Spenda Limited (SPX) Earnings Call Transcript & Summary

Good morning all. Welcome to the Spenda Investor Update. Today is going to be the first time we've used our new Investor Hub platform. Apologies, as it has been a long time between this form of communication. But now we've got this up and running. We certainly expect to be doing a lot more as we come into the end of the financial year and have a lot to tell shareholders. So today's format is going to be a bit different. I'm just going to do a very quick update on sort of the last little while and then really just going to focus in on the library of questions that shareholders have raised with us. Hopefully, we keep using the platform, send us those questions, and we'll try and do more of these sessions. They're short and short and we'll just upload them for everyone to see, consume and understand so there isn't a lot of duplicated effort by shareholders or dis or misinformation being shared on various platforms. Anyway, without further ado, let's get into it. So let's have a look at the last sort of 6 months or thereabouts. Obviously, had a great end to 2024, big numbers up. But ultimately, if we then look at what that meant for the remainder of the year, we're substantially exceeded last year's numbers already and obviously expecting to go well beyond that as we come into the end of this financial year and the next sort of 4 weeks being pretty critical. As we put in our quarterly, we are on track for our first operational cash flow breakeven quarter, which is really exciting. And for many of you, a long overdue. There's no surprise that our payments volumes are up. They've scaled a long way, and we now do move a significant amount of money on a daily and monthly basis. All that's culminating in a cash receipts number. It's going to be in the $12 million, which is great. We're excited about that. Obviously, it's more than 100% growth for the year. It's really quite genuinely provided us with a platform for future growth and an expectation that as we look at an expanding addressable market, as we look at the back half of this year that we've done enough hard work now that our potential will start to become a reality and the nature and shape of the way that people look at us, we believe, will change. So let's just jump straight and look at payments volume. It really wasn't that long ago. We were processing nothing. And in the space of a couple of years, we've had close to 4x growth under any metric, that's a great result. We're obviously expecting that trajectory to continue. What it's really pleasing to see is you can see that seasonality emerging now. And obviously, what we're looking to do as an organization is deploy new businesses that offset some of that seasonality and give us a smooth upward trend as we really do have the agility to move across market segments. No surprise, cash receipts largely follows the same pattern. And again, we have come a very long way in the past sort of 2 years. And obviously, shareholders are looking to that return point, obviously, chasing investor value is very important for all shareholders. And that consistency in cash receipts growth, we're really proud of. Looking forward, what do we really -- what do we expect this financial year to be? Well, probably what it is, that year where we start to build some sustainability into the business. So as we move forward off the back of this year, we've really got a platform for maintainable earnings to grow on. And that's an exciting proposition. It's a great spot for us to be in where we're going. We don't think we're going to be in R&D land anymore. Obviously, it's been fantastic to have seen our strategy with Carpet Court work where we roll out our Pay-Statement-By-Link product, which is the first generation of SwiftStatement. And then we -- if you like, expanded that into that pay flow from store to head office, added the claims and returns and now rolling out SOE and then consumer payments, et cetera. It's a really exciting unpack of our fundamental strategy that we -- we've really done enough in terms of the number of customers we have now to just keep extending that and be a real powerhouse in -- I suppose this niche we've carved out for ourselves where we're blending together, I'll call it, control of information between the buyer and seller to create resilient and almost uncontestable control of the pay flow down the value chain. Obviously, the AP bundling and the way in which we're working with credit facilities is an ongoing area of improvement for us, something we're very excited about. It's an area that we see assisting us in getting outside of Australia. It's an area in which we see genuine, I'll call it, multichannel approach to customer acquisition, whether that be via upgrades from the SwiftStatement product or whether it be upgrades or acquisition via online marketplaces from, say, [ zeros ] of the world or actually just direct access to acquisition from our own online experience. All in all, it's putting us in a really strong position to continue to scale, continue to grow. And I suppose without further ado, let's get on to the shareholder questions and try and debunk some myths and misinformation.

