Latest / Investor Exchange / Captii Limited Financial Results Q1 2025

Transcript

Captii Limited Financial Results Q1 2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome to the Deep Dive. You sent over the Q1 2025 financials for CapTI Limited.
• 0:13
  So that's what we're doing today, a deep dive.
• 0:16
  That's right. The idea is really to cut through all the numbers and give you
• 0:19
  a clear picture of their financial health, you know, what's behind it and maybe
• 0:22
  where things are heading.
• 0:23
  Yep. We've got the Q1 report right here. Think of it as us breaking down their
• 0:28
  performance, looking at the why, and also what the company sees coming down
• 0:32
  the line. Okay, so let's jump in. The headline numbers.
• 0:35
  Revenue first. It's up 19.2% compared to Q1 last year.
• 0:40
  Yeah, from about S3 million dollars to nearly S3.6 million dollars.
• 0:44
  And the report says that's coming from both Globo SS and Unified Comms.
• 0:48
  What's your first impression of that? Well, 19% is pretty solid growth.
• 0:51
  And seeing it across both main parts of the business, that's usually a good sign.
• 0:56
  But But, you know, the question is always, what kind of revenue is it?
• 0:58
  Is it sticky recurring stuff or more one-off project sales?
• 1:02
  That tells you a lot about, well, the quality of that growth.
• 1:05
  Good point. Okay, let's look at profit then.
• 1:07
  Gross profit saw an even bigger jump, up 46.1%. Wow, okay.
• 1:12
  That's significant. To S, $2 million from about $1.4 million.
• 1:16
  Yeah. And the gross profit margin also improved quite a bit,
• 1:19
  went up to 57% from 45.7% last year.
• 1:24
  Right. They're saying it's mainly down to higher margins on their managed service contracts.
• 1:28
  What does that tell you? That margin jump is definitely positive.
• 1:32
  It suggests they're getting more efficient, maybe, or perhaps commanding better prices.
• 1:37
  And the fact it's linked to managed services. Yeah.
• 1:40
  That's interesting. Especially when we look at the revenue mix later,
• 1:43
  it kind of suggests those contracts are paying off better for them.
• 1:46
  Okay. But even with revenue and gross profit up, they still posted a net loss for the quarter.
• 1:51
  Right. Still in the red. Although it is smaller. $0.33 million loss compared
• 1:55
  to about $0.44 million last year.
• 1:57
  Their LBDA improved, too, got closer to zero.
• 2:00
  Yeah, LBPD moved from net interest $0.19 million to net interest $0.08 million. So...
• 2:06
  But operationally, things are better before interest, tax, depreciation, amortization.
• 2:12
  So what's the takeaway there? Good progress, but not quite over the line.
• 2:16
  Exactly. The improvements are encouraging, reduced loss, better LBI TDA.
• 2:21
  It shows the core operations are strengthening. Okay.
• 2:24
  But the bottom line is still negative. Expenses are outpacing the gross profit,
• 2:27
  even with that big improvement we saw.
• 2:29
  Right. Okay. Now here's where it gets really interesting, I think.
• 2:33
  The sales mix. Ah, yes. How they're actually making the money. Exactly.
• 2:37
  Recurring managed service revenue, it's still the biggest piece,
• 2:41
  but proportionally it's down a lot.
• 2:43
  Yeah, from 91% of revenue in Q124 down to, what, 68.9% this quarter. Yeah.
• 2:50
  So what's filling that gap? Well, it seems to be system sale contracts.
• 2:53
  Right. Revenue there just exploded up 317.9%.
• 2:57
  Wow. Okay. Yeah, across both Global OSS and Unified Coms. So $1.1 million in
• 3:03
  system sales this quarter versus only about $17.3 million last year.
• 3:07
  So does that look like a deliberate shift or just landing some big deals?
• 3:11
  Hard to say for sure from just one quarter, but it's a massive shift.
• 3:14
  Recurring revenue is usually seen as more stable, predictable, right?
• 3:17
  These system sales can be lumpier, bigger up front maybe, but less predictable long term.
• 3:23
  So yeah, the question for you listening is what does this shift mean for their
• 3:26
  future earning stability?
• 3:28
  Let's break down the two segments then. Unified comms, revenue was up slightly,
• 3:33
  just 2.3%. Yeah, it's $2.25 million.
