HS GovTech Solutions Inc. (HS:CSE; HDSLF:OTC), having landed new contracts, clients, and markets, cut costs, and improved efficiencies in Q1/23, is on track to turn EBITDA positive toward the end of this year, reported Echelon Capital Markets analyst Mike Stevens in an April 6 research note.
"We are encouraged with another positive update," Stevens wrote, "as HS GovTech continues to execute toward its 2023 goals of reaching US$8–10 million ($8–10M) in annual recurring revenue and, perhaps more importantly, turning EBITDA positive."
HS GovTech develops and sells to governments software-as-a-service applications for managing data and communications.
186% Projected Return
Stevens highlighted that the North Carolina-headquartered company offers investors a significant potential return of about 186%. This is shown in the gap between HS GovTech's current share price of about CA$0.28 and Echelon's target price on the firm of CA$0.80 per share.
Echelon rates the technology firm Speculative Buy.
In his report, Stevens presented the highlights of HS GovTech's update for Q1/23:
1) The company generated US$6M worth of contracts in Q1/23. Full execution of these should boost annual recurring revenue (ARR) to about US$6.8M, which compares to about US$6M in ARR at year-end 2022.
2) HS GovTech penetrated the market in three additional states: Montana, New Jersey, and Nevada.
"The prospect for follow-on business represents a meaningful opportunity across the board," Stevens commented.
3) The company took 12 clients live. Deployments in all of 2022 totaled 27, 11 of which were in Q4/22.
4) HS GovTech decreased in gross annual payroll by not adding any new positions. This contributed to the company saving about US$1M in annualized costs.
"The Company's progress with increasing project deployment efficiencies is a very encouraging trend toward scaling profitably and turning EBITDA/cash flow positive," wrote Stevens.
5) HS GovTech continued rapidly expanding its number of HSPay customers. HSPay is its online and mobile payment platform for government revenue collection. At the end of Q1/23, the average total processed volume was up to US$87,000 ($87K) per week versus US$25K per week in late December 2022.
"The trajectory is certainly noteworthy and could emerge as a more meaningful revenue contributor over the next couple of years," wrote Stevens.
Expectations in 2023
For Q1/23, Echelon estimates HS GovTech revenue of US$1.9M, gross profit of US$1.5M, and EBITDA of (US$0.8M), Stevens noted, and all three should build throughout the year. The broker-dealer expects the North Carolina firm will see in 2023 about a US$1M increase in cash operating expenses but also, topline growth of 57%.
Echelon also forecasts the software company will turn EBITDA positive in Q4/23 and, for the full-year of 2023, generate US$9.5M in revenue and achieve US$7.6M in gross profit.
As far as the tech firm itself relayed Stevens, management said it aims to close at least US$20M in total contract value this year, which should equate to about US$9M in annual recurring revenue.
"Notably, if HS GovTech continues to execute on its annualized trajectory, we expect the company to outperform our forecasts," Stevens commented.
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Disclosures For Echelon Capital Markets, HS GovTech Solutions Inc , April 6, 2023
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ANALYST CERTIFICATION Company: HS GovTech Solutions Inc. | HS:CSE
I, Mike Stevens, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities orissuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
During the last 12 months, Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer.
During the last 12 months, Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer.