Straker Translations : Quarterly Activities Report and Appendix 4C - 30 June 2022

For personal use only

Quarterly Activities Report

28 July 2022

ASX and MEDIA RELEASE

Straker reports positive start to FY 2023

Technology-led, next generation language and localisation services provider Straker Translations (ASX: STG) reports strong and profitable Q1 FY23 revenue growth. The result is underpinned by growing sales to multinational organisations and the contribution from the Belgium-based translation provider IDEST Communications, acquired in Q4 FY22.

The outlook remains strong supported by latent opportunities in recent acquisitions, including IDEST, a strong sales pipeline among global enterprise customers and governance organisations, the company's technological leadership, and the strength of its reputation as a change maker in the global translations sector.

FINANCIAL HIGHLIGHTS1

• Q1 FY23 revenue of $18.8m up 66% on Q1 FY22 and 8% on Q4 FY22.
• Adjusted EBITDA22 of $1.5m, positive for the third consecutive quarter.
• Operating cash outflow of $2.3m following two quarters of positive inflow impacted by an increase in working capital and the timing of customer receipts. Straker expects a return to positive operating cashflow in Q2 FY23.
• Q1 FY23 total cash outflow of $4.3m up from Q4 FY22 cash outflow of $2.2m following earn out payments on IDEST Communications and NZTC.
• Strong balance sheet with no debt and cash of $11.4m.
• Robust sales pipeline driven by customers looking for technology-led global localisation solutions.
• On track to deliver on May 2022 guidance for profitable growth in revenue for the 12 months to the end of March 2023 of 20% with gross margins exceeding the 54% achieved in FY22.

OPERATING HIGHLIGHTS:

• IDEST continues to perform well and in line with expectations. Integration programme reinforces the latent potential to come from cross selling Straker's global language translation capabilities.
• IBM translation volumes continue in line with expectations, system integration mostly completed and new partnership opportunities developing.

1. All figures are in NZ$ unless stated.
2. Adjusted EBITDA excludes non-recurring acquisition, integration and other non-operating costs. Non- operating costs include costs of restructuring activities and non-recurring consulting costs.

Straker Translations (STG)	Registered Address	www.strakertranslations.com
NZ Company no. 1008867	Level 2, 49 Parkway Drive	[e-mail]
ARBN: 628 707 399	Rosedale, Auckland 0632

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For personal use only

Quarterly Activities Report

• First audit under ISO27001 - the gold standard for information security - underscores the strengths of Straker's information infrastructure and its commitment to continuous improvement.
• Easing of COVID-related travel restrictions is enabling the Straker's sales team to again engage customers at industry conferences and face-to-face with customers. This trend is expected to support ongoing organic growth.

Q1 FY23 Revenue Growth

Straker Translations has made a strong start to the new financial year with revenue in the three months to the end of June 2023 of $18.8m, a 66% improvement on the $11.4m in the same period in FY22 and a 8% improvement on the $17.4m achieved in Q4 FY22.

The quarter-on-quarter result benefitted from strong growth across the APAC and European operations (excluding IDEST) and the continuing success and expansion of Straker's strategic translations service agreement with IBM.

The growth was moderated by IDEST Communications cycling off an extremely strong run in Q4 FY22. IDEST, which was acquired in January 2022 and offers the Group new relationships with global governance organisations, including the European Commission and Parliament, continues to perform ahead of expectations.

The year-on-year quarter growth reflected the contribution of IDEST and the success of the IBM contract, including the elimination of a backlog of IBM work that had accumulated during the ramp up of the partnership over the last few months. In the same period a year ago the IBM contract was only in the early stages of development.

Our European operations have seen some weakness relative to the same period a year ago as we ceased engagement with Russian clients following the outbreak of war in the Ukraine. Meanwhile, the ongoing refocus on large global enterprise clients has seen the relinquishment of some smaller, lower margin customers. The company's US operations including Lingotek have delivered a steady performance.

Margins remain a strong focus

Gross Margins in the quarter were in line with the 54% achieved in FY22. Straker continues to focus on driving margin improvements, recognising that incremental gains can deliver a significant uplift in EBITDA given the Group's scale.

We continue to see considerable potential to drive margin improvements in the coming quarters as we integrate IDEST on to the RAY platform and continue to transition IBM translation jobs from third parties to our systems.

One of the biggest drivers for increased margins going forward will be the rate of innovation, which we believe can deliver gains in productivity through technology. This remains a core focus for our development teams.

Straker Translations (STG)	Registered Address	www.strakertranslations.com
NZ Company no. 1008867	Level 2, 49 Parkway Drive	[e-mail]
ARBN: 628 707 399	Rosedale, Auckland 0632

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Quarterly Activities Report

In the last quarter we benefited from savings that followed from the creation of the lower cost resource centre in the Philippines. Meanwhile, Straker is actively driving the integration of its six European offices. It is also benefitting from synergies through closer integration of development teams in New Zealand and the US (see below).

