Announcement PDF Annual Report 2023 Empowering our tradies hipages Group Holdings Limited ABN 67 644 430 839 hipages Group finished FY23 carrying strong momentum, continuing our strategic evolution from marketplace to platform and delivering positive free cash flow in H2. DISCLAIMER: This presentation may contain forward-looking statements which are statements that may be identified by words such as ‘may’, ‘will’, ‘would’, ‘could’, ‘expects’, ‘intends’, ‘anticipates’, ‘targets’ and other similar words that involve risks and uncertainties. These statements are based on an assessment of present economic and operating conditions and on a number of best estimate assumptions regarding future events and actions that, at the date of this document, are expected to take place. No person who has made any forwardlooking statements in this document has any intention to update or revise forward-looking statements, or to publish prospective financial information in the future, regardless of whether new information, future events or any other factors affect the information contained in this document, other than to the extent required by law. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of the Company. This presentation also contains references to certain intentions, expectations, targets and plans of the Company. These intentions, expectations and plans may or may not be achieved. They are based on certain assumptions which may not be met or on which views may differ. To the maximum extent permitted by law none of hipages, its subsidiaries, or its respective officers, employees, agents or consultants nor any other person accepts any liability, including, without limitation, any liability arising out of negligence, for any loss arising from the use of the information. Acknowledgement: We acknowledge the Traditional Owners of the land in all States and Territories on which we work and report. We pay our respects to Aboriginal and Torres Strait Islander Elders past, present and emerging, and honour their history, cultures and traditions of storytelling. ii | Annual Report 2023 hipages Group Performance Highlights Letter from the Chair Tradie Advisory Board Strategic Evolution Environmental, Social and Governance Shareholder Information 2 6 8 10 14 17 22 28 34 36 147 Our Purpose, Vision & Values CEO’s Report Business Review People and Culture Financial Report hipages Group Annual Report 2023 | 1 Performance Highlights Strong business momentum driven by H2 tradie demand Record tradie demand drives MRR +15% and ARPU +10% Free cash flow positive in H2 with robust balance sheet and no debt Strategic evolution from marketplace to platform continues Award winning culture hipages ranked in the top 3 ‘Best Place to Work’1 awards, for 3 years in a row! 1. 2023 WRK+ Best Place to Work study. 2 | Annual Report 2023 hipages Group Revenue $6.3m Profitability 88% Key drivers 35.7k MRR2 Gross margin3 Subscription tradies4 Up 15% FY22: 85% Up 3% $62.9m $12.3m $1,872 Recurring revenue EBITDA5 Total tradie ARPU6 up 10% 94% of total revenue Up 8% EBITDA margin 18% Up 11% to $1,985 for hipages Australia $67.0m $(5.1)m Total revenue Statutory NPAT Up 8% 1.42m Job volume down 13% Tradie/Job Connections up 8% 2. MRR: Monthly Recurring Revenue at 30 June 2023 (inclusive of GST). 3. Gross profit margin includes total revenue less cost of sales (Consumer and Tradie SEM spend and merchant fees). 4. Includes tradies committed to a monthly subscription product from hipages and Builderscrack paying tradies who generated at least one work invoice over the last 12 months (approximately New Zealand 3,400 tradies). 5. EBITDA: Earnings Before Interest, Tax, Depreciation and Amortisation presented on a pro forma basis before significant items which includes a $3.1 million non-cash goodwill impairment associated with the investment in Builderscrack. 6. ARPU: Average Annual Revenue Per Unit (i.e. Tradie ARPU) is the annual operating revenue (total revenue from ordinary activities) divided by the average of the opening and closing number of total hipages tradies and paying Builderscrack tradies for the period. hipages Group Annual Report 2023 | 3 Group Financial Summary FY23 FY22 pcp (%) Total revenue ($m) 67.0 61.9 8% Recurring revenue ($m) 62.9 58.2 8% Recurring revenue % Total 94% 94% – Operating expenses before significant items ($m) (54.7) (51.1) 7% EBITDA before significant items ($m) 12.3 10.7 14% EBITDA margin before significant items 18% 17% 1ppt NPAT ($m) (5.1) (0.9) (>100%) MRR7 ($m) 6.3 5.5 15% Job volume (m) 1.42 1.63 (13%) Subscription tradies8 (000's) 35.7 34.6 3% Total tradie ARPU9 ($) 1,872 1,707 10% Financial Metrics Key Operational Metrics 7. Monthly Recurring Revenue at 30 June 2023 (inclusive of GST). 8. Subscription tradies includes 3,400 New Zealand paying tradies of Builderscrack. 