Dropsuite Ltd

ASX:DSE

Good morning, everybody, and welcome to Dropsuite's investor presentation. With me today, we have Charif El-Ansari, the CEO; and Bill Kyriacou, the CFO of Dropsuite.

[Operator Instructions] And I'll read that out to Charif and Bill at the end of presentation. With that, Charif, I will hand across to you.

Thank you. Craig, thank you, Bill, and thank you for -- everybody who's attending and taking time to listen to the update. Obviously, we -- you all are very aware of the announcement yesterday, not only was there a trading announcement. There was also a scheme announcement as well. We're going to cover the results first. And of course, we're going to cover the scheme, and we can also be answering any of your questions after the presentation.

Net-net, from a trading update standpoint, we delivered another record quarter. We added a massive number of new users of 165,000 culminating in us now getting closer and closer to the 2 million paid user mark. We're still not there, but getting closer and closer. We continue to add partners. We are like a hair away from $50 million of annualized recurring revenue, and we continue to reinvest and grow the business.

With that, I'm going to let Bill go through the numbers and we can add some extra color at the end, and then we're going to open it up to Q&A.

Thanks, Charif, and thanks for our attendees coming on board today. In this overview, we'll have a short review of the numbers that came across in the fourth quarter. Our December quarter metrics achieved were quite pleasing across the board. We had record incremental ARR that was driven by the paid seat growth. As Charif touched on, we added 165,000 paid seats that led to constant currency ARR growth of 9% across the quarter and 37% on PCP, with actual AUD growth higher, which was positively impacted by the FX fluctuations within the quarter.

In U.S. dollar terms, we added $2.7 million of incremental ARR, and that's up from the prior quarter of $2.3 million. And we continue to reference U.S. dollar terms as the majority of our revenue is derived in USD, but also removes the quarterly fluctuations, especially that we saw in Q4.

Our gross margins remained in line with expectations with a slight increase off the back of those FX fluctuations. We continued increasing capacity as we added new users and data and we continue to optimize our storage configuration. The growth in seats was attributed to a combination of additions from existing partners, new partners, PartnerServ and Bring Your Own Storage seats with the product mix combination continuing -- contributing to some lower ARPU against prior quarter in PCP.

Our Bring your Own Storage product is a new flavor on existing products where our partners use their own storage rather than the DropSuite storage functionality, and they only pay for the compute cost, which also lowers cost for DropSuite allowing our gross margins for this product to remain in line with our overall margins. And as we've noted previously, our North Star metric is to continue to add profitable ARR with healthy gross margins.

Our churn for the quarter was quite stable, sub-3% as it has been for prior quarters. We continue building our relationships with direct and indirect partners, who are purchasing through our distributor channels. Our normalized operating cash flow generated in Q4 was $320,000. This has been normalized for the timing of early receipts from customers in the last days of December. And this is consistent with our prior approach to providing full transparency on our numbers.

Our actual operating cash flow generated was AUD 2.3 million for the quarter. We had our cloud hosting payments that were in line with our paid user growth. We had staff costs that increased in line with new starters and marketing and admin all aligned within our expectations as well.

With that, I'll hand back Charif to provide more detail on the NinjaOne deal.

Thank you, Bill, if you can go to the next slide, please. As you can see, we have announced a Scheme Implementation Deed with NinjaOne. NinjaOne is a phenomenal company that is really focused on solving all sorts of IT challenges for both the internal IT department of enterprises as well as for the MSPs. And as you all know, we are very, very deep into the MSP channel.

We have been in conversation with them for some time. Then the Board in full collaboration and in conjunction with talking with Dropsuite's largest shareholder Topline, agreed to go through a due diligence process, which happened throughout the holidays. And then this culminated into what you're seeing in front of you today. Both -- of course, the Board was unanimous in this as well as with strong support of Topline who owns more than 30% of Dropsuite.

The deal is all cash, which was very attractive. The share -- the price per share was $5.9, which is at a significant premium to where we have been trading. And again, if you take a 5-year view, you're talking about almost a 20x improvement in the valuation of the company. This is a SID or a Scheme Implementation Deed. So it takes some time for this deal to close. The tentative time line will be in end of May. And of course, in the meantime, our lawyers and our bankers will do -- will be doing everything they can to speed up the process with the regulator. Also, and obviously, as part of the Board's fiduciary responsibilities, we are allowed to entertain superior offers, if they eventuate in the coming few weeks before the second court hearing.

