Kinatico Ltd (KYP) Earnings Call Transcript & Summary

All right. I can see the attendance numbers clicking back up again. Now we actually press go. That's good. Good morning, all. Thank you all for your punctuality. My name is Craig Sharp, I'm the General Counsel and Company Secretary of Kinatico Limited. I'm here to kick things off on this morning's webinar. So if we go to the next slide, please, Tom. This is an important presentation. This is an important slide. Please pay attention to it if you come back and watch this on the recording, read it in some detail. It's important that in any investment decision, you take your own investment advice. We go to the next slide, please, Tom. As I said, my role here is simply to kick things off, and then I will hand over to Michael Ivanchenko, CEO. He will give you a brief overview of the highlights before he passes on to Jason Margach, company -- Chief Financial and Operating Officer, who will give you a deeper dive into the numbers in our annual report and pass in turn to Geoff Hoffman, our Chief Revenue Officer. Geoff will run through the sales and marketing position and how we find ourselves in market. And then I will hand back to Michael, who will introduce -- will take you through some of the things to look forward to in the year coming up. Then there will at the end be a time for questions. If you note at the bottom of the Zoom link, there should be a toolbar maybe in a slightly different location for you depending on your device, if you click that Q&A button, you can add any questions and we will address them at the end. Unfortunately, with this many participants, we can't take your questions verbally. So on this slide, Kinatico always takes time to acknowledge traditional owners of the many lands on which we meet. I today come to you from the beautiful lands of the Whadjuk Noongar people. I pay my respects to their elders, past, present and emerging. And with that, I will hand to Michael.

Thank you, Craig. Good morning, everybody. Those that don't know me, my name is Michael Ivanchenko. I'm the Chief Executive Officer of Kinatico. And it is with some pleasure that I look forward to taking you through the -- some of the detail on the results of our -- of the last year and the annual report issued yesterday. All in all, we are very happy with the results achieved in terms of not only what we set out to do, but how they set us up for the future. So revenue previously announced at $32.1 million, up 12% year-on-year. But then we see some of the other numbers just now announced, $4.3 million in EBITDA, up 19%. And then also NPAT at $1.1 million, up 45% from the previous year. All of that and including the cash numbers, I'll come on to shortly, have been achieved not while just focusing on optimizing the organization, but the ongoing transformation and investment in setting ourselves up for growth and future expansion. So when we look at that as a metric against the transformation that has occurred, moving away as we set down our strategy in previous years of just being targeted in pre-employment screening and into the full life cycle of ongoing compliance management and subsequently really honing in on the simplification of that process that we've achieved that while at the same time, improving all of the fundamentals across the business. So very significantly for me, we've now reached over to generating $5.3 million in operating cash flow, up 26% on the year before, which resulted also in a closing cash balance of $10.2 million or up $0.5 million on the previous year, all while investing in the platforms that are actually going to drive the growth for the future. So as a microcap to have invested circa $4 million, as we'll see when we get into Jason's presentation, in our technology and our investment at the same time that we've remained cash accretive. So if we were purely targeting to be a mature optimized, quite frankly, small business, we would have been generating considerable cash at this level. But what is important to us is that what we're trying to do is not only to be an efficient optimized company, but to be a much larger one. Everything we're doing is looking at driving the future growth, but we don't want to do it to say that we invest heavily in the hope that it will come off. All of us have in the management team have a very strong attitude that companies exist to make money. And that is part of our metric as we drive the methodology, the approach that we have across the business at the same time in pursuing that growth. And with that investment, Compliance X Kinatico Compliance is now live and with further detail to come on that in the presentation. But I'm very happy to announce that even in the recent weeks when it has gone live, we already have customers signed up to it. So the -- in that time since the launch, if you recall, our target has been to get -- to solve the problem of onboarding to minimize the time it takes from contract signature to revenue generation, all of the customers who've signed up to Compliance X since launch have done so without speaking to us, without our involvement. It's has been 100% self-service. So that was an exact design requirement of Compliance X and very happy to say that we've already seen that played out with the number of people who've signed up. But with that, I'd like to pass over to Jason Margach to give a bit of color on the numbers and the detail. Jason?

