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

Thank you for standing by and welcome to the Urbanise.com Limited, UBN, H1 FY 2023 results. [Operator Instructions] I would now like to hand the conference over to Mr. Simon Lee, CEO. Please go ahead.

Good morning, everyone, and thank you for joining us for the presentation of Urbanise's half year FY 2023 results. With me today is Dave Goldbach, our CFO, who joined Urbanise in October 2022. And we're pleased to have Dave onboard. Turning to Slide 2. Urbanise is a leading provider of cloud-based platforms to strata and facilities managers in Australia and New Zealand and parts of the Middle East and Asia. As of December 2022, the business had $12.3 million in contracted annual recurring revenue or CARR, and 88% of total revenue came from recurring licenses. Both our strata and FM platforms are extremely sticky, with a combined customer retention rate of over 96%. We have an extensive global footprint with a presence in 17 markets, with our core markets being APAC and the Middle East. Slide 5 provides a summary of the key metrics for H1 FY 2023 against pcp. License revenue increased by 2.6% on pcp, which was impacted by the loss of 3 Ventia contracts in Q4 FY 2022, last year, which followed the implementation of a single standardized enterprise system across that business. Ventia continued to use us across its Anglo American contracts. Excluding those 3 Ventia contracts, underlying license fee growth was up 8.6% versus pcp. Total revenue was down 0.6% on pcp due to a 19% decline in professional fees resulting from an integration delay resulting in a -- relating to a major customer and the inclusion of a significant one-off project in H1 FY 2022. ARR was 0.6% lower versus pcp and totaled $11.28 million. New customer and organic growth across strata and FM largely offset the loss of the Ventia contracts. Excluding these contracts, ARR growth was up 5.2% versus pcp. We've continued to make good progress in replacing the lost Ventia ARR. Since June 2022, ARR has increased by $430,000. And we recently secured, in February, an agreement with a leading strata manager in the Middle East, which will deliver a further $200,000 in ARR once go-live occurs in the second half of this year. Contracted ARR was marginally higher on pcp at $12.3 million, with backlog relating to strata lots for PICA and facilities customers, including Colliers. The closing cash position was $2.83 million, and Urbanise has no material debt. Underlying average monthly cash used, which excludes one-off items and late receipts, was $98,000 compared to $347,000 in H1 FY 2022. We also made significant progress towards achieving a sustainable cash position and exceeded our cash burn reduction targets of $2.5 million with $2.71 million secured through cash in advance and cost-out initiatives. Our customer retention rate for the half was 96.3%. This is based on the number of unique customers using our FM and strata platforms. The ARR retention rates was 99% for strata and 97% for FM. The average value of the customers lost was 14% -- $14,000, relating to small strata managers and small FM customers in APAC, one of whom had funding issues. Slide 6 shows our contracted ARR growth on the first graph and then relationship between ARR and license revenue on the second graph. CARR increased by 0.4%, versus pcp, to $12.3 million at December 2022. The business has consistently carried backlog since this metric was first reported in June 2019. The value of the backlog across this period includes large projects that take