBITDA[1] was $0.9 million for Q3 FY2023, compared to $0.7 million for Q3 FY2022. The variance compared to Q3 FY2022 is mainly due to an increase in revenues with a positive impact on gross margins. The Periscope acquisition accounting adjustment related to the fair value of deferred revenues at the acquisition date, which resulted in a reduction of revenue of $0.1 million in Q3 FY2023 and $2.6 million in Q3 FY2022, had an unfavorable impact on gross margins, operating loss, net earnings, Adjusted EBITDA[1] and net earnings per share (basic and diluted).

Sale of InterTrade and repayment of longterm debt

On October 4, 2022, the Corporation entered into a Share Purchase Agreement with SPS Commerce, Inc. (“SPS”) and concurrently closed the transaction for the sale of all the issued and outstanding shares of InterTrade. The preliminary disposal consideration was $63.9 million (US$47.1 million), including closing cash, working capital and postclosing adjustments. The disposal consideration also includes a realized loss on foreign exchange forward contracts entered into to hedge the USD to CAD exchange rate fluctuations since the consideration was denominated in U.S. dollars. As a result of the disposal of InterTrade, the Corporation recorded a gain of $22.9 million (US$16.9 million).

The cash consideration received by the Corporation at the closing date is the agreed upon purchase price and amounts subject to customary closing adjustments including net working capital and amounts in escrow for customary indemnification purposes and transition services escrow. The transition services escrow is subject to the completion of certain transition services within 21 months following the closing of the transaction, which the Corporation expects to have completed by October 2023. Upon the completion of these transition services between the closing date of the transaction and July 2024, an escrow amount of up to $2.7 million (US$2.2 million) will be payable to the Corporation. If these transition services are completed later than July 2024, the escrow amount payable to the Corporation would be nil.

Transaction costs related to the sale of InterTrade were $0.5 million and $1.8 million respectively for the Q3 FY2023 and YTD Q3 FY2023 and are included in General and Administrative expenses in the Interim Condensed Consolidated Statements of Loss.

On October 4, 2022, the Corporation repaid the Term Facility of $21.7 million (US$16.0 million) plus accrued interest. As the Term Facility was available by way of a single use borrowing, it is no longer available to the Corporation.

On October 5, 2022, the Corporation used the balance of the net cash consideration received at closing to make a payment of $6.8 million (US$5.0 million) on the Revolving Facility drawn in US dollars and $32.0 million on the Revolving Facility drawn in Canadian dollars.

Refer to Section 8 “Liquidity and Capital Resources”.

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mdf commerce inc. Management’s Discussion and Analysis

Goodwill impairment test

For the purposes of goodwill impairment testing, the Corporation has two cashgenerating units (CGUs), the Corporation without Periscope, a wholly owned U.S. subsidiary of the Corporation acquired on August 31, 2021, and Periscope.

The goodwill recognized from the acquisition of Periscope arises mainly from the synergies with other activities of the Corporation, the economic value of the expertise of the workforce acquired as well as intangible assets that do not meet the criteria for separate recognition. The Corporation continues to execute on its plan to achieve the benefits of the acquisition of Periscope, including formalizing contractual agreements with governments, in line with its growth objectives.

A long average buying cycle in the public sector, has impacted management’s estimates of the expected timing of achieving actual revenue growth objectives, and consequently, the financial forecasts.

During Q1 FY2023 and Q2 FY2023, the U.S. Federal Reserve increased the interest rate by 125 and 150 basis points respectively.

The increases in interest rates and the decrease in forecasted cash inflows from Periscope affect the future cash flows and the discount rate used in calculating the value in use and the recoverable amount for the Periscope’s CGU. As a result, an impairment test was performed for this CGU in Q2 FY2023.

Based on this test, the carrying amount of the CGU was determined to be higher than its recoverable amount of $194.6 million and as a result, a goodwill impairment loss of $85.0 million was allocated to goodwill and recorded in Q2 FY2023. Refer to Goodwill (Note 8) to the unaudited Interim Condensed Consolidated Financial Statements for the threemonth and nine month periods ended December 31, 2022 and December 31, 2021.

There were no indicators of goodwill impairment as at December 31, 2022.

5 Consolidated Net Earnings (Loss) and Selected Financial Information

	Q3	Q3	Q3
In thousands of Canadian dollars, unless otherwise noted	FY2023	FY2022	FY2021
Revenues	31,652	30,652	21,403
Gross margin	17,832	17,202	13,412
Operating expenses	23,619	22,667	16,128
Operating loss	(5,787)	(5,465)	(2,716)
Gain on disposal of a subsidiary	22,886
Foreign exchange loss	(594)	(1)	(516)
Finance expenses	(228)	(397)	(246)
Income tax (expense) recovery	(1,194)	1,496	625
Change in fair value of purchase price contingent consideration	(1)	(306)
Net earnings (loss)	15,082	(4,673)	(2,853)
Adjusted net loss2	(7,804)	(4,673)	(2,853)
Adjusted EBITDA1	898	741	1,021
Net earnings (loss) per share – basic and diluted	0.34	(0.11)	(0.14)
Adjusted net lossper share2 – basic and diluted	(0.18)	(0.11)	(0.14)
Declared dividends per share
Weighted average number of shares outstanding
Basic and diluted (in thousands)	43,971	43,971	20,844
In thousands of Canadian dollars, unless otherwise noted	Dec. 31,	March 31,	March 31,
As at	2022	2022	2021
Total assets	341,321	463,307	276,400
Longterm debt (including current portion of longterm debt)	3,999	49,762	1,500
Other liabilities (current and noncurrent liabilities)	82,103	94,604	50,333
Total liabilities	86,102	144,366	51,833
Shareholders’ equity	255,219	318,941	224,567

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mdf commerce inc. Management’s Discussion and Analysis

6 Result of operations

Revenues

Revenues for Q3 FY2023 were $31.7 million, an increase of $1.0 million or 3.3% compared to Q3 FY2022, or a decrease of $0.4 million or 1.1% on a Constant Currency basis[3] . In comparison with Q2 FY2023, revenues for Q3 FY2023 decreased by $1.6 million or 4.7% from $33.2 million. On a Constant Currency basis[3] , revenues decreased by $2.5 million or 7.2% compared to Q2 FY2023. Revenues for Q3 FY2023 were impacted by a fair value adjustment on Periscope deferred revenues at the closing date of the acquisition and which resulted in a reduction in revenues of $0.1 million ($2.6 million for Q3 FY2022 and $0.3 million for Q2 FY2023).

Revenues for the ninemonth period ended December 31, 2022 (YTD Q3 FY2023) reached $97.1 million, an increase of $18.8 million or 24.0% compared to the ninemonth period ended December 31, 2021 (YTD Q3 FY2022) and an increase of $17.8 million or 22.4% on a Constant Currency basis[3] . Revenues for YTD Q3 FY2023 were impacted by a fair value adjustment on Periscope deferred revenues at the closing date of the acquisition and which resulted in a reduction in revenues of $1.7 million, compared to $3.6 million for YTD Q3 FY2022.

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Revenues by nature Variance Variance
In thousands of Canadian dollars, YTD Q3 YTD Q3
unless otherwise noted Q3 FY2023 Q3 FY2022 $ % FY2023 FY2022 $ %
Right of use 23,821 21,671 2,150 9.9 70,829 55,945 14,884 26.6
Professional services 5,402 5,994 (592) (9.9) 18,165 13,921 4,244 30.5
Transaction fees 711 2,433 (1,722) (70.8) 5,080 7,006 (1,926) (27.5)
Maintenance and hosting
services 206 212 (6) (2.8) 626 353 273 77.3
Other 1,512 342 1,170 342.1 2,364 1,080 1,284 118.9
Total 31,652 30,652 1,000 3.3 97,064 78,305 18,759 24.0
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Revenues from right of use reached $23.8 million for Q3 FY2023, an increase of $2.2 million or 9.9% compared to Q3 FY2022. The decrease of $1.7 million of revenues from transaction fees was partly offset by an increase from other revenue of $1.2 million compared to Q3 FY2022, which is mainly due to $0.9 million of other revenue in Q3 FY2023 related to transition services provided following the sale of InterTrade.

