Good morning and welcome to the essensys plc Full-Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged, and they can be submitted at any time just using the Q&A tab that's situated on the top right-hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself, however, the company can review the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll, and I'd now like to hand you over to CEO Mark Furness. Good morning to you, sir.
Thanks, Alessandro. Good morning, everyone, and welcome to essensys Full-Year Results Presentation for the period ending 31st of July, 2024. I'm delighted to welcome alongside me our new CFO, Greg Price. Greg joins with a wealth of experiences in SaaS businesses and deep expertise of the APAC market, so has had a huge impact in simply two months he's been with us so far, and excited for him to join us for the first time today. I'll be switching our camera off as we move from here to help people's bandwidth, and we'll take questions and further comments at the end. Okay, let's dive right in. So for those of you new to the essensys story, our vision is to power the world's largest community of flexible tech-driven spaces.
That really is a nod to the new hybrid work world and a world where spaces and office utilization has changed markedly since the pandemic. We work with some of the world's leading global real estate brands. We have early mover advantage in terms of prosecuting the opportunity for flex workspace technologies, and we have a scale and track record that we believe is unmatched across the real estate industry. So just want to quickly talk to some of the highlights over the past 12 months. Firstly, you know, always good to note that performance has been ahead of expectations. Revenue, EBITDA, and cash, and Greg will offer some further insight on those in the coming slides. Secondly, this year has been really about our transition to a pure-play SaaS model. That model will support scalable long-term growth for us and really meets the needs of our customers going forward.
This pure-play SaaS model helps us deliver our solution with lower barriers to entry and adoption, and finally, we're on track to be EBITDA profitable in FY25 after a significant period of investment. Now, the last three years since the fundraise and since the pandemic have been not just tough for us, but also been tough for the wider real estate industry, and we've been working really hard to set ourselves up for the future, and we'll share some of the progress we've made today. Okay, moving on now to our strategic progress, so in the last 12 months, we completed the final migration of our customers onto our pure-play SaaS product, that's the essensys Platform. We'll give you more details about its capabilities and the problems it solves a little later, and secondly, we've really seen the momentum build with our strategic customer cohort.
Those strategic customers are those we believe can be worth at least a minimum of GBP 1 million or $1 million of ARR to us over time, and that really drives the quality of the earnings and revenue from those customers and also really unlocks the future expansion potential across the industry for essensys. We've returned to site growth across every region, so that's our, if you like, a proxy for our revenues, the number of buildings or sites that we deliver services to, and that's APAC, North America, and the U.K. and Europe. The success in retaining and growing with those strategic customers really is all about the prosecution of our and the execution of our land expand and grow strategy. Again, further details will be later on in this deck.
Finally, we made some difficult decisions to reorganize our business over the last 18 months, but that streamlining of our organization is really helping to support better decision-making, more agility in our organization, and really helps us to align behind our target customers and our target audience and deliver for those key partners, whilst also making sure that our business is fully aligned behind our products and our proposition. What about the essensys overall investment case? We are sitting behind what is a significant structural shift in commercial real estate. The change in the global office market, which is really driven by this new world of hybrid and flex working post-pandemic, is creating a significant long-term opportunity for our business. Now, to prosecute that opportunity, we've had to do some work on our proposition, our product set.
Firstly, it's about transitioning to a pure-play SaaS model, lowering barriers to adoption, increasing gross margins over time, and also lowering barriers to entry for new customers. At the same time, the capabilities of the proposition and the product and the value we deliver, we expect to increase barriers to exit for those same customers over time. Now, in the 18 years we've been operating, we've been seen as a market leader for software and technology for the flexible workspace industry, but really now we're honing down on solving big problems for large multi-tenant portfolios of space, so the world's biggest landlords and real estate operators being our target strategic customers. And so everything we do in our product is designed to solve their challenges, whether that be driving occupancy, increasing yield for the spaces they operate, or lowering their operating costs through high levels of automation and software.
