RE:RE:RE:RE:RE:RE:BNN - recommended by David Barr todayExcellent post mate, like the in-depth DD and questions as I'm always looking for holes within my investing logic as well. I'll try to give my answers in the same order you wrote them.
1. Organic growth is increasing as disclosed in the last couple of calls. Mission CRM had a run rate of $890K at acquisition and Pavliks had $9.4 million annual revenue which totals ot $10.3 million coming from acquisitions made in 2022.
I think you might be adding in the acquisition of MAS in your figures to get to negative growth - but that acquisition was done in 2021 so it's already in the comparatives.
2. Agreed here, run rate is $1 million quarterly. So when looking at an adjusted EBITDA figure, you need to deduct that one yourself - or you can you look at the cash flow statement and pull the operation cash flow minus capex. The income statement for these guys is pretty useless with all the depreciation coming from the acquisitions.
3. Can't comment on this one as I didn't see that they were targetting R&D in lower margin areas. The recent acquisitions do have revenues with lower margin though - they believe very strongly in that rule of 40 though and as long as they keep EBITDA margins around the 30% mark and get the growth going, that's good enough for me.
4. Good point here and I think this is really the million dollar question. The sales guys were hired in Jan 2022 and so they've had a bit of time to get the process going. In the Q4 earnings call, they disclosed the following:
We showed record bookings in Q4, winning new contracts worth $12.1 million, including a $1.2 million ARR increase. These record bookings included some material sales that we had expected to close earlier in the year, which would have pushed organic growth into the high-single-digits for the year overall with the corresponding subscription revenue recognition and related project services revenue that would have started to show up in early Q3, where they were forecasted. Our revenue backlog is up nearly 20% from this time last year and over 40% from last quarter, and deals in the pipeline continue to track and matriculate. So new contracts are being won and there is organic growth. Can this continue? I would say Bill Woods and the new CRO coming on board have the experience and track record of scaling these kinds of products. Watching the bookings and the evolution of the organic growth will be the #1 indicator I'll be looking at in the future earnings.
5. Scaling implementation teams is a good problem to have - if there is so much revenue coming in that they have to hire a few extra people to onboard, that's totally fine!
6. Don't think they're above 60 - but right now, it strikes me that they are positioning to get things up and running with a good growth rate to be able to sell it off in a year or two to someone like a Constellation. Bill has I believe 810K options at the $10 exercise price, so he is interested in getting that price up there.
The current price is quite attractive - so I do see a limited downside just given that they are cash flow positive with growth and a pretty nice upside.