I'm Marc Washbourne, CEO and co-founder of ReadyTech. Joining me today is Nimesh Shah, ReadyTech's CFO. In advance of today, to let everyone know I am recovering from the flu, so apologies in advance, if my voice isn't 100% clear. We are delighted today to present the company's H1 FY 2022 results, which saw ReadyTech continue its growth momentum and deliver another strong result. We see this as an outcome of the laser focus of the entire team at ReadyTech on delivering, implementing, and supporting next-generation people-centric software. Before we begin with the formal presentation, I'd like to acknowledge the tremendous commitment and tireless effort of our team and executive at ReadyTech.
The strong organic and M&A contributions we see in these results follow another busy period for our team, and I thank all of them for their inspiring work and dedication to our collective vision. Moving on to the key operational and financial highlights on Slide three, where we have seen strong growth in all our key metrics. During the half, we saw like-for-like revenue growth of 16.8%, taking total revenue to AUD 35.7 million. Note that in this like-for-like figure, we are capturing the organic growth in the business, which Nimesh will take you through in more detail later in the presentation. Underlying EBITDA increased to AUD 12.9 million, generating an EBITDA margin of 36% or 37.2% excluding LTIP.
Underlying NPAT A grew to AUD 6.9 million from AUD 4.7 million in the prior corresponding period. Net customer revenue retention was 97%, up from 96% in FY 2021. Similarly, recurring revenue and cash flow conversion were maintained at high levels. Excuse me. Pleasingly, our gross opportunity pipeline has increased to AUD 21 million up from AUD 19 million at the end of FY 2021. Pipeline conversion was strong in the half with 22 new high-value customers won during the period. Slide four depicts our journey on a half year basis over the past four years. We have very purposefully targeted and consistently delivered outstanding growth in recurring subscription revenue with a 30% CAGR growth. Turning to Slide five to provide more color on our growth. A core part of our strategy has been to target and onboard high-value and enterprise customers.
The 22 new high-value customers converted during the half, and by high value we mean those that generate over AUD 50,000 in annualized subscription and implementation value equates to an aggregate annual value of AUD 5 million. Notable high-value customer wins are called out on the right-hand side of the Slide. We'll go into more details on the drivers of these customers' decisions to select ReadyTech later in the presentation. We expect the new business momentum to continue with a high conviction pipeline of AUD 21 million with opportunities in progress across tertiary education, local government, courts and justice, and in the stand-up economy, workforce management. Many of you will have seen we completed two highly strategic acquisitions during the half in Avaxa and OpenWindows. Avaxa adds two key TAFE customers, fortifying our market position within a strong growth vertical for ReadyTech in the education segment.
Open Windows adds a procurement and contracts management capability that will strengthen our ERP, and also adds an upsell opportunity in the government vertical, as well as bringing to ReadyTech more than 30 new local government relationships. Prudent growth in sales and marketing investment has also continued, now representing 10% of revenue, up from 9.6% in the prior corresponding period. The investment focus here has been on enterprise and account-based enterprise, driving pipeline conversion. Now moving on to strategic execution, starting with Slide seven. As many investors will be aware, ReadyTech delivers high value to its customers and we reinvest for growth across three key verticals: education and work pathways, workforce solutions, and government and justice. We provide our clients with market-focused mission-critical SaaS solutions.
Our shared best practice SaaS playbook is based on strong usability and agility and on configurability, not customization. Across ReadyTech, we focus on nurturing one high-performing customer and future-focused culture that spans all aspects of the business, from technology and product development through to sales and customer success. Turning to Slide eight. Our accelerated growth has been achieved through ongoing investments in three key areas. Firstly, product market fit. In developing focused product solutions for superior customer retention and acquisition, we created nine new R&D roles in H1 FY 2022, with R&D representing 31% of revenue. The addition of Open Windows significantly elevates our local government product market fit with the new procurement capability. The next area of investment is go to market, where we have grown sales and marketing to target high-value customers.
We added five new roles in the half, taking sales and marketing spend to 10% of revenue. Avaxa also amplifies our reputation and credibility in the TAFE sector. Finally, scaling. For efficient and streamlined operations to support our accelerated growth, we added eight new customer onboarding and implementation heads during the half and delivered strong progress on customer onboarding, self-service, and automation initiatives. Some of the key talent we hired is shown at the bottom of the Slide, and this talent is of a very high quality. In the interests of moving on to the numbers, I won't call out each of them. Suffice to say, these hires are designed to support the next leg of planned growth at ReadyTech, and are each adding tremendous value to the business. Now over to Nimesh, our CFO, for an update on the financials.
