Swoop Holdings Limited (SWP) Earnings Call Transcript & Summary

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

Hello, everyone, and thank you for joining us here today. My name is Alex West, and I am the CEO of Swoop. And joining me is Patricia Jones, our CFO. Again, thank you for being here as we walk through our FY '26 first half year results and going through the presentation that was released on the ASX platform earlier today. So as we go to Slide 4, we talk about 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 of automated operations and targeted product focus continues to deliver exceptional results. We achieved a 41% growth year-on-year, with $64.1 million in revenue for the half. We delivered 6% growth year-on-year in gross margin with $17.5 million for the half. And at December 2025, our total services in operation were 219,000, up 9% from the same time last year. Now as we move to Slide 5, looking at the first half FY '26 highlights. The first half of FY '26 continues our strong organic growth trajectory. Revenue hit $64.1 million, up 41% year-on-year. But also our revenue from core Internet data and mobile products was up 27% to $56.1 million for the half. Our underlying EBITDA was $6.5 million for the half, down 10%. Our operating cash flow was down from the prior corresponding period to negative $4.1 million, and this was primarily due to a significant reduction in our accounts payable position at 31 December. And our free cash flow for the half was also down to negative $14.9 million. This decline was attributable to the movements in operating cash flows as well as one-off investment in Swoop's technology platforms of around $3 million to support core consumer growth and future margin expansion. We did see organic growth in our subscriber numbers of 9% to now 219,000 as of December 2025. We continued our Melbourne Fiber rollout that is backed by customer contracts providing $61.5 million in revenues over the next 22 years and also provides Swoop significant infrastructure connecting the major data center and AI hubs through Melbourne. We completed the $6.2 million divestment of our Vonex shares in October 2025. And we also completed the entitlement offer in December, with total funds raised of $10 million, which includes the post balance date commitments of $700,000. This all led us to finish the year with a strong cash and available funding position of $16 million. And as we go to the next slide on Slide 6, the business has seen significant growth since listing, especially over the last 3 years, with the majority of this growth being from organic sources. We have seen revenues increase to $64.1 million, which is a 41% improvement year-on-year. We have delivered an increase in gross margin for the half of 6% year-on-year, which is now $17.5 million. And our continued focus on operational efficiencies has seen our OpEx compared to revenue drop to 17% compared to 23% 3 years ago. And with a focus from the Board and management, we are expecting to see this improve significantly again with a target of 10% to 20% reduction in our total operating costs to be achieved in FY '27. And finally, we have seen strong organic growth in our customer services, increasing 9% over the year to 219,000, driven by our focus on our customer service. Now moving to Slide 7, talking about our various wins and awards. We are proud to be recognized across the industry with product review awards for both Swoop Broadband and Moose Mobile; Finder awards for high data and value mobile provider, Canstar awards for the most satisfied customer and outstanding value for both our NBN and mobile products. These accolades reflect our commitment to customer satisfaction and operational excellence. And now with over 3,000 5-star reviews on ProductReview and a rating of 4.8, this sees Swoop as one of the top 2 ranked ISPs in Australia with over 1,000 reviews. I will now hand over to Patricia Jones to walk through the financials in detail, including revenue, EBITDA, cash flow and balance sheet highlights. Thank you, Patricia.

