Earnings call transcript: Quorum Information Technologies Q4 2024 sees revenue dip

Quorum Information Technologies Inc. (QIS) reported its earnings for the fourth quarter of 2024 on April 16, 2025. The company posted an earnings per share (EPS) of $0.003, with actual revenues at $9.74 million, falling short of the $10.1 million revenue forecast. According to InvestingPro data, the company maintains a market capitalization of $92.09 million and has demonstrated strong financial health with an overall score rated as "GOOD." Despite the revenue miss, Quorum’s stock price remained stable in after-hours trading, closing at $0.92, the same as the previous close.

Key Takeaways

• Quorum’s total revenue for 2024 decreased by 1% compared to 2023.
• The company saw a significant 89% increase in cash EBITDA.
• SaaS revenue grew by 2%, making up 72% of total revenue.
• Quorum reduced its total debt significantly, improving its debt-to-cash EBITDA ratio.

Company Performance

Quorum Information Technologies experienced a slight decline in total revenue for 2024, reporting $40 million, down 1% from the previous year. However, the company showed resilience with a notable 89% increase in cash EBITDA, reaching $5.5 million. This improvement reflects the company’s focus on operational efficiencies and cost reductions. SaaS revenue, a key growth area, increased by 2%, contributing $28.8 million and accounting for 72% of total revenue.

Financial Highlights

• Total Revenue: $40 million (1% decrease from 2023)
• SaaS Revenue: $28.8 million (2% increase)
• BDC Revenue: $10 million (8% decrease)
• Cash EBITDA: $5.5 million (89% increase)
• Adjusted EBITDA: $8.3 million (18% increase)
• Debt Reduction: $5.1 million paid on BDC Capital loan facility

Earnings vs. Forecast

Quorum’s actual revenue of $9.74 million missed the forecasted $10.1 million, marking a shortfall of approximately 3.6%. This miss is set against a backdrop of historical performance where the company has shown resilience, particularly in its SaaS segment.

Market Reaction

Despite the revenue miss, Quorum’s stock price showed no change in after-hours trading, maintaining a steady position at $0.92. This stability suggests that investors may be focusing on the company’s improved profitability and debt reduction efforts. InvestingPro analysis reveals two key strengths: a high shareholder yield and strong free cash flow yield, suggesting potential value for investors. The stock has traded between $18.84 and $25.98 over the past 52 weeks, with a year-to-date return of -13.97%. Get access to 6 more exclusive InvestingPro Tips and comprehensive analysis through the Pro Research Report.

Outlook & Guidance

Looking forward, Quorum is exploring several capital allocation strategies, including organic sales growth, accretive acquisitions, and potential share buybacks or dividends. The company remains cautious about acquisitions in the US market due to tariff uncertainties but is open to M&A opportunities in areas like rental/fleet vehicle management and AI solutions.

Executive Commentary

CEO Maury Marks expressed confidence in navigating current market challenges, stating, "We are confident in our ability to navigate the tariff headwinds." Marks also highlighted the company’s improved financial position, noting, "Our improved profitability and significantly reduced debt provides Quorum the latitude to make other future capital allocation decisions."

Risks and Challenges

• The automotive market faces uncertainty due to new tariffs, potentially impacting vehicle sales.
• Dealerships may struggle with pricing and market share challenges.
• There is a cautious approach to US market acquisitions due to economic uncertainties.

Q&A

During the Q&A session, analysts inquired about the company’s ongoing development of the Q Cloud environment and its approach to addressing technical challenges. There was also interest in Quorum’s M&A strategy, particularly in light of the current market uncertainties. CEO Marks reassured stakeholders of continued focus on solutions that enhance dealership sales and margins.

Full transcript - Quorum Information Technologies Inc (QIS) Q4 2024:

Victor, Conference Operator: Good day and thank you for standing by. Welcome to the Quorum Information Technologies Fourth Quarter and Year End twenty twenty four Results. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your speaker today, Maury Marks, President and CEO. Please go ahead.

Maury Marks, President and CEO, Quorum Information Technologies: Thank you, Victor. Hello, everybody, and thank you for attending Quorum Information Technologies Q4 and Year End twenty twenty four 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. Quorum has a uniquely integrated product suite of 13 essential software solutions that are used in whole or in part by over 1,400 dealerships, customers across North America.

