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

Good morning, everyone, and thank you for joining me today for the presentation of Urbanise's FY 2022 Results. It's a privilege to deliver the result after being appointed as CEO recently in June after 3 years of serving as CFO. Turning to Slide 2. Urbanise is a leading provider of cloud-based platforms to strata and facilities managers in the APAC region and the Middle East. As of June 2022, the business had $12.1 million in contracted annual recurring revenue or CARR and almost 87% of total revenue came from recurring license fees. Both our strata and FM platforms are incredibly sticky with a combined customer retention rate of 95%. We have an extensive global footprint with presence in 16 countries with our key markets being APAC and the Middle East. Slide 3 provides a summary of the key metrics for FY 2022 against pcp. Revenue is up 10% to $12.67 million, driven by a 20% increase in license fees, offset by a decrease in professional fees, largely due to fixed pricing arrangements. License fee growth was driven by full period impacts from the successful implementation of the peak contract in FY 2021 to large Middle East contracts as well as new and backlog customers. ARR growth was up 3.9% versus pcp and totaled $10.85 million. This was impacted by the decision taken by Ventia to reduce its requirement for user licenses on 3 existing contracts. This change took effect from 1 April 2022 and was due to their move to a single system resulting in the decommissioning of applications from over 20 vendors. The loss of these Ventia contracts reduced ARR by $630,000. Excluding this though, ARR increased by 10%. Ventia continues to use Urbanise on its Anglo-American contracts, and we've already made significant progress to replace this lost ARR. So since April, we've secured $250,000 of new ARR relating to FM contracts with an aged care provider, a tire retailer and a medium-sized strata manager. Contracted ARR of $12.1 million was up by 6.1% versus pcp, with backlog relating to strata lots for PICA and facilities customers, including Colliers. The closing cash position was $3.97 million and Urbanise has no material debt. We made significant progress during the second half towards achieving a sustainable cash position. We restructured our sales and development teams to reflect a shift in our go-to-market strategy and to increase the variability of our development costs. We also completed several cash and advanced deals, which represent a significant endorsement of our customer value proposition. As a result, Urbanise was cash flow positive in Q4 FY 2022 and we remain on track to deliver our cash burn reduction target of $2.5 million with 63% of our target realized by the end of June. Our customer retention rate was 95.2%. This is based on the number of unique customers using our FM and strata platforms. This includes the loss of the Ventia contracts. The ARR retention rate was 92.8% and was 98.8% excluding the loss of the Ventia contracts. Other lost contracts were less than $8,000 on average and related to small strata managers in Australia and some small FM customers. Slide 6 shows our contracted ARR growth on the first graph and the relationship between ARR and license revenue on the second graph. CARR increased by 6.1% from $11.4 million at June 2021 to $12.1 million at June 2022. The business has consistently carried backlog since this metric was first reported in June 2019. The value of backlog across this period includes large projects that take some time to implement such as PICA, Nakheel, Dubai Asset Management and Colliers. The decline in ARR in June 2022 compared to December 2021 reflects the losses $630,000 in ARR from Ventia. As I mentioned earlier, Urbanise is on track to replace this ARR with recent sales conversions. Slide 7 shows the cash burn over the past 3 years in the first graph and the net working capital on the second graph. Net cash used reduced by $2.3 million from the first to the second half of FY 2022 due to the lower sales and development head count and the cash-in-advance initiatives. As I mentioned, 63% of our cash target of the $2.5 million was achieved by the end of FY 2022. And we expect to secure further cash and advance agreements this coming quarter. Next, net working capital remains negative and continues to progress due to the sales growth and cash-in-advance. Managing cash flow remains a key priority for the business, and the Board believes Urbanise has the resources available to achieve sustainable cash break-even position. Slide 8 provides a breakdown of ARR between strata and facilities management. Total ARR has increased by 3.9% versus pcp, largely due to PICA, Nakheel and other new contracts. The backlog includes strata lots acquired by PICA and a medium-sized strata manager. The FM backlog includes a number of customers, including Colliers, New Zealand aged care provider, Arvida, and a leading tire wholesaler and retailer. We plan to clear the backlog over the next 6 to 9 months with revenue recognition depending on reaching project milestones. Slide 9 shows our ARR mix by product, region, size and type of customer across our FM and strata portfolios at -- as at June 2022. Strata is currently the larger part of our business with Australia our biggest revenue base. Within our FM portfolio, FM outsources contribute around 42% of our revenues. Strata managers such as Nakheel and Dubai Asset Management have contributed to our growth over the past 12 months as they use our integrated strata and FM platforms. The strata portfolio in Australia and the Middle East includes customers that range in size with small customers making up a good proportion of our portfolio. These customers represent a significant opportunity for the business. And our development team is continuing upgrades to various modules and integrations that expect to accelerate sales to this group. Although we do not disclose our pipeline, I do want to highlight that the profile of our sales pipeline is similar to our current portfolio. And as a guide, we've noted the typical range in average contract values for each key market segment on the right hand of this slide. We continue to work with our existing Tier 2 -- 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 in the future. Our platform includes asset owners within the aged care, utilities and education sectors, verticals where we will continue to develop -- continue to develop a strong presence. And in the Middle East, there are large developers who 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 repairs and maintenance. In Australia, small and mid-tier strata managers