Etherstack plc (ESK) Earnings Call Transcript & Summary

Good day, and welcome to the 2026 Annual General Meeting of Etherstack plc. We have a quorum present and I declare the meeting open. In attendance, we have Peter Stephens, myself as Chairman; David Deacon, Etherstack's Founder and CEO; and our 2 nonexecutive directors, Paul Barnes; and Scott Minehane. Also attendance is Etherstack's CFO and Company Secretary, Adam Hoey and [indiscernible] from PKF Littlejohn being our auditors. The agenda. We have first to be a formal part of the meeting, including the results proposed. And then secondly, David Deacon's company presentation, including Q&A. Information about asking questions. Today's meeting has been held online by the Computershare meeting platform. This allows investors and guests to attend the meeting virtually. And all the attendees can watch a live webcast of the meeting at any time. In addition, investors have the ability to ask questions. Attendees can ask questions at any time. To ask a question, select the Q&A icon type your question into the tax box. Once you finish typing, please hit this Send button. Please note that while you can submit questions from now on, they will not be addressed until the [indiscernible]. Please also note that your questions may be moderated or if we receive multiple questions maybe [ amalgamate ] together. We move to the formal part of the meeting, Slide 2. As [indiscernible] meeting was sent to all investors [indiscernible] in accordance with the company's constitution, I propose to take the [ minutes ] of meeting, supplementary disclosure to the AGM meeting and associated [ explorate ] memorandum as read. There are 7 items on the Notice of Meeting to be considered by shareholders. Voting on the resolutions has been conducted by proxy ahead of the meeting, and I'm pleased to advise the results of the polls are as followed. Resolution 1. To receive adopted counts of the company of the year ended 31st of December '25. Resolution carried. Resolution 2. Appointment and remuneration of auditors. Resolution carried. Resolution 3. Authority to allot shares. Resolution carried. Resolution 4. To reelect Scott Minehane as a director. Resolution carried. Resolution 5. To reelect Peter Stephens as a Director. Resolution carried. Resolution 6. Approval of the 7.1A Mandate. And resolution carried. And finally, Resolution 7. Disapproval of statutory preemption rights. Resolution carried. I'll hand over to David Deacon at this point for a company presentation. And thank you all for attending. David.

