Pentanet Limited (5GG) Earnings Call Transcript & Summary

Good morning, everyone. Welcome, obviously, to our FY '26 business update. As usual, I'll just give the room a minute for everyone to come in, and then we'll get started. Thanks. I said a minute, but it looks like everyone is in. So yes, thanks, everyone, for joining. We do have a bit of an update here. It's obviously the FY '26 business update. As most are aware, there's actually a lot of new people on the call now. We no longer do the quarterly reporting. So I know the market hasn't heard from us for a little while. So I'll just explain that these are the unaudited results for the full year. But we do expect to have a lot more regular cadence of business updates moving forward. So it's going to be a pretty quick one, the usual format. I'll sort of run through the presentation. It's quite light on the financial detail today being that it's unaudited. And at the end of the call or during the call, anyone is welcome to sort of ask any Q&A, and I'll address all that at the end. So you can see we've been pretty busy over the last 6 months, just sort of getting the company in a better financial standing and position operating under our own steam. So you can see that we managed to grow group revenue across the year by 8%. So although things have been challenging in the past, we're still able to sort of keep things moving, use all the different parts of the business to keep moving forward. So you can still see there's positive momentum there in the revenue growth. And you can see probably one of the biggest headlines here today is the group EBITDA was able to grow by 74% year-on-year, closing up at positive $2.4 million. And if you've been following for a while, we -- some time ago, we were sort of striving and trying to get the business to an operating breakeven point, then we shifted into EBITDA positive. So people are starting to sort of look at the business, seeing what we could do. We're able to continue that positive momentum profitability throughout the whole year. So we're quite pleased with that result and ended with operating cash flow up 17% to $1.6 million. So I guess because there are a few new people on the call, and I know a lot of you have also been along the whole journey as well. But just to give a bit of a background. So Pentanet, we're a telecommunications provider. So I started Pentanet back in 2017. I'm a very keen gamer, like I like playing online games, I like playing a game called League of Legends. And there wasn't really any good connectivity back then. So this is the time everyone was waiting for nbn to come around, and I wasn't really satisfied with just sitting on my ADSL connection and waiting for nbn to come. So sort of took the matters into my own hands and started to explore our fixed wireless technology. So that was sort of the early concept stage of Pentanet. We went about building fixed wireless telecommunications across Perth. We've got all these large towers with our own infrastructure on them all across Perth now. We're Perth's largest fixed wireless provider. And effectively, what we do, which we refer to as on-net connections. Our customers get like a small dish on the roof of their house, and that connects directly to one of our private towers. And it's basically -- it's like a private last mile connectivity. So it's an nbn alternative technology. It's very quick. Obviously, as the years have progressed, different telco technologies have done different things. nbn has sort of caught up in the way of the speeds that they provide. But that was sort of the underlying basis of how the company was formed. We're building this fixed wireless asset. It was quite capital intensive to build and to create. But over time, on those fixed costs, we're able to get that product up to a very healthy GP margin. And from there, we started experimenting and exploring in other fixed wireless technologies. So we sort of were first to market creating this digital mesh solution we call neXus that did gigabit connectivity. That sort of linked people's homes to each other's homes and created this big mesh fabric very fast. It's faster than what nbn can provide today, but it's a difficult thing to deploy logistically. And we were the first ones doing it. We sort of ran into all the issues doing it. And although it was a successful product for the consumers on it, it was a harder thing for us to scale out. And then lastly, on our telecommunications infrastructure, we also own and operate 5G. So we are fortunate enough to participate in the 5G auctions several years ago, and the company owns some 5G spectrum asset. And so using the capital that we could, we upgraded several of the more advantageous towers to 5G all the way through sort of, at this point, try to compete with nbn and the speeds increasing of nbn and 5G is able to do that. But again, with our telecommunications assets, when we're talking about on-net, it's capital intensive. It's got a very good return, but we can sort of -- we grow and scale that telecommunications infrastructure as we can. Now being an Internet provider, it doesn't just stop at towers or the local data centers. Our connectivity actually goes nationally. So we're in several data centers all across Australia. We've got our own connectivity and effectively our own Internet layer. I won't get too technical on how the Internet works once it leaves your