Tribe Property Technologies Inc. (TRBE) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Tribe Property Technologies Fourth Quarter and Full Year 2022 Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Shobana Williams, Vice President, Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Thank you for all joining us today. On our call today, we have Tribe's CEO, Joseph Nakhla; and our CFO, Jim Defer. Today, after market close, Tribe issued a news release announcing our financial results for our fourth quarter and year end of 2022. This release is available on Tribe's website under the Investor tab and is filed on SEDAR profile. Before we begin, I would like to remind you that our discussions will include forward-looking statements that are based on management's current views and assumptions, and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements that is appended to our news release. Please review our press release and Tribe's reports filed on SEDAR from various factors that could cause actual results to differ materially from the projections. In addition, reconciliations between any non-IFRS measures to their closest reported IFRS measures are included in our earnings release to the Canadian securities regulators. Please note that all financial information is provided in Canadian dollars unless otherwise noted. Following prepared remarks by Joseph and Jim, we will conduct a Q&A session, during which questions will be taken from analysts. With that, I would like to turn the call over to Jim, who will review our Q4 and year-end financial results. Jim, please go ahead.

Thank you, Shobana, and good afternoon, everyone. Despite the market challenges, Tribe once again delivered strong financial performance in the fourth quarter and in fiscal 2022. We delivered a strong comparative quarter revenue growth. Q4 '22 revenue was a record CAD 4.75 million, an increase of 18.8% compared to the CAD 3.99 million reported in Q4 of 2021. Gross margin for Q4 was CAD 1.81 million or 38% compared to 1.76% -- CAD 1.76 million, sorry, or 44.2% in the fourth quarter of 2021. Adjusted EBITDA for Q4 was an outflow of CAD 2.09 million compared to an outflow of CAD 1.53 million in the fourth quarter of 2021. In terms of fiscal 2022 highlights, annual revenue was a record CAD 17.81 million, an increase of 13% compared to the CAD 15.83 million for the year ended December 31, 2021. Gross profit in 2022 was CAD 6.93 million, 38.9%, a decrease from CAD 7.51 million, 47.4% in 2021. The decrease in gross profit was a result of the addition of service delivery personnel in advance of new property management contracts that were delayed due to supply chain issues of our customers and the inefficiencies associated with the transition of acquisitions. Adjusted EBITDA is a measure we feel more accurately reflects the company's cash flows. For the year, it was an outflow to CAD 8.18 million compared with another flow of CAD 4.16 million in 2021. The company has increased costs associated with being a public company and continues to invest in building on its technology platforms and its people to better prepare for anticipated organic and acquired growth. Please refer to the company's discussion of operations in its MD&A filed on SEDAR and our press release of today for further details on how we calculate adjusted EBITDA. Q4 business highlights are as follows: in Q4, we launched our digital marketplace, Tribe Home market for our communities, which is accessible through our proprietary platform, Tribe Home. Our digital marketplace leverages group buying power to provide deals on services and products such as insurance and groceries, curated for geography and building type. During Q4, we also partnered with EnerSavings Solutions Inc. to offer custom energy saving solutions such as EV charging stations, HVAC solutions and LED lighting to our buildings across the country. Just after the quarter ended, we completed the acquisition of a portfolio of strata property management assets from PCI Warrington Management in British Columbia on January 5, 2023. This acquisition further strengthens Tribe's property management services across the Greater Vancouver region of British Columbia. We also, in Q4, announced the nationwide deployment of a product VendorPM to support Tribe-managed communities across Canada, as Tribe continues to digitize property management services across the country. And finally, in the quarter, we were recognized and awarded as one of the fastest-growing technology companies in Canada and in North America as measured by the 2022 Deloitte Fast 50 and the 2022 Deloitte Technology Fast 500 programs. As of today, we have 21,207,516 common shares outstanding. Please refer to our updated corporate presentation on our website for further details regarding our capitalization. Joseph, I'd like to now pass this call over to you. Thank you, Jim. Good afternoon, everyone, or good evening. We've had a great, great year. And I'm happy to walk you through some of the key areas and key achievements our staff and our team have been able to accomplish in '22. I'll quickly start by reminding some of you who are new to our company, but what it is that we really do, we are one-stop alternative to traditional property management, essentially any residential community in Canada now regardless of the footprint size and presence, whether it's a rental community and/or a condo corporation or strata as we call it in Western Canada can choose to have a traditional property management company manage it to affairs or it can choose our company that has a tech-backed services solution. We digitize the community. We look at every single one of these thousands of affairs of the corporation or the building and actually ensure that our technology does the heavy lifting supporting our wonderful staff that is doing the work required to ensure that these communities are taking care of. This includes tools and technologies associated with homeowner accessibility to their new condo or information about it, manuals or deficiencies and warranty items as well as things such as digital transactions with any of our partners that we bring in for people to purchase products and service associated with their home or their living needs. This also includes the full community digitized whereby through your phone, you can book, manage and can get access to documentation, participate in the democracy that is required for this community to be managed by way of voting and polling. We also have an AI platform that allows us to benchmark the performance of each one of those communities based on every single one of their spending line items to see how they're doing compared to other communities similar to them. And overall, we are a licensed property management company across the nation for both rental communities and condo corporations and strata communities, whereby we ensure that these communities with the hundreds of millions of dollars of spend annually are on the right side of the Real Estate Act. Quick highlight of Q4, as indicated by Jim, we did hit a new record quarterly revenue for ourselves here at CAD 4.8 million. I'll be breaking down how we make our money, essentially, the revenue streams. We continue to start to see very, very big revenue growth. It was 502% that allowed us to exist as a top 50 company in Canada. This is over 4 years, 2018 to -- 3 years 2018 to 2021. We expanded our M&A funnel, one way of our growth, which I'll be