5 Performers 💪 - September 23 Quarter

From Q1’s cashflow report

Nov 04, 2023

I started the last edition of this one with this sentence: Doesn’t it feel like yesterday that the previous reporting season just finished? Well yeah, it kinda did.

Well damn brothers, the same rings true today.

This reporting season had us all on the edge of our seats, with the big macroeconomic picture starting to look ominous again. The prevailing consensus seemed to be that interest rates are destined to remain higher for an extended period. We even saw Cramer lose his shit about the sharp rise in the benchmark US 10-year treasury yield. If you’re wondering how I fared, well let’s just say one thing I won’t lose my shit about is the price of bonds. With 3 daughters under the age of 3, I have plenty of reasons to lose it on other things.

Anyway, back to the original programming. 5 companies that reported strongly. When I do these, I attempt to cover new and different companies, but I must admit I haven’t seen many standouts this reporting season, so please excuse the commentary on many of the usual suspects you’ve seen here before.

Here they are:

Dropsuite (ASX:DSE) - (Quarterly report link here)
Camplify (ASX:CHL) - (Quarterly report link here)
Acusensus (ASX:ACE) - (Quarterly report link here)
Felix (ASX:FLX)- (Quarterly report link here)
Austco Healthcare (ASX:AHC) - (Contract win announcement here)

FELIX Group (ASX:FLX)

Let's kick things off with a shout-out to Felix Group (ASX: FLX). I've been keeping an eye on Felix, having written about them earlier this year. In that article, I mentioned my desire to see Felix achieve strong and sustained growth, coupled with progress toward positive cashflow.

As I had mentioned then, this milestone was unlikely to be exactly on the immediate horizon. The little cash left in the bank led to their recent capital raise to secure necessary funds.

Now that the funds are in the bank, let's dive into Felix's current state.

The Positives

There are two noteworthy aspects that caught my attention:

#1 - Impressive ARR Growth:

In the latest quarter, Felix recorded $800,000 in new Contractor Annual Recurring Revenue (ARR), marking a 32% increase compared to the previous quarterly record (Q3 FY23: $606,000). The Total Group ARR for Q1 FY24 stood at $6.9 million, reflecting a nice 47% increase year-on-year.

#2 - Encouraging Signs in Cashflow:

Felix chooses to capitalise their software development costs and often emphasises operating cash flow. However, I suggest we disregard this metric and focus on their net cash burn. For the last quarter, I'm willing to exclude the expenses associated with their recent capital raise from the net burn calculation. With this adjustment, we find that they burned through $825,000. As illustrated in the chart below, there appears to be a positive trend in cashflow.

What to look for next

In my opinion, Felix are still not out of the woods with cashflow challenges.

With simply mental maths we can gather that with $6.9M in ARR, a quarter of $2.5M in cash receipts is probably a positive outlier.

So let’s continue to monitor them from quarter to quarter. I will take a few more of these for me to get properly interested.

Camplify (ASX:CHL)

Camplify continues its solid execution.

In the quarterly update, they highlighted a "Combined global Revenue of $11.7 million (unaudited), including vans, representing a year-on-year growth of 114.2%." They reported cash receipts of $36.5 million for the quarter, marking an increase of 58.7% compared to the previous year.

Cash receipts, while occasionally subject to fluctuations, can serve as a reliable indicator of organic growth, especially considering that Camplify hadn't yet integrated Paul Camper into their business last year.

One positive development was highlighted about the UK market. They attributed their growth of 156.1% for the quarter to a change in their marketing approach. Justin, in the full-year announcement call, explained that this shift involved moving away from optimising for customers at the backend of the funnel, where competition is fierce. Instead, they've chosen to follow the blueprint that's worked well for them in Australia and focus on optimising for the early stages of the funnel. This shift seems to be right one, and the numbers back it up.

One of the key performance metrics for Camplify, the take rate, increased from 27.2% to 28.2% for the quarter, which is a positive sign for the company's business model health.

The company remains in good financial shape, with a small positive cashflow for the quarter, primarily due to their effective cash collection model (which I’ve explained in my article for a rich life).

All in all, the outlook appears positive. We'll continue to closely monitor Camplify's progress and performance.

Dropsuite (ASX:DSE)

Also in the category of consistent execution is Dropsuite.

