The ASX tech stocks set to reap benefits of positive cash flow
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Achieving positive cash flow is a big deal for tech companies, signifying self-sufficiency and opening doors to new opportunities.
Being cash flow positive means a company’s operations generate enough cash to cover their expenses, investments along with debt obligations and empowers them in several ways.
Positive cash flow can fuel further innovation and research. With steady inflows, companies can invest in R&D, expand their product offerings, enhancing competitiveness and attracting customers.
Cash flow positivity also enables tech companies to efficiently scale operations, invest in infrastructure and talent and explore new markets, all while avoiding cash shortages.
Managing working capital and inventory becomes easier with positive cash flow while also improving risk profile. It acts as a safety net during economic downturns and enables companies to navigate uncertainties without relying heavily on external funding or capital raises.
Cash flow positive also provides robust commercial validation that a tech product is highly sought-after, their revenue model is working and can serve as a catalyst for substantial value uplift in companies.
It can broaden the range of investors available to companies with mandates of many institutions restricted to investing only in profitable companies.
Despite challenging market conditions in the tech industry over the past couple of years, several ASX companies have emerged strongly with impressive results to be cashflow positive or close to cashflow positive. Here’s some that we’ve noticed.
Airport transfers marketplace JAY announced it was cash flow positive in Q3 FY23.
“That’s our third-ever quarter with cash positive at this level, and it’s up 226% versus the prior corresponding period,” JAY MD Rod Bishop said in the quarterly business review presentation.
During the quarter cash receipts from customers grew to a record high of $1.65 million, up 198% versus pcp.
JAY enables travellers to compare and book rides around the world, with 3,700+ ride service companies, servicing 1,600+ airports in 110+ countries around the world which cover 95% of the world’s airlines.
Each year Q4 is JAY’s biggest quarter as the Northern Hemisphere summer peak season flows through to its bottom line, and the company has said it is already starting to see positive signs.
JAY is a pick of one of Australia’s most successful tech investors, Thorney Investment Group executive chairman Alex Waislitz.
VHT recently reported a solid Q4 FY23 result marking the second consecutive quarter of positive net operating cashflow.
VHT recorded cash receipts of NZ$10 million, which was up 25% on pcp. Net operating and investing cash outflow in Q4 FY23 was NZ$200k, a big improvement on a net outflow of NZ$2.9M in Q4 FY22.
Cash receipts from customers in FY23 are NZ$38.6M (unaudited), up over 35% on FY22.
Net operating cash inflow was NZ$400k, marking the second consecutive quarter of positive net operating cashflow and well ahead of guidance for the first positive cashflow quarter in Q4 FY24.
The medical imaging stock specialises in the early detection of breast cancer. Under the guidance of new CEO Teri Thomas, VHT has increased the number of larger ‘elephant’ clients, increasing average revenue per account in line with its revised strategy to target higher value, and more profitable products and clients.
The non-bank lender has posted its maiden statutory profit in FY23 and it was a strong one. The company reported $9 million profit for H1 FY23 and is on a trajectory to close the year on strong profit results.
MME increased its gross revenue YoY by 75% to $61 million in Q3 FY23. Contracted revenue was $375m, up 9% YoY, while the company’s ongoing focus on margin protection saw Net Interest Margins increase by 18% YoY to 13% in the quarter.
Building on the strong profit result of $9m in the first half, MME recorded more than $7m in statutory net profit after tax (NPAT) for Q3, with another profitable month in March adding to the profit result for January and February.
Underpinning the solid performance was MME’s $1.18 billion loan book, which is seeing its credit profile continue to improve through the company’s ongoing focus on credit risk management and targeting of higher credit quality borrowers.
MME’s CEO Clayton Howes said he is pleased with MME’s strong financial performance and momentum in Q3.
“It is a tremendous result despite macroeconomic challenges with the rising interest rate environment,” Howes told Stockhead.
“The scale advantages and operating leverage has created a strong profitable business.”
