Good afternoon, everybody, welcome to the Dropsuite fourth quarter investor presentation. With me today, Charif El-Ansari, CEO, and Bill Kyriacou, who is the CFO. Charif and Bill will give a short presentation on the results, then we'll turn it over to the Q&A. Just a reminder, to ask a question, please type into the chat or Zoom questions at the bottom of the screen, I'll lodge those questions with Charif and Bill. With that, Charif, I will turn over to you. Thank you, Craig. Thank you everyone for joining us today, this afternoon. Good afternoon to everyone. I'm very happy to take you through the presentation today, and our results. It's gonna be Bill and I presenting. I will also be covering we received a lot of requests to cover the very recent Microsoft announcement about their backup solution, which I'll be happily talking about towards the end of the presentation. We'll try to be short and sweet in the update, and then we're gonna open it up for your questions and answers for about 30 minutes or so. We delivered another record quarter for Dropsuite. We've exceeded AUD 30 million in ARR. I believe we had a record number of new transacting partners, with us, both directly, with us, and also through our distributors and wholesalers, as well. We are well ahead of our 1 million paid users, which we announced a couple of months ago. We continue to invest and reinvest in teams' capabilities, with more focus on sales, transacting capacity as we expand the business. A couple of things to note as well, we have started monetizing QuickBooks Online Backup. For those of you who are not familiar, QuickBooks Online is basically the bigger version of Xero, and they are the biggest player in North America. That's starting, and it's off to a really good start, with a good number of transacting partners already selling that product. Of course, we expect things to continue expanding over the next few quarters before it makes an impactful. You know, it will create any impact on the business. The other thing to note is, a few weeks ago, we also announced the availability of Office 365 in the GovCloud in the United States. Keep in mind that the government is about 20%-25% of the U.S. economy. What we've done is, we basically rebuilt our Office 365 Backup archiving in the GovCloud, and so that thousands of government organizations, as well as vendors selling to the government, would be able to protect the data in a highly compliant GovCloud near Virginia, near Washington, D.C. That's another significant product announcement that we gave to the market about four or five weeks ago. The other thing to note is that we received a very important award on collaboration with one of the most successful global IT distributors in the world, which is Pax8. We were one of the, I believe, seven vendors out of about 100 vendors that they have, that received an award during the event that we attended, that I personally attended back in June, which is about five weeks ago from today. With that, I'm gonna move to the finance section, and I will ask my colleague, Bill, to cover our strong results for Q2. Thank you. Thank you, Charif, and thanks to everybody for joining us today. In this short financial overview, I will present our key business metrics for the quarter. As we exit June quarter, we continued our ARR momentum with steady growth paired with low partner revenue churn. We added 76,000 gross paid users for Q2. This was impacted by some overall churn. We had approximately 15,000 seats from legacy providers churn out in the quarter, but our partner churn remains below 3%. We saw further seats removal from the one legacy low ARPU hosting partner in the Americas. This has had a positive impact on ARPU, along with an increased product mix shift to higher priced products that we offer. Our gross margin in Q2 remained in line with our prior quarters. We do expect some fluctuations between the quarters, with the 2023 full year gross margin expected to be above the 2022 full year gross margin. Thanks, Charif. Yep. Pleasingly, we generated AUD 335,000 of operating cash flow in Q2, up 20% on prior quarter. Our cash receipts remain in line with our ARR growth. We had steady collections in the quarter, and our collections metrics remain in line, and we have no material delays or risk of non-payment on receipt. During the quarter, we increased our spend on sales and marketing, so we're up 44% on Q1, with various trade show sponsorships that our team attended, coupled with additional sales headcount in the first half of the year, where we expanded our sales headcount by 40% from December. Our spend on staff costs declined 3% quarter-on-quarter, with Q1 including the annual bonuses from 2022. Q2 staff spend included onboarding further partner-facing hires, and we exited to around 100 FTEs, which is up 21% on December, and up 5% on March. We expect the benefits of the sales and marketing spend and the FTE additions to flow through the paid users in subsequent quarters. Also, during the quarter, we increased our cloud hosting payments by 14%, which is in line with the prior quarter growth. Our admin cash spend increased by circa 40% on prior quarter, and this is predominantly due to payments to IT tooling upgrades across most of our departments. These tools will drive increased automation and improve productivity across the teams. Our full year operating cash flow expectations will be in line or higher than prior year. We don't manage cash flow by quarter, but rather we look at it on an annual basis, and we make decisions on our annual runway. There might be fluctuations by quarter, but we're quite comfortable with those fluctuations. Finally, we remain well-funded with AUD 23 million of cash on hand at the end of June. Thank you, Charif. Thank you, Bill, for the update. We continue operating as you probably know, most of you have been on these calls before, with significant tailwinds around ransomware and cybersecurity, around