ReadyTech Holdings Limited (RDY) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to ReadyTech's 2020 Annual General Meeting. I would now like to hand the conference over to your first speaker today Mr. Tony Faure. Thank you. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to the 2020 Annual General Meeting of ReadyTech Holdings Limited. I'm Tony Faure, Chair of the Board, and I would like to thank you all for attending our first ever online AGM this morning. This AGM will be rather different to our inaugural AGM held last year, but we are pleased to be able to provide our shareholders the opportunity to participate in our AGM in a way that is safe and responsible during these challenging times. It is now 11 AM, the nominated time for the meeting. I have been advised by the company secretary that a quorum is present, and so I am pleased to declare the meeting open. If you lose connection to the meeting at any time, you can log back into the AGM online platform by returning to the Link Login page and following the prompts. You will then receive an automated e-mail with a recovery link for you to click on. Click on this link to reconnect to the AGM. Alternatively, please call our share registry provider, Link Market Services, on 1-800-990-363 for assistance. Joining me for this AGM today via our online platform are Elizabeth Crouch, Non-Executive Director; Timothy Ebbeck; Non-Executive Director; Tom Matthews, Non-Executive Director; Marc Washbourne, Director and Chief Executive Officer; Nimesh Shah, our Chief Financial Officer and Joint Company Secretary; and Melissa Jones, our Joint Company Secretary. Joshua Tanchel, representative from our auditor, Deloitte Touche Tohmatsu, is also attending this meeting via our online platform. In fact, he's here in the room with us, and will be available to answer questions from shareholders. Elizabeth Crouch, as Chair of the Audit and Risk Committee and Tim Ebbeck, as Chair of the Remuneration and Nomination Committee, will also be available to answer questions. I will now make some brief comments about the company's performance in FY 2020 and so far in 2021 before handing over to our CEO to take you through these matters in more detail. FY '20 saw ReadyTech complete its first full year as an ASX-listed entity. The past 12 months were unprecedented times for global and local economies as well as for the businesses, investors and individuals that are their lifeblood. This period clearly showcased the mission-critical nature of ReadyTech's technology solutions and how we can support our customers with next-generation software as a service solutions, strengthening the base from which our company can continue to grow in FY '21. For those shareholders that are new to our company, ReadyTech is a provider of people management software, primarily for Australian education providers and employers. Our software offerings in student management and workforce solutions makes us a key enabler in the conduct of fundamental tasks, from compliance in education, to the payment of employees in any workforce environment. Combined with an enterprise strategy focused on growing our footprint into higher-value markets whilst retaining and adding value to our existing customers, ReadyTech's management team have delivered on investor expectations during this very challenging time. The company achieved its FY '20 prospectus guidance, generating 19.1% growth in revenue to $39.3 million, 21.5% growth in underlying EBITDA to $15.6 million and 63.9% growth in underlying NPAT to $3.6 million, excluding the impact of nonrecurring costs. We anticipate that FY '21 will see ReadyTech's price trajectory continuing with the recent Q1 FY '21 trading update, reaffirming FY '21 guidance with revenue retention maintained at 95% and the gross new business pipeline at $14 million. Furthermore, we are well positioned to support the back-to-work and skills sectors that will be key to Australia's economic recovery. We are also encouraged by our software's ability to help businesses in facilitating the provision of training and services as part of the Federal Government's $2 billion JobTrainer Skills package, which aims to deliver 340,000 new training places. ReadyTech has always strived to identify additional opportunities to broaden our reach into different vertical markets. The recent execution of the Heads of Agreement and Exclusivity Agreement with leading government-based software provider, Open Office, and the subsequent completion of an oversubscribed $25 million placement to fund this potential transaction further emphasizes ReadyTech's willingness to pursue attractive acquisition opportunities that add revenue and earnings to complement our already strong growth trajectory. With educators and employers reassessing and optimizing the way they interact with students and employees and an acceleration of digital transformation initiatives, ReadyTech in a strong position to be their partner of choice as they undertake digital initiatives to support their growth and success. This will require innovative thinking and the ability to adapt, both of which we are well equipped for. On behalf of the Board, I would like to thank you, our shareholders, for your continued support. I would also like to thank and congratulate ReadyTech's management team headed by founder and CEO, Marc Washbourne, and all of our team members for the tremendous efforts and dedicated commitment that they have shown over the past 12 months to enable the company to navigate through the extraordinarily challenging operating environment and deliver robust growth. We have a strong business that is meeting the fast-changing customer need presented by a new economic environment. With multiple growth opportunities available and a business model underpinned by subscription revenues that are highly recurring, we are well placed to deliver on our mission of becoming a world-class technology company through customer success. I will now hand over to our CEO, Marc Washbourne.

