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

2 companies out with their 4C results this morning. As you know, we're in the think of it now with the June 4C is coming out left right and center. So I'm just going to quickly run through these intro slides, and then we'll get straight into it with our first presenter. For anybody who's joining us for the first time, my name is Mark Coin, I'm the Founder of Coffee Microcaps, and you're very welcome for all our regular attendees. Welcome back to this morning's webinar. I do want to give a special mention to [indiscernible] Research and Service, who is our virtual event sponsor here. If they are looking for some coverage of stocks in the small and microcap space, please do check out their website. They've got a free version, and they've also launched a subscription version now that you can join up to for some broader coverage and insights. A quick compliance and disclaimer slide, and as always, a very warm welcome to our friends from AC if they're joining us this morning. For anybody who is joining us for the first time, stops we tend to have on here capped under $300 million. That's our definition of a microcap, tend to be in revenue, approaching cash flow breakeven are indeed already profitable. So we tend not to have resources and biotechs on here. They don't kind of meet that second box. So what I call industrial microcaps, which kind of covers anything else from financial services, health care, technology, industrial businesses. This morning, we've got 2 companies presenting over the next hour, 30 minutes each, we'll try and break that down into a roughly 20 minute presentation and 10 minutes of Q&A. [Operator Instructions] Please note the webinar is being recorded and to be posted on the CoffeeMicrocap's YouTube channel on Monday morning. You can follow us on Twitter. I'm still calling it that. [indiscernible] call it X, YouTube for this recording and all our previous ones. We've had a couple of interviews with fund managers of late leading into reporting season. So if you're looking for some stocks to keep an eye on as we move through the back end of July and into August, please check those out, and we'll have a few more companies presenting next week. LinkedIn, you can guess. And there's also a monthly newsletter that generally goes out the first week of the month. Our first presenter this morning, I'm delighted so we're working back Dennison Hambling from Intelligent Monitoring Group. And then we will be welcoming back another regular presenters, Steven Lydeamore, is going to be joining us from Melbourne from Imuran and for anybody who happened to know us there, we did somehow managed to get 2 tickers right next to each other on the ASX, IMB and IMC funnily enough, over 2,000, we managed to line that up, but I will line up our first presenter here now. Dennison Hambling from Intelligent Monitoring Group. Dennison, good morning.

Good morning, Mark. Thanks, everyone.

I'm going to stop sharing my screen, Dennison, and if you just want to pull up your presentation deck, I'll let you know once I can see it.

All right.

Yes. It's just loading now, Dennison. Yes, I can see the cover slide now. I'm on it.

