MoneyMe Limited (MME) Earnings Call Transcript & Summary

Good morning. My name is Clayton Howes, and I'm the CEO and Managing Director of ASX-listed MoneyMe. With Neal Hawkins, our CFO; and Aaron Bassin, our Head of Strategy, we are pleased to present to you the full year results for FY '20. We will be taking you through the year that was, our products and financial performance, our experience and plan within COVID environment and the exciting plan ahead for MoneyMe. The presentation should take about 30 minutes, and there will be time for Q&A afterwards. Thank you for dialing in. And if you are unable to see the presentation, it has been uploaded to our Investor Relations website. FY '20 revenue, originations, profit, yes, that's right, profit and credit performance beat our prospectus forecast. Revenue of $47.7 million was up 49% year-on-year and outperformed forecast by 4%. Pro forma EBITDA of $3.2 million outperformed forecast by over 10%. Higher revenue and low-cost base is a key value proposition of this business. Originations were up 53% year-on-year and outperformed forecast by 6%. The closing loan book of $133 million is up 53% year-on-year and 94% to forecast, closing lower from the above normal payment of credit balances from customers. The year was not only about record results. The innovation lab was a hive of activity, adding a virtual Mastercard with Freestyle and investment in developing and successfully launching 3 exciting tech-driven products: ListReady, RentReady and recently announced MoneyMe Plus, new products getting into the buy now, pay later where massive opportunity for new growth exists. Our AI is learning quicker and driving the decisioning platform. Our mission is to be the favorite credit partner for Generation Now. A key part of our value proposition is our strong focus and commitment to delivering innovative and tech-driven experiences to customers throughout their credit life cycle. During COVID, we were able to demonstrate our customer-centric business model. And if you click to Page 4, the high level of automation of our service is a standout. And with high volume, there is no compromise to the customer experience levels. In fact, during COVID, we efficiently managed customer communications and reduced our core response time to under 9 seconds for almost 90%, of course, while recording an exceptionally high Net Promoter Score of 84. And it was great for MoneyMe to be recognized for several awards: the Finnies Awards for Excellence in Customer Lending and the Fintech Business Awards for both the Leading Innovator of the Year and Leading Platform Innovator of the Year awards. We also won Innovator of the Year at the My Business Awards and MoneyMe was included in an AFR's Most Innovative Companies top 5 list. On Page 5 is our thematic of our business, and it's looking good. High payment automation, highly automated AI-driven decisioning, critical mass in website traffic, sticky habitual use of the app, valuable repeat rates from returning customers and an increasing average funding amount per customer going from $3,400 to $6,100. Clicking to Page 6 is our formula for success. Now in our case, 1 plus 2 does not equal 5, it equals 10. We created a tech platform, the Horizon platform, that is a full stack highly automated machine that gives us all the flexibility to create new products and launching new channels and wow customers and do it fast. The unit of economics are strong and getting stronger, and the operating leverage is increasing. Then comes our wholesale banking facility, which, because of COVID, is delayed by just a bit. So in our future, our capital costs pretty much half. And with the new product sets in market, that's got to equal 10. If you may click to Page 7, I'd like to explain a bit more about our business model. Our plan to build sustainable and diversified contract revenue is working. During COVID, our diversified customer base is not exposed to contracted risk, and contracted revenue gives us incredible resilience with cash flows that are not reliant on new originations. The unit of economics is incrementally increasing with our low cost to digitally acquire and service customers, and then the scale advantage kicks in. And because of this, the value being created doesn't slow down. It expands with innovation and the addressable market opportunity getting bigger.

