Tungsten's (TUNG) CEO Rick Hurwitz on Q4 2016 Results - Earnings Call Transcript

| About: Tungsten Corp. (TUNG)

Tungsten Corporation PLC (OTCPK:TUNG)

Q4 2016 Results Earnings Conference Call

July 25, 2016 10:00 AM ET

Executives

Rick Hurwitz - CEO

David Williams - CFO

Analysts

Paul Morland - Canaccord

Peter McNally - Shore Capital

Presentation

Operator

Good morning, ladies and gentlemen and welcome to Tungsten Corporation’s FY 2016 Results Call. My name is Angel, and I will be your coordinator for today’s event. For the duration of the call, you will be on listen-only. However, at the end, there will be an opportunity to ask questions. [Operator Instructions]

I’m now handing you over to your host Rick Hurwitz to begin today’s conference. Thank you.

Rick Hurwitz

Thank you, Operator. And I hope everybody could hear me this morning; if not, please indicate through the operator and we will make any adjustments that we need to. But, good morning and welcome to Tungsten’s earning call for the 2016 financial year ended April 30th. I am Richard Hurwitz, Chief Executive of Tungsten Corporation, and I am joined today by my CFO, David Williams.

First, some housekeeping. We have produced a presentation to accompany this call, and this is available on our website where there is an audio free webcast. They will turn the slides through our remarks for you this morning. As the operator had indicated, after we have completed our prepared remarks, we will turn the call over for a brief Q&A session. Do feel free to connect with us following the call if you would prefer to put your questions to us in private or if we turn out of time and you are unable to ask a question on this call.

If I may, I am required to briefly draw your attention to an important legal notice before we enter this conversation today.

Now, I am delighted to be bringing these results to you for our financial year ended April 30th. These are my first such annual results as Chief Executive with the business operating under both my tutelage and our new strategic plan or pursuing profitable growth. As we look to the future, I hope to convey a sense of the excitement I have as we seek to deliver this plan.

Midway through this fiscal year, I set out the conclusions of the comprehensive operational review we undertook of the Company and its business landscape. My analysis confirmed my belief that our global operating assets inside of the Tungsten Network are special. This is a secure, many-to-many network that pioneer e-invoicing and is at the vanguard of digitizing accounts payable processes and counts more than half of the Fortune 500 and the FTSE 100 as customers. However, the full value of the connectivity of our network is not being realized due to some readily observable structural deficiencies that we are in the midst of remediating.

The insight of this work allowed me to refine our corporate strategy to focus on profitable growth, reinvigorate our corporate culture so that our people care and are performing at a high level, and to identify a series of actions to help the organization achieve its potential. They also guided me to upgrade our management talent, identify which non-core activities to shut and craft the plan for rebooting Tungsten Network Finance on economic terms sustainable for our shareholders.

We have hired talented industry leaders in their functional disciplines, we have an agreement to sell Tungsten Bank, and we have restructured many aspects of our invoice financing activities to allow us to grow faster to more profitably.

We operated under our new strategy for only four months of the 2016 financial year. Over that time, I am very pleased that some of the initial changes we made already impacted our financial and operating performance. We increased the number of buyers and suppliers we serve as customers and we provided them with a broader range of services than we have ever done before.

Take Tungsten Network Finance, we doubled the number of suppliers registered for early payment and we grew our book of financial invoices by 220%. While we are now restarting this area of the business in earnest, here is [ph] affirmation of the opportunity within our proprietary network. We have grown revenues at double-digit rates, which help together with more effective operating and one-off cost control to reduce our EBITDA loss by £6.5 million, and we ended April with a net cash of over £9 million as operational efficiencies decrease our run rate cash consumption. Taking together these results give me confidence that we’re building momentum in our strategy to focusing on profitable growth. This provides a very strong foundation for our 2017 fiscal year.

Before reviewing our strategic progress in detail, I’d like to take you through the new corporate purpose we have and how that purpose drives our strategic priorities and the delivery paths we have chosen to achieve those priorities. We strive to be the world’s most trusted transaction network by using data intelligently to strengthen the global supply chain. We do this by providing a secure connection across the globe in automating the entire invoice process.

