Sovereign Cloud : Quarterly Activities/Appendix 4C Cash Flow Report

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ASX Announcement (SOV)

19 January 2022

Appendix 4C Release - Quarter to 31 December 2021

Sovereign Cloud Holdings Limited ("SOV", the "Company"), trading as AUCloud, is pleased to provide its activity update for the quarter ended 31 December 2021 ("Q2FY22").

SOV also released its Appendix 4C today.

Key Highlights - Q2FY22

• Cash of $40.6 million at 31 December 2021, following the successful capital raising of $35 million
• NEXTDC Limited (ASX: NXT) is AUCloud's new Partner and strategic investor (19.99%)
• Craig Scroggie, CEO and Managing Director of NEXTDC has now joined the Board
• Work is already underway for platforms to be deployed in Brisbane
• New Federal Govt legislation around critical infrastructure will create opportunities
• IaaS revenues of $1.07 million during Q2FY22
• TCV Closed of $2.52 million during Q2FY22, with TCV Outstanding of $6.6 million at 31 December 2021

Revenues

AUCloud generated $1.07 million in IaaS revenue during Q2, a slight increase on the Q1 result. The impact of the lengthy Covid-19 lockdown period continued to be felt in Q2, with project designs taking time to regain momentum and convert into revenues.

Total Contract Value

TCV Closed during Q2 was up $1.04 million (119%) on Q1 to $2.52 million, which largely related to nine (9) contract extensions. AUCloud also secured two (2) new direct contracts with government agencies and one

(1) new contract via a partner. A summary of the key TCV metrics are as follows:

		Summary of TCV Metrics			Q1FY22			Q2FY22
				$'m			$'m
		Opening Total Contract Value (TCV)	5.96		5.77
		Add:	Closed TCV			0.87			2.52
		Reduce: Terminated Contracts						(0.61)
		Less:	Revenue recognised			(1.06)			(1.07)
		Closing TCV Outstanding			5.77			6.61

Late in Q2 the Company was advised of a decision by its long-term customer ANU, to revert to pre-COVID operational practices, which would result in winding down of the virtual desktop program. This impact has been included in the TCV Outstanding at the end of Q2FY22.

AUSTRALIAN ● ASSURED ● ACCOUNTABLE ● AMPLIFIED ● AGILE ● ALIGNED

__________________________________________________________________________________________

Sovereign Cloud Holdings Ltd	Level 38, Central Plaza One
ACN: 622 728 189	345 Queen Street
W: australiacloud.com.au	Brisbane, QLD 4000

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Cash Flow

Cash receipts from customers were $1.12million in Q2FY22. Net cash outflow from operations in the period was $2.48million, largely reflecting employment costs.

Capital expenditure payments during Q2FY22 totalled $0.54million. In line with the strategic partnership and investment from NEXTDC, SOV expects to continue to strategically invest in the expansion of its national AUCloud footprint, which it expects will drive future growth.

CEO Commentary

The team was very pleased to be able to return to face-to-face meetings with customers and partners after the extended lockdown and is looking forward to continuing to build on that momentum in Q3. We are cognisant that with a Federal Election taking place in the first half of 2022, our sales focus during this period will need to intensify on state government, critical national industry and enterprise. We are excited about the opportunities emerging in these areas via our new strategic relationship with NEXTDC.

Strategically, the quarter was underlined by the investment by NEXTDC and the related successful entitlement offer to raise $35m. The investment will not only underpin development of operational platforms in Queensland, Victoria, and South Australia to complement our existing footprints in ACT and NSW but also trigger more rapid expansion into the wider industry sectors. The technical team have work underway on the first of the platforms which will be deployed in the Brisbane NEXTDC environment and is targeted for completion in the first half of calendar year 2022.

Most notably, the Company looks forward to the anticipated opportunities arising from the new Federal government legislation passed during Q2 around protecting "Critical Infrastructure and Systems of National Significance reforms", which extended the formal number of industry sectors designated under critical infrastructure legislation from four to eleven including: communications; financial services and markets; data storage or processing; defence industry; higher education and research; energy; food and grocery; health care and medical; space technology; transport; and water and sewerage. These sectors, along with a growing range of security conscious enterprise organisations with increased awareness of cyber security risks, will likely begin to transition their security practices to align with that of Federal Government; an area where AUCloud remains one of the leading sovereign cloud practitioners.

The Company today announced a strategic partnership with Arqit to support the development of Sovereign QuantumCloud™, with AUCloud providing underlying infrastructure and accredited environments to Government, Defence, Space and Enterprise deployments in Australia.

