Tesserent has announced it has had a strong start to its FY22 financial year, with the completion of a capital raise in September bolstering the balance sheet, and operating performance running ahead of budget.
The Company reported year-on-year growth of 78% against the prior year comparative quarter.
As referred to in the June Quarter Appendix 4C commentary lodged on 29 July 2021, this seasonal impact is expected and is reflected in the Group’s budget for FY22, Turnover for Q1 is running $1.9m ahead of budget which includes a significant step up on FY21 actual.
Operating EBITDA has continued to grow strongly (taking into account the impact of Q4 seasonality) with an increase in Operating EBITDA for Q1 of 351% from the prior year comparative period.
Operating cash flow remains positive in Q1 FY22 at $0.6m, albeit lower than Q4 FY22 due to a particularly strong trading quarter in Q4 (in line with normal seasonality), plus the timing impact of some revenue cash receipt inflows upfront in Q4 FY21, with related costs/supplier payments made in Q1 FY22. Although this is optimal structuring of working capital, it presents as a quarter- to-quarter cashflow mismatch impacting Q1 cashflow by approximately $2.3m.
ORGANIC VS. NON-ORGANIC GROWTH
During the first quarter of FY22, the aggregate operating EBITDA from all of the Group’s business units has grown by 130% (from $1.5m to $3.5m for the quarter – excluding corporate related costs).
This underlying growth can be broken down into:
- Non-organic EBITDA growth of 85% (being growth from businesses acquired since Q1 FY20)
- Organic EBITDA growth of 45% in the core business units which were already part of the group in last year’s comparative Q1.
Upon inclusion of corporate costs, the Q1 FY22 operating EBITDA of $2.0m compared to the prior year comparative Q1 operating EBITDA of $0.4m represents a 351% improvement – demonstrating the improved operating leverage achieved though the profit and loss as the group has grown both organically and through acquisition.
RECURRING REVENUE HITS 42% A SIGNIFICANT UPLIFT FROM 30% IN 2020
The Company has seen an improvement in other key performance measures used to track levels of customer engagement and sales performance. Based on analysis performed in Q1 FY22, Tesserent has recorded:
- An increase in the proportion of recurring revenue which makes up the Group’s overall turnover to 42%, up from 30% measured at the end of 2020 calendar year.
- Number of services sold at an average of 1.5 services per customer. The Group is focused on this key performance measure, with cross selling activity growing following the recent Brand and Business Unit integration project.
The business has worked with 1,000+ customers in the last 3 years and currently services over 790 active customers, with 32 accounts with individual spend of greater than $1m on cyber services provided by Tesserent.
CAPITAL RAISE AND FUTURE ACQUISITIONS
As announced on 28 September 2021, the Group completed a capital raise (via an equity placement with a number of institutional investors) raising $25m to fund future identified acquisitions. The placement was significantly oversubscribed, which management and the Board believe reflects market confidence in the strategy and prospects of the Group. An equity capital raise was chosen to optimise the (debt to equity) capital structure of the Group and has also had the impact of enhancing Tesserent’s visibility in the ASX market.
The capital raise was undertaken primarily for the purpose of further strategic acquisitions which have been identified and are in the process of due diligence and also funding the completion payment for the acquisition of Loop Secure (which completed on 7 October 2021).
Each of these identified acquisitions expand the capability offering which Tesserent can bring to its customers and are priced at a level where they are EPS accretive.
A proportion of the funds raised was also used to fund deferred consideration and earn-out payments on previous acquisitions. The Company also notes that it has also funded deferred consideration payments and strategic investments in AttackBound, TrustGrid and Daltrey from operating cash.
