Quisitive Technology Solutions, Inc. (OTCPK:QUISF) Q4 2021 Earnings Conference Call April 20, 2022 4:30 PM ET
Company Participants
Mike Reinhart – Chief Executive Officer
Scott Meriwether – Chief Financial Officer
Conference Call Participants
Kevin Krishnaratne – Desjardins
Christian Sgro – Eight Capital
Andre Bodo – Echelon Wealth Partners
Parth Shah – Canaccord Genuity
Operator
Good afternoon and welcome to Quisitive Fourth Quarter and full-year 2021 Earnings Conference Call. Joining us today for today’s call, are Quisitive’s Chief Executive Officer, Mike Reinhart, and Chief Financial Officer, Scott Meriwether. Following their remarks, we will open the call for your questions. Before we begin today, I’d like to remind everyone that during the conference call, management will be making statements that contain forward-looking statements within the meaning of applicable Canadian securities legislation. Please refer to the company’s forward-looking information disclaimer statement, which can be found on the notice for this call, our website and the Fourth Quarter and full-year 2021 earnings release. Now, I would like to turn the call over to Mike Reinhart. Sir, please proceed.
Mike Reinhart
Thank you, Operator and good afternoon everyone. We appreciate you taking the time to join our Q4 and full-year 2021 Earnings Call. This past year marked another period of extensive growth for Quisitive, as we’ve continued to make substantial progress on all fronts of our business. Highlighted by three accretive acquisitions, the significant advancement of our Payment Solutions business, and the bolstering of our executive team. I am pleased to share that the milestones necessary to promote further transformational growth have been met. To review 2021 in short, we saw a strong mix of both organic and inorganic growth, culminating in previously discussed acquisitions of Microsoft Healthcare Cloud Solutions expert Mazik Global, the payment provider Independent Sales Organization, BankCard USA, and subsequently the highly touted, Microsoft -focused digital solutions and services provider, Catapult Systems. Each of these strategic acquisitions have benefited Quisitive from day one and have provided us with the capabilities to scale our operations and fuel organic growth going forward. Additionally, we made significant advancements on our Payment Solutions side. We achieved Microsoft Co-Sell Ready status, received bank sponsorship as a payment processor, and achieved LedgerPay Payment platform PCI certification. We also further demonstrated the prominence of our Microsoft partnership by winning numerous awards, including the Microsoft Healthcare Partner of the Year, and selection into the Microsoft Business Applications Inner Circle. Despite the headwinds posed by the global pandemic and recent geopolitical issues, we had a strong 2021 and exceeded our revenue forecast. More importantly, one key point that I want to note is we recognized a 19% organic growth rate in our Cloud Solutions business, including cross-selling of services and synergies with the [Indiscernible] acquisition during the year.
Thanks to the continued operational excellence of our team and the growing demand we’re experiencing within IT services, we’ve been able to accomplish this impressive progress. Though we are proud of what we are able to accomplish last year, we recognized that there’s still a lot of work to be done to unveil the potential of Quisitive. As I reflect on our accomplishments, I wanted to highlight the fact that we’ve done an admirable job in setting up our organization for continued growth in 2022 and beyond. Not all — not only have we accomplished what we said we would, especially within our payments business, but also made some incredible hires recently with the on-boarding of Jana Schmidt as our President of Global Payment Solutions, and Scott Meriwether as our CFO, which will certainly fuel our growth trajectory. Jana and Scott are both well-respected executives, with robust backgrounds and relevant experiences.
And they will be playing important roles going forward in preparing Quisitive for future success. First, let’s talk about our Payment Solutions business. I’d like to take a moment and recognize the journey we’ve been through in getting our payments business to where it is today. Following the public announcement of LedgerPay Solution in early 2020, we’ve moved full steam ahead. Over the past 18 months, we have developed a LedgerPay centric risk management program, achieved Microsoft co-sell ready status, signed the United States bank sponsorship with The Bancorp, received patent approval for a checker, obtained PCI compliance for the LedgerPay platform, and obtained an ISO customer Paytron. Fast-forward to 2022, and we successfully closed the Canadian bank sponsorship with people’s trust company and have now also completed MasterCard certification, which enables us to begin onboarding pilot merchants to LedgerPay. It is important to remind everyone how rare it is for a payment processing endpoint with the card networks to become certified. In our workings with Visa, MasterCard and American Express, they have all stated it has been many years since a new processor has been approved and implemented by the networks. I’m truly proud of our team’s ability to receive the MasterCard certification, and we are are actively progressing with Visa, American Express, and Discover for certification. We had originally planned to do gateway services through the initial card network, expecting there would be a significant delay to get all of the card networks certified independently.
