Locate Technologies Limited (LOC) Earnings Call Transcript

Good morning, and thanks for joining the Zoom2u Technologies Q2 FY '25 Quarterly Results and Business Update Webinar. My name is Georgia Katos, and I'm part of the Zoom2u Technologies team. We hope you all had a refreshing break and are feeling recharged for an exciting year ahead. On behalf of the entire team, I'd like to wish you a very happy New Year. I'm joined today by CEO and Founder of Zoom, Steve Orenstein, who will be presenting the Q2 FY '25 quarterly results and providing an update on the group's businesses. The quarterly activities report and the Appendix 4C were lodged with the ASX after market close yesterday afternoon. Following the presentation, we've allocated some time for a Q&A session with Steve and Drew Kelton, our Chair. [Operator Instructions]. I'll now hand over to Steve to take you through today's presentation.

Thanks, Georgia. Hi, everyone. Great to be back here for a new year and hope everyone had a good break and Happy New Year. I will also just mention Michael Gayst, our CFO, is actually on the line, but he's actually on annual leave and traveling overseas at the moment. So I'll be presenting the entire presentation. But we're be pleased to hear that he'll be back next quarter to join us for the presentation. And so I'll just get the slides ready. First off, I just wanted to give you a bit of an update in terms of how our first half of this financial year has gone. Positive EBITDA of $45,000 for the group, plus $20,000 in cash for operating activities. And so a big improvement to the prior corresponding period. We had revenue of $3.2 million, so a 10% improvement from the prior corresponding period, and $1.3 million for Locate2u revenue, so also an improvement from the prior corresponding year. So if we look at our last quarter results, we had $1.66 million in group revenue, so 5% growth over the prior corresponding period; and $660,000 of Locate2u revenue, up 8% from the prior corresponding period. We had negative $29,000 for EBITDA for Q2, in line with what we had in the prior corresponding period. And we had negative $17,000 in cash in operating activities, but still a big improvement from the prior corresponding period. So I'll now turn to just going into a little bit more detail into the financial side of things. So group revenue of $6 million for the calendar year for '24, which is 11% higher than the prior corresponding period. As noted previously, we always have a bit of increased revenue in certain quarters and quarter 4 -- quarter 2 of the last part of the calendar year is where we see that, particularly in our Zoom2u business. Locate2u's revenue of $2.5 million for the calendar year of '24 [ or 5% ] versus the prior corresponding period in Zoom2u. And including 2u Enterprises, which operates the Shred2u business and provides marketing services to our clients, it was up 9% from the prior corresponding period. The Zoom2u business revenue was lower than the prior corresponding period of 3% as enterprise customers provided us with lower margin than the prior corresponding period. Offsetting that was the increase in revenue from 2U Enterprises from higher sales in Shred2u and also growth in our marketing services businesses that we provide in the 2U Enterprises business. I'll now turn to cash flow. Cash flow for year-to-date for the financial year '25, we produced a small positive operating cash flow of $20,000. Looking at cash flow for the quarter, receipts from customers of $1.45 million was lower than the revenue for the quarter as we provide terms to many of our enterprise customers, who will pay for pre-Christmas deliveries in January. Payments for operating expenses for the quarter were in line with payments received. As noted in our quarterly report, cash flow in the quarter was benefit from the timing of the pure quarterly interest payment and other creditor payments falling into January quarter 3, when in prior periods, they have been paid in quarter 2. So net cash outflows from operating activities was negative $17,000 for the quarter. Payments for intellectual property reflects the software development costs capitalized in the quarter, which were in line with quarter 1 of FY '25 as the development teams remains focused on delivering new functionality for the Locate2u product. And there were no material financing activities in the quarter. So in terms of cash movements, we started the quarter with $1.76 million in cash, and we used $17,000 in operating activities, and we spent $295,000 on investing activities, which resulted in an ending cash balance of $1.44 million at December 31. The chart on the right-hand side shows how significantly we've reduced our operating cash burn over the last 2 years, and the team spent a lot of time in making sure that we're spending every cent really wisely. Operating cash inflows for calendar year '24 was approximately $30,000 versus our outflows of approximately $1.9 million in calendar year '24. Now turning to EBITDA. So this gives you a bit of a summary in sort of breaking up on a per business unit there. Our P&L for Q2 EBITDA was negative $29 million. Or if you exclude our ESOP expense, it was negative $12,000. Zoom2u had positive EBITDA of $439,000 for the quarter, and Zoom2u had recorded negative $140,000 of EBITDA. So I'll now turn to just looking at our 2 businesses individually. We've got obviously our Zoom2u business, which is our marketplace that's been operating since 2014. This is where we have a network of delivery drivers providing delivery services to customers. And typically, we generate fees of approximately 20% on the total value of the transaction to the customer. If you look through the results here, you can see the revenue has been sort of fairly stagnant over the -- or consistent over the last number of years. And typically, we do have that -- the Christmas period is our largest sort of period. We did see a sort of a slight reduction in this calendar year -- or last calendar year, mostly around sort of we had a bigger increase from enterprise customers, which typically have lower margin for our business. We've been quite careful around managing our operating expenses. You will see an increase in operating expenses inside of quarter 2. This was specifically around -- we actually engaged some casual drivers to actually be employees inside of the business, which increased our actual operating expenses there. This was designed to actually allow us to operate the marketplace more efficiently and make sure that we could deliver to our customers during the December period when there's quite high demand for drivers on the platform. I'll now turn to Locate2u. And this is where the majority of our focus is today is running in the Locate2u business. You