Kinatico Ltd (KYP) Earnings Call Transcript & Summary

Okay. We've got to our designated start time. Let's kick off. Welcome to the latest and quarterly -- Kinatico's quarterly webinars. This quarter we are presenting our FY '24 annual results. As we like to do, I'd like to commence by recognizing the Traditional Owners of the various lands upon which we meet throughout the country and indeed into New Zealand. I am coming to you from the Noongar lands, and I pay my respects to their elders, past, present, and emerging. The slide is a boring bit, but it's important. We are presenting -- the core of this presentation is the FY '24 annual results. Those, of course, have been audited and independently verified. There will be some other information we present. Some of those -- some of that information may be forward-looking. Those forward-looking statements are, of course, made to the best of our efforts [ or ] [ as ] reasonable, based on reasonable assumptions, but the time and format of this presentation won't [ admit ] us to articulate all of the assumptions that we make on every statement that we present today. So please take your own independent advice in respect to any investment decisions you care to make. My name is Craig Sharp. I am the General Counsel and Company Secretary of Kinatico. I am, as you can see, doing the introduction and setting the scene for this. I'll shortly hand over to Michael Ivanchenko, our CEO, who will give a brief overview of the company of where we're at. Jason Margach, Chief Financial and Operating Officer, will delve into some of the numbers and the financials in our report. Geoff Hoffmann, our Chief Revenue Officer, will then take over and talk to you about sales and marketing initiatives that we have underway in Kinatico. Odelia Sarre, our Chief People Officer, will be joining us to talk about our people and our transformation, and then we'll hand back to Michael to wrap up the presentation with perhaps a little hint about what may be coming this financial year. And also, if there's time, he will undertake [ to ] try and address some of your questions. In that respect, if you move your mouse to the top or bottom of the screen, depending on how you've got your screen set up, [ there ] should be a little banner appear. There's a Q&A button there. You press that, you can lodge your question [ at ] any time. The format of today's presentation means that the audience are all on [ mute ], [ so ] [ won't ] be able to speak up, but we will, as I say, note your question and we should, if time permits, be able to answer it. From now, I will pass over to Michael.

Thanks, Craig. Thank you for joining us today. Looking forward to taking you through not only a bit of detail about the year gone past, but also some information about how we've achieved the results we have achieved, how they set us up for this year and beyond, and also a little bit more color and depth on some of the implications of some of the numbers and the metrics that we've achieved. I've said in the annual report, and it's also been published elsewhere, the numbers we've achieved last year are the best results the company has ever achieved. That doesn't mean we're satisfied in -- quite the opposite, in fact. We believe we're at the beginning of the journey, at the beginning of the potential. But the reference of looking at where we are, it is an important milestone in the clarification and the detail around the direction and confirmation of the strategy we've undertaken. The lens that we view the company with, that I want to talk about and share, is the fact that we believe we're running 2 companies, and that encompasses the transformation that we have been and are undertaking. And when we look at the detail within some of those -- the 2 company entities, you get a bit of color and a bit of flavor of what we've gone about and where we're going. In fact, in essence, we look at the companies as we had a legacy business, and then we -- all our investment and all our effort in moving into our growth start-up, if you will, and our focus on ensuring not only are we funding it, not only are we building it in a constructive way, but ensuring the foundation underneath it is solid and actually funding it and driving it. So we look at the legacy business and the market within which it plays. Verification services and screening is -- it's no secret, it is a challenged sector. It is challenged globally. We have an increase in availability of digital verified information generally. That is only going to accelerate. The -- whether it is government agencies, publishing APIs or access to information to facilitate the growth of a digital economy or various other initiatives, it is inevitable. Therefore, the idea of a business that was exclusively playing in that space is going to be challenged. We've seen across recent results of other players in the market that their revenue has actually gone down year-on-year, and combined with the fact that the verification, screening sector is predominantly influenced by seasonality or employment openings, et cetera, you get a confluence that shows that is not a sector to build the growth business to the future. Significant within that space that our top line revenue grew at the same time that many of them went backwards, and that's because Kinatico has a number of other advantages, not to then lead on to the discussion about our future growth position within Kinatico compliance and its provision of simplified compliance management. So, within Kinatico, the brand of CVCheck is very strong. It is very recognized, and it also leads to strong customer return. That gives us a very strong market advantage, not only in our effort to move into more deployments of our simplified compliance, but generally as a [ barrier ] [ of ] entry for other players. That customer base has a