Veris Limited (VRS) Earnings Call Transcript & Summary

And I see Mark. Good morning. How are you?

Good morning, Mark. How are you?

Very good. I see we have Steve Harding, CFO of Veris, also joining us. I am not sure which one of you gentlemen are going to be sharing the deck, but if you could just bring it up for us, I will let you know once it is on screen. It is just loading now, Michael. Yes, I can see the cover slide now, Michael. You can take it away whenever you are ready.

Great. Thanks, everyone. I appreciate everyone joining us here today. So those that who don't know, I'm Michael Shirley. I'm the Managing Director and CEO of Veris. And Steve Harding and I today will talk you through our FY '26 full year results. We are going to talk a bit about how our strategy is playing out in our numbers, and then hopefully we will leave you some time at the end for questions and discussion. Yes, sorry. For those of you who are less familiar with Veris, we are an integrated digital spatial data advisory and consulting firm. We act as trusted partners to our clients, and we have delivered that through our survey, our consulting and advisory services, and our proprietary spatial solutions. All of these are aimed at solving complex asset-specific and spatial problems for the clients. We work across a range of sectors, including transport, utilities, property and buildings, government, defense, and energy and resources. It is a genuinely national business, and that footprint really matters to our clients as they are increasingly needing consistent delivery across multiple jurisdictions. We are one of the few firms that is really positioned to offer that for them. If I look at our strategic focus here, it is really about transforming Veris into a spatial data advisory firm with a growing digital revenue stream. This strategy rests on the 5 pillars, and I am going to come back to evidence of each of these as we go through the results today. The first of these is our diversified revenue, expanding beyond our traditional survey work into consulting advisory digital solutions, which then opens up a high margin revenue stream for Veris. The second is being value driven, and that is shifting away from commoditized volume-based pricing toward value-based pricing that actually reflects the strategic impact of our work. The third of these is staying anchored in our spatial data. This is our deep domain expertise. It is our data assets and they are the foundation for the unique insights we can deliver to clients. The fourth pillar is our digital point of difference, which is all about embedding advanced digital tools and solutions across our professional services so we can deliver smarter, faster, and more scalable solutions. The final one is about strong capital management. It is about pursuing disciplined, accretive M&A while continuing to deliver consistent returns for our shareholders. I am now going to hand over to Steve, who is going to talk through a more detailed discussion on the financials for the full year. Steve?

