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Rhipe shares drop as results leave investors unimpressed

The Rhipe Ltd (ASX: RHP) share price was down by as much as 13% today following the release of the cloud software wholesaler’s first-half results.

Rhipe shares are currently trading at $2.20 per share, 9.09% lower from $2.40 at the close of market yesterday. 

What does Rhipe do?

Rhipe wholesales cloud software offerings such as Microsoft 365 to resellers and earns recurring revenue for licensing fees and value-added services.

The company provides a platform for recurring subscription management used by IT-resellers to buy, provision and bill end-user clients for monthly cloud software subscriptions.

Rhipe also provides value-added services for resellers including marketing, consulting, and 24/7 support as a service. 

Rhipe’s 1H20 results

Rhipe reported gross sales of $152.7 million in 1H FY20, up 33% from $114.7 million in 1H FY19. The majority of sales ($145.4 million) came from the Licensing division, with the majority of growth in this division driven by continued strong growth in public cloud and Microsoft CSP. Cloud Solutions contributed $7.9 million to gross sales, up from $4.3 million in 1H FY19. 

Revenue grew 24% to $26.6 million in 1H FY20. Cloud grew 66% year-on-year to $7 million in revenue from $4.3 million in 1H FY19, driven by the expansion of the support as a service offering. Licensing revenue grew 18% on the prior corresponding period (pcp), lower than sales growth due to changes to product and geographical mix. 

Operational expenses (OPEX) grew 24% to $18.4 million including the costs of the Japan joint venture, or 20% if these costs are excluded. Licensing OPEX increased 7% to $14.5 million predominantly driven by additional headcount in the front office. Cloud Solutions OPEX grew 180% to $3.9 million due to additional headcount aimed at growing support as a service, Rhipe’s Dynamics practice and SmartEncrypt. 

Reported earnings before interest, tax, depreciation and amortisation (EBITDA) grew 53% to $7 million from $4.6 million in 1H FY19. Operating profit rose 26% to $7.1 million from $5.6 million in the pcp. Licensing contributed $5.7 million to profits while Cloud Solutions contributed $1.4 million.

Additionally, a fully franked interim dividend of 1.20 cents per share was declared. 

Outlook

Rhipe has forecast $16 million in operating profit in FY20 excluding Japan and additional investments. The cost of the Japan joint venture in FY20 is estimated to be $1.5 million.

Additional investments in support as a service, SmartEncrypt and Dynamics are estimated to cost $0.5 million.

Operating profit once Japan and the additional investments are factored in is expected to be $14 million. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.