Thanks everyone for joining, and welcome to Felix's half-one results for FY2025. I'm obviously Mike, CEO, joined by James, CFO at Felix. I'm going to spin us through a quick presentation. We're open for Q&A. If you use the chat panel or the Q&A panel, we'll pick up those questions and come to Q&A at the end. James and I are available to answer through. Having looked through the list of attendees, I think everyone's pretty familiar with the Felix story, so I'm going to do it around the benefit of going quite light on the 101, and we'll just focus on results and progress and hopefully get some time back in your day. Okay, without further ado, let's get going. Start at some of the half-one highlights. Headline by clocking $8.3 million of group ARR.
Getting within striking distance of that $10 million ARR catalyst, which we have had on the radar for a while now. That is exciting to close in on that sort of landmark number. That is obviously being driven primarily by the high-growth contractor ARR segment of the revenue and pleasing progress on that to date, which we will unpack further as we get going. The net revenue retention has remained strong. That number is still fairly volatile depending on the large customer expansions that have happened or not within the previous 12 months. We have some exciting expansion near-term horizon unfolding, so we expect upside in that number over the coming quarters. Strong growth on that new logo contractor additions number, which is really the primary driver of the overall growth engine, which again, we will get into.
That has led in terms of strong growth again in the vendors in the marketplace number, which is a big part of the medium-term commercialisation strategy. We understand the big opportunity that is on the vendor side of the market. Okay, moving into unpacking the group ARR, mentioned that number getting closing in towards the $10 million ARR catalyst. We can see the strong growth on the contractor side. If you know the story, you understand we have deliberately been keeping that vendor ARR stable while the focus has been on the contractor growth strategy. We look forward to moving in the medium term towards delivering on the modules and functionality on the vendor side to transition that to a high-growth segment of the overall and what that can do for the group ARR growth rate, I think, is quite exciting. Onto the contractor ARR and unpacking that.
We've started reporting on the gross margin publicly. We can see that's remained stable, what, four halves in a row now on 76%, which is quite uncanny, but just shows that we've been keeping the sort of the top-line growth and the supporting costs of those gross margin buckets in line. James and I have a view that we've got upside to moving that gross margin for contractors into the mid-80% as we continue to scale, but that may be lumpy as we move it around, moving into new regions, etc. May bump around a little bit, but upside to come on that front. We've spoken about the number of contractors being the primary growth engine, and we're seeing that trend come through of slightly smaller initial use cases leading to a slightly reduced initial ARR per customer.
Having said that, the enterprise agreements include the growth ratchets as those customers expand. We are supportive of that trend as it serves to shorten the sales cycle, reduces the barriers to entry, allows us to get in quicker, prove demonstrable value to the customer, and then hopefully quickly expand their accounts. We are expecting and look forward to that number sort of getting back up over six figures as some of those key accounts from the cohort over the last eight, ten months that we have brought on continue to expand their accounts from their initial use cases as we get embedded, as Felix gets embedded in their organizations. Continuing momentum in some of those adjacent sectors, particularly mining and resources, which we will talk about shortly, are driving that overall uptake of number of contractors.
If we can continue to get embedded quickly in the organization after signing off, executing the enterprise contract, expanding their accounts at a sort of adequate velocity over time, continuing to retain and renew at a really strong level, churn numbers are minimal. I think that acceleration and accelerating uptake and momentum of number of contractors signing on is that primary, then becomes that primary driver of the growth engine. Good to see that in healthy areas, and we expect that to continue. That is reflected in the contractor MRR numbers here. I do not think I need to unpack that in much more detail. Fairly self-explanatory.
What's been really pleasing for the business over the past, sort of, I guess, going back 24 months, has been the really disciplined focus of maintaining strong growth and top-line momentum while being really disciplined around the cost base, capitalizing on that operating leverage, which has been in the business to support higher revenues with the established cost base that we've got. Understand the sort of the business narrative today. We really invested post-IPO to be fit for purpose and ready to scale for global tier-one customers to be a tier-one solution. We've done that in terms of platform security, scalability, our team structure, and organizational posture, and just the international readiness of the platforms. Having made all of those investments, really pleasing to see the strong, I guess, fast-track momentum come through to hit our cash flow, break even on schedule as communicated in advance to the market.
