T
Tribe Property Technologies Inc
XTSX:TRBE
Tribe Property Technologies Inc
XTSX:TRBE
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Thank you for standing by. This is the conference operator. Welcome to the Tribe Property Technologies Second Quarter 2023 Results and Corporate Update Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Shobana Williams, Vice President, Investor Relations. Please go ahead.
Thank you, Sheri. Good afternoon, everyone. Thank you all for joining us today. On our call today, we have Tribe CEO, Joseph Nakhla, and our CFO, Jim Defer. Yesterday, after market closed, Tribe issued a news release announcing our financial results for our second quarter 2023. This news release is available on Tribe's website under the Investor Relations tab and is filed on our SEDAR profile.
Please note portion of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Forward-looking statements that are based on management's current views and assumptions and that is that -- this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements that is appended to our news release.
Please review our press release and Tribe's reports filed on SEDAR for various factors that could cause actual results to differ materially from the projections. We use terms such as gross profit, gross margins, adjusted EBITDA and MRR on this conference call, which are non-IFRS and non-GAAP measures. For more information on how do we define these terms please refer to the definition set out in our management discussion and analysis.
In addition, reconciliations between any adjusted EBITDA and net income is included in the press release this morning. The company believes that adjusted EBITDA is a meaningful financial metric as it measures cash generated from operations, which the company can use to fund working capital requirements, service future interest and principal debt repayments and fund future growth initiatives.
Adjusted EBITDA should not be construed as an alternative to net income loss -- or loss determined in accordance with IFRS. Please note that all financial information is provided in Canadian dollars unless otherwise noted.
Following the prepared remarks by Joseph and Jim, we will conduct a Q&A session, during which questions will be taken from our analyst. With that, I will turn the call over to Jim Defer, CEO (sic) [ CFO ] of Tribe, who will review our Q2 financial results. Jim, please go ahead.
Thank you, Shobana. And good morning or good afternoon, everyone. Despite the market challenges, Tribe once again delivered strong financial performance in Q2 2023, with a record revenue of $4.82 million an increase of 11.3% compared to $4.33 million in Q2 2022. First half 2023 revenue was $9.48 million an increase of 11.1% compared to $8.54 million for the first half of 2022. Gross profit for the second quarter of 2023 was $1.96 million compared to $1.70 million in the second quarter of 2022, an increase of 11.5%.
First half 2023 gross profit was $3.78 million compared to $3.53 million for the first half of 2022, an increase of 7.1%. Gross margin percentage improved to 40.6% in Q2 2023 compared to 39.2% in Q2 2022. In terms of adjusted EBITDA, adjusted EBITDA for the second quarter was an outflow of $2.21 million, an improvement compared to the outflow of $2.43 million for the second quarter of 2022. First half 2023 adjusted EBITDA was an outflow of $4.07 million compared to an outflow of $3.91 million for the first half of 2022.
Slide 4. As of June 30, 2023, we had available cash balances of $3 million. I am also pleased to advise that we are currently negotiating a debt facility to provide non-dilutive capital to further fund our growth, details of which will be shared once solidified and signed. This year, we are also dedicated to improving profitability by reducing costs and optimizing efficiencies within our operations. During the second quarter of 2023, we implemented additional cost reduction strategies, which included employing process improvements, cost optimizations, head count reductions and our continued consolidations of our back-office systems.
We expect these expense reductions will benefit Tribe's financial performance in the second half of 2023. We remain excited about the company's growth prospects and continue to be committed to improving our profitability, while increasing revenues and strengthening our market leadership position.
That concludes our financial update. I will now pass the call off to Joseph Nakhla, our CEO.
Good morning, afternoon, everyone. Thank you, Jim and team. I am pleased to come to you guys with quite a bit of activity that we've been doing for the last while here. We'll start obviously with perhaps one of the bigger pieces of news, we've put out in recent weeks, which is the acquisition -- or the announcement of the acquisition of Meritus Group Management Inc., which is a great condo management company in the operating out of the heart of the GTA. Anybody that had been listening to us will know that this is an area that we really wanted to be active in. We have a large number of developer partnerships and the many groups that are building a fantastic master client communities in the GTA, and we needed to backfill that demand by having that boots in the ground and expertise of the GTA market in addition to all the licensing and compliance requirements.
We were able to identify a fantastic partner in Meritus and its executive team and its leader, Dean McCabe, who after well-spirited negotiations concluded the acquisition. And as announced yesterday, this will add an additional 5,000 homes under management. The company comes with more than 20 years of expertise in the Toronto and Cambridge area, immediately, obviously, for Q4, boost our revenue in addition to the fact that this company is generating cash.
So it kind of takes a number of the key things that we look for in acquisitions, most importantly, in this case, good people and great presence in the market that we wanted to have a stronger footprint. This is also for those that are new to our company. This is about our 12th acquisition to date. We continue to be very strong in the way we identify these opportunities, negotiate the structure for these opportunities. And integrated opportunities within our mid- by way of bringing in our technology and improvement of gross margin activities.
We've been busy in Q2. Obviously, as Jim has indicated, a record revenue quarter for us. We -- for those who have been watching us for the last -- or through COVID essentially, we've been indicating that there was some challenges for a lot of developers to complete their condo and rental buildings, and as I indicated that we're seeing an ease of some of these difficulties in the past, while with this release slide just kind of illustrates what I was referencing -- we've got 8 new property developers that kind of brings us in the first half of the year to 14 new real estate developers that have signed agreements with us, with 9 software licensing yields. This is essentially our Tribe Home Pro platform that digitizes the community and provides the developers with a long list of tools that are needed through construction to completion or post completion.
And that brings us -- these 9 new ones bring us to 14 new license agreements for the first half of '23. 10 projects, this is a brand new condo projects using the Tribe Home Pro software on-boarded -- on-board means completely digitized and began generating revenue for us. And then for existing communities, there's 15 new license deal. So those 15 essentially brings us to a total of about 20 new MRR, new communities for us that came through the first year -- and then finally, we've fully on boarded 8 communities to begin management in Q2 that we haven't really seen the results from a revenue point of view to Q3, but they're fully on-boarded and ready to start generating MRR for us.
What's that really mean? It means approximately a growth of about 11% year-over-year. But it also means that really record revenue per customer, it's a very important metric that we keep an eye on, and you'll see it on the right-hand side of the slide, this is our MRR and we continue to drive that number in the right direction. It's a function of our ability to generate more revenue for customers due to the number of services that we offer and the stickiness of our service delivery, and we see -- we do not see that slowing down at all.
And actually, we're quite proud of the work that's been done by the team. This is also a function of us really, as mentioned earlier by Jim, honing down on our profitability profile, and that comes with a function of really identifying potential problematic revenue line items or potential customers that are not generating as much revenue from a cost of goods point of view that are too high in that area, and we're actually rationalizing some of these relationships to ensure that we continue to drive value to the bottom line.
For those that are new to our company, I'd just remind you that we do have 3 major revenue streams. Our software and service. This is a very sticky MRR business or monthly recurring revenue business. And that is also a record for us -- for this quarter, approximately $4.2 million in Q2 up about 10.2% compared to $3.8 million in Q2 2022. Second bucket of revenues essentially is what we call in-app transactions. It's our ability to generate revenue from homeowners and/or communities that are on our platform, it could be financial services, what have you. We're looking to really give that a massive shot in the arm due to the size we're in now.
Now that we are operating in 8 markets with a sizable approximately $250 million of funds that we manage on behalf of our customers. We're now accumulated one of the largest essentially financial platform that we can go out and negotiate with the big banks. To deliver value for our customers. So this would be the ability to lower operating costs for our condo partners in addition to generating revenue for us.
Due to especially group buying power that we've been able to accumulate across the country. So it watches to be active there for the quarter, we had a stable essentially recurring revenue through our transactional side. And then finally, we have a digital service and partnership revenue. This is our ability to leverage our more than a 100,000 plus homeowners and deliver products and services in our marketplace in addition to digital services offerings.
