Comms Group Limited (CCG) Earnings Call Transcript & Summary

Hello, and welcome to Comms Group's FY '26 Investor Conference Call. Today, we have Peter McGrath, CEO; and Matthew Beale, CFO of Comms Group, who will take you through the presentation. [Operator Instructions] I'll now hand it over to Peter.

Thank you, Daniel, and welcome, everyone. I'm going to run you through the results for FY '26. I have Matthew Beale here with us, our CFO, and he'll run through some of the financial numbers as well. The agenda is outlined on your screens, and this pack has also been released to the market. A little bit of a clear description on who we are, and we've gone through some of our messaging just to make this a little bit clearer. We're a business-focused telecommunications and cloud services provider, and we deliver advanced communications and technology solutions across Australia and internationally. We're headquartered in Sydney, have operations in Australia, Singapore, U.K. and the Philippines. And many of you would know that we have an extensive network coverage across the Asia Pacific region. We serve SME, corporate and government customers in Australia and multinational enterprises, carriers and service providers internationally. And we've simplified our group as well in terms of the domestic and the global arm. So from a domestic Australian perspective, Business Communications and Technology as a provider to SME, corporate and government customers and globally, a Global Unified Communications provider, where we provide the latest unified communications solutions for multinational enterprises and wholesale partners and carriers across multiple countries. Our 3 business units and with our key tagline there, which is to enhance business agility through secure and innovative communications, connectivity and technology services. As you would have read a month or so back, we announced the sale of our Secure Managed IT Solutions division, the business is known as onPlatinum, and that's been announced for $30 million, and we expect completion very shortly, but within Q1 FY '27. That's leaving 2 divisions within the group, our domestic business communications and technology. And you can see there that we're enabling Australian businesses to modernize, to collaborate and work more securely through communications, AI, cloud and security services. So unlike a number of generalist telcos that operate in the market, particularly in the SME and consumer markets, we're a specialist with a lot of the latest tools, the applications, the security that's required for businesses to operate in this modern world and to be secure. Our Global Unified Communications business, we are setting a strong precedent across Asia Pacific as a leading provider there with many licenses across the market where we enable multinational enterprises and wholesale partners to integrate and simplify their global communications, also their collaboration and customer engagement. And as mentioned, we have a strong focus on the Asia Pacific region, but we do provide services outside Asia Pacific as well. Just turn now to highlights, and I'm really pleased with how the business has performed this year on many fronts. We delivered strong overall revenue and profit growth. You can see there our revenue was up 32% to $74.5 million. Obviously, there's the inclusion of TasmaNet, but we had particularly strong growth in both global and our ICT areas. Our underlying EBITDA increased to $8.7 million. That's over 50% increase above FY '25 and in fact, came out slightly above recent market guidance. Very strong gross profit at $35.5 million and our gross margins at nearly 48%. And net profit before tax of $1.4 million compared to a loss last year of $0.6 million. So it's another key highlight for the business. And also recording new sales contracts of $10.9 million, our highest level on record and higher than our significantly great result that we saw in FY '25. A couple of other things we did within the year that's not necessarily called out there, but we bought TasmaNet, which was at the end of FY '25 in June, in fact. So we've brought that business on and transitioned and integrated that business, bringing all customers across, et cetera, particularly government customers. We also announced the sale of the onPlatinum business in the year for $30 million. That was a very attractive offer for us and our shareholders, and it crystallized a significant value accretion in the year, considering we bought that business for $12 million. We've also announced a dividend of $0.00125 a share, fully franked. And there's details on the ASX platform in terms of when that will be paid. Just go through some of these financial highlights. Now you can see there the revenue up 32% to $74.5 million. That's within our recent guidance of $74 million to $75 million. Gross profit at $35.5 million, as mentioned earlier, continued strong gross margins at 47.9%, very happy with our underlying EBITDA up 52% on the previous corresponding period to $8.7 million. And our operating cash flow was up as well to $4.7 million, and that's after a significant one-off integration and transaction costs. See our group revenue over time here, something that we're really pleased with to see that growth over time with our strategy of making selective acquisitions and also organic growth. Back in FY '22, $41 million, now it's $74.5 million and a 32% increase in the year just gone, slightly less in second half, mainly due to some one-offs and some revenue that's not repeating into the second half, which I'll elaborate on shortly, but a strong year and a particularly strong first half and a second half for the group. Revenue by division now. You can see our business communications and technology that was previously referred to as Communications and Collaboration or SME. And I think the new title really encapsulates some of those extended offerings that we have now for customers, particularly in the security area and the contact center and the AI enablement products that we are bringing to market. Sort of a step change in revenue there as a result of the TasmaNet acquisition on the 16th of June. So revenue came in at $37 million, and this is all external revenue, just for your information. Our Secure Managed IT Solutions had another strong growth in the year, which was really positive to see. And that increased to $22.3 million. And then our Global business, continued revenue growth, some great contract wins in the year as well, very low churn and some FX headwinds in the second half in that the U.S. dollar weakened against the AU dollar. A lot of our contracts are denominated in U.S. dollars and also euro. But to increase our revenue there from $13.1 million to $15.2 million, really happy with that. And we would expect to see that growth continuing in our Global business. Revenue composition now. You can see there circa 93% of recurring and usage-based revenue, a little bit of an increase there in our one-off and project type revenue within the year, but very happy with the overall strong level of recurring and services fees within the year. Gross profit and margin shown there. I think the graph at the top probably accentuates the change there, almost flat, if you can see that there, and this is after digesting TasmaNet as well. And obviously, some of the cost reductions and the synergies haven't come through for a full year as yet, but a strong increase from $27.1 million to $35.5 million in terms of overall gross profit there. If we look at the breakdown of gross profit by division, a strong level of gross profit across all 3 divisions. We can see there the BC&T area coming in at $16 million, so a $6 million increase, largely due to the TasmaNet acquisition and margins holding up quite well there at the 43% level. Our secure managed IT solutions coming in at $10.9 million versus $9.7 million, and that's where you see that growth I was referring to before, where we've seen that go from $8.7 million, $9.3 million, $9.7 million, $10.9 million. And then our Global business, which is really all organic growth there, a kickup in gross profit margin or gross margin. Now that was from winning some larger deals where we had some upfront fees. I don't think that we would expect that gross margin would stay at those levels that -- I think we've indicated previously around the 50% mark, we'd be very happy with for that Global business. But the kickup in the actual gross profit from $7 million to $8.5 million and a lot of that flowing to the bottom line. And we've touched on in the past, the investment that we made in FY '25 with additional sales resources, et cetera, and you're really seeing that come through in that gross profit increase there. That flows through then to our underlying EBITDA, which was up 52% to $8.7 million. All 3 segments grew. We see that kick up there in Global and the investment, as highlighted there in Global staffing and expanded country coverage that we made in previous years, FY '25, but earlier years as well, is really paying dividends there. We improved our overall EBITDA to revenue margin and underlying EBITDA as we're showing here, to nearly 12%, really happy with that result. And you can see the underlying result there for Global, though increasing quite significantly, greater than doubling. Also, our ICT business went particularly well and also our BC&T, which was largely from some of that TasmaNet profit flowing through -- or gross profit flowing through. I'll now hand over to our CFO, Matthew Beale, to go through the accounts in a little bit more detail.