breaking down here is obviously M&A. We are very active. We've done 3 transactions last year. We're at the till end of the year. So Q4 was a very busy time for us. And we continue to look for property management, traditional property management companies that are healthy, that are accretive to our model and we not only just make the acquisition, but we integrate them into our services. We put all of our software and solutions in there, and then we improved the gross margin by way of applying a lot of the things that we've learned from the 11 transactions that we've done to date. We continue to grow our partnerships. Partnerships is our way of bringing in great best-in-class service providers, some are digital, some are actual physical service providers that leverage the group buying power of our footprint that's currently national with a significant number of residents live in our communities. The growth highlights are obviously our revenue line item, 11 acquisitions to date. In 2022, we did secure 80 management agreements. This would be agreements with either brand-new communities or existing communities. And then we also have 22 construction projects that are fully using our Tribe Home Pro. So this would be developers that are actually in a project that are using all of our solutions to ensure a completion using our technology for all their deficiency management and QA for all the different crews that they're working with right through to completion, whereby they handover the application to the homeowner and manage the full handover inclusive of walk-throughs, warranty items, digital manuals and so on and so forth, booking the elevator in terms of when the move-in date is. 11 new property developers' relationships, so this basically means, not only did we secure a lot of projects, but these are 11 brand new real estate developers that we did not work with before prior to '22. And this deal or agreements that we do with these developers don't tend to be for one project, they tend to be for multiple projects over the next 4 to 5 years. And then we've also added 18 partners, these are digital partners to be added to our platform, which is Tribe Home, which is the marketplace essentially that we've built that allows every one of our homeowners based on the geography to identify local partners of ours that can give them a special deal that leverages the group by power, where people can actually directly transact with those service providers on our platform. A new addressable markets, a new study just give out -- updated our previously data -- set of data that was from 2018 and I had been telling any of you that were listening -- that would listen that the addressable market, I believe, was between CAD 100 billion to CAD 110 billion, while I'm glad to have been proven right. This is purely on the condo on the rental side. That's CAD 120 billion -- CAD 110 billion of property management services in the market in Canada and the U.S. The key there is to remove the actual real estate transaction, the real estate sale from that number. So actually, that number does not include that, does not include transactions, real estate transactions. It also does not include any work a homeowner does in the 4 walls of their condo or a landlord does in the 4 walls in their units. So this is just really the property management annual spend in North America. It's a tremendous number. This obviously represents approximately just on the condo alone, 358,000 communities with residents of 75 million just on the HOM condos. On the rental side, there's an additional 100 million Canadians and Americans that live in rental communities that require management of some sort -- some are self-management, some are obviously institutionally managed. And the number continues to grow in terms of the -- what we call assessment, which is the dollar amounts that are being spent annually. And you'll see a smaller number of CAD 2.9 billion of property management software market growth -- worth of growth. And the reason I bring that up is because we are really at the early stages of our industry to actually take on technology. And we see that in all the -- many of the acquisitions and the companies that we partner with are just still seeking somewhat many would argue early stages of digital or digitization of the industry. So the opportunity still continues to be greenfield in front of us. We make money through different -- multiple revenue streams, 3, we categorize into 3 different areas. One is our software and service recurring revenue. This is our sticky revenue. We call that the MRR business. The monthly recurring revenue is essentially us given our communities a flat rate per home in terms of dollar per month, what we charge. And that includes all of our software platform. The second bucket is our transactional revenue. This is when -- once we are managing a community, the homeowners and the community, councils are i.e., the HOAs or the condo corporation, interfaces with our platform and requires to do different things. And those transactions think of them in our transaction really are separated from the monthly recurring revenue and those transactions, there's literally hundreds of them can vary depending on the time of the market, the busyness of the market in terms of the real estate, how active it is, for example, if you need to sell your condo, you need to interface with our platform, download historical data and get some forms. So the real estate transactions are slowing down or has slowdown as we've seen in the last 2 quarters in the market, then we'll have less transactions there. However, when there's rental activities and we -- a landlord is using our platform to help them find a tenant, we make a percentage, and we do have fees associated with activity of bringing in a new tenant in there. So really, the market varies slight seasonality that exists in those markets based on the activities in the city. The third bucket, which is our youngest, yes, arguably, most exciting bucket by way of gross margin is our ability to allow our homeowners and our buildings that we manage to interface directly with service providers that are selling really interesting products and services directly and actually translate the lucky with them on the platform. And we disclosed and we generate revenue. The revenue profile there varies, sometimes it's transactional. So we'll make a percentage of the transaction. Again, we'll disclose the homeowner. Sometimes it's recurring. And then sometimes, it's a loss leader, meaning it's a small revenue stream for us. However, we do think it's a really greater value for our homeowners and the buildings that we manage. Summarizing where we are in terms of our revenue, as indicated earlier, and you'll see in our press release, you'll see that we've achieved CAD 17.8 million in revenue this year, which is again, a record for our organization. But on the right hand side, you'll see an important graph and an important KPI that we manage, which is how much revenue we generate per building per customer of ours. And you'll see in the last quarter, we were able to pull up our revenue per customer. And that's very traditional for us. You'll see -- first of all, it's a record for us. We've never been there. But more importantly, you'll see it's also a bit of a lift from the quarter before. The function there is essentially is that when we make acquisitions, we often purchase contracts that are generating