Locate Technologies Limited (LOC) Earnings Call Transcript

Good morning, and thanks for joining the Locate Technologies Q1 FY '26 Quarterly Results and Business Update Webinar. My name is Georgia Katos, and I'm part of the Locate Technologies team. I'd like to extend a warm welcome to any new investors who have joined us on our journey, and thank you for your support so far. I'm joined today by CEO and Founder of Zoom, Steve Orenstein; and CFO, Michael Gayst, who will be presenting Q1 FY '26 quarterly results and providing an update on the group's businesses. The quarterly activities report and the Appendix 4C were lodged with the ASX this morning. Following the presentation, we will have a Q&A session. [Operator Instructions] I'll now hand over to Steve and Michael to take you through today's presentation.

Thanks, Georgia, and it's great to be here, everyone, and I really appreciate everyone's time. I'll just get this started. Just confirm you can all see my slides. Great. So I'm really excited to announce the results for this quarter. The -- so FY '26 quarter 1, group revenue of $1.48 million. Of that revenue, $787,000 was made up from Locate2u revenue. And for the first quarter since the company started, we had a positive EBITDA for Locate2u. So it's really great to see that we continue to see growth inside of the Locate2u business. And it's really pleasing for the team to be able to see all the hard work that's been done in terms of product development, but also sales and marketing efforts in the Locate2u product and seeing that now come to life in the Locate2u business. There's still a long way to go. There's still a lot of work that the team is working on, but we're very encouraged by these results. And as the product continues to mature, we expect to see the revenue continues to increase. We've been working hard on the NZX listing, and that's on track for an early December listing. That's subject to the approvals. The main approval now is the scheme book, which is in the process of being lodged with ASIC and then waiting for a shareholder vote that we expect to take place in November. The company continues to hold its Bitcoin position. We now have -- continue to have 12.3 Bitcoin on our balance sheet with a value today of $2.2 million. I'll now hand to Michael just to talk through the company's group revenue and a couple of other financial slides.

Thanks, Steve. The key message for the quarter is our revenue is stable. We've had continued growth from Locate2u, but we have had some softness in the Zoom2u business. For the quarter, group revenue was $1.5 million, which is broadly flat on the prior corresponding period. The SaaS platform, as Steve mentioned, Locate2u continues to be our growth driver with revenue increasing 19% year-on-year to nearly $800,000, driven by some new enterprise customers. On the other hand, the Zoom2u segment generated $690,000 of revenue for the quarter, which is down 20% on the prior year, which is largely reflecting the softer consumer environment and lower volumes that the business has consequently benefited from. While total group revenue has been steady, the mix is shifting, and Steve will show you that later. Locate2u is becoming a larger part of the overall business, which positions us well because it is a high-margin growing business going forward. Next slide, please, Steve. In terms of EBITDA, on a normalized basis, the business was very close to breakeven EBITDA. The Zoom2u business generated EBITDA of $303,000 for the quarter. So the business remains profitable, notwithstanding a slowdown in demand. As Steve also mentioned, like Locate2u achieved a milestone, its first positive EBITDA result, a very small positive EBITDA. And in terms of group EBITDA, the reported EBITDA was a loss of $189,000, but this did include approximately $140,000 of costs in the quarter related to the New Zealand transition and $43,000 in noncash ESOP expenses. So excluding these one-offs, normalized EBITDA was essentially breakeven at just negative $3,000. So we're effectively operating at EBITDA neutrality before transition and ESOP noncash expenses, which is a solid result as we look towards moving the business towards its NZX listing. Next page, Steve. In terms of cash from operating activities for the quarter, there was a negative cash outflow from operating activities in the quarter. There are a couple of factors impacting that. Firstly, there was some one-off expenditure associated with engaging with the ASX regarding our Bitcoin treasury strategy and our proposed delisting. So we had some legal expenses that were incurred there. We saw an increase in enterprise debtors compared with June, but this is simply timing related, and there is expected to revert in the next quarter potentially. And then Zoom2u softer trading performance also impacted cash inflows. But just in terms of our liquidity, it remains strong. We have got -- we had $1.2 million cash at bank at the end of September, plus we have our Bitcoin holdings with a value in excess of $2 million at that time. Steve?

