Superloop Limited (SLC) Earnings Call Transcript & Summary

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

And welcome to Superloop's FY '26 Results Briefing. I'm Paul Tyler, I'm the CEO of Superloop, and I'm joined here by Dean Tognella, our CFO. Today marks a significant milestone for us, the closeout of our 3-year Double Down strategy. The results we're about to walk you through book in 3 years of what we think is strong execution. They demonstrate significant growth in revenue, profit and cash generation, and each of the targets we set ourselves in June '23 have been met and in most cases, beaten materially. If we start on Slide 3, there's quite a bit to get through this morning. We'll start with our FY '26 performance highlights and move to our Group priorities before Dean will take you through some of our financial performance in a bit more detail. From there, I will cover our outlook and what it means as we move into our next 3-year plan, SuperCharge29, which we launched at our recent Investor Day. There'll be time for Q&A at the end. So if we start on Slide 5, let me go over the 5 themes that best capture FY '26. Three years ago, we launched our Double Down strategy with the goal to double our revenue and drive sustainable profits. I'm pleased to say it has delivered what it was designed to do, and Superloop is now an established, scaled, profitable and cash-generative business. In FY '26, our growth was broad-based. Consumer gained share through stronger brand awareness, differentiated products and record new connections. Wholesale benefited from continued growth of Challenger brands using our aggregation and white label platforms, while business exited the year with improving momentum and a strong list of key new customers. At the same time, we built Smart Communities into a larger growth platform. The Lynham and Frontier acquisitions, new developer wins and the launch of Neoloop have expanded both the current footprint and the contracted pipeline, increasing visibility over future high-margin recurring earnings. Strong gross profit, coupled with disciplined working capital management drove high cash conversion and a significant increase in free cash flow. And lastly, operating leverage was clearly evident with growth translating into higher margins and improved profitability. If we move to Slide 6. The numbers on this slide reflect the key drivers I just covered. We added some 205,000 net new customers during the year to finish at a total of 935,000 customers across the Group, with growth coming from all 3 segments. These customer numbers drove reported revenue up 21.6% against the PCP. Turning to our earnings; revenue growth flowed through to the bottom line in 2 ways. Firstly, increased contributions from higher-margin wholesale and Smart Communities revenue helped lift Group gross margin by 64 basis points. And second, our operating model supported significantly more volume without a proportionate increase in cost. The result was an underlying EBITDA of $123 million, which is up 33% against the PCP. Earnings grew at around 1.5x the rate of revenue growth. This reflects the operating leverage we've built into the business. The quality of those earnings is equally evident in the cash result. Gross operating cash flow of $123 million represented 101% conversion of underlying EBITDA and free cash flow grew by 50%. That gives us real capacity to invest in organic growth, pursue disciplined M&A and have financial flexibility for future capital management. And it flowed all the way through to the bottom line with an NPAT of $17.5 million, a material improvement on FY '25. We move to Slide 7. When we launched the Double Down strategy 3 years ago, we set 4 clear targets: a revenue run rate at the end of FY '26 above $700 million, an underlying EBITDA margin in the mid- to high teens, a positive NPATA and a positive NPAT. We're very pleased to achieve all of these targets. For FY '26 specifically, the underlying EBITDA outcome of $123 million finished above our upgraded guidance range. CapEx of $37.9 million was around $900,000 above the range provided, reflecting the slightly higher CapEx in June on the Lynham fiber builds. Becoming a profitable cash-generating business is no small achievement given where this business was only a few years ago, and it gives us real confidence as we move forward into the next chapter. Move to Slide 8. All 3 segments grew revenue this year, but the drivers were a bit different in each case. And that diversification is important. Starting with consumer, NBN introduced its [ speed to sell ] in September '25, and a number of competitors responded with new offers and increasing pricing aggression. That created a more competitive market, but it also created opportunity, and we were well-positioned to capture it. We responded quickly and used the moment to accelerate our market share gains. In wholesale, growth came from the continued expansion of the Challenger brand that we enable. As they grow, we grow with them. And in business, after several years of industry-wide price erosion, pricing has now stabilized somewhat and our momentum has