MoneyMe Limited (MME) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MoneyMe FY '23 Results Call. [Operator Instructions] I would now like to 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 their 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's results for 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 very delighted to be presenting to you today and look forward to taking questions you may have at the end of the presentation. I would like to begin by giving a quick introduction to MoneyMe and our offering. MoneyMe is a founder-led digital lender on a mission to challenge the traditional ways of credit with digital-first experiences that meet the needs of modern customers. We target creditworthy customers, with credit products for the mass market, including car loans, personal loans and credit cards. Our key point of difference is our highly automated and AI-driven technology, enabling us to deliver near real-time credit decisioning with loans that settled within minutes. We are also B Corp certified, which reflects our commitment to lead the industry on ESG and high sustainability standards. If you may join me on Page 2. MoneyMe was founded in 2013 to transform personal lending by simplifying the borrowing experience and eliminating outdated complexities. Our first customer to take out a loan from us was employed by one of the major banks. For us, it was a clear reflection of the prevailing experience gap we're aiming to bridge. We built and launched our proprietary technology platform, Horizon, in 2016, which has been and continues to be a key driver of our success and competitive advantage. In the years that followed, we have expanded our product offering to span our customers' credit life cycle from loans to financial wellness tools, and we have continued to push the boundaries of innovation. Ending financial year '23, MoneyMe had a $1.1 billion loan book, having grown more than tenfold since it's listing in 2019. This significant growth is a function of strong organic demand from customers as well as our acquisition of SocietyOne in 2022. On Page 4, I will now run you through the key highlights of our performance during financial year '23, followed by a deep dive into the operational highlights before handing over to Neal to run you through the financials in more detail. I will then cover our strategy for the remainder of financial year '24 and beyond. MoneyMe has always built a business with a focus on profitable growth. We delivered statutory profits from financial year '17 to financial year '20 then reported 2 years of statutory losses as the business invested in growing the loan book by 4x from $333 million in financial year '21 to $1.3 billion in financial year '22. We're now extremely pleased to report a record statutory profit of $12 million in FY '23 and a record cash profit of $24 million, up 46% from financial year '22. The $12 million statutory NPAT reflects an additional management provision overlay of $6 million, reflecting prudent consideration of ongoing macro uncertainty. Statutory NPAT pre-overlay is $18 million. Moving to Page 5. Financial year '23 saw us deliver record gross revenue and protect our net interest margin in the rising interest rate environment, accelerate our operating leverage by realizing scale and technology benefits, reduce our corporate debt significantly, resulting in improved terms on the remaining facility and further improve our overall credit profile of our loan book to reduce credit risk. I'm pleased to note that alongside our strongest performance, we continue to roll out new product innovation and make notable progress with our ESG agenda. We look forward to diving into each of these highlights later in this presentation. Now if you may turn to Page 6, I'll quickly cover our leading core products. Autopay is our secured vehicle finance product, offered exclusively via brokers and dealerships. Autopay has quickly grown into our biggest opportunity in just 2 years from launch. We settle Autopay loans up to $100,000 within 60 minutes, 7 days a week, which is significantly ahead of industry average. With our expanded automation capabilities launched in June, our platform can now review, approve and settle car loans in less than 5 minutes fully automated. Having a look on Page 7, we offer unsecured variable rate personal loans up to $50,000 as well as secured and unsecured fixed rate personal loans up to $70,000 with SocietyOne. Turning to Page 8. Our third core product is our digital credit card Freestyle that's packed with features. Freestyle complements our loan offering with a product that drives higher customer engagement and frequent interactions. In financial year '23, the Freestyle card was used for over 1 million transactions. And it's a key driver of traffic to the MoneyMe app. If you could please turn to Page 10. I'll now run you through the key operational highlights before handing over to Neal. In FY '23, we pulled multiple operational levers to navigate the external environment. We stepped up our cash optimization, tightened our credit criteria to drive an uplift in the credit profile of our customer base and reduced risk and adjusted our customer pricing to protect our net interest margin. We leveraged our highly automated technology to streamline operations and continued our focus on customer-centric innovation, reflected in our strong customer engagement and high Net Promoter Scores. We successfully consolidated MoneyMe and SocietyOne business functions and migrated SocietyOne technology onto MoneyMe's proprietary technology platform, delivering 20 million per annum in cost synergy benefits. We also achieved several ESG targets which supported our application for B Corp certification. MoneyMe became a certified B Corp this August. Over the next few slides, I will expand on each of these and other key operational highlights. Moving to Page 11. The credit profile of MoneyMe's customer base has improved from a closing average Equifax score of 704 in financial year '22 to 727 in financial year '23. The credit strength of our portfolio is improving year-on-year with an increasing weighting of high credit quality assets, 71% of new originations in financial year '23 had an Equifax score of 700 and above. We expect a strong uplift in the customer credit profile will provide significant benefits over time. In financial year '23, we also harmonized credit policies across MoneyMe and SocietyOne into a common framework, aligning credit criteria, collections and debt recovery processes and further supporting strong credit risk management. Turning to Page 12. Our strong diversification across customer demographics and industry sectors, and focus on longer loan terms, reduces credit risk and provides a natural hedge against adverse macroeconomic conditions. MoneyMe's customer distribution aligns geographically with our Australian population with an industry sector concentration of 10% or lower across all employment sectors. Our median customer range is 33, with 52% falling within the 36 or above category while only 12% are 25 or younger. Diversification of remaining contractual terms and strong long-term book value supports loan book stability and robust cash flows. Over 88% of our portfolio has an average remaining term of over 2 years. Please may you turn to Page 13. In financial year '23, MoneyMe continue to enhance customer experiences through customer-centric innovation. We launched our innovation-first fully automated verification and approval process for secured vehicle finance originations. We built a dedicated partner portal to provide our network of brokers and dealers with a frictionless digital experience. 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. To date, over 90,000 users have access to their credit score and financial wellness resources via the tool. We also piloted a customer-facing feature as part of our Autopay offering, which allows customers to get conditional loan approval and calculate repayments for various vehicles directly at the point of sale. Turning to Page 14. It's pleasing to note that MoneyMe has continued its high customer satisfaction and engagement despite rising interest rates. We attribute this to our focus on customer-centric innovation and exceptional customer experiences. Demonstrated by consistent awards, MoneyMe was finalist in the excellence in consumer lending category in the 2023 Fines Awards and was awarded digital disruptor of the Year in the Finder Innovation Awards in November 2022. We continue to deliver leading customer service in the first half with 75% of our customer service calls answered within 10 seconds. MoneyMe's Promoter Score was 60 for FY '23, and our Google review ratings was 4.6 out of 5, above the industry benchmark and well above the average of the big 4 banks. 35% of our customers had 2 or more products with us at the end of June '23, and we had 55,000 app users interacting with us on a monthly basis. Moving on to Page 15. We have taken a leap forward in having a positive impact on society and the environment. MoneyMe achieved B Corp certification in August '23, implementing a range of ESG initiatives to strengthen our governance structures and further our positive impact on the environment, society, customers and employees. Our certified B impact score is 91.2, well above the 80-point certification threshold. And a few ESG highlights from FY '23 include our transition to 100% renewable energy in our offices and an 86% reduction in our Scope 1 and 2 emissions, directly supporting 144 young people impacted by cancer through our Canteen partnership, continued strong employee engagement and reaching our Board diversity target, obtaining an information security certification reflecting our strong customer data protection and amending our company constitution to further cement our commitment to having a positive impact. Moving to Page 16. The consolidation of MoneyMe and SocietyOne is delivering $20 million in annual cost savings. This includes front-end efficiencies with all new lending now performed of MoneyMe's Horizon platform, giving more customers access to our market-leading digital experience and faster time to settlement. The acquisition has also enhanced MoneyMe's operating leverage from adding $0.4 billion to our loan book, creating scale benefits and expanded our distribution opportunities with about 200,000 SocietyOne customers and broker distribution networks. In addition, we have combined data and intellectual property to build a much stronger credit framework. Moving to Page 17. MoneyMe has offset the RBA's cash rate increases and maintained a healthy net interest margin at 12% through effective customer pricing adjustments across our predominantly variable rate book. Pricing for new fixed rate originations was also adjusted. Our fixed rate book is hedged. We will continue to monitor the external environment and calibrate our risk-based pricing strategy to mitigate risks. That wraps up the operational highlights. And I will now hand over to Neal to run you through the financials.