Thanks, Michael. As Michael just mentioned, we continue to hold our Bitcoin position holding approximately 12.3 Bitcoin. Total value of that Bitcoin is just under $2.2 million as per the slides. So we have seen an increase in gain since we did purchase. However, this is definitely a long-term hold and something we continue to hold into the future. So I'm excited to talk about our New Zealand listing. Moving to New Zealand will mean that we'll be the first New Zealand listed Bitcoin treasury company. Why is that important? One, this allows us to continue to keep on acquiring Bitcoin onto our balance sheet on an ongoing basis. But being first in New Zealand also has a number of advantages in terms of access to capital in the New Zealand market. There's a number of advantages for New Zealand tax residents in owning a stock versus owning Bitcoin directly. And we're looking forward to meeting and speaking with a lot of the New Zealand-based investors. There are a number of funds in New Zealand. I've seen a list of over 200 funds across the New Zealand market. And so I've been busy over the last few months and today, even in New Zealand, meeting with a number of these institutional investors as well as high net worth investors talking about the Locate2u technology story. Listing is expected to occur in December. It's likely early December. This is subject to the shareholder vote for the scheme that we expect to be completed in November and any other sort of regulatory approvals. We -- our ticker code will remain the same on the NZX. It will be LOC. And so yes, we're very excited to be listed in the New Zealand market. As part of this process, we've had to recruit 2 new Board members to join the company in New Zealand. I'm excited to announce Brett O'Riley and Janine Grainger that we've announced previously. Brett has a number of experience in many sort of corporate roles in the New Zealand market and is very well connected in New Zealand and pleased to have him join the Board. Janine has previously was the co-founder of Easy Crypto, a leading New Zealand-based crypto trading platform and recently exited that business towards the end of last year. That platform had transacted over $4 billion of transactions in cryptocurrencies. So Janine has got some really great experience in Bitcoin and understands our strategy extremely well, which is great to have someone with her caliber on joining the Board. I want to spend a little bit of time just talking through what does the transaction mean for existing investors based in Australia. We will be setting up -- and we have set up a new company in New Zealand. This will be referred to as Locate NZ. This company will be listed on the NZX, subject to approvals with a capital raise of approximately $1 million. This $1 million will also -- will be the market cap of the business. We will issue the shares associated with that at the price there that's listed on the screen at NZD 0.075. We will issue shares associated with that. We'll also issue the ATM collateral shares in the same way that we've had the ATM collateral shares here in Australia. Those collateral shares can be canceled by the company in the future, if required. When the scheme is complete, any shareholder that exists in the Australian entity, the equivalent number of shares will be issued to you in the New Zealand entity. And so there will be a transition across -- of your shares across to the new share register. We will be moving share registers. Unfortunately, Atomic does not operate in the New Zealand market. And so we will be moving to MUFG as our share register in New Zealand. Over the next month, we will be detailing this process in a lot more detail. We'll be sharing more information around who are the best brokers to be using in New Zealand, and there are a number of brokers that are available. So we are speaking to all of them. There -- we expect some brokers may offer incentives to use them. And so we'll be sharing that information in the coming weeks ahead. So yes, so every share that you have in Australia, that will be transferred into the New Zealand entity on a like-for-like basis. And so happy to take any questions regarding this at the end of this presentation. So as I mentioned before, we will be New Zealand's first Bitcoin treasury company. We will look to continue to add Bitcoin onto our balance sheet. But importantly, we'll continue to focus on our core business offerings being Locate2u you, Zoom2u and also Shred2u. It's important that we continue to see these businesses grow and maintain sort of our efficiencies in costings to run these businesses. We want to see these business become highly profitable. So it enables us to continue to purchase more Bitcoin from the profits raised from the operational work that we're doing inside of these businesses. It means we'll definitely continue to focus on the product and continue to innovate on the product and certainly not a stopping of doing that. We see these businesses very important. And particularly in our Locate2u business, we see a lot of opportunity left in selling this product to a global market. However, our business will be backed by a Bitcoin-backed balance sheet. So why the move to the NZX. I'm sure many investors are aware of this, but just for investors that haven't been across what the transition. As we started our process in looking to acquire Bitcoin onto our balance sheet earlier this year, we were contacted by the ASX in regards to the cash box rule. The cash box rule requires a company to not hold more than 50% of their assets in cash or any other asset that could be converted into cash or cash alike. As a Bitcoin treasury company, this is a complete showstopper for our business. We look to continue to acquire more Bitcoin into the future. And so we will breach this 50% cash box rule. In the instance that we did breach this, it has -- the ASX has the ability to remove our company from being a listed company on the ASX. The NZX does not have any equivalent restrictions relating to this type of rule. And so we -- after looking across the market, we saw that this was going to be the best opportunity for us to continue operating in our Bitcoin treasury model, but based in New Zealand. And so we've been working very closely with the NZX. They're completely across what we're planning on doing. We've completed a PDS that we expect to be lodged shortly with the regulatory body here. And -- but it has -- we have received preliminary approval from the NZX in our listing, subject to the completion of the scheme process here in Australia. So when we think about our principles in terms of how we're operating in the business, importantly, we want to buy. We want to hold Bitcoin. We want to do that securely and transparently. We will be having a live dashboard for investors to view on an ongoing basis to see our Bitcoin holdings, the value of those Bitcoin holdings and a number of other key metrics that investors should be looking at. We -- I want to read through all of these. I think they're fairly quite obvious. But one of the key things that we are very important in doing is being really obsessed with customers and making sure that our customers have a great experience, and we continue to see growth in both of our businesses, but it's also making sure that our investors have a great experience, and we maintain transparency in our vision for the future. And so we're very excited about sort of our process moving forward as a Bitcoin treasury business. So I just want to touch on a couple of things around why a Bitcoin treasury business in New Zealand. I think the first thing is, one, we'll be the first listed company to be a Bitcoin treasury business. And there's definitely some advantages that you've seen across the world for being first in a particular market. I expect across the world, ultimately, most companies will end up holding Bitcoin on their balance sheet. And so being able to do this and be #1 is really important. But then obviously, the flexibility in allowing us to continue to raise capital and whether that's via equity or through debt raises to allowing us to consistently be buying