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Edited Transcript of MNF.AX earnings conference call or presentation 26-Aug-19 11:00pm GMT

Full Year 2019 MNF Group Ltd Earnings Call

Ultimo Sep 20, 2019 (Thomson StreetEvents) -- Edited Transcript of MNF Group Ltd earnings conference call or presentation Monday, August 26, 2019 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Boesen

MNF Group Limited - CTO

* Matthew Gepp;Chief Financial Officer

* Rene Sugo

MNF Group Limited - Co-Founder, CEO & Executive Director

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Presentation

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [1]

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Good morning, everyone. Thank you for joining us for our 2019 results and guidance update presentation. Today, I am joined by Matt Gepp, our CFO.

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Matthew Gepp;Chief Financial Officer, [2]

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Good morning.

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [3]

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And JB, our CTO.

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John Boesen, MNF Group Limited - CTO [4]

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How are you doing?

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [5]

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This year, we are presenting a new presentation format aimed at simplifying the understanding of our business and focusing on what is important. We have provided the usual level of detail in the Directors' Report for consistency with prior years.

Now just to remind everyone, you are welcome to send questions through the chat at any time, and we'll be monitoring that chat. And as relevant questions come up for the slides, we'll try and answer them in line so that we have the slides in front of us and in the context of the question. So feel free to start popping those questions in. I'd say a few people are saying hello already, which is great. Thank you very much. And we've got a very large number of people online today, which is great to see.

Okay. So let me just flip to the next slide. So in terms of a brief summary of our results, we've had a very busy and successful year here at MNF. The company has been focusing on building its recurring revenue streams, and here are some of the snapshots that I'd like to highlight.

Recurring revenue was up 89% this year, up to $74 million. That includes 7 months of Inabox recurring revenue as well. But still, that is a tremendous growth in recurring revenue. Recurring gross margin similarly is up 60% to $49 million, which is, once again, a great indication of the strength of the business and that we're building a solid base of gross margin.

Overall, gross margin was up 20%. The rate of gross margin growth overall was diluted by the usage and transaction business, which has been decreasing in margin. So that, in some way, offsets the other margins. But over time, the business is focused on building a recurring revenue business with high margins.

EBITDA for the year was up 11% to $27.2 million, which is our highest EBITDA ever recorded.

We'd like to focus on underlying NPAT-A. We like the underlying NPAT-A number because we've had a long and complex acquisition of Inabox this year, which consumed $1.2 million of acquisition costs, which are one-off nonrecurring costs, so that affects the EBITDA direct -- I'm sorry, the NPAT directly because it's nontax-affected. So that really sort of clouds the underlying performance of the business.

So we're talking about underlying NPAT-A, which is up 13% this year to $15.9 million, which on an underlying basis is our strongest NPAT-A ever.

Similarly, the underlying EPS is up 12% to $0.217 per share.

I'd like to look at how the trends are going visually, and I think these graphs are quite exciting. So visually, MNF has been consistently growing gross margin and EBITDA year-on-year for the last 7 or 8 years. On an underlying basis, NPAT-A and EPS-A took a bit of a backward step in growth last year, but we're back on performance this year and growing this year and well into the future. The key performance indicator on this slide is, of course, the phone numbers, which to me, phone numbers are driving our past and future growth and performance. So that is our key KPI for the business that we'll be highlighting.

This year in phone number growth, we achieved 18% organic growth, and this drives the recurring revenues across the business. And of course, it's subject to tailwinds, such as the NBN, cloud and Voice over IP, which JB will talk us through later in his presentation. And it's also subject to our geographic expansion strategy, which will increase the number of addressable population that we can sell phone numbers, too. So JB will cover that in his presentation as well.

I'd like to discuss also that the phone number growth is actually accelerating in velocity as we grow the base. So we achieved 18% organic growth in phone numbers this year. In the prior year, we achieved 15% and in the year before that, we achieved 13% growth. So as the base is getting bigger, you can see the growth is getting exponentially higher.

Similarly, I'd like to discuss the trend in EBITDA and EBITDA percentage of revenue, which is now growing at almost pre-TNZI acquisition levels. And this percentage of margin as well is growing as well, which is very high. So this shows the underlying transformation of the business, from low-margin usage-based business to a high-margin recurring business, and that is making us a strong proposition going forward.

I have a question here from [Ray] regarding the reduced revenue. So the reduced revenue is due to the TNZI transaction business, wholly and solely. And in the segment report, we put all details in that in the Directors' Report. So yes, TNZI revenue is down. But the -- that's why we're sort of focusing, if you like, on the recurring revenue growth, which is coming up in a couple of slides. So we'll focus a little bit more on that when we get to Slide 6.

