Superloop Limited (SLC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to Superloop Limited HY '26 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Paul Tyler, Chief Executive Officer. Please go ahead.

Thank you. Good morning all, and welcome to Superloop's 2026 first half results investor briefing. My name is Paul Tyler. I'm the CEO of Superloop, and I'm joined here by Dean Tognella, our CFO. This is really a great day for the company. I'm incredibly proud to be delivering what I believe is one of our strongest set of financial results ever and at the same time, announcing an important acquisition, that of Lightning Broadband, enhancing our infrastructure credentials and further building on our long-term Smart Communities strategy. If we jump to Slide 4, but in doing so, you'll glide past the earlier slide in which we show just some of the recent awards that we've won. It's sometimes missed when you talk about the great financial results that underpinning our performance is also a great set of customer experiences, products that are high speed, high performance and supported with excellent service. We continue to invest in these products and challenge ourselves to improve. There's quite a bit to talk about this morning. We'll cover the first half results and the second half outlook first, then move to a few slides on the Lightning acquisition. And finally, there will be an opportunity for Q&A at the end. So jump to Slide 5. Looking at the headline numbers, Superloop has delivered strong broad-based growth across all key metrics, demonstrating momentum and clear operating leverage. Revenue increased to $317.6 million, up 23% year-on-year, driven by continued customer growth in consumer and sustained wholesale momentum as we enable challenger retail service providers. That top line growth translated into a material earnings uplift with underlying EBITDA of $55.8 million, up 46% year-on-year. Importantly, we also delivered a net profit after tax of $5.1 million, which is a $12.9 million improvement year-on-year. Having finally achieved a positive NPAT in the last financial year, we expect net profit and earnings per share to build quickly from here. Gross operating cash flow was $55.3 million, and operating cash conversion was 96% of underlying EBITDA, underlying the highly cash-generative nature of our business. Finally, customer growth remains a key driver of our performance. We ended the half with 805,000 customers, up 21% year-on-year with 74,000 net customer additions during the half, almost all organic, an industry-leading outcome. So in summary, the results demonstrate that Superloop is delivering strong revenue growth, expanding EBITDA margins, growing NPAT and generating significant cash, all underpinned by sustained customer growth and satisfaction. Move to Slide 6, please. The first half demonstrated momentum across the entire group with growth coming from all 3 segments and translating into higher earnings and cash flow. We continue to see industry-leading customer acquisition with our group NBN market share increasing to 7%. Importantly, we captured 14.5% of NBN orders in first half '26, which reinforces that we are consistently taking share. This customer growth is flowing through to our revenue across all segments. Consumer revenue increased 29% year-on-year. Wholesale revenue grew 28% and Business revenue increased 4%. Our underlying EBITDA margin increased to 17.6%, up 2.7 percentage points on the previous year. As a result of the pleasing momentum in the first half and the visibility we have into the second, we are upgrading full year underlying EBITDA guidance to between $112 million and $120 million. We're also on track to achieving the last remaining metrics in our 3-year plan, which we regard as no small achievement given the ambitious targets we set of doubling our revenues while simultaneously expanding margins. I'll cover the acquisition of Lightning Broadband at the end of the presentation, as mentioned. So if you move to Slide 7, please. Over several years, Superloop has delivered sustained growth across customers, revenue and earnings. And the first half of FY '26 is a continuation of that trend. As mentioned, customer numbers ended the half at just over 805,000. That operating leverage that -- sorry, the operating leverage that comes with scale is clear with revenue growing faster than customers. EBITDA increasing at 46% year-on-year, again, significantly faster than revenue. Our strategy aims not just to deliver growth, but rather doing that whilst simultaneously expanding margin quality. Slide 8. Revenue growth in the first half was broad-based with all 3 segments contributing. Consumer remains the largest contributor, driven by organic net adds and ARPU expansion, particularly on higher-speed plans. Wholesale is becoming an increasingly important contributor to group revenue and quality -- sorry, and margin quality. Business