Locate Technologies Limited (LOC.NZ) Earnings Call Transcript & Summary

Good morning, and thanks for joining the Zoom2u Technologies Q3 FY '25 Quarterly Results and Business Update Webinar. My name is Georgia Katos, and I'm part of the Zoom2u Technologies team. And if you're in Sydney like us, I hope you're staying out of this range. I'm joined today by CEO and Founder of Zoom2u, Steve Orenstein; and CFO, Michael Gayst, who will be presenting the Q3 FY '25 quarterly results and providing an update on the group's businesses. The quarterly activities report and the Appendix 4C were lodged with the ASX this morning. Following the presentation, we will have a Q&A session. [Operator Instructions] I'll now hand over to Steve and Michael to take you through today's presentation.

Thanks, Georgia. Welcome, everyone, and thanks for joining this quarter's presentation. So I'll kick off just with the highlights from the quarter. $1.4 million in group revenue for the quarter, which is on par with where we -- what we did in the last quarter last year and the same corresponding period. $681,000 of Locate2u revenues, up 10% from the prior corresponding period. This quarter, we also did a small capital raise of $500,000 that was completed through wholesale investors and also a number of the directors participated in that capital raise. We are looking to make a change to the holding company name to Locate2u Technologies. This is in line with our ongoing strategy around where more of our revenue is actually shifting towards our SaaS business rather than the Zoom2u business. And so we'll continue to keep on operating the Zoom2u business, but just changing the holding company name to align with that strategy. One of the things that we've also been spending a lot of time on over this last quarter is our use of AI inside of the business. AI is moving extremely quickly across the business world globally, and we are actively taking a position of using AI inside of our business. We see AI extremely important for us in terms of how we grow into the future, how we provide a really great customer experience to our customers, but also using AI to provide ability to optimize our cost base. And we've seen some changes in our cost base this quarter through the use of AI. And part of AI is also how do we enable our customers to use AI to provide their customers with a better experience, particularly inside of the Locate2u product. I just give you some firsthand examples of some of the things that we're actually doing to go into a bit more specifics. Inside of Locate2u, we will deliver and continue to deliver AI functionality to our customers. There's 2 examples that have been delivered over this last quarter. The first one is the AI proof of delivery verification. So if you think about a driver that's going out and doing deliveries on a daily basis, the driver has the ability to take a photograph of the parcel that they're leaving at someone's front door, particularly when they have an authority to leave. Now this photograph is quite valuable because it shows, yes, the parcel was actually delivered, but it also shows a number of characteristics. Where was the parcel placed? Was it at the front door? Did the front door have the actual street address on that particular photograph. This verification process will identify to make sure, yes, there was a box associated inside of that particular photograph, but also did the street number actually match the street address of that particular delivery. We've been using this technology for some time, and we find it really, really useful inside of our Zoom2u business to identify when deliveries have been delivered to the wrong location. This is now available to our Locate2u customers. And so I think it's going to be a great tool. The second thing that we've released this quarter is our AI chatbot inside of Locate2u. Today, this AI chatbot allows our customers to actually interrogate, ask questions around their data inside of Locate2u, for example, how many deliveries did they complete on a particular day, how many deliveries were in this type of area. There are additional functionalities around the ability to use it to implement certain functionality inside of the application, like, for example, placing a rate in terms of how they're going to bill a particular customer for particular types of deliveries. We expect to extend this functionality and so allowing their customers to use an AI chatbot on their website to be able to interrogate it in the future around can you please place a delivery? Can you please give me an update on where this delivery is up to? And so being able to answer those questions in real time. And so one that will provide their customers with a much faster experience, but also allow them to have some cost savings in how they're actually able to deliver that functionality. So we will see this functionality continue to grow and evolve. We will see it roll out further around the customer experience and exploring things around telephone communication with their customers, having AI agents being able to answer questions in real time around deliveries. So it's a really exciting part of our business, and I know our customers are sort of really excited about the work that we're doing inside of AI. Inside of both Locate2u and Zoom2u, we are using a number of tools, things like ChatGPT. But outside of ChatGPT, there are a number of tools that we are using that is increasing the speed of the way in which we're actually doing our development, enabling our development team to do things more efficiently, but also improving our customer experience. And we're in the final stages of loading a chatbot onto our Shred2U website, which is where we -- for our customers that use us for the document trading. Once that's tested and proven, we'll then roll that out across into Zoom2u. And so yes, there's a number of tools that we're using, and we see this is a really important part of our strategy moving forward. So I thought I just wanted to highlight that. I'll now pass to Michael, who will talk about the overall financial results over this last quarter. Thanks, Michael.

