MoneyMe Limited (MME) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MoneyMe FY '24 Results. [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. 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 the financial year 2014 (sic) [ 2024 ]. I'm Clayton Howes, Managing Director and Chief Executive Officer. And joining me on the call today is David Wright, 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 our presentation. Starting with a quick introduction to MoneyMe. MoneyMe is a founder-led digital lender and Certified B Corporation. We deliver digital-first financial products to customers who in an increasingly digital world, won fast, flexible and seamless access to finance. Our core products include car loans, personal loans and credit cards. And our main point of difference is our proprietary technology. It allows us to quickly roll out new innovation, deliver customer experiences that meet the needs of modern consumers and more importantly, save our customers' time. We also hold ourselves accountable to high sustainability and governance standards. I am proud to say that our long-standing focus on ESG earned us a B Corp Certification, which I will cover in more detail shortly. If you may now please turn to Page 2. MoneyMe has come a long way since its inception in 2013, and our continuous innovation has allowed us to stay ahead in a competitive landscape. From being the first Australian lender to launch a fully digital credit card to disrupting the car finance market with secured car loans that settles in minutes. Our forward-thinking approach is not only reflected in the multiple awards we have accumulated along the way, but also in the strong demand for our products by customers and partners. We have made tremendous progress in recent years, demonstrating our ability to scale the business through both organic and inorganic growth, including the acquisition of SocietyOne in March 2022. Closing financial year '24, we have reached over $3.5 billion in cumulative originations as a group, having served over 470,000 Australians to date. Moving to Page 4. I'll now run through the key highlights of our performance during financial year '24 followed by a deep dive into the operational highlights before handing over to Dave to run you through the financials in more detail. I will then cover our strategy and outlook for FY '25 and beyond. I am very pleased with the performance of the business and the results, being strong loan book performance, profit increasing and the outlook is positive. After establishing a stronger credit profile in our loan book, we have marked a return to growth with a 23% increase in new loan originations, expanding our loan book to $1.2 billion. We delivered a statutory net profit after tax of $23 million, up from $12 million in FY '23, highlighting a reduced cost base from scale and technology advantages, continued strong revenue flows and the benefit from higher credit performance and we've started to realize our deferred tax asset. Our strategy of targeting borrowers with strong credit profiles and increasing the proportion of secured loan assets to 55% has strengthened our loan book, leading to a reduction in credit losses to 4.5% in FY '24. Whilst this was achieved, revenue remained healthy with $214 million for the year. We're particularly proud of these achievements in the context of the high interest rate and inflation pressured environment. Against this macro backdrop, our key focus areas on Page 5. For FY '24 were to improve the risk profile of our loan book, build readiness for growth and grow our operating leverage while continuing to extend our technology advantage and protecting our customers' data in an ever-evolving cyber risk landscape. We executed on each of these strategies by increasing secured assets and the credit quality of the loan book that's delivering a reduction in credit losses, optimizing our funding program and improving our product offering and distribution, reducing operational costs and maintaining a strong net interest margin through pricing adjustments, increasing automation for even faster customer experiences and investing heavily in cybersecurity to continue to strengthen our defenses. Over the next few slides, I will expand on each of these and other key operational highlights. I'm moving to Page 7. In financial year '24, we continued advancing our proprietary technology platform, including increased automation for faster loan approvals and settlements. We optimized our credit decisioning engine for pricing and risk, setting the stage for sustainable growth. Additionally, we migrated the remaining SocietyOne loan book, achieving end-to-end operations for the entire book on one platform. A key milestone was the launch of our new mobile app with additional features and an improved user experience. With 42% of all funded loan and credit card applications coming through the app in FY '24, it's integral to our distribution strategy and creates