CleanSpace Holdings Limited (CSX) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the CleanSpace Holdings Limited Annual Results Webinar for the year ended June 30, 2026 or FY '26. My name is Graham McLean and I am the Chair of CleanSpace. Joining me this morning are the CEO, Gabrielle O'Carroll; and the CFO, Bree Greeff. I'll make a few introductory remarks and then hand over the meeting to Gabrielle to share the key results and highlights of the year. She and Bree will then provide detailed information and perspectives on the company's performance during the 2026 financial year just concluded. At the end of the presentation, there will be time for questions from the audience. [Operator Instructions] Firstly, I'd like to say on behalf of the Board, that we are very pleased with the continued progress of the business in FY '26. Our strategy over the last 3 years has been clear and consistent. And during this time, it has developed more focus and with several key strategic objectives achieved during the year. We believe that CleanSpace has some unique assets and capabilities that can sustain the momentum that we are now building for the long term. As Gabrielle will highlight, there were some important milestones achieved in FY '26. This gives us a high level of confidence in the prospects of the business going forward. And lastly, I would like to thank all our shareholders, our staff and other supporters. We really appreciate your ongoing support. And with that, I'll now hand over to Gabrielle.

Thank you, Graham, and thank you, everyone, for joining the CleanSpace FY '26 results presentation. Today, we will cover our FY '26 performance, the key drivers across our regions, the launch of AGILE, our financial position and our strategy and outlook for FY '27 and beyond. In this slide, you can read a brief overview of the company, our focused markets and the addressable market opportunity in respiratory protection for industrial markets. Our portfolio has recently been expanded with the launch of AGILE, and I will elaborate further on the key features and innovative nature of AGILE a little further on in our presentation. To start, let me provide a snapshot of our FY '26 performance. FY '26 was a challenging year. CleanSpace demonstrated resilience and continued to execute against its strategy. Revenue was steady at $19.8 million despite a considerably tougher operating environment. We saw increased macroeconomic uncertainty, unprecedented government regulatory intervention and disruption in the U.S. impacting the PAPR industry and CleanSpace. That also delayed our ability to launch a new product. We also experienced tighter regulatory enforcement in Australia and the U.K., causing customers to reassess their respiratory protection programs. Even against that backdrop, Europe grew 8% and Asia Pacific and Rest of World remain broadly stable. Gross margin remained strong at 75% and unchanged from FY '25. That reflects disciplined cost management and continued efficiencies in sourcing, freight and component quality, which helped offset inflationary pressures. Operating EBITDA was a loss of $0.6 million compared with $0.2 million loss in FY '25. This reflects deliberate investments in the business, particularly in R&D, sales and marketing and investment in systems. These investments included the development, certification and launch of our newest respirator AGILE, sales and marketing activities such as trade show participation and the implementation of our new ERP platform. Cash at bank remained strong at $10.1 million at year-end, down only $0.4 million on the prior year. Working capital remained well managed, and the balance sheet continues to provide the capacity to fund our growth initiatives. Importantly, FY '26 also delivered meaningful strategic progress. AGILE achieved certification in Europe and Australia and New Zealand, later in the financial year. and is already generating early sales in multiple customer trials. We also strengthened our distributor and agency coverage across all regions, improved our marketing and systems capability and continue to position the company for scale. To summarize, while the headline revenue result was broadly flat, we finished FY '26 with our stronger product platform, stronger commercial capabilities and a solid balance sheet, all of which gives us confidence as we move into FY '27. Finally, in recognition of the Board's confidence in the company's underlying value and prospects, we announced a share buyback earlier today. Against our FY '26 objectives, the headline revenue result was below our original growth ambition, but the year was important in terms of the capability we've built across the business. Europe delivered 8% growth, and Asia Pacific and Rest of the World remained stable despite significant regulatory transition in Australia and New Zealand. North America, including Canada and Mexico, was materially impacted by unprecedented government intervention. There was significant disruption in the U.S. market to key regulators impacting the broader industry and our business. We maintained gross margin at 75% and kept operating expense growth to 3% while deliberately directing investments into the areas we believe will support future revenue growth. Sales and marketing investment increased materially as we strengthened our commercial teams, strengthen distributor and agency coverage, increased our presence in priority and user markets, and build more data-driven marketing processes to support lead generation and sector-specific campaigns. We also continue to invest in R&D, most notably in the development, certification and commercial launch of AGILE. That investment has expanded our product portfolio and open material new addressable opportunities in Europe and Australia and New Zealand with key enterprise customers. In parallel, we invested in systems and infrastructure required to scale the business. This included the implementation of the new NetSuite ERP platform, strengthening reporting and operational capability as well as investments in core functions, including finance, risk and occupational health and safety. The benefits of these investments will be ongoing and are already impacting our operations positively. So while FY '26 did not deliver the revenue growth we initially targeted, we believe the disciplined investment made in the company's commercial and product and operational capabilities position CleanSpace more strongly for FY '27 and the medium term. The regional picture in FY '26 was quite varied, and each market had a uniquely different set of drivers impacting their overall performance. In Europe, revenue grew 8% with the strongest contribution coming from Western Europe, where France continued its established growth trajectory, supported by repeat distributor business and expansion of orders from key accounts. The Nordics also continued to perform well with ongoing growth, which helped offset softer conditions elsewhere. The U.K. was more challenging because of changing regulatory requirements, while DACH remains softer as we continue rebuilding and strengthening distributor coverage. Importantly, AGILE certification in Europe at the end of the year has now created multiple sales opportunities that we were previously unable to address, particularly in the U.K. Asia Pacific and Rest of World revenue was broadly flat versus FY '25 and again, there were unique underlying factors driving that performance as well. Australia and New Zealand were affected by a regulatory transition with tighter silica and fit-testing requirements, causing customers to reassess their respiratory protection programs and thereby, slowing their purchasing decisions. Countering this, Southeast Asia grew strongly with revenues up 76% despite lower-than-expected volumes in our key Indonesian market, where our major landslide caused the shutdown of some activities at a major global mining customers' operations. In South America, performance was broadly flat as a key customer moved from a large initial deployment order in FY '25 into a more normal recurring replenishment pattern. Across the region, we took the opportunity to strengthen distributor and end user relationships and refine our go-to-market approach with AGILE certification in Australia and New Zealand secured just before year-end. North America was the most challenging region in FY '26 with revenue down 29%. The key issue was unprecedented destruction in the U.S. regulatory environment by the U.S. government administration. The suspension and downscaling of the U.S. regulator, the National Institute of Occupational Safety and Health and delays to the Mine Safety and Health Administration in its silica ruling created an unprecedented disruption and uncertainty across key industrial end markets, and this resulted in our customers deferring their purchasing decisions. We also cycled through some large non-repeat FY '25 sales, which affected the year-on-year comparison. Against that challenging backdrop, we continue to build out and invest in strategy. We expanded distributor and agency coverage, broadened our first responder activity beyond fire investigation into law enforcement and emergency medical services and saw growing adoption for our PAPR equipment and heavy industrial applications. In summary, while the regional results were uneven, the underlying message is one of CleanSpace continuing to build market access, customer relationships and distribution capability across all key regions. The end result is that we enter FY '27 with much stronger foundations in place to build our recent innovative product developments and increasing brand awareness and recognition by our customers. Now I'd like to spend a few minutes discussing CleanSpace's latest innovation, CleanSpace AGILE, a product we believe has the potential to significantly shift our growth momentum over coming years and a product that was developed concept to launch in only 2 years, a result unheard of in technical industrial market product development. CleanSpace recognized the regulatory headwinds that were emerging in developed industrial markets and positioned our engineering and product development teams to capitalize on this opportunity with a product that meets the market's changing needs, a product that is hallmark of this company's innovation DNA. Developing AGILE presented a significant engineering challenge for our product development team. We were creating an unconventional new spinning architecture, and we had to demonstrate its performance against certification protocols largely designed around traditional papers with belts, hoses and head gaskets. At the same time, we pursued certification under 2 regulatory regimes in parallel. EN 12941 for Europe and the U.K. and the new ISO-based standard for Australia and New Zealand, achieving both certifications late in FY '26, was therefore an important technical and regulatory milestone for the company. Certification for Australian and European standards opened significant new market opportunities for CleanSpace. AGILE allows us to serve a broader range of workers and applications and create opportunities to increase our share in markets where we already have established sales teams, distributors and customer relationships. In particular, we see significant opportunity across mining, infrastructure, construction and quarry in the U.K., Australia and New Zealand. AGILE truly represents the next evolution in CleanSpace innovation. The development of an innovative loose-fitting PAPR solution that is in direct response to changing trends in the market. Respiratory protection standards are tightening, fit testing requirements are becoming more rigorous and workforces are becoming increasingly diverse. These changes are driving greater demand for loose spinning PAPR solutions that provide high levels of protection without dependency on facial fit testing and clean shaven policies. Our new product was designed from what our teams were seeing in the field, particularly Australia and the U.K. Importantly, we wanted to solve that market need without losing what makes CleanSpace different. AGILE retains the unique CleanSpace design principles of breath responsive technology, lightweight construction and freedom of belts and hoses while removing the dependency on fit testing. The early response has been very encouraging. We saw sales within 24 hours of European certification, and we're now supporting trials with key end users across multiple sectors in both Europe and Australia. AGILE demonstrates 2 key aspects of our innovation approach. Firstly, our ability to solve a difficult technical challenge and secondly, the value of our innovation strategy in opening new avenues for growth. In conclusion, we're extremely excited and motivated about the opportunity that AGILE presents for our business looking forward. I'll now hand you over to Bree to take us through the FY '26 financial results in more detail, including the profit and loss, balance sheet and cash flow position.

