Harvest Technology Group Limited (HTG.AX) Earnings Call Transcript & Summary

Hello, everyone, and a very warm welcome to the Drone Conference in cooperation with Dr. Reuter Investor Relations. It is a pleasure to have you all here today for this special roundtable session. And this session is dedicated to Harvest Technology Group, and we are delighted to have the chance to hear from their leadership. It is my honor to introduce CEO, Ilario Faenza. Ilario, the stage is yours.

Thank you very much. So yes, I'd just like to take through Harvest Technology with the brief time that we have today. So Harvest Technology, what we specialize in is making the remote possible is the easiest way to summarize it. We do that by having the world's most survivable, secure and intelligent protocol for the world's most remote and mission-critical environments. And our technology was built for the harshest environments. This is normally a video, but this is a PDF today. So unfortunately, that won't play. You can find that on our website, and that gives you a very quick overview of our technology. So instead I'll explain it to you. In terms of -- and a good example of that technology, if you look at this control room, which is a very high-end control room for one of our customers, and you look at these vessels at the bottom, the catamarans, they are unmanned vessels. And it's a Coast Guard deployment in the Middle East from one of our clients. Now while it all looks really great and a really exciting control room, really amazing technology in terms of catamarans, if without our technology, they wouldn't be able to control or run that system. So basically, what it does is it remotely connects a remote asset to a control room or wherever you want to control it, it could be from a phone, tablet or high-end room like this and allows you to control the asset and fundamentally maximize the return on that asset. And this example is being used for border security, where over 40 catamarans are being deployed automated, semi-automated for that customer where they patrol and they're also controlled remotely as well. So it can be controlled remotely or can be autonomous control. So the key thing about our technology and understand is that it's proven. So our technology has been around for several years and being enhanced as we go. It was built for mission-critical in the harshest environments. It was built for maritime with very, very low satellites. So before Starlink or any of the other high-speed satellite connections came out, we were proven in very, very low bandwidth environments and very hostile environments and with clients that led the way in terms of automation. So these were, in particular, maritime customers that were looking to automate remote inspection of oil rigs and wind farms being rolled out and the inspection of those where they run their automated vessels for 20 days doing inspection, and they would run automated between areas and then the remote pilots would take over to do inspection. And our technology was built to enable that to happen, right? We're proven technology. We're also multi-sector. So we started in maritime and remote inspection and we now moved quite broad, which I'll take you through in a second. We're a recurring revenue model so we have hardware and software with recurring licensing. We're on our pathway to profit. I'll talk about that as well. And we're fully funded in terms of institutional investor backing for our working capital. So obviously focusing on drones and focus on military. One of the key points is the problem for most customers and most sectors, including military, obviously, is transitioning to autonomous. So a lot of systems around the world, whether they be military, border security or commercial, were designed to be manned assets or to have people physically on deck that can actually do something there. So as the world moves from those assets to some people are going fully autonomous like drones, which we talk about, to part manned and hybrid solutions, our technology works in all those scenarios. So we are seeing a very safe hands to help customers move from having manned assets to fully unmanned assets, and we also have embedded solutions for directly autonomous solutions like drone manufacturers. So there's a huge global demand for secure low bandwidth communications. One of the things that we're finding with Starlink and other technologies, which are fantastic is they're designed to be high speed down, but low speed much, much lower speed up. So they do about 1/10 the speed on the uplink. And when you're talking about controlling remote assets and gathering data and having situational awareness so situational awareness is where now that you don't have people out in the field or as many people, you need to be able to see what's going on. And I'll show you -- talk about that in terms of drones in a minute as well. But you need to be able to see what's going on, you need to be able to make better decisions, right? So if you can't see what's happening, then how can you make decisions. Now that's pretty important when you got a stationary asset so if it's a drill rig or something like that. But when you get to military, and it's a dynamic asset that's moving and has real-life consequences with the decisions you make, the higher the quality of the video, the better decision you can make. So we specialize in delivering the best quality video, audio and data to enable our customers, particularly in defense, maritime and in border security and other critical missions to make better decisions that have better outcomes and allow them to optimize the use of their assets to deliver the best solution they can based on whatever mission they're performing at the time. So defense, border security, energy, maritime and public safety are our main areas of focus. We're driven very much by the migration to autonomous across all sectors, which has been escalating year-on-year. And we're the industry standard basically when it comes to this. So quite a few people provide video stream. We are quite unique that we allow you to control that asset and do 2-way video, 2-way audio, 2-way data, which gives you full control of the asset. So you have situational awareness by being able to see what's happening and situational control by being able to affect what's happening and be able to communicate in both directions. The core of our products is the Nodestream products, and we also have the new NEON system coming. So on the screen here, you can see a range of products. So we have everything from the headset. So the headset that can be worn or could be embedded into somebody else's headset. This is a RealWear headset, for example. That allows somebody on a vessel or remotely to put the headset on, and it could be for medical purposes to go and triage