PEXA Group Limited (PXA) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the PEXA Group Limited 1H '22 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Glenn King, Group Managing Director and Chief Executive Officer. Please go ahead.

Good morning, and I'm pleased to welcome you all to PEXA's results for the first half of financial year '22. I'm Glenn King, I'm PEXA's Group Managing Director and CEO. And joining me is our CFO, Richard Moore. Today, we'll cover the PEXA Group's first half financial year '22 business highlights, financial performance and provide a trading update, including an upgrade to our perspective FY '22 forecast given our strong performance to date. Now there is a presentation that has been distributed. I will cover some of those, and I'll talk to particular slide. So those who found the slides, I'm going to Slide 5. And probably the thing to talk on here is, PEXA is a leading Australian technology company whose platforms are relied upon by financial institutions, property developers, legal and conveyancing firms and consumers across the country. Our PEXA Exchange platform sits at the heart of the Australian property market, processing now 84% of property transfers and nearly 100% of all refinancers nationally. The COVID pandemic has certainly driven a strong shift to digital. And despite lockdowns across the country at various points of time, the property market in Australia has remained incredibly robust. In fact, as noted in our recent PEXA Property and Mortgage Insights report, during calendar year 2021, buyers spent more than $688 billion on the Australian property market, up 57% on 2020. In fact, New South Wales took the lead for the highest aggregate value of sales settlements in 2021 with $262 billion spent on property in the state during the year. And Queensland was a standout performer in 2021, recording the most sales settlement of any state at 232,000, which was up 40% year-on-year. In fact, what we saw in 2021 was a total of 617,000 new loans were taken in 2021 to fund the purchase of property, which is also up 32% on the prior year. In short, it's been a very buoyant property market. And we got COVID pandemic that certainly accelerated digital transactions, and this has contributed to the strong PEXA performance in the first half of '22. If I just give you a couple of lenses, we've certainly made great progress with the -- with our strategy around the PEXA Exchange, PEXA Insights, our international expansion and with PX Ventures. We have had a strong first half in terms of volume revenue and EBITDA driven by the very strong Australian property market. We continue to execute on our clear strategy, enhancing the core PEXA Exchange service in Australia, replicating the new international Torrens title jurisdictions, appropriately extending into new services around insights and ventures and continually building and circuiting our services to the PEXA people, platform and brand. In the first half of this year, the core Exchange continues to deliver on scale. We've introduced new PEXArian customers and members, new services and new document types and new jurisdictions. As I mentioned, the PEXA International is tracking the plan in the U.K., and we gained commercial traction in Insights and Ventures, we -- both delivering new services to market. And in fact, we're excited to announce an investment in the exciting prop-tech business, Landchecker, which I'll cover in more detail later. Importantly, we've continued to focus on our people, on ESG impacts and initiatives, underpinned by our purpose, the PEXA's commitment to transform the public experience for everyone. We continually work with numerous stakeholders across the country, including regulators to ensure that we get good industry reform. And lastly, as I mentioned, we're very pleased to confirm this morning that we're upgrading our Prospectus for FY '22 forecast. Now on Slide 6 of our presentation, a couple of highlights here. At both the financial and operational level, we've had a very strong first half for the financial year '22. Our group revenue was up 46% year-on-year to $145 million. Our PEXA Exchange transactions were up 37% year-on-year to $2.1 million. PEXA Exchange EBITDA was up 76% to $83 million, with our EBITDA margin up 10 points to 57%. And in fact, 84% of all property transactions now nationally are through the PEXA Exchange. All of these metrics have performed ahead of our expectations. So as I mentioned, we're pleased to upgrade our FY '22 financial guidance. Now on Slide 8 of the presentation, a couple of things. We had a clear strategy and we continue to execute on our strategy. We're enhancing the core Exchange in Australia. We're replicating our services in new Torrens title jurisdictions. We're properly extending to build deeper customer relations and providing new services, and we continue investing in our people, platform and brand. This all underpins our commitment to transform the property experience for everyone. And to do this, importantly, as per our values. We looked to innovate for good. We look to make things happen and make it count. And we're really strong in that being better together with our customers, our stakeholders and our people. On Slide 9, a couple of things I want to [ read ] here. We have established a leading and highly trusted tech platform with PEXA Exchange, and we are now leveraging our knowledge, experience, expertise and relationships with the industry's stakeholders and partners to pursue a number of growth opportunities across 3 key focused areas: PEXA International, which is seeking to replicate PEXA's success with the Exchange in Australia into new offshore markets; PEXA Insights, which seeks to appropriately harness our near real-time, accurate and comprehensive property data from the Exchange and other data sources to generate valuable data-driven insights and services for industry, government, consumers and other stakeholders; and PX Ventures, which seeks to build on PEXA's digital and industry experience, innovation and entrepreneurial culture and establish relationships to develop new business to take opportunities with partners for the benefit of the consumers, businesses and the governments across the property sector. I'll cover some of these now in more detail across the following slides: On Slide 10, the majority of land transactions now occur on the PEXA Exchange. And buying a home is one of the most important purchases many people make in their lifetime. And it is PEXA's role to make that experience as efficient, safe and reliable as possible, increasing certainty to industry participants, homebuyers and sellers alike, and we take that very seriously. The momentum for digital transactions continues to accelerate with the PEXA Exchange processing now more than 10 million property transactions since the platform's inception equating to more than $2 trillion in property value. In the first half of financial year '22, our total market volumes grew positively, with national transfer volumes up 23% and refinances up 43%. This delivered a total market growth of 24%. This, combined with PEXA share growth, drove PEXA volumes to record levels. We're a #1 trusted provider. The platform of PEXA is trusted by the majority of all property lawyers and conveyances nationally as well as Australia's mortgage lending community and is known for being safe and efficient. Now on Slide 11, a couple of things to [ pull in. ] As I mentioned, the PEXA Exchange transaction volumes were up 37% year-on-year. Our transfer market share increased to 84%, which is up from 78% on the equivalent period. We successfully launched into the ACT, a new jurisdiction now live on the PEXA Exchange platform. And we continually support the regulator in understanding the technical complexity of regulatory reforms such as interoperability. In response to our customer feedback, we have made more than 230 platform enhancements to the PEXA Exchange such as Vendor Surplus Auto Calculator. We've combined with ongoing enhancements and innovation to reinforce the trust we've built with our customers, lawyers, conveyances, financial institutions, who use PEXA Exchange every day. In fact, our Net Promoter Score remains as a leader with plus 60 Net Promoter Score indicating strong satisfaction with the PEXA Exchange platform, and that's across all our customer segments for