Good day, and welcome to hipages Group Holdings Limited H1 FY 2023 investor briefing. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. For operator assistance throughout the call, please press star zero. Finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Roby to begin the conference. Roby, over to you.
Thank you. Good morning, everyone, and thanks for joining us this morning. I'm Roby Sharon-Zipser, the CEO and Co-Founder of hipages Group. Today, I'm joined by a new face, and I'd like to introduce Jaco Jonker, our new Chief Finance and Operations Officer, for his first results presentation. Jaco joined us in November last year and brings over 20 years of senior finance experience across Australia, South Africa, the U.S. and U.K., including working in a marketplace and e-commerce business. Most recently, Jaco was the CFO and COO at Open Colleges Australia, where he was instrumental in preparing the business for its sale to an Australian private equity firm. Jaco and I have been working together for almost three months now, and we're already seeing the benefits of his strong financial and strategic mindset and fresh perspective on the business.
As a reminder, hipages Group is Australia and New Zealand's largest online trading marketplace and SaaS provider, creating effortless solutions that help tradies streamline and grow their business and delight their customers. We aim to connect consumers with up to three tradies, providing a slick customer experience across our desktop and mobile applications. To date, over 4.2 million unique users have posted nearly 11 million jobs on the hipages platform. Today, I'll begin by touching on some of the highlights from the first half before handing over to Jaco, who will talk in more detail about the results. I'll provide an update on our strategy before looking ahead to the outlook for the second half. Turning to the first half highlights on slide .
In H1, we were pleased to deliver continued growth in revenue and ARPU, with the counter cyclicality of our model becoming increasingly clear in a softening economic environment as our lead indicators turn overwhelmingly positive. We continued to prudently manage our expenses and saw the benefits of operating leverage continue to emerge and drive EBITDA margin expansion. Our evolution from a marketplace to a SaaS platform provider continues as we build an end-to-end platform to win the tradie ecosystem. Core to this evolution is continuing to develop our Tradiecore platform, which will enable us to grow into expansionary services and develop significant insights about our customers and their workflow. It is already delivering significant benefits for customer retention.
With the benefit of our emerging operating leverage, focused capitalized development, and balance sheet strength, we are comfortably capitalized and well-positioned to deliver margin expansion ahead of schedule and are targeting positive net cash flow by the end of FY 2024. I'm particularly pleased to say that our business is off to a strong start in H2. Turning to slide six. Those who have tuned into our recent market updates will have heard me describe the perfect storm that we faced over the last 18 months. Tradie supply was initially constricted by our customers being unable to work due to COVID restrictions, then by an unprecedented backlog of jobs, was driven by record consumer demand. Our expectation, based on our experience, was that a softening macro environment would bring balance to the marketplace and bring accelerated growth for hipages due to the counter-cyclical nature of our model.
In the past, we've observed that when economic activity starts to slow, declining consumer confidence leads to less discretionary spend, resulting in fewer jobs and more competition, with tradies naturally coming to hipages as the highest ROI lead generation provider in the market. Pleasingly, we've seen this expectation become reality as consumer demand has begun to normalize and both new and returning tradies are coming to our platform looking for work in record numbers. As competition for jobs among tradies heats up, our key lead indicators are showing the marketplace is returning to balance, with registrations at record levels and utilization and claim value increasing. Most importantly, we are seeing MRR growth return and subscriber numbers returning to growth in January, which we haven't seen since 2021. We expect these lead indicators to flow through to our financial metrics in the second half.
Now I'll hand over to Jaco to run through the financials in more detail.
Thanks, Roby, and hello, everybody. It's my pleasure to present to you the financial and operational update for H1 FY 2023. Slide eight shows the financial highlights
For the half year to December 2022. As Roby said, we are pleased to deliver continued growth in our key metrics in H1. Monthly recurring revenue or MRR grew by 5% on the previous corresponding period or PCP to AUD 5.6 million, driving 6% growth in recurring revenue. Total revenue of AUD 32.6 million was up 8% PCP, with the benefit of six months of additional transactional revenue from our acquisition of Builderscrack in December 2021. In H2, we expect double-digit MRR growth, which will drive revenue acceleration from H1. Our growth margin remained robust at 89%, with EBITDA margin expansion of 4 percentage points to 18%, driving EBITDA before significant items up to AUD 5.8 million.