can see here in the graph, we've had fairly consistent revenue growth over -- on a quarter-by-quarter basis, with occasional sort of up and down. When you look at this revenue that you see here, this revenue is made up of monthly subscription revenue as well as some ad hoc revenue that you see. That ad hoc revenue might be installation or implementation fees. It also might be the sale of GPS units. In this last quarter, we signed 2 major sort of customers. There were a number of others as well. Ontime Group, which is an existing Talcasoft customer that's now migrating across into using Locate2u. We had ACM Parts who also came onboard. What we've really been focusing on is over this first half of last year is looking at the functionality that we have in Locate2u and what functionality that we needed to build to win some of these larger enterprise customers. I'm going to walk you through some of that functionality shortly. We spent a lot of time focusing on that development, also working through the implementation of some of these large enterprises that we've won over the previous part of the first half of the period. We're also spending some time now, and we're switching our focus while we're continuing, and development is working really well, is to really focus on our sales model and how we're going about targeting more customers, both in Australia and overseas and targeting smaller to medium-sized businesses and having a sales approach to doing that. I think it's really important that we have a consistent sales process that's actually a model that's working on a consistent basis and helping us win some of these small- to medium-sized customers. The small- to medium-sized customers convert much quicker, have the ability to make change in their business much faster than in what some of these enterprise deals happen. These enterprise deals may come with larger revenue amounts, but they generally will take a number of months to actually implement and start using the Locate2u product. Once they're using it, then they become very sticky, and it runs their entire delivery operation. In this slide here, this sort of demonstrates and shows you what the outgoing reoccurring revenue is on the software side of things. And you can see that's been consistently growing really nicely. As mentioned earlier, our revenue for Locate2u is made up of our software revenue, which is reoccurring; but also hardware revenue, SMS fees, which are on a monthly basis and can vary; but also implementation fees, which are generally sort of once-off fees for a new customer. We've been carefully managing our operating costs over the period -- over the number of periods to make sure that we're managing our costs even further. We see that there's actually further optimization that I'll talk through shortly around what we can do, both in the Zoom2u business, but also in the Locate2u business; to really make sure that every dollar that we're spending is being spent efficiently. I'll now touch on just some of the new features that we've developed over this last quarter that are in the final stages of being released. To give you a sense, over this last -- the first half of this financial year, we've made over 44 releases to the Locate2u platform. Some of these releases have been small, some of these releases have been quite substantial. I'll actually give you a short live demonstration on what some of these features actually are. So if you're interested in sort of understanding what sort of updates we're actually releasing, you'll notice when you go to the Locate2u website down the bottom, we have an option here called Product Updates. This will take you to this page. This will give you updates as to what things we have released. And you can see here just in January alone, there's a number of updates that have been released. These updates come from ideas that we have inside of our business around what improvements that we can make, but also come from working very closely with particular customers. One of those major updates that we're in the process of releasing to our customers is the orders interface. Now if you think about any e-commerce business that's working with us, they will receive an order from their customer. That order typically comes from their e-commerce engine or their point-of-sale system like -- something like Shopify or other ERP systems. We now have the ability for our customers to actually send us that order information via API. You can see here there's a list of example orders. These orders will show you who the customer is. It will show you the information of which particular products are going to be delivered and also have the ability to actually show you the information around the delivery, so when you're picking up that item or when you're actually delivering that item. Why this is really useful is that for many of our customers, particularly where they're delivering large items, they want the ability to actually go and schedule when this delivery is actually going to take place. And they want to make sure that customer is actually home. And so you'll have the ability here to actually select multiple orders and click Send an SMS. This SMS will allow you to select a template. And this allows you to send a prefilled SMS to the customer saying, your order is ready to be delivered, please select the preferred delivery date. This will then trigger an SMS to the customer and allow them to actually select when they actually want that order to be delivered to them. This makes it really -- this is a great experience from a consumer point of view. You now know when your product is actually going to arrive. And when you're thinking about delivering any furniture or big, large items, this is going to be a really great feature for those types of businesses. And so to be able to do this, this requires some smarts that run in the background. Those smarts are having the ability to actually set up inside of our system when you're actually delivering to those areas. Now if you're running a business and you're operating across multiple parts of one particular city or even across multiple states, you may not necessarily be delivering to those areas on an every single day basis. And so this is where our service area functionality comes into play. Service area functionality allows you to actually create different service areas in the system. And you can see here is one example. This is one area that I've created. So let's say, it's eastern suburbs. What I can go in here now is I can actually configure and say, I'm going to be delivering to this particular area between this time window and this time window on a Monday. I'm not going to deliver on a Tuesday. But on a Wednesday, I'm actually going to deliver. It also allows you to