Intelligent Monitoring Group Limited (IMB.AX) Earnings Call Transcript & Summary

Welcome to the IMG FY '25 Full Year Results announcement and announcement of the acquisition of Western Advance WA. With me today, I've got in the room, Shenin Singh, who helps with Investor Relations and Relations generally in the business; and Jason Biddell online also to take us through the financials. Jason is the CFO. I guess just kicking straight into it. So happy to put the EBITDA now at $38.4 million, very much in line with what we had essentially preannounced at the fourth quarter cash flow. One note I will make that Jason can talk to when he goes more explicitly through the financials is we aren't fully audited at this stage. By that, I mean, again for Jason to talk about that we just have a final piece around our tax position, our historic tax position. Everything else has been done, and it will take us probably a couple of weeks to work through, but I'll let Jason talk to that. Otherwise, though, [indiscernible] we are done. Happy to put forward again underlying earnings growth for the business, for the business outside of the acquisitions we made, starting to see really positive momentum. Today, for the first time, we are putting forward a pipeline in the commercial part of our business, which is a rapidly growing now sort of through $60 million business, a revenue and time weighted pipeline of $36.6 million across Australia and New Zealand, which we'll talk to. Also today announcing the acquisition that I mentioned, Western Advance, we'll talk to that. Ultimately, though, leaving us in a really good position. So we'll work through the result and happy to take questions at the end. Also recognizing that the results have just come out. Most of you on the call, I'm sure, know IMG at this point, heard about. Essentially, just to remind you, we're a security monitoring business, the largest in Australasia, come via essentially acquisitions and built this -- crafted this business over the last certainly 3 years since I've been MD, but really 5 years since the existing teams, the longer-term team has been in place. We've got over 200,000 customers, and we're spread right through the country. We've got our go-to-markets very clear now in terms of how it's operating through the business. Essentially, we have three key brands or go-to-markets in the business. The one obviously people best know us for is ADT outside of the industry, ADT, American District Telegraph created over 100 years ago out of America and is the largest security -- known security brand across this planet. We own the Australasian part of the rights of the name. Signature Security, which is our partner business, that's where we work with the industry and form close partnerships to really drive some of the technologies that we'll talk about that are coming through out into the world and allows us to help us scale as we move forward. And then IMS, which is our -- really our historic business where we started, which is a monitoring provider to industry where we have -- we've been growing the customer numbers over the last couple of years. We're through 800 customers of about 3,000 in Australia where we provide monitoring services. So really for a local security guy. Just to reiterate as we get into it, we're here as a business and as people and as investors and stakeholders because we believe there's an opportunity to create the leader, the clear leader in security services. And there's a lot of reasons why this is a unique time, and we think we have the opportunity to do that. Mostly though, it's going to come about from what is I hope to be a very set and focused corporate culture. We've got some strong values that we're trying to install deeply into this business, which will set us up for the current performance that we're seeing, but also set this business really well long term to be that leading Australasian security service provider that we would all like it to be. I'm going to pause there. The point today is to go through the result, just introducing Jason. Jason, I'll kick it over to you to take through it.

Great. Thank you, Dennison. Good morning, everyone. Apologies, none of you will have seen these numbers as yet, so I will go through them for your benefit. And if you take any questions, drop them down and we'll come to them at the back end. And of course, as always, I'm available for one-on-ones and catch-ups after this call. So pleasantly, revenue was up on last year, $174 million, gross profit up understandably $67.2 million, delivering our adjusted EBITDA of $38.4 million, in line with guidance and up on last year. EBITDA margin of just under 22%. With depreciation, we have $4.1 million in depreciation, which gives us operating EBIT of $34.3 million. If we look at amortization, which is mainly customer contracts and mostly brought in by ADT acquisitions, which we'll talk about in the slide later. All of these main points have slides to cover through at $18.4 million and then abnormal items for the year, which incorporates the refinancing costs, acquisition costs, some integration costs and the Signature impairment, that was $20.5 million. The finance -- refinancing obviously drove the growth on abnormal items versus last year. Our finance costs, as we've talked about in the Q3 number, $19.5 million, largely due again to the refinancing costs, working through all of the capitalized borrowing costs from the original position and our tax expense. Currently, we are waiting on the final technical advice on our tax and the incorporation of our IMG tax numbers. But currently, we are showing a tax loss -- tax expense this year. And that our reported profit and loss in the 4E and the preliminary report is a loss of $15 million before tax and other noncontrolling interests. But the good news is the growth in profit and loss or profit before abnormal items and amortization is significantly up on last year at $23.9 million, which is a good indicator of future success for the business and where we're at. Dennison are you happy to go next. So the EBITDA reconciliation, reasonably straightforward. The reported EBITDA is up on last year. We had impairment of receivables, which is mostly just aligning the acquisition businesses to our receivables policies, bad debt provisioning. The impairment of assets, we talked through that at the half. That was the Signature Security business. And obviously, Dennison will talk to it later, but the realignment of the three brands sees us bring all of the shared service costs and some other businesses back together. Apologies. Business acquisition and integration costs, $3.8 million, so down on last year, obviously, without having the JCI TSA costs and then share-based expense as well. So the adjusted EBITDA of $38.4 million, another strong result. Moving into depreciation and amortization. So the preliminary report shows that depreciation and amortization and cost of services was $15.8 million, and the depreciation