Ansarada Group Ltd

ASX:AND

Earnings Call Transcript 2022-Q3

[Sam Riley, executive]

Okay. Great. All right. Well, welcome to our Q3 results presentation. Like I said, I'm Sam Riley, one of the co-founders and the CEO of Ansarada. I'm joined by James, our CFO. Good morning, James.

[James Drake, executive]

Good morning, Lauren. Good morning, Sam.

[Sam Riley, executive]

Right. Now we're excited to take you through another record results for the sixth quarter in a row. And as we get into the press, there's really 3 key points to take away. Firstly, it was our sixth consecutive quarter of record results with increased wins, customers and ARPA. Secondly, our Q4 outlook is very, very strong off the back of the Q3 growth. We had record levels of deferred revenue, and there's a lot of momentum right across the business. Lastly, you will notice in the presentation, there's a large jump in customers, customer growth, and that's driven by our freemium strategy, and it's a great validation for us of the demand that is out there for our product-led growth strategy. And I'm going to talk more about these freemium customers converting to subscribers later as it gives us a lot of confidence in sustainable growth. So if you take a look at this slide, it's really just a tearaway slide that explains Ansarada on the page, and it demonstrates our track record and the type of business that we're building. We've been around for 16 years, and we've become a trusted platform right across the globe for leading companies, legal advisors, accounting advisors, governments; we've got a deep expertise, a broad platform and we facilitated trillions of dollars in equity markets transactions; and we have over 600,000 users that increasingly with our freemium strategy, we are starting to monetize better and better. So we've got a high-quality established business. And we have a deal solution that many of you are aware of, but we are now so much more than that. We're growing scale in infrastructure, tendering, risk, compliance, board, governance and a lot of these things took great leaps forward in Q3 as well, which is really reassuring. So as I mentioned, Ansarada products are trusted and used by tens of thousands of customers every day to manage things like M&A, insolvency, refinancing, high-value, high-risk projects like tendering for infrastructure, companies that are dealing with increasing risk and how do I manage that? How do I operationalize it? Compliance, ESG, governing the Board, running the Board, Board activities. So they're all the things we do. In the quarter, we added a number of blue chip customers. One of them was the Victorian government selected us for a massive, massive project, the suburban road-based project. It's part of a $50 billion transformational project. You would have read in the quarter that's in the Airport Corporation and the takeover bid process there was run on Ansarada. And the World Bank selected us for a scaling solar project in France. So these are just a few of the hundreds and hundreds of new companies that came into our products. And the other thing that was exciting is we landed hundreds of new customers into our board product from scale-ups to established businesses. So the short message on this slide is you can see we've always driven growth in our customer base, regardless of economic conditions. Q3 was a new record and we accelerated the customer growth because of the frictionless freemium strategy that we're gaining traction with. And this is an extremely low-cost way of acquiring customers for us. You'll have to forgive me because Ansarada trade is a lot better in Q3 than I'm performing today with the sniffles. Look, it's really worth reading this, but I'm just going to give you the -- some reversion of this. Our whole business strengthened in Q3. We improved operating metrics, talent retention and acquisition improved. We hired a new senior operations person to accelerate growth with more automation in the business. And Q3 is historically always a seasonally low period for us through that December, January, February holiday period. And we saw that happen again this year. However, activity rapidly accelerated throughout the quarter. We had a very, very strong March. So this and other metrics like deferred revenue, which we will book as recognized revenue in future quarters took a big leap forward. ARPA continue to grow, increasing by 17% in the quarter. And all of these things have put us in a very strong confident position for Q4 results. So with that said, I'm going to hand over to James who will go into more detail. Thanks, James.

[James Drake, executive]

