Beonic Limited (BEO) Earnings Call Transcript & Summary

All right. Good morning, everybody, and welcome to Skyfii's Q4 FY '22 results. With me today, we've got Wayne Arthur, CEO; and John Rankin, COO, dialing in. Just before I hand over to Wayne and John, there will be the ability to have Q&A at the end of the presentation. Please use the Q&A facility on the Zoom chat box, to load the question, and then I'll read that out to Wayne and John. With that, Wayne, I'll hand over to you.

Great. Thanks, Craig. Good morning, everybody. Welcome to the fourth quarter results for the 2022 financial year. My name is Wayne Arthur, CEO. And with me today is John Rankin, our COO. And we're excited to present the fourth quarter results, also a summary of the full year financial and operating performance, and we'll be providing an outlook, including financial guidance for the year ahead. So thanks, Craig. Moving to Slide #2. So before we dive into the financial results performance, I wanted to point out through an upfront summary on the current operating environment and some points around our outlook for FY '23. Firstly, our business continues to benefit from positive macro tailwinds. We're seeing an increasing global focus on crowd analytics, passenger efficiency and occupancy management. This has resulted in a growing demand for our technology and data solutions. Despite some of the macroeconomic challenges that we witnessed over the last year, the operating environment is improving with travel levels now exceeding pre-COVID levels. That's driving demand from our airports, stadiums and transit verticals. And with the current staffing shortages being experienced in many of these verticals, technology solutions are becoming mandatory requirements to help these venues and their operators to manage throughput and operational efficiency. In particular, our U.S. and EMEA markets have really kicked into gear and are expected to pace ahead of the APAC region during FY '23. And John will talk about some of the deliverables financially from those regions in FY '22 later on. We've also seen the amount of inbound inquiries for RFPs, improved significantly, particularly during the fourth quarter of FY '22. So in terms of the financial performance for the quarter, it was solid. We delivered total revenues, which were up 40% over the previous corresponding period. We continue to have a very positive revenue outlook with over $33 million of revenue currently in our 12-month rolling pipeline. Whilst the second half of the financial year did have some operating challenges brought on by the impacts of wage inflation, global talent shortage, supply chain cost increases and delays with the delivery of key hardware items, we have implemented several initiatives to focus on cost control, including offshoring, which we'll talk about in more detail, which is a key part of our FY '23 strategy to drive savings and to deliver sustainable cash flow into the business from the second half of this financial year. So with the improved macro conditions, coupled with our positive outlook and renewed focus on cash generation, the company expects to deliver another year of strong revenue growth with ARR expected to grow in excess of $20 million during FY '23. And importantly, we expect to deliver cash flow breakeven and sustainable cash flow generation during the second half of FY '23. Next, moving to Slide #3. So we have developed a data intelligence platform for physical spaces. We collect and analyze multiple data sets, and we visualize insights from those data sets that help to drive improved operational performance leading to cost and revenue efficiencies for the operators and to improvements in the experience for their customers. And we work with over 200 different types of data and our platform process is over 11 billion data points every single day. The kinds of data sets that we work with currently include data gathered from cameras, people counters, LiDAR sensors, WiFi networks, CRM platforms, mobile data and device applications, social media platforms, IoT sensors and point-of-sale systems, to name a few. What we do is we stitch all of these data sets together to form actionable insights on customer behavior in these venues. In today's world, as venues have shifted their focus to facilitate structural and operational changes as well as customer experience management. A great deal of our services are being used to help venues manage their occupancy levels, monitor crowd density, optimize staffing levels and improve customer safety and security. Moving to Slide #4. So here, we have highlighted some of the key use cases across 5 of our key industry verticals. These use cases are the reason Skyfii is a critical component of the technology and data strategy for these key customers. So for example, in the commercial property industry, venue operators use Skyfii to understand and manage occupancy levels across floors, buildings and tenancies. They use the data insights to understand things like space utilization, to optimize the layout design and the tenant mix in these venues. Retail properties use Skyfii to understand their audience by gender, age and their behavior and also the trade area and they use the insights to better engage with and service customers both in and out of their venues. Transportation hubs such as airports use Skyfii for queue management and occupancy monitoring and to optimize passenger throughput from the curb to the gate lounge in order to drive more traffic and revenue within the restaurants and retail tenancies. Today, we have in place with -- contracts with 13 out of the top 30 airports in the U.S. and in excess of 60 airports under contract globally. 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 government and cultural institutions such as museums and galleries, the key driver is -- for engaging with Skyfii is to manage occupancy understand what drives customer engagement and for invent attribution so that they can continue to deliver exhibitions that drive footfall and maximize engagement. So with that, we'll move to Slide #6, where I will hand to John to present the key financial and operating highlights delivered during the quarter.

