Beonic Limited (BEO) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to Beonic's Third Quarter Performance Update and also a strategy presentation. Today, we've got Billy Tucker, CEO; and John Rankin, COO; Billy and John are going to be giving a presentation, which will then be followed by a Q&A. And just from an admin standpoint, to ask a question of both Billy and John, please just use the Q&A facility at the bottom of the screen. Billy, with that, I will now hand it across to you.

Thanks, Craig. Thanks for joining the Beonic's Q3 performance and strategy update. Thank you for making the time. As Craig mentioned in protocol around questions, obviously, if questions come up throughout the process of the presentation then type away. And if appropriate, Craig will interrupt, and I have no problem with that. I should mention on 150 days or so in the role, luckily John Rankin, our Chief Operating Officer, has been in the business much, much longer. So there's every chance that I'll pass some or even all of my questions across to John. So let's see how we go. If you're familiar with the business, you may remember us as Skyfii, we rebranded late last year to Beonic. We are the leading provider of IoT solutions in airports and retail and in particular retail property or very large shopping malls. As it happens, we think about airports, not only as busy transit hubs, but we also think about those as covered malls. And interestingly, some airports already do think of themselves that way. But as a result, we think the alignment between the 2 verticals of airports and retail is very appealing and sets us apart. So airports, in particular, they love Beonic. Our solutions help them to rush passengers from curb to gate that lowers their cost to serve. It improves the airport experience and it ensures maximum dwell time airside, which means if we can rush you through security, you can spend more time at airport, retail and airport QSR, and that drives up passenger yield, a good thing for everyone. And in terms of traction, we have over 11,000 venues already on our platform in 35 countries, and we have over 80 airports as customers. Now I mentioned that was 150 days in the role. There have been some things that I've uncovered and discovered when I've been here and some assumptions that I'm making. So let me just go through that. We do have an astonished installed base. We've got some sticky software. It's loved by our clients, but our cost base is just too high. There are too many expensive leaders in the business. There's too few frontline salespeople and developers. And we've got 35 markets that we service. And so a lot of the work that we've done historically has been on a full service model, which means that we've managed both the sales and the deployment. And we really need to shift toward partner-led or self-service model. It's all quite fixable though. We know we've got a strong product market fit, visited dozens of customers. I recently returned from my third trip this year to see our customers. We've seen over 30 airports. I've seen a large number of our retail customers. In each case, those customers tell me they love the product. And it's -- and Beonic is the beating heart of their insights and analytics business. And so bringing that to life at JFK, I saw they had a big screen in their operations center that had our dashboard there live in Adelaide. Therefore, I hear that the CEO gets notifications from us when queue times become too long. And so we really are well ingrained in those businesses, and they depend upon us. So what's the plan? So I mentioned, I think we're spread across too many markets. I think we're also spread across too many verticals. We need to focus. We really need to double down on airports and large retail. We need to make it easier to work with Beonic, which means increasing the number of devices that we're compatible with from 35 devices today to over 200 devices a couple of years from now. What that means is that when we enter a client site and we can repurpose some of their existing hardware technology, we reduce the CapEx that's involved in taking on the Beonic solutions, and we established ourselves a competitive advantage. We also need to focus on channel partnerships. Now we have channel partnerships today, but we need to formalize that such that we have certifications, training, and we bring those partners on board so we can help them make more money and they can sell more of our product. But by doing so, we reduce our cost to sell. We increase our reach across verticals and geographies. And plus, we're going to continue to drive costs out of the business. So I want to delve a little bit deeper, if I can enter our plans for the future. So let me just talk about airports first. Now there are over 17,000 airports around the world, about 10% of them service 2 million passengers a year or more. And right now, we consider 81 of those airports as our customers. The trends suggest that every 10 years or so, airport passenger numbers double. We can expect that trend to continue. But airport infrastructure doesn't double. In fact, nowhere near it. In fact, if anything, there's a pretty modest 10% to 15% growth in airport footprint while we're seeing a doubling of passenger numbers. And so what that means is that they turn to us to help them grow efficiency. We measure passenger flow in real time. We can see heat mapping around passengers. We know how long it takes to queue. We know how long it takes them to get from the curb to the gate. We can help them with planning. If you speak to an airport, they'll tell you that a long queue is a bad thing, but no queue is worse. And we're all about helping them balance the cost to serve with the customer experience, and those 2 things are linked. So put simply, if you're an airport operator and you're trying to drive customers from one side of the airport to the other, the airport -- the Beonic solutions are built especially to do just that. And I'm going to show you some screenshots and a little bit of a video later to illustrate how that works. But when -- what we can do that's unique, and I mentioned that we exist both in airports and retail, is that we can help airports build business cases that let them invest more in the front side of the airport to drive customers through to the retail side of the airport. I