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

[Technical Difficulty] FY 2025 Results Briefing. My name is Francoise Dixon and I'm Head of Investor Relations for Urbanise. Today, our CEO, Simon Lee; and CFO, Michelle Garlick, will provide an overview of our half 1 FY 2025 results before opening it up for questions. [Operator Instructions] I will now hand over to Simon to take us through the results.

Good morning, everyone, and thank you for joining us for the presentation of Urbanise's H1 FY 2025 results. With me today is Michelle Garlick, our CFO. Today, I will begin by providing an overview of our H1 FY 2025 results before talking briefly about our products and markets. I'll then hand over to Michelle, who will take us through the H1 FY 2025 results in more detail. And finally, I will touch on the outlook before opening 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 enables our customers to streamline workflows, providing critical automation that allows them to scale and grow. Our team has deep industry experience and domain expertise and a strong customer network that provides us with valuable engagement and feedback. Our products are solutions to customer pain points, which include complex admin processes, legislative compliance and disclosure and data management and security. Solving these pain points helps improve our customers' profitability and creates a springboard for revenue growth and further customer expansion. As of December 2024, Urbanise had $11.9 million in contracted annual recurring revenue or CARR, 93% of total revenue came from recurring license fees. Our ARR retention rate for H1 FY 2025 was 87%, which I will address in later slides. And 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 H1 FY 2025 against prior comparative period or PCP. License revenue increased by 2% with license revenue growth of $0.7 million, partly offset by $0.6 million in revenue reductions. License fee growth of $0.7 million came from new wins, backlog implementation and organic growth. New wins were secured across both platforms in key markets of APAC and MENA. $0.6 million in revenue reductions related to customer costs and license fee reductions. Total revenue increased by 0.6% versus PCP due to a -- sorry, decreased by [indiscernible] versus PCP due to a 16.1% reduction in professional fees, which reflects some delays in implementations. ARR of $11.3 million was 3% lower versus PCP, as new customer and organic growth as well as backlog conversion was largely offset by a discontinuation of low-margin pass-through revenue of third-party software in FM of about $390,000. Third-party application is no longer supported by -- or directly supported by Urbanise for its FM customers due to some low margins and high cost -- high support costs that we were wearing. CARR of $11.9 million was 2% lower versus PCP. During the period, the backlog accumulated new wins secured in the half and there were some delays to completing implementations. The closing cash position was $2.7 million, and Urbanise continues to have no material debt. The average monthly cash generated is $139,000 during H1 FY 2025 compared to an average monthly cash used of $80,000 in the prior corresponding period. Urbanise remains committed to reaching cash flow breakeven in FY 2025. The ARR retention rate was 87% for the group, 97.1% for Strata and 72.9% for FM. Turning to Slide 5. Our growth model follows a 3-Horizon approach. The immediate Horizon 1 objective is to expand market share in our geographical markets and maximize our customer footprint through new sales and customer retention. The business continues to identify future potential geographical markets where, for example, Strata legislation has been adopted. We will also expand into other regions once we have firmly established ourselves, as a major or leading player in our core markets. Horizon 2 involves the delivery of additional benefits to customers through innovative value-add features and functions. This is where Urbanise customers can increase the ROI on our software in return to paying additional fees. Finally, Horizon 3 leverages our customer footprint by connecting key service providers with customers via our software. Slide 6 shows our progress and outlook against these horizons. During H1 FY 2025, we achieved new sales of $0.56 million in ARR, including sales to small to medium Strata managers, FM service providers and asset owners in Australia and the Middle East. We are focused on increasing our sales run rates and market share by targeting on-prem competitors. In the past 18 months, a substantial proportion of our APAC Strata wins came from Strata Master, one of our bigger competitors in Australia. We are also targeting another large Australian on-prem competitor, StrataMax. In Horizon 2, we have developed additional features and modules, including predictive analytics, enhanced contractor management and are offering a range of pricing options to our customers. These result in quantifiable cost savings, operating efficiencies and increased automation for our customers. And we'll continue to add more functionality to our Strata comms module and FM planned preventative maintenance module. On both platforms, we will be enhancing our open APIs to create more possibilities for integration. Looking at Horizon 3, we have already expanded the Strata opportunity through new integration capabilities that connect our customers with service providers. This includes our partnership with LevyCollect and integration allows Strata managers to easily issue outstanding levies to legal firms for debt collection. I will outline our strategic objective in securing key partnerships in the banking sector on the following slides. Slide 7 provides an overview on the Strata industry. The Strata industry provides an essential service managing dwellings such as units and communities. We have a significant housing shortage in Australia and measures to address this, especially in urban areas with high-density housing. And this is expected to result in a 25% increase in Strata managed dwellings over the next 5 years. Slide 8 outlines the Strata banking markets and the important financial management function, which is an integral part of what Strata managers do. Across the Strata industry, there are about $10 billion in Strata funds deposited with banks. And in addition, there is an estimated annual transaction flow of about $20 billion, which involves payments of Strata levies and payments to various suppliers. This function is a highly complex process with many to many transaction flow and multiple levels of reconciliation, which creates a significant interdependency between the banking solutions. And from a banking perspective, the profitability of these funds is almost double that achieved across other deposits with the average net interest margin or NIM estimated at 3% for Strata funds compared to 1.7% for all other funds. And this does make the Strata market extremely attractive to the banks. Turning to Slide 9 and the state of technology within the Strata industry, a high proportion of the software used is still running on legacy on-prem systems. On the banking side, 100% is running on technologies that were built over 20 years ago. The lack of automation results in highly manual processes and inefficiencies, which limit the ability to scale. It further impacts the ability to hire quality and motivated staff and to meet customer service expectations. And all of this has led to falling profit margins, negative marginal returns for many Strata businesses. The opportunity for the industry is to simplify processes and antique ways by modernizing and automating as much as possible. We are seeing successful Strata managers doing this, and they are driving consolidation across the industry. Slide 11 provides an overview of the Urbanise Strata products. The product offers unparalleled automation for Strata managers from the point where Strata committees approve the Strata