time to implement such as PICA and Colliers. The decline in ARR in December 2022 compared to December 2021 reflects the loss of $630,000 in ARR from the 3 Ventia contracts. As noted earlier, we are on track to replace [ these earnings ] by the end of FY 2023. Slide 7 provides a breakdown of ARR between strata and facilities management. Total ARR declined by 0.6%, versus pcp, due to new customers and organic growth largely offsetting the loss of the 3 Ventia contracts. Excluding this, ARR increased by 5.2%. The backlog includes strata lots acquired by PICA. And the FM backlog consists of a number of customers, including Colliers. We are focused on implementing our backlog, with revenue recognition depending on reaching project milestones and customer readiness. As mentioned, we have recently secured a new agreement with a large Middle East strata manager. This added $0.2 million to the strata backlog but does not appear in the backlog at 1 January 2023. Slide 8 shows our ARR mix by product, region, size and type of customer across our FM and strata portfolios as at December 2022. Strata is currently the larger part of our business, with Australia our biggest revenue base. Within our FM portfolio, FM outsourcers contribute almost half of our revenues. Strata asset managers such as Nakheel and Dubai Asset Management in the Middle East use our integrated strata and FM platform. The strata portfolio in Australia and the Middle East includes customers that range in size from an average contract value of $5,000 to $600,000, with smaller customers making a good proportion of our portfolio. These customers represent a significant opportunity for the business. And Urbanise is investing in product development, which is expected to accelerate sales for this group. Our recent agreement with a leading strata manager in the Middle East highlights the opportunities in this region. Once implemented, this contract is expected to contribute $200,000 in ARR. Although we do not disclose our pipeline, the types of customers we are targeting is similar to our current portfolio. We continue to work with Tier 1 and Tier 2 FM customers who are growing, and there are opportunities [ of getting other ] Tier 1 and Tier 2 customers onto our platform. Our pipeline includes asset owners within the aged care, retirement villages and commercial property space, verticals where we continue to develop a strong presence. In the Middle East, there are large property developers who need dedicated strata platforms as their current accounting systems are no longer adequate and to ensure they are compliant with rapidly changing regulatory requirements. Our integrated strata and 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. We continue to support the large -- support the existing large customers such as PICA as they continue their journey in 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. Slide 9 shows the cash burn over the past 4.5 years, on the first graph; and net working capital, on the second graph. Net cash used reduced by $1.9 million in H1 FY 2023, versus pcp, due to the successful execution of $2.7 million in cash burn reductions over 12 months and the inclusion of one-off employee termination costs in H1 FY 2022. Net working capital remains negative and continues to progress due to the sales growth and cash in advance. Managing cash remains a key priority, and the Board believes that Urbanise has the resources to achieve a sustainable cash position. I'll now hand over to our CFO, Dave Goldbach, who will go through the results in more detail.