Thanks, Michael. FY '26 saw the group record an increase in revenue of almost 5% to $102 million and generate underlying EBITDA of $10.3 million, which was also a small increase on the prior year. This was a pleasing result in the face of a number of significant macroeconomic and key market headwinds faced during the second half, such as the backdrop of rising interest rates, geopolitical conflict, and resulting uncertainty and supply chain cost increases, as well as the changing landscape for the federal taxation of property assets and generally softer state economic conditions in markets such as Victoria and Tasmania. Whilst dealing with each of these, Veris was able to deliver targeted revenue growth, maintain our profitability, continue to increase our forward order book, and also maintain a strong cash balance. Importantly, this has underpinned our ability to continue to invest in attracting high-level talent and skill sets, which will provide the base for the future execution of this strategy. Also importantly, for the outlook of the business, we now have 7 AI-enabled proprietary digital solutions that have been commercialized and developed in-house and are now in the market generating increasing revenues. These have been developed over the last couple of years by our in-house teams that we have invested in attracting and developing as part of our strategic transition to a spatial data advisory firm. These platforms and the expanding skill sets and talents of our team underpin the continued growth in FY '26 of our digital and spatial revenue as a proportion of Veris' total revenue once again this year. These solutions, these digital solutions are continuing to move us away from a commoditized, highly competitive landscape that then in turn create more repeat revenue and value-adding opportunities. We turn to the next slide. As I've touched on, FY '26 presented some external challenges, which essentially represented a tale of 2 conflicting thematics for us, where we had continuing growth in our digital and spatial revenues to circa 28% of our total revenue being offset by challenging conditions and macro headwinds impacting some traditional survey markets in the property and engineering sectors. We responded quickly and proactively to these emerging challenges, and we were able to pivot our approach to some of these affected markets. This enabled the business to preserve our capital strength and maintain our profitability throughout the year. The smallest drop in underlying PBT reflected a slight increase in depreciation charges related to some new equipment investments, as well as the commencement of a new right of use lease asset in connection with our new Sydney office. Our reported PBT of $0.6 million reflects the taking into account of the one-off transaction costs associated with the acquisition of Mesh during the year, some restructuring and relocation costs, as I've just touched on, as well as the non-cash amortization of acquisition related customer relationships and some R&D assets. On the next slide. The pleasing aspect to me of the next slide here is the demonstration that the execution of the strategic plan to transition to a higher margin business that was put in place in 2022 is now demonstrably being reflected in the financial results and trajectory of the group. In FY '22, we generated just over 10% of our revenue from our digital and spatial service offering. The graph on the left demonstrates the deliberate transition that was at the core of our strategy when we embarked on this in FY '22. This was centered on investing in our skill sets and digital solutions development, whilst moving away from commoditized, low margin, small survey projects where we didn't have a key point of difference. By effectively cutting off this tail and focusing on key national clients and generating digital solutions for our large scale asset related spatial problems, we are now seeing the trajectory of better quality revenues and improving margins. Looking forward, we expect our core survey and spatial data capture and analytics solutions to increasingly form together part of our differentiated market offering. We'll have a full year of revenue and margin contribution from the newly acquired Mesh team, and we expect to demonstrate further growth in our digital and spatial platforms and consulting and advisory services. Underpinning this continuation of our strategy will be our strong balance sheet and cash conversion. There's further details of our balance sheet in the appendix to this presentation, which you can view on the ASX announcements platform. For now, I'll hand back to Michael to provide some more insight into our approach to executing on this strategic plan. Thanks, Michael.