Thank you, Michael. Good morning to everybody. I'm certainly delighted to be taking through -- taking you through some details of the numbers. When we commenced our strategic transformation of Kinatico back in FY '22 to a SaaS-based business, we set ourselves a goal of doing so with absolute financial discipline and strong fundamentals that would ensure we remain positioned to continue delivering ongoing strong value creation to our shareholders. So against what we set out to achieve and how do we measure in FY '25? Well, we believe as a management team, we have delivered. And what makes these results that much more compelling, as you will see in this slide and the next few slides is we have done so year after year. Our SaaS transformation continued to accelerate, starting from a base of $2.4 million. 3 years ago, we delivered $14.9 million, a 54% increase on last year. This expressed differently is a 57% compounded annual growth over the 4 years we present to you here on this slide. However, most exciting is the annualized SaaS of $17.5 million, which for us sets a solid foundation for the business to continue this acceleration, drive further predictability and, of course, margin growth into FY '26 and beyond. Next slide, please. Kinatico's financial discipline is highlighted by its ability to translate the revenue growth into improved profitability across all these highlighted metrics. Demonstrating our operational leverage is the reported $4.3 million EBITDA, a 19% increase year-on-year. Conversion of revenue continued to the bottom line, evidenced by the $1.1 million or 45% increase in net profit against last year. A 4.5% return on equity demonstrates our efficient capital deployment throughout the year. Next slide, please. 74% of the $5.3 million we generated from operating cash flow directly funded the $3.9 million in our strategic investments. Thus, we have created tomorrow's growth engine from today's profit. The business continues to demonstrate a strong cash conversion rate, 110%, up from the 109% last year. Kinatico was cash accretive in the year despite the internal funding of the innovative products and ends the year with $10.2 million of cash and cash equivalents in hand. In closing, with strong cash generation, a transformed revenue model and the launch of Kinatico Compliance, we have positioned Kinatico exactly into our target market. And with that, I would like to hand over to Geoff Hoffman, our Chief Revenue Officer.

Thank you, Jason. As Jason and Michael have touched on, we've had some outstanding results throughout the fiscal. And what I'd like to do is pick up where we left off at our last webinar. And we talk here a bit about a disciplined approach to marketing. So it's probably a little bit more than that. It's more around we are somewhat more strategic, methodical, and we come with genuine expertise when we actually enter the marketplace. Now as we've touched on before, there's some key pillars and some key drivers that actually drive the results that we've actually had in market in recent times. And if I look at these 4 pillars on this slide, these will give us sort of some good understanding about the lead indicators and the lead work that we actually go through to see the results that we've just been talking about. We talk about sector diversity. So we talk about being agnostic in market. So this is being in a place where we can be across sectors, and we're not actually focused on one particular sector or segment. And that's all the way from low-end SME, where we're talking about maybe 1 or 2 people in an organization, all the way through to 10,000 plus in an organization. And the key thing in that is about being agnostic in a way that we are diversified enough that we can compete across multiple industries instead of just being narrow and deep on one particular sector. Our brand authority, well, that sort of goes without saying. Our ISO 27001 certifications stack us up to be seen in market as best-in-class. And with obviously that brand authority and not just another software vendor, it becomes really important about how we create that brand and that message in market with our customers. Leading across to us servicing our need or servicing the customers' needs across all the way from enterprise down to low-end SMEs, supporting circa 1 million individuals today with credential validation in market is significant. So we understand the amount of organizations we touch and the sectors we're within. So we're quite deep and rooted within those markets and in those sectors, which I'll touch on a bit more in a moment. Being able to also launch from an existing base of 10,000-plus organizations gives us a good foothold and obviously gives us a good stability of what we can lead from as we go into market with potentially obviously with new products, as Michael has touched on. Next slide, please. Obviously, accelerating our SaaS growth in the last fiscal has been a key focus of Kinatico. We know that SaaS now represents 46% of our total revenue, increasing to 50% in Q4. So that's demonstrated some real strong clear momentum towards that revenue recurring model that any business wants. As