ReadyTech Holdings Limited (RDY) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the ReadyTech Holdings Limited H1 FY '25 Results Briefing. [Operator Instructions]. I would now like to hand the conference call over to Mr. Marc Washbourne, Co-Founder and Chief Executive Officer. Please go ahead.

Thank you, and good morning, everyone. We appreciate you taking the time to join our H1 FY '25 results call. I'm Marc Washbourne, Co-Founder and CEO of ReadyTech; and I'm joined here today by Nimesh Shah, ReadyTech's CFO. Before I go into all of the details of the first half, I'd like to start by highlighting 3 key points to understand about the result. First point, our enterprise strategy is working and performing well across the majority of segments and it will continue to mature and translate to tangible growth. This is validated by some major wins in calendar 2024 and more notably by an unprecedented enterprise pipeline with $13.5 million of deal value sitting at preferred or shortlisted stage due to close in H2, which I'll talk more about. In addition, this is reflected in the full year revenue outlook to be maintained at low double digits with the exception of the Government segment. The second point on to the Government segment. As already flagged at the AGM, we've experienced underperformance in this part of the business, which has largely contributed to 6.6% group revenue growth in H1. This related to delays in a module that affected the end-to-end product readiness, which in turn, inhibited customer cloud transitions. Since then, we have addressed the issue in a decisive manner predominantly supported by the CouncilWise acquisition, which has provided a scalable and proven property and rating capability. We're now ready to meet customer demand and confident this plan unlocks and accelerates cloud transitions and a return to growth for the Government business. Third and final point, with the combination of the aforementioned exciting enterprise pipeline and our clear plans for Government, we are confident of a return to low- to mid-teens growth in FY '26 and beyond and we now target $160 million to $170 million in revenue by FY '27. Additionally, in this time frame through operating leverage and scale, we expect cash margin to be greater than 20%. I'll now walk through the key slides from the results and we'll start with Slide 2. Let's start with a reminder on who we are. ReadyTech is a vertical SaaS growth company, providing next-generation mission-critical software across human-led verticals. We focus on carefully selected verticals that are undergoing major digital and cloud transformation. They are Education and Work Pathways, Workforce Solutions and Government and Justice. And it's that digital transformation that is driving our core growth opportunity. Our software solutions are currently used by more than 5,000 customers. And to-date, we have supported the experience of over 2 million students, apprentices and job seekers. Our software has also successfully processed billions of dollars of payroll and counsel rates and supported more than 1 million justice cases in the U.K. alone. Moving over to Slide 3, H1 financials. In the half, we achieved total revenue of $58.3 million, representing a 6.6% increase on the prior corresponding period. Excluding the Government segment, revenue growth was at 9% and I'll come back to the Government segment and share more on the reason for the underperformance and the decisive steps that we've taken to remedy later in this presentation. Our underlying EBITDA came in at $18.2 million with an EBITDA margin of 31.2% over the same period. Underlying cash EBITDA grew 10.2% year-on-year to $8.6 million with a cash EBITDA margin of 14.7%, up from 14.3% in H1 FY '24. As said, our enterprise momentum remains solid with an immediate pipeline of $13.5 million in opportunities at shortlisted or preferred stage. Overall, our wider gross enterprise pipeline has expanded to $37.5 million, up from $31.8 million in FY '24. Slide 4 focuses on the highlights and themes from the first half of FY '25. ReadyTech continued to execute its enterprise strategy, delivering multiple wins across verticals. We're pleased to report that Workforce Solutions secured a number of enterprise customers, including its largest contract to-date, which exceeded $1 million in first year contract value. In Education, in H1, as previously reported, we signed our first university student management system contract with Avondale University, marking an exciting entry into a significant new market and further expanding ReadyTech's reach in enterprise markets. Meanwhile, momentum in the Justice sector remains strong with a major new tribunal contract further reinforcing ReadyTech's position in this space. And as mentioned, a key focus in the half has been addressing Local Government underperformance caused by a delay in a module that impacted end-to-end product readiness, which acted as a inhibitor to customer cloud transitions. The acquisition of CouncilWise's property and rating engine has accelerated both product availability and referenceability, unlocking ReadyTech's ability to address customer needs with its proven capability within one of the important modules of the end-to-end experience with an engine that is already used extensively across Australia. On to Slide 5. And looking ahead to the second half of FY '25 and beyond, ReadyTech is now well positioned for an inflection point in performance. The gross enterprise pipeline now stands at $37.5 million and has strengthened in conviction. And as said, this includes $13.5 million deal value of enterprise opportunities that are at shortlisted and/or preferred stage, all with a close date in H2 FY '25. This has taken some patience. However, we now have high confidence in this unprecedented pipeline across Education and Work Pathways as well as Justice, which is underpinned by a significant level of procurement activity as organizations seek to replace legacy systems. The growing support from reference customers further strengthens ReadyTech's position in these sectors. In Local Government, we are confident the end-to-end product set and scalability with greatly expanded referenceability achieved through CouncilWise will accelerate the critical cloud adoption and drive long-term growth. Lastly, the incremental cash margin from these active growth initiatives will drive operating leverage and margin expansion over the medium to longer term. I'll now hand over to our CFO, Nimesh Shah, to take you through ReadyTech's financial performance in more detail. Thanks, Nimesh.

