Imdex Limited (IMD) Earnings Call Transcript & Summary

Welcome to the Imdex First Half '25 Results Presentation. Following the formal presentation, there will be a Q&A session for investors and analysts. [Operator Instructions]. To view documents relevant to today's meeting, including more detailed instructions on how to use the platform, select the documents icon. A list of all available documents will appear. When selected, the document will open within the Lumi platform. You will still be able to listen to the meeting while viewing the documents. Text questions can be submitted at any time and the audio queue is now open. I will now hand over to our MD and CEO, Paul House.

Thank you, Michelle, and welcome, everyone, to Imdex's 2025 Half-Year Results Presentation. I'm delighted today to be joined by Linda Lim, our CFO; and Kym Clements, who leads our Investor Relations team. Throughout this call, we will be referring to the investor presentation slides that have been released on the ASX this morning. Turning to Slide 4. Imdex is a leading global mining tech company, and we distinguish ourselves from the traditional mining services arena in a number of essential areas. First, we place technical leadership at the core of our growth strategy. We use innovation to achieve that technical leadership through consistent and disciplined R&D investment. Second, our business model is both capital-light and labor-light, which enhances our agility and our scalability as a business. Third, we are truly global with operations in all major mining regions around the world, which means we mitigate our exposure to contract risk, commodity risk, and geographic risks. And finally, our portfolio of integrated solutions enables us to deliver high-quality revenue and margins in all market conditions. Our strategy and this resilience is once again demonstrated in our 1H '25 results. The MINEPORTAL visualization depicted on the slide in front of you represents the geophysical data from our BLAST DOG solution that has been collected from a set of blast holes and a mine bench. What is most valuable about this image is that it can be accessed through our cloud-based portal from anywhere in the world. It can automate a number of traditionally very manual tasks and it can be done in real-time, thereby enabling live decision-making around mine planning, grade control, blast design, and a range of other workflows on the critical path without necessarily having to be at the mine site itself. Historically, our customers have had to make substantial investment and mine planning decisions with limited visibility. Today, Imdex's technologies and its geoscience expertise can provide these critical ore body insights in real-time. Today's presentation agenda is set out on Slide 5. We will focus on 3 key areas: our financial strategic and ESG highlights for the period, a deeper dive into our financial performance, which Linda Lim will provide, and finally, the market outlook and how Imdex is positioned to continue to outperform. Following the presentation, we will be happy to take any questions. Turning now to Slide 7 and our financial highlights. Imdex has once again demonstrated its resilience, successfully executing its growth strategy during another period of subdued global exploration activity, which has now spans 4 consecutive halves. Our revenue of $212 million for the period was down 10% on PCP, which is a commendable result given the 19% contraction in industry activity in calendar year '24, once again, highlighting our ability to outperform the market. Half-on-half revenue grew marginally despite this ongoing decline in exploration activity, and the drivers for this growth include strong market share gains and increasing contributions from our new business growth initiatives, which we will be happy to share further information upon today. Reported EBITDA was up 28% on 1H '24, reflecting the successful resolution of the global tech claims. Normalized EBITDA declined versus PCP in line with the lower revenue. However, it too exhibited half-on-half growth. Most pleasingly, our EBITDA margin remained strong at 30.2%, consistent with 1H '24 and up on 2H '24, once again against the backdrop of a rising cost environment. This strong margin outcome is a combination of disciplined cost management and the ongoing delivery of synergies across our business. Overall, our financial performance for the half highlights both the strength of our business model and the discipline of our global teams around the world in what has been a tough market. Continuing with our financial highlights on Slide 8 and now with a focus on our balance sheet. Operating cash flow conversion was very strong at 96%, which is an outstanding result and well above our historical targets of 70%. Most pleasingly, net debt is down to $15 million and the accelerated repayment of our debt remains on track with expectations we will be net cash early in FY '26. Linda will expand on this and our detailed balance sheet metrics shortly. Finally, our Board has declared an interim fully franked dividend