PEXA Group Limited

Thank you for standing by and welcome to the PECSA fiscal year 2022 results conference call. All participants will be 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 one on your telephone keypad. I would now like to hand the conference over to Mr. Glenn King, Group Managing Director and Chief Executive Officer. Please go ahead, sir.

Good morning everyone and I'm pleased to welcome you all to TEQSA's results for the 12 months ended 30th of June 2022. I'm Glen King, I'm the TEQSA's Group Managing Director and CEO and joining me this morning is our Group CFO, my colleague Richard Moore. Today we'll cover TEQSA's FY22 business highlights and our financial performance and provide some perspectives on the companies trading in today and outlook. Now we go to slide five, we'll touch on some of the highlights. PECSER is a values-led organisation. Our commitment to our core values, our people, our customers and our role in the community is what underpins the company's performance in FY22. Our team of around 500 PECSERians are highly engaged, as can be seen in our employee engagement score of 80%. that ranks Spectre in the top 25th percentile of all global tech companies. And I must say that these solar foundations, alongside our robust property market, has underpinned our record extra exchange volumes, which is up 22% year-on-year to just over 4 million property transactions in FY22, with a property settlement value of more than $900 billion. To put this in context, PEXA's exchange transaction volumes grew from approximately 10,000 transactions per month in December 2015 to more than 360,000 transactions per month in June 2022. We're essentially essential infrastructure to the property sector in Australia. In addition to growing the PEXA exchange tech platform in Australia, we've also made meaningful progress across multiple attractive growth paths for our business. We are progressing our international market plans, with the UK being a priority growth market for PEXA, and it represents a total addressable market opportunity of approximately $700 million. And we'll talk more about this progress shortly. In addition, PEXA continues to build its reputation as a trusted leader and resource for robust real-time property data. appropriately extending our offering to enhance the property experience, so we can also meet the best needs of Australians in the property sector through that Darjeeling Insights. And over the past 12 months, Vector Insights has launched new products and made several investments. And I can also say that PeerCleanters, another one of our growth businesses, has continued to build on Vector's digital and industry experience. and also developing new products and services as we expect to grow in this area. All of this has transformed into another good operational and financial performance in FY22, with two positive metrics in our portfolio of products and services and set in our sub for sustained growth. If I go to slide six, slide six actually shows the growth in residual earnings in FY22. And what I can say that we're now outside our prospective forecast period, and we've shown how the FY22 results compared not only to FY21, but also to our prospective forecast. On all measures, we grew compared to FY21. And we also exceeded our prospective forecast. A couple of call-outs. At Rupert Avenue, it was up 27% year-on-year to $280 million. Exit St. David Barrett was up 38% to $153 million. with our EBITDA margin up 5 percentage points to 55%. Our free cash flow before capex financing and tax was up 7% to 121 million. Our MPAC pay was up 123% to 77 million. And gearing, as measured by net debt to PECWIS training data, was down 35% to 1.47 times. Good results. Now, to give you a bit more colour in terms of our business and the overview of performance, I will now turn to slide eight. Our strategy, the Pector Group strategy, is a very simple strategy. We look to enhance the core exchange service in Australia for our customers so we can continue to grow. We're looking to expand in new Torrens Title jurisdictions, starting off with the USA. We plan to extend, extend to provide innovative data insights and building deeper customer relationships across a broader group of stakeholders through additional services. And importantly, we'll continually evolve our business, both in terms of platform and continually build and strengthen with our people and our brand. These strategic pillars of enhance, expand, extend and evolve are all in support of fulfilling our purpose, connecting people to price, and are delivered in accordance with our core values, where we always look to innovate and innovate for good reasons, ensure we're better together with our people, customers and our owners, and we're very clear about execution, making it happen and making it count. Now, for that is slide 9. Having established a leading and highly trusted tech platform, the PECS has changed. We are now leveraging our knowledge, experience expertise and relationships with industry stakeholders and partners to pursue a number of growth opportunities and areas across three key focus areas, including continually building our core effects of exchange and deepening our customer relationships. The four growth areas, in addition, affect the international, which is around replicating the success of the effects of exchange in Australia. to develop digital property settlement solutions in new offshore markets, with the first priority being in the UK. Textual Insights, which is about delivering new generation data solutions that empower businesses, governments and consumers to appropriately make more informed property-related decisions, including demand for land, use of land, transaction efficiency and housing affordability. And Care Spentures, which builds on Texas digital and industry experience, the innovative and entrepreneurial culture and our established relationships to develop new business opportunities with partners for consumers, businesses and governments across the property ecosystem. In summary, we're executing on all those