At least one of Quorum software solutions is 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 products for the remaining 12 categories. Many of Quorum’s customers only leverage one solution out of our 13 available solutions. That means Quorum has a $54,000,000 annual SaaS revenue cross selling opportunity within our existing customer base, which is approximately two times our 2024 SaaS revenue of 28,800,000.0. We are very pleased to present to you today our twenty twenty four Q4 and year end results.

As many of you know, Quorum commenced a profitable growth strategy in 2023. And we have delivered material improvements in our adjusted EBITDA and cash EBITDA margins. Our cash EBITDA was 5,500,000.0 in 2024, an increase of 89% over 2023. And our adjusted EBITDA was 8,300,000.0, an increase of 18% over the prior year. We’ve also strengthened our balance sheet through significant repayments on our BDC capital loan facility.

In 2024, we paid 5,100,000.0 reducing the balance from 9,100,000.0 to 4,000,000 at the end of twenty twenty four. Our improved profitability has not only allowed us to reduce our debt, but it also positions us to consider future strategic capital allocation opportunities. Merrill will now review our Q4 and year end 2024 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.

One 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, throughout 2023 and 2024, Quorum improved its financial position by focusing on profitable growth through cost management and a focus on cross selling corn products to existing customers. The company is no longer reporting rooftop counts and reoccurring revenue per rooftop as these metrics became less relevant over time. Acquisitions of value added but low price point solutions resulted in high rooftop counts and average reoccurring revenue per rooftop, which was not representative of the underlying customer base.

However, for this quarter only, we will disclose our rooftop count, which was fourteen twelve, a decrease of six rooftops or 0.004% from Q3 twenty twenty four. We are also introducing a new financial metric, cash EBITDA, which we define as adjusted EBITDA less stock based compensation, onetime acquisition related expense, repayment of lease liability, purchase of property and equipment and software development costs, which reflects how much cash we are generating. With that, I’d like to review our Q4 twenty twenty four results, followed by a review of our full year 2024 results. In the fourth quarter of twenty twenty four, as compared to the fourth quarter of twenty twenty three, total revenue increased by 1% to $10,000,000 SaaS revenue increased by 2% to 7,200,000 The increase in SaaS revenue is due to a combination of cross selling and new customer revenue. BDC revenue decreased by 1% to $2,600,000 BDC revenue in Q4 twenty twenty four, however, was the highest quarter of BDC revenue in 2024.

SaaS gross margin remained consistent at 67%. BDC gross margin of 17% decreased by five points from 22%. The decrease in BDC gross margin is primarily due to new hires that are less productive through their training period. Forum continued to work on multiple initiatives to reduce the BDC cost structure. Overall gross margin remained consistent at $4,800,000 or 48% compared to $4,800,000 or 49%.

Adjusted EBITDA decreased by 5% to $2,000,000 or 20% margin compared to 2,100,000 a 21% margin. The year over year decrease for adjusted EBITDA is primarily due to the decrease in BDC gross margin. Cash EBITDA increased by 10% to $1,200,000 or a 12% margin compared to $1,100,000 or an 11% margin. For the full year 2024, as compared to the full year 2023, total revenue decreased by 1% to $40,000,000 due to a decrease of $900,000 in VDC revenue, offset by an increase of $600,000 in SaaS revenue. SAAS revenue increased by 2% to $28,800,000 and was 72% of revenue for 2024 as compared to 70% for 2023.

BDC revenue decreased by 8% to $10,000,000 and was 25% of revenue for 2024 as compared to 27% in 2023. The decrease, as mentioned earlier, was primarily due to staffing constraints. Gross margin increased by 3% to $19,800,000 primarily due to an increase in SaaS revenue as well as operational efficiencies for the SaaS and BDC cost structures as compared to 2023. Adjusted EBITDA increased by 18% to $8,300,000 due to an increase in gross margin, a decrease in research and development expenses, sales and marketing expenses, and general and administrative expenses. Adjusted EBITDA margin increased by four points to 21% from 17%.

Cash EBITDA increased by 89% to $5,500,000 due to the adjusted EBITDA improvements mentioned and lower software development costs. Cash EBITDA margin doubled from 7% to 14%. As Maury mentioned, in 2024, Quorum also paid down 5,100,000.0 against its BDC Capital loan facility compared with 1,600,000.0 paid down in 2023. This has reduced our BDC Capital loan facility to 4,000,000 at year end 2024 from 9,100,000.0 at year end 2023. Quorum plans to pay down the BDC Capital cash flow loan balance of $1,200,000 as of 12/31/2024, in full by the end of twenty twenty five.

