PEXA Group Limited

Thank you for standing by and welcome to the PECSA Group Limited 1H22 results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Fern Ting, Group Managing Director and Chief Executive Officer. Please go ahead.

Good morning, and I'm pleased to welcome you all to PEX's results for the first half of financial year 22. I'm Glen King. I'm the PEX's Group Managing Director and CEO, and joining me is our CFO, Richard Moore. Today, we'll cover the PEX's Group's first half financial year 22 business highlights, financial performance, and provide a trading update, including an upgrade to our prospective FY22 forecast given our strong performance to date. Now, there is a presentation that has been distributed. I will cover some of those and I will talk to a particular slide. So those who are following the slides, I'm going to slide five. And probably the things to talk on here is pictures of leading Australian technology companies whose platforms are relied upon by financial institutions, property developers, legal and conveyancing firms and consumers across the country. Our PEXA exchange platform sits at the heart of the Australian property market, processing now 84% of property transfers and nearly 100% of all refinances nationally. The COVID pandemic has certainly driven a strong shift to digital, and despite lockdown across the country at various points of time, the property market in Australia has remained incredibly robust. In fact, as noted in our recent PEXA property and mortgage insights report, during calendar year 2021, buyers spent more than $688 billion on this running property market, up 57% on 2020. In fact, New South Wales took the lead for the highest aggregate value of sales elements in 2021, with $262 billion spent on property in the state during the year. And Queensland was a standout performer in 2021, recording the most sales elements of any state at $232,000, which was up 40% year-on-year. In fact, what we saw in 2021 was a total 617,000 new loans were taken out in 2021 to fund the purchase of property, which is also up 32% on the prior year. In short, it's been a very buoyant property market, and with the COVID pandemic, it's certainly accelerated digital transactions, and this has contributed to the strong text of performance in the first half of 2022. If I just give you a couple of lenses, We've certainly made great progress with our strategy around the PEXA exchange, PEXA insights, our international expansion and with peer exchanges. We've had a strong first half in terms of volumes, revenue and EBITDA, driven by the very strong Australian property market. We continue to execute on our clear strategy, enhancing the core PEXA exchange service in Australia, replicating it in new international tolerance title jurisdictions, appropriately extending into new services around insights and ventures, and continually building and strengthening our services to the PECSARIAN people, platform and brand. In the first half of this year, the core exchange continues to deliver on scale. We've introduced new PECSARIAN customers and members, new services and new document types and new jurisdictions. As I mentioned, the PECSARIAN International is tracking the plan in the UK and we gained commercial traction in Insights and Ventures, with both delivering new services to market. And in fact, we're excited to announce an investment in the exciting PropTech business for Anteca, which I'll cover in more detail later. Importantly, we've continued to focus on our people, on ESG impacts and initiatives, underpinned by our purpose, the PECSA's commitment to transform the property experience for everyone. We continually work with numerous stakeholders across the country, including regulators, to ensure that we get good industry reform. And lastly, as I mentioned, we're very pleased to confirm this morning that we're upgrading our prospectus FY22 forecast. Now, on slide six of our presentation, a couple of highlights here. At both the financial and operational level, we've had a very strong first half for the financial year 22. Our group revenue was up 46% year-on-year to $145 million. Our PECS exchange transactions were up 37% year-on-year to $2.1 million. The PECS exchange EBITDA was up 76% to $83 million, with our EBITDA margin up 10 points to 57%. And in fact, 84% of all property transactions now nationally pass through the PECS exchange. All of these metrics have performed ahead of our expectations So, as I mentioned, we're pleased to upgrade our FY22 financial guidance. Now, on slide 8 of the presentation, a couple of things. We have a clear strategy and we continue to execute on our strategy. We're enhancing the course change in Australia. We're replicating our services in new tolerance title jurisdictions. We're approximately extending to build deeper customer relations and providing new services. and we're continuing to invest in our people, platform and brand. This all underpins our commitment to transform the public experience for everyone. And to do this, importantly, as per our values. We look to innovate for good, we look to make things happen and make it count, and we're really strong about being better together with our customers, our stakeholders and our people. On slide nine, a couple of things I want to talk about here. we have established a leading and highly trusted tech platform, the Vexxer Exchange. And we are now leveraging our knowledge, experience, expertise and relationships with industry stakeholders and partners to pursue a number of growth opportunities across three key focus areas. Vexxer International, which is seeking to replicate our success with the exchange in Australia into new offshore markets. Vexxer Insights, which seeks to appropriately harness our near real-time, accurate and comprehensive property data from the exchange and other data sources to generate valuable, data-driven insights and services for industry, government, consumers and other stakeholders. And Peers Ventures, which seeks to build on Texas' digital and industry experience innovation and entrepreneurial culture and establish relationships to develop new business tech opportunities with partners for the benefit of consumers, businesses and the governments across the property sector. I'll