QMCI - QuoteMedia (QMCI) - Margins Take A Hit As Revenues Ramp
In-line fourth quarter. Total company revenues were $3.266 million versus our $3.275 million estimate and operating cash flow, as measured by adj. EBITDA, was $58,000 versus our loss estimate of $21,000. Notably, the company's Corporate Quotestream business had a very strong quarter, with revenues up 39%, which was somewhat offset by a 9% revenue decline in its Interactive Content segment revenues. Gross margins declined. The year over year Q4 decline in gross margins from 52.0% to 41.6% reflects the revenue growth in its lower margin Corporate Quotestream business and the revenue weakness in its higher margin Interactive Content business. Management guided to an acceleration in revenue growth to 20% in subsequent quarters and for full year 2021, but gross margins are expected to be constrained due to product mix. Revising estimates. We are raising our quarterly and full year 2021 revenue estimates to reflect the expected ramp in its Corporate and Individual Quotestream businesses, but lowering our cash flow estimates to reflect lower gross margin assumptions. Our full year 2021 revenue estimate is revised from $14.6 million to $14.9 million. Our cash flow estimate is lowered from $2.0 million to $1.7 million. Our estimates reflect a lower gross margin estimate of 45.8% down from our previous estimate of 49.8%. We are lowering our 2022 cash flow estimate from $2.3 million to $2.1 million, as well.Swing toward positive cash flow. Investment spending for new products and feature sets are expected to wind down somewhat this year. As such, the company is expected to build back its cash position, which whittled down to $418,000 at the end of December 31, 2020. We are optimistic that cash flow and margins will improve as usage increases from its recently added customers and as its higher margin businesses gain traction.Maintaining Outperform rating. Near current levels, the QMCI shares trade at 12.9 times Enterprise Value to our revised 2022 cash flow (adj. EBITDA) estimate. Our price target is being maintained at $0.25, which reflects a 14 multiple on 2022 cash flow, in line with its peer group. We believe that there is the prospect that the multiple will expand to reflect its strong growth potential, assuming that the company can scale its business with consistent and/or improving margins.Read More >>