We expect, if things come through on track, to continue that cash flow positive momentum moving forward. That has been really pleasing. I think as we get into this summary of the P&L, you can see PCP, that total operating expenditure actually reducing 4% year on year, while we have been able to drive that continued top-line momentum. That continues a trend over the past three financial years or so. That has been, I think, really pleasing and demonstrable of the disciplined performance in terms of cost base by the business while driving really, I guess, pleasing top-line growth while we have been really lean on capital and investment for growth. That is just working with what we have got, which has been really pleasing.
In terms of our progress against our FY25 priorities, I'm going to just zip around to some other slides in this to provide context and reference, which will sort of capture a little bit of the 101, I guess, without going through the exhaustive page turn. Primarily, and we've spoken about it, accelerating contractor uptake being the primary growth driver. You can see the 10 new contractors landed in H125. Just to speak to that, and I guess what contributing factors, we talk about these perfect storm of critical issues. What we're seeing in the industry across the sectors that we're targeting, and think sort of Felix ideal customer profile, large, potentially multidisciplinary capital asset intensive business that either constructs or maintains large physical capital asset.
By virtue of that fact, they've got a complex supply chain with a high prevalence of services or subcontractor trades executing on that. Often, these organizations are decentralized geographically, and project or asset teams are actually leading the procurement engagement of supply chain. All of those factors, I guess, and in the external operating environment for these types of businesses, it's now a non-negotiable to really have an adequate system or platform to ensure strong management and visibility of their third-party supply chain. The way that Felix connects that supply chain management piece with the procurement workflows and contracting workflows and the way that Felix has been built from the ground up to be suited to that operating model of the businesses in the sectors that we're targeting makes us perfect, right platform, right time, right place to capitalize on that wave of opportunity coming through.
We're certainly seeing that with pipeline growth, pipeline momentum, and obviously, ultimately, sorry, customer conversions coming through. Those structural tailwinds that we speak about when we talk about the accelerating uptake of the contractors coming on, I think that just gives a flavor of that. We very much see that as a global thematic. We've cut our teeth in the domestic customer base today, but now that inflection point of being dragged upstream into international opportunities by incumbent customer base and organic opportunities coming through elsewhere. Once we get those contractors landed and in the business, our focus is on quick and lean implementations and getting Felix sustainably embedded in their organizations and delivering value.
As they then, I guess, go through their own change management piece, it's about, and I'll just zip us down to, it's about sort of expanding their uptake towards maturity of Felix within the business. Often that initial use case that we speak about has a specific, it might be a specific geography or business unit within the business, or it might be one or a few projects that that organisation gets going with. Ultimately, given that Felix is at its essence about standardizing the way that third parties are engaged with and their compliance and pre-qualification is managed and project teams engage, procure, and award, source and award contracts, it's almost exclusively through the lens of an ultimately enterprise uptake of the platform. Generally, there's a ramp up over one to three years to get to that point.
That may be, yeah, or just organic users that are added as the use of Felix expands. They license additional modules that they may not have taken out in their initial use case, or geographies are added, business units are added. All of those vectors combine to drive expansion and increasing maturity and uptake of Felix throughout the business. We have a really strong disciplined focus with our customer success teams and sales account executives working in unison to drive that expansion revenue within the business, within customers' organizations. We are seeing that share of expansion ARR as a sort of a weighting of overall ARR added increasing. I think we are probably at about 33% over the past 12 months. We expect that to continue to grow to circa 50% share.
I think that will be really indicative and reflective of the demonstrable and sustainable value that Felix is adding into our customers' businesses. Okay. Let's zip back up to where we were on that slide. International penetration for Felix. I've spoken a little bit about, sorry for the herky-jerky slides up and down. I've spoken a little bit about the work that's been done, preliminary work around Felix's platform readiness for proper international rollout. Some of that includes our international standards compliance and security certifications as a business, splitting up of the database so that AWS data can be localized for large international contractors. We've just delivered our multilingual capability and will be piloting that with a tier-one domestic customer before wider rollout. That pilot will be happening this quarter.