Thanks, Simon. And good morning, everyone. The financial summary on Slide 11 shows the headline figures for the half. License fees were up 2.6%. And professional fees were down by 19.2%, which was due to an integration delay relating to a major customer and the inclusion of a significant one-off project in pcp. Overall, total revenue was marginally down on pcp. Operating expenses of $8.5 million for the half were 1.7% lower on pcp. This resulted in an EBITDA loss of $2.1 million, which was a $106,000 or 4.7% improvement compared to pcp. Urbanise's net loss of $2.8 million was an $823,000 improvement, compared to pcp, mainly due to a reduction in head count in H1 FY 2023 resulting from restructuring activities completed in H2 FY 2022 as well as one-off employee costs in pcp. The waterfall bridge on Slide 12 highlights the growth in license fees between H1 FY 2022 and H1 FY 2023. FM license fees were 2.4% lower, versus pcp, primarily due to the loss of Ventia. This was partly offset by the conversion of backlog and new contracts and growth from existing customers. Excluding the Ventia loss, FM license fees increased by 15.5%. Strata license fees increased by 5.8% due to new customers and organic growth. Professional fees decreased due to the integration delay of a major customer and a significant one-off project in H1 FY 2022, as noted earlier. The waterfall bridge on Slide 13 shows the reduction in expenses between H1 FY 2022 and H1 FY 2023. The decline in total expenses is due to the following: one-off employee termination-related costs in H1 FY 2022; and lower head count in H1 FY 2023 due to restructuring activities completed in H2 FY 2022, which focused on sales, marketing and development staff. These were partially offset by additional implementation and customer support staff; investment in Middle East developments by contractors and associated costs; third-party software that directly drives license fee growth; AWS costs; and the inclusion of development costs in operating expenses in H1 FY 2023, which was capitalized in pcp as a result of the change in accounting treatment for capitalization as of 1 July 2022. Slide 14 shows the performance of the facilities management platform for the half year till 31 December 2022. Facilities management revenue was 13% lower on pcp. License fees decreased by 2.4%, with growth in new and existing customers offset by the Ventia loss of $300,000 in revenue for the half. Pleasingly, license fee growth excluding these Ventia contracts was up 15.5%. The decrease in professional fees reflected the integration delay of one major APAC customer and a one-off project in pcp. There were around 2,450 facility users billed for the month of December 2022. And the backlog at 1 January 2023 includes 5 contracts and is valued at around $700,000. Turning to Slide 15. The strata platform's performance for the half year showed solid revenue growth from existing customers and the rollout of backlog customers. Strata license fees increased by 5.8%. And professional fees were 37.5% higher due to a major project with a Middle Eastern customer. The number of lots billed was around 689,000 for the month of December 2022. The backlog of $300,000 largely reflects additional strata lots for PICA. As mentioned, Urbanise has recently secured a new agreement with a large strata manager in the Middle East. This is expected to contribute approximately $200,000 in ARR. It is additional to the strata backlog at 1 January 2023 and is expected to go live in the second half of the year. Our cash flow statement, on Slide 16, shows our closing cash position of $2.83 million at 31 December 2022. Underlying average monthly cash used was $98,000 in H1 FY 2023 versus $347,000 in pcp. The reduction in cash burn is mainly due to cash outflow in H1 FY 2022 relating to nonrecurring exceptional items, which were primarily termination costs; lower salaries and wages in sales, marketing and development staff in H1 FY 2023 due to the restructuring undertaken in FY 2022; as well as cash-in-advance initiatives. Cash receipts were $7.14 million, an increase of 11.9% compared to pcp driven by revenue growth and our advanced billing strategy. Slide 17 shows our progress in managing cash over the past 5 years, with the dotted line depicting the average monthly cash used excluding capital raised. As you can see, we've achieved a significant turnaround in the past 12 months through sales and development team restructuring and cash-in-advance initiatives. The balance sheet, on Slide 18, shows our closing cash position of $2.83 million with no material debt. Debtors increased by $1 million since last June largely due to late receipts, primarily in the Middle East. Development relates to the capitalization of development costs. The reduction from June 2022 reflects the change in accounting treatment, as the development costs no longer meet the accounting requirements for capitalization. I will now hand back to Simon.

