MoneyMe Limited (MME) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MoneyMe 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. Thank you for joining. I would like to begin by acknowledging the traditional custodians of country throughout Australia and the connection to land, sea and community. We pay our respect to the elders, and we look forward to taking any questions you may have at the end of the presentation. We started out as a digital lender, but we have made tremendous progress since. In the year that has passed, we have expanded our ecosystem of financial products to service more than just our customers' credit needs and have essentially grown the business into a digital nonbank. MoneyMe is a different kind of credit business. We don't do paperwork, ATMs or bricks-and-mortar stores. We know today's digitally-savvy customers don't have time for outdated processes. So we create innovative app-first financial products that meet and exceed the expectations of Generation Now. We know time is everything. So we focus on delivering speed and technology is our edge. Our mission is to be the #1 challenger to the banks. And as today's presentation will demonstrate, we're well on the way to achieving this as we are gaining market share fast and building a growing ecosystem of products tailored to our customers' different credit and financial needs. If you can turn to Page 2, I will run you through the key highlights for FY '22. MoneyMe delivered exceptional growth in FY '22, not just in scale but also in cash profits, in our funding capacity, in our team capability and our product portfolio. And we did so while improving our credit quality to set the business up for continued success in what could be a challenging macro environment. As set out on Page 3, MoneyMe grew its gross customer receivables in FY '22 from $333 million to a phenomenal $1.35 billion. That's loan book growth of more than 4x. Organic growth from across our product range accounted for the majority of the increase, led by the standout success of our secured auto finance product, Autopay, which now makes up a significant part of our loan book. Another key standout was the acquisition of SocietyOne in March this year that added a further $0.4 billion of high-quality assets to our book. Such huge scale increases were made possible with our maturity in establishing our debt funding capacity from $0.3 billion to $1.7 billion in FY '22, a great achievement by treasury team, which has us well positioned for continued growth in FY '23. As noted on Page 4, the business achieved a record growth in receivables alongside delivery of strong financial returns. Cash profits were $20 million for FY '22. That's up 70% from the prior year. Revenue growth was a triple digit with $143 million in revenue in FY '22. And the business continued to demonstrate significant operating leverage with total operating expenses to receivables at 22% for FY '22. That's a further improvement from FY '21 when they were 29%. These are exceptional results that reflect the group's ongoing focus to deliver a balance of growth and financial returns. Page 5 of the investor presentation highlights how the phenomenal growth in FY '22 has also been achieved alongside a continued increase in the credit quality of the loan book, from an average Equifax score of 650 in FY '21 to 704 for FY '22. The increase in the average customer Equifax score reflects our strategy to increase the diversification of our customer base to include more higher-quality credit. Credit quality has also been turbocharged by the business now having 38% of loan assets being secured driven by the success of Autopay. That's up from 2% in FY '21. Net losses further reduced to 4% in FY '22, down from 5% in the previous financial year. To summarize, FY '22 has been an incredible year for MoneyMe, through the delivery of high-quality and profitable growth that sets us up well as we focus on realizing further returns into next financial year. If you may please turn to Page 7, I will run you through the key operating highlights before handing over to Neal to talk through the financials in more detail. Our highly driven and capable team remain focused on creating value and further our footprint in the Australian market. In FY '22, we added significant scale through organic growth and an incredibly successful acquisition of digital lender, SocietyOne. We further diversified our revenue streams with blockbuster product innovation in the auto finance sector, multiplied our funding capacity and continued to improve our proprietary technology platform Horizon to drive increased automation and efficiency in the business. Over the next few slides, I will expand on each of these and other key highlights. The acquisition of SocietyOne has immense strategic value for the group as it has rapidly increased our operations, cost efficiencies and scale. The acquisition expanded our offering with a fixed personal loan, a credit score tool and transaction and savings accounts. It also delivered a significant opportunity in cross-selling our product range to more than 230,000 SocietyOne customers, which is underway. The integration plan is progressing really well, delivering annualized cost synergy benefits of $7.5 million in FY '22 with the final phase of the integration expected to be completed by the end of the 2022 calendar year. That's 6 months ahead of plan. Cost synergies are projected to be 18% higher than planned at roughly $20 million compared to this planned $17 million of cost savings synergy benefits. The group is also on track to deliver around $15 million of revenue synergy benefits. Now turning to Page 9. Our blockbuster innovation, Autopay, has been a key driver of our growth in FY '22. Awarded Canstar's Innovation Excellence Award earlier this year, Autopay offer secured auto finance in 60 minutes, 7 days a week. It's completely changed the game in an industry where the