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#Q2 2024
Last edited 2 months ago

I had been waiting for for the 8CO quarterly as a few warning signs had started to appear over the last few months. In general I was happy with what they produced, not spectacular but solid forward progress. All they key metrics moving upwards, even though progress is far slower than I been expected from a year or two ago. Cardhero was a positive with an 1yr extension and a new contract signed. Still low revenue but not a right off.

They are back to positive cashflow, even if it was only $6K, but this would have been negative if the late payments from Q1 hadn't have fallen in Q2, but then Q1 would have been cashflow negative of $0.5-0.7M. So overall they are still a bit behind where I would like their cash generation relative to expenses to be. They will also get some more implementation revenue from the new entities (Fair work, Commonwealth Ombudsmen and Maurray Darling authority) that have signed up. So I still consider cashflow to be manageable for them. They have $814K cash left and the undrawn $1.5m director loan available, so a cap raise is not on the immediate horizon which is good, but I don't think the market will consider them out of the woods yet.

I still find it incredibly difficult to follow how many active users they have in the GovERP program. The below guide from Q1 and Q2. It looks like they have 3K new live users and 1K additional onboarding to result in a net loss of 4K from users not yet engaged. Seems straightforward but then in the text we have this statement that they have 8K live users- So why aren't these captured as part of the total live users current at 24th Jan 2024.

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cf2a1b4c66f73a33c3d61317d02ecdce83d4c2.png

There has also been no net change in total number of users in there metric table apart from the 2K reduction due to the churn in the state government inactive accounts from a year ago. It seems unlikely that user churn is occurring as they have flagged this previously when it has occurred.

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I still think the risk reward profile here is compelling, especially at the current price of 6c. When those 54,000 in progress users become live over the next 6-12 months they will generate an additional $2.5m annual revenue, which should enable positive cashflow to be maintained. At this stage there is no indication that the opening up the ERP program to competitors is having an effect on pipeline but it is still early days.


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#Insider buying
Added 4 months ago

Non-executive director, Kok Fui Lau, bought shares on market on 4, 5 and 6 December, totalling 223k shares -- or A$12,384 -- at approximately 0.055 cps.

Relatively small purchase in the scheme of things, but nice to see some topping up by one of few key board members.

8CO is a risky proposition -- one certainly not for the fainthearted -- but man, at a current market cap of 14m, I think there is some real value to be found here. I am guessing Kok Fui Lau is in agreeance.

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#New Contracts
Added 4 months ago

Some positive news to finish the week. There's a couple of new contract wins for Expense8 listed on AusTender.

* Department of Social Services ($60k for a 1month contract, likely a phase0)

* Fair Work Commission ($170k for a year, likely going live)

https://www.tenders.gov.au/Search/KeywordSearch?Keyword=expense8&submitSort=Go&OrderBy=Publish+Date&sort=

Not huge dollars but hopefully an indication that departments are still willing to onboard even if they're not mandated.



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#GovERP manadate changing
Last edited 4 months ago

A bit of a disappointing media release from the government about the shared services model for the public service. It looks like they are ditching it in favor of a more open tender system. I had dismissed this as a likely risk as nothing had been mentioned after the last federal election.

8CO had signed a 3yr +3yr extension contract in July 2021 to provide the travel management and expense software (Expense8) as a common corporate platform for the majority of the public service - the non-corporate entities were mandated to use it, while the corporate entities could opt in to use it. In total this was going to be around 180K users.

So from the media release I no longer expect the 3yr extension to be taken up by the government in July 2024 and competition to potentially increase. Although by all accounts the software is well built and well liked so they do have first mover advantage now and a solid footprint to maintain and expand from.

This media release could also be behind the recent increased use of 3rd party tier-1 contractors to accelerate the speed of on-boarding. It also makes the recent focus achieving the 'Protected status" security clearance more interesting, at the time I thought it seemed a bit odd to spend time and money on that given the slow rollout and balance sheet. In the context of the media release it may be a way to stay the preferred supplier in addition to being ready to expand into the defense department when a tender is opened.

Its hard to know if this release is targeted at 8CO or whether their are other service providers in the shared services model that haven't worked out as well. The rollout of Expense8 has been far slower than I had expected, given that we are 2.5yrs into the initial 3 yr contract and only 40K users have gone live, I could see an internal review being critical of the sole provider design.

Disappointing news but doesn't really change my thesis, which is hinged on the rollout continuing and achieving the 180K or thereabouts live government users, and maintaining an ARPU level of > $50. But given the market isn't particularly happy with 8CO currently I think we will find new all time SP lows.

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#4C
Added 5 months ago

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. 

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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

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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

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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

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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

66a5463647728f78beba7f5f430519b323cf7e.png

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.

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#Cash Position
stale
Added 7 months ago

Strong Year for 8 Common: A Closer Look at Their Financial Position

It's evident that 8 Common has had a strong year. This is now ‘common’ information.

Their ability to execute on closed contracts is commendable and instills confidence in their prospects for the upcoming year.

However, while the overall outlook appears positive, I maintain a sense of prudence with these guys. Specifically looking at cash reserves. 

It's worth noting their significant improvement in cash management and their efforts to reassure investors with statements like:

"With a growing user base and heightened activity, alongside reduced development and implementation costs related to the GovERP technology startup, our company anticipates moving towards positive cash flow in FY24. With over $1.8 million in cash on hand, we remain fully equipped to drive this growth."

Yet, I’m still not 100% sold on the ‘fully equipped’ dream. 

Why? 2 things:

  1. What transpired in Q4 cannot be simply annualised; government customers tend to pay predominantly in the fourth quarter. Hence, it's plausible to anticipate more quarters with cash burn, and it wouldn't be unreasonable for them to consider raising funds once again to ensure a more secure path towards sustainable cash flow.
  2. They’ve done it in the past. 


Holders, am I missing anything? Who’s got a differing opinions on this matter? 

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#Awarded Government Tenders
stale
Last edited 7 months ago

Link - Austender.gov.au

Search - Expense8

(Latest) Published - 1-Aug-2023

Department of Industry, Science and Resources

Value - $587,800.00

Assessed on Tender site - 5/9/23


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Valuation of $0.160
stale
Added 8 months ago

Assumptions set out in my $8CO straws following recent SM meeting and 4C report.

