Hot off the heels of the Huljich family sell down, Independent Director, Justine Smyth, has resigned from her role with PPH.

We'll have to keep our ear to the ground to learn more about this over time. I recall Chairman Shaw making note of Justine's experience in M&A when she was first appointed in Aug 2019. Perhaps it was always the plan to bring her in specifically for the Church Community Builder acquisition. If so, transparency could be better. If not, there could be something bigger at play.

It's always fraught with danger when trying to guess the underlying reasons behind a resignation or share sell down. Justine, for example, has an athletically gifted daughter who is pushing for a Winter Olympics spot. Alternatively, she is a passionate advocate of women's rights. Without further commentary, we could use this resignation to make intelligent arguments to paint PPH both in a positive or negative light. 

I didn't think an announcement relating to a new hiring was going to be the next event that got me more excited about PPH, yet here we are.

When everyone else is laying people off, PPH have secured the services of Lovina McMurchy. Lovina has significant experience with tech-orientated business over the last 20 years. Most recently, she worked on the Alexa team to build out voice-based shopping services. Prior to that, she pioneered Amazon's move into the subscription economy by building a technology platform to allow both Amazon teams and external teams to rapidly launch and sell subscription products on Amazon. She has also worked with Microsoft, Starbucks and Movac, a kiwi venture capital firm.

As PPH seek to flesh out their newly acquired ChMS this is a great hire.

In the same announcement, PPH completed the last step in founder Chris Heaslip's departure with him formally standing down from any formal PPH position. I am sure in the future we will discover if Chris left or was pushed. As for now, I am excited to see the fruit of their most recent hire.

Original announcement here.

PPH have announced this morning that performance for the year ending 31 Mar 2020 is not expected to be adversely impacted by Corona virus. (no comment on any period beyond that)

Gordon mentions that the Pushpay platform is helping churches communicate with their congregations despite many churches closing their doors (i.e. doing its job).

Despite many Americans already self-isolating, donations through the pushpay platform last weekend exceeded pre-COVID expectations. This may be an anomaly or part of my short-term thesis playing out. I expect tithing to decrease in the short term, however part, or all, of that processing volume to be offset by one-off offerings. For those unfamiliar with church givings there are two components; tithes and offerings. Tithes are the 10% that is biblically expected each week. An offering is what occurs above and beyond that and are a way of church attendees to assist in the face of catastrophe. I expect offerings to reduce the short-term processing volume impact of self-isolation.

In the same announcement, PPH reiterated or increased guidance as follows;

• Operating revenue of between US$121.0 and US$124.0 million
• Gross margin of over 63%
• TPV of between US$4.8 and US$5.0 billion
• EBITDAF of between US$25.0 and US$27.0 million (up from 23-25)

Original announcement here.

Chris Heaslip was one of the co-founders of Pushpay, along with Eliot Crowther.

Eliot left the business in quite a public way following a marriage breakup, selling his 9% stake at that time.

Chris announced his intentions during a conference call to step down in May 2019. Following the recent CCB acquisition, Heaslip sold off a further 6.5M shares to allow CCB founder, Chris Fowler to take a meaningful stake in PPH (Fowler now holds a 2.4% stake in PPH). What is left is a 3.984% stake between the two original founders of Pushpay. Whilst we cannot claim Pushpay is founder-led, it is still at least founder-mentor-led. Heaslip may have been preparing the battlefield, but during several interviews prior to his May departure, Heaslip referred to Gordon as a mentor of his and instrumental in getting Pushpay off the ground. An interview with Jeremy Medlin from 12 Dec 2018 includes comments such as:

• Bruce volunteered for years prior to serving as Chairman of the Board
• He (Bruce) has been involved since day 1

Furthermore, in an article from the New Zealand Herald, found here, Heaslip said "there had been an orderly succession process. Behind the scenes he had been discussing his situation with the board, and the possibility of Gordon taking over, for some time."

A counter-argument to the harmonious succession plan I am painting is that Chris Heaslip was asked to step aside and that he ultimately 'agreed' to remain as a non-executive director. People much smarter than I have expressed this opinion which gives me reason for pause.

Regardless, insiders buy into their company for one reason and sell for many. I am not concerned by Chris Heaslip's continual departure from the business. The consistent narrative I observed over 12-months of interviews leading up to May 2019 was that Chris himself was tired and wanted to focus on his family. Who could blame him when his best friend, Eliot, had it go so very wrong right in front of him?

The FY2020 Interim report highlighted a reduction in the acquisition of new customers. This resulted in the CAC to increase significantly to 21.7 months from 15.3 months. I however, don't see this as a deal breaker.

Pushpay (PP) adjusted their focus to go after the medium and large church segment for a few reasons. Large churches by their very nature result in a higher subscription fee and typically invest more to integrate the PP technology thus resulting in a higher volume fee. Moreover, there is less churn in the large church sector.

Medium and Large churches now make up 56% of PP customers. As a percentage it is always harder to generate growth of an already high base. A slow down here was inevitable. Plus, we should expect this to be a slow process as we want the large churches to be more sticky.

If you want to increase subscription fees and reduce CAC, customer acquisition is the easiest lever to pull. It is not however the most lucrative.

To an Australian reader it may blow your mind to discover that a huge proportion of church attendees still tithe using a bank cheque. On average, 5% of churchgoers tithe and interestingly, Millenials as a sector as some of the most generous (sources! you cry - I have my sources). This combination, provides us with a sympathetic tech savvy audience. If you can activate this audience you get an increase in ARPC.

Average Revenue Per Customer (ARPC) = (subscription fees + volume fees) / total customers

• Charge more per head (subscription)
• Church attendance increase (subcription)
• Collect a higher % of each donation (volume)
• Increase in total donations or people giving (volume)
• Existing church attendees adopting online giving (volume)
• Expand (through acquisitions) beyond faith sector (total customers)

The recent interim report was impressive, not mind blowing, but solid. I see new customers growing through external acquisitions but I am confident that there is a long organic growth runway still available by increasing ARPC.

Disc: hold

Adding to the Strawman's post:

Total Revenue was up 40% from US$70.2M to US$98.4M.

Operating revenue was up 40.2% to US$95.9M. The forecast for FY20 (122.5-US$125.5M) is a slower growth rate to operating revenue of only 30.1%. Not sure if there is a trend of under-promising but my valuation was built around a 30% worst case scenario. (slight edit as my previous growth forecast mixed operating and total revenue - my bad, I had painted a slightly poorer picture)

Gross margin hit the 60% as expected and is on track for 63%.

Operating expenses were relatively flat at ~$63M. As a percentage of operating revenue it dropped to 65%. If this trend continues it will likely drop to ~51% at FY20 close.

NPAT was still up around 90% after taking the $20.9M tax benefit out. 

Loving the combintion of zero debt (at the moment), improving margins, impending positive NPAT. Potential slower growth rate is worth monitoring however my val holds.