archTIS Limited (AR9) Earnings Call Transcript & Summary

Hello, everybody. We'll give participants a few more seconds to join the meeting and then we'll begin. All right. One after 11, so why don't we get going. So good morning, everybody. My name is Kurt Mueffelmann, I'm the Global COO and U.S. President of archTIS, and welcome to our Q3 FY '24 investor update for the period ending March 2024. I'm joined by Daniel Lai, Managing Director and CEO. Dan, why don't we pass it over to you, kick off with a summary of the quarter and some market perspective.

Thanks very much, Kurt, and to everybody. Welcome on this Friday post Anzac Day. I think it's a pretty important day, Anzac Day and a day and particularly for our business in the -- our target market audience. And so I hope everyone had a good respectful day yesterday, and we appreciate everyone who's serving and fight for the values of our country, and it gives us the opportunity to do what we do. Most importantly, quarterly results. So look, another really positive quarter for archTIS. Revenue is up 47%, a slight rise in ARR. Gross margins have increased, and that's been driven by a good 20 bonus points increase there, and it's being driven by licensing revenue. That licensing revenues are very important because you can see the difference between an increase in licensing revenue to the gross margins for the company. But most importantly, it's associated with a number of proof of concepts, which are critical for the success of the business moving forward. Year-to-date revenue is strong. OpEx is down. We continue to be very focused on our operational expenditure. We've had a significant customer wins and growth across all of our target markets. And of course, our products are continually recognized and I think this is the second NC Protect Microsoft awards, the foremost opportunity we have in that game. So our alliances are strong and that recognition across the industry for our products is, again, strong. We've strengthened the team this quarter. Obviously, we brought in the veteran, Andrew Burns. I think he probably wouldn't like to be described as a veteran, but his experience is absolutely critical for the growth of the business moving forward. So they're the highlights of the business of the quarter. What does that all mean for us? It means that we are moving across that J curve to that inflection point, and we're putting ourselves in the best position to accelerate growth in a very turbulent market at the moment. So what's driving that from the thematics? We all understand that there's the war going on in the Ukraine. We've seen the budget being passed by the U.S. to put in additional money. It's not only to Ukraine, Israel and Taiwan. But that geopolitical and instability continues to go forward. We've seen issues there with the Philippines and China across maritime territorials. We're seeing, again, daily [ sortings ] across Taiwan. And of course, now there's a whole range of different geopolitical meetings going on with North Korea between Russia and also China. So where -- how does this all relate back to Australia and our target markets in the U.S. and EMEA? We are seeing a surge in defense spending. We have seen new arrangements that have really changed the landscape about how defense works across those alliances. We're seeing the introduction of new alliances, including Japan into the AUKUS arrangement, the Quad, et cetera. Now all of that is having a massive impact, not only on the expenditure and the amount of money flowing into these target markets, but also the structure of the way that they do business with each other. That -- restructuring of those businesses to focus on new technologies, new ways of strike, power, missiles, ships building, integrated supply chain, you name it, has had an effect on the business. Now that means that there's been a delay in spending. But what we are seeing now is the indicators of those purse strings actually opening up as they ascertain what the priorities are for the defense organizations and how they're going to do that. So I think we're going to be in for a very positive next 12 months, 18 months because of where we are positioned in this market, not only with defense, but also with defense industrial base. So just -- Richard Marles, last week, announcing an additional $5.7 billion over the next 4 years. That is also increasing the IT expenditure. And one of the big programs that they're looking to invest in is the warfighter network. And obviously, there's ties in there to archTIS alliances and how do they segregate information and compartmentalize it across their alliances. Other good indications there is the proposed gross domestic product to be increased by 2.4% by 2033/'34. So we are seeing the activity and the right thematics in the marketplace. We're seeing that the purse strings starting to loosen after reorganizations of defense. Its establishments. So I think that's all very positive. And the time for us is, obviously, we've been -- previously mentioned a number of proof of concepts and indicated that we're on the inside of defense in these things in a number of different areas. And that's really important because as people get a little bit frustrated with how long these things take, you need to understand the complexity of these things and also that these are not small proof of concepts. They're large enterprise decisions, and they take their time, and we're not in control of that time. Another industry validation that's very clear from the market and a great indicator is Chris Deeble, who is the Deputy Secretary of Capability Acquisition Sustainment Group. For those who don't know what they do, they buy all the vehicles, the airplanes, the ammunitions, the missiles for the Australian Department of Defense. They have a multi, multibillion dollar budget every year. And obviously, they're highly dependent upon the defense industry. And they've announced that they're going to build a defense industry collaboration environment, and we think that we're well-positioned. So strong market validation with the first to market with a premier shared platform in the market with the industry, and we have the majority of the defense [ promise ] on us as well as small and medium enterprise organizations. And I'm pleased to say this quarter, we've also been expanding that internationally to a whole range of other defense industrial primes in the global network. I'll hand over to you to go through the numbers, the hard numbers.

