Beonic Limited (BEO) Earnings Call Transcript & Summary

[Audio Gap] results presentation. With me today is Billy Tucker, the CEO; and Michael Pearce, CFO. Billy and Michael will give a presentation followed by the chance to ask some questions. [Operator Instructions]. So with that, gentlemen, I will turn it over to you.

Thanks, Craig. So welcome to Beonic's Q4 performance and strategy update. Thanks for making the time. As Craig mentioned, questions at the end. But please, if you get a chance to think about some good useful questions that you can ask that can really stimulate some dialogue and discussion. I'm delighted that Michael was able to join the call. He's actually in New York right now. Luckily, the time of day works out really well for him. He joined us almost 2 months ago now as our first CFO. He's had a tremendous impact in that time. He's gone over 17 years of experience as a global finance leader and most recently, he was a CFO at WeConvene, which is a globally deployed cloud-based meeting and event booking platform. I also -- he's not on the call, but I want to mention that Mike McConnell has joined us onto our Board as an NED. Mike comes with a tremendous experience. Over 16 public company boards that he served on is based in Colorado, in the U.S., and as such, it is going to help us really to drive our business over there. So let me just start with a reminder. So we're the global leader in IoT services to airports and retail property. Airports in particular really love the Beonic product. Our solutions help them rush passengers through from curb to gate, lowers the cost to serve, improves the airport experience and ensures the maximum possible dwell time air side, which means retail and at quick service restaurants. And the more time they get spend there, the more money they'll spend there and the more money the airport can make tuning its services and improving infrastructure. We do think about airports as large shopping malls effectively with busy transit hubs attached to them. Over time, passenger yield will predominantly come from Air side, from retail and QSR, and so that's why it's really incumbent on airports to get those operations working and to maximize average revenue per traveler. It should be seen as no coincidence that our ability to tune our services in retail, and retail property assists us as we enter the airport vertical and provide that airport vertical a complete solution. We've got over 11,000 venues using our platform in 35 countries. And right now, we've got well over 80 airports using our products. I'm going to come on and talk about that a little bit more. So just a quick summary of Q4, how that went for us. Look, it was a solid Q4. We've gone through an enormous amount of transformation as a business, as we've talked about before and as we're going to continue to talk about, we exited the quarter with ARR of $16.8 million, which again is solid. In the coming quarter, we're really focused on this existing incredible installed base. I mentioned over 11,000 venues and 80 airports. So we've got to identify opportunities for upsell. It really is our short- to medium-term revenue story. The sales cycle in airports could be very, very long in airport -- in retail property less so, but still quite low. And so the existing customer base that we have and our ability to build product that appeals to them is our most direct path to short-term revenue. In Q4, we saw growth in existing contracts with Heathrow Airport, JFK, Wellington and Athens airports. These are tremendous stories for our business. And so that's really a big part of our business. From a cost saving point of view, and I've mentioned before, and I continue to mention that cost saving initiatives will be at the heart of our business strategy going forward. We do believe that stan-lean is going to be critical to our competitive advantage. We need to maximize the value of our growing balance sheet. Speaking of which, on the 23rd of August, we're going to ask our shareholders to approve a placement. $5 million have been committed already by investors to that placement. And we're also going to invite our shareholders to vote on an SPP at the same time on the 23rd. Now I'm going to hand over to Michael for the next couple of slides just as we go through financial and operational performance.

