Half Year 2026 Etherstack PLC Earnings Call
Speaker #1: Good morning, and welcome to AetherStack's Haskiew Results presentation for the period ending 30 June 2026. This morning we have CEO David Deacon and CFO Adam Howie presenting to the presentation.
Speaker #1: Investors are invited to ask questions, and there is a function at the bottom of the screen. I'll now pass to David.
Speaker #2: Thanks very much, Mel. thank you very much, everyone, for attending the Haskiew Results presentation. I'm going to go through relatively quickly the results. We've had a fantastic first half, and we even have a better second half and full-year plan at the moment.
Speaker #2: I have one or two just quick slides to just provide a little bit of background on the business to people who are not familiar with it.
Speaker #2: Then we'll talk about the numbers, and we'll talk about the drivers for profitability this year, next, and going forward. The company works in a field known as emission-critical communications, which is essential communications for public safety, resources, electric utilities, transportation like rail networks, also crosses over into the defense market as well.
Speaker #2: We have really three core focuses. We have our traditional land mobile radio business, represented by the Blue Box here, on the left-hand side. Which of the types of police, fire, and ambulance networks that you see in cities around the world also used by electric utilities, resources like clients like ours, like Rio Tinto, our energy utility customers, Ergon Energy, ACCO Electric in Canada, and a raft of electric utilities in the U.S.?
Speaker #2: They provide high-margin network equipment sales, but very importantly, long-term sticky support revenues and some of those support contracts now have been continuing to grow over 10 to 15 years of time.
Speaker #2: The middle box is our mission-critical push-to-talk business, which is the activities that we're doing around the world with partners such as Samsung, Nokia, Ericsson, the AT&T FirstNet project, pilots here in Australia with Telstra, and this is really very exciting part of the business in terms of the growth shift in the business going forward.
Speaker #2: And then right-hand box represents our defense business, which is a lot of very advanced research on future radios and future communication systems for allied armed forces and also defense wireless equipment manufacturers who we license technology for.
Speaker #2: A little bit of a smattering of some of our customers around the world, brand name defense companies, switch vendors, telcos, government agencies, and organizations.
Speaker #2: The three core businesses provide a diversified revenue mix, the traditional land mobile radio business provides solid revenues, the new growth one, which has also been driving growth this year in particular, and next year, or really going forward is the MCX business, and also our smaller defense business, which is really how we keep our technology fresh in the markets competing globally.
Speaker #2: Looking at the business and financial highlights for the first half of 2026, it was a fantastic result for the company. We had a record first half revenue, up 40% on the previous corresponding period, and the 8.5 million represented almost 84% of the low 84% of the full-year revenue last year.
Speaker #2: We are currently on track between 17.5 to 18.5 million USD forecast for the full year. The EBITDA margin on the first half was 24%, delivering 2.1 million.
Speaker #2: The underlying EBITDA was noticeably higher, and I'll come back and talk about that a little bit later. About some of the shifts in terms of margin profitability.
Speaker #2: NPAT was good to return to NPAT, and we expect that to grow materially during the second half and also into next year. Recurring revenues and other key performance indicators, 2.7 million dollars, so the full-year ARRs are going to be in excess of 5.5.
Speaker #2: Now representing over 30% of all total revenues. Those are very sticky ARRs attached to long-term government-related projects. They're not 30-day, SIM accounts, or anything else like that.
Speaker #2: These are usually contract and measured in years, those growing contracts there. While we deliver some fantastic new wins in the second half of last year, it shouldn't be lost that we also posted over 10 million USD of new contracts in the first half of this year alone.
Speaker #2: Particularly with the Australian Department of Home Affairs, that's expected to be between 9 to 15 million Australian dollars over the next 3 to 5 years.
Speaker #2: We had an increase in our British government project of 2 million dollars, or 1.6 million pounds, and also our traditional LMR business continues to provide very healthy revenues for the business.
Speaker #2: Strong operating cash flow again, for the business, and that will significantly improve in the second half, and I'll get to some of the pointers on that shortly.
Speaker #2: Very important to take a look at this year's first half in reference to last year. And the full year was 10.2 million, and we're fundamentally going to be growing very substantially this year.
Speaker #2: In the second half of last year, we had two record five-year back-to-back deals announced. One was with AT&T, effectively the world's largest telco, for an initial seven-year deal in excess of 20 million dollars, and that's just really the fixed component there.
