31/8/18 Appendix 4E & FY18 Financial Report

MPW submitted their FY18 annual report, financials were already provided in the 4Q results so no surprises there (see my other straw for details) but management did provide a much clearer breakdown of the operating business and their outlook for the future.

Revenue was broken out into organic and acquisition, and pleasingly organic revenue has accelerated over the past three years from 14% to 17% to 20%. Management stated they expect this to continue at 15%+, with the goal to double organic growth through strategic and accretive acquisitions. 47% of revenues are recurring, with over half coming from overseas (a tailwind as the AUD falls) and customer churn is under 5%.

The company also broke down their financials against their forecasts, showing that the NPATA miss was entirely due to an extra $1.4m in R&D costs than was budgeted (fully expensed). The weak cashflow number was also explained, with $1.6m of IPO cash costs coming in 1Q18 after going through the FY17 P&L, $3m in receivables received in 1Q19 on sales in FY18 and $600k in transaction costs recognised as operating costs due to technical accounting standards. If this $5.2m in cash were accounted for, FY18 operating cash flow would have been $5.6m, equal to adjusted NPATA which is what you would expect.

Looking forward, MPW management believe they have less than a 5% market share in each of their verticals, with a long term NPATA margin goal of 30% in line with peers. 

26/7/18 Appendix 4C & FY18 Operational Update

MPW reported their 4Q cash results and gave unaudited FY18 results.

It was a messy update, with revenue of $35.1m and NPATA of $5.7m slightly missing guidance of $35.5m and $5.9m respectively. The issue is the revenue number included $1.1m of other income which included proceeds from the Zuuse sell-down and the reversal of an earn-out payment provision. Considering both of these items are 100% margin, normalised NPATA is $4.6m.

However, there were some other interesting points in the update. $1.5m revenue was delayed into FY19 due to revenue recognition despite being executed prior to June 30, which would largely explain the revenue guidance miss.

Management also stated $800k extra investment was made to drive international expansion, largely to Europe, US and Middle East. This was seen in the higher R&D spend in the 4C and the opening of an office in Dubai with other key management appointments. Along with the delayed revenue, this likely explains the NPATA miss.

The biggest issue is the extremely weak cash result. Only $54k in operating cash flows is far below what you would expect given cash flow should roughly equal NPATA. Unfortunately, we need to wait for the audited results to check working capital to see where the cash is going.

Small SAAS provider focusing on the niche area of clubs and member organisations. Effectively a roll-up with most growth coming from acquisitions, but no debt, plenty of cash and an investment on the balance sheet being realised above book value.

52% of revenue is recurring and high R&D spend is fully expensed. R&D was 16% of revenue at 1H18 and should scale down as revenue grows to be more in line with industry peers around 10%. 

Management forecasting NPATA of $5.9m for FY18 (high amortisation charges from their acquisition spree) putting them on an undemanding multiple of 8x.