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

Good morning, ladies and gentlemen, and thank you for standing by, and thank you for your patience. Welcome to the Urbanise Full Year Financial Year '20 Results Teleconference. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I'll now turn the conference over to Saurabh Jain, the CEO of Urbanise. Please go ahead.

Good morning, and thank you for joining us for the presentation of Urbanise's full year FY '20 results. I'm Saurabh Jain, the CEO; and with me is our CFO, Simon Lee. Today, I will present the highlights of our FY '20 results and provide an overview of our business to those who aren't familiar with it. Then Simon will go cover the financials in more detail. Then I'll conclude with an outlook for FY '21 before opening up to any questions. Turning to our FY '20 results. I'm pleased with the progress we've made across our key metrics in the 18 months since I became CEO. Total revenue was up 19.5% compared to the last year, driven by a 28.3% increase in recurring license revenue. EBITDA loss of $2.37 million was 33.1% lower than last year due to our strong revenue growth and state-wise cost base. Underlying average cash used was $154,000 for the year, a decline of 33.7% from the prior year. Closing cash was $4.54 million, which includes a net proceeds of a $2.2 million from the institutional placement in December 2019. Our ARR, annualized recurring revenue, at June of $8.16 million was 14.4% higher than the last year, driven by strong growth in strata license facilities users. Our revenue backlog at the first of July 2020 was approximately $1.8 million, of which approximately $1.3 million related to the PICA rollout, which is progressing to plan. These results represent the focus on driving revenue, maintaining cost discipline and delivering significant working capital improvements. Turning to Slide 6. FY 2020 was another transformational year for Urbanise as we continued the PICA rollout. Queensland went live in August, and we expect to complete the project in FY '21. The economics of our business model has allowed us to move to a negative working capital, where our customers fund our growth, reducing our cash requirements. A little thing called COVID-19 happened in the second half. While we've noticed some delay in decision-making, to date, there's been no material impact on demand for our cloud-based service. This highlights the mission-critical nature of our products and the resilience of our subscription model. It also reflects the essential nature of the industry that we serve. Urbanise now operates in 15 countries. We often enter new markets as our customers expand there. In FY '20, 81.4% of our revenue came from recurring license fees, and our platform was used by 331,000 strata lots and 2,230 facilities users. Slide 9 highlights the unique characteristics that set Urbanise apart from legacy in-house systems. Our SaaS subscription model is a cost-effective offering with fortnightly updates [ split ] across our customer base. Urbanise has broad product suite with mobile apps that increase the stickiness of our customers. A key benefit of our platform is that it allows customers to automate processes, reduce costs and improve the transparency and quality of the services they provide to their customers. Our advanced AI and analytics also sets us apart from customers, increasing demanding intelligence systems to drive operational performance. We continue to invest a lot in our intuitive user interface to further drive system adoption. Finally, we are unique because we have an integrated strata and facilities management solution, that really puts us in a different league, especially in the Middle East. In Australia, we're seeing an increase for demand for the integrated platform, especially among the larger strata managers. Slide 10 shows our 2 key platforms: strata and facilities management. Both platforms are mission-critical to their user base. Our strata platform is a complete accounting and compliance system for strata managers. It's used to manage apartment, buildings, strata commercial towers and large housing communities. As well as managing the core administration, it's a key tool used to communicate with owners and residents using mobile apps. Our Facilities Management Platform provides multiple tools to facilities outsources and building asset managers. It is the core work order and asset management system for its users. Customers benefit from reduced paperwork, administration costs and real-time reports that are driven by AI and machine learning. Finally, our customers can manage multiple assets and contracts all in one place. Slide 11 shows the key features of our strata platform. Some of our newer features include automation of some key functions. ePost automates printing and mailing documents, which is important for issuing levies and notices. Quick AP automates invoice processes by scanning invoices, OCR and then offshore data verification. These newer features increase our revenue per lot as they are rolled out across our customer base. Slide 12 shows the key features for our facilities management platform. Highlights of the platform are the workforce management function, which is used to manage trades and contractors as they need to complete work. This includes our Force app, which incorporates work orders, time sheet capabilities and scheduling. Asset management, which can support 10-year asset life cycle modeling and integrated with schedule maintenance, which is critical for asset owners. Our AI and analytics capabilities continuing to learn and improve. A critical part of the facilities platform is the network effect in which facilities management grows as revenue is -- the facility management revenue grows as customers are added and clients require their subcontractors to use their platform. This is a great driver of ARR growth in the facilities division. Slide 14 outlines the life cycle of our business from winning work to implementing and then retaining a new customer. Our high customer retention reflects the quality of our account management and product. Our 42 developers provide continuous delivery of new features, which reinforces the stickiness of our product. Support also plays a key important role and we've recently invested to further enhance our customer support with in-app and operations from 7:00 a.m. to 1 a.m. Sydney time. Slide 15 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 systems to improve standard and transparency reporting to our clients. The opportunity for market expansion presented by the implementation of strata legislation in other countries, that is similar to Australia; industry trends such as strata consolidation and outsourcing of facilities management; growing demand from integrated strata facilities management offering in the Middle East, which is likely to be replicated in other markets. As a result, we believe that 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 on our platform provides customers with further optionality. I'll now hand over to Simon to go through the financials in more detail.

