Smart Parking Limited (SPZ) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Virtual Annual General Meeting of Shareholders of Smart Parking. My name is Chris Morris, and I'm Chairman of Smart Parking Limited, and I'll be chairing this meeting today. As you can see, I'm a little bit more casual in the [ boys in ] black in the office there up in Palm Cove in Queensland. Looking at one of my business is up here. So my apologies for not having a tie on. I would like to introduce you to my fellow directors and Company Secretary who are present at the virtual meeting. Paul Gillespie, the Managing Director, who I must say does a pretty good job, especially now the shares are a little better space than they were about 6 months ago. Jeremy King, who like me, has been at Smart Parking for far too long, but -- and the [indiscernible] Fiona Pearse, who all keeps us in line all the time and make sure we don't do anything ridiculous. Also, Richard Ludbrook, who, again, I must complement on the brilliant job that Richard's done. If any of you know the history of Smart Parking, we've had some pretty tough things over the years. But I think the company has never been in better state than it has been now. I would also like to welcome the company's auditors, Grant Thornton. I advise the meeting that there is a quorum present, therefore, the meeting is properly constituted and I declare meeting open at my time is 10:01 or something. Your time is 11:01, if you're in the normal states that have day light saving. If shareholders wish to ask questions during the meeting, I confirm that there will be an opportunity before putting [ NEP ] resolutions to the meeting to ask questions to the Board as they relate to the formal items of the business of this meeting. Slide 1, please Ange. [Audio Gap] Not sure if that's the right slide.

Yes, Chris, this is just about the voting process. So...

And wish to ask questions, please do so by typing a question into the chat function in Zoom. We ask that when typing a question, shareholders include their name, so that the Board can properly address the shareholder. All questions in the first instance are directed to me as Chair. Please note that while you can submit questions from now on, I will address all questions at the same time at the relevant stage of the meeting, which will be after all of the items of business and proxy [ resolutions ] have been presented. The Notice of Meeting contains details of how to vote and is also shown on the screen. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open the voting for all resolutions. At that time, if you are eligible to vote in this meeting, a new polling icon will appear. Select this icon, it will bring up a list of the resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until voting closes. I now declare voting open on all items of business. The polling icon will soon appear. Please submit your votes at any time. Following the meeting, the votes will be complied by Computershare and release to ASX later today. I now declare voting open on all items of business. Please do refer to your screen for semi-proxy votes received for each resolution, where a valid proxy vote has been given to the Chairman without voting instructions, please note that in all cases, I intend to vote in favor of the resolution. Information on how to access the Notice of Meeting and explanatory statement dated 14th of October 2022 was distributed to all shareholders, and I will take that notice as read. All resolutions contained in the Notice of Meeting and to be put to members today will be displayed on your screen, so I will not read out each proposed resolution. We will now move to resolution #1. Adoption of the Remuneration Committee. You can see the votes there, which is, I think, a most ASX company would die to have a full vote of 97% for the remunerations, which probably means we're paying, probably too money, but [indiscernible]. The resolution [ results ] are shown on the screen. Is there any questions on this resolution? [indiscernible].

No questions, Chris?

No questions. I now put the resolution to a vote. Resolution 2, allocation of activity to manage our direct employee share scheme. Again, that's not bad, Paul. So that's pretty --. Right, the resolution terms and the proxy votes for resolution 2 are now shown on the screen. Is anyone got any questions regarding this resolution? Okay.

No questions, Chris?

I now put the resolution to a vote. Resolution 3, approval of 10% placement capacity. Resolution terms and the proxy votes for resolution 3 are shown on the screen. Again, a few against there, but as I explained to one of Board Members, I think that's still pretty -- 75% is pretty good. Any questions on this one?

Nothing, Chris?

I now put the resolution to a vote. This is a difficult one, the next fund. Resolution 4, reelection of Director Jeremy King. Resolution terms and proxy votes to Resolution 4 are shown on the screen. Unbelievable 98.95%. Who doesn't like you Jeremy?

I'm [indiscernible] now.