In comparison with Q2 FY2023, the decrease of $1.6 million or 4.7% of revenues is mainly attributable to the sale of InterTrade with revenue in Q2 FY2023 of $3.4 million compared to $0.4 million in Q3 FY2023. This revenue decrease was partly offset by the increase in other revenues of $0.9 million for transition services provided in Q3 FY2023 following the sale of InterTrade.

The increase in YTD Q3 FY2023 of revenues from right of use and from professional services of $14.9 million or 26.6% and $4.2 million or 30.5% respectively compared to YTD Q3 2022, were mainly attributable to the Periscope acquisition in August 2021 with nine months of revenue in YTD Q3 FY2023 compared to four months in YTD Q3 FY2022. The increase of $1.3 million from other revenue was partly offset by a decrease of transaction fees revenues of $1.9 million following the sale of InterTrade.

	Variance
	Q3 FY2023 Q3 FY2022 $ %	YTD Q3 FY2023 YTD Q3 FY2022 $ %
eprocurement	19,831 16,902 2,929 17.3	56,951 37,020 19,931 53.8
Unified Commerce emarketplaces	6,783 9,798 (3,015) (30.8) 5,038 3,952 1,086 27.5 31,652 30,652 1,000 3.3 24,728 24,952 77.8 75.1	25,810 29,737 (3,927) (13.2) 14,303 11,548 2,755 23.9 97,064 78,305 18,759 24.0 77,233 60,705 78.2 74.1
Total
Recurring Revenue4 Recurring Revenue as a percentage of revenues_4 (in %)_

 Revenues from the eprocurement platform reached $19.8 million during Q3 FY2023, contributing $2.9 million or 17.3% of revenue growth from $16.9 million in Q3 FY2022. The Corporation’s U.S. based revenues represented $15.1 million for Q3 FY2023 and 76.2% of total eprocurement revenue, compared to 72.5% for Q3 FY2022. Revenue from Periscope in Q3 FY2023 reached $10.3 million compared to $7.7 million in Q3 FY2022, an increase of $2.6 million explained by organic growth from new buying agencies and by an increase in paying suppliers. Revenues for Q3 FY2023 were impacted by a fair value adjustment on Periscope deferred revenues at the closing date of the acquisition on August 31, 2021 and which resulted in a reduction in revenues of $0.1 million compared to $2.6 million for Q3 FY2022.

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mdf commerce inc. Management’s Discussion and Analysis

In comparison to Q2 FY2023, revenues from the eprocurement platform increased by $0.6 million or 2.9%, from $19.3 million. The Corporation’s U.S.based revenues as a percentage of total eprocurement platform revenue increased from 74.7% from Q2 FY2023 to 76.2% for Q3 FY2023. Revenues for Q3 FY2023 were impacted by a fair value adjustment on Periscope deferred revenues at the closing date of the acquisition on August 31, 2021 and which resulted in a reduction in revenues of $0.1 million compared to $0.3 million for Q2 FY2023. A global shift to digital technologies and the COVID19 pandemic continue to drive adoption of eprocurement solutions within the public sector, as it faces a pressing need to digitally transform the procurement process to ensure business continuity. Cloudbased, endtoend solutions are becoming part of governments critical infrastructure, all of which presents a solid growth opportunity for our eprocurement platform.
In comparison to YTD Q3 FY2022, the increase of $19.9 million or 53.8% of revenues from eprocurement platform in YTD Q3 FY2023 was also mainly attributable to Periscope which included nine months in YTD Q3 FY2023 compared to four months in YTD Q3 FY2022, representing an increase in revenues of $17.9 million, as explained previously.
Revenues from the Unified Commerce platform , including ecommerce and Supply Chain Collaboration solutions (until the sale of InterTrade), was $6.8 million for Q3 FY2023, a decrease of $3.0 million or 30.8% compared to $9.8 million for Q3 FY2022. In comparison to Q2 FY2023, revenues from the Unified Commerce platform decreased by $2.5 million or 26.6%.
ecommerce, which consists of Orckestra and keCommerce solutions, represented $5.5 million of Unified Commerce revenues in Q3 FY2023, down $0.9 million or 14.2% compared to Q3 FY2022.
- Orckestra platform had a $0.9 million or 21.2% decrease in revenue compared to Q3 FY2022. Professional services revenues decreased by $0.7 million or 30.9% as a result of fewer customer deployments and system integrations, and right of use revenues decreased by $0.2 million mainly from lower transaction volumes particularly in the egrocery sector.
- keCommerce platform, revenues were stable at $2.0 million for Q3 FY2023 and Q3 FY2022.
InterTrade, which provided the Corporation’s Supply Chain Collaboration platform solution was sold on October 4, 2022 resulting in a decrease of $3.0 million, offset by $0.9 million in other revenue in Q3 FY2023 from postclosing transition services, compared to both Q3 FY2022 and Q2 FY2023.
The decrease of revenues from the Unified Commerce platform of $2.5 million or 26.6% in Q3 FY2023 over $9.2 million in Q2 FY2023, and the decrease of $3.9 million or 13.2% of revenues in YTD Q3 FY2023 in comparison to YTD Q3 FY2022, were also mainly attributable to the sale of InterTrade and lower revenues from the Orckestra platform as explained previously.
Revenues from the emarketplaces platform were $5.0 million in Q3 FY2023, an increase of $1.1 million or 27.5% from Q3 FY2022. This increase was mostly from The Broker Forum, with an increase in revenues of $1.1 million. Combined revenues from the other solutions, including Carrus Technologies, Reseau Contact, Polygon and Power Source Online were stable compared to Q3 FY2022.
The increase of $0.3 million or 6.7% over $4.7 million in Q2 FY2023 was mostly related to The Broker Forum.
In comparison to YTD Q3 FY2022, the increase of $2.8 million or 23.9% of revenues from the emarketplaces platform in YTD Q3 FY2023 was also mainly explained by an increase of revenues from The Broker Forum of $3.0 million, partly offset by a decrease of revenues from Jobboom of $0.6 million.

Gross Margin

The gross margin for Q3 FY2023 was $17.8 million or 56.3% compared to $17.2 million or 56.1% for Q3 FY2022. Gross margin in dollars increased by $0.6 million from the same quarter prior year, due mainly to the increase of revenues, mainly from the eprocurement and emarketplaces platforms, partly offset by an increase of salaries mainly related to Periscope, and by higher web hosting costs. The gross margin percentage was consistent from the same quarter prior year.

The decrease of gross margin to $17.8 million and of the gross margin percentage of 56.3% in Q3 FY2023 compared to $19.4 million or 58.3% for Q2 FY2023 is mainly attributable to the sale of InterTrade, partially offset by the increases for the eprocurement and emarketplaces platforms.

Gross margin YTD FY2023 was $55.7 million compared to $44.7 million YTD Q3 FY2022. The increase of gross margin of $11.0 million or 24.6% is also mainly attributable to the increase of revenues from the eprocurement platform, related to

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mdf commerce inc. Management’s Discussion and Analysis

Periscope which includes nine months in YTD Q3 FY2023 compared to four months in the same period of prior year, and from the emarketplaces platform.

Operating Expenses

Operating expenses in Q3 FY2023 totalled $23.6 million, an increase of $1.0 million or 4.2% compared to Q3 FY2022 of $22.7 million, and an increase of $0.3 million or 1.3% over $23.3 million in Q2 FY2023. Operating expenses in YTD Q3 FY2023 were $72.4 million, an increase of $9.1 million or 14.4% compared to YTD Q3 FY2022 of $63.3 million.

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Variance Variance
YTD Q3 YTD Q3
In thousands of Canadian dollars Q3 FY2023 Q3 FY2022 $ % FY2023 FY2022 $ %
General and administrative 6,419 6,201 218 3.5 20,180 21,603 (1,423) (6.6)
Selling and marketing 8,539 8,414 125 1.5 25,591 21,071 4,520 21.5
Technology 8,661 8,052 609 7.6 26,630 20,612 6,018 29.2
Total 23,619 22,667 952 4.2 72,401 63,286 9,115 14.4
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General and administrative expenses totalled $6.4 million in Q3 FY2023, $0.2 million or 3.5% higher compared to Q3 FY2022. This increase is mainly attributable to professional services expenses which were $0.4 million higher explained by transactionrelated professional and legal fees for the sale of InterTrade on October 4, 2022. This increase was partially offset by reduction in salaries and wages due to workforce reductions during the quarter, including from the sale of InterTrade.

