GETBUSY ON THE GROWTH PATH - 09/03/23

AIM quoted Getbusy (GETB) is a stock that I have been holding now for a few years, having first bought the shares in the low 30p range against the current 74p.

I have not, however, for some reason covered the stock here before, despite my punting it on the PIWORLD StockSlam event in the past along with previously highlighting it in my Cambridge News column.

So, having once again caught up with management following its delivery of full year 2022 numbers, I thought now is an ideal time to add some comment here on the Cambridge Headquartered business.

GETB for anyone unfamiliar is a SaaS focused company that serves more than 70k paying customers in the accountancy/professional services space where it provides document management and productivity solutions.

The group is made up of various complementary software products and services, including Smart Vault which is now the largest component, followed by the Virtual Cabinet arm that remains the most profitable, these are followed by the more recently  launched Certified Vault and Workiro.

GETB operates in a fairly resilient market place with a wide geographic spread where across the whole group, it provides the likes of an all-in-one solution for document storage and file sharing and document management and e-signature software.

Perhaps one of the most attractive aspects of the business is the extremely high and positive level of Annual Recurring Revenue (ARR) which is running at a highly impressive 95% of the total amount delivered.

Although still not at that point of delivering the desired profitability as the company ploughs money back into the business for the driving of growth, it has nonetheless just delivered on positive (adj) EBITDA and importantly cash generation.

EBITDA can of course flatter to deceive and should not in my view, be relied upon in isolation.

That said, it can, along with noted cash generation prove an indicative measure of progress being delivered for growth companies, a category that I consider GETB fits into.

Revenue at the company has been building, moving from the £14.2m registered in 2020 to the just reported £19.3m with £21.1m pencilled in for the current year by broker FinnCap.

The core cash generator of GETB is something of a legacy business, this being the previously mentioned Virtual Cabinet, which  was spun out of the successful Reckon software operation based in Australia. Whilst it enjoys revenue from both Australia and N. Zealand the majority is derived from the UK.

There have also been a couple of small bolt-on buys in the form of DocDown and Quoters that were made in 2021, with DocDown in particular looking like a decent fit.

This arm is focused on providing customers with eSign (and automated form completed documents) for areas such as invoices, contracts and legal forms, which is clearly complementary to the wider business offerings.

Looking at the results which were announced last week, the numbers and progress achieved in the current climate appeared impressive to me and arguably signalled further progress being made on the growth path and the all-important cash generation.

The numbers were however largely overshadowed on the day by a couple of other aspects that emerged, which didn’t sit well with some investors and which in turn resulted in the shares being sold off somewhat ending the day around 8% down.

That was a shame, given the results delivered, so the issues in question are worth having a brief look at, particularly as I raised both with management on the day.

The first considers a loan being made to the company by a non-exec director and major shareholder, which replaces a £2m secured revolving credit facility with Silicon Valley Bank, which was entirely undrawn during the year.

Speaking on the rationale behind this move, CFO Paul Haworth expanded for me to, provide some welcome colour.

He stressed that the existing SVB facility was due to expire this year and that £2m was the amount that was deemed right for the company.

However, in the current climate the market for loan finance for asset-light businesses such as GETB has tightened significantly along with more restrictive covenants, which was the case with SVB.

This, he said, would not give the company the kind of flexibility they required and as a result they looked at other options such as many different banks and alternative lenders.

Restrictive covenants along with extortionate fees were just a few of the issues they encountered and as a potential alternative they deemed raising equity at the present time probably wouldn’t have gone down well with shareholders.

As part of the process, differing options were explored including involvement with Institutional holders which subsequently resulted in Clive Rabie making an offer.

Haworth said that it met their requirements and was preferable to other options explored as it was unsecured, highly flexible regarding covenants and was actually well priced against others on the table.

The actual decision around the facility was taken by an independent committee of the board, which quite rightly precluded both Clive Rabie and CEO Dan Rabie.

On a personal note, I didn’t have an issue with the deal, although clearly others did along with concerns around the second aspect.

This relates to a new incentive scheme concentrating on a potential cash distribution process, which has been viewed by some as being overly excessive to both the CEO and CFO.

Awards under the CDP vest if the company makes a gross cash distribution to shareholders in excess of £70m and up to £150m within a seven year period.

Again, CFO Haworth commented on this particular aspect, where he stressed that the whole business is aligned behind the objectives they are setting.

This includes targeting and driving very strong ARR growth over the next five years, which if successful, will result in very strong cash generation and a benefit to all.

As part of the process, he said an incentive programme had to be put in place, as despite what some may think about the market for jobs across the tech sector, it can actually be very hard to retain or recruit decent staff.

