Darrell Heaps, Q4 Inc. CEO, rings the bell at the Toronto Stock Exchange on Oct. 25, 2021.Luke & Allie Cleland/Courtesy of manufacturer
Investor relations software provider Q4 Inc. had a disappointing debut on the Toronto Stock Exchange Monday after slashing the size and pricing of its initial public offering last week.
The Toronto company’s stock opened at $11.60 a share and traded below the $12 issue price all day, closing at $11.52, down 4 per cent.
Q4 set out to raise $150-million at $10.50 to $13 a share in late spring, but delayed the offering after a business partner on a new product tried to renegotiate the terms during the IPO process. After ending the partnership and dropping the product, Q4 refiled its prospectus in October, upping the price range to between $14 and $17.50. But on Friday, Q4 slashed the issue price and deal size to $12 a share and $100-million. CIBC World Markets, National Bank Financial and Credit Suisse led the offering.
Chief executive officer Darrell Heaps dismissed concerns about Q4′s first-day trading performance in an interview Monday. “I wouldn’t agree it’s a disappointing step into the public markets at all,” he said. “We are absolutely cheering here, and I want to make sure that’s crystal clear ... I’m focusing more on the strategic execution of our plan,” which includes putting some of the IPO proceeds to work buying other companies. “That will drive shareholder value … [rather than ] exactly what’s happening on our first day of trading,” he said.
Mr. Heaps said he was “really pleased” Q4 had achieved its goal of raising at least $100-million, and that the vast majority of shareholders who bought into the IPO were long-term investors, not those looking to flip the stock.
The IPO proceeds are “everything we needed to drive our strategy and execute on what’s in front of us,” he said. As a company that serves public companies, becoming one itself was the realization of a strategic objective, he added. “It helps us understand at a more intimate level the workings of the capital markets, and essentially eat our own cooking and drive innovation.”
Q4 sells software for managing the investor-relations needs of public companies. Its products are used by 2,500-plus clients for online webcasts and earnings calls, and it organizes financial statements on the investor relations sections of company websites. Q4 also provides data intelligence services to companies, analyzing capital flows and capturing information on activist shareholder activities.
When pressed on the reasons for the weak investor response to his IPO, Mr. Heaps said the uneven stock market performance by a swath of Canadian tech companies that have recently gone public “certainly did factor into it.”
Q4 has come to market during a busy fall for Canadian tech IPOs. Three companies – E Automotive Inc., D2L Corp. and Sharethrough Inc. – set price ranges for their TSX IPOs last week and Propel Holdings Inc. began trading. The TSX has seen a record run of new Canadian tech issues: 17 such companies have gone public since July, 2020. That compares with 12 IPOs in the 11 years ended December, 2019.
But their performance has been uneven. The Globe and Mail reported last week the average return for tech-sector IPOs in the past year was minus 2.4 per cent, based on when each started trading, while the corresponding average stock market return was 16 per cent. At the same time, many newly public Canadian tech companies now trade below their issue prices.
Mr. Heaps said investors would “really see the performance of this business” in the coming quarters. He added that increasing margins “is a big part of the strategy moving forward.
Most software companies generate gross margins in the 70-per-cent to 80-per-cent range, whereas Q4 has been stuck in the low- to mid-50s for several years, in part because it relies on other technology vendors to deliver virtual events. But Q4 is developing more of that technology in-house, and “as we scale and use third parties less, that will go straight to the margin line,” Mr. Heaps said.
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