PPH - Pushpay Holdings Limited - Strawman: ASX share price, valuation, research and discussion

Reports (11) My Report Forum Investors

Top member reports

Consensus

Melo

Company Report

Last edited 4 years ago

Performance (53m)

-0.4% pa

Followed by

Straws

Sort by:

Recent

Content is delayed by one month. Upgrade your membership to unlock all content. Click for membership options.

Become a member

#Acquisition of CCB

stale

Melo

Last edited 4 years ago

In December 2019, Pushpay completed a transformational merger with Church Community Builder (CCB) to deliver a ‘best-in-class, fully integrated church management system (ChMS), custom community app and giving solution for customers in the US faith sector.’
Pushpay will acquire 100% of CCB for $US 87.5m, funded via cash on hand plus a new $US 62.5m senior debt facility. Based on CEO commentary, CCB has annual revenues in the range of $US 15-20m, implying a revenue acquisition multiple of ~5x.
CCB provides ChMS solutions in the US. It provides a platform that churches use to connect and communicate with their members, record member service history, track online giving and perform a range of administrative functions. CCB has over 4,000 churches (meaning 10,000+ combined)
CCB makes 90% of its revenues from subscription fees, with the remaining 10% based on customisation or integration / implementation services provided on an adhoc basis to customers. Its customer retention is excellent, with most customers entering into annual paid in advance arrangements.
CCB has historically generated $US 15-20m revenues, however the transaction is not expected to have a material impact on Pushpay’s revenue or EBITDAF in FY20 due to ‘the development work required to further integrate the product offerings.’ To me, Pushpay is really buying the customer relationships, as well as the features and capabilities of the CCB software platform, rather than its current revenue and profits. It will then combine the businesses, provide an integrated solution to customers and look to recover its acquisition cost by increasing ARPC with a larger customer base. Pushpay stated that if the integration proceeds to plan, the acquisition is expected to be pre-tax CFO per share accretive in FY21 onwards.
Management / Board changes:
- Chris Fowler, CCB founder, will continue in the business as Visionary and will join the Pushpay Board as an executive director. The other key CCB management – e.g. the CEO, Don Harms – will also continue, reporting to Bruce Gordon, Pushpay’s CEO.
- The co-founder of Pushpay, Chris Heaslip, has agreed to sell $US 15m (~2.4%) of Pushpay shares to Chris Fowler. Chris Heaslip will resign from the Pushpay Board on 31 March 2020.
Pushpay reiterates its FY20 guidance of operating revenue between $121m and 124m, gross margin over 63%, EBITDAF of $23-25m and total processing volume (TPV) of $4.8-5.0b.
This seems an obvious move for Pushpay to make, and was expected by the market. There are strong synergies between church administration and payments processing, and an integrated solution was a preference (read: demanded by) of a lot of Pushpay’s existing customers. “One of the most frequent requests from churches is the need for an improved ChMS experience” – Pushpay.
Pushpay has indicated that CCB was their main ChMS target. They were looking for a ChMS provider that had a comprehensive suite of features, a modern platform based in the cloud, strong management, mutual customers with Pushpay and with a focus on medium-large churches. They believe that CCB ticks all these boxes. Further, there is already some two-way integration between their platforms.
Ideally, I like to invest in businesses with net cash balances. This does seem like a lot of debt to take on for the acquisition, however I prefer it to diluting existing shareholders by issuing further equity, and would expect Pushpay to begin paying down this debt with operating cash flows as soon as possible.
As noted in other sections, I believe Pushpay will be required to invest in the integration of the two platforms (albeit there is some integration between the two already) and to bring CCB’s software up to Pushpay’s standards of modern technology and innovation.
Culturally, it seems to be a good fit, with a strong history between the two and both the founder and CEO of CCB staying on. And it is nice to see the CCB founder coming onto the Pushpay Board with $US 15m skin in the game.
Overall, I think this is a positive for Pushpay, as it expands its market and revenue potential. The best acquisitions are often the most obvious ones. I wouldn’t be surprised if there are some kinks in the short term, however the acquisition should drive increased long term shareholder value.

