AirIQ Inc. $IQ.V (From the archive)
2023 Annual (3.75 / 5) * Originally posted July 2024
First look. No preamble, let's get to it.
Balance Sheet:
Stellar looking balance sheet with a current ratio of 6.75 (deferred revenue removed) consisting of $3.1M in cash, a quarter million of receivables and a half million worth of inventory against just $600k of liabilities due within the next twelve months. AirIQ had zero debt, in fact have zero long term liabilities. We are off to a fantastic start here.
Cash Flow:
During their fiscal year produced $1.65M of operational cash flow, which is a 54% improvement over what they did a year ago. They spent $656k in asset purchases and repurchased $51k worth of stock under their NCIB. Overall they were able to improve their cash position by nearly 44% during their year. Pretty impressive cash flow given their volume.
Share Capital:
Pretty small float of 29.5M shares, down about 200k shares over the last two years
2.9M options outstanding with about 2.4M currently ITM. Outside of 600k expiring this year, the remainder do not expire for some time (2.5 - 10 years)
Buybacks continue post financials. Not earth shattering amounts and not nearly enough to maximize their current 5% NCIB which they renewed at the end of June
38% insider ownership (per Yahoo Finance)
Five different insiders purchased shares on the open market so far this year.
Income Statement:
Revenue increased by 9.2% during their fiscal year - 10.5% in the all important recurring revenue segment and a 4.4% increase in hardware. Recurring revenue also make up nearly 80% of their business. Gross profit improved by 70 basis points to a solid 60.8%. They converted slightly within their controllable expenses which grew at 8.9% giving them income before other expenses of $1.3M, which was 13% better than last year. The only negative within their P&L is a $160k bogey in foreign exchange (can hardly fault them for this) but that did wipe out all of their improvements during the year, as their net income was only $6k greater than a year ago, coming in at $869k, but still impressive coming in at nearly 16% net income to revenue.
Overall:
Solid financials and have the earmarks of a very well run organization, but at $5.5M in annual revenue we're looking at very small potatoes and a 10% increase on small potatoes isn't going to make it crowded in my pants if you know what I'm saying. The company has also been publicly traded for longer than my kids have been around and since one of them is allowed to drive this year and the other one able to drink - that's a long freaking time. So why now?
That's the big question for me and to be honest, the company itself isn't exactly doing a great job of trying to win over retail shareholders. Incorrect email address on their website and making their investor deck difficult to come by. Thanks to Cameron from Common Sense Investing who was able to track one down prior to covering the company in a video he put out a few months ago which can be viewed here. Their IR has to be better.
Their growth in recurring revenue is nice but 102% over seven years works out to about 10% ARR. It's a nice number but lacking the quantum leap type of gains needed to make this stock really appreciate in value.
Speaking of value, it does look relatively cheap with a price to sales ratio of around two but even more so with an EV/EBITDA ratio of under 6. With any type of growth, a real winner could be lurking here.
They may be poised for some more aggressive growth as well. They have made two acquisitions recently, one in mid March which would have had little impact on these financials and one in mid May. These will add $570k in recurring revenues with high margins and they did so with very little cash outlay and on paper look like excellent additions. These two acquisitions combined are a 13% increase in recurring revenue to what they did in 2023, so on the top line are already slated to have a better top line excluding any organic growth they can get.
The stock itself is down YTD, and perhaps investors are punishing them for a flat bottom line on 9% more business in 2023 after a 50% increase in the bottom line the year prior. They also had a much weaker back half of 2023 than their first two quarters with both Q3 and Q4 down to their comparable quarters in 2022.
From a peer point of view the easy comp right now is BeWhere Holdings. They are about double the volume at about 4x the market cap. BEW also drivesless margins and less profitability as a percentage of revenue and are at a much more expensive looking 27 EV/EBITDA ratio. If you like their long term prospects better this variation can easily be justified, but it is worth pointing out.
Going to do a little more DD digging on this one as it intrigues me. These are 4 star financials, but the back half of 2023 is enough for me to give it a slight downgrade to 3.75. Could be worth a flyer down here given what appears to be minimal downside given this current valuation.
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My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.
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