Announcement PDF Xref Limited 2024 Annual
 Report Contents Chief Executive Officer’s Report 2 2024 Highlights 3 Chairman’s Report 5 Directors’ Report 7 Independence Declaration 21 Financial Statements 22 Notes to the Financial Statements 26 Director’s Declaration 62 Independent Auditor’s Report 63 Shareholder Information 69 Corporate Directory 72 Requests Reference Background check Pulse Engage People Insights Surveys Xref Australia Search Exit Filters Most recent RE EH CH JC AB KM DL Ralph Edwards Survey Requested by Send date 12 Mar 2024 Graduate position (Product) Guy Hawkins Esther Howard Survey Requested by Send date 28 Feb 2023 Dev Ops Reference Jenny Wilson Courtney Henry Survey Requested by Send date: 28 Feb 2023 Dev Ops Reference Bessie Cooper Jane Cooper Survey Requested by Send date: 28 Feb 2023 Dev Ops Reference Albert Flores Annette Black Survey Requested by Send date: 13 Dec 2023 C-Suite qualification & personal referen Wade Warren Kathryn Murphy Survey Requested by Send date: 05 Nov 2023 General graduate Leslie Alexander Devon Lane Survey Requested by Send date: 05 Nov 2023 General graduate Theresa Webb General information Requested Expired Stopped In progress Completed Completed Completed FY2024 Letter to Shareholders Welcome to Xref’s 2024 annual report. In 2024, the Xref team worked hard to bring about one of the biggest and most important transformations in our history. We extended our narrative from purely reference checking to solutions offered throughout the entire talent journey, from ‘Hire to Retire’. The new Enterprise Platform, Xref Engage and Trust Marketplace all support this journey and they presented opportunities to cross-sell and upsell new products to existing and new clients throughout the year. Despite recruitment levels being materially down during the year, revenue remained relatively flat when compared to the preceding year. This was due mainly to the migration of clients to subscription agreements and the decoupling of revenue away from traditional recruitment trends. The increase in new business sales during the second half and the ability to cross-sell the Engage platform to pre-existing clients also helped retain revenue levels in very tough market conditions. Clients welcomed the migration to the new Enterprise Platform, having access to integrated background checks via Trust Marketplace and engagement surveys via Engage. Due to the success of our ‘Hire to Retire’ product strategy, we decided to continue our investment in product development. To balance our investment in the challenging market we reduced costs across the business. This included reductions in marketing, lease and travel costs along with an organisational restructure which resulted in lower costs and a return to a cash flow surplus in the final quarter. We pride ourselves on the feedback we receive from our clients and users. Following our pleasing client satisfaction survey results in 2023 we continued to receive excellent reviews and ratings from our clients and the users of our platforms via G2, Capterra, GetApp and Google. In 2023, Xref began to use our Engage Platform to conduct internal engagement surveys to measure staff engagement, wellbeing and the overall progress of the business. Having now conducted our second annual survey, we are delighted that despite the tough market and significant internal change our employee engagement remained high. During the year Xref delivered a new platform, narrative and business model, migrated the majority of its clients to SaaS, won new business and delivered landmark integrations. This was achieved while also reducing costs. As we experience the first signs of a recovering market, our focus remains on continuing the migration of clients to SaaS and the new Enterprise Platform and further cross-selling of Engage and Trust Marketplace. We are also focusing on further development in the areas of client self service and self-sign-on and implementing creative integrations with external technology partners to deliver our services to their clients. In May 2024, Xref decided to conduct a strategic review following enquiries from a number of parties regarding a potential acquisition of the company, this review process is ongoing and discussions are continuing with interested parties.. With our lean operating structure, scalable and improved technology and larger addressable market, we are well positioned for the next stage of our growth. Lee-Martin Seymour Founder, CEO, Exec Director. 