Bitcoin on an ongoing basis. It continues to allow myself to continue to keep running and operating the business and also the majority of our Board, in fact, the entire Board continues to operate and run the company with the addition of 2 really great Board members based in New Zealand. There are some advantages that local New Zealand residents will have in terms of being able to buy our stock as a proxy for Bitcoin in the future, subject to getting their own sort of tax advice. There's also a number of advantages in New Zealand, as a listed company, there's only today about 130 companies thereabouts as a listed company. And so being able to move into towards some of those indexes that are available in the NZX is going to be really important for us, and we'll be able to get to those indexes much earlier than what we would have been able to in the Australian market. There are a number of indexes and whether it's the top 50, but also there's a Microcap index. There's also a tech -- I think there's a tech index as well. And so yes, there's a number of great things being listed in the New Zealand market. We've seen from across the world, sometimes people talk to me about we're moving to a market that is smaller. And yes, it is -- overall, it's a smaller market. However, we've seen examples of other treasury companies who have been on -- listed on much, much smaller exchanges and had a really great experience as they've continued to buy the Bitcoin on their balance sheet. And so we're very positive about this move to New Zealand. So I guess the question might be -- some investors might be having is why Bitcoin and why now? I think today is the best time for a business to be acquiring Bitcoin. A lot of the risk in terms of owning Bitcoin has been removed. When Bitcoin started over 15 years ago, it was a very early idea. And if you bought Bitcoin in those days, you'd be extremely wealthy today. However, there was a lot of risks associated in doing that. You didn't know what governments were going to -- how governments were going to react. You didn't know how traditional finance was going to react with people owning Bitcoin. And so now a lot of those risks have been removed. Back when I started buying Bitcoin myself in 2017, there were still many risks associated with that. However, today, a lot of those things have been removed, particularly with governments in countries like the U.S., but other countries as well sort of starting to own Bitcoin on their treasury. We've also seen now the global adoption of ETFs and ETFs being able to make Bitcoin accessible to investors. And the ETFs have made a large [ amount of ] capturing the supply of Bitcoin that's available in the Bitcoin market. So global adoption is happening. There's also some important characteristics of Bitcoin. Unlike the fiat currency, which isn't restricted in terms of the amount that a government can print, Bitcoin has a limit of $21 million. This is one of the key reasons as to why Bitcoin is a really great store of value. Historical performance of Bitcoin has also been very positive. And yes, it has been volatile at times. However, anyone who's held Bitcoin over a 4-year period has not lost money. And so it's been able to make sure that when you're buying Bitcoin, you're buying Bitcoin for the long term. And as a company ourselves, we plan on buying and holding Bitcoin for the long term. So I'll just touch now on our existing core businesses. We continue to keep on operating and focusing on both Zoom2u and also Locate2u. And it's all around building a great customer experience for our customers. And so whether you're having a package delivered through the Zoom2u network, making sure that customers have a great experience through Zoom2u is really important. But also likewise, for our customers that are using Locate2u, we're enabling them to provide their customers with a really great delivery experience. And this all comes down to, one, being able to make sure that the customer can see when delivery is actually occurring and being able to track the live location of that particular driver. As you've seen from earlier, we continue to see growth inside of the Zoom2u business. I remember back in '21 when we listed at September '21, the Locate2u business had a very small amount of revenue associated with it. And many investors weren't sure what was going to happen with Locate2u. But I knew that there was demand from customers who are looking for a solution to be able to manage their fleet of drivers. And I see that opportunity exists today, both in Australia but across the world. The team has worked really hard on building a really great product. We work very closely with our customers to understand in detail their requirements and the problems that they're trying to solve for their businesses. And I think that's led to the success in what we're seeing in the chart here that you see today. As we continue to evolve and the product continues to grow, we'll continue to build new functionality, and we'll continue to sort of keep delivering with more customers coming on board. The great thing about Locate2u is that when a customer joins the product, it really helps their business in terms of their entire delivery operation and it becomes very sticky inside of their business. Changing and moving away from Locate2u is a really difficult process and takes a lot of operational challenges to be able to do that. And so that means the revenue that we operate inside of this business remains very sticky. Yes, there is some elements of this revenue that is one-off, where we sell an implementation fee or maybe some additional development or maybe there's some GPS hardware. However, the majority of this revenue is subscription-based revenue and continues to come through on a monthly basis. And over this quarter, we had 2 enterprise customers recently signed. And so it's great to see that we continue to win new enterprise customers. And we continue to look for enterprise businesses that are looking for ways to improve their delivery experience to their customers and the operational efficiency that Locate2u can deliver to their business. Zoom2u continues to operate, continues to generate positive EBITDA. We have seen some softer results, mostly led through a decline in sort of retail users of the platform where we've seen sort of, I guess, people being more concerned around cost and willing to have deliveries being slower than what the Zoom2u platform actually offers. There are a number of things that we think that we can do inside of the Zoom2u business, and there's a number of areas that we're actively working on to see how we can increase revenue growth inside of the Zoom2u business. Zoom2u business does have a large customer base of people that have used the Zoom2u platform. And so there's opportunities to market to that business. So I definitely see that there's going to be a way of being able to see revenue continue to increase inside of the Zoom2u business moving forward. So as a business and our key focus areas, one, getting to New Zealand and getting to the New Zealand IPO is key. This then allows us to continue to purchase Bitcoin and raise capital to purchase Bitcoin into the future. But three, continue to see revenue grow across the Locate2u and Zoom2u business. And finally, we want to always make sure that we minimize our cost expenditure. There's a number of areas inside of the business today that we are looking at and working on. There's a number of different projects where we have identified areas that can be optimized through different service providers that we can use or changing the way in which we're doing certain things. And so we're definitely working towards that, which will assist us in moving towards cash flow positive on an ongoing basis. Yes, I'll remind investors to -- we do have our investor portal at locate.tech. This allows you to see all of our investor updates. You can register for updates there as well. You can also register for the SMS alerts, and we'll notify you by that or you can connect to us on X as well. I'll now take this time to take any questions that investors may have.