areas as we enhance, expand, extend and evolve our business. Now a little bit more colour on all four areas. Turn in the slide, please. The picture is showing now that St Phil takes the majority of land transactions in all of Australia. And we know as a business that buying the property is one of the most important purchases many people will make in their lifetime. And it's something that we certainly take seriously. It's a role that we know that we need to make sure it's efficient, safe, secure and reliable as possible, increasing certainty to industry participants such as our bank customers and also the home buyers and sellers alike. Momentum for digital transactions continues to accelerate. And while I've already mentioned the volume and wave value of transactions settled on the PEXA Exchange in the 5.2 years growing, what's even more impressive is the Exchange has now processed more than 12 million property transactions since our inception, equating to more than 2.4 trillion in property gain. PEXA is a tech platform business for the property sector, and we are an essential service. In FY22, market conditions were positive, with 12% growth in total market volumes from FY21. 4.7 million transactions in FY22. And we grew with that, but we also grew above it, to where we're now just over 4 million transactions at 22% growth. We also grew with the refinancing. noting that we do refinancing and sale and transfer, and it was particularly strong in the refinance area, with the total market up 31% year-on-year. We continually serve now over 9,500 lawyers, practitioners and contractors, 160 financial institutions, and we serve over 1.1 million consumers in FY22. We also successfully launched in the ACT, reaching 59% transfer and market penetrations. at the 30th of June 2022, and incredible results within 12 months. And we also saw continued growth in Queensland, where we doubled our performance over the past 12 months, increasing our market share now to about 77% at the end of the financial year. On slide 11, just thought we'd add a couple of other highlights around the picture of change. We continue to enhance our Vector Exchange and Service by adding new services and job fees such as ADC, but also spending our services such as Vector Tracker for financial institutions. We've also maintained our ongoing engagement with regulators in relation to industry reform and our customer performance is continually strong with a net promote score of plus 74. Vector has also maintained and 99.9% platform availability across the FY22 and reaffirmed its position as the number one trusted provider across the industry. And whilst we've been very strong in FY22, we can have a continued presence in FY23 on the Exchange. That includes continued investment in infrastructure resilience and cyber security. We're going to continue to roll out our APIs and integration in banks panel firms and further removing customer friction points. We're going to continually enhance certainty around settlement on behalf of the industry and home buyers nationally. And we'll also continue our roadmap to become a truly national platform with productive dialogue in Tasmania and Northern Territory as we expand across the entire country. In addition to that, we'll keep our constructive involvement with regulatory reform, But we'll also ensure that we maintain a focus on a secure system for citizens, customers, government and the community at large. Importantly, our key essence is to ensure we provide great service for our customers. And talking about great service, if I go to slide 12, we're now expanding internationally and we're on target as we deliver in the UK. The UK does represent a broker airport, Petra. and our initial focus has been on the remortgage process in England and Wales, and we're making good progress. In April 22, we announced the successful deployment of a brand-new payment scheme, PectorPay. The seventh net settlement payment scheme with the Bank of England, and we're acting as a settlement agent. We're pleased with that progress. The platform and payment scheme has been successfully tested with seven mortgage lenders, and the Bank of England has agreed to another cohort of lenders to test in October this year. And as we also committed, we plan to go live with our first lenders using the PECSA platform for their remortgages, and we're scheduled to go live with our first lender in September 2022, with subsequent waves of lenders expected to join over 2023. We also work closely with conveyances, regulators and government stakeholders as we will further develop TEQSA's UK proposition and build out our services across the country. We aim to have four lenders transacting on the TEQSA UK platform in 2023 and continually grow from that position. will explore and identify potential opportunities in the UK to deliver on our strategic interests. And as part of our intent, we're already working on our sale and purchase check concepts. Now, building on the international progress which we're pleased with, we've also now extended into Darwin Insights. And for data class 13, Australia's 10 trillion housing market is continually The creation of significant volumes of property data is generating significant opportunities to enhance decision-making in the market as economic, environmental and social factors continue to change. And Texas is at the centre of this evolution. Now, we said before we estimate that the data market for land information could grow from approximately $520 million annually today to about one billion annually over the next five years. And with businesses and governments rapidly digitalising their services, data sharing is going to be a key opportunity for the Australian economy. And we believe that open data flows have the potential to reduce friction points for consumers and businesses, while also driving competition that stimulates innovation and economic growth. We are excited about this opportunity and we're going to essentially advocate for more open and ethical regulatory regimes for the use of data for the benefit of Australian