AoFrio Limited (AOF) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to AoFrio's FY '25 Results Presentation. On the screen now is our safe harbor statement. I'll give you a moment to read it. As always, during the discussion, we may discuss forward-looking statements, and these reflect our views and expectations, but actual results may differ due to a range of risks and uncertainties, but I'll give you a moment to read the statement before we start on the agenda. Well, good morning again. I'm Greg Balla. I'm the CEO of AoFrio. And joining me today is our Board Chair, John Scott; and our CFO, Howard Milliner, is also on the call. For our agenda today, I will take you through a look at our FY '25 results, and I'll give you an update on our progress on our strategy through FY '25. I'll then hand over to John Scott, who will provide -- give an update on the discussion around the status of our funding our growth plan and share commentary on our outlook. At the end of the presentation, we will have time for question and answers. [Operator Instructions] And we'll get to those questions at the end of the presentation. For FY '25, AoFrio delivered revenue of $83.2 million. That's up 4.4% on last year and a new record for the company. This was slightly below our updated guidance due to reduced motor demand in Q4 following the introduction of the U.S. import tariffs. What was really pleasing was our IoT business performed strongly with revenue up 8.9% to $47.1 million with a gross margin of 42.5%. Our Motors revenue remained steady at $36.1 million with a gross margin of 17.7%. Overall, our gross margin increased to 31.7% compared with last year, reflecting the favorable shift in mix towards our IoT products. EBITDA improved $1 million to $3.5 million, in line with guidance. Throughout the year, we continued to reinvest our operating cash flows in new product development, which enabled us to launch several new products during the year. One of the areas that we are most proud is around our customer focus. We remain the only provider in the cold-drink equipment market with in-field teams helping our customers unlock value from their IoT investment. Our Net Promoter Score increasing to 62 reflects this commitment. We also saw a lift in our staff engagement, which is essential in a competitive talent market and is critical to ensure our teams are engaged and equipped to deliver for our customers. These results overall give us confidence heading into FY '26, where we see significant opportunities for growth as adoption of our new SCS 800 cellular controller and our AoFrio iQ SaaS platform increases. Last year, we began reporting our SaaS metrics for the first time, and these continue to give us a clearer view of the value we are building across our platform. Starting with the Rule of 40. This declined compared to FY '24, primarily due to the lower growth rate. However, over time, we expect this to improve as a percentage of our recurring revenue increases, and we expect the all segment number to move towards 20% over the next few years. Our recurring revenue, which represents the proportion of our revenue generated from our software and data services increased to 3.8% of our total revenue. Importantly, we now have $17.8 million of software revenue sitting on our balance sheet as deferred revenue to be recognized in future periods, up from $16.5 million last year. App utilization, which measures how often customers interact with our software, increased by 25% year-on-year. This is a strong indicator of our product-market fit and the growing reliance customers have on our platform. We also saw an increase of 23% in terms of the number of devices connected to the AoFrio cloud. This is a critical metric for us. The more devices connected, the richer the data set we have that we can use to generate insights and automate actions and ultimately deliver more value to customers. So overall, a really pleasing set of results for the year. Just moving on to a bit of commentary about our regional performance. Our North America region, which is our largest region, grew 8.2% year-on-year, supported by our first shipments of IoT solutions into the U.S. and a strong demand for the new -- our new motor applications. South America returned to a more typical trajectory for IoT after an unusually strong demand in the prior year. Overall, revenue declined, reflecting softer CDE demand across the region. EMEA, which is today is primarily a motors-driven business, declined due to aggressive competition around pricing. However, we are already seeing this trend reverse in FY '26 as we win back share. In APAC, we delivered strong growth. Our investment in regional sales capacity and capability is paying off with contributions from the sales of new motor applications, our first food retail solution and encouraging momentum from our CDE IoT solution. So now I'll just take a few minutes to talk through our strategy execution for FY '25. As we have consistently talked over the last few -- lots of these sessions, we have 3 core strategies: protect and grow our core markets, diversify into adjacent segments and transform our foundations. So firstly, protect and grow the core. In FY '25, we launched 2 major innovations, the SCS 800 controller and our AoFrio iQ with early-adopter customers. The SCS 800 is a new cellular connected controller designed specifically to help us enter the U.S. and European markets for our CDE IoT solution. Together, these market represents a new build opportunity of 700,000 units per year at more than double the revenue per unit compared with our existing Bluetooth products. The controller enables 2-way communication with our cloud platform without the need of field visits. This substantially increases the value we can deliver. For example, we can remotely access coolers, adjust control settings and perform diagnostics without anyone needing to attend the cooler. The SES 800 is progressing through customer testing and certification, and we expect to see sales in FY '26. Alongside this, we released our first version of AoFrio iQ, our modernized SaaS platform. AoFrio iQ is where customers interact with their fleet, access insights and manage machine learning-driven actions. We have a strong pipeline of customers waiting for the general release, which we expect to start from around April. We also expanded our Motors portfolio by launching new fan packs and new solutions to support new applications. Moving on to diversify, or diversify our market segments. Alongside strengthening our core market, we continue to make progress on our diversification segments, particularly into Food Retail. In FY '25, we supported 2 early-adopted Food Retail customers as well as 2 additional pilot customers, while completing the first general release of our Food Retail software. We also see continued opportunity in the Fresh and Frozen Foods segment. We used to call this the ice cream segment, where customer pain points around asset visibility, uptime and energy efficiency are very similar to those in the cold-drink equipment. We have 2 customers already in this segment, and they are progressing well. Our progress this year gives us confidence that these adjacent markets can become a meaningful contributor to the recurring revenue over time. Just in terms of transforming our foundations, I thought today, we'd talk a little bit about the progress we're making around AI implementation at AoFrio. We are now moving beyond experimentation into structured implementation across the organization. We have the right governance in place. We have built employee capability through our AI academy and Ambassadors, and we have released new AI agents that are already improving productivity across teams. We have introduced Amazon Q Developer to accelerate coding and support our development teams. From a product perspective, we are also well placed. Over the last 10 years, we have built the industry's largest cooler performance data set and are the only supplier in the market who can connect data insights and actions to controlled coolers. Today, we have machine learning algorithms that can predict when a cooler will break down and why. We are continuing to develop our platform to take advantage of generative AI and natural language querying. And we think these things will continue to strategically position us well compared to competitors. I'm now going to hand over to John Scott, who's going to take us through the last few slides.