By operating this environment for our customers, we ensure financial viability and success of their digital transformations supporting faster, smarter trade between buyers and their suppliers. This positioning is embedded in the tighter brand standards we have developed. You can see our new logo and tagline in the bottom left of this slide Tungsten Network, Trusted Connections, Streamlined Transactions.

Now, screening our 2016 performance through our four strategic goals shines a light on the progress we have made. Take our focus on our core. All our key measures of growth, sales, volumes, customer advocacy are moving along nicely, thanks to the dedicated focus and commitments of our people. For me, even more satisfying is seeing that our customers value the heightened efforts that we are making on their behalf. This is reflected in the fact that 34 of our buyers renewed their contracts this past year with a weighted average price increase of 64%. I can share with you that since the 2016 fiscal year ended, we have renewed a further four at similar renewal rate increases.

This process -- or this proves rather that customer satisfaction with the end-to-end experience on the Tungsten Network is high. And they see that we are investing and supporting their move to digital. This gives me enormous optimism. And as we grow our network connectivity, connecting more buyers with their suppliers, more new buyers to the network and more suppliers with other buyers already on the network, we said in motion a virtuous circle of value creation. We have established and are operating effectively a digital command center, which is helping coordinate and facilitate increased customer interactions across our expanding Tungsten Network and better response to the way that large corporations are procuring products today. And we saw our PNC Bank channel open up with our first sales this past year and a very robust pipeline in place for the coming year.

Let’s move now to operational performance.

Through a range of actions across the business to improve operational efficiency and tightened cost disciplines, we have reduced adjusted operating expenses by 6%. We have put great emphasis on spend management to control cost and to emphasize margin understanding within the business. We also acted swiftly to dispose Tungsten Bank once we had determined it was non-core to our strategy of profitably financing customer invoices.

It is not all about cost savings either, improving our operational performance means ensuring that our people have the capabilities and skills to execute the strategy we’ve put in place and our additions to the executive committee and recruiting a host of new leaders and in fact, we have added 11 new senior managers among the 35 individuals here at Tungsten that supervised others. Equally, we have taken the time to refresh accountability and objectives across the organization in order to ensure that our people know how they must contribute to the delivery of our goals. We have tackled the Company’s culture and see our people deliver with great energy and commitment. We have leaders here now in the Company who are inspiring others to do great things for our customers.

Our strategic goal number three, invoice financing. I am thrilled we were able to attract a man of the talent of Prabhat Vira to head Tungsten Network Finance. Prabhat joined us in April and is already beginning to make substantive change. Prabhat brings with him a career of receivables finance experience and banking and he is just the right person to lead the reboot of our early payment solution for our suppliers.

As part of our strategies to offer the early payment solution to more of our suppliers, we have restructured our funding arrangement with Insight Investments. This significantly increases our serviceable market while also providing for us to take a larger share of income from any financing, meeting our requirement that this activity be a contributor to our profitable growth.

Let’s turn to adjacent services, our work in this segment remains in its infancy and the strategic segment did not contribute income to the Group in fiscal 2016. That does not mean it has no strategic value at this point; it does. Our customers’ feedback tells us that there is an opportunity to expand the range of value-added service we offer them through the network and that they will pay for that additional value creation.

Tungsten Network Analytics remains in development, but we’re confident that the tools, access to real time spend data has a commercial future. Our plan is to grow customer appetite for the analytics data by offering them a free limited feature version of the product with the aim that some will ultimately choose to migrate to a paid upgrade for more advanced services. And we’re currently crafting a joint venture with a procurement advisory firm that will use our spend analytics to enhance the service that they offer to buyer organizations.