engaged and sticky customers. In addition, we developed and commenced beta testing of an internal AI application. It's aimed to enhance customer service interactions through automated responses and we expect to launch the application in financial year '25. Moving to Page 8. We understand that our customers value their time. So we focus on creating fast and efficient customer experiences. Our fully digital products, near real-time loan approval and settlement and rapid customer support with 73% of calls answered in under 10 seconds continue to drive strong customer satisfaction, loyalty and advocacy. As of financial year '24, 30% of our customers have 2 or more products with us. Our Net Promoter Score increased to 69, 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. Moving to Page 9. Our F '24 growth and uplift in credit performance were primarily driven by our secured car loan product, Autopay. The Autopay loan book grew by 40% in financial year '24 and now makes up 51% of our total portfolio with a strong credit profile. In financial year '24, we further enhanced the product with faster loan approvals and settlements. We now have the ability to settle secured car loans in under 5 minutes, far exceeding the industry standard. During the year, we increased the maximum loan offer to $150,000, creating new opportunities for growth and allowing us to target high credit quality customers. While Autopay is currently distributed through our network of dealers and brokers, we are exploring direct-to-distribution as a new avenue for growth. I'm on Page 10. Personal loans now compromise 38% of our total portfolio. It's a decrease from the previous year due to our strategic focus on originating secured car loans. Nonetheless, personal loans remain a core product and an integral part of our strategy going forward. In the year, we doubled the size of our broker network to over 1,600 personal loan brokers. And pleasingly, we achieved 2 Moody's upgrades on our ABS transactions in financial year '24. That's underscoring the strength of our personal loan portfolio. On Page 11, our freestyle digital credit card currently accounts for 10% of our total portfolio. In response to the evolving credit risk landscape, we have pivoted to a target market with stronger credit profiles, resulting in a reduced freestyle loan book in FY '24. Credit cards complement our offering with a significant growth opportunity and a favorable returns profile and we are currently developing a new and improved credit card product designed to attract a segment with both significant growth potential and a more favorable risk profile. This product is currently in employee testing and expected to launch this year FY '25. Moving to Page 12. MoneyMe offers a free credit score tool to empower our customers and support their financial well-being. The tool gives them access to their credit report, one of the most critical factors impacting their ability to access finance. With personalized insights, it's designed to help them better understand their credit health and the factors influencing their score and ultimately make more informed credit decisions. Since its launch in FY '23, over 115,000 users have accessed the tool with 52% reporting an improvement in their credit score after using it. Moving to Page 13. Our strong diversification across customer demographics and industry sectors and our focus on longer-term loans mitigate risk and provide a natural hedge against adverse macroeconomic conditions. MoneyMe's customer distribution aligns geographically with the Australian population. Our median customer age is 38 with credit ambitions that align to greater [indiscernible] and longer loan term. Over 90% of our portfolio has an average remaining term of over 2 years, providing strong long-term book value and stability. Our ongoing focus on credit quality and secured assets has significantly improved the composition of our loan book with the average Equifax score now sitting at 763 and the proportion of secured assets at 55% of the total loan book, adding to the resilience of our loan book. On Page 14, MoneyMe proudly achieved B Corp Certification in August 2023. The B Corp framework not only ensures that we invest in the initiatives that have the greatest impact on creating a more inclusive, equitable and sustainable world, it also acts as a catalyst for our future success. We believe businesses have a responsibility to care for people and the planet and we are confident that this commitment will drive long-term business performance. Our dedication to sustainable business practices sets us apart in a competitive market, helping us attract and retain top talent, resonate with the growing number of socially conscious consumers and enhance our access to capital and funding, as ESG criteria become increasingly important to institutional and debt capital investors. I'll now hand over to Dave, who will run you through our key financial highlights for FY '24.

