In general 8CO has been a dissapointing investment to date. They are running around 12-18 months behind where I thought they would be in terms of the federal government rollout. I still don't have a good reason on why the implementations are so slow, I'm guessing it must be largely on the customer side as otherwise I can't see why they wouldn't be throwing all of their resources (limited as they are now) at accelerating it. Many of these departments only have a few hundred employees so maybe this is part of it.

I was disappointed at the quarterly as I did expect this to be a strong cash build quarter and for them to only generate $1K positive cashflow is underwhelming. This is two quarters in a row now that they have run their balance sheet to an inch of its life. While I don't think this is great, I am taking it as a positive in that they can control spending and manage their own operations within their revenue forecasts. I am still in the camp that doesn't think they will do a cap raise. I think if it was on the cards they would have done it by now.

Overall 8CO is moving steadily forward as this chart shows. SaaS revenue is now $5m annualised entering Fy25 (includes the 2k odd users who went live after June 30). There is another $2m min recurring revenue sitting in their committed pipeline, when they actually pull their finger out and get the pipeline moving.

Positives from the quarter - Cardhero is operating at cashflow positive so while it is only $400K annualised, this is no longer a drag on the rest of the business and its rate of change over FY24 is pretty positive going forward. When I originally invested in 8CO I thought Cardhero would have taken off quickly. I was defiantely wrong on that, but better late than never.

Everything else in the quarterly was a bit same same, muddling along.

I have been thinking about 8CO today and about how management have communicated to shareholders and whether i have placed too much trust in them. Have they been deceptive on the growth framing or have I been overly positive in my interpretations of their guidance? I went back and looked at what they said was coming from a year ago when they had what looked like at the time a large break out quarter.

Q4 23 CEO statement and Outlook

FY2023 and in particular the recent quarter has been momentous for 8common as we posted record operating results across the board. More importantly, we recorded positive operating and group net cash-flow as the business works towards profitability. Whilst it remains premature to be able to give forecasts, the $12.4 million in contracts closed during FY23 and robust pipeline places the Company in a very encouraging position.”

The growth of users on our platforms is anticipated to increase our ARPU over FY24 and beyond, delivering material revenue growth for the Company and driving profitability and further positive cash flows for the group.

Q1 and Q2 CEO statement and outlook 24

The Company continues to expand its presence amongst government, not for profit and large enterprises. As more entities progress to the on-boarding phase of Expense8 under the GovERP program, we anticipate user numbers to continue to grow in coming quarters. With a growing proportion of users on our platforms from within Federal government is anticipated to grow our ARPU over FY24 and beyond, delivering material revenue growth for the Company and driving the business towards sustainable positive cashflow.

We are completing 1H FY24 with strong growth and new mandates to sustain momentum in to the second half of FY24. The continued growth in our SaaS & transaction revenue, which is up over 100% over the past 2 years, reflects the growing scale of our business within Federal & State Governments as well as large enterprises. With over $8m in revenue generated in the past four quarters (an increase of 51% on previous 4 quarters) and upwards of 54,000 users currently in Phase 0 or onboarding Expense8 stages we expect the SaaS revenue to continue to grow. Importantly, we returned to positive cashflow during the quarter as we worked on initiatives to reduce the timing mismatch that we had previously flagged between client onboarding expenses and cash receipts.

Q3 24

The Company has clear line of sight towards sustainable positive cashflow and profitability. Active management of infrastructure costs combined with growing SaaS revenue point towards a positive cashflow and profitable Q4 of FY2024 and underpin a momentum into FY2025.

Q4 (current Q) Q outlook

We are pleased with the strong Q4 finish to the year which has set us up nicely for FY25. Our focus on customer success and new implementations drove record SaaS revenue and cash receipts which delivered operational profitability for the quarter. Both expense8 and Cardhero are well positioned for continued growth given the demand for our solutions and our positioning given the blue chip client base. We have begun FY25 on strong footing as SaaS revenue is poised to grow given the recent implementations and strong pipeline of opportunities in the near term. Operational efficiencies and strategic initiatives have also contributed to strengthening our financial performance. We have turned an important corner and look forward to delivering on our goal towards positive cashflow and profitability in FY25.

