Beonic Limited (BEO) Earnings Call Transcript & Summary

All right. Good morning, everybody, and welcome to Skyfii's Second Quarter FY '23 Results Call. Craig Sainsbury, Investor Relations with me today. And we have Wayne Arthur, and John Rankin, COO of Skyfii. Wayne and John will give a presentation followed by a Q&A session. [Operator Instructions] With that, Wayne, I'll hand it across to you.

Great. Thanks, Craig, and good morning, everybody. As Craig mentioned, welcome to the second quarter results for the 2023 financial year. I'm Wayne Arthur, CEO. And with me today is John Rankin, our Chief Operating Officer. First of all, we are very thrilled to report positive net cash flow in Q2 of FY '23 and also to finish the first half of FY '23 with positive operating cash flows, both well ahead of the guidance that we provided at the beginning of the financial year. The strong momentum is driven by a number of recent contract wins, on-time cash collections and the various cost-saving initiatives as well as the ongoing growth in our recurring revenues. Having delivered positive operating cash flow in the first half of FY '23, and taking into account the positive momentum, together with about $3.6 million worth of total contract value, which is being converted in Q2. We remain highly confident in our continued solid performance for the balance of FY '23, and we maintain our guidance of achieving $20 million in ARR by June 30, along with positive EBITDA and continued cash flow breakeven in the second half. So with that, I will move to Slide #2. Before we dive into Q2's financial results performance, I wanted to provide an upfront summary of the current operating environment and of our outlook for the remainder of FY '23. Firstly, the business continues to experience strong demand from the global travel vertical and is building momentum in the Quick Service Retail vertical. And I'll talk a bit more about some of the contract wins that we delivered recently. Intelligence solutions like our LiDAR technology are becoming mandatory requirements to help venues manage throughput and to improve operational efficiency. As a result, we exited Q2 of FY '23 with annualized recurring revenues of $16 million. We have also successfully contracted an additional $2.2 million in recurring revenues, which we expect to be delivered in the second half of FY '23. One of the biggest stories for the quarter was our cash at bank position, which increased 55% quarter-on-quarter, up from $4.3 million at the end of September, to $6.6 million on 31 December. This was due largely to on-time collections and the closing out of various projects, which had dragged from Q1. So having now delivered positive cash flow in the first half of the financial year, we remain on track to continue to trade at cash flow breakeven or better, to deliver our ARR target of greater than $20 million in FY '23, and a positive EBITDA during the second half of FY '23. Slide #3. For those not familiar with our core software offering, we have developed a data intelligence platform for physical venues. We collect and analyze multiple data sets and we visualize insights that help to drive improved operational performance, leading to costs and revenue efficiencies for the operators and to improvements in the experience for their customers. We work today with over 200 different types of data and our platform processes 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. And what we do is we stitch all of this data together to form actionable insights on customer behavior. 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 occupancy levels, monitor crowd density, improve throughput, optimize staffing levels and overall to help improve customer safety and security. Moving on to Slide #4. So here, we've highlighted some of the key use cases across 5 industry verticals that we are prevalent in. These use cases are the reason Skyfii is a critical component of the technology and data strategy for these key customers. For example, in the commercial property industry, venue operators use our products to understand and manage occupancy levels across their floors, buildings and tenancies. They use the insights to understand things like space utilization to optimize layout, design and tenancy mix in their venues. In addition, through our real-time occupancy analysis, we are able to help these large venues to 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 to observe changes in their trade area. And they use these insights to better engage with and service their customers both in and out of their venues. Transport hubs such as airports, a key and growing vertical for us, use Skyfii for queue management and occupancy monitoring and to optimize passenger throughput from curb to gate lounge, delivering more efficiency around check-in and security processing and ultimately to drive more traffic and revenue to the restaurants and retail tenancies. Today, we have contracts in place with 13 out of the top 30 U.S. airports, and we work with in excess of 60-plus airports globally. For stadiums and event centers, the use cases center around fan engagement, event attribution, media 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 for engaging with Skyfii is to manage occupancy, to understand what drives engagement and for event attribution, so that they can continue to deliver exhibitions that drive maximum footfall and engagement. This year, we have narrowed our focus to 3 core verticals, being retail, transit and QSR, which is where we see the highest growth potential over the next 3 years. Earlier in the quarter, we announced a landmark deal with McDonald's in the U.S.A. And more recently, we announced several new deals in the airport and also retail verticals. More on these contracts to follow later in the presentation. So now we'll move to Slide #6. I'll hand to John to present the key operating and financial highlights delivered during the quarter.