And with that, we're quite pleased to see a massive increase with almost more than 400% increase year-over-year, and that's probably a major function of, a, the marketplace is up and running and well populated and continuing to add to it; and b, the addition of brand-new communities being finalized, whereby homeowners are coming in, not only is it our software, but also identifying good partnership services that we can actually leverage for the new home.
In summary, we kind of put together 5 key points in terms of our plan for 2023. Obviously, one is increasing our monthly recurring revenue, and we've achieved approximately 11% of that year-over-year and for 1 half to the other, the second half of 2023, expand our acquisition pipeline. Obviously, with the announcement of the GTA great company at Meritus that we just announced. We've made a strong move there. However, we're still very active in terms of current M&A deals that we're looking at. Drive efficiencies in the business.
And Jim alluded to the fact that we've got a number of cost reduction strategies, but we're not only stopping there. We're also starting to identify significant amount of essentially bottom line initiatives that help us both on the revenue side and on the gross margin side that we've initiated, and you'll start seeing results of that in Q3 and Q4 really in the second half of the year.
We'll continue to invest in our software platform. We've deployed some fantastic features and the feedback on them has been great. Especially when it comes to more tools that allow us to manage more communities with less compliance in terms of human resources and management. We still have a long way to go. It's a greenfield essentially. As any of you that have experienced property management will identify a lot of areas of living experience improvements, and we're just scratching the surface on that.
But we've also made some investments like sizable investments in things like bring in all of our 12 acquisitions under one accounting system and one full integration with our platforms. These are monstrous activities that really deliver us and make us one of maybe one or -- essentially one of two companies across the country that are fully integrated that can deliver both rental and property management services from coast to coast in Canada.
And then finally, focus on -- to continue to drive additional digital services revenue. I mentioned just recently that we've added 14 new developers with a large backlog of brand new communities that are scheduled to come into our platform within the next essentially years to come. As I've mentioned earlier, when we sign deals, we tend to sign master plan community deals, this could be 5,000 to 10,000 community homes that are going to be built over 5 years, 7 years, and we just basically as the developer delivers and we start deriving MRR from each one of those.
In addition to that, you'll see us continue to be very active with really interesting products and services I mentioned earlier, the financial services group buying power that we've got, where we can digitize almost $0.25 billion annual spend on behalf of our communities through the proper banking rails and generate more revenue for our reduction of costs for our homeowners and communities.
In addition to driving direct transaction revenue to the bottom line for the company. Instead to provide a bit of a growth outlook, yes, there's inflation, yes, there's interest rate hikes and new construction trends with increase of cost. We just don't see a whole lot of signs of business downturn. A lot of our business is booked already for the future has to be built and shovels are on the ground. We really like our profile from a Q3 point of view, a lot of new construction projects that are already signed and ready to be delivered. Very, very healthy pipeline with record proposals. This would be when we essentially have the existing communities anywhere in the country that are seeking a new property management offering. They don't want to use the traditional model that they've got -- so they elect or choose to come to our model.
We've never had as many proposals out as we've had. And you'll have heard me speak about us from as little as 22% close rate on those proposals as high as 35%. And we continue to see massive word of mouth increase in our lead generation. And we will continue to execute on our cost saving strategies. We're not doing that. We understand what the Street needs to see -- and we feel now that we've made the big investment in our national footprint and the ability to drive and lower our cost per lead and cost per acquisition. We'll now start to leverage that footprint and both geography and digital footprint that we've got to get us closer to EBITDA based on track as we've discussed.
And we continue to be very active with M&A, and you'll see us be more -- you'll see us be more active in -- now with the national footprint, now that we've done a key transaction in the GTA market. This concludes my remarks and happy to hand it over to our operator, and see if there's any questions.
[Operator Instructions] Your first question comes from Fred Blondeau with Laurentian Bank Securities.
Thank you, and good day, everybody. Congratulations on the quarter and the Meritus acquisition. Just looking at gross profit margins of 40% for the first half of this year. I was wondering if you had an internal target for the second half of this year? Or if you could give us a sense of what we should expect on that front for the remainder of 2023?
