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

Good morning, everyone, and thank you for joining us for the presentation of Urbanise's FY 2024 Results. With me today is Michelle Garlick, who we're delighted to recently announce as now our permanent CFO. Today, I will begin by providing an overview of our FY '24 results before talking briefly about our products and markets. I'll then hand over to Michelle, who will take you through the FY '24 result in more detail. Finally, I will touch on the outlook before opening it up for Q&A. Turning to Slide 3, 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. Our software provides customers with automations and comprehensive functionality to allow them to run their businesses. As of June 2024, Urbanise had $12.2 million in contracted ARR, annual recurring revenue of CARR and 93% of total revenue came from recurring license fees. Our ARR retention rate through FY '24 was 87%, which I will address in later slides. We have an extensive global footprint with a presence in 18 countries, with our core markets being APAC and the Middle East. Slide 4 provides a summary of the key metrics for FY 2024 against prior comparative period or PCP. License revenue increased by 5.1%, with license revenue growth of $1.7 million, partly offset by $1.1 million in revenue reductions. License fee growth of $1.7 million came from new wins in FY 2024, the implementations of the 1 July 2023 backlog and organic growth. New wins were primarily from small to medium strata managers in Australia, aged care and FM service providers in APAC and MENA. The $1.1 million in revenue reductions related to customer loss and a temporary license fee reduction from a large APAC customer. Total revenue was down by 1.9% versus PCP due to a 48.3% reduction in professional fees, which reflect the strategy to reduce the bespoke developments. ARR was marginally higher on PCP and totaled 11.6 million. New customer and organic growth across strata and FM offset the loss of customers and the license reductions. CARR reduced by 1.6% on PCP to $12.2 million with backlog mainly relating to strata lots for a large APAC customer. The closing cash position was $1.9 million, which was impacted by 1.2 million in late payments from the 3 Middle East customers. These customers have committed to paying over the next 3 months in this quarter with over $1 million received up to -- to date. Urbanise has no material debt. The underlying average monthly cash used was $146,000 for FY 2024, which compares to $223,000 in FY 2023. The customer retention rate in FY '24 was 83.2% for strata and 81.5% for FM. And this is based on the number of unique customers using our FM and strata platforms. The ARR retention rate was 89.3% for strata and 82.6% for FM. The average contract value of the customer loss was $34,500. The strata customer retention rates has been impacted by numerous small customers, generally below -- each below $500 in annual billing. Over the course of FY '24, we have introduced a minimum pricing rates, which has had some impact. The FM customer retention rate has been impacted by some residual South African customers, who we are no longer supporting. The ARR retention rates for strata has been primarily impacted by customer churn in H1 FY 2024 related to 1 APAC customer in Q1 for around 120,000 ARR and on MENA customer in Q2 for 145,000 in ARR, both previously [ in end ] to the market. Both customers were lost due to consolidation of systems through acquisition. The ARR retention rate for FM has been adjusted for Colliers ARR. On 24 July 2024, Urbanise announced that it had entered into a contractual dispute with Colliers Australia to resolve claims for outstanding fees and costs to develop their platform. Colliers Australia claimed for early termination of contracts, and Urbanise are disputing the [ ability ] of that termination. Now based on legal advice received by the company, Urbanise believes that significant cost and fees are recoverable under the contract. The matter has not been resolved, yes, and the Urbanise will pursue to resolve that dispute at the earliest opportunity. Urbanise believes that there is a strong legal basis for the claim. However, the outcome of any resolution is, at this stage, uncertain. Urbanise's contract with Colliers New Zealand is not affected by the dispute and will continue. Total contract ARR for Colliers is $680,000. The total ARR being recognized at the time of the recent announcement was $500,000. The total ARR at the end of June, 30 June, 30 2024, of $11.6 million does not include any ARR for Colliers Australia due to the outcome of any resolution