Thank you, Gabrielle. Revenue was steady at $19.8 million for the year, with growth in Europe offsetting weaker performance in North America and a broadly flat result across APAC and Rest of World. Gross margin remained strong at 75%, consistent with FY '25. That was an important outcome given the external cost pressures we experienced during the year. the price increase implemented in the second half, together with the continued production sourcing and inventory efficiencies helped to offset higher freight and inflation in costs. Operating expenses increased by 3%. We invested more in sales and marketing, continue to fund R&D, including AGILE development and certification and implemented the new ERP system. These investments were intended to strengthen the commercial and operational platform and improve our ability to scale revenue without a corresponding increase in capital intensity. Operating EBITDA was a loss of $0.6 million compared with a loss of $0.2 million in FY '25. That movement reflects continued investment in the business against a broadly flat revenue base and is the clearest read on underlying trading performance for the year. EBITDA was a positive $1.5 million compared with a loss of $0.4 million in FY '25. That swing was driven by a $2.8 million noncash gain from remeasuring the New South Wales Health loan liability to nil, a one-off item, not a reflection of trading performance. Net loss of tax was $1.2 million compared with $0.5 million in FY '25, after an impairment in the deferred tax asset of $2.6 million. That impairment reflects an assessment of our ability to utilize the DTA against future taxable profits. It's a noncash item that can move in either direction depending on our profit outlook rather than a one-off. Taken together, operating EBITDA is the measure of underlying trading performance for the year. Overall, the result reflects a business that maintains strong margins and discipline while continuing to invest in the product, commercial and systems capabilities required to support future growth. The balance sheet remains strong at year-end with cash and term deposits of $10.1 million, down 4% from $10.5 million in FY '25, that we win reflects the continued investment we made through the year in sales, marketing, R&D and systems while still maintaining a healthy cash position. Trade and other receivables decreased by 8%, broadly consistent with lower Q4 sales compared with the prior year. Inventory was also tightly managed and reduced slightly, which held preserve working capital and demonstrates continued discipline and aligned stock levels with demand. Our liquidity position remains a real strength of the business. Our current ratio stands at 5.3x, which is very robust for a manufacturing business reflecting a working capital base that comfortably covers our short-term obligations. That matters more than usual in the current environment. Against the backdrop of macroeconomic uncertainty and ongoing inflationary pressure, having a strong, liquid balance sheet gives us flexibility and resilience rather than exposure. A notable move to balance sheet was the reduction in borrowings to no. This followed the remeasurement of the New South Wales Health Administration loan liability of $2.8 million as repayment is no longer considered probable. Separately, we recognized an impairment of the deferred tax asset of $2.6 million. Deferred tax assets are assessed at each reporting period, and this assessment involves significant estimation uncertainty. During the period, management reassessed the appropriate forecast horizon used in determining the recoverability of deferred tax assets and reduced this period from 5 years to 3 years, reflecting increased uncertainty associated with forecasts beyond that period. Overall, the key message is that CleanSpace enters FY '27 with a strong, debt-free balance sheet, zero borrowings and well-managed working capital. That combination gives us both the capacity to keep funding investment in product development, commercial capability and growth initiatives and the confidence to introduce the share buyback without placing any pressure on the balance sheet or our liquidity position. Turning to cash flow. Net cash from operating activities was slightly negative at $0.1 million compared with a positive $1.1 million in FY '25. The main driver of this reduction in operating cash flow was a combination of broadly flat revenue and the deliberate investment we continue to make in sales, marketing, R&D and the implementation of our new ERP system. Importantly, receipts from customers remained strong, up 4% year-on-year. The greater cash outflow was largely on the payment side, reflecting the investment in capability and operating activity during the year rather than a deterioration of collections. It's also worth noting that trade and other receivables include prepayments made to suppliers for inventory components as we positioned stock ahead of AGILE launch. That is a deliberate investment in working capital ahead of growth, and we expect it to convert into sales through FY '27, which we are already seeing. Net cash from investing activities improved materially to an outflow of $0.3 million from $0.8 million in FY '25. That reflected $0.5 million lower investment in term deposits partly offset by $0.1 million higher interest income and a further $0.1 million invested in plant and equipment. Net cash used in financing activities also improved to an outflow of $0.4 million from $0.6 million in FY '25, primarily because of the lower lease repayments. So while overall cash was slightly negative for the year as an outflow of $0.8 million compared with $0.2 million in FY '25, that movement needs to be viewed in the context of continued investment in the business. We finished FY '26 with $10.1 million in cash, disciplined working capital management and a balance sheet that continues to support our growth plans. Back to you, Gabrielle.