Right now, I'd like to hand over to Matt to go through the financial highlights in detail. Thanks, Matt.

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Matthew Gepp;Chief Financial Officer, [6]

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All right. Good morning, everyone. Thanks for joining us. So the first line in the financial highlights is the revenue, and it's been pointed out that the revenue is marginally down on the prior year by around 2%. You've probably heard us say this a million times now if you've joined us for a few years, but we are very much focused on the margin of the business. And although the revenue was slightly lower, the margin was up to $82.5 million from $69 million in the prior year, and that's a 20% year-on-year growth.

And while the revenue was down for the full year, I will point out that H2 revenue was $117.5 million, which is the most revenue we've written ever in a half. So H1 was a little bit soft, just under $100 million, but we came back quite strong in the second half to deliver $117.5 million.

I'll touch on gross margin, increasing to $82.5 million. The gross margin percentage, which is really important, was 31% in the prior year. That's increased to 38% in FY '19. Again, interestingly, is the H-on-H variance, H1 have delivered a 37% margin, H2 delivered a 40% margin, so that our effective exit run rate for H2 is 40%. So moving forward, we're expecting and hoping to see margin percentages around that level.

We've touched on EBITDA. It's up 11% to $27.2 million, and the acquisition of Inabox has certainly contributed to that growth. They came onboard in December and have contributed 7 months. A total of $2.9 million contribution from the Inabox acquisition, which is slightly higher than what we've guided. I think back in February, we're guiding to $2.6 million. So Inabox is certainly contributing EBITDA in line with our expectations, and we're very happy about that.

NPAT went back a little bit, 4%, $11.9 million to $11.4 million. NPAT was impacted negatively by $1.2 million in acquisition costs. At the half, I think we're at $0.8 million or $0.9 million, and any one following the business at that time would know that we almost lost that acquisition quite late in the [face]. It dragged on quite a few months longer than we expected. And as a result of defending that acquisition, of course, we need to spend more money on lawyers and consultants, et cetera. So that's just a fact of life, the $1.2 million in acquisition costs. We've also seen quite a large increase in our amortization when we made the Inabox acquisition this year. And there's associated amortization with the software and the customer contracts there. And we've seen amortization increase from $2 million to $3.4 million in FY '19.

Earnings per share is just a derivative of NPAT, and so it's down 4%. And all the same comments that apply to the NPAT apply to the EPS. The underlying NPAT-A gets a little bit more exciting. We add back the amortization. We add back the acquisition costs. And ignoring those 2 items, one is cash and one-off, amortization is recurring, but underlying NPAT-A has increased 13% from $14.1 million to $15.9 million.

Similarly, underlying EPS in EPS-A follows the same pattern. That's increased from $0.193 in '18 to $0.217 in '19, a 12% increase, consistent with the underlying NPAT-A increase. And the Board declared a dividend of $0.04 in H2, bringing our total dividend to $0.061 for the year.

Our first half dividend of $0.021 over $3 million NPAT was lower than what we normally pay out. So hopefully, doubling of that dividend in H2 is appreciated by our shareholders.

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Questions and Answers

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [1]

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Thanks. And now we have a couple of questions here from [Claude]. First one is, can we expect going forward that statutory NPAT will eventually reach record levels once acquisition activity slows down?

So yes. I guess there's certainly the one-off acquisition cost of $1.2 million in nonrecurring. And as Matt highlighted, that was a long and complex acquisition, which we needed to defend with an on-market takeover midstream. So that was quite difficult and certainly for the lawyers (inaudible). But the $1.2 million, we had to move forward on that. So that should appear straight back on the NPAT next year.

In terms of the amortization, that will wash through the system over quite a few years. I think the customer amortization is the main item there, and that's about 3-year cycles from customer amortization.

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Matthew Gepp;Chief Financial Officer, [2]

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Yes. Depending on the customer, yes, 3 to 5 years. Also the soft -- the amortization of the software we acquired, if you get to Note 23 in the accounts, you'll see that we had the software valued from the Inabox acquisition of $14.44 million. That's important, and that becomes a tax deduction for the company moving forward over the next 5 years. That's worth real money to us. But there will be an increase in amortization in FY '20 because we've only incurred 7 months of the amort for Inabox in '19. But obviously, in the absence of any acquisitions in FY '20, acquisition costs will vanish.