returned, particularly in the second half. The clearest measure of that combined performance is market share, where our Group NBN share has increased to around 8.5%. We move forward to Slide 9. The operating leverage in our business is visible in this slide. Our results have benefited from an improving mix as higher-margin wholesale and Smart Communities revenue became a larger part of the Group. We have a cost base that does not grow in line with volume increases, and we are now realizing returns from the investments we have made in our network, our integrated digital stack and our single operating model. More recently, AI has enabled further savings and improved the customer experience, and that is now setting Superloop apart in a crowded market. The 3-year NPAT trend on the right here shows how far the business has come. We have moved from a loss-making business to marginally profitable in '25 to a positive $17.5 million NPAT in '26. And that progression matters. These results confirm that our growth is now consistently converting into profit, and we expect that dynamic to continue. On Slide 10, underpinning our momentum is our sustained customer growth and FY '26 was our strongest year yet, 205,000 net new customers, taking the Group to 935,000 customers in total. Every segment contributed and the growth was overwhelmingly organic. Consumer growth was driven by stronger brand awareness and the strength of our high-speed proposition, lifting our consumer NBN market share to 5.2%. Business customer growth came from small business connectivity and rising activations across Smart Communities. And wholesale had an exceptional second half, enabled by strong marketing and offers from our key partners. And one point worth clarifying is Smart Communities customers whose retail service provider is a Superloop company are reported in the Consumer segment. In June, we added approximately 13,000 customers into the Consumer segment from the Lynham acquisition. Moving to Consumer on Slide 11. As you can see from the graphs on the right-hand side of the page, over the last 3 years, our Consumer segment has been winning in the market. And the last year was no different with Consumer revenue up 27%, driven largely by volume growth. We added a record 116,000 net new customers, the first time we have ever added more than 100,000 customers in a single year. Consumer GP grew 26% year-on-year and pleasingly, despite the increased competition, held comfortably above our long-term gross margin target. Superloop remains a leader in the high-speed plans, which improved both the quality of our customer base and the revenue per customer. If we move to Slide 12 and Business; our business momentum continued to build through FY '26. Pleasingly, after working hard to build our brand, our products and our channels in the business market, revenue was up 8.2%. The second half was actually up 12% on the PCP, showing that momentum is accelerating. We're seeing good growth in traditional business products and Smart Communities is now adding strongly to the Business segment. Business GP grew to nearly $49 million at an improving margin quality. The Business segment had a number of significant wins in the year, including National Storage and Adrad. These 2 wins will see Superloop provide network and security solutions to more than 300 sites across Australia and are great examples of our growing credibility in this market. Next, the Wholesale segment on Slide 13; the Wholesale segment continues to scale profitably as we enable the Challenger brands. Revenue increased 19% with growth across many of our existing wholesale partners. Wholesale GP increased to $67 million, with gross margin increasing to 69.2%. Wholesale customer growth was heavily weighted to the second half, which saw an increase of some 59,000 customers. This result was supported by strong marketing from key wholesale partners and underscores our position as the Enabler of Choice for Challenger telcos. Slide 14, this slide shows that our Smart Communities progress hasn't happened by accident. It's the result of a series of deliberate steps taken over many years. It began in purpose-built student accommodation, where we improved the operating model and grew to become the #1 provider in that market. VostroNet then took us into residential fiber to the premises, while Uecomm strengthened the underlying network, adding more than 2,000 kilometers of metro fiber. Frontier Networks extended us into retirement and lifestyle communities, diversifying the portfolio further. And this year, Lynham gave us a significant step-up in both our existing base and our contracted pipeline. In June, we launched Neoloop, our open access wholesale FTT platform, which brings our FTT assets together under a single brand for retail service providers. On Slide 15, that deliberate expansion has created a scaled Smart Communities footprint with attractive operating metrics and a substantial contracted pipeline for further growth. As previously mentioned, we now have 190,000 contracted lots. Of these, 90,000 are built today and 65,000 are active. FTTP lots within Neoloop are expected