MoneyMe Limited (MME) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MoneyMe FY '21 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Clayton Howes, Managing Director and CEO. Please go ahead.

Good morning, and thanks for joining MoneyMe's FY '21 Results Update. I'm Clayton Howes, the Managing Director and CEO. And together with Neal Hawkins, our CFO, we are delighted to report the incredible results. The growth execution in the business has been extraordinary. The team delivered a bigger business, a suite of breakthrough products opening new categories, exceptional customer experiences, big new funding structures and market-beating results. Looking at Page 2. The key highlights for the year. We more than doubled our customer receivables. Growth of 149% year-on-year. We added a huge 240% to our future contracted revenue, $98 million. That's 3x the end of FY '20. We delivered a positive cash NPAT of $12 million. That's a standout result and while adding scale to our operations, adding a lot more customers, adding 2 big sector-focused products and turbocharged our future revenue. We established our major bank warehouse funding, which is a major growth and efficiency catalyst for the business, and we'll see a lot of benefits from it in this year. We launched MoneyMe+, expanding our distribution to retailers who offer their customer payment terms at point of sale. It's innovation in a big market that is mostly still left to the large traditional nonbanks to service. In the final quarter of the year, we launched Autopay, drive-away finance in under 60 minutes, and this is already our fastest growth product to date and our first asset-secured finance. And most importantly, we continue to give our customers amazing experiences. They rated us with a Net Promoter Score of 78 and our average Google reviews are 4.8 out of 5 stars. On Page 3, Horizon is our proprietary platform, unrivaled tech and has effortlessly kept up with the demands of our rapid growth. When we created Horizon, it was to completely revolutionize the credit experience to give people a fast, seamless access to products they like to use and all in one place. Leveraging Horizon, we added stacks of cool new features to existing products and rolling out 2 new big products were super cost and time efficient. As we grow, Horizon gets better. Horizon uses dynamic risk-based pricing that looks far beyond just the customer's credit file. And with its artificial intelligence called AIDEN, it processes data about the customers' financial habits and calibrates offers with fair and competitive pricing in real time. Some people are getting to know MoneyMe because of its innovation and are asking for new products from us. And the answer is yes. We will be bringing up more breakthrough innovation products this year. Moving to Page 4. We are on track with our mission to be the favorite credit provider for Generation Now and making credit fair for everyone is an important part of our purpose. On Page 5, you will see some of the highlights of our sustainability statement. It's quite natural for MoneyMe staff to deliver credit experiences for the new generation because we really do get our customers. At our core, we believe in sustainability, environment and social values. We have a Kulture Klub and an ESG officer dedicated to progressing our broader purpose with customers, staff and shareholders we have shared values in. One of my other favorite stats that you'll find in our sustainability statement in our annual report is we had over 10% of our employees advancing their careers through promotions and role changes in the year at MoneyMe. That is a sign of growth of our business, but importantly, our strategy to hire talent early and support their growth and development is great to see working. Neal, over to you to take us through the financial highlights, please.

