Way 2 Vat Ltd (W2V.AX) Earnings Call Transcript & Summary

Good afternoon, and welcome to Way2VAT's Investor Webinar. I'm Dylan Mark from Automic Group. And today, we're joined by Way2VAT's Founder and CEO, Amos Simantov; and its Non-Executive Director, Rob Edgley, who will be hosting today's presentation. [Operator Instructions] Over to you, Amos and Rob.

Okay. Thanks very much, Dylan. Welcome, everyone. Thanks for joining us today. I'm obviously a Non-Executive Director based in Australia, and Amos is back in Tel Aviv after spending a week in Australia last week as we presented to investors and went about our capital raise, which is now obviously a common knowledge for everyone. We have a very exciting presentation today. It is the same presentation we've put on the ASX. However, we get the opportunity to go into a little bit more detail and give you a little bit more color. So Amos is very much looking forward to presenting this today. I'm going to hand over to him, and I'll assist Amos at the end of the presentation with any questions that anyone may have. I encourage everybody to put in their questions during the presentation so that we can get straight into them as soon as we finished. Okay. Amos, you can take it away.

Yes. Thank you. Thank you, Rob. Thank you, Dylan. Thank you very much. Thanks for joining us. So I will go over the presentation. We start with the new strategy of the 4 pillar, and I will explain you and present you the synergy between each pillar. Carry on. Next, Dylan. Yes. So we said 2025 is going to be an inflection point for the company. For what we are -- all the investment we have done in the last few years, we very much would like to see the outcome of all those activities to move the company to breakeven. So we put a lot of investment and resources in order to get there. You will see it in a minute. Some of them are with the new pillars, some of them with the M&A that we're having here. Some of them is with the new technologies that we presented recently. Altogether, in the end, Way2VAT will lead or will going to lead the digital tax processing industry. In the end, we are continuing our -- addressing our TAM from $20 billion to around almost $187 billion. So it's a huge market and a huge opportunity for the company. Next. So yes, you see this nice temple build. So we have here 4 pillars. I will take you bottom up. So the base line is all about people, human, human capital. This is one of the main strengths that we have in Way2VAT in the last few years, invested a lot on that and technology, technology, technology. So we started with technology when today, the buzzword is AI or artificial intelligence. So we started with machine learning 6, 7 years ago, we started presenting the computer vision, invoice validation in that area with 6 to 7 new -- 7 patents that we had. So technology is our life. So as a start-up company, we put a lot of efforts in the technology side, and we are continuing doing that in the next years to come. And then on top of the technology and the human capital is our clients. So we have a substantial list of clients, very nice logos, about 400 clients in total. You can find big names there shortly, but this is one of the main strengths of the company is our clients that are also generating some nice revenue. Looking on the pillars, I will take it from left to right. So the first pillar is the global VAT reclaim. This is our bread-and-butter business. I would say 95% of the current revenue is from that pillar. Second pillar is APAI. APAI is a new technology. It's account payable, artificial intelligence technology for invoice validation, mainly for VAT and GST. And this is a revolutionary product that we announced recently in the market. I think if we are looking for the market itself and the competition, we are on top of the -- on that solution in the market by having a real-time online validation. Real-time online validation, mostly within 20 different languages potentially, we can address about 170 different countries with VAT and GST regulation. The third pillar is the VAT compliance services. So we said all the time, this is services that we have to have it in-house. And therefore, we do this acquisition with RBC VAT. And the last one is the e-invoicing. It's a new regulation starting now in Europe and expanding to other countries in the world. And we very much would like to be with our technology there. In the end, our life is an invoice. Whatever is around the invoice, this is an opportunity for us. Therefore, we are presenting a one-stop shop end-to-end solution with those 4 pillars. Next. So some numbers for the first pillar. So in the last 4 years, we reclaim about AUD 125 million. This is a cash in for our clients, GST and VAT that we reclaim from them in 40 different countries. We do local VAT for clients. We do foreign VAT for clients. We do foreign VAT for AP invoices, and we do foreign VAT for T&E activity. We are in the 1 million invoices processed per