Thanks, Saurabh, and good morning, everybody. Slide 17 provides a summary of the key metrics, driving Urbanise's revenue growth over the last 2 years. Table shows ARR, which represents the annualized license revenue the last month of each reporting period and is a proxy for annual portfolio revenue. Since June 2018, Urbanise has achieved period-on-period growth in ARR as well as in strata lots and facilities users. This reflects the stickiness of our software, which results in high customer retention. In June 2020, strata ARR was $4.83 million, 47% higher than June 2018. We expect that during FY 2021, the remainder of the PICA portfolio, including our backlog, will be rolled out. This is represented by an estimated backlog of $1.3 million at 1 July. In addition, an estimated backlog of $100,000 related to new contracts won in the Middle East. The facilities ARR was $3.33 million for June 2020, 2.7x higher than June 2018, which reflects new customer growth and the network effects as existing customers added clients and subcontractors to their platform. The facility backlog at 1 July represented 10 new contracts with an estimated value of $400,000. Two of these contracts are combined strata and facilities in the Middle East. Slide 18 shows our profit and loss summary for the year ended 30 June 2020 and the prior comparable period. Urbanise adopted AASB 16 leases from 1 July 2019, and Slide 25 summarizes the impact of the new accounting treatment on our financial statements. You can see that revenue increased by 19.5%, driven by the [ strong ] growth in license fees. Operating expenses increased by 3.4% due to higher IT costs, which grew in line with revenue, general cost inflation and a one-off cost write-off. An EBITDA loss of $2.37 million was reported, which is 33.1% lower than the loss booked last year. Depreciation and amortization was 21.1% higher due to the impact of AASB 16 and an increase in the capitalization of development costs. There was no impact on the net loss from AASB 16 as a $105,000 reduction in operating expenses was offset by an equivalent increase in depreciation and interest expense. Slide 19 shows the performance of the Facilities Management Platform for the year to 30 June 2020. Facilities management revenue increased by 36.4% compared to last year, driven by a 58.1% increase in license fees. Professional fees were slightly lower by 7.2% compared to last year, but note that this is not a significant fluctuation in dollar terms. These fees are associated with onboarding new customers and can fluctuate on -- depending on when onboarding activities commence and finish. There were around 2,230 facilities users billed for the month of June 2020, which was a 21% increase from the prior year. The strata platform performance for the year is shown on Slide 20. Strata license fees increased by 15.4%, driven by the addition of new clients. Professional fees were largely consistent with last year and were mostly related to the PICA implementation. The number of lots billed was around 331,000 for the month of June 2020, a 10% increase on June 2019. The backlog of $1.4 million largely reflects the PICA backlog and the client wins in the Middle East. On to our cash flow statement on Slide 21. Closing cash at 30 June 2020, was $4.54 million, which included net proceeds of $2.2 million from a private placement completed in December. Excluding the net proceeds from the placement, deferred costs and one-off items, our underlying average monthly cash used was $154,000 for FY 2020, a 43% decrease on the prior year. This improvement is driven by our revenue growth and our cash collections, which I will talk to in more detail on a later slide. Cash payments included $1.038 million for capitalized development costs relating to the strata platform. There is no impact on net cash flow from the introduction of AASB 16 as the increase in operating cash flow was offset by the decrease in financing cash flow. Slide 23 shows our progress over the past 3 years with average monthly cash used. You can see that in our last quarterly results, Q4 represented our lowest underlying cash burn since IPO in 2014. A key priority in my first year as CFO has been to deliver improvements in working capital, slide 23 shows 2 key components of our working capital, the debtors and the deferred revenue. Debtors reflect amounts invoiced and receivable by the business at the end of each period. Deferred revenue refers to amounts invoiced in advance to customers. So customers can be billed in advance on a quarterly and annual basis, with the revenue then recognized over the appropriate period. The chart shows the net of debtors and deferred revenue over the past 6 reporting periods. So you can see since December 2017, Urbanise achieved a reduction in debtors and an increase in advanced billings, shifting our working capital from the positive $1.4 million to a negative $1 million. This reflects the ongoing effort to improve the debt collection process and the drive to increase advanced billing to existing and new customers. The balance sheet on Slide 24 shows that at June 30, 2020, Urbanise had a closing cash position of $4.54 million with no material debt. The improvement in our collection process is highlighted by the 25.4% reduction in debtors since last year. Our current assets reduced by $400,000 due to $200,000 of cash collected and $200,000 written off. This occurred when we changed the agent who facilitates our Bulgarian operations. In accordance with AASB 16, a right-of-use asset of $365,000 was recognized in respect of rental leases, a corresponding lease liability appeared in current and noncurrent liabilities. Finally, development costs have increased by 26%, reflecting 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 '21 outlook.