Okay. Thanks, Mark. On Slide 10, we provide 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 figures shown at the bottom of the Slide. In addition, references to like-for-like online items include pro forma Open Office financials for the first half of FY 2021 comparative period and exclude the contribution of a backend Open Windows in the first half of FY 2022 in order to capture the organic performance of the business. Total revenue for the first half of FY 2022 was AUD 35.7 million, or AUD 35 million on a like-for-like basis, which is a growth rate of 16.8%. Subscription and license revenue was AUD 30.3 million, representing 85% of total revenue.
like-for-like basis, subscription revenue was AUD 29.8 million, growing at 23.3%. Strong growth in operating expenses continued, including sales and marketing cost growth of 40% to 10% of revenue, up from 9.6% compared to the prior and annualized R&D costs of AUD 21.1 million, which is up from AUD 13.4 million in FY 2021, representing 30.5% of revenue. Underlying EBITDA of AUD 4.9 million represents a margin of 36%. If you exclude the share-based payment for L2, EBITDA came at AUD 13.3 million, which is a margin of 37.2%. Turning to Slide 11. ReadyTech remains highly cash generative and maintains a conservative balance sheet to support further growth.
As at 31 December 2021, we have available cash for use of AUD 11.3 million, including AUD 7.8 million in cash and equivalents, and AUD 3.5 million debt facility headroom, with AUD 34 million currently drawn. We maintain a conservative gearing ratio of 1.1 times. Operating cash flow for calendar year 2021 was AUD 26 million, representing 108% conversion as a percent of EBITDA. With respect to cash flow, this is represented on a calendar year basis due to second half cash conversion being historically higher, especially in the government and justice segment, compared to the first half. This is due to the, on the back of, timing of annual billing cycle. I will now hand over to Marc to take you through the performance by segment, followed by strategy and FY 2022 outlook.
Thank you, Nimesh. Now on to the segment updates, starting with Education and Work Pathways on Slide 13. This Slide breaks the vertical into identifiable addressable markets where there remains significant opportunity. Our education business was built in the private college and back to work markets, where we are the market leader and continue to generate strong growth. A key part of our strategy has been penetrating the enterprise end of the tertiary education market and specifically TAFE. With the acquisition of Avaxa, we now have three reference clients with Chisholm and Melbourne Polytechnic complementing our existing landmark client in the Bendigo Kangan Institute, all of which provides a strong platform for future growth. Turning to Slide 14.
In the education vertical, ReadyTech's core offering is a student management system, which covers the full student life cycle from student acquisition and enrollment through to graduation, placement, and alumni management. We continue to win customers due to our open ecosystem, modern cloud architecture, high configurability for rapid deployment, our local expertise, and superior student experience. Over the past 12 months, we have introduced a feature-rich learning management system, or LMS, into our product suite that is now generating significant traction in the marketplace. For existing clients that have taken LMS, we are seeing increases in annual revenue of more than two times. On Slide 15, we highlight our expanding customer base with recent education and work pathways wins. These include enterprise training organization, Australian Pacific College, employment services provider Workways, and tertiary education provider, Avondale University.
Consistent across the three customers as to why they chose ReadyTech was our advanced platform, well-established and proven track record of delivery, and depth of integrations that are fit for the institution's technology ecosystems. Education segment financials are provided on Slide 16. We experienced an acceleration with revenue growth of 27% to AUD 14.9 million driven by substantial new business as well as the upsell of LMS. This also included a part period point six million dollar revenue contribution from Avaxa. Recurring revenue grew 21.4% to AUD 12.6 million, and we achieved net revenue retention of 97% through successful customer engagement. Reflecting high value and enterprise wins, average new revenue per customer was AUD 52,700, up from AUD 45,800 in H1 FY 2021.
Importantly, we expect continued growth through high value qualified leads in the tertiary education and work pathway sectors. Now moving on to Workforce Solutions on Slide 18. In this vertical, ReadyTech serves a large addressable market of AUD 2.4 billion. Our key focus remains the standup economy, which includes logistics, hospitality, aged and disability care, manufacturing, agriculture, and retail. This targeted industry vertical strategy enables highly efficient customer acquisition by targeted sales and marketing activity. Now on to Slide 19. In Workforce Solutions, ReadyTech offers an all-in-one platform that is highly differentiated in the mid and enterprise markets. This platform includes recruitment, onboarding, rostering, time and attendance, awards interpretation, payroll, HRM, and advanced reporting, all integrated onto one next generation platform.