They're the things that are at the front of mind for every new capability we develop. And finally, we work with the world's biggest commercial real estate brands, owners, and operators of space. And we do that because we will become embedded with those organizations. That is the top of the industry value chain, and they traditionally control most of the market. It's been a journey to work with those organizations, but we've got some real evidence of the progress we've made over the last three years with such logos. Now I'll hand over to Greg, who will take us through a financial review.
Thanks, Mark. I'm very excited to present my first set of results as the CFO of essensys, and I'll dive straight into the highlights here and talk you through them today. So, as Mark said at the start, we're very pleased to report results that are ahead of market expectations that we set six months ago, with revenue, EBITDA, and cash being ahead of target. ARR at GBP 20.3 million shows growth of 5% at constant currency, while revenue is at GBP 24.1 million. That's down 2%. What I will explain is how that relates between strategic customers and non-strategic customers, with strategic customers growing and non-strategic customers declining, and also between our recurring and non-recurring revenues. And I'll talk about that in a couple of slides, in the next couple of slides.
What's more important from this slide that I want to call out is the EBITDA, where we saw a loss in the year of GBP 900,000. That is an improvement year on year of 86% and leaves us well placed to be EBITDA profitable in FY25. The cash balance of GBP 3.1 million also means that we have the resource. We believe we have the resources to manage cash for the foreseeable future. Let's look at the top line in a little bit more detail. ARR grew by 2% on a reported basis, but as I said, 5% at constant currency, and that was driven by our strategic customers and our expansion with those customers. Those customers grew by 8%, and I'll talk more about our strategic customers over the next couple of slides.
Recurring revenues declined by 1%, and that was really driven by the mix between regions, so Europe and the U.K. having more non-strategic customers declined by 8%, but North America, which has really been our focus and where the majority of our strategic customers sit, grew by 2% at constant currency. It's worth calling out at this point the impact that currency has. North America, on a reported basis, showed a decline of 2%, but when we equalize the currency movements, that's where the growth comes from, and that would be important when we come to the P&L in a couple of slides' time. APAC grew by 60%. While it's still early days for us in Asia, we're really pleased with the growth we're seeing there, and that's becoming an increasingly important part of our business. Total revenue declined by 2%.
That really is a factor of the non-strategic customers that I just talked about before, as well as lower non-recurring revenue, and that's a factor of the capital constraints that some of our customers have. They aren't really able to spend a lot on CapEx. That is addressed by the work we've put into our platform and making sure that customers don't need to spend a lot upfront, and we'll talk about that more as the presentation continues. ARR, as one last point, as a percentage of total revenue, improved by five points in the year and is now 84%. That reflects our emphasis on recurring revenue, but also the increasing quality that we have with those strategic customers.
So the momentum that we have with our strategic customers really comes out when we look at the ARR bridge, where we had new customers in the year that contributed GBP 800,000, and GBP 500,000 of that, GBP 500,000, came from strategic customers, and that was 11 new customer wins with strategic customers. Offsetting that was lost customers of GBP 900,000, but only GBP 100,000, and that's one customer with strategic. It's worth just pausing at this point to talk about lost customers at the half year. We talked about one of our largest customers and how they were going to be reducing their work with us going forward. That didn't affect FY24, but it will affect FY25, and that relates more to our cloud product and also our legacy Connect product rather than the Platform where we've now migrated all of our other customers.
Putting that to one side, when I look at net new sites, that has grown strongly in the year with GBP 1 million overall, and that all relating to strategic customers. And that gives us confidence that as well as bringing in new customers and holding on to those strategic customers, we can grow with those strategic customers going forward. So let's just dive into strategic customer performance a little bit more because that momentum is really driving the revenue quality that we're seeing. And growth at ARR of 8% was driven by the number of customers overall increasing by 9%. As well as those 11 new customers that I mentioned, we've been able to grow with our existing base, and that reflects in a net revenue retention of 111%. Total revenue up 6%, slightly lower than the ARR and recurring revenue rates.