Thank you, Bree. I'll now return to our strategy and the outlook. The key message is that CleanSpace enters FY '27 with a stronger platform, our broader product portfolio, improved systems, deeper distribution capability and a focused growth strategy. Our FY '27 strategy is about taking the product platform we have built and converting it into profitable, scalable growth, given our low capital intensity business model. We have 4 areas of focus. The first is portfolio and products. AGILE is the immediate commercial priority in the U.K. and Australia and New Zealand, and it's also part of our broader product road map. We will continue developing future releases so that the portfolio becomes increasingly relevant across more markets, sectors and user needs. CleanSpace has exciting new product releases and enhancements at various stages of development in our R&D pipeline planned over the next few years. The second area of focus is smart intelligence. In FY '27, we will work with select and sector accounts to develop real-world use cases and usage insights around our data platform. The objective this year is to learn with customers validate where the greatest value lies and build the foundations to scale that capability in future years. Ultimately, we see an opportunity to monetize the data insights over time and also creates a much stickier customer relationship. Our third area of focus is commercial and market execution. Our core market focus is not changing. We will continue to concentrate on the industrial markets where we already have traction while deepening both end-user and distributor engagement. We also want to make better use of our CRM, strengthen product launch execution and incorporate AI-enabled tools where they can improve productivity and customer engagement. And finally, we're focused on organization and capability. Growth needs to be supported by the right internal capabilities. So we will continue strengthening our core function building our analytics capability and identifying and assessing partnership opportunities that may accelerate our strategy. Taken together, these priorities are designed to do one thing, turn the investments we've made in products, systems, market access and capability into sustainable revenue growth and profits over time. CleanSpace is confident in its ability to deliver compound annual growth of 20% or more over the medium term, supported by new products, regulatory market tailwinds, broader distribution and deeper penetration of priority end user markets. In FY '27, our focus is on converting the capabilities we have built into revenue growth and market share gains. AGILE's launch and commercialization is a key plank underpinning this expected growth. particularly in the U.K. and Australia and New Zealand where certification has expanded our addressable market and created opportunities to reach a broader range of users. We will also continue to leverage the distributor and agency networkings established across our regions with a greater focus on converting that expanded coverage into sales. At the same time, we're prioritizing larger enterprise accounts, opportunities in mining, heavy industrial and first responder markets, where we're seeing stronger regulatory drivers and growing acceptance of both our respiratory products and our data capabilities. We will also continue to invest in sales, marketing and product development while maintaining a scalable operating model and disciplined approach to cost. Finally, we'll build on the data-driven marketing capability developed in FY '26 to include agentic AI enhancements and continue progressing our product pipeline so that the growth we generated in FY '27 also strengthen the platform for future years. Our focus remains firmly on executing against these priorities and delivering sustainable and profitable growth over the medium term. I'd like to thank our CleanSpace employees for their commitment and hard work for the year, our customers and partners for their continued trust and support and our shareholders for their ongoing confidence in the company. We enter FY 27 with a stronger platform, clearer priorities and real momentum, and we look forward to building on that together. I'll now hand you over to Graham.