Speaker #2: The British government, shortly after in October, after a multi-year competitive tender process, were rewarded a 15 million pound five-year initial deal with them, which is coincidentally about another 20 million USD.
Speaker #2: So on the back of that, second half last year really there in the top four bullet points, in the first half we've come out of the gates pretty well.
Speaker #2: Posting those 10 million new wins, but really on the cost side of things, it's a very important understanding some of the background to some of the margins here.
Speaker #2: We had to do significant ramp-up at the end of last year and continuing into this year, for an additional facility in the UK, a traditional facility in Reading, the new one in London, to support the new British government project.
Speaker #2: And also the completion of the build-outs of the security operations centers and network operations centers in support of the AT&T FirstNet project. Besides those offshore activities, the company also delivered major milestones, in its Australian defense project, helping to drive revenues in the first half.
Speaker #2: Taking a look at the second half, we, as I say, we provided full-year guidance in the 17 to 18 and change range. We're currently on track for new record revenue and profits this year, up 70% in revenue growth over last year.
Speaker #2: Gross margins and net margins are expected to materially increase, as a result of the one-off costs associated with the ramp-up and establishment of the new British and US projects.
Speaker #2: And that margin expansion is clearly going to result in significantly improved free cash flow. When we look at the breakdown of the drivers in the second half, these were all contracted deals.
Speaker #2: The UK government deal will deliver approximately 4 million in the second half, existing support and revenue streams almost 3 million the Commonwealth of Australia, an additional million, Rio Tinto and LMR projects, and another million USD, and we are currently in the middle of delivering further milestones actually this month on our critical Australian defense project.
Speaker #2: So we're in very good shape for the full year, and we're also set to have an excellent launching pad for 27, 28, and beyond.
Speaker #2: When we take a look at how those large wins from last year are starting to flow into this year and next year, combined with our rapidly growing ARRs, which we predict will grow to 10 million USD by the mid or end of 2028, this really gives you a bit of an understanding of some of the growth that we're looking at at the moment.
Speaker #2: The blocks in green are fundamentally open contracts and open accounts fixed and variable components that are known, really underpinning 26 and also next year's revenues.
Speaker #2: Our defense projects that we're working on here in Australia and also with the British government. And then additional revenues starting to come through from our new land mobile radio product lines and additional MCX deployments.
Speaker #2: We also announced on the 13th of July a strategic review, in light of our 50 million plus order book at the beginning of the year, and our expectations of sustained profit and growth.
Speaker #2: We're doing a review of the company's the board is doing undertaking review of the strategic and capital management framework, in particular to look at adjusting the UK PLC's capital structure for the creation of distributed reserves.
Speaker #2: I recommend that investors do take a look at in more close detail the scope of that strategic review that we announced on the 13th of July.
Speaker #2: You can find that document on the ASX website or our website. The income statement and P&L included here are obviously read off the highlights a couple of slides ago.
Speaker #2: You'll see that very significant step up in project revenues, yet when you take a look at the net margin, you'll see that clearly impacted by the one-off costs that I referred to before.
Speaker #2: What's great to see, though, obviously is the other KPI that we do keep trying to shout out every six months, which is that rapidly growing recurring revenue base, which helps take a lot more bumps historical bumps in the past out of our forward projections going forward.
Speaker #2: Improved balance sheet details listed here. What I'll do probably at this point, Mill, is bring this part of the presentation to an end, throw the floor open to questions, from shareholders.
Speaker #1: David. I'll just remind everyone, if you have any questions, feel free to enter them at the Q&A function at the bottom of the screen.
Speaker #1: Our first question relates to the strategic review. Is the strategic review limited to capital management, or are there other components up for consideration? For example, selling off some of the IP?
Speaker #2: That's a very good question, and the scope of the review is listed in the 13th of July. Announcement, so please do encourage people to go and take a look at that.
Speaker #2: It is a broader review, many things are on the table, for consideration. Our primary focus is how to accelerate returns to existing shareholders, and hopefully new shareholders as well.
Speaker #2: It's very important, as we transition to a whole new revenue level profitability level that we previously have not been operating at. The best way to deliver some of those returns to the shareholders.
Speaker #1: Thanks, David. And we have a few questions here on margins. So my first one: can you quantify the one-off costs that impacted the gross margins, and how much of those will not repeat in the second half of FY26?
Speaker #2: Yeah. We called out in the 4D specification that there are some extra details in that one. There's 300 or 400,000 USD, 350 or 400,000 USD conservatively in the first half.