Compared to Q2 FY2023, the decrease of $0.1 million or 1.0% over $6.5 million in Q2 FY2023 is mainly due to the sale of InterTrade.

Compared to YTD Q3 FY2022, the decrease of $1.4 million or 6.6% in YTD Q3 FY2023 is mainly due to lower professional fee expenses of $2.8 million, partially offset by higher wages and salaries of $0.8 million and higher computer and software maintenance of $0.4 million both mainly related to Periscope which includes nine months in YTD Q3 FY2023 compared to four months in the same period of prior year.

Selling and marketing expenses totalled $8.5 million during Q3 FY2023, $0.1 million or 1.5% higher compared to Q3 FY2022. This increase is mainly attributable higher depreciation and amortization expenses of $0.1 million.

The increase of $0.2 million or 2.1% in Q3 FY2023 over $8.4 million in Q2 FY2023 is mainly attributable to higher advertising and promotion for tradeshows.

The increase of $4.5 million or 21.5% in YTD Q3 FY2023 over $21.1 million in YTD Q3 FY2022 is mainly due to higher depreciation and amortization expenses of $2.8 million and to increased salaries and related expenses of $1.4 million, both mainly related to Periscope which includes nine months in YTD Q3 FY2023 compared to four months in the same period of prior year.

Technology expenses totalled $8.7 million in Q3 FY2023, an increase of $0.6 million or 7.6% compared to Q3 FY2022. This increase is mainly attributable to lower capitalized internally developed software of $0.5 million.

The increase of $0.2 million or 2.4% over $8.5 million in Q2 FY2023 is mainly attributable to lower capitalized internally developed software of $0.7 million partially offset by lower salary and related expenses of $0.4 million.

The increase of $6.0 million or 29.2% in YTD Q3 FY2023 over $20.6 million in YTD Q3 FY2022 is mainly due to a $3.2 million increase in salaries and related expenses, higher depreciation and amortization expenses of $1.5 million, both mainly related to Periscope which includes nine months in YTD Q3 FY2023 compared to four months in the same period of prior year, and due to lower capitalized internally development software of $1.2 million.

Operating Loss

The Corporation recorded an operating loss of $5.8 million during Q3 FY2023, compared to $5.5 million in Q3 FY2022, primarily due to the increase in operating expenses of $1.0 million, as explained previously, partially offset by higher gross margin of $0.6 million which is mainly attributable to higher revenues of $1.0 million.

Compared to Q2 FY2023, the decrease of the operating loss of $1.8 million is mainly due to lower gross margin of $1.5 million, attributable to lower revenues of $1.6 million in Q3 FY2023 and to higher operating expenses of $0.3 million, as explained previously.

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mdf commerce inc. Management’s Discussion and Analysis

The operating loss for YTD Q3 FY2023 was $16.7 million, compared to YTD Q3 FY2022 of $18.6 million. The decrease of the operating loss of $1.9 million is mainly due to higher gross margin of $10.9 million, attributable to the increase of revenues of $18.8 million, partly offset by higher operating expenses of $9.1 million, mainly explained by the increase of sales and marketing expenses and by technology expenses, as explained previously.

Operating expenses for YTD Q3 FY2022 included a federal wage subsidy in the context of COVID19 of $0.8 million while no subsidies were claimed in Q3 FY2023, Q2 FY2023 and Q3 FY2022.

Foreign Exchange

The foreign exchange loss was $0.6 million in Q3 FY2023, compared to nil in Q3 FY2022 and was a gain of $1.8 million in YTD Q3 FY2023, an increase of $1.2 million compared to YTD Q3 FY2022. These increases in foreign exchange gains were mainly due to the impact of appreciation of the U.S. dollar versus the Canadian dollar on certain transactions with the Corporation's U.S. subsidiaries and on cash and cash equivalents and longterm debt denominated in U.S. dollar of the Corporation’s Canadian subsidiaries.

Finance expenses

Finance expenses reported on a net basis, amounted to $0.2 million in Q3 FY2023 compared to $0.4 million in Q3 FY2022. Finance expenses consist primarily of interest income and expense, standby fees on longterm debt, interest expense on lease liabilities, and amortization of deferred financing costs. The decrease compared to Q3 FY2022 is mainly attributable to lower interest on longterm debt, due to repayment following the sale of InterTrade and higher interest income.

Compared to YTD Q3 FY2022, the increase of finance expense of $1.3 million in YTD Q3 FY2023 was mainly due to higher interest on longterm debt mainly attributable to financing of the acquisition of Periscope (which was mostly repaid with the net cash proceeds from the sale of InterTrade in October 2022), and to increases in interest rates in Canada and in the US.

Income Tax Recovery

For Q3 FY2023, the Corporation recorded an income tax expense of $1.2 million, representing an effective tax rate of 7.3%, compared to the statutory rate of 26.5% and to an income tax recovery of $1.5 million for Q3 FY2022 (effective tax rate of 24.3%). For YTD Q3 FY2023, the income tax expense was $0.8 million (effective tax rate of 1.0%), compared to an income tax recovery of $3.7 million in YTD Q3 FY2022 (effective tax rate of 19.5%). The differences between the statutory rate of 26.5% and the effective tax rate quarteroverquarter mainly result from the increase of unrecognized temporary differences related to operating losses and nondeductible expenses for tax purposes.

Net Earnings (Loss)

Net earnings was $15.1 million or $0.34 per share (basic and diluted) in Q3 FY2023, compared to a net loss of $4.7 million or $0.11 (basic and diluted) in Q3 FY2022 and $89.8 million or $2.04 (basic and diluted) in Q2 FY2023 respectively. For YTD Q3 FY2023, net loss was $81.0 million or $1.84 per share (basic and diluted), compared to $15.3 million or $0.43 (basic and diluted) in YTD Q3 FY2022. Net earnings of Q3 FY2023 and net loss YTD Q3 FY2023 were positively impacted by a gain on disposal of a subsidiary of $22.9 million recognized in Q3 FY2023. Refer to Section 4 “Financial Highlights – Q3 FY2023.”

The weighted average number of shares outstanding (basic and diluted) for Q3 FY2023, Q2 FY2023, and Q3 FY2022 was $44.3 million shares, compared to $35.3 million shares for YTD Q3 FY2022.

Adjusted net Loss[2]

Adjusted net loss[2] was $7.8 million or $0.18 per share (basic and diluted) in Q3 FY2023, compared to $4.7 million or $0.11 (basic and diluted) in Q3 FY2022 and compared to $4.8 million or $0.11 (basic and diluted) in Q2 FY2023.

The increase of Adjusted net loss[2] in Q3 FY2023 compared to prior comparative quarter is mainly due to higher operating expenses, foreign exchange, restructuring costs including termination benefits and from transactionrelated costs as explained previously.

Adjusted net loss[2] was $18.9 million or $0.43 per share (basic and diluted) in YTD Q3 FY2023, compared to $15.3 million or $0.43 (basic and diluted) in YTD Q3 FY2022.

Adjusted EBITDA[1 ]

Adjusted EBITDA[1] was $0.9 million for Q3 FY2023 compared to $0.7 million in Q3 FY2022 and $1.4 million in Q2 FY2023.

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mdf commerce inc. Management’s Discussion and Analysis

The increase of Adjusted EBITDA[1] of $0.2 million compared to Q3 FY2022 is due to the increase of gross margin of $0.6 million partly offset by the increase of operating expenses, mostly explained by the integration of Periscope.

The decrease of Adjusted EBITDA[1] of $0.5 million compared to Q2 FY2023 is mainly due to the decrease of gross margin and to higher operating expenses, as explained previously.