practitioners, property developers, banks and the broader industry. And that reflects in the strong brand trust that we've got -- where we rated 8.9 out of 10, which is #1 in the sector. But we've got to keep going and we will. To keep this momentum going, we continually invest in our business. We're working, for example, with the banks to improve settlement certainty for consumers and speed up the refinance process. We're exploring new technologies such as mobile signing, so people have got more flexibility on where and how they sign. We're ensuring we continue greater digital enablement and cost jurisdictions. We're looking to do more transactions on our platform. And we're looking to expand across new jurisdictions, and we're having engagement with jurisdictions such as Tasmania. And we will continue to work with the government and the regulatory bodies on a property industry reform. Now on Slide 12, I'll talk about PEXA International. We are making good progress in the U.K. The technology build is progressing well, and we've got our first lender signed up for our initial stages. In fact, Payment integration testing with the Bank of England was completed alongside 7 lenders, with the Bank of England committing an additional testing slots for 4 more lenders in October '22. PEXA is now the seventh net settlement payment system to clear through the Bank of England. We've got agreements in place with Her Majesty's Land Registry. And we've got good engagement with the conveyance in industry generally. Further relying on some key advisory Board members with expertise in particular markets, we've got 100 PEXArians now working on the PEXA project based in the U.K., Australia and India, and we expect to invest more than $30 million OpEx and CapEx in FY '22 on the PEXA International expansion. We're up on track to go live with our commitment with a remortgage product in quarter 4 calendar year '22. In fact, we had some good coverage recently from the U.K. Prime Minister about our expansion into the U.K. In our Insights business on Slide 13, we're continually creating opportunities to create appropriate value for the PEXA access to real-time property data and insights to deliver efficient service. [ Especially, we ] delivered a number of PEXA property mortgage insight reports providing unique insights in the property settlement mortgage market, which have been well received by numerous stakeholders such as media, banks and our broader customer groups. We've also continued to develop and roll out our Insight services to ensure efficient and effective services in the use of the PEXA Exchange. Services such as PEXA Tracker and PEXA Planner and we're developing new services, which are currently in concept trial, and we're looking to expand those throughout the year. In addition to that, we're also looking forward to exploring and accelerating a number of joint development partnerships to bring richer Insight services to market and positioning our operating model around data and insights to greater scalability and to ensure that we're appropriately taking forward a number of emerging opportunities. And as part of this, I'm pleased today to announce PEXA Insights has made first strategic investment in the exciting prop-tech data company, Landchecker, and we've taken a 38% stake in this business. On Slide 14, a couple of points around Landchecker. Landchecker lets homebuyers, developers and renovators to make informed property decisions faster: informing consumers about planning restrictions, planning permit applications such as planned -- pending developments next door; planning restrictions such as heritage overlays; and approximate land size, boundaries and dimensions. The investment in Landchecker enriches the unique and timely property data with PEXA, is appropriately looking to unlock for the benefit of the consumers, government and industry through new services. We aim to provide richer service offering to our customers, and we believe that the synergies between PEXA and Landchecker will enhance both our organizations in our service delivery. We expect to complete the Landchecker deal in late February '22. Now on Slide 15, a little bit about PX Ventures. We're excited that PX Ventures continues to progress and certainly leverage our first-mover advantage in the property sector tech market. Our PX Ventures are already active in the property ecosystem. At present, we have a number of initial opportunities underway, including we've now launched a consumer app in partnership with another organization to improve the moving and transition experience for homebuyers. It's called Smaver. We've invested in products that are designed to improve the workflow for property developers and streamline the property journey for consumers and agents, respectively. We've also launched a new small business service for legal and conveyancing community to make business services better and more efficient and that's to our business advantage. And we're providing consumers access to competitive home insurance product offerings through our investment with Honey. The exploration and implementation of these opportunities, among others, again, is being supported by highly skilled advisory board with considerable digital data sector and international experience. Our expectations either both PEXA Insights and PX Ventures will enhance the PEXA Group's service and allow us to probably grow, to diversify and extend further into the property-tech digital sector and support, most importantly, our customers, members, shareholders and the Australian economy. Just briefly, I just want to talk about the PEXA culture of trust and our investment in the community. Given the critical role played by PEXA in the economy, it's important for the group to continue building and maintaining a culture of trust in the community. In fact, we are one of the most trusted brands in the sector. And I can tell you, we don't take that for granted. We embrace our purpose of transforming the property experience to everyone and delivering through our values of innovate for good, better together and making it happen and making it count. We take all that seriously. June -- the first half of '22, we've hit a new high watermark for trust, achieving a brand trust score of 8.9 out of 10, which is rated by our members. It's #1 in the sector. Pleasingly, we're known for constant innovation and high quality of services, traits that we value greatly. In addition, we value our PEXA employees. And we're really pleased we see that we're named one of the best places to work in Australia, placing top 3 in 2021 Best Place to Work awards. And during the first half of the financial year '22, we're also privileged to continue to have a highly engaged PEXArian team, which translates directly to our customer experience. We continually invest in our community with active participation in SisterWorks mentoring program and our shared value partnership with Homes for Homes and through our diversity and inclusion and our environmental sustainability initiatives. In fact, on a diversity inclusion lens, on one metric, our executive team split 55%-45% male-female, respectively. And we expect to continue to do better in diversity and inclusion. As I get ready to hand over to Richard, I just want to mention a couple of things in terms of environmental sustainability. Our PEXA and people and our partners tell us that PEXA need to keep investing in areas such as home insurance, ensuring that we've improved the mental health of our people and the community just generally and that we can continually support environmental sustainability. I can say that we are working on all these areas. And in fact, we've recently received a 5-star GRESB rating, which is up 8 points to 92 out of 100, which is an achievement which we're very proud of, which is something that we're going to continue to invest in areas such as carbon neutrality, investment in Homes for Homes and also ensuring that we continually work on safe and affordable housing. And lastly, during this half, PEXA has been recognized by numerous awards. And one example is a 2021 Ashton Media CX Awards for excellence in customer service. And to wrap up, can I just say, when we talk about customer service, that's something that we rank very highly in the PEXA group. I'll now hand over to Richard, who'll talk about our financial performance.

