Swift TV Ltd (STV) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Swift's half year results presentation and a bit of an investor update as well. We've enabled the questions to be posted during the chat. So please feel free to ask any questions and I'll attempt to answer them through the meeting or if I don't get to them, happy to follow up with contact to you after the meeting or sometime afterwards. So we'll start off and say good morning and good afternoon to you on the Eastern Seaboard. Just started around the presentation, give me a second -- hello to everyone. A few more people joining at present. So I'll just wait a second or 2. We've got about 16 people on the line, so we'll start. First off, for those of you new to Swift, Swift as a technology is an enterprise product. So first and foremost, I'd really like to emphasize that we're a product made for business. So it has business functionality and also business-related content, and it brings that to multiple accommodation-based environments. So different communities, whether they be mine sites, aged care, villages, hotels or any place where you find a collection of people in an accommodation type environment. Going through our financial results for the year, the real big takeaway for us is really this is the start of the transition for Swift away from -- historically, Swift has sold -- its revenue has really been comprised of project work. So when I say project work, that's installation and upgrade work for WiFi systems and communications on mine sites principally. This has been a product that's -- or a business line, it's always been a bit commoditized over recent years. And there's no sort of point of differentiation within that installation of various communications networks. Swift has also historically sold something like 50% of its revenue has been Foxtel resales. So what -- and the balance between project work and Foxtel resales has been Swift's own products. And that's been a combination of various products historically, whether it be Swift Broadcast, Swift+ and more recently, Swift Access. So what we're now moving to as a business is really moving more towards our own product, which is the new Swift TV. And we're starting to see that in the actual numbers of the business. So we've basically shifted our margin, our EBITDA margin has increased from 13% to 15% in prior corresponding period, even though revenue has dropped as a result of project sales being lower than previous corresponding period and Foxtel reselling also being lower. So that's probably the biggest takeaway from our results for this year. So we drill into a bit of detail. Where we've seen revenue move has been, as I mentioned earlier, has been reselling of Foxtel, but also we've seen some site closures in mining, specifically MRL during the period, that's Mineral Resources. They dropped something like 1,800 rooms during -- between the 2 prior corresponding periods. But what we've done as a business is really responded to that. And in that same period, our operating costs have gone down by $1.5 million between this year and last. Our corporate costs themselves have also been reduced by $100,000 in that same time. So really, it's a case of trying to match our costs with the revenue that is coming in as we transition more to our product revenue. In the same time, our balance sheet has also improved. Our net asset position has increased by $1.6 million. So a lot of the shift to cash between the 2 periods has been really pushed into reducing our liabilities and increasing our assets of the business. So it's all the positive news in terms of strengthening the balance sheet, which is very important for a small company our size. At the same time, cash flow has -- there's a fair bit of timing issues within cash flow. There's working capital adjustments as we move away from reselling Foxtel and mining project infrastructure work. Some of these projects can be lumpy in nature and can really have an impact on the actual cash that's received in a given period and can lead to certain anomalies between the 2 different periods. So really going back to this concept of transition. This is a slide that for those of you who've seen us before, this slide has been around for about 2 years, and it's really going to illustrate the journey that we're on as a business. So we've really just started moving towards this transition period. So we're moving away from reselling competitive products to selling our own unique product. We finally have a new product that brings in together everything this business has been working on for the 10 years of its existence into something that really sits on the end of a network rather than being part of the network or supporting the network itself or the other areas that Swift has gained revenue from previously. So it's its own unique product. And this has really been driven to really increase shareholder value. So not only does it attract better margins as we're starting to see, but it also makes us more focused as a business, and it also creates a product that actually has broader appeal than just to a particular industry. So really, this is sort of the segue into really introducing Swift TV to you. Now Swift TV is its own unique product, as I've mentioned. We've already presold of our first order of 5,000 units. We've already sold 4,300 of these units. In fact, we're actually installing the first 2,000 of those units beginning on Wednesday this week, tomorrow. They'll be installed at Chevron, Chevron's Wheatstone oil and gas facility over a 3-week period. So it's 2,000 units, will be deployed in that 3-week period alone. And that's just the beginning. So we've only -- we've also had good significant sales in Aged Care to Australia's largest aged care provider, Opal and also into other mining and aged care-related industries. So new product officially, we're actually having our launch event on the 28th of May. So we're already ahead of where we thought we'd be in terms of our sales, and we're discussing with our supplier our next order for further Swift TV units to meet some of the discussions we've had in the market. So we're really excited about Swift TV. It's actually changed the whole business. And it's not very apparent yet in the numbers, but it's very much part of the plan and the transition that we're doing as a business. So when you look at what we have as a business and the value proposition for Swift as a whole company, it's a combination of 4 things, and we find this is the best way to summarize what we do as a business. So we have a fantastic content relationships that have been developed over many years with all the major studios. So we have not only new release movie content, but we have curated content, specialty content or even a business's own content that can be put on to a TV screen. We've also developed a very unique user interface and user experience that's developed as an enterprise product. So it has a similar look and feel to a home type product or a smart TV look, but with all the capabilities of a business-related software. So that's what we bring to the table, which makes us quite unique surprisingly because there hasn't been a lot of development in this area for enterprise environment. So it's -- there's a lot more complexity and a lot more going on than a typical home type screen environment. The third element is really the enterprise software. So this is really the real integration aspect of our system into businesses. So whether it be a property management system for a hotel, so when a guest checks out, their Netflix activities or their browsing is all cleared directly from the TV because that's actually integrated into their property management system. This can also work on mine sites. It can also work in an Aged Care home so that activity schedules or menus are put on the residents' TV. So that whole enterprise interface, the system has actually been developed and designed around that cornerstone so that we can, with any enterprise, plumb straight into their existing systems. And that's very, very important in terms of customization for a business environment. And that's the backbone software that doesn't exist in a residential type device. And very importantly is our new Swift TV Device, which is a very small unit, which is actually now Google certified. So we now have a very strong relationship with both Google and with Netflix. For instance, Netflix being the largest streaming service has a lot more security protocols than any other streaming service. And it did mean us having to develop a relationship with Netflix to be able to have their streaming directly as an app on our screen. So it's not cast because Netflix is moving away from supporting casting to only really supporting their apps being on an IPTV environment. So this is very, very important for us and having that relationship with Netflix and with Google to have this quality device that has our technology on it and has been developed specifically for us and our markets. Also very importantly, it's a plug-and-play product. Our previous iterations of Swift required several devices from different suppliers that had to be integrated on site. This -- it made it a lot more complex, a lot more costly and potentially more points of failure in the supply chain and also in the actual rollout of the device because you had multiple devices. Now it's just one device with a fully matched paired remote control. So it's very much plug and play. And in a lot of cases, the actual users or the business customers can actually install the device themselves with us being able to just remotely commission it. And that's very important because it speeds up the installation of the product, and it also reduces installation costs, which can be a barrier of entry. So some of you have probably seen this slide before. So it really...