That was held back by non-recurring revenue, which declined by 5% as we saw customer capital constraints. And that will continue to, we expect non-recurring revenue to continue to reduce as a proportion of our business as we focus more on our platform, and therefore we don't have as big an installation revenue base. But when we look at the P&L as a whole, what's important to note is that while revenue at a top line reported level declined, and that's what drove the reduction in gross profit, our bottom line is growing well. So while margins declined by two points, that was relating to the hardware installation elements, which is the non-recurring side of our business. But the recurring side, as we've shown, is growing strongly. And coupled with that, we've been able to drive significant cost savings in the year.
Our operating expense is reduced by GBP 6.6 million, which was 31%, and that's been achieved through the group reorganization that we started last year. That's led to GBP 9 million of annualized cost savings if you include the cost that we saved last year and the cost that we've saved this year. That was GBP 1 million more than we originally identified. On the exceptional cost line, that relates to our restructuring costs. You can see a big cost last year that now we've not had to replicate this year. The last point to call out is the tax line where we've seen a credit of GBP 2.2 million. That relates to R&D tax credits, and I'll talk a bit more about those when we talk about cash. Before that, I just want to take the EBITDA performance into the context of the last five years.
So when you look at FY20, five years ago, we were a very profitable business at GBP 4.2 million of EBITDA, and we fundraised on the back of that and really wanted to invest in the business, investing behind our growth strategy, investing behind our product. And that obviously coincided with COVID and was a difficult time, as Mark said, the real estate industry, but the global economy as a whole. We stuck with that investment plan and have invested heavily in our product. And Mark will be able to talk in a few slides' time about how that's starting to pay back and how we've launched new products this year, but also we'll be launching new products in the coming months as well.
When we look at EBITDA now being GBP 0.9 million loss, we can see that we are on track to be profitable in FY25, and we are well set up for the future. I think that investment will pay through in the coming years. As we bear that in mind, when we look at cash, I think it's important to note that the cash burn has reduced to GBP 4.8 million in FY24. That compares to GBP 16 million the year before. That also includes the fact that we had restructuring payments to make in the year of GBP 1.4 million. If I strip those out, our other working capital improved in the year. On tax, we had GBP 0.9 million inflow, which relates to R&D tax credits. We also received a further GBP 0.9 million in Q1 FY25, and we expect to receive a small amount more.
We accrued GBP 300,000 in FY 2024, which we'll receive in FY 2025. So some strong support for cash there. Against that, we continue to invest in our product with capitalized development spend, and that GBP 2.1 million we expect to continue going forward. But our lease payments of GBP 1.5 million, we would expect to reduce as we undertake a strategic initiative to review our data center footprint. When we look at cash on a quarterly basis, you can really see the shift from H1 last year into H2, where H1 we had those restructuring payments. In H2, we had those R&D tax credits, but overall, we reduced in cash terms by only GBP 0.4 million in the second half of the year. And we feel that that shows a good path to run rate cash generation in FY 2025. And now I'll hand back to Mark to talk you through our operational performance.
Thanks, Greg. Just to notify that some of the audio may have had some problems during that last section. So hopefully you can hear us okay. So let's go through to, as Greg said, some of those operational highlights. So firstly, we took a strategic decision some time ago that the market opportunity was likely to be fully unlocked by the largest commercial real estate owners and operators. That focus on those type of customers has not just driven the evolution of our customer base and our revenue mix, but has also really driven our product development. One of the key things that we have delivered is that transition to a pure play SaaS offer.
First thing is about removing barriers to entry for our customers and also removing barriers to adoption so they can accelerate the use of our products and the essensys Platform across their portfolios more quickly at lower cost without us giving up our focus on increasing barriers to exit. And also, it's about how our operating model is aligned with those strategic customers and our proposition. It's really critical that we deliver an amazing experience, not just through our software, but through every touchpoint on our business. And so a focused team that really delivers for our customers is critical to our future success. That simplified operating model that we've been working hard to deliver over the last 18 months.
