The buyout by Pegasus Bidco was voted down: announcement.

It was a bit of a complicated voting process, with two classes of votes --- those from the people who were definitely going to vote for it (called the "First Interest Class") and everyone else ("Second Interest Class"). They needed 75% of the second class to vote for it, but they only got about 56%. It seems that some of the big shareholders, who together hold around 12% of PPH shares (although there's some confusion about that based on earlier market announcements like this one) aren't too happy with the low price being paid.

Pushpay and Pegasus had until Tuesday (7th March) to sort things out and try to get another vote, but they've extended the timeframe until next week (Monday 13th). It looks like the deal is going to be sweetened as according to the announcement yesterday Pegasus will "progress the terms of an alternative proposal".

But of course it could be that they don't come up with something that the big boys are happy with and so the deal might fall through anyway, with a likely sharp drop in SP. If you're still following the company and happy with their performance then that could be a good opportunity to pick up a bargain.

I think I'll sit on the sidelines though.

$PPH released its interim results.

Their Summary

• Positive year on year growth in key metrics albeit at a lower rate than anticipated due to investment for future growth, the go-to-market strategy reset and broader macroeconomic factors presenting ongoing challenges.

• Operating revenue of US$103.0 million, up 10% on prior comparable period (pcp).

• Underlying EBITDAF of US$26.8 million, down 10% on pcp.

• Total Processing Volume increased to US$3.6 billion, up 2% on pcp.

• Increase in Customer numbers (+4% to 14,602 Customers compared to 30 September 2021).

• Strong operating cash flow resulting in net debt of US$35.1 million, down from US$47.2 million as at 31 March 2022.

• As updated on 28 October 2022, guidance for FY23 is Underlying EBITDAF of between US$54.0 million and US$58.0 million. Pushpay continues to forecast positive operating revenue growth but has lowered expectations to be between 4% and 8% for FY23.

• Medium-term growth outlook (>US$10 billion in Total Processing Volume and >20,000 Customers)

My Observations

For the first time in a while, we get to see a purely organic PCP.

Key message - growth is slowing, although they are holding to the story of seeing growth in FY24 from the current investments.

Progress in Catholic segment from 173 parishes up 153 to 326. (Total market is 17,000). Added only 4 new diocese where they are an approved vendor to 49 from 45 (Total market is 194).

New customer adds continue to slow: net addition is 94 to 14,602 (+0.6%).

Meanwhile, operating expense up 37%.

EBITDAFI/Revenue has fallen from 29% to 20% in PCP

NPAT US$8.8m down 54% from US$19.1m

OpCashFlow of US$16.9m down 47% from US$31.7m

Funny how these last 3 didn't make the summary.

Bottom line: PPH has matured and cost base has expanded as they try to drive growth, killing profit and cash flow growth.

I didn't even read on to the guidance and medium term outlook.

Perhaps the acquisition has saved ongoing holders from further pain down the track. A forward PE of 23 is not cheap for negative growth (that's the consensus E before updates)!

Disc:. Not held in RL and SM

Does mean we are done? Takeover is a given so to speak

Few things I don't quite Understand,

Pushpay-enters-into-scheme-implementation-agreement.PDF

Trading-Halt.PDF

Well, I was starting to think PushPay's suitors were going to walk away -- but according to today's announcement the company has received a revised offer:

What's the offer?

Well the media speculation cited refers to an AFR article:

\

Link here if you have a subscription: https://www.afr.com/street-talk/bgh-capital-circles-back-to-pushpay-20221010-p5bol3

I don't know what "well above" means, but a AUD$1.2b is about $1.05 per share.

We'll see what we will see.

Further to Andrews post, PushPay have come out of their trading halt with the statement below.

The latest announcement indicates there are several parties interested so we might have a bit of an auction on our hands.

I can only interpret it as saying "PushPay is up for sale at the right price so anyone interested should put their best foot forward"

I still think it has a bright future particularly if they can get the Catholic Church on board but the acquirers are probably thinking the same. 

It would be a shame to see PPH go but much has changed since the founders left the business.

(I own IRL and SM)

Pushpay update on expressions of interest process

Auckland, New Zealand | Redmond, Washington; Colorado Springs, Colorado; Plano, Texas, US – 24 May 2022 (NZT)

On 26 April 2022, Pushpay Holdings Limited (NZX: PPH, ASX: PPH) advised that it had received unsolicited, nonbinding and conditional expressions of interest or approaches from third parties looking to acquire the Company. The Board appointed Goldman Sachs to assist as financial advisor.

Since the April announcement, Pushpay has received additional interest from multiple parties.

Today interests associated with two existing shareholders (BGH Capital and Sixth Street) have advised that they have entered into a co-operation agreement with respect to a potential transaction involving Pushpay.

Pushpay notes that the agreement is not a definitive transaction agreement and can be terminated immediately by either party on notice to the other. The terms of the agreement are attached to the substantial product holder notices released by the parties.

Pushpay has not entered an agreement with any party, including either or both of BGH Capital and Sixth Street, to implement a transaction.

Pushpay is continuing with a process that is already underway and is in an early stage with multiple parties, to explore the potential for a transaction which is in the best interests of shareholders as a whole.

There is no certainty that this process will result in any transaction.