Sorry, Brian. Kanak here, just one question just for the broader audience.

Sure.

We understand the value proposition in Aged Care and Mining. Can you give an example and say, if you're pursuing hospitality, what is the benefit of having Swift TV versus these hotel groups that spend thousands of dollars on televisions? Like why would someone go with you?

Yes. Well, that's probably part of the reason in itself is, people do having spent thousands of dollars on TVs. The only TVs that are available to fully integrate within a property management system and hotels are special hospitality style TVs. There's 3 manufacturers to Philips, Samsung and LG. Now these TVs are around $1,000 ballmark plus. So they're very, very expensive. With our box, we can provide that level of functionality and more for 1/10 the cost of that type of purchase. So it's a lot simpler to do and it stops the need to have all your TVs from one manufacturer and you have to then keep aligned with their software, which becomes an issue if you're doing an upgrade or opening up a new site, suddenly, you basically have to buy the same TVs from the same manufacturer each time. And the software itself can evolve on the TV. So for instance, in your TV at home, for instance, there's a new app that comes out and suddenly your TV doesn't respond to it. So our box actually responds to anything that comes on to the Google Play store that can come on to the TV. Now what's also happened within the TV market, and I'll probably jump ahead a bit because I'll probably go to -- I'll talk about it now. The hospitality market and hotels in particular, have really been affected by COVID and really put them on the path of going from being able to monetize movies where they -- back in the days, what 10 years ago, used to have to pay $20 to buy a movie from a hotel. Now to moving just to casting only. Now as I mentioned earlier, Netflix will no longer support casting by the end of this year, I believe. So casting is almost redundant technology. Everyone is moving to having all the apps on the screen. Our device is one of the few devices in the world that actually provides that level of functionality without having to jump to a full-blown hospitality TV in itself is limited in its functionality. So as we move through the new device, eventually, we'll move to a full cloud-based system, so we won't need an on-site server. That will also reduce our costs and open up in home care markets, student accommodation markets, all sorts of other markets where a server and the cost of a server per site becomes prohibitive. At the moment, basically, we sell to community type environments where the server -- one server might on an Aged Care site look after 100 rooms or 100 residents. So it's economically viable. You can't really have one server for one room, hence, the need to move to cloud-based if we're looking to an end-to-end type solution. So that's part of our technology journey, and we're basically moving through these stages as a business and acquiring markets and opportunities as we move forward. So really, our monetization strategy as a business is to continue on in the focus on the Mining and Aged Care markets, where we're actually starting to gain market share and traction with the new product as we've seen from the initial sales. But more importantly and really where the opportunity is open for us is the ability to now take this product around the world because it is very new in its technology. So what we really need to do is find international partners, and that's what we're doing, is trying to identify the right people in the right markets to approach with our product to get it out there. So it really has to be a partnership where we can resell and various markets will require various strategies. So really looking at our various markets. The big takeaway, if you look at our existing Aged Care market, effectively, we're coming out of, I would say, 5 or 6 years of regulatory uncertainty. So since the Royal Commission report in 2018, the whole Aged Care market has gone through a period of regulatory uncertainty. By 1 November 2026 this year, this is a deadline for the introduction of the new higher everyday living fee legislation, which impacts all the Aged Care businesses. And our product is uniquely designed to actually accommodate the new regulation. So we expect to see a lot of demand as we get closer to that and from aged care providers. So we've got the largest aged care provider in Australia, Opal with something like 13,000 residents signed up for the product. We begin installation in Opal this month, and that will really be the litmus test for our technology. We're doing a lot of integration work with Opal to ensure that residents can view their menus, can actually see their activity schedules all from the comfort of their