Our agreement to sell Tungsten Bank is important, given completion of the sale to Liberty House will release £30 million of cash proceeds, reduce our operating expenditures by a net £2 million a year and remove operational and cultural complexities. The divestment is progressing well. And we expect the buyer to submit a change of control application to the regulatory authorities very shortly. We believe that we’re on track to complete that sale by the 31st of October this year. We have taken the precaution nonetheless of putting in place a £10 million revolving credit facility with HSBC Bank to protect us in the unlikely and unexpected event that the completion is delayed.

To repeat, Tungsten Network Finance remains a cornerstone of our strategy and the sale of Tungsten Bank together with our new funding arrangement with Insight Investments will allow us to pursue our aims for early payment with sharper focus.

Now, I’d like to turn the podium over to my CFO, David Williams, to take us through the numbers in greater detail. David?

David Williams

Thank you, Rick and good morning everybody. We recorded revenue in FY16 of £26.1 million, over 16% growth from the prior year which has been reported £23 million but has been reduced due to a reinstatement. The reinstatement of approximately £0.6 million reflects some very detailed work done since my appointment through the controls and processes that exist within the finance function in Tungsten. And as a result, we have highlighted an amount that has been removed from the balance sheet and taken to prior year revenue. We are now very confident in the carrying values of assets on our balance sheet.

The Group EBITDA loss of £18.7 million was a reduction of 26% from the prior year. This reflects operating expenses of £47.8 million, which is a £3.2 million improvement from the prior year. The Group loss after tax was £27.9 million, slight increase from the prior of £27.6 million, but this don’t include a one-off non cash impairment charge of £6.8 million, which was taken at the time of the agreement of the sale of Tungsten Bank.

The cash at the end of the year was £9.3 million. This was more than our previous guidance of £8 million and reflects ongoing work to reduce monthly burn rate. There was a further £17.8 million held in cash in Tungsten Bank, an amount which varies, depending on the level of invoices that Tungsten Bank holds at the time.

Turning to revenue generating segments, Tungsten Network recorded revenues of £25.9 million, that’s a significant majority of revenue within the Tungsten Corporation; excluding workflow that’s an increase of 9% from the prior year including an increase of 16%. This included increases in revenues from both buyer customers, which as Rick has said, we increased the price on a like-for-like basis of 34 of our buyer customers by 64%. Over the year, total buyer revenues as a result were up 70%. Buyer revenues represent approximately 40% of total revenues. Supplier revenues which represent approximately 60% were up 15% year-on-year to £15.8 million.

The Tungsten early payments revenue totaled £194,000, compared to $120,000 the prior year. This reflects an increased gross yield to 6.3% from 5.3% the prior year and then increase in the volume of invoices financed from £32 million to £103 million.

Turning to a little more detail on our earnings for the year. Our EBITDA of £18.7 million reflects a 26% improvement on the prior year. The low EBITDA, depreciation and amortization increased slightly to £2.5 million and the share-based payment expense increased to £478,000 from $195,000 in the prior year. After our impairment charge of £6.8 million there was other income of £281,000 which reflects a decrease on the amount of deferred consideration required to settle the final DocuSphere acquisition liabilities, as a result of the fall in the share price since the acquisition was agreed.

Our finance costs of £288,000, primarily reflect the foreign exchange movement on balances held and our taxation of positive £705,000, primarily reflects the unwind of our deferred tax liabilities created on our acquisitions. Our earnings per share improved slightly albeit to a loss of 22.52p compared to the prior year loss of 26.92p.

We continue to see half-on-half revenue growth through Tungsten Network, albeit the second half of FY16 was only slightly higher than the first half due to the seasonality of one-off setup revenues. Our revenue for the full year FY16 was impacted by the timing of signing new buyer customers, which had anticipated to be earlier in the second half and the signings towards the end of that period resulted in minimal revenue being recognized in FY16 but will now be recognized in FY17.

We have had success across the business in reducing one-off cost expenditure to a total of 4.3 million in the year FY16 of which 0.7 million was attributable to Tungsten Network. Our EBITDA loss within Tungsten Network was £5 million for FY16 before any intercompany recharges. We now expect those losses to reduce going forward. Our Tungsten Network Finance business now excludes Tungsten Bank, which has a separate management team and is re-fenced pending its sale.