Speaker #2: In the net margins, and flowing down to PBT. And so a lot of those are to do with new recruitment costs in terms of expanding both the British and the UK team, new facility costs, and also rebalancing of some of the team some of the roles here in Australia moved to roles in different regions to provide better 24/7 support around the world.
Speaker #2: So to a large extent, those growth impacted costs have fundamentally already now washed out, and so we expect to see a significant improvement in all metrics in the second half.
Speaker #2: And we have provided previously a bit of guidance there to say it's worthwhile looking at the gross and net margins in the FY21 to 23 years, as good guidance to where we expect the full year to end up, when the business is running on a stable footing as opposed to going through a growth phase.
Speaker #1: That's great. Thanks, David. And just further to that, so in regards to comments looking at FY21 to 23 margins, should investors look at that on a similar revenue to first half 26?
Speaker #2: On the margin, on the margin basis. So if we look at full year 25 versus full year 26, the two years halves are exactly the other way around.
Speaker #2: The first half of last year was unimpacted, by one-off growth and expenses. The second half significantly impacted. That impact in the second half last year spills over into the first half this year, as we finish the build-outs of the US security operations centres network operations centres and new facilities in the UK.
Speaker #2: And then the second half of this year is much more similar to the first half of this year, when those one-off costs and margin improvements fall away.
Speaker #1: Thank you. And then just a question on cash flow from operations. Should that also be stronger in the second half? And do you believe either staff will generate free cash flow for the full year?
Speaker #2: With that question, and it will be the 10th year in a row, I believe, with seven-figure operating cash flow. And that it will be materially higher than in previous years, hence the undertaking of a strategic review at this moment, to take a look at ways that the best ways that we can provide returns to existing shareholders.
Speaker #1: Thank you. And then is there a comment in the FY26 second half outlook about a material there is a comment, sorry, in the second half 26 outlook about a material increase in gross and net margins.
Speaker #1: Can you expand on the drivers behind this?
Speaker #2: Yeah, I think very much it's probably the same question asked just in a slightly different way by someone else, or queued up in the system.
Speaker #2: Really, there are going to be very few more net human adds on that side, less additional one-off expenses associated with the procuring data centre equipment and facilities and one-off costs associated with all of that.
Speaker #2: And that's where the improved underlying or you'll get an improvement by having that those costs fall away, added with the improvement that the additional revenues on the top line will provide to provide a significantly outperforming second half to the first half.
Speaker #1: Thank you, David. And then the presentation notes over 50 million dollars in new orders since August 25. What is the likely timing for delivery and recognition of those revenues?
Speaker #2: Look, that's a really good question. We've only started to scratch the surface of the orders that were announced in the second half of last year.
Speaker #2: Clearly, they're driving there's a useful amount in this year and next year. But that is the minimum fixed components or fixed expected components of those contracts with the three largest contracts being the US contract, the British contract, and the Australian government contract.
Speaker #2: Each of them has very large significant variable components, not covered in that 50 million dollars. In terms of additional services, subscriber growth, new feature growth, and so on.
Speaker #2: Good examples of that include the two million USD feature requests we received from the British government in the first half of this year. We would expect to announce similar types of feature requests in the second half and in the first half of next year.
Speaker #2: So the 50 million really represents the baseline new orders over the forward five to seven year period. These are on top of our traditional revenues that for our traditional businesses, and support agreements that are locked in.
Speaker #2: And then when you add the new variable components, which may be as much again as the original baseline 50 million, you fundamentally looking at five years of really a whole new revenue level for the business going forward, commencing really from 26 through to 2030.
Speaker #2: And that's before we start making new wins, so that's sort of we're only seeing the beginning of the impact at the moment.
Speaker #1: Thank you, David. And are there any updates on the pipeline for new MCX deployments?
Speaker #2: Look, certainly there are. And it's always a difficult one to answer without providing competitive information or information we're not allowed to provide under confidentiality agreements.
Speaker #2: I highly recommend people to go out and do their own research on this particular part of the market. For example, there's a European program called EUCCS, or the EU Critical Communications System, where basically there is a goal to have all of the EU member states connected up with this type of new technology by the end of 2030.
Speaker #2: Obviously, government procurement cycles are very slow, but there are programs and bids underway all the time. I think it's also important to understand it's not just public safety.