Thanks, Wayne. So moving on to the financial and operating highlights. So Slide 6, the Q4 FY '22 results. So Skyfii is a rapidly growing business with a strong track record of delivering quarter-on-quarter revenue growth which is a reflection of the growing adoption of our technology and solutions. In the June quarter, we delivered total operating revenue of $6.9 million, up 40% from the previous corresponding period. Recurring revenues of 3.8% were up 15% on the same time last year. And our pro forma annualized recurring revenue exited FY '22 at $16 million. Quarterly cash receipts from customers of $6.5 million were up 67% on the same time last year. Net cash flow from operating activities was $840,000, which was inclusive of the impacts of capitalization of employee, contractor and other expenditure attributable to software development. At the end of June, we had cash at bank of $5.1 million. That available cash included $4.2 million of cash at bank, a drawdown of $900,000 from the $1.8 million project financing facility secured from Export Finance Australia. Importantly, our churn rate remained low at 3%, which reflects the strong client engagement and adoption of our technology. Slide 7, our annual performance. You'll note that the company has introduced a number of key initiative, a new key metrics into our quarterly reporting that we'll continue to report on in the coming quarters. And as you can see, we've delivered meaningful growth across the array of SaaS metrics over the last 4 years. Whilst FY '22 delivered a negative EBITDA result, this result was by design, as referenced in our investment for growth strategy in FY '22. Our churn whilst increasing marginally across the last 2 financial years has remained low when benchmarked against industry peers. I'd like to call out 1 key metric that we have included in the last 2 quarters, which is true gross margin. So this is not product gross margin. Product gross margin for the business when blended remains at around 75% across the business lines and as high as 90% on our subscription-based revenues. True gross margin presented today is inclusive of cost of sales, sales, account management, project and service delivery costs. True gross margin in FY '22 was down at 58%. We put this down in the 3 main contributing factors. Number one, FY '22 has been the year the company invested for growth, with a particular focus on headcount in North America, EMEA. Number two, revenue mix generated in FY '22 was more weighted towards capital works projects revenues, where historically, gross margin has sat around 65%. The increase in capital works projects in FY '22 included the grandfathering of the sales pipeline from the CrowdVision acquisition and the retirement of the Beonic people counting technology platform, which was acquired in 2019. This required the swap out of legacy hardware technology to migrate customers across to the Skyfii IO platform. Number three, the final point, and as Wayne stated in his opening ceremony -- sorry, opening commentary, the company experienced margin pressure, particularly in the second half of FY '22, where the global impact of inflation on employment, employee costs, equipment and hardware costs place further pressure on operating expenditure and margins on the deployment of technology into customer venues. So as we look to FY '23, we expect our cost base and revenue mix to normalize as our cost-out initiatives, offshoring of resources and re-weighting of revenue mix towards recurring revenues will result in our true gross margin