To enhance product market fit, our focus for 2022 is on the employee experience to further assist our customers in engaging and retaining their talent. We continue to win new customers based on high trust in the market, ability to replace legacy and disparate systems with a single vendor, connected data, and our deep expertise in compliance. Finally, it's worth noting that upsell to all-in-one remains a significant opportunity, with average revenue per customer three times higher than payroll only. On Slide 20, we call out some of the key customers converted during the half. These include the Auckland Theatre Company, major agri grower, Trevelyan's Pack and Cool, and hotel operator, Langham Hospitality Group.
A consistent theme across these customers was the need to replace older and separate systems with a single vendor cloud platform, with ReadyTech also winning on that all important compliance capability as well as workflow automation to drive efficiencies. Turning to segment financials, details on Slide 21, Workforce Solutions delivered 10.3% revenue growth to AUD 11.1 million, driven by new all-in-one customer wins and significant upgrades from existing customers. The value in the consolidated platform is evident in average revenue per new all-in-one customer of over AUD 116,000, which drove average revenue calculated across all new customers to record levels. EBITDA performance for the segment reflected continued investment in onboarding, with five new roles, expanded research and development spend with a focus on the employee experience previously mentioned, as well as sales and marketing.
Now turning to government and justice, starting with government on Slide 23, where we see continued digital transformation tailwinds and migration to the cloud. In local government, we target the 331 medium to large size councils of the 530 local councils in Australia, which we view as highly addressable, given over 75% of councils are estimated to have purchased a core solution 10+ years ago. Moving on to Slide 24. Our local government solution is known for its community engagement platform that can be implemented as a full suite ERP or by module. The strategic acquisition of Open Windows strengthens the ERP offering and provides a new module upsell opportunity through its market-leading contracts and procurement management capability. In the government sector, we win new customers through our citizen-centric approach, our cloud-based modular architecture, high configurability, and strong track record of customer implementations.
Justice on Slide 25 presents a major global growth opportunity. Domestically, our citizen-centric justice case management solutions service a AUD 250 million market across courts, commissions and legal services, tribunals, and public prosecutors. The product has high portability into offshore markets, including the U.K., Ireland, Canada, New Zealand, and the Pacific Islands on the back of our successful Ministry of Justice project in the U.K. Our best-of-breed justice solution is winning customers, given our domain expertise, again, our modular approach, our local presence, and accelerated time to go live. Turning to Slide 26. We made continued progress in winning new customers in both government and justice. During the half, we converted local government customers, Town of Claremont, as well as Oberon Council, where our contemporary true cloud SaaS solution and customer-centric approach shone through.
In addition, we won a major contract with the Fair Work Commission for justice case management on both the quality of our technology and our planned approach to the customer implementation. Financials on Slide 27 show government and justice made a significant contribution to the half with like-for-like revenue growth of 19.3% to AUD 9.7 million. This was underpinned by 62% growth in subscription revenue to AUD 8 million, with recurring revenue now 81% of segment revenue, compared to circa 60% for the pro forma H1 FY 2021 period. Importantly, growth is expected to continue with the government and justice growth pipeline of AUD 9 million. Consistent with the enterprise nature of the vertical, average revenue per customer was AUD 254,000 in H1 FY 2022.
This was up 75%, driven by module upgrades to existing customers and new customer wins. Another key highlight is revenue retention, which remains at 100%, reflecting high customer loyalty and the mission-critical nature of the product. Moving on to strategy and outlook on Slide 28. We remain well positioned to deliver long-term sustainable growth, and we increase our FY 2026 organic revenue target to over AUD 140 million to incorporate the recent acquisitions of Avaxa and Open Windows. For FY 2022, on Slide 29, we reiterate our outlook for organic revenue growth in the mid-teens.
The recent acquisitions of Open Windows and Avaxa are expected to deliver incremental revenue of AUD 2.2 million at an EBITDA margin of 16%. At a group level, EBITDA margin for FY 2022 is expected to be in the range of 36%-38%, excluding the impact of LTIP. To close with key takeouts on Slide 30. After a strong first half, we have a robust and growing AUD 21 million pipeline of high conviction opportunities to pursue. With product market fit focused on enterprise customers, we continue to invest strongly in R&D as the fuel for long-term sustainable growth. Investment in talent to underpin future growth also continues across go-to-market and customer onboarding to meet the demand from new customers. Our strong track record of disciplined and successful M&A has continued.
Lastly, we are well-positioned to achieve organic revenue of over AUD 140 million by FY 2026. Thank you for your time once again, and I will now open the call for questions.
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 leave your phone, please pick up the handset to ask your question. Your next question comes from Jules Cooper from Shaw and Partners. Please go ahead.
