This is a spotlight moment for cybersecurity companies. Hackers are giving it their all and companies’ current cybersecurity systems are failing to put up a fight. So, if your cybersecurity company is still not doing well, there are things to reevaluate. That is exactly what cybersecurity company archTIS (ASX: AR9) is doing, following its reports of significant cash burn. The Company has decided to reduce its overall cost structure to align with market demands and achieve cash flow neutrality in a timely manner.
For this quarter, archTIS reported a net cash burn of $700k, driven by staff and contractor costs ($2.3 million), administrative and corporate costs ($700k), advertising and marketing costs ($200k), and product manufacturing and operating costs ($200k). Some of these costs were offset by customer receipts of $2.7 million. Moreover, certain projects were delayed at the outset of this quarter, thus postponing customer receipts. All in all, money management hasn’t been their strongest suit.
The resizing of the business is expected to reduce the Company’s operating expenditure by $2.25 million per annum starting December 2022. This includes cutting down staff and contractors by 18% and taking steps to become more efficient by cutting discretionary spending. It seems like the ongoing tech layoffs have spared no one.
Daniel Lai, archTIS Managing Director, shared, “The technology market has recently seen significant shifts to improved capital efficiencies in a return to positive cash flow. archTIS like other global technology companies is looking to create greater efficiencies across all aspects of the business to support the growth of shareholder value and the achievement of cash flow neutrality more rapidly. We continue to provide a strong revenue growth and cash receipts outlook as we build momentum on our strategic initiatives.”
The past few months have witnessed the downfall of giant Aussie companies, like Medibank and Optus. The demand for cybersecurity services has never been higher. Yet, archTIS appears to be falling behind.
The total revenue in Q1 was $1.3 million, with licensing revenues ushering in $700k of it. However, services revenue was down about 50% on the previous period as operating expenses rose from $2.6 million to $2.7 million. Notwithstanding total revenue was down 22% compared to Q1 FY22.
archTIS ended the quarter with $5.8 million of available cash, compared to $6.6 million at the end of FY22. While it looks bleak, it is a considerable improvement as the Company was burning $3.4 million in cash in the prior period. The significant reduction in cash burn from prior quarters relied on archTIS maintaining its operating expenses at similar levels to the previous four quarters and increasing its customer receipts associated with software licensing contracts.
Plus, it plans on establishing a common product foundation across both its multi-level security platform Kojensi and data protection software NC Protect. They will be consolidated into one cohesive product development unit. More savings will be expected from customer services, administration and marketing activities until the Company is generating enough cash to fund its reinvestments.
archTIS has big goals for FY23 as it aspires to achieve minimum consistent operating expenses and $9.5 million in cash receipts. And frankly, if there was ever a time to set huge targets, it is now as Aus companies need help keeping up the cybersecurity walls.
Alinda is a Business Reporter for The Sentiment
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