Yesterday, Bango announced a new 3-year, $8M loan from NHN. The loan provides many benefits to Bango;
The funds strengthen the Bango balance sheet. Bango is a high margin business and generates strong levels of cash. Following the acquisition of Docomo Digital there are increased costs until the integration completes, therefore Bango is experiencing a short-term higher level of cash burn than is typical. Once the integration completes, Bango costs will reduce, and cash flow will increase. The loan helps Bango to bridge the transition period in between.
A strengthened balance sheet is expected to assist Bango in closing further Digital Vending Machine “DVM” deals. Bango is negotiating multi-year, multi-million-dollar contracts with many of the world’s largest telcos. Super-bundling, powered by the DVM, is an important user acquisition and retention tool for telcos. The bolstered strength in our balance sheet increases the confidence of these telcos when entrusting Bango to provide the technology to power this key service for their customers over a long contract period.
Enhanced liquidity will enable Bango to realize additional synergies. These synergies will arise from Bango’s ability to increase the automation around processes such as billing, remittance and reconciliation and therefore further reduce costs. Bango maintains the previous guidance of realising $21M in cost synergies by the end of 2023. However, by using the loan, we expect to generate additional EBITDA in 1H24 and beyond.
The loan enables Bango to invest in DVM features to drive additional growth. We talked about some of the DVM features in the 2022 strategy day. Then, at FY Results in March, we discussed some additional features Bango is working on to shorten the DVM sales cycle. A key example is a ‘white label’ front end user interface the telco can use to present its subscription offers to consumers. This is a feature that will allow Bango DVM customers to launch their offers to consumers much more quickly, speeding up the time to ARR generation for Bango.
By investing more in this product feature now, we can develop it and get it to our customers more quickly. As a quick reminder, the ARR from DVM deals is charged based on the number of entitlements the telco uses (1 entitlement = 1 subscription service redeemed by a consumer), therefore the ARR doesn’t start until the telco goes live with its consumer proposition. The white label front end will speed up ARR generation for some deals already signed, but with the consumer offer yet to launch, and it will also help us close more deals in the pipeline with telcos who are unable to allocate the time/resource to design their own user interface.
The loan itself
At the time of the acquisition (in August 2022), we stated that NHN had offered a $10M loan option if it would either enable Bango to speed up the integration or achieve additional synergies. Hopefully the rationale for the use of the loan is clear from the above. As for the rationale for the source of financing, with 6% interest, no repayment till Q3 2024, no early repayment fees and no arrangement fees, the terms with NHN were compelling vs a traditional banking loan.
Analysts forecast that the EBITDA uplift will more than offset the cost of the loan by 2024.