house, but we've got quite substantial infrastructure going across all of Australia and a lot of connectivity from a telecommunications point of view. It was from there that we became an NVIDIA GeForce NOW Alliance partner. So again, going back a few years, this was a day where back in the day, I would be having to explain who NVIDIA were on these calls, but shows how long we've been working with them. So we became the exclusive NVIDIA GeForce NOW partner for Australia and then New Zealand. And what GeForce NOW is it's very much a gaming-focused product, very similar to how NVIDIA were formed. They were making these GPUs, they're their graphics, so they're for gaming. So that's why they're invented, albeit used for different things now. So we were fortunate enough to get the exclusivity for that technology because of our heritage. We're gaming focused. We understand the technology. We're a fast, nimble company and NVIDIA were looking for a partner like that to work with. So we got started, and I'll explain what the technology is. Basically, we have a huge amount of GPUs and supercompute and CPU and memory and all the things that you need to game on sitting in the cloud. And so, say, if someone wants to play a video game or a computer game, if you're not already aware, you'll need a gaming PC to do that. So you need to go out and you need to build or buy an expensive gaming PC depending on what resolution and how good you want your games to look. So you'll have to either go and do that or you need an Xbox or a PlayStation or some sort of some sort of device in the home or that infrastructure at the home to run and render and play those games. What GeForce NOW does, it has all that infrastructure up in the cloud, which we own and operate, and our users will subscribe to that, and it will turn any device like a TV or an old laptop or a MacBook or their aging computer, it will sync up to that. And all of that processing and all of that gaming is done on our infrastructure and that device that the consumer is using is just sort of their access to that. So they'll see that game rendered and they'll be playing on that device, but they'll be playing it as if it's a much more powerful machine. So we have been involved with that technology for several years now. When we first launched the technology, it was it's very -- it's a new technology. It's a growing technology globally. It was certainly new at that time globally. But users were able to game at your standard 1080p resolution, similar to like a console sort of experience. And over time, we've built and expanded that platform and the generations. And the plans that we offer on that now would be equivalent to several thousand dollar gaming PC. So where that leaves us is we've been working with NVIDIA for quite some time, and we own and operate one of the most capable -- at the current time, like GPU deployments. And operationally, we're very experienced in owning and operating and running GPUs at scale in the cloud. And just touching on that, that telco again, and I didn't talk to, but we also do nbn services. But over time, where we sort of sit is we've got a decent amount of telecommunications revenue coming through the business. Telco, it has its challenges. Things always move very quickly, what technology is delivering what over what networks. But we've still been able to grow all of those areas of the telecommunications business. But it does give us that really good resilient, very predictable recurring revenue and income coming from telco services. I've probably covered this slide already in my little speech. So yes, look, telco subscribers -- we've got -- we only really sell telecommunication services in Perth. We do have quite a good churn like as far as the industry standard goes. We've maintained our ARPU on the telecommunication services at $92. And yes, as I'm touching on, it's just good predictable cash. We're still growing it, but we only operate telecommunications in Perth today. So very limited market. The focus on telecommunications has always been getting people on net on to a higher-margin offering. And I'll talk more deeply into the telco side later on that slide. But in summary, where we sit and who we are today, sort of a gaming-focused business. We're very good with technology. We understand it. We've got that recurring telco base. We've got some good owned infrastructure, strategic licenses. We've got license for the 5G. We've got our own telecommunications infrastructure. [indiscernible] fixed cost. We've got all of our NVIDIA GPUs. So they're all owned. And we have that license as NVIDIA's GeForce NOW exclusive provider in the region. You'll see here, and when you put this together, you don't know which slide to put where, but the NVIDIA alliance, you'll see, as I talk to the gaming side, it is becoming really heavily strategic for the business. There's a lot of changes coming in the industry, a lot of things that have been happening over the last year. With the advent and rise of AI, obviously, a lot of the manufacturing and growth in the GPU market has been skewed towards going into the AI chips. So what that's done is really start to increase that cost of GPU ownership for an end user. You can sort of see a lot of -- mostly all of GPU infrastructure is sort of moving to the cloud. And it is sort of creating a bit of a crunch point for a consumer who wants to be gaming