9. Average Annual Revenue Per Unit (i.e. Tradie ARPU) is the annual operating revenue (total revenue from ordinary activities) divided by the average of the opening and closing number of total hipages tradies and paying Builderscrack tradies for the period. hipages Group ARPU of $1,872 is the blended result of hipages’ ARPU of $1,985 and Builderscrack’s ARPU of $794. 4 | Annual Report 2023 hipages Group Business Highlights hipages Group ended FY23 carrying significant momentum. Having emerged from a challenging post-COVID trading environment, the Group’s key metrics and other lead indicators clearly show how the Group benefits from cooling economic activity. The first half of the financial year (H1) was still impacted by the post-COVID overhang of unprecedented consumer demand and constrained tradie supply. Despite this, the Group delivered continued revenue growth, while executing key strategic milestones and tightly managing costs and cash. In H2, weaker consumer demand drove increased competition among tradies, providing the Group’s marketplaces with strong momentum. MRR Demand for the Group’s services from new and returning customers reached remarkably high levels as tradies continued to join at record yields and ascend to higher-priced packages. Job volumes normalised from the exceptional highs of the prior year, balancing the marketplace as tradies responded to more jobs faster, greatly improving the experience for consumers. At the same time, the Group continued to deliver to its purpose of transforming the trade industry by delivering new features to its Tradiecore job management software solution and defining a threeyear strategy to evolve to a SaaS platform beyond a lead generation marketplace. Demand for the Group's services from new and returning customers reached unprecedented levels as tradies continued to join at record yields and ascend to higher-priced packages. Total Revenue $6.3m $5.2m During FY23, the Group further consolidated its position as the market leader in the on-demand tradie economy, increasing brand recognition to record breaking levels through effective marketing investment. EBITDA $67.0m $12.3m $11.7m $61.9m $5.5m Operating Cash Flow $15.7m $10.7m $55.8m $12.7m $12.6m $46.9m $4.1m $9.2m $6.1m FY20 FY21 FY22 FY23 FY20 FY21 FY22 FY23 FY20 FY21 FY22 FY23 FY20 FY21 FY22 FY23 Pro Forma Revenue, EBITDA and operating cash flow. Pro Forma EBITDA is before significant items. hipages Group Annual Report 2023 | 5 Our Purpose, Vision & Values hipages Group is inspired and driven by its purpose of transforming the trade industry, building better lives for everyone. Our vision is to be the most trusted partner in the trade industry. Our values define how we act. Our purpose, vision and values continue to guide the Company’s decision making and provide clarity for its team members and customers. hipages Group develops technology innovatively to deliver simplicity and trust to the on-demand tradie economy. As we drive towards our purpose, team members are inspired to live by our values. Underpinned by the hipages Group DNA to ‘Make it happen’, our values are used to assess value-alignment in the recruitment process, guide decision making, assess individual and team performance, and be the cornerstone of our reward and recognition programs. Service Value Innovation We enjoy exceeding expectations We don’t hold back in adding value We constantly challenge the way things are done Collaboration Being Genuine Our DNA We bounce ideas around and respect each other We are real people who breathe life into the brand Make it happen 6 | Annual Report 2023 hipages Group hipages Group’s purpose is to transform the trade industry and by doing so, we believe that we can build better lives for all key stakeholders, being tradies, property owners, partners and our team members. hipages Group Annual Report 2023 | 7 Letter from the Chair Dear Shareholders On behalf of the Board of Directors, I am pleased to present the 2023 Annual Report for hipages Group. It has been another year of strong execution for the hipages Group team who remain intensely focused on delivering the strategy and adapting to changing economic and trading conditions. For our marketplaces in Australia and New Zealand it was a tale of two halves, with H1 still impacted by the post-COVID overhang of unprecedented consumer demand and constrained tradie supply. The team delivered continued revenue growth, while executing key strategic milestones and tightly managing costs and cash. In H2 the Group delivered a substantial improvement in our key metrics, with the business carrying strong momentum into FY24. hipages Group is the #1 online tradie marketplace in Australia and New Zealand, with over 35,000 subscription tradie customers and 1.4 million jobs posted annually. The scale and brand recognition the business has developed over many years of investment is bearing fruit, with tradies increasingly recognising that our platforms offer the highest ROI solutions for lead generation. As the heat has come out of the economy, they have been joining in record numbers. 