Beonic Limited (BEO) Earnings Call Transcript & Summary

Welcome to Beonic's First Quarter FY '25 Results Call. With me today, I have Billy Tucker, who is the CEO, who happens to be dialing in from Auckland Airport; and I've got Michael Pearce, the CFO. Bill and Michael will give a presentation, and then post that, there will be opportunity for Q&A. [Operator Instructions] With that, Billy, I will turn across to you.

Thank you, Craig, and thank you for those folks who joined and for those folks who watch the webinar subsequently. I am joining you from Auckland Airport. Good news is great Wi-Fi. Bad news is potentially a noisy environment behind me, hence, I've got my cable head phones on, and we'll just do our absolute best. Look, let me just jump in straight on to the first main slide, which is to say Beonic started life as Skyfii, providing guest Wi-Fi at Westfield malls around Australia, and over the course of the last 12 years, the business has evolved to become a leading provider of IoT solutions to airports and retail property globally. We have almost 12,000 venues and over 80 airports using our guest Wi-Fi, visitor tracking and people flow solutions. Airports in particular, they really love Beonic. They love Beonic because our solutions help rush passengers through from curb to gate, just like the noisy folks walking past me now. It lowers the cost to serve. It improves the airport experience, especially for those inexperienced travelers, and that's an area that we're spending a lot of time talking about. I just drove up from Hamilton, where the NZ Airports Hui conference was on, and we spent a ton of time. I was just on a panel there talking about that inexperienced airport traveler and some of the challenges that those customers face. Now we want customers to spend maximum time at retail and quick service restaurants. In fact, airport economics are contingent on healthy retail and quick service restaurant spend, and that's something that we can help perfectly with. We have thousands of venues in the retail space, and that's why airports love us so much. We are uniquely positioned to improve the economics of airports all up, and none of our competitors can say the same thing. So a great position for our business. So let's go on and talk about Q1. Look, Q1, I think, is kind of the first quarter that we've seen some of the results from our transformation project. We grew recurring revenue. We saw a 6.7% increase in ARR to $17.3 million. Our cost saving initiatives really delivered, with an annualized reduction in expenses of $2 million versus PCP. Cash flow may look more negative than it actually was. It was impacted by about $1.8 million worth of items. That was about $700,000 in restructuring costs, staff restructuring costs, which had occurred in the July month, meaning that if you net out those one-offs, the actual burn rate was more like $400,000 for the quarter, which was an exceptionally good result. But importantly, we continue to grow our footprint across the globe. We're going to talk a little bit more about that, and we continue to fast track the commencement of our SaaS recurring revenue and the rapid deployment of our technology solutions across the contracts that we've won recently. Our technology team actually releases around 50, 51 updates a year. We have a quiet period over Christmas as many of our retail and airport customers do, too. But we do a tremendous amount of work to release features that our existing customer base love. We do have a transformed balance sheet. We now have the capital base to accelerate growth. There are some key initiatives such as enhanced utilization of our partner-led sales channels. We've got very much a client-first strategy, with investments in customer adoption through our customer success team, accelerated development of our software and our data analytics solution, as I mentioned, those 50, 51 releases each year. We've got new sales and marketing functions, including investment in a leader in the business who's going to help us with our events spend. We find events to be particularly productive for the company. And our customer success function, as I mentioned, are really helping us to mitigate against churn and contraction. The 3 messages that I really want to leave the market with are that our churn and contraction is under control. That's essential for us, because it's a leading indicator of the extent to which our customers love platform technologies. Our expenses are under control. We will find profit in the margins in our business. We will continue to manage every dollar that we have on our balance sheet. And also, we will continue to grow ARR. It's massively important for us. Let me just hand you over to Michael for the next couple of slides.

Thank you very much, Billy. So our quarterly performance summary. During the quarter, as we mentioned, we generated $4.3 million in recurring revenue. This is up 4.4% from the prior comparable period, and that's a 2.9% growth from our last quarter, Q4 of FY '24. ARR increased to $17.3 million. That's up 6.7% from the prior comparable quarter, and it's up 3.2% from last quarter as well. We continue to focus our strategy on efforts around growing our recurring revenue, and this is through strong renewals, land and expand and also executing on our pipeline throughout the year. And next slide -- excuse me. Cash flow, Q1 FY '25 cash flow from operations was an outflow of $2.2 million. It was negatively impacted, as Billy said, by some one-off items. We had $1.1 million in receivables that fell into Q2. That was from just 3 customers. And then we had $700,000 in nonrecurring restructuring costs that are now finalized. So those are going to be onetime. One thing to note is that the restructuring initiatives that we've been discussing over the past few quarters have been substantially completed. However, we want to emphasize that we continue to drive cost savings initiatives throughout the business. This is primarily focused on our internal tech stack as well as third-party professional services costs throughout the organization. This is under constant review with the executive team. We plan to have additional costs, but that is not -- those are going to be cost savings, but no value missed. We just plan on maximizing our value we get from any third-party and really being wise about our spend. We expect more favorable cash flows from operations over the remainder of 2025. That's through continued realized cost savings as well as growing our top line revenue through strong renewals, pipeline conversion and that land and expand strategy. So back to you, Billy.

