Minds + Machines H1 2020 report: year-on-year domain registrations grew 31%

Minds + Machines Group Limited (LSE: MMX) provided the following H1 2020 trading update.

Among other things MMX said “Management also notes that expected H1 channel sales from the Company’s brand protection activity were held back due to the impact of COVID-19, but anticipates those brand protection initiatives that were delayed in Q2 will resume in H2.”. I don’t really agree with this optimism.

Here is the MMX trading update:

During H1 2020, year-on-year registrations grew 31% to 2.38 million as of 30 June 2020 (1.82 million 30 June 2019). H1 2020 automated online channel billings (amounts invoiced) increased 20% to $7.8m (H1 2019: $6.5m), delivering overall billings growth of 7% in H1, with total H1 2020 billings closing at $7.9m (H1 2019: $7.4m). The uplift in online channel billings reflects the underlying improvement in both renewal billings and new registration billings – up 17% and 23% respectively in the period. 

This improvement also reflects the success of the Company’s strategy to move away from one-off brokered billings which declined by $0.8m to $0.1m in the first half.  Channel billings are generally recognized as revenue over the life of the registration, whereas one-off brokered billings are generally recognized as revenue as billed, therefore this change to predominately channel billings will result in an increase in deferred revenue such that, despite the 7% increase in billings in H1, reported revenue is expected to decrease by approximately 5% when compared to H1 2019.

Management also notes that expected H1 channel sales from the Company’s brand protection activity were held back due to the impact of COVID-19, but anticipates those brand protection initiatives that were delayed in Q2 will resume in H2.

Mirroring the underlying improvement in billings in the period, cash generated from operations increased 13% to approximately $2.5m (H1 2019: $2.2m), with cash on hand at 30 June 2020, net of the $1.2m share buyback in May this year, improving to $7.3m ($6.6m as at end of FY 2019).

During H1 2020, OPEX and COGs were kept broadly in-line with the Company’s KPI’s in spite of an additional $0.2m in costs during the period associated with closing the data centre following the ICM acquisition and staff termination related payments.

Toby Hall, CEO of MMX, commented:

“I am delighted that our business has proved so resilient to the COVID-19 crisis. The momentum we’ve been building in the channel over the last three years is now demonstrably coming to the fore and driving the ongoing improvement in our billings mix, with 66% of our H1 billings being renewals compared to 60% in H1 2019. It is also encouraging to note that the H1 uplift was not reliant on either brokered or brand protection billings. In short, we are now an incrementally cash generative business with a robust SaaS-type revenue model where 99% of billings in the period were through the automated channel. As a traditionally H2 weighted business, we are further encouraged by the outlook for the full-year as new partner initiatives delayed in Q2 due to COVID-19, are now set to commence in H2.”