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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and welcome to the CV Check Quarterly Investor Webinar.[Operator Instructions] I'll now hand it over to CEO, Rod Sherwood, for the presentation. Thanks, Rod.
Thank you, Simon. Good morning, everybody. Thanks for joining us. I will just dive in and take a quick look through this and then get into the Q&A before wrapping up within the half end. So this is a presentation on [ CV Check's ] results for the financial year '20 and also give some steer on how we [ went around COVID-19 ]. It's been an interesting period, but we've come through quite strongly, and businesses largely back to normal running. Firstly, I -- my screen is frozen. Now I'm back. So an introduction to CV Check. We're a screening and verification business, and we enable that with technology, provide solutions for large enterprise, SME and individuals. Over time, we've built a very resilient, high-ARR business model. And our revenues are very diversified. We've got a very, very broad B2B customer base. Our organic growth is being leveraged now by our strategy for HR tech integrations that's increasing our addressable market, and we're starting to see that convert. We have a very strong balance sheet. Our cash balance is $4.6 million. We have no debt. We continue to stay on our technology investments, and I feel that management has proven their capability on COVID-19, one which was strong, and we're now poised for growth into the recovery. Throughout COVID-19, we've been winning customers. A number of the customers on this slide are new wins. What we've seen is that those customers tend to take a lot longer to turn on after we've won them, but we're seeing that through June, in the second half of June and now. Those customers are coming on and ordering in strength. Many are having to catch up on past work. Over recent years, we've built a strong B2B model. It's been a sustained progression starting in 2016 with the New Zealand acquisition. We bought a business that was in the screening industry, and we enabled our tech into that business. It's grown strongly since. We prioritized the pivot into B2B thereafter and a focus on becoming self-sustaining through growing returning revenues that's proven successful and in 2020, our ARR that we booked. So this is revenue booked through accounts in the 12 months ended 30th of June, reached 9.6 million. So great effort. We also, during 2020, expanded our management and business development teams, so we're very much poised for growth into financial year 2021. That seems to already be occurring. Our go-to-market is quite simple. We have -- we've concentrated initially on direct organic growth. We have sales and marketing targeting B2B customers. And as a consequence to that, we also get referred a lot of individuals who are referred by businesses to use CV Check to get their credential stuff. And more recently, we've complemented that with expanding our addressable market by teaming up with HR technology platforms to handle people risk management and workflows on candidates and people in employment. So that broadens our addressable market, and it leverages our direct organic positioning. So that's been successful, and we'll come on to that shortly. Through that period, you can see here from '17 to '20, we have continued to grow the business. B2B is our focus. And even in 2020, a year afflicted with drought, fires, floods and more recently, COVID, we did manage to grow our ARR, so a tremendous result for the team. And you can see there also that our B2B revenues are a very strong component of our business, over 70% now. I referred earlier to our integration strategy, where we team up with HR technology platforms, and we integrate in the back end. So they can pull us down to cloud-based service for background screening and verification, our specialty area. Each one of these new integrations expands our addressable market. We've tended to have 2 or 3 builds in play each quarter, and that's the case again currently. So far, we have 10 or 11 of these in place, and you can see there that from inception and pilot in FY '18, that's now gaining traction, and it's giving our teams in the field, our business development teams, an edge when they're coming into their tenders. So very pleased with the success that we're experiencing there, and we expect that to continue. The other element on this chart, which is quite interesting, is we have a multi-product platform where people can get a comprehensive screening service done on their candidates. And you can see here that the average checks per order in the client base that we engage with on these technology platforms has expanded from 1.5 to 2.5 checks per order, and that helps underpin our gross margins. I said earlier that our revenues are broad-based. Entering COVID, we took a snapshot of our Q3 industry split. And you can see there, it's very broad. We had low exposure to hospitality, tourism and education and also retail. The rest of our business is also quite broad and is where there are high compliance needs in sectors. We had a bit of a dip in the changes in composition as we progressed between April and May before June resurged, and we can see there that it's back to very similar to where we entered COVID-19. So we're very encouraged by that. It's continuing, and we expect, presuming that this incident in Victoria doesn't blow up dramatically, it may lead to a sustained recovery, we shall see. On the COVID-19, our management team acted very decisively very early. We saw from 23 March that society would be impacted quite badly by COVID-19, business itself, and it was uncertain. I think that it's unprecedented in our lifetimes to have an event such as this. So we navigated it by taking out all of our temporary costs, our casual costs for labor. We bed down the cost base across the business in rentals and everything else, and we did that in the first 2 or 3 weeks of April. So that by the time we got to May, a lot of our costs were taken out, and our cost base was aligned to what was happening with revenue. So we've increased the amount of casual and temporary response. So it means that as this volatility continues, we can respond with customer service, at the same time, deal with the fact that COVID may throw us a few more curveballs yet. Our focus has been on maintaining our teams intact, making sure that our workforce stays healthy and delivering a full-service to work-from-home customers, and that's been very successful. So we're now poised for growth and leverage B2B growth as the economy emerges from COVID, but we're