Thanks, Peter. As Peter has already alluded to, the -- for the year, we've generated a significant increase in revenue and profits on the back of the TasmaNet acquisition and organic growth, particularly in both the Global and the ICT businesses. We reported a statutory revenues of $74.5 million versus the prior year $56.6 million. Significantly, we've reported or returned to a statutory net profit before tax of $1.4 million versus a loss of $600,000 in the previous year. And that is significant -- on the back of some significant amortization cost of brands and contracts that we have to recognize of $1.5 million. We've reported underlying EBITDA of $8.7 million versus the prior year $5.7 million. And whilst there's a significant contribution from TasmaNet, there's also a significant increase from the underlying businesses, as I said, particularly increases from the Global and the ICT businesses. We've reported underlying NPATA of $4.1 million, which is up against the prior year of $2.9 million. And that was before, as Peter has also mentioned, some significant acquisition and transaction and restructuring costs of $2.1 million, most of which relates to the acquisition of the TasmaNet business early on in the financial year and then later in the year, the costs in relation to the sale of the ICT business. If we move over to the cash flow statement. So this year, we've reported statutory -- sorry, at the end of the year, we've reported a cash balance of $4.6 million versus the closing cash of the prior year of $5.5 million, which is a decrease of $900,000. But once again, that was after the payment of some significant transaction, acquisition and restructuring costs during the year. We've reported a statutory operating cash flow of $4.7 million versus the prior year $4.4 million, an underlying operating cash flow of $7.3 million, which is just up on the prior year of $7.2 million. In terms of some of the other payments, we've -- we had investing activities payments of $900,000, which relate to payments for the TasmaNet business. So during the year, we paid, I think, another $650,000 in August. And then we had a final payment with the deferred consideration of $250,000 in January of this year. We had proceeds from share issues of $500,000, which related to an investment by the new director, Stephen Picton. We obviously had significant receipts and payments in relation to the bank borrowings. The $11.5 million repayment related to the repayment of Regal plus the monthly loan repayments that we were required to make to both them plus Westpac under their new facility. And then obviously, the proceeds from bank borrowings of $11.6 million were what we received from Westpac to pay out Regal plus some new equipment finance loans that we took out during the year. So just in terms of the cash at the end of the year, we've attributed $2.9 million to continuing operations and $1.7 million to discontinued operations, which relates to the ICT business that's been sold. However, obviously, post settlement, which we expect to happen shortly, there will be the better part of $30 million cash in the bank before its various -- before we use it for various purposes. If we move to the balance sheet. So at the end of the year, we've reported net assets of $37.4 million versus the prior year $36.7 million. And obviously, this year, you can see some significant changes in terms of disclosures and numbers from the prior year with any assets and liabilities that we have in relation to the ICT business that's been sold, recorded as either assets held for sale and liabilities held for sale. So you'll see that obviously, there's some significant changes in other balances from the prior year, and that mostly relates to the reclassification of those ICT assets and liabilities. So just running through some of the numbers, we've got goodwill and other intangible assets of $33 million on hand relative to the prior year of $48 million. But obviously, that decrease relates to reclassifying any goodwill and intangible assets that relates to the ICT business. We've got total borrowings the prior year, we reported $10.7 million as a current amount, which related to the Regal loan. This year, we've got a balance of $10.9 million, which has been reclassified now as $1.7 million current and $9.2 million noncurrent, which is in line with the 3-year term loan from Westpac that we've received -- that we now have. If you move to the next slide, the financial track record. And I think as you can see, all of these graphs probably represent the growth in the business going back to FY '20 when we made our first acquisition -- or made the first acquisition in FY '21. So you can see there the combination in the revenues, the gross profit and the underlying earnings as well as the cash flow, which is not only in line with those acquisitions that we've made over the years, but also the organic growth through the -- organic growth over that period of time, particularly once again in the Global and the ICT business. So I'll hand back to Peter for the rest of the presentation.