returning to our historical averages. Slide 8 is a more in-depth analysis of net cash flow from operating activities. And in Q4 FY '22, the company generated cash flow from operating activities of $840,000, which was inclusive of the impacts of capitalization of employee contractor and other expenditure attributable to software development. In Q4, cash flow from operating activities was negatively influenced by 3 areas: a final $70,000 payment to complete the settlement of the CrowdVision acquisition; secondly, project delivery time frames still do remain challenging, so timing of cash receipts predominantly relating to capital works projects did experience some delays and timing of projects of key and -- timing of payment of key customer renewals. So highlighted in orange on the graph is the payments made across the year that formed a part of the completion of the CrowdVision acquisition. A total of $3.1 million in nonrecurring revenue payments were required to settle CrowdVision legacy net debts, including aged payables. The $3.1 million cost was offset against the total purchase price paid to the vendors of CrowdVision. However, under the accounting standards, these payments were required to be classified as cash outflows from operating activities. The outflows of $3.1 million were settled and paid as follows: $1.3 million in Q4 FY '21, $1.3 million in Q1 FY '22, $220,000 in Q2 FY '22, $210,000 in Q3 FY '22, and the final payment of $70,000 completed in Q4. So today, with $5.1 million cash in bank and access to the facility from Export Finance Australia, our future investment initiatives are now focused on revenue generation. Moving to Slide 9, new contract wins. So we continue to grow our customer base around the globe. During the quarter, we added $5.7 million of total contract value into our business, which was an exceptionally pleasing result and reflective of the increased engagement we are seeing across our addressable markets. The highlights for new contract wins during the quarter included over 50% of new contract wins secured in the Americas, primary verticals of retail, retail property and airports, driving new contract wins, recurring revenue, representing 48% of the $5.7 million contracted and 65% of deals closed, 1 were created in the last 6 months, which is representative of an improvement in our sales cycle. As we stated earlier, we have generated over $15.8 million of total contract value across the course of FY '22. Much of this revenue will positively impact recurring revenues from FY '23 and beyond. Whilst we cannot name many of our customers due to the commercial sensitivity, we are engaging with a wide range of blue-chip customers across the globe. Many of these engagements with global customers are leading to further growth opportunities in their global portfolio, delivering meaningful value in venue operations in our growing client base is helping drive the referral business, whilst also expanding our exposure to their organizations and their portfolio of assets or venues. So before I hand it back to Wayne, I want to restate the company is well placed to continue to deliver growth as venues and our customers look towards Skyfii to harness the power of AI and machine learning techniques to deliver meaningful venue analytics data to help them maintain safe and compliant operations, aid in the reduction of venue management, overheads and enhance the experience of hundreds of millions of customers who visit our portfolio of venues every year. Thank you, all. I'll hand you back to Wayne.

