Kinatico Ltd

ASX:KYP

Earnings Call Transcript 2024-Q3

[Craig Sharp, executive]

Hello. Welcome to this Kinatico quarterly webinar. My name is Craig Sharp. I'm the Company Secretary and General Counsel at Kinatico. This webinar will be recorded. So if you are having any connection difficulties or you miss anything, it should be available on the Kinatico investor page shortly or actually afterwards.

We will -- we do have a lot to get through this morning. We are hoping to have some time for questions and answers though at the end. [Operator Instructions] We may get to them during the course of the presentation, or if not, we'll hopefully have time at the end.

Can we have the next slide, please? This presentation is intended for general information, but Kinatico and no one here is Nostradamus. We do not know the future. Any forward-looking statements are based on our reasonable assumptions that are based upon our reasonable knowledge of the facts as we understand them at the time. And of course, anyone making investment decisions [indiscernible] do so on their own advice, taken in light of their own personal circumstances as appropriate.

We move on to the next slide, please. Kinatico, as always, acknowledges the traditional owners of all the lands on which we meet. In this morning's presentation, both Jason and I come to you from the lands of the Whadjuk and Noongar people. I pay my respects to their Elders, past, present and emerging.

Can we have the next slide, please? As I said, my name is Craig Sharp. I'm the General counsel and Company Secretary. Michael Ivanchenko is our Chief Executive Officer. He is going to take over the presentation from now. So I'll hand over to him.

[Michael Ivanchenko, executive]

Thank you, Craig, and good morning to all of our attendees, and good afternoon to those of you in New Zealand. Look, today, this is the first time we've actually done one of these webinars. It is our intent to do these from now on every quarter to give a bit of information around our performance, our views on where we think things are heading, what we're trying to achieve and a bit of color around underpinning not only the economic conditions that we're operating in, some of them favorable, some of them not so much, but also further clarity around the vision and the strategy that we are looking to achieve.

So I'll be going through some of that background information today followed by Jason Margach, our Chief Financial Officer, putting a bit of color and detail around our numbers performance, not only for the last quarter, but I think significantly, as we've seen now, the trends that are -- we've seen emerging for some time, but we've got enough data there to start sharing some of the information around the performance. And what we're seeing is a result of our pivot towards the clients compliance management. And then we'll hear from Geoff Hoffmann, our Chief Revenue Officer, around our sales performance, our approach, what's been working, what we are looking to do into the future.

We've received a number of questions and queries over the last couple of days since we announced the webinar. We're going to attempt to answer the ones we can in the course of the presentation where we've looked to integrate those questions and answers or verbally as we go. And hopefully, we cover them off and look forward to what I'm sure will be many more questions at the end.

So next slide, please. So a little bit of the intro in terms of the background on our current status. And it's one of the things that I've certainly been talking about over recent months, quarters, et cetera, was the evolution or even the history, quite frankly, what I refer to as the legacy of the business in purely screening and the clarity that we now have about what I am calling a successful pivot into simplified compliance management and reducing the administrative burden. That is our sweet spot.

It is around helping businesses not let the important role of compliance management get in the way of their daily operations. The more of that administrative burden we can simplify, automate and at the same time provide trustworthy clarity and detail and insights that aren't otherwise available, that is where our value lies. That is where we are getting resonance and success.

So it is fair to say that CVCheck, still recognized in the brand, it is Australia's leading screening and verification business. But we've now evolved into a provider of simplified compliance management. Something we don't talk about a lot simply because we take it for granted. It is our DNA.

Our primary value is that the privacy of data is our highest priority. We go through regular audits for our 27001 certification in terms of data security and privacy. We've just had it renewed again. And for those of you not aware, that is a multi-week audit with multiple weeks prior to that in terms of preparation and requirements to actually demonstrate that. And on this occasion, we've passed it with literally no issues raised whatsoever.

And for those of you familiar with ISO audits, these aren't -- issues being raised are not necessarily a negative. It is just something to highlight that could be improved. Well, we got a totally clean slate across the board. I'm very proud of the team for what they've achieved there.