As i read through these I can't really find anything wrong with what they have said and delivered against, maybe they implied operating cashflow was closer than it was but nothing overly problematic. I look back at my old valuation of 25c and it is clearly wrong, but I can't see how 3.5c is fair value either. The business is steadily moving in the right direction, just slower than I anticipated. I look at this business today and see and $8m market cap that is selling for <1 x revenue or 1.5 x recurring rev, has scant cash in the bank but the security of the director loan that will prevent any forced bankruptcy from lack of cashflow.

I compare this to Change financial (recent Wini writeup), a same same but different fintech business. I was able to listen to the quarterly update today, and it is a good looking business that is growing revenue at 30-40% and should do $14m revenue this year and be EBITDA positive, it is selling for around 4-5 times revenue.

I'm not implying that CCA is overvalued more that 8CO is asymmetrically cheap.

8Common is well covered by some of our awesome tribe here, so no need for a deep dive. Thought I would put my 2 cents on the table quickly though, because; why not? 

With the stock down 55% this year, and down nearly 90% from all time highs, I’m not surprised to see many sell down this one in the wash of tax loss selling season. But is now the time to sell? 

There’s one big question in my mind for 8Common at the moment can outweighs the others: Can they get to cashflow breakeven without raising again?

The chances are slim. Very slim. 

In the last 4C a few months ago, they had 130K only left in the bank. But we all know of course that the 4th quarter tends to be a strong one, as evidenced by the last 2 years. So, there is a chance this 4th quarter is cashflow positive, and the bank balance gets further in the black. Where to? Not sure. Maybe they can bring in as much as $300K, maybe more, maybe less. In any case, we also know they incur upfront costs to onboard users onto the expense management platform before billing them. So, there’s a fat chance a positive bank balance starts to deteriorate in the quarters of next year, and they start digging into the director’s $1.5M loan. 

In the last 4 quarters, they’ve burned FCF of $1.6M. So, If they do indeed build the cash cushion this quarter, and we take the $1.5M director loan, we’ve got 1 year of runway. Which could be enough. Unlikely, but could be. A CEO’s first job is to never run out of cash. So you wouldn’t want to be chancing it with a bank balance of $500K. Which means there’s a risk of dilution with this one. 

All this said, my opinion at the moment is that current valuation, coupled with near-term growth that’s nearly secured, makes the opportunity appealing for a small position for me. 

$8CO posted their 4C after the close, on the last day or the month.

ASX Announcement

In short, they are making hard work of it, with only 2.4 months of liquidity remaining, due to the loan from the Executive Chairman - so at least the Board is aligned.

The release is full of explanation for the soft Q, and narratives of timing mismatches. It all makes sense, and is consistent with what has been said before. But this is becoming a sustained pattern, with a lack of growth trajectory becoming entrenched.

References to "elevated onboarding" only makes sense if your baseline is a flatline!

And Federal Government ARPU is heading in the wrong direction - that's not good and the movement is beyond the lumpiness of the explanation doesn't cut it. (Red Flag)

Card Hero rollout is continuing and its transaction revenue contribution is up 271%, which must be from a very small base.

Their Highlights

Outlook:

▪ The combination of improved billing cycle management, cost reduction initiatives such as cloud infrastructure optimisation and the ARR growth delivered through Q3FY24 drove improved financial performance during the quarter, resulting in an anticipated profitable final quarter to FY2024

▪ The above initiatives coupled with the 17k users currently in the go live phase provide 8CO with increased confidence that the financial performance delivered in the month of March can be replicated across 4Q FY24 and into FY25

Key financial highlights for 3Q FY24 include:

▪ Transaction and recurring SaaS revenue of $1.1 million, up 18% on the previous corresponding period (PCP) and total revenue of $1.9 million up 24% on the PCP

▪ Cash receipts from operations of $2.0 million, up 5% vs PCP

▪ Net operating cash outflow for the period of $684k as a result of investment into infrastructure for Federal Government “Protected” status (which has been achieved) and a timing mismatch between project implementation costs (includes significant third-party contractors) and cash receipts from client billing milestones. Infrastructure costs have since come down significantly and revised billing milestones are in place

▪ Annualised Recurring transaction and SaaS Revenue (ARR) of c.$4.7 million at 31 March 2024 ($3.7 million at 31 March 2023)