Thanks very much, John, and on with the ceremony. Moving to Slide 11. So by way of a corporate update, we are excited to announce that we recently expanded the Board, bringing in 2 additional high-caliber non-executive directors to strengthen and diversify the skill set. We'd like to formally introduce Bob Alexander and Mark Devadason to our shareholders. Bob's strong corporate financial background as a former CFO and his experience as Nonexecutive Director in technology solutions, intellectual property and advertising and digital media industries brings a highly complementary skill set to the Board. Bob was a Nonexecutive Director and Chairman of the Audit and Risk Committee for former ASX-listed company, The Citadel Group Limited as well as Xenith IP Group Limited and QMS Media Liberty. Mark's proven leadership and geographically diverse background in banking, finance and sustainability further diversifies the skill set and background on the Skyfii Board. In addition to his role on the Skyfii Board, Mark is also a Nonexecutive Director of Melbourne-based mutual bank, Bank First; and an executive coach and mental with Stephenson Mansell Group. In addition to these recent appointments and as part of our strategy to invest into our offshore markets, John Rankin has actually relocated to Europe to drive the company's initiatives in the rapidly growing Europe, Middle East and Africa region. With myself now already located in the U.S., the company's 2 most senior executives are now located within our core high-growth regions. So with a strong and dedicated team and now what is a strengthened regional operating model, we are well positioned to execute on our growth strategy and embark on this next phase of growth. Moving to Slide 13. So as I mentioned previously in the opening comments, our 12-month rolling pipeline remains very strong at approximately $33 million. And that is post the addition of the $15.8 million converted in total contract value that John mentioned, that was committed during the FY '22 year. Currently, we have approximately $3.8 million sitting in the final stages of contracting and then a larger pool of just over $7 million worth of deals in the client evaluation stage that are on stage back from being contracted. It is also worth noting that approximately 63% of the opportunities in our 12-month pipeline are deals within our international markets. So it's pleasing to see the offshore investments paying off. We've seen a significant increase in demand from travel hubs and entertainment venues as those have now almost fully returned to pre-COVID attendance levels. Approximately 18% or about $6 million worth of the current pipeline -- current -- sorry, our rolling 12-month advanced pipeline can still impact Q1 of FY '23, and we're running hard to capitalize on this momentum to kick off the new financial year. We're seeing a strong contribution in the pipeline from our emerging verticals, including government and cultural venues and from the quick service restaurant vertical, which collectively represent around 25% of the current rolling pipeline. And finally, over 15% of the pipeline has been generated during the last 3 months, which is a positive reflection of the investments we've made into our sales team and our decision to invest into growth in FY '22. So with that, I will now move to Slide #14 and talk a little bit about the outlook. So FY '22, as we've stated previously, was a year where the company made intentional decisions to invest into our operating model and resource base globally to build scale and a platform for delivering operating leverage. Having delivered 49% year-on-year revenue growth and successfully integrating the CrowdVision acquisition. We're confident that FY '23 is indeed the year where we will demonstrate sustainable operating leverage. We expect to deliver another year of strong revenue growth, focusing on ARR. And as mentioned previously, delivering $20 million in ARR by the financial year-end. In addition to ARR growth, as both John and I have noted, we have begun to implement a series of cost efficiency initiatives, including offshoring of several of our support and engineering functions, which is forecasted to deliver cost savings into the business, whilst providing the business with scalability through these more cost-effective regions. These initiatives supported by our revenue outlook gives us the confidence to announce that we will deliver cash flow breakeven during FY '23. And moving forward into FY '24 and beyond, the business will be set up to deliver strong and sustainable positive cash flow. In order to provide us with sufficient working capital to enable these various initiatives and to bring the company to a sustainable cash flow breakeven during this year, we've also, as John pointed out, secured access to an initial $1.8 million project financing facility through Export Finance Australia. We're extremely buoyant about the coming year. We have set what we believe to be reasonable growth expectations based on our revenue outlook and current pacing, and we very much look forward to delivering against these stated targets during the coming quarters. So with that, I thank you all for your time, for your ongoing support of Skyfii, and I will now hand back to Craig to take questions.

