Straker Limited (STG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Straker Translations Q3 quarterly update conference call. [Operator Instructions] I would now like to hand the conference over to Mr. Grant Straker, CEO and Founder. Please go ahead.

Thank you, Rachel. Good morning, everybody. Welcome to this quarterly update. Hopefully, you've all had a chance to read the update, and I don't intend to read it verbatim, but I'd like to go through just some of the really exciting things that we have going on at the moment, really give you some context on how the business is traveling and work through some of these exciting growth opportunities that we have in front of us. So as you know, we made a strategic decision last quarter to focus on enterprise customers, and we're starting to see those benefits flow through now. So maybe that's starting to come through in some of the largest -- lot of deals that we're winning, but also in the pipeline of these large enterprise opportunities. And the reason that we're starting to see them is because our technology is starting to really align with what the market needs, and that's obviously always been our aim, but the market is also shifting. And I think I said this at the last update, we're starting to see the market really become aware that they need technology solutions that mix AI and human together. And that's starting to come through. We've had some really good -- we had one, in particular, project where, traditionally, this customer, we would make margin in the 30s. It took us a year to train the AI engine to build up enough data with that customer. And this is a hard 6-figure annual customer. When we actually put that into our workbench with the trained engine, we moved the margins, the gross margins from the mid-30s to the mid-50s. So that is exact proof that we -- our technology can do things that others cannot in this industry. So off the back of that, Q3 was a period of transition. We went from small product customers into the larger enterprises that -- and many of the institutional investors I'll talk to around that move. They're very supportive of us in doing that. They fully understand that having a highly motivated, highly trained sales team getting dragged into small customers is not really going to get the substantial growth we need and having them focus on these larger enterprise opportunities. So one of those opportunities that came through with this large media deal. And I think that we put out in the press late last year, and this was close to 7-figure deal. It's proven that our investment in media, the largest growth segment in the market, is the right investment. It's shown that our investment in sales teams in the half -- the media industry on the West Coast of the U.S. was also the right move. And now we're building this RAY Ai Media Platform, where we've built it. We've released our first version. We've got another version coming out next month, and that has been a big focus of a lot of our developments because we can see just how large that industry is, how big some of the projects are. And I think it's fairly obvious to everybody that both corporate video and media video is a huge growth segment. And when you see some of the large media deals going on, where Apple are going to screen the TV. You've obviously -- you've already got Netflix. You've got a whole range of other industry moves going on out there that there is a huge requirement for the service. And we intend to lead the technology play in that area, and so we've invested very heavily in it. And so we've also invested in sales, and we've got a great pipeline going on. So one of the most common questions that I do get asked is around acquisitions. And so how quickly we'll be able to bring acquisition? What's the pipeline like, et cetera? So the last acquisition we did was On-Global back in June, and that's been our fastest acquisition to get integrated onto our platform. So that's a mixture of all the work we'd done on the previous acquisitions to make it easier to get that on board, but it's also that we're choosing the excellent, right acquisitions to buy. So that is close alignment with the way that our platform works, the way that things operate, and we're starting to see the benefit of that. So we are now very close on an acquisition, and we are confident that, that should come through in this quarter. And we also have a very strong pipeline of acquisitions. So that's also starting to play out. And part of that was, as we were engaging with a range of acquisitions later last year and many of them are on a calendar year financial cycle. And so we wanted to see how they played out over the year and then come back and then work around where there was a potential fit. And we do have a very strong pipeline across a whole range of long-term plays, mid-term plays and ones that are in a very, very advanced stage of the acquisition pathway. So very comfortable that the acquisition strategy is actually on track. Look -- and we see strong growth opportunities in the media and the enterprise segment, and we're continuing to invest in them. So if you looked at our P&L, we've made really good gains, productivity gains in our production systems, and we've pretty much taken those gains and put them into R&D in media and enterprise, okay? And that, for me, is the right decision to make to give us the competitive advantage we made in this huge segment. We could have taken some of that and put it to the bottom line and done that. But I think right now, we've got such a massive opportunity, and we've got a global system set up of staff, people, technology, et cetera, that is a huge opportunity that will deliver long-term value. And all of those investments and everything that we're doing and the successful integration of On-Global, the M&A opportunities, the road map that we have going on and the potential lead values that we start to see in some of the deals going forward means that we're confident that we can hit $100 million within the next few years to drive really high shareholder value. So that's where we're at. First part of this is to successfully drive some of the media growth. Second part is to execute our acquisition strategy. And the third is getting the exact enterprise, these large enterprise deals, starting to hit the revenue line. So all up, we're in a great position, I believe, right now. Timing is not always easy to control. We took, obviously, a bit of a hit when we moved some of that personal stuff off. We still have customers who order on cycles. So for example, we had a car manufacturer who didn't relate to new car for a year, and you don't see anything out of that customer. And traditionally, they're quite a large customer, and now they're just releasing a new car, and they started to put some really substantial orders back through. So we can't control the timing of some of those deals. What we can control is making sure that we do those things to get a lot more of those customers, and that's where our focus is. And we get them because we have a unique offering. So that's a quick business update. Obviously, I can answer any other questions in the Q&A. So what I'll do now is, I'll hand over to Haydn to talk you through the financials for the last quarter and come back to you during the Q&A. Over to you, Haydn.