less revenue per customer than we originally have. And there's multitudes of reasons behind that. However, once we take on these relationships and we actually deploy our technology, illustrate what I would argue is a much higher touch and a greater level of service. The resulting opportunity there allows us to generate more revenue per customer. In addition, we do not win business on price. We do not attempt to be the lower cost -- a lower cost option in the market. And despite what a lot of people think of that strategy, it has served us well, and you'll see our Q4 numbers in terms of lead generation and revenue. And it's simply because we do not feel that there is a need from a price elasticity to be at a low price, whereby we cannot resource a community properly and manage and service it properly. Most people do not know that less than 10% of your maintenance fees when you live in a condo corporation tend to go towards the property management contract. So what that really means is, 90% of your maintenance fees need to be managed and handled properly. And if you can go and get the lowest service provider at a much lower price, perhaps than tried, but they really don't do a great job with 90% of the monthly budget, then that's a problem. And there's lack of transparency and issues associated with that. So this is one of the main reasons why I've been heartened from day 1 that I do believe service will prevail here, the quality of service, transparency, digitalization, the ability for people to get answers to their questions with accessibility to a lot of data and information at the fingertips through our application is going to be the winner in the space, and the data proves that. From an M&A point of view, we continue to be very, very active. Again, we only announce deals that are closed. We do not announce MOUs or LOIs or activities in that space. And we are very, very active. It's no surprise that a lot of our activities in that space are around traditional property management companies that we look to acquire. We put our enhanced hardened IT infrastructure in there. We digitize all the service delivery and the assets and the building. We improved the profit margins by way of ensuring that the service delivery is at a high level, but also there's a larger number of portfolios that can be managed through our accounting systems. And then obviously, we rebrand if this is a new market for us. We rebrand the existing company that we purchased. But if it's a new market for us geographically, we actually go from essentially ensuring that the brand is known to essentially go on the offense in terms of generating than everybody in that market know that as a new provider here that just acquired an existing company, and we have a longer list of services that we can offer, and we start generating leads in that market and start winning market share there. We wake up every morning thinking of 2 main things, both are associated in terms from a growth point of view, obviously, taking care of our customers and ensuring we deliver wonderful service for them that's driven by our very small number of monthly and annual churn is proven by. But in terms of growth, we really want to increase the number of homes that are leveraging our technology and service, and we want to add more and more of the ability for people -- for people to transact with us and actually be able to purchase different products and services that are actually available on our platform. And that function really works this way. So I spoke about from an M&A point of view, our activities there. This is the numbers for our Q4 in terms of our ability to generate leads. We continue to increase the number of leads. You'll see here our national campaigns are yielding us a large number of leads with a very, very active 440 leads that we got a lead with the community seeking our service. And we've never ever, ever, I'm so proud to say, we've never come close to hitting a win percentage of 50%, which means 50% of when we actually offer a proposal to manage a community. We actually are winning that business. This is -- traditionally, it was between 25% to 30%, and I was incredibly proud of that because, again, we are never in a deal due to price. So the fact that we were actually able to improve that number to 50% in Q4, it's just a massive kudos to our team and our reputation in the market. And you also see our cost per lease continues to come down. And again, a lead is the community that comes to us and it allowed us to qualify the community based on footprint, size and it's a monthly and annual spec. So in an overall summary, again, a lot of traditional property management companies will operate based on the model that you're seeing on the left hand side, there's slight differences between East and West in Canada. However, the blended average is pretty similar. You'll see that traditionally, they generate about CAD 20 per month plus CAD 2 operational transaction. Operational transaction is essentially what I referenced earlier of in-app transactions once we are managing the building, the way people interface directly with our platform for case of selling or wanting to rent their location or receive forms or fill enough specific documentation. There's a long list of tens of items that we generate revenue from transactionally. And here's our numbers for 2022, you'll see that we have on average, CAD 31 per home and CAD 4 operational transaction and digital partnerships revenue. And the table there speaks to and block the actual numbers that actually we generated, CAD 31 per home a month and CAD 4 operational transaction and in gray is examples of products and services that we are bringing on board that actually illustrate how we can continue to add more revenue per home, depending on our success on our digital marketplace success, which is a good segue into some of the activities. Again, I may have shared with you -- I will have shared with you, and you'll have seen a press release speaking to the fact that we deployed a marketplace for product Tribe enabled buildings. Essentially, that is a marketplace that is very focused on hyper local or, in some cases, national service providers, whereby you as a homeowner or qualified to interface to leverage a special offer available to you. We continue to invest into that platform, and we launched essentially a 2.0 version of it. We went from pilot to a real full system. And that engine that we pushed out in Q3 last year has been up and running now. It's being pushed in all of our communities, and we're starting to do more aggressive essentially knowledge and awareness programs in our buildings. And what's best about or what's best known about our platform now is the fact that it is smart enough to recognize that you may have pets or you have kids or where your geography is or whether you qualify for some of the offers based on the area that you're in, if you're a rental building versus a condo building. And that was the big investment we've been, I would say, I highlight that as the biggest investment we've made in 2022. There are some examples in Q4 of the partners that we brought onboard. And for those that have been following us, you'll see that we've added a -- continue to give an update on, what I believe is a wonderful partnership and a wonderful way of illustrating the power of our marketplace. Again, 60% of condos in Canada are not insured or underinsured. I'm not in referencing