MoneyMe Limited (MME) Earnings Call Transcript & Summary

thank you for standing by and welcome to the MONEYME 1H '23 Interim Results Call. [Operator Instructions] I will now hand the conference over to Mr. Clayton Howes, Managing Director and Chief Executive Officer. 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 their connections to land, sea and community. We pay our respect to the elders, past and present and extend that respect to all Aboriginal and Torres Strait Islander Peoples here today. Welcome to the presentation of MONEYME Limited results for the first half of financial year 2023. I'm Clayton Howes, Managing Director and Chief Executive Officer. And joining me on the call today is Neal Hawkins, our Chief Financial Officer. We're both delighted to be presenting to you today and look forward to taking any questions you may have at the end of the presentation. Turning to Page 1. MONEYME's mission is to disrupt the traditional banking industry with a more convenient, efficient and personalized approach to managing your finances. We understand that today's savvy customers value a seamless digital experience, which is why we prioritize innovation and developing app-first financial products that meet their evolving needs. Our growing ecosystem of products already spans a large part of the financial life cycle, from learning about financial wellness to everyday spending and big ticket purchases. If you could please join me on Page 2. I would like to quickly introduce you to MONEYME's Board, which has recently been strengthened by new expertise. MONEYME is a founder-led organization with myself and my co-founder, Scott Emery, serving on the Board. We have a good makeup of the Board with relevant complementing expertise. Our newest appointment, Rachel Gatehouse, brings a wealth of audit and financial experience to the Board and joined us as Chair of our Audit and Risk Management Committee. Turning to Page 3. I'll now run through the key highlights of our performance in the first half, followed by a deep dive into the operational highlights before handing over to Neal to run you through the financials in more detail. I'll then cover our strategy for the remainder of FY '23 and beyond. As set out on Page 4, MONEYME delivered a statutory profit of $9 million in the first half. Our return to statutory profitability with a record profit result after 2 years of high growth and associated statutory losses was a result of a measured decision to moderate our growth in the near term and a focus on building resilience in an increasingly challenging environment. The successful execution of our near-term strategy saw us accelerate our operating leverage by reducing our operating expenses as a percentage of gross revenue to 23%, further improved the overall credit profile of our loan book to reduce credit risk and increase our net assets by 34% to $122 million at the end of the first half. I'm pleased to note that alongside our strong business performance, we continue to roll out new product innovation and made notable progress with our ESG agenda. We look forward to diving into more of these details later on in the presentation. If you could please turn to Slide 6. I'll now run you through the key operational highlights before handing over to Neal. In the first half of '23, we pulled multiple operational levers to navigate inflationary headwinds and the interest rate environment. We stepped up our operating leverage for cash optimization, tightened our credit policies to drive a significant uplift in the credit profile of our customer base, and adjusted our customer pricing to protect our net interest margins. We also achieved several ESG targets, including applying for B Corp certification and appointing Rachel as our newest Nonexecutive Director and continued our focus on customer-centric innovation by broadening our product offering and improving our existing products. Over the next few slides, I will expand on each of these and other key operating highlights. Moving to Page 7. A predominantly variable rate loan book has allowed us to adjust our customer pricing to offset increasing funding costs and protect our margins in the rising interest rate environment. Following the RBA cash rate increases, MONEYME has efficiently deployed staggered pricing increases to our customers across our Autopay, personal loan and freestyle products. Our risk-based pricing cohorts for new originations has been adjusted appropriately to the current environment, while SocietyOne fixed rate loans are hedged. We will continue to monitor the external environment and calibrate our pricing strategy accordingly. Turning to Page 8. Our decision to tighten our credit criteria in the last 6 months has resulted in a significant uplift in the credit quality of our portfolio. The average Equifax score of our total portfolio was 714 at the end of the half, while the average score of loans originated during the period was 779, reflecting our focus on reducing our credit risk in the current environment. We expect the improvements in overall credit quality will provide a significant benefit over the next 12 months as the market expects a decline in the credit performance across Australia. Turning to Page 9. The diversification of our customer base across all geographic, demographic and industry sectors is expected to provide a natural hedge against adverse macroeconomic conditions. As demonstrated here, we have no more than 10% concentration in each industry sector. Over 70% of receivables have an average remaining term of over 3 years, ensuring a robust inflow of cash to manage through adversities. On Page 10, it's pleasing to note that MONEYME has continued its high customer satisfaction and engagement levels despite rising interest rates. We attribute this to our focus on customer-centric innovation, demonstrated by recent award wins. MONEYME was named Disruptor of the Year in the Finder Innovation Awards during the half, following our Canstar Innovation Excellence Award earlier in 2022. MONEYME's Net Promoter Score was 59 for the half, and our Google review rating was 4.7 out of 5, above the industry benchmark and well above the average for the major 4 banks. We continue to deliver leading customer service in the first half, with 85% of our customer service calls being answered within 10 seconds. 39% of our customers had 2 or more products with us as of December 31. And as I will dive into shortly, we continue to expand our product offering in the half. This includes the launch of an app-based free credit score service, which will help us further increase customer engagement and capture new customers early in their financial journey. More than 37,000 customers access the service during this beta phase. Turning to Page 11. I'm pleased to share some of the recent ESG achievements. In the first half, our self-assessment B Impact Assessment improved by 34% from the previous year to 93.2, well above the 8-point threshold for B Corp Certification, which we applied for in August. More than 98% of shareholders voted in favor of amending our constitution. To further cement our commitment to ESG at our 2022 AGM, we added to the strength of our Board with the appointment of Rachel who joined as the Chair of our Audit and Risk Management Committee. Our Autopay carbon-offset initiative has now offset the carbon emissions equivalent to driving 15 million kilometers. We upgraded parental leave and annual leave entitlements for employees. And lastly, we submitted our 2022 modern slavery statement, further demonstrating our commitment to ethical business practices and transparency. Moving on to Page 12. I will run through some product and platform highlights. In the first half, we piloted new innovation as part of our Autopay offering, which is set to transform the car buying experience. The new Autoscan feature allows consumers to self-start the loan application, get instant conditional loan approval and calculate and customize loan repayment terms for various vehicles directly at the point of sale. Another highlight was the rollout of our app-based credit score product, which will help us build stronger relationships with our customers and capture new business opportunities. With over 37,000 users accessing the product during its beta phase, we officially launched the product in January this year and expected to create a lot of future value for the business. We adjusted the setup of our Freestyle Mastercard, which enables us to receive a share of the interchange fees from merchant terminals, adding to the profitability of the product. Lastly, the first half source complete the migration of SocietyOne new business flows onto our technology platform, Horizon. This major milestone means we can provide new SocietyOne customers with our market-leading digital experience and faster settlement times and has further supported MONEYME's significant technology advantage. That wraps up the operational highlights, and I will now hand you over to Neal to run you through the financials.

