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

Thank you for standing by, and welcome to the hipages Group Holdings Limited FY '24 Results Webcast. [Operator Instructions] I would now like to hand the conference over to Roby Sharon-Zipser, CEO. Please go ahead.

Thank you, operator. Good morning. We appreciate you joining us on this busy Thursday morning. I'm Roby Sharon-Zipser, CEO and Co-Founder of hipages Group. With me on the call is Jaco Jonker, our Chief Finance and Operations Officer. We are really pleased to present the hipages Group financial results for FY '24. Before we get into the results, I will provide you with a short recap of our business and then run through the FY '24 highlights, before handing to Jaco for the financial and operational overview. I will then address strategy and outlook before handing over for questions. hipages Group is Australia and New Zealand's #1 platform to connect homeowners and tradies. More than 4.8 million Australians and New Zealanders have used hipages Group and changed the way they find, hire and manage trusted tradies, providing work to over 37,000 subscribed trade businesses. hipages' strategic evolution from marketplace to platform hit a key milestone in April of 2024, with the launch of hipages tradiecore, merging our core solution, hipages, and job management solution, tradiecore, into a single app. Our vision is to be the most trusted partner in the trade industry, and we strive to deliver on our purpose to transform the trade industry, building better lives for everyone. Turning to our FY '24 highlights on Slide 6. Our results were exceptional this year, and we delivered on our commitments to sustainable growth in revenue, EBITDA and free cash flow. FY '24 was an inflection point year in hipages' history. FY '24 has also seen us grow recurring revenue by 15% to $72.1 million, MRR by 13% to $6.4 million and ARPU by 11% to $2,079 as we proactively managed our marketplace. We've demonstrated ongoing momentum in our marketplace in what has been a challenging macroeconomic environment. We have seen a clear increase in demand from tradies using the hipages platform to connect to jobs hosted by homeowners. And our homeowners are benefiting from this increased engagement and competition for the jobs, as evidenced by the record 86% connection rate for all jobs posted during H2. We have also continued with our disciplined approach to business as we focus on maximizing the financial performance of the platform whilst maintaining tight operating and investment spending controls. This focus has driven strong operating leverage and has seen us reach a critical inflection point of positive free cash flow in FY '24. We believe this is a very significant milestone for the group as we are now well positioned to be a consistent generator of growing free cash flow into the future. We have optimized our lead pricing and driven continuous improvement in our sales and account management efforts. We transitioned our existing subscriber tradies to higher-tier plans, giving them more opportunities to connect with homeowners. We've also assisted new and returning tradies to maximize the value they capture from the platform. The group remains well capitalized. With our balance sheet bolstered by the proceeds of the exit of PropTech Labs, we enter FY '25 with $21.3 million of liquidity in cash and funds on deposit and no debt. Importantly, we continue to make material progress in our strategic evolution from marketplace to platform. And we are very excited by the successful launch of our new single tradie platform solution in April. We continue to see solid growth in subscription tradies, up 3% to 36,700, and job volumes stabilized through the year. I'm also very happy to confirm that our operating momentum remains on track, and we are well positioned to continue to deliver on our growth, margin and cash flow targets for FY '25. With that, I will hand over to Jaco to run through our financial and operational performance.