Tungsten Network early payment fees totaled over £600,000 in the year. Tungsten Bank received a £180,000 of those. However, of the balance, just £14,000 was received by Tungsten Network Finance with our partner Insight Investments receiving £417,000. Rick has already talked about the work that Prabhat Vira has done since his arrival in order to recalibrate our agreements with Insight.

Our buyer customers increased by two during the year. It actually reflects a gross increase of 11 taking services across our accounts payable automation suite. That therefore means a reduction of nine of which six were due to mergers, however, corporate mergers between our customers or merged contracts as we renew more complicated arrangements into simplified contracts with our customers. We lost three buyers during the year, these delivered minimal revenues and minimal invoicing over the network. And we do not believe that these losses will significantly impact FY17. We grew supplier numbers by net 22,000, an increase of 12% and we doubled the number of registered suppliers for Tungsten Network Finance from a 188 to 361.

Finally, I’d like to talk a little bit about our cost base and our ongoing process to redefine our cost base in order to support profitable growth. Our adjusted operating expenses in FY15 were £47.8 million; in FY16, they were £44.6 million, a decrease of £3.2 million. A lot of FY15 was driven by one-off costs, particularly in Tungsten Network Finance and Tungsten Bank, supporting our Tungsten Network early payment products. We have managed to contain those costs and find other costs savings across the business to reduced the underlying cost base. However, in order to achieve the profitable growth, we have needed to invest in new management and new quality people in our systems and in our market. So, we have undertaken a realignment of our cost base which will continue through FY17. FY17 will also benefit from the annualized net £2 million saving in the Tungsten Bank cost base.

Rick Hurwitz

Okay. Thank you very much, David. So to bring us back to the present, I’d like to make a few remarks on our priorities and on our outlook. But before I do, I wanted to emphasize the strength of the foundation we now have here at Tungsten. My leadership team is complete after adding management muscle and forming a highly committed executive team. Each of my direct reports is clear and what they need to achieve as well as having appropriate variable reward structures in place to reward success. Management is clear that 2017 fiscal year is a year for delivery against our strategic and operating plans.

So, turning to the period ahead, hopefully by now you’ll recognize the four key strategic outcomes that we are pursuing.

Focusing on our core, plan is to progress our license to engage with buyers and suppliers by strengthening our relationships and improving the quality of our customer interactions. We have realigned our customer relationship management teams and are streamlining customer on-boarding in very meaningful ways through use of some of the digital tools that we have put in place. We intend to bring innovation and product development and commercialization to the forefront here at Tungsten. And this year, we’ll be releasing a set of new products that we believe will contribute to revenue. We intend to further improve our after-sale service and leverage benefits from converging more frequently and collaboratively through initiatives launched by our brand new digital command center.

Combined, we expect these efforts to help us grow revenues and invoice volume and raise already high customer retention rates further. On the operational side, we are pushing ahead with work already underway to redesign the architecture of our core technology, decoupling components to strengthen the resilience and deliver much simpler infrastructure that brings velocity into this business and wave that had not been present before. The impact of technology changes will go far beyond achieving efficiencies and cost savings here at Tungsten. Digital technologies anchor Tungsten’s ability to expand into new markets and to launch new products quickly and effectively.

These initiatives will lead to greater process automation, replacing manual steps wherever possible and giving our customers a better experience and our shareholders a more efficient business. We look forward to significant progress in the delivery of these initiatives in the 2017 fiscal year.

In invoice financing, I expect Prabhat to focus on implementing the required operational improvements within Tungsten Network Finance, as we move away from the Tungsten Bank platform. This includes redesigning our products portal to better meet customer needs, better understanding of our supplier segments, improving supplier registration processes and pricing, and creating a more compelling Tungsten Network portal to persuade more suppliers to become early payment users and reaching the portal as a very prominent aspect of our fiscal ‘17 objectives. For this reason, while we expect invoice financing to double in the 2017 financial year, we expect a material impact on revenues from 2018 onwards.

