XPON Technologies Group Limited (XPN) Earnings Call Transcript & Summary

Hello, everyone. I'm Matt Forman, Founder and Group CEO of XPON Technologies, and I'm joined here today with Rebecca He, our new Interim CFO. Hi, Rebecca.

Hello, Matt. Thank you for the introduction. I'm excited to join XPON as the CFO.

Excellent. Great to have you here. And we'll hear from Rebecca fairly shortly. But as Rebecca mentioned, we're both very excited to share our interim results for the first half for FY '25. Just a quick point to note before we actually get into the results themselves that we'll be presenting the information on a continuing business basis, which means we're excluding any historical data that was related to the App Mod business that we divested in December 2023, which means investors get a very clear like-for-like comparison between the business that we have now and the same business as it was in the previous periods. For anyone that's new to XPON that may not have heard the story and isn't quite familiar with who we are and what we do, I thought I'd just quickly start with that. So we're an AI marketing technology company, and our mission is really simple. We're out there trying to modernize marketing and customer experience. And obviously, the change with AI and the pace and the acceleration of AI bodes very well for the thematics that our business plays into, which is really around AI transformation, first-party data, and personalization and privacy. We really go to market with 2 components to what we do. We have products and services, and we combine both of those things to ensure our customers get a better return on investment. And we do that in 2 ways: Firstly, we help them improve the targeting and the measurement to make sure that the marketing activity that they are doing is as effective as it possibly can be; and we also help them then activate their customer data. So activating customer data means taking data that they have, which is typically called first-party data and enabling customers to then use that to do more personalized and targeted marketing, which ultimately results in a more profitable experience for them, and a more personalized and richer experience for their customers and consumers as well. So on the product side, we have our own flagship product, which is called Wondaris. Wondaris is a composable data platform. It enables customers to take data no matter where it lives and then enrich it with AI and machine learning, and enriching means doing predictions on it. So it could be things like predicting which customers might have a propensity to churn or have a high predicted lifetime value and then taking those predictions and then activating it or sending it into the digital advertising ecosystem, so our customers then can run very targeted advertising campaigns on it. We sell Wondaris on a licensing model, and it's usually 12 months minimum recurring revenue licenses for Wondaris. We're also a premier partner of Google Cloud. We're one of the first Google Cloud partners in this region. And we resell Google Cloud, and we also have bundled Google Cloud with Wondaris, as well as the Google Marketing Platform, which is the third product stack that we sell. The Google Marketing platform is essentially Google's ad technology or ad tech that enables customers to buy the digital advertising online at scale, and do it in a really private and personalized way. And again, we sell that both on a licensing basis and based on usage fees. And you'll see when we jump into the revenue mix, the components of our revenue that are made up between licenses and usage fees. So all of those product revenue streams are all recurring revenue and all contribute to our ARR, annualized recurring revenue, and we also have services. We have project services, they're typically one-off short-term projects, typically to do audits or onboard customers' data into our platform, very short projects typically and then managed services. So what we like to do with customers and where customers see the most value is bundling our Wondaris product with the Google products and wrapping a managed-service subscription around that, so customers get the technology and the software with a service to support and maximize the success of that software as well. And that managed service is sold on a subscription basis and it's recurring revenue also. And we're very lucky to work with some fantastic blue-chip clients and some very well-known household names there. Financial services, retail and travel, media and entertainment, are the 3 core verticals that we target, but we are building up quite a good portfolio of customers in other verticals, as you can see there with brands like Alinta Energy and InstantScripts, and UP Education, and a couple of universities in there as well. So on to the FY '25 H1 reporting. So excellent progress against our strategic road map, and if you've been familiar with some of the other updates we've done on a quarterly basis, you'll know that there's 4 core areas of our strategic road map for this year, and I'm really pleased to announce that we're tracking very well against all 4 of those areas: First one was sales calibration, and that's really taking what was a higher mix of nonrecurring project revenue and then converting that into long-term recurring revenue streams, which you'll see the results of that shortly; optimizing our workflows, so really looking at process optimization, helping our team do more with less and really improving revenue per head as a key metric as well as driving AI automation and AI augmentation into our teams so they can be super supercharged with the AI. So they're able to do more with less and deliver better solutions for our customers. Capital management. We've extended the convertible note out, and we'll touch on that shortly as well. And we're proactively addressing some of the aged accounts payable in our balance sheet, which we'll talk to as well; and then our targeted cash flow breakeven position, which we're on track to achieve that from an annualized basis in this financial year. Now our statutory EBITDA, and this is on a continuing business basis, so like-for-like with the previous period, we had a small loss of $375,000, but a massive improvement of $4.5 million. So you can see that the work that we've done on driving the high-margin recurring revenue and really containing and managing our costs has started to bear considerable fruit. And it feels like we're very, very, very close to cracking that breakeven point and then sort of accelerating through on that path to profitability. And from a validation perspective from our platform from Wondaris , we're very fortunate to win the prestigious Australian AI Award for 2024 for the media and communications category that was awarded in December last year as well. So yes, very much on track to execute against our strategy and continue to get validation on the quality of our technology and obviously very much demonstrating that path to profitability. So some of the key highlights through the half. We landed 7 new customers, and we expanded 12 existing customers during the period. Our revenue momentum remains consistent and is in line with previous guidance that we've given the market that we expected the top line revenue to remain reasonably flat, while we recalibrated that sales mix and recalibrated towards higher portions of recurring revenue. Our path to profitability, as I suggested there, like a massive improvement, $4.5 million improvement year-on-year to a very small loss this year -- this half, I should say. Our costs have been reduced significantly. So back to that point about workflow optimization, we've had done a lot of work around process optimization and process automation, and we've managed to be able to achieve an additional $0.9 million in annualized cost savings out of the business through that process optimization and automation. Like I said, we won the AI awards for the media and communications category. And then post reporting date, we extended the convertible note out through to the end of August, which just gives us the ability to have a bit more flexibility as we execute against the strategic road map over the next couple of quarters. So the key financial metrics. So for the half, we did $4.2 million in revenue. That is down slightly on the corresponding period, but the mix is significantly different, a lot higher revenue attributed to recurring revenue. Our gross profit was $3 million. So that is, again, down a little bit, but again, in line with expectations. Our EBITDA or stat EBITDA, significant improvement of $4.5 million, and a gross margin of 73%, which is slightly down, but essentially in line with the previous periods as well. So the recalibration of our revenue. So you can see here in these charts that we've been very successful over the last half at pivoting into the higher ratios of recurring revenue. So the 2 pie charts you can see there on the left on the screen. So the first one is the half that we just exited, and that's compared to the previous half, so half 2, 2024. So you can see the recurring revenue mix significantly higher in the previous half. So we did 7% nonrecurring and 93% recurring in H1 FY '25, versus 23% nonrecurring for the previous half in the second half of FY '24. So we're really happy with the way that the team has come together and helped us pivot back to that higher quality recurring revenue. We expect these ratios to stabilize around this point. We expect sort of 90-10 split is about right, may give or take a percentage point either side. But generally speaking, around 90-10 is where we expect to see this stabilize moving forward. And then our ARR and our revenue graph, so you can just see that the quarterly trends. I've sort of talked through the key points on all this already, so I won't sort of elaborate it, and this isn't new information. We released this in the quarterly that we released as well. But you can see there that largely speaking, we're trending in line with our expectations and in line with the guidance that we've given the market. So I'll hand over to Rebecca, and she can talk us through the financial statements.