Jason and Michael have touched on, we had an exceptional growth rate of $14.9 million in SaaS, which has delivered a 54% year-on-year growth from existing solutions. And obviously, with those sort of growth numbers in the marketplace, that says that we're sort of outpacing those industry benchmarks. What's more important is when you start to look at the quarterly growth quarter-on-quarter, our annualized SaaS revenue reached $17.5 million based on the Q4 run rate. So that indicates that quarterly momentum that we continue to have. And obviously, this tells us that we haven't just had a one hit spike, this is a quarter-on-quarter growth model. And then, obviously, as we've touched on in the past, our market-leading retention. So our retention rates are high. If not anything, they're probably best practice. And that obviously supports us around that predictable compounding revenue growth in market. And then that leads into our future growth around Kinatico Compliance and how that positions us for a position of accelerated growth trajectory as we move forward into FY '26. Next slide, please. I touched on this type of slide in the past, and we probably classed this a slide a bit out of our brag book. These are the wins and the customer wins that we've had new customer wins across the market in the last 12 months. And as you can see here, and as I've touched on, we are agnostic in market. I think the best way to probably look at this is these are not just logos on a screen. These are more organizations that are entrusting us at Kinatico with their critical compliance challenges. And let me say from firsthand experience, every customer has got different challenges when it comes to compliance depending on the sector they're in. If you look across the sectors that we're currently playing in today across the education sector, we've got Victorian Institute of Teaching, Catholic Education Tasmania, across government, you'll see we've got New South Wales Treasury and across the ditch, we've even got the NZ Transport Agency. Across the corporate sector, we've got brands like Jacobs, Civeo, ASCO, GPC. And if I look at the tech sector, we're dealing with customers like Service Stream, Peoplecare and [indiscernible]. So our reach is broad. And as you can see, we are covering multiple sectors. Some of the data points on the right, which I like to look at is probably more the lag indicators to all the good lead indicator work that we put in market, some of these data points are actually quite compelling. We've had a 4.3% growth on average volume per account over the last 12 months. So what does that mean? That means that the need for compliance in the market is growing. Customers are being expected of us either through regulatory needs or procedural needs in their business that no need to have more credential validation within their organization. If you look at the growth across new enterprise accounts that we've had in the last 12 months, we're north of 16%. If you look at our average revenue per account, our yield that we've actually increased by over the last 12 months is at 16.5%. So all strong indicators. And then the 2 bubbles on the right, that is more around the growth that we've had in a couple of our key sectors over the last 12 months. And as you'll see there, 13.1% across professional scientific and technical services industry and about 9% across the finance sector. So overall, some really good lag indicated data that shows the wins and the success that we're having in the market with the customers that we've just talked about. Next slide, please. I think the market reality and the compliance complexity is only accelerating and increasing. And we've just talked a bit about that based on the previous slides. What this creates is enormous opportunity that provides companies like us to navigate and support customers through it. The compliance pressure that currently sits within organizations today is only increasing, and it's becoming highly regulated. And we've touched on in the past and these topics around what we need to be compliant to are not going away, whether it's GDPR, whether it's a SOCI Act, whether it's ESG, whatever it may be, these needs and demands that organizations are having today only increases. And that's even now layering into procedural compliance. So particular organizations are looking to put certain procedures in their business to make sure they're compliant to whatever it may be. Where the opportunity gap starts to land for us is along the lines of the current enterprise solutions that are in market today can be seen to be complex. And if anything, they're lacking that simplification that the day-to-day business is looking for. If you go to the SME space, the solutions that are currently probably put in front of them today are rather too expensive or they don't meet what a small, medium enterprise may be looking for. So SMEs are sort of stuck in the middle of this environment where they have multiple point solutions, but they just don't integrate, which becomes really challenging for SMEs. So what we look to do is bridge the gap between that scalable, integrated compliance-type solution