Great. Thank you very much, Gabrielle and Bree for the presentation. We're now able to take questions from the audience. So if you do have any questions, please type them in online. I will be monitoring those questions and asking them to Gabrielle and Bree as appropriate. [Operator Instructions] So we'll pause there and look for questions, and we'll take those questions over the next few minutes. Thank you. Okay. So we've got some questions coming in. So I will endeavor to highlight those questions and ask Bree and Gabrielle as appropriate. And where the questions are probably common, I will probably amalgamate some of those questions together. So thank you for sending your questions in. We've got a few coming in and please to send more in. So I will start with the first question. Gabrielle, we've talked in the presentation about regulatory changes in Australia and Europe. Can you talk to some of the challenges and how we've responded to those?

Sure. And thank you for the question. Over the last few years, we've really seen a trend in Australia and the U.K., particularly in terms of European markets, towards loose fitting PAPR units. And that was really underpinned by tighter management of the silica risk in different workforces also more stringent requirements for fit testing and diverse workforces that really require organizations to maintain having policies which is a level of rigor for organizations that can be a little bit challenging as well. So that put a strain on our portfolio for AGILE because our portfolio before AGILE is qualified as tight fit respirators. And so that's why it was really critical for us to hear that from the market, understand that need from our customers. And what we're really pleased about is having been able to develop AGILE, which addresses that market need for a loose-fitting PAPR unit that is a good fit for any worker that requires respiratory protection. And we're able to develop a product that is clearly unique and CleanSpace unique. So we've retained the principle of breath responsive technology, air sense, light, easy to put on and off, no belts and hoses and compatible with other PPE. So that -- I suppose that hopefully answers your question around the regulatory challenges, which in the short run prior to the launch of AGILE, really and that was a catalyst for organizations reviewing the respiratory strategies, the portfolios or the products that they would source. And now that we have AGILE, we're able to present a CleanSpace product to keep them in the portfolio and given the value proposition that the brand is known for.

Okay. Thank you. And I should add that we will be recording the sessions. So if you have to duck out early, you'll be able to catch up online later on. Okay. So next question is around AI, which is obviously very topical at the moment generally. Do we have any plans to incorporate AI features into future mask designs. Gabrielle?

Sure. So today, we already have our data insights platform incorporated in some of the products in our range. And the software in that platform is in part, powered by AI in terms of that development and allows us, of course, to develop that software for the future as well at a faster pace. And the data insights platform itself monitors daily unit performance in real time and also extracts compliance relevant information that's useful for safety managers but organizations more broadly as well. And that's where I think I've seen the value of the coming into the next months and years to really help us derived really useful insights for organizations as they're trying to maintain their safety programs and respiratory programs and glean the data out of their own usage in their own conditions through the use of the clean base portfolio.

Got it. So the next question is going to be for Bree. So with AUD stronger against some currencies last year, can you quantify the FX impact on revenue?

Sure. So on a constant currency basis, the impact of exchange rates on our revenue for the full year were negligible. It was roughly AUD 20,000 impact. So despite Europe representing 65% of our revenue, the FX had very little effect on our top line.

Right. Okay. So let's talk about the U.S. next. You mentioned, Gabrielle, all the challenges with NIOSH and the challenging administration environment. How long do you intend to persist with our strategy in the U.S.?