• 3:36
  Still the bigger part of the business at about 63% of total revenue.
• 3:40
  And they say that small increase was also driven by system sales.
• 3:44
  Which kind of implies that the managed service part of unified comms might have
• 3:48
  been flat or maybe even down slightly.
• 3:49
  Hmm, okay. That could tie into the pressures they mention later on. Potentially, yeah.
• 3:53
  So system sales are propping up the number, but maybe the core recurring business
• 3:57
  in that segment is facing some headwinds.
• 4:00
  Okay, but then Globo SS, that was a different story. Revenue there jumped 65.2%. Huge jump.
• 4:06
  That's $1.3 million for the quarter. Also driven by system sales.
• 4:09
  And its share of total revenue grew to over 37%. Yeah, Globo SS definitely looks
• 4:14
  like the growth engine this quarter.
• 4:16
  Really capitalizing on something. Right. But again, sustainability is the question.
• 4:20
  And the profitability of those system sales.
• 4:23
  Speaking of profitability, those managed service contracts, their gross margin
• 4:27
  actually went up, didn't it? It did.
• 4:29
  From 42.6% to 49.4%. Some better profitability on the recurring side. Which is good.
• 4:35
  Yeah, definitely suggests better cost control or pricing power there.
• 4:38
  But the margin on the system sales actually decreased from nearly 78% down to
• 4:43
  about 70.5%. Oh, okay. Why was that?
• 4:46
  The report says it's because Globio SS contributed more to those system sales.
• 4:50
  And Globio SS apparently has higher third-party costs associated with its system sales.
• 4:55
  Ah, okay. So the segment that grew fastest with system sales also had lower
• 5:00
  margins on those sales. A bit of a trade-off. Exactly.
• 5:03
  Higher growth, but slightly less profitable growth in that specific area.
• 5:07
  It's all about that overall profit mix. Got it. Okay, let's switch to expenses.
• 5:11
  Net total expenses went up by 28.2%. Right. Up to S2.3 million dollars from
• 5:16
  about S1.8 million dollars. What drove that?
• 5:19
  Two main things highlighted. First, higher technical support costs.
• 5:22
  Okay. Specifically because they hired more people at Globo SS.
• 5:25
  Ah, makes sense. More system sales versus the compliance ones often means you
• 5:29
  need more tech support staff, right? Yeah, seems logical.
• 5:31
  Growth comes with costs. And the second driver? The second one was the absence
• 5:36
  of a fair value gain on their venture investments this quarter. Ooh, right.
• 5:40
  They had a gain of about $7.17 million last year in Q1. Exactly.
• 5:45
  And this year, nothing. So that swing alone makes the expense comparison look worse.
• 5:50
  Yeah, that hits the bottom line directly. Shows the volatility that can come
• 5:53
  from holding venture investments.
• 5:55
  So growth driving some costs and investment performance adding complexity.
• 5:59
  Any other big moves on the expense side?
• 6:01
  Admin costs? Distribution?
• 6:04
  Doesn't look like it based on the summary. Seems those two factors,
• 6:08
  tech support headcount and the investment gain swing, were the main culprits
• 6:11
  for the overall expense jump. Okay.
• 6:14
  Let's shift to cash flow now. This looks like a really positive story.
• 6:18
  Net cash from operations.
• 6:20
  It went from an outflow last year, about $6.4 million out, to a big inflow this
• 6:26
  year, $1.6 million in. Wow.
• 6:29
  Okay, that's a significant turnaround. from negative $7.04 to positive $1.06.
• 6:35
  What's behind that? Working capital changes primarily.
• 6:38
  A big positive swing there. So managing receivables and payables better. Seems like it.
• 6:43
  The report shows a S1.7 million dollar positive impact from working capital
• 6:49
  this quarter versus basically zero last year.
• 6:53
  Okay, so maybe collecting cash faster from customers or maybe stretching out
• 6:57
  payments to suppliers a bit or managing inventory.
• 7:00
  Something in that mix. Whatever it is, it's bringing cash in the door from operations,
• 7:04
  which is definitely healthy. Absolutely.
• 7:06
  Strong operating cash flow is crucial. What about investing and financing cash flows? Any big moves?
• 7:11
  Not really. The report says cash used in those activities was pretty flat compared to last year.