and amortization expense was $6.7 million. If we break that out, and you'll see it in Note 7 in the report when you get a chance to digest it, depreciation around our core business operating costs is only $0.7 million and lease depreciation across all of our right-of-use assets is $3.4 million. And then in subscriber assets, the amortization of subscriber assets is only $4.2 million. And then the intangible piece of $14.2 million, which is what we talk about being the impact of acquisitions over time. And so that gives us the $22.5 million for the total depreciation and amortization versus last year. So balance sheet, I think since March, it's been very obvious that our balance sheet is now very strong. We've been building cash since March, and we refinanced the debt in March to a far more favorable position with National Australia Bank. Overall, for the key callouts in the balance sheet, cash is up. That $25.6 million at the end of June, we used $13 million, $14.5 million of it straightaway, 1st of July to buy ACG and AAG. So at $24 million, we have actually grown cash on last year in real terms. Receivables up slightly, inventory up with some prepayments for Sybersense and other acquisitions with inventory. Property, plant and equipment up. We'll talk about CapEx a little bit later. Goodwill up from acquisitions. Accounts payable up slightly. Our debt position is up, but far more favorable terms than previously. So our upcoming finance costs this year will be significantly lower, and that leaves us with equity of $40.5 million, so growth in equity for the shareholders. So that's probably -- well, the only other thing to talk about from a NAV perspective with the balance sheet is with good cash position and an acquisition facility, we are well placed for further growth. Cash flow, the key call out is underlying operating cash flow of $31.1 million pre nonrecurring costs, which is up 50% on the prior year. That's a significant improvement and again, demonstrative of the improvement in our cash building capabilities. The nonrecurring cash items were the acquisition and equity raise costs, associated costs with those. Final last little bit of JCI transition costs, some general restructuring costs. And then the key one was the refinancing debt expenses, which we had the PIK interest, the early repayment of the payment plans to get credit approval as well as some other costs, which is about $12.4 million and the impairment of Signature Security in the first half of $4.3 million. So the key call out there probably is that the overall abnormal costs next year or this year, coming year will be lower given that we don't have any of those major things to deal with over the next 12 months. And then CapEx at $10.4 million, down significantly on the prior year, but largely due to New Zealand 4G upgrade. So again, thank you, everyone. Any questions, please start queuing them up, and we'll come back to them at the end. Thanks, Dennison.

Yes. Thanks, Jason, and we'll go to Q&A at the end about that. As I said, largely telegraphed in the fourth quarter result, consistent with that. In terms of just moving to strategy and talk a bit about some pieces going at the moment. So just to step back, really what we have been looking to do is one, rehabilitate an industry that had been technology sort of stagnant for a period of time. So investment was a key part of the -- earlier part of this journey around platform and then increasingly as we move forward, people as well. And then ultimately, as we've done that, we've started to develop scale, and I think we're really starting to see the benefits of that scale now, whether that's in our supplier relationships, the technology we can access, but even more actually, I guess, heartening for us is the conversations that are coming to us from potential clients and people looking for a national scale solutions service provider. All of that is creating what has started to feel to me a little bit like what you call the flywheel type of situation where that then feeds into an improving business, which provided we continue to build upon that and our advantages, we'll be able to get a business that is looking and is starting to accelerate, which is really the sort of zone and focus that we're in now. As part of that, we've also started to really understand much better and materially what the true scope of the opportunity is here. Essentially, we are at a time of significant kind of technological change across lots of industries. But effectively, this is an industry where ultimately AI has really come to play and come to play in a very positive way. So we've done some work over the last 6 months to really understand and try to put forward to make the case to you all about why we think this is such a strong medium- and long-term stream and opportunity that we're in. And we've tried to articulate it in this slide and then it allows us to talk about what we're doing and why we're doing it. Effectively, if you look at IBISWorld and ask what the installation monitoring industry in Australia is today, you come up with a number of about $2.3 billion. As I said, there's, call it, around 3,000 businesses. I think that business number is slightly small to IBIS, but I won't contradict and around 10,000 employees. Now that's just security monitoring. As we probably all know and you'll know because you can ask yourself, do you have a security alarm yourself when you have a family and friends, there's not that many people that do. It does though reach into access control. And so when you go to work and you have a card to open the door or you go to a factory or even a shopping center or shops, access control is there and very stable. That's really what that industry is. What AI and cameras more specifically, and I've always said it's about the camera, but it's really the enablement of the camera is allowing to happen is we're now able to effectively put somebody live on a property or a business or a site 24 hours a day and be looking for things. Now in a security context, the easy thing to look for or the most logical thing to look for is a criminal. And so you can now charge your cameras up and use the system to trigger in the event that somebody is on site or triggers that and then we are able to respond. And when you put it that way, the actual industry that we're playing in is really the complete security market chain. And that industries in Australia have got more like 260,000 people in it, not 10,000, and you're really talking about a lot of physical labor. And so what we've tried to do here and that industry has got through $20 billion is we've taken a deep dive or a bit of a hard look to say, well, for us to -- what do we think is reasonable to see as replacement technology, essentially replacing labor without over dreaming where we think that technology will ultimately go, which I think is actually an even also large question that we'll see develop. And what we find is we're really looking at an