Thank you, Clay. It's a pleasure to present MoneyMe's financial highlights for financial year '23. MoneyMe delivered a record statutory profit of $12 million in financial year '23, that's up from a $50 million loss in the prior year. The return to statutory profit in the year followed 2 years of high growth in customer receivables in '22 and '21 and was the result of a strategic decision to moderate originations in the near term and the delivery of significant operating leverage. The $12 million statutory NPAT also includes an incremental management provision overlay of $6 million and $3 million in nonrecurring expenses. Cash NPAT was a record at $24 million in financial year '23. This measure reflects the removal of the impairment expense calculated in line with AASB 9 accounting standard, offset by the addition of gross losses plus adjustments related to the derivative fair value movements and nonrecurring expenses. Moving on to Page 20. The strong NPAT result reflects record gross revenue of $239 million in financial year '23. That's a 67% increase from $143 million in financial year '22. The revenue from secured assets grew by 3x in the year, contributing roughly 30% of total gross revenue. Gross revenue continues to be interest income based with the record gross revenue in financial year '23 also reflecting customer pricing updates made in response to the higher market for cost of funds. On to Page 21. MoneyMe strategy to moderate near-term originations, reduced closing gross customer receivables from $1.35 billion in 30 June '22 to $1.15 billion in 30 June '23. However, MoneyMe's average loan book balance was $1.25 billion in FY '23. That's a 49% increase on the prior period. MoneyMe also increased the proportion of secured assets within the portfolio to 43% at the end of the year compared to 38% in the prior year. The strong mix of secured assets and the 48-month average contractual life of the book is delivering for current and future revenue flows. Moving on to Page 22. MoneyMe recorded a significant improvement in its office operating leverage in financial year '23 and as demonstrated by the reduction of its office cost-to-income ratio to 22%, that's from 40% in financial year '22 and efficiency gain of 45% on the prior comparative period. General and administrative expenses reduced to less than 3% of the average loan book value in FY '23, which is an efficiency gain of 15% on the prior period. These numbers reflect sustainable operating leverage from a combination of high automation, a diverse product set, a sizable customer base and in-house technology platform efficiencies. The group is realizing annualized cost savings of greater than $20 million also related to the acquisition of SocietyOne business in March 2022. Turning to Page 23. MoneyMe is applied an additional management overlay to its financial year '23 provision to safeguard against potential impacts from the uncertain macroeconomic environment. Financial year '23, 6.6% provisioning rate is made up of a base provision of 6.1%, which reflects product level credit risk assumptions and a modeled macroeconomic overlay and an additional management overlay of 0.5%, which reflects management's consideration of the ongoing uncertainty in the environment. Net losses reflect the lag effect from prior period originations with the full benefit from the improved credit book profile to be reflected in net losses over time. Moving on to Page 24. MoneyMe further diversified its funding for sustainability and strong returns in the financial year. The group had 8 structures in place and $1.5 billion of total funding capacity at the end of the year. The closing funding mix includes 69% of warehouse funding, 26% in term securitization vehicles and 5% in corporate debt. Key financial year '23 funding-related milestones include a $21 million of new equity capital, net of transaction costs raised in the first half of the year, followed by a $40 million capital raise in the second half of the year, supporting the group's funding and liquidity position and originations. The equity raise completed in May was specifically used to retire corporate debt incurred from the SocietyOne acquisition. As a result, the corporate debt facility principal was reduced $50 million alongside the delivery of improved terms. Another highlight was the $150 million term transaction for the SocietyOne personal loan assets. I'm pleased to pass over to Clay to make a few points on MoneyMe strategy and outlook.

