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

Thank you for standing by, and welcome to the Urbanise.com Limited H1 FY '22 Teleconference. [Operator Instructions] I would now like to hand the conference over to Mr. Almero Strauss, Chairman. Please go ahead.

Good evening all, and thank you for joining us for the presentation of Urbanise's half year FY 2022 results. I'm Almero Strauss, the Chairman of Urbanise and I'm joined by our Interim CEO and CFO, Simon Lee. If you want to go to Slide 2, introducing Urbanise. Urbanise is a leading provider of cloud-based platforms to strata and facilities managers in Australia, New Zealand and parts of the Middle East and Asia. As of December 2021, the business had $12.3 million in contracted annual recurring revenue or CARR, and 85% of total revenue came from recurring license fees. Both our strata and FM platforms are incredibly sticky with retention rates above 96%. When we reported our quarter 2 FY 2022 result at the end of January, we provided an update on our CEO search and our cash management. The CEO search continues, facilitated by an Australian recruiter with both internal and external candidates being considered at this stage. The Board are looking for an Australia-based CEO with deep end-to-end SaaS experience. Regarding cash, I would like to once again emphasize that managing cash flow is a key priority of the business. We are making progress on reducing cash burn over the next 3 quarters through a mix of cost initiatives, cash in advance and new sales. The Board believes Urbanise has the resources available to achieve a sustainable cash breakeven position. I will now hand over to Simon who will go through our half year results in detail.

