Another Source-to-Pay and Order-to-Cash company going public, this time via SPAC: Corcentric. As I pointed out recently, stocks in this segment are enduring a correction, but that is not scaring away Corcentric.
If you are not familiar with Corcentric, it may be because it started in 1996 as Ameriquest, a fleet solutions provider/GPO. Ameriquest acquired several companies before unifying its brand as Corcentric in 2018. Since 2016, it has acquired:
- Infoaccess.net (e-invoicing)
- SourceOne (strategic sourcing consulting)
- Netsend (e-invoicing)
- Determine (which had been Selectica and which, in turn, had acquired Iasta (sourcing) and b-pack (procure-to-pay)
- Vendorin (payments)
As a result of this activity, Corcentric automates the entire source through payment process and also offers an order-cash/AR product. (Corcentric still has a GPO and fleet after-marketing business, which does not get much mention anymore.) Corcentic describes itself as a provider of Source-to-Pay, Order-to-Cash, and a proprietary payments network. It’s this breadth, and especially its competence in payments, that Corcentric believes differentiates the company. Here’s Corcentric’s chart comparing itself to public comparables:
Corcentric’s scope of functionality–buy-side, sell-side, and payments is unusual, if not unique. (The company must also have many legacy systems to rationalize!)
Corcentric’s Business Model
Corcentric has three revenue drivers:
- Subscription S2P and O2C software (31% of revenue)
- Transactional payments, which Corcentric emphasizes have a “premium” take rate of 150-250 bps (49% of revenue)
- Advisory services which are implementations and/or consulting services (20% of revenue)
Many of the forward-looking statements are about the payments opportunity. More on this below.
Concentric shares a chart demonstrating its offering and illustrative price points for each module:
Corcentric’s Key Metrics
Sadly, a SPAC is allowed to be heavy on projections and relatively light on historicals. I’m going to stick with sharing actuals and 2021 estimates:
Corcentric adjusts revenue to exclude “equipment sales”, presumably from the fleet business. Adjusted gross profit removes depreciation and amortization. As you can see, historical topline growth has bounced around, despite including several acquisitions. Corcentric forecasts that it will be exactly a “Rule of 40” company in 2021. (The go-forward projections are, no surprise, robust.)
Corcentric’s Payment Volumes
The investor deck and financial projections are driven by the growth of the payments business. Payments volume is expected to grow 51% in 2021 after being flat in 2020. (Much of this growth likely came from the Vendorin acquisition.)
Corcentric says it monetizes only $3 billion of the $100 billion in PO and Invoice transaction volume that passes through its software. The company says it has many ways to monetize the other $97 billion both on the buy-side and sell-side:
Corcentric expects payments revenue to grow at 38 and 39% in 2022 and 2023 respectively, after growing 23% in 2021.
Corcentric’s Payments Take Rate
As mentioned above, Corcentric emphasizes its take rate. From the investor presentation transcript:
“I would also point out that when you look at the take rate we command with our payments offerings, an average 170 to 250 basis points, you will notice that it is significantly higher than other payments providers. This is due to the multiple payment modalities we can leverage along with our willingness and ability to take a credit position. This allows us to apply the right combination of payment modality and payment timing to deliver the maximum value for both buyers and suppliers which in turn leads to maximizing revenue for ourselves
Adding one Source-to-Pay customer results in their hundreds or thousands of suppliers being added to our B2B network and adding one Order-to-Cash customer results in their hundreds or thousands of buyers being added to the B2B network. This creates a powerful flywheel effect where a proprietary B2B payment network continues to grow exponentially, and we become the hub for more and more B2B transactions positioning us to become the pre-eminent B2B payments network of networks much like a Visa or Mastercard has done in the B2C space.
This is, of course, the dream of every S2P and O2C provider, Ariba, Coupa, Billtrust, Bottomline, Avid, etc. Corcentric wants us to do the discounted cash flow analysis on a payments business with a 200+ bps take rate growing at 30%+ percent per year for a long time.
Can Corcentric be a Monster B2B Payments Company?
Corcentric does seem to be more committed to payment and order to cash functionality than many of the players in the market. And the stated take rate is impressive. But there are still many questions to be answered about Corcentric’s payments business:
- What exactly is included in this segment? The chart on monetization (2nd chart above) makes it seem the payments segment includes collections and credit management, as well as cash application software. But elsewhere this does not seem to be the case.
- What is the net take rate? It appears Corcentric is both an issuer and acquirer of credit card payments. Those businesses often have high gross take rates and much lower net rates. Furthermore, credit card payments can typically only be applied to a fraction of all B2B payments.
- Why does the gross take rate already seem to have fallen by 20%? In the 2021 forecast, payments revenue represents a take rate of almost exactly 200 bps. In 2019 and 2020, the payments take rate was approximately 250 bps.
It’s true that if Corcentric can become the Amex or Discover of B2B, where they are the network, the issuer, and the acquirer, it would be fascinating–and take a whole lot of credit!
About the Stock
Statistically speaking, de-SPACS as they are called when the SPAC has merged with a company, have been weak performers so far. I’m in “wait and learn” more mode until I understand the payments business better.