NetLinkz (ASX:NET) Presentation, FNN Online Investor Event, May 2020

Company Presentations

NetLinkz Limited (ASX:NET) Executive Chairman & CEO James Tsiolis presents on the company's suite of networking solutions, the market opportunity and progress with partners, at FNN's Investor Event.

It's good to be back. I think the last time I did a presentation was around about this time or maybe April last year, so a different environment currently. So, I thank you for having me back. Let's move on to the next slide.

As Clive said, we're an ASX-listed company. Our market cap is circa $80 million. Effectively, the company is a virtual software-defined networks creator. We have a number of global patents, which allow us to secure peer-to-peer networks, and why that's relevant today, with IoT, cloud and mobility, and as COVID has demonstrated, people need to work remotely or on the edge. Our technology allows a number of participants to work from home protected in the sense that we encrypt the connection between the household, where they're working from, back to the head office. And we do that in a very flexible, fast and cost-effective way.

COVID, in particular, has brought our product to the forefront and has created a number of opportunities for us. In particular with China being the first country to have the challenge and given that we've got a significant IoT lab there and a company that we've established in a joint venture, we've seen significant interest in our product. And so, from that perspective, we expect the product to continue to grow. But also, more importantly, I think the product, as we've demonstrated now, it's deployable on AWS in China, Huawei and Microsoft Azure Cloud. So we've managed to establish the company on a number of fronts.

As I said, we have a significant joint venture in China, which is called iLinkAll Science and Technology Company, or iLinkAll. It's developed, effectively, a new product called the VSN, which is based on the original Australian patents that were created by the founder, Charlie Gargett, but what the Chinese have done, because of the scale of the opportunity and their capability to scale, is they've now made or created a product that is scalable on a much more significant opportunity than the one that we had in Australia.

What they've also managed to do is to create a much more flexible network. And so what they have been able to achieve is the ability for us to do many, many things beyond just connecting devices on the edge. We effectively now have a full dashboard which allows enterprise customers to use the product. Whereas, previously, the product was more appropriate for small to medium enterprise, now it's a cross-border, global product that they've developed over the last 12 months. And, as I said, it's a particular advantage that we've had in being able to have an IoT lab in China which has allowed us to scale and test the product in a much more significant way than what we could have in Australia.

The other significant thing that we've done since I last presented is we bought a company called Software International Pacific Pty Limited, and that's a business that's been around since 2011. Its client base are all the telecommunications companies in Australia, as well as Spark in New Zealand.

The company itself is in the security part of software. They provide a lot of software solutions, through interception software to the various government agencies, including law enforcement, the defence department, and things of that like. That company we've bought, and it's a wholly owned subsidiary. We've also managed to keep all of the management team, so they've joined the NetLinkz team and they will form part of the backbone, which will see the company now have a significant presence in Australia.

Overall, since I last presented, the key thing is we're now live and we have four key sales channels. iLinkAll in China is obviously running the China sales strategy and distribution strategy. And under that sits GAST, which is our agent who helped us do the China Telecom pilot over the last few years, which was successful. And as we phase that out and then go full commercial with China Telecom as well, iLinkAll will manage that relationship.

SSI, as I said, they're got the telecommunication and government enterprises. There's also an element of private sector that they do, but their main focus is telecommunications and government enterprise. NetLinkz Global, which is our Australian distributor, they're the ones now that will offer the enterprise solution, which we've developed in China. But again, there'll be a separate source code, which is what we call the VIN, which forms part of the product suite. In addition to that, since my last presentation, we've just established NetLinkz Japan KK, and that company now has entered into a couple of NDAs. So we're expecting to appoint partners over the course of the next three to six months. Next slide please, Clive.

In terms of the financial snapshot, since I last attended this, we put out a revenue guide late last year when we finalised the joint venture. The revenue guidance was circa for the calendar year, not financial year, $15.3 million. For the first quarter, we reported revenue of $2.1 or $2.2 million, which was in line with the expectations that we had as a company.

