ReadyTech Holdings Limited (RDY) Earnings Call Transcript

Thank you for standing by, and welcome to the ReadyTech FY '25 Results Release and Investor Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Marc Washbourne, Co-Founder and Chief Executive Officer. Please go ahead.

Thank you, and good morning, everyone. Thanks for being ready to join our FY '25 results call. I'm Marc Washbourne, Co-Founder and CEO of ReadyTech, and I'm joined here today by Nimesh, our ReadyTech's CFO. In today's call, we are pleased to provide you with highlights from our FY '25 results as well as an update on our growth plans, progress on our pipeline, our flagship products and the outlook for FY '26. On Slide 2 of our results presentation, which is available on the ASX, ReadyTech is a leader in next-generation mission-critical software crafted specifically for the human-led sectors of education, workforce, government and justice. Our vertical SaaS approach is centered on knowing our customers deeply, targeting perfect product fit and owning the core system of record. This year, we are proud to have supported over 2 million students, apprentices and job seekers, processed $7 billion in council proxy rates and $28 billion in payroll and supported over 1 million justice cases in the U.K. alone. Moving to Slide 3. FY '25 was a transitional year for ReadyTech for our enterprise strategy. While our performance reflected some challenges, we delivered solid new business and operational outcomes as well as addressed our key local government issue, and that together positions us for stronger growth ahead. We achieved total revenue of $121.8 million, representing a 7.1% increase on the prior corresponding period. ReadyTech secured $15.4 million in new business during FY '25 with activity weighted heavily to the second half. Importantly, we achieved a particularly strong Q4 exit, underscoring growing momentum in our flagship products and providing a solid platform for accelerating enterprise adoption in FY '26, and that included a rebound in local government in H2 with $2 million in confirmed new wins in Q4 alone. The enterprise momentum is underlined by the growth pipeline expanding to $33.1 million, up from $31.8 million in FY '24. Average revenue per new customer increased 36% on FY '24 with an average deal value of $167,000, highlighting the strong progress of our enterprise customer strategy. We also launched 7 AI initiatives across our markets. This included ReadyTech's first agent technology, each of these designed to enhance product capability and deepen customer value. These initiatives are not only advancing innovation for our clients, they are also expected to deliver meaningful incremental revenue and operating leverage over time. Slide 4 summarizes some of the key highlights in FY '25. Again, we built real momentum in FY '25, securing $15.4 million in contract wins across our flagship products and our enterprise strategy. Again, to reiterate, performance was weighted to the second half and capped off by a particularly strong Q4 exit that gives us confidence heading into FY '26. In Workforce Solutions, we delivered a record year with $5.4 million in new business driven by ready workforce. That included our largest single contract win to date worth over $1 million in first year value and our first wins in the exciting new workforce verticals of education and hospitals. In Education and Work Pathways, we secured $6.6 million in confirmed enterprise wins. That included multiple breakthrough contracts in higher education, opening up a large new and exciting market, along with continued traction in TAFE, where we have a number of active processes underway. And in local government, as I said, we saw a clear rebound in momentum with $2 million in contract wins and upgrades in Q4 alone to complement new wins and further traction in the Justice segment. Together, these results highlight the strength of our flagship products, the pipeline unlocking and the momentum we're carrying into FY '26. Moving on to Slide 5 and some further highlights. Following a softer period and a blocker to growth as we reported in H1, local government growth is now rebounding with our end-to-end cloud platform now positioned for acceleration in customer upgrade activity. The strategic acquisition of the Council Wise Property & Rating engine has been well integrated and strongly validated with $2 million of new and upgrade wins in Q4 FY '25 and a robust pipeline moving into FY '26. Our end-to-end ready community go-lives are providing critical proof points and customer referenceability, demonstrating the benefits of our cloud upgrade experience. We've also strengthened leadership in this segment, including the appointment of a new leader of this division, bringing long-term local government expertise and strong growth credentials. All of this supports the unlocking of our long-term cloud upgrade strategy with a fit-for-purpose enterprise ERP that is ready to deliver to the sector. Lastly, in terms of key highlights, innovation is accelerating at pace with AI and new product launches offering a new frontier of customer value. As I mentioned, we launched 7 new AI initiatives in FY '25 that included our very first agent technology. We expect to see a lot more in FY '26, representing a powerful new layer of monetization across our platforms. Among these AI releases were Talent IQ for Workforce, Planner Assist for local government and AI recognition of prior learning for education, all addressing well-known pain points, delivering smarter workflows and productivity gains for our customers. On top of this, with next-generation HR and learning modules launched in FY '25, generating over $700,000 in H2 alone and with a promising pipeline across both workforce and government, we're building real momentum in product-led growth. On to Slide 6. With this momentum into FY '26, we'll sharpen our strategic focus further on flagship products and AI, aligning highly targeted incremental investments of $2.5 million in the year to drive enterprise growth, incremental revenue opportunities and target long-term margin expansion. We're backing further uplifts in product fit, sales and marketing capability, AI innovation while also running an operational efficiency program to optimize ReadyTech's performance. Our confidence in enterprise is underpinned by a $33.1 million high conviction opportunity pipeline and an accelerating level of procurement activity as customers replace legacy systems. In terms of AI, the world is changing fast. Agent technology is accelerating and very relevant to our markets. We need to move with pace, and we're seeing many incremental revenue streams emerging as AI embedded solutions scale through our customer base. This will represent a crossover year in terms of investment. With high release velocity and game-changing productivity opportunities, we are well positioned for AI to support our wider plans and unlock both top line growth and operating leverage in FY '26 and beyond. I'll now hand over to our CFO, Nimesh Shah, to take you through ReadyTech's financial performance in some more detail.