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [3]

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Yes. Great. And [Claude] has also asked if the second half statutory EPS is a decent guide to where we're going now. I think that preempts the guidance slide, so let's leave that one for when we get to guidance, unless you have a comment, Matt?

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Matthew Gepp;Chief Financial Officer, [4]

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Well, I will just make the comment that there was, I think, 0.3 or 0.4, depending on the rounding of acquisition costs, that did -- sorry, that were incurred in H2. So the H2 EPS is negatively impacted by that fact. But certainly, the H2 EPS has a full 6 months of amortization as well.

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Presentation

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [1]

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Great. Okay. So let's analyze our recurring revenue growth a little bit. So as we mentioned earlier, recurring revenue grew 89% to $74 million in the year, and that's with 7 months of Inabox. The organic growth in recurring revenue was very strong as well, with our Domestic Wholesale growing around about 34% and our global next-generation wholesale growing at around 24%, which are recurring business models.

So despite the fact that we have Inabox contributing strongly to the recurring revenue growth, there was good underlying organic revenue growth in the mix.

I'd like to also highlight here a little teaser that existing customer revenue growth was -- sorry, retention was 156%. JB will elaborate a little bit on that later on, but that is our existing customers growing year-on-year as well, which is great. So we expect the recurring revenue growth trend to continue going forward, especially next year, with the full annualization of the Inabox 12-month contribution as well as strong organic growth, which we're seeing led by the phone number portability that we talked about earlier. So as the business matures, you'll see that recurring revenue as a proportion of overall revenue will grow. We're currently at 34% of the total revenue mix.

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Matthew Gepp;Chief Financial Officer, [2]

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I'll just add there while recurring revenue is only 34% of the total revenue, which contributed 60% of the margin, and that's the next slide. Apologies, Rene.

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [3]

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Excellent segue, Matt. Thank you. So it gets even more exciting, yes, at the gross margin level. So exciting that Matt just couldn't hold on to that thought. He had to let it go.

So recurring gross margin grew 60% year-on-year to $49 million this year, and this provides tremendous earnings stability for the company going forward. I cannot emphasize that enough. These are typically monthly recurring revenues, which are fixed in quantum and typically in contracts for multiyear periods. So this provides much greater predictability of our forecast. And once again, that trend will continue with the annualization of Inabox and organic growth driven by our phone number business effectively, which underpins all of our segments of our business. And yes, it's at 60%. So you can see that, that is having a material impact on our gross margin. And we are now a predominantly recurring gross margin business, which is great.

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Questions and Answers

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [1]

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Yes. So a question from [Claude] here just on that recurring revenue. It is paid monthly. It is, as I said, typically the same fee every month for that particular service, whatever the customer has acquired. It is typically in a multiyear contract. The revenue isn't guaranteed from the point of view that if a customer were to port a phone number, keep in mind, our business model is wholesale. So typically, most of our business, 2/3 of our business, is wholesale. So the wholesale customer loses a phone number. That's typically -- comes back as a slight decrease. But I'm talking all-net numbers here. So we've seen net number portability grow 18% year-on-year. And once people advertise a phone number, it's kind of sticky by nature that it's on the Internet, it's painted on the side of a truck, it's painted on the side of a billboard. Now -- and that number is going to stick around for a long time. So it is a multiyear contract to supply that service, but the individual phone numbers are not themselves contracted, if that makes sense. So it's a little bit complicated, but it is a recurring and what I refer to as a monotonically increasing business model.

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Presentation

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [1]

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Okeydokey. So let's just move along back to Matt to explain his masterpiece of the EBITDA waterfall.

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Matthew Gepp;Chief Financial Officer, [2]

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Thank you, Rene. This chart demonstrates the movement from FY '18 to FY '19. We've picked the most material numbers that we could to describe this. So we'll start on the left. We talked at length last year and at the half year about the headwinds in the global usage. That's the first decrease of $4.2 million. And now that decrease is a decrease in margin. And from the segment note, you will note that we did go backwards marginally year-on-year in the Global Wholesale margin from $28.4 million to $27 million.

Encouragingly though, the dip, I mean, was mainly incurred in H1. So by the time we got to H2, we're actually back on track with the run rate that we're seeing in FY '18 H1 and H2, which is around the $14.2 million level. So we did $12.9 million in H1 '19, $14.2 million in H2 FY '19. So that's really encouraging. While we did lose that business, we are writing in more revenue and more margin out of the Global Wholesale business coming into and out of FY '19 H2.

