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Transcript of Qfor red chipjanconf
Confidential | Copyright © Q4 Systems Corporation
Q4 Systems Management Presentation RedChip Emerging Growth Showcase January 2014
Dhru Desai, Executive Chairman Dr. Nandu Thondavadi, CEO December 2013
Confidential | Copyright © Q4 Systems Corporation
Safe Harbor Statement
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This partial discussion of the statements of financial condition and operations of the Company should be read in conjunction with the condensed consolidated financial statements and related notes contained in the Company’s latest quarterly report on Form 10-Q as filed with the Securities and Exchange Commission. Various remarks about the Company’s future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Such remarks are valid only as of today, and the Company disclaims any obligation to update this information. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. In addition, today’s presentation and Webcast may include non-GAAP financial measures within the meaning of SEC Regulation G.
Confidential | Copyright © Q4 Systems Corporation
Our Vision
3
Innovative SMAC Technology Platforms for
Disruptive Business Models
Social media Mobility Analytics Cloud computing
Confidential | Copyright © Q4 Systems Corporation
Corporate Data – At a glance
� Name: Q4 Systems Corporation � Ticker: OTC QB – QFOR � Shares: 83.5 MM (10% institutional, 20% real public float, 25% strategic
holders and 45% affiliates and insiders) � Revenue & EBITDA: $37 MM / $4.5 MM (run-rate) � Corporate Counsels: Ellenoff Grossman&Shole LLP /Kelly Drye Warren � Auditors: Sassetti & Co. � Transfer Agent: Securities Transfer Crop
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Confidential | Copyright © Q4 Systems Corporation
Management & Board
� Dhru Desai – Executive Chairman & CFO � 30-years experience successfully building private & public companies in IT & telecom � Founder & CEO of Cronus Technologies – later acquired by Cisco
� Nandu Thondavadi, Ph.D. – CEO � Founder of Global Technology Ventures – an M&A advisory to the IT sector � Served in various roles with companies such as EDS, Square D, Coleman and others � Former professor at the Kellogg School of Management, Northwestern University
� Robert Steele, Chief Sales and Marketing Officer � 30 years veteran in health care, insurance and technology sector, NFL player
� Thomas Sawyer, Ph.D. – Director � Senior executive with more than 40-years public company experience, Technology advisor to 3 presidents of
USA.
� Eric Gurr, CPA. – Director � Senior executive with more than 25-years public and private company experience in Telecom
sector in USA and China, previously president and CEO NACT, NetTrue, Shanghai Bell JV. 5
Confidential | Copyright © Q4 Systems Corporation
Credentials
Global Delivery Center Q4 Qualifiers ! 4 Near site state-of-the-art facilities
including 1 in Southeast, MI ! 4 state-of-the-art global delivery
centers ! 20% of workforce with media and
publishing domain expertise
! 40% of our clients are associated with us for more than 7+ years ! Industry leading attrition rate of <8%
! 70% of workforce have global work experience
! Competencies covering legacy to next generation technologies
Q4 Location Statistics
Ops/technical resources 700 21% Growth
Customers 115 17% Growth
Revenue 40+mil 60% Growth
2013 Growth
20Mil hours of ADM Services 5Mil hours of IMS Services
9Mil hours of Consulting Services 300+ Content Driven Websites
64,000 Servers 400,000 Service Desk Users
74,000 Network Devices 22,000 Data Bases
6000 TBs Storage 1.5M Batch Jobs
Cloud Footprint ! Over 40 IPs owned in SaaS,
mobile servicing enterprises ! Vertical focus cloud solutions
for Retail, Publishing, Automobile, Healthcare
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Our Customers Enjoy ! Succeeded in reducing IT cost by
70% for a large M&P client ! Achieved 50% reduction in cost-to-
serve over 6 years time for a large manufacturing client
! Reduced IT OPEX by 60% in 5 years for a large discreet manufacturing client
Confidential | Copyright © Q4 Systems Corporation
2013 Performance
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Third Quarter Revenue (millions)
Gross Margin
6.5
9.1
0 2 4 6 8
10
3Q12 3Q13
Nine-Month Revenue (millions)
19.9
28.1
0
10
20
30
9 mths '12 9 mths '13
Third Quarter EBITDA (millions)
0.5
1.1
0
0.5
1
1.5
3Q12 3Q13
22.7% 28.6%
0.0%
10.0%
20.0%
30.0%
40.0%
3Q12 3Q13
Confidential | Copyright © Q4 Systems Corporation
Growth Target
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$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
2010 2011 2012 2013 2014 2015 2016
Q4 Consulting
Q4 Solutions
Q4 Cloud
Q4 Health
EBITDA Revenues
Confidential | Copyright © Q4 Systems Corporation
Overall Market Opportunity
Convergence of SMAC Technologies
into Platform offering
• Healthcare IT – Market Place/ Exchanges, Disintermediation and Consumerism, “Regulated Retail”
