Diligent talks up cash reserve boost

Former NZX dog Diligent Board Member Services is relishing its turnaround, making comparisons with global software giant Microsoft and talking bullishly about boosting cash reserves.

When Diligent, which provides software for company directors, listed on the NZX in 2007, shares in the United States-headquartered company went for $1.

By March 2009 they had dropped to 7 cents. One investor SAID at today's AGM, he felt like throttling his financial adviser at the time.

However, on the back of record first-quarter 2012 revenues announced this morning, its third successive quarter of operating profit, shares (NZX: DIL) rose to $3.70.

It is yet to pay a dividend, after turning its first profit last year.

Its 33,000-strong global client base now boasts high-profile New Zealand bodies like the New Zealand Rugby Union, NZ on Air, New Zealand Transport Agency and Ministry of Justice. 

It's a far cry from late 2008, when it faced class action over failing to disclose former chief executive Brian Henry's involvement with failed 1980s company Energycorp.

The company's cashflow position has improved by more than $US3.2 million to $US12.2m at March 31, sparking interest from shareholders who wonder how that might be used.

Diligent chairman David Liptak told NBR Online cash retention was likely to continue.

"I'd say there's a pretty good chance we're going to have more cash in 12 months than we do now. There's a real good chance we're going to have more cash in a month."

More than 40 shareholders and 30 others, including brokers, analysts and media, attended today's AGM.

Asked how long the growth phase of the company would continue, Mr Liptak said: "I can't give you a number, but it's a big world out there."

Sales figures for the first quarter of 2012 show $4.2m in the United States, more than three times the $1.3m in the same period in 2011.

Meanwhile, European/Middle East/Africa sales also trebled over the same period, to $1.37m, and Asia Pacific sales went from $12m to $449m.

Mr Liptak says the European market is a "very, very big opportunity for us".

Another questioner accused the directors of presiding over a "one product company".

President and chief executive Alex Sodi said at some point the board recognised the software could be tweaked slightly to allow it to be used in different markets, but "there's a lot of green field ahead of us".

 "We touched on the geographical expansion, OK, that's really important. Somebody in the audience asked about, well, it's a one product company. So was Microsoft at one point," Mr Liptak says.

"There's always opportunities given the existing client base which includes some of the biggest companies in the world.

"Right now we've got the tiger by the tail. This thing is growing like a house on fire, so we're taking advantage of that as much as possible."

"It's hard to divert resources to something else when you're growing,"

Mr Sodi estimates Diligent is four to five times bigger than its closest rival.

How does it maintain its exponential growth?

Mr Sodi says client retention is a big part, because sales are cumulative. "It's not easy, it's just hard work." 

Mr Liptak says dual listing in the United States is a "pretty low priority".

Diligent shareholders approved all proxy proposals, including re-electing Mr Sodi, and New Zealanders Rick Bettle and Mark Russell to the board, and electing Joseph Carrabino Jr.

They also approved classifying the company's board into three classes, with staggered terms varying from one year to three years, and dropping the maximum number of directors from 11 to seven.

Duncan Priest, of McDouall Stuart, says in his 50 years of sharebroking he has never seen a turnaround like Diligent's.

"I've seen the Poseidon boom and the oil boom, and this is better than all that put together because it seems to be sustainable," Mr Priest says.

McDouall Stuart was the lead organising broker in Diligent's IPO.

Another substantial shareholder, Peter Huljich, a former director of the company whose departure last year sparked a recent request for a waiver of listing rules, was also bullish about the company's prospects.

"It's just going to keep climbing."