Good day, welcome to the Gentrack Half Year Results Announcement 2023 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Gary Miles, CEO. Please go ahead, sir.
Thank you, Jessie. Hello, everyone. This is Gary Miles here, Chief Executive of Gentrack. We're here for our FY23 half year update. I am actually in Australia, in Melbourne right now, along a tour of New Zealand and Australia, where I've been fortunate to meet a bunch of the CEOs that actually run the industry down here. It's been super exciting to hear what's going on. Managed to get to the MCG and see some Aussie football on the weekend, which was also quite fun. Let's get to business and the results. I'm pleased with the results. I think the teams are really performing well. It comes through in the numbers. Revenue was up 47.7% for the group. Utilities revenue up 51.2% to NZD 73.9 million.
I'd like to say that the underlying revenue, if you exclude insolvencies in the B2C business in the UK from customer insolvencies, the underlying revenue is 39%. I do want to make it clear that I think the revenues that we've benefited from insolvencies in the current year will not be with us next year, but also the kind of saga of insolvencies that has been with the company for several years on the B2C side in the UK, I think is also behind the business. We see that as a very positive thing. The Veovo revenues are also up strongly to 26.7%. We'll talk more about that when we come to the details. On the profit and EBITDA and cash side, the business is cash generative. We posted a strong profit.
I'm pretty pleased about the results. Really, to be able to collect cash is a sign that we are delivering well and running a tight ship. I'm pretty comfortable with the situation on our balance sheet. No debt. You know, we're in an industry that's an essential service. Lots of talk about inflation and potential recessions. The last time I checked, people need water and energy. We feel pretty pleased about the markets in which we're operating. I'm not gonna talk about more of the details of the results. I'll leave those to John. If we go to the next slide, I'm gonna read our updated outlook.
For FY 2023, the group expects revenue to be between NZD 157 million and NZD 160 million. This is an increase over previous guidance of NZD 147 million-NZD 150 million. We still expect FY 2023 revenue will include NZD 25 million from insolvent U.K. B2C customers, with the higher revenue guidance a result of faster growth across the rest of our business. We are putting a forecast out for EBITDA for FY 2023 to be approximately NZD 22 million. The strong underlying growth in both utilities and Veovo Airports business means that we are able to upgrade our revenue guidance for FY 2024 from the prior guidance of NZD 150 million to be in line with FY 2023 revenues. This is despite the loss of one-off revenues of approximately NZD 25 million from insolvent U.K. customers.
Our targeted EBITDA margin for FY 2024 remains unchanged at 12%-17%. We are not re-baselining our growth beyond FY 2024, which is in high teens growth for the utility business and 15% CAGR over the extended period for the airports business. To go to the next slide, this is an exciting time to be in both airports and utilities, and we'll talk about airports in a minute. On the utilities side, I am increasingly amazed and energized by the opportunity, quite frankly. The industry needs to rebuild almost all of its fundamentals, and it is a huge industry. I just, I really couldn't think of a more exciting place to be.
You know, our drive is to make a positive impact, to try to reduce carbon, make the industry run more effectively and modernize it. We've got some statistics here. It's, you know, maybe not a 100%. North of 90% of utilities will upgrade their billing system in the decade. We believe a few players will dominate this change. We plan to be one of them. No industry has seen so little IT change in the past 25 years, and now needs to change so much to modernize and deliver towards a sustainable future, decarbonization, decentralization, and all the impacts that are associated from it. This is our purpose, and we're pretty keen on how we're headed this direction. If we go to the next slide, I wanna talk about our stakeholders.
Let's start with our customers. I've said repeatedly that we've got some really innovative, smaller customers. I think all of our customers are innovative, and increasingly so. Our objective is to service the leaders in the market, tier ones and tier twos. We have some really good blue-chip brands here. We're moving up the stack to do this more and more. We build hyperscale solutions that are very reliable, that can run a large enterprise. These are the conversations that we're having as we move into this segment. We do this really well and many customers today, and we'd like to do it with more. I wanna thank our customers for their partnership. On our people, the leadership team's doing well.
I think we have a world-class leadership team. I wanna thank my team for all of its dedication and hard work and professionalism. This change in our growth gives our people career opportunities to move, to do new things, to learn new things. Our attrition is actually significantly below the global IT tech benchmark, which means people are energized by their work and the purpose and we're growing. We're looking for good people that wanna make a change and wanna help us on this exciting journey. Lastly, to the investors. I wanna thank our longstanding supportive investors, and we've got several new investors on our register. Welcome.