budgets all the way to the bank rec where cash is collected for levies. This brings significant time and cost savings to a Strata manager business. Our Community web app, iOS and Android applications bring portal services to property owners, allowing them access to Strata scheme information and 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. Turning to Slide 12. The Urbanise FM offers an all-in-one professional facilities management solution, encompassing comprehensive functionality for works management, asset management, compliance and integrations. And similar to Strata, our public APIs for FM allow customers to connect their ecosystem with key existing integrations with Rapid Global and LinkSafe. Our customer portal and mobile force applications extend the functionality from desktop users to end customers and trade staff. I'll now hand over to our CFO, Michelle Garlick, 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 H1 FY '25. License fees were up 2% to $5.9 million with revenue growth of $0.7 million, partly offset by revenue reductions of $0.6 million. Professional fees were down by 16.1% and total revenue increased by 0.6% on PCP, driven by delays in completing implementations over the holiday period as well as measures to streamline implementations, reduce costs and accelerate customer onboarding. Operating expenses of $6.4 million were 13.4% lower on PCP, reflecting an almost $1 million reduction in the cost base post the completion of an operational review in the first quarter of FY '24. The EBITDA loss of $0.9 million was 41.2% improvement on a loss of $1.5 million in H1 '24. Slide 15 provides a breakdown of ARR between Strata and Facilities Management. Following a review of revenue recognition for combined Strata and FM contracts in the Middle East, we reallocated $780,000 in ARR from Strata to FM to more accurately reflect the value delivered by each platform. While this reallocation resulted in an 8% reduction in Strata ARR compared to June 2024, underlying Strata ARR grew by 2%, excluding the impact of this adjustment. In FM, the reallocation benefit was offset largely by the discontinuation of low-margin pass-through revenue of a third-party software provider. The third-party application is no longer directly supported by Urbanise for its FM customers due to low margins and high support costs. Excluding this discontinuation, total ARR remains flat. The backlog includes additional Strata lots for a large APAC Strata customer. Both FM and Strata include other small customers in the backlog. Slide 16 shows the relationship between ARR and license revenue on the first graph and our contracted ARR on the second graph. In the half, we saw a decrease in ARR to $11.3 million from $11.6 million in June 2024, driven largely by the discontinuation of low-margin pass-through revenue of third-party software of $390,000. CARR is comprised of ARR and backlog, which is yet to be implemented. CARR was $11.9 million compared to $12.2 million in June 2024. The customer backlog has remained consistent at $0.6 million since June 2024. Slide 17 shows our ARR mix by product, region, size and type of customer across FM and Strata portfolios at December 2024. Strata is currently the larger part of our business with Australia, our biggest revenue base. The Strata portfolio in Australia and the 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 outsources accounted for 41% of our revenues. Urbanise continues to expand its presence with asset owners, Middle East owners associations and aged care providers. Note that these numbers reflect the reallocation of ARR between Strata and FM following the review of revenue recognition within our combined Strata and FM contracts. Turning to Slide 18. Strata license fees were marginally lower in H1 FY '25 versus PCP, with new customers of $109,000 and customers growth of $404,000 offset by customer losses and reductions. Organic growth reflected the inclusion of additional lots as well as CPI increases on existing contracts. Following an accounting review mentioned before, $195,000 in revenue was reallocated from Strata to FM in Q2. Adjusting for this, Strata license fees grew by 4.7%. Professional fees were 50% lower, mainly due to the focus on faster and lower cost implementation methodologies. The number of lots billed was around 677,000 for the half. Slide 19 shows the performance of Facilities Management platform for H1 FY '25. FM revenue was up 6.5% on PCP. License fees increased 6.7% due to the growth in new and existing customers and $195,000 revenue reallocation from Strata to FM in the Middle East. This was offset by the loss of, Colliers Australia in Q2 FY '25. The 5.5% increase in professional fees was due to the implementation of new customers and change requests for customers, including integrations and analytics. There were around 3,500 facilities users billed in the half, which includes 650,000 users from those shared Middle East contracts. The backlog on the 1st of January 2025 is valued at around $100,000. In June 2025, Urbanise announced that it had entered into a dispute resolution process with Colliers Australia in relation to a contract for the implementation and development of Facilities Management software. Discussions continue with the parties under the dispute resolution provisions of the contract. Urbanise is seeking to resolve the dispute on a reasonable and equitable basis. However, the outcome of the settlement remains uncertain. The waterfall bridge on Slide 20 shows the movement in expenses between H1 FY '24 and H1 FY '25. Operating expenses decreased 7.6% or $592,000 to $7.2 million. This improvement was achieved through a $1 million reduction in head count and overhead costs per the operational review in H1 FY '24 and was partly offset by an increase in share-based payments, which reflected the introduction of a new employee incentive plan in H1 2025. Slide 21 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. In the half, Urbanise recovered all but $500,000 of these outstanding amounts, demonstrating significant process in resolving payment delays. Payments to the suppliers and employees remain consistent, highlighting sustained operational efficiency and careful cost and cash management. 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 in FY '25. Slide 22 shows our progress in managing cash over the past 3 years plus, with the dotted line depicting the average monthly cash used excluding capital raises. In H1 FY '25, average monthly cash generated was $139,000 compared to an average cash used in H1 FY '24 of $80,000. Urbanise remains on track to achieve cash flow breakeven in FY '25. Our current run rate shows $11.2 million in ARR with an additional $1.3 million from professional fees and backlog. With current cash costs of $13 million, this leaves us with an annual cash shortfall of $0.5 million, which we anticipate recovering through our expected growth in ARR. Urbanise continues to optimize its cost base and working capital strategies. Our cash flow statement on Slide 23 shows our closing cash position of $2.7 million at December. Receipts of $7.8 million were $583,000 lower than PCP due to the impact of Colliers Australia and other timing of customer billings. Operating cash flow improvements are not fully reflected as the R&D rebate cash benefit received in H1 2024 was not received in the current period. The receipt of this rebate is delayed and is expected in Q3 were approximately the same as the prior year amount. Underlying average monthly cash used improved in H1 FY '25 to $103,000 compared to $77,000 in cash used in FY '24. The balance sheet on Slide 24 shows a closing cash position of $2.7 million with no material debt. Debt has decreased by $1.7 million since June 2024, following the resolution of the payment process disruptions from 2 Middle East customers. Remaining late receipts are still actively being managed, and we remain laser-focused on cash collections. I will now hand back to Simon.