In terms of the context of all of the trends and our position, it's worth reminding all of our listeners that we launched simplified compliance in July '22. And in many ways, you can view this as the start-up launched at that point. And now we're talking about our progress of that evolution of that business to today.

And we continue to have this incredibly strong pipeline of existing customers that have transacted with us over the years, but they are one of our key assets in that we're not starting a pipeline from 0 of cost of acquisition that involves finding these companies and building up a relationship from start. We're starting from a very strong position already. And certainly, that's helped us in terms of the evolution of where we are today and where we're going.

So it's worth noting now that our SaaS revenue since launch of simplified compliance has grown over 300%. And as of this quarter, we've ticked over the $10 million annualized number. And as a result, we've also increased our gross margin from 64% to 68%. Now that's still a fair way of where we are intending to get it, but that is the blended average. It's still being affected by the transactional side of the business, but it is the SaaS side of the business that continues to increase that average. And certainly, as I say, a key focus for us to continue to do that.

That growth is our focus. That is where we see the business going. That is what we intend to continue to build. And of course, we've done that transformation in taking the company profitable at the same time. And again, certainly something we intend to maintain.

Next slide, please. So sharing a little bit of the strategy. I've certainly spoken about it to a number -- when I've spoken in one-on-one or in various presentations, et cetera. But we thought it was worth putting down the status of where we're at and where we're going to provide a little bit of further clarity.

The way to think about the business is with the 2 key product headings. CVCheck is not going anywhere. We will continue to maintain it. It is very, very effective at bringing new businesses into the pipeline. We can almost look at it as a sales acquisition tool moving into the future.

It is my belief. It is the company's belief that the availability of verified digital information is only going to become more widely spread and more accessible. We are seeing every state government, we are seeing our federal government with a real focus on enabling the digital economy. And having a trustworthy verified information is a key tenet of that.

So certainly, if we were continuing to view that as our primary business source, our purpose, I'd be nervous. But we're not. The verification of information, as I say, is a very good way for us to actually introduce ourselves to organizations. It is a great way for us to take them on the journey of the benefits of automated simplified daily compliance. And if that's where they start with us, then that's fine.

It is also can be seen into the future as a bit of a loss leader or sales acquisition tool for the broader engagement. Ultimately, I believe that information will become freely available. And at that point, it in essence has the effect of continuing to drive a key ingredient into our compliance business but does so at a much, much lower cost.

So the net effect of that transformation that is inevitable to the industry for us is a key benefit in improving our gross margins as opposed to being potentially a death now for a business whose -- that is their only side of the business, which is then the other part of our business.

And I'd like to point out, for the first time, we are showing you the logo that you will be seeing more and more of for Kinatico Compliance. And so with our 2 key products of Kinatico CVCheck and Kinatico Compliance, and the Compliance product is all about driving simplicity, efficiency, automation into the administration for businesses around their compliance management.

It is about being an aggregator for all of the compliance information in that business. It's not about trying to be all things to all people. People that have sources of digital credentials or existing HRIS or payroll, enterprise, applicant tracking systems, risk and management tools, for me, they're all sources of data.

What -- the value we bring to the organization is simplifying the aggregation and presentation of that information, about automating and reducing the burden of getting that interaction between workers and organizations and doing it in a secure way that minimizes risks of private data going out over the open Internet or being stored in systems that weren't designed for data security.

So the -- it really is the case, and we'll see when we hear more from Geoff in particular, the thing that is resonating for us in the marketplace at the moment is simplicity. Every time we can simplify an increasing administrative burden is going on, the more successful where you're being at the moment.

And then worth pointing out, the other benefit that just goes without saying of the pivot that we've undertaken, the credential validation business in Australia or for that matter globally is a fraction of the size of the value position that can be attained via full compliance management. And one of the reasons for that also not only is the consequence of compliance management failure so much higher than what is effectively a just freely available number of providers of credential validation is that in every market, from an international perspective, you're back to source data requirements, the legislative requirements very massively.