Thanks, Marc, and good morning, everyone. Let's turn to Slide 7. As Marc mentioned, ReadyTech delivered revenue growth of 6.6% on a PCP basis. Growth was driven by enterprise contract wins and successful upsells across all verticals, though impacted by product delays in the Government segment. Excluding Government, revenue growth was 9% on a PCP basis. Group revenues -- recurring revenue remains very strong at 85.6%. Underlying EBITDA, excluding nonrecurring costs, increased 4.6% to $18.2 million. Cash EBITDA margin improved by 0.4% to 14.7% for the half, progressing towards the medium-term target of 20% and plus. This reflects the growing contribution of recurring revenue, high-value clients and the benefits of operating leverage. Expenses increased 7.8% in H1 on a PCP basis as we continue to invest in our capability to support future revenue growth, reflecting our high confidence in ReadyTech's future growth potential. On Slide 8, moving to the balance sheet and the cash flow slide. At December 2024, ReadyTech had $19.3 million available in cash. The reduction in our cash balance on 30th June reflects the $10.1 million paid over the half for earn-outs for prior period acquisitions. The company remains conservatively geared with a net leverage ratio of 0.86x. EBITDA to cash flow conversion is expected to exceed 95% for the full fiscal year of FY '25 with strong annual subscription fees due in the quarter 4. Turning to the segment performance on Slide 9. Firstly, in Education and Work Pathways, Education experienced strong performance over the half, delivering our first university win and continued success with TAFE. And on -- and together with Work Pathways, the vertical grew revenue by 7.1%, and the EBITDA margin remained very strong at 42.9%. Workforce Solutions grew revenue by 10.4% in the half by new contract wins, including our first $1 million customer in this vertical and success with upselling additional modules to existing customer base. For the same period, the EBITDA margin improved to 36.4%. Justice revenue grew 13% on a prior year basis, driven by new customer wins and upgrades. And as mentioned earlier, Government segment was impacted by product delays for the half, which has now been addressed and we are confident in the pathway to accelerate growth from second half onwards. Then on Slide 10, as you can see on the chart, ReadyTech has delivered sustained revenue growth over the last 3 years. Same chart, our revenue tends to be skewed towards the back half of the year and we expect this to be the case again in this financial year. Some of the second half's performance historically has been driven by key seasonal and structural factors, including end of financial year, recognition in the Workforce Solutions segment, quarter 4 subscription true-ups for some of the seat-based licenses and increased spending -- customer spending cycles. Into Work Pathways, the upcoming Disability Employment Services contract was awarded in Q4 and will provide another layer of growth momentum. I'll now hand over to Marc.