Yes, sure. No, absolutely. So I guess during Q3, our total revenue was $2.6 million. We increased it 47% from the prior comparative period. Revenue was split across licensing of $1.5 million and services of $1.1 million. The jump in licensing and services revenue was attributed to the completion of the POC award with the Australian Department of Defense to modernize their workforce environment that we discussed early last year. Annual recurring revenue is $3.7 million, an increase of 11% from the prior comparative period as the Australian Department of Defense and key global defense industrials continue to invest in the expansion and enhancement of Kojensi and NC Protect. A nice thing that we had during the quarter, we experienced no customer churn whatsoever. So everyone that's renewed, we did not lose any customers during the quarter, which is very good for a company in our space. Gross margin percentages improved to almost 69%, mainly associated with the release of revenue from the previous mentioned POC. This is a 20 basis point improvement from the prior comparative period and 25% from the prior quarter. So when those licensing dollars convert into revenue, you can really see how it jumps up our gross margins. However, in whole dollars, the gross margin was up over $930,000, which was 107% improvement over the prior comparative period. In the licensing margins, they continue to maintain and be strong at approximately 70%, a little bit lower than normal, given that we had some third-party software licensing costs associated with the proof of concept. What we continue to really focus on as a management team is really holding on to those tight operating costs. Operating costs for the quarter were $1.6 million, which was consistent with the prior comparative period of $1.7 million and a slight increase over the prior quarter of Q2 of FY '24, given some of the increase in services from a delivery perspective. We ended the quarter with $4.5 million of available funding. Net operating cash outflows for the quarter were $1.25 million, mainly comprised of product manufacturing and operating costs, advertising and marketing and staff. Customer receipts for the quarter were $1.4 million. So that continues to stay in line with expectations and continues to drive a record year for where we are from a year-to-date perspective.

We could at least just summarize that for people. Revenue is up. Gross margins are up. Licensing associated with proof of concepts, which is an opportunity for the business to grow and reach that J-curve inflection point, strong EBITDA improving, and operational costs are being tightly managed. So I think the business, from a numbers perspective, are in really good shape.

Yes. And I think that's really evident. I think, more encouraging is that it's carrying through where our year-to-date numbers are, right? Because our operating cash is -- were really driven by top-line growth within revenue, managing of operational cash. I mean, revenue was up 101%. Gross margins are up 93%. That's year-over-year. So that shows the growth in licensing as well as growth in services. And again, it's still being fed by the managerial tightness of what our operating expenditures are. We're down 22% in our operating cost year-over-year. And if you look at our EBITDA, we are almost operating at a neutral EBITDA, which, for a company of our size and the space that we're in, is almost unheard of. So we feel really good about where we are financially from that perspective. Sure, we'd like to see some additional revenue growth and deeper scale into the business. But again, as Dan outlined, with the macroeconomic challenges that are out there, I think that we're doing and executing the plan that we said we would do, and looking to drive that as we continue into Q4, which is traditionally our larger selling cycle as well as into FY '25. Any comments on the unit [ APM ]?

Let's address that, too, because, yes, we would all like to see those sales come in a lot faster and everything else. But that doesn't mean it's a bad thing. It just means that we're waiting for the client to be ready. What our job is to be in a position with the right product in the right place for that to take that opportunity and when the time is right for them to execute. And I think we are very strongly in that position. So the real question for investors is where are we on that J-curve? And how close are we to that inflection point? And our job is to do what we can -- what we -- manage what we're in control of, and I think we're doing that exceptionally well, And I'm very happy with where we are. I think we're in a strong position now to take those opportunities when they -- all of these organizations start to move, and we're certainly seeing the activity that they are making. So let's move on to the next space.