to generate an ARPU of around $65, supporting GMs of 70% to 75%. Our FY '26 ambition is to grow contracted lots to over 0.25 million. And we are targeting an IRR on capital deployed of more than 25%. The economics of Smart Communities are compelling, provides an essential Internet service through fiber assets with a practical economic life of more than 25 years, generates recurring annuity style cash flows and incorporates CPI-linked pricing mechanisms. Smart Communities is a difficult business to get established here as shown by our multiyear journey, and hence, we see it as having a deep moat. Let me touch on some of the key developments that shape the Smart Communities portfolio in FY '26 in Slide 16. We completed the Lynham acquisition on May 29, for a cash consideration of $165 million, which added 56,000 contracted lots to our Smart Communities footprint. We expect around $11 million of EBITDA contribution in FY '27 on a pre-synergy basis. And by the end of FY '27, we expect to achieve run rate synergies of a further $2 million. Alongside that acquisition, we secured important new development developer wins, including GemLife and Icon Group, strengthening our position within residential and lifestyle communities. We also continue to lead in the Tertiary Accommodation Wi-Fi market with large contract wins, including Centurion and Erben, demonstrating our leading position in that market. I'll now move on to Group priorities. And on Slide 18, I'll start with a high-level overview of how we deliver our strategy before touching on our operating model, our brand and our marketing and how we are transforming the customer experience. Let's start on Slide 19. Having successfully completed Double Down, we now move into SuperCharge29, our strategy for the next 3 years. Our delivery framework is built around a reinforcing cycle; deliver market-leading growth, convert that growth into cash, reinvest that cash to improve earnings and ultimately increase shareholder value. The priorities shown here map directly to that framework. It allows us to invest for growth, including into Smart Communities, shifting our earnings mix towards higher-margin annuity-style infrastructure revenues. The FY '26 results demonstrate that we can deliver against this framework. If we move to Slide 20, we are and have been deploying AI at scale across a number of our customer journeys. This is helping our teams manage growth while improving the customer experience. Our customer service agents now manage some 63% of all customer interactions. During FY '26, Teddy & Mo avoided approximately 400,000 calls, while Refreshify & Exray supported more than 500,000 fault resolution interactions with the majority resolved without any human assistance. Processify is improving activation and operations. 75% of orders are activated on the same day and fewer than 10% of digital orders require any manual steps. These internally developed tools also support our teams across onboarding, activation, service assurance and fault finding. On Slide 21, you can see how our AI intelligence layer sits between our foundation layer and the products and services we deliver across consumer, business and wholesale. Our architecture is not tied to a single AI model or provider, giving us the flexibility to use the best available technology while keeping interactions governed, structured and controlled. The benefit is that we can develop capabilities once and deploy them across the Group, supporting scale, speed to market and profitable growth. On Slide 22, you can see that our network remains a critical part of our foundation and part of the reason we have a structural cost advantage. We now own more than 2,500 kilometers of strategically located CBD and metro fiber in Australia as well as some 100,000 route kilometers of fiber across the globe. Together, this infrastructure gives us the scale and reach to support growth. And the more traffic we carry on our own network, the better our returns. Turning to Slide 23 and brand; our investment in the Superloop brand is building awareness and supporting continued market share growth. Brand awareness increased to 34% in FY '26. That increased awareness is driving traffic with combined website and app traffic up from 58%. And pleasingly, that growth in digital traffic is translating into customer orders and market share. And on Slide 24, we say acquiring new customers is important, but retaining them is just as critical. And that's why we've continued to invest in the experience we deliver through our network, our products and our digital tools. Superloop has now been awarded the fastest fixed network 3 times in a row while features such as Refreshify, Teddy and Speed Boost provide customers with a more intuitive and responsive experience. Our network products and service experience is strengthening advocacy, loyalty, word of mouth and referrals. And this is reflected in product review ratings across our brands, which are amongst the strongest in the industry. And with that, I'll now hand over to Dean to take you through some of the financial performance for the year in a little more detail.