Contact Gabrielle Wilson | Investor Relations | Pushpay Holdings Limited

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

As covered by @mikebrisky the results were unsurprising and outlook uninspiring. On the basis of this I have updated my valuation to pull back revenue growth expectations (to around 2x from 3x by 2030) and long run EBITDA% down from just under 50% to just over 40% to reflect reduced operating leverage and some stalled growth.

Value: $1.55 (down from $2.33 12/10/21) details: PPH Valuation 110522.pdf

Like @mikebrisky I will continue to hold as reasonably valued, comfortable that strong free cash flows protect the downside and hopeful that they find the magic to make it work in the Catholic sector, but I am no longer looking for high growth, looking at it now from more a value perspective.

Regarding the move of IP ownership to the US, I welcome the tax benefit and reflect that it is a recognition that this is now a US company not an NZ company. You have to ask how much longer will it be listed in Australia?

Disc: I hold in RL

I missed the call with PushPay this morning due to the meeting with PureProfile, so thanks @mikebrisy and @RobW for your notes.

The forecast drop in EBITDAF for FY23 of around 6% at the midpoint, while at the same time forecasting a 10-15% lift in revenues shows just how much of an increase there is to costs. Whether that's a good thing or not depends on the return they get for that investment. Management, perhaps unsurprisingly, have high hopes: they are calling for 20,000 customers and US$10b in total processing volume within the next 3 year (that's a 30%-odd lift from current levels).

As a (extremely) rough cut, that's probably an EPS of 6cps in FY25 -- if they hit that target. Maybe closer to 5c to account for lower net margins. That compares with about 4.3cps this year (based on FX rate of AUD70c to USD)

Still, that's not terrible at all, especially for a profitable, cash flow positive business with very reliable cash flows -- not terrible at all -- but the days of hyper fast growth are well and truly over, and with it, so too the expectations for higher multiples.

The question is whether the current PE of 27 is justified by 10% growth -- especially in an environment of rising rates.

Finally, I was also encouraged by what appears to be some early traction with the Catholic initiative. And the debt repayment (from the Resi acquisition) was substantial thanks to solid cash flows. The transfer of IP to the US should save quite a bit of cash (about US$7m pa for a few years), which is also noteworthy.

All told, i agree that PushPay is probably somewhere near fair value -- it certainly doesn't feel cheap. While the prospect of a takeover complicates things, I may look to lighten the load a little more. Mainly due to opportunity cost considerations (ie. better opportunities elsewhere).

PPH released their annual results today. In summary, growth was modest, organic growth on all metrics lacklustre and costs are rising (due to strategic remuneration reset and investment in headcount for future growth). Overall, results were broadly in-line with well-signalled guidance. Disappointingly, FY23 guidance is for lower EBITDAF indicating continued sluggish growth is expected with the full year impact of high headcount and wages eroding margins. If that was the full story, I would sell my remaining holding.

Here's the links to the release and the presentation:

https://cdn-api.markitdigital.com/apiman-gateway/CommSec/commsec-node-api/1.0/event/document/1410-02520355-3J74HUF5J26FV0G8Q7S261CNU1/pdf?access_token=0007rIit7tYr7BhJF81mQdguF0jO

https://cdn-api.markitdigital.com/apiman-gateway/CommSec/commsec-node-api/1.0/event/document/1410-02520359-5DCIK2D471IE7B73H6CBLU51NL/pdf?access_token=0007IP6992IGCY3dnYyX8cO2tLHU

However, a bright light is the progress in the Catholic segment. My remaining remarks will focus on that.

In little more than a year, PPH has 173 parishes as customers out of 17,000 (1%). More notable is that it is on the approved vendor list of 45 diocese. By my numbers that's about 25% of US dioceses. That is both impressive and important, as a lot of the supporting infrastructure for a parish is held at the diocese level, and a parish would be unlikely to adopt a system that was not supported at the diocese level. So the key to watch over the next year is what kind of feedback the parishes are giving. Diocese will love it, because they will love the data that ParishStaq provides. But adoption and value ultimately depends on uptake within the parishes. In 12 months we should be able to get some more granular insights on this, but it was too early to expect much at this stage given the long sales cycles and more conservative approach within this faith sub-segment.

Given this unfoliding opportunity, and the current undemanding SP mulitple and the fact that in the current environment this is a firm that delivers strong operating cash flows and strong organic free cash flow, I am not in a hurry to sell. PPH remains on my "under review" list, and no longer high conviction. So I will mull this over some more and am interested in views of the other Straw-people.

On CEO Molly, I felt the presentation was good. Less hyperbole and more transparency - perhaps an indication that she is growing into the role. A good balance of highlighting the opportunity over 5 years, while managing expectations over the near term. FY23 is soft - there is no hiding that. PPH says it is focused on profitable growth, but we are going to have to wait until FY24 to see it.

So, in conclusion, SP is probably close to fair value.

Disc: Held IRL and on SM. Recently reduced RL holding by 33% on the SP kick on rumours of takeover.

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

*EDIT* correcting EPS forecast

Pushpay has narrowed its FY22 guidance, from EBITDAFI US$60-65m to US$61.5-63.5m -- representing 6-10% growth. Add another US$1.5m if you want to exclude the Catholic initiative investment.

They have also repaid a big chunk of debt, reducing it from US$90m to US$54m, and will buy back a small handful of shares as they wind down an old share incentive scheme.

We'll get the full picture on the 11th May when they release FY results.

Key questions remain: can they return to stronger growth in the core offering, will we see any traction in the new ParishStaq offering, and can 20% net margins be sustained given the added investment.