compliance, and regulation, as well as the ever nonstop movement of data from on-premise to the cloud. We continue leading with high quality products that continue to win accolades in the market. I mentioned how we continue growing our partner network significantly, especially in OECD countries. We continue to have a lot of white space in the market we operate, where we estimate about 80% of those using products like Google Workspace or Office 365 are still not backing up their this critical data. Of course, we built a really good culture and highly skilled and specialized team that continue to propel us forward. Our investment framework remains the same. As you heard from Bill, we expect to be cash flow positive, and it's gonna be the same or higher than last year. The reason for that is because we continue reinvesting for growth, and that's something that we expect to continue for the next couple of years. In terms of outlook, we continue expecting strong results for this year and beyond. We talked about our guidance in terms of profitability and cash flow. We also continue pursuing accretive M&A opportunities, but we continue being really careful about what kind of opportunities we have, and also making sure that we don't overpay for these M&A opportunities. With that, before we open it up for Q&A, I received, and we received as a company, a lot of questions from shareholder investors about an announcement by Microsoft, talking about a launch of the product called Syntex, S-Y-N-T-E-X, if anybody wants to check it out. This product from Microsoft is predominantly created to allow, to make it really easy for data to be pulled out of Microsoft's Office 365 solution, and make it available for the data to be organized, so you can apply AI to it, and you can also use it for a backup solution that is offered by Microsoft. Just to be clear, this announcement is not new. We've known about this for at least a 1.5 years, and this is something that's been happening in the background, but it's also public information. The difference is that they made a bigger splash on it at their Microsoft Inspire show a few hours ago, right? A few things to note. One is, backup is just one showcase manifestation of how you can use Syntex. The main usage for Syntex is to organize data, and again, apply AI to it. That's number one. Number two, we have always been an independent backup player, meaning that we're taking the data out of Microsoft's ecosystem, encrypting it, and moving it to Amazon Web Services to have a true backup solution. If you have your data backed up under the same admin access with Microsoft, that is not a disaster recovery type of backup solution. Yes, it helps you if you lost an email or two, and you want to recover them, for sure, but that's not a disaster recovery solution. Microsoft will continue being very clear in their terms and in terms of service, that they are not responsible for your data. If you lose it's gonna be your responsibility. Thirdly, when you look at the price points that they're offering Microsoft Syntex to pull the data again to make use of it and potentially use it for backup, you're talking at about at least $5-$8 to provide this service. The majority of our businesses in the small and medium business space, as well as the mid-enterprise, these type of companies are paying, let's say, about $12 for Microsoft Office 365, and they're paying about $3 for our backup and for our archiving solution. I find it very hard to believe that some of these customers are gonna say, "Oh, we're gonna move to this Microsoft Syntex solution." This Microsoft Syntex solution, I believe, is again focused on AI. Backup is just one manifestation of what is possible with it, I believe this is gonna be focusing on what I call very rich enterprise solutions who want to play in that space. We're gonna continue focusing on our MSP ecosystem. We're gonna continue focusing on our, you know, market-winning solution across backup and compliance and archiving, which is quite unique in terms of offering two solutions in one: one for disaster recovery, and the other one is for compliance. I don't see this changing anytime soon. I'm happy to go into further detail as we do the Q&A in the next 15 or 20 minutes. Thank you. Thanks, Charif. Thanks, Bill. Just a reminder to everybody, if you do have a question for Charif and team, please just type it into the Q&A facility at the bottom of the Zoom screen. First one that's popped up, just with respect to Syntex for you, Charif, is: Does Dropsuite term of services say that Dropsuite is responsible if data is lost? Yeah, I mean, we definitely have a, what we call a shared responsibility model, and we do take responsibility for the data, and we actually, if anything, we haven't had any of the situations, but we also end up reimbursing, we will have to reimburse a partner or customer in case data is lost. The way we built it is that we have redundancies that allows the data to be available in two different area, two different data centers, so we avoid that fate. Again, if it happens, we will be responsible for it, yes. Right. you tackled this to a degree, but I'll still pose the question to you, around, it says that the current Microsoft Inspire Partner Conference just announced that the 365 and SharePoint customers will have access to the Microsoft 365 backup, which you've addressed. The specific question here is: How do you expect it to impact customer demand for Dropsuite? Yeah. I did allude to this by saying that, given our market positioning, in terms of focusing on partners selling to small and medium businesses and mid-enterprise. N umber one, given the price points that they're looking at, and given the main use case of Syntex not being backup, being an AI play by Microsoft, we don't expect any impact on this. Now, obviously, we're not going to sit down and just, you know, and not watch the situation carefully. From where I'm sitting today, from the various discussions we've had over the last few quarters, we don't expect this to impact us in any way. Thank you. Next one on the same subject is: Will the pitch to the MSPs change from Dropsuite product with the launch of the MSFT product? Also, what percentage of your MSP partners do you believe truly use Dropsuite for that independency of data backup? I'm gonna tell you a story here. When we launched our backup products for Office 365 towards the beginning of 2018, the concept of independence of backup was not a very strong concept in the market. I've mentioned this in many one-to-one calls, we struggled in the first few months to make this appeal to our customers. This is 2008. 