Dubber Corporation Limited (DUB) Earnings Call Transcript & Summary

Okay. Good morning, everyone, and welcome to the Dubber shareholders for our quarter 2 FY '25 4C Presentation. On this call is Matthew Bellizia, myself, who is the CEO and Managing Director; as well as Andrew Demery, who is Dubber's CFO. Q&A can be asked during this presentation. The Q&A questions maybe come via the Zoom link on the bottom of your screen, so please submit the questions you have, and we will answer them at the end of the presentation. Anything that does come in via our investor portal now will be too late. We'll only be picking up questions from the Q&A. We do have a question submitted a few days ago on the investor portal, which we will address. Okay. So the agenda for today, I'm going to cover off some key messages, talk about our renewed Board. Andrew will then cover the financial overview. We'll come back to a CEO presentation and then talk about the focus areas for the conclusion of FY '25, and then we'll address the questions that have been asked. Right. So first of all, we're pleased to announce we have completed the entire Board renewal process. Now this was quite an extensive task. It was very important following the events of 2024 that we built a Board that was going to be both strong in governance and had a broad range of skills to bring -- put the company into a good position going forward. Probably Dubber needs to have the best governance of any ASX company going forward, and we're absolutely focused on delivering that. I'll talk more about the Board in the next slide. On a positive note, all CSP partners have been maintained, and we've grown a few more. So that's remaining healthy. And as time goes forward, clouds are lifting, things are getting a bit more healthy around what we're doing, and we're hoping our retention will stay that way and continue to grow. We continue to target cash flow breakeven. It was a target announced before I started and at the start of this financial year, and we continue to focus on getting operating cash flow breakeven by the end of this financial year. And again, following the events of last year, to put confidence through our CSPs, they need to see that we have both a healthy balance sheet, and we are now trading in a strong position. We put jitters through the market last year. Telcos are typically conservative by nature. So for us, continuing to having good governance, good balance sheet and trading in the profit, the key fundamentals for this business to get itself into a good growth trajectory for FY '25 -- FY '26. Revenues grew 3% quarter 2 versus quarter 1 to $10.4 million. Our cash costs continue to trend down. Importantly, some things you can take away. Our exit run rate of ARR at the end of December is $42.5 million. And our exit costs, both direct costs and expenses was under $48 million on an annualized basis for both November and December. And further to that, we've also identified and taken action on an additional $2 million worth of cost savings, which will be rolled off during this quarter. So you might necessarily see it this quarter, it's progressively coming out this quarter. So you'll see by the end of quarter 4, the benefits of the actions, again, we've taken on driving cost out of this business. Our cash balance at the end of December was $20.6 million. We have done a separate announcement this morning that we paid the ATO back of $6.8 million. That's a positive step for the company. It's quite an overhang on the business to be owing your tax department so much money. I think it's a positive step that -- again, our partners can see, as well as our shareholders, the company no longer owes $6.8 million debt. We chose then to go ahead and take a loan out of $5 million to offset that and keep strength in our balance sheet. That's the liquidity depth that people are looking for a company like us to have. Because, again, of the events of last year, there is more onerous on us to have a good debt through our balance sheet, and that loan is on great terms. The terms of that loan was 1% establishment fee, so it cost the company $50,000, 3% line fee, so it's going to cost us $150,000 a year whilst it's not drawn and 8% for drawn funds. There's no early termination fees, so we can terminate that loan at any given point we wish. That was supplied by Thorney, who continue to support the group incredibly over the past -- well, certainly as long as I've been here, but I believe the 12 months and beyond. The terms of that loan were far and away better than any other loan that we have sought or seen in the last 6 to 12 months. No big securities, expensive covenant