So firstly, it allows us to make better, faster decisions, allows us to operate more aligned with our customers and our focus areas, and also allows us to respond to market changes more quickly. It's delivered, as Greg says, GBP 9 million of annual cost savings already. And those cost savings, slightly ahead of what we initially identified, have been delivered without touching really our core focus areas. And one of the key focus areas is all about our product and innovation. 30% of our total headcount remains dedicated to R&D and to developing and delivering the products that make the biggest difference to our customers. And so today, we're better placed to support our customers' growth plans, to meet their needs and their challenges, and to understand their business better than ever before. And so what does that mean in terms of those strategic customers?
What does that look like in numbers? Firstly, those strategic customers are improving the quality of our revenue mix over the last 12 months. We see that, as Greg says, the growth in strategic customers. I guess the two key elements here, for me, is the retention metrics. It's net revenue retention at 111% and gross revenue retention at 93%. It means we're meeting their needs. The customers are choosing to stay with us and that they're growing with us. That's exciting for us because in our existing customer base today, that strategic customer cohort, that provides us with significant long-term potential expansion opportunities. Today, we are just under 15% as per current penetration within those strategic accounts. That means an awful lot of upsell potential in that cohort. How does that translate into actual customers?
At the half year, we announced two milestone customer expansions, one in North America and one in the APAC region. The first one is with the world's largest privately owned commercial real estate company, the U.S.-headquartered. They have a vision that across their whole portfolio, they will deliver a connected space experience to all their tenants. We help them with that by solving challenges around booking spaces and accessing spaces and getting access and onboarding into these spaces. We've seen that bookings grow significantly to nearly GBP 325,000 of ARR since we announced that deal earlier this year. On the right-hand side is an Australian REIT. Again, same story, portfolio deal with a minimum committed ARR in the contract. That customer is already billing nearly GBP 250,000 of ARR with us, but they have booked, so that's new sites to go live, GBP 431,000 of ARR.
So really seeing that land and expanding growth motion in action in our strategic customers. And so what's happening in the world of office? What is the market opportunity that we're seeking to address? Well, we believe it's structural and long-term. The industries evolved significantly in the post-pandemic era, but they still work today for office. And one of the most interesting stats we came across recently is from a report by CBRE, which is really all about the new benchmark occupancy metric being utilization. One metric that the industry has traditionally looked at is contracted occupancy. How much of my space is leased? But that doesn't really tell a story of whether or not that space is being used, or in essence, whether that building, that asset has product-market fit. And the industry now knows that utilization is one of the key predictors of success of any specific office asset.
It's also a key predictor of future churn risk. How are we solving for the problems of the real estate industry at large and our customers? We've been hard at work developing our product over the past four years. Now the essensys Platform is recognized as a digital experience and intelligence platform. What does it mean? It means it manages the relationship between occupiers, tenants, spaces, and the services within them. It means providing deep level of insight and understanding and intelligence of how those spaces are used and how occupiers, their relationship with those spaces exist. Finally, it delivers amazingly powerful experiences, mobile-first to allow frictionless use of these spaces and across the building. It's also about the architecture we've deployed. An API-first platform allows us to integrate deeply with existing technology deployed by the landlord or the asset owner.
Our architecture means that we can scale efficiently with new products and services being brought to market at lower incremental cost. So as a pure play SaaS offer with a much simpler onboarding journey for customers and a lower time to value and the ability to deliver in-product upgrades, we're excited about what essensys Platform can do for us in the future. And one final point to note is that the two-year migration journey to move all of our customers from our legacy platforms onto essensys Platform was complete in July. So just briefly touching on access, intelligence, and experience. So firstly, managing and controlling access to spaces and services with a powerful role-based rules and permissioning engine is critical to the world of multi-tenant, multi-occupancy dynamic spaces. And that's the core of our platform. If you like, that's where all of the capability starts.