revenue is improving with Smart Communities now a consistent driver together with a growing revenue book from enterprise and secure connectivity wins. So while consumer drives volume and scale, wholesale and business revenues are improving the resilience and sustainability of group earnings over time. On Slide 9, you can see the contribution from each of the segments on this chart. I think the main point to distill here is that whilst our consumer had a great half and is clearly our largest revenue contributor, business and wholesale account for 46% of group gross margin, reflecting the structurally higher margins, sorry. Slide 10. In the first half, the Consumer segment delivered 49,000 net new customers, the strongest organic result we've ever achieved despite competitive market backdrop, industry changes associated with the NBN speed distal and competitors changing their pricing structures. That customer growth translated into 29% revenue growth. And importantly, we've achieved record customer growth whilst maintaining our pricing discipline and have maintained our margin quality. We move to wholesale on Slide 11. Momentum in the challenger RSP market drove the Wholesale segment revenue up 28% and margin quality continues to expand. Customer numbers increased to 258,000, up approximately 20,000 in the half with 15,000 of that 20,000 total additions coming in the final 7 weeks of the half. And then finally, business on Slide 12. Business revenue increased 4% to $54.3 million, with signs of improving market conditions and momentum. New logos signed in the period include major wins such as mycar Tyre & Auto, ARB, Coles and Village Roadshow. Whilst revenue growth is more measured than consumer and wholesale, margin quality continues to improve. Absolute gross margin was up nearly 10% year-on-year and gross margin quality improved to 41.9%, which reflects a better mix. On Slide 13, you can see a summary of the customer growth across the group. I won't cover it again, except to say that we are thrilled by how the business has performed and look forward to a strong second half, where we expect to continue the positive momentum in consumer and see strong second half seasonality coming through wholesale. Jumping to Slide 15. Our customer growth is underpinned by a strengthening brand awareness and acquisition efficiency. During the half, we saw momentum across all core brand indicators, including prompted brand awareness, branded search and site traffic. Branded search is particularly important in telco as it's a brand-led category. So our steady progress here is encouraging. Slide 16. Customer satisfaction directly impacts our growth and profitability. Our investments in automation and AI have been paying dividends with demonstrable improvements in both customer experience and cost to serve. We are increasingly embedding AI and workflow automation across support and operations, and we're now seeing tangible benefits. Superloop developed customer-facing tools such as Refreshify and Exray allow customers to resolve common in-home connectivity issues quickly through the Superloop app, reducing the need for assisted support. At the same time, our AI agents, Teddy and Mo are handling a growing proportion of customer interactions and delivering higher customer -- sorry, and delivering higher customer experience scores than traditional channels. Notwithstanding our growing customer base, as a result of putting Superloop tools directly in the hands of customers, our inbound support calls per customer actually decreased around 30% over the last 18 months. And we're also reducing our reliance on voice, which is our most expensive support channel. Slide 17. The Superloop business is built on a single integrated operating model that supports consumer, business and wholesale at scale. At the core is our infra on-demand network and single integrated digital stack, which allows us to launch products, onboard customers and manage the network efficiently across segments. Importantly, we are increasingly embedding AI and automation across the business, not as stand-alone initiatives, but as core enablers of scale and efficiency. Slide 18 is a quick representation of our network, which includes over 2,400 On-net data centers and commercial sites, over 2,500 kilometers of owned metro fiber complemented by international subsea capacity. This footprint enables us to serve consumer, business and wholesale customers from a common infrastructure base. Importantly, once the fiber is built, additional services can be delivered at a relatively low marginal cost, which supports the earnings progression we discussed earlier. The network also underpins our Smart Communities strategy with the ability to leverage our fiber footprint to connect existing and new buildings. I'll now hand over to Dean to provide some comments on the financial performance of the group during the half year.