The next decrease in the EBITDA is around overheads, $2.3 million. We have more staff. Costs more money to house those employees and we incurred $2.3 million of additional expenses. I will make the point here that those overheads -- the increase in those overheads are excluding the increase in the Inabox and the Singapore numbers, which are highlighted in their own right further on in the chart.

We touched on staff a moment ago. Staff costs ex-Inabox, which was around $5.5 million. Staff costs for 7 months for Inabox, but organic staff costs ex-acquisitions went up $1.5 million net.

Domestic Retail segment as a total went down $0.4 million. And certainly, that segment was mostly negatively impacted by our data business, which saw a decrease in margins as the year went on. And we've sold that business in May, I think, '19 to another company who specializes in data and can do that more efficiently than we can. So that's a headwind that will be removed or has been removed now moving forward.

And Singapore contribution or net contribution is immaterial at $0.2 million. And then we start getting into the material growth aspects of the business, and they are around the global recurring revenue. So this is the international customers who are buying our smart products out of Australia. That grew $2.8 million.

And I touched earlier on the Inabox contribution for the year, at an EBITDA level, that's $2.9 million. That's only for 7 months, and we expect that to replicate out for the full year into FY '20. And then the star of the show, organic Domestic Wholesale business, organically, that grew $5.3 million against the prior year. So that's the material items that get us from $24.4 million in '18 to $27.2 million in '19.

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [3]

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Great. Thanks, Matt. And yes, it's fantastic to see that global recurring is actually organic as well, and the domestic is organic. So we've got 2 very strong organically growing businesses at very high percentages, typically about 34% and 23% year-on-year organic growth.

Singapore, of course, as Matt highlighted, is brand new, and we're currently building out that network. JB will provide a bit more color on that. It's currently not contributing, and it will probably start contributing later this year but not materially. Once again, it does take time to deploy the technology, to get the customers provisioned. But once the engine starts going down that track, it does accelerate, as we are seeing in Australia. And it does take time, but it will get there.

And Domestic Retail. As we mentioned, we divested that DSL base, which was -- we got some other revenue for divesting that asset. The cost of maintaining the customers and transitioning the customers and maintaining operations during the whole process was a bit of a wash. So that was a headwind last year, which, as Matt said, it's no longer a headwind. So we are simplifying the business and we are focusing on those strong growth areas.

Now Matt, can you please take us through the cash flow?

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Matthew Gepp;Chief Financial Officer, [4]

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Everyone loves the cash flow. So we talked about cash a lot over the last few years. I think it's important, especially this year, to break it out into H1 and H2 because in FY '18, cash was $18.9 million, and it dropped to $15.5 million at the end of FY '19. We were at $10.5 million at the end of H1, so at December '18. So we talked about the unwinding of that [notated balance] over the last few years. The last of that took place in July '18 unfortunately, so that did impact our operating cash flow in H1. But the statutory operating cash flow in H2 was $11.1 million against a negative $5.6 million in H1. So we ended the year with full year operating cash flow of $5.5 million against negative $16.3 million in the prior year. So I would be looking at H2 as a better indicator of how our cash flow will look moving forward. That position, I talked about, is now completely unwound and should not provide any cash flow headwinds for us.

The business spent around $15.6 million on capital expenditure and development, and that leaves us with negative free cash flow for the year of $10.1 million, although we did have positive free cash flow of $4.5 million in H1.

Now the rest of the cash flow on the right-hand side is pretty academic. We paid $4.5 million in dividends for the year. $0.9 million of increases in equity mostly as the result of the DRP and a little bit from the SPP that took place in the year. And as you will know, we acquired the Inabox business. $35.6 million was spent in H1. That was mostly Inabox, and the second payment for the Singapore acquisition, some of which took place at the end of FY '18. And we did get $0.5 million refund on the Inabox acquisition, which you can see in the H2 FY '19 column to leave us with negative $35.1 million total for business acquisitions for the year.

Now we did fund the Inabox acquisition through a debt facility, and that has seen the debt increase by $44.9 million. Other movements are immaterial at $0.5 million, and that leaves us with a closing cash balance of $15.5 million for the year.

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [5]

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Great.

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Matthew Gepp;Chief Financial Officer, [6]

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Anything else? Any question on that?

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [7]

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No. No questions on cash at the moment. I'm sure they will come. Let's kick on with the balance sheet.

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Matthew Gepp;Chief Financial Officer, [8]

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Thank you. So first, on cash. And again, I've demonstrated June to December to June because I think it's important to show the improvements in the business over the course of the full year. And showing the half year numbers, it really helps to demonstrate that.

