I would now like to hand the conference over to Marc Washbourne, CEO. Please go ahead.
Good morning, everyone, and welcome. Thank you for taking the time to join our FY23 results investor call. I'm Marc Washbourne, CEO, and founder of ReadyTech, and I'm joined today by Nimesh Shah, ReadyTech's CFO. I'm pleased to present to you the results of the financial year ended 30 June , 2023, which saw us deliver another strong year of performance. In today's FY23 results call, we are delighted to update you on the progress made in the past year, where our enterprise strategy continues to flourish across all segments of ReadyTech, and we have significant momentum moving into FY24, with a positive outlook for future growth. As always, our performance is the sum of collective effort, and these results couldn't be achieved without the commitment of an inspirational team of people at ReadyTech.
Firstly, I would like to express my gratitude to every ReadyTecher for their contribution during FY23. Let's make a start on slide three with key operational and financial highlights. For FY23, we delivered an increase of 13.1% on a like-for-like basis in revenue to AUD 103.3 million, whilst recurring revenue increased 13.2% on a like-for-like basis to reach AUD 84.3 million. A total of 48 new high-value customer acquisitions were achieved during the financial year for an aggregate value of AUD 16.4 million, and this includes 11 major enterprise contract wins worth AUD 12.4 million, reflecting our determined strategy of winning large and high-value customers.
The average revenue increase per new customer was just over AUD 95,000, an increase of 74, 74% year on year, underlying, underlining the progress of the strategy. EBITDA to operating cash flow conversion was particularly strong at 95.4% compared to 85.3% in FY22. Slide four demonstrates our growth journey over the last four years as a public company. Its strong performance reflects the success of our enterprise SaaS strategy as we continue to grow high quality, recurring subscription revenue with a CAGR of 34%. Slide five presents the strategic pillars of our focused enterprise strategy that is driving growth momentum and resulting in new high-value customers. Our strategic rationale for enterprise is based on four key pillars. Firstly, the enterprise end of our market means sizable technology budgets, leading to strong expansion opportunities and high customer lifetime value.
Secondly, cloud adoption remains in its infancy across our markets in enterprise, which creates a large opportunity for ReadyTech to replace legacy and accelerate digital transformation programs. Third, we're building strong moats, given the significant upfront R&D investment required to reach enterprise-grade product market fit. Lastly, we believe that through scalable and configurable platforms, enterprise customers will support our ambition and plans for higher margins in the longer term for ReadyTech. If slide five is the why, slide six reflects the how of our enterprise strategy. In FY23, we have made strong progress across all strategic objectives, including in our plans to focus on enterprise product market fit with R&D focused on cloud and an open and connected ecosystem. Expand our enterprise go-to-market focus through investment in sales and marketing, as well as ReadyTech's enterprise brand, so you don't get fired for hiring ReadyTech.
Lastly, our plan to scale and drive growth by enterprise strategic partnerships. Slide seven clearly validates our investment in the enterprise strategy with a record number of landmark customer wins in the financial year. In the last 12 months, we added 11 new enterprise contracts with a combined value of AUD 12.4 million. Some key examples being Burwood and George Town Councils in government ERP, Nando's in Workforce Solutions, and UNSW College and TAFE SA in Education and Work Pathways. These results confirm our ability to displace incumbent enterprise players and provide endorsement of our open ecosystem strategy, our customer-centric ethos, and the benefits of our strategic M&A, which has strengthened our product sets. With this growing track record in enterprise, we start FY24 with solid momentum and a high conviction pipeline, which continues to increase and now stands at over AUD 28 million.
Slide eight outlines the major opportunity of our enterprise strategy, outlining the large markets which are not just addressable, but serviceable by ReadyTech. It's this exciting opportunity that will continue to drive long-term growth. In aggregate, through our investments in enterprise, our growing track record is outlined and the volume of legacy technology right to be transitioned to cloud, we estimate we now have access to a total serviceable market of over $970 million. On to Slide nine. The world of emerging technology is moving fast in areas such as OpenAI and large language models, and ReadyTech is ready to capitalize through our advantages of access to large and high quality data sets, our culture of innovation and existing investments in AI, AI, and machine learning.
For example, in FY23, ReadyTech released and implemented ReadyAI, a prediction of student and apprentice likelihood of dropout. This innovative capability supports customers to identify risk and develop actionable and automated support plans to improve student retention. This is just one of many use cases currently being explored. Indeed, ReadyTech is currently focused on how the next generation of AI has the potential to deliver new value to customers, including improved product automation and personalization, such as the release of copilots in our products, and the opportunity to improve the velocity of both software product development as well as customer implementation products. As outlined on slide 10, and as FY23 has clearly demonstrated, ReadyTech's open ecosystem is a key differentiator and is resonating well in our markets.
