Knosys (ASX:KNO) Presentation, FNN Investor Event, May 2022

Company Presentations

Knosys (ASX:KNO) Managing Director John Thompson provides an overview of the company, presenting on Knosys's product portfolio, growth strategy, geographical reach and financial highlights.

Thanks for the opportunity to present Knosys. Like all good companies, Knosys has a mission and our mission is to deliver exceptional solutions that empower organisations to make smarter connections with their information and knowledge assets. Now, we do this by delivering three really fantastic solutions. Our first one is our KnowledgeIQ, which is our knowledge management platform. And it's specifically designed for contact centres, support desks, branch offices, to enable agents and an organisations employees, to be able to answer customer questions or step them through processes, so they get a really good outcome with that interaction. Our second solution in the portfolio is our GreenOrbit intranet. Now this solution is very much internally focused on employees, to provide a solution, a platform where employees can collaborate, communicate, and engage internally within the company, to have a much better employee experience and be really productive in their work life. And the third solution in the portfolio is our Libero library management solution. Now, this is specifically designed to automate a number of the processes within a library situation, but of recent times it has migrated to be very much focused on member services, enabling members to access information remotely, and to be able to interact with the library via digital channels.

So what's the common theme that is driving the demand for our solutions? The first one is remote workers. Now this was a trend before COVID, it's a trend that was enforced during COVID, and it's a trend that continues post COVID, as people still operate in a hybrid model. So organisations are looking for solutions to help employees work remotely. The second driver for our solutions is the need for consistency in how customers interact with a business. So if a customer contacts an organisation through its website or through its contact center, it expects to get the same information, be stepped through the same processes and have that same level of engagement.

The third drive for our solution is information governance and compliance. As you may know, a number of our customers operate in highly regulated industries, they need the ability to be able to audit how information was created, how it was approved and how it was distributed internally within the organisation and to end customers. And the fourth driver for our solutions is content explosion. The amount of data being generated hourly, daily, is vastly, vastly increased compared to 10 years ago. So organisations are looking for solutions that provide a magnifying glass to be able to focus in on the really important things.

In terms of how the portfolio solutions work together, there are four common themes across the solutions, both at an operational level, but also at a technology level. The first is intelligent search, how do people find information across the solutions?

I ask a question one way, you may ask the question a different way. We expect the solution to deliver the same response to me or to yourself, and that's the whole intent and purpose of intelligent search. The other aspect that is common across the solutions is the personalization of the delivery of the information. Some people call it the Netflix experience, whereby the solutions remember who you are, what you used, what people in your team are using at the moment, and endeavour to deliver that in a really good user experience for the agents, for internal staff, whatever may be required. The third element to the solutions is governance, as I mentioned before, the ability to audit how information was created and to provide that material, if requested, is a significant part of a large number of our customer base, as is the issue of relevance. We mentioned new information being created hourly, daily. How is that information relative to what's existing? How do we connect the dots? So the solutions endeavour to connect information to other information, which is of relevance to the user.

So I'd like to now just go through some of the financial operational aspects of Knosys. As a SaaS company, obviously growing our recurring revenue base is a significant part and a significant focus of the board, the management and staff. If you look at the graph on the right hand side, you can see the company has delivered consistent growth in annualised recurring revenue over its lifetime. And in particular, over the last 12 months, you can see a significant uplift in our annual recurring revenue, due in part to our acquisitions of additional solutions to the portfolio, but also to organic growth. If we look on the right hand side you can see, this is a snapshot of year to date, we currently have $6.9 million in recurring revenue that has been invoiced. We have a really healthy growth margin of 88%, and currently we're doing about an underlying EBITDA of minus $400K. Now, like all technology companies, investment in R&D is important to keep the solutions relevant and keep releasing new features for our customers. And we invest about 17% of our annual recurring revenue back into software development of our solutions. In terms of churn, we currently have just under 6% churn, but this is primarily in our mid-market customers, which is pretty normal for our type of business.

