Ansarada Group Ltd

ASX:AND

Earnings Call Transcript 2023-Q3

[Sam Riley, executive]

[Audio Gap] making more simple because in my processes, when they are being better should be better when it's simpler, businesses get more insight, but you make quicker better decisions and achieve better outcomes for everyone that depends on the people, the stakeholders, everyone. That's our business. We're a company that's SaaS [ bridge ] globally, roughly 40-something percent revenue generators overseas. We're trusted by the world's top companies and advisory firms and where we're quite broadly used and relied upon more than 600,000 users in our platform. On the right-hand side, we've got a suite of products that I would say [indiscernible] of the C-suite. So when you think about capital raising, M&A, insolvency, there's a lot of information and process there, a lot of security required. That's our Deals product, which we started with. We've got a product for Board meetings, committees, management of that information and process. When you look at sustainability, how does the company diagnose what's important and managing information and generate reports for ESG, what about risk and compliance, controls the company is putting place to manage risks, how effective are the controls, having to report on that. Again, that's a big area. And lastly, we've got a dedicated product for procurement of high-lease, high-value infrastructure so you can road, port, rail, large energy projects, renewal of precincts. So we have a lot of government work there for us with our Procure product.

And again, very voluminous amounts of information has to be highly secure, and there's a lot of reporting also. That's a product suite. We've always grown and expanded and able to leverage each from 1 product to help expand into the next one. So I put commentary for this quarter, I'll just quickly run through because it really does what the quarter was about for us. As we promise, we're not only getting better on running business efficiently, we're disciplined about capital management.

So during the quarter, we generated public cash flow from [Technical Difficulty] having no debt. We continue to see a lot of freemium customers signing up for our products, which give us confidence in conversion to subscribers in the future. Year-on-year, a key focus for us is building more ARR. So it was great to see 36% growth year-on-year, where years and years ago, we used to just operate exclusively in the Deal environment when we only had a product, Deals. And back then, it was 100% of our revenue. So in the last couple of quarters, Deal volume has been down about 30%. So it was really good for us this year to have year-on-year revenue be flat despite a very, very challenging deal environment, and that's only possible because we've strengthened our business up considerably in other areas and in Deals as well. Average revenue per account has now sort of tapered off, but year-on-year, it was up 4%. And we've been very big on promoting our digital channel. It's a better experience for customers, much faster and easier. Also we can optimize it quicker and is more efficient for us to scale, and we can deploy more resources into ARR generation. So that was it for us. I would say Q3 is a seasonally low trading period for us, like because we target decisively. There's not a lot of activity in the holiday periods in January and starts to pick up in February, but in March onwards is -- and Q4 for us is a much stronger quarter. So we did see the quarter progressively got more voluminous and even in Deals throughout March, which is great. So the pipeline and momentum going into Q4 is pretty good and certainly Q4 has been a more stronger period for us as well, which is good. We do have a lot of ambition around growth, but we are able to fund that out of our own cash flow. So we launched a new product for managing what's required to do ESG and sustainability properly. So that's a materiality assessment. So that's where a company would go to all the stakeholders like customers, investors, suppliers, their employees, and they would engage with them and ask them of the 30 to 40 topics and issues that make up environmental and social and governance issues what do you believe is most impactful for -- from our company's point of view? And what also what's most important to you. This is a foundational process because without doing that, you can't really go and act on them and prioritize and improve 40 things because you don't know if they're the right things to do. And also, you should really be doing things that benefit new stakeholders that your business affects. So after you've done materiality, you end up with the top 6 or 7 or 8 teams that really matter and then you can focus on executing that. We launched our product in March. So it's been less than a month roughly in a month. We've had 50 customers sign up. And the best advocate we've got for it is the ESG consultants that do that process today manually. They've said, "Guys, this is fantastic. The outputs are awesome. This is going to save a lot of time and money and it's going to make it possible for more companies to do it." So we're seeing a lot of education and engagement with all our customers on it. We're working them through our funnel. So yes, they sign up and get educated. They select to start the process and eventually over the coming months, we'll convert them new customers and expand them. So we're filling up the front of the funnel quickly, which is great. We're also working on another product that we're going to be launching into the mix shortly. So after you've done a diagnosis, the next logical step is just put in a strategy and an action plan to execute on what you're diagnosed, and that's exactly the next product that we will launch in the coming months. So that's exciting. It continues to strengthen our business, and this is a rapidly growing critical area for all companies to manage when it comes to information and the processes to become a leader in sustainability. So we will continue on with that. And that's a part of our broader opportunity that we have out there. I just wanted to call out a couple of wins we had in the quarter because these are indicative of what you're going to see us doing more of in the coming quarters. So with our GRC business, we are able to win a lot of clients, which is The Steadfast Group, the largest insurance broker network. I think they've got over 400 insurance brokers and underwriting agencies in Australia, and they're growing in Asia and in Europe as well. So a lot of risk and compliance activity there to be done [Technical Difficulty] want to improve on sustainability as well. So based on with Ansarada, which is great. Also the Birmingham Bank in the U.K., that's another win. They've dedicated being a bank for business, for small business. So they saw the value in our products there and great wins. Another good ARR win for us. That is a good example of how we generate ARR from our Deals business. And you may be familiar with the transport company called Kinetic. So Kinetic have a large acquisition integrating strategy. So they acquire regional transport companies and operate them. So you might know brands, SkyBus and Sunbus and Telfords. Kinetic actually move 100 million people across the country of Australia and New Zealand every year. So Kinetic signed on with a multiyear 6-figure contracts so that they can simplify execution of the M&A strategy. So that's great. Another win we had in our Procure business was there's a lot of upgrading that goes on with airports around the world. So it was really great in the U.S., we won a contract with the upgrade to the St. Thomas airport in Virgin Islands. So these are types of opportunities we have in our pipeline across the world, but starting to see some good wins. We also have win in Calgary in Canada. The City Abatement in there has got a railway line extension project, and they signed on with Ansarada to deliver that off the back of their expertise, doing dozens and dozens of multibillion dollar railway line projects across the world. And our pipeline in our Procure business is very strong with water projects, a lot of energy and battery storage infrastructure that's we're in the mix with, a lot of transportation roads, ports, rail, airport. So big, lot of momentum in the business for us as we go into Q4. So that's largely for me. James has a lot of great numbers to take you through, and we'll open Q&A at the end. So over to you, James.