tests and all the other things that go with loans let alone a much -- normally loans to unsecured would have a much greater interest rate against them. So thanks, Thorney, and we think that's a really good positive step for our customers and our CSPs to see good liquidity debt through the balance sheet. The recovery of funds continues, and we've appointed a new Board subcommittee. So there's a subcommittee, which I'll talk about in a little while. It's been appointed specifically now to work with Gerard on continue the recovery of funds. I'm sure that people are going to be frustrated that we can't tell them more. I empathize with our shareholders, who want to have a greater depth of knowledge around what is going on with the recovery of the funds, why haven't stronger actions and why hasn't McGovern and Madafferi been charged, et cetera. But you do have to appreciate that if we say things that can compromise our case or compromise the steps that our new subcommittee want to take, it's counterproductive. So unfortunately, whilst you'll be frustrated, we have to remain fairly guarded on what we update in terms of that. We've done most of the cost work in this business, a bit more tuning. You're always as a CEO trying to run a business rightsized, efficient, really outcome focused for task, people having purpose in the business. But considerably amount of the costs have been done. We're really now driving into sales growth, marketing and driving the top line. I've been really clear that we have to drive both levers, both revenue levers and cost levers to get this place to go from the massive losses that was undertaking and in a short period of time to pull this place into cash flow breakeven then on a journey into a truly -- true EBITDA black number. Next slide, if you may, Andrew. The Board -- I'll introduce the Board. Ted Pretty was appointed this morning as our Non-Executive Chairman. Ted has experience both in AI and telco. So it's a lot of relevant experience. He knows how telco works and our partner works. So there's going to be some good strategic things that Ted brings to the business and as well as being a lawyer, we think that certainly helps in our current juncture in terms of -- there's a few cases, as you should imagine. I've been introduced enough times. John Selak has joined the Board. He was with EY Corporate Finance. He is chairing our Audit and Risk Committee. Simon Crowther has got some great experience in both Nearmap and Spacetalk and amongst other technology companies. He's a true technology CEO. So, a great sounding board. Thorney has again provided additional support with Jeremy, who brings investment and capital market knowledge into the business; and Gerard, who is continuing through to the 31st of March. Now we'll address something that's going to potentially have some aesthetics whilst I'm on this slide. There is a capital raise announced at $0.04 for the directors to buy shares. People are going to look at that and say, well, the share price yesterday was $0.053 or $0.054, whatever it was, as your CEO, I don't focus entirely on the share price. I focus on getting the underlying performance of the business right, which is my job. But you need to appreciate that it was -- that the share price last Monday was $0.042. The share price on the 2nd of January was $0.032. So when we're negotiating with our Chairman in about the second week of January, and we proposed that we would like him to put in $100,000, $0.04 was not a cheap share. When we went out to the other shareholders around the same time, $0.04 was not a cheap deal. The 20-day VWAP from 2 days ago was $0.04. The shares have been on a run, but it's certainly not the directors deciding now that we'll do ourselves sweetheart deals. We're certainly not into that. Our issue was that we've done these deals with our directors a few weeks ago and our share price has gone on for a run and a deal is a deal. Ultimately, there's two takeaways from this. One, as a positive that all our directors are vesting in the business. We think that's absolutely substantial that your directors are vested and they're not given free shares are actually turning up with their own cash and putting money on the table. And secondly, the second takeaway is ultimately, this is a shareholders' decision. So the shareholders will either vote that through or they'll decline it as they see fit. But I did think it was relevant to give you the history of why $0.04 and the history that it was done 2 or 3 weeks ago. We didn't wait for the share price to run to $0.05 and decide let's do ourselves a bargain. I'll now move on to Andrew and the financial report.

