Smart Parking Limited (SPZ) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Smart Parking FY '26 Results Conference Call. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to Mr. Paul Gillespie, Chief Executive Officer. Please go ahead.

Good morning, and thank you for joining today's Smart Parking FY '26 Results Investor Conference Call. Richard Ludbrook, our CFO, is here with me. We've released the deck to ASX today with plenty of detail. On this call, I'll focus on the record results for the year and the momentum in the business. Our progress scaling across multiple territories, including our established markets and new territories like the U.S. and the multiple growth drivers across our portfolio, which underpin our positive outlook for 2027 and beyond. After that, Richard will take you through the financials in more detail. And following the presentation, we'll be pleased to open the line for questions. The first, let's start on Slide 2 and our record results. We've had a strong year. Several years ago, we set out some internal milestones for the business, delivering over $100 million of revenues with $30 million of adjusted EBITDA and 2,000 ANPR sites under management. It's pleasing to say that this year, we've surpassed all those internal milestones, but we have much more to do. Given our momentum, the target of having 3,000 ANPR sites under management by December 2028, is very much intact. In FY '26, revenues grew to GBP 126 million, up 63% compared to the PCP. Adjusted EBITDA was GBP 30.8 million, a rise of 50% and the UNPATA number at $11.4 million was up 73%. It's important to note that 72% of the revenue growth is organic, which is quite an achievement. The inorganic growth is the full year of contribution from Peak Parking, which was acquired in February 2025. One question shareholders will have is, why does headline revenue growth outpaced EBITDA growth. Well, we spent $3.8 million on setup and establishment costs in Switzerland and Denmark predominantly in the second half of the year to accelerate scale across Mainland Europe. We've taken these establishment costs above the line. If you exclude them, adjusted EBITDA was $33.8 million, which is growth of 69%. That highlights the underlying operational gearing in the existing business. Our free cash flow and balance sheet continue to be strong. We generated $20 million of free cash flow, once again showing our capital-light nature of our model. We closed the period with a 37% increase in cash to $17.4 million. We generate high levels of free cash flow. We can self-fund our organic growth strategy, invest in our market-leading proprietary technology and AI capabilities and maintain a strong balance sheet. And finally, on this slide, we closed the year with 2,083 ANPR sites under management, generating revenues across 6 territories. Site Growth is our key earnings driver. So this is an increase of 16% on the PCP. With these sites, we issued a record number of PBMs, up 12% versus the PCP. Turning now to Slide 3. The disciplined execution of our growth strategy continues to drive our performance. Our plan is to leverage world-class technology and AI capabilities to provide parking site owners and managers a step change in service quality and financial outcomes to drive enduring growth across multiple territories. In FY '26, we continued our strong track record and delivered organic ANPR site growth across all operating markets. If we look back over the last 5 years, SPZ has delivered some impressive CAGR. We've increased ANPR sites under management by 27% per annum on average, growing revenue at a 44% CAGR and delivered an EBITDA CAGR of 69%. That earnings growth includes all the greenfield establishment costs we've invested to enter new markets over that period. In FY '26, momentum built through the second half of the year which bodes well for FY '27. We added 200 new sites in the first half of FY '26 and 303 new sites in the second half. All these sites will generate a full year's revenue in FY '27. Another positive to highlight is the PBN issuance return to growth in the U.K. in the second half of the year. This is a large driver of our increased performance. After flat issuance in 1H PBN issuance recovered and was up 8% in 2H versus the PCP. This contributed to our U.K. business reporting impressive results. Our largest business delivered the fastest rate of revenue growth in the group. Revenue was up 62%, adjusted EBITDA was up 54% and margins remained over 30%. We also continue to benefit from our improved debt resolution processes in the U.K. We've worked hard on improving our effectiveness in resolving aged debt. These are additional operating earnings that we didn't previously collect. We're working with new partners and new trace technologies to increase the overall yield. Technology is making a difference here and we've been more active resolving matters through legal channels, although this is more extensive and does reduce margins at the final stage of the process. We have around 750,000 PBMs that are over a year old going through the second stage resolution process. There is a new slide on Page 10 that takes you through this. It's important to highlight that this process will deliver for a long period of time as we continue to add 20,000 to 25,000 PBMs to the process every month. This number will grow as we add more sites and PBMs. In FY '26, as a result of this work and the improved process, average PBM values in the U.K. were up 54% versus the PCP. During the year, the process delivered an additional $7 million of EBITDA to the group. As we continue to progress through the aged debt profile, we expect the contribution to be around $5 million in FY '27 and GBP 2 