Dubber Corporation Limited (DUB) Earnings Call Transcript

Good morning, everyone. We'll just wait an extra minute to allow a few more attendees to join and then we'll start the update on this quarter's results. Okay. We'll get started. It's 9:02. Good morning, everyone. Thank you for joining Dubber's Quarter 4 FY '26 update. I'm Matthew Bellizia, the CEO. I'm joined by acting CFO, Prasad Kasi, for the delivery of this presentation. Prasad, if you can move forward a few slides, please. So again, we had a positive quarter on cash flow. So like always, we continue to tell you what we're going to deliver, and we continue to deliver on that. So we're continually working on being honest with the market, telling you where we see the market going and delivering results accordingly. The business for the first last year or 2 has been a lot about stabilization, getting the market to trust us again, getting our costs under control, and that work will continue to happen. We've still got more cost to drive out. We've got a much more -- a bigger lens right now on direct costs, and we're finding direct costs continuously where we can drive savings through our AWS spend, some of the tools we use, being more efficient in how we store data and how we operate the underlying business. But as we go forward now, it's going to be about growth. It's really now how do we drive the business into growth. And to do that, we're looking at 4 core revenue streams that will drive growth. Compliance recording, which I'll talk about in the later CEO update; Dubber Notes, which is a new product that we're very close to launching, AI for business. I'm going to talk the difference between some of the AI that we've traditionally done versus the AI we're currently going to do and Payment Solutions, which drives 4 revenue streams, which will help us grow the business. The financial highlights for FY '26. Total revenue, $7.6 million for the quarter. The exit ARR is $29 million. Total cash costs were $7.6 million, down 8.8%. We'll continue to drive down the cash-based costs. There's more savings to be found there as well. Working capital balance remains strong at $15.2 million. We have a strong balance sheet. We are a debt-free business. And importantly, all the money that we're spending on R&D in this business is fully expensed. So that shows right now, we have 25 years or 102 quarters of working capital runway following from an infinity quarter last quarter, and we'll continue to preserve cash as we find the ways to grow. And once we start accelerating growth, we have capital to spend on accelerating the growth once we find the right secret to growth. Once we tap into the right markets, we'll certainly be accelerating growth and expanding our capital to grow at the right time. So we'll be investing appropriately and making sure that we get a good return on capital when we do. Next slide, Prasad, if you can go through the CEO presentation, please. Some of the products underway. Compliance -- sorry, we'll talk about these in more detail, but I've talked about the 5 revenue streams. In fact, I might go to the detailed slides and explain this a bit further. So by having 4 revenue streams across 3 different markets gives us a lot of strength. Compliance recording is our current core product. That's the product that's driven a lot of the revenue in this business. It still has a market. There's still a lot of reasons people need to do compliant recording. We have Verizon coming live, hopefully, in the last quarter of this year, which is their expectation. We're getting growth back out of Vodafone and some of our core customers, and that will continue to focus on marketing and growing our compliance recording, growing the right partners, having the right products and getting growth in that market. The second revenue stream that we're close to launching, next slide, Prasad, please, is Dubber Notes. We've been investing in this product since January. It will go live in the next month or so. This is similar to Fireflies.ai or Otter.ai. There's a raft of products that do notes that give you a summary of the call in a concise manner with chapters, with the actions agreed to, with the complaints. It's a product that you'll be able to easily push into Salesforce, into CRMs, into financial adviser systems to save people duplicating notes. How do we compete in that market? Firstly, we're sitting under a big underlying asset that we haven't tapped yet, and that is 224,000 endpoints recording Dubber voice. If we tap that, we can start delivering these notes on top of those recordings. Additionally, -- we -- our notes can -- the Fireflies operates on Webex and Teams. We do it on your phone system, so people that are taking phone calls from their desk on their mobile phones. I'll talk about our app. We have a bigger collection pool than Fireflies can hit with this stuff. The other thing is we don't need to invite a bot to a meeting. And Microsoft have just recently come out and clamping down on bots being invited to meetings. We don't need to do that. The other expansion of our notes, which is different to the notes on the market is the notes on the market are sent to the participants of the call. We can send the managers of the business summaries of the notes that's important to them. So for instance, if a deal is discussed that has more than 10,000 MRR, we can send it to the sales manager. If there's abuse in the call, we can send it to the HR manager. So we can be intelligent with the notes that we generate and who we send it to. So there's some substantial points of difference that we're going to get close to launching shortly. The third revenue stream, next slide, Prasad, is AI for business. Now historically, we have done AI. We've been doing AI as a business for the last 2 or 3 years, but with limited success. What our business did is it counted things in the AI. It said, how many appointments offered, how many appointments accepted. But we pushed all the owners on a sales manager to have to look at that data at the end of the week and go back and coach the