Announcement PDF Contents 2023 Highlights Chairman’s Report Chief Executive Officer’s Report Directors’ Report Independence Declaration Financial Statements Notes to the Financial Statements Director’s Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 2 5 6 9 21 22 26 61 62 68 71 General information Xref Limited ABN 34 122 404 666 The financial statements cover Xref Limited as a consolidated entity consisting of Xref Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Xref Limited’s functional and presentation currency. Xref Limited is a public listed company, limited by shares (ASX:XF1), incorporated and domiciled in Australia. Its registered office and principal place of business is: Suite 13, 13 Hickson Road, Dawes Point, New South Wales, Australia, 2000 Xref Limited | Annual Report 2022 | 1 A description of the nature of the Group’s operations and its principal activities are included in the directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 23 August 2023. The directors have the power to amend and reissue the financial statements. 2023 Highlights Increase Group Revenue Xref Revenue Trust Marketplace Revenue 10% Engage Revenue “Despite softening market conditions our revenue grew 10% to $20.4m, aided by a $1.8m contribution from Voice Project in the second half.” Lee Seymour CEO, Founder, Exec Director Regional Revenue Australia & New Zealand North America United Kingdom “North America now represents 18% of the Group’s active users, 21% of references requested and 34% of the Pulse Surveys already launched demonstrating the demand from this important region for future growth.” Lee Seymour CEO, Founder, Exec Director Growth of SaaS H1 v H2 SaaS Revenue Other Revenue ARR 430% “The focus in FY2023 was transitioning clients to the new Enterprise Platform and the SaaS business model. As a result, Annualised Recurring Revenue (ARR) grew 430% to $5.6m at June 2023 since the launch of that Enterprise Platform which included both legacy clients from Xref Recruiter and newly won Enterprise Platform clients.” Lee Seymour CEO, Founder, Exec Director 2 | Xref Limited | Annual Report 2023 Group Profitability Group Net Profit NPAT Net Loss $3.36m Group Revenue “Operations delivered a cash surplus of $0.5m but after taking into account noncash items such as share based payments, depreciation and amortisation an NPAT loss of $3.36m was incurred.” Lee Seymour CEO, Founder, Exec Director Operating Cash Surplus Cashflow Cash Expenses Cash at Bank Cash Collections $0.5m “Xref generated positive operating cash flow of $0.5m, and during the year $4.0m of cash was invested in developing new capability, (including $1.5m to acquire Voice Project and $2.5m on product development).” Lee Seymour CEO, Founder, Exec Director Capitalised Investment in Product Increase 79% “Xref has invested considerable time and resources into product development, including $2.5m of new internally generated software assets being recognised during FY23. This was in addition to the $2.5m already recognised in FY21 and FY22 (combined) and in addition to the acquisition of Voice Project in FY23.” Lee Seymour CEO, Founder, Exec Director *Prior to FY21, Xref expensed immediately all of its product development costs Xref Limited | Annual Report 2023 | 3 2023 Operating Results Financial Summary 2023 $ 2022 $ Change Total revenue 20,398,912 18,591,434 10% EBITDA (1,417,924) 1,774,730 (180)% Net profit/(loss) after tax (3,359,340) 729,575 (560)% 454,402 4,622,960 (90)% 2023 $ 2022 $ Change Xref revenue 16,018,222 15,568,389 3% RapidID revenue 2,620,628 3,023,045 (13)% Engage revenue 1,760,062 - Total revenue 20,398,912 18,591,434 10% Net cash generated from operating activities Business results Cost of sales (3,252,179) (3,674,245) (11)% OPEX (17,027,162) (12,503,372) 36% Share based payments (1,605,954) (767,885) 109% Total Expenses (21,885,295) (16,945,502) 29% 68,459 128,798 (47)% Depreciation & amortisation (1,365,986) (474,397) 188% Operating profit (2,783,910) 1,300,333 (314)% Finance income 59,465 5,739 936% Finance expense (616,678) (576,497) 7% Income tax expense (18,217) - Net profit after tax (3,359,340) 729,575 (560)% 2023 $ 2022 $ Change (3,359,340) 729,575 (560)% Add back: net interest income and expense 557,213 570,758 (2)% Add back: net depreciation and amortisation 1,365,986 474,397 188% 18,217 - (1,417,924) 1,774,730 Other income EBITDA Net profit after tax Add back: income tax expense EBITDA 4 | Xref Limited | Annual Report 2023 (180)% Chairman’s Report I am pleased to present the Xref annual report for the year ended 30 June 2023. The 2023 financial year saw your company make significant investments in capability and functionality. During the year we: • • • acquired Voice Project Pty Ltd in January 2023. This accelerated our launch of the engagement survey product; launched our Enterprise Platform offering reference checks, pulse checks, and exit surveys. The enterprise platform already has over 1,000 users and is expected to be a key growth driver for the Company; launched Trust MarketPlace, a single site providing access to a suite of checking services including identity checks, graduate verification, police checks, government document verification service (DVS). We plan to add more information vendors to the Trust MarketPlace such as the recently signed “Certn”; • implemented a new billing system allowing clients to use Xref via a SaaS subscription service; and • released Survey Builder on the enterprise platform allowing clients to custom build over 500 staff surveys. Investments in product innovation increased the size of our underlying software assets (or code base) during the year. This has been reflected in