at whatever level it may be that's required across a client's organization or small, medium enterprise or small business that they may have. Michael touched on our last webinar about in a lot more detail, but we touched on the sizable market. And we know today that the total addressable market of RegTech has projections to grow to about $2.7 billion by 2030, which is significant when you think about the compliance industry. That serviceable addressable market is estimated to be around about 60% to 70% of that. So if you think about the market we then play in, the estimated serviceable obtainable market we look to be a growth of $10 million to $30 million over the next 3 years, and you can see where that goes over the next 10 years, which is quite significant. In closing, before I hand back to Michael, the story that you hear from us and our business is not just about regulatory compliance. I think it's a lot more than that. Kinatico today is all about how we help businesses turn compliance from being a cost center into more being a competitive advantage for their organization. So that's the future that we're building at Kinatico and leveraging off from the last 12 months of success, and that will only take us into the future, which is FY '26 with further success. So with that, I'll pass back to Michael.

Thanks, Geoff. So there we see a little bit more about Compliance X, and I'll try and answer some of the questions that have also been coming in on the Q&A as we go. So we see there the ad that actually ran in the fin review last week for Kinatico Compliance and we'll start to see more and more over the coming weeks and months, I think the Australian next week, Forbes Magazine and then some very innovative above-the-line materials. One of the questions in the chat is about, what is our approach in digital marketing and how do we see it? And to answer that, we have a dual approach. One is that we've been successful in establishing the company as a trusted adviser within targeted sectors, those sectors being industrials and energy, education, health care, tertiary sites and also government. That has led to a lot of land and expand where getting into one area begets or leads to others. What we'll see now with Compliance X Kinatico Compliance is that digital channel that starts to really target those sectors across a multitude of digital channels. So you would have seen some media picked up late last year, the appointment of a parent, the media agency to help us with that, and they've already been doing some fantastic work in what is coming up. All I'm going to hint with is to say, look out for KC as a bit of a teaser of our Mascot logo and the driver around all things Kinatico Compliance and really look forward to sharing that with you in coming months. But basically, we've lined up that marketing campaign for the next 12 months on how that's going to play out and build, which leads to one of the other questions that comes in, like what revenue do we expect from Kinatico Compliance this year, et cetera. Now we do not provide guidance nor we're going to set ourselves up to be measured pro or negatively on a single number. What we are looking to do is to enter the next phase of growth for the organization. We've been following the McKinsey 3 Horizons model. We finished Horizon 1, which was transformation and establishment of business at scale. Horizon 2 now is targeting growth, and we expect to do that over the next 3 years. So you will see an acceleration over that time period, but it doesn't mean it all just jumps day 1. What I am comfortable saying, however, is that we are confident that the growth rate that we have achieved of recent times will be sustained. The pipeline that we have in place, the opportunities we see, the fact that we've already seen, as I mentioned at the beginning of the call, people sign up to Kinatico Compliance without our involvement is exactly what we were targeting and looking to do. So the other thing I'd share within those sign-ups for Kinatico Compliance, they are exactly within the target market that we wanted to achieve. We've been very successful, and we will continue to target the larger end of enterprise with the appropriate sales methodology, but a large amount of the expansion comes from going after smaller entities. 98% of Australian businesses are less than 100 or 150 staff. And the sign-ups we've seen so far are within that target market, which we're very encouraged by. The -- so everything we've looked as a reminder for Kinatico Compliance is delivering on all the feedback we've had with all of our previous products with existing products is that the -- getting the simplification into organizations to save them time while increasing visibility, giving confidence around security, making the compliance necessities within an organization be delivered without getting in the way of business. Those are the things that CX delivers in not only the self-service configuration, but also the creation and delivery of compliance requirements out to the org. The ability to import a policy or a document, turn it into an athletic, issue it to a worker or a group of worker, a department, a