Thank you. A bit on our capital management framework. Just to reemphasize that. Obviously, we want to ensure that the business has sufficient liquidity to operate in all operating environments. So that strong balance sheet supported by disciplined liquidity and risk controls. We do plan to reduce debt post the sale of onPlatinum. We're not suggesting it will be fully reduced, but to reduce debt levels somewhat and then to make a distribution to shareholders. We want to continue to invest in technology and services. And if there is any relevant M&A opportunities, we would look to pursue those. And look, we're very happy with the fact that we're paying dividends. I think if you look at the sector and other than the very large companies like Telstra, if you look at the Tier 2s, if you like, we're one of the few in the market that does pay a dividend and a fully franked dividend. We do believe that shows a sense of capital discipline as well and that we need to balance the various stakeholders within the business, but to make sure that the business has that cash generation so that we can continue to pay those dividends. I'll now turn to an operational update. These graphs here show our sales performance. You can see there the strong level in FY '25 with -- particularly with a number of large contract wins. I think the positive thing for our Global business, if we look at FY '26, another strong year for Global, $4 million of annual recurring revenue, a significant last quarter, a major win for the business just before -- in June, in fact, just before the end of the financial year, and that service is currently being provisioned. And I think we'd add to that the fact that we won a very large contract back in FY '25, we announced to the market with a major NASDAQ technology company and that -- those services are now being provisioned in this year. So I think we'll get the revenue uplift from the sales made in FY '26 plus some sales in FY '25 that have taken a bit longer to provision. BC&T new ARR grew 36% to $4 million. That was supported by a full year of TasmaNet contribution. And TasmaNet in the last few months has seen some really good sales wins, which is great. ICT had another strong year as well in terms of new sales contracts. Just for the benefit of our investors out there here is a little bit more detail on the product set that we're taking to market, and we've broken it down into a number of categories now just to make it a little bit easier. You'll see there in our Business Communications and Technology group, which is our domestic business, quite a number of areas now where we provide collaboration and contact center type services. We recently released an agentic AI-based contact center solution. We've had some good wins from that. It's been well regarded in the market. We believe that there's a really good opportunity for that. We have some AI-powered transcription sentiment analysis and insights. And we're hearing from analysts out there that voice is going to be very important in an AI world, particularly the ability to decode that voice, the sentiments, et cetera. So we have a number of key tools there that we take to market. Obviously, our specialty with Teams calling, Webex calling and also our generic CloudFam, which is cloud-based telephony and inbound services, extensive connectivity. Connectivity is still important for us, although it's table stakes today, we get a variety of different demands, whether that's fiber, Ethernet, NBN, et cetera. Security is an area. We've been ramping up our capabilities and credentials. Customers want to make sure that they have a safe environment. So we have some specialties there, particularly with Fortinet and then a number of cloud offerings. So we will continue those cloud offerings. We're a very strong provider in Tasmania and TasmaNet is included within this division. But a number of those offerings, we will continue on the mainland, even though we are separating our OneCloud infrastructure across to the purchaser of onPlatinum, we still have some capabilities on the mainland as well. Our Global Unified Communications, you can see there some of the product offerings we have. We're a specialist in being able to provide multinationals with the same solution in multiple markets, which is what they're after. That way, they can deliver the types of productivity, innovation and collaboration that they need within their own business. We also sell a number of these services via some large global carriers who then take that to market to their customers. You can see there a little bit about our geographic coverage as well, and we have subsidiaries in a number of key markets now, so we can do things in terms of contracting and currency support for some of our key customers. Asia Pacific is a strong focus for us. But as I mentioned earlier, we can provide services in more than 65 markets today. Our Global network there. We set about differentiating ourselves probably about 5 years ago to make sure that we have compliant PSTN services in many countries. You can see there those green point of presence, PoPs, as we call them in various markets, which we need there from a regulatory perspective. We're continuing to expand our go-to-market and add new carrier partners. And the carrier partners we're speaking to, which are some of the world's largest telcos find our offerings, our flexibility, our account management and our coverage very appealing. Just turn now to strategy and outlook. So just to refine our strategy, particularly now that we're close to selling or completing on the sale of onPlatinum, we want to complete that divestment, obviously strengthen the balance sheet and look to bring in some lower debt, pay a return to shareholders. We're finalizing that One Network and One Cloud consolidation program and also coming through with finalizing our synergy program and driving some operational efficiencies. Our BC&T go-to-market, new products, some additional product offerings that you've just seen on the previous slides, we want to expand our go-to-market across Mainland Australia and Tasmania, and we also want to continue the international expansion of our Global business. So in terms of the year ahead, we think we've got a simpler structure. We have a very strong sales pipeline and a strong earnings base as we move forward. We do expect that we will be able to improve our margins somewhat as we continue with the synergy program and this cost synergy and driving some operational efficiencies. We will provide further guidance, obviously, as the year progresses. And then some of the growth opportunities that we see, obviously, organic and inorganic opportunities to build global scale and add more capability, some new product offerings as outlined in our BC&T, additional go-to-market channels in BC&T and also cross-selling some of these new product offerings into our existing base domestically. I think we'd also emphasize the continued growth that we expect in our Global business. That finishes the formal presentation. We'll now hand over to Daniel, who will just coordinate our Q&A session.