of $0.015 per share. This is in line with 1H '24 and consistent with our capital management policy, which targets an annualized 30% normalized NPAT payout ratio. Turning to Slide 9 to review our strategic highlights for the half. As briefly outlined earlier, the market share gains have come directly from the strategic progress we've made around our core business. Concurrently, the increased revenue contributions from growth business units set Imdex up for long-term growth in all market conditions. Expanding a little further on the core business initiatives, we've seen good early adoption from our next-generation OMNIx, ACTx, and LOGRx technologies, which contributed to a 1% uplift in the average revenue per unit or ARPU of our fleet. These technologies remain in the early stages of rollout, and we expect further growth in the periods ahead. I would take this opportunity to remind listeners that ARPU is only one of the key indicators we use to assess our portfolio health. For instance, products like LOGRx have a lower price point than our total fleet ARPU price point. As such, growth in the LOGRx technology can reduce the total fleet ARPU. The LOGRx technology, however, delivers substantial productivity benefits and adds significant value to our customers and as such, remains critical to our strategy. While we no longer report Devico's performance separately, the revenue synergies continue to be delivered from this acquisition. Revenue from Devico sensors through the Index sales network continued to gain momentum, growing approximately 15% for the period. In contrast, a number of DCD programs were completed during the period, seeing a slight revenue decline. However, the pipeline of new directional core drilling projects is the strongest it has been since completing the acquisition, and these 2 are expected to deliver further growth in the periods ahead of us. Checking now to our strategic pillar around integrated solutions. Imdex's share of exploration spend remains steady with Imdex continuing to earn approximately $2.10 in revenue for every $100 spent on exploration activities during calendar year '24. Similarly, the proportion of our top 250 clients using more than 3 products was consistent with the prior corresponding period. And finally, the number of customers connected to Imdex HUB-IQ grew by 7%, a strong highlight of the increase in customer engagement in our cloud-based platforms. Now focusing for a moment on our growth business units. Our strategic investments in Datarock and Krux continue to deliver. The development and growth of these SaaS revenue platforms are pleasing with Datarock SaaS revenue increasing by 107%, while the Krux SaaS revenue grew by 46%. As announced in our release this morning, we have now committed to acquire the remaining 49% of Datarock in FY '26, a clear statement of the success we are seeing in their market offering. Turning to Imdex Mining Technologies, which comprises a portfolio of products being BHS, Bolt, BLAST DOG, and our MinePortal software. This business unit is organically expanding into the adjacent mining production space and leverages the core capabilities of our existing technologies. At the end of 1H '25, over 40 sites globally had at least one of our IMT solutions installed and revenue for this unit was up 72% on 1H '24. Overall, regardless of exploration market conditions, Imdex's strategy, product suite, and market positioning continue to enable us to deliver superior performance. Turning now to our sustainability highlights on Slide 10. Our sustainability strategy is built around 5 key pillars. Today, we remain on track to achieve all the targets set out for FY '25, and I draw your attention to a selection of those highlights. Starting with our people. Critically, we have 0 lost time injuries recorded during 1H '25, and I acknowledge our global teams for their high commitment to safety engagement. We also continue to drive a positive shift in gender diversity as part of our DE&I strategy. Moving to innovation. In response to an emerging demand from our clients for solutions that enhance productivity, we have slightly increased our R&D investment, further strengthening our product pipeline for the future. For the environment, we initiated a project to enhance the collection and reporting of greenhouse gas emissions data, ensuring greater accuracy and transparency for our environmental reporting and our ability to establish future reduction targets. Within our society pillar, our global volunteering program, which was launched in mid-FY '24, continues to gain momentum. And so far, we've had over 300 hours provided by greater than 10% of the Imdex global workforce towards community initiatives that are relevant to our people. And finally, on governance, we have consolidated our modern slavery reporting processes to align with the various global requirements in different jurisdictions and reinforcing our commitment to responsible business practices. That completes the highlights for the half, and I'll now hand over to Linda to discuss the financials in more detail.