Thanks, Almero, and good evening, everyone. Slide 5 provides a summary of the key metrics for H1 FY 2022 against pcp. Revenue is up 11% driven by a 25% increase in license fees and a decrease in professional fees. License fee growth was driven by full period impacts from the PICA contract and 2 large Middle East customers. ARR growth was up 24% versus pcp and totaled $11.35 million. This includes new customer go-lives and the completion of PICA over the last 12 months. Contracted ARR was $12.3 million with backlog relating to strata lots and PICA and facilities customers, including Colliers. The closing cash position was $4.73 million, which was impacted by a late receipt from a large Middle East customer. Cash used during the period was higher than pcp due to increased spend and exceptional items. I will go through this in more detail in later slides. We are on track to reduce cash flows by $2.5 million over the next 3 quarters, as outlined at our Q2 results in late January. Our customer retention rate for the half was 96.4%. This is based on the number of unique customers using our FM and strata platforms. The average value of customers lost was less than $5,000 and related to small strata managers in Australia and some FM customers in South Africa. Slide 6 shows our contracted ARR growth on the first graph and the relationship between ARR and license revenue on the second half. CARR increased by 17.1% and $10.5 million at December 2020 to $12.3 million at December 2021. The business has consistently carrying backlog since this metric was first reported in June 2019. The value of backlog from half to half has included large projects that take time to implement such as PICA, Nakheel, Dubai asset management, and Colliers. The slide also shows that we have delivered consistent ARR growth over the period. Slide 7 shows the cash burn over the past 3 years on the first graph and the net working capital on the second graph. Cash used in H1 FY 2022 has increased due to cost and exceptional items. Net working capital remains negative with December 2021 impacted by a late receipt from one large Middle East customer. Slide 8 provides a breakdown of ARR between strata and facilities management. Total ARR has increased by 24% versus pcp, largely due to PICA, Nakheel and other new contracts. The backlog includes strata lots acquired by PICA, and the FM backlog includes a number of customers, including Colliers. We plan to clear the backlog over the next 6 to 9 months with revenue recognition dependent on reaching project milestones. Slide 9 shows our ARR mix by product, region, size and type of customers across our FM and strata portfolios as at December 2021. Strata is currently the largest part of our business with Australia, our biggest revenue base. Within our FM portfolio, FM outsources contribute over half of our revenues. Asset owners such as Nakheel and Dubai asset management have contributed to our FM growth over the last 12 months as they use our integrated strata and FM platforms. Strata portfolio in Australia and the Middle East includes customers that range in size with smaller customers making a good proportion of our portfolio. These customers represent a significant opportunity for the business, and our business and our development team is completing upgrades to various modules and integrations that are expected to accelerate sales to this group. Although we do not disclose our pipeline, I want to highlight that the profile of our sales pipeline is similar to our current portfolio. We continue to work with our existing Tier 1 and Tier 2 customers who are growing and there are opportunities to bring on other Tier 1 and Tier 2 customers onto our platform. Our pipeline includes asset owners within the aged care, utilities and education sectors, verticals where we continue to develop a strong presence. In the Middle East, there are large developers need dedicated strata platforms as their current accounting systems are no longer adequate. Our integrated FM offering puts us in a good position to meet their responsibilities for payers and maintenance. In Australia, small and mid-tier strata managers are showing increasing in our platform. It is important for Urbanise to continue targeting small to large strata managers as the strata industry continues to undergo consolidation and digital transformation. The financial summary on Slide 10 shows the headline figures for the half. License fees were up 25% and professional fees were down by 32%, which reflected fixed pricing arrangements on 2 large projects that resulted in earlier recognition of license fees. Total revenue was up 11%. Operating expenses of $8.6 million for the half represented an increase of $1.9 million versus pcp. This was due to higher head count costs across sales, marketing, development and implementation and higher hosting and license costs due to growth in license fee revenue. Total other costs largely related to unrealized foreign exchange gains on intercompany balances. The waterfall bridge on Slide 11 shows the growth in license fees between H1 FY 2021 and H1 FY 2022. FM license fees increased by a net $329,000 or 20%. Strata license fees increased by a net $760,000 or 28%. Professional fees decreased due to the fixed pricing arrangements noted earlier. The waterfall bridge on Slide 12 shows the growth in expenses between H1 FY 2021 and H1 FY 2022. The increase in total expenses is due to the following: sales and marketing costs of $755,000; development and implementation costs of $355,000; termination costs of $335,000, these largely related to the outgoing CEO; recruitment costs of $197,000, these mainly related to the replacement of the implementation and development team members; IT subscription and license cost of $220,000. The underlying employee costs for H1 FY '22 were $5.7 million, adjusting for termination and recruitment cost. This is a $100,000 or 1.8% increase on H2 FY 2021. Slide 13 shows the performance of the facilities management platform for the half year to 31 December 2021. Facilities Management revenue largely remains in line with pcp. License fees increased by 20% from existing and new contracts. This was offset by a decrease in professional fees, which reflects fixed fee ranges and an unusually high level of fees in Q2 FY 2021. They were 2,610 facilities users built for the month of December 2021, which is a 14% increase on pcp. Backlog at 1 January 2022 includes 7 contracts and is valued at around $600,000. Turning to Slide 14. The strata platform's performance for the half year shows strong revenue growth as we continue to [indiscernible]. Strata license fees increased by 28% driven by the addition of new clients and the PICA rollout. Professional fees decreased by 30%, reflecting the fixed price arrangement and the completion of the PICA rollout. The number of lots billed was around $678,000 for the month of December 2021, a 70% increase of the prior year. The backlog was $300,000 largely reflects additional strata lots and PICA, which you expect to go live in the next 6 months. Our cash flow statement on Slide 15 shows our closing cash position of $4.7 million at 31 December 2021. Moving to [indiscernible] costs and a late [ receipt ] from 1 Middle Eastern customer, the underlying average monthly cash used for the half year was $347,000. Cash receipts during the year was $6.38 million, an increase of 16% compared to pcp, reflecting growth from new customers. Slide 16 shows the 2 key components of our working capital, debtors and deferred revenue. Debtors reflect amounts invoiced and received by the business at the end of the period. Deferred revenue refers to amounts invoiced in advance to customers. Customers can be built in advance on the quarterly and annual basis with revenue then recognized over the appropriate period. As you