Buenos Dias,
If you read the primer below that was released prior to earnings call yesterday, please skip on down to the bold font where new info starts. If not, feel free to read this primer to get you dialled in.
For some of my new subscribers here this stack is a routine one for me whereby I essentially provide the best transcript of the earnings call as I can in real time as I’m dialled into the call. Quisitive Technology Solutions, $QUIS.V / $QUISF is my 2 Horse by size in my portfolio and its the oldest holding I have on the books. Notes that follow well below in regular font are made at the time of the call which is later today at 5pm Tuesday May 25th. I will then typically italicize my thoughts and commentary on these notes after the call and then I post the stack up for readers. I have not missed an earnings call or conference call for Quis since starting my position in it.
I am writing this intro on Tuesday pre conference call and This is what I am personally looking for on the call.
Number 1 has to be the update that Mike Reinhart, absolute beauty and CEO of Quis, should provide those on the call for LedgerPay’s Bank Sponsorship agreement. for more information on LedgerPay and DD on Quis here is my first DD stack on Quis:
I will also be looking to see if they present Q1 numbers with Mazik Global acquisition completed in Q1 on a pro-forma basis. Quis has built out its presence in the healthcare cloud solutions space and Mazik Global was itself a preferred partner of Microsoft. CEO MR (MR moving forward) shared with us that the acquisition was viewed very favorably for the synergies and value creation to be unlocked for Microsoft customers. Also of interest is Mazik’s “Vaccine Flow” application and I’ll be curious to see if its adoption has still been strong in new cities that are looking for ways to electronically manage their vaccine solutions programs.
How has Quis recovered from the Texas icestorm (i.e., did projects that were slowed and or halted due to the storm this winter all get back on track and close thus far in Q2? One of Quis’s major head office’s is in Texas and it affected by the storm, MR gave us a heads up on Q4 2020 earnings call on April 20th that we would see a deceleration of organic cloud rev growth qoq in Q1 due to the storm. He said yoy will still look good.
This question might be tied a bit to Q1, but have its own parts as well. With respect to BankCardUSA acquisition, how is that coming along with integration? How has BankCard’s transaction volume and total $ spend been thus far in Q2. MR alluded to them having their best ever quarter in Q1 for transaction volume and total dollar flow through their payment processing applications. Why the focus on BankCard may drive the call is because it was stated to be the reason for the delay in the formal announcement of LedgerPay’s bank sponsorship. BC had another Bank Sponsor and they also needed to be briefed, consulted and signed on to the agreement. Perhaps that bank sees something they don’t like in LP’s deployment causing delays? This is puree speculation and I’m likely wrong, but Quisitive is utilizing blockchain tech and Microsoft azure in LedgerPay. Maybe not every bank is as open to putting their name on a product like that. MR did say on Q4 call 04/20 that The Sponsorship was more days and weeks away than weeks to months away. We are now 5 weeks from that call. I have ALL the patience in the world for Quis, but I welcome a material update on this call. Here is my notes from the conference call that was held on the day the BankCardUSA acquisition was announced:
It really helps provide a sense of what the company wants to do with LedgerPay and payment processing/solutions moving forward.
Lastly, I expect some analysts to ask about the warrant acceleration that was announced. Its cut and dry, but they will likely ask MR if there is a target for M&A he sees out there in either the cloud solutions space or the Payments solution space, thats been the impetus for accelerating the expiry of said warrants. It would add just over $12 million dollars to the coffers for MR to work with. MR guided that we could expect to see 1 additional acquisition in each space (cloud and payments) this fiscal year.
Finally, Here is my notes from the Q4 call that likely provide the most timely information and scope on the company:
Looking forward to the call. I’ll be back around 5pm to start typing like a madman.
EDITED POST BEGINS BELOW: contains notes from conference call and commentary. Italicized sentences are my thoughts after the fact.
Introduction:
MR: said call will be shorter as not much time has passed since Q4 call on April 20. Positive tailwind for company has been reopening of the US. Speaks to employee protection still being able to work from home. Internal forecasts were passed even with storm. still lots of work to do.
sharing LP update: continue to be in tail end phase of legal framework. confident agreement is imminent. will update market accordingly.
kickstart integration planning efforts have started with BankCard. fully integrated by 2022. significant increase in transaction volume for BC yoy volume increase of 30%. transaction volume is key indicator for rev. Bankcard will complement bankcard.