[James Drake, executive]

Great. Thanks, Sam. So as you heard and as you've read probably experienced a challenging macro environment the world in continue specifically [Technical Difficulty] New volume in the first half was about 30% down, and we have seen an improvement in Q3, but still year-over-year is a tough comparison. Despite that, we continue to diversify our revenue, increase our recurring revenues and also self-fund growth. Importantly, that positive cash flow from operations continues, and that's how we're able to continue to financially perform within these markets. So top line growth, 8% year-to-date to March, even though quarter-on-quarter, we were flat. So we continue to grow year-to-date and our customers were up. A big chunk of those customers, these freemium customers, which are those that are in the product, experiencing value that have not yet hit the trigger points of payment. So they represent a future potential opportunity to convert into a paying subscriber. Our subscribers do drop [Technical Difficulty] 10%. The majority of that drop is related to the new win volumes being down and also, given some of the uncertainty we're seeing shorter duration contracts than we did in prior years, and that's causing that drop. However, with the total customers and the freemium customers jumping up, we see that as an opportunity to convert to get subscribers growing again year-on-year. ARPA $1,360. You all know that there is some change to ARPA. As a result of a system upgrade, some of our historical numbers changed slightly, not materially. So we footnoted it, but year-over-year trends at the same and slightly up 4% year-over-year and stabilizing as we said in prior quarters. So the important part of recurring revenues, investing in operational efficiencies, the cash flows continuing to be positive not only on the cash flow from operations, but also generated $1.5 million in free cash flow in the quarter. Recurring revenues, ARR in particular, up 36% to $10.7 million. We still have the [ same number ] retention and 106% net dollar retention. The net dollar retention is just the amount of dollars we received this year from customers that signed up 12 months ago. That generated -- that is indicating that we are expand leadership with our ARR subscribers, and there's going to more with us 106% more year-over-year than they did last year. So that's a key metric for us to watch. I mentioned diversification of revenue. All revenue -- all regions grew international and Australia and New Zealand. Australia, New Zealand remains about 57% as it was year-over-year. We did have Europe as a fastest-growing region up until some of the macroeconomic conditions that changed materially about a year -- a little over a year ago now. So you can see that drop from 16% to 13% of that total. But overall, international and ANZ group, we're going to see more diversification by geography going forward based on our growth of customers. You'll see that ANZ customer growth was 28%, but our international customer growth was 144%. Revenue contribution continues to diversify. We now have 19% of revenue coming from non-Deal sources, up from 14% last year. So another key trend. And the last 1 is our increasing digitally acquired customers, 21% versus 12% year-over-year. The digital acquisition channel allows for a more efficient and wider reach and allows our sales team to focus on longer-term relationship [Technical Difficulty] ARR. So that’'s another key trends, and that's what this slide illustrates and indicates the more diversified revenue objective that we called out at Investor Day, progress is being made. The long-term growth of the business is really underpinned by two things: the increase in recurring revenue and also the deferred revenue. The stability of that deferred revenue brands is the reason why we maintained $51 million LTM revenue because the $15.9 million will be recognized over the next 12 months. We've already booked those contracts and that really provides some transparency and stability on our revenue projections and confidence of continued financial performance. The seasonal low period in Q3 is another, I think, to couple that 8% and say Q4, we usually see much higher volumes in getting from our customer base. So we're watching that closely as we go through this quarter. Cash flow from operations out of the last 7 quarters, only 1 quarter was negative, and that's Q1, and we've called that out previously, there was some onetime annual payments we made in Q1, but our strategy of continuing to generate positive cash flow is demonstrated in this chart here. So the quarter despite being in challenging market, we did grow our customers materially, which as I said earlier, an opportunity to convert into paying subscribers and reverse the trend of still negative growth on that metric. ARPA continues to grow. Our revenue, even though is flat quarter-on-quarter is up 8% year-to-date year-over-year. We have confidence given our deferred revenue balances are still high that we can continue to perform and remain cash flow positive. And with that, I will hand back to Sam.