While this quarter witnessed a rollercoaster ride in the share price, Dropsuite's performance remained steady.

The Annual Recurring Revenue (ARR) chart shows ARR now standing at $33.4 million, marking a 10% increase compared to the prior quarter (QoQ) and a 44% rise over the previous corresponding period (PCP).

Notably, cash flow is moving in the right direction, although management acknowledged that this quarter saw robust collections.

The share price action

The share price experienced a surge of enthusiasm when Dropsuite received favourable coverage in the AFR. This article was published on July 4th, and in the ensuing days, the share price soared to 37 cents, resulting in a market cap of $267 million. This valuation seems excessive, even with the current ARR of $33 million and strong, consistent growth.

However, only days later, Microsoft officially introduced its Microsoft 365 Backup and Microsoft 365 Archive product, Syntex. This announcement sent Dropsuite's share price on a rapid descent, returning to levels it had maintained four months prior.

Now that the dust has settled, and with more context from both Microsoft and Dropsuite, it appears that the market's reaction may have been somewhat exaggerated (on both the rise and fall).

While Microsoft is undeniably a formidable competitor, Dropsuite's focus on serving Managed Service Providers (MSPs) and offering them a more substantial margin may continue to set them apart.

Moreover, Dropsuite remains a very small player compared to Microsoft, and there is significant untapped market potential, as many individuals and businesses still do not prioritise data backup. Thus, Dropsuite's strategy of capturing a small portion of this market remains a plausible scenario.

We'll keep a close watch, of course. If Microsoft begins to pose a genuine threat to Dropsuite, it will become apparent in the quarterly growth figures in the coming quarters. Stay tuned for updates in this space.

Acusensus Ltd (ASX: ACE)

Let's turn our attention to Acusensus Ltd (ASX: ACE), which recently reported its third quarterly results since going public, and the numbers were quite promising.

They posted revenue of $12.1 million, marking a 22% increase compared to the previous corresponding period (PCP).
Cash receipts stood at $12.3 million, resulting in a positive operating cash flow of $2.9 million.
- It's worth noting that the company acknowledged that this figure exceeded their expectations and was partly due to some good fortune. Under normalised conditions, the net operational cash flow would have been $0.6 million.

With only three quarters of 4C data available, we still lack sufficient data to establish meaningful trends, in my opinion.

The announcement didn't reveal any significant developments, but there were positive comments regarding product development in the road-worker protection segment (Acusensus Guardian). It's an intriguing space, and Acusensus seems to be among the first to offer such a solution in the market.

As I previously mentioned when discussing Acusensus, I find this Founder-Led company particularly interesting. Given that they are still in their early days as a publicly listed company, I plan to keep a close eye on them a bit longer before making any moves. I'll continue to share my thoughts on their progress as new announcements surface.

Austco Healthcare (ASX:AHC)

At last, I thought I’d share quick comments on Austco Healthcare.

Austco has been turning a profit, and as a result, they aren't obligated to file appendix 4Cs.

However, I wanted to give them a shout-out for a nice contract win they recently announced on November 3rd.

The company secured a $3.8 million contract to revamp the nurse call system for Jurong Health Campus in Singapore. This contract win has boosted their order book to an impressive $40 million, a figure that's not too far off from their current market cap of $53.8 million.

This is pleasing because It's showing evidence that Austco is proving the value of their investments in expanding their Go-To-Market (GTM) efforts on an international scale.

I'm genuinely curious to see how much of this order book they can deploy and how their margins will continue to evolve as they implement their strategy to grow software revenue through the rollout of new products.

I'll be keeping a close watch on their progress.

In Conclusion

While these five companies did display some positive indicators, it's fair to say that, on the whole, the recent quarterly reports were a mixed bag, with some even leaning towards the poor side.

It's evident that smaller companies faced some challenges in getting larger guys to settle their outstanding invoices, which is a concerning trend.

Nevertheless, my optimism for the long term remains intact. Most of the companies I track are staying the course and effectively executing their strategies. They continue to demonstrate healthy growth in cashflow and revenues, and what's particularly encouraging is that their valuations appear more reasonable than what we've witnessed over the past five years.

In the interim, I'd love to hear about some of your top-performing companies.

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