monthly. So this is a very nice number and is increasing on a monthly basis. We are addressing, working closely in 40 different tax authorities. We have about 414 clients, enterprise clients. In 2022, we acquired DevoluIVA, a business, the VAT business in the local Spanish market. And this is something that we are seeing a very, I would say, success story, good success story for us. And therefore, we had the appetite or we have the appetite to proceed in that area and to buy more companies. And the last one is the AI tech. As I said, we are starting -- we started with AI technology when people said machine learning. This was like 6, 7 years ago. All about is accuracy and the way that we are looking at the invoice itself and the way that we are validating invoices in millisecond and in real-time approach. Next. On the first pillar, as I said, the revenue of what we have in that pillar, it's about 95% of our revenue is from that pillar. You see the growth year-over-year. So you can see revenue goes up from $1.8 million to $6.5 million this year. So the average growth year-over-year is about 50%, and we very much would like to keep that momentum. On the dark blue, you can see the actual VAT reclaim cash in to our clients. So it went up to -- from $21 million in 2022 to $45 million in this year. Next. Okay. So if we are looking in general on this pillar and a few items just to emphasize. We have a robust growth in accounts receivable. So we are about $5.5 million, and we see this growth in quarterly basis. We have to -- we hope to get the money also from government, and we hope to shorten that process with government that we are still waiting for some money to receive. But government, they have their own schedule and time line, but we're very much pushing in that process to get it, but we feel very confident that in the end, we will receive that money. Revenue growth, as I said, we are about -- last quarter, it was like 43% or about 50%. This is the target. So mainly this growth will come from new clients and existing. So we have a baseline of existing clients that with a very high retention quarter-over-quarter. And on top of that, we have newcomers, and we are seeing that for -- we are seeing that growth. We improved efficiency. We dropped our cost or losses by 31% year-over-year. We do some cost reduction this year by 7%. So we are very much would like to see how we are moving all this platform on all this group to profitability. And last and very important point here, I would say, is the margin expansion. From day 1, I said one of the main benefits of Way2VAT as a platform is the cost of goods sold. The cost of goods sold of this company, it's about 80%. The gross margin is 82%, 82% gross margin. So it's all about the scalability. It's all about revenue and top line. Once we get to the right revenue, the gross margin really support us there. And this is the beauty with that platform. We are very slim and lean in terms of the operational cost. And the last one, and we see in the big box here, we very much would like to move to profitability. Hopefully, this year, we'll touch the breakeven and next year, a cash flow positive. Next. Now I will move to the second pillar, and there is 100% synergy between the 2 with the VAT reclaim and APAI product. In the end, as I said, we very much would like to have end-to-end solution, validating in real-time invoices. It's a big thing for tax teams in the [indiscernible], mainly in enterprise clients. So today, they are doing some random check. They do some validation through their auditors, if it's Ernst & Young, PwC or others. We are having a platform that they can check any invoice in any size, in any country, in any language real time. And this is revolutionary. This is a new approach by Way2VAT. We started it like 9 months ago, like more like an audit product or helping to team to audit their AP invoices. And we moved that to self-serve, SaaS online real-time check by the teams itself. And this is a revolutionary approach. So the team can have the platform. They can upload invoices in any time, in any place, and they can get it by the answer by traffic light. Green, green, red, it's -- we need to be checked. And yellow, this is something they need to address with their suppliers. And this is something that we are saying by that, putting Way2VAT in the first line of the technological company in the world providing that solution. Next. So what we -- now moving to the third pillar. And again, the APAI, as mentioned, need to serve the VAT reclaim. It's upsell, I would say, and cross-sell to our current client, providing them more services by validating invoices. As I said, it is a SaaS fee. They need to pay monthly based on number of invoices. Continuing with APAI, there is a full synergy between the APAI and that pillar that I'm presenting now is the VAT compliance. In the last few years, we've been facing a lot of requests from our clients to have these in-house services. So mostly once