are showing increasing interest in our platform, and we continue to support the existing large customers such as PICA as they continue with their journey on achieving operational and revenue improvements. It's 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 FY 2022. So license fees were up 20.9% and professional fees were down by 30%, which reflected the fix pricing arrangements on 2 large projects that resulted in earlier recognition of license fees. Overall, total revenue was up 10.2%. Operating expenses of $15.97 million representing an increase of $1.6 million versus pcp. Now this was due to, firstly, higher head count costs across sales, marketing and development and implementation. Salary costs were incurred in the first half of the year and subsequently, as mentioned before, we did do restructure. Secondly, higher hosting and license costs due to the growth in license fee revenue. Thirdly, we had termination costs for the outgoing CEO, sales and development staff as part of the restructure. And finally, 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 FY 2021 and FY 2022. FM license fees increased by a net $627,000 or 19%. The loss of 3 Ventia contracts from 1 April 2022 reduced FM revenue by $176,000. Strata license fees increased by a net of $1.2 million or 22% And professional fees decreased due to fixed pricing arrangements that I noted earlier. The waterfall bridge on Slide 12 shows the growth in expenses between FY 2021 and FY 2022. The increase in total expenses is due to the following: firstly, sales and marketing costs of $264,000; secondly, development and implementation costs of $411,000, digital head count costs; thirdly, termination costs of $598,000 related to the restructuring and departure of the former CEO; and finally, IT subscription and license cost of $541,000, reflecting the higher license revenue and costs to optimize product performance. Based on the June 2022 run rate, annualized employment costs were about $9.5 million, which represents a reduction of 6.9% on the prior year FY 2021 of $10.2 million. Slide 13 shows the performance of the facilities management platform for the year to 30 June 2022. Facilities management was -- revenue was 2.3% higher on PCP. License fees increased by 19% from existing and new contracts. And this was offset by a decrease in the professional fees, of course, which reflects fixed fee arrangements and an unusually high level of fees in Q2 FY 2021, the year before. There were around 2,320 facilities users billed for the month of June 2022, which is a 6.1% decrease on pcp with backlog at 1 July 2022, includes 5 contracts and is valued at around $800,000. Turning to Slide 14. The strata platform's performance for the year shows strong revenue growth as we continued implementations for a major client. Strata license fees increased by 22%, driven by the addition of new clients and the PICA rollout. Professional fees decreased by 23.8%, reflecting the fixed price arrangements and the completion of the PICA rollout. The number of lots billed was around 681,000 for the month of June 2022, a 7.1% increase on the prior year. The backlog of $400,000 includes additional strata lots of PICA and a medium-sized strata manager. Our cash flow statement on Slide 15 shows our closing cash position of $3.97 million at 30 June 2022. Excluding exceptional costs, the underlying average monthly cash used during the year was $212,000 versus $246,000 in FY 2021. Cash receipts during the year was $13.59 million, an increase of 13.3% year-on-year, driven by revenue growth and our advanced billing strategy. Slide 16 shows the 2 key components of our working capital, debtors and 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. 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 a long-term trend since December 2017, we've been able to reduce the amount owed by debtors and increase advanced billings. And 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. And as you can see, we've achieved a significant turnaround in the second half as a result of the sales and development restructuring and the cash-in-advance initiatives. The balance sheet on Slide 18 shows a closing cash position of $3.97 million with no material debt. Debtors decreased by $67,000 since last June despite the 10% increase in revenue and this highlights our ongoing focus on debtor management. Other current assets decreased due to accrued revenue and prepayments. A right-of-use asset decreased as the liability and lease is amortized. Development assets increased by 6.8%, reflecting the investment in the strata platform. Following a review of the strata platform, we have determined that it has reached the stage of maturity where it's not necessary to be capitalized -- or it's not necessary to be capitalizing development costs on that platform. And so from 1 July 2022, these costs will be expensed in the year as they occur. Amounts capitalized for the strata product up to the end of 30 June 2022 will continue to be amortized. I'd like to now 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 corporations as required by strata legislation. The first strata title legislation was introduced in New South Wales in 1961. And this model has been since exported to several countries, including New Zealand, the Middle East, Singapore, Canada and parts of Europe. Our core markets in Australia, New Zealand and the UAE represent a significant opportunity with a combined addressable market of around 3.6 million lots. The competitive landscape consists of well-established specialty start-up software providers in both the Middle East and Australia as well as in-house solution used by larger strata managers. Slide 22 (sic) [ Slide 21 ] shows how we like to look at the strata market. There are businesses who have strata management as their primary focus, and there are residential leasing agents and property developers who also have strata management as their business. Our addressable markets are determined by the number of strata titles in each region. And as you can see from the statistics on this slide, our obtainable markets are strata managers who have scale and need a system. So it excludes any body corporates that are self-managed by the owners. As strata managers increase in size and scale, there can be challenges on staff and cost management and consistency of customer service. On the right of the slide, I've included some of the names of the larger players in these regions. Urbanise's range of customers right across the spectrum, including PICA and Nakheel at the larger end. Small to medium customers are important -- are an important group as well. The barriers to entry remain