QMCI - QuoteMedia (QMCI) - Will Margins Improve As Revenues Ramp?
Q1 in-line with expectations. Q1 revenue growth accelerated to 22%, in line with our expectations. Q1 revenues of $3.606 million was in line with our $3.580 million estimate. Cost of Revenues, however, increased significantly faster than revenue growth at 37.6%. As such, gross margins were lower than expected, 42.8% versus our 45.5% estimate. This led to Adjusted EBITDA of $244,000, lower than our $311,000 estimate.Gross margins should improve. Vendor price increases are typical at the beginning of the year. As such, gross margins should improve in subsequent quarters as revenues grow. We anticipate gross margins to improve to roughly 45% in subsequent quarters. In addition, we anticipate that gross margins should benefit from a slight acceleration in revenue growth in the company's Interactive Content & Data Applications segment, from 2.5% in Q1 to 6.2% in Q4.Tweaking estimates. While we are raising our full year 2021 revenue estimate from $14.85 million to $15.34 million, we are slightly tweaking lower our adjusted EBITDA estimate from $1.703 million to $1.668 million. Our estimate reflects a lower gross margin assumption, 44.5% versus our previous estimate of 45.8%. We are maintaining our full year 2022 adjusted EBITDA estimate at $2.18 million, at this time. Looking for positive surprises. While the acceleration in revenue growth is encouraging, we are awaiting the prospect of positive upside to our adjusted EBITDA estimates. 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. Compelling stock valuation. Near current levels, the QMCI shares trade at 11.7 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 >>