RUL (ASX) Ann: Software Sales TCV and ARR FY20 Update

Originally posted by Rokewa: ↑

Hi Jaywin

Re yr comment .... “ Stripping out R&D is silly”

The context of my point was in response to Steve’s question that RPM are being touted ( on many services) as a good investment and that after looking at the numbers, nothing stands out in support of it being a compelling buy. Clarified the timing differences between Perpetual Licenses vs the Software Subscription model. Then, provided the comparison of the consolidation of Perpetual License Sales and new Subscription Contracts for FY18, FY19 and FY20 to demonstrate the growth. The final point was aimed to address the fact that, for many, scrutiny of the financials over the past 7 years hardly inspires.

Let’s have a look.EBITDA (2013 - 2019) : $1.9m....($0.9m)...$2.6m....($3.2m)...$4.6m....$4.4m....$5.9m

The suggestion to ‘strip out the R&D’ provides a snapshot of progress on a time-line (which otherwise, as investors, we are denied) which captures the premise that for every $1 spent on R&D will generate a return in time, even if it spans a couple of years. Essentially, we get to test whether Revenue minus OPEX (excl R& D spend) is forming a positive trajectory. Jaywin, I am heavily invested in technology Companies and as most of these Companies have a relatively high level of R& D spend (In some cases obscenely high), I find this particularly useful. Often patterns emerge on that tie between spend and the acceleration of growth. Sometimes you can tie it back to specific new product releases. Here is the picture for RPM.

EBITDA excl. R&D (2013 - 2019) : $7.8m....$5m....$10.3m....$7.2m...$17.4m...$18.4m....$19.6m

In 2016, RPM committed to delivering a complete Commercial ‘off the shelf’ Enterprise Planning Platform all on the back of a new fully integrated SAP system. See the step change? Depicts healthy progress in my book which is certainly not apparent from reported EBITDA numbers.

******

Before closing out, I would like to share a couple of insights which support the fact that RPM will likely spend less on R & D in the near term, not only as a % of Operating Revenue but also in terms of Annual spend. These insights somewhat challenge the generic proposition that the day you stop spending on R & D, you will be outpaced by your competitors with dire consequences. RPM have just come through a 6 year period where we have seen relentless spend on the creation of new products spanning their entire target market. They have achieved this via in-house developments and via the integration of complimentary niche acquisitions.

R & D spend as. % of Revenue (2013 - 2019) :8%....9.8%....12.4%....19.7%...17.1%....19.0%....17.1%

If you consider that their Advisory Services and GeoGas businesses are seperate Divisions, R & D spend as a % of the stand alone Software Division Revenue is :

32.6%...20.5%...21.3%....32.1%....25.5%....31.3%....28.1%

That’s about to change. We have seen a massive investment on new product releases an functional upgrades. Likely we will now see the shift from less ‘New’ to more ‘Refinement/ Tweaking’.

The Company are on record of saying ...FY2019 was again a year of above average investment in Software development as the Company rounded out it’s scheduling product suite and completed the Development program for it’s Financial product suite. We expect to see our new Software Development investment decrease to a level more consistent with industry norms over the next two years.This was Aug 2019.

They entered FY19 with a run-rate on R&D spend of $14.4 m and finished the year with a run-rate of $13.1 m. Have a look at the spend in the first half of FY2020....below $ 6 m. Cost containment, in whatever form, combined with high margin Revenue growth is what floats my boat. Believe $4m - $5m will drop to the bottom line in FY2021.

Anyhow, that’s enough on this fine Sunday morning.

Take care.
Rokewa

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Fair points, thank you for clarifying.

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Last $3.01		Change -0.020(0.66%)		Mkt cap ! $664.3M

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Fair points, thank you for clarifying.

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Fair points, thank you for clarifying.

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