I have been covering Boardwalktech BWLKF BWLK.V (disclosure: long and adding) for a few months now at the Breakout Investor Platform. The price has come down a lot recently and I have been taking advantage to significantly add to my position. Here is why:
Management is delivering. They are converting old customers on perpetual licence to a SAAS type model. They are adding new customers on top of the already highly impressive list and they are executing on “Land and Expand”. The company is debt free with very high gross margins and the sales pipeline now exceeds $9 million, nearly double the level a year ago. So why has the stock sold off? Boredom and lack of sales growth (you have the legacy business declining and SAAS revenue increasing, thus offsetting each other).
The just reported quarter and full year was as of March 31, 2021 so some time ago. Q1 ER is imminent and should give us a more timely update. Frankly, what investors were excited about in the beginning of the year is simply not reflected in the numbers …. yet.
Sales approach: When talking to Andy prior, the plan was to keep spending tight and grow sales with existing resources. He said they probably could double revenue with the current overhead (around 50 people). I was thinking back then he is too conservative. Now they are actively hiring sales people being more aggressive in growing. The strong balance sheet affords them this.
It was my first time talking to Charlie. While I had word from trusted friends that he was highly capable I now am 100% sure myself. He has a strong understanding as to the value of the platform (“I would have killed for something like this in my old days at Credit Suisse”) and how and where to spend money for maximum returns.
R&D is about 20-25% of sales. They don’t need to do a lot on that front but of course keep innovating. The technology risk is completely behind and actually they don’t break out R&D separately because they view it from a more holistic perspective: What are the resources needed? And so the above %s are actually a combination between R&D and sales support and they are making heavily use of cheap resources in India.
I was worried about warrant overhang, about 50% of the shares out. Charlie has emphasized that he has not just done financings with anybody, but with people from the original IPO and he made use of old relationships. Institutional holding also picked up especially in the last round. So those warrant holders are not just flippers. The warrants will also provide much needed dollars at time of exercise with no friction or additional fees.
Andy was much more confident especially when it comes to approaching financial institutions. They are in advanced talks with one and have conversations with multiple of them. When asked about competition his answer was “We will see who has the last laugh” and said he would love to come back in 6-12 months to report on material progress. My own research indicates that their solution is not only better and simpler but much faster than the competition (implementation times of 6 weeks versus 6+ months). Again, BWLK also works with larger vendors like HCL and hopefully soon Infosys to get into banks.
I am confident we should see sales growth VERY soon. The sales pipeline is at $9 million and the sales cycle is around 6-12 months. Andy indicated earlier this year that 60% would be converted within a year. But here is the kicker: last year the pipeline was already $3-4 million and when asked if that shouldn’t show up in sales soon considering the sales cycle Andy said “That would be a reasonable assumption“. Keep in mind Q1 is already in the books….
So is a SAAS company with 80-90% gross margins that finally shows sales growth really going to keep selling off?
On a high level they think they can get to $1 million per customer in a kind of “all you can eat approach”. Their largest customer EY is already around that level today and they have 20 such costumers already. Even better: “we’re well on our way to getting 200 of those types of customers over the next few years“.
So even at half a million and 20 customers, that is $10 million in SAAS revenue for a $35 million company. Cheap no?
Near term I think a doubling of total revenue is possible to around $8M for an EV/Sales of 4 ish.
The bottom line is you have a well funded SAAS company with a unique platform and an extremely strong management team that is about to inflect by becoming profitable by year end and showing sales growth the first time in years, maybe even in a few days. What is not to like? By investing now we are Ahead of the Curve.
I highly recommend watching the video. Andy gave several application examples, which is very helpful to understand what the product is all about and what the ROI is for the customer.
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