Right. Thank you, Mark. Well, I'll just kick off, and thanks, everyone, for your time. The goal today is just to move pretty quickly through apps go to the cash flows, we'll update on the business and then just go to questions. Obviously, our results have been released this morning. Before we kick in, just a reminder, what is IMG Group; IMB, the ticker. We are now the leading security monitoring and services company in Australasia. We've got a footprint that we've been building out rapidly, primarily under our ADT brand around all of Australasia from the top of Cape York to the bottom of Stewart Island. That gives us an incredible strategic reach and advantage as we look to penetrate both commercial enterprise security customers and also work independently with our security partners in the industry, lots of businesses around the country looking to utilize our leading -- now technology. Over 200,000 customers, a very recurring revenue business. I think over the course of this next season, the full year results season, et cetera, we will start to really push into that and highlight the full nature of the recurring features of our business. About 599 employees; was a really good balance and a great and supportive Register, which I'm very thankful for and thank you one again for their time today. In terms of how we present, we're very clear. We've worked and thought a lot about the way our business works. You'll know the ADT brand. ADT is our direct-to-customer business, if you call me or our team, you want to be helped as a customer, be that a business, enterprise, family, individual, you'll be referred to the ADT brand. If you're a security industry player, you'll either deal with us in 1 of 2 ways. You will either just be a provider of monitoring services where we now have that leading monitoring platform in Australasia, we mean A101, officially, last week, which puts us, as far as we're concerned, it's the #1 player being that there are 2 rooms, both A101 operating to the same business or you will interact with us as actually as a close partner, where we will offer some of our relative scale to you to help improve your profitability to help us all grow our recurring revenue. So a very simple go-to-market strategy. ADT is obviously also in New Zealand, so Australia and New Zealand. Bound together by some really clear values. We are here to be the leading player in security services. We're going to achieve that by a set of values which are not trivial nor immaterial to me or the team and our business is about transparency. It's about being able to work it in a team environment, and it's about aiming for excellence. We don't make any bonds about it, and that is the bond that binds us all through the business to which you're seeing the results of, hopefully, today, which we'll get into. So the 4C results, preso, I think the big feature of this result and is probably 3, but the fact is that it's very clean. So we recognize that this journey we have had, as we've been putting together the business and the platform and the investments and the migrations from JCI, have linked to what I've often being told are messy accounts. Understood, but it's taken us to this time for those to be fully clean. That started a year ago. We knocked all the capitalization out. This year is a completely clear P&L year for that, and it's now ceased with all the one-off costs, be they related to the refinance, the JCI transition or the M&A costs, and you're seeing the result of that in this quarter with an operating cash flow of $17 million which I think most would agree is an incredibly strong result. Underlying cash flow, therefore, if you're prepared to look through those prior quarter expenses of $32.4 million, up against an underlying EBITDA of $38.6 million. I think that will be the one thing that people will look at and I suppose, whether disappointments is the right word or interest will be -- the reality is we are pursuing and have attracted a lot of increasingly larger scale work to us. We had 2 pieces of work in particular that were affected at the customer level by staff changes at a senior level, which deferred them, which was disappointing. We had built a buffer in, but that sort of kicked it out, which just meant it hasn't fallen in this period. In our opinion, all this means is that the 26 years is now looking stronger again from a growth point of view, but will actually pull us up to where we expect it to be. So whilst we're sorry for it, it was outside our control, and we don't think it reflects anything other than just building a pipeline of new customers and strong value. What I am really happy to point to, though, is that the underlying earnings growth when you take out the acquisitions, you look at the business we had on a like-for-like basis, '24 to '25, it's grown 8.2%. I would make a comment that I think that is a conservative view of organic earnings growth. The reality is the businesses we acquired and particularly, I'm calling out Chubb and DVL being this year, have benefited from our ownership in that they've been able to win work that they may not have been otherwise able to win. So you could argue that's also organic, but we've exited that from this conversation, leaving us in very root health. We finished the period with $24 million in cash and growing. We do have the acquisition facility available from NAB, terrific support from NAB in the last year and really thankful to have them on board with us as a key partner in our story and moving forward, which has put the Board in the position of starting the process of considering capital management and what comes next. To facilitate that, we're announcing today that we are putting in place a buyback mechanism. We've appointed Morgans as the manager to that. That is such that it will give us full flexibility as the cash builds to exercise the reasonable use of that cash sensibly. And I think one of the things I've always said, I should note this is about the 3-year anniversary from me of being MD is that the business is actually at a decision-making Board level run by investors or investor mentality people, so capital use, return on capital, value of capital is highly regarded, understood in this business. And so we just want to start the process of as we get increasingly into root health to have the flexibility, to put together some processes and plans and strategies around it. So that's really what that's about. Digging into the results a little more carefully here. I think the point of this chart, as you say is, yes, operating cash flow in June of 17. It goes almost right the way down. So reported and underlying are basically the same of less than $100,000 of M&A-related sort of legal costs that fell in the period versus the $20 million of essentially nonrecurring costs of the 3 quarters different. You take -- if you accept those nonrecurring, as I say, you get to a $32.4 million actual underlying operating cash for the year. So I guess the read is that as you look forward, this business is going to generate, as it has done this quarter, very strong cash flows. In terms of the actual quarter itself and calling out the lines of costs, probably only a couple of things to notice here. We did have a little bit of inventory draws about $0.5 million of inventory, I guess, down in this period. The 3 quarters prior, we've made the point, we are investing in the business, and we're building inventory. We have brought in new systems -- sorry, to sell letters, new product as part of a service. This quarter had the benefit of a little bit going the other way. We're lifting marketing. So we really are focused on growth. We spent a lot of time this quarter on our operational structure, our go-to markets, hence, the way I laid the brands out at the start of the preso; some marketing lifted; staff admin are more pretty much in keeping with the scale of the business. And then obviously, the net interest line, we now see the benefit of the refinance really come through the business. So ultimately, what I would call out is the cash in the bank, and that grew $11.1 million on the quarter. Difference, of course, being CapEx. The momentary comment on CapEx is at about $4 million. 