So the way we've approached this is we've taken all shareholder questions and then we've blocked them up. We've eliminated any duplicates, and we genuinely are -- I don't believe we've admitted anyone's questions, although we might have corrected a few for grammar. But here we go. So first question is obviously about our financial performance. And question one, yes, look, forecasted composition of that $4 million. It's about 50-50 between licensing and implementation and payments and SaaS. And that's probably the number on it. So let's move on. Question 2, why did cash at hand drop? Look, I don't know that that's quite the -- I appreciate the question. I understand a big problem for any organization utilizing the quarterly cash flow report is it doesn't come with an instruction manual. And -- but that said, the long and the skinny of it is that in the December period, we had a significant amount of capital deployed to lending through the Grapple transaction. The composition of that capital changed. As the loan facilities were repaid and if you like, the book moved to either on our balance sheet or was refinanced out to Grapple, the cash position changed. So important thing really to understand is it didn't change because we had some substantial incurred loss, some sort of realized or unrealized loss from the sale of an asset. It was simply related to the transaction, which was, if you like, the sale to Grapple. Cash receipts for May, about $1.5 million. So yes, I would say, yes, we are on track. We are exactly where we thought we would be. It doesn't mean that we can take the foot off the gas or stop working hard, but yes, we're on track. So the investing activities question, Great. Look, that's also -- I think I've kind of answered that in the $6 million, but it was substantially related to the cash value variance in -- at the time of the Grapple sale. Obviously, there's a material change in the amount of capital we had deployed to client lending. We had to refinance out our previous lender in the warehouse. And those cash movements made that $4.7 investing activity was a direct relation to us refinancing out that Grapple position. Yes, yes, on completion, the full $3 million was made available to us. The company continues to draw on that facility as and when we need it. It was really utilized as a fantastic strategy for us, and we're very grateful to Capricorn for providing it. So moving along, let's talk business model strategy and restructure. So selling the invoice book, how does it change Spenda's business model? Look, it really hasn't changed Spenda's business model at all. What it's done is derisk our operations. So it's allowed us to remove credit risk exposure. We really didn't want to put ourselves in a position where other organizations challenges flowed on to us. It certainly was not a prerequisite of any virtual card services. However, we have long believed that the virtual card product and the virtualization of closed-loop lending would be far better done through partnership with those with much larger balance sheets than ours. And so as a result of that, we unloaded the Trust 1 assets to Grapple. And -- but no, I don't believe there's been any change to our business strategy at all. If anything, we're just a more resilient organization as a result. What do we mean by platform quarter? Well, really, look, if you look at it from a -- where we're at right now, we've been in this awkward sort of teenage phase where you bounce between a good month and then a losing month, if you like, or a less good month. So this quarter is the first 3-month period where we're stringing together 3 positive quarters in a row. So that's a real platform for us to grow. And it doesn't mean we're at the point where we've crossed through maintainable earnings, but it's an exceptionally good step and taking us in the right direction. Yes. Look, that's a great question. From our point of view, we just really see us reporting in 3 key areas: licensing and implementation, SaaS and payments. And I think over time, what you'll see is us break that up by product segment because I think what we'll then be able to do is demonstrate to the market and analysts more broadly how our strategy to progressively increase revenue per customer is unfolding. So if you consider that a starting point customer might be, I want to deploy the Spenda widgets into my portal and roll out Switch statement. And then we upgrade those customers to making payments and then we upgrade those customers to using AP and then we upgrade those customers to using SOE and consumer payments, so on and so forth. You'll see that revenue mix and composition really evolve, and you should be able to see how each product influences the other product and revenue scales accordingly. Cash burn line of season. We are absolutely managing our cash very closely. We've been focused on productivity in our debt cycles. We're still focused there. We've been focused on just narrowing the amount of cash we need to have maintainable earnings. So every dollar is being invested in efficiency. We've absolutely got a handful of pillars of revenue. As I said, SwiftStatement, AP payments, SOE, they're absolutely the tenants under which our revenue model is built. And the key thing that differentiates us from the market is those products work in unison. So we are able to do more for a customer, but also extract more value but still providing the customer the return on investment. Product development and customer rollout. So look, there's no doubt that the