hipages Group Holdings Limited (HPG.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the hipages Group Holdings Limited FY '25 Investor Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Robbie Sharon-Zipser, Chief Executive Officer and Co-Founder. Please go ahead.

Thank you, operator. Good morning, everyone, and thanks for joining us today for hipages Group's Full Year Financial Results for the 12 months ended 30 June 2025. I'm Robbie Sharon-Zipser, the CEO and Co-Founder of hipages Group. And joining me on the call is Jaco Jonker, our Chief Finance and Operations Officer. I'll start this morning's presentation with a brief overview of the company before touching on the highlights from the year. Then Jaco will talk through the financial performance in more detail before I provide some more color on our strategic evolution and the outlook for FY '26. Hipages is Australia and New Zealand's #1 platform to connect homeowners with trusted tradies. Our purpose is to transform the trade industry, building better lives for everyone. Hipages began life as a marketplace business, but with the launch of our single trading platform or STP, that we call hipages Trading Corp, we continue our evolution to a Software-as-a-Service business. FY '25 was a landmark year for the business as we delivered some key strategic milestones while delivering continued growth in our key financial and operating metrics. Turning to the highlights on Slide 7, where you can see our momentum continued in the second half as we reached some important strategic milestones. In Australia, we successfully migrated all 33,000 trade customers onto our STP. In New Zealand, we shifted to a full subscription model, and we migrated customers onto new pricing plans, delivering continued ARPU growth in both markets. From a financial perspective, we delivered stronger growth in recurring revenues, ARPU and free cash flow, further strengthening our balance sheet and giving us a powerful platform to deliver in FY '26 and well beyond. What's especially exciting is the clear step change in free cash generation you can see on the right-hand side. This reflects not only the strength of our revenue growth, but also the efficiency of our operating model even as we continue to invest in product and service innovation to fuel our medium- and long-term ambitions. In fact, FY '25 demonstrated the scalability of our model. Every additional dollar of revenue translated into $0.47 of free cash flow, a fantastic outcome that underscores the significant profit and cash generation potential of this business as we scale. I'll expand further on what this means for our FY '26 targets and longer-term ambitions in the outlook section towards the end of this presentation. With that, I'll now hand over to Jaco to take you through the financial performance in more detail.

