Pentanet Limited (5GG.AX) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to our Q1 FY '26 results. I appreciate everyone tuning in this morning. I'll just give it another few seconds and let everyone else get in the room jump in. Okay. So I think everyone's in. Again, yes, thanks, everyone, for joining in this morning. I think it'd be a pretty quick one. We'd like to kind of keep these quarterlies pretty quick these days. The company is really focused on improving our financial position quarter-on-quarter. But I'll give a bit of insight what we've been working on across Q1. With these calls also, it's a good opportunity if anyone has any questions, feel free to shoot them across during the course of the call, and I'll get to them at the end. For anyone really been following or anyone new, so over the last 2 years or 18 months, we were really focused on getting the business into a profitable position, which we're able to achieve. And the reason we obviously wanted to do that was to put us on a path that we could get back to growth. Pentanet is quite a strong brand in Perth. It's a very trusted telco. But in terms of our marketing and that sort of thing, we haven't really been in market for a long time. So we were talking about this upcoming big branding campaign. So that's largely what's been at work. So across Q1, we're developing and building the branding campaign for telco. And we're excited to say that's actually now launched and in market. So Q1 saw our fourth positive consecutive EBITDA quarter. And really moving on from here, so I'll touch on the gaming as well. So even with 5G, we're seeing the subscribers come in and start to increase. Maybe I'll start just because I said there's a few more people on the call. So Pentanet, we're primarily telecommunications. So we deal in nbn, but we also have our fixed wireless network. So we have what would be the largest fixed wireless network here in Perth, and we have multiple technologies running on that network, which we operate really high margin. But over the last maybe year or so, we've been talking about putting a big focus on our 5G. You would have seen we've finished our last 5G Spectrum payment. So about 20% of our network is converted to 5G. So where we play in telco? I mean sure we can -- we sell nbn and we do, and you'll see those numbers growing. But our key core focus for telco is that 5G product, given that it's really high margin. So we went through the process over the last few quarters of building out that network and scaling that network to a position we could grow it. And now we're starting to see the users start to climb and increase on that network off the back of the marketing. But I'll say again, the marketing that we're doing is all still to come. So that campaign is now in market, which I'll talk to. But yes, across the last few quarters sort of just getting the business in a better profitability state. And now we're going to start actually reintroducing growth into the business. So we do want to keep the business in the EBITDA positive state. So I know we are going to be increasing our spending, which Mart can talk to later on. But we're very hyper focused on being that local provider here in Perth. So at the moment, we have probably that circa 2% customer share or market share here in Perth with telco. We're in a very strong position to now drive off our own earnings and reinvesting into the business to get that to 5%. So we're going to be growing that subscriber base on the 5G network because that's obviously where we have the higher margin. You can see the uplift of the subscribers there. The other thing that happened in Q1, there are all these speed boosts that got introduced with nbn. So we did see -- there was a bit of shuffling with people jumping in and across to different nbn providers. And we do -- we have a very robust network that's able to scale our nbn user base as well. So there's a little bit of fluctuation on the nbn side across Q1. But that's why we're getting this marketing back in -- our branding back in market to really capitalize on -- there's a few more eyes and people are a bit more interested in telco at the moment from a consumer perspective about which provider to ultimately land on. So really, from a telco perspective, our focus is to get the business to 5% market share. That's as a next stage. That's -- as a next stage, that's quite attainable for us. And we're going to be able to do that, obviously, while keeping the business profitable and doing everything on our own steam. So this project got put together, obviously, it's Q1, and it just so happens that the marketing campaign launched just in the beginning, sort of thing of Q2. So hopefully, next quarter, we'll be able to present and show some of the outcome and what that material is. But like I said, Pentanet hasn't really been -- like we started -- we're a very, very strong brand, and we're a trusted brand, but our brand hasn't been in market for quite some time. So the