Thanks, Paul. It has been a very strong start to FY '26. Superloop's results in the half demonstrate the scalability, efficiency and quality of our business. We reported revenue of $317.6 million, up 23%, driven by customer share gains across consumer and wholesale. Growth is translating directly into profitability with underlying EBITDA up 46% to $55.8 million, reflecting clear operating leverage. Our gross margin increased by $23.9 million to $111.9 million. Importantly, we held our consumer gross margin at 27.5% while achieving record volume growth, highlighting the strength of our consumer offerings and our low cost to serve. Cost discipline remains a key feature of the result. OpEx growth was contained to $8.6 million, with $5 million of this growth being from an increase in marketing spend. Our OpEx to revenue declined from 15.4% in the first half last year to 13.4%. While our total customers grew 21%, employee expenses were essentially flat, reflecting our scalable operating model and increasing returns from our AI-enabled digital stack. Cash generation was a standout. Gross operating cash flow rose 43% to $53.5 million, converting 96% of underlying EBITDA, demonstrating the high quality and repeatability of our earnings. Free cash flow increased to $32.2 million, up 102% year-on-year. Moving to Slide 21. Starting with Consumer. Consumer gross margin increased by $14.3 million and consumer gross margin was broadly steady at 27.5% despite industry pricing resets. Business contributed a further $2 million uplift. This increase reflects increased contribution from Smart Communities and increased traction in secure connectivity with the GM percentage improving 2.1% to 41.9%. Wholesale was the standout contributor with reported GM up $7.6 million and reported GM percentage up 5.6 points to 65.9%. This reflects healthier product mix and the end of modem pass-through revenue for a wholesale customer. The group gross margin percentage remained stable at 35.2%, even as we achieved substantial consumer acquisition volumes. Moving to Slide 22. This slide really illustrates the cost advantage of our model. Total operating expenses increased by $8.6 million or about 16.6% year-on-year. That uplift was deliberate and centered on increased marketing to capture a market opportunity. Marketing was the largest increase, up $5.1 million. This investment contributed to the addition of 49,000 new consumer customers and boosted brand awareness for both Superloop and Exetel. Other OpEx increased modestly, up $3.3 million. Of note, employee expenses were essentially flat despite the scaling of the business. This is a direct outcome of the digital investments we've been making, including automation, AI workflow tools and improved digital customer journeys. We are increasingly able to support more customers, more orders and do so by leveraging technology to provide an excellent customer experience. Moving to Slide 23. Our CapEx spend continues to be highly targeted and aligned to growth, efficiency and long-term margin expansion. Total CapEx for the half was $21 million, representing a heavier first half due to a number of larger fiber and network-related investments. The largest increases in spend were digital and transformation, where we invested $5.2 million into automation and AI in our platforms. And in customer-related CapEx, where we invested $7.7 million in building our Smart Communities infrastructure and other growth opportunities. Now moving to Slide 24. Cash flow was another area of real strength for the half. Gross operating cash flow increased to $53.5 million, and cash conversion remained excellent at 96% of underlying EBITDA, which continues to be a distinguishing feature of the business. Importantly, this conversion has held up even as we have accelerated growth, demonstrating our underlying discipline in working capital and the repeatable nature of our revenues. Free cash flow doubled to $32.2 million, up 102% year-on-year. We finished the half in a positive net cash position of $3.9 million, and we remain well inside all covenant thresholds. We also completed the refinancing of our facility in October, securing a new $300 million 4-year loan package with significantly improved terms. The expanded facility provides ample headroom to support both organic investment and the acquisition of Lightning Broadband. Even post the completion of Lightning Broadband acquisition, the business will maintain substantial covenant capacity with a leverage ratio of approximately 1.4x. I'll now pass back to Paul for the FY '26 outlook.

