Quorum Information Techs

current webcast today. Joining me 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 or OEMs rely on for their operations. Quorum has a uniquely integrated product suite of 13 essential software solutions that are used in whole or in part by 1,414 dealership customers across North America. At least one of Quorum's software solutions is installed in 40% of the franchised automotive dealerships in Canada. Quorum has 13 of the 25 most common categories of software solutions that automotive dealerships utilize. As a result, Quorum is well positioned to develop, partner, or acquire products for the remaining 12 categories. Many of Quorum's customers only leverage one of our 13 available solutions. That means that we have a $54 million annual SaaS revenue cross-selling opportunity within our existing customer base, which is approximately two times our $29 million SaaS annual reoccurring revenue run rate. We are very pleased to present to you today our Q2 2024 results, which again reflect our focus on a more profitable growth strategy, emphasizing both cross-selling to existing customers and better company-wide cost management. Our SAS revenue in Q2 2024 grew by 2% compared to Q2 2023 with total revenue remaining steady at $10 million. We achieved adjusted EBITDA of $2 million, up 18% as compared to the prior year. We have now achieved three consecutive quarters of adjusted EBITDA margin of 20% or higher. Our improved profitability has enabled us to further pay down $3 million on our BDC capital facility in Q3 2024, reducing that debt facility balance from $8.3 million as of June 30, 2024 to $5.3 million today. Marilyn will now review our Q2 2024 financial results in more detail, and I will follow up with some additional comments. 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 the 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 could cause actual results to differ materially from those expressed in the forward-looking statements. 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&A, dated December 31, 2023, on the CDARplus.ca website. As Maureen mentioned, in Q2 2024, we continued our focus on balanced profitable growth with a company-wide commitment to cost management. Adjusted EBITDA increased by 18% to 2 million compared to 1.7 million in Q2 2023, representing an adjusted EBITDA margin expansion of 3% from 17% in Q2 2023 to 20% in Q2 2024. This was the third consecutive quarter in which we posted an adjusted EBITDA margin of 20% or higher. The increase in adjusted EBITDA in Q2 2024 over the same period last year is due to improved gross margin as well as decreases in all our EBITDA-related operating expenses. Adjusted cash income, or ACI, was $1.5 million in Q2 2024 compared to $1 million in Q2 2023, an increase of $0.4 million. This represented an adjusted cash income margin expansion from 10% in Q2 2023 to 15% in Q2 2024. The increase is attributable to the increase in adjusted EBITDA and a 0.1 million decrease in capitalized salaries and overhead. Additional highlights of our Q2 2024 results as compared to Q2 2023 are as follows. Total revenue remained relatively consistent at 10 million SAS revenue was $7.2 million compared to $7.1 million, representing an increase of 2%. While our customer rooftop count declined very marginally by 0.2% compared to the prior year, our MARPU increased as a result of our cross-selling strategy. CDC revenue was $2.5 million compared to $2.8 million, representing a decrease of 11%. in BDC revenue is primarily due to temporary staffing constraints late in Q1 2024, which were resolved late in Q2 2024. Our annual reoccurring run rate was $38.8 million compared to $39.4 million and represents 97% of Quorum's total revenue run rate. This is comprised of annual reoccurring SAS revenue of $28.9 million compared to $28.3 million. An annual reoccurring BDC revenue of $9.8 million compared to $11.1 million. Growth margin increased to $9.9 million or 50% of revenue compared to $4.9 million or 48% of revenue. This is our second consecutive quarter of 50% or over total growth margin. The year-over-year increase in growth margin in Q2 2024 is primarily due to an increase in operational efficiencies for the BDC cost structure. FAST growth margin decreased slightly to 67% as compared to 68%, and BDC growth margin increased to 20% as compared to 12% as Quorum continues to work on multiple initiatives to reduce the BDC cost structure. As a result of our continued cost cutting efforts, our total operating expenses decreased by 9% in Q2 2024 to 4.5 million from 4.9 million in Q2 2023, and we had improvements in the following categories. Research and development expenses for Q2 2024 were 8% of revenue compared to 10% of revenue for Q2 2023. Sales and marketing expenses for Q2 2024 were 5% of revenue compared to 6% of revenue for Q2 2023. And general and administrative expenses for Q2 2024 were 17% of revenue compared to 18% of revenue in