Followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Marc Washbourne, Co-founder and CEO. Please go ahead, sir.
Thank you. Good morning, everyone. Thank you for taking the time to join our investor call. I'm Marc Washbourne, CEO and Co-founder of ReadyTech, and with me today is Nimesh Shah, ReadyTech CFO. We are pleased to present the company's H1 FY23 results, which saw ReadyTech continue to deliver sustainable revenue growth and strong margins.
In this H1 FY23 financial results, we are very pleased to update on significant progress on our focused enterprise strategy that is driving momentum and increasing the number of larger and high-value customers across our education and work pathways, workforce solutions, and Government and Justice segments. Our current results are also an outcome of the dedication and passion of our team at ReadyTech. Before we begin the formal presentation, I'd like to thank all the ReadyTechers for their contribution throughout the half year.
With that, let me now begin with the key operational and financial highlights on slide three. During 1H FY23, we delivered 13.4% like-for-like growth to 47.9 million in revenue, with recurring revenue at 84%, delivering AUD 40.3 million. Underlying EBITDA was AUD 15.6 million with an EBITDA margin of 35% or 32.6% including IT Vision.
Net customer revenue retention was 103%, reflecting low churn, customer expansion, and successful cross-sell and upsell. The strong momentum is expected to continue in H2 FY23, with revenue flowing from AUD 9 million in a number of recently signed landmark enterprise contracts and a strong and growing high conviction pipeline of over AUD 27 million as at the 31st of December. Overall, pipeline conversion during the half year was particularly strong, with 24 new high-value customer wins, producing forty-
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Apologies, everyone, for the dropout. I'm going to pick up from the end of slide three. Overall pipeline conversion during the half year was particularly strong, with 24 new high-value customer wins, producing 40% growth in average revenue per new customer. Slide four shows our outstanding and sustained performance over the past four years. Notably, we have consistently delivered growth in high quality recurring subscription revenue with a CAGR of 30%.
Slide five. Our focused and determined enterprise strategy continues to drive momentum and growth of high-value customers. I'll present some highlights of this strategy in the following slides. Turning to slide six to highlight ReadyTech's strategic rationale for the enterprise and high-value customer strategy and why we see a highly attractive opportunity for our next-generation technology across all segments. The strategic rationale for ReadyTech is based on four key principles.
Firstly, the enterprise end of the market means customers with sizable technology budgets lead to strong expansion opportunities and high customer lifetime value. Secondly, cloud penetration is in its infancy across all our markets in enterprise, which creates a very large opportunity for ReadyTech to replace legacy technology and accelerate digital transformation agendas. Third, we see strong moats given the significant upfront R&D investment required to reach enterprise-level product market fit.
Lastly, we believe through scalable configurable platform, enterprise customers will support higher margins in the longer term for ReadyTech. In terms of our strategic ex-execution in enterprise, moving to slide seven, we have been performing well across all strategic pillars, which include our objectives to identify, select, and expand in attractive markets, leading to a resilient and diverse set of customers.
We focus on weighting our product R&D to enterprise product market fit and an open ecosystem approach. We're expanding our investment in enterprise sales and marketing. Lastly, we are scaling effectively via network of strategic channel partners. Slide 8 demonstrates strong validation that this strategic execution is delivering results across the enterprise landscape with a recent set of landmark customer wins.
During the half, we added 6 new enterprise contracts of AUD 9 million combined deal value, including Auckland Council, UNSW Global, Sunwater, City of Salisbury, Glenorchy City Council, and New South Wales Government Phase two projects. What these contract wins reflect is our ability to displace prominent and incumbent enterprise players, the differentiation provided by our open ecosystem approach, and also how our strategic M&A had led to scaled benefits and expanded product offerings that are attractive to new enterprise customers.
Again, we expect these win themes and strong momentum to continue in the remainder of FY23 as our high conviction pipeline of new clients is now over AUD 27 million. With that, I'll now hand over to Nimesh. Nimesh, our CFO, for an update on the financials. Nimesh, thank you.
Thanks, Marc. On slide 10, it provides an overview of ReadyTech's P&L. It is worth noting that earnings are presented on an underlying basis unless otherwise stated, with adjustments from statutory to underlying shown at the bottom of the slide.
