happy Easter everyone, or as A colleague irreverently said "happy Jesus weekend"

ive copy and pasted an article from the Economist, the implications of which should be reasonably positive for PPH  More online services at the bigger churches driving more online giving through PPH   

God has had a good lockdown. Attendance, like Jesus, is risen. When the Archbishop of Canterbury preaches his Easter sermon this Sunday, Canterbury Cathedral will be almost empty, but his online reach will be vast: he is expected to win a combined audience, online, on radio and on television, of more than 5m people. That is around 2,500 times the usual Easter audience, around a thousand times more than watched Jesus performing the miracle of the loaves and fishes and about the same as watched Elton John performing “Rocket Man” in an online concert this winter.
Since lockdown began, churches have started to attract the sort of online numbers more commonly associated with rock stars. The Church of England’s national weekly broadcast—a slick affair featuring such celebrity warm-up acts as Prince William—has so far been seen 40m times. Other denominations are enjoying similar rises. Last Easter the Vatican’s news website, which offers services to Catholics in England and worldwide, saw visitors quadruple compared with the same period last year. On Twitter, @Pontifex’s followers passed 50m (the pope tweets in several languages, including English and Latin: #VirusCoronarium).
But omnipresence, as St Augustine and Spotify have demonstrated, is a problem. Simply because a service can be watched by almost anyone in the world does not mean that it will be. Many are streamed; few are chosen, at least in any great numbers. The Church of England website AChurchNearYou now lists around 20,000 services and online events, but in a market freed from the constraints of geography, more famous churches—like more famous artists on Spotify—get the big audiences.
This, says Laurence Iannaccone, a specialist in the economics of religion at Chapman University in California, is not a great surprise. People, he explains, “are drawn inevitably toward the congregations—we’ll call them the suppliers…that are able to use this technology. You get a sort of superstars phenomenon.” As Dr Iannaccone puts it, if you are going to be watching religion online, “Why not go with the very best?”

Church services seem to be as susceptible to this effect as sports stars and singers. Trendy Holy Trinity Brompton, the London church that created the Alpha Course, pulls in thousands of views for its weekly YouTube broadcasts; a clip with the celebrity Bear Grylls clocked up over 250,000. Elsewhere, the Dean of Canterbury became an unlikely internet star when his cat hid in his cassock during online morning prayers, evidence not only of the power of rock-star economics but also of that other law of internet engagement, namely: people really like cat videos.

To him who has, then, more will be given. But the gospels of both economists and God agree that from him who has not, even what he has will be taken away. The congregation of St Aidan, a tiny windswept church in Thockrington, Northumberland has never quite recovered from a cholera outbreak in the 1840s. This Easter, its priest, the Reverend Sarah Lunn, is expecting an online audience of about 120 folk. But some of her congregation lack the computers or the broadband to watch online. Many who could, don’t want to: “There are a few of the older ones who’ve said ‘Oh, well, I don’t want to use it because people might be spying on me’.”

Disruptive technologies disrupt all aspects of formerly stable markets. In the 16th century that other disruptive technology, the printing press (God’s greatest gift, as Luther called it) helped to break the Catholic Church’s monopoly on salvation and usher in the Reformation. The result was a newly crowded religious market and lots of competition, causing the price of heaven to go down: fewer indulgences, cheaper salvation.

In lockdown, modern religious markets have shown unaccustomed vitality. Churches are tailoring services into shorter chunks than the usual hour a church allows. Companies selling communion wafers and wine have been doing a brisk trade to worshippers stuck at home. On Eden, an online church-supplies store, the “fellowship cup box” which provides communicants with neatly packed sachets of wine and wafers (“Enjoy a no mess no fuss approach to communion and focus your eyes on the King”) is a popular option.

Other market entrants have done less well. Bishop Climate Wiseman, from the Kingdom Church in London, was selling coronavirus kits that comprised “plague protection oil” and red yarn for £91. Bishop Wiseman’s blog promised: “It is by faith you can be saved from the virus.” The church was promptly investigated by the Charity Commission.

And not everything can be achieved online. God, like many an ageing chief executive, does not work as well over Zoom. The ineffable is lost. Transubstantiation, it is widely agreed, is not possible over the internet. Other benefits of religion cannot be done with a mere click. Ms Lunn has spent the winter driving hundreds of miles to deliver food, help and human contact to her parishioners. “I’ve one elderly lady, she’s 90 later this year. We know she can’t be left a whole weekend not seeing anyone.” So Ms Lunn drives to see her “just to make sure she’s alright”. Others in her parish have been helping out too. “There’s lots of others keeping an eye on folk.”

This reformation is in its early days. No one, says Dr Iannaccone, can guess how it will end. Many think a hybrid model of worship—on earth and in the ether—may become normal. What is clear is that increased competition is probably here to stay. This is not, says Mr Iannaccone, necessarily a bad thing. “The hand of God and the invisible hand sometimes seem to work wonderfully well together.”

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 have provide futher guidence to expected full year earnings. Due to a better than expected December month they expect full year EBITDA to be between $56-60M. This is the 3rd time they have upgraded guidence this year.

Full announcement here

They have also announced Molly Matthews to be taking over the role of CEO from interim CEO Bruce Gordon. Molly has had senior roles at PPH for 4 years most recently as CCO. Im happy they have appointed someone from within the company that has a much more deeper understanding of the business than an external recruitment. 

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

Opinions on PPH in the link here from Adam Dawes, Julia Lee and Michael Gable.

