Quorum Information Techs

Good afternoon and welcome to Quorum Information Technology, Inc.' 's first quarter 2023 results conference call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Maury Marks, President and CEO. Thank you. Please go ahead, sir.

Thank you, Julianne. Good day, everybody. Thank you for attending Quorum Information Technologies Q1 2023 Results Conference Call and Concurrent Webcast. Joining me on the call today is our Chief Financial Officer, Marilyn Bowne. Quorum is a North American software and services company providing essential enterprise solutions that automotive dealerships and original equipment manufacturers rely on for their operations. Through a combination of purposeful product investment and four strategic acquisitions in the last five years, Quorum has a uniquely integrated product suite of 12 essential software solutions that are used in whole or in part by 1,433 dealership customers across North America. Quorum's product suite currently covers 12 of the 25 most common categories of software that dealerships utilize, and Quorum has the opportunity to develop, partner, or acquire products for the remaining categories. are deployed to their dealerships. Currently, at least one of Quorum's software solutions is installed in 41% of the franchise automotive dealerships in Canada compared to 13% five years ago. In the last five years, Quorum has added 1,043 of our 1,433 unique rooftops we have today, primarily through acquisition combined with some organic growth. Many of Quorum's customers only leverage one solution out of our 12 available Quorum solutions. The result is that Quorum has a $55 million annual SaaS revenue cross-selling opportunity across the existing customer base. That growth opportunity is two times our $28 million SaaS annual reoccurring revenue run rate, and that is just within our current customer base. In 2020, we started our One Quorum journey to integrate our four acquired companies into a One Quorum team. The expectation at the time was that this journey would allow us to scale and grow more profitably. In the second half of 2022, we moved to a more balanced, profitable growth strategy, which includes a more efficient sales strategy by prioritizing cross-selling and a $2 million annual cost reduction plan to drive free cash flow. In Q3 and Q4 2022, we had 17% and 16% EBITDA margins, and in Q1 2023, we recorded a 13% EBITDA margin. However, when you factor in the $0.3 million of spend associated with the once-a-year North American Dealers Association, or NADA, trade show, our EBITDA margin momentum would have continued sequentially at 16% in Q1 2023. Marilyn will now review our financial results in more detail, and I will follow with some additional comments on our Q1 2023 results. After our prepared remarks, we will open the floor to your questions. Marilyn, please go ahead.

Thank you, Maury, and hello, everybody. Thank you for being here with us today. I would like to remind everyone that certain statements in this presentation and on our call are forward-looking in nature. These include statements involving known and unknown risks, uncertainties, and other factors outside of management's control that cause actual results to differ materially from those expressed in the forward-looking statements. Quorum does not assume any responsibility for the accuracy and completeness of the forward-looking statements and does not undertake any obligations 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&A, dated December 31, 2022, on the CDAR website. Throughout Q1, 2023, Quorum continued its disciplined approach to profitable growth, delivering a year-over-year increase in revenue of 7%, while also generating an increase of 51% to adjusted EBITDA and 277% to adjusted cash income or ACI. Additional highlights of our first quarter 2023 results are adjusted EBITDA in Q1 2023 was 1.3 million, an increase of 0.5 million or 51% from 0.9 million in Q1 2022. Adjusted EBITDA margin was 13% for Q1 2023 as compared to 9% for Q1 2022. Adjusted cash income increased by 277% or by 0.4 million to 0.6 million as compared to 0.2 million in Q1 2022. Total revenue increased by 7% to 9.9 million in Q1 2023 compared to 9.3 million in Q1 2022. Recurring SAS revenue increased by 6% to $7 million in Q1 2023 compared to $6.6 million in Q1 2022. Recurring BDC services revenue increased by 11% to $2.8 million in Q1 2023 compared to $2.5 million in Q1 2022. Gross margin increased to $4.6 million and 47% of total revenue in Q1 2023 compared to 4.4 million and 47% of total revenue for Q1 2022. Growth margin increased by 5% as compared to Q1 2022. SAS growth margin percentage remained consistent at 67% of SAS revenue and BDC growth margin percentage decreased by 2% to 10% of BDC revenue. BDC gross margin percentage was the only key metric that declined during Q1 2023. However, when compared to Q4 2022, BDC gross margin percentage improved by 2%. Starting in late 2022, we began working on multiple initiatives to reduce the BDC cost structure to improve BDC gross margins in 2023. We are happy to see that these initiatives are producing results. And as a reminder, roughly every $3 of BDC revenue does generate $1 of SAS revenue. Our ACI in Q1 2023 included $0.3 million in marketing spend for the annual North American Dealers Association show, or NADA. Quorum's focus on profitable growth has also resulted in an increase in cash and cash equivalents, which was $5.1 million as of March 31, 2023. an increase of $0.2 million as compared to December 31, 2022, and total net working capital at March 31, 2023 was $6.2 million. With that, I'd like to pass it back to Maury.