The progress we have been making with Visa and American Express in parallel to MasterCard has shifted our focus to activating the direct connections with each rather than do any work to ready a gateway, which would only delay the time to get the direct connections completed. We do not want to risk loosing the focus of Visa and MasterCard since they have dedicated teams working with us right now. Although we face hurdles that were out of our control, such as global supply chain constraints, we’ve done our best in executing each short-term milestone to get us to where we are now. Today, we stand at the precipice of commercialization and we are uniquely equipped to bring this product to market. Our team has been working hard at aligning our strategic initiatives to achieve commercialization of LedgerPay along with the ongoing management of BankCard USA and the build-out of the growing Merchant Services Group. The Merchant Services Group, powered by BankCard, continues to see strong growth, and for the full-year 2021 had Payment volume of $3.8 billion as compared to the full year 2020 Payment volume of $3 billion. Total merchants is now nearly 7,300 and pro – forma revenue grew over 20% for calendar year 2021. As we have discussed, our Merchant Services business is a strong asset, independent of the LedgerPay synergies, creating value for our shareholders. Having achieved the MasterCard certification, we are now preparing to onboard pilot customers to LedgerPay throughout Q2. Once the pilot phase is completed, we will begin migrating BankCard customers to the platform and expect to continue that process over the next several quarters. We’re also expecting to accelerate our go-to-market strategy once the pilot phase is completed, which we forecast will occur beginning in third quarter of this year. This strategy will include multichannel marketing and sales to Independent Sales Organization or ISOs, and independent software vendors, or ISVs, as well as direct sales to merchants. Further, we will begin joint marketing and sales activities with Microsoft, aligning our Payment Solutions with their industry teams for retail and financial services. These efforts will combine the LedgerPay Payment Solution along with our Cloud data and analytics offerings, to help drive momentum in these industries and arm both the Quisitive and Microsoft sales team to engage these customers.
Recently, we attended the ETA transact Payments industry conference in Las Vegas. We had the opportunity to meet in person with executives from MasterCard, Visa, American Express, and Discover, to discuss our platform in ways that we can partner together in the future. They all expressed their excitement for our unique cloud and data offering in payments, and their commitment to our shared success. As one of the executives stated in an email to me after the conference, quote,” I’m excited to have our company be part of the journey with Quisitive. I love your approach to payments and data, and look forward to a deeper partnership together.” I also met with several investment banking groups, M&A advisors and acquisition targets in the Payments industry, all expressed strong interest in our unique model and approach and the conference allowed us to broaden our network in the U.S. and share our story as we embark on commercial launch of LedgerPay. Our Payment Solutions segment is truly born out of the success we garnered from the Cloud Solutions capabilities. It is because of our Cloud Solutions business, we have established the technical expertise and a robust relationship with Microsoft needed to develop the first cloud-based Payment processor using Microsoft Azure.
As the Payments business grows, we will expand the scope of our customer base and increase the customer lifetime value and engagements by pairing Payment Solutions with complementary Cloud services. The Payments business will enable cross-sell opportunities in data-rich services through Cloud and Microsoft technologies and practices. We expect to continue leveraging the synergies from the two businesses under the Quisitive umbrella. Next, I want to move on and share some updates regarding our Cloud Solutions business. As I mentioned at the outset of the call, we were able to achieve a strong 19% organic growth rate within our IT services business. Thanks to the continued growing demand, and of course, our team’s ability to consistently execute. The addition of the Mazik solutions to our Global Business Application group allowed us to expand services for D365 ERP, customer engagement and our SaaS offerings in healthcare and manufacturing. The Quisitive platform for commercialization combined with the solutions and services from the Mazik business, created strong organic growth for our Cloud Solutions business. In calendar year 2022, we expect to see the synergistic benefits from our Catapult acquisition, including their security and Azure -managed services beginning in Q1 and throughout the year, as we further integrate the business. Thus far in Q4, we have only recognized a fraction of the synergies from a financial standpoint, given the timing of the acquisition and subsequent accounting treatments. But anecdotally, what I can share is that we’ve continued to see immense progress in the integration, and I’m very pleased with the rate at which we’re progressing. As I iterated on last costs, Catapult strengthens our executive team with veteran industry leaders, diversifies our recurring revenue streams, provides incremental cross-sell and up-sell opportunities with their client base and vice versa, and brings a similar culture and philosophy that we embody here at Quisitive. The synergies are numerous, and to ensure that we capture these strategic joint opportunities, we have a dedicated task force that is leading this integration in addition to actively on-boarding their key members into our ecosystem.