We look forward to a long and fruitful journey together, the results are strong and we're pleased that we're able to bring good results to all of you guys out on the line. Let's go to the next slide. I'm a big believer in setting goals and judging performance against them. This slide is a recap of what we told all of you in November of FY 2022 on the back of our FY 2022 results. I wanna go do a scorecard because that's the way we run our shop. We're gonna talk about growth in our core markets and what we've done in our global expansion. If you go to the scorecard for grow in our core markets, the numbers speak for themselves.
In each of our operating theaters, these are our main core operating theaters. We work in six countries today, but we have very strong general managers, and they play to win, they're service centric, they build good relations with their customers. They're selling well. I couldn't be more pleased with the performance. John's gonna talk about these numbers later. You can see Australia's up 26%, New Zealand up 58%, U.K. up 59%. He'll show some numbers that has a different growth rate for the U.K. in the back half of the deck, which is exclusive of our insolvencies, so there's not any misunderstandings. Well done to the teams really in the field. This is basically just doing more and more with our existing customers and winning new customers.
On the g2 front, you know, our technology is resonating very well. It was a brilliant move to partner with AWS and Salesforce. I feel really good about it. I just wanna explain in this graph, which is a little bit, you know. Without some specific timelines, it's to show our general strategy. The blue line is new sales. All new sales are being sold as g2. The green line is to upgrade our base, we've got a lot of experience in how to upgrade a base to new technology stacks. What we're gonna do is we're gonna deploy it in a couple customers. We're gonna harden g2. We're gonna automate the transition from our prior technologies to g2, how to roll that out to our customer base.
There'll be a bow wave of change as we move all of our customers into the new stack in a much more kind of profitable and secure way. That's the cadence in which we're rolling out g2. We've got some new wins we've put on the board. Some of them are here, some of them are not here that we haven't announced yet. I just wanna reiterate that our focus is tier one and tier two customers. We do support B2C and B2B, which many of our competitors do not support both segments. We also support water and energy. We're pretty keen on the water market. It represents a decent chunk of our revenues today. The water market also has to transform.
Maybe the triggers to make it transform are different, but it also has been very underinvested in and the cloud exists and it's time to move. These systems that are leaking, creaking are starting to be modernized, which is great. If we talk about international expansion, we did not forecast results in the six-month period for our international growth. We stepped out. We said we would go into EMEA and Asia. We made that announcement in November. Since then, we've opened our Singapore office. We've spun up our teams. We've put a lot of good and strong people on the ground. We're selling with our partners, Salesforce and AWS and TCS and others. I am very pleased with the progress. The pipeline is impressive. It's expanding.
Our name is getting out there, but sales cycles take time, so it's early doors to see the conversion rates. Really good execution on here, and I think the thesis of this slide is watch this space. If we move to the last slide of my opening, let's talk about the airports business. First of all, during the pandemic, for those of you that were with us on prior calls, we invested during the pandemic when the airports industry was kind of put on the ice a bit, so to speak. We invested in machine learning, cloud technologies. We were confident the airport industry would turn back around. It was just a matter of timing. We made the right decision. Our technology is resonating well.
I think we're in a position where our technology is innovating, setting the pace for innovation for this market. There was a push Starting right before the pandemic to digitize airports, Airport 4.0. It was put on hold for several years. The pent-up demand is unleashing. Our pipeline has more than doubled. Once again, like the international business and utilities, it's a little bit early doors 'cause these sales cycles take some time since the airports turned back on their buying cycle. We think we're well-positioned here and we're excited about James Williamson that runs his business for us told me that in 25 years of airports, he has not seen the pace of demand for RFPs and things at this level.
I think that puts us in a good future position to play on the strengths of our strong growth that we have today. With that in mind, and as a summary, I'm gonna hand over to our Chief Financial Officer, John Priggen, to go into more of the details that I'm sure all of you guys would like to hear about.
Thank you, Gary. First of all, if we look at the group results, our total revenue is up by almost 48% compared to the prior period. That's strong growth of both the utilities and the Veovo businesses. Our revenue in this half does include NZD 19.7 million from Bulb and other UK insolvencies. If we put that to one side, we can see that the underlying growth is impressive. Our utilities growth, the underlying growth there was 39%. Our costs are 22% higher compared to the prior period. Now that's to both support the revenue growth, but it's also as we continue to invest in strategic R&D and our sales engine.