citizens. Now, as on slide 13, we're building our HOPI data ecosystem and service to answer four key questions for Australians. Where is the demand for RAM now and into the future? How can the use of RAM be optimised to increase valuation? How do we increase the supply of housing to ease housing affordability challenges? And how do businesses in property value chains improve their business efficiency and in turn to deliver value to consumers? PECSA has made a number of investments and acquisitions across all that area, all those core questions, to ensure that we can deliver and add value and our aim is to grow If you turn to slide 14, you can see in 12 months it's been a very busy year for Pectoral Insights. We've built now a team of over 60 data specialists within Pectoral Insights, focused on building a property data bureau and developing solutions that appropriately leverage our unique access to new real-time and accurate national property data. We've implemented partnerships with universities such as Deegan and the Melbourne Business School and we've released our first product aimed at helping financial institutions improve efficiency with our quarterly property and mortgage insight reports. This provides a first taste of the power of our data. And with new product concepts under development and others in beta, we have charted a path towards several new product launches in FY23. In addition, though, we completed several strategic investments in FY22 and two shortly after the financial year ends. As announced this morning, Texas Insights undertook its first 100% acquisition of the leading Australian loan demographic-based company, DotID. DotID in its own right is a land information business The Business Trust has provided demographic and economic data and forecasts at the microgeographic level to more than 300 local councils across Australia and New Zealand. Separately, we also announced the acquisition of a 70% interest in Slate Analytics, a progressive property analytics and tech solution co-developed by the University of New South Wales, Sydney, and Funky SI. Both represent the third and fourth strategic investments undertaken as part of our PEDSA in-size growth strategy. Across the FY22 sector in-size, PEDSA's data analytic in-size and service business also announced the acquisition of a 38% stake in the data box tech, Langecker, and a 25% stake in the AI software leader, Alula. All four are cash investments. Now, what I would specifically then go on to is is how we're also spinning through PX Ventures, which is about to deliver new digital property products and services. Now, PX Ventures was launched in 2021 with the goal of building on our tech and property industry expertise and entrepreneurial culture with like-minded innovators, and we're making good progress. PX Ventures offers funding, bespoke services and mentoring support to enable continued innovation and enhancement of new and existing products and tools for Australian consumers in the prop sector. Through our innovative PEERS Launch Track, we've now targeted a number of startups to offer products and services that could significantly transform the property journey for Australian consumers, businesses and the government sector. In fact, our PEERS Launch Track has received more than 100 IDs from several up-and-coming Australian businesses interested in starting and commercialising their offering in the prop sector. And we've already launched, or progressed, with external partners through PN Centre in FY22, including Business Advantage, Honey Insurance and Smaila. And today I'm pleased to announce our strategic partnership with Sorted Services, a local Melbourne prop tech. Sorted is, in fact, Australia's first digital home services tech platform designed to help homeowners, organise their entire household in minutes, including things like electricity, gas and internet connections. A very exciting and practical resource that further will be in our services to our customers. Now, you can only do this in the slide 16 in terms of the growth that we've developed and built out in S142 through engaged people. And given the critical role played by Pector in the economy, it's important for us as Pector that we continually, as a group, have engaged Pectorians, building and maintaining a culture of trust in the community and with our customers. And we truly believe that having an engaged team translates to highly satisfied customers and a great business performance. And we do this by our values of innovating the good, better together, making it happen and making it count. that our workforce has an 80% in Vagina score, which translates to a positive experience for our customers on a whole. And in FY22, we set a new watermark for Grand Clubs, where we received a score of 8.9 out of 10, which is number one in the market, and a member or customer satisfaction score of 97%. And further than that, we're really pleased to say that we're in the top three in 2021 for the Best Place to Work award within Australia. Our engaged sectarian schools are engaged with the community and we're working from home to home, a not-for-profit organisation focused on creating sustainable and affordable housing for our most vulnerable communities in Australia. We also work on diversity and inclusion and environmental sustainable elements within Homes for Homes. In fact, we picture we're a proud member of the global ESG benchmark for real estate assets, having achieved a five-star GFB rating in FY22, which is a score of 92 out of 100, up from 84 in FY21. And we're not only continuing to work on ESG initiatives from our inaugural environmental statement, but we outline a commitment to achieve carbon net zero by 2025. In addition, we're now working with Indigenous consultants to establish an Indigenous engagement strategy as we are committed to supporting the First Nations of Australia. All in all, FY22 has been a strong, good result for our business and those results are translating into strong financials and I'll now hand over to Richard who will take you through the FY22 financial summary.