Thanks, Robbie. I'll kick off by looking at the financial highlights for the full year on Slide 9. And I'll note, all comparisons are against FY '24. As Robbie said, we are pleased to have seen continued growth in our key metrics in a year that was focused on strategic delivery and featured a significant platform migration in Australia and transition to a subscription model in New Zealand. Looking at the top line, MRR was up 14% to $7.4 million, driving a 12% increase in recurring revenue to $80.8 million. Total revenue grew by 10% to $83.1 million, in line with our guidance from the half year. Looking at profitability, our gross profit margin remained very strong at 89%, with EBITDA up 20% to $19.6 million, reflecting a record EBITDA margin of 24%, up 2 percentage points on the PCP. Net profit after tax was $2.4 million, a significant increase from the prior year. Looking at the key drivers, the group subscription trade count was stable at 36,600 with 1% growth in Australia, offset by an expected decline in New Zealand tradies as we migrated to a full subscription model. Group ARPU grew by 9% to $2,267 with Australian ARPU up 8% to $2,381 and New Zealand ARPU up 23%, benefiting from all tradies now being on a subscription. The number of tradies homeowner connections remained at record levels at 2.8 million, which reflects healthy marketplace activity. As Robbie mentioned earlier, our free cash flow generation was up substantially in the year to $5.6 million, which drove closing cash and funds on deposits up to $26.9 million with no debt on the balance sheet. On Slide 10, you can see the positive trajectory of all our key metrics, showing the power of our operating model to deliver sustainable growth in revenue, profit and a key step change in free cash flow. The cash generation potential of this business is significant and growing, which Robbie will revisit in detail later in the presentation. Slide 11 shows our strong MRR growth continued this year, up 14% to $7.4 million. The migration to our higher-priced plans helped drive record new business yields with more than 80% now migrated. We expect further upside to come with the remainder of our customer base anticipated to migrate to new subscription packages by October this year. For our existing customers, ARPU growth continues to be driven by ascensions to higher-priced packages in an active market, supported by intelligent repricing, reflecting market supply and demand dynamics. On Slide 12, you can see how our emerging operating leverage delivered a record EBITDA margin in FY '25. Sales employment costs increased over the year as we filled the vacancies and new roles to support growth in New Zealand. Marketing investment as a percentage of revenue remained stable year-on-year with disciplined spend in the second half of the year, offsetting planned higher spend in the first half, as discussed at our first half results. Operational and administration spend reduced by 3 percentage points of revenue, reflecting our prudent cost management. And looking ahead, we expect total OpEx as a percentage of revenue to continue to reduce, driving further profitability. Slide 13 shows how our technology spend continues to reduce as a percentage of revenue. As a reminder, the increase in previous years was to facilitate the shift to the subscription model, improve our matching engine and develop our job management solution. In FY '25, technology development maintained focus on the trading platform while further optimizing the marketplace. We expect technology spend as a percentage of revenue to reduce over the medium to long term as we invest to support the delivery of our road map. Turning to our Australian business, beginning on Slide 15. Hipages continues to show strong marketplace dynamics, delivering an exceptional experience for our customers. On the left-hand side, you can see connection volumes, which occur when a tradie claims a job, remain near record levels. Note that in value, connections increased by 16% compared to FY '24 as we focus on optimizing yield. On the right hand, you can see that the proportion of jobs being connected to a tradie also remains at record levels, meaning we are delivering an exceptional experience for homeowners as well. On Slide 16, ARPU growth continues for hipages Australia, up 8% in FY '25 to $2,381. Key drivers of ARPU growth were new customers joining the platform on high yields, continued migration of existing customers to new plans, optimization of job lead prices and our AI-powered matching engine, driving increased credit usage, ascensions and lead pack purchases. The 12% ARPU CAGR over the last 5 years shows the long-term trajectory of ARPU growth, which we believe will continue to be driven by pricing optimization and future services. Slide 17 shows our continued growth in trading numbers in Australia with subscription tradies up 1% at a time when we increased subscription prices and migrated tradies to the single trading platform. We see clear potential to accelerate subscription growth, especially when taking into consideration that we serviced circa 50,000 paying trade businesses in a 12-month period in contrast with the 33,000 at the end of June. Robbie will talk more about our addressable market and the opportunity to boost trade engagement and accelerate subscription growth. On Slide 18, we highlight that MRR retention has remained stable through the STP migration with positive signs of retention from early STP users as we continue to drive increased yield. We remain focused on driving adoption of top management features to further enhance tradie retention. Turning to Slide 19, which we have updated from the half year to show that we have now migrated all Australian tradies to our new app with 81% migrated to the new price plans. We expect further yield benefits until the price plan migration is completed by October 2025. On the right-hand side, you can see that 13% of our total traded base is now using tradiecore features on a monthly basis, and these cohorts continue to exhibit higher retention rates. We expect increased engagement to continue to drive higher retention rates over time. On Slide 20, we look at our brand and marketing initiatives on both the homeowner and trading sides of the marketplace. We continue our investment with Channel 9, The Block, which has provided us with more value and stronger integration versus previous years with a total reach of 13.6 million viewers. We see increased brand awareness among homeowners, up 4 percentage points to 68% and hipages remains the #1 place to connect with tradies with repeat jobs up 8% year-over-year. As the #1 platform for tradies to grow their business, hipages boast a strong brand awareness score of 68%. In FY '25, we broadened our connection with tradies through a targeted multichannel campaign. Slide 21 shows how we further enhanced the homeowner experience, including launching our new AI assistant to boost job posting effectiveness and help homeowners find solutions to their project needs. Other enhancements included new app designs with improved user interface, user experience and alignment with the hipages website theme. Turning to our New Zealand business on Slide 23. We delivered a key strategic milestone this year with the migration of all customers to a full subscription model at high price points. As a result, FY '25 revenue was up by 23%, driven by higher yields. And notably, our ARPU exit run rate in June was $1,536, showing material further upside potential in FY '26 versus FY '25. The full transition of New Zealand tradies to the subscription model has lifted base quality, creating a strong platform for continued tradie and ARPU growth. I will now hand over to Robbie to provide an update on our strategy and the outlook for FY '26.