Thanks, Nimesh. From Slide 11 and in the next few slides, I'll talk about how we win in enterprise. And turning to Slide 12. I'll start by explaining why enterprise is the right strategy and why we decided to move upmarket to target large high-value enterprise customers across all segments. Firstly, the enterprise end of our markets means we can acquire high-value contracts with customers with sizable technology budgets that leads to ongoing expansion opportunities and high customer lifetime value. Secondly, cloud adoption remains at low penetration across our markets at the enterprise end. This creates a large opportunity for ReadyTech to replace legacy technology and accelerate digital transformation programs in the years ahead. Third, we are building strong moats given the significant R&D investment required to reach enterprise grade product market fit. Lastly, through scalable and configurable platforms, enterprise supports our ambition and plans for higher margins in the longer term. So that's the enterprise setup. I'll now talk you through the enterprise journey. Turning to Slide 13. ReadyTech has purposely built enterprise capability and is now ready to scale. This journey began with a deeper investment phase between 2020 and 2024, where resources were allocated to developing enterprise-ready products, enhancing enterprise sales and marketing capabilities and refining enterprise service delivery. These foundational efforts set the stage for the winning of the initial enterprise customers where ReadyTech has played a very hands-on role in ensuring successful customer onboarding. With those early breakthroughs, the shift focused to building a strong base of lighthouse customers from 2021 through to 2025, while further honing the enterprise products. These successful implementations established credibility, generated referrals and buzz and created case studies that have positioned ReadyTech as a compelling option for future enterprise clients. As the company moved into 2024, by addressing a broader serviceable market and leveraging the credibility gained, the focus shifted to building out the conviction pipeline and that phase is today most mature in the segments that started the journey earliest, being Education, Workforce Solutions and closely followed by Justice. That brings us to today with the current stage of the journey centered on converting a substantial pipeline, scaling out and solidifying our footprint and over the longer term, targeting market leadership. In summary, with a strong foundation of reference customers, proven solutions and expanding enterprise footprint, ReadyTech is in a prime position to accelerate to growth and realize its full potential in the enterprise market. Slide 14 provides a snapshot of our enterprise wins, some of those over the last 2 years. These logos demonstrate the broad range of organizations who are now not just ReadyTech customers, but also serve as valuable references for similar opportunities across this swelling pipeline and in the wider enterprise market. Slide 15 depicts one of the key reasons that we are winning in enterprise. ReadyTech provides our customers a unique value proposition with an open ecosystem architecture and approach. Being open and connected means greater choice, flexibility and interoperability compared to legacy systems and the platform monolith. This approach also means we can play well and collaborate with the horizontal big tech players such as Microsoft, who are committed to investing in these markets in areas like CRM and finance and this is serving as a major competitive difference for ReadyTech. Slide 16 is an insight into why ReadyTech is on the verge of accelerated growth in tertiary education, where multiple growth engines exist. This is a market ripe and ready for change with many legacy systems urgently needing a generational upgrade, coupled with strong demand for modernized and digital student experiences. When we combine our major and immediate opportunity in TAFE, ReadyTech's breakthrough university win with Avondale University and the opening up of the higher education market, along with our unique ability to service state governments' vocational and funding management needs, we are confident our Education segment is ready to outperform. On Slides 17 and 18, our Workforce Solutions vertical strategy is gaining traction with strong gains in the mid to enterprise standup economy. We win here by solving complex and workforce management challenges while targeting very high product fit for key target industries. Those include transport, hotels and accommodation, manufacturing, agriculture and retail and the demand for innovative Workforce Solutions continues to grow, as businesses seek all-in-one cloud platforms that replace fragmented legacy systems, those that ensure seamless payroll compliance, support mobile workforces and drive automation for greater efficiency. Wins in H1 included large and growing retailer Bargain Chemist in New Zealand; hospitality and event management company, Trippas White; and most notably on Slide 18, a major contract win with Talley's, our largest customer win yet in this vertical. We are proud to serve Talley's Group, a major player in New Zealand's food industry, operating at scale with over 6,000 employees. This case study showcases how ReadyTech's proven track record and innovative and mobile product made us the ideal partner to streamline Talley's workforce operations and drive efficiency. On to Slide 19, ReadyTech has established a