Latest trading update of year-to-date FY25 results just dropped. The company is contact to meet revenue guidance of $48-50m for the full year, with the current run-rate already at $48m.

What stands out is just the business momentum they have currently. Winning a greater share of collections from existing customers, and onboarding new ones.

1.5 years ago, I detailed some of my main gripes with Credit Clear in the following forum post: https://strawman.com/forums/topic/6847

The TL;DR: Credit Clear tends to oversell the idea that they’re an AI and machine learning software company when, in reality, they’re more of a collections services company that uses software. While my opinion on that hasn’t changed much, I now find the business more interesting and have added it to both my personal and Strawman portfolios.

As a bit of background, Credit Clear is a collections services company. They help organizations recover overdue bills and loans, from the time a bill is issued up to around 180 days past due.

Many organisations require these types of services, as managing overdue payments internally can be a real headache. That’s why Credit Clear, along with many competitors, exists. Collection services companies collect overdue debts on the behalf of banks, credit unions, lenders, utilities, local, various levels of government, B2B companies, and essentially any business facing late payments.

Debts more 180 days overdue are generally considered highly impaired, and organisations may consider selling these to debt purchasing companies at cents on the dollar. The two largest debt purchasing companies in Australia - both listed on the ASX - are Credit Corp (CCP.AX) and Pioneer Credit (PNC.AX).

In the collections services space, Credit Clear is likely the second-largest player in Australia and New Zealand, after Credit Corp, with FY24 revenues of $42.2m compared to Credit Corp’s $75.5m.

EBIT Normalised is EBIT excluding amortisation of customer contracts from prior acquisitions

There are several things I like about the company:

1. In FY24, Credit Clear inflected into free cashflow positive, and is close to profitability. EBIT, excluding the amortisation of customer contracts from previous acquisitions, was just -$900k.
2. The revenue growth of +17.5% was largely organic growth. A small acquisition of an insurance collections company in Nov 2023 contributed, but even adjusting for this, revenue growth was still a healthy +14.5%. The company is guiding for revenue to grow +16% in FY25 mostly through the expansion of work with existing wins.
3. Over the past 1.5 years, the company has become less promotional and more conservative. For example, FY24 guidance started on 30-Aug-2023 at $39-41m revenue and $1-2m underlying EBITDA (uEBITDA), and ended up at $42m revenue and $4.2m uEBITDA after multiple upgrades during the year.
4. Gaining traction. In Q4 FY24, the company went live with collections for ANZ Bank. Following consistent performance, Credit Clear has been allocated increased share of ANZ’s debt portfolios. There will be more upside should they continue to outperform the other panelists. This case study will no doubt help strengthen its position in winning with other potential customers.
5. There’s still considerable runway in Australia/NZ, in particular in segments where CCR has limited presence like federal government departments. International expansion, particularly in markets like the UK, is another possibility. Since Credit Clear collects debts on behalf of clients without taking on balance sheet risk (unlike debt purchasers), the risks of expanding abroad should be relatively low.
6. The most exciting development for me is the area I was previously critical of - Credit Clear’s “AI company” narrative. While I believe they over-egged the AI sales pitch in the past, since the advent of ChatGPT, the sales pitch of having an AI assisted collections workflow no doubt has become a much more powerful one. In fact, its key subsidiary ARMA has increased its customer win rate increase from 30% to 70% in the space of a few years.
7. There are signs of operating leverage. Gross margins are improving, with 40% of incremental revenue converting to Normalised EBIT in FY23, and 55% in FY24. The FY25 guidance projects a 37% conversion rate this year.

On the downside, Credit Clear isn’t an obvious bargain at current prices. An EV/S of around 2.5x isn’t cheap for a business services company with 53% gross margins, especially one that still requires collections staff to scale and is only just reaching profitability. However, if they can continue growing organically at a healthy pace and drive operating leverage, earnings could improve rapidly.

I believe that large language models (LLMs) and machine learning technologies are advancing rapidly and will significantly transform the operations of contact center businesses like Credit Clear over the next decade. These advancements will lead to increased efficiency, greater automation, and the displacement of tasks traditionally performed by humans. Credit Clear appears well-positioned to capitalise on these trends. As one of the larger collections services company in Australia and New Zealand, they have the scale to invest in in-house technology platforms and leverage technological advancements. Furthermore, having been initially established as a software-only company, improving efficiency through technology is a core part of the group’s DNA.