say, this is the maximum number of deliveries that you can actually take place on that particular day. And you can also set up a cutoff time period. And so before the time window starts, let's say, for 60 minutes, you can't actually schedule an order 60 minutes out from that time window actually happening. So this allows for real detailed operation businesses to actually make sure they can actually manage to actually do that -- match that customer scheduling requirements. And so we spend a lot of time working with our customers to really understand how they're wanting this to work, how it works operationally inside of their business. And yes, it's great to see that the team has done a huge amount of work in actually making this happen. There's a number of other updates that we've done inside of the system. These are areas that we've been working on to improve the cost of running the system. And so some of the mapping providers that we're using, we've been changing that, also some of our server infrastructure. And there's other features around things like frequent addresses, where you can create multiple addresses that you're going to use on a consistent basis. So yes, so there's a lot of work that's been going into the products. And I'm really -- it's really great to see that all coming together nicely. It's going to really assist us when we're selling to new customers. One of the things that we've experienced over the last sort of 2 or 3 years in building the product is that when we go through the sales cycle, customers will be requesting certain functionality that we didn't actually have, and this was core functionality that they needed for their business. We're now getting closer and closer to having that functionality available. This is really going to assist us in the sales cycle and speeding up that sales process to be much faster into the future. So what's our focus now as we move into H2, so the second half of this financial year? We're really focused on getting to cash flow positive. We really want to make sure that we're self-sustaining in our own right, we've got sufficient revenue to be able to maintain the cost base that we have. Second to that, we want to make sure that we've got a sales engine that really allows us to acquire small-, medium-sized customers on a consistent basis and being able to do that not just in Australia, but in other markets across the world. We've got a number of enterprise implementations that we're working through. We've previously announced customers like [ winnings ], also Designer Transport, where we're working with those customers to actually have them implemented. And so we're making some really great progress in that space. We've also got a number of additional functionality that's being worked on and going to be released in the coming months. And all this functionality is all around how do we get customers faster and how do we satisfy the needs of our existing customers. One of those areas that we're working on is around cost-saving initiatives, but also around how do we make sure that we're capturing all the revenue that we should be. One area that is around the capturing of additional revenue is through our billing engine. Our billing engine that we built day 1 was quite basic, and it allows customers to have more flexibility in terms of being able to add more users when they should have been restricted to the numbers of users. We knew this at the time when we were creating the system, but we wanted to make sure that customers really adopted our technology, and we always knew that we could go back and lock customers out from having -- only having access to the number of licenses that they've actually paid for. So we're just about to roll out this update. We're expecting that there's likely going to be some increased revenue off the back of that. And so we'll see the impact that, that actually has once it's rolled out. And so that's going to be a really positive thing. There's a lot of work that's gone into that billing engine. There's also a number of cost-saving initiatives and looking at sort of the infrastructure that we're using inside of the business, both inside of Zoom2u and also Locate2u and other areas that we can optimize or think about doing that more efficiently. One example of that is how we send SMS messages. We send a lot of SMS messages, both in Zoom2u and Locate2u. Every single one of those SMS' cost money, a small amounts of money, but the small amounts of money start to add up. We're in the final stages of rolling out WhatsApp messaging. And so for customers and people that have WhatsApp on their phone, we will be using WhatsApp to actually message them and say, "Hey, your delivery is en route through this" through WhatsApp. We think this will, one, actually provide customers with a better experience. you will be able to have a registered Zoom2u or registered Locate2u account, so customers will actually be able to recognize us rather than just a random phone number. But also, there will be significant cost savings associated in doing that as well. So yes, this is where the team is focused on, and this is what we're working on in the second half of this financial year. The other thing you'll note from our update is that we have adopted a new treasury management policy, and this includes the purchase of Bitcoin and using Bitcoin as a method of payment for our customers. As a business, we think about -- as we're moving towards a consistent cash flow positive model into the future, we wanted to look at sort of how we manage our cash reserves. And Bitcoin is something that we believe will allow us to actually maximize income into the future rather than having it sitting in a bank. For those that don't know about Bitcoin, I'd recommend sort of spending some time actually trying to understand what Bitcoin actually is. It's a cryptocurrency that's been around since 2009. It's one of the first and most successful that has been out there. I won't spend too much time going into the detail because I think this does require some time, and there's a lot of research that myself and the Board have spent over the many months prior to actually making this update to the shareholders. Under the policy, there's a number of criteria that set out to -- that we have to meet to be able to go about buying Bitcoin. At this point in time, we haven't purchased any Bitcoin inside of the business, but look to in the future when it makes sense and when it meets the criteria set out inside of the policy. As always, investors can keep up to date with us through our investor portal at zoom2u.com.au/investors. You can also register for SMS alerts and also register to meet the team for any questions. I'll now hand over to Drew to assist with any Q&A that has come through.