being uncertain at this stage. Turning to Slide 5. This provides an overview of the drivers for Urbanise's growth. The immediate Horizon 1 objective is to expand and maximize our footprint which strata lost and the facilities users in our core markets. Our focus is our current geographical markets where we have existing teams, customers and a sales network. We do continue to identify future potential geographical markets, for example, where strata legislation has been adopted. And we'll expand into other regions once we have firmly established ourselves as a major or leading player in our core markets. And this will be achieved through the increasing maturity of both products, ensuring that they meet the requirements of direct customer input and [ spiral ] research. Horizon 2 opportunities involve increasing revenues with additional features and services. We continue to develop features and services that can further automate our customers' business processes, improve reporting through analytics. And we also offer [ digital ] training and customer support services. And finally, in Horizon 3, we will leverage our footprint to deliver additional services to our customers. Our customer footprint provides valuable access to customers or suppliers to the strata and FM industries. On Slide 6, shows our progress and outlook against each Horizon. During FY 2024, we achieved new sales of $1.04 million ARR, including sales to small to medium strata managers in Australia, FM service providers in APAC, MENA and aged care providers. Looking forward, we can increase our sales run rate and market share, for example, through targeting of our on-prem competitors and using cheaper variable overseas resources to accelerate migration from competitor systems. There is a huge focus on customer retention from small to large customers through a dedicated customer success management, surveys and feedback channels. For our Horizon 2, we have developed additional features and services, of which we have begun to offer separate pricing. Expect that this will help drive ARR and professional fees. Our Horizon 3 strategy has already commenced with an integrated solution that connects strata managers with the service providers. And we were pleased to secure a partnership with LevyCollect that allows customers to connect to debt collection services. Over the first half of FY 2025, we are focused on securing key partnerships in the banking sector to improve how strata managers can manage the numerator strata scheme bank accounts. We estimate that the total value of this expanded market opportunity is $30 million to $54 million. Slide 7 provides a breakdown of ARR between strata and facilities management. Strata ARR was flat versus pcp. FM ARR was 1% up versus pcp. As I noted earlier, FM ARR exceeds ARR from Colliers Australia. The backlog includes strata lots acquired by a large APAC strata manager. Both FM and strata include other small customers in the backlog. An overview of our strata products on Slide 9. Our product provides or offers an unparalleled automation for strata managers. So from the point where strata committees approved strata budgets, all the ways to the bank reconciliation process where cash is collected for levies is -- can be almost completely automated. And this brings significant time and cost savings to a strata management business. Our Community web app, iOS and android applications bring portal services to property owners, allowing to access strata scheme information, and it creates an online communication channel between strata managers and the owners. Our public APIs extend functionality and data to other systems, including the recently added LevyCollect partnership, which connects strata managers to debt collection services. Slide 10 provides some feedback from our customers in terms of testimonials on the mission-critical nature of our platform. Turning to Slide 11, Urbanise FM offers an all-in-one professional facilities management solution, encompassing a comprehensive works management, asset management, compliance and integration system. And same to strata, our public APIs allows customers to connect their ecosystem to our platform with existing integrations with Rapid Global and LinkSafe. Our customer portal and mobile phones applications extends the functionality from desktop users to end customers and trade staff. Similarly, on Slide 12, we have some testimonials there showing recent feedback from current customers as our product provides end-to-end coverage for managing maintenance [ and trades ]. I'll now hand over to our CFO, Michelle, who will go through the results in more detail.