Thanks, Wayne. So moving on to the financial and operating highlights. So Slide 6, the Q2 FY '23 results. In the December quarter, we delivered total operating revenues of $5.7 million, up 5% quarter-on-quarter. Recurring revenues of $4 million were up 4% quarter-on-quarter. And our pro forma annualized recurring revenue exited Q2 at $16 million with a further $2.2 million in ARR under contract, which is expected to be delivered in the second half. The most pleasing result for this quarter was cash receipts from customers of $9.5 million, up 55% (sic) [ 49% ] quarter-on-quarter. This resulted in a net cash inflow from operating activities of $3.1 million in Q2. And at the end of December quarter, we had cash at bank of $6.6 million, up 55% on Q1. And finally during the quarter, we experienced an improvement in our churn rate, which dropped back to 2%. Moving to Slide 7, the key performance metrics and focus on the first half results. Total revenue delivered during the first half was flat when compared to the previous corresponding period. However, recurring revenue did increase 10% for the same period last year, and ARR increased by 11% at $16 million when compared to the same time last year. Our gross margin remained steady at 58%, consistent with the full year result for FY '22. And there was an improvement in our churn rate averaging out at 3% in the half versus 4% average in FY '22. It's important to restate, as we have in previous quarterly presentations, the company remains focused on addressing the challenges faced with regards to inflation. We have a tight focus on margins for our infrastructure deployments and price increases are now being assumed into all customer renewals. Our strategy to redeploy resources into the markets in Portugal and the Philippines is helping address affordability challenges in global talent, particularly in the engineering and technical support related roles. Moving to Slide 8, the net cash flow from operating activities. Well this is indeed our most pleasing financial results delivered in the quarter. In Q2, the company delivered a positive net cash flow from operating activities of $3.1 million. This is a significant improvement when compared to Q1 and resulted in the company delivering a cash flow positive result in the first half of $2.2 million. Now there was a few key points to take from this slide. Number one, firstly the company did benefit from an upfront payment for capital works to the value of $1.1 million, which was received in the month of December for a large customer deployment in the airport vertical, which will be delivered and recognized across the final 2 quarters of FY '23 and the naming of the customer is still to be announced. Number two, it's important to point out that even when we exclude this upfront payment, the company delivered a positive operating cash flow result for the first half. Number three, in Q2, the company made significant headway in collections in the EMEA and North America regions where we experienced drag in the collections of key customer renewals in Q1, following a seasonally slower start to the financial year due to the extended Northern Hemisphere summer break. Number four, the final point, our working capital cycles improved in Q2 with further adoption of improved payment terms, the various capital works projects to deploy our various technology lines. Moving to Slide 9, new contract wins. The company delivered a number of contract wins in the quarter across a range of geographies and verticals, delivering a new business total contract value of over -- just over $3.6 million. Some of the key highlights include: Retail property, which considerably outperformed the other verticals this quarter with 65% of the new business revenue with a number of large deployments in Australia now in project delivery; and a similar dominance was observed for the APAC region, making up 64% of new business revenue. Pleasingly though, our sales cycle has improved with 58% of deals closed won were created in the last 3 months, which will provide continued momentum into the second half of FY '23. So I'll finish up there. Thank you for your time. I'll now hand you back to Wayne to talk through some of our recent contract wins announced during the quarter.

