Boku, Inc. (BOKU) Earnings Call Transcript & Summary

Well, good afternoon, everybody. It's now 5:31. My name is Tim Metcalfe. I'm Managing Director of IFC Advisory, Boku's Financial PR and Investor Relations adviser. With me today, I've got Jon Prideaux, Boku's CEO; Keith Butcher, the CFO; and Stuart Neal, who's CEO Designate. Jon, Keith and Stuart are going to take you through the presentation that they've been using with analysts and other investors today. And then at the end of the presentation, we'll have the opportunity for a question-and-answer session. [Operator Instructions]. I'd also like to thank those who have taken the time to submit some questions in advance. Really useful and I'll be putting those to the team as well at the end of the presentation. Okay. So without further ado, I'll now hand over to Jon to take you through the presentation. Jon?

Thank you very much, Tim. And as he said, I'm the current CEO. The format of this evening's presentation will be, I will shortly hand over to Keith Butcher, who will take us through the financial and operational performance. I will then just have a quick run through the strategy and Stuart will then say a few words about the kind of performance and the outlook going forward and then we'll be open for questions. So without any further ado, I'm happy to pass the floor over to Keith Butcher to be able to take us through the business highlights. Keith?

Good afternoon, everybody. Thank you for joining. Yes, I'm just going to run through the financial highlights and some operational highlights and then we'll come onto the real growth drivers of our business. Then I'll hand you back to Jon and Stuart to talk about the strategy. Just a reminder, for those of you who -- well, sorry, for those of you who are not very familiar with our business, we built our business originally on building a network of carriers to which we could connect global merchants like Apple, Sony, Spotify, Netflix and allow [indiscernible] consumers to charge their purchases to their phone bills. And that business was a niche business and we became very successful and the dominant global player in that world. From that basis and using those merchants and our existing payments platform, we then moved into what we call a world of local payment methods. In other words, connecting those same global merchants to a whole bunch of payment types that are local to each country, primarily things like eWallets and sort of the dominant payment types in large parts of the world, like Asia. So I'll sort of talk you through that, a little bit of background. So if I just turn to the highlights on your screen, you'll see that we had a very strong half year-over-year, so up almost at 26% in local currency and 32% in constant currency. And that [ drop ] through to EBITDA up 28% as well. We always have a larger second half. We're slightly seasonal in the second half but Boku has actually just been growing month-on-month. And so we tend to have a second half. And we expect to have a much stronger second half and that leads into the third bullet down there, which is the -- we are now guiding the market to higher numbers than what's the market consensus as of yesterday. And as Jon said in his statement, we had a very strong July and August. So the strong trading in the first half has continued. I won't dwell too much on the cash but we have very large cash balances on our balance sheet. Some of that is merchant cash or cash on the way to merchants from which we collect from wallets or from carriers and we pass it onto our merchants. So that sits in the balance sheet. If you can see the fourth bullet down of the $113 million we had on our balance sheet at the half year-end, $54 million is our own cash, if you weren't trading, that's Boku's own cash, the rest is kind of merchant cash in transit. Just towards the bottom, we did sell a business about 18 months ago, an identity business and we've received the final sale proceeds after the year-end. So we've got another $5.6 million in the bank. And just for information, we did embark, because we have quite a large amounts of cash in our balance sheet, we did embark on a program to buy back our own shares annually, to match the awards that we make annually to our staff, the RSU awards. So we issue effectively shares to our staff, that vest in the 3-year cycle, sorry, every 3 years, that we issue them annually and they vest after 3 years. And so what we've done is effectively buy our own shares back to then issue those to staff when they vest. What does that mean? It means that we, we spend about GBP 4 million on buying those shares. And it means that the share count doesn't increase so [indiscernible] we don't dilute our shareholders by doing that. If we can just turn to the next slide, please. And ultimately, our business is driven by the number of consumers, the number of users of our business that we can attract to use Boku. So -- and that key metric is the monthly active users. And so up near 30-odd percent to 61 million active users in the month. We only measure an active user based on that 1 month. So actually, if you take a sort of view of any user in the year, we're well over 100 million. And that is ultimately what drives our business. Those users spend money. That's what we call our TPV, our Total Payment Value or volume process. That was also up strongly. And then we take a percentage of that value on average, about 0.76% of the volume, the $5 billion that we process is what became our revenue. And that take rate has gone up, which is interesting because the reason for that being that these newer payment types, what we call local payment methods are actually a higher take rate than the rate we were charging on average for the carrier billing service, DCB. So the business is growing well, growing strongly and actually taking a higher percentage of that increased growth. Now down the bottom, you'll see that we sort of -- what are the drivers, why have we got a whole load of new users. Well, it's because we've launched, we've made a whole bunch of connections, over 50 connections this year to some of our global merchants, Netflix, Meta, Apple, Amazon, Spotify et cetera. We've made those connections. Those connections bring new users and, therefore, bring the volume that we make our money from. And we have a network now that can reach a huge number of end users. In other words, we can reach about 7.5 billion consumer accounts around the world. So that's a substantial network that we've built, both of carriers and wallets. And we built quite a substantial regulated payment capability. These newer payment types require us to be regulated and getting those licenses around the world, we now have quite a number, has taken a lot of time and cost and it's quite a significant barrier to entry for anybody else wanting to break into what we do. And if we just go onto the next slide, please. Yes, the -- so the carrier billing is our core business. It's not on this slide but it's growing in sort of high single digits and growing very nicely. We remain incredibly sticky once you've made a connection between a carrier and one of our global merchants, it essentially never gets turned off. We've never had -- we've never lost a merchant and we've never had a connection unplugged. By connecting those same global giants that we talked about, Apple, Sony, Spotify, Netflix, Google, et cetera, to these local payment methods around the world, primarily eWallets at the moment and in the future, we believe, account-to-account, is something that we launched a couple of years ago and it's really taking off. And we've gone from almost very little this time last year to almost 20% of our revenues coming from these new payment sites. So they've grown from $1.6 million a year ago to $7.2 million. So 350% growth and this is really the new growth engine of Boku. We think carrier billing will carry on growing in single digits. But on top of that, we've got this much, much faster growth in these newer payment sites. And this is the future of Boku. And again, you'll see down the bottom, how -- why are we growing that fast? Well, we've got big substantial 100% plus increases in the number of people using these wallets globally. So -- and that was the strategy 3 years ago to leverage the payment platform we already have and to leverage the relationships with the world's largest digital entertainment giants and just effectively build them a network of local payments around the world. It's quite difficult to connect to these disparate payment types around the world and that's what Boku does, it aggregates and builds the network for global giants like Apple, Sony and Spotify. So let me hand over now to Jon and Stuart to talk you through the strategy.

