Thank you for standing by, and welcome to hipages Group Holdings Limited, FY23 investor briefing. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press star followed by the number 1 on your telephone keypad. I would now like to turn the conference over to Mr. Roby Sharon-Zipser, Co-founder and CEO. Please go ahead.
Morning, everyone, thanks for joining us this morning. I'm Roby Sharon-Zipser, the CEO and Co-founder of hipages Group. Today, I'm joined by Jaco Jonker, our Chief Financial & Operations Officer. It is my pleasure to present to you hipages Group's FY23 financial results. Before we kick off, I'd like to remind you that hipages Group is Australia and New Zealand's largest online tradie marketplace and SaaS platform, helping tradies build better businesses. Our vision is to be the most trusted partner in the trade industry, and our purpose is transforming the trade industry, building better lives for everyone. Today, I'll begin by touching on some of the highlights from FY23. Jaco will go through our financial and operational performance in more detail. I'll take you through an update on our strategic evolution before looking ahead to our FY24 targets.
Turning to the FY23 highlights on slide 7, I'm very pleased that hipages Group finished FY23 carrying a strong momentum, which accelerated in H2. Our key metrics clearly show that as economic activity cool, softening consumer demand drives more competition for work among tradies. This has been record tradie demand for our services, which is driving MRR up by 15% at the end of June, with ARPU up 10% on the PCP. This shows the defensiveness of our core marketplace business, being able to deliver a strong performance in a cooling economic environment. I'm also pleased to say that we were free cash flow positive in H2, an important milestone for our business and showcasing the strength of our business model to deliver profitable growth. We also retained our robust balance sheet and no debt.
To reduce our exposure to the economic cycle and open new opportunities for growth, we are continuing our strategic evolution from marketplace to platform. This is an exciting evolution and we've made good progress in FY23, which I look forward to taking you through in a few moments. We enter FY24 with healthy trading momentum, with the business firing on all cylinders. Our subscription model gives us good visibility over future revenues, and we remain focused on tightly managing costs and cash. We expect this momentum to continue, and we are targeting positive free cash flow for FY24. Now, I'll hand over to Jaco to run through our financial and operational performance in more detail.
Thanks, Roby, hello, everybody. It's my pleasure to present to you the Group's financial and operational performance for FY23. On slide 9, you can see the financial highlights for the 12 months to June 30, 2023. As Roby said, our marketplace gained strong momentum in the second half, driving improvement across our key metrics for FY23. Monthly recurring revenue, or MRR, grew 15% on the prior corresponding period, or PCP, to AUD 6.3 million at the end of June, driving recurring revenue up 8% to AUD 62.9 million for the year. Operating revenue, which excludes lease income, was up 9% to AUD 65.9 million, while total revenue was up 8% to AUD 67 million.
Our gross margin remained healthy at 88%, up 3 percentage points on the prior year, with EBITDA before significant items up 14% to AUD 12.3 million, reflecting margin expansion of 1 percentage point to 18%. The business delivered a pro forma net loss after tax of AUD 2.3 million for the year. On a statutory basis, the net loss after tax was AUD 5.1 million, which included a AUD 3.1 million non-cash goodwill impairment on the value of Builderscrack. Looking at our key drivers, it was pleasing to see subscription tradies returning to growth, up 3% for the year, reflecting robust tradie demand in the second half.
ARPU continued to grow strongly, up 10% to $1,872, with the core hipages Australian business growing ARPU by 11% to $1,985. Job volumes continued to normalize from the exceptional highs of the prior year, down 13%, but a stable quarter-on-quarter in Q4. More importantly, total connections between tradies and consumers, a metric we have not previously reported, which represents when tradies accept a job lead and use lead credits, were up 8% in H2 on the PCP. This is a far more accurate reflection of marketplace activity and lead indicator for future revenue growth.
As Roby said at the outset, we reached a key milestone in delivering positive free cash flow in H2, with cash and funds on deposit increasing to AUD 10.7 million at year-end, with no debt on the balance sheet. Slide 10 is a great example of the evolution and the positive momentum of the group's key financial metrics over the last four years. The group has demonstrated significant resilience and the ability to deliver growth and positive operating cash flow in challenging operating conditions. Our financial profile clearly illustrates our proven unit economics and operational leverage, and we are in a great position as we progress towards our target of positive free cash flow in FY24. Turning to slide 11, you can see that our MRR growth rate has returned to pre-COVID levels, having been impacted in previous periods by lockdowns and the post-COVID home improvement boom.