Thanks, Marc, and good morning, everyone. Let's turn to Slide 8. As on Slide 8, the financial overview slide. As Marc mentioned, ReadyTech delivered revenue growth of 7.1% on a PCP basis. This was driven by enterprise contract wins and successful upselling across our verticals, though -- and as mentioned at the first half results impacted by product delays in the government segment. Recurring revenue remained strong at 84% with net revenue retention at 102% for '25, reflects progress across most segments and but offset by delay in upgrading customer -- customer customers to flagship products, again in the first half of '25. Underlying EBITDA, excluding nonrecurring costs, increased to $39.5 million with underlying cash EBITDA margin of 16% to $19.5 million. Moving to Slide 9 on cash flow and balance sheet. Net debt to EBITDA remains conservative at 0.95x with $24 million in cash to support growth initiatives. During the period, ReadyTech made payments to acquisitions and earnouts of $14 million in cash upon achievement of the respective milestones. We saw underlying EBITDA to cash flow conversion during the year of 85%. Conversion will have exceeded 90%, but for the delayed timing of some collections that came in FY '26 quarter 1. Then on Slide 10 is the segment highlights. Education and Work Pathways remain our largest segment on the back of continued growth in Higher Ed and continued success with TASE. The vertical grew revenue by 7.5% and EBITDA margin remained very strong at 43.7%. Workforce Solutions revenue grew by 12.5% in FY '25, driven by new contract wins, including our first $1 million customer in this vertical and the successes upselling additional modules to existing customer base. Over the same period, EBITDA margin remained steady at 36.5% and then finally, Justice revenue grew 9.5% on a PCP basis, driven by new customer wins and upgrades. And again, as mentioned earlier, government segment was impacted by product delays, which have now been addressed in the second half. As a result, margins were impacted down by 27% from 29.4% in FY '24. Now I'll hand over to Marc.

Thanks, Nimesh. And on to Slides 11 and 12. Our growth strategy is anchored in our 4 flagship products where we see the strongest enterprise momentum. These platforms give us access to high-value contracts in customers with substantial tech budgets, where we are supported by growing customer references and reputation. We're targeting large defensible markets undergoing digital transformation, where we see AI adoption accelerating. And in these markets, we're building strong moats with best-in-class market-leading products -- and as I said, we're well positioned to optimize the AI revolution. With scalable, configurable platforms and a vertical SaaS model, this will allow us to lift net revenue retention, expand margins over time and set up ReadyTech for accelerated enterprise growth in FY '26 and beyond. I'll now take you through the progress across those 4 flagship products. First, on to Slide 13 and education. Our Ready student platform is positioned to accelerate multiple enterprise growth engines across the key markets of TAFE, universities and private higher education. Our first university breakthrough and further higher ed wins alongside active TAFE processes reflect a major market ripe for change as institutions replace legacy systems. Our proven delivery capability, our growing customer advocacy strengthen this momentum. And while regulatory reform are also driving urgency for customers alongside digitization pressures. While our immediate AI focus is on recognition of prior learning to solve a sector-wide key pain point, we see a major opportunity in AI as a trusted vendor to enhance sector productivity and student success. Moving on to Slide 14. In Workforce Solutions, as we said, FY '25 was a record year for new business, highlighted by our largest ever $1 million contract at over $1 million and $5.4 million in new business for the flagship product, Ready Workforce. Our deep vertical focus is clearly winning across the standup economy, industries like agriculture, hotels and accommodation and retail. We've expanded those with 2 new verticals with wins in education and hospitals in the second half. With true cloud and mobile-first employee experience, replacing legacy systems, we're driving automation, compliance and assurance. AI releases like Talent IQ are enhancing productivity and outcomes in workforce management, strengthening our competitive edge and building on the momentum into FY '26 and beyond. Moving now to Slides 15 and 16. In local government, as mentioned, we have now addressed the segment bottleneck that we reported in H1 by integrating the Council wise Property and racing engine. And since then, we have already delivered over $2 million in new and upgrade contracts in Q4 FY '25. With this unblocked, end-to-end ready community go-lives are providing critical customer proof points and powerful references for cloud migration. Further confidence on the next phase is strengthened with the hiring of Brett Barnningham to drive the segment forward, who has deep sector expertise and a track record of growth. ReadyTech already serves more than 280 councils across Australia. Many of these use one or more modules or the whole ERP, positioning us to strengthen upgrades and expand over time. The sector tailwinds are significant as councils digitize services to meet community expectations and move from legacy systems to the cloud. With proven ERP capability and validated customer outcomes, we are well placed to capture the next wave of transformation by winning new enterprise customers and driving cloud upgrades at scale across local government. Moving now to Slide 17 and Justice, the Ready case, our flagship product. We're seeing solid growth as the sector accelerates digital transformation. Again, legacy technology and rising demand for citizen-centric services are driving a powerful upgrade cycle. Our proven case management platform with successful U.K. delivery and growing referenceability is driving momentum across courts, tribunals, commissions and prosecutors. Following 2 strong new customer wins in FY '25, the pipeline reflects continued momentum, including an immediate opportunity that we have high conviction to sign in H1 FY '26. In FY '25, we reached an AI tipping point, and we are expanding strategic investments in AI to both elevate our products and transform internal productivity. Our dedicated AI squad delivered 7 initiatives in FY '25, including RPL for Education, Talent IQ for workforce and AI agents for payroll and case management. Planner Assist is detailed on the next Slide 19. It is a great example of how AI can be used to transform our product suite and deliver tangible value to customers with significant opportunity to tap into new revenue opportunities as AI scales through our customer base. Internally, AI is embedded across the software development life cycle, quality assurance and customer support with growing efficiency benefits being realized to help us both move fast and improve operating leverage. Looking ahead on Slide 20, our outlook statement. As I have outlined, ReadyTech enters FY '26 with strong momentum. FY '26 revenue is projected to be in the range of $132 million to $135 million, with FY '27 revenue at between $150 million and $153 million. Revenue growth is underpinned by $10.5 million of confirmed wins in H2 FY '25 and a high conviction pipeline of $33.1 million for FY '26. Cash margin is projected to be mid-teens for FY '26, including the targeted incremental investment of $2.5 million and expanding to late teens in FY '27. Thank you again for joining the call today. One final thing I'd like to say a very big thank you and acknowledge today our CFO, Nimesh Shah. This will be his last results with the company, and we can update today that an announcement on our new CFO will be released shortly, and I'm very excited about partnering with a new leader to help take the company to the next horizons of growth. Thank you, and very happy to open up now for questions.