Yes, I think that when you talk about POCs coming to fruition and what a typical POC cycle was, there's nothing better than, really, the example that we had with bringing Penten as a customer. So maybe, Dan, do you want to take the audience through that deal and what that process was?

Yes. Look, again, this is great validation for us. The Penten is one of the -- it's probably the premier cybersecurity company in Australia. And overseas in the U.K., it's really infiltrated that U.K. market and I guess, nearly 80% of its revenue comes from infiltration of the U.K. MoD. So there's great synergies for us as a company. Again, they're Canberra-based. We've known them a long time. When a company of that stature comes to you because your product is the product of choice, it's a fantastic validation. Look, this isn't a huge award, but it's an incredibly important award because it starts that journey with a partnership, with Penten and access to those markets. Most importantly is the use case for where it is being placed. Obviously, we can't go into the details of what that is because it's classified, but it is a really important use case, and we can see growth on the back of that coming into the business and high-quality growth as well. So I'm very excited by that opportunity. And the [ PIC ] took a long time to come. Again, it was government.

Yes. And I think, again, augmenting that with a couple of the other wins that we had throughout the quarter, we had a new partner come on board and delivered an immediate deal, which WAS nice to see. Generally, partners take anywhere from 6 to 9 months to start to get traction, and this partner came in with a deal right away. No better way to solidify a partnership than through the monetary means of a deal, both for us and the partner. We're starting to see some heavier traction in the U.S., particularly around CMMC, which is a defense certification around how you have to classify information, as well as CUI and ITAR. So really around how organizations protect their data on their facilities or up in the cloud. So we did a really cool deal with a company that's actually providing space warfare capabilities. They initially purchased NC Protect. They saw the value of it from a dynamic and granular security aspect. They came in and they -- we upsold NC Encrypt, the data encryption key management, which really bolsters their security practices. So we're seeing the purchase of the Cipherpoint product and how we position that in the encryption markets really starting to grab some hold. And that continues to drive new opportunities, particularly across Europe. We were seeing strength there. We've had a couple of very strong deals that we previously announced with the likes of DHL, the Bank of Finland and a couple of others that have really started to drive that encryption technology that is an alternative to Microsoft. It's a policy-based encryption where you do not need to fall under the U.S. Cloud Protection Act. So it's really interesting to see the use cases and how they develop. And then we've seen other use cases across another Kojensi example about securing information with suppliers across different RFPs. We had a native Indian Nation in the U.S., securing personally identifiable information across their SharePoint, which is still on-prem. We closed one of the largest law firms in the U.S. to protect dynamic read-only access and watermarks for court documents. So again, a couple of different use cases, a little bit of diversification outside of our Defense and Intelligence vertical focus. So there are some spin-off effects. We're getting some really good leads coming in from the Microsoft field. Traditionally, we work very closely with the Microsoft defense and intelligence vertical reps, but they're now making introductions into legal, into manufacturing, a couple of other opportunities within the fintech area. So we're starting to see some expansion, which is a little bit more opportunistic in where we're driving it. We also got an order from KPMG, which, again, not cash yet, but another order to continue that deal moving forward, which is encouraging.

Yes. So we're expanding where we are, and obviously, we're growing in a number of areas. I guess one of the things that I've always been a little bit skeptical about the Microsoft arrangement is that Microsoft don't actually buy our product, their users buy our products and their clients buy our products. One of the things that I'm absolutely delighted to see is the activity now of how they're proactively introducing us into the client base, because I guess that their clients now understand the limitations of after a couple of years of implementing purview and a few other security controls, the need for products like our loan to supplement the strong hyperscale services to make sure that they're defense ready to be adopted by defense. And I think we're seeing that we are becoming a standard pattern for the sales cycles with the Defense and Intelligence Microsoft market, hence, why we've been announced as a finalist again. And that's a unique value position to be in. But for me, it's really -- it's the activity that we're now seeing with the proactive introduction to those clients. And again, it's all being driven by this geopolitical instability and the need to secure, not only supply chains, but defense to defense communications.

