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Technology company, K2fly Limited (ASX:K2F), based in Subiaco, Western Australia, has announced an improvement of 103% in the invoices raised for the quarter ended 31 December 2019 (Q2 FY20) at AUD 1.68 million as compared to AUD 0.83 million in the prior corresponding period (PCP) Q2 FY19.
The Company specialises in the provision of software and services to businesses from asset intensive industries (Oil & Gas, Mining, Rail, Facilities Management, Water etc) and this is the largest quarterly invoice figure recorded so far, thus marking a milestone for K2fly.
Source: December Quarterly Report
Sales Update and SaaS Contracts
K2fly has multiple revenue channels (outlined in the figure below) including software licencing, consulting, support and configuration, all empowering businesses to manage and maintain their physical asset data, deliver more efficient outcomes and make informed long-term decisions.
Business Segments
The Company’s Current Annual Recurring Revenue (ARR) grew by 40% in Q2 to over AUD 1.4 million while the Current Total Contract Value (TCV) witnessed a rise of 188% in Q2 to more than AUD 3.5 million. Most importantly, the SaaS subscription (ARR) business has hit a milestone of 33% of total invoices for Q2. Furthermore, the additional implementation fees from those SaaS contracts meant that the total SaaS business was 48.5% of invoices raised for the quarter.
Source: December Quarterly Report
During the quarter, new contracts were signed, and multiyear SaaS contract extensions were also executed as listed below in the chronological order.
- 25 October 2019: Brazil-based Nexa Resources, listed on NYSE, executed a 1-year contract with K2fly for the implementation of RCubed Mineral Resource and Reserve software solution across 12 of its sites. Nexa operates 5 polymetallic mines located in Brazil and Peru.
- 19 November 2019: Multi listed (NYSE, ASX, LSE) Rio Tinto, one of the world's largest metals and mining corporation, contracted with K2fly to deploy RCubed across 20 sites in a 5-year agreement.
- 13 December 2019: Existing client Teck Resources signed a contract extension agreement for RCubed solution for a further 3 years.
- 15 December 2019: A new entity “The Place of Keeping” was established to take charge of the rollout of Keeping Place solution, based upon Infoscope functionality, to Aboriginal groups in Australia. With this initiative, the Company expects that many communities may want to deploy the Keeping Place solution this year.
- 18 December 2019: Westgold Resources (ASX: WGX), the existing Infoscope client, also extended the length and breadth of its contract by signing for a further 5 years.
- 24 January 2020: Gold Fields Australia contracted for the implementation of the RCubed solution for a 5-year term on behalf of Gold Fields Limited in a global roll-out to all 9 operating mines and two major projects.
With this contract, K2fly’s ARR shot up over AUD 1.5 million per annum and TCV also increased by more than AUD 500k.
As of January 2020, the Company’s consultants and developers are delivering billable work into clients including - Teck Resources, Anglo Gold Ashanti, Imerys, Newcrest Mining, Glencore, Nexa Resources, Fortescue Metals Group, Westgold Resources, Rio Tinto, Gold Fields, South32, Adani, Programmed, Western Power, ABB, SA Water, Arc Infrastructure, Horizon Power, The Place of Keeping, New Hope Resources and Stanwell Energy. Besides, K2fly is building a healthy backlog of additional work.
K2fly’s products in the SaaS -based suite (RCubed and Infoscope) have been so far deployed in around 45 countries, across more than 250 sites. Moreover, contractual discussions are ongoing with several other leading mining companies for the SaaS solutions, and K2fly will update the stakeholders as progress is made before 30 June 2020.
Cash Flow: As at 31 December 2019, the cash at bank stood at approximately AUD 1.1 million in addition to around AUD 1.12 million in aged receivables largely from Tier 1 clients. During Q2 FY20, the net cash-flows used in operating activities amounted to ~ AUD 329k, depicting an improvement from $565k of net cash-outflow in Q1 FY20.
Source: December Quarterly Report
K2fly’s outstanding performance in the quarter gone by demonstrates that the Company’s current operations are steadily moving towards achieving net positive cashflows (referring to the figure above). Furthermore, there is also another AUD 0.10 million worth of Work in Progress with existing clients which will be invoiced on delivery.
US Update
In November 2019, the K2fly Board decided to invest in sales capability in the US market for 2020 on the back of very strong demand from US-listed companies. In line with that, on 15 January 2020, K2fly executed a six-months agreement (to be reassessed later) with Orbital RPM to represent itself in the North American market.
Orbital, with its team based in Denver, has a strong experience in implementing software solutions within the mining industry.
As announced earlier, the higher demand from US NYSE listed companies is due, in part, because of the changing US SEC regulations around mining Company disclosures (20F) that are designed to modernise the reporting standard while bringing them more into line with global reporting standards that comply with the CRIRSCO template such as JORC in Australia.
More information can be derived from - https://www.sec.gov/corpfin/secg-modernization-property-disclosures-mining-registrants.
Stock Performance: With a market capitalisation of around AUD 20.65 million with ~ 82.59 million shares outstanding, the K2F stock was trading at AUD 0.235 on 3 February 2020 (AEDT 12:57 PM). Besides, K2F has delivered impressive positive returns of 38.89% in the last six months and 61.29% in the last three months.
