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.
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
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
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.
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
Company website: www.pivotree.com
Disclosure: TSXV: PVT – Yes
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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