Taking things at face value, shares are on an EV/EBITDA of something like 13.5x. I expect EPS for FY22 to be between 4.1-4.5cps, so that's a forward PE of around 22.

I should probably read some other publications. All my quotes seem to come from the Economist- and this one is no exception.

here is a snippet from a long article about the challenges faced by religious groups in retaining their flocks.

Many churches, however, have failed to keep up. Their clergy did not move online during lockdown, either because they lacked the technology or disliked the idea. Some have been slow to reopen their doors. Meanwhile, the streaming of services has made it easier for worshippers to “church hop”. In a poll of practising Christians in America in 2020 by Barna Group, which conducts worldwide research into religion, 14% had switched churches, 18% were attending more than one church, 35% were attending only their pre-pandemic church and 32% had stopped going to church altogether

Although COVID helped drive donations online and was a clear positive for PPH, it seems that congregations have become disengaged by the pandemic.

This is hastening an already exponential trend of godlessness in America. PPH now looks to be in a melting ice cube market, and to me justifies my decision to sell back in August. I don’t think expanding into new faiths will be enough to re-ignite growth.

Key Notes on Half Year Result (to complement @shivrak & @Slats notes):

The Good:

·       Gross Margin improved from 68.2% to 68.7% (PcP) - small but powerful change. Due to subscription revenue (92% margin) increasing from 27.9% to 29.2% of revenue and a small tick up in Processing margin.

·       Annual Revenue Retention Rate over 110% average for last 5 years maintained.

·       Free Cash Flow of US$30.6m is 32.7% of sales, the highest it’s been, up from 31.6% FY21 and 30.8% PcP. Debt of US$90m was added for the Resi acquisition of which US$7m was paid back in the period and net cash position was -US$75.3m debt, but the business is producing cash at an increasingly fast rate so this should easily be paid back in 2 years.

·       Customers grew 29% and products 43% but mostly due to addition of Resi. Without Resi products were up 10%, I couldn’t see how many unique customers Resi added. ARPC increased 7% if you exclude Resi, but down 8% in total due to lower ARPC for Resi customers

The Ok:

·       Revenue up 9% to US$93.5, up 7% if you exclude the Resi Media addition.

·       NPAT of US$19.1m up US$5.7m or 43% PcP. Note FX gains/loss favourable variance of US$5.6m is the key difference.

·       Total Processing Volume of US$3.5b was up 9% PcP of US$3.2b, but down on prior half of US$3.7b. Due to the seasonal nature of giving, the drop on the prior quarter is fine. Note Q1 volume was disappointing but Q2 recovered strongly. Margin on Processing up fractionally from 58.6% to 58.8% and Revenue as a % of TPV was also constant at 1.9%.

·       EBITDAFI US$26.9m up 12%, but EBITDAFI% down to 29% from 31% PcP and 34% for FY21 (for some reason this was not highlighted in the announcement… but note “Underlying EBITDAFI” was 32% up from 31% PcP – due to Resi acquisition costs and government grant variances).

The Bad:

·       Outlook downgrade to EBITDAFI of US$60-65m down from US$64-69m with commentary highlighting continued uncertainty from Covid impacts – market no like!

·       Operating expenses increased to 40% up from 34% H2 FY21 and 38% H1 FY21. Excluding Resi transaction costs it was consistent with PcP at 38%.

·       Months to recover CAC of 24.3 is up massively from 15.4 (PcP) reflecting the higher marketing spend as well as a higher proportion of sales to smaller customers in the period.

·       staff costs have increased higher than originally anticipated, as we respond to the competitive environment. Headcount up 24% to 547 but would have been down 17 without Resi additions.

Quotes on COVID impact:

Despite pressures that have been felt globally from the COVID-19 environment, Pushpay has not seen any material change in digital giving reverting to non-digital means, indicating that our Customers in the US faith sector may have undergone a fundamental technological shift as a result of the current environment.

We have also seen ongoing impacts from the COVID-19 environment, with consolidation of some churches, particularly in the small segment, and slower decision making on new subscriptions, particularly over the US summer holiday period

Conclusion: The market has punished the share price due to the earning downgrade and a lack of conviction in management commentary about even reaching the downgraded figure.  I had hoped for stronger growth and will have to pull back my valuation forecast which is clearly overly optimistic with a back of the envelop adjustment to $2.33 down from $2.72 due to FY22 sales variances. 

It’s still a great long-term hold in my view, the cash generation and long-term growth focus of the business underpins its value but on a PE of 52 on the H1 result (yesterday’s price) you have to have a lot of faith in it’s growth to see the value.

Disc: I own PPH (RL)

Commentary on the company is in the valuation, below is a walk-through key assumptions and reasoning for the attached valuation. Note the DCF is done in US$ and converted to A$ IV at 0.75.

IV = A$2.72 (base case)

Assumptions:

·        Sales Growth: I expect the 40% sales growth of FY21 to be repeated in FY22, mainly due to the addition of Resi before dropping back to 20% in FY23 and trailing down to 3% over the coming 10 years. Subscription income I expect to remain in the mid to low 20% of total income, with Processing income providing 70%+ of income going forward and Resi based products only a modest part of the business but a key part of the package.  To reach the US$695m revenue I forecast by 2030 (almost 3x current) they will have to dominate the TAM for Church and Catholic sectors as well as expand into other areas like schools as they suggest.