SwiftStatement rollout has not necessarily gone exactly to plan. But that said, it's a new product. We were absolutely expecting to have to find our way with that solution, understand that we had a great concept and that the market embraced it quickly. But now we need to use that strong customer advocacy that we have from the current user base to create the next generation of user base as well as change the way that we work within, if you like, our Capricorn or myCAP area. We've also increased the engagement with the Capricorn field team and the area managers. So we've been really changing our own marketing mix to try and not just get more customer momentum, but really understand how we can take those customers on that journey that we want to go on with that upgrade pathway so that they're getting the most value out of the product. So, yes, it's probably been a little harder than we expected because of the vast spread of the customer base, but we're starting to harness things. And certainly, May was a very positive month for us. It gave us our best retention rate, almost no churn and fantastic new business numbers. So we're starting to see that growth uptick, which is really pleasing. The short answer is no. There's no mandate within the Capricorn network. It's a value-added service that people need to opt into. But that said, we want them to opt in because we want them to see the business value and go on the journey with us. There really hasn't been a mandated program in anything that we've done. Everything has been all about delivering value. This one is a bit of a tricky one. We'll just -- all I'll say is we'll make announcements around this area in the shortest possible time that we can. There's a lot to unpack there and no doubt there will be many questions. And I'm actually really looking forward to being able to share developments in this area. So definitely a stay tuned one. Look, really good. Aside from the floods in New South Wales, which sort of pulled the handbrake up. We've recently completed in conjunction with the executive team at Carpet Court, a series of -- we kind of tapped on to their national roadshow. It was fantastic. We've got 10 or so stores now deployed in the Sandbox environment for them to work with the product. So we're really planning quite a number of stores business transition. And at the same time, we've also been building our own implementation tempo. And that -- look, we couldn't be happier with where that's going. We've released a couple of incremental versions now. So we're at version 2.3. So there's some exciting stuff coming. So yes, that's certainly also a watch this space. Look, this is a real critical one for us. And as I said, there's more to announce. But what I can say is we've got a bunch of different channels to sell these products. They're certainly part of any closed-loop network program. We want to optimize the early settlement discounts within. They're part of our AP upgrade and they're part of our SOE upgrade. So there's certainly a lot of work we expect to do in this area. And there'll be more information to follow in due course. Let's get on to the strategic partnerships. Yes. Look, that's a great question. It's one that I'm not sure where the rumor has come from that things have been terminated between us, no. But we have a good working relationship with eBev. It would be fair to say that the relationship has changed over time. There's a lot of things to unpack in that area. With respect to the pilot, look, we had some challenges with in-store terminals and some of the data integration challenges with some of the point-of-sale systems. So part of that program sort of we pressed pause on, so we weren't burning resources, but we've been more focused on downstream stuff, and there's been other programs of work that we've activated because -- look, I believe in their business. I think it's a great business. And we certainly hope to do more with them in the future. Yes. Look, that's a great question. I think when we start unpacking some of the impact of virtual cards and some of the things we've been doing, that question becomes even more easy to understand. But probably the key thing that has happened for us is, we've been able to create a portfolio of workflow products, so the AP, the SOE, et cetera, that can then call out to a separate independently operated payment service on an on-demand basis. So we've had improvements in uptime and scalability. And obviously, as you can see from those earlier slides, our pay flow has grown. So look, it's been very positive and certainly very happy and pleased that we undertook that transaction. Look, I think there's a lot being said about FSC. Just to give you a little history lesson, Fresh Supply was introduced to us by Mastercard. They have built fantastic technology in digital asset management and their AI technologies are fantastic. And to be honest with you, that's where we're focused. We -- they've almost been an outsourced development team for us. We've been co-developing some AI tech with them. We've got plans to continue to expand that and enter into new agreements for that AI tech stack, and we're certainly accelerating the utilization of that into the company's product suite. So to the extent that the relationship has changed. That's probably true because a lot of what we're doing now is leveraging that partnership and technology alliance and making it a fundamental of lots of programs of work. So yes, it's definitely, from my point of view, being money well spent. Some of