MoneyMe Limited (MME) Earnings Call Transcript & Summary

[Audio Gap] H1 FY '22 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, everyone, and welcome to MoneyMe Limited's First Half 2022 Investor Presentation. I'm Clayton Howes, Managing Director and Chief Executive Officer. And joining me on the call today is Neal Hawkins, our Chief Financial Officer. Today, we will run through the key highlights of our first half performance and give you the strategy and outlook for MoneyMe. So let's begin on Page 2. MoneyMe is a leader in the digital credit sector using technology and artificial intelligence to deliver highly automated, innovative products and custom experiences. Our mission is to be the favorite credit partner for Generation Now. As today's presentation will demonstrate, we are well on the way to achieving this with employees who are driven by our core values of innovation, purpose and teamwork. Founded in 2013, we have led the way in consumer credit sector by using innovation to develop a suite of credit products. Our diversified product range includes personal loans, credit cards, retail finance, property sale financing and auto loans, all creating a large total addressable market, which is supporting the business' ability to show consistently high rates of growth in originations and revenue. Our technology focus has enabled us to deliver all of these products seamlessly with market-leading customer satisfaction and credit settings calibrated to the environment. We are proud of our focus on profit with purpose that we believe is supporting the delivery of superior returns. Turning now on Page 4. We created Horizon to revolutionize the credit experience, unrivaled technology that is artificial intelligence driven. It's built to be a single platform that enables us to meet our customers' diverse borrowing needs and deliver exceptional tech-driven experiences. Horizon covers the entire customer journey end-to-end from first contact through underwriting and settlements and then on to collections. Being cloud-based, it provides easy access for all our employees regardless of their location, enabling the business to operate as normal during the current times. All these factors combined have enabled MoneyMe to deliver another exceptional set of results. Now join me on Page 6, where I'll run through the key highlights for the half before handing over to Neal to talk through the financials in more detail. We've had an exceptional first half: Record revenue of $48 million, that's double that of the first half of FY '21. Record customer receivables of $590 million, that's up a remarkable 252% on the first half of FY '21. And even with all that growth, record cash profit of $10 million, that's up 140% on the first half of FY '21. In addition to the financial metrics, there were also a number of key operating highlights. Autopay has been a phenomenal success with over $150 million of loans originated since April last year when the product launched. Autopay has been a revelation in the auto finance sector, providing a real solution to the problems faced by the sales industry. In December, we announced the acquisition of SocietyOne. This highly complementary combination of 2 of the leading digital consumer lenders in Australia puts us years ahead on our journey to be the #1 nonbank credit provider in Australia. MoneyMe continued to broaden its distribution strategies in the first half of 2022, where Autopay has added over 1,000 dealers and brokers in the first half. And we also entered the PL broker market. These are important developments for MoneyMe that further expands our market reach while we also maintain a robust direct-to-customer focus. I'll hand over to Neal to talk through the financials in detail.