team is all quite excited to now -- as you're driving around Perth, you'll start to see our -- there's our billboards. We're on the radio. We're doing a lot more out of home. If you remember, I was talking about the 5G network and the 5G coverage. We had to get that to an adequate level where if we do this widespread marketing like radio, billboards and that sort of thing, we do get a lot of inbound. But we didn't really want to pull the trigger on doing that before we had the network ready. That was the focus last year, sort of getting enough coverage to be able to at least capture a good portion of those leads on to the 5G network. So now we do have that campaign out in market, which has really been the first time, probably for 2 years before we've been really bringing the consumer drum about the Pentanet network. Everything else has sort of been coming in from word of mouth and just our normal sort of marketing that we keep going. So again, it is a quick one today because it's really business as usual for where we sit today, which is just now we just want to grow revenue in the business. That's obviously just a formula of marketing and then having the capacity for people to come on to. And so that's all begun now in Q2. So we're excited to see what that brings in and be able to deliver what that is and also talk to the marketing campaign. We didn't really want to put what the campaign was in everything here because it would have gone out before the launch, but that's all what's happening now in the business. Yes. So you can see the numbers are actually increasing in terms of the gross new subscribers. And again, that's just because of the attention that there's a lot in market about the nbn and the speed boost, and we are capturing a good portion of that. nbn used to be quite a small part of our business, and it's certainly not our core, again, because our fixed wireless is where we make all the money -- well, more money, 90% margin circa. But we are now -- we have our nbn footprint and capacity in a position where we do make decent margins on it. So the campaign that's in market now, it's not specifically tailored to one product or the other. It's just elevating our brand. So we're going to get our share of voice back in market here in Perth, quite focused, and then we'll be able to start directing subscribers and customers onto the product that suits them. And our 5G network is in a position where we can capture -- not have too much of that marketing dollars spent out there, just funneling all into the lower-margin nbn side, even though, I guess, the point I'm making is that on nbn, we do make decent margin now as well. So we're obviously happy to capture those users. My thinking around where we sit because we also get asked, we don't sell telco or we don't sell Internet nationally. So that's probably the one thing. In terms of a telco of our size, that's the one thing that we are a little bit different on. But the thinking is Pentanet is such a focused brand here in Perth, and we are still sort of focused on that higher quality end of market in terms of what we can do from a customer success point of view. So one thing that we're going to be doing -- we do have a customer success team. And what I mean by that is we've got our tech support. But the unique part about Pentanet is when you have issues and that sort of thing, even if it's an nbn connection now, we actually have a team that can come out, and we charge for that, but come we go out and help people get set up and that sort of thing. So that's sort of the unique edge that we have in telco, even from an nbn point of view that we have by operating here, like much more focused in Perth. And again, it's that age-old building up a strong loyal subscriber base here in the West by focusing our marketing dollars and focusing our attention here locally rather than that widespread national approach. So we'll be looking across Q2. We're also going to be putting a big focus on our customer success team, probably looking to grow that out. So customer success is that boots on the ground, people that come out, they help set up the house. The thinking there is that the revenue and margin that we generate by providing the equipment that they need covers the cost of that team, and it gives a really good experience to the end user. And where we're seeing -- because with all the speed boost and everyone's speed starting to increase in the home and also with 5G, a lot of the bottlenecks to people having a good Internet experience are if you're going to start coming from how they have their home setup. Going back a few years, the bottleneck with Internet was out in the street with the different technologies that nbn was doing and that sort of thing. Consumer devices for your WiFi and the wiring and smart wiring inside the home weren't really the bottlenecks yet. It was more about getting the traffic and the data into the home. Now we're sort of past that inflection point where we can get