8th April 2019

ReadCloud has entered into a strategic partnership with Australian Training Partners (ATP) -- a company that develops vocational eductaion training and assement material -- whereby ATP will use ReadCloud's platform exclusively for their digital content requirements for the next 3 years.

No financials were provided, however ATP provide materials to over 1,000 Registered Training Organisations (RTOs). That;s a significant client base and also broadens ReadCloud's reach beyond the core Secondary School segment.

Management expect the agreement to result in a "significant growth opportunity" but will that that will occur gradually as ATP transition their customers across to the digital platform.

Full announcement here

A good jump in cash receipts for what is typically a slow quarter (given timing of school year). In FY19, ~93% of cash receipts came in the second half.

Management appear confident in a strong second half with strong sales conversion across its four channels.

Key points:

• Number of schools using the platform increased 75% to 350 over the past year
• Focused on larger schools as reference customers. Recently signed 3 of the largest state schools in Brisbane
• Customer cash receipts up 155%
• Cash balance of $2.8m
• Operational cash burn averaging -$800k per qurater

ASX announcement here

I run through some thoughts on Readcloud in this podcast.

Have time stamped the link so you should jump straight to the relevant segment by clicking here

EDITED

It may appear as though there are only $44m shares are on issue, but there are ANOTHER 43.5m shares on escrow (held by insiders and can;t be sold until February 2020). Then there are a further 20m options exerciseable at 30c (expire Nov 2020) and ~5m performance shares.

See latest Appendix 3B here

Ignoring options and rights, thats ~90m fully paid ordinary shares. At the current market price of 25c, that's a market cap of $22.5m.

On that basis, shares are on a pro-rata Price to sales of ~4.5. (that is, assuming $5m in FY 2019 revenue, which would be growth of ~140%)

With the real ramp up in sales expected in 2020, and a diminishing cash balance, this is something to keep in mind. 

On my (very) rough numbers, it appears that annual expenses are ~$2m, so based on the 29% gross margin they have reported, the company needs revenue of ~$6.9m to break even. ~40% above my rough thumb suck of FY19 revenue..

GIven the growth in schools, the recent acquisition of AIET, the structural change to digital and the large addressable market, this seems very doable, but to my mind there is no gret rush. And I am very mindful of the escrowed shares and options