I’m interested to track the continued progress with ANZ. Credit Clear has been collecting debt for ANZ for the past 3-6 months and increased work from a small position on one portfolio to a bigger piece in 3 portfolio. Management claims they have a leading recovery rate compared to competitors on the same panel, exceeding them by over 50%, and they also lead in most other metrics. Increased work-share with ANZ will showcase how their technology focus and scale provide a quantitative advantage over competitors. This will serve as valuable collateral for the sales team, potentially leading to more wins and further market share gains.

Shares are consolidating just beneath the 52w high. If it breaks out decisively, that will be very bullish.

A similar business, Indebted, is valued at 3x.

https://www.afr.com/technology/digital-debt-collector-worth-350m-after-big-money-raise-20240919-p5kbya

This was an impressive quarter from Credit Clear.

Highlights:

• Record revenue: $11.5m1 up 28% on prior corresponding period (pcp) with growth driven

by winning more share of wallet from existing clients and growing revenue from new

clients

• Cash from operations: $1.8m1 for the quarter, an improvement of $1.6m on pcp, and the

fifth consecutive quarter of positive cash from operations taking YTD net cash from

operations to $3.6m

• Guidance achieved: FY24 Underlying EBITDA3 of approximately $4m1 and revenue of

approximately $42.0m1. The Company will provide FY25 guidance with the upcoming FY24

results on 28 August 2024

• Strong balance sheet: $13.1m cash at bank, an improvement of $0.7m QoQ and $1.1m on

pcp, leaving the Company well positioned to fund growth opportunities

• Clients signed: 85 new clients signed, including five expected tier-2 clients2,4 and 20

expected tier-3 clients2,4.

• Digital collections: Up 65% on pcp to $33.2m for the quarter, surpassing $10.0m for each

month in the quarter and achieving a record month of $11.8m for the quarter, with digital

technology boosting performance and profitability

• Strong trading conditions: Increasing demand for Credit Clear's services highlighted by

the Company’s Consumer division receiving 56% more files in H2FY24 2024 on pcp.

Takeaway

All key metrics are heading in the right direction on the revenue, cost, earnings and cash flow lines. The company seems to have inflected into profitability, stringing a few OCF positive quarters together.

Combined with an asset light business model and the obvious tailwinds from AI, and it is setting up well to continue to outperform over the coming quarters.

CCR is in trading halt, raising capital at 23c - $8.5M in a placement from professional and sophisticated investors.

I have traded CCR before no longer hold and looking at recent results, I'm glad.

Free cash flow, after PPE and IP has been negative every recent quarter except 1. In the most recent 4C they burnt a shocking $4M, hence the cash raise. To be fair, $3M was an earn out payment for ARMA. But even adding that back, their free cash flow was about 1 million in the red.

Their preferred metric - "digital collections" is growing, but we must assume that they are cannibalizing their non-digital revenue because total revenue has been range-bound in the $8.5-$9M range since buying ARMA. Their YoY figures have looked good due to that acquisition but it's not a fair comparison.

There are some big names on the books, but it still remains to be seen if they can be profitable.

23c values the company's shares at about $86M. Still seems expensive for the revenue.

should be interesting

Trading at EV/Sales of 3.1 based on H1 revenue run rate, with new customers signed expected to push that down to 2.4X for H2

I wonder if credit clear is being looked over as a credit collection company by the market - which they are not. Increasing levels of bad debt are a tailwind for CreditClear as their customers look for new ways to get higher returns from their bad debts and look after their customers better.

CreditClear has a great, unique product, saving/making its customers money, providing a better customer experience for its customers' customers. Easily provable with case studies from implementations which should be fueling their sales execution.

Business is cash flow positive and on a path to net profits with another year or two of growth. Business should scale very well and has first mover advantage to gobble up the most profitable areas of the market and build out their moat of a proven track record of performance making their customers money. They will become the gold standard of debt collection processes, even debt collection companies themselves have begun to use CreditClear's product.

Customer base is very diversified and as they prove their value they are engaging with larger and larger enterprises.

Risks are that as they grow revenue they increase spending and do not progress towards profitability, not likely given the current market focus on profitable businesses, and a well capitalised competitor emerging with competitive or better product, also unlikely given CreditClear's head start/time spent optimizing their formulas and processes, should be difficult to replicate and slow to gain trust and traction in the market.. if it is a worthwhile endeavor, why not go with the proven business who already has big businesses using its product?

