Swoop Holdings Limited (SWP) Earnings Call Transcript & Summary

Good day, and welcome to the Swoop Holdings Full Year Results Investor Briefing. [Operator Instructions] Finally, I would like to advise all participants this call is being recorded. Thank you. I'd now like to welcome Alex West, CEO, to begin the conference. Alex, over to you.

Thank you, and hello, everyone. My name is Alex West, and I am the CEO of Swoop. And with me on the call is Patricia Jones, our CFO. Thank you for joining us today for our FY '21 results. This morning, we will be running through our investor briefing that was uploaded to the platform. Now, to Slide 3, who is Swoop? For those of you that are new to the story, Swoop is a premium provider of residential and SMB broadband delivering over our own high-margin fiber and fixed wireless infrastructure in underserved regional and outer metro areas of Australia as well as via the nbn for national coverage. We also operate under the Moose Mobile brand, supplying residential mobile telephony for price-conscious consumers via a national MVNO on the Optus network. And it's through this go-to-market strategy and efficiencies through integrated operations that we have achieved fantastic results that we'll now run through. So, moving on to Slide 4 and our FY highlights. Swoop continues to uphold its reputation as one of Australia's most innovative telecommunications infrastructure companies by strategically sale of other networks alongside its own infrastructure and Swoop has achieved outstanding results from this. In addition to demonstrating strong sales and customer service performance on the nbn network, Swoop successfully expanded its multi-technology infrastructure and is transitioning customers onto its own network. And I'm delighted to report that this year was a great success, delivering strong organic growth in the business. This growth has delivered a full year revenue of $88.9 million, up 14% on last year. We had an underlying EBITDA of $16.4 million, noting that core business EBITDA, which excludes one-off co-build projects, is up 6% on FY '23 with $15.2 million in FY '24. And this growth has been consistent since listing with a 42% compound annual growth rate in revenue since FY '21, and we have increased EBITDA by $10.7 million for the year over the same period. We have also seen significant growth in our subscriber numbers with 18% increase [Technical Difficulty] 30 June 2023 or from organic growth. And our mobile SOO were over 131,000, which represents an increase of 18% since June 23, and our nonmobile SOOs increased by over 6,500 to $47,633, which represents an increase of 16%. We have maintained a strong operating cash flow of $10.7 million. And as we closed the year out, we announced the divestment of a noncore voice wholesale business for $9 million or completion occurring in July. We had significant firepower on our balance sheet with an available funding of $17.3 million, which excludes the divestment proceeds. So, with this, we have significant runway to capitalize on any potential growth or strategic opportunities. Now on Slide 5, looking at the highlights further. We've seen a 14% increase in revenues to $88.9 million in FY '24, which also represents a 42% compound annual growth rate, as I mentioned. Our gross margin has increased 8% to $34.8 million for FY '24. Our underlying EBITDA remained strong at $16.4 million as a result from the organic growth in efficiencies in the combined business. And these efficiencies can be demonstrated in the improvement of our OpEx compared to revenue, which is now 21%, an 8% improvement over the last 4 years. Essentially, we've been able to achieve strong revenue growth without increasing our operating expenses in the same line, and we expect to continue this for the survivable future. Now, on to Slide 6. Expanding on this further, we now take a look at the core business results. Over the last few years, Swoop has been involved in various public funded programs that increase the expansion of our fixed wireless infrastructure into regional Australia. These programs deliver increased infrastructure and Swoop owned assets that provide stock on the shelf for continued growth of our residential fixed wireless broadband products. However, there is no guarantee that new funding programs will continue once the existing process is completed. So, we find it important to report on the core business as it removes these one-off impacts from our results. With these impacts emerged, we see a 15% increase in our core business revenues to $87.7 million in FY '24, a 12% increase in our gross margins to $33.7 million and a 6% increase in our EBITDA to $15.2 million. Now, moving on to Slide 7. It has also been a very successful year for Swoop in other areas, winning several customer awards as well as being recognized for our growth and transformation efforts. Whilst you can see them on the page, I'm very proud and thankful to the entire team for their efforts and want to list a few of them. We were awarded the 2023 Service Champion Award by the Customer Service Institute of Australia at the end of '23, so in FY '24. We're also named as one of Australian financial review digital transformation leaders. We are also one of the 3 finalists in the technology growth company of the year at the Australian Growth Company awards. Now, looking at our Moose brand. Out of all the warhorses, there have been many, the ones were most prominent are our 7 years of product review awards as well as some new awards from new recognition from eMoney with the postpaid mobile plan of the year and Mozo, the People's Choice Award and Experts Rose award in the same year. I will now hand over to Patricia Jones to run through the financial highlights in more detail. Thank you, Patricia?

