Firstwave Cloud Technology Ltd

ASX:FCT

Earnings Call Transcript

[Ruth Sloley, executive]

Hello, and welcome to the FirstWave shareholder webinar.

I will now hand over to Danny Maher.

[Danny Maher, executive]

Thanks Ruth. Yes. Thanks, Ruth. Give me a second to join now, so a couple more joining. So welcome, everyone, to another quarterly update following the end of our financial year and the latest financial results. So I'll just run through a quick introduction, then we'll have an update from Iain on our latest financials. Then I'll run through a further update on the business from me, where I've invited our Head of Product, Sharon Hunneybell, to talk a little bit about the product.

It's not going to be in great depth today, but I wanted to start shifting some of these updates to being a little bit more forward-looking and a little bit more about our strategy, which means as a tech company, we're going to be hearing a bit more from Sharon. So we thought we'd get us to talk a little bit today during my update. And then I'll facilitate some questions and answers from you all.

So first things first, here's our presenters. So we've got Roger Buckeridge, who's our new Chair, myself, Iain and Sharon. So before we get moving into the formalities of the presentation -- we can move to the next slide, Ruth, yes, I just wanted to say thank you to our outgoing Chair, John Grant, and introduce Roger Buckeridge, who's our new Chair.

John has been with the business for some time. It hasn't been an easy business to be Chair of, and we've got a lot to be grateful for his steady hands through times of great change and great improvement in the business, which has laid the foundations for our future growth. And I know it's customary to thank outgoing chairs, but I want to assure everyone that it's a genuine thanks from me as CEO and shareholder. So thank you, John, for your steady hands and reaffirmation in this company to leave us where we are.

And then, of course, I want to welcome Roger. So Roger was appointed a director on the 14th of July, and he became our Chair on the 18th of July. Roger, many of you know, he co-founded a pioneering private equity business, Allen & Buckeridge in Australia, investing $280 million in over 60 tech start-ups. And so he's a real pioneer of the tech equity sector in Australia, I guess, you could say.

I've had a long-standing connection with Roger as he was an investor in a company I was an executive of. And in fact, I was the only executive shareholder of a company called the NetStar Group when it was sold to Logicalis in 2010. So Roger was the partner there on behalf of Allen & Buckeridge that had invested in NetStar, together with Baring Private Equity Partners, and I had a small shareholding when we exited in 2010. So good to link up with Roger again.

Roger holds many Board roles. And he's a guy that's very committed to our growth plans and electing himself to take 50% of his remuneration in FirstWave shares, which he says is not enough. So hopefully, he can find his way into some more. I wanted to just get Roger to quickly say a few words as this is a big change to be changing chairs.

So Roger, I'll just hand to you to say a few words.

[Roger Buckeridge, executive]

Thanks, Danny. And I look forward to getting to know our shareholders better over time. I guess I'm delighted to be part of an ASX-listed tech company that has an interesting forward future in terms of its product plans and market penetration after a few years of change. So I thank and respect all of those who have launched the company to the state it's in today.

So we're starting from a modest presence on the stock market and our duty to the shareholders is to generate growth in this company so that, that can be reflected in the value of the company to its owners. And you'll see that will be the Board's principle, not the only focus. We have to look after our people and grow our people, but this is going to be an aggressive period of sales growth worldwide over the next period. And I look forward to serving the shareholders through this new role.

Thank you, Danny.

[Danny Maher, executive]

Thanks, Roger, and again, welcome aboard. I'll hand on to Iain to run through the CFO update, and then I'll be back after that.

[Iain Bartram, executive]

Thanks, Danny. In Q3, we provided data on revenue and gross profit split between the CyberCision and Network Management products. I have continued that practice in Q4 with this slide showing the revenue and gross profit results in total as well as split between CyberCision and Network Management.

Across the metrics of ARR, revenue and gross profit, there are marginal declines for all the categories and product split. The most notable percentage being the 6% decline in CyberCision revenue, which was only $43,000 in absolute terms and was in line with management expectations and due to the previously disclosed closure of Telstra's CSX2 platform.

Overall, the CyberCision revenue reduction was from contracts that were less profitable than the remaining CyberCision business and hence, has led to an increase in the gross profit margin by 3 percentage points, which in turn has led to an increase in the overall company's gross profit margin of 1 percentage point.

