RECKON LIMITED — Investor Presentation 2016

Feb 15, 2016

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2015 Result Presentation

16 FEBRUARY 2016

01 2015 Highlights

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Continued growth in revenue at the Group level

• Organic contract wins and product take-up across Practice Management segment delivering volume and revenue growth

• Reckon One gaining traction in the Australian market. Overall Business segment impacted by transition to the cloud and subscription

• High growth Document Management segment internationally validated

• Overall Group revenue increased by 4.3% over the pcp

Revenue growth underpinned by strong growth in volumes

• Virtual Cabinet seat growth of 15%, including growth in the UK and internationally

• APS seat growth of 17% in Australia and New Zealand

• Business Group cloud user growth of 23% in Australia and New Zealand

• SmartVault (acquired Jan 2016)[1] adds 12k seats (+47% YoY growth)

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Group revenue +4.3%
98.1 100.8 105.1
2013 2014 2015
Practice Management Business Document Management
A$m
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Key product volume growth

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150
140
130
120
110
100
2013 2014 2015
Virtual Cabinet seats APS seats Business online
Volume (re-based to 100)
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1. Not included in 2015 results

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201 Hi hli 5 g ghts (cont.)

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Transition to subscription largely complete with enhanced customer lifetime value

Group revenue (2015)

• 87% of Practice Management[1] revenue now subscription (up from 85% in 2014)

• 72% of Business product revenue now subscription (up from 50% in 2014)

• 73% of Document Management revenue now subscription (74% in 2014)

Strategic review has highlighted stand alone growth opportunities

Strategic review undertaken in late 2015, with the following outcomes:

• New reporting segments adopted to better reflect opportunities available to the Group

• Continued investment in scaling proven international businesses (nQueue and Virtual Cabinet)

• Consolidate APS market leadership by continuing to provide high-value additional modules and functionality, including further cloudification of products

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19%
21% 60%
Subscription Content Other
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• Acquisition of SmartVault, a leading online Document Management software product to strengthen product offerings in the US market and gain point of access to valuable accountant market

• Accelerated investment in targeted development priorities to be undertaken over 2016 and 2017

• Including Reckon One and integration of SmartVault / Virtual Cabinet onto one platform, cloudification of APS functionality

• Identified initiatives designed to strengthen Reckon’s market position, exploit new market opportunities, and provide long term success

• The announced strategic review in late 2015 resulted in a number of enquiries from 3[rd] parties. While the Company remains open to opportunities to maximise shareholder value it is currently focused on executing stand alone growth initiatives available to Reckon as highlighted further in this presentation

• Excluding Content revenue (Reckon Docs)

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201 Hi hli 5 g ghts (cont.)

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The Group’s existing businesses delivered solid revenue and EBITDA growth again in 2015, with new business initiatives causing some short term P&L impact as they are scaled across markets

Reckon EBITDA

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43
42
41
(2.6)
40
4.8
39
38 (2.7)
41.9
37
36
35 37.1
36.6
34
33
1
EBITDA 2014 Existing business EBITDA 2015 Impact of transition to New market expenditure EBITDA 2015
(existing businesses) subscription
A$m
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1. Other initiatives includes increased Document Management expenditure in the USA

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02 Building on our success

Building on our success The business today and in the future

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Reckon has a number of well identified growth opportunities which it intends to exploit through a combination of organic growth, targeted investment in product development and complementary acquisitions

Where we are today

Changes we are making

Where we are going

• Diversified range of businesses each with strong stand alone growth prospects

• Focus on growing the size and quality of each business

• Strategic plan will deliver a fundamentally enhanced business

• Exposure to multiple industries (accounting, legal, SME, other)

• Exposure to multiple geographies (Australia / NZ, USA, UK)

• Scale proven international business

• SmartVault acquisition enhances document management offering

• Build on our strong domestic market position

• Exploit the Reckon online products opportunity

• Harness the power of the connected practice

• Accelerate investment into targeted priorities

• Continue our track record of results from growth investments

• Reporting segments amended to better align with the Group’s strategic focus

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Building on our success (cont.) New reporting segmentation

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Going forward, Reckon will report under three new segments that better reflect the various opportunities available to the Group

• The Group’s development of Practice Management and Document Management strategies within the US and UK markets means that the existing International Group segmentation no longer appropriately reflects the opportunities available to the Group.