Thank you, Simon. Turning to Slide 27. So the priority for the strata team will be the ongoing PICA implementation, which is progressing well, and we're expecting this to be completed in FY 2021. During this year, we'll invest in sales and marketing to help drive our ARR and continue to improve our working capital through new sales and advanced billing to our customers. Finally, we'll continue to develop our software as best-in-class to ensure the stickiness of our customers across both platforms. I'll now hand over to the operator to open it up for any questions.

[Operator Instructions] The first questions come from [ Michael Johnson ], a shareholder, who asks, first of all, how have the months of July and August gone, i.e., since the last quarterly results?

July and August, as we mentioned earlier, saw the rollout of the PICA Queensland projects. So we expect to see an uplift in revenue due to that. The backlog of $1.8 million at the end of the year also attracts professional fees. So we've been busy implementing a number of projects over the last 2 months. And again, so that should flow through into our revenue for that quarter. I might ask Saurabh to talk about the activity we're seeing in the pipeline.

Yes. I mean the other interesting thing that's been happening is -- I mean we did see a sort of slowdown in sales when COVID started happening in February, March. But in terms of new business, I mean, I think July has been probably our best month since I've been with the organization. It's been great. Lots of decisions are coming through and lots of people are signing up for the platform.

Okay. The next question also from [ Michael ]. How does Urbanise compare to MRI Rockend? And how does the facilities management software compare with [ downstroke ]?

Yes. Look I mean I'll start with [ that ] look, I haven't come across them, so we probably don't play in the same segment. But I mean look I'd always to talk about our product and probably less about the competitors, but the main generic difference to us around both of our products is the cloud nature of what we build. I mean the investment in the tech that you do have 42 developers that are busy pumping out 20 new features every fortnight, and that's what people pay and that's what they buy.

