Transitioning to consumption-based model

WANdisco 21 June 2022 Update
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WANdisco

Transitioning to consumption-based model

FY21 results

Software and comp services

21 June 2022

Price

£2.94

Market cap

£194m

Net cash ($m) at June 2022, pro forma including 15 June 2022 capital raise

34.9

Shares in issue at June 2022, pro forma including 15 June 2022 capital raise

65.8m

Free float

80%

Code

WAND

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

14.4

(10.3)

(27.7)

Rel (local)

18.8

(5.7)

(26.4)

52-week high/low

418p

223p

Business description

WANdisco’s proprietary replication technology enables its customers to solve critical data management challenges created by the shift to cloud computing. It has established partner relationships with leading players in the cloud ecosystem including Oracle, Amazon, IBM and Microsoft.

Next events

H122 results

c July 2022

Analysts

Dan Ridsdale

+44 (0)20 3077 5729

Ken Mestemacher, CFA

+44 (0)20 3077 5700

WANdisco is a research client of Edison Investment Research Limited

WANdisco’s (WAND’s) FY21’s results reflect its transition from a subscription-based to a consumption-based model. As expected, revenue fell to $7.3m versus FY20’s $10.5m. As part of its transition, WAND announced two new KPIs: bookings and remaining period obligations (RPO, a forward-looking measure of revenues). In FY21, bookings grew 17% y-o-y to $11.9m, while RPO rose 92% y-o-y to $9.4m. The FY21 results were driven by multiple factors, including the general availability of LiveData Migrator (LDMA), several sizable contract wins across the globe, new business from IoT providers, the reorganisation of its sales team and strengthening of its partner ecosystem with firms such as IBM and Oracle. As we discussed in our recent note, we look for WAND to build on this momentum in bookings and RPO, and expect that its H122 results will be a greater catalyst for the stock. Consequently, we wait to revise our forecasts until the H122 trading update.

Year end

Revenue ($m)

EBITDA*
($m)

EBIT*
(
$m)

EPS*
(c)

EV/sales
(x)

EV/EBITDA

(x)

12/19

16.2

(11.7)

(18.5)

(38.8)

13.1

N/A

12/20

10.5

(22.2)

(28.5)

(57.3)

20.1

N/A

12/21

7.3

(29.5)

(35.7)

(57.9)

29.0

N/A

12/22e

10.0

(24.7)

(29.9)

(50.1)

21.2

N/A

Note: *EBITDA, EBIT and EPS are normalized, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY21 results reflect business model transition

As expected, the FY21 results reflect WAND’s transition from a subscription-based to a consumption-based model, where customers commit to move a minimum amount of data across a given time period. This change should provide WAND with a more predictable revenue stream and significant upsell opportunities with its scalable, flexible cloud-based solution. However, revenues can often drop in the early years of these transitions, which WAND experienced in FY21 as revenues fell to $7.3m versus FY20’s $10.5m, though it did exceed our forecasted $6m. Adjusted EBITDA loss also rose to $29.5m as compared to FY20’s $22.2m loss. Net cash increased to $25.9m, boosted by a March 2021 capital raise of 6.9m shares. Post-FY21 results, WAND announced a capital raise on 15 June 2022 of about 5.9m shares for gross proceeds of c $19.8m. With these capital raises and the contract wins, we are less concerned that the company will be required to raise further capital in H222.

Valuation: H122 results will be a catalyst

While the growth in RPO and bookings is encouraging, the publication of FY21’s results come after a positive Q122 update earlier this year. We believe that the H122 results will be a greater catalyst for the stock and provide stronger evidence of successful execution of WAND’s business plan. In a way, 2021 was the setup for 2022’s execution. Our estimates for FY22e may be conservative, especially if WAND keeps building on its momentum. Consequently, we wait to revise our forecasts until the H122 trading update.

FY21: Transition to commit-to-consume model sets foundation for growth in RPO and bookings

FY21 saw WAND continue its transition to a consumption-based model, where customers commit to move (or consume) a minimum amount of data over a given period of time. With this commit-to-consume contract structure, WAND should see a more predictable revenue stream, reduced discounting and upsell opportunities as its flexible, cloud-based solution enables customers to scale their data consumption as needed. In Q421, WAND signed its largest commit to consume contract valued at least $6m over five years, to replicate over an exabyte of automotive IoT sensor data to the Google cloud.

WAND’s contracts were traditionally subscription-based, where the licence component of revenues is recognised upfront and provided an initial boost to sales. In contrast, this new consumption-based model generates revenues more predictably and evenly across the contract, albeit without the initial boost. Consequently, companies often see a revenue drop in the early years of such a transition, which is what WAND saw in FY21. Revenues fell to $7.3m versus $10.5m in FY20, though revenue did exceed our forecast of $6m. Bookings increased 17% to $11.9m ($10.2m in FY20), and RPO1 grew 92% y-o-y to $9.4m. The adjusted EBITDA loss also rose to $29.5m as compared to FY20’s $22.2m loss, though the reported EPS loss improved from $0.68 in FY20 to $0.65 in FY21.

  Ending RPO defined as beginning RPO plus bookings minus recognised revenue.

WANdisco ended FY21 with $25.9m in net cash, up from FY20’s $18.1m. Cash levels were boosted by the capital raise announced in March 2021 of 6.9m shares at 446p/share, which raised gross proceeds of $42.5m.

Post the FY21 results and further boosting its cash to take WAND through its transition and a possible future US exchange listing, WAND announced on 15 June 2022 a further raise of 5.9m shares at about 270p per share for gross proceeds of about $19.8m or about $19m in net proceeds.