Thank you, Tony, and good morning to everyone. I'm delighted to present to you the company's FY '20 results, which saw ReadyTech deliver strong growth across all key financial metrics. I'd like to start by thanking the entire ReadyTech team for the remarkable work they undertook over FY '20. While COVID-19 has certainly tested us, I believe that we are now an even stronger business and have laid solid foundations to underpin continued growth in FY '21 and beyond. I'd also like to thank our Board of Directors for their contribution and exceptional support throughout the year. FY '20 has clearly shown the mission-critical nature of ReadyTech's technology solutions, supporting our customers through COVID-19 with next-generation software as a service. We exited FY '20 with strong momentum as new business wins in the fourth quarter were up 55% versus FY '19's fourth quarter. Earlier in the year, we signed a breakthrough contract with Kangan Institute and Bendigo TAFE for $7 million with a 5-year software subscription. This is a key client win, showcasing the strength of our advanced platform offering and positions us well to win further enterprise level clients. We're also experiencing growing momentum in the back-to-work and skills sectors where our clients are supporting job seekers to get back into the workforce. Due to the rapid increase in job seeker caseloads and the support for the skills sector, which has included the government's $2 billion JobTrainer program, this has [ also got ] to support that strong exit. Moving on to the key operational and financial highlights for FY '20. ReadyTech achieved strong growth across all key metrics, with revenue growth of 19.1% and organic growth of 10%. Most importantly, our earnings are increasing at a faster rate than revenue, highlighting the scalability of our SaaS platforms. As we scale and maintain margins, we're able to use operational leverage to further invest in R&D and sales while also growing shareholder value. Despite the challenging operating environment, we've maintained a strong focus on our strategic priorities. Annual revenue per client increased 18% to $10,500 with our customer success team doing an exceptional job in helping clients adopt new modules for a remote world. R&D spend was maintained over $11 million supporting the development of new product features and modules to underpin long-term sustainable growth. A highly complementary acquisition of Zambion has been fully integrated into HR3+, a unified payroll and workforce management platform. Lastly, we maintained our commitment to retain and invest in new talent, including the appointment of our new Chief Executive for Education and further sales as well as senior marketing roles. These results were achieved despite the difficult trading conditions engendered by COVID-19. I'm proud with how we responded to the challenge of navigating through this unique period. We did not stand out a single employee due to COVID-19 and instead, continued to invest in new talent. New features were deployed rapidly to address clients' requirements such as job keeper reporting. Through our response, we believe we have significantly increased customer loyalty during this period. The resilience of our business is achieved by our recurring revenue profile as well as low exposure to international students in the education segment. For those of you who are new to ReadyTech, we operate across 2 verticals, education and workforce solutions. We provide our clients with next-generation mission-critical SaaS solutions and our approach across all verticals is highly customer-centric and based on strong usability and agility, and we have one high-performing culture across both segments as well as the shared set of best practice SaaS disciplines. The growth we have been delivering has been driven by increasing demand from customers to replace existing legacy systems with cloud-based configurable solutions that are continually updated. A lot of existing systems are slow-moving and too rigid to adapt to changing needs and new regulatory requirements. Our SaaS architecture allows us to respond quickly to clients' needs. And this is a key reason we are winning new business. The market opportunity for ReadyTech in the education sector is very large. We're already the market leaders for VET providers, and there are significant opportunities to secure further TAFEs, universities and corporates. ReadyTech has experienced growing momentum in the back-to-work market, supporting increasing job seeker caseloads with market-leading cloud-based products within jobactive, the Australian government's $1.3 billion program to get more Australians into work. ReadyTech is well positioned to gain further traction in this sector as job seeker numbers and demand for digital solutions increase, with our JR Live platform 1 of only 3 systems accredited by the Federal Government in this market. Our all-in-one unified workforce management software, HR3+, is a go-to solution for clients looking to switch over from legacy systems to a pure cloud and all-in-one offering. Compliance is our key strength, and we are able to provide more value to clients by quickly rolling out updates in response to changing regulatory requirements, such as JobKeeper payments that we responded to this year. Traditionally, companies in mid-market will use separate systems for different tasks. Instead, our HR3+ platform provides a single view of employee with a unified employee experience. We've experienced strong uptake from blue-chip clients in HR3+ following the launch early this year, and we believe that it positions us well to capture market share going forward. As previously discussed, a key part of ReadyTech's business model is centered around identifying attractive and complementary verticals that can be acquired and grown even further. And this has been the driving force behind the recent potential acquisition of Open Office, an integrated business that services the Government and Justice verticals. The potential acquisition will allow ReadyTech to enter a market with a strong moat and has an exceptionally large total addressable market, which includes over 500 local councils in Australia, 200 global justice departments and close to 35,000 touch points to drive further growth. The acquisition also provides ReadyTech with an established customer base of 130 customers and a beachhead into the U.K. market, which will open up new sources of growth. To support the potential acquisition of Open Office, we recently announced the successful completion of an oversubscribed $25 million placement, providing us with certainty of funding as we finalize due diligence and transaction documents. If the acquisition does not occur, we will use the placement proceeds to fund other growth opportunities, including potential M&A, consistent with our stated strategy. Alongside the placement, we also announced a share purchase plan to provide retail shareholders with the opportunity to invest at the same price as the placement. The SPP will aim to raise approximately $4 million and would be conducted in 2021 and be used in connection with the potential completion of the acquisition of Open Office. I'd like to close my presentation with the outlook for FY '21. The strength of our SaaS platforms and the high percentage of recurring revenue not only enabled us to provide guidance for FY '21 with our full year results in August, when most companies have not been able to, but also to reaffirm that guidance when we undertook the recent capital raising and again today at our AGM. We expect ReadyTech to continue its growth trajectory in FY '21 with revenue retention currently at 95% and a gross new business pipeline maintained at $14 million for Q1 FY '21. ReadyTech is in a very strong position going forward, and we look forward to growing the company for the benefit of our team, clients and shareholders. Thank you. I'll now hand back to Tony for the formal part of the meeting.