because they need one of those GPUs. And it is really favoring our CloudGG business. And that's something we've always been steadfast on knowing was coming. And we've just been doing what we need to do to keep growing, keep meeting the industry where at that point in time in terms of cloud gaming and waiting for that moment when things start to shift and roll in. So you can see through our cloud gaming users, Users are starting to move now to the higher-end plans. And we can see that's really reflective of what the industry is like, a, but b, it's that the technology is just getting better like year-on-year. For someone who games, there is sort of that psychological barrier to wanting to game in the cloud. And so they think it's going to be lagging or it's slow or this sort of thing. And typically, a user will maybe have those thoughts if they're an established gamer. And then once they start using the platform, they'll -- it's a very impressive technology. They will be sort of blown away by it and sort of have that increasing comfort they're like, okay, well, this could actually start to be a better option for me rather than my rig at home. And so we've seen a shift. There's a high proportion of users now on our highest tier plan. So and we'll go into it in detail at full year, but the ARPU on our cloud gaming is just continuing to grow quite well. And that's a reflection of users coming through the platform, getting comfort with the platform and seeing the benefit of how those higher-end plans meet their needs really to what's a more economical way of accessing gaming. So we have seen that ARPU start to increase over time as users shift to the more -- the higher-end plan that we offer, which is the ultimate. And sort of the user behavior on the platform is interesting because -- we don't talk to churn too much and everything like the back end of how that platform is operating, but users will come in and sort of trial or they'll make their account, maybe they're just waiting to get started or they'll play. And then a lot of the customers on the platform are sort of -- they come in and out. So the way it works, you can pay your subscription, you pay for your month, your 2 months, your 6 months or whoever you want to be on it. But they might come in and play the game that they want to play, and they'll use and utilize the platform for that. And then if there's no game that they're interested in playing or life gets busy, they can sort of turn off the subscription. But we're finding that a lot of our growth of paid users, it's an interesting metric because around half of the users are just new users coming to the platform of gross new paid users and the other half are users who are returning to the platform. That's a really good indication that with the return customers, they're starting to see that platform as their way that they play on. It's just they're not leaving their subscription on, obviously, if they're not gaming because it is also a really great product for the larger market, the people who might not be sitting there just gaming day in, day out 24/7. But when they do want to game and do want to access something that they want to play, high resolution, high frame rate, they're returning to our platform to do it. And so you'll see the platform that we run GeForce NOW is called CloudGG. So you can see the users who are registering on CloudGG continues to grow. At the end June, 840,000 registered accounts. And really, if you look and you can sort of back solve the numbers, I'll say you can see that the users who are paying at any one-time on the platform, it really is a fraction of the market and pipeline that we've already captured of gamers. And we see that as -- it's just the users who are maybe waiting for the upgrade moment or waiting for the game that they want to play. And so we're always looking into the platform and looking to improve ways to how to make it more accessible. Over time, we've had users who are able to play for free. They can come and play for free. And several years ago, it was just on the basic tier, but we found users were quite -- they were happy to stay for free. Users are normally typically happy to stick on that. And so we've replaced our free tier last year with like an ultimate trial. So users can come in and actually use the ultimate, which is our highest ARPU plan, but in a very limited state. So they will get a little bit of time to use that. And you can see basically, in terms of the market size for cloud gaming, we see it as being much bigger than it is today. And we've got that huge pipeline of gamers. They are sitting and waiting just for what we really see is where is the value proposition going to sit for them, for them to come and remain as a paid subscriber or use the platform more regularly. So I guess the point is we're always looking at different ways to shape and form how our users come and interact with our platform. So effectively, what they're doing is they're coming in to use GPU hours that we have. At the current stage, they just pay their monthly subscription. And then lastly, on the telco operational update. So total subscribers up 4% on the prior comparative period. It's -- telco it's challenging. I've spoken to it before. We certainly like we still drive our telecommunications business. Over the year, we saw there was nbn speed boost that came into play last year. So although it did put