Beacon Report and UpgradeQuisitive Technology Solutions, Inc. (QUIS – V) April 21, 2021 Acquisition Accelerate LedgerPay Adoption
- Quisitive announced Q4 2020 results, which included revenues and EBITDA of $13.1M and $2.2M (16.9% EBITDA margins) respectively. We were forecasting $12.7M and $2.0M (16.2% EBITDA margins).
- Revenues included $9.1M from professional services and $4.0 from maintenance/license/other (including LedgerPay revenues from its license deal with Rev19).
- Q1 2021 revenues are expected to be down from Q4, but up y/y due to lower license contributions from the Rev19 deal (which now moves to recurring maintenance), along with the Texas winter storms (location of Quisitive’s headquarters), which impacted contract signings. That said, Q2 should see a q/q organic improvement, along with a full quarter contribution from the company’s previously announced acquisition of Mazik Global.
- However, dwarfing the Q4 results was the company’s recently announced acquisition of BankCard USA Merchant Services for $100M in cash and 50M shares (there’s also a 2-year earnout of $20M payable in cash and shares). Bankcard is an ISO that offers all-in-one payment processing solutions to ~7,000 merchants in the US. The company processes over $3B of payment volumes (up 31% y/y in 2020) with card-not present volumes at ~70%. The company has a seasoned management team, strong in-house sales team, deep risk management program and attractive recurring revenue model running at ~$29M with EBITDA of $11 (TTM as of September 30, 2020).
- In our opinion, BankCard brings a captive audience for Quisitive to deploy its LedgerPay cloud-based payment processing and analytic solutions thereby accelerating adoption rates. As it relates to LedgerPay, near-term milestones include finalizing bank sponsorship for direct payment processing for Visa, Mastercard, etc, PCI audit, finalizing endpoint with Visa, which should result in LedgerPay going commercial in the H2 2021 timeframe.
- The cash component of the Bankcard acquisition was satisfied with cash on hand, a C$62.6M equity financing at C$1.50/sh, and a $50M increase in its existing term loan.
- With the company’s core Microsoft services business continuing to generate good growth momentum, we believe further upside will be predicated on QUIS hitting near-term commercialization milestones for LedgerPay, which has been significantly augmented with BankCard. We have adjusted our estimates to factor an end of Q2 close for BankCard and increased our target price to $2.00 (was $1.70), which is based on a sum-of--the parts valuation. We reiterate our Speculative Buy rating.