8 | Annual Report 2023 hipages Group Progress on ESG As a technology company, we recognise that hipages Group is not itself emissions intensive, but we do operate in a sector that has a meaningful environmental footprint. We also acknowledge that sustainability is about more than just climate and carbon. As a growing company, we have chosen to focus our ESG efforts on realistic and actionable steps that can grow with us. We recognise we must build our ESG awareness and maturity and have undertaken a materiality assessment to identify and measure ESG areas that are important to our people, namely climate, diversity and inclusion, data privacy and cyber security. This year we also undertook a gap analysis and started building out a short-to medium-term strategy. You can learn more about our ESG efforts on page 34 of this Annual Report. ACCC undertaking In Australia, hipages uses a subscription business model that we strongly believe is key to enabling us to deliver significant value to our tradie customers. This model includes an auto-renew feature. In May, we entered into an undertaking with the ACCC and have taken action to improve our customer onboarding and renewal processes including increasing auto renewal communications and the cooling-off period to seven days. We have taken this matter extremely seriously and will incorporate the learnings into our processes moving forward to always keep the tradie at the heart of everything we do. Board renewal Board renewal and diversity remains a high priority for hipages Group, and our Board has continued its growth and evolution this year. In December 2022, we welcomed Kate Mills to the Board as an Independent Non-Executive Director. Kate is a commercial lawyer with more than 25 years’ experience in practice and corporate roles, specialising in capital markets, public and private mergers and acquisitions, and corporate governance. This July, Dr Adir Shiffman joined as an Independent Non-Executive Director. Adir is an accomplished technology sector founder and investor with a strong track record of entrepreneurial success and a deep knowledge of technology businesses. In August, we announced the appointment of Kate Hill as an Independent Non-Executive Director and incoming Chair of our Audit and Risk Committee. Kate is an accountant with over 30 years’ experience in audit and capital markets, including over two decades as an audit partner with Deloitte, where she served on the Board of Partners of the Australian firm. The appointments of Kate, Adir and Kate add further capability to our Board as the Company enters its next phase of growth. I would like to acknowledge departing Directors Chris Knoblanche and Stacey Brown, who retired from the Board following the release of our FY23 results. Chris led the Board as Chair through our journey from a private to a listed company and we have benefited greatly from his experience, insight and leadership. Stacey has been a valued Director and Chair of our Audit and Risk Committee since 2020 and is retiring to take up a new executive role. We wish her well in her new role and thank her for her contribution. As we enter FY24, it is pleasing to see hipages Group with such strong momentum and strategic clarity. With a robust balance sheet and no debt, the Company is well funded and well positioned to achieve its organic growth plans. On behalf of the Board, I would like to thank the hipages Group team, led by our CEO and Co-Founder Roby SharonZipser, for their hard work and dedication this year. Thanks also to you for your continued support as valued shareholders. I look forward to addressing you next at our Annual General Meeting in November. Yours sincerely, Inese Kingsmill Non-Executive Chair hipages Group is the #1 online tradie marketplace in Australia and New Zealand, with over 35,000 subscription tradie customers and 1.4 million jobs posted annually. hipages Group Annual Report 2023 | 9 Demand for our services from new and returning customers drove strong MRR growth of 15% in H2 to $6.3 million. 10 | Annual Report 2023 hipages Group CEO’s Report I am pleased to report that hipages Group ended FY23 carrying significant momentum, with the countercyclicality of our model becoming increasingly evident. Having emerged from a challenging post-COVID trading environment, our key metrics and other lead indicators clearly show that as economic activity cools, weaker consumer demand is driving greater competition among tradies, which is directly benefiting us. A slower H1 did impact revenue growth due to our subscription model, however MRR growth accelerated strongly in H2, up 15% vs the pcp to end the year at $6.3 million (inclusive of GST). Total revenue for FY23 was up 8% to $67.0 million (see Figure 1: MRR growth rate back to pre-COVID levels). Demand for our