archTIS Limited (AR9) Earnings Call Transcript & Summary

Yes. Look, thanks, Kurt. That's correct. So essentially, we do deal with the unstructured data documents. And we do these presentations with Kojensi and NC Protect, and often we would have a conversation with them where they'd say, "Look, really happy with your solutions there. But can you do this from our structured data?" People will be aware that we had a long services contract with KPMG, dealing with the one data program (sic) [ OneDefence Data Program ] inside of the Defence, where we were the architect for how they would implement data-centric security across their structured data. Along came BAE and asked us to help them with their -- aggregating data from different suppliers to put together, then provide a need-to-know across it and govern it and disseminate it for visualization of tools, such as building digital twins which, as we know, is all part of that whole expansion of Industry 4.0. Now that led to us last year winning some business with BAE to demonstrate how we would do that. That would be productized that last -- across the last 9 months. And we have launched it at Land Forces. And this is an area that we see massive opportunity and helps us fill the gaps so that we have a product now across every requirement for data-centric security and sharing. And it's a place where there's massive potential in the marketplace, and it just complements Kojensi and NC Protect and confirms our position as a world leader in this space. But most importantly, it solves critical areas where they're spending money today and need to solve. And obviously, that's continued with those services contracts that you've seen with BAE and then presenting this back to Defence jointly with us.

Yes. And when we start to talk about that, right, it's defining the products into the defined revenue threads and markets that we have. We saw the expansion and upsell into one of the agencies within Oz Defence. We looked at some of the POCs that we've been doing where we've been actually named the technical validation and technical success winner of these POCs, whether it's in Australia, whether it's across Five Eyes. We talked about NATO a little bit. Now it's going into the next stage. It's going in and how do we take that into procurement, how do we successfully win that from a commercial standpoint. The technology validation, yes, that's a big hurdle to cross. But the technology is one thing, but getting the commercials and doing that the next. So we feel positive that we'll cross the hurdle in a number of these approaches that cut across our key revenue targets, right? So whether it's winning at home, which is our big thing that Dan talked about with our expansion into defense and continuing to drive towards that, replicating that success across coalition forces and building that referenceability. I mean, we had a call today where we're going in and saying, how can we talk -- how can U.S. DoD talk to AUKUS? How can they talk to the existing customers that we have today? You see that across all aspects, whether it's structured or unstructured data and how that carries across. It starts from AUKUS. It goes to Five Eyes. You start to see Japanese Ministry of Defense. You start to see others coming in that need that same component around protecting data. That continues to build on the Microsoft relationship. It starts to build in some of the underlying compliance aspects around ITAR, CMMC and CUI. And that starts to carry across in the global defense industry base. And that's where we start to see that sell to, sell through opportunities that we have with Kojensi, cross-sell into NC Protect and then now into TDI. So we see that strategy really building across, again, from the technical validation of some of the successes of the POC and now entering into the commercial phase. So Dan, how would you position that within that opportunity?

Well, look, I think that as you get closer to these things -- I mean, you're right. We knew technically where we were and we're really glad that we've completed some of those POCs through the technical valuations, and we're very excited by that. But as you get closer to those commercial -- I mean, it's still a competitive process in those commercials that you start to get a little bit of a buzz about you and excitement. What's really I'm excited about is the level of activity that we're seeing globally and the fact that the archTIS name now is being mentioned across all the AUKUS partners and their allies. That's what really excites me, whether that's through the work that we've been doing through the Microsoft channels, who are now referencing us. As you said, we're now getting calls from Japanese Ministry of Defense, who are asking us through some of their partners, who have heard about us through Microsoft. And we're doing other additional activities with them. We've got the NATO trials that have just been completed, where technically we have gone through that phase, some trials in the U.S. which we've been technically already evaluated and here in Australia. And they're all starting to talk and we are being raised at the highest levels to how we could help solve those AUKUS challenges, those alliances challenges. Most importantly, we are learning how to operate the business and getting that customer feedback by winning these deals such as DIE, BAE and positioning these new products into being a comprehensive supplier to Defence, which is what that opportunity is and then replicating that out where we have those genuine opportunities to do that. So we know it's going to be a pivotal year. It's very exciting. And as it gets closer, it gets even more pressure to perform. So that's what we've got to do.

Great. So just as a notification, we have our AGM coming up at the end of November, and we will be presenting a little bit more about our update on our strategy, product innovation, customer account management growth and alliances. So at this time, Dan, we'll open it up for some questions.

So if we start to look at some of the questions. The first question is your typical one. Do you anticipate a cap raise?

Look, I think that over the last 2 to 3 years, we've started -- we've demonstrated that the direction that we're heading is managing our costs, not diluting our shareholders in terms of not having to dilute our shareholders. We've got a strong cash at bank as of today, and we've got facilities there to manage any sort of lumpiness, which we know we're in a little bit of. We are -- by the nature of the business, once we cross -- once we start to get this powering, we won't need that. So no, we're not looking to do it, particularly for working capital. But I will say this. Kurt mentioned that we think we're in a position where our operating cost is about right. And I think that's true. But what we will be looking at it is how do we -- if we land these opportunities and we get to those commercial stages, how do we invest in for growth? And so we will look for that. And also obviously if there's strategic M&A opportunities, we are always looking for those, but it's is going to come off the back of the growth. So the answer is wait and see, but it's going to be for the right reasons.

