Felix reported a few days ago. Ive been a bit stretched recently and haven't made any of the calls I wanted to attend. Zero.

Thanks to all the excellent reporting from the usual all-stars - much appreciated

I have had a token holding in FELIX for a number of years, mostly as a way of making sure I keep up with progress, rather than any serious investment case. It's so small as to be barely worth selling. I really like the narrative -see multiple other previous straws.

The report showed a company still losing money and still perilously short of funds. Im not tipping anything into them just yet, for sure. But there were some really positive lead indicators of future success. You can read the full report here

The bits that were positive are the significant increase in MRR and the NRR.

As a brief recap, the thesis rests on the classic land and expand model for SaaS companies.

They get revenue from the contractors (the big engineering companies that use their software) and the small fish that bid for the work (Vendors). The lead indicator of success is signing big contractors on small short term contracts (try before you buy) which then roll Felix's modules out more broadly to the group, and add more modules as they see the value add.

To date progress has been slow with linear increases in revenue, ARR and MRR (monthly recurring revenue) and a cost base that is vastly in excess of cash receipts. They have had a few big names sign up, but incremental revenue has been slow to materialise and they have started cutting their way to success, and executing ever-more diluting cap raises. Yeah.

So the headline figures still aren't great:

But increases in expenses have certainly moderated, and revenue has really started to increase. They report a number of new signings with big international companies but perhaps more important is the increase in work from earlier signings which has translated into a much better shaped graph in the MRR - evidence of traction. Over the last 12 months MRR has had a CAGR of 67% - too infinity and beyond!

This is probably the most telling slide:

This is also substantiated by the NRR of 116% which is pretty healthy.

So much for the good news.

The bad news is how long they fund the runway for profitability. And the news there is pretty desperate:

Management have indicated that they can get through to positive cashflow by Q1FY25

I certainly wouldn't put any of my money on it occurring without another significant dilution.

I really like the idea behind this company, and I think they will get there. It has a rule of 40 value that is attractive : 51 (If my maths is correct). The big question is around timing an entry, and I don't think we are quite there yet. It has the potential to be a complete killer in its category and I hope they make it. Happy to sit on the side lines until the risk reward ratio comes down a bit, even if it means not getting in at the cheapest price.

31/01/23 4c

full report here

There were definite signs of progress on latest 4c in 3 areas

1) significant decreased cash burn

2) modest increase in contractor MRR and ARR

3) an update on collaboration with Ineight and indication of potential future income potential

starting with 1) decreased cash burn. The majority of the savings seem to be on staff and admin and they have reduced significantly:

In conjunction with a higher revenue cash outflow for the quarter was 654k - a huge improvement. However, this only leaves 4 Qs of cash in the kitty.........gotta be a raise coming soon.

2) FLX have been successful in signing a further 3 new contractors and expanding 6 existing contracts. So even though MRR increase is modest, this would support he land and expand SaaS strategy has traction and that NRR is healthy (even though these metrics are not reported). There were also a couple of big signs ups (New Hope Coal, and the companies delivering Victoria's North East link = $15bn project). One hopes the contracts will grow significantly over time.

3) FLX report that they have made succeeded in integrating the document systems that InEight uses with their procurement module and this opens up the possibilities for contract wins (of a much larger size) with InEight's customer base. InEight has a large international client base.

So in summary - good progress but still a long way to go and no cash with which to do it with. Surely have to have cap raise soon which will be ugly.

It would be great to see something magical happen in the next 6 months, but .....

----------------------------------------------------------------------------------------Latest update below.

The good bits:

• there was good improvement with the Contractor MRR (IMHO - this is the pathway to success - see previous straws)
• they are getting traction with a couple heavyweights (CIMIC, GPT) re-signing for larger contracts and with expanded modules. These can then be used a references/proof concept, for other large clients. This substantially improves the sales process by, in the eyes of new clients, de-risking a new process.
• they signed BG&E Resources for a couple of modules

The bad bits:

• Group ARR is flat. Again
• not much progress with the loudly trumpeted deal with InEight -see previous announcements
• staff costs 2.2 mil for the quarter and cash outflows of 2.3 mill. with 2.4 mill in cash and financing for 4 mill = guess wants coming soon!