positive customer feedback and in a recent customer survey Xref received 92% customer satisfaction and an Net Promoter Score (NPS) of +35. Despite softening market conditions and the resultant subdued demand for our services, revenue grew 10% to $20.4m, aided by a $1.8m contribution from Voice Project in the second half. Operations delivered a cash surplus but disappointingly after taking into account non-cash items such as share based payments, depreciation and amortisation an NPAT loss of $3.36m was incurred. The business has continued to innovate and invest in its products, and this increases the size of our addressable market and lays the foundation for ongoing growth in years to come The RapidID identity verification service had a 13% reduction in revenue as a result of the reduction in demand from cryptocurrency clients. These were a significant proportion of RapidID revenue in FY22 but are now less significant as new clients have been added. Xref generated positive operating cash flow of $0.5m, however, $4.5m of cash was invested in developing new capability (including $1.5m to acquire Voice Project and $2.5m on product development). These investments plus financing costs led to our cash balance for the year reducing from $11.67m to $6.83m. In the year ahead, we will continue to innovate and invest in product development, however, we aim to scale that investment to match the growth in revenue so as to maintain a cash buffer. In addition, in order to give the Company more options for growth, we aim to extend or replace the current debt facility. While Xref has already established a leading global position in reference checking, further development of product features are needed to ensure ongoing total addressable market expansion. Therefore, we will prioritise completing this development before investing further in USA expansion. On behalf of the Board, I would like to thank our staff for their contribution during the year, our clients for their trust in Xref, and our shareholders for their support. Tom Stianos Chairman Xref Limited | Annual Report 2023 | 5 Chief Executive Officer’s Report FY23 was a year of retention and transformation while Xref endured tough global economic conditions. During the year Xref launched numerous revenue-focused platforms, products and features, transitioned successfully to a SaaS business model, commenced marketing via a new website, acquired Voice Project, and won over 160 new enterprise clients. Xref has established a global leadership position in automated applicant reference checking. Last year, Xref launched its Exit Survey product, and following the acquisition of Voice Project, it launched its Pulse and Engagement Survey offerings to complete the hire-to-retire product portfolio. Acquisition The acquisition of Voice Project, completed in January 2023, created an opportunity for cross-selling by giving Voice Project’s 900 plus clients access to Xref’s complementary services and offering Voice Project’s services to Xref’s 1,300 enterprise clients and 15,000 users. Furthermore, the Voice Project acquisition provided the foundation for the launch into Pulse and Engagement surveys and it is expected to add $4 million in revenue in a full year. Most importantly, the Voice Project acquisition accelerated Xref’s product strategy and growth potential. As Xref integrates the Voice Project portal, into Xref’s platform, employers will have access to its comprehensive suite of market-leading surveys and they will be able to view every single piece of information about a candidate, employee, or ex-employee in one place, and identify actionable insights. Product Innovation Xref invested considerable time and resources into product development during the year and successfully delivered key milestones in its product strategy. These have included the launch of: 6 | Xref Limited | Annual Report 2023 ● Xref Enterprise Platform, which includes the Reference, Pulse and Exit survey products and now has over 1,000 users; ● Survey Builder, a feature of the Enterprise Platform which has already allowed users to custom-build over 500 surveys; and ● Xref Engage (previously known as Voice Project), which is now integrated with the Xref Enterprise Platform and will be introduced to users worldwide as part of an aggressive go-tomarket strategy during FY24. FY2023 Results Summary Group sales of $21.3m were up 2.2% and revenue of $20.4m was up 10% on FY22. The focus in FY23 was transitioning clients to the new Enterprise Platform and the SaaS business model. As a result, Annual Recurring Revenue (ARR) grew to $5.6m at June 2023 which included both migrated clients from Xref Recruiter and newly won Enterprise Platform clients. An operating cash surplus of $0.5m was generated. Xref cash was invested in the $1.5m payment for the acquisition of Voice Project, a $2.5m investment into product development and $3.3m in related support activities. User Activity and Customer Satisfaction Despite the weaker market conditions references taken by Xref clients grew 5% and the number of net new clients grew 9% when compared to FY22. Xref now has over 16,000 active users across its three platforms, up 8% when compared to FY22. These users are part of 2,618 active accounts which grew 7% in FY23. Half of Xref’s active users have been with Xref for more than 3 years with a further 15% joining in FY23, demonstrating Xref’s client retention and global credibility and market standing. In June 2023, Xref conducted a customer survey which resulted in a 92% satisfaction score as well as an overall Net Promoter Score (NPS) of +35. CEO’s Report During the year 1,000 users across 160 accounts joined the new Xref Enterprise Platform, launched in October 2022, and 94% of all newly won clients chose Xref Enterprise over Xref Recruiter. 