2 | Xref Limited | Annual Report 2024 A transformative year Recruit Intro Trust Marketplace A new platform, narrative and business model As Xref has expanded its offering from servicing just recruitment, it has extended its total addressable market tenfold and has shifted Xref’s global business model from a solely usage-based model to a SaaS subscription model. This has allowed Xref to decouple its revenue recognition from short term recruiting trends and to provide services for the broader employee base of its clients. Key strategic goals for FY24 included: Reference checking Non SaaS Revenue ($M) Retain Exit surveys Migration of existing clients to the New Enterprise Platform Migration of clients across to SaaS subscriptions from preexisting credit based agreements. Assimilation of newly acquired Voice Project to Xref Engage including product integration and cross sell SaaS Revenue ($M) Pulse Engagement Surveys Surveys Talent pool Search Remember SaaS $11M SaaS Revenue +296% Xref has focused on transitioning current and new clients to SaaS subscription agreements. So far, 906 clients have transitioned to SaaS contracts and a further 120 new clients signed SaaS contracts in FY24. As a result, the amount of previously sold credits that remained unused fell 55% during the year to $3.9m. Clients from all cohorts welcomed the opportunity to move to subscription contracts including 93% of all new clients won during the year. Xref is now focused on transitioning the remaining accounts to further grow SaaS revenues. The move to SaaS has reduced fluctuations in revenue recognition commonly associated with seasonality or downturns in hiring. ARR Engage ($M) Recruiter ($M) Enterprise ($M) $15M ARR +209% As a result of the transition to SaaS, Annualised Recurring Revenue (ARR) grew 209% to $15m since the $5.6m reported in July 2023. More specifically, the Xref platform grew in ARR 280% from $3.2m to $12.4m in FY24 and Engage grew 53% from $1.6m to $2.5m. Sales in the New Enterprise Platform increased ARR 260% from $1.1m to $4m in FY24. ARR is expected to continue to increase as remaining clients move to new subscription agreements, clients using the Recruiter platform migrate to the Enterprise Platform and the split of SaaS to Non-Saas revenue for Engage increases. 2176 Global clients 92% Client Satisfaction 4.7 Client rating 4.7 User rating Xref Limited | Annual Report 2024 | 3 Enterprise Enterprise Platform Sales +296% The enterprise platform was released in October 2022. Since then, Pulse surveys and Background checks have been added to the available product line up and in July 2023 the newly acquired Voice Project platform was rebranded to Xref Engage and integrated as a premium add-on. 355 pre-existing clients have been migrated to the new platform and 183 new clients have been onboarded, 120 of which joined the platform in FY24. Sales of Xref Enterprise grew 272% from $1.3m in FY23 to $5m in FY24. Cross Sell into Xref (Sales $M) New clients ($M) Enterprise Sales Migrated clients ($M) Engage Survey Respondents Sold (M) Voice Project Clients (Sales $M) Engage Platform Sales +26% Xref acquired Voice Project in 2023. This created the opportunity for cross-selling by giving Voice Project’s 944 clients access to Xref’s complementary services and offering Voice Project’s services to Xref’s 1,300 enterprise clients and 15,000 users. Having rebranded the Xref sales team began cross selling Engage to Xref customers in November 2023. Xref sales contributed 14% of growth for FY24. Total sales grew 25% to $4.5m when compared to FY23. Expenses Cash Collected - Operating Cash Spent - Investing Cash Spent - Financing Cash Spent - Operating Quarterly operating expenses reduced 23% across the year to to $6m in Q4. This has been achieved by reductions in headcount, lease costs and marketing. Following an organisation restructure in January 2024 headcount reduced 25% to 99, During the year, Xref primarily focused on the retention and growth of current clients by expanding their use of the platform and migrating them to subscription agreements as a result marketing costs reduced 72% when compared to FY23. Exiting two lease agreement and moving to a serviced office reduced lease costs by 30%. Total cash collections for the year were $22.2m (not including proceeds from the loan facility secured in February 2024) and the business managed to return a cash surplus in the final quarter of the year. $ Millions Cash Expenses -23% 99 81% 84% 55% 0% Employees Employee Engagement Employee Retention Females in Leadership Gender Pay Gap 4 | Xref Limited | Annual Report 2024 Chairman’s report Dear Shareholders, I am pleased to present the Xref annual report for the year ended 30 June 2024. A year of transformation It has been another significant year for product innovation and transformation. Your Company achieved significant progress in migrating clients to our SaaS subscription service which has grown from zero 18 months ago to more than 60% of our revenue today. As a result, Annualised Recurring Revenue (ARR) almost tripled from $5.6m in July 2023 to $15m in June 2024. ARR is forecast to continue to increase as remaining clients transition to a subscription agreement. This increasingly gives Xref more predictable