DUG Technology : June 2022 Quarterly Activities and Cash Flow Report

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ASX Release

29 July 2022

Q4 FY22 QUARTERLY ACTIVITIES REPORT & APPENDIX 4C

DUG Technology Ltd (ASX: DUG) ("DUG" or the "Company") is pleased to provide this update on activities and the Appendix 4C for the quarter ended 30 June 2022.

The financial information included in this release is unaudited, DUG's audited Annual Report is expected to be released to the market on 31 August 2022.

Highlights

• The Company won US$11.9 million in new Services projects during the quarter, a 34% increase on a strong quarter Q3 FY22
• Total revenue from external customers during Q4 FY22 was US$8.43 million bringing FY22 revenue to US$33.66 million)
• Underlying EBITDA for Q4 FY22 of US$1.51 million, with FY22 Underlying EBITDA of US$2.79 million
• Operating cash inflows for 2H22 were US$1.47 million with a cash outflow in Q4 FY22 of US$0.79 million, (FY22: outflow of US$1.73 million). Net investing cash outflows for Q4 FY22 of US$0.33 million, (FY22: US$1.50 million)
• Financing cash outflow for Q4 FY22 of $8.04 million was driven by repayments to CBA of US$7.55 million.
• Total cash held at 30 June 2022 was US$2.66 million with net debt (excluding AASB 16 leases) at 30 June 2022 of US$1.84 million.

Operational update

DUG won US$11.9 million of new services projects during the quarter, lifting from an already strong third quarter of contract wins (US$8.9 million). Delays receiving data from some of the Q3 FY22 wins resulted in a softer revenue in Q4 FY22, however together with awards in this quarter, the Services business line is well positioned for the commencement of FY2023.

The Company presented its new Multi-parameter FWI imaging at the European Association of Geoscientists and Engineers (EAGE) conference in June 2022 with significant interest shown by many clients including industry majors. Following the conference, DUG agreed to run a series of trials with several of its customers to showcase the technology following highly successful internal trials. DUG has now won several commercial Multi-parameter FWI imaging projects.

The Software and HPCaaS business lines continue to perform well with revenue growth outside of the oil and gas customers in HPCaaS.

Commenting on DUG's recent operational performance, Managing Director Dr Matthew Lamont said "Significant project awards in our Services Business Line during the quarter, further illustrates the significant oil & gas industry rebound, setting DUG up really well for the new financial year. The momentum is building around our Multi-parameter FWI imaging with all trials completed showing great results together with rapid turnaround times; this really has the potential to transform the seismic processing and imaging market."

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Financing extension

As announced on 30 June 2022, DUG extended its financing facilities with CBA to 1 July 2024. In completing this extension an additional principle repayment of US$7 million was made on the term loan facility bringing this to US$4.5 million at 30 June 2022.

This concluded a long process of negotiations with the bank and alternative parties with a positive outcome reached. Importantly, DUG now has the flexibility to source third party asset financing to support its just in time compute requirements needed for growth.

Revenue and expenditure

Total revenue earned from external customers was US$8.43 million for Q4 FY22. The table below summarises the break-down of revenue across the Company's three business lines:

	Q3 FY22 (US$	Q4 FY22 (US$	Variance Q3	YTD FY22
	million)	million)	to Q4 (%)	(US$
Business line				million)
Services	5.60	5.64	0.5%	23.7
Software	1.41	1.75	24.1%	6.1
HPCaaS	1.21	1.04	(14.0%)	3.9
Total	8.22	8.43	2.6%	33.7

The Services business line performed well in the quarter, however revenues were lower than hoped due to some delays in starting a number of the projects won in Q3 FY22. These projects have all now commenced, and together with strong wins in Q4 FY22, well position this business line into FY2023.

