Swoop Holdings Limited (SWP) Earnings Call Transcript & Summary

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

Hello, everyone. My name is Alex West and I am the CEO of Swoop. With me on the call is Patricia Jones, CFO. Thank you for joining us today for our first half FY25 results. This morning, we'll be running through the investor briefing that was uploaded to the ASX platform. So now on slide 3, who is Swoop? For those of you that are new to the story, Swoop is a premium provider of residential and small to medium business broadband, delivering over our own high-margin fiber and fixed wireless infrastructure in underserved regional and outer metro areas of Australia, as well as by the NBN for national coverage. We also operate under the Moose Mobile brand, supplying residential mobile telephony for price-conscious consumers via a national NBNO on the Optus Network. And it is through this go-to-market strategy and efficiencies through automating operations that we have achieved the amazing results that we'll now run through. So on slide 4, going into the half-year highlights, Swoop continues to uphold its reputation as Australia's one of the most innovative telecommunications infrastructure companies by strategically optimizing the resale of other networks alongside its own infrastructure. Swoop has achieved these outstanding results. In addition to demonstrating strong sales and consumer service performance on the NBN network with a focus on automation, Swoop has successfully expanded its multi-technology infrastructure and is then transitioning customers onto its own network. I'm delighted to report that the half was a great success, delivering strong organic growth in the business. The growth has delivered a half-year revenue of $45.8 million, up 5% on last year, with an underlying recurring revenue, which excludes the impact of discontinued operations, growing by 15%. We have had an underlying EBITDA of $7.3 million, noting that core business EBITDA, which excludes one-off co-build projects and discontinued operations, is up 12% on the first half of FY24. And this growth has been consistent with a 24% 3-year compound annual growth rate in revenue of 24%, and an 11% compound annual growth rate in underlying EBITDA over the last 3 years as well. We have also seen a significant growth to our subscriber numbers, with a 24% increase since the 31st of July, 2023, all from organic growth. Our mobile SIOs were over 128,000, which represents an increase of 9% since December 23, and our non-mobile SIOs increased by a massive 67% over the last 12 months to 72,000. The half also saw some significant customer wins, with Swoop signing a 3-year deal with Flip for wholesale internet services that is expected to deliver at least $10 million annually prior to any customer growth on their side. And we also commenced the construction of our 300-kilometer Melbourne fiber network that is backed by a key NASDAQ listed customer contract with community revenues of up to $36 million over the next 22 years. We also completed the previously announced sale of our non-core voice wholesale business for $8.8 million, and we have significant firepower on the balance sheet with available funding of $15.5 million, so have significant runway to capitalize on any potential organic growth or strategic opportunities. Now moving on to slide 5. Expanding on this further, we take a closer look at our core business results. Swoop has been involved over the years in various public-funded programs that have increased the expansion of our fixed wireless network into regional Australia. These programs have delivered increased infrastructure and Swoop's own assets that provide for continued growth in our residential fixed wireless broadband products. However, as I've mentioned previously, there's no guarantee that new funding programs continue once existing projects are completed. And also with the sale of our non-core wholesale voice business, the revenues from these products won't continue. So reporting on the core business removes these one-off impacts and discontinue operations from our results. With these impacts removed, we see a 17% increase in our core business revenues to $45.1 million in the first half of FY25, a 10% increase in gross margins of $16.2 million, and a 12% increase in EBIT data of $6.9 million. And you'll see from this that whilst revenue has grown significantly, there has been a slower growth in gross margin. This is a result of some of our lower-margin key products like NBN and Noble that have a much lower CapEx to deliver, growing at a much faster rate than our higher-margin infrastructure products like fixed wireless and fiber. But showing that the business by removing the government-funded and discontinued operations, we are showing that as we continue to operate this business, it is still growing strongly through our focus on key products, customer service, and automation. Moving on to slide 6, it's also been a very successful year for Swoop in other areas, winning several customer awards as well as being recognized for our growth efforts. Whilst you can see them on the page, I'm very proud and very thankful to the entire team for their efforts and want to wish some of them. We were awarded the Product Review Awards in 2025 for both Swoop Broadband and Moose Mobile, where we are in the top 4 internet service providers for Swoop and in the top 2 mobile service providers for Moose Mobile. We were also named as one of the Australian Financial Review's customer champions, and we were also the Deloitte Fast 50 Leadership and Enterprise Growth winner for 2024. I will now hand over to Patricia Jones to run through some of the financial highlights in more detail.

