Swoop Holdings Limited (SWP.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to Swoop Holdings Limited Full Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Alex West, CEO. Please go ahead.

Hello, everybody. My name is Alex West, and I am the CEO of Swoop. Joining me today is Patricia Jones, our CFO. And thank you for being here as we walk through our FY '25 full year results. This presentation was released to the ASX platform earlier this morning. So now as we go to Slide 3, who we are. Swoop is a premium provider of residential and SMB broadband operating across our own high-margin fiber and fixed wireless infrastructure as well as via the nbn for national coverage. We also serve mobile customers under the Moose Mobile brand, leveraging a national MVNO on the Optus network. Our strategy, automated operations, targeted product focus and infrastructure ownership continues to deliver exceptional results. With this year, we achieved a 20% growth for the year of $106.5 million in revenue. We delivered a positive free cash flow in the business, the first time since listing and our focus on delighting our customers and using AI and automation for a seamless experience has seen our nbn market share grow by 300%. And now as we go to Slide 4, going into a little more of these highlights in detail. FY '25 was a record-breaking year. Revenue hit $106.5 million, up 20% year-on-year, but also our underlying recurring revenue grew by 32% and all of this was from organic growth. Our underlying EBITDA reached $15.2 million with core business EBITDA, which excludes one-off co-build projects and discontinued operations, was up 14%. Operating cash flow surged 64% to $17.6 million and we delivered positive free cash flow of $5.1 million, which was a $10.8 million turnaround from FY '24, noting that free cash flow for FY '25 did include net project inflows in relation to the Melbourne fiber project and the working capital position of this project will vary over FY '25 to '27. Our subscriber numbers grew 14% organically to 205,000. And our focus on our customer as well as our automation and AI delivered some significant customer wins with a 3-year wholesale deal signed with Flip that's expected to add at least $10 million annually in revenue. And our fiber network build in Greater Melbourne is backed by $49 million in long-term customer commitments. We also this year and towards the end, announced a $6.2 million divestment of our Vonex shares, is expected to complete in October in 2025. And this all led us to finish the year with a strong cash and available funding position of $18.1 million with further benefit of the Vonex divestment still to come. And now on Slide 5, as we take steps to streamline and simplify the business, we will continue to provide the results of the underlying business that shows excluding one-off and co-build income as well as our discontinued operations, our core business continues to thrive. Our revenue grew 32% year-on-year to $105.8 million. Our gross margin rose 12% to $34.6 million and our underlying EBITDA increased 14% to $14.8 million. This reflects strong performance across our key products of fixed wireless, own fiber, mobile and nbn. And as we move to Slide 6, we are proud to be recognized across the industry with product review awards for both Swoop Broadband and Moose Mobile and AFR Customer Champions Award for the year as well as being recognized in the Deloitte Fast 50 Leadership and Enterprise Growth winner. These accolades reflect our commitment to our customer satisfaction and operational excellence. And with now over 2,000 5-star reviews on product review and a rating of 4.8, see Swoop as one of the top 2 ranked ISPs in Australia with over 1,000 reviews. I will now hand to Patricia, who will walk through the financials in further detail. Thank you.