Thank you, Jaco. Many of you will be familiar with this slide that shows our TAM and SAM opportunity. In a market of more than 300,000 trade businesses, we view our SAM at circa 175,000, of which less than 20% are currently paying subscription customers of hipages, reflecting a significant opportunity to further penetrate the market. Slide 26 shows the total number of tradie customers we serve each year. Nearly 50,000 tradies have paid to use hipages in the last 12 months, demonstrating the broad appeal of our platform. Our opportunity is to serve these customers more deeply by evolving with additional services and features, creating stronger engagement and making hipages an indispensable partner for their business. I am confident that our strategy is the right one and that hipages is well positioned to be the trading category winner. Slide 27 provides a nice illustration of how I think about it. In May this year, we commissioned an updated market analysis to better understand the hipages value proposition relative to competitors. From that work, we can see clearly that hipages provides a far greater ROI to its customers compared to alternative digital lead generation options. Indeed, hipages demands the lowest take rate versus its peers where the take rate refers to the percentage of GMV invested by tradies on lead generation. One of our main opportunities lies in strengthening awareness of hipages ROI benefits among our customer base and clearly surfacing the value delivered through the STP analytics and customer dashboards. Turning to Slide 28, where you can see the pillars underpinning our strategy. We segment our strategy into 2 sides, being the tradie platform and the homeowner platform. On the tradie platform side, we are focused on continuously enhancing our core marketplace solution that has driven our growth to date as well as developing our job management solution within tradiecore. On the homeowner side, which we currently do not monetize, our ambition is to create a platform for homeowners to do everything related to their property from researching work, hiring tradies and managing home services. Artificial intelligence is central to our product road map. Our matching engine is already AI-powered, and we are now advancing towards AI-assisted features that elevate the user experience, ranging from quoting to scheduling, dashboarding and other key user actions. For those of you who haven't seen our latest product vision video, I highly recommend you scan the QR code to watch it as it provides an insight into where we are headed. On Slide 29 is an updated view of our job management solution road map. Having migrated 100% of our Australian tradies onto STP and with over 80% of our tradies migrated to the new price plans as well as launching new functionality and features, we have made significant progress this year. Looking ahead to FY '26, we are focused on enhancing the platform by going deeper into the current feature set with a specific focus on estimates, quoting and scheduling. We plan to enhance the platform with AI integrations, customer management improvements and new service offerings. These future services are enabled by the launch of the hipages toolbox, as you can see on Slide 30. The toolbox is an in-app service marketplace where tradies can access trusted third-party services providers all in one place. Over time, these services will include insurance, financing, materials and business tools or basically anything that tradies need to run their businesses effectively. This extends our value proposition beyond lead generation and job management and makes us the go-to resource for tradies, further driving engagement and retention. This evolution towards STP is reflected in our tech investment mix, which is expected to increasingly be weighted to the platform moving forward. In FY '26, we expect over 30% of our investment will be towards enhancing the platform to drive adoption and engagement and expand self-service capabilities. On the marketplace side, we will be focused on optimizing our sales funnel, implementing subscription price increases, reflecting the enhanced value we provide as well as implementing AI tools for better user experiences and improved efficiency. All of these initiatives are expected to contribute to revenue growth and margin expansion, which brings me to the outlook and our targets for FY '26 on Slide 33. We are targeting revenue growth of 10% to 12% in FY '26, driven by growth in subscription tradies and ARPU, benefiting from increased engagement and retention. After delivering a record EBITDA margin in FY '25, we expect our FY '26 EBITDA margin to be the same or stronger at between 24% and 26%. And having seen a step change in free cash flow generation, we expect free cash flow to increase to $8 million to $10 million, reflecting the power and flexibility of the group's operating model. A key strength of this business that the market has yet to fully recognize is its long-term profit and cash generation potential, driven by our fixed cost profile and the operating leverage it creates as we grow. As you can see on Slide 34, our relatively high fixed cost base gives us operating leverage as we grow. And we feel confident that over the long term at current growth rates, we can comfortably deliver a 30% management EBIT, effectively a cash EBIT margin. At scale, this is a hugely profitable business, and this further underpins our confidence in the strategy. Before I hand over for questions, I'd like to thank all of the hipages team for their huge effort this year. They are key to our ongoing success. And thanks to our valued fellow shareholders for your ongoing support. I feel really good about what we achieved this year and excited about the year ahead and the long-term future of hipages Group. I hope you share that excitement. With that, I'll open up for questions.

[Operator Instructions] And our first question will come from Jules Cooper with Shaw and Partners Limited.

Great result today and really appreciate Robbie and Jaco providing that sort of overview on the long-term profitability and cash flow generation potential. I think that's a great slide. Could I -- if I could just ask a question around that. I think, Robbie, you just mentioned there the underlying assumption around revenue growth is to sort of continue with that at your current rate. And should we think about that as sort of 10% to 12%? Because I think historically, you had sort of surfaced a mid-teens revenue growth target. Is it sort of more like what you've guided to FY '26 there in your thinking, but that good operating leverage coming through?

