Turning into a classic frustrating negative cashflow situation. 

Things may change, but as it stands Skifii is becoming a great case study of poor leadership with capital allocation. 

What made me hesitate the most before investing into this company was this strange behaviour I should certainly have questioned more heavily when I saw that Directors & Management granted with their yearly 1c options. There’s a lot of questionable stock renumeration in small caps but I hadn’t seen one quite like this before. I should have just treated this as unacceptable, seen the lack of incentive for leadership to drive better cash management and walked away. Instead I rationalised the software was great and and overlooked this. I've learned from that mistake.

Now the merry-go round continues; every quarter they continue growing their ARR but seem less promotional about outpacing that growth with new record cash outflows. $2.9M in the last quarter. They present in section 8 this means 2.7 quarters of funding still available, but they likely will not draw debt at this point, and in any case they won’t last to the end of the financial year.

When they find themselves faced with asking Shareholders that supported them in their last capital raising at 16.5c only six months ago for more money that might be the breaking point.

Skyfii Q4 FY2021 Quarterly Presentation Recording

SKifii continues to deliver and grow at an aggressive Saas pace of 40% yearly on ARR. In their presentation, they note ending the year at $14M ARR (unaudited). The important thing to note is that the acquisition of Crowdvision is what makes the figures look particularly rosy.

Listening to the recording of the call, the important question came up at the end: “Removing the Crowdvision acquisition, what’s Skyfii’s QoQ growth?”

The answer from the CEO and CFO was that they decided to take the hit on churn in Q4 and deal with the credit notes. If you take that out, the Skyfii core business was marginally down. That’s why questions are so key from investors.

I was pleased to hear the truth as always, and to me the reality stands that the compare against the past quarter was also a tough one given they have a fairly massive Q3.

On Valuation

With an Enterprise value of 42.37M, that puts them EV/ARR of 3. For a business growing at this pace, in my opinion, we’ve got a very reasonable valuation. See my valuation and price target against the company.

Their EBITDA is down from last year given their acquisition of CrowdVision.

On Execution & The road to profitability

Their execution in the past 1-2 years tells me they will continue to focus on aggressive YoY growth, which leaves us in limbo as to when to expect profitability. The CEO indirectly addressed this by saying (my best effort to quote him, this isn’t entirely accurate) :

FY22 is a year of investment. They have invested in recruiting for 19 new roles. Most in seat before 1st half of FY22, mainly across sales and marketing.

Analyst guidance says they will impact their EBITDA. Are looking for growth. Are looking for 17-20M ARR.

FY23 is the year where they will demonstrate operation leverage.

Essentially, we’re not unlikely to see profitability next year as they continue to invest in growing the business. With a great product and great opportunity to move further to market leader, my view is that this is the right decision.

In Summary

• I’ve seen good execution from them this last year in a difficult COVID period.
• I’m pleased with the CARG growth we’ve seen from them.
• The management team are focused on the right things and delivering.

DISC - Holding

Link to recording:

https://skyfii.io/wp-content/uploads/2021/08/q4-fy2021-quarterly-conference-call.mp3

Link to slides:

https://newswire.iguana2.com/af5f4d73c1a54a33/skf.asx/2A1313344/SKF_Skyfii_June_2021_Quarterly_Investor_Presentation