NetComm Wireless Limited 1H17 results presentation Ken Sheridan - - PowerPoint PPT Presentation

NetComm Wireless Limited 1H17 results presentation

Ken Sheridan – Chief Executive Officer and Executive Director Chris Last – Chief Financial Officer 24 February 2017

• Listen. Innovate. Solve.

1H17: doing exactly what we said we would do

Executing to plan

• Jul: Frame Purchase Agreement signed with Nokia for NTC’s fixed wireless devices for Nokia’s global FastMile initiative
• Aug: R&D facility established in US
• Aug: Key technical milestone for US fixed wireless contract passed – moved into small scale rollout and eco-system testing
• Sep & Nov: Strengthened senior management team to support long term global growth
• Nov: Master Equipment and Services Supply Agreement signed with nbn for supply of Distribution Point Units (DPUs) for nbn’s

Fibre-to-the-Curb (FTTC) project

• Jul - Dec: Continued growth in units delivered under Ericsson / nbn fixed wireless contract
• Feb 17: Received initial nbn FTTC order commitment of $28m for delivery between June to August 2017

1H17: doing exactly what we said we would do

Executing to plan

• Jul: Frame Purchase Agreement signed with Nokia for NTC’s fixed wireless devices for Nokia’s global FastMile initiative
• Aug: R&D facility established in US
• Aug: Key technical milestone for US fixed wireless contract passed – moved into small scale rollout and eco-system testing
• Sep & Nov: Strengthened senior management team to support long term global growth
• Nov: Master Equipment and Services Supply Agreement signed with nbn for supply of Distribution Point Units (DPUs) for nbn’s

Fibre-to-the-Curb (FTTC) project

• Jul - Dec: Continued growth in units delivered under Ericsson / nbn fixed wireless contract
• Feb 17: Received initial nbn FTTC order commitment of $28m for delivery between June to August 2017

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Key messages Key messages

• Mix changing to Growth Businesses
• Debt free and well funded to support growth objectives
• Large opportunities in markets with Tier 1 customers; allows us to leverage into other projects
• Experienced Board and Executive Team to leverage existing contracts for global expansion; Ken Sheridan

appointed CEO & Executive Director following an independent Board-managed recruitment process

• Investing in people to execute on substantial growth opportunities
• Won 3 out of 3 major contracts tendered for so far with great customers
• Ericsson/nbn Fixed Wireless: producing revenue now
• nbn FTTC: ramp up expected during H1 FY18
• US Fixed Wireless: ramp up expected during FY18

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1H17: strong increase in Growth Business revenues and operating cash flow

Reinvesting to drive growth in FY18 and beyond

• Delivered record 1H operating revenue of $47.0m

– Revenues from Growth Businesses (M2M, Fixed Wireless) up 16.4% to $36.3m (1H16: $31.2m)

• Revenue mix continues to evolve towards our Growth Business

– 77% of revenue (1H16: 67%)

• Reinvesting to enable strategic long term growth

– Reported EBITDA of $0.7m (1H16: $5.1m) – EBITDA adjusted for cumulative growth investments1 up 41% to $12.5m (1H16: $8.9m)

• Strong improvement in operating cash flow

– Tighter management of working capital – Operating cash inflow of $6.1m (1H16: operating cash outflow of $(4.3)m)

1H17: strong increase in Growth Business revenues and operating cash flow

Reinvesting to drive growth in FY18 and beyond

• Delivered record 1H operating revenue of $47.0m

– Revenues from Growth Businesses (M2M, Fixed Wireless) up 16.4% to $36.3m (1H16: $31.2m)

• Revenue mix continues to evolve towards our Growth Business

– 77% of revenue (1H16: 67%)

• Reinvesting to enable strategic long term growth

– Reported EBITDA of $0.7m (1H16: $5.1m) – EBITDA adjusted for cumulative growth investments1 up 41% to $12.5m (1H16: $8.9m)

• Strong improvement in operating cash flow

– Tighter management of working capital – Operating cash inflow of $6.1m (1H16: operating cash outflow of $(4.3)m)

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(1) Excludes investment within operating expenditure relating to additional staff and infrastructure to support long term growth initiatives and share based expenses, from 1H FY15

GROWING REVENUES AND OPERATING CASH FLOW

• Listen. Innovate. Solve.