I also want to stress that the on-boarding of Catapult will be quite evident on our financial statements for this calendar year as their robust recurring revenues will be reflected in our quarterly filings. Consistent with our philosophy of integrating the business under one Quisitive to serve our customers, we recently made changes to our organization structure to better our align our model to enable our strategy and strategic objectives. Our Cloud Solutions business is now fully integrated across all of our Cloud Solutions acquisitions. The Cloud services and applications component of global Cloud Solutions, CSA for short, will report to Terry Burmeister, who is the President of Catapult. This CSA business includes all of our services and solutions related to Azure security, infrastructure, data, and modern application development, as well as the Microsoft 365 solution platform. This team combines the legacy Quisitive Menlo and Catapult businesses, as well as our India and South America teams under one business area within Global Cloud Solutions. Terry and her team will be instrumental in executing our strategy and growing this business for Quisitive. Our business applications component of Global Cloud Solutions, GBA for short, will report to Lane Sorgen, who is the former Regional Vice President at Microsoft.
The GBA business includes all of our services and solutions related to the Microsoft Dynamics 365 ERP and in customer engagement platforms, as well as our industry SaaS offerings for healthcare, manufacturing and public sector. This team combined the legacy CRG, Mazik, and the D365 components from the Menlo and Catapult businesses, as well as our short partners in the UK and Pakistan, under one business area within Global Cloud Solutions segment. Lane and his team will drive growth across North America and in Europe, as we expand in this area of the business. The purpose of these changes is to establish the leadership and organization structure to focus each of the business areas to drive growth and create scale. Our public reporting will continue to be the two segments of Global Cloud Solutions and Global Payment Solutions. So these changes do not have any effect on how our financials will be reported. It does, however, provide the proper focus and accountability to help realize our organic growth objectives and also enables me to focus less on operations and more on the strategic areas of the business, including payments acceleration in partnership with Jana, as well as our strategic partnerships and M&A to create scale. As the world economy transitions to a digital first ecosystem, we’ve seen marked increase in demand for our IT services. Quisitive’s concerted effort to offer best-in-class Cloud Solutions services through our unique partnership with Microsoft and utilizing the Microsoft three Cloud platform has paid off with strong growth prospects. Companies are making investments for digital transformation to revamp their workflow and are turning to us in an increasing fashion. With our reform and enhance Cloud Solutions division, we intend to further augment our footprint and capture as much market share as possible. Next I’ll touch on our M&A work. Consistent with our stated strategy over the past several years, we continue to invest in the future of our business by fueling our growth with inorganic measures. M&A will continue to play a prominent role in the Quisitive story as we dedicate resources to acquiring companies that provide accretive value for our shareholders via acquisition. We’ve laid a strong and focused M&A path that will continue forward in the coming years and are also grateful for the continued inbound requests from potential acquisition targets that come across our desk.
That said, I wanted to reiterate for the next few months, our team remains primarily dedicated towards the activation of LedgerPay and the integration of the Catapult acquisition. Though we don’t want to neglect our M&A initiatives, getting LedgerPay up and running and realizing the synergies of Catapult are priority one. Both the IT services and Payments industry markets remain very active on the M&A front. We continue to have strong pipeline of targets, but also recognize that the strategic and financial buyers in both areas remain very active. While public valuations have come down, the private market has stayed consistent, driven by the significant money looking for quality growth assets in these two industries. This was confirmed during our discussions at the previously mentioned transact Payments conference. On brand with the operational progress and growth we’ve been able to achieve, we continue to grow our workforce by hiring high-quality employees to the Quisitive family. Moreover, due to the strong work culture we’ve been able to develop over the years. Quisitive has been unaffected by the media’s increasing mention Great Resignation. Disappointed in pride we hold, and our retention rate of employees across the business has remained industry-leading. We’ve made proactive investments in on-boarding and ongoing employee experience to ensure every employee, whether hired organically or integrated via acquisition, is equipped with the necessary resources and training to successfully accomplish their responsibilities. We look to continue our trend of success on that front going forward. The retention of employees is a critical component of growth. As the labor shortage creates challenges in hiring the skills necessary at a global level, the focus on retention reduces the number of hires necessary to enable growth, which is key to our business. Looking ahead, we expect to continue to grow our Cloud business at a rate of 15% to 20% organically, and 20% growth in our Merchant Services business enabled through BankCard. Our first quarter saw a strong momentum and continued growth in both of our business segments and I look forward to sharing further details with all on our next call. Looking at our first half of 2022, we remain laser-focused on the integration and launch of our LedgerPay payments platform, along with the continued unlocking of Catapult’s full range of value. Thank you all for joining us in this exciting growth journey as shareholders of Quisitive. I’ll turn it over now to our CFO, Scott Meriwether, to discuss our Q4 and full year 2021 financial results. Scott?