Given that platform readiness in combination with some of the, I guess, the scale of domestic customers and profile of our domestic customer base and larger international parent companies they have or they exist in a large global group, the green shoots of upstream opportunities of Felix being dragged upstream, we're seeing in flight in a number of cases. I think that's a really exciting entry model in terms of our international expansion, in terms of how capital light and efficient that we can be along that path. It's really akin to expansion revenue if we can get that right, rather than going into new markets, dropping a bomb on sales and marketing and that being a bit of a capital black hole as well. We've got our first permanent boots on the ground in Canada.
We see that as a likely next target geography following ANZ, given the sort of synergies between the markets, and we've got a growing pipeline there. Some really exciting stuff happening. Ultimately, we're in this to be a global market leader in our space, which certainly has proven that track record domestically, but it's time we're at that inflection point of getting out of the ANZ sandpit and getting onto the global stage and franking our growth track record to date. Okay. Heading back up. Vendor monetisation, something that we're really excited about internally in the business.
I know a number of investors and stakeholders, just given the scale of opportunity that's growing with the sheer numbers that are in the vendor marketplace and that, I guess, that secret sauce of vendor adoption and engagement being driven by the contractors and their mandated use of Felix, combine that with what we see as low-hanging fruit in terms of our ability to deliver real cost savings and productivity-enhancing features to the vendor side. It all combines to make a really compelling opportunity. Having said that, our clear focus to date has been on sustainable cash flow break even and getting through that catalyst for the business. We remain focused on that as our number one priority.
As we begin to generate cash flows to sustain investment into new opportunities, we're now transitioning to look at that as being an internal project on our validation and business case for what we'll be going after in phase one of vendor monetisation, which has been in flight now, getting towards the final stages. We've been ongoing for a number of months, which is really positive. Yeah, it's taking our time to get to, but that's, I guess, a necessity with our focus. Our bandwidth of engineering resources available and our focus on cash flow break even, but we're getting closer and we remain, our conviction on the opportunity at large remains as strong as it's ever been on the vendor side.
Lastly, just in terms of sustainable growth, I think that point around that positive operating cash flow position and our ability to make incremental investments in new opportunities is led by that. Yeah, obviously, we've got sort of annual anniversary dates and upfront payments with our customers, which is great for cash flow. I think these first 12 months of kind of crossing the chasm on that cash flow break even, and when we get to the years following that step change in sort of annual kind of anniversaries with another year stacked on, we'll start to get into really healthy territory on that. I think a pleasing year, just in summary, let's get us back to that progress page. Pleasing half in summary. We look at the growth PCP and the progress against our FY2025 priorities.
To frank that, we remain at the sort of the kind of almost starting point and inflection point on a number of these really exciting kind of step change initiatives in the business, as well as kind of taking those really important steps forward in our business life cycle, such as sustainable cash flow, positive and break even, to really stand on our own two feet. We think it's a really exciting time for Felix and for investors and a really kind of exciting opportunity to sort of get in and on that journey right now. I think that will do in terms of just a summary of where we're at, James. I don't know if you've been keeping an eye on Q&A as we've been going.
Yeah. We've got two questions that have come through from the update so far.
I'm sure people are probably typing some answers away now, some questions away now. The first one is regarding our cost profile. It mentions that our costs have been stable for a while now. Do we need to spend more to reinvest in the platform, or is the expense run rate sustainable? I might take first go at that one, Mike, and then you can build on anything there. I think what's been really pleasing from the quarter is we've been able to show that the business, that we've been able to operate the business in a leaner environment and that we've got the ability to generate every dollar increase on the revenue side, on the contractor revenue side, we've been able to flow through to improvements on that adjusted EBITDA level.
