Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aerospace and defense revenue grew by over 100%, showcasing significant growth potential in this sector.
- Overall revenue growth of 17.8%, with notable increases in motorsports (8%), OEM (9%), and automotive aftermarket (9%).
- Strong cash position with $21.7 million in cash, up by $10.2 million or 95%, providing a solid liquidity base for future investments.
- Successful implementation of a hedging program that resulted in a $677,000 improvement in NPAT due to favorable FX movements.
- Continued investment in people and infrastructure, including a new factory in Australia and a $30 million debt facility to support future growth.
Negative Points
- EBITDA margin impacted by increased employee expenses due to headcount growth and competitive wage rates.
- Motorsports revenue saw a slight decline, dropping to 48% of total revenue.
- Significant increase in operating expenses by 18.7%, primarily driven by employee costs.
- Flat NPAT expected for FY25 due to high upfront costs associated with new hires and infrastructure investments.
- Potential disruptions anticipated during the transition to the new facility, which could impact operational efficiency and revenue.
Q & A Highlights
Q: Morning, Martin, morning, Kees. Thanks for taking my question. I might just start on A&D. So the second half is quite strong growth with $30 million of revenue. I remember the half year you thought '25 and '26 is going to be really big years, even massive. So I was wondering what level of growth you're expecting? Is sort of doubling each year a possibility given the growing pipeline?
A: I think the growth from last year to this year, well from '23 to '24, is a pretty good indication of what is the tree born and what have you. We have to grow people in that business, what I spoke about before, to make sure we're ready for the next big phase. And certainly, for us in 2025, I don't think we can do 100% on -- I'm being very practical here, I don't think we can do quite 100% on our '21 that we've just achieved. But it'll be, certainly without giving any guidance, it'll be certainly a fairly good uptake in '25. We have the business there and as I said before, at some of these programs, particularly in where we're at, doing what we're doing in those programs on the eVTOL side of it, when those programs are starting to move from, you know, R&D and prototypes now into production. So, you know, we are starting to see some of that come through. That will be -- we certainly waited on the second half of this year. And what we see today, I think it's gonna be a very good uptake on what we've done this year.
Q: Perfect, thank you. So that would just mean that '26, you're expecting that to be probably a higher gross rate than '25, even more of those eVTOL programs? Definitely?
A: Definitely.
Q: Perfect. And then still on R&D. So there's a lot of new programs, and my thinking was most of them were likely outside of eVTOL, given there's a large number of manufacturers. So I was hoping to touch on where you saw some of these programs with? And maybe what is the largest total contract size in terms of revenue you saw from some of these programs?
A: Uh, let's probably -- a little bit difficult to quantify. The certainly the eVTOL area of the business has been very strong, but also the coal plate -- the coal plate business on aerospace and defense has also been very, very strong as well. So I do think in both parts fairly evenly across the board. What's pleasing is in addition to the eVTOL and the cold plates, we also have a broadening range of programs that are in various phases of development. So the aerospace and defence pipeline itself is maturing as we would like it to and expect it to. So other programs outside of that also start to mature and develop in size over the coming years as well.
Q: Okay, just last quick one. Just to understand what size of a contract would need to be for you to make an announcement to the market, is it still that $5 million per year?
A: Yes. Yes, if it's an individual of over $5 million, I think we should be essentially making sure.
Q: Morning, Kees. Morning, Martin. Hope you guys are well. Can I just start with -- can I just start with motorsports, please? It looks like there was some pull forward of motorsports revenue into the first half of 2024 as that second half growth looked a bit soft. So, yeah, just wondering if you can just talk through that, please, Kees?
A: Yeah. I think if you remember the year before it was the other way around, which it just certainly wasn't pulled forward Alex. But as hard as it is, it's hard to do that particularly when you're working with orders and PO is particularly time sensitive and what have it with that when they're going to be produced by, so certainly in the right area. Yeah, it was probably a lot of the extra, I guess, R&D-type work that we've done for motorsport and particularly for F1 for the '26 program. That was released last year of exactly where it was going to be. So there's quite a few of the teams that jumped in early for some of that development which certainly led for an uptake on that first half. So, you know, that's certainly probably a very good explanation of that.
Q: Okay, thanks for that. And then onto employee costs, and that went up quite a bit in the second half. And you mentioned that was due to higher headcount and also the increased rates to remain competitive in the market. But I'm just wondering, do you expect that pressure on rates to continue? And also, I think, Martin, you mentioned that you're hiring more skilled labor, so are you hiring more of the highest skilled labor versus historically where you've hired at the lower end and trained people up. I just wonder if you could just talk to that please?
A: Yeah, the employer cost is obviously a big thing for us. We're very laborising in what we're doing. The big thing is, which I called out a bit earlier, particularly with the aerospace and defence, of all the other areas that we have to have in place to qualify to do any of that work. And you know, particularly with certifications and quality control, procurement, cyber, a lot of that stuff that people don't see. But because we're doing it here in Australia and also doing it in America so it's a bit of a double up of some of those wages that we're being had to do which is fine and we're backing ourselves of that industry to certainly kick some gold as we have with the equipment side of what we've invested in the American facility as well. So as far as meeting the market, I think everybody would know that wages have certainly gone up and going to meet the mark and I think we're a little bit behind Ellie and now that we're certainly looking for that upper skilled person particularly to be qualified and ready to work in that aerospace and defence industry side is a bit more expensive than automotive in general. So the uptick of wage and employment costs has been mainly driven by aerospace and defence.
Q: Good morning, Kees and Martin. Just a couple of questions, maybe just on the results on motorsports. And just sort of noticing a bit softer, I guess, than consensus expectations. Can you talk to us if there's any sort of timing impact around the results and perhaps price rises that went through in the FY24 year and expectations for FY25?
A: Well, yeah. So as far as the year end, end of '24, we're not calling out any particular timing impacts. As Kees said, we had a stronger than expected first half, which was supported by some of the additional development work for the 26 car.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