Thanks very much. So we're on Slide 26. We remain on track to deliver the final ambitions of our 3-year Double Down strategy by the end of FY '26. Whilst not anticipated in that plan, it's encouraging that our growth to date has been almost entirely organic. On Slide 27, you can see that as a result of the strong first half performance and the continued trading momentum we've had to date, we've upgraded full year FY '26 underlying EBITDA guidance to a range of between $112 million and $120 million, which represents approximately 21% to 30% growth on FY '25. Capital expenditure guidance remains unchanged at $32 million to $35 million, excluding the IRU payment. The upgraded guidance does not assume any contribution from Lightning Broadband. So with that, I'll now spend a couple of minutes on the acquisition itself. On Slide 28, before I move into the detailed slides, I wanted to note that this acquisition accelerates Superloop into a scaled national fiber-to-the-premise challenger with materially greater exposure to high-margin annuity style revenues and high-quality earnings. Importantly, this is a business model we know well. The acquisition adds scale and momentum to our Smart Communities strategy, which we've been executing over a number of years. Over the next few slides, we'll step through why Lightning is such a strong strategic fit, how it enhances our Smart Communities strategy and how this acquisition supports long-term value creation for shareholders. Slide 29. So this acquisition is the next step in the strategy we've been executing for some years. Superloop has deliberately built capabilities in Smart Communities and has now added significant scale through the Lightning Broadband acquisition. Lightning Broadband adds a large built FTTP network and a larger contracted book. This is an acceleration of an established strategy, as you can see by the milestones on this chart. Slide 30. Post acquisition, Superloop becomes a scaled national fiber-to-the-premise challenger with today, Lightning Broadband having 24,000 built FTTP lots and a contract book of an additional 30,000 lots. These 30,000 lots are expected to be built over the next 5 years and provide visible revenue and earnings growth. The acquisition enhances our market standing with developers and major retail service providers. From a financial perspective, Lightning Broadband has strong financials with high gross margins and annuity-style revenues. We expect to be able to further improve margins through synergies from leveraging Superloop's existing domestic and international assets. Slide 31. Superloop has entered into a binding agreement to acquire 100% of Lightning Broadband for $165 million, funded from existing cash and debt facilities. On completion, leverage remains modest with net debt expected to be around 1.4x EBITDA, maintaining balance sheet flexibility. Lightning is expected to generate approximately $11 million of EBITDA in FY '27 on a pre-synergy basis, and the transaction is expected to be EPS accretive in FY '27. We expect to realize around $5 million of annualized synergies achieved within the first 3 years, primarily through network integration and infrastructure efficiencies. Completion is subject to customary regulatory approvals, and we currently expect the transaction to complete in the fourth quarter of this financial year. Slide 32. The Lightning Group includes Lynham Networks as the FTTP infrastructure owner and wholesale network owner -- operator, sorry, operating as a statutory infrastructure provider across more than 400 locations. It also includes Lightning Broadband as a retail service provider. The group builds and owns fiber-to-the-premise infrastructure in residential apartment and commercial developments, where overbuild is commercially unattractive once that fiber is deployed. Today, Lightning has around 54,000 contracted lots, of which approximately 24,000 are already built and around 14,000 active services across 400-plus developments. The network operates on an open access wholesale model, allowing multiple retail service providers to deliver services over that same infrastructure. Whilst the group generates some retail earnings, the core value of the business is from the wholesale services it provides to a range of retail service providers. Slide 33. Lightning has historically been strong in multi-dwelling developments, while Superloop adds depth in broad acre, build-to-rent and student accommodation. The combination also materially expands the number of retail service providers who use the FTTP network. From a sales perspective, the developer bases are largely additive, expanding our national coverage and effectively doubling sales reach and pipeline depth. Finally, the broader product set and infrastructure scale expand our addressable market while leveraging Superloop's existing fiber to improve network economics over time. Slide 34. Lightning Broadband generates annuity-style revenues with a strong skew towards wholesale infrastructure income. The revenue mix is predominantly wholesale with the balance coming from retail and other services. This wholesale-led mix delivers high recurring revenue, stable occupancy-driven cash flows and strong inflation resilience over time. Importantly, the underlying infrastructure has a long economic life, typically well in excess of 25 years, which supports durable, predictable earnings. From an economics perspective, the model has high operating leverage. Once the fiber is built, the cost base is largely fixed and incremental services are delivered at high gross margins. Slide 35. The acquisition provides long-term organic growth. The attractive revenue characteristics are underpinned by a highly visible contracted growth pipeline, future revenue earnings and -- sorry, future revenue and earnings expansion comes from the lots that are already committed by developers often years in advance, which provides strong forward earnings visibility. Future contracted premises are around 2.8x the current active base, which highlights the long runway for organic growth as sites are constructed and activated. Lightning's contract book is more MDU weighted, as mentioned, which typically have shorter construction time lines, supporting faster conversions from contracted to revenue-generating assets than in comparable broad acre developments. On Slide 36, by integrating Lightning's FTTP footprint onto Superloop's existing network, we can reduce backhaul and transit costs, improve utilization of our own fiber assets and leverage existing network operations and systems across a larger footprint. We expect to realize around $5 million of annualized synergy -- sorry, $5 million of annualized cost synergies within 3 years as discussed. On Slide 37, we summarize the acquisition of Lightning Broadband accelerates our Smart Communities strategy. It strengthens our competitive position with developers and retail service providers and improves network economics through scale. The acquisition is funded within existing facilities expected to be EPS accretive and supported by low-risk network-led synergies. Overall, this acquisition advances our Smart Communities strategy and supports long-term shareholder value creation. Okay. Slide 38. So to close, I just want to step back and summarize what we've announced today. We've delivered an exceptional set of results in the business with the first half of FY '26 demonstrating that our strategy is working, and we are scaling as intended. We've delivered strong broad-based growth, increased profitability and excellent cash generation, whilst continuing to grow customers at an industry-leading rate. Importantly, this performance has been organic. Further, we've taken a significant step forward in our Smart Communities strategy with the acquisition of Lightning Broadband, which accelerates our scale as a national FTTP challenger and expands the infrastructure earnings of the business. With that, very happy to take questions.

