ETHERSTACK PLC — Regulatory Filings 2021

Nov 23, 2021

Corporate Presentation Etherstack plc (ASX:ESK) 25[th] November 2021

Authorised for release by David Deacon, CEO and David Carter, CFO

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Company Overview

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A leading licensor of innovative wireless technology for mission-critical communications

Etherstack enables push-to-talk (PTT) communications for essential services, within and across advanced digital land mobile radio (LMR), cellular and satellite networks

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Globally diversified client Over 20+ years base across various of complex IP industries underpinning software High margin core network Samsung global teaming products arrangement to deliver accelerated growth

Cellular revenues similar to SaaS-like high gross margin revenues Solutions typically include long term support contracts

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|||||
|---|---|---|---|
|Key Developments Timeline|
|January – June|July – December|January – June|July – November|
|2020|2020|2021|2021|
|24 January|20 October|11 February|22 July|
|Ergon Energy Network Expansion|Licensing agreement with TPL|EOS Defence Systems subcontract|First contract under Samsung|
|Order (A$520,000)|Systèmes (Min royalties of EUR|(A$500,000)|Teaming Arrangement|
|440,000)|(US$8.5 million, including US$1.2|
|11 February|18 February|previously announced)|
|North American|28 October|Samsung integration activities license|
|20 September|
|Equipment Sale to Codan|Royal Canadian Mounted Police|US$1.2 million|First AT&T contract awarded|
|(US$1.35 million)|network delivered|
|(US$420,000)|
|14 May|
|29 May|7 December|WA Iron Ore Resources Network|
|Contract with CSE Crosscom for WA|
|Australian Department of Defence|follow on order|
|resources project|
|licensing contract|(~A$600,000)|
|(Initial value A$400,000)|
|(A$4.1 million)|
|26 May|
|30 June|
|18 December|Australian Government contract win|
|Global Teaming Agreement with|
|A$5.0 million Institutional Placement|(A$515,000)|
|Samsung announced for 4G/5G|
|to accelerate growth, invest in R&D|
|Public safety|
|and strengthen working capital|
|27 May|
|UK Ministry of Defence win|
|(GBP 220,000)|

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Cellular networks

Government client

Land mobile radio networks Recurring / Potential for recurring revenue (i.e Network has 10 year+ life)

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Leveraging innovative technology and IP that is adaptable across key platforms and customers

Continued growth in LMR networks. Cellular networks adding material value now and into the future. Satellite networks likely to deliver subsequent and future value

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PTT Technology Mission Critical Push to Talk (MCPTX) over cellular networks (4G & 5G)

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Satellite Push to Talk (PTT) networks

Digital Land Mobile Radio (LMR) networks

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• Government regulatory tailwinds the catalyst for transforming public safety communications

• • Solution enables LMR users expanded coverage from cellular networks – hybrid networks

• • Cellular networks to drive innovation in the sector due to greater transference of data including voice and images

• Falling satellite tariff costs the catalyst for change in the communications sector

• • Satellite enables extended radio coverage outside urban areas

• Wireless communication software

• Used by public safety, utilities, transportation and resources sectors

• Increasing number of network deployments

• Developing secure software for satellite communications over past 3 years

• Core network elements with SaaS-like high margins

• Long term support contracts driving recurring revenues

• Opportunity to incorporate Etherstack technology into satellite communication suppliers

• First contract under Samsung Global Teaming Arrangement

• • Other opportunities advancing rapidly

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Digital Land Mobile Radio (LMR) Networks

Digital LMR Networks

A significant US$3.0b market opportunity exists for growth in target contracts

Developed a full suite of LMR core technologies for voice communications

Scores of target sized contracts available for competition 150 – 250 in target regions annually[1]

Limited market participants and high-barriers to entry

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Less than 10 major network vendors globally

extraordinarily high technical and commercial barriers to entry, with market dominated by a handful of very large players

Etherstack target network contract size US$0.5 – 20m Upfront fees per contract

Recurring revenue growth

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31%
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Support revenue CAGR
over the past 5 years
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Etherstack target
addressable market
US$3.0b
addressable network deployments annually [1]
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Recurring support revenues
15 – 20%
of upfront deployment
fees annually [1 ]
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Notes: 1. Management Estimates