ReadyTech offers distinct advantages over the platform monoliths, and it's through this open and connected approach we are offering greater customer choice, as well as deep flexibility and interoperability, resulting in a superior overall customer experience. I'll now hand over to Nimesh, our CFO, for a further update on the financials.
Thanks, Marc, good morning, everyone. Slide 12 provides an overview of ReadyTech's profit and loss. It's worthwhile to note that unless otherwise stated, earnings are, are presented on an underlying basis, with adjustments from statutory to underlying shown at the bottom of the slide. Also, like-to-like compares organic results without the impact of IT Vision. Total revenue reached $103.3 million, which is up 31.9%, or 13.1% on a like-to-like basis. Revenue growth was driven by growth in subscriptions, new customer wins, and the upsell of product, products, and modules to existing customers. Subscription revenue was $84.3 million, representing 82% of total revenue and a 12.9% year-on-year growth.
We continued to invest for growth, as a result, expenses increased to AUD 68.5 million, an increase of 14.9% on a like-to-like basis. Underlying EBITDA was AUD 34.8 million, representing and delivering a margin of 33.7%. Excluding the impact of IT Vision, EBITDA margin is 35.6%. Importantly, underlying Cash EBITDA of 16.3% for the full year incorporate incremental investment in enterprise growth, as well as the impact of recently acquired lower margin business. Moving on to slide 13 is a summary of the balance sheet and cash flow. As at 30th June 2023, available cash to use was AUD 26.6 million, including AUD 23.6 million cash and equivalents and a AUD 3 million debt facility headroom, given AUD 50 million facility had grown to AUD 47 million.
Importantly, 40% of the total facility has been hedged with an interest rate swap. Our strong cash flows and conservative approach resulted in net debt of AUD 27.7 million and a net leverage ratio of 0.8x, as at 30th of June 2023, which is well within our internal target range. Continued SaaS revenue growth and customers prepaying annual subscription fees delivered operating cash flow of AUD 33.2 million, which is a strong 95.4% conversion as a percentage of EBITDA. I'll now hand over to back to Marc to walk you through the segment and outlook.
Thank you, Nimesh. Across slides 14-17, we outline our progress in the Education and Work Pathways segment. Here, ReadyTech is capitalizing on major opportunities in education, where we clearly see a market ready for accelerated digital transformation. Across the enterprise landscape, we see high levels of end-of-life and legacy software, necessity for platform change due to major compliance reforms, and expectations for a modern and digital student experience. On top of this, we expect to enjoy strong macros in the urgent demand for upskilling and in the bounce back of international student activity. It's against this backdrop that ReadyTech, in this segment, delivered revenue growth of 16.4% to $36.1 million. Across slides 18-22, we move to our Workforce Solutions segment, which is delivering strong growth, driven by increasing subscription revenue.
Revenue from software has increased 20.4% year-on-year to AUD 19.3 million. Revenue growth was driven by 78 new customer wins, as well as strong cloud upgrades and the upsell of modules. This performance of growth is being delivered by ReadyTech's all-in-one workforce management offering, which is gaining momentum in sectors ready for change. FY23 has seen particularly strong traction in the retail and FMCG, agriculture, and hotels and accommodation sectors. Some notable wins in the year are outlined on slide 22, such as Burger King, Nando's, Bendon, and Sofitel, among many others. Again, this high-value customer strategy is clearly delivering, with growth in average revenue per new customer of 46%. Lastly, moving to our Government and Justice segment across slides 23-26.
Here, we are pursuing a major opportunity across four key growth drivers, which are, one, acquiring new local government customers. Two, upgrading existing local government customers to subscription and cloud. Three, growth in our contracts and procurement products, winning new blue chip clients, and upselling to government customers. Four, the global growth opportunity in justice case management software. In the segment in FY23, revenue grew 61.9% to AUD 38.7 million, revenue on a like-to-like basis increased 5.7% year-on-year. Government revenue was impacted here by downgrades in primarily project-based and non-recurring revenue by a number of state government customers with a value of approximately AUD 2 million. This reflects, for us, what is a purposeful shift of focus towards the more repeatable and scalable local government side of the market.
The newer addition to ReadyTech, IT Vision, the revenue was $12.6 million, with 21.7% EBITDA margin in FY23, as expected and in line with plan. For the second half of the financial year, IT Vision EBITDA margin improved to 27%. In FY24, we expect organic revenue for this segment to return to mid-teens growth, driven by recent customer wins, including City of Salisbury, Auckland Council, and Glenorchy, George Town, and Burwood Councils. In addition, we have a number of committed cloud upgrades for IT Vision and a healthy sales pipeline. On to Slide 27, and onto the all-important outlook, and ReadyTech is well positioned to continue to deliver profitable growth in FY24 and beyond.