room on the TV. As we move through Mining, we're seeing, again, a real shift in terms of moving away from general pay TV. A lot of businesses are moving away from that because of the economics, but there's also still a demand for communication with your workforce, especially on larger sites. So the fact that you can do company updates, worker health and safety training, provide all sorts of information to the sites, including full integration with warning systems and any other facility that they have on site, which is very important for oil and gas is something which we're starting to see more increased demand. And that demand has really been driven by awareness of our product because previously, there hasn't been a product out there that has done that. So now that people are becoming aware of us as a product, we're starting to see opportunities arise and getting more inbound interest in the system. And as I mentioned, hotels, it's about -- and probably to expand on the point further, it's about monetization. So hotels went down this route of casting. That costs hotels probably something like $5 to $10 per room per month just to support a casting technology. It tends to be clunky. It tends to have issues. It's also something where the hotels don't -- it's only a cost center. It's not really a revenue-generating prospect. With the new Swift TV product, we can offer our entire movie catalog of 2,000 movies plus a new release window to -- as a package that could be monetized by the hotel, for example, at $7.99 per day, which is probably a lot less than a steak sandwich at most hotels, but that allows the hotels to monetize the actual content that's available on the screen, making it very easy for guests to access that without having to pass, without having to muck around with their phone. Additionally, as I mentioned earlier, we're fully integrating it into their systems so that log-ins into Netflix or their own private streaming services can be controlled and easily securely used so that when they leave, it's not left on the screen. Additionally, the screen itself can be used again to promote food and beverage within the hotel facility, whether that's direct ordering to the room as opposed to having to use a QR code, just visualizing the menu on a large screen will actually increase the actual revenue they can generate per room. So hotels are very, very focused on the revenue generation per room per night, and this is really opening up that opportunity. It's basically to move the TV from being this cost center, which has been over the last 4, 5 years since COVID to an ability to actually generate money from the TV again. So it's pretty new for us. It's a big opportunity and some very big players in this industry. So we really need to be mindful of who we partner with and our approach and how we move forward in this complex market. And really, why invest? From my point of view, we're at this really pivotal stage. We started on this journey. If you've been familiar with the business, this is all something we've mapped out over the last 3 to 4, 5 years. as to where we're heading and why we're heading in this direction, why we're focusing in certain directions and not others. We now have a product that we own fully. This is where the IP is solely owned by Swift and there is no one else. Whilst we have a Google certification, it is still our technology behind this also. So we have the ability to sell this around the world to whatever market we choose. So for us, it's about getting out there to new markets. We have a plug-and-play product. We have a simple product. We have the ability to have high-volume manufacturing as well. Our suppliers can produce 0.5 million of these a month if we desire. So we have the ability to actually go out there at large scale. We just need to develop those past to markets beyond our traditional markets being aged care and mining in Australia. Our Board and management, we've had really the new placement of Nick Berry on the Board from Pure Investment Managers who joined the Board in November and you're familiar with the rest of the Board, I would imagine. And really, our market cap is sitting around the $12.4 million. We see a lot of scope for growth in this business. And the other takeaway is really we've done a lot to reduce our debt over the last few years. When I started with the business, we had something like an $8.4 million debt. Now it's down to $5.9 million. So as a business, we're basically doing the sensible things of strengthening the balance sheet. We've developed a new technology and a new product, and we're basically working towards now what we think is a very exciting time for this business to get Swift TV out into the world. So I'll see if there's any questions. If anyone would like to post any questions, happy to take them now.