revenue going forward, and makes it less susceptible to fluctuating recruitment demand. Xref has successfully expanded from an automated reference checking service to a company providing a comprehensive range of human resource services including reference checks, pulse surveys, detailed engagement surveys, and exit surveys. These are now offered on the new enterprise platform based on subscription agreements. The acquisition of Voice Project last year is now fully integrated into the Xref platform and is generating good cross sell opportunities. Voice Project has proven to be a valuable addition to Xref by accelerating our growth into the engagement survey market which provides a source of revenue based on our clients total workforce not just their recruitment activity. The core products offered via the subscription-based enterprise platform are augmented by our Trust Marketplace which provides access to many verification services including Identity verification Graduate verification Police Checks; an VISA and right to work checks. During the year we consolidated our staff into one new office in the Sydney CBD allowing us to close the Xref offices in the Rocks and the Voice Project office in Macquarie Park. This has enhanced collaboration between our business units and supports innovation and drives synergy benefits. Debt & Cash We terminated the $5m debt facility with Pure Asset Management and replaced it with a $8.4m facility with Element SaaS Finance, a US based SaaS-focused debt provider. The remaining warrants held by Pure Asset Management expired and were not replaced, thus avoiding equity dilution as part of the new debt facility. The additional funding provided by the new facility allowed us to complete key product releases. Net cash used in operations for the year was $0.7m. This was skewed to the first half. The Company reduced headcount by 25% in Q3 which resulted in the second half making an EBITDA profit and generating a small positive operating cash flow. Net cash at the end of the year was $4.6m. The business also streamlined operations during the year as part of driving efficiencies, and this included consolidating the UK-based sales and support to North America. We also augmented our Australian-based development team with a cost- effective development team based in Lahore, Pakistan. Financial performance 2024 saw reduced recruitment activity as reported by most companies operating in the HR and recruitment market. Despite the market headwinds, revenue of $19.9m was down only 3% from $20.4 in the prior year thanks to our migration to our subscription platform and the addition of engagement services. EBITDA for the year was a loss of $1.7m largely due to the Company choosing to complete key product development in the first half. The second half returned to an EBITDA profit following the reduction of staff numbers during Q3 and the streamlined operations. Xref Limited | Annual Report 2024 |5 Channel partners Xref added a number of new channel partners during the year including more Applicant Tracking System (ATS) providers such as Dayforce and UKG, and job board providers such as Seek and Workplacer. Looking forward, Xref will continue to explore additional channel partners and checking vendors for our Trust Marketplace platform. This will involve adding more creative ways to integrate with the Xref API, launching self-sign-on for enterprise clients and migration of more customers to the SaaS platform. Strategic review Following a number of enquiries from private equity firms, the Board decided to undertake a review of the Company’s growth strategy and capital structure. As part of this review, we have entered into non-disclosure agreements with a number of parties and discussions are continuing. Employee engagement Despite the challenging market and the significant transformation undertaken by Xref in the last year, we are proud to have maintained a high level of staff engagement as evidenced by our staff surveys. I would like to thank our staff for their commitment and contribution as we re-invented Xref. In conclusion It is remarkable how much we have transformed and enhanced the Xref platforms despite the softer market and our reduced staff numbers. This adaptability gives me optimism for the potential of Xref going forward. The team has built a platform of greater value to our clients and one that gives Xref a competitive advantage. It places Xref in a strong position to grow revenue and earnings with its broader offering as the market recovers. Finally, I would like to thank our shareholders for their ongoing support during the transformation of our business. Tom Stianos Chairman 6 | Xref Limited | Annual Report 2024 Directors’ Report The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘consolidated entity’) consisting of Xref Limited (referred to hereafter as the ‘company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2024. Directors The following persons were directors of Xref Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: • Thomas Stianos • Lee-Martin Seymour • Nigel Heap • Lija Wilson (resigned 18 July 2023, effective 31 July 2023) Principal Activities During the financial year, the consolidated entity continued to conduct its core activity which was to develop human resources technology that helps organisations reduce staff turnover through better hiring and employee engagement. It also embarked on rolling out the new enterprise platform and subscription model to new and pre-existing clients. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Operating and Financial Review The loss for the Group after providing for income tax amounted to $5,681,097 (30 June 2023: loss of $3,359,340). Review of Operations FY2024 was a year of transformation and resilience for Xref. The company successfully navigated challenging market conditions while implementing significant strategic changes. During the financial year the company: • extended its narrative from purely reference checking to solutions offered throughout the entire talent journey, from 'Hire to Retire'; • launched the new Enterprise Platform, Xref Engage, and Trust Marketplace, supporting cross-selling and upselling opportunities; • successfully migrated clients to the new Enterprise Platform and subscription agreements, decoupling revenue from traditional recruitment trends; • integrated Voice Project and cross sold services, providing a buffer against tough market conditions in recruitment and contributing increased sales of $4.5m; • implemented cost reduction measures, including a 25% headcount reduction between November and January as part of a organisation restructure; • closed UK operations in November 2023, moving all sales and support for Europe, United Kingdom and Ireland to North America; • consolidated office space by closing Xref's Rocks office and Voice Project's Macquarie Park office, moving to flexible shared offices in Sydney CBD; • onboarded creative API integration partnerships with large ATS providers such as Dayforce and UKG, as well as job boards like SEEK and Workplacer; and • maintained outstanding customer satisfaction and employee engagement levels despite significant internal changes. The company has shown resilience in the face of continued market challenges, focusing on product evolution and operational efficiency. Review of Financial Performance The Group's financial results for FY24 reflected both the challenging market conditions and the strategic investments made. Key financial highlights: • Net Loss After Tax: $5.68m (compared to $3.36m in FY23) • EBITDA Loss: $1.79m (compared to EBITDA loss of $1.42m in FY23) • Net cash used in operations: $0.7m (compared to $0.5m generated in FY23) • Cash at bank as of 30 June 2024: $4.6m • Annual Recurring Revenue (ARR) at 30 June 2024: $15m Xref Limited | Annual Report 2024 | 7 Key financial highlights: • Revenue remained relatively stable despite recruitment levels being materially down, primarily due to the migration of clients to subscription agreements • Voice Project (acquired in January 2023) contributed $4.5m to sales • Debt was refinanced from $5m to $8.4m, netting additional funds of $3.0m after costs, which was used to continue expanding product offerings • The company saw improved performance in the second half of FY24: - net loss after tax was $4.08m for H1FY24, reducing to $1.6m in H2FY24 due to scaling back of costs EBITDA loss was $2.06m for H1FY24, turning to a positive EBITDA of approximately $0.3m in H2FY24 positive cash surplus from operations in H2FY24, compared to $1m net cash used in H1FY24 The company's focus on cost management and transition to a SaaS business model showed positive results in the latter half of the year, positioning Xref for improved financial performance as market conditions recover. 2024 Operating Results Financial Summary 2024 $ 2023 $ Total revenue 19,859,555 20,398,912 (3)% EBITDA (1,793,590) (1,417,924) (26)% Net profit/(loss) after tax (5,681,097) (3,359,340) (69)% (678,797) 454,402 (249)% 2024 $ 2023 $ Change % Xref Platform 14,046,848 16,018,222 (12)% Trust Marketplace 1,835,660 2,620,628 (30)% Xref Engage 3,977,047 1,760,062 126% Total revenue 19,859,555 20,398,912 (3)% Cost of sales (2,529,664) (3,252,179) 22% OPEX (20,063,470) (17,027,162) (18)% 92,820 (1,605,954) 106% Total Expenses (22,500,314) (21,885,295) 3% Other income 847,169 68,459 1,137% Depreciation & amortisation (2,909,010) (1,365,987) (113)% Operating profit (4,702,600) (2,783,910) (69)% Finance income 37,894 59,465 (36)% Finance expense (1,002,596) (616,678) (63)% Income tax expense (13,795) (18,217) 24% Net profit after tax (5,681,097) (3,359,340) (69)% 2024 $ 2023 $ Change % Net cash generated from operating activities Business