Company Overview: Dropsuite Limited, formerly Excalibur Mining Corporation Limited, offers Dropsuite, a Cloud-based software platform that enables small and medium-sized enterprises (SMEs) to backup, recover and protect their digital assets. The Company's products include Dropmysite, Dropmyemail, Dropmymobile and DSE Server Backup. Dropmysite is a cloud-based Website backup and monitoring service that Website owners can use independently to schedule automatic backups, monitor Website availability and performance, and restore lost or corrupted data in a single click. Dropmyemail is a cloud e-mail backup and archiving service that helps businesses and consumers backup, manage, recover and protect all of their critical data. Dropmymobile provides automatic backups of users' mobile phone contacts, short message service (SMS), pictures, videos, call logs and much more in the cloud. DSE Server Backup is a file-based backup solution ideal for virtual private server (VPS), dedicated and cloud servers.


DSE Details

Efficient Business Model: Dropsuite Limited (ASX: DSE) is a cloud-based software company that enables Small-to-Medium Businesses (SMBs) to easily backup, recover and protect their digital information. It provides services through a network of reseller partner in more than 100 countries. The company has built a cloud backup platform that is robust, secure, and have a solid capability to scale globally. The group seamlessly integrates with leading IT companies, enabling rapid rollout, recurring revenue streams, and lower support costs. The management is confident that the company is well positioned to play a significant role in the data protection industry. Further, the group has an efficient business model that comprises of three main business segments in multiple languages i.e., Website (namely, “Dropmysite”); Email (“Dropmyemail”); Server (“DSE’s Server Backup”). We expect that its diversified yet synergetic business verticals, along with increase partners across the globe will help further improve its top-line and bottom line, going forward.


Sales Channels of Focus for Dropsuite Products (Source: Company Reports)

Increasing User Base - A Key Driver: The company experienced a 4% rise in the number of paid users utilizing Dropsuite’s cloud services, from approximately 220,000 in Q3FY17 to 229,000 in Q3FY18. The slower quarterly growth rate in total user numbers is due to a drop in the volume of new website backup orders from its largest partner. However, the group has recently reported that paid users now exceed 400,000, up 33% from the 300,000 of paid users reported on 14 June 2018. The high growth in new paid users is mainly coming from the recently launched partnership with a large IT Service Provider in relation to email backup product. The rapid rise in paid users over this short period is driven by its advertising campaign to the partner’s existing customers. In the meantime, the company continues to build a strong funnel of new partners, especially for its email business, where the size of an addressable market is larger and the average revenue per user is higher.


Increasing User Base and Opportunity (Source: Company Reports)

New Product to drive the Growth: The company experienced good traction to generate sales from its newly launched product such as server backup, Office 365 archiving, and Dropmymobile. The company will continue to work on product innovation which will help to drive topline growth in the upcoming period.


The Product Suite (Source: Company Report) 

Quarterly Cash Flow Update (31 March 2018): The Company released its Quarterly Cashflow report for the quarter ended 31 March 2018 wherein the cumulative cash receipt grew by 39% on QoQ basis and 107% on YoY basis and amounted to $707,000. The quarterly rise in cash receipts was driven by higher revenue per user and uptake of the cloud data backup platform by small and medium businesses (SMBs), while yearly rise in cash receipt was driven by increased presence in the SMB sector primarily through its partnerships with IT service providers, both large and small. Further, the annualized revenue run rate has increased by 8% QoQ and 64% YoY to approximately $3.4 Mn based on the current operations. The group has been managing its cost base and expenditure with cash outflows of $1,174 Mn, with investment in its sales and marketing capability. The group remains cautious to manage its costs and cash position, and further, it targets its business development activities to generate high returns in near future. The Company had $ 4.352 million in cash at the end of the March 2018 quarter. Further, the group estimated cash outflow for the next quarter of approximately $1,285K, comprising of Product manufacturing and operating costs($195K), Advertising and marketing($100K), Staff costs (740K), and administrative and corporate costs ($250K).


Estimated Cash Outflow for Next Quarter (Source: Company Reports)

Expanding Partner Base at a Global level: The company has plans to scale up its business through expanding its footprint across the globe via partnership with IT Service providers. As a result, the company substantially increased its number of partners by 108.6% and recorded at 121 as at May 2018 as compared to prior corresponding period. Besides this, the company has recently secured its new partnership with Mat Bao to deliver further global expansion and diversify its customer base wherein Mat Bao will offer its customers Dropsuite’s Backup for Websites and Office 365.


Expanding Partner Base Globally (Source: Company Reports)

Financial Highlights: As at December 2017, the company has 220k paid users, an increase of ~73% against of FY16. This equated to ~$3.28 Mn in annualized revenue or $1.24 average revenue per user, up ~1% on YoY basis. Further, the company has increased its partners with 87 IT service provider partners from 57, last year. The net assets of the consolidated group have increased by $2,319,101 from 31 December 2016 to $6,284,881 as at 31 December 2017. This increase was mainly due to proceeds from the issuance of shares. Based on strong performance in the first half, the current ratio substantially improved from 1.95x to 8.96x as compared to prior corresponding period. Further, the company is enjoying zero debt status which will support to execute growth plans without affecting the financial performance of the company. Group’s loss also narrowed down from last year.


FY17 - Consolidated P&L Statement (Source: Company Reports)

Highly Experienced Team: The company’s executive team has extensive experience in the technology sector. The members of its senior management team have more than 70 years of relevant and combined experience in the software development, business development, and marketing, and possess an in-depth understanding of the specific industry, products and geographic regions being covered, which we believe will enable them to support and provide guidance to employees and grow the business. Its product and engineering team is supervised by CEO, Mr. Charif El-Ansari with significant input from cloud computing veterans in Chief Technology Officer (CTO), Mr. Ronald Hart and Chief Operating Officer (COO), Mr. Ridley Ruth.

Positive Outlook: The company seems to be having a positive outlook at the back of the annuity revenue business model, focus on high revenue and margin products, increasing high-quality & global customer base across the digital sector. Further, the management believes that the size of digital sector is massive, and they will continue to have huge headroom to grow in the future.

Stock Performance: The company majorly focuses on high margin Email business, increase reseller partnership globally, and continuous product innovation around data protection and compliance to drive the overall sale. Besides this, the company has recently disclosed the result of Annual General meeting wherein the shareholders of the company have approved several resolutions such as non-dinging resolution to adopt the Remuneration report, re-elected Dr. Bruce Tonkin as a Director of the company. Meanwhile, the share price of DSE stock has risen 167.44% in last one month as at July 05, 2018, but was down by 8.696 per cent on July 06, 2018, and there is still an expectation of further momentum given the fundamentals that are turning healthy. Moreover, DSE is also making efforts to improve its ROE. Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.105, considering its growth strategy to boost revenue and user base from Business Email and Microsoft Office 365 backup and capital position.
 
 
DSE Daily Chart (Source: Thomson Reuters)

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