18, sorry, not 8. We saw a flurry of ransomware events where the hacker will take control of the Microsoft account through the admin, the administrator of the account. That's when we saw Microsoft Office 365 backup truly take shape, and you are all familiar with the growth that we've seen in the last few years. This concept of independence is something that we lead with in every single conversation, and I can assure you that this resonates in a big way with our partners. Thank you. next one is: Can we please get some further clarity on how Dropsuite's product would fit in or work alongside the Microsoft product? Can you comment on the requirements for Dropsuite in terms of cybersecurity insurance, please? Sure. These are two distinct questions. Microsoft in their announcement, they also said that they will make these backup APIs available to any vendor that they want to use. Of course, this can only be done if you are using Microsoft's own cloud, so you cannot take the data and take it out to Amazon, which is, again, we are focusing on being the independent backup player. W ho is completely separating the production data that you use every day from the backup, so you are 100% secure. That is our positioning here. We could potentially look at some use cases with Syntex, but it's not going to be a core offering that we'll be offering, again, because we focus on this independence that we talked about. Now, regarding Cyber Insurance, there has been a growing requirement for the business, big or small, to put their act together when it comes to security, so they can benefit from lower price premiums for Cyber Insurance. This trend is still in its infancy, to be clear, but we expect this to continue to becoming more and more of a requirement, so businesses can qualify for Cyber Insurance. That bodes well for a company like ours. Thank you. In the announcement, Microsoft called out Veeam as one of their partners for backup and archiving. Dropsuite wasn't mentioned. Does Dropsuite plan to become a partner for the Microsoft product? Not only Veeam was mentioned, there was a few other companies like AvePoint and Rubrik were mentioned in the same release. Again, this is conditional on these backup vendors using Azure as the backup storage location. While we looking into areas where we can play in the space, again, as I said, we still think that data independence and having data completely segregated in Amazon is a key differentiator for us, and we don't intend to change that anytime soon. Thank you. That's it for the questions around Microsoft at the moment, so I'll just change tact a little bit with the questioning. Next one is, can you comment on the U.S. government opportunities, and whether you've have any success, through channel partners in terms of selling into the U.S. government? If so, what do you think that would do to ARPU? The most important part of the answer, I think, is that when we build new products and launch them, we do it after intently listening to what the partners are looking for, what are their struggles, what are their pain points? Launching GovCloud is really a manifestation of that. We have quite a bit of partners who play in that space, and they've been asking for a GovCloud implementation, and that's why we built the product. We already have partners who are playing in that space, and of course, this will open up to a whole new segment of partners, of potential partners, that are not with us today. I did allude, saying that the government in the U.S. is about 20%-25% of the total economy. What we're really doing here today is that we are expanding the total addressable market for Dropsuite by appealing to a segment that we never were playing in before. We do have optimistic expectations of what this product will do in the coming few quarters. Thank you. Can you provide a quick update on QuickBooks, please, and how that product's been rolling out into the States? As I said, we were off to a good start. We started monetizing the product in April. The first time we billed the customers was in end of April, beginning of May. We're off to a good start. At the same time, I just wanna make sure you, I wanna remind you that our business model is a partner first, and partner-led, and partner-centric. That means we cannot just do like an expensive marketing campaign and get end users to use the product quickly, and then get the users. The most important part of the equation is to get as many partners possible to start selling the product, even if they start with one license, right? We've onboarded a very respectable amount of partners in the first three months. Some of them have 1, 10, 20 licenses, 30 licenses. We expect more of this to come in the subsequent quarters. Keeping in mind that QBO, QuickBooks Online Backup, is a much higher ARPU product, and also is used by the vast majority of MSPs themselves in the United States. They truly understand the product and the importance of accounting data of that product when they pitch it to their end customers. Thank you. Next question is, ARR growth slowed slightly on a quarter-on-quarter basis. Was there any areas, or geographies, industries that drove that, or was it across the board? Yeah, we, as I mentioned earlier, we