▪ ARPU of $24.23 up 20% vs PCP

▪ Federal Government ARPU of $39.11 for the period, a seasonally low period given the limited travel over the period

▪ Cash balance of $0.1 million at 31 March 2024 (31 December 2024: $0.8 million). The cash position is supported by an undrawn $1.5m financing facility from the Executive Chairman which ensures the Company remains adequately funded

FY24 YTD highlights

▪ Total Revenue of $6.1 million and over $3.3m in transaction and recurring SaaS revenue up 33% and 21% respectively on FY23

▪ Cash receipts from operations of $6.5 million, up 38% vs PCP

▪ TCV secured of $4.4 million

Key operational highlights include

▪ Strong customer demand continues to drive elevated on-boarding activity with implementation projects being executed across multiple entities

▪ New contract wins and extensions secured during the quarter include the NSW Department of Education, NSW Department of Planning & Environment, Murray Darling Basin Authority and the Department of Prime Minister & Cabinet

▪ User numbers increased to 180k, up 17% vs PCP

My Anaysis

First, the longer run trend charts on number of users (Fig.1 ) and other KPIs (Fig 2) from the above table. Yes, it is lumpy as they say, and there is seasonality. But overall, $8CO looks to be treading water somewhat.

While indeed there has been progress over the year on onboarding of customers, its hardly a stellar growth trend.

Figure 1

Figure 2

And my usual CF trend charts, with the trends plotted only for the last 8Q.

Overall, cost control is good. And on receipts, while 3Q is a somewhat softer quarter, they need to deliver on the positive statements in the release and finish with a very strong 4th Q on receipts to keep the FCF positive trend line intact. Of course, the last two years has shown this is possible. If your stand back and look at the TTM trend in Figure 2, the last 4Q are materially better than the 4Q before that. This is a lumpy business.

The red flag is the Federal Govt. ARPU! A "soft period" doesn't explain it.

Figure 3: Quarterly View

Figure 4: TTM View

My Conclusions

There's no way I can see the strength in this business needed to build from my tiny position.

Whatever happens in terms of market reaction, I've put this one in the category to ride it out and see what happens. If they can continue to control costs, keep onboarding more government and public service staff, get some more Card Hero wins, and better align outgoings with receipts, then there is a FCF trend that can be built on - so all is not lost.

Again, saved by my policy of taking only small positions to start and only building with growing confidence borne out through delivery.

Disc: Held in RL and SM

A few sellers lining up today who must have finally lost patience with what has been a very slow burn. You do have to admire the relative impact in small cap land though, 11 trades of a couple of hundred thousand shares = 18% price decline. I hope there isn't more to it that hasn't been made public

A couple of updates from AusTender

* 2x tiny 1 month assessment contracts with Australian Radiation Protection and Nuclear Safety Agency and Department of the House of Representatives.

I believe these are both new departments.

And

* An extension with Department of the Prime Minister and Cabinet. $900k for 3yrs. Decent upgrade from previous contract ($236k pa)

None of these are game changers but nice to see the business ticking along and flexing pricing power.

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.

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.

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.

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.

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.

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.

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. 

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

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

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

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

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.

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? 

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

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

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

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

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

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:

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

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.

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

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)

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

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

$8CO announced their 2Q FY23 results this morning.

https://newswire.iguana2.com/af5f4d73c1a54a33/8co.asx/2A1426909/8CO_Appendix_4C_and_Activity_Report

Their key financial highlights for 2Q FY23 include: 

• Record quarterly transaction and recurring SaaS revenue of $920k, up 32% on the previous corresponding period (pcp)
• Total revenue for 2Q FY23 of $1.7 million, up 68% vs pcp, was a record quarter driven by implementation revenue from the GovERP program
• ARPU of $21.20, up 30% vs PCP
• Federal Government ARPU of $53.88 for the period, an important indicator given the growing number of federal government users to be on-boarded under the GovERP program
• Annualised Recurring transaction and SaaS Revenue (ARR) of c.$3.7 million as at 31 December 2022 
• Net cash outflow from operations for 2Q FY23 of $399k, an improvement on 1Q FY23, as the company continues to invest into technology to drive scale and enhance user experience 
• Cash balance as at 31 December 2022 of $1.9 million (31 September 2022: $2.5 million) providing sufficient capital for 8CO to continue capturing growth opportunities 

