Acusensus Limited (ACE) Earnings Call Transcript & Summary

Good morning, and welcome to Acusensus' First Half of Financial Year 2025 Results Presentation. Presentation up on your screen has been released to the ASX this morning. I'm pleased to introduce Alexander Jannink, the company's CEO and Founder; and the company's Chief Financial Officer, Anita Chow. Before hand over to Alex to go through the presentation I'll just remind you that you can submit a question through the Q&A button at the bottom of your screen where alternatively if you then ask you can raise your hand and then I'll allow you to ask question. Alex, I'll hand over to you. Thank you.

Thanks, Simon, and thanks, everybody, for attending this presentation today. Quite a lot of the content today has been pre-reported through the quarterly. So this is the first opportunity we've had to present since December. I think it's been a really fantastic half year for Acusensus, and you'll see that through the presentation just how strongly positioned we are for the second half and for the financial year '26 to come. So today, we'll take you through the first half results, and business operations updates and then the outlook before going to Q&A. So just as a reminder, Acusensus is a global pioneer in road safety enforcement. We have a mission to provide life-saving solutions for the fatal 5 dangerous driver behaviors. And we've been first in the world of providing solutions to several of them. So through this presentation, we'll take you through the key reasons why first half FY '25 was so significant for Acusensus. This includes securing the pioneering new contract in West Australia, the major new nationwide speed enforcement contract in New Zealand, the significant expansions and/or renewals, particularly in New South Wales and Queensland, the continued offshore growth in the key markets of the UK and the USA and then progression of brand new technology solutions such as the Road Worker Safety solution. Essentially, we've made strong progress in every pillar of our long-established and communicated growth strategy throughout this half. The summary of the half is that we saw strong growth in contracted business through new sales wins. We have a 16% revenue growth compared to the first year of the previous financial year. Some higher gross profit margins there, so 23% gross profit growth, and that's mostly attributed to a shift in mix from speed enforcement to more advanced AI-based enforcement. We saw incremental EBITDA growth of about 8%, and that was moderated by the increased investments that we're making as we're focused for the long-term in those growth initiatives such as offshore business development and in new product lines such as roadwork safety technologies. Of course, we have no debt. We have a very significant cash balance, which provides ample capital for the plans ahead despite a record half of new product builds to service the anticipated demand ahead of us. So I thought we'd include this graph this half year. So the pace at which we've secured new future work this half was quite breathtaking actually. In the past 6 months, the company has secured as much new business as it secured in its whole first 5 years of operation. So if you include the anticipated value of the New Zealand contract, in the first half year, we added $151 million to total contract value. And pleasingly, this growth was diversified with the majority of the new total contract value coming from across 4 different major clients. So that really does set us up very well for the future to have such a strong amount of revenue contracted multiple years ahead of time. I'll switch now to the sector-by-sector business operations. So when we look at Australia, we're a very significant player in the track enforcement market in Australia. And having pioneered phone enforcement with the world's first deployment in financial year '19, Acusensus now supplies the majority of states and territories with phone enforcement technology. It's important to recognize that many of our contracts grow over time, most notably the Queensland and New South Wales mobile phone enforcement programs, both grew units progressively over the initial years. We're seeing that seatbelt enforcement is becoming increasingly common and is becoming the sort of standard across Australia now with New South Wales having contracted us from the start of this financial year to activate the seatbelt enforcement module. So of our contracts, just South Australia and the ACT don't yet enforce the seatbelt. The West Australia contract that we secured this half is really pioneering in several ways. And I think this contract will set the new gold standard in enforcement for driver behavior change and road safety. There's 2 key parts to that. One is the multifunction nature of it in being the first one to actively deploy mobile phone enforcement, enforcement speed enforcement, average speed enforcement, all in the same unit and the same transportable technology. And that's something that we've been working steadily almost since the inception of Acusensus to do and for that to become the standard in enforcement. It's also setting a standard in transportable point-to-point or average speed enforcement being the first state to my knowledge that has active transportable average speed enforcement. And that's something that all of the states will be looking at very, very keenly. So as we've done since the inception of the company, we're really helping our customers pioneer in new approaches to traffic enforcement and traffic safety. Several years ago, we conducted our first pilot for phone enforcement in Auckland in New Zealand. But one of the key things that was occurring within the New Zealand market was that there was the transfer of speed enforcement from the police agency, New Zealand police across to the transport agency, NZTA. And with the award of this tender, with New Zealand has now completed or is completing a major piece of work in that transfer from police to transport. Very, very pleased that we've been selected as the nationwide supplier for transportable speed enforcement. That's both cars and trailers. And we're working very hard to mobilize that contract. At the moment, we have staff in New Zealand. We have premises already in New Zealand. We even have cars and cars being fitted with speed enforcement equipment as we speak in New Zealand. The pace of that rollout is still a little bit yet to be determined. We'll learn a little bit more through the half as to how many units are active in this financial year and how many then go active into the next financial year. And obviously, once we have completed the rollout of speed enforcement, hopefully, NZTA will have some capacity to start considering some of the other behavioral challenges on the road such as enforcement and [indiscernible] . So the other key international growth markets for us are the United States and the United Kingdom. We've had steady progress in both those markets and including some really key milestones, important milestones for the future. Over in the U.S., we had 2 new U.S. state-level contracts go live in the half, those being Georgia and Arkansas, and we also had our existing state-level contracts in North Carolina renewed. We are in ongoing discussions with other states who have received similar funding grants for the use of our technology for commercial motor vehicle enforcement. The time frames for those are basically the same or similar to what we've experienced in past programs, such as the North Carolina and Georgia program. So nothing really unexpected there. Unfortunately, some of these things do take some time to come to fruition. But in a really significant market opening step, we had our first community level policing program start in Minnesota, and there was also some really great media off the back of this. And that's key for a couple of different reasons. This is the first ongoing program to deter passenger vehicle drivers from using their phones as opposed to commercial or heavy vehicle drivers. And the other key reason is that this isn't a state-level deal. This is a community level deal. So it's roughly the 50 states in the US to target and almost 18,000 communities so it's a different market segment that we're now proving out and opening up. In the UK we had that major first step of having the first ongoing enforcing customer in the half and there's been several other counties that are making positive moves towards also using the force of technology and including some public disclosures to the media. And also just showing some of our great relationships and development in the UK, we're very pleased that Devon & Corn will support the first ever real world testing of our impaired driving work. It is important to just recognize how the US and UK markets differ but as we've always said, it's really important to get that first customer doing the same for the first time and then allowing a little bit of time for the rest of the market for adjacent states or counties to look at that, see the results and to then work out how they can adopt the technology as well. The media we get in the UK is really spectacular and we're now also, particularly with this Minnesota deployment, have good summer media coverage in the US as well so it's very pleasing to watch that development. On the roadwork of safety technology, again this we anticipate will be a significant revenue stream for the company in the future. We've made very strong progress towards our goal of a successful commercial launch of the solution this calendar year and that includes the ongoing deployment and evaluation of our prototype units in multiple states with real road crews which has secured the long-term initial contract on the commercial release of that before it's actually been released to market. So the moment that that is technologically ready, that will get deployed which is fantastic to have that commitment already but to spend a lot of time and effort proving and developing the new features and technology and in particular the cloud reporting and data services which we've found that the client so desperately need and we've been growing the team and appointing key personnel. So really building all the foundations for a commercial launch probably in the second half of this calendar year. We have seen that really demand is, we don't consider demand to be the issue on this solution line. We've had a lot of organizations approaching us for the solution before we've actually even started to market it but we are making sure that the tech is absolutely fit for purpose and so then like I said we expect to release that virtually in the second half of the year and do remain at the view that this will be a very large part of the active census business in the future and a good rival or exceed the enforcement side of the business. We have been progressing technology on a number of other fronts closely aligned to our core IP in enforcement and you can see the different applications of that on this slide. I'm going to hand the mic over to Anita and she can run through some of our pristine numbers.