services from new and returning customers remains at remarkably high levels, with subscription tradies growing by 3% to 35,700, as tradies continue to join at record yields and ascend to higher-priced packages. This drove strong ARPU growth of 10% to $1,870 or 11% to $1,985 for the core hipages business in Australia (see Figure 2: hipages (Australia) subscription tradies return to growth). Job volumes normalised from the exceptional highs of the prior year, down 13% on the pcp. More importantly, total connections between tradies and consumers – which represents when tradies accept a job lead and use lead credits – were up 8% in H2. This greatly improved the experience for our consumers, who posted over 1.4 million jobs on our platforms in FY23. EBITDA before significant items increased by 14% to $12.3 million, with enhanced operating leverage driving the EBITDA margin up 1ppt to 18%. The Company was free cash flow positive in the second half, marking an important milestone. For Builderscrack, our New Zealand business, FY23 was more challenging, with a difficult macroeconomic environment and severe weather events impacting Builderscrack’s transactional model. This resulted in the recognition of a $3.1 million impairment against goodwill. With revenue down 4%, the team did a great job to deliver a 21% EBITDA margin. Leveraging our experience with hipages in Australia, we are transitioning the business to a subscription model and we expect performance to improve as we step up our investment in sales and marketing. During the year, Bricks+Agent re-branded to Proptech Labs and became the ANZ market leader for property management productivity software. The business continues to deliver strong growth and the latest fund raise demonstrates the valuation has increased by 70% since we originally invested $6.25 million for a 25% share in FY22. Strategic evolution from marketplace to platform While the countercyclicality of the hipages Group business model is favourable in the near term, we are evolving from a marketplace business to a single tradie platform to reduce our exposure to the economic cycle and open up new opportunities for growth. We believe the growth opportunity from this evolution is substantial, with enhanced customer retention and a range of future expansionary revenue opportunities delivering significantly increased customer lifetime value. Critical to this is Tradiecore, our end-to-end job management SaaS solution to help tradies run better businesses. The next step in this evolution will be the integration of the full tradie workflow, currently managed through two separate applications, into a unified platform. Once complete, our customers will be able to complete an entire job, from lead claim to completion and payment, within a single app interface, significantly removing friction. Users will also have access to a dashboard that will provide detailed ROI metrics. Over time, the rich data we receive from Tradiecore will provide us with powerful insights to further enhance the user experience for tradies, as well as develop new products and services for consumers to drive future growth. This year we rolled out new Tradiecore features and functionality alongside accounting system integrations with Xero, MYOB and QuickBooks. Our payments feature developed with Stripe went live in H2. Currently, of our more than 30,000 tradie customers in Australia, approximately 1,000 regularly use Tradiecore to manage their workflow. This represents an exciting opportunity for us to migrate our existing customers onto the platform, as well as attract new customers who don’t currently use hipages for lead generation. hipages Group Annual Report 2023 | 11 CEO’s Report continued Figure 1: MRR growth rate back to pre-COVID levels Post-COVID home improvement boom NSW COVID lockdowns 5.2 5.6 5.5 5.3 6.3 4.6 13% H1 FY21 13% H2 FY21 12% 2% 2% 2% H1 FY22 H2 FY22 H1 FY23 MRR ($m) HoH growth (%) H2 FY23 Figure 2: hipages (Australia) subscription tradies return to growth 32.3 31.2 31.3 30.9 30.8 8% 28.8 5% 1% 3% H1 FY21 1% - H2 FY21 H1 FY22 Subscription tradies (000's) 12 | Annual Report 2023 hipages Group 2% - H2 FY22 H1 FY23 HoH growth (%) H2 FY23 Tradie Advisory Board A winning team To achieve our purpose of transforming the trades industry to build better lives for everyone, we need to have a deep understanding of the key issues facing the trades industry. As always, our success this year has been the result of an incredible effort from the entire hipages Group team and we thank them for their continued dedication, innovation and drive. To extend our efforts in this area and enhance our ability to design effective solutions, this year we launched our inaugural Tradie Advisory Board, comprised of eight tradies drawn from around Australia. This Advisory Board will have a direct line into the hipages Group management team and report to the Board, providing us