Thanks, Simon, and good morning, everyone. The financial summary on Slide 14 shows the headline figures for FY '24. License fees were up 5.1% to $11.7 million with revenue growth of $1.7 million, partly offset by revenue reductions of $1.1 million. Professional fees were down 48.3%, and total revenue decreased by 1.9% on prior year. Operating expenses of $14.6 million were 14.3% lower than the prior year due to $2.4 million in cash flow improvements identified in the first quarter, which have now been largely implemented. The EBITDA loss of $2 million was 52.1% lower than $4.2 million in FY '23. Urbanise's net loss of $3.5 million was a $2.2 million improvement on the prior year. Slide 15 shows the relationship between ARR and license revenue on the first graph and our contracted ARR on the second graph. We achieved contract wins amounting to $1.04 million in ARR. However, we only saw a slight increase of 0.3% since June 2023, bringing us to $11.59 million. The growth was affected by the loss of some customers, including Colliers. CARR is comprised of ARR and backlog, which is yet to be implemented. CARR reduced 1.6% to $12.2 million at June 2024. New customer wins and organic growth were offset by ARR and backlog reduction from Colliers Australia. Slide 16 shows our ARR mix by product, region, size and type of customers across our FM and strata portfolios at June 2024. Strata is currently the larger part of our business, with Australia our biggest revenue base. The strata portfolio in Australia and Middle East includes customers that range in size from small to large customers. However, smaller customers make up a good proportion of our portfolio. Within our FM portfolio, FM outsourcers contribute almost 60% of our revenues. Turning to Slide 17. Strata license fees were flat in FY '24 versus pcp, with new wins of $367,000 and customer growth [Technical Difficulty] offset by customer losses and a temporary reduction in license fees from a large APAC strata customer. Adjusting for a temporary reduction in license fees, underlying strata license revenue increased 6.1%. Professional fees were 62.5% lower, mainly due to the completion of key customer projects in the prior year and the strategic decision to reduce customer development. We also made it quicker and cheaper to implement our solutions, which reduced fees, strengthened our competitive position, added value for customers and will speed up onboarding of new clients. The number of lots billed was around $652,000 for the year. The backlog of $500,000 largely reflects new customers not yet implemented and additional strata [ lots ] for a large APAC strata customer. Slide 18 shows the performance of the facilities management platform for FY '24. FM revenue was up 8.3% on pcp. License fees increased by 16% due to growth in new and existing customers, including FM service providers, aged care; and offset by small customer churn. The decrease in professional fees was due to the implementation of large FM service providers in FY '23. There were around 2,900 facility users billed in the month of June. The backlog at the 1st of July '24 included 6 contracts and is valued around $100,000. The waterfall bridge on Slide 19 shows the movement in expenses between FY '23 and FY '24. Operating expenses decreased 14.3% to $14.6 million, following a comprehensive operational review in Q1 '24. This reduction was driven by operational efficiencies, the completion of major development projects, the decision to reduce bespoke development and new faster, lower-cost implementation methodologies that benefit customers, accelerate time to revenue and increase our competitive advantage. The reduction in development fees coincides with the headcount reduction for developers in FY '24. Slide 20 shows the cash used over the past 4 years on the first graph and net working capital on the second graph. H2 FY '24 receipts decreased due to payment process disruptions caused by the consolidation of 2 Middle East customers. H2 '24 payments decreased by $2.2 million on H1 '24 due to the annual third-party subscription costs and one-off employee termination costs in H1. Net working capital remains negative and reflects sales growth and [ cash-in-advance ] initiatives. Managing cash flow remains a key priority, and the Board believes that Urbanise has the resources to achieve a sustainable cash position. Slide 21 shows our progress in managing cash over the past 3 years, with the dotted line depicting the average monthly cash used excluding capital raises. Underlying average monthly cash used was $196,000 in FY '24 versus $252,000 in FY '23, excluding the capital raise. Urbanise is on track for cash flow breakeven. Our current run rate shows $11.6 million in ARR with an additional $1.9 million from professional fees, CPI adjustments and backlog. With current costs at $14.1 million, this leaves us with an annual cash [ flow ] of $0.6 million, which we anticipate covering through our expected growth in ARR. Urbanise continues to review its cost base and working capital strategies. Our cash flow statement on Slide 22 shows our closing cash position of $1.9 million at 30th of June 2024. Receipts of $13.4 million, reduced by 2.1% due to the pausing of payments caused by the consolidation of 2 Middle East customers. To date, we have collected over $1 million of those delayed payments from the Middle East. Underlying average monthly cash use was $146,000 in FY '24 versus $223,000 in FY '23. The balance sheet slide on Slide 23, a closing cash position of $1.9 million with no material debt. Debtors increased $1.29 million since June 2023, largely due to the late receipts in the Middle East. I will now hand back to Simon.