Thank you Alex. You've seen this slide previously, a version of this, both pleasing to deliver continued top line growth and you can see the step change between FY24 and FY25. When new contract wins secured this year and the opportunity is ahead of the business from a product and geographic perspective, we are confident that the business will show continued growth for some time to come. Growth profit has also grown in line with revenue growth with the gross margin of the company driven mainly by product mix. This slide provides an overview of our financial performance for the first half of FY25 compared to the prior year. Revenues increase 16% driven by new contracts including the full 6 month contribution of South Australia distracted driving, contract expansion such as New South Wales adding seat belts to the motorboat line contract as well as additional units for Queensland speed and distracted driving contracts. We also saw international growth and inflation based increases in selected contracts. Growth margins expanded 230 basis points to 47.3% as a result of changes to product mix and improved margins from the US business. EPA pre-share based payments expense increased 8% to $3.4 million. When the business benefited from higher growth profit, this was partly offset by lower other income and higher operating expenses as a business invested to support growth. After share based payments expense, EPA declined 1% mainly because share based payments expense increase which was due to infinite pet count and the changing nature of instruments for long term incentives. On this slide, we wanted to provide more color to the market on the key drivers of our revenue growth. The first chart shows the revenue growth split into Australia and international. Australia still makes up a majority of group revenues, the international grew 46% year-on-year and now contributes 6% to group revenues. We expect this to go to further increase as the New Zealand mobile speed contract goes live. The second chart provides some color on how revenue changes amongst our customer base. Our business is made up of an existing customer base where we can see changes to scope either through increased units or taking up additional modules such as seat belt. This is also supplemented by new contract rooms. For this task, the changes to existing contracts was bigger contributed to the changing revenues but this is likely to shift next year. The business has also seen a small component of one of the projects which are non-recurring in nature. I'll turn to the next slide. From a balance sheet perspective, we had the first task of FY25 for the strong balance with no external debt and a cash balance of $30.3 million including term deposits. From a working capital perspective, you can see that trade and other payables increased by $2.3 million but the majority of this increase was half year-end timing related with supplies paid in January. There wasn't a large growth in receivables by increasing revenue mainly due to the number of international customers preferring to front load their payments. As a result of the need to mobilize new contracts and contract expansions, you can see an increase in inventories and fixed assets on the balance sheet. Moving to FY20 which shows our cash flow performance. The business delivered positive operating cash flow of $6.3 million for the first task. This was $5.8 million higher compared to the prior year with the key differences due to the changes in working capital. The business forward to performing cash inflows from changing working capital, driven by increased entry payables which is temporary, the business also saw greater proportion of customers paying upfront for annual contracts and mobilization payments. From an investment perspective, there's been an increase in payments for property plan and equipment to help meet asset requirements for contract expansions and new contracts. Payments and changeables mainly represent worldwide employee costs. The business continues to invest in design and development of existing and new products which is important to future growth. I will now hand it back to Alex.

