Still An Undiscovered SaaS Gem with Asymmetric Upside: FY24 Earnings
Beyond Surface Metrics: Uncovering Value Where Others May See Weakness
I'm nothing to acclaim
Not everybody knows my name
I'm playing the long game
Slowly but surely
The Investment Thesis in Brief
A SaaS product with strong initial customer traction in niche markets
Careful cash management and a debt-light balance sheet
Accelerating sales efforts targeting multi-year organic growth runway
Potential for partnership expansion across multiple verticals
Trading at what I consider a fair run-rate ARR multiple that still offers a margin of safety due to the company’s other segment
While the company is currently sacrificing short-term profitability to fuel growth, management's disciplined approach and early customer success signals suggest a compelling asymmetric investment opportunity. This article will explore why this company could be a hidden gem for patient investors willing to look beyond surface-level metrics. Behind the paywall, you will also get access to my Google Sheets for the related analyses.
TL;DR: Strategic Growth at an Inflection Point
SaaS Strategy: Ramping sales investments in a high-margin product across homebuilding and education sectors
2025 Outlook: Intentionally depressed EBITDA to fuel long-term growth, with expected revenue increase and expanded partnership opportunities
Product Momentum:
Upcoming SaaS product launch and related enhancements to existing offering
Early customer feedback demonstrates strong ROI and efficiency gains - this corroborates my last article providing a robustness ratio > 1.
Market Positioning:
Potentially resilient business model that could benefit from economic constraints
Low market cap (~$50M) with limited analyst coverage and tight float suggests undiscovered potential
Low debt, asset-light, subscription-based, and high-margin SaaS business plus a profitable but “lumpy” public sector project business
Growth Levers:
Multi-year organic SaaS growth runway
Potential expansion through new product and distribution partnerships
Introduction
Apologies, this post is longer than I aspired it to be (hence the TL;DR and Thesis Brief above - please tell me if you prefer that structure in general). But you will get access to three Google Sheets that drive my analysis below - I believe you could copy them and apply my adjustments to the following metrics yourself:
The Cash Conversion Cycle adapted to account for deferred revenues and accrued and prepaid expenses as described in this article,
For context, my latest post on the company was in November:
Since then shares retracted by almost 30%. But they are still up 50% since my first article a year ago.
Last year, the company sacrificed short-term profitability to sow the seeds for long-term gains by ramping up sales and marketing efforts for its SaaS product in the second half. The company guides to further increasing investments expecting a further reduction by EBITDA in 2025. However, management seems to manage the company’s cash flow carefully, and as such the company is essentially debt-free now.
My modified Cash Conversion Cycle metric highlights the benefits of the prepaid subscription model of the company’s SaaS products and confirms the aforementioned impression of careful cash management.
An imminent product launch was communicated in the earnings call, which should also cross-pollinate the existing SaaS product’s revenues. Customer feedback is apparently very positive. The company should benefit from customers concerned with budgetary constraints as those should seek high ROI projects helping to save costs. Finally, the company sees a multi-year organic growth runway for the SaaS product(s). Growth through new partnerships (which they to pursue as well) would come on top and might extend the sectorial (and maybe even greographical) reach.
Given the low market capitalization, the limited analyst coverage, and the low float and trading volume, I believe this is an undiscovered stock. The net loss and the muted EBITDA guidance due to increased marketing efforts may depress the share price. I believe that the current run rate ARR multiple is fair, which leaves the remainder of the business as a margin of safety. Being fully aware of my own cognitive biases I have a difficult time constructing a credible, realistic bear case. As to the upside, I still stand by my initial valuation scenarios and see multi-bagging potential over a multi-year timeframe. Consequently, I perceive the company as presenting a very asymmetric investment case.
As an interesting aside: popular stock screener Koyfin seems to not consider capitalized software costs as CAPEX, thus the Free Cash Flow number in Koyfin is higher than I think it truly is. The issue is rooted in the underlying data provider “S&P Capital IQ”. If you found similar issues with data providers, please share them as a comment to my substack note:
On a general note before we start: I keep evolving my analysis and I add a section regarding changes in the company’s risk disclosure, auditor statements, and human capital.
Outline
Equity Summary
FY24 Earnings
Other Comments
Risks
Valuation
My Perception
Conclusion: A Compelling Asymmetric Investment Opportunity
Disclaimer