I'm pleased to take you through the product highlights, which will now start on Page 9. The foundation of the business started with a personal loan. And in FY '19, we introduced Freestyle, the credit card replacement, for Generation Now. Freestyle accelerated book size and customer acquisition representing 22% of the closing loan book and quickly grew to now 39% of book size in FY '20. Innovation did not stop there. In FY '20, we launched a third product to join the MoneyMe's table, this being ListReady, the buy now, pay later solution for homeowners deferring marketing costs when selling their home. Our proprietary built platform offers high automation and product flexibility with innovation unlocking new revenue streams and diversifying the portfolio. In FY '20, the credit profile of the group's customer base continues to increase with an average Equifax score of 635, which is up from prior year and above the national average of 600. The portfolio has a median customer age of 32, and 35% of customers returning. As at 30 June 2020, the business originated over $485 million and of which 37% relate to FY '20 originations alone. And earlier this month, we surpassed $0.5 billion in lending milestone. Moving on to the next page for personal loan highlights. For most part of the year, the maximum customer offer on our personal loan product was under $25,000. The product represents 59% of the loan book, and it continues to grow. Towards the end of the financial year, we had a breakthrough, launching a $50,000 offer, naturally attracting higher credit quality consumers. Our vision and strategy is to continue to build towards the better alternative to traditional bank personal loans. With all the digital experience, the transparency, automation that delights and with the final piece on price soon to be delivered, it's a slam dunk. We expect that this product will continue to increase their lifetime customer value as with bigger loan amounts they naturally deliver larger and longer sustainable contracted revenue. Moving on to Freestyle. We created a deeper everyday relationship with our customers. It wasn't that long ago when we were beta testing the replacement for the credit card of tomorrow's generation. Freestyle very quickly has delivered a $52 million loan book, average use of $7,900 in the year and represents 44% of all originations. In the year, we also launched the virtual Mastercard giving customers instant use online or in retail direct from their mobile, promoting financial control at their fingertips with real-time fixed repayments. After understanding customer behavior and spending patterns, we have added 55 days interest-free on all Mastercard transactions, giving the customer more value, promoting more use. We're not stopping there. There will be more value and rewards to come. ListReady aims to revolutionize the proptech industry. ListReady is our payment solution for homeowners and the capital requirements involved in selling their property. To explain it better, it's a bit like Afterpay. When someone sells their house, they have marketing and staging costs that are typically due upfront. We allow the seller to defer those costs, giving the property agent and the seller the best opportunity to get a faster and better sale outcome, and the economics are strong. We have a homeowner, an asset and a highly automated, low-cost distribution model. In only a matter of months, we have had more than 350 agencies and 2,000 individual agents sign up to the platform across some of the biggest franchises in the country. We have more than doubled our partnerships since the half year result. It is our expectation that ListReady will become a default household brand name for the property sales sector.

