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Etherstack Limited (ASX:ESK) CEO and Executive Director David Deacon discusses the company's 2022 financial highlights and outlook for 2023.
Tim McGowen: We're talking with Etherstack (ASX:ESK) today. The company is a wireless technology provider that supplies mission-critical wireless networks to the public safety, utilities and resource sector. The company also licenses key technology to over 20 other wireless equipment manufacturers globally. We are joined by David Deacon, who's the company's CEO and Executive Director. The company has a market cap of $70m, and ASX code of "ESK". David, always good to see you. Thanks for your time.
David Deacon: Thank you, Tim.
Tim McGowen: Now, David, last Friday you released your results. Can you talk to the highlights of those results?
David Deacon: Look, we had a second great year in a row, up 14 per cent in revenue from the previous FY2021. Really very pleased to see the increase in the EBITDA, up 33 per cent to US$3.4m, or almost A$5m, and 51 per cent growth in our NPAT number to Us$2.2m. I think the one that I really like more than anything else, it's five solid years of positive operating cash flow, in excess of a million dollars. This year was close to a little over US$2m.
Tim McGowen: And, David, you touched on 14 per cent revenue growth. What were the drivers of this growth?
David Deacon: Look, as we've said in previous years, it's our traditional digital public safety radio business that's been driving this underlying growth. So, while people have seen the headline announcements such as Samsung and Nokia, that's really what we consider to be the forward growth in the next couple of years, but the underlying growth at the moment is from our traditional digital and mobile radio business for public safety, electric utilities and the resource sector. That's been growing at a fantastic clip, and now we're starting to get into some of that higher-growth revenue coming through from the telecommunications carrier business work that we're doing with the likes of Samsung and Nokia.
Tim McGowen: And, David, within those numbers, there's some really strong margins of 35 per cent. How do you maintain such attractive margins?
David Deacon: Look, the product is predominantly software, so it's really great that the more deployments that we can do of the same solution around the world with the different carriers and customers really helps drive straight to the bottom line, and that EBITDA margin of, effectively, 35 per cent across the business.
Tim McGowen: And does that software help you maintain such strong reoccurring revenue?
David Deacon: Well, it's really the sector that we're in which drives that. Because all this is essential infrastructure for public safety, electric utilities and the resource sector, there are 10- to 15-year support tails on the back of these projects. And those support tails can be typically anywhere between 15-20 per cent of recurring revenue of the initial upfront software sale or system sale that we might do. As a result, every extra network that we plug in is effectively a compound effect on the recurring support revenues going forward. And it's really that 10 years of stacking those support revenues on that's really given us the free cash flow to really help drive growth at the moment, and our profitability.
Tim McGowen: And 2023, we just obviously kicked the year off, what sort of milestones are you looking to achieve moving forward?
David Deacon: Look, we have obviously been working with Samsung for the last couple of years. Nokia have recently posted their first win using a solution that we have provided them. We're certainly hoping that with these distribution partners and other people of similar ilk and scale that we're signing up to distribute our technology to telecommunications carriers globally, that really all of their arms and legs that they have out in the world, around the world, from a sales perspective and a delivery perspective, will help drive the growth going forward.
Tim McGowen: David Deacon, thank you for your time.
David Deacon: Thank you very much, Tim. Good day.
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