Gentrack Group Limited (GTK) Earnings Call Transcript

Welcome all to the Gentrack FY '25 Full Year Results Presentation. My name is Gary Miles, CEO. Just a housekeeping note. Online attendees can submit a written question at any time by clicking the Ask a Question button on your screen during the presentation. Phone attendees can listen and ask questions during the meeting. We'll take questions at the end of the presentation. So let's jump straight into it. We have our standard disclaimer and then -- if we move to this key metric slide across the last 5 years. So I've been in the seat. We just had our fifth year anniversary in October for the current kind of management team, reminding everyone that we've been in business north of 35 years, coming up on 40, which is pretty amazing if you think about it. I'd like to think about us as a kind of a very experienced start-up in that regard. I'm not going to get into all the numbers because you can read them here pretty straightforwardly. But the top 2 lines are something we're pretty proud of. So a 22% CAGR over the 5-year period for revenues and 21% for EBITDA. We look forward to continuing to perform on behalf of our customers and our other stakeholders such as the investors on this line. Let's move to the next slide, which are our financial highlights for the year. So all indicators are green. I think it's something that is pretty clear from this slide. We do have midterm growth targets on our top line of north of 15%, which we plan to get back to, and we'll talk more about that. We are confident in that in light of our market space and our pipeline, and John is going to talk quite a bit about the pipeline near the end of this session. So I know a lot of people are looking forward to that, so hold tight for that. Group recurring revenue is up 13%, EBITDA up closer to 20%, 17.8%. We had an excellent year for NPAT, as you can see here, up to $20.9 million or 120% growth. And then net cash, I always end with this statement on this line. But $84.8 million in the bank at the end of the period. It means that we can deliver projects well. We can collect the cash that's due to us, and we're running a tight business. The Veovo business is performing exceptionally well. We'll highlight that in a few slides on. So I want to thank the team for the results during this transition year as we went to international. So if we look at the outlook, before I jump into the outlook, we've had several outlook statements since I've been in the business. Having trust with all of our stakeholders, including the investor base is actually super -- it's a tenet to how we run our business, and we've always met our outlook. And I'd like to say that we're pleased in this case to have done so again. So we delivered on our guidance, which for FY '25 was $230 million in revenue and 12% EBITDA margin. Based on the scale and maturity of our pipeline, we are confident that revenue growth will be higher in FY '26 than FY '25, but it's too early to provide further guidance. With strong and growing engagement across EMEA and APAC, our proven track record and the market potential in which we operate, we remain confident of our midterm guidance of growing revenue more than 15% CAGR and EBITDA margins of 15% to 20% after expensing all the development costs. So very consistent about that guidance midterm. If we move to the next slide, I'm not going to spend a lot of time on this slide because I know that people want to hear from John about the details of the number. But also, this is a super important slide, but I would like to use this as an opportunity to invite everyone to our Strategy Day, if you have not, which is a week from today in Sydney or online. If you have not registered, I would encourage you to do that to learn about the industry in which we operate and our role in it. And we're going to go into quite a bit of detail about our strategy customers. We have several customers that are going to be talking about us and how we help serve their transition to modernization. But if you take a look at the track record, it's pretty clear. We joined and there was a period of stabilization and really kind of leaning into our customer base, making sure that they were served well and happy. We were very, very, very determined to deliver a high-quality service to our customers. We were building g2.0, of which we launched g2.0 in the green bar here, and it did not make sense to go out and embrace our global ambitions until we've gone live or until we've gone to market with g2.0, which we did in the FY '23. And I'm proud to say that we won some business on the back of g2.0's capabilities, and we just went live in Genesis about 1.5 months ago or a month ago with our first major all-in customer for g2.0. We have other customers going soon, but that's a super important milestone for this company. And it sets us up to continue to grow into our core growth areas of EMEA and APAC and then to pursue our broader global ambitions, which is to be in north of 40 countries with hundreds of millions of meter points. That's where we're headed. So please join us on the 1st of December to learn more about that. If we move to the next slide, what's driving a lot of our growth and our success. First of all, we've had a lot of major renewals in the year, a lot of them. Big renewals around Shell and Pacific Light, Castle and Marble, you can read them here. Also on the Veovo side, Brisbane, AGS, et cetera. Lots of new projects where our customers are rolling out new services and capabilities. We had some great go-lives in the period. Genesis, I spoke about Utility warehouse. One of the things that we will talk about on the first is how, where g2.0 is allowing us to be able to deploy solutions much quicker and go into production much faster. So at utility warehouse, we were ready for our first customer after 6 months, which is a much safer path for running transformations for the industry and for our customers. We went live in Paramount Water Corp., which is in the Northern Territory here in Australia. That was a super complicated program, which was all of the consumers and industry in the Northern Territory for power and water and network, all in one stack. We went live with Amber and other wins, which are noted here, which are important for us. Same on the Veovo side, Edinburgh, Melbourne, Sydney, Saudi, et cetera. On the new logos, so we talked about utility warehouse. We announced ACEN at the very beginning of last year. We just announced Pennon on Friday this last week. We're pretty excited about that. That really kind of strengthens our position even further in the contested water or the B2B water space in the U.K. And then we have had some great wins also in Veovo, SEA, Infraero, which is in Brazil; Launceston, which is down in Tasmania for those that may be from Tasmania on the line. And then NAV Canada, which I'll talk about shortly. So let's go to the next slide. NAV Canada get some highlights. Once again, at the Strategy Day next week, James Williamson, who runs our Veovo business line, will be at the Strategy Day with several airport customers and talk about our airport business and what this NAV Canada contract and the other businesses that we have the other new logos and upgrades that we have going on across the airports industry and how it's transforming. What's exciting about this project besides its scale and its tenure, it's a very long multiyear project, is it opens up a new market segment for us around air traffic control. This is not applicable to all markets, but it's applicable to several large ones. So we're pretty excited about this opportunity that it brings to the Veovo book of business. But we'll go into more details next week on this. Let's go to my closing remarks. Following a year of international pipeline development in FY '24 -- '25, we look forward to return to higher revenue growth this year. A strong and growing pipeline across EMEA and APAC give us confidence in our medium-term targets. John will qualify this, as I mentioned earlier, at the end of this session. Going live at Genesis was a key milestone for the business. And as a Pennon win reinforces g2.0 is resonating well across energy and water utilities. When we talk about our pipeline, the diversity of it is actually amazing from really all aspects, and we'll come to that. Veovo has momentum and continues to win major contracts globally and grow its pipeline. When we exclude hardware sales, it's actually operating at a Rule of 50 business, which is spectacular. And we have said in the past, and we're saying now that bolt-on M&As could add products and/or capacity to provide for even stronger growth in this business line of ours. We look forward to sharing industry and sales insights at our Strategy Day on the 1st of December. So please join us. And with that, I will hand over to John, our CFO, to take you through more details. Thank you, John.

