TL;DR
Sticky SMB software, at 1.8x trailing ARR
ARR growing at 20%+ yoy
Cash neutral. Possibly at profitability inflection point
Introduction
GetBusy is a UK microcap software company that sells document management and productivity software.
The company has 3 products / divisions:
Virtual Cabinet is a full featured document management software. It can be best understood as Dropbox + file management system layer + workflow automation. As the name implies, it acts as a central filing cabinet for the office, with the document management layer ensuring that files are organized and tagged in a consistent manner.
SmartVault is a more streamlined, cloud-based document management system that is specifically designed for accountants. It has very tight integration with accounting and business tax software such as Intuit Lacerte and ProSeries. It also has a bunch of vertical specific workflow automation built in.
Workiro is a productivity and task management software that GetBusy has been incubating for some time. The company is just starting to find its footing within the cloud ERP space.
Geographic revenue breakdown is as follows: UK 38%, US 50% and ANZ 11%.
Summarized Thesis
GetBusy can be best understood as a combo of 1) a cash cow, 2) a growth engine and 3) an option.
Virtual Cabinet is the cash cow of the company, funding both SmartVault and Workiro. The product generates £8m of ARR, at 50%+ divisional margins1. It is a mature product with low growth.
SmartVault generates c£10m of ARR2, with -10% margins, inflecting towards profitability. ARR is growing at ~30% yoy.
Workiro is at a pre product market fit stage, likely generating <100k in ARR, and eating up about £2m of cash each year.
The investment thesis can be broken down into four points:
1) Necessary, sticky software: GetBusy's product portfolio is not sexy. The product demos will most likely put you to sleep. It also isn't going to blow your mind with its feature set. It's a "meat and potatoes" software.
At the same time, this allows the company to survive in a competitive market. Gross Retention is around 90% for the group, with Virtual Cabinet being mid 90s and SmartVault mid 80s3. Once adopted, there's rarely a reason to change providers. It might be boring, but it's sticky.
2) Growth re-acceleration: GetBusy's ARR growth used to be in ~20% range, dipping down to 12% during COVID. It has strongly rebounded back to above 0% due to a combination of
Entering into new sectors, such as insolvency and asset finance.
Continued strong growth from SmartVault - a mixture of more users and higher ARPU.
How much longer can they continue growing? Management claims that SmartVault TAM is $250m / ~£210m. I’m not sure if I buy that we are that early on in the accounting document management software game, but at current valuation, we don’t need much growth.
3) Inflecting towards profitability: GetBusy has never been a massive cash burning company, as the company has been funding its growth investments from Virtual Cabinet profits. The company has been cash neutral for the last couple of years, thanks to UK R&D tax credit.
Nevertheless - the company is reinvesting pretty much all of its profits, which begs the question: for how much longer? There are signs that we may be at an inflection point. For FY21, SmartVault losses declined, and Workiro investments stayed flat. This trend continued into FY22H1, when the company reported a small Adjusted EBITDA profit.
4) The valuation: You get this sticky recurring revenue, growing 20% yoy, at sub 1.8x trailing ARR. Yes, yes, EV/Rev is so 2020. Cash flow is the only thing that matters. Well, Virtual Cabinet does 50%+ margins, and SmartVault is becoming profitable. You can draw your own conclusions of what terminal margins may be.
Key Risks: & Other Flags
Virtual Cabinet impairment
Virtual Cabinet is a 20 year old product. While it's been updated over the years, and the company has a cloud version, AFAIK, it's mostly on prem, and it must be showing its age.
The company has stopped growing user base for some time. While the retention rate continues to be high, any impairment here will be a problem for GetBusy as it's their only source of capital.
Capital Allocation
While the management team is not "blow your brains out" tech visionaries, they have been consistently reinvesting profits into SmartVault and Workiro.
SmartVault is a relatively "proven" product, with a large customer base. Workiro, on the other hand, is a 4 year old product, that’s eaten up about £7m of capital. with sub £100k in ARR to show for it. Eek. I understand that it’s a brand new product the company has incubated, but it needs to scale fast to justify the investment.
Worsening disclosure
Management has recently combined disclosure for all three units. This will prevent us from tracking our risk items closely.
GetBusy is a current holding of Panoramic Capital.
This is pre-corporate overhead. Overhead is about 15% of group revenue.
This is an estimate based off of FY21 ARR + assumed growth rate. Unfortunately, GetBusy stopped reporting product level data as of FY21 so this is the best I can do.
Gross churn for SmartVault is higher due to its focus on smaller customers. It is also much better than your average SME gross retention which is in the 75-80% range.