sales team. The stuff that's selling around the world like a Gong, which is worth USD 7 billion and other substantial Observe AI and Assembly AI, what they're doing is being able to impact the deal. So in other words, if the salesperson does not handle the deal well, being -- AI being able to detect that, escalating it now so the manager can weigh into the deal and impact the deal and save the deal or create additional business. Creating additional revenue for a company creates a better return on investment rather than just giving sales and dashboards to managers. So we have built a whole lot of AI, again, fully expensed, which is a lot more reactive and supplies your data near real time that gives you information on how to impact the deal and so forth. It's pretty intelligent what we've done. We've worked with the market. We've found some substantial big companies who have been feeding us back information. So rather than building this internally, we've gone out and listened to the market. We're getting feedback from market, and we're building AI that's relevant and AI that has an impact. And I'm not going to disclose everything we're doing there, but that will be coming to market in the final quarter this year. And that's been another substantial investment, which should drive more revenues as well. Next slide, please, Prasad. We have an insight agent that allows you to ask any question you like across all your business. We're also changing the financial model of how we sell these products to a cheaper entry-level license with a token-based charging, and that's going to help this -- help the growth of these products. And next slide, please, Prasad. And we also have AI going to market now, which will tell you the summary of all the conversations across your entire business. And that's being launched that's gone out this week, and now people get summaries of all the core topics, complaints, key issues, products discussed in their business right across the whole business. Whilst we had AI that did specifically for particular areas, this now summarizes across the entire business. Next slide, please, Prasad. And Dubber Payments. This is our fourth revenue stream. We currently have around $2.5 million, $3 million of revenue with payments. We've invested in migrating our payments business to the cloud. We're moving customers from the data center in the U.K. across into the cloud system, but then we'll be able to take this payments business around the world. What this payments business does, it allows people to pay a bill on a credit card, either by reading out the credit card over the phone, by typing in the digits on their phone, and we suppress the DTMF or we take away the credit card numbers that the operator can't hear them. We intercept them and safely process them or we can send a link out to someone's phone like Virgin Australia does where you punch the credit cards in. We have that existing tech. It was part of an acquisition we did in 2021. It sits in the U.K. but there's markets around the world for it, and we'll continue to grow that business in its own right. We're now promoting it. We've got a sales team focused on it. And that's a fourth revenue stream that will also grow as we broaden this business back into a growth mode. Next slide, please, Prasad. And we have a new mobile app, which is close to being launched that not only allows you to record, brings AI through the recordings, both for the Android and the Apple app. So that's also going to broaden it up. And it also means we can capture a whole lot of in-person meetings very easily and then feed that into our AI. So there's a whole collection of information coming in that can then push into CRMs into financial people records that can create notes to save people having to retype the summaries of their meetings and create real savings and real business benefits of people. We are really focused that our AI has to help companies and customers either improve sales, improve customer retention, reduce costs or improve compliance. If it doesn't do one or more of those things, people aren't going to buy it. People are going to have a real return on investment and products that really have an impact that save people money. And again, we've spent a lot on this R&D that's been expensed, and we're spending a lot of time listening to market to build what the market is going to consume. Next slide, please, Prasad. Some of the key projects that continue underway. Our largest partner, Vodafone, is getting close to completing moving all their customers off the data center on to Dubber, which again gives the market -- gives you guys, shareholders strong confidence that they're not only staying with Dubber, they're investing in Dubber. It's been a big project to move all the people from the data center on to Dubber, which is going to drive us good savings when we close down that data center, somewhere in the circa of potentially $2 million to $3 million will drive out of the cost when that data center totally closes. The Verizon project is on target to go live in the last quarter or Q2 FY '27. Data center, we're continually migrating the payments customers on to AWS and Vodafone and other customers. Direct cost optimization, we've done a lot of expenses we saved in the first year or 2 I was here. There's now a whole lens on direct costs. And as we're pulling through direct costs, we'll find a whole lot of things that a process of costs that we've been running excessively, more efficient ways of storing data, more efficient ways of indexing data and continually working on how we drive the direct cost down. And you should see them flow through the numbers in the coming quarters as we continue to realize savings in our direct costs. And we continue to invest in R&D, which is not just a technology company, we'll continue to invest in good R&D, good sales, good marketing and good go-to-market practice, and that's what makes a successful technology business into the future. Next slide, please, Prasad. I think I'm now handing over to Prasad to do the financial summary.

