Ansarada Group Ltd
ASX:AND
Earnings Call Analysis
Q2-2024 Analysis
Ansarada Group Ltd
The company reported consistent strategic execution and a positive trend across several financial metrics. It achieved a healthy EBITDA margin and a strong cash flow of AUD 7.6 million. Notably, their recognized revenue increased by 6% year-on-year, highlighting an overall growth in the company's financial performance.
A key focus for the company is transitioning customers from transactional engagements to annual recurring revenue (ARR), which saw a 7% increase. Although there was a slight decrease in ARR from a government contract renewal, the company maintains a healthy ARR of around AUD 6.6 million with further growth expected due to both product improvements and a robust pipeline of recurring relationships.
The company also showed a 15% rise in average revenue per account (ARPA), reaching AUD 1,485, indicative of the successes in their pricing and packaging strategies. This trend is further supported by the recent quarter's ARPA reaching AUD 1,551, suggesting continued momentum in this aspect.
Deferred revenue has risen by 14%, signaling positive forward-looking momentum, with a total of a little over AUD 19 million expected to be recognized predominantly in the following year. Furthermore, the company reports a 4% growth in subscriber counts, further solidifying the foundation for sustained revenue.
There was a significant 66% increase in deal volume through the digital sales channel, alongside an improved conversion rate, underlining the effectiveness of their digital go-to-market strategy. The company has 13,000 premium customers with nearly half acquired in the last six months, indicating a sizable opportunity for converting these premium users into long-term subscribers.
Through case studies like the advisory firm 'Oakland', and its longstanding relationship with over 200 completed transactions, the company demonstrated its ability to provide consistent value and its ambition to enhance customer relationships into ARR agreements. Similarly, partnerships with entities like Transurban and governance services for Simply Finance showcase the strong value proposition of the company's products in Procure and GRC.
You don't have any saved screeners yet
[Audio Gap] Sam Riley, Co-Founder and CEO, and I'm joined by James Drake, our CFO; and Peter James, our Chairman. So we'll be kicking off today going through our half year results. We will be focused on the results. We will take questions through the chat. So if you want to raise the question at any time, just login in the chart. And at the end of the presentation, we'll go through all the Q&A that's being submitted. We won't be taking questions on the proposed scheme of arrangement, the deal that's out there. The next stage of that process is publication of the scheme [book], and that is currently slated to be around in April. So we'll get into the results.So as most people know on the call, but if you knew, Ansarada really deals with critical information and processes and we bring order to them because when there's chaos with those things, it's very hard for the business to make good decisions and execute efficiently and reach their potential. So we're into structuring information and processes for critical outcome. And we've been around for like nearly 20 years, and we've got a lot of deeply embedded values in the company that revolves around care, a lot of courage for change, curiosity and we live them out every day. So we've got offices all across the world and customers use us all across the world as well. We've got the nature of what we do generates a lot of users logging into our platform. And we have 4 main solutions and products in market. And they're listed on the right-hand side, they're in the order of their maturity. So our flagship product that we started with is for M&A deals, capital raising, anything where there's a large element of due diligence, a high-risk, high-value project work. We also do procurement, typically around major infrastructure, again, high risk high value projects, roads, ports, rails, hospitals, precincts. Also, we have the product we acquired that's for governance, risk and compliance and bringing order to that. And lastly, we launched a product or a series of products to help companies manage ESG. The data, the strategy, the metrics and the reporting and disclosures against various standards.So we reported in January on our Q2, but we are here in the half year. So these are the numbers for the half year. As you can see, we continue executing quite strong, just continued progression of our strategy flowed through into EBITDA margin with healthier with AUD 7.6 million in positive cash flow. Our recognized revenue was up 6% year-on-year. Our average revenue per account ARPA increased around 15%, and [most leaving] our subscriber numbers started to increase as a result of some of the focus we've been putting on that.One of the key things we've been focused on with our strategy is nurturing customers from transactional into truly ARR, annual recurring revenue. And we've made some good progress on that, up 7%. You will note we did have a AUD 0.5 million renewal that was