We've really strengthened the balance sheet in the second half of the year by refinancing our loan facility. We took on 2 banks instead of 1. That creates a little bit of competitive pressure between them to win our business. HSBC joined Westpac as part of the group that is financing MNF now.

Importantly, here is the current debt. The current debt at December '18 was $10.5 million. As part of the refinancing, we eliminated any current debt repayments and that's all moved into noncurrent debt, and that's the $55.6 million. That loan is a $60 million facility, $45 million of which is payable over 3 years, $15 million of which has a tender of 5 years. Now it's at $40.1 million at June. That's an improvement against December, which was $43.9 million, and that improvement is mostly to do with the improvement in our cash balance increasing or improving our net debt position.

The other key items on this page, which are important to me, are our net current assets. It has significantly improved from December from $7.7 million to $22.5 million and also working capital, which now is around $20 million in June and December, but is up at the $26.3 million mark in June. And again, that's mostly to do with the improvement in our cash generation in H2.

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [9]

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Okay. No questions on balance sheet. Thank you, Matt. We'll move on to where everyone's been waiting for, the reaffirmation of FY '20 EBITDA guidance. And we're very pleased to be able to reaffirm the guidance. With Inabox acquisition behind us, we can now focus on growing the business. And so we're reaffirming the $33 million to $36 million guidance, which we guided almost 12 months ago to today, which is quite a long-forward guidance, but we've managed to do that, and that would represent a 27% growth at the midpoint of that guidance.

And as Matt said, if you look at the H1, H2 performance, you'll notice that the H2 EBITDA run rate, if we extrapolate that, would be 34.8%, which lands us pretty much in the middle of that guidance midpoint. So it's not to say that we don't need to do anything to reach the midpoint. It still is a challenge because we are trying to grow the business and we are investing in new initiatives, but it should be a good high-level indicator that we are on track for our guidance for the year.

Then of course, the rest works out mathematically. We have updated the impact guidance slightly now that we have more visibility of our amortization profiles, but we have still got the underlying NPAT and EPS guidance -- underlying EPS guidance there.

I'd like to also emphasize that, as Matt has just said, cash conversion in H2 was very strong, and we're expecting similar cash conversion in FY '20 since we won't have any of those one-off acquisition costs. And of course, to make it clear, we have no current liabilities in terms of debt. So our cash funding is more than sufficient to execute our current strategy, and our bank covenants are very comfortably within their margins.

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Questions and Answers

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [1]

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So we have a question here from [Claude] as to the plan to repay the debt and to what degree or we planning to keep refinancing and [carriage] leverage going forward?

That is a decision that the Board looks at every year, Claude . At the moment, we are strengthening the balance sheet by generating cash. We'll be looking on a regular basis at that, and the Board will decide what the best use of the cash is at the time. So -- but we are well within our operating covenants. We've got sort of no pressure at any point to repay the debt.

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Presentation

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [1]

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Okay. So if there's no other questions, I feel that it's very question-light in terms of the front of the presentation. But we will kick on, and I'm going to hand over to JB, our CTO, who will give us a business overview and update you on some of the exciting stuff that's happening underneath the bunch. Thank you, JB.

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John Boesen, MNF Group Limited - CTO [2]

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Thanks, Rene, and good morning, again, everybody. Well, it's been an exciting time for the business as we look back over the last 12 months. Clearly, evidence this morning with Matt's excitement with our gross margin growth. We've had net headwinds to navigate, but we've also been experiencing a series of strong tailwinds, fueling our underlying wholesale growth and generating a lot of excitement from -- within the business as we look to what lies ahead.

However, for those looking at M&A for the first time, you may not immediately understand what we do and more importantly, what makes us unique in the Asia Pacific region. Some may have noticed that we have grouped to the telco in the ASX, but this can also be misleading for the first-time investors. So this morning, I'd like to recap what we do with a focus on what makes us unique. Secondly, I wanted to reaffirm the trends that we're seeing in the industry both locally and abroad. Now I did touch on during the half year webinar, but feel it's important to repeat. Thirdly, to really understand our value proposition, I'll be sharing some of our customer use cases to further bring to life our unique value proposition. And finally, I'll close with revisiting our strategy, a strategy that continues to be validated by our growing customer base and increasing phone number market share.

First to where it all began, some 17 years ago when the business created Australia's first Voice over IP network, a network specifically designed to carry voice traffic, a network that is owned and operated by us. This is our first key differentiator. The 'smart network' and our highly capable team allow us to solve problems. Other players, large telco players, simply can't do all at the pace we can.