mean if we can help them allocate more staff to gate to ticket counters to security so that customers can spend longer at retail and QSR then we can help them build those ROI models. So we build better yield, better experiences and a lower cost to serve. So I mentioned that we've got 81 airports. In fact, it's 82, if you include a deal that we just signed. That has almost doubled since the acquisition of CrowdVision in 2021, which was largely an airport business. In almost all of the cases, the airports that we deal with, there is a strong case for upsell, meaning if you take JFK, for instance, there are 6 terminals currently. There's another one on its way. We only deal with one today. So a significant opportunity for us to increase our footprint at JFK. Similarly, at Heathrow, we're currently in one terminal. We've secured a contract for another 2, but then there's another 2 still to win. And so if you add up all of the examples of the airports that we currently exist and that we consider customers, there's some $140 million worth of value to be unlocked if we were just in every one of their terminals. So land and expand, as we call it, is a key part of our strategy going forward. So innovation is going to come from software from the integrations that I mentioned, hardware integrations and from our partner channel. As I mentioned, we've gotten to increase the number of pieces of hardware. And when I talk about hardware, I'm thinking about anything that generates a data point like where is the passenger, how fast are they moving, how fast -- how long have they been stationary, door crossings, camera, AI-based camera products. But we want to work with as many as 200 of those types of devices a couple of years from now, as I mentioned, to lower the cost of adoption, but also to increase switching cost. We also want to work with more presentation devices. So for instance, in IKEA in the U.S., which was a deal that we won through Verizon, a very good partner of ours. We help customers to way find, which means we help them to decide which queue to join next, and that's a presentation screen. We want to work with an increasing number of presentation screens so that we can present our data in much more flexible ways than we've done historically. Airport we are finding is very valuable retail way-finding is also valuable. But similarly, our ability to get our data and our valuable dashboards on to mobiles and iPads, et cetera, to help operators in airports work more effectively. It's a really important part of what we have in mind. So our base of 11,000 venues prevents a significant advantage over our competition in that we have access to best practices from retailers around the world. And so we can bring those best practices back to all retailers. In fact, just today, we issued some new dashboarding to our retail customers, showing them how it was done elsewhere. And a large number of our retailers, we expect are going to download those new dashboards and it will help them run their businesses more effectively. There's almost no other software vendor that touches as many retail venues as we do. And therefore, we have a tremendous access to insights that is valuable and will become more so. We're also going to simplify our go-to-market with more self-service and more channel partners. Now in order to dedicate the maximum number of resources to airports and retail, we've got to spend less time dealing with stadiums and hotels and healthcare and education. And that means more of that work will be done in self-service, so straight off the shelf, plug and play or through partner-led, which we have a strong belief will drive us much more scalability in the business. Today, 32% of our ARR has come via partners. We want that to increase. If we think about our business in Brazil, that number is over 80% of their revenue comes from partners. As a result, in Brazil, for instance, there was a recent deployment of 26 hospitals and 150 clinics that all came through a single partner, and that doesn't require us to do any heavy lifting whatsoever, and that is by far our preference. We want to be a great software provider. We don't want to be holding screwdrivers and plug-in into devices. So what we need to do with folks like Capgemini, Hitachi is help to certify those partners to install our products and to sell our solutions. We feel good given the amount of revenue that's already generating through partners that we can do that. And we have received a lot of interest as we started to socialize the idea of a formal channel relationship with existing partners. So I feel good that the market exists and that there's an appetite for it. We've just outlined a couple of case studies. These were published today on the ASX. So you can go, read those there. I mentioned on the left [ seal ] a value-added reseller is who we won that large healthcare deal with. Verizon, I mentioned IT, Verizon has been a great partner to us in the U.S. They've introduced us to a lot of very high-profile clients that we run proof-of-concept and sign contracts with. And then Next50, that's the partner that we won, Abu Dhabi. That is a total contract value of over $5 million and we love working with Next50, and we look forward to continuing to expand that relationship. So I mentioned almost in the beginning that our cost base is too high. And it is a critical part of our plan to make a material reduction in costs, in particular, through headcount reduction, but also rebalancing headcount toward more junior roles across sales and software, but also offshore. Now as you can see in the chart on the left, we're nearing almost 50% of all headcount is in lower cost and low-cost locations. That's places like Belfast, Manila, Sao Paulo and those low-cost locations give us a 30% to 50% improvement in the cost efficiency, not necessarily direct cost reduction. But in terms of cost efficiency, they're much, much better markets for us. I also mentioned shifting towards more junior roles away from a lot of the leadership roles that we've had in the business. That means that we've already shifted the Chief Commercial Officer, Chief People Officer and senior product role, and we've removed well-paid executives in favor of frontline sales and frontline software. Let me hand over to John, who's just going to take you through the next section.

