RE:Echelon Capital - Cantechletter "Meanwhile, though the numbers weren’t officially released, Goff believes the company came out of the quarter with approximately $2 million in CTV revenue, with the two units paired together expected to push $52 million in 2022, where an estimated $10 million could represent business moving from the legacy UI3 platform onto the user experience enhanced illumin"
Commentary: I believe $52m for Illumin in 2022 is too low and does not agree with managements guidance or does it make any sense given the momentum and the sequential growth rates so far. Management has implied that by Q3 the majority of its revenue will be Illumin. By Q4 they imply a run rate of 60% being Illumin.
I have Q3 + Q4 revenue to be approaching $90 m given their guidance. At least 50% of that number should be Illumin which gives us $45m as a low ball estimate.
Q1+ Q2 should comfortably exceed $7m which would be the $52m estimate provided by Rob Goff. Between Q1+Q2 I don't see why they couldn't achieve $20m or at the very least $15m from that part of the business.
Illumin revenue is expected to reach $60-65m which does not take into account any large tier 1 client deals. This estimate is more in line with the sequential growth rate that Illumin has experienced thus far. A couple auto clients could push this number to $80-$85m but this could be a future catalyst for another stock rally later this year.
"In terms of valuation, Goff forecasts the company’s EV/Revenue multiple to drop from 0.8x in 2021 to 0.7x in 2022, then to a projected 0.6x in 2023.
Meanwhile, after the company finished the year with $20.3 million in adjusted EBITDA for a 17 per cent margin, Goff foresees a bit of compression in 2022 at a 15 per cent margin with $21.9 million in adjusted EBITDA (previously $22.2 million). Looking ahead to 2023, Goff foresees another margin compression, this time to 13 per cent with $22.8 million in adjusted EBITDA.
From a valuation standpoint, Goff foresees a subtle decrease in the EV/EBITDA margin from 5.1x in 2021 to 4.7x in 2022, then to a projected 4.5x in 2023."
commentary: I expect more investments in r&d plus sales and marketing to continue in 2023 but I don't see why ebitda would show such low growth rates in 2023 and beyond. Management has guided for ebitda margins between 20-25% under the Illumin platform. As more and more clients transition to Illumin, you won't need as much investments in sales and marketing as sales commissions will no longer be required for shorter campaigns under the legacy managed platform.
In 2020 ebitda margins came in at 16.61% with Illumin being just 21.3% of total revenue. This number will trend higher as more clients adopt Illumin.