Great. Thanks, John, and congratulations again to the team for a fantastic Q2 results. Moving on to Slide #10 then, key contract wins. During the quarter, Skyfii signed and announced several major contracts, including earlier in the quarter, a contract with McDonald's U.S.A. where the total contract value is currently worth $2 million to be delivered over the next 3 years. The agreement will see Skyfii provide McDonald's with an industry-first, real-time whole-of-venue monitoring and analysis solution, which is focused primarily on helping them to observe their 12-service delivery channels with a view to improving store operations, service efficiency, food freshness and overall customer satisfaction. McDonald's will use Skyfii's software, which harnesses the power of LiDAR and thermal imaging technology, as well as a bespoke algorithm to automatically categorize and analyze the movement of crew and customers as they move throughout the restaurant and to assess the effectiveness of their 12 service delivery channels. The data and the insights provided by our products will allow McDonald's to understand in real time how long it takes to complete each step of service, and to determine what factors may lead to a customer experience that does not meet their standard. Our solution is currently live in 4 McDonald's restaurants with a further 4 to follow. Secondly, we announced -- or signed and announced several contracts in the global airports vertical with a combined total contract value of $2.8 million, including with Phoenix Sky Harbor International Airport, Newark Liberty International Airport and Miami International Airport. It's important to note that we are continuing to experience very strong demand for the company's key management product, specifically for ticketing and security checkpoints through our LiDAR-based solutions within the airport and mass transit hub verticals, as these verticals are experiencing higher-than-normal passenger volumes as the world has returned to regular work and leisure travel. The reality is that without solutions like those being provided by Skyfii, these mass transit hubs, train stations included, do not have the resources to cope with these enormous passenger volumes. They need solutions to help alleviate customer congestion to improve throughput. And as such, we are extremely bullish about the continued growth potential for us in this vertical, particularly over the next couple of quarters. So moving to Slide #12. The 12-month rolling pipeline remains very strong at approximately $26 million. Currently, we have approximately $2.2 million sitting in the final stages of contracting; and then a larger pool of just over $6.1 million worth of deals in the client evaluation stage, which is one stage back from contracting. I note that these figures represent actuals over the coming 12 months and not total contract value, meaning specifically that these dollar amounts, if all converted, would fall into the following 12-month period. As a reminder, deals in the contract negotiation or committed stage are at a 95% likelihood of conversion, those in the client evaluation stage at 60% and anything above this closer to 20% or 25% likelihood to convert. And that's based on our current performance history. It's also worth noting that approximately 59% of the opportunities in our 12-month rolling pipeline are deals in our international markets. So it's pleasing to see the offshore investments continuing to pay off. We're seeing a strong contribution in the pipeline from our core verticals, including airports, train stations and retail property, which collectively represent around 53% of the current pipeline. Over 20% of the pipeline has been generated in the past 3 months, which speaks to the relative short-term decision-making evident in the market, and further to John's point around the near-term conversion, around the sales cycle. And then finally, we have delivered $15.6 million worth of total contract value over the past 12 months. So with that, we'll move to Slide #13, the outlook. So whilst our ARR growth has been relatively flat over the last 2 quarters, recent deal conversion has resulted in a significant uplift to both operating revenue and to ARR in the second half of FY '23. Q3 next quarter, or the current quarter should I say, Q3 of FY '23 is currently performing very well, with total operating revenue already up 23% versus Q2 of FY '23 based on current pacing. As noted earlier in the presentation, we have already contracted $2.2 million of recurring revenues, which is incremental to the $16 million that we've just announced, and we expect to deliver this all in the second half, which essentially incrementally would bring current contracted ARR of $16 million to closer to $18.2 million upon delivery. Having delivered a positive cash flow performance in the first half of FY '23, well ahead of the guidance that we provided, and with the strong ARR momentum already into the second half of FY '23, the company remains on track to meet its guidance of achieving an FY '23 exit ARR run rate of $20 million and to maintain a sustainable cash flow breakeven position during the second half of FY '23. The company also expects to deliver positive EBITDA in the second half of FY '23. In addition, ongoing business development will remain focused on key verticals, specifically airports, stadiums, retail and quick service restaurants, where we expect to deliver the new contracts in the second half of FY '23. And finally, we will remain focused on cash, and we'll continue to actively manage cash while implementing efficiency initiatives, including continued offshoring of talent to our new -- sorry, to our now fully functioning offshore regions of the Philippines and Portugal, to deliver greater resource efficiencies and to maintain our margins. So with that, I thank you for your time and consideration today, for your ongoing support. We are extremely pleased to have brought the business back to profitability following the acquisition, CrowdVision, and the various investing activities which we completed during FY '22. And we look forward to continued profitable growth from here onwards. With that, I'll now hand back to Craig for our Q&A.

[Operator Instructions] First one to come in, Wayne, is can you please repeat the percentage associated with each stage of the pipeline funnel?

Sure. So in the contract negotiation committed stage, we say 95%, the only variable there being just the timing, generally. It's locked in. It's just a matter of when the revenue would actually fall. So that's 95% conservatively. Client evaluation stage is closer to 60%. Again, most of the time, the variability there is timing, but we do obviously tend to lose the ideal. And then everything above that would be closer to 20% or 25% likelihood to convert. So really, the way to look at it is on volume, if you apply those percentages to the numbers in those stages, it would give you some idea to the likelihood of revenue conversion. And again, that's over a 12-month rolling period.

Next question is what's the response been like from the initial rollout of McDonald's stores? And can you just talk through how the implementation is going? What feedback has been there and the potential rollout for more stores over the course of the next year or so?

