Southpaw

Noticed no one had posted in a while. Anyone still following? Quorum announced a transformative, accretive acquisition that doubled the size of the company. Also, Beacon Securities initiated sell side coverage last week with a $1.25 price target (3x 2020 revenue, still several multiple turns below comps). From the press release for the Dealermine acquisition: There are many strategic reasons for the transaction, including: - Accelerating Quorum’s strategy to be a full-service provider to automotive dealerships by adding DealerMine’s complementary product set and BDC services. - DealerMine is a fast growing business with a proven management team and a large number of very successful dealership customers. - DealerMine’s Service CRM products and BDC services have a strong growth opportunity within the existing Quorum customer base. - The Transaction significantly expands the new combined Company’s scale and footprint in the automotive dealership software space. - Quorum expects some economies of scale in the areas of industry events/memberships, government financing/programs and OEM relationships/programs across the combined entity. - Quorum expects the Software as a Service (“SaaS”) revenue, BDC revenue, EBITDA and cash flow from the Transaction to be immediately accretive. Like with the Autovance acquisition, there should be some good cross-selling opportunities. Full press release: http://quorum.mwnewsroom.com/press-releases/quorum-announces-acquisition-of-dealermine-inc-tsx-venture-qis-gnw_2577167_001

Hi guys, my colleague has been appointed to the board of Quorum so I will no longer provide any public updates on here. Happy to chat via more formal methods for those interested and would also suggest just reaching out to the CEO or CFO, or newly hired investor relations person directly (Daniela Trnka: dtrnka@nucleus.com). info@vosscap.com Thanks. -- http://quorum.mwnewsroom.com/press-releases/quorum-appoints-jon-hook-of-voss-capital-to-board-of-directors-tsx-venture-qis-201612121079861001 Quorum Appoints Jon Hook of Voss Capital to Board of Directors Dec 12, 2016 - 17:00 ET CALGARY, ALBERTA--(Marketwired - Dec. 12, 2016) - NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OF AMERICA. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAWS. Quorum Information Technologies Inc. (TSX VENTURE:QIS) ("Quorum" or the "Corporation") is pleased to announce that, effective December 9, 2016, Jon Hook has been appointed a director of the Corporation. Mr. Hook has over seven years of equity investment experience, first working at the Teacher Retirement System of Texas (TRS) for five years covering Software & Services, and at Voss Capital LLC for the last two and a half years. Prior to TRS, he worked for over three years at EMR software provider Epic Systems. Mr. Hook obtained his MBA from Rice University and holds the Chartered Financial Analyst (CFA) designation. "This is an exciting time in Quorum's history and I am delighted to join the board. The ongoing adoption of Quorum's DMS by auto dealerships and the strong execution by the management team has been impressive. I am optimistic about the promising strategic opportunities for Quorum and look forward to working with the board to help the company realize its full potential and maximize shareholder value." About Quorum Quorum is a North American company focused on developing, marketing, implementing and supporting its XSellerator product for GM, Ford, Chrysler, Toyota, Hyundai, Kia, Nissan, Subaru, NAPA and Bumper to Bumper franchised dealership customers as well as other franchised, independent and some non-automotive dealerships. XSellerator is a dealership and customer management software product that automates, integrates and streamlines every process across departments in a dealership. One of the select North American suppliers under General Motors' DTAP program, Quorum is also one of largest DMS providers for GM's Canadian dealerships with 25% of the market. Quorum is a Microsoft Partner in both Canada and the United States. Quorum Information Technologies Inc. is traded on the Toronto Venture Exchange (TSX-V) under the symbol QIS and in 2016 was selected to the TSX Venture 50®, an annual ranking of the strongest performing companies on the TSX Venture Exchange. For additional information please go to www.QuorumDMS.com. Neither the TSX Venture Exchange nor its regulation services provider (as that term is defined in the policies of the TSX Venture Exchange) has reviewed this release and neither accepts responsibility for the adequacy or accuracy of this release. Quorum Information Technologies Inc. Maury Marks President & Chief Executive Officer (403) 777-0636 MarksM@QuorumDMS.com

