Pentanet Limited (5GG) Earnings Call Transcript & Summary

Yes, I can hear you.

Apologies, everyone. Mart, would you be able to shift to be the one to share the screen?

Yes. Just hold. Okay. I can't share while you're still sharing.

Yes. Apologies, everyone. Okay. Look, I'll keep running. Mart, if you can bring it up, but I assume everyone's got the presentation in front of them. So look, what we're looking at obviously -- we're recognized like where we're at. The problem and challenge with the business is the top line revenue growth. Quarter-on-quarter, we haven't been able to bring the top line revenue growth back. We've been hit churn. Although the company is growing from a growth perspective, the offset of the churn each month is just meaning we're not having that net growth come in. There's several reasons for that. There's obviously the Fibre Connect programs. nbn being a lot more aggressive in market in terms of upgrading it onto fiber. And then also when it comes to where our focus is, which is kind of holistically on on-net, we do have several on-net products, which they're challenging from a resourcing perspective because they all take their individual kind of focus, but we obviously want to be getting out on that growth back. What you can see and what we've identified over Q3, we've been able to bring our nbn offering, our off-net offering in line with market. We were able to join the Fibre Connect program at the beginning of Q3, which we said would start to bring some off-net growth back, which is the top line growth. So we've been able to achieve that, and we expect that to continue going. The numbers are starting to come back, as you can see, with our off-net user base. In terms of our on-net, as I was saying, our internal resources -- there's multiple focuses across on-net, and we have products that do nbn speeds. We have products that do faster than nbn speeds in terms of ultrafast unless someone is on the Fibre Connect program. And then we have our product, which is -- does the gigabit type plans, which is neXus. But what we've found, the 5G is really starting to identify itself as our best, quickest, easiest thing to just get out there. So what we're really going to be doing in the business is just putting a much, much sharper focus on our 5G offering. So that's going to come with new initiatives in market [ arising ]. We've got some end-of-financial-year deals coming up, which we can obviously take advantage of now in terms of the timing of the year. But really, we're just wanting -- I'm wanting to bring all our telco resources. Not all, but a very material focus just on expanding our 5G. 5G is -- there's just -- it's performing super well. It's much easier to install. With 5G, we can just upgrade an existing tower, and we get that several-kilometer footprint ranging from there. And then we also have that vendor financing to lean into to get that growth. So really, just want to set forward a clear strategy. What everyone should expect from us over the next 6 to 12 months is absolutely reigniting the top line revenue growth in the telco is our #1 priority. I know we also have the NVIDIA side of the business, and that's going to do a thing, which I'll talk to, but the most immediate thing in our control right now is to grow our top line revenue growth and absolutely what we understand the expectation what everyone's wanting to see from us and certainly what we want ourselves. To do that, we're going to start re-elevating our brand back in market. We -- over the last 24 months, we had to kind of look at several ways to bring costs down, get closer to that profitability, keep the business, de-risked at that EBITDA breakeven point, but that came -- by doing those things over time, you start to lose your brand in market and that sort of thing. We are still a very strong brand in the Perth market, but probably not as front and center as we would have been 4 or 5 years ago. So that's going to be a focus, and we're going to get back there. As I said before, we're going to really sharpen our internal telco resources to just focus on 5G. 5G delivers an ultrafast product. It's super viable in the market. When you're doing 200 megabit per second Internet, that's the kind of mark that people are looking to upgrade into now. Like I said, we can leverage the 5G vendor financing. It's the fastest way for us to build coverage. And we have a lot of customers on 5G now, and it's just proving to be like just a really, really capable product that we can expect to put a lot of growth on to. Alongside that, we are wanting to remain in market. We've adjusted our off-net offering. We've had to kind of bring out -- when it comes to nbn, selling nbn, a lot of it is just price driven. There's a multitude of providers that can do that because of a lot of telcos can be on the nbn network and most are. So you do just got to constantly keep your offering in market, which probably crossed the first half our -- to be fair, our nbn offering wasn't super in market. But we've been able to bring that back in. That's going to come with the