Thanks very much, Grant. So on the numbers, Straker's Q3 unaudited cash collections were up 2% to $7 million. The operating net cash outflow for the quarter was negative $300,000, that's compared to a positive inflow of $300,000 in the previous period last year. And the main reason for the difference is just the transition to the larger global enterprise customers and also largely because of the timing of cash collections. On a full year basis, the cash collections were up 15% year-to-date. We continued to invest in our platform and technology with $300,000 invested in cap dev for the quarter to support our pursuit for opportunities presented in the high-growth enterprise and media segments. And the examples of what we've been building is the media workbench to support that massive opportunity and also quite a lot of API connectors to transfer the data between customer products [ to and back ] as well as other initiatives to make the translators go faster. We closed Q3 with a cash balance of $12.4 million, and we continue to be in a good position to execute our strategy. Grant, back over to you.

Thanks, Haydn. So Rachel, we're good to open up for Q&A. If anybody has any questions, I'm more than happy to -- Haydn and I are certainly more than happy to answer you.

[Operator Instructions] Your first question comes from Alex McLean from Bell Potter.

You've spoken about some good productivity gains in the platform, which you've said would benefit the P&L. Can you give us an idea of what the gross -- would that be same of the gross margin line? And what sort of improvement we're seeing there, or too early to tell?

Yes. Probably too early to tell. What we are seeing is that it's starting to play through in some of the larger customers, where we can get that gain. So if you look at that one, I think the reason I did that is, it took us -- just to give you an example of that customer, and they are sort of somewhere between $0.5 million and $1 million type customer. Traditionally, we couldn't get a margin gain evident because everything was in PDFs that got scanned. And then it was very hard for the translators to use it inside our platform. So we took a long-term aim of using some of the RAY input engines to streamline extracting kits out of those PDFs in a structured way. And as we worked often manually on that job, we built up enough memory to start train machine learning engines to the input into the workbench, and that's where we saw that benefit. So over time, and again, I wouldn't go to give an exact number, but our margins would held up well. Over time, I would imagine, you will start to see some gains, and certainly going into the Slide 21, I think that our margins should be strong. And it obviously gives us a competitive edge as well because we're now -- those types of customers, when they're out, show that exactly how we can get a much better service and possibly win some of that work that might be locked in with other vendors who don't have our technology to be able to solve their problem.

Okay. And the large enterprise deal that you announced, I think actually when you announced that one back in November at the start of the quarter. So that will be done by the end of March. Do you have any more projects from that same client in the pipeline, i.e., there's a pretty good chance that they will fall.

Well, we've got some -- a whole range of things happening on. So for example, one of our largest customers, a global, very large global tech companies just made up their media localization partners. We don't know exactly how much we'll translate from that, but that's something that's very recent. It's happened in the last couple of weeks from now, we're just assessing what that means. We have another different large enterprise customer who indicated that we get significantly more revenue from them. And at the moment, they are probably a $1 million-ish type customer. And again, we don't get how much or when it might flow. But we've been very happy with what we've been out to do and how technology is working. So again, it's given us a reasonable amount of confidence when we see that, that we should start to get more of this enterprise deal flow come through.