Looking at the cash position. The Q4 closing cash position was $270,000 with a further $643,000 in trade debtors. This was before invoicing for the Claro DR upgrade and the Microsoft and Telstra SIG renewals, which between them added another $1.5 million in debtors. The Claro DR upgrade of close to $400,000 has already been paid, and the Microsoft and Telstra SIG renewals are due for collection this week. In summary, the business has invoiced over $2 million in renewals and sales in the last 60 days and collection in full is anticipated prior to the end of August.

The normalized cash usage figure continues to decline and was under $200,000 for the first time at the end of Q4 at $195,000 per month. This figure is prior to any new sales and does not include an estimate of nonrecurring revenues, which if you include the Claro DR upgrade, have averaged $62,000 per month over the last 12 months.

As previously noted, the cash usage figure gives an indication of the business' current run rate from recurring revenue and ongoing costs prior to the business making new sales or experiencing any customer churn and hence, should not be taken as a proxy for short-term cash usage.

Now let me hand over to Danny for further commentary.

[Danny Maher, executive]

Okay. Thanks, Iain. So the first thing to touch on, and I'll go through a few of these deals in a bit more detail, was some great contract renewals, all with uplift or most of them with uplift that we had. So Claro Dominican Republic, Solarus in the U.S., Services Australia here in Australia, Macquarie Cloud here in Australia. We extended the Telstra ISM-compliant e-mail security agreement. So that's covering several government agencies. So that was -- that's extended.

We no longer need the partner services agreement with Telstra as we've indicated to the market. So that comes to an end. And the -- we secured a strategic partnership with Amazon and specifically AWS together with Ingram Micro to launch on their global marketplace. This includes funding that they give us to help integrating with the marketplace and to market to the users and partners that are on the marketplace. So that's a great new channel for us and something that we look to really monetize within our growth strategies.

CyberCision is now live on AWS, and we'll talk about that a bit more shortly as well with Open-AudIT and NMIS to follow this quarter. So we'll have all those products live on the marketplace. We've got a revised product strategy. We are focused on AI-powered AI-enabled compliance management and we're going to hear from Sharon in a little while.

So we invoiced more than $2 million in June and July. Actually, most of that is at the back end of July. So that included $500,000 to Microsoft so far. So that's -- they've been a great customer for us for some time. Raytheon, again, from the U.S., $580,000. That's for an 18-month renewal of NMIS. We added in some new technologies that we have created, which includes our Message Bus technology.

Now the Message Bus technology is a technology which allows organizations to really scale our technology. It enables them to deploy multiple servers and instances of our technology and see it all operating like it's one. That's a really cool technology and it's great to see these organizations taking that technology up.

Claro Dominican Republic, so they've upgraded to the latest versions of our software, and that was a once-off fee for that upgrade. And the Telstra renewal of $600,000 is a 1 plus 1-year agreement. So hopefully, we've been announcing to the market for some time the impact changes that Telstra were having on revenues in that part of the business.

So securing that as a 1 plus 1-year agreement to me kind of puts a bit of an underlying of that. So hopefully, we're kind of in a more steady state with that relationship now and we're able to build our business from here knowing more with more certainty what the future is. So great to secure that agreement as a 1 plus 1-year agreement.

Okay. So as I mentioned, want us to get used to hearing from Sharon. We are a tech company, and she's our Head of Products. And we are pivoting and changing the way that we're monetizing our products with a few key focuses. So I invited Sharon just to talk to us a little bit about what we're doing with our products and how that relates to our commercial goals.

So I'll hand over to Sharon, take it away. I will note that when we mention our revenue, we group Open-AudIT, NMIS and STM together as our Network Management revenues at the moment, and we separate out CyberCision.

So thanks, Sharon.

[Sharon Hunneybell, executive]

Thanks, Danny. So product development is being driven by 3 strategic pillars at the moment; the positioning and strengthening of our products in the field of compliance management, building out the automation and AI capabilities and, of course, commercializing our free and trial products. So for this quick update, I'm going to talk to each of the products at a time and then the key updates in the main areas that I've noted there.

So we'll start with Open-AudIT. And Open-AudIT, the greatest focus has been on the commercialization of the free user base. So next quarter, we'll see the launch of the new feed feature, which will allow us to have greater insights into customer activities and also allow us to market in-app to users [Technical Difficulty] time.