solid bandwidth into homes, be it whichever technology, but that bottleneck now in terms of a good, strong and solid positive user experience and getting that bandwidth around the home is all going to come from increasing what's actually happening with people's setups. So that's something that we see as a really strong focus for us that were quite -- we're in a really good position to leverage given that we're here, boots in the ground in Perth. So big focus for that in Q2. We're already seeing some positive momentum coming from the marketing, but the campaign wasn't out across Q1. We're just sort of prepping for that. In terms of the gaming, you'll see the gaming revenues kind of just stayed neutral, although we have seen a little bit of gross profit increase. This -- we're in a very lull season. I talk a lot about the cloud gaming. And for anyone new to the call, so we operate NVIDIA GeForce NOW here in Australia. So that's -- GeForce NOW is a cloud gaming platform. So we have a lot of the supercompute power. It's not directly related to the telco, although our telco network does run it. But effectively, it replaces the need to have any hardware for you to play games. So at the moment, people want to play a game, they need to have a gaming console or a gaming computer. This turns all that into a subscription model because all of our capacity and compute power in the cloud runs your game and streams it directly to you. What we see from an operational point of view with this is that it's quite seasonal. So we do see big surges in revenue around different game titles and game launches. Off-season, like we're seeing here, revenue can kind of hold still, which is good, like in terms of off-season. But the positive news is we are sort of coming into a gaming season now. So around Christmas, there's quite a few gaming title launches. People have a bit more time to game. So we are expecting to get some positive momentum coming in across Q2 with a few new titles coming in. And I won't get into too much detail about the different games and that sort of thing coming, but we are seeing more and more positive momentum with publishers and people who are working very closely with NVIDIA now to bring their titles onto the platform. So we're still very bullish on our case for cloud gaming because we are sort of getting to that inflection point where what we deliver now for a cloud gaming experience is exactly the same as what you'd paid several thousands of dollars for a gaming PC. The other thing that we are sort of foreseeing with cloud gaming, with the rise of AI and the rise of the -- NVIDIA, we've all seen it every year, they have to bring out a faster and faster chip. So NVIDIA's growth and development is largely driven around making more powerful chips for AI now. But in terms of the GPUs that are required for gaming, they're sort of -- they're exactly where they need for gamers, which is 4K resolution, high refresh rate. And what's actually going to happen is because NVIDIA aren't going to focus on keeping their chips the same, just to suit the gamers, obviously, their business is all around AI now, the cost of the GPUs is actually just going to keep increasing globally because they're going to get faster and more powerful for AI applications, which is going to start to serve the gaming side of that GPU base less and less because the price of the GPUs is just going to constantly get -- keep getting further and further away from what's affordable for gamers to be able to update or have a GPU. And so cloud gaming is a multiyear sort of development thing, but we think we're at a really exciting inflection point for that, where every year, basically, GPU is going to get more and more expensive for a consumer because they're not really built or tailored or designed for their base. They're sort of just getting the slower AI end of things. And that's where we can see because we're big believers that one day, all gaming will be done through the cloud, and we maintain that exclusivity with NVIDIA to own and operate that. So again, the numbers are sort of static like quarter-on-quarter here, but that's quite seasonal based. And you can see with the big uplift. We did some changing around with our plans, changing some ARPU and that sort of thing. So we've been able to maintain the customer base off the back of increasing that ARPU. And from here on, we'll be able to see more people use the platform from the seasonality, but it's also awareness. There's a lot of people who still don't know about cloud gaming or they're coming to their upgrade cycle of their computer where they're going to go out and look to build a new PC and maybe look at the cost of the GPUs at the moment. And this subscription-based model is looking a lot more attractive, especially with more and more of the titles coming to the platform, is where it's at now. So I think with that, I'll actually pass now to Mart Derman, our CFO, and then I'll come back and answer any questions.

