K2FLY Ltd

ASX:K2F

Earnings Call Transcript 2023-Q4

[Nicholas Pollock, executive]

Good morning, everybody, and welcome to the K2fly Q4 investor deck -- investor presentation this morning. I'm joined by Sara Amir-Ansari, our CFO; and Jess is our marketing lead here. I just wanted to remind everybody that the deck will be talking to this morning is already on the ASX website. If you'd like to download that or view that, you are more than welcome to.

We're really pleased and excited to be talking to you this morning about the results from Q4, which we are very proud of, an excellent team effort from K2 fly across the business. But what I thought I'd do this morning is sort of go back before we go into the results and just recap some of the things and the strengths of K2fly, the why, the purpose, the what we do, the how we do it very briefly for those of you on the call that perhaps aren't as familiar the story as other people are.

So I will do that first, and then we'll get into the results for the quarter, and we'll take questions. So -- there is 2 opportunities to take questions. You can put your hand up throughout the presentation or there is an ability to type questions into the Zoom platform. But there was some time for questions at the end as well.

Just the usual story with the disclaimer that we have to go through. We'll assume that's read. So yes, the agenda for today is I'm going to do a quick overview of K2fly and as I said, remind some people that maybe new to the story about the K2fly story, and then we'll jump into the results. And that's the focus for today, those 3 key things. Obviously, summary and questions at the end. So next slide, please, Jess.

So it's really important, I think, what [indiscernible] understands what the core [indiscernible] reinforcing the importance of what does. At the end of the day, we are -- we deliver enterprise software solutions to [indiscernible] organizations predominantly in mining today. We are clearly looking to grow adjacent industries, but mining is our sweet site continues to grow well. We are a [indiscernible] company as well. And I think that is an area intensive the solutions that we're delivering, but also we people we're attracting and the customers we're attracting are very aligned to those net purpose is that net impact and industry compliance customers so that they can work within their communities and retaining their license to operate and deliver sort of clarity, transparency to shareholders, investors, communities and stakeholders and the society at large.

These expectations are growing very rapidly and changing rapidly, and we're seeing that every day in the newspapers and on the news and as things develop in this space is really important to us, continues to be import to people, and I think it's increasingly important to customers, if it hasn't been before. So just going back to who we are and who we do -- and what we do and you can see that starting on the right-hand side there, today, our customer is across mining and energy, particularly notice the biggest names in mining there. Seven of the top 10 miners in the world are represented in our client [indiscernible] in a patient to add that they don't have all our products a little bit -- but that is certainly our intention over time.

If you look at the bottom, strip down the bottom there, you'll see the 10 solutions that we have in [indiscernible] at the moment. Obviously, our goal is to drive out our resource governance and take that to the market. We are in a very unique position where we are playing largely on our competition in this resource governance space. We break to natural resource governance and resource governance, and I'll talk to examples of both of those as we progress. So suffice to say that the clients there are using across the board of all our customer solutions.

However, one of our strongest historically strongest solutions has been resource disclosure, the one in the middle there, that often tends to be our land basis, where I think a large proportion of our clients are using that solution, and that gives us the opportunity to expand. We'll talk about that a bit more next.

I think a really important thing that's work people understanding is that our business is truly global. Our revenues come predominantly 60% from Australia, but we have a very healthy 40% from Shore. And the last quarter was a good example of that in terms of the detrition of our clients and our revenues. So we have a strong position in the Americas with some major mining companies that you can see on the list there and also increasingly growing our Europe, Middle East and Africa presence. Africa is a surprise to people, it's historically for K2fly, but a really interesting group of clients in around in Western Europe, which is a really, really encouraging.

So yes, it's very much a global business, [indiscernible] miners today. Sites set on how we got into the small companies in the middle particularly and also how we break it ties into other asset changes and land. So I just wanted to give some examples of the things I've been talking about there. And this is a very typical slide for us in terms of what we do and how and [indiscernible] where our stock in a lot where the governance challenges and disclosure challenges and requirements of our customer base just growing financially. They're coming from everywhere. And I thought I'd just put it in the context of this quarter, if you like, and recent events with K2 and what are happening in the broader market.