_______________________

Philip Dawson Managing Director

AUSTRALIAN ● ASSURED ● ACCOUNTABLE ● AMPLIFIED ● AGILE ● ALIGNED

__________________________________________________________________________________________

Sovereign Cloud Holdings Ltd	Level 38, Central Plaza One
ACN: 622 728 189	345 Queen Street
W: australiacloud.com.au	Brisbane, QLD 4000

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Appendix A

Operating Metrics Defined

Summarised below are new operating metrics adopted by management for measuring the progress of business:

• Total Contract Value (TCV) is the total value of expected revenue from estimated consumption of Infrastructure-as-a-Service (IaaS), services secured through non-enforceable customer contracts (e.g. purchase orders, statement of works). Invoices are raised typically on a monthly basis against these contracts based on actual customer usage. Such contracts generally form part of a larger contractual scope that is less defined but provides overarching commercial terms (e.g. Master Services Agreements, Channel Partner Agreements, Teaming Agreements). As such, TCV provides an estimated of the total IaaS consumption expected by a customer over a defined time period, typically 12 months.
• TCV Closed in any period is the aggregated revenue associated with all signed commercial contracts in that period.
• TCV Outstanding is the remaining aggregated balance of all signed contracts at a point in time, net of any consumption utilised to date recognised against the respective contracts.
• IaaS Consumption is the revenue recognised based on the aggregated consumption of IaaS services, including contractual implementation, consulting and setup charges. In the Company's experience it is reasonable to expect IaaS Consumption to be repeated in subsequent periods. Quarterly IaaS Consumption (QIC) and Monthly IaaS Consumption (MIC) are terms that are also used referring to the relevant period.

AUSTRALIAN ● ASSURED ● ACCOUNTABLE ● AMPLIFIED ● AGILE ● ALIGNED

__________________________________________________________________________________________

Sovereign Cloud Holdings Ltd	Level 38, Central Plaza One
ACN: 622 728 189	345 Queen Street
W: australiacloud.com.au	Brisbane, QLD 4000

For personal use only

Appendix B

Use of Funds - ASX Rule 4.7B

The Company is required to provide analysis of its expenditure since the date of its ASX listing (14 December 2020) and a comparison of actual expenditure against the estimated amounts set out in the "Use of Funds" section included in the Prospectus (Section 7.3). Actual cash expenditure post ASX Listing is shown below, together with a comparison of total estimated amounts included in the "Use of Funds" section in the Prospectus.

				Estimated			Actual Incurred
	Use of funds			Total per			$ million
			Prospectus			Total FY21			YTD FY22
				$ million
	Customer growth capex			9.3			0.5			0.9
				3.1			1.8			2.0
	Lease Liabilities
	Increase in headcount			2.7			0.6			0.3
	Working capital			9.7			4.6			3.7
	Offer costs			1.7			1.6			-
	Total uses			26.5			9.1			6.9

Cash expenditure post ASX Listing is intended to be used to fund the following:

• Customer Growth Capex: AUCloud's operating model requires ongoing investment in computer and storage capacity to meet customer demand. As revenue grows, platform capacity will need to be expanded. Cash raised from the IPO will be used to fund estimated platform capacity expansion in 2021 and 2022 in accordance with growth in demand.
• Lease Liabilities: The lease finance facilities were used to develop the second cloud platform based in the Sydney Data Centre and each facility has a term of three years. Cash raised from the IPO will be used to fund lease payments while the Company grows its revenue base.
• Increase in Headcount: The Company's activities are forecast to expand as customers are on- boarded, which will require additional service and support as well as an increase in the sales and marketing team to continue to grow the revenue pipeline. The Company also intends to proactively market its services to State Governments, Defence and Research Organisations, through additional sales and marketing personnel.
• Working Capital: As an IaaS provider, and currently positioned at early revenue stage, AUCloud expects to incur losses until monthly revenue meets and exceeds cash outflows from operations. Cash raised from the IPO will be used to fund the Company's working capital requirements during this period.

AUSTRALIAN ● ASSURED ● ACCOUNTABLE ● AMPLIFIED ● AGILE ● ALIGNED

__________________________________________________________________________________________

Sovereign Cloud Holdings Ltd	Level 38, Central Plaza One
ACN: 622 728 189	345 Queen Street
W: australiacloud.com.au	Brisbane, QLD 4000

For personal use only

Rule 4.7B

Appendix 4C

Quarterly cash flow report for entities subject to Listing Rule 4.7B

Name of entity
Sovereign Cloud Holdings Limited
ABN	Quarter ended ("current quarter")
80 622 728 189	December 2021
Consolidated statement of cash flows	Current quarter	Year to date (6
	$A'000	months) *
		$A'000

1. Cash flows from operating activities

1.1	Receipts from customers	1,116	2,210
1.2	Payments for
	(a)	research and development	-	-
	(b)	product manufacturing and operating	(944)	(1,492)
		costs
	(c)	advertising and marketing	(122)	(182)
	(d)	leased assets	-	-
	(e)	staff costs	(2,048)	(3,843)
	(f)	administration and corporate costs	(402)	(904)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	2	6
1.5	Interest and other costs of finance paid	(83)	(171)
1.6	Income taxes paid	-	-
1.7	Government grants and tax incentives	-	376
1.8	Other (IPO costs expensed)	-	-
1.9	Net cash from / (used in) operating	(2,481)	(4,000)
	activities

2. Cash flows from investing activities

2.1 Payments to acquire or for:

1. entities

(b)	businesses
(c)	property, plant and equipment	(542)	(925)

1. investments
2. intellectual property

(f) other non-current assets

ASX Listing Rules Appendix 4C (17/07/20)	Page 1
+ See chapter 19 of the ASX Listing Rules for defined terms.