Speaker #2: The move to this new MCX technology is also being driven in transportation, in particular rail. We're doing the first major network upgrades from GSMR to this new type of technology over the next five to ten years, from technology that they've been using since the late 1990s.
Speaker #2: So there's public safety aspect, which we're predominantly focused on, but we are also active in the shift to this new technology inside rail, transportation, other forms of transportation, electric utilities, and also the resource sector.
Speaker #1: Thanks, David. And finally, our last question is, how flexible is your workforce? If there are some delays in the contract milestones?
Speaker #2: Well, obviously, we hope there are not delays, but you're right, these things do happen. One of the big shifts there's two parts to that question.
Speaker #2: The impacts that might have happened a few years ago in terms of the lumpiness of the revenues that we were always calling out was lumpy from one half to another half due to large single milestones.
Speaker #2: Is being dramatically smoothed out by the annual recurring revenues and the monthly support fees that we get in every single month. So the impact in terms of the shock to the business is significantly smaller.
Speaker #2: In terms of the downside impact of where we expect to be from a profitability perspective, we'll be able to sustain financially sustained any shocks should they occur.
Speaker #2: And I just don't think they will. And in regards to the staff that we have, we have no shortage of new products and other activities always queued up to develop for our customers.
Speaker #2: We often see our customers' roadmaps for three, four, five years in advance, and getting head start on some of those is really just becomes at a timing issue of investment versus return.
Speaker #2: So we do have flexibility in different ways than necessarily just worrying particularly about a headcount.
Speaker #1: Thank you. Great. And one last question to come through. Is there any update on the satellite push to talk?
Speaker #2: Oh, look, the market is developing globally in a range of different ways at the moment. And in terms of the way that public safety vehicles will use satellite communications, in rural areas is that shift is voluntarily underway.
Speaker #2: What people need to remember is that you need the middleware to allow all of those comms to come back into the same command and control centers inside the urban centers or the regional capitals to make that happen.
Speaker #2: And that really is what a lot of this technology that we're doing is about. Regardless of whether it's coming over a traditional narrow band terrestrial bearer, or over a satellite bearer, and that's why we are very well placed in the ecosystem with this middleware switching solution.
Speaker #2: We're also doing some future research on new types of handsets with different equipment manufacturers in Japan and the United States, who are looking to license our technology, to go inside those platforms.
Speaker #2: As a result of not just the well-known constellations that are up there at the moment, but new constellations that are being built out with a much more specific guaranteed service and bandwidth mindset in place, which is essential for public safety and critically essential for mission-critical communications as opposed to providing ubiquitous bandwidth data.
Speaker #1: David, can you comment on how important the Samsung agreement is going forward for the business?
Speaker #2: Oh, look, it's a very important relationship. The British government, excuse me, the British government obviously selected Samsung and IBM in the multi-billion pound contract to deliver their parts of the ESM.
Speaker #2: So it's another stamp of confidence that our solution works with Samsung. Samsung is certainly a company you never want to underestimate in terms of their influence and ability to win work around the world.
Speaker #2: So we're very happy to continue to work with them. The exclusivity arrangements that we've previously disclosed have now fallen away, and we're very happy to be broadening our relationships with other switch vendors outside of the Samsung relationship as much as we love Samsung.
Speaker #1: And in terms of the ongoing trial with Kellstra, what is the final timeline on that decision?
Speaker #2: The Kellstra trial has recently come to an end. The key part of what happens next in Australia was Australia is running several years behind from a government funding perspective.
Speaker #2: You'll see in the last budget that NEMA, the National Emergency Management Agency, part of the federal government, has set aside a budget to prepare for the procurement of a future nationwide public safety mobile broadband network.
Speaker #2: So to a large extent, different countries will go at different speeds effectively beholden to government planning and government resourcing. Other countries are much further ahead.
Speaker #2: New Zealand's probably a couple of years ahead of Australia. And certainly many of the European countries are further ahead than that. So Australia will be a multi-year path from here currently.
Speaker #2: But there's certainly no shortage of other opportunities around the world for us to pursue and historically ETSX revenues have always been offshore.
Speaker #1: Thank you, David. That looks to be the last of the questions, so I'll pass back to you for final comments.
Speaker #2: Look, thank you very much. Mel, thank you very much for the questions. Just really please keep an eye on our ticker. We look forward to delivering the results that we have put out to the market with guidance we put out to the market going forward.
Speaker #2: And we also look forward to a new announcements of new relationships and new deals in opportunities in the second half of this year, and into the first half of next year.