Thanks for that, Neal. The market opportunity for each of MoneyMe's core products is enormous. MoneyMe currently has roughly 1% to 2% of the personal loan and credit card market and less than 1% of the auto finance market. There's an opportunity for MoneyMe to gain market share from incumbents with their focus on mortgages and limitations caused by outdated processes and clunky legacy platforms that slow down the rollout of new innovation. Banks have also been exiting the auto finance sector, which poses a great opportunity to continue to leverage the unrivaled speed and customer experience of our AutoPay product. If you may please turn to Page 27. With a solid foundation in place, MoneyMe is positioned for profitable and sustainable growth beyond financial year '24. Taking into consideration the economic environment and risks and opportunities that may arise, our strategy and key focus areas for FY '24 and beyond are extending our technology advantage with further automation and AI innovation for leading customer experiences and operational efficiencies, increasing our ratio of secured assets and high credit quality in our portfolio for resilient credit performance, removing noncore products to focus on unit economics, readiness of this business to capture growth when the market conditions are appropriate for us and strengthening security for additional customer and data protection. In conclusion, on Page 28, I'm very proud of the demonstrated agility of our technology-led business model and our commitment to challenge the traditional ways of credit. We will continue to lead with innovation, speed and digital experiences to build a bigger, stronger and more profitable business. We have continued to break the mold despite the challenges facing our sector this year, and I'd like to thank the incredible team at MoneyMe and investors for your continued support. Operator, we may now open the lines for questions. Thank you.