Hello, Fred. Thanks for your question. We see an improvement of that gross margin. We're obviously unpacking some of the -- haven't closed the Meritus yet, and that will have a slight impact on our gross margin of Q4. So to answer your question specifically, we see a continuous improvement based on our current population of customers in Q3 and the effect of Meritus will probably stabilize us around between 41%, 42%.
I do think with the activities we're embarking on especially with the financial services and digital services that we're offering, I can see us getting to 45%. So at this run rate movement going into the new year. But I have always mentioned from day one that I think a national well-integrated organization will be operating at north of 50%. Okay.
That's great. And then more specifically on cost reduction. I was wondering what has to be done this year? And do you feel the focus will be to be fully optimized this year or there might be a spillover, if I may use that word, in 2024. In other words, I guess what I'm trying to know is whether we should expect a rather clean Q1 number especially in regards to cost reductions?
Yes. That's a good way to describe it, actually. It's a good visual way to describe it. I think Q1 will be a well -- well-oiled machine. That's our goal. We've got three major initiatives internally to our tech and back-office integration that I think are going to deliver massive value and one is a strong revenue, bottom line revenue driver. We anticipate all of those to be completed and again, well-oiled this year. Our absolute focus of next year is driving dollars to the bottom line and being very strong to leverage the national footprint that we built. So not a bad way to describe it, this concept of expecting a clean Q1 next year.
Okay. That's great. And then maybe one last for me. In terms of development projects, you kind of alluded to it in your formal presentation. I remember when we started the year, you were seeing quite healthy activity levels. At least when you reported Q1. So I was wondering what are your views at the present time on that front?
Yes. And Q2 accelerated significantly from Q1, you'll see the numbers have improved significantly. Q3 has been very strong. Maybe a touch of I call them, summer delays, which is just pure getting occupancy permits for some of the communities, but nothing too concerning. I mean buildings are completed, ready to go.
Just really, we can't kick in with our MRR. There are some things that are already generating revenue for us. But to get the big MRR number from some of these communities, we literally need people to move [ back ]. We're looking at a very, very healthy Q3 and Q4 obviously, tough to envision what the world looks like for 2024. So far, based on our schedule of completion, we actually -- we do not see that slowing down at this point, despite of what we're hearing in the Street in terms of a lot of developers are kind of slowing down their plans.
I think what we're really seeing is slowing down in plans in terms of maybe for 5-year project, 6-year project with the uncertainty up in the air right now. Other than that, I do not see us really suffering any delays in the next 2 to 3 years.
The next question comes from Kiran Sritharan with Eight Capital.
Good morning, guys. Congratulations on the quarter, and welcome to the neighborhood. I'll start here with Meritus. Can you comment on their portfolio and the capacity with the current property managers. I mean, essentially, do you see any near-term step-up in hiring and investment as you target the new communities here in the GTA?
Yes. Thanks, Kiran. That's a great question. Just to add a little bit more color with Meritus, we've got a solid base of GTA, very solid and sticky business. They have very, very low churn compared to traditional property management companies that we've -- we're constantly looking at. And that's just really a function of great leadership and strong management, Dean, it's Kudos to the team there. So we really like that profile. We like the GTA presence, we like how it overlaps with a large number of real estate developers that we work with and where they're building from a footprint point of view, where we had, frankly, blind spots or weaknesses.
So I think that really satisfied a lot of or fix a lot of the boxes that we needed. In terms of capacity, we do think there is -- there's experience capacity. We do think there's human capacity in that market. For those that don't know, there's a massive shortage. This is a, I would call it global, but certainly a Canadian problem. All the licensed markets mainly Ontario and BC are running really, really short and identifying and finding property managers that either graduate from the program and/or or experience with -- that they need to go get license due to new regulations that have come in and some of them will just elect to retire.
So to quantify that number, the -- over the napkin or behind -- on a napkin kind of rough numbers. DC is approximately 350 licensed property managers short. Ontario is in excess of 1,000 short. So what we've done as an organization has created a really, really fantastic environment, where we actually hire customer success, individuals, we try to make them fall in love with the industry, especially with the digital tools that we have.