Q1FY23 adjusted EBITDA2 was $1.5m up from the $471k in Q4 FY22. It is the third consecutive quarter of positive adjusted EBITDA, and this reflects our increasing economies of scale and the benefits we are seeing from integration.

During the quarter Straker delivered earn out payments to the former owners of NZTC and IDEST totalling $1.1m reflecting the strong performances of these businesses.

Research and development - increasing our speed of innovation

We are focusing part of our research and development team on a new innovation cycle aimed at increasing our technology lead over the competition.

Based on some projects with major customers, we have seen how the world of localisation is evolving and how customers are looking for eco-system providers that are integrated into customer processes. This cycle of innovation should also open up more SaaS revenue opportunities. We expect these efforts to start contributing to revenue in the second half of the year.

Meanwhile, Straker recently underwent its first ISO 27001 information security audit following certification under the standard last year. The audit against the industry's gold standard for information security confirmed the strengths of the company's security protocols and noted our commitment to continuous improvement.

We have continued to advance our vision of delivering a technology stack to meet the differing needs of our customers. Our RAY translation platform meets the needs of those that want minimal involvement in the translation process, while the Lingotek subscription platform is directly targeted at those customers who wish to manage the translation process internally.

We are accelerating our progress and driving efficiencies by leveraging the software engineering expertise across the broader organisation. We have for instance integrated more closely the development teams working on the RAY translation and Lingotek platforms.

This has seen the launch of a new management structure to oversee the development teams in both organisations. It has also seen the sharing of code and avoiding duplication of efforts where the two platforms undertake similar translation processes such as document parsing.

We meanwhile continue to advance the application programming interfaces that link IBM systems and other enterprises with Straker systems. We continue to see improvements in productivity as a result.

Straker Translations (STG)	Registered Address	www.strakertranslations.com
NZ Company no. 1008867	Level 2, 49 Parkway Drive	[e-mail]
ARBN: 628 707 399	Rosedale, Auckland 0632

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For personal use only

Quarterly Activities Report

Now well over 80% of the translations submitted by IBM are being completed automatically, a figure ahead of our service commitments. Meanwhile, operating revenue per project manager (the people who shepherd translations through the RAY translation platform) increased to $69k per month up from $67K per manager in the March quarter and $49k per month in the same period a year ago.

Cash flows and funding

Operating cash outflow for the quarter was $2.3m down from the $919k inflow in Q4 FY22 impacted by an increase in working capital and the timing of customer receipts. We expect to see a return to operating cash inflow in the second quarter.

The company recorded a total cash outflow during the quarter of $4.3m reflecting $1.1m in earnout payments and $0.7m in R&D capitalisation. Cash reserves at the end of the quarter stood at $11.4m down from the $15.1m at the end of the fourth quarter.

Summary and outlook

CEO and Co-founder Grant Straker said the company was pleased with the progress it had made and remained confident about its ability to realise the growth opportunities it sees across the organisation.

"We have a strong balance sheet, are well funded and are on track to deliver on the guidance issued at the end of May 2022 for profitable growth in revenue for the 12 months to the end of March 2023 of 20% and gross margins exceeding the 54% achieved in FY 2022.

"This outlook is supported by the latent opportunities in recent acquisitions, including IDEST, a strong sales pipeline among global enterprise customers and governance organisations, the company's technological leadership, and the strength of its reputation as a change maker in the global translations sector.

"We also believe growth will be assisted by the easing of COVID-related travel restrictions as our sales teams are once again able to engage customers at industry conferences and face-to-face. We look forward to providing a further update at our Annual Shareholders Meeting at the end of August."

Related party transactions

An amount of $84k was paid to Directors in fees during Q4 FY2022, with a further $7k paid to a director in relation to consulting services provided.

Authorisation

This announcement has been authorised for release by the Board of Straker Translations Limited.

Straker Translations (STG)	Registered Address	www.strakertranslations.com
NZ Company no. 1008867	Level 2, 49 Parkway Drive	[e-mail]
ARBN: 628 707 399	Rosedale, Auckland 0632

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For personal use only

Quarterly Activities Report

Corporate:	Investors:
Grant Straker, CEO & Co-Founder	Ben Henri
E:[e-mail]	E:[e-mail]
P: [phone]	P: [phone]

David Ingram, CFO

1. [e-mail]

1. [phone]

About Straker Translations

Based in New Zealand Straker provides next generation language services supported by a state- of-the-art technology stack and robust AI layer to clients around the world. By combining the latest available technologies with linguistic expertise, Straker's solutions are scalable, cost-effective, and accurate. Through technical innovation and data analytics, Straker is a proven partner in future- proofing global communications.

For more information visit: www.strakertranslations.com

Straker Translations (STG)	Registered Address	www.strakertranslations.com
NZ Company no. 1008867	Level 2, 49 Parkway Drive	[e-mail]
ARBN: 628 707 399	Rosedale, Auckland 0632

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