In adjacent services, our priorities are to look at a range of opportunities not just Tungsten Network Analytics to leverage the global connectivity of our network for the benefits of our customers. The earning statement that we released this morning provides more detailed commentary on some of the specific opportunities that we have identified and in fact are pursuing. But I’d like emphasis that we aim to develop initiatives in conjunction with partners to minimize cost and again to bring sort of this external touch into what had been a more parochial environment.

While there will be incremental additional cost to achieve these priorities, of course there will be; in fact, we have estimated £10 million of expenditure in the 2017 financial year. These costs are predominantly cash expense ones. We will exceed to capitalize where we can and expect about 1 million to 1.2 million of capitalized costs among these. We expect income and efficiency benefits from these investment initiatives, and you’ll see a big piece of as reflected in our work to grow our invoice financing business.

We have provided some detailed guidance on our expectations for our financial and operating performance in the 2017 fiscal year. We expect to achieve at least 30 million of revenue in the year, while we also look to a further decrease in operating expense. In alignment with our focus on profitable growth, we are committed to achieving EBITDA breakeven in 2017, the exact month of profitability will be a function of the rate of success we have in some of these new product and adjacent service initiatives, and the revenues attendant to those. We know what we need to do to achieve monthly EBITDA breakeven by the end of the 2017 financial year but we will not give up on investment in future profitable growth solely to attain an arbitrary date that jeopardizes our long-term shareholder value. So, taking all these factors together, we are anticipating an EBITDA loss in the 2017 fiscal year of between £12 million and £14 million and net cash as of the end of the year of more than £20 million.

So that concludes our prepared remarks this morning. Thank you for being a listener on this call. And I now like to turn it back to the operator so that we can move into the Q&A session. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]

Rick Hurwitz

Do we have any questions?

Operator

Yes, we do have questions coming through. Our first question is from the line Gareth Evans from Stockdale. [Ph] Please go ahead, Gareth. Your line is open.

Unidentified Analyst

Good morning, guys. I just wanted to dive into a little bit more detail on slide 12. The statistics, the details you gave there, I think are very interesting. And if I’ve read it correctly, it looks like the registered suppliers in terms of Network Finance have roughly doubled but the flows through the Tungsten accounts and also the total value financed have both roughly tripled over the same time. So, it looks to me that the average amount financed is actually per registered supplier is quite a lot higher in FY16 than it was the year before. Can I just ask is that due to larger suppliers registering for the financing option or is it because each supplier is doing more business once they have registered? And I wonder if you could talk about that a little bit more in the context of what Prabhat is doing as he takes that business and the types of changes he is looking to make and whether that’s likely to lead to more suppliers in terms of number or push towards larger ones and doing more business?

Rick Hurwitz

Yes, so a terrific question that gives us an opportunity to develop this issue in a lot of ways but let me first try to answer the specific question. The answer is both. So, the suppliers that are using this system continue to use it repeatedly. So, their usage goes up, it has become a core credit facility for them. The buyer share of Tungsten because of some of the constraints around the product offering itself has been towards larger suppliers. That all being said, if I ask you to turn then to the future and Prabhat’s work, there is a wholesale set of changes going on here at Tungsten with respect to Tungsten Network Financing. The past and the answer to this question is not a prologue to our future efforts here with respect to invoice financing. A big part of what we’re doing is actually looking at our supplier base on a segmented basis, opening up their opportunities to finance in a much bigger way by removing some of the constraints that have in place. And what we expect as we go forward is a set of much more competitive products, more competitively priced that ultimately will be focused on SMEs, in a big way. So, the large volume will come from smaller suppliers, even as one of our products is a direct interaction with larger sellers.

And then there is another supporting dynamic going on with respect to Tungsten Network itself. And that is we at Tungsten view our client base as the global supply chain, the large number in that are what you have historically thought off as the sellers on the network. Through enrichment of the portal, both for TNF and the core AP Automation activity and through a set of products attendant to our adjacent services strategy, we are going to be engaging with that supply chain much more robustly through lots of means. And in doing so, we hope to create some emotional attachment by the suppliers to the Tungsten Network and that they will interact with us through financing, through other product offerings like currency conversions and the like in a much more fulsome way.

