Release Date: February 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- QANTM Intellectual Property Ltd (ASX:QIP, Financial) exceeded analyst expectations for FY 24 on both EPS and EBITDA measures.
- The company delivered its best half-year and overall period results since listing in September 2016.
- All business units showed strong organic growth, with service charges revenue up 9.2% to $56.8 million.
- Underlying EBITDA increased by 25.7% to $17.3 million, and underlying NPAT was up 43.4% to $9.6 million.
- The Board confirmed a dividend payment of $4.9, up 75% on the prior corresponding period.
Negative Points
- Patent filings showed some fluctuation, with a soft start in Q1 and a bounce back in Q2.
- Employee compensation costs increased slightly by 1.6%, reflecting the full impact of a cost-out program.
- Technology expenses increased by $0.5 million due to a new cloud policy implemented in January 2023.
- The company faced challenges in maintaining consistent cash conversion rates, with a notable improvement needed to sustain 87%.
- Restructuring and technology costs are expected to continue impacting financials in H2.
Q & A Highlights
Q: In terms of the growth in revenue, how much of that increase in service charges has come from increasing your rates to clients as opposed to new business across each of those divisions? And if it was from increasing rates, could you give us a sense of where you are in that process?
A: Revenue growth is always a mix of factors including FX tailwinds, rate increases, and volume increases. While filings were flat or down slightly, activity levels in other revenue-generating areas were higher. Rate increases generally move with inflation but there is often a lag due to agreed rates in place. The 6.9% increase in revenue excluding FX tailwinds reflects a mix of price and volume.
Q: You had a big improvement in the cash conversion rate in the half with working capital coming down quite considerably. Do you expect to maintain these sorts of levels of working capital and can we expect to see a similar cash conversion rate going forward?
A: With the financial disciplines we've implemented, we are confident in maintaining the improved cash conversion levels. While 87% might be high for H1, we expect strong cash conversion in H2 due to seasonal factors. We are comfortable with the current level and happy with the 9% revenue growth and reduction in the debtor book.
Q: Could you give us a sense of your expectations for restructuring costs and technology costs in H2?
A: All restructuring costs have been accounted for in the first half, so the full impact will be seen in H2. Technology costs are also fully accounted for, with only a slight uplift expected. Compensation costs will reflect provisions for bonuses and WPI increases for the full financial year.
Q: Can you provide more details on the strategic investments and their impact on the business?
A: We have made significant progress in our strategic areas including growth in scale, excellence in client service, investing in our people, technology modernization, and process optimization. These investments have resulted in improved margins, better cash management, and stronger overall financial results.
Q: What are your plans for geographic expansion and M&A opportunities?
A: We are continuously exploring opportunities to expand our geographical footprint, particularly in high-growth markets in Asia. We have a pipeline of targeted M&A opportunities and strategic alliances that meet our selection criteria. Strengthening our balance sheet with improved cash position and debt repayment supports these plans.
Q: How has the IP industry performed amidst economic turbulence and what are your expectations going forward?
A: The IP industry has shown strong resilience despite economic turbulence. Innovation continues to be a key economic driver globally, and R&D budgets have remained strong. IP sector growth tends to mirror GDP growth, making our expansion into Asia important. We remain confident in the industry's resilience and our business performance.
Q: Can you elaborate on the technology modernization and business simplification initiatives?
A: We have made significant progress in technology modernization, including migrating core production systems to Microsoft Azure, upgrading IP management platforms, and implementing a new finance platform. These initiatives aim to improve efficiency, streamline processes, and enhance productivity. We continue to invest in cyber capabilities and expect to see further benefits from these investments.
Q: What are your key priorities for the next six months?
A: Our key priorities include continuing to drive organic growth, exploring M&A opportunities, investing in our people, delivering technology modernization milestones, and maintaining strong financial performance. We aim to be the preeminent and most innovative IP services provider in the Asia-Pacific region.
Q: How do you plan to maintain and attract top talent in the IP industry?
A: Attracting and retaining the best talent is a top priority. We invest heavily in diversity, inclusion, well-being, and people and culture initiatives. We provide an optimal working environment with flexible work policies and modern office spaces. Our commitment to our core values and continuous investment in our people ensures that QANTM is the place to work for IP professionals.
Q: What is your outlook for the remainder of FY 24?
A: We remain confident in the resilience of the IP industry and the underlying performance of our business. We have had a strong start to the year and reaffirm our guidance relative to analyst estimates. We expect to continue delivering strong financial results and achieving our strategic objectives.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