specifically the home itself, not necessarily the building. All buildings are insured I'm talking, specifically the condo insurance for the home itself. And you'll see here, there is a partnership we've got with Apollo, which is one of 3 different insurance providers that we work with, whereby Apollo allows people to purchase directly condo insurance from our platform by passing on with your permission as a homeowner from information to allow them to give the homeowner a policy pricing an echo. We, again, had 47% conversion rate. Again, it's a tremendous number and that illustrates the power of this. You also see that we've done an interesting partnership with EnerSavings. It's our first step and [indiscernible] into really building a group of services and products for our homeowners and in many cases, are building to lower the carbon footprint in terms of energy spend. We've got quite a bit of interest from our communities. It's a bit of a longer deployment simply because for the sake of stick something as basic as LED conversions in a community. Once they sign up, it takes time for, of course, to replace all the LED systems or replace all the lighting systems in the common areas with LED and then obviously start generating revenue share with the building based on the savings there. So we've got quite a bit of interest in many of our products. We've already signed some deals with a number of our buildings with some of these products and services. You'll see us be very, very active in this. You also see us do very active in areas like the EV charging, which is a massive problem in Western Canada right now that actually had some elegant solutions that we've identified that we're working on from an engineering point of view. But you'll be a lot more -- you see a lot more activity of this in 2023. As mentioned earlier, our cap table has not changed really much in 2022. The biggest activities, obviously, was the large raise that we did early in January of 2022, still very, very strong institutional and insider ownership of our organization. And we continue to -- through the tough markets that we're in right now, we continue to identify areas to get our name and our story out in front of more and more retail buying. So overall, maybe I'll end on a couple of different thoughts. From our M&A funnel, we are seeking more and more transformational types of transactions, and we're seeing quite a bit of appetite in the market for those types of transactions. I will say geographically, look for us to be more active in the Ontario market. We really like the GTA market, and we think we're underrepresented there. The data shows the interest of communities in that market of a product and set similar to ours. We have a large number of developers in the GTA -- in the Greater Toronto market, whereby we think we have an opportunity to go out there and provide them with management services as well. So look for us to be active in that market there. 2023 is the year of -- identified that as the year of efficiencies. We love our footprint. We love the engine that's operating right now, both on the M&A side and on the organic growth side. And we also see tremendous opportunities for efficiencies to further strengthen our -- the company from a profitability point of view. And that was always the plan is to essentially strengthen our footprint nationally and ensure that everybody needs a service like ours in Canada and beyond can get their hands on our full stack of services. And now we're going to take advantage of our size to drive those efficiencies. And then finally, from an industry outlook, I had some quite a bit of time in our Q3 and Q2 calls, explaining some of the challenges, a lot of the developers were facing. I'm talking specifically about brand-new construction buildings that are completing that we already have contracted. However, we did not drive only drove maybe some software licensing revenue from it, but we did not realize full monthly recurring revenues due to the fact that they weren't completed on time or were significantly delayed. That trend continues -- continued in Q4, and it started to ease up right before Christmas, which was very untimely as you can imagine for anybody to be moving into a brand-new condo considering the logistics and the difficulties of again, things done around that time of the year. I'm pleased to say, Q1 and Q2 have been incredibly great. We have a large number of new communities that are closing as we speak and our hands are full and that will push right through Q3 and Q4 of this year. We will have a record of brand-new construction building completing and being added to our platforms and our service in 2023. We're very pleased with that. The real estate transactions market itself, which does not affect us directly other than the transaction associated with people exchanging hands or condos being passed on through our retail market. It continues to be a touch soft. Everybody on the call will probably be very aware of the interest rate activities that are occurring. I would say that what we're seeing from a condo, a brand-new construction point of view is, we're seeing a slight slowdown in initial break -- ground break breakthrough. So we're seeing some of the developers maybe waiting a quarter or 2 before the break around and start incurring the interest on the construction. But the ones that already broke ground and that would be the overwhelming majority of projects in Canada are just moving forward with incredible speed. So we don't really foresee the effect of that to occur for another 2 to 3 years. And I will argue that by the end of this year, by the end of 2023, you'll see those interest rates and construction loans come with inline to allow a lot of these new construction products to move on. On the rental side, we're seeing significant movement of counties, cities and government and provinces approving brand-new rental purpose buildings coming into the market to solve some of the housing problems that we're all familiar with. And we're getting a ton of interactions with a lot of the institutional landlords that we work with to ensure that we put those budget properly and give them using our data stack information about what these need to be like 1-bedrooms, 2-bedrooms, 3-bedrooms, whatever the market that they're building in requires. So we're seeing quite a bit of activities in there, and I do not see that slowing down at all. If anything, I actually anticipate a really interesting trend that will become more mainstream in terms of telling the story of commercial real estate being converted to residential real estate. It's a loaded thought, but it is something that is being discussed heavily with a lot of commercial retail real estate not being used fully as you can imagine, due to what we've all learned post-pandemic and hybrid work models and that being space that could be potentially used in many cases for -- to solve some of the residential living issues that we've got. So the space is incredibly healthy. The company is very, very healthy, and I'm incredibly proud and thankful for all the support we get from our big shareholders as well as our staff and our executive management team that have done an incredible job, navigating the company through not only a pandemic, but also some difficult times with significant number of acquisitions that we've made in the past couple of years. With that being said, I will open it up for any questions.