Okay. Third question from [ Michael ]. What is the revenue outlook for FY '21?

Well, it's an outlook of further revenue growth. We're starting the year with $8.2 million ARR. We've got $1.8 million of the backlog to work through. That will be phased over the year, and that will also attract professional fees. We've also got a strong pipeline of opportunities in the Middle East region and in APAC. So the outlook is looking like more growth for the year. We don't provide forecast for the full year, but we're confident, obviously, that the ARR will tick up by the end of the year.

Okay. The last question from [ Michael ]. Do you consider cash is sufficient to fund your growth?

Short answer is yes, with the closing balance of $4.54 million at the end of the year, the trajectory on our cash burn has been improving every quarter. And as we've talked about previously, what helps there is the revenue growth and the advanced billing and the fact that we've managed to control our costs. So yes, we consider that the cash is sufficient for growth.

Okay. Our second batch of questions come from Stella Wang from CTHD Investment. First of all, on industry in '20 you saw ARR step-up smaller than FY '19. With the pipeline stronger than ever, can we expect in FY '21 ARR step-up bigger than FY '20? How big are the bigger deals in the pipeline now?

So a similar kind of answer, I guess. In terms of the step-up, we're targeting pipeline in APAC and EMEA, we've got the backlog to work through. And in terms of the bigger deals in the pipeline, I'll ask Saurabh to talk about strata?

Yes. I mean look, the really interesting thing that the PICA project has allowed us to do is to build this strata product that really kind of targets the larger end of town quite well. Because if you're a large strata manager, I mean, you need a lot around automation, a lot more removing manual processes. So from that respect, look, it's been a great project for us, and I expect the pipeline to continue to grow out of the beginning [ of town ] on strata.

Okay. Another question from Stella. Would travel restrictions slow down implementation in certain regions?

Yes. Look, that's actual probably a very good question. So we're -- so for example, we won a large project over in WA. So 6 months ago, we would have all jumped on planes and head over there, but we're able to do that all remotely and do all of our training implementation remotely. I think it's probably slightly easier for us being a tech company, like we are all set up to work from home and do this kind of work from afar.

Okay. Question from Stella that's just come through on the Q&A. If PICA adopts the facility management module in addition to strata, how much ARR would that add?

So the backlog that we're reporting at the end of June is $1.3 million for PICA. We've got around about 10% that's already in the ARR of the contracts for strata. So the total contract value for PICA is around $2 million. The delta is what we expect for facilities.

Okay. [Operator Instructions] We have another question coming in from [ Kevin Fong ].

Guys, where do you see the future CapEx spend post the PICA rollout? And also, we're -- great to see improvements in expenditure savings. What are the line items do you guys foresee future operating leverage in?

Yes, absolutely. So look, I'll talk about where we plan to spend the money. So I think it's given us a great product and they've helped fund us to get there. That's -- that operates in the markets that we operate, which is about 15 countries around the world. So I think what you'll probably see is where we'll continue to invest, besides the existing product, is to get into more and more regions. So we can hopefully grow out globally. Yes, and absolutely, we've been very, very disciplined around our cost base. And I think what you'll probably find is where the investment will be this year. There's a lot more on the sales and marketing side of things, is to really help grow out the sales force, grow the marketing team here in Australia, but probably in the Middle East and some of the other regions as well. I mean Simon, is anything you want to add to that one?

Yes. We've done some automation in our back office, and in terms of our implementation teams as well. So we've got a good-sized team there within this year's cost base. So as the revenue scales, we don't expect the cost to scale at the same rate. So there will be some leverage there.

[Operator Instructions] Okay. We've a question come through from [ Avi Shah ].

I got a question about existing split between sales, the dev staff and admin staff. And as I heard Saurabh saying that sales staff like the more focus would be in the sales and marketing, and how much investment will you be guiding for financing in '21?