Scott Meriwether
Thanks, Mike. And thank you to all who are joining us for today’s call. We had a solid quarter during a new revenue of high watermark for the company. Revenues from the fourth quarter ended in December, increased a 155% to $33.3 million from $13.1 million for Q4, 2020, reflecting the pace of our acquisitions in healthy organic growth. Gross margin increased a 141% to $13.1 million in Q4 2021 over $5.4 million in Q4 2020. Our gross margin as a percentage of revenue held with 39% similar to Q3 of ’21. And there was a drop from our abnormal seasonal high of 41% in Q4 2020. Our professional services and consulting staff had higher utilization rates during the 2020 holidays due to the travel restrictions with COVID-19 pandemic resulting in a higher gross margin percentage for that quarter. The 2021 gross margin percentage for Q4 of ’21 is more steady-state for our core — for our current organization. As we continue to integrate in gross — as we continue to integrate and sell products, cross-selling them from our recent acquisitions, we aim to drive gross margin percentage higher. adjusted EBITDA increased 105% to $4.5 million for Q4 of 2021 from $2.2 million for Q4 of ’20. adjusted EBITDA as a percentage of revenues was 14% for Q4 of ’21. The EBITDA margin was 17% for Q4 of ’20. The capital acquisition contributed revenues, but essentially no adjusted EBITDA in Q4 of ’21, given the timing of when the acquisition closed just before Thanksgiving, and the available billing days for professional staff which was further impacted by PTO versus our fixed cost.
Capital historically has had lower EBITDA margin profiles than the remainder of our company but we believe recurring revenue product sales both the products mechanical portfolio, end of our previously owned products into the Catapult portfolio will offset that impact. We’ve also continued to invest in our payments division building at scale as we near market revenues for the launch of the LedgerPay platform, which has also impacted our consolidated adjusted EBITDA margin. We’ll now move to discussing some specific performance of our segments. Revenue in our Global Cloud Solutions segment increased 94% to a record $23.1 million for Q4 ’21 from $11.9 million for Q4 2020, driven by amazing Catapult acquisitions and reflecting organic growth. We have seen greater cross-selling opportunities between our historical acquisitions and believe we can continue our growth base as we continue to integrate these teams and our products, as Mike noted earlier. This segment’s adjusted EBITDA improved 76% to $2.6 million for Q4 ’21 from $1.4 million of Q4 ’20. As noted previously, the Catapult acquisition contributed no EBITDA for the fourth quarter. We planned for greater EBITDA contributions to the quarter from Catapult, but the ultimate timing of acquisition closed resulted in little impact. Catapult’s impact to adjusted EBITDA will be reflected beginning with the first quarter of 2022.
Revenue for the Global Payments segment also set a quarterly record, increasing to $10.3 million for Q4 ’21 from $1.2 million for Q4 of ’20. Substantially, all of the Q4 revenue was from our BankCard acquisition. In the Payments industry, Q4 typically experiences highest seasonal payment volume. We saw this trend modestly present itself at BankCard’s merchant base, as Q4 payment volume had a slight uptick in Q4 to just shy of $1 billion, but there’s not heavy seasonality within that portfolio of margins. Adjusted EBITDA for our Global Payment Solutions segment increased $2 million from Q4 ’21 from $0.8 million for Q4 2020. Adjusted EBITDA as a percentage of revenue decreased in this segment as we continue to scale up internally for the launch of our [Indiscernible] paid platform, as noted earlier. Moving to the balance sheet, on December 31st, we had $79.6 million of term loans outstanding and $13.5 million of cash-on-hand. As of December 31st, our total leverage ratio was 3.26x, while the current constraint is 3.5 times. Our covenant stepped down a quarter step in each of Q1 and Q2 of 2022. I wish our total leverage ratio will be below three times, absent any further M&A activity. During the quarter, we exercised the accordion feature of our credit agreement and borrowed an additional $15 million to complete the Catapult acquisition. We also completed a bought deal offering in November, in ’21 and used $30.3 million of the net proceeds from that capital rates to also fund the acquisition. As a note to better understand our working capital position at December 31st, we had $15.6 million of projected earn-out payments for fiscal year ’22, along with $1.6 million of projected earn-out conversation that’s displayed within accrued liabilities.