Thanks Anita. So just to recap some of those major themes for our consensus. The foundation of this business is the well-established and profitable Australian enforcer business which continues to see growth opportunities particularly given the existing contracts tend to expand over time and we've had a number of recent wins as well. We have a validated international growth strategy that's playing out in markets that are much larger than Australia. We've seen continued traction in taking our technology to the USA and the UK and now New Zealand is set to become a major customer of Acusensus. The R&D activity of the business continues at pace with a long-term mindset with several new growth product lines in development including significant pioneering ones like the worker safety product line. The company has scaled consistently without major indigestion even securing major international accreditation such as our quality and hyper accreditation and having a strong dependable cash decision. As we look towards the full year, we expect to see revenue growth in the second half, expenditure growth in the second half given the major mobilization activities and increasing investments in growth initiatives. Regarding financial expectations, there is some uncertainty given the key contract in New Zealand and also other anticipated contracts in the USA and the UK with respect to timing and that has an uncertain pace for mobilization. So, we're, therefore, forecasting a broader range of about $58 million to $61 million of revenue for the full year and EBITDA before share-based payments in the range of $4.3 million to $5.5 million for the full year. We expect to see significant top-line growth in financial year '26 given what's already contracted. And we'll continue investing in growing the business for the long term in new products and geographies. So, I'm very pleased and excited by what we've achieved this half and where we can go over the next few periods. With that, I'll hand back to Simon for a bit of Q&A. Thanks for your attention.

Great. Thanks, Alex, and thanks, Anita. I'll kick off the questions. Just with regards to the road worker safety products, how much interest is there outside of Fulton Hogan? I know you discussed it, but just a bit more detail?

There's quite substantial interest. I mean I won't name-drop some of the other parties, but there are other major Tier 1 contractors that have approached us, as opposed to approaching them for problems that they're seeing with safety in their sites. Traffic management companies have approached us. We are a member of the Traffic Management Association of Australia. Word has got that internationally as well. We've had people in the United States approach us, for example, in particular. And I should mention that there is a phased approach to release this product to market for us. So, Australia will be released first and then the U.S. would be a subsequent release. But that's just like a little taste for a teaser of the multiple different organizations that have approached us and a lot of this is word of mouth. that's occurring at the moment.

Thanks, Alex. When might the service delivery statement of work with NZTA expected to be formally contracted?

The expectation, don't hold me to it, will be sometime during this financial year, probably closer to the end of the financial year.

Okay. And what are the projected upkeep costs of trailers and fixed locations? And is this factored into the current contracts? Or is it paid for [indiscernible]?

Sorry, is there any more context to that question, like a reference client.

No, just I think basically just the cost base in terms of upkeep on trailers and fixed locations.

Yes. I guess there is maintenance costs for the trailers, which is just incorporated into the contract price.

Perfect. Despite there being only one official contract in the U.K., I believe there's up to 10 police counties trying A consensus tech for enforcement. What do you think the correlation is between that and an actual contract?

