Guardforce AI Co., Limited

Good morning and welcome to GuardForce AI's 2024 year-end conference call. Today's conference is being recorded. Ms. Natalia Rudman of Crescendo Communications, please go ahead.

Thank you, Operator, and good morning, everyone. I'd like to thank everyone for joining us today for the GuardForce AI year-end 2024 shareholder update call. Today, GuardForce AI's Chairwoman and Chief Executive Officer, Olivia Wang, and Chief Financial Officer, Catherine Zhu, and Lin Zhai, President of GuardForce AI, will be your presenters on the call. The company issued a press release this morning containing its 2024 fiscal year financial results. which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. Before we begin, I'm going to review the company's safe harbor statement. The statements in this conference call that are not descriptions of historical facts are forward-looking statements relating to future events, and as such, all forward-looking statements are made pursuant to the Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially. When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to GuardForce AI are, as such, forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by GuardForce AI at this time. In addition, other risks are more fully described in GuardForce AI's public filings with the U.S. Securities and Exchange Commission, which can be reviewed at www.sec.gov. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events, or circumstances after the date hereof that bear upon forward-looking statements. With that out of the way, I'll now turn the call over to Chairwoman and CEO Olivia Wang. Please go ahead, Olivia.

Thank you, Max, and welcome everyone to today's earning poll. 2024 was a transformative year for us, marked by operational consolidation, an improved revenue map, and a significant stride in AI innovation. I'm pleased to report that we achieved growth across key segments, and notably, our core business recorded its first operating profit since IPO, an important milestone following the challenges of the pandemic. We made meaningful progress in shifting our revenue max towards higher margin offerings, and today we save over 25,000 retail stores globally. Retail has steadily risen to become one of our top client segments. the passing of historical banking clients. Back to our strong balance sheet, we saw proximity 23.4 million US dollar in cash, cash increasement, and restricted cash. We are well positioned to accelerate our AI solution strategy. On the technology front, we advanced our robots as a service model across Asia-Pacific region, and launched Divi Go, Deep Voyage Go, our first AI-powered travel planning agent. In Parana, we established an R&D team to support the development of available AI agents. Why AI agents? We believe that AI should enhance human productivity, not just optimize for profit, but for people. In a world saturated with algorithm-driven noise, AI agents can cut through the clutter, helping users make decisions rooted in personal relevance and value. Why start with travel? Travel is deeply personal, emotionally driven, and full of decision friction. Downright, it creates lasting memories. Our goal with DVGO is not just for efficiency, but empowerment, bringing clarity, balance, and integrity to complex progress. Dirigo is our first consumer-facing application and a proof point of our border of AI platform, which is used for future expansion into SaaS and B2B, B2C use cases. Over time, we see opportunities to deploy similar AI agents in retail, education, and other consumer-facing industries. As we look to 2025, our vision is clear. AI should empower people, not replace them. Our focus will be on scaling what we build, stressing our secure logistics operations, expanding with retail and travel. Deepening in our AI R&D and extending our smart solution globally. With that, I will hand it to Lin, who leads our technology and project development. He will walk you through our AI agent strategy in more detail.

Thank you, Olivia. In 2024, our vision for human-centered AI moved from concept to execution. Entered by the launch of dbGo, our intelligent travel assistance led to the first realization of our long-term AI agent strategy. We also upgraded our Godforce AI intelligent cloud platform, transforming it into an AI-driven system capable of supporting agent-based decision-making. These upgrades focused on four key pillars. The first, deep user intent modeling. And second, seamless coordination among specialized AI agents. And the third, transparent feedback loop that builds trust. And the last one, a scalable multilingual architecture that learns across users and domains. DVGO solves one of the most complex challenges in travel planning, building a complete travel plan that works in real life. It is a task that requires the system to balance a multitude of factors in real time. DVGO uses multi-objective optimization algorithms that apply a combination of models to solve the traveling salesman problem, or as you know, the TSP problem. We translate user needs into structured inputs, which allow the system to build an optimized travel route in real-time. It adapts to planning needs like budget, timing, and travel style, and takes into account real-world factors that wider change or flag delays. BVGo is powered by a reinforcement learning model. These models adjust over time based on how users behave and what's happening around them. This combination of models not only solves the TSP problem, but also provides a highly personalized solution for each user. With four-year pilot operational experience in robots, we learned more about what clients actually need. That background also helped us build the right team and shape a clear direction for our product. AI agents like dbGo are built to support real-world decisions. In retail, we can help customers purchase what they truly need, not just what's advertised. In education, they can deliver personalized learning instead of generic content. We are working to expand these AI agent tools into more areas where smart decisions really matter. With that, I will now hand it over to Katherine, who will review our 2024 EAN

Thank you.

