8common continue adding and upgrading contracts, nothing truly significant but more non the less,

Hopefully they start to make some money at some stage....

Agency: National Anti-Corruption Commission

Publish Date: 5-Nov-2024

Category: Software as a Service (SaaS - Cloud)

Execution Date: 5-Nov-2024

Contract Period: 11-Nov-2024 to 27-Feb-2026

Extension Options: 2

Max End Date: 27-Feb-2030

Contract Value (AUD): $275,000.88

Agency: Department of Climate Change, Energy, the Environment and Water

Amendment Publish Date: 22-Oct-2024

Category: Software

Contract Period: 20-Dec-2022 to 19-Dec-2025

Contract Value (AUD): $2,179,907.05

Amendment Value (AUD): $247,473.60

Amendment Start Date: 10-Oct-2024

Agency: Fair Work Commission

Publish Date: 14-Oct-2024

Category: Software maintenance and support

Contract Period: 2-Sep-2024 to 30-Jun-2025

Contract Value (AUD): $21,285.00

Description: Maintenance and support

Held in RL and SM

Quarterly update released today and the results are decent but hardly setting the world on fire. As always you should look for what isn't being commented on, in this instance it is yet another drop in total number of users, down to 163k, just why a company would not comment on a core metric is beyond me and really doesn't install confidence in management being transparent.

Key highlights (just cut and paste from announcement)

▪ Record transaction and recurring SaaS revenue of $1.2 million, up 13% on the previous corresponding period (PCP) and total revenue of $2.0 million

▪ Cash receipts from operations of $2.3million, up 36% vs PCP

▪ Net operating cash flow for the period of $3k

▪ Annualised Recurring transaction and SaaS Revenue (ARR) of c.$5.0 million at 30 Sept 2024 ($5.0 million at 30 June 2024)

▪ Change Request revenue from existing customers grew to $510k, up 523% vs PCP

▪ Hosting and infrastructure costs have decreased 23% vs PCP to $273k ▪ ARPU of $29.90 up 13% vs the prior quarter  

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.

$8CO reported their 4C yesterday.

ASX Announcement

Usually, I post their headines and then add my analysis/commentary.

But this time I think @Rocket6 and @Valueinvestor0909 hit the key points. So, I'll just add my usual CF analysis below with a couple of remarks.

Growth in 4Q receipts was underwhelming. It is, after all, usually the strongest quarter by far.

The anaemic growth in receipts meant that growth in payments leads to OpCF being behind where we were in the PCP. The key driver:users aren't progressing down the funnel.

So while the 8Q trend lines show that $8CO is still trending through the inflection point, and maybe it will still get there, the momentum just isn't there for me.

My Conclusion

$8CO has been on my "Divest on any price recovery" list for a few months now. Today it became a simple "Divest".

My significant loss was mitigated by the very small position size. I am happy to continue my investment strategy of taking on very small initial stakes in microcaps and to add on progress / reduce or exit on lack of progress.

This needed to show more momentum for the thesis to be intact, and although there have been a few modest contracts on AusTender and which are described in the release, I've given up on waiting for the momentum to materialise.

I'm not saying that I don't believe the business will become profitable and cash generative over time. Maybe it will. After all, the 4 year picture below is not that bad. But the time spent waiting for it and analysing it has become a distraction from more promising opportunities, so I'm out. The upside just isn't interesting enough for me.

Disc: Not held in RL and SM

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

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.

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

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.

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)

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

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.

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.

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.

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.

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.

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.

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

#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.

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.

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

Some think 8Common is good value below 13c

Have we missed it after the current rise?

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

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 ---

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-

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

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.

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.

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.