Announcement PDF Directors’ Report 31 December 2024 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 half-year ended 31 December 2024 (H1 FY25). Directors The following persons were directors of Xref Limited during the whole of the financial half-year and up to the date of this report, unless otherwise stated: • Thomas Stianos • Lee-Martin Seymour • Nigel Heap Principal Activities During the financial half-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 continued on the planned significant product evolution, including the continued improvement of the enterprise platform, launch of employee engagement services and launch of additional checks marketplace, all additional offerings for the HR industry. Review of Operations Key operating results for H1 FY25: • • • • • • Group revenue was up 9% to $10.9m Net loss of $436k Cash collections reached $11.8m Cash balance at 31 December 2024 of $3.3m EBITDA profit of $1.6m compared to EBITDA loss of $2.1m in prior corresponding period ARR growth driven by client migration to SaaS with ARR at $18.5m at 31 December 2024 compared to $14.9m at 30 June 2024, and $10.5m at 31 December 2023. Business Performance During H1 FY25, the business continued to make progress in its strategic transition to a SaaS business model. 80 new clients joined Xref in the first half, with 95% of these joining on subscription-based contracts. The company maintained its focus on migrating existing clients to the new Enterprise Platform and subscription agreements, helping to decouple revenue from traditional recruitment trends. Revenue Group revenue increased by 9% to $10.9m compared to $9.9m in H1 FY24. This growth was achieved despite challenging market conditions, with significant improvements across all business segments: • Xref Platform revenue grew 11% to $7.7m • Trust Marketplace revenue increased 16% to $1.1m • Xref Engage revenue grew 2% to $2.1m The growth in revenue reflects the successful execution of the company's strategy to transition clients to SaaS subscription agreements, which has helped reduce the impact of seasonal fluctuations in recruitment activity. EBITDA The company achieved a significant turnaround in EBITDA performance, recording a profit of $1.6m compared to a loss of $2.1m in the prior corresponding period. This improvement of 179% was driven by: • Increased revenue across all business segments • Reduction in operating expenses by 10% • Improved operational efficiency • Successful cost management initiatives Xref Limited | Interim Half Year Report 2024 | 3 Operating Results Financial Summary 31 December 2024 $ 31 December 2023 $ Change % Total revenue 10,862,777 9,924,559 9% EBITDA 1,624,820 (2,057,889) 179% Net profit/(loss) after tax (435,739) (4,083,719) 89% Net cash generated from operating activities 475,190 (990,766) 148% 31 December 2024 $ 31 December 2023 $ Change % Xref Platform 7,652,305 6,916,665 11% Trust Marketplace 1,129,869 972,416 16% Xref Engage 2,080,603 2,035,478 2% Total revenue 10,862,777 9,924,559 9% Cost of sales (1,204,789) (1,540,462) 22% OPEX (9,422,870) (10,519,231) 10% (116,279) 71,178 (263)% Total Expenses (10,743,938) (11,988,516) 10% Other income 1,505,980 6,067 24,722% Depreciation & amortisation (1,366,757) (1,358,370) (1)% Operating profit 258,062 (3,416,259) 108% Finance income 47,242 26,255 80% Finance expense (767,262) (693,716) (11)% Income tax expense 26,218 - Net profit after tax (435,739) (4,083,719) 89% 31 December 2024 $ 31 December 2023 $ Change % Net profit after tax (435,739) (4,083,719) 89% Add back: net interest income and expense 720,020 667,461 (8)% Add back: net depreciation and amortisation 1,366,757 1,358,370 (1)% (26,218) - 1,624,820 (2,057,889) Business results Contingent consideration EBITDA Add back: income tax expense EBITDA 4 | Xref Limited | Interim Half Year Report 2024 179% Expenses Total operating expenses decreased by 10% to $10.7m (H1 FY24: $12.0m), reflecting: • Reduction in cost of sales by 22% to $1.2m • Decrease in operating expenses by 10% to $9.4m • Efficient resource allocation focusing on product development • Strategic cost management initiatives • During the half, Xref invested a further $1.0m into product development Cash Position The company maintained a stable cash position with: • Total cash collections of $11.8m • Cash balance of $3.3m as at 31 December 2024 • Disciplined working capital management • Focus on operational efficiency Outlook The company remains focused on advancing its hire-to-retire platform, offering industry-leading reference checks, a comprehensive marketplace for background checks, and innovative tools to enhance employee engagement and talent pooling. Key priorities include: • Driving SaaS growth • Expanding self-sign-on capabilities • Enhancing talent pooling • Further automating engagement surveys • Continuing focus on cost efficiencies and maximizing recurring revenue • Building a pathway to sustainable and growing profit 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, 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. Xref Limited | Interim Half Year Report 2024 | 5 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. 