Thank you, Alex. So the first half of the financial year has been another solid performance driven by strong organic growth in key products and tight cost control. We continue to scale off the back of strong sales across the business as well as see the benefits of our investment in delivery systems and automation. Looking at our financial results on slide 8, 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 interim financial report released today will show the results as a 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 have therefore shown these results on a line-by-line basis, including both continuing and discontinued operations. Given the July 24 divestment date, the results reported include VoiceHub for only 19 days in the first half of 25 versus the full 6 months in the comparative period. Looking at the half-year results, headline revenue is up 5% year-on-year, driven by strong NBN, TC4 and mobile service sales, which have been underpinned by our scalable delivery models and compelling marketing campaigns. Offsetting the impact of strong sales is lower co-build income, down $0.8 million, which is due to the timing of these projects. Very pleasingly, we have recurring revenue growth of 15% year-on-year. Our gross margins have decreased year-on-year from $17.2 million to $16.6 million. This reduction largely reflects the divestment of VoiceHub. What is important to understand in terms of the underlying business is our core business. Our core business gross margin, which excludes one-off co-build project income and discontinued operations, is up 10% on first-half-24. We have seen some gross margin percentage compression, from 40% in first-half-24 to 36% in the current half-year. As Alex mentioned earlier, while core business revenue has grown significantly by 17%, there has been a slow growth in the core business gross margin. But again, as Alex noted, this is a result of some of our lower margin key products, such as MBN and mobile, which will require a much lower level of CapEx to deliver, growing at a much faster rate than our higher margin infrastructure-based products like fixed wireless and fiber. Our core business EBITDA, which again excludes one-off co-build project income and discontinued operations, is up 12% on first-half-24. OpEx, as a proportion of revenue, is now 20%, and this is a reduction of 15% over the last 3 years. We continue to be really vigilant and proactive in managing costs, and this will remain a key focus as we achieve scale. Finally, we have Positive NPAT this half, a $1.1 million improvement year-on-year. This result includes depreciation and amortization charges of $9.2 million. Over to our cash flow position on Slide 9 of the presentation. We finished the half year with a closing cash position of $5.5 million with $10 million in undrawn facilities, giving us a total closing available funding position of $15.5 million. Operating cash flow is $3.6 million. And while this is lower than first half '24, this is largely reflective of lower cash flows from discontinued operations as well as some timing differences in working capital. CapEx is $7.4 million for the half year, with the majority of this through expansion of networks and a continued investment in systems and automation to support our customer growth. Free cash flow for the year is negative $3.8 million. And while there will 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 flows. This will be achieved by continuing our strong sales growth trajectory, supported by our optimized delivery models as we continue to automate and achieve scale from an increasingly efficient cost base. The $3.9 million generated from other investing activities, this is the $8.8 million proceeds from the sale of the VoiceHub business, less the payment of the Moose earnout for the second performance period and Swoop's investment in a 19.9% interest in Vonex in September. Finally, cash flows from financing activities reflect net repayments on our Westpac CapEx facility, coupled with repayments on the Moose acquisition facility. During the half year, there was a net paydown of these facilities of $5.6 million. Turning to our balance sheet on Slide 10 of the presentation. We finished the half year with a solid balance sheet that continues to be positioned for future organic and acquisitive growth. As noted previously, we have a closing cash position of $5.5 million with $10 million in undrawn facilities, giving a closing available funding position of $15.5 million. Total borrowings of $17.7 million, which is down from $23.3 million at June '24. And net debt at the end of the half year is $12.2 million. We do have a net current asset deficiency at 31 December of $11.4 million. This has increased from $4 million at 30 June '24. The change in that net current asset deficiency position over the half year has been driven by a few factors. Firstly, funding of first half '25 group capital expenditure with operating cash flows as we invest in the network and the continued optimization of operational and delivery platforms. We also had the significant repayment of Westpac CapEx and acquisition facilities during the half year. And finally, we had the purchase of the 19.9% interest in Vonex. These driving factors have been partly offset by the proceeds from the divestment of the wholesale voice business. In relation to the net current asset deficiency, as noted, we have $10 million remaining in our unused debt facilities, which are available to fund this working capital position as required in addition to future operating cash flows. Finally, at the end of the half year, we have total assets of $115 million and our net assets of $60 million. And I will now hand back over to Alex.