Thanks, Billy. So moving to Slide 13, please, Craig. So looking to the quarterly performance summary. Top line revenues of $5.9 million was down when we compare to Q2 and the same time last year. So seasonally a slightly slower quarter for us at the top line. But I think pleasingly, if we look at the balance of the first 3 quarters, so year-to-date total operating revenues of $18.2 million was up 5% when we compare it to the same period last year. Recurring revenues of $4.2 million were up 5% on a PCP basis and 1% when we compare to Q2. And we exited Q3 with $16.7 million in ARR, so slightly down on the last quarter, but an improvement of 4% on the same quarter last year. We sort of narrow our focus and take a moment to talk to the ARR performance. The results have been impacted by a number of key factors. Certainly planned customer churn to retire legacy technology, which represented around about $300,000 impact during the quarter, but very consistent with the strategy that we've stated that Billy talked about at the start to shift our focus as a business to high-margin technologies and verticals. Secondly, some contraction a bit small in some of our customers in the retail vertical. And thirdly, just some project delays in a couple of our larger deployments, largely Abu Dhabi, London Heathrow and JFK T4, all deals that we've announced over the last sort of 6 to 12 months. But each of those 3 projects is nearing close. We ended the quarter with cash at bank of $1.2 million. And from a net cash outflow perspective, from operations, sort of negative $0.5 million, which included one-off costs of $300,000 associated with restructuring, which we'll discuss in a little bit more detail on the next slide. And finally, cash receipts of $6 million, so an improvement in Q3, an improvement of 13% relative to Q2. And that result was in line with the results delivered during Q3 FY '23. If we move to the next slide, moving to Slide 14. So in Q3 FY '24, as I mentioned earlier, Beonic generated operating cash outflow of $530,000. Of the $530,000, $260,000 related to one-off structuring costs, so if we consider our FY '24 year-to-date operating cash outflow was $1.4 million, of which $1 million of that is attributed to one-off costs, largely related to restructuring, as Billy mentioned earlier, CEO transition with the announcement of Billy coming into the business in November and a small percentage of these one-off costs linked to the company's rebrand, which we announced and launched in November last year. Post quarter end, Beonic secured an additional loan facility to the value of USD 1 million with Blue Venshures. Total available loan facilities with Blue Venshures now sits at $3.1 million, with all facilities on the same terms and conditions as we announced on the 25th of January 2024. Important to note that the facility announced with Blue Venshures in January this year replaced the $1.8 million facility -- loan facility Beonic previously held with Export Finance Australia, which had financial covenants that required a minimum of $3 million cash at bank during the loan facility at the end of each quarter. The facility with Blue Venshures has no financial covenants and as such, provides Beonic with improved capital flexibility. Moving to Slide 15. Some recently won deals. So a fantastic win with Orlando Airport to complete a technology upgrade. So Orlando, we're an existing customer but have committed to moving to the latest security checkpoint Queue Management Solution, which is a LiDAR-based queue management solution. So a great win there in our U.S. team, 2 U.S. sporting stadiums, Detroit Lions or Ford Field Stadium, which is the home of the Detroit Lions and one of North America's largest indoor sporting arenas. We secured another cultural center in the U.K. And finally, Brazil's largest privately held medical group Hapvida contracted with Beonic across 26 hospitals and 150 clinics and is set to become Brazil's largest customer by ARR. And as Billy mentioned earlier, a software-only deal which is in line with our stated strategy. We moved to the qualified sales pipeline, so about $29 million sitting in the pipeline on a rolling -- 12-month rolling basis. And if we consider the makeup of that pipeline, just over 50% of deal pipeline is being sourced from our North America and EMEA regions, which is in line with our strategy. 35% of the sales pipeline is made up of airport opportunities. And pleasingly, 50% of our qualified sales pipeline is made up of recurring revenue generated from our highest gross margin product lines, again, consistent with the strategy Billy set out earlier today. Finally, during the quarter, $3.6 million in deals converted on a total contract basis. So all in all, a reasonably good quarter for the business, some great deals secured, and I'll hand you back to Billy.

Thanks, John. So a quick strategy summary, and then we will just hand back to Craig, who manage questions. So our intention is to narrow our sales focus to airports and retail. We want to work with global technology partners. It's been incredibly beneficial. We want to scale that initiative. We also want to switch to more self-service and partner channels for our other verticals in our non-core markets. We will deploy inside sales resources into the Americas and EMEA. We've done that successfully in APAC and in Brazil. So we're going to do more of that. And we're going to continue to drive down labor costs by shifting from leadership roles to lower-cost roles and lower-cost markets. Over to you Craig.