strong foothold in the Local Government sector, serving over 280 councils across Australia with a modular solution set. With the rising demand for digitized services, ReadyTech is well positioned to drive efficiency and modernization, a significant opportunity lies ahead, including migrating existing customers to the cloud and replacing legacy systems with modern integrated platforms. Turning to Slide 20 and further on the Local Government segment. Following challenges in 2024 with one module that impacted the readiness of the full end-to-end cloud product offering, ReadyTech has taken decisive action to fast-track this core product strategy with the acquisition of a proven and scalable property and rating engine to round out the Local Government ERP. ReadyTech is confident it now has all the elements for a deployment-ready solution to meet the evolving needs of modern councils, unlocking cloud transition of a significant customer set across all states in Australia, while also providing the critical referenceability for supporting councils to embark on this cloud journey. On to Slide 21, to drive this market and product opportunity forward, we have assembled a refreshed and high-quality management team with track record of enterprise success. With expertise spanning customer delivery, sales and product innovation, this team is primed to optimize product fit, drive those customer transitions and secure new Government customers while providing excellence in customer experience. Additionally, the integration of CouncilWise's strong management team enhances ReadyTech's Local Government leadership, reinforcing its deep experience and capabilities in Local Government as well as property and rating solutions. On to Slide 22 and to our Justice segment, which is experiencing growth and expansion of conviction pipeline as the sector digital transformation accelerates. As a sector, Justice is seeing a greater adoption of digital solutions, fueled by the need to modernize legacy systems, enhance efficiency and improve citizen experiences. ReadyTech's Justice case management solutions serve an estimated $230 million in serviceable market across courts, tribunals, legal services and public prosecutors. Our track record in the U.K., our modular platform, our rapid go-live capabilities position us as a trusted leader in digital justice transformation, evidenced by 2 recent contract wins shown here and confidence in a high conviction pipeline for 2025. In the next 2 slides from Slide 23, I'll discuss our ongoing dedication to innovation as well as how we are increasingly benefiting from the use of AI here at ReadyTech. In the first half of the year, ReadyTech saw the major release of next generation and HR -- excuse me, next-generation HR and LMS modules that streamline employee life cycle management while reducing reliance on third-party products. This enhances efficiency for our workforce as well as Local Government customers while delivering added value to ReadyTech. We've also accelerated AI product releases via our dedicated Emerging Technology team, most notably the release of Talent IQ for Workforce simplifies high-volume hiring and AI-powered candidate matching where multiple customers have already seen time to hire reduced by over 50%. Many more AI-infused releases will follow. Just one to call out, our upcoming Council DA Agent will transform local government development approvals by cutting administrative bottlenecks. By driving automation and efficiency through AI across regulatory processes and service delivery, ReadyTech is well placed to capitalize on new revenue and growth opportunities by unlocking this customer value with AI. Slide 24 outlines how AI is also providing a significant opportunity to drive operational efficiencies across ReadyTech with expanded adoption of AI across customer service, software development and quality assurance. You can see from the metrics, we've started to make a tangible contribution to operating leverage in the support of higher margins for ReadyTech. And finally, Slide 25 provides an overview of our outlook. The headline here is ReadyTech's enterprise strategy is ready to drive future growth in revenue and margin expansion. Revenue growth for all segments in FY '25, excluding Local Government, is expected to be low double digits, underpinned by the pipeline of $37.5 million, including those at shortlisted and preferred stage opportunities of $13.5 million. Including Local Government, group revenue growth in FY '25 is expected to be at high single digits. We're targeting an underlying EBITDA margin, which excludes the impact of LTIP in the range of 33% to 34%. Underlying cash EBITDA margin is expected to be in the range of 17.5% to 18.5%. To the medium-term target for FY '27, the depths of current sales opportunity pipeline and the advanced stage opportunities are forming an inflection point for a return to mid-teens growth underpinning a revised revenue target of $160 million to $170 million. So again, in summary, I'll finish where I started with 3 key points. The enterprise strategy is working, is at an inflection point and reflected by the $13.5 million in immediate pipeline. The Local Government growth inhibitor has been addressed and we'll see a rebound to an improved level of performance in the year ahead. In the medium term, we are entering a period of strong growth and are on track to target mid-teens revenue growth with an accompanying margin expansion. Thank you again, and I'm now happy to take any questions.

