Quorum Information Technologies Inc. (“Quorum” or the “Company”), a
leading provider of dealership and customer management software and
value-added services to the automotive industry, released its
results for Q1 2019 today.
“This is Quorum’s first quarter as a combined
Company following our recent acquisitions, the latest being Oasis
in January 2019,” stated Maury Marks, President and CEO. “Today we
are reporting the combined results from the XSellerator, DealerMine
and Autovance divisions, and the newly acquired Oasis
division.”
In Q1 2019 we collectively posted both a record
total revenue amount and a record Software as a Service (“SaaS”)
revenue amount from 971 customers, compared to 449 customers in Q1
2018. SaaS revenue in the quarter was $5.28 million, or 72%
of total revenue, and Business Development Center (“BDC”) revenue
was $1.34 million, or 18% of total revenue. Quorum’s annual
run rate is now $21.1 million for its SaaS revenue and $5.3 million
for its BDC revenue, and 90% of Quorum’s revenues are under
long-term or evergreen contracts.
Looking more specifically to our divisions, our
XSellerator division continued to grow its installed customer base
in Q1 2019 with additional dealership rooftops installed in both
Canada and the US. The XSellerator team also worked on key
integration projects to support cross-selling opportunities from
our recent DealerMine and Oasis acquisitions to our XSellerator
customers. Sales of DealerMine Service CRM to XSellerator
customers and Oasis customer conversions to XSellerator were both
strong, and we also continued to sell Autovance Desk to XSellerator
customers.
Both DealerMine and Autovance had good quarterly
revenue growth in Q1 2019. As mentioned in previous Quorum
disclosure, DealerMine, Autovance and Oasis are high-growth,
cloud-based SaaS businesses that can show immediate returns when
adopted as they do not require OEM integration and require
significantly less training and support to transition dealerships
to their solutions. DealerMine had an impressive quarter as
they announced and started the roll out of their Service CRM
software and BDC services for the previously announced AutoCanada
Canadian dealerships contract, which in turn produced strong growth
numbers for DealerMine in Q1 2019 in both their SaaS and BDC
revenue.
In addition to the announcements of the Oasis
acquisition and the DealerMine and AutoCanada partnership, Quorum
announced two other noteworthy strategic deals in the
quarter. The first was XSellerator having completed all
certification requirements for manufacturer integration with
Volkswagen Group of America. The second was the closing of a
$15 million debt financing facility with BDC Capital Inc. (“BDC
Capital Facility”). The new BDC Capital Facility allowed Quorum to
retire the Covington Capital bridge loan and replace it with a
longer-term and more cost effective strategic financing facility.
The Covington Capital bridge loan was used to fund the purchase of
the previously announced DealerMine Inc. acquisition in late
2018.
As we look forward to the remainder of 2019,
Quorum’s priorities remain to grow its SaaS revenues while showing
operating leverage from its increased scale. The opportunity
set remains as large as ever and we are working hard to capitalize
on it.
Q1 2019 Financial
Highlights
($000’s except per share amounts)
|
Three MonthsEndedMarch 31,
2019 |
Three MonthsEndedMarch 31,
2018 |
Gross revenue |
$ |
7,348 |
|
$ |
3,522 |
|
Gross margin |
|
3,282 |
|
|
1,840 |
|
Gross margin percentage |
|
45 |
% |
|
52 |
% |
EBITDA expenses1 |
|
2,525 |
|
|
1,652 |
|
Operating income before interest, taxes, depreciation and
amortization
(EBITDA)1 |
|
757 |
|
|
188 |
|
EBITDA as a percentage of
revenue1 |
|
10 |
% |
|
5 |
% |
Adjusted cash income (loss)
1 |
|
38 |
|
|
(405 |
) |
Loss before deferred income tax
expense1 |
|
(621 |
) |
|
(398 |
) |
Comprehensive
loss11 |
|
(606 |
) |
|
(189 |
) |
Net loss per share |
|
(0.0091 |
) |
|
(0.0047 |
) |
Cash provided by (used in) operating
activities |
$ |
1,188 |
|
$ |
201 |
|
- Q1 2019 was the highest SaaS
revenue and total revenue quarter in the Corporation’s
history. Gross revenue increased by 109% to $7,348K in Q1
2019 from $3,522K in Q1 2018. The increase in revenue is due
to:
- An increase of $2,551K during Q1 2019 in SaaS revenue as a
result of the DealerMine and Oasis acquisitions and as a result of
organic growth of both XSellerator and Autovance; and
- An increase of $1,318K during Q1 2019 in services revenue
primarily attributable to the DealerMine acquisition.