[Sam Riley, executive]

Yes. Thanks, James. Look, we did run a Investor Day recently. It's posted on the ASX under the Announcements in Ansarada's Investor Relations section of our website, ansarada.com. So I encourage you to download the deck, but also the management team at Ansarada presented there and it's on video. So we outlined our sort of 5-year ambitions and intentions and strategy. And we broke that down into the objectives we need to do now. And as we do then, what will we focus on next and later. So I'll take you through what we're doing now. It's the time if you've seen that, encourage you to get under the hood of our strategy because we are quite transparent and detailed there to help people understand and understand their business better. So cash flow is a major focus and continues to be. As I showed you, we are really capitalizing on the demand and growth for ESG products. So we've launched one and we're working on another couple. And also our road map with our existing governance risk and compliance tools that we already have, which are leading practice. They've got over 100 customers on the multiyear ARR contract. As you define your sustainability approach, when you go to execute that as a company, the execution of it is largely in governance risk and compliance tools. So as we grow our ESG business, it is a natural driver of our GRC business as well, and it's one of our key strategies. Like we've said particularly ARR as a focus. So everything we do to maximize that is the focus, operational efficiency and we do continue to see a lot of [ unwavering commitments ], which gives us confidence on a few learning from those freemium customers who convert who doesn't, what works, how does it work, what content, what product experiences, that's a focus for us to improve that because that would help us grow our business running. So they're an area of 5 sort of priorities and that being said, I'll hand over to anyone who wants to ask questions.

[Unknown Executive]

Thanks, Sam. We have a question from Nick Hart.

[Nick Harris, analyst]

It's good to see that free cash flow jumping materially. I've actually got a couple, so I might just fire them all off, the easiest approach. So just the first 1 was just on the freemium growth, obviously, incredibly strong yet again, just trying to understand, is that growth -- is that all net new customers? So including you guys taking market share? Or are you actually maybe seeing a bit of existing paying customers kind of spinning down because they might say, well, I don't know if this deal is going to happen in the next 6 months. So instead of being a paying customer, I can become a freemium customer and obviously pay when that deal goes live. So it just is a little bit on cannibalization is really the question there. The second question on freemium was just the Microsoft side of things. I think about now you should have a bit on those that hit the end of their free period. So just are you seeing anything interesting that you could share with us or, I guess, data points that are useful. And then probably just my third question is just the cash costs, and they look like they dropped an awful lot, both quarter-on-quarter and year-on-year. So is that kind of a new cost base going forward? Or is there some timing issues there that make it look a lot lower than it normally would?

[James Drake, executive]

Yes. Thanks, Nick. I'll do the first one. So the freemium customer growth, about 1,000 of those freemium customers remain Microsoft. Just to kind of give you a answer. I think the second part of your question, which was are we seeing cannibalization? We don't. It doesn't -- cannibalization is probably not the right way of thinking about it because previously, when a deal went live or they were about to go live, they will contact us, and we would take ready to go in several months and then would go live in sort of 2 weeks. Now what they're able to do is they earlier on in the process we can get this room, we can get going on our tools and our Deal. We're kind of [ proud ] without the risk of a deal not going live rather than waiting to a point where they know it's going to go live. So we're basically moving up the funnel a little bit. So it's not so much cannibalization even though it seem like that, I think, in this market, a there's a lot more uncertainty about where the deals will go live. In terms of the market share comparison, we -- it's probably hard in this market sort of draw a conclusion, but we feel like the people are able to enter and start a deal with a lot of friction.