Thanks, Steve. We have received a few questions. So first one is, can you comment on how the Bitcoin is custody? What controls exist to ensure keys are secured and Bitcoin is not moved without due respect to process? Can shareholders see a clear group of reserves/on-chain address?

Yes. So today, we hold our Bitcoin with Zodia. Zodia is an institutional-grade custodian. They're backed by Standard Chartered Bank and NAB Bank as shareholders. And so there's a number of controls that are in place around the transfer of Bitcoin in and out of that custodian as well as being able to verify the Bitcoin that's sitting on chain with Zodia. As we move forward, our strategy, and this is laid out in actually a fair amount of detail in our PDS when we launched this in New Zealand. We will have multiple custodians that we will use in the future. So we will spread our risk across those custodians. And we will look to update the market on a quarterly basis, having independent verification of the Bitcoin that we are holding. I do like the idea of being able to provide addresses to shareholders so they can actually verify on chain the Bitcoin that we are holding. There are some complexities around doing that. And so I'm just -- we're spending some time just to look through how best we can address that. Some of those complexities around -- sit around the timing of when we need to announce the Bitcoin purchases to the market. And so if there is some -- if we purchase that Bitcoin, which we generally will purchase the Bitcoin before we actually announce it. And if that arrives on to one of our wallets and that's -- we haven't announced to the market, that causes an issue for us. And so we just need to work through some of those regulatory issues. But I think investors will see comfort in having an independent auditor being able to provide proof of reserve confirmation on a quarterly basis.

Thanks, Steve. The timing of the NZ IPO seems to have been delayed. Why is this?

Yes. This process is not simple. And there's a lot of work that's gone in and more work than what I would like. There's a number of laws and regulations, both in the Australian market, but also the New Zealand market that we've had to work our way through. Thankfully, we're now through that. Initially, we were expecting and the guidance that we've been given from the NZX was that we would be allowed to list before our shareholder vote had completed here in the Australian market. However, the NZX would like us to complete the shareholder vote beforehand. And part of the shareholder vote requires us to lodge the scheme booklet with ASIC and then lodge that with the court, which we're in the final stages of doing. Once that process has been complete and approved by the courts, then it allows us to complete that shareholder vote. However, the shareholder vote requires us to give shareholders 30 days notice, approximately it's 28 days notice plus a couple of extra days. And so we expect that notice will be out soon. And then we'll complete that shareholder vote. So we're desperately working extremely hard to go through that process and quite keen to get that in the hands of shareholders as soon as possible.