Founder-led Aussie Broadband doubles profit

One of Australia's leading challenger telcos is surging ahead with a recent acquisition under its belt, notching a 46 per cent lift in total broadband connections nationwide in FY22 while growing sales and profit at even faster rates.

With revenue rising by 56 per cent to reach $546.9 million, Aussie Broadband (ASX: ABB) now has a 6.46 per cent share of the NBN broadband market, representing an increase of almost two percentage points in the space of 12 months.

This morning the Melbourne-headquartered group reported a 107 per cent jump in EBITDA to $39.4 million, of which its recently acquired Over the Wire Holdings contributed $9.6 million over the 3.5 months since it came under Aussie Broadband ownership.

ABB completed its purchase of Brisbane-headquartered Over the Wire for $344 million on 15 March, and the acquired group's founder Michael Omeros became executive director of the broader group.

Aussie Broadband co-founder and managing director Phillip Britt says his group has come a long way from its early days as a residential internet service provider, highlighting another successful year of growth that has exceeded profit guidance forecasts.

"We have achieved strong growth in revenue, earnings and market share, and are well positioned to achieve our goal of becoming Australia’s fourth largest communications company providing a full suite of solutions across enterprise, wholesale, residential, and government sectors," Britt says.

"Today we are growing a complete communications and technology solution across market sectors. This enables us to develop closer relationships with a broader range of customers while also driving increased profit margins.

"While we no longer think solely in the context of broadband connections, it was very pleasing to see continued growth in this metric to almost 585,000 at the end of June, up 46 per cent over the past 12 months."

Customer adoption rates were highest for the business segment, which ABB describes as generally higher-margin clients, representing almost 10 per cent of the group's broadband connections as of 30 June.

Revenue-wise the business customer share is higher contributing a total of $67 million for the year, while EBITDA for the category rose by 62 per cent to $10.8 million. Important client wins include a three-year deal with Mitsubishi Motors to provide Enterprise NBN and Aussie Fibre services to its locations across Australia. Additionally, Aussie has signed cloud infrastructure agreements with several large local and state government organisations in Queensland.

He explains technology initiatives are intrinsically linked to the group's customer service, pointing to ABB's proprietary 'Carbon' software platform that includes automation and control for data services with 400 partners already able to qualify, quote, order, connect, modify and troubleshoot NBN services in minutes.

In addition, 250 partners are now using the company's proprietary ‘NetSIP’ enablement platform for voice - a vertical that has traditionally been a strong point of focus for Over the Wire as well.

"The integration of Over the Wire has been progressing as planned, bolstering Aussie Broadband’s business segment product and skills capability," Britt explains.

In a trading update for FY23 thus far, ABB noted there were total net adds of 15,332 across the enterprise & business, residential and wholesale customer segments in the first eight weeks of the financial year.

The group emphasised that while there are several competitor low/no-margin offers in the residential broadband market at present, it will not "chase growth at any cost and is focused on striking the right balance between growth and margin".

Aussie Broadband expects to generate revenue in the range of $800 million to $840 million in FY23, with EBITDA margin increasing from 7.2 per cent to around 10 per cent.

"As the benefits from the execution of our growth strategy come to fruition in FY23, we expect to deliver a step change in EBITDA over the next 12 months," Britt says.

"A full year of earnings from Over the Wire, revenue and cost synergies from that acquisition, cost benefits from our fibre network, offset by some cost inflation and further investment into growth initiatives, is expected to substantially lift earnings and cashflows for the business."

"Over the Wire added a wide range of business, enterprise, government and wholesale customers and has already started generating revenue synergies leading to increased margins due to our higher ratio of high-speed plans and average revenue per customer [ARPC].

"We continued the Aussie fibre roll out, completing 105 POIs [Points of Interconnection] at 30 June 2022, with the remainder of the sites set to be connected in the first quarter of FY23. Annual savings of $13.5 million have been unlocked that will benefit our business in FY23 and beyond."