Company Interview / Preparing for the next big milestone

Key Topics:

Successful acquisition and integration of ADTIncreased demand for security servicesStrategic refinancing plans for growth and stability

Intelligent Monitoring Group (ASX:IMB) reports normalised earnings of $34.6 million, surpassing its guidance. Dennison Hambling attributes success to the acquisition of ADT and strategic efforts since 2021. The company upgrades FY 24 earnings guidance to $40.2 million.

Dennison highlights increasing demand for security services and technological advancements, such as AI-integrated cameras, driving the market. The company's focus remains on commercial enterprise growth and integrating security solutions to address the fragmented market.

The company aims to refinance its $80 million gross debt by the next year. Dennison sees potential for capital appreciation and positions it as a national leader in the $5 billion commercial security market. High-quality shareholders back IMB's strategic vision, ensuring steady growth.

Full unedited transcript:

0:00

IoT solutions firm Intelligent Monitoring Group reported normalised earnings of $34.6 million, slightly above its guidance range of 33.5 million to $34 million. That follows the acquisition of ACG integration and AGG. The company has upgraded its FY 24 earnings to $40.2 million, so let's get the story behind it. Intelligent Monitoring Group's MD Dennison Hambling joins me now. Hi, Dennison. Welcome back to OSB. So really it was that ADP purchase that is really turned the fortunes around correct.

0:36

That's right. Yeah. ADT in August last year was um hey I guess if I step back one, we really took control of the business in 2021 and put a lot of work into building a platform, which set us up, I guess. You know, luck is made in a way and gave us the opportunity to get ADT and and then integrate it in the way we have. But ADT in itself was just such a, um important brand and position in the market that it's, you know, as we said at the time, and we continue to say it's really set the the platform and the opportunity for us to to go on and create a pretty, pretty, um, interesting business. Yeah. Okay. So what's behind this upgrade? Because, you know, just talk to us about the dynamics of the market and where the growth is coming from and how it continues.

1:19

So so look, we're a security services firm. And so really we've been driven by two things. One is obviously security. Just generally um, is front of mind for businesses. And that is into to cyber as well. We don't do cyber specifically, but securing assets, securing people. Um, so that, you know, it's a, it's a, it's a stream that, that, that is moving and is front of mind. I think technology also is playing a big role here. And so the advent of cameras going from analog to digital to now using AI to be able to do a lot of things. So traditionally, you know, now cameras are really just big sensors and you can ask them questions to look for things. And and so that opens up a whole world. And so one notable thing I'd say is ACG was ACG integration was the name of the business. And that really talks to. Integrating security. You know we are really a technology company with the security focus. So coming in, you know, to solve security problems but then leverage as you into organizations workplace health and safety and a whole lot of things that are increasingly important to businesses and today's environments. People

2:19

obviously know ADT from its residential sort of global branding, and that is relevant to our business. But the biggest part of our business and the growing part of our business, rapidly growing part of our business, is actually commercial enterprise. To answer your question about the guidance, uh, look, we set a base when we bought ADT of 31 mil, I'd note, you know, we then upgraded to, uh, to that sort of 34 mil, and then we've beaten the top of that. And so it's actually been two, two sort of big moves this year, largely driven by just improving the business itself. I mean, ADT, the first IMG business was essentially a turnaround. We had to clean it up. And the ADT business has been there too. So we've had to earn we had to build our businesses to make them return them or slowly, you know, return them back to the quality we want them to be. And so that has driven, you know, improvements in the business. But now really we're focused on growth and we're seeing that come through. And this is all about, you know, how big a business and how, you know, how many customers can we reach and what we can do from the value we can create.

3:18

Yeah, I was actually talking about Intelligent monitoring group with the regular guest. And last week Martin pretty from Equitable Investor. He's got in the portfolio said, you know it was probably the pick of the bunch when it came to reporting season. Um, so really a transformational story when it comes to the earnings profile of this company. But just to answer the momentum part, like you're getting into commercial, it's open. You know, you've got doors opening, uh, so to speak, to, to bring security up to scratch in many ways shapes and forms. So like so probably a couple of key dynamics. So one is this is a fragmented market and there's no leader. And so the role we're looking to fill here is leader. And and you know, it's a $5 billion commercial market. And I think the biggest player may have 2 or $300 million maybe $400 million. But it tails away very quickly, very regional and local firm base. So there's big demand for at the big end of town for, you