75% of that relates to the 3G CapEx in New Zealand. Just to call it out and remind everyone that is different -- a different issue to what we dealt with a year ago when we talked about capitalization, CapEx in 3G. In Australia, we were capitalizing under accounting policies inherited from JCI and go-to-market. In the New Zealand case and now with our accounts, we don't capitalize the expenditure. So this is CapEx into systems that we own that we are effectively leasing back, which are largely medical systems. It will abate. This is about the peak and roll off into next year. And I've called out there a number that will refine further as we get into the financial year around the full year result. And then it's an AGM that, that CapEx is going to be less for this business than $10 million. And so between the operating cash flow to the cash and bank really is that CapEx piece of 4. Underlying business CapEx for IMG Group is really the same as the underlying depreciation, which is a $2 million to $3 million number. And then you just have to add that medical business in New Zealand on top, which, on a normalized basis outside the 3G roll over the fleet. So to stay in business, capital is about $4 million a year. So ultimately, we see CapEx once we come out the 3G period for the wider business falling to that sort of $7 million -- $8 million, $7 million number. And any investment we need to make will only be around building systems or IT or comparative advantage outside, obviously, of M&A. So a good story there. In terms of the EBITDA, we've pre-released that. I've made comments on it. We've broken it down. So effectively, this is just the bridge to show the underlying business growth. As I said, the reality is the acquisitions relatively outperformed and the underlying growth relatively underperforming vis-a-vis what we thought would happen in our guidance. As I said, the relative underperformance and it's a hard word to use because the underlying business is growing really strongly and feeling very confident. It was just simply a timing issue. So we feel very confident. And I just probably pause and make the comment because this has been a sort of quarter-on-quarter story. As we exit this year, it puts us on a very strong basis looking into '26 for another big step up in EBITDA and therefore, cash flow as we get into '26 just sort of sitting where we are today with the business. So to wrap up the 4C comments, really, this is the culmination of looking backwards over the last 3 years and actually being able to now start to truly validate what we have been saying and for those that have supported us that time we're incredibly grateful. And hopefully, you feel validated yourselves and having backed us into what is a really strong business. As I've been saying for a while now, what we've really been focusing on in the last 6 months plus is how do we accelerate this and build it truly outstanding and enduring service business. The buyback, I called out, is really around options. Being in a position like this is great, and we want to make sure that we weigh all our options and make sure we really do continue to drive strong shareholder growth. I had made a comment about the earnings. Look, the reality is the earnings stepped up through the second half of -- or the year as it did through the first half. So we're just saying, clearly, if you just look at the base of the second half, which is a conservative view of the actual probably run rate, you would expect to see really good growth into '26. Our intention is to provide -- we're going through internal budgeting. We really want to make sure we do the work well and plan this business well, not just for this year, but for the next 3 years at this stage. And so our plan is to go through an internal round, which will shape out during September with a view of providing full guidance for FY '26 at the AGM in October. We'll spend a lot of time our plan at the result in August, targeted for the 26th of August, talking about our pipeline and showing you why we are confident in what we're looking at both currently and sitting with us in the future for the business. So -- and then obviously, the last point I make is with the balance sheet also in the shape we have shown a -- we feel a strong credentialed path to use M&A strategically around growing value, not just in the price we paid, but the way we've integrated and the way we bought this business together. I feel really great about that. That's always been my high watermark in terms of being very careful, selective but prepared to make moves when they make sense for us on a medium-term basis. And so we're in a great shape to continue that journey. We would not need equity to pursue anything that we might be looking at, at the current time. And so you should expect us selectively to continue to build this business with our capital or shareholders' capital over time. When you think about us, what really has come home to roost, I think the A101 certification, I think the conversations going around at the moment around the childcare sector and privacy and access to video and surveillance have highlighted both the advantage that we have developed by investing in the platform that we have today, but also the opportunity for us to widen that advantage over time. And so the best way I could really articulate what I think has happened in our journey and hope that you can see what we're doing and build it out is that, by investing, as we did do 3 years ago in a very tough situation when we were overgeared, undercapitalized, our shareholders to help to support us invest in our platform that has given us the leading platform, we've been able to invest in now on building scale and reach, which is attracting large customers. It has put us at the forefront, I believe, of the industry, which is improving our business, which is the result you see today, which is now giving us the chance to continue to invest and build a competitive scale and advantage, which I think is going to create and continue to create a fabulous company. And I certainly feel that, that's the environment internally in the business and understanding to which we have. So hopefully, that makes sense to people. I'm happy to chat about that. I'll just finish. Again, what is IMG about. Really, this is a good showcase of what we can do in a purely physical level. And I'll just tell you the story here. So this is actually a storage cam. I won't note the location for customer privacy. We also won't be releasing this video publicly. This is for this forum only. But effectively, what you have here, there's a couple of people, which you can see on the screen, trying to get into the building. Now at this stage, they've already been seen by our live monitoring team. In this case, the team was based out of Port Lincoln. And they did a threat assessment. So there are a couple of options for the team at this point for the operator, and I'd like to thank Ben, Batman Ben, as we all call him, our operators that are successful become Batman or bat people. The assessment was, do I scare them away, which we have the ability to do with our technology now or at least try to frighten them away and to distract them; or do I think that we can actually get to get them with the police before they're done or enact. In this case, the view was let's just let them run and let's see if we can get the police. So the police has already been alerted, and I'll play you a quick video. You probably can't hear it though. [Presentation]

