Herewith my early take on the results / investor call.

In the CEO's Overview, Molly Mathews indicates that 93% of Churches now rely on / or have adopted technology in support of running their Church. This IMO highlights the massive change for PushPay going forward. The glory days of pioneering change by urging churches to replace legacy systems in pursuit of greater efficiency are essentially over. The Covid lockdowns have forced the change across the entire Faith sector, with competitors benefiting to a far greater extent. PushPay's first mover advantage is no more.

The forecasts, now provided out to 2025 (that's a first) simply suggest that their CORE business is in stall mode and that it will take time to turn the ship around. Entry and success in the Catholic sector is a key component of this turnaround, as is the expectation that the new Resi streaming service, once bundled with Donor & Church Mgt, will present as a compelling change for Churches. If you subscribe to the view that every change at this scale constitutes an upheavel for a Church, it's employees and their congregation, the selling bundled offerings at premium prices may prove to be more challenging than meets the eye. Lots of talk this morning about restructuring, uplifting of skills etc. Says they are still in 'Fix-it' and 'Planning' mode.

Current Cash Generation remains a big plus. Simply look at all that remains of the debt associated with the Resi acquisition. Gross margin has held up at 68%, suggesting the long term fiscal disciplines are alive and well. 550 new customers for the Core business with a comment that they seen a pick up with small customers is hardly impressive.

In closing, today's presentation was clearly designed to assure investors, but also to best portray the Business for any interested Acquirer and finally, as an alternative, possibly even pave the way for a USA listing.

Will have a closer look at the numbers over the weekend, but no urgency to buy back into PPH on the reported headline numbers.

RobW

PushPay announce their FY results this morning. They recently announced that they had received 'expressions of interests' from undisclosed parties regarding the acquisition of the Company. At the time, I mentioned it was unusual to received interest from multiple parties at the same time unless the Company had signalled their interest in selling.

To add to the possibility that this may be a single party and its representatives, worth having a look at the Top20 Shareholder listing today. We have a significantly diminished ' inside ownership'. The Company recently announced a new substantial shareholder named Brown Capital Management ( 5% stake) Interesting that Brown Capital Management have been a major shareholder of Blackbaud since 2013. In Blackbaud's Dec 21 disclosure, Brown Capital sold down 34 % of their stake (402367 shares). May be worth looking to see if there are any other major shareholders who have a foot in both camps. Takeover leverage ??

Pure speculation on my part but no harm done joining the dots in search of possible outcomes.

On other matters, PushPay were pretty guarded with their disclosure during their HY webinar, particularly with regards to growth in customer count. Guidance for FY22 confirmed a stalling in growth. Let's see what this morning brings in terms of progress against their FY21 base, any change in their subscription Revenue and of course their plan for the Catholic sector.

RobW

My review of the PushPay FY2021 result (incl. Guidance provided for FY2022) has quite frankly resulted in more questions than answers. Maintaining conviction on PushPay as an investment has, IMO, always been easy, this supported by a 'faultless' trajectory build on each and every metric that really matters. FY 2021 was no exception and this together with the announcement on the planned expansion into the Catholic sector coupled with the continuance of the cross selling opportunities via the declared state on the product holding splits, it was natural to expect another stellar year in FY2022. 

The 'soft' guidance provided for FY2022 signals a likely break in these trajectories and with that, the risk profile shifts in the face of the unknown.

Some will remember, I wrote the script for the FY2021 results back in January, suggesting that the provision of EBITDA of the then latest guidance together with the narrative in the HY results, would allow us to construct a view on Revenue, Gross Margin and Opex. I raise this now, not in pursuit of any self-applaud, but to suggest that the underlying maths + narrative resulted in something which can IMO be considered credible. At the time, I opted for a beat on top-end of guidance by 1% ( Bullish me) . A 3% error. I provided for an increase of 5% on expenses. This came in flat at USD 65 m. Note : The results on Opex were reported by the Company as 9% up, but this came about only as a result of the Company re-stating the previous year's number/s. The assumption on GM % was spot-on at 68%, with the resultant fall-out appearing in the Revenue number. A 4.7% error.

Once again the Company have only provided guidance on EBITDA for FY 2022. I have opted to use the Guidance which excludes the preparation and associated costs with a launch into the Catholic sector. That just muddies the waters. 