·        Margins: I expect the addition of the Resi business brings average margins down due to higher cost of delivery than platform and payment services. However, I see improved margins in payment processing which dominate revenue as mitigating.  Payment Processing margins have improved from 42% in FY18 to 59% in FY21 and I expect they will creep slowly higher to 63% by 2030 with volume efficiencies.  Revenue as a % of TPV has improved from 1.6% in FY18 to 1.9% in FY21, I expect this to lift to 2.0% and stay around that due to competitive pressure.  The combined total margin for the business from these expectations remains in the 67-68% range, slightly down on the 68.1% in FY21 (ignoring grant income).  

·        Opex:  The company intends on balancing growth and cash generation going forward, so I expect to see operating leverage improve with scale. Hence, I have forecasted operating costs to grow at around half the rate of sale with a 4% minimum.  This improves the EBITDA% from 32.5% in FY21 to 48.8% by FY30.

·        Capex & Cash: This is a capital light business, very little (386k in FY21) of cash is needed for fixed assets or capitalised development costs, making for very strong cash flows.  Debt of 110m has been taken up for the acquisition of Resi, but like the debt raised for the purchase of Church Community Builder in 2019 this will be paid off in two years from free cash flows.

·        Share count: In addition to the 35m shares issued for the Resi purchase I am allowing an increase of 1% in share count for ESOP.  This assumes future share issues for purchases will be value accretive on a per share basis.

·        TV & Discount: A CAPM calculation gives discount rates moving from 7.42% in FY22 to 8.68% in FY31 increasing the risk-free rate from 1.8% to 3.5% over the period. However, I will revert to my standard approach of applying a 10% discount rate which reflects general market return rate expectation over the long term and my minimum required rate of return.  Terminal EV/EBITDA used is 10, which equates to a PE of 13.8 and a perpetual growth rate of just under 3%, which should not be demanding for a mature profitable business.

·        Risk & Opportunity: I am discounting by 5% for risk of failure which I see as very low given the maturity of the business, strong positive cash flows and support from the capital markets. In terms of opportunities, I have added a 20% premium for the opportunities that exist in both bolt on acquisitions but mostly due to market expansion such as into schools and international opportunities.

This is not a 10-bagger opportunity from here, but assuming the IV is correct it will produce a 16% return, so a market beater.  I see it as under valued for the quality of earnings and opportunity it has ahead of it, but value will not be reflected in the share price until the business proves to the market that it can grow beyond Mega Churches that have driven growth to date but now represent an exhausted opportunity.

PPH is my second largest holding, I may trim for portfolio balance at a price spike above $2 without additional value accretive news but am otherwise a contented long-term holder

Thanks mikebrisy, I do appreciate your summaries. 

I haven't listened to the PushPay Presentation yet but will do so ASAP.

I too have Matt Joass to thank for my PPH holding. We must have been members of PRO at the same time.

IMHO, PushPay has a huge opportunity in front of them, if management can execute, we'll reap the rewards.

PPH is my largest SM holding and my 4th largest in RL. 

I found yesterday's Investor Day for PPH very informative. CEO Molly showcased several members of the management team. Most notably, it gave in-depth presentations of the strategy to serve the very large Catholic segment, including interviews with early adopting customers, which was something I'd been waiting to see. It was very illuminating to hear both a pastor and parish associate describe how PPH product adds value to their ministry work ("I don't finish the day with a pocket full of post-it notes"). (These will be great marketing videos for them!)

Slide 5 was at once exciting and scary - showing the scale/breadth of the ambition for PPH, while also raising for me the question about how resources will be allocated going forward and how PPH will strike the balance between revenue growth and margin expansion as the business inevitably becomes more complex. (I was reassured in the lengthy Q&A that the team are pretty focused)

https://pushpayinvestorday.gcs-web.com/register - recording is available here.

Living out one of their values of Excellence, I think the webcast was very professionally executed - seamlessly integrating live and pre-recorded elements. The Q&A session was also very good, with all members of the team appearing candid and relaxed. It covered a lot of ground running for c. 45 minutes.

Importantly, it was stated that PPH is not seeing any reversal of the transition to online due to COVID-19, albeit being careful not to make any disclosures being in the blackout period leading up to half year results. (This was reiterated 5-10 times across various questions.)

When asked about international expansion, Molly said that for now they remain focused on the USA because they continue to see a large remaining opportunity there. (She did note that they are already present in Aus/NZ/Canada, and that they asked about international expansion a lot). My sense is that we will see a strong focus on the US Catholic segment and then broadening beyond worhship into other verticals (e.g. not for profit). To another question, Molly stated that they still see a lot of cross-sell opportunity ahead, and implied we'd see more of this in the metrics at the haly year.

When questioned about the small church segment, Molly said that they had been positively surprised to see some small churches signing up for ChurchStaq at near to list price due to the attraction of the integrated solution.

They were asked why guidance hasn't been narrowed as we progress through the half. (Something Molly's predecessor was adept at doing.) Recall that the guidance is quite wide, given uncertainty about customer behaviour through COVID and re-opening. My expectation is that H1 is therefore tracking within guidance.

There are a reference to the war for tech  talent being very real - something we have also heard from 3DP and EVS recently.

There was a great question of Molly about whether PPH will continue to grow operating leverage or whether focus will shift to revenue growth. Molly pointed out that it is because of the strong operating leverage that PPH has been able to acquire CCB and Resi, but that going forward it would be more of a balance. M&A remains on the aegnda.