Thanks, Matthew. So I'll start with revenue for the quarter. So again, it's nice to see that both reported underlying revenue growth both moved in the same direction this quarter. So Q2 was up 3% on a reported basis on Q1 to $10.4 million. That's 9% up on the comparative period last year. And the recurring revenue was part of that. So if you strip out any one-off professional services predominantly that sit within that number was $10.3 million for the quarter versus $9.9 million last quarter. So we've grown by $400,000 of recurring revenue within that quarter. Just one point to note, we've given one of our larger customers some sort of shorter-term temporary discounts that held back the growth rate by about 1%. So we'd have been a 4% growth quarter-on-quarter had that not the impact of that temporary discount. That discount rolls off at the end of Q3. So that will naturally return positive growth that we'll see coming through in Q4 next year. As Matt said, we've retained all our partners and -- over the course of this quarter, and we're up over 5 since June last year. The exit run rate for that recurring revenue number was $42.5 million. So that's our entry rate into the second half of the year. We look at cost for a moment. So direct costs, as you can see from the chart, they're down on last quarter when we had a couple of one-offs within the -- in the quarter relating to customer migrations and so on. And again, over the long term, you can see that has been trending down. So when you take that with the increase in revenue, we hit a 70% margin in the quarter. That remains the target for the year, as a whole. So obviously we need to exceed that in the second half to get there in totality for the year, as a whole. We've obviously done a lot of work in the efficiencies within the platform, and we've taken a lot of those into the numbers now. There's still some more to come, but the more we do, the harder it gets. So as we go on, we'll continue to get a lot of economies of scale. As revenue grows, we're certainly not going to be adding cost at a 70% margin for each incremental dollar of revenue that we generate. So we'll get those economies, as we go forward, and AI will be an increasing mix, as we've talked about a number of times going forward over the next 6 to 24 months. So that will start to change the profile of that direct cost a little bit, and but we'll look at that as we go. That 70% margin obviously remains that target overall for this year. If we look at operating costs after that, you can see that the trend remains down with obviously the actions that we've taken in the quarter. We're now under half what we were in Q2 FY '23. So that's the scale of the reduction in the cost base that's been undertaken. We -- the overall costs were $36.5 million of operating costs on an annualized rate for the quarter, including direct costs and annualized $49 million of operating costs. Although as Matt pointed out, we've exited the quarter a little under $48 million in terms of the annualized cost rate. So obviously, the costs have been coming down within the quarter. We've got line of sight for another $2 million, where we've taken the actions that are already coming through. So we'll see a little bit of that in Q3, but most of that will come through as a benefit in Q4. So in that circle we've got line of sight to a $46 million cost base. On top of that, we've got some surplus property in London that we're actively trying to exit as quickly as we can with the best result we can. Getting that off the books gives us over another $1 million to reduce from that cost base, and that's not included within that $2 million that we've got line of sight for because there's obviously uncertainty over the timing and achievability of that, but we're pushing really hard to move that on, as we don't need that. So you put all those two lines together, and we've been seeing this chart for a while, but the jaws between revenue and costs continue to close. So obviously, our target is for those on a run rate monthly basis to cross by the end of the year, but we obviously got that exit run rate on revenue of $42.5 million, $48 million exit run rate of costs with $2 million to come. So there's a gap of $3.5 million there for us to -- on a annualized run rate basis for us to close, as we go through the second half of the year to be able to overall achieve that target, which is assuming no material changes to strategy or trading conditions, that's what the target is for the remainder of the year. Just touch on cash flow. Receipts in the quarter were good, $12.5 million, was up from $9.3 million last quarter. That really reflects some of that timing we talked about at the end of the last quarter, where some of the receipts that were due at the end of Q1 fell into the first week of Q2. So when you average that out, cash receipts would have been -- were up slightly in line with revenue during the quarter on a normalized basis. Operating cash flows reduced 5%. I'll talk a little bit more about those on the next slide. And the only other point to note really is obviously, we did -- we executed the capital raise, raised $25 million gross, $22.9 million net of costs in the quarter, which you can see within that $22.4 million number that's on the slide. I just want to touch on normalized operating -- sorry, normalized operating cash flow. So if -- we had about $2.6 million of normal cash flows in Q1, $2.5 million this year, and then I'll just touch on what they are. So a large part of that is the some of those historic tax repayments that we've been making. So cash payments in this quarter that relate to liabilities that are not in the P&L and occurred a period ago. As Matt talked to, we've actually closed that out in terms of the amounts that are due to the ATO, as of yesterday. So that $6.8 million will be an abnormal cash flow in the Q3 quarter, but that will reduce the tax component of those going forward. So that's one piece of that. We also -- we had some restructuring costs again in this quarter of Q1 and Q2. Those will very much be much smaller nonexistent in the coming quarter. And then there's other costs related to investigations assistance with ASIC in terms of what they're doing around the term deposit and misappropriation of funds. So again, we'd expect those to absolutely start to reduce this quarter and the quarter after that. So the important thing is that if you strip out all of those costs, so really trying to get to the meat of what the underlying cash flows of the business were, if you take away those abnormals, our operating cash outflows were $1.5 million for the quarter. So that's substantially below where they've been in previous quarters and really reflective of that trend that you saw in the previous chart of the revenue going up, the cost coming down, and that's really starting to be reflected in the overall cash -- operating cash flows of the business. And then Matt's talked to this already, but yes, we cleared our ATO debt. We've got -- it's great that though we were able to step up and provide some really good support for us on a really commercial basis with that facility just to make sure we've got that strong balance sheet, mostly for our partners going forward. So Matt, I'll hand back to you.