strong underlying value, and Jason is going to talk about that further. But it also provides us with the starting point to build the pipeline, or has provided with the starting point to build the pipeline for our simplified compliance solution, those 10,000 repeat corporate customers, and as I say, Jason will go into some more detail about them. Has meant that we have been able to gain tremendous market insight, customer feedback, actual verified data about what the market is [ need ] -- what the market needs, where the opportunity lies, and it is that information that has [ formed ] the basis of our strategy, the basis of our developments and targets, which has led to the results that we've achieved. So the other side of that coin that is potentially a negative for some other exclusive screening companies is the ongoing digital advances that I've already spoken about, whether government or otherwise, have empowered us to improve the productivity and the efficiencies across our legacy operations, leading to further cost out, leading to increased contribution. All of that has led to the fact that the company is now generating $4.2 million of cash flow from operations, and that money is being used to fund our future growth strategy. It's a pretty unusual [ microcap ], particularly in tech, when we're pursuing an aggressive growth strategy, that not only are we funding it, we're profitable and not using our cash reserves, and actually continue to be cash accretive for the year. So the -- as we move forward, it's important to note, the CVCheck brand isn't going to go anywhere. As I say, we'd be crazy to not continue to leverage the brand recognition around it. But what it effectively becomes increasingly is a sales acquisition tool, a conversation starter for organizations that need to initially verify information for a conversation we can have with them about where we take them into simplified [ compliant ]. That hook, that target point, is tremendously powerful and we've got the proven track record about it. I can actually see the point we'll get into the future where we use it as a [ loss ] [ leader ], but nevertheless an advantage that we have where a lot of other players don't. But leading into how we then view the other half of the company. We treat Kinatico compliance as a [ start-up ]. It is run lean. It is deliberately focused on accelerated growth wins at quality. We're very much of the view that in the SaaS space, the first 6 months of any engagement is critical. If you provide quality service, if you demonstrate value to an organization within a SaaS agreement within that first 6 months, they're highly likely to stay. And that's been a real focus around how we're applying it so that we're taking market-leading indicators on what it is that the market needs, and Geoff will talk more about that and how -- you'll hear it again and again, simplicity, simplicity, simplicity. What we've achieved, what we've found, and where we're getting our traction is that organizations don't need a compliance management solution. They need somebody that is helping them remove the administrative burden of compliance day-to-day, and that is where we play, and ultimately, powering an ecosystem of all of the systems and functions within an organization or other vendors for that matter, that play in the space. But what we provide is the reduction in -- of burden of the management of compliance and effectively what that translates into is a reduction in our [ spend ] managing and [ freeing ] up to focus on what organizations actually exist to do, but at the same time, because of the ability -- what is effectively a digital disruption of the space, getting real-time visibility and status of the actual compliance, so you can do something about it. How that's played out over the past year, the numbers speak for themselves. We've got a 59% CAGR year-on-year since launch of our SaaS growth in compliance. We are targeting that to continue. That is our plan. That is the commitment of the exec team that you have on the call today. When we -- again, when we started before we launched a solution, we could argue we had SaaS revenue of various licensing deals, et cetera, which equated to about 7% of our revenue, and now we're at 38%. We continue -- we intend to continue to increase that. Our target within 3 years is 80% of revenue being SaaS, and that doesn't just mean taking the existing revenue and making 80% of it SaaS. What that means is making 80% of our full growth revenue SaaS. We believe, moving in from just the exclusive verification and screening business into this new world of ongoing compliance simplicity is a much, much larger opportunity. It also -- various people have heard us talk numerous times about our international aspirations. A requirement industry agnostic compliance simplification solution has global applications. A screening and verification business does not. So, this is the vehicle that we intend to take [ far ] [ and load ]. And it's very [ telling ] [ that ] last year we invested $3.2 million in our technology development funded from the free cash flow from operations of the core business. We are very excited that we've been quietly working on new features and functions that we will be bringing to market this financial year. I'd rather -- as we've demonstrated with our execution record -- we're not going to tell you what we're going to do, we're going to tell you [ when ] we've done it. And now in coming up, in -- in coming months, I'm very excited to be sharing what that actually looks like when we launch those new features and functions, which we think will be a game changer. But in terms of adding a little bit more color and some of the depth, and quite frankly, the underlying value, some of the results that we've achieved over the last year, I would like to throw to Jason Margach.