Thanks, Keith. Switching to -- the business results are pretty decent. But what is a bit more about the strategy of the company we're following that will mean that those results will carry on into the future. This is a slide that we've used for a while and it reveals something which is not entirely obvious, if most of the time you spend your life spending with Visa or Mastercard. The thing is, if you went back to 2010, about 3/4 of everything in the world that was bought online, was bought with the Visa or Mastercard. And about 1/4 was spent on a number of other sort of local payment methods. If you roll the tape forward a decade, you can see that, that situation has changed immensely. And it's now the case that almost 2/3 of all payments for things online are from one or other different local payment methods and Visa and Mastercard's share has shrunk to near 1/3 or so. Of course, the absolute number has grown a lot but the relative share of Visa and Mastercard has gone down. What's the difference between the sort of purple part, which is the Visa and Mastercard piece and the orange part. One of the first thing to see is, in the orange part, there's lots and lots of different brands and products and payment methods. And the thing is they're all different and so when it comes to connecting to them, it takes a special type of processor to do the job really effectively. And that is the job of Boku that's really that sort of involved into delivery. So what Boku does is that we work with our global merchant customers and we come up with custom integrations specialized into each of these different local payment methods. Now something like [ 300 ] reaching, as you heard Keith said, say something like 7.5 billion different accounts, obviously, not necessarily 7.5 billion individuals but some of them will be having multiple accounts. But you can reach, as I say, 7.5 billion accounts through each of these different local payment methods. And there are all types and shapes and sizes. A good chunk of them, our original core business that was a mobile network operators, where you can charge things to your phone bill. But increasingly, it's things like mobile wallets, you may have heard us say a product called Alipay, for example, or WeChat Pay in China, seeing that cropping up on more and more cash registers here in the West as they try to provide international usage for Chinese consumers. But there's also a plethora of other things like OVO or GrabPay or PayPay or Toss or KakaoPay. I mean, there's literally dozens and dozens of them. What Boku has done is, put together a very big network comprising all these areas. And because they're all different, Boku has to make a separate integration to each one, we optimize it and provide that as a single standard connection to our big merchants. And that specialization leads to better results. Our core competition really is not other specialists who are concentrating only on doing local payment methods. Our core competition is a generalist, a card processor who is used to integrating Visa or Mastercard, taking the spec, where someone else has done all the hard work of standardization, that's someone else being Visa or Mastercard staff and they just -- are used to just integrating the spec as given by these local payment methods. But Boku specialized results or specialized approach, means that we implement features that may not be generally available. And a great example of that would be a situation where we could implement 1 tap checkout. So that rather having to enter your password every time, you can imagine, some of you may have had to do that on PayPal, for example and it can be a bit of a bore to have to enter your password every time. It's so much simpler to be able to have a 1-tap checkout in order to be able to charge your future purchases to the same store payment credential. When you do that and all of a sudden, it turns out that our merchants sell more stuff because it's just a lot more convenient. And it's not just a little bit more stuff. It's a lot more stuff. If you do this right, as you can see here in a couple of case studies on this chart, you're going to have anything up to 20%, even 35% increase in volumes. We don't very often get the chance to compare our performance to our card processor competitors because normally, our merchants just are making fresh connections that they haven't done before but having a couple of instances where we have taken over from companies like Worldpay or Adyen. And these are the type of results, the uplift that we can give and not surprisingly, when our customers are yielding millions of dollars of extra sales, it really makes us quite a preferred provider. Now I mentioned that this is important to global merchants. With the popularity of these local payment methods all around the world, for companies like Netflix or Apple or Meta striving to provide their services to consumers wherever they might be, it's really important for those consumers to be able to pay using their preferred local payment methods. So I don't know, if you take a country like Indonesia, you would expect as a consumer to be able to pay with OVA or Dana or GrabPay. And if you're in a country like China, you would expect to be able to pay with Alipay and WeChat Pay and so clearly, our merchants have that same impulse. They're trying to provide access to the local payment methods that their consumers expect. Now most of Boku's largest customers came to us, obviously, for direct carrier billing. There are a couple like Amazon, for example, where we never provided a payment service for mobile network operators but they chose us just on the strength of the network that we've already assembled. And this Amazon processes now -- we talked about last year, has now moved into production. We're now live -- we're live with 9 wallets at the end of the half. But by the time I speak to you now, that's increased to 12 wallets in 7 countries. Originally, that was concentrated in Asia but now it also includes wallets in Africa, for example. And so these new local payment methods are being adopted by most of our largest customers. And I'm confident that we'll be able to color in more of those squares currently white, green at some point over the course of the coming months. Now one of the things that's really compelling about the Boku story is that growth doesn't have to come from necessarily going out and finding lots of new merchants and lots of new logos. Growth can come effectively in 2 important ways with our existing customers. Firstly, it comes from taking our existing customers and connecting them to an ever wider proportion of our overall network and as you can see, most customers here only use that network relatively modestly and that's increased, those orange blobs on that square. The way to read this chart is, the gray blobs represent potential connections within the network. The orange squares represent those where the merchant has actually activated a connection to a particular local payment method. About 50 of those, just under 50 of those went live in 27 countries over the course of the 6 months. So we're really at quite a pace expanding our business by doing these new launches with these important customers. So perhaps more significant is the growth that we can get by going deeper within our customer stack. And then a great example of that would be with Meta, for example. So we've been providing payment services to Facebook for Facebook games for a number of years but [indiscernible] in the world and Facebook games was not the core business of Facebook, that was selling ads and that is now the majority of our business. But we were able to take our existing payment integration and not just broaden it to more geographies but deepen it into other divisions within Meta and so that now the vast majority of the payments take place through Boku on the Meta platform are used to buy advertisements for small businesses or sole traders who want to be able to advertise their products on Instagram or on Facebook itself. And the same opportunity exists in many of our other customers to be able to move into ads or to cloud computing or indeed into e-commerce. And of course, with Amazon, that's the new ambition as well. It's not to stop at Amazon Prime Video but also to deploy the Boku payment service ever more deeply through the divisions of Amazon itself. So that gives you a sense of the business strategy. We're a specialist payment provider. We operate in a way very different to the card processors who try to get scale through standardization. We are prepared to customize but we do specialize in working with the world's largest companies and we've got an enviable catalog of the world's tech giants, who have all signed up with us. Things are going well as Stuart has, as, sorry, Keith has said. And I now want to sort of illustrate that a little bit more by some of the growth in monthly active users and the total payment volume, things that you've already seen from Keith and finally hand over to Stuart, who will take you through how he's sees things and his vision and outlook as to how the business is going to expand under his leadership from next year and beyond. Stuart?

