Beonic Limited (BEO) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Skyfii Limited Quarterly Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Wayne Arthur, Chief Executive Officer. Please go ahead.

Good morning, and thank you all for making the time to join us today. Welcome to the financial year 2020 second quarter results presentation to Skyfii. I'm joined today by Skyfii's Chief Operating Officer, John Rankin; and our investor relations consultant, Heidi Lord. We're thrilled to present another strong quarter of growth, which has allowed us to deliver our strongest first half result to date. Key highlights for the quarter. The company delivered a 20% quarter-on-quarter revenue uplift versus Q1 of FY '20. We also drove recurring revenues up by 13% quarter-on-quarter and 94% when we compare to the previous calendar period, Q2 of FY '19. During the quarter, we welcomed a new institutional investor to our register through a placement of $2.25 million. And finally, we exited Q2 of FY '20 with an annualized recurring revenue rate of more than $10 million, which is up 11% on Q1. The business has begun to significantly expand its operations as we continue to scale for growth, and to demonstrate this, we welcomed 2 new senior members to our team, a Chief Marketing Officer and a Vice President of Channel and Strategic Alliances. Both are in global roles, and both are based in the North American market. We remain very excited about our growth trajectory, and with the Beonic acquisition now fully integrated and most importantly delivering revenue growth in its own right, we are confident in delivering continued growth in the coming quarters, following on from a strong platform delivered in the first half of FY '20. So moving to Slide 2. Our vision remains to improve visitor experience by understanding behavior, and we help our customers deliver value to their customers and in their operations through the application and use of data. This practice is called omnidata intelligence, and this category best defines our business offering since it refers to the practice of collecting, analyzing and actioning data from a multitude of datasets currently inherent within physical and digital spaces already today. We believe that for any of our current and prospective customers, the pathway to a successful data strategy requires a combination of 3 key elements: Number one is choosing the right data; number two, applying intelligent technology; and number three, utilizing experienced people, all 3 ingredients which Skyfii provides. On Slide 3. Our goal is to become the leading omnidata intelligence platform for physical venues globally by the end of FY '21, and we are well on track to achieve this goal. As a global technology company, we've invested the last 7 years in building software which transforms the way organizations collect, analyze and extract value from data. We process billions of data points every month from the physical and digital world to help businesses improve the experiences of millions of customers every day. Slide 4 is a reminder to shareholders. Here is a snapshot of the Skyfii business. Firstly, our revenues are made up of 3 necessary components: recurring revenues, nonrecurring revenues and revenues delivered through services. Our recurring revenue generated from the sale of our IO platform subscription services are typically contracted on 3- to 5-year contract terms. Monthly fees per venue can range from as little as $50 per month for quick-service restaurants through to $10,000 to $15,000 per month for an airport or stadium deployment. Data and marketing services, which are generated from our data science or marketing-related projects delivered through our data and marketing services teams, support our customers in delivering on their data and digital marketing objectives. And these revenues are both recurring and nonrecurring in nature. And finally, nonrecurring revenues, which are generally a part of every new contract rollout, are applied when we support our customers through the setup and implementation of our platform and sometimes the implementation of infrastructures such as wireless or people-counting devices, and these revenues are nonrecurring in nature. From a data point perspective, we collect data from a growing variety of data sources, which continues to provide new revenue opportunities for the business, particularly in this era of Internet of Things. In addition to WiFi data, our other data sources now include people-counting sensors, cameras, sales transaction data, live weather feeds, car parking systems and hotel reservations platforms, to name a few. We service a growing number of key verticals, where we have delivered demonstrable penetration, including shopping malls, airports, stadiums, retail outlets, restaurants, cultural centers, smart cities and city councils, gyms and hospitals. And our customer base continues to grow. We service over 900 customers globally, and we're present in over 10,000 venues around the world. We've continued to maintain a strong focus on enterprise and enterprise customers, attracting a number of new blue chip international brands to the register in the last quarter. Moving to Slide 6, operating and financial highlights. We continued a strong customer acquisition growth rate securing 5 new contracts during the quarter. Remaining true to our core vertical, we secured a 3-year contract with Australian property firm ISPT to deliver our IO Connect and IO Insight services to 31 ISPT properties as announced on the ASX during the quarter. Furthermore, in the U.S. market, we also secured our third U.S.-based retail property contract signing on Macerich, who have committed to a 1-year initial deal for IO Connect. And we also brought onboard as a customer El Dorado Furniture, a leading U.S. furniture outlet retailer, who has committed 13 initial stores for IO Connect and IO Insight on a 1-year contract. Our U.K. team has continued to convert well-known high street brands, concluding 3-year contracts with both Betfred and TJ Morris, who have each committed 100 stores as part of an initial rollout of IO Connect. Both Betfred and TJ Morris have an additional 800 stores combined, which we anticipate to become part of the future rollouts. Moving to Slide #7, where I'll hand over to John Rankin to take you through the key financial highlights delivered during the quarter.