Thank you Glenn and it is great to be here today to talk through such a strong set of financial results for PACTA and FY22. Before I start, I should say that all the figures in this session reflect a pro forma P&L, showing the operating costs of PEXA as a listed company. And what that means is we remove the one-off costs as a result of the listing on the 1st of July and we add in $6.5 million of public company costs into the prior period to make it comparable to the current cost base of the company as a listed entity. The pro forma results are reconciled back to statutory on slide 33 of the PAC. And additionally, any reference to forecast in this section is the FY22 forecast from the perspective that we launched before we listed in July last year. So going to slide 18, you can see PECSA delivered a very strong financial performance in FY22. Our revenue was up 27% to $280 million. Our combined COGS and operating costs were up 15% year-on-year, and what that meant was an increase in PEXA exchange EBITDA of 38% to $153 million. EBITDA after investing in our growth initiative and one-off was up 28% to $131 million, and our net profit after tax of $38 million was up $43 million from a small loss last year. NPAC-A, which is net profit after tax excluding the non-cash amortization of acquired and tangible assets, which is our best measure of after-tax cash profit, also grew by $43 million to $77 million. All of these measures were ahead of prospective forecasts. And what that means is our financial metrics are also very strong, with our gross margin growing by just under 1 percentage point to 87.7%. and the exchange EBITDA margin of 54.6, being up 4.6 percentage points from FY21. So overall, it's a great result in FY22 from a financial standpoint, and I'll now use the following slides to explain the key drivers of the financial result in the PECSA exchange. Our revenue is a function of market size, market share, and price, and slide 19 explains the first two of those. As Glenn said, the market grew strongly in FY22, up 12% to 4.7 million transactions, or billable events, as we call them in PEXA. And you can see slide 31 in the appendix for more details on the market growth. On top of that, the PEXA exchange penetration, or market share, grew 7 percentage points to 86%. And on the left-hand chart on slide 19, you can see that by transaction type. We saw our transfer penetration grow from 80 to 85%, driven by growth in Queensland and the launch in ACC. We saw refinance penetration being stable at 99%, and other transactions growing 16 percentage points to 73%. Combined, that delivered a 7 percentage point increase in total penetration to 86%. Adding that to the 12% growth in the market means a 22% increase in PEXA transactions to 4.05 million, as seen in the right-hand chart. PEXA transactions were also up 16% compared to the prospective forecast, driven by a 14% higher market and 2% higher market penetration. On slide 20, we then explain how volume and price determine revenue. The top left-hand chart shows PEXA volumes from the prior slide, up 22% year-on-year. We also saw an average price increase of 4% to $68, driven by the annual CPI increase during the year and the end of the discounting campaign in Queensland in the prior financial year. That ended on the 30th of June 2021. That resulted in an average price for transfers increasing by 6%, obviously ahead of CPI for that reason. This was slightly offset by a mixed shift towards the lower priced refinances and that resulted in the total average price increasing by $2.50 or 4%. So, adding the 4% price onto the 22% volume previously discussed delivered a 26% increase in PEX exchange revenue from $218.6 million in FY21 to $276.6 in FY22. Pector Exchange 1 was also up 13% on prospective forecasts, driven by the 16% increase in volume noted earlier, offset by a 3% reduction in price due to the higher proportion of lower price refinancing transactions compared to forecast. On slide 21, we then look at gross margin and cost of sales. Another reminder, our main cost of sales are lodgement support service fees, which are incurred when a workplace is set up. It reaches out to the Land Registry to get bundled property information. That starts on every workspace, whether it's a multi-party transfer, a two-party refi, or a single-party discharge or other transaction. So this means if we do more transfers, the