Good morning, guys. Thanks, Greg. So first thing I've had playback on our 2 futures presentation. It's on our website if people want to know more. But essentially late December last year, we introduced the option where we could accelerate further than what we're doing. We've had really, really positive feedback. We've had more than I actually expected from our shareholder base. And I just want to reassure the shareholder base, like I said in the presentation, we won't do anything crazy. And anything that we do offer when we raise money, we will offer back to the shareholders. So there will be no one disadvantaged. Again, not saying we need the money, not saying we're going to do it. The reason that there's been a bit of a delay is we actually needed to get this result out and the guidance. So our share price was true and accurate and we could have open discussions. But we're there now. And again, we'll take it forward. But 3 months on from doing that, I feel like everything we did on this presentation still holds, proud of the work. And I think normally 3 months later, you'd like to change something, but I think everything there was good. And so the outlook for next year. So what's a little bit different about this year for the last 3 years, we've given numbers. We've been very tight. There is a lot going on this year. So if you jump to the bottom, our revenue guidance is actually we're just going to beat last year across the board. Those numbers for this year, for '25, we're very, very proud of them. The guys did just a great job for us. This year, it's a little bit harder to pick. Even in that guidance that will beat last year's numbers, there's a lot going on. So we recognize it's not our traditional number with a range and everything, but it's also an untraditional year into what we're going in. And you can see that in above. We've got the U.S. tariffs thing. We've got currency fluctuations. And on top of that, we've actually got a whole new range of products going into the market. We have previous years, it's hard to say that they were stable, but they were in comparison, we had existing lines with existing products and actually much more stable environment. This year with tariffing, especially, if anyone can figure out what's going on there -- well, they're doing better than us. So it's a challenge. But again, on this page, I feel like we're going to have a better year than last year. And what probably the shareholders want to know is that it's a very well-run company. Staff are engaged. You can see that. Our customers are happy. And I think we genuinely do a really good job. So really proud to be part of the team, and thanks very much.

So we'll now address the questions in the Q&A. So again, as I said, if you have a question in the Q&A tab on the bottom and type in your question and Howard will read out the questions, and we will have a go at answering them.

There are 2 questions. First question is, can you please provide estimated earnings per share for the 2 future proposed options? The slide back suggested what the earnings were for each of the 2 options. The unknown, I guess is, at what price would we be issuing the stock to generate $15 million of cash, which was the assumption. If you assumed $0.10 a share, that would be 150 million shares on top of the 450-odd million shares in issue now, which is $600 million. And I think the earnings for scenario 2 was $50 million. So I guess the answer is very substantial. Second question is, to what extent are you able to pass tariff costs on to U.S. customers rather than absorbing? I'll answer that question. We don't really incur much in the way of tariff costs ourselves because typically, we sell into the U.S. ex the factory in Vietnam. So the tariff costs are incurred by our customers and not by us. That doesn't mean to say that the customers don't approach us for assistance. And to date, we haven't had to provide any assistance, although we suspect that, that may well change going forward.

I think that's fair to say that our biggest customer, as we have noted in the U.S. has decided to source their product from the U.S. rather than through us, and we're working through how we manage that with them at the moment.

Next question is a longer question. How would you expect investors to support a further growth investment phase when it's very clear that the current growth efforts are failing? I guess that's a reference to 4% growth in 2025. Carries on your net product item sales for both IoT and Motors hardware we were down compared to the previous year. Despite large investments, there was negative growth in Europe and no IT and the Asian growth has indicated. Your North American Motors revenue is under pressure from the tariff regime. So a long question. So maybe we'll break it up.

Let me have that. So Investors for the support for our growth, like we were clear that we're not asking for money. So if they don't believe our story, that's fine. So that's the first one. And yes, there is a lot going on. And I feel like I'm not selling here. We're running the company. I think we're doing a really good job. And if they don't like the story, that's really on them. But I -- like that question, it's a combination of statements and questions. So they want to contact us that directly, but I don't know what else to do with the rest of that.

The third question, why would you not push ahead with the growth strategy option 2?

Well, that's clear because we need the funding. And like I said, we need to get this result out so we can discuss it. So we obviously like it. And I think as per the December, it is our strong recommendation. That's what we do. We just need to do it in a responsible way and raise the money in a way that doesn't disadvantage our current shareholders. So the second I think I can get a good deal for our shareholders, we will go. And if we can't, we won't.

Now we're investing more money in growth strategy drive much faster uptake than the organic growth we're seeing in 2025.

Yes. So I'd just ask anyone to kind of take a look at that video. It's really clear. I think you guys have done a tremendous job explaining that.

Are there further questions?

Yes. All right, guys. I appreciate it. Everyone, have a nice day. Thank you for your ongoing support. Again, we're available any time if anyone wants to get a hold of me or Greg or Howard, I think everyone knows where to find us, and we'll talk to you later on. Thank you.