[Operator Instructions] The first question comes from Fred Blondeau from Laurentian Bank Securities.

Just in terms of M&A opportunities, Joseph, it looks like you remain active in 2023. How would you currently qualify the appetite from potential vendors to actually transact and I guess, the appetite from these vendors for Tribe's paper. How would you qualify it today? And how does it compare to 2022 or 2021?

Yes, that's a great question. Thanks for that, Fred. I would categorize the appetite is there. The reputation of Tribe, especially when it does, when we do transact or at least approach somebody in a market we exist in is very strong simply because we can see it and it's inevitable that we're -- our market share in their backyards is essentially continue to grow. So that has really helped. And I will be honest and direct and say that in terms of our appetite, I'm talking Tribe's appetite to actually give Tribe paper varies depending on the opportunity. And I'll be very specific here. The profile of the entrepreneur is very important for us. So if we're looking to go into a market whereby -- we think it's a tremendous acq-hire opportunity. We really like the company. We like the DNA. I also like the DNA of the entrepreneur that we're looking to bring onboard, we will be willing and wanting to give what we think is an incredibly undervalued paper of the company to that person simply because we can see a direct linear line between improving the company's financials as well that will also be reflected in our stock price. And in some cases, the profile of the seller may not be there. It could be age, it could be desire, and we will structure the deal there. But I will remind everyone that we have 3 currencies. We obviously have cash, we have stock, but we also have the currency of senior debt. And despite the interest rates and where they are, we're very, very fortunate due to our track record to have attracted interest from the senior banks to look at our deals and be shoulder to shoulder with us in terms of making some senior debt available to us if needed. We haven't needed it yet, but it's nice to know that it's available for us as we go.

