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Focus to turn to Simble’s recurring revenues
3 minute read
Despite the March quarter traditionally being a quite one for Simble Solutions (ASX:SIS), a provider of software solutions for essential services such as energy management, the company delivered year-on-year sales growth of 67%.
Equally impressive was Simble’s ability to substantially trim costs, a result better than that flagged in management’s prior guidance.
For smaller companies in the tech sector, controlling expenditure is often difficult, but the company appears to have reached a stage now where this has stabilised, evidenced by the sharp decline in net operating cash burn from $1.47 million to $650,000.
Management expects sales growth to continue in the June quarter of fiscal 2019, assisted by revenue generation from some material contracts that were negotiated in the March quarter.
Long-term partnerships key to future
In February, Simble announced a strategic long-term partnership with its first energy broker in the UK, UCR Consultants.
UCR subsequently committed to invest $500,000 by way of an unsecured convertible note at a conversion price of 15 cents per share.
In terms of the agreement, UCR Consultants has become a licensed reseller of Simble’s energy and Internet of Things (IoT) energy analytics product suites and will target up to 60,000 meters for deployment.
Pricing is based on a minimum commitment of 10,000 meters to be deployed at UCR’s discretion.
The group intends to target ‘smart meter ready’ customers with software-only platform SimbleSenseLite, as well as large multisite customers Simble Energy Platform, a bundled premium solution.
The deal is the first breakthrough in smart metering market where the UK government has mandated deployment of 53 million smart meters across all residential households and small businesses.
Simble targets this growth opportunity in partnership with Accel-KKR backed Utiligroup which will service an estimated 80% of this market.
Making inroads in Australia
The company has also had success in Australia, securing Banyule City Council in partnership with BidEnergy.
During the quarter Simble entered into marketing partnership agreement with BidEnergy Ltd (ASX:BID) to commercialise a bundled technology solution comprising combined IP, and this quickfire contract award validates the collaborative merits of the partnership.
The company appears poised to continue its strong performance in the June quarter with chief executive Fadi Geha saying, “Based on the traction we have witnessed to date and contract visibility we expect this growth trend to continue for the June quarter as we capture opportunities with key partners in Australia and the UK.
“We have invested heavily in R&D (research and development) and sales infrastructure over the past year, driving innovation and expanding our solution suites to scale and diversify the company’s revenue streams.”
Income predictability a key attribute
Geha also underlined the company’s business model and its ability to grow recurring revenues, a factor that is normally well received by the investment community as it provides earnings predictability.
The benefits from this model aren’t always obvious at an early stage as cash generation builds over a period of time.
However, history shows that once there is recognition of consistent growth in recurring revenue businesses such as these can experience significant share price momentum.
This is particularly the case for a company such as Simble, given that there is already reasonable predictability surrounding its revenue streams because of its exposure to essential services such as energy usage.