[Operator Instructions]. Our first question today comes from Cameron Halkett from Wilsons Advisory.

If I can just start, I suppose, on the Government and Justice performance through the half. Just trying to understand some of the moving parts here, given IT Vision has gone, I think, pretty well given its earn-out achievements and Justice was up 13% on PCP. So I guess, Nimesh, it somewhat suggests Open Office had a pretty challenging half year-on-year. And just trying to understand whether that's just services revenue not being replaced or potential churn. Just some help there would be good.

Yes. Yes. Thanks, Cam. Look, I think the earn-outs on the IT Vision, they're predominantly at the last calendar on the margin side that the revenue was earlier. But the softness, as Marc indicated in the Government segment, has predominantly been due to that one specific product issue for the module issue that we've unlocked, which has impacted our services revenue and also getting those reference of clients getting in the first half. Now, what we see this calendar year, we've addressed this issue, the pipeline looks strong and we expect that growth to return back.

Yes. Okay. And then perhaps directionally, given there's probably sensitivities around the decomposition of the 2, but we are at concerns the impairment charge made within the year. Are you able to give us directionally some composition there between the redundant assets acquired that are no longer needed to certain acquisitions and how much actually was more attributed to just lower growth rate assumptions and acquisitions?

Yes. Yes, definitely can. Look, the impairment that we have taken under the CGU, the Government CGU, to your point, it's both the reasons, the first half performance has led to it. And also, we have deliberately and purposefully end of life some of those legacy assets because we want to accelerate our growth. So the composition is a bit of both in that, Cam, to tell you the truth. But we have done it deliberately because we want to make that, for instance, the CouncilWise engine as the main platform for Property & Rates. It consolidates our flagships and then we have to, as a result, deprecate or end of life some of the legacy assets.

Okay. So point being is that whole $20 million is not just strictly to lower performance in Government [indiscernible] been done. Okay. And then I guess just lastly on the pipeline, the $13.5 million that has been called out. I suppose with the deals pertaining to that amount, what's, I suppose, ReadyTech's expectation for when they may close? Is that something we could see by the end of this financial year or potentially towards the end of this calendar year? Some color there would be helpful.

Yes. The -- what we really call now our immediate pipeline, which is at shortlisted and preferred stage. Firstly, I'd say that we expect to have a very high close rate on those. And at this stage, all of those opportunities are tracking to a close before the end of the financial year. So they are all H2 closes at this stage, Cam.

Our next question comes from Jules Cooper from Shaw and Partners Limited.

All right. Just sort of following up there on Cameron's question just around that preferred pipeline. I mean, it's the first time you've given us an insight like this into the business. Are you able to sort of maybe talk about how the current situation might compare to previous points in time where you've had this sort of preferred pipeline or not and how that shapes maybe like last year or the year before?

Yes. Look, this is much, much higher, Jules. I think that we spoke last year in 2024 about some delays in pipeline and delays in decision-making. I think part of that was sort of macro conditions. So this is really an unprecedented level of pipeline. And as we said, deals that are at this stage, particularly the waiting here is to preferred stage, the probability rate of closing is obviously very high. So yes, this is far higher than we've seen previously and one that we were happy to share.

Okay. And one maybe for you, Nimesh. The cash conversion was a little bit lower in the first half. I wonder if -- and I take the point that you've said for the full year that will get back to really good levels. Is that also related to the project delays in sort of that Local Government area? Should we sort of think of that first half cash flow being impacted by that? And then as some of those reference clients move forward, that unlocks in the second half?

