ASX Annoucement

$8CO reported their 4C today, together with a separate annoucement that the Executive Chairman has provided a $1.5m loan (6%, unsecured, not convertible) to fund the company, as otherwise cash reserves were down to $0.7m and it would have been tricky answering some of the questions at the end of the 4C!

Their Highlights

▪ Record quarterly transaction and recurring SaaS revenue of $1.1 million, up 20% on the previous corresponding period (PCP)

▪ Cash receipts from operations of $1.7 million, up 44% vs PCP

▪ Total revenue for 1Q FY24 of $1.9 million up 52% on the PCP, but down on the prior quarter as the Company due to timing of revenue recognition for implementation work of Federal GovERP customers

▪ Strong customer demand has resulted in elevated on-boarding activity with concurrent implementation projects being executed across multiple entities including IP Australia, Department of Veteran Affairs, Department of Education, Service Delivery office Uplift (Department of Finance) Department of Climate Change, Energy, the Environment and Water, Department of Employment and Workplace Relations, NSW Museums of History and Amcor New Zealand

▪ The above entities are forecast to go live in the coming quarter, allowing receipt of unrecognised implementation revenue and the commencement of recurring SaaS revenue as over 14k users will be onboarded to our GovERP solution

▪ The Company also accelerated product delivery initiatives to deliver upgraded card application and Gov Protect modules along with a strategic investment to enhance our API capabilities and further uplift infrastructure to prepare for Federal Government “Protected” status

▪ Operational cash outflow of $1.0 million due to timing mismatches between project implementation costs (includes significant third party contractors) being paid faster than the cash receipts linked to client billing milestones. Cash flow has since improved during the end of the September quarter and will continue to normalise in the current quarter given the scheduled customer go-lives.

▪ Annualised Recurring transaction and SaaS Revenue (ARR) of c.$4.6 million as at 30 September 2023 ($3.7 million as at 30 September 2022)

▪ ARPU of $25.26, up 20% vs PCP

▪ Federal Government ARPU of $48.24 for the period, an important indicator of future revenue growth given the increasing number of federal government users to be on-boarded under the GovERP program

▪ Cash balance of $0.7 million at 30 September 2023 (30 June 2023: $1.8 million). Cash as at 27 October had increased to approximately $1.1 million due to billing completions in the month. 

My Analysis

After the blowaway 4Q performance, cash receipts and cost increases bring up back down to earth today. However, CEO Andrew Bond's commentary is very strong. As my analysis shows, I think there is reason to trust his confidence and expect continued progress in future quarters. I'll lay out the analysis in some detail.

First, the my usual cash flow trend report.

Figure 1: Cash Flow Trend Analysis

You can see receipts have come back to earth. However, with a small number of large government departments as major customers and lumping payments in program implementations, we have to expect and have consistently seen noise from Q-to-Q. In the black dotted line I plot the trend in FCF over a 6Q timeframe, and which the slope has dropped significantly since the last report, the trend is still significantly positive.

However, there is no escaping that we are in this Q back in territory not seen for 1-2 years, so while it is OK not to over-react to this individual result, the next couple of Q's need to get back on to trend, otherwise the thesis is in question.

Let's now look at progression of the user "funnel".

Figure 2: GovERP Users by Funnel Stage

On the right of the above table, I've analysed the movements of users in the GovERP Program. The total size of the funnel has stayed constant at 174,000, with 6,000 user moving to "live" status (up 19% q-o-q and up 65% since 2Q,...I'm not taking it back to a y-o-y comparison, because of the reclassification of live users reported previously.)

Go GovERP implementation is continuing to progress,

Now let's looks at key operational metrics

Figure 3 Operational KPIs

Government ARPU was significantly down in the quarter, but it is a volatile measure, and the shortfall is not significant given the overall trend and historical volatility.

SaaS and Transaction Revenue - arguably the most important metric increased above trend - so that's a good result. Unsurprisingly, overall ARPU also increased above trend, which is perhaps a surprise given the softer Gov. ARPU number.

Overall, the operational KPIs appear healthy.

Finally, total users.

Figure 4 Users

Overall, Total Users are continuing to grow, recovering the lost ground of the churn/debooking event reporter previously.

My Key Take Away

$8CO is a small business so quartlies will be volatile, and the softer receipts follow the blowout result from the previous Q.

All the operational metrics are headed positively, albeit Gov. ARPU is one to watch in the next period.

Finally, we are blessed to have an Executive Chairman prepared to fund operations with $1.5m on very reasonable terms, much better than they could get at a commercial bank and better than a dilutive raising. (Good on 'ya)

For now, I am a happy holder. My position is very small and I continue to be cautious, so will not increase my holding today. (I was poised to had receipts been positive with respect to trend.)

Disc: Held in RL and SM.