Our FY24 outlook is to deliver organic revenue growth in the mid-teens, EBITDA margin in the range of 34%-35%, excluding the impact of LTIP, labor capitalization to be reduced to 14%-15% of revenue from 15.8% in FY23. Today, we are also reaffirming our medium-term target for FY26, which is an organic revenue target of over $160 million, EBITDA margins increasing to high 30%, and labor capitalization to normalize in the range of 12%-13% of revenue. To wrap up with key takeouts, I'll move to slide 28. Momentum is clearly building in the enterprise space. We are delivering profitable growth and are executing on a strong pipeline across large and serviceable enterprise markets. Our revenues are diversified and defensive in nature.
We are well positioned to capitalize on the AI revolution. Today, we reaffirm our positive long-term target to deliver organic revenue of over $160 million by FY26, with EBITDA margins of high 30%. Many thanks, I'm really happy now to open to any questions. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the headset to ask your question. Your first question comes from Mitchell Sonogan from Macquarie. Please go ahead.
Good morning, Marc and Nimesh. Thanks for taking the questions. Can you hear me?
Yeah, I hear you.
Thanks, Mitch.
Yeah. Congratulations on the result, guys. Just a, a quick one, just looking at the group EBITDA margins, they're up 50 basis points year-on-year, excluding the LTIP and low margin contribution from ITV. Yeah, you put out expectations for that to improve to 30%-37% at FY24 and reaching high 30s in your FY26 outlook. Yeah, can you maybe just talk to the drivers there? Should we expect that to be a bit of a steady improvement each year-on-year? Yeah, obviously, you've done a lot of investment over the last few years in chasing that enterprise strategy, so just, yeah, keen to understand. You've got to get to the point now where you can expect to start seeing a little bit more operating leverage coming back into the business.
Yeah. No, that's right, Mitch. It's a good question. You know, as we have said in the past, in the period of 2022, and in 2023, we invested on our enterprise product strategy, which is now paying dividends. You know, what we build is configured software, very strong, operating leverage, and then it's coming to the margins. We expect, as our guidance says, the margin to increase incrementally every year. Equally important, and it's worth noting that not only is our EBITDA margins expected to grow year-on-year, it's also our cash margins. For the first time, you know, there's a public stating of our cash EBITDA margins out there, which are also increasing on an incremental basis year-on-year. On both front shows, I know that that enterprise strategy is working.
Yeah. I just might extend a little there, Mitch. I think you're absolutely right. There has been a period of deeper investment in enterprise. I think that, that period, you can say it's coming towards the end, particularly seen in R&D, and that higher labor cap. You're absolutely right. We think over time, we see the operating leverage coming through across many areas of the business, including R&D, also sales and marketing. Lastly, worth pointing out that margins are improving in some of the lower margin acquisitions that we've made as planned. As Nimesh said, for that reason, out towards FY26, can obviously do the math. We see that incremental cash margin improvement coming through.
Yeah, great. Thanks, guys. Just a quick one, just on Workforce Solutions, obviously, yeah, a, a really solid result there. Yeah, just keen to get a little bit more detail on the average revenue per customer, that was up 46%. Just talk to the drivers a little bit more, maybe about the typical uplift you see when, when a customer takes you on one platform, but also, maybe the traction that you're seeing in, in winning those larger customers. Thank you.
Yeah. No, thanks, Mitch. I think as you can see there, a very significant number of, of new logos. We are very focused, as you know, on a number of verticals where we're just a really good fit from a product perspective, and we've very concentrated sales and marketing efforts into what we call the stand-up economy. You know, we still see very significant legacy of, you know, disconnected systems of both payroll and workforce management, and it's the all-in-one system, which is very efficient, totally connected user experience, that's, that's driving this growth. Also, I think that what's coming through very clearly is the size of the customers that we're able to go after are significantly higher than they were in just two or three years ago.
I think we are now able to support customers with thousands of employees. You know, previously we were, our sweet spot was probably more in the sort of 200 to 1,000 employee range. Those are really the key drivers. You see that very significant increase in average revenue per new customer of 46%. Yeah, we're, we're really happy with the, the traction and the momentum that we see in this business. I think we've got multiple years of, of really solid growth ahead.
Okay. That's all from me. Thank you.
Your next question comes from Wei Sim from Jefferies. Please go ahead.
Hi, Marc. Hi, Nimesh. Thanks for taking my questions.
Hi.
Congratulations on a great result. Just two from me. The first one is just in terms of the employee benefits expense, you know, excuse my questions, I'm still new to the company. It seems to be increasing quite quickly, and I appreciate there's, you know, probably some of the acquisitions varying into that. I'd be keen to understand, you know, how we should think about this expense going forward.