All right. I'll start with the revenue. We reported revenue of $7.6 million for the quarter. The material movement was the expected roll-off of the one-off VMO2 revenue. Strip that out, the underlying business was broadly stable. Recurring revenue was $7.1 million. And importantly, our June exit ARR, which is an annual run rate is at $29 million, which is higher than the Q4 recurring revenue. This reflects the resilience of our core customer base. And we are putting new product features in front of our customers, both to keep them and to grow them. One of the key milestones this quarter was achieving operating cash flow breakeven following a positive operating cash flow in Q3. Revenue and total cash-based costs were both at $7.6 million for the quarter. Costs came down 8% from $8.2 million to $7.6 million. So we are now running at $30.4 million annualized. This reflects the work we have done over the past year to simplify the business, reduce our cost base and improve efficiencies. Direct costs came down again from $2.58 million to $2.45 million, down 5%, which annualizes to $9.8 million. The gross margin is at 68%. We're working hard on optimizing AWS and Azure spend right now, as Matt said before, and these are the savings -- and there are more savings to come in Q1 FY '27. Operating cash reduced again this quarter, down from 9% compared to Q3. These savings are now flowing through from actions we have taken over the last 12 months, including workforce optimization, lease exits and increased automation around the business. We expect more to come through in Q1 FY '27. EBITDA. These cost improvements also reflected our profitability. We have delivered a positive normalized EBITDA of $0.1 million, making this our second consecutive positive quarter in terms of EBITDA. Compared to where we were a year ago, this is an improvement of almost $4 million. While we are pleased with the progress, the next phase is clearly about growing the revenue while maintaining the financial discipline. Our balance sheet remains really strong. So we finished the quarter with $10.2 million of cash and a fully undrawn $5 million loan facility gives us a total available funding of $15.2 million. We are debt-free, well capitalized, giving us flexibility to continue investing in products development while supporting the future sustainable growth. Coming to actual cash flows. Customer receipts were $8.1 million during the quarter. Operating outflows came down a long way from $11.2 million to $8.2 million this quarter. We are spending less on restructure and the cost savings are now flowing through. Net operating cash flow was $0.1 million for the quarter, which is essentially a breakeven. Financing was another $0.1 million, which is the lease payments during the quarter. If we normalize the cash flow, removing the one-off restructure cost of $190,000 and related recovery costs of $80,000, the business generated a normalized cash outflow -- sorry, cash inflow of $0.2 million. And these one-off items reduced further, we expect reported cash performance to increase, reflecting the underlying operating business. So overall, we are pleased with the progress we have made over the past year. We have materially reduced our cost base, delivered on second consecutive quarter of positive normalized EBITDA, achieved operating cash flow run rate breakeven and maintained a strong balance sheet. With this foundation is now in place, our focus gets to executing the new product launches and driving sustainable revenue growth. Back to you, Matt.

Yes. Next slide, please, Prasad. The investigation and recovery of funds, again, there's really not much update. We don't get any feedback from ASIC. So we don't know what is transpiring in their case. We know ASIC is suing BDO. And therefore, our case against BDO will have some expense this month, but then it will go largely dormant until BDO -- sorry, until ASIC's case against BDO occurs. And once that occurs, then the outcome is going to drive what -- that's going to have a large impact on the success of our case, but at least we'll be able to drive our costs down a fair bit after the next month and settle that back down. In terms of our case against Stephen McGovern and Mark Madafferi, that again is fairly dormant because we have to wait to see what ASIC does and the court, therefore, stays that case until ASIC decide what they're doing. So those cases -- there's a little bit of expense coming up in those cases, and then that will settle back down and probably go fairly dormant until ASIC completes what they're doing. And then in our cases, we'll do that, which is actually good for us because ASIC will do the heavy lifting in terms of pursuing that. Next slide, please, Prasad. Some of the focus areas for FY '27. Getting Dubber Notes to market, getting it well marketed in our sales team and getting out to our resellers successfully and driving revenue growth, launching the AI for business products and continue to evolve those products, continually migrating the customers off the Aeriandi platform to Dubber, which is an ongoing project in the business, position the business for revenue growth and profitability, continue to find ways of driving the business forward and turning those graphs that have been diminishing into growth graphs and the product evolution as a technology business, we're going to continue to drive growth. We've got to continue to find more revenue streams and continue to grow the business going forward. And that's the way this business needs to now pivot. So that's all we have. Let's move to questions.

