Simplify Multi-Qis Alternative ETF Price & Performance (QIS)

Which is approximately 2 times our $29,000,000 SaaS annual recurring revenue run rate. We are very pleased to present to you today our Q3 twenty twenty four results. Not only did we achieve record adjusted EBITDA of 2,300,000 and record adjusted cash income of $1,800,000 dollars in Q3 twenty twenty four, but we also paid down $3,000,000 on our BDC Capital Debt Facility. Our profitable growth strategy and better company wide cost management has now delivered 4 consecutive quarters of adjusted EBITDA margin of 20% or or higher. This improved profitability provides Quorum the latitude to accelerate the pay down of our BDC Capital facility, which has been reduced in 2024 from $9,000,000 to the current balance of $4,500,000 Our improved cash flow also better positions us to consider other future capital or strategic investment opportunities. Maren will now review our Q3 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, Thank you, Maury. Hello, everybody. You for being here with us today.

Would like to remind everyone that certain 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 caused actual results to differ materially from from those expressed in the forward looking statements. Quorum is not assuming responsibility for the accuracy and completeness of the forward looking statements and does not undertake any obligation publicly revise these forward looking statements to reflect subsequent events or circumstances.

For additional information on possible risks please refer to our annual MD and A dated December 31, 2023 on the sedarplus.ca website. As Mori mentioned, we are very excited about the stronger financial position we have achieved through our continued focus on both profitable growth and continued cost management. Our record level adjusted EBITDA in Q3, 2024 increased by 15% to $2,300,000 compared to 2,000,000 in Q3 2023, representing an adjusted EBITDA margin expansion of 4% from 19% in Q3 2023 to 23% [indiscernible] This was the 4th consecutive quarter in which we post an adjusted EBITDA margin 20% or higher. The increase in adjusted EBITDA is primarily attributable to our continued focus on cost management. Our record level adjusted cash income or ACI $1,800,000 in Q3 twenty twenty four compared to 1,300,000 Q3, 2023, an increase of $500,000 or 39%. This represents an adjusted cash income margin expansion of 6%, from 12% in Q3 2023 to 18% in Q3 20 24. Additional highlights of our Q3 2024 results as compared to Q3 2023 are as follows: Total revenue decreased 5% to $9,900,000 compared $10,400,000 SaaS revenue was $7,200,000 compared to $7,100,000 representing an increase of 2% The increase in SaaS revenue as compared to the prior year was due to a combination of cross selling and new customer revenue.

BDC revenue was $2,500,000 compared to $2,800,000 representing a decrease of 11%. However, BDC revenue has recovered in October 2024 and is comparable to BDC revenue in Q4, 2023. Services and onetime revenue was $300,000 compared to $600,000 representing a decrease of 54%. The decrease in services and one time revenue as compared to the prior year was due to the wind down of the Windows 2022 upgrade project. Annual reoccurring revenue was 38,700,000 dollars compared to 39,300,000 dollars This is comprised of annual recurring SaaS revenue, $28,900,000 compared to $28,300,000 an annual of reoccurring BDC revenue of $9,800,000 compared to $11,100,000 dollars Our monthly recurring revenue per customer or MARPU increased to 1698 Q3, 2024 Quorum 1651 in Q3, 2023, mainly due to our focus on cross selling. Gross margin was $4,900,000 or 50 percent of revenue compared to $4,900,000 47% of revenue SaaS gross margin increased slightly to 68% compared to 67%. BDC gross margin also increased slightly to 21% as compared to 20 As a result of our continued cost cutting efforts, our total operating expenses decreased by 17% to $4,200,000 from $5,000,000 And net income increased by $1,100,000 to 0 point 8 $800,000 primarily due to an increase in adjusted EBITDA as well as a decrease in financing costs and deferred income tax expense.

Quorum's improved profitability has provided us the latitude to accelerate the pay down of both principal and interest on our BDC Capital loan Subsequent to Q3, 2024, on October 30th, Quorum made a prepayment of 500,000 on our BDC Capital loan facility. In prepaying $4,400,000 in principal and interest through 2024 to date, our BDC capital loan facility has now been reduced from $9,000,000 as start of 2024 to $4,500,000 today. Resulting in $400,000 in annual interest expense savings. With that, I'd like to pass it back to Maury.