In H2, MRR grew by 12% over H1, driven by record tradie demand for our services, as well as subscription price increases and lead price optimization. With 94% of our total revenues recurring, we have a high degree of visibility, which underpins our confidence heading into FY24. The next few slides show the key metrics for our core hipages business in Australia, which is now a full subscription model. This removes any dilutive impact from builders ARPU growth by enhancing the value exchange with our tradie customers. On the left drive, ARPU growth in our core hipages business, as new tradies join at high price points, with new business yields up 26% on a PCP.
On the right-hand side, we can see the progressive migration of our customer base to higher priced packages as we continue to optimize our lead pricing and implement subscription price increases for new customers. We're also seeing a significant impact of dynamic lead pricing, where our algorithm prices jobs according to their characteristics, including job type, location, time, and tradie demand. This drives increased lead credit usage and ascensions to higher price tiers. Looking ahead, we are confident we can continue to drive ARPU higher from our core marketplace business by more effectively pricing leads and enhancing the experience for our customers. On slide 13, you can see how marketplace balance drives revenue growth. hipages' fundamental promise to customers who post a job on our platform is that we will connect you with up to three tradies at speed.
As you can see on the left, in prior periods where tradies were either unable to work during COVID or later too busy to require additional job leads, almost 30% of jobs went without being connected to a single tradie. On the right-hand side, you can see the number of tradie-consumer connections over the same period. More connections mean tradies are consuming lead credits faster, triggering ascensions to higher priced subscription packages. You can clearly see that the marketplace returned to balance in the second half of FY23, with 84% that at least one tradie and 1.4 million total connections being made, and with an exceptional user experience, as well as higher lead credit usage, which is a lead indicator for future revenue growth. Turning to slide 14, which shows hipages subscription tradies reaching 52,300 after returning to growth in H2.
This was driven by record tradie registrations in the second half, including approximately 25% from returning customers. Many were left us because they were previously too busy. This is an encouraging trend, which we expect to continue as competition among tradies remains fierce. In addition to our paying subscribers, there is significant opportunity to monetize non-subscriber customers, including those who only use Tradiecore on a free trial basis, or interact with us solely through our partnerships with the likes of the New South Wales Department of Education, Bunnings, and IKEA. We currently have over 40,000 tradies on our platform, including the 32,300 of hipages subscription tradies. Over 4,000 of our tradie customers are not currently paying for subscription side of the marketplace.
On the left, you can see an image of an activation from the newest, which is now underway with the hipages Ford Ranger Ute , alongside Tom, everybody's favorite contestant from last season. We are proud to continue our sponsorship of The Block, which continues to be an effective brand investment for hipages. On the tradie side, targeted radio, television, and digital advertising drove tradie registrations up 41% year-over-year, with record tradie brand awareness of 68%, and increases in both tradie consideration and preference. On the consumer side, the hipages brand drove 80% of jobs from unpaid channels. A high-quality customer experience resulted in 72% of jobs coming from repeat customers. In total, 4.2 million unique users have posted a job on hipages, making us the market leading online marketplace for home improvement jobs by a wide margin.
On slide 16, you can see hipages' strong unit economics with the LTV/CAC ratio for our Australian business at 9.1 times in FY23. At the group level, our LTV/CAC ratio is back to pre-COVID levels. Marketplace activity and deliver margin expansion as our investment in technology development stabilizes. We currently operate a commission model with revenue driven by job volume and value. Leveraging our experience with hipages in Australia, we are transitioning the business to a subscription model to reduce cyclicality. In FY23, revenue was down 4% on a like-to-like basis in a challenging economic environment in New Zealand. The team did a great job managing the cost base well to support a 21% EBITDA margin. We have taken a non-cash goodwill impairment of AUD 3.1 million due to the lower than expected transactional revenues.
We remain very positive on the future of Builderscrack and expect its performance to improve as we transition to a subscription model and increase investment in sales and marketing. During the year, Bricks and Agent rebranded to PropTech Labs following the acquisitions of Maintenance Manager and Inspection Manager. This made PropTech Labs the ANZ market leader for property management productivity software, with over 1 million properties under management, out of approximately 2.6 million across Australia. The business continues to deliver very strong growth, with annual recurring. With that, I'll hand over to Robbie to talk more about our strategic evolution.
