Company Overview: Bigtincan Holdings Limited is an Australia-based company, which provides enterprise mobility software. The Company provides software solutions as a service (SaaS) to customers accessing the software as needed. Its application suite comprises Bigtincan Hub and Bigtincan Forms. Bigtincan Hub is an integrated single-platform for sales and service organizations. Bigtincan Hub is powered by a machine learning and artificial intelligence (AI) system. It works on IPhone operating system (iOS), Android, Windows, and Blackberry, as well as Windows desktop, Mac desktop and Apple WatchOS. Bigtincan Forms enables organizations to reduce or in some cases eliminate manual paper-based forms, automate data capture and implement process improvements without requiring an infrastructure platform or stand-alone forms application. It operates in United States of America (USA), Europe, the Middle East and Africa (EMEA) and Asia Pacific/Japan.


BTH Details

Key Turnaround Levers: Bigtincan Holdings Ltd (ASX: BTH), a small cap company with market capitalization of about $85.4 million, is a leading provider of enterprise mobility software. The company provides an artificial intelligence powered sales enablement platform which allows sales and service organizations and their employees to engage with customers, and encourage team-wide adoption. Further, BTH’s software as a service (SaaS) application platform is known as “Bigtincan Hub” and has been planned, designed and delivered with a focus on the Sales Enablement software market. The group is strategically making acquisition moves using its cash reserves for further expansion and growth. It has lately launched a new SaaS solution for Salesforce.com on ontologies. Group’s latest acquisition of FatStax is also cashflow breakeven and not expected to impact BTH’s expected timeframe to cashflow breakeven in FY19. While integration costs related to acquisitions may reduce earnings slightly, the revenue stream is expected to be maintained and with these aspects into consideration the earnings per share are expected to be around AUD 0.01 for FY19 with Free Cash flow yield expected around low single digit (as per consensus). This is expected to give an upside to the current price. The current ratio, defined as ratio of total current assets by total current liabilities has improved. Meanwhile, BTH stock is trading at level of $0.39 and has given return of more than 102% in a year. Group’s key valuation parameters like Enterprise value/ EBITDA, Earnings per share, etc. are in negative zone; however, the same are expected to turn around with revenue stream setting into place given key strategic moves.


Snapshot of key Metrics as per interim data points (Source: Company Reports and Thomson Reuters)

Rise in monthly cashflow while losses widened: However, BTH’s FY 18 net loss after tax rose to $6.6m compared to about $6.0m in 2017, on the back of the continued investment in the development of the sales and support infrastructure, which is required to grow and support the customer base. The loss as a percentage of revenue generated declined due to the natural maturing of the business model and also due to the impact of operational efficiencies in scaling and growing the business. BTH for FY 18 has reported 42% rise in the total Operating Revenue to $13.14m with subscription operating revenue growth of 42% to $11.7m in FY18, representing 89% of revenue for FY18. The cost of revenue grew from the prior period driven by revenue growth of 42% as well as ARR (annual recurring revenue) rising at a rate of 41%. The company’s gross profit margin slightly reduced from 84% in 2017 to 83% in 2018 due to the scaling hosting costs and a temporary increase in costs from the transition of third party licenses to in-house developed functionality. Moreover, in  FY 18, the average monthly cashflow from operations improved with the net outflow declining from $0.4m per month to $0.1m per month driven by increased sale, increased prepayments and improved cash management.

Strategies for further growth: In FY 18, BTH raised funds in order to increase the company’s growth.BTH had successfully raised fund through a $15 million institutional placement of new fully paid ordinary shares at $0.35 per share during the period. The proceeds will be used to enable completion of acquisitions (including the Zunos transaction announced prior to year-end) and further product development. As at 30 June 2018, the Group had net cash balance of $23.8m, which is up from $11.0m at 30 June 2017.