In terms of diversification, we have come a long way over the past 12 months. We have now, if you look at where we are FY22, we have contribution by our solutions from knowledge management, from intranet and from the library, roughly equal in that 30% as you see on the second graph. In terms of revenue, diversification by geography in FY21, 85% of our revenue was generated in Australia and New Zealand, as compared to today, where it's now 71%. The balance of our revenue now is coming from a broader global market, in particular, coming from the US, which is the next largest segment, followed by the EU, UK and then the rest of the world. So as a business, we have a very diversified revenue stream by portfolio of product, and also by geography.

In terms of our underlying organic growth, as you can see from this chart, we have mapped out our operating revenue based upon half years. And as you can see, you can see the trend of continually growing our revenue base, particularly if you compare '20 to '21, you'll see in the second half of FY21, we included some acquisition revenue from our first acquisition, which was GreenOrbit. And now you see where we are today in FY22, a significant uplift in revenue, not only from the acquisition of Libero, which you see there, but also growing the GreenOrbit revenue and the knowledge management revenue over the 12 month period.

In terms of Knosys itself, we consider ourselves to be a global company, we operate in 10 countries throughout the world, we have five offices and we have a staff of 67 people spread across the globe. 20 of those people are in R&D and software development, supporting our customer base of over 350 customers, and we have well over 380,000 users of our technology.

In terms of a customer base, as you can see from this slide, we have quite a diversified customer base and some really well known brands, our partners, and using our solutions. But if we look at the industries where we have our most success, obviously government is the largest industry sector, followed by industrial, followed by financial services, and then a growing position in health. In terms of our customer spread, we have 13% of our customers are enterprise customers, and we define that as having 1,000 users or more, and the rest is mid-market, and that makes up most of our 353 customers.

In terms of our people, as I mentioned, we have 67 people within the organisation across the globe, I'm proud to say that over 30% of our people are women and we really support women, both in technology and in the digital space. As you see by the middle graph there, in terms of where our resources are located, obviously with such a large number of customers, we have a very extensive customer support team, which is our largest unit within the business, followed by our technology team, which is obviously there to keep the solutions and software relevant, then obviously our significant investment in sales and marketing, as we try to grow the business further from where it is today.

In terms of the spread of employees across the world, the majority are here in Australia, 70%, however, we have a very large workforce in India and a growing workforce in the US, as you can see by the right hand circle.

In terms of financial highlights, I think it's really important to see where we are. I'd like to mention that obviously the board has decided on a growth strategy, which we've started to implement in FY22, and you can see the results of that by the left hand table. We've got a significant uplift in revenue and both at the total revenue and at recurring revenue levels, well up by close to 156% on a recurring revenue line. The underlying profitability, due to our investment and growth and additional resources has dropped to a negative 277 for the half year. But as I said, we are investing and looking at our medium term gains, which we expect in FY23 and FY24 going forth.

I think the important thing to note here is that the business is cash flow positive on a yearly basis, and therefore we have the ability to fund our growth strategy through that positive cash flow, but also with our cash balance that we have retained. Now, Q3 update, just to give you a bit of a focus, as I mentioned, we are investing in growth, we've expanded our sales and marketing, we're accelerating our product development, and we're expanding our local and global operations. The annualised recurring revenue is approximately $8.9 million, close to $9 million, which is on track for our targets, our cash receipts are solid, and we expect Q4 to be a really good cash receipt quarter for us. We recently announced the resigning of Optus to a $2 million contract over the next two years, and as I mentioned to you, we've got a solid cash position and expect to get a very good R&D refund as we go forward in Q4.