You put the two of those together, the EBITDA was NZD 16 million in the first half of the year, so that's NZD 14.8 million more than the prior period. In the first half, we have benefited from those high levels of revenue from Bulb. For the second half of the year, we see those revenues have peaked, so we're expecting far less revenue from Bulb and other insolvencies. Our guidance for the second half EBITDA is to be around NZD 6 million or so. You look at the utilities revenue, in terms of the bar chart that you'll see in the presentation, what we're showing here are the different recurring revenue streams and our non-recurring revenue streams for this half year compared to the prior half year.
What we've done is we've separated out, as we've done in previous presentations, the revenue that we received from Bulb and other insolvent U.K. customers so that you can clearly see the underlying revenue of the utilities business. That underlying revenue has grown by 39%. Actually, the recurring revenues, the underlying recurring revenues, have grown by 43%. Now that growth has come from delivering on recent customer wins, both wins from last year and also from this, as well as selling more to our existing customer base. In the second half of the year, we're expecting to book around about GBP 5 million or so of revenue from Bulb and customers in insolvency. That'll take us to GBP 25 million in total for the full financial year.
That's in with the guidance that we gave for that revenue source back in February at the time of our annual shareholders meeting. We look forward to financial year 2024, we're assuming that there's no revenue from Bulb or customers in the insolvency. That will all close out by the end of this financial year. If we look a little further at the underlying revenue for the utilities business, the key point here is that that's strong growth across all of our regions. Strong growth in the UK, in Australia, in New Zealand. For the first time, we're separating out the rest of the world in our presentations so that you can see how we're growing our international footprint outside of our core markets.
In the half year, we booked NZD 2 million of revenue, mainly from customers in Singapore, but also from customers in Fiji and Papua New Guinea. That's growth from across both the energy and water markets. If we look at the utilities cost bar, cost base, in the presentation, the graph shows how we moved from our cost base in the first half of last year to our current cost base. What we can see is that we've increased the spend on direct costs by about NZD 6 million or so, people and hosting costs, and that's to support our higher revenues. Our revenues have grown at a higher percentage, so we benefited in the period from operating leverage. We're also investing more in strategic R&D. That's grown by NZD 1.4 million compared to the prior period.
That spend will increase as our underlying revenue grows. For the first time, we have spent on sales and marketing on business development outside of our core markets. We spent NZD 1.4 million in the half year to expand across into Asia and Europe and in the Middle East. That's in line with the NZD 3 million per annum target that we set out last November during our earnings release. Outside of those new markets, we've continued to invest and increase that investment of sales and marketing within our core markets. We're spending NZD 2 million more on that than we did in the first half of last year. Turning to the OVO. Our revenues here have grown really strongly as well. In total, they're up by around 27% compared to the prior period.
That's both our recurring and our non-recurring revenues. Our recurring revenues are up by around 15% compared to the prior period. In fact, our recurring revenues have grown year-on-year across the last few years, all throughout the pandemic and the recession that the airports industry saw. Our recurring revenues have continued to grow. That's what we're seeing, and we see that continue to grow here as well. Our non-recurring revenues have seen strong demand for upgrades and transformations from our existing customer base. In turn, that will increase the level of recurring revenue in future periods. Overall, a very good set of results for the OVO. What does that mean for our cash flow? Our cash at the end of March was NZD 41.9 million.
We don't carry any debt on our balance sheet, so that's our net cash position. We have a very high conversion rate from EBITDA across into our cash flow. We haven't capitalized any research and development in the half year. Instead, that's all expensed and is already included in our EBITDA. We have benefited in the half year from some tax overpaid in the last financial year. Always comes through with a bit of a lag, we've benefited from that in the first couple of months of this year. Behind that, our cash collections have also been very strong. It reflects good project execution as well as good customer management and engagement.
Overall, the cash flow in the first half demonstrates a very strong performance for the Gentrack business, demonstrating how our business model is a cash generative business model. I'm going to hand back across to Gary, who will give a few closing remarks.
In summary, we're pleased with the progress in our core markets and the work that the teams are doing. For the new markets we're entering for both utilities and airports, our pipeline is growing. You know, we're a technology-first company. We believe the best technology wins. We're investing heavily here. It's resonating well. Our partnerships make sense for the market and for us. Our people are engaged with the program. You can imagine this type of growth puts various strains on the company, and I wanna thank the individuals for their really stepping up and just above and beyond. Once again, we wanna welcome the new customer investors to the register and thank those that have been with us, supporting us. We look forward to seeing many of you over the next few days. I think with that, we're gonna move to a Q&A.