Rather than going through more details, I would much rather that I open it up for Q&A. So that Bill and myself can try to answer as many of your questions as possible. Thank you.

Thanks, Charif. Thanks, Bill. [Operator Instructions] First, Charif, and a lot of these are in similar vein, well done on the quarterly results and congratulations on the takeover. Were there any other interested parties that you're in conversations with through the process apart from NinjaOne?

Yes. One thing I realized is that once a company hits around USD 25 million of ARR you start fielding interest from various parties. So yes, there were various parties who were interested, but NinjaOne was the 1 that moved the fastest and came with a black and white indication of interest and with due diligence that ensued until we get to the Scheme Implementation Deed that we've been discussing today.

Thank you. Next one, was NinjaOne's engagement initially inbound? Or was it an outbound conversation from DSE. Essentially how did the conversation started?

That's a really good question. It was absolutely inbound. I believe great companies are sold or they're not bought, right. So this was all inbound. We were definitely not trying to sell the company at this stage.

Excellent. Can other companies do due diligence if there is a superior offer.

I believe that's not the case. According to the terms and conditions of the SID.

Thank you. Next 1 is around you, Charif. What will be your role going forward? Are you staying involved with NinjaOne? Or is that too early to determine.

It's -- in general, it's to be determined at this stage. I mean, we remain a very independent company with myself and the executive leadership team at the helm of the company. There is a very high likelihood that I will stay for some time at least to make sure that the integration and the team is in order.

Follow-up question on that one. Charif, why did you personally support the takeover. Can you please provide some detail.

Yes. I mean, it's -- this is always a balance between risk and reward with what you can -- what value you can achieve today versus what you can achieve tomorrow. All in all, it felt that the time was right, the value and the valuation was right. And there was a very strong alignment with the full Board as well as Topline, and that's how I made the decision myself as well.

Thank you. [Operator Instructions] Next one, Charif, is just a follow-up. Can you please clarify the comments that you made before. Is Dropsuite able to seek out other registered parties? Or is this effectively a no -- not a go and shop condition?

Yes. So obviously, in most cases, it's a not go and not shop but at the same time, superior offers and proposals can be received by parties who already know that this is now public information.

Next question on the formalities here. Why did you not run a sale process after receiving an initial offer.

We believe running a sales process is a highly disruptive process that not only affects our employees, but also affects our stature and our standing in the channel and the partner ecosystem that we're operating in. We felt that the offer was in the realm of good to very good and we decided to do it this way as opposed to making -- creating an open bidding situation that can be highly instructive across multiple areas.

Thank you. One last call out for questions. So just Charif, we'll give it 10 seconds and see if anything more pops through. There's a range that have just come in here, Charif, sort of thanking you for the work that you've done, you and the team have done, however, the journey. So some very positive ones, but there are actually no more questions, Charif, that have come in that we haven't answered so far on the call today.

So with that, I think, a very short and sharp process. Sorry, 1 last 1 that has come in, which I think is well worth reading out here. Through the due diligence process on both sides, are you confident with the ability for NinjaOne to raise the required cash to purchase all of the shares in Dropsuite.

That's a very important question. I'm glad that this was raised. Clearly, the answer is yes. I didn't spend enough time talking about NinjaOne, but if you -- I think we have some of this information. NinjaOne is backed by some of the best and largest growth equity companies in the world including Summit Partners and ICONIQ. And for people who haven't heard of these 2 names, feel free to look them up. They're massive. I mean, ICONIQ, I think, has $80 billion under management and billions of dollars of dry powder. This SID -- you will not have seen this SID here in front of you if our lawyers and our Board had a very high level of comfort about the availability of the funds.

Excellent. Charif, if that is all, all the questions for today. So with that, I'll just turn across to you for any final remarks.

I want to thank you, thank everyone for your support. I mean, again, the journey is not over yet. We're going to be updating you again in April. I look forward to updating you with another set of strong results. And of course, we'll keep you updating on -- updated on what's happening on this specific brand that we've been discussing in the last few minutes. And we'll talk soon. Thank you.