Hi mate, I wouldn’t classify myself as an expert in either, but for disclosure I do hold a small position in Xref (and not CV Check). I did look at the latter and make comparisons – i.e. how the investment case differed – but I prefer Xref, primarily because I think they will be able to scale better over the medium to long term. Putting the business models and other factors to the side, a comparison of their financials paint one hell of a picture – at least for me.

I will start with CV check’s recent update:

Cash flow positive, but over the last year they have spent more than 40% of revenues on manufacturing and operating costs, while another 32% went to staff costs. A further 8% was spent on admin and corporate costs. So the main business costs (excluding marketing, as I don’t mind seeing investment towards this, although CV Check also spend a larger portion on this) are around 80% of revenues.  

To compare this with Xref's last update (below) – their manufacturing and operating costs were only 13% of their FY cash receipts. They do however pay more on staff costs (45%), but again their admin and corporate costs are half that of CV Check (4% of revenue). Their main business costs are around 60% of revenue intake.

Xref:

When I first ran this comparison, I saw one business that would likely achieve operating leverage much more efficiently than the other. Both have similar cash balances of around 12m, but again Xref achieved profitability in the last quarter (nearly a 1m added), whereas CV check lost a few 100k.

I also like the fact that Xref is founder led, with plenty of insider ownership. Their other founder, who is no longer with the business, still holds a lot of shares (despite some recent-ish selling) -- and this might be a short to medium term risk if he continues to dump shares on market, but nothing that breaks the thesis.

In short, my opinion is the long-term prospects are more favourable for Xref. That isn’t to say I will be right, though! Anyone else think differently?

I think it would be fair to say I'm one of the XRef bulls you mentioned. Though it has its share of bears to so the love isn't universal!

Like @Rocket6 I own Xref but also have CV Check on my watchlist. The parallels between them are uncanny in some ways. They are both broadly in the HR software market, they listed within months of each other, they've grown at broadly similar rates, they signed a strategic alliance back in 2019 and they have a similar market cap. I think CV Check is even being marketed and sold on the XRef Marketplace. But like Rocket6 the main reason I preferred XRef to CV Check was scalability. My thesis was that the reference checking tool could be bought in any country that had a supported language and be used tomorrow. For me the issue with CV Check was the business model requires them integrate with the databases of various agencies (government, police, professional bodies etc.). That presents some issues including the cost and time of doing that work, having to pay some of those providers each time you access the databases and inconsistent rules about what can be accessed between juristictions.

Other factors included that XRef was still founder led, whereas I don't think that was still the case for CV Check (?). I also liked the fact XRef had only done one relatively small acquisition. And finally I like the positive working capital model XRef runs, which means it's customers fund its growth. I think CV Check has an element of that (I'm not as familiar with their model) but if I look the half year reports, XRef had unearned revenue of $9.9m compared to CV Check's $1.0m.

Overall I felt CV Check had a chance to be successful in Australia but XRef had a chance to be successful globally. That was the thesis but I'm still waiting to see if it plays out. Notwithstanding all of that I would say I've been impressed with CV Check and the fact it is cashflow positive. It's a legitimate business in its own right.

@Rocket6 @Noddy74 Thanks to you both for the write ups and thoughts. A few additional comments/thoughts which muddy the waters a bit for me if considering as an "A vs B" proposition:

• Re numbers comparison: I'm always wary of comparing percentages based on small numbers and feel pretty uneasy about extrapolating out into the future based on this type of relative comparison where the numbers aren't at least an order of magnitude different. I suspect CV1's investment in their credential passport product combined with their legacy non-subscription based business model may (partially?) explain at least some of their higher cost base.
• CV1 has been around longer as a business (ABNs registered 2004 vs 2010)
• CV1 appear to be positioning themselves to appeal to conservative/process heavy (e.g. government and government-funded services) local businesses with some of their product choices/investments e.g. TDIF certification, but have played catchup in other areas e.g. ISO 27001 certification.
• CV1 intend to head global, XF1 are already global. Will an "expand/scale" first or "focus on the local base" first approach ultimately work better?

I'm aware the above musings are more "story" than "quant", but to my mind "story" is a far more significant component of the valuation the smaller a business is... I guess that's my weasel way of saying I'm having a hard time mulling over an "A or B" vs "A and B" approach. More homework to be done!

Xref is definately on my radar, but I am unsure whether the "great resignation" is a one off tailwind. Given we are also likely heading into a US recession, the "Quits" rate will fall and staff retention rise?

Something I'll be watching - But cashflow and the balance sheet is looking good. Note the quits rate data below - seems like the past 2 years have bene an anomaly - Mean reversion will be a headwind for Xref.