Buenos Dias,
Here we are folks in the middle of July. If you invest in CDN small/microcaps on junior exchanges, you may share the following feeling I have: it seems to take forever to get to reporting Q2 financials. By the time they report near the back end of August, Q2 feels like a long time ago.
Maybe that’s just the summer months effect where a lot can go on for us outside of the markets. Maybe its because we get Q4/FY in April and then a month later get Q1 in May that makes next reporting in August feel like its a far far away. Maybe I need to cool it on the Sativa.
Intro And Assumptions for Quisitive FY21
Q2 for Quisitive Technology Solutions $QUIS.V /$QUISF could get spicy. It was a strong quarter for them in 2020 and the company will have MazikGlobal (MG) rev fully on the books for Q2 and half a quarter of BankCardUSA (BC) rev.
Utilizing my notes from conference calls, SEDAR financial docs, and confirming numbers with the Quis team/IR, I have modelled out what we could expect for revenue this fiscal year. Both on a actual realized basis and on a pro-forma basis.
CEO Mike Reinhart (MR) has also stated we could likely expect to see up to 2 more acquisitions this year. 1 in the Cloud Solutions space and the other in the payment solutions space. The latter will likely be an ISO that has a merchant network in the 1000s that Quis can integrate LedgerPay (LP) into. BC has over 7000+ merchants in its portfolio and was a big acquisition. I see them completing a smaller ISO (Independent Sales Organization) acquisition. I have not taken into account any further acquisitions in this model as its not practical to do so without data.
The following are assumptions in my model for Quis’s own revenue projection:
organic growth year over year is 15%. This is the company’s internal goal. In Q4 2020 they had 18% organic growth across cloud solutions and LP licensing. In Q1 2021 they had 16%. I am confident that 15% is an appropriate measure to use here for Q2 and Q3. I use a higher number for Q4 2021 as described below.
Q2 revenue to see a one off boost in Rev as Q1 cloud solution projects were delayed into Q2 due to the ice storm in Texas which affected Quis (head office in Irving, Texas). The market was given a heads up on this impact during Q4/FY2020 earnings call in April, and it was further discussed in the Q1 earnings call in May. An additional $500,000 is included into the projection for Q2. This represents 4% of Q1 sales. It feels fair to me. But I admit that I am trying to quantify a qualitative statement so that opens up room for error.
I have plugged in 20% organic growth for Quis in Q4 of 2021. This is due to what I’m expecting to be an acceleration of rev with LP being fully commercialized, with partial integration in BC complete. Please note that LP Bank Sponsorship has been announced to the market1 and MR has noted that Visa end point certification can take up to 90 days to be awarded after said Bank Sponsorship. So we are looking at full commercialization upon the start of Q4 at the latest.
Quis Projection +Commentary
This table represents the above assumptions and projects out just over $58 million in Rev if Quis was to go on operating without any acquisitions in this fiscal year.
Growth in each quarter is calculated at the stated %s off of the respective quarters in 2020, and then added to those quarters to determine a projection for the quarters to come in this year.
Quis had a strong Q2 last year and a subtly weaker Q3. MR noted that employees were not able to vacation as they would have in Q2 2020 due to the pandemic. There is a smoothing aspect over both Q2 and Q3 to consider with respect to revenue realized. Q3 which is already a strong season for vacation in the summer was even stronger in the US as they had more relaxed restrictions in the summer of 2020. I acknowledge that this may not play out the same this year.
Taking a look at BankCardUSA and MazikGlobal FY2021
The following are assumptions used for BC and MG:
Stated during Q&A on a conference call by MR, and confirmed with Quis IR, Bankcard is projected to do 36 mil CDN in rev for FY21 representing roughly 14% growth over F20 (they did 31 mil CDN in 2020). I have simply inputted 9 mil/quarter to capture this figure.
Quis IR was unable to disclose Mazik’s own growth or projected rev run rate. This makes me bullish haha. My feelings aside, with MG’s VaccineFlow application being deployed in the US across multiple states, It stands to reason the company will experience yoy growth. I am choosing to use Quis’s own target of 15% and applying it to Mazik’s growth.
This could very well be a low-ball. Worth noting is the % of growth needed from Mazik’s own platforms for the former owner’s of MG to achieve their earnout. That earnout is paid in full by MG achieving the following, copied from official NR on SEDAR:
“To realize the the full performance earnout Mazik revenue will have grown 110% over 3 years and recurring revenue will have increased 250%.”