I've got one question here. Sorry, it hasn't come up. It's only come up as a notification.

Matt, you can unmute yourself and ask the question.

Can you hear me?

Yes.

Yes. Perfect. Look, can you speak a bit more about your debt now? You said you've paid it down from around $8 million to $5 million. Was that by some of the capital raises? Or was it from free cash flow?

A bit of both really. Part of it was debt for equity conversion that Pure did last year as we refinanced the facility. Part of it was also through general cash flow and paying down when we had the opportunity to do it. So yes, it's a bit of a combination of both. So just a bit of historical. The debt was really part of the business due to an acquisition that made back in 2018, which sold and a business that basically was largely affected by COVID called medical media channel. And that's really where that debt arose, and that's something which has been -- something which we've always paid down. So if you look at the business, we've been servicing that debt and paying down that debt. If you look at the capital raise, we only raised a couple of million net. So when you think about over, say, the 5-year period between debt repayment and interest servicing, there's probably $5 million, $6-plus million that have gone out of the business. So that's largely been through the actual $4 million to $5 million of that's been through our cash flow.

Yes. And what's your preference moving forward? I can only see quickly that the -- when it's maturing, which is March 2027 with a 10.25% interest rate, which is, to me, very commercially not too bad. I've seen companies pay way more than that. So my question is, what -- do you have an intention of how you plan to deal with the rest of the debt?

Well, it's a choice really. It comes down to how much capital. And if we really need a stronger share price to contemplate paying down the debt at these levels, it's very dilutive. The debt holders are pure asset management who are 20% owners of the business. So they are very involved in the equity side of it, too. So they don't want to see us dilute the business. Plus we do need working capital to continue to grow the business. So it's a bit of a balance between how much working capital we generate that we can put towards debt. So it's either a continuation of the current trajectory of pay a bit when we can and slowly whittle it away that doesn't have an issue or we can move to maybe a bank-based debt at a lot lower level. For basically a raise should the share price go up to a more reasonable level given the technology and given the fact that our revenue is more than our recurring revenue, in fact, is more than our actual market cap.

Yes, not a problem. And then in terms of that facility, which there's still 5.9, can they -- so currently, you did mention that they've already converted some. How much in terms of percentage of the company, what percentage the pure now own of Swift?

20%.

And do they have the right to convert this last one or only with your permission? Is there an automatic conversion clause that they can do that?

No, there is no automatic conversion clause, but that is subject to negotiation.

Brian, maybe because you're talking about historically being a reseller of Foxtel, what kind of margins, they're pretty low margins with Swift TV volume [indiscernible] margins would you see?