Thank you, Alex. So looking at Slide 8, the financial results. FY '25 has been a standout year marked by strong organic growth, disciplined cost control and the scaling power of our delivery systems and investments in automation. We're seeing the results of our strategy come to life. Sales are surging and our operational backbone is keeping pace. On this slide, we're showcasing the full group performance, including both continuing and discontinued operations to give you the complete picture. Noting our discontinued operations, the VoiceHub business divested in July '24, contributed 19 days of results in FY '25 versus the full 12 months in FY '24. Now let's talk numbers. Revenue hit $106.5 million, a 20% increase year-on-year. But if we strip out discontinued operations and timing impacts from co-build income, the real growth story is even stronger, a 32% uplift. This growth is powered by key contract earnings and robust sales in nbn TC 4 and mobile services, all supported by our scalable delivery models and compelling marketing. While overall gross margin held steady, our core business gross margin, which excludes one-off co-build income and discontinued ops, rose 12% year-on-year. We did see some margin percentage compression from 39% to 33%, driven by the rapid growth of lower-margin products like nbn and mobile. These products are capital-light and scale [Technical Difficulty], which is a strategic advantage. The Melbourne fiber project also contributed with its lower margin on construction activity. Core business EBITDA came in at $15.2 million, up 14% year-on-year, showing that our core business is not just growing, it's strengthening. Our OpEx discipline continues to shine, now at 18.6% of revenue and that's down 20% over 4 years. That's a testament to our focus on efficiency as we scale. Finally, our net loss after tax of $6.9 million that factors in $18.4 million in depreciation and amortization, which is tied to past investments in acquisitions, technology and infrastructure. The result also includes the $4 million profit on -- from the VoiceHub sale and a $3.3 million fair value loss on our Vonex investment. Under accounting standards, this was based on the 30 June share price of $0.02, but we do expect to divest in October at $0.036, and this will unlock $6.2 million in proceeds. So moving over to Slide 9, the summary cash flow. Let's dive into our cash flow position, where the numbers tell a story of momentum, discipline and strategic investment. We closed the year with a strong cash position of $8 million, backed by $10 million in undrawn facilities, giving us a total available funding pool of $18.1 million. Operating cash flow surged to $17.6 million, up $6.9 million or 64% year-on-year. This impressive uplift reflects the strength of our revenue growth and inflows from the Melbourne fiber project. While the divestment of VoiceHub in July '24 reduced contribution from discontinued operations to cash flow, the core business more than made up for it. In terms of free cash flow, we have delivered a positive $5.1 million for the year compared to $5.7 million in net outflows last year. It is worth noting that free cash flow for FY '25 includes net project inflows in relation to the Melbourne fiber project. And the working capital position of this project will vary over FY '25 to FY '27. But outside of that key project, we're staying focused on our long-term goal and that's to reach a point whereby future growth is fully funded by operational cash flow. And we're getting there by the following: by driving strong sales growth, by leveraging optimized delivery models and by scaling from an increasingly efficient cost base. CapEx for the year was $12.6 million, with the bulk invested in network expansion and automation systems, critical enablers of our customer growth and delivery efficiency. On the investing side, we saw inflows and outflows from $8.8 million in proceeds from the VoiceHub divestment. We had the Moose earn-out payment and we had our investment in Vonex. Finally, financing activities reflect $6.7 million in net repayments across our CapEx and acquisition facilities. Over to Slide 10. Let's wrap up with our balance sheet. As noted, we closed the year with a strong cash position of $8 million, supported by $10 million in undrawn facilities, giving us a total available funding pool of $18.1 million. We are also expecting $6.2 million in proceeds from our intended Vonex divestment in October. Total borrowings have reduced to $16.7 million, down from $23.3 million at June '24. Net debt now sits at $8.7 million, reflecting our disciplined and proactive approach to capital management. While this progress is encouraging, it's important to note that our future net debt position will flex in line with the funding needs of our major contracts, particularly the working capital requirements of the Melbourne fiber project. This is a strategic investment and we remain confident in our ability to manage funding efficiently as we scale. And finally, looking at the broader picture, total assets now stand at $117 million and we've got net assets of $54 million. Handing back over to Alex.

