RPM provided an update on TCV and ARR just after the FY close, subject now to audit. Full financials will be posted within 4 to 6 weeks.
The consolidated count of new Software Subscriptions contract wins (TCV of $34.5m spread over 3+ years) plus Perpetual Licenses sold ($7.5m) equates to Total Contract signings of $42m for FY2020.
Useful to consider that in 2018, this consolidation of new contracts wins yielded $15.3 m. In 2019, the number was $22.4 m. This progress and trajectory build is impressive. Unfortunately, this progress is not that apparent when looking at past HY and/or FY results.
We can add a further $1.5 m of new Maintenance Revenue for the year.
Looking at the cost side of the equation, the Company embarked on an aggressive R&D campaign 6 years ago, with annual spend peaking at $14m during FY 18 and H1 FY19. At the end of FY 19, the Company signalled that the investment in R&D would decline to better align with industry norms. We saw the first confirmation of this with the HY2020 report, where the spend came in below $6 m ( or annualised , say $11.5 m)
Believe that the annual spend on R&D for FY2021 will decline to about $9 m. Would mean that $4-5 m would drop straight to the bottom line.
IMO, there is a lot to be liked about RPM and believe the Company is generally misunderstood by the market.
Lifting my 12 month forward valuation to $ 1.61 but will review again once we have the FY2020 results in hand.
Remains a high Conviction Buy.
Well that escalated quickly...
On Jan 22, the company implied they would slow down the pace on TCV and ARR announcements by updating at $20M and then $5M increments after that. Today's announcement demonstrates that RPM have maintained their impressive subscription rate through the new year. Should this continue or even accelerate over the next six months I think we are in for a significant re-rating (I for one would need to reassess my expectations).
Total Contract Value has been accelerating at quite a fast rate as summarised below:
The only potential concern to come out of this is the circa 10% SP gain over the two days prior to the announcement. Some of that could have been Forager buying on market or sheep following them. Nonetheless, a speeding fine for a potential leaky tap may be in the mail.
Original announcement here.
09-July-2020: Acquisition by RPM of Revolution Mining Software
Acquisition of Revolution Mining Software Inc
RPMGlobal Holdings Limited (ASX: RUL) is pleased to announce it has entered into a share purchase agreement to acquire 100% of the issued share capital of Sudbury, Canada headquartered mine scheduling optimisation company, Revolution Mining Software.
Privately-owned Revolution Mining Software has more than six years’ experience developing and selling its flagship Schedule Optimisation Tool (SOT)®, a cutting-edge mine scheduling optimisation software solution for tier one miners around the globe.
RPM has also acquired Revolution Mining Software’s Attain® and SurfaceSOT® software solutions.
SOT emerged out of research undertaken by Mining Innovation, Rehabilitation and Applied Research Corporation (MIRARCO), a not-for-profit corporation of Laurentian University in Canada that is well known for solving complicated mining industry problems through innovative thinking.
SOT is the industry’s only strategic financial optimisation tool for underground mines that enables mine planners to improve productivity and profitability by optimising the net present value (NPV) of the mine schedule.
This scheduling program adds value to mining operations in several ways, including by generating life-of-mine schedules that adhere to all specified precedence and operational constraints, optimising NPV based on the user’s financial model.
Attain® is a software solution which ensures operational mine planning is systematically aligned with the long-range plan. This approach ensures the company has optimised short-range schedules that are feasible and aligned with the long-range schedule.
SurfaceSOT® is a solution that will work for all types of mining operations to maximise their NPV by optimising their long-range schedules including management of stockpiles and product blending while minimising the re-handling of materials.
Commenting on the acquisition, RPMGlobal CEO and Managing Director Richard Mathews said “we are very pleased to have concluded negotiations to acquire Revolution Mining Software and are really looking forward to welcoming Lorrie and the rest of the Revolution team into the RPM family. We will invest in their industry leading scheduling optimisation tools to deliver innovative solutions that add real value to our customers.”
“RPM was born from the understanding that mine planning needs to be built on sound economics and the Revolution Mining product strategy is completely aligned with that core value”.
Lorrie Fava, Revolution Mining’s President said “The entire Revolution Mining team is so passionate about the solutions we have delivered to the industry, so it was important to us that RPM also shared our vision and passion, which they clearly do.”
“To be able to be a part of a company with RPM’s pedigree and history is a very exciting prospect for the team at Revolution Mining. We look forward to joining the RPM team and are convinced that the Revolution Mining Software product suite will benefit from increased investment and the sales and marketing support that RPM can offer these products right around the world.”
The acquisition of the SOT, Attain® and SurfaceSOT® solutions extend the strategic capability of RPM’s scheduling solutions. RPM’s sophisticated mathematical modelling tools for short and mid-range planning amplify the benefits its customers receive from the optimisation and schedule alignment tools.
Following completion of the transaction, all of Revolution Mining Software’s employees and management will move across into the RPM business where they will continue to be focused on transforming mining operations through innovative software solutions.
The transaction will be funded by RPM’s existing cash reserves and comprises an upfront payment and two year earn-out. The acquisition is expected to close on 31 July 2020 subject to customary completion events.
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RPMGlobal Holdings Limited (ASX: RUL) [RPM®] was listed on the Australian Securities Exchange on 27 May 2008 and is a global leader in the provision and development of mining software solutions, advisory services and professional development to the mining industry.
With history stretching back to 1968, RPM® has been trusted by mining companies of all sizes and commodities to support their growth. Our global expertise has been achieved over the past 50 years through our work in over 125 countries and our approach to the business of mining being strongly grounded in economic principles.