Thanks, Gary. So first of all, looking at the group's profit and loss account, you've seen that the group's revenue is 8% higher. And within that, recurring revenues have grown strongly at 13%. Our EBITDA is up 18% to almost $28 million. And what you'll see there is that our EBITDA margin, our overall margin has increased by a percentage point to just a little bit above 12%. Within the margin, the margin before LTI costs is 16%. It's a little bit lower than FY '24 and that's because we've increased our investment in our product, including the costs around landing our first deployment of g2.0 and taking g2.0 to market. That's been offset from a margin perspective in terms of lower LTI charges, both the accounting charge and the payroll tax associated with LTIs is lower as we guided. And then when we look at the -- our NPAT, our net profit after tax, that's actually more than doubled to almost $21 million. So a few things to highlight within that. So our investment in our associate Amber, which where we hold a 10% equity stake. So we bring in our share of their losses into our P&L account. And I think the thing just to call out there is that FY '25 was the first full year of us owning that stake in Amber and the prior year was actually a partial year, only 8 months within that year. We've also had the benefit of around $3 million of ForEx gains within the P&L below EBITDA. And that's really because of the depreciation of the New Zealand dollar, particularly against sterling. In terms of the tax charge, the tax line, you'll see that we've actually got an income tax credit in our P&L of $0.6 million. I mean that compares to a tax charge in the prior year of around about $5 million. So the reason that we've got that benefit is that in the U.K. and New Zealand, when shares under our LTI schemes vest, we get the tax deductions at that vesting price rather than the accounting values. It means that we've got very high levels of tax deductions. We will pay a low level of tax in those countries, and we can also carry that forward and offset it against prior year tax payments as well. Now we've seen the benefit of that in our P&L account in financial year '25. We'll see that come through as lower tax actually paid in our cash flow statement next year. And when we just think about the effective rate, so the P&L effective tax rate in FY '26 and beyond. But eventually, we will move back towards the statutory tax rates, 25% through to 28%, but it's going to take us a couple of years to get there. So we'll see the benefit of that to come for a little while longer. Looking now at the utilities revenue. We can see that that's grown by 7% to just over $193 million. Strong growth in recurring revenues, which was partially offset by lower project revenues. They're 5% lower. And that's really just a reflection of the very high levels of project work we had in that prior year. We also disclosed how our revenue splits by region. And I think the point here just to highlight is that we've actually reorganized the way that we face off to the market in the utilities business into 2 wider regions, APAC and EMEA. And what we see in FY '25 is that our growth has been led by very strong growth in EMEA with APAC being flat. Moving to the utilities cost base. I try to give a little bit more detail here than we have done previously. And you can see that in FY '25, we really stepped up that investment in our product, including the costs around taking g2.0 to market and landing the first deployment. $37.4 million. So it's around about 19% of our utilities revenue. We continue to spend more in sales and marketing. And both areas, both products and sales are areas that we're going to continue to invest in strongly because they'll drive faster revenue growth in the future. Now what we have seen and what we do see with that revenue growth is that we do benefit from operating leverage. So other operating costs have actually increased more slowly than revenue in FY '25, and we think that's the nature of our business. In terms of then our LTI costs, you can see they were lower in FY '25. When we look forward into FY '26, I think we expect those costs to be at a similar-ish absolute level, but it will be a reduction as a percentage of revenue in FY '26. Looking at Veovo, its revenue is close to $37 million, about a 15% growth over the prior year. But Veovo has had another very strong year. It's continuing to grow. It's winning new customers, it's renewing existing customers, and