We expect the next quarter to meet our expectations as well, as we're getting well into the second quarter. In terms of the sales, iLinkAll generated $1.6 million over the course of the first quarter, being the first quarter calendar year. And SSI, over the same period, generated $535,000 revenue. So both of those two organisations, the distributors did well for that quarter, particularly when one considers it was in the middle of the COVID coronavirus pandemic, where the world was shutting down, we had, I thought, a very good quarter. We continue to expect significant growth in sales as China continues to roll the product out. As I said before, the key things there are we've now deployed the technology in the three different cloud service providers, being AWS, Azure and Huawei. So we've got a very, very good distribution point there. We've also got things on with, which we're still working with JD on establishing our partnership there. But I don't expect anything other than that to go live over the course of the next, probably, three to four weeks

So, in essence, I think China will lead the sales charge for the company with Australia following, as we now, through the acquisition of SSI, establish what I call a proper distribution channel in Australia, coupled with all the people that we're hiring to focus on sales in Australia and New Zealand through NetLinkz Global.

In terms of China, we did a capital raising late last year and, effectively, we've allocated $4.1 million in funding to the joint venture, being iLinkAll. That should see the company have enough capital to continue to roll out the product at a growth rate which should last for 18 months. We expect the business to continue to grow the revenue in all sorts of verticals. So, it doesn't just have one particular customer. We have a significant diversity of customers that are coming and signing on with the Chinese company. Next slide, please.

With respect to our product, we have a three-product suite. So as I said earlier, the VIN, which is the award winning, Australian patented technology, which has also global patents. That's the focus that we've had in Australia. And, as I've said before, that is focused on the SME market and household market.

The VSN lite, which is the first iteration of the product in China, that effectively is a VIN, but also it has the capability of then mobility, which is iOS and Android. So we're not just talking about a desktop solution. It actually factors in mobility in the form of iOS and Android. That is one of the products that we're selling in China.

The VSN, which has gone live as well, that is the enterprise-grade software, as I said before. And this is the one that we're expecting now to roll out quite aggressively throughout China. This is the product, for example, that we've been able to sign up the water treatment project in Chengdu, in Sichuan, in China, which is a significant World Bank-sponsored project. We'll be providing the backbone of the network, which will basically connect all the various sites that sensors are implemented into, which is the edge solution or the edge network solution, which requires significant security to protect the data, given that you're talking about significant amounts of data floating around between the various sensors and ultimately the cloud. Next slide, please.

The technology itself has won several awards over the years. The one that really got the company noticed by everyone was when it won the Global Security Challenge, which is run by the Defense Department of the United States. That now was almost six years ago, but effectively that then allowed the company to raise R&D funding via the original founders, in particular Charlie Gargett, Tim Gooch and Andrew Sutherland. But the company now has gone well beyond that core piece of technology which won that award. And that's demonstrated by the awards that it's winning in China. And we've won now two significant awards from the industry associations in China relating to cloud service and also to software.

So from that perspective, it's not just the product that's won the US Defense Department, Telstra Innovation, also Blue Tech has awarded us with a number of things, but we've now proven that the technology also is award-winning in China. So we've actually got, or have proven, that the technology is beyond any one single border. And I think that that's an exciting result for the company over a course of six years. So I think that that's a credit to all the people that have been involved with the business before it was listed and during its listing. Next slide, please.

As I said before, the real highlight for us is revenue starting in this first quarter. So, since January of 2020, a significant thing for China in particular is having its first quarter of revenue of $1.6 million. And really the highlights that have led to that revenue have been the Beijing Municipal Bureau of Economics and Information Technology inviting us to effectively come up with a remote desktop solution. And we're working with a number of companies at the moment in order to deliver that to the Beijing municipality, which will then obviously sponsor our product, and then it will go into distribution out to the various businesses and households in Beijing and beyond. So I think that's a very exciting development for the product.