Thank you, Glenn, and it is great to be here today to talk through such a strong set of financial results. Before I start, I should say that all the figures in this financial section reflect a pro forma P&L, and they're to show the operating cost of PEXA as a listed company. What we do is we remove the one-off costs in the current financial year as a result of the listing and we add back $3.2 million of public company costs into the prior period to make sure it's comparable with the current cost base of the company as a listed entity. And there is a bridge between the pro forma and statutory P&Ls in the appendix in Slide 31. So on the results, PEXA delivered a very strong financial performance in the first half of '22. Revenue is up 46% to $145 million. Operating costs are up just 19% year-on-year and that's resulted in a PEXA exchange EBITDA up 76% to $83 million in the first half. EBITDA after the investment in the growth initiatives and one-offs up 71% to $75 million. And net profit after tax has gone from a $4 million loss in the first half of last year to a $26 million profit. And our net profit after tax, excluding the noncash amortization of intangible assets, or NPATA, is also up $30 million to $46 million. And that's our view of a strong cash NPAT. What that means is that financial metrics are also strong with our gross margin increasing by 1.6 percentage points to 87.6% on our EBITDA margin, on the exchange of 57%, up 10 percentage points from the first half last year. So overall, it's a really strong start to the financial year. And now I'll go into some of the key drivers of that financial result. On Slide 19, you can see revenue is a function of the market size, market share and price. And as Glenn said, the total market grew very strongly in the first half, up 24% or to 2.5 million transactions or billable events. And you can see that there's a chart in the appendix on Slide 29 that shows the total market. On top of a PEXA Exchange penetration or our market share grew 8 percentage points to 85%. And on the top left-hand chart on Slide 19, you can see that by transaction type. Transfer penetration grew from 78% to 84%; refi penetration stable at 98% to 99%; and other transaction types grew 16 percentage points to 71%. And combined, that delivered an 8 percentage point increase to 85% overall. So adding that 8 percentage point increase to the 24% growth in the market means that the PEXA volumes grew 37% to 2.1 million, and you can see that in the top middle chart on this slide. We also saw an average price increase of $4 to $68 broken down as follows. We actually saw 2 CPI increases during the year because we held our FY '20 prices through the first half of '21 to assist members and the community during the early stages of COVID-19. What that meant was that the FY '21 price increase was implemented 6 months later on the 1st of January '21. And the FY '22 increase was implemented as normal on the 1st of July. The average price of transfer has increased by $7 due to those 2 CPI increases and also the end of the discounting campaign in Queensland in FY '21 that was used to drive awareness in uptake. That discount ended the 30th of June 2021. So this, combined with the mix shift towards higher value transfers meant the total average price increased by $4 or 7%. So add that 7% to the 37% volume, and you see a 46% increase in PEXA Exchange revenue. You can see that on that right hand chart, from $98.6 million in the first half '21 to $143.9 million in the first half of '22. And it's also worth noting that we did see a 44% growth in exchange ancillary revenue. So that's the revenue not generated directly from these exchange transactions, and that grew to $1.6 million in the first half. On Slide 20, we then look at gross margin and cost of sales. And our main cost of sales are lodgement support service fees. They are incurred when the workspace is set up as it reaches out to the land registry to get bundled property information. It's charged in every workspace, whether it's a multiparty transfer, a 2-party refi or a single-party discharge or other transactions. So that means when we do more transfers, the cost per transaction drops, which you can see in the top right-hand chart, down 6% to $8.54. A higher mix of transfers also improves the revenue per transaction as I've just been speaking on the previous slide. And you can see that on the top left hand chart, up 7% to $68.40. And that combination means that our gross margin has improved to 87.6%, and our gross profit has grown 49% to $127.5 million. Slide 21 then shows our operating expenses, and we group these into 3 categories: general and administration, sales and marketing and product design and development. Our G&A costs, which cover our shared corporate teams, our Board and exec rem as well as prof fees and occupancy increased by 15% in the first half of '22 driven by corporate functions growing to support continued expansion together with higher recruitment costs and the cost of our new long-term incentive plan. It's worth noting that the prior year was also understated due to COVID-19 impact. And the first half '22 spend is up just 5% in the first half of 2020, i.e., 2 years ago, which equates to a 2.5% annualized growth rate. All prior period expenses included an additional $3.2 million for costs incurred by PEXA as a public company, and that's done as a pro forma adjustment. So it isn't in the statutory P&L. And obviously, that allows for a more meaningful comparison to the first half of '22. Our sales and marketing spend increased by just 3% in the first half of '22 due to both this year and last being impacted by COVID-19. We were unable to host all of our regular practitioner events and also reduced our overall marketing spend. So these costs were up by approximately 20% from the first half of '20, which was the last non-COVID impacted year. And finally, our product development expenses increased by 26% in the first half due to higher hosting costs driven by exchange volumes and investments in data management capability. You'll also see from the bottom chart that we capitalized a similar amount of product development spend, so total cash spend on development was $24 million or 16.6% of revenue in the period. Slide 22 then shows the benefits of scale flowing through the exchange. The chart on the left shows total costs as well as cost per transaction. And the growth in volume combined with prudent cost control has resulted in a reduced cost per transaction down from $34 in the first half of '21 to $30 in the first half of '22. That has resulted in a fairly strong growth in PEXA Exchange EBITDA, as you can see on the chart on the right, growing by 76% to $83 million. And we've also seen growth in our PEXA Exchange EBITDA margin, which has grown by 10 percentage points from 47% to 57%. This is probably higher than our long-term expectations due to the high volumes in the first half. So in summary, from a P&L standpoint, half of very strong revenue and EBITDA growth, which has allowed us to upgrade our FY '22 key Prospectus forecast. The final finance slide on 23 shows our first half '22 cash flow in a couple of ways. The chart on the left shows the movement in our cash balance over the year. And you can see it started with a balance of $51 million of cash, generated $83 million of EBITDA, spent $22 million on capitalized product development and had an $8 million negative working capital movement. So excluding the impact of the IPO, we would have had approximately $93 million of cash in the business at the end of the year. As part of the IPO process, we paid offer cost of $23 million and $6 million of negative working capital and generated net IPO proceeds of $15 million, resulting in an actual cash balance of $78 million on the 31st of December. The table on the right side of 23 shows the pro forma cash flow, and you can see very strong free cash flow before financing tax of $45 million, which equates to a 60% free cash flow conversion. Before I close, I should add there are more details of the financials in the appendix. But now I'll hand back to Glenn to run through our outlook and our guidance.

