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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 afternoon, everybody, and welcome to Skyfii's Fourth Quarter FY '23 Results Presentation. With me today Wayne Arthur, CEO; and John Rankin, COO. Wayne and John will give a presentation, and there'll be time for Q&A at the end of the presentation. [Operator Instructions] So with that, I'll hand it across to you, Wayne.
All right. Thanks, Craig. Good afternoon, everybody. Welcome to the fourth quarter results for the 2023 financial year. My name is Wayne Arthur, CEO and Co-Founder. . So we have concluded another successful year for the business and are pleased to have concluded the year with positive recurring revenue and ARR growth, positive EBITDA for the second half and having successfully converted a series of long-term contracts with a host of new blue-chip customers.
So we'll kick in to Slide #2. And firstly, just to the results. So the company delivered recurring revenues for Q4 FY '23 of $4.2 million, which was up 10% on the previous corresponding period and up 5% quarter-on-quarter.
Annualized recurring revenue for the quarter finished at $17 million, which was in line with guidance and up 6% quarter-on-quarter. We generated $950,000 worth of net cash from operating activities and we delivered a positive underlying EBITDA in the second half of FY '24, which was in line with guidance.
The Board of Directors has also undertaken a strategic review of the company, which has yielded opportunities to restructure the company's operating model and its cost base to transform the way that we take this business in this product to market. This will see the business refine its focus on its 3 core verticals through a reduction in head count costs, which will provide operating cash flow to invest for growth predominantly across delivery, sales and marketing.
These initiatives will put the company on track to deliver positive free cash flow in the second half of FY '24 and significant earnings growth in FY '24 as well as continued ARR growth.
So with that, we'll move to Slide #4. So as just outlined, the Board have recently undertaken a strategic review of the business. And during FY '24, we will be implementing a business transformation in order to accelerate earnings and revenue growth. We plan to consolidate our operating regions, which we'll initially see the regions of Manila and Lisbon grow as we build out capacity in our lower cost operating hubs.
In addition, we've already made just over $1.8 million worth of head count cost reductions, which was effective on the 1st of July. In addition, we will be retiring noncore, lower-margin technology products to allow the business, additional bandwidth and focus to continue converting higher value, higher margin and lower churn customers within our core products and verticals.
There will also be a further realignment of the management and leadership structures to provide for regional and functional focus and provide greater accountability of our role and responsibility. These changes in aggregate will provide operating cash flow internally to allow the business to scale its service delivery function, which has been under-resourced and was a bottleneck in this particular half. We'll also expand its sales and marketing functions to drive a larger pipeline of ARR opportunities and invest further in building out our artificial intelligence capabilities, which I'll talk a bit more about in the next couple of slides.
This will put the company on track to deliver significant earnings growth, second half free cash flow and continued ARR growth in FY '24 and beyond.
Moving to Slide #5. I want to talk a little bit about product vision and product strategy as well. So as shareholders will already know, the IO platform, which is on our data product has 3 product families, namely IO Connect, IO Insight and IO Engage. In terms of the focus areas for these product families, IO Connect will focus and continue to focus on the rapid integration of multiple data sets from a variety of different physical and digital sources. This will help to automate and expedite the processes relating to onboarding of customer data, which again, will help to expedite the billing of annualized recurring revenues in the future.
IO Insight will focus on predominantly artificial intelligence capabilities and predictive analytics. This platform module will enable our customers to intelligently automate many of their manual processes within the business operations.
And then finally, IO Engage will focus on AI-driven customer data platform capabilities that allow our customers to power some of their downstream components in their revenue chain such as their CRM products and their advertising platforms. Moving to Slide 6. We have actually been investing in the development of AI for some time now, almost 6 years. We've deployed AI solution at multiple layers within our platform that allows our customers to automate many of the processes such as forecasting of sales, which we deploy in a lot of our retail customer deployments. Altering to anomalous activity, which again is deployed in a lot of our malls and airports and retail properties, predicting and improving customer experience and intelligently designing audience taxonomies for improved marketing outcomes. And these are all products and features within our product that we've been releasing over the last 6 years.