Thank you, Paul. Paul has provided the headline results, and I will expand on this further. Our preference is to deliver transparent results without the need to normalize. However, in 1H '25, we were pleased to see the resolution of the Globaltech claims as detailed in our ASX announcement on 16th of August 2024. This resulted in net proceeds of $9.1 million, which have been treated as a significant item. Reported NPAT is $31 million at an annualized effective tax rate of 28%, 32% normalized. When adjusted for the $9.1 million Globaltech resolution outcome, this results in a normalized NPAT of $21.9 million. Normalized NPAT I for 1H '25 stands at $26.5 million, reflecting the slight increase in amortization, primarily driven by the commencement of MinePortal amortization in 2H '24. I will provide more detailed capital management overview later in the presentation, but I'm pleased to highlight our strong normalized operating cash performance despite the softer market activity. Additionally, our net debt position has reduced to $15.3 million, bringing our net debt leverage ratio down to 0.2x. Finally, our full-time employee count decreased slightly to 823 as at 31 December 2024. This reflects the outcomes of our organizational redesign and cost management focus. Turning to Slide 13. You can see our half-on-half revenue performance since FY '22, which shows a consistent upward trajectory until 2H '24 when sector activity softened. Revenue for 1H '25 came in at $212 million, a 10% decline on the prior corresponding period and only 7% on a constant currency basis. However, this top-line result is particularly strong given drilling activity for calendar year '24 contracted by 19%. Encouragingly, revenue increased by 1% on 2H '24. As Paul referred to earlier, this reflects the combination of market share gains in our core business, including the growth of Devico sensor revenues through the index sales network and increased contribution from our new growth businesses. Importantly, higher-margin revenue from sensors and SaaS now accounts for 66% of total revenue, up from 64% in 1H '24. This further strengthens our business model, enhancing both resilience and profitability despite tough market conditions. Our ability to consistently outperform industry benchmarks is evident in our 5-year revenue CAGR of 10% significantly outpacing the 5% CAGR in S&P exploration expenditure over the same period. This demonstrates the strength of our strategy and our ability to drive sustainable growth. Turning to Slide 14. We focus on our revenue performance by region. The Americas continues to be our largest region, contributing 49% of total revenue in 1H '25, a slight decrease of 1% from the PCP. Revenue from Europe and Africa accounted for 25%, reflecting a 1% increase, while Asia Pacific held steady at 26%. Looking at the Americas in detail, revenue declined by 11% compared to 1H '24 but showed a recovery, up 6% from 2H '24. The primary factors influencing this performance were funding constraints for junior miners in Canada and the natural completion of some directional drilling projects in South America. The U.S.A., however, remained strong and led our half-on-half recovery. In Asia Pacific, revenue was down 8% PCP but showed resilience with only a 1% decline half-on-half. And lastly, in Europe and Africa, revenue declined by 9% compared to PCP and was down 5% from the previous half. Turning to Slide 15. We see our consistent half-on-half EBITDA performance since FY '22, demonstrating margin stability and a 2% improvement in 1H '25 over 2H '24. Once again, in spite of lower activity levels, higher wage inflation, and the absorption of $2.7 million in noncash Devico KMP retention incentives. These charges were previously treated as a significant item in FY '24 and excluded from normalized EBITDA. This performance reinforces the earnings resilience of the Imdex business model and supports our objective of sustaining baseline EBITDA margins of around 30%. Three factors have contributed to this performance. Firstly, improved revenue mix. Our overall gross margin has been strengthened by growth in higher-margin sensors and software revenue. Secondly, cost discipline and strategic investment. We have maintained disciplined cost management while continuing to invest in R&D. To clarify, there has been no change in accounting treatment for R&D. We maintain our conservative approach, whereby the majority of R&D is expensed. As Paul alluded to earlier, the increased demand for insights through our software platforms has driven an increase in overall R&D spend for the period. Our investment supports next-generation technologies within our core business and our new growth initiatives in IMT and digital. And thirdly, cost synergies. The organizational redesign undertaken in FY '24 reflected in our lower FTE numbers has delivered the expected cost savings and more. Additionally, our decision to manage the pace of our capability investment until market conditions improve has provided over $2 million in labor savings in 1H '25. Overall, there is a net $16 million improvement in OpEx versus the prior period comparative. Turning to Slide 16, which highlights our strong cash flow generation and conversion. From our normalized EBITDA of $64 million, we generated $61.5 million in normalized operating cash flow, delivering an impressive 96% conversion rate, 109% pretax. This excludes the net $9.1 million received from the Globaltech resolution, which lowers our net debt position. We invested $17.4 million in property, plant, and equipment with a primary focus on developing next-generation sensors, an investment that will continue over FY '25. The higher investment in intangibles reflects the higher software investment and the IP introduced from the Globaltech resolution. Additionally, we repaid $14 million in borrowings, further strengthening our balance sheet. I've already covered our working capital balances, but I want to highlight 3 key points. Firstly, our strong free cash flow generation gives us the flexibility to accelerate debt repayment, return to net cash, and in turn, pursue further acquisitive growth when the opportunity arises. Secondly, we have $83 million in available liquidity as at 31 December 2024, providing long-term stability. And finally, our interest coverage ratio remains healthy at 7x, reinforcing our solid financial position. Our overall balance sheet is in a strong position to support M&A if the right target presents. Our return on capital employed reflects our investment in next-generation technologies and long-term growth incentives that are expected to generate additional revenues. I will now hand back to Paul to cover our outlook and recap our strategy.

