TZ Limited shifts focus to capitalise on broader cloud technology market, sets cash flow positive target
As its rapid turnaround continues, smart technology developer TZ Limited (ASX: TZL) has closed out the September quarter (Q1 FY2022) with “ambitious growth plans”, its order book already looking stronger, and a cash flow positive target in its sights.
During Q1 FY2022, the company received cash inflows of $5.4 million to end the period with net cash generated from operating activities of $300,000.
The company noted this was a significant improvement on the $400,000 loss in Q1 FY2021 and the $1.2 million loss accrued in Q4 FY2021.
To steer its ambitious growth plans, TZ appointed new chief executive officer Mario Vecchio last month.
After reviewing TZ’s traditional smart lock hardware and technology business model, Mr Vecchio has outlined a new direction, which involves a change in the model to TZ becoming a cloud-based software and consumption business.
As part of this, Mr Vecchio has delineated a detailed plan for revenue growth through this avenue, which would involve offering its technology under software as a service (SaaS) licences.
Revenue is also expected to be generated through annual subscription and service fees.
This path forward broadens the company’s technology scope and unlocks its previous reliance on uptake of its hardware, which brought in “one time” only revenue payments upon fulfilment of its fit-outs.
TZ predicts SaaS, subscription and service revenues will have higher profit margins than one-off devices and licence purchases.
Under the broader market scope, TZ has leveraged its smart locking devices and software technology and capabilities to ultimately sell open platform software that can control third party smart devices, not just its own.
The platform will continue to be enhanced and simplified to create a “best in class” and next generation user interface, which will be positioned as a unique sell point for the company.
Then, using a higher scale of open gateway application programming interfaces (API), TZ’s technology can be connected to its own smart devices as well as those from third parties.
This will all be done while refining user experience, which will ensure habitual and friction free use of the software – resulting in recurring contracts and revenue from ongoing licence, subscription and services fees.
September quarter achievements
Under former chief executive officer Scott Beeton’s charge, TZ identified numerous efficiency improvements that could be made across the business during the first half of 2021.
By the end of the September quarter, these efficiency improvements had almost been completed.
Additionally, during the period, TZ implemented new accounting system Odoo and sales platform Hubspot.
Mr Beeton’s largest contribution under his helm was recapitalising the business. A new debt facility was established in June for $2.5 million. Of this, $2.1 million was used to repay an old facility from major shareholder First Samuel that expired at the end of July.
The remaining $2 million of debt owed to First Samuel was converted to TZ shares.
Previous to this, TZ’s total debt was $11.75 million, and this has been reduced to $2.5 million.
TZ pointed out the recapitalisation will save it about $800,000 in interest costs a year.
Cash flow positive in FY2022
With a new direction and recapitalised business, TZ says its started FY2022 with a much stronger order book than previous years.
Recent sales contracts have come from major companies and brands such as Netflix, Adidas, Suncorp, Starbucks, Suncorp, Chevron, Princeton University, Apple and CSL.
Several other majors are also reviewing contracts.
Much of TZ’s recent growth has come from the US. The company currently has 54 orders on its US books – more than twice the 22 deployments it made at the same time last year.
“The orders pipeline plus the opportunity to move to SaaS licencing instead of perpetual licences is setting the company up for a successful FY2022,” TZ stated.
As a result of the efficiency, growth and shift to a SaaS licencing model, TZ is focused on becoming cash flow positive in FY2022.