million less than the PCP. As we continue to work through the process and additional age PBNs, we expect to reach a steady state and then grow in line with PBN issuance. Looking further ahead, we're trialing opportunities to improve our age collections in other territories. There is more work to do, but this process has the potential to be applied across some of our other markets and significantly benefit future earnings. So to the question you will ask, will this benefit continue to add to revenue and EBITDA in FY '27 and beyond? The simple answer is yes. We expect to continue to benefit from improved debt resolution for a long time. Our progress in the U.S. is a highlight. It's our largest growth opportunity. We've completed the integration of Peak Parking and acquired American Parking recently in July. We're improving our ANPR strategy and technology advantage there. At June 30, we have 30 ANPR sites under contract. Converting manual sites to ANPR provides great case studies for new customers as well as expanding our margins. New Zealand is a great success story of what happens when we deploy our technology and AI tools and build scale in the market with attractive fundamentals. We expanded our estate by 30% in the year to 310 sites under management. Revenue improved by 19% and EBITDA margins increased by 390 basis points to almost 47%, a new divisional high for the group. We are building the foundations for long-term growth in complementary new markets. As I mentioned earlier, the $3.8 million investment in Switzerland to accelerate our scale across Mainland Europe. The heavy investment phase there is now complete, and we expect improving profitability in FY '27 with a focus on positive EBITDA in FY '28. We expect a breakeven in this territory between 80 and 100 ANPR locations. Growth is accelerating in Germany, another major growth markets and a large positive swing factor in our P&L this year. Performance is improving as sites grow and we've delivered several months of EBITDA profitability in 2H. During the year, we grew sites by 40% to close with 150 sites under management and we issued over 120,000 PBNs, a rise of almost 50%. Revenue grew by 40% and adjusted EBITDA improved by 33%. Going forward, we expect this business to scale and turn EBITDA positive during FY '27, assuming we delivered an increase in ANPR sites to 190 and above by the end of the year. Remember, the addressable market in Germany is around 90,000 ANPR sites. So we're at the very start of the growth runway. We've invested in the team and put in place a platform to support enduring growth. And finally, on this slide, today, we announced a $5 million share buyback program, which is a signal of confidence in our positive outlook for smart parking. If we go now to Page 6 and moving beyond the results. What's our growth strategy? How do we categorize our markets and how do we prioritize capital deployment? There is a purposeful plan here. We have 3 pillars for growth. We have first wave markets where we're already established, such as the U.K. and New Zealand. Our folks here to drive strong revenue growth and margin expansion. Second, we are incubating new businesses in major long-term growth markets. We're establishing our teams and brand, proving our ANPR advantage and demonstrating our superior value add to prospective clients. This, of course, is the U.S. and Germany. Leveraging off existing infrastructure and expertise, we're also expanding into complementary markets across Mainland Europe. These markets can offer attractive returns as they scale such as Switzerland and Denmark. As I mentioned, we've invested over $3.5 million in these new markets this year. In Denmark, with a new government and minister, we're looking to return to a technology-driven solution for clients. And in Switzerland, where we've been investing in people, structure and sales capacity over the last year, we now have live sites and PBN issuance has commenced. And finally, to support the organic growth we have a successful track record of making disciplined, accretive acquisitions. We've made 6 acquisitions in 6 years. Some were bolt-ons, others beachheads. They added scale and earnings. We will continue to carefully pursue acquisitions, and we have an active pipeline of opportunities that we're evaluating today. If we move to Slide 9 now, let's focus on the U.S. market as it's a primary voice for capital deployment. Why do we like it? Let me recap. There are around 2 billion parking spaces in the market with a concentration of sites in states in which we already operate. Incumbent operators rely heavily on legacy solutions which have been successfully replacing elsewhere. We've invested in infrastructure and platforms that can scale. We now have 8 sales heads located in key states in the U.S. with positive regulatory environments. And we have an opportunity to grow the sales team further and enter up to 40 states that have regulations that align with SPZ's technology strategy. We finished the year in the U.S. with 156 sites under management with 30 of these being ANPR-relatEBITDA locations. We expect this number to accelerate as we continue to demonstrate the value uplift to clients. Since the year-end, we announced the acquisition of American Parking, which brings a total number of sites of 210. We're very pleased with the acquisition because it adds sites in key markets such as Texas and opens up further opportunities to leverage our proprietary AI-driven technology platform, SmartCloud. To make sure we take full advantage, I will be relocating with my family to the U.S. during the first half of FY '27. With that, I'll now hand over to Richard, who will take you through the numbers in more detail.