growth. Obviously, part of the Fibre Connect program. And then I really wanted to get back involved with our customer experience and journey. We do have great NPS, but at the end of the day and reflecting, our business is built on our customers. And so even though we can have price matching for nbn and have alternative products for connection with 5G, I really want to maintain our position in market by who we are to our customers, which is known as being a really great product. So if -- there's certain things that we can fix in there, and I'm going to put a very strong focus on doing that because I want to start reducing that churn because every time someone churns, as we see it, just affects the net growth. We can chat with some Q&A on the telco later, but just to recap the NVIDIA business as well now where we are. So as I've said before, cloud gaming, it's just -- it's the future of how people are going to game, right? So it just -- it transforms any device into -- whether it's an Android or an Apple, someone can take a 10-year-old MacBook and pay their subscription, and that thing is operating as a $4,000, $5,000 gaming PC. It's absolutely the future, but we need to be building it. We've been building it over the last 3 years. So just to bring a level of understanding. When we first began GeForce NOW, it was on a Gen2 platform, so that supported 1080p resolution at 60 frames second. So kind of it entered us into the cloud gaming race. It allowed us to start testing the Australian networks and the nbn because that's where the majority of the market is nationally. We started to test the network to see what we could start pushing in terms of streaming services because cloud gaming is very demanding. So that was a 1080p resolution at 60 frames per second. And now over the last few years, you've seen we've continually invested with NVIDIA and we're building our platform up. So now our platform fully supports 1080p, 1440 and 4K resolution, now at high refresh rate. So we can comfortably say now that all of our available plans can actually surpass the capability of most home gaming computers. And so that's why that is really important is because there's a large portion of the market that they have a gaming PC or people upgrade their computer in cycles every 3 or 4 years. So our hardware that we're running for our cloud gaming platform now surpasses what people would have had in their old upgrade cycle. So it certainly opens up a lot of opportunities people to start paying. When we talk to our 560,000 users on CloudGG, now those are users who were in our platform, they've come, they've made an account, they'll play for a few months for free, some of them are paid, albeit there's a very small percentage of users currently paying. But it's safe to say that that's the known market size for cloud gaming. Those are users who have had exposure to our marketing. They understand GeForce NOW, they've come to create an account, but for whatever reason, which there's a few, they just haven't come on as a paid user yet. And one of those reasons is we do allow free trials, so people can come and play on the platform, which is the limiting factor for people to start paying, but we're still in our early adoption market, awareness phase. So we're going to continue to do that. And what we're actually learning about the platform with the demographics of the users, a lot of these users are of the age where they're just kind of maybe starting to the game. So maybe they want to play Fortnite or something like that and they don't have a PlayStation or -- and want to start playing from the cloud. They're of that age where they'll start to game. So whether it's 13, 14, 15 type thing. And reflecting when I was at that age, due to what was available to me, that was the age that I was when I had [ paid ] around and that sort of thing, so I was able to afford and build my gaming PC. But how the market is going to shift is this demographic are going to start just playing their games on the cloud. They won't have the need to go and buy that computer. So as they shift to that age where they can -- they're working at McDonald's or whatever it is, and they can afford to pay for something more premium and not need to buy a computer, we anticipate that they will shift to a premium cloud gaming service. But cloud gaming for us is a -- it's a -- we're going to be in it for a long time because it's absolutely the future of how people are going to access gaming. And we're alongside NVIDIA on that. How our NVIDIA business is also evolving? This hardware and infrastructure that runs the games, it's super, super capable. Like cloud gaming is the most powerful thing to be doing from a cloud computing point of view. So if you could do cloud gaming with your infrastructure, you can do everything else that comes below it. So one of those things that NVIDIA have just talk to and launch is their NVIDIA Graphics Delivery Network. So as we recently joined like the infrastructure is being put in, NVIDIA in there at the moment tinkering, bringing us online, but we're joining that in NVIDIA Graphics