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Jun
15
Quorum Information Technologies delivers value for auto dealerships and small cap investors
Posted by: Gerry Wimmer
6/15/2014
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TOP IDEAS: Revenues and profits are on the rise at Quorum Information Technologies Inc. (TSXV: QIS), as demand fuels auto dealership management software sales.

Quorum Information Technologies Inc. (TSXV: QIS- $0.20) has posted over four years of consecutive quarters with positive cash flow by building a critical mass of business that supplies a recurring revenue stream, leading to growing profits.

Founded in 1996 by the Company’s current CEO, Quorum’s advanced Dealership & Customer Relationship Management System (DMS) software products - XSELLERATOR™ - automates, integrates and streamlines every department in an auto dealership. Presently Quorum provides its XSELLERATOR™ software products to General Motors, Chrysler and Subaru dealers in the US and Canada as well as Hyundai, KIA, Nissan, NAPA and Bumper to Bumper dealerships in Canada. Today there are about 280 dealerships across North America that utilize the XSELLERATOR™ DMS.

There are approximately 20,000 franchised automotive dealerships in North America, most of which, says the Company, are largely dissatisfied with the available choices from the two top dominant DMS suppliers of systems in North America. The Company believes that auto dealerships are starting to make purchasing decisions based on systems and suppliers' flexibility, value, functionality as well as technology. Quorum offers a completely integrated, Windows-based DMS that helps capture incremental revenue and enhances productivity by establishing a natural, streamlined work flow process, eliminating redundant entries and making relevant customer and vehicle information visible across multiple dealership departments on a real-time basis. That, plus Quorum's software offering, goes well beyond traditional DMS systems because it has integrated customer relationship management (CRM) tools, measurable processes that can help dealerships generate more revenues.

The automotive dealership market has traditionally implemented older, character-based technology for its in-house systems. But Quorum anticipates that there will be a considerable amount of demand from the auto dealership industry to upgrade to the latest technology, in order to electronically interface with the auto manufacturers. The Company says its XSELLERATOR™ product is one of the most technologically advanced software products in the DMS field and, as such, is better able to implement the new electronic interfaces more quickly and effectively than its competitors that utilize older technology.

Recently Quorum announced a strategic partnership with General Motors (GM) to promote its XSELLERATOR™ DMS to all GM dealerships. The Company expects to obtain similar partnership arrangements with other major auto manufacturers.

There is unique opportunity for the Company to market its XSELLERATOR product both at the auto dealership and at the manufacturer level in North America. Last year on sales of about $8 million, Quorum was profitable and reported $1.25 million of EBITDA (earnings before interest, taxes, depreciation and amortization.) In the first quarter of 2014, the Company’s sales jumped 12% to $2.2 million, with EBITDA of $378 thousand. Quorum's pricing model is focused on recurring support revenues, which accounts for about 80% of total sales.

The Company has reached a critical mass of auto dealerships that use XSELLERATOR™ DMS, leading to Quorum’s improved operating efficiency. Over the last three quarters EBITDA as a percentage of sales averaged over 20%, which has contributed to the Company’s growth in profitability. This trend is expected to continue as Quorum's sales grow.

Combining the business growth prospects with financial results Quorum’s represent an immediate investment opportunity for both small cap growth and value-wise investors. From recent financial results the Company’s stock trades at an inexpensive valuation of 4 times Enterprise Value (EV) to EBITDA. Therefore from current trading levels ($0.20) we recommend Quorum’s stock should be accumulated up to a price of $0.40 per share. Conservatively our assumption is that the Company’s stock should be worth closer to 6.5 times EV/EBITDA based on a forward 4 quarter annual revenue run rate of $10 million and EBITDA margins of 23%. This would equate to about 3 to 4 cents in annual earnings per share based on the Company’s current capital structure. If annual sales continue to grow in excess of $10 million, Quorum shares will merit a stock price much higher than $0.40.

For a small company, Quorum has a strong balance sheet. The Company holds close to $1 million in cash and has a very small amount of long-term debt. Net working capital as of March 31, 2014 was over $1.5 million with a current ratio of 3.22.

Quorum headquarters are in Calgary, AB, with offices St. John’s, NF and Detroit, MI. The Company has about 70 employees.

The Company has approximately 39.3 million shares outstanding. Management, directors and insiders own a combined 20% of Quorum shares.

Quorum Information Technologies website: www.quorumdms.com

Author Ownership Disclosure: TSXV: QIS - Yes


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Investorfile is not engaged in an investor relations agreement with Quorum Information Technologies Inc. nor has it received any compensation from Quorum Information Technologies Inc. for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Quorum Information Technologies Inc. through open market transactions and for investment purposes only.

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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.