Appendix 4C and Activities Update – Q1 FY23 

Highlights

• Receipts decreased 15% QoQ, to 14.4m.
• Cash on hand 17.13m
• ARR 62m
• Cash from operating activities -7.1m.

A poor quarter – a reduction in cash receipts, alongside an increase in manufacturing, staff, and admin costs. I don’t see anything I like, so this one ultimately remains an avoid for the time being.

It remains on the watchlist. I am really looking for costs to narrow, continued growth and a sign of operating leverage. If anything, costs are widening and growth appears to be stalling. The last few quarters in particular have been disappointing; a few more of these and I will be removing WSP from the watchlist.

Highlights

• Receipts from customers 16.9m – a decrease since Q3's reported 19.8m and Q2's 25m.
• Staff and admin costs have narrowed slightly QoQ. There has also been 2.5m reduction in manufacturing and operating costs, but this is probably due to less demand/output.
• The business continues to bleed cash – net cash used in operating activities -2.3m in Q4.
• Another 5m burnt throughout the quarter, with 26m cash remaining. This should be enough for operations to continue for at least another year unless we see a serious increase in spending, which is unlikely in this environment.

This business continues to highlight their promises for a reduction in costs – and to be fair this has occurred – but receipts from customers continues to decline QoQ.

Management is forecasting positive EBITDA during the second half of FY23, but also suggest that this forecast EXCLUDES share-based payments. Que? This is a significant cost for the business, so excluding this is meaningless – at least to me.

I still can’t see the evidence of scaling that I want to see. The continued decline in receipts is concerning and suggests WSP might not be able to grow its revenue without spending a heap of cash.

Disc: not held 

FY22 Q3 - highlights

• Cash receipts of 19.8m, a -22% decrease since Q2’s 25.4m.
• Cash from operating activities came in at (3.4m), a slight increase vs Q2’s (3.1m). Despite the increase in low, Q3’s loss also includes a 735k payment to ATO due to admin and corporate costs occurred in Q2 – exclude these and costs have narrowed.  
• ARR increase of 2.4m since Q2 (24% vs pcp).
• 82 new customers during the quarter; 26 coming in North America, 18 in Asia and 38 in ANZ.
• 31.2m in cash holdings, following another 7m burnt in Q3

WSP are careful in making most comparisons vs pcp, as the quarter-on-quarter comparison is pretty ordinary. That said, for costs they elect to use quarter-on-quarter comparison -- in an attempt to demonstrate narrowing costs.

Despite the business reporting reductions to cash outflows due to ‘cost efficiencies’ and ‘savings’ being realised, cash receipts came in much lower than Q2 -- which they suggest was due to large Covid-19 vaccine roll out programs in Q2. In this environment, reductions in loss is important, but WSP need to be careful not to chop their right arm off in doing so.

I still want to see more evidence of scaling and operating leverage here, and I am not buying the business touting a reduction in costs when we continue to see 7m being burnt, coincided by a sharp reduction in cash receipts. 

Disc - not held

Highlights

• ARR of 60m, up 5% on Q1 figures and 26% on pcp.
• Cash receipts for Q2 recorded at 25.4m, 56% higher than Q1 and a 124% increase on pcp.
• New customers acquired during Q2 increased by 119% on pcp
• 38m in cash holdings

They are scaling a little better than in Q1, but losses still increased slightly as top line growth expanded. They burnt 2.8m in Q1, and another 3.1m this quarter. On this trajectory they are burning around 12m a year – and that's without accounting for investment costs (IP etc - which has come in at 2m + in both Q1 and Q2). With all costs accounted for, it wouldn’t be unfair to suggest WSP will need to burn through around 20m a year.

With that in mind, I think a cap raising is likely to occur in late FY22 calendar year or some time in FY23 CY. While the latter is obviously more likely, I think they will want to avoid the 'cap raise incoming' alarm bells, which we know can really harm the share price, so I don't think a cap raise towards the end of this CY is out of the question.

I really want to like WSP. But I can’t get my head around current losses, nor do I think it is scaling well enough at this time. And with the environment we are entering, I don’t want to be holding too many companies that are dependent on investor capital.

This one continues to be a no for me, but watching closely.

Disc: not held  

Founded in 2001, Whispir is a global SaaS company that helps its customers interact and engage with an audience. It does this by offering a low-code/no-code software platform that simplifies the automation and management of communications at scale, without the need for IT expertise. 

So why use it? Glad you asked! To solve a broad range of business challenges, from operational coordination through to enhanced customer engagement and crisis management. Think widespread messaging, internal incident notifications, click and collect, in-store pick up notifications etc etc.

It is used by insurance companies, telecommunications companies, banks, governments – any business or agency that needs to facilitate cost-effective digital communications. 

Some key points: 

• 801 customers across three regions (Asia, North America and ANZ) increasing by 171 during FY21. 
• ANZ accounts for 83% of total revenue.
• ARR increased to 53.6m in FY21, a 28.5% increase on FY20 – largely driven by existing customers expanding use cases. This suggests to me that Whispir is onselling effectively and implementing new innovative solutions for its customers (reminds me a little of 3DP and how they look to produce/innovate on demand). 
• Losses remain high - around the 9m mark. Yes, the business is investing significant amounts into marketing and R&D, but this remains the big risk/question mark for Whispir going forward – dilution should be expected.  
• The business wants to achieve strategic growth in three areas: its product roadmap, customer growth in ANZ and Asia; and expansion in the North American market – the latter is said to represent the largest opportunity for the company.

Thesis

• The company’s platform is designed to be used without IT expertise. The same open architecture enables Whispir to easily integrate with existing IT systems making it simple to use, adopt and implement. Strength is often found in simplicity - I think this is an example of that.
• They appear to be efficient at offering additional value-add to existing customers (their 'story' with Chemist Warehouse, outlined within their FY21 report, is indicative of this). This should drive platform utilisation over the coming years. 
• The need for Whispir’s platform is universal – it isn’t restricted to any one industry or thematic. If they can continue to execute, Whispir can theoretically target customers in almost every vertical. I don’t want to discuss the dreaded ‘TAM’, but I would argue that Whispir can evolve into something much bigger. 
• The company's solid customer base – consisting of blue-chip customers, government agencies and more – provides endorsement and legitimises Whispir’s offering. 

What I want to see in the coming months/years

• Losses narrowing.  
• R&D costs converting to additional value-add for existing customers over the long term.
• Steady growth in North America given its investment in the region, where there is lots of competition.
• Whispir continuing to demonstrate strength and ongoing growth in the years to come. There is a possible bear case that Whispir partly benefited from Covid-19 – yes, the business suffered too – but I can’t recall a period in my lifetime where there has been a requirement to quickly reach and disseminate information to diverse audiences. Will the requirement to do this fade over time post-pandemic, and with that interest in Whispir? To counter this view though, it is entirely possible the pandemic has accelerated the need for digital transformation – and with that the need for a contactless and digitalised way for business to reach customers, for whatever reason. I think the latter is primarily the case, but something to watch going forward.   

I will post a valuation later in the week.

Disc: not held yet, but certainly high on the watchlist. I would like to see losses narrow before investing. Their expansion into North America is also something to watch closely.