Buenos Dias,
Yesterday Quisitive reported Q4 and FY2020 earnings. We had a solid year as expected. Financials highlights follow below, with their two acquisitions (CRG and Menlo) having full years to contribute to rev and bottom line. aS noted on the yahoo board and twitter, I believed this call was going to really be about where LedgerPay was at in terms of launch and enterprise interest in the product, as well as how the company sees its recent acquisitions, BankCard USA still pending, fitting into the Quisitive umbrella and what else the company might be looking for in the market for M&A, and thats exactly what it was about.
Mike Reinhart once again delivered a great earnings call. Easily the best CEO presenter/speaker from the group of stocks that I own. I continue to come out of calls with more conviction on Quis. What follows is my rough notes from the call while listening (I have italicized those notes to indicate that its made at the time of call). Any notes below in regular font are my commentary and follow up from said notes. Q&A was trickier to manage notes wise, you should be able to discern whats going on in that section, I provided brief commentary to clear things up there as well.
Before reading let me disclose that I own shares of Quisitive and I am bullish on Quisitive. These notes should not be taken as DD and if you love what you read here I encourage you to do your own DD before buying.
Mike introduction:
· Consistent growth in Cloud
· Close to general availability for LP
· 4th quarter surpassed estimates in house expectations
· 169% yoy rev growth for FY2020, 18% organic growth in cloud.
· Love how he recognizes team. Says this is the work of years coming together.
· Team recognizes lots of work to be done to capitalize on everything.
· Expand footprint in cloud services and payment solutions.
I mean, Classic introduction. great yoy rev growth, acquisitions are providing the synergies they expected. I love how Mike always acknowledges the team. They continue to see what they say is strong organic growth in the cloud solutions business, hitting their target of 15-20% organic growth each year.
Michael Murphy (CFO) talking financials:
· Rev for 4th q increased 142% to 13.1 million yoy. Qoq rev increase was due to LP license rev, Menlo, and organic growth
· 169% yoy rev growth. Increase in annual rev due to CRG rev for full year, Menlo rev and LP license rev, as well as organic growth.
· 5.4 mil gp, 47% of sales
· 20.2 mil, 41$ rev for gp for the year.
· Increase in gross profit in line with rev.
· Admin expenses increase due to Menlo and crg employees.
· Legal and professional fees increase for product and suite development (certainly due to LP).
· Earnout and settlement losses, $1.2 million remeasurement.
· Gain of 0.01 EPS for the quarter. Net loss of 0.07 EPS.
· $1.2 mil in adjusted ebitda 2019, $8.1 mil in adjusted ebitda 2020.
· 2.2 mil in adjusted ebitda in q4.
I am going to supplement these notes with some crops of their financials from their SEDAR filings for Q4FY20, first lets look at their total YOY numbers:
If you read my DD piece on Quis, you’ll remember me noting as negatives: GM % decrease, significant G&A increase (many more employees with acquisitions, accommodating costs that come with that), and Amortization (IP from CRG mainly). These are all still relevant points to note as we close out our year. Its good to see the earnout decreasing, as we are about to have that become a big part of the story over the next couple years after providing earn-out agreements to both Mazik and BankCard (upon closing). Net loss for the year grew, but lets dive into that for Q4 and then again for a 2 year pic below:
Here is Q4 2020 put up against Q4 2019. Note Net Income at the bottom, for the first time, Quis was able to post + net income for a quarter. This should be welcomed by shareholders. The benefits of recurring revenue from CRG and LP licensing helped drive this no doubt. further more, I found the following financial table encouraging:
We posted our first Quarter with + EPS, albeit just a cent. its the step in the right direction we want to see as we near LedgerPay launch when Quis really becomes another beast entirely.
Back to Mike on operational highlights for the Quarter:
· Talks to recent progress on LP, love how he takes it right here.
· Goes over LOI with bank
· Final review of legal agreements, hold on up ledgerpay due to bankcard acq, bankcard’s bank sponsorships, and ensuring that quisitive’s bank sponsor could support bankcard as well.