Thank you, Clay. I'm pleased to outline MoneyMe's key financial highlights for the 6 months to the 31st December 2021. As referenced on Slide 7, headline items include a record cash NPAT of $10 million, that's 140% up on the prior comparative period; record reductions in the operating expense to receivable ratio to 26%, that's down 14% on the prior comparative period; record revenue of $48 million, that's 101% up on the prior comparative period; record future contracted cash interest of $178 million, that's 293% up on the prior comparative period; record gross customer receivables of $590 million, that's up 252% on the prior comparative period; and record originations of $441 million, that's 286% up on the prior comparative period. These are a strong set of financials. They demonstrate MoneyMe's ability to grow at pace and achieve material scale efficiencies while maintaining sound credit book quality and an increasing cash profit. Turning to Slide 8. The business made further significant investments alongside the impressive growth in the first half of 2022 with more customers, more transactions and more employees. Despite this, MoneyMe still delivered a 140% increase in cash profit to $10 million for half year period. 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. The cash NPAT reflects adjustments to statutory NPAT to support an understanding of underlying returns. The adjustment to use actual losses rather than AASB 9-based impairment expense supports an alignment to revenue recognition over time. Non-recurring item adjustments made for the first half results include expenses related to the planned SocietyOne acquisition that was announced on the 17th of December and is expected to complete next month. Statutory revenue also continues to reflect strong growth from $24 million in the first half of '21 to $34 million in the second half of '21 and now $48 million for the first half of '22. It's particularly pleasing to note the significant growth in future contracted cash interest by the business. This grew from $45 million in the first half of last year to $178 million now. This increasing contracted cash interest sets a sound basis for full year '22 revenue and beyond. Slide 9 illustrates the stellar customer receivables growth posted by the business in the first half of 2022. Originations were a significant $441 million. That's 286% up on the first half of 2021. These were driven by the Autopay product that increased its closing receivables balance to $155 million at the end of December, up from $6 million at 30 June '21. The record originations have driven record customer receivables closing balance of $590 million at the end of December '21. That's 252% up or $422 million above the first half result last year. At 31 December 2020, we had an unsecured loan book. At the 31st December '21, we had 26% of the book being secured against auto assets. The expectation is that product mix diversification will increase further as more recently launched products gain further traction and further new product innovations are introduced. This successful product diversification strategy is increasing the business' total addressable market growth opportunities and supporting robust and diversified revenue streams to withstand market shocks such as with COVID-19. Slide 10 further illustrates the diversified receivables growth being achieved with the business continuing to attract a differentiated range of customers by geography, employment sector and age. The geographical spread of MoneyMe's customer base continues to be broadly in line with the Australian population. The median customer age is 31, which reflects the business attracting customers that are both beginning their credit life cycle, are well progressed in their credit life cycle and all those in between. Industry sector concentration risk remains low with the maximum employment sector concentration at 10%. The loan book's average funded value was $15,000 at the end of December with around 1/3 of the book advances below $10,000, 1/3 in the $10,000 to $20,000 range and 1/3 above $20,000. The business' customer diversification is delivering robust credit outcomes over time and supports resilience to external shocks. Turning to Slide 11. MoneyMe's revenue returns have continued to grow significantly over time from $24 million in the first half of '21 to $48 million in the first half of '22. That's a 101% increase year-on-year. The dynamics underpinning the revenue profile were also continuing to evolve to reflect longer-term recurring revenue from increasing receivable offer terms and values. Overall revenue yield for the first half of 2022 that includes fee income as reflected in the statutory accounts was 21%. This overall blended yield will change over time as the book mix between secured and unsecured lending changes, in particular. Book current average interest rates for the secured and unsecured lending are expected to remain broadly in line with 1H '22 levels. That's 9% and 18%, respectively, before considering any impacts from the SocietyOne acquisition. Moving to Slide 12. The business' record growth and growing revenue is being achieved alongside a stronger credit risk profile. The average MoneyMe customer at 31st December '21 is 31 years old with an Equifax score of 672. That's up from 650 in June '21 and 637 in December 2020. The reduced provisioning of 7.5% at the end of December compared to 7.9% in the prior comparative periods reflects both the 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. Moving to Slide 13. MoneyMe's digital and automated operating processes are allowing the addition of substantial scale and growth at a significantly lower cost. Core office operating costs to receivables was 7% for the first half of 2022. That's down from 11% in the second half of last year and 12% in the first half of last year. General and administrative expense operating ratios are down to 3% in the first half of '22 compared to 7% in the first half of '21. Year-on-year product and development spend continues to be maintained at appropriate levels to support the growth and innovation agenda while also reflecting reduced operating ratios in the first half of 2022 compared to the prior comparative periods. The significant scale benefits also include our sales and marketing area, where the business increased expenses by $2 million in the first half of '22 compared to the second half of '22 to support having more products and higher originations while getting way more bang for our buck. Office operating expense ratios are expected to continue to reflect the 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 14. The 39% period-on-period reduction in the average funding cost rate is impressive, reflecting the expanded use of the Major Bank warehouse, in particular. The weighted average cost of funds were 4.5% at the end of December with funding margins expected to further reduce over time. It's also pleasing to note the further diversification of debt funding sources to now include both a $50 million corporate syndicated facility and a $190 million Autopay warehouse that was set up in the first half of 2022. We expect the funding platform to continue to extend and diversify to meet asset growth requirements. I'll now pass over to Clay to take us through the rest of this morning's presentation.