Thank you, Linda. I'd like to spend some time now on Slide 19 and how Imdex sees the market outlook. As we have consistently shared in prior updates, we continue to be guided by 5 key traffic signals that define the evolution of exploration market activity. Firstly, supply and demand fundamentals. We closely track the drivers of demand for all commodities, particularly copper and gold, which collectively account for around 75% of global exploration activity. The decline in proven reserves for gold and the expected shortfall in supply to meet the current and growing demand for copper is well documented. We expect this to continue into the next decade, reinforcing the urgency for new discoveries, the demand for increased exploration, and in turn, the demand for Imdex products. To be clear, long-term demand for cobalt, nickel, and lithium remains strong despite any near-term volatility and is underpinned by global decarbonization efforts, which do continue at pace around the world. As reserves become deeper and more challenging to locate and mine, the need for exploration and the need for new and improved mining technologies continues to intensify. This is core to Imdex's position in the market. Secondly, commodity prices. With tightening supply and rising demand, we anticipate continued commodity price growth. Higher prices typically create favorable conditions for exploration investment as miners seek to capitalize on stronger returns. These first 2 industry fundamentals then drive the next 3 industry activities, being M&A activity, exploration budgets of producers, and the improved access to capital by juniors, typically in that order, all of which drive increases in overall exploration activity, which in turn drives demand for Imdex solutions. Thirdly, around M&A activity, we have seen a consolidation in the mining sector. Historically, these transactions have been a strong leading indicator of increased exploration activity. Newly merged entities often prioritize proving up the value of their expanded asset portfolios and growing their declared reserves. Over the past 12 months, we have seen a rise in M&A activity. Fourth, exploration budgets. While global exploration budgets remain below the 2012 peak of USD 21 billion, we are seeing positive signals. Australian resource companies have already signaled budget increases for FY '25 and signaled a renewed focus on exploration as a result. The rest of the world typically budgets on a calendar year basis, and we should see confirmation of their exploration budgets and intentions in the coming weeks. Five, capital raisings. Although junior explorers only represent circa 15% of Imdex's revenue, we have included capital raisings as a market signal. Junior exploration activity does provide an indicator of sentiment for broader exploration trends. Junior and intermediate capital raisings are down year-to-date in value, but the number of transactions is up, suggesting selective investment in exploration products, and we anticipate this to continue to improve. So what do we expect for calendar year '25? Currently, 3 of these traffic signal indicators being supply and demand fundamentals, commodity prices, and M&A activity are all signaling green, pointing towards increased exploration activity. Until we see a meaningful uplift in global exploration budgets, we expect near-term activity to remain steady, although pleasingly, the long-term fundamentals and short-term drivers are increasingly indicating activity is likely to improve in FY '26. The box on Slide 20 encapsulates what we are currently seeing in our regions. Starting with North America, activity remains steady, primarily centered around near-mine projects. Encouragingly, the adoption of our integrated solution continues to gain momentum in this region. Mexico and Canada remain slightly subdued with junior activity constrained by persistent funding challenges. In South America, strong demand for copper is driving increased activity, particularly in Chile and Argentina. We're also seeing increasing demand for our Devico DCD solutions across the South American region. In Africa, activity remains stable with major players driving growth in gold and some copper brownfield projects. While we remain cautious regarding Mali and the DRC, we do see promising growth opportunities emerging in Zambia and the Middle East. In Europe, activity remains steady, underpinned principally by brownfield projects. We have had one major resource company slowdown in Scandinavia that has had a short-term impact on our results in that region, but this is being offset by rising activity in Eastern Europe and the Balkans. Australia as a market experienced a strong post-Christmas start-up, driven by several contracts that commenced in October '24. We anticipate activity to remain relatively steady for the remainder of FY '25. And finally, activity in Asia remains stable with noticeable increases in PNG in the Philippines. In summary, across all of our core regions, whilst some challenges persist in our market, we do expect overall activity levels to remain consistent throughout the remainder of FY '25. Turning to Slide 21. At Imdex, we have a clear and focused strategy that is unchanged. Our growth is driven by technology leadership and integrated solutions in our core markets, and it's driven by expansion into new and digital mining production markets. In our core business, our technologies aim to enhance productivity to drillers and resource companies alike. In our growth business units, we are focused on increasing the number of new installed sites around the world. Together, the growth of production segment revenues and SaaS revenues expands our presence into less cyclical sectors. We execute this strategy with discipline and clear focus using target acquisitions, targeted R&D, and close collaboration with customers and industry partners. This is a clear, consistent, and well-defined strategy and remains unchanged. Imdex remains fully committed to driving long-term sustainable growth for our shareholders. Turning to Slide 22. I wish to reiterate how we view our growth opportunities, differentiating between the drivers that we can control as a leadership group versus the broader influence of the exploration market cycle. Starting with market share gains on the left, we are actively expanding our market presence and creating new opportunities through the growth of our integrated solutions, including directional drilling. This expansion is underpinned by our broad technology portfolio and an increasing global footprint. Next, margin expansion, where we maintain our technology leadership and increased contributions from our higher-margin sensors and software portfolio. And finally, the upside that comes from our growth initiatives, where we continue to pursue long-term opportunities in digital, IMT, and new strategic M&A to sustain future growth and innovation. The box to the far right of this slide represents the overall market, an external factor. As mentioned earlier, the long-term fundamentals remain positive and exploration investment continues to be a key market driver. The global exploration budgets for calendar year '25 remain below their 2012 peak, indicating significant room for further investment and expansion, one upon which Imdex is well positioned to capitalize. In summary, Imdex retains a very clear strategy with substantial headroom for growth in all market conditions. Slide 23. Imdex continues to outperform relative to the market over the longer term. This current graph has been updated for the more recent data. However, our outperformance trend is a decade or so long. In this 3-year version, the left-hand side of the slide illustrates that while exploration budgets have increased some 8% over the past 3 years, they remain well below the compound annual growth rate that Imdex has achieved, where revenue and EBITDA have grown 68% and 73%, respectively. On Slide 24, I'd like to wrap up today by leaving you with 5 key messages, our cliff notes, if you will, that encapsulate how we see our performance in 1H '25. Firstly, we delivered half-on-half growth despite tough market conditions. Secondly, we expanded our market share within our core business. Thirdly, we delivered significant growth in our digital and IT growth business units. Fourth, we maintained our EBITDA margins in a high-cost environment. Finally, we strengthened our balance sheet and remain on track to achieve a net cash position in early FY '26. These results reflect our resilience, our disciplined execution, and our commitment to delivering sustainable growth. This concludes our presentation for today, and I'll now hand back to the moderator for any questions.