In terms of scaling simply a verification business, it's very challenging. Scaling a simplified compliance management business is very different. So when we look at the phases that we've been focusing on, Phase 1 was the development, the launch of the simplified compliance management. We've done that.

And I've said this to a few people I've spoken to. What was keeping me up at night was confirming market demand. Was this pivot the right one? Were we moving into a space that made sense? And again, I'm going to say we've done that. The evidence in terms of our SaaS growth, the knowledge of where our pipeline is at and growing has well and truly confirmed for us about the market demand. And we've certainly started commencing deployment into that space, again, as evidenced by the SaaS growth.

We continue to refine the market offering. Geoff is going to go through a bit about how we go about that with our market research and our feedback, et cetera. Being customer-led is incredibly important. It is a key focus of how we operate. We continue to learn. There is continually -- there is more to do.

For us, that focus is all around speed to deployment. At the moment, it's taking us probably 3 months to get a new large enterprise up and running in the platform. We need to get that down under 4 weeks. And a lot of our software development and our focus around that road map and things that we're doing, that is where it's targeted. That is what the market is asking for. Self-config, the ability to self-deploy are all going to be key.

So as we get to the end of Phase 2 and moving into Phase 3 is where we move from that confirming market demand and to actually start getting much larger accretive growth. I don't think we can get that real accelerated growth until we have the self-service functionality until we have that ability for new organizations to simply run with it and use the tool set that we have in development so that they're not relying on us or our professional services division to actually help with getting them up and running because, again, that creates a scale issue.

But the other part of that is having reached that stage, we start deploying further features that start increasing revenue per customer. And we've already been successful in that versus historical measures, and Jason will go through some of those details. But we think there is a much larger opportunity there in terms of data analytics, insights, presentation of further benefits across the organization.

But then the other thing that we're seeing is that sales get sales. Every time we break into a new area or a new sector, we're finding that leads to further sales that are connected to that, whether that is because of the portable workforce that we've seen a lot of the industries that we're playing with, whether it is because of the demand and the solving, the simplification of compliance is so pressing that when somebody does present a solution, it is seen it is leading to further discussions and in our case now further sales.

Having achieved that, our Phase 4 position is where we actually deliver on the idea of being the -- truly the trusted aggregator. We intend to publish all of the APIs into our platform. We will make them freely available. It is about enabling a marketplace where other compliance vendors can actually feed into the ecosystem.

They can continue to add value for whatever it is that they do, whether it's an LMS system, whether it is a provider of industry-specific compliance requirements, can actually feed and then build business around the value that they bring to the chain but have all of that data aggregated and the single source of visibility for an organization perpetuated through Kinatico Compliance, also then providing that unified secure channel, automated channel to workers via the on-site app.

Whenever we share that vision with organizations, we find it is very well received. That vision is the one that we will take international. That is the one that has international relevance. It is relevant irrespective of jurisdiction. It is relevant irrespective of local compliance requirements.

So with that, I will pass on to Jason to go through some of the recent number of performance. Jason?

And we can't hear Jason. It wouldn't be our first webinar for the company if there wasn't some kind of technical hitch. Hopefully, shortly resolved.

[Jason Margach, executive]

Sorry. Can you hear me now?

[Michael Ivanchenko, executive]

We can hear you now. Thank you, Jason.

[Jason Margach, executive]

Thank you very much. I'm so glad I'm in finance and not IT. Good morning, everybody. I'll start doing my apologies. And Michael, thank you to you. It's my pleasure this morning to be able to take you through a very brief overview of our quarter 3 highlights, and equally important, an overview of some of the key positive transformations that we've seen within the financial position of the company.

Since our inception, or as Michael termed it, since our pivot, our revenue at a consolidated level amounted to $7 million for the quarter, of which $2.5 million was generated from our SaaS revenue. That's significantly up on our corresponding period of 173% growth. We delivered to continue positive net profit in the quarter of $111,000 and expanding on the delivery of the quarter to a year-to-date position. It's almost double that of what we managed to deliver in FY '23. As Michael said, our focus is on not only growing the transformation of the business but growing it at a profitable level.