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#Strawman Meeting - Notes
stale
Added 8 months ago

I've just caught up on the SM meeting recording of $8CO (Thanks @Strawman for asking my complicated question!)

Here I jot down a few simple notes supporting my decision this morning to increase my small RW position from 0.5% to 0.8%.

My detailed notes from the 4C report still largely stand although, thanks to questions from other Strawpeople, I got some further insights to explain the recent progress and outlook for Card Hero.

First of all, it is so refeshing to hear a CEO like Andrew Bond, who is candid and balanced in his answers to questions. It is the mark of a confident and grounded leader that they can speak as candidly about failures as well as successes. An example is the candour with which he spoke about missing out on a 30,000 card deal with Centrelink. So many CEOs would never do that.

I found the discussion very informative about the competitive playing field.

  • Customers continue to move away from broad-based ERPs that offer everything, but don't deliver the customer experience through the deep workflow integration of a specialist platform (example. SAP and Tech One (Disc. Held) both big in Government.)
  • Concur the major competitor, with DoD a negative reference case with material available in the public doman. They pulled the plug after spending between $3m and 13m (I can find reference to a number of $10m in the ANAO report from a quick search). This negative reference case might give pause for thought, particularly if $8CO can show success in GovERP rollout, which they appear to be able to.
  • Still a lot of legacy, on-prem. systems, and paper-based processing going on. (Which is a surprise - I left big corporate land over 10 years ago, and we already had Concur in place.)


I found the following statements relevant to my valuation, in the context of the cash flow trend graph I plotted in the 4C report:

  • 110,000 of the Total Potential Users are in mandated departments (62 of 90). Valuable insights on what pre-requisites need to be in place for an Agency to go live. This was a gap in my knowledge.
  • Expects Govt ARPU to continue to trend up to "low $60s"
  • There is a "strong implementation workload ahead" ..." the pipeline for new work (i.e., implementations) bigger than its ever been" meaning that the recent report of strong receipts from implementations are not one-off with the majority ot mandated entities yet to be on-boarded, and a sense this happens over the next 3 years.
  • "We expect cash positivity most Qs"


For me, this is the base business that supports significant growth in revenue over 2-3 years, driven solely off the GovERP mandate. With this apparently progressing well, I ascribe minimal risk that the 3+3 Option will not be exercised.

The good news is that we also have the opportunity to track the GovERP Phase 0 milestones, as each new Deptment getting started will register payments of $40-60k on Austender.gov.au - I've just jumped on and its easy to use (enter "Expense8" in the Keyword field under Contract Notives).

Beyond the base business, there are a number of potential near-to-medium term catalysts, including:

  • DoD Contract: (DoD 16k employees and ADF c. 90k - which explains the "100k users" Andrew mentioned)
  • Card Hero deals ("when it drops, you'll see big things drop" and "good conversations ongoing with Government, NDIS and Universities")


To be clear, none of these are in the bag, but any one would support a tick up to the valuation.

For example, a typical large Australian University has 6k-12k FTE staff and many more heads given fractional contracts and casuals, split between academics and professional staff. A large proportion incur expenses outside of the campus, so a University rollout would likely bring anywhere from 3-6k by my estimate. Not massive, but think of it equivalent to a medium size governement agency.


Valuation

This "base" business easily supports a valuation of the current 2.5x FY23-FC revenue.

On it's current trend, I estimate that $8CO could get to a FCF of $1.5m in FY25 (runrate $1.0 by YE-FY24 and $2.0 by YE-FY25).

Looking in the payments space, $TYR is on a EV/FCF-FY25 of 31x ($SPY is on 21x). That would put $8CO on an EV of $46m, discounted back 2 years at 10% gives $38m EV, vs. $19m today.

If I look at a range around the FCF(FY25) of $1.0m to $1.7m that gives a range to the value/share today of $0.12 to $0.20 compared with today's SP of $0.087. So a reasonable margin of safety if you find the FCF multiple too aggressive.

The above's a quick calc - so I need to check it, but I think it hangs together.


Conclusion

$8CO is still very small and illiquid, and it is a high risk proposition. At this stage I could never hold a material positon in RL, partly because it is still not clear to me what the path to a material business could be, and the highway of payments start-ups is littered with wrecks. But there is time for that, as long as it continues to execute and describe clearly the opportunities immediately ahead of it.

However, both on the numbers and the quality of management, it can hold its head high in the smaller cap / higher risk part of my portfolio.

Disc: Held RL and SM

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Valuation of $0.250
stale
Added 8 months ago

Updating my 8CO price target / valuation based on June 2023 Quarterly Report and Appendix 4C.(4Q FY23)

The ARPU increase in this last quarter for Federal Government users is an encouraging sign going forward.

As always for microcap companies, reaching and then going beyond the "tipping point" of positive operating cashflow makes for "interesting times for shareholders".

Key financial highlights for 4Q FY23 include:

▪ Record total revenue for 4Q FY23 of $2.9 million, up 87% vs pcp as the Company continues to execute on the implementation works associated with the Federal GovERP program

▪ Record cash receipts from operations of $3 million, up 51.9% vs PCP and positive operational cashflow of $167k.

▪ Large implementation revenues recognised in the quarter are anticipated to lead to increased SaaS revenues, improved margins and cashflow when users go live

▪ Quarterly transaction and recurring SaaS revenue of $935k, up 12% on the previous corresponding period (pcp)

▪ Annualised Recurring transaction and SaaS Revenue (ARR) of c.$3.9 million at 30 June 2023 ($3.5 million at 30 June 2022)

▪ ARPU of $24.29, up 21% vs PCP

▪ Federal Government ARPU of $56.41 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 increased by $156k at 30 June 2023 to $1,811,569 (31 March 2023: $1.7 million) as the Company generated positive operating cashflow for the quarter.

FY23 Highlights

▪ Record FY23 total revenue of $7.5 million, up 68% vs FY22

▪ Cash receipts from operations of $7.7 million and full year operating cash outflow of $961k

▪ Total contracts value won in FY23 of $12.4 million (more than the combination of contracts secured across FY20, FY21 and FY22).