And we will continue to prepay 15% of the BDC Capital mezzanine loan balance of $2,800,000 at 12/31/2024, 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 12/31/2024, Quorum had net working capital of $3,200,000 and cash and cash equivalents of $2,200,000 and total debt to cash EBITDA of one times compared to 3.7 times at 12/31/2023, and 6.4 times at 12/31/2022. With that, I’d like to pass it back to Maury.

Maury Marks, President and CEO, Quorum Information Technologies: Thank you, Marilyn. A total debt to cash EBITDA of one times at the end of twenty twenty four is impressive progress from 3.7 times at the end of twenty twenty three. I think this is even more impressive when you consider that our secured debt is 75% of our total debt. Our improved profitability and significant significantly reduced debt provides Corum the latitude to make other future capital allocation decisions. We have multiple options including one organic sales growth investments to pursue more new dealerships or logos in Canada and or The US market.

Number two, inorganic growth through accretive acquisitions that add to our product suite and provide opportunities to improve our organic growth. And number three, other capital allocations such as normal course issuer bid to purchase back shares or pay payment of dividends. What makes quorums capital allocation decisions more difficult are the newly introduced automotive tariffs in both The US and then the Canadian by both The US and then the Canadian governments, What the tariff levels will be and which vehicles and parts will be tariffed is currently very fluid. On the current path that the government is following the tariffs will likely result in reductions in vehicle sales on both sides of the border, And dealerships and OEMs will be challenged with raising prices or possibly losing market share, and or having their gross margins contract. What we do know is that our dealerships are resilient and creative and will look for ways to improve sales and find gross margin improvements in their operations.

Keep in mind that the fixed operations business, the service and parts business provides dealerships with a consistent and profitable revenue stream, and is even more critical if the dealership customers are keeping their vehicles longer. In recent years, Quorum and our dealerships have had to navigate the initial and subsequent outbreak of COVID and the resulting vehicle and parts shortages post COVID. We are confident in our ability to navigate the tariff headwinds. Having a broad product suite with products that help dealerships number one driving more sales demand in the form of vehicle sales appointments and service appointments. Number two, help dealerships with their closing percentages and number three, them improve their gross margins on both vehicle sales deals and service appointment visits allows us quorum to help dealerships meet the challenges that tariffs present.

I’d like to close our prepared remarks by sincerely expressing my appreciation to our employees whose commitment to quorum was crucial to achieving our 2024 plan and strong quarterly and annual results. Their hard work 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 this 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.

Victor, Conference Operator: Thank you. Our first question comes from the line of Gavin Fairweather from Cormark. Your line is open.

Gavin Fairweather, Analyst, Cormark: Hey, Maury. Good morning. Good afternoon, Good morning. Thanks for taking my questions. Maybe just to start with you, you touched on kind of the volatile end markets and some of the uncertainty that we’ve been seeing.

I’m just curious how your conversations with customers are going. It sounds like you’re leaning in both on the sales side and the service side in terms of new sales. How are those discussions going? And to what extent are you finding that you’re still able to get deals across the line and in the current uncertainty?

Maury Marks, President and CEO, Quorum Information Technologies: Yeah, I mean, obviously, in conversations with dealers, dealers are just concerned about the environment. I guess we’ve been through this, as I mentioned in the prepared remarks, we’ve been through this multiple times together, whether it was COVID or, or, you know, the resulting vehicle and parts shortages after COVID. And so everybody’s confident in our in our ability to navigate through the tariffs. But, you know, I think most of the concerns that I hear now are just people wanting clarity, around what’s going be in place and what’s not going to be in place. And, and it’s the constant change that is probably the most difficult thing to sort of manage around.

In terms of what we’re seeing in the market today, deals are still closing. And, and yeah, that so that piece is positive. And, you know, from our perspective, as you alluded to, we’re positioning, you know, both our service offerings, to help dealerships in their service and parts departments, drive more customers in and improve their gross margins and our sales offerings, which obviously helped them on the vehicle sales side. We’re promoting both of those and dealerships seem quite receptive to both.

Gavin Fairweather, Analyst, Cormark: That’s great to hear. And if I look back at your financials over the past couple of years, obviously a material step change in the profitability and cash flow coming out of the company with a relatively consistent top line, I’d say. How are you thinking about the path forward? Are you getting excited about driving some consolidated growth again? Or do you think that we can expect profitability to kind of push higher?