Previous reporting segments

New reporting segments

Accountants Group	International Group	Business Group
APS	nQueue	Reckon Accounts
Elite	Virtual Cabinet	Reckon Accounts Hosted
Docs		Reckon One

Practice		Document
Management		Management		Business
APS		Virtual Cabinet		Reckon One
Elite		SmartVault	New	Reckon Accounts
Docs				Reckon Accounts Hosted
nQueue	Moved

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Building on our success (cont.) 1. Scale proven international businesses

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The Group’s existing international businesses (nQueue, Virtual Cabinet) represent exciting, validated growth opportunities ready for further investment

 nQueue

Practice Management

  - Well respected cost-recovery and scan solution provider with a customer list that includes some of the world’s largest legal firms

  - New orders grew by 50% in 2015

• Document Management  Virtual Cabinet proven across multiple markets

  • Rapid growth amongst APS customer base in Australia

• SmartVault proven within the US market

  • High penetration and brand recognition amongst USA accountants

• Total document management seats now 45k globally

• Complimentary products

  • Virtual Cabinet provides enterprise-level functionality and support

Group revenue by geography[1 ]

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USA
9%
UK
12%
Aus/NZ
79%
Aus/NZ UK USA
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• SmartVault offers ease of use and simple online distribution

• Accelerated development over 2016 to bring products onto the same platform, with significant development savings expected from 2017 onwards

Business

• Reckon One to be launched in the UK in 2016

• 2015 reported revenue; excludes SmartVault

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Building on our success (cont.)

2. SmartVault acquisition

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SmartVault provides Reckon with a high-growth access point to USA accountants/SMEs and is expected to generate cross-segment benefits

Strategic acquisition of leading online document management product among US accountants

Strategic rationale

• Leading online document storage and file sharing software product

• Provides Reckon with a high-growth access point to USA accountants / SMEs and is expected to generate cross-segment benefits

• SmartVault’s online success in the US also represents a large opportunity in the UK and Australia

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Transaction details

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Part of our evolution into an international Document Management business

Customer and product fit

• Existing accountant customer base provides strong strategic fit for other Reckon segments

Successful founder remaining with the Group

• Eric Pulaski previously founded BindView (sold to Symantec)

• Acquisition agreement signed January 2016

• Confidential deal terms structured as an upfront payment plus an earn-out based on 2018 revenue

• Upfront consideration funded out of debt facilities (paid in January 2016)

Financial impact

• Positive revenue contribution from Day 1

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Online product

• Scalable, online only, efficient customer acquisition model

Identifiable growth strategies

• Development synergies with Virtual Cabinet

• Expansion into Australian and UK online markets

• Earnings accretive under low growth strategy

• However, the Group intends to invest in SmartVault’s high growth prospects, with cashflow break-even expected in 2018

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Building on our success (cont.) 3. Build on our strong domestic market position

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Reckon has an opportunity to leverage its leading customer base, product functionality and price point to drive further growth in its ANZ businesses, while further improving the quality of earnings

Group strategic focus – Australia and New Zealand

	APS	Content (Reckon Docs)	Reckon One / Hosted
Expand use across the existing customer base	— Exciting growth prospects, particularly amongst Virtual Cabinet, Sync Direct and Workpaper Management	— Enhancements to online ordering system	— Accelerated development — Increased functionality — Accountant referral
Continue to improve our leading products	— Existing suite enhancement — APS in the cloud	— Materially improved traffic to site	— Payroll release expected in April 2016 — Other releases progressively through the year
Acquire new customers	— Continue direct sales team success	— Leverage APS direct sales team	— Continue success of online channels — Reckon One software to Docs customers
Integrate our services across businesses	— Maintain strong links between Reckon Business products and Practice Management	— Integration of Practice Management and Docs salesforce	— Maintain strong links between Reckon Business products and Practice Management
Take advantage of			— Innovation in the modular suite
our unique market	— Product, relationships, price	— Leader in an attractive market	— Continue to ensure customers love the product
position			and the price point

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Building on our success (cont.) 4. Reckon online products opportunity

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The Group’s investment in online accounting products is designed to deliver great products that are well positioned to take advantage of the very large market opportunity brought by the shift to the cloud

Reckon One

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1
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Highly functional product

