Earlier this week, data storage software company Dropsuite (ASX: DSE) announced both its results for the quarter to December 2024, and a takeover offer which sent the share price soaring, prompting me to move the stock to hold.
On the quarterly conference call, the CEO emphasised that Dropsuite was still open to competing bids, so it was rather fortunate that the company was able to report an incredibly strong quarter.
First, annualised recurring revenue (ARR) growth actually accelerated, with ARR jumping from $42.6 million to $49.8 million during the quarter.
The company said the ARR growth benefitted from “Dropsuite’s PartnerServ service (a paid migration service from other backup vendors into Dropsuite) and the newly launched Bring Your Own Storage (BYOS).” On top of that, the headline ARR received a very nifty boost from the Australian dollar weakness. To wit, quarter-on-quarter growth was 17% in AUD, but only 9% in USD.
Happily for shareholders, the company also submitted its best-ever operating cashflow. However, in a demonstration of integrity and transparency, the company was quick to point out that the December 2024 operating cashflow (shown below) benefitted from $2m received earlier than expected. The normalised result would have been close to breakeven.
Still, nobody is complaining about the extra cash, and Dropsuite currently holds more than $28.5 million in the bank.
If these results were not overshadowed by the takeover offer, which drove a 30% gain in the share price, I suspect I would have maintained my Buy recommendation. This quarter was a good quarter and does bode well for the future.
While there is some small chance that another offer could emerge for Dropsuite, it seems most likely that the company will be taken over at $5.90. When I asked on the call why the CEO was supporting the offer, he said that the time is right and the price is right. Therefore, I would be surprised if a competing offer does emerge.
That said, with strong results like these, it is certainly possible that another potential suitor could emerge in the next few weeks. Therefore, I am happy to hold my shares. However, I do note that there is a risk that the share price could fall if the takeover falls through.
Finally, I must note CEO of Dropsuite Charif El-Ansari stands out for his open communication with all shareholders, and if this takeover does occur, it means he improved the lives of those who backed a strategy he clearly outlined and pursued. He did not waste time or money on overly promotional investor relations tactics but did very consistently hold a quarterly webinar at which all shareholders could ask questions. Thanks!
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Disclosure: The author of this article owns shares in DSE and will not trade DSE shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).
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