Description

Intro

I am recommending a position in Bigtincan Holdings (BTH-ASX). Based in Australia, Bigtincan is a leading SaaS provider of sales enablement and digital context management software. BTH is one of the fastest growing tech companies on the ASX- ARR increased 55% in its most recent update- and the stock trades at a notable discount to the global high growth SaaS peer group (~5x calendar 21 ev/rev vs comp group at 8-10x). While BTH may not fit the typical framework for a value investment (shares up ~100% over past 12 months, not yet profitable), I think the stock still flies under the radar of most software investors and has a very good chance of doubling again over the next couple years as the company continues to execute on a large and growing market opportunity. Bring on ‘Growth Investor Club’ tags.

All $ numbers in AUD unless otherwise noted.  

Business

BTH’s primary product, Bigtincan Hub, aims to improve worker productivity by automating and streamlining sales processes from on-boarding and training new reps, to preparation, engagement, and customer follow up. The platform allows the sales force to engage more effectively with customers and provides tools for senior leaders to monitor the effectiveness of various sales materials. The company has a product explainer video on its investor site which is helpful in getting a sense for what the product actually looks like- https://www.bigtincan.com/company/investors/. The platform was designed to help companies get the most out of marketing and sales materials and solve the problem of content fragmentation across a sales organization.

Some key functionality of BTH’s platform include:

·        Easy intuitive navigation around most relevant and recent sales/product content

·        Software that compresses a variety of file types (100+ content types), making files more accessible in both online and offline environments

·        Traceability of software to track reps engagements with clients and prospects through easy integration with CRM providers (i.e. Salesforce)

·        Micro-learning and training tools to ensure sales reps are up to speed on latest product information

·        ML/AI tools that provide the most relevant/effective content based on CRM data

BTH has 400+ enterprise deployments and over 200k enterprise users across 50 countries. Over 80% of its revenue is sourced from the US and the company is well diversified across verticals:

·        Technology and telecom 27%

·        Life Sciences 23%

·        Retail 17%

·        Fin services 15%

·        Manufacturing 11%

·        Other 7%

The company was founded in 2011 by its current CEO, David Keane. It listed in 2017 raising $12m. I think that if BTH was founded and based in the US it would likely still be private. The CEO told me that Australia’s much less developed venture/growth equity eco-system was a major factor in the company tapping the public market to raise money in 2017. I think this presents an interesting opportunity for public market investors to participate in a stage of a SaaS company’s growth and value creation that is typically captured only by venture and growth equity investors.

Market/ Competitive Dynamics

According to Aragon Research, the market for sales enablement software is expected to double from $2.5bn in 2019 to $5bn in 2021. Similarly, Gartner projects that by 2021 15% of all spending on sales technology will be allocated to sales enablement tech, up from 7% in 2017. According to a report from Forrester, 54% of companies are in the process of evaluating or implementing sales enablement tools and an additional 19% are planning to do so within the next 12-18 months. The company believes that the vast majority (80%+) of its customers have not purchased a sales enablement platform prior to using the Bigtincan Hub underscoring the greenfield nature of the market opportunity.

BTH’s most significant competitors are Seismic and Showpad. Seismic announced in Jan 2019 that it surpassed $100m USD in revenue and raised a $100m USD Series E valuing the company north of $1bn USD. Over the fall, the company had a deal fall apart with Softbank’s Vision Fund. Showpad is estimated to have >$30m USD in revenue and raised a $70m USD Series D last summer. There’s a long tail of additional players in space generating less than $20m USD in revenue. I think the market is large enough and it is still early enough in its development for there to be multiple large winners. Mgmt draws the comparison to the early years of the marketing automation space which ultimately produced several multi-billion-dollar companies.  

BTH differentiates itself from the competition on several factors. First, its breadth of functionality. BTH was the only company to be recognized by Gartner in every category in its market guide. Second, BTH has engineered its platform from the beginning to be mobile-first. This is especially important verticals where sales reps are traveling frequently or are on a retail floor. Third, BTH has invested significantly to enable and encourage third party development on its platform. Its open APIs and SDK (software development kit) enable customers to build ‘mini-apps’ on top of Bigtincan Hub. Becton Dickinson, a BTH customer, has built 50+ additional features onto the base platform. This type of integration with customer’s workflow should drive higher retention and opportunities to expand with a customer’s sales force.   

Financials/valuation

BTH operates a land and expand model, typically deploying initially with a specific product group or geography. It then seeks to expand to new teams and move users to higher priced and more feature rich tiers. Mgmt estimates that about 50% of its growth comes from expanding within its existing customer base. The company’s go to market involves both direct sales and ~30 channel partners including Apple, Verizon, Salesforce, and, recently announced, NTT Docomo.

The company has been fairly acquisitive over the past 2 years, closing 5 acquisitions. The deals have focused on adding features to the platform which can then be sold across the base (i.e. micro-learning) or strengthening the company’s functionality in a certain vertical (recently acquired XINN is a document automation provider for financial services firms). I expect the company to continue to be opportunistic with tuck-in deals.

 In late Jan, the company put out an update on the December quarter which was highlighted by 55% ARR growth to $32.4m and several new customer wins including Sephora, Mastercard, and Brown Brothers. A week later, the company put out a release noting that it won its largest contract ever- a two-year $6.2m deal with DXC. BTH operates a June fiscal year and has guided to 30-40% organic revenue growth. With the recent M&A and big contract wins, actual revenue growth should be north of 50%.

The company generates mid-80% gross margins and has demonstrated improving operating leverage over the past couple years- opex as a % of ARR was 89% in FY19 versus 126% in FY18. Longer term, mgmt. is targeting 20%+ operating margins but expects to continue to invest in sales and marketing to capture its share of the growing market over the next few years.  

I model revenue +55% to $33.4m for this year and a 35% CAGR for the next two years. That may prove conservative if the company continues to find attractive tuck-in M&A opportunities. At the current EV of $230m, the stock trades at 3.8x my fiscal 2022 revenue projection of $60m. I think this is too low given the organic growth profile and market opportunity. I expect the stock to re-rate closer to the global peer group as the company continues to execute and garners increased attention from US-based investors. A 7x multiple (still below peer group) would be an ~80% return from here.

Disclaimer: The views and opinions expressed in this report are those of the author only and do not reflect the views and opinions of the author’s current employer. This material is being provided for informational purposes and is not to be considered an offer to sell or a solicitation of an offer to buy any investments referred to herein.

Catalyst

Contract win annoucements

Earnings