If you would like to ask a question, "please signal by pressing star one" on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open, so please state your name before posing your question. Again, it is star one to ask a question, we can pause for just a moment to allow everyone an opportunity to signal for questions. Guy, your line is open. First question's coming from Guy Hooper with Jarden. Your line is open. Joshua Dale, your line is open.
Joshua, can you hear us?
Yes.
I think there may be a technical problem with the system 'cause sounds like people are trying to get in and can't. Should we move to the online questions and ask people to put their questions into the system, or give it another go?
Yes, if they can get it into the system. Let me see if the other person, if they can be heard. One moment. Caller, your line is open.
Good morning. It's Guy here.
Okay.
Can you guys hear me now?
Yes.
We can.
That's it. Yeah. I, Congratulations on a strong result. I guess just the first question from me, can you give us a bit of a sense of what the underlying margin was for the business during the half?
Yeah, look, you know, we've deliberately not tried to sort of split out the profit that we get from effectively bold from the profit we get from the rest of our business. A couple of reasons. We can't really, you know, single out and disclose the customer profitability of a large customer. The other reason is that in practice, it's quite difficult to differentiate between the impact that you have from operating leverage. The fact that our revenue has grown very strongly in the first half of the year, whilst our overhead base, our shared costs, et cetera, hasn't grown by so far, so that operating leverage, and actual some margin from individual customer contributions. We haven't separated it out. I'm not really sure it's quite so practical.
Yeah. No, no, that's fair enough. Just in terms of the guidance upgrade, I mean, the additional NZD 10 million into 2023, I mean, what's driven that? Is that contract wins coming through, I guess, in the first half, expected to contribute in the second half? I mean, or does it sort of just reflect confidence that you've got on execution on the pipeline in the second half?
It's both. It's new wins, and it's just doing more with our existing customers.
Yeah. There's not a single event. It's quite widely spread.
Okay. I guess just one last one for me then. Can you give us any color in terms of or, any further color in terms of pipeline growth? Like, is that driven by a particular region? Just, I guess a follow-up to that. In terms of the customer conversations you're having in South Asia and Europe, what type of discussions are those in terms of potential customer size or the types of opportunities? Is it the introduction with those customers via specific product or potential for the full business?
The progress that we've got in both EMEA and Asia is across several countries. We're not gonna get into details because we don't need to point our competitors that direction. Which is good that we've got a dialogue with kind of in many utilities. For the vast majority of the time, it's to, you know, modernize their entire stack. Now there's different ways to skin that. You can start, you know, in many different ways to do that, but it's a full transformation that's the business we're in. In terms of size, you know, as I mentioned, we're targeting the tier ones and tier twos that lead the industry.
Great. Thanks. I appreciate the call. I'll close it.
Next question is coming from Joshua Dale with Craigs Investment Partners.
Good morning, Gary and John. Can you hear me okay? I was disconnected initially.
Yeah.
Yeah, that's fine. We can hear you, Josh.
Thanks, Josh.
Brilliant. Just first question, you have NZD 42 million of net cash. You're not paying a dividend. You don't capitalize R&D. It feels like free cash generation will be strong over the next year or two, and you've already provided expense guidance implicitly. It feels like the only reason you could be building up your cash balance is for M&A purposes. Is that correct?
Look, I think, certainly, I think it's broader than that. I think we see very good opportunities for growth in both businesses, the OVO and in utilities. For us, it's very early, you know, very early days to be talking about M&A activity. It's also quite early in terms of us expanding internationally. We only announced that at the November earnings release, and we've started the execution on that for the last six months. I think we just wanna make sure that we've got the resources behind us to fully execute against all of that. Combination-.
Okay.
of potential M&A and potential just wider growth.
Thank you. In terms of your expansion into Europe and Asia, you know, you've spent NZD 1.4 million so far, I suppose. Can you give us an idea of what that was spent on, what the setup costs look like? You know, what expansion into a new market looks like in terms of the costs you bear initially outside of people?
Actually, it's mainly focused on people costs. Effectively, the NZD 3 million spend that we've targeted for the year is to create two different business development teams, one based out of an office in Singapore, one based out of our office in London, to service Asia and Europe and Middle East, respectively. There's some elements of third-party costs, but it's mainly paying for a small core business development team in each of those regions.