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#4C
stale
Added 9 months ago

Micro fintech $8CO posted their 4C today. I'll copy their highlights, post my usual charts tracking cashflow progression, make some comments about the GovERP Rollout and conclude with some key takeawayes.

1. Their Highlights

Key financial highlights for 4Q FY23 include:

▪ Record total revenue for 4Q FY23 of $2.9 million, up 87% vs pcp as the Company continues to execute on the implementation works associated with the Federal GovERP program

▪ Record cash receipts from operations of $3 million, up 51.9% vs PCP and positive operational cashflow of $167k.

▪ Large implementation revenues recognised in the quarter are anticipated to lead to increased SaaS revenues, improved margins and cashflow when users go live

▪ Quarterly transaction and recurring SaaS revenue of $935k, up 12% on the previous corresponding period (pcp)

▪ Annualised Recurring transaction and SaaS Revenue (ARR) of c.$3.9 million at 30 June 2023 ($3.5 million at 30 June 2022) ▪ ARPU of $24.29, up 21% vs PCP

▪ Federal Government ARPU of $56.41 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 increased by $156k at 30 June 2023 to $1,811,569 (31 March 2023: $1.7 million) as the Company generated positive operating cashflow for the quarter.

FY23 Highlights

▪ Record FY23 total revenue of $7.5 million, up 68% vs FY22

▪ Cash receipts from operations of $7.7 million and full year operating cash outflow of $961k

▪ Total contracts value won in FY23 of $12.4 million (more than the combination of contracts secured across FY20, FY21 and FY22).

Key operational highlights for 4Q FY23 include:

▪ Implementation agreements signed with Department of Veterans’ Affairs (ref ASX release 26 April 2023), The Department of Finance (ref ASX release 2 May 2023), IP Australia and Museums of History NSW for a combined Total Contract Value (TCV) of $2.3m

▪ One off services engagement for existing client NSW Department of Education for $279k inc GST

▪ User numbers grew 10% QoQ to over 169k

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2. Cash Flow Trend Analysis

Below I include my usual cash flow trend graphs for the Q and TTM periods. Importantly, since engaging with the Federal GovERP initiative, 4th Q was cashflow positive. While is appears there were some exceptional implementation fees earned in the period AND 4Q has historically been strong for receipts, this marks good progress. Overall, they are essentially 100% focused on rollout meaning there is minial investment cashflow.

Both the Quarterly and TTM graphs show the positive trend in the direction of FCF, with the quarterly trend calculated over the last 6 quarters.

Figure 1: Cash Flow Q Trend Analysis

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Figure 2: Trailing 12 Month(TTM) Cash Flow Analysis

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3. Federal GovERP Rollout

The long term driver of revenue is the ultimate number of users who are spending with the card. Within Federal GovERP, over the year, these have increased, as shown in Figure 3. Having been steady over 2Q and 3Q at 23,000, they have increased to 32,000 in the final Q, which should drive revenues in 1QFY24.

Figure 3:

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Earlier in the year there were some issues with how users were being accounted for, hence the progression in numbers is not smooth as a result of some "de-bookings" at 2Q which made the 30-Nov appear inflated. However, at the headline level live users have increased from 23,000 to 32,000 in 6 months, and the total potential Federal user base has expanded from 161,000 to 174,000. This does beg the question: how long does a "potential user" in a government department that has signed up hang around for to still be considered a meaningul driver of future value? This is something to track over the coming periods. A positive indicator would be that "Phase 0" users are replenished and in fact you'd expect them to increase significantly. So this is what I'll be looking out for at the next report.


4. Other Observations

Other good news is that ARPU is increasing steadily and, given that the weight of future prospects lies in the signed-up but not yet implemented Federal Goverment Departments, the increase in Government ARPU by 20% to $56.41 is particularly pleasing.

Card Hero rollout continues at two clients and its contribution is not yet material. I agree with the company's focus on successfully rolling out the Federal Government program, so I don't think we are going to get a view any time soon as to whether CardHero can be a significant business line or not.


My Key Take Aways

A good result, boosted by some strong (one-off) receipts in the quarter. The question for the next period is whether the growth in subscription and transaction revenues from new users is enough to maintain positive cash flow in what is historically a weaker 1Q for receipts. There is a bit of a cash buffer remaining, so provided costs continue to be controlled, then $8CO might well be able to deliver against not having to raise further capital.

I maintain a tiny holding in SM and RL. I'd like to see continued momentum in onboarding of new Fed Government users, so I hope they continue to regularly report the onboarding "funnel".

Liquidity is an issue for 8CO. No shares traded so far today, with the only sellers sitting stubbournly at $0.10, with small buy offers up to $0.086 and the last trade at $0.075 yesterday. Welcome to illiquid microcaps!

On a valuation basis, with a market cap of $16.7m, and FY23 revenue of $7.5m, the last trade was at a revenue multiple of 2.22.

Assuming they next trade at $0.10, that would be an Market Cap/Revenue of 3.0.

Of course, FY24 revenues are likely to be signfiicantly more that $7.5m, so there is definitely a valuation upside if you can pick up shares cheaply enough.

Disc: Held in RL and SM


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#GovERP
stale
Added 11 months ago

See @mikebrisy's straw for details. This takes the ERP work to a total of 6.4m, with this figure expected to continue to grow.

With an ARPU of around $50, 8CO now serves 31 commonwealth entities. The bull case is there is a long way to go, with more than 70 agencies associated with ERP. Some key agencies have already been onboarded thus far:

  • Department of Vet Affairs
  • ASIC
  • Department of Climate Change, Energy, the Environment and Water
  • Department of Finance
  • Services Australia

It is good to see additional contracts being signed in recent months, demonstrating a snowball effect as more agencies start to onboard 8CO’s flagship product as part of their ERP work. I still remain of the opinion that inclusion on this panel has the potential to be company making for 8CO. There is still some way to go here though. Ideally, I want to see wins with the following commonwealth entities:

  • Department of Home Affairs
  • Department of Defence
  • ATO 
  • AFP
  • DFAT

The top 3 above are 3 of the 4 largest operational entities in commonwealth – large, cumbersome departments that have far more users than other commonwealth entities. The last two -- AFP and DFAT -- are obviously associated with heavy travel requirements and will presumably have higher than average ARPU. 8CO have already onboarded the other of the 'big 4', with Services Australia coming on board a few months ago. Let's hope we see some of the above signed in the coming months.