Thanks, Michelle. And I will now briefly address the FY 2025 outlook, which is summarized on Slide 25. So over the past 12 months, the Urbanise team has focused on the execution of our growth strategies, [ completion ] of our sales pipeline and the delivery of significant cash flow improvements. Looking forward over FY '25, our key priorities include increasing our sales run rate to maximize market share, including capturing market share from on-prem competitors; improving our ARR retention rates through increased customer engagement, enhancing license and professional fee profitability by selling additional features and services. We're going to pursue these key partnerships and clean those in the banking sector to realize an expanded market opportunity, estimated in total at $30 million to $54 million. And we'll continue to drive improvement in working capital, closely monitoring our cash requirements as we progress towards the target of getting to cash flow breakeven in FY 2025. I'll now hand back to Francoise to open it up for any questions.

Thank you, Simon. Our first question comes from -- was received by e-mail, and it comes from Patrick [Conlin ]. Can you provide an update on the expanded Strata Opportunity? And when you expect to see material revenue coming through?

So in the third quarter of FY '24, we announced to the markets that we had substantially completed an integration solution leveraging our APIs on our strata platform, which would allow customers to connect to service providers on the basis that there's an efficiency gain there. So when I talk about service providers, service providers into the strata industry. In Q4, we had our first milestone partnership, with an example, that service provider is LevyCollect. LevyCollect is a software platform that handles legal matters. So when there's an outstanding levy on the strata scheme, strata manager can push that through automatically to LevyCollect, and that is then handled by debt collection services. So looking forward, we are looking at the expanded market opportunity, which we estimate in the total addressable value [ about marking ] is around $30 million to $54 million. And our focus on the next half is around the banking sector and connecting strata managers with efficient providers in the banking space. So strata managers have to manage numerous strata scheme banking [ heads ], which is quite different from the real estate or the leasing side of things, but they have numerous bank accounts to manage. And there's a huge gain to be made through our platform and the connection up to a bank essentially. And we're pursuing these key partnerships, we have a number of these discussions already in play. And over the next 2 quarters, we are targeting to secure one, if not more, partnerships in this space, in relation to that total addressable market of $30 to $54 million. I'll make note that we're not relying on that for our cash flow breakeven targets. However, we do think it is a significant opportunity for the business. And we would -- we are targeting for some revenues towards the end of H1, if not early H2. And we'll be able to advise the market on what we believe will be the projections for the revenues and our, I guess, market share of that opportunity in H2.

Thank you, Simon. We have another question received by e-mail from Ben Gardner. How should we think about your professional fees moving forward, given the large decline that we saw at this result?

Yes. So the professional fees were lower than the prior comparative period by 48.3%. In the prior year, we've had undertaken some significant development for some key customers, including Colliers, of which there is a bespoke development undertaking. Now as we reduced our professional fees in that space, we are also kind of excited with a reduction in the headcount. So we -- over the course of FY '23 and the first quarter FY '24, we will continue to do some major development, which included some of the bespoke development. In October, we reduced our headcount in that space. And what that's given us, for most part, is quite a mature product that we can take to market, whether it's small to medium to large customers. And the need to engage with customers with bespoke development has diminished, where we can sell the platform as is. We will continue to offer customers analytics, which is -- which it can be customized, integrations perhaps into accounting platforms for the FM system. Quite often, we do get asked to integrate to a [ Pronto ] or to an SAP. And we'll continue to do those customizations to allow customers to realize the full benefit of the FM or strata ecosystem. Professional fees going forward, I think on Slide 21, we have outlined our current run rates on ARR and professional fees. So $11.6 million in ARR is the current run rate. Professional fees, backlog and CPI is around $1.9 million. CPI is roughly [ $250,000 ]. So our professional fees is -- we expect to be running about 1.6, 1.7, and that will be comprised of implementation for new sales. So we will -- we are getting more -- as Michelle pointed out, we are get more efficient on our speed to implement, but also we're increasing the volume of the sales run rates while we expect that to improve over the next year. So the professional fees will be comprised of implementations. And support services, that is in our horizon, too. So we do offer additional training and dedicated support if customers choose for that.

