Acusensus Limited (ACE) Earnings Call Transcript

Good morning, and welcome to Acusensus' Full Year Financial Year 2025 Results Presentation with presentation up on your screen released to the ASX this morning. From the company today, we have the Managing Director and CEO, Alexander Jannink; and the company's Chief Financial Officer, Anita Chow. [Operator Instructions] But with that, Alex, I'll hand over to you. Thank you.

Thanks very much, Simon, and thank you, everybody, for taking the time in that last week of reporting season. So I'll try to get through this pretty expeditiously. I think it's worth reflecting for us that we've been listed just 2.5 years. And when we came on to the Boards, we were enforcing in only two states, in New South Wales and in Queensland. We had very little International revenue. And now with this set of results that we're reporting on today, the revenues are up 60% compared with our listing forecast. We're operating in four different countries with active enforcement going on right now. We've significantly expanded our product portfolio. And so I think it's quite remarkable to actually reflect on the progress that we've made as a company. And so I'm quite excited to run you through the results today and also excited to think about what we're going to do next. We'll start with a very high-level overview. This is a new slide for us. I think it's important to recognize that our counterparts are all government, and we're basically providing an essential service, and we have an extremely reliable counterparty in government with no bad debts. 96% of our revenues are recurring revenues. They're long-term locked-in contracts because we've got a very, very strong position in Australia. And for the first time today, we are releasing segmented reports in this investor deck, which show just how much profit comes out of a scaled operational business in Australia. This business is global by nature in terms of the solutions and services that we supply. And so as we get that kind of scale in our international businesses, then we can expect much greater profitability to come out of that International segment as well. We've been growing extremely consistently, and we have 100% retention to date. So we've got a very good track record at the moment. As a company, we are truly pioneers. We develop world-first technology and then use that to get services contracts. And as a company, we are operating cash flow positive, so more than $8 million of operating cash flow this year. Just take a moment to pause on why we exist. We're here to save lives. And we do that through being a true innovator in the market. We were the first company in the world to supply behavioral enforcement solutions for mobile phone use and for seatbelt use. That's two of the fatal five that causes the majority of road deaths and casualties. And I'm really proud of the work that we've done in that our programs have consistently correlated with very significant driver behavior change and have correlated with reduced road fatalities. And you can inspect the chart there at your own leisure. So financial year '25 was a really strong year across a number of fronts. We continued an incredible run in Australasia of securing further new business with the big contract nationwide in New Zealand, with the world-first multifunction enforcement contract in West Australia. We also continued that track record of expanding our existing contracts. And notably, the Queensland contract expanded quite significantly and the ACT contract is adding on seatbelt enforcement. We had the very first program that we ever delivered was the New South Wales mobile phone and seatbelt program, and we won that in a competitive tender process again now, securing that for another 5 years, just showing our lead in Australasia and in mobile phone and seatbelt advanced AI-based enforcement. Plus, the R&D team that we had haven't been resting. They've been continuing to innovate and to deliver new solutions and technologies. On the IP side, I'll talk about rounding out our enforcement portfolio that includes red light enforcement now. And we've had a significant investment in the new product line of Road Worker Safety. It's been very pleasing to see that take off in addition to all the other smaller modes and enforcement things that we've added to our technology stack. Of course, we've had some very strong international growth. The U.S. business at the start of the financial year had one enforcing customer. We now have six states that are actively using our solutions for enforcement, and I think we have very good prospects to keep growing that in the year ahead. But at the end of all that, I think the most significant thing that we did in financial year '25 was secure business into the future. And so we have provided guidance for the next financial year, financial year '26 at the top line. So we're expecting to see at least 33% growth in revenue. Of course, most of that growth is already contracted and locked in. This slide has a lot of detail, which I'll let you read in your own time. I think the thing that I want to highlight is that there are a number of different engines that are driving our growth. So we see growth each year in securing the new contracts. We also see growth in expanding the contracts that we do already have. We see a significant opportunity offshore, and we delivered on our promise to double International revenues in financial year '25. So we exceeded that target. And of course, there's the new product lines that are coming into play that serve our existing markets and open up new markets as well. And there's nothing that typifies that more than the Road Worker Safety line. But also when and if we're successful in developing the impaired driving solution, that will again be brand new and world-first. So I'll just run briefly through the highlights. Revenue was up 20% to $59.4 million. Gross profit was up by a similar amount, just shy of 20% growth in gross profit, I think, 18% to 19%. We said a year ago that we would continue to invest for the long term, which means growing those offshore business units, growing our product suite, which will deliver good returns in the years to come. And so that saw a pretty flat EBITDA, had positive operating cash flow. We've got a very strong balance sheet, $21.5 million of cash on the balance sheet and no debt. As I said, 96% of our revenue is recurring revenue. It's long-term locked-in contracts. And we're now up to a decent number of units enforcing across the globe. It was around about 150 at the end of the financial year and a bit higher now. So we talk about that new business that we secured, this graph demonstrates that. Total contract value since inception grew by 84% in a single year. So that's the orange line. And the blue columns indicate how much revenue is locked in and still left to deliver. So we've got a record amount of work that is secured and ahead of us. It's a very pleasing position to be in. I'll just go briefly