Below are my rough unformatted notes from the call held with Peter (Non-executive Director) & Chris (CFO/COO) on the Strawman Platform on the 23rd of May 2023.
Points from general discussion
74-75 fee earners and ~90 employee’s total
Disbursements reallocated from CR Rev DR COS to CR/DR COS. Pass-through and can cause lumpiness in old approach.
strength in q3 coming from Watts mccray - 1-2 big matters. FY23 YTD $13.7m with a quarter to go. Last quarter $4.9m. Q4 maybe a 'little under q3 because that was a big qtr.
organic growth 'hasn't been super strong' over the past. keep in mind COVID era. Lawyer recruitment through this has been challenging. Performance management aspect of the business sufferred through this period as they 'kept what they had' even if some 'were not the best'.
profitability - net profit before tax attributable to AFL shareholders consistent going forward. Will normalise when they need to.
even with the normalisations, lot of stuff that had previously been normalised in prior years that they did not repeat normalising because it was actually recurring.
through all the acquisitions, businesses technology platform is standardised for the most part now.
consolidation of premises a lot of.
Board is all non-exec independent except peter which owns 13%.
in terms of acquisitions, they are going about a process where they can produce quality profit results without acquisitions. more of q3 to come in the future. Intention to build on that. no acquisitions imminent but would be 'icing on the cake'.
haven't had much in the way of rate increases in the last 2 years, staff promotions increases rate. Full 12mth impact of new offices will make a difference.
Looking to change the bonus scheme, looking back minimal paid out. Resetting the targets for their staff to more achievable levels, gather momentum in of itself.
looking at branch performance as well for bonuses as well. don't want staff to climb over eachother.
4 execs down to 2.
Looking at non-lawyers, expecting to pull back on support staff where they can get rid of some non-billable staff.
Watts mccray/withnalls run more on referrals. Kordos skews a little that way. Traditional AFL business is more digital driven.
Changes to processes and procedures to tighten up working capital. Strongly encourages team members to get money in trust up front.
borrowings effectively NIL at the moment. draw down on existing facility if it makes sense. Good results going into FY24 make the facilities and covenants easier.
sees value in the partner model. some recent wollongong etc. will need to reassess kordos/watts etc.
Digital is higher CAC, exploring different things to generate leads including SEO etc. Social media not utilised as good as it could.
Strong signs of a much greater marketing efficiency. Reinvigoration of divorce.com.au
really good in old school business development
lawmaster PM software. acquired by actionstep. keep it short on next cotract and explore options.
big effort getting different offices onto the 1 platform, stace involved. having lawyers on one platform has benefits due to family legislation being commonwealth statute. 1 platform allows lawyers to work on matters together from different offices.
office savings couple 100k etc.
Viewer Question List
Some shareholders feel that hyperactive M&A was one of the causes for AFL's struggles in recent years and are bemused that the same individual is still in charge of M&A. How would you respond to this?
growth has come via. acquisitions. Watts slow start but now coming good. very good brand.
gtc was a bit of a distraction to core business in 1h.
Intuitively family law would seem to be a counter cyclical business model, is there any evidence this is the case?
it is acyclical, peter goes on to comment that this was a good reason for his investment intially. Likened it to funeral providers with stable divorce volumes and as such should attract a high multiple.
Also went on to say asset valuations have held up, people more likely to settle on a divorce if they have strong asset prices etc.
How significant are referrals as a lead channel? Does the fact many legal practices don't offer family law services suggest the economics of family law are marginal?
few numbers thrown around but they say something along the lines of 40/60 or 50/50 referral being the former.
is less profitable than other areas, that is agreed upon.
AFL has previously talked about moving into other legal verticals. If AFL were to start competing more aggressively in this way would it put at risk the family law referral business?
it is not an imminent priority but it is a future consideration.
talked about how domestic abuse touches both family and criminal law. Also alluded to some unrest that some may feel if they moved into other areas such as criminal law etc. Important to differentiate branding.
Could you please break down the improvements in the cost base as a result of new management. What does the cost structure look like now as a result of initiatives taken on a run-rate basis?
missed a bit of this answer but the things mentioned above including less corporate directors/execs and also a material saving on office premises to the tune of a few 100k.
In the FY23 1H presentation it is quoted that AFL will " Use our new law system investment to drive lawyer productivity". Could you allude to what this is referring to and its impact on Debtor/WIP days and Gross margins?
Already touched on this in the discussion but it refers to the offices all being on a single platform. easier to monitor, and they can share matters between offices being a national statute.
Could you comment on the partnership of UK's Taylor Rose and GTC Legal and the implications that this may have for AF Legal. Taylor Rose is a top 60 law firm in the UK operating across consumer law (including family law) and utilises the consultant lawyer model.
Peter is aware of this, he thinks that family law industry has a legitimate demand for capital and that traditional models make sense as opposed to a consultant lawyer model given the cottage industry.
did not write off exploring this avenue in the future.
Thanks for reading, apologies for the lack of formatting.