Thanks, Alex. So, over to Slide 9 of the presentation. FY '24 has been another year of solid performance, driven by robust organic growth in key products and strict cost control as we continue to scale up the back of strong sales across the business. Looking at our financial results on Slide 9. It is worth noting that these results include both discontinued operations and continuing operations. Discontinued operations represent the results of VoiceHub, our wholesale voice business, which was divested in July '24. Accounting standards require us to report VoiceHub as a discontinued operation. So, our preliminary financial report released today will show the results of the one-line item being profit after tax from discontinued operations. In this slide, however, we are looking at the performance of the group as a whole and has, therefore, shown those VoiceHub results included in the group results on a line-by-line basis. Given the July '24 divestment date, the results reported include VoiceHub for the full 12 months in FY '24. Drilling down into the financial results on Slide 9. Revenue is up 14% to $88.9 million. This reflects strong organic growth of 13%. Gross margin is up 8% to $34.8 million. While our GP percentage has moved from 41% to 39%. This is mostly reflective of our product mix as revenue from our nbn products grows. Underlying EBITDA, which reflects the underlying operational earnings of the business is $16.4 million. While this is similar to the FY '23 results, FY '23 included a greater contribution from nonrecurring co-build projects. And excluding co-build revenue, our underlying EBITDA was up 6.4% on last year. We have held our operating expenses and overheads at tight levels and as Alex noted previously, the last 3 years have seen our OpEx to revenue ratio dropped from 39% in FY '21 to 21% in FY '24. We continue to be vigilant and proactive in managing costs through tight cost control and the continued realization of synergies and scale as we've integrated our numerous acquisitions. We've been able to hold our operating expenses and overheads at relatively flat levels while generating a solid increase in revenue. This focus is continued and measured cost control and identifying, and securing further efficiencies will continue to be a key feature of our strategy heading into FY '25. Finally, we have a statutory net loss after tax of $3.8 million. This includes depreciation and amortization charges of $15.5 million. Talking now to Slide 10 of the investor briefing. As we referred to previously, revenue was up a solid 14% on FY '23, which is a very pleasing result. Business revenues are up 31% to $12 million as we continue to build the Swoop business brand. We're focused on building our share of this market through dedicated business sales team and dedicated marketing campaigns. And having VoiceHub mobile in our product suite enables us to provide all of business solutions to our business customers, further driving growth in this area. Residential revenue, which represents 58% of our total revenue. They're up 14%. NBN sales was strong, driven by greater automation of our order to connection flows. This automation has enabled us to scale up rapidly without additional head count. We've been able to deliver a better customer experience, which is translating into higher revenue generation. Channel revenues have increased 7%. In addition to securing some key accounts during the year, we've continued to perform well with our national hands-on approach as we support our highly valued channel partners. Over to our cash flow position on Page 11 of the presentation. We finished the year with a strong cash position of $11.8 million. Operating cash flow is $10.7 million. And while this is lower than FY '23, the reduction has been driven by the timing of co-build project receipts, a timing benefit to operating cash flows from the acquisition of Moose in FY '23 and timing differences in working capital. And if we strip out these timing differences, our operating cash flows have increased significantly year-on-year, reflecting the strong performance of the underlying business. Free cash flow for the year is negative $5.7 million but if we look at cash flow from our core business and exclude the impact of co-build projects in FY '24, it reduces to a free cash flow of negative $3.5 million. And while there'll be swings due to timing differences in working capital requirements, we continue to target moving to a position where our future growth is fully funded by our operational cash flow. CapEx $16.4 million for the year, with the majority of this through expansion of network and the continued investment in systems and automation to support customer experience and customer growth. Net interest payments are higher in FY '24, reflecting a full year of interest on our facilities is to fund the acquisition of ROCE in November 22. The $4.4 million spent on other investing activities. This includes the payment of the Moose earn-out for the first performance period, the acquisition of residential fiber infrastructure assets