Thanks, Billy. Thanks, John. Just a reminder to everyone use the Q&A facility at the bottom of the screen, type your question in and I will read it out to the team. First question that's come in is, you've talked about the opportunity in the airport vertical. Can you talk a bit more about how you're going to drive this practically. Is that through business development? Is that through channel partners? How do you really capture that opportunity that's there?

Thanks, Craig. Look, week before last, PTE, the Passenger Terminal Expo is the largest airport conference in the world. John and I both attended with another 4 Beonic team members, and we saw most, if not all, of the major airport participants around the world. We collected 170 leads on a cost per lead of $186, which is significantly less than we've been spending on Google, which is much more of a spray and pray model. So events is just one small part. We are also deploying white papers and other market insights such that we drive qualified sales leads through our HubSpot platform. So it's a combination of dedicated sales people on the ground who are really just all about airports, attending marquee events and having dedicated content that drives capture of airport participant details. It's working so far.

Right. And a follow-on question from that. You mentioned the land and expand strategy and the ability to expand in places like Heathrow and JFK. Again, what drives that? Is that a budget constraint issue at the airport? Is that a performance and you show your worth and you leverage that into other terminals? How does that land and expand really work?

That's a great question. There's a couple of ways to think about it. Firstly, and surprisingly, it might not be well known that airport terminals are often managed by different entities. That's certainly the case in JFK and many of the other airports that we work with and what those entities, although they collaborate, to some extent, they also compete. But when they see another terminal performing well, they do speak often, then it's likely that those best practices leak through. It's also right to think that, for instance, in the case of Heathrow, that they had a specific pain point in a specific terminal, and we're in less of a hurry to get to the others. So in some ways, it's a question of time. In some ways, they think about one terminal as a proof of concept. And in other ways, it is that it's a separate -- it's managed as if it were a separate airport, but oftentimes, they're good friends, and they will share best practices when they find them.

Next question. You mentioned an increase in -- wanting to increase capability with devices, about from the 30-odd at the moment to a couple of hundred. How do you do this? Is this just a platform development internally that can get rolled out? Or is it a little bit more complicated than that?

No, I don't think it's overly complicated. Look, what we've got to do is orientate ourselves toward having a handful of APIs that we know can extract maximum data value from many devices. -- rather than having a one-to-one relationship with a device, it's better to have a one-to-many relationship via an API. And so it's really a question of technology, which is how do we go rebuild our technology and ensure that we can work with the maximum possible devices. It's also the case that where we had a very large opportunity that thankfully, we've won in Brazil that required us to work with a camera that only existed in that market. We had to do an ROI like we would do in any product development, and we decided that it was worth our while to integrate with fully with that device. So it's kind of horses for courses, but it's our intention to launch Belfast is our global center of excellence for hardware and hardware onboarding. And by doing that, it's going to become a lot easier for us to find commonality across devices and make it more efficient for us to onboard to get us up to 180 to 200 devices.

Associated question on that one is the 4 Cs you're indicating are on track to spend about $2.5 million on new product development, which is just the capitalized IP in 2024. Can you talk a little bit about what product development that's going on and where you think that spend will go to in 2025?

Yes. So in terms of where that money goes, to some extent, it's erasing the existing product suite we've got. In fact, we went through our product road map today, we've got a large number of requests from highly engaged customers who are looking for. For instance, I showed on the screen, there was a view of customers walking around. So this is a view from Terminal 4 JFK last week. Those blue dots represent customers. The gray lines represent typical paths. Those gray lines thicken as more people take those paths. This screen shows average wait times, queue times and existing occupancy. Our customers, for instance, would like to see that information historically and be able to have a time machine that rewinds the clock on those screens so that they can go back and look at what happened of the yesterday, maybe look at it on a fast-track basis. So that's one example. Devices is another example, integrating legacy software from acquisitions that we've made previously as a third example. So -- but notwithstanding, as John mentioned, we have also a clean house by removing some of the product lines companies that we acquired some time back. So my expectation is that the -- there will be a shift of labor cost from senior executives into software development. I would expect over the period of the next 12 to 18 months for the dollars that we invest in product development to double. I'll be disappointed if it's less than that. Historically, it's been -- access and talent has been difficult, but we've found some fantastic markets like Lisbon, for instance, in Portugal. It's a tremendous place to go find great talent, and that will help us realize our product plan.

I guess subset question from that one, and I'll bring it up to ask you now. You mentioned the balance sheet and securing that debt. How important is that access to capital to unlock some of those contract wins and really fast track either development of product, but be the commencement of revenue?