Foxtel has been an interesting one. We've basically sold their old school satellite channels and the margins range from maybe 5% to max sort of 10% range. So it's very low margin. It's -- it can be quite an issue where you have mine sites closing and it affecting working capital because of the volume that goes through. So historically, it's been over 50% of our revenue mix as a business. So it tends to pollute our numbers in some ways. We do have a good relationship with Foxtel. So in cases where Foxtel have exclusive rights to NRL and AFL, and that's very important in the mining industry. So in some instances, we will continue to resell Foxtel where people want those channels, which is no problem. So we want to provide our clients with the best. And yes, there's no issue with that. But as I say, it doesn't have the same margin associated with selling our own product, let alone what we could obtain by expanding internationally into hotels or even aged care internationally as well.

And can you estimate what the margins would be for Swift TV ballpark?

Not something I really want to say on a public call because we do have basically our customers to think about, but I can just say it's a better margin than what we get through Foxtel. So at the end of the day, Swift TV, you've got to think of it as a hardware-enabled SaaS product. So whilst it is a small little TV unit with a matching remote control, it still is the software that people are buying. So as a SaaS product, we continually provide updates and everything that you'd expect from a SaaS product. So a SaaS product, apart from the content, the movie content and licensing and various other variable costs, the rest is effectively margin. So that margin as a SaaS product goes into supporting the technology and keeping it fresh and making sure it's up to date as a business. So a pure SaaS product has 100% margin to it. There is no continuing cost. We are a hybrid-enabled SaaS with an element of some costs, but those costs are relatively minor per month per unit. So I hope that sort of trends the biblical balance between value for money for our clients and return for our shareholders.

Can I ask one more?

Yes.

Just a quick query. I just got to put it out there because trust me, I understand everywhere you're coming from coming from this environment. I love what you've done. And give you an example, my dad was in a nursing home. So I saw the system that they used and things like that. And it was clunky -- sorry, I'm going to say it was clunky, it was c***. My question is, have you thought about just simply developing a basic one of these, I've just looked at your website for even -- sorry, home users?

Yes, that's exactly where -- that's on our development pathway. That's -- and that's where we need to go to the cloud-based technology, and that's in our development pathway.

Okay. Because the way I look at it -- if I ever saw something -- like if I went to my dad's place because I was looking for a system at the time I've got an Apple TV. And I certainly hear all the things that you're saying about having TVs with the software. It's a bloody nightmare. And if there was something that I really liked rather than me replacing my Apple TV, which I use for about 3 app spend, I'm not trying to be funny, Kayo, Netflix and Prime, I'd be happy to look at a Swift TV instead because I'm sure I'm going to have a lot more flexibility, as you would understand, with a Google OS than what I would with Apple OS, which is heavily locked down.

Exactly. The Google operating system is the future. We recently went to a big conference hosted by Google in Bangkok, and they're developing not just the Android TV functionality, but also the AI being integrated into the Google Android TV app. So all of that technology, the Gemini AI will be available to us going forward with our system. So the functionality that one can get from this product is only limited by your imagination. So even now you've got all the technology to integrate the TV into other home-based products, whether it's doorbell cameras and all these things. And because of the environment that it sits on, controls the TV, you can be watching Netflix and a notification can be put on top of Netflix, whereas most traditional systems and smart TVs, you can't overlay one on the other. Basically, if you're in Netflix, that's all you get or you have to move HDMI cables or sources or all this sort of stuff. Because our system has been very important in our relationship with Google that our system had to sit on top. And this was born from places like oil and gas, where the system has to integrate with their -- basically their warning system on an oil rig. For instance, if there's an oil rig alarm, the TV, if it's a switch system, will flash red, come up with a notice, a notification, all of these things that will turn down the volume of any movies that are played automatically. These are sort of functionality that we've sort of basically developed as a result of those industries, but also application in an in-home environment for an LG person or NDIS where you can be watching Netflix and bang you get picture on picture of someone at your front door. All of that can be done now. It's just a level of integration. And also for us, we still are a small business. So we can only develop things at a certain pace. And we've gone through what is probably a very intensive 3 years, maybe 4 years of development. So we've gone and we've developed this new UI/UX that's very Google-centric and takes its leap from the best out there, but also has this enterprise overlay. Then we've developed in conjunction with Google, this new box and now we're on the next path of where from here. We've got to monetize what we've got, but we've also got to keep our eye on this bigger market, which is the in-home market where you don't need a server on site. And we need to design the system around that. Now a lot of the design work there is more around how you keep costs down when you have to put everything over the Internet and licensing and there's a lot of complexity around that. And for some -- and also our new release window might be something which we have to renegotiate because we have new release movies because we sell it to a closed-loop environment rather than domestically. That might change our cost equation. So it's something we have to look at as we move forward into that basis. But purely as a communication tool, the switch system would be fantastic to be able to, say, from a provider, whether it's an NDIS provider, an aged care provider can have that connectivity directly with the resident through the TV. And for most people, the TV still is the product of choice. The issue with phones and tablets is they get -- they run out of charge, people lose them, they get broken. There's all sorts of issues. In a nursing home, people have tried tablets and it's just another thing that the nursing staff have to ensure is plugged in and used and it becomes a burden and soon forgotten about, whereas our system is a TV.