[note: where they have used the "TM" hypertext abbreviation for "Trademark", I have replaced it with the ® symbol, which means "Registered Trademark", because that "TM" hypertext can not be replicated in a straw here.]
Disclosure: I have RPM (ASX: RUL) on my Strawman.com scorecard, and it's done quite well, however I don't hold their shares directly. I own them indirectly via Forager's Australian Shares Fund LIT (ASX: FOR), which I do hold. RUL was FOR's largest position at the end of May, representing 12.5% of their portfolio - see here.
10-Feb-2020: Taylor Collison: RPM Global (RUL): Recent update, accounting changes, review of competition
TC's call on RPM (ASX:RUL) is still "Outperform" with an unchanged valuation of $1.07 based on a blended DCF and EV/Sales (SOP) and EV/EBITDA methodology, but they note further upside is potentially emerging and they will review their valuation upon the 1H20 result release.
"We retain our Outperform. The rationale behind the positive stance includes: -
This note (link above) also reviews RPM Global’s competition in some detail.
RPM (RUL) closed on Friday (Feb 14, 2020) at $1.07 (bang on TC's valuation), being up almost +26% since Jan 9 (just over 5 weeks ago - when they were 85 cents per share) and up a whopping +94.5% since their 55 cps close on August 23 (only 6 months ago).
Steve Johnson's Forager Fund (ASX: FOR, their Australian shares listed investment trust - or LIT) holding RUL as a top-10 holding and highlighting the company in their newsletters and videos hasn't done the RUL share price any harm.
Disclosure: I did hold RUL, but don't now. I don't see the upside from here as being compelling enough to hold them. I think the easy money has probably already been made. However, I do hold FOR shares, so I have exposure to RUL via FOR anyway.
14-Apr-2020: Software Subscription TCV and ARR Update
Every month, RUL update us with their Total Contracted Value (TCV) derived from software subscriptions sold during the current FY (financial year) as well as their Annual Recurring Revenue (ARR) from software subscriptions. Following these announcements is a good way to see how they are tracking.
The Company’s TCV is now $30.0M, an increase of $4.6M from RPM’s previous announcement on 11 March 2020. RPM’s ARR from software subscriptions is now A$12.8m per annum.
Last few market sensitive announcements:
11-Mar-2020: Software Subscription TCV and ARR Update
06-Mar-2020: New Product - TALPAC-3D
24-Feb-2020: Half Year Investor Presentation
Announcement Update on Total Contracted Value (TCV) derived from Software Subscriptions 11 March 2020 RPMGlobal Holdings Limited (ASX: RUL) [RPM ®] is pleased to provide the following update on the Total Contracted Value (TCV) derived from its software subscriptions. The Company’s TCV is now $25.4M an increase of $3.9M from RPM’s previous announcement on 20 February 2020. As at the date of this announcement, RPM’s Annual Recurring Revenue (ARR) from software subscriptions is now AUD$11.4m per annum. As per its 22 January announcement the Company’s next market update specifically relating to TCV and ARR will occur when the Company’s TCV number is greater than $30M.
First bought into this Company in Q2-19, attracted by their leading role in Mining Consultancy, the high development spend and their decision to pursue subscription sales opposed to perpetual licence sales. The cyclicality of mining fortunes would always yield lumpy outcomes, even for a value-adding capital item. Capex approval no longer an issue.
Whilst the latest updates on TCV are highly encouraging, believe the benefits of higher adoption on their new design software is still to come. This is sophisticated software and will deliver invaluable efficiency and cost benefits to engineers, all in real time. Powerful tool for sensitivity analysis.
Beneficial that outside of the havoc in the oil & gas sector, rest of resources holding up pretty well during early stages of Covid-19. So expect minimal impact to RPM’s results this FY.
A cashed up, debt free momentum stock in my book. Contract terms on avg. 3 years so d TCV of AUD 30 m this FY establishes a strong financial platform.
Valuation for CY2020 at AUD1.56
Our View: We are retaining our Outperform recommendation. RPM is well positioned to deal with the tougher economic conditions; given $24.6m net cash on the balance sheet (and at late February 2020 c$32.9m) and the movement towards subscription software model. RPM is helped by the mission critical nature of the software that RPM provides to its diversified mining clients (who are generally the larger miners that are in production). RPM’s software is used in improving mining productivity and digitalizing the mine site and this also provides insultation from the current economic environment.
[click on link above for more]
Forager Fund (FOR) increases its stake in RPMGLOBAL HOLDINGS LIMITED (RUL) from 12,299,223 shares (5.64%) to 14,679,404 (6.70%)
Forager bought a chunk of these a couple of days back (see my earlier post)
I bought in October for 79.5c (along with PPH for $3.03 - both following recommendations from Owen Raskiewicz) for my children (both under 5) with the intent of keeping until they are 18. Interesting times ahead!
A few years of high software development spending and a push into subscription software is paying off for RPM. By late November recurring subscription revenue had doubled from June and reached $8m. In late January, having signed new contracts worth another $7m, annual recurring revenue rose to $10m. TOP 5 HOLDINGS (as % of NAV) Macmahon Holdings Limited (ASX:MAH) 9.7% RPMGlobal Holdings Limited (ASX:RUL) 9.3% Thorn Group Limited (ASX:TGA) 7.0% CSG Limited (ASX:CSV) 7.0% Enero Group Limited (ASX:EGG) 6.8% Cash 6.7% This is only one source of the high quality recurring revenue that the company produces. Maintenance revenue for software sold on perpetual licenses was $22m last year. And unlike many growing software companies, RPM is generating cash. About 5% of the current market cap (after adjusting for cash holdings) will be generated in free cash flow this year.