Urbanise.com Limited (UBN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Urbanise.com Limited Teleconference. [Operator Instructions] I would now like to hand the conference over to Mr. Saurabh Jain, CEO. Please go ahead.

Good morning, and thank you for joining us for the presentation of Urbanise's Half Year FY '20 Result. I'm Saurabh Jain, CEO of Urbanise. And with me on the call is our CFO, Simon Lee. The first half of FY '20 has been another important period for Urbanise as we continue to reposition the business to focus on the delivery of our multi-tenanted cloud-based software to strata and facilities managers. On today's call, I'll provide an overview of our half year results and our progress as a business before handing over to Simon, who'll cover the financials in more detail. I'll then conclude with an update on the FY '20 outlook before opening up to questions. This result marks the completion of my first year as CEO, and I'm very pleased with the progress we've made over the past 12 months. Turning over to -- turning to an overview of the first half FY '20 result on Slide 5. Total revenue was up 17.4% in the first half on the previous corresponding period, driven by a 33.5% increase in recurring license revenue. Annualized recurring revenue, or ARR, of $7.85 million for the month of December 2019 was 33.1% higher on pcp, driven by growth in lots and users build. We had a strong revenue backlog of approximately $1.6 million as of the 1st of January 2020. EBITDA loss of $1.29 million was 24.2% lower on pcp, reflecting our strong revenue growth and our stabilized cost base. Average monthly cash use was $218,000 for the first half, a decline of 33.3% on pcp. At 31 December 2019, we had a closing cash balance of $4.6 million following the completion of an institutional-led placement during the half. This placement provide us with additional flexibility and with a strong endorsement of the hard work we've done over the past 18 months to grow license fee revenue, rightsize our cost base and improve the management of our working capital. Slide 6 shows our strong performance, reflects our priorities over the past 12 months as we focus on driving recurring revenue and reducing our cash use. As a result, we're excited for the first half with growth in ARR and a robust backlog. Turning to our business on Slide 8. Our SaaS, Software-as-a-Service, subscription model is highly scalable and transferable across our global footprint. We currently operate in 13 markets and after entering new market when our customers -- as they expand. In the first half FY '20, 83.3% of our revenue came from recurring license fees, and our platform was used by 320,000 strata lots and over 220 -- sorry, 2,200 facilities users. Slide 9 highlights the unit characteristics that set our Urbanise apart from legacy in-house systems. And these include a broad product suite, intuitive user interface and mobile functionality. With our platform, customers can automate processes and workflows, reduce costs as well as respond to issues and deliver services in real time. The SaaS model allows for fortnightly updates so that new features can be delivered instantly across our customer base. Other key differentiators are the use of advanced AI and analytics as well as the development of the only integrated strata facilities platform, which we've rolled out in the Middle East. Slide 11 outlines the life cycle of our business from winning work to implementing and then retaining our customers. Our high customer retention reflects the quality of our account management and product as well as the continuous delivery of new features, which reinforce the stickiness of our product. Support also plays an important role, and we've recently invested to further enhance our customer support. Turning to Slide 12. Our facilities management platform provides multiple tools, which enable the delivery of services to property owners and occupants. And these increasingly depend on automation through AI, real-time visibility of the supply chain and advanced analytics. Mobile functionality is also a key differentiator, connecting subcontractors with facilities managers and replacing paper processes such as compliance and quoting. Within this sector, we have decided to focus on facilities management outsourcing companies because of an industry tailwind towards this segment. Slide 13 shows the network effect to facilities management where revenue growth as customers add clients and then require the subcontractors to use our platform. Turning to Slide 14. Our strata platform is a complete finance system for strata managers. We are the only cloud-based SaaS provider, and our competitors are legacy tech that still deliver CDs by mail. The growth drivers for strata are client expansion and the integration of third-party services onto our platform. Slide 15 shows our community mobile app, which is extremely popular with landlords and tenants. We found that once this app is deployed to tenants, the strata manager becomes an even stickier customer. Slide 16 provides a summary of the macro trends supporting long-term demand for our software. These include increased regulation and compliance requirements, which are driving demand for better system to improve the standard transparency and reporting to clients. The opportunity for market expansion is presented by the implementation of strata legislation in other countries that is similar to Australia, industry trends such as strata consolidation and the outsourcing of facilities management and growing demand for an integrated strata and facilities management platform in the Middle East, which is likely to be replicated in other markets. As a result, we believe Urbanise is well positioned to benefit from these trends given our multi-tenanted cloud-based platform, scalable operating model, multinational customer base and presence in multiple markets. In addition, the inclusion of third-party products and features in our platform provides our customers with further optionality. I'd like to hand over to Simon to go through the financials in more detail.

