an (azure) blue sky opportunity in cloud services and fintech 5/14/2020 آ  an (azure) blue sky...

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  • Noel Atkinson, CFA 416-343-3352 |

    George Ulybyshev, CFA, Associate | 416-343-4203

    An (Azure) Blue Sky Opportunity in

    Cloud Services and Fintech

    May 14, 2020

    Quisitive is one of the fastest-growing cloud IT solutions providers

    that focuses primarily on the Microsoft Cloud technology platform.

    The Company also spent over two years developing a proprietary

    Microsoft Azure-based retail payment processing and data insights

    product platform called LedgerPay. We believe LedgerPay –

    announced in March 2020 – could be a transformational revenue

    stream for Quisitive. When combined with expected strong organic

    growth for its IT solutions unit due to companies increasingly

    embracing cloud technology, we expect Quisitive to more than double

    its revenues between 2020 and 2022 to over US$100 million. We are

    initiating coverage of Quisitive with a Speculative Buy rating and

    a 12-month target price of C$1.25 per share.

    • LedgerPay solves a significant gap in customer data insight for brick-and-mortar retailers: LedgerPay captures detailed customer

    credit/debit card transactions for merchants in an anonymized

    manner at physical stores and provides consumer insight for physical

    store visits at depths usually only available to online retailers. Global

    retail data analytics provider dunnhumby is the most prominent

    analytics and marketing partner and adds serious credibility to the

    platform. Quisitive estimates that a single mid-sized grocer could

    drive as much as US$30MM/year of revenue for LedgerPay. We see

    potential for US$100MM/year of LedgerPay revenues within the

    next few years, which at current peer group valuations could result

    in a 5x increase in market cap.

    • 2019 Microsoft U.S. Partner of the Year for IT Solutions: Quisitive helps companies migrate their computing, storage and business

    software requirements to the Microsoft Cloud. Enterprise cloud

    adoption continues to grow rapidly, and we expect companies to

    further embrace remote-access, lower-capex operation models

    post-COVID – which should boost Quisitive’s revenue growth.

    • LedgerPay Should Boost Already-Solid Profit Margins: Quisitive has pre-announced record quarterly revenues for Q1/20 of

    ~US$11MM and Adj. EBITDA of US$1MM. The IT solutions unit

    generates gross margin of about 40%. We expect LedgerPay to

    generate at least US$3.5MM of revenues in 2020 and scale rapidly in

    2021+ with blended gross margin over 60%.

    • Target Price of $1.25, Speculative Buy Rating: Our 12-month target price equates to 12.5x 2022e EV/Adj. EBITDA discounted 1 year at


    Quisitive Technology

    Solutions, Inc. QUIS-TSXV: $0.68

    Rating: Speculative Buy

    Target: $1.25


    Calendar Year 2019 2020e 2021e 2022e

    Revenue (US$MM) $18.5 $49.1 $66.5 $104.7

    Adj. EBITDA (US$MM) $1.3 $6.3 $8.8 $17.1

    Adj. EBITDA Margin 7% 13% 13% 16%

    Diluted EPS (US$) ($0.08) ($0.02) ($0.00) $0.04

    Price/Sales (CY) 2.9x 1.1x 0.8x 0.5x

    EV/Adj. EBITDA (CY) 86.1x 17.4x 12.4x 6.4x

    P/E (CY) NEG NEG NEG 11.1x

    2020e Q1e Q2e Q3e Q4e

    Revenue (US$MM) $11.0 $11.4 $12.9 $13.8

    Adj. EBITDA (US$MM) $1.0 $1.2 $1.9 $2.2

    Stock Data

    Price C$0.68

    52-Week Range C$0.07 - C$0.85

    Avg Daily Vol (3-Mo) 85,319

    Shares Basic / Diluted (pro forma, MM) 111.8 / 177.0

    Basic/Dil. Market Cap (pro forma, C$MM) $76 / $120

    Cash (pro forma, C$MM) $6

    Debt (pro forma, C$MM) $39

    Enterprise Value (pro forma, C$MM) $154

    Mgmt & Dir. Ownership (pro forma) 20%

    Fiscal Year End Dec 31

    Company Profile

    Quisitive is a premier partner and National Solution Provider for

    Microsoft to migrate, optimize and maintain enterprise business

    solutions using the Microsoft Cloud. Quisitive has also launched

    LedgerPay, its cloud-based payment processing and data insights

    platform that is offered in partnership with global retail analytics

    firm dunnhumby.

  • Quisitive Technology Solutions, Inc.


