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

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Urbanise Full Year 2021 Results Webcast. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the conference over to Saurabh Jain, the CEO of Urbanise. Please go ahead.

Good morning, all, and thank you for joining us for the presentation of Urbanise's full year FY '21 results. I'm Saurabh Jain, the CEO of Urbanise. And with me on your screen is our CFO, Simon Lee. It's great to be with you today as we cover what's been a great year for Urbanise where we have continued to execute on our strategy. There's 3 main themes that we will cover today. Firstly, I'll take you through the highlights of our financial results. And then I'll hand over to Simon, who will cover the financials in more detail. Then I'll come back and I'll outline our growth plans and the outlook before opening it up to any questions. The financial highlights for our full year results include a strong ARR and revenue growth as our business continues to scale. Total revenue was up 19% driven by a 16% increase in recurring license revenue and a 35% increase in professional fees. Professional fees are a strong lead indicator to future life facility revenue growth. Strata revenue increased by 19% driven by the PICA rollout. FM revenue increased by 21% despite the loss of a legacy Middle East customer, which was more than offset by new customer wins. ARR, the most critical figure here, rose by 28% driven by new contract wins and the PICA rollout completion. The PICA backlog from the prior year was $1.3 million and is now included in our closing ARR of $10.44 million. Our year-end backlog of $1 million includes around 42,000 strata lots and 8 FM contracts. This includes $760,000 for the Nakheel project secured in February, which is allocated across both platforms. This backlog is planned for implementation in H1 FY '22 and will add $1 million to ARR. In November 2020, we undertook a $6.54 million capital raise, which was well supported by new and existing shareholders. The capital raise was for the purpose of investing in sales and marketing to accelerate facilities revenue growth. Our underlying monthly cash burn was $246,000, which includes the investments in sales, marketing and development we have made over the past 9 months. Our closing cash position of $7.82 million includes a $6.54 million net proceeds from the cap raise and reflects our disciplined approach to expense and working capital management. For the past 3 years, Urbanise has continued to grow in ARR, strata lots and facilities users. In June, strata ARR was $6.9 million, around 43% higher than June 2020. This has been driven by the PICA rollout as well as new strata wins. The estimated backlog of $300,000 at 1st of July 2021 includes a proportion of the Nakheel contract. Facilities ARR was $3.6 million at the end of June 2021, around 7% higher than during 2020. This reflects the departure of one FM contract using a legacy platform that Urbanise no longer supported, offset by new wins. The facilities backlog at 1st of July 2021 represents 8 contracts with an estimated value of $700,000, including a proportion of the Nakheel contract. Our total contracted revenue is now around $11.44 million. I'll now hand over to Simon who will go through the financials in more detail.