Growth underpinning further reinvestment Growth underpinning further reinvestment

($m) 1H17 1H16 Change Total Revenue 47.0 46.4 1.2% Reported EBITDA 0.7 5.1 (86.7%) EBITDA (adjusted for cumulative growth investments)1 12.5 8.9 40.5% (Loss)/Net profit after tax (1.7) 2.3 Earnings per share (cps) (1.2) 1.8

• Operating Revenue up 1.2% to $47.0m

– Composition of revenue continues to evolve with a further increase in revenue from the Company’s Ericsson/nbn Fixed Wireless contract – Growth Businesses accounted for 77% of 1H17 Revenue, compared to 67% in 1H16

• Decrease in reported EBITDA to $0.7m

– Further investment into additional workforce ($4.0m) and infrastructure ($1.0m) to support medium-term growth initiatives

• Increase in EBITDA (adjusted for cumulative growth

investments) to $12.5m – Increasing proportion of Revenue from high-margin business

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1 Excludes investment within operating expenditure relating to additional

staff and infrastructure to support long term growth initiatives and share based expenses, from 1H FY15

Continuing to increase Growth Businesses revenues Continuing to increase Growth Businesses revenues

14.7 13.5 31.2 36.3 15.8 17.0 15.2 10.6 1H14 1H15 1H16 1H17 Traditional business Growth business

• Growth Businesses comprises M2M & Fixed Wireless (current revenue streams) – revenue up 16% to $36.3m
• Traditional Business revenue decreased to $10.6m due to slow down in orders from powerline and filters business

Revenue split ($m) Revenue split (%)

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30.5 30.5 47.0 46.4 52% 48% 56% 44% 33% 67% 23% 77%

Continued growth in EBITDA adjusted for growth investments Continued growth in EBITDA adjusted for growth investments

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2.0 3.2 2.3 5.0 5.1 1.1 0.7 1.0 0.8 2.0 3.0 5.0 1.0 1.8 3.8 6.8 1H14 2H14 1H15 2H15 1H16 2H16 1H17 Cumulative prior period growth investments ($m) Current period growth investments ($m) Reported EBITDA ($m) 2.0 3.3 7.9 12.5 8.9 6.8 3.2

Business growth is underpinning further investment to support long term global growth opportunities

• Growth investments made in staff and infrastructure position NetComm for global opportunities in key M2M, Fixed

Wireless and DPU markets

• In line with strategy of planned operating investment over FY17

Substantial investment in people to fuel long term global growth Substantial investment in people to fuel long term global growth

Reinvestment in people and infrastructure in line with our growth strategy is further enhancing our capabilities as we pursue and deliver on multiple global opportunities

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2H15

Engineers Sales & Marketing Other

61 80 31 37 18 20 1H16 2H16 91 29 23 1H17 125 34 31

Strong balance sheet supports growth Strong balance sheet supports growth

($m) 31 Dec 16 30 Jun 16 Change

Cash and equivalents 29.8 36.5 (18.4%) Other assets 66.0 54.9 20.2%

Total assets 95.8 91.4 4.8%

Borrowings 0.1 0.1 (15.3%) Other liabilities 20.3 14.0 44.6%

Total liabilities 20.4 14.1 44.3% Total equity 75.4 77.3 (2.4%)

• No bank debt with Cash balance of $29.8m

– Provides flexibility to support current and future M2M, Fixed Wireless and DPU growth