In addition to that, we've got major car manufacturers that are now looking at the VSM product as part of securing the data transmissions to occur between autonomous vehicles and points of centre. We've got M-Soft, which is a distributor out of Shanghai. They're doing a number of things now with Chinese companies, but also US-based companies that have significant business in China. And again, what they are looking to do is to offer these companies a solution which allows us to network devices for IoT and then secure it back into a cloud structure. And again, because we have the VSN product now, these discussions are becoming more than just testing. We're moving from a testing to design and implementation, and also then establishing the network.

Pinnacle, likewise, which is a significant distributor in China of software, they're working with a number of companies in China, but looking to expand the Chinese companies' ability to connect with their offices outside of China. So you've got the US companies looking to go between the US and China. We also then have Chinese companies going outside of China. And again, either way, our product is seen as a real solution to providing a virtual security solution for a remote network or a network on the edge. And IoT, cloud, in particular 5G as well, has made our product at the forefront of the discussions that some of these distributors are having.

The only other thing I'll add to that is that, on the infrastructure side, our product has proven to be a real solution for projects which require the establishment of IoT within an infrastructure asset. And a number of these infrastructure assets now, including water, wind, electricity, we've seen a significant interest in establishing a network of sensors to allow the monitoring of performance of the asset, to indicate whether the asset needs to be serviced. We're having some very interesting testing being done on securing cameras, securing all sorts of sensors, that then allow data to go into a cloud environment, which then AI is used to assess that data, and for real live information to be assessed, analysed, and then acted upon. Next slide, please.

SSI, which we acquired, as I said, early in January, these are some of the customers that they have. And, as I said before, you can see there that it's a number of government departments, whether it's VicTrack. You've also then got a number of the telcos. So you've got Spark in New Zealand, Vodafone, Telstra. So, from that perspective, SSI has been around, as I said, since 2011. They do have a very, very loyal customer base. And we expect our product to be cross sold into some of these customers as we start to mesh our technology with the existing SSI technology. Next slide, please.

So NetLinkz Global, which is effectively the company in Australia, outside of SSI, which contains a lot of our IP, our focus there is the pilots, and we've announced to the market a number of pilots. They're continuing to be managed. We expect some of these pilots now to be commercialised. And the interesting thing about those pilots is we've got a very good, diverse, customer base across industry. Again, it's not just one industry that we're relying on or a specific customer base in particular. The real focus for us is to ensure that we continue those pilots and then commercialise them.

The interesting thing about the SSI play is that it takes us square into the telecommunications industry. And again, the product historically has won a number of awards out of the telecommunications industry, so things like the Telstra Innovation award. So I think our software, our product has a lot of application in the telecommunication industry. It's a matter of how we deal with that in the coming months and how we establish pilots in that specific sector.

For NetLinkz Japan, as I said before, we've signed some NDAs, which allow us now to explore the strategic partnerships. I expect that to start to come to a fore over the course of the next three to six months. And I think Japan, for us in particular, has a significant play, because, again, there's a lot of IoT activity investment in Japan. Japan does lead the world in, for example, lenses. Lenses go into cameras. Cameras are what we want to mesh on the edge to allow these cameras to secure their data and then transfer the data to a cloud securely, where then that data can be analysed by the owner of the camera.

So Japan, I think, offers us a lot of excitement. In addition to that, Japan, like China, significant mobility, significant gaming, which again, requires all these edge devices and security. In terms of the ability for us as a business, I think one of the great opportunities is for us to focus on cross-border protection for global retail companies. And we've seen a significant amount of US-branded companies that are looking at our technology now, where they're trying to transfer IP between, say, the United States and another country, be it, whether it's Australia, China, they're looking to transfer that IP, whether it's design, whether it' specific data. It could be customer data, for example, or it might be design data for a piece of clothing, but that data needs to be transferred between the branches or between the offices in a secure way. And what we're seeing is a lot of testing being done for that in our IoT lab in Beijing, and that then goes onto payments and so on and so forth. Next slide please Clive.