On Slide #7, some of the new AI initiatives within the platform represent an enormous opportunity for the scaled upsell to existing customers. For example, the development of a recent feature set around unattended bag detection, which enables Skyfii to take the existing security camera feeds in environments like airports, stadiums and hotels and to enable security teams in these venues to identify potential threats to health and safety in real time. And this is a product that we have launched it in the platform, and we'll be releasing shortly at EWR Newark Airport in the U.S.A.
Moving to Slide #8. So just a little bit about our product strategy for FY '24. This will focus on tools that take advantage of the flexible underlying data model already existing in the platform to help rapidly integrate and leverage a variety of data sources.
Our AI models significantly benefit from having access to data points from multiple sources, this leads to the development of new AI capabilities. In addition to multiple data points, powering better algorithms, they also enable us to shift our pricing from a fixed linear model, which it largely is today, relative to singular data sources like cameras and WiFi access points to a compound pricing that can actually grow over the lifetime of the customer. This is further enhanced by our Digital First strategy, which enables customers to onboard and integrate with our products faster, using their digital data sources first, things like loyalty platforms, point-of-sale systems, social media and other mobile applications to address the typically longer sales and development cycles that we've experienced traditionally with the physical data sets.
We're investing more into product marketing as well, which will help to take our story more succinctly to market to both ensure good growth in new customers and new customer acquisitions, but also to ensure that we retain and upsell existing customers on new capabilities. So all of these different features that we're developing currently, some of which have been launched but not yet fully taken to mark or monetize, we do expect to accelerate the revenue growth outcomes on the ARR line in FY '24 and beyond.
So I'll now hand to John to take you through the quarterly financial and operating performance.
Thanks, Wayne. Moving to Slide 10, the quarterly performance summary. In the June quarter, we delivered total operating revenues of $6.2 million, which was in line with our Q3 result and down 9% on the previous corresponding period. Pleasingly, recurring revenues for Q4 FY '23 of 4.2% was up 5% quarter-on-quarter and 10% on the previous corresponding period. We finished the year with annualized recurring revenues of $17 million, which was in line with our previous guidance to the market in April this year. . We finished the June quarter with cash at bank $3.8 million. And in Q4, we experienced cash outflows of $0.8 million. Despite this result, we delivered a positive cash inflows result full year, which we will discuss in the coming slides.
Cash receipts from customers of $5.2 million was down 13% quarter-on-quarter. And finally, our full year CAGR for total operating revenues averaged out at 26% and 33% for recurring revenues.
Moving to Slide 11, key performance metrics for FY '23. For the full year, we delivered total operating revenues of $23.5 million, in line with our FY '22 results. Pleasingly, recurring revenues delivered a 9% uplift on FY '22 at $15.9 million and ARR grew 6% year-on-year at $17 million.
Gross margin was broadly in line with our FY '22 result at 56%, small drop in FY '23, which was largely attributable to a higher cost of goods sold across the year.
Our churn rate in FY '23 did increase to 6% versus our FY '22 result of 4% which is a disappointing result considering the efforts of our sales team, having delivered a number of notable blue chip contract wins across the year. Contributing factor to the higher rate of churn was generated from legacy technologies such as Blix, which Wayne discussed in his earlier slides that we are retiring in this financial year and therefore, shouldn't carry forward.
Moving to Slide 12, net cash flow from operating activities. In Q4, the company experienced a cash outflow from operating activities of $0.8 million. But more importantly, if we consider our full year performance, net operating cash inflow from operations was positive, delivering just shy of $1 million in FY '23, which is a significant improvement on cash outflows of $1.7 million in FY '22, is the strong reflection of the increased scale of our business as well as the focus we have taken internally, cost control and the commencement of changes in line with our transformation strategy discussed by Wayne in earlier slides.
Moving into Slide 13, new contract wins. The company delivered a number of contract wins in the quarter across a range of geographies and verticals, delivering a new business total contract value of over 4.4 million. Of the 4.4 million in new contracts being delivered, 65% was generated from our international operations with North America delivering over 50% of revenues in the quarter.