We expect to pay half of this amount in cash and the other half in equity, as per the terms of the agreement. So that has an effect to the working capital view on the balance sheet. The current interest rate on our term loans is approximately 3.3%. We currently convert half of our adjusted EBITDA into free cash flow, which can either be used for acquisitions or for debt repayment. We find free cash flow as adjusted EBITDA minus capital expenditures, cash interest and cash taxes. Looking forward, the finish to our fiscal year gives us confidence for fiscal year 2022. 2021 was a transformational year for the company and we look to accelerate our growth as we approach the market as one integrated team. This concludes our prepared remarks. Thank you all for your time this afternoon and we look forward to updating you on our progress going forward. And we’re now ready to open the call for your questions. Operator.
Question-and-Answer Session
Operator
Thank you. As a reminder, each analysts will be limited to a maximum of two questions. [Operator Instructions]. One moment while we pull for questions. Our first question comes from the line of Kevin Krishnaratne with Desjardins. You may proceed with your question.
Kevin Krishnaratne
Hey, there team. Good afternoon. First question for me is just on the strong organic growth that you saw in Cloud 19%, very strong still within your range, but towards the high-end you indicated cross-selling upside from Mazik and CSP. I’m just wondering, how do we think about the sustainability of that type of growth rate and maybe what you’re seeing in the CSP business, and any thoughts on how eventually as you get Catapult integrated, how that can contribute to the upside? I just want to understand your thoughts on the 15%, 20% range that we skew towards the higher end. And sorry, a follow-up on that too. In Q1 you were facing a tough comp last Q1, I think there were some shutdowns in Texas so just spots on the trends you’re seeing in Q1.
Mike Reinhart
Yes. Sure. So appreciated Kevin. First relative to — I don’t think I mentioned CSV as a growth engine there, but if I did, that was a misstatement. CSP was not a big factor this year in the growth. We had some climb earlier in the year, but really kind of as we go through. A lot of it — the interesting thing is we buy these companies, and in particular, some of the smaller firms and we saw that even some synergistic things that are happening with CRG acquisition and Mazik as well. They have these opportunities that they get brought into or find through their motion. But because of their size, these large are opportunities, they’re not allowed to participate because the customers were afraid that the company was just too small to deal with something at this scale. By joining Quisitive, that’s really — Mazik is a great example, there’s some really unique capabilities in healthcare, the IP solution that the customers were really attracted to, but they couldn’t win the work because the size and scale and balance sheet and those things weren’t there for the customer to feel comfortable. Instantly by us being part of it at the table, combining it with what we’re capable of on full Cloud capabilities backed to this whole idea about they don’t want to one-trick pony, they don’t want to deal with these little one-off point solution providers.
They want a digital transformation and that’s what’s happened. As we capture this, we’re able to now go into these customers and capture much more meaningful wallet share from the opportunity and really capture opportunities that maybe neither of us could have gotten on our own, but when we combine the capabilities of Mazik, for example, with Quisitive, we now have this really powerful capability that allows us to go capture large deals. We call — we were able to win some very large deals and actually continue to see growing pipeline that are multi-million-dollar deals versus smaller deals that they may have had before. So that’s a big part of what you saw happen and we think we can sustain that as we go forward with them. Relative to Catapult, there’s no question. We see some great cross-sales synergies there. We’ve already got a strong pipeline of opportunities around some of their unique offers as an example relative to security and security services that were just not something we had within the Quisitive family prior to that. So we have a strong pipeline. We’re starting to see some of those conversions happen as a result of that. So that continues to be a really powerful story of about this acquisition activity is the capture of wallet share in customers that we just weren’t able to do independently across both sides. Lastly, to your question about last year, some of the things from winter weather in Texas and things like that, while we had a little bit of that this year, it was nothing to the magnitude, so we don’t see any of those kinds of factors impacting our Q1 results.