Thank you, Matt. XPON has made a material profitability improvement during H1 FY '25. Despite a 7% reduction in revenue compared to the same period of last year, and a 2% drop in margin percentage, our strategic divestment and the cost reduction initiatives have delivered substantial savings. We achieved $4.9 million in cost savings across operating expenses, R&D, corporate, and other expenses. As a result, our statutory EBITDA under the continuing business basis shows a loss of $375,000, which is a $4.5 million improvement from the first half of last year. This result demonstrates our clear path to profitability. Balance sheet. Throughout H1, XPON has remained our focus on enhancing our working capital management. We successfully extended the convertible note to August 2025. Our cash position as of the end of H1 stands at $5.5 million, which is $2 million higher than 30 June 2024. We will accelerate the payment of the aged accounts payable. Additionally, the $1.6 million in contract liabilities as of December '24, represent revenue received in advance, which will be realized in future periods compared to June '24. Our total assets increased by $2 million while total liability grew by $2.4 million, primarily due to an uplift in Google usage and the associated credit increase. Consequentially, net assets and total liability reduced by $382,000. I will hand back to Matt now for outlook and priorities.

So yes, looking forward, what are we focused on as we look forward. So FY '25 to '27 strategic road map, you can see that we're executing this against three main horizons. Obviously, the immediate horizon is this financial year, FY '25. I've spoken to those four key points initially when we launched this presentation. So there's probably not much more to add to that, besides the fact that we're really comfortable with how we're progressing against it. We're feeling quite comfortable that as we move through the back half of this financial year, we will start to potentially bring some of those initiatives from Horizon 2 forward slightly. Specifically, a lot of the AI work we've been doing with our Wondaris platform. We've got a lot of very exciting developments that are quite imminent around how we're driving ARR automation and large language models into the platform, how we're going to use AI a little bit more strategically to automate a lot of the workflows for our team, and the other key initiatives that AI quite focused on at the moment is the M&A activity. And then what are we focused on for the rest of this financial year very much around monitoring and optimizing the recalibration of that sales process. Like I said, in the sales strategy, we're on track with that. Now it's really about taking all of the customers that we've landed, but haven't yet expanded moving them into expansion deals, which will then give us a step change in annualized recurring revenue. Continue to drive and leverage this AI advantage that we have in the market. We've got very good reputation. We've got lots of external validation from different awards and from Google as a partner where we won the AI partner, not last year, the year before as well. So a lot of good validation that we're continuing to build on. Driving that sustainable profitability into the business and making sure we're growing to the right type of accounts and growing them in a strategic way that is very sustainable, making sure we maintain a great culture. It's been one of the best things about XPON has been the culture and the resilience of the culture and the motivation of our people. So making sure we continue to do that and keep our people highly motivated and engaged, so they deliver great value to our customers. And then manage our cost profile, making sure that the costs are aligned with business performance that we're addressing proactively our balance sheet and improving that and repairing that over time, and making sure we're focused on achieving that cash flow breakeven from an annualized perspective during FY '25. So that's the presentation for today. I thank everyone for your time and your interest in XPON. We'd love to answer your questions. So if you do have questions, please feel free to put them here on the Investor Hub. You'll see there's a little question-and-answer box on this page here. So just put them in here and either Rebecca or I will reply to you just as soon as we can. So thanks, everyone. Have a great day. Cheers.