Thank you, Richard. I'm on Slide 25. So a couple of things just to add. The financial year '21 momentum has continued into the first half of financial year '22, with PEXA volumes up 37% on the same period last year. We achieved 60% of our full year FY '22 volume forecast from the Prospectus against an expectation of 52%. PEXA volumes remain positive into the second half '22 with generally PEXA volumes ahead of last year. Having said that, we do expect that the year-on-year growth rates will slow in the second half given the exceptional strength of the fourth quarter in financial year '21 and uncertainty around potential interest rate increases. With that in mind, we've upgraded our second half volume forecast, with the midpoint of our guidance, assuming that PEXA Exchange volumes will be broadly in line with last year at approximately 1.8 million transactions. And it's worth remembering that was a record second half performance for our business. This results in upgraded FY '22 guidance, with our revenue expected to be between $265 million and $275 million compared to $247 million in the Prospectus. And our PEXA Exchange EBITDA is expected to be between $140 million to $150 million, which is compared to $126 million in the Prospectus. We can also confirm that there will be no interim dividend paid for the first half of '22. So on Slide 26, in closing, overall, we've seen a very successful half for the PEXA Group with strong momentum across our business. PEXA technologies relied upon by thousands of consumers, financial institutions, developers, lawyers, and conveyancers nationally every day. And our commitment is to safeguard that experience. And it is something that is evident in everything we do. When you consider how fundamental property is to the economy, our role is significant. On that note, this property market remains buoyant with strong refinance activity of the back of record low interest rates and speculation around rate rises. Internationally, PEXA U.K. is making good inroads. And while there's still work to do, we are on track with the remortgage products later this calendar year. Likewise, PEXA Insights and PX Ventures are making progress via strategic investments and creation of new products and services to address market needs. PEXA is committed to our community and to creating a sustainable future which are central to our culture. And it's a culture that is rewarded through high PEXA employee engagement and record trust levels across the industry, and we remain committed to both of these. Off the back of these strong results, again, I'm pleased to once again confirm an upgrade to the PEXA Group's FY '22 prospectus forecast. I just want to thank again all our PEXA members, customers, shareholders and partners and my PEXA colleagues and the team for the first half results. We're extremely grateful for the trust you provide us. I'll now hand over for any questions of Richard and myself.