FY 18 Financial Performance (Source: Company Reports)

Acquiring FatStax to expand offering in manufacturing: BTH has signed a Binding Letter of Intent to acquire FatStax, LLC, which is a leading provider of SaaS sales enablement software to the manufacturing industry in the USA.This is for an initial cash consideration of USD$1.8m. The company will have to pay a conditional deferred cash consideration of US$1.2 million on the basis of annual recurring revenue of 6 months after the completion for on target revenue. This acquisition will be fully funded from the company’s existing cash reserves. Moreover, FatStax has a growing base of approximately USD$1.1 million contracted annual recurring revenue, this  acquisition is expected to  significantly expand BTH’s presence and offering in the manufacturing and life sciences markets. Further, FatStax will also contribute to expand BTH’s go-to-market footprint in the Midwest United States with offices to be located in Indianapolis, Indiana, and Detroit, Michigan and in San Diego, California. Additionally, the acquisition consideration shows a recurring revenue multiple of 2.7x before synergies. After the acquisition, FatStax co-founders Dr. Rusty Bishop and Mr. Mark Walker will join BTH’s executive team.

Managing competition from new entrants: BTH is operating in an increasingly competitive industry where there are lot of participants that are targeting to enter the industry with their new and innovative products. These new entrants to the industry may provide more competitive prices for products, to establish their business. The new entrants may also compete against BTH with cheaper products that have less functionality than BTH’s offering. These competitive pressure from new entrants to the industry will negatively impact BTH’s ability to maintain or increase prices and to attract new business. Further, the company may face competition from well-resourced, larger SaaS vendors operating in adjacent industries by offering enterprise-wide software solutions. These companies may have greater financial or technical resources than BTH, greater brand recognition, more comprehensive and innovative products and services or longer operating histories, which is expected to place them in a better position for the development of the competitive products. Generally, the competition gets intensified if the established companies in other market segments expand into BTH’s industry. Therefore, any failure by the company to successfully compete with new industry entrants will adversely affect the company’s future financial performance. However, the moves on strategic acquisition and partnerships along with continual innovation in  products may help the group maneuver through the challenging scenario.

Expansion of BTH’s international footprint needs to be managed well: Bigtincan’s growth strategy is to significantly grow its presence in the overseas markets in which the company already operates. However, this growth plans can be affected by unforeseen issues related to a territory, that includes the differences in local cultures, business practices and regulation. BTH thus needs to invest in significant resources while management attention is required for the expansion and desired level of return on its international businesses. Further, Bigtincan depends on a number of third-party suppliers to maintain and support Bigtincan Hub, which is its telecommunications facilities and its hosting infrastructure. If the contracts with these parties get terminated or there is a disruption for any reason to provide these services or software, BTH’s future financial performance will get affected.

Dependence on Product Innovation: BTH’s business model is fully dependent on a single product, which is Bigtincan Hub. Therefore, BTH’s success will depend on its ability to retain customers with Bigtincan Hub. Thus, BTH’s reputation and future revenue depend on factors such as product functionality, product quality, reliability, security, value and customer support, compliance and regulatory adjustments. The future revenue and growth of the company is also dependent on its ability to develop enhancements and new features and functionality for Bigtincan Hub.

Security and data privacy:Bigtincan products involve storage and transmission of customers’ confidential and proprietary information, that include the intellectual property, confidential business information, information regarding their employees or suppliers, and other confidential information. Thus, security breaches of customers’ data and information, either by unauthorized access, theft, destruction, loss of information or misappropriation or release of confidential customer data need to be looked at and avoided.


FY19 Roadmap (Source: Company Reports)

FY 19 Outlook: BTH is on track to deliver its target of achieving at least 35% - 40% revenue growth in FY19, after achieving revenue growth of 42% in FY18. Further, BTH’s customer retention rate at June 2018 was of 85%, and this was stable during the second half of FY18. We expect the customer retention rate to remain stable during FY19 as well. Moreover, BTH projects its monthly recurring revenue (MRR) in December 2018 to approximately match its monthly operating expenses in December 2018 on a normalised basis and so the company will be able to achieve an operating neutral outcome.

Stock Recommendation: Meanwhile, BTH stock has risen 30.51% in one month as on October 04, 2018 as the company has been on track to deliver its target of achieving at least 35% - 40% revenue growth in FY19. From technical standpoint, the stock has crossed above its 200 days’ moving average ($ 0.37) which represents a critical trendline. The outlook has improved and the stock finds support at $ 0.358 while resistance may be seen around $ 0.43. Its partnerships with an aim to emerge as a leading Sales Enablement Automation Platform Provider are expected to drive growth. Given the potential and risks as highlighted above, we provide a “Speculative Buy” recommendation on the stock at the current price of $ 0.390.

 
BTH Daily Chart (Source: Thomson Reuters)

 
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