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Digital LMR Networks

Extensive experience delivering software based digital LMR networks

Enables rapid and reliable communication across networks including public safety, utilities, resources and transportation industries

• Networks are mission critical infrastructure - used within essential services and high hazard environments

• Delivers flexible, feature-rich, and future-proof LMR networks

• Supports any combination of analogue and digital communication standards

• Contracts with global names and Governmentbacked entities

• Referenceable customers are key

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A globally diversified base of high quality customers across various industries
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• Support contracts often ~ 10 - 15 years

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Contracts are commonly government backed

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10 – 15 years typical lifespan of networks

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US$0.5 – 20m generated in upfront licensing fees

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~15 – 20% p.a. of upfront fees in support revenues Follow-on orders and other adhoc revenues

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Digital LMR Networks

Sustained growth via key customer wins

Currently targeting network contracts valued between US$0.5 – 20.0m in upfront revenues

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January – June 2021 July – December 2022 January – June 2023 July – December 2024 January – June 2025
2020 2020 2021 2021 2022F
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Etherstack has historically won 1-2 customer networks per year

Organic growth

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Continued growth from internal global sales team. Add significantly to upfront license fee and longterm support revenues

Captured customers Mid-lifecycle refresh and adhoc revenue Growth through acquisition

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Likely growth from ‘captured’ customers. Add significantly to upfront license fee and long-term support revenues

Expected mid-lifecycle refresh and ad-hoc revenue from existing customer. Additional revenues beyond upfront license fee and long-term support revenues

Potential to increase % win on tendered networks via strategic acquisition of other network element suppliers

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Cellular Networks (4G & 5G ) (Mission Critical Push to Talk (MCPTX) over LTE)

Cellular networks (4G & 5G)

A large and growing US$250 – 750m market opportunity

Leveraging existing technologies to exploit significant opportunity in the immediate to medium-term

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Contracts available for Upfront licensing
competition fee potential
60 - 90 US$2 – 8m
In OECD countries over ~5 years [1] per contract
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Key market
participants
Samsung, Nokia Siemens
Networks, Ericsson, Huawei & NEC
with national 5G deployment network rollout capabilities
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Etherstack target
addressable market
US$250 – 750m
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Upfront licensing fees in OECD and other near target countries[1]

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Long term recurring
revenue stream
High Margins
comparable to enterprise SaaS peers
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Non-OECD contracts
for competition
100 – 200
over next 5 – 10 years [1]
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Notes: 1. Management estimates

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Cellular networks (4G & 5G)

Evolving public safety communications – hybrid networks

Etherstack’s software enables interoperability between traditional digital radio networks and new 4G & 5G networks for public safety communications

TODAY

5G MIGRATION

Terrestrial Digital Radio Network

Hybrid, telco carrier based public safety broadband

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New wireless technologies (wifi, 4G & 5G) is transforming public safety communications

Traditional digital radio networks used by police, firefighters, ambulance and industry will remain essential

Hybrid networks will be deployed rapidly over the near to medium-term - interoperability software is the key

Etherstack technology enables interoperability between traditional digital radio networks and new (4G & 5G) networks for public safety communications

Etherstack entered into a Global Teaming Agreement with Samsung in June 2020 to deliver this solution to its customers globally

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Cellular networks (4G & 5G)

A Global Teaming Agreement with Samsung delivers Etherstack’s technology to customers globally

To supply software solutions and ongoing support services to Samsung’s global telco carrier clients as part of Samsung’s 5G network roll-out

Samsung Global Teaming Agreement

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Partnered with Samsung to deliver next generation MCPTX over LTE solutions on the rollout of new 4G & 5G networks globally

Global regulatory tailwinds

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Government regulatory demand for MCPTX over LTE solutions is underpinning demand on 5G carriers and is expected to deploy rapidly over the next 36 – 48 months

Upfront license fees

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Each contract likely consist of an initial roll-out, during which Samsung will pay a software licencing fee

Ongoing support fees

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Subsequent to the network becoming operational, support services will be provided to Samsung under contract to maintain its software within the 5G carrier network

Long support fee tails

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High probability the support services arrangement remains in place for the lifetime of the network

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Notes: 1. Includes US$1.2 million revenue previously announced on 18th February 2021

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Cellular networks (4G & 5G)