Delivery Network, which I'll talk to. But basically, what it means is it's going to have -- there's going to be a new enterprise and commercial revenue that we're going to be able to bring into our existing infrastructure. We're going to be able to run those applications on same infrastructure that's gaming, and we can theoretically be running these tasks when people aren't gaming because gaming is -- it has peak hour and that sort of thing to just continually add revenue onto our fixed cost base now. So talking about cloud gaming and GeForce NOW more specifically. You can see that cloud gaming is doing its thing like it's growing. The CloudGG total membership base grew 11% quarter-on-quarter. It's 560,000 actually. But that's just kind of continually chips away continually grows. And as I've said, the CloudGG user base is now growing in market size. Our CloudGG paid subscriptions has increased again, 15% quarter-on-quarter. And GP is there and this business is running EBITDA positive. I wouldn't read line by line. But as you can see with the trend on this graph, just an interesting thing to point out, what it's reflecting is the way that users are interacting with the platform. So how people interact is they'll pay for free. And then maybe the right content or title comes out that they want to play or there's a new Fortnite season or some other games from the Microsoft catalogs just hit. That's when they'll come in from being a free user onto a paid user. And then -- but then we see -- maybe when they finish playing that content, so they play Baldur's Gate 3 back in August for 2, 3 months. What they'll do is they'll come out of the platform. So GeForce NOW does have churn, but then we have the use of return. So we're actually seeing that people are starting to interact with the gaming. It'd be similar to like having a show in Netflix. You watch your show, you turn it off, then you come back on. There's going to be ways that we can mitigate that because obviously, we want people on there more often. So we can introduce other ways like day passes and that sort of thing. Now just to go into now the NVIDIA Graphics Delivery Network -- maybe a bit in the next slide is easy to understand. So what the Graphics Delivery Network is how NVIDIA speak to this, like which they've just done a GTC. They're basically saying that everything that's going to get built in the future, like factories or anything like that, they're actually going to get created first with it as a digital twin. And you'll actually see even some of the state governments and that sort of thing are putting out for tender at the moment like for the digital twin applications. And what that means is basically creating a perfectly rendered 3D model of an existing factory or a factory that you want to build using a factory as an example. And then you're able to kind of really get your factory and optimize and running super efficiently before you go and build it. Or say for a factory or a mining operation or anything that's already operating, you can have a perfectly rendered duplicate or a digital twin of that and then you have all the IoT and data fed from the real material factory into this digital environment. So consider somewhere down the future, maybe project managers and that sort of thing are actually at the mine side or at the rig or anything like that through like an Apple Vision Pro, and they're able to walk through the factory and see live telemetrics popping up. That's just like one use case. There's so many different use cases. It's a brand-new industry. In this other example here, you can see for car configurator say. Imagine so the future of going to buy a car might be whether you do it at home or do it at dealership, but maybe you put the headset on and you have that car fully rendering in real time in front of you. You're able to add the options, change that landscape and all these sorts of things. There's a lot of really interesting use cases that have been explored already, and there's a lot of use cases for businesses that probably haven't even thought or know about the technology and where they're going to be able to apply it. So big, big opportunity for us. And how that works for us is -- think of us as like we're that distribution channel. So how the work is going to come to us and how revenue because that's the question, right? How is revenue going to come to us from this? So NVIDIA are going to start doing global deals. So let's say they deal with a global car manufacturer. And that car manufacturer wants to have their car configurators in Australia operating. So when someone in Australia goes to that car manufacturer's page, that's how they're going to be able to interact. So that company will work with NVIDIA. And then the distribution of broadcast of those graphics will then be sent down and will be running and operating that for our region. So say, anyone from that global company, commerce or anything like that, if they have something running on GDN, we're going to be powering it if they're accessing it from Australia and New Zealand, and there was a