DSE provided another positive update today:
A bit larger than I would have preferred but hey!
In addition, the ARPU increased as well, as legacy customers rolled onto new contracts and others upgraded.
This also improved margins which are now up to 70%; an increase of 4% on prior quarter.. Pleasingly they flagged that they are confident of maintaining these kinds of margins.
Whilst cash receipts were higher ($5.58m), Operating cashflow was once again positive, at $0.45m, which was their 3rd +ve quarter in a row. This was a reduction on the previous quarter which was attributed to timing issues and currency movements, but also higher wages and advertising spend. They have also said that next quarter is likely to be lower - due to other vagaries such as staff bonuses, annual insurance premiums etc. (see below). It seems the advertising spend is worth it, as they added a net 53k new users bringing the total user count up to 935k which is 6% higher than prior quarter and 44$ higher than pcp. Churn remains low at sub 3%.
They have heaps of cash left - $22.3m
The drivers for future growth remain much the same - continued increasing awareness by individuals and companies for the need for better back up facilities. They are also releasing the Quickbooks back up in March with fees being generated from April onwards. This may well be a significant product.
So, in summary a good update. Pretty much all metrics heading in the right direction. OCF could well be weaker and indeed -ve next quarter, before resuming an ever-increasing upswing as operating leverage and unit economics do their marvellous thing. They are at one of those much discussed inflection points (its getting a bit tired, but that's what it is)
Overlaid onto this is the possibility of an acquisition.
I have build a reasonable position in DSE over the years. I am looking to add more. The window of opportunity is likely to be after the next 4C when they update OCF, which I anticipate to be weak due to the reasons outlined above, plus a fair bit of FUD from the macro.
Reasons to be doubtful would be dumb acquisitions (unlikely on the evidence to date), spiralling wage costs or a loss in a major re-distrbutor.
Here's the link to the announcement