That equates roughly to just over 26% yoy growth wrt total revenue for that earnout to be paid. Now just because its a target doesn’t mean it gets hit. One figures the deal is struct in good faith with MG having the chance to hit that target on outperforming internal expectations, or why accept it as a part of potential compensation if you are selling MG.
Mazik Did 10.4 mil USD rev in 2020. (info is available online and confirmed by Quis IR). At a .76 cent loonie (200dma for loonie around .76 for 2020) that is $12.896 mil CDN. That number alongside likely conservative 15% rev growth has been used to determine quarterly figures for FY21 Kept the same through each quarter as I don’t have data for Mazik besides the above.
BC, MG and Total Projections + Commentary
As noted, Quisitive will realize a full quarter of MG’s revenue on their own books in Q2 (closed acquisition April 1, 2021), and a half quarter of BC revenue (closed acquisition May 7, 2021). MR discussed this during Q1 earnings call with respect to revenue realized on Quis’s books from BC.
Adding up the totals that are attributable to Quis, we can expect $22.5 million in Revenue from BC to fall on Quis’s books and $11.12 million from MG to hit Quis’s books for F21.
The Projected cumulative totals that could be realized are summations of Quis’s own revenue with growth implied from previous table, and the appropriate additions from both MG and BC. The model projects actual realized revenues to come in just over $92 million this year. Q2 2020 rev was $13.125 million. Reporting over $23 million in rev for Q2 should get some eyeballs and interest building on Quis.
A look at Industry Valuations
Quisitive is currently trading at or around $1.50 CDN, Its 50 dma is also right there. Given this, Quisitive currently trades at roughly 5.23x projected sales for FY21. For context, data from:
https://csimarket.com/Industry/Industry_Valuation.php?s=1000 shows that the average P/S ratio for Computer processing and Cloud Services (bulk of Quis’s current rev to this point in CS) is 5.84. I note that within that category there are companies trading way higher and much lower of course due to growth and earnings. The idea is to at least provide some context to Quis’s ability to have its multiple expand, albeit modestly if I’m being impartial.
Where the fun starts is Quisitive becoming a Payment processing and solutions provider (through BC, LP and any further acquisitions). It should see its multiple expand further as that market is given a greater multiple on its revenue. The following are more mature companies, and some market leaders, but for discovery purposes here are some current P/S of payment processing/solutions providers:
Nuvei $NVEI.TO - 21.712
Global Payments $GPN - 7.673
PayPal $PYPL - 15.914
Square $SQ - 9.495
Lightspeed $LSPD.TO - 38.046
I also acknowledge that these companies operate across different market segments as well so one should not view their multiple as a function of only operating in the Payment solutions space. Again, the point of highlighting these companies P/S is to show that it is reasonable to assume Quis can potentially attain multiple expansion by virtue of its product offering in the payment solutions space. It’s worth noting that MR has stated they are projecting revenue in future years to be a 60/40 mix with Payment solutions comprising the 60% of revenue.
This helps us make sense of some of the higher Price Targets that the Sell-Side has recently put out on Quis. The following is from tipranks.com
The $2.75 CDN high PT represents a marketcap of just over 883 million CDN. that represents a price to sales of 9.59 off my realized rev model. This falls in line with Payment Solution providers higher P/S ratio that the market ascribes them.
I would caution here though that some of these PTs come from companies that have participated in bought deal financings for Quis, so they naturally want to promote the best case scenario for Quis. Quis certainly must grow into this valuation over the next couple quarters and I think it can really start to do this with a strong Q2 earnings and positive updates on LP commercialization (such as pilot projects with large box retailers, C-stores in the US, a big QSR chain, etc).
Quisitive FY21 Pro-Forma Revenue + Commentary
Below is a table of what Quisitive full year 2021 revenue could look like on a pro-forma basis. The top part I have presented already. The bottom part pulls over total figures for the full year for BC and Mazik.
A pro-forma revenue run rate helps shed some light on where Quis will be going into FY2022. Remember that Quis is an acquirer and is always looking in the market for accretive acquisitions. I think we can expect those 2 acquisitions over the next 1-3 quarters that will boost Quis’s rev run rate in F22. Trading at 4.41 Pro-forma F21 sales to me presents a relatively strong buying opportunity here on Quis. I personally added shares last week at $1.50.
It is important to note Quis’s own internal 3-5 year goal of reaching 250 million in revenue and 100 million in EBITDA. This has been discussed by MR on conference calls and confirmed by IR through recent emails. Mike has been asked during Q&A what it takes to get to that figure (is it gonna come from mainly acquisitions, is it organic growth, is LP going to be responsible for most of the growth). It’s of course a function of all 3, and MR has candidly stated he thinks LP itself could get them there near the end of the timeline.