Thanks, Saurabh, and good morning, everybody. Let's turn to Slide 18, which provides a summary of the key metrics that underpin Urbanise's revenue growth. The table shows ARR which represents the annualized license revenue for the last month of each reporting period and is a proxy for annual portfolio revenue. It also shows that since June 2018, Urbanise has achieved period-on-period growth in ARR as well as in strata lots and facilities users. In December 2019, strata ARR was $4.66 million, which was 42% higher than June 2018. During the period, the peak implementation continued to progress, and it remains a significant proportion of our estimated backlog of $1.3 million at 1 January 2020. Facilities ARR was $3.19 million for December 2019, 2.6x higher than June 2018, reflecting new customer growth and a network effect as existing customers added clients and subcontractors to their platforms. The facilities backlog at 1 January 2020 represented 4 new contracts with an estimated value of $300,000. Slide 19 shows our profit and loss financial summary for the half year ended 31 December 2019 and the pcp. Urbanise adopted AASB 16 leases from 1 July 2019, and Slide 25 summarizes the impact of the new accounting treatment on our financial statements. As Saurabh mentioned, revenue increased by 17.4%, driven by the strong growth in license fees. Operating expenses increased by 4.7% due to higher IT costs, which grew in line with revenue and general cost inflation. An EBITDA loss of $1.2 million was 24.2% lower than prior comparative period. Depreciation and amortization was 18.8% higher due to the impact of AASB 16 and an increase in capitalization of development costs. There was no impact on our net loss from AASB 16 as a $49,000 reduction in operating expenses was offset by an equivalent increase in depreciation and interest expense. Slide 20 shows the performance of the facilities management platform for the half year to 31 December 2019. Facilities management revenue increased by 61.5% on pcp, driven by an 81% increase in license fees and a 19% increase in professional fees associated with the onboarding of new customers. There were over 2,200 facilities users built for the month of December 2019, which was a 76.8% increase on December 2018. The strata platform's performance for the first half is shown on Slide 21. Strata license fees increased by 16.1%, driven by the onboarding of new customers and the addition of new lots by existing customers. Lower professional fees reflected the inclusion of one-off development fees in pcp relating to the onboarding of a major client. As a result, total revenue was 3.1% higher on pcp. The number of lots built was around $320,000 for the month of December 2019, a 15.1% increase on December 2018. Turning to the cash flow statement on Slide 22. Closing cash at 31 December 2019 was $4.59 million. This included net proceeds of $2.2 million from an institutional-led private placement completed in December. Excluding net proceeds from the placement, average monthly cash used was $218,000 for the first half, a 33.3% decrease on pcp. Cash payments included $473,000 for capitalized development costs relating to the strata platform. There is no impact on net cash flow from the introduction of AASB 16. Since becoming CFO in July 2019, a key priority has been to deliver improvements in working capital. Slide 23 shows 2 components of our working capital: debtors and deferred revenue. Debtors reflects amounts invoiced and receivable by the business at the end of each period. Deferred revenue refers to amounts invoiced and advance to customers. Customers can be billed in advance on a quarterly and annual basis with revenue recognized over the appropriate period. The chart shows the net of debtors and deferred revenue over the past 4 half year reporting periods. And since June 2018, Urbanise has achieved the reduction in debtors and an increase in advance billings, shifting our working capital from positive to negative. This reflects the ongoing efforts to improve debt collection processes and the drive to increase advance billing to existing and new customers. The balance sheet on Slide 24 shows that at 31 December 2019, Urbanise had a closing cash position of $4.59 million with no debt. The improvement in our collections processes was highlighted by a 15.6% reduction in debt since June 2019. In accordance with AASB 16, a right-of-use asset of $252,000 was recognized in respect to rental leases. A corresponding lease liability appeared in current and noncurrent liabilities. Development costs have increased by 10.5%, reflecting the investment in the strata platform and automation of the customer onboarding process. I'll now hand back to Saurabh, who will finish with the FY '20 outlook.

Great. Thank you, Simon. Turning to Slide 27. The transformation of Urbanise's business model, which began in FY 2018, will continue as we remain focused on driving license revenue and increasing recurring revenue as a percentage of sale. The priority for the strata team will be the ongoing PICA implementation, which is progressing well. The facilities team will continue to drive organic growth from the addition of new customers and the expanding reach of existing customers. A disciplined approach to costs will be maintained as well as careful management of working capital to realize further reductions in average monthly cash used. Finally, we will continue to expand our reach within our key regional markets. During the second half FY '20, we'll be looking to build on our existing presence in Southeast Asia.