Still on track to report revenue via business segments. Cloud solutions and Payment solutions.
goes over prior accreditations that have been awarded (ISOs, Microsoft co-selling,
OK-> here is my take on the introduction, I appreciate Mike getting right in front of the Elephant in the room which is the Bank Sponsorship for LP. Although no definitive timeline was provided, MR saying he is confident an agreement is “imminent” makes me think we are likely looking at an announcement next week. Holiday Monday in the US next Monday so look for Bank Sponsorship to drop mid next week. It is great to see BC doing well growing rev over 30%, because BC margins are nasty, 50%. as is mentioned further below in MR commentary.
Quisitive as of Q2 will begin reporting revenue in segments -> Cloud solutions and Payment Solutions. BankCard and LP rev will fall under Payment Solutions. CRG, Menlo, Mazik, + Quis original cloud solutions offerings will fall under Cloud Solutions. this will allow us to more effectively monitor growth coming from each division.
16% yoy organic growth for cloud solutions.
case study - with builders choice. company had purchased microsoft licensed products 2 years ago and wasnt happy with results thus far. They reached out to microsoft and Microsoft referred Quis to them. Quisitive successfully helped the company utilize the programs they had purchased and unlocked alot of useful information for the company to make and save money. cloud solutions footprint expands into infrastructure and building segments. vision to create longevity in partnerships. shows value of microsoft partnership.
This is interesting an is a point of appreciation for me in owning Quis. MR really looks at the relationship that can be built with clients, this was business microsoft brought to quis as a preferred partner of Microsofts. Quis could have taken it solved it and moved on. But because of MR and the team recognizing the value of building a relationship and helping the builders choice company realize the value of their microsoft platform they are still staying connected, and MR now sees the building and infrastructure industries as one they can penetrate into and build off this success. Im not saying millions of dollars are going to flow in but its the point that MR is always looking at the long-term implications for the business. how do we win now, and continue to keep winning.
mazik global - brings rich set of capabilities. mazikcare cloudhealth platform brought on vaccineflow. to date 2 million vaccines given through vaccineflow, continues to grow. this july will have full integration of Mazik. Microsoft still sees alot of value to come with the acquisition. Mazik and now Quisitive are partner 0 for microsoft in healthcare.
Mazik’s rev will be fully on our books for Q2 and full integration of the company will be done in July. thats 4 months after being acquired. MR indicated thats a quick turnaround time and Mazik acquisition is going to unlock some amazing opportunities for Quis in the healthcare cloud solutions space.
payment solutions acquisitions - get large portfolios of merchants through mid level isos.
cloud solutions acquisitions - accretive value, unlock synergies.
accelerate warrants - provides key benefits - > cleans up cap table. provides roughly 10 mil for cash on hand. expedite M&A and IP development.
Looking ahead - > daily dialogue with microsoft, senior team helps microsoft acheive their goals while also meeting quisitives goals.
next few years - 250 mil rev, 100 mil in ebitda. commercialization of LP and accretive M&A strategy gets us there, very confident in this.
General wrap up of introduction. Warrant acceleration was what I and likely many others thought it was for, M&A, also for IP which makes sense, Quis has acquired some solid IP from Mazik and BC acquisitions, they want to work with that and create offerings for clients. Recall that ISO stands for independent sales organization that is a 3rd party to a business and customer that is authorized to take payments between those two parties. Quis, on top of organic direct selling of LP to merchants, sees ISOs like BankCard as strategic in being able to augment that sales strategy. LP will scale through BankCard’s merchants, I’ll have to check my notes but I believe BC has over 7000 merchants on their platform, and now Quis has direct access to them. Quis aims to keep their eyes open for other opportunities like that that make sense from an M&A perspective.
call shifts to Mike Murphy CFO to talk financials:
rev was up 16% over Q1 2020. coming from cloud solutions programs and cross selling.
GP was 34% against 37% last year, margins lower as rev increase was driven from lower margin rev.
G&A - increase is inline with increase in revenue and higher legal and professional fees +
decrease in interest expense due to significantly lower rates on the combined loan facility. also lower principal amounts left to pay.
transaction costs were a half mil due to the 2 acquisitions.
development costs - 313k against 67k in 2020, one off costs because of the product development
net loss was (0.01) per share
1.2 mil in EBITDA against 1.1 last year. must consider storm.
12.8 million in cash in the bank atm 10 mil expected to come.
So lower rev margins for Q1 as quis saw an increase in CSP (cloud solutions provider) contracts being started. As I take it, this is business that is being funnelled to Quis from Microsoft, so the customer is likely already paying licensing fees to microsoft and part of that contract gets them exposure to companies like quis. new business that results from the engagement of quis likely gets split between MSFT and Quis. Mike explains this further in Q&A, he notes that its great to have, business is business but that this was an atypical quarter for CSP contracts and margin was hurt due to the storm so we had lower rev overall so the CSP rev was able to affect margin in a material way. MR states that they are confident GM will return to 40-45% moving forward.