But really unlocking that with Intelligence Engine, a product we launched earlier this year to really shine a light on the relationship between buildings, the spaces, and the users, how they use spaces, who, when, how, how often, and what the peak occupancy is, is a level of insight and understanding that the real estate industry has lacked for many years. So what we offer with Intelligence Engine is really leveraging the proprietary data sets that we have to give high resolution, high fidelity pictures of the businesses that our customers have. And finally, delivering this end-to-end frictionless journey, our mobile-first journey, which whether that be using your Apple Wallet or Google Wallet to go into spaces, access a meeting room, book it, that is how we see the digital experience and the importance of a digital experience and digital-first journeys in this world of hybrid workspaces.
When I think of the work we've delivered on product and our proposition and the challenges we've faced over the last three years, I look at a business now that is well placed to capture the long-term opportunity. Firstly, the key metrics of profitability, cash generation, and revenue growth are really at the heart of what we're looking to achieve. Driving our customer expansions, delivering the products they need to really flow through to our profitability is critical to our business. That's helped by the improvement in revenue mix as that transition to a pure-play SaaS offer has taken place. Customers and our meeting of their needs really results in their want to expand with us. We see those sales bookings expectations in the coming period really supported by the strategic customer expansion and the new opportunities they present.
And that allows us to be confident in both a long-term structural growth opportunity, but our ability to capture that long-term opportunity and meet our vision to power the world's largest community of flexible and tech-driven spaces. So thank you. And with that, I'll hand back briefly to Alessandro.
Mark, Greg, thank you very much for your presentation. What I'll do at this point is I'll just bring your cameras back up. Ladies and gentlemen, please do continue to submit your questions. You can do that just by using the Q&A tab, which is situated on the top right-hand corner of your screen. But just while the company takes a few moments through the questions that have been submitted today, I'd like to remind you that the recording of this presentation, along with a copy of the slides of the published Q&A, can be accessed via your Investor Dashboard. As you can see, we have received questions throughout today's presentation. And if I could just hand back to you just to read out those questions and give responses where it's appropriate to do so, I'll pick up from you at the end.
Great. Thank you. Okay, let's dive right in. This is from George. How does your offering compare to competitors in terms of cost, deployment speed, and feature set for strategic customers? We believe we're really well positioned now with particularly the developments in the essensys Platform to meet the needs of our strategic customers. We've been listening carefully not only to our customers' feedback, but also to the industry analysis that we've been able to get access to, where the real estate industry is evolving to. How are those challenges? How are our customers looking to meet the challenges of a different world of work? And so we believe with essensys Platform as a pure play offer with access, intelligence, and experience at the heart of it, we believe we have a powerful answer for an industry going through significant change.
We believe that that sets us up well for not just the next 6, 12, 24 months, but the next 5 and 10 years. We're really excited about what essensys Platform can do for our customers now. In terms of cost and deployment speed, now as a pure play offer, time to value is massively reduced. Previously, we looked at three to four-month deployment cycles. Now that could really be three to four days. We're again hopeful of improving the ROI story for our customers with our products. Moving on to Andrew. Given ongoing delays in sales cycles and constrained CapEx budget, how confident are you achieving in the FY25 EBITDA number? I'll cover that briefly, and then I'm sure Greg can add to that. Yeah, we've seen delays in sales cycles and CapEx budgets as we've highlighted.
But we've done a lot of work in our proposition and our product to mitigate or overcome these challenges, so reduce those barriers to entry, lower CapEx costs to get into our product. And so we're increasingly confident about our pure play offer, meeting the needs and overcoming the challenges of constrained CapEx budgets. And perhaps, Greg, you can tell us how that translates into 25% EBITDA.
