Why the Tesserent (ASX:TNT) share price jumped as much as 10% today

The Tesserent Ltd (ASX: TNT) share price soared as high as 10% this morning following a strong quarterly announcement. The Tesserent share price faced selling pressure however, and is currently up 4.05% at the time of writing. Here is the rundown of its quarterly update. 

Tesserent earnings 

The internet security-as-a-service provider delivered strong Q1 revenue of $15.1 million, up 42.5% from the previous quarter. Q1 revenue included two months of revenue from Seer Security and one month’s revenue from both Airloom and Ludus. All three were acquisitions that the business made in mid-late FY19. 

With the addition of full quarter revenue from all three acquisitions as well as full quarterly revenue from its most recent acquisition iQ3, subject to audit, the group’s current revenue run-rate is now in excess of $100 million. This is anticipated to increase to more than $150 million by the end of FY21 on a quarterly annualised basis with continued organic growth and the completion of planned future acquisitions. 

The company continues to build its high-value recurring annuity revenues with multi-year, locked-in managed security services (MSS) and security operations centre (SOC) contracts now exceeding $30 million. 

A cash flow positive business 

Q4 FY20 saw Tesserent achieve quarterly earnings before interest, tax, depreciation and amortisation (EBITDA) and operational cash flow positivity for the first time in its history. The company has been able to maintain its trend in profitability with Q1 increasing operational profit to $405,000, up from $17,000 from the previous quarter. It expects to continue this growth trend for the foreseeable future.

Additionally, the company maintains a healthy cash balance of $13.76 million available at the end of September. This will provide the balance sheet flexibility it needs to pursue additional acquisitions. The quarterly update notes that there are a number of acquisitions in an ‘advanced stage’. 

Business integration update 

The business continues to identify and realise cross-selling opportunities across its business units resulting in a number of notable wins in the quarter. This includes: 

• New federal, state and local government contract wins across the group in excess of $6 million in the September quarter 
• Significant enterprise contract wins in aggregate in excess of $4 million in September with large financial services, insurance, advertising and media organisations 
• 14 cross-selling wins in September from the recent acquisitions 
• Growing pipeline of opportunities and wins across business units leveraging Splunk service and capabilities 

Moving forward 

The company’s primary objective moving forward is to maximise shareholder value by increasing earnings margins through the growth of its high-margin annuity-based income and the inclusion of proprietary intellectual property in its solutions. 

The quarterly highlights important goals for the remainder of this current financial year including capturing market share in government, critical infrastructure and banking & finance, exploring international market opportunities and integrating its acquisitions. 

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Motley Fool contributor Lina Lim 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.

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