can see in the chart, which shows a long-term trend since December 2017, we have been able to reduce the amount owed by debtors and an increase in advanced billing. This has shifted our working capital position from positive to a sustainable negative. Slide 17 shows our progress on managing cash over the past 3 years with the dotted line depicting the average monthly cash used excluding capital raises. As you can see in recent quarters, our underlying cash burn has increased due to investment in sales and marketing and ongoing development. The balance sheet on Slide 18 shows a closing cash position for $4.7 million and no material debt. Debtors has increased by $292,000 since last June, reflecting a late receipt from a large customer. Other current assets increased due to accrued revenue and prepayment. The right of use assets decreased as the liability and leases amortize. Development assets increased by 4%, reflecting investments in the strata platform. I would like -- now like to briefly outline Urbanise's customer value proposition and market opportunities before addressing our growth strategy. Slide 20 provides an overview of the strata sector. Our customer base includes strata managers who are responsible for administrating owners corporation as required by strata legislation. The first strata title legislation was introduced in New South Wales in 1961. And this model has been exported to several countries including New Zealand, the [ broader ] Middle East, Singapore, Canada and parts of Europe. Our core markets in Australia and New Zealand and the UAE represents a significant opportunity for the combined addressable market of $3.6 million. The competitive landscape consisted of well-established specialist software, strata software providers in both the Middle East and Australia as well as in-house solutions used by larger strata management. Slide 21 outlines why Urbanise is a good use case for strata managers. Strata managers will generally require a technology solution once they achieve scale, perhaps 10 buildings or more. Managing buildings with legislative requirements, banking transactions and reporting can become onerous without software. Urbanise can help solve that problem. We have a cloud-based platform, which is the result of significant development over the past 5 years. We have designed a modern user interface and experience for strata managers. Our integration with our FM platform is a standout differentiator, particularly in the Middle East. We follow a direct sales model supported by brand awareness marketing. It is important to be seen at trade shows to engage with state-based strata associations as a right to play. Our product road map is [ geared ] by sector research and direct market feedback from customers. In Australia, we aim to expand our market share in all states. We focus on small to mid-tier strata managers. We will continue to pursue larger strata managers like PICA. In the Middle East, there is an increasing demand from large developers to adopt a professional strata platform, so they can [indiscernible] strata legislation. Slide 22 provides a high-level view of our platform and some of its key features. The user interface and the user experience has been [indiscernible] to bring it [indiscernible] modern expectation. Slide 23 provides an overview of the facilities management sector. Our addressable markets can be divided into outsourced FM and in-house FM or asset owners. Our current key markets are Australia, New Zealand, parts of Asia and the UAE. The addressable markets do extend beyond these regions where there is a need for facilities management. Urbanise has grown through its relationship with FM sources operating in our core markets. Our competition includes ERP providers who have work order or asset management functionality and other specialized platforms like ourselves and in-house solutions. Slide 24 outlines why Urbanise is a good use case to -- [indiscernible] for facilities managers. Facilities managers with scale cannot manage without a system. Our platform can help reduce the administration cost of work order management and eliminate the manual-type processes. Compliance reporting is important for facilities managers to ensure maintenances are completed on time. The complexity of managing multiple vendors can be achieved by our platform. Facilities management also follows a direct sales model, which is supported by marketing and a network of relationships with facilities managers. In APAC, we will continue with our development and rollout with Colliers, which is on track for September 2022. It should provide us with further opportunities with that customer and also lend credibility with other large facilities managers. We will also continue to focus on Tier 2 and asset managers, aged care, utilities, mining and education segments. In the Middle East, we will focus on large developers, leveraging the integrated FM and strata offering, and we will also focus on Tier 2 FM providers. Slide 25 provides a high-level view of our FM platform and some of its key features. We will continue to develop that some of these features with the work we are doing with Colliers to provide deeper and more comprehensive functionality. Slide 26 shows our management process from winning work to post sales report. Our direct sales model is reliant on subject matter experts selling the strata and facilities managers. We have found that in both sectors, our most effective salespeople are those who have a deep understanding of the strata and FM world. Our investment in marketing over the past 12 months into various trade shows and social media has improved inbound inquiries. A number of recent go-lives as large reference customers have also been helpful to increase brand awareness. The implementation process can involve the migration of customer data from legacy systems. We have invested in more automation in recent months to reduce the time required to map and load data into our system. In prior years, we had invested in the modern subscription system. We've simplified our bidding processes for customers and also has been effective in our debt equations. Slide 27 provides an overview of the drivers for Urbanise's growth. The immediate horizon 1 objective is to expand and maximize our footprint of strata lots and facilities users in our core markets. Our key revenue drivers will be licensing and professional fees. We will expand into other regions once we have firmly established ourselves as a major or leading player in our core markets. This will be achieved through the increasing maturity of our products, ensuring they meet the requirement of direct customer input and our research. We will continue to sell via a direct sales model. Looking forward to the next 2 horizons, the footprint of lots and users to facilitate the increased revenues from additional features and services embedded within our platform. We have seen some green shoots in such initiatives such as printing and invoice scanning services that we offer to strata managers. Indirect sales via the partners can be considered as we gain scale in the market. The FY 2022 outlook is summarized on Slide 29. We will continue to drive our pipeline and revenue across our core markets in Australia, New Zealand, [indiscernible] and Asia. We had $900,000 of backlog declared over the next 6 to 9 months leading to additional ARR. Out of this backlog relates to Colliers to Tier 1 FM customer. Our development should help deepen our product for the Tier 1 and Tier 2 FM market. We made a priority to reduce our cash burn to a sustainable level, and we will provide further update on our progress in the coming months. And finally, the Board will continue to prioritize the search for a permanent CEO. I will now hand back to the operator to open it up for questions.