revenue share arrangement in that with NVIDIA. So we get exposure to global NVIDIA deals, but then we're also able to go and find and build this business ourselves locally. Like I said, if we're wanting to approach local manufacturers and that sort of thing about digital twins or go after these government tenders to build statewide digital twins. And I'd encourage everyone to look into digital twin. It's going to be a big new thing. But we're able to go and seek out those opportunities directly. And if we're doing that in our local market, by nature, we're going to be the ones that are actually going to be bringing that compute to us, and there's a better ratio of revenue share for us when we do that. So the forward-looking business strategy on the NVIDIA business. We've just got to start increasing our marketing and awareness to the NVIDIA platform. We're continually doing that, but we need to do more because I talk to people all the time who haven't heard a GeForce NOW or maybe they've heard of it, but they just haven't made an account, they haven't tried it. So we just need to keep doing that. We're going to continue our free trial adoption. That does come with costs, like we obviously have to run these things and run them. Free users on the platform does cost the business money, but it is part of the mid- to long-term plan, getting a whole new generation evolving to access gaming through the cloud. Another really interesting thing that we could talk to today. We're going to be introducing ads for the free users. So while there's free users in the queue to play, we're going to -- we're able to start taking advantage of showing them ads. So we're going to start to see some ad revenue come in probably across Q4. And then over time, we're going to increase and encourage users to adopt to the premium plans. So how we do that is we have new plans, new ways to access the program, it's new content coming to the platform, all these different catalysts that bring users across to a paid user. And again, it's that demographic shift of users being able to order. And then over time, we'll be able to start tweaking and playing with our ARPU because it's a much better experience and you have much more turned on when you have a higher ARPU plan. Once users come through the door, maybe they start on a casual plan, $12. But those plans can go up to the $30 mark. So over time, we expect to see our ARPU start to grow. And then the beauty of the platform is there's so much running a cloud-based business at scale, there's so much optimization that we can start to put into this business once it starts getting at scale. So you saw the effect. Recently, our margin went up on the cloud gaming business. That was due to a small tweak in optimization around the power consumption. But there's so much more optimization to be had. When you're dealing with a really high-scale platform with high-scale users, we expect that we'll be able to really start extracting really interesting margins from the business. In terms of GDN, at current NVIDIA inside our infrastructure right now, doing other dials, turning the knobs and switches to activate us on the GDN. So we announced that the infrastructure has been put in, NVIDIA doing this, we're joining. What it means from the day that, that switches on, which I'll say is very soon, and probably be the next thing you hear from us. That means that when there is that global customer looking to deploy what they're doing with NVIDIA, Australia and New Zealand will be a box that they can tick because that's live, which will open up that revenue for us. And then what we're really wanting to do because you can see from what I'm saying about what I want to do with the telco, really want to start getting laser-focused. Our cloud gaming and telco business has been the kind of Nebula fleet connected. There's people across both businesses. NVIDIA is coming into its maturity now. So that's going to start getting its dedicated resourcing, which we're able to do off the back of the raise recently. That's going to get some dedicated resourcing to start looking after that and only that. And with that, there's going to be dedicated sales resource so that we can go and start educating the national market around GDN, what it can mean for their business and guide people and hold their hand through that journey to bring them to NVIDIA to get them onboarded and subsequently bring that revenue onto our platform. And the great news about that revenue coming onto the platform, as I've said, is that it doesn't really come with an increased operational cost for us because all of that is already covered from the gamers. And the peak use of the infrastructure comes at nighttime. So when users are playing games, that's when the peak costs come in, which means -- much very similar to telco. You have your peak hour and then your network is kind of not running as heavily during the day. That's sort of capacity that we'll be able to start selling to enterprise. And then you also have -- you're able to have people from other side of the world use your servers and