Thanks, Steve. So let's now move from the numbers to how we're actually executing on this strategy in the ground. The survey remains and will continue to remain a core of our business. It gives us access to data, to markets, and capability. Our strategy is really to create value through this spatial data and capability using our digital solutions and advisory skills. We're pursuing that with 3 strategic moves, moving up the value chain, scaling our digital and spatial capability, and deepening our consulting and advisory expertise. All of this is supported by targeted creative M&A. There are concrete outcomes I can point to already. Our digital and spatial revenue, as Steve just touched on, is up to 28% from just 17% 2 years ago. The partnership we have with Octave is adding recurring revenue, and our application development team delivered strong revenue growth and margin over the prior period. We've strengthened our digital advisory and environmental skill sets. We're seeing a growing government advisory pipeline creating opportunities in the future. We've completed the Mesh and Mesh-Dash acquisitions this year, and this builds out our capability and presence in those sectors. Whereas the Spatial Vision acquisition is now an integration that's successful, and it's continuing to accelerate our spatial and consulting capability build across our Veris markets. Data access allows us to maintain sticky client relationships, and from these, we can solve problems, deliver value, and hence really grow margins at the bottom line for the overall business. This slide's really about how the 2 elements of our business reinforce one another and are inexorably linked. Our advisory insights fuel our digital solutions. Digital engagements, in turn, open the doors for our strategic advisory work. On the digital side, we've platforms, for example, RoadSiDe, BridgeSiDe, Parsel, plus our application development and software sales and spatial capability. All of these are generating revenue from analytics, licensing, subscriptions, and managed services. On the other side, on the advisory side, we're offering planning, urban design, survey, property consulting, and environmental services. These services are all generating project-based advisory and government contract revenue, providing growth and stability across the markets. The value of this integrated model is it gives us recurring revenue from the solutions and higher margin advisory engagements at the same time. That combination is what drives sustainable growth and margin improvement for the overall group. It's also what makes our client relationships strong. We're not just selling tools or advice in isolation. We're building solutions that evolve with our clients' needs and follow that value stream with them. We look at our suite of proprietary cloud-based AI-enabled digital solutions. They really allow our clients to easily visualize and interrogate spatial data for their most important assets. I'm not going to go through all of the solutions here in detail. What we have though is RoadSiDe and BridgeSiDe, and they're focused in the growing transport asset condition market. We've got Parsel, Vantage, Digital Urbanism, and they support our property clients to make good decisions on their development opportunities. Then we've got Photo Navigator, which provides a visualization asset condition solution, and it's worked for us across multiple markets and in different sectors. All of our solutions capitalize on AI-driven analytics to accelerate delivery of insights provided through these cloud-based platforms for our clients. We just see AI as a huge opportunity to accelerate this development and these analytics. For us, it's this opportunity, not threat, that we're grasping through AI and these solutions. The solutions are developed, tested, they're in market, and gaining traction. It isn't some sort of R&D sitting on a whiteboard thinking about going somewhere. It's a live commercial deployment generating real revenue for the business and real revenue for today. If I turn now to some of our recent M&A, the integration of Mesh's advisory skill sets and the Parsel technology is now delivering results in the live projects across our business. Mesh really has accelerated our consulting and advisory skill sets and margin growth and added specialist planning, urban design, landscape architecture capability in sectors where we previously haven't had scale. Whereas Parsel adds a scalable, subscription-based, recurring revenue stream to our digital portfolio in a different sector. It's complementing our consulting services and reinforcing the overall strategy of doing these advisory skill sets, leading to our digital revenue and back the other way. Together, these acquisitions strengthen and expand our market position. They broaden our client base in strong and growing sectors. Importantly, this isn't just integration on paper. The teams are now co-located. They're already collaborating on live projects and opportunities across the Veris business. This is what genuine M&A execution looks like in our style of business. Let's now look at a newer part of our story. Veris recently announced that we've been appointed the authorized geospatial distributor across Australia and New Zealand for Octave, a large global software intelligence business. Just to give you some sort of sense of the scale of that relationship we've entered into, Octave's existing global annual recurring software revenue exceeds USD 1.1 billion, and it's across more than 4,500 existing customers. For us, there's 4 growth levers we're focused on in Australia and New Zealand. There's software sales, licensing, and support renewals as existing Octave accounts transition across to us at Veris. There's consulting, training, implementation revenue. There's cross-sell into our existing service offering and this implementation. There's system integration, data consulting, and advisory. Finally, there's access to Octave's tier 1 industry and government client base. This starting point is a partnership is an annual revenue starting base of $1.1 million per annum, and it's derived from the geospatial software sales and support, with real potential to scale meaningfully from that base over time. Strategically, what this gives us is capital light, high margin, recurring revenue that deepens our strong client relationships, provides a pathway for us to scale that annual revenue significantly beyond that initial base of $1.2 million, both in the recurring revenue and the ongoing advisory services, plus also the growth into broader Veris services with this new client base that Octave provides. Now let's just look at FY '27 and that outlook. As we enter FY '27 with a healthy pipeline, we've got a secured forward workload of $65 million, provides a strong foundation of committed work over the medium to long term. That workload has been strengthened by significant infrastructure