• pportunities
• Cash used to fund investments in staff and

infrastructure

• Conservative balance sheet maintained with access

to a currently unutilised banking facility of close to $15m

• Strong balance sheet is conservatively structured to

support global growth initiatives currently being pursued

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Strong increase in operating cash flows Strong increase in operating cash flows

($m) 1H17 1H16 Net cash flows from operating activities 6.1 (4.3) Net cash flows from investing activities (12.8) (5.6) Net cash flows from financing activities (0.0) 8.4 Net (decrease) / increase in cash (6.7) (1.5)

• $6.1m cash provided by operating activities

– Strong turnaround in operating cash flow of $10.4 million reflects tighter management of working capital

• $12.8m cash used for investing activities

– In line with growth strategy we have continued to invest in engineering capabilities to support product development and long term growth

• Net decrease in cash of $6.7m

– Conservative use of funds to support growth

• pportunities in M2M, Fixed Wireless and

DPU markets

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OPPORTUNITIES IN RAPIDLY GROWING MARKINGS

• Listen. Innovate. Solve.

Our methodology

We listen to our customers and identify their specific needs Innovation is applied to develop a unique device to meet the customer’s requirements Customer requirement met, exactly. Problem solved

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Initial order commitment for nbn’s FTTC project received

• Signed Master Equipment and Services Supply Agreement with nbn in November 2016 to supply DPUs and related services
• Initial production order commitment received in Feb 17, will generate approximately $28 million in revenue upon delivery to nbn,

which is expected to occur during the period June to August 2017

• 700,000 premises earmarked for FTTC by nbn
• A key milestone in NTC’s bespoke strategy for FTTdp / DPU
• Further strengthens strong relationship with nbn following the successful delivery of Fixed Wireless devices for Ericsson / nbn

Fixed Wireless broadband project

Initial order commitment for nbn’s FTTC project received

• Signed Master Equipment and Services Supply Agreement with nbn in November 2016 to supply DPUs and related services
• Initial production order commitment received in Feb 17, will generate approximately $28 million in revenue upon delivery to nbn,

which is expected to occur during the period June to August 2017

• 700,000 premises earmarked for FTTC by nbn
• A key milestone in NTC’s bespoke strategy for FTTdp / DPU
• Further strengthens strong relationship with nbn following the successful delivery of Fixed Wireless devices for Ericsson / nbn

Fixed Wireless broadband project

14

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Continued increase in the take up of Fixed Wireless products drove growth in 1H17

First to market with Fixed Wireless solution in Australia

Ericsson/nbn rollout continuing Ericsson/nbn rollout continuing

As at 26 January 2017, Fixed Wireless:

• Coverage increased by 202k premises since June 2015,

reaching 470k premises

• Rising take up rate demonstrates increasing market

penetration as the rollout progresses

• Connections activated reached 159k premises
• Ericsson require the supply of devices well in advance
• f new connections
• Increasing coverage, further market penetration and

technology upgrades to drive future growth

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40,000 90,000 140,000 190,000 240,000 290,000 340,000 390,000 440,000 490,000 540,000 30-Jun-15 23-Jul-15 20-Aug-15 17-Sep-15 15-Oct-15 12-Nov-15 10-Dec-15 7-Jan-16 4-Feb-16 3-Mar-16 31-Mar-16 28-Apr-16 26-May-16 23-Jun-16 21-Jul-16 18-Aug-16 15-Sep-16 13-Oct-16 10-Nov-16 8-Dec-16 5-Jan-17 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

Premises Activated Premises Covered Take up rate

Source: nbn

Our success with the nbn fixed wireless solution led to a major US contract win

Master Purchase Agreement signed with one of the two largest US based telecommunications carriers

• Building on the success with Ericsson delivering a similar service to Australia’s nbn
• Signed agreement in Nov 15 to supply Fixed Wireless devices required to connect households and businesses to a Fixed Wireless

rural broadband network that will be built by that carrier

• Received initial orders as part of eco-system testing

– Initial units to be delivered during May-August 2017

• Customer has accepted US Federal funding to ensure 400k premises are available for service before December 2017
• A key milestone in NTC’s global growth strategy for Fixed Wireless