Yes. And touching on the Microsoft award, it's pretty interesting. I'll be out in San Francisco at the RSA Security show, which is one of the largest security shows in the world in 2 weeks. But the first year we were awarded or named the finalist came from Microsoft through their technology teams. Through the MESA group that we belong to, which is really our product and development weight back into Microsoft. This year, we were nominated by a completely different group. We were nominated by the Defense and Intelligence vertical team. And so 2 different teams have nominated us. So you're starting to see with that traction and the relationship with Microsoft is really starting to take effect for that. And with that, though, really starts to build into -- we're hitting on some of the customers that we're getting. Obviously, we'd like to see more financials, trying to get back into shape. But really, that comes down to what that next phase around product innovation is. So we thought we'd kind of take a reminder back through where our challenges that we solve as well as kind of what we look to do in the near future around some of the technology. So Dan, do you want to lead that through?

Let's go through it. So again, just to reiterate, the -- I always liked to use this example because it's really simple for people to understand is this. The third dot point of the U.S. national security strategy states that its greatest competitive advantage is its ability to form and execute alliances. Now what does that mean? Well, that really means that they need to be able to share trusted information at the strategic level, the operational level and the tactical level. And that's where AUKUS and the Quad and all of these things come into place. Now to be able to resolve that problem of trust, you need to be what they call zero trust architectures these days. You need to be able to apply policies, which gives information -- the access -- controls the access to the information of which you share so that you can set the terms and conditions who accesses it, when they're accessing it, what permissions they have, can they edit it and all of that collaboration. But it's also really critical if they're going to adopt the new technologies, they're looking for under AUKUS Pillar 2 and building submarines and everything else, that they can share that information across the supply chain as well. And of course, that's really difficult and complex to do, but that's exactly where we sit. And of course, we're seeing much, much greater demand to do that with analytics and data. And of course, that's the direction that we're also taking to drive that value proposition for a data-driven organization. And if you read all of the information from the U.S., the U.K. and Australia and Japan, it really is about that decision superiority by getting that data and integrating that data across those alliances. So that's the space that we're in, and we are -- I think we're kicking some goals there. Why then are these POCs taking so long? It's a complex space. It's challenging. We are at the forefront of that, and we're introducing them, and that's why it's also services driven. But it's very exciting. And again, I think that we've positioned ourselves very, very well in that marketplace, well, in terms of the...

Yes, I think the other interesting thing we're seeing is that government entities, particularly defense, they're also migrating from on-prem up to the cloud. In the last probably 5 or 6 years organizations were really hesitant to move up to the cloud. Was it secure. Was it safe. Now when you look at the combined Microsoft and archTIS Solutions, we provide the cloud and make it much safer. So when we get into conversations with U.S. defense forces, when you start to look at one of the largest defense agencies in the U.S. called DISA, moving over to M 365, how do you play in that space and how do you drive that? So there's not only hesitation initially to move to the cloud, but you're moving an entire organization, a whole major war fighting environment from on-prem up into the cloud. That's just not security but that's also policy process. It's all about the internal regulations. It's about dealing with where your holes are, tying in the different alliances, such as archTIS, the Quad, NATO and what have you and moving them. And so that really is something that we continue to look at and how we can enhance our products. And we really assist that moving the needle when people get to the cloud and really providing, again, that granular aspect. And that's what we're seeing here in the U.S. and how we can provide, we'll work directly with Microsoft on those direct opportunities.

And look, just think about the scale over the number of users in each of those spaces. So you win those spaces, there's your acceleration of the growth curve. So that's -- they're the stakes that we're playing for. And I think, again, we're in the right place at the right time to do that. Product and solution innovation. A lot of people ask us, Kurt, how are you staying ahead of Microsoft? And aren't they a threat as much as they are an opportunity? So you want to have a little chat about that?