Yes, that's correct. Everything you said -- thanks, Jules, for the compliments as well. We're very pleased with the results. And yes, that last slide is the new slide we introduced this year, just to tell the profitability story of this business. We've had a major change over the last 2 to 3 years, and the year to come is more of the same in terms of that increasing operating leverage and profitability. Yes, we've taken a conservative approach to that long-term view. If we accelerate that revenue growth and the time line for what we term as long term gets shorter. And we've also taken a conservative cost growth approach to that as well, probably even slightly more elevated to our current cost growth. But that's not necessarily our intention. We're very good at managing the costs of the business as we've demonstrated over the last couple of years.

Got it. And I'm sure we can do the math, but maybe just to sort of help us in that area, I mean, long term, can you give us sort of a -- when you mathematically roll that forward, how far out are we potentially talking there, maybe in a broad range? I'm not going to hold you to.

Yes. Yes, definitely. So long term can mean anywhere between -- I think if you do a survey in a room, people will say anything between 5 and 10 years. I think that's broad enough. And in terms of the underlying metrics to get that time line to a shorter, obviously, goes without saying and for the audience, if our growth is -- our revenue growth is faster and our cost growth is a little bit more easier, it gets -- that's the shorter long term. And if it's more of the same thing with a slightly more higher cost, that's more longer term. So sorry if that's a bit [indiscernible] simple for everyone. But yes, that's probably the best way I can explain it.

Great. And just one more question. I noticed on Slide 19, you've provided a view on monthly active users of your job management features. There's a decent step-up, if I'm reading that correctly, July '25 on June '25. I just wondered, is that anything seasonal? Or is there particularly some things coming through from your road map, et cetera, that's sort of driving that broader adoption?

Yes. So as you know, the year that passed '25 was a year to get everyone on to the platform, which we successfully achieved. Now that we have all the customers and all new customers joining on the platform, when we roll out features, we have a much larger database of customers to apply that and message to consistently. So the year that passed was really -- we obviously grew nicely. We went from like 1.2 to 3.8 thousand engaged active customers in the platform. But in the last month, that was a big step up. It is not seasonal. We have structured the business a little bit different. We have 2 teams effectively working on the job management solution, and one team is rolling out features and another team is working purely on adoption, whereas historically, we were getting the 2 teams working on migration. So now that we've got 2 teams working on this with clear different mandates, we're hoping to see that acceleration continue.

The next question will come from Richard Harrisberg with Canaccord Genuity.

Can you hear me okay?

Yes, we can hear you loud and clear, Richard.

Great. Yes, congrats on the results, really strong numbers you guys have put out. I'm just curious, looking at the ARPU growth, you've had really strong growth over the last few years. I think 12% CAGR was mentioned. How are you sort of tracking on the pricing migration since 30 June? And maybe you can just unpack how ARPU sort of develops going forward once that's complete.

Sure. So I'll hand that one over to Jaco to go into a little bit more detail on, but the headline is that it's going well. And we have already another pricing change rolling through as of 1 July for customers that had already migrated to the old pricing model. And maybe Jaco maybe provide a little bit more color on that.

Yes, I can expand on that. So we're getting to the back end of the migration to the new price plans that incorporate the job management features. We've got about -- as of the end of June, we only had 19% of that cohort left to migrate, and that's going to be finished by the end of October. And as Robbie mentioned, we started rolling out price increases for new customers on top of what we have done in the previous cycle from July. And then in November this year, we are applying price increases again on the cohorts that got introduced through the original job management price increases in November last year. So we're continuously pushing through annual price increases, Richard. So again, we pretty much have 3 cohorts in flight at the moment, new customers from July, all existing customers from November this year and then the finalization of the migration to job management. So there's a couple running at the moment. So that should help us support that ARPU growth and yield for the next year.

And just to add -- thanks, Jaco. And just to add a little bit more color on that. It's not just the sake of increasing prices. That research and the summary of the data and where we sit compared to competitors in the market clearly illustrates that we're providing phenomenal value to our customers, and there is a gap between us in terms of pricing where we are actually cheaper in terms of value creation. And so we're trying to -- we obviously want to still be competitive and better, but there's still a gap there, and we're bridging that gap with some of these pricing changes that we're doing and not really seeing any impact on retention.

Yes, that's great. Really appreciate all the color there. It makes a lot of sense. Then just touching on tradiecore. Obviously, I know it's still pretty early days. You've got a lot of monthly active users now growing quite quickly. Could you maybe just give a little color on difference in retention rates that you're seeing maybe across those tradiecore users versus those that aren't using the drop functionality just yet?