cover some of these now in more detail across the following slides. On slide 10, the majority of land transactions now occur on the fixed exchange. Now buying a home is one of the most important purchases many people make in their lifetime. and it is PECSA's role to make their experience as efficient, safe and reliable as possible, increasing certainty to industry participants, home buyers and sellers alike. And we take that very seriously. The momentum for digital transactions continues to accelerate, with the PECSA exchange processing now more than 10 million property transactions since the platform's inception, equating to more than $2 trillion in property value. In the first half of financial year 22, Our total market volumes grew positively, with national transfer volumes up 23% and refinances up 43%, which delivered a total market growth of 24%. This, combined with PEXA share growth, drove PEXA volumes to record levels. We're a number one trusted provider. The platform of PEXA is trusted by the majority of all property lawyers and conveyancers nationally. as well as Australia's mortgage lending community, and is known for being safe and efficient. Now on slide 11, a couple of things to call out. As I mentioned, the PEX Exchange transaction volumes are up 37% year-on-year. Our transfer and market share increased to 84%, which is up from 78% on the equivalent period. We successfully launched into the ACT, a new jurisdiction now alive on the PEX Exchange platform. And we continually support the regulator in understanding the technical complexity of regulatory reforms such as interoperability. In response to our customer feedback, we've made more than 230 platform enhancements to the PEX Exchange, such as Vendor Surplus Auto Calculator. We've combined with ongoing enhancements and innovation to reinforce the trust we've built with our customers, lawyers, conveyances, financial institutions, who use Apexa Exchange every day. In fact, our Net Promoter Score remains as a leader, with plus 60 Net Promoter Score indicating strong satisfaction with Apexa Exchange platform. And that's across all our customer segments, from practitioners, property developers, banks and the broader industry. And that reflects in the strong brand trust that we've got, where we're rated 8.9 out of 10, which is number one in the sector. But we've got to keep going, and we will. To keep this momentum going, we're continually investing in our business. We're working, for example, with the banks to improve settlement certainty for consumers and speed up the refinance process. We're exploring new technologies such as mobile signing, so people have got more flexibility on where and how they sign. We're ensuring we continue this greater digital enablement across jurisdictions, We're looking to do more transactions on our platform, and we're looking to expand across new jurisdictions, and we're having an engagement with jurisdictions such as Tasmania. And we'll continue to work with the government and regulatory bodies on appropriate industry reform. Now, on slide 12, I'll talk a little bit about PEXA International. We are making good progress in the UK. The technology build is progressing and we've got our first lender signed up for our initial stages. In fact, payment integration testing with the Bank of England was completed alongside seven lenders, with the Bank of England committing additional testing slots for four more lenders in October 22. That shows now the seventh net settlement payment system to clear through the Bank of England. We've got agreements in place with Her Majesty's Land Registry and we've got good engagement with the Combined Communities through General Registry. Further to that, we're relying on some key advisory board members with expertise in particular markets. We've got 100 Pecterians now working on the Pecta project, based in the UK, Australia and India, and we expect to invest more than $30 million, OPEX and CAPEX, in FY22 on the Pecta international expansion. We're on track to go live with our commitment with a remortgage product in Q4 2022. In fact, we had some good coverage recently from the UK Prime Minister about our expansion into the UK. In our insights business, on slide 13, we're continually creating opportunities to create appropriate value for the PEXA access to real-time property data and insights to deliver efficient service. This year, we've delivered a number of PEXA property mortgage insight reports, providing unique insights into property settlement and mortgage markets, which are being well received by numerous stakeholders such as media, banks and our broader customer groups. We have also continued to develop and roll out our data and insight services to ensure efficient and effective services in the use of the Plexa Exchange – services such as Plexa Tracker and Plexa Planner. And we are developing new services which are currently in concept and we look to expand those throughout the year. In addition to that, we're also looking forward to exploring and accelerating a number of joint development partnerships to bring richer Insight services to market and positioning our operating model around data and Insights to greater scalability and to ensure that we're appropriately taking forward a number of emerging opportunities. And as part of this, I'm pleased today to announce Vector Insights, has made its first strategic investment in the exciting pop tech data company, LandChecker, and will stay in its 38% stake in this business. Now, on slide 14, a couple of points around LandChecker. LandChecker allows home buyers, developers and renovators to make informed property decisions faster, informing consumers about planning restrictions, planning permit applications such as plant pending developments, next door, planning restrictions such as heritage overlays and approximate land size boundaries and dimensions. The investment in LandChecker enriches the unique and timely property data that PECTA is appropriately looking to unlock for the benefit of consumers, government and industry through new services. We aim to provide richer service offering to our customers and we believe that the synergies between PECTA and LandChecker will enhance both our organisations in our service delivery. We