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#ASX Announcements
stale
Added 11 months ago

Yet another Federal Government Department contracted - Service Delivery Office, Department of Finance.

Contract value $872k taking TCV under the GovERP program to $6.4m

1260 users taking total potential users under GovERP to 161k.

(Pacman continues to advance and more expected!)

Disc: Held IRL and SM


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#GovERP project win- Veteran Af
stale
Added 11 months ago

The pipeline of users for the GovERP program continues to increase with todays annoucement of the Veteran affairs department signing up 2600 users for $895K. This contract is $460K implementation revenue and then $140K/yr SaaS revenue for a 3 yr term. It brings the total GovERP work up to $5.5m. This contract also brings them closer to the defence department, which they have talked about targeting after the GovERP program is completed, This implementation revenue should be received in 2H FY23 and 1H FY24, with the SaaS revenue occurring in a years time. The market is worried about their cash reserves, but I think this, and the previously announced GovERP implementation revenue should let them avoid the need for a cap raise. I am hoping to see low cash burn (<$400K) in the upcoming quarterly.

I have been keeping an eye on these numbers and the rollout of users is slower than I would like but the pipeline is moving - live users are only up 2000 from October 2022. I'm not exactly sure how this process works, so it is possible that we get big movement events of users between onboarding to live user according to scheduled dates. From todays annoncement it looks like it takes around a year to go from not yet engaged to Live.

26/4/2023 (161,000 user pipeline)

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25/1/2023 (155,000 user pipeline)

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30-11-2022 (120,000 user pipline)

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Valuation of $0.250
stale
Added one year ago

I am increasingly confident that the GovERP program will be successful and will drive this buisness through the next few years. Today they announced 2000 ASIC employees will be onboarded along with $650K implementation fee.

I while ago I said I don't know how much 8CO will be worth but I think it will be a lot more than it is currently priced, since then it has gone down, but I still think it is undervalued so I thought I should try and put a value on what I think it is worth.

At the end of the GovERP implementation they will have 161,000 users on an ARPU of $50 ($8m rev). They currently have 21000 but the pipeline is intact so I can't see why they wont get to 161k or thereabouts. The ARPU is currently $54 and expected to increase to low $60's. They also have another $3m from the non-governement users (150000 @ $21 ARPU). Clients are pretty sticky so i expect churn will stay relatively low. So around $11m revenue when contracts are executed.

I am ignoring Cardhero for now as the uptake has been slower than I expected and it is only pulling in $100-150K/yr currently, but I do think it is a good free future option if it works out.

To get a value of 25c, I think they will need to have an EPS of around 1.6c (give or take depending on the multiple but I am runnig with 15 for now)

I think their operating costs will come down slightly when the GovERP implementation is complete but will probably be between $6-8m/yr.

So back of the envelope NPAT should be between $3-5m, which gives an EPS of 1.4-2.3c.

My valuation of $0.25 (range $0.20-0.34) is just off the implementation of the GovERP program and doesn't assume any growth their CardHero or Expense8 products. Pretty happy with the risk reward on this one.

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#Management
stale
Added one year ago

Very interesting- employee reviews on glassdoor, 4.9 stars, 100% recommend to a friend and approval of CEO, albeit small ample size, but rarely do people go to post reviews about positive things.

https://www.glassdoor.com.au/Reviews/8Common-Reviews-E1472260.htm

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#Further $2.1M GovERP contract
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Added one year ago

More good news for 8CO with a further $2.1 million implementation contract announced on Dec 24th. This will bring another 5300 users onto the GovERP platform. It looks like it is 6 entities with the main one being The Department of climate change, energy, environment and water and the inclusion of others onto the Service delivery office of the Department of Finance. Overall very good news and continuing signs of a happy customer.

At the end of Nov 22 they had 31000 live users and another 14K being onboarded. After a slowish initial rollout it looks like the onboarding process is starting to speed up. In the announced contract they are expected the $2.1M implementation revenue to be recorded in FY23, while the SaaS revenue starts accumulating in 1H24.

The ARPU of the government users has also been increasing steadily overt he last year and is now running at $53 ($20 for non-government users). SaaS revenue in FY23 should exceed $1.6-2m just from the existing government users and probably another $3.2M from the non-government clients. Its easy to see how the government revenue will become the main revenue source over the coming years when the full 130K users are onboarded.

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Valuation of $0.200
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Added one year ago

Underpinning the 8CO valuation today is the GovERP contract. There are currently 31k users at $52 ARPU ($1.6m) but this will expand to 130k users at $60 ARPU ($7.8m) over the next year or two with some chunky Phase 0 and implementation revenue alongside. Tack on the State Gov and enterprise customers (~$2m) and there is clear visibility for expense8 to contribute $10m ARR.

CardHero is much harder to forecast. I have previously included it in valuations but given delays with LWB and winning new customers it is probably safer to leave it as blue sky for now.

Given the contracted growth 8CO should earn a decent ARR multiple over time, 4x CARR is 20c.

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#ASX Announcements
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Last edited one year ago

30/11/22 AGM Presentation

@Scott Great article and very interesting timing! I attended the 8CO AGM in Sydney, safe to say there was a lot of conversation about CardHero. Management said they were bumping up against the big banks for some large expense management tenders and mentioned the banks were using virtual card providers. No doubt the ANZ/Conferma product represents a huge competitive threat, but it is very positive to see the industry accept that virtual cards is where the future is. It's crazy to me that enterprises are still relying on receipt based reconciliation prone to fraud and not reconciled until pay cycles are run. Virtual cards are better in every way so good to see 8CO trying to establish themselves in the space.

Chatting with management, they are a small team and have to be laser focused so rather than chase the larger but much more competitive market of enterprises, they will focus on the Government and not for profit space where they already have a strong footprint with expense8. Obviously some wins in NDIS already, it has been slower to roll out beyond the initial customers than expected but things continue to move in the right direction.

