I went back and watched the interview with CEO Tony Abrahams from 2 years ago. It’s amazing how much of it is still relevant today. Back then, it was a captioning services company that had just made an acquisition of a captioning technology business (EEG) and was pivoting hard in that direction. The services business was impacted by free captioning offered by the likes of Zoom and Microsoft Teams and saw a horrendous -25% decline in revenues. The transition from services to tech is now two years on, so what does it look like?

In that period, Tech has gone from 28% to 48% of revenues and now accounts for nearly 2/3 of the group’s gross profits. It’s now not only backfilling, but over-powering the declines in services and is powering revenue growth at the group level as well. Tech has much higher gross margins (80% vs 40% with services) and has improved the overall gross margin from 53% to 63%.

The bottom line has also improved and has now inflected into profitability and FCF positivity. The amortisation of previous acquisitions and the historically higher capex spend is suppressing the statutory numbers. My normalised EBIT number (EBITA minus current capex spend) is my preferred metric for underlying profitability and that’s now well in the green.

It’s currently trading at 1x revenue and 19x EBIT, and the market clearly doesn’t believe this to be growing tech business, with improving margins, inflecting into profitability and who’s largest division by gross profit is growing at 40%pa.