[Operator Instructions] Your first question comes from Josh Kannourakis from Barrenjoey.

First question is just around the U.K. So you've obviously given some good context around the progress on the banks. Can you give a little bit of extra color around the nature and context of those 7 banks and also the ones that are potentially filling the slots available later in this year, just with regard to their sizing, potential percentage of the refi market or any other detail available?

Now, firstly, Josh, thanks for the question. I can't really give too much flavor due to some of the confidential elements and commercial nature in our discussions. What I can say, it's a range of organizations in the market. And in terms of the 4 slots for October '22, we're in discussion with a number of organizations in that market as well. What I can say is that we've got good engagement across the FIs and also the government regulatory bodies, and we are making good progress. In addition to that, we're engaging well with the broad conveyancing sector as well. And we're also working through numerous other dimensions, such as our potential partners as well. But again, it's a moving feast. Good engagement, good progress, but I can't give you any more flavor than that.

Understand. Maybe just around that, in terms of the competitive environment. Obviously, you guys have a first-to-market position. But are you aware of any other sort of uploaded payment schemes that are looking at doing similar things within this recent testing slot that was required from the real-time gross settlement system?

No. The short answer on that one is no. We're not aware of anyone who's progress is well as what we have with the Bank of England. In fact, we've got that 7th [ scheme ], which is a good position to be in. There's always more work to do on that. But their testing has been good. But we believe we're in a good position.

Fantastic. Second question, just around the base business in Australia. Perhaps for Richard, into the second half and the expectations you've given, can we get a little bit more context around the revenue mix expectations and just how we should also be thinking about the operating cost both into -- the second half and on a go-forward basis for the Aussie exchange?

Yes, I can do, Josh. So I think the revenue mix, we're probably stabilizing now in terms of the mix between transfer, refi and other. So I think that mix is a reasonable assumption to carry through to the second half. We will see more share in Queensland. So we're mentioning an ever so slight shift towards transfers, but it's no longer particularly material. In terms of the cost base, I expect cost in the second half to be a little bit higher than the first because we are continuing to recruit and bring new people into the business. So that's why you'll see the guidance when it's there. We assumed broadly at a volume level, the midpoint of the guidance is roughly where we were in the second half of last year, which was obviously a record for PEXA, with slightly higher OpEx. And that, you can explain -- that will explain the guidance as it moves down through revenue and EBITDA.

Fantastic. And in terms of, I guess, from a CapEx perspective, can we get a little bit of context about how you're thinking about investment across the various aspects of the business on a go-forward basis?

Yes, absolutely. So we've talked a little bit about some of the investments that we've made in the first half. So you can see the CapEx that's in the chart. In terms of the total spend on CapEx across the growth initiatives, broadly speaking, that would be somewhere around $30 million, $25 million to $30 million in the full year. And you'll see across the exchange something similar in terms of total CapEx. So probably somewhere between $55 million and $60 million of CapEx for FY '22, which is, in terms of what we said in the prospectus, a little bit more because we are investing a little bit more in both the U.K. and in the core exchange.

The next question comes from Ed Henning from CLSA.

I've got a couple. Firstly, just following on, on the U.K.. Can you just touch on when in '23 that other slots will be available for the initial 7 -- sorry, 11 banks that have signed up to be on them? That's the first one.

Yes. Thanks, Ed, firstly, for the question. The first thing is we've got the 7 slots at the moment, and we've got financial institutions on those. We've got another 4 slots in October '22. And then we'll be in discussion with the Bank of England for the calendar year '23. So we've got 7 now, 4 in '22, that's 11. And then we'll be in discussion in '23 and '24 for other potential slots. One of the dimensions there, Ed, is that there's only a certain finite number that the Bank of England will give. And that's one of the areas of demand from financial institutions that may be felt in these first areas and may be at a competitive disadvantage.

And just on that, if you think about the U.K. landscape, there's 6 major home-lending institutions, and there's a decent tail running through there. Do you think you can -- you'll have enough slots to get at least the top 10 lenders through both this year and next year? How should we think about getting the larger part of the ecosystem through?