Overall I came away very positive after attending the AGM. The spectre of the languishing share price did hang a little, but I was impressed after being introduced to the members of the board and executive team I had not met previously. Some notes I jotted down:

  • GovERP roll-out is on auto-pilot. Implementation was ~6 months for the first few departments, that is now down to 6-8 weeks. Departments talk to each other so as word has spread about the ease of implementation the resistance to onboard is reducing dramatically. Now doing "Phase 0" as initial consultations before on-board to make it even smoother. Fed Gov ARPU will move towards $60 as all departments shift to the new version which has more features.
  • Department of Defence likely when not if. Only department not included in GovERP, they are a beast unto themselves as a standalone department bigger than GovERP in total. Tried to use SAP Concur a few years ago, project was scrapped after huge cost blowouts and went back to legacy software. New GovERP version of expense8 ticks all the boxes, particularly security clearance obviously a big concern for DoD.
  • Unfortunately don't benefit from the inflationary pressures in travel right now, they charge fixed $ per trip booked not % of cost.
  • As I said before, CardHero has been slower than hoped but not from a lack of confidence in the product. LWB "loves" it, biggest hurdle is good old fashioned resistance to change with certain internal parties. Everyone will eventually come around, it's a win/win for all involved over old system (unless you were someone defrauding the old credit card system of course!)
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#Tech Opps presentation
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Last edited one year ago

I tuned into the Automic Tech Opps 2022 presentation that had Nic Lim (Executive Chairman) giving a 30 minute interview style presentation a few days ago. He gave a broad overview of what 8CO have been doing and it is worth a watch when/if? they put the recording up. Gave me more confidence in my view that this is undervalued at current price.

Overall nothing new was said that can't be teased out of the quarterlies, but did give good commetary around where they are heading. Expecting to be cashflow positive in the near future and moving to be profitable in the near term. He was very aware of dilution and strongly stated that they have no plans to raise any capital and said that they do not require it to reach profitability. They are also not currently looking for aquisitions but open to it if they right technology comes along.

Gave some good background of how the Fed government rollout is going and why they are so well positioned to get this work. Was really excited about how they currently have only onboarded 20-30K users and still need to onboard 150K (or so working from memory). The ARPU is still trending up for the Gov users and this is higher than non-gov mainly as they are more embedded and they use more of the add on services.

The big new future gazing opportunity (that I haven't heard them mention before) for growth is to get into the Defence forces (I think he said 300K user potential?), and this is a longer term priority for them and they seem confident that they have the technology that is suitable and secure enough to get into this area but did highlight the slow process that getting government contracts entails.

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#ignoring good news
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Last edited 2 years ago

Its a funny market and highlights how unpopular small tech companies are at the moment. 8CO has clearly set out how they are growing and executing to that plan, but the market says meh!

The announcement this morning can only be described as good news --> another 575K added to the Gov ERP contract ($2M total contract rollout now). Even though the number itself is not huge it further embeds them into the federal government bureacracy (was a potential risk that this would be rolled back with change of government), reinforces that the exisitng rollout is going well, with the first 7 entities now live, adding 3000 users to the platform. To me the potential here is huge, when the full 110000-150000 users across the 158 government entities are on the platform. Currently 20000 users, at ARPU of $47 ($53 pre covid), up from $43 in the last quarterly. I do expect the ARPU number will reduce when all the users are added due to not everyone travelling and swiping the corporate card as frequently as the early users.

I am looking forward to the upcoming CEO interview on strawmen.

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#Continuing to improve
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Last edited 2 years ago

A nice update from 8CO on how the buisness is tracking for the 4th quarter numbers-

Expense8

  • $820-830K (up 14-15% from Q3-$714K)
  • 181K users now on platform --> up 4K from Q3 22
  • 3.6 & 5.6K trips recorded in April and May --> May the highest number since Covid and confirms the sense I get that professional travel is returning strongly.
  • ARPU at $18 vs $20-25 pre pandemic and continuingto improve was $16 in Q3
  • Total revenue for Quarter guided for $1.6m up 50% from Q3

CardHero went live in May and first transactions recorded revenue will start to flow in FY23

Everything is tracking in the rright direction and on these numbers and they should be back to cashflow positive for the quarter.

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#March 2022 Quarterly Report an
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Added 2 years ago
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#CardHero win
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Last edited 2 years ago

I thought this was a pretty positive annoucement. A 2nd NDIS provider signing up to CardHERO and Expense8 for an 3 year term + 2yr extension option. I am guessing the muted market response is due to the contract only being worth $165K.

I agree that alone this contract isn't game changing but I think it is very positive and further validates what the company has been saying about there CardHERO strategy. The positives I see from this deal is that now we have a 2nd organisation (that from what I can tell are not linked to Life without Borders) that sees value in using this finance management software over an inhouse (cheaper but timecost) or alternative solution (none tailored for this purpose that I am aware off). If CardHERO generates revenue of $12/month (Expense8 -$36/yr currently) doing some rough numbers this organisation probably has a headcount of somewhere between 20-40. For an organisation of this size to see that paying for CardHERO is a good use of their funds supports the earlier assessment that the value proposition from CardHero is that it lets the carers spend their contact time in more effective ways with their clients than expense documentation.

From doing a very rough check from the governments website on how many NDIS providers there are I get a ballpark of around 25-35000 organisations, but some of these are duplicate offices etc. So while this contract is relatively small, it doesn't take that many of these small organisations to sign up to move the revenue needle in a positive way and given the nature of these types of software buisnesses, after a certain point this revenue drops to the profit line.

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#ARPU
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Added 2 years ago

I first came across this company through a straw from @wini and thought it looked interesting, but wasn't totally confident of the impacts of Covid, and was always reluctant to buy on the enthusiasm of a good annoucement. I have just used the recent pullback to buy into this in RL. I am not confident of putting a valuation on it as it will depend on CardHero uptake and rollout, but I am confident enough that if it works out like I think it will then it will be worth much more than $0.17.

I think their expense8 software is a pretty nice package and is and will continue to be a solid earning channel for the company that enables it to maintain positive (or thereabouts) cash flow. This channel is still being impacted by covid restrictions, lack of travel trips etc. but It does seem to be popular with government departments as evidenced by the recent contract wins and lack of churn once a contract is won. Pre-covid ARPU was $25 and now it is $17, but total users are increasing and I think this number will continue to drift back up as movement increases this year.