through the main segments of our business. If I look at Australia, obviously, we're really proud to renew the opportunity in New South Wales. I think it's fair to say that we would be the dominant enforcement services provider across Australasia now. As always, we've been expanding on our existing contracts. I think it's really important to recognize that there is still plenty more opportunity in Australia from existing contracts and from new ones. You can see that there's more room to grow across West Australia, South Australia, Queensland in the existing contracts we do have. And of course, there are new potential contracts in other states that we're not currently in, such as Victoria. So financial year '26 from the start of this financial year, we commenced live enforcement in New Zealand in our nationwide speed enforcement contract. It's a really significant contract for us. So I'm very pleased to have secured that and to be delivering on that in New Zealand. I think what's really important to recognize, and it's one of the reasons why we -- I think we tend to win more business is that we do what we say we're going to do when we say we're going to do it. And so we've got the cars, we've got the trailers. We're meeting the time frames. Most of the fleet is already built. When we win a contract, it goes live on time. And that is not necessarily usual in this sector. So I'm really pleased with what the team in New Zealand and Australia supporting them have been able to do. This is expected to have full operational capability by the end of the calendar year. In the United States, again, we've had some very pleasing progress. A number of new customers have come online with the real-time enforcement module. So it's progressively adding states, and I expect that there are some more states to come in FY '26. This has been tracking well. It's -- the revenue profile in the U.S. is tracking pretty similarly to the first few years of the Australian business. So it's pleasing to see it having doubled in the last financial year or a bit more than doubled. I think when we look at our U.S. business, there's obviously a number of states, and we're going into this in a planned and staged way. So right now, most of our business is in real-time enforcement, that's assisting police to do what they could not do before really, which is effectively enforce phones and seatbelts and also enforcing speed. From there, we can move on with -- from state-level deals to community level deals and ultimately into automated enforcement. And we are starting to progress some of that activity towards trying to secure work in automated enforcement in the U.S., which is obviously a step change potentially in revenues for our business. In the U.K., the U.K. is our other key focus market internationally. And it has been a slow year for us in terms of sales in the U.K. We have the one enforcing county in Devon and Cornwall that continues to enforce and that's been going through the whole financial year. I had hoped to convert more opportunities through this financial year. But what I will say is that there has been behind the scenes some key movement in the last few months. In particular, there is now a growing acceptance within senior decision-makers to permit the use of training courses for mobile phone offenses. That's really key because the way that a county can get their remuneration and their funding to pay for our services is by diverting users, road users who are illegally using phones or not wearing seatbelts on to training courses. And now there's an acceptance of which kinds of training courses can be utilized for our services, which opens up the funding for the county. So I'm hopeful for the year ahead that we'll see a better year in '26 than we did in '25 in the U.K. In the meantime, we have been improving our U.K. business as an effective counterparty to government, for example, in getting certification in ISO 27001 and a few other things that bolster our presence and position as a good counterparty. Our Road Worker Safety solution is now in the final stages of pilot, and it's about to be commercially launched. As we said a year ago, we would launch this in 2025, and that is what we're going to do. But the core of this, just to remind people that by deploying this solution, this technology for a few dollars a day per worker, there can be crucial seconds of extra notice given to those workers of danger they might be hit. And this technology also provides AI-driven predictive safety information for the whole site, along with other valuable information for the end customers as well. And when I look at the pilot activity that we've been doing, we have added a number of other premium partners into our pilot activity to test more of the use cases of Road Worker Safety. So you recall, obviously, we have the relationship with Fulton Hogan, which we announced, a Tier 1 road constructor, which expose us to a number of road construction projects. We also realized over the past year that we should move forward the launch into roadside assistance and traffic management and has two excellent partners in the pilot phase in RACV and Retro Traffic that have been working with us, validating and exposing us to those sites and technologies and areas of product development. So we're at the point where we will commercially launch this in the next couple of months. And that will be targeting a subset of the road construction business at all of the roadside assistance business and the traffic management business. Then as we move into 2026, there will be additional features and functionalities that come online, which will enable the broader spread of road construction sites and locations. And then obviously, from there, this, again, is an internationally focused product. And so once we've released those features and functionalities in 2026 and continue to scale the team and the clients, that will then move offshore. So we have a number of different clients interested. We've deliberately limited the number of clients that we're working with in the pilot stage. So we have a really tight and close partnership with those clients. And then so once we've commercially launched it in the next few months, we can bring some of those other potential clients that we've been talking to onboard and actively using the solution. When we look at our IP portfolio, we've obviously developed a lot of core capability and functionality that can be applied into other adjacent spaces. On this slide, the one I wanted to call out is that we are now supplying or we will be supplying an intersection-based enforcement solution that rounds out our enforcement camera offering. It's probably the one bit of technology that we hadn't previously offered that most other enforcement camera companies do. And that lets us sell additional services to -- predominantly to our existing clients to round out the complete set of what they need. With that, I'll hand over to Anita to take you through the financials in depth.