[Operator Instructions] Your first question comes from Nick Harris with Morgans.

Pau, great set of numbers. I've fielded, I guess, a barrage of questions just around subscriber momentum over the last sort of 2 or 3 months. So I really want to focus on that. So I'll just sit you with my 2 questions and then answer them if that's okay. So if I look at wholesale and Origin and I sort of backs out from the AGM, it looks to me like the net adds in the Wholesale segment have basically 3x from November to December '25. And if you use that December '25 run rate, it suggests wholesale/Origin could be adding more than 60,000 subs in the second half. So that will be a better half than last year, which is probably a bit different to what some people were worried about. So my first question is, is that logic reasonable? And are you able to just give us a little bit of flavor or color around what's happened post December. And my second question is just on Superloop consumer NBN, kind of similar math. Your competitors really sharpened their pencil on pricing, obviously, from much higher levels. But in November, December and a bunch of Superloop investors seem worried that it was going to hurt your NBN consumer growth. But from what I can see, your adds in December on the Superloop branded NBN were double what they were in November. So the numbers I'm seeing actually suggest you're doing better, which is consistent with the 14%, 14.5% adds. So the question is really -- sorry, it's mouthful. Is it safe to say what your competitors are doing is not slowing your growth? Actually, it's accelerating it? And any reason to think differently about the net adds in consumer in the next 6 months relative to December? I'll stop and breathe.

Thanks, Nick. Let me try and give some color. Without being cute, obviously, we haven't given guidance for customer numbers, and we don't comment on Origin specifically. But the trend you call out for our wholesale business is correct. I think the logic is fine. We have always said that we would expect our wholesale business to have a weak first quarter, which it did as expected. And there's clear seasonality in that. We've explained that many times. We definitely picked up materially in the second quarter and particularly in the back end of the second quarter as our wholesale customers took more aggressive propositions to market, and they've continued doing that into the first half. So yes, we feel good about where wholesale is going. So we haven't given guidance for the full year on customer numbers. But clearly, we've uplifted our earnings guidance for the full year. So you can sort of read out of that, that we have confidence in where the business is going. On our consumer business, in particular, I'll make a couple of comments. We've always said that any disruption in the market is good for us. We acquire at a materially higher share than our existing back book share. As we've said, we're now 7% market share and acquiring at 14.5% of the market on an ongoing basis. So anything that shakes the market is good, be that price shocks from NBN, speed distals, Black Friday cycles, whatever it might be, anything that shakes up the rusted on bases is good because we generally acquire quite well. But I'd also call out, it's not just a price game. If you look at some of the accolades that we have demonstrated at the very start of this presentation, we have a fantastic product. We just got awarded one of the sort of the marquee customer awards at the very, very start, it's an award we haven't won before. It's one of the best RSPs in the market. Obviously, we've been winning the best speed award now for a couple of years. But we really do have a great product that's getting rave reviews, frankly, from the marketplace. And the brand is working. So our brand preference is increasing. And with that strengthening brand, market disruption and a value product that performs exceptionally well, it's a very good environment for us to take share. I think some of the commentary around the news of our demise based on a price change from a legacy RSP, even a large one is a little bit bemusing.

Your next question comes from Evan Karatzas with UBS.

Just the first one around the marketing expense. You obviously provided some metrics within that. But just keen to understand, I guess, a bit more depth how you're seeing the ROI from that marketing and if it's helping at all to reduce any of your churn or any sort of, I guess, further metrics you can provide around the marketing spend and then also into 2H, how you're thinking that line should look as well?

I'll pass to you on this one, Dean.

Yes, I'm happy to take that one. We increased our marketing spend in the first half, and the returns are excellent in terms of what we're seeing in consumer net adds. The other piece as well was there was a fairly significant directed at brand, and we're trying to give you a sense of the brand metrics are really starting to help us. So what we're seeing is increasing efficiency as our prompted awareness and conversion rates improve. So we're extremely happy with the results of the spend in the first half. Coming into the second half, trading is good now, and we're happy with the cost that we're acquiring. If it stays in these sorts of conditions, then yes, we will potentially come back a little bit from the first half in spend on marketing, but we're sort of reserving the right to keep spending a little bit higher than what we have historically in the second half on marketing because the conditions are good. The acquisition rates are high, and we're not seeing a substantial change in the cost that we've been historically acquiring at.

