Thanks for sharing @Valueinvestor0909.

I wish I had refreshed the thesis by reading your piece a few weeks ago and bought more shares. The market seems to be warming to the story of the earnings inflection and the earnings/cost jaws opening up significantly over coming periods, or a takeout of the company by a well-heeled buyer, whichever happens earlier.

Great analysis @Valueinvestor0909 - might be suffering from bias as my view is similar. Given this transition, it might just take a while for the thesis to play out (but who knows?). I'm a subscriber of your site now too! Held IRL & SM.

Hi Conrad

My understanding is that the subscription model carries one clear benefit over a perpetual license arrangement. I think it is fair to say that most software offerings are upgraded at regular intervals. These upgrades are generally not charged per upgrade, So you enjoy the latest advancements in technology at no cost.

This cannot easily apply in the case of a perpetual license, particularly if the Company ( or Licensor) is strategically wanting to convert it's entire customer base to Subscription.

Bringing the conversation back to RPM Global, the drive to convert customers has accelerated over the past 7 to 8 years and, for anybody who has been invested that long, will acknowledge that mission has essentially been accomplished. The tail of the perpetual license Revenue in the main relates to Country Risk. In other words, 'money up front' where future default is possible.

My current take on RPM is that on paper, we are poised for a significant re-rate, but there is not much discussion of how the Company will fare in an acceleration towards a decarbonised future. At one stage , support of Coal mining contributed about 35% of their business. Yes, they will align with green energy and renewables, but that could mean another wave of R&D spend and the associated depreciation and amortization that follows, undermining NPAT. This pattern has existed over many years and IMO, resultes in a great Company never achieving the earnings multiple it deserves. The share buy back, now extended for a second year, also serves as a brake on the share price, this again IMO. This defies normal investing logic that fewer shares on issue is great for shareholders in the long term, but this apparent value is somewhat diluted when you look at performance rights / grants each year. Rightly or wrongly, I have tagged the Company as one whick does not like to pay Tax. The Full Year FY 2024 Financials will confirm whether this is the break -out year in profitability or just another period on the pathway to the share price alignning with the much spoken of Financial potential.

In my case, what-to-do, what-to-do ? Brain in state of conflict rightnow....

RobW

Great post - also liked your MP1 post.

I tend to think about software licensing from the client/customer side since that’s where my experience is. The financial benefits to the vendor and to new clients of the SaaS model are clear (as outlined in your thesis), but asking existing clients to pay a subscription for a software they already ‘own’ can be a bit on the nose.

Usually the new subscription charges are significantly higher than existing software support and maintenance arrangements, and someone will need to wear that in their budget if the decision is made to move to a subscription model.

Sometimes software companies will sell the change by re-factoring of how the service is delivered - i.e. changing from self hosted servers accessed via desktop software to cloud hosted service accessed by a browser. This is from a technical perspective a good thing for all parties, but there will always be transitioning costs to the customer to move to this model.

I find myself wondering how successful RPM has been in converting existing users to a subscription model. Also, having written this post I’m starting to realise how little I know about the specifics of RPM’s offerings!!