Q&A
each analyst is limited to two questions. lol. Q4 call was lit. Each analyst just kept going down the LP rabbit hole.
Q1: Robert young (my boy) -> talk about the milestones left for LP in back half of year. roadmap. revenue that we can take advantage of outside of commercialization.
MR: ISO certs awarded, key things that are next are fully executed agreements with bank, two elements: sponsorship as a bin to onboard merchants and visa sponsorship. once completed, process of certification with visa, validation step takes 90 days or so. once we have cert, can onboard merchants. first is bankcard merchant portfolio will migrate onto ledgerpay. secondly, very active organic sales pipeline, working to facilitate onboarding of merchants. activations happen after cert. Q3 and Q4.
Q2 May 7th is when BC revenue comes on to quis’s books. half a quarter of rev contributions and ebitda contributions for Q2 results.
Robert young follow up: looking forward at gross margins. how do u see GM playing out over the next couple quarters with Mazik and BC, and explain impact on CSP rev on the mix this Q and how that might change.
MR: GM on bankcard are roughly 50% LFG. 9 mil a Q in rev.. Professional services on IP and cloud solutions are in the 40%+ range. wildcard for us is the CSP contracts that are done, they are recurring in nature, fully recurring monthly rev, those rev streams are recognized on a gross basis, impact to GM pulls it down as CSP is 18-20%. alot of new rev came from CSP which is good but hard to forecast, consumption of CSP can be up big. 30% up in Q1, spike drivin by consumption of contract. expecting GM to come back to 40-45% range in Q2.
Steven bolland, Raymond James: one question on outlook over next few years. is it a 3-5 years accurate? do u need acquisitions to get there?
MR: LP could get us there alone likely. (yea it could) short end is 3 years. opportunity is there for it to be done quicker.
Steve follow up: where does initial LP rev come from, everyone lining up for product where does initial growth come from?
MR: bankcard low hanging fruit, easy to execute. really solid pipeline, conference in florida, lots of in person dialogue, great dialogue with merchants and ISO portfolios that we can sell LP to. Elephant hunting going after The big guys as well. those will come in here and there.
Rob Goff Echelon: LP onboarding process?
MR: two approaches to the market, payment side, traditional payment sales process. larger merchants -> leading with payments intelligence, rich data insights that are unlocked thru blockchain. work to do pilots with customers, in conversations already. get their data, incorporate new data. in some cases they can announce and share pilots, sometimes these merchants dont want to share that they are piloting LP as they think its in their best interest to not let their competition know they are using LP. We get to be the market maker for payments intelligence, value add that strategically differentiates the customer from their competition.
ROB follow up: BC more insight?
MR: Second Q partial contribution as mentioned. Q3 full impact Q. metrics are consistent with what has been shared previously, rev was under 32 million for 2020, ebitda contributions was 39%, roughly 50% GM for 2020. this will get stronger with LP.
This is cash cow man. 39% ebitda margins lfg.
8capital question: Bankcard-> health of bankcard business. recovery in brick and mortar or is online driving growth still?
MR: retailers in US are opening again, strong online still. more brick n mortar recently, stimulus money bringing a lift. but traditional retail that has fallen off has come back in. Payments intelligence of LP helps brick and mortar.
8 capital follow up: expanding monetization of IP from Bankcard, (age checker)
MR: age checker great product for verification. interesting ideas about how they can expand identity verification that they have, then connect Microsoft azure. bring things to market that don’t exist. data and insights from LP can bring complementary offerings to merchants with BankCard.
I wonder what they are thinking of using age checker for. Try and have it in a position to be top choice for online marijuana purchases in US states? Will be interesting to watch that IP get commercialized
desjardin, kevin K: first q on bankcard-> 30% growth on payment volumes, how to model for the year. target for 20% growth estimate before. can BC maintain 30%?
MR: hard to compare with 2020 covid year. little softness in summer months, then returns strong through holidays. good complement for our cloud solutions business where it slows down in Q4, payment solutions picks up. Thats a solid point I hadn’t yet appreciated, in my time on these calls MR has noted that Q4 is typically slow part of year for Quis as Cloud Solutions slows down with people taking holidays and companies wrapping things up for the year. Now we are going to be able to maintain growth through our payment solutions business and likely experience our best quarters when cloud is lower.