5G expected to drive demand for MCPTX over LTE technology

Global rollout of 5G networks is expected to drive demand for Etherstack MCPTX over LTE technology in coming years

Mobile Population Coverage (%) by Technology[1]

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89% 90% 91% 92% 93% 93% 94% 94% 95% 95% 95% 90%95%92%95% 94%96% 95%96%
87% 88%
86%
83%
79%
74%
66%
60%
56%
53%
46%
43%
39%
32%
30%
25%
18%
15%
10%
5%
2%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021F 2022F 2023F 2024F 2025F 2026F
5G LTE All 3GPP cellular technologies MCPTX over LTE potential rollout
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National carriers are expected to provide guaranteed public safety communication capacity to public safety agencies in each country

5th generation mobile network (5G) delivers higher peak data speeds, ultra low latency, and more reliability

5G is used across three main types of services: enhanced mobile broadband, mission-critical communications, and the Internet of Things

5G network coverage expected to grow from ~15% of global population in 2020 to ~60% in 2026

As a result, demand for Etherstack’s MCPTX over LTE technology, is expected to rise significantly over next 36 – 48 months

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Source: 1. Ericsson Mobility Visualizer 2. Management estimates

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Cellular networks (4G & 5G)

Samsung global teaming agreement drives additional growth

Targeting more than 25 contract wins over the medium term

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2021 2022 2023 2024 2025
1 to 2 2 to 4 4 to 6 6+ 6+
New contracts New contracts New contracts New contract New contracts
Samsung’s clients will be the first carriers to roll out a 5G network incorporating Etherstack’s
First mover advantage
MCPTX technologies
Each network provides upfront licensing and deployment revenues, as well as long term support
Upfront & recurring revenues
revenue tails
Strong pipeline Etherstack and Samsung are actively involved in multiple carrier pursuits globally
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Satellite Networks

Satellite Networks

Well positioned to capitalise on low cost satellite technology opportunities

Etherstack is ready to capitalise on emerging wireless communications opportunities made available by new low cost satellite technology

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US$56.0b

Value of global satellite communications market in 2019[1]

9.2% CAGR

Global satellite communications market CAGR from 2019 – 2027[1]

Falling satellite tariff costs the catalyst for change in the communications sector

Emergency services currently operate in radio voids when in remote areas. Satellite networks enable extended radio coverage

Development of secure push to talk (PTT) over Satellite solutions for the past 3 years and trialing them with pilot public safety customers in Australia, the US and Canada

Recently delivered a PTT over Satellite solution for a Canadian federal policing and security agency

Discussions with well known satellite communications suppliers to incorporate Etherstack’s technology into their networks

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Source: 1. Ericsson Mobility Visualizer 2. Management estimates

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Financials

Financial Highlights

Etherstack Revenue

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$8.4m - $8.6m
$4.1m - $4.3m
guidance
$4.8m $4.7m
$2.3m
$3.1m
$4.3m
$2.4m
$1.7m
2019 2020 2021F
1H 2H
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• Profitable and operating cash positive ▪ 2021 full year EBITDA US$2.5 million

• 2021 full year profit after tax USD $1.3m

• Operating cash positive for last 3 years

Revenue is growing

• 77% - 83% forecast revenue growth FY 2020 to FY 2021

• USD $8.4 - USD $8.6 million forecast revenue

• Multiple growth drivers

• First MCTPX contract with Samsung is producing revenue in H2

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Sustained momentum in recurring revenue growth

Recurring revenue has been steadily growing year on year with an increase in support contracts – high gross margin SaaS-like revenues

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REVENUE (US$M) REVENUE COMPOSITION
5.9
5.5
5.3
4.8 43%
4.7
50%
4.1 2.4 64% 61%
69%
71%
81%
4.8 3.6 2.4
2.9
15%
2.6
0.8
2.1
50%
1.5 39% 42%
2.3 2.3 36%
31%
1.9 29%
1.7
1.5
1.2 19%
0.6
2015 2016 2017 2018 2019 2020 2020PF 1 2015 2016 2017 2018 2019 2020 2020PF 1
Recurring revenues Other revenues Samsung contract impact
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REVENUE (US$M)

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Notes: 1. Pro Forma adjustment of US$0.8m recurring revenue in FY20 for the purposes of illustrating Samsung contract impact to revenue composition.