In this section, I want to discuss 2 key topics. The first is the impact [indiscernible] improved profitability has had both on our balance sheet, but also on the future Latitude it provides for the The second is our continued commitment to product innovation and some of the exciting innovations we have planned. Let me start with the first of these two topics, our improved profitability. 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. As mentioned, we reduced our BDC capital debt facility in 2024 from $9,000,000 to the current balance of $4,500,000 Our net debt which is total debt less cash, has dropped from $7,000,000 as of December 31, 2023 to $3,700,000 Our net debt to last 12 months adjusted EBITDA ratio is dropped from 99% to a strong 44%. The result of the multiple improvements that I just listed is we're now positioned to start considering other future capital or strategic investment opportunities. We plan to carefully evaluate these opportunities based on the return they provide on [indiscernible] Some of the future opportunities that we have available to us include: 1, increasing our sales and marketing efforts to expand new dealership acquisitions in both Canada and the U. S. Markets With a corn product in at least 40% of the Canadian franchise dealerships and limited brand awareness in the U. S. Market, we have growth opportunities in both markets.

Number 2, more aggressively pursuing M and A. Quorum has 13 of the 25 product categories in the market and there are M and A opportunities [indiscernible] As a reminder, Quorum has acquired 5 companies in the past 7 years and is become proficient at integrating acquired companies into our organization. Number 3, increasing our investment in product to help as or reduce our costs or improve our BDC gross margins. Number 4, 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. Turning to my second topic, which is our continued commitment product innovation, I will talk about the following exciting innovations we have planned. Number 1, our service CRM solution has received 2 generative AI enhancements to empower BDC or contact center agents. The first enhancement has increased average BDC maintenance sales per repair order by an incredible 14% The second enhancement which was just released should improve the dealership service appointment conversion rate from text messages sent to customers. We also have more generative AI enhancements coming in 2025.

In 2025, sorry, number 2, in 2025, our sales CRM application is receiving a new dashboard improvements to its mobile app and some generative AI functionality. Our initial market for our sales CRM application is our Service CRM dealership customers that are looking for a single integrated [indiscernible] Number 3, our desking menuing and MyDeal products, which are digital retailing tools for selling vehicles and related products. We'll include select OEM warranty programs to increase dealerships' extended warranty sales. This should improve 2025 sales of our menu product, to our existing customers and the value proposition for selling to new customers. Number 4, Quorum's DMS will continue to receive multiple new OEM integration certifications with existing OEM partners. Additionally, we are planning some AI enhancements later in 2025. A common theme is the integration of AI across multiple products in our suite. Would like to close our prepared remarks by sincerely expressing my This commitment to Quorum was crucial to achieving our Q3 2024 plan and strong quarterly results. Their hard work is enhanced by our integrated suite of 13 essential software solutions and services, This product suite is fundamental to our profitable growth strategy as it facilitates product cross selling and plays a vital role in driving the success of our dealerships.

Thereby increasing value for both Quorum and its customers. Operator, I'd now like to open this conference call to any questions from our audience.

We are now opening the Thank you. Your first question comes from Devin Fairweather from Cormark Securities Incorporated. Your line is now open.

Hi, Maury. This is Graham Smith on for Gavin. Fairweather. [indiscernible] count, so it looks like the churn has stabilized. You guys seeing that actually increase. Can you maybe just talk about what you're seeing with the growth in the rooftops? And then maybe how we can think about the ARPU trajectory Are those new rooftops being that are being added? Maybe some of [indiscernible] So any color on that would be great.

Yes.