Yes. Thanks, Jules. Look, predominantly, it's to do with the second half is always weighted with the annual subscriptions come in the second half than first half. So you'll always find our first half conversion at the lower end of that range, but we're confident to be greater than 95% for the full year. Has the slowness in Local Government? Yes, a small bit, but it won't be material, Jules. It's predominantly given timing of the subscription payments.

Our next question comes from Edward Woodgate from Jarden.

So just on the impact of the module in the Government segment. So can you just talk through what the group NRR would have been excluding that -- excluding the Government segment and also what Government growth might have been if it wasn't for the module delays? And sorry, just to clarify, the delays with the module, is that purely technical or is it in the product wasn't ready or was it something else? Sorry, I was jumping between calls. So I just wanted to get some clarity.

No problem. No Problem. I'll take the first question. We had NRR tracking towards 103, 104 for the half. And so the sort of slowdown in those customer transitions caused by this product readiness issue. And I think really importantly, the lack of referenceability has impacted that NRR. So in terms of the second question, look, we were experiencing delays in one module being ready for market, that module was Property & Rating. It effectively meant that the total end-to-end experience was blocked and that's what's caused the slowdown in the customers committing to the transition. And look, the Property & Rating area is very complex. There's different business rules in different states. We wanted to get that right. And we found the best way to fast-track that was through this highly specialized provider of a Property & Rates engine, that's CouncilWise, that processes all these complex rules in a very scalable way. We moved on that in a decisive way, I think I would say. And look, they specialize in this area. We have a much, much wider ERP with many other modules. This is all they do. They've got 35 clients in production in the cloud. So this acquisition effectively means we are ready to go end-to-end. We'll finalize the current projects that are currently in implementation and that in turn opens up the transition and the cloud migration pipeline through these really important reference sites. So hopefully that's all clear.

Yes, that's very helpful. Appreciate the color. And the acquisition in that context sounds like a smart one. So just -- I mean, just following on, I guess, in relation to the medium-term revenue growth target, is there an element of conservatism there? Have you downgraded -- I mean just interesting to see downgrade given it's a issue specific to one module and you've now made the acquisition and your enterprise pipeline has grown and the preferred pipeline seems to be very strong. So just kind of curious as to how you characterize the conservatism of that growth target?

Well, I think that the growth target out for the medium-term now sort of implies that 14% to 16%, 17% on a CAGR basis. The componentry parts of that, we're now confident that we will move NRR to that 105-plus range through the unlocking of these LG -- Local Government transitions. There's a very significant backlog of transitions which will open up. And then the -- us with the gap up to that mid-teens revenue growth means we need roughly another 10% from new logos. We've obviously had a quieter year in FY '24 than we had originally anticipated. But I guess the shape now of the preferred and shortlisted conviction pipeline plus further opportunities that sit behind that, that will also enter that phase in FY '26. We think that's the right guidance or the right target for FY '27 now.

Okay, sure. And so -- that's helpful. And then I understand just the color of what you're saying is that a lot of deals have been pushed to the right. But just for the ones that have come through, can you talk to what your win rates are? Maybe talk to some deals that you've missed out on? I'm sorry to talk about, I guess, the negative in that context, it'd just be useful to...

No, no. Not at all. So I think over the wider pipeline, which is now sits at $37.5 million, our win rate is around 60% on that wider pipeline. In terms of what we've called out is this immediate pipeline of opportunities which are shortlisted or preferred, we would expect deals in there to be 80% to 90%-plus in terms of close rate. And sorry, Ed, what was the second part of the question?

Just any...

Have we lost any market? So, very, very few, actually. In the last -- since we last reported, that pipeline has grown by around $5 million, $6 million. Very few have been lost. There's probably been more shift to the right in terms of the pipeline as opposed to lost. A couple of smaller opportunities were lost, but nothing major.