Wonderful. Thank you, Stephen, and good morning, everyone. I'll take a few minutes to walk through Pentanet's financial performance for the first quarter of FY '26, a quarter that demonstrated ongoing stability across our key metrics. We sustained EBITDA performance and the beginning of a strategic reinvestment phase as we prepare for the upcoming brand campaign in Q2. We've also shared more details on this in the article now available on our investor page under News & Media. And I would encourage everyone to go and have a look at it. So in terms of our financial performance, our consolidated revenue for Q1 FY '26 was $5.9 million. That's a 9% increase on the prior comparative period and a 1% quarter-on-quarter increase. Then the growth was driven mainly by the telco and the gaming segments. The telco revenue increased 2% quarter-on-quarter and 7% on the prior comparative period. And this was supported by subscriber growth and continued migration to higher value plans. We've seen kind of the same behavior in the gaming. The gaming segment also performed strongly. It generated that $0.7 million in revenue. That's a 33% increase on the prior comparative period, and this was driven by the higher value plan uptake continuing to drive that ARPU improvement that we've seen over the past quarters. Then in terms of the margin and profitability, the gross profit remained steady at $2.9 million. It's still up 22% on the prior comparative period with consolidated gross margin improving 5 percentage points to 49%. This reflects a solid operational foundation across both segments. Our telco business continued to benefit from strong recurring balance and a balanced mix of nbn fiber and 5G services. And then gaming margins have expanded due to the uptake of the premium tier subscriptions following the retirement of the casual tier plan. So EBITDA remained positive at $0.6 million, and this is now our fourth consecutive quarter, an important indicator of Pentanet's operational resilience and earnings quality. Then moving on to the cost and marketing -- not yet -- previous slide, cost and marketing reinvestment. So the operating costs remained well controlled during the quarter. So our overheads stayed at $2.4 million, and that's down 15% on the prior comparative period. And we maintained disciplined cost management while increasing investment in marketing with around $50,000 in additional spend this quarter to lay the foundation for the Q2 brand campaign. This all represents a deliberate measured reinvestment in growth after 2 years of focused cost optimization. We do remain confident in our ability to maintain EBITDA positive throughout this phase. Next slide. So now in terms of the cash flow. Also another positive operating cash flow quarter for us at $0.6 million. That's a 50% quarter-on-quarter improvement, and this reflects the continued disciplined working capital management and underlying EBITDA strength. During the quarter, we made the final $1.7 million payment for the Spectrum licenses, which was funded through the $2 million Moneytech facility. And that Spectrum license is over a period of 15 years. So we've got that to use for the remainder of the useful life of the Spectrum license. Then Pentanet closed the quarter with $2.4 million in cash. We've got $6.9 million in unused financing facilities, so leaving us well positioned to support growth initiatives and maintain that balance sheet flexibility. So to summarize, Q1 FY '26 was stable and strategically important quarter for Pentanet. We maintained profitability momentum. We've strengthened our balance sheet and set the stage for renewed subscriber and brand growth in the coming quarters. The company is entering FY '26 with strong financial discipline, a very efficient cost base and the capacity now to reinvest confidently in growth. With that, I'll hand back to Stephen. Thanks.

Thanks, Mart. Yes, look, so in summary, as Mart is saying, the business is in a profitable state. It's been a long time for us to get it there. We've got no big payments hanging over our head. Nothing to make -- we've sold all that. The last one overhanging that we were talking to for the last few quarters was the last final 5G Spectrum payment. We said that we'll solve that we have, and the business is fully supporting and sustaining itself on its own steam. And there's additional steam now to finally reinvest into growth because at the end of the day, we're a consumer-facing business, where we have our enterprise side as well for telco, but the formula with consumer-based products is you just got to market it and be in market, obviously, keeping the customer acquisition control costs in check, which we do. So we're very excited now to really get Pentanet back again in market. Because formula is just you market, you have enough capacity, you have a good product, you definitely do, and you'll be able to get that growth back into the business. So everything over the last few quarters has sort of been building to get us to this position now. We're well funded ourselves to grow and bring that growth back into the business. And there's 2 avenues for that business to be growing in which we're both going to see growth come from. But we're probably going to see a lot of the revenue growth coming in now just over the next few quarters from the telco side, while we capture all that. And I expect that in terms of the GeForce NOW, we're going to start to see different quarters where that we hit those inflection points and the business sort of revolutionizes and grows and grows up until the time where everyone who's gaming in Australia will just be using GeForce NOW. And that's a time that's somewhere down the road because it's an inevitability in terms of how users and gamers will be able to access their games, given what I was talking about our thoughts and thinking is on the GPU side of thing with what's to come. So look, again, I said it was a quick one today. So I'll get a few other questions.