Looking at the balance sheet. From a short-term liquidity point of view, the balance sheet demands healthy -- in a healthy position with a 2x cover with short-term debt. Cash and cash equivalents for the quarter amounted to $8.8 million. I'd also like to highlight at this point that this past quarter also marked our 15th consecutive posting of a positive cash flow from operations.

Now for the exciting bit in the numbers. For us, we are moving away from the quarter and taking a deeper look at some of the highlights of our transformation. The evolution of our SaaS based -- our evolution into a SaaS-based provider of simplified compliance is nowhere more evident than if we look at what we see in the growth of the SaaS revenue composition in our business at this top left-hand slide that we're presenting at the moment, which is 31%. And I highlight here that for the quarter, that actually grew to 36%. Driving this SaaS revenue growth, obviously, is the commensurate growth of 150% of our SaaS customers.

Again, looking further into the transformation of the SaaS revenue. On an annualized basis, as Michael highlighted, we're now sitting in excess of $10 million. And equally important, $7 million of that has been generated from our existing customer base. This represents around 28% -- sorry, my apologies. I think we've caught up with the slide. This represents around 28% of the original base at our inception. This highlights our ability to leverage off this healthy pipeline, which Michael had spoken about earlier, too. At a revenue per SaaS customer level, we're able to generate a 65% increase per customer, which is really fundamental for us. It's our aim is to drive that long-term value of our customers.

Our SaaS revenue transformation has equally a positive impact on our profitability with a monumental shift from $1.5 million loss that we reported in FY '22 to $400,000 profit for the half year of FY '24.

As Michael spoke earlier, a number of questions have been received. And to touch on and offer some color to some of these questions, the profit that we generated in the first half of this year has come after investment in additional proactive cybersecurity and direct protection assessments along with one-off organizational alignment costs to the business. A further investment in the professional skills needed and specialized tools and knowledge to deliver this optimized sales process has also been incurred in the first half of the year.

And last but not least, we have seen, since the commencement of the financial year, around a 42% increase in advertising costs per click driven largely by increasing competition for that dollar spend in the market. What we have demonstrated, however, is that Kinatico's ability to convert the customers, our ability to increase the SaaS revenue per customer and ultimately leverage a greater lifetime value of all of our customer bases.

With that, I'd like to hand over to Geoff Hoffmann, our Chief Revenue Officer. Geoff, over to you.

[Geoff Hoffmann, executive]

Thanks, Jason. Good morning, all. Look, this slide gets a bit busy, but let me just walk you through it. Michael touched on at the beginning of the presentation around market demand and our pivot as an organization. If you look across this slide, this sort of depicts the opportunity of key -- our key 3 sectors that we've been focusing on in recent times. And Michael touched on sales cycles and time frames to onboard customers, et cetera, et cetera.

And working with these sectors, you would probably somewhat say that they may be a little bit more simpler than some of the other sectors that we may look at such as the banking sector, which is one that could take a sales cycle of a longer period of time. However, it is an area that we do focus on. But let me walk you through these key 3 sectors. And as you'll start to see through our solution, we are actually quite agnostic.

If I look at the health care industry, the industrial sector and also the education space, these 3 sectors, we have only really sort of a drop in the ocean to what the potential that sits within the marketplace around where compliance is required and the simplification that's needed across these sectors.

So if I talk a bit about health care, we talk about customers like Aruma, Hireup, Sunnyfield as examples. They're customers today that are going through some significant change around regulatory reform, whether that's through Aged Care Act or even in some of the critical infrastructure impacts that would have on that sector, no different to what the BHPs or the Ausgrids are going through in the industrial sectors. Similar to education where we're working with customers today, RMIT or Wodonga TAFE, they've all got specific needs and requirements where they need to be compliant.

It's either to regulatory demands and of recent changes in policy or it's through to procedural compliance that they do need to have across their business. The key part about this is, as Michael touched on earlier, the more we talk to these customers, the more we understand the simplification they need and the admin burden they've got.