the things that we've unpacked together, we couldn't have developed for anything like that kind of money. They've obviously spent substantially more to create that tech, and we've been very fortunate to be able to have strong influence and bring, I'll call it, some commercial interfaces that have provided high-quality data to improve the learning of that AI such that it produces better results for our customers. Well, the answer is probably in the question, it's for working capital. So it will be used for working capital. Okay. So no problem. The Grapple deal was constructed where the $2 million proceeds were comprised of $500,000 upfront, then incremental payments of $75,000 on a, I'll call it, a monthly basis with the first payment of the due actually probably about 10 days or so, maybe less, which is the first 3 months of payments and then a balloon at the end, which is built on a rebalancing calculation or a recalibration of the income from the book. So at present, we're really glad that we were able to find a partner such as Grapple. And yes, the transaction has been a success, although there was some challenges towards the end of the thing, governance and leadership. Yes. Look, I guess, first thing on the CFO side, look, he started as a consultant. He transitioned to a full-time role, and he resigned for his own personal reasons, wanting to transaction -- transition his own life back to that sort of consultancy style engagement. I think he did a fantastic job at maturing the team around him. And as it's turned out, he really did almost do himself out of the job by doing such a great job. So we're very thankful for his time and effort over a number of years. It was -- I certainly spent a lot of time with the man, and we had a good relationship that I enjoyed a great deal. From a director's point of view, look, you have to ask them. From my point of view, the Board composition is probably at the right size for our stage in development. In terms of the CFO, no, no, we're not planning on appointing a new CFO at this point in time. Our Group Financial Controller and our Chief Commercial Officer, really with support from myself and our COO, have taken up that mantle. We're probably looking at the CFO role being a more contemporary use of a commercial person that's focused on talking to investors and really, as I said previously, the team was schooled and trained very well to be resilient and capable of standing on their own 2 feet, and we've just picked up that and leveraged it. In terms of new Board appointments, look, we're not actively looking for directors, but there's no doubt that appointment of new directors is possible as and when appropriate candidates are identified. I talk about where we're going. Okay. Well, look, it's pretty simple. As I sort of said before, we've got products that stack on each other and increase revenue at every increment. So first step for us is to get ourselves out of this -- have this great quarter, let's be -- spend 35 seconds celebrating that. And on the back of that, then looking into how do we continue to grow ARR through servicing the existing agreements that we have and enabling those customers to adopt our products over a period of time. It really is our strategy is -- central to it is to create a vision with the customer of where they want their digital journey to go and then match the rollout of our products over time to achieve that. So that's 100% how we see spend unpacking over time. And obviously, that may see us move outside of Australia sooner rather than later. It obviously will see us move into other verticals, but that's certainly where we see ourselves moving. We have the agility and capability to do that. Certainly, with a very keen focus on just a handful of products to be those killer apps that really allow us to grow revenue and then getting back to some old school R&D and baking some new ideas so that we can continue to be different, have -- and make it difficult for people to compete with us because we have a service breadth that is difficult to match. Look, it would be fair to say the circles we're moving in now required us to have that level of certification. It's an international standard on information security for businesses like ours. It was very important that we obtain that and it is allowing us to have more meaningful conversations with larger institutions that want to move or entrust an organization like us to move their money. So yes, it's definitely an opportunity enabler for our ongoing -- sorry, ongoing and growing business. It would be fair to say at the moment, we're really focused on monetizing the deals we've got. We're not chasing the next big thing or 100 next big things. We don't need to because our addressable market is not made up of -- look at the whole world, our addressable market is made up of direct connection points that we can see into the Spenda ecosystem. So ultimately, because we're a virtual ledger product and that we're completely focused on taking the friction out for an entire market on the way that they buy and sell, that collaboration piece of AR and AP is really our key focus, driving adoption rates, increasing revenue per customer. That's where we're at. That's where we're going. But we certainly do see that standardized product set at the SME end of the market being far more readily and accessible in some of these digital marketplaces, especially with our AP product that's got a bunch of competitive advantages now. That one is pretty easy. The payments volume is just about