Summary from announcement below. The foot in the door with IAG is good to see, growth in sales flagged is also welcome, but as CCR scale, the numbers quoted will need be much larger for a share price bump. This level of growth is base line at best in my view and has spurred me to updating my valuation for the H1 results which I will publish later.

Announcement highlights:

• In March, Credit Clear has signed a two-year agreement with IAG

• Credit Clear will deploy its purpose-built digital workflow for IAG, enabling third-party payments to be made online

• In January and February, 52 new clients were signed for a total of $2.4m in Potential Reveune1

• The appointment of PSC Insurance founder Paul Dwyer as Credit Clear’s Chairman has enhanced the Company’s reach into Australian and international insurance markets

• The Company expects revenue from insurance clients to grow 141% this year, from a total of $2.2m achieved in FY22 to approximately $5.3m in FY23

Disc: I own in RL & SM

Wasn't impressed with the top line shrinking here, maybe its q4 and a bit of down time on collection for Xmas, but they must either be having trouble on boarding these new clients (and they've said they need to speed this up) or something else is eroding in the background. As was pointed out here on the strawman meeting (I think) they didn't pick up any organic growth in q1 either. These last couple of reasons are less tangible and may be unfair, but I was concerned that it took to the 31st for the quarterly (they did last Jan so maybe no big deal, and everyone needs a bit of allowance in Jan!), and was concerned that they haven't advertised an investor briefing, seems out of character. I said I'd give them 2 quarters and am normally slow to sell, but have broken my own rule and sold out after only 1! I'm happy to watch it upto the next quarterly.

Credit Clear - second consecutive cash flow positive quarter - signing 83 clients

Quarterly Report 4C for FY23 Q1 - Sept out today

Operating cash flow has had a massive turnaround from negative $2M in prior quarters to +$0.5M this qtr. There is even a small positive free cash flow of about $100k after deducting PPE and IP expenses.

The activities report "Annualised revenue run rate of $35.6m based on Q1FY22 revenue" which is good and growing.

Now I know that cash flow is not the same as profit and cash flow can vary a lot based on timing. Even if this quarter's c/f is sustainable, it only represents 6% margin on $8.9M revenue.

While this is heading in the right direction, it's still far from what's needed to justify the current MC of ~ $150M.

Their innovative technology in an old industry will give them the edge but it's not beyond replication. If they can grow to $60M revenue at 15% net margin by end of FY24 and get rated at 20xPE, the current price (50c) would be justified. Not impossible.

On balance, I think that PPE and IP expenditure will be ongoing and a high FCF margin will be difficult to achieve.

I'll be watching the next reports carefully.

By signing four contracts with new and existing insurance clients in Sep22, CCR has further widened its insurance sector offering. A new contract with Zurich Australian Insurance Limited (Zurich) and two contracts with new motor insurance specialists including Aioi Nissay Dowa Insurance Company Australia (ADICA) further expanded its relationship with one of Australia's largest insurance groups. Revenue from insurance clients is expected to grow 150% this year, from a total of $2.2m achieved in FY22 to $5.5m in FY23.

On 15 Sep 22, CCR provided a business update for the month of Aug22. With new clients onboarded in the past few months, growing debt referrals from the existing clients contributed significant growth in the month of August, with revenue reaching a new record of $3.28m.

The group's legal recovery businesses also produced strong growth in revenue for the month. The revenue run rate is now $39.4m2, and the company has achieved four consecutive months of operational profitability.

Awarded “Best use of AI” at the 7th Annual Australian Fintech Awards. The company was also been named an “Insurtech Start-up of the Year” finalist at 2022 Australian and New Zealand Institute of Insurance and Finance (ANZIIF) industry awards for its automation of third-party motor claims with potential Insurance clients building strongly in the pipeline.

Pretty huge announcement today from Credit Clear. Up 20%. International integration of their digital collections software. If they can make it there in South Africa they can scale. Been invested in RL since IPO. Wish I'd sold on IPO day (would have doubled). I have been profit taking ever since to buy other stuff tho. But they seem to be doing well and this news is kinda big. Was pretty low liquidity but this might shake things up. Especially if they keep the digital impetus/difference going. Last time I checked collections were still mainly traditional. But they're obviously committed to digital AI point of difference and this international win keeps me holding in RL. Another international win might make me start accumulating again

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02512135-3A592016?access_token=83ff96335c2d45a094df02a206a39ff4

Late last year Credit Clear acquired ARMA for $46M, funded by a $25.5M insto placement and $4M share plan at 40c.

