eResearch Corp. (www.eresearch.com) published a 19-page Update Report on Datable Technology Corporation (TSXV: DAC | OTCQB: TTMZF) about Datable’s recent release of its third quarter financial results and its recent announcement of a signed Letter of Intent (“LOI”) to acquire Local Marketing Solutions Group, Inc. (“LMSG”).
Datable is a Canadian-based software development and technology company operating in the consumer online advertising and marketing sectors. Datable offers a software as a service (“SaaS”)-based Consumer Lifecycle and Data Management Platform that enables consumer packaged goods companies and consumer brands to build and launch promotions, special offers, and loyalty programs on mobile phones, websites, and microsites. Datable focuses on the collection and data mining of first-party data, information collected directly from consumers, and allows companies to communicate and build relationships directly with consumers.
On September 30, 2022, Datable announced that it signed an LOI to acquire LMSG (www.lmsg.co) for $14.35 million in an all-stock deal at a deemed share price of $0.05 that valued LMSG at approximately one-times its estimated 2022 revenue. LMSG’s management estimates revenue of over $14.0 million and positive EBITDA in 2022. The combined company is expected to have a pro-forma 2022 consolidated revenue of over $18 million with positive EBITDA in 2023.
This transaction could be transformative for Datable by adding new products and revenue streams to Datable’s current offering, and a larger sales team to bolster its coverage of the U.S. market. Trading in Datable is currently halted as it completes the due diligence on the LMSG acquisition, but Datable is currently undertaking a non-brokered private placement to fund the business until the transaction closes. The acquisition is expected to be closed no later than March 15, 2023.
Reviewing Datable’s latest quarter, revenue was $0.7 million in Q3/2022, down 18% from $0.8 million in Q3/2021, and lower than eResearch’s estimate of $1.1 million. The company reported that the expected revenue growth in the quarter was "dampened" due to the implementation delay of some contracted programs. However, revenue is still up year-to-date and increased by 12% to $2.4 million from $2.1 million in the same period in 2021.
In addition, during the first nine months of 2022, Datable signed 37 agreements, compared to 20 agreements in the same period in 2021, which increased the total contracted revenue for 2022 to over $5.1 million. However, Datable estimated that only 70% of the contracted revenue would be recognized in 2022 so eResearch reduced its revenue estimate for 2022 down to $3.5 million from $5.1 million and reduced its revenue estimate for 2023 down to $5.3 million from $7.9 million.
Chris Thompson, Director of Equity Research of eResearch wrote, “We believe Datable’s continued revenue growth should come from increasing the average size of its existing customer engagements, from $0.2 million (average) to over $1.0 million (the “land and expand” business model), as well as closing the existing pipeline of larger companies that have sizeable annual marketing budgets.”
With a 2022 revenue estimate of $3.5 million, Datable is trading at an Enterprise Value to Revenue multiple (EV/Rev) of 1.6 times (1.6x). The company’s revenue multiple is at the low end of the Canadian Advertising, Marketing & Technology comps and well below the Canadian SaaS comps with a mean of 5.8x EV/Rev and a Median of 5.1x EV/Rev. This discrepancy highlights the potential for Datable’s share price appreciation.
In addition, adding LMSG's revenue and operating costs into eResearch’s model for Datable had a positive impact on the valuation, even after reducing the Gross Margin to 30% from 40%-50% and including the 287 million shares that will be issued as part of the acquisition. Overall, from the limited amount of financial information about LMSG released publicly, we believe the transaction should be immediately accretive and have a positive impact on Datable's revenue growth, cash flow, and valuation.
For more information about eResearch's 19-page Update Report on Datable and its planned acquisition of LMSG, including the target price and revenue forecasts, please visit eResearch's website (www.eresearch.com).
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