I'd like to add a few points about areas of concern I have. I'd appreciate others views rather than just fanboy rejection of any view that is not completely glowingly positive.
Cash receipt lag:
I would say the lag between revenue and cash receipts is more than slight, but I think it is pretty much able to be explained.
June quarter - Revenue - $3.95m Cash receipts - $2.63mil
Cash receipts lagging revenue by $1.32m or 33%. This has not been the case in previous quarters. In fact in the March quarter receipts were slightly more than revenue.
Some observations:
- The lag gap from receipts to "real" revenue is likely to be smaller than $1.32m due to some of the revenue being R&D rebates. As per the annual report notes, these rebates are classed as revenue. I wouldn't think it would account for a significant amount but maybe $250k. This is a guesstimate as FY2017 had approx $500k of R&D recognized as revenue for the whole year so if similar then half year would amount to $250k.
- KYC and EMAs have a 30 day lag, though the revenue from these streams is nowhere near that of settlement/aquiring, so there is only limited explanation for lag here. So KYC and EMA revenue for the last month of the quarter wouldn't have been received till this quarter. The counter point to this is that KYC revenue from the last month of the March quarter would have been receipted in the June quarter. So dependant on growth, sort of cancel each other out.
- One off integrations are again on 30 day terms. This appears to have accounted for approx 15% ($590k) or slightly less of the quarters revenue but it is unclear when these integrations were invoiced. It is possible one or more may have occurred within 30 days of the end of the quarter and therefore cash wouldn't have been received for it until early in the current quarter. Maybe a couple of these were rushed through and invoiced at the end of the quarter!
The vast majority of revenue is clearly coming from acquiring/settlement services. This has been previously disclosed by ISX. We are told that some, not all of that revenue, was affected by the costs issue and that revenue under those arrangements has a 14 day lag between service rendered (revenue) and the cash being received. This again is some explanation for the lag. Unlike KYC, there is no cancelling out affect as this 14 day lag was not occurring during the March quarter (As Worldline were settling T+1) and further this area has been a significant growth area for ISX during this quarter. So I think this can reasonably account for a good portion of the lag.
I think all of this together can explain the lag. Further, the good thing is that this quarter already will have that $1.32m hitting the bank balance.
Merchant/client attrition?
An area I would like others thoughts on is are ISX keeping their merchants/customers that they have announced over the last few years? Or significantly, if it is the case, are their customers leaving either due to:
1. The KYC patented tech of ISX is not as great as it is cracked up to be? and/or
2. ISX has struggled to integrate customers in a timely manner and they simply have moved on.
I raise this issue as I've gone through their announcements since ASX listing and have identified the following 30 KYC/Paydentity/Settlement contracts that were signed. A couple from what I can see had not been announced until we saw their logo in the recent analyst briefing doc (no particular order):
- Tradefinancial
- Buycoinnow
- IPGPay
-The Flying Merchant
- eMerchant Pay (a card acquirer)
- Crownbet
- Clearhaus (a card acquirer)
- Coinify
- iForex
- XM.com
- FXnet.com
- Tradelogic
- Ixaris
- Ironfx
- Valutrades
- Leverate
- Ayondo
- Calforex
- Pepperstone Group
- Borwin
- Webshield
- Omnislots
- Trader Q (website gone) - Likely one of the AU merchants that ran into trouble with ASIC
- OT Capital
- Pioneer Credit
- BTCXE
- Prasos
- Finsa
- Blockchain
- Gobbill
The recent announcement has 14 merchants (7 live and 7 near live) that are/will make a significant contribution to revenue. My question is, are the other 16 on this list still contributing any revenue? I would imagine at least some are still around contributing revenue that is not material but have others left for one reason or another? If they are still with ISX and the revenue is not material, they why?
We know that two AU merchants have left/been cut for issues not relating to ISX (their own internal problems) but what about the others? The list drops to 28.
I would think it is possible ISX may have by its own volition cut links with the two card acquirers in the above list as once ISXpay and their own acquiring/settlements came online then they would have effectively been helping improve a competitors business and therefore may have decided to forgo that revenue. List drops theoretically to 26.
That leaves us with 12 clients who have either left or their revenue is insignificant.
ISX are obviously making some clients/merchants happy as revenue is growing, but when you look at the long list of announcements, why are only 14 considered to be bringing in significant revenue? Some of those names on that list are pretty big and I would expect significant revenue from them. Do they barley use the various ISX services? Are they all still clients, and if not, why not?