cost per transaction drops. And you can see that on the top right-hand chart on slide 21. The higher mix of transfers also improved the average revenue per transaction, which you can see in the top left chart, and that combination means that our gross margin has improved by just under one percentage point to 87.7%, and our gross profit has gone by 28% to $245 million. Gross profit was also 14% ahead of the prospective forecast. Slide 22 shows our operating expenses within the exchange. We group our expenses into three categories, general and admin, sales and marketing, and product design and development. Our general and admin costs, which cover our shared corporate teams, our board and executive remuneration, as well as professional fees and occupancy, increased by 24% in FY22. And this was driven by the corporate functions and advisory fees growing to support our continued expansion. Also, we saw higher insurance premiums and the cost of our new long-term incentive plan. It is worth noting that FY21 was understated due to COVID-19, and the FY22 spend is up 26% from two years ago, so that's a 12% annualised growth rate. Our sales and marketing spend held relatively flat in FY22, due to both this year and prior being somewhat impacted by COVID-19. And early in the financial year, we were unable to host our regular practitioner events, and we also reduced our overall marketing spend due to COVID. Finally, our product design and development expense has increased by 12% in FY22 due to the higher hosting costs driven by higher exchange volumes, together with investment in architecture, cloud, cybersecurity, and API development, as Glenn mentioned earlier. You'll also see from the bottom chart that we capitalised a similar amount of product development expended in the exchange, so the total cash spent on product design and development was $51 million, or 18.3% of exchange revenue. Operating expenses were 14% ahead of prospective forecast, and total product development costs in the exchange were broadly in line with the prospective forecast. Slide 23 then shows the benefits of scale flowing through the exchange. The chart on the left shows total costs, including cost of goods sold, and also shows cost per transaction. The growth in volume combined with prudent cost control has resulted in a reduced cost per transaction, down from $33 last year to $31 in FY22. This has also resulted in good growth in Texas exchange EBITDA, as shown on the chart on the right of slide 23, growing by 38% to $152.7 million. We've also seen growth in our PEXA exchange EBITDA margin, which is going from 50% to 54.6% in FY22. It was, however, lower in the second half of FY22 due to the reduction in PEXA exchange volumes compared to the first half. We are expecting to operate the exchange in the 50% to 55% EBITDA margin range going forward. So, in summary, from a P&L perspective, a year of very strong revenue and EBITDA growth And we are happy to have achieved all of the forecasts that we set in the prospectus just over 12 months ago. The final slide on financial, slide 24, shows our FY22 cash flow in two ways. The chart on the left shows the movement in our cash balance over the year and the key drivers. We started FY22 with $61 million of cash. We generated $153 million of exchange EBITDA, spent $25 on capitalized product development within the exchange, and had $14 million of other exchange-related cash outflows. So before investment in our growth initiatives and IPO costs, we would have had approximately $165 million of cash in the business at the end of the financial year. We invested $44 million in our international insight and ventures businesses and $30 million in the investments in Landchecker and Aluma. As part of the IPO process we also had net offer costs in cash terms of $15 million and this resulted in an actual cash balance of $75 million on the 30th of June 2022. The table on the right-hand side, slide 24, shows our pro forma cash flow, and you can see a strong free cash flow conversion before financing tax of $69 million, which equates to a 53% free cash flow conversion. And that's after the OPEX and CAPEX investment in the exchange and in all of our growth initiatives. And before I close, I should add that there are more details on the financials in the appendix, should you need to see them. So now I'll hand back to Glenn to run through our outlook and to close.