Thanks, Paul. Moving to Slide 26; as mentioned earlier, FY '26 was the last year of our Double Down strategy. Our results show another year of strong growth in which we demonstrated the quality of our earnings and the cash flow generation that comes from the scale that we have achieved. Reported revenue increased 21.6% to $664 million. As Paul has covered, all 3 segments have delivered impressive revenue growth. I want to call out the accelerating momentum we are now seeing in business as evident in the second half revenue growth. Reported gross profit increased $45.1 million with the Group gross margin up 64 basis points. Operating expenses increased $18.6 million, including a $7.4 million increase in marketing investments. This investment in marketing really has delivered as evident in the consumer net adds of 116,000 and a step-up in our brand awareness. Despite that additional investment, operating expense growth was below revenue growth. As a result, underlying EBITDA increased 33% to $122.7 million, above the top end of our upgraded range. That EBITDA growth flows through to the bottom line. NPATA increased 34.2% to $37.9 million. NPAT rose to $17.5 million and reported EPS increased to $0.034. The result was also backed by excellent cash generation with free cash flow increasing 50% to $84.4 million. Moving to Slide 27; looking at our gross profit growth. Consumer added $26.2 million with a gross margin percentage of 27.2%. The Consumer segment added a record 116,000 net new customers while also showing financial discipline around cost to acquire. Business added $6.4 million of gross profit with gross margin up 2.6 percentage points to 43.1%, helped by a better revenue mix with increased contributions from Smart Communities and secure connectivity. Wholesale had a strong result, adding $12.6 million of gross profit. Put together, Group gross margin moved up 64 basis points to 35.3%. The margin quality improved even as we drove record Group customer growth of over $200,000. Moving to Slide 28. Looking at costs, operating expenses grew at a slower rate than revenue. As a result, our OpEx to revenue ratio improved from 14.4% to 13.5%. While we expect to achieve further efficiencies, we expect this graph on the right to stabilize. As mentioned earlier, the $7.4 million in marketing reflects our ambition to increase brand awareness and has enabled record net new customer growth within the Consumer segment. In FY '26, our employees expenses increased $3.4 million, resulting from salary increases and added capability in areas such as AI, security and compliance. The modest increase in employee costs over the last 2 financial years has been made possible by the AI initiatives that Paul covered earlier. There was a $7.9 million increase in other operating expenses, which included technology investment, increased insurance costs and additional variable costs such as bank fees and doubtful debts. In summary, our operating model is enabling the leverage we are targeting. Moving to Slide 29; CapEx for the year was $37.9 million, excluding IRU. Looking at the graph on the right, CapEx as a percentage of revenue increased slightly from 5.2% to 5.7%, including an investment of $7.6 million in Smart Communities, Fiber-to-the-Premise builds. Even with that increased growth investments, the business remains relatively capital-light for our telecommunications business. In the year, we invested $9.5 million in digital and AI with examples including Teddy & Mo. These digital and AI investments improve the experience for customers and partners, automate more activity across the business and support further operating leverage as we scale. A further $15.8 million was invested in shared network upgrades and capacity. Our network quality, reliability and speed are very important to our success. Lastly, we spent $10.8 million on customer fiber builds and equipment. Moving to Slide 30; cash generation was a standout feature of this year's result. Gross operating cash flow increased 40%, representing 101% conversion of underlying EBITDA. Free cash flow grew 50% to $84.4 million, giving us greater capacity for future growth. We also completed our refinancing in October 2025, establishing a new $300 million 4-year bilateral facility. This strengthens our funding position and provides us with further capability to fund accretive M&A. We ended the year with net debt of $128 million, a net leverage ratio of 1.3x and interest cover of 15.5x, well inside our covenant thresholds. Moving to Slide 31; bringing the last 2 slides together, our stronger earnings and cash generation provides the capacity to fund growth while retaining financial flexibility. Our capital management approach is to grow cash flow from the core business, invest in high-return organic growth and consider accretive M&A where it meets our financial return thresholds. As cash generation continues to increase, we will consider capital management options such as buyback or dividend. We will maintain balance sheet strength as we execute our SuperCharge29 strategy with a target net leverage ratio below 2.5x. We finished FY '26 at 1.3x, providing meaningful headroom. I'll now hand back to Paul.