Thank you, Alex. I wanted to start the section with just taking a step back and provide an overview of the growth that we've seen over the last 6 years. The charts illustrate the remarkable growth. We started with one long-term contract in one state in Australia and have grown to 17 long-term contracts across four countries: Australia, U.S., U.K. and New Zealand. We've consistently generated continued top line revenue growth, which has translated directly into strong gross profit expansion. While our adjusted EBITDA has leveled off recently, this has been deliberate. We've been prioritizing strategic investments to build a strong foundation for future growth. Now let's dive a little deeper into the profit and loss for FY '25. We delivered a strong top line performance with revenue increasing by 20% to $59.4 million. This was primarily driven by new contracts in both Australia and overseas, along with increased scope from existing customers and inflation increases. The company reported gross profit of $26.6 million, an 18% increase on FY '24, driven by revenue growth. There was a slight decline in gross profit margins due to higher operating expenses associated with some of our programs, particularly in the second half. Adjusted EBITDA, which excludes share-based payments expense and litigation costs, decreased 12%, driven by higher operating expenses. Operating expenses increased 26%, driven by investment in headcount and processes to support future growth and expansion into the U.K. and U.S. EBITDA declined due to higher litigation costs as well as share-based payments expense with the new structure introduced in FY '24 entering in its second year. To better understand our revenue growth, this slide breaks down the key drivers by geography and by customer. On the left, you can see that total revenue increased from $49.6 million to $59.4 million in FY '25. Australia and International both showed strong growth. Australia growth contributed $7.6 million or 16% and International growth contributed $2.2 million or 104% increase. On the right-hand side, the bridge shows that new contracts and existing contract expansions were the primary drivers of this growth with a smaller contribution from one-off projects. The key new contracts included full year impact from South Australia distracted driving, multifunction enforcement in Western Australia, New Zealand mobile speed program and real-time enforcement programs in the U.S. Drivers of existing contract expansions include increased units for Queensland mobile phone and seatbelt as well as speed contracts and then also turning on the seatbelt module for New South Wales mobile phone contract. I would like to point out that revenue from New Zealand speed was only $0.4 million for the financial year with the deployment of that commencing in the last few months of FY '25, and we're expecting that to ramp to full capacity, which is expected by the end of the first half FY '26. As a result, the key trends we currently see will switch in next year, resulting in a high proportion of International and new contract growth. This slide provides an overview of the business unit financial performance. We wanted to provide a clear indication of our business unit profitability. We split out the business into Australia, International, which includes U.S., New Zealand, as well as U.K. and then Road Worker Safety and Shared. Our core Australian business is a strong performer, contributing $55 million in revenue and a gross profit margin of 46.7%. This provides a strong foundation to support our international growth and new product development efforts. The International business contributed $4.2 million in revenue. Adjusted EBITDA is negative due to a smaller scale, but we do see this as a key growth area and continue to invest here. Although still small, we've decided to present Road Worker Safety separately so the success and investment can be separately tracked. You also see a segment called Shared. This is effectively represents the shared costs across the business, which is -- effectively represents R&D costs and then also the corporate services like executive, legal, finance and HR functions. These are essential investments that support the entire group's operations and long-term growth strategies. So on to the balance sheet. Our balance sheet shows a strong position to support future opportunities. At the end of June, we had a strong cash balance, including term deposits, of $21.5 million with no bank debt at present. However, we are having discussions with several banks to introduce debt to support future growth and to complement our capital structure. Discussions have been very supportive to date. Other items on the balance sheet to call out include the increase in property, plant and equipment. The amount you see there is net of depreciation. Of the $13.2 million fixed asset CapEx spend, the majority was spent on new assets, of which 76% was on trailers. There was less than $1 million spent on asset upgrades where we had a one-off project to upgrade our trailers, and we spent around $800,000 on office and computer equipment. Also I want to call out contract assets and contract liabilities. We need to consider this together given that it mainly represents demobilization income and costs, which are capitalized and then amortized over the contract life once deployment commences. The other item to call out the right-of-use assets and lease liabilities, which also need to be evaluated together. The increase here represents the new leases for properties and cars, mainly in New Zealand and Western Australia, which result in higher lease expenses in FY '26. Turning to the cash flow page. We saw cash increase by $2.2 million during the financial year. The business generated $8.3 million of operating cash flow due to positive EBITDA contribution and positive working capital movements. Working capital movements were positive mainly due to increase in contract liabilities, which was part offset by contract assets mentioned on the prior slide. Operating cash flow and funding from the capital raising in December '24 were used to fund CapEx spend, product development and lease payments. I will hand now over back to Alex.

