MoneyMe Limited (MME) Earnings Call Transcript & Summary

Good morning. This is Clayton Howes, Managing Director and CEO of MoneyMe. Thank you for the opportunity to present to you the half year results for 2020. With me are Neal Hawkins, our CFO; and Aaron Bassin, our Head of Strategy. You can follow the presentation that is uploaded on our Investor Relations website. Our mission is to be the favorite credit partner for Generation Now. We are targeting a tech savvy generation, who have begun to switch from their banks for faster, flexible and better credit experience. The MoneyMe half year results is one that is based on a few key themes. We are a business delivering high-quality, profitable growth. We are set for strong, reliable revenue performance from our contracted loan book. Originations and the loan book have accelerated off the back of stronger demand. And importantly, the integrity of the book is substantially better with lower than forecasted loss rates. That combined is a really positive story. And on Page 2, we refer to the performance highlights. We have confidently performed ahead of expectations to forecast. In fact, our revenue, gross assets and originations are on track to beat full year forecast. The closing loan book balance at the half year is already 89% of the full year forecast. Revenue is up 44.3% year-on-year, which we had assumed a lower growth rate of 43.7% in our forecast. Loss provision to the gross loan book was 25% lower than the same time last year. Credit demand is stronger with $838 million of credit demand in just 6 months to December. Moving on to Page 3. We added new products and features that set a new benchmark of innovation in credit, new products that are making sense for tomorrow's world. Our Freestyle product in partnership with EML and enabled through Mastercard, our customers are now transacting on a day-to-day basis. They're using their Freestyle account for Uber, Deliveroo, Netflix, grocery shopping and more, and we launched ListReady. The homeowner market is an incredibly attractive customer base and the take-up, I can now say, is phenomenal, which brings me to our product highlights in the next segment on Page 5. It just feels like the other day, and I was presenting the possibility of launching a Mastercard-enabled virtual credit card and already Freestyle has a gross loan book of $43 million. It was 41% of originations in the half year and now represents 34% of the total gross loan book. We added Tap n Pay with up to 35 days interest-free. The customers' feedback is they love it, and it works really well. And unlike the traditional credit card, they like to manage their balance by knowing what the set repayments are real time, but it's not stopping there. We have on our road map, a rewards plan that delivers instant value to the customer and retailer they spend money with. We'll be launching person-to-person payments and more ways to use Freestyle, including easy bill payments. On Page 6, the personal loan product, the foundation of our MoneyMe business, a great product that has evolved to be more flexible and more relevant, now offering $35,000 to suitable credit customers. Representing 59% of originations and 65% of the loan book, the expansion of our personal loan product will continue strongly with a higher offer comparable to the market and sharper pricing for the higher income and credit-rated customer, which leads me to Page 7. We are capturing the homeowner market with ListReady. When selling a property, there's advertising, staging as well as other costs that can now be managed by ListReady in the sales process. The brand is accelerating, with sign-ups of agencies passing more than 170, another market where trust and transparency has been lacking and we're closing this massive gap. We're expecting record low losses, which makes total sense when the borrower is a homeowner. We run market appraisal stats on the property, determine its likelihood of selling, and then we have the right to place a caveatable interest on the property if we need to. The use cases of ListReady, you can imagine, are increasing and the partnerships with big agents are accelerating. We move on now to the financial update, which Neal will take us through on Page 9.

Thank you, Clay. Key financial highlights for the half are revenue, which was $21.3 million, that's 44% up from the previous half in 2019. This reflects a 56% increase in credit demand, 85% increase in originations and a 112% increase in gross loan book. The H1 '20 loan provisions to gross loan book at 8.1%. That's a significant reduction compared to the 10.8% for the H1 '19 result, reflecting the lower credit risk of the book. The H1 '20 EBITDA was $0.5 million, which is $0.8 million favorable when compared to the previous half and reflects the revenue growth and the reduction in the loan provisioning rate just mentioned. Looking at the revenue and the EBITDA growth in further detail on Page 10. The revenues are continuing to reflect a significant growth over time, 44% growth year-on-year. And revenue is expected to be above the prospectus forecast for the full year period to 30 June 2020. A key item to note is how over 70% of the full year forecasted revenue is already contracted to come from the loan book that we have as at 31 December '19, with the balance to come from H2 originations. The $0.5 million positive pro forma EBITDA for the first half reflects the reversal of relatively small negative EBITDA results for H1 and H2 2019. Over to Aaron for Page 11.

