Earnings call transcript: Quorum Information Technologies Q1 2025 sees slight revenue rise

Quorum Information Technologies Inc., a $99.06 million market cap technology company, reported a modest revenue increase for the first quarter of 2025, with total revenue rising by 1% to $10.2 million. Despite this growth, the company missed its revenue forecast of $10.1 million. The stock saw a minor uptick of 1.12% in the aftermath of the earnings release, closing at $0.89. According to InvestingPro analysis, the company maintains high shareholder yield and operates with moderate debt levels. The company’s gross margin decreased to 48% from 51%, and adjusted EBITDA fell by 29% to $1.5 million.

Key Takeaways

• Total revenue increased by 1% to $10.2 million.
• SaaS revenue grew by 1%, while BDC revenue rose by 4%.
• Adjusted EBITDA decreased by 29%, with a 15% margin.
• Stock price increased by 1.12% after the earnings announcement.
• The company is implementing $1.3 million in annual savings, to be realized in Q3 2025.

Company Performance

Quorum’s overall performance in Q1 2025 was marked by slight revenue growth, driven by a 1% increase in SaaS revenue and a 4% rise in BDC revenue. While profitability metrics showed a decline, with adjusted EBITDA dropping by 29% and gross margins narrowing, InvestingPro data shows the company maintains a GOOD financial health score of 2.93. The company continues to lead in the automotive dealership software market, serving 40% of Canadian franchise dealerships.

Financial Highlights

• Revenue: $10.2 million, up 1% year-over-year
• SaaS Revenue: $7.2 million, up 1%
• BDC Revenue: $2.6 million, up 4%
• Adjusted EBITDA: $1.5 million, down 29%
• Gross margin: 48%, down from 51%

Earnings vs. Forecast

Quorum’s actual revenue of $9.84 million fell short of the forecasted $10.1 million. This represents a miss of approximately 2.57%. Despite the revenue miss, the company’s earnings per share (EPS) was $0.001.

Market Reaction

Following the earnings announcement, Quorum’s stock price rose by 1.12%, closing at $0.89. Trading between its 52-week range of $18.84 to $25.98, the stock has seen a year-to-date decline of 7.46%. This latest movement reflects a slight positive sentiment among investors, potentially buoyed by the company’s ongoing cost-saving measures and strategic initiatives. For deeper insights into Quorum’s valuation and growth potential, investors can access comprehensive analysis through InvestingPro’s detailed research reports.

Outlook & Guidance

Looking ahead, Quorum plans to fully repay its BDC Capital loan by the end of 2025. The company is exploring various capital allocation strategies, including organic sales growth, potential acquisitions, share repurchases, and dividend considerations. These strategies aim to navigate uncertain market conditions with flexibility.

Executive Commentary

CEO Maury Marks highlighted the demand for Quorum’s service CRM and BDC services, stating, "Our improved profitability and significantly reduced debt provide Quorum latitude to make strategic future capital allocation decisions." Marks also emphasized the company’s broad product suite, which helps dealerships drive more sales demand.

Risks and Challenges

• Potential vehicle tariffs could impact the automotive market.
• Economic headwinds, such as a possible recession, may affect dealership operations.
• A reduction in vehicle sales could pressure revenue growth.
• The company faces narrowing margins in a competitive market.
• Execution of cost-saving measures must be effectively managed to realize benefits.

By maintaining a focus on strategic initiatives and cost management, Quorum Information Technologies aims to strengthen its position in the automotive dealership software market despite current challenges.

Full transcript - Quorum Information Technologies Inc (QIS) Q1 2025:

Jonathan, Conference Operator: Thank you for standing by. Welcome to Quorum Information Technologies First Quarter twenty twenty five Results Conference Call. At this time, all participants are in listen only mode. After the speakers’ presentation, there will be a question and answer session. If your question has been answered and you’d like to remove yourself from the queue, simply press 11 again.

As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Maury Marks, President and CEO. Please go ahead, sir.

Maury Marks, President and CEO, Quorum Information Technologies: Thank you, Jonathan. Hello, everybody, and thank you for attending Quorum Information Technologies Q1 twenty twenty five results conference call and concurrent webcast. Joining me is our Chief Financial Officer, Marilyn Baum. Quorum offers innovative and robust technology solutions and services to vehicle dealerships and original equipment manufacturers or OEMs across North America. With a uniquely integrated product suite of 13 essential software solutions that are used in whole or in part by over 1,400 dealership customers across North America.

