Rubicon Water Limited (RWL) Earnings Call Transcript & Summary

Good morning, and welcome to Rubicon Water's investor webinar to discuss the company's FY '26 results. Presenting today will be CEO, Bruce Rodgerson; and CFO, Andrew Bendall, who'll be going through the presentation released this morning on the ASX. [Operator Instructions] I'll now hand over to Bruce.

Thank you, Ben, and welcome to our FY '26 results announcement. Despite a challenging year on revenue and financial results, we've made a continual progression this year in expanding our footprint globally. Some key statistics here of that footprint. Probably most importantly there is that 66% of revenue outside the ANZ in the year, in which our largest market, the U.S. achieved a revenue result only 2/3 of what had been achieved the prior year on the back of government -- continued federal government funding delays in the U.S. That financial result on the 3rd of July, we flagged a revenue result between $60 million and $62 million. So $61 million was back from $69 million in the prior year for a net loss after tax of $15.7 million, which was reflected that funding -- the continued funding delays that we had flagged in our half year announcement on the first year. Unfortunately, they did continue into the second year -- second half of the year. FX headwinds as well had impacted both first and second halves. And then, there was a non-cash partial tax asset derecognization, which Andrew will go to in his report. But really pleasingly, for the second year in a row, we've been able to generate positive operating cash flows, $4.5 million for the year, which is fundamental in funding the business going forward. As we also flagged on the 3rd of July, our second half contract signings was up on the prior comparable period. And there were some major projects of focus signings in -- particularly late in June. Our first ever project in Oklahoma opens up a new market for us together with continued work in California. One of the ongoing projects is in Costa Rica, a project we're very proud of, the SENARA project. So we secured both the -- second and third stage is in FY '26 with the third stage there coming late in June. And that is an exciting and ongoing project for us. Also in Chile, we signed one of our largest ever deals, $2.3 million with -- importantly with the Department of Hydraulics, which is the larger government funding the same. So really important development for the business is the ongoing interaction and engagement with corporate funders. So late last week, and so we're just announcing today a contract with a major corporate for water stewardship commitments in Nebraska valued at $1.4 million. So that was -- that came on the 21st of August, and we're announcing that today. And that really solidifies our engagement with large corporates and hyperscalers following on from the $2.3 million corporate-funded project we delivered for Glenn-Colusa. We'll have some more on that space later on in the presentation. Again, really important technology demonstrations being delivered this year. The Ceres Main Project for Turlock Irrigation District has been benchmarked at 69% in operational spills, which was one of the key metrics for funding that project. Turlock Irrigation District is one of our longest-term customers. It's a benchmark in the U.S., but particularly in the Central Valley. Likewise, Chaffin Farms in the Colorado River Basin achieved an 18% increase in yield with 35% less water, really demonstrating the power of our technology when applied to farms. Also, a super important metric for the business is that base business. So the base business comes from customers -- existing customers using their own funds to continue to support, maintain and roll out on lower scale than the bigger flagship projects across our business. So that business did expand. We've got some more on that later in the project, so -- in the presentation, sorry. Our unique value add proposition is still being maintained globally. And that really comes to the fore. When we participate in tenders in our space around the world, we are typically the sole tender or at least the sole qualifying tender. We are also more and more entering into direct sale contracts with end customers rather than going through public procurement processes because we're recognized as being unique in our value proposition. So that's a really strong position for us. Clearly, water resources is a major issue for the world. The United Nations this year has moved beyond calling it the water crisis to saying that the global water bankrupted -- the globe is in a state of global water bankruptcy. This slide here from the FOA (sic) [ FAO ] in the background shows where those water-stressed basins are around the globe. And then, we've overlaid that with where our offices and our presence are. So we're in all these spaces. Obviously, Australia, India, Europe, North Africa, Central Asia, really importantly, India, the U.S. and South America. So we have and maintain our investment in these places to be able to deliver on what we know this company is going to deliver. If we -- just some global highlights around what we did achieve last year in terms of projects. I've spoken about the -- in the intro, the Ceres Main Project in Turlock. And whilst that has delivered really successful water savings, it's got great engagement with the farmers who are in that pilot area, which are all ordering the water on our software now. And TID has publicly linked that to its 20-year modernization project. So TID is a big customer for us in the years to come. But most importantly, the rest of the U.S. market, particularly