The business achieved revenue of $47.7 million for the 2020 financial year. That's 4% up compared to the prospectus forecast and despite the challenging COVID-19 environment in the second half. The record revenue performance reflects originations of $178.5 million that supported the closing gross loan book of $133.6 million. Stable net interest margins and the group's operational leverage and cost control management further supported strong pro forma EBITDA and statutory NPAT outcomes of $3.2 million and $1.3 million, respectively, both above prospectus forecast. Loan provisions as a percentage of gross assets are 9.6% for the year, slightly favorable to the prospectus forecast. The current provisioning reflects reductions in the provision model risk overlays, significant increases in the macroeconomic overlay to reflect the COVID-19 environment loan book diversification and an underlying further improvement in loan level credit risk ratings. The 2020 statutory NPAT of $1.3 million includes a $1.4 million tax benefit that reflects the resetting of the tax cost base on listing. Moving on to Page 15. As noted from the previous page, the group forecasted significant performance in the 2020 financial year with most of the set forecast met or exceeded. The business' growth in the 2020 financial year is further illustrated in comparison to the prior year. Originations up 49.5%; gross loan book up 52.7%; revenue up 49.5%; pro forma EBITDA up 511%; and statutory NPAT up 300%. The group provisioning of 9.6% of gross assets in 2020 from the 10.4% in the 2019 year continues to reflect a significant level of overlays to reflect the inherent uncertainties and the judgments in this area, particularly given the COVID-19 environment. Moving on to Page 16. The group has delivered on or above plan against most of the key operating measure forecast provided in the prospectus despite the COVID-19 environment in the second half of the 2020 financial year. The result reflects the robustness of the business' operating model and the ability of management to adapt to the COVID-19 environment with agility and speed. Lower-than-planned gross loan book size, growth and runoff reflects higher runoff than forecast in Q4 '20. In particular, that appears to reflect borrower access to funding from sources that are not normally available in particular government stimulus-related measures. Despite the gross loan book growing by 6% less than forecasted, the growth is significant at over 50% compared to the prior year and more than double the growth achieved in 2018. Importantly, the significant year-on-year growth has been achieved while maintaining overall pricing and margins, delivering a robust loan book quality outcomes and achieving operating leverage and sound cost management while contributing to invest significantly to support future business growth. Moving on to Page 17. The $3.2 million pro forma EBITDA for 2020 reflects adjustments from the statutory result relating to IPO offer costs, in particular, to support comparisons to prior periods as detailed in the appendix to this presentation and in the prospectus. Going into the pro forma EBITDA further, revenue is driven by interest income, which is higher than forecast, reflecting earlier than forecasted origination growth. Funding costs are in line with plan, and office operating costs, sales and marketing, product and development and G&A are on or slightly favorable to forecast with the group continuing to invest in future capability. The $16 million impairment expense for the year reflects charge-offs from the earlier-than-forecasted origination growth noted earlier. Moving on to Page 18. The 53% year-on-year loan book growth reflects the continuing expansion of the group's products and the distribution and customer satisfaction rates noted by Clay and Aaron earlier. The record closing loan book size is expected to underpin the 2021 revenue result. We also expect the ongoing and further product innovation distribution partnerships will further support loan book growth into 2021 despite the challenging COVID-19 environment. Moving on to the provision for expected credit losses. 2020 provisioning and related disclosure has been a key management focus when compiling the 2020 financial report, given both the still relatively new implementation of AASB 9 and the COVID-19 environment. This has also been a key audit focus area as would be expected. The 9.6%, 30 June '20 provision as a percentage of gross loan assets reflects a significant level of data modeling and testing from ourselves and our auditors to ensure it reflects a reasonable and well-supported judgment and an intent to ensure it is sufficient given the current uncertainty brought on by COVID-19, but not aggressively conservative. The relevant notes in the financial report provide a significant level of detail and support in this area. The provisioning reflects a significant increase from the provision reported at 31 December '20 in the half year financial report of 8.1% of gross loan assets, in line with an increase in the macroeconomic overlay given the COVID-19 environment we're now in. Moving on to Page 20. The group has continued to develop its credit risk management capabilities using the Horizon platform with timely and direct action taken during the COVID-19 period in particular. Static losses are continuing to trend towards the 6% to 7% loss rates with recoveries continuing to be made on written off balances as disclosed in Note 7 of the financial report. The average Equifax score of the loan book is now 635 compared to 620 in 2019, reflecting the improving loan book credit quality noting that the Australian average credit score is 600. Repayment rates have continued to trend at 9% of loan principal, upticking in the last quarter, in line with the availability of government COVID-19 stimulus measures. Moving on to Page 21. The operating leverage available via MoneyMe's tech-driven business model is becoming increasingly evident as the loan book and revenue has grown dramatically over the last few years. Average revenue per loan is 70% up on the prior year, growing in line with loan size and loan term with office operating costs reducing significantly from over 50% of revenue in 2017 to be a 33.6% of revenue in 2020. The group expects to be able to demonstrate this strong loan unit economics into 2021 and beyond, in line with further book growth and technology-related investments.

Thanks, Neal. Especially considering the environment, these are an incredible set of results. I'm pleased to take you through a COVID update on Page 23. Our defense to the impact of a COVID environment has been the ability of the business to flex, innovate and adjust operationally with a relatively low fixed cost base and high levels of automation and a digital delivery model. At the end of June, only 1.4% have deferred payment arrangements. We have additional defenses, a strong balance sheet of $35.4 million in cash and cash equivalents. The group's net interest margin has room to withstand increased repayment risks. And we'll have even more headroom with cheaper funding costs. Clicking through to Page 24. The group has completed a significant level of scenario planning, analysis and stress testing. Note 6 of the 2020 financial report provides an assessment of COVID-19 against the group's key risks as identified in the group's risk appetite statement. The health status of the group is strong and stable, with liquidity in place, customer repayment rates consistent with pre COVID rates and originations and revenue exiting the year in growth status over the prior year. On Page 25, from COVID to opportunity. In worsening conditions, we have leverage to move and further reduce exposure to credit risk. We have overheads and costs that can be reduced, but there is more light than dark in the day, and we are primed to capture structural changes that are emerging. Leading on to Page 27 in our growth and strategy update, we built success on hard-to-crack direct-to-customer and organic growth strategies. Now accelerating our presence in market through business-to-business-to-customer channel distribution with purpose-built products, this opens new verticals for us. And with modern, tech-driven experiences for retail merchants, we will see MoneyMe reaching more places and more customers quickly. The product road map has been a massive focus and there is no better time and advantage to innovate. Clicking to Page 28, you will see we had 1 product at the start of FY '19, the personal loan product. And now we have 5 highly engineered for scale products. You have heard about our first-to-market RentReady. This innovation is a pay-later solution for property managers and landlords, designed to better manage the capital requirements for their investment property. It's a line of credit with access up to $15,000 covering a broad range of options. From property improvements or general maintenance, it's the perfect complementary to ListReady platform for real estate agents. On the road map, we will establish RentReady for tenants to cover rental bonds and other related rental expenses. Then came MoneyMe Plus, the in-retail at point of sale, shop now and pay later, with up to $50,000 available suited to a broad range of verticals, including solar. And there will be more. Keep up traditionals, if you think you can.