Their key operational highlights include: 

• Multiple implementation contracts, with a TCV of $2.1 million (inc-GST), signed with the Australian Government under the GovERP program 
• Number of users exceeds 175k, up on the pcp, but down on the prior quarter due to a one-off re-alignment of users within a State Government entity. 
• User numbers are expected to grow materially in coming quarters as a number of GovERP entities go live 
• Federal Government entities representing over 61k users under the GovERP program have commenced or completed Phase 0 Discovery workshops which are a key pre onboarding phase for agencies on their path to adopting the GovERP template 
• The roll-out of CardHero with Life Without Barriers and Westhaven continues to progress. CardHero continues to receive inbound enquiries from not-for-profits, corporates and government agencies seeking a solution for their fund distribution requirements. 

My takeaways

• Good progress on cash flows, ARPU and revenue
• No sure what "The number of users ... up on the pcp, but down on the prior quarter due to a one-off re-alignment of users within a State Government entity."  What does a "re-alignment of users" mean? Were accounts prematurely tallied, or did a department take away a bunch of cards from users? Surely a clearer description is possible? Never mind, the following statement reinforces confidence in continuing growth as government departments roll out, and the graphic showing the Government customer pipeline indicates the runway ahead.
• Looking at cashflows, receipt grew 31% Q-o-Q with operating costs only growing 18% - good.
• Per my usual cashflow analysis, the trend for FCF over the last 6Qs is positive indicating good expense control, leverage of prior investments in the platform leading to operating leverage. (dotted green line is thelast 6Q FCF trend line)
• If this trend continues $8CO could be CF positive in 5-6 Q, so there is still a possibility of a further capital raise
• Card Hero making progress but still not material, and no newsflow of other adoptions not a good sign. One to watch.

Conclusion

• I will continue to hold my small position, as I still see this as high risk, and it remains unclear how material or profitable the firm will ultimately become.

Disc: Held in RL and SM

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.

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!)

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.

8CO has delivered record quarterly transaction and recurring SaaS revenue of $894k, up 31% on the previous corresponding period (pcp).

The number of users of 8CO solutions continues to increase to over 183k reflecting the scale of our offering. Importantly, the lift in user numbers continues to be matched by growth in ARPU. The September quarter ARPU of $19.60 is the highest figure since the pre-pandemic levels in March 2020. Within the broader ARPU figure, Federal Government ARPU continues to increase averaging $49.63 for the quarter. With a growing number of agencies and users to be on-boarded under the GovERP work package, average ARPU is expected to continue to increase in coming quarters. 

The rollout of CardHero with its inaugural customer, Life Without Barriers continues to progress, in tandem with the Westhaven roll out. During the quarter CardHero contributed $30k to recurring SaaS and transaction revenue. Revenue levels will grow in coming quarters as the Life Without Barriers rollout plan progresses.

During the quarter, the Company secured a further $575k inc-GST contract from the Australian Government under the GovERP program, taking total value of signed contracts to date under the GovERP to over $2.0 million (inc-GST).  

The Company continues to expand its presence amongst government, not for profit and large enterprises, reflected in the increasing number of users across our two solution platforms. Increasing travel activity and a growing proportion of users on our platforms from within Federal government is anticipated to grow our ARPU over FY23 and beyond. Increasing ARPU, coupled with a growing level of users will continue to drive our track record of quarterly revenue growth.

With a dedicated team, robust financials, and strong pipeline of Expense8 and CardHero growth opportunities, the Company has established a solid platform for continued growth over FY23 and beyond. 

8common CEO, Andrew Bond said “Our second successive quarter of record quarterly transaction and recurring SaaS revenue reflects the growing scale of our Expense8 and CardHero products amongst large enterprise, not for profits and State and Federal governments. Both our user numbers and ARPU continue to grow, driving increased revenue and propelling the Company towards sustainable positive cashflow generation.” 

Another great CEO meeting today with Andrew Bond. 8CO is quite well-known here, so I will limit my comments to a few big takeaways with other insights I have gleaned external to the meeting.

The wins in the Public Sector and Non For Profit for Expense8 and CardHero (EML backend) are not to be underestimated. As was discussed on the call, these organisations are very conservative in their procurement practices. So, once you have won customers and have references sites, the ongoing marketing effort is a lot easier than normal B2B.