The business delivered a net loss after tax of AUD 1.5 million for the year, compared to a loss of AUD 830,000 in the PCP. The vast majority of the difference was driven by amortization relating to capitalized development of Tradiecore, as well as amortization of intangibles arising from the Builderscrack acquisition. While subscription tradies were flat in H1, we are pleased to have seen the number grow in January and February as balance returns to the marketplace with job volumes normalizing. ARPU continues to grow strongly, up 11% to AUD 1,863. We expect this to continue as we push through subscription price increases and benefit further from dynamic pricing over the next six to 18 months.
The business maintains a strong balance sheet with cash and funds on deposit of AUD 9.7 million and no debt. Slide nine shows our ARPU and subscription tradie growth over the last five years. As you can see on the left-hand chart, our subscription model continues to drive strong ARPU growth as new tradies join at higher price points, with new business yields up 29% on the PCP. Importantly, our hipages Australia subscription product has six or 12 month contract terms paid monthly, which provides good visibility over future revenues. Moving forward, we expect continued ARPU growth to be driven by price increases as we migrate our pre-July 2022 customers to higher pricing tiers, increased yields from targeting higher value customers and continued market improvement. On the right-hand chart, you can see that total subscription tradies have remained flat in H1 versus PCP.
However, the start of H2 has already shown growth, with total subscription tradies at 34,400 at the end of January, as softening consumer demand drives higher tradie engagement and further balance returns to the marketplace. As Roby will talk about in more detail, the evolution of our strategy is focused on enhancing the user experience, which we expect will improve retention and serve as an additional lever to support subscription growth over the long term. Turning to our operating expenses on slide 10. Operating expenses as a percentage of revenue improved by 4 percentage points to 82% as we adapt to the current market conditions while continuing to invest for growth. Our effective brand investment enabled more efficient acquisition spend, with marketing expenses as a percentage of revenue improving by 9 percentage points to 28%.
We also continue to invest in our product development and technology platform, which is critical to deliver on our strategy. On slide 11, you can see how our effective brand investment continues to deliver results on both sides of the platform. On the consumer side, another successful sponsorship of The Block drove our highest ever consumer brand awareness of 66%, up from 58% in the PCP, with market leading top of mind awareness 15 percentage points ahead of the nearest competitor, Google. On the tradie side, targeted radio, television and digital advertising drove record tradie brand awareness of 64%, up 5 percentage points, with market leading top of mind awareness 14 percentage points ahead of the nearest competitor.
As you can see on the right-hand side, our strong brand enable us to reduce our reliance on paid channels for sourcing jobs, which we can see in more detail on the next slide. As slide 12 shows, a key outcome of our sustained investment in enhancing the customer experience and building a strong brand is creating consumer familiarity and trust. In H1, we saw a record 72% of jobs come from repeat customers, validating our ongoing investment in enhancing the customer experience. 81% of our jobs came from organic channels, providing us with significant leverage to use our marketing spend efficiently to drive growth. Slide 13 shows the evolution and the positive momentum of hipages Group's key metrics over time. The business has demonstrated significant resilience and the ability to deliver growth and positive operating cash flow even in challenging operating conditions.
Our strong financial profile clearly illustrates our proven unit economics and the operational leverage. The business is in a strong position to continue on its path to net positive cash flow. I'll hand back to Roby to talk more about the strategy and outlook.
Thanks, Jaco. As you can see on slide 15, we are continuing our strategic evolution from marketplace to platform, which we believe is critical to winning the tradie ecosystem. Many of you will be familiar with our tradie ecosystem wheel showing the significant opportunity in the vertical. This slide shows a roadmap for how we plan to get there. Over the rest of this financial year and next, we will focus on optimizing our marketplace with optimized subscription pricing and dynamically priced leads driving higher ARPU. The next stage of our evolution will be underpinned by our continued investment in Tradiecore, our SaaS platform, which is key to providing an end-to-end experience for tradies and will open opportunities for value-added services.
The third stage will be using the large amounts of data we are capturing to create better consumer experiences with expansion services, including real-time bookings and fixed price services, which will enable us to significantly increase our take rate. The future state of hipages and Tradiecore will enable tradies to handle their whole job flow in a seamless way from start to finish with the integration of lead generation, quoting, scheduling, and payments. We are creating an end-to-end platform for tradies to manage their business within a single application. This will provide a better customer experience and keep tradies on platform to complete their jobs. It'll also enable us to expand into other services such as procurement, insurance, and lending. We see a future of removing that friction and bringing the two apps together as one.
