First of all, thanks @GazD for putting ReadyTech on the radar. I'll admit, I wasn't that familiar with it but I can see why it has piqued your interest.

Marc struck me as humble, thoughtful and long-term oriented. He's been running things since 1998 and it's clearly a point of pride that they've grown to a >$100m revenue company while being profitable the whole way through.

I also liked how he is very focused on the opportunities that are right in front of them --- 70-80% of their target market here in Australia are on old legacy systems, so he didn't seem too rushed to expand into new geographies or verticals just yet (although they are clearly eyeing the potential longer term).

Of particular note was Marc's elaboration of adoption and the S-curve nature of things. Especially given their hard won onboarding of some great reference clients.

Likewise, he really seemed to understand the significance of capital allocation and associated trade-offs. He was cognizant of the need to invest in new features/opportunities, while remaining disciplined and cautious.

Shares are on a P/s of ~3x and a PE of ~42 -- although it doesn't seem inappropriate to use their underlying NPATA value (which takes out things like one-off acquisition/restructuring costs and amortisation of acquired customer lists etc) which gives you a PE closer to 21.

For a business that reckons they can grow to $170m in the next three years (all organically, with any acquisitions in addition to that) and at a cash margin of 20%, that doesn't seem like too high a price.

Anyway, as with every company, i'm sure there are negatives so I would be keen to hear any concerns from others who are more familiar with the business.

Bull case for this little discussed stock:

• Similar business model to Technology One.
• Subscription revenue compounding at 35% last several years without any hiccups.
• Profitable (although perhaps it should be more profitable than it is?)
• Revenue now 1/4 that of Technology One with growing list of clients and increased revenue from clients (upselling etc)
• Market cap of 394 mil compared with Technology One's market cap of 6.2 billion...

I suppose the question is, is their apparently poor profitability down to the gorilla game and Technology One's ascendancy or does their compounding revenue growth suggest that operating leverage will kick in at some point and this will be a winner?

One for a meeting if they were amenable @Strawman ?

Gaz

RDY's price down ~10% this morning simply because the company has turned down a take over offer for $4.50 p/s.

Currently trading at ~$3.15. I've seen this as an opportunity and have been buying this morning.

takeover at $4.50 a share.

Nice little pop in price. I hold this one IRL and think I would rather see the takeover not go through. I note an article from Microequities Asset Mgmt in the AFR this morning also suggesting they would rather see the takeover not go through.

I kind of agree, I see RDY as a good long term hold. They continue to win market share and are building a nice business with strong margins and extremely good customer retention. Also founder and CEO led. RDY has held up quite well through the recent market sell off maintaining at around $3. Unfortunately it never go low enough for me to consider topping up again.

Nice for the SP pop today for my own portfolio but I am not selling at this price and will hold through. Would not surprise me if another bid came through.

Disc- Held IRL

highlights:

• revenue up 56.5% to $78.3mil with net profit of $8.8m
• like for like $16.8%
• net customer revenue retenion up to 106%
• underlying EBITDA 27.5m (margin of 35.1%, excluding LITP acquisition would be 36.5%)
• underlying NPATA 14.3m
• recurring revenue down to 84% from 87%
• 48 new high value customer acquisition with aggregate annual value of $8mil (avg revenue per customer $51,600)

RDY split into 3 pathways

1) education and work pathways:

• delivered 17.3% like for like growth in revenue to $31m
• avg revenue per custimer $45,800 (FY21 $38,000)

2) workforce solutions

• delivered 15.8% revenue growth to $23.5m
• avg revenue per customer $46,200 (FY21 $39,400)

3) government and jucstice

• delivered 18.6% growth in revenue to $23.9m
• recurringrevenue increasing to 76% (FY21~65%)
• avg revenue per customer was $186,000) up 15.4%

Overall i am pleased with the results. The like for like of 16.8% revenue growth is above historic levels of around 15% (guidance is mid-teens) so it is showing fantastic organic growth. the 48 new high value customers shows that the product is able to target higher value and enterprise customers which is really positive, the high value enterprise ustomers lifted avg revenue per customer to $51,600 (FY21: $35,300). We are also seeing good. cross/upsell of product with the revenue retnetion of 106% up from 104% whioch shows low churn.