Just to underscore this point, in the Australian government sector (Commonwealth, State and Local) there are over 2 million employees. $8CO has a total of 182k users, but this includes some big corporates (e.g., $WOW, $AMC), so I am not sure how many Federal users there are (need to dig through annual reports and 4Cs). It sounds like there is a long runway ahead.

Over the short term, we will see 3 growth drivers that are almost certainly locked in with little to no development cost (beyond client implementation) nor much increased overhead:

• Increased activity by existing cardholders. (latest ARPU is $18.60 compared with $24.33 pre-COVID peak. ARPUs are higher for Federal Governement users ($43.3) compared with overall average ($18.60)
• Continued adoption to more staff within current customer departments and agencies
• Adoption by new Department and Agencies (snowball effect)

These alone are going to play out against a set of numbers in FY22 that were COVID-impacted. So there should be some very positive PCP comparisons in the next 6-12 months, which de-risks an investment, which we scruitinise growth and operating leverage unfolding.

Of course, the big prize is the large State Governments, where 1.7m of employees work. So, the ability to translate Commonwealth wins into State wins will be key.

Next is the NDIS, which is a potentially massive opportunity for CardHero. Total NDIS spending is heading north to $40bn and beyond. Control of spending in a way which works for agencies, service providers and customers could be the perfect opportunity. There is also a good chance that findings from the ongoing Disability Royal Commission will provide a tailwind. So watch this space.

In any event, the Not For Profit sector is a big opportunity, with the reference case for Card Hero at Life Without Barriers a marquee client in another sector that is not a sophisticated procurer and where organisations will readily adopt a proven reference cases.

The total NFP sector in Australia involves 600,000 organisations, have a total income of $134bn and are estimated to contribute over $40bn to GDP . These won't all be attractive clients for $8CO, but the largest 0.4% (2000+) have turnover of greater than $100m, and these will be.

Then, on the call, we spoke about universities. Andrew said they already have two uni clients with Expense8 and clearly, unis are a potential major CardHero client for grant management - a major pain point for academics and administrators alike.

So, with a Fintech focused on the public sector, is $8CO the next startup version of $TNE? (Actually, it sounds like it could be a good acquisition target for $TNE, although there might be market power issues?)

I'll conclude with a few key analyses.

The first is from the 2022 Annual Report: showing the growth in users (blue, LHS) and ARPU (organe RHS),

The second show the growth in monthly trips going through Expense8 - this is going to be the driver of strong PCP cycling over the next 4 quarterly reports (I know that is short term, and irrelevant for the long-term investment thesis, but I think it de-risks the investment case in the current climate).

Cash Flow

Next, my usual 4C cashflow analysis.

What's postive about the 4Cs is that they are very clean. This indicates a business that is tightly run. On that note, Andrew is quite understated compared to many small cap CEOs. There is an almost complete absence of flashy investor presentations. That a big green flag for me.

While $8CO is still burning cash and only has about $3.2m left at last report (a level similar to the point at which they last raised capital), we specifically asked Andrew what capital he thought would be required over the next 5 years. He sounded quite confident in responding that there were no plans. (I expect he has been asked this a lot over recent months!)

This makes sense given the following information:

1) Development spend is being reined back, with the big push over the last year on CardHero now complete.

2) As more customers are onboarded, high margin SaaS revenues will continue to grow, which will improve operating leverage

3) Sales and Marketing spend is very low, given the nature of the clients and reliance on "reference sites"

4) While the team has built up to 50 over the last year (c. 50% in development; 30% in customer success and a small number in sales and marketing and management), Andrew doesn't see the need for much to be added.

Thinking further about 4, you would expect to see growth in the Customer Success team, as more customer groups onboard, however, perhaps a flattish profile can be managed in the medium term if there is a lower focus on development.

In conclusion, as @Strawman said at the start of the call, this one appears to be approaching an inflection point, even if there is no clear trend in OpCF below, due to the staff build in development to build up CardHero.

Competition

The big competitors are the large ERP players (SAP, PeopleSoft etc), the Public Sector specialists (TechOne) and the SaaS disruptors (PlanDay). In a comment on competition which was clearly well-rehearsed, Andrew said his favourite customers were the one that already had Travel and Expense management systems from the big players. This was because generally, their "modules" were themselves poorly integrated acquisitions into the ERP, and lacked the flexibility of Expense8.

