Straker Translations Ltd

ASX:STG

Earnings Call Transcript 2021-Q4

[Grant Straker, Co]

Hello, everybody, and welcome to the Straker Translations FY '21 Q4 Foresee Cash Flow Activities Update. This should be relatively brief presentation, just to go with some of the key highlights of our activities statement and what has been happening through the quarter.So I'll just skip over the disclosure stuff. But firstly, I just want to talk some highlights of the revenue in the quarter. And I guess there's a couple of things that are really good to understand about the revenue. One is that we've had pro forma revenue of more than $41 million for FY '21 when you include Lingotek. And one of the things that you'll see through this presentation is that we haven't fully onboarded all of the IBM revenue from that contract yet. So it's just worth bearing in mind that we're tracking, say, above $41 million, and there's still that significant IBM contract that has got a fair bit of on-ramp to go. And secondly, just the way that margins really help us, help any business, and I guess it's something that I have known ever since I've first been in business. You run a high-margin business, you'll run a successful business. And our margins have increased, and this is off the back of -- certainly off the back of our technology impact and also Lingotek on the SaaS platform that we acquired in January. So all up, it was a very good quarter. If you look over the year, just in the chart here, you can see that we had a good 9 months of COVID impact. And it really hasn't affected our customer base as much as it's affected when and how people and customers order. So we find that when they go into lockdown in Europe, for example, a lot of things are put on pause, and then they come out and then that sort of suppressed demand accelerates. So it's very lumpy in this COVID period. But as you can see, as we come into Q4, we've got the IBM revenue coming on board. We've got Lingotek, things really starting to accelerate and head in the right direction.Now if you look at cash, you'll see that, one, we've got a really healthy balance sheet at the moment of more than $7 million, pretty much in line with what we had in our last quarterly report. We've got our second quarter in a row of positive operating cash inflow. And one of the things that I get a lot from board members actually is that I am like Uncle Scrooge, when it comes to how to spend money. And I really do put pressure on my teams to make sure that every cent of shareholder money that we're spending in the company is well invested. And I think that, that discipline really works. Obviously, there's a few things that happen through COVID that we've had to deal with. But overall, we really focus on this cash as a core part of the way we run our business. And we also have the benefit of a variable cost base. So we have this marketplace of translators, highly skilled, and we've got our technology, which gives us some operating leverage in there. And so this is a core part of our business model, which maybe now is just starting to show through in some of the numbers that we are putting out there. So a very good quarter in terms of we're at in cash.Next thing I just want to talk about is the SaaS impact. So we acquired Lingotek in January. About 40% of their revenue is SaaS revenue. Now look, we didn't want to make a big thing about that because we don't want anybody to suddenly say, are we a SaaS company now, and we're not truly a SaaS company. But what we're finding with SaaS is it's an underlying solid part of the business that facilitates a much bigger flow of translation services revenue, and there are some really strong opportunities for us around SaaS. We see it both in the way that we can grow that Lingotek model and the way in which we can start to leverage some of our RAY Platform into a SaaS model. So across FY '22, you will see that we will have -- we're going to really push now for a faster integration of Lingotek. The first couple of months of Lingotek have really just been tick in the box as in terms of 50-odd staff, getting them on board, getting them in our HR system, getting them new contracts, all the things that needed to happen because unlike the other acquisitions that we have done, where we have bought the shares in the company, with Lingotek, we bought the stock. And so we've had to change a lot of -- we bought the assets. So we've had to change a lot of the things that we would normally do, and it takes a little bit of time. But the next 6 months, in particular, are all about integration. So we've had the 2 technology teams working really closely together now on road mapping that and what we need to do because what we want to get is convergence between our 2 platforms, where they operate together, where they're strongly coupled together so that we can benefit from their connectors and the way that their platform facilitates the onboarding a content and the [indiscernible] and the way that our platform can really leverage higher margins and a much better offering both to customers and for our ability to get higher margins. So that's going to be a big focus.We also see that there are some new opportunities that we will push out into SaaS across our existing customer base with some of the connectors and other features of Lingotek and also in our own platform. And then we're going to look to develop some new SaaS products. There's a couple of things that we have had demand for. A validation -- advanced validation platform is very unique. And we see that, that is something that customers have expressed an interest in having a monthly fee as a way to get access to that. So we can see some opportunities now that we have that SaaS model in place to really start to grow it. And again, as we won't become a 100% SaaS company, but we will have an underlying portion of SaaS revenue just really solid and facilitating the growth of the business.In terms of IBM. Now obviously, a big announcement last November. So we had a big uplift. So the first 2 months of IBM were really January and February when the contract started. We're very much about us driving the connectors and getting all of their content on board and doing a lot of automation. So for example, I'm just picking some numbers here, but let's say, there were 20 different divisions of IBM departments that had different ways to store content in different languages with different vendors, and we have to take all of that content and the language strengths that they have and actually write adapters and passes that can get that content into the RAY Platform so that we've got a consistent way to deal with it right across the whole IBM Group. And that stuff takes time, and it's taken a huge development effort to get there. What we have seen is we've started to finish those connectors, we saw a really big jump up in IBM content in February. And on the end of February and on into March, we think that there's 20% to 25% of the IBM content now sort of starting to ramp through, and we think that we'll get to 75% of content by the start of H2, so the end of H1. And again, just to say, IBM were a significant customer for us, for Straker, in 1 language and a significant customer certainly high 6 figures -- 6-figure-type customer with Spanish, and we've been given 55 languages. So a really big opportunity here, I think, as the year goes by for us to start to show you how that really starts to impact some of our results.And just finally, this is a slide that I put in for a few things about a few other presentations I've done recently, it's just really to highlight that we're at a significant inflection point here. And I guess that's the investment opportunity that we're putting out to people is if you look at the analyst forecast, the forecast in FY '22 for us to do more than $50 million-ish, as I indicated earlier, pro forma, we're already at $41 million, and we've got some IBM content, a fair runway of onboarding content to come through as well, as well as a solid underlying business model that's working really well.So what we should start to see, I think, is that over the course of the year, you'll start to see some of those results get delivered. And it's not just us at an inflection point, it's actually the industry at an inflection point. Many larger companies now starting to look around and go, okay, do we need to use a local supplier in each country? Or do we do what IBM is doing, and we go to 1 supplier who's got really good tech that's going to actually solve our problems. And this is the huge opportunity that we have in front of us, and we're making some really significant investments in our sales teams globally. To drive that, we've obviously now got the ideal case study to talk to customers around in terms of how our technology works, and it can work at scale. So it's a really exciting things coming through. So I'm just going to leave it there. As I said, this is just a short update. I'm sure you can all read the activities report and look at the statements. And really now just going to open it up for questions. So I'll just stop sharing that.