How are you thinking about the financial priorities in the year or two ahead?

Maury Marks, President and CEO, Quorum Information Technologies: Yeah, I think top line growth wise, I’d be reasonably optimistic right now. If it weren’t for tariffs, it’s just so hard to predict. Right now, as I mentioned, right, it we’re, we’re finding that, that deals are closing and dealers are still quite interested in our offering. So, you know, at this point in time, based on sort of how q1 and q2 have shaped up, we’re, we’re fairly optimistic, but I just don’t I don’t know where the headwinds, the tariff headwinds will take us. So really hard for me to, to comment too much until we get more clarity on that side of things.

And then, profitability wise, yeah, we’ve made a lot of improvements on, as you mentioned on the profitability side of things. You know, I think we’re, we’re hitting sort of a reasonably consistent level and now finding additional ways to optimize in the business requires that we get more creative. And, and we will, over time, but, yeah, I think it’s sort of, what you’ve seen from us in the past is, is, is how we’re sort of expecting going forward. But we’re always looking for ways to optimize revenue growth and, and, EBITDA margins.

Gavin Fairweather, Analyst, Cormark: Got it. And then next for me, can you discuss the the shift towards qCloud? You know, I I think that that was kind of on on the docket for, you know, later this year to try and move more more of the base to, you know, a true kind of cloud posture. Can you just, you know, provide us with an update on your rollout plans there and and how you’re thinking about, you know, the ARPU lift and and, you know, how how that might manifest manifest itself in in the financial of Quorum as we see that transition take place?

Maury Marks, President and CEO, Quorum Information Technologies: Yeah. So q cloud has had its challenges, I gotta tell you. We’ve got we’ve got a team that is work that worked on it, has been working on it for, quite a period of time. I sit in twice a month on meetings on how we can continue to optimize it. But one of our challenges has been, is that it’s a new environment for us.

So it’s there’s been a learning curve on our side. And there were technical challenges getting our software to perform as reliably and as quickly as we wanted. Now, we’ve overcome, I would say, a good 80% of the challenges, We still have a few remaining. And and yeah, we’ve got a creative team working on it, and they’re making lots of improvements. So hard for me to 100% predict, you know, what kind of impact it will have going forward.

We do continue to move customers to our Q cloud in general environment. But, but it’s just, we’ve slowed adoption until we are more confident in the environment.

Gavin Fairweather, Analyst, Cormark: Okay. And then lastly, for me, maybe you can just touch on the M and A environment, whether you’re seeing any movement in valuations and what would be I guess, the priority of the different point solutions that a dealership or purchase which you don’t have in the fold today?

Maury Marks, President and CEO, Quorum Information Technologies: Yeah, so interesting enough, mean, over the last few months, M and A activity and number of deals we’ve been exposed to has increased. Unfortunately, you know, it’s, it’s tough to justify doing a US market acquisition, a US based acquisition right now. We’ve looked at a few and been pretty excited about some of the opportunities, but we just we need a little bit more clarity about where the the current administration’s going in the in The US marketplace before we’re willing to, to pursue those. So that’s part one to your question. Part two is, yeah, we’re I mean, we’re looking for probably a few different solutions that we’ve been fairly interested in.

We’ve looked at solutions in the space of managing rental and fleet vehicles, looked at solutions in the space of tire storage management, we looked at solutions in the, in the category, not space, but in the category of, of AI, both on both in the vehicle sales and service side. And we, of course, continue to build out our own AI solutions as well. But we’ve also looked at other companies that have, have other unique takes on how to deploy AI into dealership. So I mean, those are some of the more recent common categories that we looked at.

Gavin Fairweather, Analyst, Cormark: Great. That’s it for me. Thanks for the color.

Maury Marks, President and CEO, Quorum Information Technologies: Yeah, thanks for the questions. Appreciate it.

Victor, Conference Operator: Thank you. And as a reminder, that star one one for questions star one one. One moment for any questions. I’m currently not showing any further questions at this time. I would now like to turn it back over to Maury for any closing remarks.

Maury Marks, President and CEO, Quorum Information Technologies: Well, appreciate everybody’s support and continued interest in quorum. And thanks for attending our call today. And we will talk to you again in about five weeks when we release our q1 results. Thanks, everybody.

Victor, Conference Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

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