Is there any questions? The person has voted against, you want to say anything? All right. No questions. I will put the resolution to a vote. Other business. Just a reminder, the results of the meeting will be released to the ASX later today. If you haven't voted, please do so now. We have now completed the matters contained in the Notice of Annual General Meeting of shareholders, and I declare the meeting close. Our Managing Director, Paul Gillespie, will now give a presentation and we'll take general questions, following from that -- after that presentation. Questions will again be using the chat function from Zoom. Thank you very much, everyone. Go ahead, Paul.

Thanks, Chris. Good morning, everybody, thanks for joining us. Richard and I are both in the Melbourne office for [indiscernible], normally, Richard will be based out of Auckland, but it's great that we're both here to talk to you today. So today, I'll take you through some slides that we lodged with the ASX pre-market this morning. And I will give you a good understanding -- I hope to give you a good understanding of the Smart Parking business, a year of review, a brief trading update and also what our growth plans are for the future. After that, I'll be very happy to take some questions. Okay. So we can go to Slide #2, please, Ange. Thank you. So, well, a lot of people on the call are existing shareholders, so you know who we are and what we do. But for those who are new to the business, we are a prime Australian company headquartered here in Melbourne, who specialized in the delivery of technology-led parking management services. We developed our own proprietary market-leading technology that provides parking management services to landowners, property agents and retailers in order to effectively manage their parking locations or sites. I'm pleased to say that having proven that we can build a successful and profitable business in the U.K., we're now leveraging our IP into new territories with large market opportunities, particularly APAC and more recently in Germany. Our value-add is through the use of our proprietary technology, we increased compliance, revenue and customer experience for our clients -- sorry, revenue and customer experience for our clients. We know how to do this well, and we have deep experience and expertise. We have an attractive financial model that delivered FY '22 results of $8.8 million of EBITDA, an increase of 296% on PCP and balance date on 30th of June, cash on the balance sheet of over $10 million, and we're free cash flow positive. We can go to Page 3, please. Looking at this slide on our current global footprint. This page shows where we currently operate our technology-led service operation in the former territories of the U.K., Australia, New Zealand and as of the 1st of January this year in Germany. [ After comparing ] our territory due diligence, and we identify the markets as being a good strategic fit for us. We're able to move quickly because we can deploy our industry-leading technology, utilize our deep domain experience and execute the plan. We know what we're doing. We proved this in the new territory so far. To demonstrate our capability in new market entry, we need to look at our track record as a lot has changed in the last 2 years. However, we opened up parking management services business in New Zealand in March of 2021. In July '21, we opened the Australian services business in Queensland. And as of the 1st of January, we opened doors for our business in Germany. We've hired leadership, salespeople, operations and build our supply chain. In short, we built a base that we can now scale from. These are large addressable markets with close to 150,000 parking sites available for us to deliver our technology and services, too. But simply, in these 4 markets alone, [ we saw ] long-term growth runway. On Page 4, we see our recovery and our track record, but also the resilience in the business to recover quickly from the pandemic where lockdowns impacts the number of cars using the car parking sites that we manage. However, it's clear to see on this slide that we're a growing profitable cash flow positive business with a strong balance sheet. The key points to now on this slide are the disciplined execution of our organic growth strategy that leads to the growth in revenue, profitability and free cash flow. You will notice that there is some seasonality in the business with Q3 being the quiet quarter. This is due to Q3 being the U.K. winter, where car volumes naturally drop due to inclement weather. However, as we grow our APAC business, we expect to see this even out across the year. The final point to note on this slide is there is a consistent growth, and we're focused on this continuing well into the future. If we turn now to Page 5, please, and let's look at recap on FY '22 or a year overview. First, I'm proud of what the team at Smart Parking have achieved over the last financial year. It was a challenging 12-month period with macro challenges beyond our control, in particular, lockdowns and COVID disruption across all territories that we operate. Regards to this, we kept our focus on executing and growth -- on executing our growth strategy. And as a result of this discipline, we delivered good results. We increased revenue by 68%, reported adjusted EBITDA of $8.8 million, an increase of 296%. We converted this into free cash flow of $8.1 million, which was up 624%. This free cash flow are just under $11 million of cash on the balance sheet, funds our growth strategy and capital management initiatives. We also passed the halfway mark towards our 1,500 sites ANPR target by June 2025, closing the year with 839 sites under management. This includes organic growth in the U.K., contributions from Australia and New Zealand and the highly successful acquisition of Enterprise Parking Solutions. So if we go to Slide 6, and let's look forward now and talk about our growth strategy and the drivers that will help us grow our business into the future. At this moment in time, we have 3 pillars of growth. The first thing organic. This is in our existing territories. This will be driven by a disciplined sales approach of winning new locations and delivering great customer service to our client base. The larger the estates, the great number of PBNs issued, which drives revenue and profitability. The second pillar is new markets and growth into new territories. By proving the model in the U.K., we have successfully opened in APAC and are busy scaling this business. We've opened in Germany and have built the foundations for a successful operation and a great market. With the confidence we've built from these recent expansion initiatives, we're now busy looking for new markets