[Operator Instructions] Your first question comes from Sam Pittman from Taylor Collison.

Just a quick one. In relation to the wins you're seeing in the strata space, obviously, aside from PICA, are they predominantly sort of new -- I suppose new strata managers starting up? Or are you winning them of other sort of incumbents? Or how is that sort of playing out at the moment?

We're winning both. We are seeing new startups quite a bit at the moment. It does seem that the barriers to entry for strata management are low. But we are seeing also particularly the migrations coming off other platforms, both, Sam. And so I think on Slide 9, we have a profile of the types of customers across our portfolio. And within our pipeline, we have a good representation of those types of sizes and those types of customers across our core markets.

[Operator Instructions] Your next question comes from Shuo Yang.

Simon, just in terms of clearing the backlog, $0.9 million of backlog, are you expecting to add to that backlog in the second half at all?

The $900,000 in the backlog is -- are all signed. It relates to signed contracts. And we also are targeting to convert pipeline as well continuously. So we're not forecasting the pipeline at the -- the pipeline conversion, but certainly are aiming to continue to grow the business outside of that backlog.

Okay. You mentioned there's been changes to the go to market and that's improved the sales side. Can you sort of quantify what's been the change in the length of the cycle? What's been improved?

Yes. I think there's certainly been a refinement in the way that we are approaching the market. So look, there's still conversion time for sales. It's not a quick sales cycle. But certainly, the team led by Paul Mitchell, who's our Chief Revenue Officer, is very much focused on reducing the hurdle that we see, particularly large customers that's just -- like all housekeeping sales techniques to really make sure our pricing is very clear and that we're making it very clear what our compliance stance are. There's also additional features that we're completing over the next couple of months for the strata industry, for the strata market that we hope will accelerate sales as well. And of course, there's also the development we're doing on the FM platform in conjunction with Colliers. And because we offer a one instance platform, so basically, as we upgrade the platform, it becomes available to all. That would be available to new customers. So there are a number of things that can accelerate sales, the appeal, of course, in the platform, more digital features, deeper offering as well as a refinement of our sales technique.

Okay. Understood. I appreciate you don't want to provide the specific size of your sales pipeline, but can you give a rough indication of the split of that pipeline between existing customers and new logos?

Yes. We don't disclose values but -- in terms of that split, but there will be elements of -- if you look at the Slide 9, and we have both FM as sources and asset owners in our pipeline. They weren't necessarily replicate that split that we have in the portfolio. We have large Middle East customers on the strata and FM side. So they're a good indication of where we're focusing our efforts.

I guess, I'm asking, is your pipeline made up mostly of saying the share of wallet with existing live customers or it is an entirely new customers?

We've got both. We have, particularly the FM sources that we currently have on our portfolio, they're growing. They have a very similar operating model for ourselves. They're also seeking annual recurring revenue. So they're seeking to expand their portfolio, whether it's in aged care, utilities and education as well. And so we do have both, Shuo. And of course, we're still pursuing new opportunities within those regions.

Okay. One last question. In terms of to improve the cash burn, one of those strategies, I think, is to get clients to pay more upfront. You've already converted a lot of customers to quarterly or annual billing upfront. Are you saying there's still a good portion of customers that are not on quarterly or annual billing? Or are you trying to convert them all to annual billing? Or are you trying to get new customers to pay upfront? Just some color on that would be useful.