typical financing process takes several days, and the demand from dealers and brokers has been sensational. There are currently over 1,600 dealers and brokers signed up to the platform, with several important partnerships lined up for FY '23. Autopay gross customer receivables grew from $6 million in FY '21 to $445 million at the end of FY '22. At the end of FY '22, Autopay loans made up 1/3 of our total loan book. That's in less than 15 months from launch. Increasing our secured asset finance supports greater resilience, and we'll talk more about that as we discuss the outlook and strategy for the year ahead. In times of market uncertainty where certain sectors could fall under pressure, we're well placed with low industry sector concentration. We have strong customer demographics. The majority of MoneyMe's customer loan book has more than 3 years of contractual term remaining, which provides solid future contracted revenue for the business. As set out on Page 11, MoneyMe delivered considerable increases to its customer receivable asset quality in FY '22 with the average Equifax score increasing to 704 from 650. This in addition to increasingly secured loan book is strongly correlated with our decreasing net losses, which were 4% in FY '22. Our average funded value in FY '22 was about $20,000, up from $9,100 in FY '21. Our proprietary credit decisioning technology provides us with a lot of confidence in the performance of the loans we have originated and expect to originate going forward. Moving to Page 12. Our customer engagement is exceptional, and we continue to outperform the banks in customer satisfaction. MoneyMe's NPS score in FY '22 was 76 compared to an average of 24 for the big four banks. Our Google review ratings were 4.7 out of 5 compared to an average of 1.4 out of 5 for the major banks. By leveraging innovation technology to do the heavy lifting, we're not only able to deliver unbeatable customer experiences, but also dedicate our human resources to their customer interactions that matter. As an example, more than 70% of our customer service calls are answered in 8 seconds or less. 34% of customers have more than one product with us, reflecting high customer engagement, but also an opportunity for low-cost acquisition as we continue to expand our product range. In FY '22, MoneyMe increased its funding capacity from $327 million across three funding structures to $1.7 billion across eight. At the end of June 22, MoneyMe's five warehouse funding facilities included two major Australian banks and two major global banks. Our debt funding mix also includes two term securitizations completed in FY '22 and a $75 million structured debt facility that was established during the year with specific equity partners. The maturity of our debt funding program and the relationships with our debt funders have us incredibly well positioned as we continue our momentum into FY '23. On to Page 14, MoneyMe is proud of its environmental, social and governance approach with a strong commitment from the Board and management team to continue to focus on building profit with purpose. We are aligning our sustainability efforts to B Corp Certification, and we delivered significant improvements to our self-assessment B Corp Impact Score in FY '22. Our internal assessment meets the requirements for certification, which we intend to apply for in FY '23. Our commitment to having a positive impact is also strongly integrated into our decision-making processes with management and staff performance rights and equity incentives aligned to ESG outcomes. ESG performance accounts for 30% of mine and the CFO's long-term incentive and 10% for all employees and our equity incentive plan. As set out on Page 15, MoneyMe's employee engagement remains incredibly high at 87%, well above the Australian market benchmark of 72%. Diversity continues to be a focus, and we currently have 42% of female representation in our workforce. A major highlight in FY '22 was announcing MoneyMe's partnership with Australia's leading youth cancer charity, Canteen. To date, MoneyMe has contributed over $110,000 to Canteen's education and career support services. MoneyMe is also making strides in reducing its environmental footprint, keeping its Scope 1 and 2 emissions minimal and implementing a carbon offset initiative for Autopay customers. So far, we have offset the emissions produced from over 9 million kilometers driven, equivalent to over 224 laps around the world or 11 laps to the moon and back. We are also passionate about our customers, and we will continue to drive initiatives and product innovation to support our customers' financial well-being. We have set ambitious goals for the future to ensure we are doing our part to preserve the environment while supporting our customers, employees and the community. We prioritized innovation from the very start and have invested heavily in our proprietary technology platform, Horizon, which leverages artificial intelligence and advanced automation to streamline every aspect of our business from credit decisioning, collections and payments to customer communication and product development. In FY '22, we delivered several platform and product improvements including enhanced fraud prevention technology, increased automation and the latest version of our proprietary AI, AIDEN, which brings further speed and accuracy to our credit decisioning. We added biometric ID verification to simplify our Autopay customer application journey, and we expanded and improved our distribution channels with the direct-to-customer offering for our ListReady product, a new personal loan broker portal and an automated commissions payment system. We also commenced the integration of SocietyOne's technology and products onto our platform adding to MoneyMe's product ecosystem and further closing the gap to the banks. With that, I will now hand over to Neal to talk you through the financials.