with an invaluable opportunity to listen, learn, and collaborate directly with the people who inspire our products and services. Together, we will tap into the expertise and insights of this group to drive innovation and deliver even greater value to our customers. We are delighted to have retained our position as one of Australia’s best places to work, being ranked #3 in the 2023 WRK+ Study. Our leading-edge wellbeing and financial benefits won us the Smart50 Best Salary and Benefits award for 2023. This recognition validates the strong culture we have worked extremely hard to build, which has contributed to our high employee engagement of 87%. Targeting positive free cash flow in FY24 With the business firing on all cylinders and our strong trading momentum continuing, the outlook for FY24 is positive. Our subscription model gives us great visibility over future revenues, and our disciplined focus on managing costs gives us confidence in margins. Having delivered positive free cash flow in H2 FY23, we reached a major milestone for the business. Looking ahead to FY24, we are targeting positive free cash flow. We have a highly efficient and scalable operating model which has the potential to deliver enhanced operating leverage and margin expansion over time. I am extremely excited about the future of hipages Group. We have had a strong end to FY23 and we are carrying significant momentum into FY24. I look forward to reporting back on our progress throughout the year. I would like to thank the hipages Group team for their hard work and passion this year, and the Board for their guidance. Thanks also to you, our fellow shareholders, for your continued interest and support. Yours sincerely, Roby Sharon-Zipser CEO and Executive Director In FY24, we are targeting revenue growth in the low teens, with an EBITDA margin of approximately 20%. In the medium term, we are targeting revenue growth in the mid teens, with EBITDA margins of greater than 25%. hipages Group Annual Report 2023 | 13 Tradie Advisory Board Tradie Advisory Board is the first of its kind in Australia Provides a dynamic voice of the customer to validate strategy and inform our product roadmap, feature development and user experience. Darcy Stewart, Advisory Board member “I’m looking forward to making an impact on the way tradies work with customers, as well as helping a business that has helped me so much with mine.” Fabricio Siquera, Advisory Board member 14 | Annual Report 2023 hipages Group Advisory Board Members include (L-R): Darcy Stewart – Stewart Electrical Group (NSW), Hugh Boland (seated) – All Things Air Conditioning (ACT), Omar Alayoubi – OMZ Painting (VIC), Fabricio Siqueira – Architect & Design (VIC), Andrea Zappacosta – AZ Cleaning & Property Services (WA), Tim Rosenzweig – That Appliance Repair Guy (SA), Anne-Marie Tomson – SkillSmart Plumbing (QLD). Advisory Board member not shown: Shannon Hawke – Myadel Aluminium Specialist (NSW). hipages Group Annual Report 2023 | 15 Key Milestones 2004 2020 • hipages launches as a directory product • Strategic acquisition of Call of Service 2012 • Pay-per-lead product launch • IKEA partnership commences 2015 • NSW Department of Education Local Trades Scheme launch • Move to subscription-only model • Listing on ASX as HPG 2021 • Strategic acquisition of Builderscrack NZ • Strategic investment in Bricks+Agent • Launched Tradiecore • One-millionth job posted on the platform • hipages Group named #2 Best Place to Work 2016 2022 • News Corp Australia strategic investment in hipages • 100% of customer base on subscription 2018 • Bunnings partnership commences 2019 • Five-millionth job posted on the platform • Ten-millionth job posted on the platform • hipages Group again named #2 Best Place to Work 2023 • Exclusive managed service partnership with IKEA kitchens • 11-millionth job posted • Launched payments solution via Stripe • Tradiecore – new features including payments solutions, and accounting software integration • Continued tech platform modernisation • H2 record levels of revenue growth • Bricks+Agent strategic evolution • hipages Group named #3 Best Place to Work 16 | Annual Report 2023 hipages Group Business Review hipages FY23: a tale of two halves for hipages The start of the year was marked by record consumer demand and an unprecedented backlog of jobs upon the lifting of the last COVID restrictions. The resulting tradie shortage translated into marketplace imbalance and our customers being busy from other sources. Pleasingly, hipages continued to deliver strong ARPU growth over that period (+12% in H1 vs pcp), with stable subscription tradies. The second half saw a rapid change of tide amid a softening macroeconomic environment. Consumer demand began to normalise, resulting in increased competition between tradies. This return to marketplace balance drove subscription tradies growth (+5% in H2 vs H1) as both new and