Yes. I think Microsoft is what we call coopetition, right? Microsoft handles 80% of the core functionality of a product like NC Protect. So if someone's using Microsoft, yes, they're going to -- they may not meet all of our solutions. But it's that 20% differential that really allows us and 20% of the Microsoft M 365 base is massive. So Microsoft's continuing to add new products and opportunities. Obviously, AI is a huge thing in the news these days. We're working with Microsoft very directly. When I'm out in San Francisco at RSA, we have high-level executive meetings going on with our continued integration. Right now, we integrate into 4 main components within Microsoft. Microsoft Purview Information Protection being the large one, which is in the middle, but also Microsoft Entra ID, which used to be Microsoft Azure. And tying into those, it allows us to, not only build our relationship deeper and -- through Microsoft and different product teams and tie in directly into salespeople that are looking to sell these products and tie on to it, but really add to what our go-to-market messages and how we protect data -- sensitive data at the data level from a component standpoint. So when you look at Microsoft Copilot, Microsoft Copilot goes into all these different environments through AI, artificial intelligence and start scanning and looking for things and gives unique value, unique findings back. We actually wind up putting a little bit of a governor on Copilot by saying, hey, if we can't surface it, we can't find it through Copilot. So what we're trying to do is identify where that sensitive information that cannot be surfaced through Copilot to the rest of the organization. So we're protecting those sensitive files, making sure they're scanned and tag properly and really making sure that we enforce those access and protection policies across the entire environment where Copilot is going out and trying to find as much of that as possible. Super powerful tool, but you need some sort of governor and regulator on it to make it happen.

Somehow, you're going to force me to know across artificial intelligence, don't you?

It's one of the biggest challenges right now that organizations are going to face. You're going to be surprised what will pop up through AI. You can read thousands…

Unless I've used it already where that's occurred. So that -- solving that problem for interoperability and integration becomes absolutely the unique value proposition for defense and intelligence agencies. Otherwise, they kind of [ move ] with AI.

Yes. And the other thing that we're seeing is, traditionally, we do what they call unstructured data, right? And so those are files, those are Word files, Excel, PowerPoint. But when you look at the other side of the coin, which is structured data, which is the large databases, the voluptuous data that's out there, just -- that's spread across all different areas. You don't know where it's located. So we're starting to work in -- you saw that earlier, I think, in the December time frame when we were working with BAE and working on structured data. So we'll be able to take the same technology and bring it both in structured and unstructured data. And so we'll be able to take not just only one side of the coin, but both sides of the coin and actually come in with a consolidated product that will provide data-centric security in a zero trust environment for the entire organization. So we'll be able to hit all those different files, all those different siloed information, that data fabric that we're trying to address that you hear out in the space today. So Dan, do you want to talk a little bit about how we're trying to simplify? Because you've talked about the challenges of data-centric security being complex and difficult to use, but maybe this will talk a little through the -- where we're taking it.

Well, this is really the question about why us and why invest with us and what's the unique value proposition of all of our products. What we've been doing for the last 17 years is effectively building up knowledge pool that now runs straight into our product design about how to simplify that complex problem to ensure that governance and access controls permeate throughout that layer of integration and interoperability to balance need to know with the need to share. And that is the hardest problem that every defense and defense industrial base organization needs to solve, and we're uniquely positioned. And this is why when we talk about why I'm so happy about seeing the latest activity. And this has been running now for a few good solid 6 months with Microsoft, is people are starting to get this. And that means the timing is perfect for us. When we've been involved with the [ ONE Data ] program inside of Defense, working the directive, they're all starting to get this. They all know that this is the key problem that they have to solve, and that's uniquely where our product base is. So that's why I'm really excited about the next 12 to 18 months. And everything that we do with our product design has to be about making that as easy as possible to produce the highest value outcome for these organizations. And that's what really that increase in licensing revenue, which has driven up our gross margins is because they're trying to understand this through doing a number of different proof of concepts to prove it to themselves and understand how this will work. And where does that lead to? If you can solve this problem, the value proposition is enormous and particularly in terms of number of users. But it's also very, very important to understand that where we start here, in defense and national intelligence, it's critical for our national security, but it also has broad application outside. What we're solving through [ large crimes ] is really how do I build digital transformation for the manufacturing and in the industry 4.0. How do I do that but still maintain governance control of the data that I integrate across those supply chains, so -- and/or collaboration of documents. So really big, big, big problem. And I think we're in the right place. So again, I'm very excited over the next 12 months, and that's what we're focused on. And that leads us to, perfectly, this slide. This is what we've been saying over the last 12 months. We need to be -- put the business and control what we can control in the best position for shareholder return, and make sure that we're achieving cash flow positive as quickly as possible given the market. We know that we have put ourselves on the inside of the Australia Department of Defense and are trusted and products are being developed and led by defense organizations in terms of their design. And that -- we also know that we've got a global market to expand into. And now it's just -- so we've got the right products. We're in the right markets. We've got the right targets there. And now it's just about that timing. And I think that timing, we're seeing that timing starting to come and the unlocking of the expenditure by the announcements and the budgets. So I think we're in a very positive position.