And we've already got 2 questions. So I'll read the questions and start answering them. Understandably, there has been churn in the revenue due to the events from 2 years ago and the decisions made at that time. Are you seeing green shoots and new growth now and seeing that churn slow? So the answer is both. We are starting to see the churn slow. So the churn has been coming at us constantly because people took a year to make a decision and then a year to implement a new system when we've still had revenue loss coming through over the last 6 months. That is slowing down, so we should start to slow, and that's been hurting our growth. So our growth -- some of the new business we've been getting is not bad. What's been hurting us has been some of the revenue that's been gone out as a consequence of that. I think that is going to slow down. If you haven't left us by now, why should you leave us? We're not at risk that we're going to go broke, the stability questions are put to bed. So now we should be through all that, and it should really slow right down. So we are seeing some new shoots. And we also are looking forward to Verizon going live, the biggest telco in the world, and that's being a big product running. That's going into their One Talk product and -- which is their main business product. So that's going to be fairly exciting. They've got a big customer base on that already. Next question. Given the last 3 quarterly reports, Matthew has stated that the cost control has worked. And given Dubber is focused on revenue growth, a 4% drop in revenue, excluding VMO2 lost revenue isn't broadly stable. It's a fall. Overall revenue has fallen since -- nearly 25% since Q1 FY '25. Surely, this is a concern. Yes, it was -- it is a concern that we've had losing revenue, which is depicted in all those graphs for that period. What has been promising is our ARR quarter-on-quarter has gone up. And that is why we took all the onetime revenues, which includes professional services, and we put VMO2 into onetime revenue. So because it's not continuing, we knew it was leaving, therefore, we took it out of the ARR. The ARR quarter-on-quarter has increased. So that's the positive where we're starting to grow the business back from a stable point of view. A lot of that still comes from historic stuff. The other thing that happens quarter-on-quarter is professional services. So we can get bumpy professional services that comes in. And don't forget the -- so we do get some bumpy stuff that comes into that revenue that is so forth. I think the barometer you look at from where we're starting to stabilize the place in growth is the ARR has grown quarter-on-quarter, which was how much, Prasad? You're on mute, Prasad.

It's about $150,000, Matt.

Yes. So we grew the ARR quarter-on-quarter by $150,000. And that's why we isolated the revenue that we knew was going to leave out of ARR some time ago because we knew it was bumpy. And that's what we've said to people, the ARR number is a continuing piece. The other piece is the legacy piece. So yes, it's a concern. And yes, I'd like to see those graphs now flatten in the revenue loss and then start pivoting into growth. And that's where if we grow in that point of view, we're going to grow both top line and we'll be growing hopefully bottom line at the same time with some -- with a better cost structure and a more sustainable business going forward. How many tech staff left within the business? That's -- I'm going to guess it's somewhere between 20 and 30. I haven't actually counted those in advance, but it's in that circa. Are your new products prominently pitched to existing users or new users? So the answer to that would be both. So to start with, we'll start enabling our existing sellers, which we're already doing to start to pitch into existing customers because we have 224,000 endpoints being recorded. Those people are a great target to start taking advantage of our AI. We've got the voice asset. We've got the underlying information about their business sitting in a database, so we should absolutely tap that. But we'll start spending money on marketing. A new website will be coming out, and we'll start sending money on marketing to go after new business, new growth as well. How material do you think the revenue flows could be with the potential new market launches? We've been reluctant to forecast the market historically, and we're going to stay with that position. So we're not forecasting revenue. So I've got to be careful what I say, but we're optimistic. The numbers flowing through from Verizon's estimates are pretty good as well, right? And we've been back Vodafone selling us and Vodafone sales in the last 2 months have been pretty good. This month is very good. I mean, is that going to sustain? I just need a bit more runway to see what goes on. And as I've done since I've started here is I've told you guys the truth. So I'm not -- I haven't sugar coated. I continue to tell you what's happening and our results keep reflecting