[Grant Straker, Co]

And I can see a couple of questions in the Q&A here.So I've just got one from Andrew on market share. Liquidity remains very low, resulting in a large share price volatility, any plans to improve liquidity?Well, I guess what I've always been told is if you deliver the results, then liquidity will come. And that's what brokers, directors, everybody tells me that that's what you've got to do. So we're just going to continue to deliver the results. And then hopefully, that will improve the liquidity. As a major shareholder on this, keen to see that improving as anybody.I've just got a question here from Stella. What is the pro forma gross margin for FY '21, including full year effects of Lingotek; two, with $100 million revenue vision in mind and $41 million exit revenue, could you please give us some idea how long -- how much of that gap will be filled by organic growth from here, including IBM for potential?I mean, we're not giving guidance, Stella. So it's always tricky to forecast where that is. But as I say, the industry is at an inflection point, and we're at an inflection point, and we're investing heavily in organic, and we still have a number of acquisition opportunities as well. So I think that will be a little bit dependent on how things go and how companies come out of COVID, how some of our competitors might not do so well through here, and how some customers may become available and looking for change. So that's certainly something that we're going to look at. I can get -- I need to look up the pro forma [ GM ], but that's something that David Ingram, our CFO, can come offline and answer that back to you.So Luke has got a question. Just wondering whether the margins in the last quarter are sustainable going forward? Or will they come back a bit as IBM rolls out?I think we actually said in the foresee that we see some upside in margin as we get more integration of Lingotek onto the Straker Translations in terms of the RAY side of the translation services. I think that whenever you onboard a big customer, you do take a little bit of a hit with some margins. That's because, for example, big customers like IBM might have different translators or different systems, and you just have to wear a little bit of margin impact. But at the moment, we certainly don't forecast that margins should take a hit. The IBM deal was not constructed around us making lower margins. It was constructed around us having a partnership with them and solving a lot of problems and adding some value. So that's where we're at.So -- look, thank you, everybody. That's all the questions I've had. Always available if you want to e-mail myself or David on any questions, please feel free to do so, and we look forward to updating you on our full year results, which should be in the latter part of May. Thank you very much.