Thanks for that, Neal. As I mentioned prior to the financials, there were some key operational highlights in the first half, and Slide 15 provides some further color on these. Autopay receivables reached $155 million at the end of the half, up from $6 million at the start. This reflects a highly successful entry for MoneyMe into the auto sector lending market and provides further product diversification. The SocietyOne acquisition, [ well, it created ] to us as a credit provider with an annual pro forma revenue of more than $168 million, further accelerating MoneyMe's exceptional growth story. The further expansion into the B2B2C space through Autopay and PL brokers to accompany MoneyMe+ and ListReady means that MoneyMe's originations growth has become increasingly diversified. 62% of originations came from the direct channel in this first half compared to 87% in the first half of FY '21. Now turning to Page 16, I'll talk about our customer experience. The strong focus on innovation and technology, along with highly spirited performance culture at MoneyMe, is creating incredible customer experiences. Despite the expectations and standards of our target market, our customer satisfaction and service levels continue to be remarkable with a Net Promoter Score of 76 and a Google product star rating of 4.7. We continue to attract returning customers, which drives attractive acquisition economics and better credit quality of our receivables while significantly broadening our overall customer base. We've now provided credit to over 150,000 Australians. Now what I'm particularly proud of is that all the achievements we have talked you through today have been achieved without sacrificing the acknowledgment of our broader responsibilities to the environment, our community and our employees, as outlined on the next page, in 17. MoneyMe is proud of its environmental, social and governance approach and achievements to date with a strong commitment from the Board and management team to continue focusing on building profit with purpose. Highlights of the first half include: measuring greenhouse gases as GHG emissions, including scope 1, 2 and 3 emissions; implementing an Autopay tree planting initiative, which has already offset the carbon emissions produced from over 5 million kilometers driven, that's equivalent to carbon produced from 137-plus laps around the world; lodging our 2021 Modern Slavery Statement on Australian Border Force Modern Slavery Register; and announcing a major partnership with Australia's leading youth cancer charity, that's Canteen; linking management and staff performance rights and equity incentives to ESG outcomes; and achieving an employee NPS score of 72, with more than 95% of Australian employees participating in our employee equity incentive plan. Moving into the major product highlights on Page 18. This is our personal loan. Enabled by our Horizon technology, we deliver an outstanding, digitally fast onboarding experience with loan approvals typically within less than 2 hours. Our personal loan product continues to generate outstanding success for the business and saw a year-on-year increase by 142% for the customer receivables base whilst maintaining an average Equifax score of 665. During the first half, we also expanded the personal loan broker market. On Page 19 is our Freestyle virtual Mastercard, which continues to resonate with Generation Now, posting record balances in the first half. Customer receivables have grown by more than double with 155% year-on-year increase from the first half of '21. It is packed with features and designed for customers to manage credit with much more control. Freestyle fits well into our customers' lifestyle and is being used for everyday type of purchases with an average transaction value of $65. Over 28,000 active Freestyle card users with a median age of 30 manage their available credit balance to about 71% of their said credit limit. I'll turn to Page 20 now. In August 2020, we launched our first shop now, pay later product, MoneyMe+, to capture finance at the point of sale. We're going up against the traditional nonbank lenders who have mostly been left alone to service the larger ticket retail finance sector. We have signed up over 430 retail merchants to date. The MoneyMe+ product contributed about 4% of our total customer receivables in the first half. Our ListReady product, a pay later solution for listing expenses, is our first property sector finance product. It had a book balance of $8 million at the 31st of December 2021 with more than 3,000 agents so far signed up to use the platform. Partnered with over 700 real estate agencies, we're excited for the future prospects of this product strategy. Our latest and greatest innovation is Autopay, a secured vehicle finance in under 60 minutes. Launched in April last year, it's a game changer for the huge auto finance sector. Continuing its stellar growth, Autopay reached $155 million in gross customer receivables in the first half of the financial year, up 253% in 3 months. Currently, there are over 1,250 dealers and brokers on the platform, and the feedback has been incredible and more signing up. It's fantastic to see growth across all our diversified products and distribution channels. The outlook for the rest of FY '22 and beyond is very promising with much more innovation to come. Now I'm turning on to Page 24. Our highly driven and capable team remain focused on creating value and further strengthening our incredible growth trajectory. We are already delivering a profitable business with growing and diversified revenue streams, reducing acquisition and funding costs and higher customer satisfaction. From this base, we have the ability to expand our distribution channels even further, particularly into the B2B2C space. In addition, the acquisition of SocietyOne has immense strategic value and will boost revenue, customer and profit growth. Turning to Page 25. We're incredibly excited to soon be bringing the SocietyOne business into ours, fusing their strong brand recognition and highly complementary customer base with MoneyMe's leadership in product innovation, efficiency and customer experience. This acquisition delivers a powerful combination of 2 of the leading innovators and disruptors in the consumer lending market and will accelerate winning market share from incumbent lenders. SocietyOne has a platform and brand that resonates strongly with customers and has built about $400 million pro forma loan book with a personal loan portfolio distributed through direct and broker channels. In addition, over 158,000 customers have engaged in SocietyOne's credit score wellness product. The company is backed by a high-quality shareholder base, who we are delighted will become shareholders in MoneyMe after the transaction completes. The acquisition delivers 5 key benefits: the first, significant operating leverage through increased scale; the second, material cost-saving opportunities; third, large revenue synergy opportunities from SocietyOne's customer base; fourth, unlocking new distribution opportunities, expanding into new broker channels with optimized user experiences on the Horizon, leveraging SocietyOne's credit score product and its banking-as-a-service partnership opportunity with Westpac; five, leverage power of combined data. We'll have over $2 billion of combined customer origination data that will help us improve our credit score management. Turning to Page 27. The transaction is on track for successful completion by the 15th of March 2022. A key highlight was the 99% MoneyMe shareholder vote and 89% SocietyOne scrip election on the 1st of February. Postcompletion plans are well progressed to support revenue and cost synergies on or ahead of plan. You may now join me on Page 28. MoneyMe has elected to raise $25 million of funding through existing commitments from leading Australian investment firm, pacific Equity Partners. This will allow us to complete the acquisition of SocietyOne and the associated cash requirements. The combined business with pro forma receivables of nearly $1 billion and $153 million in revenue plus synergies is significantly additive to our business model, and I look forward to providing updates through our stages of execution. In conclusion, the progress we have made over the last 6 months, combined with all the benefits we see coming from the acquisition and our continued innovation-led focus, means I'm incredibly excited for MoneyMe and its progress to be the favorite credit provider for the digital generation, creating customer value and exceptional experiences that delivers shareholder returns. With that, we will hand it over for questions. Thank you.