QIS reported last week. The stock is at 2.2x 2016 sales and 12.9x our 2016 EBITDA estimates. It's at 2.0x 2017 sales estimates and below 10x our EBITDA estimate. Revenue growth decelerated this quarter purely from low margin transition revenue decline, and EBITDA margins ticked higher. Core recurring revenue was up 19% y/y in the quarter and is up 23% YTD y/y. Net new revenue, the best leading indicator, was up 74% y/y in the quarter and is up 102% YTD y/y. Net new revenue accelerated sequentially and was just below the Q1 2016 record. This pretty much guarantees solid Support and Support Plus revenue growth next year. We think Support Plus revenue growth decelerated as management likely assigned more personnel to ensure smooth implementation at a few large dealers during the quarter. The positive of this is ARPU will rise. Support Plus revenue was up 32.2% in the quarter and is up 52% y/y (YTD through first three quarters). Cash flow has been a bit lighter than expected, as some one-time integration work with auto OEMs is still happening. On a side note, to again highlight the value discrepancy, LOCK just got a buyout offer this morning. It is growing slower than QIS, has worse EBITDA margins, and is a much worse business with high customer churn yet still received a valuation at 3.2x EV/LTM sales.

Press release this morning: Quorum Information Technologies and Xtime Announce Partnership Marketwired October 13, 2016Comment CALGARY, ALBERTA--(Marketwired - Oct 13, 2016) - Quorum Information Technologies Inc. (TSX VENTURE:QIS) (Quorum) and Xtime, a Cox Automotive brand, announced today that they have successfully completed integration between their respective products. Xtime's online service appointment scheduling tools will communicate with Quorum's dealership and customer management system, XSELLERATOR, to allow customers to schedule service appointments online. Appointments scheduled via the dealership's website will automatically transfer into XSELLERATOR and convert to a repair order when the customer arrives. Several Quorum dealership clients participated in extensive testing and piloting of the new capability. Dan Ichelson, Quorum's Vice President of Operations & Development, and Jim Roche, Xtime's SVP of Marketing & Managed Services, jointly made this announcement after officially completing the integration project. "We both recognize the value this integration will bring to our mutual customers," Mr. Ichelson commented. "Xtime is a leader in online service scheduling and having an integrated process for appointments provides an excellent experience for customers." "The partnership between Quorum and Xtime is integral to the dealership's profitability by transforming the way they communicate with their customers and streamlining operations," said Mr. Roche. "The successful integration of the products will allow for a unique and robust scheduling experience, enabling a better user experience while helping the dealership to be more productive and efficient."

Quorum announced they have hired a third party IR consultant. The press release doesn't get pushed to US news wire services or financial websites, so sharing here. Sounds like they will soon have a corporate IR presentation available and will commence quarterly earnings conference calls. http://quorum.mwnewsroom.com/press-releases/quorum-information-technologies-appoints-daniela-trnka-as-investor-relations-con-tsx-venture-qis-201610041071455001

No thoughts. Not sure that one penny below deal price (0.3%) is indicative of no deal taking place.

I heard the McKesson mention from a Canadian institutional trader who has been very active in QHR's block trading and seems to be the most in the know on the name's trading activity. Not sure if that is just him speculating due to the Rexall acquisition or him hearing that from some other funds and clients that were trying to connect dots. I had not thought of it previously. Definitely hadn't considered Loblaw, though I'm sure neither had Mike Checkley or Pender Funds. I haven't sold a share yet. Have to wonder if Telus' head of M&A or EMR division has modeled out the upside if Medeo adoption picks up. Either way, happy with the outcome so far (140% ROI in 8 months), but also sad as it is rare to find such a cheap long term compounder that I would have been willing to hold for a long time with the potential to make multiples. Might as well wait and find out if anything else develops for an asymmetric bet, IMO.