Sure. Thank you. Moving on to the recovery of funds and the investigation. We continue to obviously to take this extremely serious. As I mentioned, there is a new subcommittee appointed on Wednesday to start engaging. Three of our new directors will be taking fresh eyes to it. In terms of ASIC, we certainly know there's an -- ASIC is continuing their investigation, but that's up to ASIC to do whatever they do and whatever time frame they choose to do it. That's their prerogative. We do have our claim against the Victorian Services Board. That continues. And again, we're still waiting for the answers to come back on that. And we're continuing to explore other avenues and considering each of these avenues has a return on investment and a risk. Certainly, there's money we can spend to shareholders, but we've also got to consider the likelihood of actually recovering funds and the return on investment. So again, a fresh subcommittee starting. I know I'm not giving you as much as you'd like. And as you know, I'm guarded on what I can say. But you can be rest assured that we are taking this extremely seriously and intend to do the best we can to recover shareholders' funds. And obviously, we hope ASIC makes those responsible and make sure they're held to account. Some operational priorities and updates. Substantially, when I started, we've been working in my first month, certainly, my first look was how do we drive cost out of this business and whether it be staff costs, driving out -- negotiating vendors, eliminating vendors, which we think we could go internally. For instance, we don't no longer have Investor Relations. So we've really had a real big focus on cost early on. It really helps us extend the runway and ensure that we're slowing down the burning of shareholders' cash. We've rightsized the organization. We continue to look for more efficiency gains internally as well as really getting our staff to rebuild culture through those changes and focus entirely on outcomes and that's how a good technology business runs. So there's been a lot of work in that area. We're now really switching -- and probably the second thing that flowed in that first period was to go and reassure our partners around the world that we were stable, we were on a good track. We were going to survive, don't depart us. You can now trust us again. You know we've got good product, but you can now start to trust the business again. We are clean. What happens happened. But going forward, we are going to get this thing into the black and have a strong balance sheet all the way through. So there's a lot of assurance required in the market in my early period. We're now really pushing into driving revenue growth. We've done a new comprehensive marketing plan. It's 70-odd pages long and really outcome-based selling. So let's talk about moments and our words because we're not big enough that you can understand what moments and insights and topics mean more what outcomes, what can we do for people's business, what -- how can we save them money or by using our products, what benefits can you get? We're also doing some industry-based selling. So for instance, asking a telco salesperson to understand Dubber's AI and then say -- then consider an industry such as retail and say, I now understand how this AI can help your business. I think it's too hard. We want to hand them a brochure and say, if you've got a customer in the retail sector, just hand this brochure over and tell them all the benefits they can get. If they're an auto dealership, hand them this brochure, if they're a city council, hand them this brochure, it will tell them all the benefits and then they can come on and get a presentation, progress into a free trial, progress into hopefully a paying customer, trying to eliminate friction out of that sales cycle and making Dubber easier to do business with. So that's -- you can push on, but that really becomes the focus now as to how do we drive savings through the business. I'm going to give you a little bit of a snapshot of some of the things we're doing in marketing in our sales presentation. We've rebranded out and a tagline to go with Dubber, voice recording with powerful AI insights. I think that's kind of fairly descript. We associated three brand words with ourselves, trusted because we're trusted by over 230 leading telcos and partners around the world. We're trusted by over 10,000 customers globally and some of the biggest financial institutions in the world trust Dubber to deliver their voice recording and their AI. We're innovative. We actually don't just use OpenAI and these third-party generic products for our AI solution. Sure, we do some work with them. But we do a lot of customization of a lot of our own IP that value adds and tunes the solution to make the solution more effective for the customers. And we're responsible in our AI use. It means our solutions can be trusted. You can drill down in three clicks of a button into the voice recording and retrain. Moving forward, I'm going to surmise through some of this stuff a little bit at a higher level just rather than drag on the webinar. Next one, Andrew, please. But yes, we