Ultimately though, in relation to the scheme, they believe that they can generate significant value from the business, including cash returns, which if they deliver on their targets would amount to a 750% return since coming to the market.

The targets set, are, Haworth says, extremely aggressive and in that context they believe the scheme is ultimately fair and extends across the whole business, which also helps retain and maintain, along with shareholders obviously benefitting too.

He also argues that these kind of schemes are not uncommon in the private markets, which came after I suggested that it looked excessive, where he again stressed the point of targets and delivery.

Institutional holders are behind it, which includes respected names such as Canaccord, Herald and River & Mercantile.

There is, it is worth noting within its scope, potential for distributions from potential asset sales, given that the company has signalled the strategic value of parts of its customer base to larger software players in the market.  

The strategy for now though, clearly remains one of continuing to reinvest, in order to continue the accelerating growth strategy,    

Once more, on a personal level and as a shareholder, whilst I do appreciate the arguments made by some, equally, I’ll be happy if the goals are achieved to the benefit of investors as envisaged by the board.

Whilst that doesn't imply any adoption of a progressive dividend policy anytime soon, the company clearly believes that there are positive prospects ahead.

And on that front, things do appear to be continuing positively, despite recently appointed broker FinnCap appearing to side with caution on the current year and the 2024 forecasts.

CEO Rabie who says that January had been robust also told me that they believe they have a clear competitive advantage in large markets with real growth opportunities, where he believes they can win significantly in the next couple of years.

Although growth at the more established and cash providing Virtual Cabinet may be limited to low single digit levels, Smart Vault by contrast has been delivering and continues to make marked progress, with firm exposure to the massive US market which accounts for 97% of its business.

Rabie says that Smart Vault is certainly on the right path and with a focus on areas of tax coupled with growing partnerships, there appears to be a lot of confidence moving forward.

With the business being sticky and experiencing low levels of churn and importantly no one customer accounting for more than 2% of the group revenue, then GETB looks set for a continuation of the recent positive performance.

To assist ongoing growth there also appears to be considerable potential for upside from the company’s in-house developed Workiro product, which since launch has received little in the way of a mention.

Whilst that may have led some investors or watchers to conclude that it isn’t faring so well, CFO Haworth is happy to update me and expand.

He commences with a refresh in that Workiro effectively solves similar problems to Virtual Cabinet and Smart Vault but is specifically for the ERP space.

Here it integrates with NetSuite’s ERP system where it provides enhanced document management, signature, task and chat capabilities which are embedded within NetSuite.

NetSuite, Haworth tells me, has very limited document handling capability which in itself isn’t unusual for such companies in the space they operate in.

The integration of Workiro into Netsuite architecture allows people to have significantly enhanced document capability and also enables them to very simply send off invoices with the addition of a chat facility to serve queries or various invoice issues that may arise.

It can also be adapted for specific customers needs over a broad range of areas and is applicable to HR, procurement and logistics.

Haworth tells me that the relationship with NetSuite is about two years old now, but they actually launched Workiro between March and September of last year, with September being the time that NetSuite really began to go hard on it.

At that time Workiro also won a notable award, which provided some welcome validation for the product and it has actually had clients in the NetSuite space since early 2022.

Since then, they have been acquiring more over the period of time, all with different problems that have needed solving.

That, Haworth says, enables them to go broader than just the accounting market which they are in and arguably provides for a sizeable opportunity ahead.  

Having cemented the relationship with NetSuite the CFO tells me that the partner is very keen to keep working with them introducing new customers and partners in what is a hugely addressable market.

In the past however, the Workiro team hasn’t necessarily had the enterprise sales capabilities required Haworth adds, so, given Virtual Cabinets long and established track record it made sense to combine both businesses in order for Workiro to really benefit and maximise the potential.

That happened in January of this year which has provided a firmly entrenched and experienced sales team to help capture the opportunities ahead.

And looking to the future, Haworth says that ultimately they believe the market for Workiro is big enough that it could become a larger business than the rest put together, which provides a glimpse of some blue sky.

In the medium term he adds that he expects Workiro will be the driver of growth in the UK for the company and that a material part of the UK growth in the next few years, will come from that.  

Taking a look at the FinnCap initiation note, expectations on forthcoming numbers do appear to be on the conservative side, which although given the current economic climate may be wise, also leaves the door open for upside risk.

Revenue for this year is expected to move to £21.1m with EBITDA positive at £1m and net cash of £2.3m. Looking ahead to next year revenue of £22.9m has been earmarked with EBITDA marginally higher at £1.2m.

The shares have ticked back up since the results day slippage and now trade at 74.5p giving GETB a market valuation of £37m, where FinnCap has a target price of £1.60p based on the peer group rating and valuation.