ARMA offers a debt recovery solution, outsourced accounts receivables and litigation services. Last year ARMA reported $6.4M in EBITDA from $15.5M revenue.

It’s all about the synergies, isn’t it always, with Credit Clear intending to pursue its billing platform in ARMA’s approximately 400 customers.

ARMA co-founder Andrew Smith will take the role of CEO of the joint organisation with former CEO, who has only been in the seat around 6 months, is moving to a new role to focus on international markets. 

Shares are down around 20% in the last 6 months. Not held, but will be watching to see if the synergies eventuate. 

Credit Clear has taken out the award for “Best use of AI” at the sixth annual 2021 Australian FinTECH Awards over contenders Moula and MyMoney.

In winning the Best use of AI award, Credit Clear demonstrated integrating AI into its accounts receivable technology had resulted in a 150% plus increase in collections. 

The company uses AI to "select the optimal content and channel of engagement which can lead to significantly better outcomes, while a wrong decision can result in increased costs or worse, permanently lost opportunities".

Using its next best action (NBA) model, the Credit Clear developed its AI technology to optimise recoveries while minimising collection costs.

Credit Clear says its NBA model treats every account in a “distinctly unique way” and has a recurrent neural network to assist with building and identifying patterns in a customer’s engagement history.

In other words, they have optimised when to hound people over outstanding debts.

Credit Clear has delivered solid results with a 70% revenue increase to $11 million. The increase has come organically from digital revenues, new client wins and high retention rates across their customer accounts across various industries including transport, financial services, insurance, government, and utilities.

This puts them on their way to meeting the aspiration of being leading technology company in receivable management, delivered using proprietary digital billing and communications platform. Both artificial intelligence (AI) and machine learning (ML) are used to increase engagement and improve debt management.

The process uses email and SMS to target customers. While this sounds like standard debt recovery tools, the use of technology has been proven to increase recovery. In the 4 years since launch the company has increased recovery rates by over 300% for customers including Bendigo Bank, Suncorp, ME Bank.

This is a highly competitive (and regulated) market that can be a tough way to make money, especially against large, established competitors - did someone say Collection House?

Incoming CEO David Hentschke has a growth hat, seeking to expand the use of technology as well as investigating opportunities outside Australia. This is a watch to see if he can execute as he does not come from this industry.

The company has also recently added Hugh Robertson, director of equity capital markets at Bell Potter to the board. Robertson currently sits on the board of Envirosuite and Maggie Beer, and brings decades of experience in financial services. 

Sector: Debt recovery utilising digital communication and payment management platform using AI and machine learning. View to improve customer engagement and debt management. Focus on communication and marketing as opposed to straight debt collection.

Customers include Bendigo Bank, Suncorp, Prospa, Toyota Finance Australia, Seek, BMW, Queensland Health.

Recently appointed CEO David Hentschke ex PEXA Group.

Revenue $11m up 70% year on Year. Includes $3.5m Digital revenue up 147% and 94% gross digital profit margin

As at the end of June held $10.7m in cash and cah equivilants.

A SCALABLE  business!

Looks interesting.

Disc. I hold Credit Clear shares.

BANG BANG! ANOTHER RIPPER QUARTER! Everything Management have said over the past 12 months they have delivered. Next steps more blue chip clients to sign, plus profitablity within the next 6 months. Thorny love CCR, so does Henry from Marcus Today. Riding this to $2. Would also make a sexy takeover. 

Interesting to see the market is still not that excited about this....

It was way oversold when it got to 0.47 range, it seems to be trading around low 60s. Have a look at the top 20 and you will notice some very smart very wealth sophisticated investors.

You have Alex Waislitz as top 3 shareholder with over 9 percent and have you founder of Melbourne IVF John MacBain in the top 20. These guys were early days in the likes of Afterpay. I believe these guys will move overseas in the coming years and acquire some businesses to scale. They have not lost a customer recently, and have added some great new customers such as Suncorp.

Profit margins are over 90, here and they are moving the dial in terms of the amount of debt becoming done via the digital offering moving towards 40 percent. Keep an eye out for these guys over the next 12 months. 

Credit Clear due to release an announcement any day now as they have signed up another ASX20 Company with their revolutionary debt collection software. This signing will most likely make them cash flow positive and set for a very decent year ahead. 

https://www.ausbiz.com.au/media/its-buy-day-with-henry-?videoId=8684&sectionId=1934

thorney tech have 3% stake too, buy around 70-72c, have revolutionary approach to debt collections