Thanks, Steve. Would you mind just putting it on to a slide show, Steve, so I can see the numbers. Thank you very much. Good morning, all. So as Steve touched on, our revenue for the quarter, Q3 was $1.4 million, which was flat with the prior corresponding period. If we look at the breakup between the 2 businesses, Locate2u's revenue of $681,000 was 10% higher than the PCP, while Zoom2u, which includes 2U Enterprises, which Steve mentioned the Shred2U business that's part of 2U Enterprises, was 11% down on the prior corresponding period. So Locate2u and Zoom2u contributed almost equally to total revenues this quarter, but the opposing growth rates largely offset one another, resulting in the flat revenue result. Looking at our cash flow for the quarter. Our receipts from customers of $1.9 million was higher than the $1.4 million of revenue for the quarter as we collected debt by our soon to enterprise customers who paid for pre-Christmas deliveries in January. It's a very seasonal time of the year for us. We do have stronger cash flows in Q3 from those receipts. But our payments for OpEx in the quarter exceeded receipts, while net interest paid was $214,000 in the quarter, resulting in a cash outflow from operating activities of around about $350,000. There are a few things that I'll talk more detail about the cash from operating activities on the next slide. But within the creditor payments, payments for operating expenses, there were payments for creditors of around $245,000 and $100,000 of interest payments, which were paid in Q3 that would normally be paid in Q2, and we highlighted that in our last quarterly report. You can see that OpEx payments in Q3 were much higher than our run rate year-to-date. So if you look at the annual payments -- year-to-date, sorry, year-to-date, not annual, $5.1 million represent around $1.7 million per quarter, but we actually made payments of $2.1 million in Q3. So plus the interest paid in Q3 of $200,000 represented 2 quarters of interest payments. You can see that the 3 quarters is around $300,000. So you can see in that 1 quarter, we paid 2 lots of interest on our debt facility. As I said, I'll come back to that in a minute and talk more about that particular cash from operating activities line. Our payments for intellectual property of $293,000 reflects the software development costs we capitalized in the quarter, which were in line with the first 2 quarters of FY '25 as the development team remains focused on delivering new functionality for the L K2 product. The financing activities in the quarter was an inflow of $474,000. That reflects the $500,000 placement of shares we made at $0.07 to investors and directors. The directors' investment is still subject to shareholder approval before shares are issued to the directors, and we did that in mid-March. So in terms of cash movement, we started the quarter with $1.44 million of cash. We used $350,000 in operating activities and spent around $300,000 on investing activities. And offsetting that, we generated $474,000 in our net inflows from financing activities, which resulted in an ending balance of around $1.27 million as of 31 March. The chart on the right-hand side just shows how significantly we've reduced our operating cash burn year-to-date this year versus last year. Operating cash outflows for year-to-date FY '25 of approximately $330,000 versus outflows of approximately $651,000 in the PCP. Next slide, please, Steve. So I mentioned that I was going to talk a little bit more about the Q3 net cash from operating activities. So as I've mentioned, we noted in our last quarterly report for Q2 that cash flow in that quarter benefited from the timing of quarterly interest payments and other creditor payments falling into January and in prior periods have been made in Q2. So this chart normalizes cash from operating activities. Firstly, by adding back the interest and creditor payments that were deferred from Q2 to Q3. Next, we've added back in working out normalized cash that we had a one-off payroll tax payment of $22,000 in January related to an issue of staff options in December '24. We mentioned in our quarterly activities report that we've had some reductions in our headcount. The value of the reduction per month included in operating activities initiated in April was around $31,000 a month. So if those have been done in January, we would have had $92,000 of less expenses -- less cash expenses for staff in this quarter. This is a benefit that we expect to receive in Q4 and thereafter. And then finally, we had nonrecurring redundancy costs of $24,000 in relation to a number of staff that were made redundant in January, so earlier in the quarter. So when adjusting for these items, which are either nonrecurring or timing related, our underlying cash flow was materially stronger than our reported cash result. Having looked at our cash flow performance, I'll turn now to our EBITDA for the quarter. So you can see that on the top right there, our loss for the quarter was $91,000. Within this, the Zoom2u business delivered a positive EBITDA of $306,000 in the quarter. So this shows that even though Zoom2u has had some softness with enterprise customers and revenue declining, the business still provides a steady cash-generating base for the group. Locate2u meanwhile, recorded an EBITDA loss of $60,000. But importantly, this represents an $80,000 improvement compared to the prior quarter, and this improvement reflects the growing operating leverage we have in the business as revenue grows. If we exclude noncash expenses related to ESOP grants and that one-off payroll tax payment I mentioned earlier, our underlying group EBITDA for the quarter would have been a small loss of just $9,000. And this shows that at the core operating level, the group is approaching breakeven EBITDA, which is a key milestone as we execute towards our strategy of profitable growth. I'll now pass back to Steve.