Thank you, and thanks for taking my question. Just two from me. So the increase, you know, in the FY 2026 revenue target to AUD 140 million is a big increase when we think that those acquisitions of Avaxa and OpenWindows, I mean, give or take AUD 4 million, and we've got an increase there of AUD 15 million. I wonder if you could maybe just talk about it. It feels like you're, you know, there's a growing confidence in the base business as well as just including those acquisitions. Are we right in thinking that? Maybe if you could just, you know,
Yeah.
Just talk to those things that are sort of underpinning your confidence in that number, and then I've got a follow-up.
No, good question, Jules. Look, you know, we said in Open Windows, when we bought it, you know, the revenue for this year on a full year basis around AUD 3.3 million. Avaxa around AUD 2 million. Altogether it's AUD 5 million as an opening balance, you know, on a pro forma basis. When we look at the next four years, look at the projections of those acquisitions and through the ReadyTech playbook, we're very confident that it will grow, you know, at least higher than the mid-teens% growth that we expect for ReadyTech. And I can go through the reasons why, but very, you know. We've done that before. We bought Zambion, as you know, Jules, and we've grown that revenue two times in, you know, the last two years.
You know, confident we look at the strategic rationale of those acquisitions. We add that to what we had said at the last half, AUD 125 million. We put that in with the revised 140 at just around AUD 140 million.
Yeah. Okay. All right. No, it's that that's clear. I guess just on the cash conversion, so you know, over a 12-month rolling basis, strong as always. When you particularly just look at the you know, the first half, maybe a little softer than what you know, and off the back of a very strong second half 2021.
Yeah.
Could you maybe just provide a sense for, you know, as you look out, you see the different movements in the working capital line, what you think that conversion as a percentage of EBITDA might be for the full year?
Yeah. Look, I think a good question, yeah. We presented the CY 2021 because CY 2021 cash conversion of 108%, we do have a stronger collections in the second half. Remember these clients predominantly pay in advance, and their annual billing cycles, particularly for government justice users, fall in the second half. For the full year, we are very confident that the cash conversion will be greater than 90%, if not more. It's just the timing impact. You have to remember full FY 2021, in fact, had that, the second half of Open Office. We don't have that this half. Again, we're very confident that it'll be greater than 90% for this whole year.
Awesome. Okay. Very clear. Thank you.
Thank you. Your next question comes from Wilson Wong from Jarden. Please go ahead.
Just following on from Jules' question, so what growth rates are you actually assuming for Open Windows and Avaxa, so over the next four years, roughly?
Thanks. Look, we expect that, you know, if you take mid-teens, all of the segments is, it's probably mid- to high-teens on the growth rate. It's doing really well. If you also look at one of the key things for the half, right, and we've said that at the time of acquisition, is we want to convert the non-recurring revenue into recurring. We've now made for the half 81% of government treated as recurring. That already has a timing impact in spite of that to deliver the growth rate. We expect that, government to continue to, and will be around mid- to late-teens.
Sure. That's clear. Just on the growth opportunity pipeline, that incremental AUD 2 million. Which segments did that come from, and sort of what conversion rate are you assuming for that AUD 21 million?
Yeah. Thanks for the question. Mark here. You know, the additional AUD 2 million has come from a range of segments and verticals across the business, partly as the acquisitions of course that came with some pipeline. That explains some of it. Look, we are particularly seeing strong growth in the pipeline in the government and justice side of the business, probably with a weighting towards justice. Yeah. It's
Spread quite well across with the weighting towards the government adjustments, I think is the answer.
Just on the conversion rate and sort of what
Sorry, yeah. No, I'll just answer that follow-on question. Yeah. Look, over the last 12 and 18 months, for opportunities that fall into that pipeline, the high conviction pipeline, we're seeing conversion rates of around 55%-60%.
Absolutely. And just in terms of are you seeing any wage cost pressures, particularly on the R&D front? Out of those nine new roles, sort of, I guess, if you were to compare the costs of hiring them, sort of, I guess recently versus historically, what does that look like?
Yeah, I think that you know, I think it goes without saying that you know, it's a tight talent market. We're seeing skill shortages. We're certainly not immune to that. I think that we've been able to navigate that well, particularly with the existing team. I think that certainly seeing that people are choosing to stay at ReadyTech, I think we have a really great culture. We've really embraced flexibility. We have very competitive. We think we have competitive compensation as well. When we have gone out to market for new roles, at times, we have seen inflated salaries from where they were previously.
We also benefit from the fact that we, with a very dispersed team, not only have roles here in Australia, but also in overseas development centers, where we're not quite seeing the same level of wage inflation as we're seeing in
Sure. Thanks, Marc and Nimesh.
Thanks.
Thanks.
Thank you. Your next question comes from Michael Aspinall from Jefferies. Please go ahead.