Thanks, Anita. I think when I look at Acusensus as an investment opportunity, it's -- we have this incredibly good operating business in Australia, which demonstrates what happens when we get to scale. And the thing for us is that the majority of our opportunities are actually international. So when you look at that segment breakdown, the International business over time, we would expect to actually be larger than the Australian business. And that profitability will improve as we get scale into that business. And yet, we still have a lot of opportunities still within Australia. There is still more room to expand and to supply new services or to supply more services in our existing contracts. Plus the R&D team that we've got is quite exceptional. It's all locally based here and is continuing to develop new technologies and enhance our existing technologies and make them better than what anybody else has on the market. And we continue to look at how our entire business operates and continue to improve it across a number of different metrics. So I look at the outlook and strategic plan for this financial year. Obviously, we're expecting very strong growth in FY '26 because of the wins that we've had through FY '25. We're really excited by the opportunity in New Zealand. It's a huge contract, but we're absolutely ready to roll on time. We've got the cars, we've got the trailers, we've got the team, so good to go there. I'm really keen to see what we can secure both domestically and internationally, particularly keen to see what kind of progress we make in the U.S. over the financial year. And of course, very exciting will be the launch of the Road Worker Safety product line in October and I really look forward to updating investors on how that goes as it makes its journey through multiple clients and multiple use cases. So with that, I'm very happy to take questions, and will hand back to Simon to coordinate.

Great. Thanks so much, Alex, and thanks, Anita. Our first question is from Jasper at Canaccord Genuity.

Congrats on the result. Really great set of numbers. My first question is sort of just around guidance. Now it's pleasing to see the big step-up in revenue growth expected in FY '26. However, there was no EBITDA or cash guidance provided. And given you are prioritizing strategic investment at the moment, could you maybe give us more detail on your expectations for OpEx growth and then specifically CapEx growth in FY '26 as the business continues to scale?

Yes. Thanks for the question, Jasper. I might start with a high level and then hand to Anita. At the high level, we see a number of really strong long-term growth opportunities for the business. And so we're going to continue to invest in those long-term growth opportunities. That does mean that, that will result in operating expenses to fuel that growth, but we see that as very valuable long-term investment. And I'll let Anita maybe give any more color to that.

No, I think that's a good point. So Alex has covered it well. So in terms of we are expecting top line revenue growth will then also translate into gross profit expansion. And then the EBITDA, obviously, that is a function of -- we will also increase, but then there's also investments that we are actively pursuing because we remain positive in terms of the long-term growth opportunities. In relation to your CapEx investments, a lot of the CapEx spend -- so obviously, FY '25 CapEx was elevated, particularly because of the large mobilization programs. We do expect FY '26 to reduce. So there will still be some expenses for New Zealand to flow through, but it will be lower compared to FY '25.