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

Congratulations on the results. Just a couple from me. Clay, I'll probably start with a broad one for you just on the SocietyOne acquisition. Can you just talk to some of the work that you've already begun on the actual acquisition and integration itself and just your confidence levels around a successful integration and particularly hitting those synergy targets by FY '24?

Steve, thanks for the question there. SocietyOne is just incredible for us. It's -- one of the considerations we wanted to make sure is the ability for us to not be distracted with our existing growth plans. And the key factor for us was how well and fast can we integrate SocietyOne into our business, particularly onto the Horizon platform. And through our discovery before we purchased them, we understood their business very, very well. With employees and people that are experts and the ability for us to construct an approach that allows us to get SocietyOne onto our platform, the people plans, the social elements of it, the funding structures, the complexities have all been worked in parallel for us to reach this 15th of March with a whole lot of confidence. So the job has already begun. Pre-Christmas, we had already started working on what that people structure was going to look like. And quite frankly, when you think about the synergy targets, there's 2 real key benefits for us. The cost synergies are largely removing where duplication exists, and we can very confidently see our way to delivering those synergies, if not ahead of time. The synergies come from people duplication, that's easy for us to identify and work through really, really proactively. The second part is the ability for us to decommission certain elements like premises and license costs, and we well and truly already got that in plan for us to execute. What we really like about the SocietyOne transaction when you think about the integration into our business, it's a single product-focused business, that's SocietyOne. That personal loan product, we understand incredibly well. The platform that it's run on is a Salesforce platform. We performed the exercise already where we originated on our front book on the Salesforce platform, and we migrated that customer base and all their details onto the Horizon platform. The people that have done that exercise all are MoneyMe people. They are really intent, and they know exactly what they need to be doing. So we see this project kicking off officially from the 15th of March. But behind the scenes, we are really well and truly putting the tools, the structure and everything in place for us to confidently deliver on synergies and make this a success story. And our marketing teams, they're really working on the cross-sell opportunities, particularly the 160,000 customer base that's engaged in the credit wellness program. We'll be cross-selling our products to that audience really quickly. So both revenue and cost synergies are absolutely in hand, and the team is doing a really, really good job to identify which are the moving parts that need to happen fast. But as I said, already -- the job has already started, and we feel very confident that we'll see those synergy benefits already being -- have made an effect in this current half of the financial year. So we're not waiting for very long. We're seeing those benefits come through already in the first half.