location, whatever your requirements are and then have the system take over and track it. So we're certainly confident and increasingly confident with all the feedback that we continue to get that we have a very strong product market fit. Next slide, please. So a little bit of a reminder then of how that fits in with the full suite of our product. Kinatico is an aggregator of RegTech. And within that, the headline is Kinatico Compliance. We say aggregator of RegTech because not only will we continue to look at other things that we could bring into the stable, whether inorganic growth or some other kind of acquisition, but also opening up the platform ecosystem to aggregate other people's solutions to operate through our platform. We do not want to look to see that as necessarily a direct revenue stream, but we believe there's a real opportunity within the RegTech space to not only expand or for all of the players, but every player that is using us or being part of our ecosystem only increases our stickiness and our attractiveness within organizations. And that end-to-end simplification of the workflow is -- underpins the Kinatico Compliance. I've already mentioned the role of Kinatico CVCheck in screening and verification and how it is a very cost-effective and generally effective sales acquisition tool into the compliance product. We still have our Kinatico Logistics product, which is heavily used in industrial such as mining, where not only do we validate and verify all of the compliance status, but then go into the logistics of deployment and mobilization of workforces. So everything we've done has been driven by customers. The feedback we've got from market, the refinements, the fact that we've narrowed down our compliance approach to the simplification of the process to time saving, usability has all been customer feedback. Everything we've done is truly scalable. Compliance X is a serverless AWS cloud-hosted thing, which AWS has been heavily involved with us in supporting us and ensuring it met all requirements. And we've paid for that investment as we've grown the business at the same time. So very much being customer-driven, but always with very, very strong financial company management. So to summarize, here we have to revisit the status or the achievements of the company, not only increased revenue again, but growing NPAT, positive cash flow at the same time with the strong investment on the top of very strong cash reserves for anything we need to do. That SaaS growth that we've seen with the year-on-year growth, we're confident we can continue. We are in the market leadership position, not only in pre-eminent screening brand in the market, but as we've seen continuing to establish ourselves as a trusted adviser and a key player in the compliance simplification market. And now we believe we have the right product, the right position, and we've done the work to start taking advantage of the growth runway. But I can see there's plenty of questions coming through. So if we will move to the next slide and start to answer some of those questions. I will headline that by saying, as I mentioned, we don't provide guidance. The question is about what revenue we're expecting over the next 12 months, et cetera. I would advise people to have a look at all of the -- we've got some very good research coverage in market. We're comfortable with the numbers in those reports, and I would point you to those. The -- one of the -- a couple of the questions relating to our ongoing investment expectations. So we ended up slightly less this previous year than we thought. We're spending $3.9 million in capitalized investment. We do think that is the high watermark. We will see a lower number this year. The -- and progressively, we do not think that there is -- we're not aware of any large spends to come for enhancements. Not to say that there won't be, if we come across a market opportunity that makes sense, that will be assessed on a business case basis for the benefits. But in terms of the spend specifically around Compliance X or our overall product development, we've well and truly reached the high watermark, and we'll see that reduce over time. The -- some of the -- just go through some of the other questions. So the -- one of the questions, current split in SaaS revenue between enterprise and SME. By far and away, the current SaaS revenue, the majority of it is enterprise. Now us moving into small and medium enterprise is part of that digital sales strategy with Compliance X and it's where we see a real opportunity for overall growth. A question on our international aspirations. Absolutely, Compliance X was built with the international market in mind. I joined with the mandate of building an international SaaS business. And that is very much the case. The pre-employment screening verification side of the business is not an international play. It requires too many local data sources, et cetera, et cetera. Compliance X goes above that. So whether that is partnering with a local provider in other jurisdictions or even acquiring one if it makes sense, our aspirations sometime in the next calendar year is to achieve