Now this is a really important update. Currently has such a large free user base, over 150,000 organizations are using that free product. And we've never really been able to interact with them or communicate with them because their products are all installed on-premise. So this feature allows us to understand more about the types of networks we're auditing, the features that are being most commonly used within the free products and it allows us to promote upgrades to Open-AudIT enterprise as well as to the broader FirstWave suite.

We're also launching a new commercial website, positioning Open-AudIT as a first step to automated IT compliance and that will be launched with target campaigns addressing the government, education and telco sectors in the next quarter -- in this quarter, sorry.

We've also been actively building our partnerships with Amazon Web Services and Ingram Micro. So Open-AudIT [Technical Difficulty] by Ingram Micro for the distribution-led accelerated development program. So this is a funded program to create campaigns and material and collateral to build out partner packs [Technical Difficulty] allow their marketplace.

We also have been building out the compliance capabilities within Open-AudIT with the introduction of security dashboards last quarter and the development of some new AI technology to detect vulnerability and threats, which will be piloted this quarter.

With NMIS, we've got -- we released a significant new feature very recently to automate the identification of root cause of outages and issues. And it also correlates all the related events when -- that are associated with those issues. So this is a really important piece of technology, very [Technical Difficulty] demand with our larger telco customers. And so that has just rolled out. This quarter, we'll also see the MCP server ready for beta testing. And so our internal team are looking at that at the moment.

If I move quickly over to CyberCision. So CyberCision have had a couple of product updates. We have delivered a new custom reporting feature. But the most important thing that we've been focused on with CyberCision is the SaaSification of the platform and adding it to the AWS marketplace. So what this means is that we can now sell CyberCision e-mail security to any size business from a few mailboxes to hundreds of thousands of mailboxes. It's got fully automated onboarding at the click of a buy button through the AWS marketplace.

And so Ingram Micro have welcomed us into another funded program. It's called their Box program, and we'll be creating a targeted and funded marketing campaign to sell to the public sector through that program that will be commencing this month.

Finally, STM did receive a full facelift last quarter. So we released a completely new interface across the entire platform, which makes the dashboard simpler, it makes navigation easier to use and it makes those compliance features as well much easier to navigate. And we've also been working on some new partner collateral case studies and sales aids for STM as well to increase the sales of that product.

So that's a quick update on everything we're doing in the product sphere with lots going on, and I look forward to giving you the next update.

[Danny Maher, executive]

Okay. Thanks, Sharon. So just a really quick look at some of the things we're doing there. I guess I'll note the MCP server that Sharon mentioned is in testing for NMIS. That is the model context protocol for AI. So that's now in testing. We will release that in about 3 months.

And so that will now enable people to query and access the data within our products, which are on-premise using their choice of AI agent, whether it's Grok or Claude or OpenAI, whatever it is, they'll be able to use their AI tools in conjunction with our technology, which holds all this extensive amount of data, which isn't available on the Internet, but it will be available through our model context protocol server for AI, which is currently in testing and we will release in 3 months. So thanks, Sharon.

So -- what does that mean for the outlook of the business. So we've got some good inflows coming in for Q1, which is great because we're coming off very low levels of cash. So fantastic to get those renewals and uplift and new business in the last 60 days. So that's -- we've got more than $2 million of cash to flow in, in August. Keep in mind, these are blue-chip customers, so you don't have a lot of problems collecting these debts, they pay on time.

Operational efficiencies. So we've seen our normalized cash usage continues to come down. As Iain mentioned, it's under $200,000 for the first time ever. It does continue to improve and we continue to look at further operational efficiencies, particularly around the technology platforms we use and hosting costs and those types of things.

We've -- we have had a Board and strategy renewal. So the Board -- I just wanted to note that the Board will continue to examine inorganic as well as organic growth opportunities and we'll continue to consider all available options for us to derisk our growth plans and to deliver on the growth. We get a lot of questions about investors, are we going to do this? How are we going to do that? We're looking at everything we can, particularly with a new Board.

We've got a sharpening focus on our key goals. So there's some very -- these are things that we're going to focus on; monetizing our free user base, targeting AI-powered compliance management and building on some strong momentum. We've got blue-chip clients, in particular, in Latin America and the U.S. So that's our focus. So we're going to be talking to you all more and more about these strategies as they evolve. And trying and be in sync with the market on where we're heading.

