Pinned straw:
$DSE provided a qualterly business update, first out of the blocks in my RL and SM portfolios, ahead of an investor webinar tomorrow morning.
Their Highlights
Annual Recurring Revenue (ARR1) of $34.3m, up 35% on the Previous Corresponding Period (PCP)
ARR was up 3% on prior quarter (QoQ), with momentum impacted by the stronger AUD:USD exchange rate. ARR was up 7% QoQ on a constant currency basis
Q4 FY23 operating cashflow of $0.27m and unaudited FY23 cashflow of $2.3m
Monthly ARPU of $2.46 down 2% QoQ due to AUD appreciating and up 9% on PCP
Product gross margin of 70%, up 2% QoQ and inline with PCP
Onboarded 26 new direct and 231 indirect transacting partners
Total users now exceed 1.16 million
Appointment of Eric Martorano as an independent non-executive director
DSE remains well-funded with $24.3m cash as at 31 December 2023.
My Analysis
$DSE is making good progress when viewed on a PCP basis; however, this was a softer Q-o-Q result which appears in part due to FX impacts. However, at the Q-o-Q cash level payments (+12%) expanded while receipts (-4%) contracted reflecting a significant reduction in cashflow from operations, tipping $DSE back into consuming a small amount of overall cash. (It is unclear that this is strictly a seasonal pattern, so I do need to go back to last year and have a look.)
We are of course always going to see q-on-q variability, however, the reason to hold these smaller cap companies at the inflection point is to see them blast through and generate stronger margins and operating leverage. So today's result does little to address this question over $DSE.
In summary, for me, there is no basis in today's result to take any action. Ideally, I'd like to be adding to my small RL and SM position. I'll attend tomorrow's webinar but for now, $DSE is a hold for me - albeit one towards the lower end of my conviction list.
Disc: Held in RL and SM
Just adding my usual CF analysis to the $DSE report (and other commentary on the $DSE>Risks thread.)
Considering the $0.52m adverse cash impact due to FX effect on cash on the balance sheet ($US weakened relative to $A in 4Q), then backing that out, the FCF line sits nicely on the long term trend.
Operationally, the receipts are slightly weaker, however, Bill (CFO) reminded us on the call today that 3Q receipts were strong due to delayed payments from Q2. This was reported at the time. In addition, 4Q payments are higher due to $DSE choosing to make some "pre-payments", although we were pre-warned that higher payments will continue into 1Q.
Bottom-line: from my perspective, this reiterates that there is nothing of note here detracting from the positive trend. In my report yesterday I didn't pick up the magnitude of the FX impact, which is clear today.
@mikebrisy tend to agree. there was a comment in the outlook for fy 2024, expect to maintain cashflow and profitability broadly in line with FY23 which i thought may disappoint some.
looks like reinvesting all excess cashflow into growth, which i won't mind if that is the correct interpretation