results Share based payments EBITDA Net profit after tax Change % (5,681,097) (3,359,340) (69)% Add back: net interest income and expense 964,702 557,213 (73)% Add back: net depreciation and amortisation 2,909,010 1,365,987 (113)% 13,795 18,217 24% (1,793,590) (1,417,924) (26)% Add back: income tax expense EBITDA 8 | Xref Limited | Annual Report 2024 Likely developments, business strategies and prospects Looking ahead to FY25, Xref is well-positioned for growth as the market shows early signs of recovery. The company's focus areas will include: 1. Sales Growth: • upsell and cross-sell Xref Engage to existing clients • explore more creative ways to integrate the Xref API • onboard further vendors to the Trust Marketplace • launch self-sign-on for enterprise customers • continue migrating existing customers to SaaS and the new Enterprise Platform 2. Expense Management: • Maintain focus on cash management • Continue to drive efficiency and scale 3. Product Development: • Further development in client self-service and self-sign-on areas • Develop creative integrations with external technology partners With its lean operating structure, improved and scalable technology, and larger addressable market, Xref is well prepared for its next stage of growth. The company will continue to leverage its expanded product suite, focusing on increasing wallet share with existing clients and attracting new enterprise customers. Key Risks This section sets out some of the potential risks associated with Xref’s business and the industry in which it operates. Xref is subject to risk factors that are both specific and those that are more general in nature. Any of these risk factors may, if they eventuate, have an adverse effect on Xref’s business, financial position, operating and financial performance, growth and/or the value of its shares. Many of the circumstances giving rise to these risks and the occurrence of consequences associated with each risk are partially or completely outside of Xref’s control. Economic Factors The operating and financial performance of Xref is influenced by a variety of general economic and business conditions including the levels of consumer confidence and spending, business confidence and investment, employment, inflation, interest rates, foreign exchange rates, access to debt and capital markets, fiscal policy, monetary policy and regulatory policies. A prolonged deterioration in any number of the above factors may have a material adverse impact on Xref’s business and financial performance including its ability to fund its activities. Regulatory risk, government policy Xref conducts business in Australia and other countries and is therefore exposed to the laws governing businesses in those countries. Changes in government regulations including taxation, the repatriation of profits, restrictions on production, export controls, environmental compliance, shifts in the political stability of the country, labour unrest and other adverse political events could adversely affect Xref and its business initiatives in Australia, Asia Pacific, Europe, North America and other countries. Competitive market Industries in which Xref operates are subject to technological change and competition. Barriers to entry into the industry that Xref operates in are not high, and there is a risk that increased competition from new or existing competitors (some of which have access to more resources and scale than Xref) emerges in the Australian, Asia Pacific, European & North American market in the future. Management believes that Xref’s product and service offerings have a strong competitive advantage and features which are advanced compared to its competitors. Expansion to new products will also ensure the minimisation of competitive trends and its impact on penetration and revenues. Key personnel Xref’s success will depend in part on the continued services of its key employees. The loss of services of one or more of Xref’s key employees could have a material adverse effect Xref’s operating results, and financial condition. This risk is addressed in part by the existence of employment contracts with executives and senior management. Xref does not have, nor does it intend to take out, key man insurance in respect of any of its key employees. Regulatory compliance Xref is subject to several Australian, European & North American laws and regulations such as privacy laws, and those related to workplace health and safety. Xref conducts periodic internal audits and compliance reviews to identify and manage potential risks to ensure continued compliance. Xref Limited | Annual Report 2024 | 9 Cyber Security, privacy and data breach Xref handles personal and sensitive information. Cyber-attacks are increasing worldwide in frequency and severity. No information technology environment is impenetrable. As a result, Xref maintains