So if you look on the left-hand side, the resource disclosure solution that we provide is our most pervasive solution in the market. I think we have close to 20 clients using that globally. In Q4, we announced the Eramet, which is a Tier 2 midsized French mining company with operated 5 or 6 operations globally in Africa, in Caledonia, a big comment, the SLN New Caledonia operations some time ago. So again, that was 1 of the Western European organizations that I was talking about that have come on as clients recently. So very, very enthused about our relationship burgeoning relationship with them. their values about ESG about sustainability, about transparency are very, very similar to ours. And it was a great process actually because -- we actually started with those things in this engagement, which was a really encouraging sign for the market as a whole.

But those conversations are at the forefront of what we talked about before we even got into the solutions and the actual products and those things key to them. And that's a fantastic site to see. I think we reported that we -- obviously, we began the process of angina resecure that is a typical top 5 miner in the world and the most challenging in terms of delivering our solution because of the complexities of that business, that is going very, very well. We had a sign off the update on where we're at on that project and expecting to go live with that. in the next few months, which will be really important milestone with K2fly that is on the new resources platform that K2fly is investing in over the last couple of years to replace our [ Cube ] platform. So that is a tremendous validation of our new product that we did from the round out. So that's not a relation that's a complete build, and we are meeting on that with Anglo American and with us on [indiscernible] is currently implementing that project. So really good progress on that.

Land access, we're really excited to be working with [Imris] that was announced last year. [indiscernible] is another French company. Has roughly 20 sites globally, which are quite small. And sort of quarry type things in because they have sort of mineral sands business and industrial minerals. So lots of small sites, which creates a risk for them in terms of their ESG risks across the board with so many sites. So that's very much around social license to operate and making sure there [indiscernible] those risks there really the business and making sure that they are recognized at the corporate level.

So we're rolling that out now, and that will be a multiyear project, but that's very, very [indiscernible] that project and running. For those of you that are in Australia, which is pretty most would have been reading lots on [indiscernible] management and in terms of the Cultural Heritage Act in Australia. We know most of you that have been following the group, some will know that the likes of Rio Tinto, our heritage, plus the duping gold incident. And a lot of the ground service of deals being [indiscernible] that very heritage is protected.

So the heritage management solution obviously identifies and manages the hedge process within those organizations. The ground disturbance is a solution that actually enforces proper processes is undertaken or due process in order to protect not just heritage, but environment and other critical things in the organization and the way they go about this. So the heritage issue, if we can call it that, has been a big driver, not just for our heritage solution, but for ground disturbance, access and those land management.

Times continues to go along nicely as the GIST in the [indiscernible] with tailings get rolled out after the company gone up for that [indiscernible], and this focus will shift very much from just the [indiscernible] mining tonnes facilities, which could be a lot of the focus is today day. It will move more to the other end of the spectrum, which will be around the governance and disclosure of the standard and how you're communicating your initiatives as a mining company to the industry, to your shareholders, to your stakeholders, to your communities. And that's obviously a real strength of K2fly. So we should see considerable growth in interest and working with more and more clients on that side of the spectrum.

Mine rehab is something we all -- it's so important to the industry. You cannot open a mine in any mine unless you know how to close that mine, and the things that you're running in order to be able to a legacy, which is a good one and a healthy one, including the communities and how you hold those. So we expect that to be growing considerately.

Just one final thing, you would have seen in terms of the ground disturbance that Roy Hill rating the Pilbara have just signed. That's a post Q4 announcement or results included in our figures. But again, another significant example of rapidly changing legislation expectations from people. And I think that gives us our fifth client in the Pilbara Western Australia using those land management solutions. So we certainly are very well represented in that very large and very complex mining environment.