addressable market, and this is just Australia, by the way. We're also in New Zealand of $9 billion, and we just focus where we can get the data to make this case. And so if you want to articulate what this business is about and what we're trying to do, there is no industry leader in our space, national providers today, we believe, would contend, and we are wanting to be that leader. We want to be the Deloitte, KPMG type player, and those players can get 20% to 30% market shares and be the mainstream player. And so if we have to look at it that way, we see an opportunity of a $3 billion type share of marketing in front of it for us and just in Australia. As I said, what's really driving that? Well, here are a number of things. I mean, firstly, security as a category is actually growing. And so as IBIS reports as the industry is even currently growing, but modestly. You are seeing absolutely the role of the cloud also play here, people looking to store data remotely and access it more easily. So even in a traditional CCTV system or a recording system, getting quick access after the event is a driving feature. As I said, we're now seeing and starting to see, and it's a case we'll make about our numbers, the potential for remote monitoring, which we are now doing and leading and really will drive a lot of the upside and the use really enabled by AI and video. And so there's lots of places that this makes a lot of sense. And really the journey we're on now is to open up to make the case to replace existing situations, but also to make the case where it's valuable. What we are looking to do now, and I think this is the thing for me personally I really started to see in the business is understanding that we actually have got some pretty significant comparative advantages, which have developed out of the last 5 years of hard work. The first one is actually our coverage. And so it's very clear that people want to deal directly with their provider. This is not necessarily an industry where you want to deal with lots of people and have lots of different systems. You want to deal with one credential party and know they'll turn up and be able to hold them accountable, and we have now developed that. And it speaks a little bit to what I'll talk about in a second with our acquisition. The second thing that's become apparent is that credentials and safety and I guess, professionalism in a way is really coming to bear. And I'll call out an example of that, which is relevant in the childcare space at the moment. And we are active and have been active in providing high quality but also large-scale CCTV into that space with probably the largest player in the industry over the last year. And as everyone will have read, there's been some, I guess, developments there led by some incredibly disturbing behavior of some of those centers. What -- when you really bust down the, I guess, the reluctance to this point for really wide-scale voluntary adoption of these systems, it comes down to the protection of the data. And so to this point up to these events, the conversation has really been what actually happens to the imagery and is it safe as you move forward and as we can show it is very safe. And so compliance standards, the way you manage data, the way you go about things really sits fundamental to the trust and the brand and what you're building. In this period, we're incredibly proud and it's taken 3 years of hard work that we -- two of our centers achieved a standard only reached -- we actually not reached the same way by two other operators in our market and the only other two that could do this, which is A1/R1 (sic) [ A1/R1A ] 1, that is we are fully backing and backed up so that you can trust for sure, if we are your provider, we will be there 24 hours a day, 365 days a year, even if one of our centers goes down or something major happens, which has never actually happened in a fundamental way to anybody around the world, but we will be there. And so that trust in the way we are going about and the standards that we have are now leading, and we really want to look to leverage and build that trust piece. And then the final piece is almost just attitudinal and it's a little to say, but it's allowing us to develop talent and industry and an approach and a culture that is very much as to what we see, particularly in the mainstream global players and the ones that are here also in terms of actually really targeting in on using technology to solve customer problems. So we think we do increasingly see and are developing these advantages. And frankly, they'll be very hard and harder and harder for anybody to replicate in their entirely what we're actually building. On the back of that also, though, I just wanted to really highlight the attractiveness of this model. And I thought it was worth because questions do come through, just again, going back to the basics of what we actually do from a customer point of view. So essentially, it's the same really whether it's an existing enterprise or large -- sorry, a large-scale enterprise customer through to a residential customer. But essentially, you have a -- it all starts at some point period of time with an installation. So I've got a problem, can you help me? I'll call out the school network in Queensland, where we've been started working with them and developing systems where we are in first phase, getting the cameras set up and getting them set up to provide some service. What that then -- once you get a service and now it tends to generate very long relationships. And so fundamentally, what we sell is you have an upfront kind of cost of getting set up and then you have a long-term recurring relationship. It's really driven by about three things. One is you've got to maintain the system. So service and maintenance is a feature -- a long-term feature of our business, which is highly recurrent. These 365 days a year always-on systems only work if they're actually looked after maintained and also upgraded. So upgrades are a persistent feature of what we do. And then our customers themselves change, evolve and grow. All of that, though, is sort of backed up and supported by when the systems are in place is ongoing, we're calling it back-to-base monitoring, but monitoring systems, which in FY '25 was 45% of our group revenue. But I think what I'm pointing out, I would like to point out in the way we've just framed up the revenues there is of this business, really the monitoring, the service and maintenance and sort of consistent upgrades of customers makes this business highly recurrent with increasing levels of attractiveness as you go. And so signing up a customer and building -- doing it with trust and building it will guarantee an incredibly attractive and good business. Underneath that, just to really make the point, the average customer relationship is 7 years plus in residential and into small business. And that is really dictated by how long they tend to be in premise. So