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Edited Transcript of RDF.AX earnings conference call or presentation 24-Feb-20 10:00pm GMT

Half Year 2020 Redflex Holdings Ltd Earnings Call

SOUTH MELBOURNE , VICTORIA Mar 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Redflex Holdings Ltd earnings conference call or presentation Monday, February 24, 2020 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mark J. Talbot

Redflex Holdings Limited - Group CEO, MD & Director

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Conference Call Participants

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* Adam Dellaway

Henslow Pty Ltd - Analyst

* Christopher Cooper

- Private Investor

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Redflex H1 FY '20 Investor Briefing Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference to you -- the conference over to your first speaker today, Mr. Mark Talbot. Thank you. Please go ahead.

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Mark J. Talbot, Redflex Holdings Limited - Group CEO, MD & Director [2]

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Thank you, Edison. Good morning, everyone, and thank you for your time today. My name is Mark Talbot, I'm the CEO and Managing Director of Redflex. I'm joined today by Neville Joyce, who is our CFO. I'm going to provide a quick overview of the results, and then Neville and I would be happy to take your questions. Yesterday, we lodged an investor presentation, which includes the first half results as well as an overview of the markets in which we operate, our strategy and outlook. I will now provide a quick overview of this presentation.

Turning first to the results. For the first half December 31, we received orders with a total contract value, or TCV, of $142 million, representing a 570% increase on the previous corresponding period. 87% of the TCV represents new, multiyear engagements, which will be implemented over 6 to 12 months from contract date prior to reaching their expected annual recurring revenue. These new programs are expected to generate revenue in the second half of FY '20 and will add $17 million in annual recurring revenue once fully operational in FY '21.

The first half FY '20 results were impacted by the adverse legislation that, in effect, terminated our Texas contracts, which we announced in May 2019 and which represented 13% of group revenue in the first half of FY '19. Excluding the loss of Texas contracts, the underlying revenue was in line with the first half FY '19. And EBITDA improved slightly, reflecting the company's continued focus on operating efficiencies within our existing programs, while at the same time, investing considerable resources into implementing newly awarded contracts.

The key contract wins totaling $142 million in TCV are expected to more than offset the loss of Texas revenue from FY '21 onwards. I believe these results reflect solid progress against our transformation strategy. Looking forward, revenues are anticipated to exceed $55 million in the second half, resulting in total revenue for fiscal year '20 in excess of $104 million. We anticipate annual recurring revenue to remain stable at approximately 80% of the full year revenue with an average contract tenure of between 5 and 7 years. The 12-month sales opportunity pipeline remains in excess of $300 million and is expected to support continued growth and improved profitability.

Redflex has a strong foothold in key markets and is well placed to capitalize on the improving operating environment with strong growth anticipated in the core road safety segment and new markets for curbside management and intelligent motorways.

We now turn to some of the other slides in the pack that we released yesterday. The market in which Redflex operates is growing rapidly. With increasing public demand for safer roads, reduced congestion, as well as improved air quality, our state and local government agencies are looking to replace technology platforms to efficiently manage the roadway infrastructure. Redflex has solutions that enable clients to make roads and cities safer and smarter. We are focused on growing our recurring revenue base and maintain a robust global sales pipeline that will continue to convert sales opportunities. We are progressing well on our strategy to leverage our core technology platform for growth. And I look forward to updating shareholders in the coming months on our progress.

Neville and I will now take your questions. (Operator Instructions) Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from Davina Gunn.

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Adam Dellaway, Henslow Pty Ltd - Analyst [2]

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Mark, it's Adam Dellaway from Henslow. My question, you mentioned in the results presentation that the global intelligent traffic solutions market is expected to reach $19 billion by 2025. Just wondering if you could expand a bit on which segments Redflex sees opportunities within your portfolio of services and products.

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Mark J. Talbot, Redflex Holdings Limited - Group CEO, MD & Director [3]

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Sure. Thanks, Adam. I appreciate that. I think that we continue to see opportunities in our core markets, which are red light, speed enforcement, average speed enforcement. At the same time, we see clients really segmented into 2 categories: One is intelligent motorways, which is our solution on managed motorways and highways as well as in our urban environment curbside management.

And in both cases, clients are looking for new and innovative ways to manage lanes on the major motorways as well as manage their scarce assets which are parking in their curbside within cities. And that could be anywhere in the cities from bus lane enforcement or dedicated bus lanes to loading zones to regulating and managing rideshare access. On the managed motorways, we've seen clients who are interested in managing down to the lane level, whether it's variable speed limit by lane, whether it's access to the shoulder during uncongested time as well as opening up a congested street.

So I think we're seeing more creative customer needs relative to the technology as it becomes available.

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Operator [4]

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(Operator Instructions) We have a question from [Christopher Cooper], a private investor.

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Christopher Cooper, - Private Investor [5]

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My question relates to the fact that I've been led to believe, rightly or wrongly, that Europe was an increasing focus of the company's attention. There's $142 million worth of new work that you're so excited about. I noticed that 4.5% of it is in Europe given the political situation in the United States, which for the rest of the sane world, is incomprehensible. And I'm wondering what steps are being made to migrate some of the company focus out of the North American context.

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Mark J. Talbot, Redflex Holdings Limited - Group CEO, MD & Director [6]

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Yes. So thanks, Chris. And look, Europe continues to be a focus for us. We have dedicated a great deal of our, I'd say, pre-sales and solutions efforts in Europe, whether it's regard to lower emissions zones, whether it's regard to managed motorways with our Highways England customer or simply into the Safety council partnerships and the expansion and use of automated enforcement.

In many cases, as you recall, those are -- typically are not multiyear service agreements, those typically are hardware sales. So they probably are underrepresented in the way we present the award (sic) [contract award]. But they're fairly consistent, particularly in the Highways England and our U.K. work on an annual basis, even though, I would call them nonrecurring, the way we define it. We, clearly, would like to push more towards services, that takes a little bit of work to change the buyer behavior in that market. But it is certainly something we're spending time on. And it's certainly something we're hearing interest by a number of our customers.

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Operator [7]

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We don't have any other questions as of the moment. Presenters, please continue.

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Mark J. Talbot, Redflex Holdings Limited - Group CEO, MD & Director [8]

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Okay. Thank you, Edison. Well, that wraps it up. Thank you very much for your interest. We look forward to continuing to update you throughout the remainder of the year. And look forward to building more off the momentum we created. Thank you again.

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Operator [9]

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Ladies and gentlemen, that does conclude our call for today. Thank you for participating. You may all disconnect.