Okay. And then just one last question for me. So you called out AI potentially have an impact on your costs. Can you just again, give some color as to how you see that playing out? Is that, say, permanent cost-out in certain line items? Does it allow you to leverage certain line items? I mean, would overall cost decrease at any point or is it just -- it's more moderate growth?

I think what it means is that in some of the areas, and I call out customer service and probably R&D, we're effectively getting more productivity for less. I think the best way to think about it is we'll be able to hold some of these cost bases across some of these functional areas as the revenue growth comes through. And really what it's helping with is the operating leverage coming through the business.

And our next question comes from Wei Sim from Jefferies.

Just in terms of the Justice in the U.K., can you talk about, I guess, what potential upside opportunity that is? I appreciate it's probably still pretty small at this point in time, but do we see that as an area where there could be more growth in terms of our, I guess, midterm targets, how much growth would we be seen coming from the U.K.?

Yes. So we renewed that contract last year. It's ReadyTech's largest customer. It's a few million dollars a year. But certainly, there is future opportunity. The HMCTS is Magistrate's Court is going through a sort of generational digital upgrade. I think ReadyTech is considered a very trusted provider. And certainly, we see further opportunity. I think the core aspect that ReadyTech is currently used for is called scheduling and listing. It's effectively the scheduling and the management of court cases across England and Wales in civil courts. There's potential to expand to further courts and potentially to solve further problems for them. But look, in terms of the medium-term target, there is really nothing sort of baked into that in terms of HMCTS. I think that would be upside.

Yes. And Wei, you saw in the half growth of 13% of Justice, bit of that growth in that contract is baked into that growth.

Yes. Okay. That makes sense. That's helpful. The other question is -- and I'm sorry if I missed this on the call, but just in terms of our pipeline, how much of that is coming through from the enterprise versus non-enterprise side?

Very high proportion. So I think that, firstly, the $13.5 million is all enterprise. The wider $37.5 million, 90%...

90% of the enterprise.

Of that is enterprise. There's certainly still SME, as we call it, new business come through. And particularly some of that SME business would be in the Workforce Solutions segment. But, yes, the vast majority of the growth is -- new logo growth is coming from enterprise.

Okay. It's enterprise, okay. And just last question for me is just related to the Council DA product, which you mentioned. That sounds pretty exciting. I'd like to understand just the competition landscape, who -- what kind of software solutions that might be displacing would, for example, Objective Trapeze be an alternate solution or who else plays in that space?

Yes. So look, I think many of the Local Government players, the classics or ERP players will have within their suite a planning application. There are also specialists in that space as well. And at this stage, I think that we obviously have a shortage of housing in Australia and one of the key aspects or reasons for that is understood to be bottlenecks within council to get these applications through. So that's what the technology uplift is designed to do. We already have a DA approvals module. There's a lot of human decisions that have to happen through very complex planning applications. This is designed to automate a lot of that through AI and effectively to reduce planning application approval time frames. So yes, very exciting addition and it's been very customer-led. We'll be working with some pilot customers. And the benefit, I think, that we had, as we call out in our deck is with 280 existing local government relationships, this type of new innovation that we'll be able to offer through our customer success teams to drive adoption of these types of new innovations.

Our next question comes from [ Lindsay ] from [indiscernible].

Yes. Just -- I've got a couple of maybe finer point questions on the shortlisted, preferred pipeline. So first one, like you said conversion is something like 80% to 90% of that. You said it's coming in the second half. So if I just pin that, let's say, 12-ish to drop in the second half, how much would be implementation roughly?

Yes. It's usually half, [ Lindsay ], of that will be about, give and take, $6 million will be implementation and the rest is associate subscriptions. That's probably the makeup. Yes.

Yes. Brilliant. No, I just wanted to confirm there wasn't kind of something strange going on.

No.

And then, so if I think about like you're kind of -- you're looking for mid-teens growth next year, which on your current revenue base is, $15-ish million, $20 million, something like that. If we just take that $6 million is dropping, I mean, it's going to be pretty late in the half. You're kind of entering next year with like a $6 million tailwind just naturally of kind of $15 million, is that the right way think about it, kind of what...