where we can leverage our IP and market-leading scalable technology. Whilst expansion into new markets does cost money, it's a cost we can manage funds from existing cash flow. And the third driver is M&A. We've demonstrated with 2 acquisitions in FY '22 that we can find, evaluate, execute and integrate M&A opportunities. We'll continue to build the pipeline and maintain a disciplined approach, ensure we look at deals that will be the right strategic fit and deliver return for shareholders. So let's unpack a little bit further and move to Slide 7. So we've communicated breaking with you shareholders that our long-term organic growth target is to get to 1,500 ANPR sites under management by June 2025. We're on track to deliver this organic growth. And at the end of October on this slide, we have 925 sites under management. We need to bear in mind the 4 territories that we operate have a total addressable market of around 150,000 sites. Today, we have 925, so we have a huge organic opportunity to continue this growth trajectory. Of course, as we grow the number of sites under management, our revenue and earnings will also grow significantly from where we are today. On Slide 8, let's provide you with a little context on the process we go through when evaluating new markets. Essentially, we want to find markets where we can create differentiation between ourselves and incumbent parking management providers, supplying 0 tech solutions. In short, we want to leverage our IP and parking technology into countries where the regulatory environment allows us to access the driver vehicle license agency database. That means, we can access the driver's name and address, so we can send the breach notice in the post when they're [ breaking ] the rules in one of our car parks. This is how our technology gives us an edge on the competition where we issue notices by technology rather than by hand or by human intervention. We've already identified a number of markets where we can access the local driver vehicle license agencies, and we're working through the process carefully in order to maximize the opportunities we go for. I will, of course, keep shareholders up-to-date with this during our market updates. And the final pillar is obviously M&A. We can supplement our growth through complementary acquisitions on good financial terms. We've made 2 acquisitions in the last financial year. They've both been successfully integrated into the U.K. business. We have the appetite, capability and resources to do more of these deals, but we will maintain our discipline when looking at each opportunity in each location. We're focused on all 3 of these growth drivers, and we'll continue to push ourselves to deliver against our objectives. If we look at Slide 10 now, let's see how we're trading so far this year for the first 4 months of FY '23. But I'm pleased to say we're tracking well and ahead of the same period last year. Looking at the growth of PBNs on this slide, you can see that we are up 24% on PCP. There's also a sharp increase in the U.K. of 207,000 issued and more than double the contribution from APAC region versus Q4 at 29,000. This demonstrates the revenue multiplier coming through as we add sites. This is the success of our organic growth strategy that will continue. Apart from the -- as a partner -- sorry, apologies, we will continue and [indiscernible] impacts, there was a clear trend upwards. As most of you will know, we updated the market last week with a Q1 trading update, so I don't intend to go into that again. However, it's worth highlighting from Q1, from that presentation, revenue was up 21% on PCP and EBITDA up 12% on the same period. However, if we compare properly, we need to remove the German investment from the Q1 numbers as we didn't have that this time last year. When we do this, the EBITDA was up 27%, the margin growth to 28.8%. It's fair to say we're happy with the performance to date, and we'll look forward to updating the market at the half year. Looking now at Slide 11 and the cash flow for the first 4 months of FY '23. The group maintains a strong balance sheet and well placed to fund organic growth and further acquisitions. We have cash on hand of $10.2 million at the end of October with operating cash flow of $3 million for the first 4 months of the year. It's important to note that this includes $500,000 investment in Germany, which will lead to future revenue and earnings growth. As you can see on this slide, so far this year, we've invested $2 million of CapEx. This investment is mainly the purchasing of ANPR cameras and payment machines that we install in our customer sites at no cost to the clients. On average, we see a payback of 6 to 8 months for this investment, meaning we can continue to self-fund the organic growth well into the future. CapEx is expected to increase in FY '23 compared to 22% as a result of the growth in seismic planned installed across all 4 operating territories. And finally, on this slide, we'll continue to buy back and spent $500,000 in first 4 months of the year at just under $0.23 per share. I'll now close my presentation on Slide 12 and discuss really what the key priorities are and how these are underway and we're currently executing. FY '23 should be another year of strong profitable growth. And I've said before now, we are a growth company in high-growth mode. It's not loss on anyone at SPZ that we have a technology advantage, deep industry experience and a large and timely opportunity to expand across the 4 countries. We have a proven business model and a compelling value proposition for our site owners. We've worked hard to grow revenue and manage our costs carefully through a difficult period and will continue to mitigate challenges through key financial discipline. The benefits of scale are clear. We're committed and well advanced in delivering our 1,500 ANPR global sites and the management target by 2025. Our global sales team is focused on adding over 300 new sites in '23. We expect to grow in all 4 countries, given we've now firmly established foundations for growth. We have a strong balance sheet to fund the growth CapEx and the supply to support the installations with over $10 million of cash. So in conclusion, we'll continue our laser focus on executing our organic growth strategy, which has been successful to date. We'll continue to explore acquisition opportunities to accelerate our growth and enhance returns for shareholders. And concurrently, we'll continue to look at new operating territories where we can leverage our technology and expertise to facilitate our growth well into the future. That concludes our presentation. Thanks for listening. So we'll be happy to take some questions. Do we have any questions?