The mid point of EBITDA guidance for FY2022 (excl Catholic prep) is USD 68.5 m, a mere 16% up on that achieved in FY 2021 [ Revenue +40% ; GM % +3% ; Opex essentially flat ; EBITDA + 133%]. A serious disconnect when one considers :

* Cross Selling Opportunities : Theoretical opportunity to x-sell Churchstaq to 6474 Donor Mgt System customers and to x-sell Donor Mgt platform to 2172 Church Mgt customers. Sure, not everybody will sign up for the fully intergrated dual 'one stop shop' platform, but have we already reached that point of customer reluctance. ROI ??At the time of acquiring CCB, PushPay indicated the purchase would be earnings accretive in the first year (FY21) and fully accretive in FY22. 

* Messaging via Narrative ...
" Strategic goal of being the preferred provider of mission critical software to the US Faith sector. PushPay continues to expect strong Revenue growth, as we continue to execute on our strategy to gain further market share...."

* Are we dealing with nothing more than PushPay being ultra- conservative with their 'first' guidance, given the uncertainty in the early stage of a post Covid period where churches reopen etc. We know the Company pride themselves on delivery of Guidance, but if they have pegged this first 'conservative' number with the knowledge they have future opportunity to increase guidance, then quite frankly their track record on guidance delivery becomes watered down and even to a point of diminished value.

Let's get back to seeking out some pointers using the Maths to interpret what the mid-point of guidance could mean in terms of Revenue, Gross Profit & Opex.

A. Scenario where Gross Margin % maintained at 68% and Opex as a % of Revenue maintained at 36%.... [ Fall out depicted in Opex]
Revenue est. at USD 214 m ( equates to 18.2% YOY growth )
Third Party Costs at USD 68.5 m
Gross Profit at USD 145.5 m
Opex at USD 77 m

B. Scenario where Gross Margin % maintained at 68% and Opex contained at USD 70m (single digit increase vs FY21)...... [ Fall out depicted in Revenue]
Revenue est. at USD 203.6 m ( equates to 12.4 % YOY growth )
Third Party Costs at USD 65.2 m
Gross Profit at USD 138.5 m 
Opex at USD 70 m

C. Scenario where Revenue is set at USD 214 m (as in A above) and Opex is contained at USD 70 m...... [ Fall out depicted in Gross Margin %]
Revenue est. USD 214 m ( so 18.2% YOY growth)
Third Party Costs at USD 75.5 m 
Gross Profit at USD 138.5 m 
Gross Margin % at 64.7%
Opex at USD 70 m

Some Questions

* Does the low EBITDA guidance provide for a known acquisition prospect which will cause a material extension in Operating expenses? I guess plausible if 'known' and the Company provides for this in their first Guidance for FY 22, so as to avoid having to reduce guidance once announced.

* Covid 19 induced a 'call for help' from Churches across the entire US faith sector. Large, Medium & Small churches were forced to embrace technology solutions as a means of survival. PushPay chose to expend their efforts almost exclusively ( customer count numbers tell the story) towards their existing customer base, including new customers via the CCB acquisition. I guess this makes sense, particularly when you have just paid USD 86 m for an acquistion. Have PushPay competitors soaked up the market opportunity which is now materially impacting PushPay's runway for growth. Different selling to someone who has fragmented multi point legacy systems compared to someone who has now established technology efficient systems, albeit without the bells & whistles.

* Staying with Competitors, have Competitors ' closed the Gap' in terms of their offering/s. PushPay have clearly positioned themselves as the Premium service. Has the value proposition been diminished ? Which competitors are financially stronger now and better able to accelerate their progress towards aspirational targets (even possibly presenting as a threat IRO PushPay's customers)

On this point, PushPay insist on a contract whereas many Competitors have a 'cancel at any time' approach. PushPay were charging each customer USD 199 per month, whereas a Company like Tithe-ly only charge USD 99 per month. For interest sake, if the price point is still at USD 199 per month, it would cost PushPay USD 13 m per year to align their subscription fee with what appears to be an industry standard. 

Is that what is being provided for ? 

* The historic ratio of H2 Rev to H1 Rev is approx. 22%. FY 2021 has just come it at 9.3%. 

* Unearned Revenue was reported as 11.2 % of Total Rev. in FY 2020. FY 2021 came in at 7.8%. 

* The proportion of Medium and Large Customers, as a percentage of Total customers, decreased to 56.3%, down from 58.9% a year earlier, this as a result of increased sales to small customers. 

PushPay were willingly shedding small customers a year ago. 

And finally, anybody recognise this ....