Thank you very much, Peter. Greatly appreciate that. Look, I'll dive into the presentation. If we just move forward a couple of slides to the first slide. This is predominantly the presentation that was released at the time of the audited results. I will be providing a more comprehensive update after the half year, which is only a few days away from ending, but in about 5 or 6 weeks' time from now, when we put out the results at that time to provide a bit more of an update and color in regards to some of the business activities. But [indiscernible] through, some of the information here is for -- in the original presentation is particularly aimed at new investors, but I'm assuming people here on the call as shareholders have a fairly good understanding of the business. So I won't dwell too much on the particular areas that we're working in. I'll just say that the company clearly has 3 core businesses in different stages of growth and maturity. Our traditional digital and mobile radio business for public safety radio networks, electric energy utilities in the United States, Canada and Australia, and also the resources sector, such as Rio Tinto and the [ Pilbara ]. This is our traditional business. It's a very conservative industry to be in. It's going extremely well with continued wins for high margin equipment sales with very, very long sticky support tails often 10 to 15 years in length, and I'll talk a little bit about that a little later. I think some of the recent attention that the business, the company has received is in relation to our new high-growth [indiscernible] mission-critical push-to-talk business, which is involved in the migration of traditional digital and mobile radio public safety solutions across to 4G and 5G networks and national 4G and 5G networks in developed countries around the world predominantly. This is the area that we've been doing business with the likes of AT&T, Telstra, Nokia, Samsung and other [ Bridge Home Office ]. And this is really a new high-growth business within the company, and I'll talk again further on that a little later. Our defense business is really about keeping the company to its roots in terms of underlying research and development in wireless communications. It's a very relevant topical matter at this particular time and Etherstack services predominantly our 2 primary jurisdictions in that area being Australia and U.K. being both government organizations and also the defense sector there. That's really very much a future business for Etherstack in that many of the things that we're doing there today, while highly relevant, we'll ultimately not see deployment in the field for several years' time from now. But when those items go into the field very much like our traditional businesses, those communications platforms typically live inside fielded radios for 5, 10, 15 years or longer. Next slide, please. 2025 was a fantastic year, as I'm sure that everyone can see, we had a record revenue year exceeding USD 10 million for the first time. EBITDA was 20% or USD 2 million on the USD 10 million, which is a little bit down from a percentage perspective than some of our previous years, and I'll come to that in a second. And we made a modest loss, statutory loss of about USD 700,000. When you remove the foreign exchange currency charges from the accounts, and the one-off costs associated with the ramp-up on the U.S. job in particular and the commencement of the U.K. deal, which I'll talk about shortly, the company certainly was -- had an underlying profit -- net underlying profit. And we will certainly hope to see the EBITDA margin improve during this 6- to 12-month period that we're currently in. And we're looking forward to getting our results out as soon as we possibly can. Key performance indicator that we always call out year after year is our annual recurring revenue streams. This was up 62% to USD 3.7 million. And that's clearly the highest ever. They have increased historically in the business. And this is really driven by -- in the second half of last year, the AT&T FirstNet solution becoming -- going into controlled introduction on the way to general availability. In the back end of last year, we signed 2 record deals for the company's history, both around the USD 20 million mark. One was with AT&T FirstNet. It's a follow-on from the work that we've been doing with them. It's an initial contract for 7 years. And that is the minimum revenue that will occur over that period, minimum guaranteed revenue, additional revenue will come through additional subscriber growth and functionality requests from the customer as typically happens. A month later or 2 months later, we signed a similar size deal or over GBP 14 million with the U.K. home office. That deal will run for another 5 years in its current form. And I'll say that, that win was also 5 years in the making. These are contracts of this particular nature and type in related to public safety and government security have many rounds of procurement that stack beat out the incumbent competitors in the space. Next slide, please. So as we said, it's fairly transformational year in terms of really all of the good work that we were doing in the previous 6 years with Samsung and AT&T, probably 2019 through to 2025. We spent over USD 10 million developing the world's First InterWorking Function, IWF, which is a large software piece that lives inside carrier or government networks according to the 3GPP standard which is what drives cellular standards globally. So to have the world's first one in production with AT&T FirstNet positions us well for similar deals in all other countries around the world. It was based on that deal and the performance of the team in the pursuit of the U.K. Home Office as they transition from their 30 year-old traditional digital mobile radio network to their new GBP 6.5 billion emergency services network currently being built by IBM and Samsung that we were awarded the same InterWorking Function for that particular opportunity. What's very important about those 2 wins is they are the largest 2 wins off the type for the type of solution that we're currently offering on the planet. And that will be extremely beneficial for Etherstack in regards to additional wins in other countries as they -- all the other OECD countries and eventually all the national carriers in the world as they move towards this new mission-critical push-to-talk over cellular technology. On the domestic front, in Australia, continued government and defense sector wins, we posted late in the year, an additional $2.5 million deal for a long-standing research project that we are collaborating on with the Department of Defense, and we expect continued awards on that in this and coming years going forward. That is, I think, about the fourth or fifth award from the Department of Defense in this particular technology sector area, which demonstrates that our engineers producing things that really are world-class, and we're producing on time and keeping our government customers happy. Next slide. As I mentioned before, one of the key performance indicators that we keep calling out is the -- are the annual recurring revenues. You'll see that teal box