[Operator Instructions] Today's first question comes from Cameron Halkett with Wilsons Advisory.

First, let's just perhaps echo Mark's comments from me as well. Nimesh, thanks for everything over the years. It's been a pleasure. I'll direct just one question to you, please, my kind of time slot here. Where the guidance for revenue is concerned at $132 million to $135 million FY '26. Can you just help us, I suppose, with the bridge from results for this year with respect to the pipeline that has been secured recently, net revenue retention and perhaps new business wins? And any updates you can provide on perhaps how the year has started?

Yes. Thanks, Cam, and thanks for the comments. Look, on the bridge for '26, I think it's worth noting we have ended quarter 4 strongly, $10.4 million has come in quarter 4 and a large percentage of the $13.5 million of shortlisted and preferred pipeline that's converted. On the bridge, if you look at just the component parts of that, we expect our net revenue retention at this stage to be 103% or up by 100 basis points. You put that on the subscription revenue. We expect about 50% of the wins that we won in the second half of that $10.4 million to be recognized as a step-up in '26. And what that then leaves us is about, give and take, $4 million to $5 million of revenue to be achieved for the guidance, midpoint of the '26 guidance on the back of $33 million of pipeline. So at this stage, we are looking at a secured growth of around that mid- to early 90% for '26, and we want to continue to convert this attractive pipeline.

Okay. Very clear. And then I suppose where the revised '27 expectation for revenue is concerned, like that implies a bit of a growth acceleration on FY '26, which is already somewhat of a bounce back year. What I suppose underpins the further acceleration in '27? Is that some of the AI products you kind of alluded to, Marc, or something else?

Yes, partly, Cam. I think you see as you step through '25, '26, '27, there's incremental acceleration between the years. I think if you look through to FY '27, first of all, I'll just talk about, first of all, NRR. This year, we had $102 million -- we expect that to grow to $104 million, $105 million, and that's partly that is through increased focus on our CSM teams and investment in them to help with upsell. It's also unlocking the cloud upgrade in local government, which I mentioned. And also at this stage, and we're being conservative, there will be some incremental revenue as the AI products scale through this very large customer base. On top of that, to move to those high growth rates of low to mid-double digits, there's obviously an expectation of that continuation of pipeline. We need to do around $20 million a year in new business. Obviously, we did $10.5 million in the last half. So we feel that's achievable.

Yes. Okay. And the best way to think about those AI products, just kind of like an incremental module, let's say, circa $100,000, $200,000 incremental per customer, that's sort of what you're generally kind of targeting, and that's how we should think about it, as it goes into ARR.

Yes. I think there's a combination here of existing modules that will be significantly enhanced and Planner Assist is a good example of that, where we think there is an augmented price. But also, we are building -- there'll be brand-new technologies and there's some white space as well. Recognition of prior learning is a really good example of that. It's a very manual process at the moment. And there, we see new incremental opportunities. And as you outlined, ability for modules in that sort of range of revenue.

And our next question comes from Christian Wood with Jarden.

First question, we understand that you've recently hired people from TechnologyOne. What kind of capabilities would they bring across?