Thank you, Jon. Hi, everybody. Thanks for dialing in. I mean, look, the first thing to say is that I'm thrilled to be back at Boku at such an exciting time for the company. Whereas most businesses are out there desperately trying to find a clear strategy and product market fit, well, that's not a problem I have to solve here. So I think it's worth saying upfront that a new CEO in this context does not constitute a new strategy. The strategy we have is compelling and the strategy we have is working. And how I like to view it really going forward is, we are building here a global and meaningful network of noncard-based payment methods. And as Jon showed you earlier on in the presentation, we're catching a tailwind here of what is a global long-term trend. So the macros here are, people want to pay locally and Boku is representing global or international merchants and we can provide that international connectivity to local payments. So it's super exciting. The way that I would think of it going forward is that the local payment methods, it's really still early days and you can see the growth is phenomenal already but we're really in the foothills of this journey. For the next 18, 24 months, just by adding more wallets and those wallets maturing for our existing customers, we are going to grow this business in a meaningful way. Add to that, the opportunity that exists by connecting -- in addition to wallets, by connecting into the banking system with account-to-account payments, we suddenly have something that has significant global reach. And not only that, we can add the capability not only to do kind of digital content that we did with our carrier billing business but it throws us into, as Jon alluded to, into much, much bigger target markets with e-commerce, with advertising, with invoice and bill payments. This suddenly becomes a meaningful play, in the long run, a meaningful alternative to a Visa and a Mastercard rail. So I'm really excited to be back. It's great that you could all join in, to hear about the businesses' performance. I can't wait to get going and I'm really excited to take you board on this journey with us. So I think that's the end of our presentation and I'll hand it back to Tim, who's going to collate all the questions.