- SaaS revenue increased to $5,284K
in Q1 2019 compared to $2,733K in Q1 2018, an increase of $2,551K
or 93%. Quorum’s SaaS revenue in Q1 2019 was $5,284K, which
translates into a yearly run rate of $21,136K. SaaS revenue
was 72% of total revenue for Q1 2019 as compared to 78% for Q1
2018. At the end of Q1 2019, Quorum had 971 customers compared to
449 customers at the end of Q1 2018.
- As noted above, as part of the
DealerMine acquisition Quorum acquired a BDC. BDC revenue was
$1,336K in Q1 2019 for which there was no comparable revenue in Q1
2018 as the DealerMine acquisition was completed in Q4 2018.
This translates into a yearly run rate of $5,344K. BDC
revenue was 18% of total revenue for Q1 2019.
- 90% of the Corporation’s revenue is
under long term or evergreen contracts with customers.
Contracted revenue is calculated by combining SaaS and BDC revenue.
- Gross margin increased to $3,282K
or 45% in Q1 2019 compared to $1,840K or 52% for Q1
2018. While gross margin increased by $1,442K during Q1
2019, gross margin percentage decreased by 7% during Q1 2019.
The increase in gross margin is primarily due to additional gross
margin from DealerMine and Oasis of $1,671K in Q1 2019, for which
there was no comparable in Q1 2018.
- EBITDA was $757K in Q1 2019 as
compared to $188K in Q1 2018, an increase of $569K from Q1
2018. An increase in gross margin was offset by an increase
in salaries and benefits, general and administrative and sales and
marketing expense primarily due to the DealerMine and Oasis
acquisitions. As well, sales and marketing expense included
costs associated with the National Automobile Dealers Association
(“NADA”) convention. The NADA expense for Q1 2019 was $374K
as compared to $301K during Q1 2018. This increase is due to
the addition of the DealerMine NADA booth.
- Adjusted cash income was $38K for
Q1 2019 as compared to negative $405K for Q1 2018, an increase of
$443K. The total of capitalized salaries and overhead was
$721K for Q1 2019 as compared to $593K in Q1 2018.
Acquisition transaction and financing expense was $2K for Q1 2019
and as compared to $nil for Q1 2018.
Adjusted Cash Income |
|
|
($000’s) |
|
Q12019 |
Q12018 |
|
|
|
EBITDA |
$ |
757 |
|
$ |
188 |
|
Capitalized salaries and overhead |
|
(721 |
) |
|
(593 |
) |
Acquisition and financing expense |
|
2 |
|
|
- |
|
Adjusted cash income |
$ |
38 |
|
$ |
(405 |
) |
- Loss before deferred income tax
expense increased to $621K for Q1 2019 compared to $398K in Q1
2018. The increase in loss before deferred income tax expense
is primarily due to the $569K increase in EBITDA, offset by
increases in the following non-cash expenses during Q1 2019.
- an increase of $331K in
amortization of intangible assets primarily attributable to an
increase in the carrying amount of the intangible asset balance as
a result of the DealerMine and Oasis acquisitions;
- an increase of $39K in amortization
of contract costs; and
- an increase of $110K in
depreciation of lease assets.
Strategy and Outlook
Quorum’s vision is to build a single,
integrated, end-to-end business process solution for North American
automotive dealerships that covers all of their business-critical
processes. To deliver on this vision, Quorum has initiated a
build, resell and acquire strategy, which combines continued
development of Quorum’s flagship XSellerator Dealer Management
System (“DMS”) product, partnering with complimentary third-party
service providers to re-sell value-added services to Quorum’s
existing customer base, and acquiring strategic companies that
provide innovative solutions that augment Quorum’s existing suite
of product offerings.
The genesis of this vision was a recognition of
the changing landscape in the automotive dealer market as well as
an in-depth understanding of the numerous disparate products that
Quorum’s customers purchase from a variety of third-party
providers. With many Quorum customers spending approximately
$7,000 per month on other third-party products, there is
opportunity to consolidate these products under one offering.
For a dealer group, Quorum can currently displace up to six
different products, allowing Quorum to capture part of this
third-party spend while providing cost savings to customers and
streamlining business processes.
Delivering on this vision, Quorum acquired
Autovance Technologies Inc. (“Autovance”) in August 2017, which
provides sales desking solutions to help salespeople seamlessly
present payment, lease and financing information to
customers. Quorum has continued to market the Autovance Desk
product to both new customers as well as its existing XSellerator
customers, and has recently made the Autovance Desk product
available to US-based XSellerator dealerships. Quorum
believes that this additional value-added product will accelerate
US growth opportunities by providing a more fulsome solution for US
based dealers and dealer groups.