Thank you, Clay, and good morning, everyone. It's a pleasure to present MoneyMe's financial highlights for FY '24. MoneyMe delivered a statutory profit of $23 million in FY '24, up from $12 million in the prior year, reflecting strong performance as well as a realized deferred tax benefit. We entered FY '24 with a small loan book, but through effective cost management and stronger credit performance, we maintain profits despite the higher interest rate environment. After growth acceleration in the final quarter, we are starting FY '25 with an increased loan book, a stronger credit profile and increased operating leverage. As a result, our outlook for FY '25 is very positive, and we expect to deliver improved profitability going forward subject to market conditions. While our profit before tax remained broadly in line with the prior year, normalized NPAT was lower due to reduced income from lower average loan book balance and fewer debt sales in the period, which is a result of improved quality of the book. This year, we have introduced normalized NPAT that provides underlying operational performance of MoneyMe by adjusting statutory NPAT for ECL loan provision movements, intangible depreciation and amortization and any other one-off nonrecurring items. This is now more aligned with industry practices. Moving to Slide 17. In FY '24, principal loan originations grew by 23%, driving a 6% increase in our loan book balance, which now stands at $1.2 billion. This growth was primarily fueled by our secured loan book, which now makes up 55% of the total book. MoneyMe also enhanced its operating leverage in FY '24, reducing operating costs by 7% from $52 million in FY '23 to $48 million in the current year, thanks to effective cost management. While our income was lower, our cost-to-income ratio remained stable at 22% consistent with FY '23 due to our leaner cost base. Looking ahead, we anticipate further growth in FY '25, which will continue to strengthen our operating leverage, driving profitability and ensuring long-term stability. Moving to Slide 18. In FY '24, our revenue performance remained strong, supported by significant enhancement in the credit profile of our loan book. The group generated gross revenue of $214 million and achieved a net interest margin of 10%. The movement in revenue and NIM compared to the prior year was largely attributed to a higher proportion of secured assets and an improved credit quality within our loan book. This trend is expected to continue ensuring sustainable and profitable returns. Looking ahead, we anticipate that revenue will grow in alignment with the expansion of our loan book originations. Moving to Slide 19. Our higher credit quality loan book delivered low credit losses and arrears in FY '24, in line with our strategy. Our shift to a higher credit quality loan book primarily related to an increase in the share of secured assets, up 11% to 55% resulted in net credit losses decreasing by 1.3% to 4.5%. Further, 30 to 90 days arrears significantly improved to 3.8% and 1.6%, respectively. Pleasingly, both these credit losses and arrears continue to trend downward, reducing expected credit losses and ultimately having provisions improving to 4.7% from 6.6% in the prior year. Moving to Slide 20. MoneyMe has built a mature and diversified funding platform that supports capital-efficient growth. With 7 funding structures in place, we now have a total funding capacity of $1.7 billion. Our financiers include major Australian and global banks as well as well-known investment and credit funds. In FY '24, we optimized our warehouse facilities, resulting in a margin reduction and release of cash for growth. Notably, we extended and doubled our Autopay warehouse from $375 million to $750 million, enabling further growth in secured assets. We continue to see strong engagement from debt capital markets. Our $178 million ABS transaction for personal loans in July 2024 was in excess demand, and we anticipate launching additional deals in FY '25. With that, I'm pleased to hand over to Clay, who will provide more insights into MoneyMe's strategy and outlook.