So the next slide just talks about some of the wins in the quarter. I think it's the perfect expression of land and expand at play. JFK has been one of our marquee customers now for a couple of years. I'm actually off to see that customer next week in the week prior to Thanksgiving. Thanksgiving, as we know, can exert an enormous strain on U.S. airports, and the work that we do helps massively to alleviate that to load balance those customer journeys. So JFK deploying more LiDAR technology to help passenger flow management. You'll see some wins in here, including from Brazil with SmartLuz, Hapvida. Those are Wi-Fi projects. Hapvida is the very largest health care provider in Brazil. Delta Airlines, funnily enough, if you can hear that announcement, is one of our recent customers in the U.S., and we're particularly proud to be working with an airline partner as well as with airports. You see JB Hi-Fi recognized as one of Australia's leading and most thoughtful retailers, and we're delighted to be working with JB Hi-Fi and have extended that relationship. There's a handful of other customers on there. I'm not going to go through them in too much detail. But what I would say is I'm very proud of the work that our sales and customer success teams have done in the quarter to grow our existing base in terms of spend, but also to find new logos to work with. As you can see, pipeline is strong. It's a pretty consistent theme around the $27 million, $28 million pipeline. But what's particularly important here is to point out $15 million worth of ARR. And in fact, almost half of the pipeline revenue is within the airport vertical. Airports are particularly interesting to us because we do find the land and expand to be powerful. We also see these are very, very sticky projects, often can be CapEx-heavy, and as a result, the switching cost is very high for those customers. And so they tend to stay around for a long time. They spread the products out across the airports. I've had some fantastic conversations with one of our large New Zealand customers over the last couple of days, and they can't wait to increase their deployment of LiDAR across that business. So let me just use the next couple of slides to delve a little bit deeper into our strategy and our plans for the future. Look, we're -- first of all, I'm going to hand over to Michael, who's going to talk a little bit about some quarters' performance. And then we're going to come back to me, and I'm just going to talk a little bit about how our customers are enjoying our products.

Thank you, Bill. So as you can see, well, as stated earlier, we've achieved around $2 million in cost savings annualized. And this is -- if you look to your left on the slide, this is staying -- our focus on staying lean competitive advantage and having teams in lower-cost locations such as Sao Paulo, Brazil, Belfast, Lisbon and Manila. And you can see that the percentage of our overall headcount that has grown over time and it continues to grow. So we're right now at about 48%. And then if you look at the right side of the screen, during the past 6 months, we've streamlined our operations leadership team. We've reduced headcount and the average fixed compensation across the business. This has been normalized to remove the onetime recurring -- pardon me, the nonrecurring onetime restructuring costs. But as you can see, our average headcount across the business has gone down as well as the percent of that cost as a percent of revenue, excuse me. And so we are continuing to drive costs down. This is -- headcount is one of the largest areas of cost of the business, the restructuring, we're starting to see real dividends from those efforts. Back over to you.