4:18

know, national leaders, uh, you know, there's a lot of players that's very fragmented. And I think, you know, the what are the larger players have traditionally been owned by offshore, um, multinationals who have not had this as their core focus. So they haven't been investing and actually driving the solutions that we get elsewhere in the world. So, you know, you've got a top down driver being the need, um, well, the need for security. Um, and, you know, I guess safety and systems into businesses increasingly around insurance and compliance, but you also have technology enabling it. And then you've had no one to really fill a need. And so what drove, you know, me personally to the ADT acquisition was the financials look fabulous. It was going to be a great transaction, but was actually a customer experience where a very large former ASX 100 customer said, you know, we want a national one throat to choke provider of the services you're talking about. Um, why don't you do it? And we couldn't we were just too small and there was no one to do it. So this is a consolidation play. It's not

5:18

a roll up and we're building a business, and we have got a business that can stand alone and grow by itself today. And we don't. The markets could shut and would be in great shape. But we can supplement that with talent. And that's really what we need. Um, there's a shortage of quality, uh, what I'd call technical, skilled people who want to be participants and, you know, group with the opportunity that we have and we have we have to build that. And so we can acquire that and we can build it. And so demand it's a very fortunate situation, in my experience, where demand is not, um, what I'd call our problem. Our problem is, is delivery and doing what we say would do, which is why our guidance and hitting that is important. But it's also important in how we deliver what we do for our customers. Um, and then actually bringing up a staff and a technical base and bringing that in to us, that allows us to unlock the opportunities because they're pretty they're pretty, um, pretty vast. What are the debt levels like at Intelligent Monitoring Group?

6:13

So we've got an $80 million of gross debt, um, on a pro forma. You know, EBITDA now of over 40 million. So, um, you know, we sub, uh, our net debt is only 60 odd million dollars. So, so our net debt to EBITDA is about 1.6 times EBITDA. So, um, you know, very, very standard for an industrial, our customer life is average eight, nine, ten years. You know, we're a cash business, recurring cash business. So debt is not a feature that the reason that debt raises is a question for people is because we had to take on an expensive sort of mezzanine facility to buy ADT. We had no other avenue allowed under the purchase agreement. Then to get cash certainty, I couldn't go to the equity market to ask for it, so I had to go to the debt market and pay for that. And so our next major milestone will be refinancing that debt down to a senior, you know, very standard Bank facility. Um, and then we will, uh, then we'll move on. And that question will sort of cease to be as interesting to people as it is now. When is that likely?

7:11

Uh, look, we've got a guaranteed minimum interest period through to February next year with our current facility, but I've been very open. It's the next milestone for our business. We are working on it. We've appointed an advisor. We've done that because we actually believe, um, we know from the we did a lot of work on the consistency of this business before we bought 8010, looked at our own business. And it is very, very stable cash flows, very long duration. And so we know the value of that. So we'd like to have um, we'd like to get a really solid long term senior relationship or series of relationships which allow us to then go forward and continue to build this business. So look, this this year, we will have something to say about it. Um, shortly. We are working on it, you know, as we speak. Okay. so we had this share price. Well, we had the charts up on screen earlier. So it sounds to me that, you know, as MD, you still anticipate there could be a lot of capital appreciation, share price appreciation still to come. Oh well no, absolutely. I mean, we can, you know, there's two paths to tread here.

8:11

So I make no other statement than being very clear. We we are looking to build a small to mid cap Australian industrial business here in our in the area to do that and the opportunity is there to do it. We can obviously stuff that up. So we're very careful about execution. Um so growth is for sure we can do that with M&A. That's you know we are very careful with that. We have done I would feel people would say a lot to this point, but it's been very strategic and we're very focused on integration. We're not looking to build a business of multiple arms and legs and, and cultures. Uh, and so but there are a couple, you know, a couple of acquisitions would have us at $100 million of EBITDA. Um, just to put that into context. So, you know, one of the notable features is we've attracted and being. I'm very fortunate and thankful to have attracted a very high quality register. And you'll see. Iron Gray, for instance, has popped up as a major shareholder. You know, we have a lot of, uh, people who have expressed, uh, support, having seen us earn the position we're earning, um, to allow us to potentially go on to build something bigger. And so,

9:11

you know, again, we're not M&A is not the feature of our business, but it is a potential. And then underlying that, you know, um, probably the bit of the story I've missed here is just the returning of ADT commercial business. It was once the pre-eminent player and commercial in Australia. It actually got wound down by its former owner. We are simply really going back to its old customers and to the wider, you know, community and saying, hey, ADT is back. Um, you know, we were good, we're still good. We've still got all the processes, you know, let's go and do this again. And if we do that alone, that taking it back to what it used to make would double the size of Imgs revenue as a group today. So that's our sort of the big picture organic uh, piece that we're working on.