Thank you very much, Billy. Well, I do have joined Beonic Limited as its first CFO. It's an exciting time to be with the company. I'm very excited about this business, the verticals in which we operate, and also the tremendous traction that has been achieved so far by Beonic. The blue chip names that we have, I think, are very impressive. And it's -- like I said, I'm very excited, looking forward to working with this team. Next slide, there we go. During Q4, we generated $5.9 million in operating revenue, and $6.4 million in cash receipts, up from the prior comparative period of $5.3 million. Annualized recurring revenues of $16.8 million, and cash at the bank of $2.7 million at June 30. And then the capital raise. So let me describe capital raise in a little bit more detail. Billy touched on it earlier, but we've received binding commitments from institutional and sophisticated investors to raise $5 million via a 2-tranche institutional placement. Tranche 1 has already raised $1.4 million, and tranche 2, we have for a further $3.6 million in commitments, subject to shareholder approval at the EGM that Billy referred to are coming up later this month on the 23rd of August. We will also seek approval for a shareholder purchase plan -- share purchase plan to raise up to an additional $0.5 million. The placement has been well supported by new and existing institutional sophisticated investors. We saw on par capital enter the register to own 13.9% of the company. Existing shareholders, including Thorney have increased their stake, and directors of the business are Kirsty Rankin, and Mike McConnell as well as CEO and Executive Director, Billy Tucker, are all participating in the placement as well. So that's more detail on the race.

Thanks, Michael. So this slide just talks about a handful of contract wins in Q4. This includes renewals as well. On the right-hand side, you'll see -- so notably, a couple that I'll point out, Woolworths. Now of course, we are very familiar with Woolworths in Australia, but this is a different one. This is South Africa, the 1 that used to own David Jones. So we supply technology to over 500 Woolworths ventures in South Africa. London City Airport, kind of a unique airport that exists right in the very part of London, in fact London City, on reclaimed land from the Thames. They have an interesting model in that they have a commitment to the London governments that they have a 19-minute SLA from curb to gate, and they rely upon Beonic's technology to help measure that and to figure out ways to improve customer and passenger flow. Waverley Council, this is part of our Smart Cities program, Waverley Council in Sydney. This is a pretty large Smart City project and 1 that we're delighted to continue to work with them. And then 1 of my personal favorites, Wellington Airport, just love Wellington is a tremendous place. So if you get a chance and you find that you breeze through Wellington Airport, you know why that is because of the Beonic technologies. So I'm going to talk about the deal pipeline, incredibly healthy. There's over $15 million of ARR in that pipeline right now. Notably, almost half the pipeline is in the airport vertical. I mentioned that the sales cycle is a little bit longer there than it would otherwise be in retail and retail property. But it's a very healthy sales pipeline, and we feel very confident that we're entering into a new financial year, and it's going to be successful for us. I did want to take a couple of minutes and just delve a little bit deeper into our strategy and some of our plans for the future. Now this next slide, you may have seen it before. I think you've seen it before, but it has been updated with -- we've largely executed on a significant cost saving plan, cost across the business. I said at the beginning of the call, our focus remains on staying lean for competitive advantage. We think it's essential for the business, we have to get to breakeven, that is project #1. We'll continue to focus on that. Let me just hand over to Michael, who's just going to spend another couple of minutes talking about this.

Thank you very much, Billy. So our focus, as he says, it remains to stay lean and control cost. So -- and as a competitive -- to keep our competitive advantage, we are centering our teams in Lisbon, Sao Paulo, Belfast, Manila for this reason and to great effect. During the past 6 months, we've streamlined operations, the leadership team, reducing head count and average fixed compensation across the business. Through this program, we will realize over $2 million in annualized cost savings at the end or by the end, I should say, rather, of Q1 FY '25.