Thanks, Wayne. Thanks, John. [Operator Instructions] Firstly, Wayne, on the ARR of $20 million for 2023. How would that transact over the course of year? Is it second half? Why should you expect a reasonably steady growth throughout the year?

It's reasonably steady throughout the year, Craig. And so I think John pointed out that we converted a number of large capital works projects in the last financial year. So there's a trail there of ARR or recurring revenues that will come online in the first half. So we expect it to be fairly consistent throughout the year.

Great. And with that, what markets you see most of the growth? And clearly, international markets have been growing over the past couple of years. If we're looking at $20 million worth of ARR, is that going to be getting close to what, 70%, 75% of revenue being driven offshore?

Yes. I mean, look, it probably won't be as high as 75% in this financial year, but it's definitely trending that way. And our expectations are that the international markets combined. So EMEA and the Americas will definitely deliver the lion's share of the revenues combined in this next financial year, probably more like a 60-40 split, I would say, international versus domestic. But then moving forward, moving towards that 70-30, 80-20 over time, certainly.

Right. And just another question on that $20 million of ARR. What are the verticals at the moment you've seen the most growth in? And which will be the ones that you think will deliver that $20 million will be a big contributor to that $20 million worth of IRR?

So look, the core verticals of retail broadly and retail property and airports or transit hubs are certainly still the pipeline moving forward and will be contributors to ARR. But we are definitely seeing some emerging verticals, particularly the restaurant vertical has sort of bounced back into business for us in the last 6 to 9 months. So we do expect that to be a contributor to ARR certainly in the coming quarters. We're doing some very interesting store operations analysis for some of these brands or certainly there's business in the pipeline around that. So very, very applicable use cases that we expect to grow across that vertical. So definitely look out for some ARR generation through QSR in the coming quarters.

Right. Over one there for John. Just a question on the churn road. Trended up a little bit to 4% from where it had been previously back in 2019, 2020 pre-pandemic. Any reason for that change is tickling up a little bit?

Look, there's some natural attrition that we sort of force the hand of some of our smaller customers. So when we acquired the Beonic acquisition, there was a smaller group of customers that really weren't quite profitable. So that's sort of a natural churn that we're forced to hand on, which I think has been good. Look, I think beyond that, there's been a bit of contraction in some accounts. Some of that was carryover from the impact of COVID and some renegotiations there. I can't point to like a major contract loss that we've experienced where we've missed out or our solutions gone, or on the contract has gone to another competitor, but it's certainly just sort of a small mix of customers. I would say, look, automotive has been a tough sector. So I think the Blix product line that we have been carrying has been has experienced some challenges, and that's just because of the supply chain issues that have been experienced globally probably hit the automotive sector per start. And so we did see some churn that sort of carried through FY '22. But I think either way, I'll split it, a 96% retention rate, I think, is a pretty strong outcome for the business.

Yes. Just a follow-up question, just talk through on that one. You mentioned customer contracts. Can you just give a little bit of detail in terms of the length of customer contracts you're signing at the moment?

Go ahead, John?

Sorry, what was the question. Craig, can you ask again?

Customer contracts, are they 1-year contracts, 3-year contracts?

Look, they're typically -- look, 3 and 5. I think you would have seen in the vertical and the regional push. We probably would have expected some of the contract wins through the CrowdVision acquisition to come through in sort of Q3 -- sorry, Q2 and Q3 and that came through in Q4. And typically, the airport vertical will offer a longer-term contract. So we average out at about 3 years, but we've seen some 5-year contracts come through as well, which is really encouraging.

Right. Double inflation question here for you, it's obviously very topical at the moment. Can you talk a little bit about how inflation is impacting Skyfii's operations? And the second question is, is there anything in your contracts to see, I guess, an inflation kicker would be the question. Is there anything in those contracts that will, one, see the revenue price go up because of inflation?

Yes. So I'll answer that in 2 ways. And John, if you want to jump on, obviously, feel free. Number one, the impact on the business was largely relating to just staffing costs over the last 12 months, which we needed to address to ensure that people weren't essentially going backwards because of the inflation pressure. So that was an impact to the budget and cash flow, which obviously wasn't forecasted. So we've come through that now and we're comfortable and confident that that's been addressed adequately, and we brought everybody to up to the level that's required. And it also obviously caused us to think about alternatives, and we're doing that now through the offshoring. I do want to point out that there was a question just that I answered in the Zoom chat. We are not offshoring at the expense of talent or capability. So I want to make that really clear. We've spent -- and our HR Director spent a lot of time researching these markets. We decided to offshore some of our Level 1, Level 2 support functions to the Philippines, which is a very strong support center generally. And we're getting access to a very strong talent pool there in those support functions. And then our engineering function is looking to be scaled in Portugal, which is itself becoming a very strong engineering hub for international businesses. Portugal has a lot of different tax incentives for individuals. So we're seeing a lot of tenant moving from Europe to Portugal. And so we're benefiting from a very much talent pool at a much more cost-effective cost base. So I wanted to make those points. So that's how it's -- many has affect the business in terms of inflation. Look, we are conscious of the of our pricing. And so we're actually looking to change our pricing model, which is happening in flux at the moment. So we're quoting to meet inflation, our prices have gone up essentially. We don't have mechanisms in the current contracts to go back and change that price point, unfortunately. But certainly, everything current and moving forward has been adjusted.