less than the previous year. That was based on volume around one of our government contracts. So that's anticipated. But despite that, we still managed to deliver some healthy progress on ARR, and we expect that to continue. If you just look at why we expect to continue. If you look at our deals, ARR, it's around AUD 6.6 million. There's a lot of product improvement we're doing there that will present more value to customers to subscribe ARR. There are corporate use cases that are both transactional and non-transactional. So the richer our product set gets around those use cases, the more conducive it is to securing ARR. And we do have a big pipeline of -- and I'll go into this in more detail, reoccurring relationships. So they come back to us for deal by deal by deal, but they churn on churn off, and there might be 10 new customers, but we are nurturing and presenting more value to them to say, hey, it might be better for you to become an ARR subscriber just coming in and coming out.Our Procure business, very similar. We get involved to build large one-off infrastructure. But if it's with Department of Transport, Department of Health or a large project in the world like what's happening in Saudi Arabia. That's where we convert single and multiyear single projects into ARR subscribers, that is the pipeline there that's healthy and continuing for Procure. And there's also some more product improvements that we can do to make ARR for Procure more conducive. The other one is on our ESG and GRC, much earlier-stage products. So really it's about validating customer demand there and the proposition and the pricing and the packaging, getting a viable customer acquisition model going with a customer acquisition cost that's actually scalable. And also through an acquisition we did, we do need to modernize and address some legacy technology in that acquired platform to continue serving customers really well and maintain the customer retention. So all of those things are in play and they're all contributing to increased ARR.Moving on to looking at our transformation, we started a few years ago around digital go-to-market and nurturing of customers. You can see the performance on the left-hand side. If you look at the black columns, you can see we did roughly 1,000 deals in Q2 through the digital channel compared to around 600 in the prior Q2 prior period, FY '23. So you can see the volume has gone up significantly, 66%, but we've also increased the conversion rate, which is the gray line. So we're winning more and we're converting at a higher rate. And on the right-hand side, we do have 13,000 customers that are on premium. And 6 months, if you look at the age of them, nearly 50% of them are less than 6 months old. So there's still a good pipeline in the digital premium to convert into subscribers. So we anticipate that to continue in line with the graph.I did touch on recurring versus ARR relationships. And here's a really good example. And if you Google answer out of TV, you'll get to understand our products and the value we provide customers. One of them is an advisory firm that operates in Germany and the Netherlands and elsewhere in Europe called [Oakland]. So Oakland has been throughout the customer for over 10 years, and they've used us for more than 200 transactions, so 200 deal rooms. So they value, obviously, what we bring them. They come in and they come out and they come back. But Oakland is a good example of our revenue stability and growth that we continue to get. And they're also an example of the value we're trying to add to those types of customers to convert them into ARR. So that's adding value, pre-deal, post-deal, maybe helping them manage risk better, providing them with insights for decisions or helping their team execute transactions more efficiently. So a lot of our product road map is on converting that.Similar story with Transurban. If you look at our Procure product, Transurban is a customer of ours in America, in the U.S.A. and also in Australia. So we do provide them with immense value. They have used us on more than 20 multi-billion-dollar projects. But once again, we don't consider them an ARR customer yet. And there's some money in our pipeline that we're nurturing and working into that sort of agreement. But as Transurban continues to grow and scale and run projects, we're a trusted partner of theirs.And lastly, if you want to Google this customer, Alan Sheahan, he's headed governance of Simply Finance. They've been a customer for a few years now. So GRC, as it says here in the quote, there's a lot of controls in the business. There's contracts, documents, risk registers and they're owned by various people across the business. And then there's also regulators. So the regulatory landscape is just exploding with the amount of requests and scale, particularly from financial services that are getting cascaded into company. So as Alan would say, there is a lot of chaos and the answer out of GRC product helps bring order for that chaos, so that they can manage their risk more effectively.So there's a bit of a round the ground on the product, the strategy and customers and now I'll hand you over to James for some numbers.