Thank you, Clay. I'm pleased to outline the key financial highlights for MoneyMe for the 12 months to 30 June 2021. As referenced on Slide 7, headline items include: record gross customer receivables, up 149% on the prior year; record originations, up 115% on the prior year; record revenue, up 21% on the prior year; record future contracted cash interest, up 240% on the prior year; and record reductions in the operating expense to receivable ratio, which is down 33% on the prior year. These measures have all supported a cash NPAT of $12 million, which is up 16% on the prior year. Turning to Slide 8. The business invested and achieved significant growth in 2021 with more customers, more transactions and more employees. Despite this, we still delivered a 16% increase in cash profit to $12 million. The ability to demonstrate consistent growth in cash NPAT while achieving high receivables growth reflects the strong underlying unit of economics within MoneyMe's business model. Statutory revenue also continues to reflect strong growth from $32 million in 2019 to $48 million in 2020 to $58 million in the financial year 2021. It's also particularly pleasing to note the significant growth in future contracted cash interest by the business. This grew from $14 million in 2019 to $29 million in 2020 and by a step change to $98 million for year-end '21. There's $50 million of contracted cash interest for the financial year 2022 to be booked, setting a sound basis for 2022 revenue. Cash NPAT reflects adjustments to statutory NPAT to support an understanding of underlying returns. In particular, it includes an adjustment for items that are nonrecurring in nature and an adjustment to reflect actual rather than projected losses. Nonrecurring items and adjustments made for the '21 results reflect expenses related to an unsolicited business acquisition offer as disclosed in our interim and annual report and product and development design costs associated with our Autopay products and MoneyMe+ products. The adjustment to actual losses rather than AASB 9-based impairment expense supports an alignment to revenue recognition over time as illustrated on the slide. Slide 9 illustrates the fantastic customer receivables growth posted by the business in 2021 financial year. Originations were a significant $384 million, that's 115% up on financial year 2020. These were driven by continuing growth in the personal loan product origination from $95 million to $170 million and from the Freestyle product originations, which grew from $79 million to $171 million. It's also pleasing to note the contribution made by our more recently launched products at $43 million, that's over 700% up on the prior year, which was $5 million. Overall, the business has demonstrated a very strong 3-year compound annual growth rate in originations of 81% and this is despite 2 of those years being impacted by the COVID-19 environment. The record originations have driven a record customer receivables closing balance of $333 million at 30 June 2021. That's 149% up -- or $149 million above the prior year result, which itself was a record. In 2019, we largely had a personal loan book. 2021, we've got a personal loan book, a Freestyle book and other more recently launched products making a significant contribution. This increasing product diversification has given us an impressive CAGR of 95% for customer receivables over the last 3 years. Product diversification is also supporting a robust revenue stream and a resilience to withstand market shocks such as with COVID-19. The expectation is product mix diversification will increase further as more recently launched products, such as Autopay, gain further traction and further new product innovations are introduced. Slide 10 further illustrates the diversified receivables growth being achieved with the business continuing to attract a diverse range of customers by geography, employment sector and age. The geographical spread of MoneyMe's customer base remains in line with the Australian population. The median customer age is 30, which reflects the business attracting customers that are both beginning their credit cycle, are well progressed in their credit life cycle and all those that are in between. Industry sector concentration risk remains low with the maximum employment sector concentration at 11%. This diversification is delivering robust credit outcomes over time and providing resilience to external shocks. Turning to Slide 11. MoneyMe has now built a whopping $98 million revenue base, that's 240% up from last year. This reflects trend increases and diversity to loan value and term, partially offset by reducing average and risk-adjusted customer interest rates and record originations that were posted in the second half of 2021 in particular. Moving to Slide 12. The business is continuing to demonstrate an ability to post higher CAGR revenue growth, which was 34% for the 3 years to 30 June '21 The growing contracted revenue each year is continuing to underpin this growth, reflecting the time lag between customer receivable origination and revenue recognition. Pleasingly, future contracted cash interest at 30 June '21 of $50 million for '22 is higher than the prior year number of $48 million of total revenue. The business is earning over 90% of its revenue from interest income rather than other income, such as for late fees and charges. This concentration on recurring interest income is supporting fair and transparent customer pricing as well as steady revenue accumulation over time. Moving to Slide 13. The business' record growth and growing revenue is being achieved alongside reducing expense ratios as expected and projected. The average MoneyMe customer is 31 years old with an Equifax score of 650 . This reflects robust underlying credit quality that is supporting strong static losses and charge-off rates, which are continuing to trend down favorably. The reduced provisioning of 7.9% at June 30, '21 compared to 9.6% for the prior period reflects both lower receivable credit risk and an improved macroeconomic outlook while maintaining an appropriate level of prudence. The business' credit risk continues to be well supported by book diversification and underwriting settings despite the challenges from the COVID-19 environment. Slide 14 sets out how the businesses record growth and growing revenue is also being achieved alongside reducing office operating expense ratios. The results in this area reflect the digital and automated operating processes within the business that are allowing us to add substantial scale and growth at a significantly lower cost. Put simply, we're getting so much more bang for our buck as the business scales. Core operating expenses were 10% for 2021, down from 12% in the prior year and 16% in 2019. General and administrative expense operating ratios are down to 6% in the full year '21 from 9% in the prior year. Year-on-year product development spend continues to increase to support the growth and innovation agenda while also reflecting reduced operating ratios in 2021 compared to the prior year. The significant scale benefits also include our sales and marketing area, where we increased our expense by $5 million in '21 to support us having more products and higher originations or getting way more for our money. Office operating expense ratios are expected to continue to reflect significant economy of scale opportunities in the business as customer receivables growth continues at a pace. The business' funding expense ratios also reflect significant reductions as outlined on Slide 15. The 55% year-on-year reduction in funding cost is impressive, reflected the setup of the major bank securitization-funded facility in September 2020. The group has continued to expand its use of the major bank warehouse post June '21 to have an overall external funding capacity of $338 million and for the major bank warehouse trust to have a broader eligibility criteria that includes being able to fund the recently launched Autopay product. The group also successfully executed a corporate debt arrangement in April 2021 that was drawn to $22 million in July '21 to support further asset funding. Slide 16 further summarizes the financial highlights for 2021 for the group: record originations growth, record closing customer receivables, record future contracted cash interest, ongoing customer receivable diversification and a continuing reduction in expense ratios. These achievements and the momentum achieved in '21 sets the group up exceptionally well as we move into the '22 financial year. I'll now pass over to Clay to take us through the rest of this morning's presentation.