Yes, there's a number of questions to come through on the adoption of the new sales engine and the new process for SME that's now been put in place globally. And is it now operational today? And are we starting to see some yielding results on new customer leads?

Yes. Look, we're in the early stages of that new sales engine. Up until, we've been really focused on some of these enterprise rollouts and making sure that the product meets the requirements for these large enterprise customers. Some of these enterprise customers have 200 to 300 drivers, so quite substantial businesses, and we want to make sure that we get some really positive customer case studies and making sure the product actually fits. So at the beginning of this year, so come January, we've -- switched my attention to continuing on making sure that those rollouts happen, but I feel like they're underway and that we're doing really well with those. It's just thinking about our sales activity, we're in the early stages. There's some promising signs. What we are finding is an outreach activity is working really well. So where we are actually going at cold to certain target customers that we know that we can add value to. And so we're doing this in quite a clever way. And so we'll see what those results. And as we start to get those results, I'll start to share more information with investors coming forward.

Thanks, Steve. The next question is, it was asked earlier regarding the cash flow position, which I think we covered during the presentation, but maybe Michael can give some clarity. It says, look, the total cash spend was $318,000 in Q2 with a cash balance of $1.4 million. We've got a runway of about 4 quarters. And what's the steps that we're putting in place to maintain the -- extend the cash -- [ buffer ] the cash flows along with growing revenues? So maybe, Michael, you're on the call, you might want to cover that?

Sure, I can touch on that. Thanks, Drew. I think Steve mentioned in the slides that we are -- we have identified a number of areas for cost savings. We run a reasonably tight ship. We don't -- we watch every dollar, as Steve said. I can't give projections, but we do certainly see a significant reduction in our -- a meaningful reduction in our operating costs over the next 6 months or so as we implement these cost saving strategies. And as new customers do come onboard, and we are in advanced talks with a number, we hope to see that burn reduce significantly.

Okay. Thank you, Michael. There is also another question regarding the individual performance of Locate2u to you as we see the [ company's ] starting to scale up in that area. The question is, is the company now in a position to grow the top line revenue in the Locate2u business whilst containing costs and achieving EBITDA positive in the Locate2u portfolio?