Thank you, Simon. I'll now take some questions from the live chat. Our first question comes from Sam Pittman at Taylor Collison. Simon and Michelle, could you please expand on the debtor's balance at the end of June? Can you provide an update? And is there a recoverability issue there?

Debtors was $1.3 million higher than June 2023, and this was really due to the pausing of payments caused by the consolidation of those 2 Middle East customers. To date, we have collected over $1 million of those delayed payments in the Middle East, and we have commitment from those customers that we can expect payment over the next few months. Overall, we don't have a recoverability issue because ultimately, we can apply access restrictions when there is nonpayments.

I would add that yes, we're not happy with that level of balance. And as Michelle explained, it is due to that pausing of payments, which is not good. However, we do work very closely with these customers on essentially what the payment plan is. So we have direct line of sight. We are dealing directly with the people who are trying very, very hard to get us our money on the time that we asked them to. So it is unfortunate that, that consolidation happens, which did cause the debtors balance to shoot up.

Our next question also comes from Sam Pittman. Could you also please provide the latest on the Colliers dispute?

Yes. So in July, or just last month, we did announce that contractors dispute, it's still live, that dispute is still live. I would say that both parties are highly motivated to draw the dispute to a close. We're still in a position where there is a level of uncertainty as to the resolution. But in terms of our the legal advice that we have had or we have around that claim, we still believe that we have a strong claim. And I hope to report on the closeout of that matter in due course. But it is still a live claim at this stage.

Thanks, Simon. We have another question from Sam Pittman. [Technical Difficulty] I'll start again, from Sam Pittman. Could you also please help me understand the measures the business is putting in place to improve customer retention?

Yes. Customer retention is absolutely important for maintaining our growth strategy on ARR. Obviously, we have new sales that have improved over time over the last year. The retention is key. And our retention strategies do vary from size of customer. We have in the APAC strata space, for example, hundreds of customers. And so our strategies there have to be quite scalable in terms of how we engage all the way through the life cycle and hoping to continue with strata managers all the way through their business with no expiry date whatsoever. But you do have to employ quite scalable measures to be able to support hundreds of customers. And those include proactive news channels to ensure that customers can get the most out of the platform, so we offer tips and tricks. We -- as customers grow, we do move them to our larger account management team. We have changed our ticketing, our customer support model so that it is not just about resolving issues or questions, but more about promoting how you can get more out of the platform. We also have a number of feedback channels as well. So when it comes to technical use of the platform, one of the things you would like to see in the platform and how can we efficiently take that feedback and put that back into our product and development teams, who will consider what is the best way we can help smaller customers get the most out of the platform. At the larger end of our customer base, and this would be -- this is -- this will be true for MENA and APAC, our senior managers do engage very regularly with our larger customers. They are different, they are more enterprise in their approach. And we take a lot of time to understand what our customers' strategies are, whether it's for growth, which may be acquisition or through organic growth. And we take those -- that feedback and learnings very similarly, I guess, in terms of taking the feedback from customers and rationalizing it and then putting it back through our products and services. But the mode by which we do that is through more face-to-face because those customers are larger. And so there's quite a fair amount of structure that we put in the business across the Middle East and Australia, New Zealand across both FM and strata to be able to have a structured approach in what we call the customer success [ managers ].

Thank you, Simon. Our next question comes from John Barnes. What is the customer strategy for engaging with strata managers to promote the company's capabilities? Do you attend strata managers' conferences, et cetera, to showcase the product?

We do, and we have ramped up our engagement with the strata industry quite significantly over, I wouldn't say just in the last few -- over the last 3 years. The strata industry in Australia, for example, for those who are quite close to it, is comprised of a lot of engagement with the SCA, the Strata Community Association, of which there is an SCA. There is a national SCA, and then there's an SCA [ for each ] states. Our engagement has been across the board with the national and the local state by state. Also in New Zealand, the SCA is really gaining traction there. And so we're spending time there. The same in the Middle East as well. The strata community is actually getting very international at this point in time with a lot of collaboration between the UAE, U.S., Australian SCAs. And so it's been important for us to increase our profile. I always say that we're very recognizable now as a brand for strata software management. Clearly, there's always more to do. But that's just one part of how we're engaging with strata -- with the industry clearly through our existing customer base on which we have a decent market share. Our social engagements through our own direct sales networks that we know are very important in building up our sales run rate and our presence in the market. So the SCAs, the trade events are quite important, but it's not just that. There is a lot more involved in to engage with the industries.