it -- it was challenging for our on-net services. So nbn sort of just upbuilt their speeds. There's obviously all the fiber upgrade programs. It did make the on-net side of things more challenging because nbn sort of caught up to the speeds that we were delivering. But we did see an uplift in our nbn subscribers. So although we can grow our nbn subscriber base, I guess where we're limited from an nbn sense is that we only offer nbn still in Perth. So I think as an nbn provider, it is a scale game, and we're sort of only operating in Perth. But what we're leveraging there is the Pentanet brand. So you would have seen last year, we launched our Nothing But Net campaign. We hadn't really been in market for a little while. Back when we're trying to get the business to operating breakeven and get it profitable, sort of like I said, running on our steam, we pulled back in certain areas of the business and just sort of got our foundation set and right as a company. And so we were out of market for quite some time. Although saying that when we did the market research, like Pentanet still does carry a very strong brand in market. There's a lot of customer loyalty, which you see with our churn. But last year, we started to reinvest in the brand a little bit. So we did do some marketing, not sort of call-to-action marketing, not sign up, here's this offer, this deal, here or whatnot. It was just reestablishing that Pentanet from a brand perspective, and it was positive to see that Pentanet does still carry a lot of weight as a strong WA local brand and provider. And on the on-net side, where we're sort of sitting at the moment, we're not expanding our fixed wireless coverage. We're not continuing to roll out more 5G. Everything we're doing there for the year got done. So the focus in the on-net is just sort of like filling up the capacity that we have. And that goes across all factors of the business, including the cloud gaming. We've got our infrastructure there. It's more around utilization rather than expansion for the telco side on that anyway. So I think there's only -- it's quick and I'll -- there are a few questions, so I can get to those. But the long and the short is we've worked very hard to get to running the business like under our own steam, refactoring using all the parts and different operations that we do because we do, do a lot of things to sort of lever those to get the business into profitability. But we see we have a huge opportunity in several areas. And I should have also touched on with the telco, just to sort of capture this, although it's challenging at the moment with nbn catching up -- because where -- we used to compete quite heavily because we had pretty good speeds for fixed wireless, and we still have good speeds. But where we were able to be quite competitive was in the price point. So what happened when the nbn speed boost came in, like the speed boost all came in, but there was no change to the nbn price point. It sort of created like a moment in time, which we sit in now where nbn speeds are quite -- they're fast, comparable, sometimes faster. But the challenge for us is that the price point currently sits at the same. And I'll go into a lot more deeply at the full year results, but nbn does have that cost ratcheting coming in year-on-year. And so what the price point is for nbn today isn't necessarily what it will be in a few years to come. So although it's a challenging window for our on-net business today, we still see that they'll probably -- they will have another time in the sun once that nbn pricing sort of rolls away or gets a bit far ahead of what we can offer the similar speeds to given that all of our telco assets and on-net assets are a fixed cost base and where we've got a good healthy margin to leverage there. But I don't know, it's a quick one, and I will get to the Q&A, and it's fast today because these are unaudited results. We just wanted to come out. We just wanted to tell people how we went to the full year. But in our full year report, we'll be doing a really big deep dive, obviously, into everything around the full year. And I'm also really excited to present and go into like a strategic direction update. I'm going to go into a lot of detail into all the different parts and aspects of the business, how we see them playing and fitting the role in what we're looking to do moving forward. And so I'm excited to deliver that full strategic update at our full year results as well about where we see our business going after a deep analysis and a lot of learnings about where everything sits over the last 12 months, but where we see each of those parts playing for the next 3 to 5 years and where we will be investing to bring the business back to a high-growth state and where we see those biggest opportunities. So I'm getting -- I'll just -- thanks for that. I'll go through some of the questions now.