Thank you, Michael. So I'll now just run you through just the update in terms of our 2 core businesses, both being the Zoom2u and the Locate2u business. So many of our investors would know Zoom2u is our marketplace business that started back in 2014 and provide customers with a fast delivery experience across Australia. As you can see from the results and as Michael sort of pointed to, we had slightly lower revenue in the Zoom2u business. This was a result from one of our particular enterprise customers just having lower overall volume. We think this lower overall volume was impacted by potentially some of the things that are happening globally around tariffs with inbound freight coming into Australia, particularly from the U.S. And so that's probably impacted what we've seen in some of these numbers. In terms of our cost base, it remains steady. We did have an increase in the prior quarter, but that's now normalized in this particular quarter. You can see there that there was a reduction of 4%. And yes, we definitely see -- we've done a lot of optimization in terms of the Zoom2U business. We did complete some more optimization in terms of headcount and ways in which we're interacting with our customers and use of AI to really sort of streamline the way in which and streamline our cost base, which you can see in these results. Moving on to Locate2u. Locate2u is our SaaS product that we -- is designed for customers that are managing their own fleet of drivers for delivery. We have customers today across the world that are using the product. As you can see from the results in this particular quarter, $681,000 in revenue. And so we've seen a 10% growth from the prior corresponding period. As you can see, over this period since we started the Locate2u business back in '21, the business has grown really nicely across a base of reoccurring revenue from our customers. These customers have come from a range of small, medium-sized businesses as well as some large enterprise customers. Historically, over the last sort of year, we've been focused on our enterprise customers as we've won a number of really large enterprises. One of those customers is Winning services. We're in the midst of now a rollout across Australia with Winning services, having completed a number of states now going into their larger states, and I'm happy to say it's going really well. So we've done -- completed a lot of that development. Our focus is now shifting as to a sales and marketing effort in terms of how do we distribute the products across the world, and we've been working on a number of different strategies to acquire customers globally. You can see here our cost base. There's also been a slight reduction in our cost base in the Locate2u business, but we expect to maintain that into the future. In terms of some of the new functionality, I mentioned and spoke about earlier, the AI functionality that we've released, particularly around the AI chat and the proof of delivery verification. There's also a number of other smaller features that were released, but 2 other sort of key ones that I think are worth mentioning is our rostering functionality, now allowing our customers to be able to say, these are the drivers that are working on this particular day, and this is when they're away and being able to handle that functionality when they're going through doing things like their route optimization and scheduling their work for delivery drivers. We also released a real-time emissions calculation. And so as our customers are going through the process of building those routes, it will then demonstrate and show them in real time how much emissions have been transmitted during that particular route. And so they can see this and they can see in real time when they're making decisions around which driver is going to do, which deliveries, how many emissions are going to be created by doing that. This quarter, we released -- last quarter, in Q3, we released over 26 releases to the product. Our release schedule is working extremely well. On a weekly basis, you're seeing new updates being rolled out into the product. And so it's rapidly working through the development backlog that we had and delivering new functionality to our customers. And so now that that's working really well, it's our real focus is from a sales and marketing effort, how do we acquire customers on a consistent basis to maintain a consistent revenue growth and a faster revenue growth than what we've seen historically. So as I mentioned previously, our focus for this half of this financial year is, one, getting -- focus on making sure that we can get to cash flow positive as quickly as we possibly can, building that sales and marketing engine for acquiring SME customers. These SME customers have a much faster sales cycle. And so rather than some of these enterprise deals that we continue to work on, these enterprise deals take longer. The SME ones happen much quicker. Even this week, we saw that we engaged with a particular customer where it was an outbound sales activity. We conducted a demonstration on the product, and we're able to get commitment from that customer post the closing of that particular call. So it shows this SME strategy, I think, is really going to allow us to acquire a larger number of customers and much quicker than we have historically. We have got a number of enterprise implementations that are amidst that we're currently actively working on and all going very well and the development that we needed to complete for those customers is doing really well. Additional functionality, as we mentioned, continuing to happen, but also a number of cost-saving initiatives across the business. There's a number that we have implemented in this quarter, particularly around our hosting infrastructure, but also the use of SMS inside of our business. SMS is used by our customers to send tracking links so the customer can actually see the live location of that delivery driver. We've managed to migrate some of our spend across to a new provider, which dramatically reduced the cost of our SMSs. We did roll out an update to our billing engine for Locate2u, and this allowed us to be more detail how many users a customer was licensed for and some improvements around our licensing processes. There's still further updates that are going to continue to come out in this quarter, and I'll be able to update you in our next quarter results on the progress of that. So just a reminder to investors, you can keep track of our latest updates and video content from the investor portal. If you want to get SMS alerts, just send an SMS to this phone number and say yes. And if you want to connect with us, you can also reach out to us by the communication there as well. So I'll now hand over to Q&A and happy to answer any questions that anyone might have. But thanks, everyone, for joining.