relatively low to start-ups. So with the right entrepreneurial spirit and the right system, we have seen smaller players really scale up. Slide 22 outlines why Urbanise is a good use case for strata managers. Strata managers will generally require a technology solution once they achieve scale, so perhaps 10 buildings and more. Managing buildings with legislative requirements, banking transactions and reporting can be onerous without software. Urbanise can help solve this problem. We have a cloud-based platform, which is the result of significant development over the past 3, 5 years. We've 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's important to be seen at trade shows to engage with state-based strata associations as a right to play. Our product road map is steered by sector research and direct market feedback from customers. In Australia, we aim to expand our market share in all states with focus on small to mid-tier strata managers. We'll continue to pursue large strata managers like PICA. In the Middle East, there is an increasing demand from large developers to adopt a professional strata platform to ensure they comply with strata legislation. So Slide 23 provides a high-level view of our platform and some of its key features. The user interface and user experience has been revamped in recent years by our team to bring it in line with modern expectations. Slide 24 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, part of Asia and the UAE. The addressable markets stand beyond these regions where there is a need for facilities management. Urbanise has grown through its relationship with FM outsourcers operating across our core markets. Our competition includes ERP providers who have work order or asset management functionality, other specialized platforms like ourselves and in-house solutions. Slide 25 shows the application of facilities management is very broad and have included here some of the sectors that we've specialized in over the past few years. The heritage of FM outsourcers varies. Some are part of larger international or national organizations. Tier 2 players are more local, and they have evolved from a trade background. Some of the larger players in our markets are shown on the right-hand side there. Facilities management can be performed as an in-house function by asset owners or custodians. Owners, of course, means the organizations who own the building. A custodian could be a tenant who is leasing from the landlord and have some responsibility for the condition of the building. At the bottom, you'll see strata. This is a common requirement in the Middle East, where the strata manager and the facilities manager are one and the same. In Australia, this is becoming more common, particularly with large strata managers wanting to create new revenue streams. We serve all these customer types and have found a niche supporting the FM outsourcers. Our platform is designed to manage an outsourcer's upstream obligations to their customers as well as manage their downstream activities with their contractors. Slide 26 outlines why Urbanise is a good use case for facilities managers. Facilities managers with scale cannot manage without a system. Our platform can help reduce the administration costs of work order management and eliminate the manual paper processes. Compliance reporting is important for the facilities managers to ensure maintenance is completed on time. The complexity of managing multiple vendors can be achieved by our platform. Facilities management includes 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 the rollout with Colliers, which is on track for September 2022. And this should provide us with further opportunities with that customer and also lend credibility with other facilities managers, particularly in the commercial space. We will continue to focus on Tier 2 and asset owners in the aged care, utilities, mining and education sectors. 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 27 provides a high-level view of our FM platform and some of its key features. We'll continue to develop some of these features with the work we're doing with Colliers to provide a deeper and more comprehensive functionality. On Slide 28. This shows our management process from winning work to post-sales support. So our direct sales model is reliant on subject matter experts selling to strata and facilities managers. And we found that in both sectors, our most effective salespeople are those who have a deep understanding of the strata and FM worlds. Our investment in marketing over the past 12 months into various trade shows and social media has improved in brand inquiries. A number of recent go-lives with 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've invested in more automation in recent months to reduce the time required to map and load data into our system. In prior years, we've invested in a modern subscription system, which simplified our billing process for customers and has also been effective in our debtor collections. Slide 29 provides an overview of the drivers for Urbanise's growth. The immediate horizon one objective is to expand and maximize our footprint of strata lots and facilities users in our core markets. Our key revenue drivers will be license fees and professional fees. We will expand to other regions once we've firmly established ourselves as a major or a leading player in our core markets. And this will be achieved through the increasing maturity of both products, ensuring they meet the requirements of direct customer input and our own research. We will continue to sell via a direct sales model. Looking forward to the next 2 horizons, the footprint of lots and users can facilitate increased revenues from additional features and services embedded within our products. We've seen some green shoots from such initiatives such as printing and invoice scanning services that we offer to strata managers. Indirect sales by our partners can be considered as we gain scale in our markets. The FY 2023 outlook is summarized on Slide 31. We will continue to drive our pipeline and revenue across our core markets in Australia, New Zealand, the UAE and Asia. We have $1.2 million of backlog to clear over the next 6 to 9 months, leading to additional ARR. Part of this backlog includes Colliers, a Tier 1 FM customer. Our development should help deepen our product for the Tier 1 and Tier 2 FM markets. We remain on track to deliver cash flow sustainability. And then finally, the search continues for a new CFO and for a Nonexecutive Director with SaaS and software experience. I'll now hand back to the operator and open it up for any questions.