Yes. Good Okay. And then just coming back to Lightning if I can, firstly, congrats on the deal. Are you able to give us an idea of how many RSPs you have now, assuming Lightning goes through? And if possible, which are the larger ones you've now added as well? I just remember Opticomm talking a lot about how important it was to add more and more RSPs. So just keen to sort of unpack that element of it a bit, if that's possible.

Yes. Look, it's certainly important. And the acquisition of Lightning does double the number of RSPs that are on our network as announced. We're going to have an Investor Day in June, probably early in June, we'll announce a date soon, where we'll really lay all that out, and we should have completed by then. So hopefully, we've completed by then. So we'll lay out RSP lists and all those sort of things in that Investor Day. It is important. I'd make the distinction that it's a little bit different in our case because we do come with strong RSPs ourselves. In Opticomm's case, they didn't have a strong internal RSP, whereas clearly, as the fastest-growing brand in the market, Superloop already turns up with a pretty strong presence in this space. So maybe not quite as important, but certainly, a high amount of choice is a feature that we'll continue to promote. So we'll give you some more precision on that in June. No other questions?

Your next question comes from James Wilson with Macquarie.

Just firstly, on the guidance that you've given us, if we take last year's seasonality as a proxy and apply to your first half result, it implies around $135 million of EBITDA for the full year. Now conscious that conservatism is appreciated by the market, but are there any drags in the second half this year that we might be missing relative to last year that could impact the seasonality for FY '26?

Not -- nothing dramatic. We've -- I mean, there's a degree of conservativeness. But the short-term market changes, we've assumed a degree of seasonality, obviously, in the guidance of $112 million to $120 million, that's a similar skew to last year. If things go well, if we continue to trade at the levels we are, then obviously, we'll be in the upper end of the range. If trading conditions come off a little bit, then it will be sort of further down the range. We've given a range. It's a material uplift on the prior year. I think at the top end of the range will be 30% year-on-year increase in EBITDA. So look, I think it's a pretty strong progression.

All right, guys. And just on Lightning as well. You've given us an 85-15 split on revenue between wholesale and retail. Are you able to give us an idea about maybe the different margin structures between both of those business and even a sense of what kind of revenue they contribute to in terms of dollars?

I don't think we're going to give much more detail than we've given in the announcement. We will in the Investor Day in June, assuming we've completed the transaction. Yes, I think we'd probably just leave it at that.

Your next question comes from William with Park (sic) [ Citi ].

Just a quick one with respect to Lightning Broadband acquisition and synergy number that you've called out. Can I just ask what's factored into those synergies? Are you effectively factoring in some of those 30,000 lots coming to the market, I guess, being effectively active? I mean you called out sort of in the 5-year time frame, but are you factoring that in? Or is that $5 million synergies effectively based on what you've been -- what you've already got, so 24,000 lots?

No, it's synergy based on the business there today. Obviously, growth from here is additive on top. I think the slide on synergy realization really gives a pictorial perspective on the synergy. So these aren't synergies that are premised on firing a lot of people or anything like that. These are network-based synergies primarily. If you look at the map that we have on Slide 36, you can see in the blue, that is a map of our fiber. A lot of that being the fiber that we purchased through the Uecomm acquisition and some various other elements of our fiber. So that's an existing asset that Superloop had. If you look at the red dots, that's where we've mapped the Lightning Broadband locations on top of it. You can see how close those or how well mapped those locations are to our fiber. Obviously, that allows us to bring all those sites On-net. So move them away from third-party fiber tails or leased tails and bring them on to our own network. And that's the biggest single line item of synergy. And there's various other network synergies associated with that. But to reiterate, it's off the existing network. So it's additive to the $11 million EBITDA that is in the existing business. The future growth comes on top.

And then just one last one for me. I appreciate it's been more than a week, but just the AGL contract, I'm just -- could you just provide some color around whether there will be some sort of a break fee on that? And yes, so just any color around that would be great if there is going to be a break fee.

Well, I mean, like any contract, it's commercial in confidence. We don't -- there hasn't been a break. Obviously, we have an existing contract with AGL, and we continue to supply AGL until they advise us that they no longer need our services. I wouldn't expect any windfall coming out of that. And it's not -- let's be honest, it wasn't an unexpected outcome. We -- I think even with yourself, William, we had a lot of discussions about whether we'd be able to keep AGL after we won the Origin contract. It also isn't such a material part of our business. I think we put out a release saying it would represent around about $4 million of gross margin on an annualized basis. So not a particularly unexpected event. I wouldn't expect any windfall one-off termination payments. So we won't give -- there's only so much we can say about a commercial contract.