Well, thank you very much, Stuart and thank you, Keith and Jon. We do have time for questions. [Operator Instructions] And as I say, I will answer them. As I say, I do have a few that have been sent to me particularly during the course of today. The first one is just a financial question on share buybacks. Is the share buyback program still ongoing? And would you consider if it is, would you consider it going further than just covering incentives and to cover option exercises?

Let me take that one. Yes, it is. In fact, we extended it in June for another year and increased the headroom up to about GBP 10.5 million is the maximum we can spend. But the original idea, just sort of [indiscernible] benefit, as I mentioned earlier, is that we effectively just buy enough shares to satisfy the RSU awards in our company. Obviously, we first of all, we award everybody RSUs every year, all staff and they vest 3 years later. Obviously, we're a growing company. We're now heading towards about 450 people. We are about 150 when we floated. So we'll see that numbers going up. And so I think that number will increase as the RSU awards we need to satisfy increase. We're not prepared -- we're not planning to go beyond that just for the sake of it, if you like. The only exception to that is we -- we signed a large multiyear deal with Amazon last year. As part of that, there is a chance to earn warrants in the business, up to about 3.75% of the business. To do that, they have to put huge volumes through us, something like $20 billion of TPV and we would make about $200 million of revenue. So let's hope they do that. But let's -- as they start to earn along that, those shares, by putting business through us, then we probably buy those as well. And that's one of the reasons why we get the headroom. But beyond that, we're not just going to buy in the market. The general feedback from our major investors was that they liked the share buyback program. They didn't particularly want dividends or any other use of our cash because they don't -- we're not seeing this as a dividend stock and so giving dividends out will actually send the wrong message. So at the moment, we're fine where we are. And as I say, we look like we've got slightly more cash on our balance sheet than we actually have because not all of it is ours. We've got but then we have got about $50 million of our own cash.

