Australian access control software provider TZ Limited (ASX:TZL) is expecting rapid recurring revenue growth as it progresses its transition away from one-off sales to a service-based fee model.
The company is now generating over $235,000 in monthly recurring revenues as of Q2 FY21, with chair Peter Graham telling shareholders as its annual general meeting that he is “confident” that growth in this metric will trigger a rerating and drive share prices up.
Mr Graham noted that recently appointed CEO Mario Vecchio has already helped reshape the company’s product offering to support this transition to service fees, and while the business delivered an EBIT loss of $1.59 million for the year, its performance has improved 68% in the past year.
“I am confident a strong order book, the interest cost savings and stronger financial oversight will see TZ deliver positive EBIT in 2022,” Mr Graham said.
“It is also accurate to say that the company’s stronger financial position has had positive ramifications with customers – they no longer question TZ’s longevity.”
Mr Graham said TZ’s recurring revenue growth will be the best indicator of the company’s performance in the months and years ahead.
The company will begin to publish monthly recurring revenue data moving forward, Mr Graham added, so that investors can track the business’s ongoing growth.
An updated model for a brave new world
CEO Mario Vecchio said the COVID pandemic sparked a rethink of the way businesses conduct themselves, notably driving demand for contactless and e-commerce solutions for a work-from-home world.
“[The pandemic] calls out many old habits and processes into question,” he said.
“Among them, what does the new workplace look like? How do customers want to collect purchases? How to automate contactless pick-ups?
“That’s where TZ’s core products shine, and the flexibility embedded into our multiple offerings are suited to our customers’ diverse environments and workflows.”
To better suit these customer needs, Mr Vecchio said the business has introduced a “simple, low cost and non-disruptive process” to append third-party hardware to TZ’s API-centric platform within the last quarter.
Mr Vecchio said this improves TZ’s customer service while simultaneously generating new revenue streams.
And by allowing open integrations with TZ’s software, Mr Vecchio said customers are “more likely to expand the use of TZ’s products across their whole organisation, are less likely to churn and tend to grow their usage of TZ products faster”.
“We see a long runway for TZ here – watch this space.”