We're working on the execution of this strategy, and we'll update you further in H2. On slide 18, sorry, slide 19, you can see exactly why we are doing it. With the data already showing significant benefits for customers' retention and lifetime value when customers have multiple services. Apologies, I meant to say 18. Customer retention is four times higher when using hipages and Tradiecore platforms and even stickier when using additional services such as payments or partner jobs. While it is still relatively early in the rollout of Tradiecore to our customer base, this slide validates our strategy and underscores why we are so committed to investing in Tradiecore to drive long-term growth. We continue to make progress in enhancing the Tradiecore product, now approaching 1,000 users actively engaged and regularly using the app.
In the first half, we rolled out the functionality that was most requested by tradies with accounting integrations completed with Xero, MYOB, and QuickBooks. In H2, our payment features developed with Stripe will go live in Tradiecore alongside other additional functionality and a desktop version. On slide 21, I'll touch on Builderscrack, New Zealand's number one trading marketplace, which we acquired in December 2021. With Builderscrack currently leaving a lot of value on the table, we continue to refine the business pricing model and product functionality, leveraging our experience from hipages, which has shown that subscription models are superior at delivering more predictable and better revenue outcomes. We expect growth to accelerate in FY 2024-2025 as we continue to improve the user experience for tradies and consumers.
Looking at our investment in Bricks & Agent on slide 21, B&A has consolidated its position as number one in the ANZ market by acquiring its nearest competitor and now has 800,000 users on the platform. The business has completed integrations with Palace and Console and is working on a new partnership network such as McGrath. As you have heard throughout this presentation, marketplace balance is returning, and our key lead indicators are green. With softening consumer sentiment driving competition for work among tradies. Lead credit claim value at record levels, which will result in MRR growth through subscription upgrade sales. Record demand is normalizing. Quotes per job are at record levels and zero quote jobs are 50% lower than PCP.
As you can see in the chart to the right, the orange line shows record inbound registrations as new customers come to the hipages platform and customers that were too busy return to look at their work. Pleasingly, January was the best month for MRR growth since 2021, a trend which is continuing in February. Before I turn to the outlook for FY 2023, I think it's important that we take a step back and remember that our revenue base is now 50% larger than it was before COVID. This reflects an amazing effort by the hipages Group team to continue developing amazing solutions for our tradie customers and consumers and growing the business through the most disruptive period in the industry's history, at a time when many of our other players in the market stagnated or shrunk.
On slide 24, as I look into my crystal ball to the year-end, I expect a strong second half for hipages Group. As interest rates continue to rise, we expect consumer demand to continue to moderate and drive more demand for hipages platform. Churn is expected to normalize, with evidence of that already happening in January versus PCP. Due to the impact of marketplace balance in the first half, high single-digit revenue growth is expected in H2, with MRR acceleration already evident in January. Due to marketplace imbalance and churn being higher in the first half, we expect single-digit revenue growth for FY 2023, with MRR growth expected to accelerate through Q3 and Q4. Our EBITDA margin is expected to be above FY 2022, with the benefit of prudent cost management and focused capitalized development.
We will continue to invest in making Tradiecore an end-to-end solution with further functionality to roll out over the remainder of the path as we continue our evolution from marketplace to platform. With balance returning to the marketplace and subscription tradies returning to growth, we expect revenue growth to accelerate in FY 2024, driven by dynamic lead pricing and higher subscription pricing. Having grown significantly as a business over the last two years, we have now reached operational scale. Operational leverage will continue to emerge as we prudently manage our costs and focus our capitalized development while leveraging our strong brand to generate marketing efficiencies. With higher operating leverage expected to deliver margin expansion and strong positive operating cash flows, we are targeting positive net cash flow ahead of schedule by the end of FY 2024. With that, I'll hand back to the operator to take any questions.
Thank you. For participants connected via phone, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Sophie Curren from Goldman Sachs.
