Netlinkz reports 85% hike in quarterly group revenues with Asia leading growth; sees stronger June quarter

Netlinkz Ltd (ASX:NET) saw group revenues in the third quarter of financial year 2021 rise 85% to $2.9 million over the corresponding period of 2020 with Asia continuing to lead the growth, particularly China The company is expecting a stronger fourth quarter of FY21 due to the seasonality of revenue, with a growing proportion coming from recurring revenue. In the quarter, the year-to-date financial year 2021 group revenue surged by 423% over the corresponding period of 2020, while revenue from China in the same period grew by 471%. Financial results The unaudited loss before tax for the quarter was $3.7 million, which includes a one-off non-cash charge of $1.5 million for the cancellation of an advisor mandate. Cash at the end of the quarter was $3.1 million, with a further $5 million available in finance facilities. Cash receipts for the quarter were $2.1 million and the year to date was $13.1 million. Product manufacturing and operating expenses in the quarter reduced in part due to AoFa and iLinkAll’s continued shift towards employing all engineering resources directly, which is expected to result in margin improvement. Staff cost growth reflects additional engineering capability added in AoFa and iLinkAll as the business continues to scale up its sales and delivery teams. The company redeemed convertible notes in the quarter for $340,000 and repaid loans in the amount of $150,000. Revenue seasonality The current revenue seasonality is due to the timing of up-front design and implementation work from new clients and the timing of the Lunar New Year (February-March) affecting most of Southeast Asia, including Singapore, Malaysia and China. As the business builds on its steady client base, diversifies globally and focuses on generating recurring revenues, which is expected to rise by around 50% in the next three years, a more consistent quarterly revenue split will result. The company expects strong year-on-year revenue growth to continue. Asia operations The company’s China operations continue to perform well, with sales up by 89% in the third quarter, at $2.0 million, down from $3.8 million in the second quarter due to the Lunar New Year, which had a similar effect through Southeast Asia. The business will see a growing proportion of recurring revenue, which is a business focus, primarily from VSN licensing and support as it moves forward and will continue to focus on margin improvement. LNS International (LNS) is making good progress, having submitted a number of large tenders, with key focus on Malaysia. Natsoft (India) is making steady progress with a growing pipeline and potential opportunities with a number of large corporates. European operations Netlinkz signed a binding agreement with Uni Systems Information Technology during the quarter to introduce Netlinkz’s ground-breaking technology to Europe. The Uni Systems relationship will see Netlinkz cooperate in innovation initiatives and projects in Greece and Europe, including Public Sector digital transformation challenges, discovering and assessing digitalization opportunities and incubating integrated solutions for IoT, 5G and AI technologies and processes using Netlinkz IP. The company also signed a distribution agreement with Frame UK, during the quarter, with Netlinkz VSN being offered in a broadband bundle to medium and large corporates. Frame UK has an existing customer base and a strong background in Networking solutions, which will extend Netlinkz’s reach to the UK market. VSN product update Having completed the Microsoft Azure deployment successfully, the VSN now runs on all major cloud providers. The Netlinkz R&D team is finalising AWS Graviton compatibility, which has the potential to reduce client VSN-related cloud server costs by around 20%. Strategic partner, ImageDeep, is experiencing accelerated growth using 4G/5G enabled VSN devices to secure thermal cameras, rather than having to wire into client networks. VSN can reach 100Gbps in core networks, 250x more throughput than some competitor solutions. The software-based nature of the VSN means that throughput is currently only capped by computing and network appliances/infrastructure and therefore throughput will continue to increase in line with network hardware. Board and management changes During the quarter, Stephen Gibbs was appointed as non-executive chairman of Netlinkz with effect from March 15, 2021. Gibbs, who is also the non-executive chairman of ASX-listed Australian Ethical Investment Ltd (ASX:AEF) (FRA:1OP) with $5 billion in funds under management and 62,000 clients, has over 30 years of experience as a director and chairman of many companies in industry and funds management, particularly those with a focus on ethical and responsible investing. The company also appointed Guy Robertson as company secretary on March 15, 2021. Robertson has significant experience as company secretary and chief financial officer with ASX-listed companies and has held senior finance executive roles in the Jardine Matheson Group in Australia and Hong Kong in insurance, property and retail. Simplifying corporate structure The company is also proposing to simplify its capital structure with the cancellation of up to 249 million options and rights to options for a consideration. The offer has been despatched to option holders/right to option holders, and will then be subject to shareholders approval at a meeting to be held towards the end of May 2021.