Simon. Our next question comes from Harry [ Barrel ]. Can you comment on the relatively low growth in the FM ARR since FY '20 when compared to the strata management side of the business?

So I mean in terms of FY '24, when we look at the ARR and the revenue growth, it has been impacted by our adjustment from Colliers ARR, which I've outlined just now. In terms of the overall growth for that business, we -- and I would say [ sales realized ] as a whole, we have made quite a lot of changes to sales at ourselves and going to market over the last 18 months to 2 years. Strata has -- we bought some new sales resources in strata 18 months to 2 years ago. That's ramped up quite quickly. I would say, that would be the first [ cab ] off the rank, where we've changed the sales model, brought the right subject matter experts in. Probably at 6 to 8 months later, we've employed the same strategy with FM and the same then in Middle East just after Christmas. So there has been a bit of a lag effect as we've brought new sales managers up to speed. Our sales managers are highly scalable across the markets and through those sales go-to-market strategies that I've outlined, for example, with the trade events. So we're doing the same -- we are doing the same in the FM space. It is a lot broader in terms of strata industry engaging with strata managers through the SCAs. FM is broader. And so, for example, you've got aged care, and you've got retail or commercial, you've got FM service providers. We've got very strong networks in the FM service providers space. We've built up some very good presence in the aged care space and in the retail and commercial space, that's where we've started to ramp up now. So I do expect that our overall sales run rate will improve over FY '24. But there has been some work done in the last 6 to 12 months in the FM space to bring it up to where Strata has been.

Thank you, Simon. We have another question from John Barnes. I note that ARR has flatlined in the past 4 years. It's more of a statement than a question, but you can address it, I'm sure. Thank you, Simon.

Yes. And I think in terms of -- I'll turn to Slide 15, which is illustrating, I think, what John is asking. There's been some significant growth over June '20 to June '21. In the last 2 years, we have made those changes in sales and go-to-markets, and that has taken some time in terms of flowing through into our pipeline. And ultimately, it's generating leads, converting that pipeline and then obviously taking that to ARR through implementation. So there's been a number of improvements that we've had to make to the business. Number one is generating those leads, which means revamping the sales go-to-market, bringing new sales talent into the business, driving up the marketing and the inbound inquiries. Sales do take some time, and we've been finding at the higher end of the ACV. Our average contract value does take longer, and they have been lumpy. So our focus is we still have a lot of larger contracts that we're pursuing in the pipeline, but we have deliberately focused on driving up the small to medium sales as well so that we can have a more consistent conversion quarter-on-quarter. And that takes time to flow through. And we start to see that now with roughly $1.04 million of ARR converted in the last year. What's important, of course, is retaining customers, and which is precisely why we've put in those measures that will strengthen those channels for customer feedback and make sure that we are -- that customers are happy that they're engaged and we are providing the right level of services and features. And that has given us the impetus then to pursue things like Horizon 3 strategies, where customers are asking for more options for service providers or more features and functions. So that's why we have now opportunities to be able to uplift ARR that way. So there has been a lot of work done in the last 2 years, and we're starting to see some of those green shoots sort of results as far as ARR, as new wins are concerned, yes, we do need to improve our retention rates as well. But we do expect that uplift in sales run rate to improve over FY 2025.

Thank you, Simon. We have no further questions, and so I'll hand back to you for closing remarks.

Well, I just would like to thank you all again for your time this morning. The Board and our team will continue to work hard to execute on our strategies and progress ultimately to a sustainable cash flow position. So I look forward to updating you on the next reporting cycle, the next quarterly results. Thanks again, and good morning.