Thank you, Ling, and good morning, everyone. I will now go through some of our key P&L items and balance sheet items. As previously mentioned by Olivia, we have improved our revenue mix towards a higher margin offerings in 2024. Revenue from our secure logistics business for 2024 was at $32.4 million USD. representing an increase of 544,000 USD or 1.7% compared to 31.9 million USD for 2023. Revenue growth in Thailand was mainly contributed by our retail-focused service lines, including our Garforce digital machine, known as the GDM, and our cash-in-transit non-DV, known as the CIT non-DV. This year, our GDM products experienced remarkable year-over-year growth of 1.1 million USD, or 39.5%, driven by strong demand from chain retailers. Our CIT non-DV business also saw a notable increase of 351,000, or 3.0%, benefiting from the successful execution of our retail-focused strategy. Also, our company-wide efforts to prudently and deliberately in expense control process has yielded some very positive results for our company. Despite the increase in revenue, our cost of sales decreased by close to 799,000 USD from 30.9 million USD in 2023 to only 30.1 million USD in 2024. As a result, our gross profit increased by 866,000 USD or 16.1% to $6.3 million USD year-over-year. The improvement in gross profit also contributed to our lowest net loss from continuing operations since 2022, which narrowed down to only negative $5.9 million USD, representing a year-over-year reduction of 80.1%. Our operating expense also has marked a significant year-over-year decrease. particularly due to the reduction in selling, distribution, and administrative expenses, which decreased by 20.7% or 2.6 million USD from 12.7 million USD to 10.1 million USD. In 2024, our depreciation and amortization expenses declined significantly, primarily due to the reduced use of our legacy robotics assets as we're transitioning towards an AI-centric business model. Additionally, the professional fees decreased compared to the prior year too, as no acquisitions were completed during 2024. As part of our AI-centric business transitions, as what Ling has mentioned before, we remain focused on controlling expenses associated with our traditional operations, while strategically increasing investments in the AI-related research and development to support our long-term innovation and growth. In 2024, we have invested around 591,000 USD in our R&D, representing an increase of approximately 2.5 times compared to last year's R&D spend of only 170,000 USD. Throughout the year, our R&D team continued to enhance our AI and robotics solutions platform, ICP 3.0. reinforcing our commitment to innovation and ensuring that this platform remains the core platform for our next generation AI solutions. Now, turning to our balance sheet. Our total assets were at 44.7 million USD as of December 31st, 2024. And this includes a strong cash and cash equivalent, including restricted cash balance of 23.4 million USD. Accounts receivable of 5.9 million USD. Other current and non-current assets of 15.4 million USD. Long-lived assets of 7.8 million USD. It now comes to liabilities. The total liabilities were 12.7 million USD as of December 31st, 2024. And these include our trade payables and other current liabilities of 4.5 million USD. operating lease liabilities of $2.3 million USD, and provision for employee benefits of $5.5 million USD. This concludes my comments, and now I would like to turn the call back over to Olivia. Please.

Thank you, Catherine. Next, would you please lead us through the Q&A discussion?

Yes, thank you, Olivia. In our call announcement press release, we suggested interested parties submit their questions in advance We'd like to address those questions for you now. Some questions were duplicative, so we did our best to reconcile those where possible. If you have any questions after the call, please feel free to follow up with Investor Relations, and we'll be sure to respond to you as quickly as possible. First question, how are our revenues currently split among core business lines, and which segments do you expect to drive growth over the next 24 months?

Thank you, Catherine. No, thank you, Matt, for the question. Nexus Business remains the primary driver of revenue and cash flow, accounting for over 80% of the total income. It also gives us a strategic advantage. With more than 25,000 retail clients, we are providing a strong foundation to introduce our AI solutions. Over the next 12 to 24 months, Our key focus will be expanding our air agent platform, starting from the DVGO, and progressively moving into our new verticals, including travel, retail, and education. We expect the DVGO to achieve a progressive adoption milestone that validates the effectiveness of our air agents in improving our decision-making and user certification. To support these goals, We are building a stronger sales and operations team to support future growth. Meanwhile, we are also pursuing a strategic acquisition approach that will complement our core business and AI platform expansion. That's all. Thank you.

Thank you. Our next question is, how does DVGO's revenue will impact the current revenue mix and the profit margin?

Yeah, good question. This links together with the first. Divigo actually is one of our key strategic investments and a major step in advancing our AI agent development. In the short term, Divigo will contribute a small but growing portion of overall revenue, helping diversifying our income from traditional services to more recurring AI-powered revenue streams. Over time, it's expected to become a major contributor. Initially, of course, the margins will be lower due to upfront AI development and customer acquisition costs. However, as CV girls scales, the high-margin software-driven measure will significantly boost our profit margin, offering higher efficiency and lower incremental costs as we expand the business. Overall, BWGO represents a transformational shift in our business model from series-based to tech platform-based business model, enhancing our valuation and position us for sustainable long-term growth in a higher margin and tech-driven future.