Thanks, Paul, and good morning, everyone. I'll now take you through the financial performance for FY '26. As shown on Slide 12, Smart Parking delivered another record year of financial results. Revenue increased 63% to $126 million reflecting the continued organic expansion of our ANPR estate. The full year contribution from Peak Parking in the U.S. and the strong performance of our enhanced debt resolution initiatives in the U.K. 72% of the revenue growth achieved during the year was generated organically, highlighting the underlying strength of the business model. . Adjusted EBITDA increased 50% to $30.8 million, which includes $3.8 million of start-up investment in Switzerland and continued growth in the U.S. and Germany. Excluding the Swiss investment, adjusted EBITDA growth would have been approximately 69% year-on-year. The adjusted EBITDA margin remained strong at 24.4% with a reduction of 220 basis points, reflecting the higher marginal cost associated with pursuing an increased proportion of aged PBNs. This strategy has delivered additional revenue, profit and cash flow while further strengthening the effectiveness of the group's debt resolution processes. The margin was also impacted by the dilutionary impact of the investment in Switzerland. A measure of underlying profitability, UNPATA increased 73% to $11.4 million demonstrating the strength of the underlying operating performance across the group. Foreign exchange movements had a material impact during FY '26. And in addition to the $2.6 million FX loss recognized in the P&L, the stronger Australian dollar reduced reported revenue by approximately $2.9 million and reduced adjusted EBITDA by around $1 million. On a constant currency basis, the revenue growth was approximately 67% and adjusted EBITDA growth was 55%. The effective tax rate increased to 40.7%, up from 15.7% in FY '25. This reflected the impact of the U.K. and NZ taxable profits amplified by the dilutionary impact of losses in Denmark, Germany and Switzerland, where no tax benefit has yet been recognized. This was partly offset by the recognition of historical deferred tax benefits in Australia. The lower FY '25 tax rate benefited from the recognition of a $2 million deferred tax benefit relating to historical New Zealand losses. Looking at Slide 13. Our results demonstrate the benefit of operating across multiple growth markets. The U.K. remains our largest market, generating revenue of $84.9 million, up 62% with adjusted EBITDA increasing 54% to $25.9 million. U.K. operational momentum resumed in H2 FY '26 and with PBN issuance growing 8% in H2 compared to PCP. Improvements to the debt resolution process increased average recoveries generating an additional $7 million of EBITDA in FY '26. The uplift is expected to reduce to approximately $5 million in FY '27 that is expected to deliver ongoing benefits into FY '20 and beyond, driven by continued PBN volume growth. New Zealand continued to perform well. Revenue increased 19% to $8.8 million, while the EBITDA margin expanded to 46.7%, demonstrating the operating leverage available as site numbers continue to grow. Germany continues to scale with revenue increasing 40% and PBN issuance increasing 47%. Germany is expected to scale in line with further site growth driving further improvements in profitability in FY '27. The U.S. contributed $25.3 million of revenue and $6.3 million of adjusted EBITDA. Importantly, we now have 30 contracted ANPR locations and are validating the value proposition of our technology-led parking management model in what is the world's largest parking market. During FY '26, the U.S. grew its sales and operational capability for the newly launched ANPR business and now has 7 sales executives in Texas Florida, Georgia, Indiana and Washington State. Germany and the U.S. are attractive markets with long-term opportunities. In Denmark, due to regulatory changes, smart parking transition to manual enforcement operations during FY '26. This resulted in higher staffing costs as wardens are required to issue PBNs directly and lower revenue due to the reduced efficiency of manual enforcement compared with ANPR enabled operations. We expect the loss to reduce in FY '27, assuming there are no changes in the regulatory environment, reverting to ANPR operations provides significant upside. We commenced PBN issuance and revenue generation in Switzerland in July 2026. Losses will reduce in line with site growth and PBN issuance. Turning to Slide 14. This slide highlights the composition of our revenue growth. Revenue increased by approximately $49 million year-on-year. The largest contributor was the U.K., which added approximately $33 million of revenue growth through a combination of new sites and enhanced debt resolution revenues. The Peak Parking acquisition contributed approximately $25 million while Germany and New Zealand collectively contributed more than $3 million of additional revenue. Against that growth, foreign exchange translation reduced reported revenue by approximately $2.9 million. The key takeaway is that the majority of growth continues to be organic and generated from territories where we have already established scale, operating expertise and technology advantages. Slide 15 shows the continued expansion of operational activity across the group. PBNs increased 12% to a record 1.2 million breaches. Notably, growth accelerated during the second half, with U.K. issuance returning to growth in Germany continuing to scale. New Zealand and Germany together contributed a substantial proportion of incremental breach notices issued during the year. We believe these trends provide a strong foundation for future revenue growth. Given the increasing installed base and the operational leverage within the business model. We continue to strategically diversify our revenues beyond the U.K. In FY '19, the U.K. made up 