And then just another question for me. It's good to see the Road Worker Safety solution sort of moving into commercialization in line with your expectations. Could you maybe step us through how you expect revenue from this to ramp up with the wider product rollout over the next 2 to 3 years?

Yes. And I think, obviously, right now, it's still in pilot stage and hasn't actually been commercially released. So it's probably just a little bit too early for me to provide that extra color and guidance to market and investors. I know that's not so helpful for you, but I would like to see how that launch goes. We're talking to a number of different customers. We've got some pretty strong and aggressive plans. As with other sort of growth areas of the business, just linking it back to your previous question, actually, in the short run, because this is going to be a predominantly service-based business, like as a service-based business, the more successful that we are with it, then that will also come with additional particularly cash-based expenses in the short run to get revenue over the long run.

Understood. Just one last question from me. Are there any new or existing material opportunities over the next 6 months, say, that you could potentially call out?

I think that we've got -- as you would expect from the business that we're constantly pursuing new opportunities all across the globe, but I don't want to front run any of them. So if and when we win something, that's when we'll comment on it and release that information to the market.

Thanks, Jasper. Consistently conservative, Alex, as usual. Next question. Operating expenses increased by 26%. Can you please provide a more granular breakdown of this increase? What percentage was allocated to headcount and what percentage went to other areas like expansion into the U.K. and U.S. and how you manage those costs to ensure that revenue growth outpaces expense growth in FY '26?

Yes. So majority of the increase in operating expenses is headcount driven as well as increase in consulting costs and advisory costs. So in terms of headcount, there, obviously, we have increased headcount in the U.S. and U.K. We are supportive and positive on the growth opportunities there. So we have been investing there. We've also been investing in our Road Worker Safety business unit in terms of headcount there. as well as our R&D team in terms of the continued focus on innovation. And then we've also increased headcount in operations as well just as we grow and scale. Obviously, we were founded 6 years ago, then we took a step up from the IPO. And then now we've sort of taken another step up in terms of just making sure that we are fit for scalability in terms of making sure the processes are there for us.

I'll just call out with that question. Obviously, we did provide the breakdowns by business unit that do call out the operating expenses. So you're welcome to have a look at that. But again, for us worth coloring in on the shared expenses, there's a significant amount of R&D that's sitting in shared expenses, something 35%, yes, 35% that's R&D.

Perfect. Thanks for that, Alex. Just a question around the capital raising completed in December '24. Have these funds been specifically allocated to support the expansion into new markets and R&D activities? And what are the key performance indicators you guys are using to measure the return on investment?

I think -- actually, we did supply a breakdown of cash flow. It's in the cash flow bridge. Do you want to add?

Yes. So in terms of the funds from the capital raise, so that has been invested in a combination of things across the business, ranging from fixed asset spend, and that is fixed asset spend for contracts that we've won, but then also upcoming contracts that we are aware of or programs that are yet to start. And that's why when you look at the fixed asset spend, we've still got some fixed assets that are in WIP and yet to be capitalized. And then we've also invested some funds for Rail Worker Safety in terms of growing that business unit as well as headcount -- sales headcount to support the growth internationally.

Great. Thanks, Anita. Your U.S. presence has grown from one to six enforcement jurisdictions primarily through real-time enforcement programs. How does this model which relies on a downstream police officer to enforce violations different profitability and scalability compared to the automated models used in Australia? What's the long-term strategy for converting these real-time programs into larger, more automated enforcement contracts?

Yes. So you're right to call out that obviously, scaling this is totally dependent on police officer resources. So it's not where the ultimate revenue growth will come from. And so when you get into automated enforcement, that's when you can put a far greater number of cameras. While the individual cameras have fairly similar profitability across both real-time and automated enforcement, it's all about the number of cameras that you can deploy and an automated program will deploy greater numbers and therefore, greater absolute profits. How are they linked? We see this as a bit of a crawl walk run strategy, and we are bringing the community along with us for the journey. And real-time enforcement enables good positive news stories in the U.S. and socializes and gets people used to the concept of being enforced for mobile phone use and for seatbelt use. And then over time, that can progress to automated enforcement. which goes through lobbying efforts, legislative change efforts and things like that.