[Operator Instructions] Our first question today comes from Steven Sassine with Morgans.

I might try the first one to Neal, actually, just on the management overlay. Can you just maybe sort of talk through the rationale behind that? I mean you mentioned -- Clay mentioned ongoing uncertainty in the environment. Can you just maybe sort of talk to some of the, I guess, reasonings to add that additional overlay to your base provisioning and how that sort of correlates to, I guess, the improving front book credit quality of the originations? I noticed the front book average Equifax score is actually ticking up. So can you just maybe correlate those 2 and I guess, you're reasoning beyond that additional overlay.

Of course. Thanks for the question and thanks for joining the call. It is an important question. So the base provision that we've got is 6.1%. So that reflects the modeled risk around where we expect with our models, the underlying expected credit loss to land. What we're very conscious of that number itself has overlays in terms of modeled macro overloads. We're just very aware that we're in an environment where interest rent rates have gone up incredibly quickly to the 410 bps. We're aware we've got forecast around unemployment going up further. And there's just that inherent uncertainty that we've got in the environment. Our base 6.1% provision takes that all into account. But we were sort of -- given the uncertainty, we thought it made sense to be more prudent and put an additional amount on that. So that's why you've got that additional $6 million. It takes us up to that 6.6% you're certainly right. We're seeing the credit quality of the book improved significantly, particularly on the front book and also supported by the auto and the auto finance product flowing through. So we do expect the overall credit experience over the time to come down. It is purely an overlay for things that we just don't know that we don't know. So we thought it was sensible with the environment to put that one for that through. Does that answer the question?

Yes, perfect. I guess secondly, on the credit quality side of things, I noticed obviously the net losses had ticked up like you mentioned in the fourth quarter update. Can you just maybe talk to sort of any signs of stress in the book at the moment within particular products or geographies? Are you seeing -- I know it's quite volatile quarter-to-quarter, but maybe some of the exit metrics for the year and how you're seeing things at the moment?

Yes, I can grab that. Thanks, Steve. Good to chat. The provision that Neal also spoke about, remember, we've got a strong history of taking provisions really early and unwinding them when we don't need them. And we're going to continue that methodology, yes. So we're not assuming that we need that overlay. The book performance is quite incredible for us. We have this strange lag effect where losses only get represented in most cases, 180 days post a loan going into default. Now that's a tricky time sensitive piece for us. What we're not getting the benefit at the moment in the reporting result is the benefit of the quality of the assets in the portfolio. We now have greater than 40% of our book is secured with cars. We've got the stronger Equifax profile. And we've done a really good job of being able to shift this book into -- without sacrificing NIM, shifting this book into the premium end of the portfolio. This lag effect for us, we anticipate that we will be able to then see the improvement in the loss performance with the credit book now performing. But we have to see the prior legacy loans that we're no longer servicing come through the portfolio in the numbers now.