So you probably weren't been able to hear that, but that's the police running after the guys shouting at them. They caught them off camera, what I'm told is a superb state of origin like tackle and apprehend both of them. For us, since we started using this technology since the start of the year, we've apprehended -- we've had 21 events, and we're apprehended over 30 people with the police Average police response time from somebody trying to get in to them getting there has been around 9 minutes. And so that's the difference. Anybody that questions why would I have monitored security. You're correct if you're looking in the rearview mirror, maybe. I'd still argue there are cases in ways that can be used to your advantage, but this is what we do today. And this is the opportunity we have. We think the market -- we think we currently are the leaders for sure. And we think this is a multibillion dollar opportunity to apply across Australia as one of several segments of what we can now do with technology which sort of validates the investment we made. So I'll draw a line there. I hope I over talked -- sorry. I'll finish on the slide, which is the market stats, which I'll talk to another time. I'll leave it in the background, but throw in the questions, Mark.

Cheers. Thanks, Dennison. We've got a plethora of questions, and we're not going to get to them all. So I'm just going to apologize to people now if I don't get to your question. But I will send them across to Dennison and Shane and then...

In terms of -- look, you've got our details, our phone numbers, feel free to reach out to Shane and I or Jason Biddell, too, our CFO, we're all available to work you through the numbers as you like.

Okay. Perfect. The first one I wanted to tackle, the 2 deferred big service contracts, how confident you are that, that is going to come back online once those new executive appointments get started on the other side, at some stage, let's say, in FY '26?

Yes. No, look, I guess nothing in life is for sure, but we're deeply -- the one that we've actually been really targeted on one was a bit opportunistic, but fairly significant. I'm -- there's been staff change that could take a little while. I think it just takes them kind of coming back to the table, which we've seen before in our journey. Certainly, we saw that with 3g shop this year where we -- the takeover stopped them. We were just about ready to go and pick them up. Takeover came through. They came and stopped doing everything. We thought that was gone and dusted. And then within a month, they were back on the new iron as I said, whilst we're changing this business completely and are pending it, we do need a proper security. These are my words. Supplier across the country to do this for us and bring us up to spec on a global basis. We want you to push forward even though we're not doing anything else, and it came back to the table. I think one of them is probably in that camp, the other one we're very live on and certainly look forward to updating people in August about where that is. And it's absolutely a meaningful contract, but it will also be a real leading contract for the industry. For those in the industry that understand and know that contract, it will really cement us as a leader in enterprise security, I believe.