Additional to that is the work that comes in the overheads of admin and the exposure they may potentially have across their organization to not just penalties and fines but the things that could also come around reputable damages to their organization and brand. The more we do talk to these customers in these sectors, the more that I do believe that we're becoming more advisory and support and partnering more than a product or a solution just to be sold. So we are becoming quite niche, I suppose, within these industries.

If we can go to the next slide, please. This is a really good example around market fit and how we've achieved that. You can see here, I mean, Baptcare is a customer that we have recently gone through a compliance solution with and helped them. And I suppose you always look at the data and the facts around what we're actually doing in the way of evidence but in moving a client like Baptcare that specialize in aged care home care from an employee compliance of 91.7% through to 99% in a short period of time. And obviously, there's still some room to move there in the right direction on how we're hoping that organization be compliant not just around the procedures they want to have within their business but the regulatory requirements that they have to have within their business.

So we see our solution that we're offering up across the sector be highly relevant around how we're supporting them do that. And I think one of the key things is when they're looking at reducing their risk around noncompliance all the way through their business even at a board level, we'll start to become part of that fabric within their business on how they actually do that. So we are seen as a partner of trust, and Baptcare is a good example of that. And obviously, there's lots of others to talk about, but that's a good example of where we're at today.

Next slide, please. Michael touched on being customer led. This is an area that we're pretty proud of. And I must say it's something that we believe we probably do this better than most. And making sure that we have the customer at the center of everything we do become really important around understanding the voice of the customer in the marketplace. And we do that through a number of ways, but just to give you a high-level view of what that looks like in the description on this slide.

We do, do market research on an annual basis. That work is commissioned, as you can see here, by an external agency, someone that we'll be partner with. They go through a process of interviewing anywhere between 12 and 24 customers. These may not be existing customers. These may be potential customers or people we have not worked with in the past.

But the reason why we do anywhere between 12 to 24 1-hour interview per annum is to get a good, clear understanding around what's going on in the market, making sure that we're clear around the needs, what the demands are. And also, as Michael touched on earlier, the more we touch on the challenges they're having on a day-by-day basis, we can actually see that the simplification piece is alive and well. Mark has touched on this in previous conversations, but we do see [ XL ] is probably our main competitor. But we know the admin task that they've actually got ahead of them. And this market research really helps us to understand that.

We also have an NPS structure across our business. And for the people on the call who are not aware of what NPSs is, it's Net Promoter Score. It gives us a good understanding and some clarity around what a detractor will potentially look like in our business and what an advocate would potentially look like in our business. And we score that accordingly.

I think the key thing about this is what we do know today around NPS. And if you're not quite sure how the scoring works, I'll let you do your own research. But the industry average on this is about 55. We are currently running at 66.5. So we do see ourselves best in class. And even through some third-party independent online research, if you look at us compared to competitors, we do stack up pretty well, if not top of the tree.

From that, we also receive verbatims from our marketplace to understand what's working, what's not working. And you can see a few verbatims there to the bottom right corner of the slide around how people actually do identify and see our solution and how we actually service the market.

Craig, next slide, please. Or Serena or anybody. Thank you. Just leading into -- I think this is a really, really compelling and important slide. So I'll talk about this for a couple of minutes. These are our contracted wins that have been previously announced. And you can see there, this is adding up to north of $3 million annualized revenue. There's a number of key pieces that sit within this that I think are really, really important to understand.

The first one is you can see that we're quite agnostic. There's not a specific segment here that stands out of our recent wins and our recent accounts that have continued on with some type of solution around compliance with us. But the key thing here is you can start to see come through quite clearly around the government sector. The government sector is not an easy sector to play in. It can be quite convoluted, complicated and layered with the demands and needs [ it's looking for ] to around compliance.

So Victorian Electoral Commission, Department of Families, Fairness and Housing, Australian Government Department of Health and Aged Care are 3 of our recent customers that we've brought into our solution. But additional to that, you can see on the bottom left-hand corner ASC, which is Australian Submarine Corp. You can understand the importance of compliance in that sector or for that type of organization. Baptcare, I've touched on.