Your next question comes from Benjamin Jones with JPMorgan.

Congrats on the results this morning. Just a question on the Consumer segment. Obviously, the market was obviously very active last year, and I appreciate your comments on subs growth. But any observations that you're seeing thus far on market pricing? And should we be assuming any sort of step change in ARPU or margin expectations as a result?

Look, we've given our gross margin -- our midterm gross margin target. We've maintained that target. Obviously, we're delivering above that target and have been for some time, and we'd be disappointed if we had to drop to that target. It is very competitive in the marketplace, as you know, as you can obviously see, and has been for the last 6 months. So we're quite pleased we've been able to maintain our margins in consumer even through this period of intense competition and yet maintain volume, in fact, accelerate volumes. So I think you can read quite a bit into that. We haven't changed our midterm guidance for our margin target in consumer, meaning if things do get even more competitive, then we will be ready to respond. But as I've said many times, we won't lead that race to the bottom on pricing. We'll see what others do. We're certainly ready to respond to it. We have the artillery to respond should we need to. I don't know that it can get much more competitive because it is intensely competitive at the moment and has been since the speed distal event coming into the start of the second quarter.

Yes. Very, very helpful. And then just on the Lightning Broadband business, I mean, how should we think about sort of the capital intensity of that business versus the core Smart Communities business? And how much of a step-up in CapEx can we expect into '27?

Look, the Smart Communities business is more capital intensive than other parts of our business. We've made no secret of that. We're delighted to spend capital in the Smart Communities business, to be frank, because it generates such defensible, high-quality earnings with such a deep moat and long-dated returns. This acquisition itself, we think, will uplift our capital requirements around about $8 million to $10 million into the future once we get into a run rate position, $8 million to $10 million per annum. But again, that's -- it was largely sort of telegraphed as a core part of our strategy into the future and that CapEx in this part of our business would continue to rise with sales success. There's no -- we only deploy capital on successfully won projects. So returns are pretty secure.

Your next question comes from Brian Han with Morningstar.

Paul, your high margins and low cost to serve, can you make some comments as to how sustainable they are? Or are they the artillery you speak of when you say Superloop will respond if there is a race to the bottom?

So the Superloop strategy for the last 5 years has been one of efficiency and automation. We are very proud of the network. So we have network -- ownership economics to the extent you can in an NBN world. We've invested very heavily in automation and integrating all the various acquisitions into a single digital stack. We've been an investor for several years in AI. We believe that this is a commodity -- the consumer broadband market is a commodity proposition. Of course, ours are shinier and faster and prettier than anyone else's. But fundamentally, it is a commodity proposition. So price will be a feature of this part of the market. And we wanted to make sure that we could have a value proposition. We think the value part of the market is the long-term defensible part of the market, which is why we positioned ourselves there. But to exist in that part of the market, we've got to ensure we're delivering a great product with high levels of customer satisfaction at a value price. So that's why we've invested so heavily in automation and efficiency. The best metric to explore that, I think, is on Slide 16, where you look at the reduction in customer interactions. Another metric to look at is -- sorry, in the customer interactions per customer, obviously, as we've been putting those self-help tools into the hands of customers. Something else to look at is OpEx as a percentage of sales over the past sort of 4 years has continued to reduce aggressively, and we think still has some way to go. So that is a core part of our strategy, and we would argue that it was the right part of the market to focus on. I would argue that 13.4% OpEx as a percentage of revenue is probably market-leading. I don't have everyone else's numbers to hand, but I'd be surprised if anyone else is able to deliver that outcome. So that does mean we are fit to continue to make good, healthy margins in a very large but commoditized category.

That's very helpful, Paul. And my second question is, sorry, did you say you're not going to disclose the revenue base of Lightning?

No, I didn't say that. We just haven't disclosed it as yet. We'll give a lot more detail on Lightning's financials when we complete the transaction, which we said will happen in the fourth quarter.

Paul, can you at least tell us how many employees will be coming across?

All of them. I don't have the number.

A fraction less than 70, I think.

Your next question comes from Olivia Onslow with Macquarie.

No question from me.

Your next question comes from Nick Harris with Morgans.