Thanks, Dave. And I'll now briefly address our growth strategies. Slide 20 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 facility users in our core markets. Our key revenue drivers will be in license fees and professional fees. We'll expand into other regions once we've firmly established ourselves as a major or a leading player in our markets. And this will be achieved through the increasing maturity of both products and ensuring they meet the requirements of direct customer input and our own research. We will continue to sell via a direct sales model. And 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, invoice scanning services that we offer to strata managers. Indirect sales by our partners can be considered as we scale in our markets. 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 of perhaps 10 buildings or more. Managing buildings within legislation, banking transactions and financial reporting can be onerous without software; and we can solve this problem. We have a cloud-based platform which is a result of very -- significant development over the past 5 years. We've designed a modern user interface and experience for strata managers. 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 in the sector. 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 a focus on small to medium strata managers. And we will continue to pursue larger strata managers like PICA. The Middle East strata market is undergoing rapid change, with many large strata managers reviewing their ability to meet current and future real estate regulatory authority requirements at RERA, as they call it. RERA has recently increased its requirement for strata managers to integrate their databases [ to port ] property and customer information, which is a drive to improve compliance. This includes data mostly contained within strata and FM systems. All software companies in Dubai [ are competing ] to ensure they can integrate and support those strata managers. We're in a unique position to lead the market given our integrated platform between FM and strata and our experience in handling large portfolios and significant volumes of work orders through both systems. And Urbanise is pursuing acceleration to meet RERA requirements. Over the past 6 months, we've reviewed our Middle East product and funding strategies to take advantage of this opportunity. The Board and the senior management team are of the view that Urbanise can secure more customers quickly, whether they're first-time adopters or won from competitors in the region. Our first strategic consideration is to maintain a close working relationship with RERA to ensure our product road map is clear and efficient. We are engaged directly with RERA's technology arm Mollak on a regular basis via our team in Dubai. Secondly, we have increased development costs and activity by [ scaling up ] on fixed-term resources up until September 2023. The development is focused on both strata and FM functionality, integrations and reporting. And thirdly, we are working with customers to fund these requirements. Our first step in that regards was to agree a cash-in-advance license agreement with one of our major customers in the region. As I mentioned earlier, in February, we did secure a new $200,000 license fee agreement with a leading strata manager in the Middle East. Our product road map, integration into Mollak and a growing portfolio of reference customers were all factors in that customer's decision to go with Urbanise. The contract covers part of this customer's existing portfolio, and we will be targeting the remainder of that portfolio as part of our sales drive. Slide 22 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 admin costs of work order management and eliminate manual paper processes. Compliance reporting is important for FM, facilities managers, to ensure maintenance is completed on time. The complexity of managing multiple suppliers or vendors can be achieved via our platform. Facilities management follows a direct sales model as well, which is supported by marketing and a network of relationships that we have with facilities managers. In APAC, the Colliers project is nearing completion. The project did require further work to integrate the customer's third-party compliance system, which caused our original go-live date to be delayed to Q3 FY 2023. We are pleased with the level of functionality our FM platform now has for the markets we're targeting. Recent feedback from customers and our target pipeline has been very positive and as our product provides end-to-end coverage for managing the maintenance and the trades contracted to do the work. To complement our functionality, we recently agreed -- reached an agreement with a third-party integrator to assist customers with integrating our platform into their other systems. And this allows us to refocus our products -- our development on our products and allow our customers to gain flexibility to embed their own -- to embed the FM ecosystem of their choice. Slide 23 shows our management process from winning work to post-sale support. Our direct sales model is reliant on subject matter experts selling to strata and facilities managers. We've 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 includes various trade shows, social media; and that has improved inbound inquiries. A number of go-lives with large reference customers have also been helpful to increase brand awareness. The implementation process can involve 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. It is a strategic priority, to optimize the migration process, to reduce the time taken to convert our backlog to ARR. And finally, the H2 FY 2023 outlook is summarized on Slide 25. So we will continue to drive our pipeline and revenue across our core markets in New Zealand and UAE and Asia. We will continue to implement our backlog, with revenue recognition subject to key milestones and customer readiness, and this includes the recently secured contract with a large Middle East strata manager. Part of the backlog relates to Colliers. And our development should help deepen our product for our target markets. We'll progress our strata development in the Middle East, as mentioned, to grow our customer base in that region. And it's a priority, to reduce our cash burn to a sustainable level, and we will continue to closely monitor our cash requirements. I'll now hand back to the operator to open up for any questions.