Thanks, Jaco. As you can see on slide 20, we are continuing our strategic evolution from marketplace to platform, which we believe is critical to winning the tradie economy. Many of you will be familiar with the roadmap we showed at the half year, which depicts the 3 pillars of our strategic transformation over the next 3 years and beyond. The first pillar is optimizing our core marketplace business, with lead price optimization, drive higher ARPU and revenue growth. The middle pillar is our tradie platform-enabled businesses. This will provide opportunities for us to develop and sell an expanded range of products and services for tradies, as well as driving additional growth through new platform pricing and packaging. The third pillar is a consumer platform evolution, where consumer products and services, including fixed price services, enabling us to increase our take rate over time.
Down the line, the huge amounts of data we capture through our platforms will enable us to create bespoke products and services that will drive further growth. One of the marketplace platform is enhanced retention, which you can see on slide 21. We've already seen the significant benefits of transitioning hipages to a subscription, doubled our ARPU to almost AUD 2,000, while increasing retention to 59%. It's a rate of 14%. This demonstrates strong pricing elasticity and shows we are so confident in our platform strategy. We know the tradies use multiple services by growth moving forward. We will be able to complete an entire view what the future looks like as we combine hipages and Tradiecore into a simple, single application. We put together a short video.
The first minute or so shows shows the current state, with the workflow separated across the hipages and Tradie apps and Tradiecore. This demonstrates a lot of room to grow and adopt Tradiecore. The middle section shows what it will look like when the former workflow is available in Tradiecore, providing a seamless experience for tradies. The final section shows a range of potential future services that are unlocked by Tradiecore. I really hope you enjoy. I hope you all enjoyed it. I'm certainly very excited to see this come together over the next 12 months and deliver on the opportunities. Turning to our targets for FY24. Having delivered positive free cash flow in H2, we reached a major milestone for the business. Looking ahead to FY24, we are targeting positive free cash flow.
While the timing of our payment for the sponsorship of The Block in Q2 will skew free cash flow slightly negative in H1, we are targeting positive cash flow in the second half, such that if we base The Block spend over 12 months, we would be free cash flow positive in both H1 and H2. I wanted to close by discussing the medium-term margin potential for hipages Group. We have a highly efficient and scalable operating model, which has the potential to deliver enhanced operating leverage and margin expansion over time. This to be driven by revenue growth, further marketing efficiencies, the stabilization of our technology development costs, and tight expense management, which will be managed in line with inflation. In FY24, we are targeting revenue growth in the low teens with an EBITDA margin of approximately 20%.
In the medium term, we are targeting revenue growth in the mid-teens with EBITDA margins of greater than 25%. Our confidence in these targets is underpinned by the huge opportunity we see from all three pillars of our growth strategy. In the near term, the opportunity from the first pillar alone, with lead price optimization, new pricing and packaging, is significant. Our evolution to platform from tradies and consumers gives us confidence in our growth prospects over the long term. I'm extremely excited in the future of hipages Group. We've had a strong end to FY23, and we are carrying significant momentum in FY24. I look forward to reporting back on our progress throughout the year. With that, I'll hand back to the operator to take any questions.
Thank you. If you'd like to ask a question, please press Star on your telephone and wait for your name to be announced. If you wish to cancel the request, please press Star, then two. If you are on a speakerphone, we ask that you please pick up the handset to ask your question. The first question comes from Piers Flanagan of Barrenjoey.
Just on, on the 2 half, subscription growth, which was strong, can you maybe just give it a bit more color on how that evolved during the period? Then just on those record registrations, are you starting to see them convert into subscribers, over the first half 2024, and how we should think about subscription growth, in 2024?
Yes, Piers, thanks for the question. Okay, so in terms of the subscription turnaround and registration volumes, they really materially increased from January. We had a-- we did have, obviously, a challenging H1, and then FY22 was also challenging for the reasons that I've presented on the material. That's consistent now in terms of the, in H2, where we're seeing that record number. It's been like that month-over-month. We're pretty pleased with that. The conversion rates have actually slightly started to improve. We're, we're very pleased with those conversions to those registrations to actual paying subscribers. Retaining customers has converted the best. Obviously, they've got familiarity with our product and solution, and we can activate them faster than probably a new customer.