Well, that's a subtle way of asking the question that Josh asked earlier. I think in reality, we're working in discussion with a number of the banks. The first thing is we want to make sure the platform is up and running, that we're actually doing transactions through. And then from that, as many as the large ones that we can get onboard, we'll aim to get onboard through the system. We always factor in that we did not necessarily need to get all the large ones on in the early instances. If you think again, in reality, in the Australian market, it took a number of years to get the institutions on the various jurisdictions and to get the volume in. So again, '23, we expect to get volume in. '24 is actually to scale up even further, good revenue, particularly around the refi remortgage. And '25 is around sale and purchase. So to state it well, this isn't easy. But importantly, we're on track with the development and delivery.

All right. And just one final one on that before I go on something else is if you think about '23 and it might be a little bit early for the slots, do you think you'll get in some initial slots and then you potentially can get some more throughout the year with the BOE? How should we think about the potential opportunity to get more banks on board?

Well, again, it's actually a great point. So again, you just think of it on a couple of lens. The 7 that we're currently working with and then another 4 later on in the year which is 11, there's quite a considerable amount of work just to lock them in, make sure the system works, make sure the transaction is all flowing through. There's a lot of change in the financial institutions as well as PEXA amongst others. So that's the first thing to do. In terms of '23 and '24, using that, that is going to come down on a number of factors. One of those factors is what's the capacity of the Bank of England. They've got the RTGS upgrade, [ all the various constraints ] in terms of their system. But what we will be in, if this all goes according to plan, we'll be in a good first mover advantage of having our platform up and financial institutions on. And those financial institutions and consumers and conveyancers benefiting from that servicing system. That's going to be ongoing work, Ed.

No, that's great. Just moving on to cost. Can you just give us a feel of the increased D&A and also the increased cost as you need to ramp up engagement with conveyancers and other players in the U.K. as we look into '23 and '24?

Yes. So we've talked a little bit about the fact that we expect to spend $100 million over FY '22 to '24 in order to bring this to life before we start generating sufficient revenue for the U.K. business to effectively pay for itself. So I think that's a reasonable benchmark. We're going to spend just over $30 million this year. We haven't locked on our forecast for next year, but I can imagine we'll spend a bit more next year. And that will be across both OpEx and CapEx.

I was just going to say I think one of the important things what Richard said, as we continually develop and explore the U.K. market, getting our platform engaged with the various partners, we also see different dimensions happen with people allows us to actually change how we're going to do our financials and our forecasts in future. And in reality, we've already seen this within the regional announcements from the U.K. Prime Minister saying that this is a bit of a flagship opportunity between Australia and U.K. So all these things contribute to our forecast and future forward-looking dimensions.

And just, Richard, going back to -- you talked about the investment of $100 million, but thinking about what actually goes through the P&L as whether it's a D&A charge or whether it's increasing cost to the bottom line. How should we think about that versus what's capitalized and comes in over time?

Yes. Obviously, what happens in the future is hard to talk about. But I can tell you, in the first half, the $12 million that we spent was about $5 million of OpEx and about $7 million of CapEx. I think in the full year, we talked about spending just over $30 million. I would estimate sort of somewhere between $11 million and $14 million of that will be expensed and the rest will be capitalized. And that's probably a reasonable mix just to think about because the OpEx is coming from the team that's on the ground. As you said, we're dealing with not just the financial institutions, but the conveyancing bodies as well. So there's a reasonable team there, which will ramp as we become operational. And the CapEx is predominantly the technology build that's underway. So I think it will be a business that will be sort of 60%-plus CapEx for a period of time. And within those broad numbers we spoke about, so $30 million this year, $100 million over the next 3, that's our current working hypothesis.

And then if you think about, obviously, the CapEx just to build the system, but the system comes online in end of calendar this year, so therefore, your D&A starts to go up. Have you -- how long are you going to amortize that over? Obviously, it's a long-duration asset. Does that seem material takeup in the D&A? Or is it just steady?

Yes, we amortize our Australian platform over 15 years. We haven't made a final call on the U.K. because we haven't built it yet. But obviously, if it's 15, it will take a while for that to ramp up to material levels, somewhat depends on uptake before that decision is made.

Okay. No, that's good. And then just one last question. You talked about the PEXA exchange business, the EBITDA margins currently tracking over your long-term expectations. Roughly, what are your long-term expectations for that EBITDA margin in Australia?

I think we've said we expect the exchange to operate in the 50% to 55% range. And as I said, it's slightly ahead of that at 57% in the first half because we did have obviously a tremendous volume half. So I would model it somewhere in that 50% to 55%.

The next question comes from Brendan Carrig from Macquarie.

Just a few questions from me. Maybe just starting on the volumes that you touched on, Glenn, for the current half. So of that 1.8 million, I think it's fair to say you've probably got a very high degree of clarity over what's happening for much of the current quarter, so it's sort of 4 weeks out from now. So in that 1.8 million, what's the kind of implied drop-off in volumes that you're expecting in the fourth quarter given the clarity that you would have over much of the volumes that you're going to be achieving in the third quarter?