Thanks, Dave. Looking ahead to FY '25, we will continue to execute on our strategy. Our key focus areas include: one, extending technology leadership through increased automation and AI to enhance customer experiences and drive greater operating efficiencies; two, focusing on high credit quality and secured assets, leveraging our fast distribution, strong customer value proposition and the growing demand for our Autopay product; three, expanding and optimizing our funding program to support capital efficient growth, including additional ABS transactions expected for FY '25; four, modeling strong ESG practices, serving as a key differentiator for environmentally and socially conscious customers, investors and partners; and finally, the fifth, expanding our product offer with the new credit card product and exploring direct-to-consumer distribution for Autopay. By focusing on these strategic priorities, we are confident that we will continue to deliver loan book growth and profitable returns in FY '25. In closing on Page 23. MoneyMe's exceptional customer experiences, proprietary technology, profitable business model and strong growth prospects provide a solid foundation for continued success. With these fundamentals and competitive advantages in place, we are confident that MoneyMe will deliver attractive returns for shareholders and in the years ahead. Thank you. We'll now open the lines for questions.

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

Congratulations on the results. Just a couple of quick ones for me, if that's okay. Probably for yourself, Clay, more of a sort of a broader strategy question. I mean, going forward, I mean, obviously, the business has looked through a pretty tough macro environment with the rate hike cycle and the like. And it looks to be -- we're coming through the worst of it. I guess from your point of view, how should we be thinking about your business maybe in the next sort of 2 to 3 years? I mean, obviously, you look like you're returning to a growth strategy. Maybe can you call out sort of which products are you going to be pushing towards? Obviously, you've called out Autopay, but I mean, maybe how should we think about, I mean, I guess, the growth of the book over the next couple of years? How that relates to your product ramp? And I've just got a follow-up question at the end of that, if that's okay.

Thanks, Steve. It was important for us to do the first foundational shift to a higher credit quality loan portfolio. In a higher interest rate environment and where there's some macro uncertainties and inflationary pressures, what we know best is the ability for us to get secured assets with vehicles, in particular here in Australia have over time and time again, proven to be really defensible against all sorts of consumer challenges. The second one was to protect NIM. So we don't want a fully auto-driven loan book. What we want is a balance of secured and unsecured. And it was really with discipline that we needed to maintain the NIM advantage that our business has got and the ability to source and access our cheaper forms of debt capital in this high interest rate and inflation environment. We did that with precision. We started the year with a smaller loan book. We ended the year with a growth of 6%. But the first most important part that we did is transition the book to be defendable against a harder macro backdrop, whilst maintaining a NIM advantage for us. So we were able to deliver a profitable outcome this year. The most important thing to think about the future for us is now that we've got the fundamental foundations of the product settings, the ability for us to capture a higher value customer and maintain NIM is driven by our operating efficiencies of distributing products fast. We use a really strong artificial intelligence and very comprehensive digital technology system that can move a customer from an inquiry through to settlement, including security lodged in the car in minutes, thus been able to be a significant advantage that we're leveraging. What we know for certain is that the future for us is the continuation of servicing this higher-end customer group, expanding our funding structures to enable us to launch ABS transactions that offers us cash that can then be reused to grow the loan book. Now in the past, if you think about the start of last financial year, we had a largely unsecured portfolio and access to ABS term securitization advantages and our capital costs were more expensive. Starting this year, we've got a much greater skew of secured assets, a bit of customer profile for a challenged macro environment and access to term securitization deals. I'm pretty sure we were the first in Australia to launch a personal loan ABS transaction. We came out of the blocks fast with the $178 million transaction. We're soon to follow that up with another transaction, and you can expect that to probably be in our order book because of the growth in that book is prime for us to realize some cash benefits to then invest back into the forward growth of our business. So to answer that second point about what does the outlook look like for us, it looks like a continuation of our growth strategy, as you saw in quarter 4. We have the foundations in place, we've got the investor base for our debt capital market advantages, we've got the distribution and product settings and now we're going to move forward in a steadily disciplined approach to grow both profits and loan book in this financial year. The other thing to look at, which we've alluded to in some of the product innovation that we're working on is our credit card product. We saw structural shifts in Australia here where banks focused on mortgages, moved away from cards and created a massive opportunity for us. That's the same with credit cards. There's a big divide. Buy now, pay later servicing a younger demographic and banks through consolidation with Citibank now wrapped up with NAV, we're seeing a massive opportunity for a mature customer base, large target market opportunity for us with our clever innovation to launch a new credit card that will capture that market. It will be a digital experience. It will enable us to distribute features that don't exist in current credit cards here in Australia and provide a richer margin in the portfolio for us. So when we think about the go forward, yes, Autopay, without a doubt, is a shining star in market and the demand for that will continue as we see into this year. But we're also going to be expanding our proposition with our credit card and personal loans that enables us to generate some strong NIM and take advantage of these structural shifts.

I guess just following up on that last point about, you're obviously continuing to roll out some new innovative products, how should we think about the level of reinvestment that's required in the business? Is all the heavy lifting pretty much done in terms of the development work and the head count? Should we be expecting a pretty stable cost base going forward?