" In the long term , PushPay is targeting over 50% of the Medium & Large Church segments, an opportunity representing over USD 1 Bn in Annual Revenue" 

Been in every Financial Report that I can remember. If you find it in any of the FY 2021 material, please let me know. Will this be similar to the reporting on Pushpay's success vs the Top 100 churches in the USA. Withdrawn and the last I heard the number was down to 52.

I said at the outset, more questions than answers. My read is that everything points to their competitive landscape having changed. They have the scale and financial strength to counter this. Their messaging says they will grow via M&A as this is considered more time efficient than pursuing organic growth. The Company is debt free and is soon to reach a milestone of generating close to AUD 100m a year of free cash flow. Dont believe dividends feature in their plans , so this FCF will need to find a home. Based on the track record, PushPay have excelled iro execution. For investors, the short / medium term risk has to be considered higher after assessing the FY22 guidance. For me, the entire FY 21 result is lost in terms of share price appreciation, which is disappointing.

I for one will await the AGM and will also be keeping an eye the Standard & Poor rebalancing of the ASX 200 on Friday 11 th of June. Not sure how many have looked at the Share Register. Light on substantial holders ( was it 4 only), but populated with many new names. Christopher Fowler still a question.

As always, the above reflects my individual thinking and I welcome any comments and thoughts.

Ran some numbers this morning, simply taking the run-rate exiting FY2021 ( annualising the second half result ), then adding the Revenue reported as UNEARNED. This delivered an EBITDA number which is USD 5 m above the midpoint of the declared Guidance for FY22 ( using the Guidance which excludes the preparation and assoc. costs for the Catholic sector launch).

As I said at the outset, more questions than answers. A merger, acquisition or launch into a new geography can turn this on it's head, but for now, everything points to FY22 being a 'nothing' year. 

I for one will await the AGM hoping to gain a better understanding of what is at play.

Rob W (Rokewa)

Just a correction to my previous post. The two Substantial Shareholder announcements (Mawer) issued three days apart only constitute one aggregated shareholding of 5+ %. 

Subsequent to that, we have now received an Announcement that Credit Suisse have joined the Register as a 'new' substantial holder.

Suspect more such announcements to follow, but regardless, the Register will look very different come 11 May.

RobW

With a mere 4 weeks to PushPay's Full Year Financial close and a further 6 weeks to the release of the Results, worth reflecting on the many 'comparable' Company results just released during the Australian Reporting Season and then draw some comparisons versus what we are likely to see from PushPay.

An obvious distinction for the many Companies who have just provided their HY results is those that have benefitted from Covid-19 versus those that have seen a fall in Revenues and profitability. PushPay have clearly benefitted with the move to Digital, this already evident in May 2020 when they provided the market guidance on EBITDAf, this at a time when many others were withdrawing guidance. PushPay have subsequently increased the guidance on EBITDAf on no less than three occasions. Some may have considered strange that Guidance was provided on a Result, but no guidance provided on the primary drivers of the result, these being TPV and Revenue. 

It is the well established ratios, trajectories and subsequent Company narrative that now allows us the opportunity to write the script for the 11 May release. Here is a look at   likely headlines.

Operating Revenue.......USD 190 m .... 49 % growth versus FY2020

3rd Party Costs.............USD 60.6 m .....35.3% increase in Cost vs FY2020

Gross Profit ...................USD 129.4 m ......56.5% increase vs FY2020

Operating Expenses ......USD 68.7 m ........a  modest 4.6% increase in Spend vs FY2020

EBITDAf ..........................USD 60.7 m ........118.3% increase vs FY2020

Comments in support :

* Working back from the EBITDAf number, applying the well documented ratios,the Operating Revenue becomes a calculated result. Ties with the historical fact that H2 Revenue is approx. 22 % higher than H1

* Gross Margin set at 68% as reported at the HY. Accompanied by narrative .. " whilst typically weaker over the 2nd half, expect gross margin to stabilise at current levels over the remainder of the current FY"

* Operating Leverage : ..." Opex as a percentage of Oper. Revenue improved from 50% to 38%. PushPay expect significant operational leverage to accrue as Revenue increases and Opex remains low.

The above should constitute a 'WOW' result on stand-alone basis and then particularly when compared to those reports received through reporting season.

****

Why is the share price labouring ? Some comments ...

* Customer count not growing ! ......" The Company's primary focus is on increasing Revenue by attracting a larger number of medium and large Customers  AND cross selling products to existing customers, whilst expanding ARPC and increasing retention" ENTER

       - 2716 new customers via CCB acquisition ( remember PPH have onboarded no more than 500 customers a year nett of small church churn )

       - Churchstaq ! In House TAM becomes near on 11000 churches. Subscription Revenue set to increase as a % of Total Revenue? CCB were achieved 90+% Gross Margin

* Relentless Insider Selling ! 