But just to summarize those, what is it that makes our solutions so important to our clients. I think I've touched on a number of those things. And the 2 things I've focused on in what we've been speaking about so far, uplift hand side that protection as asset your fundamental license to operate, and that's really where those ramp solutions coming and making sure that land access, making sure that you've got those provisions in place in order to be able to operate and then turn that up a year or 2 and making sure that you're protecting communities, protecting environment, protecting heritage, which gives your social license to operate.

So I think we all know that the world is changing rapidly. In order to meet the demands [indiscernible] switch to energy supply [indiscernible] through new tables and our products. And we need -- well we've got over 300 new mines in the world, [indiscernible] our clients in order to get those mines going opening, also to protect the communities that they operate in and make sure we can hope to speed up that process because we need to get cracking to get these -- you have to meet the demand that an energy transition will drive. So that's kind of our role here, and also helping our clients at increasing complexities of regulatory requirements to make sure that those mines are open properly and doing the right thing.

From there, we're going to switch into results for Q4. And by the fact that the -- so we're really, really pleased with the result. I'm very proud of it. Q4 -- sorry, the year wasn't without its challenges, interesting year for all businesses, some headwinds and things uncertainty in the global economy and what have you. We certainly have been into those, the markets, et cetera. So it's great to be able to provide -- despite going in the equity markets, it's really provide a solid result to our shareholders and investors based on, obviously, very much a long-term book, fundamental change in our customer markets and then also to be able to deliver strong growth on -- strong focus on cost management.

Clearly, the market expects [indiscernible] like K2fly to get to cash flow breakeven faster than it did a few years ago. And we're working very, very diligently in that respect and I think this also demonstrate that cost control and strong growth as an I think we're doing a really terrific job of managing growth and containment. And what that adds up to is obviously getting into a really strong cash at the end of the quarter or F1, if you like, $4 million in cash, which is obviously going up from quarter 3, was a cash accretive quarter. That, plus the facility that we put in place with [Maptek] during the quarter was -- gives us the 6.4-fold cash platform. That makes for a very good place -- good basis to start the year from. A really solid place to start the year.

We're really proud to have validate the decision with us a year ago in terms of going with us on the ground disturbance solution. Going live with that project is probably the biggest -- was the biggest project we've ever done. So to go live with that successfully was a terrific result from the team here. and then further validated by Rio so in terms of that 3-year extension to that contract. And as I said, continuing to win new business around the world.

So I think all of that makes us well positioned for strong growth trajectory going forward, but also that constant focus on getting to cash flow breakeven. So in terms of key metrics, the 28% growth in revenue, which is a result for the year. Our growth of 25%, TCV flat, but that will -- as we get bigger, that's harder to grow, so to speak, because of the depletions and we also have been very successful in delivering on our implementations as well.

New contracts signed, I've covered that. And then importantly, Q1 is off to a very good start with the [indiscernible] deal, which is our second significant piece of business with Roy Hill. So that talks to our land and expand strategy, positive cash place to start and reducing our cash outflow from further down to $0.6 million, which is a great result.

So with that, I will hand over to Sarah to talk through some of the results in some more detail.

[Sara Amir-Ansari, executive]

Thanks, Nick. I would just speak to the highlights this morning. And starting with revenue. So firstly, we're really pleased with the year-on-year growth of 28%. It's important to remember that we recognize license revenue over the year, which is quite different from our billing profile and collections. So we bill and license in advance, and we recognize the revenue from that license paid over the term of the contract. So the loss is carried. Same with benefit of ARs our revenue line now as well as the progress of implementation, which is driving that growth.

[indiscernible] we can see an area of significant focus as Nick touched on. We're really delighted that we had a net inflow for Q1 as Q4 of $1 million. Took us on a net outflow of 25% inflow on Australia. And as balancing investment in growth ensuring we do that in a sustainable way. is clearly a very important focus in year distribution we port reforms of cash and under [indiscernible]. And we also have receivables of [$2.8 million]. So in terms of momentum and the financial benefit of our recent growth starting to manifest in our reported metrics, so we're really delighted to see this result.