saw, we had. I mean, this is something that's been happening in a few quarters, not a new thing. We have one of our legacy partners in a segment that we don't focus on anymore, which is the hosting for micro businesses. This is a very basic solution. We saw about 15,000 seats churning. We didn't see anything else that caused us to see any massive concern. Of course, we have to continue watching for inflation and recession. I mentioned earlier that we haven't seen the impact yet. I don't know if we will. This is something that we need to continue watching carefully, if you remove the impact of that, the growth was not bad at all, actually. It was very decent. Thanks. There's a few questions here around sales staff and the onboarding process. How long does it take to train a sales employee, and how long does it take staff for them to become effective at selling? To be truly effective, and if you want to take an average, right, there's going to be a variation, it takes about 5 months- 6 months for a salesperson to become productive and, you know, carry a, you know, a quota that will make a difference to the business. What we've done, starting from late last year, and especially in this year, is that we started expanding the team in a way with a higher level of specialization. The people or the team members who are doing hunting are now different from the people who are doing farming, which we call customer or partner success. We also have created a new function in the U.S. and EMEA and Asia, especially Australia, where we also have something called an SDR. That are responsible only to secure demos for the partner development managers to deliver a demo and hopefully convert into an opportunity and then into revenue. We also expanded geographically, we invested in EMEA, in Europe, and also we invested a little bit in Asia Pacific, and of course, we continue investing in North America. For all this to take place, we're talking about, you know, anywhere between 4 months- 6 months for us to see the impact of these investments that we made. Keeping in mind that we've always been more conservative about how we invest, we don't invest too much ahead of the curve. We tend to make sure that we're profitable, we're cash flow positive, we tend to be, you know, more steady in our investments. We were more aggressive in the first half of 2023 on the sales side because we see a lot of opportunities. Thank you. Do you see staff onboarding and the growth in staff costs slowing in the second half of FY 2023? The subset of that question was: Was there some front-end loading to the sales staff over the first half of 2023? The answer is yes to both. We did more front loading for sales, and also overall, not from a number of headcount, but specifically from a cost of headcount, because we hire people in low-cost and high-cost locations. Our forecast for the second half of the year is that we're going to have lower spend on headcount in the second half versus the first half. Yeah. Moving away from staff, gross margins were delivered with 69%, very similar to the first quarter and again, above your expectations. Where do you see margins going from here? Are you anticipating an uplift in your expectations, or do we think margins will slowly start to normalize over the remainder of the year? Yeah. Bill was, when he presented, he was clear that we expect that our gross margin for 2023 to be higher than that of 2022. In the, I would say short term, like defining short term as the next 6 months, we expect it to be stable to positive versus 2022 as Bill was very clear. In the medium and long term, we are looking at multiple ways to sustain and potentially improve our gross margin in the coming couple of years. Great. Thank you. In terms of the product development from Dropsuite, in respect with the uplift in ARPU, where are you in terms of new product development, and what potentially can we see coming out over the remainder of this year and early next to keep driving ARPU up? Yeah. One thing to know about Dropsuite is that we avoid launching a flurry of half-baked products to the market. What we do is we launch a limited number of products, but we make them very deep and complete. The examples that we have for this year is Gov Cloud, as well as, QuickBooks Online Backup. What to expect for this year is not a new set of products. It's more about executing on a strong go-to-market strategy to get an impact from these new products. Thank you. Subset question to that was, ARPU growth's been substantially strong over the past several quarters. Has that been through new product development or just the uptake of existing higher priced products? Historically, it has been for a couple of related reasons. We see a lot of demand on our expensive, most expensive product, which combines backup, and archiving, and compliance in one product, especially in North America. As we see more mix shift towards that product, and we also, I used it earlier that we have a legacy business in hosting basic products with lower ARPU. As we gain more mix and grow faster in these higher ARPU products, we're also seeing the benefits of that. Now, keep in mind that our ARPU growth in real terms, is about 8% year-on-year, so it's a good number. With QBO and QuickBooks Online Backup and Gov Cloud, if we execute well in the coming four quarters, we expect that those two products will also make an impact, a positive impact on the ARPU, in the next 12 months. Thank you. Just a question on churn. Bill, you mentioned that some legacy clients and low-margin legacy clients have been leaving Dropsuite, sorry. How far through that process are we, and do we expect more legacy customers to churn over the coming quarters? Yeah, thanks, Craig. That legacy partner is still, as you mentioned in the prior presentations and webinars, that they're still offboarding some of their customers from their end. We're not in a position to outline how many they've got