Thank you, Michael. Yes, it was. Taking a [ forward ] look at the year just passed, across the highlighted aspects on this slide, I think important to note here is really where the financials support and underpin the strategic direction and transformation that the business is undergoing, and it's [ now ] more evident across these. Consistent SaaS growth [ have been the ] first and foremost since inception, and since our launch, rather, in 2022 of $2.4 million right through to $9.7 million, which we generated in the current year, really represents that transformation that Michael was talking about of the original company. [ Nowhere ] else is it more evident of our effective management of shareholder funds [ then ] -- if we take a look at the loss that we generated back in 2022 to the $800,000 profit that we generated in mid-year. This in itself represents a 200% increase year-on-year on our return on equity to our shareholders, and of course, a 210% earnings per share increase. Our organization's ability to [ fund ] the future strategy, that Michael talks of, is highlighted by the $4.2 million worth of free cash flow that we generated from operations, a really positive [ outlook ]. I think, but more importantly, if we were to strip back a layer deeper [ all ] those revenue numbers -- just wait [ for ] the slides to catch up. Thank you. Having a look on the left-hand side of the slide, of the $19 million worth of transactional revenue, $13 million of which came from our organization -- our B2B organizations, but most notably, of that $13 million, our strengthened pipeline opportunities is $12 million worth of annual recurring revenue or ARR. Very important -- and I think this is -- price is key, the [ area ] that [ was ] -- [ as ] Michael spoke with the 2 companies. This is the strength in our pipeline, is this annual recurring revenue that we continue to generate within the business. Looking briefly at the $9.7 million worth of SaaS that we've produced in the year. Back to [ its ] [ former ] inception of launch in the quarter 4 of 2022, we -- sorry, forgive me, for circa, [ back ] in the -- consistent, but I think more importantly, the positive trend that we continue to see coming through the business. If you allow me to summarize very briefly, the year that [ passed ], in revenue, we generated $10 million worth of SaaS, to which we added $12 million worth of annual recurring revenue, which gave us a $22 million worth of high-value revenue for the business, and I think that for us is really an important part of the revenue and the highlights of the revenue for us itself. And with that, I'd like to hand over to Geoff to give us a bit more color around the -- [ to ] the revenue side of the business.

Thanks, Jason. Good morning to all. Look, growing our SaaS business has been a key focus around how we put the customer pretty much at the center of what we do, and we've touched on this in previous sessions along the lines of the market research that we've done to date and the market research we continue to do around -- we've commissioned that external agency to help us understand what that sentiment is in market and also understanding what the trends are and the needs are for the marketplace. Across NPS, we've had a number of surveys that have gone on throughout the year, and we know through that -- we're doing about [ 1,800 ] surveys a month to get the necessary understandings of around what's happening with our customers in market. You can see there, sort of goes without saying, we got a Kinatico score around our NPS of around about 63, which in today's terms is significantly market-leading and well above what average is in market. Michael touched on upfront the need in the market around our customers looking for that simplicity, around supporting their compliance within their business. That continues to scream loudly through the research that we continue to talk to customers about, and that market demand around simplification and simplicity comes through loud and clear with all customers. That administration burden and that challenge they have on a day-to-day basis around how they manage compliance [ within ] their business today, it's just becoming more [ wired ] due to whether it's regulatory demand, government changes or even the procedures that they need to put in place in their own organizations to make sure they're compliant to whatever it may be. So, as we continue to focus on delivering that simplicity of the market, one of our key outputs for this year has been, if you look across the bottom of the slide, is our new wins that we've brought into the business. And if you look at some of the brands that sit within that audience, you can see that we have quite -- some significant blue chips that sit in there, anywhere from the energy sector, education, whether it's even across Victorian Building Authority to Australian Submarine Corp, to nbn, Kmart, et cetera. You can see that our new wins are significant in the way of helping them be more compliant across the organization. They need to be compliant too within the marketplace around the industry changes that are happening for them, and even more so in some of this work that you can see that we're doing with new customers, the government sector starts to come into its own. If we start to talk about existing customers and looking for how we're going through that transition piece to what Michael touched on earlier about, there's sort of 2 companies working within the business at this point in time. Our existing customers are somewhat confirming what our strategy is, and they're leading that direction. And what we