It was a strong start to the year from Microsoft solutions provider Quisitive Technology Solutions (Quisitive Technology Solutions Stock Quote, Chart, News, Analysts, Financials TSXV:QUIS), but a market-induced multiple compression within the space has Beacon Securities analyst Gabriel Leung lowering his target on the stock. In a Thursday report, Leung maintained his “Buy” rating on QUIS while dropping his target price from $2.25/share to $1.75/share for a one-year projected return of 194 per cent.
Toronto-based Quisitive offers Microsoft cloud solutions, including Microsoft Azure, Microsoft Dynamics business applications and Microsoft O365, CRG emPerform, an employee performance management software for small and medium sized businesses as well as business solutions from other technology partners related to the Microsoft platform.
Leung’s latest update comes after Quisitive released its first quarter financial results for the 2022 fiscal year, which he noted to be better than expected. At the same time, Leung said that his target drop to his sum-of-the-parts valuation was due largely to an industry multiple contraction.
Quisitive’s financial quarter was headlined by revenue of $44.9 million (all report figures are in US dollars) for 34.9 per cent sequential growth and a 163.7 per cent year-over-year increase, while also beating the Beacon Securities forecast of $41.2 million.
Digging deeper into the numbers, Quisitive benefited from its Global Cloud Solutions revenue stream bringing in $33.8 million in the quarter for a 167 per cent year-over-year increase with organic growth exceeding 10 per cent. Meanwhile, the company also generated revenue of $11.2 million from its new Global Payment revenue stream following the incorporation of BankCard USA into its operations.
On the margins, Quisitive reported $6.3 million in EBITDA to beat the Beacon Securities estimate of $5.2 million while also implying a margin of 14 per cent. Meanwhile, the company also reported a gross margin of 39.9 per cent, which was up both sequentially and on a year-over-year basis.
“With a continued emphasis on our Global Cloud Solutions business, we’ve seen the results of our efforts over the previous quarters come to fruition as we continue to expand our services suite to match the rapidly growing demand for digital transformation and cybersecurity,” said Quisitive CEO Mike Reinhart in the company’s May 25 press release. “In parallel, our Global Payment Solutions business continues to make significant progress as our Merchant Services Group produced record payment volumes in the month of March. We’re also encouraged by our progress with LedgerPay as the active testing for the VISA network is in the latter stages, and we’re making progress to onboard our pilot customers.”
The company also reported free cash flow at a $1.3 million loss with operating cash at nil, paired with a $4.8 million drain in working capital on account of an increase in receivables.
Overall, the company ended the quarter with $9.5 million in cash available compared to $76.6 million in debt
“While we do not anticipate any near-term liquidity issues, we also believe that M&A will likely be deferred to later this calendar year as FCF (and acquisition multiples) improve,” Leung said.
With first quarter financial results now in the books, Leung has left his future financial projections unchanged, as he continues to forecast 2022 revenue of $183 million for a potential year-over-year increase of 89.2 per cent. Looking ahead to 2023, Leung forecasts a revenue jump to a projected $200 million for a potential year-over-year increase of 9.3 per cent.
From a valuation perspective, Leung forecasts the company’s EV/Revenue multiple to drop from the reported 2.5x in 2021 to a projected 1.3x in 2022, then drop again to a projected 1.2x in 2023.
Leung also forecasts a bit of movement in the company’s adjusted EBITDA as he projects $25.2 million for 2022 to imply a margin of 13.8 per cent, followed by a $28.4 million projection in 2023 to imply a margin of 14.2 per cent.
In terms of valuation, Leung forecasts the company’s EV/adjusted EBITDA multiple to drop from the reported 17.1x in 2021 to a projected 9.4x in 2022, then to a projected 8.4x in 2023.
Going forward, Leung believes Quisitive will see more notable contributions to its toplines from its LedgerPay platform, which consists of both new customers and transitioning BankCard USA customers, within the 2023 calendar year.
“As it relates to the outlook, the company has not seen demand impacted despite current volatile markets,” Leung said. “Furthermore, the company remains on track to commercialize LedgerPay in Q3. Upcoming milestones include Visa certification (QUIS is in the latter stages of this process having already achieved Mastercard certification), which will be followed by onboarding of pilot customers.”
Quisitive Technology Solutions has seen its stock price drop off by 50.9 per cent since the start of 2022, having gone down gradually since starting the year trading at $1.18/share, and having dropped to a 2022 low of $0.57/share on Tuesday.