in California, is watching what they're doing and what our systems are delivering. We also, in California, delivered the project $2.3 million contract for Glenn-Colusa, and that was provided by a private sector entity seeking to advance its ESG and water sustainability. Again, we'll talk a bit more on that to come. I've mentioned the SENARA project in Costa Rica. Yes, this is third stage now; 2, 1, last year; and there's more to be tendered this year there. So we see that as a very -- as a long-term commitment. Our technology is embedded in a really significant irrigation development in Costa Rica. One of the most stressed rivers in the world at the moment is the Po River in Northern Italy, and our footprint there has continued to grow this year with some signature projects, Villoresi, Torinese, and also CER Romagna. We did in Central Asia, a couple of projects there were delivered over the year in small pilot projects in Azerbaijan and Tajikistan. So that is clearly a water-stressed area, where we're really being pulled into there with some scalable opportunities. I think one of the -- then in Australia, we have been contracted for our first environmental watering program, and we see that as a growing part of our business here. Most importantly it's the base business or really significant is that base business where we delivered more than 280 projects contracted across 11 countries with a combined value of over $30 million. So that is all these projects from our existing customers that are using -- typically utilizing their own budgets to progress the implementation of our systems. The dots on that diagram there show you where that is. Clearly, Australia, Europe, a lot of that is coming from the U.S. So even though the corporate -- I mean, the federal funding part of the U.S. was delayed into the second half, our existing customer base was still ordering and the U.S. was still the biggest part of our business in FY '26. So corporate water stewardship is a very important and growing opportunity for Rubicon. Here, we can see the commitments being made by a sample of major corporates, but you could go to any -- that list could be 50 strong. We're seeing it across all sectors, but predominantly -- particularly the hyperscalers, looking to secure water savings at a basement scale to be able to offset and contribute to the -- offset their water use, but also contribute to the communities in which they're building their facilities. So that really comes around, and there's a growing recognition of basin-scale water stewardship. So rather than a factory in an area trying to offset its actual water use by doing something to create an efficiency, the big corporates are talking about basin-level impacts. And they're wanting measurable outcomes. So that -- most of the major corporates have got targets around 2030 about being water positive outcomes in the basins in which they operate. And there is an established accounting methodology for the measurement of these volumetric water savings. And these systems are long term. So it's not about a project to deliver something. Typically, these water accountability projects are over a 10-year period. So the upfront, we're delivering the technology that creates the water savings, we're auditing those and our systems being data-driven really put us in a unique position in over the 10-year contract typically to be able to year-on-year demonstrate what we're delivering, the savings that are coming out of the investments that corporates have made. So these large corporates and hyperscalers operate in thousands of facilities globally, and particularly in the case of the hyperscalers, thousands under construction and being built. That really -- as we engage more and more with these parties, clearly, it's an exciting space to be -- for us to not be subject to the vagaries of government timing politics around release of capital funds to deal with corporates that are making commercial decisions, but also those facilities are opening up new customers. So for those that track us know that our systems are really the operational -- the facilities we provide are the operational systems for the irrigation districts in which we engage. And once we engage with an irrigation district in a meaningful way, then we have multiple years of both capital rollout and then support. So this opportunity to deal with the hyperscalers and other corporates allows us -- is already giving us access to new customers. So if we -- and this isn't just a plan. Clearly, it's been enacted now with -- we've had 4 contracts over recent years, 2 in this calendar year alone, which are from these corporately funded projects. So Gila River Farms and Bear River in -- with previous projects, and then, we had Glenn-Colusa, and then, the one that we've just announced this morning, which was contracted late last week. One of those projects, Gila River Farms, Google has referenced that with the Gila River Indian Community deploying our technology to save the water, and there's a link there for anyone who wants to see that the statements have been made and there's some videos of our technology. The shot on the right-hand side of that slide is actually Gila River Farms delivering -- irrigating a crop. The second reference there is Procter & Gamble. So that was one of the projects we delivered for Bear River. And that was really to automate a section of the canal to better facilitate delivery of water to a sensitive environmental wetland that then there's a range of opportunities in Utah there around that Great Salt Lake system. So with that, I might throw to you, Andrew, to lead through the deeper dive into the accounts.