Thanks, Peter. We have a couple of questions. Two questions from Stella Wang regarding the Global segment. Stella says, great to see that the H2 new sales picking up from H1. How far is it from meeting that $20 million revenue run rate for the Global business? And then on OpEx, OpEx seemed to moderate in the second half. How do you plan to accelerate that new sales growth within Global?

Okay. Thank you for that question. Look, we haven't given any specific guidance to the market on where we think we'll get to with Global. But if you look at that growth that we've seen there, $1.5 million, $2 million per annum, we would expect at this stage that, that growth to continue, and we're looking to expand our channels to market as well. So I think Stella, all things being equal, there's no reason why within probably a couple of years, we couldn't get to that $20 million revenue run rate. So how are we going to accelerate that sales? I think as mentioned, we're looking at some additional channels to market, some new offerings that we can take to our customers. We are looking to add greater levels of automation so that our customers can look to put orders in via portals, via API, et cetera. And as we add these more channels to market, particularly larger carriers, they're the types of things that they're wanting. So that's probably within our Global business. The comment on OpEx, yes, I think, yes, OpEx has probably moderated at this stage. Obviously, we try to keep our OpEx and our costs in general within certain percentages of revenue, if you like, and because we want to continue to focus on growing, but growing responsibly generating that EBITDA growth that you've seen in the past. We do also think that with AI and some of these automation type offerings out there, there's going to be some great opportunities in our contact center space as well. And we're seeing that growth more widely across Asia Pacific, which should help our Global business as well. We provide some of the core services for contact center operators. So all in all, we see the impacts of AI being positive across both our domestic and our Global business.

Another question from Stella. Are there any acquisition opportunities in the AI-enabled contact center services space? And what are the potential sizes?

Okay. So to answer that question, yes, there are opportunities out there that we've seen. We're not necessarily looking right now at something like that, but -- in terms of executing, but we have seen a number of these opportunities out there, and we kind of see that that's where the market is heading towards. We do deliver some contact center. We provide the core voice and IP telephony or UCaaS type services. We believe that AI-enabled contact centers are going to be very big as more and more corporates look to automate how they handle their customer interaction. Others that really didn't think about that in the past will start to do that now. Contact centers traditionally have been quite expensive. But if you can have that AI capability and use it not just for sales, but also to handle customer queries, and inquiries, we think that, that's going to be -- it's going to really push the growth of that along. It's going to be one of the key use cases in that whole AI area. So Stella, I think we could deduce from that. Yes, there might be some acquisition opportunities we can look at, but we're also getting some product sets from existing suppliers that we can use to offer those products in the market.

We have a question from Rod [indiscernible]. What percentage of FY '26 revenues and underlying EBITDA was attributable to onPlatinum?