Great. Makes perfect sense. And probably one final one for maybe to you, Clay. Can you just maybe -- I mean, looking over sort of FY '24, can you maybe sort of just walk through your broader strategy? Do you envision the business maintaining this sort of growth trajectory sort of reopening the tap, so to speak? And I guess your confidence around maintaining that positive stat NPAT trajectory?

Yes. It's -- this business is built to leverage its platform capabilities. We've been significantly challenged by being able to service the customer demand. So their customer demand is strong, particularly for Autopay. So we bring the business appropriately for when the macroeconomic, the available capital, term deal like it's become more readily available interest volatility subsides. We definitely want to ready the business to be able to see it grow, grow quite significantly and leverage that platform. My favorite part about this financial year is when we look at the office operating cost-to-income ratio, we moved from 40% down to 22%. Now that just demonstrates the leverage that we've got in this platform. And so certainly, for us, growing the business organically in the current climate is really strong. A $1.1 billion loan book is a really strong book because we've transitioned to having it with secured assets, strong revenue coming from that secured asset base already. And we've got this opportunity for us to accelerate our growth profile. But again, we want to wait and see when the macro market enables us to do so. Now our sector has been hit quite significantly, but we believe that we're on the other side. We're seeing positive trends more in a more macro climate when we're seeing inflation measures heading in the right direction for us to feel quite confident about how debt capital markets are going to respond. We certainly have an advantage here in Australia, where we've got a captive audience. Banks are particularly focused on their mortgage books, their SME business lending and it's giving us a behemoth opportunity with our personal loan and also our car finance products to capitalize on market opportunities. So we're pretty excited about it. And we'd certainly like to see the interest rate environment subside and get back to business. But we'll continue to deliver what we have delivered in this past financial year, which is operating cost efficiencies, using technology to further innovation, building more automation, leveraging that capacity that we've built in the business with scale advantages already that we expect statutory NPAT to maintain a really strong profile into FY '24.

The next question comes from Glen Barry Wellham with MST Financial.

Well done on the result. A couple of quick questions from me. Just if you can give us some guidance. Obviously, the auto loan book is growing very strongly. Is that going to sort of change the financials going forward significantly on sort of thinking about the net interest side and a little bit of pressure on that coming down and potentially as a positive, obviously, maybe you lost provisioning, not been as much as well?

Good to have you on the call. And it's a good question. know the demand for the Autopay products, as Clay have said earlier, is very, very strong. And it certainly has a lower NIM signature compared to the unsecured book, as you would expect. But of course, it also has a lower credit loss signature as well. And so therefore, as the business mix moves potentially more to have more of the secured asset base in it, you would expect the NIM at a group level to be impacted. But of course, in terms of bottom line, it makes a really good positive contribution overall and helps us transition to a lower credit risk book. I think one of the key attributes we really like about Autopay business apart from that credit profile that it has and obviously particularly helpful in the current environment is the fact that they tend to be longer-term lens. And so what that gives you is that recurring revenue where you're not reliant on us having to originate at the same velocity as you would for a smaller land for a shorter period of time. So you'll certainly see that play out. What I'd also say as well is we know there's still quite a significant opportunity to cross-sell with the Autopay product and the other products in the suite. So we what we like, we like to have the mix, but we certainly do look forward to having Autopay really sort of contribute further as it has. You see it's been quite a stellar increase in the book over the last couple of years.