Hi, Roby and Jaco. Thanks for taking my questions. just the first one around the sort of penetration of tradies using multiple services. Just looking at the chart on slide 18, just interested on sort of where that's at. I mean, how many of your tradie base are using multiple services? Then the strategy to sort of increase that and where you think it could get to over time.
Thanks. Thanks, Sophie. The slide on 18 is based off a relatively small sample. Some of the other services does have quite a very large statistically significant sample, such as our partner job channel, which has been around for a few years. Still, the data from that sample is still sufficient for us to draw conclusions to help develop the strategy. I just wanted to make sure that was clear. In terms of the Tradiecore rollout, we saw some really good numbers in January. We're nearly at about 1,000 customers actively using that. Just to define what we mean by active. It's not just simply logging in. That number's a lot higher, but it's actually customers invoicing and quoting and using the scheduling function.
They're going in, you know, regularly to use the core functionality of Tradiecore. It takes time to build up a technology solution and then get adoption and work it through your sales process. At 1,000, we're pretty happy with that. I think we mentioned on one of the other slides earlier, I think it was the previous slide 17. To get real accelerated adoption on Tradiecore, the onboarding needs to be a lot more seamless. Part of the work that we're rolling out over the next 12 months is to work out how to integrate that end-to-end solution in a single platform, which will provide more up-to-date time. The payment solutions also, that's also a small sample, but it's around a few hundred customers.
The key feature for that payment solution needs to be embedded in Tradiecore, and that's where the adoption will accelerate. That's another important feature that customers are asking for. We're pretty pleased with the rollout of the features. On slide 19, we talked about getting the accounting applications rolled out. Originally, we were only hoping that we would get Xero done by the end of the year, but we were successfully able to get Xero, MYOB, and QuickBooks, which is pretty much all the accounting applications that sole traders are using. So far it's progressing well and sufficient data for us to help us support our view on that strategy.
That's helpful. Thanks, Roby. Just noticed, and sorry if I've missed this, but it doesn't look like you've got the slide which has the sort of churn for the half. Just interested in sort of what you've seen around churn and maybe how that's sort of progressed over the half and into January.
Just to call it out, I mean, I presume the question is the indication of where our revenue is going is a little softer, driven primarily by churn. You know, we were hoping the flip in the market would have happened sooner around November, December. It didn't, and it's hard to catch that up. So, what we are seeing in January and February is a really strong rebound. It's about 6% better PCP. You know, while we haven't finished the month of February, the best line of sight I can give is that it's on track to be where we, where we were hoping it would be for February. The month is not over yet, but it definitely appears to be returning.
I think the metric that's worth focusing on is that we talked a lot in the last 12 months that our churn was elevated due to tradies being too busy. That's a really hard combat if your primary product is an advertising solution to generate more work. What we're seeing is that of the new customers that we are selling, 25% of new customers are actually returning customers. When we do our churn calculations, we don't normalize or adjust for returning customers, we take the whole number. That number is really big. Like, historically, of our sales, new sales in a month, it would be around 14%-15%. We saw that slightly improve over November, December at around 18%. Now it's at 25%. I've never seen that number before.
What it's telling me is that the market is returning back to balance and tradies are now starting to look for work. We're in a healthy position, and we should see that anticipation of churn getting back to normal levels coming to fruition.
Great. That's helpful. Just around the sort of tradie addition through January, that looks like it's really stepped up versus the half. I know January's seasonally sort of a stronger period for you, but just any sort of color on how you're sort of thinking about the remainder of the half, maybe what you've seen into February as well, and how we should think about the sort of pace of momentum of tradie subs stepping up.
Yeah, you're right, January is always a peak month for us in the year. There's a couple of months that are really important. The good news is obviously January has delivered more than what we anticipated, which is, you know, maybe a correction of what we were hoping in November, December. Obviously, it's hard to catch up on a subscription MRR base if you miss what you were hoping for in earlier months. January correcting itself and overcorrecting is good. In February, we're seeing the similar trends in January. In fact, what we've had to do is put more people on in our new business acquisition team to support that continued volume.
We've had to move a few people around to take the orders that are coming through, which is a good place to be. The good news as well is that March is a longer month, as in a longer workday month without, you know, without the holiday periods in January and the February shorter month, March is longer. We expect March to continue. You know, if that run rate goes through to June, we'll put ourselves in a really healthy position for FY 2024.