And now to Page 31, where I'm sure many of you are eager to hear about our progress with the new bank funding facility. Well, we are confident and on track to deliver the bank funding warehouse facility by the end of this quarter. The proposed structure will be the third facility established in 4 years since creating the MoneyMe master trust securitization program. The new bank facility will provide a significant increase in capacity and a step change in cost to deliver substantial benefit in operating margins. If the new cost structure was applied to FY '20, it would deliver circa $6 million increase in cash profit in the year. The bank facility will also enable expansion into sectors with larger scale value and finance amounts and enables competitive pricing, appealing to a much wider and highly sought after customer base.

We can expect that FY '21 will continue to deliver growth and profit, expanding our offer in more verticals with pricing that offers customers market-leading value, supported by wholesale funding bank rates. We will expand our reach into the buy now pay later segment with our MoneyMe Plus product that has a higher credit offer for customers in different verticals to Afterpay. We will increase our use of automation to support scale and drive cost and servicing efficiency through our artificial intelligence module, AIden. There will be new products in the new verticals to increase our addressable market and grow revenues. Partnership opportunities are likely to drive customer acquisition and support potential expansion into new markets. There is a lot going on. And through the year, we will provide regular performance updates. And as the full year becomes more predictable, we aim to provide you with profit guidance. In the short period of 7 years, the company has gone from being private to public and delivering results, results that CEOs only dream of announcing, creating real profitable value for shareholders and employees, now and during the pandemic, which feels like quite normal. We have delivered above forecasted results, launched first-in-market innovation in real estate. This is an Australian-made business, shaping industry for tomorrow's generation. The vision is clear, the culture and the team is remarkable and the results, they speak for themselves. Thank you, our shareholders, for your support and team MoneyMe. You are incredible, and our future looks bright. Now operator, that concludes the presentation. And may you now open the channel for Q&A.

Your first question comes from Steven Sassine with Morgans.

Congratulations on the results. Look, just probably a couple of high-level questions from me to start. The exit rates for revenue and originations in June were about 12% to 14%. Are you able to give us more of a feel to how things have tracked over the past sort of 4 to 6 weeks in your comfort levels in terms of growth, particularly around the book and its runoff, especially with the prolonged lockdown in Victoria? So just more of an update would be great.

Steve, it's Clay here. Thanks for the question. Exit rates were looking really strong in the exit from June, as you can see, but they've continued and they've continued strongly. We had a close look at Victoria on 2 levels. The first one, of course, was to understand if there was going to be a change in the repayment behaviors of customers. But those repayment levels and rates have consistently performed at that pre COVID level. Equally we're finding the same across originations, which has origination growth in it. So looking pretty strong in the last 6 weeks, and we don't see that changing even with the continuation of the Victoria lockdown.

Great. And sorry, just another high level one. So we had -- you guys had probably -- roughly $180 million in originations versus $1.8 billion in credit demand. Assuming both credit decisioning and funding capacity was at play in that. But keeping all that constant, are you able to give us sort of a rough idea of what you would have been able to do had you had that bank funding facility in place for the year?