Josh, I think, you know, as we enter new markets, there are some local flavors to utilities that, you know, needs to be baked into the project. Once again, there's a precedent here where SAP has taken the same stack and deployed it all over the world. If you build it right, this is something that's manageable. Yeah. I'm not sure. I wanted to answer both sides of that question.
Thank you. My last question really hovers around the g2 product that launched in September last year. Have you won any customers with that product to date, or is it still sort of in the pipeline?
We have not announced any g2 customers to date. It's all over the pipeline.
That's, that's great. Thanks very much, Gary and John.
Okay. Thanks, Josh.
It appears there are no further questions at this time, so I will turn the conference back to you for any additional or closing remarks.
I think we have some questions on the webcast. Let me just. A question from Owen Humphries, Canaccord: I noticed your medium-term growth and margin target has been removed. Is this still the expectation? We haven't changed our the longer-range forecast that we put out there. We haven't rebased them either. It's only been six or seven months since we set out a sort of a 5-year timeframe, and we haven't gone and relooked at our long-range forecast. We haven't removed them. We also have another question from Owen: Can you talk through the pipeline conversion following the g2 product launch, and also an understanding of the size of the pipeline?
Owen, we, it's a great question, we look at our pipeline all the time. We're not in a point to talk about conversion outside of our core markets yet. The sales cycle is, you know, 9 to 18 months, we went internationally in November, you can do that math. It's moving. The opportunities are moving through the pipeline in the right direction. Let's put it that way. It's resonating well with the conversations we're having. I think we are a company that plays to win. You know, that's just. I think we're, we can articulate our value pretty well. It is early doors on this front, we'll have to see.
Owen, another question. Can you break down the growth in recurring revenue generated from new versus existing customers? I mean, we haven't split that down in the presentation. I mean, just to give a little bit of flavor, in terms of from customers that were new in the half year, there'll be some contribution, but it'll be relatively modest. It'll be mainly the customers that have, you know, longer-standing customers and those that were secured in financial year 2022. There'll be some, but it'll be modest in terms of those actually landed and closed within the half year. We have a question from Jules. Highlighted Salesforce strategy is working and pipeline is building. Could you expand on that a little and potentially provide some insight into the progress made and operational wins that you are seeing?
Salesforce is not, you know... The good thing about the way we built g2 is, you have two elements of g2. You have the g2 core, which is an all cloud-native capabilities, like right in the core for billing and invoicing and things like that we rebuilt to be cloud-native. Then you have tangential value capabilities like our data analytics and the Salesforce journeys that are tied into our systems. Those things are not dependent on the g2 core, we can upsell g2 capability onto our existing customer base without kind of lifting and shifting the core of the product set.
We've managed to In most of the new projects that we announced here, in the deck, most of them include Salesforce, a lot of them include data analytics, our new Meter Data Services, so a lot of our new technologies. The main change will be when you start to push the core upgrade. As I mentioned, that takes time. We're gonna do that with a couple customers first, and then we'll go do the bow wave of all the customers. That'll be a nice revenue opportunity for us and a great step for our customer base. Then we're selling all the new opportunities around g2. Let's watch that space.
We have a question from Andrew Grace here, Australian Ethical. Can you give us some comfort around the management of EBITDA margins in 2024? I'll answer that. I mean, we have kept the same guidance for our margin for 2024. We've kept the 12%-17% range. I think we thought it was too early to really start looking to narrow that range further. We're comfortable that we're on course to fall within that range. It'll be a little hard if you sort of try to pull apart half one, half two performance because you've got this, you have the Bulb and you have the Bulb revenue that distorts the picture between the halves. We can see how our business is tracking towards our EBITDA margin guidance for 2024.
I'll just add something that I think is absolutely important for all of our investors. There is a transition happening on the marketplace right now to modernize, and this is a growth opportunity. If you capture market share today, that you'll be with those customers for 10+ years. It's difficult to know what our conversion rate is on international sales and how much we want to accelerate that for long-term growth that then can be, you know, translated into very profitable business over a much larger scale and sustainable period. What we don't wanna do is back ourselves in a corner with some specific EBITDA ranges where we may wanna dial up the cost side to go capture more market share.
We're gonna take that, as we get closer to seeing, you know, the conversion rates and we get more visibility running up through our budget cycle, which finishes at the end of this fiscal year. Which I think, is the right strategy. Yeah, that's our strategy.
That's all the questions that we have received from the webcast. Yeah, I think there are no more questions.
Thank you all very much. We look forward to seeing many of you soon.
This concludes today's call. Thank you for your participation. You may now disconnect.