adoption. So when you start off with a customer and you've got 0% of their business and then you finish the year and you've got 100% or 50%, obviously, it grows. As I said, we're not looking to go and try and get little bits of lots of customers. We're looking how we can build out the entire ecosystem and capture that entire flow. So why isn't the share price reflecting operational progress? That's a great question. It's one that I would love to know the answer to. But I think the short and skinny of it is a lot of it is explained with the reality that at our peak, we hit 23,000 shareholders. And we grew really fast. So we added like 20-odd thousand shareholders in an extremely short window. Now that ultimately turned over our shareholder base, and now we're sitting at around 5,000 shareholders. So we've got 17,000 shareholders that came out. So they didn't buy the stock for the, if you like, the value that they saw in 3 years or 5 years, they bought it for part of that short-term gain. So obviously, operational performance and technical achievements haven't translated into share price performance. We just haven't. But we have been and do believe that we're at a point now where once we move through maintainable earnings and we start to get some traction from the institutional analysts that has been happening, and we answer their questions and we deliver on the things that we say behind the wall that the share price will reverse based on that ongoing performance and commitment to value. The short answer is yes, but we've definitely been in a let's just do it mode rather than let's tell people what we're going to do mode. But we do absolutely intend to return to both retail and institutional investor activities. Yes. Look, that fair question. I'm assuming it's come from a Limeholder. What -- I can't say on Wednesday, the tranches will be achieved. I would say that the Lime team is working hard with the Spenda team to integrate the businesses and giving all Limeholders the best shot of achieving those goals because that's what we want. Obviously, we want to deliver value to all shareholders, and we have an aligned view there. So without a doubt, that's the way we're approaching it, and that's what we're working on. Well, I kind of touched on that before. So absolutely, we recognize the value of AI, both as a product enabler within our platform ecosystem, whether that's for processing and ingesting data, whether that's for making better decisions around suggestions of what products people might purchase or otherwise, we absolutely recognize the value. We also recognize the enormous role that AI can play in improving development outcomes and speeding up release cycles. And that's probably the highest value area for us because that is our core business. It makes our manufacturing plant of software operate better, and we're absolutely across the opportunities, but also see the risks. The work we've done in that area has shown us where we've got to put up guardrails, where we've got to create sensible patents. And yes, we'll continue to do what we're doing, and we would expect to get better and better at that over time. That's an interesting question. Look, I think the short and skinny of it is that there was a bunch of work that was committed to that was anticipated to be started sooner than it was that -- and this is where you can't necessarily rely on the contract itself. You've got to rely on the people and the execution behind it. So unfortunately, we had a reasonable basis to think where we were going to get to. And hence, my earlier point that we're just focused on doing not pretending. We certainly are proud of what we've achieved. But it is obviously a difficult road to hoe. We've worked really hard in a difficult market to get where we are. We've also grown. We've also had loads of one-off costs as we've restructured activities and -- but here we are. So hopefully, that focus on working with things that we can control and really just talking to those as opposed to the things that are out of our control that in this particular instance had a negative outcome for us, which was disappointing and frustrating, I'm sure, for shareholders as well as myself. Dedicated announcement when cash flow [indiscernible]. Possibly, I think, again, the cash flow positivity point, we've already made in this quarter and it had no impact. So clearly, the market wanted to see it. And then what we want is sustainability. So that's our focus. And we'll probably talk about that a lot. When we move through that cash flow positive on a sustainable basis, yes, I think we'll announce that. Now I'm guessing that, that is the last of my questions, which I was right. So look, I just wanted to thank everyone for their time in watching this. It's probably gone for 45 minutes. So I really do hope there's some valuable information in there. I would encourage you to please support us. We really do appreciate it. And so for the shareholders that reach out and offer assistance, thank you. There are many of them. For the shareholders that are frustrated, please be patient, please support us. I know that's a lot to ask. I really do. But again, I thank you for your time. I thank you for your support, and I do appreciate you being a shareholder. And I hope for you to be part of a really exciting journey going forward. If you have any questions, I encourage you, please use the platform. We will do our best. I will do my best to do better at getting more of these videos out and answering your questions. Thanks, guys. Cheers.