Absolutely. Yes. I think you look at around that $6 million tailwind, plus you have to put on that the NRR. As Marc mentioned, we expect our NRR going forward to be around that 104%, 105%. So if you put those 2 together, we have strong visibility for FY '26 around of that mid-teens nearly 9% to 10% at this stage based on just on that $13.5 million shortlisted predominantly preferred pipeline and the NRR. And then so the gap of 5%, 6% that needs to be converted from that rest of the conviction pipeline as well. So we look here and that's why we reiterated our medium-term guidance based on that very specific point.

Okay. Brilliant. And then just the $13.5 million itself, like is there a skew to any one division? Or is it -- it's all kind of relatively evenly split as we think about that?

Yes, there's a weighting towards Education. And I think that is Justice and then to a lesser degree, it's Workforce Solutions and Local Government. So yes, certainly -- and I think we've talked about some time, certainly bullish about the Education enterprise opportunities. I'd just say this again, we talked about the enterprise journey. The enterprise journey started earlier in Education and I think that's what we're seeing bear fruit now.

Okay. Brilliant. And just final question. I mean, I'll stick with the pipeline questions, but I'll close it up after this. I mean, you said you've done -- you've closed $7.8 million worth of deals in the half, but that's listed in the presentation. And the pipeline itself, not the high conviction, just kind of the general pipeline, has grown by $6 million, which implies like your top-of-funnel deal flow is coming at like $14 million, $15 million a half. And you talked about deals pushing to the right that -- it just kind of feels like things truly are taking longer, but like top of funnel there's no issue. Is that -- am I reading that right? Is the math on that right? Like just trying to get...

Yes. Yes. So [ Lindsay ], that $7.8 million is actually for calendar '24 and half.

Yes.

But your point on top of the funnel and going through the velocity is spot on. This time last year, we were talking about elements like funding for some of these contracts or to getting the right decisions. We find that funding has come back. We see some of these enterprise contracts in that we are shortlisted for, in some cases, means for efficiencies. We have some really good dialogues. So with the velocity that from -- that leads to -- from pipeline to leads is very strong. And that's why for the first time, we're calling out that the deals that we have shortlisted for this half because we remain very confident of that conversion.

[Operator Instructions]. Our next question comes from Richard Harrisberg from Canaccord Genuity.

We've talked a lot about pipeline already on the call, but just one quick one from me. You flagged some of those deals that had a bit of a delay in timing in FY '24. I think of those 4 deals, if I recall correctly, one of them was Avondale. Of the other 3, have those now closed or are those part of the immediate pipeline that you've been discussing?

Yes. Yes. Thanks, Rich. One of those closed in H1, which was a large workforce opportunity. And 2 of those now sit in the immediate pipeline, as we call it, which are in shortlisted and preferred stage. So yes, none of them lost and obviously shifted to the right. And there has definitely been a clustering of pushed opportunities into this H2 period.

Okay. Great. That's helpful. And then just quickly on the guidance. The cash EBITDA margin, you're previously hoping for a 100-basis point expansion FY '25, now sort of flat. Is that fully a function of just some of the lower performance in the Government segments or is it also a function of the slightly higher sales and marketing spend and pursuing deals on that front?

Yes, Richard, it's former. It definitely goes straight to the underperformance in the first half for the Government sector. But we -- as we have said in the past, we believe we are fully costed to deliver the future pipeline growth. We don't see any incremental costs coming through above the margins. So it's predominantly linked to the underperformance in the Government sector.

And ladies and gentlemen, showing no further questions at this time, I'd like to hand the floor back over to Mr. Washbourne for closing remarks.

Yes. Thanks again, everyone, for joining. Thanks for all the great questions. And just finally to say, we look forward to further interactions across the coming weeks. Have a great day, everyone.

And that does conclude our conference for today. We thank you for participating. You may now disconnect your lines.