Thank you, Neal. H1 '20 gross loan book has hit record levels with unprecedented triple-digit growth of 112% on H1 '19. Loan originations were up 85% year-on-year, which was higher than we had forecasted in the prospectus. Gross loan book for the half is $127 million, which already represents 89% of the full year prospectus forecast. We expect this overperformance to continue with the full year performance to materially exceed the prospectus forecast of loan book and originations. Additional loan growth will deliver substantial benefit to revenue beyond FY '20. It's important to note that this growth has been achieved alongside improving credit quality, which I will take you through on the next page. Development of MoneyMe's credit platform continues to deliver strong credit performance with loan provisioning to gross loan book substantially decreasing by 25% year-on-year to 8.1%. This compares favorably to the 9.8% assumed in the prospectus forecast, demonstrating the improving credit quality of the MoneyMe borrower. Important to note that the current provision is prudent and reflects appropriate overlays for changes in the macroeconomic environment. A high proportion of the book is now weighted towards higher-quality customers, which is supported by a few things. The continuous application of MoneyMe's artificial intelligence that optimizes to predict financial habits more accurately, higher-value loans to higher credit quality borrowers, and also positive performance characteristics across a 40% returning customer base. Static losses also continue to improve, which is illustrated on the bottom left-hand side of this slide. It's important to understand that the dark blue columns represent fully seasoned cohorts, where the 3 most recent cohorts are not yet fully seasoned. They are expected to increase over time. However, we'll be within management's tolerance bands of 6% to 8%, which have specifically been calibrated to be a balance of profitable growth and risk. Now handing back to Clay.

The key operating metrics we measure our business model to are income, loan book growth, loan book quality and costs. These are a set of stats that a CEO dreams of presenting. We have record revenue. We have record originations. We have record loan book. We have record low costs. Against our forecast, we are on plan for revenue and our interest margin is healthy. We are ahead of originations, ahead of loan book growth rates, ahead on losses and provision rates, and ahead on most costs, except slightly below for G&A, which is a timing effect for the incremental growth, but still lower than last financial year. Neal will take us through the timing impact of our additional growth.

We expect to recognize circa $5.4 million of revenue beyond the 31 December '19 period. This is as a result of the $14 million above forecast gross loans that is being achieved. It reflects the recognition of revenue over time as required by the accounting standards illustrated on the chart to the left. A significant portion of the expected loan impairment expense relating to the $14 million above forecast gross loans has been recognized to 31 December '19 already. This is due to the upfront recognition of loan provisioning under AASB9 has also illustrated in the chart in the light blue bar. The upfront provision expense is expected to be offset over time as the $5.4 million in contracted revenue is earned over the long contracted term. We expect the full year pro forma profit before tax and NPAT to be positive, but below the prospectus forecast as a result of the above forecasted gross loans and the timing of revenue and loan impairment recognition as explained. Page 15 takes us through the pro forma profit before tax actuals and forecast. The pro forma profit before tax for the first half of 2020 was $0.2 million. That's slightly favorable to the forecast to 31 December '19. The result in part reflects the impact from the $14 million forecast gross loan book relating to: a, an increase in interest income; b, office operating expenses being brought forward to support the above-planned growth; and c, the additional upfront loan impairment expenses under AASB9 as noted earlier. The H1 '20 pro forma profit before tax also reflects the reduction in the loan provisioning rate to 8.1%, as described earlier. Moving on to Page 16. The H1 '20 statutory NPAT was $4.3 million. This reflects a $5.9 million income tax benefit, which reflects a resetting of the tax cost base following the IPO business reorganization. The full year statutory NPAT is expected to be positive and ahead of forecast as a result of the resetting of the tax cost base following the IPO business reorganization. The pro forma NPAT reflects several adjustments to the statutory results, in particular, the IPO offer costs and the resetting of the group's tax base on IPO.