Thanks, Sam. So the following slides on financial year '22, Q3 and they are the quarterly financial highlights. As Sam mentioned, the business continues to perform with consecutive quarters of growth across all the key metrics since we listed well over 12 months ago. Starting with the top of the funnel, we continue to see acceleration in our customer acquisition, with our freemium subscriptions contributing a little over 1,100 of the total 4,500 customers. Of the freemium total over 150 were from the recently announced Microsoft partnership and over 160 from our board freemium launch, which occurred in March. It's too early since we launched but encouraging signs on both these initiatives. Our subscribers grew 23% year-over-year, and we will be continuing to focus on freemium and the paid subscriptions in coming quarters. Average revenue per account or paid contract continued its trend of year-over-year increases as per the prior quarterly 4C updates since we changed the pricing and packaging in Q4 financial year '21. The ARPA increased to 1,661 per month, which is a 65% increase year-over-year. Just to refresh everyone's memory, average revenue per account, or ARPA, includes all of our paid subscribers, including TriLine, but excludes our tenders, subscriptions as per the Department of Transport, the $1.2 million annual subscription that we signed in October, we excluded because it skews the other average ARPAs when you are included with our subscription base. But given the trend in ARPA, the increase year-over-year, we believe it's sustainable and we'll continue to see increases in coming quarters as we cycle through a full year of the revised pricing and packaging. As a result of the strong year-over-year growth in top of funnel metrics and APRA and the execution of some of the strategic initiatives we have outlined, we continue to see strong year-over-year revenue growth. Revenue grew to $12.1 million or 34% year-over-year. And year-to-date, we've hit $35.5 million or 45% up year-over-year and already higher than our financial year '21 annual revenue, which was $34.1 million. As you will see from the following slides, this was achieved in a historically seasonally low quarter due to the holidays. Activity during the quarter increased dramatically through March, which translated into a big increase in the deferred revenue of $5.3 million year-over-year or 45%. The majority of the $16.5 million in contracted revenue will be recognized over the following 12 months, providing greater visibility and confidence in revenue growth. The growth achieved in the quarter was self-funded as we continue to invest in top line growth by maintaining a less than 4-month CAC payback. Cash receipts from customers in the quarter hit $13.4 million and adjusted cash flows from operations of $2.4 million positive. The adjustment related only to costs associated with the TriLine acquisition that was relatively small. We ended the quarter with $21.1 million in cash and 0 debt. Overall, when all these key metric trends are combined, it illustrates a methodical and sustainable trend in our business and is evidence of executing the strategy. We got a question this morning on this next slide, which hopefully these graphs help solve. But we've got a winded revenue in Q3 retreat slightly from Q2 levels. The answer is the seasonality and timing. We have mentioned the historical seasonal lows, and this graph indicates the consistency of the impact of the holiday season on new wins, new wins or new signed contracts. As you will see, the December-Jan period each year has the lowest new wins compared to a much stronger Q1 and Q4 in particular. Excluding COVID, March is also a strong month and builds momentum as we head into Q4 and end of financial year. Historically, Q4 and Q1 are our strongest quarters. In this chart, you'll see the new wins in March, which is at a record level and much higher than prior years. Because our subscriptions are built upfront and we receive cash up front, it drives a much higher deferred revenue balance. And as you can see, there was an increase of approximately $2 million in the quarter to $16.5 million, which will be recognized in Q4 and subsequent quarters. Higher deferred revenue is directly correlated with the strong activity in March. The final graph is our last 12 months in revenue over the last 3 quarters, therefore, smoothing the seasonal low quarters and shows a consistent growth profile in our revenue. So to summarize, we continue to profitably drive top-of-funnel growth, which is translating into a strong year-on-year financial metric comparison and revenue growth. With activity increasing through Q3 as evidenced by the jump in contracted revenue, we have momentum and visibility heading into this historically strong Q4 and financial year '23. And with that, I'll hand back to Sam.

[Sam Riley, executive]

Thank you, James. Yes, just an update on how we're going on executing the strategy. This slide really shows how cohesive it is, and we're very laser focused on the few things that we've put out there. So first of all, the product-led growth methodology lets us be very data-driven and tap into those 600,000 users in our base. So we've got a huge product suite to bring to them, and we're increasingly finding ways to deliver that. The second part of that is related to it strongly, and that's personalization and automation. So a lot of work went on in the quarter around our data and giving us the ability to confidently personalize more offerings to that base. And that's where you see the freemium customer growth as a validation of that. That's awesome. So the next thing for us is to obviously convert the freemium into paid subscribers, which we are doing, that we will get better and better at that. But first things first, and it was an awesome job for the Ansarada team in Q3. So that's sort of the strategy. And at the same time, we are always investing for more sales. So we're modularizing more solutions. We're working on more and more ARR-based revenue, which, by the way, grew a lot in Q3, particularly in March. We made some great reoccurring deals. But that's where we're at. Now there's 3 things to bring you back to actually probably 4. So first of all, it's sixth consecutive quarter of record results, and we continued improving operating leverage. We've said before that regardless of economic conditions, Ansarada performed strongly because of our high-quality diversified revenue base, and that resiliency continued in Q3, and our pipeline is strong as well for Q4 so we can have a very, very strong and we will have a very strong Q4. We're very early in the growth phase for our overall market that we operate in, and that's a $50 billion market. And the big success of freemium and customer acquisition in Q3 is driving even greater confidence in the business. So with that said, I'll hand over to Lauren to facilitate some questions if you have any.