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Increasing support contracts drives recurring revenue growth

Recurring revenues predominantly driven by support contracts in addition to royalty revenues

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NUMBER OF SUPPORT CONTRACTS 14
13
11 11
9
7
6
Up to 2015 2016 2017 2018 2019 2020 2021 YTD
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100%
Current customer retention
rate
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~10 – 15 years

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Lifetime duration of support
contracts which are typically
agreed at initial network
rollout
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~10 years

Estimated Average Remaining Life of Networks

Leverage Samsung

New support contracts from Samsung business will add significantly to support contracts & values

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Income Statement

US$'000	2017	2018	2019	2020
Revenue from Contract with Customers	4,142	5,264	4,792	4,699
Recurring Revenue	1,508	1,682	1,838	2,331
Project and Product Revenues	2,634	3,582	2,954	2,368
% Recurring Revenue to Total Revenue	36%	32%	38%	50%
Cost of Sales	(1,857)	(1,668)	(1,507)	(2,032)
Gross Profit	2,285	3,596	3,285	2,667
Gross Margin	55%	68%	69%	57%
Other Income; R&D & Government Incentives	97	102	100	125
Other Overheads	(2,290)	(1,835)	(2,292)	(1,712)
EBITDA	92	1,863	1,093	1,080

EBITDA positive operations supported by steadily growing recurring revenues

Etherstack gross profit margins vary depending on the mix of Etherstack product (relatively high margin) vs third party product (relatively low margin)

Gross profit margin lower in 2020 due to changes in the revenue mix, which may vary year to year depending on substantial contracts delivered in the period

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Balance Sheet & Cash Flow Statement

Balance Sheet

US$'000	31-Dec-19	31-Dec-20
Cash and cash equivalents	931	4,180
Trade and other receivables	1,870	1,410
Other current assets	247	446
Intangibles	3,295	3,516
Other non-current assets	119	552
Total assets	6,462	10,104
Trade and other payables	2,467	2,760
Deferred revenue	1,332	1,744
Borrowings	1,262	572
Convertible notes	1,417	233
Other liabilities	604	699
Total liabilities	7,082	6,008
Net assets	(620)	4,096

Cash Flow Statement
US$'000	2019	2020
Net cash generated from operating activities	1,364	1,733
Net cash flow (used in) investing activities	(1,223)	(1,470)
Net cash flow (used in) financing activities	739	2,901
Net increase/(decrease) in cash	880	3,164
Effect of foreign exchange rate changes	-	85
Cash and cash equivalents at start of period	51	931
Cash at end of period	931	4,180

Strong balance sheet position a foundation to invest in growth

Remaining outstanding convertible notes were converted in March 2021 into equity

External debt borrowings fully repaid during 2021

Operating cash flows consistently positive even throughout COVID-19 pandemic

Continued investment into intellectual property builds on Etherstack’s competitive advantage

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Future Milestones

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Strong outlook driven by focus on key strategic initiatives
Expansion of existing Commencement
Australian & of upgrades to virtualised
International public switching solutions
safety networks across installed base
Cellular Networks LMR Networks Defence Upgrades Satellite network
License and supply Procure initial
Expect to announce a of defence contracts with satellite
second telco carrier win via communications network terminal providers
Samsung in the first half of solution to other to incorporate Etherstack
2022 nations technology into their
network solutions
Further Australian
Further carrier pursuits are
Defence projects
underway between Samsung
and Etherstack expected within the
next 6 months
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25

Appendix

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Customer case studies

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Royal Canadian Mounted Police

The Royal Canadian Mounted Police (RCMP) are the federal and national police service of Canada, providing law enforcement at the federal level

November 2019 – Contracted for delivery, commissioning and on-going support of a secure encrypted digital radio network spanning 26 sites

Key details

• Initial order value CAD$1.7 million

• RCMP network will be Etherstack’s second largest network in Canada (after 82-site ATCO Electric network in Alberta)

• Recurring SaaS-like support revenues expected at 15 – 20% pa

Additional tranches

• Additional sites expected in 2021 & 2022

• Long term support revenues to commence in Q3 2021 and believe will likely continue for a further 15 years

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Western Australia Iron Ore Network