Compared to YTD Q3 FY2022, the increase of Adjusted EBITDA[1] of $2.3 million is mainly due to higher Adjusted EBITDA[1] from Periscope of $2.7 million, which contributed nine months in YTD Q3 FY2023 compared to four months in the same period of prior year.

The Periscope acquisition accounting adjustment to the fair value of deferred revenues at the acquisition date, which resulted in a reduction of revenue of $0.1 million in Q3 FY2023, $0.3 million in Q2 FY2023 and $2.6 million in Q3 FY2022, had an unfavorable impact on gross margins, operating loss, net earnings (loss), Adjusted EBITDA[1 ] and net earnings (loss) per share (basic and diluted) in the respective periods.

7 Summary of quarterly results

Selected quarterly financial information for the eight most recently completed quarters is as follows:

In thousands of Canadian dollars, unless otherwise noted	Q3 Q2 Q1	Q4 Q3 Q2 Q1	Q4
	~~FY2023~~ ~~FY2023~~ ~~FY2023~~	~~FY2022~~ ~~FY2022~~ ~~FY2022~~ ~~FY2022~~	~~FY2021~~
Revenues	31,652 33,216 32,196	29,954 30,652 25,080 22,573	22,030 (2,858) (2,858) (0.12) (0.12)
Net earnings (loss) Adjusted Net earnings (loss)2 Net earnings (loss) per share basic and diluted Adjusted Net earnings (loss) per share basic and diluted2	15,082 (89,769) (6,323) (7,804) (4,769) (6,323) 0.34 (2.04) (0.14) (0.18) (0.11) (0.14)	(8,672) (4,673) (6,308) (4,285) (8,672) (4,673) (6,308) (4,285) (0.21) (0.11) (0.19) (0.15) (0.21) (0.11) (0.19) (0.15)
Adjusted EBITDA1 (loss)	898 1,355 (1,085)	(803) 741 (402) (1,511)	221

Prior to Q3 FY2023, quarterly revenues had consistently increased since Q4 FY2021, excluding Q4 FY2022 as explained below, primarily due to growth in right of use revenues in our two core businesses eprocurement and Unified Commerce and from professional services revenues mainly to support large customer deployments. Q3 FY 2023 revenues decreased due to the sale of InterTrade and Q4 FY2022 revenues decreased due to a $2.2 million adjustment related to an update of certain assumptions used for the finalization of the purchase price accounting of the Periscope acquisition. Refer to Business Combinations (Note 6) to the Corporation’s audited consolidated financial statements for the years ended March 31, 2022 and March 31, 2021. Quarterly revenue increases were also mainly driven by the acquisitions of Periscope in August 2021 and of Vendor Registry in November 2020. Revenues were also impacted by a fair value adjustment on Periscope deferred revenues at the closing date of the acquisition and which resulted in a reduction in revenues and gross margin of $0.1 million in Q3 FY2023, $0.3 million in Q2 FY2023, $1.2 million in Q1 FY2023, $1.9 million in Q4 FY2022 and $2.6 million in Q3 FY2022.

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mdf commerce inc. Management’s Discussion and Analysis

Excluding the impairment loss recognized in Q2 FY2023 relating to Periscope and the gain on disposal of a subsidiary related to InterTrade recognized in Q3 FY2023 (section 4 “Financial Highlights – Q3 FY2023”), the variation of the net earnings (loss) over the last eight quarters is mainly due to variation of revenues and the impact on gross margin, as explained previously, offset by higher operating expenses attributable to increased salesforce, advertising and promotional activities to drive revenue growth, increased foundational investments on operations, sales and marketing, R&D and professional services to support the implementation of the strategic plan and the acquisition of Periscope in FY2022, and the transactionrelated costs related to both the acquisition of Periscope and the disposal of InterTrade. Finally, the evolution of the U.S. dollar against the Canadian dollar also positively impacted the net earnings (loss) over the last eight quarters, more significantly in Q2 FY2023, Q1 FY2023 and Q3 FY2022.

The evolution of net earnings (loss) per share over the last eight quarters is attributable to the variation of net earnings (loss), as explained previously, and by the issuances of common shares quarteroverquarter, specifically in Q2 FY2022 for 15,566,877 common shares issued, in Q4 FY2021 for 5,517,242 common shares issued and in Q3 FY2021 for 4,780,550 common shares issued.

Adjusted EBITDA[1] evolution over the last eight quarters is due to the variation of the gross margin and by the impacts on operating expenses of foundational investments in operations, sales and marketing, R&D, and professional services to support the Corporation in implementing its strategic initiatives, transformation plan and to support large deployments of client contracts, offset by realized operating efficiencies. In the last two quarters we see the results of the ongoing operational efficiency efforts mainly as a result of workforce reductions.

8 Liquidity and Capital Resources

The Corporation’s capital management objective is to ensure it has sufficient liquidity to pursue its organic growth strategy, to make selective acquisitions, and to provide an appropriate return on investment to its shareholders. When necessary, the Corporation may borrow on its Revolving Facility or issue new shares to fund its additional cash requirements and business acquisitions.

To accomplish its stated objectives, the Corporation establishes longterm strategic and operating plans which includes financial forecasts. The Corporation’s capital management strategy and liquidity adequacy is assessed by monitoring the expected cash inflows and outflows, which is achieved through a forecast of the Corporation’s consolidated liquidity position. The sufficiency of capital resources is assessed in view of stresstests, growth requirements, capital expenditures, and available credit facilities, working capital requirements, and compliance with financial covenants.

Based on financial forecasts, the Corporation has sufficient capital resources available to maintain its capacity to meet working capital requirements and financial commitments, to support the Corporation’s planned growth, fund the activities of its business plan, maintain an appropriate level of capital spending, and comply with financial covenants required by the Credit Agreement (refer to “LongTerm Debt” below).

Other than the financial ratios described under the heading Long-term Debt , and required by a financial institution, the Corporation’s is not subject to any externally imposed capital requirements. The Corporation does not currently use any quantitative measures to manage its capital.

Summary of the Consolidated Statements of cash Flows

	Q3	Q3	YTD Q3	YTD Q3
In thousands of Canadian dollars	FY2023	FY2022	FY2023	FY2022
Net cash inflow (outflow) from operating activities	(2,805)	13,556	(18,766)	918
Net cash inflow (outflow) from investing activities	59,903	(1,531)	58,028	(231,108)
Net cash (outflow) inflow from financing activities	(61,445)	(1,081)	(51,976)	147,082
Net increase (decrease) in cash and cash equivalents	(4,347)	10,944	(12,714)	(83,108)
Effect of foreign exchange rate changes on cash and cash equivalents	(43)	104	1,903	(226)
Cash and cash equivalents at beginning of periods	20,108	16,400	26,529	110,782
Cash and cash equivalents at end of periods	15,718	27,448	15,718	27,448
Cash and cash equivalents consist of the following statement
of financial position items:
Cash and cash equivalents	6,098	8,242	6,098	8,242
Cash held for the benefit of thirdparties	9,620	19,206	9,620	19,206

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mdf commerce inc. Management’s Discussion and Analysis

Cash from Operating activities

The higher cash outflow in Q3 FY2023 compared to Q3 FY2022 was mainly attributable to the increase of cash outflow from other accounts payable of $14.0 million, as explained hereafter, to the decrease of cash inflow from trade and other receivables and deferred revenues of $2.8 million and $3.8 million respectively.

The higher cash outflow in YTD Q3 FY2023 compared to YTD Q3 FY2022 was mainly attributable to the increase of cash outflow from other accounts payable of $29.0 million, as explained hereafter, offset by the decrease of cash outflow from accounts payable and accrued liabilities of $9.6 million.

The $14.0 million decrease of other accounts payable from the escrow service provided by a subsidiary of the Corporation in Q3 FY2023 compared to Q3 FY2022 (decrease of $29.0 million for YTD Q3 FY2023 compared to YTD Q3 FY2022), is exactly offset by the change in cash held for the benefit of third parties under an escrow arrangement (refer to Cash held for the benefit of third parties in note Supplementary statements of earnings (loss) and cash flow information (Note 14a) to the Corporation’s interim condensed consolidated financial statements for the threemonth and ninemonth periods ended December 31, 2022 and 2021).