I'll take that one, Brendan. So yes, we do have clarity at the moment to sort of mid to late March. So we've got a sense for the next -- for the third quarter. It is still ahead of last year at this point in time. We're seeing obviously similar market volumes that [ REA ] spoke about in their presentation. So we are seeing the third quarter being ahead. Fourth quarter last year was a big jump. And you can see that on our guidance slide. It went from sort of 820,000 transactions to almost 1 million. So we are -- currently, if you take 1.8 million as being the number that's the midpoint of our guidance, that would assume that the fourth quarter is down a little on last year. But the guidance actually allows us between 1.7 million and 1.9 million transactions. So the fourth quarter is still a bit of an unknown for us at this point in time. We choose that as a midpoint at the line in the sand based on where we are in this quarter and the fact that it was a strong period for us last year.

Okay. That's helpful. Just on the penetration numbers, seem to be tracking well. But other seem to see quite a material spike up. Do you think that, that penetration increase in the other line can be sustained at that sort of 70% or thereabouts and will continue to trend higher? Or is there some mishap that drove that higher this period?

No, I think that's just the exchange getting more and more established within the ecosystem. So yes, it should be able to go up. There are always some products that we're continuing to digitize, but I've got no reason to think that, that 71% will drop in the future.

There's opportunities, obviously, with sort of growth in Queensland. How we've grown, ACT, small numbers; WA, there's transaction types that we haven't yet done as well. So there's still growth there.

Okay. Excellent. Just a very quick clarification on inflation. So just to clarify, what's the timing of the data that you use for your inflation pricing reviews and when do they flow through?

So we get the March year-end inflation number and apply it from the first of July. So we will -- we don't know next year's price increase, whenever that CPI number comes out, which I think is in late April.

Okay. Yes, I felt that [ I had to ] double check. And then just a final one for me. Just with the potential M&A from your largest shareholder, can you provide -- not sort of speculating whether deals go ahead or not, but can you provide any color just around Dye & Durham and any discussions that you may have had separately with them, just given that their knowledge and expertise in the [indiscernible] space, not just in Australia, but they've also got some exposure obviously to Canada and the U.K. as well?

The first thing, we can't comment because it's got something to do about [indiscernible] major shareholder in Dye & Durham, Brendan. In terms of discussions on markets, just generally, again, any commercial discussions we have with any organizations are always quite sensitive. We talk with all different players in U.K., Australia, et cetera, in terms of what's going on in the marketplace just generally, so I can't really say any more than that.

Next question comes from Scott Russell from UBS.

I've got a few questions. I was just going to pick up on the Dye & Durham point. I hear that there are commercial issues there. But I guess the deal with Link creates an interesting dynamic for PEXA because they have aspirations in the U.K. and Canada, of course. Perhaps you can comment on what it means for your Canada aspirations whether -- I think previously, you were willing to look at Canada over a multiyear time horizon. Does this fast track some plans there?

Again, Scott, look, I couldn't really -- that'd be just purely speculative talking about Dye & Durham because that's something outside of my control and not appropriate. But I think that what I can say is that, the U.K. market, we're progressing, as I said, according to plan. And we are doing the analysis and exploring other opportunities. But again, that would have to be, firstly, consistent with our strategy and going to add value; and secondly, that we can execute on them appropriately. And then thirdly we know what the market dynamics are. So there's numerous dimensions on all those. But any more than that would be just purely speculative. What I can also though add is in any ownership model, there's always first agreements, shareholder agreements in place, which is there is at the moment. So a lot of that would be status quo.

Okay. All right. Understood. Can I ask you a question about the Landchecker acquisition? You haven't disclosed the dollars that you've invested into this deal. I'm not sure if you can give us a ballpark, and if its materiality would be a consideration. I'd just be interested in how you determine the 38% stake size and how you plan to monetize this over what sort of time horizon?

Let me just maybe talk about a couple of aspects. And then Richard will just speak a little bit up in regards to the investment. I can also just say on the investment, we have mentioned obviously the stake we've taken, and that's the 38%; and obviously RACV will have the 51%. The residual is with the founders. So that's the first thing just to mention. In terms of the dollar element, which we will pick an element of that. There are some commercial sensitivities. And that's one of the reasons why we've been a little bit softer in terms of providing the number. But [indiscernible] second. Let's talk about the commercialities of it. There's probably a couple of dimensions there. It's a really interesting business. It's already got a customer base of around about 60,000. It's got recurring revenue coming in both in terms of once-off and subscription. It's also providing unique insights, as I mentioned, around planning, permits, heritage. It's quite attractive to, I mentioned, one segment, being property developers. We believe that PEXA, Landchecker and RACV coming together could not only further enhance services to customer segments, such as property developers and others, but also build broader areas of monetization both in terms of insight and data services, in addition to that, providing services that can really help consumers, conveyancers and others in making their decision at near real-time. What we flagged on that is that when we did that prospectus, we illustrate that we believe the total addressable market based on Frost & Sullivan in data insights was around that $400 million. What we're starting to unpack is that the market is rapidly changing around data insights in terms of open data, new data services and also services that can be used across newer segments that we probably haven't really ascertained to the degree that we are now starting to see. So in terms of the monetization opportunity, we really have to see upside in that opportunity. I see this is a slide of broader growth opportunities around data insights generally. So you'll hear more. We expect at the full year, you'll hear more about our progress in this broader data insights business. Richard, do you just want to touch on the number?