The exciting thing for me about 8CO is there new product CardHero, which has just gone live this quarter with non-profit Life Without Barriers (LWB), who are part of the NDIS network. A while back I read an interview with the CEO about how this product was built in partnership with LWB and what the value proposition for them was (see excerp below). This got me interested in the company initially, I have used the recent sell off to buy in RL. What I like about CardHero is the benefit to the client and the higher ARPU which is $12/month ($144/yr vs $17-25/yr for expense 8). I have copied a portion of the interview below as it gave me a lot fo confidence that this product will be a winner and likely to lead to rollout beyond LWB in the future.

************************************************

Source- CEO interview with Alan Kohler Eureka report (April 2021)

Virtually no churn.

Yeah, virtually no churn. It was all ARPU and that's primarily because a good chunk of our revenue is fixed. It’s platform fees or it’s annual fees for use of the system, but there is a proportion that's transactional and that obviously had a dip, there was less travel therefore there was less trips in our system, there was less credit card usage. Right now we've got that back up to a bit over $17 and we can see that trending back up, so that's the sort of ARPU at the moment for Expense8. With CardHero, we've got the first deal signed and all that has been released. That's for 3,500 cards and it's approximately $500,000 per year is the revenue on that contract. So it works out to be I think about $10.90 per card per month, is the ARPU, so that’s a hundred and…

Per month?

Per month.

Right, what’s that, five or six times the ARPU, is that right?

Yeah, correct. Yeah. It's a much higher ARPU in this space

And is Life Without Barriers happy with that?

Yeah, they are. What we're building is very sophisticated, very complex. And what it does is not just Life Without Barriers, but the not-for-profit space in general, their focus is the hour of care and maximising the hour of care is an important phrase for them.

Explain that hour of care. What do you mean?

If you've got people in a share house, there's typically three, four, five people who are living in this house and there are carers and there's almost always a carer on duty in the house and their job is to care for the individuals. I guess the concept is they want to make sure that they're spending as much of that time that they’re with the people with disabilities actually caring for them and not doing administration and trying to find receipts for the money they spent for the client that they've got. So they're very focused on that. That’s $12 a month, this is half an hour’s worth of carer time of which we're going to save a lot more than that by taking away a huge administration burden and then letting them focus on looking after the people with disabilities.

How many clients did you say you have for Expense8?

Expense8, depending on how you cut it exactly, but we've got over 150 government agencies using the solution, and then a lot of large corporates. It's just under 200 individual customers using Expense8, and about 157,000 users. (173K@ $17/user Q2 2022)

Is there any reason why all of those customers won't convert to CardHero?

Look, I don't know if it makes sense for every single customer but it certainly does for a lot of the customers to use it. We've had a lot of good discussions with our existing customer base. As you can see it's a large starting point, which is fantastic. And probably the other important thing to note is we have 157,000 users of our system. So they're the people within these government agencies and corporates who have a credit card, or who spend money on the company's behalf regularly enough to then get a credit card. Only about 10 per cent of people in a company get a credit card normally, so 90 per cent of people don't get a credit card, they spend their own money and get that money back and that's a great target market for CardHero. So those people who are spending money right now, the companies and the agencies, they know it's not a good way to treat employees and you have to spend the money now, if you take a flight. If I came down to see you in Melbourne, the flights, the accommodation, just for a day, is sort of $5-700, you've then got to apply to the company to get that money back, get that approved, wait for the next pay run. You can be waiting a month to get your money back. With these CardHero cards in hand you can put the money on the card beforehand, and not have to go through that process.

Is the card labelled CardHero or is it labelled a Visa card or something?

It's a CardHero card. It is backed by MasterCard, through EML, so it’s our design.

I presume most of the companies that they dish out corporate credit cards to 10 per cent of the employees, because they don't trust the other 90 per cent. Is there some greater safety in your CardHero that will give them comfort and confidence to do that?

Yeah, a hundred percent. You're right. It may not even be trust, but there's a liability on those cards and it's either mistakes, or unfortunately, there is fraud in this world, but yeah, you can't give a card to every single person. Our cards will inherently have no value on them and I'm talking like in the corporate space now, it's a slightly different use case to the not-for-profits. These cards will have zero dollars, so I can give it to every person in my company and it sits there with no dollars on it. If I try and tap it, nothing will happen. There's no money on it. It's kind of like a gift card. If you walk into a supermarket and get a gift card, there's no value on it until you walk up to the checkout and load up $50 or whatever it is that you want to give to somebody, it's very similar to that.

What will happen then is you can request money to be put on the card. I can say “Alan, I'm coming to Melbourne I need $500 for the flights, accommodation, taxis”, and I can itemise that through the system, which already does all of this by the way. I can request all that and you, as my manager can say, “yep, I approve that” and then money will be instantly transferred onto my card. That's the first step is I can't spend it unless there's a pre-approved event on that. I can't get drunk at night and accidentally tap it on the wrong thing, pull out the wrong card. I can't make a mistake.

The event is pre-approved as well, is it, not just the amount?

Correct.

Oh, is that right? So you can only tap it at whatever it is, the place that's approved?

Yeah. You can really narrow it down and look, every customer has slightly different use cases, but, you know, the classic example is I need a new laptop. It's going to cost me $3,000. I can approve that and say, you've got $3,000 to spend. You can only spend it at JB Hi-Fi because that's our preferred computer seller for whatever reason and you've got five days to spend it. If you don’t spend it, I'll take the money back.

****************************************************************

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Valuation of $0.340
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Added 2 years ago

8CO

Discount rate 10%

Shares outstanding: 221,559,756

Revenue FY21: 3.5m

Cash holdings: 5.6m

8CO's customer receipts were underwhelming in Q1 reporting. That said, the recent announcement of a GovERP contract win (0.5m), to be recognised in Q2 and Q3 FY22, is a good win for the company. Based on this, I have gone with a FY22 revenue forecast of 4m – with the expectation that business/government activity starts to become more prevalent as we move into H2 FY22.

Recurring SaaS and transaction revenue is slowly ticking upwards, as the below graph demonstrates.

