NEW - TOP IDEAS: With
record bookings, growing Managed Service revenue streams and new cost
reductions being implemented, the path to profitably is becoming clear for
Pivotree Inc. (TSXV: PVT), making the stock’s price attractive today.
was a pass for Investorfile’s coverage shortly after the Company’s IPO at
C$8.50 at the end of 2020. It was not that we did not like Pivotree’s
Management and business model (quite the contrary); at that time, the valuation
of the stock was way too rich based on the information we assessed. That said,
with two years of operating information and several acquisitions later, the
share price looks attractive at current levels and hence the stock is appointed
to Investorfile’s list of Top Ideas as a small cap value investment
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 they call a "Frictionless Commerce”
experience for their 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.
says converging technologies are driving up consumers' expectations and
creating increased pressure on major brands to find new and better ways to
connect with their customers. In its best form, frictionless commerce reduces
stress on the system, anticipates customers' needs, and delivers personalized
products to customers efficiently at optimal prices.
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.
Today, Pivotree has expanded and
consolidated its service solution offering across three key distinct business
units -- Commerce, Data Management and Supply Chain -- while providing core
digital solutions through the three aforementioned business units using
engineered and/or assembled products.
The Company says each of its
solutions may start with products that they assemble using reliable and
reputable e-commerce, data management platforms, or warehouse and order
management systems. These run on an enterprise-grade infrastructure that is
then customized to meet a variety of client needs, situations, and budgets.
Then, the Company provides the technical skills necessary to enable the
effective use of technologies, combined with the business context, to leverage
a solution to solve its clients' business challenges. Pivotree assembled
product categories include: Cyber threat protect and mitigation services
("Pivotree Protect”), Web Inclusion and cart/site error corrective services
("Pivotree Fix”), Business Operation service for SaaS based commerce ("Next Gen
Support”) and Cloud-managed environments with embedded cost reduction services
important, Pivotree also fill the gaps in available technology with the
Company’s own intellectual property to reduce the barriers to adoption. As
such, Pivotree has continued to bolster its product offering in an effort to
become a North American leader of frictionless commerce enablement solutions,
through organic investments and acquisitions. Today, the Company’s engineered
products include: Pivotree DIVE – Data Automation and Onboarding services
powered by ML/AL, Pivrotree Connect – API Management and Integration service,
Pivotree Control Tower – Observability, Assurance and Analytics dashboards, and
Pivotree Store Accelerator – Quick start deployments for eCommerce and
marketplace. Adding to its product offering will continue to be a focus for
Today, the Company says its
customers include 170 major retail and branded manufacturers operating
throughout the world. From its customer base, Pivotree generates revenue from
the sale of its managed and/or professional services across its three business
units. The Company says its Managed Services (MS) are sold on the basis of
minimum monthly committed business through annual and multiyear contracts most having
an automatic renewal schedule and representing recurring revenue to Pivotree.
Professional Services (PS) is revenue earned on specific projects, which
includes product sales with discrete deliverables. Pivotree’s also just launched Commerce-as-a-Service (CaaS), a new packaged
services offering, applied as a modern subscription model, aims at eliminating
heavy upfront costs as well as the need for capital investment approvals for
Investorfile, we believe that the Company’s most recent operating results
highlight the momentum in Pivotree’s business operations. Revenue in Q3 2022
was C$24.6 million and the Company said it had record bookings of $19.2
million. Q3 revenue represents 54% year-over-year growth, with 8.5% of growth
being organic, according to Pivotree. Year-to-date revenues are C$75.5 million,
which indicates the Company is on pace to be near C$100 million in revenue when
it reports annual results for 2022. Recurring revenues from the Company’s MS
represents 45% of total revenues. Blended, gross margins from both MS and PS are
at their third quarter numbers there are some key positive trends occurring in
Pivotree’s business operations. Firstly, an increase in revenue penetration of
MS being derived from Pivotree’s PS customers. Such conversion drives a higher
revenue mix to MS, which leads to higher margins and longer-term customer
retention. Secondly, the Company says that multi-category expansion is also
occurring, which implies more success in cross-selling within its customer base
(which then leads to more revenue growth).
as of Q3 2022, Pivotree was not operating at EBITDA positive. That said there
is a commitment to do so. The Company’s CEO has publicly stated in his last letter
to shareholders that it expects Pivotree to be at positive adjusted EBITDA in
Q4 of 2022 and begin delivering operational cash flow in 2023. This path to
profitability should be a major milestone for the stock’s valuation going forward.
reported the Company had C$13.8 million in cash on its balance sheet and no
Despite executing on
its revenue growth strategy to date, the market capitalization of Pivotree had
dropped significantly throughout 2022, like so many other small cap tech stocks.
With that said, the market valuation of this Digital Commerce Company is
attractive based on its current Enterprise Value (EV)/Sales ratio at 0.80 (at C$100
million revenues). Therefore, as its stands today, Pivotree represents a very
good small cap investment opportunity. This is based on what we believe is a
high-quality technology growth story on the cusp of profitability with a
Company that has strong balance sheet.
As such, Investorfile is
recommending value-wise small cap investors to purchase Pivotree’ shares at the
current trading price. We are also suggesting the stock could be accumulated up
to a share price C$4.20. As always, investors in growth stocks should
have a minimum investment horizon of 24 months to realize the capital appreciation
Looking forward, we see Pivotree executing on its stated
Land and Expand strategy (multi-category expansion) with its existing customers,
while having further penetration of its Digital products and MS revenue streams.
The Company also has the capacity for some more M&A. (Pivotree closed on
two successful acquisitions in 2021).
Given recent financial trends, we see Pivotree organic
growth rates continuing at about 10% annually and the Company closing on at
least one more acquisition (with C$10 million revenues) by the end of 2024.
Given near-term commitment to operate with positive EBITDA, we feel the Company
can exit 2024 on a C$130 million revenue run rate while generating adjusted EBITDA
margins close to 10%.
Based on the above growth assumptions exiting 2024, adjusted
EBITDA could reach C$13 million annually. With that said, Pivotree currently
trades at a valuation just over 6 times EV/EBITDA. Today, if a small cap
investor begins to accumulate shares of Pivotree up to C$4.20 (with an average
cost base C$3.85 per share), the investor is paying a valuation level that is
less than 7 times EV/EBITDA. Based on this scenario, for an investment in a
$100 million plus revenue growth company, Investorfile considers buying
Pivotree a value-wise small cap investment opportunity. We note that today, the
Company’s shares trade well below the consensus of the 12-month analysts' stock
price targets at C$7.50 per share.
Pivotree pre-announced record bookings of $21 million for
Q4 2022. These sales bookings will be realized as revenues throughout 2023.
has 26.8 million outstanding on a fully diluted basis. Combined, Management and
Directors own about 25% of the Company’s stock.
Company website: www.pivotree.com
Disclosure: TSXV: PVT – Yes
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
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Investorfile.com is not engaged in an investor
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The author of this article has acquired and may trade
shares of Pivotree Inc. through open market transactions and for investment