Company Brief 22 JUNE 2018 Causeway Technologies Company Analysis Publishing details Content authored by Information in this report Published by the team at Megabuyte Author I S Research Ltd The Blade, Abbey Square, Reading RG1 3BE +44 (0)118 948 5850 info@megabuyte.com www.megabuyte.com Megabuyte 2018 Document Information All share prices and valuations quoted are as at the close of business on 21 June 2018. Robert Warensjo robert.warensjo@megabuyte.com PUBLICATION DATE: 22/6/18 | 1 Discover more online Related content of interest can be found online at: www.megabuyte.com Selected Reports PEER GROUP REPORT Specialist Applications Quarterly Review - Q2 2018 Published: 9 May 2018 Related content keywords Results & Trading, M&A, Company Contact Company Brief | 22 JUNE 2018 Causeway lays ambition to double up Owner managed construction industry software player Causeway grew revenues 4.5% to 22.3m in calendar 2017, as further momentum and growth in its subscription transition was partly offset by reducing initial licence fees - the improved revenue mix fed into higher EBITDA margins (25.8%) and strong cash generation. We caught up with CFO Mark Howell who highlighted ambitions to double revenues in the next three years with the support of acquisitions and overseas wins, putting its hefty Guggenheim-led refinancing from last year to good use. Company overview Causeway provides enterprise software solutions to the construction and facilities management industries throughout the design, build, operation and maintenance lifecycle. The company was founded in 1999 and completed a number of acquisitions through the following decade in order to add breadth to its offering. As a result, Causeway's product portfolio today is much wider than many of its construction industry software peers, which typically focus on a particular niche. Causeway employs around 200 people and has offices across the UK, Ireland and India. Causeway remains owner managed, although, in June 2017, it announced a 90.5m refinancing package led by Guggenheim Partners, comprising an initial 40.5m plus a further 50m of incremental facilities, to support expansion organically and through M&A. Financial performance Causeway grew revenues 4.5% to 22.3m in the year to December 2017, within which a 12% rise in annual licence and subscription revenues to 18.2m (82.0% of total, up 5.6pp) offset a 14% drop in initial licence fees to 2.5m, reflecting a continuation of its subscription transition. Professional services revenues were down 22% to 1.3m. The annual value of contracts grew 18% to 20.2m and total lifetime contract value, which typically incorporates a five year minimum contract term, ended the period at 66m (2016: 46.5m). By geography, UK revenues grew 2.2% to 20.3m versus a 35% rise in Rest of World revenues to 2.0m. Adjusted EBITDA rose a greater 26% to 5.8m due to a stable operating cost base, expanding the margin by 4.3pp to 25.8%. Expensed R&D investment totalled 4.2m (2016: 4.6m). Operating cash flows grew 13% to 6.2m, or 108% EBITDA conversion, supported by its improved revenue mix. This easily financed 1.6m of interest and 0.2m of capex (2016: 2.0m), resulting in Causeway's net debt balance falling from 36.2m to 32.0m. However, net debt less shareholder loans trebled to 32.0m, after shareholder loan notes and pre-existing bank debt was repaid as part of the Guggenheim led refinancing. FIGURE 1: Causeway Technologies summary financial performance (Dec year-end) Source: Megabuyte, Company accounts 23.3 21.0 21.3 22.3 4.0 3.7 4.6 5.8 2.5 4.8 5.5 6.2 2.4 4.6 3.5 6.1 17% 18% 22% 26% 0% 10% 20% 30% 0 10 20 30 FY-14 FY-15 FY-16 FY-17 mRevenue Adj. EBITDA OCF FCF Adj. EBITDA margin, rhs Scorecard Mark* 64 Peer Group Average 52/100 * Megabuyte Scorecard Calculation Rating and corresponding peer group average calculated as at 21 June 2018. Ratings are calculated on a rolling basis. Quick Facts REPORT ABOUT: Causeway Technologies PEER GROUP: Specialist Applications SECTOR: Software MEGABUYTE COVERAGE LEVEL: Full Coverage HQ: United Kingdom Ownership: Owner Managed Co Size: Mid-market Revenue: 22.3m EBITDA 5.6m Company Brief 22 JUNE 2018 Causeway Technologies Company Analysis 2 | PUBLICATION DATE: 22/6/18 Strategy, outlook and other developments Other developments during the year included a short tenure for CEO Colin Smith, who departed the company just 8 months after his appointment in March 2017, resulting in Chairman Phil Brown resuming the Chief Executive role and the appointment of Rob Ramsay as Chief Operating Officer. On a call, CFO Mark Howell highlighted that, despite Smith's brief time as CEO, there was no impact to the group's ongoing initiatives, which primarily focuses on three key strands: product development, complementary M&A, and overseas growth. All supported by the added firepower from its refinancing. In greater detail, Causeway is focusing on enhancing the features and functions of its Cloud-based source-to-pay platform (supplier performance, e-tender, e-invoicing etc) and project management (budgeting, cost and value management, mobility, field-based solutions) credentials through both organic development and acquisitions. While the group is yet to pull the trigger on the M&A front since its refinancing, Howell noted that the group is closing in on two deals that would boost trailing revenues by around a third. Causeway also recently appointed Gavin Disney-May as a non- executive director to bolster M&A support. Turning to its overseas developments, Causeway is in exploratory talks with a small number of large US construction firms. Initial focus in the region will be on securing organic wins to build up referenceability, with incremental investment based upon traction. The group also has its eye on expanding in Australia and Europe through existing customer relationships and India via its existing operations in Bangalore. Causeway's fiscal outlook continues to be shaped by its subscription transition, which is now in its second year. However, with the transition nearing completion, Howell is predicting double-digit organic revenue growth in 2018. On top of this, the group is targeting to double revenues in the next three years to almost 50m, supported in part by the two close-to-being-signed acquisitions and further M&A in 2019/20. Megabuyte Scorecard Causeway's Scorecard rating was unchanged at 64 after inputting its latest results, maintaining its premium to the averages for the peer group (52) and Software sector (55). The group's quartile positioning was also unchanged, as it maintained strong cash conversion and high and expanding EBITDA margins, but continues to deliver below average revenue growth metrics, impacted by its subscription transition. FIGURE 1: Factor Performance (quartile scores in brackets) Size Organic Growth Revenue CAGR EBITDA Margin Quartile Performance 22.3m (2) 5% (2) -2% (1) 26% (4) Margin Expansion OCF Conversion FCF Conversion 2.8pp (4) 105% (4) 92% (4) Source: Megabuyte, Company accounts Megabuyte view Causeway's results were broadly in line with guidance given to us last year by management, as its subscription transition limited growth in headline revenues but fed into strong progress in the bottom line and high cash generation. What's clear from our latest conversation is that the group's expansionary ambitions are really starting to ramp up with a goal of doubling the top line in three years, a stark change to its 21-23m range of the last five years. Causeway's next 12 to 24 months, therefore, look to be transformative to say the least, with it seemingly close to putting its Guggenheim-backed warchest to good use and executing on the M&A front alongside some interesting developments in the US. Company Brief 22 JUNE 2018 Causeway Technologies Company Analysis PUBLICATION DATE: 22/6/18 | 3 Disclaimer IS Research Ltd will not accept any liability to any third party who for any reason or by any means obtains access or otherwise relies on this report. IS Research Ltd has itself relied on information provided to it by third parties or which is publicly available in preparing this report. While IS Research Ltd has used reasonable care and skill in preparing this report, IS Research Ltd does not guarantee the completeness or accuracy of the information contained in it and the report solely reflects the opinions of IS Research Ltd. 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