Yes. So we still see the U.S. as a significant market opportunity for CleanSpace. Certainly, the last 12 months have been a challenging environment across the board. But what we've done is use the time to really build on the foundation. Now our strategy in the U.S. from an industrial-facing perspective is still very, very new. We're approximately 18 months down the track with a new team and a new focus on industrial markets. And even in the last 12 months, where there were certainly some challenges with both the regulator and the silica ruling that delayed adoption of PAPRs in general and impacting CleanSpace as well. we did during that time is really build out our strategy. We onboarded new distributors. We signed up with sales agents as well that can help us multiply our efforts in the field. So again progressing our strategy, we've also developed a sales pipeline for FY '27. And I do believe we have a very strong team in the U.S. very focused on the end user markets where we can be successful. And I think taking those key learnings from FY '26 so that we can be more targeted in this coming year is really important. So we're really looking at where we can best be successful with the portfolio we have today in markets like first responders, mining and heavy industrial applications. And we also have a pipeline of new product development for the U.S. for the medium term. So with all of that said, of course, we continue always to monitor conditions and to assess our plans. But for the moment, we'll stay focused on executing our strategy in the U.S. market.

Okay. And then just the other angle on the U.S. is the impact of the U.S. tariff regime on your products? And do you think it's been impacting U.S. sales at all?

I think the U.S. tariff situation is, if you will, been stable over several months now. We haven't seen necessarily any direct impact to our business in the U.S. We did put in a price increase in first of January. We've been able to globally maintain our margins. And I think the impact in terms of share gain is more related to the economic conditions that I've referenced already rather than directly the tariff situation. But again, we'll have to continue in a monitor the situation as early dynamic still, and we'll be able to make adjustments accordingly if necessary.

Okay. So next question is around the 20% growth guidance for the medium term. The question is I'm struggling to reconcile the 20% growth guidance for the medium term against the regulatory headwinds and the challenges you just talked about in the U.S., how long do you expect those headwinds to impact the short-term growth?

So my view on our outlook is based on several central factors and there are positives in our business, of course, that give me the confidence in this from the different angles. So firstly, of course, as you know, we just launched AGILE which presents the immediate opportunity for us in Australia and the U.K. there are other markets as well where this product will be relevant, but we're hyper focused on those 2 in these 2 areas because of the very clear need that we see in the market and how we can address it directly with AGILE. We recently announced, of course, a major order with an Indonesian partner, and that was essentially a business that we've been working on now with them for a couple of years. and their expansion of their operations has increased their demand for CleanSpace. And so for partnering with that end user and their distribution partner to fulfill our business and that will translate to consumable repeat business over the next months and years as well. Our European strategy as an example, is a very well-established space in several markets. And so part of the growth strategy is to capitalize on those on that position and continue to work closely with our distribution partners and our end users and really parlaying experience in end-user markets to larger enterprise accounts and solidifying our business across those larger accounts from an initial specification point of view and then, of course, for consumable revenue that follows. So I think it turns on a couple of platforms for our growth that are emerging for FY '27 and beyond that give me confidence in the outlook that we've provided.

Great Okay. So the next question is for Bree. A couple of people have asked, can we provide any more details on the $430,000 impairment charge, which is in trade receivables. Bree?

Sure. So I'll start off by saying that CleanSpace historically has very good cash collection rates. This particular impairment largely relates to 1 customer. And we're currently undergoing legal proceedings against their customers. So I can't divulge more information on that.

Okay. So next question back to Gabrielle back to Europe. So how is the French market performing, Gabrielle?

Yes, the French market, as I've said before, may remember is our most established market. We've had a longstanding team there that continue to execute our strategy. And we've seen very positive growth in FY '26 ongoing in the French market. largely off the base of the established distribution network sales agencies that have worked with us over many years and represent the brand and help us represent the brand and sell the brand across the market and looking to the future in the French market, maintaining that growth momentum with a higher focus on larger enterprise accounts a key accounts, key management strategy and pivoting our approach from this strong base towards key accounts. So we can continue to drive growth momentum in France. And indeed, that will be the strategy that we would employ across other markets. And so establishing our distribution network, building agency support networks as well and then furthering that into end-user market penetration.

We've also increased our headcount in France.

That's true. So we will continue to make certain investments as we grow, and that is one area where we've also invested for FY '27.

Okay. So the next question is, do you have a qualified pipeline? And how many months out and does it represent? And how does it compare to the prior year's pipeline?