Smart Parking Limited (SPZ) Earnings Call Transcript

Good afternoon, everybody, and welcome to the Smart Parking Limited FY '21 Results Conference Call. Thank you for joining us. Today, we have Paul Gillespie, CEO; and Richard Ludbrook, CFO, with us. The format of the call will be that Paul and Richard will take you through the presentation pack that we'll share on the screen, which we've also released to ASX. And then we'll be pleased to open up the line for questions. Thank you again for joining us. And on that, I'll hand over to Paul.

Excellent. Thank you, Michael. So good afternoon, and thank you for joining me for Smart Parking's FY '21 Full Year Results Briefing. I'm here in the U.K., and I'm joined by our Group CFO, Richard Ludbrook. He's currently in lockdown in Auckland, like many people in the quarter, I'm sure. But so we'll take you through the pack we've released to ASX. Then we'll open the lines for some questions. Before I start, I'd like to highlight some key points, starting on Slide 3, please. While so many of you in Australia in lockdown, markets in the U.K. have been opening up for some weeks as COVID restrictions continue to be eased and vaccination rates rise. I've been back in the U.K. since late June. And I can see the growth in activity and confidence on a daily basis. This is evident from our performance as we rebounded well and have delivered a strong Q4. We made $2.2 million of adjusted EBITDA for the year, of this, $1.57 million was in Q4. While the 354% growth is flatted by COVID impacted PCP, despite this, Q4 EBITDA performance was up $1.3 million on Q4 FY '19 in a pre-COVID world. Also, PBM issuance was up 278% in Q4. So for us, the recovery is well underway. The second point I'd like to make, the deliberate decisions we took during the pandemic to ensure we came out of this as a stronger, more efficient company are now paying off. We took advantage of our market-leading technology, specialist expertise and strong balance sheet to drive accelerated growth and greater returns. You can see this right across, as we said. We've increased our number of sites under management to 619 in the year, that's up 25%. And we are readily winning new customers in both operating divisions. We've used the time to clear up legacy issues, like the VAT disputes, where we've got a $2.9 million cash refund from HMRC. We've made a terrific acquisition in Enterprise Parking, which we announced in August. And we bought back $1.1 million of shares at an average price of $0.17 to enhance earnings. And we remain well capitalized, with $9.7 million of cash on hand today to fund our growth strategy. Put simply, we stayed focused, we've kept our heads down and got the job done. And I'm proud of the way the Smart Parking team overcame adversity and continue great outcomes for our clients. Added to this, and taking further advantage of the opportunities the pandemic presented, we are significantly expanding our addressable market opportunities. I'll talk more about our expansions to New Zealand and some states of Australia later. But I'll say upfront that these markets are attractive and a great fit for SPZ. In short, we can leverage our infrastructure in Melbourne and build on our existing sales presence on the ground in New Zealand. We are and will continue to disrupt legacy industry structures that provide site owners with inefficient and inadequate answers. We have some new disclosures in the pack that focus on this new growth strategy that we'll discuss later in some detail. The final point I'd like to make, our target of 1,000 sites under management by 2023 is firmly on track. It probably seem to many that, to be an aspirational wish at best when we first published it, but as we speak today, we already have 720 sites under management. We've added 101 sites since June 30. 2/3 roughly of these came from the Enterprise acquisition and the remainder are organic. We can organically add 180 net new sites in FY '22 and FY '23. And I'm pleased to report we've started FY '22 strongly and reaffirm our 1,000 site goal. I'll now hand over to Richard to take you through some of the financials in more detail. Richard?