LP gets activated in Q3 and Q4 captures that seasonality, beautiful part of complimentary businesses. little softness in summer, strong finish in fall/ holiday time.
desjardin follow up: learn more about merchant base and scale up LP? contracts with merchants that are up for renewal in 2021/2022.
MR: cycle of merchants, LP doesn’t get affected, signifcant room to move merchants over. good line of sight to what revenues will be. look at 1st 2nd 3rd wave of bringing merchants over. on payments intelligence, looking at best targets, brick and mortar is a powerful place for LP. the synergies will be driven in near term by payments recapture in their portfolio.
follow up: age checker, how much of BC merchant are using it.
MR: saas offering, available to broader merchant base, any merchants that need it can can get it. 7% of revenue. feel like there is strong room to grow.
beacon securities: follow up on previous question, how long will it take to convert BC merchants to LP, any reason to believe you wont have 100%?
MR: its going to take some time, needs to be seamless “white glove” approach
end point certification to process payments still required (essentially bank sponsorships starts countdown to being able to take transactions with Visa). 18 months to capture the whole portfolio. some of the online business is easier to move, shopping cart experience vs a terminal in store. by Q4 of this year really starting to build that out. 6 quarters to complete.
second question: about development costs.
MM: related to testing and ISO certs.
concludes Q&A.
closing remarks from MR: thanks for being here. thanks employees.
OK. going to regular font here. for finishing commentary.
So that ending from mike to me was telling, it was quick and to the point, the man sounded like he really wanted to be in a position to have the Bank Sponsorship in hand for this CC. As you can see this was again a Call that was dominated by LP and now BankCard questions and speculation for onboarding customers for LP and Rev estimates for the coming quarters.
Quisitive is currently trading down 4.11% right now Tuesday afternoon. It dipped to 1.35 today and I bought more out of what was likely a naïve buy being already overweight enough on it. but that’s how bullish I am on LP being an absolute game changer in the markets.
One thing to consider from this call that you could only pick up on being on it is that MR is really looking forward to getting out to conferences and connecting with potential customers again. When he mentioned the florida conference the team attended he was very enthusiastic. Its all speculative of course pre-launch but it sure sounds like the pipeline for LP is there and filling up. This is besides BankCard augmenting that LP penetration, + any additional acquisitions MR may pull off.
Lets get a chart up here and take a look at Quis and I will do my best to explain why we are at where we are at here:
Notice in the first oval how tight volume got leading into expected LP launch in tandem with the closing of the BankCard Acquisition. I was working on completing my overweight position in quis and I could not get my limits to fill. We get the breakout in the first week of trading in may, on some very strong volume to boot. We spent a couple days up there trying to hold out on LP launch coming shortly after the BC acquisition closing but it didn’t come. The markets were not kind to smallcap growth through may so down we went. What exacerbated this fall was the announcement of the warrant expiration date being accelerated. Came at a tough time after losing momo + market volatility at large. Many traders were likely holding the warrants to speculate on making a good buck on LP officially being sponsored to process payments. Those large red candles underneath the 50 day represent that selling. the 10 day ema has since acted as resistance and with no LP news coming with earnings the stock is under selling pressure right now. I bought at 1.35 as I am irresponsibly long on Quis, but in working to provide you guys with some better buying opps i suggest waiting to see us take back the 50 and let this selling give way to new buyers anticipating the launch of LP.
I believe this launch will come next week as mentioned. On April 20th we were days to weeks away. Now MR is confident the Sponsorship is “imminent” as of May 25th.
Perhaps Quis pulled forward some of that growth hitting 1.98 back in early May. I dont anticipate us just flying right back up to ATHs. It has always been a war in the trenches with quis. here is the 1 year chart:
Since sliding into oblivion after our bought deal announcement last June, We had slowly grinded our way up. On solid earnings, accomplishing LP production and commercialization milestones, and on accreditive acquisitions like Mazik Global and BankCardUSA.
This chart highlights the risk investing in penny stock thats still working itself to profitability. Quis is volatile. I believe we just took it on the chin but are about to get back up and start swinging. Lots of rounds to come still, and Quis with MR at the helm is in a position to win em all.
I hope you enjoyed this stack. I’m looking forward to a great back half of the year for Quis. Some important disclosures follow:
I own shares of Quisitive through the TSX-V listing QUIS.V. I am not getting paid for this stack. Quisitive is a pre-profitability penny stock still and thus is subject to higher levels of risk in the markets. As I took notes on the call live it is most certainly the case that I missed typing down information that may have been material, I would encourage anyone wanting to know more about the call to listen to a recording of it on the Quisitive website.
Cheers,
Luke