Thanks, Bruce. Group revenues fell $8 million period-on-period. This 12% reduction was predominantly due to the delays in U.S. government funding for some of their larger projects. Despite this, our U.S. revenue is at $22 million, still represent our largest region, indicative of the reliable base business that flowed from the recurrent smaller projects from our large existing U.S. customer base. As per our market announcement on the 3rd of July, $30 million of priority projects that whilst well advanced had not proceeded to contract signing by 30th June, and therefore, did not contribute to the FY '26 result, but rather will support our revenue growth in FY '27 and beyond. Solid contributions in ANZ, Europe and Latin America were welcomed. An appreciating A dollar negatively impacted on the revenues to the tune of $1.5 million. The gross margin result of 41% was relatively indicative of a $61 million top line, albeit that the stronger A dollar depressed it by 1.4 percentage points. A further impact of exchange rate was a loss of $2.5 million that was crystallized on the repatriation of funds to settle intercompany loans during the year. Other controllable operating expenses were $2.1 million lower than the previous year. All of this contributed to an underlying EBITDA loss of $8.9 million, down $4 million year-on-year. The reoccurrence of another loss put significant pressure on the application of the accounting standard 112 accounting required to support the carrying value of our deferred tax assets. As such, we determined that a derecognition of $4.1 million of that asset balance was required, which meant our income tax expense was materially higher this year. In a nutshell, softer sales, stronger A dollar and an unfavorable tax result led to a net loss after tax of $15.7 million. On to cash flows. Something of a more pleasing result was the generation of $4.5 million of operating cash inflows, indicative of our continued focus on cash collections. The problematic outstanding balances over recent years from earlier Indian projects have now all been fully collected, leaving only relatively small and current balances from recent projects. The business continues to invest in R&D, as it remains conscious of the need to invest in both the hardware and software technologies that provide important competitive advantages to Rubicon. Key movements on the balance sheet since 30 June 2025 were there was a significant reduction in both receivables and contract assets as sales were quickly converted to cash through the period. Despite the derecognition of $4.1 million of deferred tax assets, we still carried a balance of $8.7 million through to 30 June, reflective of the expectations of profits in foreseeable periods to absorb them. On the back of the cash performance in the second half, net debt ended the period within $300,000 of last year, meaning the business maintained headroom of cash and debt facilities of over $12 million at 30 June. Back to you, Bruce.