Summary

• still a long way to go and not much cash to do it with. Likely another very dilutive Cap raise at a depressed market price which will be painful existing holders.
• The only reason I continue to follow FLX, is this company has the possibility to become a global leader in this field. If it can get traction before it runs out of the capacity to raise funds.
• I would love for that to happen, but am getting increasingly pessimistic about its chances

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02587350-2A1408326?access_token=83ff96335c2d45a094df02a206a39ff4

I hold about a hundred bucks IRL and confidently predict it will be worth <$50 in 6 months!

FLX has been on a tear recently

First they announced a new cornerstone customer in the Real estate sector

they signed a 3 year contract with GPT (managing $25.3 billion of assets)

This will add an additional $300k in ARR, (ie $900k over the 3 years) which isn't huge but could well be a springboard to much bigger contracts with new construction projects (there are currently $4.8 billion underway or planned)

then they announced an international agreement with InEight

And these guys are no minnows:

"400,000 users and their software has been deployed on $US400 billion worth of construction projects"

I have read the announcement about 6 times and it is very light on details other than the promise of collaboration, integration and working together to pursue joint bids.There is no indication of what Felix stands to get out of this, so is impossible to quantify the potential range of dollar values.

The SP has appreciated from a low of $0.28 on 25/01 to $0.365 today.

So, lots of potential but still losing money hand over fist and costs increasing faster than revenues.

Will need to see some traction in revenue before increasing my tiny holding!

To my surprise, FLX reported some really good progress this quarter.

As per previous straws, I believe the best metric as a lead indicator for further ARR is the number of enterprise Contractors that sign to the platform.

This was their best quarter ever, from that perspective.

They signed 6 this quarter, compared to 8 for the whole of last year.

Some are BIG: tier 1 operators such as Fulton Hogan and Seymour White.

As a result the contractor originated ARR jumped 486% which is a meaningless number given it was off sucha tiny base (group ARR increased 11% for the quarter)

Cash burn was $1.1m with $7.6m in the bank.

They are introducing a "lite" version of the Enterprise Contractor product which will allow prospective customers to try it out for a single project before committing, which seems smart.

I had basically given up on FLX as there was no evidence of any real progress, but will pay further attention to see if these new Contractor signings do indeed translate into meaningful increases in ARR. If so there may well be an opportunity, if further contractors sign up.

Announcement here

I currently have the tiniest of holdings in FLX. It is a way of forcing me to keep up with companies I want to follow. Currently, there is not enough evidence of FLX being able to monetize their platform; in the form of accelerating ARR, for me to put any real money in.

It is a company very much on my watchlist as I think it has a lot of really good things going for it. It could be that ARR merely lags all the other metrics ie they are lead indicators of future revenue. But for now I am concerned that the headline increase in vendors, for example, is meaningless as this does not reflect a similar increas in revenue.

As always, would be very much like to be challenged on any assumptions or receive any feedback on teh subject

C

This is a very early stage company. Cash balance is 9 mill. Revenues are meagre "Felix added $0.2m of new Enterprise SaaS Contracted ARR, increasing 25% on the prior corresponding period". Which isnt a whole lot, in anyone's book.

Ongoing costs are likely to be signficant in terms of R&D building out the necessary modules and the passport/wallet functionality. Cash burn was ~1mill for the quarter, so unless revenues pick up .....

There is a very large chance of significant dilution from further capital raises.