100% of the group's PBNs. That contribution is now 67% and making SPZ a stronger and more resilient business with a long-term growth runway ahead. Turning to costs on Slide 16. Operating expenses increased from $29.6 million to $38.1 million. The most significant increases were deliberate growth investments in Switzerland and the U.S. The acquisition of Peak Parking contributed approximately $4.6 million of additional overheads. Importantly, organic overhead growth across our established territories remain disciplined increasingly only modestly relative to the revenue growth. U.K. overheads grew by 5% compared to a 62% growth in revenue. This demonstrates the scalability of the smart parking platform and our ability to leverage technology and centralized infrastructure as revenues grow. Moving to Slide 17. One of the most encouraging aspects of the year was our cash generation. Adjusted free cash flow increased 56% to approximately $20 million. Importantly, while delivering this result, we funded $6.7 million of CapEx, continued technology development and the establishment of Switzerland. The group ended the year with $17.4 million of cash, up $4.7 million from 30 June 2025. This level of cash conversion reflects the attractive economics of the NPR model. Moving to Slide 18. The group finished FY '26 with a very strong balance sheet. Cash at the end of the year was $17.4 million, up from $12.7 million a year earlier. We also maintain access to a USD 10 million revolving credit facility and a further $10 million according facility, providing substantial flexibility to fund future growth initiatives and accretive acquisitions. Subsequent to year-end, we completed the acquisition of American Parking in the U.S. for approximately $17 million funded through a combination of cash reserves, debt facilities and equity consideration. This transaction further strengthens our platform in the U.S. market and is earnings accretive before synergies. I'll now hand over to Paul.

Thanks, Richard. I'll now close with our positive outlook on Page 19 and some of the key drivers of our earnings trajectory. We've clearly had a strong set of results for FY '26, and we enter FY '21 with significant momentum. We'll continue to drive organic growth across all our markets by leveraging our technology advantage, AI capabilities and deep domain expertise. Our pipelines for new sites are good targeting sectors where we are already well known and are successful, we remain laser-focused on our execution. We're targeting to add between 450 and 600 net new organic ANPR sites to the estate this year. Our ambition is to close the year with around 1,750 sites in the U.K. up to 400 sites in New Zealand, over 200 sites in Germany and between 75 and 150 ANPR sites in the U.S., it's going to be a busy year. These additions, we're accelerating growth in our key markets, and we are well on our way towards delivering on our long-held organic target of 3,000 sites under management by December 2028. We'll continue to look to selectively add complementary acquisitions to accelerate our growth and enhance our earnings. Our balance sheet is strong, and we have access to debt facilities if required. There are other drivers that will reshape our FY '27 results. As I mentioned earlier, we expect around $5 million of EBITDA from the enhanced debt resolution this year. That's around $2 million lower than the PCP. On the positive side of the ledger, we will get a full year's contribution from all the new sites added partway through FY '26 and as well as a contribution from new sites added this year. Germany is expected to scale with new site growth driving further improvements in profitability, taking advantage of the new sales capacity that we added in H2 of FY '26. Assuming we deliver over 190 sites in Germany by the end of the year, we expect to turn EBITDA positive during FY '27. The loss in Switzerland is expected to produce in line with our site acquisition strategy and growth in PBNs based on 50 ANPR locations by the end of FY '27, we expect the EBITDA loss to improve to $2.5 million and the business to be EBITDA positive in FY '28. Last year's loss in Denmark is also expected to reduce from around $3 million to $1.5 million. This conservatively assumes manual operations continue, and there is no change to the regulatory environment. A policy change back to ANPR operations would provide significant upside to our earnings. These swings alone should drive a significant uplift in our earnings in FY '27. So in closing, we have an excellent team at Smart Parking, and I'd like to thank them. The business is performing well. We are proud of our execution track record, which continues to build. And with the technology and expertise we have, we can deliver growth across multiple territories for many years to come. That now concludes our presentations, and we can now open the line for some questions.

[Operator Instructions] Your first question comes from Olivier Coulon with E&P Financial Group.

Just American Parking. I think you've had that in the portfolio now for a couple of weeks. Any questions what before you were getting versus what you have gotten?

Yes, Olivier, yes, it's very positive. I mean, we're very pleased with what we've acquired. Clearly, the plan is to upgrade existing locations or existing manual locations with our ANPR solution. I'm pleased to say we've already done that across 3 locations. You might recall that 20% of the sites that American Parking were operating are owned by the vendor, and we've locked that down for a 5 plus 5 lease. So we've got that 10 years, which is great, those locations. And then the first ones in the queue to be upgraded to ANPR. So early observations are lots of opportunity, particularly in the likes of Tulsa and Oklahoma City where the business is located. And, yes, a long way to go with it, but very pleased so far.