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 and 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 support 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 There were no significant changes in the state of affairs of the Xref Group during the financial half-year. Matters subsequent to the end of the financial half-year The following significant events occurred after the balance sheet date: On January 20, 2025, Xref received a $2.3million refundable tax offset in cash from the Australian Taxation Office for qualifying research and development work done in FY2024. On January 24, 2025, the Board approved the issue of 2,906,977 fully paid ordinary shares (using a VWAP of $0.344) after successful achievement of the Second Earn Out Payment hurdles relating to the acquisition of Voice Project Pty Limited. Full details of the background to this transaction can be found at Note 32 on page 58 of the 2023 Annual Financial Report of Xref Limited. On February 3, 2025, shareholders voted on a scheme of arrangement regarding an offer from SEEK to acquire Xref at $0.218 per share. While a majority of shareholders by number (79%) voted to accept the offer, only 68% of votes were in favour, failing to reach the required 75% threshold. Consequently, the Scheme Implementation Deed between SEEK and Xref has been terminated. Further details may be found in our ASX release dated 4 February 2025. No other matters or events requiring adjustments have arisen since 31 December 2024, that relate to circumstances that existed as on the balance sheet date. 6 | Xref Limited | Interim Half Year Report 2024 Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors’ report. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Lee-Martin Seymour Managing Director 24 February 2025 Sydney Xref Limited | Interim Half Year Report 2024 | 7 Crowe Sydney ABN 97 895 683 573 Level 24, 1 O’Connell Street Sydney NSW 2000 Main +61 (02) 9262 2155 Fax +61 (02) 9262 2190 www.crowe.com.au 24 February 2025 The Board of Directors Xref Limited Level 20,135 King Street Sydney, NSW 2000 Dear Board Members Xref Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the Directors of Xref Limited. As lead audit partner for the review of the financial report of Xref Limited for the financial half-year ended 31 December 2024, I declare that to the best of my knowledge and belief, that there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the review; and (ii) any applicable code of professional conduct in relation to the review. Yours sincerely, Crowe Sydney Barbara Richmond Partner Some of the Crowe personnel involved in preparing this document may be members of a professional scheme approved under Professional Standards Legislation such that their occupational liability is limited under that Legislation. To the extent that applies, the following disclaimer applies to them. If you have any questions about the applicability of Professional Standards Legislation Crowe’s personnel involved in preparing this document, please speak to your Crowe adviser. Liability limited by a scheme approved under Professional Standards Legislation. The title ‘Partner’ conveys that the person is a senior member within their respective division, and is among the group of persons who hold an equity interest (shareholder) in its parent entity, Findex Group Limited. The only professional service offering which is conducted by a partnership is external audit, conducted via the Crowe Australasia external audit division and Unison SMSF Audit. All other professional services offered by Findex Group Limited are conducted by a privately owned organisation and/or its subsidiaries. Findex (Aust) Pty Ltd, trading as Crowe Australasia is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a separate and independent legal entity. Findex (Aust) Pty Ltd and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global. Crowe Global does not render any professional services and does not have an ownership or partnership interest in Findex (Aust) Pty Ltd. Services are provided by Crowe Sydney, an affiliate of Findex (Aust) Pty Ltd. © 2025 Findex (Aust) Pty Ltd 8 | Xref Limited | Interim Half Year Report 2024 Financial Statements Statement of Profit or Loss and Other Comprehensive Income For the half year ended 31 December 2024 Note Revenue 3 Consolidated 31 December 2024 31 December 2023 $ $ 10,862,777 9,924,559 Cost of sales (1,204,789) (1,540,462) Gross profit 9,657,988 8,384,097 Finance costs (767,262) (693,716) (6,441,214) (7,791,367) Employee expenses Overhead and administrative expenses (2,981,655) (2,727,863) Contingent Consideration (116,279) 71,178 Depreciation (75,974) (460,135) Amortisation (1,290,783) (898,235) Total expenses (11,673,167) (12,500,138) Operating profit/(loss) (2,015,179) (4,116,041) 1,553,223 32,322 (461,957) (4,083,719) 26,218 - (435,739) (4,083,719) Other income Profit/(loss) before income tax expense Income tax expense Profit/(loss) after income tax expense for the year attributable to the owners of Xref Limited Other comprehensive income, net of income tax 4 3 - - Exchange differences on translating