returning tradies came to our platform looking for work. By the end of June, MRR was up 15% vs pcp. This shows the defensiveness of our core marketplace business, being able to deliver a strong performance in a cooling business environment. Yield growth supported by record marketplace activity The return to marketplace balance resulted in a record number of tradie/consumer connections in H2. More connections result in tradies consuming their subscription credits faster, triggering ascensions to higher priced subscription packages. Another driver of ascensions was our continued optimisation of lead prices where our algorithm prices jobs according to their characteristics including job type, location, time, and tradie demand. New tradie customers also joining at higher price points also contributed to hipages’ ARPU growth, with new business yields up 26% on the pcp. Enhanced user experience The return to marketplace balance not only drove higher lead credit usage by tradies, but also translated into a better experience for consumers, with 84% of jobs posted resulting in at least one tradie connection (up 14% on the pcp). In total 4.2 million unique users have posted a job on hipages, making us the market leading online marketplace for home improvement jobs by a wide margin. Brand authority hipages continued to establish itself as the brand authority in the on-demand tradie economy. The Company continues to invest in paid and earned media with solid results. For the fourth year in a row, hipages was a major sponsor of The Block on Channel Nine. The program was frequently the highest rating entertainment program on Australian TV, with the finale attracting the highest non-sport audience for 2022. A sustained focus on PR delivered several high-reaching campaigns to reach the tradie and homeowner audience. On the consumer side: As a result of this continued brand investment with the homeowner segment, hipages is the first brand that springs to mind for 26% of homeowners aged 35-55 years when it comes time to hire a tradie, ahead of the likes of Google and Facebook.10 The following brand metrics have also seen solid year-on-year improvements: • Total consumer awareness at peak levels of 67% (+6pt pcp)10 • Consideration improved to 45% (+6pt pcp)10 Other benefits from higher consumer brand awareness were: • Jobs from unpaid channels 80% (+2% pcp) • Attracting more than 320,000 new customers • 72% of the jobs posted were from returning users (+4% pcp) • Jobs via the app increasing to 34% by the end of FY23 (+2% pcp) On the tradie side: As a two-sided marketplace it is equally important to build brand strength with the tradie audience. During FY23, hipages invested to build brand equity with tradies via audio advertising (radio and podcast), online video, PR activity specifically targeting tradie audiences and social media campaigns. Our key tradie brand metrics saw improvements during FY23 being: +15% June MRR vs pcp $1,985 Average revenue per user FY23 (+11% YoY) 2.6m Tradie/Consumer Connections (+6% YoY) 68% Tradie Brand Awareness (+1% on pcp) • Total awareness increased to 68% (+1% pcp)11 • Consideration grew to 39% (+4% pcp)11 This brand growth has been a determining factor in securing record levels of tradie sign-ups to the hipages platform in H2 FY23. 10. Independent research conducted by Thrive Insights amongst homeowners 35-55 June 2023 n= 576. 11. Independent research conducted by Thrive Insights amongst tradies June 2023 n=398. hipages Group Annual Report 2023 | 17 Business Review continued Builderscrack – New Zealand (fully owned subsidiary of hipages Group) Despite a difficult macroeconomic environment and severe weather events in New Zealand, Builderscrack saw strong tradie engagement in the marketplace. The strategic evolution continued as Builderscrack moves toward a full subscription model from FY24. 3,400+ Paying Tradies 82,000+ Jobs posted 18 | Annual Report 2023 hipages Group Significant tradie growth Without any spend on tradie marketing, we saw a record number of tradies sign up to the platform in FY23 with a significant 39% increase in trade verified accounts over FY22. Foundations for full subscription We retired our legacy Profiles Premium and Leads Unlimited subscription offering in FY23. This is part of our strategy to move tradies from a mixed model (success plus subscription) to a single subscription offering. Investing in Marketing and Sales FY23 saw significant investment into rebuilding of our SEM campaigns (for consumers) and building of a sales function (for tradies). New office, New strategy In FY23, we moved into a new office to accommodate our single full subscription and revenue ambitions by supporting sales, marketing and engineering team growth. Proptech Labs Evolving from property manager into the ANZ market leader property tech solutions. Bricks+Agent re‑branded to Proptech Labs following the acquisitions of Main