that sort of thing. Constant, constant optimization. So that's the plan moving forward for that. So look, in summary, I know there's quite a bit. But look, when you look at our business today, I know there's been a bit of a bump or whatnot today on the market. But look, we ended the quarter with a cash balance of $9.5 million. So we're -- we've got the cash to go and execute what we need to do for the foreseeable future. We've got a huge upside of towers that we can go and get 5G enabled. From the telecommunications, we've got $33 million in assets generating $19 million revenue, annualized revenue. And there's a lot of capacity there for us to support growth. Obviously, there's the incremental CapEx costs when we're adding new users on to 5G. But our network is well set to handle any sort of amount of off-net users. Our telco infrastructure is up there with the best. And in terms of our gaming, yes, we've got $11 million investment so far in our gaming servers, more so those are cloud service, so they're going to open up the useful for morning gaming. It's currently doing $2 million in annualized revenue. It's not -- it's immaterial compared to the telco, but that business has the capacity to have a lot more revenue come onto that existing infrastructure. So just kind of to have a snapshot. It's -- looking at it today, I think Pentanet represents incredible value. And I know there's a lot of things that everyone can look at every day and that sort of thing. But I think where we sit today, we do represent incredible value on the market, but 100% agree. So probably what everyone's thinking, but there's a lot of stuff we need to go out and deliver now. So just to recap what that's going to be. Number one's focus for the immediate term is getting our top line telco revenue growth back because that opens up everything else to happen. That's the thing that needs fixing in the business now. Okay. So with that, I'll jump on to some Q&A.

So what initiatives are we taking to bring growth back to on-net? So look, there's end-of-financial-year deal sort of stuff we can start taking advantage of immediately. That's to start filling up our existing capacity. But while we do that, we're going to start building and leaning into that vendor financing to build more 5G coverage. Again, 5G has really been identified as like -- this is going to be our key catalyst over the next 6, 12 months to get that on-net growth back. So obviously, there's marketing initiatives, there's coverage initiatives. Those are the 2 main things that we need to bring growth back on-net. In terms of the cash and the CapEx, how it's going to be afforded? We've obviously got cash in the business now, but we're able to lean on the vendor financing. So with the financing in place with our 5G vendor, that means we can just go and run and deploy 5G at the rate that we can and eat into that facility, and that costs us -- it's only 40% upfront of cash, and we pay off the remainder over 48 months. So it does eat into the margin a little bit but allows us to grow a lower CapEx cost per user base. So I'm getting questions about how the Optus partnership going. Are they generating results for customers? Look, again, it's tough. I can't speak too much on Optus because they're -- it's not our business and that sort of thing. But Optus have had a few things recently in terms of like their view and that sort of thing in market. We do see growth from the Optus but most of our growth is actually coming from direct. So that's -- yes, it's been an interesting thing. Our product is effectively white-labeled. We can allow people onto the platform. But it's actually been interesting that people actually just seemingly preferred to just come to us directly. There is like a revenue share arrangement in place with Optus. So kind of -- it'd be great to use them as that exposure but that's kind of in their park. And I think just due to some events over the last few months, Optus probably more focused on how do they stop churn on their telco and that sort of thing. So I can't speak too much on Optus because obviously, they have shifting focuses and that sort of thing but seems they have different prioritizations over there, possibly, but doesn't super impact us because from what we saw. Most of this growth that we report and talked to in the cloud gaming business is from us directly. Those are the 2 -- yes, those are the questions I've had 2 asking about Optus and the on-net initiatives. I'll give it another minute just in case there's anything else to come in. I'll have the third one. So from talking with developers working with 3D graphics and web pages, there's a good understanding of the value of GDN. This understanding doesn't seem to extend to business managers able to execute a purchase. Any plans for education or advertising for GDN? Yes, look, we really -- it's a great question. Really, really want to get market awareness around GDN. So if you were talking to a product manager or a business manager there, since you make these decisions, a lot of them won't know what GDN is, but the word digital