The thesis relies on converting a singificant minority of major enterprise customers and perhaps more importantly, government bodies, to make this the platform of necessity for the industry. The most recent metrics reported:

• Total Enterprise User Accounts: +44% previous corresponding period (PCP)

• Requests for Quotations (RFQ) sent by Enterprise customers: +294% PCP

• Number of Active Projects: +777% PCP

• Total Vendor Approvals: +138% PCP

• Total active Vendor Compliance Documents: +469% PCP

• Vendor Evaluation: +47% PCP

Show lots of activity, but no monetisation is being reflected in the ARR. Perhaps this will be updated in the report.

I wasnt able to find much in the way of useful information about competitors in this space, my search showed up a bunch of very vanilla descriptions or assessments. So I dont know what is out there.

communication from FLX:

Hi xxxx

Apologies in the delay in getting back to you. We are flat out with the annual report and results presentation.

Thanks for reaching out and the kind words. Plenty more to do and you will be pleased to know we are laser focused on executing our strategic plan.

Before responding to each of the questions below, I wanted to let you know that we are providing a comprehensive refresher on the strategy and vision for Felix, accompanying our annual report results. I will have our Investor Relations consultants add you to our distribution list for the presentation. Also, I have attached our Prospectus. The document is comprehensive and provides clarity on a number of components and metrics of Felix.

Regards

Replies from FLX in italics to my questions

Hi there 

Firstly, congratulations on the progress so far. It is great to see the vendor numbers increasing steadily. 

I am a small shareholder in Felix and am trying to get some more colour around the business model and the metrics you report on. I would be most grateful if you could provide me with some more information to assist me with the following issues:

• What are the benefits that fall to a vendor becoming a paying subscriber?. As an extension of this question, how does Felix aim to monetise the increase in vendors, given the current low conversion rate.

The relationship between an enterprise contractor (e.g. CPB) and a vendor (e.g. Bill’s Bobcats Pty Ltd) is currently free for the vendor. The vendor will pay to be a part of the marketplace to receive leads from a range of contractors that they normally do not do business with.

Felix is currently developing features to complement the value proposition of leads. These are in the form of a pre-qualification wallet, saving time and managing data storage for vendors, and a pre-qualification passport – confirming to the market that a particular vendor is pre-qualified to a sufficient level, which will provide efficiencies on sourcing for the contractors while providing the vendors with the ability to work with a range of contractors.

One of my hopes is that Felix will develop "multiple ways to win”. As I understand it the platform is predominantly aimed at the construction/infrastructure and mining sectors. Do you see the current website being able to serve multiple different industry verticals, or will the back end remain basically the same and be re-skinned for different sectors. If it remains a single platform for an ever increasing number of industries, does the front end risk losing its focus, becoming messy, confused and bloated?

Felix’s current client base operate in the constructions, infrastructure, mining, local council, waste management and utilities sectors. The problem we are solving is evident in any industries with disparate supply chains, such as asset owners, REIT’s or large corporates entities.

Aconex co-founder, and current non-executive Director of Felix, Rob Phillpot has discussed a similar challenge Aconex faced in their early days. Rob has been instrumental in ensuring that the solution Felix provides for its clients doesn’t become too agnostic and is developed to the industry that it is being targeted. The challenge here is to not customise the software for customer specific business processes but to sell the benefits of adapting their processes to the software.

How do you see the procurement module as a driver for growth? An additional upsell to existing and future customers or as a standalone product able to compete in the digital procurement industry and a lead product in its own right. Do you have any projections?

The procurement schedule module is seen to be on par with our ‘sourcing’ module. Commercialising the procurement schedule module, along with the contracts module, Felix has a line of sight to lift its current ARPU from $62k p.a. to in excess of $100k p.a..

Regarding metrics

• Do you intend to report on industry standard metrics to allow adequate assessment of progress?
• specifically, CAC and months to recover CAC, LTV, gross margin, churn, net retention rate (dollar, not customer) and ARPU
• I would greatly appreciate any of the above that you could provide me with

We do track all standard metrics internally and some are featured in the Prospectus. The Enterprise module is early in its life cycle, and has experienced minimal churn since inception, which provides some distorted numbers. Compounding this Enterprise selling is lumpy by nature and the metrics such as CAC, can reflect this.