Kevin Krishnaratne
Okay. Appreciate all that color, Mike. Thanks. Second question for me just on the margins, I think the margin performance in the quarter was light versus what you were expecting on your Q3 closing. A lot of that is explained from the ramp up within payments. So my question is, if you look at Cloud, 11%, Payments, 19%, how do we think about the margin profile over the next couple of quarters in those two respective segments, acknowledging some of the ramp in payments and I see you alluded to the fact that you’re very good on retention and talent. So there must be some implications there on the wage increases in whatnot. Can you just talk about the margin profile? Thank you.
Mike Reinhart
So there’s a few different factors on Q4, in particular. The Q4 margin profile impacted by some seasonality, again, into professional services business. Some of that additional PTO time and other kinds of things that may have occurred that we always factor in what we think is seasonality, but you sometimes get hit. So there was some of that, and so you have the cost of labor, and it had the possibility to generate revenue, but because they are on vacation time, you don’t capture it. So that’s one element. Second element of margin impact in Q4 was Catapult, and Scott alluded to this a little bit. It actually turned out that Catapult had negative EBITDA contribution in the quarter and it was really because of the timing of that, as I think I tried to set the stage forks, I knew this was going happen.
It happened to be — we actually thought they were going to have the opportunity to generate some positive, but at the end of the day, we bought them in Thanksgiving weekend in the U.S., which basically everybody was on vacation. Then we had two weeks where we got some contributions, and then we had a week of Christmas time vacation. So really about 50% — almost 50% of the time we’re now living on — in their face we had all the costs associated with labor and other kinds of things, without revenue-generating. So that was also a bit of an anomaly end of quarter. And then lastly to your point around that, we believe that we can have the Payments business continued to operate in the low twenties. As we go forward, we believe that’s still very reasonable in the near-term were we’re still investing in the LedgerPay platform and some of the things we’re doing there until further activation starts to present itself from that. And on the Cloud side, we think we can be in that 14% to 15% range going forward, more consistent with what we had, but Q4 was a bit of an anomaly.
Kevin Krishnaratne
Awesome. Thanks for the color. Appreciate it. Pass the line.
Operator
Our next question comes from the line of Christian Sgro with Eight Capital. You may proceed with your question.
Christian Sgro
Good afternoon, Mike and Scott. For my first question today, I wanted to ask about the certification with the card network providers. It sounds like the focus in the coming months here will be the direct activations with Visa and Amex. So just remind us on the benefits of the direct activation and process around commercializing those angles and how it affects the financial profile under LedgerPay.
Mike Reinhart
Yes. So the good news, we weren’t sure, we were always hopeful, but we weren’t sure that we were able to get all of these card networks to lean in at the same time and dedicate teams — dedicate teams to us. There’s deployment of hardware, and then dedicating teams to us for network circuits, as well as all the testing and stuff. We had always been hopeful, but not a 100% confident. Well, as we’ve progressed, we have dedicated teams from all of those going at the same time. For example, with Visa, the gear is already in, circuits are in. We have what’s called our decks installed. So all of that’s there and now readying. The good news for us on the testing side, we start to go through the testing process, but I’ll say it’s a lighter lift on the testing scenario because we’ve already done it with MasterCard. The only things that are different, there might be some slightly different specifications related to each of the networks where they might have some — a different set of rules and things like that, that they provide and suspect we integrated in. But the good news is that’s all very active in-flight, and the team is doing that, and we feel very good about that. So yes, it’s going to be something that we’re going to do in parallel while we’re migrating, doing the pilot customers. But expect all of that to come together here over the summer months to bring all that together and have it finalized. But we’re still able to progress our efforts with pilot customers independent of that activity.
Christian Sgro
Okay. Perfect. And on the second question, I have to ask about supply chain. I know there is no direct impact across the [Indiscernible] Microsoft software, the offerings there, but Mike, do you see any potential tailwind from supply chain issues resolving if customers can get hardware elsewhere? Could there be a tailwind to the business as supply chain unwinds sooner than expected, or would you say that in [Indiscernible] it’s fairly independent immune to the macro there?