So yes, any process progress in the GFN NVIDIA side of the business? Look, everything I sort of touched on, it does sort of work in ways, work in cycles, work in seasonality. There's other things that we're doing with the GPUs in the background that I don't really talk to, but -- I can't talk to, but you do see that with our margin uplift. So we see the revenue sort of growing from the gaming. And then you can see that margin growing, which is fluctuating from other things that are happening in the background between ourselves and NVIDIA. So yes, there's always progress with GFN and NVIDIA. But that's one of the ones that you sort of -- it will be doing its thing in next month, 2 months' time, it's doing something completely different and bigger and broader, which you've seen over the course of the year is how that's grown and different stages where it's doing something a lot more lumpy than it was the month before. So that will keep ticking along. Another question. When can we expect 5% to 10% market share? So what we're going to do now, we've only just launched that campaign. So we have increased our marketing spend. But as Mart said, we're keeping the business profitable, doing so. So we're just going to closely monitor that customer acquisition cost. It is going to fractionally increase to what we're doing now with marketing. With campaign work, there's a lot of cost that's upfront and then you've got the money to be on the billboard, but there's all the production costs and everything. So what we were really focused on creating a campaign that we can use for a long time because the campaign creation is sort of the expense part of that exercise and then it's how long can you use the campaign for. So we're going to really closely monitor what the marketing does across Q2. And so we are seeing growth come in off the campaign. But after 1 or 2 months, we'll be able to really assess where is the CAC sitting and what's the spend setting. And the business is now in a position where we can start to flex and dial that up. So in terms of how long will it take to get to 5% market share, we're going to -- probably the next quarter or so will be quite telling on what we'll be able to do in terms of flexing that run rate, flexing that growth. We've got all the ingredients in the pot to do that. It's just going to be a matter of we're not going to go drastically -- we're not going to 3x, 4x our marketing spend now and just there it comes, we are still in that like measured approach stage, which will always be, but we're going to get the brand back in market the first time in 2 years, monitor that closely for a quarter. And as long as our customer acquisition cost is all in line with what we have budgeted for different customer types, we'll be able to increase that marketing spend. And as long as we're maintaining that CAC, the business works out. So I expect to answer the question, probably over the next quarter we'll be able to have a bit more detail on that because we'll know the success of the campaign, which we're already seeing, but have a bit more data to be able to talk to, okay, we're going to extrapolate this data out. We're going to dial it up by x percent and get closer to be able to give those estimates. But hopefully, that makes sense and is logical in terms of our thinking around it. So look, with that, there was only the two questions, which I appreciate them coming through. But yes, with that, we just look forward to seeing what we can do this quarter. There's a few exciting things happening in the business that aren't just the old -- what we've been doing over the last few quarters, which is just stabilizing the ship, so to speak, and getting the business into running off its own steam to make sure that we're here to stay and taking away any of the question marks around how is the company going to get funded and funded to survive and then what's it going to do to grow? Well, we're funded to survive because we're here still. And now the business is profitable to actually start reintroducing that growth into it. So it's all about dialing up that growth now bit by bit. We're excited to do. So thanks very much for everyone joining. And again, this is a great period. If anyone wants to reach out and have one-on-ones, go into a bit more detail on all or in part of any of the specific parts of the business, feel free to reach out, and Mart and myself will be made available to have those one-on-ones. But with that, I hope everyone enjoys the rest of your day, and I'm sure I'll chat to some of you again soon.