Main Thesis for RPM Global is that as it migrate completely to Software subscription as opposed to maintenance, reliability of revenue will be strong and I expect they keep growing subscription revenue half on half.

This time that trend has gone little reverse.

The reason for this given was below

Now if we trust management and apply adjustment for $2.4m ( i.e remove 2.4m revenue from 2HFY2023 and add it back to 1HFY24), the graph looks like below, which is what I would like to see.

Management didn't flag that in FY23 result there is an extra $2.4m in the numbers. If they would have flagged that then probably there isn't any concern.

I attended the call and heard CEO admit that their communication should have been clear and I got the impression that there was no intent to mislead shareholders here. In fact, CEO said that he is quite happy for share price to be low so they can keep buying shares and increase EPS by reducing share count as well as increasing earning.

So although it was poor from management but I am happy to keep it aside and consider that thesis is still intact and I quite like the frankness of Management on the call FWIW.

Happy to hold.

MD's address:

There were a number of references for Share price - which I think is odd

RPM Global released its FY23 result this morning.

Revenue:

Customer Receipts:

Expense:

Operating Cash

Migration from Maintenance to Software

Software subscription as % of overall revenue

RPM Global announced to extend on-market share buy-back. Along with they also disclosed available cash at 30th April 2023

Now at the end of 1H FY2023, i.e 31st December 2022 their cash balance was 22.3m

That means in the first 4 months of CY2023 they increased their cash balance by 10m ( RPM historically generates the majority of cash in the second half ) but this announcement just tells me that would be the case this year around as well and hence the business is going ok while the share price has taken a beating. + Management and board also think that the share price doesn't reflect the value and hence extending the buyback.

It all aligns well ( I think) for future outperformance.

I am not a fan of updating the entire presentation and release - I would prefer them just to announce what has been changed. I had to compare the two presentations to find the delta (Although they pointed it out in small letters at the end of the slide as New Slide- 21 March 2023) I had to compare to make sure they haven't sneakily submitted something.

They have updated the following two slides.

Take away for me in the following slide is that, the Advisory division already achieved its FY23 target with the 4th Q to go. and to achieve the target Software division needs to do a further 3.3m EBITDA ( RPM Global thinks it is very much achievable based on historical evidence that their largest quarter by an order of magnitude is 4th Q) - So think this is positive.

So in total, they have done 10.9m in the first 3 Qs which equates to 3.6m per Q and they need to get 3.3m in Q4 to reach their target and also points Q4 is the largest software sales quarter by an order of magnitude..-- I will take it as a positive and potential to outperforming the target.

2nd new slide, in my opinion, just trying to say that their customer cash collection is heavily weighted towards H2, and the graph shows the tilt towards H2 as compared to H1 (the only exception was FY22 H2 when two customers failed to pay on the due date).

Not sure why the clarification, as this was very well known - but if they are confirming I would take it as a positive.

Overall, this is positive only. but this is a convoluted way of releasing positive news and that's why I am a bit suspicious.

It's always important to evaluate a company's revenue model and understand its long-term sustainability. RPM Global has been shifting its revenue mix from perpetual licenses to a subscription-based model in recent years.

While this shift may not be reflected in immediate revenue growth, it is a positive move in terms of the quality of revenue. Perpetual license sales provide upfront revenue, but maintenance fees can decline over time. On the other hand, SaaS models provide a recurring revenue split over the contract period, resulting in a more predictable revenue stream.

RPM Global's shift towards SaaS is evident in its declining perpetual license and maintenance revenue, as it focuses more on SaaS services and converts existing customers to the subscription model. This transition may take time to fully reflect in financial statements, but it could lead to a more sustainable revenue model in the long term. I am putting this table and graph which illustrate this transition beautifully.

Following chart shows, How Software subscriptions and maintenance trending in last few years

Below graph shows, what % of revenue contributed by Software subscriptions ( which is recurring in nature)

So far so good, If RPM convert all his Perpetual customers to Subscription customer in next few years and as SaaS Revenue becomes higher % of total revenue, this transition will be evident in financial. I shall closely monitor it's execution in this transition and keep an eye on any potential challenges that may arise.

At the previous straw, I documented things I will monitor for this business going forward. All matrics look good in the report.

ESG business is going great as per the report and will provide further upside in the future as per the management commentory. Something to monitor.