Yeah, good, good question, right? You have to look on a like-to-like basis. Obviously, we are, at this time, last time, last year period, we didn't have the IT Vision acquisition. On a like-to-like basis, you see employee expenses around that late single digits growth, which includes the investment in that account and as well as salary increases. It's worth also mentioning that that period of heightened war for talent has now moderated. We're seeing supply side really helping us, and our wage cost is well within target.
Okay, perfect. My second question was just in relation to Government and Justice. You know, if we do break out IT Vision, it seems like the underlying growth or the organic growth probably wasn't as strong. I know you called out some of the non-recurring revenues and those rolling off. I'm just wondering how, how much more, you know, of the revenues within that area could be non-recurring and thus at, at, at risk? Thanks.
Yeah, I think the answer is very little. As you pointed out, and the real key reason here for the lower growth for some of these downgrades, amounted to around $2 million in state government part of our business, which is predominantly state government clients and some project-based work and non-recurring work. We have made, in a classic ReadyTech way, I think, a very purposeful shift to the more repeatable and scalable opportunity, which is in local government. We made a very conscious decision to do that. But I think to your question, you know, this is very much a one-off in terms of downgrades. And, you know, from here, we certainly expect this segment to revert back to mid-teens.
It's worth pointing out that in the, as you can see in the enterprise wins, you know, the weight of those are in Government and Justice. Obviously, we've had a good number of government ERP wins, and we've seen really strong upgrade activity in IT Vision. Yeah, we feel very, very confident it returns to mid-teens in the FY24 year.
Yeah, just adding to that, right, because exactly what Marc said, 51% of that AUD 12.4 million enterprise is in Government and Justice, you know. You mentioned also in the IT Vision that when we bought the IT Vision business, a great business of 176 clients, we talk about this upgrade to cloud, 20% has already been transformed, well ahead of expectations, already taking 1 of the 6 modules for further towards cloud migration. You see that the penetration increasing and the incremental value is taking the path. It's up to four times the current legacy revenue. You know, Marc and I, and we are very confident returning that mid-teens growth organically.
Okay, great. Do you mind if I sneak just one more in?
Yeah, of course.
Go for it.
Thank you. Just in terms of AI, you know, I have to ask. It's, you know, the hot topic at this point in time. Ready AI sounds very exciting. I'd be keen to understand, you know, just in terms of the monetization and how we think about the, the, the return on, on, on this, you know, relative to, I guess, non-AI kind of software that we're, we're offering.
Yeah, I think first of all, that, you know, the latest iterations of AI technology, generative AI, I just think they're very well suited to our products. You know, we think that there are vast numbers of use cases where we can augment our products. We, we expect to release our first copilot or assistant in the product in this year based on large language models. In terms of the monetization opportunity, I think depending on the segment and the market, obviously, we can look at the underlying price of the subscription software and pricing and packaging of the base use of the software, as well as additional modules and optional modules that may be AI-based based on large, large language model workflows.
Certainly watch this space, and I think, over the course of the next six-12 months, you should expect to see a number of very exciting releases, particularly around the area of copilots.
That's perfect. Thank you so much, guys.
Thanks, guys.
Thank you.
Your next question comes from Cameron Halkett, from Wilsons Advisory. Please go ahead.
Hi, Mark, Nimesh. Thanks for.
Hey, Cam.
-taking questions. Just one quickly following up on, on Nimesh's comments around Workforce Solutions. Just looking at the second half EBITDA margin, now back above 40% quite comfortably, comfortably, despite, you know, a, a bit more implementation revenue seen in the half. How do we think about margins within that segment looking ahead, given, that had been a focus of reinvestment in the last couple of years? Thanks.
Yeah. Thanks, Cam. Look, I think that 40% is, is a, is good margin that we'll see going ahead, maybe, and a very incremental increase, but on a, a percentage here. Worth noting, Cam, that the, we've put in implementation pieces to accelerate the growth. Organic growth of 20% is fantastic, and we're, and we're in a market are very happy with that. We believe we are fully costed, and any incremental margin, any new clients will have high incremental margins as we drive this industry vertical strategy across the, across the Workforce Solutions segment.
All right. Thank you.
Thanks, Cam.
There are no further questions at this time. I will now hand back to Mr. Washbourne for closing remarks.
Yeah, thank you so much. Thanks, everyone, for joining the ReadyTech call today. Nimesh and I have really enjoyed presenting these results and reflecting on the strong progress we've made in this financial year. No doubt we'll meet many of you during the upcoming Investor Roadshow. Enjoy the rest of the day. Thanks again.
That does conclude our conference for today. Thank you for participating. You may now disconnect.