at the bottom across there. That is our traditional digital land mobile radio recurring revenues. Those typically come from electric companies such as [ Ergon EG in Queensland at a raft of electric utilities ] in the United States and Canada. Public safety radio networks who pay us 24/7, 365 support for our products in the ground and also our resources networks in hazardous mining environments and Rio Tinto being the largest customer there. So continued growth in our traditional business, but really where the step change is now coming from is from the new 3GPP mission-critical push-to-talk business. You can see the jump in 2025 with the first American flag there being half year of support coming on the AT&T FirstNet network. As you'll see that growing over time, '26, '27, '28. That has contracted revenue with AT&T FirstNet. And then the British Home Office and then other national networks and [indiscernible] networks coming into play. So we are well and truly on target to achieve USD 10 million annual recur revenue in FY '28. Clearly, these sorts of support revenues are high margin once you already have the existing infrastructure in place, the security operation centers, the network operation centers around the world in place to support these. I will also say about our -- these types of recurring revenues, these are very different from transaction revenues that you might find in financial payment systems or recurring revenues from those or from cellular 1-month plan of $39.95 at a particular carrier for your mobile service plan. And these are support revenues that are measured in years. The contracts are and typically have a 10- to 15-year life span. And the planning to replace the equipment in those networks typically [indiscernible] in a 3- to 5-year window. So a highly sticky, best quality, typically government-backed recurring revenues. Next slide, please. Separate to the recurring revenues, you can see the impact now in 2026, the far right column that the project revenues from delivering the new MC push-to-talk -- mission-critical push-to-talk technology is having on the overall revenues of the business. We are likely to receive over USD 6 million from the U.K. home office this year, a similar amount or not similar, roughly about the same in 2027 before we shift into support revenues. What I'm trying to draw people's attention to here is fundamentally a step change in Etherstack's annual revenue base in the $9 million to $10 million range towards a $15 million to $20 million range in this year and subsequent 4 years following and that's on existing orders in hand, which provides excellent baseline for us to continue to grow revenues from that point. Next slide, please. This slide was just to give our investors a quick understanding of the quality of our revenue and the sources of our revenue. Last 3 years, the largest sources of revenue to the end of '25 were AT&T, world's largest telco, Samsung, world's largest electronics company. These are direct contracts with their entities in the United States and Korea. Electric utilities, Canada, United States and Australia, Rio Tinto, one of the world's largest miners and government agencies, state, federal and defense in the U.K., Australia and the Americas. We also have industry partners who license technology from us or resell elements that we provide to them, such as [indiscernible], which is [indiscernible] meeting with them earlier this week actually, about effectively a bit of a business-as-usual sale, but it was a material business as usual sale. Please go ahead. Next slide. Can we go back one? I just want to make sure we didn't skip one. No. Okay. Look at the next slide, on. I'll skip over these fairly quickly. These are obviously being published a in March. The income statement and the subsequent balance sheet, you can see that the margins for the revenue in 2025 were around 40% rate. I recommend people look at the margins from '21, '22 and '23, which is a stable state business for Etherstack. This was during a growth stage here. So we expect to see -- sorry, the gross margin at 49% increase back upwards towards traditional levels in '21, '22 and '23 as we have absorbed many of the costs associated with the AT&T ramp up this year and most of the U.K. ramp-up costs were absorbed in the first half of this year. Moving on to the balance sheet. Again, all of this information as previously published [indiscernible] said that the balance sheet, again, has improved and it's provided here a moment from matter of record. Move on to the next slide. Thanks very much. A very quick look at 2026 to date and an outlook. Next slide. Okay. So far in the first half of this year, we've had 3 material announcements with forward orders exceeding USD 9 million an ounce in the first half. These included an additional GBP 1.5 million or USD 2 million uplift to the existing U.K. government project that we're currently working on. We had a new client, a new award being Australian Border Force, a 3- to 5-year contract. We've become with Australia represented by Australian Border Force, Department of Home Affairs. That is the minimum revenue that is expected over that period of time in the announcement. We put guidance that we expect that, that will be in the $9 million to $15 million range over the life of that contract should it be continue to its full 5-year period. On the 22nd of June, earlier this week, we just announced an additional just shy of $1 million sale with one of our North American channel partners, which was a subsidiary of [indiscernible]. So continued hitting the wins at the moment, which is fantastic. We announced the completion of the first major milestone for the U.K. project, I think, in February or March. And this month that we're currently in, we'll see the next major milestone delivered. I think it's been delivered already and we're waiting for acceptance of that milestone. But really, the U.K. project and also the existing project and recurring revenues is really driving the 2026 revenue increase. So projects are all going very well. And we -- it's really, as I said before, a great base to build on. We also think that the Australian government growth is directly related to our delivery into multiple departments on complex communications projects and delivering those projects on time and in budget. One final thing I will note in our Defense business, we have the world's first implementation of the [indiscernible] wave form, which is a future waveform that will go -- be deployed on radios that are yet to be built for NATO allied armies and Air Forces and navies and the defense services in general. And this is complies to one of the NATO [indiscernible] standards. So we have done successful demonstrations of our implementation of that to initial target defense clients and international business development on that particular product that we originally announced development on a couple of several years back is now underway. Next slide. Okay. Well, that ends my part of the review of 2025 and also a quick update on we're tracking on 2026. I'll hand the mic over to Adam to ask any questions or provide questions that have come through on the portal while I have been talking.