The Colombian based medical imaging software and radiology services company IME is cashflow positive on a monthly run-rate basis, according to Morgans Healthcare analyst Iain Wilkie.
For Q1 HY23 the $20 million market cap company managed to generate $800k in positive operating cash flow
“The recurring revenue annually is around $20 million as well so about the same as its market cap,” Wilkie said.
“$800k of operating cash flow for a company of its size shows good progression and has been years in the making.
IME has expanded its global footprint for its software to 18 countries, with 449 sites and used by more than 3,000 radiologists. It has also established 35 distributors in 15 countries.
IME’s has radiology operations in Colombia, Spain, and Mexico, with 35 radiology centres and over 150 in-house radiologists.
“The company has taken a new definitive direction towards profitability, with the quarterly results showing positive EBITDA and cash flow,” IME CEO Dr German Arango said.
“The fully implemented cost out program is already delivering consistent results.”
The one stop shop for pet care outside of the vet category is targeting cash-flow break even by end of FY23.
MPA is already EBITDA positive for its tech-enabled pet sitting marketplace and is tracking toward profitability with its online Pet Chemist.
The company offers an online digital platform providing pet care services including sitting, walking, day care and grooming to pet owners.
“We believe in the premiumisation and humanisation of pets as a trend will continue not only in Australia but globally and MPW has a very good future here given most parents love their pets with many treating them like children,” Red Leaf Securities director Jonathon Howe told Stockhead.
“Globally we already seeing the uptick in the leading listed US tech stocks such as Rover, Chewy and Fresh Pet.”
He said now should be a busy time for the pet-sitting market place with a lot of pent-up demand of people wanting to go on overseas holidays during the colder months in Australia and only just getting back into travel after the Covid-19 pandemic.
The world’s largest dedicated database of official music credits, having signed up every major label so that all music data is delivered to the company, is forecasting being cashflow positive in the not so distant future.
The company has just completed the acquisition of Australian-created Vampr, dubbed the LinkedIn for the music industry, and recently launched VINYL.com, a global music products marketplace, featuring a deep catalogue of over 50,000 vinyl records across all genres.
Recently JXT announced global B2B music rights and licensing marketplace platform Songtradr was converting the full principal and interest of tranche #1 of its existing convertible note with JXT into ordinary shares, meaning it will hold a 15.99% stake in the company.
In October 2022, JXT announced Songtradr CEO Paul Wiltshire had ponied up for a 7% stake in the company and become a substantial shareholder.
“Clearly Songtradr is taking a long-term view with the CEO investing in Jaxsta shares but also the company’s conversion of debt to equity in Jaxsta,” Howe said.
“Jaxsta wants to be a leading name for music artist rights and distribution globally.
“The combined businesses Jaxsta now has in its suite should see it on its trajectory to profitability.”
And JXT CEO Beth Appleton seems to agree.
“As we complete the acquisition of Vampr and connect our Creator and Music Fan communities to both Jaxsta and vinyl.com, I am increasingly confident and energised by our momentum, revenue growth and visible path to profitability,” Appleton said in the company’s latest quarterly business activity report.
While not quite cashflow positive, the industrial water treatment tech company is on the right track, recording revenues of ~$1.46 million in Q3 FY23.
PWN also achieved strong cash conversion, with quarterly cash receipts increasing to $1.28 million.
PWN continues to make significant progress in building a portfolio of tech for a range of complex wastewater and process streams traditionally considered difficult to treat.
The company announced that it was developing a transformational brine processing solution for the coal seam gas (CSG) industry, with a potential market opportunity of $307 million a year, or up to $9.2 billion over the life of existing CSG projects operating in Queensland.
Whilst the company is focused on progressing the commercialisation of its disruptive tech portfolio in parallel it is pursuing the growth of an operating conventional water treatment business.
It is the increased revenue of this operational business base which aims to further support PWN’s rollout of its tech portfolio while it marches towards cashflow positive in the medium term.
PWN also appears to be getting closer to its target customer base through the operational business, providing a strong platform for future growth and profitability.
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