It's less about the bank funding facility. We still have stacks at capacity. And if you guys can remember, we've also got a heap of cash on balance sheet and in the bank. So it's less -- absolutely less about the capacity constraints. What it does mean for us is the conservatism that goes into building the sustainable business model that's got contracted revenue and we can take a conservative approach on originating customers. And that's largely -- if you take a look at our book close at the end of the period, that book and the revenue it will generate throughout the course of this year allows us to build strong cash flows. So we're less reliant on the everyday transactions and continuation of originations. So where we see the difference between the $1.8 billion opportunity and the $180 million origination, it's purely around the decisioning, the conservatism and the algorithms that allow us to make sure that we build this continuing thread of reducing provision rates, reducing loss rates and creating more value. If our business model was reliant on short-dated cash flows, then more probable that 10% acceptance rate would need to change. But we're under no stress to change that 10% acceptance rate. We do see that pre-COVID levels that it would be more typical that would have an 18.5%, closer to the 20% acceptance rate. So as a relationship to opportunity and originations, we would have probably doubled the position of maximizing that opportunity. Hopefully, that 10% is, in our opinion, the right approach to take in a conservative environment. We're not losing out on too much opportunity. We certainly are providing customers with a really rewarding experience and helping through the process of using referrals to allow them to find access to the credit product that suits them if it weren't to be for MoneyMe. So strong relationship with customers. We think we're doing a really good job of it, and that opportunity looks like a potential doubling. But of course, that comes with once we see clear skies and credit conservatism can be reduced.

Your next question comes from Ian Munro with Ord Minnett.

Congratulations on the EBITDA beat versus prospectus, especially given the macro backdrop. Just 3 questions for me, please. Just firstly, do you have an update perhaps on share of originations from existing MoneyMe customers versus new to MoneyMe customers? And then, secondly, perhaps a bit of an update on customer acquisition costs and how you're seeing them across the various channels at the moment? And then thirdly, just picking up on your comment regarding the difference between the current theoretical capacity before a new bank facility and the existing receivables balance. Just sort of take your point on conservatism around originations, just given the environment. Just interested in your thoughts on what might change that approach and what sort of triggers are we looking for to get a bit more aggressive and either in relation to the quality of deals that are coming in?

Munro, thanks for the questions. I'll answer probably one of the more later parts of your question. And it relates to the opportunity in servicing the growth. The growth for us is going to come without us waiting for considerations in risk and macro environments to provide clearer skies for us. What we're going to do is launch more products and expand on our verticals and expand on our addressable market. That's our key focus point. And through the launch of these recent products, and, again, they've only just dropped into market, but it gives us access to homeowners selling their property. We've got strong assets backing it gives us access to product set like solar where there is really considered opportunities that doesn't alleviate kind of like macroeconomic risks on the economy, but it certainly does alleviate risks on the normal unsecured personal lending book that we've been running. So we're going to take that approach in terms of addressing the market opportunity. We'll certainly be there for the customers when we see stabilization in unemployment rates, and we're seeing what the stimulus forward plan is from governments and income protection kind of measures. So without trying to wait for those opportunities and clear skies, in summary, we're going to be building more products, launching in new verticals. And these verticals are great, and they help across our business product proposition really, really well insofar as a few measures. The first 1 is our cost of acquisition. Our cost of acquisition was circa $120. So the CAC in 1 of the unit of economics you can calculate being about $120. These channels that we're distributing this product to fall in line with that same CAC. We're not expecting to reduce the CAC, but it falls in line with the same CAC. What it allows us to do, for example, like solar again, it gives us the opportunity to increase that average yield on a customer. So this operating leverage is going to continue. CAC maintaining stable, revenue increasing off the back of larger credit products delivered to customers and also containing, if not reducing, our loss expectations on these customers. And that's the strategy that we got going forward. So we're pretty excited about it.

And there's just another question, please, just around the contribution to originations from existing versus new to MoneyMe customers?

Yes, of course, sorry about that. So in terms of originations, 35% of customers are returning customers. which is great, of course. It just shows that new customer growth is incredibly strong and it's -- and it should be for businesses like ours where the balance is new customers. But that 35% is absolutely phenomenal. And 35% of those customers whilst they're returning, of course, there's no -- they're cheaper to service. There's no CAC. And the more probable experience that we've had with customers in the past that's going to show up in the future is these customers have been tried and tested and their repayment behaviors are really strong. So a really good balance. 35% shows this balance of building the integrity in their book with existing customers and known behaviors. But there's always a growing opportunity with adding new customers to the book.

Your next question comes from Tim Piper with RBC.