While I didn't gain many insights that directly drive my valuation, I came away with a better understanding of the strategy, the product and the leadership. All impression positive, supporting my thesis.

I have only covered some of the key points here. The recording is a must watch for all shareholders.

[Disc: Held in SM and IRL. I am a long term holder since 2017 (thanks Matt Joass!) I will take any future SP weakness as opportunities to increase my exposure.]

@Mikebrisy, a nice summary of your thoughts - Thanks.

https://www.youtube.com/watch?v=Iz8ui2Pdzgo&t=12s 

Resi's Intellectual property:

https://docs.resi.io/articles/#!resi-resources-setup-actions-and-behaviors-within-control/rsp

Resi Acquisition - report and reflections on the Investor Call

Today’s announcement was for me a surprise, as I suspect for many. I attended the call interested to understand the strategic rationale. I’ll not repeat any of the information in the ASX release, summarised well by The Strawman himself, but rather try to share some insights I took way from the presentation and the Q&A.

This is a significant move widening the digital offering to churches, as well as positioning for other verticals in the future. My sense is that PPH have gained confidence from the cross-selling experience across CCB and Pushpay legacy, where we have seen strong ongoing revenue growth even with few new customers added. The strategy appears to be to both acquire capabilities and customers to create new scope for cross-selling.

CEO Molly Matthews made reference to the importance of the acquisition to support the previosuly announced strategic push into the Catholic sector. She indicated that several Catholic Churches are already Resi customers, and that dealing with a one stop shop for digital solutions would be an advantage.

With 3374 total Resi customer and 11,000 PPH, we don’t know yet what the overlap looks like. This came up in Q&A and it is clear that Resi and PPH segment the market quite differently. Further clarity on this will be something to look out for at the next report.

The acquisition price (8.8x F21 revenue), the high cash component, and the absence of an earnout structure featured in the Q&A. Molly answered by making clear that key management of Resi are locked in for two years via the share component. However, more importantly, she indicated that she felt there was strong alignment on values – in building a leading tech platform for the faith-based sector. Without using the word “risk” she plainly stated that knowledge transfer into Pushpay will be a focus over the next two years (my words, not hers). In disucssing the deal structure Molly made clear that the Resi owners had run a competitive process. I recall her saying that the PPH offer had been chosen despite not being the highest cash component based on the preference of the owners for alignment on vision and values with PPH.

There was some Q&A about the rapid growth of Resi in 2021, and what the expectations for future growth will be. (This was a big question in my mind. With COVID lockdowns, churches the world over have implemented live-streaming solutions to allow the faith community to continue to attend services.) I don’t think this issue was addressed as fully as I would have liked. There was reference to many churches using basic solutions, like FB Live and Zoom, and wanting to create a better experience. There was also reference to mega-churches having events at multiple locations that are live streamed – a core solution of Resi. While all that is interesting, I think we have to be really clear that the 2020 to 2021 growth is an direct consequence of COVID, potentially one of those oft talked about cases of 5 – 10 years growth being compressed into a year. You just have to look at 2018 and 2019 numbers to see that. That said, Resi have acquired 2,500 customers in a year and that is an asset to PPH.

We didn’t get much visibility of Resi’s finances or economics. What we know is that it has achieved US$17m revenue and US$12.9m and that growth has been “bootstrapped”, i.e., funded out of operating cash flow. It is expected to have a minimal effect on FY22 EBITDAFI, beyond some minor exceptional items noted.

[As a side note: There is some simple analysis we can do on the acquisition in term of CAC and ARPU etc. but I didn't do this ahead of this report]

In conclusion, I tentatively buy into the strategic rationale of providing church customers with a “one stop shop” digital solution provider. The combination of PPH and Resi is a unique integrated offering. While it is a large acquisition for PPH, the business is now throwing off strong cashflow, so the debt will be worked through in a year or two and is not excessive.

Molly made clear that other M&A is in prospect, in that the time is right to build a compelling platform as well as customers to cross-sell to. As soon as PPH has got control of the business it would be great to get a strategy update, where we get greater insights into the customer base, the cross-sell opportunities and future plans, including when other verticals will be contemplated.

I hope other Members who attended the call will correct me if they had other or different take-aways.

As a footnote: brand integration has started quickly, with Resi already describing itself as “A Pushpay Company” on its website.

[Disc. Held in RW and SM. I remain a long term hold, as I like the strategic ambition that Molly appears to be developing, in continuity from Chris.]

PushPay is buying video streaming provider Resi Media for US$150m (AUD~$210m).

It's a big purchase, 70% larger than the Community Church Builder acquisition last year, and will be funded with the issue of $40m worth of new shares($1.66 each for a ~2.5% dilution) as well as cash on hand and a new US$90m loan.

With around $5m in cash and $95m in equity at the last full year, Pushpay will be reasonably geared. Though with strong operating cash flows (~$50m last year) they should be able to reduce their debt reasonably quickly. 

Resi has an exisiting and fast growing foothold in the US faith sector after being founded in only 2016. Revenue and customer growth has been very strong and it currently earns $13m in ARR having roughly doubled that from the last year. Customer growth rate has outpaced revenue growth so it looks as though there's already a good deal of revenue uplift already locked in (as new customers are onboarded and ramp up usuage of their product)

Nevertheless, the price tag is equivalent to 8.8x revenue and as no profit details were disclosed it's also likely still loss making. It's recently increased headcount and the transaction isnt forecast to make any impact on FY22 results -- that's with more than 6 months contribution after the transaction settles.

