NEW COVERAGE - TOP IDEAS: More and more Fortune 500 Companies are subscribing to Digital Ledger Blockchain Technology developed by Boardwalktech Software (TSXV: BWLK) as a Platform-as-a-Service to gain efficiencies and security for mission-critical business applications. The stock is now on the list of Top Ideas for Investorfile. 

Despite the reference to the term Blockchain, this blog post has nothing to do with Bitcoin or Cryptocurrency.

As a refresher, blockchain is a transaction ledger that maintains identical copies across each member computer within a network. The fact that the ledger is distributed across each part of the network helps to facilitate the security of the blockchain. The basic advantages of blockchain technology are decentralization, immutability, security and transparency, which allows for verification of data without having to be dependent upon third-parties.

Digital Ledger (blockchain) technology remains a quickly expanding area of growth for companies across a host of industries. That said Boardwalktech Software Corp. becomes our newest Small Cap Value stock on Investorfile’s list of Top Ideas.

Based in Cupertino, California, Boardwalktech Software Corp. (TSXV: BWLK - C$0.52) has developed and patented a Digital Ledger Blockchain Technology Platform that is in use today by a growing number of Fortune 500 Companies for a variety of mission-critical applications.

Big companies today are subscribing to Boardwalktech’s software technology to resolve key enterprise business problems by connecting multiple users in the enterprise value chain. This is to improve planning and results with the alignment of data from various/multiple enterprise systems of record used in the information exchange processes. By deploying a blockchain-based solution, multiple users can secure simultaneous access to the same data in a relational database environment, which supports concurrent access to record objects while being edited. As such, the Boardwalk Enterprise Digital Ledger Platform is a complete enterprise platform that resolves trust and collaboration issues that large companies face when working with multiple parties.This enables customers to automate manual business processes and then turn "digital” to run mission-critical applications managing the digital exchange of information internally and with customers, channels and suppliers.

Broadwalktech is on forefront of the paradigm shift in Enterprise Planning Process (ERP) from manual to digital. Its solution targets processes for large businesses that include: Inventory and Order Management, Product Planning, Demand Planning & Forecasting, Risk Management, Reconciliation/Tax, Supplier Collaboration, Price Quote Management, and Track & Trace. It also enhances ERP and Microsoft Excel-based solutions with proprietary, time-stamped management solution at the "cell level”. The Boardwalktech solution can quickly align structured and unstructured data from all sources to enable better and faster planning decisions, creating what the Company says is an "Ecosystems of Efficiency.”

According to the Company, the Boardwalk Ledger Technology Platform is in use by 26 of the Fortune 500 Companies. Last year, Boardwalktech transitioned to a direct sales team and the Company offered its Boardwalk Enterprise Digital Ledger Platform, based on annual subscriptions, to enterprise customers with pricing built around multiple digital applications and scale/size of data. In July 2019, the Company closed on its first US$1 million subscription license with a Fortune 50 financial services company.

There is robust growth in subscription sales for Boardwalktech’s Platform-as-a-Service (PaaS) and Software-as-a Service (SaaS) offerings. Such revenues are recurring and which are comprised of annual platform /application software licenses and ongoing professional services fees. The Company reported that its Annualized Recurring Revenue ("ARR”) base as of Q3-Fiscal 2020 (December 31, 2019) was at US$3.7 million, which is up 25% from the same quarter in fiscal 2019 and up 32% year-to-date versus the comparable nine-month period from the prior fiscal year. The Company reports all of its financial results in US currency.

Boardwalktech’s service fees generate high gross margins at 85-90% but, today, the Company is still not profitable. It reported an adjusted EBITDA loss of about US$0.6 million in Q3 Fiscal 2020. There is no doubt that the Company will report a sizable net loss for fiscal 2020 which ended on March 31. However, there is a silver lining. In the last two consecutive quarters, Boardwalktech generated positive cash flow from operations, and there is significant operational leverage potential going forward as the Company scales. We also note that Boardwalktech’s Management had publicly stated that the financial goal for the Company is to generate positive adjusted EBITDA prior to exiting the first half of fiscal 2021 (which ends September 30). According to Management, the plan to profitability will be achieved by converting on a portion of its sales pipeline (last reported at US$5.7 million) in conjunction with the implementation of a $US1.2 million annual cost savings program which is already underway.

For us, the "white elephant” for this Company is its net debt financial position, currently at about US$4 million. Generally, Investorfile does not recommend buying the stock of a small company that has net debt. That said, Boardwalktech’s debt is not owed to a bank but, rather, to a controlling shareholder, the SQN Venture Income Fund LP, thus providing some flexibility. This debt matures in June 2022. We note that SQN has participated in the Company’s recent rounds of equity financings, too.

Investorfile is recommending the shares of Boardwalktech Software because we believe they are near a financial inflection point which should see the Company generate positive adjusted EBITDA as recurring revenues continue to increase from new annual software license fees. This could cause a positive rerating for the stock price.

Today, Boardwalktech’s stock can be purchased for about C$0.52 per share on the TSX Venture Exchange. This stock price equates to a market capitalization today for the Company of approximately C$10 million. At this valuation, the stock trades at about two times Boardwalktech’s current AAR base, on a currency adjusted basis (US$1.00 = C$0.74). We feel that a revenue multiple of two times is not unreasonable for a SaaS company with a growing recurring revenue base. Our recommendation also advises investors to accumulate the shares of Boardwalktech Software from its current trading levels to a high of C$0.75. At C$0.75, the shares trade less than the average exercise price (of C$0.93) for the 4.5 million share purchase warrants that the Company has outstanding to date.

Looking forward, we forecast that Boardwalktech Software will be able to grow its AAR base to US$12 million (C$16.2 million) exiting fiscal 2022 and earn 15% EBITDA margins at such sales levels. Based on our forecast, investors who accumulate shares of the Company at an average cost base of C$0.65 will have investment valuation less than 1.25 time revenues and about 8 times Enterprise Value (EV)/EBITDA. Such multiples are inexpensive for a SaaS company. Our valuation model assumes there will be 30 million shares outstanding (all of the Company’s outstanding warrants become exercised) and all the outstanding debt is paid back from warrant proceeds and cash generated during our forecast period.

Investorfile acknowledges that Boardwalktech is still a very small company today and new investors in this stock should have at least a two to three year investment horizon.

We note that our financial forecast does not factor the upside potential of the Company’s newest data management technology release. Earlier this year, Boardwalktech launched The Network of Words (NOW), a patent-pending technology that converge structured and unstructured data such as SQL, bill of materials, documents, videos and images to enable multiple functional and vertically focused customer applications.

Boardwalktech says NOW offers a new approach, which perfectly mirrors the original document/information source and correlates the information without any transformation. In an application example cited by the Company, NOW can correlate an influencer social media post to the warehouse inventories across the world on how to replenish product quantities. Boardwalktech says NOW is currently being evaluated by prospective customers.

Management, insider and beneficial ownership currently own 43% of the Company’s outstanding shares, of which the Company’s CEO has approximately a 10.7% stake.

At present, Boardwalktech Software Corp. has approximately 19.5 million shares outstanding.

Company’s website: www.boardwalktech.com

Author Ownership Disclosure: TSXV: BLWK - Yes

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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.

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