Pinned straw:
$DSE issued their quarterly report this morning, with an investor call later this morning.
Their Highlights
- Annual Recurring Revenue (ARR1 ) of $33.4m, up 10% on prior quarter (QoQ) and 44% on the previous corresponding period (PCP)
- Q3 FY23 operating cashflow of $1.39m
- Monthly ARPU of $2.57 up 9% QoQ and 17% on PCP
- Product gross margin of 68%, stable with prior quarters
- Onboarded 35 new direct and 209 indirect transacting partners
- Gross paid user additions of 86k, offset by deactivation of 53k from a low ARPU, legacy partner, resulting in a net increase of 33k users
- Total paid users now exceeds 1.1 million
- DSE remains well-funded with $24.6m cash at 30 September 2023.
My Analysis
$DSE continues to advance steadily.
Pleasing to see is very decent cash generation, with closing cash up $1.6m on the previous Q, indicating good cost control meaning more of the strong receipts for the quarter staying put in the bank account. This is now the 6th consecutive quarter that the closing cash balance has increased,...we're up to $24.56m from the low point of $21.344m in 1QFY22, but this is the first time the cash balance has increased by more than a few hundred 000s.
The churn event is something to keep an eye on, although the report highlights that this is a legacy low ARPU customer. Certainly the strongly growing ARPU is consistent and an indication of the contribution of some of the higher value products launched over the last year or so.
On churn, Charif's preferred metric is Partner Revenue Churn, which is reported as <3%. I'm not sure what I think about this metric and keen to hear other StrawPeople views. Did we discuss it with Charif last meeting?
The strength of the result can be seen in the cash flow trend chart below, with the combined effect of strong receipts and control of costs driving a step up in cash flow.
So I'm left wondering, is this just a good quarter given that there is noise in receipts and payments from Q to Q, or are we really now starting to see the business scale and the contribution of higer value products coming through? The next quarter or two are needed to confirm the trend, but this is looking positive.
Disc: Held in RL and SM
UlladullaDave
The churn definition seems reasonable to me. DSE has explained their sales strategy is driven by MSPs. Measuring churn at the MSP level seems to align with that strategy. They're not really spending money to get revenue in the door, so I'm not all that sure how important customer churn actually is to the extent that a change in churn would have a significant effect on the business as it passed through. Outsourcing as much as possible of the sales and marketing function for a business with such a narrow, commoditised and price driven product suite makes sense to me.
Can we also take a moment here to acknowledge these guys made money in Argentina. That is an amazing feat! Lol
Strawman
I agree @mikebrisy & @jayjayjayjay -- looks like a very decent result from Dropsuite.
Re your question Mike, I don't think their definition of churn is unreasonable. ie
"Lost Revenue in current period divided by previous period Revenue"
But I don't think we dug into this when we last spoke with Charif.
Let's hope we see more evidence of scaling in the comping quarters.