All right. Great. Why don't we jump into a couple of questions.

So let's see, who are the key competitors and in which areas are we actively competing as opposed to those areas where archTIS has an unique offering?

Just read that again to me, sorry.

Certainly, who are your key competitors and in which areas are we actively competing?

So key competitors, that's a really interesting question. I think there's big players in this space, whereas we're very much more holistic. So there's a company is called Virtru. NextLabs, we're seeing them pop up in different areas. I think in the past, there's been products such as XMX. There's not a lot. In the areas that we are specifically in the opportunities in our pipelines, we are not seeing those -- any of those competitors. In fact, our greatest competitor is the actual -- I would say our greatest competitor is the ICT department wanting to build something for themselves. And I think that those days along truly -- well and truly disappearing pretty quickly with the adoption of hyperscalers and cloud services technology. So I think that's all running in our favor. So again, nearly all the opportunities that we've won, we've been sole-sourced and that continues to be the case.

All right. Let's jump on to another one. What proportion of POCs are paid?

We try and make sure all of our POCs are paid. So Kurt, you're probably in a better position to answer that question. But certainly, we don't like to give things away for free.

Yes. It really depends upon the cycle. I will tell you right now that most organizations will want to do a POC. Now we're not doing these large extended trials. They are proof of concepts. So there are things such as, does the stuff work in our environment. Does it do what you say you do in the marketing collateral. You'd be surprised at the number of companies whose marketing collateral doesn't match actually the functionality within the software or the product itself. So we had one the other day. It was a 2-hour POC, and we got a $20,000 order. Now not a big deal. We're not going to make payroll on that. But again, you start to put those little pebbles together and they start to build up. But again, even for those sized deals, we had to do a quick POC. We had another one that took 2 weeks and we got a $45,000 deal. But again, not big volume. But again, they've signed a 4-year deal. So we know that they're going to come year after year after year, again, creating that repeatability. You look at the one that we did with Australian government with the Defense Department last year, that was $4.2 million. That was a POC. So now our job right now is to convert that POC into an order. And when you start to look at government procurement cycles, budgetary cycles and how they come together, if you prove the POC, then you generally find you're not going to get submitted for a proposal or an RFP for the actual assignment of the deal till the following year. We saw that with some of our larger alliance partners over in Europe. We're seeing that in the U.S. with some of the government partners as well and how they move forward. So POCs, yes, we want them all to be paid but all of them vary by small ones, all the way up to larger size ones. I'd say the average POC is about $25,000 to $50,000, and it goes anywhere from 60 -- say, 45 to 60 days is generally where we find it, and then we push through from the sales cycle from there. See. I think we answered this. Where were the KTech work orders of $600,000 paid during the quarter, would we have been receipts of only $800,000. So no, the work order that we mentioned in the 4C was a new work order. So we got cash from KPMG throughout the quarter. Not at that level. It was a smaller quarter of billing from KPMG given the January holiday period, but that was a brand-new order that came in. So there was not a very high percentage of our cash receipts from customers coming from KPMG. Let me run through another one here, Dan. It seems the POCs and deals are constantly 12 to 18 months away. How do you encourage shareholders to stick through it?