He’s stated in Q&A a likelihood the goal can be reached on the 3 year timeline rather than 5 year with said accretive acquisitions and LP commercialization going to plan. I caution that this is forward-looking guidance, and particularly answers given during Q&A are more free flowing discussion and not prepared remarks. All that being said, it’s not a guarantee to occur.
Shareholders and followers of Quis can look for revenue to be segmented into the following categories: Cloud Solutions Rev and Payment Solutions Rev starting with Q2 reporting in late August, 17 years from now. This is being done so that growth in each department can be tracked more clearly. It should help the market discover that payment solutions growth and help Quis grow into a higher multiple as discussed briefly above.
Points to Consider
In getting close to wrapping things up here. I want to state the obvious that this isn’t an exhaustive examination of Quisitive as a business, nor even their financial statements. In an effort to present a balanced piece here, the following are some of my concerns with Quisitive over the next couple quarters:
Being unable to generate positive income in Q2. Quisitive will absorb all costs of BC and MG but not realize full revenue from BC. GM is expected to return to the 40% range for Quis, but SG&A has always been a drag on Quisitive’s ability to turn a positive operating margin. It was able to do so finally in Q4 of 2020, but not able to in Q1 of this year. This was due to not only the ice storm delaying work, but also rev mix (discussed in detail in my Q1 notes stack).
I am closely watching operating margins through the rest of this year. Given BC’s own GM (50%) and Adj. EBITDA margin (36%), (unaudited, shared by MR on Conference call and available to determine on SEDAR document uploaded on May 7th), alongside the high margin revenue generated from LP, I believe in Q3 and Q4 Quis should be able to comfortably clear positive Income through the business. MG also brings with it 20% EBITDA margins (unaudited). This should build the trend that leads to stronger cash flow generation through F22.
It is that time between those future quarters and now that has me fully prepared to have my shares diluted to finance the acquisitions MR has signaled to the market. This of course is not something I welcome prima facie; But its part of the game right now and I believe in the whole of the company to withstand it. Quis’s last raise was at $1.50 to finance nearly half ($50 mil) of the cash portion paid to BC in its acquisition.
Quis accelerated the expiration of its warrants to raise nearly 12 million in cash. Upon expiration, as of June 18th SEDAR upload, the company states having 24.7 million in cash to use for strategic acquisitions and GCP. If somehow the company can manage to pull off a tuck-in ISO acquisition without dilution I will go live on Fleets and chug a caesar in under 2 seconds.
MR has stated on conference call how important the reopening of the economy has been for them to be able to go out and attend conferences and to connect with industry players like ISOs and large merchants in the payments solutions space. He’s stated being able to network with these folks, and go over LedgerPay in person, has been important. Another hard wave of ye olde Covid and subsequent travel restrictions could slow some of that momentum MR alluded to building during 2021 thus far.
I don’t expect any hiccups with Visa end point cert, but its still a milestone to be achieved to attain full commercialization. The Bank Sponsorship was the big one to get of course. But there still remains work to be done for LP commercialization.
Conclusion
If you are reading this and know nothing of Quis yet I do recommend checking out my other stacks that are on my homepage. Starting with the DD piece. It will breakdown Quisitive’s milestones to date, besides achieving ISO security certs for LP7 and Bank Sponsorship as mentioned already. It also review’s LP’s offering.
The Quis team has also gained some great retail investors over the past couple months who have published DD across different Reddit threads on /pennystocks and /canadapennystocks for further reading. The company website and LedgerPay website are also great resources to learn more about Quisitive and LedgerPay.
I wish to break down LedgerPay for my readers in greater detail. I am awaiting a meeting with a member of the LP team to ask them some questions I have of the functionality of the product at POS. My exchanges with them and Quis were shortly after the Bank Sponsorship dropped so I assume they are quite busy at the moment but I will be following up.
Thank you for reading this piece. Important disclosures follow:
I own shares of $QUIS.V and I am long on the company.
I am a retail investor and do not hold any designations as a security analyst.
As mentioned throughout the piece it is likely my projections are not 100% accurate due to circumstances like company confidentiality and future acquisitions and partnerships. Thus they may materially differ from actual reported numbers from the company as they are published.
I am not getting paid to produce this piece by any party.
This piece should not be read as an exhaustive examination of Quisitive Technology Solutions.
I encourage you to do your own DD before buying shares in this company if you are interested in them.
All the Best,
Luke