Thanks, Neal. I'm on Page 18, everyone. We're doing well because of our customers. Our customer-first approach is more than a focus. It's a belief we have. We are winning customers over from major banks and nonbank lenders that are stuck with antiquated processes, and we're creating lasting impressions. Our customers are advocates. We're becoming their go-to service, returning for their second or more product experiences with us. And automation is making it easy to scale without changing the great experience they love. Also, we have a diverse customer base and is creating strong integrity in the loan book. On Page 19, the ratings we get from our customers who are the digital generation have high expectations and standards and our team are delivering unparalleled experiences. Our customers tell us they love our easy and fast processing and our transparency with balances and charges and have given us an average 4.8 out of 5 Google star ratings, a 78 Net Promoter Score. These are off-the-chart stats and with rapid growth, major expansion and through COVID. Moving into the major product highlights on Page 20. MoneyMe commenced its journey in the direct-to-customer market with a digital personal loan. It's generating success from winning customers over from the bank and nonbank lenders and grew by more than double with 112% year-on-year increase to the customer receivables base whilst also increasing the credit quality with the 665 average Equifax score. The average age of our PL customer is 31 and younger than the typical age we see from the PL nonbank lenders, which is a good thing for future value. During the year, we also increased our loan offer that expands our relevance, pricing and position to gain more customers from the banks. On Page 21 is our generation in innovation. The Freestyle virtual Mastercard that's taken center stage grew by more than double with 159% year-on-year increase to the customer receivables base. It's packed with features like pay anyone and designed for customers to manage credit with much more control, beats the old bank credit card and it says goodbye to plastic forever. It fits well into our customers' lifestyle and being used for everyday type of purchases with an average transactional value of $60, things like Uber Eats, groceries, iTunes and more. They manage their available balance to about 70% of their set credit limit. On Page 22. Early in the year, we launched MoneyMe+. That was our first innovation to capture finance at the point of sale. It is targeting the traditional nonbank lenders who have mostly been left alone to service the larger ticket retail finance sector. Already, we have signed up 380 retail merchants and growing our customer receivables. It contributed about 5% of our total customer receivables in the year. I'm on Page 23. ListReady was our first property sector innovation to reach the homeowner market, making it an easier way to pay the expenses to sell your house. It has a book balance of $8 million and more than 3,000 agents so far have signed up to use the platform. With 200% year-on-year growth and with its homeowner credit and low distribution cost advantages, we are very excited about the future prospects this product strategy has installed for us. On Page 24, our latest and greatest innovation, AutoPay, is drive-away finance in under 60 minutes. It's a game changer for the huge auto finance sector. It was built as our fifth-generation technology in the Horizon platform and launched in April. From the time a customer chooses to buy a car to the time they drive it away on finance with the seamless application using high-powered data processes, the deal is settled, security lodged and all in under 60 minutes, already 200 dealers and brokers have signed up. On Page 25 now, you can see some of the key features and it opens up a massive market for us. 3.2 million cars sold in Australia a year where 90% of cars sold in dealerships are on finance. It is quickly giving dealers with Autopay a sales advantage over others and available 7 days a week, which dealers and brokers are not used to having. It's a market with serious structural shifts going on with banks shifting focus on their other products. Our timing to grab market share is perfect. Page 26. The reception from the dealers and brokers has been incredible. They're saying to us it is a game changer, and they're selling more cars because of Autopay. We think the product is great, but we're already working making it even better and quicker. The outlook for FY '22 is very promising. On Page 28, the outlook for MoneyMe is looking very strong. We grew the business by more than double, 3x the future contract revenue base, more than done the receivables book, positive cash NPAT. And the momentum is gaining pace. We're on track to turbocharge revenue, grow our customer lifetime value, create more operating efficiencies as we scale and continue to build wow experience for customers. You can expect us to launch new products this year that will expand our addressable market. And we're packing on the B2B2C channel distribution while still building out the brand direct to customers. And with clearer aim in the macro environment, international market expansion is well on our radar. Overall, we are looking to accelerate returns and we're out of the blocks this year with a good start. Thank you for listening. We're grateful for your support of MoneyMe. May we open the line for Q&A.

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

Congrats on the results. Just a couple of quick questions from me, if that's okay. I guess we'll start generally at a high level. Obviously, you guys have showed improving credit scores over the last couple of years. Net charge-offs are coming down and pretty robust originations growth. Can you just talk to how you're continuing to balance the credit quality of newly funded loads into the book. Historically, it's been around, what, 18% to 20% approvals off the top of my head. Has that remained consistent? Are there any skews in the book that you're looking towards with the current COVID lockdowns in place, and just how you're generally balancing the book at the moment.