#Risks

stale

Melo

Added 4 years ago

Revenue risk / loss of customers: As a SaaS business, none of Pushpay’s customers are locked into long-term contracts. They are able to discontinue using the platform (and potentially move to a competitor or alternative giving platform) with minimal notice. There is a risk of a decline in Pushpay’s customer retention rates.
Technology / IT risk: As a provider of technology, there is always a risk of failure of the IT / platform / systems, loss of data or data corruption, which may adversely affect Pushpay’s reputation and turn customers away from the Pushpay platform.
Competition: There is the risk of a competitor developing a superior product and commercialising with greater success. Every man and his dog is getting into payments processing these days, and the faith sector seems ripe for further disruption and competition. In particular, Tithe.ly, another provider of solutions to churches and ministries to increase giving and engagement, is growing significantly in the US. Tithe.ly has over 13,000 churches in 50 countries, including Hillsong, Salvation Army and Planetshakers. Although Tithe.ly seems to be focused on smaller churches (i.e. less than 200 attendees), whereas Pushpay is focusing on medium to larger churches (which are likely to be more profitable).
Regulatory risks: Pushpay is a merchant / payments processor that accepts credit cards and therefore is subject to certain US financial regulations, as well as data privacy laws. Changes to these regulations may cause disruptions, and non-compliance / breaches may result in penalties or termination of accreditation. Although note that Pushpay does not handle the donation money, but rather deals with the payment instructions from the attendee to their banks. The money is transferred directly from the bank to the church – which enables Pushpay to sidestep relevant anti-money laundering laws.
Key man risk: Both Pushpay co-founders have left the business in the last year or two, and therefore the business is now heavily dependent on the CEO (and previous Chairman), Bruce Gordon. If Bruce were to leave or be otherwise rendered unable to perform the job, this could present a significant problem.
CCB acquisition / integration risks: As with all large acquisitions, there is risk that the two businesses do not merge and integrate as well as expected. Issues can arise from a commercial or cultural perspective. It is helpful that Pushpay and CCB have a strong history together, including a large portion of customers already using both platforms. Further, this may be mitigated by the fact that the integrated solution (ChMS + Pushpay) has been requested by customers. However, I am expecting that Pushpay will be required to invest significantly in the CCB platform in order to bring it up to standard and ensure complete integration with more modern technology and capabilities.

#Investment Thesis

stale

Melo

Added 4 years ago

Pushpay is a fast growing, SaaS provider with leading technology that is becoming further entrenched into a large, growing and loyal customer base.
Pushpay has estimated that annual donations in the US faith market are in excess of $123b, 80% of which are made via cash or cheque. Therefore, based on its current annual processing volume of $5b, this suggests it has captured less than 5% of the total market. Further, donations represent ~90% of revenues for US churches, making Pushpay’s platform integral to their operations and resulting in highly ‘sticky’ revenues for Pushpay.
As a SaaS provider, Pushpay has significant scalability. Its platform is hosted centrally on the cloud, can be infinitely replicated at low cost, and can be easily accessed by churches via the internet.
Pushpay has multiple means for further revenue growth:
- Growing market / tailwinds, as a greater proportion of giving is done via digital means;
- Increasing market share in the existing US faith sector, which Pushpay estimates has 340,000 Protestant churches. Based on total customer numbers, <5% of the US market has been penetrated to date.
- Increasing ARPC as new features and capabilities are provided to existing customers. For example, there are ~2,800 CCB customers that are not using Pushpay, as well as many existing Pushpay customers that are not using CCB. Further, there are many features and modules that can be developed to solve other issues within the church. For example, child check-in registrations for Sunday school, event registration and ticketing capabilities. As more value is provided to churches, Pushpay should be able to raise prices and ARPC.
- Expansion into new markets (geographical or religious). For example, Pushpay has established a working group to develop a go-to-market strategy for the Catholic Church market, and could unveil this in FY21.
Management are expecting significant operating leverage to accrue as operating revenue continues to increase while growth in operating expenses remains low. In fact, Pushpay is forecasting its cost base to remain effectively flat for both FY20 and FY21, despite the CCB acquisition. Therefore, any incremental revenue should flow to profits / cash to be reinvested back into the business.
Pushpay is investing in developing its platform, as well as in customer success and experience. In 1H20, Pushpay invested over 44% of operating revenues in product design and development, sales and marketing and customer success / integration.
Arguably, Pushpay could have a level of economic downturn resilience. Church leaders have noted that in times of economic trouble, many people focus more on their local communities and less on the broader global world. Meaning that donations to local churches don’t necessarily fall as much in bad times as you might think.
In the long term, Pushpay is targeting 50% of the medium and large church segments in the US, which is estimated to be a $US 1 billion annual revenue opportunity (~8x current revenues). Acquisitions may be necessary to reach this goal, however management is confident that it will achieved in time. Alongside this is a goal of $US 10b of donations being processed via its platform (~2x current volumes).

