Quorum Information Techs

for 2023, an annual 2023 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Maury Marks, President and CEO. You may begin.

Thank you, Jamie. Hello, everybody, and thank you for attending Quorum Information Technologies Q4 and Full Year 2023 Results Conference Call and Concurrent Webcast today. Joining me on the call 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 investments and five strategic acquisitions in the last six years, including our latest acquisition of VIN on June 23, 2023, Quorum now has a uniquely integrated product suite of 13 essential software solutions that are used in whole or in part by 1,427 dealership customers across North America. Dealerships typically use software from 25 different categories, and Quorum now has 13 of the 25 most common categories of software that dealerships utilize. As a result, Quorum is well positioned to develop, partner, or acquire products for the remaining 12 categories. Dealerships typically start with a single product from Quorum's product suite and experience increased synergy and value as additional Quorum solutions are deployed to their dealerships. Many of Quorum's customers only leverage one solution out of our 13 available solutions. The result is that Quorum has a $55 million annual SaaS revenue cross-selling opportunity across our existing customer base. That growth opportunity is approximately two times our 28.1 million SAS annual reoccurring revenue run rate, and that is just within our current customer base. Today, at least one of Quorum's software solutions is installed in 40% of the franchised automotive dealerships in Canada. I'll now move on to our results for Q4 and full year 2023. Throughout 2023, Quorum focused on a more profitable growth strategy, which emphasized cross-selling and better company-wide cost management. This was a pivot from our past focus on growth through product development and new dealership acquisition. This new focus on profitable growth combined with better company-wide cost management provided record adjusted EBITDA margins of 21% in Q4 2023, up from 19% in Q3 2023. and resulting in 17% for the full year 2023. We also delivered a correspondingly healthy but moderate year-over-year top-line growth of 4% in 2023 versus 8% growth we achieved in 2022 versus 2021. In Q4 2023, our SAS revenue growth slowed. However, that was partly due to an insulation backlog, and we expect SAS revenue growth to rebound to $7.2 million in Q1 2024. Turning to our BDC capital loan facility, in October 2023, we made a prepayment of $1.6 million from excess cash on hand, which reduced our outstanding principal amount by $1.5 million from $10.7 million to $9.2 million. This resulted in $0.2 million in annual interest expense savings. In February 2024, CORE made an additional prepayment of $0.9 million on our BDC capital loan facility from excess cash on hand. We continue to have access to $4 million in additional funding through BDC capital facility for potential future acquisitions. As we continue to face uncertain economic environment, we continue to focus our attention on expanding our adjusted EBITDA margins and improving the health of our balance sheet to hold ourselves in a strong position for continued long-term growth and strategic opportunities. Marilyn will now review our Q4 and full-year financial results in more detail, and I will follow with some additional comments. After our prepared remarks, we'll 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 are forward-looking in nature. These include statements involving known and unknown risks, uncertainties, and other factors outside of management control that 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 MTMA, dated December 31, 2023, on the CDARCLUS.ca website. As Maury already mentioned, and as we mentioned on our last call, we executed a disciplined approach to profitability through 2023, focusing on balanced profitable growth. Adjusted EBITDA came in at $7.0 million in 2023 compared to $5.6 million in 2022, representing an adjusted EBITDA margin of 17% compared to 14% in 2022. As Maury mentioned, adjusted EBITDA for Q4 2023 with $2.1 million or 21% of revenue and our highest quarterly adjusted EBITDA record. Highlights of our Q4 2023 results as compared to Q4 2022 are as follows. Total revenue for Q4 2023 increased by $0.1 million or up 1%. SAS revenue remained relatively consistent compared to Q4 2022, coming in at $7 million In Q4 2023, our SAS revenue growth slowed. However, this