Thanks, Saurabh, and good morning, everybody. Slide 7 shows our profit and loss financial summary for the full year compared to the prior comparable period. As you can see, total revenue increased by 19.1% driven by the growth in both license fees and professional fees. Operating expenses increased by 19.5% or $2.3 million as a result of investments in sales and marketing development, partner IT costs passed on to customers and IT costs for improving operations. We also incurred third-party implementation costs for mining contracts, which were also passed on to the customer. Our EBITDA loss of $2.9 million was 21% higher than last year, reflecting the investments in sales, marketing and development to drive future revenue growth. Depreciation and amortization was 22.4% higher due to the new office leases committed to during the year that had a term of more than 12 months as required under AASB 16. Slide 8 shows the performance of the facilities management platform for the full year, with record professional fees highlighting strong sales momentum. Facilities management revenue increased by 21.3% compared to last year driven by a 6.6% increase in license fees and a significant increase in professional fees, despite the departure of the Middle East customer mentioned earlier. There are around 2,500 facilities users billed for the month of June, a 10.8% increase on the prior year. The strata platform performance for the full year is shown on Slide 9, showing total revenue growth of 19.4% driven by strong license fee growth. Strata license fees increased by 23.7%, driven by the addition of new clients and the PICA rollout. Professional fees increased -- decreased by 3.9%, reflecting the ramp-down of PICA-related work towards the end of the year. The number of lots billed was around 636,000 for the month of June 2021, a 74.3% increase on the prior year. The backlog of $300,000 largely reflects Nakheel backlog, which is expected to go live during the first half of FY '22. Our cash flow statement on Slide 10 shows our strong cash position with a closing balance of $7.82 million at 30 June 2021, which includes net proceeds of $6.54 million from the capital raise completed in November. Excluding net proceeds from the cap raise and other adjustments shown on the table, our underlying average monthly cash use was $246,000 for the full year. This reflects the investments in sales, marketing and development we have made over the last 9 months. Cash receipts during the year were $11.9 million, an increase of 9.1% compared to prior comparative period, reflecting growth from new customers. FY 2020 receipts included significant collections from the prior year. Cash payments included $962,000 for capitalized development costs relating to the strata platform. Slide 11 shows our progress on managing cash over the past 3 years. As you can see, our underlying cash burn has increased in the last quarter due to investments in sales, marketing and development to drive future revenue growth. Slide 12 shows the 2 key 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 in advance to customers. Customers can be billed in advance on a quarterly and annual basis with revenue then recognized over the appropriate period. As you can see in the chart, which shows debtors and deferred revenue since December 2017, we've been able to reduce the amount owed by debtors and increase advance billings, which has shifted our working capital position from positive to sustainably negative. This is a result of ongoing discipline, automated debt control systems and the drive to increase advance billing to existing and new customers. The balance sheet on Slide 13 shows at 30 June, Urbanise had a strong closing cash position of $7.8 million with no material debt, incorporating the proceeds of our cap raise. Debt has decreased by 3%, 3% since last June, reflecting the billing cycle of our customer base, and our debt profile has continued to improve. This is as a result of our automated systems and focus on collections. Our current assets increased by $121,000, representing funds from an agency that facilitated our Bulgarian operations, and that's repayable in FY '22. Our right-of-use asset was recognized during the half year due to the renewal of leases as required under AASB 16. Development assets have increased by 14%, reflecting the investment in the strata platform. I'll now hand back to Saurabh, who will outline the vision and growth plan.

Thank you very much, Simon. So let me go on to our vision. So our vision is -- as outlined on this slide, is to create an industry-changing AI-first cloud platform for the property sector. What sets us apart from our competitors is our software platform, and this is a core asset that we will continue to invest in. About 2 years ago, we mastered the primary uses for our platform such as accounting, compliance and workforce management. This has allowed us to further extend our technical lead by focusing on differentiating features like apps, analytics and AI. We're uniquely positioned to offer both strata and facilities in integrated approach. We've got deep pedigree in strata and facilities management operations, and this supports the way we design our platform and our general approach to development. Our implementations have sped up with our configuration approach, and we provide world-class support and training, which helps us achieve near minimum churn. The opportunity for Urbanise is sizable. Slide 17 outlines the addressable market determined by estimated spend by facilities managers in our regions. Facilities managers and their customers are demanding technology, and we're positioned to help with our cloud offering. They are looking for the benefits of lofty tenancy, mobile apps, automation and analytics, all these functions offered by our platform. We'll leverage our experience in sectors that were very secured such as mining, utilities, aged care and education. Slide 18 outlines the opportunity for strata software in our addressable markets. Being able to offer integrated strata and facilities platform, which now the competitors does, has allowed us to dominate the Middle East market. This trend is permeating the Australian market, which we're uniquely positioned to capitalize on. Now on to our growth plan. We're focused on top line breadth of the business. We will continue to push the combined strata and facilities offering in the Middle East where there is immediate demand. In Australia, we'll focus our strata offering on the medium strata managers who will lead the industry trend. New facility sales will focus on our core market of Tier 2 FM outsourcers as well as asset owners and sectors where we have deep experience such as mining, utilities, education and aged care. The sales drive will be supported by the investment in marketing. We expect the FM network effect will continue as our FM outsourced customers continue to seek new work and mandate their subcontractors to use our platform. New strata sales will leverage on our leading cloud platform that we've heavily invested to rebuild over the past 5 years. Now that the PICA rollout is complete, we can focus on so we pick up as much as the Australian market as possible. Our foundations of growth will continue. At the end of June, we had recruited around 50% of our target headcount for sales and marketing investment. Since June, we've recruited almost the entire team. We now look forward to seeing this team perform over the coming year. We will continue to develop our products to ensure that they are leading-edge and competitive. This to help us maximize our ARPU and minimize churn. Finally, we're focused on minimizing cash burn through careful cost investment and working capital management. Turning to our FY '22 outlook on Slide 20. We're investing in growth to help pave the way to cash flow breakeven, although we're not ready to set a deadline for breakeven. We will specifically focus on the FM sales and marketing investments to drive ARR growth. We are already seeing green shoots with the pipeline and new customer wins. We have $1 million of backlog, which we're on target to clear for in the first half of FY '22. We'll continue with our growth plans as outlined on previous slides. Improvement in working capital will continue through our forward billing and cash collections. And finally, we will continue to develop our amazing products and provide high-quality service to our customers. I'll now hand over to the operator who will open it up for any questions.

