Prophecy International Holdings Limited

ASX:PRO

Prophecy International Holdings Limited

ASX:PRO
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Forum Topics PRO PRO Q1Update

Pinned straw:
JPPicard
Last edited 12 months ago

At first glance, Prophecy’s Q1 update looks pretty bad. 


Why?

I simply can’t get over “Annualised recurring revenue (ARR) grew to $ 22.56M as at 30 September 2023”.

Why? Because ARR actually went down. From full year presentation 3 months ago: "Cash Combined ARR growth of 26% to $23.2M"

So ARR went down by $640K, not a massive deal, sure, but to reach cashflow these guys need to be growing 15%+, not going the other way round. 

Looking at their chart, we can see that this happened because “legacy subscriptions” and “Snare maintenance renewals” both went backwards. This is expected as they transition Snare to Saas, but I would have thought stronger growth in eMite could have covered for this. 

The cash pile also went backwards, which they claim to be expected, and I’ll grant them that. Especially in light of invoices to the tune of $ 5.96M that went out year to date. So cash should be back to stable after the money is in the bank. 

They’ve given us pipeline information for both eMite and Snare, if we add them both up, assume a 9 month sales cycle to end of year, and 20% average conversation rate, then we get an extra $4M of ARR by end of year. This would be good to see honestly. 

Still have lots of trust in Brad and the team, so hopefully they increase the momentum from this point. 


Would love comments from anyone attending the AGM.
Vandelay
Added 12 months ago

The attempted deception or perhaps misdirection of ARR "growth" annoys me a lot. Management doing things like this just makes me think they could be hiding or pull wool over the eyes of shareholders on other things. This isn't something I want to tolerate from a company that, while it does seem attractive, I feel I can find just as attractive opportunities elsewhere with management that doesn't try to deceive me.

17
Colflan
Added 12 months ago

@JPPicard , Thanks for the post. It really got me thinking about my understanding of ARR as a metric. For example, the FY24 still has >6months to run. I'm sure they will add more sales prior to FY end (as you say,~$4M by year's end). So taking a snapshot of FY24 ARR this early in the year and comparing it to FY23 total, isn't exactly comparing apples with apples... Or, am I missing something? Cheers.

10
JPPicard
Added 12 months ago

Hey mate,

That's a great question that conveniently aligns with shamelessly plugging my recent article: The ARR Seduction.

In a nutshell, in top-notch companies, Annual Recurring Revenue (ARR) shouldn't do the moonwalk backward. Ever. I mean, it's called 'Annual Recurring Revenue' for a reason, right?

ARR, along with its naturally high gross margins, is the secret sauce that makes many investors swoon over Saas business models.

To hit your point straight on, it's pretty standard for Saas companies to compare growth on a quarterly basis, both against the last quarter and the same quarter last year. Take a look at Dropsuite for a good use case; they report growth against the last quarter, and PCP too.

So in short, yes, it's normal to compare ARR today with were it ended last year, and it would have ideally gone upwards. I think a company of their size should ideally be adding about $1M of ARR a quarter. Of course, it won't always work out this smoothly. They've proved in the past that they can win large deals which move the needed quite a bit of a base of $22M, so hopefully they start doing that soon.

Hope this clarifies things.

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Colflan
Added 12 months ago

Thanks @JPPicard,

Brilliant article and you now have another subscriber.

Thanks for the response mate, it certainly helped clear things up in my mind.

Cheers.

10
UlladullaDave
Added 12 months ago

Great article @JPPicard

It often feels as though investors miss the forest for the trees when it comes to ARR. The average insurance company or telco has more impressive recurring revenue economics than the average SaaS businesses. The laws of capitalism don't cease to exist because someone wrote some software and charges by the month. They still need to create value and then capture it.

I really liked that description of candy, vitamin or painkiller. That's a good way to think about it.

13
Solvetheriddle
Added 12 months ago

@JPPicard Good series of articles on ARR. one of my first questions to claude walker when i started looking at saas companies was whats ARR and is it audited? lol, important to understand that (relatively new) concept in this space

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