Consistent with our Q3 results, airports continue to feature strongly in our new business wins, delivering 47% of new contract wins with retail property also featuring strongly delivering 29% of new contract wins.
So thank you for your time. I'll now hand you back to Wayne to close out the presentation.
Thanks very much, John. And so look, throughout the course of the financial year, we've spoken at length about the significant revenue growth potential within the current customer base. This year and now obviously moving forward, we're dedicating a lot more focus to unlocking this potential. So the recently announced deal with London Heathrow, which is Europe's busiest airport, is an example of this focus.
We've extended our existing partnership with Heathrow and signed a new contract to deliver our LiDAR cue management system across Terminal 2 and Terminal 4 check-in and Terminal 5 immigration areas to help to improve the wait time and the experience of passengers in those areas. This contract is worth a total of AUD 1.8 million over 3 years.
So moving across to Slide #16, we'll cover some of the other contract updates. So during the quarter, Skyfii signed and announced several major contracts and key renewals, including in the U.S.A., a new contract with Austin Bergstrom Airport for cue management systems across multiple checkpoints. We also signed a new contract through Boingo with Detroit Metro Airport as well for cue management. And then we secured a key renewal with Shopping Itaguacu in Brazil. . In EMEA, we converted the new contract term with London Heathrow as discussed. We also converted a new deal with Landsec Securities, which is land security [indiscernible] which is a shopping center portfolio group in the U.K. and we secured key renewals with Wembley Stadium and Somerset Cricket Club as well.
In APAC, we secured new contracts for managed services and our platform products with Erina Fair Shopping Centre, with the Oasis Shopping Center and also a new contract with the National Gallery of Australia. And then finally, we secured key renewals with both the City of Melbourne and also with Waverley Council.
On a more disappointing note regarding our current project with McDonald's. We received notification from Halverson Group, who are our reseller partner that due to a number of factors, including a reprioritization at McDonald's, they are seeking to cancel the current scope of work with regard to the 4 McDonald's restaurants that we're currently installed in. We just received this request to cancel at the end of last week. As such, we are currently working through the release documentation, which we expect will take effect and terminate fully during the month of August. This will have a negative impact on the company's FY '24 ARR of approximately $350,000.
Whilst this is obviously disappointing, we have built and proven a product for the QSR industry, and we still retain the opportunity to work with Halverson Group on their broader portfolio of QSR clients, which we do expect will lead to significant business opportunity in the future.
So with that, Slide #18. The 12-month rolling pipeline remains very strong at approximately $33 million. Currently, we have approximately $1.8 million sitting in the final stages of contracting and then a larger pool of just over $6.4 million worth of deals in the client evaluation stage, one stage back from being contracted.
I note these figures represent actuals over the coming 12 months and not total contract value. Meaning specifically that if they are all converted, these specific dollar amounts would fall into the following 12 months. As a reminder, deals in the contract negotiation or committed stage are at a 99% likelihood of conversion. The only variable really is the timing of the contracting. Those in client evaluation at 65% and anything above this at approximately 30% likelihood to convert based on our performance history. It's also worth noting, and John pointed to some of these stats as well that approximately 70% of the opportunities in our 12-month rolling pipeline are deals in our international markets. So it is pleasing to continue to see the offshore investments are paying off.
We've successfully converted $15.8 million in new contract value on a rolling 12-month basis. And finally, airports and retail properties make up around 65% of our qualified pipeline, which is pleasing given our focus around those as core verticals.
So moving to Slide #19 and the outlook. As we point to you throughout the presentation, FY '24 will be a year of transformation. This will see the business continue to grow its revenues with a focus on core verticals and products and conversion of its qualified deal pipeline. It will also see the company rebasing its operating costs to create more bandwidth and scalability at a lower head count cost delivered largely through offshoring. This will result in positive earnings growth and a return to positive free cash flow in the second half of FY '24. The positive earnings will provide the company the opportunity to refocus its investment into sales and marketing, which we expect will improve revenue generation and provide a platform for the business to return to double-digit ARR growth in FY '25 and beyond.