foreign controlled entities (112,774) 171,763 Other comprehensive income/(loss) for the year, net of tax (112,774) 171,763 Total comprehensive income/(loss) for the year attributable to the owners of Xref Limited (548,513) (3,911,956) Earnings/(loss) per share for profit from continuing operations attributable to the owners of Xref (cents) (cents) Basic earnings/(loss) per share (0.230) (2.193) Diluted earnings(loss) per share (0.226) (2.120) The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Xref Limited | Interim Half Year Report 2024 | 9 Statement of Financial Position As at 31 December 2024 Note Consolidated 31 December 2024 30 June 2024 $ $ Assets Current assets Cash and cash equivalents 3,330,931 4,593,835 Trade and other receivables 4,583,964 2,757,148 910,486 978,688 506,859 523,720 9,332,240 8,853,391 Other assets 117,730 127,925 Property, plant and equipment 201,239 221,688 Right of use asset 61,690 105,998 10,751,939 11,047,785 Total non-current assets 11,132,598 11,503,396 Total assets 20,464,838 20,356,787 2,009,023 2,535,426 7 1,914,566 1,220,970 1,477,078 1,266,956 8 11,638,899 12,580,855 921,639 523,256 17,961,205 18,127,463 7,180,942 7,133,219 398,430 445,930 Contract assets 5 Prepayments Total current assets Non-current assets Intangibles 6 Liabilities Current liabilities Trade and other payables Financial liabilities Employee benefits Contract liabilities Other liabilities Total current liabilities Non-current liabilities Financial liabilities 7 Employee benefits Contract liabilities 443,397 155,087 Deferred tax liability 8 317,479 343,697 Other liabilities 560,507 - Total non-current liabilities 8,900,755 8,077,933 Total liabilities 26,861,960 26,205,396 Net assets/(liabilities) (6,397,122) (5,848,609) Issued capital 55,405,847 55,405,847 Reserves (20,755,400) (20,642,626) Retained earnings (41,047,569) (40,611,830) Total equity (6,397,122) (5,848,609) Equity The above statement of financial position should be read in conjunction with the accompanying notes. 10 | Xref Limited | Interim Half Year Report 2024 Statement of Changes in Equity For the half year ended 31 December 2024 Consolidated Balance at 1 July 2024 Issued capital $ Warrants $ Share option reserves $ Foreign currency translation Consolidation reserve reserve $ $ Retained Earnings $ Total $ (22,845,821) (40,611,830) (5,848,609) 55,405,847 308,571 2,545,543 (650,919) Loss after income tax expense for the year - - - - - (435,739) (435,739) Other comprehensive income/(loss) for the year - - - (112,774) - - (112,774) Total comprehensive income/(loss) for the year - - - (112,774) - (435,739) (548,513) Shares issued during the year - - - - - - - Options exercised - - - - - - - Options issued - - - - - - - Warrants issued - - - - - - - 55,405,847 308,571 2,545,543 (763,693) (22,845,821) (41,047,569) (6,397,122) Issued capital $ Warrants $ Share option reserves $ 55,100,613 308,571 2,638,363 (843,114) Loss after income tax expense for the year - - - Other comprehensive income/(loss) for the year - - Total comprehensive income/(loss) for the year - Transactions with owners in their capacity as owners Balance at 31 December 2024 For the half year ended 31 December 2023 Foreign currency translation Consolidation reserve reserve $ $ Retained Earnings $ Total $ (22,845,821) (34,930,734) (572,122) - - (4,083,719) (4,083,719) - 171,763 - - 171,763 - - 171,763 - (4,083,719) (3,911,956) 66,150 - - - - - 66,150 Options exercised - - - - - - - Options issued - - 181,497 - - - Options forfeited - - (252,675) - - - Warrants exercised - - - - - - - 55,166,763 308,571 2,567,185 (671,351) (22,845,821) (39,014,453) (4,489,106) Consolidated Balance at 1 July 2023 (*restated) Transactions with owners in their capacity as owners Shares issued during the year Balance at 31 December 2023 181,497 (252,675) The above statement of changes in equity should be read in conjunction with the accompanying notes Xref Limited | Interim Half Year Report 2024 | 11 Statement of Cash Flows For the half year ended 31 December 2024 Consolidated 31 December 2024 31 December 2023 $ $ Cash flows from operating activities Receipts from customers (inclusive of GST) 11,774,640 11,717,498 Payments to suppliers and employees (inclusive of GST) (11,346,661) (12,734,519) Interest received 47,211 26,255 Net cash provided by operating activities 475,190 (990,766) Payment for intangibles (994,936) (1,680,382) Purchase of property, plant and equipment (20,448) (36,574) (1,015,384) (1,716,956) Repayments of lease liabilities (44,309) (290,999) Interest on loans (678,401) (214,427) Net cash used in financing activities (722,710) (505,426) Net decrease in cash and cash equivalents held (1,262,904) (3,213,148) Cash and cash equivalents at beginning of year 4,593,835 6,835,478 Cash and cash equivalents at end of financial year 3,330,931 3,622,330 Cash flows from investing activities Net cash used in investing activities Cash flows from financing activities The above statement of cash flows should be read in conjunction with the accompanying notes. 