were born in the cloud for voice recording. As you know, we handle an incredible amount of integrations around the world. And we have just about -- you can move on to the next slide, just about every feature you could possibly want in voice recording. So this is just giving you a snapshot that after 12, 14 years in voice recording, this business would have just about every feature you can need in voice recording. Keep moving, Andrew, if you may. But moving into AI, and this is where we continue to want to get voice customers, absolutely. But AI can help drive ARPU growth for our customers, which telcos love driving average revenue per user up, helps them with their revenues, helps them with their margins. And our points of difference are we tailor and tune it for specific industries. So it's not just a generic roughly right, 50%, 60% accurate. We tune up to get the accuracy high enough that it actually can trust the outcome. It's actionable within three steps, you can drill down to the source, and you can use it for training. And we also do a lot of self-learning into our -- and machine learning in our AI such as we continue to tell you the top 10 most common topics talked about in your business. And people are fascinating because they do not really understand some of the topics that come out in the top 10 are topics being talked about in their business. Moving into some of the industries, auto vision, retail, finance, government, we're going to have -- there's about 12 or 15 industries, where we're really good. And you'll start seeing industry-related brochures, as I talked about, to make it easy for our telco salesmen rather than asking them to be solution salesmen when they're not necessarily solution salesmen. We're trying to create a marketing machine that stimulates the leads and makes it clearer and simpler for them to understand the benefits of Dubber -- of our Dubber AI, particularly then call us up to back us up for a sales presentation, as I push through. Some examples, and one example, next industry, if you like, Andrew, next slide. One example that I use, Dubber has got about 12 salespeople around the world. So what's the cost on a salespeople in technology, $100,000, $200,000 a year, I'm not going to give you exact numbers, but they're not cheap. I would love to know as CEO, how many hours a week are they spending on calls? How many on work calls versus personal calls? What sales close moments are different staff getting to? So we have five different sales close moments. I don't necessarily need to understand it. But if I understand my top salesmen doing 30 hours a week of calls and negotiating 14 times a week and my poor guys doing 6 hours of calls and negotiating twice, well, I need to drill in and listen to my top guy and train my weaker guy on what he's doing. So you can see how we're managing a remote -- and keep this moving, Andrew, keep managing a remote sales force and remote workforce, if we explain it properly and get the marketing right, you can actually see some real benefits of some of the drilldown stuff. And as you can see on the left side of that screen, topics that you can see comparing your people, comparing your teams, comparing your stores in retail is all interesting stuff. Moving forward, Andrew, two more, if you may. Moving into customer service and even next slide. The customer service, what departments are receiving complaints? We all know it's cheaper to retain customers and find new customers. What areas are complaints coming in for? And what are they complaining about? What are these top 10? Look at the self-learning software. Again, let's get this clear out to customer service or anyone that has a customer service or a help desk, customer support, they can be getting benefits of our products. A lot of these people today use ticketing systems, where you're reliant on what the agent types into the ticket to tell you what the customer was talking about. We actually listen to the customer and surmise it accurately. Next slide, Andrew. Of course, we give you historical trends of that. So you can see as you make improvements in your business, you can actually start to see improvements happening over time, so people can see that they're getting benefits of that. And move -- keep moving, Andrew, because I'm not doing a full sales presentation today. It's just to give people a flavor of the sort of things. Conversation well-being. Well, if we're listening to your calls and we're using AI, and we know that there's been abusive or threatening or sexual innuendo on the calls, nipping that in the bud and shutting it out of your organization and setting standards of culture in your organization is a lot cheaper than fighting a HR issue because you didn't deal with it. And now a lot of industries in chain of responsibilities and other obligations is not to turn a blind eye to this sort of jazz. It is to address it, and our products do that sort of jazz as well. So moving on to the final slides. What are the focus areas of 2025? What is, if you want, like the strategy? Well, the strategy here is to get cash flow breakeven. We're absolutely clear on that. It is to trade in time in