Thanks, Roby. I'll step straight into the details on Slide 8 on what has been a very pleasing year from my perspective. As Roby said, we experienced strong marketplace momentum in FY '24, driving improvements across all our key metrics. Monthly recurring revenue, or MRR, was up 13% on the prior corresponding period, or pcp, to $6.4 million, and this drove a 15% increase in recurring revenue to $72.1 million for the year. Please note that we are now reflecting MRR, GST exclusive, to better align with revenue comparison, while historic numbers have also been adjusted accordingly. Operating revenue, which excludes lease income, was up 14% to $75.3 million. Total revenue increased by 13% to $75.8 million, and recurring revenue was a record 95% of total revenue. Our disciplined operating cost management saw a 33% increase in EBITDA before significant items to $16.4 million, and we delivered an EBITDA margin of 22%, up 4 percentage points on the pcp. Net profit after tax, before significant items, was $0.1 million, a turnaround from the $2.3 million loss last year. Statutory net profit after tax was even stronger, reaching $3.7 million, mostly due to the disposal of our stake in PropTech Labs, previously trading as Bricks + Agent. Roby called out that we achieved $2.1 million positive free cash flow this year. And you can see the material turnaround from the negative $2.8 million in FY '23. For clarity, we define free cash flow as cash flow from operating activities, less payments for capitalized development spend, other CapEx and lease payments. Looking at the key drivers underpinning our results. Subscription tradies increased 3% to 36,700, while group ARPU continued to grow strongly, up 11% to $2,079. Subdued consumer demand in the current economic environment resulted in 1.3 million jobs, down 6% versus the pcp, albeit with the Q4 showing positive momentum ending flat on the pcp and to larger volumes returning to year-over-year growth. Pleasingly, the number of tradie-homeowner connections grew 3% versus the pcp to a record 2.7 million connections. This is a direct reflection of tradies' increased activity on the marketplace, resulting in an exceptional homeowner experience, with 86% of jobs being connected with a tradie in H2. The FY '24 results highlighted on Slide 9 demonstrate our progress in delivering growth in all our key metrics and the high degree of operating leverage in our business. As you are aware, we are very focused on cost discipline, operational and financial execution to drive sustainable growth. We continue to deliver double-digit top line growth. And coupled with our ongoing focus on costs, we delivered strong growth in EBITDA, EBITDA margin, operating cash flow and, importantly, we hit our positive free cash flow target. Slide 10 highlights the continued progress we have made with our monthly recurring revenue, up 13% to $6.4 million for the year. Strong sales execution and focused account management resulted in new tradies contracting at higher average price points. Active account management, coupled with dynamic pricing of job leads based on supply and demand in each trade category and geography, resulted in more existing and returning tradies ascending to higher-priced plans to give them the best opportunity to capture job leads in what was a softer market. Recurring revenue now sits at a record 95% of our total revenues. Slide 11 clearly illustrates the growing operating leverage in our business. Operating expenses continued to decline as a percentage of revenue and underpinned a 4 percentage point increase in EBITDA margin to 22%. More detail on operating costs can be found on Slide 32 in the appendix. Sales employment costs increased 16% as we managed to fill long-term vacant roles and to look for opportunities to fuel new business growth while enhancing our account management services to convert ascension opportunities to higher-priced plans. Marketing spend was up 6% on the pcp as we increased investment in brand, SEM and SEO, to support jobs on the platform, while navigating an environment of subdued homeowner demand. Operations and administration costs were up 5% on the pcp and reduced by 2 percentage points to 35% of revenue, reflecting our focused approach to cost management across the business. Slide 12 drills down into our technology spend in FY '24. Our technology spend has grown over the last 3 years as we made the successful shift to a subscription model, continued to improve our job/tradie matching engine, including dynamic lead price optimization, while also developing our single tradie platform. Roby will provide more detail on this topic later in the presentation. You will notice that the percentage of capitalization has been largely consistent over time. We adopt a consistent approach to capitalization based on detailed activity-based tracking by project type and amortized capitalized development costs over 3 years. Going forward, we will continue to invest to support the delivery of our road map and believe that the level of technology spend as a percentage of revenue will continue to reduce in future years. We now turn to an overview of hipages Australia. Slide 14 illustrates our key marketplace activity metrics. Solid platform engagement saw our H2 connection volumes, up a further 2% on the pcp. This is off a record level in the second half of FY '23 and contrasts with the current uncertain economic environment and subdued consumer demand. Strong tradie engagement results in tradies consuming their subscription credit faster and provides us with greater opportunities to upgrade tradies to higher-priced plans where they can access more job lead credits. Ongoing improvements in our job/tradie matching engine and targeted investments drove the percentage of connected jobs to a record 86% in H2, delivering further value to both tradies and homeowners alike. Slide 15 highlights the ongoing growth of our Australian ARPU and reflects the enhanced value proposition for subscription tradies. A further 11% growth in ARPU to 2,199 was underpinned by dynamic lead pricing, AI-powered improvements in our matching engine, migration of existing customers onto higher-tier plans and new customers joining on higher price points following the launch of the single tradie platform in April. Slide 16 illustrates our continued growth in tradie numbers half-on-half and year-on-year. Subscription tradie numbers were up 2% on the pcp, hitting a record 33,100 in FY '24, while we increased subscription prices in the second half of FY '23 and again in Q4 of FY '24 with the move to the single tradie platform. Slide 17 highlights our continuous investment in marketing activities to increase our already-high brand awareness. In FY '24, we entered a new TV sponsorship with Dream Homes on Channel 7, complementing our successful partnership with The Block, reaching an incremental 2 million people and ensuring that hipages remains top of mind throughout the year. Brand awareness now stands at a record 71% for tradies and 64% among homeowners, both up 3 percentage points on the pcp. On the tradies side, we continue to run multichannel campaigns across radio, streaming platforms, YouTube and television, and we are also trialing several initiatives to broaden our marketing activities into new channels. Turning to Slide 19 and our New Zealand operations, which represents a small but growing part of our business. Builderscrack continues its transition from a transaction-based to a higher-value subscription-based model, delivering 28% revenue growth on the pcp and a 21% improvement in ARPU for the year. We launched the current hybrid model in New Zealand in late FY '23 based on a minimum 3-month subscription fee, combined with success fees on completed jobs. In June FY '24, we then introduced a full subscription model, similar to hipages Australia, and the change in the tradie mix reflects our progressive shift to this model. We continue to expect strong ARPU growth as we convert 100% of our tradies to the full subscription model, and we will continue to leverage our learnings into the New Zealand business, which we believe will drive enhanced value for tradies while reducing the leakage experienced in the commission model. I will now hand back to Roby to discuss our strategic evolution and outlook.