[Operator instructions] Our first text question comes from Gavin Allen who asks, Hi, team. You mentioned operational efficiencies at various points through the presentation, a clear highlight this half. Would it possible to provide a little more color on where these have been achieved and if these initiatives in any way may impact ability of speed -- sorry, impact or speed of possible ramp as operating conditions improve?

I think Linda called out there was a net $16 million improvement in OpEx even after absorbing items that were recorded as significant items in the prior year. That saving has come around from a combination of synergies delivered from the Devico acquisition, savings unlocked from the organizational redesign that Linda also referred to, and some efficiencies and gains that have come from early-stage digital transformation investments. And finally, there were a couple of million dollars that came out of saved legal fees with the resolution of the global tech claims. As we look forward, we continue to see the business is well positioned and scalable and there is good operating leverage in the core business model, and we would expect that, as the top line increases, you should see incremental margins dropping through, and we will be well positioned to fund any growth inside of that without compromising those margins.

The next question is from Nicholas Rawlinson.

Maybe one for Linda. R&D that was expensed was down about 20% year-on-year, but it looks like you've capitalized more. Could you just elaborate on the total R&D spend during the first half and how much has been capitalized? And then if we can have the PCP too, that would be helpful.

Yes. So our total R&D spend for the half was around $19 million, and the expense portion of that was $14 million with $5 million being capitalized. When you compare that to the prior period, the nominal -- the amount of spend was $18 million for 1H '24, of which $17 million was expensed. The higher increase in the capitalized proportion of our R&D is because we are capitalizing R&D on our client-facing software product development, and that has just had a more allocation of capital in this period. But our overall spend on R&D is up 9% on revenue as opposed to 7.5% in the prior comparative period.

And is that mix sort of set to continue where more of your R&D relates to software development costs? Or should we expect R&D expenses to sort of revert back up 20% again?

So you can expect them to revert back up again from FY '26 onwards, Nick. So we're seeing the next half that capitalization trend will continue as we continue to focus on those client-facing software product development. But it will rebalance.

The next question is from Evan Karatzas.

It's going to be a few hard names to announce coming up. Just maybe for the first one here for me, this confidence that you're messaging that FY '26 revenues are likely to return to growth. Can you just maybe run through what's underpinning your confidence in that, Paul? Specifically, I guess, is it coming from conversations with customers as their budgets reset for the next 12 months?

Yes. Right. So the slide where we talk about those traffic signals, the source of our commentary around each of those traffic signals comes from a number of areas. One is there are a number of declared budget increases, particularly with the Australian resource companies. There is the S&P data where they survey a lot of companies around the world, and we'll expect the next update from them in March 5. But more importantly, it's our network around the world, our engagement with resource companies, our engagement with drillers who also engage with resource companies who are talking about the -- validating that underlying demand for exploration activity because of the fundamentals that they are seeing. And so it's off the back of that and the increased level of inquiries that we are getting in some of those regions that is giving us that slightly more positive outlook into FY '26. I don't want to take away from the fact we do see that rising cost environment as being persistent. We do see a few geopolitical tensions in West Africa, in particular. So I think there are a number of resource companies still going through a cost-out phase, which I think is something we've talked about. The early movers are back into exploration growth. Some of the later movers are still doing cost out as they deal with rising costs or lower margins. And so it's a combination of all of those things. But on balance, those traffic signals, and that's why we use that green amber red kind of signaling to tell you where we feel that lands. Hopefully, that answers your question, Evan.