[Operator Instructions] The first question comes from Shuo Yang from Microequities.

Just a question on the pace of deals moving through your sales pipeline. Just wanted to understand whether there's been any noticeable changes in terms of the pace of deals moving through the pipeline?

Yes. Certainly, in that last quarter, Shuo, it's moved a lot quicker. And I'm seeing with our pipeline and particularly Paul and his impact to the business, Paul Mitchell being our Chief Revenue Officer. As you know, we made some changes to the team just post Christmas in the second half. And we've been really cultivating some of that pipeline and generating more leads over the last -- since he joined. So I am starting to see -- the short answer is yes. I'm seeing the pace increase or pick up. And really to that note, I guess, the types of opportunities we're seeing are very consistent with what we've executed before. So those large strata deals in the Middle East we've certainly got pipeline there. We're working quite closely with FM outsourcers that we -- existing customers now on new contracts that they're trying to secure. And we have a good range of small to medium strata managers that we're pursuing here in Australia as well. So I think what that -- the pace is really down to the focus that Paul has brought to the team. But also, there is a number of trends we're seeing in the market now as well, particularly in the Middle East as some of the developers out there will be seeing some of their buildings come online. So when I say buildings come online, finishing construction over the next 12 to 18 months. And what that means for them is that they must have a system in place to ensure that they can manage those buildings. So there's a high volume of buildings to manage. The other thing that we're seeing over there in the Middle East, particularly, is their increasing legislative requirements coming out of RERA, which is the Real Estate Regulatory Authority, and there's a RERA for every sort of UAE state that will be driving requirements. And so fines and penalties will start to apply to the strata managers with that and become more difficult for them to manage. So I'm starting to see this, I guess, the demand on one side ramping up and also, I guess, from our own perspective, internally, I guess things are just getting a lot better with Paul driving the ship there.

Yes. Understood. And just in terms of the capacity within your team to implement deals as you win them, just sort of give us an indication of how much sort of spare capacity you have to handle, say, if there was an uplift in backlog?

Yes. If I might just refer to the slide just so you can see our numbers. On Slide 12, you can see we did increase dev and implementation costs. Now of course, as I mentioned earlier, we did make some changes to dev in the year, but we also -- we did spend more cash on dev for Colliers. So we ramped up our Vietnamese team there. So there's a team of contractors working specifically on that development. And the reason we did that, of course, was to try and create a scale-up/scale-down situation. But the other part that we did invest in during the year was implementation in the Middle East. We've got a good team, core team, here in Australia of FM implementation staff and strata. But we have invested a little bit more into the Middle East ahead of some of these opportunities. They're fully utilized on some of the work we're doing out there. But we are quite well placed there. And we're going to probably spend a little bit more time flying a few of our staff into that region as and when we need to, to train up any new staff as well. So we have a sort of operational training plan around that. Part of the reason we invested into bots as well for migration was to ensure that we could move through data migrations for the strata platform a lot quicker without having to hire more and more staff to do the manual hand cranking. So I think we are quite well placed to take on more work ahead of time, and I think part of that is obviously leveraging the knowledge of our core team and be able to train people up when we need to.

Okay. No, that's clear. And just in terms of the -- some of the acquisitions that are being done by PICA, and that's obviously flowing through to you guys. Can you sort of just give us an indication of how much they're acquiring or winning in terms of work each year and maybe strata lots roughly if you're able to give that?

Look, a bit difficult for me to comment on their overall -- like it's really a matter for them to report and there's a level of confidentiality that I have to maintain. But they do have a mandate to acquire, Shuo. It will depend on their ability to, I guess, secure that against everybody else who's also trying to acquire as well. So I think if you look across that landscape and a lot of this is out there in the public domain, it is competitive to be acquiring the strata managers, whether it's small, medium and -- it's probably more on the small to medium size, I think. But look, they certainly have a mandate to acquire and grow substantially. So of course, the success they have will be down to a number of things. Obviously, having a platform like ours to service new acquisitions, but also it depends on deal acquisition parameters.

Understood, yes. Just last one, just in terms of the cash balance. Can you sort of give a rough indication of where you would expect the trough of your cash balance to be for this financial year?