project wins alongside a number of our digital and spatial projects. This project mix demonstrates the link in our strategy from our core survey business through to our advisory and digital services. Beyond that secure base, our unsecure pipeline has a weighted value in excess of $195 million across these markets. Our M&A activity has expanded our workload, our client base, our capability, and also our pipeline of opportunities across key industry sectors. I do want to be candid about the environment in which we are operating. We have faced some real macroeconomic and market headwinds that Steve touched on, things like softer state market conditions in the Victorian and Tasmanian economies, rising interest rates, and geopolitical conflict. I think what we have done well as a team, we have responded really quickly and proactively to reposition the business and provide a strong outlook and take that forward into this year. We are positioned across a range of core sectors, from our transport, our property and buildings, government, utilities, defense, and energy and resources sector. Each of these have a meaningful, serviceable, addressable market at scale, and most with double-digit compound annual growth rates projected through to 2034. The growth drivers really differ by sector. For example, the asset lifecycle investment and digital engineering that are important for us in the transport sector. We have urbanization and housing shortages driving property and buildings. The data center investment that we are capitalizing on and renewables integration is core for us across our utilities clients. The ongoing investment around AUKUS and broader defense infrastructure is a growth driver for us in the defense sector. We continue to see strength and stability in the government sector, and this underpins a range of our other growth markets. It is clear about the strength and stability of our client base, as we have shown here on this slide. Our transformation, we are now aligned with blue-chip and growing clients. We are seeing structural multi-year investment across all of our focus sectors, and our end-to-end capability is spanning the full asset lifecycle and reinforcing Veris' shift to high-value digital and spatial, and also advisory services. I want to bring this together to finish on 6 points, because I think this slide really captures the whole investment proposition for Veris. First, let us focus on the underlying earnings and margin quality. Our revenue grew 4.9% to $102 million, pushing us past $100 million. The underlying EBITDA increased 2.8% to $10.3 million, and our underlying PBT after one-off costs was $2.2 million. And this shows the strength of our strategy, our ability to pivot, execute, and continue to perform even in uncertain times. This structural shift to higher margin growth continues. Digital and spatial revenue has jumped from where it was in FY '23 of only 11% to 28% this year. It shows the successful execution of our digital strategy, shifting that mix of revenue. Our digital and spatial revenue is now a material element of the business, driving growth and margin strength. In addition, there was continued growth in consulting advisory services. This part of the business now has scale and is providing strength in margin, further opportunities for growth across our business. Third, our proactive response to these market headwinds that we have touched on has really positioned the business strongly into quarter 4 and now into quarter 1 of this year. We have met these factors with a quick, proactive response and aimed at continuing the profitable growth of the business and maintaining a really strong underlying balance sheet position. I think the results demonstrate the strength of this execution. Our Octave partnership, our application development capability, and our proprietary digital solutions are all building capital-light technology-enabled revenue streams for Veris. It is a fundamental element of our transformation, and it is now a real revenue stream which provides scale and margin for us going forward. We are in a position where these digital revenue streams are of scale to be strong drivers of margin growth in future years. Finally, fifth, we have got a strong cash position, and our cash balance is $13.3 million. We have met net cash of $11.1 million, and it is supported by $8.1 million of operating cash flow for the year. Our operating cash flow is after funding the Mesh-Dash acquisitions this year, the dividend from FY '25, our ongoing share buyback. Our capital management strategy has provided a strong, stable base to fund and support our ongoing transformation strategy. We are not trying to grow by eroding cash, not generating sustainable margin. We are managing this balance of transforming while at the same time being a profitable base business, generating cash going forward. Finally, we have had a strong FY '27 outlook. The secured forward workload rose to $65 million. Our weighted opportunity continues to expand beyond $195 million. And this outlook is strong. It is diversified across 6 core sectors, provides a mix of growth and stability, and it should give confidence in the outlook for Veris. The team have been really confident in the progress of our strategy, and we think the execution is showing the strength in the performance and the outlook that we have got as a business. I thank everyone for your time this morning. Mark, Steve and I are happy to take any questions.

Thanks, Michael. We have had a plethora of questions come through here while you were walking through the deck. Let me just go through them here. One around the pipeline, Michael, or Steve, whichever one wants to take it. Secured workload, weighted pipeline numbers have been consistent for some time. Could you please touch on the evolving mix in these figures? Are there any particular sectors taking up a growing share?

Look, that is an important element of the detail below that pipeline, because if you looked at our pipeline 5 or 6 years ago, it would have been dominated by some of the more traditional low margin, high volume revenue streams. Whereas now we have been able to shift even those traditional areas to a stronger margin base. You can see now with the growth in the digital and spatial revenue, the growth in the advisory, they make up over half of our pipeline looking forward, which is a really large element for us and provides that different mix in margin growth. That has been a really important shift. I think over time, we will now start seeing where these recurring revenues grow out for the year, both on the Octave partnership, our application development work, and the digital solutions that we have touched on a couple of times, Mark. I think that pipeline mix is shifting significantly, and what is pleasing is the margin element in that is significantly greater. I think that is the indication for us that the strategy is working going forward.