things to watch is recurring revenue which dripped to 84% from 87%. two years ago this was around 95% so it is something to monitor. secondly RDY are making a number of acquistions that strengthen the product no doubt but how they are integrating these acquisitions is an obvious risk and something to keep an eye on. So far they have executed itegrations well with the open office acquisition exceeding expectations. Lastly the debt has increased following acquisitions. Currently net debt of $25.9m and bank debt of $34m. With the growth occuring I am not concerned but something to keep an eye on

outlook and guidance:

• mid teens growth (standard)
• ebidta margin growth of 35-36% (slightly lower than the 36-38% usually provided)
• the slightly lower growth is likely due to the IT vision acqusition which is expected to make 11 month revenue contribution of $12.6m delivering EBIDTA of 22%-24%
• has increased FY26 organic revenue target to over $160m (was $140 provided 16 June)

DISC- held IRL

non-sensitive announcement

Open office achieves final earnout hurdle.

• open office an acquisition made (18 months ago) has achieved Tranche B hurdles of $22 mil revenue and $15.25 mil Recurring revenue
• vendors have elected to take $9 mil final earnout in Readytech fully paid shares issues at #.0977 per share

the achievement has been made in 18 months which highlights the strong growth being experienced in the government and justice sectors. In addition RDY made a recent acquisition in IT vision which will further enhance the product within the government sector.

The above provides a glimpse that results should be strong when released in a few weeks. Management are aligned with shareholders as they have skin in the game and is a founder led company. Further the fact that Open office vendors chose Shares over a pay out indicate that they are expecting share price growth in to the future. RDY has 97% recurring revenue, with underlying EBITDA margins expected of 36-38%, organic revenue growth in the mid-teens.

Disc - Hold IRL

Readytech provided strong results this morning

highlights:

• revenue up 63.7% to $35.7 mil
• like-for-like subscription revenue growth of 23.3% to $29.8mil, winning 22 new high value customers won
• customer retention now increased to 97%
• underlying EBITDA of 36%
• statutory NPAT up 336% to $5.8mil
• reiterated FY22 outlook of organic growth in the mid teens
• increased FY26 organic revenue target to $140 from $120 given 6 months ago.

Positively organic growth was driven y a combination of new customer wins, user subscriptions and module upgrades showing the cross-sell and up-sell opportunities the business now has with the addition of Open Windows and AVAXA. The avg revenue per customer has now increased to $59,800 from $42,500 in 1HFY21.

Readytech is broken up into 3 segments

1) Education and Work pathway

• saw 27% increase to $14.9mil driven by new business as well as upsell of the learning mgmt system.

2) workforce Solutions

• 10.3% growth in revenue to $11.1 mil

3) Government and Justice

• revenue growth of $19.3% to $9.7 mil

FY22 outlook

• organic revenue growth of mid-teens consistent with previous years
• EBIDTA margin expected in the range of 36-38% also consistent with previous years

My thoughts. I like this business, it is steady and growing consistency year on year which is CEO and founder led who has skin in the game. The acquisitions made look so far good and benefit the business. They have consistency had over 95% retention rates and have increased that to 97%. These contracts are sticky and once integrated into a service it is unlikely they will leave. RDY now have additional services to cross/up sell which is increasing revenue growth as we have seen from the last 6 months. The key is to improving contracts in the justice sector which are larger deals and they are starting to see wins in this area over the past year.

Disc: held in RL and will look to make a position on SM

My interest was piqued in RDY after a mention by Maquarie, citing it as good value relative to most other SaaS companies.

At first glance, and even after a deeper dive, RDY appears to be very much a smaller version of Tech One. The average annual revenue per customer is around $40K, so the company definitely plays in the  SME market rather than the Enterprise market, where annual revenues between $100K and 1 million are more the norm.

“ReadyTech operates in multiple large addressable markets which are ripe for digital transformation.”