Moving to our growth and strategy update. We launched ListReady and onboarded over 1,000 agents to use the platform. We launched Freestyle Tap n Pay with EML enabled by Mastercard. We had a successful debut on the ASX. And along the way, we were recognized for a few awards and named Innovator of the Year for 2019. This is right on our strategy: profitable growth, increasing the operating leverage, delighting customers through innovation, securing growth capital for loan book expansion, which leads me to our capital and funding strategy. The mega wholesale securitization funding facility is well on track and can expect to be a substantial reduction in the funding rate before the close of the year. The current funding cost rate, which is near to 11% will drop by about half. Not only will the facility deliver substantial operating leverage, it will set us up for exponential growth with a much longer runway. It is an incredibly exciting opportunity, and we look forward to updating you further. Whilst innovation is timeless, it has never been more timely to innovate for tomorrow's world. Our technology is a proprietary credit provisioning model with end-to-end identity, credit bureau data and bank transactions data analysis, overlaid with artificial intelligence algorithms capable of real-time decisioning, all built in-house. And it's not only for Australia, but similar markets where bankable customers are transitioning to contemporary products. The technology support scale is incrementally getting better every day. It's agile and the smarts allow for constant product innovation. With built-in data security protection and ethical lending controls, it defines what the future of lending businesses will look like. On Page 21, we highlight the opportunities to expand to new markets with strong potential for MoneyMe. We identify with the U.S. and the U.K. as the primary opportunities we are exploring. The size of these markets are very attractive, and there's a natural product fit for the personal loan and Freestyle products for these markets. We are winning major partnerships with some of the biggest agencies, and they're signing up daily. In the last 2 months, we have more than doubled the originations we had in the first half of the year, off the back of leading customer experience. We listen to our customers. Our NPS score is greater than 75. The banks, they're still negative. Our customers have embraced the new products and are so happy with our service. Imagine what happens when we put in place additional features and value proposition. I think they'll love us more. This is the future of credit for the Generation Now. In summary, our unit of economics are stronger and continue to build. The large addressable market for the group is expanding. Revenue performance is stronger with contracted revenue streams and customer demand increasing. The innovation and technology is performing and enabling scale effortlessly. Our customers are advocates and the team have never been more thrilled to be part of MoneyMe. Thank you. That now concludes our presentation, and we hand over to the operator for Q&A.

[Operator Instructions] Your first question comes from Steve Sassine with Morgans Financial.

Congratulations on the results. Just a quick one for me on cohort analysis. So with the recent addition of the Tap n Pay functionality on the Freestyle product, have you actually seen an uptick in the frequency of use and customer engagement? And are you expecting more of a product shift in the book towards that Freestyle account?

Steve, Aaron here. Thanks for the question. Yes, we've definitely seen uptick in the transaction volume on the Freestyle product. We're seeing our customers engage with the product a lot more readily, which was the purpose of the introduction of the new features. And that can also be correlated towards the increase in the contribution of the loan book. So we launched the product in a beta version about 12 months ago, and now it contributes to 35% of the total originations. And we're going to continue to see that flow through into future periods. The performance of the Freestyle product as well is demonstrating better than the personal loan product. So losses on the cohorts are improving. We've got much more insight and ability to refine the decisions through our AI to make better interventions and customer experience, which drives ultimately better credit losses.

Great. Thanks, Aaron. And Clay, you briefly mentioned the opportunities in the U.S. and U.K. Are you able to expand on that at all? Any possible time frame? Is it an FY '21 story, FY '22? Just any more information there would be great.

I think we understand that the giant opportunity in those markets need to be considered in a really considered way in how we announce time lines. But we can say that we are exploring those 2 markets. We're seeing distribution opportunities emerge. Emerge, as we have calibrated our decisioning model that caters for credit bureau inquiries, bank transactional information that's akin to how we have delivered in Australia. So we see a more natural transition into those markets and time lines, well, as I said, really positive. We, in our prospectus, described the opportunity in the U.S. with the inclusion now of the U.K. We expect that to come through in later updates with more concrete information about how we'll pursue those markets.

Your next question comes from Emilie O'Neill with Perennial Value.

Congratulations on your results. I have 2 questions, if possible, please. Firstly, how should we be thinking about the seasonality of the business going forward? And secondly, your application pipeline is looking very healthy. Is there any room to increase the approval rate there?