often, on average, historically, you've moved home about every 7 years across society. I think that's probably blowing out actually. And I also think that will extend and our relationship will extend past home moves as the guarding piece proves its real value to people. On the commercial side, and it's a point I've always made is our average customer relationship there is 15 years. So if you win a commercial enterprise customer, you likely have those customers for a long time, making us a really attractive business to be building and building upon. For us, there's two key growth areas, the commercial enterprise. So just going right back to the point of the ADT purchase, that was really to rebuild that national technical, highly skilled base of people to drive our brand and skills across. Today, that's definitely through $55 million of revenue. And as the first starting point we said we'd like to get back to where ADT was back in 2016, inflation unadjusted. And we're looking to drive that. We'll talk about that in a second. And the other one is just this use of high-value monitoring, video monitoring in particular, where we will use our ability to feed into cameras and ask questions and solve problems to really grow this business. They are really the two drivers of what's going on. The way we'll do it, though, is again through our go-to-market. So we'll do it directly with ADT, but we're actually also highly engaged and very excited to be working with partners in the industry. And we're launching our Signature Security Partner Program tomorrow night at the ASIAL Conference, which is the industry conference for Australasia and also with our just professionally monitored bureau businesses or wholesale businesses where we look after the 800 business customers that we look after. Dissecting it that way, the two growth drivers, today, we're announcing the acquisition of Western Advanced, which is firmly in that continued looking to grow the commercial exposure network and expertise. Really excited to be announcing this acquisition. It has been a relationship probably developed now over 2 years to get to this point slowly and carefully on all sides. As I lead into it, I'd just remind you, so our commercial business today looks a little like this. So we've got our brands effectively. It's all part of ADT Group. So DVL guys represent as ADT DVL, and KOBE guys as ADT KOBE, ACG, et cetera, et cetera. So it's now part of the ADT Group. We are lifting the ADT brand, but they do still retain their market presence in the historic brand. We've got a range of industries. And we've really found as we've gone through this journey getting real industry-leading -- we're getting some really industry-leading positions in certain industries that we're looking to grow, extend and build upon. And we've got a really diverse customer base of names that you all know that do, as I said, consistent work, and we provide long-term services for, and we look to continue to build upon. Where does Western Advanced fit in, we'll talk about that to headline the transaction itself. So we paid $4.5 million in cash. We're now in a fortunate position with cash generation that we can fund this straight out of cash, which is I suppose, a notable turn for us as a business. We will look to settle this fairly quickly, probably by the start of next week is the goal. We paid very much this consistent multiple in the Western Advance case; we've used a 4-year average of EBITDA. The business itself has been around for a long time, which I'll talk about. And we'll look to complete it really for -- the start of September to get into this year's numbers and also looking to build and work with them. Western Advance was established in 1999. It was a family business. It's got 14 full-time employees we picked up. I should just highlight actually as I get into it, Western Advance did have an East Coast business, a smaller business that was acquired or announced acquired by Wilson Security a week or 2 ago. That is unrelated to this. It was part of the business that was part that we chose not to acquire. What we're talking about here is the WA branch effectively of Western Advance, which really was -- had the bits that I guess people were really looking to lean into. Western Advance is a leading supplier. Really, what I'll call out is their relationships in the oil and gas industry, which is an industry that we don't have any -- have not had the deep specialty in that they have without being overly think about it, effectively, they deal with every major oil and gas company in Australia, offshore oil and gas in particular and provide the security services. So yes, they fly out to rigs and they're installing a range of safety and security systems, cameras, et cetera, control, access control, allowing people to move around that then go back into operations, and they had an incredibly long and strong relationship in that sector, which is very -- probably been very hard to break into and they've developed a lot of core skills. So it allows us to enter essentially a new industry vertical with a talented group of people with a differentiated but similar service portfolio and develop our capabilities. And so it's an adjacent sort of high-margin industry that has also got the same growth and development drivers based in WA, which will also allow us to cross leverage our growing teams up there. And I don't have the exact numbers in front of me, but we are fairly -- we would -- I would -- I feel comfortable to say we would probably have to be the largest security services provider for commercial enterprise in [indiscernible] with the people and size of operations that we have up there. It's been around for 25 years, as I've mentioned, and has a strong focus and reputation in the space and a good reputation across the board, which they've really come out of oil and gas and leveraged into. Prior to that, we also just wanted to start -- this is the start of our trying to lift our exposure to the drivers of the business. Whilst we're not putting out guidance for the overall group today, we wanted to give you assurance about the expectation of growth that we have this year. Here, we've gone through our weighted revenue pipeline for FY '26 for our commercial and enterprise businesses, the ADT businesses, both Australia and New Zealand. Seeing in our pipeline today is about $36.6 million of revenue for this year, which equates to growth in both of those areas being Australia and New Zealand with an expected sort of 14% organic growth rate in AU for enterprise and commercial and a 19% growth rate in New Zealand for enterprise and commercial. These projects, whilst we're focused on that weighted pipeline and the effect this year, some of them will actually be multi-period and as I said -- as I've tried to point out, build upon a business which in itself generates long-term relationships and work as well. I think one of the things I like about this, I guess, to showcase is that it is