we have questions regarding VAT compliance services or VAT registration or VAT filing and or even a VAT audit to support them. We didn't have these capabilities and Way2VAT, we moved them to third party, one of the 4 big players, Ernst & Young, again, Deloitte or PwC or -- we did it for free for our clients. We decided to have these capabilities in-house. And therefore, to have it in-house, it's just to acquire a company. Therefore, we are buying today RBC VAT, a top 12 players, VAT consultancy that will start working with us on 1st of October, helping our clients to move forward with their compliance issues. So this is -- we said from the day 1, we very much -- when we are seeing Way2VAT down the road, we see 2 main channels here. One is the organic growth. As I said, we want to be on about 50% growth year-over-year. And the second is inorganic growth. And we started it with DevoluIVA in Spain, and we are continuing with RBC VAT now. And in the pipeline, we have about 10 potential companies to acquire, and we hope to have some news regarding that next year. Next. So the M&A opportunity in the end, we are looking on the European market to look for companies to acquire. So we are seeing that companies that are in the ceiling roof, either they need to invest substantially for new technology when AI or things like that are coming in. They have to have solutions. So it's a substantial investment for their side. They are -- either they need to sell the company or to invest some huge investment in. What we are saying to those potential sellers, we have our platform, our platform is ready. Technology is ready, join us. We can support you by your growth. We very much can pay you for that -- for what you build for those assets you built in the last few years. And we very much would like to see more companies to come to join our platform and join our journey. So in the end, we are seeing companies in that area, mainly on the compliance side or the VAT reclaim business or any pillar that we will find opportunity for 1 of the 3 or 4 pillars that we are having here, we will start, we will look and we'll -- in order to find the relevant players to acquire them. So this is the idea behind the M&A strategy. And as I said, we very much would like to continue with that and see some benefits or some success stories next year with that. Next. And the last pillar, also, it's -- again, it's invoices and everything it's all about invoices, I said. So we said the VAT reclaim is invoices, the APAI invoices, the compliance, it's all about invoices. And the last one is the e-invoices. E-invoices, it's a new regulation in Europe and expanding to other territories in the globe, mainly to prevent fraud. Countries are losing billions of dollars yearly because of fraud of VAT and GST. And they would like to avoid it, and they would like to see like there is a real-time match between the suppliers and the payment that we need to do for the VAT or to deduct the VAT or the GST. We have developed internally for our internal use, this technology. It's on the shelf, and we very much would like to commercialize that. So next year, we will start moving this technology in some of the European countries. And this is, again, is part of our the 4-pillar strategy with providing end-to-end from invoice reclaim, validation, consultancy and then invoicing in one end. We are the only player in the world to have all these 4 pillars in one platform. So this is the beauty here. Next. So here, we can see that it's a mandatory. So no one can get -- can run out of it. So for us, the technology is a triangle. We are getting from our clients, the invoices from their ERP system, if it's a SAP or ERP, real-time integration to their ERP. And then we are getting the invoices to our platform. So we can do a few tracks, we can look on validation. We can look on the VAT compliance things. We can do APAI. We can do many things. But the last thing is to move it to invoicing. So how we are doing that? We are getting the invoices. We check them. If they are compliant, then we can do the real-time check with the government. So we do all this triangle in real-time approach. And then once it's approved, the client can release the invoicing to their ERP. So it's end-to-end process that we are providing. You can see in the bottom here countries that already under this regulation, Germany, Poland, Portugal, Romania, Greece, Latvia, some in Asia Pacific, like Malaysia, Singapore, India and Vietnam. And in Americas, we have Brazil, Mexico, Chile, Colombia and Peru. So we very much would like to be a player there. We start launching this product beginning of 2026. Next. Dylan, next. Okay. So just to discuss a bit about the market that we are addressing. We said all the time that the market of Way2VAT is about $20 billion unclaimed yearly. So tax authorities are very happy with that. This is the VAT reclaim. This is not our fees, yes. So this is a big market by any means. And then once we are looking