After watching Grant Straker's presentation of his company on Strawman, I was sufficiently intrigued to do a deep dive on the company. This is the result of my research.
Where Does The Revenue Come From?
“Straker is a world leading AI-enabled languages service provider that powers global growth for business”
Essentially they are providing translation services to companies that operate in global markets and therefore that need to provide information in multiple languages, e.g. financial reports, web sites, marketing promotions. They also provide translation of the spoken word for conferences and dubbing of movies.
The principal product is RAY - a software platform that supports AI driven adaptive translation, where machine translations are reviewed and finalised by humans. In 2021 there were 20,000 crowdsourced translators, up from 13,000 in 2019. Part of the smarts of the RAY platform is to match each translation job with the best translator, to review and edit the software-generated translations. The platform has connectors into clients systems, allowing for a streamlined translation workflow. RAY is used not only internally by Straker to manage its translation jobs, but can also be used in self-service mode by customers to place orders, track progress, choose translators and approve the finished result.
Traditionally revenue is derived from individual projects, e.g. this was the delivery model for a project with SEAT to translate 10 e-learning courses into 6 languages in under a month.
The recently acquired Lingotek also has a translation management system, which its customers subscribe to in an SaaS model. This brings in $5m revenue, so it is becoming a meaningful contributor to the total expected revenue in FY22 of $50m. The aim is to grow this to 20% of revenue.
There is a good distribution of revenues across customers, with the top 20 customers representing 47% of revenues. 1 customer (presumably IBM) accounts for 7% of revenues
What About The Management?
Grant Straker CEO co-founded the business in 1999 with wife Merryn Straker, who is COO.
David Ingrams, CFO - less than 2 years with Straker, 6 years prior experience as CFO of technology companies (Gentrack and Ultra Commerce).
Phil Norman non-exec Chairman for past 8 years was founding chairman of Xero for 5 years.
David Sowerby has been Chief Revenue Officer since 2008.
Indy Nagpal has been CTO since 2005.
What Is The Moat?
‘Industry leading AI technology’ - increases the productivity of human translators.
Scale benefits - as more translations are done on Ray platform there are more data points for machine learning, to further improve translation productivity.
Global presence - makes them more attractive to enterprise clients.
Blue chip customer base, e.g. Nike, IBM, and (through Idest acquisition) European Commission, UN.
Financials
2021 growth in APAC is due to the NZTC acquisition.
Note the company reports in NZ$, and the year end is March 31st.
At HY FY22 they were guiding for $50m annual revenue for FY22 but now guiding for revenue run rate of $60m - $70m pa.
No debt.
HY $18m cash, Q3 $17m cash in bank.
Company claims that greater operating leverage will be seen as company grows to $100m revenue, e.g. this is a doubling of revenue but headcount only expected to grow 20% (240 > 290)
>90% of revenue is repeating
$25m capital raising in June 2021, mostly institutional, $1m retail (BTS took up $4m as underwriter).
At 1H FY22 the company reported negative operating cash flow of $3.3m and a net loss of $5.6m.
Average price of an acquisition is 0.8 x revenue, which sounds remarkable.
Where Will Growth Come From?
Expansion of use cases in existing customer base, e.g. IBM contract has already expanded from 50 to 90 languages.
IBM JV will lead to new enterprise customers, e.g. first project has been won with IBM Consulting, worth $500K in CY22.
Winning other enterprise customers, following the IBM model.
Increasing the SaaS product offerings, with the aim being to merge the Lingotek platform into the RAY platform.
Industry is highly fragmented, more than 20,000 participants competing for more than US $55bn TAM, with the top 100 companies claiming 18% of the market. The market is growing at 7% CAGR, forecast size in 2022 isUS $ 66bn..
Aims to acquire companies in markets where it already has a presence. In FY20 there was an acquisition pipeline of 20 companies representing a $200m revenue opportunity.
Straker positions itself as a technology leader, and will continue to acquire smaller companies to bring them onto the RAY platform, gaining access to their customers, and increasing the productivity of their translation services. The value proposition to customers is simple: ‘Faster, easier and smarter translations’.