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.

Analyst update around 18:30 mark 

https://www.youtube.com/watch?v=uWjiMeFF3xs&t=2197s

New Product Launch Video 

https://grow.pushpay.com/lp-ty-replay-webinar-summer-launch-2020.html?utm_medium=email&utm_source=pushpay&utm_content=product-webinar&utm_campaign=summer-launch-2020&utm_term=faith--all--all

https://www.stuff.co.nz/business/industries/122757547/kiwi-company-pushpay-set-to-double-profit-thanks-to-digital-giving-us-churchgoers-analyst-says

PushPay announced a number of product developments this week, the most notable being a new, fully-integrated platform called ‘ChurchStaq’, which seems to combine all their tech into one seamless product. 

https://pushpay.com/churchstaq/

Difficult to say what effect, if any, this will have on the current financial year, but it looks to me like a decent long-term strategy to streamline further acquisitions and integrations into the one solution moving forward, whilst making the value proposition easier for customers to understand. Without a doubt, the dev teams have been busy over the last 8 months!

I see that they are also advertising some data migration positions for CCB, which makes me think there are a number of existing CCB customers who want to ‘upgrade’ to the new platform and access giving and engagement tools. Looks encouraging for upsell numbers, and could be evidence of the acquisition going well, though admittedly I’m drawing a long bow here.

Finally, a friendly reminder that PushPay upgraded their EBITDAF guidance by $5m on the 20th September last year…  Just sayn'! ;)

Is there a way to sort these straws newest to oldest? pretty annoying to scrol up and down to make sense of things

Froxy. Thanks for the reply. Perfect response. That was why I was confused by the call. This seems to happen a fair bit. Where by pundit/s seem to  display an over confidence in their knowledge of a business. 

In response to Foolednomore (not sure how to respond to your straw) they reference in the report they are targeting 50% of the med-large church market which represents  $1bil revenue. 

I thought I'd seen previously they had only been around 5-10% of target market. As such, with gross margins/operating leverage there still seems a runway for growth before having to fish in the smaller lower margin small church pond.

Scott from motley fool and Tim from teaminvest are very cautious on PPH. They seem to think they have saturated the mega church market and are having to refocus on small and medium churches. Is this correct as it could seriously affect profit margins going forward? More risk to the downside?

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

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

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

I see the selldown as a great buying opportunity, having seen Pushpay grow their Free Cashflow exponentially. They can start to expand across USA without hurting bottom-line. I missed out on getting in this during the March sell-off. Now, I am bolstering my portfolio by adding it. 

Plenty of research done by Andrew, Matt and others on this company. It was in my watchlist, along with Appen, Zip and Xero. The other 3 are priced for long-term future growth. Awaiting a pull back on them to add it to my portfolio. 

Much easier doing a DCF on Pushpay with a proven track record. Watch this space :)  

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

https://www.afr.com/street-talk/pushpay-major-backer-sells-down-two-brokers-underwrite-120m-block-20200713-p55bg4

Sigh.. thoughts?

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.   

06/05/2020

PushPay FY20 Results.

Wow. An amazing result in some very challenging times.

Headlines were all excellent, with EBITDAF hitting right at the top of their revised guidance in March, coming in at US$25.1m. Operating revenue was up to US$127.5m (total US$129.8m), gross margins improved to 65% (up from 60%), PBT was up to US$21.7m (from US-$1.4m), and operating cash flows were up to US$23.5m (from US-$2.8m).

The business is scaling beautifully, and is thriving on the back of a rapidly increased adoption curve from the impact of COVID-19.

Expenses increased a little more than I had forecast for the full year on the back of 4 months of additional expenditure from the CCB integration, although sales and marketing expenses declined by about US$1.5m.

NPAT was slightly down on last year, due wholly to tax losses being brought forward last year, so the more revealing figure is PBT, which saw a impressive % increase from last year. PushPay has well and truly tipped into profitability now, and will look to aggressively use excess cash flows to fuel further growth via M&A, incremental product improvements and increased engagement with their existing customers.

Looking ahead, one of the key highlights of the investor call was that the last 6 weeks have seen an outperformance in terms of revenue gain, fulled no doubt by the expedited new need to give digitally. Though management don't expect this to carry on, they were cautiously optimistic about FY21, and provided stunning guidance of between US$48-52m in EBITDAF (a near 100% increase!). However, if revenue outperformance were to continue unabated – even for an extra month or so – that guidance will be smashed. The half year report will be very interesting indeed.

CCB contributed about ~$4m in revenue from Dec 1, so a rough annualised guess is that we'll see an additional $16m contribution from the acquisition this year. Commentary so far was that they are happy with how the integration is progressing, and that FY22 is where they expect to see the full benefits of the partnership play out financially.

All in all, one of the more exceptional results on the ASX so far this year . Even with the spike in price today, there still looks to be value buying at the current levels if that guidance is met. Well done to all holders!

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......

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

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

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

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

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

Original announcement here.

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).

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

• 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.

Glassdoor reviews have been rising steadily over the last year or so. This is likely due in large part to the improving feedback from employees post the small-segment purge. It's a good indicator that things are ticking along nicely behind the scenes.

As a reference point, the overall rating is better than Appen, Altium, Xero, EML Payments, Nearmap, Dicker Data, Hansen, iSignthis, Computershare and many others with a similar MCap on the ASX. 

Interestingly, Wisetech is one of the few that are better. Make of that what you will!

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..