Thanks, Michelle. And I will now briefly address the H2 FY 2025 outlook, which is summarized on Slide 26. So looking ahead, our immediate priorities will include increasing our sales run rate to maximize the market share, capturing market share from our on-prem competitors, improving ARR retention rates through increased customer engagements, enhancing license and professional fee profitability by upselling additional features and services, pursuing key partnerships including those in the banking sector to realize the expanded market opportunity, estimated in total between $30 million and $54 million. And finally, we will continue to drive improvements in working capital and we'll closely monitor our cash requirements as we progress towards our target of achieving cash flow breakeven in FY 2025. I'll now hand back to Francoise to open it up for any questions.

Thank you, Simon. We have received several questions in advance via e-mail, so I'll start with these. The first couple will come from [ Cliff Hayes ]. He says, what drove the revenue reallocation in the Middle East between Strata and FM? And how should we think about that?

So, we undertook a review of the combined Strata and FM contracts, which were in the Middle East, most of which were implemented 3 to 4 years ago. We reviewed their utilization based on the number of lots under management and the number of work orders used. The review indicated that there has been a significant ramp-up in work orders due to high supplier adoption, which naturally occurs over time. The relative value of the work orders has increased, but there's been no material change in cost base. However, we must reflect the value of the contracts accordingly. We don't expect this contract to change further.

Great. Thanks, Michelle. Our next question from Cliff is in relation to Colliers. Can you please give an update on Colliers?

We're still pursuing the claim. It still remains uncertain as the outcome of that claim. The Board are confident that the claim is valid. We do expect an outcome in the next couple of months, but there -- we're not advising the market as to what the outcome will be on that claim. It's obviously commercial confidence as to the full details of it. But just to remind everyone, it's -- we've claimed just over $3 million in terms of costs associated with that contract. And we'll continue to advise the market once we get some more progress.