Why I like the company
It is squarely in my zone of competence, since I have worked in software / SaaS organisations for decades
4,600 customers, with 96% customer retention
Its products cover three distinct markets, providing multiple growth opportunities:
Education and Work Pathways - software for student engagement, curriculum management, online learning, with customers including Bendigo Tafe and Kangan Institute, the Commonwealth Bank’s Registered Training Organisation - 17% growth in revenue to $25m. 1200 customers in this segment, market size is approx. 4500 institutions.
Workforce Solutions - HR and payroll for medium sized organisations in hospitality, aged care, logistics, agriculture (basically anyone they can sell to) with customers including De Bortoli and Tasco Petroleum - 13% growth in revenue to $20m. Addressable market in ANZ is $2.4b
Government and Justice - a new division coming from the acquisition of Open Office in March this year, who provide software for local/state government and justice case management. 170 local council customers, with a target market of 500 in Australia alone. Average revenue per customer is highest in this segment, $145K. Revenue since acquisition by ReadyTech $5m, proforma annual revenue is $18m
With the Open Office acquisition ReadyTech now has a beachhead into the UK market - Open Office has “over 400 clients across Australia and around the World.”
Founder-led, Marc Washbourne has been CEO since 2006, has 4m shares (but there are 102m issued)
Profitable, just ($2.1m, compared to $3.8m last year)
86% of revenue is recurring

Comparative metrics for TNE (at 31/12/2020) and RDY (at 31/06/2021) - attached (I couldn't figure out how to insert this table inline).

Risks:
Competition, TNE being the obvious one, moving downmarket from Enterprise, and Microsoft (Dynamics) moving upmarket from small businesses. many more. 
Collapse of demand. Most of their customers (excluding those in Workforce Solutions) rely on the public purse for their finances. Budgets for digital transformation could disappear at a stroke with a change in Federal or State government policy.

Given RDY has co-existed with TNE for 21 years I get the feeling there is room for both in the market. TNE has more market presence, but now that RDY is well capitalised they are investing more in sales and marketing. RDY is growing revenue faster than TNE, but the 2026 revenue targets of the two companies reflect similar multiples of their current revenue, with RDY being slightly more aggressive (in % terms) in their growth target. Although TNE and RDY operate in the same markets, such as local councils, I think they offer subtly different capabilities, with TNE’s focus being ERP and RDY’s being case management.

I can’t really draw any conclusions from the relative valuations using P/S and P/E. P/E for RDY probably doesn’t reflect long term trends since earnings were depressed this year after paying out $57m to acquire Open Office.

In conclusion, I am sufficiently interested in RDY to put it into my Strawman portfolio, just as a means of keeping an active watch. I don’t however have a high enough conviction to invest real money, mainly because I am already a long term holder of TNE and I don’t see the need to own the second best (if that is indeed what RDY is) when I already own the best in a given market.
 

Readytech a SAAS company is hosting an investor webinar this Wednesday September 8th at 2:00pm AEST.

I am bullish on RDY. I hold IRL however not in my stawman portfolio. The reason behind this is I purchased RDY on a share price ‘dip’ following strong results. Not long after that they made the acquisition of open office which concerned me. This was a private company that had the same major owner ‘Pemba Capital’ as Readytech. At the time I felt they paid over the top for this and the real winner was Pemba capital and not its shareholders. Since then my mind has been eased with strong results being displayed evident by the announcement on 5th of August with open office achieving its first set of earnout  hurdles. Positively the vendors elected for $9 million earnout in RDY shares. The software in open office looks incredible interesting and it’s very sticky. It provides another cross-sell opportunity for RDY and they are proving successful in doing this.

Regardless link is below for the webinar for those interested. Worth registering in my opinion. 

https://marketeye.us1.list-manage.com/track/click?u=1c0f579e5b363ed254cfdb86a&id=0ed829fc32&e=c1b3e457f4

1H FY21: strong growth in revenues and key metrics1

~ Revenue up 13.4% to $21.8 million (organic revenue up 10.3%)

        - Average annual revenue per customer up 22.3% to $11.8k

        - Customer revenue retention rate maintained at 95%

~ Underlying EBITDA up 0.5% to $8.3 million with an EBITDA margin of 37.9%

~ Underlying NPATA up 9.3% to $4.7 million

~ Operating cashflow conversion ratio of 87% (1H20: 86%)