12 | Xref Limited | Interim Half Year Report 2024 Notes to the Financial Statements Note 1. Material Accounting Policies The group has adopted all the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. The adoption of these Accounting Standards and Interpretations did not have a significant impact on the financial performance or position of the Group. These policies have been consistently applied to all the years presented, unless otherwise stated. These general purpose financial statements do not include all the notes of the type normally included in the annual financial statements. Accordingly, these financial statements are to be read in conjunction with the annual report for the full financial year ended 30 June 2024 and any public announcements made by the company during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001. The principal account policies adopted in the preparation of the financial statements are set out below. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, unless otherwise stated. a. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is ultimately responsible for strategic decisions, approving the allocation of resources and assessing the performance of the operating segments, has been identified as the Board of Directors. b. Revenue Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are initially recognised as deferred revenue in the form of a separate refund liability. Group Sales The Group has three main sources of Sales. The provision of candidate referencing services via the sale of credits & subscriptions through Xref, the sale of ID verification checks through Trust Marketplace and the provision of engagement surveys through Engage. Revenue Recognition For Xref sales, there are two revenue recognition events. When a customer uses a credit the service has been performed and the revenue is recognised at the point in time when the customer uses the service. Or if the customer has purchased a subscription to the Xref platform, revenue is recognised over the life of the contract. For Trust Marketplace sales, when customers request a Check and it is performed the service has been delivered. Revenue is recognised at the point in time when the customer uses the service. For Engage sales, there are two revenue recognition events. Implementation and consultancy revenue is recognised as the services are delivered. This usually involves an in-depth cultural analysis of an organisation and the design and creation of a distinct deliverable, in the form of a bespoke survey or other tailored organisation cultural analysis. Following the creation of the bespoke survey, a customer will subscribe to the platform for 12 months to deliver and view results of engagement surveys over the contracted subscription period. Revenue for the subscription component is recognised over the life of the contract, being the subscription period. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Government Grants Government grants are recognised at fair value where there is a reasonable certainty that the grant will be received. Grants that are meant to fund expenditure on research and development are recognised proportionally over the periods when these costs are written off to profit or Xref Limited | Interim Half Year Report 2024 | 13 loss. Hence, grants related to capitalized development costs are accordingly apportioned and carried forward as deferred income at fair value, to be recognised as other income over the expected useful life of the intangible asset on a straight-line basis. Other income Interest and other revenue is recognised when it is received or when the right to receive payment is established. c. Contract assets Contract assets are recognised when the consolidated entity has transferred services to the customer but where the consolidated entity is yet to establish an unconditional right to consideration. Contract assets are treated as financial assets for impairment purposes. Contract assets include commissions paid and are amortised as performance obligations are met and an unconditional right to consideration is established. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained or which are not otherwise recoverable from a customer are expensed as incurred to profit or loss. Incremental costs of obtaining a contract where the contract term is less than one year is immediately expensed to profit or loss. d. Intangibles In accordance with the Consolidated Entity’s accounting policies, assets with an indefinite useful life are tested on an annual basis for impairment, and additionally, along with assets with a finite useful life, whenever an indication of impairment exists. An impairment loss is recognised for the amount by which the carrying amount of an asset or cash generating unit (CGU) exceeds its recoverable amount, which is the higher of its fair value less costs of disposal or its value-in-use. Where required, the recoverable amount is determined either with reference to external valuations or estimated using discounted cash flow techniques. Internally developed intangible assets (Capitalised development costs): Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in the reported profit or loss when incurred. Development activi