Yes. It's -- that's a really good point. We spoiled over here at MoneyMe. When we think about innovation, our business case is quite simple because our whole platform is proprietary. We spent over 500,000 developer hours into building Horizon. It's a microservices platform that enables us to bolt-on different elements. We can replace the new credit card, for example. Has cost us near to -- I can't even tell you. It's a little bit of sweat, time and effort and design that goes into us creating and launching a brand-new product. There is no cost influence in us rolling out new products that you're going to even notice in the P&L. What you're actually going to see is a significant operating leverage advantage as the book grows, even though you saw it, the book grew in this last year, but our cost base came down. Don't get me wrong. We spent money, we've got marketing campaigns, we've got innovation going on, we've got artificial intelligence applications being built. We launched a brand-new mobile app across iOS and Android. We've done a ton, but our cost base came down. Now this operating leverage into this financial year, when you see this credit card, you're not going to see a cost up, you're going to see a book growth and an operating leverage advantage come through, really, really obvious.

That's helpful. I might squeeze in a couple more, if that's all right. I know I'm probably hogging your time, but maybe for David, just your comfort around the provisioning levels currently. I mean how should we think about these levels going forward given -- I guess, it is an improved macro, how are you factoring that in the frame of a growing book going forward?

Yes, good question. Look, the way I said, I'm very comfortable with the provisioning we have. In fact, there's certainly reasons to think that we've taken a conservative view. If you compare ourselves with other peers out there and how they look at their overall provisioning, et cetera, we're still sort of well over what that looks like. I mean that's a balance between what we've seen in the past versus what we've seen come through. In the last 6 months or so, we have really seen a significant improvement coming through on what those forward loss rates look like. And obviously, we've seen arrears come down in recent times over the last 12 months. So the combination of those gives us a lot of comfort, that trend is going to continue and will be more in line with our peers with a lower overall provisioning rate going forward.

Perfect. And just one final one for me. It's probably just more out of curiosity. Clay, happy if you're able to, could your talk about something if you can. But obviously, 115,000 users, if I remember correctly, for users of that credit score product, what's the, I guess, strategy behind that? Is there -- are you converting them across into taking up products? What's the conversion rate? Is there a way to monetize that? Just some broad thoughts on that would be great.

Yes, it's a really good one. We wanted to create a proposition that enabled us to offer broader than a personal loan in our portfolio. We started with a personal loan that made sense. We wanted to create a bit more stickiness. We launched a credit card so that they could have an everyday transaction account with us. We matured for our customers to then enjoy the opportunity to get access to car finance that typically takes 8 days, believe it or not, and we shifted that using our technology to a few minutes. We wanted to continue that journey of being more relevant to more people. And the credit score tool really is a simple opportunity for us, which we fundamentally believe in, is giving customers the power to understand their data. We make credit decisions based on credit file information. We're in an environment where consumer's credit data is at risk by cybersecurity issues that we've seen in some of the larger institutions here and there will be benefits when they actually can see and understand where their credit and personal data is being used and do something about it. So it was from an approach of being more relevant to more customers. It was an approach for us to offer a value add to our customers, who we believe should be empowered to understand their credit data, which is the key decisioning criteria that we use. So it's about transparency. But then the next bit about it is we know that our customers typically engage with us on an ongoing basis and through this credit score tool, they're able to see what offers they can get with MoneyMe. So that's a really strong advantage for us as a distribution channel at a point in time where we think it will actually make a lot of sense. So what we've got is this 115,000 users accessing their credit information getting value out of it. So far, what we've even seen is people who've accessed their credit information from us have, over the course of time, increased their credit scores. Now what that also means for us is we can see how people are responding to credit information. We have the opportunity to offer them services like when our new credit card is launched in car finance and personal loans, which becomes a really strong ecosystem and an attractive proposition for us to market to the right people.

[Operator Instructions] Your next question is from Andrew Johnston from MST Access.

