Nitro H1 market update and 4C (attached) shows good growth with a small increase in guidance and some changes to SaaS metric definitions.

H1 Update (Note NTO is a 31 Dec year end):

·         ARR at $33.8m, up 56% PcP – tracking very nicely

·         Subscription revenue now 63% of total revenue, up from 53% at the end of FY20 and 48% PcP shows good progress of SaaS business model.

·         Cash of $38.8m, down $3.0m from previous quarter driven by -$2.7m operating cash flows. Customer cash receipts have been relatively flat for the past 4 quarters, I will be looking for this to lift in line with sales in coming quarters or questions will need to be answered.

·         June: acquisition of PDFpen, adding Mac, iPad and iPhone capabilities to our platform and opening up new market opportunities

·         July: Nitro Sign is commercial availability as a standalone subscription product, for the first time.

·         Nitro also launched a Nitro Sign integration with Salesforce this month to accelerate the closing of sales contracts and other critical agreements

·         Guidance:

o   ARR reaffirmed at $39-42m FY21

o   Revenue increased to $47-50m from $45-49m

o   EBITDA loss decrease to -$9-11m from -$11-13m due to higher revenue expectation

Changes in SaaS Metric Definitions

·         ARR is now the total value of subscription revenue contracts, that are in effect at the end of the reporting period, expressed on an annualised basis rather than a multiple of 12 for the last months subscription revenue.  This gives a small uplift where ARR grows over the last month of the year which it has, but not a significant variance.

·         GRR (Gross Retention Rate) was previously calculated as a % of the customers who renewed in the reporting period from those due for renewal but now includes all customers.  Due to the fact that most Nitro subscription agreements are 3 years this now includes a lot more customers and significantly improves the metric reported (eg from 85% to 95% for FY20).  This seems more appropriate.

·         NRR (Net Retention Rate) similar to the ARR change, the end of period rather than last month of period is taken as the comparative.  Little change in results from this.

Another very strong result from NTO and I will leave my current valuation of $6.32 unchanged until we get the half year accounts in late August.  I hold NTO and have no plans to change my holding currently

NTO announced today (28/6/21) the acquisition of PDFpen for $6m in cash which provides PDF productivity applications for Mac, iPhone and iPad.  The transaction is expected to complete on or before 9 July 2021 and FY21 guidance has been reaffirmed (note 31 Dec year end).

“Nitro’s Productivity Platform already supports certain key mobile and tablet use cases, with eSigning available on any device with a web browser and Nitro Pro compatible with Microsoft Surface devices. The addition of PDFpen extends native PDF productivity to Mac, iPhone and iPad users everywhere.”

A modest and seemingly strategically important acquisition points to this being a good thing.  NTO’s first acquisition since IPO in Dec19 so organic growth and their core product remain the focus of management which I like to see.

My valuation of $6.32 stands until more detail is available, but assuming that the acquisition is value accretive then it offers upside opportunity on the current valuation.

NTO continues to rotate to subscription (ARR) from perpetual revenue, I see no reason to update my previous valuation of $6.32 as things are on track, highlights:

·         ARR up 66% YOY

·         SaaS now 61% of revenue Vs 53% at 31 Dec.

·         $41.8m cash and no debt – strong balance sheet

·         FY21 guidance maintained (note 31 Dec year end)

·         time spent by Nitro Pro users up 160% year-on-year.

·         Operating cashflow -$1.5m due to increased investment in growth (personnel, Nitro’s product suite and sales strategy – as well as performance-based bonuses).

Market has taken the news positively, NTO up 9% so far today.

Valuation Detail attached - using Nitro