In addition, references to like-for-like revenue items compared contribution from FY 2022 acquisitions of OpenWindows and PhoenixHRIS against respective prior corresponding periods and excludes the impact of IT Vision to show the organic performance of the business. Total revenue of H1 FY 2023 was AUD 47.9 million, growing at 34.2% or 13.4% on a like-for-like basis. Subscription license revenue of AUD 40.3 million, representing 84% of total revenue.
Revenue growth was underpinned by growth in user licenses and module upgrades, as well as new customer wins, lifting the average revenue per new customer by 40% to AUD 72,300 per annum. Through acquired companies and investment in growth, expenses were AUD 32.3 million, which is an increase of 15.4% on a like-for-like basis, and mainly due to planned investment resources to support product development and delivery for recent enterprise customer wins, which will start be onboarded on the second half of this fiscal year and beyond.
Underlying EBITDA of AUD 15.6 million, representing an EBITDA margin of 32.6%. Excluding the impact of IT Vision, EBITDA was AUD 14.9 million, which is an EBITDA margin of 35%. Turning to slide 11 and a summary of balance sheet and cash flows as of 31st December 2022. Available cash for use was AUD 15 million, including AUD 11 million in cash and equivalents and AUD 4 million debt facility headroom, given the company's AUD 50 million facility was drawn to AUD 46 million.
40% of the AUD 50 million facility has been hedged with an interest rate swap. At 31st December 2022, net debt was AUD 36.1 million with an leverage ratio of 1.2 times, well within internal target range and supported by growing cash flows.
In terms of operating cash flow, AUD 14.5 million in operating cash flow before interest tax and normalized costs was generated for the half year, representing a 94% conversion as a percent of EBITDA, supported by continued growth in customers prepaying annual subscription fees. I'll now hand back to Marc to talk you through the update by segment and the outlook.
Thank you, Nimesh. Moving to slide 13, let's talk about Workforce Solutions. In this segment, ReadyTech operates in a large addressable market of AUD 2.4 billion. Our key focus remains on solving complex payroll and workforce management in the stand-up economy. We target initial industry verticals with an all-in-one offering, and those verticals include logistics, hotels and accommodation, aged and disability care, manufacturing, agriculture, and retail.
This highly targeted industry vertical strategy enables efficient customer acquisition via targeted sales and marketing activity and is benefiting from a growing channel partner strategy. Turning to slide 14, in Workforce Solution, ReadyTech offers an all-in-one platform that is highly differentiated in the mid to enterprise market. To further build product market fit, our key focus is on elevating the employee experience and supporting greater mobility to assist our customers in engaging and retaining their people.
It's also worth noting that upselling to all-in-one remains a significant opportunity in this segment, with average revenue per customer three times higher on all-in-one than on payroll only. On Slide 15, connected to this people-centric strategy, we are pleased to present the product release of Ready People, an employee experience gateway designed for the needs of the stand-up economy, enabling them to work smarter in one place and with a high degree of mobility.
Ready People accelerate upgrades to cloud and will serve as a significant future growth driver. Moving to Slide 16 and 17, we provide here two examples of our industry vertical strategies in action in the agriculture and hotel and accommodation sectors, which are both delivering strong growth.
In addition to some of the compelling benefits of the all-in-one system, these clients have been choosing ReadyTech for specific industry templates that we deploy, as well as our strong employee self-service and our ReadyEmployee recruitment and onboarding capability. In terms of Workforce Solutions segment performance on Slide 18, we delivered revenue growth of 18.3% to AUD 13.6 million, with software revenue growing once again above 20% to AUD 8.8 million.
This is driven by 33 new customer wins in H2 FY23, with the majority in the all-in-one platform as well as module and cloud upgrades from existing customers. We'll move now to Education and Work Pathways. On Slide 20, ReadyTech operates in the attractive EdTech market, where we are responding to market trends and tailwinds with a unique open ecosystem that offers customers innovation and choice.
Through this strategy on Slide 21, ReadyTech is making strong progress in the education enterprise market and advancing across multiple vertical opportunities, driving growth across a large addressable market ready for change. We are well-positioned within TAFE, higher education and state training authorities with our market-ready products underpinned by a growing reputation of successful implementations.
Touching briefly on Slide 22 and 23, in EdTech, ReadyTech is known for its student management system, which covers the full student life cycle. We continue to win customers such as UNSW Global in the half due to our modern cloud architecture, high configurability, local expertise, superior student experience, and increasingly, our open ecosystem model, which, as I've just mentioned, is resonating well in the market. Our Education and Work Pathways segment results are shown on Slide 24.