Thank you, Marc. Ladies and gentlemen, we will now move to the formal part of the meeting. I'll have Melissa Jones, our Joint Company Secretary, explain the arrangements for asking questions and voting on the formal items of the business. As this meeting is only being held online, these arrangements are a little different from last year. Melissa?

Thank you, Tony, and good morning, everyone. [Operator Instructions] You may submit questions now or at any time before the meeting considers the item of business to which your question relates, and they will be dealt with at the appropriate time of the question. All questions will go through to the moderator for the meeting. We will identify each person who asks the question, read out the question and will then pass the question on to our chair, who will either answer the question or pass it to the most appropriate person to answer. We reserve the right to rule out questions that do not relate to the business of the meeting. We will also not answer questions that are the same or substantially similar to the questions that have already been asked. Otherwise, we will endeavor to answer as many of the questions asked as we can. All resolutions to be considered at this meeting will be determined by a poll. Shareholders are given the opportunity to appoint a proxy to vote on their behalf at this meeting. As set out in the notice of meeting, our Chair will vote all directed proxies in accordance with the direction provided by shareholders and will vote all undirected proxies in favor of all resolutions. Shareholders who have not appointed a proxy to vote on their behalf may have to vote during this meeting using the electronic voting card that you received when you registered via the online platform. Those shareholders may cast a direct vote at any time from now until 5 minutes after the closing of the meeting. If you have any questions about passing your vote online, please refer to the virtual AGM online guide that was issued with the notice of meeting or call Link Market Services. I will now hand back to Chair, Tony Faure, to move to the formal business of the meeting.