I was very happy to get an update on LedgerPay quickly in the call. Mike knows the Market expected this launch in late Q1 (with 3 different run ups for the stock to 1.75). He clarifies why they are behind, essentially if they had not acquired BankCard they would’ve kept their timeline and would have been able to announce formally the Bank Sponsoring LP and launch LP. But because BankCard, as its own payment processor, has DA’s with other banks to back them in their operations, Quisitive also had to include these banks in the discussions with Quis’s bank sponsor for LP. I know there is more on this below in real time notes but i’ll say remember that Mike said they want to do this right, not fast. BankCard is going to allow LedgerPay to operate at scale pretty quickly with 7200+ merchants using BankCards platform.
· Q2 2021 will segment business, global cloud segment and global payments segment
o Payments will be bankcard and ledgerpay
o Break down segment will help track growth of each
· Licensing agreement with rev19- > licensed it to payment solutions providers.
o Encouraging results.
· Bankcard established all in one payments solutions provider. (goes over in broadstrokes) mentions checking IR on website to listen to the Bankcard call from march (I have notes on stack)
· Card present and card not present, white glove approach (really take care of customers)
· Do not see any barriers to occur. Close acquisition as early as next week.
Come reporting time for Q2 (August 2021) Quisitive will start to breakdown revenue into two segments: 1. their global cloud solutions segment (Quis/CRG/Menlo) and 2. Global payments segment (driven primarily by BankCard for Q2, with LP pilots in progress for Q2, commercialization at scale in Q3). A little more on support for LP below:
· Microsoft sales team activated, incentivizes team to promote ledger pay for quisitive.
ISO certifications help promote to customers that LedgerPay is safe secure and reliable.
FOCUS ON CLOUD:
· Goes over Mazik acquisition, goes over how Microsoft is a leader in cloud solutions.
· Mazik healthcloud platform “mazikcare” offers robust healthcare ready solutions for medical teams and patients, connect front and back end users, leverage cloud.
· Vaccineflow -> mazik selected by healthcare facilities and institutions across the US,
· 1.8mil vaccinations through mazikcare.
· Getting quis deeper into healthcare
· Microsoft is VERY pleased about acquisition.
· Direct feedback from Microsoft top exec “fantastic acquisition” already realizing a lot of synergies. Many more to come.
· Partner 0 in healthcare for Microsoft, the biggest player in healthcare on the cloud.
Fuckin eh right. Mike wasnt shy about sharing with us just how happy Microsoft is with Quisitive and the acquisition of Mazik. They see a lot of value to be unlocked for current and future customers. Alot of synergies to be created by bringing Mazik into Quisitive. Remember Mazik was a preferred microsoft solutions provider as well. Mike states and I noted above, “partner 0” taken to mean that Mazik is number 1 for Microsoft in its healthcare cloud solutions space for how it operates, offers, and applies cloud based solutions for customers.
Business Solutions:
· Strong growth, realizing synergies,
· Healthcare and life sciences really spurring growth.
· Cloud integration into new lines of business.
· Take home diagnostics company new partner. did not name
· Retail and hospitality partners coming back. Connects ledgerpay.
· Headwinds at start of new year:
Storms and shutdowns in Texas, natural disaster impacted operations. number of weeks employees did not have power to work. Things slowed down.
Hint that q1 could be weak
Everything is up running strong in Q2 now Full steam.
I’ll focus here on providing colour to Mike’s comments on 2021 Q1 weakness. Quisitive has a cloud consulting head office in Texas. The lower rev we’ll see was 100% the result of consultants and staff not being able to access their computers at the office and work on projects in Texas during the snow storm. ( not able to be completed at home I guess, power was out there too). Business was not lost, just not able to be completed in the Quarter. Mike let us know that cloud revenue will still show growth qoq. just not as strong as it could have been if no storm occurred. Mike said that revenue will spill into Q2 and realized then so Q2 should be larger than expected.
M&A Notes:
· Active in conversations in cloud space, expect 1 more acquisition in this space in H2 2021.
· Another acquisition this year in payment solutions as well!
· All companies fall under the quisitive umbrella.
o 4 companies acquired thus far. All connect and play a part in what quisitive does.