There's also litigation underway in regard to patent infringement against Resi, but PPH is indemnified against any cost associated with this.

The rationale is that the transaction materially boosts PushPay's offering and will deepen its revelance and integration with customers. There's strong cross-sell opportunities and it also helps PushPay move into sectors outside of faith (although not sure how much weight i'd give this).

I wasnt able to make the investor call (it would be great if anyone has some notes to share), but my initial reaction is one of cautious optimism. It's a very fast growing business with good adoption and strong alignment to PPH's core offering.

I'd want to see more detail on what a combined business looks like, and how much accretive growth this moves affords.

ASX presentation here

Presenting a slightly different alternative I wanted to firstly point out that I hold it in my personal holding but, am yet to add it to my Strawman account with the reason being I am not bullish at the moment more in a holding phase as I try to get a better understanding of what is happening with the company as the USA exits lock ups.

Its important to remember when looking at church structures and the act of giving the structures are completely different in the USA verse in a more conservative giving culture like Australia. 

Having grown up in Australia, and studied in the USA and with family and friends from a Roman Catholic background we would make our weekly sunday morning donations in Australia when the plate was passed around. A few family members would make the larger monthly donations which, were more discreet. In contrast our catholic family and friends in the USA think nothing of donating 5-10% of their annual salary to the church and are open about making such donations. I have found in general in my time travelling to the US for study, family and work "giving" is just apart of their upbringing and culture. You only need to look at their free budget tools to see how donations and charities are important and real component and not just a fleeting additional budget item or add on found on the equivalent tools in Australia. 

I can not speak for the other points you have raised as I have not delved into PPU deep enough in recenet times. Again take what you want from what I have raised as this is just a personal account from my experience but, I felt I should raise some diiferences I have been exposed to between Catholic congregations in Australia and those in the USA when it comes to donations. 

I missed this announcement back on July 5.   Shane Sampson has resigned as CFO, and will finish up on October 1.   Given he will serve out the full 3 months notice, it appears, there is nothing immediately untoward going on.  

 The recent retirement of the Chair, resignation of the CFO, and a new CEO ? This combination does make me nervous.  

DISC - I HOLD....

Molly Matthews - From Team Leader to CEO in 5 years

https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5idXp6c3Byb3V0LmNvbS83NTI4NzMucnNz/episode/QnV6enNwcm91dC04NjkwNzIy?hl=en-AU&ved=2ahUKEwj78eGHj8TxAhVJ4jgGHeajBfIQieUEegQIBhAL&ep=6

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)

Pushpay has reported 39% revenue growth for FY21 (US$181.1m), which almost doubled the net profit (US$31.2m). EBITDAF came in at US$58.9m -- at the top end of their increased guidance for between US$56-60m.

The acquisition of Community Church Builder was a big part of this.

Once again, the operating margin increased, now sitting at 34% (up from 31%) as the business scales.

Operating cash flow saw a 145% improvement, allowing the company to fully repay the debt taken on to acquire Community Church Builder.

For the FY22 year, PushPay said it is expecting an EBITDAF of $US64-69m -- about 12% growth at the midpoint. That's partly subdued due to the US$6-8m investment into the Catholic segment.

That's perhaps a bit lower than the market would have liked, and I think there's also likely to be some concern over the sluggish pace of customer growth -- with customer numbers increasing just 2% (the growth is largely explained by increasing revenue per customer).

On a per share basis, and using a USD/AUD exchange of 78c, Pushpay reported an EPS of 3.62cps, which puts shares on a PE of ~41.

I still think that's relatively good value given they are expecting double digit growth, a strong balance sheet and cash flows and with upside potential into new segments.

Results presentation can be viewed here

Founders sell out and the stock price jumps 8%. Mr Market is funny sometimes. 

NZ's Huljich Family have sold their remaining stake in Pushpay. They sold it to global tech investment firm Sixth Street will own 17.8% of the company. Sixth Street's past investments include AirBNB and Spotify.

It's nice to see a large and experienced like Sixth Street take a significant stake, but it's not great that a lot of the early money has now left (after having made some really attractive returns).

Peter Huljich stepped down as Director late last year, after selling 25% of the family shares in July. (At which time they said they had no intention of selling further).

With Chris Heaslip (the former CEO and director) and Chris Fowler (exec director and founder of acquired Church Community Builder) mostly selling down late last year too, it isn't something that fills you with confidence.

The Huljich family have been invested with PushPay since 2013, when it was a much smaller operation. With their private equity investment operations more focused on earlier stage businesses it's possible they are just recycling the capital into other smaller opportunities. These things aren't always nefarious in nature.

Based on the current sales momentum and recent guidance upgrades, along with the attractive economics and industry standing, I still see PushPay as attractive and it remains one of my largest positions.

Still, I would have preferred not to see the Huljich's sell out entirely...

No longer founder led

Sixth Street now largest shareholder.

Announcement here

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

forsyth barr have a negative view on PPH

I hold.

their thesis is that expansion rate into evangelical churches will be low (they already have a majority of the major churches) and so the steep part of the "S curve" is  done. 

I was quite bullish on the announcement of that PPH are going to launch into the Catholic giving space. Reading their report gave me considerable pause for thought.