I wasn't intending to go through the numbers in any detail at this moment, but we do have Q&A open on the session, and I'll invite any questions we shared through that forum. Nick, I'll hand over back to you.

[Nicholas Pollock, executive]

Okay. So thank you, Sara. We're moving to the question part of the day. So we'll leave you with some of the highlights that we see in terms of continuous strong growth we've talked about, the opportunity in the market continues to evolve rapidly with industry dynamics and changes to legislation changes to community expectations. Recurring revenues to be part of where we are in terms of the enterprise software that we deliver. We signed typically 3- or 5-year contracts that this type of software tends to remain in these organizations, generally, sort of in and around 10-plus years. So those contracts are great, but they don't necessarily talk to the stickiness and those recurring revenues in the longer term.

And our team continues to evolve and I look forward to sharing some more information about that, some of the plans we've got for this year as we go forward. Just in terms of upcoming reporting events next week, I'll be on the East Coast perhaps Techno. So that will be in [Gold Coast] and Melbourne. I'll be taking our meetings in Sydney on the Wednesday between the Tuesday and the Thursday of Gold Coast and on Thursday, so I look forward to catching up with various investors in Sydney and those other organizations -- places.

We have our annual results due late August. That will be the full year results. And then, of course, we will have our quarterly as well, which we will follow up with similar entities, which we've been doing consistently, which is once the results are released, we follow up quickly with a quick -- so after that -- kicking that, I'd like to just hand over to any questions that might be.

[Nicholas Pollock, executive]

Just reading that the company currently has a market cap of $90 million. If the equity market won't properly, why not sell the business to [indiscernible] who clearly have an interest?

Well, yes, there's no -- we share the, I guess, disappointment in the way that the equity markets are valuing companies like K2fly at the moment, that's a frustration for us. I think what we continue to do is focus on building a good business. And at some stage, the equity market will start to revalue that. So that is, I think, most of know our global sentiment at the moment in terms of the way the market is valuing companies, micro caps, particularly and micro-caps in technology, particularly at the moment. We do see some signs that, that is starting to change. And we certainly see that in terms of the true value of organizations like K2fly that listed, for those that do make a change to the capital equity structures or that they quickly get to value the true value of those organizations with premiums been quite extreme. And we certainly see similar companies to K2fly selling in the private marketplace at very, very high multiples.

So we obviously care about what the share price is every day, however, we are focused on building a good business. [Maptek] has been an incredibly supportive shareholder. The Chairman of Maptek, Peter Johnson on the Board, he's delivering a lot of value to K2fly. I'm not going to sort of indulge in speculation about what Maptek's intentions are in terms of [indiscernible]. I don't think that would be appropriate.

[Sara Amir-Ansari, executive]

We've got another question from Andrew. Thank you, Andrew. I'll just read about it. It says or can you please speak on to [Sika] and any plans you may have to break into the oil and gas space. ESG is surrounding the seismic -- [indiscernible] seismic acquisitions, fill management, et cetera. And it has to see that potentially it's a big market with great Australian drilling base store, primarily due to community environment it serves.

[Nicholas Pollock, executive]

Yes, I will talk to that. At a big -- Andrew, that's a good question. So -- just going back a bit, our land management solution -- well, so our natural resource governance solution suite is made up predominantly of well, the first acquisition which was InfoScope, and the second one then Decipher. So InfoScope is the solution that does most of the land management, so to speak. Decipher is more focused around the tailings and rehab, both of which are obviously equally important. But what might be interesting to you is that the original use case for InfoScope was actually Origin Energy out of the -- on the East Coast where there was [indiscernible] lands in around onshore oil and gas exploration and fracking, et cetera, et cetera, in a heavily tested space with a [indiscernible], with communities, with traditional owners, et cetera, et cetera.