a soldier or enable person at somebody that's been injured to actually look at their injury, allow them to communicate back to a medic that's a specialist and surgeons of hospitals who can help triage the solution and therefore, improve the recovery time as an example. That same technology can also be used for remote experts. So it can be used to help troubleshoot very complex remote environments where, obviously, in the field, particularly in military environments, they may not have and are unlikely to have all the specialists that they need that could troubleshoot a critical issue in a timely manner. And this allows that expert back at head office to remotely connect in very easily and be able to advise in real time, be able to control the video and have a communication with the person wearing the headset. Then separately, we have several models of the product depending on the requirement, including hard and ruggedized versions, et cetera. All of our technology we revitalized over the last 18 months to shrink, increase the performance, remove fans and put in heat sinks and to actually just massively improve the processing and the storage capability. Again, all of it can be controlled by Tablets, iPhones, Android, et cetera. And it's a fully secure environment. So we have a proprietary 384-bit military-grade encryption. On top of that so that's like the outer layer of the pipe is encrypted, which is great. But more importantly, we encode proprietary encoding and decoding. So what does that mean? Well, we ingest on one side of our protocol a whole bunch of data. And in fact, I might just go to the next screen for this. So if you look at this picture here, we ingest on one side a whole bunch of information. It can be video, audio data, can be some very interesting things that defense use. And with that, we then take all of that, we ingest it. We actually remove all of the standard protocol information. We use our proprietary protocol to improve the transmission quality and to improve the security. We then effectively mash up all of that data, video, audio and then stream that in a clear pipe, which allows us to optimize the usage of whatever the transmission is. So in this case, a lot of our clients use satellite because of the remoteness. But it could be any network topology. It could be Wi-Fi, it could be 5G, it could be microwave, could be laser, could be whatever the client wants to use or a combination thereof. And our system will then recreate the data at the other end. So this allows us to take very, very high packet loss so we can take a sustained 30% loss on packets so that if a customer is -- particularly in a contested and congested environment, their data will still get through even though they're suffering severe packet loss. To give you an idea, a standard solution can only take a few percentage of packet loss. We can take 30% sustained and we can burst all the way to 70%, which is why we are seen and known as being the most survivable protocol in the world. The other thing as we flag here is we can operate very well at even below 100 kilobits. In fact, we can -- there's a video later, which we normally would play, which is on our website. You can look at it again. I think this is a PDF. But we can actually control and show you a full image of our helicopter moving around at 30 kilobits, which is very minor bandwidth. Now while in a lot of situations, you can have more bandwidth, the fact is that in a contested or congested environments, not only will you be bandwidth constrained, but you also want to have the smallest footprint you can to obviously to minimize the interception by enemy units. This is normally where we have the video play, but unfortunately, it's a PDF so I'll move through. Again, defense, border security, maritime, energy, public safety are the key focus areas for us. In terms of that, we also have high margins. So our software, we spent over $40 million building our software and our hardware solutions over multiple years. I joined the company in January last year to help accelerate the commercialization and to take the company broader than its original mission-critical maritime environment. So on the software side, we're over 90% margin. A key feature is we have private mission-critical service solutions so that our customers can actually control all their data, own all their data, have sovereignty over all their data. We never see their data, okay? For most of our clients, they run in very mission-critical environments. We configure the system for them, and then we help support them as needed. On the software side, we're over 90% gross margin, which is fantastic and obviously helps us generate more profit and actually move through reducing our losses. On the hardware side, we're at 45% plus margin and on a bundled environment so a client that might say they want a 3- to 5-year agreement, they want the hardware and software bundled, that tends to work out around the high 80% margin side. We're capital light, and we're highly scalable, and we're focused on embedded solutions. So as we do the migration from what is currently, say, a manned asset to a part unmanned and then fully unmanned and autonomous, the embedding solutions is where we jump to the end game, which is the autonomous. So that's where we'll work with drone manufacturers or fixed-wing aircraft providers or people who build naval vessels or in particular UAVs, et cetera, where we'll actually embed our software directly into their solution at the time of manufacture. So that way, it's coming as part of the standard solution. Of course, our dream is to be known as the industry solution and to roll out that solution regardless of whether you're using an airborne, land-based or a naval-based asset. So here's some active pilots that we currently have going, which is a good example on our tech. So we have European defense prime. Obviously, we can't name them with unmanned vessels. So they are requirements very much low bandwidth, secure video for remote vessel operations. Their objective is to increase situational awareness and operational efficiency. Again, for them, it's really about improving the use of those assets, minimizing the specialists that are needed on board for a range of reasons, in particular, because of the fact of just removing people from harm. We also have European Defense Prime who's working on drone operations, and that's where they're looking, in particular, for encrypted real-time streaming from UAV platforms. And their objective is advanced surveillance, improve safety and mission effectiveness. And both of those are currently live pilots today. In terms of security, we're also working with a global provider of managed security solutions where they're looking to enhance their AI-enabled CCTV streaming. One of the issues with the wonderful