47 key accounts also migrated from Xref Recruiter to Enterprise during the financial year in order to access the new products and features. Pleasingly, North America now represents 18% of the Group's active users, 21% of references requested and 34% of the Pulse Surveys already launched demonstrating the demand from this important region for future growth. The adoption of our new survey products, Pulse and Exit, was encouraging with over 3,000 Exit Surveys launched during the year as well as 50 new Pulse Surveys, in the 4 weeks since its launch in May 2023. There was strong client adoptions of all products within the Enterprise Platform and are now building insights across the entire hire-to-retire journey by using Reference, Pulse and Exit simultaneously. Xref Engage also sent 174,000 surveys during the year on behalf of 212 existing and 57 new clients. The Xref sales and marketing teams are now executing a goto-market strategy to introduce Xref Engage to all Xref’s global users. . Channel Partnerships and Integration Revenue Xref now has 31 channel partners with direct integrations into their applicant tracking systems (ATS) such as Bullhorn, Oracle or Workday and 29% of active customers use Xref via integration with an ATS. In FY23 37% of reference requests were made via an integration and represented 30% of revenue from reference checking. Clients using Xref via an integration grew 22% in FY23 to 504 despite overall reference requests remaining flat for the year. This demonstrates that despite recruitment being slower, clients and channel partners continue to see the value in integrating Xref into their business-critical systems Employee Engagement There are now 114 employees in the Group, this has grown through Voice Project acquisition and organically during the year without the use of external recruiters and relying purely on Xref’s strong employer brand. Overall employee retention remained at 87% and in May 2023 a company-wide employee engagement survey returned an overall engagement score of 81%. In order to further drive engagement, Xref launched meaningful employee initiatives such as a revised ESOP, better internal processes and policies including our new industry-leading parental leave policy, targeted training budgets, and multiple health and well-being initiatives. During the year Xref also announced its excellent gender and equality statistics and details of these can be seen in the recently released investor snapshot. Outlook During FY24 Xref will continue to focus on executing its product innovation strategy, delighting its customers and rewarding and retaining its employees. By leveraging its current clients Xref will increase share of wallet by offering its extended services and continue to attract new clients to increase revenue growth. Xref will measure its progress against these strategic priorities by building on the following opportunities: Xref Enterprise: With a much larger addressable market and aggressive go-to-market strategy, we expect the enterprise platform will have an opportunity to grow revenue over time by migrating current clients to Xref Enterprise and continuing to attract new clients. During FY24 Xref intends to increase the expected growth of Reference requests, Pulse Surveys, Exit Surveys, and thereby increase its ARR. A typical client now has the opportunity to extend their use of Xref past recruitment, which tends only to be 15% of their business, to cover 100% of their employees with Pulse and a further 10% of exiting employees, helping to recruit, retain and remember their talent. Xref Engage (formerly Voice Project) collected feedback from 174,000 employees across 271 key clients last year. Now integrated to Xref we have the opportunity to introduce Engage across 2,100 accounts which represent at least 6 million employees. Xref intends to grow surveys taken, new clients, and revenue as a result. Trust Marketplace: As we increase the number of background checking vendors in the Marketplace (such as the newly signed Certn) we will, in turn, integrate those checks via Trust Marketplace into Xref Enterprise. This presents an opportunity to introduce all global customers to a suite of checking services that we have not been able to offer before. 12,000 background checks were consumed via Xref Recruiter last year which demonstrated the demand from clients to have all feedback, including background verifications in one place. The average margin for Trust Marketplace is 42% due to the majority of checks being for Identity and via the government document verification service (DVS). It is expected that as vendors and checks grow the margin will increase. Xref intends to share news about new partners, when the integration to Xref Enterprise is complete, margin growth and the increase in checks taken. There are also cost strategies in place to offset expected expense growth in FY24 such as reducing marketing spend, relying on selfservice features, extending the development team overseas and improving internal processes in a more efficient way. Despite the tough global economic conditions, we remained resilient, and persevered with our strong focus on product innovation whilst keeping costs at an optimal level. With proven demand for our product, successful completion of the hire-to-retire strategy and the conversion to a SaaS business model, Xref elevates to a new level of competitiveness. We thank you for your support and we look forward to continue delivering on our future growth initiatives and company vision. Lee-Martin Seymour, Founder & Chief Executive Officer, Xref Limited | Annual Report 2023 | 7 8 | Xref Limited | Annual Report 2023 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 2023. 