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Thank you for standing by, and welcome to the Urbanise.com Limited Q2 FY 2022 Teleconference. [Operator Instructions] I would now like to hand the conference over to Mr. Almero Strauss, Chairman. Please go ahead.
Good afternoon and thank you for joining us for the presentation of Urbanise's Q2 FY 2022 results. With me on the call today is Simon Lee, our Interim CEO and CFO. Urbanise has reported a solid Q2 revenue result, which Simon will cover in more detail shortly. For the first half, we recorded 25% growth in total recurring revenue versus the previous corresponding period of PCP. This growth was driven by new contract wins and higher revenue from existing customers due to annual price increases and increased utilization of our platforms. Urbanise will release its audited H1 FY 2022 results in late February when we will provide further information on annualized recurring revenue and backlog. Urbanise also delivered strong license fee growth in the December quarter, but the 4C also shows a significant increase in cash outflow due to several factors that I would now like to address. Firstly, these related to payments associated with the departure of urbanizes CEO in mid-December. This is a considered decision taken by the Board, which we believe is in the long-term interest of the company. Saurabh Jain made an important contribution to Urbanise during his 3 years as CEO, and we are grateful for his hard work in turning the company around. Maintaining a positive culture in a rapidly growing business is critical to delivering sustainable growth and the board ultimately concluded that a different leadership style was needed for the next stage of our journey. We believe Urbanise can manage the transition to a new CEO because of the depth we now have in the management team with strong leaders in place across all areas of the company. In addition, Simon Lee, our CFO and Interim CEO, has a deep understanding of our customers, our strategy and the key drivers of our business. Since joining Urbanise in July 2019, Simon has been responsible for transforming our working capital position, embedding key systems and that have supported Urbanise's revenue growth. We also have strong customer relationships across the business and there has been no significant impact on our customers or team as a result of the CEO's departure. The Board also continues to work closely with the management team monitoring the execution of our strategy, our sales pipeline and cash forecasting, all of which gives us confidence that we can manage this transition well. The Board will go through a considered process to appoint a new Australia-based CEO and has already begun an internal and external search. We are looking for a well-rounded leader, who can build a strong culture and scale a global SaaS business. Board expects the incoming CEO to bring fresh ideas and a different perspective to the company, but does not expect there to be a wholesale change to our current strategy. We believe this is an interesting opportunity for the right candidate given Urbanise's strong market positions and leading products. Our Q2 cash outflows were also affected by higher-than-usual recruitment costs due to a tight labor market and termination costs relating to the downsizing of our sales team. This reflects changes in our FM go-to-market strategy as we determined that we could scale FM markets in the Middle East and Australia with a smaller sales headcount than originally forecast. This is not expected to impact the FM opportunity and the remaining sales team has strong networks and experience with FM outsources, asset owners and strata managers. Board continues to closely monitor pipeline growth, which contains opportunities similar in size and in nature to contract urbanizes implemented in the past. The appointment of Paul Mitchell as Chief Revenue Officer in October 2021 has brought additional sales [indiscernible] and has already implemented improvements to minimize sales conversion time frames. Finally, managing our cash flow remains a key strategic priority for the Board. We believe that Urbanise has the resources available to get to cash flow breakeven based on tangible sales advanced pipeline opportunities and cost management initiatives. These are expected to reduce cash burn by up to $2.5 million over the next 3 quarters. However, we are disappointed with the cash performance this last quarter. There is a good momentum in the business and we are confident we have the cash runway necessary to capture the large and growing addressable market opportunities. I will now hand over to Simon to go through the Q2 results.