· Backend is all connected, everyone is on the same page, speaking the same language.
· Investing to ensure the whole company can realize synergies.
Again Mike knows what to give the analysts and listeners on the call. Each acquisition was meticulously evaluated and measured on whether it would unlock value and deeper abilities in the cloud to give current and future customers a product offering they cant get elsewhere, being able to realize synergies and provide more depth to each of Quisitive’s offerings in the cloud. You can imagine that some may be hesitant seeing so many acquisitions going down and how will quisitive, a small company on its own, manage all of these integrations. I have full confidence in Mike.
Q1 and rest of year:
· Q1 will be lower that this q4 due to storm.
· Organic growth still occurred in cloud.
· Acquisitions will be accretive to quisitive in q2
· Ledgerpay coming very soon, commercialized in Q3.
· Moves on to say that H2 will be very big for company, realize fruits of labour.
· 3-5 year, $250 mil in rev, $100 mil in ebitda.
Drops the $250 mil rev $100 mil ebitda line again like he did on the BankCard call. Q2 will be massive with both Mazik and BankCard rev now on quis’s books. The Q&A that follows was lengthy. Alot of analysts in on this call and alot of them asked follow up questions. Which you love to see.
Q&A:
1. Dejardins
a. 18% organic revenue growth in Q4, can u unpack it. What was driving it.
b. Can we talk to new vs existing rev
Response:
· Significant growth in cloud services and licensing side is more than double over last year.
· Recurring revenue growing strong and see a lot more growth to come.
· Move to cloud and professional services pattern continuing.
2. Dejardins again:
a. Slow down in jan due to?
RESPONSE:
Cloud services and licensing grew, it just didn’t grow as much as it should have.
· All work will be deferred to future periods.
· Work couldn’t be performed.
3. Desjardins
a. Would ledgerpay have the bank sponsorship in q1 if you didn’t acquire bankcardUSA?
Response: yes essentially. Lots to work out when banks are working together. In discussions with Major merchants, jointly with Microsoft, to launch pilots with major merchants, meaningful discussions.
5. ROB GOFF ECHELON
a. Loud signals to market on mazik and bankcardUSA acquisitions, are u acquiring more interest from enterprise businesses now?
RESPONSE:
b. Yes, we are, really positive coverage on the acquisition for payments.
c. Unique providers they may target for M&A may be cloud solutions providers with IP for payments.
FOLLOW UP: Cadence on acquisitions: pause, integrate then acquire or doing it all at once? <- essentially asking whats the gameplan here now that you acquired two businesses very quickly.
RESPONSE: “We are a value creation company”. Right foundations in place, target very high value targets, not a volume play, a value play.
6. Robert young from Canaccord, MY BOY ROB!! (I met Rob back in mid-march).
a. for Q1 2021, colour on how to model growth. <- asking how to judge Q1 given the storm.
REPONSE: Still expecting significant yoy growth (q1 2020 vs q1 2021)
c. Cloud will have qoq growth.
FOLLOW UP FROM MY BOY ROB: What is left for LedgerPay? Roadmap and timeline:
RESPONSE: couple months left, data centre is deployed, cloud environment is done, certifications are done. PCI audit is next to be done, on the software environment Quisitive deploys for LP.
Final execution of bank sponsorship, more days and weeks away than weeks and months.
End point with visa, 90 days after bank sponsorship announcement.
Pilots as well going on.
90-120 days, be commercialized, onboard merchants, as well as onboarding bankcard merchants. Q3 will see migration to ledgerpay.
<<<<lots of good information provided from Mike here>>>>
FOLLOW UP: “onboarding merchants what does it mean” ->
RESPONSE: Quisitive will offer both direct payment processing, and payments intelligence. Pilots will be direct onto the payments intelligence process.
FOLLOW UP: “opportunity here is a unique cloud azure based payments platform” what kind of response are you guys seeing from companies now that its becoming real?
RESPONSE: Payments intelligence really big with large merchants. Quisitive is the Only one to offer the ability to unlock this rich customer data and insights. Major merchants and global providers most excited as these data insights and value they can not get yet from anyone else. Great reception, major globals (merchants) exploring pilots with Qusitive for LedgerPay.