Yes. No, that's good. And then sort of just maybe following up from Nick's question earlier. So just to be crystal clear here, the way to expect this going forward, so that, I guess, product expense line sort of reverts back to around the $40 million-ish type level in FY '26. But FY '25, we should be annualizing that initial sort of what's happened in the first half, both from a product expense and then also that $7 million of intangible CapEx as well. Is that the correct way to think about all that?

Yes, Evan, that is the correct way to think about that.

The next question is a text question from Josh Kannourakis, who asks, can you please give us some color around OpEx and CapEx expectations into 2 half '25? And how we should be thinking about your operating leverage profile into financial year '25, i.e., how much cost growth needed as revenue grows?

Do you want to handle the first part of that?

Yes, I'm happy to handle the first part of that. From an OpEx perspective, so we were lower on OpEx prior period comparative, but we see that enduring. So I think our run rate is around $85 million for the first half, and we expect that to continue into the second half. So from a CapEx perspective, so CapEx additions for the first half '25 were $17 million and intangibles were $7 million. Again, we expect that to continue into the second half of FY '25, although at a little bit extra because we are investing in our next generation of technology. And so there will be a little bit higher in FY '20 -- sorry, a little bit higher in the second half '25. From an intangibles perspective, again, like I said before, the first half will be consistent with the second half.

I think if I could add to that, Josh would remember that, historically, the return on our capital investment around building sensors is quite attractive. And so a strong CapEx profile is a reflection of a strong demand for our technologies. And so as that moves, obviously, we'll be able to keep the market updated, but it's a positive sign.

And then from an operational leverage perspective.

And maybe building on the comment I made earlier, we do typically expect good incremental margin drop-through for incremental dollars earned, which is a reflection of our business model. You would expect that a lot of that will end up back with shareholders. But we have previously signaled that there are some digital transformation initiatives and some Horizon 3 R&D initiatives that as the market resumes growth phase, we would be looking to fund some of those, but not at the expense of margins to shareholders.

The next question is from Mitch Sonogan.

Just a quick one. You obviously went through the geographical updates there. But just keen to dive into North America a little bit more. I guess just trying to understand what some of your customers and people in the field are hearing from the drillers and about the upcoming field season coming out of winter. Just wondering if it's going to be a quick uptick. Just wondering if you can dive into that key region, give a bit more color.

Yes. I think in North America or in Canada, in particular, we've historically wanted to really a cold freeze to ensure there was the ability to drill in areas that required access to areas that were otherwise difficult without that cold freeze. We're not seeing any particular challenges in that this year. Again, probably the main driver in that Canadian market is access to capital by juniors as opposed to any weather-related conditions. The resumption of activity in Australia was pretty pleasing. There was no sort of drawn-out resumption. By the same token, it wasn't a hockey stick slim shot resumption either. So it was a good normal resumption of activity post the Christmas break. So we don't see anything alarming about any of those post-Christmas activities -- the resumption of those post-Christmas activities.

And just looking at the software revenues, you've obviously had some pretty strong growth in Krux, Datarock, and ioGAS. Can you maybe just give a little bit more color on how that product set is being viewed out there by the end customers? And yes, just keen to understand how the traction is going and how you're looking at accelerating growth of those products?

Yes. Sure, Mitch. I think it's worth remembering, we're talking about the SaaS revenues in both of those platforms. They do have supplementary consulting revenues, which often gives them client access and then leaves behind those SaaS revenue platforms or SaaS revenue profiles. At the time of our investments, the SaaS revenues were nil in both cases, and it was a start-up investment. So there is a little bit of the law of small numbers, and these are obviously markers along the way to acceptance, growth, and renewal for our customers. Increasingly, the way those Krux and Datarock offerings are positioned in the market is embedded SaaS revenues that do get renewed each year. Because they are in growth phase, whilst the standalone operating margin of those products is very good, they are plowing every $0.01 into product development and market growth, as you would expect, and we expect that to continue for some time.

The next question is an audio question from Jakob Cakarnis.

Most of the questions that I was hoping to answer will be covered off. So I'll just give a little bit of a longer-term one as you guys move back to net cash like you've said in FY '26. How do we think about the M&A outlook now that Devico is largely integrated or the preference to return any surplus capital to shareholders? How would you think about this as a paradigm moving forward as you move to net cash, please?

Maybe I'll just comment on M&A more broadly. We do maintain a healthy and active watch list of opportunities. We are clear that we think programmatic M&A is a capability that Imdex can and will use to complement R&D. And then when you feather that back to our capital allocation policy, the desire to invest in growth, whether R&D or M&A remains forefront for us in the event that we were unable to find R&D initiatives to invest in or M&A opportunities to invest in, we would probably return that capital to shareholders by way of a share buyback as a preference as opposed to an increased dividend, if that's the tail end of the question. However, I will say that I think the R&D opportunities ahead of us are many and varied and the M&A opportunities ahead of us are much the same. And so those would be our priorities.