      Firstly, Founders are now out. Yes, the Founder Investors (Huljich Father & Son) have sold shares and still sit on a 15 % holding each. Their resignation from the Board means they are no longer considered under Inside Ownership. Believe this sets the Company up to be included on the ASX 200. They motivated the share split on the basis ...." the BOD believes the share-split is likely to enhance liquidity in the market and attract further shareholders".

Refer the most recent Substantial Holding announcements ...Harbour Asset Mgt and Mawer (x2)....both new to the Register. Trading Volumes over the ASX and NZX have increased significantly and narrow-band trading supports Transfer of Ownership. Register will look vastly different come May.

Confident that the Float Adjusted Market Cap or Free Float as often referred to will no longer present a hurdle. Market Cap not a problem and IMO will re-rate in the coming weeks.

Enough for now. Digital giving here to stay and I never doubt PushPay when it comes to execution. Confident with my valuation at $ 2.65.

Rob W

PS Dont forget to convert above numbers to AUD

Attended the webinar conducted by Exponential this morning (2.30 pm US ET) aimed at providing an update on the impact of Covid-19. Their Survey Report (soon to be issued) captures findings from a sample size of 767 respondents (Churches) with the survey conducted between the 1st and 12th June. The analysis provides first hand feedback on challenges, impacts and evolving progress for the months of April & May.

So a reasonable sample size spanning small, medium and large churches in the USA and importantly, a ‘current’ snapshot. With PushPay’s AGM due to be held tomorrow, thought some may find it useful to get an overview which can either confirm or add context to whatever we hear tomorrow.

Herewith my interpretation of that shared in the Webinar.

* The gradual re-opening of churches in the USA is presenting a wide array of approaches, strategy, experimentation, rate of progress and resultant outcomes. The points of difference are to an extent governed by different things that can or cannot happen in different places. This situation is amplified with split opinion from congregants as to whether Churches should or should not open

The Survey has revealed that 80 % of the congregation at large churches are not attending. Attendance at smaller churches is much higher. Most churches who have the potential to gather at a determined level of capacity are yet to reinstate gatherings.

* The respondents surveyed fall into one of two categories, these being ‘early adopters’ and ‘late adopters’. 

Early adopters are being challenged by continuous testing of traffic patterns (vs restriction guidelines’, staffing availability and the need to run with a dual system covering ‘in building’ and ‘on-line’ services. After several weeks, the nett result is that more than 50% of pre Covid-19 congregants are not returning. Some early adopters are advising others not to start in-building services until the standard is equal to or better than the on-line standards. Examples include in- building attendance of 11%, congregation and Church choirs singing in masks, the divided political opinion on wearing masks (a level of boycotting), the necessary cleaning cycles, fogging and the list of challenges goes on.

The late adopters are very much in experimentation mode. 50 % of the churches surveyed plan to re-open in June, many with the understanding that, given the continued spread of Covid-19, they may need to re-close.

* So uncertainty abounds at a time when congregation care is a priority. Said that 20% of New Yorkers know someone who has died of Covid-19. You can add to this the woes of the unemployed, the fall-out for families, the pressure on food banks and the new impact of the ‘black lives matter’ protests. So the need has never been greater. 

All said, the responses indicated optimism currently outweighs uncertainty.

* What of funding ? Whilst the survey material does not dimension any drop in the extent of giving, some comparisons of Mar/ Apr 2020 versus Mar / Apr 2019 show that the funding inflow probability matrix reveals little change. They break the funding inflow into CERTAIN, UNCERTAIN and UNKNOWN. 

* Churches have found a new rhythm on remote staffing (on-line). With the Faith sector being considered as ESSENTIAL SERVICES, giving the change in exposure risk, Churches have lost some of the older volunteers and now replacing with younger volunteers. Some are leveraging this for extending the on-line engagement with congregants, expanding over the historic in building congregation size. 

Most Churches plan to remain on-line, creating multiple Zoom rooms all aimed at accelerating the drive into communities. 

********

We know that PushPay has seen higher adoption through this period. The above points to the move to Digital Services / Engagement Tools sustaining. Maybe this new found ability to leverage the power of on-line will see the mission of the Church rebound from the declines witnessed over the last 10 to 15 years.

Hopefully this will provide some context when we hear from PPH in the morning.

