Energy One Limited (EOL.AX) Earnings Call Transcript & Summary

Good morning, all. Welcome to the call. Thank you for taking the time out. We'll be recording this webcast so we can place them on the ASX site when we're finished. [Operator Instructions] The purpose of the raise, $4 million net, $4.3 million offer, is to reduce our bank debt slightly, ease our covenant and facilitate the negotiation and the replacement and renewal of -- sorry, not replacement, but renewal of the facility, which is in process as we speak. And the facility has been underwritten by institutional investors and 3 of the Board's directors who are, therefore, taking substantial equity positions in your company. It's fully underwritten rights issue with all the normal terms and conditions. And so we'll take some questions. Are you going to read out the first couple?

Yes. So we have some questions, obviously, that we published this morning on the ASX. So what we might do is just run through them first, and then we can take questions either via the call or via the chat, and we'll read them out and attempt to answer them as best we can. So the first question was around participation in the offer, and: Can I participate if I'm a non-Australian or non-New Zealand-based shareholder? And the answer to that is: The offer is restricted to people with an address in Australia or New Zealand. And the primary reason for that is just the -- so we're utilizing a low document offer regime, which is obviously cost-effective and efficient. And when you look at the costs of offering in foreign jurisdictions versus the number of shares that sit in those jurisdictions, that doesn't economically make sense. That's the rationale for limiting it to Australia and New Zealand. The second question was: Is there an opportunity to participate in the offer by being included as a sub-underwriter? And I might let Andrew talk to that one in terms of the process we went through in terms of obviously utilizing unified and then the result in sub-underwriting.

Yes. So the underwriter had a very short process on last week to identify sub-underwriters, which they did. There are 2 institutional investors, the sub-underwriters, and the 3 directors identified in the material. So that underwriting is now closed. So no, there's no opportunity to participate as a sub-underwriter.

Question 3 was: With an offer price of $4.05 compared to a trading price of $4.44 the Friday before we announced, is it -- I guess, is the discount too favorable to potential new shareholders?

So there's a number of ways of assessing relative price. And it's a balance between the discount to the most recent price and to the volume-weighted average price over a longer period of time. 15 to 20 days is normally the interval taken for that. We have achieved an underwriting at a 4.3% discount to the 15-day volume weighted average price, which is considered to be a very tight discount. So shareholders should be very pleased about the appetite for the underwriters to participate at that level. That's very favorable. Yes, the price went up in the last sort of 3 or 4 or 5 days associated with some large blocks of stock going through and people looking to buy into the share. The discount is quite shallow from that point of view. And previous underwritings that we've done have been at 12% to 14% discount, and other underwritings done by other parties in the last couple of months have been similarly larger than the one we achieved. So it's a good price. It's not especially favorable to shareholders. But I'm pleased to say it is at a discount to the market price, and so shareholders will get an advantage from that, that we think is appropriate.

Question 4: Can Energy One provide an update on the net debt facility and timing of document execution? Obviously, when we announced the raise, one of the key points was with NAB. So just for background, the facility, if we get another facility actually ends in April of 2025. One of the practical implications of that is when we reported 30th of June 2024, because the facility is less than 12 months ago, we wouldn't need to current all of our debt, which is one of the reasons why we approached NAB to extend the facility. At this point in time, the term that we extend for has been undecided. It will be decided by the Board, and obviously, pricing plays into that, and also our cash flow and debt repayment profile. I did notice we've got a separate late question in terms of when do we expect the net debt to be fully paid down. We've previously said many times, end of calendar 2025. And yes, we're largely on track for that, maybe a little later, but it will depend on cash flow and other investments in the business that hasn't really changed. So I think that -- apologies. There's another question. Question five, and I think it probably plays into what Andrew talked about earlier. But did EOL consider a larger capital raise than the $4.3 million? I'll let Andrew talk to that.

Look, we did. There's always a consideration as to costs are relatively fixed or mostly fixed. And so larger raisings are ostensibly cheaper, however, every unnecessary dollar that we raise dilutes shareholders, and that's something that we're very sensitive to. So $4 million was a prudent number that we felt. And we discussed several times the raise, the size of it, but we settled on $4 million after costs.

Very good. Thank you, Andrew. Now I do notice there is a number of questions in the chat, which we will move to. So I will go through them in order. So I'm just pulling them up. And the first question is from Claude, which is: Could you please explain more about the ramifications of achieving ISO 27001? How long it has taken so far and whether it is proving to be more expensive to achieve than originally envisaged? And I think, Shaun, I might pass that one across to you, if that's okay.