term AI that gets bandied around a lot. One of the interesting things about AI, of course, is just the bandwidth requirements that it has. And with the AI side, if you can optimize and minimize the usage of the bandwidth and minimize the usage of cloud infrastructure, that can make a big difference to the functionality of the system to begin with because there is limited access to those assets. And secondly, but also just cutting the cost down of running those solutions. And that's whether you're government, defense or corporate. And what they're looking for here is faster incident response, scalable surveillance and enhanced security. And again, our system wraps everything in the 384-bit encryption and with full proprietary encode, decode. So depending on the camera, we can actually embed Nodestream directly in the camera. The other thing that's important, a lot of people try to tune their cameras to minimize bandwidth. We don't want that. We ask the customers to give us the highest resolution. We'll then optimize that and then bring it back to them in high resolution as well. So that's helping customers manage their bandwidth, but still get the perfect picture quality. In terms of maritime, very -- this is our traditional sector. We have enterprise-wide connectivity rollouts across the global vessel fleets at the moment that we're working through. The focus is very much on crew welfare at the moment to enhance onboard Internet and operational communications. These are fully connected vessels with real-time situational awareness. Some of the other things they're looking for there is obviously to reduce things like container tampering, for example, at sea, which is obviously a big issue. They're also looking for UAV-based remote surveying to streaming from offshore drones for monitoring and mapping. They're looking for faster decision-making, improved safety and advanced survey. The other thing we've got is piracy protection is a new one that's been a great topic around the world, and we're now actively engaged in working with customers to resolve and enhance their solutions of piracy protection and shipboard surveillance to improve the safety and the security of their staff. That's to provide secure real-time video streaming, including safe room monitoring. So it is typically impossible for the staff to go to a safe room. If the vessel operators wanted to, they could remotely take over the bridge using our solution as part of the overall solution to give them that capability. So it's to reduce privacy risk, protect the crew and improve incident response. In terms of the pathway to profit, I joined in January 2024. We've been -- we did a turnaround. The company like many had built incredible technology, but was very focused on talking about the technology as opposed to use cases and saying to people, here's what you can use it for. So we used to -- teams to show up very technically and very smartly. But we've changed that where we now talk and we pitch specifically use case solutions to say, this is what you do, this is your industry sector. So for example, in the mining sector, we've automated some mining drill rigs that are currently being tested by our customers. Now a lot of customers when they're testing solutions, it's not testing our technology. Our technology is proven. And most of our clients are at a stage where they've accepted that our technology works, et cetera. The issue that a lot of customers have is just working out how to reengineer their business to actually operate in an unmanned environment. So if you can just imagine if you're running a mining operation and now you can actually run a mining operation with no one -- no physical humans there anymore. That creates a whole bunch of opportunity, but now means you need to be able to pay a lot more attention to the asset. You have to be able to monitor 24/7 and not only monitor it, you have to be able to react to it and remotely be able to control certain things, some access, gates, alarms, shut down the system, et cetera, et cetera. So that's what we see across the board, whether that's military, border security, mining, oil and gas, maritime, et cetera, they all have the same requirement. As they remove humans, they have to have enhanced capability to control the asset. And that really is the core of what we do. So with the turnaround, when I showed up, the first thing we did is the review and plan. We managed to get the losses that year. Unfortunately, I came in 7 months into that year, they're at $6 million. We managed to reduce the losses by half last year. We expect to reduce those again by half this year and hit profitability by July -- by June, July this year, 2026. And then to accelerate the plan into '27 and be profitable. This is our base position and this excludes acquisitions and excludes any of the larger major contracts coming in because we obviously have individual contracts that could certainly rocket these numbers. But in terms of putting numbers to the market and being conservative, this is what we've put to the market, and we're well on track. '24 is done, '25 is done, and we're a good chunk into '26 at this stage. So executing on our 4 pillars of growth. The 4 key pillars for us are really market penetration and really looking at those sectors, particularly defense, border security and other sectors where while there are -- almost every industry is moving to automation, we are looking at the best return on our time and the clients that can scale to thousands of units. To give you an idea of the pricing of our product, each license, each asset is about USD 6,000 a year of licensing, and that's based on a certain amount of functionality. Obviously, that can become more if they require a lot more functionality. In terms of -- we also have hardware that they buy upfront or they can actually bundle. And from a hardware point of view, that's between 5,000 going up to a much higher number. Right now, a product we have under development is NEON, which is the Nodestream Enhanced Operating Network. And NEON is a product that we've developed and just filing at the moment, which is an edge compute solution that allows you to run your AI models locally, fully Nodestream encrypted and encoded top to bottom. So that allow our clients to run their AI solution up to 30, 40 models locally with no need for cloud compute. That's very, very important for mission-critical customers. Obviously, product innovation, as I just talked about with NEON is key. We'll continue to innovate. And then we've got scaling through organic growth and acquisitions. So that's basically our company. We've talked to about drones to surveillance deep sea vessels. But fundamentally, that's what Harvest does. I invite you to go to our website. I invite you to join our investor community and to go from there.