They're more likely to do that with us. And therefore, when a deal goes live, we already captured that business. So it is a market share growth tool in the future. It's going to watch the trends given some of the uncertainty in the market. I don't know whether Sam, do you like anything else want to add on there.

[Sam Riley, executive]

I think there could be a small percentage of people that got into -- that got to the deal and then for whatever reason decided to pull out of it and he pulls, cue but that’'s very, very, very low percent in each of those freemium subscribers and more of them actually relate to what James is talking about. But yes.

[James Drake, executive]

Yes. I want to add to what Sam's point there. We've actually seen a few people drop down onto our subscription. And always, subscription is a lower-value document repository-type product. But then a few of them have gone back into a deal. So they're over a period of 3, 4, 5, 6 months, they went down and then they're actually back up when the Deal went live, which is great for us and go towards the strategy of derisking the product phase for our customer base.

[Sam Riley, executive]

Yes. The other 1, Nick, just on the net new customers versus existing would be when you look at the Deal advisers that are coming through our digital channel, they will spin up a deal room and contracts to go with it, but they might get their client, their end clients to sign a contract. So they could be a deal adviser that's been using Ansarada for 15 years or 10 years.

So they're kind of like strictly speaking, they're a channel to us. They're not the end customer because they are not the ones paying us, but they're an existing channel -- existing customer, if you want to call them that. But there's a lot of that activity in our freemium subscribers as well. So as they eventually do get their customers sign up, that is almost always for us and any customer because that will be a new company with KPMG or Rothchild or who was part of it. So it's hard for us to break that down in our mix freezer a lot of what goes with the deal environment is confidentiality. So even though we're trusted by everyone for managing deals, advisers are hesitant to disclose their end client until they absolutely have to. So there is some of those sign-ups that get converted. Again, that relates just to the adviser portions of the sign-ups.

[James Drake, executive]

I'll go to the third part of your question, and then maybe you can remind me as a little one, Nick. But the third part around in cash outflows in Q3. Are they obviously [indiscernible] At Q3, because it's related to our seasonally low quarter actually has a lower cash outflow as well. Just to give you an example, December and January are pretty low in terms of particularly Deal volumes. Our marketing costs in that period we drop substantially to reflect those lower volumes. And so the cash outflows from our marketing spend or Q3 than in other quarters. And even in March, which is a stronger month some of our marketing costs at 3 day terms. So even the uptick in March, the cash outflow s of course in Q4. So you're right, it is lower than the other quarters. However, some of the efficiency and operational efficiency gains that we've looked to put in place, also lower our cash cost. So it's a bit of both, but definitely lower than you would expect going forward, particularly on sales and marketing side.

[Nick Harris, analyst]

Just to -- I guess my middle question was just the Microsoft freemium customers.

[James Drake, executive]

So it's still relatively early, but what we're seeing on there, there are a few customers that have entered and engaged in the product and -- but not yet at the capital raising phase and has been a few and to move on to the always product.

So that's been a bit of a key learning for us because in this market, in particular, in Europe very early stage selling up to a Microsoft or program. Funding was always uncertain, but to be more uncertain over the last 12 months. But those early signs of how the people stay active on the platform and utilize that always product that we only launched in November is where we're sustaining looking to do a higher conversion. But at the moment, the levels of conversion a lot compared to the total volume offering in customers that we have. So stay tuned on now.

[Unknown Executive]

We have a question from [indiscernible]. What measure the conversion of framing to paying customers do you have? Does it vary with the cycle?

[James Drake, executive]

Yes. So the answer is it varies with the cycle definitely as going to Q3, things go on pull things like that, but also is based on our products. We have different freemium to paid subscription trigger points. Like, for example, in our Board product, it's been out of Board meetings you had with the directors that use the product. On our deal is pretty much around when the deal goes live. Our average length of -- from freemium to deal triggers still less than 30 days, so still within a month. That very much depends on the type of deal when they signed up and how long the duration is. So at the moment we were not releasing all of the different conversion metrics, particularly it's in some of the sort of trends in the last 9 months of this financial year. But it does vary under a key focus of the teams, particularly our product teams.

[Unknown Executive]

Thanks, James. So no more questions.

[Sam Riley, executive]

Okay. Well, thanks, everyone, for joining us. We'll be back to report on the full year. And look, if you ever got any questions, you can e-mail us to investors at ansarada.com and we're happy to help anyone. Thank you.

[James Drake, executive]

Thanks, everyone.

[Operator]

The recording has stopped.