We actually aid them to be licensed and become property managers themselves. And the relevancy of that is the Meritus and the GTA acquisition we just made really will leverage our ability to keep generating more and more property managers there for extended capacity. So a quick answer, this is a bit more colorful answer, but the quick answer is, there is some capacity there. We do have more demand for our services in that market than we had been able to satisfy and the Meritus acquisition will help us identify some of the low-hanging fruit in that market and start going after it.
That's helpful too. I'll ask one more here. On the -- it seems like the number of developer relationships signed in the first half year has already outpaced all of 2022. Just curious if you can unpack the strength as to why you're seeing it in the first half. Is there any geography or other to call out?
Yes, it's a very good question. I think digitization call-out is probably more than geography call-out. I think you got to think of developers, and it's a tough business to begin with. Obviously, it's a lucrative business, but it's a tough business. You got to think of them as they go out, they identify opportunities. They get a rezoned and they decide to build these communities. And then they really start focusing on tools on operations of this community as well -- deep into that process.
When things get tougher and you're no longer like over the last 10 years, if you had delayed as a developer, it actually often turned out to be a good thing. You had a delay in instead of selling it at $900 a square foot you were selling at $1,000 a square foot, completely found money. You weren't necessarily planning on it, but just the dimensions of the market.
But in the market with a higher interest rate with significant amount of competition and arguably more difficulty to find even human capital to help you get it over the line. you really need to start looking for digitization, new heavy lifting to lower your cost per square foot delivery. And we just sit in that beautiful sweet spot for that. So before, it was more like maybe it's nice to have or cool to have we always made an argument and we had the data to show that we can decrease your completion from a human resources point of view as a developer by 40% or up to 40% in terms of lowering your cost for human resources because we have so many digital tools that can make that a really, really easy experience.
Now at 40%, when you're competing between what used to be $1,000 a square foot, and now you have to sell at $850 a square foot. All of a sudden, that's a significant dollar. And I think kudos, to our sales team for being able to illustrate that and I'll also kudos to our technology for being able to show that we can lower that. So I think what you're seeing is more and more developers that have been doing it the same way for 10 years or so to realize, okay, well, due to slightly more difficult conditions, we really got to look for tools that can improve our gross margin.
The next question comes from Suthan Sukumar with Stifel.
It's Daniel on for Suthan today. I just have a quick one. We noticed a quick uptake in new property management agreement signed this quarter. How much of that was due to competitive displacements? And what are some of the reasons as to why it's increasing this quarter?
Yes, that's a good question, Daniel. The key for us really with the dynamic is people have to think of agent -- we call this agency agreements or those as management agreements these decisions are made in a traditional B2B environment. These are -- the decision makers in the case of a condo management is a group of people that sit on strata or condo corporation. They're not -- they're not going to pay to do this work, and they don't get together all day. They're not obsessed daily about the activities of that community.
So they'll have identifiers, they want to work with us. And then it usually takes a while for them -- something has to -- essentially they read about a [ social ] video of some of our content that show how we solve specific problems with our tech. And then that kind of process takes a little bit longer. I think through COVID, a lot of people were very interested in digital tools coming out of COVID kind of we're starting to see the result of that. It kind of opens people's eyes the power of digitizing new community have an access to information. Not everything has to be in person, not everything has to be checked.
So I think that effective that it's a slightly slower than maybe you see in traditional B2B businesses, where we wake up and work 9, 10 hours a day on the business. These are people that are -- while these assets are very expensive, they're kind of start making decision every night. So I think that sales cycle is catching up. And I think we're seeing the benefit of a ton of proposals being out there that are actually starting to convert now. I think our footprint also helps. I can't emphasize that enough.
I think -- it's one thing to have a developer or a condo corporation, really be interested in our suite of services. But if we don't illustrate that we have presence in that market, and significant presence. It's usually a slower decision. But once we show that we're in that market, that's why I anticipate activities in the GTA to really, really increase is because we are in the market. We are compliant, and we are operating there. I think that you're going to see a massive increase in our conversion rates in the GTA market as well.
This concludes Tribe's Second Quarter Financial Results Conference Call. A replay of this conference call will be available until September 27, 2023, and can be accessed following the instructions provided in the company's press release issued earlier today. Thank you for attending today's call, and enjoy the rest of your day.