And just following on from something that you just said there. Obviously, SocietyOne is a single product-focused business with the personal loans. Can you just talk to some of the strategies you're engaged in monetizing some of those SocietyOne customers and sort of introducing them to the broader MoneyMe product suite? I mean, particularly that 158,000 people using that credit score product, it seems it's a good source of customers for you to tap into.

It's a great source of customers. So there -- we are familiar with our marketing our Freestyle product to engaged sources like the debt/credit score model that used to exist that SocietyOne ran with Equifax. So it's a familiar proposition to us, and it's actually SocietyOne's lowest-cost source of originating new business. If they had more products, they'd certainly be a much bigger business than they are today. So what we're going to be doing is leveraging that customer base and engaged audience and cross-selling our Freestyle product today, and that's really effective and cheap for us. That gives us a really strong opportunity to develop less complexity, to originate those customers on -- directly on to the Horizon platform. And we already see -- well, it should be materializing quite a large amount of benefits from that. Now we've done this before. When MoneyMe first launched, we were a single personal loan product business only. When we launched Freestyle, I think you might remember, we quickly had an engagement of Freestyle that took us to -- which is now over 28,000 customers. When we had about 30% take-up rate of who communicated our Freestyle product to our personal loan customers, that 30% take-up rate was a substantial advantage. The economics are great because, of course, you don't pay any acquisition cost, and you're getting a familiar customer engaged onto our platform. So we'll do 2 things. First one, I communicated that highly engaged 150,000 customer base. By the way, that's growing. That's only been, I think, around 2 years in the making. So that customer base is growing really healthily, and we'll be able to leverage that even further. Second one is the MoneyMe customer base, they are also able to get access to this wellness program. So we'll be able to give our MoneyMe customers a product that they haven't had before, and that engagement program allows us to create even better advantages and more stickiness with our existing customers. So win-win strategy with that model.

That's great. And just the last one for me. I appreciate the time. Maybe for Neal, actually. Obviously, there's been a pretty rapid growth in receivables, particularly on the Autopay side of things and with that new Autopay warehouse in place. How are you thinking about the possibility and timing around earnouts? Is that something that's on the agenda? And how do you see your cost of funds trending sort of over the next 12 to 18 months, if you're going to start utilizing...

Yes. It's the same phenomenon in terms of the growth for the first half of this year. In terms of the -- and of course, you all know that we've got the new warehouse facility in place at the end of December with Morgan Stanley, which is great to see. So we've essentially sort of doubled the number of facilities available to us in the last half. We reasonably expect to earn out sort of different parts of the book in the next foreseeable future. Certainly, it'd be reasonable to expect something to happen this calendar year. It's just a natural progression for the business model. As we build out the warehouse platform, you'll naturally see us progress out to the term outs. So in terms of book size, you'll see market term outs happening anything from sort of the $200 million, $300 million sort of range. And clearly, that's where we are at some part of the book. And in the Autopay book, you can see that's progressing strongly towards those levels. In terms of the cost of funds, we're still very much expecting the margins to come down as we reap the benefits of the cost of the scale efficiencies. So you'll see that the weighted average cost of funds at the end of the period here is still below 5%. As we get scale benefits, including from SocietyOne, you'll see us being able to access sort of further cost of funds reductions. And of course, those term outs will certainly support that. So I'm really positive. Great to see that the step change that you've seen sort of year-on-year, we still see that continuing to reduce over time as the scale increases.