Mike Reinhart
The good news there is we’re not working with customers in the dark ages needing hardware and data centers and things like that. We’re working in a modern Cloud world where obviously the only kind of barrier is the capacity of people like Microsoft in our case, but Amazon or others. In others case they have Cloud capacity. It turns out they have lots of it. They were able to get way ahead of that and Microsoft in their earnings call and things like that, that’s not the supply chain and their ability to scale their data centers is not a concern of theirs. So that’s the good news on that front. Outside of that, the only impact that we would have on supply chain changes positive or negative would be if we have a customer who has some sort of major disruption to their business that we happen to be doing transformational engagement with. In general, that’s just not the case with our customers and in fact, many cases they’re actually hiring us in the Cloud services side of the business because they are constrained by their supply chain and they want to redefine and re-engineer it. And we’re helping them create new ways to better manage just in time inventory and doing those kinds of things, and using system capabilities to give them better insights to all of that so that they can streamline it. If you think about most of these companies, they have very antiquated supply chain management and optimization because they didn’t have to. They could carry things in warehouses and do all those things. Now they have to have very good data and insights and streamlined capabilities, and we’re actually being hired by them as an investment for them to help mitigate it. So certainly there are some factors, but it has not been anything that we’ve seen as an impact to our business.
Christian Sgro
Very helpful. Thanks for taking my questions.
Operator
[Operator Instructions]. One moment while we pull for questions. Our next question comes from the line of Andre Bodo with Echelon Wealth Partners. You may proceed with your question.
Andre Bodo
Hi, good evening and congratulations on the quarter and all the hard work you guys put in to get LedgerPay where it is today. My first question for tonight is, should we be viewing your M&A objectives in IT services and ISO businesses as a longer-term story, where we could see returning to focus on this, perhaps exiting the second half of ’22 or even ’23 once LedgerPay is in full swing? And could you maybe comment on the volume of M&A target opportunities you’re seeing in the industry.
Mike Reinhart
So first, I’ll clarify something. You talked about Cloud services, M&A, and maybe ISOs. That’s only one dimension of the payments. Certainly, ISO or other kinds of portfolio acquisitions is one, but other software industry, software solutions, as an example, could be a compliment to that as part of our M&A strategy, where we’re looking to get an ISV solution that’s integrated into an industry or domain area that connecting Payments to, we think would be a really valuable asset. Just a point of clarification there. But yes, absolutely, creating scale in these businesses is critical and organic growth is always a key part. Unlike others that I know do consolidation, they got to have the next acquisition to actually show you guys growth. We’re going to continue to execute and our team is very locked and loaded on organic growth. At the same time though, we believe creating scale in both businesses, but in particular in the payments business, is one of our key opportunities.
We have this incredible platform that really unlocks new value and we have a mechanism to do that. So as we go forward, we will absolutely consider — continue to look at M&A. To my point in the talk earlier, is really centered around. Right now, we’re focused on the things we need to do to be in a best position to take advantage of those acquisitions. So in the near-term activation, all those things and integration with Catapult. But yes, we will continue to begin that process and look to do those things back half of this year and forward. In terms of the opportunities, the market’s very active. There was a little bit of a stall early Q1 on both the Cloud side and on the payment side, just a little hesitation. But the number of deals in flight being presented to us is significant. The number of active buyers is also significant. A lot of private equity money in particular in the market, but also strategics that are on both sides of the table making moves to grow and scale through acquisition and the reality of it is market valuations, albeit public valuations have dropped, unfortunately, and we’re feeling the pain of that in our case. But the private valuations have not really adjusted whatsoever because the value of these assets to strategic investors is so high that they see it as a great opportunity to continue to scale and grow and they need a place to put their money and they view both IT services and the Payments, and FinTech’s space in general as great places to place investments over the next three to five years.
Andre Bodo
And my second question would be, could you make a comment on what would be involved with entering the Canadian market with LedgerPay and like what timing or conditions that you look for in order to make that move.
Mike Reinhart
Yes. So the good news is we did get the bank sponsorship with people trust and I actually met with some of the executives of people trust when I was out at the Las Vegas conference as well, had a good discussion with them. So the good news is, once we are certified with each of the card networks here, really at the end of the day, there’s process we need to do. It’s not the same though. We don’t have to do the physical infrastructure part. We can leverage the U.S. infrastructure components to do it, but what we have to do same thing is they’ll give us — there are certain specifications that each of the card networks give that are based on okay Local, in-country rules or regulations. So we have to review those to make sure that any of those kinds of configuration changes or rules, it’s usually a business rules set up and not really any kind of coding. That business rule setup is made and then we do a quick test with them and we’re active. So that it’s really about the go-to-market strategy. We’re having some discussions both direct with the people as well as with others in market that have interest in us maybe being providing the back-end processing platform and helping them activate some things there in that market and we’re exploring that. It probably will be something we focus on later in the year. We will be opportunistic. I’ll be honest there is some — there maybe some unique acquisition opportunities that could accelerate that. There could be some other partnership opportunities to do that, but at the moment, again, back to my earlier point about getting LedgerPay up and running, getting Catapult. Those are focal points and we’ll be kind of looking to do some of these other kinds of things that whether it’s M&A or activation of the Canadian market later in the year.