it's delivering more projects than ever before. It's really benefited from some major contract wins in the prior year in FY '24 in the U.K. and the Middle East as well as upgrades across APAC. When we strip out the impact of fairly lumpy hardware sales, hardware that's sold as part of the implementation projects for one of Veovo's product lines. When we strip that out, we can see that Veovo has actually grown by an underlying growth of 30%. It's really had a very strong year, and that incorporates excellent growth in recurring revenues. They're 18% higher. Looking at our cash flow. Cash at the end of the year was almost $85 million. That's $18 million higher than the start of the year, and we continue to have no external debt. We have strong cash conversion in our business, which demonstrates the quality of our earnings, I think, as Gary opened to earlier. In fact, our underlying cash generation, it's around about 83% of EBITDA, and that follows off the back of the year where it was more than 100%. Within that, we see working capital outflows for employee type accruals. And that's really just the payment of payroll taxes on LTIs that we accrued for in FY '24 and we start to pay out in FY '25. Now as I mentioned earlier, in terms of the tax line itself, you pay tax with a lag. So the benefit of that low of that P&L tax credit you see will be seen in FY '26 with quite low levels of tax being paid. We also invested a further $4.9 million in our associate Amber. We really value the partnership there, and we can see they're making some great progress. So we were quite keen to -- we were very keen to take part in the funding round they had this year, which other existing investors and new investors took part in. But that retained it in line with our 10% stake. And then lastly, cash that we hold outside of New Zealand in our subsidiaries did benefit from that lower New Zealand exchange rate when you convert it back. So lastly, I wanted to share our thoughts on revenue growth in the year we just started FY '26, but actually just as much how that then translates into where we see ourselves going into FY '27. So first of all, in terms of the utilities growth, called out here that our recurring revenues, we do expect our sort of software and support revenue, so our annual fee support services to grow around about 10% year-on-year in FY '26, following several recent go-lives and others planned. It's a little too early to forecast how managed services will grow, which is the other component part of utilities recurring revenue. In terms of nonrecurring revenue, so this is the projects services revenue. We do plan to grow that, and that would be from new customer wins that we've targeted in FY '26. So just thinking about our new customer pipeline and how that really moves us towards our medium-term growth target of more than 15%. What I've called out here is it's a subset actually of our wider new customer pipeline. It's where we're most advanced. And that pipeline has matured considerably. Currently, we are preferred vendor at 3 prospects. We're shortlisted in a process at another 3, and we are well placed in another 4 where we believe there'll be a 2026 decision. Now these 10 opportunities represent around 30 million meter points. And it's a very diverse range of opportunities. It includes deals in Europe, includes deals in Asia. It includes deals in some of the countries we operate in. It's both energy and water. It's both B2C and B2B. It includes Tier 1s. It includes quite a range of size and mix. And that really demonstrates, I think, the strength of Gentrack in terms of how our platform can appeal to quite a diverse customer base in many different parts of the world. And contracting 3 to 4 of those would set us up to grow strongly at the back end of this year, but more importantly, it sets us up to go strongly in FY '27. And then finally, when we think about our Veovo, our airports business, we -- for FY '26, we have high visibility that we can match the growth that we've seen in FY '25 of 15%. We have a very strong pipeline. So we've got a pipeline that we would love to see accelerate that. Both Veovo and utilities are both very strong businesses. So that's what I wanted to talk through in this presentation, and that brings us on to the Q&A section of today. We're going to firstly take calls that we have received -- people that we received by phone. And then after that, we will move on to online questions. [Operator Instructions].