Investing Activities

Net cash inflow from investing activities totalled $59.9 million for Q3 FY2023, compared to net cash outflow of $1.5 million during Q3 FY2022, and net cash inflow of $58.0 million for YTD Q3 FY2023, compared to net cash outflow of $231.1 million in YTD Q3 FY2022. The net cash inflow in Q3 FY2023 and YTD Q3 FY2023 are mostly due to the proceeds on disposal of InterTrade. The net cash outflow in YTD Q3 FY2022 was primarily due to the $227.2 million cash consideration paid at the closing of the Periscope acquisition in August 2021.

Financing Activities

Net cash outflow from financing activities was $61.4 million in Q3 FY2023 compared to $1.1 million in Q3 FY2022. This increase of net cash outflow of $60.3 million is explained by the repayment of longterm debt of $60.5 million at the closing of the sale of InterTrade.

For YTD Q3 FY2023, net cash outflow from financing activities was $52.0 million compared to net cash inflow of $147.1 million in YTD Q3 FY2022. This increase of net cash outflow of $199.1 million compared to YTD Q3 FY2022 is mainly explained by the repayment of longterm debt of $60.5 million at the closing of the sale of InterTrade, offset by cash inflow from the Periscope acquisition in August 2021 whereby the Corporation financed the acquisition by the issuance of common shares for cash of $114.2 million in Q2 FY2022 and by borrowing on the Revolving Facility of $43.9 million, partly offset by the decrease of repayment of Revolving Facility of $20.0 million.

No dividends were paid in YTD Q3 FY2023 or YTD Q3 FY2022. The Corporation’s current policy is to reinvest excess cash in the strategy aimed at increasing the Corporation’s growth and future development.

Longterm Debt

On August 31, 2021, the Corporation and Tim USA Inc., a whollyowned subsidiary of the Corporation, entered into a new credit agreement (the “Credit Agreement”) with a Canadian financial institution under which the lender has provided a threeyear secured revolving facility (the “Revolving Facility”) of up to $50 million with an accordion amount on the Revolving Facility up to $20 million subject to the lender’s approval, and a nonrevolving credit facility (the ‘’Term Facility’’) of up to US$16 million. The Credit Agreement matures on August 31, 2024, and any unpaid amounts are due in full at maturity.

During Q2 FY2023, the Corporation initiated proactive discussions with the lender and on August 11, 2022, a second amendment to the Credit Agreement was executed, and provided for a reset of the fixed charge coverage ratio from 1.20:1.00 to 0.50:1.00 for the threemonth periods ended September 30, 2022, December 31, 2022 and March 31, 2023. This amendment included modifications to the applicable margin and interest rates.

On October 4, 2022, simultaneous to the closing of the sale of InterTrade (Section 4 “Financial Highlights – Q3 FY2023”), a third amendment to the Credit Agreement was executed, which provides for i) a waiver of the fixed charge coverage ratio, which was replaced with a minimum EBITDA[1] (as defined in the Credit Agreement) of zero calculated quarterly, for the threemonth periods ended December 31, 2022, March 31, 2023 and June 30, 2023, and that, until June 30, 2023, and ii)

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mdf commerce inc. Management’s Discussion and Analysis

requires the approval of the lender for the use of funds as it relates to borrowings in excess of $30 million. As at July 1, 2023 and thereafter, the fixed charge coverage ratio must be equal to or exceed 1.20:1.00.

Revolving Facility

The maximum amount available under the Revolving Facility is calculated monthly using a percentage of the balance of eligible accounts receivable (as defined in the Credit Agreement), and on a multiple of the Corporation’s monthly recurring revenue (as defined in the Credit Agreement), up to a maximum amount of $50 million. As at December 31, 2022, the maximum borrowing base under the Revolving Facility was $48.9 million.

Borrowings under the Revolving Facility can be made by way of the following options: i) prime rate ii) US dollar base rate loans; iii) bankers’ acceptances; iv) LIBOR; and v) letters of credit up to a maximum amount of $5 million and for a term not exceeding one year.

Borrowings under the Revolving Facility bear interest at rates varying according to the chosen option, plus a margin based on the rate of use of the Revolving Facility. The Revolving Facility bears interest at a rate based on either prime or U.S. base rate, or U.S. prime plus a margin of 0.50% to 1.25% to December 31, 2022, 1.50% to 2.25% from January 1, 2023 to March 31, 2023 and 0.50% to 0.75% as of April 1, 2023 and thereafter. Bankers’ acceptances and LIBOR loans bear interest at rate plus margin of 1.75% to 2.50% to December 31, 2022, 2.75% to 3.50% from January 1, 2023 to March 31, 2023 and 1.75% to 2.00% as of April 1, 2023 and thereafter.

The unused portion of the Revolving Facility bears standby fees at rates from 0.35% to 0.56% until December 31, 2022, 0.55% to 0.79% from January 1, 2023 to March 31, 2023 and from 0.35% to 0.45% from April 1, 2023 and thereafter.

On October 5, 2022, the Corporation used the balance of the net cash consideration received at the closing of the sale of InterTrade to make a payment of $6.8 million (US$5.0 million) on the Revolving Facility drawn in US dollars and $32.0 million on the Revolving Facility drawn in Canadian dollars.

As at December 31, 2022, $4.5 million was drawn on the Revolving Facility in Canadian dollars and nil was drawn on the Revolving Facility in U.S. dollars.

Term Facility

All obligations under the Credit Agreement are secured by a firstranking lien on substantially all of the Corporation’s consolidated assets, tangible and intangible, present and future during the term of the Credit Agreement.

Financial and restrictive covenants

The Credit Agreement contains certain financial and restrictive covenants customary for loans of this nature, including certain limitations to the amounts of investments, acquisitions, dispositions or sale of assets or equity interest in subsidiaries, debt, capital expenditures and distributions. As at December 31, 2022 and 2021, the Corporation is in compliance with the financial ratios and restrictive covenants as set out in the Credit Agreement and related amendments.

The Corporation evaluates the risk that is inherent in forecasts, that financial results may not materialize as planned, and for which significant differences could result in noncompliance with financial covenants as set out in the Credit Agreement.

Based on current projections, Management believes that the Corporation has sufficient capital resources available to maintain its capacity to meet working capital requirements, to support the Corporation’s planned growth, fund the activities of its business plan, and maintain an appropriate level of capital spending. Refer to Capital management (Note 15) to the unaudited Interim Condensed Consolidated Financial Statements for the three and ninemonth periods ended December 31, 2022 and December 31, 2021 for more details on the Corporation’s capital management objectives.

Financial Position

The Corporation is able to meet its financial obligations as they come due. As at December 31, 2022, the Corporation had cash and cash equivalents of $6.1 million ($6.0 million as at March 31, 2022), excluding cash held for the benefit of the third parties.

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mdf commerce inc. Management’s Discussion and Analysis

The following table presents selected financial information from the Interim Condensed Consolidated Statements of Financial Position.