A Voice over IP approach in 2002 was pioneering for its time and one that has shaped the future of modern-day voice networks that are now in use by MNF-like players globally, such as bandwidth based in the U.S. and gamma based in the U.K. The network build for us started with a focus on the larger Australian states, but through our organic growth and our teams in our acquisition, we created an extensive network throughout Australia, New Zealand, the world map, as you can see on this slide, and our newest addition being Singapore.

I want to spend time detailing this morning where we are with Singapore other than to reaffirm. We are on track to complete the network build this calendar year and commence operation of services this financial year, which brings me to our second key differentiator, our comprehensive software ecosystem and heritage.

It is this aspect that widens the gap from our traditional telco competitors. We're not fundamentally a software company seeing on top of a strong telco foundation. Through our software-led approach, we have exposed our network infrastructure and a range of capabilities essentially as a service in the form our APIs for our customers to use and build great products and customer experiences upon. The voice network reached our reliability, our voice quality, our phone number types such as toll-free, emergency, fixed-to-mobile, our compliance and regulatory services all made available and accessible through a simple set of software APIs. We hide the layers of complexity from our customers and present a simple interface they can use. This is our key differentiator.

Traditional telcos struggle to deliver this type of experience as it isn't part of their DNA by specializing and deploying lots of fixed telco on the structure. But they are not born and bred with the necessary software DNA to not just understand what the big software giants need, but understand how they think and move, which brings me to summarize our value proposition. We are a one-stop shop that hides all the telco complexity from our customers with a full range of services beyond just the phone number on a network that we own and control, features and quality we control, a network and software ecosystem that we own and can adapt and evolve to customer need and a scale to support not just one, but limitless number of customers and applications of any size.

The companies that use our capabilities cover a wide range of verticals, which is the small selection on display on this slide. You'll see traditional global telcos such as Vodafone, Spark and China Mobile. Global software giants such as Google and Microsoft. The classic infrastructure companies such as Cisco where we see them diversifying their interest now into the unified communications and contact center as a service spaces with their acquisition of BroadSoft. We think companies like ours represent [achieve by] bandwidth.

But just before moving on, bandwidth market themselves and their website interestingly as the only API platform provider that owns a Tier 1 network. That may be true in the U.S., and they need to add that to their material, but it certainly isn't true on the Asia Pacific stage because that is us. Our software platform is also powering leading CPaaS vendors such as Twilio in Australia or New Zealand. But this is just a small example of some great companies we get to partner with and empower every day.

But the New York marketplace are not telcos; they are trusted software giants developing not just solutions in unified communications as a service space, as depicted by this Gartner research here, but also in the communication platform as a service and contact center as a service space. These are technology companies with strong software foundations with global reach. We want to add native voice capabilities to their products. But they have no intention or appetite to become a telco in every country in which they sell their products, it simply isn't their core business or strength nor is it financially viable for each of them to build their own local domestic interconnect networks. So they turned to MNF because that is our core business where we can provide them with API access to the voice network features they need, a network which has proven quality, scalability and reliability. Someone to look after each country's unique regulations, compliance and privacy requirements, telecommunication, codes and practices, carry Internet requirements to name just a few. And the ability to cater out to their own unique requirements all at a speed that a software company expects. And ourselves and our customers are operating in a booming market. Everyone is growing on the back of a range of drivers.

Looking at Australia, there is a once-in-a-generation shift occurring, driving strong tailwinds for us. The sale of IDs and services, which was the backbone of Telstra and Optus offerings for over 30 years. This is opening doors for small, medium business, enterprise and government to churn to Voice over IP services.

The NBN rollout obsoleting any remaining copper infrastructure, and forcing customers to look at their options. Again, Voice over IP being the final destination here. These aspects are evidenced by our strong domestic wholesale growth we spoke about this morning, the 35% year-on-year. And also further supported by Telstra's declining revenue without attributing some $600 million in earnings decline due directly to the NBN. Customers are switching to VoIP solutions, and it is clear we are grabbing a share of this.

Looking internationally, we are seeing an increase in demand for our services from technology customers both large and small. Gartner are forecasting UCaaS spending alone to grow beyond $46 billion over the next 4 years. But we are also seeing growth via our own indicators where we see our global customer retention rate seen at 156%, something Rene mentioned this morning. It's a booming space with no sign of slowdown or lack of innovation.