That's, that's all healthy, and we're pleased with that. Just looking ahead in terms of those registrations and conversions, we're, we're targeting for that to be consistent with what we've seen over the last six months over the rest of the financial year, FY24.
Great. Thank you. Just on job volumes, I mean, you previously talked about wanting to manage volumes as the, as the marketplace dynamics improve. Can you talk about how you're thinking about job volume growth, as subscribers grow, and particularly against the current macro backdrop?
Obviously, we, we've disclosed that the job volume was down compared to year-over-year. In one hand, just to emphasize to everyone, it's not necessarily a bad thing, because remember, as a marketplace, our promise to the consumer that posts jobs to get a good outcome for them, part of the last six months, our consumer NPS scores have been at record positive levels, which has been excellent. Having said that, at the end of the day, whilst we're giving good, good outcomes to the consumer, job volumes are need to eventually grow, to drive the rates growth. We're anticipating year-over-year growth in job volume. In fact, I think Piaka could just confirm Q4 was, was stable, the job volume?
Yes.
Yeah. We, we've really, we're seeing that stabilize and now moving to year-over-year growth. It won't be exponential growth, but it will be reasonable growth in line with keeping the marketplace balanced and healthy.
Right. Then just the final one on the integration or a combined product of hipages and Tradiecore. Maybe just talking in, in a bit more detail, how you're thinking about the benefits, maybe one, from a pricing perspective, and then two, you know, retention rates as functionality improves or increases.
Yeah, absolutely. We've talked a bit about Hipages as a single tradie app, which is currently designed for trades to come on board. We create a profile for them, they can capture recommendations, they get ratings, they can put pictures, put all their licensing information on their profile, and then the actual job, job lead that comes in, they can accept and decline the work. That's been, you know, the core product of our marketplace for tradies for many years now. We, you know, obviously invest for the audience, you know, invested on the call in Tradiecore a few years ago, probably two, three years ago. But that application was a completely separate application, as we illustrated in the video. The, the, the level of inter-interaction between the two applications is really simple.
You've got it kind of lead in hipages, and if you have the Tradiecore app, which you have to download separately, which obviously has some friction in that, the lead does appear there, but then it's a whole new flow, and it, it's a bit of double handling and double, double in, you know, interacting. You've got to go into one app, then another. We know that that's not the best experience for the tradie, and obviously that's been hard as we've been building up functionality in Tradiecore to get, you know, huge adoption.
What we've been able to do is we've allocated our R&D, our technology investment, a big proportion of it going in to consolidating all of that technology, as we showed in the second part of the video, as I opened up the discussion on that, where that will be joined together. You can receive, accept, set your profile up, then quickly move into the vision. Our teams are working on delivering that by the end of FY24. That will enable us to then start adding those extra services that are embedded within that workflow. There are, you know, procurement, anything around stock, the inventory that the tradies need to do their job. It could be anything with equipment hire, lending products, are all add-on services that we want to integrate into the platform.
You know, probably those things will start happening in FY 25, but FY 24 is primarily around creating that single application. We expect, then once we have the single application in market, all new customers will be joining hipages in the end of FY 24 onto the Tradiecore app. They'll have to download the app and have access to the full suite of services, and during FY 25, we'll commence the migration of our existing customers on the hipages for business into the new, newly formed app. We know that as soon as a customer, has more than one service with us, their retention rate is just under double, which is what we showed in the graph on the right-hand side.
We know that in some of the services, such as our partnerships, that the retention rate is more like 4 times higher than just standard, standard single, hipages product. We definitely really need to move quickly to improve the retention rates of the business over time.
That's very helpful. Thanks, thanks, Roby. That's it from me.
Thank you. Ladies and gentlemen, once again, if you'd like to ask a question, please press star, then one on your telephone and wait for your name to be announced. The next question comes from Elijah Mayr of CLSA.
Good morning, Roby and Jaco. Just a couple quick ones from me. Just in terms of the guidance, I guess, for FY24 of low teens growth, we get your monthly return revenue or MRR, MRR of AUD 6.3. That kind of implies, I guess, 13% growth year-over-year, if that's maintained through FY24. Can you maybe step through, I guess, your expectations for ARPU and subscription tradies that flow into that guidance number?