In thousands of Canadian dollars	December 31, 2022	March 31, 2022	Variance	Explanations of variances
Cash and cash equivalents	6,098	5,985	113	Variance not significant
Cash held for the benefit of thirdparties	9,620	20,544	(10,924)	Variance due to timing and volume of transactions of the escrow service offered bya subsidiaryof the Corporation(1)
Trade and other receivables	13,889	10,391	3,498	Increase of $2.7 million attributable to the receivable from escrow related to the transition services on the sale of InterTrade (Section 4)
Unbilled receivables	22,201	15,940	6,261	Increase due to revenues generated from the TRX model agreements with certaingovernment eprocurement customers
				Decrease is due to cash received for prior year R&D and e
				business tax credits and by a reduction in tax credits recognized
Tax credits receivable	9,771	13,585	(3,814)	for InterTrade subsequent to the sale of the business (Section 4),
				partially offset by additional tax credits recognized YTD Q3
				FY2023
Acquired intangible assets	89,627	91,907	(2,280)	Decrease to due to amortization of $9.1 million, offset by the appreciation of the U.S. dollar against the Canadian dollar resultingin a foreign exchange difference of$6.8 million
				Decrease attributable to the goodwill impairment loss recognized
				in Q2 FY2023 related to Periscope of $85.0 million (Section 4) and
Goodwill	166,114	273,397	(107,283)	to the derecognition of $37.7 million on disposal of InterTrade (Section 4) in Q3 FY2023, partly offset by the appreciation of the
				U.S. dollar against the Canadian dollar resulting in a foreign
				exchange difference of$15.4 million
Other	24,001	31,558	(7,557)	Decrease mainly due to amortization and depreciation expenses in YTDQ3 FY2023 and to variations in workingcapital items
Total assets	341,321	463,307	(121,986)
Accounts payable and accrued liabilities	18,889	21,193	(2,304)	Decrease mainly due to the sale of InterTrade (Section 4) and other variances are mainly related to timing of payments to suppliers
Other accounts payable	9,620	20,544	(10,924)	Variance due to timing and volume of transactions of the escrow service offered bya subsidiaryof the Corporation(1)
				Increase primarily attributable to the increase of deferred
				revenues related to Periscope of $2.8 million, to postclosing
Deferred revenue	33,928	29,253	4,675	transition services related to the sale of InterTrade (Section 4),
				and to the appreciation of the U.S. dollar against the Canadian
				dollar
Longterm debt	3,999	49,762	(45,763)	Decrease due to use of proceeds from the sale of InterTrade to repay longterm debt in Q3 FY2023 (Section 4)
Lease liabilities	8,051	9,752	(1,701)	Variance not significant
Other	11,615	13,862	(2,247)	Variance not significant
Total liabilities	86,102	144,366	(58,264)
				Refer to the Corporation’s Interim Condensed Consolidated
				Statements of Changes in Shareholders’ Equity in the Interim
Shareholders’ equity	255,219	318,941	(63,722)	Condensed Consolidated Financial Statements for the three and
				ninemonth periods ended December 31, 2022 and
				December 31,2021

(1) Refer to the notes Significant accounting policies (Note 3), Cash held for the benefit of third parties (Note 10) and Supplementary statements of loss and cash flow information (Note 23) to the Corporation’s audited consolidated financial statements for the years ended March 31, 2022 and 2021 and Supplementary statements of loss and cash flow information (Note 14a) to the Corporation’s interim condensed consolidated financial statements for the threemonth and ninemonth periods ended December 31, 2022 and 2021.

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mdf commerce inc. Management’s Discussion and Analysis

9 Derivative Financial Instruments

In the normal course of business, the Corporation is exposed to certain financial risks. The Corporation uses derivative financial instruments to manage its exposure to risks and not for speculative purposes. The nature and the extent of the risks arising from the financial instruments and their related risk management are described in Financial Risk Management (Note 25) to the Corporation’s audited consolidated financial statements for the years ended March 31, 2022 and 2021.

As at December 31, 2022, the Corporation has open foreign currency forward contracts with the following conditions:

	December 31,	March 31,
Inthousands of Canadian dollars, unless otherwise noted	2022	2022
Notional amount US$	700	4,875
Weightedaverage foreign exchange rate (US$/CA$)	1.2595	1.2553
Maturity dates (fiscal years)	2023	2023

In Q2 FY2023, the Corporation entered into foreign exchange forward contracts to manage the currency fluctuation risk associated with the consideration related to the sale of InterTrade (Section 4 “Financial Highlights – Q3 FY2023”) which was denominated in U.S. dollars. These contracts were designated as cash flow hedges and satisfied the requirements for hedge accounting. The effective portion of changes in the fair value of these contracts was recognized in other comprehensive income and accumulated in a hedging reserve until the contracts came to maturity in October 2022. The Corporation recorded a realized net loss of $0.8 million on these contracts, which was included in the consideration received on the sale of InterTrade.

During the Q3 FY2023 there was no significant changes to the nature of risks arising from financial instruments, related risk management and classification of financial instruments. Furthermore, there was no change in the methodology used in determining the fair value of the financial instruments measured at fair value in the Corporation’s Interim Condensed Consolidated Statements of Financial Position as at December 31, 2022 and December 31, 2021. For additional details, refer to Financial Risk Management (Note 16) to the unaudited Interim Condensed Consolidated Financial Statements for the three and ninemonth periods ended December 31, 2022 and December 31, 2021.

10 Risk Factors and Uncertainties

The Corporation is confident of its longterm prospects. However, in order to ensure that its strategy and growth objectives are met, the Corporation seeks to diminish the risks and uncertainties created by potentially unfavourable situations in its industry sector or its liquidity. The risk that the Corporation faces is technological, operational or financial in nature or is inherent to its business activities or its acquisition strategies. Other than the risks and uncertainties relating to Macroeconomic factors described in the “3 Business overview” section, the description of these risks and uncertainties has not changed as compared to the those disclosed in “Risk Factors and Uncertainties” sections of MD&A and the Annual Information Form as at March 31, 2022. Included hereafter are the most significant risks and uncertainties related to Periscope and the TRX model, as disclosed in “Risk Factors and Uncertainties” section of the MD&A for the quarter and the year ended March 31, 2022.

Transaction fee model (“TRX model”)

The Corporation uses a TRX model agreement with certain of its government eprocurement customers. Under the TRX model agreement, the Corporation derives transaction fee revenue: it provides software as a service (SaaS) and professional services to customers. Under the TRX model agreement and in accordance with IFRS, the Corporation’s revenues are based on the total contract value (“TCV”), which represents the total convenience fee expected to be collected. The TCV is a significant estimate based on a percentage of the customer’s spend (which is estimated based on historical purchases of goods and services and estimated growth from customers over the contract term) on eligible goods and services over the contract term.

Revenue recognized based on the TCV involves management judgement and significant assumptions including determining the contract term, estimating the amount and timing of government agency spend on eligible goods and services on which the convenience fees are estimated over the term of the contract, actual reported spend, as well as the collectability of convenience fees from suppliers. In addition, after the initial determination of the TCV at inception of the contract, the TCV can change for various reasons, including as a result of a government customer terminating its contract without cause. See "Uncertainties Presented by Business with Government Customers” further in this section.

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mdf commerce inc. Management’s Discussion and Analysis

Given the foregoing, and since the TCV, underlying key assumptions, and progress of completion of the performance obligations and collectability of convenience fees under the terms of contracts with customer are reassessed at each financial reporting period end, we may, in certain circumstances, have to apply changes to the TCV, which changes may result in additional revenues recognition or a reduction of previously recognized revenue. Any such reduction of previously recognized revenues could have an adverse effect on our business, financial condition and results of operations.

For further information on the transaction fee model (TRX model), including the TRX model agreement used by the Corporation, refer to Note 3 of the Corporation’s audited consolidated financial statements for the years ended March 31, 2022 and March 31, 2021.

Uncertainties presented by business with government customers

Further to the acquisition of Periscope, the Corporation derives an important portion of its revenue from government contracts. Government contracts generally can present risks and challenges not present in private commercial agreements. For instance, the Corporation may be subject to government audits and investigations relating to these contracts, could be suspended or debarred as a governmental contractor, could incur civil and criminal fines and penalties, and in certain circumstances government contracts may be rescinded. Some agreements may allow a government to terminate without cause and provide for higher liability limits for certain losses. Some contracts may be subject to periodic funding approval, reductions, or delays which could adversely impact publicsector demand for our products and services. These events could have an adverse effect on our business, financial condition, and results of operations.

11 Non-IFRS Financial Measures and Key Performance Indicators

NonIFRS Financial Measures

The nonIFRS financial measures provide investors with additional insight into our operating and financial performance. The Corporation considers nonIFRS financial measures to be key additional measures assessing operating and financial performance since they highlight trends in our main business activities that may not otherwise be apparent when relying solely on IFRS measures. Securities analysts, investors and other interested parties frequently use nonIFRS financial measures to assess entities, many of which present nonIFRS financial measures when reporting their results. Management also uses nonIFRS financial measures to facilitate comparisons of operating and financial performance between periods in order to prepare annual budgets and assess our ability to repay our debt and capital expenditures, as well as meet our working capital needs.