Yes. So we haven't completed yet. And there's a couple of steps we need to do. So we don't really want to go out with a specific number, but it's just under $10 million of the investment to get to 38%.

The next question comes from Angie Ellis from 8020Invest.

Well done, Glenn and Richard, on the great results in very challenging times. I see you've got some great U.K. hires, have been sort of tracking the module [indiscernible], so well done with that. My question is about the PX Ventures, so which appears, if you think about -- you know I'm always interested in what's going on with that. And I just wondered whether you're still offering the scholarships in this new year for the entrepreneur development program and just generally what's happening to the extensions and whether you're going to expand that into the U.K. and possibly Canada as well.

Great question, Angie. A couple of things, we're predominantly focusing PX Ventures and PEXA Insights [indiscernible] on PX Ventures on the Australian domestic market first. because we want to -- we believe there's firstly considerable opportunities in this domestic market. And then secondly, we're seeing some very unique opportunities for us to add value. So that's the first thing. What we have done in domestic market with PX Ventures, we've got our Launchpad service up and running, where we've got about 100 investment opportunities through Launchpad. We've identified a number that we're currently testing or exploring. I mentioned a couple of them in the marketplace at the moment. We expect to progress a couple more in the second half. But what we're also doing, coming back to your point about scholarships and other type of partnerships, we are exploring other type of lateral opportunities with partners. So if I give you an example, slightly outside of PX Ventures but illustrative with PEXA Insights, we announced that partnership with the Melbourne Business School of the Centre for Business Analytics about a month ago. And what that aims to do is to ensure not only do we get access to unique data science and skills, but we can also provide plenty of opportunities for post graduates and graduates to work in the PEXA organization just generally. And we expect to continue to pursue those type of partnerships, not only in the second half of this year but ongoing throughout. So that's the -- probably the best illustration I can give you at this stage. So we see they both are new businesses, but we see potential good growth opportunities just generally in both those businesses.

That's fantastic. A friend of mine actually runs that Centre for Business Analytics. If I go to the annual conference, I'll have to check if you're doing any presentations there. But with the scholarships, would you still be offering them in this new year and if you're sort of doing that 50-50 split for the start-ups to do that program? Is that still going?

Yes, we definitely are currently doing some -- our further valuation in the second half. And in fact, our Chief Data and Analytics officer, Scott Butterworth, will be having a look at some of these in the second half as well. So yes, I would expect you'll hear more about that throughout the year.

Your next question comes from Stewart Oldfield from Field Research.

Just my question is about the time table for interoperability. You've committed to appropriate industry reform. There was a report pre Christmas that you dropped out of the multiparty meetings on interoperability. Is that still the case?

Now -- firstly, Stewart, thanks for the question. We're -- a couple of things on it. We're still actively engaged with various government bodies and I think on the industry reform. So that's continuing on. What we've said is actually we can't continue to do some more technical design work until we get some of the things worked through on some of the legislation elements. So for example, time frames, the economics, ensuring that we've got some good independent validation that this is going to work from a [indiscernible] perspective. And being a profitable organization in the sector with 10,000 customers, for example, lawyers and conveyancers, you just can't [indiscernible] these things, being involved in banking and government for numerous years. So it's important to get it right. So what we've said to the government bodies, including [indiscernible], we've got more work left that we need to do before we can just keep [indiscernible] the API [ integrating ]. You can't keep them [indiscernible]. So it's a must element. So we're still working through. But we believe there's some higher priorities that we [indiscernible] need to work on. And in fact, what I can say, Stewart, on that, the Institute of conveyancers and the law society and other bodies such as the AVA, they're also [indiscernible] with things that we'll work on together before we do [indiscernible] of legislation or technical changes as well.

And I'm always interested in that sort of interplay between you being the incumbent in Australia but rolling out a platform in the U.K. Could you give us a sense if the regulators between 2 countries are talking to each other and if there is a danger that if your team is playing hardball in Australia, it might impact your ambitions in other jurisdictions?

Stewart, that's a great question as well. And I think a couple of things that I would just add. The market is different obviously in the U.K., so you don't have an equivalent regulator in the U.K. You have different bodies such as the Bank of England out there which is the equivalent obviously of the RBA. In saying that, one of the things that we've done in the domestic market is proving that we've got a platform that's up and running, a strong relationship and that we deliver consistently for all stakeholders. That's the first thing I just mentioned. The second thing is we're not playing hardball, we're playing very clear that we're representing some stake [ in 10 years ] to get up and running and with critical infrastructure in the sector. We're open to competition. In fact, there is competition in reality. But you've got to get it right. If you just take the ASX and [indiscernible] introducing interoperability in that market is just too complex. And [indiscernible] doing that some $1 million home for $100 transaction fee via PEXA, let's not jeopardize that by rushing in some [ industries ] and of course some challenges. So we're not playing hardball. We've got responsibilities, and we take them seriously.

That concludes our question-and-answer session and our conference for today. Thank you for participating. You may now disconnect.

Thank you.