Your first question comes from the line of Jules Cooper from Shaw and Partners.

Strong results and really appreciate that additional disclosure on the pipeline. Just one question around that, John. I wondered if you could maybe elaborate, is that opportunity set you've described there as a subset just the new business opportunities? Or does that include g2.0 upgrades of your existing customer base? Or when you refer to subset, you're sort of talking about this being reflecting new business opportunities?

Jules, so yes, just to clarify, the 10 opportunities, they're all new customers. And when I talked about it being a subset, it will be a subset of other new customer opportunities, too. We do have a separate pipeline for existing customers for upgrades for new projects. What I was trying to give some more transparency and color over though was our new customer pipeline.

Yes. No, that's excellent. That's certainly helpful. And then just, I suppose, a follow-on there is, let's assume that you're successful in contracting 3 to 4 of those and you've sort of said that would set the business up to grow strongly in FY '27. I assume that would be a comment that includes any nonrenewal of customers that have been announced already such that you're looking at strong growth in FY '23 irrespective of those previous announcements?

Yes, we believe so. So contracting 3 or 4 from that range of opportunities really does set us up in FY '27 to grow strongly regardless of potential for churn.

Your next question comes from the line of Owen Humphries from Canaccord.

Just a question around the guidance statement. So revenue growth higher than FY '25, so greater than 8%. I guess the subset of that is the kind of targeting another, call it, 15-odd percent plus in FY '26. So it backs out to the utility growth, call it, 6%. Just inside that, call it, 6% or greater than 6%, how much of that 6% requires new contract wins of the 10 opportunities?

Yes. I think what we were trying to do was draw a little bit of a line on where we think the results would move to. And I'll sort of turn to the statement we sort of make in terms of our nonrecurring revenue. I mean we would plan to win that. We would plan to grow that from new wins in FY '26. So that's really the thing that has an impact and would change the level of the FY '26 result. It has most impact, of course, we believe, in the following year, which is why we talk about moving towards those -- our medium-term targets with success across that pipeline.

So just to clarify there, if you didn't secure any of those 10 opportunities, would the growth rate still be 6-plus percent in utilities?

Look, I think we would expect there to be quite a balance of things that we would win from our existing customer base. So we still have things that are contracted and things to close. But I think we can grow strongly with winning new business in FY '26. But we would still grow if we secured new business later in the year, for example.