Yes. Absolutely. So I think the question was really about the split of the employees and how we're going to invest in sales. So look, I mean as a company, we're about 75 on staff right now, about 42 of them are developers because we are still a core engineering product company and we want to make sure the product keeps pushing forward. In terms of sales. I mean if you look at us a year ago, it was probably a team with 3 or 4 salespeople. No, sorry, probably less. About 2 or 3 salespeople, now we've put on 3 new people on the team so far in the last couple of months and another person joining very shortly as well. And then it's all the auxiliary things around sales as well they're investing. So we've got a full-time marketing manager, and we're investing a lot more cash in terms of our marketing perspective. On the admin side that you asked about, look, being a tech company like you tend not to want to have a lot of admin stuff. So we do -- we'd like to think that we drink our own champagne. So we do invest a lot in automating our back office and automating the billing and the collection of payments. Then the last other major part of our team is the implementation team. So they're the guys that generate the professional services when companies sign on. And there, we've got about 15-odd people in that team now as well which has grown significantly over the last little while. Does that answer your question?

Yes.

We have had a few more questions come in. The next one comes from [ Brian Hasty ].

Look, well done on some great results. It's really great to see net revenue growing and the cash burn, obviously, decreasing. Just wondering if there's any color that you both could add on the churn or the customer churn on both the facilities and the strata side, and I guess how that's really gone in the last 12 months?

Yes, absolutely. I mean I guess the brilliance of our products is really its sticky nature and the continuing investment we put in to keep it fresh and keep it moving forward. So actually, I don't think we've lost any customers in the last 12 months. Because like once you have a customer, they tend to kind of stay with you forever, unless you do something bad. And because they're not just getting what we have today, they're getting all the ongoing enhancements. So yes, look, we tend not to lose customers and I don't believe we've lost one in the last 12 months.

We do have another question here from [ Mark Yarwood ].

Yes. Can you hear me, guys?

Yes. Yes. We sure can.

Yes, good result. A couple of things. In the 4E there's a little bit of a step-up in IT subscription costs. Can you just touch on what they are?

Yes. So including the IT subscription costs is our hosting cost, and those scale with revenue. So those -- that's our AWS hosting costs. We had an increase also in billing software. So we've automated the billing process, which provides us with a lot of capability to, I guess, reduce headcount and administration costs in the background, but also to help us control our debtors. So we have an automated access restriction, which has been quite significant in reducing the debtors. So that won't scale in the future, but certainly, the AWS costs will.

Yes. And the other question I had was based on the sales capacity at the moment, I mean what's -- in your thinking, what's the sort of realistic sort of growth range that the current sales force could achieve? And is the kind of the general plan to kind of roll people out of technology-related migration-type work into a sales focus to expand that capacity?

Yes. So I'll start with first -- the last question first. So yes I mean right now, what we're planning to do, and I guess the revenue we've had has given us the luxury to do this, is to invest in the sales, and not kind of role people out of other departments. So that's led us to actually put on our net new heads that are revenue generating. Look, I mean it varies from the -- from salesperson to salesperson and region to region. You probably want to keep in mind on the facility side, we have a very low cost to acquire customers because we sign up the FM outsources and they kind of carry the real heavy sales work and the sales cost to sign up their customers. And we tend to really just help them on the talent. On the strata side, we tend to go for the larger strata managers now because obviously, there is more revenue there. They've got more lots to put into our platform. So again, the sales cost is not very, very heavy. In terms of future growth, look, I mean I was quite happy with the growth over the last 12 months. I mean that's what you'd expect the organization like us to do. Obviously, we don't give guidance about future revenues or future growth. Does that answer your question, Mark?

Yes, that's great. Thanks, guys. All the best.

[Operator Instructions] Okay. There are no further questions at this time. I'll now hand back to Mr. Jain for his closing remarks.

Well, look, I just wanted to thank everybody for attending today, and thanks for your time.

That does conclude our conference for today. Thank you, everyone, for participating. You may now disconnect.