I expect GovERP will continue to provide 8common with opportunities to deliver recurring revenue increases in FY22 and FY23. It will be interesting to see how the CardHero rollout translates to top line growth – I suspect there will be significant on selling opportunities for existing Expense8 customers.

The primary risk with 8common is the company’s cash burn rate – with loss totalling 666k in Q1. There is also the issue that the company has struggled to maintain free cash flow in recent years. For this reason I have used a discount rate of 10%. I will give them the benefit of the doubt in Q1 – presumably lots of that expense is due to the CardHero rollout. But as you can see below, this level of cash burn isn’t sustainable, with Q1’s admin and corporate costs significantly higher than both staff costs and revenue.

Alright, enough of my dribble. Noting the above, I calculate a CV of 75m, divide this by shares outstanding and I get a valuation of 0.34c.  

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#Bear Case
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Added 3 years ago

#wini Your valuation of 8CO is by far the stronger of the existing 2 valuations on SM, and hence the main reason SM consensus valuation suggests 8CO is substantially undervalued. Your valuation seems to rely heavily on the exclusive Fed Gov panel win of 8CO, leading you to estimate future increase of $5-7m in ARR. That feels like a very big assumption. If I understand correctly, all that has happened is that 8CO is the exclusive preferred supplier. I haven't seen any reference to a "mandate" for any dept to use Expense8, all that 8CO has said is that they "could" use Expense8. My experience with govt preferred supplier panels is that they are no guarantee of much or any additional work. I'd be thinking 8CO would be excited to just get a quarter of the additional depts on board, in which case the addition ARR from this panel "win" would be much lower. If this lower outcome were to occur, how much would this impact your valuation?

Disclosure: I hold 8CO on SM and IRL, but my patience is being tested. There were a lot of superlatives and references to "record" results in their last financial report. But the facts are revenue dropped and is lower than in 2016, CardHero has now been around for a couple of years and is yet to take off, they went through two rounds of capital raising diluting shares, and will almost certainly go through more capital raisings in the not too distant future. Feels like much of the valuation is hope in the future rather than reflection of track record.

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#Bull Case
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Added 3 years ago

On 29 July 2021, 8common announced that Expense8 had been selected as the solution provider of Travel and Expense Management (TEM) for the Australian Government’s GovERP Complementary (edge) capabilities panel.

I emailed 8common’s investor relations after the announcement, requesting that they confirm if there are any other TEM providers on the GovERP capabilities panel. I received the following response within a few hours:

‘Hi ****,

Thanks for reaching out. Here is a link to the Gov ERP panel which should address you question - https://www.finance.gov.au/government/procurement/whole-australian-government-procurement/goverp-complementary-edge-capabilities-panel

Cheers,

****’

Firstly, seriously impressive response time by their IR team. Secondly, the website lists the following panellists:

‘Contract Management System Capability

Capgemini Australia Pty Limited (based on the SAP Fieldglass solution)

Ernst & Young (based on the SAP Fieldglass solution)

Travel and Expense Management System Capability

Expense8 Pty Limited

Additional capabilities are expected to be added to this panel over the coming weeks.’

Provided Expense8 remain the only TEM provider on the panel, they are in a good position to penetrate government – a customer that is typically sticky, resistant to change and won't play hard ball with finances. The last sentence in particular suggests further additions are coming - will these be TEM providers? 

I am keeping a close eye on 8common. Their future looks a bright one, provided they continue to bring government clients onboard.

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#Bull Case
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Added 3 years ago

On the day of the 8CO announcment last week when it was up 100% and we were all sitting here like a deer in headlights trying to figure out the deal. MicroEquities who are substantial holders were smashing the bid picking up $1.1 mil worth of shares at 21.5c and then they went again in the placement for another million.


Shows you what they think of the future of this little beauty. 


https://www.asx.com.au/asxpdf/20210803/pdf/44yzh7pc6lqw2q.pdf

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#What is the right price?
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Added 3 years ago

Some think 8Common is good value below 13c

Have we missed it after the current rise?

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#Contract Extension 30/3/21
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Added 3 years ago

NSW Department of Education extends contract with Expense8

  •  NSW Department of Education (NSW DoE) extends its contract with Expense8 for an additional two years, representing estimated revenue of $960,000 (exclusive of GST);
  •  The two-year extension follows the original five-year contract with the NSW DoE and reflects the product delivery, operational performance and strong relationships 8common have built with the NSW DoE;
  •  Over 22,000 users and over 14,000 credit cards are managed via Expense8 in the Department;
  •  Contracts won to date in FY21 in excess of $2.5m

View Attachment

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#5 Fed Agencies go live
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Added 3 years ago

26-Nov-2020:  Five Federal Agencies go live with Expense8

Also:  Recently:  18-Nov-2020:  Federal Prime Minister & Cabinet (PMC) extends contract

From today's announcement:

Five Federal Agencies go live with Expense8

  • Five new Federal Government entities under the Service Delivery Office (SDO) of the Department of Finance shared services hub have gone live with the implementation of Expense8
  • The entities (signed on 26 August 2020) represent a Total Contract Value (TCV) of $545k
  • Significant upside remains with a further 40+ entities under the shared services hub agreements to be onboarded onto Expense8

Fintech company 8common Limited (ASX: 8CO), is pleased to announce that it has gone live with the implementation of Expense8 Travel and Expense Management Software across five new Federal Government agencies (ref ASX announcement 26 August 2020).

The five new Federal Government entities implemented represent a total contract value of $545k and include:

  • Safe Work Australia
  • Fair Work Ombudsman
  • Australian Skills Quality Authority
  • Australian Public Service Commission
  • Australian Building and Construction Commission

8common now provides Expense8 to a total of 27 Federal Government entities with over 17,000 users. There remains significant upside for 8common within Federal Government with over 40+ entities to be onboarded under the shared services agreements with the Service Delivery Office of the Department of Finance (ref ASX release 28 June 2019) and the Department of Industry, Innovation and Science (ref ASX release 10 May 2019).

8common continues to build on our client base with the Federal, New South Wales and Northern Territory Governments where Expense8 Travel and Expense Management (TEM) and card services utilised by over 150 state and federal entities as well as large corporations with over 140,000 active users.