the black. It is to maintain a healthy balance sheet. It's not to go and do acquisitions right now, and I touched in the AGM about over time, it'd be great to have a fourth and fifth revenue stream. But right now, it's to grow and sell our existing product. It's to get out and get our partners and our go-to-market strategy more effective with cost-effective marketing vertical strategy, helping finding new ways and testing the way our customers are selling and seeing if we can continue to improve that to help drive more revenues in this place. We're continually looking for new revenue streams. It's a product revolution; we're about to release an updated recorder. That updated recorder improves security. It helps drive down some of our direct costs. We're producing new UI and UX for Dubber customers. Cleverly, we have not reduced the costs in our R&D team. We're continually investing heavy into product. And we're going to continue to uplift AI sales through our product and our product doing part of the sales. In terms of culture, results-driven culture. Every department, every person that we employ has got a critical role to play, and they're all vitally important. A flat structure, one where everyone focuses on what -- on the results of their role of their team and ultimately, the company, which is in the best interest of shareholders. We'll continue to drive for cost improvements, continue to rightsize the business, continue to try and make staff more efficient, try and make our own business more productive. And you can be guaranteed with determination and whilst I'm not on the subcommittee, we will be absolutely determined to work on resolving the missing funds and finalizing the outstanding commercial disputes. We're here, and we're going to do our very best to deliver on our plans to achieve a breakeven operating cash flow run rate position this financial year, and that is our focus. So thank you. I'll now move to Q&A.

I'm going to read the question that we received over the portal first. The current best forecast timings for the conclusions of investigations, legal actions and recovery of any embezzled funds, what is the invested recovery amount and what may be returned? Are there other avenues such as insurance and other matters? The answer to that, again, I can't satisfy that answer, but other than to say there are multiple ways we can pursue those funds, and we are going to do those. And I think things will ramp up a bit more. In terms of the investigations, ASIC, as I mentioned, that is in ASIC's control. Moving forward to the questions on the Q&A. Over the 10,000 brands that Dubber has customers, what percentage used the voice recording and which ones have taken up AI. Substantially, it's still voice. I don't really know the percentage of AI and percentage of customers. I mean, because percentage of revenue is not a great reflection of percentage of customers because the AI revenue is much higher. But there's still a considerable market out there not using AI, and it's something this company needs to work on is not just sell new customers on voice, new customers for AI, but to sell upgrades of AI to voice customers. In 12 months' time, what percentage of the customer base does the company anticipate its customers will be using AI functionality? Again, it's hard for me to give you an answer on that other than I intend to be ramping up marketing and sales on that. I think I could probably answer that better next quarter, as we're actively resetting the way we go to market and sales, but we'd certainly want to see a climb in that. They're very good questions, but I can't give you an accurate answer yet. Can you elaborate on the temporary rebates for a major partner mentioned in the slide deck? Okay. Why did you provide the rebate? Is it this quarter it impacted? What does it mean for the pricing going forward? I'm not going to mention the partner other than to say it was substantial, and it was done around June, July last year -- July, August last year. The two quarters impacted is Q2 and Q3 this financial year. And it was done so they paid upfront to help in cash flow during those moments of crisis is my understanding. They will roll off. We won't be offering that in Q4 or ever again. You flagged $2.5 million of abnormal costs in the quarter and $2.6 million last quarter. What should we expect for the coming quarters? And when should we expect these abnormal costs to subside? Andrew, do you want to handle that?

Yes. I sort of touched on that as we went through. But yes, a reasonable portion of that was historic tax repayments. So that will -- the largest part of that was the ATO. So obviously, we've dealt with that today. So that's -- with the exception of that $6.8 million coming through that the ATO is now done. And yes, it's impossible to predict every cost that's coming in respect of the future investigation. There is obviously this Board, subcommittee has got its work to do and ASIC's investigation continues. But yes, I certainly expect the quantum of that to be very much declining over this quarter and next quarter. And obviously, we'll keep you updated as that depend on any news on that change.