It is a good question but seems too abstract for me and is a very long term worry. The market will generally not care about anything that is >3 years away. Tesla has been around for 14 years now and is a literal rounding error and I don't expect that to change much. I don't believe car ownership rates are declining rapidly overall in the US and Canada, but if you have a reliable source showing otherwise I'd be curious to see it. Even with Uber I feel most people still want to own their own car. It may be more important to look at miles driven, as dealers derive about 45-50% of gross profit from the service side and are less sensitive to new car sales. There are many ways to perfectly hedge this risk out, e.g. short CDK, short auto dealership stocks, short auto OEMs, short auto parts suppliers, etc. Another mitigating factor against this long term risk is that I believe once they stop trying to grow aggressively and shift purely into cash flow harvest mode, operating margins will easily exceed 40% and you will get the entire enterprise value back in cash in a hurry. As evidence, Reynolds & Reynolds is doing something like 50% operating margins with low growth. Also there could be plenty of strategic acquirers even if growth slowed. Alberta is going through a recession, Canada has gone through an energy depression, and meanwhile car sales are surging and QIS is growing core revenue at 29%. Focusing on the tangible micro playing out in real time over the long term hypothetical macro tells a truer story for this situation.

Ssuunnyy-- 1) Probably just a false pattern in a small sample size (2014 was not this way), but entirely possible there are more holidays or something is getting pushed from December to January as you state. Can't be sure. 2) On the install count, I do think they have recently been slightly discounting the implementation for large dealer groups who commit to a high number of dealers so the revenue is likely less than $40k/install. My 11-12 statement was likely too aggressive...full year estimate at 36/year through 2019 in base case (+43 in 2017 bull case). 3) Planning to ask management about this. You can't just add up the Dealer success scorecard items. Generally they are surpassing our earlier expectations. If you look back, you will see we were modeling 30 dealer adds a year for the next few years...definitely on pace to beat this and slightly beat our current 36. Let me know if you uncover anything else.

QIS reported and Core revenue accelerated to +29% Y/y, from +22% last quarter. Net new Revenue signals that they are still adding 11-12 new dealerships per quarter. EBITDA showed a decline y/y, mostly due to a ~$150k marketing cost from the NADA conference that fell into Q2 this year versus Q1 last year. Support staff has been scaled up quite a bit the last few quarters and should be ready for continued accelerating growth.

Regarding IBM as a potential bidder, I am not sure and would have to think about it more and look up if their Canadian exposure/interest. I also have heard McKesson thrown around as a potential bidder given their March acquisition of Rexall, Loblaw's largest Canadian pharmacy competitor. In regards to Telus anti-trust concerns and an established threshold, we have found this: The Canadian Competition Act doesn't allow a merger to be prevented based solely on the fact that it would result in concentration of market share. They of course do look at market share and use the general thresholds: The Commissioner generally won't challenge a merger when the post-merger market share would be less than 35% or the market share of the four largest firms in the market would be less than 65%. Canada is the only country to have an "Efficiency Defense", which a company can use to challenge a ruling. This prohibits the Commissioner from blocking an anti-competitive merger if the gains in efficiency from the merger outweigh its anti-competitive effects. - • Market Share Concentration Thresholds. o The Bureau has established the following thresholds to identify and distinguish mergers that are unlikely to have anti competitive consequences from those that require a more detailed analysis:  The Commissioner generally will not challenge a merger when the post merger market share of the merged firm would be less than 35 percent.  The post merger market share accounted for by the four largest firms in the market would be less than 65 percent. o Mergers that give rise to market shares or concentration that exceed these thresholds are not necessarily anti competitive. Under these circumstances, the Bureau examines various factors to determine whether such mergers would likely create, maintain or enhance market power, and thereby prevent or lessen competition substantially. o The Bureau examines the distribution of market shares across competitors and the extent to which market shares have changed or remained the same over a significant period of time. o While a small incremental increase in concentration following a merger may suggest that the merger is not likely to have a significant impact on the market, the Bureau assesses the growth expectations for one or both of the merging parties to determine whether the merger may eliminate an important competitive force.