and costs associated with the divestment of the wholesale voice business. Finally, cash flow from financing activities reflects funding from our Westpac CapEx facility vis repayments on the most acquisition facility. Turning to our balance sheet on Page 12 of the presentation. We finished the year with a solid balance sheet that continues to be positioned for future organic and acquisitive growth. In addition to cash of $11.8 million, we also have $5.4 million remaining in undrawn debt facilities, providing a continued runway for potential strategic opportunities. In July '24, we also received $8 million of the proceeds from the sale of the volume business. Total borrowings of $32 million to $23.2 million and net debt is $11.4 million. While there's a net current asset efficiency between $24 million to $26.6 million, down from the small surplus in June '23. This has been driven by the Moose earn-out for the second performance period moving from a noncurrent to a current liability as well as the funding of CapEx with operating cash flows. Coming back to that net current asset efficiency. As noted, we've got $5.4 million remaining unused debt facilities, which are available to fund this working capital position as required. And in addition, we received $8 million in July from the VoiceHub divestment. We have $2.6 million deferred consideration remaining on the balance sheet at 30 June, which relates to Moose, and this represents the discounted value of the currently estimated value earn-out for the second performance period. And, as noted, the earnout for the first performance period was paid during the year. Finally, at 30 June '24, we have total assets of $125 million and our net assets of $59 million. And I will now hand back over to Alex.

Thank you, Patricia. So, now looking further at our product performance and our future focus. Moving to Slide 14. The acquisition of Moose Mobile in 2022, we have seen solid growth in customers and revenues with this product, with the Moose customer base growing 39% since the acquisition and 18% since the end of FY '23 and now has over 131,000 services. The success of Moose is driven by customers looking for value while still getting a quality experience as demonstrated by the industry-leading low churn rates. Throughout the year, we launched the Strut Mobile products, targeting our existing customer base of approximately 30,000 households, and we see steady sales with limited marketing spend with additional features like data banking, unlimited talk and texts, local support and no locking contracts, there is a higher ARPU on the Swoop brand. Now, moving on to Slide 15. We are also seeing significant wins in our national nbn offerings with a 175% increase in orders year-on-year with an increase in orders for the Fiber Connect product that was made possible by the speed to market from our nimble teams being able to offer Swoop partners access to high-speed business plans. We still remain one of the top 10 enterprise Ethernet providers with slightly higher margins and improved average margin per user. Over the period, we're also seeing that 22% of new sales are on higher speed plans, which drives a higher ARPU. We have also remained focused on delivering great outcomes for our customers as demonstrated over our strong product review ratings of 4.6 stars, which makes us one of the top 5 Internet providers in Australia compared to other challenger brands like Aussie on 4.5, iiNet on 3.1 and Super-loop on 3 stars. This product continues to provide us scale with massive growth opportunities as we take market share from larger incumbents. And with each new order improving margins providing improved margins overall. Now, on to Slide 16. For our fixed wireless broadband product, we are focused on simplifying the offers and aligning our pricing across our brands are in line with market trends. This has resulted in increased ARPU and margins for the product while churn remains low. We have seen consistent growth across the products at 5% in SOOs with sales anticipated to increase in FY '25 as we complete more co-build coverage areas to provide more fixed wireless stock on the shelf where customers are demanding better Internet. Our coverage areas are increasing under a number of the government programs and the focus for us in the Gibson region of Moya Morwell, where a project consisting of 14 new and upgraded sites will offer Swoop's fast and reliable Internet to over 20,000 premises. And at the same time, we are also expanding coverage in regional WA areas of Harvey and Busselton under the regional connectivity programs, which will see Swoop improve fixed lies offering available 24,000 premises. What is also key for this project is over 50% of these sites will be powered by solar. Now, on to Page 17, we move to our voice product. We are pleased to announce that we've seen continued growth since the launch of our new Swoop voice, building a whole of business offering designed to achieve dominance in the business segment. The price target both our existing customers of around 50,000 