• Retail IT – Multi/Omni Channel, SMAC enabled supply chain, distribution and retail commerce
Verticals with most Disruption
opportunities
$5 trillion in IT Spend by 2020
(SMAC and Exchanges)
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Confidential | Copyright © Q4 Systems Corporation
Regulatory Trends
• Affordable Care Act • Changes in underwriting requirements
Employer Trends
• Fixed Contribution Model – similar to 401k shift 20 years ago
• 80% employees & over 50% employers groups will prefer health exchange
Market Trends
• Consolidation an Disintermediation
• Aggregation - Multicarrier, Health & Non-Health products
• Consumerism – Control, Freedom and Flexibility
Economics
• Compelling case for Market Places
• Private Exchanges moving ahead with little reliance on Obama Care
• Technology will improve cost and efficiency
Health Exchange – Drivers and Opportunities
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Opportunity to become Amazon.com of Healthcare Disruption
Confidential | Copyright © Q4 Systems Corporation
External Interface
Exchange Platform Functionality
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Reach and Teach TM
Market Place
Exchange Administration
Portfolio based Recommendation
Mem
ber
Acq
uisi
tion M
ember
Engagement Employer
Mgmt
Reports & Analytics
• Supports Medical, Dental, Vision, LTD, STD
• Responsive Design • Payment Gateway Integration • Social Media Integration
• Member Engagement over social media – Quiz, surveys etc…
• Exchange and Wellness TV • Targeted Advertisements • Social sentiment analysis
1Invoice TM
• Consolidated invoice • Bill Payments • Reconciliation • Fee Administration • Disbursements and Adjustments
Exchange Models
Indi
vidu
al E
xcha
nge
Gro
up E
xcha
nge
Insu
rer O
pera
ted
Ret
aile
r Ope
rate
d
Sin
gle
& M
ulti
Car
rier
Cla
ims
: FS
A,
HS
A
Fede
ral E
xcha
nge
HR
/ Pay
roll
Car
riers
Confidential | Copyright © Q4 Systems Corporation
PRIVATE EXCHANGE
QHIX
EMPLOYEES
CARRIERS / PAYORS EMPLOYERS GROUPS
ADMIN SUPPORT
BROKERS / AGENCIES
• Shop, Compare, Planning • Unified Access to Benefits/
Wellness market place
All Benefit products • Health/ non-Health • Wealth & Wellness • Insurance / non- Insurance
• Call Center • Web/Chat • Retail
• Aggregation & Branding • Dis-Intermediation
• Consolidated Billing • Custom Contributions • Beyond Traditional
Benefits
ExchangeFunctionality
Confidential | Copyright © Q4 Systems Corporation
Health Exchange Opportunity
Addressable Market
Over 100 million people looking to
buy insurance through Exchanges
QFOR aims for at least 5% share (5 million covered
lives over next 36 months)
Revenue Model
$2 - $6 per member per month (PMPM)
Distribution Model
Private Label with 20 large insurance
brokers
Exclusive strategic arrangement with Health and Non-Health Insurance
Carriers
JV with HR, Payroll and Third Party Administrators
Status Fully Functional
exchange commercially
available TODAY
50,000 members enrolled, 4
Exchange partners in implementation
In discussion with 5 of 9 smaller Blue Cross and 4 other
tier 2 carriers
Confidential | Copyright © Q4 Systems Corporation
Investment Highlights
Rapidly Growing Market Opportunity
Dynamic Industry Verticals
Growth Stage Company
Robust Product Technology and Sales Pipeline
Superior Business Model
Significantly Undervalued
SMAC IT Market expected to grow at a CAGR rate of 38% through 2020
Healthcare >> Evolving “Market Place” and Exchange models Retail >> Multi Channel Retail platforms
Continuous 13 quarters of EBITDA positive result; 100+ blue chip clients and deployed technology platform; 700+ strong delivery organization
Proprietary IP-protected technology portfolio; Market leader in Health Exchange platforms; Many $1M+ revenue opportunities in sales pipeline
Scalable deployment with non-linear cost structure; Recurring revenue; Blend of product and services revenue
Trading @ 1.5x Revenue/11.8x EBITDA; Against target peer group comps at 4.0x Revenue & 15x-25x EBITDA; Tower Watson acquired Liazon for $215M
Confidential | Copyright © Q4 Systems Corporation
Peer Comparison
Name Ticker Price USD
Market Cap (MM)
P/S (TTM)
Fwd. P/S
EV/EBITDA (TTM)
Rev. (TTM)
Fwd. Sales Growth (YoY)
Xhibit Corp. XBTC 1.60 174.7 3.2x N/A N/A 45.1 N/A
Callidus Software CALD 10.91 442.6 4.7x 3.5x N/A 94.2 16.9%
Jive Software JIVE 10.93 762.33 5.2x 4.3x N/A 139.0 29.9%
Datawatch Corp. DWCH 33.66 238.9 7.4x 5.0x N/A 30.3 42.9%
Wageworks WAGE 58.00 2,009.3 8.9x 8.4x 52.6x 210.9 25.1%
Benefitfocus BNFT 48.05 1,196.8 12.1x 9.2x N/A 96.7 26.1%
Cornerstone Ondemand CSOD 49.97 2,584.94 15.3x 10.3x N/A 166.7 56.9%
Median 7.4x 6.7x 52.6x 26.1%
Q4 Systems QFOR 0.64 53.5 1.5x 0.9x 13.8x 34.8 67.4%
As of November 29, 2013
SOURCE: Bloomberg
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Confidential | Copyright © Q4 Systems Corporation
Thank You
Dhru Desai, Executive Chairman [email protected] Dr. Nandu Thondavadi, CEO [email protected]