Qfor red chipjanconf

Q4 Systems
Management Presentation
RedChip Emerging Growth Showcase
January 2014

Dhru Desai, Executive Chairman
Dr. Nandu Thondavadi, CEO
Confidential | Copyright © Q4 Systems Corporation

Safe Harbor Statement
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 forwardlooking 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.


2

Our Vision

Innovative SMAC Technology Platforms for
Disruptive Business Models

Social media Mobility Analytics Cloud computing


3

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


4

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

Credentials
Q4 Location

Statistics
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

2013 Growth
Ops/technical resources

700

21% Growth

Customers

115

17% Growth

40+mil

60% Growth

Revenue

Q4 Qualifiers
!  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

Global Delivery Center

Our Customers Enjoy

!  4 Near site state-of-the-art facilities !  Succeeded in reducing IT cost by
including 1 in Southeast, MI
70% for a large M&P client
!  4 state-of-the-art global delivery
!  Achieved 50% reduction in cost-tocenters
serve over 6 years time for a large
!  20% of workforce with media and
manufacturing client
publishing domain expertise
!  Reduced IT OPEX by 60% in 5
years for a large discreet
manufacturing client


Cloud Footprint
!  Over 40 IPs owned in SaaS,
mobile servicing enterprises
!  Vertical focus cloud solutions
for Retail, Publishing,
Automobile, Healthcare

6

Technology Stack


7

2013 Performance
Third Quarter Revenue
10

9.1

8

Nine-Month Revenue

(millions)

28.1

30

6.5

6

(millions)

19.9

20

4
10

2
0
3Q12

Third Quarter EBITDA

3Q13

9 mths '12

9 mths '13

Gross Margin

(millions)

40.0%

1.5
1.1

1
0.5

0

30.0%

28.6%
22.7%

20.0%

0.5

10.0%

0
3Q12


3Q13

0.0%
3Q12

3Q13
8

Business Units

SMAC


9

Growth Target
Revenues

EBITDA

$120,000,000

$30,000,000

Q4 Health
$100,000,000

$25,000,000

Q4 Cloud
$80,000,000

$20,000,000

Q4 Solutions
$60,000,000

$15,000,000

Q4 Consulting
$40,000,000

$10,000,000

$20,000,000

$5,000,000

$0

2010

2011


2012

2013

2014

2015

2016

$0

10

Key Clients


11

Overall Market Opportunity

Convergence of
SMAC Technologies
into Platform
offering

Verticals with most
Disruption
opportunities

• Healthcare IT – Market Place/ Exchanges, Disintermediation
and Consumerism, “Regulated Retail”
• Retail IT – Multi/Omni Channel, SMAC enabled supply
chain, distribution and retail commerce

$5 trillion in IT
Spend by 2020
(SMAC and
Exchanges)


12

Health Exchange – Drivers and Opportunities

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

Opportunity to become Amazon.com of Healthcare Disruption


13

Exchange Platform Functionality

Single & Multi Carrier

Retailer Operated

Insurer Operated

Group Exchange

Exchange
Models

Exchange
Administration

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

Carriers

HR/ Payroll

Claims : FSA,
HSA

Employer
Mgmt
Federal Exchange

Individual Exchange

• 
• 
• 
Member
Engagement

Member
Acquisition

Market Place

Reach and
Teach TM

• 

Portfolio based
Recommendation

External Interface

14

ExchangeFunctionality
EMPLOYEES

• 
• 
• 

Consolidated Billing
Custom Contributions
Beyond Traditional
Benefits

• 
• 

Shop, Compare, Planning
Unified Access to Benefits/
Wellness market place
CARRIERS / PAYORS

EMPLOYERS GROUPS

PRIVATE
EXCHANGE

BROKERS / AGENCIES

• 
• 

QHIX

Aggregation & Branding
Dis-Intermediation

ADMIN SUPPORT

• 
• 
• 

Call Center
Web/Chat
Retail

All Benefit products
•  Health/ non-Health
•  Wealth & Wellness
•  Insurance / non- Insurance

Health Exchange Opportunity
QFOR aims for at
least 5% share (5
million covered
lives over next 36
months)

Addressable
Market

Over 100 million
people looking to
buy insurance
through Exchanges

Revenue
Model

$2 - $6 per member
per month (PMPM)

Distribution
Model

Private Label with
20 large insurance
brokers

Exclusive strategic
arrangement with
Health and NonHealth 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


Investment Highlights
Rapidly Growing Market
Opportunity

SMAC IT Market expected to grow at a CAGR rate of 38% through 2020
Healthcare >> Evolving “Market Place” and Exchange models

Dynamic Industry Verticals

Retail >> Multi Channel Retail platforms

Growth Stage Company

Continuous 13 quarters of EBITDA positive result;
100+ blue chip clients and deployed technology platform;
700+ strong delivery organization

Robust Product Technology
and Sales Pipeline

Proprietary IP-protected technology portfolio;
Market leader in Health Exchange platforms;
Many $1M+ revenue opportunities in sales pipeline

Superior Business Model

Scalable deployment with non-linear cost structure;
Recurring revenue;
Blend of product and services revenue

Significantly Undervalued

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


Peer Comparison

Ticker

Price
USD

Market
Cap
(MM)

Xhibit Corp.

XBTC

1.60

174.7

3.2x

N/A

Callidus Software

CALD

10.91

442.6

4.7x

Jive Software

JIVE

10.93

762.33

Datawatch Corp.

DWCH

33.66

Wageworks

WAGE

Benefitfocus
Cornerstone Ondemand

Name

Rev.
(TTM)

Fwd. Sales
Growth
(YoY)

N/A

45.1

N/A

3.5x

N/A

94.2

16.9%

5.2x

4.3x

N/A

139.0

29.9%

238.9

7.4x

5.0x

N/A

30.3

42.9%

58.00

2,009.3

8.9x

8.4x

52.6x

210.9

25.1%

BNFT

48.05

1,196.8

12.1x

9.2x

N/A

96.7

26.1%

CSOD

49.97

2,584.94

15.3x

10.3x

N/A

166.7

56.9%

7.4x

6.7x

52.6x

1.5x

0.9x

13.8x

Median
Q4 Systems

QFOR

0.64

53.5

P/S Fwd. P/ EV/EBITDA
(TTM)
S
(TTM)

26.1%
34.8

67.4%

As of November 29, 2013
SOURCE: Bloomberg


18

Thank You
Dhru Desai, Executive Chairman
dhru.desai@qfor.com
Dr. Nandu Thondavadi, CEO
nandu.thondavadi@qfor.com


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