So with that, I thank you for your attention today, and I will now hand to Craig for any questions.
Thanks, Wayne. Thanks, John. [Operator Instructions] First question that comes in is around airports. You mentioned the expansion at London Heathrow. What have you seen in terms of the potential for expansion at some of the other large airports that you're currently operating in?
I'll take the first one, John, you might have some feedback on that as well. But look, the airport products, if we look historically at airports as a part of our portfolio and the CrowdVision acquisition, airports have grown 94% over the last 2 years. So it's absolutely where we're seeing the majority of growth potential, and it's -- we talked about it makes up a large amount of [Indiscernible] today. Within that, we see a pathway to easily to getting to sort of double our current ARR if we were to convert all of the potential opportunities in the current airport portfolio.
So I'm talking about cue management systems across all of the checkpoints, our baggage detection products across all baggage areas, our curbside products across all curbsides. So if that was the case, that's the kind of revenue upside and just in the current portfolio of airports. We've seen an expansion from JFK. We've seen an expansion from Austin. We've seen expansion from Heathrow. And there's -- with the numbers -- hard numbers to hand, but fair to say that there's significant, I'd say, 20% or 25% of our current airport pipeline is expansion opportunities in the current airport group.
So look, it is a key area. It's obviously the easier path to revenue upside than securing new clients. But having said that, we're sitting across at least 2 large RFPs at the moment for new airport contracts. One in the U.S. and one in the EMEA area that we're feeling pretty good about as well. So I'm hopeful that those will come through in the coming quarters as well.
A follow-up question on that. Products that you're developing such as bag detection, have they been requested by clients? Are they internal developments that you are doing to sort of add to the quality of service that you can provide to the end customer?
Look, everything we build is client validated, whether it's an inbound request through an RFP or it's -- we've uncovered it through a relationship with our customers. So yes, that was a feature that was actually requested as part of the RFP process for Newark Airport, which we won and announced a few months ago. So yes, it's been requested. We've subsequently started to see demand from other airports wanting the same product. So generally, everything we build is a customer need.
But equally, we go one step further to ensure that we can validate that it's not just one customer either. So we're not building custom features. So this was one of those things that we expect will roll out across multiple airports over time.
Next one, a little bit more around the McDonald's contract. Can you explain why that McDonald's contract was terminated? And are there any implications that may have for other QSR restaurants who are in that kind of service?
Look, I'll answer the second part of the question first. We generally do not believe that it's going to have any impact on the potential upside in other QSR brands because -- we've had -- it's been a bit of a sort of a moving target in terms of the ultimate deliverables around that contract. We've delivered a product that was the initial ask from McDonald's. And they've also been able to provide us with a lot of future development capability through some of the projects that they're launching now. So we don't necessarily expect this is the last we will see the McDonald's Group.
There's multiple products -- sorry, projects running within the organization at all times. So it may not be the end, but certainly, it's the end of this current scope, which has been largely due to reprioritization of projects at their headquarters. So yes, that's unfortunate. Look, we obviously went into this in conjunction partnership with Halverson and McDonald's to build something that didn't exist previously, and that was noted on both sides. We have now built that and delivered it and scaled it.
So we've had feedback through Halverson who work with essentially the top 20 QSR brands globally that they have other clients in their portfolio that see value in that product. So that's going to be the focus now is to take that sort of competed product now up to market. And look to find conversion through other customers in the short term.
You've mentioned in previous quarters, some of the bottlenecks that have been there, particularly with hardware and getting some of the LiDAR sensors and they slowed down the recurring revenue process. You provide a little bit of an update on both of those in terms of has that bottleneck been sold and now you sort of see an increase in cessation of implementation and commencement of recurring revenue from some of the recent contract wins?
Yes, it's a good question. So yes, look, we've been focused on a couple of initiatives around our service delivery bottleneck, which was initially largely down to a very, very small group of people. So we've expanded that group essentially and transferred knowledge across a broader group now. So there's more capacity to deliver on time in that particular function.