left, but suffice to say, it's creating a positive impact on our ARPU by releasing some of this lower ARPU seat count. Yeah, I mean, just to be clear, that's a part of the business that, we, you know, we're obviously, we're happy to get the users and the revenue from, but we believe that our future lies with the MSP partners, with the true SMBs and with enterprise, with these new higher ARPU not new, I mean, new-ish or new products like Microsoft Office 36 5, Google Workspace, GovCloud, QuickBooks Online Backup. That's where we see our future. Great. Thank you. Next question is back on margins is, as you add more vendor partners, is there any risk to margin degradation for Dropsuite? We are not looking at margin degradation as a way of winning business. I mean, we try to, and work hard, and have been successful in positioning our product as a premium product in the market, where we can win based on features, and support, and capabilities, and customer intimacy with product superiority, right? That's what our positioning will be. Now, there might be a situation where we say, "Okay, you know what? We're gonna give a special price for not-for-profit, or we're gonna give a special price for education," because education is a public utility, and they tend to have lower budgets. We may do these things in a strategic way, but the direction is always about positioning our product as a premium product and winning based on that as opposed to anything else. Thank you. Couple of questions, Charif, as you'd expect, around M&A activity. I'll just lump them together. Any update on M&A, and have there been any targets that you've seriously looked at over the course of this year? We have looked at least in the recent few months, at least two or three targets in a very serious way. At the same time, we are looking at companies that are slightly cash flow positive or slightly neutral, right, and, or slightly negative cash and profit, right? These companies should have good roll-offs. And we are engaging with these companies. We are struggling a little bit with the valuations, to be very frank, that we're seeing in terms of expectations. We're trying to work through those and positioning this potential M&As as 1+ 1= 3, because once you take an acquired company's products and you integrate it into our partner ecosystem and our partner portal through these APIs, then you're layering new annual recurring revenue streams very quickly. That's something that we continue working through with no success, but I assure you, this is something that is high on our agenda, in the past and also in the, in the near future. Right. One on product pricing. You mentioned you're not looking at decreasing pricings or decreasing margins to drive users. Inflation's obviously been rife. Is there a market or is there a chance out there that we'd see Dropsuite look to increase their prices over the coming quarters? We have thought about it, and we have looked at it. When we look at how well our partners are taking the higher priced products that we have, and also now we have GovCloud, Office 365 backup, which is again, sold at a premium. It's the most expensive Office 365 backup product that we have. QuickBooks, which is 3x, 4x higher in terms of ARPU, we felt that we wanna focus on introducing these products at higher ARPUs, and drive the ARPU expansion through a mix shift, as opposed to raising the price of the lowest priced SKU. Keeping in mind, as I mentioned earlier, that we have the most expensive product, or one of the very most expensive products in the market. I would say the most expensive in the SMB, and probably the second most expensive in the mid-enterprise. Thank you. One, just back on the Microsoft launch or product announcement today. Microsoft Backup are now including a restore service level agreement, and charging separately for the offering. Now, is that new news out there in the market? Yeah, I think the commercial positioning of this is new. The concept that they talked about Syntex has been going on for several quarters. Again, remember, the restore is happening from the same place where you have your data. This is not like. Again, this is not a true backup/disaster recovery solution, because you're keeping the data in the same place, you're just allowing data to be restored in a faster way. Right. Look, last question that's in the queue for now is, the business has been growing top line revenue by over 50% revenue, over the past few years. Slowed a little bit in this quarter, but we did mention in the release that we'd anticipate growth to accelerate over the remainder of 2023. Are we expecting to get some subsequent quarter-on-quarter growth? How do you see growth playing out as the company continues to grow? Yeah. In the other sides of the business? Yes, fair enough. Of course, it's very, very hard for me to be very specific, especially that, given that we're a public company. What we can say is that we've made, as I mentioned, important reinvestments in sales in the first quarter, and we have higher growth expectations in the second half of the quarter that's embedded in our sales quotas and our forecasts, et cetera. I think that's all I can say on this without giving more specifics. Excellent. well, Charif, that's all the questions in the queue now. Charif, I'll just hand across to you for any closing comments. Well, I wanna thank all the attendees for joining us today. I would hope I was able to address any concerns on the Microsoft Syntex launch by Microsoft. I'm happy to follow up later, if required, with more information and more insights. I wanna refer, affirm our outlook. We're still looking at a solid growth on ARR. We're still looking into a profit, you know, continue having a profitable company. We still have significant white space in the industry that we serve. For us, it is business as usual. With that, I thank everyone, and I hope to catch up with you in the subsequent quarters.