Thanks, Steve and Michael. So we've got a couple of questions today. The first one being for Steve. Can you share a little bit more on your use of AI within the business?

Yes, sure. So I mean, AI, as I mentioned, is a really important part of our strategy. It's moving exceptionally quickly. On a weekly basis, just myself personally, I'm trialing and testing a number of new AI tools that are happening and seeing the improvements in what's been able to be delivered through use of AI. In particular, inside of our business today, we are using AI actively for our development team. Almost, I would say, 20%, 30% of our code is developed today using AI, and I expect that would actually increase into the future. You still need to develop, you still need to understand what AI is being developed. You still need to critique what's actually being developed by the AI engines, but it's definitely -- it's going to be the future. And the adoption of AI inside businesses is going to be really important as it's going to give you an edge over your competitors that are being able to do that. But also for us as a business in delivering software to our customers, delivering AI solutions to our customers is going to be very important. And so the way you should think about it is that a lot of things that are done by people today we're going to be delivered by AI agents. AI agents are going to be critical to be used by businesses to complete certain functions. And you'll have an AI agent that does some part of your customer service, maybe some part of your accounting function. Maybe there's an AI dispatcher, maybe there's an AI person to actually be able to answer phone calls. These all sound like things that are quite far away into the future, but these things are happening today. It's not -- I don't think it's fully there yet, but it's moving at a rapid pace, and we plan to adopt this technology and deliver this to our customers through the Locate2u technology and Locate2u product, but also being able to deliver it internally inside of our Zoom2u business to make our Zoom2u business as efficient as it possibly can be.