Large resources projects require “government grade” communication January – June 2022F systems for operations and safety in hazardous environments

May 2020 – Contracted to provide software to deliver the first stage of a multi-stage P25 digital LMR network project

Key details

• Initial order value A$400,000

• End user is a major mining company

• Recurring SaaS-like support revenues expected at 15 – 20% pa

Additional tranches

• Follow-on order expected to generate A$600,000

• A third expansion order is expected late 2021, or early 2022

• Potential to rollout to 50+ other mining sites globally over the next 10 years as existing networks renewed

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First Global Teaming Agreement Carrier Contract

▪ Etherstack has signed a long term supply contract with Samsung Electronics Co. Ltd, to provide Etherstack software solutions and ongoing support services to Samsung for a telecommunications carrier client of theirs as part of it’s 5G network roll-out

▪ The 5G network being rolled out by Samsung incorporates next generation Mission Critical Push To Talk (MCPTX) technologies utilising core Etherstack network software elements

▪ By embedding Etherstack’s MCPTX related network components within Samsung’s advanced 5G network solutions, the Etherstack technology enables interoperability between existing digital narrowband public safety network infrastructure used by public safety agencies globally, and the new 5G network

Samsung Contract

▪ Today, and in the future, national telecommunications carriers are expected to provide high availability public safety communication capacity to public safety agencies in each country. There are many regulatory & government driven initiatives around the world in this sector creating demand on 5G carriers for these services

▪ Typical users of MCPTX networks and services will be blue light agencies (police, ambulance, fire service etc), utility workers and transportation authorities

▪ The contract consists of an initial roll-out, during which Samsung will pay a software licencing fee to Etherstack. Subsequent to the network becoming operational, Etherstack will provide support services to Samsung under contract to maintain its software within the 5G carrier network

Key Terms of the Samsung Contract

▪ The initial support services contract term for the carrier is for three years post deployment, with an option to extend the arrangement with Etherstack

▪ With the useful life of the network estimated by Etherstack to be 15 – 20 years, Etherstack expects there is a high probability the support services arrangement remains in place for the lifetime of the network, as is typical with major infrastructure projects

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First Global Teaming Agreement Carrier Contract (cont…)

▪ Total revenues for Etherstack comprising licence fees, project deployment revenues and support revenues are US$8.5 million, which includes US$1.2 million revenue previously announced on 18th February 2021

Key Terms of ▪ The term of the contract is 5 years, with the majority of the licence revenues expected to be recognised across the Company’s 2021, 2022 the Samsung Contract and 2023 financial years (31 Dec year end). Initial support revenues included in the deal are expected to commence in 2022 and be earned (cont..) over 3 years from the date of delivery of the solution to Samsung’s customer

▪ Management expects further long term annual support revenues, while not yet currently contracted, to renew in FY25, with a typical minimum lifespan of 10 – 15 years for public safety infrastructure projects

▪ Etherstack has partnered with Samsung to deliver next generation MCPTX over LTE solutions on the rollout of new 4G & 5G networks globally

▪ Government awareness, planning and demand for MCPTX over LTE solutions has been steadily growing and is expected to rise rapidly over the next 36 – 48 months

Potential future impact

▪ As previously advised, Etherstack and Samsung have a number of telecommunications carrier pursuits in progress

▪ Etherstack estimates that over the next 3 – 5 years, telecommunications providers in OECD countries alone will roll out between 60 to 90 5G networks incorporating next generation MCPTX over LTE capabilities. Many more network deployments of this type will occur in non-OECD countries as well

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Glossary
LTE – Long-Term	A standard for wireless broadband communication for mobile devices and data terminals, increasing the capacity and speed using a different
Evolution	radio interface together with core network improvements
MCPTX - Mission
Critical Push	A push-to-talk product functionality that meets the requirements for public safety mission-critical voice communication
to Talk
PTT - Push to talk	A method of having conversations or talking on half-duplex communication lines, including two-way radio, using a momentary button to switch from voice reception mode to transmit mode

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30

Questions

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Etherstack plc David Deacon, CEO
93A Shepherd Street, david.deacon@etherstack.com
Chippendale NSW 2008
David Carter, CFO
Phone +61 2 8399 7500 david.carter@etherstack.com
Martin Duff , Corporate & Legal
martin.duff@etherstack.com
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