appropriate actions, systems and safeguards to protect against data breaches and aims to keep a low risk of the adverse consequences arising from a breach on Xref’s business and operations. This includes continuous training of privacy and data breach policies during the induction process of the workforce. Xref also conducts regular training sessions for all staff concerning privacy, cybersecurity and data breaches. Reliance on third parties and the Internet The operation of Xref’s business is reliant on the performance and availability of Xref’s technology and that of its suppliers and other third parties such as data centres. In addition, the Xref platforms depend on the availability of the internet and to a lesser extent on the quality of users’ access to the internet. Intellectual Property may be Compromised or Lost Xref has developed proprietary software. The commercial value of Xref’s intellectual property is reliant, in part, on operational procedures to maintain the confidentiality and legal protections provided by a combination of confidentiality obligations on employees and third parties and other intellectual property rights. There is a risk that Xref’s intellectual property may be compromised in a few different ways, which could erode Xref’s competitive position and could have a materially adverse impact on Xref’s operations, financial performance and/or growth. Going concern / cashflow risks / funding risks Xref has implemented and followed a strategic plan to build new products to expand its service offering to the market to help diversify revenue streams. This has required an investment of funds from surpluses built up in prior years. All of this has been performed while the world economy has experienced a downturn. The investment of funds into product builds has reduced reserves carried by Xref. If not managed well it could have the result of cash reserves falling below the covenant value attached to the loan or cashflow is unable to supporting operational expenditure. Management has implemented extensive measures to monitor cashflows and ensure Xref remains a going concern. A robust planning model exists which contains key scenarios to follow dependent on sales results. As proven by past actions, where cost reductions are required, they are implemented as needed in an appropriate time frame to achieve the necessary result. Significant changes in the state of affairs Several significant changes occurred during FY24 that materially altered the company's operations and strategic direction: 1. Acquisition and integration of Voice Project: The acquisition of Voice Project in January 2023, was fully integrated into Xref's operations and rebranded as Xref Engage. This strategic acquisition expanded Xref's product offerings and addressable market in the global hire-to-retire sector. 2. Debt Refinancing: The company successfully refinanced its debt from $5m to $8.4m through a US SaaS-focused equity debt provider. This refinancing, completed in February 2024, provided additional funds of $3.0m after costs, which were used to expand product offerings. 3. Operational Restructuring: Xref implemented significant operational changes, including: • closure of UK operations in November 2023, with sales and support for Europe, United Kingdom and Ireland moved to North America. • A 25% headcount reduction between November and January as part of a company-wide restructure. • Consolidation of office spaces in Sydney, moving to flexible shared offices in the CBD. 4. Strategic Review: In May 2024, the company initiated a strategic review following enquiries from private equity regarding potential acquisition. This process is ongoing. 5. Business Model Transformation: The company substantially completed its transition to a SaaS business model, migrating a majority of clients to subscription agreements. This shift helped decouple revenue from traditional recruitment trends and seasonal fluctuations. These changes collectively represent a significant evolution in Xref's business model, technology platform, operational structure and strategic positioning, setting the foundation for future growth and adaptability in a dynamic market environment. Events arising since the end of the reporting period As announced on 21 May 2024 the board of directors of Xref initiated a strategic review following enquiries from private equity regarding a potential acquisition of the company. This review process is ongoing. No other matters or events requiring adjustments have arisen since 30 June 2024 that relate to circumstances that existed as on the balance sheet date. 10 | Xref Limited | Annual Report 2024 Environmental regulation The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. Information on directors Name: Thomas Stianos Title: Non-Executive Chairman Qualifications: Experience and expertise: B. App Sc Mr Stianos is widely recog