Thanks, Wayne. Moving to Slide 7. If we turn our attention to our results in Q2. As Wayne mentioned earlier, the company has delivered another outstanding performance in the second quarter of the financial year. Revenues delivered in Q2 represent the second quarter of contribution from the Beonic acquisition completed at the start of Q1, and we're pleased to confirm, inclusive and exclusive of the Beonic contribution, the company has delivered strong quarter-on-quarter revenue growth. We start from the top. During the quarter, top line revenue grew at 20% quarter-on-quarter, delivering $3.7 million in revenue. Recurring revenue grew at 13% quarter-on-quarter, delivering $2.33 million, which as presented on the second graph on Slide 7, represents an almost doubling of recurring revenues in the last 12 months having grown 94%. Pre-Beonic, the company's recurring revenues grew by 14% quarter-on-quarter to $1.9 million, which represents a 57% increase when compared to the same period last year. We're also pleased to report that recurring revenues from the Beonic business, now fully embedded into the Skyfii operations, also delivered growth, up 8% quarter-on-quarter. The company exited Q2 with an annualized recurring revenue run rate of $10 million, representing an 11% improvement when compared to Q1's exiting run rate of $9 million. And finally, the company finished the quarter with cash at bank of $3.74 million. Our cash on the balance sheet, combined with the $2 million drawdown facility available to the company, positions Skyfii well to execute on our international growth strategy. Moving to Slide 8, results for the first half of FY '20. Our top line revenues generated in the first half of $6.8 million delivered a 45% uplift when compared to the second half of FY '19, with both underlying Skyfii and Beonic business providing positive contributions as mentioned on the previous slide. At the operating EBITDA line, the company delivered a result of $800,000 for the half, representing a 100% improvement when compared to second half FY '19. And finally, the company delivered a blended gross margin of 79%, a reporting metric the company will continue to focus on in future reporting periods. So in summary, the company has delivered strong quarter-on-quarter top line revenue growth, strong quarter-on-quarter and year-on-year recurring revenue growth, both inclusive and exclusive of the Beonic acquisition. The underlying Skyfii business continues to perform and is highly complemented by the Beonic service offering. Delivery of a positive operating EBITDA in line with our market guidance. And finally, the business continues to benefit from our diversified revenue mix having achieved a blended gross margin of 79%. So thanks for your time. I'll now hand you back to Wayne.