I felt I should not reproduce their report here as I am not paid subscriber, and neither are you!

But. Their main thrust is:

1) The catholic church is shrinking (in the US)

2) the church attendants are elderly and do not adopt tech

3) catholics do not tithe (unlike evangelicals/pentecostals)

4) they tend to donate less

5) the estimated ARR is only $45m

6) PPH will have to acquire a separate business to gain any traction

To counter this, I would suggest this theory is applicable only to the US. I would imagine that any and all of PPH verticals can be applied to other geographies. This may be naive.

Worldwide the Catholic church is growing rapidly. https://en.wikipedia.org/wiki/Christian_population_growth

If PPH can transpose their model into another vertical (big IF) then the TAM becomes enormous, which is what all us LT PPH holders have hoped for.

Having said that, the valuation of PPH is undemanding currently but that really is predicated on it being a "growth" stock. If it has reached the plateau phase then it no longer deserves a position as one of the rapidly expanding SaaS companies that demand a high multiple.

Once again, execution in a new vertical will be interesting to observe. I continue to hold and represents 6% of portfolio.

Along with the profit upgrade announced today, Pushpay announced the appointment of their new CEO, with Bruce Gordon stepping down as the interim CEO after 18 months.   

This is significant news for the business, and I like the fact they have promoted someone from inside the business.  CEO, Molly Matthews was the Chief Customer Officer, and has had a rapid rise in her 4 years at Pushpay.  To rise so rapidly within a business, she is learly a high performer, and she will know the business culture far better than an outsider.  Given her current role, I would say Molly understands Pushpay's customers better than anyone else.  

Capital allocation skills, strategy, execution are unknowns, but I would prefer an insider, who knows the business and it's customers, is appointed, particularly in the faith sector.  

The other significant announcement is Pushpay's pivot towards the US Catholic sector.  This has the potential to significantly increase Pushpay's TAM, however, it remaisn to be seen how successful their offering will be, given the older demographic, and centralised decisionmaking.   Sales cycles will be quite long, and a lot of implementation support will be required.  Catholic faith sector is a completely different to evangelical christians, as the Catholic sector has traditions that are centuries old, with decisionmaking usually made at a diocian level, rather than parish level.......I am a little sceptical of it succeeding.  

Pushpay provides operational update and guidance upgrade

Pushpay Holdings Limited (NZSX:PPH, ASX:PPH, ‘Pushpay’ or ‘the Company’) is pleased to advise that its performance for the month ended 31 December 2020 exceeded internal expectations.

Previous guidance for the year ending 31 March 2021

• EBITDAF of between US$54.0 million and US$58.0 million Updated guidance for the year ending 31 March 2021

• EBITDAF of between US$56.0 million and US$60.0 million

PushPay is in a trading halt as they do a bookbuild to facilitate a sell down by Chris Heaslip (founder and ex-CEO) and Chris Fowler (founder of Church Community Builder, acquired by PPH last year).

In total almost 55m shares will be sold, of which 42m belong to Chris H and 13m belong to Chris F. After the transaction, Chris Heaslop will hold only 0.2% of PPH. Chris Fowler will retain a 1.2% stake.

The bookbuild floor price is NZ$1.75, which is about AUD$1.64 (compared to the last close of $1.78.

Trade is expected to resume trade tomorrow (16th Dec).

We can't know the true motivations of the sellers, although it seems most people tend to assume the worst. I'm reminded of the saying "insiders sell for many reasons, but buy only for one".

Still, it's a huge sell down -- especially by Chris Heaslip who has been progressively selling for a while and has now essentially fully exited the business. Not what you like to see.

We saw the Huljich family sell down around 14m shares about 5 months ago, at a (adjusted) price of $1.98.

More info here

Key takeaways:

• COVID-19 accelerates transition to digital payemtns, with TPV increasing 48% on PCP.  The CEO advised share of donation spend increased from 40% to 60% over the half year.  
• ARPC (excl. CCB), increased approx. 16% on PCP.   
• Customer count was relatively flat, with a bit of churn in CCB customers.  CCB tended to have smaller customers, which tend to be higher churn. 
• 16 new product launched over the half, with ChurchStaq launched - its all in one church amangeent solution.  
• Management report cross selling is exceeding expectations, which they say validates the CCB acquisition, and they are seeking to build their platform with further acquisitions.
• Great operating leverage, allowing debt rasied to acquire CCB to be paid off over the next 12-18 months, with payments running at $2.4M per month. 
• Maanagement report sales pieline is lengthening due to COVID-19 with potential customers reluctant to switch platforms at such a critical / uncertain time.
• Analyst raised the question of shareholdings of the founders, and their plans.  A vague answer was given.  Thsi may weigh on the share price short term. 

Pushpay has reported results for the HY ending Sep 30, 2020 -- and once again has delivered exceptional numbers.

• Total revenue up 51% to US$86.6m
• Gross margin increased from 65% to 68%
• NPAT up -- wait for it -- 107% to US$13.4m
• Operating cash flow up 203%
• Cash and equivalanets on hand up 221% to US$23.1m
• total customers up 38%
• Processing volume up 48%
• Average revenue per user down 1% (cant win 'em all! THis is due to the CCB acquisition)

The business is gaining material traction, has a market leading offering and continues to have a long runway for growth.

FY guidance has been increased (again) -- company expecting EBITDAF of US$54-58m, up from US$50-54m. A lift of roughly 7.5%.

