TOP IDEAS: Revenues and profits are on the rise at Quorum Information
Technologies Inc. (TSXV: QIS), as demand fuels auto dealership management
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
The Company has approximately 39.3 million
shares outstanding. Management, directors and insiders own a combined 20% of
Quorum Information Technologies website: www.quorumdms.com
Author Ownership Disclosure: TSXV: QIS - Yes
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