Thanks, Clay, and good morning, everybody. I'm pleased to run through MONEYME's financial highlights for the first half of financial year 2023 as outlined from Page 14. The group returned to statutory profit in the first half of financial year '23, following 2 years of high growth and customer receivable diversification in '21 and '22. The $9 million NPAT reflects gross revenue, which increased 152% in the prior comparative period, to be $121 million. Our cost of funding, which increased by 22% on the prior comparative period, to be 6.5%. Impairment expenses increasing 13% in the prior comparative period to be $34 million; and operating cost leverage, which increased 52% in the prior comparative period, to 23%. The result reflects a very deliberate decision to focus on the delivery of statutory profit from the beginning of financial year '23 and the agility of the business and its operations to pivot effectively from the high-growth fresh strategies in '21 and '22. The following pages cover key impact drivers in further detail. The significant increase in gross revenue in the first half of '23 is driven by the increase in average loan book assets to be $1.3 billion in the first half of '23 compared to $1 billion in the second half of '22 and $0.5 billion in the first half of '22. Secured asset-related revenue represented 30% of total gross revenue in the first half of '23, and that compares to 7% in the first half of '22 with SocietyOne business-related lending, contributing 24% of the gross revenue for the half. Gross revenue continues to be interest income based, with the first half '23 result also reflecting customer interest rate increases made in response to the higher market cost of funds. MONEYME also continues to have a significant pipeline of future contracted revenue, which was $395 million at 31 December 2022, reflecting a significant future value to be recognized going forward. Moving to Page 16. MONEYME experienced a significant increase in its cost of funds in the first half as the RBA increased cash rates to bring inflation back into its targeted range. This is reflected in the base rate increasing from 0.1% in the first half of '22 to be 2.1% in the first half of '23. The marginal cost of funds reduced from 5.2% in the first half of '22 to 4.4% in the first half of '23, however, driven by cheaper funding arrangements from higher credit quality loan assets, including those from SocietyOne and Autopay. Over 2/3 of MONEYME's consumer loans are variable. The group increased customer rates in the first half of '23 to existing and new variable rate customers to offset the impact of these increases in the first half. The group also increased new business rates for its fixed rate lending to minimize interest rate risk in this area. Turning to Page 17. Lower impairment expense in the first half of '23 versus the second half of '22 reflects lower new business provisioning requirements, in particular, in line with lower customer receivable originations and balances. It also reflects the increased credit quality of the underlying portfolio, as demonstrated by the higher average Equifax score of 714 for the first half of '23 versus 672 in the prior comparative period. The full benefit from the improving credit book profile will be reflected over time. Provisions as a percentage of the loan book remained unchanged at 6.1%, reflecting reduced risk from the higher credit quality book that has been offset by macroeconomic factors. Moving on to Page 18. The group recorded a significant improvement in its operating leverage in the first half of '23, as demonstrated by its cost-to-income ratio of 23% for the half. That's a reduction of 52% in absolute terms versus the prior comparative period. It reflects a sustainable operating leverage position due to a combination of high automation, a diverse product set, a large customer base and in-house platform efficiencies. As projected, the group is realizing annualized cost savings of greater than $20 million relating to the acquisition of the SocietyOne business that was completed in March 2022. The group's net assets were $122 million for the half compared to $40 million in the first half of '22 and $91 million in the second half of '22. Key balance sheet items relating to the half result include a materially flat cash position, a significant increase in average customer receivables and a slight reduction in closing customer receivables that reflect both the record closing receivables at 30 June '22 and the decision to moderate originations in the first half of '23 to support profits on the group's funding and liquidity position. A reduction in borrowings is also in line with the slight reduction in closing customer receivables with customer receivable provisioning at 6.1%, the same as at 30 June '22. Moving to Page 20. Consolidated cash was stable at $79 million for the half. Our restricted cash was also stable at $16 million for the half. Cash from operating activities increased significantly to $73 million in the first half. That's up from $32 million in the first half of '22. Cash inflows included $21 million from an equity capital raise and a growing loan book income. Cash outflows included one-off SocietyOne acquisition and integration costs and loan asset funding. Moving to Page 21. The increase in average loan assets reflects the record closing loan book at 30 June '22. That was driven by both the acquisition of SocietyOne in March '22 and high growth through the Autopay product. The average loan asset growth in the first half of '23 is despite originations being $242 million in the first half of '23. That's significantly lower than the first half and the second half in '22. The group secured assets increased to $507 million at the end of the first half of '23 to constitute 41% of the total portfolio. That's an increase of 534% compared to the prior comparative period. Moving to Page 22. The group is reporting a flat provisioning level of 6.1% in the first half of '23 relative to the second half of '22. The provisioning rate reflects the significant review and update of provisioning models that consider past, current and projected probability default, losses-given default and exposures at default. Significantly lower provisioning requirements for the group's new business as a result of the decision to hold back originations and further increase credit quality requirements, and it also reflects the consideration of the challenging inflation and rising interest rate macroeconomic environment and judgments related to expected recovery levels, including recoveries from debt sale arrangements. Net losses are within our risk-adjusted return expectations. They increased as a percentage of average receivables in the first half of '23 due to the lag effect of the prior period's lower credit quality originations. The static loss rate of the book is continuing to trend down, in line with the higher credit quality of the receivables. Moving to Page 23. Total borrowings reduced in the first half of '23 compared to the second half of '22, driven by a reduction in customer receivables. The group continued to have the same funding structures in place at the end of December as it did at the end of June. A revised corporate debt facility was agreed in December '22 with updated covenant settings and the requirement to partially repay the facility to its original $50 million limit. I'm pleased to pass over to Clay to make a few points on MONEYME's strategy and outlook. Over to you, Clay.