You can read the results presentation here for more detail.

For me, the business is of an extremely high quality. I'll revisit my valuation in the coming days.

PushPay's major shareholder the Huljich family have sold 14.4 million shares -- around 5.4% of the company -- for $NZ8.40 a share (A$7.92). That's around $120m in total.

In total, the family still retain 43.2m shares, or about 16% of PushPay.

Peter Huljich, a non-exec director, said the family had no intention to sell further shares, although committed only until the groups FY21 results (May next year).

The Huljich family became cornerstone investors in PushPay way back in 2013, with an initial $2 million investment and a further $17m-odd up to the company's 2016 listing. I havent gone through all transactions, but it's safe to say they have scored an insane return on that early seed round!

I know a lot of people get upset when directors sell, and I agree it's not what shareholders would prefer to see. There's certainly many examples of such sell downs being a red flag.

But we also tend to forget a lot of 'silent evidence' where the sell down wasnt a portent of something negative. I'm sure someone, somewhere has done research on this, but my bet would be that more often and than not, in isolation, it's a poor signal.

As they saying goes, insiders sell for many reasons, but they buy only for one.

Frankly, if i had close to half a billion in one company, i'd probably look to sell down a little too. In fact, i recently sold a few PPH in my Strawman portfolio due to weighting considerations (but it is still my largest holding).

ASX announcement here

PushPay upped its guidance for FY21 for EBITDAF (operating earnings) between US$50-54m (up 4% from US$48-52m).

That's double what they did in FY20 (year end March 31).

AGM presentation here

In the AGM today, PPH have upgraded FY2021 forecast profit by 4%, and is experiencing increasing demand of their mobile platform.

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
 

Given Pushpay's market capitalisation is well above $1B, it ranks around 130 in terms of market capitalisation.   Assuming liquidity hurdles are achieved, Pushpay should enter the ASX 200 index in the June quarterly rebalance, and become an investible business for a number of passive and active funds.   

Outstanding results. Key takeaways:

1) COVID-19 is driving churches towards digital giving. 

2) Revenue (ex. CCB) grew 28% on constant currency basis.

3) Gross margins (ex. CCB) grew from 60% to 64%.

4) Expenses (ex. CCB acquisition) decreased 8%.

5) Outlook -

a) EBITDA to double next FY.

b) "strong" revenue growth to continue.

c) Looking for further strategic acquisitions to broaden platform.

d) Long term - targeting 50% of medium / large church segment, which represents $1 billion in potential revenue.

6) ARPC ex. CCB, at $1614 per month, up from $1315. Thats 22% growth. Nice.

7) no. of customers grew 43%. partly due to CCB acquisition.

"Due to the restrictions around in-person gatherings, Customers have been emphasising....digital giving...through their apps for continued engagement with their communities.....Pushpay’s processing volume over the month of March was higher than...expected.." Although, it is antiicpated demand for digital payments may moderate as restrictions are eased.   

Many improvements to the platform, improving engagemnt and value to customers.  

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

Interesting trend in Pushpay app downloads over the past few months.  It seems to tie in with management reporting churches are encouraging church goers to use electronic payments for tything......

Pushpay has updated shareholders on the impact of the coronavirus and actually INCREASED guidance. 

The cessation of church gatherings has created an increase in demand for their offering.

EBITDAF now expected to be roughly 8% higher at between US$25-27m for the year ending March 31.

ASX announcement here

Here is a comparison of PPH adj. cashflow against other software businesses

Note: Figures exclude Capture capitalisation (NEA), Stock based compensation (US), and software capitalisation.    

I am not 100% confident in the accuracy of my figures, but I think it is fairly accurate picture.............

• 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.

• 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).

• 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.

8th May, 2019

PushPay Results Presentation is here

• Revenue up 40% to US$70.2m
• A maiden FY net profit of US$18.8m, compared to a loss of US$23.3m
  • PBT was -US$1.5m. Positive NPAT due to US$20m tax benefit 
  • Now that they are likely to be profitable going forward, they needed to recognise these tax assets. They wont be paying any tax for a few years it seems.
• Average Revenue Per Customer (ARPC) up 33%
  • Month to recover acquisition cost is is still "<18", which suggests that CAC is increasing
• Customer count up by 5%, with 373 customers added over the year
• Cash down to US$13.9m, from US$17.9m
• But positive operating cash flows for the second half -- in fact, they seem very close to accounting profitability ion a statutory basis
• Revenue retention is still >100%
• Staff count up by 11%
  • mainly development and "customer success" (onboarding)
  • Sales costs flat, but headcount up 7%
  • G&A costs down 10%, headcount down 3%
• Gross operating margin improved to 60%
• CEO Chris Heaslip is leaving and being replaced by Bruce Gordon
  • Chris is remaining on the board
  • Comes almost a year after his co-founder Eliot Crowther stepped down
  • Bruce is long known to Chris and PushPay, having served as Chairman and acting as Mentor to Chris and Eliot in the early days of the company
• Acquisitions seem likely, and expect the company to use a bit of debt here

At current price ($3.60), shares on a P/S of 10x, and a PE of 37x (including tax benefit)

Overall, these results were solid, and in line with expectations.

With the top line growing at ~40%, a large addressable market, high retention, rising ARPC and operating costs well contained, we should expect some very solid profit growth in the coming years. 

Happy with my existing valuation for now, but lean towards increasing this..