Knosys Limited (ASX:KNO) Managing Director John Thompson discusses FY22 highlights, revenue drivers, growth investments, hybrid working tailwinds and the outlook for FY23.Tim McGowen:
We're talking today with the ASX listed company, Knosys (ASX:KNO)
, market capital of around $19 million. The company creates software to empower organisations, providing them with new ways to find, use and share information. Knosys' software-as-a-service solutions boost productivity, collaboration and connectivity in the digital workplace. Joining me is Managing Director John Thompson. John, welcome back to the network.John Thompson:
Pleasure to be here again with you.Tim McGowen:
John, in regards to Knosys, you generated very strong revenue growth of around 94 per cent in financial year 2022. Can you give us some insights into the factors driving this increase in revenue?John Thompson:
Look, we were very pleased with our FY22 results. In particular, our top-line revenue growth, which, as you said, is about 94 per cent. This was driven by a full-year contribution from our GreenOrbit product line, which we acquired in March 2021, and also 10 months' contribution from the LIBERO product line, which was acquired in August 2021.
In terms of organic growth, we also secured key new contract wins and customer extensions throughout the year, which also contributed to this high-percentage increase. These wins included two-year contract extensions with Optus, major contract extensions with our GreenOrbit intranet solution customers, such as Harvey Norman and Healthscope, and we won a number of government contracts with Healthdirect, Service Tas, Service SA, just to name a few.
So, Knosys as a software-as-a-service technology company, we operate on really high margins and that's our business model, and gross margin is normally in the order of 87 per cent. So, as a product solution provider, we typically spend about 14 per cent of our revenue on R&D annually. And, as you can see, we've also been very pleased to report that we have around 340 customers, including some really impressive blue chip clients that we work with, and we worked diligently with them during the year to increase the contract value of each client over time through upsell opportunities, and that's been reflected in the growth that you see in our top-line revenue.
And in terms of our recurring revenue, we're entering FY23 with recurring revenue of about $9.4 million, which is up 50 per cent compared to the same time last year, so we're looking relatively good as we sit here today.Tim McGowen:
Thanks, John. And, of course, in financial year 2022 you also invested in growth. Can you give us a little bit more colour on that?John Thompson:
Yes, that's right. Over the past year we made targeted investments in growth across our sales and marketing function, our product development and our customer support groups. Now, these were done firstly to support the integration of the new product lines within the business, but also to position the business for greater customer acquisition and future revenue growth.
Probably the most pleasing aspect of this has been that these internal investments over the past year were predominantly self-funded. As our operating cash outflow is only about $220,000, we now have a cash balance of $5m, so that's a good position to be in, we feel.
So, FY22 really was in line with our strategy to transform Knosys into a global SaaS technology company offering a range of software solutions which are particularly targeted at boosting productivity, collaboration, and connectivity in the digital world. So, Knosys now really has a focus on recurring revenue base from its three SaaS solutions and our expanded global footprint.Tim McGowen:
And, John, you're well positioned, given the global tailwinds, if you like, in regards to hybrid working and information overload, for want of a better word. Can you tell us a little bit more about how these trends are helping you and what you're seeing in the market?John Thompson:
Yeah, I'll focus on the two most important trends that we really see and affect our business. The present day is commonly referred to as the age of information overload, and by this I mean groups like McKinsey did research and found employees spend, you know, 9.3 hours a week on average searching and gathering information. If you put that another way, businesses hire five employees, but only four of them show up to work, and that's the impact that finding information has in terms of your efficiency.
Now, this work was further supported by IDC data which shows that most knowledge-based workers spend 2.5 hours per day, or roughly 30 per cent of their work day, searching for information in order to solve their problem or their customer's. Now, these aren't very good statistics, obviously.
And then you look at COVID. Now, COVID also gave us a glimpse of the future of workplaces. Now we are seeing a massive generational shift which will force companies to adapt to a hybrid work model. Companies need to develop business models that focus on increased information collaboration, secure means to access information from any location and really to embrace this remote work force that now exist.
So, leading employers need to increase focus on employee experience and they need the provided technology they use to be productive, empowering and easy to use. So, this really drives demand for our solutions which simplify, prioritise information, to ensure that workers only see the information they need to perform their role with increasing efficiency and effectiveness.Tim McGowen:
And, John, you had a fantastic financial year in 2022. What's the future look like for Knosys in financial year 2023?John Thompson:
Look, we enter the FY23 with really favourable industry trends that I just spoke of, and we have a healthy pipeline of opportunities across our entire portfolio of solutions. So, this year we aim to continue to grow our recurring revenue base because we are a SaaS business, but we are also focusing on operational performance and, most importantly, self-funding these initiatives.
Specifically, we expect our net operating cash flow to improve during FY23, and we expect to see our operating leverage in our model moving forward really start to show, and by that I mean that our revenue will exceed that of our operating expenditure and our investment in growth initiatives. So, we're quietly confident about the year ahead despite the macro economic conditions that we face, and we look forward to updating your audience throughout the year on how we're going.Tim McGowen:
John Thompson, thanks for the update.John Thompson:
My pleasure. Thank you.Ends