Our success with the nbn fixed wireless solution led to a major US contract win

Master Purchase Agreement signed with one of the two largest US based telecommunications carriers

• Building on the success with Ericsson delivering a similar service to Australia’s nbn
• Signed agreement in Nov 15 to supply Fixed Wireless devices required to connect households and businesses to a Fixed Wireless

rural broadband network that will be built by that carrier

• Received initial orders as part of eco-system testing

– Initial units to be delivered during May-August 2017

• Customer has accepted US Federal funding to ensure 400k premises are available for service before December 2017
• A key milestone in NTC’s global growth strategy for Fixed Wireless

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Growth Opportunities - Actively pursuing multiple global Fixed Wireless and DPU opportunities Growth Opportunities - Actively pursuing multiple global Fixed Wireless and DPU opportunities

• Significant focus on US and Europe
• Global opportunities involve substantial volumes and leverage off our demonstrated

expertise from the nbn contracts in both Fixed Wireless and DPU

• Momentum continues into FY17 after signing Nokia Fixed Wireless Frame Purchase

Agreement in July 2016: discussions ongoing covering over 10 active trials across multiple geographies

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Growth Opportunities: “bespoke” M2M Solutions Growth Opportunities: “bespoke” M2M Solutions

• We actively pursue M2M bespoke Solutions globally. M2M contracts

are being pursued with Tier 1 customers with a particular emphasis on USA, Europe, Australia and Japan

• Employing our Listen. Innovate. Solve. methodology we seek out

appropriate high volume opportunities where customers require a customised device

• We will be very disciplined to ensure we pursue “blue ocean”, global,

large scale opportunities

• Focus on elevator and vending verticals
• Aiming to secure 2 major customers in FY17

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Strengthened senior management team to support future growth Strengthened senior management team to support future growth

• Ken Sheridan CEO and Executive Director appointed on 24 February 2017

Served as interim CEO from December 2016, following retirement of David Stewart Appointed Chief Strategy Officer in October 2016 and previously served as CFO for six years from February 2011

• Tim Brouwer appointed Chief Operating Officer (October 2016)

30-year background in the telecommunications vendor sector, most recently as CEO and Director of wireless infrastructure solutions designer/manufacturer RFS Australia

• Chris Last appointed Chief Financial Officer (October 2016)

25-year career in finance across chartered accounting, treasury and investor relations. Previous CFO roles at Heart Research Institute Ltd and Blackmores Ltd

• Sergio Berriz appointed Senior Vice President Engineering (November 2016) to manage the execution and delivery of new

product developments 32 years of product management, design engineering, product development and high-volume design experience

• Chief Technology Officer Steve Collins will focus on identifying and introducing future technologies

23 years of engineering experience, including over 7 years at NetComm in senior engineering positions

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Key priorities For H2 FY17 Key priorities For H2 FY17

• Ericsson/nbn Fixed Wireless – ongoing project rollout and developing technology upgrades
• nbn FTTC – production quantity ramp up for initial nbn order of DPUs
• US Fixed Wireless – successful eco-system tests
• Bespoke M2M – Deliver 2 major customers

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Positive outlook – well positioned for growth Positive outlook – well positioned for growth

• H2 FY17
• Continued roll-out of the Ericsson/nbn Fixed Wireless project
• Commencement of eco-system testing for the US Fixed Wireless Master Purchase Agreement
• Manufacturing of DPUs for FTTC project to commence
• Investment in future opportunities to continue
• FY18 – Growth in Revenue and EBITDA to accelerate
• Continued growth in Ericsson/nbn Fixed Wireless rollout
• Strong growth of nbn FTTC DPU sales
• Acceleration of US Fixed Wireless orders
• Growth expected from the conversion of M2M, Fixed Wireless and DPU pipeline
• Benefits from strategic investments to flow through with strong revenues and earnings growth from FY18

