Strong June quarter receipts: BTH reported another robust quarterly, with customer receipts up 89% on the pcp to $10.4m, following on from the March quarter’s figure of $14.9m. This was driven by new contracts won and contract expansions executed over the past 6-9 months. New customers included medical product producer Axogen (market cap US$460m) and one of the four largest technology companies globally (market cap over $500bn).
Costs, cash balance higher: Staff costs for the quarter were up 83% on the pcp to $9.4m, driven by the acquisitions of Veelo, Asdeq and Xinn in 1HFY20. This was also up on the March quarter ($8.7m) due to addition of personnel and a rising US dollar. Marketing costs fell, whilst administration costs were about $1m above average due to acquisition integration costs. Net operating cash outflow was -$0.3m for the quarter and +$1.3m for the year, primarily due to the strong March quarter.
Organic growth, acquisitive shrinkage: BTH reported ARR of $35.8m as at 30 June, up 53% on 30 June 2019 and 10% on 31 December 2019 but below our $38.3m forecast. The positive was that year-on-year organic ARR growth of 40% was ahead of our forecast of 35% (and was above 40% in 2HFY20); the unexpected negative was the loss of c.$1.4m in ARR from acquired companies during the period.
Cash provides options: BTH’s cash balance at 30 June was $72m, after two equity issues raised $62m during FY20. COVID-19 has created an uncertain environment for sub-scale technology companies which need capital to fund future growth. It has also highlighted the need for enterprise customers to maximise the productivity of remote workers. Both these factors play to BTH’s strengths, and its cash reserves will allow it to capitalise on these opportunities.
Investment view: BTH has recorded an impressive CAGR of 50% in ARR over the past five years and annualised organic growth above 40% in 2HFY20. The company enters FY21 with strong sales momentum and we believe their growth runway will stretch for many years, especially with a large cash balance to assist in capitalising on opportunities. We upgrade our price target to $1.02 (from $0.72) on the back of increased US SaaS peer multiples. BUY rating maintained. Click here to read full report