TOP IDEAS: Management of Pivotree Inc. (TSXV: PVT) delivers on its commitment to achieve revenue growth and sustainable profitability while building on its product portfolio and selective M&A.

It is barely a month since Investorfile appointed Pivotree to its list of Top Ideas as a small cap value investment opportunity (See: Pivotree is a $100 million Digital Commerce Company with plenty of future upside). To date, we could not be more encouraged given the recent release of the Company’s Q4 2022 financials and how the results and Management’s outlook support our investment thesis (and, hence, Investorfile’s recommendation to accumulate this stock).

Based in Mississauga, Ontario, Pivotree Inc. (TSXV: PVT – C$3.50) designs, builds and manages digital platforms in Commerce, Data Management, and Supply Chain for major retail and branded manufacturers throughout the world. As described by the Company, the goal is to empower what it calls a "Frictionless Commerce” experience for its clients’ customers across their entire buyer journey -- from finding their item, to buying it, to getting it, all the while building trust in the experience.

Pivotree is focused on the digital commerce transformations for the needs of large enterprises for Business-to-Consumer (B2C) and Business-to-Business (B2B) interactions, both of which have complex digital ecosystems. Pivotree’s portfolio of products - managed and professional services - helps provide B2B and B2C digital businesses with true end-to-end service to manage complex digital commerce platforms, along with ongoing service support, from strategic planning through product selection, deployment and hosting, to data and supply chain management.

In Q3 of 2022, the Company’s CEO had publicly stated in a letter to shareholders that it expected Pivotree to be at positive adjusted EBITDA by Q4 of 2022 and begin delivering operational cash flow in 2023. With that said, Pivotree has since reported Q4 results, and the Company was way of ahead of consensus estimates for both revenue and adjusted EBITDA.

Pivotree’s Q4 revenues in 2022 of C$26.2 million were up about 18% year-over-year. For the year, the Company generated revenue of C$101.7 million, surpassing the C$100 million milestone for the first time. Most importantly, adjusted EBITDA turned positive in the quarter, reaching C$1.3 million. All other financial metrics improved, too. Annual recurring revenues grew to C$48.8 million, gross margins continue to trend higher (now over 47%) and the Company reported a record level of new bookings (C$21 million) in Q4. Management has stated that more than C$80 million of revenue has already beensecured by the Company for 2023.

Our biggest takeaway from Q4 results is that Pivotree is now of scale to begin a profitable growth mode which, in itself, opens up other growth opportunities. First, because Management is forecasting sustainable profitability and cash flow, investments in new products (Intellectual Property "IP”) will continue to flourish. We note that the Company is experiencing a significant increase of penetration of its data management software and other products in the solutions it provides to its customers. Pivotree’s IP is becoming a differentiator for its business, which we think will play a more prominent role in revenue growth and gross margins in the near- and long-term; this is a win-win scenario for shareholders.

With the improved profitability and expected cash flow generation going forward, we believe the Company is in a better position to pursue M&A again. Management has said it identified selective acquisition targets that would be accretive to earnings and would consider such a transaction this year if the valuation falls within its purchase price parameters. We note that a potential acquisition could be funded through the Company’s cash on hand (C$17.3 million) and/or utilizing its undrawn C$25 million credit facility.

Due to the weaker general economic conditions, Management outlook is cautiously optimistic in 2023. We note that Q4 is a seasonally strong quarter for Pivotree and, therefore, investors need to temper their expectations for the first half of 2023. But, we believe the Company has made the successful pivot to sustainable profitability and, therefore, we think the growth trajectory of Pivotree can accelerate from product investments and acquisitions.

To date, Pivotree’s Management is executing well by delivering on its promises. With that said, Investorfile has great confidence in our prior recommendation that the Company’s stock should be accumulated up to a share price C$4.20 to realize the future capital appreciation potential. As always, investors in growth stocks should have a minimum investment horizon of 24 months.

Currently four analysts cover this stock. All have buy recommendations with 12-month targets ranging from C$5.50 to C$8.00 per share.

Pivotree has about 26.9 million outstanding on a fully diluted basis.

Company website: www.pivotree.com

Author Ownership Disclosure: TSXV: PVT – Yes

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