NonIFRS financial measures are not recognized under IFRS. They do not have a standardized meaning under IFRS and may not be comparable to similar measures presented by other corporations. These nonIFRS financial measures have significant limitations as analytical tools and the reader should not consider them alone or as a substitute in analyzing the Corporation’s results as reported in accordance with IFRS. Due to these limitations, we are relying primarily on our results as reported in accordance with IFRS and are only using nonIFRS financial measures to provide additional information.

EBITDA is calculated as profit (loss) before interest, taxes, depreciation and amortization (“EBITDA”). The Corporation believes that EBITDA is a meaningful measurement since it is a key measure used to evaluate performance at a consolidated level. EBITDA is commonly reported and widely used by investors and lending institutions as an indicator of a company’s operating performance. EBITDA should not be considered as an alternative to net income (loss) in measuring performance, nor should it be used as a measure of cash flow.

Adjusted EBITDA

Adjusted EBITDA is calculated as EBITDA, adjusted for foreign exchange gain (loss), gain (loss) on the sale of a subsidiary, impairment loss on intangible assets (including goodwill), sharebased compensation, transactionrelated costs (including transaction costs on divestitures), restructuring costs, and change in fair value of purchase price contingent consideration.

In Q2 FY2023, the Corporation amended the definition of Adjusted EBITDA to adjust for impairment loss on intangible assets (including goodwill), since it is considered to relate to noncore activities. Comparative figures prior to September 30, 2022, for Adjusted EBITDA did not require restatement since there were no such impairment losses.

In Q4 FY2021, the Corporation amended the definition of Adjusted EBITDA to adjust for transactionrelated costs and restructuring costs since they are not representative of continuing operational costs or core business activities. Comparative figures prior to March 31, 2021, for Adjusted EBITDA have been restated to be consistent with the current presentation.

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mdf commerce inc. Management’s Discussion and Analysis

The Corporation believes that Adjusted EBITDA is a meaningful measurement since it allows us to assess our operating performance and financial position between periods without the variances created by the impact of the abovenoted items. The Corporation believes that those measures are important supplemental measures because they eliminate items that are less indicative of our core business performance and could potentially distort the analysis of trends in our operating performance and financial position. The Corporation considers these nonIFRS financial measures, in addition to the financial measures prepared in accordance with IFRS, enable investors to evaluate the Corporation's operating results, underlying performance, and future prospects in a manner similar to management.

The Corporation’s main business activities consist in providing software as a service (SaaS) solutions. The losses or gains on the sale of a subsidiary and impairment loss on intangible assets, including goodwill, are considered to relate to noncore activities. Sharebased compensation is adjusted when it will be settled in newly issued treasury shares upon vesting. Transactionrelated costs are legal and other professional fees associated with business combinations that are not representative of continuing operational costs or part of core operating activities. Restructuring costs relate to corporate reorganizations, following business combinations or other transactions, and include legal, professional fees, and termination and other salaryrelated expenses associated with these activities which are not representative of continuing operational costs or core business activities. Purchase price contingent consideration is part of total purchase consideration on a business combination and may be payable upon the achievement of predetermined conditions. Payments that form part of purchase consideration on a business combination are not representative of the continuing operations costs or core business activities. The Corporation believes that the exclusion of transactionrelated, restructuring costs, and purchase price contingent consideration will also better aid readers of the financial statements in the understanding and comparability of the Corporation’s operating results and underlying trends. The Corporation does not include these items because they affect the comparability of financial results between periods and may potentially distort the analysis of performance trends for the Corporation’s ordinary activities. Excluding these items does not necessarily mean that they are nonrecurring.

Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by revenues.

Adjusted net profit (loss) refers to net profit (loss), adjusted for the gain (loss) on the sale of a subsidiary and impairment of intangible assets (including goodwill) net of related taxes. Adjusted net profit (loss) per share (basic) represents adjusted net profit (loss) divided by the weighted average number of shares outstanding during the period. Adjusted net profit (loss) per share (diluted) represents adjusted net profit (loss) divided by the diluted weighted average number of shares outstanding during the period. The Corporation believes that adjusted net profit (loss) and adjusted net profit (loss) per share (basic and diluted) are meaningful measurements since they make it possible to assess the Corporation’s overall performance between periods without the variances caused by the impacts of the abovenoted items. The Corporation does not include these items because they affect the comparability of financial results between periods and may distort the analysis of performance trends. Excluding these items does not necessarily mean that they are nonrecurring.

Constant Currency basis

Certain revenue figures and changes from prior period are analyzed and presented on a Constant Currency basis and are obtained by translating revenues from the comparable period of the prior year denominated in foreign currencies at the foreign exchange rates of the current period. The Corporation believes that this nonIFRS financial measure is useful to compare its performance that excludes certain elements prone to volatility.

NonIFRS measures are reconciled with the most comparable IFRS measures in the tables below.

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mdf commerce inc. Management’s Discussion and Analysis

Reconciliation of net earnings (loss), EBITDA (loss) and Adjusted EBITDA (loss)

In thousands of Canadian dollars, unless otherwise noted Q3 Q2 Q1 FY2023 FY2023 FY2023	Q4 Q3 Q2 Q1	Q4	YTD Q3 YTD Q3
	FY2022 FY2022 FY2022 FY2022	FY2021	FY2023 FY2022
Net earnings (loss) 15,082 (89,769) (6,323)	(8,672) (4,673) (6,308) (4,285)	(2,858)	(81,010) (15,266)
Income tax expense (recovery) 1,194 293 (669)	777 (1,496) (1,371) (826)	(704)	818 (3,693)
Depreciation of property and equipment and amortization of intangible assets 1,018 1,119 967	1,038 1,083 1,019 900	1,155	3,104 3,002
Amortization of acquired intangible assets 3,128 3,025 2,966	2,963 2,920 1,337 882	1,014	9,119 5,139
Amortization of right of use assets 566 591 559	598 602 506 489	437	1,716 1,597
Finance expenses 228 1,060 623	659 397 254 (5)	107	1,911 646
EBITDA(loss) 21,216 (83,681) (1,877)	(2,637) (1,167) (4,563) (2,845)	(849)	(64,342) (8,575) (22,886) 85,000 (1,793) (569) 470 824 2,498 2,392 2,221 4,756
Gain on disposal of a subsidiary (22,886) Goodwill impairment loss - 85,000 Foreign exchange loss (gain) 594 (1,780) (607) Sharebased compensation 47 202 221 Restructuring costs 1,418 809 271 Transactionrelated costs 509 805 907	286 1 (1,397) 827 247 306 319 199 800 1,552 611 229 501 49 4,628 79	171 124 723 52
Adjusted EBITDA(loss) 898 1,355 (1,085)	(803) 741 (402) (1,511)	221	1,168 (1,172)

Reconciliation of net earnings (loss) and Adjusted net loss

In thousands of Canadian dollars, unless otherwise noted Q3 Q2 Q1 FY2023 FY2023 FY2023	Q4 Q3 Q2 Q1	Q4	YTD Q3 YTD Q3
	FY2022 FY2022 FY2022 FY2022	FY2021	FY2023 FY2022
Net earnings (loss) 15,082 (89,769) (6,323)	(8,672) (4,673) (6,308) (4,285)	(2,858)	(81,010) (15,266)
Gain on disposal of a subsidiary (22,886)			(22,886)
Goodwill impairment loss - 85,000			85,000
Adjusted net loss (7,804) (4,769) (6,323)	(8,672) (4,673) (6,308) (4,285)	(2,858)	(18,896) (15,266) 43,971 35,335 (1.84) (0.43)
Weighted average number of shares outstanding: Basic and diluted(in thousands) 43,971 43,971 43,971	43,971 43,971 33,536 28,404	23,874
Net earnings (loss) per share – basic and diluted (in $) 0.34 (2.04) (0.14)	(0.21) (0.11) (0.19) (0.15)	(0.12)
Adjusted net loss per share – basic and diluted(in$) (0.18) (0.11) (0.14)	(0.21) (0.11) (0.19) (0.15)	(0.12)	(0.43) (0.43)

Reconciliation of revenues on a Constant Currency basis

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----- Start of picture text -----

In thousands of YTD Q3 YTD Q3
Canadian dollars Q3 FY2023 Q3 FY2022 Var. $ Var. % Q3 FY2023 Q2 FY2023 Var. $ Var. % FY2023 FY2022 Var. $ Var.%
Revenues 31,652 30,652 1,000 3.3 31,652 33,216 (1,564) (4.7) 97,064 78,305 18,759 24.0
Constant Currency impact 1,356 (1,356) 897 (897) 986 (986)
Revenues in Constant
31,652 32,008 (356) (1.1) 31,652 34,113 (2,461) (7.2) 97,064 79,291 17,773 22.4
Currency
----- End of picture text -----

Key Performance Indicators

The Corporation refers to certain key performance indicators described below in this MD&A and other communications. These performance indicators are not likely to be comparable to similar indicators presented by other corporations. The reader is advised that these indicators are being presented to complement, rather than replace, the analysis of financial results in accordance with IFRS. Management uses both IFRS and nonIFRS measures to plan, monitor and assess the Corporation’s performance.

