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Serko chalks up another year of 28% sales growth, profit dips on acquisition adjustment

Wednesday 22nd May 2019

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Serko lifted annual revenue 28 percent for a second straight year as it beds itself into new North American markets, although profit declined on fair value adjustments to earn-outs on its InterplX acquisition. 

The online travel booking software developer lifted operating revenue to $23.4 million in the 12 months ended March 31 from $18.3 million a year earlier, at the upper end of its guidance for 20-30 percent revenue growth. That included a $900,000 contribution from its new Minneapolis-based expense management business, InterplX. 

The US$2.5 million acquisition was all-scrip at an issue price of $3.30 a share, with half up front and the remainder contingent on hitting revenue targets. Because Serko's share price has climbed since then - it was recently at $3.43 - it had to recognise the increased cost as a $287,000 expense. 

That was largely the difference between Serko's net profit of $1.6 million in the March year from $1.8 million a year earlier. Earnings before interest, tax, depreciation, amortisation and the fair value adjusted rose 19 percent to $2.6 million. 

The acquisition is one of the components built into Serko's guidance for 20-40 percent sales growth in the 2020 financial year. Earnings growth will depend on revenue, and Serko will provide more guidance at its annual meeting in August. 

Executive director Darrin Grafton said the InterplX purchase was a strategic investment as well as an acquisition of a complementary business. It has a ready-made sales team that supports Serko's roll-out in North America where it's signed reseller deals with CWT, ATPI's Direct Travel/Vision, FCM USA, Voyages Travel Encore and Custom Travel Solutions. 

He said the company is focusing on bedding in its expansion in Northern Hemisphere markets where it sees an opportunity to grab market share. In the US alone, there are an estimated 460 million corporate bookings a year. 

"Of that, we're only targeting 1 percent to be successful - that's what we do Downunder today," he said. 

Serko ramped up spending on research and development by 86 percent at $9.2 million. That's the equivalent of 39 percent of Serko's revenue, up from 27 percent a year earlier. 

The software developer took on 67 new staff in the year, with a headcount of 173 full-time equivalents as at March 31. The company's wage bill rose to $13.1 million from $11.7 million a year earlier. Serko expects that will continue to rise as it keeps expanding in the Northern Hemisphere. 

Serko's operating cashflow was a net inflow of $3.6 million in the year, up from $1.4 million. After $7.3 million of investment, largely in R&D, and a $15 million capital raise, the company held $15.7 million in cash and equivalents at March 31. 

Grafton said the company is always looking for acquisition opportunities, which need to add either new customers or expand its product offering. 

Chair Simon Botherway said in a statement that the increased investment to support the commercial roll-out of the Zeno product in North America will result in a year of cash-burn, but that things should get back to normal the following year. 

"We expect to accommodate this investment within our existing balance sheet resources. We anticipate that the customer agreements we have signed to date will generate strong revenue and ebitdaf growth in years to come," he said. 


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