Results are in on the latest quarter from enterprise information management company Quorum Information Technologies (Quorum Information Technologies Stock Quote, Charts, News, Analysts, Financials TSXV:QIS), with Beacon Securities analyst Gabriel Leung retaining a “Buy” rating on the stock in a Thursday report while lowering his target price on multiple contraction across the industry.
Calgary-based Quorum, which has software for automotive dealerships to automate, integrate and streamline operations, including full integration with OEM data, announced its third quarter 2022 results on Wednesday, coming in wth revenue up seven per cent year-over-year to $9.9 million and record adjusted EBITDA of $1.7 million compared to $1.5 million a year earlier.
Over the quarter, Quorum reached 1,464 dealer rooftops compared to 1,459 by the end of the second quarter, while monthly recurring revenue came in at $1,597 versus $1,600 for the previous quarter. In September, Quorum sold one of its solutions, the Advantage Complete Dealership Management System (DMS), to the Vitali Auto Group which is gear towards independent dealerships and thus not in line with the company’s focus on the franchised dealership market.
“Our focus on profitable growth has resulted in improved gross and adjusted EBITDA margins. The cornerstones of our 2023 strategy will be to pursue what is now a $55 million SaaS revenue cross-selling opportunity while at the same time reducing our cost base,” said President and CEO Maury Marks in a press release.
On the Q3 results, Leung said the $9.9 million topline was under his forecast at $10.0 million, while EBITDA at $1.7 million was above his estimate at $1.4 million. Leung noted that SaaS revenues totalled $7.0 million on the quarter, up 7.1 per cent year-over-year, with three per cent of that growth coming organically and four per cent through acquisitions.
“Cross-selling activity remains the key catalyst for driving improvements with this metric. To that end, the company continues to move forward with its One Quorum go-to-market approach harmonizing and fully incentivizing its sales and marketing and accounts management team,” Leung wrote.
Leung noted the Q3 free cash flow was negative $120,000 for Quorum, with operating cash flow at $687,000 and capex at $71,000, software and development costs were $581,000 and lease repayments at $155,000.
Leung has adjusted his forecast for QIS and is now calling for full 2022 revenue of $38.9 million and adjusted EBITDA of $5.8 million, while for 2023, he is estimating revenue at $42.2 million and EBITDA at $7.1 million.
With his “Buy” rating, Leung has dropped his target from $2.00 to $1.50, which is based on a 3x multiple of his 2023 EV/Sales estimate, citing general industry multiple contraction for the change. At press time, Leung’s target represented a projected return of 97 per cent.
“We continue to believe that QIS could benefit from a multiple expansion as positive data points continue to show itself in the form of improvements in auto sales, along with new rooftop wins and (continued) successful up-selling to existing customers,” Leung wrote.