Thanks, Paul. I'll start with Slide 6, where we will see the group adjusted EBITDA profit, excluding one-off items of $2.2 million, was up from an EBITDA loss of $0.9 million in FY '20. Despite months of government restrictions, total revenue of $20.7 million for FY '21 was down only 4% on FY '20. The business experienced a strong recovery in Q4 as COVID-19 restrictions eased. Revenue of $7.2 million in Q4 was the highest quarter in 3 years. That's along with cost-saving initiatives led to Q4 EBITDA of $1.6 million, thus compared to a $1.3 million EBITDA loss in Q4 FY '20, which was heavily impacted by COVID-19. Overheads were down 20%. And more detail on the cost reductions is included on Slide 10. The company settled its long-running VAT dispute with HMRC, resulting in a one-off net benefit of $6.4 million in FY '21. Slide 7 shows the group had free cash flow of $1.1 million, up from negative $0.3 million in FY '20. The group incurred $2 million of capital investment, related primarily to the deployment of camera technology in the U.K., which will contribute to future earnings growth. With the expected rollout in the U.K. and new markets covered later in the presentation, CapEx is expected to increase to near $3 million in FY '22. Included in the other recurring items is the $2.9 million VAT refund from HMRC. The company drew down a U.K. coronavirus business interruption loan for $2.7 million in September 2020. And subsequent to balance that, the company acquired Enterprise Parking Solutions for $1.5 million out of cash reserves which Paul will speak to in due course. Moving to Slide 8. Revenue in the Parking Management division decreased 6% to $16.3 million. COVID-19 continued to cause volatility in results. However, despite some COVID-19 restrictions, the division had a strong finish to the year, with parking breach notices in Q4 up 278% against Q4 FY '20 and up 14% against Q4 FY '19. Sites under management increased by 25% during the year, and thus along with the recovery, is expected to drive revenue and earnings growth in FY '22. EBITDA of $4.2 million was up 36% compared to FY '20, with operating leverage driving margin expansion. The EBITDA margin increased 800 basis points to 26%. We remain optimistic about the outlook for this division given the lack of U.K. restrictions and higher vaccination rates. We've also expanded into new markets in New Zealand and Australia, which Paul will speak to later in the depth. Slide 9 shows technology revenue of $6.9 million was up 3%, and installations included the City of Marion, Wyndham City Council, Queen Victoria Market and Ormiston Town Center in New Zealand. The adjusted EBITDA profit of $0.3 million improved from a loss of $1.8 million in FY '20, a pleasing result in spite of ongoing disruption from government lockdowns. The company has firm orders for new installations of $3.3 million. This includes Gatwick Airport, although the timing of recognition for this was unseason given the evolving situation. The company continues to invest significant resources and R&D. Costs in this division were steady at $1 million. And it's worth noting that most R&D costs are treated as an expense through the P&L. Slide 10 shows the breakdown of the 20% reduction in costs. Staff costs, comprising 72% of total overheads, were down following a 24% reduction in the group's headcount in the last 12 months. The services headcount reduced by 23%. And the technology and R&D headcount was down 33% combined. Other costs, including travel and motor vehicle costs, were down as a result of lower activity and due to the restrictions in place. FY '22, we'll see an increase in overheads as activity levels increase, but revenue will grow faster than the growth in overheads. Slide 11 shows the group maintains a strong balance sheet and is well placed to fund growth strategies. The group had $10.7 million in cash, and this includes the $2.9 million from HMRC as part of the VAT settlement. The coronavirus business interruption loan for $2.7 million was drawn down in 2020. The end of the loan is 4 years and was interest-free for the first year. Principal and interest rate payments commence in September. And finally, the company commenced a share buyback during the year, acquiring 6.1 million shares at an average price of $0.173. I'll now hand back to Paul to discuss the recent acquisition.