Thanks, David. We've got a question on the portal from Mr. Stephen Mayne. I'm a relatively new shareholder. Could Founder, CEO and 34% shareholder, David Deacon, please briefly summarize the company's history in terms of being headquartered in Sydney, incorporated in the U.K., listed on the ASX all while he runs the company from his base in New York, what is the rationale for this unusual structure? And wouldn't it make sense to be more focused on a single jurisdiction?

Currently, I am based in Perth in Western Australia, very happily. So I assume there must be some old information out there on the internet. Look, Etherstack was -- the team was founded in 1995, 1996 in Sydney. We expanded offshore in 2021 to -- when the company was reformed out. It was sold and then bought back. During that period of time, when we -- shortly after September 11 attacks, public safety interest grew very quickly in the company. So we've always had a divest workforce team with the primary R&D being based in Sydney. And at that point in time, 2021, I predominantly lived offshore for subsequent 20 years. It was fantastic for an Australian technology company to have its reach of sales and marketing reach offshore. It allowed us to go and win will work in different domains around the world. And noting that Australia does not have very many wireless equipment companies of note anymore after the 1990s whilst equipment route, being closer to our end customer markets in Japan, in particular, where Etherstack has had an R&D group and support office for 20 years now. Also in U.K., for Europe, where we've had R&D and support office for over 20 years. And the U.S. government invited us to [indiscernible] up R&D in 2007 in New York, which is where the -- probably the New York reference comes from. And we set up an R&D team over there to support the North American wireless industry. Etherstack has always been global and spread out organization. And this was certainly one of our great strengths in entering COVID, for example, in 2020, we all used to working remotely from each other well together with each other. We have a high degree of movement of labor of young engineers, young British engineer to come to work in Sydney and young trained engineers who are going to work in the U.S. Young U.S. engineers who do and work in our Yokohama Japan office. So we're very happy with the structure that we have. It allows us to be close to our clients, provide 24/7 coverage globally for support of these mission-critical radio networks, and it serves the company very well. The history of the company being a British plc was that in 2007 or 2008, we were preparing for an AIM listing at the time, and the company was restructured as a British plc at that point in time. 2008 was not a good window to list that. And so in 2012, we listed on the Australian Stock Exchange. There are plenty of British plcs listed on the Australian Stock Exchange, including our peers like Rio Tinto and British Petroleum.

Thanks, David. There's another question on the Q&A form from Mr. Stephen Mayne. Having served on the Board since 2007 and has chaired since 2012, could Peter Stephens please comment on his current intentions in terms of retirement and chair succession. How old is he? And does he believe the next year is he currently serving on the Board. Also, what is the history of his relationship, we founded David Deacon, some governance advisers challenge the independent classification of long-serving directors. Does Peter regard himself as an independent director?

Peter, I will answer the question as I have the mic. First thing, I'll break down the question into several parts. The parts associated with personal or privacy matters I won't answer. The parts in relation to governance and duration of the Board and serving on the Board, I definitely will answer. Every time the Board meets, we regularly discuss the makeup and composition of the Board and the natural view that we'll look at in the short to medium term, the potential for a board expansion, potential changes and so on. So it's not a matter that is not lost on the Board of Directors. Because the company is currently going through a significant and sustained period of growth, not unsurprisingly, the various approaches made to Etherstack from time to time by other parties in regards to M&A activities. And there is a possibility that in a period of time, one of those may become a serious offer that might be required to be considered. And at that point in time, we've decided that as we are entering a new phase of growth in activity that we will give time for these other activities to evolve or not evolve, but we are certainly aware of the makeup issue. In regards to Peter Stephens, the auditors and the Board have decided -- have not decided, have discussed and agreed previously, his status in regards to his independence. And so I think those matters have been well truly taken into consideration. It was certainly not something that we are blind to and is a matter of something that we really discussed. I have to say personally, that Peter Stephens with his legal background, British public company experience in regards to different directorships he's had as a Director of U.K. plc have proven invaluable to Etherstack as has his background in equities, former Head of European Equities for [ Salomon ] Brothers. So very happy with Peter as our Chairman, and I'm very honored to have him serve with us. Next question, Adam?

Next question from Mr. Stephen Mayne. Why did you do a $6.1 million big end of town placement in November last year and then not follow up with a share purchase plan for your more than 900 retail shareholders so that we could participate on the same terms? And why did we pay jointly managers, Veritas Securities and Canary Capital, an excessive 6% fee? Did we run a competitive tender for broking services and try and keep the tipping fees down? If not, why not?

Okay. Look, I will answer this question just to provide shareholders an opportunity to ask question. we should be keeping the questions actually to antifolate to the agenda of the Board meeting, but I'm very happy to answer the question which is currently outside of the scope of this. The $6.1 million raising was done less than 90 days or 90 to 120 days after the company on its 2 largest contracts in history with a combined value of about USD 40 million. In particular, the U.K. home office deal is requiring a significant step-up in our U.K. operations at the moment. We've had U.K. operations since 2003. And but in terms of the skills that we require and the establishment of security operations centers, network operation centers here in the U.K. It was a prudent thing to do a raising to provide the additional working capital in support of the British home office project. That's gone very well. I'm very happy that Etherstack as a and ASX Microcap or Nano-Cap has the ability to go and raise the amount of money that we did. It shows good confidence by representatives of institutional investors and so on. In regards to the fee question, I will say that we certainly did try and run we did run a competitive process accordingly. I think that if Shane -- sorry, Stephen were to take a look around at the cost of raising capital for Australian micro caps or nano caps.You will find that they are particularly expensive as opposed to larger companies further up the food chain. So I'll call that question there to a close. Any more questions related to -- or from any other shareholders or related to matters on the agenda?