Thanks, Andrew. So moving on to that pipeline, which is now at the half year, we spoke about $30 million of contracts in either in tender or under final award. Those -- that entire $30 million is still very much alive, as it's been joined by several other projects as well. So this is the donut chart of a major incremental projects for FY '27. So these revenues are on top of our base business, our recurring revenues and the contract works we bring into the year. So if you look at all those, those factors gets us into that roughly $50 million to $55 million, and these are the contract wins we're expecting on top of that. So already, we've won 3 major projects for this year. So the privately-funded project, so the corporate ESG project in Nebraska that we're announcing this morning and a job in Imperial, California, and also the third stage of the Costa Rica project. On top of that, there's 5 projects that make up $47 million, which is projects that have been tendered and under final award or being -- or tenders that are about to close that we expect to be the sole provider or other contracts. So that's a really strong position. As is then there's a further $20 million in the next category, which is procurement processes we're very confident in for the year. So that gives us a really good base. And as we report over the coming months, we will be using this as the base data with which we can track our progress. So with -- our focus is very much on water and what matters most. So -- we've already said that the growing water stress globally, UN declaring water bankruptcy, and we are in a unique position where an investment in Rubicon technology delivers water savings of a scale that's really significant through efficiency rather than trying to create water by other means. One of the biggest things that hit us last year and probably an obvious question is if the funding delays in the U.S. hit the first half and then the second half, are they going to be released this year? We believe so, and that is evidenced particularly by the situation in the Colorado River. So on the 31st of July, the U.S. Bureau of Reclamation released a preferred framework for the management of the Colorado River. That was backed up by on Friday night, they released the operating rules for the next 2 years. So that is providing cuts across all the lower basin users, which is predominantly where our large customer base is in the west of the U.S. And there's some important things in that -- those operating rules now, which change the game in terms of districts being prepared to invest in efficiency programs. And that is that it allows irrigation districts to invest in efficiency systems and then take those water savings and say -- and bank them in Lake Mead or Lake Powell for their future use or economic benefits. So that really changes the economics of -- for irrigation districts in investing in our technology. Also, we're seeing other funding streams other than -- we are certainly seeing the USBR funding return and projects have started to roll, including some of the ones that we've just mentioned from USBR particularly. But we're also seeing state funding systems. So California's Department of Water Resources has forecast new funding for watershed-scale conservation programs, including irrigation efficiency. And they -- that mentioned a figure of USD 60 million for the next calendar year. So we're really seeing not only federal funding return, but corporate funding and state funding coming in to really move the needle, and we're confident where our U.S. business will sit in that. And we're very much where we fit in, as that pressure on water efficiency improves our position of being a unique proposition for delivering high-volume water savings from environmentally sound irrigation efficiency programs, it puts us in a really strong position. So summing up before we get to questions. So that -- what's really positive for this year is that $47 million of projects currently in tender under customer evaluation in the final stages of contract award. And that's the base of what we see is really setting us up for a really strong FY '27. We are seeing the U.S. funding return. And as I said there, the Colorado River operations stuff, which was awarded on -- which was released over the weekend and California new funding. Clearly, corporate funding and water stewardship from the tech companies, particularly, but not just tech companies, mining companies, all of the corporates and us being increasingly engaged with them on being an economic way to produce efficiencies and meet their water saving commitments, not only for the infrastructure they're building, but for their broader ESG commitments to make a contribution to the basins in which they operate. The water stress in the markets with which we operate just continue to grow. So those basins, the Po and the Ebro particularly in Spain -- in Italy and Spain; the Krishna and the Indus key markets for us in India; [ Aral Sea ], yes, but also Colorado River Basin and the Rio Grande, particularly in the states. These are markets which we've got the presence on the ground. We've got the reference sites where we're engaged, and that water stress is just continuing to grow. So we enter FY '27 on the back of some good contract signings in FY '26 and some good early contract signings of both base business and priority projects in FY '27. And we believe that places us in a really strong position for FY '27. And that -- and our priorities there are to focus on converting that active pipeline into revenue, and importantly, conversion to cash. And we -- and as I've said a few times, that base business is critical for us. Every new customer is on a journey with us as long as we continue to support them. There is that base business part of it, which is the smaller orders that come from existing customer base, continues to grow as well as we have these larger projects coming through on the priority project pipeline. So that's the formal part of the presentation. Ben, I might throw back to you for any questions.

Thank you, Bruce. [Operator Instructions] A couple have come through. First question, Bruce and Andrew, given the state of the balance sheet, can you please give any guidance as to the Board's thinking around the capital raise?

Yes, certainly, Ben. Given our cash performance for the previous year has meant that, as I mentioned earlier, our net debt effectively stayed at the same level. And we exited the year with what we think is more than ample headroom in the form of cash holdings and also debt facilities. So at this point in time, the Board is comfortable that there won't be any need for a capital raise in the foreseeable future.

All right. Thank you, Andrew. Our next question, given all the excitement, hype around data centers, sorry, the cost of power and water, is Rubicon Water in any position to play a meaningful role in the water supply nature of this situation? And if not, is it all -- is it at all under consideration?

