QMCI - QuoteMedia (QMCI) - A Slow Walk Toward Margin Improvement
Mixed Q2 results: Revenues were modestly better than expected by 1.9%, $3.833 million, up 26.5% from the year earlier quarter, versus our estimate of $3.760 million. The largest upside revenue variance was due to better than expected Interactive Content & Data revenue, $1.607 million versus our $1.565 million estimate. While adjusted EBITDA increased 45.7% to $311,000, it was 22% below our expectation of $399,000. Still waiting: While the acceleration in revenue growth is encouraging, we are still awaiting the prospect of improving gross and adjusted EBITDA margins. Unfortunately, the growth in revenues have come at a cost, as gross margins have declined from a high of 51% for the full year 2019 to 46% in 2020 to 42.8% in the latest quarter. Q2 gross margins were relatively flat to Q1 at 43%. Management indicated that the company was hit with unanticipated vendor cost increases. Attractive revenue growth expected. The company indicated that it has largely rolled out its new products, with further roll-out plans for the balance of the year. We believe that these new products will drive attractive double-digit revenue growth through 2022. Revising adj. EBITDA estimates downward. Our revisions reflect lower gross margin assumptions and higher expenses. We are lowering our full year 2021 adj. EBITDA estimate from $1.668 million to $1.435 million and our full year 2022 adj. EBITDA estimate down from $2.186 million to $2.031 million. We lowered our gross margin assumption by 100 basis points. Maintain Outperform rating. We are somewhat surprised by the favorable reaction to the recent quarter release. The QMCI shares were up 16% to close at $0.21. In our view, the current valuation based on our revisions has narrowed the gap of its peer group, currently trading near 14 times EV to EBITDA. At this time, we are maintaining our Outperform rating and our $0.25 price objective, however, given the prospect for positive upside surprise potential as the company executes on its strategy to ramp revenues and cash flow. Read More >>