Thanks, Jaco. As I said previously, we are very happy with our FY '24 results and are focused on driving the business forward as we transition 100% of our Australian customers into the hipages tradiecore app and expand our product suite this year. Before diving into the details of hipages' strategy and execution plan, we have recently updated our Australian tradie economy data. I'm pleased to share that the category has grown to $141.8 billion in Australia. We are often asked how changes in the construction sector affects us. So we want to clarify that while we have some exposure to new builds, the majority of the work generated on hipages' platform comes from the homeowner segment, which is the largest in the category, at $54.3 billion. This segment primarily includes maintenance, repair, emergency services and both small and large innovation projects. These residential segments are expected to grow annually by 7%. Because hipages is focused on the homeowner segment, we are less exposed to the cyclicality of the new builds subsegment. Additionally, category marketing spend by tradies has grown to $1.2 billion per annum, representing roughly 20% growth since 2020. hipages' growth is expected to be driven by industry organic growth, further shifts from traditional media, increased market share from other digital solutions and expanding software and business service solutions. Our updated research also highlights substantial opportunities to further penetrate the service -- serviceable addressable market or the SAM. We know there are over 301,000 trade business in the total residential segment, with a serviceable market for marketing solutions of 175,000, and our share is approaching 20%. This clearly shows there's significant room for growth as we continue to innovate and expand our market share with our ever-evolving products. When it comes to investment in innovation, we've previously discussed our job management software, tradiecore. Industry spending on job management technology is growing rapidly, yet adoption remains low at 14%. Most tradies still rely on somewhat unsophisticated tools to manage their operations. 58% use generic software like Microsoft Word and, shockingly, 28% still use pen and paper. This trait is even more pronounced among sole traders who make up 2/3 of our TAM, as only 8% of sole traders use specialized job management software. We see this as a huge opportunity as we believe that the market is on the cusp of a major shift towards increased technology adoption, fueled by growing competition between tradies and their requirement for productivity improvement. Technology, product innovation and demographic changes will support this revolution. Our strategic pillars remain simple, yet powerful. We have created the trading platform by consolidating our lead management and job management solutions into a single application, hipages tradiecore. Our priorities are clear: maintain marketplace balance by growing our tradie network and capitalize on significant opportunities in pricing and value delivery. We're enhancing the value exchange through cutting-edge technologies, including machine learning and AI. To drive growth. Additionally, we will continue to develop and expand the features available in our job management solutions,; expanding on our all-in-one tool for tradies to deliver on our vision. In terms of the homeowner platform, our second pillar, we are committed to driving relevant job leads for our tradies while expanding our homeowner network. We'll continue to invest in our brands and innovative marketing channels to fuel growth. We believe our homeowners should be using hipages for even more jobs, and we'll be making their experience exceptional. We will further enhance our trust proposition and develop new cutting-edge solutions using technology and data to accelerate repeat work. Our partnerships are one aspect that is key to this happening, and I'm pleased to report we've added several significant partners through our co-branding technology. We expect more high-quality trusted brands to join us in the coming year. Just as a reminder, hipages tradiecore, our end-to-end lead and job management solution, was launched in April this year. The launch occurred on time and was seamless. Slide 25 is an overview of the platform's capabilities. We have many exciting additional features and services set to be delivered in the coming halves. Our next release, shown on Slide 26, will bring the hipages tradiecore app to the desktop. On Slide 27, we outline our road map for the next 12 months for hipages tradiecore, including desktop availability, multi-user functionality, team management and a comprehensive customer migration plan. Finally, Slide 28 presents a video showcasing our vision for the future of our tradie and homeowner platforms, bringing our strategic plan to life. I'm sure you will enjoy the glimpse into the not-too-distant future. We will now go ahead and play the video. [Presentation]

I'm sure you enjoyed the video as much as we do. Okay. Now turning to our outlook on Slide 30. The business achieved a massive milestone, reaching positive free cash flow and successfully launching hipages tradiecore. The business is carrying strong trading momentum. And with the launch of our single tradie platform, it is expected to further enhance the value of the hipages platform for our tradies and homeowners. Looking ahead to FY '25, we are targeting continued strong revenue growth and further EBITDA expansion, delivering free cash flow of $4 million to $6 million. We are currently developing a range of new products, looking to further optimize pricing and continuing our unrelenting focus on driving the performance of our business while maintaining cost discipline. As I said in my opening comments, after hitting a major inflection point last year, we will continue to see growing operating free cash flow. And with that, I will hand over to the operator, and Jaco and I will be very happy to take questions.