Other than that, I'll invite some questions from everyone. Thank you.

[Danny Maher, executive]

Okay. So we've got a question here. So I've been a long-time shareholder, very, very excited to have Roger and his networks involved, who will hopefully become equally aligned and incentivized with shareholders that have supported this for years and years. Awesome news that the company desperately needed. Good luck team. Let's get some real revenue growth and the share price will go parabolic as the market starts to notice.

Regardless of how you slice and dice the valuation multiples or compare against recent software tech takeover multiples, we are far too cheap at $25 million market cap with little debt, [ 10 via ] upside, and we are still a tiny $25 million market cap global tech company -- sorry, we're still a tiny $250 million market cap global tech company after we go 10x.

Yes, we believe there's big upside in this, but a lot of it's on how we execute. So thank you for those comments. We're all in it together. I'm still a large shareholder. I'm on the line here, and we're working hard for you all. And the foundation has been laid to change this company. So it's taken a long time to get to this point. So let's go.

Another comment, welcome, Roger. Great to see you here. Being a long-time shareholder, it's welcome change. Despite positive sales activity in NMIS, it has been noted that several FTEs, including those with experience across both CyberCision and NMIS were recently made redundant.

At the same time, a number of individuals have been appointed to senior roles. These appointees appear to have prior professional ties to Danny. This is a bit personal anyway, but limited familiarity with FirstWave core product for comparable leadership experience.

I know this is quite an appropriate comment, but I'll keep reading it out. Could the Board clarify the rationale behind these decisions and how they align with FirstWave's strategic priorities and long-term business goals? Additionally, how does the company ensure the appointments are based on merit and relevant product expertise rather than personal associations in order to maintain internal morale and strengthen shareholder confidence? There is growing concern that share price performance may reflect internal decisions to see to lack objectivity.

It's a fairly pointed comment. So if you look at the appointments, Sharon was a founder of Opmantek. So she's been recently appointed as Head of Products and we've restructured there. We just heard from her. She has deep expertise in our products. So it's quite an odd comment if you -- because you're referring to executive appointments here.

So I find it quite an odd comment that we've seen CyberCision revenues go significantly backwards. They're down -- CyberCision revenue is now $1.4 million per annum before we pay Amazon costs and before we pay third-party COGS. So it's absolutely critical that we have to remove resources that are no longer required. We no longer have a product services agreement to -- for CyberCision and we have very reduced revenues.

Telstra is -- now we have some customers going through Telstra Purple, but the actual Telstra's customer is basically one agreement now. So we absolutely have to align our costs with that. And the reduction in revenues of CyberCision necessarily means reducing the resources that are related to delivering that. We have less that we need to deliver.

The executives that are appointed all have experience in our core technologies and I don't really see who they are because we've actually reduced the executives. There's only 3. We only have 3 executives. Well, we only have 3 people with staff that report to me. [ Jason Tam ], Sharon and Iain.

So...

[Roger Buckeridge, executive]

Danny, could I just interject. I have a comment there. The point of having a professional Board, it's just a small Board with Dave and myself as nonexecutive directors is our role is to work with Danny to make sure that we hire first-class people from the global marketplace without fear or favor about prior affiliations.

So I'm getting to meet all the senior team over the last little while and in the next little while, I'll meet them all. And basically, we've got to have a merit-based growth plan for employees and we need to have personality neutral but merit-based human resources program. And that's -- those conversations I've been having with management as I familiarize myself with the company.

You can't have a strong growth plan without having a sales force globally to take us to where our opportunities are. We are short of salespeople. That's priority #1. And those -- the people we need in sales aren't going to be living in Australia. That's reality. So we've really got to put a foot on the accelerator over the next quarter to start to remedy those things. These people cost money, but there's no use being shortchanging yourself by hiring second or third grade people. That doesn't fly.

So I think that -- and Dave, I know is on this call listening in, but I think Dave and I are there to back up Danny full tilt in terms of getting this market-facing structure of the company right for the opportunities coming through the technology. I'm pretty optimistic because you've got a technology base here of products, which the market obviously likes and wants to take advantage of. We've got to put it in front of them.

Thanks, Danny.