broad. So we're not exposed generally as a business to significant concentration risk of any individual customer or industry. And so it's great to see that, I guess, safety in our portfolio and pipeline. I also just wanted to pop to video monitoring. Essentially, I just wanted to reiterate again, this is on a day-to-day basis is probably the thing that gets us most excited, and we're looking to really lean into increasingly now as we move forward. And some of you may have noted the ADT brand starting to turn up places like in the newspapers and what have you as we bring essentially and elevate what we're doing a bit more into the public consciousness. But essentially, the opportunity is to turn a camera into a security guard. And I can talk about it a lot of different ways, but if you really want to boil it down and simplify it in terms of what the biggest effect is and what it can do, it's that. We can put a security guard outside your family home, your business, your enterprise 24 hours a day, 365 days a year that won't get sick, won't have breaks won't turn off and we'll catch criminals and go straight to the place. It's entirely different than any major security company globally. We're certainly the first major brand globally to really lean into this. And it's making it a very exciting time in the business. The benefits, again, just to highlight for us are, it's really about the recurring. So monitoring is a very, very, very recurring situation. So it's obviously good. It converts what would otherwise may have been in the current market, a one-off camera installation. So people just put in CCTV so that you can watch them on your phone maybe or record back to base. It converts what was a one-off into long-term recurring income. It allows us to upsell into the current market. So we've -- there's over 3 million cameras installed across our market, which we can potentially connect to today in a relatively straightforward fashion. It does require a technician to come to site, but it doesn't require us necessarily drilling and entirely upending your life. It allows us to grow the market, which is the point I made before, it should and will lift the customer relationship. I think that's probably the key thing. We have something now that makes sense that, frankly, as someone who's never had security monitoring themselves until I came into this industry, I would now buy as a standard consumer. And then, of course, as I've also mentioned, it gives us a huge comparative advantage and having the end-end delivery of the quality of what we've got. The effect has been really frankly unbelievable and clear. We have -- we've had -- we're now over 300 sites. They are growing consistently, and we're looking to accelerate this. That's generated over 30 arrests being made with the police since the start of this year. And on average, we're seeing about more than 11 attempted burglaries off these sites. So what is a very, very limited base currently, we are catching criminals. And I think that's the key note. I'll make a comment. I read about a story last night sadly Kumanjayi of a domestic violence victim partner, which partner was under violence order, turned out they had full CCTV. And unfortunately, the police were called, they did catch him because he was known and was on the caught on cameras turn up at the property, but it was too late. And so she sadly passed away. She was stabbed. If ADT Guard had been on that site, we would have picked up the perpetrator before they entered the house and would have been able to get the police there quick, smart and have a shot at actually changing that outcome. And that's what drives us as a business. And that is the same, whether it's into large industrial customers who are seeing catalytic converter theft of cars in car parks, which is a trend we're starting to see come out of America and spread across Australia and New Zealand through a whole range of increasingly numerous pieces of criminal activity. And look, frankly, I don't think we even know necessarily how bad it is because a lot of stuff has not been cut or captured even by traditional CCTV. So it's highly effective, and we're on a real mission to get it out there. As part of that today, we are offering a shareholder discount. If you're a shareholder, you can call up the ADT line and have a chat about getting ADT Guard should you wish it. And we've got a shareholder code there [indiscernible] that code to any of our inbound salespeople, they'll work with you to give you a 15% discount on the installation. And if you are somebody who has got any concerns or are a little worried about the world what's going on or in a position where that could be the case, I'd encourage you to give the guys a call and they'll chat you through what we can do. So wrapping up and throw to questions. As we've foreshadowed FY '25 was a really material year. I think that fourth quarter really showed that strongly and that it was really the first paying part. This whole year, unfortunately, we do carry the noise of the first 3 quarters as we're exiting from JCI, the cost of refinance in particular was a very costly singular event, but it's now moved into the rearview mirror. What FY '25 has done, and I hope we're trying to showcase to you is a really positive power and the differentiated position that we now find ourselves in. And frankly, from here, it's actually about execution and making sure we develop our people and put the case out there in the right way to push this forward. I will say I have -- and it's not about me, but where we have yet to have the conversation explain this, our conversion rate on sales is incredibly high. People do want this. They just don't yet really know that it exists, again, people being particularly commercial enterprise, which we're targeting. The pipeline is strong. We'll start off reporting that this season, putting it out there and it will be something we can track. That speaks to revenue growth and profit growth. And we're looking forward to coming back to our AGM, which is currently targeted in November to put out some guidance and go. Also just noting really excited to have Western Advance in the business. We have found with every acquisition we have made since we bought ADT being the relevant period for this style of acquisition, this type of business, every business that we've acquired has actually traded better post our ownership as we've been able to get the power of the group behind it, work in a larger environment and open up opportunities that are hard for a smaller business to get when you can have the conversations that we can have now as a bigger bit. So I look forward to talking about how recent advances track as we move forward to the next year. I'm not sure what our capability is, but that's the wrap of the result. Jason has mentioned, he's fully available to chat finances with the guys that need to go through the numbers, et cetera. I'm also available, obviously, my mobile is always public.