Thanks, John. And I'm sure all shareholders will agree, another very good set of quarterly operating and financial results, which provides us a very strong platform for the second half of FY '20. Moving to Slide 10. I'd just like to provide an update on our sales pipeline as it relates to the current financial year. Now this was something that we presented as part of our AGM presentation in November of last year and depicts a snapshot of the revenues that we currently see in advanced stage of our pipeline across all markets that can actually impact the financial year '20 results. And so the result of our investment in core staff and valuable partnerships has enabled us to build up a very significant qualified sales pipeline of deals across all of our markets. Currently, we're progressing a pipeline of financial year '20 deals worth a little over $19 million, all of which, if successfully converted, have the ability to deliver revenue into FY '20. As mentioned, this is by no means our total pipeline but merely a snapshot of only those deals that fall into the current financial year. As we outlined earlier, we exited Q2 of FY '20 with an annualized recurring revenue run rate of $10 million, up from $9 million at the end of Q1 FY '20, which is an 11% uplift. In addition, as at today, we have just under $3 million in revenues in the final stages of contract negotiation and still 5 months left of the year to execute on those revenues. FY '20 is looking particularly bright in the international markets, which currently hold around $10 million in qualified advanced stage deals for the FY '20 year. Moving to the outlook slide on Slide 11. In closing today's presentation, here is an outline of the areas which remain in key focus for Skyfii as we look to the second half of financial year '20 and beyond. Firstly, we expect to see continued conversion of contracts from our international markets, which accounts for 55% of our FY '20 pipeline, advanced stage pipeline. We anticipate continuing to deliver double-digit quarter-on-quarter growth at both a recurring revenue and top line level. With a very strong cash position, we are well positioned to continue to invest for growth whilst continuing to remain focused on good cash management. And in addition, we have identified new geographies for growth via our expanding channel partner network. We are certainly buoyed by the company's continued strong growth quarter-on-quarter, and from a personal perspective, I'm very pleased with the growth opportunities we can see both locally and internationally across the business. The Beonic business delivered good growth in this quarter, and we are pleased with how seamlessly it has integrated into our total product and services offering. With that, we thank you for your time today and look forward to speaking with you all again in the following quarter. I will now hand back to the moderator for the Q&A session.

[Operator Instructions] The first question today comes from Owen Humphries from Canaccord.

Well done. You guys just keep ticking the boxes and your ARR keeps running higher. If you go to Slide [ 20 ], just going through that pipeline and going through the contract negotiations and pilots and proposals and if you compare that to the AGM statement. So I noticed that, FY '20, the qualified advanced stage pipeline has decreased from $25 million to $19 million. But I -- if you go down the bottom, the contract negotiation's fallen by about $1 million but the ARR's increased by $1 million. I imagine that's just kind of shifted across as converted. Can you maybe just talk through just the top of the funnel of that, the proposal presentation, how that may have fallen by $3 million? Just go through that...

Yes. So it's a snapshot of the pipeline at a point in time which relates to the financial year. So obviously, as we move through the year, the window that we're looking at is getting smaller and smaller. So naturally, the "top of the funnel" pipeline opportunities that relate to the current year will likely [ lesser and less of that ] as we get closer to the end of the year. And then we'll reset our pipeline forecast for the next financial year, and it'll start at a much higher number, if that makes sense. So it's not a surprise to see the total pipeline number reducing because the window of conversion is reducing. But as you point out, Owen, the conversion rate has improved. So we've actually managed to push $1 million out of that funnel into converted revenues in the last quarter.

And the 2 guys you've hired in the U.S., are they elephant hunters? Are they expanding the channel partnerships? Just talk through their opportunity sets and a bit about their backgrounds and what they can [ add to you ].

Yes, sure. So no, look, it's a good question. We -- the VP of Channel and Strategic Partnerships is specifically there to lead and manage all of our channel partners. So that will naturally lead to, obviously, opportunities, but we've never had anybody really dedicated in the business to those key partnerships globally. So that person will look to create some efficiencies around how we recruit, how we educate and how we sell through more efficiently into those channels. So it is a revenue-generating role, albeit working through the middlemen. And then the CMO, Chief Marketing Officer's come onboard. He is a former marketing technology entrepreneur himself. He's built and exited a couple of companies in the U.S., so he's got a very good track record of, I suppose, doing what we do, in a way, and having gone the journey with a -- his particular focus has been in marketing. Marketing as a function, for us, has not necessarily been, as you probably know, Owen, a place that we've invested significantly in the past. We've very much been a sales-led business, and we're starting to invest more in marketing to drive lead gen, to broaden awareness and improve that kind of monthly qualified lead process into the pipeline. So that's where he's coming into the business. We will continue to recruit. We are looking to recruit additional heads into the U.S. market and into the U.K. market, which will be more coalface elephant-hunting salespeople as well.