In terms of the expense run rate profile moving forward, Mike's articulated a couple of those initiatives that we're looking to focus on more into the future. What we're pleased to be able to report on is that the progress we've been able to initially make in terms of the internationalisation capabilities of the platform and that initial progress in vendor monetisation, we've been able to achieve while we've been focused on this efficient environment and de-risk any future sort of investment hypothesis that we have about going into those international markets or about generating further returns from that vendor monetisation piece. In terms of more meaningful impact, once we've started to turn on revenue from those different line items, we'd expect that we'd be able to report to the market different, I guess, buckets of costs around those initiatives.
We'd be continuing to generate positive cash flows out of that core business, that contractor growth, contract value expansion buckets. Mike, did you have anything to add on that one, or are you happy to move on to the next question?
Succinctly good, James. You can take the next one.
The next question is, are you expecting to stay operating cash flow positive each quarter from now on, or do you expect operating cash flow to turn negative in weaker quarters? That's a good question. Our cash profiles, Mike touched on, have seasonality to it. The historic anniversary dates or the historic sign-up dates of customers and when their anniversary falls dictates to what quarters will be better or sort of not as strong. We are expecting to be cash flow positive each quarter moving forward.
We have the ability with the visibility on the pipeline for the near-term quarters that we're forecasting the ability to close the gap between the new ARR required to remain cash flow positive moving forward. On top of that, we have the ability to look at other initiatives, whether that's the timing of when customers' payments fall, if we're able to bring any of those forward as well.
Thanks, James. I'll take the next one. Are we seeing mining customers in Canada as a driver of pipeline or mainly within construction? That's a good question. Yeah, I mentioned the synergies in the sort of Canadian market, and I think their big resources presence is one of those variables. Our focus to date in sort of dipping a toe in the market there has been really probably primarily focused on infrastructure contractors.
We've got a sprinkling of mining and resources in there as well. We see that as sort of plenty of upside to come and greenfields there in terms of pipeline growth in the region. It was more just as we got going, having a more just defined focus for the first phase. Do you see the vendor monetisation initiative being implemented this financial year? I think that there's, I'll sort of distinguish implemented from sort of commencing the initiative. I think that we're very hopeful and optimistic that we sort of commence that initiative formally. As I mentioned in my summary, it's sort of an internal sort of validation and formal business case planning stage at this point, and we're hopeful of commencing that.
Once we commence that initiative formally, that would have a dedicated sort of product and engineering team associated to build out those features and the go-to-market strategy, which would have a nominal sort of timeframe period attached to it, and then sort of beta launches and ultimately launch to the market following that. It will not be in the wild and kind of commercially generating a return this financial year, but we're hopeful of having the initiative formally underway and holding ourselves to account against those timelines within the financial year. Thanks for that question. James, you might want to take the next one.
Yep. We've got a question from the floor that says that the year-on-year growth rate in new logos has been accelerating and is now in the low 20% annually.
Is four to five new logos per quarter a base case from here for the business, subject to lumpiness? I think it'll be a mix that will be dependent on the intensity of the expansion customers that we have as well. We have seen in historic periods that we've been able to materially expand some customers, which might be in the realm of one to two new logos when talking about the whole of ARR that that's bringing on. We do have some significant deals that we're working on in terms of our sort of allocating our bandwidth to materially uplift some ARR of some customers. I think four to five new logos at that new rate that we've been bringing on and then expanding from there, I think that's a good rough guide.
Without providing forward-looking forecast statements, we've got to put our neck on the line for something. I think that sounds like a reasonable base case and, as mentioned, subject to lumpiness there. I think that would be the expectation of a best case moving forward. All right. I think that's all that's in the queue today. We're sort of just on the half an hour today. Again, thanks for everyone for joining. We look forward to reporting on our upcoming 4C within the next month or so. Yeah, finishing off FY2025 on a really strong note and reporting on that progress in August and September. Thanks everyone for your interest and support of the business. We look forward to sort of continuing the exciting news flow. Thanks, everyone.
Thanks, everyone.