mean by that is, as we continue to partner with these blue chip brands in market, it continues to help us understand how to simplify that compliance solution. And one of the key things -- and I'm not going to go through every point on this slide, but one of the key things that comes through is having a very, very strong and robust go-to-market approach across the sales and marketing business as we not only go into market speaking to new customers, but how do we actually transition existing customers through, to Michael's point earlier, we have a legacy business around -- predominantly around screening, how do you actually make sure that you move them and transition them into that compliance solution today around day-to-day compliance and helping to simplify the data and the information that's coming through to them to make it easier on how they run their business and how we help them serve up the data and analytics to support that. Those sectors that we've been talking about and educating the market about [ of ] recent times are continuing to evolve, but we have seen some good strength through -- We talked about health care and disability in the past. It's probably more splitting out the 2 separate sectors due to the focus we've got in those areas, but on top of that around education, aged care, and energy. As you saw on the previous slide, we've had some good, strong new acquisitions in that space, but even more so across the government sector of recent times, we can see that there is a demand for our services and talking to multiple departments. Michael has touched on -- earlier on about our advantages and where that puts us in the marketplace. And I believe that somewhat being agnostic is definitely one of our strategic advantages, and that's what's helped us have that cross-sector approach and also those recent wins. And I think even more so, it helps open up the customer base and the opportunity with the broader audience. Just to close off, I think one of the key things when you look at our offering, besides it being agnostic, it's very much a mutual offering in market. So, anyone today who has got a compliance need or compliance demand and [ when ] the evolving marketplace -- And it's not getting simpler for the market, it's actually becoming more complex and more complicated. That's where our key USP pretty much comes into its own, around how we help businesses with simplification. However, from that, I'll pass over to Odelia.

Thanks, Geoff. Hi, everyone. I'm -- not spoken to you in this forum before, so a little bit about me. I'm the Chief People Officer at Kinatico. I've been with the business for about 2.5 years and been in the tech space, including globally for around 10. I'm really excited to be part of an organization that helps its customers to really know their people. So, you've heard from Michael about how we're leveraging our existing asset in the legacy business, and like organizations globally, we've been looking to do more with less. So, operational efficiency and effectiveness has driven our profitability. And you can see from the graphs on the right-hand side, particularly at the bottom right, our NPAT per employee has increased by 234%. And then as well looking into the future in our SaaS growth model, we've increased our SaaS per employee by 92%. So how have we done that? At Kinatico, through our organizational identity, we focus on building our culture deliberately. We've identified the cultural levers we can pull to deliver. And we know that transformation requires more than change management. We've been shaping our organization by building our peoples' [ change ] [ fitness ] through alignment, leadership, and growth. So focusing on delivery, prioritizing our energy by [ asserting ] the path, pace, and progress through [ OKRs ], cascaded down into individual goals. Everyone in our organization knows that what they do matters and how it hits our bottom line. We have been recognizing and rewarding people in alignment to our values and evolving our operating model and ways of working. With clarity and resilience, our leaders have guided our teams through the external challenges you've heard about and also our internal transformation. By cultivating a leadership culture that values both our results and our relationships, we ensure our teams remain aligned and motivated. It's our inclusion on purpose initiatives that continue to result in our diversity. So not only do we have a place where people can belong and where one of our values is our team's strength that comes from everyone's individuality, we know that our diversity leads to better quality decision-making and innovation. In reference to the customers that Geoff referred to in the previous slides, we're agnostic. Our solutions are applicable everywhere. And so, we know that we have a team that's reflective of these customers and the communities in which we work. And then lastly, we've talked about the 2 businesses. So we have got new and evolving capability requirements. Yes, [ we've ] brought new talent into those emerging key roles, but we're also ensuring that our existing workforce have education, experience, and exposure opportunities. This means that we're nurturing a work force that is both skilled and deeply committed to our long-term success. Our Kinaticans continue to embrace our transition to a SaaS-focused business model with enthusiasm. We've come a long way. You've heard that we've achieved a lot together. But more importantly, we have the energy and the commitment to achieving much more. But I'll let Michael take you through that and what our plans for the coming year are.