Excellent. Then, just one another thing I noticed, there was no split of tradies between New Zealand and Australia and again, apologies if I've missed that. But just sorta if you can provide any color on maybe any differences you saw between both the tradie bases, and then just talk a little bit about how you're seeing that transition to subscription through the Builderscrack business, please.
Sure. I think I might take parts of it and hand over to Jaco hand over other parts to that question. The headline for why we didn't go into detail on Builderscrack, it's pretty much the anniversary of the acquisition. You know, Builderscrack is part of the hipages Group. We just wanted to keep the presentation material as simple as possible. Happy to provide a little bit more detail on the Builderscrack business. For everyone's benefit, Builderscrack does have a different operating revenue model to hipages. It works on a commission success fee basis requiring the transparency of outcomes of work from tradies. We know that there's a lot of opportunity left on the table through a number of ways of analyzing what's going on in Builderscrack.
We are strategically moving Builderscrack over to a 100% subscription model as we have successfully done on hipages. As I mentioned in the script, we successfully did that in hipages over the course of 2020 and 2021, completing that entire project by the end of 30 June 2022. In terms of some detail on Builderscrack's performance, because it's success fee and very much driven by demand, it's been challenging. Jaco, do you have any more detail on Builderscrack that you wanna share?
I think what we are seeing, we are seeing that, as they start moving over to some of the subscription, as they introduce more subscription backs, just that ARPU is increasing over the half. That has increased over double digits already.
Yeah.
Again, that's still relatively small.
Yeah.
Comparatively.
They're still building. That will still take at least another 6 to 12 months to completely build the best aspects of the hipages subscription model and the best aspects of the connection process that Builderscrack has into a new commercial model. Then it'll take time to roll out to the 3,000-ish customers that they have as against to hipages. That is progressing well. It's a small team. I'm very pleased with how Builderscrack is handling the more difficult consumer demand environment there and doing that transition. I keep watching that space. We'll keep providing updates of it as a separate slide in our material and try and add a little bit more clarity on the call outs on the outputs for our business in future.
Just to maybe say, we did call out the ARPU of Builderscrack in the footnotes.
It's in the footnotes.
Yeah.
Okay, great.
If somebody's looking for that.
Excellent. Thank you. I missed that just separation of Builderscrack. And then just one final question from me. Just looking at the marketing spend and sort of pulling back on that a little bit, could you just give us a little bit more color on the focus of marketing among sort of brand investment and then maybe sort of how you're focusing it between tradies versus consumers?
Yeah. You want to go? I'll go, yeah. I'll give the view on that. As a marketplace, you know this, Sophie, and for the listeners. We're always chasing one of the sides of the marketplace, whether you're chasing demand for consumers to post more jobs or you're chasing suppliers, supply side with some more tradies. We have a pool of money that we put into our marketing to drive that. In the last year or two, demand hasn't really been an issue. We obviously wanted to continue to build the brand, and we did do that. We certainly took money from that marketing budget and allocated it to tradie acquisition.
The year and a half, the last year and a half, it was very challenging environment to try and maintain our tradie registration volumes. We, we did put a lot more capital into that, and it was effective at least to help us drive the growth in a very difficult environment. I would say that that has now flipped. We've gotta watch the movement in consumer demand to ensure that it doesn't reach a level that goes below what's tolerable. The likelihood is we will probably take some of that money that we allocated to trade marketing and put it into consumer. In fact, I know that that's what we will be doing in, you know, in our budgeting process in FY 2024, and we've already started doing in H2.
Yeah. Maybe just to add to that. Because we're always in the market in terms of brand and actually marketing to both tradie and consumers, it allows us to flip between tradie versus consumer without having to significantly increase our cost of acquisition on the performance marketing side. That allows us to flip relatively quickly if we need to.
I think the last thing, another high-level thing to add to that as well is, which everyone will probably wanna hear, is that we have committed to doing the next season of The Block with a fresh new format than what we've done. That has been effective over the last four years, but we're, you know, we're going into something quite different and exciting for the year ahead and working with our partners at Nine to deliver an amazing, you know, reality TV experience. That's something we're looking forward to, which will also ensure that our consumer demand and brand awareness is continuing to grow at a healthy level.
Excellent. Look, I look forward to seeing what you do there. That's everything for me. Thank you both.
Thank you, Sophie.