Good one. And then the -- just on the R&D spend. So getting g2.0 live, I guess, in your presentation there, you talked about a $37 million kind of product investment on R&D, you could say, which now that g2.0 is live, can you just talk through that level? Is that meant to unwind going forward or it be reallocated?

So I think -- so this is looking at the utilities cost base slide. And I think the point here is that we have -- we've got choices. So we've stepped up that investment. We don't have to grow that investment as fast as revenue grows. We want to continue to invest in our product. So I think it's really around what level do we take it to from here as opposed to thinking that we're going to sort of scale back on our plans to invest in the business.

And you've used the word strong growth in FY '27. Now strong means has different meanings to different people. What's your view of strong? Can you kind of give us a broad range?

Yes. Look, what we're trying to do is to give an indication of how do we move back towards our medium-term target, which is greater than 15% CAGR. So for us, that's the challenge. That's the target. When we think about strong growth, it's moving -- it's that target. It's moving to that target.

Your next question comes from the line of Joshua Dale of Craigs Investment Partners.

Of the 10 prospects in the pipeline, is there any indication you can give around whether they might land in the first half or second half of FY '26 or perhaps more broadly, any indication of expected timing?

I think that that's one of the -- Josh, it's a good question. It's one of the things that's why we're holding back on a very firm forecast or outlook statement for the year. Things take a long time to contract. That's the way it is in the industry. We're finding that the pipeline as it matures, just takes some lumpiness out of it because it's getting broader and there's just more deals. So that will benefit us. We also see that the pace of transformation is accelerating in general across the globe. But to say exactly when these contracts will be inked is something that we have not come out with at this point. I would tell you that generally, with the number of deals that John is talking about, most of them will be mid- to back year, it's probably realistic.

And with 30 million meter points, would each of them be large enough to warrant their own separate announcement to the stock exchange from you guys or perhaps don't?

We look at them on a case-by-case basis. There's clearly some that would. I think also you've got to think about do they get contracted in stages, a whole range of things that we look at the time. But certainly, there's things that we would like to come and talk to the market about looking in time.

Okay. Just last one. When might you have confirmation that you've retained Genesis' B2B business?

Right now, all the focus on the Genesis is on their -- the B2C book. So the priority for both businesses is to get the whole B2C book live. Obviously, we have conversations about B2B, but that's not the focus of either company at this moment in time. So I think we'll let them speak to their shareholders about that. But it's not something that's having a discussion either way as not being in or being in. It's just not the focus right now for the business from our conversations. I don't want to speak on behalf of their focus areas for their business.

Your next question comes from the line of James Bales of Morgan Stanley.

I just want to understand the constant currency growth that was achieved in FY '25 and to provide some context in terms of the sales acceleration you're expecting in '26.

So when you say that -- sorry, the sales acceleration in FY '26 from a -- I mean, I think when we plan forward in FY '26, I think we think about things in today's currencies. Certainly, when we're sort of forecasting through, that's what we do. We wouldn't sort [indiscernible] on the basis of.

Yes, yes, I totally get that. I guess I was trying to understand if we looked at the 8% growth in '25, if that was on a constant currency basis, what sort of run rate are you expecting? What sort of run rate did that translate to? And how much acceleration is sort of baked into the forecast?

Look, so I think if we think about FY '25, I mean, we haven't quantified it in the presentation. We have benefited from strong sterling. It's a little hard to tell actually because we've got sources of revenue in FY '25 that just didn't exist in the prior year in terms of the way that the organization moves into new geographies or even does things like sell some of that lumpy hardware. It's a different profile year-on-year. So we've had a number of things. I think we probably had benefit from a strong sterling. We've had a tailwind from just selling less lumpy hardware. And then we've also had some projects, I think, that have sort of been stretched out perhaps into FY '26. So I think we find the FY '25 result is actually a fairly fair reflection of performance and where we thought we would get to in terms of our guidance. And as you translate that into FY '26, again, I think we can see just at today's exchange rates how our recurring revenue, for example, in utilities can grow 10% year-on-year. The Veovo business can match its growth in FY '25. So that's the way that we've thought about it in terms of a currency position.