Thanks, Odelia. So a little bit of -- I think, very important to hear from the entire executive team and the approach we take as a team to driving this company forward, and I'll come on to some of the points on this page, but also in the process of addressing some of the questions [ that have ] been posted as we go, one of which is, as we look at all of those metrics and all of the numbers that have been put in place over the past year, the question was, do we not think the company is [ undervaluable ]? Of course, we do. It's -- we can control the controllables about how the market reflects in the pricing, is not one of them. So what we can do is continue to work around putting the foundation in continuing to get results. And I'm fully confident the market will catch up with the valuation. Our job as an executive team is to do the work, actually getting the results and building for the future. I think, in terms of where we've taken the business from, as I say, what was a pure screening, verification business now playing and successfully demonstrating execution into a much larger growth strategy. At the same time, we're very excited about what we'll be announcing this year, that further entrenches that. I'm confident, very confident that the market will catch up with the potential and where we're going and what the opportunity is. In terms of then the follow-up question on that, the -- do we think that we could be doing more with the balance sheet? Yes. And we're looking at that at the right time. I'm not going to use it though inadvertently to get a short-term [indiscernible] uptick of an announcement that otherwise doesn't help us achieve the ultimate focus, which is around building a very, very strong, very profitable SaaS business. So the -- we believe that focus and discipline around our execution is key and something that we've demonstrated. So what does that mean going forward? And Geoff's mentioned the customer focus and the detail that we get there, and that is what has driven our development [ and ] the things that we're going to be launching. One of the things we've certainly [ learned ] over the last year is, not that we don't have the market demand out there, we -- the -- do believe that we need to reduce the time it takes for our solutions to get live in customer space. The double-edged sword of having a solution that is compliance requirement agnostic means we don't have to modify the platform to go after any industry or that we are applicable for all industries, but it does mean that the configuration is taking too long. And the features that we'll be bringing to market this year, a lot of them are around self-service and intelligence in terms of predictive analysis or recommendations for compliance requirements, is intended and we believe will materially reduce the time to market for -- time to go live for new customer deployments, but also enable us to pursue smaller opportunities. Our sweet spot at the moment has been organizations with at least 500 employees, if not a 1,000 plus. We want to get that point to where a 100-person organization can take up our platform, configure it themselves and use it. And it's certainly a KPI target for me, is when we sign one of those customers and we've never spoken to them. In getting that true digital conversion, a lot of the features we'll be bringing in will assist with that. We have further plans in place for deployment of further automation and productivity improvements, improving the overall accretion value of the legacy business. So when we look at where we are at an investment [ thesis ] right now, we have a proven execution team. We've taken a company now to be profitable for the first time in its history to actually be cash accretive. We have a strong balance sheet, but we will deploy at the right time when we feel it's materially going to give us the acceleration that we need, and we have the cash reserves to do it. The business is now generating the cash for us to invest in the growth strategy that we have. We can fund the features and functions, et cetera. And at the right time -- and I mentioned it in the annual report about the time to invest -- when we get these features that I'm alluding to, deployed, the acceleration of our sales teams and going wider to actually really start to accelerate that top line revenue -- will come, but only when we are absolutely convinced that we're going to deploy with quality and ensure the positive results, because what I don't want to do is to go -- is the [ Rugby ] [ union ] term, go wide too early and then get isolated and taken out, because our quality of deployment doesn't keep up with the scale demands. So discipline and execution will continue, and I'm confident that the share price will then take care of itself. And we intend to continue -- certainly, our target is to continue the same trajectory with our SaaS growth, et cetera. [ There's a ] question there about [ explain the RaaS ] guidance of $14.7 million for this coming year? While we don't provide any kind of guidance, I'm simply going to say I'm comfortable with the reporting that's out there and the numbers that have been put out there. So another question there that's leading in was, how does the company think about attaining operating leverage and profitability as it continues to SaaS? The -- one of the key outputs and outcomes of the transition to SaaS is gaining greater profitability. The more features and functions we deploy within our platform that have a lower cost to serve, because they are operational benefits for an organization, have a natural effect of taking us into much higher gross margins. Our target for our pure SaaS play is a traditional SaaS gross margin in the high 80s, so mid to high 80% mark. Now that's -- I'm not putting a commitment on when we're going to hit that number, but that is our trajectory in our path. The more of the new features that we have planned for this year get deployed into customers' features, the natural effect of that will be an increase into the gross margin and the accretion value of all of our SaaS revenue. So with that, if there are any other questions, please do not hesitate to post them into the chat. But otherwise, I would like to just say, thank you for taking the time to join us today. We will continue to provide quarterly updates by these -- not only announcements, but these webinars. We do feel it's very important to continue to get the story of what is going on in the business out there, because the magnitude of the transformation and the foundational work that's going on is significant, but not necessarily just apparent on the top level numbers. So, in terms of getting the share price to where it needs to be, we will continue to communicate to the market. We will continue to execute. We will continue to deliver, and that as an executive team is our role. Okay. With that, thank you very much for joining us.