If I may just build on that, we're pretty excited about the opportunity that we see with debt financing in Australia. It's a highly sought after asset to finance and the ability for us to grow with significant scale. Like we know the market opportunity is huge. Debt financing is really, really favors auto finance here in Australia. And the other element that we've got is customers aren't that price-sensitive. So these margins that we've been able to build into our order product today, we continue to see that because customers, quite frankly, they've been dealt with a really inefficient clunky process and dealers have also been dealt with that clunky process. And whilst we might not be the sharpest in price, we're certainly competitive. We're offer service where dealers are selling more cars. Brokers are doing less, getting customers into their vehicles earlier and using innovation where we're not using human capital as an expensive model to service these loans. We're able to deliver really strong economic benefits, customers inherently driving the behavior of wanting to self-serve to get access to finance. We think it's a game changer, and we think NIM is going to be particularly strong in this product.

Okay. Excellent. Just on the cost side and well done on reducing those costs in that cost-to-income of 22%. I mean that could potentially fall further given the economies of scale that are coming through now and a fair bit of those costs are fixed. Do you have any targets in mind on where that could get to?

It's a really good question, and it very much depends on the scale that we flow through. If you look at the 3 sort of broad categories of costs we've got glad so obviously, the general administrative expenses, that is largely fixed in nature. So that's where you're going to see really the most -- the largest sort of gains in terms of the economies of scale over time. And you should expect that flow through as the book sort of increases because so much of that is fixed. We will continue to invest in the product design and development. Obviously, the tech stack is important, the innovation with the customer is important. So we'll continue to have that there, but you shouldn't expect that, that needs to increase at a higher levels as well. So you may look to see that as largely fixed as well. So it really is the origination cost and how that sort of flows through to the book that's more variable in nature. So you're right in terms of lots of room for that to come down further. In terms of specific targets, there's no specific targets there, apart from sort of making sure that we leverage the tech, leverage the scale further to make sure it still progresses through the benefits in the bottom line.

We had a massive heavy lift this year, Glen. We integrated 2 businesses into 1. We consolidated a whole lot of warehouse capital efficiencies. We built new tech. We established a really strong foundation for a challenged macro climate. So it was a heavy lift. And where we see our operating cost efficiencies now? Certainly, when we -- to what Neal has spoken about is when we're ready to take advantage of market opportunities with some more clear air with stable interest rates. We'll certainly see that number come down in our perspective. But as it is, there's still more efficiencies that are flowing through this financial year, just in our organic delivery of using automation and AI versus using humans in this business.

Excellent. Cool. And just on the, I suppose, the variable component of the cost, just on the origination, is that becoming more expensive? Or is it pretty stable sort of number as a percentage of sales?

That's a good question. So there's 2 sort of core channels, if you like, that we that flow into that cost base. So you've got the indirect or the channel and the dealer channel, which is being used increasingly exclusively for the Autopay product, and we're using it in the other products sort of sales as well. And then we've got the direct costs, which is our marketing capability which you know has been developed from the day the business sort of set up. We do expect to get some efficiencies over time in the market. And I think a lot of those early in the broker-dealer space, it's where -- to Clay's point, we're competing very on faster superior service offering. And as a result, we're not and don't expect to be able to have to pay rates where others might have to pay just because of the quality of the service and the opportunity that we give to those dealers and those brokers. So we do think there's opportunities for the margins there to be favorable for us over time, Glen.

And build on that. If you look at the structure of our book, predominantly, so we've got 70% of our portfolio is variable rates. And that's really served us well in a volatile interest rate environment. And we, of course, see the opportunity with -- when interest rates then shift the other way, that gives us even more pricing competitive advantages. So it's quite an exciting time for us. We've absorbed the shock through pricing management. But hopefully, we see the other side, we would be more competitive with pricing using our variable rate product.

There are no further questions at this time. So I will now turn the call back to Mr. Howes for closing remarks.

Thank you for that. There's actually not much to say other than thank you guys for joining our call. Appreciate the consistent support that you've given us. FY '23 was an absolute really, really big heavy lift for this business. We're certainly in a challenge climate as a sector, but what we can see from the results, the innovation, the customer experience and the opportunities that lie ahead. The management team and team at MoneyMe more broadly are pretty excited about what the future holds for our business. And we're certainly working particularly hard to make money these opportunities come to life. Thank you all. I hope you have a fantastic day.