Netlinkz Ltd (ASX:NET) is working on maintaining growth in 2021 building over better than expected cash receipts from customers for CY2020, coinciding with the release of the VSN.
During the December quarter of 2020, the company completed a share placement with the support
from institutions and existing shareholders, and renewed focus in overseas markets particularly China to support growth.
The company ended the CY2020, with cash receipts of $16.6milion, 25 times increase over the CY2019, coinciding with the release of the VSN, representing a pleasing outperformance of the $15.3 million guidance.
Netlinkz received $16.3million during CY2020, with a further $0.3 million late payment received by SSI Pacific in the first week of January.
“Significant and growing market opportunities”
Netlinkz executive chairman and CEO James Tsiolis said: “Netlinkz is incredibly proud of the CY2020 result.
“We have a great product, for which there are significant and growing market opportunities, and a focused go-to-market strategy.
“The next 12 months are about scaling sales in the highest leverage markets in a capital-light manner.”
Business focus and strategy
The company has continued to focus its capital toward its highest leverage growth opportunities and core strengths, in its pursuit of achieving cash flow break-even whilst maintaining growth in 2021.
Besides, the Australian operational cash burn has been reduced to approximately $0.5 million per month from January 2021, with further cost savings under review.
The investment in the China business is paying off, evidenced by the impressive growth in its first year of operation, making it the ‘engine room’ of the Netlinkz business.
The business is focused on growing its licensing fee base, improving margin and strengthening the AOFA balance sheet to win other large initiatives to generate long term recurring revenue.
The company is rolling out partner technologies underpinned by the VSN, including customer-funded proof of concept deployments in Japan, Hong Kong, India and Australia.
Progress in China operations
The company’s core focus in CY2020 has been on establishing the company, its engineering, consulting, systems design, integration capabilities and the VSN product.
The China business is a success, evidenced by it delivering $12 million of cash receipts in its first 12 months of operation.
The core benefits and functionality of the VSN have enabled the Group to partner with LNS and attract interest from multi-nationals and government organisations in numerous countries.
Cash receipts in China were $4.2 million for the quarter slightly less than the previous quarter which is attributable to the holiday period.
The group continues to work on strategies to meet this challenge and in addition to continuing engagement with large corporates.
ASEAN operations
The partnership with LNS International is a key strategic initiative aimed at diversifying sources of larger-scale clients whilst requiring no capital outlay. The first phase of the partnership is to focus on ASEAN countries.
LNS is a sales organisation with offices throughout the APAC region, including China and Japan, and is committed to providing a dedicated sales force focused on selling total solutions to customers underpinned by Netlinkz’s products and services.
LNS and the company are participating in tenders exceeding $600 million, which is the basis for the aspirational revenue target for this partnership of $ 15 million in the first 12 months.
The rest of the world
The Australian operations generated $1 million of cash receipts from customers during the quarter, primarily from sales of the Netlinkz secure international connectivity solution.
Our first initiative in India, via Natsoft and the IoT Lab in India, is exploring client opportunities leveraging the Australian team’s expertise.
Australian overhead is resourcing and supporting market testing and demonstrations, including proofs-of-concept.
VSN product update
The company is now seeing increasing interest in the VSN across ASEAN and other geographical markets, with the recent challenges faced by numerous governments highlighted in the recent SolarWinds attack.
The VSN product provides the enhanced security to help prevent many of these attacks and also to remediate areas which have already been compromised.
Netlinkz is actively involved in design and discussions with some government clients looking to enhance security, especially on their current IPVPN platforms.
As such, product development in the December 2020 quarter included sourcing a new hardware platform for global markets and associated certifications for 5G, as well as specific industry certifications.
Corporate development
The December 2020 share placement was a success and the company was pleased with the high level of interest and support it received.
The result was a significant reduction in the convertible note overhang on the stock and a material improvement in the net assets of the business.
Convertible note redemptions totalled $12.7 million as on December 31, 2020 with a further $0.3 million redeemed in January 2021.
As a result, the total value of convertible notes outstanding is $0.9 million.
The composition of the board has stabilised and represents a breadth of skillset which will be invaluable in delivering this focused strategy.
Changes in the company’s board
During the quarter, Hualin Zhang Mr Zhang’s position has changed from executive director to non-executive director.
Zhang will continue to provide valuable advice and insight to the company in the capacity of non-executive director.
Bruce Rathie elected to withdraw his nomination for election as a director at the annual general meeting due to competing business interests and other professional commitments.