business customers as well as opening up opportunities to take the small office and SMB market of over 700,000 potential customers. Our product delivered over our national voice network, delivers a better user experience through lower latency and redundancy with simple, self-service offerings. It improves the experience with our channel partners, looking for flexible, cost-effective and scalable business voice services. And with our new direct products launched earlier in the year, targeted business with unlimited SIP trunks and UC offerings with great value while still providing good margins for us. And now, on Page 18, we move from an area of huge potential for Swoop. In the last half of FY '24, Swoop acquired its own residential fiber network in regional WA as an entry into this residential fiber infrastructure market. We see this as a massive growth area over the coming years with approximately 1.2 million new drillings in the next 5 years, of which we are targeting a very small 1% to 2%. Coupled with the 6 million homes that are still on copper access, we can see that this will be a key part of our long-term strategy in maintaining our infrastructure margins. And whilst nbn service is a significant part of the new drilling market, there has been a call out from developers for flexible commercial and technical solutions to meet the changing needs of their homeowners, which gives rise for nimble customer-focused companies like Swoop to capture some of this market and deliver strong long-term results for our shareholders. And now, with Slide 19. Swoop recently announced our plans to build a 300-kilometer net fiber network in Greater Melbourne. This is backed by a $36 million contract with a key global technology company that is listed on NASDAQ. This new infrastructure is to be constructed over the next 2 years with a coverage area through Western and Northern Melbourne, with the potential to connect over 42,000 businesses and 450,000 existing residential addresses along with suburbs that are being further developed that we target for Swoop residential infrastructure. To add to this, the network will also connect several key digital infrastructure areas with the potential to sell additional capacity to hyperscale clients as well as data center operators that are seeing significant growth driven by the adoption of AI. Now, moving on to our company on Slide 20. As Swoop, we believe that everyone deserves a better telco experience and delivering on this vision starts with focusing on our team as an engaged workforce delivers great outcomes for our customers. We have the vision to become one of Australia's employees of choice, not just in our own industry but across all industries. We are proud of the country we are building that is driving improved engagement through the organization, and this is why we are very proud to share our values with you. We are customer delighters. We are helping people on exceptional experience at a time. We are excellent Mavericks raising the bar with innovating outcomes. We are integrity warriors, standing strong with honesty, transparency and respect. We are collaboration champions joining forces to achieve more, and we are lifelong learners, embracing a culture of continuous growth and learning. And now, looking into Slide 21. Swoop submitted the first report for gender equality providing profile covering the period in April to March '23 with the results being provided in FY '24. And the results are well ahead of our industry. For context, the gender pay gap is a difference in average earnings between women and men in the workforce. It is not to be confused with women and men being paid the same for the pay the same or comparable job, this is Equipay. Our results are as follows. In terms of average total remuneration, there is a gap of 7.8%, which is significantly better than our industry of 23.5%. And our average base salary, there was only a small gap of 1.9% compared with our industry of 20.1%. And when compared with industry benchmark Swoop performance in closing the gender pay gap is commendable. The industry average potable remuneration of gender pay gap is significantly higher, indicating Swoop is well ahead in ensuring equitable pay practices. We acknowledge that there is remains room for improvement, but we invigorated by the progress that we've already made and the strategy we have in place. Now, on Slide 22, we have continued our focus on improving the customer experience. Now, with the focus of our own fixed wireless networks and our dedicated teams encompassing provisioning, customer service and field operations, it is the backbone of our fixed wireless network, making construction upkeeping installation for both business and residential customers. We are focused on our nbn Internet service efficiency and our nbn Internet service post a high automation level for sales and provisioning facilitated with our partnership with nbn and any manual tasks that are efficiently handled by our diligent offshore team. By synergizing and clustering our onshore and offshore teams, we