Revenue growth of 13.1% to AUD 6.8 million was underpinned by a strengthening recurring revenue base of AUD 14.4 million and assisted by continued upsell and cross-sell of core products. The strong momentum is driven by new customer wins in Education and Work Pathways products and strong customer retention, providing sustainable revenue growth into H2 FY23 and beyond. We'll move now to our Government and Justice segment, and firstly, focusing on government on Slides 26 and 27, where digital transformation tailwinds and migration to the cloud continue to be key drivers of our business.
In local government, through the combination of IT Vision and Open Office, we now reach 270 of the 530 local councils in Australia. We continue to view the market as highly addressable, given over 75% of councils purchased a core solution 10+ years ago. We are ready to digitize government with digital transformation for improved customer service and growing community expectations for digital interfaces.
Moving on to Slide 28, IT Vision integration is well advanced. The strategy is being strongly validated since acquisition. In this slide, we include a reminder of the strong strategic rationale for the IT Vision acquisition, which we have outlined previously.
We're pleased to say we've achieved very good progress across the integration stream, and the combination is being strongly validated with multiple cloud upgrades, a number of upsells of our OpenWindows contracts and procurement products, as well as a major metro council ERP win, all since the acquisition was completed.
In terms of Justice on Slide 29, this continues to present a major global growth opportunity. The product suite has high portability to other Commonwealth Justice geographies on the back of our recent global successes in Fiji and the U.K. Feedback on the U.K. project is that it's been a major success, and we believe this places ReadyTech in a very good position for future expansion, including overseas opportunities.
On to Slide 30, the strong momentum of government enterprise wins is validating firstly our innovative cloud products, but also our integrated offerings that have been achieved through our highly strategic M&A, with recent case studies provided here for wins including Glenorchy City Council, City of Salisbury, and Auckland Council, as we establish ReadyTech as a highly trusted government enterprise player.
On to Slide 31, Government and Justice segment delivered revenue growth on a like-for-like basis of 9.1% to AUD 12 million. In terms of those recent acquisitions, IT Vision is performing well, with revenue of AUD 5.5 million and EBITDA of AUD 0.8 million since acquisition.
Based on recent wins of new customers such as Salisbury Council and cloud upgrades, IT Vision is on track to meet its FY23 revenue guidance of AUD 12.8 million and an EBITDA margin of 22%-24%. OpenWindows is also performing according to expectations and well-placed for a strong H2 FY23 with that landmark customer win of Auckland Council.
We'll move now to FY23 outlook outlined on Slide 32. Today we are pleased to reaffirm our guidance of organic revenue growth in the mid-teens before the contribution of IT Vision, AUD 2 million of incremental revenue contribution from FY22 acquisitions before the contribution of IT Vision, and EBITDA margin in the range of 35%-36%, excluding the impact of LTIP and IT Vision.
IT Vision 11 months revenue contribution in FY23 is projected to be AUD 12.6 million at an EBITDA margin of 22%-24%. Importantly, 2H FY23 growth will be underpinned by the AUD 9 million revenue of recent enterprise deals. Slide 33. We remain well positioned for long-term growth.
Today, we also reaffirm our FY26 organic revenue target to over AUD 160 million, driven by the ongoing momentum of enterprise customer wins and the high conviction pipeline. Closing with the key takeouts on slide 34. We are seeing growing momentum with enterprise wins. We have a robust and growing pipeline. We enjoy a diversified and defensive revenue mix. Our M&A strategy is delivering to plans, and we have a positive growth outlook for the long term. Thank you for your time once again. I'll open now for questions. Thank you.
Thank you. We will now take our first question, which comes from Chris Gawler from Goldman Sachs. Please go ahead with your question.
Hey, Marc. Hey, Nimesh. Can you hear me okay?
Yes.
Yes, Chris.
Thanks. Awesome. firstly, maybe just on the AUD 9 million of deals that you announced. Were they all recognized, you know, very late in the half, and so the second half incremental contribution will be around four and a half million AUD? Is that the right way to think about it?
No. Thanks, Chris. Good question. What AUD 9 million, just to start what represents, is the first-year subscription and services revenue, right? They came late in the half, as we've indicated, very, very minor amount has been recognized for first half. You'll expect about 30%-35% recognized in the second half, and the rest beyond that. These are enterprise deals, you know, with a good upfront implementation revenue and thereafter annual subscription payments.