Risks
- Indigestion from M&A deals - just completed 9th acquisition.
- Competition / lack of scale. In this analysis of the top 100 language service providers by revenue, Straker comes in at number 67. It is a minnow compared with companies like Lionbridge (number 5 by revenue, at $500m), who are often mentioned in discussions about Appen. Appen itself comes in at number 7, but clearly is not playing in quite the same market as Straker and many others in this analysis. Contrary to Straker’s claims to have market leading AI-driven technology, the use of machine learning models to automate translation seems to be the norm in the industry, at least among the bigger players. Straker do not appear to have any competitive advantage.
- Technological disruption - potentially the continuous improvement of machine learning translation services such as Google Translate will eventually remove humans from the translation loop, a bit like the risk we may be seeing with Appen and the possible decline in the need for human labelling of data as machine learning models get ever better. However this risk seems to be low probability given the complexities of domain specific language translation, such as in health sciences and the legal profession.
Milestones
- October 2016 Acquisition of Eurotext, Ireland, maybe 10-20 employees, $2.5m revenue, acquisition cost not disclosed.
- Feb 2017 Acquisition of Elanex, based in San Francisco, 35 employees, US$4.5m revenue, acquisition cost not disclosed.
- July 2018 Acquisition of EULE Lokalisierung, a small German translation company,23 employees, $3.2m revenue, acquisition cost not disclosed.
- June 2018 Acquisition of Management Systems Solutions SL Unipersonal, a small Spanish translation company, $3.2m revenue.
- October 2018 IPO, raising $20m ‘to fund organic growth and further acquisitions’.
- Feb 2019 Acquisition of COM Translations, Spanish translation company wit office also in LA, specialising in subtitles and voiceovers for movies, 20 employees, $1.5m revenue, for $750K.
- June 2019 Acquisition of On-Global, Spanish, 14 employees, $3m revenue, for $2.25m plus $0.8m earn out, sales manager Amaya Montoya transitioned to Straker.
- Feb 2020 Acquisition of New Zealand Translation Centre (NZTC), 25 employees, $4.3m revenue, for $0.9m plus $0.8m earn out. Gives Straker ability to provide interpreter services as well as translation, plus a portfolio of enterprise and government customers, mostly in NZ (e.g. Orica, Fonterra, ResMed, NZ Government).
- November 2020 Enterprise deal with IBM. This seems to be a two-sided deal where Straker uses IBM Cloud to provide translation services and IBM uses Straker to translate and subtitle its internal marketing materials. Initial deal is for 2 years and covers 55 languages.
- Jan 2021 Acquisition of Lingotek, based in Utah, bringing SaaS capabilities and enterprise clients Nike and Panasonic, for US$6.47. 51 employees, US $7.9 revenue. As well as its customer base, the attraction of Lingotek was its suite of 17 connectors into leading content management systems (e.g. Wordpress, Adobe, Drupal), which Straker will start to plug into its RAY platform.
- June 2021 Capital raising of A$20m to fund growth, pay down debt from Lingotech acquisition, and pay the costs of the CR. Upsized to a$25m due to strong demand.
- January 2022 Acquisition of IDEST, Belgian translation company with 18 employess $6.6m revenue for $2.9m cash/shares, plus a further $4m in earn out. Key customers include the European Commission, European Parliament, UN and UNESCO.
Conclusion
Straker has taken 22 years to get to $30-odd million in revenues, and is still not profitable. It is a minnow compared to the bigger players in the market. Whilst the joint venture with IBM, and the impressive roster of blue chip clients, demonstrates that Staker clearly has a compelling value proposition, I don’t see what makes the company stand out from the competition. The CEO, CRO and CTO have extremely long tenure - I can’t really see what is going to propel the growth of the company without some fresh blood and new strategy. Simply nibbling away at acquiring small translation agencies around the world does not sound like a recipe for success. (Having said that, Wisetech adopted a similar strategy with considerable success - but it is now the leader in its market, and Straker is a long, long way from that.)
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