what we're telling you, but we're not going to forecast revenue at this point until we get a bit more consistency through this revenue and then I think we'll be in a better position to see. We've just come from such an unusual and extraordinary event that's had impacts, and we had been sideswiped a few times historically, and that should stop, that it's kind of hard to want to forecast with a strong commitment, yes. But we certainly think there's some reasonable revenue. We're optimistic about them, but let's see how it goes. Consider comment on removal of stock selling. I'm not quite sure. Can -- you might update that if you can. Just a bit more clear on that question, if you may, please. Can you give us an FY '26, '27, '28 EBITDA projections at all? No, we can't right now because we've got a policy of not forecasting at the minute. Needless to say, I'd like to see that I like black businesses, but I can't -- we've got a policy. We just need a little bit more time on that first. With the revenue base where it is and Verizon is still to land, how does the Board view the current market cap? I can't speak on behalf of the Board, but I can speak on my behalf. I can give you that this is a personal view, not a Board view. I'm still buying the stock because when I look at the company, and I think it's worth what are we worth today, $27 million or something, $24 million, $27 million. I sit down and think you've got $10 million cash. Can we sell that business to $17 million on a cash-free, debt-free basis? The answer will be pretty easy. What's the Verizon and Vodafone and $29 million of ARR worth? So I think it's heavily undervalued. And unfortunately, I can't buy again until after the half year results are out. But if it stays at these numbers, I'll just keep pouring into it. I think it's heavily undervalued. I think now the fact that quarter-on-quarter, we consistently be strong on our -- retaining our working capital. The market is not worrying about whether we're a concern anymore. The market knows we're stable. Verizon is a big endorsement to say, hey, these guys are on the right track and go forward. So that's my view on the market cap. I just think with $10 million cash and $15 million working capital and 0 debt, everything fully expensed. I mean, don't forget, we go and capitalize our R&D, we would pop the bottom line pretty quickly. So anyway, is the company protected against excessive AI token use? Absolutely. That's why we're going to a token-based model. Bill shock on AI is extremely dangerous, pricing something and then having AI costs either change. The models change as well. They deprecate value. So it's a very good question. What we'll be doing to protect AI is we're now selling tokens. So we're going to sell our core Dubber software much, much cheaper. We're trying to sell $50 a license. I'm talking about selling it considerably cheaper and sharing that margin with the partners then people buy tokens off Dubber so that we have -- and once you decrement your tokens, your AI stops working for that month where you have to buy more tokens. It is a particularly dangerous space to be allowing people to go tokens without prepurchasing. So yes, very important in today's space. Have there been any major changes to the registry over the 12 months? Not really. without disclosing, I guess it's in the public record, I think, but Alex is still #1. They're still -- Thorney is still there. Regal, myself, Alison remain the top 4, and they've been the top 4 for the last 12 months. I think that's all the questions. Will the strengthening U.S. dollar bottom line -- strengthening U.S. dollar improve the bottom line. No we would actually do quite the reverse. So we have taken some of the revenue loss we've suffered in the last 12 months or 2 years, 94% of our revenue is abroad. So if you have a look at how much revenue we've lost in the last 12 months and factor how much of a whack we've taken from the exchange rate, I think it's -- I don't want to be exact on these numbers, but I think it's circa $200,000 a month of MRR. We've taken a hit on exchange rate. So a weakening U.S. dollar would be great for us. If the Aussie dollar drops back to $0.65, we would pop revenue considerably. Will Dubber AI token sales be a further positive margin revenue stream? Yes, no, it will be a positive revenue stream. The margin on tokens will be a little tighter because, obviously, you can't charge an absorbitant margin on tokens. Are there any further questions? If there's no further questions, I'll just give it another 30 seconds. We will wind up this month's quarterly update. Okay. So we will finish up. Thank you, everyone, for attending. I hope we provide you with sufficient information. We'll continue to work hard for you and see if we can drive a real focus into having a good product range, a good marketing focus and a good sales team executing growth into the business as we turn it around, hopefully, with revenue uplift coming forward into the future. Thanks, everyone. Bye.