Okay. Which neatly brings me on to the next question. You said no dividends and the others, those sort of constraints on the share buyback program. Is M&A likely to be on the agenda in the future? And if so, are there any particular areas where you might like to acquire something.

Yes, I can take that one, Tim. But I think very much M&A would be a [indiscernible] strategy. We don't have an active intent to go out and acquire companies. It's quite hard and painful and it grinds your business to a halt when you do M&A. And so we would only do it, if it was a fairly meaningful thing. So large M&A, possibly but that wouldn't be kind of covered by the cash -- even the cash balances that we have. So frankly, we have a pretty ambitious and full organic growth strategy that we're going to focus on. If there were tactical M&A opportunities to buy capability or whether we need to use cash to spin up an entity or get a license in a certain market then we would use the cash for that type of growth but not M&A for M&A's sake. That's not the strategy.

Understood. Understood. And looking at the business going forward, obviously, local payment methods at the moment, Boku is very focused on online sales and an enviable list of global merchants. Are there other sectors that you can tow? Is this, the platform usable for physical goods, for example?

Yes. I think -- the thing that really restricted us to digital carrier billing was; a, the kind of commercials of the product; and b, that it was a nonregulated payment method. And so what we've been doing over the last couple of years is busily collecting licenses in various jurisdictions, so that we can connect to wallets. And we're now in the space of regulated payments and so frankly, it's not unthinkable that we would broaden our reach from digital into physical. Already, as Jon alluded to, we've moved out of sort of games and music and video downloads into online ads, online ads can be paid on invoices. As a postpaid mechanism, it can take us into business-to-business payments on invoice [indiscernible], account-to-account is basically mainstream payments, just not on a card rail. So the sky is the limit. We're focused on what we see ahead of us in terms of growth but actually, the assets that we're creating as part of this investment opens up a huge amount of opportunity in the longer term.

Okay. And looking at that opportunity, a question then notes, various announcements were made about connections in countries all over the world, whether that's in Asia, in Africa. Are there any parts of the world where you're still weak that needs further growth? And are there any parts of the world where there is more focus than others where there's a greater opportunity, at least in the short term?

I'll say a few words, and then I'll pass it to Jon for a comment. I mean, look, our traditional geographies where we've done very, very well is in Asia Pacific. That's where the growth of the wallet has come from. But actually, we're not just focused on Asia Pacific, the whole wallet phenomenon is a global thing. If you think about new emerging wallets in Europe, for example, BLIK in Poland or Satispay in Italy or Bizum in Spain or Swish in Sweden, there is a global thing happening here that, that also now includes bank-to-bank transfers in Brazil, in Colombia and now in the U.S. So it's a global thing. It's probably fair to say we do quite a bit in the Middle East but we are slowly starting to make some inroads into Africa. So we are looking global but we, generally speaking, go where our customers want us to go. Jon, would you like to add anything?

No, I think you covered it. We started in Asia and now it's the rest of the world, including developed markets. So don't think of us as an emerging markets play. I mean, we've just gone live with TWINT in Switzerland, for example and it's doing incredibly well, soon as Stuart mentioned, BLIK in Poland. And these are mainstream markets and countries. And the big prize is, something like Fed now in the U.S. So Boku is -- I don't think we have a word emerging markets play but you shouldn't think of us like that now at all.

Well, that's covered the questions that the people sent in. I think the presentation has been very comprehensive because we haven't -- we've kept all the audience but we haven't got that many questions coming through. This was designed to be a short run-through of the presentation, so that -- the team has been giving to investors during the course of today and will be for the rest of the week. So I'd just like to thank Jon, Keith and Stuart. Jon, in particular, this is your last results presentation before moving aside on the Board. And Stuart, very much look forward to you taking the reins in the New Year and doing the next one with us. But thank you very much to everybody who's joined us this afternoon. If you have got any further questions, please get in touch [email protected] and we'll always try and answer your questions and come back to you. So thank you very much for your time and enjoy the rest of your evening. Thank you.

Thanks, everyone and thanks Tim.

Thank you.

Thank you.