In October 2018, Quorum completed the
transformative acquisition of DealerMine Inc. (“DealerMine”).
The deal significantly accelerates Quorum’s strategic vision to be
a full-service provider to automotive dealerships by adding
DealerMine’s Customer Relationship Management (CRM) Service, Sales
CRM and call centre services known as the Business Development
Centre (“BDC”). The deal also significantly increases Quorum’s
scale resulting in a combined company customer base of over 860
dealership rooftop customers at the time of acquisition, up from
447 prior to the acquisition. With only 15 XSellerator
customers currently utilizing the DealerMine Service CRM product
and BDC services, Quorum believes there is a significant growth
opportunity for DealerMine within Quorum’s existing customer
base.
At an industry level, the automotive dealer
market is seeing increased consolidation into larger dealer groups,
which creates opportunities for DMS providers like Quorum that can
integrate multiple dealer rooftops under one solution. In
addition, auto manufacturers are increasing the requirements for
DMS providers to integrate with their own OEM back-end systems, and
de-certifying those DMS providers that are unable to connect their
solutions with these systems. In March 2018 we continued our
progress towards an all makes DMS provider by completing
certification with Ford US. In January 2019 XSellerator also
completed certification with Volkswagen (VW) and Audi. Those
certifications allow XSellerator to be sold to Ford and VW/Audi
dealerships which increase XSellerator’s total available market,
particularly to those dealer groups which house a variety of
different vehicle brands. The XSellerator division has
completed integration with OEM’s representing 18 different brands
in Canada and 12 different brands in the US. To complete
Quorum’s all makes certification strategy, the XSellerator division
still needs to complete integrations with the remaining OEM
manufacturers being Honda/Acura, Mazda, BMW, Mercedes and Volvo and
complete additional integrations with the US OEM manufacturers
including Toyota/Lexus, Hyundai, Kia and Subaru.
In addition, as smaller DMS providers struggle
with the increased development and licensing fees associated with
increased OEM integration, Quorum believes there is opportunity to
consolidate these providers under one platform to achieve economies
of scale and spread these costs over a larger customer base.
To this end, Quorum completed the acquisition of Oasis Auto
Complete Systems Limited (“Oasis”) in January 2019 which will allow
for existing Oasis franchised dealerships to transition to the
XSellerator platform, and the Oasis Advantage Product Suite will
form the basis for a new system targeted at the independent
dealership market.
In Q1 2019, Quorum successfully closed a $15
million debt financing facility with BDC Capital Inc. Quorum
drew $8.125 million immediately to retire a bridge financing
facility that was used to acquire DealerMine Inc. and pay the cash
consideration of the Oasis acquisition. The balance of the
BDC Capital Inc. facility remains available for potential future
acquisitions.
As Quorum moves forward into 2019, it has never
had a more exciting set of growth opportunities. These
opportunities include growing the core XSellerator DMS business,
cross-selling products and services to our DMS customers, growing
acquired assets, and continuing to assess other strategic
acquisitions. DealerMine, Autovance and Advantage are high-growth,
cloud-based Software as a Service (“SaaS”) businesses that can show
immediate leverage in that they do not require OEM integration and
require significantly less training and support to transition
dealerships to their solutions. Continuing to build out the
XSellerator base is the foundation on which the company can offer
solutions from our recent acquisitions and third party reseller
arrangements.
Quorum Q1 2019 Results Conference Call
Details and Investor Presentation
Quorum will host a conference call at 13:00 MT
(15:00 ET) on Friday, May 31, 2019. Anyone wishing to
participate in the call is asked to dial-in using the following
numbers and ask for the Quorum Information Technologies Inc. Q1
2019 Results Conference Call:
|
Local: |
|
1 (403)
451-9838 |
|
|
|
|
|
Toll-Free North America: |
|
1 (888) 231-8191 |
|
|
|
|
|
Conference ID#: |
|
9484367 |
Quorum’s Q1 2019 Earnings Results investor
presentation is also available for download under the Investors
section on the Company’s website at www.quorumdms.com.
Forward Looking Information
This report contains certain forward-looking
information and statements within the meaning of applicable
securities laws. All statements in this report, other than
statements of historical fact, which address events or developments
concerning Quorum Information Technologies Inc. ("Quorum" or the
“Corporation”) that Quorum expects to occur are "forward-looking
information and statements". The use of any of the words "expect",
"anticipate", "continue", "estimate", "objective", "ongoing",
"may", "will", "project", "should", "potential", "could",
"scheduled", "believe", "plans", "intends", "might" and similar
expressions are intended to identify forward-looking information or
statements.
