Tesserent (ASX:TNT) talks customer growth and outlook

Interviews

by David Chau

Transcription of Finance News Network interview with Tesserent Limited (ASX:TNT) Managing Director, Keith Glennan.


David Chau: Hello, I’m David Chau with the Finance News Network. Joining me from managed services IT provider, Tesserent Limited (ASX:TNT), is its Managing Director, Keith Glennan. Thanks for joining us, Keith.

Keith Glennan: David, thanks for having me.

David Chau: Firstly, can you tell us about the size of your customers and which sectors you service?

Keith Glennan: We operate across a range of sectors. We have customers across government, manufacturing, retail, and a large number of customers in the education space. Typically we’re looking for customers that have 200 to 2,000 seats – that is probably our sweet spot. Typically, they have an IT department of maybe up to a dozen people, but obviously we operate outside those parameters as well. That represents the majority of our business.

David Chau: Let’s talk about your company’s approach to cyber security. What differentiates your company from other companies that are competing in the same space?

Keith Glennan: This is a difficult market for customers, often, to make decisions in. That is because there’s a lot of noise in the market. I think the thing that really differentiates us is that we have our own technology. We do our own research and development locally. We have global arrangements with a number of really high-end security providers, like Cisco Systems, Inc. (NASDAQ:CSCO), Kaspersky Lab and others.

We’re not just rebadging their product, we’re not just buying something off the shelf and selling it to the customer. We’re integrating technology at a very low level. We do that development in Melbourne and that allows us to take really specialised solutions to the market. And it gives us the flexibility (for customers who’ve got things a little bit out of the ordinary) to be able to deliver solutions that are tailored for them. And we’re not constrained by a vendor’s product that was bought as a complete solution, that we’re hoping to just install, on sell and manage.

David Chau: Moving on to operations now, where are you experiencing the most demand and how is your product suite performing there?

Keith Glennan: The security space is a really interesting space; it’s a big market. People think security is a niche, but there are many niches inside the security space. What we’re seeing at the moment is there’s obviously a huge emphasis on Cloud. So increasingly, we’re working with our clients as they move to Cloud. We’re delivering secure integrated Cloud Biconnectivity; bridging our customers’ physical networks with the environments they might have in either AWS or in Amazon, or other Cloud services.

We continue to do good business in our next generation firewall, colocation. I think we’re seeing an increasing demand for professional services and just general advice, which is really a reflection of the fact that the market is moving quickly. Customers want advice; we’re in a position of trust. So our customers come to us naturally and say, how can you help us to take that next step, but in a way that’s going to be secure. So there’s demand in a lot of different areas of the business.

If we look at one of the drivers at the moment (in anticipation of the recent amendment to the Privacy Bill, where we brought in the Data Breach Notification Bill, which came in a couple of weeks ago) – we’re already seeing and we anticipate a much stronger growth, in terms of customers really understanding what’s going on in their network.

Getting that early warning and understanding now that if there is something that has gone wrong, if there is a breach, there’s now a compliance requirement. There’s a Federal Government requirement, to report that breach for most companies. So we think that’s going to be a huge driver, in terms of the sort of services that we expect to be delivering to our customers.

David Chau: Since you last joined us on FNN, the big news is your agreement with Family Zone. What can you tell us about that?

Keith Glennan: One of the challenges I think with that transaction – it was a little bit hard for the market to digest. We made an acquisition earlier in the year and we’ve divested a piece of that, which is fundamentally the IP that we acquired. That IP is primarily focused on the education space, that’s still a space we’re very strong in. We decided to, in that deal with Family Zone, we sold that IP for $3.5 million in cash and additionally a million shares in Family Zone, which gave us about $3.7 million return.

It’s a little hard to see from our financials that we’ve just released, because of some of the vagaries of the accounting standard. But some of the profit from that actually had to be booked back in 2016. So it’s hard for shareholders to understand what value that represents to us, but we’ve already banked $1.5 million of cash from that transaction. And we expect we’ll be receiving another $2 million at the end of May.

So that’s been a really substantial transaction for us that allows us to cash up, and to invest in some of these other initiatives that we’re working on. But we continue to work very closely with Family Zone; we continue to service those customers that we had that rely on that technology. So it’s really been a good result for both Family Zone and for us.

David Chau: Speaking of results, let’s move onto your financials. What are some of your highlights from the December quarter results?

Keith Glennan: We showed some growth (period on period) for our December results. We continue to get growth – it’s a little more modest than we would like, but 12 months into life as a listed company, there are a lot of systems that we put in place. There’s a lot of bedding down that we’ve done, a lot of building of the team, a lot of building of capability and that’s really been the focus. The next 12 months, we’re really looking forward to being able to capitalise on that investment we’ve made.

We’ve made some pretty significant investments in terms of infrastructure, people and capability, and development. We really expect, as I’ve said before, this Data Breach Notification legislation to be a huge driver. We have a very strong relationship with AlienVault, a US based company. We announced that partnership late last year. We’re already seeing a huge pipeline of opportunities coming from that relationship with them. And already we’re starting to work on deals, which we expect are really going to bear fruit.

As we announced in our results, earlier this week we’ve closed some deals, good-sized deals. We closed a deal for about $600,000. We closed one a few weeks earlier for a bit under $0.25 million and these are high profile organisations that are coming to us. These are annuity deals; they’re expressing a very high degree of confidence in our capability obviously. They’re all competitive deals; we’ve beaten our very high quality competition, to win those deals.

It takes a while for them to flow on, to be recognised in our revenue because there’s a lag in implementation. And then the revenue recognition will be spread out over an extended period. But nonetheless that’s effectively money in the bank. The more of those deals we can put away now, the more that the results into the rest of 2017 and into 2018, are going to reflect the hard work that we’ve put in, over the last 6 to 12 months. And we’re excited about where we’re going to go.

David Chau: One last question Keith. What are the company’s goals over the next six months?

Keith Glennan: As I said, really our objective now is to get some leverage from that capability that we’ve got. And really capitalise on the relationships that we’ve got, especially around getting leverage from the recent legislative changes. Our customers, we’re already having a number of discussions with them about what that means for them, and what new obligations that puts on them. It’s really up to us now to go and capitalise and to really generate some substantial growth, off the back of that opportunity. And that’s what we’re going to be focusing on.

David Chau: Keith Glennan, thanks for the update on Tesserent.

Keith Glennan: Appreciate it, thanks David.


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