Well, the first thing I would suggest is this, if we weren't having all of these POC -- when you're introducing any new technology into the marketplace and let's be honest, we're at the forefront of leading data center security. This is a new way of applying cybersecurity. As we've said, it is a growing area of the marketplace. It's growing pretty rapidly, but it's essential. Now what we're seeing with these POCs is they're educating the client and the client's acceptance of these things. We haven't -- we have a very high success rate of executing POCs and then running through. But when you're dealing with large clients, that takes time because sometimes they slip into different budgetary cycles and different programs of work. What I would say is what's -- think about what's the end of that, and what is the return rate on being successful in any of those POCs. They're not $30,000 deals. No, there's 6 figures plus deals in annual recurring revenue and they start small, and they have a network growth effect rate, which will grow. So we're out there hunting big elephants. So we only need to win 1 or 2 of these things. And the growth rate and the return to the share price -- and let's be honest, we've seen out there, that all the blue stock chips, there's been a run on the stock market recently, the high end of town is very highly valued. And we know that the low end town of the micro caps is completely undervalued. Now markets change all the time. And I think that we'll -- right now, we are a high-value stock at a low price. And if you look at the base indicators of what we are doing in the business, is it frustrating? Yes. Are the stakes high? Yes. Are we doing the right things? Absolutely. So again, I can't tell investors whether -- what they can do with their money, but I will tell you this. This is where all my money is.

That makes 2 of us.

Yes, and the real question there is, are we happy? Yes, we get frustrated just like anybody else. But we're sticking with it, because we believe that we're in the right place.

So that kind of ties into the next question. ARR growth has been slower than anticipated. What is a reasonable time frame for licensing [ Slingshot ] or what will create that pull-through effect of these POCs?

Well, it's a great question. Do you want to answer that, and I'll top and tail it for you.

Well, I think the pull-through is getting the POC, getting the deal signed, right? That's the big thing. Because when you start to look at some of the POCs out there, right, you said there are 7 figures. That's going to drive ARR. We know that 2 years ago, we got that $7 million deal, and we were looking at ARR of over $1 million, right? So any of these deals is going to just push ARR up. I mean I think, with the recent announced deal, we'll be close to $4 million of ARR where we stand today. So that's still up and obviously not the scale that we would like, but again, working through these POCs. And I hate to continue to keep going back to POCs because everybody must be frustrated with it as much as we are. But yes, that's what's going to drive it. And we wouldn't be talking about them unless we felt comfortable about where we stand with some of these today. So hopefully, the pull-through comes through, and that will create the slingshot effect. That will put licensing ARR higher. And when we get ARR, that creates more predictability. The thing I think that went under the radar, even when I was talking about it was we had 0 churn. So we know year after year that we're going to have minimal churn on our customer base. We become much more predictable in the way that we can forecast cash. We become much more predictable in the way we can forecast revenue, and we become more of a license-based company that will provide higher revenue multiples from a business standpoint and should drive a higher market cap across the business.

I'll go back just as a [ foresee ]. That increase in just licensing, which is associated with those POCs. Look at the upsurge in the gross margins. So it feeds into the cycle, as you said, Kurt, and becomes highly valuable. The other aspect, again, is who are we dealing with, with all these POCs? We've named a few of them previously like BAE and a whole range of defense organizations, national intelligence. These are really difficult places to get into. The cost of the entry is high. And when you win, the length of stay is long, and you become very trusted and you're very hard to get out. So again, there's a whole range of reasons why we're doing this, and we have the target market that we can, that we are, so -- and we've got competitive advantages in those spaces, and we wish to exploit them. So I'm not -- I don't think that the issue of the time for conversions of these POCs is necessarily something that we should get too hung up on. I think that the real question is, once they start to convert, the word of mouth will spread much, much more quickly, and that's where, really, we're going to start to hit that inflection. So I think that we only need 1 or 2 of these things to drop, and we are well and truly on our way.

So I guess let's hit the big question in the room tonight is, are you still expecting to be cash flow positive by end of fiscal year? Or has this pushed out due to the uncertainty of timing from the customer end?

It's certainly our goal to certainly, we're doing absolutely everything we can to get to that point. We're pulling out all the stops. Of course, we can't -- if we could determine when the sales were going to come through, obviously, we'd already be there if we had that power. But we'll have to check with the marketplace. But again, at this point in time, that's still our objective.