The next question is a text question from John Campbell, who asks, what discussions have you had to date with major North American miners around their exploration activity intentions for CY '25 and CY '26?

Yes. Thanks, John. Look, a number of conversations. I think in the lead-up to the U.S. election, we were present at the Mine Expo in Las Vegas in the middle of the first half of FY '25. It was very clear to us at that time that the underlying drivers of exploration activity or those underlying drivers of our industry more broadly were favorable and that they were preparing to take advantage of that. There was a little bit of hesitancy waiting to see that the U.S. election was past them. The commentary at that time was that they did not expect their intentions to change no matter which way the election went. As we've progressed and you would have seen some of this in our -- one of the slides that we put up today that showed we have had half-on-half growth in that North American market. We are having conversations subsequently around the Roundup conference that was held in Vancouver in January, our own Exploration Symposium conference that was held in Canada, and all of those -- and also the Saudi Arabia held the Future Minerals Forum in the middle of January, which is a truly global conference now. The narrative coming from all of those speaks to or supports that underlying intent. Very confident about the budgets that have been put in place. Obviously, we're looking forward to those funds being deployed and that is where we will get validation. I made the comment in my script that we're looking for that validation to be seen over the next few weeks.

The next question is an audio question from William Park.

Just I know you've commented that Sensor ARPU is one of the metrics that you look at, but it's clearly not an indication of where the entire business is sort of heading towards. But just thinking about, I guess, the volume, Sensors and higher volume, looking at Sensor and SaaS revenue, it looks like it's down 7% year-on-year, and you've got ARPU up 1% and you've got -- I appreciate it's law of small numbers, but you've got SaaS revenue that's kind of surged in the half on PCP. Just trying to understand the volume movement there for Sensor and hire. How much of it actually went backward on a PCP basis or sequentially?

Yes. Thanks, Will. I think if I understand your question, you might remember that at the full-year result, we said that we were starting 1 July about 10% behind PCP. And I think if you go to the beginning of February, we're about 3% behind PCP in terms of Sensor on hire. So we are seeing that gap progressively eroded. Those are the numbers that we look at and the pulse check we take. I'm not sure if that answers your question fully, but I'm happy to elaborate further.

No, I think that's clear for now. And then just one quick one for me is around the sale of goods revenue, so your mud business. It looks like the revenue has gone back 14.5%, 15%. Can you just step through -- because I know when you hosted the Technology Day, you talked about how there's an opportunity for you to, I guess, group directional core drilling with the mud products in order to effectively make, I guess, the mud side of the business more resilient and therefore, revert to growth. Can you just step through why there's such a discrepancy in terms of revenue trajectory in mud products versus SaaS and Sensors, please?

I think the fluid engineering business is a little bit more sensitive to raw activity, which has been consistent in the past. So it moves a little more in line with market contraction, and we've been offsetting that with growth in portfolio products in Sensors and software more broadly. And so that's been consistent. Obviously, with the last half, with that activity contraction, you can imagine the sensitivity of the fluids business moves a little bit more in sync with that. If I go back to your comment around the technology deep dive, as we look forward, those are things that are still in front of us. So the opportunity for those premium fluid engineering offerings, the opportunity to partner it with our directional core drilling business. That is not something that is deeply embedded in the 1H result. There are things that we are working with our customers and our marketplace to introduce in the periods ahead of us.

The next question is an audio question from Josh Kannourakis.

Just wanted to ask a quick one with a little bit more detail around the portfolio of tools you've got. So obviously, post-Devico, you're able to slot especially in some of the sensors, probably a more mid-range tool. I'm keen to sort of get your view on how the progression in terms of maybe upselling clients is from those -- some of your lower range tools, the upper range ones are going with the Devico components in the fleet. And also maybe just a little bit more context, if you could, about the sort of Globaltech deal, what that's now afford you and what some of the opportunity maybe within both long years as well?

Yes, certainly. I think the way you should think about the -- I spoke, I think, in my script to say that the revenue from Devico sensors was up 15%, and that is a reflection of both penetrating our global networks and upgrading from our lower-priced magnetic tools into the Devico tools. The Devico tools you referenced it as a sort of a mid-market tool, I think, was your choice of words. It actually has -- it's actually a very high-tech tool that has slightly different applications. And so it's a combination of upgrading and finding other applications through our network that is continuing to see revenue from Devico sensors grow in that space. I'm sorry, what was the second part of your question, Josh?

The second one was on Globaltech and I guess some of the opportunity afforded to you as a result of this ruling around that technology, but also more broadly, just Imdex's broader opportunity within [inaudible] and how you think about that?