All right. There's a question that says, I want to confirm the Oz Defence deal was paid and the whole license was paid upfront. Yes, that is the case. What we wind up doing is -- part of our business model and part of what we were able to operate on is we wind up invoicing generally for the year or a contract or a total contract value upfront, which may be a single year, 2 or 3 years. In most cases, including the one that we just announced, we get paid upfront. And then we recognize that period -- recognize that revenue from a licensing standpoint pro rata over the period of the contract value. So if the contract is 12 months, we recognize the total contract value over that 12-month period in equal increments. Same if it's 24 or 36 months. But yes, we yet to use that capital upfront. And generally, we get paid within a 30- to 90-day period and we really haven't had any bad debt at all. So we're very strong in the way that we collect that. So really strong from an operation standpoint. There's recurring question -- Dan, there's a recurring question around, is BAE part of what we're doing in Australia? Or how does that relate to you mentioned once going over to BAE in the U.K.? So what's the -- can you clarify that -- those opportunities?

Okay. First, I'll just finish off on what you mentioned about being paid upfront with this particular deal. That does not -- we are being paid upfront for the licenses that we've put into place, the new ones and the renewal of that. There is an ability to grow those licenses through additional capability and add-ons to the product. But most importantly, the area that we're sold into is extremely strategic and is a growth area horizontally across the Department of Defence. So that's why it's such an important deal for us. On the BAE deal, we have a number of partners in which we've always described that we want to sell to and sell through. BAE has a number of contracts. And obviously, with the AUKUS arrangements, with the submarines, they are the builders of the nuclear submarines in the U.K. They are not separate organizations. They work very closely together and they're aware of what is going on here in terms of the problems that we solve, which hence, my visit to the U.K. And as I said, what we're starting to see is that we are being mentioned in multiple areas of multiple businesses, and we see that as a natural network growth effect to the international market. That is why we are targeting and why it's so important to have those big names such as is Babcock, BAE, Northrop Grumman, Thales, because they do talk and have the same problems to solve in different multiple geographic areas, and we are seeing that. SAP recently has expanded their license base. [ ANI ] has expanded their license base and we're seeing that network growth effect. So that's part of why we're excited about the next 12 months.

Great. And so as we talk about TDI and what we're doing with the new data product, are there existing customers who are lined up to purchase the new data product in the coming quarters to get some quick sales momentum?

Yes, it is important to do that. I mean -- and the obvious answer there is one of the reasons that we are tightly associated with BAE and they're still paying for our services, and as I mentioned, they've walked us through the door into the Australian Department of Defence where they see the applicable opportunities in the Australian Department of Defence and, more broadly, in the industry.

Yes. And there continues obviously some concern around shareholder value and the share price at 4-year lows. How can archTIS drive the share price in the right direction and make sure that the market is understanding the story?

Yes. Look, I understand the concern and the fatigue and everything else that we're not playing for short-term goals here. We're trying to build a sustainable, highly profitable business. It takes time. We are playing in an area that is difficult in terms of the government bureaucracy and the customer base and all of that. But while I think you can start to see is that the activity is there. Obviously, I'm disappointed as Kurt. We're the two largest individual shareholders. But we think we feel good about the direction that we're heading. At least I feel good. Kurt, how about you?

Yes. Listen, I think we're doing the right things to execute. Obviously, we're disappointed in the share price. And as a micro cap, we have to do a daily and better job in making sure people understand the message. And the other day, it comes down to winning. It comes down to winning at home, making sure that we get not only one $2.3 million deal but do that every quarter, making sure that we're able to take that success overseas. And we look at what the overseas deployments are within NC Protect, looking at what that's within TDI. How do we tie that back into the relationship with Microsoft? And we're starting to see, I think, a little bit more traction there. Just with the technical validation wins, a lot of those -- most of those have been overseas that we're looking at. And we've been pushing hard on that. Yes, I know it's been a while to get there. But again, it's a small company, archTIS. And taking a company that shares the world's most sensitive data into an organization such as the U.S. DoD or into NATO or into the Canadian defense force or into the U.K. MoD, it doesn't happen overnight. Listen...

Or even into Microsoft.

Yes, and Microsoft. And been here for 4 years.

BAE.

It takes that long for -- listen, we're a $20 million market cap company. And so bringing that technology in, we get put under the microscope. And we're starting to win that technical validation. So I feel positive about that, more positive from a technology standpoint than I have, I would say, in the prior 18 months, which is confidence. But again, we go into commercials, and let's see where we go with it. So I think, hopefully we have more information at the AGM coming up and we'd be able to present a little bit more about what that targeted focus and message is as we drive forward. So Dan, with that, any comments in closing?

No, I just appreciate people attending the session. I'm very grateful for the support and the loyalty. And obviously, like I said, it's kind of -- I think this is the 12 months that is pivotal to this company for growth. And I think we started in the right direction with the Q1 sales.

Excellent. Great. So we have the announcement of our AGM coming out which will be virtually held in late November. So you'll be seeing more information around that as well as what we're going to be presenting from a continued strategic direction, and hopefully, a couple of announcements between now and then. So I appreciate everybody's time. Thank you for your continued patronage of archTIS, and we look forward to getting that share price up in the coming period. Thank you very much, and have a good rest of the day.

Thank you.