XPON Technologies : Quarterly Activity Report and Appendix 4C

ASX Announcement

22 April 2022

XPON Q3 FY22 activity report and Appendix 4C1

XPON Technologies Group Ltd (ASX:XPN) (XPON or the Company), a marketing technology and cloud business providing mission-critical software and solutions to corporate and mid-tier enterprises in Australia, New Zealand, the United Kingdom and Europe, is pleased to release its quarterly activity report and Appendix 4C quarterly cash flow statement for the three-month period ended 31 March 2022.

Highlights

• ● ARR of $14.5m as at March 2022, up 183% YoY2 from March 2021 (up 104% on a like-for-like3 basis)

• ● Consistently solid unit economics throughout Q3 FY22 including 140% revenue retention reinforces strong customer lifetime value.

• ● Gross margin continued to expand to 66% for Q3 FY22, up 12 ppts compared to Q3 FY21 on a like-for-like basis.

• ● Q3 FY22 revenue of $3.4m, up 133% YoY (up 60% on a like-for-like basis).

• ● 90% of revenue in the quarter was recurring

• ● Gross profit of $2.2m, an increase of 145% YoY (up 97% on a like-for-like basis)

• ● 8 new customers landed and 10 existing customers expanded during the quarter

• ● Cash balance of $11.1m, providing balance sheet strength for ongoing investment in growth

• ● 5 new sales and marketing team members onboarded, primarily in February and March

• 1 Unaudited

• 2 Internetrix was acquired on 5th June 2021.

• 3 Includes historical financials on a proforma basis of Internetrix as if it were part of XPON as a combined entity.

Key Financial Metrics

Q3 FY22 (actual)	Q3 YoY (actual)	Q3 YoY (like-for-like)
ARR	$14.5m	183%	104%
Revenue	$3.4m	+133%	60%
Gross profit	$2.2m	145%	97%
Gross margin	66%	3 ppts	12 ppts

Founder, Managing Director and Group CEO Matt Forman noted, "it is very pleasing to see that the growth momentum achieved in Q2FY22 has continued into Q3."

"During the quarter XPON onboarded eight new customers and expanded our product and service offerings to 10 existing customers, which assisted in ARR growing a further $1.4m in the quarter to $14.5m."

"With the investment from the IPO, XPON has now commenced scaling its marketing and sales teams. During the period, we onboarded 5 sales and marketing personnel, including three business development managers (BDMs). This expanded team will be instrumental in driving customer and revenue growth into the future."

"I believe we remain well positioned to meet our growth objectives, with our unit economics reinforcing strong customer lifetime value."

ARR Growth

XPON added $1.4m in ARR during the quarter to finish March 2022 at $14.5m. ARR growth was 183% YoY and up 104% on a like-for-like basis. Year to date, ARR has grown by 58% or $5.3m.

During the quarter, XPON won eight new customers and expanded 10 customers, taking new customer wins to 24 and expanded customers to 23 for the year to date.

Unit Economics

XPON continues to exhibit compelling unit economics, including customer and revenue retention, underpinned by the successful 'land and expand' strategy.

Unit economic highlights include:

• ● Average Monthly Customer Retention Rate at 99.5% during the quarter.

• ● Revenue Retention Rate increased 9 ppts to 140% from 131% in Q2 FY22 as 10 existing customers expanded the number of products and services they use across the Company's full Marketing and CX stack

• ● The calculated metric of Lifetime Value Per Customer reduced 16% to $654k, similarly the Total Lifetime Value reduced 15% to $130m. This was due to the 0.1 ppts decrease in Customer Retention Rate from Q2 FY22.

• ● Customer Acquisition Costs (CAC) increased slightly, in-line with the Company's expectations to $36k, up from $35k in Q2 FY22. This was primarily due to the investment in growth, with 3 BDMs added towards the end of the quarter. The Company expects attractive payback on this investment in future periods, especially with the customer retention and revenue retention metrics outlined above.

• ● LTV / CAC Ratio was 18x, down from 22x in Q2 FY22. CAC Payback was consistent with the previous quarter at seven months.

Q3 FY22 Execution Milestones

In Q3 FY22, the team achieved a number of key milestones:

• ● Increased its headcount by 21 people, bringing total global headcount to 116. This represents an increase of 18% over the quarter.

• ● Onboarded 5 new sales and marketing team members with 3 BDMs commencing towards the end of the quarter.

• ● Appointed first business development manager in New Zealand to focus on growing this market commencing Q4 FY22.

• ● Achieved Net Promoter Score (NPS) of 84 from clients surveyed during the quarter.

• ● Successful attained ISO27001 certification for information security management for the Wondaris customer data platform.

Cash Flow

Receipts from Customers was $3.8m for the Q3 FY22, up 81% on Q3FY21, assisted by $1.9m of payments in January 2022, due in Q2 FY22, but disrupted by the Christmas and New Year holiday period. For the nine months to Mar 2022, receipts totalled $9.3m, up 61% on the previous corresponding period.

Net cash flows from operating activities for Q3 FY22 was ($1.6m). Staff costs increased to $2.6m, as XPON expanded its team and administration and corporate costs of $1.4m which includes a one-off cost of $0.7m for Prospectus Liability Insurance.

The Company's cash balance at the end of Q3 FY22 was $11.1m, a decline of $1.6m from Q2 FY22.

As detailed in Item 6.1 of the Appendix 4C, payments to related parties and their associates during the quarter totalled $80k comprising Directors fees, people and culture consulting associate of CEO and motor vehicle leasing and operating costs for the CEO.