Thank you, Patricia. Moving on to Slide 12. it tells our company history [Technical Difficulty]. From our simple beginning in Regional Australia, we've seen Swoop grow to become one of Australia's leading challenger providers. And whilst our initial growth was driven by acquisition to achieve scale, it was our focus on integration and automation that has led to the strong organic growth over the last 2 years. And then moving on to Slide 13. We look further to define at a high level, our product strategy of servicing residential and small business customers through mobile with award-winning satisfaction, strong growth and significant cross-sell opportunities. We had nbn with fast-growing market share now at 0.69% with customer activation in under 10 minutes. We have fixed wireless products with 20% national coverage with expansion potential in regions that we are already strong in. And we see strategic fiber builds in WA and Victoria targeting greenfield and brownfield opportunities. Now going into more detail of these products on Slide 14, we look at mobile. Moose Mobile continues to deliver strong results whilst with FY '25 being a challenging year in terms of customer growth, we have managed -- as we manage through price rises across the entire mobile market, we did see an increase in our revenue and cash generation over the year and now starting to see the green shoots as markets settle into FY '26 with growth turned back on heading into the new financial year. On Slide 15, we look at our nbn products. Our nbn market share has tripled in 12 months to just under 0.7%. But what is more impressive is that we are seeing our sales reach 2.46% of all new nbn orders. That if this was to continue, we would be delivering over 22,000 services across our network and we are targeting 100,000 services by the end of '26. This growth has been through the keen product focus delivering greater customer experiences through automation with services now capable of being turned up in under 8 minutes. And through making these tools available to our partners has seen us win some significant growth partners like Flip and others that will continue to see us benefit from the increased scale of our network. And for our direct customers, our focus on the customer experience has seen a rise in our product review rating from 4.4 to 4.8 over the year with over 2,000 5-star reviews, making Swoop one of the top 2 ranked ISPs on product review with over 1,000 reviews. And it is through this focus on delighting the customer that we will see the continued growth in this product. And now as we look on Slide 16, Swoop continues to operate one of the largest fixed wireless networks in the country that covers approximately 2 million dwellings with a focus on underserved areas, meaning that we are able to capitalize on the strong demand without the need for major network expansion by leveraging existing assets, delivering higher-margin products across our own network. And now on to Slide 17. Fiber is a major growth opportunity with over 6 million homes still on copper and 1.2 million homes being built over the next 5 years, whereby targeting less than 1% of this, we'd be able to hit around 10,000, 20,000 services on high-margin products that we would expect to deliver $9 million in annual recurring revenue. And we have seen some initial success in this space with the acquisition of the Seacrest Estate in WA that is expected to deliver 1.2 million over the next 3 years with very high gross margin products. And we are now partnering with the Victorian government to deliver fiber to around 380 homes in the Gippsland region. Moving on to Slide 18. Looking at our company. At Swoop, we believe that everyone delivers a better telco experience and delivering on this mission starts with focusing on our team with a vision to become one of the country's employers of choice, not just in our industry but across all industries. Our team is the engine behind our success, and I am proud to say the focus on our staff has seen employee engagement risen from 58% to 81% over the last 3 years. And now on Slide 18. At the same time, over this last year, we've made exceptional progress on our gender pay equity, outperforming industry benchmarks across all metrics with our average total remuneration gap at negative 0.1%, significantly better than industry comparison of 15.6% and our average base salary is at negative 1.5%, also significantly better than the industry comparison of 15.4%. These achievements reflect our dedication to fostering a culture of fairness, inclusion and opportunity. And now on to Slide 20, AI and automation. The more recent investment in our internal customer sentiment and training tool, Swoop EQ, that uses AI to help us understand our customer and better train our staff to deliver outcomes has contributed to the improvement in our product review ratings going from 4.4 to 4.8, demonstrating a differentiation of Swoop products in the market and why customers are choosing to move and stay with Swoop. We've also invested heavily in automation with 90% of orders flowing through automated systems and with nbn services activated in under an hour. And making these customer automation tools available to our partners is providing the growth opportunities in the wholesale and channel space to get the benefits of network scale across nbn and other products. This has led to a 4x increase in our nbn orders each month from what we're seeing last year. And as I close in summary, FY '25 was a year of strong organic growth, strategic execution and cultural momentum. We are well positioned to scale further with high-margin infrastructure, automated platforms and a deeply engaged team. Together, we are building one of Australia's next great challenger telecommunications company. Thank you for joining us.

Shall we open the line for questions speakers? [Operator Instructions] We have no questions at this point of time, speakers.