archTIS Ltd has showcased robust growth and strategic developments during the quarter ending March 31, 2024.
The third quarter marked an impressive highlights reel for archTIS, which saw a 47% surge in revenue, primarily driven by a 76% increase in licensing revenue.
The growth trajectory has led to enhanced margins and positive EBITDA compared to the prior period. Notably, the company secured significant wins within the Australian Department of Defence and expanded its customer base globally, reflecting its strong market presence and growth strategy.
Highlights for the quarter include:
- Strong revenue growth of 47%, led by 76% licensing revenue, drives improved margins and positive EBITDA from the prior comparative period (PCP).
- Continued growth in target markets, achieving wins with the Australia Department of Defence and the broader defence industry.
- Successfully expanded customer base across all geographical regions.
- Upheld a zero-customer churn rate – underscoring commitment to excellence and customer satisfaction.
- NC Protect named a Compliance & Privacy Trailblazer Award Finalist in the 2024 Microsoft (NASDAQ:MSFT) Security Excellence Awards for the second consecutive year.
- Industry veteran Andrew Burns has been appointed as Chief Financial Officer (CFO).
After the quarter's close, the company announced a A$467,000 win in partnership with Penten for an Australian national security agency after a successful Proof of Concept (POC).
"Positive quarter"
“This is another positive quarter for archTIS,” AR9 managing director and CEO Daniel Lai said.
“The lift in revenue growth, increasing gross margins driven by licencing, zero churn, and focus on operational costs evidence a strong performance. Whilst we navigate the outcomes of a number of POCs, we are in a strong position to take advantage of emerging opportunities.
“Defence organisations around the world continue to increase budgets to address rising security threats and unstable geopolitical circumstances. Throughout the quarter, we continued to build strong alliances with strategic partners to expand our Kojensi and NC Protect footprint in key markets.”
Revenue growth and improved margins
In the third quarter, AR9 reported a total revenue of A$2.6 million, marking a 47% increase from the previous corresponding period (PCP).
This growth is primarily due to A$1.5 million in licensing and A$1.1 million in services revenue, significantly boosted by a Proof of Concept (POC) awarded by the Australian Department of Defence to modernise their workplace environment.
Annual recurring revenue (ARR) rose to A$3.7 million, up by 11% from the PCP, with continued investment from the Australian Department of Defence and other global defence industries in Kojensi and NC Protect solutions.
There was no customer churn reported in the quarter. Gross margins improved to 69%, a 20 basis point increase from the PCP and 25 basis points up from the prior quarter.
The improvement in gross margin in dollar terms was 107% compared to the PCP, equating to an increase of A$0.93 million. Licensing margins remained robust at approximately 69%, albeit slightly reduced due to third-party software licensing costs associated with the POC.
Operating expenses for the quarter were A$1.6 million, aligning with the PCP of A$1.7 million but showing a minor increase of A$0.4 million from the second quarter of FY24, attributed to increased services activity.
The company concluded the quarter with A$4.5 million in total available funding. Net operating cash flow was negative at A$1.25 million, driven by costs associated with product manufacturing and operations (A$0.8 million), advertising and marketing (A$0.1 million), and staff costs (A$1.8 million), offset by customer receipts totalling A$1.4 million.
For FY24 to date, the company has reported strong financial performance. Year-to-date (YTD) revenue has increased by 101% and gross margin has improved by 93%, reflecting a growth in services revenue.
Despite these gains, the YTD EBITDA is modest ($28K). The company has successfully reduced operating expenditures by 22%, contributing to improved financial outcomes. The rolling three-month operating cash burn was (A$417K), marking a 35% improvement (A$222K) compared to the previous corresponding period.
archTIS expands customer base
archTIS has achieved significant customer retention and expansion across various sectors and regions, with no reported customer churn this quarter. Notable contract expansions and new deals include:
KPMG Australian Technologies Solutions (KTech), which provided additional orders worth approximately A$600,000 for services related to data architecture in a Defence Data Program.
The Australian Department of Defence’s command and control department expanded its use of NC Protect for mission-edge communication.
A major US law firm acquired NC Protect to manage sensitive court documents with dynamic read-only access and watermarking.
A US defence manufacturer expanded its security suite by purchasing NC Encrypt for data encryption and key management.
Secure State, a new archTIS partner, facilitated the sale of Kojensi SaaS to a French aerospace company for secure information collaboration.
A multinational manufacturing company renewed a six-figure subscription to NC Protect for protecting intellectual property across its R&D teams.
Further demonstrating its active market engagement, the company is involved in several proofs of concept (POCs) in Australia and the US. Following a successful POC, archTIS announced a $0.46M deal with Penten to deploy Kojensi for an Australian national security agency.
archTIS expands partner network
archTIS continues to strengthen its partnership alliances, marked by significant achievements and new collaborations. For the second consecutive year, Microsoft has recognised archTIS NC Protect by nominating it as a finalist for the Compliance & Privacy Trailblazer Award at the 2024 Microsoft Security Excellence Awards.
NC Protect is lauded for its unique capabilities, particularly its integration of an Attribute-Based Access Control (ABAC) policy approach with Microsoft’s security products. This integration is crucial for protecting highly sensitive data within Microsoft applications, specifically addressing Defence needs for handling and applying visual markings on sensitive, Controlled Unclassified Information (CUI), and classified data.
In addition to this accolade, archTIS has expanded its channel partner program with the inclusion of Secure State as a Silver Partner. Secure State is an Australian sovereign Indigenous cybersecurity business specialising in information security and technology services and has made its mark by closing its first sales in the recent quarter.
Secure State will resell and provide services for both Kojensi and NC Protect.
These services are tailored to meet the stringent data security and compliance requirements of their clients in Australia, offering a combination of products and services that uphold defence-grade standards and support their clients' business objectives.
“archTIS continues to show strong sales engagement within the Microsoft market through its partnership,” COO and AR9 US president Kurt Mueffelmann said.
“This is demonstrated by recent wins as organisations move to Microsoft 365, joint proof of concepts in several high-profile defence agencies and NC Protect being named a finalist for the Microsoft Security Excellence Awards.
"The work we’re doing now continues to lay the foundation for future growth and repeatability in a competitive market.”