And we are well placed today to capitalize. I've covered these points already, but in summary, we own our own network, our quality, our reliability. We offer a comprehensive suite of voice and telco services through our APIs. We are uniquely a software company sitting on a strong telco foundation. We act and speak the way our over-the-top software giants demand. We hide the complexity of being a telco in Australia and New Zealand and shortly, Singapore. We have the economies of scale to offer our services to multiple customers, and we benefit from all the margin advantages of owning and running our own network. It is a strong position that is carrying our business forward.

Who are we powering? A wide range of companies and customer experiences that you have likely interacted with on a monthly, weekly and even daily basis with some examples shown here on this slide and even the call that you are on now. And maybe even the numbers that you are calling in from, the rabbit hole can go very deep when we talk about numbers.

I won't spend too much time on this slide as I have a few use cases to follow that will add further color to these, but I'm confident that by the end of this call, you will have a clear understanding of where our customers see clear value and partnering with us. And just to be clear, the brands shown on this slide are customers of MNF and have been for many years.

So let's speak a little deeper into some of the use cases. Phone number anonymization is a use case we see growing popularity. Using our network's capabilities, numbers can be masked to prevent -- to protect the privacy of the call. There are a number of methods available, but in the case of Uber, a virtual cloud phone number is used and allocated for the duration of a driver-passenger or passenger-driver call, all in real time. And any number of these calls may be active at any one point in time, so a pool of numbers is required.

For the case of carsales, a virtual number is allocated for the duration of the car ad. And again, a pool of numbers is needed to support their customer volumes at any given point in time. And if they see these concurrent units maxing out, of course, they certainly have to purchase more numbers. In both use cases, the privacy of the calling and called party are kept hidden and secured from each other within the boundaries of our network.

Moving on to the next use case. Our next use case is all about video and audio conferencing, the core capability MNF's has been powering for many years. And as Voice over IP and UCaaS movements continue to surge, users are no longer restricted through a traditional physical phone interface. Users can now use a software application that could offer real-time chat. It could allow for a real-time file transfer. It could allow real-time desktop sharing and a host of other features aimed at unifying the communication experience. This is fundamentally what UCaaS is all about. Because UCaaS players are predominantly software companies though, they can deploy their solutions anywhere in the world. However, local users of these apps would need local phone number access to easily and quickly engage others.

For Australia, New Zealand and shortly Singapore, this is where MNF drives, offering not only the local number services, but the advanced APIs to allow customers to purchase or call their local numbers to connect and configure them. And the growth we are seeing here is not signed out.

The third use case this morning, you'd see our virtual numbers used in powering e-commerce platforms and analytics. In the case of Google, you may have noticed in-line numbers are returning search results that you can click and call. These are trackable cloud-hosted MNF numbers that power the experience. For specific campaigns, virtual cloud numbers can be used to track activity. Once the promotion runs its course, the number can be disconnected. All of the service diverted to interactive voice recording to tell a customer if promotion has ended and possibly redirect them to another promotion. Some companies could have hundreds or even thousands of numbers in play at any one time.

Now 4G use case, that's something we haven't spoken a lot about in the past. In the case of Jaguar and Land Rover, our virtual toll-free numbers and global routing capabilities are on display. In this scenario and in the event of a breakdown or accident, the driver can push a contact button to call our carmaker's call center. He can then dispatch a valet service, repair or emergency services as needed. There is also an automated feature we've seen in these vehicles that can perform this function intelligently by car, where the service relies on reliably transmitting caller ID information. MNF network was found to be the only network that could deliver all the call information reliably and accurately from a global scene. Because we own both domestic and global networks, we could guarantee this capability where other providers had failed.

And finally, in the last scenario, we are seeing countless businesses move to the NBN. However, migrating to the NBN may result in you losing your landline number. However, through MNF's Voice over IP network again, NBN service providers can port numbers away from legacy network operators and turn them into virtual cloud numbers with programmable capabilities such as redirect for mobile or other landline number. The end customer is able to keep their long-standing number, made possible by our Voice over IP network capabilities.

There are many more use cases driving our revenues and recurring revenues specifically through the supply of our virtual cloud number. However, when combined with our capabilities and services that are designed to remove the pain points out of being a telco, we deliver a unique customer value proposition. Domestically, NBN is a tailwind for us and not a headwind, like Telstra is facing, for instance. That is a unique position that we can claim. Keeping in mind, we divested our retail NBN services earlier this year, immunizing ourselves against what others have been experienced around NBN, supported also by domestic wholesale of 35% year-on-year.