subject to the economy genuinely emerging from COVID. So we'll see that we retain flexibility to respond should we need to. This is a historic of our cash flow performance. I think it mirrors that repositioning and validates the strategy that we adopted. Even through FY '20, where we adopted a growth stance and brought on a lot of C-suite executives and BD teams, we managed to keep that at a sustainable level. In Q3 -- towards the end of Q3, we elected to prepare very robustly for COVID-19. So we paid down creditors, really cleaned up our balance sheet and then adopted a week-to-week cadence. So we have that 1 quarter, and we contained the impact of COVID-19 within that quarter. I think we've done that very successfully, and congratulations to the team for the way that they responded. The cost savings that we made did outpace the revenue decline, and the balance sheet will reflect that as we go forward. Should the economy continue to bounce, we'll see that the company is much leaner and in a much more leveraged position to recover. Technology investment is ongoing for CV Check. It is a key to us maintaining an edge in high customer service. Our teams adopt and embrace technology at their core. We've migrated the company into the cloud over the last several years. Privacy and security are embedded by design. We have a multi-product platform, which gives us an edge inside the market. And our integrations in [indiscernible] are a sustained, ongoing investment, increasing our addressable market. We are a workflow automation and adoption of AI company. It's how we work. We use it in all fields of our business, from cybersecurity to the way that we process IDs, and we expect that to continue. Finally, just wrapping up so that people understand where we started again. We're an HR tech business. We focus on people screening and verification. It helps people in the management of their people risk. It's a sustainable and growing business. We're ideally positioned post-COVID, and we have optionality in local and international markets through the breadth of our business and our customer base to be able to leverage into new opportunities. We're very excited by our positioning as we go into '21. Corporate profile. You can see there that the market cap is rather modest for where we're performing. But our gross margins sustained strong ARR, strong revenue and a fantastic and strong balance sheet. So we're really well positioned for our business. And with that, I'll open up for the questions.
Great. Thanks, Rod. [Operator Instructions] First question, "Have you looked at expanding into other identity verification verticals such as financial services?"
We already provide services in that space. We team up with the FBAA which is a mortgage broking outfit, and we work with a number of suppliers who help people get their AFSL and work with APRA and so on to maintain compliance levels in the financial space. We have a very broad customer base in there, ranging from some of the largest banks across Australia and New Zealand to broking houses in stock market and mortgage brokers. So we already are in that vertical. It's an attractive vertical for us, and we're continuing to grow in that space. The revenue size of that opportunity is very large. as you can see from the Banking Royal Commission and various other things that are going on in wealth management. There is a need for a change of culture in those sectors. And indeed, we're seeing increasing regulation and compliance needs emerge in those sectors, and we're working actively with the regulators and key peak bodies in those sectors to benefit from that. The key part of that sector which is intriguing is the fact that there is so much broad-based screening which is required to ensure that the candidates are of caliber, but also the integrity needed to work in the financial arena. It is viewed as somewhat of a honeypot by certain individuals in the sector, and it leads to abuse, and that leads to Royal Commission. So we can certainly help companies improve their culture and improve their compliance and meet with the regulators' needs in that space.
Our next question, Rod, "What are CV Check's ambitions for overseas expansion?"
We're already seeing quite a bit of inquiry on the overseas side now. It's reversing quite, so it's coming to us. People may be aware, but we are one of the founding companies for the global Professional Background Screening Association. We chair, through one of our people here, the Australian chapter, co-chair that, and we participate in that regularly. This is a group which is large screening companies and multi-product screening companies, which is global in reach, and we serve a number of those already. And recently, we've been getting an increasing amount of inquiry where they need our services to screen candidates across Asia Pac, and they recognize the caliber of what CV has -- CV Check has and its platform. So there is opportunity there. We're formulating a more robust response to the extent of that opportunity right now, and we'll respond when we can and convey that to market. But it is an exciting development. And certainly, the recent wins, the ones that we've had these last 3 or 4 weeks in that space, have been very attractive. So we're pretty excited by it.
Great. Thanks, Rod. Next question, which is sort of linked to that is, "Who's your main competition? And how does your tech rate against them, both in Australia and overseas?"
I think there are a number of international players, amongst them are First Advantage, who recently got bought by Silver Lake. We have -- the Equifax Group have a number of entities globally. And Sterling Group who own RISQ and National Crime Check here in Australia are also in that space. So multiproduct screeners, we're not alone. It is a competitive marketplace. But that multiproduct nature and the depth of compliance knowledge required to serve it, coupled with technology platforms such as ourselves, that is actually quite hard to replicate. It requires supply chains. It requires industry knowledge. It requires frameworks and standard setting, influence and so on. So aside from the technology itself, which is very good, you also need these other supporting factors. So there are a lot of barriers to entry to get to a particular market size. We can and are competing with the world best, and that gives us a lot of encouragement for what we can do domestically and ways to explore overseas expansion. So our technology is amongst the best in the field, and we embrace it warmly. It is a key to improving the candidate experience but also the way that companies can manage their risks.