We agree with you ssuunnyy that analysis (comparing EV/Doctor between Nightingale and QHR) is a poor way to evaluate whether Telus might bid on the company. We actually think that the multiple EMR platforms Telus currently supports is the single biggest reason why Telus might make a higher bid for QHR. As long as QHR is around, Telus will likely never pull the trigger and consolidate their doctors to a single platform. Why? Because doing so would likely result in material churn, as doctors are then confronted with a new purchase/transition decision and may very well switch to QHR. Certainly this appears to be what is happening already with Nightingale (increase in i- bound calls to QHR...another reason Telus wouldn't pay a higher price for NGH, they probably priced in greater near term churn). Given that the industry is only likely to consolidate further in the near future, now is the one and only time Telus may get the chance to acquire QHR as the their collective market share is only likely to expand in the future and regulatory issues would only further cloud a potential acquisition. There still might be regulatory issues even now, but if I were Telus I'd be seriously considering a higher bid. Keep in mind this company was not shopped, it was an unsolicited offer from Loblaw, so Telus is probably scrambling to figure out if it's worth making a materially higher bid. From a valuation standpoint, Telus still wouldn't necessarily be overpaying, especially if they can help accelerate the adoption of Medeo. Seems like a fairly asymmetric bet here, one penny down with 20-50 cent (?) upside in the event of another offer.

Thanks, everyone. Hopefully some of you made some money on it. The acquisition was pretty unexpected--at least happening this soon and it being Loblaw. Would have liked to hold the stock for years to come as I still thought it had multi-bagger potential, but can't complain about a 150% ROI in a short time. Interestingly, the stock price is $3.11 right now, slightly above the deal price. The stock is behaving as if many people think a higher bid is forthcoming. If I understand the arrangement agreement it looks like: QHR has to set the company meeting date to vote on the acquisition on, or before, October 17th. QHR can't solicit any other offers from other potential acquirers, or provide its financial data to other potential acquirers. But other potential acquirers can make offers. QHR has to provide Loblaw with a "Superior Proposal Notice" at least 5 business days before the company meeting. Then Loblaw has a 5 day matching period to match the superior offer. If QHR gives notice of a superior offer less than 5 days before the QHR company meeting then Loblaw can request a max 15 business day postponement of the company meeting.

Not sure...one dumb seller...only 500 shares traded at $0.47...with lots of volume in high .50s. bid is $0.55 now (16k) and ask is $0.60 (107k shares offered out loud). At $.56 it's still only about 7.5x our 2017 EBITDA estimate. They report Q2 tomorrow, FYI.

Thank you for sharing. Any traction with the Telus docs could definitely move the needle in terms of valuation. Here is an article in the Vancouver Sun on tele-medicine from Friday: http://vancouversun.com/news/local-news/the-doctor-is-online-anytime-its-the-freewheeling-world-of-ehealth "Kelowna-based software company QHR has pioneered electronic medical records in B.C. and in 2014 purchased Medeo, a Vancouver tech startup offering video conferences with doctors over smartphones, tablets or computers. QHR CEO Mike Checkley says telemedicine is not a one-size-fits-all world and both patients and doctors must find which aspects work best for them. For some, it will be making appointments online or having quick video check-ins with their local family doctor for a prescription refill or followup. “I don’t think it makes sense for clinics to be exclusively online,” says Checkley, adding it can never replace a hands-on examination. “Virtual care is simply another way to have a visit between a patient and a doctor. We have to use it when it makes sense.” Video visits About 600 doctors in B.C. are using some aspect of Medeo’s software, he says. This includes Victoria pediatrician Dr. Adriana Condello, who says the program excels in mental health care — particularly for teenagers — by allowing patients, their parents or teachers to speak to her at convenient times without making a trip to her clinic. “It empowers the kids as adolescents. They say, ‘This is my appointment and I can do it.'” She has about 20 patients using Medeo for some part of their care, but says the patients have to selected. “As practitioners we have to be cognizant that it can only be a certain part of the patient population because we can’t put our hands on them.” That’s why some of the biggest supporters of telemedicine are in the areas of psychology and psychiatry, where a video visit can replace a counselling session — invaluable for people who don’t live in big cities. Daniel Martz, CEO of Montreal-based Equinoxe LifeCare, says about one-third of his company’s 22,000 patients in B.C. used its EQ Virtual clinic for mental health issues. It launched here two years ago — also using Medeo software — after more than 20 years in Quebec’s homecare sector."