achieved market enhancements in service quality and provisioning speed, benefiting all of our consumer and business customers, resulting in extremely low churn on a monthly basis across our cutovers. We have been delivering better support and training for better customer outcomes, overhauling the training over the year and implementing a structured onboarding program. We implemented live chat for digital accessibility, reducing phone support reliance. This underpins future self-help initiatives, human support for complex and nonroutine challenges. We have moved to an offshore operation to support to scale the support teams. We have onboarded multiple roles covering Level 1 consumer and business support, back office and IT development, and we're seeing the immediate impact in clearing the backlog and improving the response to around times which are now some of the lowest we see in the industry. We've also implemented a new contact center and phone systems. So, we've replaced our legacy systems and platform for the whole of business, and this delivers enhanced analytics, scalability and flexible customer response and potential future AI options in our contact centers. Now, on Slide 23, we have continued to invest in our systems and integration. Consolidation of our data price order flows via standard service sweet systems has now resulted in 9 out of 10 orders flying via automated systems, automation of the nbn end-to-end order processing across the group, enabling our customers to enjoy a Swoop service within 8 minutes of order placement via our websites. We have tripled our nbn order volume by investing in process automation without the need to increase the size of our teams at the same rate. We have launched a series of new products, nbn fiber connecting business bundles, Swoop Mobile products, unified communications via Swoop Voice and an IP transit white product. We've streamlined the back-end billing and cancellation process. We have standardized the assurance platforms across the group, enabling a single view of customer information to support our teams. Our billing platform consolidation is well underway to generate operational efficiencies, allowing us to shut down legacy systems. And we have invested in our data and analytics capabilities, providing a centralized access to key operating metrics across all teams, and we've also standardized our customer relationship management systems on Salesforce. Now, on Slide 24, whilst there have been no acquisitions in the last year, we provide the following summary in line with our key products and where our focus may lead to in future acquisitions going forward. There is potential opportunities in the MVNO space, in line with our previous acquisition of Moose Mobile that would increase scale and could bolt on to one of our existing branded offerings. And whilst the acquisitions in regional fixed was with some of our earlier targets with BeamSpeed-Web Country [indiscernible] and Community Communications, we now see opportunities in other residential infrastructure, namely Fima, to increase our assets and product offerings as demonstrated by our acquisition of the [ Cirrus assets ]. Whilst previously, we haven't specifically targeted nbn resellers with our national network underpinning our own offering, there is an opportunity to increase our scale by the acquisition of other nbn customer bases. And we launched into improved voice and UC market for SMB with a small acquisition. We see significant growth to Swoop in this area, and it would make sense to continue to grow both organically and inorganically in this space over the next few years. And finally, whilst we've previously acquired wholesale voice and fiber infrastructure, VoiceHub eliminate but continues to deliver earnings. We're not currently focused on any further acquisitions in the space. And, as announced, we have divested the noncore VoiceHub business that completed in July for $9 million. And finally, as I conclude on Slide 25, we are demonstrating strong organic growth in our core business that is continuing through FY '24 and beyond. The focus on our people is building strong culture in our teams with more engaged staff continuing to delight our customers. We have a strong customer brand in our regions and are well below our industry churn. And our investment in high-margin infrastructure, including fiber is delivering growth. Our previous acquisitions are integrating well and continuing to scale under the Swoop brand. And we have one of the most experienced and capable management and Board teams ready to build the next large-scale national telecommunications company. Along with the Board, the executive and the entire Swoop team, we are looking forward to continuing the success into FY '25 and beyond. Thank you.

Thank you, Alex and Patricia for the presentation. [Operator Instructions] As there are no questions, I would like to thank our speakers for today's presentation, and thank you all for joining us. This now concludes today's conference call. Enjoy the rest of your week. You may now disconnect.