• 7:16
  Okay, so no major acquisitions, disposals, or big debt or equity changes reflected
• 7:20
  in the cash flow this quarter. Seems that way. All right, let's look at the balance sheet.
• 7:24
  Their financial position, total assets dipped slightly. Down a bit from the end of 2024.
• 7:29
  Why was that? Looks like mostly a decrease in non-cash current assets.
• 7:34
  Specifically, things like contract assets and costs tied to projects not yet finished. Hmm.
• 7:40
  Contract assets going down. Yeah. Could that mean they're billing faster or
• 7:44
  completing projects? Yeah.
• 7:46
  Maybe linked to that rise in system sale revenue recognition. Could be, yeah.
• 7:50
  It might tie together. And on
• 7:51
  the other side, liabilities. Liabilities actually decreased by about 10%.
• 7:56
  Right. Mostly because trade and other payables went down.
• 7:59
  So potentially paying off suppliers. That would fit with the strong operating
• 8:03
  cash flow too, maybe using some of that cash to pay down short-term debts. Makes sense.
• 8:07
  And finally on position, net asset value per share.
• 8:11
  Slipped a tiny bit. from 95 cents at year end to about 93.5 cents now. What does that signal?
• 8:17
  Well, a small dip like that could just reflect the net loss for the quarter
• 8:20
  impacting overall equity. It's not a huge move in one quarter.
• 8:24
  You'd look at the trend over time. Okay, so that's the numbers.
• 8:26
  What about the outlook? What does the company itself say is coming?
• 8:30
  Sounds like they see challenges ahead. They do. They mentioned a challenging
• 8:33
  outlook for both Unified Comms and Globo SS.
• 8:36
  What specifically? They point to underperforming managed service contracts still
• 8:42
  being an issue, plus pricing pressure, so competition maybe,
• 8:45
  and also delays in getting new business opportunities across the line.
• 8:50
  So headwinds on revenue and profit seem likely to continue this year.
• 8:54
  Not exactly rosy, but they also mentioned taking positive steps.
• 8:58
  Yeah, they do balance it. They say they've been working to strengthen the business
• 9:01
  fundamentals since last year. Okay.
• 9:03
  And on the venture capital side, Capti Ventures, they say the market is still
• 9:07
  tough, generally, but maybe some bright spots are emerging in certain startup areas.
• 9:12
  So what's the plan then for Unified Comms and Globe OSS? How are they navigating these challenges?
• 9:18
  Their focus seems to be on, well, delivering the contracts they have.
• 9:22
  Makes sense. Right. Also reinvesting in innovation, looking at diversification,
• 9:27
  maybe new services or markets. Could be.
• 9:29
  And improving operational efficiency, basically tightening the belt and executing
• 9:34
  well on what they have while looking for new avenues. Okay, so bringing this
• 9:38
  all together, our deep dive into CAPTI's Q1...
• 9:43
  Kind of a mixed picture, isn't it? I'd say so, yeah. You've got good signs,
• 9:47
  revenue up, gross profit way up, net loss shrinking, positive operating cash flow.
• 9:53
  Those are definitely points in their favor. But you have that significant shift
• 9:57
  away from recurring revenue towards potentially lumpier system sales.
• 10:01
  Yeah. You've got margins on those system sales dipping slightly.
• 10:05
  Right. And the company itself is flagging ongoing challenges with managed services,
• 10:09
  pricing pressure, and delays.
• 10:11
  Plus, the venture market uncertainty. So Q1 shows momentum in some key areas,
• 10:16
  absolutely, better than last year in many ways. Definitely.
• 10:19
  Progress is being made. But they're clearly aware of and acknowledging some
• 10:23
  significant headwinds they need to navigate through the rest of the year.
• 10:26
  Precisely. Which leads us to that final thought for you, the listener. Okay.
• 10:30
  Given this clear pivot, or at least this big surge, in system sales and the
• 10:35
  difficulties they're calling out in managed services, what should CAPTI's strategic priority be now?
• 10:41
  How do they balance capitalizing on this system sale momentum,
• 10:45
  maybe making it more profitable or sustainable, while also shoring up or fixing
• 10:49
  the issues in the traditional managed services business?
• 10:52
  And how does the venture side fit in? Complex balancing act,
• 10:55
  isn't it? Something to think about.
• 10:57
  Music.