Recurring Revenue and Monthly Recurring Revenue (MRR) are composed of revenues in respect of which subscriptions, licensing, maintenance, and hosting services provide access to goods and services with cyclical billing frequencies. Recurring Revenue is a subset of revenues as determined in accordance with IFRS. The recurring revenue portion of the Corporation’s revenues is generally stable period over period. MRR disclosed as a percentage represents monthly recurring revenue as a percentage of revenues, adjusted to include revenues related to fair value adjustments on Periscope deferred revenues at the closing date of the acquisition.

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mdf commerce inc. Management’s Discussion and Analysis

12 New and revised IFRS, issued but not yet effective

Adopted in the current period

Effective on April 1, 2022, the Corporation adopted the following accounting amendments. The adoption of these standards did not have a material impact on financial results and are not expected to have a material impact in the future. Refer to New and revised IFRS, issued but not yet effective (Note 3) of the unaudited Interim Condensed Consolidated Financial Statements for the three and ninemonth periods ended December 31, 2022 and December 31, 2021 for additional details.

Amendments to IFRS 3, Business Combinations: Add a requirement that, for obligations within the scope of IAS 37, the IAS 37 should by applied to determine whether at the acquisition date a present obligation exists as a result of past events and clarify existing guidance by explicitly prohibiting the recognition of contingent assets in a business combination.
Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets: Specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’ when assessing whether a contract is onerous.
Amendments to IAS 16, Property, Plant and Equipment: Prohibit the deduction from the cost of property, plant and equipment of any proceeds from selling items produced before the asset is available for use.

Issued but not yet effective

The IASB has issued the following new amendments to existing standards that will become effective in future years:

Amendments to IAS 1, Presentation of Financial Statements: Clarify that the classification of liabilities as either current or noncurrent should be based on the entity’s rights at the end of the reporting period and make clear the link between the settlement of the liability and the outflow of the entity’s resources (April 1, 2023).
Amendments to IAS 1, Presentation of Financial Statements: Disclosure of Accounting Policies, requiring entities to disclose material, instead of significant, accounting policy information (April 1, 2023).
Amendments to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors: Introduce the definition of an accounting estimate and include other amendments to IAS 8 to help entities distinguish changes in accounting estimates from changes in accounting policies (April 1, 2023).
Amendments to IAS 12, Income Taxes: Clarify the accounting for deferred tax on transaction that, on initial recognition, give rise to equal taxable and deductible temporary differences (April 1, 2023).

The Corporation has not early adopted these amendments and is currently assessing the impact of these changes on its consolidated financial statements. For additional details, refer to New and revised IFRS, issued but not yet effective (Note 3) to the unaudited Interim Condensed Consolidated Financial Statements for the three and ninemonth periods ended December 31, 2022 and December 31, 2021.

13 Internal Controls and Procedures

The President and Chief Executive Officer and the Chief Financial Officer, together with management, are responsible for establishing and maintaining adequate Disclosure Controls and Procedures and Internal Controls over financial reporting, as defined in National Instrument 52109 Certification of Disclosure in Issuers’ Annual and Interim Filings (National Instrument 52109), issued by the Canadian Securities Administrators.

During Q3 FY2023, there were no changes to the Corporation’s internal control over financial reporting that have affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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mdf commerce inc. Management’s Discussion and Analysis

14 Additional Information

The authorized share capital consists of an unlimited number of common shares and an unlimited number of preferred shares, all without par value. As at February 10, 2023, there were 43,970,943 common shares issued and outstanding and no preferred shares outstanding.

Additional information about the Corporation, including the Corporation’s most recent audited consolidated annual financial statements and Annual Information Form, is available on SEDAR at www.sedar.com.

Market and Ticker Symbol

The Corporation’s common shares trade on the Toronto Stock Exchange (the "TSX") under the ticker symbol “MDF.”

Head Office

1111 StCharles Street West, Suite 255 Longueuil, Quebec, Canada J4K 5G4 Tel.: 4504490102 Fax: 4504498725 www.mdfcommerce.com

Board of Directors

Pierre Chadi Quebec, Canada Chair of the Board of the Corporation Corporate Director

Mary-Ann Bell, ASC Quebec, Canada Corporate Director

Luc Filiatreault Quebec, Canada President and CEO, mdf commerce inc. Brian Nelson Connecticut, United States Partner, Portfolio Manager, Long Path Partners

Lester Fernandes Quebec, Canada Chief Executive Officer of Segovia Capital Ltd

Transfer agent and auditor

Computershare Investor Services Inc . Deloitte LLP 1500 RobertBourassa Blvd, Suite 700, 1190 Avenue des Canadiens de Montréal Montreal, Quebec, Canada H3A 3S8 Montreal, Quebec, Canada H3B 0M7 Tel.: 5149827888 Fax: 5149827580 Tel.: 5143937115 Fax: 5143904100 www.computershare.com www.deloitte.ca

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mdf commerce inc. Management’s Discussion and Analysis

AI assistant

NextSource Materials Inc. — Interim / Quarterly Report 2023

46104_rns_2023-02-13_0915cb4b-0d85-4b62-b6b1-5af0fc2f8912.pdf

Management’s Discussion and Analysis

Management’s Discussion and Analysis

1 Basis of presentation

2 Forward-Looking Statements

3 Business overview

Overview

Outlook

Previously provided forward-looking financial information

Macro-economic factors

4 Financial Highlights – Q3 FY2023

Revenues and Recurring Revenue[4]

Sale of InterTrade and repayment of long­term debt

Goodwill impairment test

5 Consolidated Net Earnings (Loss) and Selected Financial Information

6 Result of operations

Revenues

Gross Margin

Operating Expenses

Operating Loss

Foreign Exchange

Finance expenses

Income Tax Recovery

Net Earnings (Loss)

Adjusted net Loss[2]

Adjusted EBITDA[1 ]

7 Summary of quarterly results

8 Liquidity and Capital Resources

Summary of the Consolidated Statements of cash Flows

Cash from Operating activities

Investing Activities

Financing Activities

Long­term Debt

Revolving Facility

Term Facility

Financial and restrictive covenants

Financial Position

9 Derivative Financial Instruments

10 Risk Factors and Uncertainties

Transaction fee model (“TRX model”)

Uncertainties presented by business with government customers

11 Non-IFRS Financial Measures and Key Performance Indicators

Non­IFRS Financial Measures

Adjusted EBITDA

Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by revenues.

Constant Currency basis

Reconciliation of net earnings (loss), EBITDA (loss) and Adjusted EBITDA (loss)

Reconciliation of net earnings (loss) and Adjusted net loss

Reconciliation of revenues on a Constant Currency basis

Key Performance Indicators

12 New and revised IFRS, issued but not yet effective

Adopted in the current period

Issued but not yet effective

13 Internal Controls and Procedures

14 Additional Information

Market and Ticker Symbol

Head Office

Board of Directors

Transfer agent and auditor

More from NextSource Materials Inc.

NextSource Materials Inc. Interim / Quarterly Report 2023

Sale of InterTrade and repayment of longterm debt

Longterm Debt

NonIFRS Financial Measures