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

Good morning, everyone, and welcome to the Urbanise.com Limited briefing on the strategic partnership with National Australia Bank, which was announced this morning. My name is Francoise Dixon, and I'm Head of Investor Relations for Urbanise. Today, our Chair, DarcRasmussen; and CEO, Simon Lee, will provide an overview of the NAB partnership before opening up for questions. [Operator Instructions] If I will now hand over to Darc.

Thank you, Francoise. Good morning, everyone, and thank you for joining us this morning. We're pleased to announce that Urbanise and National Australia Bank have entered into a strategic partnership, which will revolutionize banking and payments for the strata industry. This is an important milestone for Urbanise and highlights the significant opportunities that exist in the strata banking sector. It also illustrates the unique position of Urbanise's leading strata management platform, which is cloud-based, integration-ready and provides access to a large strata customer base. Slide 2 will show that the partnership consists of 2 elements. The first is a commercial partnership agreement for the delivery of data and payments integration services via the Urbanise Strata platform. Urbanise will be paid by NAB upfront and on a recurring basis for building, implementing and maintaining the data and payments integration services and will also receive an ongoing variable platform fee for supporting NAB and Urbanise customers using the new solution. The commercial partnership has an initial term of 4 years with an option to extend for a further 2 years. The new banking solution is expected to be launched in early 2026. Urbanise and NAB have also entered into an equity investment agreement with NAB, subscribing today for 15% of Urbanise's post-investment issued capital via placement. Approximately 11.8 million shares have been issued at $0.747 per ordinary share for a total cash consideration of $8.8 million. These shares have been issued under Urbanise's current placement capacity pursuant to ASX Listing Rule 7.1 and 7.1A. NAB may subscribe for a further 4.99% with a future placement at $1.255 per ordinary share within 12 months from the availability of data and payments integration services to Urbanise customers. Any new shares that are issued under this second placement will be issued at the relevant time under Urbanise's placement capacity or if required by shareholder approval. We're absolutely delighted to welcome NAB as a major shareholder with the investment highlighting the importance of the strategic partnership to both parties. We believe it will deliver better outcomes for our customers and have a meaningful impact on Urbanise's future growth opportunities. I will now pass over to Urbanise's CEO, Simon Lee, to provide an overview of the exciting new banking and payments solution. Simon?

Thanks, Darc. Good morning, everyone. Turning to Slide 3. Strata managers are increasingly demanding new technology and banking solutions and better connectivity with their banking needs. The partnership will provide best-in-class banking and payment management experience, which makes things faster, simpler, easier and more cost effective for our customers. Importantly, it will also be tailored to meet the specific needs of the strata industry. The data and payments integration services will allow Urbanise and NAB customers to access new options for banking, payments and other financial services that are integrated into Urbanise Strata and automate daily bank reconciliations, supplier payments, owner contributions as well as streamlined financial reporting within the Urbanise Strata platform. Turning to Slide 4. The partnership between Urbanise and NAB will be a game changer by making the strata banking experience more efficient and convenient. At present, 60% of the software used by strata managers is running on DOS or Windows or on-premise-based systems. On the banking side, 100% is running on technologies that were built over 20 years ago. This lack of automation results in high manual processes and inefficiencies, which limit the ability of strata managers to scale. It further impacts their ability to high quality and motivate staff and to meet their customer service requirements. All of this has led to falling profit margins and negative marginal returns for many strata businesses. Our data and payments integration services will greatly simplify processes that are antiquated by modernizing and automating as much as possible. Darc will now comment on the industry macro trends that provide significant tailwinds for the new solution and the strategic partnership between NAB and Urbanise.

Thanks, Simon. So as you'll see on Slide 5, the partnership with NAB reflects 2 key macro trends that are transforming the requirements of the strata management industry. Firstly, the housing shortage and the increasing demand for high-density housing is expected to drive growth of almost 5% per annum in strata managed dwellings over the next 5 years. At the same time, financial management is an integral part of what strata managers do. Across the industry, there are about $10 billion in strata funds deposited with the banks each year, and a further $20 billion is generated through annual transactions involving strata levies and supplier payments. Managing this is a highly complex process with many to many transaction flows, multiple levels of reconciliation, all of which creates really a very significant interdependency between the banking solutions and the strata management processes. The data and payments integration services will provide strata managers with new options for banking, payments and other financial services through the development of an end-to-end payment solution that is integrated into the Urbanise Strata management software solution. It will deliver increased automation, allowing our customers to manage vast numbers of Strata scheme bank accounts, offer their customers modern, reliable, safe, cost-effective and convenient services and payment options. We estimate that the total market for strata management integration software is $30 million to $50 million in revenue per annum, and our priority is to capture a sizable share of this market. Simon will now provide some perspectives on the partnership's funding structure, Urbanise's ability to execute on the opportunity and the outlook for the company.