Probably just to clarify, those are targets. We, we, we're not using the language guidance. Maybe I hand over to Piaka to maybe provide a bit more detail on that.
Hello there. So as you mentioned, we, we had quite a strong MRR exit rate, which was a 50% year-over-year growth. When, when you think about that in terms of, of, of revenue, I think we've had the, the strong position that we're on at the 6.3, that actually would give us mid to high single digit growth in the FY24, as we see the, just the higher starting point. I think we would, we would see that we would have a consistent flow of new registrations. We, we probably don't necessarily expect the, the same significant volumes that we've seen through H1, but we still, we still believe that that's going to be some strong, strong demand carrying in well into FY24.
We are also, and we are also looking at further lead price optimization, as well as our, our pricing tiers and the moving, as, as the customers move into higher price prices. All those, all those components, we expect are, are setting us up well to, to maintain those, those sort of, revenue growth numbers.
Okay. I guess the, the AUD 6.3 million per month, I mean, if you times that by 12, you get AUD 35.6. Are you, are you putting that on the base of AUD 67? Because then that should be sort of low teens.
Yeah, but also remember that MRR includes GST, so I'm assuming you've adjusted for that already.
Okay. Yeah, no problem. Maybe just secondly, just on the price increases, are you able to give us an idea of the magnitude and I guess timing of when these price increases came through?
I just want to provide a little context on pricing. hipages has available two major levers to drive price, price increases. One, price increases, the headline subscription prices for trades, which is the, you know, thing that you'd see when you register and sign up to the platform on. We rolled out a price increase for all new subscribers in FY23, around the beginning of FY23. We grandfathered existing customers in FY23. We are commencing that same price change for the grandfathered customer increase there. It's not, it's not significant. The main driver mechanism to drive the growth is in the actual lead pricing. Just to provide a bit of context and thinking around where the opportunity lies in the lead pricing.
In terms of the value exchange that we created the business, if you look at hipages' revenue in FY23, it was just excluding the segment of New Zealand, just hipages Australia, it was circa AUD 65 million. Now, we know that we're generating around AUD 2.5 billion-AUD 3 billion worth of work for the trades that are in our platform. So if you think about the, about the value of the take rate, that we, we have, so if you put our revenue over the value created as a percentage, it's about 2.5%-3%, which is pretty low when you compare it to what you think about traditional marketplace businesses.
In terms of hipages business as a marketplace business, we obviously need to appreciate that our customers don't make the kind of margin that you get from maybe lower value, higher labor input marketplace business. We, we obviously can't take the, you know, the 15%-30% range that marketplace do. We certainly have room to move on our pricing as we get more sophisticated in dynamic pricing. What we are doing, we have a team in the hipages business that is looking at the experience the tradies have, and they are using now dynamic pricing to adjust the consumption and the claims that are occurring in, in the platform leads. That's resulting in customers utilizing their credit, probably more, more quickly, and resulting in more extensions, so more upgrades.
Which is what we're, you know, customers use the product, you want to buy more of it. Also it's also allowing us to price the product more accurately, put customers on, you know, more accurate subscriptions than lower subscriptions when they initially join us. We've been doing a lot. Long story short, I tried to provide a bit of color there on everything that we're doing on pricing and what's happening there. Obviously the next phase is to move into the improvement in the value exchange, particularly around the lead pricing, to result in higher consumption of what's available in the subscription.
Yep, no problem. Appreciate the color. Maybe just one final one on, on just CapEx and what you're expecting in FY24.
I mean, obviously. From a CapEx point of view, we are, we are still in, we are still building the technology platform, we, we will still continue to, to invest at the, at the current levels. We will, we will only start seeing that, well, start stabilizing in, in FY24. Our key focus is really to be able to deliver on the platform strategy. That will really still be, quite a significant, focus area for us, at least until, until the end of FY24, before we start seeing it, flattening.
No problem. Thanks, guys.
Thank you. Gentlemen, there are no further questions at this time. I will now hand back to Mr. Sharon-Zipser for closing remarks.
I just want to thank everyone for their time today. It's a busy day. Have a wonderful day. Take care.