There is at least one quorum software solution installed in 40% of the franchise automotive dealerships in Canada. Offering 13 of the 25 most common categories of software solutions that automotive dealerships utilize, Quorum is well positioned to develop, partner or acquire software solutions for the remaining 12 categories. With many of Quorum’s customers leveraging only one solution out of our 13 available solutions, Quorum has a $54,000,000 annual SaaS revenue cross selling opportunity within its existing customer base, which is approximately two times our reoccurring annual SaaS revenue of $28,900,000 based on Q1 twenty twenty five results. Looking to our Q1 twenty twenty five results. While Quorum continued with its profitable growth strategy, our SaaS revenue increased by one percent and BDC revenue increased by 4%.

We are experiencing demand in the market for our service CRM and BDC services as dealerships look to improve their service and parts or fixed operations results as vehicle tariffs and possibly recessionary headwinds may impact vehicle sales. Quorum also reported adjusted EBITDA margin of 15% in Q1 twenty twenty five and a cash EBITDA margin of 10%. For comparative purposes to Q1 twenty twenty four, ’2 percent of the adjusted EBITDA decreases due to our decision to more conservatively expense versus capitalize more software development costs. Marilyn will talk more about both our adjusted EBITDA and cash EBITDA margins. What I want to discuss is that Quorum has already implemented changes that will result in 1,300,000.0 in annual savings that will be fully realized in Q3 twenty twenty five, including number one, a gross margin improvement plan.

Number two, office lease cost savings. Number three, third party service provider savings. And number four, other cost improvements. Marilyn will now review our Q1 twenty twenty five financial results in more detail, and I will follow-up with some additional comments. After our prepared remarks, we’ll open the floor to your questions.

Marilyn, please go ahead.

Marilyn Baum, Chief Financial Officer, Quorum Information Technologies: Thank you, Maury. Hello, everybody. Thank you for being here with us today. I would like to remind everyone that certain statements in this presentation are forward looking in nature. These include statements involving known and unknown risks, uncertainties and other factors outside of management’s control that could cause actual results to differ materially from those expressed in the forward looking statements.

Quorum is not assuming responsibility for the accuracy and completeness of the forward looking statements and does not undertake any obligation to publicly revise these forward looking statements to reflect subsequent events or circumstances. For additional information on possible risks, please refer to our annual MD and A dated 12/31/2024 on the sedarplus.ca website. As Maury mentioned, during Q1 twenty twenty five, while Quorum continued with its profitable growth strategy and companywide cost management, our profitability decreased mainly due to external inflationary factors, the expense of a key new hire and annual merit based increases while we continued to make prepayments on our BDC capital loan facility. In the first quarter of twenty twenty five, as compared to the first quarter of twenty twenty four, total revenue increased by 1% to $10,200,000 SaaS revenue increased by 1% to 7,200,000.0 The increase in SaaS revenue is due to a combination of price increases, cross selling, and new customer revenue. BDC revenue increased by 4% to 2,600,000 due to new customer revenue.

SaaS gross margin decreased to 66% from 68%, primarily due to an increase in third party costs. BDC gross margin decreased to 15% from 20%, primarily due to the buildup of staffing resources required to meet anticipated new customer revenue demand. Overall, margin decreased to $4,800,000 or 48% compared to $5,100,000 or 51%. Adjusted EBITDA decreased by 29% to $1,500,000 or a 15% margin compared to $2,100,000 or a 21% margin. As Maury mentioned, 2% of the adjusted EBITDA margin decrease is due to expensing more software development costs.

The remaining 4% year over year decrease for adjusted EBITDA margin is primarily attributable to a decrease in overall gross margin and increases in research and development expenses and general and administrative expenses, offset by a decrease in sales and marketing expenses. Cash EBITDA decreased by 27% to $1,000,000 or a 10% margin compared to $1,400,000 or a 14% margin. In Q1 twenty twenty five, Quorum paid down $300,000 against its BDC capital loan facility, which included $100,000 of required principal payments, compared with $900,000 paid down in Q1 twenty twenty four. This has further reduced our BDC capital loan facility to $3,700,000 at quarter end Q1 twenty twenty five from $4,000,000 at year end 2024. Subsequent to the end of the quarter, Quorum made another prepayment of $500,000 on the BDC capital loan facility on 05/08/2025.