The Marketplace model is undergoing a transition to its future state business model and presenting the SaaS metrics through this time will hinder more than help investors.

We will be releasing various metrics in our annual report results presentation, in keeping with the listing rules, I can’t provide the figures until they are disclosed to the whole market.

Many thanks in advance for your reply. As an admirer and beneficiary of the t/o of Aconex, I wish you all at Felix the best of luck towards a similar trajectory. And as a resident of Kalinga, its great to see a local business make some headway and create the kind of jobs and industry we need for the future!

Please feel free to reach out for a chat or if you would like to come by our offices at Hendra for a tour, once some of the restrictions are lifted.

I have been trying to wrap my head around the business model, how it monetises users, how it aims to grow, both locally and internationally and what the TAM might be.

I should have started by reading the prospectus! But instead I searched online for all sorts of reviews and read the most recent company releases. Eventually I reached out to the company and they were good enough to reply to me directly. Which cleared up some of my misconceptions (see next post). I have also attached the prospectus which, as I said, is where I should have started! (actually I cant, its too big)

So, as other people have identified: Rob Phillpot of Aconex fame. This company was bought out by Oracle in December 2017 for $7.80 per share. Share holders quadrupled there initial investment over a couple of years

Aconex's USP was to allow multiple members of a construction project from architects, project managers to electricians, to all have access to the same information and to allow co-ordinate effectively. There were multiple modules involved. Companies would often purchase one and then adopt a suite of them - the usual "land and expand" tactic employed by many SaaS companies. This proved to be a highly successful model and as mentioned was bought out by Oracle.

Felix, is aiming to be the similar kind of platform for a different aspect of construction or large engineering works. The idea is that any company or government department about to start a construction project will use the "marketplace" to find contractors, suppliers etc to perform the various parts of the project. The contractors or suppliers will need to register as "vendors" with the platform in order to apply for the contract. There are various modules within the platform which ensure the necessary regulatory hoops have been jumped through. They have recently added a procurement module.

Currently, the platform charges large enterprise companies to use the marketplace and other modules. This removes the highly complex and fragmented process of finding, tracking and ensuring compliance with regulations of all the different contractors and subbies. The vendors get this all for free, but are dragged onto the platform if they want to bid for the work that the enterprise company has advertised.

With time the vendors will need to fill in a passport or wallet, that shows their pre-qualification and suitability for any particular role. This will drive considerable efficiencies for the contractor. At the moment there is no charge to the vendor, but once this module is completed, this will attract a fee so that they can be discovered by a contractor when searching for "bobcat provider with current registration with QLD building compliance code xyz" or whatever. This would be attractive to the vendor as they should win more work.

Over time, as more and more enterprise customers join the platform, more vendors are forced to use it to apply for the work and....the flywheel starts spinning. Classic network effect.

So, currently the main thrust is to convert as many enterprise customers as possible. The tailwinds for this are the increasingly beurocratic nature of legislation in the industry which contractors will struggle to comply with, and the massive uptick in both large mining projects and government infratructure projects.

From the prospectus (Nov 2020):

• Enterprise SaaS revenues have grown at a CAGR of 467% per annum over the last two financial years

• Once adopted by Contractors, the Felix platform typically becomes a core part of and deeply embedded within a Contractor’s operations, making it difficult to replace. This has led to an approximate 99% retention rate of contracted ARR

The other beautiful aspect of this model, is the way it can effortlessly expand overseas. As Australian enterprise companies with international projects sign up, vendors in  other countries are forced to use the platform. A similar thing happened with Aconex, with various large projects int he middle east, for example, using the platform. There is a very real possibility that it becomes the industry standard and that would mean an extraordinary return for holders.

Clearly, a bunch of work need to go into making those modules and passport/wallets compliant with the host country. But the platform should agnostic to the type of a compliance certificate or registration document.