on the other pillars, so for the e-invoicing, we can see that the total available market in 2032 will come to $58 billion. So it's a huge market. It's a huge growth. It's a huge jump, and we would like to be part of it. VAT advisory in 2030 will touch $91 billion. The invoice validation, $17 billion in 2033. So altogether, I just would like to mention the opportunity here. There is no ceiling roof, no excuses. The market is small. The market is huge. It's all about execution. It's all about getting the right clients and do the right approach and closing contracts. Next. Here, there is -- just to show you the process end-to-end from right to left. So Way2VAT client, we have the VAT reclaim in the bottom. This is a technology that is already part of us, and we are doing many years. The VAT compliance, this is something that we do with RBC VAT. If needed, APAI will support it. So we don't need to do that manually. RBC VAT, today, the way they are doing that is mainly manually. We will do it automatically with APAI and then the invoicing. So you see the flow going up to bottom to up. And this is the beauty with our platform. Looking on a client that they have like in-house services or using third party, each time he has an error, he needs to go out, it needs to check. There is no much flow in the process. This is cumbersome. This is something that put a lot of error in the process. And in the end, error in the VAT, it's a big no-no. So we are reducing the risk. We are tackling all the main issues the tax team has in different big clients. And this is the beauty here, having that in one platform in one flow. Next. Here, you can find some -- a short list of our clients. So you can see clients like TikTok and clients like JLL and CBRE and Eli Lilly and Ernst & Young and NetApp and Aviva is the largest insurance company in the U.K. and Solenis, a large chemical company in the Netherlands, Willis Towers, Sumitomo Bank, BASF, a chemical company in Germany, Pact Group in Australia. Pact Group in Australia is a nice success story that a new client that we signed 12 months ago. And we returned, I would say, more than AUD 1 million to that client by doing all this GST reclaim for him. So -- and we are looking to expand more and more clients in Australia to that list as well. You have Nestlé here. So a very nice list, but very short one. As I said, we are about 414 clients. Next. Okay. Now I would like to touch a bit the RBC and the opportunity. We started next -- you can run with this, the next slide. In the end, we -- as I said, we've been looking for many alternatives opportunity in the last, I would say, 12 to 18 months. RBC came to the picture. We found a very solid guy, top professional guy. The father started this business 20 years ago, [indiscernible] inherited the business and taking that to the same scale that it is now. And we are very happy having them on board, both Ryan and Garrett. With huge expertise in the VAT domain in London and the U.K. So their clients are very large ones. Some of them are for pharmaceuticals, some from the tax accountancy, automotive, retail, construction and technology. We are there as a way to value with all those verticals, but we are not on the same client. And this is like in the end, can bring us the upsell and the cross-sell with our technology. In the end, we are buying a company with a very nice revenue. Our fundamental, we said all the time, we won't touch any company that's losing money. We very much would like to see that are positive in terms of profit, and they are showing a very nice profit, like AUD 1 million yearly. And this really will help us to move all this platform or all this group to profitability. The terms of the deal, we are paying like 4.6 multiple in EBITDA and the deal is about -- the valuation is about AUD 4 million, GBP 2 million. So these are the numbers that we have in this industry. And we very much -- and we are very happy to see more to come in that level in the next few years. Next. So together, 1 plus 1, we are saying we very much would like to see it's the 3 and 4 out of it. So we come together with the 500 clients. Revenue we get from RBC, as mentioned, is about AUD 3 million, GBP 1.5 million. We are providing that services that we don't have in Way2VAT very much -- and we see the appetite of clients. We have a lot of upsell here and cross-sell here between our clients. We started having this conversation already. And in the end, we for sure, can see an increase in revenue of RBC in the next year to come with 20% and up. Also, we will improve the efficiency by providing more technology to RBC using our platform for 2 main reasons: one, for internal use, and then it's -- we can reduce some costs. And also they can provide it and promote it to their clients. And last thing, we have 2 teams now in London, Way2VAT team, an RBC [ training ] team. We're going to have them in one office or offices in London to do the full integration between the 2. Next. Okay.