Great. Thanks, Simon. Our next question comes from [ Michael Gardner ]. How confident are you about collecting the outstanding amounts owing in the Middle East?

So, we are very confident. We have established relationships, understood the processes required to collect the cash. To date, we've collected a substantial amount with the remaining expected in Q3. Overall, we don't have recoverability issues because ultimately, we can apply access restrictions for nonpayment.

Great. Thanks, Michelle. We have a follow-up question from Michael. Can you provide an update on how are you going in terms of getting a deal done with the banks?

Yes. So today, we presented a couple of slides around the banking opportunity, I think, just to provide investors with a great understanding of the economics of the Strata industry in conjunction with the banking industry and where software sits as really the gateway for the banks to enter the Strata market. And I think, in fact, our Chairman had presented a couple of weeks ago, in another presentation, the same slide. The -- so the value proposition that we offer to the banks, as I said, is a gateway and it's a technical gateway to the Strata industry through the bank reconciliations. It's a highly voluminous exercise to account for a lot of the payment transactions being levies and levies received into Strata schemes and all the payments going out to suppliers. The NIM, the net interest margin, on those funds is highly attractive to the banks. We've had the feedback that is comparatively compared to other funds. It's sitting around 3% versus 1.7% for other types of funds. And so what that has done is has attracted significant interest in the potential of a partnership with Urbanise. So we've spent probably good 6 or 7 months now in deep discussions with parties around a key commercial partnership. In terms of what I can share with you, we are still considering all of those discussions. The focus for the Board and for our team is to make sure that we craft the right commercial partnership with either one or more of these banks in terms of the best outcome for the shareholders and for our business and ultimately, for our customers. What we're trying to achieve is a better value proposition for customers. There's a lot of improvements coming up in terms of payment solutions over the next 18 months with PayID and PayTo, which will need to be accommodated through systems like ours. And that's highly attractive for the banks to be able to offer that to the Strata managers. So, we're very progressed with the discussions and I'm quite pleased with the progress that we've made with that. We've dedicated quite a bit of resource -- internal existing resources to engage in technical discussions in terms of payment solutions, reconciliations, integrations with our existing APIs and we expect that we will have an outcome within this half. So look, it's a very exciting prospect for us. At the same time, we need to keep focused on our business as usual in terms of obviously growing the business. It's obviously very, very important for us to expand our footprint to Strata managers. This initiative will absolutely help with it. I think it will be an accelerator to be able to offer the best automation, the best simple process that provides more self-service for our customers and for the end users being the property owners. So, this is a critical part of our strategy to really grow the footprint with the Strata business.

Thanks, Simon. Now, we I'll turn now -- I'll turn now to the online chat. We've received a question from [ Gerald Sims ]. The Community by Urbanise Android app is showing very poor user ratings and reviews. Please comment on this. Also, how many users engage with this app every month?

Yes. So the adoption of the app varies from Strata manager to Strata manager. Where we find that higher interestingly enough is with, I would say, the medium to high-density buildings. Generally, I was in Melbourne last week, talking to a few of our customers around the portal strategy -- I mean, our MyCommunity app and asking them for their take on the adoption and the usefulness. For some property owners, as long as they can make a payment through the desk system and they get an e-mail with the levy, they don't often care about the app. I mean that's true. Not all users will want to engage on the app. Where the community manager promotes the app, particularly around communication, where they want to put messages out to the owners or they want to increase the engagement generally with the transparency of committee meeting files or notes. It is often a combination of the technology, but what the Strata manager wants to drive through in their engagement with the end users. So, we are quite reliant on the Strata managers to sell and promote the app. We're always looking for feedback from owners and from the Strata managers. We take the feedback from the owners first. As you can imagine, we've got over 250 Strata managers using our platform. And so they're the easiest ones to get the feedback from. When you start going out to the property owners, that's a little bit more difficult, but we do have some forums for that. So, no product ever stops being developed and being improved on. We always look to do that. Certainly, what I can share with you when we're looking at the banking integrations is that we would be looking to expand that offering to drive greater end user engagement. So look, it does vary. I don't have the percentages off the top of my head as to what the total utilization rates are for our app, but that's certainly something I can look to share in the future.

Thanks very much, Simon. I'll just pause for a moment in case there are any final questions before handing back to you. We don't seem to have any further questions. So, I'll hand back to you now, Simon, for closing remarks.

Well, thanks to everyone for your time this morning. The Board and our management team continue to work very hard to execute on our strategy and ultimately progress to a sustainable cash flow position and beyond. Look forward to updating you on the business at the next quarterly results. So, thanks again, and good morning.