Congrats on a good result. Good to see that credit quality continuing to tick up and getting some growth in second half, I suppose, including the last quarter. I just want to explore the relationship between loan book, credit quality, NIM and cost of funding. So we've seen NIMs decline as you're adding more higher-quality loans. I wonder if you could just talk about where you see risk-adjusted NIMs sitting? And then secondly, your funding and the extent to which you are able to get a lower cost of funding or lower margins as a result of your better quality loan book.

Thanks, Andrew. Yes. Look, we've obviously seen the NIM come down. And as we've said, that's related to the shift towards the higher credit quality book and secured lending, but when we think about that down -- I guess, down the stack of a P&L post a risk-adjusted adjustment on what our losses look like, really what we've seen is it's probably been rather consistent year-on-year. But I think looking forward, what we'll see is that NIM will likely shift a little bit towards secured, but we'll ultimately see our losses continue to fall. And so that risk-adjusted NIM will either remain steady or decline now -- sorry, or increase. So where that then, I guess, interplays with how we think about funding is we'll obviously see as we improve our cost of funds, capital efficiency, stemming from a growth in the scale of our sources of funding both from onshore and offshore, we'll see that -- yes, that cost of funds come down, we'll see that capital efficiency improve, releasing more cash and then overall having a positive impact on our NIM -- risk-adjusted NIM going forward.

Okay. No, that's great. Can I just -- what are you seeing in the average Equifax score of the loans that you're currently writing? So we've got the Equifax score for the whole book and that's continuing to trend up. I suppose to try and understand what it's going to look like this time next year, what is it in the loans you're writing now? And how do you see that playing out over the next 12 months?

Thanks, Andrew. It actually is a really interesting question. And it's because we have an interesting demographic that we're servicing. So the more mature a customer by virtue of having a credit profile for longer, typically homeowner advantages, we're seeing with our Autopay product, a higher Equifax profile. And that high Equifax profile is sitting in the 800s. Now these are really, really strong customers, again, homeowner advantages, secured with car assets and it goes back to that risk-adjusted NIM. Those loss rates that we've -- that we're starting to see come through the book and that trend, particularly as you can see, the arrears rate substantially coming down as we grow our order pay concentration in our book. So there's a couple of things happening in that 763 average Equifax profile. It's actually skewing up and it's skewing up whilst there's risk-adjusted NIM advantages as opposed to pricing that's causing us the opportunity to grow into that higher credit value segment. Now the second part that I think is important is as we launch our credit card, we're not aiming for the younger demographic that's typically a buy now, pay later type customer, we're aiming for that really strong credit profile consumer, again, medium age demographic. I think our customer age in our book now is sitting at about 38. That for us is the sweet spot. Remember, 10 years ago, when we launched MoneyMe into the Australian market as a digital first lender, that customer was 28. That same customer 10 years later has got a mature profile, has grown up understanding how MoneyMe operates and how they service -- how we service the market through a distribution model that's very unique, very automated, very app-driven, that 38 customer is our target market that we absolutely love to service. So when you see the 763, it's a continuation of servicing a demographic and the profile of borrowers that do have strong credit profiles and that's going to continue.

Okay. Great. And just a final question. Really interested to see what you're saying -- what you're seeing in current trading conditions. So to the extent you can see what's happened in the last 7 weeks, I suppose, 2 things there, where the tax losses -- the tax benefits getting spent? Are you seeing those coming through in your numbers? And then secondly, Victoria, we're hearing things are probably pretty tough in Victoria. I'm just wondering whether you're seeing any differentiation in performance and growth rates from Victoria versus the rest of Australia?

Thanks, Andrew. Look, we are seeing this trend -- this positive trend of volume for us coming through. So that's continuing and that's quite pleasing. And it's on target with what we're expecting. Look, as far as where we're seeing, I guess, challenges or hotspots across our volume or within the industry, I think there's nothing specific that we could call out. The same things when you think about certain industries like construction, et cetera, they're the same kind of issues we've seen in the past. And so we're not seeing any major trend or increase in losses or anything like that come through. In fact, it's following the overall trend of our overall book. From a Victorian perspective, where we have 20% of our overall book, we're also not seeing anything material coming through having any impact.

Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.