29/7/21 Quarterly Activities/Appendix 4C Cash Flow Report

Wow, first Straw as a Premium member. She needs premium dude, premium!

A solid quarter/year for KNO with the company continuing to run about cash flow breakeven (admittedly factoring in R&D grant).

ARR at the end of July was $6.1m, a nice bump from the $5.8m last disclosed by the company in the presentation for the acquisition of Libero in early July. Adjusting for the Green Orbit acquisition shows a bit of organic growth in the KnowledgeIQ business. Management called out some expansion within the enterprise customers, and five new mid-market customers driving that growth. When Libero closes, ARR will be $8.3m.

Cash at report date was $7.8m as large receipts from an enterprise client was received in July. This leaves a healthy cash balance even after the expected $2.5-3.5m outflow for the Libero acquisition.

It is worth taking a second to discuss the KNO investment thesis as it has now changed somewhat. Originally I viewed KNO as a classic "heads I win, tails I don't lose much" scenario as the business was essentially breakeven with it's two key enterprise clients of ANZ and Optus. I figured the company had a couple of years of cash runway to try and close one more large enterprise deal which may have been the escape velocity into either profitability or the generation of excess cash to plough back into R&D or sales to drive further growth.

To a degree this thesis is still alive. In this quarterly, management called out two major enterprise opportunities they are hoping to progress in the current quarter. If either of these were to land it would drive substantial growth and I am sure the share price would react accordingly.

However, it is worth noting that management has also embarked on an acquisition strategy which is a variation to the thesis. While I would no doubt prefer organic growth in the core business, I appreciate why management have moved down this this path to try and reach scale quicker and I must admit I have been impressed with their acquisitions so far, in particular the use of scrip to incentivise vendors to stay committed to KNO and grow into the future. 

So for now I am happy to continue to own KNO, on the current trajectory of modest growth and small acquisitions (especially if they can be funded out of operating cash) the stock should do well, but the chance of explosive growth remains if management can pull off a few more enterprise deals.

25/2/21 Half Yearly Report and Accounts

A great result from KNO recording their maiden profit and very strong operating cash flows.

The result was assisted by the one off service revenue from the implementation of a standalone NZ product for ANZ to comply with banking regulations. Nonetheless, management did a great job of controlling costs over the period, particularly winding back marketing and travel costs as potential customers deferred discrectionary spending during Covid.

Recurring licence revenue was flat on last year as expected with no major customers added and some customers churning seats during Covid. Total revenue increased 26% assisted by the service revenue outlined above.

Operating cash flow of $864k was fantastic, and bolstered cash reserves to $5.9m (with a further $831k R&D refund receivable).

Looking forward, KNO management gave their strongest outlook on the future so far, stating they have signed up multiple pilot programs and have been shortlisted on three enterprise projects.

31/7/19

Quarterly Report & Appendix 4C: 30 June 2019

KNO released their 4Q19 report last week which had no major surprises but showed consistent growth.

Despite no new enterprise customers, licenses increased by 1600 which I suspect comes from further integration with Optus/Singtel.

The first KIQ Cloud customer has been onboarded with a number of other mid-market customers in advanced discussions.

While there was a $341k cash outflow for the quarter ($865k without R&D tax refund), KNO received the annual payment from ANZ after the completion of the quarter and had $4m cash at the reporting date. 

However the investment thesis is predicated heavily on the business winning new enterprise clients. On that front, commentary from management was positive, saying they have been shortlisted for a number of opportunities and expect further tenders in FY20.

31/01/20 Appendix 4C - quarterly

A mixed quarter from KNO. As expected with no contract announcements there was little user growth, but the company was able to grow it's ARR strongly due to passing on a price increase to existing users during the quarter. It's positive that management feel they have the stickiness with their product to pass on a roughly 15% price increase.

Nonetheless, the thesis still remains one of signing customers. Again on this front commentary was positive, but especially given a ramp up in costs during the quarter the market will want to see results soon.

Major risk to KNO thesis is 92% of revenue currently comes from ANZ and Optus/Singtel. 

Mitigating this risk is Optus/Singtel signed their agreement in Jan 2018 for three and five years respectively, and ANZ renewed their agreement for three years in Jul 2018 with an option for a further two years.

The company is also targeting to reduce this concentration through new customers, both enterprise and SME's.

Tiny tech company who has created a market-leading knowledge management platform. Product was effectively built from the ground up for ANZ before public listing. Since then the company has won another major enterprise customer after successfully completing a six month tender proces with Optus/Singtel, competing with a number of software providers including the major ERP players.

A number of smaller SME clients have been won and the company expects this segment to grow further after the launch of their KIQ Cloud product which is being primarily sold through Microsoft's cloud distributor channels (direct sales employees remain focused on enterprise customers).

KNO is currently generating roughly $3m in recurring revenue on a cost base of roughly $4m. With the R&D tax credit and ability to grow recurring revenue through increased seat numbers with existing clients, the company will be close to cashflow breakeven in FY20. Note that while FY19 will be cashflow positive it does include some one-off implementation revenues with Optus/Singtel as new clients.

Current qualified sales pipeline is roughly $10m with the company targeting conversion of 20-25% a year. Targets for SME segment is 100 clients over the next 18-24 months with more detailed update expected in the June quarterly.