We'll take some questions. I'll just stop sharing just so I can actually see that now if that's okay. Alright. How do we want to go about this, Richard, I've got your question here. I'll just work my way down the list and look, we're learning this as we go. You have to forgive me for lack of sophistication in these things. Just talk about child care opportunity. Look, it is -- I think it's significant for two reasons. One is -- so openly, we have -- we are looking after good start, Early Learning. It's a piece of work that is -- we started over a year ago. And frankly, it was probably disappointing in terms of the speed at which it was being deployed led by them. So they started off it as a not-for-profit. We're ahead of the curve, and I have to call them out. So actually my read of it is they've been early and around have been on to this. And as always, these sectors, you have very different styles of players. With the events recently and as we've led into them, have really accelerated. So the first thing is we're definitely seeing acceleration from the existing customers and a lot of inbound call even from small operators. It then has led into a couple of discussions with other large players. I have to say they are mixed. One has been -- is fast track. Obviously, this is something we've got to do and get on with it. And I'm not going to call out names here, but one actually was incredibly amazingly disappointing, which was I will just wait and see what the government tells us to do, which frankly as a parent, I kind of think, yes, cool, I'm not sure I'd be sending my kids to your facilities. But -- so like a bit of a mix of all these things. But what we have got is a solution that is scalable, that works. I've been involved in some of those discussions and presentations and the value of what we offer is seen. So we are able to put cameras, use AI, track the kids, look for behaviors and report it in a very safe way that protects the data and also allows parents to opt out. And so if parents actually don't want their child to be identified, we can actually black them out with the AI, so we aren't able to see. I think the bigger thing that I observed is that -- and it's a little bit probably you may have the same experience to the extent you've ever played with cameras in your personal life. People are very reluctant initially to have cameras. This issue of privacy is real. It's real for all of us at different levels personally and professionally. And what this has done is you just see the barriers break down straight away around you know what, we don't actually care so much about that. What we care about is keeping people safe. And what I noted that at the same time the child care stuff was kicking off, we saw a number of other industries where surveillance use of cameras to particularly protect staff. So I'm probably calling out Bunnings here in particular, have pushed hard back on facial recognition in store for the safety of their staff really, really rose again. And so I think the bigger picture here is the role and acceptance of cameras in a working type of environment is developing further. And I think it just continues. I think when people understand and get used to what it can do. And again, this is where our credentialing matters comes through, this will go. Ultimately, how large can it be for us? Look, it's -- it would never be even if we had every child care center, given the scale of the opportunity and what we do, it would be a good and decent portion of our business, 5%, 10% maybe, but we have such as the scale of the opportunity we have across the board. But I don't think any one industry of that size will actually ever dominate us per se, but it's a really good point. The pipeline question -- second question regarding pipeline, do we have an ideal conversion rate or I guess, what is that revenue? What we've presented there is the effect on what we believe revenue is. So that is -- obviously, the actual pipeline is much bigger than that. We've tried to time weight it. One of the things, obviously, in commercial, as with any sales cycle is it can take longer. And I think in the fourth quarter, we noted that like we have a lot of very strong and large conversations going on. They do take time. And what we're really looking to do is layer up that gross pipeline and then start to see it delivered in revenue. So what we wanted to present really was what we anticipate the revenue effect to likely be as we roll forward this year. And so to really work that back though, we've called out that growth rate of commercial revenue, and that will allow you to kind of get a good feel of the net sort of win rate and what happens as you go through. So that is all about revenue per se rather than pipeline. Pipeline itself is much higher. I think a comment I'd just make on conversion, like we don't expect, or we would probably even want to win every job we're involved with. We try to be a premium provider, and we're not really here to talk about price, like we want to be very good at what we do and solve real problems that have real value for people. So that in itself will never imply 100% conversion rate. So my view is if you can win somewhere between 33% and 50% of the jobs that you're looking at working on trying to tease out, then I think that's sort of a healthy place to be. Stella, just turning to your question [indiscernible]. Pro forma EBITDA includes those acquisitions as well as assuming the -- I'll have to come back a little bit just partly we've all been on the fly, and I probably haven't done a reconciliation of that, Stella. So essentially looking for sort of a guide on run rate EBITDA. It's fair to say that if you take that second half EBITDA, which Jason presented and has called out in the presentation, we would be -- you would absolutely want to double that. And then in terms of the flow through, there's probably about $1 million of incremental pickup from acquisitions made in the past that have to roll forward. So I'm not here and don't want to give guidance today. What we're looking to do is make sure we build our plans around growing the business and also reinvesting in the business, and we are working hard on our planning this year and want to really do that on the 4th of November. But essentially, I say to people, we are or should be a sort of mid-40s EBITDA business sitting here today. Now that is -- through the course of the year, there's a little bit of, I suppose you'd call it seasonality in our business. Certainly, December, January, Christmas holidays, we don't do as much in-store work or new product work, leading into June, you usually do get a big June. It's not -- it doesn't change us around like say, a commodity company or something like that, but it does have an impact. So we want to be a little cautious also about how it flows. And again, that's certainly also what we saw last year where the