I completely agree. And just to be clear, if you were to develop, I'm just trying to get my head around this for ease of use because that's a big problem in my family with kids and the wife and not exactly the tech savvy. If I was to say, I keep it simple here. So let's say I want a Netflix, Kayo, Prime and Disney right, and I'm currently paying $10 a month to 4 different services, would I just be paying Swift for those -- all 4 of them? Or would I still be individually paying for the 4? And if I was paying Swift, am I paying $10 now? Or would I be getting a slight discount per service?

At this stage, you're still individually paying for your own because you got to remember, we're operating in commercial environments. So whether it's a mine site, so it's basically bring your own streaming service, but the idea is that you can just open it up. And the way we can integrate both within mining and hotels through their property management system is, so you have your room card or where they're moving to is your phone, you get -- you go straight to your room, open the door with your phone, as soon as you walk in the room, your Netflix is already up there and activated. So it's your home Netflix that you're paying for and those subscriptions and those passwords can automatically be integrated within the hotel system or the mine site system. So that's an integration stage that we're working through, and that comes down to the hotel or the mine site provider. So that gives you a lot of control and a lot of seamless nature to it. Now in time, when we've got tens and hundreds of thousands of users, then we've got some buying power to go to a Netflix or a streaming service and provide a discounted rate to get into it.

Got another question here.

You read that I'm not seeing them on my screen for some reason.

Yes. Do you expect there might be a bigger deal with a hospitality or hotel group that could launch your capability into that sector?

That's what we're aiming for, definitely. We see -- whilst it's -- everyone's trying to aim for the Marriotts and the bigger hotel chains, there is a challenge to get in front of these groups. We see that there is a huge opportunity within these chains. So it doesn't even need to be the bigger chains. It could be a second tier or a premium hotel. We need that sort of visibility. We're already talking to some smaller hotel chains in Australia about our product, which will be great. So effectively, sort of thinking about our sort of commercial rollout, we've got the largest oil and gas company in the world signed up and being rolled out this week. We've got the largest aged care provider in Australia that signed up and being rolled out at the end of the month. So our next stage is try and get a hospitality provider, someone who has some brand recognition within Australia or overseas. Then we've got a really good package that we can sort of take around the world to potential resellers, licensees, partners, whatever form it takes to go, look, we've got great technology come out of Australia. We can get these boxes produced by the tens of thousands. How about looking at our business and what do you think? That's a great CV to take with you. So yes, we need to do that, and that's what we're doing. It's -- it's just has to get around to do it and make it happen. That's exactly our strategy. So it probably will be through a partner rather than directly ourselves, and that's what we're going to work on. Well, I'm giving the round up now because I think we're already 8 minutes over our scheduled time. Happy to take any further questions or please feel free to contact me directly. I think most of you have my mobile number. So happy to get back around you further on this presentation or if you have other questions, more than happy to talk through them at your leisure. So please give me a call. And thanks very much for your attendance today. I really appreciate it, and hopefully, see you all soon.