Congrats on the results. Just a couple of questions. Just around your repayment rate and the loan book runoff. I mean, it appears to have peaked in May and come down in June. Can you give us an idea of the trends you're seeing right now? And then what you're expecting over '21 in terms of the loan book runoff, just given your comments around where you expect revenue growth and your provisioning to play out in the near term?

Tim, thanks for the question, mate. For sure, cracking set of results. So it gives us a great opportunity and a platform to talk to you guys about a few things. What we're not trying to do though is give too much guidance on what revenue projections are going to look like at this stage, but we're certainly going to be providing some frequent updates and give everyone an insight into it. But what we did learn and we put out an announcement near to the end of March, I think, and it was about the projection of where we're going to close the loan book. And we are pretty much satisfied our expectations around the March time frame. And then the government enabled customers, and a good thing, of course, enabled customers to have access to their super funds. And what we found is a substantial amount of people paid down debt levels. That's a good thing, I imagine. They paid down debt levels, and it's quite bizarre. They paid down debt levels that were current, old and across the board. So we couldn't really target where it was coming from, but it was just largely across the board. That was a good thing in many parts, but it meant that we, of course, had a closing loan book position at the end of the year with this faster runoff than we had expected. But when the second round of access to super funds were enabled, we didn't see the same fast pay down of debt. We've seen a consistent flat trajectory on customers and the repayment profiles. So no spike. It's what we would call the temporary as opposed to any structural shift in customers and the repayment behaviors. So we also expect to see the consistent kind of thread. I think we've projected in the presentation about a 9% on average repayment rate, and that's just so consistent and flat.

That's helpful. And just maybe 1 for Neal on the provisioning. You commented in the release that you've obviously taken the COVID overlay into consideration here, but you haven't been -- I think you sounded on the call you haven't been overly aggressive in provisioning. Can you give us a bit of an idea of what a more aggressive kind of approach to provision would have looked like if you'd taken that -- if you had taken that part, so to speak?

Yes. Let me -- I'll talk through it. Obviously, Tim, it's been a key judgment area. It's been a major focus for us for quite some time. And I guess the key reason why we get comfortable where we're at, it's a data model-based approach. And then we've obviously then looked at it overall. The base assumptions that we've got on the overlays already take into account the COVID environment, and that's based on forecasts from major sort of economic external sort of providers. And then we've also got a significant balance towards, I guess, a downside scenario, i.e., the current environment getting worse than it currently is or was base projected to be. So that would give you the idea that the number we've got in there is fairly conservative when we think robust. It's always a level of judgment. If you -- the key area, I would say, if you see that we've gone up from -- it was 8.1% for the half year, and it's gone up now to 9.6%. So you can see there's a significant increase even though the underlying credit risk for the book is actually a lot better. And in fact, overall, we're seeing the performance of the book -- of the areas staying in line with how we'd expect them to be and so on. So we're relatively happy. The position here is that you just don't know what you don't know. And given the uncertainty of the environment, we think we've landed on a sensible number. I guess time will tell. But we wouldn't expect that provision to come down over time as the COVID -- the uncertainty of the COVID environment dissipates and hopefully that happens sooner rather than later. It's certainly at a level that myself and the team didn't expect it to be obviously when we were at half year because then again, we didn't predict the COVID-19 environment we're now in either. So it is an exceptionally much higher provision level than we'd expect. And I would expect it to come down in line with the uncertainty, but we're certainly not looking to sort of cut it sooner than we recently could because just the fact that the environment is just still that uncertain. Does that answer the question, Tim?

It does.

There are no further questions at this time. I'll now hand back to Mr. Howes for closing remarks.

And thank you, listeners, shareholders and all. It's been a phenomenal year. And I'm just going to echo a few words that we've spoken about before. And that is this is an Australian made, highly tech-driven innovative company that's incredibly exciting. The test of its business model through COVID has shown up incredibly strong. We are highly automated, low-cost business model that has got products that are going to excite our customers. We've got revenue that is real, sustainable contracted revenue that even through the course of this year, with a super low origination level, we'd have cash flow that can sustain us for a long period of time. And that's pretty exciting, and that's before we even talk about the cash at bank. We've, of course, got exciting plans ahead of us, and we'll be super keen to share that with you guys. But again, thank you for your time this morning. I hope everyone has a cracking day, and take care.