Q4 Inc (QFOR) Files to List on the TSX Index

Posted on October 12, 2021 by Mathieu Litalien

October 11, 2021: Well, it looks like the company's IPO is back on as it filed an amendment to its prospectus that it filed back in June.  This time around, while it is still seeking to raise $150M, it is now looking to price the IPO at between $14.00-$17.50 per share. 

The company is looking to issue between 8,571,428 and 10,714,285 common shares (9,857,142 and 12,321,427 if the overallotment is full). On a fully diluted basis, and assuming the IPO is priced at the mid-range ($15.75) the company will have 41,698,010 common shares outstanding on a non-diluted basis (44,600,335 on a fully diluted basis) assuming the over allotment is exercised in full. 

This gives it a market cap between $656M and $702M - this is slightly below the $760M market cap it was pricing itself at previously. 

Now that valuations have come down and the fact that the company has grown revenue over the last twelve months to $52.2M, this will give it a P/S ratio of around 13 - down from 15.7 times sales last time around. 

In June, the company likely picked one of the worst times to go public. Now that Copperleaf has done quite well and the fall is generally a far more active season for IPOs, perhaps it will fare better a second time around.

You can read all the information below, but overall it is an interesting company. 

June 22, 2021: According to an email from the company to the Globe & Mail - Q4 has halted its IPO plans. It is the second company to do so in the past couple of weeks as the market for IPOs appears to be drying up. 

June 11, 2021: On Thursday, Q4 filed an amendment to is preliminary prospectus. The company expects to issue between 11,538,461 and 14,285,714 common shares to be priced between $10.50-13.00 for gross proceeds of $150 million.

Assuming a price at the mid-range ($11.75) and that the over-allotment is exercised in full, Q4 would have 64,686,450 shares outstanding on a fully-diluted basis. This gives it a market cap of approximately $760M. 

From a valuation perspective, Q4 would be trading at 15.7 times sales. The company isn't profitable, either from a net income or adjusted EBITDA perspective, nor is it generating positive cash flows. Given this, revenue is the key valuation driver. 

To us, this looks expensive as a big growth driver was the environment provided by the 2020 environment. Can they repeat 2020 growth levels? If they can, it may be a fair price to pay. If they can't, 15.7 times sales is pretty expensive considering valuations in the software industry have come down significantly. 

We are curious where this one ends up pricing. They haven't provided much foresight in terms of outlook, so if they price at the high end, it is likely they are expecting 2020-level growth over the next few years. If they price at the low end, it likely means the institutional investors lack clarity on future growth prospects, or that they expect 2020 was an anomaly. 

June 2, 2021: Last week, Q4 filed its preliminary long-form prospectus as it seeks to list on the TSX Index.  Financial terms of the deals have yet to be determined, but it does intend to trade on the TSX under the symbol "QFOR"

Q4 is a leading capital markets communications platform. It has operations worldwide and servers approximately 2,400 clients which includes 63% of Dow 30, 50% of S&P 500 and 48% of Russell 1000 companies. In total, clients interact with more than 12 million investors on its platform on a monthly basis. 

The company has seen impressive growth as revenue as grown by a compound annual growth rate of 53% over the past few years, and that includes 80% growth in 2020 which likely benefited from a robust capital market environment. 

Q4 is benefiting from a need for publicly-listed companies to be more proactive in their communications. The environment has changed, and are looking to platforms such as Q4 to scale more effectively and more efficiently communicate by leveraging data. 

The company estimates, there is a US$20B global market and approximately 41,500 companies globally that can benefit from its platform. The company's path to growth is pretty simple - add new customers and upsell existing customers on additional products over time. 

The company judges its success in this area through net recurring revenue (NRR) which is their ability to sell incremental products to customers relative to any customers who leave the platform. 

As of December 30, 2020, NRR sat at 113% which is an improvement over the 108% and 109% posted in 2018 and 2019 respectively. 

The company also looks to add additional products to support its existing compliments and is on the lookout for strategic acquisition.

In terms of competition, the company doesn't list any as it believes it occupies "a unique position in the market, offering a premium platform of investor relations and capital markets workflows as well as virtual event solutions with end-to-end services"

On a broad basis, it lists investor relations websites and virtual capital events, CRM companies and analytics with a focus on shareholder intelligence as competitors. In these categories, the competition is made up of large diversified financial data providers and smaller independent providers. Based on this, I'd say Thomson Reuters and TSX are the closest Canadian competitors. In the US, there are quite a few which include the likes of Morningstar and Quote Media.

Overall, another interesting IPO but in this environment, IPOs are struggling to gain much traction following initial listing. 

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Mathieu Litalien

About the author

Mathieu is an individual investor and has been investing part-time for the better part of the past 20 years. He is primarily interested in fundamental analysis, focusing on the long-term and his portfolio is composed primarily of dividend-paying equities. Mathieu has a moderate risk profile and also looks for growth and value. His passion for finance and the markets have led him to his MBA and writing for Seeking Alpha and Stocktrades. Mathieu also focuses primarily on stock research and content production for Stocktrades.ca Premium and the Stocktrades blog.