Q4 Earnings Preview…With under a month to go to Q4 numbers being released I thought now was as good time as any to share my thoughts as to what I think we could be looking at here.
Revenue
There is an inherent seasonality to the business which I believe analysts are neglecting in the Q4 estimate. Given the strength of the Euro currency the large proportion of Euro denominated sales is going to look real good in their reporting currency of USD. Throw on top of that the expanded sales team that was put in place in Q3 in the US market for cross selling/market expansion and I have a revenue estimate of 6.6M up 80% YoY and 9% QoQ (analyst at 6.4M)
Gross Margin
I have given them the benefit of the doubt here as I am a big believer in gross margin expansion as they consolidate acquisitions I understand there will be pressure here as they rationalize SKUs and costs as products roll out and you sell intial products and the higher margin recurring sales come down the road. The stabilization in Q3 was solid but we have to see that trend continue. Gross margin has to hold 60.00% level.
Costs
Sales and Marketing number might come in a little hot because of US expansion but looking for a number at or below 25% of sales. At the end of the day, sales expense is highly dependent on commission so if this numbers comes in hot their agents are selling a lot of product which bodes well for future growth.
Profitability
We need to continue to see QoQ of improving EBITDA w margin stabilization and an increasing topline figure looking for an adjusted EBITDA target of 1.6M. Any margin expansion QoQ and you could see a number closer to 2.0M which would be so bullish.
Outlook
The fact that analysts haven’t even baked in any incremental revenues and EBITDA is beyond me. Given the inquisitive touch of this management team to integrate businesses the last 2 years makes for such a buying opportunity. Look for commentary on deal pipeline like last year between Q4 and Q1 numbers as that cash position on the balance sheet is put to work.
At 10x EBITDA on 2018 numbers before any accretive deals I think is real cheap given their history adding accretive bolt on deals into their pipeline.
LONG