That's totally fair. And then moving on to operations, more specifically in terms of the cost structure and ultimately, the margins, I guess, what should we be expecting for 2023?

Improvements, Q4 was a good step forward towards bringing our gross margins, where we would like it to be, which is the north of the 40%, we think we can hit the 40% -- mid-40s with our gross margin. But you will see more aggressive movement towards creating efficiencies with all of our operating businesses. We don't bore the Street too much with some of the activities that are occurring. We're working on 2 major projects of centralizing all of our accounting service delivery on one software platform that would make it the -- perhaps that only second national player in the country that has actually been -- that will be able to generate financial statements for all of our communities and out of one central place, which will generate significant efficiencies for the organization. But there's also multiple areas of where we're starting to see improvements. So you'll hear more about that in the next while here as we go. But it's not about missing on us, but this is, as I mentioned in my earlier remarks, this is the year for us to improve our profitability profile.

That makes sense. And then last one for me, if I may, Joseph. Just looking at the condo and multifamily development sector, and you mentioned it looks like you're pretty confident on the completions. But how about the development starts? What's the dynamic today? And how should we be viewing the starts in 2023?

I think 2023, you'll see a slower start profile that we did in the first 6 months of 2022. It's not a surprise and makes sense that the well-funded developers who really, really strong balance sheet, massive track record and, in some cases, have sold -- presold a lot of their inventory are going to move ahead and continue, they're not going to be affected. The large, very strong REITs that are starting new projects are going to be fine. Those are not going to be slowed down. I think it's a smaller profile developers that may have had a much higher cost associated per square foot in terms of land cost. I don't want to go to the market now and tested to see what their presales will look like. Those are slowing down. And thankfully, we have 100-plus relationships with developers that we work with across the country. So we have all the above, different versions of it. But that's what I described, I would say, from my point of view, probably will be the trend you're going to see 2023.

Do you see any risk to try it for the second half of the year in terms of -- I guess, in terms of organic growth for you guys or that will be compensated by other segments of your business?

Yes. No, I honestly do not see any concerns from a market cycle -- real estate market cycle at all about our business for the next like 5 years. I just don't see anything. I still go to sleep with the biggest challenge being recruiting great property managers if anything regulation of illustrating that licensed property managers are more and more needed as we stand, Ontario is operating. I mean, you don't want to scare anybody, but it's operating with shortage of approximately 1,000 licensed -- short licensed property managers and BC is operating between 350 to 400 short. So add the fact that what -- it's all points towards buildings, communities need tech-backed services, whereby they can start doing more and more for themselves instead of everything being human-driven. And that's just all really why you saw in Q4 a massive inflection and increase in our closing of deals, and you'll see that will continue in 2023. So really, I don't see any concerns at all of our business from -- it's a cash business, it's a steady business. It's always needed and you'll see us just accelerate M&A activities.

The next question comes from Kiran Sritharan from Eight Capital.

Now to start here, I'd like to unpack some of your comments there. But looking at cost optimization for the year, when you see the most leverage? And also, I guess, dovetailing this, like how is the headroom with the current property managers and sales staff and any broader commentary on hiring plans would be appreciated.

Yes. That's great. So one of the specific unique thing you're referencing, Kiran, obviously, is that we're a slightly unique company in that we put a lot of companies treat as G&A. We put that -- a lot of those items, including our compliance, licensed people and license and the property accountants and digital services, all of that we put in our cost of goods. So point well taken when you say, how are you going to impact that? And the way we see it and it's already happening in end of Q1, we started to -- to start a lot of these initiatives. We needed to invest on a couple of fronts. One is, when you're a national player, you have to have national compliance. You have to have license people that can operate in multiple provinces and guide our younger staff that's coming through that's doing the management services for us across the different provinces and the different requirements that is needed there. That infrastructure investment needed to be backfilled with business. And 2022 was the year where we went out, extended our fishing that potential into all those markets. And now the business in those markets is starting to come in to help us lower our cost of goods there. And then I was talking earlier about creating one centralized accounting service delivery model for us, which is very, very unique and very difficult to do. And we've made that massive both financial investments in terms of software engineering and professional services to integrate these with our platforms themselves. For example, when a building is operating and we generate financial statements for them, these financial statements and all their financial affairs are occurring through -- or being managed through third-party software accounting systems. And every time we make an acquisition, these companies tend to be doing that either in spreadsheet and/or it's different or, in some cases, maybe an older version of a software platform. So we're taking all the acquisitions we've made, all the buildings that we have on our platform and actually centralizing them on one platform of accounting systems and interface it and integrated directly with our platform that the homeowners and the building managers and are faced with -- that is a massive undertaken. We're weeks away from seeing the results of that. What that will yield us is really efficiency creation across all of our platforms in terms of our staffing, in terms of even the digital services that we incur every month. Like you imagine taking all your digital transaction from a building and putting them on different systems, whereas right now, you can digitize it all and you can actually even allow AI to run right through the -- all of your payables and receivables and actually have them all automated in terms of going into your platform. We still need human intervention, obviously, but you can do more with less. And that's important for us because the goal for us isn't just to -- we're not all about cuts or laying off people. Really, the key for us is, we want to actually be able to take on a lot of the business that wants to come to us without having to make higher percentage hiring to bring these buildings onboard.