Thanks, Dean. So on Slide 34, at our Investor Day in June, we launched SuperCharge29, and we set out the growth ambitions we are targeting through to FY '29. Those ambitions are for Group revenue of more than $1 billion, Group underlying EBITDA of over $200 million and a reported 3-year EPS CAGR of more than 30%. Our FY '26 results provide a strong starting point for that next phase. We enter SuperCharge29 with momentum across each of our segments, a proven operating model and strong earnings growth and cash generation. Delivery will be driven by the 5 strategy pillars shown here: leading consumer broadband growth, establishing a new standard for customer experience in the market, AI-enabled operating leverage, scaling Smart Communities and ensuring that all growth is profitable. Whilst these ambitions are stretching, our FY '26 performance demonstrates our ability to execute. We enter SuperCharge29 with confidence in the opportunity ahead. With that, I'll thank you for your time and continued support, and we'll now open the floor for any questions.

[Operator Instructions] Your first question comes from the line of Siraj Ahmed from Citi.

Just had 3 questions. I guess, first one, just in terms of -- I know it's only 5 weeks right into FY '27. You had -- you're coming off a very strong FY '26. Just keen to understand how subs growth is tracking so far, especially in terms of churn from the strong growth you had in '26. Do you want to ask the second and third right now or just pause?

Look, let me answer that one quickly. Look, it's very early in the year to be giving a trading update. Obviously, we only have 1 month completed. But trading conditions continue well. So we had a great momentum in the second half, and that momentum has continued into the first half. Of course, July is always a little bit of a messy month with all the price changes and stuff that comes through. So it's way too early to be calling a trend at this stage. But trading continues strongly.

Got it. Okay. And so it's churn from the '26 earlier initial 6 months, et cetera, that's still stable, right?

You can't really draw much of a trend in July. There's a lot of moving parts in July, but it's tracking to expectation.

Sure. Second one, just a 2-part question on consumer. It does look like consumer ARPU and gross margin was a bit softer in the second half, even if I adjust for Lightning being included. So can you just talk through the drivers for this and how we should think about FY '27? Because I think there's a credit card surcharge coming or removal coming through as well. So just the ARPU and gross margin in the second half.

I'll let Dean talk about the credit card surcharge. Obviously, it's going to impact everyone. But the slight softening of GM quality in '26 is a champagne problem. The reality is our growth was really strong, particularly in the second half, and that meant a higher proportion of our new customers or our total customers were operating within the promo period. So the impact of that is temporarily dilutive on gross margin. But it's a result of really strong growth. But do you want to talk about the outlook with the credit cards?

Yes. The whole industry faces that challenge. We had previously charged a fee for credit cards and pass that on to our customers. But from October onwards, we cannot do that. That has a reasonably small impact in terms of the numbers for the next year, but we are -- the whole industry has to follow.

Sure, Dean. So just clarifying, do you reckon consumer gross margins remain stable next year because you have this higher proportion of discounting coming off in the surcharge as a headwind. Should we just assume flattish gross margins?

Yes. Yes. That's sort of what will happen. So you've seen a slight reduction in consumer margin in this half, primarily driven by a greater percentage of our customers being on promos. As they come off promo in the first half, that will give us an advantage in terms of GM expansion on consumer for those.

Got it. And last one, you sort of mentioned this, but just on EBITDA margins, you're already at 19% in the second half. I think you mentioned that the leverage next year will be more flattish, but anything -- any reason why FY '27 should be below the 19% that you delivered the second half?

No, the ambition that we set in SuperCharge29 was to achieve 20%. I think we've demonstrated consistently we've been able to grow our EBITDA margin and the intent would be to do the same in FY '27.

And I guess, much higher top line, of course.

Your next question comes from Nick Harris from Morgans.

Congratulations on hitting all of those 3-year double-down targets. I just wanted to focus a bit on the Business segment because there's obviously some great improvements in that second half, both the revenue trajectory and the gross margin lifting half-on-half, I think revenue accelerating. But it's hard to unpack it business versus Smart Communities. So can you just help us understand, is that a mix thing, i.e., there's more Smart Communities, which is high margin, high growth or are you actually seeing the business-to-business part improve there? And if yes, can you just give us a little bit of commentary on what's happening there in the outlook?

Yes. Look, it's both those things, Nick. And at some point in the future, as we've discussed before, we will separate out Smart Communities, but we're not quite there. Yet we've tried to give you as many data points as we can to allow you to model it. But both those things are happening. So Smart Communities, yes, there's a higher number of active sites that are coming through and contributing to the result. But the underlying business sort of classic, secure connectivity is doing exactly what we said it would do. Remember, we've been saying for a while, we thought FY '26 would be the year that we saw the tail end of that price erosion event that was washing through the industry for the last few years, and that's what we're seeing. So to get to that double-digit year-on-year growth in the second half was really encouraging. That's where we hope to as an internal target we set, and we got there. So it's a combination of those 2 things. The non-Smart Communities portion is a combination of obviously, site connectivity and our security portfolio, the security portfolio is also doing quite well in that space. So yes, we think the green shoots we've been talking about for the last, I guess, 12 or 18 months have now turned into more of a mainstream business trend.

