Unfortunately I missed the call (will review when they put it on their web site), but judging by the degree of spin in the slides I think I get the message anyway – the world is in the poo but that just means we are more relevant!

So I will focus on the numbers:

• Sales went no where for the quarter and up only 5% PcP in total. The rotation from transaction revenue to subscription being the main story, which in fairness is better quality income and now at 61% of sales.

• Pipeline growth for Kinatico Compliance is looking healthy and supposedly improved in quality, but this is very subjective, so future sales growth will prove or disprove this.

• EBITDA% is ticking up and showing some operating leverage (up 3.0% pcp), but I would rather see what is happening with FCF.

In short, I don’t see it as a good quarter and management is focusing on PcP and other matters to divert from this (may explain the price action today). That said, the business is still redefining it’s self and it’s product change is still new, so it’s a complex period in which to assess numbers. 

The business continues to make the case of AI as an advantage rather than a threat, which I agree to if used well. Macro-economic conditions are providing a headwind, but increases in regulatory requirement a tailwind – tsunami or cyclone, pick your metaphor but a view of the horizon is tricky either way.

Disc: I own RL

Below are my as it ran notes form the webinar and quick take on H1 results. On hearing the expansion in TAM opportunity I bought a small (1%) monitor position on the basis that the thing stopping me was my view on a very limited TAM, but that bear case is a lot less likely now. Market liked it, going from a balance buy/sell to almost 4:1 with the price up 16.7% as I write.

Webinar notes:

• AI embedded over the last 12 months, but not shared due to viewing as a competitive advantage. Has evolved over the period naturally with learnings and experience rather than to be forced on expectations.
• Compliance is complex and bespoke to companies.
• KC now opens up 5-500 worker range (300k potential customers) Vs previous 500+ workers (2k potential customers)
• Deployment advantage from an implementation for large customers, but SMB now online and via live chat to speed up enterprise also.
• Marketing spend remains constant but CV check redirected to KC. Increase in spend would be data dependent.
• AI is 80% people and 20% tech, it is mistakenly seen as the other way around. People leader is the AI leader (Odelia) - AI first but not always…
• Using Claud as their selected LLM for the last 12 months.
• AI embedded in end-to-end development process.
• Plan to use of natural language queries within the platform and anticipatory offering
• Private data handling – probably not something an LLM will be trusted with.
• Investment is already done in KC with AI as native to it’s architecture.
• Built a ~$10m pipeline in 3 months and SMB 35 sign ups.
• Only 3 months into launch so unable to predict conversion rates or growth expectations, but should have some indication by Q4.
• Will allow existing SAAS customers to choose when/if they want to roll over to KC.
• Management target of having international revenue this year – will share more as this evolves.
• Capex spend currently expected to be a little lower but subject to opportunities.
• AI offers higher servicing capacity on existing head count rather than an opportunity to reduce head count.

Quick observations on H1 Results

• NPAT of A$861k was better than I anticipated, up slightly on H2 FY25 (A$712k), I had expected high employee costs (+SBC) given a significant jump last half, but it’s basically flat.
• Most of the half on half increase in cost was depreciation and amortization +350k (+22%) but also country to the talk in the presentation marketing was up +133k (+11%).
• Revenue up A$1.1m (+7%) half on half was a surprise and carried the result.
• Margin lifted slightly half on half from 65.5% to 65.9%, moving in the right direction but still shy of 66.9% peak for FY22, so I am wondering how long before we see the improved margins from SAAS Michael talked about in the SM interview.
• CF yet to look at closely, receipts and payments are up and any change is small and messy at a glance, we are coming off low bases for FCF so hard to judge any breakout.

I had done some preparation work coming into the result but need to do more before any further purchases, hopefully the price holds around current levels. I was looking for below 15c but the update makes me comfortable around 20c for a small research position.