Follow Up: How many competitors - > RESPONSE: zero, nobody is doing what they do. <<<<LFG, more below….
o Payments intelligence and data. MAJOR MERCHANTS WANT THIS
o ISO/mid market merchants- > payment processing platform, lots of unique offerings quis can offer.
§ Really strong pipeline of ISOs are anxiously awaiting to sign up for ledgerpay.
Question on 90 days for visa to get LP going:
· General guidance 60 to 90 days.
· The sponsorship is informally being talked with visa they know who the bank is. Paperwork is done with visa.
Eight capital: question on cloud solutions and new customers migrating to the cloud:
· Engineering solutions, didn’t really take notes here not gonna lie. Same answer provided before around customers.
Follow up for priority on next acquisition, will it be a new segment?
RESPONSE: Will look at industry focus, deepen industry expertise in technology space. Need to be able to offer the high-value modern applications. To do that need to understand industry and business. Healthcare and retail, IP with ledgerpay. Mazik brings some manufacturing capabilities as does Quis. Recurring rev important when evaluating acquisition targets.
Decoupled ledgerpay: payment processor and payments intelligence, don’t need to do both, large merchants will take payments intelligence.
<<< this is a neat feature, mike mentions that a lot of these global merchants have long-term contracts with payment processors but they can layer LP data intelligence on top of the merchants processing software to get that high-level insight and data they want.
Beacon securities Question:
BankcardUSA-> share with us some stats from Q1 for bankcard & Ledgerpay commercialization-> update on economics from bankcard to ledgerpay.
RESPONSE: Q1 was best quarter ever for BankCardUSA, interesting trends, total volume is up, restaurants and retailers that had scaled back in US over 2020 are coming back in q1 now (mentions US is different), They are acquiring new merchants, positive growth. Unlock synergies operationally and compliment what they (Bankcard) are doing with LedgerPay.
Rob Goff comes on again:
Follow up on 250 mil rev 100 ebitda, 3-5 year plan, is that organic/inorganic, and mix of rev?
Response: 15% to 20% organic growth in cloud solutions, Activation of LP, 60% of business will be from payments segment. High % of growth coming from organic. 30% or more coming from ledgerpay. Grow cloud solutions business through M&A.
Mike then Wraps up the call thanking everyone on the call, the Quisitive team, and shareholders and gets us jacked up for the year ahead.
Key things I took away from this Call:
to monitor LP performance in Q2-> look for pilots to be announced in late May/June
Looks like we are awaiting one final cert to qualify LP software.
BankCard USA acquisition will close as early as next week.
we got our answer on why ledgerpay was lagging, admin business between banks. There is no concern on whether LedgerPay will get sponsored, its a matter of when -> “days to weeks” away from announce Sponsoring Bank. From that point, LP will be activated for Visa 60-90 days from this annoucement.
Licensing agreement with Rev19 thus far seems to have been very good to Quis. good feedback and we cant see the rev just yet but Quis put up a solid quarter (Q4) when seasonality was supposed to take effect and slow them down, mike gave us a heads up on Q3 call that this was very possible to occur (slowdown). And we still beat. bodes well for LP.
LedgerPay is attracting serious interest from many sources, Large Global Merchants who want the data insights, and Mid-level ISOs/merchants that want the whole program, payment processing and data intelligence.
Q3 will begin to show LedgerPay rev at some level of scale. (Quis reports Q3 in late November 2021).
We should keep an eye on Mazik, this was by all accounts a nasty add for Quisitive and there is going to be alot Quis can do with Mazik IP.
get ready for two more acquisitions this year-> one on the cloud side one on the payment solutions side.
I hope these notes from the call helped further your understanding of Quisitive and LedgerPay. I could not capture each word said on the call so by nature there is missing information and tidbit, I worked to get all the very important stuff down. I encourage you to check out Quis’s website for a full recording of the call to ensure you have all the information from it. This stack is not a solicitation to buy Quisitive Shares. I recommend doing DD before buying.
Cheers,
Luke