[Danny Maher, executive]

Yes. Thanks, Roger. I know that comment was put in anonymously, but I still had the courage to read it out. I suspect from someone impacted from those changes. But I apologize to the people in the company that have been impacted by the changes, but our revenues and our business has changed enormously and we have to change with it. We have to have our costs aligned with our revenues and we have to have our resources aligned with where we're seeing our growth opportunities. That's a normal part of business and we make decisions together in the best interest of the business and shareholders.

[ Joel Spagnolo ]. Welcome, Roger. Fantastic to have you on board. The communication level in the last 3 months has been impressive. It's a breath of fresh air.

Thanks, Joel.

[Iain Bartram, executive]

There was a question before that one, Danny, another anonymous attendee. -- are you comfortable with the low cash balance given you have mentioned potential M&A opportunities?

[Danny Maher, executive]

Well, Roger can talk to that a little bit, the M&A opportunities. It's very uncomfortable operating a business, particularly a public company with the levels of cash that we have had. I'm very pleased to get the renewals out of the way. We're entering a period now where we don't burn any cash. So it's a lot more comfortable now and we've got the collections from our clients to come in. But there's a lot of balls in the air and a lot of things that we've got to look at. And I might get Roger to address potential M&A opportunities. But M&A, there's a lot of things we can look at that change the cash position of this company. There's a lot of things.

[Roger Buckeridge, executive]

One of the exciting things about having an ASX-listed company rather than being a small cap private company, which, of course, in my background other than venture capitalists have all been private. And it was always a dream to get a public listed -- public offering out as a route to liquidity for the long-suffering investors through that start-up and growth phase.

But you have a listed company. It's small. It's smaller than it should be for it to have that listing and we've got to remedy that as fast as we can. We've got to get support from institutional shareholders who are not on the register at this point in time and we're having active discussions about how to do that. Part of that may be by using the shares that we have as a currency to acquire other complementary companies, hopefully, with revenues, but all with complementary technology as a secondary focus.

And we'll spend a bit of time on exploring that opportunity and not just companies that operate in Australia. Our marketplace is global. It's very much in the Americas at the moment, but it really is a global opportunity and we have to figure out what companies can help us penetrate those markets. So that's the issues the Board will be focusing on in support of Danny and his team over the next quarter, not the next year, the next quarter. Thank you.

[Danny Maher, executive]

Definitely go time. Well said, Roger and Danny, don't take the negative comments to heart, ignore the people complaining. This is an enormous opportunity and I will continue buying on market, way too cheap here, silly not to buy more shares in my opinion.

Yes, look, thank you for the support there and the comment. We had -- as people who read the 4C would have seen there's been more restructuring. We have had revenue losses in the CyberCision part of the business. And we have had to realign. And it's obvious those comments from someone that's been impacted internally from those alignments or know someone that has been. But it's an unfortunate part of business, but something we've got to do. So thank you for your support there. And we're all in it together.

[Roger Buckeridge, executive]

Could I just say one thing -- can I say one other thing to that, your comment, Danny. We're at a time now of extreme disruption in the IT industry broadly. You can't avoid it. I mean the AI thing, the Agentic AI thing is a terrible bit of jargon already. It's been diminished in most people's minds because it's talked about by everybody, thinks is a good marketing line to deliver.

But my judgment coming into this company is we actually have some products which are highly likely to be more attractive to a broad customer base by adoption of some of these technologies. So we need our technology team to be at the front line of expertise. This isn't stuff we're going to buy by outsourcing. We've got to build on the IP we can generate internally. And having that much quoted premium user base of 150,000 users who apparently are not just individuals buying a premium thing because they didn't have to get their manager's permission to do so, but are actually companies.

Getting that properly understood and demonstrating by our performance that, in fact, we can monetize some number of those. There will be a small number initially, but getting that breakthrough using these extra technologies to enable us and make it cheaper for people to pay money through the AWS and Box initiatives. They're potentially transformational things for the status of this company. So you'll pardon us if we focus on that as a winning strategy to demonstrate the inherent value of the stock as against what the market awards are today.

[Danny Maher, executive]

Thanks, Roger. Probably some good comments to close on if there's no further questions. No further questions.

All right. Thank you, everyone, for your support. It's all go here at the moment. It's an exciting time. So -- but plenty to do and we look forward to updating you further on our progress.

Thanks, everyone.

[Roger Buckeridge, executive]

Thanks, everyone.