Yep, that makes sense. Maybe just switching to margins. I mean, just note some of the larger enterprise deals that you've signed, particularly in the education vertical. Just interested in the incremental margins of those deals. Like are you having to price pretty sharply to win those tenders? Yeah, anything around the incremental margins would be helpful.
Yeah. Yeah, it's a good question. We built configurable software, Chris, with incremental margin by theory always going to be higher. Say that we've invested in the last, you know, 12 months and probably the next six to nine months on our enterprise strategy. You'll see labor capitalization as a reflection of that. Going beyond what any new deals in that particular segment and a new council or a new case will have incremental margins higher than our current run rate margins.
Yep. Just on that, capitalization investment point. That you raised.
Yeah.
I mean, that was about AUD 10 million in the half-
Yep.
which has grown quite a bit over the last couple of years. Is it likely to decline from here or will be about the same for the second half?
Yeah. Yeah. Good question. The AUD 10 million one thing, you'll see the accounts, AUD 1.2 million of the AUD 10 million, Chris, was dedicated to a third-party provider for mobile app. That mobile app that you Ready People, as Marc mentioned, is coming to the end. We're looking at around for the half, around AUD 8.8 million. For the full year, we're very comfortable around that 15%-16% of revenue. Again, going to that product strategy, product market fit of enterprise over the longer term as a percentage revenue, expect that to moderate.
Yep. Awesome. Then just lastly, just on the UK Justice deal, I mean is that fully ramped up and kind of at full run rate now?
Yeah, that's right, Chris. We've had a number of stages of implementation go live. We've had some additional additional scope and change requests. Yeah, extremely happy client, very successful implementation, and that's certainly opening further opportunities as a trusted provider within the Ministry of Justice itself, but also wider opportunities in Commonwealth countries as we flag.
Great. Thanks, guys. I'll jump back in the queue.
Thanks, Chris.
Our next question will come from Jules Cooper with Shaw. Please go ahead.
Hi, guys. Thanks for taking my question. I just wanted to focus in on IT Vision. Post-acquisition, you've disclosed that eight customers have committed to cloud upgrades, but it looks like the ACV increase is, you know, pretty substantial versus the average across the business. Is that a kind of reflection of maybe the size of customer that is responding early, or is it really a reflection of the opportunity you see migrating customers, you know, from their legacy solution through to Open Office, you know, over the duration? I'm just wondering whether it's more a size or just a value opportunity that you see, Marc.
Yeah. Actually, I'd say it's partly both, actually, Jules. The really one of the core growth opportunities and part of the rationale here was the opportunity to accelerate this cloud transition for the IT Vision customers. The average contract value is currently around AUD 60,000 per annum across all of those customers as they move across to the fuller cloud suite, and that includes a proportion of Open Office technology as well as Open Windows technology from a contracts and procurement perspective.
What we're now seeing through some of these early upgrades is ACV growing to around 4 times larger as they take on that full suite. You know, obviously across, around 176 customers, that's a very significant long-term opportunity for us.
Yeah, absolutely. Maybe if we could, and we've got a little bit of time, you know, there's some really good success, in the local government, area there. Is it worth just sort of, you know, providing some insights about how the acquisitions have, you know, contributed, as well as the, you know, the investment you've been making in your enterprise capability?
Absolutely. Look, I think part of the rationale again, for bringing OpenOffice and IT Vision together was really to consolidate a market-leading position and have those scale benefits. Obviously be seen as, you know, a large, very reliable and trusted local government enterprise player. I think that you're seeing those results start to come through. I'd probably point to the City of Salisbury opportunity. It's a very significant metropolitan council in South Australia. You know, it's a very good sized council.
The City of Salisbury has really been very attractive to this combination of the IT Vision Open Office suite and our ability to partner with them, really using again the sort of open ecosystem approach that I think we talk a lot about, Jules, which really gives customers choice and the ability to phase the implementation over a period as they roll out different sets of the product suite and modules.
Look, I think we're at, within only eight or nine months since the acquisition was completed. We've seen really strong validation that all of the points of strategic rationale are starting to bear fruit. Over the long term, you know, this is really become a major opportunity for the company.
Excellent.
Thank you. No further questions at this time. I'll now hand it back over to Mr. Washbourne for closing remarks.
Thank you. Thanks, everyone, for joining today. Absolute pleasure to present these results. I think the momentum across our product and enterprise strategies. Look forward to meeting many of you on the upcoming Investor Roadshow. I hope you enjoy the rest of the day. Thanks for coming today.