At first glance, Prophecy’s Q1 update looks pretty bad. 

Why?

I simply can’t get over “Annualised recurring revenue (ARR) grew to $ 22.56M as at 30 September 2023”.

Why? Because ARR actually went down. From full year presentation 3 months ago: "Cash Combined ARR growth of 26% to $23.2M"

So ARR went down by $640K, not a massive deal, sure, but to reach cashflow these guys need to be growing 15%+, not going the other way round. 

Looking at their chart, we can see that this happened because “legacy subscriptions” and “Snare maintenance renewals” both went backwards. This is expected as they transition Snare to Saas, but I would have thought stronger growth in eMite could have covered for this. 

The cash pile also went backwards, which they claim to be expected, and I’ll grant them that. Especially in light of invoices to the tune of $ 5.96M that went out year to date. So cash should be back to stable after the money is in the bank. 

They’ve given us pipeline information for both eMite and Snare, if we add them both up, assume a 9 month sales cycle to end of year, and 20% average conversation rate, then we get an extra $4M of ARR by end of year. This would be good to see honestly. 

Still have lots of trust in Brad and the team, so hopefully they increase the momentum from this point. 

Would love comments from anyone attending the AGM.

AEF Building their position.

Could be due to the company's impressive 26% ARR growth, a stable bottom line, a substantial $12M cash reserve, and zero debt.

Seems like a decent proposition to me.

Disclosure: I hold.

I wasn’t present at the Prophecy AGM, but dug through the slides and compared them to their annual results to (released in August) to see if I could pick up progress they made in the 1st quarter considering they don’t tend to be overly communicative. 

Thought I would share some of the things I’ve found interesting. If anyone attended the AGM, would love to hear if anything else came up. 

1. eMite ARR went from $12.3M at EOFY to $13.3 and End of Q1. They mentioned in the presentation having closed 1st year contract TCV of $1.45M. Given the difference between $13.3 and !12.3 is not $1.45M, this either means part of the contract is not ARR (may be services) or that there was little bit of churn. It either case, a 8% QoQ growth is a good result in my opinion.
2. eMite Pipeline went from $13M at EOFY to $13.8M currently. This is good considering some nice value deals are closing, but certainly a larger number would be better. I never read too much in pipeline value anyway. 
3. No direct mention, in the slides it seems, of Snare’s revenue in Q1. They may have shied away from this given the ongoing On-prem/cloud transition which can confuse the numbers, but some indication of momentum in Q1 would have been nice. 
4. Snare pipeline went from $16M at EOFY to $10.3M. Again, not reading too much into pipeline, but would be great to have seen this go the other way. Snare has always been the less interesting product of in my opinion. I find it difficult to see how they can create synergies between the 2 products that solve such different problems and are sold to different buyers. 
5. Not entirely sure what to make of the Optus contract in all this. In the release they mentioned the contract was "Initial contract value is estimated at $2.0 million over the first 3 years of the contract, with upfront and recurring revenue to be defined by purchase orders flowing from Statements of Work under the MSA”. The current ARR numbers don’t appear to show indication that this was recognised.

All in all, I would say things appear to be on track for another good year, although with ARR potentially not as strong as this last year (70%). They do have a tendency to win large contracts so a few of those could significantly turn the dial on their growth. 

Keen to hear from anyone else on their thoughts/opinions

Disc: Hold a small parcel IRL