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

Just a quick one. Could you talk a little bit around, [ and particularly on ] Slide 12, the organic growth that you're seeing within your customers and what types of things you're seeing in that?

Yes, the organic growth. I'll talk about strata and then I'll talk about FM. Organic growth, generally, in strata comes from strata managers securing new lots under management, so that could be then winning work from other strata managers, particularly in Australia and for those what I call pure-play strata managers in the Middle East. It can also come from acquisitions as well. So as I mentioned in the presentation, in Australia and in the Middle East we do see some consolidation play. What are the key drivers behind consolidation? It will be obviously top line growth for those businesses; and also where they see there will be some cost synergies [ assumed and ] their own, I guess, way of doing things to grow their businesses. So that's generally where we see organic growth come to us, I guess, via our existing customer footprint, in strata. On the FM side, it's similar. It's when our facilities managers secure new contracts. So again they're very similar to us. They are seeking recurring revenue from their customer base. [ So they're ] securing other assets that they're going to manage, and they will -- then that will add to our number of users and we will see some organic growth. As we continue to sort of pursue those, the commercial property space, what we'd expect is that companies like Colliers will also be looking to secure more buildings under management, so we'll expect that to be a driver of organic growth in the future.

Perfect. And can you also just have a few -- or give your thoughts sort of around where you see the cash runway at the moment?

Yes. Look. The Board and senior management, including obviously Dave, myself and the sales team, review our cash on a very, very regular basis every 4 weeks. And I'll break it down as to what we look at. We obviously look at our cost base, our cash cost base. We look at our sales pipeline and sales conversions together with professional fees. And we look at our cash-in-advance strategies. [ Those are the main 2 points of ] what we look at. And we look at it -- obviously the cash balance at any point in time. So at the end of December, that was around $2.8 million. We had some -- I guess, some late receipts that we flagged in the presentation [ but then ] some debtors that should have paid within December. We take that into account and we look at what does that look like for our cash flow forecasting. At this point in time, our view on the cash runway is it's sufficient for growth. And we will continue to monitor as a board and as managers within our senior management team. Obviously the key part of that is sales conversions and asset classes are 2 main focus areas.

Sure, makes sense. And just, I suppose, in terms of the backlog and the timing that -- of that backlog [ in terms of obviously ] roll-on and seeing the ARR grow through the backlog, can you sort of talk about that, how long you anticipate that backlog to take to roll on -- or to come live, I suppose?

Yes. Again I'll focus on strata and FM separately. A good proportion of our backlog is associated with development we're doing with Colliers. And so in terms of implementations, implementation efforts, in that regard, it's not so much implementation as it is development efforts. So as we go through the next quarter, I do expect that we'll complete the integration required for that customer. And we would expect some -- expect to see that ARR come through. So that's really facilities management. Other than that, generally speaking, our implementation process can be cycled through much quicker. So that one is -- that means, I guess, really [ hanging off ] development that we're doing on the products. In regards to strata. And we will -- we've got a number of large and small to medium customers. We've got a range of customers in that backlog. And similarly, I think most of the -- most of that will require migration efforts. And we do have one large customer in there where there was -- it's lots that they've acquired or branches, strata branches, they've acquired. And we're pursuing to cycle through that migration as soon as possible, but we are waiting for a decision as to when we can start that work. What that comes down to is whether the customer is ready to make that move. Migration effort on our part means extracting data from an incumbent system and mapping it and then loading into our system, but it is also a big operation for the customer. And they need to carefully plan that on their side so that they can cut over from our -- from their system and into the new system, and that requires a lot of coordination on their side. So we're expecting that we'll move through some of that migration in this half, but we are waiting for some decisions from one of the large customers.

Perfect. And final question for me. Can you sort of talk a little bit around the trade receivables and the movements there?

Dave, I'll hand over to you.

Sure. Happy to take that one, yes. So trade receivables, as you've probably seen, has increased in this half by about $1 million compared to last half. I think we spoke about it in the presentation, but more than half of that is to do with 2 customers in the Middle East with some late receipts. We've managed to collect from 1 of those customers already in this quarter. And then the other half, working directly with that customer, and I'm confident that we'll collect it by the end of this quarter. I would say that, as a general comment, I'm confident around the collectability of that, of the debt. And despite that increased, I'm definitely confident [ on like ] collectibility, but I guess, as a new CFO, I'm -- I will admit that I'm not quite happy with the increase and the age of the debt at the moment, so I do have with my team a renewed focus on collection. And that is something we are focused on at the moment as a finance team, so expect to see some improvement on the collection and the aging debt shortly.

[Operator Instructions] There are no further questions at this time. I will now hand back to Mr. Lee for closing remarks.

I want to thank you all again for your time this morning. I believe that Urbanise is very well placed to deliver long-term sustainable growth which reflects our highly recurring revenue base, our innovative platforms and growing sales pipeline. The Board and the management team continue to work hard to execute on our strategies and progress towards a sustainable cash flow position. I look forward to updating you on the business at the next quarterly results. Many thanks, and good morning.

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