So, sharp focus on supplier segmentation, the risks attendant to them, the better pricing and ultimately marketing priorities that will let us open up in a much broader way to the global supply chain and not be so dependent on a few large ones that sort of overweight us today.

Unidentified Analyst

Now, that’s great and I think that hits on it. Just to make sure I understand then that it’s no unreasonable to expect ongoing growth from the larger suppliers who have been registering and obviously using the platform and hopefully that will become more and more regular, but that doesn’t preclude a broader push to a much wider range in time of steadily smaller suppliers given the more attractive portal and so on; you’re going for both of those?

Rick Hurwitz

You’re hearing it exactly right. And it’s going after them with a much better understanding and much more tailored set of products to each direct engagement with the larger. So, there is actually a program potentially even hold book, but we’ll get you time with Prabhat, so you can hear some of the detail even more.

Operator

Thank you. Our next question is from the line of Paul Morland with Canaccord. Please go ahead.

Paul Morland

I had a couple of questions. So, the first one is a follow-up to Gareth really; just looking at it from a high level that number of engaged suppliers, 361; what, 0.2% of the 203,000 suppliers on the network. Do you have a -- is that the right way to look at it? And secondly, do you have a sort of target percentage of those that you think that in the fullness of time you can bring on-board; and is a sort of 6% yield, what people should be looking at? That’s the first question. The second question is a more sort of general question around Tungsten Network and its competitive positioning. Your competitors all seem to adopt slightly different approaches. And I just wondered how you saw that compared to the environment we’ve got Ariba obviously attached to an ERP system; you’ve got Basware; you’ve got people who go for close networks, people going for open networks. Can you just talk a little about how you see that competitive environment and how you see yourselves doing against those competitors in the coming two to three years?

Rick Hurwitz

Yes. So, a percentage against the 203,000 may not be the best way to look at it and perhaps drive your -- you are thinking just in couple of other ways. As we’ve begun the segment the supplier base and restructure our relationship and some of the operational underpinning and operational barriers remove, we look at it a sort of addressable market of circa 10,000 suppliers. Okay?

And again, with the kind of segmentation that we talked about it’s going to let us offer products to each of those types. We recognize that we need to be more competitive in our pricing, and so put ourselves in position to be so. I think it’s worth noting in that regard, the Tungsten now has put over a £100 million of invoice financing yet, as you’re seeing the numbers has made very little against it. That’s because we had some issues with respect to the arrangements that the Company currently had in place. We’ve addressed those such that we’re in position today to be very profitable against that kind of scale, because that’s not a small amount of financing.

We believe to be additive here in this business and in terms of contributing on that. We don’t -- that universe is a really large universe. And what makes us uniquely competitive in a sense is that we have this proprietary network. A lot of these lending clubs that have this peer-to-peer sort of lending activities, I think what you’re finding is there is huge cost attendant to advertising in just distribution reach. We’ve got a very different set of facts here, because of the proprietary nature of the Tungsten Network and the fact that those members are coming to our real estate every week to interact. We intend to enhance the emotional empathy of that space; we intend to enhance the richness of the experience there. Financing would be one activity that can go on, but we, through that space, look to engage with the suppliers in a much more robust way that lets us to carry a host of revenues including those financing volumes.

Operator

Thank you. We have no further questions in the queue. [Operator Instructions] Thank you. Another question has just come through; it’s from the line of Peter McNally from Shore Capital. Please go ahead, Peter.

Peter McNally

Thanks. Hi guys. Just one quick one for me, following up something from capital markets day about there was some-- in the past, there was quite a bit of high employee turnover and it seemed like that had come under control. I wonder if you could say what’s happened sort of in the second half, not necessarily the net number, but the new hires versus the leavers, anything along those lines.

