Beonic Limited (BEO) Earnings Call Transcript & Summary

All right. Good morning, everybody, and welcome to Skyfii's First Quarter FY '22 Quarterly Results Presentation. Today, I have with me Wayne Arthur, CEO and Managing Director; and also John Rankin, Executive Director and Chief Operations Officer. Both Wayne and John will give a presentation. At the end of that, there will be a Q&A facility available. [Operator Instructions] With that, I will turn it over to Wayne to talk. Thank you.

Right. Thanks, Craig. Good morning, everybody. Welcome to the Q1 FY '21 (sic) [ FY '22 ] results presentation for Skyfii. And I'm joined today by our Chairman, Mr. Andrew Johnson; as Craig pointed out, John Rankin, COO; and Craig Sainsbury, our Investor Relations adviser. Q1 has seen the company deliver its highest quarterly revenue numbers since the company's inception, and we are well and truly on a carefully planned path to delivering our highest revenue growth year in FY '22 across the top line, recurring and annualized recurring revenue lines. Following the acquisition of Blix and CrowdVision, which both took place during the last 12 months, FY '22 is also the year where the company has made the carefully planned decision to invest into its operations in order for us to lay the foundation for continued accelerated growth in FY '22 and beyond and to set the business up to deliver significant operating leverage in FY 2023 and '24. To state this more clearly, during FY '22, we will see our highest recorded revenue growth delivered throughout the year, but we will need to invest significantly into our OpEx line to be able to sustain this accelerated revenue growth into the future. FY '22, therefore, will be a year where EBITDA will not be positive, but we have the capital to invest. And as we have stated at the capital [indiscernible] our use of funds included some investment into the operations. Importantly, FY '23 will see the company return to a positive operating EBITDA position. And with continued accelerated revenue growth expectations, thereby delivering significant operating leverage in the financial year '23 and beyond. Most importantly, our message to shareholders is that the company is presently on track, and the Q1 FY '22 results was in line with current [Audio Gap] research and our current pipeline of advanced stage deals, which we'll talk about a bit later on today, [indiscernible] positive outlook. So in summary, we're on track towards our FY '22 targets and goals. We expect cash outflows to normalize now that we are post the settlement of the acquisition, and we do anticipate revenues to grow substantially each quarter from here. Moving to Slide 2. As a brief recap, Skyfii is a data services company. We're focused on applying the methodology of omnidata intelligence, which helps venue operators improve their operations and the experience of their customers. Our mission is to be the world's most trusted partner for responsibly using technology and data to positively measure, manage and influence relationships between people and the places that they visit. Our vision is to help our customers use data to create a complete understanding of experiences across the physical and digital environments. Some key stats about the business today. We process over 11 billion different data points every single day. We support in excess of 90,000 different IoT devices globally, and we actively work with and ingest data from over 200 different data sources currently. And finally, our technology is deployed across more than 11,000 venues and in 11 verticals around the world. So moving on to Slide #3. What are the kinds of data sets that we collect and analyze? Well, the answer is any platform that has the capability to transmit data is a possible data source that we can collect. The data sets that we work with most often include data gathered from cameras, people counting sensors, WiFi networks, beacons, mobile data and device applications, social media platforms, IoT sensors and point-of-sale systems to name a few. What we do with all this data is we stitch it together to form actionable insights on customer behavior. In today's environment, as venues have shifted their focus to facilitate structural and operational changes as well as improving customer experience, a great deal of our services are being used to help venues manage occupancy levels, monitor crowd density, optimize staffing levels and improve customer safety and security. Moving to Slide #4. The Skyfii business provides venues with a complete turnkey end-to-end solution for all of their technology needs. Our products and services offering is summarized in three key areas: number one, technology solutions, which refers to the design, procurement, delivery and implementation of infrastructure to deliver people counting, wireless, camera detection or LiDAR-based solutions where required. This is then supported by the delivery of our Software-as-a-Service solutions, Connect, Insight and Engage and also remote management and support services for the infrastructure. All of these products are built on a recurring revenue basis -- on an annualized recurring revenue basis. And today, that pool of products makes up approximately almost 70% of our revenue base. Finally, our professional services offering, a really important part of our revenue mix, which refers to fixed retainer consulting services in the areas of digital and data strategy, data science projects and digital marketing deployments, all of which really help to solidify the Software-as-a-Service revenues and entrench our product and service offerings further within our customer base. To date, we have successfully deployed resource to capably sell across all three areas particularly in our Asia Pacific and ANZ market and are currently resourcing our U.K. and U.S. operations to be able to deliver all three products and services offerings during FY '22. Moving to Slide #5, we will talk about some of the key use cases that we work in some of the verticals. So here we've highlighted some key use cases across 5 of the 11 verticals that we specifically are focused on today. These use cases are the reason Skyfii is a critical component within the technology and data strategy for these customers. For example, in the commercial property industry, venue operators use Skyfii to understand and manage occupancy levels across floors and within buildings and tenancies. They use the data insights to understand space utilization, optimize the layout, design and optimize the tenancy mix within their venues. During the last quarter of FY '20, we announced the partnership with BrainBox AI who do HVAC usage monitoring. And now as a combined offering, we help large venues predict and optimize their HVAC usage to drive better cost efficiencies across their portfolios. Retail properties use Skyfii to understand their audience by age, gender, behavior and trade area, and they use these insights to better engage with and service customers both in and out of their venues. Transport hubs, airports, train stations, use Skyfii for queue management and occupancy monitoring to optimize passenger throughput from curb to gate and to drive more traffic and revenue within the restaurants and retail tenancies. The stadiums and event centers, the use cases center around fan engagement, event attribution, sponsorship and advertising monetization and to drive more ROI through the concession areas. And finally, in cultural institutions, such as museums and galleries, the key driver for engaging with Skyfii is to manage occupancy, understand what drives engagement and dwell and for event attribution so that they can continue to deliver exhibitions that drive footfall and engagement. Moving to Slide 7. I'm going to hand over to John to present the key financial highlights delivered during the quarter and also just to provide some commentary on the specific areas of investment that we have made so far in FY '22.