As mentioned on our last quarter earnings call, Quorum plans to pay down the BDC Capital cash flow loan balance of $900,000 as of 03/31/2025, in full by the end of twenty twenty five and will continue to prepay 15% of the BDC Capital mezzanine loan balance of $2,800,000 at 03/31/2025 on an annual basis until maturity in August 2027. Note that paying more than 15% on an annual basis would result in significant penalties to quorum. As of 03/31/2025, Quorum had net working capital of $3,700,000 cash and cash equivalents of $3,700,000 and total debt to cash EBITDA of one times compared to 2.5 times at 03/31/2024. With that, I’d like to pass it back to Maury.

Maury Marks, President and CEO, Quorum Information Technologies: Thank you, Marillyn. As I mentioned earlier, Quorum has already implemented 1,300,000.0 in annual savings that will be fully realized in Q3 twenty twenty five. In addition to these savings, we’re investigating and implementing other strategies. The area with the most potentials are BDC gross margin improvement plan, And some changes out of this plan are already contributing to the 1,300,000.0 mentioned above, but there are additional savings opportunities. Our vision for the BDC is to use AI to drive outreach to dealership consumers, while our BDC agents work with engaged consumers to book service appointments and maximize sales of additional services.

We are also deploying other technologies to increase the efficiency of our BDC agents. These changes come at a time of high demand from dealerships for our BDC services and related service CRM software. Turning to our strengthening balance sheet, our total debt to cash EBITDA ratio of one times as of 03/31/2025 represents substantial progress from 3.7 times at the end of twenty twenty three. If you removed our unsecured debt, our debt to cash EBITDA ratio is even a more impressive 0.7 times as of 03/31/2025. Our improved profitability and significantly reduced debt provides Quorum latitude to make strategic future capital allocation decisions moving forward.

As I mentioned on our last earnings call, Quorum has multiple diverse capital allocation options including one investing in organic sales growth to pursue new dealerships, or logos in Canada and or The US. Two pursuing inorganic growth through accretive acquisitions that enhance our product suite and provide opportunities to improve our organic growth. Three, allocating capital to initiatives such as a normal course issuer bid to repurchase shares or the payment of dividends. However, the automotive tariffs introduced by both The US and Canadian governments continue to cast uncertainty and quorum’s future capital allocation decisions. The tariff levels remain fluid in the current government path suggests that tariffs will result in reduced vehicle sales on both sides of the border.

Dealerships and OEMs will face challenges in raising prices, or potentially losing market share and or experiencing contracted gross margins. We are confident that our dealerships are resilient and creative and they will seek ways to improve sales and find gross margin improvements in their operations. The fixed operations business provides dealerships with a consistent and profitable revenue stream, which becomes even more critical if customers keep their vehicles longer. In recent years, Quorum and our dealerships have navigated the initial and subsequent outbreaks of COVID-nineteen and the resulting vehicle and parts shortages. We are also confident in our ability to navigate the tariff headwinds.

Our broad product suite helps dealerships number one drive more sales demand through vehicle sales appointments and service appointments to improve their closing percentages and three enhance gross their gross margins on both vehicle sales deals and service appointment visits visits. This allows us to help dealerships meet the challenges presented by tariffs. I’d like to conclude by sincerely expressing my appreciation to our employees. Their commitment to quorum is crucial to achieving our 2025 plan. The hard work of our employees is enhanced by our integrated suite of 13 essential software solutions and services.

This product suite is fundamental to our profitable growth strategy, as it facilitates product cross selling and plays a vital role in driving the success of our dealerships, thereby increasing value for both Quorum and its customers. Operator, I’d now like to open this conference call to any questions from our audience.

Jonathan, Conference Operator: Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press 11 on your telephone. And this does conclude the question and answer session of today’s program. I’d like to hand the program back to Maury Marks for any further remarks.

Maury Marks, President and CEO, Quorum Information Technologies: All right. Well, we appreciate your support and thanks so much for attending today’s call and we look forward to talking to you when we release our Q2 results.

Jonathan, Conference Operator: Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

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