Thanks for that, Neal. As demonstrated on Page 25, there are significant growth opportunities for MONEYME in each of our key verticals. MONEYME currently has roughly 1% to 2% of the personal loans and credit card market and less than 1% of auto finance market. There's an opportunity for MONEYME to gain market share from incumbents with a focus on mortgages and limitations caused by outdated processes and clunky legacy platforms that slowed down the rollout of new innovation. Banks have also been exiting the auto finance space, which poses a great opportunity to continue to leverage the unrivaled speed and customer experience of our Autopay product. If you could please turn to Page 26. I will talk through our key focus areas for the remainder of the 2023 financial year. As previously announced, we are progressing towards implementation of a strategic capital initiative to unlock the growth opportunities I've just covered and restore the debt facility to its original size of $50 million. We will continue our focus on profit and revenue growth to strengthen our balance sheet. We are on track to achieve upwards of $220 million in revenue for FY '23, reflecting revenue growth of more than 40% from FY '22. Our commitment to having a positive impact will continue to be an intrinsic part of our business, and we intend to lead the industry with our ESG approach. And last, but certainly not least, we'll continue to lead the sector with blockbuster innovation, including releasing Autoscan to the market, implementing new collections-related innovation and roll out new product features currently in development. And to conclude, I'd like to finish by reiterating MONEYME's mission to be the #1 challenger to the banks. I'm proud of the progress we're making. By leading with innovation, speed and digital experiences, we have continued to break the mold this half despite the challenges facing our sector. And I'd like to thank the incredible team at MONEYME and investors for your continued support. We may now open up the lines for questions.