In particular, but without limiting the
foregoing, this document may contain forward-looking information
and statements pertaining to the following business plan of Quorum
including its plans for targeting new Original Equipment
Manufacturer (“OEM”) Integration, new dealership roof top sales,
and increasing Automotive Group Partnerships; the timing for
completion and cost of OEM Integration; estimates of return on
assets and EBITDA; potential merger and acquisition (“M&A”)
opportunities; the timing of adoption of new accounting standards
and the potential impact of new accounting standards on the
Corporation’s financial statement; the effect of acquisitions on
the Corporation including the effect of the Autovance, DealerMine
and Oasis acquisitions; the effect of the BDC Capital facility;
various industry activity forecasts; growth opportunities including
those in the United States; anticipated requirements by OEM
manufactures relating to integrations and certifications; and other
expectations, beliefs, plans, goals, objectives, assumptions,
information and statements about possible future events,
conditions, results of operations or performance. Various
assumptions were used in drawing the conclusions or making the
forecasts and projections contained in the forward-looking
statements throughout this report. The forward-looking information
and statements contained in this report reflect several material
factors, expectations and assumptions including, without
limitation: (i) capital expenditures by dealers; (ii) market
availability of current and future dealership rooftops; (iii)
schedules and timing of certain projects and Quorum's strategy for
growth; (iv) Quorum's future operating and financial results; and
(v) treatment under governmental regulatory regimes and tax and
other laws. The forward-looking information and statements included
in this report are not guarantees of future performance and should
not be unduly relied upon.
Forward-looking statements are based on current
expectations, estimates and projections that involve a number of
risks and uncertainties, which could cause actual results to differ
materially from those anticipated and described in the
forward-looking information and statements. Such information and
statements involve known and unknown risks, uncertainties and other
factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking
information or statements including, without limitation: (i)
volatility in exchange rates for the Canadian dollar relative to
the US dollar; (ii) liabilities and risks inherent in the software
services industry; (iii) competition for, among other things,
capital and skilled personnel; (iv) changes in general economic,
market and business conditions in Canada and the United States; and
(v) actions by governmental or regulatory authorities including
changes in income tax laws or changes in tax laws. Quorum cautions
that the foregoing list of assumptions, risks and uncertainties is
not exhaustive. The forward-looking information and statements
contained in this document speak only as of the date of this
document, and Quorum assumes no obligation to update or revise them
to reflect news events or circumstances, except as may be required
pursuant to applicable laws. Any financial outlook or future
oriented financial information in this document, as defined by
applicable securities legislation, has been approved by management
of Quorum. Such financial outlook or future oriented financial
information is provided for the purpose of providing information
about management's current expectations and plans relating to the
future. Readers are cautioned that reliance on such information may
not be appropriate for other purposes.
About Quorum Information Technologies
Inc.
Quorum is a North American company focused on
developing, marketing, implementing and supporting its portfolio of
software and services for automotive dealerships that includes:
- XSellerator™, a Dealership
Management System (DMS) that automates, integrates and streamlines
key processes across departments in a dealership, and emphasizes
revenue generation and customer satisfaction.
- DealerMine CRM, a sales and service
Customer Relationship Management system and set of Business
Development Center services that drives revenue into the critical
sales and service departments in a dealership.
- Autovance, a sales desking system
that increases sales department gross margins and improves customer
satisfaction for dealerships.
- Advantage, a full showroom system
for both franchised and independent dealerships and a comprehensive
operating system that includes accounting for the independent
market.
Quorum has filed its Q1 2019 unaudited condensed
consolidated financial statements and notes thereto as at and for
the three months ended March 31, 2019, and accompanying management
and discussion and analysis in accordance with National Instrument
51-102 - Continuous Disclosure Obligations adopted by the Canadian
securities regulatory authorities.
Quorum Information Technologies Inc. is traded
on the Toronto Venture Exchange (TSX-V) under the symbol QIS.
For additional information please go to
www.QuorumDMS.com.
Neither the TSX Venture Exchange nor its
regulation services provider (as that term is defined in the
policies of the TSX Venture Exchange) has reviewed this release and
neither accepts responsibility for the adequacy or accuracy of this
release.
________________________________
1 IFRS 16 was adopted January 1, 2019 using the
modified retrospective approach; therefore, comparative information
has not been restated. The adoption of IFRS 16 resulted in a
reduction of general and administrative expenses of $147K in Q1
2019.
Quorum Contact: Maury Marks403-777-0036MarksM@QuorumDMS.com
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