Thank you, Richard. Okay. So as on Slide 12. So as I mentioned at the start, we deliberately decided to take advantage of the opportunities that the pandemic presented to accelerate our growth and enhance earnings for shareholders. As highlighted at the half year report, we said we'd spend up to $5 million to buy back shares or invest in other growth initiatives. Alongside the buyback, we also looked at a number of complementary and accretive acquisitions. We spent $1.5 million of our growth capital on Enterprise Parking Solutions. It's a high-quality business and a great accelerant for us. We paid circa 1x to 1.3x EBITDA for a growing, profitable, cash flow positive business that offers additional cost synergies. It's immediately earnings accretive. The business had revenues of $540,000 for the 3 months ending July 2021. It's been growing nicely. And the management have done a good job, and they're also helping us with the transition. Sites under management has grown from 5 to 68 in 3 years. And these sites performed well, with many at or above the SPZ average performance benchmarks. Integration of the Enterprise estate is well underway. And we will continue to evaluate other acquisition opportunities to complement our organic growth business. We are selective and disciplined, but we are delighted with this first acquisition. Moving forward, slides 14, 15 and 16 are updates to the pandemic tracker, site installations and key metrics that we track daily in the business and update the market with regularly. However, I'd like to focus on Slide 17 for now, please. Along with the sustained growth in the U.K., I see these slides as a next growth chapter for Smart Parking and the international expansion of our Services division. In New Zealand, we started to build in estate of sites under management and operate in a similar fashion to here in the U.K. We've quietly signed and installed 10 sites since we started in February, and we wanted to show the market some results before we made some advance about what we're going to do. Our team on the ground are making great progress in a market full of opportunity. New Zealand reminds me of the U.K. marketplace pre-2012, before regulators outlawed the use of clamping and towing on private land. Current service providers offer site owners with inefficient and inadequate solutions: tow trucks, little to low remote technology, leading to multiple lost revenue opportunities. Like the U.K., we've gained accreditation that allows us to access keeper details, which then means we can install ANPR camera technology and digitally record car entry, exit, efficiently process the data and work out quickly how many cars are contributing the car park conditions of use, the same as the U.K. process. As with the U.K., we provide a compelling CapEx free value proposition for landowners. This 0 CapEx solution is appealing to Kiwi customers, and they're delighted with the performance offered by our solutions that are solving the parking abuse problems they have. Whilst it's early days, and we have a small sample of sites, we are seeing a 3-month payback on the CapEx invested to date, which is proving the model and pushing us forward to win more business. We have a clear go-to-market plan to build scale. We're starting in Auckland and have already established a presence in Wellington. As you can see on this map, there are multiple other metropolitan centers we can target, and we'll do so as we grow. At this moment in time, we don't precisely know the total addressable market due to lack of available research. But I can say there are hundreds of potential sites that we could manage over time. I'm excited about this growth opportunity, and I look forward to reporting on further progress in the future. Turning to Page 18. Australia is another new market we can expand our services offering into. It's another example of us using the time during the pandemic productively. The strategy is simple. We can leverage our base in Mountain with our technology and expertise and provide site owners far more value. It's a legacy industry with inefficient solutions. We can provide consistent, best-of-breed compliance and regulatory standards. At this point, we have access to keeper details in Queensland only. However, the regulatory environment in WA, South Australia and the Northern Territory will also allow us to operate there in the future. The first sites are underway in Brisbane and Gold Coast, and I'm pleased to support they're performing well. As with New Zealand, it's early days, but there's lots of room for profitable growth. Looking now to technology on Slide 19. As with the services business, we've used our time during the pandemic to deliver new products, win business and carefully manage our costs. In particular, we focused on existing customer contracts, ensuring we gain the extension we require. We have also expanded the contracts by selling new solutions that will enhance the customers experience and drive higher margins for SPZ. Key contract extensions in Wellington, Moonee Valley and Hamilton have been a great success and secures the customers for years to come. Added to this, we bridged the gap between our technology and services business by pitching and supplying existing technology customers with ANPR solutions that will allow them to manage their off-street canceled parking more efficiently. I expect to update shareholders further on this project later in the year. Slide 20. As mentioned a moment ago, we're always looking to leverage our technology and R&D capability across the group, not just in our technology business. This is evident here where we're working with an existing services customer, in this case, KFC, to leverage our ANPR and sensor technology to facilitate a seamless customer ordering and pickup system or click and collect. We're working closely with KFC, and we'll be deploying the first site for evaluation in 1H FY '21. Following a successful evaluation period, there will then be a project to roll the system out. This is an exciting development project that I believe has the ability to be transformational for our technology business. I'll now turn to Page 21 and make some concluding remarks. As we're demonstrating, Smart Parking is a growth company in growth mode. You can see that from growth in Q4 of FY '21. The new financial year has started strongly. Our markets are recovering and our competitive position has improved. The value of our offer is compelling both in the U.K. and our new APAC markets. We're actively adding new sites, building the pipeline and signing new clients. We're leveraging our technology, expertise and balance sheet to accelerate growth and enhance returns for shareholders. We expect FY '22 to be a solid year of growth. We will add 180 net new sites this year and a further 180 net new sites in FY '23, and we're on track to deliver the 1,000 sites by June 2023. While recovery in the U.K. is undoubtedly a tailwind, it is the disciplined execution of our growth strategy that will deliver long-term growth and returns for shareholders. That concludes the presentation and the slides. So thank you very much for listening. If you have questions now, we can open up the lines for some Q&A. Richard?

[Operator Instructions]

Hello? Can you hear me okay?

Yes. Go ahead.

Hello? I've unmuted myself. Can you hear me?

We can hear you. Yes. We can hear you, John.

Sorry. Not working.

Any other questions you may have?

Paul, I might start off the --- on the Q&A. Question for Richard. Richard, could you talk us through the payback periods on the CapEx in New Zealand and Australian markets, please?

Sure thing, Michael. So we're currently issuing 300 breaches per site in New Zealand and Australia, and that compares with 80 in the U.K. So there's a significantly better yield on the New Zealand sites. Now look, it is early days, and behavior may change. But certainly, they've been fantastic so far. And 300 tickets will generate approximately $10,000 worth of revenue per month at a 70% -- 77% EBITDA margin. So you earn approximately $8,000 on each new site that we install, and we're getting a payback of just under 3 months.

Any other questions we may have?

That's. You have answered everyone's questions.