Yes. Look, it's been well received. We're still in the original 4 stores, and we're still sort of scooping up the next 4 to come. The current project that we -- that I've described in the description here around store operations and service delivery channel observation, that project is largely completed in terms that we've delivered and built the product to actually deliver that ongoing. And we're now building on additional initiatives in those 4 stores around curbside delivery, drive-through, abandonments and some other things that McDonald's to bring into the table. So it's an ongoing sort of project, which is good. What the result of that will be is more and more product that we'll be able to essentially productize and sell off the shelf to McDonald's and other QSR chains over time. So it's a really, really collaborative partnership. I expect the relationship will continue longer than the 3-year term that we've got today. And we do expect it to expand beyond the 8 stores. I think more importantly, though, the relationship initiation with McDonald's has been delivered by our partner called Halverson. They are arguably the premier technology consulting to the QSR vertical in North America. So McDonald's is just 1 of the top 20 clients that they've got. And so probably the bigger opportunity here is as these various products get completed and released, the opportunity for Halverson to take us to other QSR brands, which we expect they will do in the next couple of quarters. So we'll stand by for more information on that. But yes, we're excited about it, not just with McDonald's, but actually just broadly around the QSR vertical itself.

Thanks, Wayne. And that was the next question. If you had any -- post launch of McDonald's have you had any incoming inquiries from other chains in the states like Burger King, Wendy's, et cetera?

We have. We haven't announced anything yet, but standby. There will be some more announcements to follow.

Right. Next question. Are there any key milestones for the McDonald's deal going forward?

Yes. So I would -- I mean, they move around a little bit. The original milestones. As I said, we've delivered on. So that was to basically build the product to help them observe -- accurately observe, those 12 service delivery channels. That product is now completed. So we sort of await the next steps around further rollout for that particular product offering. So now the focus is around improving the product accuracy around drive-through. So accounting cars coming through the drive-through, helping them understand drive-through abandonment, which by all accounts is the Holy Grail for QSR at the moment. I mean so we're very excited to be on the right path to delivering products around that. That's probably the next key milestone which we expect we'll deliver over the next 4 to 6 weeks.

Just another one on McDonald's. Are there any expected one-off costs associated with the implementation of the research and development that's going on with that project?

Into the future, you mean, Craig, as in anything upcoming in terms of one-offs?

That was a question, I assume, it does mean any one-off costs coming through, so the next half that would impact cash flow and EBITDA.

For McDonald's, no. I mean it's fully baked now. It's -- the costs are already fully baked into the current actuals. So there's nothing that we expect will be incremental to that in the next 6 months. So no, no change there.

Right. Very strong cash flow, this is probably more one for John. You mentioned $1.1 million of upfront payments for future contracts work. What cost might be associated with those going forward? And would that impact cash flow in the third and fourth quarters?

Yes. So it's a good question. Yes, it would. Typically on our capital works projects, we're ranging between sort of 40% to 60% gross margin on that product. So there would be cost of sale that would have to fall into Q3 and arguably a bit into Q4 as well. So that's correct.

Sorry, just a follow-up question on that. Excluding the early prepayments, what was the positive operating cash flow number in the first half? You did give that, but might just be worthwhile repeating.

Yes, it was $2.2 million.

And excluding that upfront payment?

Excluding that upfront payment, it was $1.1 million.

Yes. Another question is on those upfront payments. Is that unusual to receive those? Do you expect to see -- receive more going forward? Or would it normally be reverting back to payment or when work is executed.

Look, we've certainly been working more closely with customers in relation to payment terms. Clearly, there's been various supply chain challenges across the world for hardware and equipment and trying to source subcontractors. So I think as we sort of stated, we're always looking to try and improve how we get milestone payments for -- particularly in this airport space, where we're arguably delivering larger projects. So I think from that perspective, we're doing what we can to work with our customers and make sure that we have a good payment plan in place. I think this particular one probably was a little bit unusual. But certainly, we are requesting prepayment to deploy any hardware that we -- and to commence works across any of the venues that we deployed technology into. So that's pretty standard.

Yes. I think just to add to that, I think the evidence of the drag and some of the projects from Q1 to Q2, I mean, not all of them related to CapEx payments or supply chain challenges, but there were some. And so we've taken swift action to make sure that we don't put ourselves in that position again through a change in those payment terms. So yes, I would say we can expect more prepayments, maybe not to the tune of $1.1 million in one account necessarily, but yes.