Thanks for the question then. I might take that first one, Neal. What's really interesting for us is when we have the catalyst of our major bank funding, we were able to expand our product offer and the strategy behind expanding the product offer was to create more customer lifetime value and that being when we moved our product to allow for $50,000 decently priced -- or competitively priced Personal Loan and we increased our available offer on Freestar, we were able to attract that higher-value customer. So we're seeing substantial growth, and that's because we're more relevant to customers, but we're more relevant to those higher value customers. And in turn, you'll see our average Equifax profile quickly accelerating and it's now sitting at about 650 average Equifax profile. Now the book is still calibrated to a COVID environment. But when you think about the diversity in our product set, diversity in our customer base and even if those customers operate within the current COVID environment, our maximum exposure is something like under about 10% of any industry that they're employed in. So that's really giving us strong diversity that's giving us a robust model that those single concentrated employment sector risks like, for example, hospitality, travel, tourism, which is mostly impacting people's jobs. So we've been pretty confident about how our model has been calibrated. And -- but we're certainly looking forward to when lockdowns and the employment stats that governments are projecting out towards being record low unemployment rates, we certainly look forward to unlocking some of the constraints that are sitting within our decisioning models. But another thing I'm supposed to add is MoneyMe is continuing with its customers -- growth customers, but its returning customer base are really affording us to continue the growth in a risk tolerated model that gives us some strong advantages, low cost of servicing these customers, providing stronger unit economics. And already something like 39% of our borrowers have at least 2 products with us known to MoneyMe, strong credit performance. So the book's integrity continues to grow. And if we think just specifically on COVID, only 0.1% -- so 0.1% of our borrower base has payment deferral arrangements because of COVID. So as you can tell, maybe we might think that we've over-calibrated it for the current COVID risk environment, but we're pretty happy with the growth that we're getting and we're pretty happy with the outputs that we're getting from -- certainly from the book, but look forward to, obviously, lockdowns lifting and seeing an extra turbocharge in value coming through.

Great. Can I just get you to expand a little bit on the Autopay product for us? I mean I saw a few quotes on your press about some of the customers' feedback. But what's the general feedback you guys have been getting from the dealerships? Has there been any issues around commissions or pricing at all? I mean is it a pretty rapid uptake? And how do you see that playing out of FY '22?

It's going to be massive. Like when we built it, we built it with a very comprehensive understanding of where the gaps were in the auto industry. We had really familiar auto industry people participating in the architecture of Autopay. So we created one that solves for a whole stack of inefficiency. Not only does it allow the dealers to sell cars within 60 minutes and 7 days a week, but it gives the experience to the sales -- it puts the experience back into the salesperson's hand. This customer doesn't have to go into a finance manager's office and deal with things and deal with things that just aren't necessary that cause complication in the sales process. So we created this model that looks at car values, adjusts for risk, creates the proposition to the customer that gives the dealer the opportunity to keep the customer in the showroom and the customers driving out. And so what's happening here is it's not just a finance solution, but it's a sales solution for the dealer. So they're telling us they're selling more cars to then, a, they're not losing out at sales, but they're keeping the emotion high with the customer, which is what they're all about. Now what also has a really strong advantage is it's a risk-adjusted product. So it's quite typical that a dealer or a broker would have to navigate the many options that exist for financing cars from the Westpac and Macquarie Bank offers to some of the other nonbank lending offers. With Autopay, the dealer doesn't have to think about who's going to be the appropriate fit for this customer because we've got a calibrated model that allows us to traverse across really efficiently across the lending spectrum, and it gives a deal more confidence that they're going to get the right outcome for the customer with a highly competitive rate and also the outcome that they don't have to go and ping around to try and find the right lender that suits that borrower. So it really does sell for way more than that 60-second fast turnaround time. But even that 60 -- sorry, 60 minutes, even that 60 minutes, we're working on even making it even quicker. Now with the dealer, think about this: they get a customer who walks in, likes the car, goes for a test drive. By the time they're getting back from the test drive, it's got the opportunity to click a few buttons and actually get finance and drive that car away fully settled. What's happening is that dealer gets paid straightaway. And that dealer has got cash to go and buy another car and effectively have less cash drain on their business and the ability to go and add more stock to their floor. Now so this is when we talk about a game changer. We talk about that 60 minutes, but it's far, far beyond that. So what we expect for 2022 -- FY '22 is just nothing short of greatness with this product. Already it's the fastest growth product that we've had in our business in existence and we've only just launched it in April. You would have seen some of the previous updates that we've provided. Now that's just accelerating for us. And what's good about this is it's got a larger term value. So it gives us what we were aiming for against our strategy, which is creating customer lifetime value, creating contracted future revenues for our business. So it's bang on strategy for us. And of course, it heads in the right direction with how we think about risk. It's proven in the Australian market about the value of cars and how they're holding up and the security attached to them and so first secured asset. So it complements what we're doing very, very greatly. So expect lots of things to come in FY '22 on Autopay.