Thanks, Wayne. And look, thanks, everyone, for joining the call today. Well, I think the video has now been enabled so you can put your video on for the balance of the presentation. So moving to Slide 7, the Q1 financial results. So to begin, total operating revenues of $5.1 million represented a 48% increase year-on-year and a 4% increase quarter-on-quarter. If we break out the CrowdVision contribution of $800,000, this represented around 16% of total revenues generated in the quarter. Recurring revenues of $3.5 million represented a 54% increase year-on-year and a 3% increase quarter-on-quarter. And this included a $600,000 contribution from the CrowdVision acquisition, which represented about 17% of recurring revenues booked into the quarter. Moving to cash. We ended the quarter with cash at bank of $5.8 million, which was a decline from Q4 of $8.6 million but was in line with our expectations. I'd like to expand on the movement in cash during the quarter and, in particular, the cash outflows for the company as published in our 4C reporting. The cash outflows for the quarter were $2.9 million, of which $1.3 million or 44% was utilized to repay CrowdVision finance debt and aged payables, which are onetime payments for the acquisition of the business. Wayne will also touch on this topic in the coming slides by providing the call with a breakdown of the transaction, which was completed in early July. Also on the next slide provides some context around where the investment in the combined Skyfii CrowdVision businesses has been made since announcing the acquisition in April this year. Beyond the $5.8 million of cash at bank, the company continues to have access to a $2 million debt facility, which remains completely undrawn. And finally, the company carries forward an annual recurring revenue run rate of $14.2 million, which was a moderate increase quarter-on-quarter. And I do note the ARR growth rate was impacted in the quarter from a higher-than-expected churn rate. The customer churn was made up of a group of smaller legacy customers that were carried into the business from the acquisitions of Beonic and Blix, and we do expect that churn rate to normalize in the coming quarters. Just on a final point. As Wayne stated in his introduction, the Q1 result was in line with our internal targets, and we're pleased to confirm that we are successfully executing on our plans for revenue growth. The company is well positioned with sufficient headroom to integrate the CrowdVision business as we set ourselves up for a really strong FY '22 result. So if you move to Slide 8. We provided today a little bit of headcount analysis, and presented on the screen today is really breakdown of the company's headcount allocation by region and by function, both prior to acquiring CrowdVision and also the company's current headcount. So prior to the acquisition, the company had 63 employees across three key regions of APAC, EMEA and the Americas. 31 employees were welcomed into the business when we acquired CrowdVision in April of this year. And that headcount was largely concentrated into engineering, operations and service delivery as well as some management that came across. And that was all focused or split between the U.K. and North America. Prior to the acquisition, Skyfii core business was underrepresented in certainly the sales function operations and service delivery in the EMEA and North America region. And the acquisition has really provided us with the company with a neat sort of acqui-hire strategy to bolster our presence, particularly in EMEA and North America. However, both businesses were underrepresented in sales and marketing. And we've used the last 4 to 5 months to address that. So since April, Skyfii has invested in 11 new headcount and, as I've suggested just before, largely focused in sales marketing and some operations to help fast track the delivery of revenue. So really by merging the business operations and the new investment in 11 new headcount, the company is now well positioned to reach for growth and deliver against our growth targets in FY '22. And while our hiring strategy for FY '22 is not fully delivered, the business does remain focused on incrementally investing for growth to maintain a strong cash balance, a strong cash balance that will be supported with improved revenue performance in the remaining 3 quarters of the year. So thank you all. I'll now pass it back to Wayne.