    2 of 21 May 14, 2020

    Investment Thesis

    Two of the leading topics in business today are the rise of cloud computing solutions and how brick-and-

    mortar store chains need to evolve in order to compete more effectively against online retailers. We

    believe Quisitive Technology Solutions (“Quisitive” or “the Company”) is one of the best-positioned

    service providers to assist companies with both business issues.

    Quisitive assists companies to migrate their computing and data storage/analytics solutions onto the

    Microsoft Cloud (NASDAQ: MSFT, NR) technology platform. Microsoft is the world’s largest provider of

    enterprise cloud services by revenue, and it relies almost entirely on accredited IT solutions partners for

    implementation and custom development. Quisitive is one of ~10 top-tier IT solutions partners for

    Microsoft in North America, and we believe it is the largest such partner that exclusively focuses on the

    Microsoft Cloud. As a result, Quisitive provides investors with a unique exposure to Microsoft’s massive

    and fast-growing cloud platform. Recent acquisitions have scaled up revenues (preannounced Q1/20

    revenues of ~US$11 million or US$44 million/year) and Adj. EBITDA, and we expect solid organic growth

    through our forecast period due to the various macro tailwinds driving enterprise cloud services adoption.

    Quisitive also develops its own cloud software that generates recurring revenue. In March 2020, Quisitive

    launched LedgerPay – a proprietary payment processing and consumer insights data platform on

    Microsoft Azure. LedgerPay could be truly transformative for Quisitive, as it could generate millions of

    dollars in annual high-margin revenues with adoption by even one mid-sized retail chain. LedgerPay

    has been given serious credibility through its analytics and marketing partnership with leading global

    retail analytics firm dunnhumby, which serves some of the world’s largest retailers and consumer

    packaged goods (CPG) companies. We see potential for US$100MM/year of LedgerPay revenues

    within the next few years, which at current peer group valuations could drive a 5x increase in market


    We believe Quisitive can scale revenues to over US$100 million by 2022, which would be more than

    double our 2020 forecast, and grow Adj. EBITDA multi-fold over the same period. If Quisitive can execute

    to our forecast, we expect investors to be well-rewarded.

    Figure 1: Key Business Segments and Market Drivers for Quisitive

    Source: Clarus Securities Inc.

  • Quisitive Technology Solutions, Inc.


    May 14, 2020 3 of 21

    We Expect Revenues to More than Double between 2020 and 2022 to Over

    US$100 Million

    Our base case assumes the LedgerPay payment processing platform begins to generate revenue in Q2/20

    via the white-label license agreement with Rev19, followed by first point-of-sale (POS) data product sales

    revenue and first LedgerPay direct processing service revenue in Q1/21. We also assume no further

    acquisitions by the IT Solutions group. All future accretive acquisitions would provide upside to our

    current forecast.

    • 2020e: We expect the COVID-19 outbreak to cause only a modest drag on IT Solutions revenues in Q2/20 and then likely be a macro growth driver for cloud services thereafter.

    Revenue growth Y/o/Y will be supported by the recent acquisitions of CRS and Menlo. We

    forecast LedgerPay to contribute US$3.5 million of revenues in 2020, starting in Q2 and mainly

    in the form of high-margin license fees from the Rev19 agreement.

    • 2021e: LedgerPay revenues expected to grow nearly 3x Y/o/Y to US$9.9 million due to increased data revenues and the launch of full-service payment processing (expected in Q1/21

    after securing a U.S. bank sponsor in late 2020e). IT Solutions revenue growth is expected to

    be +24% Y/o/Y to US$56.6 million.

    • 2022e: We expect LedgerPay to drive 289% Y/o/Y revenue growth to US$38.5 million, and for the IT Solutions unit to grow revenues +17% Y/o/Y to US$66.2 million.

    Figure 2: Revenue Split by Business Units, 2019 to 2022e (in US$ Millions)

    Source: Corporate reports and Clarus Securities Inc. estimates.

  • Quisitive Technology Solutions, Inc.


    4 of 21 May 14, 2020

    Figure 3: Annual Revenue and Adj. EBITDA, 2019 to 2022e (in US$ Millions)

    Source: Corporate reports and Clarus Securities Inc. estimates.

    Initiating with Speculative Buy Rating and 12-Month Target Price of $1.25 per Share

    Quisitive should have material contribution to its revenues and earnings from both LedgerPay and IT

    Solutions in 2021. Consequently, we have constructed two peer groups – IT solutions providers and

    payment processing providers – for valuation analysis purposes.

    Using FactSet consensus estimates for companies not covered by Clarus, the IT solutions provider peer

    group currently tra


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