Okay. Okay. Good one. And I guess, in the last part about expanding the datasets that's represented inside the IO platform, I know you went up to 30 at one stage. I imagine that's continued to grow, and that increased relevance and stickiness. Can you maybe talk about 2 things? One, around customer churn during the half, in the past, it was very, very low for your business. Is that maintained through this quarter and this half? And then secondly, how are you expanding that, the amount of datasets embedded in the platform, which is your competitive advantage?

Well, great question. So on the churn, yes, customer churn is still less than 1%, so a very -- still very, very low churn rate for the business, and that was maintained through the quarter. From a dataset perspective, absolutely. We essentially can ingest any data source from any technology that has what's called an API. And so that dataset ingest, I suppose, variety will continue to grow as we expand into new verticals and as we -- and even within the existing verticals as well. And we're seeing a particular growth opportunity within commercial real estates, building managements, with the integration of things like lighting, air conditioning, heating, classroom occupancy, applications and meeting room functions; to integration with hotel reservation systems, loyalty programs. So the list continues to grow basically as the use cases evolve, and we're seeing growth in particularly commercial real estate and hospitality as those data sources expand.

And maybe we can talk about the WiFi. So that was, a couple of years ago, that you've kind of diversified away from that as a data source. But in terms of the platform usage, do you guys monitor number of [ seats ] or time on platform? Do you guys monitor anything about the acceptance of your platform within your customers?

We do. So yes, we have an analytics platform internally that monitors usage and how many people are logging in and what times and which reports they're focusing on. That drives a lot of the -- so sorry. It drives some of the product development. So we focus on development around the insights and reports that customers are naturally logging in to look at, obviously less and less so the others. But yes, we do keep a fairly good monitor on that. There's certain champions within the organizations that generally are the custodians of access to the tool, but we don't -- the product isn't priced based on the number of user accounts or user log-ins. They can use as many or as little as they like. So it's not really a function of usage in terms of adoption. It doesn't really affect our kind of churn rate or acquisition rate at all. But we do keep a tab on it so we can understand what's being used, what's not being used.

And given the investment in the platform and the people and the pipeline that you've articulated, is there any reason why your growth wouldn't slope to historic -- below historic average, let's call it, greater than 40% in calendar year '20?

We don't see any reason to think that's possible just based on the, as you say, the size of the market that we are continuing to acquire. And also importantly, as I've pointed out in some of these contracts that we've signed on, most of our contracts that we signed on, people are starting with the very basic products initially. And that's historically how it's gone. So there's additional growth within those accounts as well as, obviously, a lot of new acquisitions out -- or new customer acquisitions out there for us. So no, we're very confident with the current organic growth rate continuing.

And maybe I was going to finish my questions there but just noticed something then. How much -- what's the split between new customers -- if you look at your ARR growth during the quarter, how much is driven by upsell versus new customers?

Sorry, I had the mute button on there for a second. It's -- look, it's still mostly new customer acquisitions, the revenues. I'd say it's still probably 90% or a little higher in terms of the revenues are attributed to new customer contracts rather than the upsell. But we -- with our sort of -- it generally takes a couple of years of us working with a particular customer group before there's enough history and trend and data volume for our services team to be able to go in and genuinely upsell further and for our engaged product to become more and more relevant. So that's just a typical life cycle. So that continues. But certainly in places like the U.S. where -- kind of our newest market, 100% of the revenues are obviously new customer acquisitions at the moment.

Base product.

And base product, exactly.

[Operator Instructions] The next question comes from [ Michael Burn ] from [ Camden Equity ].