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 automates the candidate reference process for employers. It also embarked on significant product evolution, getting the development of a new platform, including additional offerings for the HR industry, underway. 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 $3,359,340 (30 June 2022: profit $729,575). Review of Operations FY23 was a year of retention and transformation. During the year Xref launched numerous revenue-focused platforms, products and features, transitioned successfully to a SaaS business model, launched a new website, acquired Voice Project, and won over 160 new enterprise clients. Xref increased investment into product innovation, employees, internal system efficiencies and strategies for long-term market awareness in preparation for the next stage of its growth when the market recovers. Xref also continued to display strong levels of staff engagement and client satisfaction and has demonstrated the ability to innovate whilst balancing costs and short-term cash flow in a demanding economic climate. Xref has invested considerable time and resources into product development during the year and has successfully delivered on key milestones in its product strategy. These have included the launch of: • a new billing system that allows clients to join Xref on a traditional SaaS subscription model and this has helped build ARR 430% to $5.6m since its launch in October 2022. This in turn decouples revenue recognition from recruitment or seasonal trends and allows Xref to forecast more accurately; • Xref Enterprise Platform which includes the Reference, Pulse and Exit survey products and now has over 1,000 users; • Survey Builder, a feature of the Enterprise platform, which has allowed users to custom-build over 500 surveys; and • Xref Engage(previously known as Voice Project) is now integrated with the Xref Enterprise Platform and will be introduced to users worldwide as part of an aggressive go-to-market strategy in FY24. During the year, Xref focused on transitioning clients to the new Enterprise Platform under SaaS subscription agreements. This included both migrated clients from Xref Recruiter and newly won Enterprise Platform clients. The Xref Enterprise, Trust Marketplace and Xref Engage platforms have provided the ability to build and launch integrated products such as Exit and Pulse Surveys and the ability to integrate all three with the goal of creating a best-in-class, hire-to-retire, feedback platform. Review of Financial Performance As a result of the above operating and investment decisions, financial results for the year were a net loss of $3.36m, returning an underlying negative EBITDA of $1.4m (positive EBITDA of $1.77m in FY22) and cash generated from operations of $0.5m ($4.6m in FY22). Group sales growth was 2.6%, and group revenue growth was 10% year on year. A part of this growth was due to the acquisition of Voice Project, which added $1.8m to headline revenue since its acquisition on 3 January 2023. Sales from Xref and Trust Marketplace were, however, down 5% and 14% respectively when compared to FY22 due mainly to the difficult global economic environment and its impact on hiring. Xref Limited | Annual Report 2023 | 9 Total operating expenses grew 29% due to increases in strategic expenditure in the following key areas: • • • • Voice Project - incurred $1.3m in costs to the Group since acquisition; headcount increased by 42 to 114 full-time employees, 15 from the acquisition of Voice Project, 15 for the development team (of which 5 are based in Pakistan) and the remaining 12 were recruited across the operations, marketing and sales teams. Total salaries for the group were $13.9m before capitalisation of $2.2m related to software development projects delivered throughout the year; marketing expenses increased by $0.8m to drive lead flows, launch the new products, and the new Xref website; and other expenses like rent, subscriptions and platform costs increased 34% to $3.3m to support the services required for the extended platform architecture, Voice Project and general inflationary cost increases. The increase in expenditure was in line with the budget and was part of Xref’s planned investment to enable future profitable growth. Likely developments, business strategies and prospects During FY24 Xref will continue to focus on executing its product innovation strategy, delighting its customers and rewarding and retaining its employees. By leveraging its current clients it will increase share of wallet by offering its extended services and continue to attract new clients to increase revenue growth. As Xref progresses development during FY24, it will focus on the features offered in its platforms as well as deeper integrations between systems and with channel partners. At the same time, Xref will focus on cost efficiencies and maximising recurring revenue to build a pathway to sustainable and growing profit. Xref will measure its progress against these strategic priorities by reporting on the following opportunities: • • • • • Xref Enterprise: With a much larger addressable market and aggressive go-to-market strategy, we expect the enterprise platform will have an opportunity to grow revenue over time by migrating current clients to Xref Enterprise and continuing to attract new clients. Xref intends to increase the expected growth of Reference requests, Pulse Surveys, Exit Surveys, and thereby increase its ARR in FY24. A typical client now has the