Of course, Guy, happy to answer that one. Good morning, everybody. Good afternoon, good evening, wherever you are. So ISO accreditation, ISO 27001, is when we're talking about that. What is it? It's an information security standard, international standard. It's about accrediting new or information security protocols and processes to the highest quality. You can have very, very high-quality information security standards, but then you can also apply the ISO on top of that, which gives you the accreditation. So we already have good cyber quality defenses, and we're building them up. We're investing in that. And of course, towards the end of the process is when you start trying to get it accredited because what accreditation gives you is both a certainty that you're doing it right and it's being audited every year, but in a marketing sense, it gives you the advantage of being able to say that we have it. And so for, as this topic becomes more and more important going forward, we're able to say, especially to large clients, yes, we've got ISO, and it sort of answers the question for them in one go, ticks that box. But before that happens, we obviously want to make sure we're operating to the highest levels on cybersecurity. If we had an incident last year, that always makes you go back and look at it again. So we were working through that, and we are doing lots of things at the moment. And we're going to continue to invest. Has it cost a bit more? Yes. I think that's a fair thing. These things tend to find out when you initially do it, you have a budget and then there's always something that pops out the woodwork. But it's an ongoing process. It's a vital process for a business like ours to continually be looking at whether or not we've got the right electric fences up and whether we're monitoring those electric fences and stopping intruders. It's just a very prudent thing to do. We take it very seriously. So yes, we're working through it. If we had -- everyone's got a story of somebody new who got it done in about 6 months. But usually, that's one instance. If we just had one office with one set of IT, then we would be able to get it done quite quickly. But we're operating in multiple countries. And there's some legacy things where 2 different countries have 2 different bits of kit. So we need to work through cleaning all that out and standardizing as best we can. It just takes time. And at the end of it, we'll have a really good marketing advantage and a really good level of confidence.

Thanks, Shaun. Next question is from Daniel. In the trading update, it stated that the Australian business experienced contract delays. What gives management confidence this will return? Is this dependent on the national energy market or dependent on national energy market registrations?

Well, there was a general trend towards national registrations called the tailwind, renewables tailwind, which we're working with. Now specifically in the short term, we're talking about contracts that are sort of a size where the delay sort of affects the one-off kind of results, one-offs of revenues and so on. So we're just -- this is not about the general tailwind this is about just trying to get signatures on medium-sized contracts.

EBITDA.

Sorry, I skipped over a question. So David has a question:. You mentioned in the trading update that one of the main areas of focus for 2025 will be on margin growth. What EBITDA margin do you hope to achieve in 2025 and in the medium term?

You skipped over on that one on purpose.

No, I -- more on confidence, not purpose.

So we're focusing on margin growth. We made that quite clear. We are not usually in the business of forecasting these types of things because there's a few moving parts. And we try to be conservative and then stick to our words. So we're not forecasting a margin, although we are indicating to you that we are focusing on improving margins. And that's just -- a good way to do that is to grow sales for operational leverage, but also try and make the best use of our resources that we can, and that's internal efficiencies. We had a bit of a restructure to try and help with that. We're introducing automation to help with that, and standard processes and procedures in the shared services model, all of these things are all intended to try and to make better use of our cost base and to experience margin growth from there. So I can assure you we're working on it. We're just not in the business of predicting margins until we report our results.

Next question is from Shaun, not Shaun Ankers, one of the other attendees. It's a bit unclear why NAB wanted more security through a cash raise, while you expect debt to be repaid by the end of 2025, what concerns NAB. So I think it -- I'd firstly say, certainly, it wasn't NAB forcing us to go to a cash raise. With the facility, what people need to remember is pricing is based on risk. When a bank looks at your facility and part of that is debt levels. So it's one of the considerations for us is pricing, which has driven the raise to some extent. As is noted, the debt will be gone by the end calendar -- calendar end of 2025 or soon thereafter, at current forecast. I think the relationship with NAB is very strong. They certainly wouldn't be renewing the facility if they had any significant concerns with Energy One. So that's a really positive sign. That ends the questions in the chat. Now we did get -- sorry, Andrew has just asked another question. What is the implied 2024 ARR guidance given that FY '24 recurring revenue is $46 million?

We're not implying any guidance for that, Andrew. We'll announce that when the results come in.