That's great. And maybe just one more. Sorry to ask an accounting question. But I don't know, Dean loves them. So just keen to understand the sort of the D&A profile going forward. Obviously, you acquired Lightning Broadband and you had a little bit -- and there's the [ Exray ] or the IRU last year. So just sort of high level, is it reasonable to take the second half '26 D&A and sort of run with that going forward, which is something like $40 million in the half or should we kind of think that's run rating like above $50 million or something? I'm just hoping maybe you can give us some direction.

Yes. So the D&A moving forward into FY '27 has another number of factors we'll see an increase. The first one is the full year of the Frontier acquisition and then the second one being the Lynham acquisition as well. So it's a little bit more than just taking the second half and multiplying that by 2. We'll give you some further assistance around guidance in November at D&A and some further clarity around taxation expense as well. But it's more than just second half multiplied by 2, primarily as a result of the 2 acquisitions and slightly higher spend in FY '26 and the full year impact that in terms of D&A in FY '27.

And then last one for me, and I'll jump off the Q&A. Just the billings in advance, that jumped quite a lot this year, about 30%. You've got sort of $57 million, I think, flushing through there. Can you just talk about what's driving that and give us maybe some examples so we can understand what's driving that?

Yes, that just reflects the continued growth of the business. So we bill at different points during the month. So at any point in the month, we roughly have half of the month's billings in advance. So that number will continue to grow as the business continues to grow.

And sorry, is that across the Business segment or all the segments as in consumer?

It's predominantly across the Consumer segment. So it's predominantly driven by the growth in our consumer base. And simply as we bill on various -- we don't bill at a certain date each month. We bill at different dates. So typically, about half of our June billings will be what is [indiscernible] billed in advance.

Your next question comes from the line of Annie Zhu from Barrenjoey.

My first question is on the Consumer division. So if we strip out the contribution in net adds from [indiscernible], the last couple of half year periods look pretty consistent in terms of net adds of around 50,000 per half and a little better in the second half, that 54,000. I know it's early in the year, but is there any reason why FY '27 would be different to what's happened in recent periods?

Annie, I can only really repeat what I said before. It's very early to be calling a trend at this stage. We'll try and be consistent with our previous practice of giving guidance more in the November time line. To give you some color, as I said, our trading conditions have continued pretty much consistent with how we saw the second half of FY '26 at this stage, but it's way too early to be calling a full year trend, sorry.

Okay. And on the Wholesale division, it looks like in the second half, there was a decent step-up in terms of net adds from non-Origin customers. Can you talk a bit about what's driving that Neoloop resonating with your customers quite well?

Yes. It's Neoloop, but we also have a number of other wholesalers that have a similar sort of product offering to what Origin takes. And they've had some good momentum in the second half as well, which is pleasing to see. So we hopefully -- hope that will continue into this year as well. So we have a number of telco products we provide to wholesalers, and we're still seeing good growth come from those customers.

Okay. And just last one from me on the Wholesale division as well. Can you give an update on the migration of the subscribers from AGL's network? And is the estimated impact still in line with what you called out earlier this year and that was $4 million gross margin impact? And are there any factors that could cause a better or worse impact from that expectation?

So firstly, we don't have and never have had AGL customers in our subscriber numbers. We had a very different supply arrangement with AGL, which was just selling them backhaul capacity. So the new provider of AGL or the new acquirer of AGL's base have acquired a very different business to the one that we have lost. And yes, you're right that the size of that business we had with AGL was around about that $4 million in gross margin. It's still in our books today. We expect it obviously to come to an end in the not-too-distant future. But at this stage, we're still providing it.

Your next question comes from James Wilson from Macquarie.

Just a couple from me. Are you able to give us an update over the second half, the amount of subscribers that were added in consumer from your Exetel plan versus the remainder of your plan, if possible?