So I'll start with let's say, 43 sort of key target customers for us in the U.K. being in each of the counties with our current approach to market. I think counties that have trialed the technology already are in a better position to then go into longer-term contracts. So, it is important to us to develop and work with the counties that have already piled it and test it. But we are also seeing quite a lot of interest even from counties that haven't yet experienced it. So, I think we'll see an increase in the number of counties that experience the technology for the first time. And then obviously, over time, what we're trying to do is work with the counties who have then trialed it to go into ongoing longer-term programs. And I think given where the environment is at, it's more of a case of when rather than if. It's unfortunately just government bureaucracy. Some of these things do take time to go across the line to start a brand-new enforcement in a new jurisdiction.

Great. Can you elaborate on specifically what you mean by uncertainty in the New Zealand contract?

I'm only talking about timing with respect to uncertainty. So, we're in constant discussions with our clients in New Zealand with NZTA. We have a good working relationship, and we're making a lot of progress. Obviously, they've given the mobilization payment upfront to ensure that the time frame keeps progressing quickly and that we keep doing things like we're doing, which is getting premises, getting key executives and people within starting to build cars and trailers, which is exactly what we're doing. But it's more of the case of what we don't know is the very final numbers on how many cars or trailers will be in each location within the country. And that's still taking some time, but we're working with NZTA to finalize that and then how many of those assets go live on which particular days or months rather than days. So, when I talk about uncertainty, I'm really talking about those lower-level details. I'm not talking about the high level of how much investment is going to happen.

Great. Thanks, Alex. What does substantial top line growth in FY '26 imply? Is 25% plus reasonable?

I don't think we're in a position to release guidance already for FY '26. We've released the guidance for FY '25 at this point in time.

Perfect. Maybe Alex, if you can just talk about with regards to percentage of the revenue raised by clients, Acusensus has no part in that, if you could just break that down.

Yes. So, we operate a service business. So, we have paid essentially a fixed monthly fee to provide cameras, deploy them where the government wants us to deploy them, operate them, maintain them, do first levels of human review and to deal with any other sort of support requests associated with that. For us as a business, we're quite mission-driven. So we want to catch actually the least number of people possible because that will mean that we've achieved our goal of having compliance on their own network. It's up to the government as to what they want to do with the data that we provide them in terms of enforcement and client consumption. We receive no percentage whatsoever of.

Great. And if road worker safety could potentially be as large as enforcement, how might the road worker safety financials compare with enforcement in respect to, say, capital investment and margins?

I don't think we're probably in a position to really comment on that at this point in time, I'm sorry.

That's right. Do you have the exact number of units currently in market?

We would know that. I don't know it off the top of my head, though, I'm sorry.

Just with regards to the New Zealand Speed contract, does that allow for the rollout of mobile and CPL enforcement if it's required? Or how does that process work?

That would be a totally separate process up for New Zealand Transport Agency to conduct and explore. But obviously, as the world's leading provider of mobile phone seed enforcement technology and believing that it will make a difference and will save lives, it's definitely something on our list of things to talk to the New Zealand government about and to encourage them to adopt such technology. But that is not part of the contract that we have with New Zealand. That is only for speed enforcement.

Great. And just a question with regards to the DOT federal funding cuts in the U.S. business. Have you seen any impact or expect any impact there?

Up to now, we've seen no impacts on any of the programs that we're running. The ground cycles for us, most of it comes from the U.S. Department of Transportation, which I don't think it's had anything significant happen to it. I mean I haven't checked the news in the last 2 hours, but yes, the funding grants are appropriate for a number of years for us still.

Perfect. Can you just explain why you're conducting the impaired driving trial in the U.K. rather than Australia?

We had been discussions with police agencies in both the U.K. and Australia, and it just so happened that the U.K. was willing to move on it quicker and allow us that ability to have access to police offices and to conduct it in real-world policing operations. is just getting a little bit harder to navigate through the bureaucracy of some of the Australian agencies. So, it's just a timing thing that U.K. move faster and we have people on the ground and operations in the U.K. that one of the advantages of being an international business to take advantage of those opportunities.

And just along the lines in terms of product development and new pipeline, is there anything else outside of road worker safety and mobile phone cameras that are already in the field such as driver impairment, et cetera?

I think everything we've got in the field has been disclosed in the presentation deck.

Perfect. I know there won't be an update, but just a question regarding an update to the patent infringement proceedings.

Yes. That's a matter before the course. It's something that we're really going to comment on. I think you can see some of the timelines publicly available. So, it's due in course somewhere towards the end of the year, I think, from memory.

That concludes the Q&A segment. Alex, I might just hand it back to you to close up.

Thank you. Some really great questions there, really put me on my toes. So, I appreciate that level of engagement. I think for me, it's just really strong half year, such incredible total contract growth in this year. We really secured a lot of new business through the last 6 months that sets us up for the next few years even. And that's all while progressing technology and a number of other areas for the future, too. So pretty exciting half year, looking forward to seeing what we can do in the next couple of years.

Great. Thanks, Alex. Thanks, Anita and thanks all for attending.