In terms of a business update, I think in the knowledge management solution, we are looking at a number of RFTs being released in Q4, in the beginning of FY23. An exciting stat that we've got to share with everyone is we are currently having a 75% success rate with the announcement of wins in Service Tas, Service SA. And today we announced the Health Direct has selected Knosys as its KM provider. We also continue to work with our larger enterprise customers to renew those contracts, and we are going well with that, having recently announced Optus, and we are shortly announcing further renewals as we go forward. In GreenOrbit, we have focused the pipeline on transitioning people from the older legacy solution ID, to the GreenOrbit go solution. We have transitioned 70% of the customer base and expect to transition the majority of the 30% over the next nine months.The important aspect about this transition is transitioning to go increases the recurring revenue per user, and also generates professional services revenue for the business. Hence, the reason GreenOrbit has grown from its original $2.8 million, to well over $3.1 million in recurring revenue. We are also launching an extensive digital marketing campaign at the beginning of FY23, with a view to building demand for new sales in GreenOrbit towards the end of the year and into the second half of FY23. Relative to Libero, our newest solution to the portfolio, we really focus on transitioning a lot of their customers from on premise to cloud solutions, in doing that, we increase our annual recurring revenue and also make the operation more efficient. We've participated in a number of tenders and we've been successful in winning five new customers over the last quarter, both in Germany and in Australia. And we're also ramping up our marketing for Libero, to look for new work, particularly in Germany and the neighboring countries, and also in Australia. And we are planning to invest in very targeted product development over the next 12, 18 months, for that exciting product.

So we've talked about growth and it's an important part of Knosys, and our goals for 2024 are pretty simple. We want to increase our customers and reach 1,000 customers from where we sit today. We want to be recognized as a leading solution provider, particularly in the information management space, which is a growing sector, as we all know. And we want to increase our licensed users towards that 1 million mark. And these are the goals that the company, the board, the management are investing in as we sit here.

So what makes up that growth strategy? Well, obviously we have a very large customer base as we sit here today, and we are looking to expand the revenue we derive from that by increasing the number of users, by increasing the number of sites and upselling to the existing customers. We also intend to expand cross sell opportunities exist within the customer base and also upgrade opportunities. So with the existing customer base, we expect to continue to generate growth in that particular activity, as we migrate more into the new customer activities. And in that, we have invested in sales and marketing to promote all three solutions in their target markets and in the new geographies, we're also expanding the brand into our key markets, but also into new markets as well. So new customers, particularly in FY23, will be a major element of the business, as will its growing organically with the existing customer base. An important part for a global company such as ourselves, is brand awareness. Why is it important? Well, the first thing is it attracts and helps retain customers, from an operational point of view, it helps us attract and retain really good employees who wish to work Knosys, and contribute to the growth of the business, but also a stronger brand enables us to win more projects. And during that process, make sure that we maximize the value that we're getting from those projects and those customers.

The fourth pillar to our strategy is obviously expanding the solutions and increasing our IP. We continually invest in releasing new features and we'll continue to do so over the next 12, 24 months, because that is what keeps existing customers, that is what enables us to extract more value from existing customers, but also attain new customers as well. We also want to build out some unique features within our solutions so that we have more differentiation compared to our competitors as we go forward. And the fifth pillar to our strategy, which you've seen the results of over the past 12 months, is acquisitions. We continue to look at opportunities that are brought to us, but our focus at the moment, is very much on organic growth from the portfolio of solutions we have, but we always keep an eye out for great solutions that we can bring into the mix.

In terms of why I think Knosys is a great investment opportunity, very simply, we are a focused company on organic growth and our strategy is very much targeted at Australian and New Zealand, the US and the EU. We are a SaaS based company, our financial model is based upon that and therefore, the financial metrics, the financial growth that will come from that as we increase our customers, will be seen both at the revenue level, and at the operational level. Knosys is a leading workplace SaaS solution provider, we have customers throughout the globe and we've been validated by those customers that the solutions are good solutions and worth investing in. And as you see, we are also trying to expand our global base and open up new markets for our existing solutions. And finally, obviously Knosys is operating in what we believe is a growth market of knowledge management, cloud, intranets, library management solutions, and these are all very large markets, in total, worth over $25 billion. And we think that there's more expansion opportunity for us as we invest in our growth strategy.

In terms of the capital structure, probably the key highlights I would like to point out is that in terms of alignment of executives and managers, and we represent 4.7% of the share holding of the business, the original founders of the business still retain 6.8%, and we have really supportive large shareholders who represent 19% of the company. And we are starting to get institutional investors interested in the business, and they represent 3% of the business.

Well, that's my presentation for the day, so thank you very much for taking the opportunity, and I'll now hand back to our host.


Ends

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