Telecommunications innovator Vonex Limited (ASX:VN8) has provided a promising update on its retail business with the group achieving total contract value (TCV) of new customer sales of $3.7 million in the June half.
This represented year-on-year growth of 65%, illustrating its resilience during the height of the COVID-19 period.
Of further encouragement was the exceptional growth in annualised recurring revenue which grew 89% to $16.4 million in fiscal 2020.
This news has been well received by the market with the company’s shares trading as high as 59 cents on Wednesday morning, representing a gain of 9%.
With regard to the TCV of new customer sales in the June half, growth accelerated throughout the final three months, a good sign as the company enters fiscal 2021.
Vonex has successfully leveraged its relationship with Qantas Business Rewards (QBR) during the period to attract new customers through Qantas point-based incentives.
This has contributed to growth in the average length of newly-signed contracts and higher average TCV per plan.
Management plans to drive further growth in the market for Australian SME (small to medium enterprise) customers through product expansion, having recently added NBN, 4G wireless connections and mobile plans to the suite of services on which Qantas points can be earned.
Recurring revenue provides earnings predictability
Growth in recurring revenue is particularly encouraging given that it provides earnings visibility and predictability.
Management has a good track record of growing this revenue stream, but there has been a notable uptick in the last six months.
Management plans to deliver continued growth in ARR both organically and by acquisition, having recently raised $1.4 million (before costs) to assess and fund potential merger and acquisition targets.
ARR excludes one-off sales revenue and does not factor in net churn as the business continues to deliver positive net growth in active users.
This growth illustrates the quality of Vonex’s SME customer base which includes a diverse range of sectors within the Australian economy, including financial, healthcare, manufacturing and retail.