Yeah, thanks. G'day, Marc and Nimesh, good morning. So I just wanted to ask one slightly different from a slightly different perspective on the pipeline. I mean, if we take the AUD 5 million of annual value of high-value customers you converted in the half, then there's been kind of at least AUD 7 million of growth in the pipeline and more if you adjust for that conversion rate you just mentioned. I'm just interested in if the reasons those customers are seeking new products has changed at all, or what the underlying driver of those customers seeking to shift to potentially ReadyTech or another product are.
Yeah. Thanks, Michael. I think that if there's one silver thread that runs through all of this, you know, is replacement of some form of legacy technology. You know, we think that across all our segments, we see it in education, we see it in TAFEs, we see it in local government, we see it in justice. Many of these organizations selected that core system many years ago, and for a whole range of reasons, they've outgrown that system. Either it's a non-cloud-based system, it has disconnected and disparate systems that they would like to have an all-in-one platform. Potentially have a less modern user experience, and also poorer interoperability.
For the most part, these organizations are going through a large replacement of technology and going through their own form of digital transformation. It's that key trend that we think not only provides growth into the next year, but into many years ahead.
Yeah. Great.
If you look at the value of new customers, you know, for the half was around just AUD 560K compared to on a PCP basis, AUD 42.5K last time, which is a 40% increase just basically on the value of new customers. Exactly what Mark said, we went to the higher value enterprise customers, which are very good for the long-term value, lifetime value of the organization.
Great. I mean, just kind of a follow-up. Your net revenue retention increased to 97%. Underlying that, can you give us an idea of what churn looks like and what kind of the value uplift from existing customers looks like?
Yeah. Great question. Look, I think 97% of the net revenue retention, gross revenue retention, Michael, is around 104%. You know, we're doing that through land and expand of existing clients, selling more modules, cross-selling strategic products. There's also growth on licenses, as well coming across all of the segments. You know, Workways, for example, selling more licenses on those products. Overall growth, if you look at sources of growth, you know, through new badges is 40%, but we still maintain around 40% coming through, you know, existing clients.
Great. That's really helpful. Thanks. The last one from me, what are you seeing in terms of acquisition opportunities? Should we expect to see anything further in FY 2022, and do you see, as you continue to grow, your kind of presence or profile growing in the community such that, you know, you're seeing people reach out to you with opportunities?
Yeah, fantastic question. Look, first of all, we do continue to maintain an active pipeline. We think that we've become very good at identifying strategic acquisitions and then executing on those and integrating those. I think our track record demonstrates that very well. Look, we continue to maintain an active pipeline. They are weighted towards opportunities where we can acquire for a customer base and transition them to our technology. Also for a complementary technology that can enhance our product suite and provide an upsell opportunity. You know, you should certainly expect that story to continue, we think, into the rest of this calendar year.
Michael, the other point is, as the profile grows in terms of origination, we do get lots of inbounds, Mark and I, for M&A opportunities. You know, we've seen that increase over the last four months.
Yeah.
We have a new mandate, as you know, deal structures and all those things. Yeah, it's quite buoyant from that perspective.
Great. Perfect. Thanks, guys.
Thank you, Michael.
Thanks, Michael.
Thank you. Your next question comes from Cameron Halkett from Wilsons Advisory. Please go ahead.
Hey, good morning, guys. Can I just check if you hear me okay?
Yeah.
Yeah.
We can hear you, Cameron.
Loud and clear, Cam.
Excellent. Okay. Thanks for taking questions. I've really kind of just got one. Gonna focus a bit more on near term, just around guidance, in particular revenue. If I do a bit of back-of-the-envelope math in terms of organic growth requirements to achieve that mid-teens growth rate, it kind of only implies that the second half requires an incremental AUD 2 million of revenue. Which if we talk about how strong the pipeline is, as well as some of the investments you've made in other segments, it seems quite an easy target. So I'm just curious around your thoughts on revenue guidance going into the balance of the year.
Yeah. Cam, good question. Look, we did 16.8% organic growth like-for-like basis and with our AUD 21 million solar pipeline, we seem to continue if not accelerate our growth rates. We've just been prudent. We've maintained the FY 2021 guidance, just been prudent. We'll review it later, lo and behold, we will continue to accelerate growth.
Understood. Thank you, Nimesh.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Washbourne for closing remarks.
Thank you to everyone for joining today. As I said at the top, very pleased to deliver these strong results. Very excited about the future ahead for the company and the opportunity in these large and very open markets in which we operate. We look forward to meeting many of you again in the coming weeks. Thanks for joining.
That does conclude our conference for today. Thank you for participating. You may now disconnect.