Thanks, John. And moving on to Slide #9. We did secure a series of net new revenue contracts and also a key renewal during the quarter. These contracts were announced post quarter end but actually were initially secured during Q1. Firstly, we secured our largest customer in the Middle East region, signing a 3-year contract across an initial 15 shopping centers with MAF Group, arguably the largest and most recognizable retail brand in the Middle East with over 50 malls in their portfolio, several large department store brands, including Carrefour, the supermarket group, and entertainment precincts all under the one umbrella. So a lot of anticipated future growth in this particular account. Continuing the growth trend in the Middle East, we also successfully signed a 3-year deal with McDonald's across all of the current McDonald's restaurants in the Middle East region. And finally, in our U.K. and EU business, we signed a 3-year contract extension with McArthurGlen, the designer outlet mall group, which is owned by Simon Property Group. McArthurGlen have been a very strong customer of Skyfii's platform and services offerings since 2016 and are now on their third consecutive 3-year renewal. So moving to Slide #10. We'll talk a little bit about the CrowdVision integration and an update on the closing out of the commercials, which took place in Q1. So during the quarter, the Q1 quarter, the company completed on the acquisition of CrowdVision. The total acquisition cost was AUD 10 million, which was in line with the price that was stated on the 6th of April with the ASX release. The breakdown of the acquisition commercials was, as John pointed out, a $1.3 million initial consideration paid in cash to the vendors of CrowdVision; $3.1 million in payments to settle net debts owned by CrowdVision prior to acquisition completion; and then $5.6 million in deferred equity compensation, which was paid in scrip and issued at a share price of the then-prevailing VWAP, which was $0.209 per share. The company elected to fund the deferred consideration with shares issued at that $0.209 share price rather than with cash as we failed to deliver the best value for Skyfii shareholders. The issue of the deferred consideration resulted in 26 -- just over -- almost 27 million shares, with 26,673,811 Skyfii shares to satisfy the deferred consideration for the acquisition. The deferred consideration shares are subject to voluntary escrow restrictions, with about 15.3 million shares out of that capacity subjects of voluntary escrow conditions expiring on the 5th of April 2022 and then 11.3 million shares subject to escrow conditions expiring a year later, 5th of April in 2023. And as we stated when we made the initial acquisition, this is a countercyclical acquisition in a vertical and an industry that is rebounding significantly from the effects of COVID-19, and we have begun to successfully secure new airport contracts as well as stadium and sporting venue contracts, which we will be announcing shortly in the second quarter. Air travel has largely recovered in the U.S. market, particularly domestically, and is also approaching pre-COVID levels in the EU market, with ANZ starting to rebound following the lifting of restrictions in September. And pleasingly, our current advanced stage pipeline includes over $3 million in new revenue from airports specifically sitting in just the bottom two stages of the pipeline, and I'll show you an excerpt to that pipeline as we move through the deck. So while we've had some lateral pipeline movement in Q1 of deals that are in the contracting or committed stage but have not yet billed, we're very confident these deals will close into Q2 and be part of our first half revenue growth story. Moving to Slide #11. While we let to slide load, Slide 11 depicts some of the imagery that we capture and visualize using LiDAR and computer vision technologies, respectively, both of which were part of the acquisition