second half was much stronger as we had anticipated than the first half as both we improved the business, but also the business grew. So I'll sort of fudge that answer for now, but hopefully, that gives you a little bit of a guide. The two -- I did mention two big deals in the fourth quarter result, which did cause us to be a little bit short of where we had ultimately wanted to be just to call that out directly. They are still working through. We're very, very close to the larger one that essentially in both those cases, it was personnel change related in those organizations, which is nothing that we can control and does speak a little bit to my point about building a pipeline over time. It is -- they are in our revenue pipeline moving forward, and we've taken a view. I think we will -- we'd expect to have those sort of in the books over the next quarter and operating. We are doing some work for both of them, which is sort of code for saying we're very confident. But in terms of closing them out, we'd expect that to happen over a bit. I'm still not 100% sure yet how we will communicate these things to you exactly. I don't really want to get into naming individual customers, particularly, we are the only public company in our space. Clearly, we've got big goals, aspirations and doing a lot of good things. Well the first start is to try to just disclose pipeline, and we're happy to take feedback from people on that. So -- and maybe probably the forward will also start to present that pipeline by unnamed size. Again, I'd make the point, nothing is actually necessarily dominating that pipeline. So whilst there are probably two of the larger opportunities out, they don't necessarily aren't events that are going to individually or single-handedly pump us up. I'm just going through -- sorry, I hope that helps out. Run rate for January provided first half was -- how has that trended over? So Tom, just looking at your question there about run rate for January provided the first half result. This is for the commercial enterprise business. Look, we will have to take that on notice. It is the best thing I can say right now. So we are -- yes, look, I probably don't want to just throw numbers out there. But clearly, that business is growing. So it is up and trending up. Probably I just want to come back and even off our revenue pipeline to give you a feel. My perception when I last run the numbers, we're definitely through $60 million in that space. And this is in Australia, just a commercial enterprise. Exactly where, I'll probably just take offline anybody else who wants to know can know. So that's about run rate in that commercial business from January and to where we are now. Yes, cash conversion, so obviously, that fourth quarter started to show the benefit of some of these abnormals and things coming out. Moving into this next period, I mean, Jason, I don't know if you want to make a comment about anything that might impact cash conversion over FY '26, but they're definitely much less material, if not immaterial, would be my view as we move forward. But Jason, do you want to go on.

Yes. No, nothing in particular. I mean, obviously, we will buy Western Advance from cash. So we will use some cash for that transaction, but there's no significant additional CapEx coming from the New Zealand 4G upgrade. We're sort of getting through to the tail end of that and no other major expectations from a cash normalization, Tom.

And I think just speak to overall cash. So that CapEx, as Jason has shown in the presentation coming back significantly. I mean if you step back a year ago, CapEx was the real concern and just the way that accounts were constructed. We are sitting here today with as clean a business as we will have now doing what we do, which is only that New Zealand medical business that has essentially lease contracts in it, which is why that CapEx is in there as we go through the 3G transition. I mean I would be expecting that CapEx line to trend over the course of this year to that underlying business depreciation rate. And that's why we've called out that depreciation and amortization in the management accounts the way we have is that whilst there's a lot of -- there's some big numbers in that depreciation and amortization that do affect the reported P&L. The reality is they are all largely noncash and related to accounting policies that I would contend are pretty nonsensical, but they are what they are. What we're really focused on is the cash generative long-term sustainable cash generative position of the business. And you did see that start to come through. I would also note though in that fourth quarter, I mean, we did make the cash probably, we called it out as about $2 million of benefit also in that quarter. So that quarter isn't also something you necessarily want to annualize, but it shows you what this business now is. Outside that, moving forward, the only one-off costs that we will call out moving forward will be any restructuring change costs, which will leave for people to decide whether that persistent or not. Any M&A costs, we are bearing those costs. But again, proportionately relative to the size of business now and certainly what we've experienced in the past are very, very low. And really, that's about it. So we really do start to move into a much, much cleaner world. And I think as a result, you're starting to see that come through. And so notwithstanding we have to call that NPAT post the amortization and the one-offs, that is actually the way I kind of look at the business, that's actually kind of what I'd call profitability. In terms of the debt itself, look, we're very comfortable at this level of gearing. I mean I go off and look around the world at how other businesses have historically set themselves and how they set themselves and how the, I guess, financial markets look at them. The reality is, and again, I'd like to make the case, yes, monitoring is our most pure recurrent business, but we actually have layers of recurrent business that make us a very defensive and sustainable and stable operation. Therefore, the level of gearing we have is not something we worry about. And we're not looking to grow it. We're certainly not looking to gear up at all, but we now don't think about it per se in the sense of having a long-term view. I think what we're focused on is -- and really what we started to talk earlier about buybacks and strategy of use around capital is what do we do with the surplus capital. Now this really speaks to the, I guess, the remaining issue that we're just working through at the moment, which is really the tax situation. And I might ask you, Jason, just to make a comment there around just sort of what is going on just to be transparent with people and then why we're still unaudited and what that means and what you can expect. And then I can make a comment about capital use after that.