[Lauren Jarvis, executive]

Yes. Thanks, Sam. Thanks, James. A couple of questions have come in. I think these 2 can be answered together. So I'll give them to you at the same time. So one from [ Darren Brooke ]. He said, "Can you advise subscriber change? Does it go down 2,805 to 2,792? Can you explain? And one from Nick Harris, who says, congrats on the quarter. Can you please talk about the customer adds in Q3 in more detail? Is this mostly net new customers? Or does it include existing customers using your new solutions? Example, data and customer trying board papers or GRC? Who would like to answer this question. Will these questions rather?

[James Drake, executive]

So I'll do the first one. Yes, you're right. There was a drop of -- from 2,805 to the 2,792 number. A lot of that -- well, most of that again relates to that seasonality. We actually usually see a drop in -- a small drop in subscribers, mostly related to our monthly subscriptions in the December and January period. And then it builds again through February and March. And as you saw by that seasonality graph, the new wins in March were at a record level. So it's building back up. It's -- and it's also reflective of our freemium strategy. On our deals, freemium solution, the conversion is less than to a paid subscription is less than 30 days. It's actually closer to 2 weeks. So we do have a little bit of a lag as a result of introducing freemium that also explains some of that. But the momentum through the March period and activity means that, that small drop is not likely to continue in Q4 and beyond. On the second question -- sorry, Sam, you go.

[Sam Riley, executive]

Yes. On the customer growth, Nick, good question. Yes, there was a very small percentage, I would say, that were existing customers because a lot of those offerings were taken to a broader base. So as you know, for every person that pays us is another 18 organizations that were on average connected to through every transaction we run. So a lot of those offerings that we did on freemium went out to the base, particularly on board product. And all of the Microsoft for start-ups customers were net new. There might be 1 or 2 that weren't, but as far as I know, they're all net new. So that's that part. And as you know, we went into a freemium strategy for deals quite some time ago. So we continue to see a lot of companies and advisors sign up to start preparing for their deals on Ansarada with no risk, no cost. And as they invite an external user into their process when the deal progresses, they convert to pay. So we did see a lot of growth in that channel as well. And predominantly, they are net new also, but there is a mixture of existing but it's smaller. Would you add anything to that, James?

[James Drake, executive]

No, I was just going to just say the Microsoft is a little over 150, as I said, and the board freemium a 160. The advisor and deals freemium solutions make up the difference. It's approximately 1,100 in total for the total freemium customer contribution.

[Sam Riley, executive]

Yes. And the company is on -- the actual companies that are subscribing off the back of them are nearly all net new.

[Lauren Jarvis, executive]

Okay. The next question is from [ Chris Seto ]. Are you able to break down revenue by product? Who would like to answer that one?

[James Drake, executive]

I'll answer that. We usually do the revenue by product on the half year. That's why it will reflect what we did on the first half, it's pretty consistent in the second half, which is, although it is a slightly bigger contribution from GRC, just given the time. But if you think about it, it's probably close to 11% or 12% from tenders, 3% or 4% from GRC and the rest is all associated with the deals product.

[Lauren Jarvis, executive]

Thanks, James. There's another one here from [ Chris Seto ]. Are you able to report on products per subscriber and trend?

[James Drake, executive]

So product per subscriber if that question is asking how much of our customer base -- our subscriber base is deals versus tenders versus GRC then the majority is deals. We have a number but relatively few compared to the total on tenders that are classified as subscriptions. Department of Transport is, but others maybe who are associated with their multiyear contract around an airport or a power station, it might be a 2-year or a 3-year deal, but we don't classify as a subscription because they're project-based, which leaves the GRC and that makes up pretty close to what would that be probably about 10% of our subscriber base is probably associated with those.

[Lauren Jarvis, executive]

Okay. Thanks, James. We have 2 questions from [ David ] and I'll give them to you one at a time. So the first question is, at a high level, are you able to provide some details around how you performed in international markets versus domestic markets for the deals product? Would you like to answer that, James?

[James Drake, executive]

Yes. I'll say it's actually kind of similar to the half year revenue profile. In that international revenue continues to grow, but so does our Australia and New Zealand markets. So proportionately, we're growing pretty consistently. Obviously, there are a few factors in Europe that we're watching closely. But at the moment, we're still seeing year-over-year growth across the board.

[Lauren Jarvis, executive]

Thanks, James. The second question from [ David ] is many companies have spoken about labor shortages and rising wages, especially in the tech space. Are you guys seeing the same pressure with wages and hiring and retaining of tech staff? And if so, are there any strategies you have implemented to help offset these pressures? Sam, do you like to answer that one?