Thanks, Steve. Can you explain a little bit more why there's been a reduction in enterprise revenue for Zoom2u? You did touch on the tariffs, but do you feel there's any other factors at play?

No, I think it's really -- I guess, in general, e-commerce and what we're hearing from the other businesses anecdotally is that there is a reduction in sort of e-commerce volume for certain businesses, not all businesses, particularly if you're in Australia and you're buying things from the U.S., I think that sort of volume has reduced. And so I guess we'll see what happens and how these tariffs wars play out over the coming months ahead or coming weeks ahead as they rapidly change and evolve.

How is the engagement progressing with Zoom2u's ongoing logistics blog and media program?

Yes, we're still working on that. It hasn't delivered the results that we were expecting. And so there has been some changes around the logistics blog around how much effort and time we're spending on that. We have shifted some of that volume or some of that work and spend to go into direct advertising. We are using Facebook and many other sort of online ads to actually help us deliver better results. And so we actually spent a fair bit of time in this particular quarter building ads for different channels, but also then measuring, okay, this particular ad delivered this particular type of lead. And so being able to get down to a lot of detail and actually understanding our cost of acquisition of a particular customer. So we're definitely seeing some results there. The leads that are being generated. We're working through a strategy on closing those leads into paying customers. Right now, that spend is relatively low because we really want to just fine-tune that and we're fine-tuning that mostly in the Australian market. Once we've sort of fine-tuned that to a degree that we're really comfortable with how that's actually working, then we will start to expand that into different markets across the world, obviously, being the U.S., Canada, U.K. and other sort of English-speaking markets.

Will this pivot towards SME businesses, specifically within the Locate2u business, mean any significant changes to the product itself or the internal structure?

No. I wouldn't call it a pivot. We -- it's a 2-way rates that we're doing. We're running an enterprise sales process. We're targeting some of these large enterprise businesses. But that -- those conversations with those enterprises do take time. There's a lot of decision processes that you go through. You meet with a particular stakeholder that's maybe in logistics or maybe even come from the CEO level that will be looking at this. And they'll be like, yes, you can exist, then you go through procurement, then you go through legal, then you go through the process to get onboarded. And there might be a 3-month process where you're actually onboarding that particular customer. So definitely, the enterprise is an important factor, and we're seeing there's lots of opportunity, and we have an active pipeline that we're working with enterprise customers. So while that's running in the background and while we're focused on that, we want to make sure that we also have an SME sales and marketing effort that's allowing us to acquire lots of smaller customers that can use the functionality that's inside of the product that don't require large amounts of decisions to be able to go ahead and start using us. They don't require complicated integrations. They can say, yes, today, I'm going to change my business. I'm going to go from a spreadsheet. I'm now going to start using a system to actually manage my delivery drivers. I'm now going to provide my customers with a better experience by being able to see the live location of when that delivery driver is arriving. I'm going to save my business a whole bit of time because I was manually using a spreadsheet to figure out which driver is going to do which deliveries. And now this is done into a system that produces the results in a matter of minutes. So there's definitely a 2-pronged approach to how we're doing it. We've been focused on enterprise. We've been focused on the rolling out of these enterprise customers. And now that, that's sort of got its own process that's happening, it's like now there's some effort really being spent on the SME side of things, and we'll see how that delivers results into the future.

Thanks, Steve. That's actually it for the questions. So that concludes the Q&A session today and today's webinar. Thank you to everyone that submitted questions. We hope you have a great week ahead.

Thanks, everyone, and look forward to catching up with you next quarter, and I appreciate everyone's ongoing support. Thanks very much.