Thank you, Patricia. So now looking further at our product performance and future focus. On Slide 12, we've provided a company history. So whilst I won't read out every item, we have provided here a journey from our early days in 2005 to our reverse listing in 2021 that was followed by a number of acquisitions that have provided us scale and new product offerings that has resulted in recent years in key customer wins that will provide growth into the future. Now further talking about our products on Slide 13. One of the key drivers of our success, especially over the last 18 to 24 months has been the focus on our key products and ensure that the investments we make in organic efficiencies through automation and the use of AI that has simplified the business and led to our stellar growth. We now operate under 2 brands, Swoop and Moose for 2 of our key products and allows us to target differentiated markets to achieve a greater share. This is evident in our mobile offering, where we are an award-winning and industry-leading customer satisfaction mobile provider under both the Swoop and Moose brands. We are also a fast-growing challenger in the NBN market, offering customers fast and reliable service and automated activation platforms that have seen a doubling in our overall market share in NBN over the last 12 months, targeting both the residential and business sectors. We are connecting regional areas and underserved communities with Swoop's wholly owned infrastructure portfolio that offers greater service to our customers on a significantly higher-margin product with plenty of capacity to add customers without the need to expand into new regions. And we are also targeting other business, both direct and via channel to sell our products, helping them achieve their scale whilst improving the economies of scale for ourselves. And finally, we are seeing a massive potential in our new fiber offerings by targeting new developments coming to market and existing properties upgrading to fiber with significant potential in the Melbourne fiber rollout. Now on Slide 14, looking further into mobile. With the acquisition of Moose Mobile in 2022, we have seen solid growth in customers and revenues with this product with Moose customers growing 36% since the acquisition and 9% since December '23. And now has over 128,000 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 with significant opportunities to grow our users in the market with over -- potential market of over 30 million services. Throughout the half, we have also been actively cross-selling our NBN products to Moose customers that covers approximately 90,000 households, and this has been done mostly by our automated direct e-mail messaging that is starting to turn into real growth for this brand in NBN. And the focus for the first half of FY '25 was on improving operational efficiencies as well as increasing our average margins and revenues per service. Now on Slide 15. We are also seeing significant wins in our national NBN offerings with a doubling of our market share in the last 12 months to just under 0.6% with our total NBN services now around 52,000 in December. We have remained focused on delivering great outcomes for our customers as demonstrated by our strong product review rankings, improving from 4.4 to 4.7 stars in the last 12 months, which makes us one of the top 4 Internet providers in Australia. Compared to other challenger brands like Aussie at 4.5 stars, INET at 3.1 and Swoop loop at 3.2 stars. This product continues to provide us scale with massive growth opportunities as we take market share from the larger incumbents with each new order providing improved margins overall. Moving to Slide 16. For our fixed wireless broadband product, we are focused on simplifying the offers and aligning the pricing across our brands, which has now been complete in line with market trends. And with one of the largest fixed wireless infrastructure networks in Australia, we already cover around 20% of the population. And our focus going forward is to target our existing regions where there is limited fixed line infrastructure, allowing us to expand our customer base without significant expansion of the network. And as we move to Slide 17, I now want to talk about a huge area of potential for Swoop. The upgrade of the previously acquired residential fiber network in Regional Australia that we acquired in the end of FY '24. We have now completed this, and we're seeing customers delivered at a rate of up to 25 per week on our own high-margin infrastructure with a strong pipeline of orders of customers looking for high-speed, reliable services. We see this as a massive growth area for us over the coming years with approximately 1.2 million of new dwellings being developed in the next 5 years and 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 of maintaining infrastructure margins. And whilst the NBN services 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. Now moving to Slide 18. Whilst there were no acquisitions in the last year, we provide the following summary in line with our key products where our focus may lead to further acquisitions going forward. There are potential opportunities in the MVNO space. In line with our previous acquisition of Moose Mobile, there are approximately 15 small to midsized MVNOs in the market where we believe we will have success with acquisition of around 10% to 30% of these, leading to a potential increase of up to 250,000 SOs, which equates to around $60 million in revenue that would increase our scale and could quite easily bolt on to one of our existing brands and offerings. And whilst the acquisition in regional fixed wireless were some of our earlier targets, we now see opportunities in other residential infrastructure, namely fiber, to increase our assets and product offerings as demonstrated by our acquisition of the Seacrest asset. Targeting around 5% of the existing business in this space, we would expect to deliver an additional 20,000 lots on top of our existing portfolio of developments that are currently in discussion. And whilst we haven't specifically targeted NBN resellers in the past, with our national network underpinning our own offering, there is the opportunity to increase our scale