But the longer-term outcome here is that we actually fully automate that process, which is some of the development work that I mentioned in the product strategy slides earlier in the deck. So that's been scheduled, that's in flight, and we expect in the coming months, it will even further expedite that process so that the reliance is off people and more on product.
And a little bit of a follow-up question from that. How is Skyfii going in attracting and retaining skilled staff and is the offshoring initiative delivering and getting access to highly skilled people?
Yes, another good question. So we -- look, we've been particularly surprised at how effective and efficient particularly the Philippines and Lisbon have been for us. We've been able to secure really, really strong talent, very, very high quality in the roles that we've been outsourcing, which has been fairly limited so far. And the work ethic and the efficiency and the fact that we can get work effort around the clock has really made a difference in those particular functions.
So that's what's given us the confidence to be able to say to the market that we -- the strategy has worked -- was working. And you'll see more initiatives around that offshoring to those regions coming through in the next sort of 12 months, which is going to help with that transformation.
The next question, you addressed to an extent in the presentation, but I'll still pose it so you can give a full answer. Previous guidance had been to have positive cash flow coming through into FY '24. Why has that positive cash flow -- sustainable cash flow not being realized as quickly as expected?
Well, look, we gave guidance for FY '23, I think as what we were talking about for the second half to have a positive EBITDA, which we did deliver. We're talking about earnings growth, and we're talking about free cash flow in FY '24, which we expect to deliver largely through the rebasing of the costs. So we're not banking on revenue miracles to do that. It's largely a rebasing of the cost that will bring us to that outcome.
In the FY '23 year, we did -- we have sort of had a buildup over the last 2.5 years coming out of COVID, we had a massive wage hike issue in many of our markets, which we had to deal with. We experienced significant changes in the cost of hardware as well and cost of goods. And so these are all things that we've had to wear over time that we haven't necessarily been able to extract greater pricing or growing margins from customers on. And that's what's driven us now to say, well, we need to -- whilst we've grown revenues, just we've also grown costs as a result of those factors, and that's what's led to the fact that we didn't deliver the free cash flow sooner.
But we expect that the revenue growth engine will continue as it is. It's actually going to grow faster through some of the investments we're making in the sales and marketing functions, which are largely fairly under resourced in general. But most importantly, it's because of the changes we'll make into the cost base that's going to yield that true operating leverage. And that's not something we've focused on intently before, but we're doing so now.
[Operator Instructions] Last one in the queue at the moment, Wayne and John is, what proportion of the qualified stage pipeline is currently QSR projects?
Probably less than 10%. It will be about 8% of it at the moment. So we've predominantly been focused just on McDonald's service point. So you can expect to see a new influx of QSR opportunities as we -- once we're through the termination, which we expect will take place in the next week to 2 weeks, then the plan is to refocus our sales efforts with Halverson around some of their customers, and they mentioned several that are interested in the product. So that should be a new pipeline that we expect to produce in the coming quarters.
That's it for questions, Wayne and John. I'll just hand back to you, Wayne, for any closing comments.
Great. Well, thanks, Craig. And look, we -- we're still happy that the business has delivered a positive result from an ARR and a recurring revenue perspective. We're also pleased to see that we've brought the business back to a positive operating EBITDA position in the second half, and we expect to carry that forward and obviously improve it, as I've mentioned, through these transformation initiatives in FY '24.
We're not pleased with the way that the revenues fell this year and some of the bottlenecks we experienced in terms of delivery. So clearly, that's not something we're happy with.
But we believe the initiatives that we're improving now have solved or will solve those issues. So we don't expect those to carry forward. Equally through the retirement of those noncore technologies, Blix, which were largely the result of our churn in FY '23, we don't expect churn to carry through as significantly as it did this year. So all of those present a really positive upside case for FY '24 finally being the year for this company that actually delivers positive earnings, positive free cash and gets us back to that double-digit ARR growth. So shareholders can expect to see proper leverage moving forward.
So we're excited about that. We are -- as shareholders equally frustrated that we're not there today, but we are going to be there next year, and we hope you'll continue to support us, and we look forward to presenting in the coming quarters and some of the near-term announcements that we hope to convert on as well.