EMERGE Commerce (EMERGE Commerce Stock Quote, Chart, News, Analysts, Financials TSXV:ECOM) had a little jump in its step on Thursday after first quarter earnings came in with record revenue and positive EBITDA.
“Q1 was another record quarter for EMERGE and in the first quarter that includes the impact of truLOCAL, our most recent acquisition which closed December 31, 2020,” said EMERGE founder and CEO Ghassan Halazon in a Thursday press release.
Toronto-based EMERGE, which joined the TSX Venture this past December via RTO, is an e-commerce company focused on acquiring direct-to-consumer (D2C) brands in niche verticals, with a current portfolio including coupon and discount site WagJag.com, golf experiences and products company JustGolfStuff.ca, nearby escapes and staycation platform BeRightBack.ca and fresh meats business truLOCAL.
EMERGE’s largest acquisition to date, truLOCAL was bought for up to $16.8 million in cash, shares, deferred considerations and earnouts. With facilities in Ontario, BC, Alberta, Illinois and Quebec, truLOCAL partners with local farmers, producers and suppliers to offer a subscription-based service to customers. The business generated $19.8 million in revenue over 2020 and helped boost EMERGE’s Q1 topline.
EMERGE hit $7.1 million in revenue for the first quarter 2021, up from $2.2 million a year earlier, while adjusted EBITDA was $0.27 million compared to $0.23 million a year earlier. The company raised an aggregate of $12.1 million through a private placement warrant offering in March, leaving EMERGE at the end of the Q1 with $21.4 million in cash on hand to further its M&A agenda.
“We continue to ramp up our team, making key hires to support both existing and future potential acquisitions. We are carefully exploring and advancing various opportunities in our growing acquisition pipeline. Consolidating profitable D2C e-commerce brands is a tremendous opportunity, and our strong balance sheet puts us in a prime position to capitalize on it,” said Halazon.
EMERGE’s first quarter results came a month after the company delivered its Q4 and full year 2020, which saw quarterly revenue of $2.4 million and EBITDA of $0.1 million. For the year, revenue was up 121 per cent from 2019 to $9.2 million and EBITDA hit $0.8 million compared to a loss of $0.6 million a year earlier.
The company sees its business model as focused on inorganic growth via acquisition but also as an organic growth engine. E-commerce continues to expand its reach, with predictions that it will be pulling people away from bricks-and-mortar long after the current pandemic-related environment has run its course. But a prime issue for many small to medium-sized e-commerce companies is an inability to get the necessary capital to scale their respective businesses.
That’s where a name like EMERGE comes in with the resources to support that organic growth, by integrating businesses into its portfolio, streamlining and lowering costs, centralizing marketing efforts, back office integration and opening up cross-selling opportunities for its businesses.
Analyst Steven Li of Raymond James, who launched coverage of EMERGE on March 11, said niche e-commerce businesses are an interesting target, since they’re more likely than more widespread vendors to own their customer relationships, making them less prey to the variables of platforms like Google and Facebook and their changing algorithms.
“EMERGE typically acquires these e-commerce businesses at 4x-6x EBITDA. This allows EMERGE to cost-effectively scale into a well-diversified business. Acquisitions bring additional niche market expertise and talent, established brands, and proprietary merchant relationships that can be further developed and expanded to help create value,” Li wrote in his coverage initiation.
“The EMERGE HQ platform provides consolidation of software provider costs for email marketing, paid marketing spend, customer service, fraud prevention software and analytics among other consolidated vendor software solutions,” he said.
“EMERGE also consolidates and integrates back office and corporate functions (Human Resources, Customer Service, Payroll, and Accounting). In this way, portfolio companies can benefit from economies of scale and focus on growing within their respective niches. In addition to these integration synergies, EMERGE also offers portfolio companies extensive reach, expertise, and relationships to accelerate their businesses to the next level,” Li said.
In its Q1 2021 press release, EMERGE said it aims to make purchases with up to 50 per cent of the sticker price in upfront cash and that its current lineup of potential targets combine for about $68 million in EBITDA, including signed Letters of Intent.
EMERGE has seen its share price jump around since its debut in December, opening at $0.84 on December 14 and reaching about $1.60 by early February. The stock has come off since, however, and is currently in the $1.10-$1.20 range.
After EMERGE’s fourth quarter results in April, Li reiterated his “Outperform 2” rating for ECOM and $2.75 target price, which at the time of publication represented a projected 12-month return of 162 per cent.
Shares of EMERGE closed the day up 0.02 to $1.12 after hitting an intra-day high of $1.19.