Rick Hurwitz

Thank you for your focus on people, because that’s the big area of importance to us and what we’re doing and for us to be successful at what we want to achieve. So, in essence over this fiscal year and certainly in the last four months, we have really been unwinding aspects of the legacy model and changing the behavior and mindsets of 400 odd employees. And we have done that very well. Today, there is a leadership in this business of 35 individuals that run others; and they believe. So, to the men and women, they are -- not only do they believe in the outcomes that we’re pursuing, they’re taking ownership over their aspect of it and they are inspiring the rest of the organization to do things better, to dream. And the attitudes and feelings and sort of level of carrying that exists today at Tungsten is demonstrable. We have put in place very meaningful values and reward mechanisms and with the end of fiscal year have been able to deliver on those, and reward the folks that are really pulling the training. I think it’s perhaps worth nothing that that turnover the way we’ve talked about it here is that was a good one. Not everybody has been able to make the turn of unwinding the model and working to a new set of activities with new attitudes, new expectations and sort of elevated round all of that.

Among those 35 leaders of the business, there are 11 that were not here prior to my arrival and there are 10 of them that were promoted from deep within the organization. So, 45% represent folks that are the exact right skill sets and have the exact I can do attitudes to get the job done. We have almost half of them are women. And so, I could tell you that turnover -- we have the right people in the right place and they want to be here. And there is an attitude of carrying in the Company today that didn’t exist; people are being rewarded to take risk and to succeed, and it’s working.

Operator

Thank you. Our next question is from the line of [indiscernible]. Please go ahead. Your line is open.

Unidentified Analyst

Rick, I had two questions for you. One is the EBITDA profit line and some of the things you talked about for 2017, both in terms -- I guess my question is within this one, for being confident that you’re going to hit it; and two, kind of get us over into sustainable EBITDA as well, given some of the historic losses. And then secondly, whether or not you can talk about any more of the strategic initiatives you’re carrying out in terms of trying really leverage what we’ve got here into high profitability and again sustainable EBITDA and positive cash flow.

Rick Hurwitz

David, do you want to take the EBITDA question?

David Williams

Yes, sure. We have seen pretty consistently over the last 12 months increases in revenues and decreases in profit, and therefore an improvement in our EBITDA loss. Our business in the short-term is a relatively straightforward business to forecast because of the amount of deferred revenue that we have; and we typically sign up customers, recognize the revenue over the following 12 months. So, we have good line of sight over the next three to six months in terms of revenues and our cost base. The key question then is actually the new buyers that we’re signing up, the new products that we’re enhancing, the Tungsten Network Finance side of the business, when will that all kick in and when will that start to have a significant impact on our revenues in particular and therefore when during time in 2017 are we confident of achieving our monthly breakeven. And that’s why we have said we are very confident we’ll achieve it over 2017, but don’t want to have to push the cost base of the business to the point where it will start to impact medium term profitability in order to achieve that arbitrary date of April 2017. We want to give ourselves the flexibility to achieve it over the calendar 2017, which jus to repeat, we’re confident that we’re doing the right things to achieve that.

Rick Hurwitz

Yes, we can choose not for example to invest in terms of Network Finance, you will see on slide, I forget which it is, but 2.5 million of investment for it. But, I think our shareholders recognize the unique opportunity we have to leverage that investment into much, much, much higher returns, but it’s going to take a little bit of time. There is a restart going on with respect to that product offering. Now, in terms of achieving that profitability and the priorities that you referenced, I will summarize it this way. I think there is four big ones. The first is penetration; the second is product; the third is the invoice financing; the fourth part is these adjacent services and expansion of the benefits that the supply chain gets from being a member of the Tungsten Network.