Okay. Thanks, Amos. That was great. If we could just give everybody opportunity another opportunity to ask questions. And Dylan, am I okay just to read these out?

Yes, we've got one there. If you want to read that out, Rob.

So Amos, with cost of goods sold at 18.5%, what revenue is needed for the company breakeven?

Yes. So in the end, when we are saying this year, we get to $6.5 million, this will monthly get us to breakeven. So we need to be in the end, if we will get to AUD 10 million next year or AUD 11 million, this will start generating a very nice EBITDA. We are aiming to turn to 15% profit. So this is the answer.

Yes. I think just to add a little bit on that, people can work out from our quarterly cost base that comes out in our 4Cs, we've reduced that quarterly cost base from a peak of around $2.5 million per quarter, and that was about 18 months ago down to the most recent cost base or expenses of $2.1 million per quarter. So following that through, you get a -- if you annualize that figure, you get about around the $8.4 million of cost base. So once we get our revenues equal in the quarters to that $2 million to $2.1 million, we'll be breakeven on a P&L basis, and that's getting very close. We do hope to see -- continue to see the growth in revenues that we've been seeing. And people should remember that the next 2 quarters, the September quarter and December quarter are our stronger quarters seasonally. There's quite a lot of -- in September, there's quite a lot of cutoffs in various countries, tax jurisdictions. And then at the end of December, we have a lot of clients who have their end of financial year, and they would like to clean up all of their VAT reclaim and include that in their balance sheets and things like that. So that's that question. The next question is around from Lutz Stephens, which all that sounds impressive, but the ASX market hasn't hardly reacted to the news. How do you explain that? Well, I think all news takes a little while to sink in. I thought we got a very reasonable reaction yesterday. The stock was up 25% at one time. We do expect follow-through. We expect to have further announcements -- we have a very large pipeline of new clients. And as we get to those new -- you'll see in our quarterlies, you'll see the various new clients. And when they're material, such as the JLL announcement in the beginning of June, we will make sure that those announcements obviously hit the market as well. So I do think we will have quite a lot more news flow coming out over the next few months than we've had in the last few months. We were working very hard on this acquisition. The next few months, we expect -- we've got many more people looking at us now. We can see even in the screens on the ASX, the depth of buyers is there. And we are also been working hard to make sure that our marketing improves. We have a research report coming out soon that everyone will be keen to see, get detailed independent views on the company. And I would just say keep tuned for more and more information coming from Way2VAT. Next question. What are the cost savings after the acquisition? Where are the cost savings? Amos, do you want to explain that around -- we said around 10%...

It won't be dramatic. The cost saving won't be dramatic. But when we are moving with our experience company that is totally manually and do everything manually, if you are adding technology on top of that, for sure, this will have some cost saving, and we very much would like to move ahead with that. I think we'll be much more transparent with our activity in front of our clients. We can do -- we will move people to some different tasks that we want in the end. It will be some cost saving with the technology needs to support it.

Okay. Thanks, Amos. The next question is around future purchases of other companies and suggesting that we have to dilute heavily at low share prices. I want to be very clear on a few things. We're buying earnings accretive companies to make us more profitable as well. And that usually gets a higher share price. So we do expect higher share prices. We started off with this current acquisition because it was a smaller one so that we didn't have to dilute shareholders as much. And we also started off with this one because we're able to secure some debt funding for the acquisition. So GBP 2 million is the acquisition price. GBP 1 million of that is to be paid next week on 30th September. And of that GBP 1 million, so think of GBP 1 million as AUD 2 million of that, we received a GBP 500,000 debt facility from our bank in Israel, Bank Hapoalim. So by using that, and there was very standard term of loans, not expensive by using that debt facility, we didn't need to raise all of the purchase price through equity. So we will continue to do that sort of thing. You can see our accounts receivable is growing because our business is growing, our accounts receivable is growing. When we have a large accounts receivable, which is majority coming from government tax authorities, our banks very happy to give us some further debt because they have a lean over the company. They have first right on those accounts receivable. So it makes sense that they should be happy to help us fund acquisitions, especially acquisitions that are earnings accretive and are going to add profits to Way2VAT overall. We're very close to that breakeven point. So as more and more profits come in through the acquisitions, it goes to our bottom line. And I'd be very surprised if we didn't see the right reaction on the share price. Okay. Any more questions from anyone before we close off?

I think that looks like it.

Okay. Well, thanks, Amos, for taking us through that. And thanks, Dylan, for helping out at Automic.

Thank you very much, guys. Thank you for your support. And we are doing our best here, and we hope to see the results shortly in the market as well. So thank you very much, and we see you soon.

Thank you.

Thanks for joining, guys. Have a good weekend. Bye-bye.