Nothing from the [indiscernible]?

Gentlemen, I think we just close the meeting. Can we?

We've got some -- there's a question there. How is the company going with converting [ ANP ] sites? So who -- is that to Chris or to...

Okay. How is the company going with converting any parking manual sites to ANPR technology? Yes, good. So we have a, obviously, a decent pipeline of sites up there, which we acquired 517 sites all manually operated. We've been busy, obviously, working with the customers to get in front of them and get convinced the new potential they have with their sites. We've got up to 20 converted now, a little bit slower than we'd like, but we've set ourselves some pretty strong targets. And as people know, we will need to convert many to be a very successful acquisition. So not the something we like, but it's still going well, and we're happy where we're now.

Okay. Next question. What's the economy weakening in the U.K. does the company knows any parking behavior changes or higher default rates on PBN payments?

Certainly not any higher default rates. If anything, October was actually a record month of receipts in the U.K. So for us, we haven't seen anything change as yet. I guess, the first change we see is the leading indicators we look at obviously the volume of cars that goes through the estate. And so, from that perspective, we haven't seen that drop at this stage. But of course, coming into this time of year, sort of the late November, December time, it's normally quite busy, but then January, of course, is much quieter just purely because, as I mentioned in my presentation, the inclement weather in the U.K., you see fewer people out in the -- fewer cars on the road. So that obviously, you will see the natural seasonality impacts. But no, receipts are still very strong, as you can see from the cash, which is just good news. Right now, obviously no impact.

Okay. No other questions for you, Paul.

No other questions from anybody?

Okay. I will then close the meeting, everyone, and thank you for attending. Thank you.

Thanks, everyone. Bye-bye.