With respect to penetration, of the 175 buyers that Tungsten now enjoys relationships with, just under a third do over a 250,000 invoices a year. And I can tell you that these large corporations on average are doing well over a 1 million or 2 million, in some cases 7 million or 8 million invoices of their processing in a year. So, our penetration of that is very, very low. So, we as a Group have focused on a set of steps within our factory, a set of engagement routines with these clients to achieve a mutual confidence and moving to a fully digital environment, and that is happening. So, we have strategic account plans now that have us moving from the small level of penetration with certain accounts that want to go to 100% electronic, their profit in global economic demands are requiring it. So, again Tungsten has a very supportive macro backdrop and now we have a level of customer engagement that’s allowing us to work in that way. So, we expect our invoice volume to grow very meaningfully over the next four or five years. We’re forecasting 1.5 million new invoices in this next fiscal year, and we expect that to grow in multiples in the following.

Product, I emphasized earlier that Tungsten and its predecessor companies were the pioneers in electronic invoicing. It doesn’t exist until they created. But then they lost that pedigree of initiating new product delivery; we’re bringing it back. We have three specific products this year that we’re making available to our clients on the network, outside of adjacent services. These are core AP Automation type capabilities. For example, Tungsten processes purchase orders on its network, every single day, but what it does with them is simply matches them up against an invoice, very beneficial for straight through processing results. But now we’ve sat with our customers, and say what is that need to look like in order for your procurement people to use that purchase order as the means of delivering it to your vendors. So, armed with that recipe in a set of pioneering partners, Tungsten looks to deliver purchase order presentation on its network. Talk about being supportive for the penetration effort, vendors will come to the network when that is the place they have to go to receive a purchase order. Again, we have pioneering customers with whom we’re working to deliver that.

Tungsten Network Financing, we’re investing in it, because it represents very sizeable revenue and profit opportunity for us and long-term viability for this organization within that proprietary network. And then, these adjacent services, we have been working very hard to better understand, the facts are on our ground and suppliers interest through pop-up surveys that our portal through direct in our actions and through that work it is very clear to us that the high interest and currency conversion at the sight. And we look to actually launch that here very shortly, maybe even in next 30 days.

And so through that, while low forecasted in the new fiscal year, we believe that’s going to be a meaningful revenue contributor and in fact bottom-line contributor as we partner with an outside organization to do it. And we have other such efforts in queue to follow. So, let me pause there; and I hope that gives you a sense of how to leverage these multiple connections on the network in some of the specific steps that we’re taking to do so.

David Williams

There’s been a few questions online, which we will try and work through now. Just working from bottom up, there has been a question about Brexit and the impact of the EU referendum results on Tungsten. So, I’ll just cover off on that very briefly. Since the referendum, we have not noted any impact on our business, both on the ongoing business or on the buying decisions of our customers or our prospective new customers. From a currency perspective, we are relatively well natural hedged in that our U.S. denominated costs and revenues are close and our euro denominated costs and revenues are close. We have a significant outsource center based in Kuala Lumpur, which needs to be funded from overseas currencies and that is the one currency that we are short on.

Operationally, we see no change. We see opportunities. Companies will still need to trade internationally. The Tungsten core AP Automation product, one of its key characteristics is its cross-border compliance. And to the extent compliance more complicated or various changes as a result of the UK leaving the EU, than that is an opportunity for Tungsten. Finally, we do hold a lot of data, there is -- there are global, but primarily EU and U.S. data legislation requirements that we have to meet. At the moment, our EU data center is based in the UK. We don’t know whether we will need to have an actual EU data center post the UK actually leaving the EU. But we do have a contingency plan in place for if we are required to do that. So, I hope that helps to answer.

Rick Hurwitz

And I’ll add just one area of emphasis to the Brexit question, which is the people here in Tungsten; we play a veritable UN [ph] with multiple languages and individuals from multiple countries in the EU. And there is a concern, a fear if you will among them as to how this may impact their ability to work in London and for Tungsten. And we have reassured them, I’m in the same boat if you will, right, and on resident working here but we employ these people, we employ them for their skills and experiences that they have and we will do everything we can to continue to employ them, and we’ve assured them of that.

David Williams

Operator, it is 10’o clock which I think call time on the earnings call. So, thank you all very much for dialing in. And we look forward to speaking to you again soon.

Operator

Thank you for joining today’s call ladies and gentlemen, you may now replace your handset.