• Release of payroll in April 2016 will round-out holistic requirements for SMEs

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Priced to drive growth

• Very competitive positioning relative to competitors

• Provides attractive return to investment

Australian and New Zealand cloud opportunity

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3,000
2,500
2,000
1,500
1,000
500
0
Xero MYOB Reckon Opportunity
Cloud subscribers (thousands)
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Strong historical volume growth

• 23% user growth of cloud products in 2015

• Reckon One +9% volume growth month-on-month

• Achieved with limited marketing spend

Enormous market opportunity

• Cloud opportunity for all players remains very large domestically and internationally

International strategy

ANZ UK Other 2014 2016 2017+

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Building on our success (cont.) 5. Harness the power of the connected practice

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Reckon is the only software provider in the market that can take data from an end client’s file (regardless of source) and integrate it with a full suite of practice and collaboration functionality

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MYOB
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Xpa Tax
Client Desktop
Desktop Platform
General
(and other Reckon products) Sd Ledger/ Dm Client Laptop
Workpapers/
Analytics
Data Collection Secure Portal
Client Tablet
Cloud Platform
Wm Piq
XERO
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OTHER
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Client Mobile
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Building on our success (cont.)

6. Accelerated investment into targeted priorities

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The Group is scaling its experienced development team to drive growth initiatives and take advantage of market opportunities

Development costs and as a % of revenue[1 ]

• 2015 development spend of $19.6m

• $11.6m on the existing business

• $8.0m on new initiatives (Reckon One, APS Cloud)

• $10 – $12m investment in new initiatives expected in 2016

• Integration of SmartVault and Virtual Cabinet platforms, Reckon One, further targeted development of APS cloud functionality

• 2016 development expenditure expected to be $23 – 25m

• Total development spend is expected to return to long term average (~14% of revenue) from 2018 onwards

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25 25%
19.6
20 20%
18.3
16.8
14.9
15 15%
12.4 12.1
10.7
10 10%
5 5%
0 -%
2009 2010 2011 2012 2013 2014 2015
Existing business Growth investments % of revenue (RHS)
A$m
% of revenue
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1. Prior years include royalty paid to Intuit

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Building on our success (cont.)

7. Continuing our track record of results from growth investments

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The Company’s track record of growth investments positions it well to execute its growth strategy with confidence

Strategic acquisitions

• Reckon has a history of acquiring and successfully integrating a number of businesses (e.g. Virtual Cabinet)

• SmartVault (acquired in January 2016) builds on this track record and provides a strong complementary fit to our existing businesses

• Reckon continues to evaluate further acquisition opportunities

Case Study: Virtual Cabinet

Investment	Purchased Linden House, a UK software business and publisher of Virtual Cabinet, in 2012
	Total investment of $20m (including earn-outs)
Rationale	Desired Document Management functionality for Practice Management products
	Strong existing Virtual Cabinet customer relationships with accountants and other businesses in the UK
Return	Seat CAGR of 85% in the UK since acquisition
	Introduction of Virtual Cabinet to APS in Aus/NZ
	2015 EBITDA of $4.7m

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03 2015 Performance

2015 Performance Revenue growth

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	2015	Growth	2014	Comments
Subscription product revenue	63.1	20.0%	52.6	Volume growth and transition to subscription
Other recurring revenue	7.6	(46.9%)	14.3	Transition of Advantage/Upgrade products in the Business Group moving to subscription
				Transition of retail perpetual licences in the
Upfront and service revenue	12.8	(4.1%)	13.4	Business and Practice Management groups moving
				to subscription
Content revenue	21.6	+5.4%	20.5	Volume growth and slight price impact
Total revenue	105.1	+4.3%	100.8

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2015 Performance (cont.) Practice management (new reporting segment)

Key highlights

• Segment revenue of $59.9m, up 5.7% from $56.7m in 2014

• Segment EBITDA of $20.2m, up 3.7% from $19.5m in 2014

• 12k seats added across the APS suite (+16.7% YoY)

• Subscription now 87% of subscription revenue

2015 performance

• Major clients won by APS from competitors

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Practice management – results for the year to 31 Dec 2015

	2015	Growth	2014
Subscription product revenue	33.4	+8.2%	30.9
Upfront and service revenue	4.9	(6.9%)	5.3
Content revenue	21.6	+5.4%	20.5
Revenue	59.9	+5.7%	56.7
EBITDA	20.2	+3.7%	19.5