Thanks for that, Clay. A summary of the key financial highlights for the year is provided on Page 18. As the charts on Page 18 show, MoneyMe's FY '22 cash profit, revenue and gross customer receivables are all substantially up on last year, with operating expense ratio substantially down. It's particularly pleasing that the 305% growth in gross customer receivables is being achieved alongside a strong cash profit, reducing net loss rates and the realization of clear operating efficiencies. The following pages of the investor presentation review the underlying drivers of the result further. As set out on Page 19, the group's customer receivables growth to $1.35 billion from $0.3 billion is a key result to standout. Another key standout was the massive shift in FY '22 from the book having just 2% of secured assets to having 38% in secured assets by the end of the year in FY '22. That's over 1/3 of the book that is now in secured assets compared to close to zero in FY '21, and it was all done in 1 year. The group's current year financial results are underpinned by the sheer scale of the growth and the asset profile change. This profile is also set to have a major positive impact for the business into FY '23 and beyond as the full benefit of the $1.1 billion of originations flow through to impact returns. As set out on Page 20, loan growth delivered gross revenue of $143 million for FY '22. That's an increase of 148%. FY '22 revenue largely reflects organic growth. It also includes $24 million of revenue from SocietyOne from the 3.5 months since the acquisition in mid-March. Of course, further significant revenue contributions are expected from the SocietyOne acquisition, both from the loan book and from revenue synergies. Consistent from prior years, the group's revenue in FY '22 was predominantly driven by interest income, which accounted for 89% of total revenue. Moving to Page 21. The group's contracted revenue leaped forward to $398 million in FY '22. That's a huge 305% increase from the prior period. Average loan sizes and loan terms are all both up again year-on-year, which is driving longer-term value from the assets that have been originated. The ability for the group to access higher credit quality borrowers is also further demonstrated through the changes to risk-based average interest rates into FY '22. The Autopay product and the SocietyOne customer base have been the key drivers across these areas with further positive impacts projected into '23. Moving to Page 22. MoneyMe has continued to achieve cost of fund margin reductions in FY '22 following the step change achieved in the prior year. These margin reductions and the ability of the business to fund the significant balance sheet growth in FY '22 reflects a major diversification of its funding structures from two in 2019 to eight in 2022. Another key change to the funding capital base in FY '22 was the group's share capital, which increased to $143 million. This reflects the share capital issue to SocietyOne shareholders completed in March 2022. As outlined on Page 23, office operating costs continue to reduce as a proportion of receivables, reflecting scale leverage and automation. The business delivered significant double-digit efficiency gains across key expense ratios. This includes sales and marketing expenses as a proportion of total originations, which continues to improve despite the business launching a strong brand campaign earlier this year as part of the SocietyOne integration and an aspirational mass market brand positioning strategy. Further operating leverage is expected in the year ahead as the business continues to scale, realize the full cost synergies from the SocietyOne acquisition and realizes the benefits from moving operational activities to lower-cost locations. The overall reduction in provisioning to 6% of gross customer receivables for FY '22 reflects the significant increase in secured book assets from both Autopay product growth and from the SocietyOne acquisition. Unsecured asset provisioning levels for FY '22 are consistent with FY '20 and '21 and include significant macro overlays to account for continuing macroeconomic uncertainty. Net losses of 4% for FY '22, reducing from 5% in FY '21 include the impact of debt sales that were completed in 2022. Static losses are continuing to reduce over time as expected and in line with an increasing average Equifax score and the addition of secured assets to the portfolio. The factors covered in the earlier presentation pages have led MoneyMe to achieve a 70% increase in cash profit to $20 million. As outlined on Page 25, the upfront recognition of expected credit losses using the AASB 9 accounting standard rather than using actual losses and the inclusion of nonrecurring expenses results in the reporting of a $50 million loss after tax. The planned moderated growth in the medium term will support the reporting of statutory profits in the near term. I will now hand back over to Clayton, who will expand on our strategy and outlook for the year ahead on Page 26.