Thanks, Darc. Turning to Slide 6, which provides an overview of the partnership funding with NAB, making certain payments to Urbanise to deliver the data and payments integration services. To begin with, Placement 1, will provide $8.8 million in funding for product enhancements and road map development as well as strengthening Urbanise's balance sheet. In addition, Urbanise will receive $4.6 million in year 1, of which $3.3 million is upfront fees payable and signing for building the data and payments integration services, and a further $1.3 million payable within the first 12 months upon achievement of 3 milestones. Finally, in subsequent years, Urbanise will receive a fixed annual fee of $1.3 million and variable platform fees for supporting NAB and Urbanise customers using the data and payments integration services. Slide 6 shows that NAB will provide a minimum of $14.7 million in funding over the first 2 years, assuming certain milestones are achieved. From that base, the revenue growth opportunity is driven by a variable license fee, which in turn is driven by customer adoption of the solution. Turning to Slide 7. Urbanise has a track record of developing and maintaining robust banking integrations across diverse markets, demonstrating our ability to efficiently adapt to new banking partnerships. Our key strengths include the provision of automated daily bank recs, supplier payments, owner contributions and streamlined financial reporting within the Urbanise Strata platform. Urbanise uses existing API frameworks for the rapid onboarding of new banking partners and is live integrations with 5 major banks across Australia, New Zealand and the Middle East. This also demonstrates our ability to meet diverse regional banking standards and operational requirements. Turning to Slide 8 and the implications of the strategic partnership for Urbanise's medium-term outlook. Urbanise expects to be cash flow positive in Q4 FY '25 and will meet its objective of being cash flow positive in FY '25. This follows 3 consecutive quarters of positive operating cash flow. In FY '26, we expect to be cash flow positive overall, but operating cash flow negative due to the timing of the initial NAB payments. These are expected to be received in mid-Q4 FY '25, while the investment to implement and deliver the services will be incurred in FY '26. Urbanise targets becoming cash flow positive during FY '27 as the partnership go-to-market gains traction and the timing differences play out. The initial placement to NAB will significantly strengthen Urbanise's balance sheet. When combined with the upfront payments that NAB will make in the first year of partnership, we expect to end FY '25 with closing cash of over $50 million. Finally, the Urbanise Board will continue to assess strategic opportunities in relation to its business lines and geographical reach. I will now hand back to Francois to open it up for any questions.

Thank you, Simon. We've had -- we've received several questions via the live chat, so I'll start to work through those. Our first question comes from Michael Lacey, and he asks, what does Urbanise bring to the partnership?

Thanks, Michael. So Urbanise is one of the leading cloud-based strata platforms in the market -- in the Australian markets. We already have a high level of automation, one of the best platforms out there. We're API ready. In conjunction with NAB, we will be able to offer Urbanise customers and the strata market in general, end-to-end management of banking, bank reconciliation, supplier payments and at scale. We're very excited to deliver this. We have done integrations with at least 5 major banks across the Middle East, Australia and New Zealand already. And so we have the infrastructure. We have the platform to deploy this. And with the size of the market that we're targeting, I think this will be a very successful partnership.

Thanks, Simon. Our next question comes from Bill Gartner. Will you need significant additional resources to deliver the [ DPIS ]?

We will be deploying fixed and variable resources to deploy the platform and the integration. We'll be exercising good cost management for the delivery of the integration. So within our cash outlook that I've just outlined, we expect that we will be cash flow positive in FY '25 over the next year, FY '26, we will deploy resources as we see fit to deliver the integration and our general road map, expecting then in FY '27 that we'll turn cash flow breakeven. So yes, we will be deploying resources to both our road map and the integration.

It might be worthwhile adding that this is not an entirely new innovation exercise. As Simon mentioned earlier, Urbanise has a very solid history of building integration with major banks. So the underlying cloud-based integration technology, the middleware is already there. We've done it a number of times with other banks. We will be doing it in a different combination and adding some exciting new capabilities, but this is not a ground-up development. So we're really building on a very solid platform. And the go-to-market, the acceleration of those resources is probably something that is going to take a larger portion of investment as we go through FY '26 in really taking this to market, leveraging the advantage that Urbanise is today the only cloud-based solution at scale in the Australian strata market. And now combined with offering new banking options with Australia's largest business bank, the National Australia Bank, we should be in a fantastic position to take -- really leverage these 2 very unique advantages.

Thanks, Darc. We've also received 2 questions from Matthew Hales, and I'm going to read them out one at a time. The first one says, who owns the DPIS IP?

So as part of the partnership, both NAB and Urbanise will be bringing their own technologies as part of the integration, and we will retain those technologies. The -- as we've mentioned several times now, actually, so we will be -- this is not a significantly brand-new technology play for Urbanise. We've done 5 of these before. But part of this integration, there will be technologies on the banking side and technologies on our side and integration in between.

Thanks, Simon. The second question from Matthew says, can you explain the implications for cash flow moving forward?

Yes. So again, I think this -- the last 3 quarters have been -- I'm pleased to have reported last 4C that we closed 3 quarters of cash flow positivity. We expect that FY '25 will be cash flow positive. FY '26, we will be deploying resources to deliver the integration and platform and our go-to-market. And as this gets rolled out, as it ramps up, we expect in FY '27 that we will be reaching cash flow positive again. So this is all part of a planned approach, very much like our product road map. This is -- we have a plan of release, a plan of spend, plan of resourcing. So our expectation is very much on that basis.

And it might be worth highlighting that the payments under the partnership agreement fall at the end of FY '25. So we'll be receiving large payments at the end of FY '25. And then the costs associated with the partnership building, implementing and going to market with the solution will be incurred in FY '26. So it's very much a timing issue, if those payments had come 2 months later, they would have fallen into FY '26, which, as a result, would have been cash flow positive. So there really is a timing element here that should be played out by the time we get to FY '27. And at that time, as Simon says, we'll be ramp -- very much ramping up the go-to-market with a very strong balance sheet, a great solution and they're certainly targeting to maintain and grow that cash flow positive base.

Thank you, Darc. We have no more questions on the live chat. So I'm going to pause a moment in case there are any final questions. We have no further questions at this time. So I'll hand back to you, Darc, for closing remarks.

Thank you, Francois. So I'd like to thank you all again for your time this morning coming in at short notice after the exciting announcement posted on the ASX this morning. This is an exciting time for Urbanise, and we look forward to working closely with our new partner, the National Australia Bank, Australia's leading business bank to transform our customers' operations through the creation of a new banking and payments capability that will drive efficiencies and transform their ability to grow and scale. Thank you all again for your interest, and good morning to you all.

Thank you.