[Sam Riley, executive]

Yes, sure. Look, yes, we've seen that for quite some time and I think we responded to it quite comprehensively probably starting in Q1, Q2. So being a great place to work for many years. We've got a good diagnostic on what things in the business we can work on improving. But what we've seen in Q3 is a rapid improvement in all of those metrics. So we're not -- we have the most hires we have in Q3, particularly in March, things started flowing very strongly, the full ownership of our Vietnam operation, which we started 5 years ago, and we're an employer of choice over there. So we didn't go in there to be super low cost. We went into get the best talent in the market. People that want to build a fast-growth product company doing great stuff. And we've got a great team over there that do awesome work and they attract a lot of people through their network. So our Vietnam business is going really well there. Different roles, and we're seeing very hard to hire for, like it really comes down to the role. But overall, we feel like we got on top of that and I wouldn't say that job's never done, it's never finished, but we're certainly in a much, much stronger position and more confident in Q3.

[Lauren Jarvis, executive]

Great. Thank you, Sam. A question here from [ Frank Macindoe ]. He said good work. Can you say more about the development and customer acceptance of the boardroom product? Who would like to answer that question?

[Sam Riley, executive]

I'll get it. Yes, [ Frank ], board product really simple to use, the -- a lot of the development we put into there is how quick and how easy is it to get into the product, create a board pack, invite some directors of the team and go live with your first Board meeting and the psychology around that for the people doing it, they don't want to mess anything up. They want to be very certain everything is done properly. So that whole customer journey and the personalization that I was talking about, we're really focused on that. As I said, we have seen over 150 freemium customers flow in there. The conversion rates through the funnel there is still evolving, but we're confident we can do a lot of things to increase them. So the product is getting stronger and stronger, but we really optimized it around making it the simplest, easiest board product to set up and use because the team that built it for the last several years have done an awesome job making it very, very rich in functionality. So that's where the developments are instated.

[Lauren Jarvis, executive]

Great. Thanks, Sam. Question here from [ Greg Brooks ]. Is there any prospects of a dividend? If so, when? Who would like to answer that question?

[James Drake, executive]

I'll answer that one. At the moment, we have no plans for a dividend. The market we're operating in presents us with so many growth opportunities that we feel it's better to continue to invest in top of funnel growth. And we'll continue to do that as long as we see the opportunity in the market and we continue to grow. So at this stage, there's no plans for a dividend.

[Lauren Jarvis, executive]

Okay. Thank you. Another question one from [ Johan Simon ]. He said in which end markets did you see highest growth rates? Were you satisfied with contribution from TriLine? Who would like to answer this question?

[Sam Riley, executive]

Okay. I'll get the second part of that question and then James, you can get the growth rates. But TriLine is something we acquired at the end of October. And as we've said, seasonality, we sell predominantly to the business users in the C-suite. And if you're going to implement a governance risk and compliance system and go through a sales process, that's typically not something that companies do in December, January. They start those activities at other periods in the year. So TriLine was impacted by that seasonality, not much at all, but it's very hard to generate a lot of growth in that period for any governance risk compliance system. But overall, we are really happy with the TriLine products. It's phenomenal. The more we get involved in it, the more you speak to the customers, there's even more opportunity than we first thought with that product. So we put more resources on it to improve the scalability, make it easier for people to get set up and into the product, and we've got a lot of exciting plans to modularize it and bring it to our customer base under that freemium model, which will continue accelerating our growth. So it's a great product. We're happy with where it's at. We do need to resource it a little bit more to realize its potential. But in the 5 months we've had it, it's very solid.

[James Drake, executive]

And on that first one, so our overall revenue growth for the year-to-date is 45%. The majority of that, given the skew to Australia and New Zealand comes from in terms of dollar value comes from Australia and New Zealand. As you may recall, we're about 56% of revenue to Australia and New Zealand. So that's driving the majority of the dollar increase. In terms of regions that are performing well and above Australia and New Zealand in terms of growth rates year-to-date, it's mostly Europe. Although all regions are growing, Europe has been particularly strong in the 9 months to March.

[Lauren Jarvis, executive]

All right. Thanks, James. Thanks, Sam. And there are no questions at this stage. I'll hand back to you.

[Sam Riley, executive]

Okay. Well, thanks, everyone. We'll be back out again at the end of Q4 to give you a full year and also foresee quarterly. Thanks again for attending. And thanks, James, and Lauren.

[James Drake, executive]

Thanks, everybody. Have a good day.

[Lauren Jarvis, executive]

Thanks, everyone. Thanks, Sam.