expect to complete the land checker deal in late February 22. Now on slide 15, a little bit about peer expenses. We're excited that peer expenses continues to progress and certainly leverage our first mover advantage in the property sector tech market. Our peer expenses are already active in the property ecosystem. At present, we have a number of initial opportunities underway, including we've now launched a consumer app in partnership another organisation, to improve the moving and transition expense for home buyers. It's called SMAVA. We've invested in products that are designed to improve the workflow for property developers and streamline the property journey for consumers and agents, respectively. We've also launched a new small business service for legal and surveying community to make business services better and more efficient, and that's through Business Advantage, and we're providing consumers access to competitive home insurance product offerings through our investment with Honey. The exploration and implementation of these opportunities, among others, again is being supported by a highly skilled advisory board which considerable digital, data, sector and international experience. Our expectation is that both sector insights and peer will enhance the PEXA Group service and allow us to appropriately grow, diversify and extend further into the property tech digital sector and support, most importantly, our customers, members, partners, shareholders and the Australian economy. Now just briefly, I just want to talk about the PEXA culture of trust and our investment in the community. Given the critical role played by PEXA in the economy, It's important for the group to continue building and maintaining a culture of trust in the community. In fact, we are one of the most trusted brands in the sector. And I can tell you we don't take that for granted. We embrace our purpose of transforming the public experience for everyone and delivering through our values of innovating for good, better together, and making it happen and making it count. We take all that seriously. During the first half of 22, We set a new high watermark for trusts, achieving a brand trust score of 8.9 out of 10, which is rated by our members as number one in the sector. Pleasantly, we're known for constant innovation and high quality of services, traits that we value greatly. In addition, we value our persevering employees. And we're really pleased this year that we're named one of the best places to work in Australia, placing top three in the 2021 Best Place to Work Awards. And during the first half of the financial year 22, we're also privileged to continue to have a highly engaged Petroleum team, which translates directly to our customer experience. We continually invest in the community with active participation in sister work mentoring programs and our shared value partnership with Homes for Homes and through our diversity and inclusion and our environmental sustainability initiatives. In fact, on a diversity inclusion lens, on one metric, our executive team is 55% to 45% male and female respectively, and we expect to continue to do better in diversity and inclusion. As I get ready to hand over to Richard, I just want to mention a couple of things in terms of environmental sustainability. Our Pecturn people and our partners tell us that Pecturn needs to keep investing in areas such as homelessness, ensuring that we've improved the mental health of our people and the community just generally, and that we continually support environmental and sustainability. I can say that we are working on all these areas, and in fact, we were originally received a five-star resume rating which is up 8 points to 92 out of 100, which is an achievement which we're very proud of, which is something that we're going to continue to invest in, in areas such as carbon neutrality, investment with Homes for Homes, and also ensuring that we continually work on safe and affordable housing. And lastly, during this half, Vector has been recognised by numerous awards, and one example is our 2021 Ashton Media Fairs Awards excellence in customer service. And to wrap up, can I just say, when we talk about customer service, that's something that we rate very highly in the PECSA group. I'll now hand over to Richard, who will talk about our financial performance.

Thank you, Glenn, and it is great to be here today to talk through such a strong set of financial results. Before I start, I should say that all the figures in this financial section reflect a pro forma P&L, and they're to show the operating costs of PECSA as a listed company. What we do is we remove the one-off costs in the current financial year as a result of the listing, and we add back 3.2 million of public company costs into the prior period to make sure it's comparable with the current cost base of the company as a listed entity. And there is a bridge between the pro forma and statutory P&Ls in the appendix in slide 31. So on the results, PEX has delivered a very strong financial performance in the first half of 2022. Revenue is up 46% to $145 million. Operating costs are up just 19% year-on-year, and that's resulted in Apexa Exchange EBITDA up 76% to $83 million in the first half. EBITDA after the investment in the growth initiatives and one-offs up 71% to $75 million, and net profit after-tax has gone from a $4 million loss in the first half of last year to a $26 million profit. And our net profit after tax, excluding the non-cash amortization of intangible assets, or NPAT-A, is also up $30 million to $46 million. And that's our view of a strong cash NPAT. What that means is that financial metrics are also strong, with our gross margin increasing by 1.6 percentage points to 87.6, and our EBITDA margin on the exchange of 57% up 10 percentage points from the first half last year. So overall it's a really strong start to the financial year and now I'll go into some of the key drivers of that financial result. On slide 19 you can see revenue is a function of market size, market share and price. And as Glenn said the total market grew very strongly in the first half up 24% to 2.5 million transactions or billable events. And you can see that. There's a chart in the appendix on slide 29 