Great. Thanks, Sam. So as you heard for the first part of this presentation, this really is a continuation of prior trends and our numbers are continuing to move in the right direction across the board with revenue hitting AUD 27.7 million, 6% up. However, our deferred revenue balance increased 14%, which shows some of the momentum we saw through the end of the first half. Just to refresh everyone's memory, our deferred revenue comes about because of our contracts are paid upfront. So we receives the cash, but we have to recognize the revenue over the contract term. So for example, if it's a 12-month contract, that upfront payment would be spread over a 12-month period. We ended with a little over AUD 19 million in deferred revenue, the majority of which will be recognized over the next 12 months. Embedded also in that AUD 27.7 million is subscriber growth, which you see is 4% up year-over-year, but also our ARPA. It was up 15%, and as Sam said, to AUD 1,485. However, you may have read in our Q2 4C that the Q2 ARPA was AUD 1,551. So that just shows some of the momentum we're seeing in our pricing and packaging. And as we announced on the prior call, in January, we did a price change on our new business in October. So that ARPA is expected to continue to increase over the coming periods.We focus on a lot of operational efficiencies, which is driving margin improvement. And you'll see there that adjusted EBITDA is AUD 5.9 million. The adjustments are non-cash items or one-time, and we generated AUD 7.6 million in cash flow from operations, which included a couple of strong government renewal cash collections in Q2, leaving the half year at AUD 7.6 million. We ended with 0 debt and AUD 24.6 million in cash.This slide, we always put up to show we continue to diversify our business and our revenue streams. Internationally, 42% of our revenue is generated internationally. And the remainder is APAC and ANZ. Customer growth in ANZ is 79% and remember customer includes premium while subscriber is paid. And our international growth is also up 154% year-over-year. In terms of contribution from the different products, 80% comes from deals with 20%, up from 18% coming from Procure and GRC. Acquisition growth channel, our digital acquisition channel continues to contribute more. We're now at 43% coming through that channel, which allows our direct sales team to focus on enterprise customers and try and drive higher ARR.On the next slide, we outlined our improvement in revenue driven by an increase in our sales and marketing. But as you can see, we're able to vary our sales and marketing spend corresponding to either macro conditions or overall demand that we see in the market. It gives us a lot of optionality in our cash flow and our resources to look at higher spend in go-to-market or further product development.The next slide is a little bit of an outline of our split in terms of technology, sales and marketing and G&A. The main message here is you'll see a lot of our buckets and spend have been relatively flat over the last 4 quarters, but we continue to grow our revenue. So we're getting more efficient with our spend and more scalable with how we are deploying our products. That efficiency is translated into our EBIT margin improvement. And in the first half, we had 21% adjusted EBITDA margin. And we'll continue to run at those levels unless, of course, we see opportunities to accelerate growth as we balance the revenue growth with margin improvement.And then the cash flow from operations, as you can see, we did have only one period, which was due to one-time items, Q1 financial year '23. But since then, we've maintained a pretty consistent quarterly cash flow from operations position. Excluding, of course, you'll see, as I said earlier, Q2 was quite strong at AUD 5.7 million. That was due to a couple of big government contracts coming in, in that quarter. Our CapEx, we continue to invest in our technology and products. We said at the beginning of the year, our cost base would be relatively flat year-over-year as we have the right team in place and are executing on our strategy. We did capitalize slightly more, 35% of our total product design and development costs, but that increased R&D is to do with new products and features that we're rolling out to the market. Those resources that are not capitalized are improving our products, maintaining our quality levels, but also looking at process improvements. And a lot of that effort is helping to drive the efficiency that's helping our margin improvement, and that will continue in the coming quarters and into next year.So finally, 96% of our gross margin are maintained from prior period. EBITDA is up cash flow from operations. You can see the difference between adjusted and EBITDA is a non-cash share expense item. And our cash conversion ratio maintained above 100% as we've reported in prior quarters.With that, I will hand back to Sam.
Thank you, James. Well, no change here. Our strategy really comes down to executing on these 5 priorities. We are sitting here in February. So we have seen continued momentum and a positive start to the second half. And as James said, deferred revenue pipeline, some of the efficiencies we deployed and our ability to increase spend. We maintain a positive outlook on the second half. We really need to work hard on validating our ESG and GRC products so that they can establish product market fit and something that is viable and scalable based on customer demand. I did speak a lot about ARR already. That's something we're continuing on with. And you can see in our margin improvement that increasing operational efficiency is paying off. And there is still some work to do there, but that is something that we've done a lot in the first half, and you're seeing the results flow through. And we're shifting our attention more and more to the big opportunity to convert premium customers into paid subscribers. And you would have seen the subscribers growth in the first half, and we aim to do more in the second.So with that said, I will take any questions if there are any on the call. And it doesn't look like there are any questions. So I might call it to a close, and thank everyone for your time. So thanks, everyone.
Great. Thank you, everyone.