Andrew Bond, 8common’s Chief Executive Officer said, “The smooth implementation process of Expense8 for these entities is a positive reflection of the strong relationship we have with the Federal Government and our implementation methodology. We continue to see a strong pipeline of growth for FY21 and beyond and we look forward to expanding our presence within Federal Government.”

--- ends ---

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#Sypht Partnership: AI
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Added 3 years ago

05-Nov-2020:  8CO partners with Sypht to harness Artificial Intelligence

8common partners with Sypht to harness Artificial Intelligence for expense8 and CardHero platforms

  • 8common will leverage Sypht’s AI-driven optical character recognition (OCR) solution
  • The expense8 platform will be implementing Sypht’s new document intelligence capabilities for the Federal Treasury in Q2 FY21
  • The partnership will see 8common continue its track record of innovative technologies to simplify business for its customers

8common Limited (ASX: 8CO) announces that it has partnered with BPAY Group and BCG Digital Ventures-owned document intelligence company Sypht Pty Ltd, to further harness artificial intelligence and machine learning to turn documents into data, insights and action. The integration of Sypht will enable 8common to enhance the quick and accurate extraction of key information from receipts for direct upload to the expense8 platform.

8common has confirmed that the expense8 platform will be implementing Sypht’s new document intelligence capabilities for the Federal Treasury in Q2 FY21. 8common will also leverage Sypht’s document intelligence capabilities in its recently announced CardHero program, which leverages the expense8 platform.

Andrew Bond, 8common’s CEO said, “Sypht’s OCR technology will continually learn how to extract and interpret key information from receipts, which in turn continues to improve accuracy and allows for further automation of transaction entry and reconciliation. As a product led company, 8common is continuously driving innovation and committed to delivering great customer experience.”

Sypht CEO, Mr Warren Billington said, “There is a strong focus for many enterprises to accelerate their digital transformation journeys and documents are still a major impediment to realising the benefits of that transformation. Manual processing of documents is time consuming, error prone and delivers a poor customer experience.”

-ends-

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#Company presentation
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Added 4 years ago

For those following 8Common (ASX:8CO), they will be presenting for Coffee Microcaps on October 8 via webinar. There will be a Q&A if anyone has questions.

You can register here

 

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#Corona Crisis
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Added 4 years ago

I think it is very hard for anyone to accurately predict on a macro level how long the current downturn lasts for and the long term effects of it. What we can and should do though is look at individual businesses and assess the impacts to them from the coronavirus, positive or negative.

For 8CO I emailed CEO Andrew Bond who subsequently released an announcement to the market last week. As I expected the company's travel module has taken a hit, but it was pleasing to see confirmation that it is only 7% of revenues at this stage with the vast majority of revenue (73%) recurring subscription revenue from Federal and State Government clients. The remainder is made up of implementation and project based revenue which may slow down but commentary in the announcement suggests that work is continuing with two Government departments still onboarding and change requests are flowing as normal so far.

While there will be a small short term impact, the company is expecting to be a big beneficiary of the increased Government spending over the next few months with various stimulus packages. Cash of $1.9m also provides a good buffer for operations and continuation of the development of the CardHERO product.

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#ARR
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Added 4 years ago

8CO has done a great job of growing their ARR over the last two quarters as they ramp up the integration of Federal Government contracts. Note that 8CO records transactional revenue as ARR which creates some seasonality as government/corporate travel slows down over the Christmas/New Year period.

ARR has increased sharply recently on the back of key Federal Government contracts. At the end of FY19 ARR was $2m, at the end of 1Q20 it was $2.3m and then most impressively in a Marketeye update in early November management announced that ARR had grown to $2.5m in October alone. October recurring revenue was $210k which if can be maintained through November and December (which may be difficult as travel slows down into Christmas) it is likely 8CO will report another quarter on quarter ARR growth of ~10%.

While it is not a perfect leading indicator of ARR growth, implementation revenue does feed into ARR as customers are onboarded. Given the average onboarding is between 10-14 weeks, you can see the correlation between higher implementation revenue in a quarter and jump in ARR in the subsequent quarter. See the image I have attached for the example of this in 4Q19 and 1Q20.

1Q20 had lower implementation revenue but was expected as government clients in particular rush to complete projects before the end of financial year. Although no specifics were provided, management did comment at the FY19 report that "implementation revenue lifted in FY19 and expected to move higher in FY20". Hopefully this is the case and it is worthwhile tracking implementation revenues quarter to quarter.

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#History
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Added 4 years ago

8CO floated back in August 2014 with the business model of amalgamating a number of different software products in the one parent organisation with shared corporate overheads. Founder Nic Lim is a successful tech entrepreneur/investor and potentially saw the success of Constellation Software in Canada with acquiring niche software businesses.

In 2016 these software products included Expense8, Perform8 and Realtors8 (hence the name 8Common). While Perform8 began to have issued in FY16, the Expense8 business started to kick goals particularly when it won the contract to provide services to the NSW Department of Education which is the largest organisation in Australia (public or private). 

This foothold in NSW Government led to a number of new contracts and in 2017 it was decided to wind back investment in Perform8 which continued to perform poorly and look to spin off Realtors8 which was profitable but slow growth. 

Realtors8 was sold to a Malaysian company associated with 8CO director Larry Gan in 2018 and in early 2019 Expense8 gained more key foothold contracts, this time in Federal Government with the Department of Finance and Department of Industry, Innovation and Science. 

Expense8 has been able to upsell their full range of verticals to Federal Government clients which has significantly boosted ARPU and led to the inflection point of cashflow and EBITDA breakeven in 2019. Future growth with more Federal Government departments is essentially guaranteed as the Department of Finance and Department of Industry, Innovation and Science are shared services hubs which have been put in place to standardise back office software and processes across similar Federal Government departments.

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Valuation of $0.300
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Added 5 years ago
Refer to May's investor update to expand on some of the detail listed below. FY2018 $1.6m revenue from 120,000 users in SaaS revenue. ARPU of $13.33 FY2019 ARPU runrate of $18 with 111,000 users (slight consolidation of cards with some clients) Upselling 111,000 users across all platforms at ARPU of $42 could deliver $4.6m
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