Yes. I think the resolution of the Globaltech claims and us acquiring that entity, the real value in there came from a collection of the patents that held. The ability to combine Globaltech's patent portfolio with our own means that the next generation of products that we build, so when we work out what our next R&D initiatives are, it means we can design those tools with those patents together instead of trying to work around those patents. So that's one key advantage. Commercially, obviously, Boart Longyear is one of the largest drilling companies in the world. It's a very important client to us. The commercial relationship we have with them is in confidence, but the relationship is on a very good footing, and we continue to work together to see how we can help them ultimately provide more value to their customers and generate more returns to their shareholders. And if we do our job well, that is what is up the grabs for resource companies and long as a driller both, and we're well positioned to do that.

The next question is a text question from Cameron Bell, who asks, could you please give us an idea of the potential currency impact to EBITDA in the second half '25?

Yes. Thank you, Cam. So just as a reminder on our FX exposure. So our U.S. dollar revenues, the U.S. dollar exposure is about 50% of our revenues. For Canadian dollars, it's -- sorry, U.S. dollars is 50%, Canadian dollars is 15%, and euros is about 10%. So as we look forward, so we had an average U.S. dollar exchange rate of $0.66, and that was against $0.65 in 1H '24. So all of the currencies did actually -- that were exposed to did decline prior period comparison to the current comparison. As we look forward, obviously, a stronger U.S. dollar results in more AUD revenue for us. And the rule of thumb we use is about a 1% change in U.S. dollar exchange rate is about $4 million impact for half-on-half. So that's the benchmark we use at the moment. And the reason traditionally, it's been around $2 million to $2.5 million impact. The reason it's a little bit more felt at this point is because of the movement in the South American currencies. So the South American currencies and the way we earn revenue through those is linked to the U.S. dollar. So you do have a little bit of flow on impact, but that's the rule of thumb that should help going forward.

The next question is another text question this time from John Campbell, who says, not much detail in the result on Devico. Can you provide some metrics around the cross-sell performance of Devico products through the Imdex network and vice versa?

Okay. So I think hopefully, we've answered part of your question, John, in the call out that revenue from Devico sensors is up 15% and continues to benefit from selling through our global network and some of the product upgrades through the technology stack that we now have. We don't call it out in any more detail than that because it is deeply embedded in our operations and it's deeply embedded in our technology stack. And so we do see it as seamless. And actually calling it out makes it very difficult for the auditors to validate. But we are very happy to continue to provide some color just around the overall growth and pipeline of DCD projects and the like. I think both of which we commented on our script. Hopefully, that addresses your question, John.

The next question is an audio question from Joseph House.

I've got 2. Paul, can you talk to the building blocks in your strategy for achieving a higher revenue contribution from the IMT business unit in FY '26 and beyond? Sales are up 72% year-on-year in the first half. That's a great outcome. How do you keep that momentum going?

Yes. Thanks, Joseph. I think we've been -- I think we have articulated in the past that as we move from exploration downstream into that mining production space, we do benefit from some common customer relationships. We do benefit from the fact that the products in that space come from the foundation of the products in our exploration space. The challenge is in introducing products into that mining production workflow, we are typically doing so in an area where they may not have existing products. And by that, I mean, if we introduce the next-generation gyro in exploration, you're upgrading from -- and I often use the analogy from a Camry to a Lexus. When you're moving into that mining production space, you're introducing something entirely new. So you're asking the customer to engage in a change in workflow to solve a real problem and do that by using our technology and taking advantage of what we're offering. So the change management and the market development is more engaged in that process. The way we do that is working with clients that have shared with us what key challenges or problems they have, and we are confident about the portfolio we have used to enter that market and how we can solve those problems. So it's a constant process of customer engagement, problem identification, and then trialing the product to validate how we might help them solve that. And that is we see a consistency in the way we need to roll that out over the next 12, 24 months.

And Linda, maybe a question for you. The effective tax rate was higher than usual in the first half, I think it was around 36%. Should we be expecting that normalizes in the second half more towards your -- so the full year is around that 29% to 30% historical range?

Yes, that's correct, Joseph. So our normalized annual effective tax rate is 32%. So we should see that rebalance down. And it's primarily because the settlement of the Globaltech litigation is capital in nature.

Thank you. There are no further questions. I'll now hand back over to Paul.

Thank you very much, Michelle. Thank you to everyone for joining. Today, I would simply like to leave everyone, I think, with the key messages that I concluded our presentation with, which is as a leadership group, we today are pleased with the progress that we made in 1H '25, continuing to deliver revenue and EBITDA growth in a market that remains challenged and remains beset with rising costs. And whilst those traffic signals in the marketplace ahead of us appear to be lining up favorably, we remain committed to the levers that we can control and how we can continue to deliver growth and value for shareholders. We look forward to speaking to many of you over the days ahead of us. Thank you very much.

Thank you.

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