Our global players in UCaaS, CPaaS and CCaaS spaces are continuing to build, all fueling our current and future growth supported by our global wholesale recurring revenue growth of 24% year-on-year.

But how do we further capitalize on the foundations we have built? The answer lies in our strategy and the focus on geographic expansion specifically into Asia Pacific. The expansion will be customer-led, and Singapore will be online shortly. However, we won't see that market as [mainstay of] being profitable until later this year, simply a mechanic of the investment required to build out our voice over IP network in that country.

And if we look at a population view of our current market services in Australia, we can attribute circa $1 of EBITDA per head of population. It's an interesting way to deal our market potential. But as companies continue to innovate, it is very plausible to see how the use of numbers per head over time will compound supported simply by the fact that a number of large handheld phone companies are now deploying dual-sim phones. But also, we're seeing, intrinsically, we have phone number growth, Rene mentioned, 30% growth in FY '17, 15% growth in FY '18 to 18% in this financial year, and we are not seeing any slowdown, which brings us finally to recap our strategy, our team have been executing.

Expanding our software capability will allow us to offer new services to our existing customer base as well as attract new customers, ultimately, growing market share. Expanding our offering across Asia Pacific as evidenced most recently by our Singapore expansion, this is key to our long-term growth. And continuing to look for acquisitions to support our growth strategy.

Our team remains confident in our strategy. We are focused on execution, and we are well positioned to take advantage of the opportunities that are presenting themselves both on a domestic and international stage. It is an exciting time for MNF, and I hope this update has provided some fresh perspectives about who we are, what we do and how we uniquely offer value to our customers.

At this point, I'd just like to thank you for your time, and I'll hand back to Rene.

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [3]

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Thank you much, JB. That is pretty exciting. I'm excited myself.

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Questions and Answers

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [1]

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In fact, so much so that Peter has asked a question. For how long you do see the telephone number being the unique identifier for a device or person as traditional telco networks have done it?

So I'm happy to give that a go because basically, at the moment, the phone number is unique globally. Phone numbers have been around for about 150 years. And you think that, that's a long time for the same technology to exist and given the rate of disruption that we have these days. But fundamentally, phone numbers are unique because they provide global any-to-any connectivity at any time in real time, anywhere in the world. And that is the only technology that lets us do that today. Things like user IDs, Facebook IDs, all these sort of things are islands in the global network. And when these social networks or private networks want to reach any user in the world, then they themselves even default to phone numbers. And that's evidenced by things like Skype, being able to do a Skype out or a Skype in call because even Skype, one the biggest social networks, understands that they cannot reach the whole world.

Also, fundamentally, applications like WhatsApp actually use a phone number as the identifier for their service. So even those next-generation applications are relying on a phone number fundamentally. If you look at banks with 2 factor of indications, they rely on the phone number as the fundamental trust vector for that device. So it's not a case of telephone numbers becoming obsolete or even telco networks being made redundant. Telco networks will continue to evolve. If you look at 5G, fundamentally, they're using find numbers still. Phone numbers are unique, and it's going to be very hard for any one company to come up with something better than phone number because it's beyond a company. The phone number transcends the corporation. Phone number is a global unique identifier, and they're so versatile. We're still finding new applications to do with them every day. If you look at some of the examples that JB gave, these companies have only existed a few years and they've done tremendous growth on the back of phone numbers. So I feel very comfortable to say that phone numbers are here probably for my lifetime, I would say. I used to say 20 to 30 years, but I'm hoping to live longer than that now. It's just that we are just seeing so much disruption, thanks to the humble phone number and the fact that companies like MNF have made those phone numbers versatile through the cloud.

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John Boesen, MNF Group Limited - CTO [2]

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And just to add to that, Rene just touched on, at the end, probably one of the key points is that what we do as a business is make it easy for our customers to access this global stage, this global identifier. And what we're starting to see now is as companies like ourselves and bandwidth and gamma primarily our core capabilities, we are unlocking large players and a lot of innovation, of which we've just touched on today. There is so much more that we could talk about, which I was told I couldn't. But the innovation and the growth of innovation, we will see accelerate with new use cases, things that even everyone in this call hasn't even thought of today. It is genuinely a very exciting time and evidenced in the numbers that we see in the quarter.

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Rene Sugo, MNF Group Limited - Co-Founder, CEO & Executive Director [3]

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Thank you very much, JB. Thank you very much, Matt. Thank you very much to all those that joined us on the call. I look forward to another exciting year with MNF. Thank you for your support.