Thanks, Melissa. Shareholders will be asked to consider the 5 resolutions set out in the notice of meeting dated 16th of October 2020. The poll for each resolution is now open, and will close 5 minutes after the end of the meeting. For each proposed resolution, I will introduce the resolution. There will be an opportunity for shareholders to ask questions on the resolution through our online platform in line with the process that Melissa has previously described. Those persons entitled to vote on the resolution may cast a vote on resolution at any time before the close of the poll. And the results of the poll will be released on the ASX company announcements platform and made available on the company's website as soon as possible after the close of the meeting. The first item of formal business is to receive and consider the company's financial statements and reports for the financial year ended 30th of June 2020, as set out in the 2020 annual report. This item of business does not require shareholders to vote on a resolution or to formally adopt the reports. Shareholders or their proxies may comment or ask questions about the financial statements and reports or about the management of the company. Shareholders or their proxies may also ask questions of the company's auditor, Deloitte Touche Tohmatsu, in relation to the conduct of the audit, the preparation and content of the audit report, accounting policies adopted by the company and the independence of the auditor in carrying out the audit. I will now address any questions relating to this item of business or any general business questions. Melissa?

Chair, we've received a few questions from [ A.J. Hans ], Super Proprietary Limited. Are you aiming to become the one-stop shop service for all admin and HR and payroll platform?

Thank you. I think I might give that one to Marc.

Yes. Thanks, Tony. Yes, 2 things to answer the question, I would say, first of all, that's our HR3+ platform is very focused on the mid-market in Australia as well as New Zealand. I think really, the system is best described as a one-stop shop to manage an organization's people. In that platform, we've really brought together 3 elements. And these 3 elements traditionally have been managed by separate systems, and they are payroll; secondly, workforce management, which is time and attendance and rostering; and also HR. And we think that the market is finding very attractive to have 1 vendor and also not only that connected platform and a unified experience for employees.

Thank you, Marc. Any other questions, Melissa?

Yes, Chair, we've received another question from shareholder, [ Stella Wang ]. One, Open Office only acquired McGirr in Feb 2020. In your due diligence, what's your observation on the integration of the 2 businesses so far? The second question is two, to give us more confidence for future integration success of open office into the group, could you please describe how Zambion and WageLink did in FY '20 during the first financial year as part of ReadyTech?

Thank you. Marc?

Yes. No, very happy to take that question. So I think, number one, in terms of the McGirr and Open Office businesses, absolutely right. The businesses were combined in the early part of the year. There has been various integration streams taking place and they've included governance and controls. They have an integration around approach to sales as well as increasingly software development. I certainly think that there is a lot more opportunity for further integration within ReadyTech. In terms of the second question, the integration so far of the Zambion and WageLink businesses, I think really focused on Zambion first of all, which was the larger and more transformative acquisition for us. I think the integration has gone very well. There's been an enormous amount of work. And most importantly, that's been in the platform. It's been the creation of the unified HR3+ platform, which, as I said, has brought together those key 3 elements for people management. And also from a sales and marketing perspective, we have a highly integrated approach, where our teams -- our sales teams are able to actually offer multiple offerings. Also, most recently, through an implementation of a new CRM, we also have a single view of customer and management of customer journey across those businesses as well. So very happy with the integration so far of Zambion and WageLink.

Thank you, Marc.

Now, Chair, no further questions have been received.

Thank you. In which case, we will move on to Resolution 1, which is for the reelection of Tim Ebbeck as a director. The resolution is set out on the screen. The directors, with Mr. Ebbeck abstaining, unanimously recommend shareholders vote in favor of this resolution. Tim will now say for a few words.

Thank you, Chairman. It's been a great honor to serve on the Board of ReadyTech since the IPO and being part of the company's momentum building journey. I've had a career as CEO and CFO in a range of industries, but principally in technology, where most notably, I led the local operations of enterprise software vendors SAP and Oracle, and was Chief Commercial Officer and leader of the first strategic review of the NBN. I'm a member of the Australian Computer Society; a graduate and member of the Australian Institute of Company Directors; a fellow of the Institute of Managers and Leaders; and the fellow of CPA Australia. And have over 15 years’ experience on listed, private and public sector boards. In addition to my role on the Board of ReadyTech, I'm a Non-Executive Director of TYMLEZ Software Limited and advise technology companies in emerging areas such as software robotic process automation, intelligent personalization and AI, blockchain, data collaboration and gamification. If reappointed, I'll continue to bring to the Board my broad governance background, my strong executive experience leading growth, change and digital business model transformation and my deep digital and technology experience. I'm personally very excited about the future of ReadyTech and keen to continue to be part of an ongoing journey as a Non-Executive Director. Thank you.