Just a little bit deeper into the airport vertical. I've got a couple of slides on this. Look, that airport verticals for us in terms of revenue has almost doubled since the acquisition of CrowdVision back in 2021. There's an opportunity for upsell in almost all cases. In fact, I would say, all cases. And our solutions typically service only 1 terminal or 1 part of a terminal where many more exist. So for instance, there are -- we have 2 of 7 terminals at JFK. We have 3 of 5 terminals at Heathrow Airport. The recent footprint expansions at Adelaide, Heathrow, JFK, there are examples of us successfully executing this airport strategy. Now I mentioned this on a prior call, but quite often times, terminals are managed by different operators in airports. So JFKIAT is Terminal 4, whereas there's different operators that manage different terminals. And so it's not always simple to move from 1 terminal to another, but we've done that to great effect by demonstrating incredible value to the existing terminal and proven that to the others. We believe that within our existing airport installed base, there's an additional $20 million of ARR if we were able to secure all of the additional terminals that existed those airports. So it's a very powerful opportunity. I just wanted to briefly dwell on JFK. Another favorite customer of ours, I just want to talk for a second or 2 about how we went about winning that customer and how we've gone about building such a strong relationship. So our U.S. team traveled to New York and have done so several times since we work directly with JFK and also CBP, which is Customs and Border Protection. We really needed to understand their goals. It was all about improving passenger and operational efficiency. Big cues are terrible for the customer experience, but no queues are really bad for the bottom line. And so our job is to help airports balance those 2 dynamics. We want to make sure that acceptable customer cues exist that customers feel comfortable and aware of how long they're likely to be there. And airports can deploy staff in the right numbers such that their cost to serve is manageable. We helped JFK figure out kiosk utilization, passenger processing, staffing levels, as I mentioned, and those insights and alerts and notifications are right across the airport now. So it's been a tremendous relationship, 47% growth in ARR over the last 18 months since we started working with that business. And so we feel really good that there's also a lot of additional revenue available to us from JFK. Just 1 example of the over 80 airports that I mentioned. Let me just talk for a couple of minutes about our plans going forward. Development of clear path to breakeven, like I said, is project #1, probably project #1, 2, 3, 4 and 5. That project is almost complete. We have an insight into when breakeven and cash breakeven will happen. Well I can say, I feel good about that. There's still a lot of work to do, but we have a clear plan to execute. It was great having Michael joined the business. We have quite literally poured through every expense line, all the way down to a couple of hundred dollars a year. We reviewed all of our SaaS expenses, all of our office expenses, G&A, we have trimmed those expenses all the way across the business, and we've got a plan to continue. We continue to consolidate the software that we use, third-party software. And so that's been a really important part of our process to shift the philosophy and the organization to award cost management and the importance of doing so. Now all that said, we're not going to cut our way to profit. So we've got to do is measure effectiveness across the business and figure out where to deploy assets and revenue and cash to make sure that we're able to grow the business in a sensible way. We've closed the Melbourne office quite recently. We did that for a good reason. We wanted to consolidate our hardware onboarding that used to happen. We had a great team in Melbourne that needs to happen there. Some of that will now occur in Sydney, but most of that will go to Belfast over time. We're a big fan of the Belfast market, some tremendous access to very smart people. It's a good market. It also happens to be a slightly lower cost base than you would find in Sydney or Melbourne. So that's a good thing. We're investing in the cadence of our product development. I mentioned at the top of the call, it was important to us that we're continuing to be able to cross-sell through our existing vast installed base. And we can do that largely through product development. And so we're increasing the size of that product development team so that we can improve our product cadence. And then lastly, I want to mention that we are figuring out how to make best use of our partner channel. Now 32% of our revenue already comes by partners but it is our intention to get that to over 60% of all revenue in short order. And if you exclude Australia from that, we're already at 48% globally outside of Australia and 32% when you account for Australia. So we know that we're on the way to do that, but we know that it's a fairly substantial project. Quick summary of strategy before we open up to questions. We've got a narrower focus to airports and retail. Look, currently, we do sell outside of those 2 verticals. We've got stadiums and we've got a couple of zoos, got Taronga zoo here in Sydney, as well as Omaha zoo in the U.S. We've got various places that we have sold to historically. It is our intention that we will take those noncore markets and offer those 2 partners once that partner channel has been developed because right now, that can be a distraction for us. That's similarly true, I mentioned 35 markets that we have customers installed in. 35 markets is not necessarily practical for us over the next 3 to 5 years. And so again, it's our intention that we would take some half of those markets and have those deployed again by our partners. We continue to drive down labor costs by shift in costs from leadership roles to lower-cost roles. We continue to consolidate around high-value markets like Lisbon, Belfast, Manila, San Paolo and Cape Town. We will deploy inside sales. We've got a field sales force, again, very difficult to cover some of these vast markets through folks who are out in the field. And as a result, we're supplementing those field sales folks with inside salespeople. Now I want to hand back to Craig for questions, but I do want to also thank you for taking the time to listen to this update. And hopefully, we'll have some good questions.