Thank you, Almero and thank you all for joining us this afternoon. I will first talk to the H1 results and then honing on the quarterly results. Our total revenue growth for the half year to 31 December 2021 with 11% on PCP, driven by 25% growth in license fees. FM license fees increased by 20% due to ongoing demand for our combined Strata facilities platform in the Middle East. New contracts with FM outsourcers and aged care providers. Strata license fees increased by 28%, reflecting a full half benefit from the successful implementation of major contracts in Australia and the Middle East as well as new and existing customer growth. Professional fees for the half were 32% lower on PCP as H1 FY 2021 professional fees benefited from an above average uplift due to 1 project. This half's professional fees were also lower due to the negotiation of fixed pricing arrangements for 2 large projects. These fixed fees allowed for the earlier recognition of license fees, which have typically been recognized from go-lives. Under these arrangements, license fee recognition begins when data migration occurs, which is sometime before go-lives. In Q2 FY '22 revenue performance largely reflects my commentary for the first half. So recurring license fees were 21% higher than PCP due to the inclusion of license fees from Nakheel for a full quarter, new contract wins and existing customer growth. Professional fees was 35% lower than PCP, reflecting my previous comments on above-average fees last year and the fixed pricing arrangements for this quarter. Our closing cash for this quarter 2 was $4.73. And the average cash use was $695,000, which was significantly higher than Q1, which was $334,000. Reasons for the increase include several exceptional items. Termination costs relating to the outgoing CEO and sales staff totaling $327,000 and STI for the outgoing CEO of $144,000, which was related to his FY 2021 performance, but only paid this quarter. Late receipts of $342,000 from the large Middle East customer. These were due in December, but were paid in the first few days of January. Finally, we incurred recruitment costs of $193,000 for replacing implementation and development resources. We have seen some impact in recent months in general wage growth in Australia and a tight labor market. Our underlying cash burn on run rate adjusting for these items is $360,000. Looking forward, we have several specific sales, cash in advance and cost initiatives are expected to deliver a reduction in cash burn of up to $2.5 million over the next 3 quarters. These are tangible transactions and deals we are working on with customers and vendors. Importantly, we have the resources and appropriate levers in place to be able to get to cash flow breakeven. In addition, our sales team continues to work on our pipeline -- our total pipeline opportunities. We continue to have strong support from our customers, who remain committed to urbanize, reflecting the mission-critical nature of our platforms. Our global team remains engaged and continues to work closely with our customers and on developing our pipeline of opportunities. The team is supported by a committed executive, which includes myself and Paul Mitchell, our Chief Revenue Officer. I will now hand it back to the operator to open it up for any questions.
[Operator Instructions] Your first question comes from Shuo Yang from Microequities.
Simon, can you sort of talk to the size of your FM and Strata pipeline? If you look at it today versus, say 12 months ago, obviously knowing that PICA was in your pipeline previously to be sort of going to get more detail on the pipeline?
Yes. We don't disclose the value of the pipeline. But in terms of the size of the pipeline over the last 18 months has grown in our core markets, the Middle East, Strata and combined FM. And the nature of that pipeline there is very similar to the types of projects that we've implemented in the last 18 months. In Australia, we've seen an increase in pipeline from small to mid-tier Strata managers. Similar to our portfolio, again that we've implemented over the last, I guess, a longer period of 3, 4 years. And we've seen an uptick in pipeline with our FM outsources and some asset owners in the [indiscernible] space. So certainly from a year ago, we have increased our pipeline. And in terms of that qualified pipeline, we think there's some good opportunities there.
And you mentioned that the -- you had sales have put in initiatives to reduce the the conversion time frame of some of these deals? Can you sort of just go into more detail on what practically.[indiscernible].
When you're looking at sort of bigger deal sizes, there's a lot more hurdles that you can encount to close a deal. And so Paul has been focused on, I guess, removing as many of those sort of hurdles as possible. So navigating many of the stakeholders, whether it's just making sure that we are on the front foot with our compliance requirements, explaining our infrastructure to customers for having very clear pricing that's closely matched to where we think the customer will want to land. And of course, in the sort of smaller space, there are more things that we can do around marketing that make it very clear around what our product does. So there's quite a few initiatives that pause put in place in the short time has been with us that they've been quite effective.
Okay. And in terms of the sales headcount, should we take that you want to sort of keep things, keep your head count where it is for now and see how your progress with some of these deals and then down the track actual things improve? Is that how you sort of want to manage the business for there?
Yes. The sales team, as it is now, is well placed for our markets. So they have a good network now with -- for the various platforms and the various types of customers we deal with. We've got very good relationships with the FM outsourcers. We know who they are. They know who we are. We've got -- we developed some good leads and good spaces to being with trade shows. So we've got a good-sized team for the markets we're in there.
[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Strauss for closing remarks.
Thank you. I want to thank you all again for your time this evening. Despite the challenges of the December quarter, we believe that Urbanise is well placed to deliver long-term sustainable growth, which reflects our high customer retention, innovative platforms and growing sales pipeline. The Board and management team will continue to work hard to execute on our strategy and progress towards cash flow breakeven. We look forward to updating you on the business at the first half results in late February. Many thanks again, and good evening to everyone.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.