If you start to look at the education space such as Chisholm or Wodonga TAFE, what becomes really important in these other types of customers is that they actually also support contractors. And that may be across a number, whether that's an Ausgrid or other type of accounts that we've got today such as Hireup or Aruma. And our customer base is looking for that third-party risk management model. So not just supporting the day in, day out employee within the business, but it's also how do you make sure the contractors are compliant, which a lot of our customers we do talk to, it becomes a key strength of ours.

The other part that sits across this is making sure that we have got compliance automation in place for all these types of customers that we're talking about. These brands are looking...

[Michael Ivanchenko, executive]

I think we've got an Internet dropout in the office, Geoff, but please continue.

[Geoff Hoffmann, executive]

That's right. These brands are looking for an order and trial of compliance, and they want to make sure that they've actually got that evidence there that they can support whatever that risk management looks like that they need to manage.

The other part around this, which I think becomes really, really important, which doesn't probably get spoken about enough, but our clients do talk to us about it, is around data sovereignty. Now there has been a lot of conversation of late within the regulatory sector and also even in the government sector about the importance of data being stored onshore. I think where our luxury is, is we do that. Not many do. And we do a pretty good job of it. And as Michael touched on earlier, the ISO order of recent times is another feather in our cap.

And I think lastly, just on this slide, a lot of these organizations -- and not by choice, so this is becoming more of an insurance policy for them, where they have to be in a situation where they can actually start to drive compliance culture in their organization. And that's where Kinatico probably comes to the fore more than anything else because we can actually help not only support that but advise that and implement that across multiple brands.

Speaking of multiple brands, all going well, the next slide will pop up. We can go to next slide, please. This is some really good news, but BHP has been in contract with us for a period of time, quite a number of years. We've just recently gone through a renewal with them. As you can see on the screen here, there is a term of 3 years. The contract value is greater than $5 million moving forward. And I do believe that -- and Craig touched on this at the beginning. We're not Nostradamus, but we do believe that we've got some good scope in clients such as BHP around what that looks like in the future. And as we've touched on, that is a SaaS solution for our business moving forward.

So I think that's it for me. I will pass back to Craig.

[Craig Sharp, executive]

Thank you, Geoff. [Operator Instructions] There have been a couple of questions that have come through so far. And I believe, Michael, you have them before you, so I'll pass back to you.

[Michael Ivanchenko, executive]

Thanks, Craig. First question to come through that I will answer was a question around how we are managing as an organization looking forward around maintaining the trajectory and this position that we've so far been able to achieve.

The -- and I think the answer to that lies in the strategy itself. I think we've been in a challenged position as with any screener or pure verifier, as I mentioned at the beginning of the presentation, of the commoditization of that industry. The strategy that we are undertaking at the moment of the adding value throughout the compliance chain on a daily basis is one of the key defense positions on actually maintaining relevance.

Not only have we seen that change the company position that used to be almost one-to-one correlation in terms of revenue in the employment cycle or employment availability numbers in the market. We're now seeing that level throughout the year. December, January for CVCheck used to be fundamentally very quiet. We're now seeing in the SaaS position them being not dissimilar to any other month of the year. So it hopefully answers that one.

The next question, new account wins seemed to be Victorian-centric. Can you provide some color by geography on our performance? So Geoff, I'll direct that one to you.

[Geoff Hoffmann, executive]

Yes. Look, good question. I'm just trying to think off the top of my head. Our account wins are more across the board from a national perspective. I mean, of recent times, obviously, we've got New Zealand. We're based in New Zealand as well. But if I'm just thinking off the top of my head of recent times, we've obviously got accounts out of Perth such as Perth Mint, Water Corp, these type of customers. There's [ Winter Energy ]. There's a number of customers across the group that actually sit across different geographies.