twin is starting to emerge. So like I said, I want to get a dedicated team out there. Similar to like if you have a cloud or a data center business or something like that, you have guys out there on the road kind of going and chatting to everyone, building awareness, bringing the use cases for that particular business, getting boots on the ground and building that thing from the ground up. That's what we're going to start to be doing. So we're going to have that out there in market and building up awareness. And the interesting thing about GDN as well is that there's a lot of use cases that are unknown to us and even NVIDIA at this stage. So these use cases, maybe it's a development company wanting to make a digital twin of apartment complex they're about to build. And someone comes in and buys that off the plan because it's all fully rendered and that sort of thing. So yes, a lot of awareness that needs to be had. We're going to get a dedicated team behind that. So I'm getting at -- so I think the telco business is now ready to turn the corner post the last 6 months' efforts. Are pricing changes recently in the business or will we need another quarter? Our telco business, it's vast, like it's a big infrastructure business. It's things -- you can't switch things on like 1 week or 2. You've got to have a bit of planning in place. But with that being said, we are seeing the effects of growth come back in from our Q3 efforts around the Fibre Connect program. We expect that to continue. And it's very much my intention to get the same thing happening for the on-net from Q4. So I think across Q4, we're going to start to see these things happen. Very keen for it to -- as you say, is it ready to turn the corner? Very keen for it to do so. There's a plan in place to do it. It's solid. We're on board to do it. And I'd expect that we can see that starting to come in from Q4. But just keep in mind, the size and scale of the business and everything like -- that's why we've kind of stated that we'll show you what we can do over the next 6 to 12 months. You just can't -- some things just can't get spun up. You kind of go build a 5G tower tomorrow. There's a series of 5G towers in planning. There's steelwork getting done. There's -- it's very heavy-duty stuff, what we do. So you will see that come back quarter-on-quarter there. So how quickly do I expect the investment in telco will yield ROI? Will we see evidence of this investment in the next 1 to 2 quarters help guide expectations? Yes. Look, so with telco -- how you got to get started like the first step is building the coverage. We have coverage so we're going to start filling it up. But as we build more and more coverage, that probably takes a month to get the tower on, and then you've got to start filling up the tower. So you've got that higher upfront CapEx portion to get the tower live and then you've got the incremental CapEx adding each user. But you'd expect -- if you look at the tower as a whole, including the radios and to get it to a good level of fill, it's probably $0.5 million. If you're doing it upfront, obviously, we can bring that down with the NaaS or the Network-as-a-Service vendor financing. So if you kind of look at it that way, you'd expect to see the return on your investment or the CapEx payback period, I think, is what's been asked is that 13-, 14-month cycle. So we expect to see the telco investment ROI would come back within the year or like you'll see it start to come back, and that CapEx will be paid back over 18 months to be able to be recycled into the business. And again, like anyone coming into the 5G network, it's a high-margin product. And so depending on -- like I said, we might have some end-of-financial-year deal initiatives and that sort of thing. We can move the needle or move the dial a little bit on the ARPU. And what that does effectively could push out the CapEx payback period by a month or 2. But with how 5G is performing and we kind of want to get it out there, that's a fine thing to be doing if you're looking at the total lifetime value of customers being that at least 4 or 5 years. Okay. Look, that's the end of the questions. I haven't seen anything else come in. But yes, look, I appreciate everyone coming in. We've obviously got a lot of work to do. And just right after this call, I'm going to go continue to do so. But I appreciate everyone's support, and I see there's a really great opportunity to kind of get behind this refreshed story of growth because all the catalysts are here and there's a plan there. We're kind of -- we're set to go and very, very keen to bring these things to the next and following results, so we can chat about it then. Okay. Well, with that, I'll end the webinar, and thanks very much. As always, feel free to reach out. If anyone wants to have a one-on-one, I'll be making myself available for the next following days. And then I would like to get stuck back in into the business. So if you do have a request for one-on-ones, reach out, and we'll do that over the next couple of working days and into next week. Thanks, everyone.