UPDATE REPORT – Datable – Revenue Continues to Grow Y/Y but Focus Remains on Transformative Deal

eResearch is pleased to publish a 19-page Update Report on Datable Technology Corporation (TSXV:DAC | OTCQB: TTMZF).

On September 30, Datable announced that it signed a Letter of Intent (“LOI”) to acquire Local Marketing Solutions Group, Inc. (“LMSG”) for $14.35 million in an all-stock deal at a deemed share price of $0.05 that valued LMSG at approximately 1.0x 2022E revenue. The combined company is expected to have pro-forma 2022 consolidated revenue of over $18 million with positive EBITDA in 2023.

However, with lower-than-expected revenue in Q3/2022, we decreased our revenue forecast for 2022 and 2023 and decreased our one-year price target to $0.08 from $0.14/share but maintained our Speculative Buy rating.

If the merger is completed in Q1/2023, adding LMSG’s revenue and operating costs into Datable’s model 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 deal.

• The Revenue Multiple valuation increased to $0.14 per share from $0.08 per share.
• The DCF (5-year) valuation increased to $0.34 per share from $0.13 per share.

Overall, from the limited LMSG financial information released publicly, we believe the transaction should be immediately accretive and have a positive impact on Datable’s revenue growth, cash flow, and valuation.

You can download our 19-page Update Report by clicking on the following link: eR-Datable-2022_11_25_UR-FINAL

Company Description:

Datable Technology Corporation 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 called PLATFORM³ that enables consumer packaged goods (“CPG”) 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 & build relationships directly with the consumers.

Deal Highlights:

• On September 30, 2022, Datable announced that it signed an LOI to acquire LMSG (private; lmsg.co) for $14.35 million in an all-stock deal at a deemed share price of $0.05 that valued LMSG at approximately 1.0x 2022E revenue.
• LMSG’s management estimates revenue of over $14.0 million and positive EBITDA in 2022. The combined company is expected to have 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.
• The acquisition is expected to be closed no later than March 15, 2023.
• Under the LOI, Datable will also enter into a partnership with MoneyMailerUSA Inc. (“Money Mailer”), a company affiliated with LMSG, to cross-sell current products and to develop a custom version of PLATFORM³, targeted at the small- and medium-sized business (“SMB”) market in the United States.

Impact of Acquisition on the Valuation Calculation

• Adding LMSG’s revenue and operating costs into Datable’s model 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 deal.
  • The Revenue Multiple valuation increased to $0.14 per share from $0.08 per share.
  • The DCF (5-year) valuation increased to $0.34 per share from $0.13 per share.
• Overall, from the limited LMSG financial information released publicly, we believe the transaction should be immediately accretive and have a positive impact on Datable’s revenue growth, cash flow, and valuation.

Recent Developments

• These were the recent contract signings that Datable publicly announced:
  • In June 2022, Datable announced that it signed seven new agreements, with existing customers, for marketing programs to be completed in 2022 and early 2023, for a total of $226,000.
  • In August 2022, the Company reported that it has signed three renewals with existing customers totaling $810,000 for loyalty and consumer data programs extending for one to three years.
  • In September 2022, Datable announced that it signed a 2-year renewal with an existing customer for $300,000. Also in September, the Company reported that it signed three agreements that are contracted to generate over $140,000 in revenue ending in January 2023.
  • On November 18, 2022, the Company reported that it signed a new client agreement and will be paid approximately $400,000 over a two-year period, ending on May 2025.
• Overall, as of November 16, 2022, the Company announced that it had signed 40 new agreements, compared to 33 new agreements over the same period in 2021. Total contracted revenue amounted to approximately $5.6 million, of which 60% or approximately $3.4 million is expected to be recognized as revenue in 2022.

FIGURE 1: DAC Yearly and Quarterly Financials

Financial Analysis & Valuation:

• Datable’s revenue was $0.7 million in Q3/2022, down 18.0% from $0.8 million in Q3/2021, and lower than our 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 for the nine months that ended on September 30, 2022, increased by 12% to $2.4 million from $2.1 million in the same period in 2021. Revenue growth for the nine months was partially due to functionality improvements of PLATFORM³ from a recent R&D development program.
• Based on lower Q3 revenue number, we have decreased our revenue estimates as follows:
  • 2022E Revenue: $3.5 million (previously $5.1 million);
  • 2023E Revenue: $5.3 million (previously $7.9 million).
• With the revised revenue estimates, we are decreasing our one-year price target to $0.08 from $0.14 but maintaining our Speculative Buy rating. Our Target Price is solely based on the Revenue Valuation. We estimate a price target of $0.08 based on a Revenue Multiple valuation of 5.0x and a One-Year Forward Revenue Estimate of $5.6 million.
• Low Valuation Multiple Compared to SaaS Peers. Datable is currently trading at 1.6x our 2022E revenue estimate of $3.5 million and well below Canadian comparable companies. Datable’s low revenue multiple highlights the potential for its share appreciation.

To understand more about the Company valuation and assumptions, you can download our 19-page Update Report by clicking on the following link: eR-Datable-2022_11_25_UR-FINAL

Other eResearch reports on Datable:

• May 31, 2022: NEW UPDATE REPORT on Datable Technology Corporation (TSXV:DAC | OTCQB: TTMZF)
• December 13, 2021: NEW INITIATION REPORT – Datable Technology Corporation (TSXV:DAC | OTCQB: TTMZF)

FIGURE 2: DAC 1-Year Stock Chart

Notes: All numbers in CAD unless otherwise stated. The author of this report, and employees, consultants, and family of eResearch may own stock positions in companies mentioned in this article and may have been paid by a company mentioned in the article or research report. eResearch offers no representations or warranties that any of the information contained in this article is accurate or complete. Articles on eresearch.com are provided for general informational purposes only and do not constitute financial, investment, tax, legal, or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this information should consult with a financial advisor. The article may contain “forward-looking statements” within the meaning of applicable securities legislation. Forward-looking statements are based on the opinions and assumptions of the Company’s management as of the date made. They are inherently susceptible to uncertainty and other factors that could cause actual events/results to differ materially from these forward-looking statements. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect the Company’s business or any investment therein. Any projections given are principally intended for use as objectives and are not intended, and should not be taken, as assurances that the projected results will be obtained by the Company. The assumptions used may not prove to be accurate and a potential decline in the Company’s financial condition or results of operations may negatively impact the value of its securities. Please read eResearch’s full disclaimer.