All right. Thanks, Rod. Next question, "Can you talk to trends regarding average revenue per account, churn, retention, duration and margin?"
We can. Margins during COVID-19 were sustained. We didn't see a great deal of pressure. A key indicator that we look to on that is the number of checks that we have per bundle and the ratio of that. And if that's expanding, that there are more checks per order, then our margins get supported. At the moment, we're running at near-record levels. And during COVID, we didn't see that come under pressure, so that's quite encouraging. On the upper side, we saw, during COVID, that there were a number of companies that suspended hiring and suspended screening with their workforces. Primarily, they are in stand-down mode, and that did have an impact on us. We reflected that in our update last week where we saw our revenues in April fall [ 24 ], in May, they were down around [ 32 ] against July last year -- sorry, by the same period last year. And June, it recovered somewhat; in July, the same. That said, the average revenue per account under COVID did not adversely impact us when we look at the full year ARR. Our margins were supported as well. The number of customers remain the same. And what we have seen, though, is that we took a little bit of a knock to the headline, total amount of ARR in that final quarter. That has now, in these recent weeks, reversed, but we'll see if that's a sustained reversal and we continue to grow. But our expectation is that growth will accelerate from here.
Next question, "How quickly is the revenue from HR platforms growing on a quarterly basis? Is the gross margin on this revenue similar to the group average?"
Gross margin is higher than the group average. It's growing on a quarterly basis. I think that chart illustrates how much. Certainly, during COVID, you would have expected it's taking off, and it didn't. It actually went the other way. So we are seeing very sustained growth there. It is critical, I think, to large enterprise growth, that strategy, and it's been proven. I think the chart that we have earlier in the deck illustrates that. What we have seen is it more than doubled this past year, and the prior year it quadrupled or near quadrupled. So we expect that to be sustained.
Next question, "Can you talk to the progress with integrated partners and expectations going forward and also an update on the xRef integration?"
The xRef integration technically is all done and is producing revenues for both parties. We have been teaming up together for some of our pitches. We're doing really well together in New Zealand, and in Australia, it's coming together quite well also. The overall key to these integrations is that they unlock pools in customers, which you otherwise can't play. So if I use an example, there will be companies which are large and have a need to manage and stay on top of through information systems their workforce and their compliance, they are already embedded in most of these customers. So if you think of an enterprise like SAP, you'll go in into a large ERP installation into a customer. Once they're installed, the customer has customized maybe 10% or 30% of that environment, and they want their people to work inside that environment. So from CV Check's perspective, we can provide a background screening solution to that provider and to those customers, which, provided we have integration in place and the customer is aware of it, they can just pull it down to another unit out of the cloud and plug it in. And we're doing that in each and every one of these cases. Key, though, is we retain the direct customer relationship at CV Check, and the integration simply facilitates it. So we set up bundles, we coach them on what they need to do for maintaining their compliance needs, getting a full picture of their candidate and so on and so forth. And we do that directly with the client, set up their users, set up bundles by job roles and so on each time we onboard one of these clients. Once that's there, the user can move, the next user comes in and they're already pretty set up within their system. They don't recognize it as anything else by. But when they need some information on a particular result, it may be that there is a candidate where there is a flag on a particular result, maybe bankruptcy or it could be that a qualification doesn't fully check out, then they can speak with us, and we'll give them some deeper insight into that. So we maintain direct customer dialogue in each of one of these -- each of these integrations. The integration itself is an enabler because it's how those companies drive their compliance and their workforce management.
Next question and final question, Rod, "Is there an expectation of consolidation of players in this space?"
I can't answer that. To me, I see a burning need for consolidation of this space in Australia. There is simply not enough addressable market for a plethora of people to be in it in its current form. And a lot of companies that are entering this space over the last 5 or 6 years are probably losing a lot of money. They can't sustain the tax spend, they're not large enough and they're not going to be. So I do see a need for consolidation in this space. And should anyone be in a position to do so, it is us.
Great. Thanks, Rod. I'll just leave with you for any closing remarks, and then we'll finish the call.
I think I'd firstly like to thank all of our shareholders for their patience through this period. This past year has been very challenging externally, not within CV Check. And from our perspective, we've executed really, really well. We've continued to win business throughout the last 6 months, under COVID. A number of those clients are now turning on, having been delayed by COVID themselves, and we're seeing acceleration in our return to normal. However, we must continue to be able to remain agile and adapt to the curves that the COVID is throwing at us. And meanwhile, we're getting on with doing our business.
Great. Thanks very much, Rod, and thanks, everyone, for joining. That now concludes the webinar.