[Operator Instructions] The first question today comes from Olivier Coulon from E&P Financial.

Can you hear me okay?

Yes, we hear you clear.

Perfect. A set of questions. Do you have any update on, I suppose, more recent trends around net adds since you've done the tradiecore integration?

So are you referring to increased subscriber numbers, just to clarify?

Yes.

Okay. So the momentum for subscribers is continuing as per FY '24 in like the most recent times. In terms of the technology for hipages tradiecore, one of the key reasons strategically why we rolled that solution out, not only to add value to customers, but commercially to support retention, providing a system of record for the trades. Contracts for customers that went on that package commenced on the second of April. Those contracts are about 6 months -- minimum contracts for 6 months. Typically, contracts are 6 to 12 months for our subscriptions. We will start to see what the retention rates will be for customers that are adopting and utilizing that technology later this calendar year. So we expect to have like more rounded early numbers around November. And probably around the AGM, we'll probably be able to provide a little bit more color on the impact of what that's doing for retention. But having said that, just early numbers are, we've already had -- because it's all new customers that joined hipages, we've had about 6,000 customers download the hipages tradiecore app, and that grows quite materially every single month. And we'll commence our migration of our existing customer database onto hipages tradiecore as contracts come up for renewal from about October onwards. So that will roll as a migration program until FY '26. So we should start to see some -- we're anticipating to see some improvement in customer counts. And as we roll out more features that are applicable to the broader tradie customer base coming through over the course of the year.

Okay. Perfect. And in terms of what's baked into the rough guidance expectations around net subscription growth over the year?

It would be really consistent at this stage to FY '24. And hopefully, we'll start to see some more uptick as we see the data and the adoption of the technology translate into improved retention rates in H2 of FY '25.

Yes. Okay. And just an update maybe on your expectations around capitalization and tech spend.

Yes, sure. I'll hand that question over to Jaco to provide some color on that.

Olivier, from a technology spend, we are definitely going to continue to invest in our technology spend. We still have quite a number of features and enhancements on our platform rollout. So we expect to the increased spend, however, how we look at the technology spend as percentage of revenue, we expect that to start coming down annually, roughly about 1% per annum. That's sort of how we look at it.

Okay. So no real change from the last update?

No.

[Operator Instructions] At this time, we're showing no further questions via the phones. I'll hand the conference back to Roby.

Thank you, operator. I believe there is one more question that's come through. Mike, could you call it out, please?

Sure. We have a question, Roby, from Steve Van Emmerik. And Steve is asking, is it your intention to use tradiecore as a Software-as-a-Service for tradies who don't get jobs through the hipages in the future? And what would be the timing around this?

Yes. So absolutely, yes. So tradiecore as a single app type page, tradiecore as a single app is available for tradies to use, not just for the work that is generated by hipages, it is there to be used for all jobs. So the tradies can use it to schedule work that wasn't generated by hipages or existing customers. They're able to process payments, schedule quote invoice on jobs that were not generated originally from hipages, and for that matter as well, jobs that may have originally originated from hipages but then subsequently go direct to the tradies can still use hipages tradiecore for their business purposes. That is a critical component in part of our strategy to provide a system of record, a CRM system and a management tool to help those tradie businesses run their businesses, improve their productivity. And then as we demonstrated in our vision video, there's a very important interface by having all of that data and availability and pricing to enhance the service into the future. So I know that was a long answer, but it's a very comprehensive piece of investment that we've made to embed ourselves as a critical part of the trading ecosystem. It's also worth mentioning that the spend in the job management space is growing exponentially when you compare it to the advertising space for generating leads or work in the trade space. So that's an important growth driver for hipages. And then layering into that the further features that we want to layer into the product in the future, which in one of the slides in the deck. So off the top of my head, I can't recall which one it is. I think it was 27 or 28, where we referred to future services, which include procurement, which will have, obviously, elements of material, equipment higher, subcontractors. We have financing options and insurance solutions as well that we'd like eventually to embed into the hipages tradiecore application. So there's quite a lot of opportunity for further growth there to support our tradie customers. I don't think there are any more questions at this stage. So thanks, operator, and thanks, again, all who joined us today. We are very excited about what is ahead at hipages. We have a huge opportunity to continue to grow our business and our entire team is continuing to work tirelessly to achieve our ambition. We look forward to seeing many of you over the coming days. Thank you for your time.