Impact of Covid-19 FY2021

Afternoon All

Only a week to go before we get to see the full year financials for FY2020. On the 18 th of March ( a mere two weeks before the 31 March financial close), the Company provided another update to the guidance. At the same time, the Company updated the market on the impact of Covid-19, suggesting that there would be no material impact on the FY result, people were operating remotely, blah, blah, blah.

Thought it would be useful to remind ourselves of what has been achieved in FY2020. Firstly, the FY 2019 result

Op. Revenue .......USD 98.4 m
Gross Margin % ...60%
EBITDAf................USD 1.6 m
TPV.......................USD 4.2 Bn

FY2020 Guidance (Released with FY19 results)

Op. Revenue ........USD 122.5 m to USD 125.5 m
Gross Margin %.....63+%
EBITDAf.................USD 17.5 m to USD 19.5 m
TPV .......................USD 4.6 Bn to USD 4.8 Bn

Latest Guidance FY2021

Op. Revenue ..........USD 121.0 m to USD 124.0 m
Gross Margin % ...... 63 + %
EBITDAf ...................USD 25 m to USD 27 m
TPV ..........................USD 4.8 Bn to USD 5.0 Bn

Looking at the year on year performance, the growth achieved on the TPV and Op. Revenue is very respectable. The standout has to be the Gross Margin % and the accelerating EBITDAf number. This depicts a text book case of OPERATIONAL LEVERAGE. Reporting this performance in the midst of the Covid-19 disaster is a huge plus for PPH.

Add to this that the Company report in USD, the weak AUD serves as a very significant tailwind. Then let’s not forget the recent Church Builder acquisition and the Company’s intention to create ‘the one-stop shop’ for the faith sector, this extending their market leading position.

This all makes for a very compelling investment case. The niggle though has to be economic fall-out from Covid-19 in the USA. With unemployment set to reach 12-15%, financial hardship will surely impact tithing in the USA. During the GFC, the extent of GIVING dropped by 19%. In light of this, I have been searching for some early indications of the impact of Covid-19.

What if you read an article headlined ...’65% of Churches in the USA have seen a decline in Giving since mid March’. Well it’s out there. On the surface, a sentiment killer if there ever was one.

As I have a vested interest in the future of PPH, I have been particularly mindful to arrive at the best read of this impact, looking both at the good and bad in the indicators.

Herewith an overview spanning findings ( and some interpretation of these findings) of two independent surveys spanning just over 3000 respondents (Pastors & Church Leaders), with 1100 of these collected over 50 states. The coverage stems predominantly from Protestant churches. I have merged the ranges across the two surveys, but can advise a high degree of consistency across the respective findings.

8% of churches ..............Giving increased
27-30 % of churches ......Extent of Giving steady / close to the same
25-34 % of churches .......Extent of Giving down by between 10 - 20 %
22-24% of churches ........Extent of Giving down by between 25 - 50 %
9-11% of churches ..........Extent of Giving down by between 50 - 75%

Declines most acute with small churches (rural & urban)

*. 90% of churches now on-line
* 54% of on-line using a different format to in-person gatherings
* 36% using the same format
* Churches remain in a period of experimentation, with 40% of Church leaders requesting technology training
* The majority of Churches have accomplished the transition to Live Stream & Conference Calls. Now looking for help in leveraging new technology to improve engagement.
* Interestingly, 39% claim they will continue using a technology based service. 40% are taking it at a week at a time
* 80% indicated they are not overly concerned over finances, having the option to trim expenses if necessary. 28% responded that finance is not a problem ( Hefty reserves or is On- Line Giving surprising to the upside ?)
* Church leaders seem optimistic. Importantly, the one Survey source ran the same survey end of Feb/ early March. The number of Church Leaders indicating that they would need financial support during this period declined from 55% to 33%. (Again, On- Line Giving surprising to the upside ?)
* With possible relevance to the above (previous two points), 48% of Churches claim that One-Line viewing is more than double the Pre Covid-19 in person attendance.
* Those requiring help to maximise Giving declined from 49% to 39 %
* The biggest challenge
. - How to create engaging on-line conversations & gatherings (61% of respondents)
. - Practical ways to be On- Mission (55% of respondents)

And finally..

* Early data suggests that there is healthy / strong adaptation with a new impulse to become more innovative. Essentially, the USA faith sector is embracing change.

Leave it to you to assess how PushPay is positioned to capitalise on the opportunity that Covid-19 presents. For a Company that pivoted to ‘large and medium’ sized churches, at the last count serviced 57 of the top 100 churches in the USA, believe we are at the right end of the spectrum. Worth going back to the PPH website and look to our complete offering.

If anything, the above should provide us some context when the Company update the market next week. Be surprised if we get any Guidance for FY2021, but have a feeling we will enter FY2021, not only with a fantastic financial platform (+ improved balance sheet), but also some confidence that PPH will weather this storm better than most.

Finally, for those interest BlackBaud in the States release their results on the 5th of May (USA time) after the market closes. Coincides exactly with the PPH release on the morning of the 6th May. Coincidence ?

Hope you find this helpful.

Rokewa