Thanks for that, Neal. It will have escaped no one that the macroeconomic environment is changing rapidly, forcing business and especially those in our industry to respond. Inflation is driving up the cost of living. Rising interest rates are pushing our borrowing costs. Unemployment is at record lows, and GDP growth is slowing. MoneyMe has multiple operational levers to pull as we navigate these inflationary headwinds and we are well positioned to go after the opportunities that are presented as the market shifts. A majority of variable rate products allows us to adjust our pricing to protect our margins as interest rates rise, and our credit quality continues to improve with our focus on writing quality credit and the high diversification of products, distribution channels and assets. The ongoing growth in Autopay is further diversifying our loan book with secured assets now accounting for 38% and growing. We expect momentum to continue into FY '23 as we capitalize on structural shifts in the market with major banks withdrawing from the auto sector presenting opportunities to gain market share. Moving on to Page 28, I will take you through the focus areas for the year ahead. Product-led innovation is our competitive advantage, and we will continue to leverage it in FY '23 as we build on our Autopay product with additional game-changing features in the pipeline and lead the industry with new innovation, first-class customer experience and efficient operations. In the immediate term, we will prioritize high credit quality and moderating loan book growth as we focus on increasing profits and returns. We are on track to achieve upwards of $200 million in revenue for this financial year '23, reflecting revenue growth of more than 40% from FY '22. We will also further our operating leverage by fully realizing more than $32 million of annualized synergy benefits from the SocietyOne acquisition. And moving to Page 29. We will leverage inherited IP to expand MoneyMe's offering with bank account and credit score products as we're moving on the banks with a growing ecosystem of products and more cost-effective distribution channels. Another major focus will be to build on our intelligent technology platform and enhance our AI, AIDEN, to optimize our credit decisioning. We rolled out several improvements in FY '22, and with our current scale, we have access to significant data. Last but certainly not least, our commitment to having a positive impact will continue to be the intrinsic part of our business, and we intend to lead the industry with our ESG approach. In conclusion, we made tremendous progress in FY '22, and I'm incredibly excited for MoneyMe and our future. Earlier this year, we vocalized our mission, an ambitious goal to be the #1 challenger to the bank. And as our results demonstrate, we have already gained important ground. Our success has been possible through a highly efficient use of equity capital. And moving to Page 32, I will now talk about how our intended capital raising will aim to support our continued growth in FY '23 as we expect to return to statutory profits. MoneyMe intends to raise equity capital in a $20 million share placement to institutional investors, directors and a share purchase plan for eligible shareholders as set out on Page 32. Directors will participate for $1.2 million, subject to shareholders' approval, and the share purchase plan intends to raise up to $1.2 million. As demonstrated on Page 33, MoneyMe has been able to generate high growth in customer receivables to date through a very efficient use of equity capital. MoneyMe raised about $45 million in primary capital at its IPO, followed by the $99 million share issuance in March 2022. These capital issuances have supported incredibly strong loan book and revenue growth, new blockbuster product innovation, the accumulation of over 500,000 customers and significant cash profits. Specific achievements include growing our loan book from $87 million in FY '19 to $1.35 billion in FY '22. Growing revenue from $32 million in FY '19 to $143 million in FY '22, and increasing our contracted revenue by roughly 28x from $14 million in FY '19 to $398 million in FY '22. Following a period of exponential growth, MoneyMe is set up to focus on delivering statutory profits in FY '23. Depending on the continued growth in customer receivables and the potential recognition of tax assets, an off-balance sheet tax benefit of $43 million at the 30th of June 2022 relating to the unwind of deferred tax assets is expected to make a significant impact to future