I guess one of the questions we always get asked is why China? China, at this point in time, is probably the largest mobile market in the world. And what do we mean by that? There are 1.6 billion mobile subscriptions in China. The US, on the other hand, has 385 million subscriptions. So you can see the difference in the size of market just in that statistic. What that means is it offers us significant scale. It's a large enough market where we can also be a participant. China, in addition to that, allows us to focus on elements of the market which don't necessarily offer themselves readily in Australia -- or in the US for that matter. And what do I mean by that? The Chinese government has embraced cloud and 5G and AI. And that's what allowed us to go into that market to start with because our underlying software, our product, has the ability to join all three of those together. That, for us, is a significant tick in our box to say we should look to make an investment in China.

iSoftStone, which we've partnered with now, continue to do our software development. They're the largest software engineering company in China. They turn over approximately $1.5 billion per annum. So they are a premier software developer that understood the capabilities of our IP, of our technology, and have helped us to scale it to this point. And what that's led to is, for example, us winning the water sanitisation opportunity in Sichuan, in Chengdu, and that we would not have been able to do if we just tended for that project as an Australian company based in Australia. The fact that we've gone to the trouble of establishing iLinkAll in Beijing, we have iSoftStone as our partner, has really opened us up to infrastructure projects like that.

And what's interesting about that infrastructure project is it's the first one of its kind where the Chinese government has worked with the World Bank to have a public-private partnership, and that is a critical development because the Chinese government is starting to open up some of its infrastructure projects to the private sector, not just local government entities. And, for us, that opens up a significant market opportunity because several of these infrastructure projects will allow us to design and implement a network for that infrastructure project. And the water treatment is a classic. We're involved right from the start, we're going to pick up about a million dollars just in the design and the implementation phase. And then what follows is the revenue that we generate by establishing the network, and managing and servicing that network for that infrastructure project. Again, we could not do that remotely. We had to have established iLinkAll in China. And what this demonstrates is that that investment theory that we put, and a commitment that we made, is starting to pay off.

Now, the flip side of that as well is that the IoT lab has led to a lot of non-Chinese companies coming into it and testing product. And, as I said, we've had several US- and European-branded companies, a lot of them listed on their respective stock exchanges, look at what the capability of our product is and how can they use our product and its capability, not just in China, but beyond. So, I think the China opportunity and the thesis that we put together probably two years ago now, despite some of the geopolitical and the coronavirus, I think we're proving to the market that we can generate the revenue and we're becoming a serious player in that market for software-defined networks. Next slide, please.

Again, this is more of a graphic in terms of the numbers, but you can see from that slide that we're talking about China being a significant market. Then you've got the APEC region, which, obviously, Australia forms part of, and you can see the trend there. We're talking about a corridor north of Australia, and I think NetLinkz is poised to take advantage of that market. And I think the Asian markets in particular are very open to new participants coming into the market. And I think that that's a significant opportunity for us. Yes, America is still very important, as is Europe. I don't doubt that. But what we have to do is prove that our product works in order to be welcomed to all markets.

The sensitivity to all this is how do we manage sovereignty and the protection, or keeping the data sovereign. And to that degree, we're looking to continue to establish IoT labs in local markets, which will allow the development of source code for that specific market that will stay in that market. And we've started that process with China. Japan, we're about to go into that process. We have an IoT lab here in Australia. The IoT lab in Australia, for example, went through pen testing and an assurance certification with KPMG. Again, that's something that we will do in other markets around the world as we establish the product and the source code for specific markets, whether they're regional or country focused.

So really, I think China has allowed the company to establish itself and its product. It's now how do we commercialise that globally? And, in summary, COVID-19 or coronavirus, the pandemic, to some degree has had an impact on our share price. I think that's more of a short-term impact. I think the numbers that we're delivering and will deliver in revenue, and then eventually profitability, will prove to the market that we've got an endurable growing business model which will see significant revenue in the future. So thank you very much.