DUG's software business line revenue improved in Q4 FY22 with strong sales recorded particularly in June 2022. The HPCaaS business line performed well, growing in committed use revenue during the quarter, total revenue softened during the quarter following peak usage from one client in January 2022 on a single project. The below graph illustrates the trend in HPCaaS revenue:

Third Party HPCaaS Revenue (US$'000)

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Underlying EBITDA for Q4 FY22 was US$1.51 million. Excluding redundancy costs and non-cash depreciation and amortisation, total operating expenditure during the quarter was US$7.75 million (Q3 FY22: US$7.56 million). The largest component of operating expenditure is payroll and related expenditure, which for Q4 FY22 was US$5.55 million (Q3 FY22: US$5.74 million). This excluded the impact of additional once-off expenditure incurred in relation to staff redundancies of US$0.08 million (Q3 FY22: US$0.09 million).

Cash flow

Cash used in operating activities was US$0.79 million for Q4 FY22 (FY22 YTD: outflow of US$1.73

million) - this includes interest payments of US$0.33 million (FY22 YTD: US$1.3 million). Included within net operating cash flows are non-recurring redundancy payments made during the quarter of US$0.08 million (FY22 YTD: US$1.09 million).

DUG experienced timing differences in its cash flow from operations with some debtors deferring payment until early July 2022 and the repayment of previously deferred salary payments to certain staff members during the quarter, together with the cessation of furlough arrangements following strong contract wins in Q3 FY22.

The Group's cash flows from operations for the second half of FY2022 were positive at US$1.47 million.

Capital expenditure of US$0.33 million during Q4 FY22 (FY22 YTD: US$1.5 million) is in line with the Company's traditional "just in time" approach to adding additional compute and storage capacity.

Loan repayments amounting to US$7.55 million were made to CBA during the quarter, including a repayment of US$7.0 million made at the end of June 2022 to facilitate the extension of facilities.

At 30 June 2022, total cash held by the Company was US$2.66 million, a net decrease of US$9.12 million compared to 31 March 2022.

This ASX Announcement has been approved for release by the Board of DUG Technology Ltd.

ENDS

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For more information:

DUG Technology Ltd

T. [phone]

DUG Investor Email: [e-mail]

DUG Investor Centre: www.dug.com/investor-centre

About DUG

DUG is an ASX listed technology company, headquartered in Australia, that specialises in analytical software development and reliable, green, high-performance computing (HPC). The company is built on a strong foundation of applied science and a history of converting research into practical, real-world solutions. DUG delivers innovative software products and cost- effective, cloud-based HPC as a service backed by bespoke support for technology onboarding. DUG's expertise in algorithm development and code optimisation enables clients to leverage big data and solve complex problems.

DUG is a global company with offices in Perth, London, Houston and Kuala Lumpur, supporting a diverse industrial client-base that includes radio-astronomy, biomedicine and meteorology, as well as the resource, government and education sectors. DUG designs, owns, and operates a network of some of the largest and greenest supercomputers on Earth. The company continues to invest and innovate at the forefront of software and HPC, working towards a climate-positive future.

To learn more, please visit www.dug.com.

Rule 4.7B

Appendix 4C

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

Name of entity
DUG Technology Ltd
ABN	Quarter ended ("current quarter")
99 169 944 334		30 June 2022
Consolidated statement of cash flows	Current quarter	Year to date (12
	$US'000	months)
		$US'000

1. Cash flows from operating activities

1.1

Receipts from customers

7,843

34,669

1.2 Payments for

	(a)	research and development	-	-
	(b)	product manufacturing and operating
		costs	(834)	(4,333)
	(c)	advertising and marketing	(455)	(1,055)
	(d)	leased assets	-	-
	(e)	staff costs	(6,342)	(26,009)
	(f)	administration and corporate costs	(535)	(2,526)
1.3	Dividends received (see note 3)	-	-
1.4	Interest received	-	-
1.5	Interest and other costs of finance paid	(325)	(1,308)
1.6	Income taxes received/(paid)	(64)	(82)
1.7	Government grants and tax incentives	-	-
1.8	Other (provide details if material)	-	-
	Non recurring redundancy costs	(76)	(1,089)
1.9	Net cash from / (used in) operating	(788)	(1,733)
	activities

2. Cash flows from investing activities

2.1 Payments to acquire or for:

(a)	entities	-	-
(b)	businesses	-	-
(c)	property, plant and equipment	(300)	(1,320)

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