Great. Thank you, Alex. So over to Slide 9 for the summary financial results. The first half of FY '26 reflects strong organic growth across our core products, supported by disciplined cost alignment toward priority growth initiatives and the scaling benefits of our delivery systems and automation investments. Turning to the numbers. Revenue was $64.1 million, up 41% on the prior corresponding period, driven by key contract earnings and strong performance in NBN TC4 and mobile services, supported by scalable delivery models and effective marketing. Revenue from our Internet data and mobile services increased 27% on PCP. As was expected, we saw some gross margin compression with margins declining from 36% to 27%, reflecting the rapid growth of lower-margin products such as NBN and mobile. Importantly, these products are capital-light and highly scalable, which we view as a strategic advantage. The Melbourne Fiber project also contributed lower margins during its construction phase in this half. We also experienced some one-off cost impacts in our Internet and mobile businesses during the half. Looking ahead, though, we are targeting a 5% to 10% margin improvement in these core products over the next 18 months. And that's through further automation, platform optimization and ongoing supply negotiations. Underlying EBITDA for the half was $6.5 million, down 10% on PCP. But after adjusting for one-off co-build projects income and discontinued operations in the prior period, EBITDA was down 5%. So looking into this, while revenue growth has been really strong, EBITDA reflects temporary margin compression and a deliberate increase in investment across marketing activities and key growth projects. We remain disciplined in ensuring operating expenses are aligned with sustainable long-term growth, and that discipline will continue as we scale over the next 18 months. Finally, our net loss after tax of $0.8 million includes $8.9 million in depreciation and amortization, and that's associated with past investments in acquisitions, technology and infrastructure. It also includes a net fair value gain on our investment in Vonex prior to its disposal in October '25, and that unlocks $6.2 million in proceeds. Now, let's turn to our cash flow position on Slide 10, where the numbers reflect momentum, discipline and deliberate strategic investment. We closed the year with a cash position of $6.2 million, supported by $9.7 million in undrawn facilities, giving us total available liquidity of $16 million. Customer receipts continue to grow strongly, reaching $72.9 million in the first half of '26, and that's up 53% on the prior corresponding period. This growth was driven by accelerating momentum in our NBN and mobile products, as well as contributions from the Melbourne Fiber project. Excluding project revenues, though, our customer receipts increased 37% Operating cash flow declined by approximately $9.1 million for the half, primarily reflecting a significant reduction in our accounts payable position at 31 December, so a timing and working capital movement rather than a change in underlying performance. Free cash flow declined by $12.4 million compared to PCP, driven by the OCF movement and a one-off $3 million investment in our technology platforms. This investment supports core consumer business growth and underpins future margin expansion. Gross margin for the core business was 25.2% in the first half of '26. As noted previously, we are targeting a 5% to 10% margin improvement over the next 18 months, supported by supply contract negotiations, continued growth in our core consumer business and increasing operating leverage across the network. Momentum in our core business remains strong, with monthly recurring sales up 198% and monthly revenue up 39% in December '25 when compared to PCP. This reflects our continued focus on core NBN and mobile products and our commitment to delivering exceptional customer service. This momentum reinforces our long-term objective, which is to reach a point where future growth is fully funded by operational cash flows. We are progressing towards that goal through strong sales execution, optimized delivery models, targeted investment in strategic initiatives and continued scaling from an increasingly efficient cost base. Let me wrap up with the balance sheet on Slide 11. As we closed the year with a cash position of $6.2 million, supported by $9.7 million in undrawn facilities, providing total available liquidity of $16 million. Total borrowings have reduced to $16.2 million, slightly down from $16.5 million at June '25. This reflects the continued paydown of term debt associated with the Moose acquisition, alongside the use of our CapEx facility to fund the working capital requirements of the Melbourne Fiber project. We also saw a $3.3 million improvement in our net current asset efficiency, driven by a number of offsetting movements during the half. On the inflow side, this included approximately $9 million in net proceeds from the December entitlement offer and we also had the proceeds from the divestment of Vonex in October '25. These inflows were partially offset by capital expenditure of $10.7 million, reflecting continued investment in key one-off strategic projects. It also reflects the net repayment of borrowings. And finally, stepping back to the broader picture, total assets now stand at $119 million and net assets of $62 million. And I will hand back over to Alex.