Okay. So through the transition of becoming a larger entity, we have discovered that potentially the advice we have been previously given for taxation services may not be the best quality of advice that we could get. And therefore, we've moved to new tax advisory with Grant Thornton and Grant Thornton's initial review of our tax position from previous years is that we need to do some more work on business continuity or same business test and the change of ownership that the business had in previous years, I don't remember the exact year, apologies, has caused us to now no longer potentially rely on prior year losses. Now this is obviously a big thing. So we are making sure that we are getting the best advice we can from Grant Thornton, and that has delayed the audited results and is the reason why the tax note in the preliminary report when you get a chance to read it today, is very short and certainly non-informative. But we are working with Grant Thornton to get the best advice we can. There are some benefits coming through in early conversations and early modeling, but the total tax position today is not clear.

Yes. And so just to be clear, like the real [indiscernible] at the moment is because the same business [indiscernible], albeit we did exactly the same thing, because of the scale of the change, there's a concern that it's not the same business, which seems patently obvious and obviously something that we will challenge. But we do want to make sure we do it properly, really going to the point that I was getting about capital allocation. So dividends, buybacks, use of capital as we move forward, these things become real. I've said to this point because of the losses with no franking credits, dividends are the least best way for us to deploy capital back at the minute. Hence, why we set the buyback up initially and preliminarily just in case we get any sort of market event that allows us to buy back what we think is a fabulous company cheaply. I wanted to make sure we're in a position to do it as a co-shareholder. But we will need to play this out to look, I would make the point though that we have a significant opportunity here. And to this point, we feel pretty good about how thus far use of capital. We are conservative. We are cautious, and we do understand the pitfalls of M&A, very alive to it. So personally, whilst we still are absolutely chocker block with potential ways to add value to the business at very good prices, frankly, probably better than you can actually invest in yourself in the share market today at the values that it's at. We're probably marginally biased to continuing to use capital that way. Ultimately, though, over time, we actually think we'll start to generate that opportunity and therefore, it becomes more relevant. So it is part of the next phase of our journey is to come up with a proper answer. Certainly not looking to degear though, certainly not looking to -- sorry, not looking to increase our gearing. Do we need to bring it down? Look, we may end up doing that, but I think we probably, at that point, have a bias to returning capital to you to use yourselves. We don't need to degear. Our banking partners who have come on board are incredibly supportive and very happy actually for us to use more of their own capital as well should we find the right opportunities, hence the acquisition facility. So we'll work through it. Just turning to a question there from Martin just around the gross margin. So I'm calling out correctly, revenue was up a lot more 43% than gross profit, but then EBITDA was obviously up a lot more than gross profit. Really -- and again, I might get Jason to make a comment on that, but that really is where you see the impact of coming out of the capitalized world that we were in under the old JCI accounting for ADT through now a real cash accounting world. So the margin -- the fundamental business margin, that looks like it's down from -- on a year-on-year basis has actually got less to do with acquisitions or business mix. Frankly, I think it's probably pretty marginal when I look across the business with just the way the accounts were priorly presented with those effects to what they are today. So I think from here, what you should expect to see is revenue, gross profit, EBITDA track very similarly as we move forward. Jason, if you want to make a comment, is that a fair comment?

Yes, no, that's a fair comment. I mean, obviously, we had the impairment of Signature, which was driven around the forecasted profitability of that business unit, but we've resolved that business challenge internally with the restructuring that we've started this year.

Yes. Excellent. And look, I'll just pause. Again, apologies that you only get the result just before we do these things. As you understand, we've been working with the auditors and with our advisers. I think, Jason, probably just commented on that, we would like to just work our way through it, but we will have the fully audited accounts out certainly by the end of September would be my guess and get a real sort of clarity exactly on that. It's just work that we need to do, we'll be transparent when it comes through. Is that a fair -- that's sort of the time lines we're working on.

Yes, absolutely. Yes, well and truly before the end of September.

But the only impact we would see is there's a conservative view is that the tax line in the P&L this year would come off, just to be clear. So everything else has been done. It's really just this issue around tax, and this is the moment for us to figure it out. So look, I'll pause if there's any other questions, please throw them up. Otherwise, I'll thank everybody. And again, I'll encourage you if you're a shareholder and/or you wish to have a discussion, we see the effect of these systems. I think one of the things I've become aware of is so much crime goes undocumented, and it isn't even necessarily classed as crime. The amount of people skulking around houses in the middle of the night is far greater than people realize. I'm not seeking to concern you, but I am seeking to just make it clear that we do live in a world that isn't necessarily as pleasant or stable as we would all like it to be. Should you have any concerns or know anybody that does, please feel free to send them through to us. I am confident to say we're doing something at the minute that isn't being done, and we'll actually look after people and family. Looking forward to coming back at the AGM, we'll give you guidance. We're obviously optimistic. Hopefully, we'll present that today. Business is going well, and we're really focused on really moving the business forward now over what we think is a multiyear opportunity set to really create, again, something of real value and significant. So I appreciate your time. Thanks very much. I'll call to a close if there's no more questions. Thank you.