The next question comes from Wei-Weng Chen from RBC Capital Markets.

Just a couple of questions from me. Just first one was on really the reliance on Google [ has picked up some ] acquisitions. Just wondering if you could speak to sort of how much you depend on that as a sort of smaller customers? And I guess, a number of people -- a number of companies have said that there's increased cost associated with that marketing channel. Just wondering how that is impacting you guys and how that might impact on price.

Wei-Weng, thank you for the questions. It's incredible when you think about what we've managed to deliver with the cash NPAT positive first half of $10 million, whilst we took the book from -- this time last year was $168 million. Just MoneyMe alone is now $590 million. And so to be able to increase the scale of the business as well as deliver cash NPAT, our acquisition costs are well and truly in check. What we're finding, which is incredibly helpful, is the expansion of our distribution channels. So whilst we were predominantly sort of a direct-to-customer through digital channels, Facebook, Instagram, YouTube, Google, both SEO and, in some instances, AdWords, where it makes sense, we're expanding quite rapidly. Now what we've been able to do is augment our Google and other direct pay channel advantages to have property sector products like ListReady that's distributed to real estate agents with no acquisition costs. We added dealers into the model, brokers into the model. And we continue to expand our B2B channel sector, including where retail is distributing our products for us. So what we're seeing now is about a 57% split of direct-to-customer, which is largely driven through Google, Instagram, Facebook, YouTube. It's quite diversified in the way we think about the channel structure. But our reliance on Google is substantially lower than it was a few years ago, and it's getting even less so. There's a whole range of customer diversification, product diversification and certainly channel diversification that we're seeing in this book. And when we think about adding SocietyOne into the model, then we get access to even further distribution opportunities. They've got strong broker platforms that they've created and they're very well established, and also traditional forms of advertising that are actually now really a strong advantage for that business, particularly as their shareholders have supported that business incredibly well and intends to do so ongoingly. So when we get this big business that's moved from $168 million in loan book last year and now we add SocietyOne, we have -- and at the same time, we now have a $1 billion loan book. We have access to more distribution, more customers, even cheaper distribution models now that we think about the SocietyOne customer that we can sell -- cross-sell our products to. And when you think about some of these customers that are homeowners and mortgage-based customers, products like ListReady really work well that we can distribute direct to their customers, et cetera. So we see our continuing trend where our cost advantages, where our scale advantages are creating benefits. Not only are we just growing, but that diversification is creating more robust opportunities for us and cheaper forms of where we're accessing new customers.

Excellent. And then just a second question just on rising interest rates. I guess what are MoneyMe's sensitivities to rising interest -- funding costs, sorry?

Yes. There's a few parts to that. The first part that Neal touched on is we got these scale advantages that are materializing into our cost of funds coming down quite rapidly. I think we moved our cost of funds in this period year-on-year by about 39% already. So whilst we might see some rising interest costs putting some upward pressure on the price, for us, our scale advantages are actually putting serious downward pressure on price that will absolutely, in our opinion, offset any raise in costs that we might get. There's a second bit that Neal touched on, which is the term out arrangements for a business that reaches scale. We've seen precedents in the market where deals that reach term out markets with these major banks are getting their funding costs dropped by about 50% and in some cases, even more. So certainly, when we think about rising interest costs, we certainly have plans in place that way more than offsets annualizing costs. The second one is, which is one we don't think we really need, but if there were to be an Armageddon state here, we've got a variable-based book. So if there were to be upward pressure that we wouldn't be able to sustain specifically and we wanted to apply certain normality across our portfolios, we have the right to be able to maneuver with the price with our customers and charging structure. But again, I don't see -- whilst that's a good fallback to know, we're in an advantaged position where we've got strong NIM in our book. Our loss rates are certainly coming down quite substantially. Our customer lifetime value is going up quite substantially, and our cost of capital is coming down. So I think we're in a really, really strong position, and the outlook is looking very, very good.

[Operator Instructions] Doesn't appear to have any further questions. That concludes the MoneyMe Limited H1 FY '22 Results Call. Thank you once again for joining us today. You may all disconnect.