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Straker Translations share price edges lower on half year update

The Straker Translations Ltd (ASX: STG) share price is trading lower following the release of its half year results.

At the time of writing the translation platform provider’s shares are down 1.5% to $1.75.

How did Straker perform in the first half?

In the first half of FY 2020 Straker posted revenue of NZ$13.6 million, up 13.3% on the prior corresponding period.

Management advised that this reflects its increasing emphasis on business and enterprise customers to drive long-term growth, as well as the benefits from recent acquisitions. These include On-Global Language Marketing Services and COM Translations Online.

Once again, the company reported strong growth in repeat revenues. These increased 28% on the prior corresponding period to NZ$12.4 million. This means they now represent 92% of its overall revenue, compared to 81% a year earlier. The strong growth in repeat revenues was driven both organically in core business activities and via acquisitions.

Revenues from small personal use customers declined during the half. This was due to the company’s transition away from a sector which it notes is proving too expensive to service.

Pleasingly, this is expected to be more than offset by the growth in revenues from business and enterprise customers. Especially after it was selected as one of five preferred vendors for a major global enterprise during the half. Management expects revenue to rapidly increase from that customer as multiple old vendor agreements end on their side.

Earnings decline.

On an adjusted EBITDA basis, Straker generated a half year loss of NZ$0.24 million. This compares to an adjusted EBITDA profit of NZ$0.11 million a year earlier.

This loss was due to its costs growing slightly quicker than revenue as the benefits of scale were outweighed by acquisition integration costs, increased investment in its Ai RAY platform, and sales and marketing expenses.

Straker recorded an operating cash outflow of NZ$1 million. However, it continues to be in a strong position to deliver on its M&A and organic growth strategies. At the end of the period it had a cash balance of NZ$14 million and no debt.

Management commentary.

The CEO & co-founder of Straker Translations, Grant Straker, said: “We are excited by the opportunities we see for Straker’s Ai RAY platform in the global translations market and have focused on ensuring we have the right growth foundations in place to deliver on the opportunities we see. The investment we have been making into our Ai RAY platform is paying dividends with ongoing high margin revenue and repeat revenue now reaching 92%.”

Mr Straker appears confident on the company’s future. He concluded: “We have a strong balance sheet with NZ$14 million cash, and are confident that the investment in platform technology, M&A, and sales and marketing over the first half of this financial year, as well as our focus on Enterprise clients, will underpin strong growth to come.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Straker Translations. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.