Yes. I mean if you look at our balance sheet at the end of December on Slide 18, I'll just draw your attention to the deferred revenue balance, which is $2.8 million. And our ARR was $11.4 million. And so whilst we do have a lot of customers on annual in advance, that deferred revenue balance, which effectively represents advanced billings, is only a proportion of the ARR of our portfolio. So there is opportunity to extend that advanced billing number. And the reason at that level, we have a lot in quarterly. And by the end of each half or each quarter that, of course, if you invite invoice for the -- in the first month of the quarter, the deferred revenue balance will disappear, right? So there's opportunities for us to increase the advanced billing either biannual or even multiyear deals, which is not unusual for software companies to really lock in customers' ARR over a longer period of time.

I guess in exchange, you might have to offer some sort of discount for that sort of...

Possibly. But we have -- and this is an initiative that's been led by Paul Mitchell and leveraging his experience. We can offer enterprise deals, which don't necessarily mean that we have to discount out. So there's different ways that we can contract and offer those sort of commercial offerings to customers without losing their ARR. But that has -- but you're right, we have offered discounts -- [ reasonable ] discounts to secure cash and advances in the past, but we are seeing opportunities to not do that as well.

There are no further questions at this time. I'd now like to hand back to Mr. Strauss -- pardon me, we have another question. Your next question comes from Deana Mitchell from AEI.

Simon, I've just got 2 questions. Just firstly in terms of Colliers, can we get some color in terms of whether that CARR or contract could potentially scale over time, for example, the onboarding in September, initially a narrow focus capturing that CARR, and then a wider opportunity that if successful? And secondly, can we get perhaps some color on -- you've given the kind of the churn numbers, but how the business is performing on a net revenue retention basis.

So as far as Colliers is concerned, there's 2 parts to, I guess, scaling that opportunity. One is there's -- our contract is with Colliers Australia. And we're not disclosing the backlog ARR specifically for that contract at this stage. But that is the contract we have right now. And so in terms of meeting the milestones for that contract, we have some development that we are completing up until the end of September, and there's some testing that we'll do. And then following that, we hopefully should be able to recognize ARR on that contract. Outside of Colliers Australia, there's obviously Colliers on a broader global level. The immediate opportunities on our horizon would be Colliers New Zealand and Colliers Asia. And so they have facilities businesses and strata businesses within that portfolio. So of course, executing across the Colliers Australia contract will obviously lend credibility for us in those regions. And we are certainly looking at those other opportunities quite closely. In terms of the churn or the retention number we've disclosed, that's based on the number of customers that have been retained since the 1st of July and being there at the end of December. The average value of the contracts that did churn outs were less than $5,000. And they're related to smaller strata customers or perhaps they've been acquired by the strata managers or, in the case of South Africa, we had some facilities managers or facility management customers linked to our old utilities business, which is not a core part of our focus. In terms of the ARR churn, the dollar value, we're not disclosing it at that point, but the amount that was retained was significant, so very little churn of ARR, very little.

[Operator Instructions] Your next question is Campbell Taylor from Taylor Collison.

Just a very quick one. Just on Shuo's comments about -- talking about forward sales in total. So I just wanted -- that preferred revenue number that you quoted, is that all just 12 -- less than 12 months or 12 months or less?

It's a mixture, Campbell. There'll be some quarterlies in there, and there'll be some customers who would have paid a year in advance. But of course, that will amortize that based on when they paid that money in advance.

So there's nothing further than that, though? There's nothing longer than 12 months?

It's got to be a -- we have 1 customer who's paid 2 years in advance in the portfolio. And so I guess, when we talk about the cash in advance initiatives, we've got opportunities to offer that to the customers. We haven't, in the past, really done many multiyear deals. And so that's why there's some opportunity for us to bring more cash in advance.

[Operator Instructions] There are no further questions at this time. I'd now like to hand back to Mr. Strauss for closing remarks.

I want to thank you all again for your time this evening. Despite the challenges of the December half, we have delivered strong revenue result with 24% growth in ARR. And our customer retention rate of 96% highlights the stickiness of our platform. We believe that Urbanise is well placed to deliver long-term sustainable growth, which reflects our highly recurring revenue base, innovative platforms and growing sales pipeline. The Board and management team will continue to work hard to execute on our strategy and progress towards cash flow breakeven. We look forward to updating you on the business at the next quarterly results. Many thanks for joining us again, and good evening.

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