Yes. Well, as we've highlighted in the presentation, it's definitely -- it's not just under consideration, it's already delivering results for Rubicon. I think it's important to say that with data centers, yes, water use is an important part for the facilities themselves, although technology is coming in to make those systems more efficient in their use of water. But importantly, for us, the water use requirement of those data centers and hyperscalers is more about making a positive contribution into the catchments in which they operate. So it's not just a data center provider wanting to be able to demonstrate that they've created water efficiency equivalent to or greater than what they use in their factory, they're wanting to make positive commitments to the communities in a much larger scale. So that's where Rubicon comes in because it's pretty hard to find meaningful large-scale water efficiencies to deliver on those sort of commitments. There's desal to create water. There's a minimum amount of water that can be saved from improving urban and treatment infrastructure. I'll come back to where we sit globally is we're in a space where 1/3 of the water that's utilized, consumed globally is lost in delivering water to gravity-fed irrigation. And that's the space in which we operate. We've got the core -- the core technology delivers on those solutions, and that's what's really got us really well engaged with the data center creators, the hyperscalers and the broader corporate community.

[ Hugh Robertson ], thank you for the presentation. Whilst I agree with you about the logic of large-scale irrigation systems, the problem seems to me remains with the government spending their money on other things. Anyway, by the way, to the question about the hyperscalers and the [ S-word ], what's the opportunity do you see? A, is the company, firstly -- 2 questions, is Rubicon well enough resourced to deal with these groups, firstly? And the second thing is, can you see opportunities with the likes of the Googles and the Magnificent Seven, I suppose, to look at sort of global deals with them given your technology skills?

Yes. So thanks, [ Hugh ], and well enough resource, we've dedicated some of the best talent in Rubicon to dealing with this -- in this corporate space. So it's a very active and progressive space both in terms of conferences around the world and the establishment of the standards around volumetric water benefit accounting. So yes, we are throwing the resources required to engage with that. And I suppose that through that engagement we are seeing -- so we've signed NDAs with most of the parties that you've spoken there. We've contracted with some of them to deliver projects. But if you look even at -- as an example, in India, we have yet to deliver a corporately funded project in India, but there's several we're looking at. But they -- there's thousands of these facilities being built there in an area where there's -- across the whole of India is one of the most intensive areas of gravity-fed irrigation in the world, and there's an obvious both from an economic and a social good point of view, investment in our technology hits all the metrics. So what we're seeing is we're engaged across a broad spread of those entities that are either building, operating or owning these facilities, all 3 of those. And we see this evolving to -- yes, certainly in the catchments in which they operate where there's broad spread irrigation, we're an obvious point for them to deal with. And we are confident in that being a growing and important part of the business for us.

Maybe if I could, to Bruce, add to that. I think you've mentioned about global contracts. Now, whether that comes to be or not is another thing, but what I could say is those same companies that we're talking and signing up within the U.S., they're the same ones in India. And even in Australia discussions have been undertaken. So there is already that extension within those companies across country borders.

Clear. I've never heard Rubicon be so bullish in the last 5 years.

Yes. Well, we've -- obviously, it's been -- I mean, we as the founders and the long termers of Rubicon understand the opportunity. It's been a frustrating period predominantly dealing with the vagaries of governments. And that the U.S. experience case in hand, like we -- the U.S. will still be the biggest part of this business, and it still is even in a lower revenue year. But when -- with the stroke of a pen out of Washington, a major part of our growth financing, which is still there, which we can point you to government websites that show about USD 20 million worth of contracts to Rubicon that are approved, they're just not released to start spending. So it will come back on that front. But certainly, this corporate space adds another market, not just in the direct contracts we have with them, but the ability for us to reach new markets that the deal we announced this morning from Nebraska, that's a new customer for us. So they've come to us because the corporates come in and funded them to deliver water savings, but now, we have our tech in that customer, and that opens up the whole future of dealing with new customer. That's in our sales process, it's going to be fundamental in that as well.

Thank you, Bruce. Next question, please elaborate on the stewardship opportunity, specifically the associated revenue and cost model and the amount of CapEx and working capital you need to expand to unlock the opportunity? And second to that, how can we be confident you'll be able to achieve profitability and profitable growth in this segment?