So I'm getting a question about multiple ISPs, Indonesia, New Zealand, Australia reselling NVIDIA cloud gaming. So we have -- so this question is referring to would we look to partner with other telecommunications providers for the cloud gaming. So we have done it historically. Back when we got the NVIDIA agreement, there were a few telcos with the hand up wanting to do it. But given the much bigger size and scale of specific telcos wanting it, they were more looking at that as a product just for their own suite, maybe to sell more handsets or that sort of thing. We came at cloud gaming with our passion for the technology, wanting to get that into the hands of as many users. So arguably, we're very open to those sorts of partnerships. If there's other networks and other customer bases that are out there that want to like partner to sell it, we are open to doing that. And where we fit in the NVIDIA ecosystem is where that -- we're sort of an agnostic telco. And you'll actually see, if you look historically, it used to be GeForce NOW powered by Pentanet, and we shifted to GeForce NOW powered by CloudGG. So there is sort of that brand separation for other providers to partner with us and use the platform too. And you'll see as well that we have had a partnership. We partnered with Optus. Optus added it to their SubHub. But what we really saw is that users -- because they can just still come to us directly, most of that growth in user base still just came to us directly. And GeForce NOW doesn't operate any differently. If you're on a different network, it's not exclusive to our network, you can be on any network and still access the platform given that it's -- users can sort of access it from anywhere. So we found that this obviously made more sense for that consumer. They wanted to be have their account and connected, I guess, directly to the source and directly to the operator of the platform, which is us. I'm getting a question, do we use our GPUs for AI utilization? I won't touch on it today. I'll say a light thing on it. So AI utilization, at the moment, the industry is very heavily in -- it's like a training stage. So our GPUs, there's 2 types that are out there. You've got training and you've got inference. So I guess -- and I'm not speaking deeply on AI today, but you train AI and it requires a certain kind of chip. And then every time you interact with AI, it uses a chip, a different one, and that's called inferencing. So sort of that's -- arguably, that's what our GPUs could do. It's an inferencing sort of thing. But I won't go too deeply in it today. At the moment, our GPUs are just running games. So all the numbers and everything that you see today, that's just from the gaming market, which we still see as a huge opportunity, but it also does -- it leaves our GPUs idle for a large amount of time because gaming access is all done at peak hour. Some people game during the day. But for the vast majority of the rest of us, we have to work during those times. And so the capacity and GPU infrastructure that we build and make sure that we have capacity for is largely for peak hour. So very similar to a telco network. You have to have all your capacity set up for everyone coming on at nighttime. And then during the day, the network sort of sits not idle, but less utilized. And so from a telco side, that's when you look to leverage that sort of excess capacity for enterprise and look for other applications that you wanted to use that network during the day, it's very similar from a GPU point of view. But currently, our GPUs, although we -- I won't say too much on it more. And I'm getting a lot of questions, do we rent these GPUs for AI inference use? The answer is no, not currently, but they are inferencing GPUs. So I'm getting -- the scale sounds -- the presentation sounds similar to the last few years. Scale is limited growth is slow. What's the strategy to give long-term shareholder return? I'm excited to go into that in a year's time at our full year results. We are absolutely formulating what that strategy is. We've been scaling and growing like within the means of what we can do. Like I mean it's no secret that the company has obviously been under a huge amount of pressure on market. There's limited options for what we can do and how we scale. And there's lots of things we want to do, but there are certain things that also set the cadence of how quickly we do that. And so we've put a lot of time and effort and energy into getting the business to a position that we can start to explore those things under our own steam. And we're confident and I hope these results show that, that's the position that we've put our business in now. So yes, now the question is, okay, well, we're in that position. We can do some things now, but we're probably going to only be able to do some select things. And what are those things going to be? And what's the justification and warrant behind us making that decision, which would ultimately lead to that shareholder return. So I'm excited to get more deeply into that in our full year results. I'm just going through as well. So yes, I'm getting asked whether the alliance partner status gives us access to NVIDIA GPU or infrastructure upgrades? What does that mean commercially? Are there committed refresh cycles, capacity allocation or pricing arrangement and how we fund the next-generation hardware? I'm not saying too much too deeply on this call around what we plan to do or not plan to do with NVIDIA moving forward. But yes, it's obviously of high strategic importance. When I refer to we get access to NVIDIA infrastructure upgrades, like we're in the NVIDIA ecosystem or they want to see us grow. They want to see us scale, and we certainly intend to plan to do that in line with what we're there to do, which is the cloud gaming users. And I guess what I mean by that statement is that NVIDIA is very supportive of us to go and