is partly due to an insulation backlog, and we expect SAS revenue growth to rebound to $7.2 billion in Q1 2024. BDC revenue decreased slightly by 2% in Q4 2023, coming in at $2.6 million. Our services and one-time revenue increased by $0.1 million to $0.3 million. Growth margins? increased to $4.8 million or 49% of revenue in Q4 2023 compared to $4.7 million or 48% of revenue for Q4 2022. Removing one-time restructuring expenses incurred in Q4 2023, growth margin would have been 50%. SAS growth margin decreased slightly to 67% in Q4 2023 as compared to 68% in Q4 2022. BDC growth margin increased to 22% in Q4 2023 as compared to 8% in Q4 2022 as we continued to work on multiple initiatives to reduce the BDC cost structure. Research and development expenses along with capitalized software development costs for Q4 2023 were 16% of revenue compared to 12% of revenue for Q4 2022. Removing one-time restructuring expenses incurred in Q4 2023, research and development expenses along with capitalized software development costs would have been 14% of revenue. Sales and marketing expenses for Q4 2023 were 6% of revenue, consistent with Q4 2022. Removing one-time restructuring fees incurred in Q4 2023, sales and marketing expenses would have been 5% of revenue. General and administrative expenses for Q4 2023 were 16% of revenue compared to 19% of revenue for Q4 2022. Removing one-time restructuring expenses and acquisition expenses incurred in Q4 2023, general and administrative expenses would have been 14% of revenue. Adjusted net income increased by $0.3 million to $0.2 million for Q4 2023 as compared to Q4 2022. The increase in adjusted net income in Q4 2023 is due to an increase in gross margin and a decrease in general and administrative expenses and sales and marketing expenses offset by an increase in research and development expenses. Included in net income for Q4 2023 is an impairment expense of $1 million due to the write-down of the Shred ITC asset and $0.2 million impairment expense due to the write down of the VIN intangible asset. Adjusted EBITDA for Q4 2023 increased by 31% or 0.5 million to 2.1 million in Q4 2023 compared to 1.6 million in Q4 2022. Adjusted EBITDA margin was a record 21% as compared to 16% for Q4 2022. Adjusted cash income, or ACI, for Q4 2023 increased by 48%, or $0.5 million, to $1.6 million, as compared to $1 million in Q4 2022. Q4 2023 also marks the fifth quarter of the last six quarters in which ACI exceeded $1 million. Highlights of our full year 2023 results are as follows. Total revenue for 2023 increased by 1.5 million or 4% as compared to 2022. The increase in revenue is primarily due to an increase of 0.5 million or 2% in past revenue due to a combination of both organic and inorganic growth. An increase of 0.5 million or 4.5% in BDC revenue attributable to the continued growth of the core BDC offering and the strategic partnership with AutoCanada An increase of $0.5 million or 63% in services and one-time revenue primarily due to the Windows 2022 upgrade project. Total growth margin increased to $19.3 million or 48% of revenue in 2023 compared to $18.7 million or 48% for 2022. The increase in growth margin is primarily due to an increase in operational efficiencies in the BDC cost structure as compared to 2022. Net income for 2023 was $0.2 million, an increase of $1.6 million compared to 2022. The increase in net income in 2023 is due to a $1.8 million gain on bargain purchase related to the VIN acquisition, an increase in growth margin, decrease in general and administrative expenses, and a decrease in sales and marketing expenses offset by $1.2 million impairment expense due to the write-down of the SHRED ITC asset in intangible assets and an increase in research and development expenses. As mentioned earlier, adjusted EBITDA for 2023 increased by 26% to $7 million compared to $5.6 million for 2022. Adjusted cash income for 2023 increased by $1.4 million as compared to 2022. And including cash of $3.6 million, total net worth in capital as of December 31, 2022 decreased to $4.2 million from $6.2 million as of December 31, 2022, a decrease of $2.1 million. This decrease is due to $2.6 million in debt or acquisition payments as follows, $1.6 million repayment of our principal and interest, on the BDC capital loan facility in October 2023, 0.3 million in government loans, 0.3 million related to the VIN acquisition, and 0.4 million increase in current portion of long-term debt. With that, I'd like to pass it back to Maury.