I suppose to give more detail on that, in working with the team, we can identify that and maybe something we can report on at the next webinar around what our geography wins are. So -- and we can even probably give you a bit more view around sector.

[Michael Ivanchenko, executive]

And the next one was, can you comment on the BHP being -- the $5 million, is that increased on the previous contract? And how does that relate to the current $10 million in SaaS?

So the $5 million we're saying is the 3-year value of that contract. So yes, there is BHP revenue in our current SaaS. The current agreement is an increase. It is commercial in confidence with BHP that we're not allowed to go into too many details. However, I can say that it is an uplift on the existing contract, and for me, more significantly opens up our relationship for further discussions throughout that contract for a lot of the other services that we will be bringing to market during that time. So the -- not only is it an uplift. We see it as a material opportunity.

Further to that was a question then about what proportion clients are renewing.

BHP was the first one of our existing SaaS customers that have come up for renewal. But at the same time, we haven't lost any either. So the -- we are finding that the product, embedding it in the daily operations of organizations makes it incredibly resistant to churn. In the very least, it's a very, very conscious decision to replace the solution if you're going to do that. And then further to that is it would be a material undertaking in terms of change management having deployed it. So from our perspective, it's certainly one of the benefits of that. So we're not expecting or aware of any churn events or et cetera, a loss of clients.

The other question was what's the time frame around deploying the self-service modules that I talked about earlier. We will progressively roll that out over coming quarters. Without putting a time frame on it, it is -- or fixed completion time line, our belief is that over the next 3 or 4 quarters, we'll incrementally see features, and they'll incrementally have an effect. We will stop incrementing that as a target when we get the feedback from the market that they're meeting the need. But it is a case, I think, for us in our space to continue to innovate and stay ahead of the opportunities as we're going through what is effectively a bit of a greenfield.

Having said that, we have the capability to do it. We've committed, and we're on track to reduce our CapEx spend this year by 25%. We don't see that materially increasing as a function of operations. But that being said, if the opportunity came up to accelerate it as a one-off spend using the cash that we have in the bank at the time when we're cash accretive, then they are all things that we would look at. But we don't see any material effect of the requirement of our current financial trajectory.

The next question was, in the last quarter, we only added $100,000 new SaaS revenue. And is that related to seasonality per quarter?

No. We are still at the beginning where we're taking on and acquiring the new clients. So the wins we've announced, the growth that we're seeing, we continue to build a pipeline of customers now onboarding that are not yet being seen in the revenue numbers. So this comes back to the need of what I'm saying that our target is to reduce the time to market of getting new customers on board and generating revenue. But the way to look at it is that the -- with customer wins, it does become a predictor of future SaaS growth, combined with the comment that we are not getting a churn percentage that we have to factor new wins, subtracting loss of clients.

But having said that, we're at the very beginning of this. You see from a relative circle sizes the market size and where we're at currently. For me, this is about in that Phase 2, completing that initial product market fit that is initial deployment before we move into Stage 3 or Phase 3 where we're really targeting large-scale growth.

How closely does your compliance software being embedded mesh with ERP? And do you need to integrate?

Yes, we do need to integrate. The -- we have a large number of integrations with various systems already, and we continue to evolve that. The -- we see that continuing to evolve and develop. Having said that, we have not come up against any integration situation that isn't anything more complicated than time and engineering resources. So it's -- but feeding very much into that ecosystem. Geoff, anything you would add to that?

[Geoff Hoffmann, executive]

Yes, Michael, I think just the question around -- it's really around enterprise resource planning, I suppose. We do speak to customers today that are looking to use our solution and integrate it with areas across HR or finance such as payroll systems. And the reason for that is because if they're working with third parties such as contractors, what it does give the company control around is that if you're not compliant within your role, you are not paid.

So those integrations and those type of conversations with different types of customers have come up in the aged care and health care space. And they are solutions, to Michael's point, that we are in the middle of actually looking through integration opportunities on how we go about that. So we do become very much the hub of some of these solutions that potentially will get rolled out.

[Michael Ivanchenko, executive]

Next question we've got is the -- have you identified potential markets for international expansion?