• Multiple APS new releases and upgrades

• nQueue continues to show strong new order growth

• Transition to a subscription model largely complete

We continue to serve the leading firms in our markets

APS nQueue

Outlook/key priorities

• Strong pipeline for APS in Australia and New Zealand and nQueue in the UK and USA

• Large firm interest in scan and business intelligence provides further opportunities for nQueue

• Development will continue to focus on these key customer needs

• Take advantage of competitive position to drive further value per customer while maintaining exceptional products and service

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2015 Performance (cont.) Practice management (new reporting segment)

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APS seat growth APS Practice Management revenue by type
$24m $23m $23m
CAGR 86k 100%
+19.5%
90%
74k
67k 80%
70%
49k
60%
42k
50%
40%
30%
20%
10%
0%
CY11 CY12 CY13 CY14 CY15 2013 2014 2015
Subscription Non-subscription
APS Seats
% of revenue
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2015 Performance (cont.) Document management (new reporting segment)

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Key highlights

• Segment revenue of $9.8m, up 34% from $7.3m in 2014

• Segment EBITDA of $4.7m, up 54% from $3.1m in 2014

• 4k new Virtual Cabinet seats (+15% YoY)

• UK experience validates enterprise model (wide customer pool including accounting, financial planning and a multitude of other industries)

Document management – results for the year to 31 Dec 2015

		2015	Growth	2014
	Subscription product revenue	7.2	+32.1%	5.4
	Upfront and service revenue	2.6	+40.6%	1.9
	Revenue	9.8	+34.3%	7.3
	EBITDA	4.7	+53.7%	3.1

• Translatable to Australian, New Zealand and the US markets

2015 performance

• Completed 100% acquisition of Virtual Cabinet (final 30% acquired 1 July 2015)

• Introduction of Virtual Cabinet to Australia, New Zealand and the USA markets

• Acquisition of SmartVault (January 2016, not included in results)

Outlook/key priorities

• Integration of SmartVault and Virtual Cabinet into the one platform

• Pursue dual-product strategy with online (SmartVault) and enterprise (Virtual Cabinet) targeting different market segments

• Drive Virtual Cabinet penetration amongst existing APS customer base

• SmartVault penetration into Business and Elite customer bases

Selected UK Virtual Cabinet customers

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Virtual Cabinet seats

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35,000
30,000
25,000
20,000
15,000
10,000
2011 2012 2013 2014 2015
# seats
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2015 Performance (cont.) Business

Key highlights

• Segment revenue of $35.4m, down 3.8% from $36.8m in 2014

• Segment EBITDA of $19.1m, down 0.2% from $19.2m in 2014

• Over 33k online users

2015 performance

• Accelerating transition to online, with 25% of Business revenue now from online

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Business – results for the year to 31 Dec 2015

	2015	Growth	2014
Subscription product revenue	22.5	38.4%	16.3
Other recurring revenue	7.6	(46.9%)	14.3
Other revenue1	5.3	(15.0%)	6.2
Revenue	35.4	(3.8%)	36.8
EBITDA	19.1	(0.2%)	19.2

• 72% subscription revenue (44% in 2014) of available revenue

• Average Reckon One volume growth of 9% month-on-month in 2H CY15

Outlook/key priorities

Business – % revenue by type

• Release of Payroll in March 2016

• Dedicated Reckon One sales team (currently also focused on Reckon Accounts Hosted)

• Maintain price leadership

• Accelerate development of Reckon Accounts functionality in Reckon One

• Launch of Reckon One in the UK

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20% 17% 16%
20%
39%
41%
64%
39% 44%
CY13 CY14 CY15
Subscription Recurring Other
%
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1. Includes annual partner membership fees of $3.4m in 2015

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2015 Performance (cont.) Group performance

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2015 Growth
Revenue $105.1m +4.3%
EBITDA $36.6m (1.3%)
Adjusted [1] EBITDA $39.2m +5.7%
NPAT $15.1m (14.1%)
Adjusted [1] NPAT $19.8m +4.6%
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1. Adjusted for new market expenditure

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2015 Performance (cont.) Balance sheet and cashflow

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The Group maintains a robust balance sheet and strong operating cashflow which provides capacity to invest in growth opportunities

Highlights

• Net debt of $48.3m (up from $41.2m pcp)

• Includes the final payment to Linden House relating to the acquisition of Virtual Cabinet ($9m)

• Sufficient headroom against covenants

• 30% headroom on net debt / EBITDA covenant

• Forecast gearing to be impacted by:

• Payment for SmartVault

• Other acquisitions currently being evaluated that would, if pursued, be funded using existing debt facilities

• The Board intends to pay a dividend of 3 cents. The Board also intends to implement a DRP

Selected balance sheet and cashflow items

	A$m	2015	2014
	Net assets	33.9	30.0
	Net debt	48.3	41.2
	Operating cashflow	33.5	31.3
	Capitalised development (net of grants)	19.6	15.3
	Other capex	1.1	0.8
	D&A	15.8	13.0
	Of which: amortisation of software	13.2	10.6
	A$m	2015	2014
	Net debt / EBITDA	1.3x	1.1x

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04 2016 Outlook

2016 Outlook

Future opportunities

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Multiple growth opportunities have been identified across each segment which will deliver a business with increased scale and quality across a number of geographies

Continue strategic focus on product

Continue new market expansion

Take advantage of market dynamics

• Accelerate discretionary “cloudification”

• Increase the addressable market

• Increase revenue per customer in APS Practice Management

• Continue to sell Document Management products to anyone (not just Practice Management customers)

• Push into the USA enterprise Document Management market

• Push into the UK/USA/ANZ online Document Management markets

• Push Reckon One into the UK and other markets

  • Take advantage of competitive market positioning and pricing

• Continue specialisation in Document Management

• Develop new products to roll out to the US and UK legal market

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2016 Outlook

Future opportunities

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Accelerated investment by the Group in 2016 is expected to generate significant benefits in the medium term, with high EBITDA conversion from new business revenue growth arising from a largely fixed cost base

Outlook - overview FY16 outlook – financial guidance

2016		CY16
Revenue to benefit from transition to subscription model and contribution
from new initiatives —Overall revenue expected to be ~10% up on CY15	Existing business revenue	$112m – $115m
—Includes ~$4 - $5m contribution from new initiatives EBITDA from existing businesses to be up ~10% on CY15	New initiatives revenue	$4m – $5m
—Overall EBITDA impacted by ~($7- $8m) of new initiatives Development spend of $23 - $25m	Revenue	$116m – $120m
—Existing business ~11% of revenue —~$10 - $12m for new business initiatives	Existing business EBITDA	$41m – $44m
	New initiatives EBITDA	($7m) – ($8m)
Post 2016
Revenue growth in the high single digits per annum	EBITDA	$34m – $36m
EBITDA growth in the low double digits per annum
Development returning to ~14% of revenue by CY18 in line with long term average

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A APPENDIX Reconciliations

Se ment reconciliation g

Practice Management

A$m Revenue

CY15 CY14	CY15 CY14
47.4	46.2
12.5	10.4
59.9	56.7
16.7	16.5
3.5	3.1
20.2	19.5

Accountant Group Add: nQueue revenue Practice Management EBITDA

Accountant Group Add: nQueue Practice Management

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Document Management

Document Management
A$m	CY15	CY14
Revenue
International Group	22.3	17.7
Less: nQueue revenue	(12.5)	(10.4)
Document Management	9.7	7.3
EBITDA
International Group	8.2	6.1
Less: nQueue	(3.5)	(3.1)
Document Management	4.7	3.1

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Thank you

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Clive Rabie

Group CEO

E: clive.rabie@reckon.com

Chris Hagglund

CFO

• E: chris.hagglund@reckon.com

Presentation disclaimer

The information may not be reproduced or distributed to any third party or published in whole or in part for any purpose. The information contained in these materials or discussed at the presentation is not intended to be an offer for subscription, invitation or recommendation with respect to shares or securities in any jurisdiction. No representation or warranty, express or implied, is made in relation to the accuracy or completeness of the information contained in this document or opinions expressed in the course of this presentation. The information contained in this presentation is subject to change without notification. This presentation contains forward-looking statements which can be identified by the use of words such as “may”, “should”, “will”, “expect”, “anticipate”, “believe”, “estimate”, “intend”, “scheduled” or “continue” or similar expressions. Any forward-looking statements contained in this presentation are subject to significant risks, uncertainties, assumptions, contingencies and other factors (many of which are outside the control of, and unknown to, Reckon Limited (“RKN”) and its officers, employees, agents or associates), which may cause the actual results or performance to be materially different from any future result so performed, expressed or implied by such forward looking statements. There can be no assurance or guarantee that actual outcomes will not differ materially from these statements.

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