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In summary In summary

• Mix changing to Growth Businesses
• Debt free and well funded to support growth objectives
• Large opportunities in markets with Tier 1 customers; allows us to leverage into other projects
• Experienced Board and Executive Team to leverage existing contracts for global expansion; Ken Sheridan

appointed CEO & Executive Director following an independent Board-managed recruitment process

• Investing in people to execute on substantial growth opportunities
• Won 3 out of 3 major contracts tendered for so far with great customers
• Ericsson/nbn Fixed Wireless: producing revenue now
• nbn FTTC: ramp up expected during H1 FY18
• US Fixed Wireless: ramp up expected during FY18

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QUESTIONS

APPENDICES

• Listen. Innovate. Solve.

DPU is a substantial global growth opportunity DPU is a substantial global growth opportunity

• The replacement of copper networks with fibre and HFC cable
• pens a large opportunity to deploy Distribution Point Units

(DPU) – a practical and economical alternative to FTTP.

• In high density areas, DPU offers the best available solution in

terms of rollout time and cost.

• A DPU connects fibre or cable to the existing copper line that

enters the customers premises

• These are large volume global opportunities

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Long term growth opportunities in the $80bn fixed wireless market

A compelling event: PSTN (copper line) shut down

• The global shut down of copper lines impacts fixed line (ADSL) broadband
• The standard replacement is fibre in built up areas which cover 90% of customers
• The remaining 10% are regional and rural customers, and Boston Consulting Group concludes that Fixed Wireless is the best

solution and the total addressable market size is $80bn NTC’s expertise gained in delivering the Ericsson/nbn broadband solution and now delivering another solution into the US, is being sought after to address the “last 10%”

Long term growth opportunities in the $80bn fixed wireless market

A compelling event: PSTN (copper line) shut down

• The global shut down of copper lines impacts fixed line (ADSL) broadband
• The standard replacement is fibre in built up areas which cover 90% of customers
• The remaining 10% are regional and rural customers, and Boston Consulting Group concludes that Fixed Wireless is the best

solution and the total addressable market size is $80bn NTC’s expertise gained in delivering the Ericsson/nbn broadband solution and now delivering another solution into the US, is being sought after to address the “last 10%”

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The next generation technology opportunity

• Fixed Wireless and FTTdp opportunities result from the global shutdown of legacy PSTN (copper line)
• Recent 2G networks shutdowns prompted mass-scale device upgrades to 3G and 4G LTE
• Our 4G LTE Fixed Wireless solution delivers guaranteed network grade performance, stability and longevity – a key differentiator.
• 5G will complement rather than replace 4G LTE, and provide further opportunities once standardised in 2020
• Device upgrades support long-term revenue growth

NetComm Wireless is an early adopter of new technologies that differentiate the company and provide a leading-edge

The next generation technology opportunity

• Fixed Wireless and FTTdp opportunities result from the global shutdown of legacy PSTN (copper line)
• Recent 2G networks shutdowns prompted mass-scale device upgrades to 3G and 4G LTE
• Our 4G LTE Fixed Wireless solution delivers guaranteed network grade performance, stability and longevity – a key differentiator.
• 5G will complement rather than replace 4G LTE, and provide further opportunities once standardised in 2020
• Device upgrades support long-term revenue growth

NetComm Wireless is an early adopter of new technologies that differentiate the company and provide a leading-edge

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• Listen. Innovate. Solve.

DISCLAIMER Some of the information contained in this presentation contains “forward-looking statements” which may not directly or exclusively relate to historical facts. These forward-looking statements reflect NetComm Wireless Limited current intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside the control of NetComm Wireless Limited. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Because actual results could differ materially from NetComm Wireless Limited current intentions, plans, expectations, assumptions and beliefs about the future, you are urged to view all forward- looking statements contained herein with caution.