that shows the total market. On top of that, Texas Exchange penetration, or our market share, grew 8 percentage points to 85%. And on the top left-hand chart on slide 19, you can see that by transaction type. Transfer penetration grew from 78% to 84%. Refile penetration stable at 98% to 99%. and other transaction types grew 16 percentage points to 71%. And combined that delivered an eight percentage point increase to 85% overall. So adding that eight percentage point increase to the 24% growth in the market means that the PEXA volume grew 37% to 2.1 million and you can see that in the top middle chart on this slide. We also saw an average price increase of $4 to $68, broken down as follows. We actually saw two CPI increases during the year because we held our FY20 prices through the first half of 21 to assist members and the community during the early stages of COVID-19. What that meant was that the FY21 price increase was implemented six months later on the 1st of January 21, and the FY22 increase was implemented as normal on the 1st of July 2021. The average price of transfers increased by $7 due to those two CPI increases and also the end of the discounting campaign in Queensland in FY21 that was used to drive awareness and uptake. That discount ended on the 30th of June 2021. So this, combined with a mixed shift towards higher value transfers, meant the total average price increased by $4 or 7%. So add that 7% to the 37% volume, and you see a 46% increase in PEXA exchange revenue. You can see that on that right-hand chart, from $98.6 million in the first half of 2021 to $143.9 in the first half of 2022. And it's also worth noting that we did see a 44% growth in exchange ancillary revenue, so that's the revenue not generated directly from these exchange transactions, and that grew to $1.6 million in the first half. On slide 20, we then look at gross margin and cost of sales. And our main cost of sales are lodgement support service fees. They are incurred when the workspace is set up, as it reaches out to the land registry to get bundled property information. It's charged in every workspace, whether it's a multi-party transfer, a two-party refi, or a single-party discharge, or other transactions. So that means when we do more transfers, the cost per transaction drops, which you can see in the top right-hand chart, down 6% to $8.54. The higher mix of transfers also improves the revenue per transaction, as I've just been speaking on the previous slide. You can see that on the top left-hand chart, up 7% to $68.40. And that combination means that our gross margin has improved to 87.6%, and our gross profit has grown 49% to $127.5 million. Slide 21 then shows our operating expenses, and we group these into three categories. general administration, sales and marketing, and product design and development. Our G&A costs, which cover our shared corporate teams, our board and exec realm, as well as properties and occupancy, increased by 15% in the first half of 2022, driven by corporate functions growing to support continued expansion, together with higher recruitment costs and the cost of our new long-term incentive plan. It's worth noting that the prior year was also understated due to COVID-19 impacts, and the first half 22 spend is up just 5% from the first half of 2020, i.e. two years ago, which equates to a 2.5% annualized gross rate. Both prior period expenses include an additional 3.2 million for costs incurred by PECSA as a public company, and that's done as a pro forma adjustment, so isn't in the statutory P&L. And obviously that allows for a more meaningful comparison to the first half of 22. Our sales and marketing spend increased by just 3% in the first half of 22, due to both this year and last being impacted by COVID-19. We were unable to host all of our regular practitioner events and also reduced our overall marketing spend. So these costs dropped by approximately 20% from the first half of 20, which was the last non-COVID impacted year. And finally, our product development expenses increased by 26% in the first half due to higher hosting costs driven by higher exchange volumes and investment in data management capabilities. You'll also see from the bottom chart that we capitalized a similar amount of product development spend, so a total cash spend on development of $24 million, or 16.6% of revenue in the period. Slide 22 then shows the benefits of scale flowing through the exchange. The chart on the left shows total costs, as well as cost per transaction. And the growth in volume combined with prudent cost control has resulted in a reduced cost per transaction down from $34 in the first half of 2021 to $30 in the first half of 2022. That has resulted in a very strong growth in PECSA exchange EBITDA, as you can see on the chart on the right, growing by 76% to $83 million. And we've also seen growth in our PECSA exchange EBITDA margin, which has grown by 10 percentage points from 47% to 57%. This is probably higher than our long-term expectations due to the high volumes in the first half. So in summary, from a P&L standpoint, a half of very strong revenue in EBITDA growth, which has allowed us to upgrade our FY22 key prospectus forecast. The final finance slide on 23 shows our first half 22 cash flow in a couple of ways. The chart on the left shows the movement in our cash balance over the year, and you can see started with a balance of $51 million of cash, generated $83 million of EBITDA, spent $22 on capitalized product development, and had an $8 million negative working capital movement. So excluding the impact of the IPO, we would have had approximately $93 million of cash in the business at the end of the year. As part of the IPO process, we paid offer costs of $23 million, had $6 million of negative working capital, and generated net IPO proceeds of $15 million, resulting in an actual cash balance of $78 million on the 31st of December. The table on the right side of 23 shows the pro forma cash flow, and you can see very strong free cash flow for financing tax of $45 million, which equates to a 60% free cash flow conversion. Before I close, I should add there are more details of the financials in the appendix, but now I'll hand back to Glen to run through our outlook and our guidance.