Thank you. Thank you. Next question is, are you... Are you able to provide more frequent or segmented financial disclosures to allow for better performance assessment across business lines?

Thank you for the question, Nat. So at this time, we do not have plans to change the frequency of our financial disclosures. However, we do encourage you to visit our website and follow our social media channels for the latest news and updates regarding our product, customers, and business activities. Thank you.

Thanks, Catherine. Our next question is, given the recurring capital expenditures and ongoing net losses, what specific steps are being taken to reduce cash burn?

Okay, thank you for the question. That's a good one. And yes, managing cash flow remains a top priority for us. And in 2024, we made some meaningful progress in reducing our cash burn. And specifically, we steadily increased the revenue while achieving a much healthier gross margin and tighten our cost structure. All of these above helped us significantly narrow down our net loss. And our gross profit margin also reached a historical high of 17%, driven by improvements across all of our business segments and supported by company-wide cost management initiatives, including a very successful manpower streaming line lining projects that substantially reduced direct labor costs for our company. Moreover, in Thailand, our retail focus strategy improved operational efficiency by allowing us to serve a larger client base without additional dedicated resources. We also optimized our business mix, expanding high-margin services, including GDM and CIT non-DB, and reducing exposure to lower-margin services, such as ATM. Since this segment represents 89.2% of the total revenue, these shifts have a very meaningful impact to our overall financial results. Our general security business also remained very stable and achieved a slight gross margin improvement to around 36% thanks to the disciplined cost control. Additionally, our AI-focused transition, which began in 2023, reduced our reliance on legacy robotics and eliminated redundant costs, further boosting our profitability and positioning us for more cash-efficient growth. So in 2024, our net loss narrowed down by 80% to 5.9 million USD, comparing to 29.6 million USD back in 2023. Our Just eVita has also improved year-over-year by approximately 1.1 million or over 61% to only a negative 0.7 million in 2024 compared to a negative 1.8 million in 2023. All of these results further prove that with the steps that I mentioned above, they have helped us slow down the cash burn We remain focused on further improving our overall business efficiency, managing expenses, and driving profitable growth. Thank you. That's all of my answers to that question.

Thank you. Appreciate the answers.

Our next question is, what is the core differentiation of the DVGO AI agent compared to existing travel AI assistance in the market?

Oh, that's a good question. DbGo was created to meet the needs of modern travelers seeking an AI system that understands their purpose, helps them go, suggest options, build plans, and support them throughout the journey. It acts like a true user-centric agent, thinking from the traveler's perspective. Unlike traditional travel platforms that focus on selling products, DbGo begins with the user's intent and purpose, then builds a personalized path to meet their needs. While conventional platforms overwhelm users with information, Divi Go uses a dialogue-driven approach to guide smarter decision making. While traditional tools leave the decision making entirely to the user, often resulting in fragmented outcomes, Divi Go integrates AI to streamline execution and deliver a cohesive experience. In short, I think Divi Go shifts the focus from product pushing to purpose-driven planning using AI to empower smarter, more personalized travel decisions. That's all.

Thank you. Next question is, what IP does GuardForce AI currently own or license, and how is it being protected to maintain a technological edge?

Well, certainly, IP is the key asset, and we care about it. At Jeff AI, we focus on both owning and licensed technology to strengthen our competitive eyes. On the own side, we have deployed several core systems that power our AI solutions, including advanced agent coordination, decision optimization frameworks, and personalized user experiences. On the licensed side, we utilize selected AI foundation models and open source components and a proper agreement to enhance our offerings, ensuring full compliance for commercial use. To protect our technology advantage, we deploy a multi-layered approach. First, we treat critical technologies as internal trade secrets. And second, we modernize our systems to limit exposure risks. And third, we keep a clear separation between what we license and what we build ourselves. so we can control any risks from third-party components. Additionally, we continuously explore patent opportunities to protect innovation as our platform evolves. Overall, our IP strategy is designed to ensure long-term value creation, safeguard our technology eyes, and maintain the scalability and the trustworthiness of our solutions. That's all. Thank you.

Thank you so much. That concludes our Q&A. I'll turn it back over to Olivia for closing remarks. Please go ahead, Olivia.

Thank you, Nat, and thank you to everyone who joined the call today. It's efficiency. As always, we appreciate the support of all our shareholders and look forward to providing more updates with development unfurled. Thank you and take care, everyone.

Thank you, ladies and gentlemen. This concludes today's call. You may disconnect your lines at this time, and we thank you for your participation.