statutory profits. Moving on to Page 34. I will expand on how this capital raising will help us achieve our growth and profitability targets. We continue to see incredibly high demand for a range of secured and unsecured lending products and the $20 million in added capital intends to support further growth, supporting existing debt facilities and transaction costs. It is expected to increase MoneyMe's GLA by upwards of 18% or more than $200 million. Leveraging MoneyMe's technology and scale platform, this growth will drive further profits and equity returns. Outlined on Page 35 is the equity raising overview. With the office structure and use of funds already covered, I'll move to the other details. Shares will be offered at $0.50 per share, and new shares under the placement will rank equally with existing MoneyMe ordinary shares. This placement is fully underwritten by Barrenjoey. MoneyMe intends to make available a non-underwritten share purchase plan following successful completion of the EGM, assuming the required resolutions have passed to reset MoneyMe's ASX Listing Rule 7.1 placement capacity. It is intended that the share purchase plan will be capped at $1.2 million and have an issue price equal to the issue price for the current placement and director offer at $0.50. MoneyMe will retain the right to scale back applications. At its discretion, it will consider the size of eligible shareholders holding at the record date in exercising that discretion. The equity raising timetable is outlined on Page 36. MoneyMe will announce the outcome of the placement and lift the trading hold tomorrow, that's Thursday, and settle the new shares issued under the placement on Monday, the 5th of September. We will hold an AGM on Friday, the 7th of October with the intention of getting the conditional aspects of the equity raising all approved. With that, we'll open up for questions.

[Operator Instructions] Your first question comes from Wei-Weng Chen with RBC Capital.

Just a couple of questions from me. So just firstly, your provision as a percentage of receivables has gone from 7.9% last year to now at 6.1%. Just wondering if you could speak to why that's reduced? And then specifically or significantly your Stage 3 receivables provision coverage has dropped from about 94% to 42%. Maybe just if you can speak about both.

Yes. Good to get the question. Thanks for joining the call with us this morning. In relation to provisioning, that 6.1%, I think, is at the end of the year. It does show -- it's a blend between secured and unsecured assets. So you'll see in the notes of the accounts, that's broadly the unsecured provisioning level that we've got is largely flat compared to the prior period. And a lot of that is really just making sure we have the right macroeconomic sort of overlays in there given the uncertain environment that we're now moving into. So the main reason for that reduction is because of the significant introduction of the secured asset portfolio. And you can see on the slide there, Slide 24, that's now 20% of the bulk at the end of June, which is then driving that sort of blended rate down to the 6% level. What you're then finding in the staging for the provisioning is sort of that is we're finding the expected loss where things do go into the fall have reduced, and that is in part because of the secured asset portfolio and also the increase in credit quality of the book as well. So that explains a little bit of that dynamic.

Okay. Great. And so do you provide for the secured asset loans or?

Of course, yes, certainly, we do. The current approach that you'll see disclosed because the product is relatively new, we all know it's about sort of 15 months in the market. We still don't have a huge amount of data. We've only got sort of about a year or so of data. And generally, these models are looking for 2-plus years of data so they can actually do some meaningful sort of statistical sort of modeling. So a lot of the references there is to that data, but it's also to benchmarks in the industry is looking at our understanding of the loss rates, the default rates and then the provisions sort of set in that way. Of course, once we sort of come up with a view as management, that then gets reviewed by our auditors as well to make sure it's set at the right level. I think it's worth also noting that as part of the secured asset portfolio, you do have a portion outside of the Autopay product, which is the SocietyOne product. which has also got a level of security on there as well, which is flowing into the book for June 30.