[Operator Instructions] The first question comes from [ Sam Pittman ].

Just in relation to the backlog, how are you going about calculating that number? So if I -- yes, I mean, I suppose, yes, that's the way I'm asking it. How are you computing the backlog in terms of that Nakheel contract?

It's [ based ] on the number of lots that we -- that the client has by a rate. We don't disclose the final details of that contract, but it's basically contracted revenue based on what we know right now.

Okay. So it's not the -- so it's the -- it's an ARR number, so you're including license fees in the first year? Or is it just the professional fees? Or how does that work?

It's ARR only, so it's not including professional fees.

The next question comes from Andrew Swaffer at Taylor Collison.

Just wanted to have you guys elaborate a little bit more on the opportunities within strata. You've done a great job clearing that backlog with PICA. So what opportunities is that now opening up? And how big do you see those opportunities?

Yes, if you look at the strata market as a whole, I might break that up into 2. Let me talk about Australia and New Zealand. I'll talk about MENA separately. From an APAC perspective, if I search -- let's go to the slide on the market size. Yes. So in APAC, look we've gone from a distant #4. So we think we're probably the biggest, if not one of the biggest players in the market. We're still, for whatever reason, the only cloud platform on modern tech. So now the name of the game for the next couple of years is to try to get as many lots onto our platform as possible. So it's been great over the last couple of years. We're really looking to kind of extend that lead. And it's kind of funny. It's one of those industries where it's not a discretionary spend because with our platform, it's what strata managers use to actually get paid themselves as well. And our platform is a kind of key differentiator for when they go and win work. Middle East, probably a bit different. As I mentioned, we get to sell both our platforms together, the only kind of platform that has both integrated. And in the Middle East, we tend to win almost every deal that we go after. Does that kind of answer the question, Andrew?

I think so.

We've had another question submitted, which I will now read out. How many staff have you recruited and in what areas of the business?

Yes. Look, it's been a mix over, say, the last 12 months. We're probably about 90, 95 employees now. Most of the new ones that we've put over the last year is mostly around sales and marketing. So they're sales managers, they're marketing people, presales, telemarketers, account managers. And it's all kind of around the theory that we have this core asset that we've built out the platform. Now how do we monetize it? How do we get more and more customers onto our platform and kind of against our fixed cost base.

[Operator Instructions] Our next question comes from [ Stella Wang ].

I just got some more clarification, please, a question on the backlog. Looking at your strata as well as facility management backlog, if we divide that by unit or contract, you can see a growth in the per unit ARR for the strata and per contract on the facilities. Just wondering whether it's due to the better pricing you got from the large March Middle East contract, or is it more due to now that you are offering richer functions, therefore, getting higher yield on each of those contracts? Also, I would wonder if that's the case, what are the other high-value functions you have got in the development pipeline?

I'll answer the question around the backlog. So specifically, I think what you're asking is the rates per lot than the rate per user. Is that right, in the backlog?

For strata is ARR per unit, just for the backlog. And for facility is ARR per contract because you do disclose you've got 8 in the backlog for facility.

Yes. So we charge by users facilities, but there's 8 contracts that underpin that. Including in both strata ARR and facilities ARR in the backlog is the Nakheel contract. And at the end of June, there's an estimate of how much of the value of the contract is the proportion between the 2. So that's an estimate we have right now based on the revenue accounting rules. Saurabh, I might turn to you around the development of the product road map.