Make no mistake, it is a competitive space, and so we should not get over-excited by the TAMs in fron the $8CO in Australia. However, they have won marquee Government and NotForProfit clients, they are a local company with a total focus on Australia. They have growth locked in and appear to be well run.

Valuation

This Straw is clearly a Bull Case and it is incredibly hard to value a stock like this.

Revenue is clearly on an upward trajectory, and with $1.585m in 4Q 2022 and with momentum on its side, they have to be looking at $6-9m in FY23, 222m SOI and SP of $0.087, Market Cap is $19.3m.

This gives a revenue multiple for 2023 of 2.1 - 3.2, with the potential for generating EBITDA and P/E multiples within a year or two.

Ownership and Liquidity

While the CEO has a very small holding, and is a professional manager rather than a founder, there appears to be strong insider holdings ov 30%. Andrew has reasonable incentives for the company to perform well, with 3.5m options. He joined in 2017 and has held a number of management positions with $8CO, becoming CEO in 2019, so it is good to see a CEO who has been promoted from within.

The Board are largely unknown to me, so I need to trawl the other straws and do some research here.

Investment Decision

I like $8CO. It is a much smaller firm than I would normally buy. I have taken a very small stake IRL (0.5%) and a larger one on SM (2%). I intend to hold long term, so the very low liquidity doesn't bother me.

If the investment thesis is correct, we should see strong quarterly reports over the next 12 months. If this does not materialise (and I mean above and beyond postive Covid-impacted PCP cycling) then I will consider exiting. If results play out as expected, then I will increase my holding, reviewing progress at each 4C.

I have jettisoned a few of my specy losers IRL recently, and so I am adding a spec buys at time when the market it weak.

Thanks to the other StrawPeople who have written up $8CO and for @Strawman for getting Andrew to today's meeting.

DiscL Held IRL and Buying on SM.

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.

8CO has announced this morning its third significant contract under the Australian Government GovERP deed.  The $575k contract will cover the development of the Whole of Government Template for Travel and Expense Management.  The Template is a technology solution designed by 8CO specifically for the GovERP program to provide a unified solution for the whole of Government Travel and Expense management requirements. The Template will utilise Expense8 technology with greater functionality specifically designed for Federal Government. The Template will be deployed for all agencies that transition under the GovERP program including all agencies currently using GovERP version of Expense8. 

The first 7 agencies under the GovERP program have gone live utilising the GovERP version of Expense8. These agencies incorporate over 3,000 users and the associated SaaS transaction and recurring revenue commenced in 1Q FY23.

Today’s agreement takes the total value of signed contracts to date under the GovERP to over $2.0 million.

8common CEO, Andrew Bond said “We are very excited to see the first seven agencies under the GovERP program go live. The GovERP work program represents a significant driver of current and future revenue for the Company with the potential for over 100,000 new users to utilise our solution that currently delivers an average ARPU of $47.  

“The future work package to develop the Whole of Australian Government Template for Travel and Expense Management will provide a seamless solution to rapidly onboard entities to our travel and expense management solution. The revenue from the GovERP contracts coupled with our base operations and growing rollout of our CardHero product will deliver a step change increase in our revenue profile in FY23 and beyond.”  

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.

22/4/22 Appendix 4C and Activity Report

8CO released a weaker than expected quarter, reporting a cash burn of just over $1m, split roughly even between an operating cash outflow and further investment cashflow largely into the CardHero product.

There were some positives from the report, mainly the strong SaaS/transactional revenue which had a record month in March suggesting the run-rate in the seasonally strongest fourth quarter will be solid.

The fourth quarter will also benefit from a large chunk of implementation revenue from the GovERP contract which to date is for $1.4m all originally scheduled for FY22. With only $350k in this quarter it leaves $1m+ to be recognised largely in the fourth quarter (although knowing Governments I always expect at least minor delays).

I spoke with the management team after the result and they conceded that the investment into CardHero had come in above budget which has led to the larger than expected outflows, but the large project development spend is behind them now with products in the market with more sustainable support and maintenance spend taking over. I queried the sales and implementation cycles of CardHero given the long delay with Life Without Barriers and the slow rollout, but was told from a product point of view CardHero can be rolled out to a customer in no more than two weeks. Life Without Barriers has internally chosen to do a staged rollout simply to better manage their internal processes.

