Third Quarter Earnings Recap

To learn more about microcap strategies or the Rivemont MicroCap Fund, check out this post and see the disclaimer at the bottom.

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The third quarter 2024 earnings season is coming to a close for Canadian-listed companies.

In case you missed it, I published my Third Quarter Earnings Preview about a month ago, sharing some predictions and companies to watch. Let’s review those predictions and see how they played out!

Underdog to Watch: Illumin Holdings (TSX: ILLM)

Illumin, formerly AcuityAds, is an adtech platform. My thesis going into this quarter was reasonably straightforward. After a few years of showing no revenue growth and virtually no profitability, I thought the newly appointed CEO (in March 2024) would bring the company back to growth and improved profitability.

Fundamentally, it played out exactly as expected. Third-quarter revenue was up 23% year-over-year, and adjusted EBITDA was up 200%. The EBITDA margin was a little over 5% of revenues, so there is still much room for improvement. Historically, Illumin has achieved EBITDA margins of 15-17%.

The market reacted well to the results, sending the stock 10% higher the following day. However, sellers quickly appeared, and the stock returned within its previous trading range. I guess it will take another strong quarter or two before anybody gives them any credit. That said, I was delighted to see the progress.

Stock price when profiled (Oct 30): $1.74

Closing stock price yesterday (Nov 26): $1.75

Return: + 1% ✅

Underdog to Watch: Thinkific Labs (TSX: THNC)

Thinkific is a leading platform for creating, marketing, and selling courses, digital products, communities and learning experiences online.

The stock has performed exceptionally poorly since going public in April 2021, but the business is not doomed at all. Yes, growth has slowed, and the company hasn’t shown any meaningful profitability. However, my thesis was that we would see higher growth or improved profitability from now on.

Thinkific published decent third-quarter results, with revenue up 15% year-over-year and adjusted EBITDA up 26%. Like Illumin, the EBITDA margin was a little over 5% of revenues, and I also think there’s a lot of room for improvement in this area.

The results were pretty much in line with analyst expectations. The stock spiked 20% two days after the release before settling back down. Again, the market will probably want to see another strong quarter or two and gain confidence in the growth trajectory before rewarding Thinkific with a better valuation multiple. In the meantime, the stock continues to trade at an EV/Revenue multiple of 1.5x, significantly below recent M&A transactions.

Stock price when profiled (Oct 30): $2.50

Closing stock price yesterday (Nov 26): $3.00

Return: + 20% ✅

Underdog to Watch: Coveo Solutions (TSX: CVO)

Coveo Solutions provides AI platforms that enable individualized, connected, and trusted digital experiences. Its AI platform powers search, recommendations, and generative answering in digital experiences across commerce, service, website, and workplace applications.

Coveo was another SaaS company with modest growth, near EBITDA breakeven, and trading at 1.5x EV/Revenue. With all the hype around AI lately, I thought the valuation looked attractive for a company in this sector.

The results were better than expected, with subscription revenue and EBITDA surpassing the previously issued guidance. Management also highlighted strengthening customer demand and increased momentum going into the second half of the fiscal year. The shares soared 43% higher in the days following the release.

Stock price when profiled (Oct 30): $5.25

Closing stock price yesterday (Nov 26): $7.42

Return: + 41% ✅

Tread Carefully: Zedcor (TSX-V: ZDC)

Zedcor provides low and zero-emission mobile surveillance towers that offer protection for commercial and industrial applications.

My main concern with Zedcor was that the valuation was far ahead of the fundamentals, and the results needed to be flawless to avoid a stock pullback.

Well, never bet against a management team that’s executing. Zedcor delivered the goods again, with a 42% increase in revenue and a 49% increase in adjusted EBITDA. The other metrics also looked great, such as the total fleet utilization rate above 90% or US revenues now exceeding 10% of total revenues.

The stock ripped higher following the release, making me look like a fool for underestimating the company! As long as this team keeps executing, shareholders will be happy. However, I still stand by my comments about the elevated valuation.

Stock price when profiled (Oct 30): $2.79

Closing stock price yesterday (Nov 26): $3.46

Return: + 24% ❌

I think my predictions turned out quite well for the second quarter in a row. The first two underdogs didn’t rerate as solidly as I would have expected, but directionally, I was right about the fundamental progress of those businesses. Time will tell if this will eventually translate into higher returns!

Besides those predictions, a handful of spectacular earnings reports led to massive stock moves. Two notable ones were:

• Simply Better Brands (TSX-V: SBBC) with revenue and adjusted EBITDA up 124% and 376%, respectively. The stock gained 72% in five days

• Biorem (TSX-V: BRM) with revenue and net income up 170% and 336%, respectively. The stock gained 38% in four days.

There are a few more that I plan on highlighting in my “Good, Bad, and Ugly” report next week, alongside a few disasters, of course! Stay tuned for that.

Let me know how this earnings season turned out for you!

Did you nail any of your predictions? Did you score a significant gain or avoid a painful loss?

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Disclaimer

This publication is for informational purposes only. Nothing produced under the Stocks & Stones brand should be construed as investment advice or recommendations. Mathieu Martin, the author, is employed as a Portfolio Manager with Rivemont Investments. This publication only represents Mathieu Martin’s own opinions and not those of Rivemont. Rivemont may own positions and transact on any securities mentioned in this publication at any time without prior notice. At the time of this writing, the Rivemont MicroCap Fund holds positions in Illumin Holdings (TSX: ILLM), Thinkific Labs (TSX: THNC), and Biorem (TSX-V: BRM). Always do your own research and consult a professional before making investment decisions.

If you’d like to invest in small public companies, check out this post.