international revenue with Compliance X. Some of the questions we have answered. The question I often get is, what is the percentage between conversion of revenue versus new logos. You saw from the slide there that Geoff shared, they were all new logos. And certainly, we've maintained that position in excess of 60% of SaaS revenue growth is coming from new customers as opposed to conversions, and we think that is going to continue. Question about near-term opportunities such as the childcare sector and obviously, very timely in the media. We are already a player in that space. We are closely watching the changes to requirements that are going to be played out over the coming months that we're hearing a lot of talk that how working with children verifications and other kinds of compliance requirements are going to be implemented. What I can say is as soon as there is any kind of clarity around those requirements, we will be ready in market with those solutions. It's an obvious space. But equally, it requires due care to make sure it is done properly. So the -- there's a question, which I think is a good one generally to reinforce the average deal size value of Compliance X and how that compares to the previous product. Because of that targeting or introduction of the SME market into that space, we expect the deal size to go down. You're not going to get the same revenue per seat basis from 50 person or versus a 2,000 person or -- that delivering that with self-service with 0 touch, we believe can really deliver a new market opportunity for us in terms of profitable growth. So we are actually very excited about that. We've had demand in those sectors for a long time. We have not been an economic player for those sectors. I think Geoff mentioned that there's a demand there, but the products are too expensive. If we're taking something that we need to help them onboard and customize and integrate, et cetera, to get their requirements live, it's not going to be viable for smaller companies. When you're doing self-service, however, that's a very different story. The question about do we see our marketing spend increasing significantly on FY '26 because of the Compliance X. The short answer is no. So a big part of the work with the parent is they've taken over jointly with us and our new Chief Customer Officer, Chantal Walker, looking at the entire spread and the apportionment of our marketing spend across all of the products. So while there will be a minor uplift overall, we believe we can materially improve the efficiency across the board and therefore, reallocate a lot of that spend to Compliance X. Another question about our gross margin at 65.5% in H2. Do we expect to maintain the margin at this level? No, we expect to grow it. The whole purpose of moving into that SaaS revenue space per seat there is without the added verifications on the side in Compliance X, you're in a product -- classical SaaS product of 85%, 90% gross margin for the license revenue. And so the more seats you have, the higher blended average from the legacy business across to getting that done. So just quickly scanning other questions. There's a few questions on the clarity around the pipeline we have for Compliance X. We've never had any trouble across the company building our pipeline. It's always -- the demand across all industries is there. Our issue in many ways has been, as I mentioned, how long it's taken to take them from contract signature to revenue generation. We do see now the opportunities coming into the pipeline that we don't think we would have even entered into the pipeline without Compliance X being live. Some of those requirements being a mobile app in the hands of the workforce, the ability to custom create procedures and policies, all of those things have resonated and landed very well. So if anything, our expectation now is to see that pipeline increase not only because of those new opportunities, but again, because of those smaller organizations that we can bring into the marketplace with organizations that previously were not economic for us or us for them. I think just having a quick -- good questions just come in. Are we targeting companies that previously declined now with Compliance X in the market? Absolutely. The -- rather than saying targeting, they've come back into the purview of looking at opportunities and what we can do. And people like apparent and how we take our digital marketing strategy are certainly looking at all of that segmentation data and how we use it and what we do with it. Is the -- the other one is an increased SaaS revenue, is this equally from CV and compliance or distorted to compliance as you ramp it up? It is -- the SaaS revenue is targeted around compliance and the need for some going, ongoing requirement, whatever that may be to contract it. So it's not related purely to one-off screening. I think that covers the ones I can answer. So thank you, everybody. This is by a very long way, our strongest attendance for any of our webinars and your ongoing support is appreciated as we continue to strive to increase the success and growth of the company. Thank you very much.

Thank you.