[Operator Instructions] First 1 is on airports, for you, Billy. You mentioned the opportunity to [ towards selling ] that land and expand strategy. Taking JFK as an example, how do you go about getting into multiple terminals? Is that engaging with JFK pitching into it? Are you getting [ whole view ] by the development [or is it saying ] the success you [ had for the terminal ] or just expand a little bit on how that strategy actually works?

So the whole airport industry is remarkable. One of the key features of that industry is that they don't necessarily compete with each other. And so they're a very friendly group of people. They talk off and they share best practices. They want to improve the wellness of the industry overall. And as a result, when a terminal operator finds technology that improves the customer experience or cost to serve for them, they're more than willing to share that with others. And that's been our experience. So similarly true in New Zealand with Wellington and Christchurch, those airport operators are willing to talk to other New Zealand airports about their experiences. And similarly, with Adelaide, with JFK, with Heathrow, Athens all around the world, those airport operators share. Same is true for terminal to terminal communications. So although they are operating separately, they do have some joint committees and meetings that they participate in, and that's often where those experiences are shared. And of course, lastly, they perform a reference function in the event that we approach those other terminals directly. So airports and the network operator, then those airport -- happy airports are great references for us.

What do you say by the way of competition in that space? So moving into different terminals, is that effectively totally white space, there's nothing in there, or are you supplementing other systems that sort of fully functional as yours?

Yes, it's a great question. Look, there is competition. The competition often comes from a slightly different perspective, either from hardware vendors who want to deploy their hardware predominantly, but we'll also deploy some software competing with us. Oftentimes, we also work with those hardware vendors. And so they just want to deploy the hardware. Whether we do it or they do it, it makes not a huge amount of difference to them. That's a good outcome. So the stronger those relationships are, and the greater our buying power, then the returns to scale are really attractive to us. There are software vendors who are airport-specific. We find we compete really well with those airport operators because of our retail experience and those airport operators acknowledge that, to some extent, queue management is commoditized over time. But as that's blended with the ARPU from retail and QSR, Beonic is really the only partner that can help them work all the way across the airport from curb to gate and beyond. So those are the 2 predominant competitors that we face.

You mentioned hardware there. There's a question on this. So previously, we've got hardware and the potential to move that into the subscription revenue model, slightly more capital intensive with that transformation of your balance sheet. Is that something you can be able to start accelerate now? And how much upside do you see from that hardware side of [ things ]?

Yes. So in Q4, we signed around $0.5 million worth of IaaS contracts, so Infrastructure as a Service. So that's where we deploy the hardware. We include the cost of the hardware into the subscription. The margin on those IaaS contracts has been over 80%. So it's a much improved margin story. It is capital-intensive. But over the course of the deal, the customer is typically happier, we're certainly happier with those high margins. And so our ability to scale up IaaS deals over time is going to be a really important part of our strategy.

Next question is on the partner channel model. How many partners do you think you need to be working with to really drive the percentage of revenue from that stream sort of talking 2 or 3? Or are we sort of talking 20% and 30%?

Yes, it's more 20% or 30%. But if you think of the majority or a majority of our partner revenue is going to come from probably 3 or 4 global system integrators. And then there's going to be market level SIs who will probably number first, it's kind of [ operational ] -- probably a number in the 15 to 20, and they will generate sort of 20% to 30% of revenue. So it's probably going to be a mix a lot like that. What's important to us is that our ability to onboard and serve as a partner is relatively low touch. So a lot of self-help, a lot of explainer videos, we make the software accustomed to those -- to a partner channel so that they can manage, for instance, at an administrator level how the software operates. So it's a slight adjacency to where we've been historically, but it would be a very valuable and scalable channel.