grow and do that. So as opposed to maybe someone new wanting to go build a GPU stack. It's -- we're in that ecosystem already, sort of on us like how quickly we want to do that. I'm getting some other -- there's some positive comments here. I appreciate those for the one asking. They're saying CloudGG ARPU is up 36% from mix shift, but that's a onetime lever. Once everyone is on ultimate, what drives the next leg? And I'll cover that question first. So what drives the next leg once everyone is on ultimate? So it's -- again, I'll go into it deeply through the strategic call. At the moment, we offer GeForce NOW, and I'll bring that slide up. So we offer GeForce NOW at the moment like just on that monthly subscription. But we're always looking into the platform. We're always looking into like what are the value gaps for the users. And so with the higher ARPU users on the ultimate platform, there's still other -- there's still better ways for users to access. So arguably, like at the moment, we do 4K, like 120 frames per second. You can go higher. It does require more bandwidth. But to answer the question about the ARPU, when and how will it grow? I see it more as us approaching and tackling like where is that value gap for the users who aren't playing it or aren't keeping their subscription active because we only offer it for like you can pay for a month and you can get your hours in that month. But as we grow and evolve the platform, we think there's going to be a lot more interesting ways to tap potentially a more casual market into using the platform. And really, with the question, it might not necessarily be a higher ARPU. Some users have a higher ARPU because they're playing a lot more, but it might be a way to generate a lot more revenue off the platform and probably have a much wider ARPU split. But ARPU is one way to measure it, but we're certainly more interested in maximizing more revenue off the platform. So we're going to be doing a lot of continued work on how to find that value proposition for all the users who maybe want to use the platform, but it's just not the way that they want to access it quite yet, but I won't talk too much on it now. And the last question is with on-net telco subs going backwards, while growth comes from resell nbn, is the long-term Pentanet is a compute business or reseller? I won't go into that too much more. We still see incredible value in our telco business. Look, I could throw it out, like if we wanted to grow nbn, like we could just expand our catchment, right? Is that something we want to do? I don't know. We'll talk about it next month because we only sell in Perth at the moment, which arguably, if you're an nbn provider, you're doing it nationally. With our on-net telco subs, it's challenging at the moment because we're at that point in time where nbn is quite competitive against our on-net product. So it's just -- we see it as probably like it's just what's happening at this point in time. You can see the result of that is that we just -- we're not expanding that infrastructure during that point in time. But we do know it, which is legislative, like the nbn price, what it is today, it's not going to be what it is tomorrow. When I say tomorrow, I mean, down the track, we do like to look at things mid, long term. And so there's value sitting there like when that becomes a much more easily -- easy to compete product in market. What I'm talking to you here today is we've got all these things in operation now over the last year. And what we're looking to do now moving forward, now the business is in a much more healthy financial position is where are we going to start to spend our investment dollars. But there's value sitting everywhere across the business. But what we'll uncover at the full year and the full strategic update is which of those dollars that we spend are going to give us maximized shareholder return for the mid- to long term moving forward. So there's some more -- yes, and there's questions, but it's more positive commentary. So I appreciate that. Our team do work really hard, and we're here grinding doing it. And I know we've been sort of over the last 6 months, this is what we've been doing. I know we've been a bit quiet, but we're just doing what is in our capacity and our control, and that's what we've been doing and the results for the full year sort of give an indication of where that's landed. And moving forward from here and especially following our strategic update, we look forward to getting back out there and keeping a much higher cadence of talking about what we're doing and the direction it's going in. So that's all the questions. So with that, look, look, I want to thank everyone very much for your time. That was a quick one, but hopefully, it was well received just what we've been doing for the last year. And I'm really looking forward to our full year report when that comes, and we'll be doing a much deeper dive into both the full year and what's strategically coming ahead. So thanks, everyone. Enjoy the rest of your days, and we'll talk very soon. And as always, because the results are out, happy to have organized and scheduled if anyone needs one-on-ones and that sort of thing. But just with the lens that these are our unaudited results. So if you prefer to wait for the full year, we're also -- we're obviously always available after then. Thanks. Thanks very much. Goodbye.