The MNF Group Ltd (ASX: MNF) share price has come under pressure on Tuesday despite the release of a strong FY 2020 result.
At the time of writing the leading voice communications software provider's shares are down 13% to $5.39.
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How did MNF perform in FY 2020?
MNF was a very strong performer in FY 2020 and delivered a record profit result in line with its guidance.
For the 12 months ended 30 June 2020, MNF's revenue increased 7% to $230.9 million. This was driven by strong demand for products during the pandemic, particularly those generating recurring revenue. This resulted in MNF delivering a 27% increase in recurring revenue to $101.5 million. Management believes this demonstrates the success of its strategy to increase recurring revenue.
The company notes that phone numbers on its network, the key performance indicator for future growth, reached 4.5 million at the end of June. This represents organic growth of 17% on the prior year.
Positively, the company's earnings before interest, tax, depreciation and amortisation (EBITDA) margin continued its upward trajectory in FY 2020 and reached 17% of total revenue. This was driven by the company's ability to manage costs while driving growth.
This ultimately led to MNF's net profit after tax (NPAT) growing 20% in FY 2020 to $11.95 million. And excluding acquisition costs, amortisation of acquired customer contracts, and acquired software and tax affected restructure costs (NPAT-A), its profits were up 18% to $16.6 million.
This compares to NPAT guidance of $10 million to $12 million and underlying NPAT-A guidance of $14.7 million to $16.7 million.
In light of this profit growth and its strong cash balance, the company has declared a final dividend of 3.6 cents per share fully franked. This brings its full year dividend to 6.1 cents per share.
Structural and behavioural changes driving demand.
MNF Group's CEO, Rene Sugo, was very pleased with the company's "robust" performance in FY 2020.
He commented: "After a strong first half, some products performed particularly well as a result of the structural and behavioral changes to voice and collaborative technology caused by the pandemic. As people transitioned from workplaces and schools to homes, seeking new ways to stay connected and adjust to new ways of working, we experienced a surge in traffic volumes across all customer segments in March and April. While traffic patterns have settled since the highs of March, we have seen new trends emerge, many of which are here to stay."
Outlook.
It appears to be the company's cautious outlook which has put pressure on its shares today. Management acknowledges that the COVID-19 situation continues to evolve and, while currently there is strong demand for MNF's services, the external environment predicts a significant degree of uncertainty.
It advised that it has seen traffic patterns settle in the last six to eight weeks with volumes remaining steady at about 175% above pre-pandemic levels for key use cases such as UCaaS, CPaaS and collaboration.
However, the usage of other use cases such as audio conferencing, small business phone systems, and mobile roaming continue to be lower than pre-pandemic levels.
Mr Sugo commented: "We are seeing a new normal in the use of collaboration technology, with the pandemic accelerating the adoption of new ways of communicating, which will support the growth of MNF."
"However, areas such as mobile roaming and small business products are experiencing some challenges and while we expect these to make a full recovery post-COVID, they are providing short term headwinds into FY21. Similarly, while traditional audio conferencing benefitted during the lockdown, it is now declining as a result of the shift to the newer, online collaboration tools."
