Knosys (ASX:KNO) discusses 1H FY23 results

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Knosys Limited (ASX:KNO) Managing Director John Thompson discusses drivers of revenue growth, the roadmap for the company's three SaaS solutions, onshoring GreenOrbit operations and outlook for the second half.

Peter Milios: Peter Milios from the Finance News Network here. Today we're talking to Knosys (ASX:KNO), market cap of around $20m. The company creates software solutions for knowledge management and boosts connectivity and productivity. We have with us Managing Director John Thompson, who recently presented at our Hidden Gems webinar. Hi John, nice to see you again.

John Thompson: Hi Peter. Nice to be here.

Peter Milios: Congratulations on the strong first half results, with total revenue up 19 per cent on the prior year. Can you tell us what was driving that top-line growth in the first half?

John Thompson: Sure. Look, we're very pleased to have delivered total revenue of $5.3m for the first half, and as you said, it's up 19 per cent on the prior year, and more importantly, over 90 per cent of that revenue is recurring revenue, which includes our subscription licence and support fees. But the strong top-line growth really was driven by several factors. Firstly, we increased the average revenue per customer, particularly in our GreenOrbit, which is our intranet solution. And this included upselling, but we also took the opportunity to relinquish uneconomic accounts. Secondly, we transitioned more customers to multi-year contracts to increase the lifetime contract value. And, as part of that process, we also inbuilt further increases. And, finally, we signed major enterprise renewals with our key customers, being ANZ Bank, Singtel and Optus. So, our annual recurring revenue is tracking up to $9.6m, which gives us really good visibility into our revenue trajectory over the months ahead and really provides a good foundation for our future growth.

Peter Milios: In the first half, Knosys developed a comprehensive product roadmap for each of the three solutions. Can you give us some more detail on this?

John Thompson: Yes, that's right. Over the past six months and a little bit longer, we continued to review our existing portfolio of SaaS solutions, really with a view as to how we can improve them from a market fit and therefore increase the demand as we go forward. It's about examining new advanced features, opportunities for new product development, and creating a very distinct market positioning for Knosys in our target markets of health, retail, government, and banking. A key component of this is investing in and leveraging common components across the solutions. For example, we are introducing an AI-based intelligence search capability, which will go across all three solutions ultimately, and that will give employees, the end customers better user experience and a much quicker engagement. Similarly, we are also investing in advanced mobility and analytics to meet the future trends within those particular industry segments.

Peter Milios: Thanks, John. Knosys recently restructured to onshore operations. Can you tell us why you did this?

John Thompson: Yes. When we acquired the GreenOrbit business approximately two years ago, the acquisition included an Indian operation, which primarily consisted of support roles. Over the past year, we've improved the quality of the GreenOrbit solution, and we've transitioned from a pretty labour-intensive support model to one based more on customer self-service. This has enabled us the opportunity to establish a Melbourne-based smaller support team of higher quality to service our customers globally and the opportunity to minimise our Indian operations. So, our operating expenses are now expected to trend downwards, reflecting the efficiencies from this restructure and some other initiatives that we've undertaken.

Peter Milios: And lastly, John, what can we look forward to in the second half of the year for Knosys?

John Thompson: We're very focused on building sustainable long-term revenue growth whilst at the same time managing our financial position in terms of cash flow and operational performance. But it's important for us to continue our investment in development and the delivery of our roadmaps, as this underpins our existing customer relationships, but also drives demand for new customers. We have a strong pipeline of enterprise and mid-market opportunities, and we'll focus this half on the business development activities in relation to corporate proposals and government tenders. We also, during the second half, are going to continue to explore new partnerships to drive growth and expand our sales reach to complement our existing direct sales activities. So, we continue to track towards a cashflow break-even position and we remain committed to self-funding our growth strategy and our investments. So, overall, we're reasonably optimistic about the future for Knosys.

Peter Milios: John Thompson, thanks for the update.

John Thompson: Thanks very much. It's been a pleasure.

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