Just 2 more questions, if I could. One was just unpacking Lightning a little bit more. So you talked to $11 million EBITDA in FY '25. Just trying to understand, is that tied to the 14,000 -- sorry, whatever is 14,000 active lots? Or -- and then how do we think about lot activation over the next few years? And obviously, you've got a 30% revenue CAGR. Is that basically how lots activate?

Yes, Nick, the way that the FY '27 has worked out, it's based on the 14,000 active lots that we have today, plus our expectations for buildings that will be completed in FY '27 and the activation rates that come with that. So we would expect obviously in FY '27 to have more than 14,000 active. But right now, as of today, we have 14,000 active services.

Got you. And so the more than 14,000, does that get you to $11 million? Is that the right way to think about it?

Yes.

Okay. And then just the second question was, is there any sort of material integration CapEx around Lightning? Or does it just kind of get covered by business as usual CapEx?

Yes. So from a systems perspective, not a lot of significant CapEx. I think we've indicated that the expectation would be around $8 million to $10 million on CapEx associated with supporting Lightning's contract book on a go-forward basis. I think that sort of represents what we'd expect to see as we build out the 30,000 contracted book. From a financial perspective, what excites me is the fact that not day 1 earnings, but the fact that we have a contracted book of 30,000, which is more than the actual built network of 24,000. So when we talk about growth in revenue and earnings, that comes from clear visibility into that contract book and modeling that out going forward.

Your next question comes from Cameron Bell with Canaccord Genuity.

I might just flesh out the next question there firstly. So the $11 million EBITDA from more than 14,000 lots, like is there much of a cost base? And how does the operating leverage look within that as you ramp up the 54,000 lots?

Yes. So we've indicated that the Lightning Broadband business has high margins. So essentially, what we have is once you connect a lot to that network, you have really quite a fixed cost and you have high margins ongoing. So there's CapEx required to build out to a building, connect the buildings. And then on an ongoing basis, you have a high GM associated with that.

I'll push one I can go more direct on it. So the 54,000 lots, what would you say is the earnings potential of that?

Well, I mean, our intent will be to have billing customers in every single one of those lots. Now that's unrealistic to think that you're going to have every single lot filled. But I think the best proxy to look at, Cam, is NBN. The earnings profile, the pricing, the fill rates, all those sort of things, it's a pretty good proxy for way that the Smart Communities business in general will pan out as it does for our competitors. The key thing is winning the development and getting the Statutory Infrastructure Provider protection, getting the registration, owning the fiber in each of those lots. And then having the patience to wait to put the capital and then wait for the earnings come in. But in the long run, we would want to fill the vast majority of those lots. And obviously, it's a high incremental margin.

Yes. Okay. And then last one for me. You previously said that your existing Smart Communities business you aim to add, I think it was 10,000 to 15,000 lots annually. The addition of Lightning, how high does that group number sort of rough annual target go?

We haven't set an organic sales target. That's a live discussion. But obviously, it has to increase from here. The market is only as big as the market is bigger. So there's a limit on how much we can grow organically on an ongoing basis. But we -- combined now, we have some 170,000 contracted lots, as we said. So it's already a substantial book of developments. And yes, it's a focus for the business. We'll continue to try and grow from here.

Your next question comes from James Bales with Morgan Stanley.

I guess I'm trying to get at the same thing, which is understanding the incremental margins. If you've basically got incremental margins in the group of about 30% versus what you reported for the period at 17.6% and you're adding further high gross margin revenues with Lightning, is it fair to think that there's upside to the sort of low-20s incremental margin that's sort of in expectations at the moment?

You mean EBITDA percentage over time?

Exactly.

Yes. As the mix of wholesale earnings increases, that drives margin quality up as the -- we currently report our Smart Communities business in business, but we will probably review that in time. But overall, as the proportion of wholesale and Smart Communities grows as a proportion of our overall earnings, then yes, of course, the group margin quality will rise.

[Operator Instructions] There are no further questions at this time. I'll now hand back Mr. Tyler for closing remarks.

Okay, then. Well, thanks, everyone, for taking the time. I know we've taken the full hour, but we do think this is a really important result for the business. As I mentioned before, we're very proud of the first half result, the growth in the top line, the growth in the profit and particularly the cash that the business is throwing out. We're excited about Lightning Broadband and what it means for the group. We're pleased we've been able to uplift guidance for the full year, and we're pretty pumped about the outlook from here. So thanks all for your time, and wish you a good day. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.