Ann: Appendix 4C - quarterly, page-12

Hey guys good to see us scrutinising the quarterly instead of being an echo chamber of positive reinforcement. In my opinion, the answer is that it is R&D costs.

Some companies (like 3DP) list these costs as part of the operating costs as "research and development" where as PYG (and others like BTH) categorise these costs as investing in IP (and I suspect this is for possibly tax / government grant reasons).

If you look at the 4C for March 2019 quarter, you will see that the cumulative IP activities for FY2019 totalled $647K. If you then look at the "PYG FY19 Results Roadshow" publication, you will see that the company classified this as "investment in technology":


If you then look at the 4C for March 2020 quarter, you will see that the cumulative IP activities for FY2020 totalled $2.16M. If you then look at the document "FY20 results Investor Presentation", this amount is categorised as "Technology and R&D investment":



I suspect that the reason why the IP activities jumped up significantly in FY2020 was perhaps due to the integration of the Astute technology, which had been acquired in October 2019. They may have also been undertaking development of new tech. If you look at the document "Results of Capital Raising", some of the reasons that they undertook a capital raise in November 2019 were to develop their IT infrastructure and integrate Astute:



As for the IP activities for the last two 4C, which add up to around $1.5M in IP activities, I again suspect it's due to the costs to integrate TalentOz's technology and also their continued development of their current and new IP. In the document "Paygroup acquires TalentOz", it states that:


In fact, the integration of TalentOz's modules and IP was the reason why they released the announcement about the Volvo contract: it was because the synergies and integration had led to that contract being won. It's also probably why it did a capital raise earlier in September this year: to help successfully and quickly integrate the TalentOz tech.

Also, the TalantOz acquisition announcement also stated that PYG now has development teams in Aus, Malaysia and India, which probably contribute to the costs of IP activities. Although acquiring a development center in Malaysia and India may allow them to keep operating costs down.

Finally, if you watch Mark Samlal's interview with 180 Markets on YouTube, Mark explains at around 12:50 of the video that the company will be investing in a number of new IP areas including analytics and AI, and have in fact recently rolled out some new tech recently. And at 14:48, Mark explains why its technology is strategically located in Singapore: they receive government grants for R&D for new tech created and implemented. That's why you see that amount of $500K in the most recent 4C as "Government grants and tax incentives".

Anyway, from my research, the long and the short of it is that the IP activities are the costs of continuing to develop and grow the company - it is a software/tech company at the end of the day and it needs to continue to spend and invest in its tech/IP to stay competitive. And it seems to being undertake a lot more R&D work than it is announcing. I would suggest people to watch his interviews on YouTube to get a better feel for this. Whether these IP activity costs stay at the same level or decrease or increase will be up to the company as to how aggressive it wants to be with R&D. While I do think that there were integration costs associated with TalentOz and Astute, it will be interesting to monitor to see how the R&D costs track moving forward. Certainly as a tech company I have no issue with it continuing with the R&D, as long as it doesn't blow out the balance sheet.

The fact that they continue to expend costs on IP development and still remain cash positive is a good sign of good/shrewd management. A lot of other tech companies are still making huge losses every quarter as a result of these costs.

All of the above is my research and speculation only - not advice in anyway. Please undertake your own research.