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

This one happened a few days ago but Readytech made a smart acquisition in my mind acquiring open windows to extend local government capability.

• open windows is a specialist in cloud-based contract management and procurement software
• the acquisition enhances ReadyTech's local and state government product-market fit, whilst also providing the opportunity to cross-sell open windows into ReadyTech's existing government customer base.
• upfront consideration of $4.8 million, with total consideration of up to $14.3 million

The acquisition will enable ReadyTech to cross-sell to a broad range of their customer base with a key focus on government and justice segment. I personally think this will enhance the open office acquisition they made earlier this year. management have been doing their best to enhance the government and justice segment and the open windows acquisition will certainly help.

Purchase price upfront of $4.8, and up to $9.5 mil in deferred consideration, reflecting a multiple of 2.9x ARR. The acquisition is expected to deliver recurring revenue of $1.5 million in FY22 with an EBITDA margin of 16%.

As much as I like the acquisition the one thing that I could fault is that the EBITDA margin is below FY22 yearly guidance provided of 36-38%. Having said that the Open office acquisition which will be a cross-sell opportunity in the segment does offer large EBITDA margins so it should play out ok.

*please note open office and open windows are two different acquisitions made*

I continue to Hold RDY IRL and remain bullish on the company.

Readytech recieved a letter by its largest shareholder Pemba Capital that it had sold 3.18m shares that were earnt following the Tranche 1 earn-out in relation to the Open Office acquisition announced August 5th.

I expected a sale of shares would have occured earlier than this given Pemba Capital own 41% of the company. Given they have only sold the Tranche 1 shares and don't plan on selling anymore additional shares stating they "remain commited shareholders in Readytech".

The sale of shares will improve liquidility in the company which I hope will assist in shareprice appreciation over the longer term.

Disc: Hold IRL

Readytech made a smart acquisition today that is extremely complimentary to their current business that also bolsters their position in enterprise education market. Purchasing a specialist enterprise student management software business for total consideration of $2.2 mil which will increase readytech market share in the Education segment adding 2 significant TAFE contracts with the deal. This will enable RDY to hopefully cross-sell some of their additional products to these tafe institutes. The education segment is extremely sticky and has been a great area of growth and upsell/cross sell for RDY most recently winning the Bendigo kangas Institute contract in 2020. Hopefully we see a few more of these wins in this segment. The education segment is in need for improved software that monitors students journey from beginning to graduation and RDY are now primed to compete for these contracts.

The acquisition cost upfront is 700k and deferred consideration of up to $1.5 mil, consistent with a recurring revenue multiple of 2.2x. The total is expected to be paid in 12 months time with reserve cash. To me it looks like a really solid buy and will hopefully allow RDY to keep winning these education deals. The acquisition is expected to deliver incremental recurring revenue in FY21 of approximately $670k being part year benefit from Oct 21 with an ebitda margin of 15% in line with managements expected yearly growth target of mid-teens year-on-year growth.

Disc: I hold IRL only but am looking for a opportunity to buy in my strawman portfolio. I feel very relaxed holding RDY.

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

Another solid result from this SAAS company.

Announcement:

• Revenue growth of 27.4% total $50 mil
• Underlying EBITDA 18.9mil with margin of 37.8%
• Underlying NPATA increase of 10.6mil
• Open Office acqusition FY21 revenue of $4.8mil just ahead of forecast. Achieved 1st earn-out and opted for $RDY shares. EBITDA contribution of $1.7mil
• Gross opportunity Pipeline of $19mil
• Opeation cash flow conversaion to EBITDA 113%
• Customer revenue retention up to 96%
• Recurring reveue 87%
• 20% CAGR since FY18

Total revenue growth was driven by new customer wins, upsell and cross-selling to existing clients resulting in avg revenue per new customer of 35.5k (24% growth).

Readytech can be divided in to three segments/verticals.

FY21 Results

1. Education
   • student mgmt and work pathways
   • revenue growth of 16.9% in FY21
   • Avg revenue per new customer of 38.8K up 42%
   • Revenue retention of 96% 
   • EBITDA margin on 47% up from 41% in FY20
2. Workforce solutions
   • Payroll, HR & workforce mgmt
   • Revenue growth of 13.3% to $20.3 mil
   • Avg revenue per new customer of $26.4K up 19.7%
   • Revenue retention of 94%
   • EBITDA margin of 42% down from 46% in FY20
3. Government & Justice 
   • Local/state Giv. & Justice Case Mgmt
   • this is where the open office acquistion fits
   • on a 12 month performa basis open office generated $18.3mil
   • revenue retention of 99% for FY21
   • Proforma avg revenue per customer $145K up 31%
   • first earn out achieved ahead of expectations
   • EBITDA margin of 35%

OUTLOOK:

• FY22 organic growth in the mid-teens for the full 12 months. Usually 15%
• EBITDA margin expected in the range of 36% to 38%
• Provided a 5-year outlook to achieve organic revenue of $125m by 2026.

Further views following the Webiner:

the education and workforce solution segment displayed strong FY22 growth with improved margins. Company believes that these margins will be maintained in FY22

The pipeline of new business is strong reported to be $19mil Annualised subscription and implementation fees. CEO reported they are winning and converting @ 60% once in the high conviction opportunity. The 19mil does not include upsell/cross-sell which the company appears to perform strongly at.

International growth currently at 7% and they expect to see growth in the mid-teens in overseas markets in coming years

The open Office acqusition grew 20% year on year from FY20 to FY21. They are expecting mid-teens growth moving forward.

Readytech appears cheap compared to its peers, the FY26 target looks achievable and displays exceptional growth moving forward.

I do not hold in my strawman portfolio but do hold in real life and will look to top up as the opportunity arises.

I don't hold  Readytech in my strawman portfolio but I do hold IRL. RDY is the kind of business that I find really interesting. Information Technology Software business with a really good product that offers a subscription model. High recurring revenue and with strong organic growth.

They have also been able to provide and reaffirm guidance throughout FY21 and are expecting revenue growth in the mid-teens with EBIDTA margin in the range of 37-39%, excluding the open office acquisition that took place this year.

RDY is very similar to ASX favourite TechnologyOne. RDY are reportedly taking some market share from TNE which displays the quality of the product.

The open office acquisition which was highly questionable by me initially appears to be achieiving strong results. Announcement today reports they have achieved Tranche A earnut hurdles of $18.26 million trailling revenue and $11.35 million recurring revenue which was ahead of management expectations.

Vendors elected to take $9million in RDY shares which shows they have faith in continual growth in SP over time.

Not many brokers cover this stock: Macquarie with a target price of $2.75, and Shaw and Partners target price of $3. Appears cheap compared to its peers.

Results to be announced August 24th.