Andre Bodo
Great. Thank you so much.
Operator
Our next question comes from the line of Parth Shah with Canaccord Genuity. You may proceed with your question.
Parth Shah
Hi. Good evening. This is Parth for Rob. First question starting with LedgerPay, Mike, you spoke about the ISO and ISV pilot migration starting in Q2. How should we think about the impact of migrating these pilots and BankCard customers on your top and bottom lane. I’m guessing that this kind of ties into your 20% growth for payments. If you can just provide some more color around that.
Mike Reinhart
Yes. Q2 there will be really no meaningful contributions as we do the LedgerPay pilot customers. As we’re making and doing those processing kinds of things, we’re not — we’re talking lower volumes really testing systems and processes and all the things that we want to do and really make sure we put around. So we’re not looking for revenue contribution from LedgerPay in that time period. As we get into Q3 and Q4 where we start to do migration of customers. So set aside pilot customers, which are hand selected targeted people that we’re doing this really full system loop test, including process people technology, that is Q2. Q3 will start that process moving into Q4 and several quarters beyond where we’re actually migrating from the BankCard existing provider over. Then we’ll start to see revenue contributions coming into it. As we look at our payments growth, yeah. I mean, we’re looking at a 20% target year-over-year that’s a combination of contributions from LedgerPay as well as just natural organic growth through Merchant Services, all of that independent of anything that we’re doing in an M&A capacity.
Parth Shah
That’s helpful, Mike. Thanks. And the second question would be about again, since you’re targeting your go-to-market in Q3, you already expanded your LedgerPay sales force quite a bit, and do you see this as adequate to undertake this expansion or do you still think that you need to add more capacity in your field and marketing functions?
Mike Reinhart
Yeah, we’ve been smart about it, right? Obviously, some of the added sales capacity that we put into the system is that, the — was adding — extending our team as part of the BankCard Merchant Services business. You’ll see us using more and more of the language Merchant Services versus BankCard because we’re expanding the scope of that team’s role. I will try to use both in the short-term, but over time, you’ll hear us transitioning to Merchant Services. But Merchant Services through BankCard, we’ve added sales capacity there which is just about onboarding net new merchants today directly into the BankCard ecosystem, but also preparing to use that as an engine to add net new folks there. So that investment we’ve made. We have some investment we’ve made in our direct selling motion outside of that Merchant Services group, targeting customers, larger enterprise customers, and things like that, as well as other ISOs and ISVs.
We absolutely will need to make incremental investments in sales and marketing. We’re going to do that in a smart way. We’re not trying to throw a bunch of money at something on the front-end. Remember that we’ve got three go-to-market approaches on our sales motion for payments. One is, leveraging the existing capability and footprint, the 30-plus seller sitting in the Merchant Services business that we have. Second, is the leveraging the existing Cloud Solutions sales team that we’ve got in place today, that have — many of their — our Cloud customers, our Merchant Services customers, and we’ll start to activate that as we go forward. And then third is, building out our own sales organization, but complementing that with our joint sales and marketing motion with Microsoft and using their scale and reach to give us access. But there’s no question. Investment in sales and marketing will become a much more meaningful investment. As we get further in this journey we’ll start to see that unfold in the late Q3 -early Q4 time frame and investing as we move throughout 2023.
Parth Shah
That’s all I have for Mike. Thank you all. I pass the line.
Operator
At this time, this does conclude the company’s question-and-answer session. If your question was not taken, you may contact Quisitive Investor Relations team at QUIS@gatewayir.com. I’d now like to turn the call back over to Mr. Reinhart for closing remarks.
Mike Reinhart
Thank you. Thank you everyone for joining us today. I especially want to thank our employees, partners, investors, and customers for their support. We appreciate your continued interest in Quisitive and look forward to updating you on our next call. Operator.
Operator
Thank you for joining us today for Quisitive’s Fourth Quarter 2021 Earnings Conference Call. You may now disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.
Be the first to comment