[Operator Instructions] Our first question will come from Steven Sassine with Morgan.

Just a couple from me, if that's all right, team. I guess let's probably start with sort of customer behavior. Obviously, we have what's a deteriorating macro outlook. There's probably less visibility of where terminal rates are going to come out with inflation and the like. Obviously, there's been a lot of sort of press around the mortgage cliff, et cetera, that's going to start hitting consumers in the next few months. So I guess how does -- how do you think about that impacting your business, particularly sort of customer borrowing behavior? Are you seeing any sort of additional pay downs and the like? And I guess sort of flowing into that question is probably my second one, probably more to you, Neal. Just sort of comfort around provisioning levels in that sort of environment?

Steve, thanks so much for the question. It's really interesting, like we do see the macro challenges unfolding in front of us, but demand maintains really strong. Now if we look at the sectors that we're in, we've got very small market share. So it's expected that we can continue to see strong demand for our innovative products, particularly that blockbuster product with Autopay when we just recently launched Autoscan in beta phase. It further delivers an experience that's unrivaled in market. And so we can continue to win on innovation. Now when we think about the mortgage ratios that may exist, if you can remember, we've got a fairly young demographic in our MONEYME customer base. So it's not highly skewed towards mortgage customers. And so we might not see the same impact that we would otherwise with an older demographic that do have particularly strong mortgage books. The borrowing behavior for us is interesting. What we have seen is in the rising interest rate environment, that we've passed those interest costs on to borrowers. Some of these customers have paid us back faster than we would have otherwise expected them to do so. And that's partly for them to conserve, I imagine, what otherwise would be getting expensive debt for them. But when you look at AutoPay as an example, an average, call it, $35,000 loan, when we've increased the borrowing costs on that -- for that customer by, call it, 200 basis points, we're talking about $30 to $40 per month increase on the average amount over the lifetime of the loan. So there's not much of a significant change to the repayment amount, and also their repayment behaviors have been fairly consistent. Now it's not to say it's not without certainty that way. There's obviously a lot of uncertainty, and we've certainly provided the appropriate provisions, and I'll let Neal talk to that more specifically, Steve.

Steve, thanks for your question. On the provision specifically, it's been a huge focus, you can imagine, to make sure that we've got sufficient provision in there. And obviously, you're very aware of the projections, potentially recession environment, potentially unemployment itself heading towards that 5%. So that's all factored into our numbers. What I might sort of -- the day you sort of referenced Page 8 really just calls out the key sort of metrics around that credit quality of the book. So new business in this last half has been an average Equifax score of 779. That's a really high Equifax score and now an average of 714. And so that really plays into how the credit quality plays into a lower provision as does now having 41% of the book being secured. The other sort of key factor, of course, that we're very keen and we've been very strong to maintain is that diversification. That really matters in more stressed environments, such as now. So the geographic diversification in particular, that's particularly important. We saw that in COVID, where Victoria, in particular, seemed to get a particular hit from that. We've also got the diversification in the customer age making sure we haven't got concentration risk by industry and so on. We've got an increasingly robust book. The last thing I mentioned is in relation to our modeling. It's -- there's a lot of data and time that goes into it using past data and then flowing through the projections. And of course, then that's reviewed at a very detailed level by our auditors. So it leaves myself as the CFO and Clayton as the CEO and the Board, feeling comfortable that, that provision is very prudent in terms of where the current environment is. And you'll know that the track record we've had is where we sort of generally sort of had a provision that's been higher rather than lower. So we're pleased with where it is, but you're right. The current environment is a lot more uncertain than it certainly was.

[Operator Instructions] It appears there are no further questions. That does conclude our conference for today. Thank you for participating. You may now disconnect.