Yes. I would say another thing that cash flow positive, whether it's a $1 positive or a little bit negative. Remember, 2 years ago, we spent $10 million. We had $10 million of cash outflow. Last year -- last fiscal year, for FY '23, we had $5.3 million of cash outflow, right? So over 2 years, we burned $15 million of cash to put the product innovation in the spot that it would be, to get the relationships built within Aus Defense, to start to penetrate what we're doing in the U.S. as well as a little bit within Europe. And so this year, right, so if we're cash flow negative by what, $0.5 million, $1 million or if we're positive by $0.5 million or $1 million, doesn't really matter. I think we're moving that in the right direction, right? We have $4.5 million of tangible cash that we can use to continue to drive the business. We're not going to need that in driving all of it. We feel that we're comfortable in looking at the business of where it's at today from a cash flow perspective, and where we take the investment within the business. So I think cutting the cash flow burn or the outflow from $10 million to $5 million to a smaller number, given where we are today, has been a pretty good accomplishment for the business of our size and the product innovation that we're delivering and hopefully, that will followed up and we'll all be rewarded as shareholders. And I think that's part of the faith. And listen, shareholders have been out there for a long time. The average hold for shareholders has been 3.5 years, right? And so there's definitely some fatigue out there. You see that. I look at the trades every day that come through, right? And so when you talk about enthusiasm, you can't be more enthusiastic about the direction than the 2 -- top 2 of the shareholders here, right? That's part of what we do for a business, but it's also a big impact to where our investment goes, right? You have to separate, Kurt, the investor, from Kurt, the COO. And separate Dan, from the CEO, and Dan, the investor, right? If we didn't see confidence in it, wouldn't have kept all the shares. We wouldn't have purchased shares through the different funds and through the different cap raises that we've had to get there, right? We believe in this, and that's why we're still here doing this, day in and day out. And it's a grind, right? And that's part of the enthusiasm that, hopefully, we're bringing to the market that will say, we have an understanding. We feel confident about where we are, and we're going to drive this business forward. And we feel like we're in a good position than we were last year, the year before, even the year before that when the share price was 60%, 70% higher. It's unfortunate that the markets turned against us a little bit. And sure, there are things we would have done differently coming out of COVID, but for the most part, I think we've executed on what we had to deliver to the market. Dan, anything on that?

No, again, it just comes down to that opportunity cost. Essentially, we -- as you said, the key issue there is that we are being really responsible with our cash burn. It's come down dramatically, and we are still increasing our revenue. We're increasing our gross margin. And we're still putting the company in the best position to hit that inflection point with good returns. And I think that's critical.

All right. The last question. Obviously, we had some executive transition in the last quarter. Can you talk about the new CFO and how it will help the company going forward?

Well, we welcome Andrew Burns as the new CFO, and particularly, we welcome his experience. Andrew Burns has worked with GE. He's worked with Veeva. He's worked with a whole range of different companies, including Citadel and obviously has a previous relationship and record of success working with Miles Jakeman in building that company up to close to $0.5 billion company. It's gone on to other great things. But his ability to look at the financial markets, read the financial markets, bring efficiency gains into the business, but look for strategic growth and structuring of the business. All of those things, I think, mergers and acquisitions. What's really exciting about the company, at the moment, is as you mature, you bring in the best players you can to help guide the business. And I think we've been very fortunate to get an A-grade player. They just make everything else better and they drive you, in terms of your commitment, to delivering things in a better fashion. So I'm very excited by having Andrew on board. And we're all expecting a great contribution to the surging the business forward.

All right. Great, Dan. So in wrapping it up, any closing comments, thoughts?

No. Again, I think -- again, you've got to control the things you can control. You've got to be able to read the market and put the company in the best strategic position. I've said it again. The only thing we are not in control of is the timing of when the market actually executes. I think that we're seeing the indications there that the market is now moving forward and the purse strings are opening up again. And I think that's very exciting for us over the next 12 months. And I look forward to coming back and reporting on the next quarter and the next quarter. But I'm happy with where the company is at the moment and what our performance has been. And I'm excited by the opportunities that I can see in the pipeline.

Yes. On my side, I'd just like to say thank you to everybody. It's a long road. This is not my first public company. There's obviously been challenges for both public companies that we've run -- that I've run before. And this is an exciting opportunity. We feel that we have some market tailwinds behind us. We feel we have some good foundation and structure from our product innovation as well as from the sales efforts that have taken place, both in the U.S. as well as Australia. And we feel that we're in a good place. So again, really, thank you for your patience, and I hope we can get this thing moving in a little bit faster motion once we drive these opportunities forward. So thank you, everybody, and have a great rest of the day and enjoy the weekend coming up. And again, thank you for your time.

Thank you.