Appreciate the color there, Joseph. Moving on, I'm trying to unpack some of the M&A commentary. We have seen consolidation and investment activity by peers in your focus markets. Can you comment on some of the valuations you're seeing in the broader market and also how the competitive dynamics are evolving?

Yes, for sure. We have seen some bigger transactions that occurred in the Ontario market for service, the one that's most known publicly is its first service acquisition of Crossbridge, which was a Brookfield Asset Management asset. But there is no public disclosure of the considerations for that deal. So we have -- everybody has their own theory, but certainly it would be inappropriate for me to comment on it here, I will tell you from our view, we continue to buy in the profile that we really, really like, especially with entrepreneurs that we want to ensure that are working with us post close and allowing them to become a pillar of our organization grow in the markets we're in. We've seen as little as the traditional 0.5, 0.6 and as much as the 1.2x revenue in the traditional space, depending on where you are and what you are in the market and your profitability profile as well. So it's a wide net, it's still reasonable based on your ability or our ability, in this case, Tribe's ability to look at it you early and identify the efficiency opportunities in it. But it's not a perfect science yet in the industry simply because we tend -- it seems to be the most active players in the space. And because of our profile and in terms of -- now we've created a history of being able to not only purchase these companies, but really take good care of the employees and the customers. We seem to be at the table often alone, and that's simply because the entrepreneur and/or the seller often is thinking, okay, so I may get a little bit more elsewhere, but it's the company that's going to really take care of the customers that have had for years and take care of my employees.

That's helpful. So one last question here. And it's more on your product suite outside the Tribe Home. I'm just curious what the feedback has been so far on the marketplace launch and now that it's across all your customers? And also, how the efficiency tools tracking there, especially with the recent developments with Tarion in there. And I leave it there.

Yes. Those are great questions. Our digital services continues to grow, we've been very active and again, do a lot of activities in that space. So we don't tend to co-press release about every single one of those partnerships. But I think, I'll say high level and I speak broadly, I think you're going to see us be very active in allowing our communities to leverage the significant, tends if not allow, it's more like hundreds of millions of dollars that the operating capital that we manage. We're working on a really cool product that allows, when you're in a small organization or a small corporation, you've got an annual budget of CAD 600,000 or CAD 700,000, you can't really go there and negotiate with financial institute a great rate and/or ability to even generate improvements on that. But with organization like us with the national footprint and managing for the sake of this conversation, CAD 150 million to CAD 200 million of annual operating capital when we have these communities, we can really negotiate great products. So we're making some progress, and we'll be making some moves in that space that will be significant, both for our communities and also for our bottom line. The adoption of many of our products, as I mentioned earlier, like insurance product has been great. A lot of our infrastructure partnerships have been adopted by buildings that are just not up and running yet, but a lot of the developers and/or strata councils have made commitments to purchases these products and services and add them into their community. So that revenue will start showing when these buildings are fully outfitted and/or up and running. So that's been really, really active for us. And forgive me Kiran, what was the second part of your question?

Just curious with the efficiency tools in Tarion and how that [indiscernible]?

Yes. Thank you. That's actually we are having in 2023, our best year in terms of developers adopting our efficiency tools. We had put a press release earlier and the efficiency tools that we've got -- for those that are not as clear and aware of what that product does is developers use -- digitize the whole community before it's built. And they use our platform as the building is going through different phases to manage all those efficiencies right through to completion when they're doing the walk through with the homeowner to identify warranty items. So it's been one of our pillars strength as a company, and it's been a product that we've deployed with tens and tens of thousands of communities -- of homes across Canada. And 2023 so far has been our best year yet in terms of adoption of that. And we had announced a full integration with Tarion, which is the fancy we have seen Tarion is obviously Ontario, largest warranty, oversized company for any brand-new construction that's occurring. So if you bought a condo in Ontario, you have -- Tarion is essentially your consumer protection engine. And we are fully integrated with them. So developers that use our platform don't need to run in parallel all the efficiency management through the different systems. It's just entering into our system and it's automatically manages right across the different platforms. So it just makes life so much easier for the homeowners and the developers, which has yielded us new relationships with developers in Ontario that we did not have before.

