After better than expected quarterly results, Rob Goff of Echelon Capital Markets is staying bullish on software company NowVertical Group (NowVertical Stock Quote, Charts, News, Analysts, Financials TSXV:NOW), maintaining a “Speculative Buy” rating and a target price of C$1.60/share for a projected return of 139 per cent in an update to clients on Monday. Toronto-based NowVertical is a big data vertical intelligence company with a product suite of enterprise-level, scalable solutions for big data transformation, analytics and use across industry verticals. Goff’s updated analysis comes after NowVertical released its first quarter financial results for the 2022 fiscal year. “We see execution of our forecasts and guidance as strong validation of the strength of acquired assets along with management’s execution,” Goff said. The Q1 was headlined by revenue of $2.6 million for 714 per cent year-over-year growth to beat the $2.3 million projection set out by both Echelon and the consensus, while coming just short of the $3.2 million it reported for the entire 2021 fiscal year. (All figures in US dollars except where noted otherwise.) Of the company's three segments, the NOW Solutions revenue stream was the primary driver in the quarter at 50 per cent of its revenue mix, followed by the NOW Origin stream at 34.8 per cent and Affinio accounting for the rest. Meanwhile, the company reported a gross profit of $1.4 million and a margin of 53.4 per cent to beat the $1.2 million gross profit and 51.9 per cent margin projections set out by both Echelon and the consensus. NowVertical also came in ahead of its EBITDA target, as the reported $1 million loss came in ahead of the projected $2.2 million loss set out by Echelon and the consensus. “With the first quarter behind us, we are laser-focused on driving to profitability,” said Daren Trousdell, CEO of NowVertical in a May 26 press release. “We remain on track to deliver our first profitable quarter during the second half of this year by driving efficiencies and creating the necessary foundation for sustainable organic growth and future accretive acquisitions. While our M&A pipeline has never been larger, we are committed to ensuring we grow responsibly for all of our stakeholders and will look at adding additional financing methods, including a new acquisition line, to protect our balance sheet and remain prudent stewards of our shareholders’ capital.” In terms of the company’s future growth, the organic picture looks bright, as company management indicated that its current $70 million pipeline could extend beyond $100 million by year-end as its potential pipeline of contract awards is strong, with Goff also noting the company’s cross-selling potential as a point of strength moving forward. From an inorganic perspective, company management indicated it was in advanced stages of talks regarding acquisitions representing potentially $35 million in revenue, with Goff noting the company’s preference for service organizations on account of relatively stronger margins and FCF. “While we conservatively allowed for NOW to execute at 7-7.5x EV/EBITDA in our M&A scenario, we believe the initial wave of service organizations is likely to be valued in the 6-6.5x EV/EBITDA range given service valuations are typically lower than tech acquisitions and given current capital markets,” Goff said. “We look for NOW to execute partnerships with roughly 1/3 upfront in cash, 1/3 upfront in NOW shares, with the remainder in the form of an earnout to be paid in cash where the acquired entity self-funds the earnout through its FCF.” Goff forecasts NowVertical to take a huge step forward from a revenue perspective in 2022, with his $32 million projection representing a potential year-over-year increase of 892 per cent. Looking ahead to 2023, Goff estimates another jump to $59.5 million in revenue, suggesting a potential year-over-year increase of 86 per cent. In terms of valuation, Goff forecasts a significant drop in the EV/Revenue multiple to 2.4x in 2022 from 20.4x in 2021, with a further dip to 1.4x in the cards for 2023. Meanwhile, Goff also forecasts continued margin strength, as he forecasts gross profit to jump to $16.7 million (52 per cent margin, 4.6x EV/gross profit multiple) in 2022, followed by a $30.3 million forecast (51 per cent margin, 2.8x EV/GP) in 2023. Goff also forecasts a positive turn in EBITDA in 2023 at $2.8 million for a five per cent margin, while introducing an EV/EBITDA multiple of 30.4x. “Our bullish thesis looks for NOW to rapidly emerge as a mid-market focused, fusion analytics firm leveraging its purpose-built solutions for high-value, data-driven decision-making with a focus on strategic verticals where it can build vertical intelligence (“VI”) and refined analytics capabilities,” Goff said. NowVertical has seen its share price go down by 43.6 per cent since the start of 2022, having gradually dropped since starting the year trading at $1.24/share. However, the stock has had a nice recovery since dropping to a 2022 low of $0.46/share on May 24, up 52.2 per cent since then.