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Jun
9
Large recurring revenue base provides excellent visibility for Quorum Information Technologies and its near-term prospects
Posted by: Gerry Wimmer
6/9/2019
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TOP IDEAS: First quarter results unveil the full financial contribution from Quorum Information Technologies’ (TSXV: QIS) latest acquisitions. Stock is up 295%.




Investorfile's share price accumulation target of $0.40 forQuorum Information Technologieswas reached on August 17, 2015. For the record, we do not revise share price targets for our Investorfile Top Ideas - Small Cap Value Stocks. We have positioned our blog to be one of the first providers of a pragmatic perspective of a small cap company stock's potential worth, where there may be uncovered value that has been largely overlooked by the investment community.


We feel really positively about our Top Idea, Quorum Information Technologies Inc. (TSXV: QIS – C$0.79), because of its strong start in 2019.

Quorum Information Technologies Inc. is a North American company focused on developing, marketing, implementing and supporting its portfolio of software and service solutions for automotive dealerships. The Company says its vision is to build a single, integrated, end-to-end business process solution for North American automotive dealerships that covers all of their business-critical processes.

To deliver on this vision, Quorum says it has initiated a build, resell and acquire strategy, which combines continued development of ITS flagship XSellerator Dealer Management System ("DMS”) product, partnering with complementary third-party service providers to resell value-added services to Quorum’s existing customer base, while acquiring strategic companies that provide innovative solutions that augment the Company’s existing suite of product offerings.

We said Quorum Information Technologies Inc. has had a strong start to this year. This was due to the full quarter financial contributions from its recent acquisitions of Oasis Auto and Dealermine (both of which were acquired Q4 of 2018), which was reported in its Q1 2019 report. Of note, Investorfile highlighted the attributes of the Dealermine acquisition in its last blog post on the Company (See: Quorum Information Technologies has doubled in size and is expanding quickly into USA).

Compared to one year ago, Quorum has grown significantly by more than doubling its customer base from 449 auto dealerships to 971 unique auto dealerships located throughout Canada and the USA. As such, the Company posted record total revenues in the first quarter of 2019 of C$7.3 million, which equates to an annual revenue run-rate of approximately C$30 million.

It is important to note that 90% of the reported revenue by the Company is recurring in nature from monthly Software-as-a-Service (SaaS) subscription fees and long-term and evergreen contracts (Call Centres). This provides strong revenue visibility for Quorum’s business operations going forward.

EBITDA was C$757 thousand in Q1 2019, which equates to over 10% in EBITDA margins. Included in Q1 was significant trade show cost associated with the annual National Automobile Dealers Association convention. Because this expense does not reoccur in the remaining three quarters of the year - coupled with the expected increase in operating leverage and organic growth - EBITDA margins are poised to rise throughout the balance of 2019, thus increasing Quorum’s profitably in the near-term.

We note that Quorum had drawn C$8.125 million from its available C$15 million debt facility to help finance its recent acquisitions. With the predictability of the Company’s recurring revenue streams and EBITDA expansion, the debt leverage is still reasonable.

Year-to-date, Quorum’s stock is up about 15%. At Investorfile, we feel that momentum in the stock price will continue to build based on the success of recent acquisitions, which are contributing significantly to the financials. This is evident in revenue pick up and strong cash flow generation in the Company’s Q1 results.

In less than one year, Quorum Information Technologies has transformed itself into a much bigger Company with a very strong recurring revenue base. This will continue to engage more institutional investors and analysts to this story which should continue to have a positive impact on valuation of the Company’s shares.

We began this blog post stating that we feel good about this stock pick and we should, given the share price being up 295% since Investorfile first recommended this Company as a small cap value investment opportunity (See: Quorum Information Technologies delivers value for auto dealerships and small cap investors).

Quorum Information Technologies has approximately 60.9 million shares outstanding.

Company 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.