Yes, airport revenue has almost doubled since the acquisition of CrowdVision in 2021. It's growing strong. There is an opportunity to upsell across every one of our airport customers, because oftentimes, it is a single part of the airport that currently enjoys their people flow technologies. For instance, a couple of terminals at JFK, there are 7 to be had. On a couple of terminals at Heathrow, again, there are 5 to be had. And so significant upsell opportunity from existing customers on the basis that we can keep them happy, keep them enjoying and adopting the products. We're seeing particularly good growth within JFK, Heathrow and Adelaide as examples and also Wellington Airport, where I've been this week. We think, all up, in fact, we've increased this number slightly, just over $20 million worth of ARR is available to Beonic in the event that we could secure all of the terminals that are available from our existing customer base. So all of the terminals at JFK, all of the terminals at Heathrow, as an example. I did want to, though, just use this opportunity to remind our investors and the investor community that we are experts and famous for airports and retail, but we do also exist outside of airports and retail. Our products work particularly well in busy environments where the operator of those environments is keen to understand people flow. In this case, University of West England, student flow. And so 30,000 students, a rapidly changing physical environment, and the customer was particularly keen to understand how students move from place to place, where they tend to dwell, the areas they occupy. I don't think they're just interested in the student union, but I expect there's going to be a fair amount of dwell there. We have deployed stereoscopic cameras from Xovis, which is a particularly advanced technology, probably 1 degree behind LiDAR in terms of utilization. But again, I'm very pleased with this implementation. We're doing a lot of really interesting work in universities and also in student accommodation. I thought that was worth pointing out because it is a significant customer. Just a quick reminder of some of the strategic initiatives that we are executing. We -- job #1, clear path to breakeven. We feel very confident that our journey towards breakeven is under control. Our Q1 was as expected. In fact, if anything, as hoped, so possibly at the top end of our expectations. And the executives in the business are spending some of their time poring through the margins in the company, the SaaS subscriptions that we have, each staff member in the business, not necessarily looking to cut, but simply looking to optimize, organize and make sure that we're all pointing in exactly the same direction. So incredibly important for us. We also have a precious suite of resources in our developers, and we also want to make sure that they're focused on the product developments that are going to drive the highest possible ROI from existing customers as well as giving us the ability to attract new logos. I've mentioned before our partner channel. Again, it's very important to us. It has been 32% of revenue historically, and our target is to grow that materially towards 60% of revenue in the next 2 years. I spent last week in South Africa. South Africa, a lot like Brazil, is predominantly a partner-led market. Although in South Africa, we do have 500 Woolworths stores that we supply Wi-Fi to. But otherwise, it's predominantly a partner-led market. We met some tremendous partners highly engaged in our product, keen as mustard to sell, and that's great for us, partly because they deal with customer success and customer support as well on a first-line basis, and so that can reduce our operating costs in the company. So very quick summary on this slide, which is to say that we are -- I mentioned about half of our pipeline is in the airport vertical. It is our intention to narrow focus toward airports and retail. That's not to say that we won't do work in universities, but we largely want to drive that work toward partners. We also are focused on some of the product development being around self-service, because we recognize the essential nature of adoption. Oftentimes, our retail customers, in particular, the users of our product, the users of the dashboards, the users of the reports, the users of the AI-driven intelligence, can be relatively junior. And as a result, they turn over quite frequently. And so we recognize the risk that, that poses to adoption, and we're working pretty hard to mitigate that. We've got inside sales resources that we're deploying across the Americas and EMEA. and we're going to continue to drive down labor costs, as Michael mentioned. Just under half of our overall labor costs come from low-cost markets, and it's our intention to continue to push towards 50-50. That was the summary for me. I just want to hand back to Craig, who can manage questions.

Thanks, Billy. Thanks, Michael. [Operator Instructions] First one, Billy, and there's a couple around these ones on the pipeline. Can you talk through the latest win rates out of that late stage of pipeline? How successful has the team been in converting that pipeline into ARR?

I was trying to wait until that announcement had finished. Look, it's very difficult to tell, but let me say a couple of things. First of all, the sales cycle in airports can be pretty long, can be 18 months or more. And so it's very difficult to get to a blended win rate when you account for some short sales cycle retail Wi-Fi customers and long sales cycle LiDAR airport customers. And so I don't have a blended rate right now. But what I will say is that on the 15th of November, we finally switched off Salesforce, which has historically been our CRM, in favor of HubSpot. It's been a mammoth project over the last 4 months to switch CRM platforms. We feel very good about that project, and what it will help us do because -- sorry. Give me a second. Because HubSpot manages our website and our lead generation through the website as well as all of our lead generation through Google, we feel very good that we will have a better view of the funnel, the conversion rates and the success of individuals than we've ever had in the past. And that would include all of the lead generation of events, which will be funneled into HubSpot in order for us to track that. I feel incredibly passionate about the need to get to lifetime value over customer acquisition cost as a core metric in the business, that is a core SaaS metric, and therefore, that's going to be a real focus for us in Q2, is getting to that metric.

Next question on the pipeline. You've talked a lot about land and expand strategy and the potential to come from the airports as you go into multiple terminals. How much of that potential land and expand revenue is sitting in that pipeline? Or is that pipeline more primary deals?

Think about -- the pipeline is a combination, but -- so think about it as a blended number. I would say it was around half and half. Obviously, the win rate of upsell is much, much higher than the win rate of new logos. And so again, you get into a complexity where we would need to do some sort of regression analysis today to try and figure out the extent to which the reliable part of the pipeline comes from new logos versus upsell, but my instinct tells me that we have a much, much higher conversion rate and upsell. And so let me just say it this way. We think about the pipeline as being, for instance, proposal presentation [ in hub ] was only a 10% win rate in the pipeline or representation in the pipeline, whereas if we're in final negotiations, that would be above 70% confidence. Again, HubSpot is going to help us get to the true number. It's incredibly important, as we think about where to deploy precious capital into marketing and sales efforts, that we genuinely understand each of the pathways to revenue, and distinguishing between new business and upsell is a key part of that.