So we definitely recognize that opportunity. But I think it is fair to say we've been slow to be able to realize that but it's certainly something that's big and central. So going taking those natural resource government solutions into adjacent markets is a big focus for this year. And that is -- includes the oil and gas market, as you rightly point out. [indiscernible] linear assets, for instance. We're also seeing massive land holdings building with some of the biggest owners of Australia's biggest mining companies. So buying up lots of land or alternative energy projects, et cetera, et cetera. So that encompasses lots of complexity in terms of matching those things. So yes, oil and gas is definitely on the radar as well as adjacent markets.

[Sara Amir-Ansari, executive]

Ian was hoping that we could talk about pipeline in general terms.

[Nicholas Pollock, executive]

Yes. So I think in -- if we break it into those 2 categories again of mineral resource governance and natural resource governance, so we're -- with the -- I talked a bit about the release of the new resource disclosure platform. And what you would have also seen with this in the current past I think late last -- in the last calendar was the release of reconciliation module and model manager. We are definitely looking for that to become what I'd call our run rate business.

So obviously, Cricket's on top of mind for a lot of people these days. Not surprising got the last test starting tonight. So I'm a big cricket, so also a bit and say that, one, the resources exposure to continue being sort of our [indiscernible]. There's a couple of big [indiscernible] in there particularly as we expand the solution. So it will be our intention, our strategy is to put the value of those deals to the resource disclosure, integrated with model manager and reconciliation. So as the deal size will grow by at the same time, particularly with things like the Job 2020 coming out kind of is in regulation, we'll probably see an uptick in demand, and we really are seeing an uptick in that on the ASX-listed businesses.

That, Ian, you would recognize and others will know from when the regulators change in America under the in the NYSE and the SK 1300, so a significant uptick in U.S. customers coming on. So we expect seeing that. And obviously, we're still also working our way through the Big 5, if you like, in terms of the big rocks that come back. Certainly, we're seeing our reputation grow and become more networked definitely in the Pilbara. So we've sort of worked our way through most of the a big iron ore mine, say, in the Pilbara for ground disturbance and land management, heritage, et cetera. The goal and what we're already seeing is to now take that global. So that could be through the big mines that we're already working with, but also international miners that are looking to address this space.

So yes, I think on both of those sides, the future looks very bright and our reputation as really the only provider of those solutions as commercial off-the-shelf will cost software is growing and getting out there. So pretty excited about that.

I think there was a question from Andrew saying...

[Sara Amir-Ansari, executive]

Thanks, Andrew. Andrew has got that question. We shared the information that the third quarter is usually the strongest from memory, are exactly right, Andrew. And how does September look like on a cash flow basis? And do we expect to remain cash flow positive in subsequent quarters? Great question. Thank you, Andrew.

Our focus, as Nick has spoken to earlier today is on our path to operating breakeven. In terms of our cash -- reported cash position and to our cash performance, firstly, it's important to remember that we have variability in our collections and expenses profile, driven primarily by the annual nature of our invoicing. So we bill annually in advance. Now just as a function of history and timing, our portfolio is weighted towards the second half in terms of the renewal date. And so therefore, we will see billing and collections being higher in Q3 and Q4 than in the first half.

So in terms of the September numbers, I mean, historically, we have had a net cash outflow in that quarter. Our focus is on the trend for the full year results and our path to operating breakeven. So I have specific expectations and as you know Andrew we don't provide forward-looking views, but we don't expect material changes in the relativity of our cash profile in the future financial year.

And Nick, I think that concludes the Q&A that we have this morning.

[Nicholas Pollock, executive]

Okay. Thank you, everyone. Right on time for the 30 minutes we expected here. As I said, you can download the presentation of the ASX platform that we just talked to. Obviously, we didn't talk to every slide on that, so if you want more detail, please go to that. That will be available -- I'll be, as I said, traveling next week on the East Coast and -- but please feel free to send us an e-mail, make a call if there's anything you would like to clarify more. And we look forward to talking to you more at the end of next quarter about more positive results and continue on this exciting journey with K2fly. So thank you for your support. Really appreciate it. I look forward to more engagement with you as we go forward. Thanks a lot.

[Sara Amir-Ansari, executive]

Thanks.