Ann: FY20 Results Commentary, page-22

After others on this board have quite rightly raised the issue of lagging cash receipts, I have thought about it in some depth. I am no longer overly concerned, as I consider the current and future growth rates as far more important for maximising future shareholder returns. All key measures are growing strongly and IMO cash flow will improve rapidly as the 96% growth in ARR and the 74% growth in Service Income flow through to cash receipts – IMO it makes little difference if this takes 6 or 12 months (except to those focussed on the very short term).

LAGGING CASH RECEIPTS

Over the period from FY19 to FY20, there have been significant delays of 6-12 months in converting:

1. Annual Recurring Revenue (ARR) to Revenue, and

2. Revenue to Cash Receipts.

Cash Flow Customer Receipts for FY20 is about the same as Revenue - Service Income from FY19, despite each measure growing at around 70% in FY20. Also, Revenue - Service Income for FY20 is only 17% above the ARR from end FY19.

This lag appears to be about to improve. On 31 August 2020, the company forecast that “upwards of 35% of current receivables will be remitted in the current September 2020 quarter”. Current receivables at 30 June 2020 was $10.35M, so the amount expected in cash during this quarter is at least $3.62M. This is 65% of total cash flow customer receipts for the whole of FY20.

Dubber deals with, and is paid by, the large telecom companies. Generally, large companies require the companies they deal with to accept longer payment terms than normal, for the “privilege” of doing business with them. Hence there is a longer delay than is expected in converting revenue to cash flow. The delays in converting revenue to cash flow has also been lengthened by large telecoms generally being more flexible with revenue collection from customers impacted by Coronavirus. Recent strengthening of the AUD versus the USD won’t be helping on converting US cash flow or revenue to AUD cash flow or revenue.

GROWTH RATES

Far more important to me as an investor is the current and forward growth rates of ARR, Revenue – Service Income, Cash Flow - Customer Receipts and Users. This is because companies like DUB are valued more on the Market Cap to Revenue ratio and growth rates until they become cash flow positive and profitable.

ARR grew by 96% in FY20. This tends to point to Revenue – Service Income growing by around 100% in FY21 from $9.65M in FY20 to close to around $19M in FY21. Also, based on Dubber’s statement about current receivables and the FY20 revenue – service income growth rate of 74%, Cash Flow – Customer Receipts should also grow in FY21 by close to 100% from $5.575 to around $11M. If ARR also grows by another 100% in FY21, it should be around $32M by June 2021. These figures are starting to get very impressive. IMO the growth rate for users and ARR could be higher than the approximate 100% they were in FY20, as major deals over the last year (and more to come) start to bear fruit.

While business costs, particularly staff costs and share incentive schemes, have grown rapidly and adversely impacted cash flows, these costs will become relatively less significant as revenues and cash receipts start doubling each year going forward. My expectation is for Customer Receipts of around $11M in FY21 and around $20M in FY22.

I am looking forward to seeing predictable growth at higher levels as current partnerships mature. IMO, the market cap should track the revenue increases in the medium term. Note that the market cap to revenue ratio is about half what it was 12 months ago, despite the improved execution and outlook, so IMO there is some catching up to do.