Look, we're constantly looking at it. And the targets we think are most relevant are actually Southeast Asia and through the subcontinent. It's not the primary focus though. It is certainly the aspiration. It is my personal background. It's my desire for the organization. But I said on my earlier slides, we will look to do that as a real focus in Phase 4, where I -- we've taken advantage of the obvious market that is the domestic market, improving the -- and expanding or building out the solution into not only something that is scalable but directly internationally relevant.

We don't want to have the situation where we go into an international space and we are then spending effort on localization and the local requirements at the expense of the current trajectory. So it's to temper expectation. The international opportunity is very much there, but we will pursue it with vigor when we are comfortable that we can do it with as much certainty as possible as opposed to speculatively going internationally too early.

I think question, Jason, I'll throw it to you is around has net profit softened compared to the half year. What are your intangible assets made up of, especially payments for intangible assets on cash flow?

[Jason Margach, executive]

Thanks, Michael. A couple of questions in there, I think. Let's start off with the net profit. Has it softened? I don't believe it has. We posted a $360,000 profit for the half year this year. Bear in mind also this quarter 3 has seen both the Christmas period coming through as well as an early Easter. So no, I don't believe it's softened, and I don't believe there's any reason why our positive cadence won't be maintained for the rest of the financial year.

Moving on to intangible assets made up largely of our capitalized investment in our product and service offerings. That's the primary contribution to that intangible asset. And then the payments of that, towards that in the quarter, we -- as the little bubbles highlighted earlier on in the presentation. There was about $700,000, which we spent on investing activities, which is the intangible asset side of things, the capitalization of that development [indiscernible]. I trust that answers the question.

[Michael Ivanchenko, executive]

Thanks, Jason. And then the question, to what extent is discretionary capital expenditure growth?

Because I think I mentioned, we're committed to reducing it by about 25% this year. We're on track to do that. And as it pertains to operational run rate of capital expenditure, continuing to iterate the platform, continuing to evolve the platform according to feedback from the market, then yes, I think that has peaked. That being said, if there is an opportunity for a one-off acceleration or an expansion of our product set through some kind of external acquisition or licensing of a piece of software, et cetera, that would give us that market reach faster, then we would look at that. But in terms of the operational requirement, I think we're there. Is there any conscious plan to scale profitability?

Yes. But right now, we are in the establishment of our growth phase. I'm very much about the mentality and driving that internally, but even though we have benefit of the existing business and the revenue that relates to that, the expansion we're taking on here about the simplified compliance is a start-up attitude. We've got to get this to the point where in Phase 3, we will look to scale the growth and to grow at a much faster rate.

There is no point in doing that, particularly in a SaaS business, if everything isn't in place to do that because you only get one bite at the cherry. And if you have unhappy customers, if your first 90 days of deployment isn't good, it materially stifles your ability to restart that growth, and that is not something that we are willing to do. So certainly, of course, it is our objective to get to a much larger scale of revenue. And related to that, along with higher gross margins of SaaS products, much higher free cash flow and ultimately pure fewer cash profit, but we believe we're on the right trajectory around achieving that in a sustainable, scalable way.

All right. Before we close off, we'll give the opportunity for any other questions to come through. And while I do that, just to say thank you for everybody to attending. As I mentioned at the beginning, we do intend to do this each quarter. And different parts of the business is to be highlighted, whether it's the technology or further information on customers or our operations or whatever it may be to further add color to the business.

Now that I think we've achieved the material scale of that pivot that we've been aiming for, we really do see this as a moment that we've -- achieving -- being comfortable internally that we've achieved our product market fit, and it is now about moving into those next stages. It's something we're very excited about.

So with that, I'd like to thank everybody for your support and your attendance. Details there on the slide. If there's anything follow-up that you would like to follow through this, that if we can answer it, we obviously will. And we look forward to your ongoing support and ongoing following. Thank you very much for your attendance.

[Jason Margach, executive]

Thanks all.

[Craig Sharp, executive]

Thank you.