So my first comment is going to be as we've talked in the past And just to remind everybody, right, we're very focused on cross selling. To existing customers. So we have cut back on the investment that we've been making in the past on new dealership pursuits. That isn't to say we are pursuing new dealerships, we are. And so that's why you're sort of seeing limited growth, but you're seeing positive growth across our across our rooftop count. What we tend to do is it's easier for us to go into new dealerships and sell some of our smaller products to them and then land and expand from there. Which moves us into sort of the cross selling motion. So what you're seeing is you're seeing an addition of some new rooftops There is some some churn of some rooftops as well, but our new rooftop logos are are increasing beyond that. And then we've got our whole cross selling motion. So all of those factor into the [indiscernible] [indiscernible] That's great. Thanks. Just my second one is on BDC gross margins. They were quite strong in the quarter. You guys have made a ton of progress since the low point in Q4 2022.

So maybe if you can just give an update on the generative AI that you guys are kind of about investing in plug in initiatives and whether you guys can keep expanding that maybe give a bit more color on the trajectory of those margins?

Yes. Yes. So as you mentioned, right, our BDC gross margins have sort of year over year and keep making improvements, but we really haven't introduced a lot of generative AI into into our efforts to improve gross margins. Most of the generative AI that we've introduced today is to help our agents sell more to our existing existing dealership customers. And that's been incredibly successful for us. How we look at this is we are really looking at generative AI as a tool to help us with outreach, so that our agents aren't having to do a lot of the outreach. So we can do it with generative AI and be very custom to that particular customer and that customer's needs. And then our agents would then deal with actually booking the service appointment with the customer or upselling to that customer additional services. And we want our agents to really be that specialist at doing that and generative AI to handle a lot of the typical outreach that we would have out there or even meet some incoming incoming calls or incoming connections as well. And qualify those and then of course hand it off to the agent.

So with that particular model in mind, our agents become specialists in the sort of the center of of all the different communications that are going on and we just make them a lot more efficient and also very valuable valuable to the process. So I'm not going to give some guidance on BDC gross margins and where can we take these, but we're pretty excited about the possibility of moving up our BDC gross margins.

That's great. Thanks Maury. And then just one more for me and then I'll pass the line. So you guys laid out like a bunch of capital allocation strategic investment opportunities that you have. Maybe if you could just give some more detail on the priorities or if those are all being kind of equally looked at at the same time And then as well, if you're thinking about increasing sales and marketing and Canada for in the U. S. For example, are you guys seeing like the market opportunity like the demand environment I guess to support that increased investment maybe more color again on like M and A, like are you guys seeing the pipeline building So again, if you could just give some order to those sort of capital allocation priorities and then maybe more detail on why you're making those decisions, that'd be very helpful.

Yes. So we are we are in the process of starting to evaluate the different options And every single option that we we look at will be looked at through the lens of what is the return it's going to provide on the invested capital. [indiscernible] The plan is to evaluate a number of different options and pick the ones that, of course, have the highest return. So that's really the perspective that we're taking. In terms of the market in general and sales of our different products in our product suite, We continue to see strong demand on the fixed operations, so the service and parts side of the business. That that area is always been even going right back into COVID and post COVID and to today, that's been the sort of the anchor inside the dealership. It's the most profitable area of the dealership. It It has been strong from a market demand for us. We haven't seen any wanes in that demand. In that demand. So products like our Service CRM solution, our Services, our PowerLane solution, which is a ServiceLane tool, our online service scheduling, our accessible accessories, accessory sales solution, all of those are are really focused on that market and it remains strong and we really realistically could add more sales and marketing investment to go after that.

The sales side of the business, the vehicle sales side of the business has had its ups and downs over the last number of years. But we do see that it has returned fairly strong and to the point that dealerships are now having to make that transition from from really in the past having more buyers than they had vehicles on the lot to now having more vehicles and having to sell again. And so tools like our Audvent suite, our sales CRM solution, Once again, our accessory sales solution, all of those are becoming more and more in market demand as that as the demand sort of transitions. So I think I answered your questions, but let me know if I missed anything.

No, that's great. Thanks, Maury, and I'll pass the line.

As of right now, we don't have any pending questions. I'd now like to hand back over to the management for the final remarks.

Sure. You know, I appreciate, as always, everybody's interest in Quorum and, and your support. And we're glad you could join us today. We look forward to updating you again in April 2020 5 with our 2024 full year results.

Thank you for attending today's call. You may now disconnect. Have a wonderful day.