products and were part of the acquisition of CrowdVision. We've taken the opportunity to showcase how the artificial intelligence is applying to the various use cases that we are delivering for customers across the following verticals: train station platforms where we help operators understand occupancy and detect threats inside train carriages, where we understand, again, train carriage occupancy and, again, any threats or public disturbances; at taxi ranks to monitor queue volumes and taxi frequency and also to assist in understanding curb-to-gate journey or gate-to-curb throughput; and then in various security checkpoints as well where the data was used to understand a queue wait times, passenger volume and also throughput. So moving to the outlook section and, specifically, the 12-month rolling sales pipeline on Slide 13. Our 12-month rolling pipeline remains very strong, and we are consistently moving deals through to the advanced stages. Currently, we have approximately $3.4 million sitting in either contracting or committed stages and then a very sizable pool of $11.5 million worth of deals that are one stage back from being either committed or contracted. So right now, our teams are focused on closing the deals that relate to the second quarter, particularly, and at this stage, there is approximately $7 million worth of deals in these latter stages that can impact Q2 if we successfully convert 100%. With the market still operating on a fairly short turnaround and with 8 full months to trade in FY '22, our outlook for Q2 and the full year remain very strong. Moving to Slide 14. As I stated in the outset, today's presentation, FY '22 is a year of investment into our operating model and resource base as we look to scale our operations to deliver accelerated growth across the next 3 years beginning in FY '22. And specifically to deliver operating leverage in FY '23 and beyond. We'll continue to invest in some marketing activities to drive quality lead generation. And we've already begun to see marketing events begin to return to the roster. We're laser-focused on delivering growth and market share across airports and stadiums, particularly with the integration of the CrowdVision business into the core Skyfii product and service offering. Alongside investments in marketing, and as John mentioned earlier in the sales and operations functions, we've already begun to invest into growing sales, support and services headcount where we are anticipating bringing on a total of 19 new roles into the business this year, with 11 already higher. These new roles are being brought on to improve sales growth and conversion and expand the capacity of our services and support teams to deliver on new projects. Our focus is on investing to deliver ARR, or annualized recurring revenue growth, in line with the analyst estimates of reaching $20 million ARR by year-end. While the results of investment activity in FY '22 will increase cash outflows and impact EBITDA, our cash allocation is under tight scrutiny and has been carefully invested alongside a plan that paces in line with our revenue growth and one that will see the business returning to a positive EBITDA position in FY '23 but, importantly, with continued accelerated revenue and ARR growth moving forward. Cash outflows, as John pointed out in the first quarter, included a significant amount of one-off costs relating to the final settlement of CrowdVision, and these costs will not carry forward into the following quarters. So our investors who continue to support us, we thank you for your continued patience. We are on track and are executing successfully against our plans, with the expectation of a significantly higher revenue growth being delivered in the second quarter and throughout the year. With that, I thank you for your time today and for your ongoing support of Skyfii as we look to deliver a record year in FY '22. And I will now invite any questions.