opportunity to extend their use of Xref past recruitment, which tends to be 15% of their business and across 100% of their employees with Pulse as well as a further 10% of exiting employees, helping to recruit, retain and remember their talent. Xref Engage(formerly Voice Project): Xref Engage collected feedback from 174,000 employees across 271 key clients last year. Now integrated to Xref, we have the opportunity to introduce Engage across 2,100 accounts which represent at least 6 million employees and presenting opportunities for revenue synergies via cross sales, to grow surveys taken, expand client base and contract values, positively impacting revenue as a result. Trust Marketplace: As we increase the number of background checking vendors in the Marketplace (such as the newly signed Certn) we will, in turn, integrate those checks via Trust Marketplace into Xref Enterprise. This presents an opportunity to introduce all global customers to a suite of checking services that we have not been able to offer before. 12,000 background checks were consumed via Xref Recruiter last year which has demonstrated the demand by our clients to have all feedback, including background verifications in one place. The average margin for Trust Marketplace is 42% due to the majority of checks being for Identity and via the government document verification service (DVS). It is expected that as vendors and checks grow the margin will increase. Xref intends to share news about new partners, when the integration to Xref Enterprise is complete, margin growth and the increase in checks taken. Employee Engagement & Customer Satisfaction: Having now conducted both an employee engagement survey and a customer satisfaction survey, Xref will pulse these results throughout the year and via another full Engagement and Satisfaction survey in May 2024 which will benchmark the feedback as part of next year's results. Expense Management: Approximately two thirds of Xref’s expenses relate to headcount and this expense is expected to increase in FY24 as a result of the increase in headcount in FY23 and wage and salary inflation. Current monthly salaries for the Group as of July 15th are $1.3m and are forecast to total $16m in FY2024. To partially offset this expense growth, Xref will focus on other cost efficiencies including: • • • • • • Targeting a reduction in marketing spend by 39%, as Xref focuses on the growth of current clients by expanding their use of the platform and migrating them to subscription agreements; An increase of self-service features removing the need to increase support headcount; Complementing our Australian development team with the offshore team extension in Pakistan; Improved internal systems including billing, revenue recognition, performance reporting and talent management; Keeping travel and event costs to a minimum; and Increasing the speed to market of revenue-generating product initiatives. In addition, in order to give the Company more options for growth, we aim to extend or replace the current debt facility. 10 | Xref Limited | Annual Report 2023 Significant changes in the state of affairs In the opinion of the directors, a significant change in the state of affairs of the Group that occurred during the financial year under review was the strategic acquisition of Voice Project Pty Limited (VP) on 03 January 2023. This acquisition enhances the Group’s product position and expands its total addressable market in the global hire-to-retire market, by filling a niche product opportunity gap in its suite of products and is a significant business in Australia within the Group’s target market. The cost of acquisition was $3.6m; $2.1m in cash, and $1.5m in future allocation of shares contingent on future EBITDA and other performance-related covenants. An employee engagement mapping survey company, VP significantly enhances Xref’s hire-to-retire suite of products by adding a key capability to map an employee’s engagement journey throughout a period of employment providing invaluable insights to people managers and management teams. Xref has diligently worked on integrating VP into the fabric of its business to accelerate synergies to be extracted from this acquisition, and has successfully achieved the following milestones to this end, as on the date of this report - • • • • • Rebranding as Xref Engage Integration as a distinct business division, and as a reportable operating segment Uniformity in accounting policies and aligning with corporate group policies and processes Migration onto Xref’s management and financial reporting platforms Supported by Xref corporate, marketing and development teams to help achieve its growth vision Events arising since the end of the reporting period On the 18 July 2023, Mrs. Lija Wilson resigned as Non-Executive Director of the company effective on 31 July 2023. The board wishes to acknowledge her contribution to Xref as director, and as member of the Remuneration and Nomination Committee, and the Audit and Risk Committee respectively. Since her appointment to the board on the 2 June 2021, Lija has been a valued member whose guidance and contribution were invaluable. The board is thankful and wishes her all the best for her future endeavours. No other matter or circumstances have arisen since the end of FY23, which could have had a notable impact on operations. 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 recognised as one of the most successful and experienced leaders in the IT industry. He is currently a non-executive director of Gale Pacific Limited. (ASX: GAP) and Chairman of Escient. He was also previously a non-executive director of Inabox Group Limited an