The FY21 results were driven by several items, including:

The general availability of LDMA, which is designed to allow customers to accelerate their migration of on-premises data lakes to the cloud without operational downtime or business risk. The general availability also makes the LDMA feature available to Azure consultants and system integrators for use in clients they serve.

Several sizable contract wins, such as the aforementioned minimum $6m, multi-year commit to consume contract win with a large automotive supplier for IoT sensor data. a $3.3m contract with a large North American investment bank to use LDMA, an initial contract won with a top five UK bank to migrate to Amazon Web Services, and a $1m commit to consume contract with an existing US telecom customer.

Success with IoT service providers, which led to new business worth over $2.6m in Q122 with a global telecoms customer.

The reorganisation of its sales and go-to-market operations, which has helped increase pipeline visibility, reduced costs (headcount fell from 180 in December 2020 to 159 in December 2021) and grow its roster of reference customers across use cases.

Strengthening of the partner ecosystem with large, global organisations such as IBM and Oracle, whereby WAND provides enterprise customers with critical data migrations to the cloud.

Revised KPIs for commit-to-consume transition

As part of WAND’s transition to a commit-to-consume model, it has revised its key performance indicators (KPIs) to measure progress towards company objectives. These include:

Current and ytd bookings – provides an indication of business closed in the period.

Period ending RPO – a measure of future revenues expected to flow through as customers consume data.

We will be monitoring these KPIs closely as evidence of WAND’s success in building on its momentum.

Valuation: H122 results will be a catalyst

While the growth in RPO and bookings is encouraging, the publication of FY21’s results come after a positive Q122 update earlier this year. We believe that the H122 results will be a greater catalyst for the stock and provide stronger evidence of successful execution of WAND’s business plan. In a way, 2021 was the setup for 2022’s execution. Our estimates for FY22e may be conservative, especially if WAND keeps building on its momentum. Consequently, we wait to revise our forecasts until the H122 trading update.

Exhibit 1: Financial summary

$m

2019

2020

2021

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

16.2

10.5

7.3

10.0

Cost of Sales

(1.2)

(1.1)

(0.7)

(1.0)

Gross Profit

15.0

9.5

6.6

9.0

EBITDA

 

 

(11.7)

(22.2)

(29.5)

(24.7)

Operating Profit (before amort. and except.)

 

 

(18.5)

(28.5)

(35.7)

(29.9)

Acquired Intangible Amortisation

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

(2.1)

0.0

Share based payments

(8.7)

(5.4)

(2.0)

(3.1)

Operating Profit

(27.2)

(33.9)

(39.8)

(33.0)

Net Interest

0.1

(1.9)

1.0

(1.9)

Profit Before Tax (norm)

 

 

(18.4)

(30.4)

(34.7)

(31.8)

Profit Before Tax (FRS 3)

 

 

(29.1)

(35.8)

(38.8)

(34.9)

Tax

0.9

1.5

1.2

2.0

Profit After Tax (norm)

(17.5)

(28.9)

(33.5)

(29.8)

Profit After Tax (FRS 3)

(28.3)

(34.3)

(37.6)

(32.9)

Average Number of Shares Outstanding (m)

45.1

50.5

57.8

59.5

EPS

 

 

(38.8)

(57.3)

(57.9)

(50.1)

EPS - normalised fully diluted (c)

 

 

(38.8)

(57.3)

(57.9)

(50.1)

EPS - (IFRS) (c)

 

 

(62.6)

(68.0)

(65.0)

(55.3)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

92.7

89.9

91.0

90.0

EBITDA Margin (%)

NA

NA

NA

NA

Operating Margin (before GW and except.) (%)

NA

NA

NA

NA

BALANCE SHEET

Fixed Assets

 

 

11.6

10.1

8.7

13.9

Intangible Assets

4.9

5.0

5.3

12.1

Tangible Assets

3.7

2.9

2.2

1.8

Investments

3.0

2.2

1.2

0.0

Current Assets

 

 

31.9

31.2

33.5

22.9

Stocks

0.0

0.0

0.0

0.0

Debtors

8.5

10.1

5.7

10.0

Cash

23.4

21.0

27.8

12.9

Other

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(9.2)

(9.7)

(6.2)

(13.3)

Creditors & Deferred Income

(7.0)

(8.6)

(5.6)

(10.5)

Short term borrowings

(2.2)

(1.1)

(0.6)

(2.8)

Long Term Liabilities

 

 

(4.1)

(2.4)

(1.6)

(22.6)

Long term borrowings

(2.9)

(1.8)

(1.2)

(21.8)

Deferred Income

(1.2)

(0.7)

(0.3)

(0.8)

Net Assets

 

 

30.2

29.2

34.5

0.9

CASH FLOW

Operating Cash Flow

 

 

(14.1)

(19.1)

(29.1)

(28.6)

Net Interest

(0.2)

(0.3)

(0.2)

(0.4)

Tax

0.8

0.7

1.0

0.9

Capex (inc capitalised R&D)

(5.9)

(5.5)

(5.8)

(6.2)

Acquisitions/disposals

0.0

0.0

0.0

0.0

Financing (net)

34.2

24.1

41.9

0.0

Dividends

0.0

0.0

0.0

0.0

Net Cash Flow

14.8

(0.1)

7.9

(34.3)

Opening net debt/(cash)

 

 

(6.7)

(18.3)

(18.1)

(25.9)

HP finance leases initiated

(3.2)

0.0

(0.1)

(3.4)

Other

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(18.3)

(18.1)

(25.9)

11.7

Source: WANdisco, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by WANdisco and prepared and issued by Edison, in consideration of a fee payable by WANdisco. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by WANdisco and prepared and issued by Edison, in consideration of a fee payable by WANdisco. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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