Thank you very much, Patricia. So, now moving to Slide 13. We speak about our focused diverse growth strategy in the next half going forward and on into FY '27. So as we look in Slide 13, our focus is on growing our core products in NBN and mobile, as well as delivering on our infrastructure projects in Melbourne that has significant upside potential. We have seen our mobile customers grow organically by 35% to 127,000 since the acquisition, with a strong brand in market delivering great value and award-winning customer service. Our NBN customers have grown by 45% organically year-on-year as Swoop is now a fast-growing challenger in the NBN market, with customer focus and automated activation platforms. And there is amazing opportunity in our Melbourne fiber infrastructure with 35% completed to date that has $61 million committed revenues and a pipeline of opportunities of around an additional $60 million, delivering fiber infrastructure connectivity to hyperscale, DC and AI operators. Now as we move to Slide 14, the Board and management team have recently focused on the potential for increased margins in the business. There are a number of initiatives being targeted, with the full extent of these margin gains likely to be realized in FY '27. A gross margin increase of between 5% to 10% is being targeted across the entire business, supported by supplier contract renegotiations, including an industry-wide deal on the NBN, commencing at the 1st of July 2026 and growth in our core consumer business and increased operating leverage across the network. One-off investments in key technology growth platforms, combined with our ongoing supplier contract renegotiations are expected to deliver gross margins in FY '27 by up to 10%. And separate to the focus on gross margin, the Swoop team has also been focused on cost reductions in the business. There are a number of areas being targeted within the business where cost reductions can be made. The Board and management are driving these core cost changes and cost reductions across the business to deliver between 10% to 20%, and they're being targeted with the full benefit of these reductions alone in FY '27. So then as we move to Slide 15, we talk about why focus on NBN and mobile. We focus on NBN and mobile because it is CapEx light, and we are winning market share as one of the country's highest-rated ISPs and ProductReview across the major brands. Along with other awards, this drives customers to these products across both the Swoop and mobile -- and Moose mobile brands. We'll go into these products further on Slide 16, talking about mobile. Our mobile continues to deliver strong results. We continue to hold our customer numbers as we manage through the increased competition in market, along with price rises driven from underlying supplier costs. And in holding this, we again saw an increase in our revenue and cash generation over the half, and we are now seeing green shoots as the market settles and our customer base is growing again in this current quarter. And as mentioned previously, mobile is one of the most exciting products for our future. With our investment in systems and supplier negotiations, we are expecting to see a significant increase in our AMPU to be delivered over the next 12 months. Now moving to Slide 17. Looking at NBN. Our NBN market share has tripled in 12 months to now just under 0.8%. But what is more impressive is that we are still seeing our sales remain at around approximately 2% of all new NBN orders. And if this was to continue, we would be delivering over 220,000 services across our network and still targeting 100,000 NBN customers in the next 12 months. And this growth has been through the keen product focus, delivering great customer experiences through automation with services now capable of being turned up in around 5 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 the network. For our direct customers, our focus on the customer experience has seen a rise in our ProductReview rating from 4.4 to 4.8 over the last 12 months, with now over 3,000 5-star reviews, making Swoop one of the top 2 ranked ISPs on ProductReview that has over 1,000 reviews. And it is through this focus on delighting the customer that we are seeing the continued growth in the product, making Swoop the fourth fastest-growing ISP when looking at NBN quarterly net adds. Moving to Slide 18, talking about our Melbourne Fiber project. Melbourne is emerging as one of the major hyperscale growth hubs as Amazon, Microsoft, Google and Meta expand local capacity. Surging AI adoption is accelerating data center investment and driving significant fiber demand. With Australia's data center capacity expected to more than double by 2030, Melbourne is set to strongly benefit from this as new submarine cable systems land in Victoria. And we are currently completing our infrastructure rollout that is targeting hyperscale, DC and enterprise markets that will deliver a highly secure private duct network. And to date, we have delivered up to 95 kilometers, with the expected completion to be mid-FY '27. This project remains within budget, with now up to 99% of our costs under fixed price contracts with peak funding expected to be in the second half of FY '26 as the construction rate increases. And then looking at our core products, again, with the more recent investment in our internal customer sentiment training tools like Swoop EQ that uses AI to help us understand our customers and better train our staff to deliver better outcomes. This has seen the contribution to drive our ProductReview ratings up from 4.4 to 4.8, demonstrating a differentiation of Swoop products in the market, and it is why customers are choosing to move and stay with Swoop. We have invested heavily in automation, with 90% of orders now flowing through automated systems, with NBN services activating under an hour. And making the customer and automation tools available to our partners is providing for growth opportunities in the wholesale and channel space to give us the benefits of network scale across NBN and other products. We're now seeing a 4x increase in our NBN orders each month from what we're seeing at the same time last year. And in closing out in summary, the first half of FY '26 has continued our strong organic growth through strategic execution and cultural momentum, delivering on our promise to delight our customers. We are well positioned to scale further with a focus on cost efficiency, automated platforms and a deeply engaged team. Together, we are building Australia's next great challenger communications company. Thank you.

[Operator Instructions] There are no questions at this time. I'll now hand back to Mr. West for any closing remarks.

Thank you for that. Thank you once again for joining us for our first half release of FY '26. Both myself, the rest of the Executive team and the Board are very much looking forward to continuing our success throughout the remainder of this financial year and expecting that FY -- second half FY '26 and then moving into FY '27 to continue this growth and deliver some amazing results for our shareholders. Thank you once again.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.