Thank you very much for your presentation, Ilario. Ladies and gentlemen, we will now move on to our Q&A session. [Operator Instructions] And I would like to start the Q&A session. Ilario, could you please just briefly explain your plans for Europe 2026?

Yes. Well, Europe is a very -- I forgot to mention Europe is our biggest market. So while we're an Australian company, the majority of our customers are European, even the customers that we have in Australia are owned by European. So we trade on the Frankfurt Exchange. Obviously, we have teams that work regularly in Europe, and most of our client engagements are in Europe. So in 2026, we expect to be in Europe frequently. We're obviously in Europe several times in 2025. And all of those pilots I was talking about are actually all happening across Europe. Obviously, can't identify where. But from the Middle East through the U.K., across to Turkey and all the other states that you can imagine along the way is we're operating. Obviously, with Europe going through the rebuild of its defense infrastructure, we see ourselves well placed to become a standard platform that can be leveraged across multiple assets.

Thank you very much. The next question, with defense budgets increasing globally, where do you see the most immediate opportunities for your technology?

Yes. So we see, obviously, again, the rebuild of Europe's defense is very key to us. So heavily embedding into the drones and fixed-wing aircraft. There's 2 sides to defense and border security. You've got the defense side and border security, which work very much hand in hand. So we see that the natural maritime asset side for us is very straightforward and a very natural extension for our business. But certainly, the airborne assets are becoming much more in focus, and we have a lot of drone providers currently testing our solution. The main thing we need there is more the defense drones that have the processing capacity because of our encryption techniques and because of our encoding and decoding, we do require some compute on board, which some of the low-end drones don't obviously have.

And how does real-time video from drones in low bandwidths or contested environments change the tactical advantage for defense and security teams?

Well, basically, what it gives you is better situational awareness and better decision-making. So depending on the rules of engagement and depending on what environment you're in, it can be very -- knowing what you are seeing, it makes a big difference to the outcome and the confidence of a commander to execute a decision. And obviously, that has real-world consequences depending on the capability of the asset that they're using. So that is just a surveillance drone, that might be one thing. But if it's an arm drone of that, then obviously, that is critically important that you give the best information possible as commanders so they can follow their rules of engagement.

And ladies and gentlemen, this is your reminder for your questions as we come to the last question, how easily can this capability be integrated with other systems in the field like naval assets, ground vehicles and via satellite connectivity?

Yes. So one of the interesting things there is our platform is network agnostic and we are effectively platform agnostic. So as long as there's enough compute and we've bet our system to work across some interesting platforms, we can get it done. But we also have a design house inside. So particularly for defense clients, we have integrated and architected complete boards. So we've had clients come to us and said, here's a munition control system, here's a mechanical to electrical conversion system. We will take autopilot. We can take all of that, create a single board with our technology. So one thing that's interesting about our company is we architect everything in-house in Australia, full sovereign ownership. Every bit of coding is done in Australia. We, of course, bring components in from around the world, but we architect the whole thing. So that gives us flexibility with customers to be able to integrate into their solutions. So we have someone with a drone or naval asset or land-based asset, we can do custom integration for them. The software itself doesn't change. It's the hardware integration that normally requires that. So -- but we have that capability, and we've done it, we've proved it many times.

Thank you very much. We now come to the end of today's roundtable of the Harvest Technology Group. Should further questions arise at a later time, please feel free to contact Matthew Reynolds from Dr. Reuter Investor Relations, who I'm handing over to you now. And afterwards, Ilario will give us some final remarks.

So thank you very much, and thank you, everyone, for attending and Ilario for a really interesting presentation. So we know many of you have expressed an interest to hear more from Ilario and Harvest about the really interesting technology and particularly how it relates to Europe. So we will be reaching up to you in the next couple of weeks and with further details on the company and how we can assist with your inquiries. So thank you very much.

Thank you for having me.