Release Date: September 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gamma Communications PLC (FRA:6GC, Financial) reported a 10% revenue growth to GBP282.5 million for the first half of 2024.
- The company achieved a milestone of 1 million cloud seats in the UK, adding 48,000 new cloud seats in the first half of the year.
- Adjusted EBITDA increased by 10% to GBP62.2 million, and adjusted EPS grew by 16% to 42.5p.
- Gamma Communications PLC (FRA:6GC) continues to invest in its new portal, which will streamline operations and enhance customer experience.
- The company remains highly cash-generative, with GBP142.9 million in the bank and a 100% cash conversion rate.
Negative Points
- Revenue in Europe declined by 3% in sterling terms, although it remained flat in euros.
- The company faces challenges in explaining its increasingly complex business model to stakeholders.
- There is pressure on gross profit margins due to the shift towards partnering with large tech companies like Cisco.
- The PSTN switch-off in the UK has been delayed to 2027, affecting the anticipated timeline for related revenue growth.
- Gamma Communications PLC (FRA:6GC) has not completed its GBP35 million share buyback program, citing liquidity issues and strategic considerations.
Q & A Highlights
Q: Once Placetel is closed, will you be splitting out Germany in your financial disclosures?
A: Yes, we will likely split out Germany in our financial disclosures once Placetel is closed and becomes a significant part of our European business. This will probably happen in 2025.
Q: As we go fully cloud, will there be one platform for everyone, or will it still be segmented?
A: In the near term, it will still be segmented due to the different needs and functionalities required by various customers. However, the lines are blurring, and in the future, there might be a more unified platform.
Q: What is the likely cost of the Placetel acquisition, and how did you come to acquire it?
A: The exact cost is still being finalized as Cisco is consolidating the business into one entity. We will provide the numbers in a few weeks. Our strong relationship with Cisco and the ease of doing business with Gamma helped us secure the acquisition.
Q: What are the prospects for group CapEx going forward, especially regarding the portal costs?
A: The portal project will be ongoing for at least 18 months. We have shifted some CapEx from other projects to the portal, and while CapEx will be higher in H2, it will be lower than previously guided. We expect CapEx to normalize after the portal is fully developed.
Q: What has driven the accelerated growth in EBITDA? Is it due to cost controls or structural improvements in gross profit?
A: It's a mix of both. We've seen efficiencies in cost controls and structural improvements in gross profit due to our product mix. However, partnering with big players like Cisco may put some pressure on gross profit margins in the future.
Q: Why did you decide to discontinue the $35 million buyback, and what are your M&A plans?
A: The buyback was discontinued partly due to stock liquidity. We continuously evaluate capital allocation, including share buybacks and M&A. We are looking at larger M&A opportunities, but nothing transformational is imminent.
Q: How do you think about the potential for the portal being there for price discovery for customers?
A: The portal will allow partners to see their specific prices across the product suite, but they won't see what other partners are paying. We aim to make it easier for partners to compare and choose products within their price range.
Q: What is the organic growth rate for the SME business, and how does it split between price and volume?
A: The growth is more volume-led than price-led, especially in a less inflationary environment. We continue to grow our customer base and offer discounts for volume.
Q: What is the ideal target profile for M&A in Germany?
A: The ideal target profile includes fast-growing cloud businesses similar to Placetel. We are looking at a few key players in the German market and are open to opportunities as they arise.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