[Operator Instructions] First question for you, Wayne, is what do you believe the natural absolute ARR growth should be in the second half of FY '22 given the growing pipeline that you've got? And also what proportion of the ARR do you think will be driven by the CrowdVision?

It's good questions. So without providing any firm guidance, we're tracking ourselves against the analyst research guidance that is in the market, which sees us reaching an ARR milestone for the end of the year of $20 million. We're currently pacing at about $14.2 million. So you have a delta seeing us reach between $5 million and $6 million between now and the end of the year. So that's the trajectory that we see ourselves being on. It's definitely a story of first half and second half. We expect Q2 to be significantly up on Q1, but we also expect the second half to deliver a larger revenue and recurring revenue result in the first half based on the way that the pipeline has scaled. And obviously, as the world continues to rebound from the effects of FY '20 and '21.

Great. Sub-question to that one is, where do you anticipate most of the growth to come from in the second half of the year? And we had some good wins in the Middle East, CrowdVision with the air traffic data improving in the Northern Hemisphere. Is it the international markets, in particular the U.S., that you think will drive that growth? Or is it more spread around the globe?

Definitely, the investment and the subsequent return that we expect from revenue growth is going to come out of the international markets, I guess more prominently than we've seen in previous years. The ANZ market absolutely still continues to deliver strong results. But yes, I would suggest that it's going to be the EMEA and European regions and the North America regions that's going to deliver that additional scalable growth, particularly in the CrowdVision business absolutely. I just want to touch on one of the questions. Sorry, I didn't answer in the first round. What do we expect the CrowdVision to be in terms of that revenue growth number? It's probably going to be maybe 40% of that growth rate I would attribute to CrowdVision. We are going to see a strong growth rate from our organic business as well. So we're certainly forecasting strong growth organically as well as, obviously, growth out of the CrowdVision business moving forward.

Right. And just a little follow-on from that one. Roughly, what's the split at the moment between international and offshore revenue for the business? And if you can, the question was, what percentage is coming from the North American market?

Yes, it would be very close to 50-50 right now, and that's obviously improved from 2 years ago. It was 75-25. I think, last year, it was 60-40. And so we're at about 50-50, at least pacing in that direction, international versus domestic. So we're on the right trajectory. North America certainly is going to be the largest contributor of the international markets this year. So it would be a close second to the ANZ region in total revenues for this financial year.

Great. And a few questions coming in around growth. So I'll ask them in turn and just so you talk freely. Firstly, what's the total investment that you think you'll be putting into growth in terms of people sales marketing over the course of FY '22?

Look, we haven't provided a firm estimate, but suffice to say that, of the working capital requirements that we stated that we were going to be putting to work when we announced the acquisition, I think it was around about $5 million to $6 million was what we expected our working capital balance to be. And that will maintain throughout the course of the year. There's going to be 19 heads added to the business, subject to pacing. We've added 11 already today. And we will only be continuing to invest into the additional heads if revenue continues to pace in line with the plan. So it's all about making sure that we preserve that working capital balance. That's the key focus. We're not putting ourselves in a position where we will need to raise any further capital. We're very mindful of making sure that the cash we've got at the bank is going to sustain us well into the future.

Great. You sort of touched on there, but there was another question around [indiscernible]. What's the flexibility in terms of the pace of that investment? Is it something that you can accelerate or pull back depending on the level of revenue to ensure that you get that working capital and cash balance around those levels?

Absolutely. And it's a really, really key focus for our team. So we will not continue to invest if revenues don't pace in line with expectations, absolutely. So -- and vice versa, as long as we we're maintaining or ahead of plan, then we will continue. But with a limit this year of that total of 19 heads, we may not get there in the full year. And then, certainly, FY '23 is a vastly reduced investment into OpEx. So hence, why we continue to talk about operating leverage becoming to be significant in 2023, it's because revenues, we expect, will continue to pace in line with this year, next year but, certainly, our investments and our cost base will not.

Yes. Next question is the company has had a couple of years of delivering positive operational EBITDA. Obviously, this year, that's going to be harder to do with the investment. But rolling for what level of ARR do you think that you need to be back delivering positive operational EBITDA on that higher level of cost base?

Look, we think north of $18 million ARR sees us getting very close and certainly in terms of pacing. So if we hit our targets this year, then we will be back into a positive operating EBITDA position in '23.

Great. All questions [Audio Gap] how those are helping to contribute to growth of the business?