Yeah, sure. So I think when I think about FY25 EBITDA, the guidance that's been issued today is reiterating a target of GBP 2.5 million. When I look at the first quarter that we've just closed, we've been profitable in that quarter. I expect our profitability to accelerate into H2. So I think there'll be a bigger weighting into H2 in terms of the EBITDA that we deliver. But it's pleasing to see that we're already profitable in the first quarter. And I feel fairly confident that we can have a good year.
Thanks, Greg. Again, from Andrew, could you give some more info on your strategy to expand the pipeline of 200 sites in the U.S.? So those 200 sites are what we would call qualified or deep in the sales pipeline at the front. For us, it's really about that expansion opportunity that exists, if you like, the 85% of untouched opportunity within our existing customer base that isn't in our pipeline today, but we believe is real opportunity for us. So our strategy in terms of our go-to-market is really quite simple. It is land new strategic customers. They are customers that have the ability to deliver us at least one million of ARR over the medium term. It is to expand into more and more locations with them.
And then it is to grow our revenue footprint on each location over time with new product capabilities and hopefully in future pricing power too. So simply, we believe that the market opportunity is fully unlocked by 100, 150 major strategic customers for us in the next three to five years. Okay, moving on. This is from James. You signed two large expansion contracts expected to deliver GBP 1.5 million of ARR by September 2025. Are there similar large-scale contracts in the pipeline for FY25? Our hope is always to accelerate the adoption of essensys platform across all of our customer base. So if you looked across the customer base, there's plenty of opportunity for similar scale-ups in the customer base that exists today. Okay. George, this is one for Greg. Thank you. I appreciate that Greg has only just learned where the facilities are.
But any thoughts on the CAC given the focus on strategic customers?
Yeah. So I think that when I look at our CAC, we have a fairly small focused sales team, mainly looking at the U.K., the U.S., and also one or two people in Australia. I would say overall that that pays back fairly well by having that focused sales and marketing team. So I won't be looking to look at that area as an area of initial focus. I think there are opportunities for us to review how we can optimize our costs in other ways. But my thoughts are that we get fairly good LTV from our customers. And so that LTV to CAC ratio is something that I think we can talk about more as a business and watch this space, and we'll come back to it maybe in the next presentation.
Thanks, Greg. And finally, this is from Tom. Thanks for the update. How optimistic do you feel over the short term? The last three years since the fundraiser has been challenging. Market conditions for office have been tough. We found it tough, and we faced significant challenges ourselves as a business. But we've never doubted where the future of real estate truly lies. We've never doubted our ability to deliver products and solutions that are compelling and help the biggest global landlords. And we're starting to see the early signs that that is delivering for our customers and that we are making a real difference for them in this new world. So not just the short term are we increasingly optimistic, but we're increasingly optimistic about the medium and long-term opportunity for essensys.
And maybe just to close, it's really about we've done an awful lot of work to get here, but it's really about the hard work to make sure we make the very best of the opportunities in front of us over the next 3, 5, 10 years. Okay. I think that's everything apart from one final comment from George, which is thank you, Greg. Best of luck for the role.
Thanks, George.
You might need it next to me. All right, everyone. Well, listen, I think that finishes the questions with that. I'll hand back to Alessandro.
Perfect. Mark and Greg, thank you very much for answering those questions from investors. Of course, the company can review all the questions submitted today, and we will publish those responses on the Investor Meet Company platform. Just before redirecting investors, to provide you with their feedback, that is particularly important to the company, Mark. Just wondering if you had any closing comments.
Just wanted to say thank everyone for taking the time to join us today, and look forward to updating you at the half year early in 2025.
Perfect. Mark, Greg, thank you once again for updating investors today. Can I please ask investors not to close the session? As you know, we automatically redirected to provide your feedback in order for the management team to better understand your views and expectations. This will only take a few moments to complete, so I'm sure it'll be greatly valued by the company. On behalf of the management team of essensys plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.