Yes. I mean, clearly, we'd expect the ARR to be higher than the recurring revenue for the year, given it's a spot at the end of June 2024.

Forward-looking.

Yes, forward-looking. We did have some -- we had a couple of other questions that came in very late on an e-mail, which I know, Shaun, you've got in front of you, the first 2 related to the NAB facility. The first question was, what is the current balance? We don't really -- and as of today, we don't really look at it -- we look at it on a month-end basis. A lot of our collections are very much weighted towards the last couple of days of the month. That's the point to look at it. What I would say is that it's lower than where it was at the -- at December, so net debt. So debt minus cash is lower than where it was at December. So as we've stated, the business has returned to profitability. It's generating cash and that's seeing debt being retired. The second piece, second question related to when the debt would be paid off, which we've also answered. So I think, Shaun, are you happy to take questions 3, 4 and 5 from that list?

Okay. I'll just read it out. Can you please elaborate on the makeup of the pipeline? Are there many medium and large contracts that are close to execution? Or is it predominantly SaaS-type deals, for example, easy ops? Well, as a long-time observers know, we've got a mix on purpose of small and large accounts because that's diversification 101. So we do have all sorts of things going on. When we talk about things that move the dial, obviously, the more of the larger in. We're not talking about smaller ticket sales, then that usually -- they sort of keep moving. So that's good. So these larger ones, like we've said before, they usually pop up in one-off revenues. Or it's a bit more lumpy. It's timing related to customers, not necessarily about the quality of our products or anything. It's about when they make the signatures happen. And as I've always said, they're a bit like buses. There's nothing for a while and then 3 come once. So it's just the nature of that particular segment, and we continue to work through it. So we always have a mix of small and large sales in the pipeline. Obviously, as the revenue grows as a total pool of revenue, the impact of one-off projects becomes less and less significant. So obviously, when we started out a few years ago now, it was a bit up and down, but now we've got sort of 90-odd percent recurring revenue, these one-off larger accounts are not so pivotal, but they still affect the short-term half-to-half type result. That was question 3. I think we've answered 4; I'm not going to ask that one. Number five, the project delay in Australia, have you previously qualified these as small, medium and large? What bucket does the delayed contract fall into? Medium. Have commercial terms been agreed on this contract? Start date being confirmed, so these projects are in development. We've usually got projects in the various states of -- we're in the final list or in signatures being done. So in this particular -- well, there's a couple of mediums in here. One of them is in a position where we're just waiting for a signature and another one we're in final negotiations.

Thank you, Shaun. I think at that point, unless anyone who is on the conference has got any questions. There's no more...

From David.

Sorry. It just popped up. David said: Thank you for doing the raising via pro rata rights issue rather than a placement. Can shareholders apply for additional shares above pro rata? If not, wouldn't you want shortfall shares going to your shareholders rather than the underwriter? So I think I can answer that one, and Shaun and Andrew may have a comment as well. So we didn't provide an oversubscribed facility. So yes, where shareholders don't apply for their pro rata entitlement, they will fall to the underwriters. And I think what was, sub-underwriters, when you look at the sub-underwriters, the comment I would make is the bulk of the sub-underwriters are existing shareholders. So they are going to existing shareholders. And then obviously the new -- the 3 new directors taking shares is obviously very positive. Investment in the business is something you would want to see happen as well, so I expect they're all going to people with any Energy One existing shareholding or Board membership.

With a strong interest in the company.

Yes.

Claude.

Claude just stated: I appreciate the pro rata nature of the offering. Yes, that was clearly done to ensure that, yes, existing shareholders could participate if they so choose.

And look, the structure that is best for a capital raise depends very much on the circumstances. In the past, we've done SPPs, and the feedback from shareholders was that, that didn't work because of a large number of medium-sized shareholders that basically got diluted. So that's why we've gone for pro rata in the last 2 raisings, and we hope to tune our behaviors to the feedback that we get from shareholders.

Thank you.

Are there any questions on the call itself?

I think it looks like that's the end of the question. So I think at that point, we can probably say thank you for attending. Hopefully, yes, we've answered the questions that we got via e-mail or people who asked us verbally, and you understand the background to the raise. And I think at that point, Shaun or Andrew, unless you've got any other comments, we can wrap up.

Thank you very much for your time, and we'll do another call after the results in August. Enjoy the rest of your financial year. Thanks, guys.

Thank you.

Thanks, everyone.