I also queried the ARPU which has fallen slightly despite travel now bouncing back to which the reply was it can move around slightly to a number of factors but moving forward they expect a strong uplift in ARPU driven by GovERP. The example provided was that the Department of Industry was an existing user of Expense8 who recently upgraded to the GovERP standard of the product (higher security and some additional functionality) and their ARPU has roughly doubled from $30 to $60. With 110,000 Federal Government users mandated to come onto the platform at that $60 ARPU, I can see where management get the confidence to forecast that growth.

While frustrating to have another quarter of cash burn (particularly in this current market environment), the longer term investment thesis for 8CO is strong. The confirmation of GovERP ARPU gives me confidence to forecast the company run-rating ~$8-10m ARR in FY24. Profits are a bit harder to gauge given it will be driven by the investment into CardHero but the core Expense8 business is extremely capital light and profitable, especially as growth comes from higher ARPU.

8common Quarterly report

https://www.asx.com.au/asxpdf/20220422/pdf/45870x4799724g.pdf

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.

New combined CardHero and expense8 contract signed

8CO has announced that it has signed a contract for CardHero, its integrated card payment and expense management solution, with not-for-profit community-based charity, Westhaven Limited.. Westhaven has been supporting families in their community for over 60 years.

CardHero will enable a streamlined funds disbursement platform and expense management system for Westhaven. The platform will provide a seamless funds and expense management process for the end user, reducing administrative time spent on validating and reconciling expenses and streamlining the distribution of funds. The contract represents the second not for profit CardHero contract signed by 8CO, further extending the reach and breadth of the solution, and follows the successful implementation and commencement of the rollout of CardHero with the Company’s inaugural customer, Life Without Barriers

8common CEO, Andrew Bond said “We are excited to deliver our CardHero integrated card payment and expense management solution to Westhaven. Our commitment and industry leading solution, which includes the recent successful deployment of CardHero with Life Without Barriers, has received positive attention. This agreement with Westhaven provides further validation and strengthens our drive to champion innovation and deliver outcomes for our customers, and our customers’ customers. We are seeing an increasing interest level from the government, not for profit and corporate sectors for CardHero as entities look for more advanced solutions for their disbursement programs. Our success in delivering travel and expense management solutions to government and large enterprises with expense8 ensures we have a robust underlying platform to rapidly accelerate the CardHero product rollout.

“Activity under the FedGov ERP workstream remains on track with the initial agencies to be on-boarded by the end of the financial year. The addition of the revenue from the GovERP contracts coupled with our base operations and growing rollout of our CardHero product will deliver a step change increase in our revenue profile in FY22 and beyond.”

$752k contract to onboard first 14 entities on to GovERP

The GovERP platform enables the selection of Expense8 under a pre-selected panel of service providers. Expense8 is the exclusive provider under the Travel and Expense Management Value Stream for the Shared Services Program which includes approx. 150k employees across 158 Government Entities.

The $752k (inc-GST) contract represents the fees to commence the onboarding of the first fourteen agencies under the GovERP agreement. The fourteen Federal Government entities to be onboarded represent over 10,500 users (with the majority being new users to the platform).

Today’s agreement follows the initial $542k contract under the GovERP for the commencement of the work packages under the GovERP deed (27 October 2021) and several other smaller agreements under GovERP taking the total value of signed contracts to date under the GovERP to over $1.4 million (incGST). 

8common CEO, Andrew Bond said “We are very excited to deliver Expense8 to GovERP and the Australia Federal Government on an accelerated basis. Today’s contract reflects the mutual commitment from all stakeholders. With an additional 158 entities and approx. 150k users who can onboard to Expense8 in coming years, the GovERP deed represents a significant driver of revenue growth and shareholder value. We are looking forward to welcoming the new agencies and their staff on to our leading end-to-end travel and expense management solution. The addition of the revenue from the GovERP contracts coupled with our base operations and growing rollout of our CardHero product will deliver a step change increase in our revenue profile in FY22 and beyond.”  

Coffee Microcaps Interview with Merewether Capital where we discuss 8CO & XF1

https://www.youtube.com/watch?v=1c6JEtZ96d8