by the acquisition of other NBN customer bases. This is a large opportunity of around 80 small to midsized RFPs, but even a minimal 5% to 10% success would see us a 3x increase in our overall SIOs. And we did launch previously into an improved voice and UC market for small and medium business with a small acquisition. We see significant growth for Swoop in this area. So it makes sense to continue to grow both organically and inorganically in this space over the next few years with discussions with around 3 to 4 midsized voice specialists already underway. And with all of these opportunities, our focus will be on ensuring that it is the right transaction and that there is alignment in our core values and direction to ensure that we deliver on the outcomes as opposed to acquiring for acquisition's sake. As we have demonstrated, we are delivering on organic growth by simplifying and automating the business, and we want to continue to do this without significant disruption. Now moving on to Slide 19. At Swoop, we believe that everyone deserves a better telco experience and delivering on this mission starts with focusing on our team as an engaged workforce delivers great outcomes for customers. We have a vision to become one of Australia's employers of choice, not just in our own industry but across all industries. We are proud of the culture we are building that is driving improved engagement throughout the organization with our engagement improving from 58% 3 years ago to 81% in the last half. And this is why we are proud to share our values with you. We are customer delighters, we are helping people one exceptional experience at a time. We are excellence mavers, raising the bar with innovating outcomes. We are integrity worries, standing strong with honesty, transparency and respect. We are collaboration champions joining forces to achieve more. And we are lifelong learners, embracing the culture of continuous growth and learning. Now looking at Slide 20. Swoop has submitted its second report on its gender equality profile covering the period 1st of April '23 to 30 March '24 with the results provided in FY '25. And the results are well ahead of our industry. For context, the gender pay cap is the difference in average earnings between women and men in the workforce. It is not to be confused with women and being paid the same for the same job or comparable job. This is equal pay. And our results are as follows: In terms of average total remuneration, there is a gap of close to 0%, which is significantly better than the industry average of 15.6%. And for the average base salary, there is only a small gap of 1.5% compared with the industry average of 15.5%. So when compared with industry benchmarks, Swoop's performance closing the performance in closing the gender pay gap is exceptional. Industry average for total gender pay gap is significantly higher, indicating that Swoop is ahead in ensuring a more equitable pay practices. We still acknowledge that there remains room for improvement, but we're excited by the progress we have already made and the strategies we have in place. Moving on to Slide 21. We have continued to invest in our systems and automation. We are focused on improving our customer experience tools that have allowed us to achieve fantastic reviews from our customers, resulting in improvement in our product review rating from 4.4 to 4.7 in the last 12 months. Consolidation of our data products order flows enable us onto a standard set of sweep systems, resulting in greater than 9 out of 10 orders flowing via automated workflows. Automation of our nbn end-to-end ordering processing, allowing across the group enables our customers to enjoy a sweep service within 10 minutes of order placement via our websites. And we have quadrupled our NBN order volume by investing in process automation over the last 12 months. So as I conclude on Slide 22, we are demonstrating strong organic growth in our core business that is continuing in FY '25 and beyond. The focus on our people is building a strong culture in our teams with a more engaged staff continuing to delight our customers. We have strong customer brand in our regions and well below industry churn. And our investment in high-margin infrastructure in fiber is delivering growth. Also, the investments in scalable platforms and automations are delivering strong opportunities to Swoop, and we have one of the most experienced and capable management and Board teams ready to build the next large-scale national telecommunications company. So along with the Board, the executive and the entire Swoop team, we are looking forward to continuing success for the remainder of FY '25 and beyond. Thank you.

[Operator Instructions] Question comes from Sam Horner a private investor.

I was just wondering if you could give a bit more explanation around the investment in Onex and what you're planning on doing with that?

Certainly. So as we mentioned during the call, we did make a 19.9% investment in September last year. We also took up our rights. At this stage, we're still considering options for discussions with both Onex and Mcat and nothing further we can report at this time.

You have a follow up question?

Maybe, if you can just say like how it's going to complement the business or what about is interesting to you guys?

Certainly. The most interesting part about obviously is in that voice space. They're very strong in small and medium voice where we saw definitely potential growth for us as I spoke about previously. Look, if we were to end up being unsuccessful with this particular transaction, we would continue discussions with others and potentially that space there. But they are a voice specialist and have grown their voice platform very.

There are no further questions at this time. I'll now hand it back to Mr. West for closing remarks.

Thank you, Tristan. And thank you, everyone, for joining us on the call. It was a pleasure delivering these results to you, and I look forward to doing so again in 6 months' time when we do the wrap-up for the full year. Thank you, everyone, for joining. Goodbye.

Thank you, everyone. Bye.

Thank you very much. That does conclude today's conference. Thank you for participating. You may now disconnect. Thank you.