Q2 2023. The current quarter did include 0.1 million in one-time expenses, and with those expenses removed, general and administrative expenses would have been 16% of revenue. Net income for Q2 2024 decreased by 1.8 million as compared to Q2 2023. The decrease in net income is due to a gain on bargain purchase of 1.8 million recognized in Q2 2023 related to the VIN acquisition. Adjusted net income increased slightly to 0.39 million in Q2, 2024 as compared to 0.38 million in Q2, 2023. Our continued focus on profitable growth has also resulted in an improved balance sheet as of June 30th, 2024. Cash and cash equivalents increased by 0.7 million as compared to December 31st, 2023 and total debt as of June 30th, 2024 decreased by 0.9 million to 9.6 million compared to 10.6 million at December 31st, 2023. Our 9.6 million in debt is comprised of 8.3 million in BDC capital debt and 1.3 million of unsecured 0% interest government debt. As Maureen mentioned earlier, subsequent to June 30th, 2024, our improved profitability has enabled us to further pay down $3 million on our BDC capital facility. On July 12th, Quorum made a prepayment of $2.5 million in principal and interest on its BDC capital facility. And on August 16th, Quorum made an additional prepayment of $.5 million on that same facility. With these loan prepayments, Quorum has reduced the BDC capital facility balance from $8.3 million as of June 30th 2024 to $5.3 million today. With that, I'd like to thank you for your support.

Thank you, Marilyn. In this section, I want to further discuss some of the impacts of Quorum's profitable growth strategy, emphasizing both cross-selling to existing customers and better company-wide cost management. The key current impact of the profitable growth strategy is the achievement of three consecutive quarters of adjusted EBITDA margin of 20% or higher. As mentioned, this has provided us with a latitude to pay down our BDC capital facility and reduce that debt facility from $8.3 million as of June 30, 2024 to $5.3 million today. This 36% reduction in our BDC capital facility translates into interest savings of approximately $300,000 per year. Given the current macroeconomic headwinds, it makes sense that we focus on profitability and improving Quorum's balance sheet. to ensure a strong future for the company. The longer term impact of our strategy is that our improved profitability with a current focus on reducing our debt will also provide us with significant latitude in allocating future capital generated by the business. Some of the capital allocation options available to us include number one, increasing our sales and marketing efforts to expand new dealership acquisitions in Canada and the US market. We have strong brand awareness in Canada with at least one of our products in 40% of the Canadian dealerships, but limited brand awareness in the US where we have less than 1% of the market. We have growth opportunities in both markets. Two, more aggressively pursuing M&A. Quorum has 13 of the 25 product categories in the market and there are M&A opportunities in both Canada and the US for the other 12 categories. As a reminder, Quorum has acquired five companies in the last six years and has become proficient at integrating acquired companies into our organization. Number three, increasing our investment in product, especially in products that produce a significant internal rate of return or IRR. During the last conference call, I discussed key development projects that we are pursuing at our current investment levels to help increase our SaaS revenue growth and BDC gross margins. With increased investment, we could, for example, accelerate our AI project work that is currently focused on increasing our BDC gross margin and expand that work across our product suite to generate more SaaS revenue. Number four, increasing our OEM certification investment. Keep in mind that OEM certifications are required to allow us to sell our DMS to franchise dealerships. And we are seeing an increased requirement by OEMs to certify other products like service CRM, online scheduling, sales CRM, digital retailing, and more. By increasing our investment in this critical area, we can open up more available market. Although we are pleased with the progress we've made on profitability and debt reduction, we are excited about the future growth opportunities. In closing, I want to express my sincere gratitude to our employees whose dedication was key to achieving our strategic plan and the strong quarterly results. Their hard work is enhanced by our integrated suite of 13 essential software solutions and services. This product suite is critical to our profitable growth strategy and it facilitates product cross-selling and plays a vital role in driving the success of our dealerships, thereby increasing value for both Quorum and our customers. Operator, I'd now like to open this conference call to any questions from our audience.