Rokewa
 

At the time of the release, most holders would have been ecstatic with the result and may still be pondering over the mouth-watering guidance provided for FY2021. Simply wow, particularly as this comes in the midst of a historical pandemic, with economic uncertainty prevailing across the macro, at a sector level and of course, for individual companies. I suggested prior to the release of the FY results @31 March, that due to timing, the impact of Covid-19 would likely be minimal. Nice to lock in solid results when others are withdrawing guidance and priming investors for a period of under performance.

More importantly, I think we can now confidently say that PushPay appear not only to be weathering the storm better than most, they are one of the few Companies which have seen increased adoption of their Digital products and services, a gain which is likely to sustain.

Having completed a full review of the results, can share some interesting observations. The investment case for PushPay is IMO now stronger than it was a year ago. This investment was always about operational leverage, where scaling and cost containment would drive enhanced profitability. To assess this, I chose to exclude the financial impact of the CCB acquisition from the results so as to assess the Run Rate entering FY2021 ( on the original PushPay business).

Note : Run Rate calculated using the financial results for the second half of FY2020

Key metrics as follows :

Operating Revenue ......................USD 134 m
less Third Party Direct Costs ....... USD 48 m
equates Gross Profit .....................USD 86 m

Gross Margin ................ 64 %

less Operating Expenses ...............USD 54 m

yielding EBITDAf............................. USD 31.5 m

Interesting the Company provided FY2021 guidance for EBITDAf only at USD 48m to USD 50m. Illogical when you consider TPV and Revenue feed into this result. Can understand that TPV will be subject to the economic stresses felt within congregations, yielding uncertainties in terms of the impact on the extent of giving. 

So where do PPH get the confidence to guide on EBITDAf ?

The Run Rate provided says they are already well on their way to achieving this result, particularly when you consider :

1) The FY2020 shows unearned Revenue of USD 14.3 m ( historically a USD 7 m carry)
2) The metric above excludes USD 16 m of historic CCB Revenue and the impact of CCB’s higher Gross Margin plus any further post acquisition cost savings. Company has really impressed via financial disciplines, so step change in costs anticipated.
3) Excludes any cross selling opportunities and the financial benefits associated with the launch of new fully integrated software including Church Management.

Gut says the FY2021 guidance on EBITDAf is already in ‘Beat’ territory. Look forward to the AGM on the 18th June. Sure they will provide more detail or at least further context at that time.

RobW
 

FY2020 has seen PPH execute on their plan, delivering impressive operational leverage and prospects for accelerated growth with a first acquisition. When they report their FY2020 results on the 6th of May, expect EBITDA to be north of AUD 35 million. The Church Builder acquisition appears to have gone well and their efforts towards integration and expanding their platform to the 'one stop shop' concept should present significant growth opportunities during CY 2021. The Company did indicate that the Church Builder acquisition will be earnings accretive in FY2021.

The fall-out from Covid-19 should yield approx. a 20% decline in Total Processing Volumes, offset by the addition of many new Church Groups. Watching BlackBaud as their most significant competitor. This USA listed Company is a well established business who has undergone a major transformation over the past 24 months. Dominant in the Catholic Church space, which provides for some market divide. As the combined revenue of PPH and Blackbaud, generated from the faith sector yields a market share of less than 10%, plenty of scope for these two Companies to extend their footprint during the Covid-19 disruption. That said, suspect many of the smaller players will be capitalising on the opportunities during this period.

PushPay's achievements to date have been measured. Interesting to see how they have coped with a need-driven surge in demand over the past 8 weeks.

Revise my valuation to AUD 5.88 for FY2021

RobW

The future is anchored on three pillars, 63 + % gross margin, 25+% growth from existing and new customers and growth via acquisition. Historically, market penetration has been measured and expect this to continue, particularly as they strike that balance in the relationship between scale and profit. 

Looking at the run rate exiting FY 2019 plus the small lift in guidance announced at the recent AGM, expect the eps based on the first half FY 2020 plus extrapolation for H2 to come in at above 7.5 cps. Based on this, my target price as at May 2020 is $5.60 and $6.00. Yes, assumes a PER of 80, but confident the Company and it’s prospects will be better understood, particularly if we see an acquisition in the next twelve months. That should put them on the radar.

The managed sell-off for the best part of this year will come to an end and that should present a fairer assessment of market value.

Only red flag surrounds the recent executive changes. Not overly impressed with the Chairman at the AGM. A big fan of Chris and can only hope he remains active in the Company in his new role.