#Financials

stale

Melo

Last edited 4 years ago

All amounts in USD (unless otherwise stated)
After its recent share price gain, Pushpay has a market cap of around $NZ 1,200m (January 2020).
In the 6 months to 30 September 2019 (1H20), Pushpay generated operating revenues of $56m (+31%), $10m EBITDAF (+413%) and $7m NPAT (+247%). As can be seen in the growth rates, Pushpay has recently hit a significant financial inflection point and is starting to see operating leverage come through to the bottom line.
- Looking forward to the full year FY20, Pushpay is forecasting operating revenue of $121-124m and EBITDAF of $23-25m, which would represent growth on FY19 of 25% and 1,400% respectively. Pushpay is expecting a gross margin above 63%, with total processing volume between $4.8-5.0b.
Pushpay’s growth comes from:
- Increased number of customers, which were +7% in 1H20 to 7,900; and
- Increased revenue per customer (ARPC), which was +20% to $1,272.
Pushpay’s processing revenues are growing faster than its subscription revenues at +35% vs. +22%.
Pushpay is expected to benefit from significant operating leverage moving forward.
- For example, despite its revenue growing at +31%, third party direct costs (equivalent to cost of sales) increased by only 7%. These costs include donation processing costs (e.g. to Visa and Mastercard) and platform hosting costs (i.e. payments to Amazon for using AWS). As more customers are signed to the platform, subscription and processing revenues are likely to increase at a far greater rate than its operating costs which means that more of the revenues will fall to the bottom line. Pushpay’s gross margin increased from 57% (1H19) to 65% (1H20).
- In addition, Pushpay’s other operating expenses DECREASED by 2% to $30m, which shows impressive cost discipline from management.
- As part of this opex, product design and development costs decreased 7%. My guess is that these costs will reverse and increase post-CCB acquisition as Pushpay spends to develop the CCB platform and integrate with the Pushpay platform. Also worth noting is that all of these product design and development costs were expensed through the P&L, and not capitalised.
Pushpay has historically maintained a net cash position, however will raise $63m of debt as part of the CCB acquisition. I would expect that Management will look to pay down this debt as soon as possible.
The total lifetime value (LTV) of Pushpay’s existing customer base is $3.1b (+45%), driven by increases in ARPC and gross margins as well as Pushpay’s supremely high revenue retention rates above 100%.
Pushpay spends a significant amount on acquiring and integrating customers to its platform. These costs, being sales, marketing and customer integration costs, represent 30% of operating revenues, however this is down from 39%. The time taken to recover the cost of acquiring each customer increased from 15 months to 22 months.
Pushpay has accumulated over $44m of losses, which should be able to be utilised to reduce its tax payable in future income years.

#Business Overview

stale

Melo

Last edited 4 years ago

Pushpay (ASX/NZX:PPH) is a NZ-based technology company that has developed software (in particular, a mobile app) to facilitate payment transfers (i.e. donations) and community engagement within the faith and non-profit sectors in the US, Canada, Australia and NZ.
Pushpay provides its software as a service (SaaS) and generates revenues via:
- Monthly subscription fees (~30% of total revenues) – Pushpay charges a monthly access fee to its 7,900+ customers (i.e. churches) using the software, with ~98% located in the US or Canada. Customers grew +7% in 1H20. Monthly subscription fees are loosely based on the number of attendees at each church.
- Processing transaction fees (~70% of total revenues) – Pushpay charges a variable fee on all donations processed via its platform. Approx. US$4.5-5.0b worth of donations are processed via the Pushpay platform annually (which grew over 40% in 1H20).
In addition, Pushpay’s mobile app gives churches the ability to engage with its attendees via articles, information on upcoming events, recorded sermons etc. Pushpay has the opportunity to become the church’s predominant provider of social media content to attendees.
In return, churches love the app because it encourages further giving (especially from younger generations who do everything on their mobiles), and drives the trend towards digital giving which means less administration time and costs for the church. Pushpay has estimated that, on average, 40% of donations at Pushpay churches are via digital means, compared to 15% for non-Pushpay churches. Further, because attendees can set up regular recurring donations, the church receives much more consistent and predictable donation revenue.
Pushpay has low customer churn rates (~5% for medium/large churches, ~10% for smaller churches). Church administrators have complimented the functionality and accessibility of Pushpay’s platform and how it simplifies their back-office administration and allows them to focus on increasing participation and building stronger relationships with their communities. For example, one particular church has seen over 72% of its attendees donate via digital means since using Pushpay and has subsequently experienced a 90% decrease in the costs associated with annual giving statements.
Pushpay’s strategy is to focus on signing medium to large US churches, and has had recent success doing so, for example last year signing a large US church with over 40,000 weekly attendees.
Pushpay has recently completed the acquisition of Church Community Builders (CCB), a provider of church management systems (ChMS), i.e. software that manages a church’s administrative operations and client management. This will enable Pushpay to provide an integrated solution – both church management software as well as donation processing capabilities – which has been increasingly requested by its customers.
Pushpay’s cloud-based platform is hosted on Amazon Web Services (AWS) and is built using Salesforce technology.
Pushpay is dual listed on both the NZX and ASX.

Pushpay Holdings Limited

Pushpay Holdings Limited

Place trade