[Operator Instructions] The next question comes from Suthan Sukumar from Stifel.

I want to touch on organic growth first. I think it was impressive to hear that your win rates have almost doubled since the last update. When you think about your organic growth -- when you think about the organic growth that you expect to see this year, how much of that do you expect be driven by continued organic community wins versus new builds coming online? I'm just kind of curious, is that strength going to be skewed over to the organic community side, just given the momentum that you're seeing there? Or is it different?

That's a great question, Suthan. I had mentioned earlier, and it sounds like you're reflected on that comment where I said, I think we're going to be very, very busy in delivering brand-new communities this year. So we're anticipating by the end of Q4 of this year to deliver almost 23 new communities that are brand-new construction. So I would venture to say that we're going to probably be in the neighborhood of about 50-50 in terms of number of communities. We tend to generate more revenue per home in new communities just because they're adopting all of our digital services earlier because you move in everything digitized versus an existing community that's coming from a traditional company, where they're not accustomed to having an app and then the adoption rate is slightly slower. So I would say revenue-wise, I wouldn't be surprised if it's in the 60-40 coming in, in favor of brand-new construction. But overall, I think we maybe in the number of communities will be in that 50-50 range. And that's outside of just -- I don't know you're aware of that, but just to clear to everybody else, that's outside of any M&A activity.

Got you. Okay. Great. Perfect. And then you -- in the commentary, you talked about this year being a focus on efficiencies, but tried to still an early stage growth firm. Can you speak a little bit about what your priorities are for investment going forward and trying to curious how that's changed? And how are you thinking now about a timeline to breakeven?

Yes. I mean it's not a surprise to all of our audience here and everybody in the market that while growth is always appreciated. And of course, we've built this company because we believe we see a direct path to be, I mean, already in terms of footprint and we were only 1 of 3 national players now. But in terms of size, we're in the top 7, top 8, we think we can -- we also see a direct path to being on the top 2 or 3 in terms of our operations in Canada alone without us making moves in the U.S., although we do have interest and significant -- and identifying significant opportunities there. But to go back to your point, we don't necessarily want to take our foot off the gas in terms of the growth strategy. If anything happened in the last couple of years, as I mentioned earlier, is we've set our footprint to be a national player. We want everybody in the big massive markets in Canada to know that drives full stack, drives all of our technology, whether you're a developer, whether you're an institutional rental landlord or whether you're a community that's smaller, that's looking for a good management solution. We are there for you in those big markets. We had to build that infrastructure there, and that was not cheap. And what we've done since existing in those markets is actually now we're going on the -- I call it, the offense of going out there and actually let in our reputation then our results and then our digital solutions speak for themselves to attract a lot of leads for us. And we will continue to grow in those markets on the organic side. We're very, very active. We've never been more active with brand-new construction, as I mentioned earlier, we'll continue to be doing that. On the M&A side, we're very selective in which markets we want to go in. I mean, we have a strong, strong presence in British Columbia now, and that's not -- we're not taking our foot off the gas, opportunities here, but we're certainly really, really focused on improving our presence in Ontario area, specifically in the GTA area. So you'll see us active there. So we're not taking our foot off the gas there, and we really like the assets that are available in that market. But as far as profitability is concerned, it's really all we're doing is, now it's time for that infrastructure that we've created to be able to add more and more communities and more and more transactions on the engine without us having to match that with the expansion of our footprint through people. So that's really what the opportunity lies for us. So you'll see that reflected in our cost of goods, as I mentioned earlier, is one of the good questions I think Fred asked earlier, you'll see a big move towards that. But you'll see activity associated with improvement of gross margin to be more imminent starting some in Q1 and mainly in Q2 and Q3.

This concludes the question-and-answer session. I would like to turn the conference back over to Joseph Nakhla for any closing remarks. Please go ahead.

Well, once again, I want to thank all of our shareholders and the analysts that have taken interest in covering us and telling our story. Amazing growth we've experienced in the last 3 to 4 years is really all underpinned by the -- that's record by our executives and our staff by great, great assets and entrepreneurs that have decided to join our company through M&A. And as I mentioned earlier, '21 and most of '22 was an infrastructure year, 2023 is really efficiencies year, still not taking our foot off the gas, when it comes to growth. However, leveraging the size that we have nationally will be the biggest opportunity that we've seen in Q2, Q3 and Q4 and beyond. So thank you again for taking interest in the organization. Thanks for following us.

This concludes Tribe's first quarter financial results conference call. A replay of this conference will be available until May 1, 2024, and can be accessed following the instructions provided in the company's press release issued earlier today. Thank you for participating, and have a pleasant day.