PensionBee Group plc (PBEE) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the PensionBee Group plc full year results investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you could give that your kind attention. I'm sure the company will be most grateful. I'd now like to hand over to the management team from PensionBee, Romi, good afternoon.

Good afternoon, and thank you very much for having us here today. We're delighted to take you through our 2023 full year results presentation. But before we do that, perhaps I'll start with a little bit of background about the company and what we exist to do. PensionBee is a leading online pension provider in the U.K., and we exist to make pension simple so that everyone can look forward to a happy retirement. We do that by helping our customers to consolidate their old pensions into a new online plan with money managed by the world's largest money managers. We help them to contribute into their pensions, to grow their pensions and ultimately to withdraw their pensions by paying themselves a salary through retirement. We're very proud of the growth that we've achieved since the founding of the company in 2014. We manage approximately GBP 4.4 billion of assets under administration. On behalf of 230,000 invested customers. And last year, that generated revenue of approximately GBP 24 million. 2023 overall was a very important year for us and reflecting back more generally since the time of our initial public offering in 2021. We've more than tripled our assets under administration to GBP 4.4 billion and quadrupled our revenue. We've continued to grow our brand and our brand awareness and are a household brand name in the U.K., which helped us to attract 46,000 new invested customers at a declining cost per invested customer. And we know that brand is important, but of course, so is the investment that we make in our technology, in our product, and in our customer service. And we were delighted to be recognized by our customers in over 10,000 Trustpilot reviews supporting our excellence score. Over the course of last year, we also joined the FTSE All-Share Index and the FTSE4Good Index at the end of the year. And finally, a couple of weeks ago, we announced our proposed expansion to the United States of America, which is the world's largest defined contribution pension market. And that market, together with the U.K. market will enable us to cover a substantial majority of the defined contribution pension space enabling us to create a leader in the consumer retirement market. So let me take you back to a starting point for PensionBee, which is always the consumer. We exist to serve consumers with a particular focus on the mass market. And you can see that at the end of last year, our geographic distribution across the country meant that we had presence virtually everywhere from London to Northern Ireland. And our focus on the mass market also ensured that we were serving customers across a broad range of ages all the way from 18 to 80. This is incredibly important because consumers within the U.K. remain very disengaged with their pensions and pension planning more generally is considered inadequate. About 1/3 of consumers don't know how much they have in their pension. Don't know how much their employers or they are contributing to their pension and don't know that their pension is invested. And so a solution like that of PensionBee can really help to address the challenges that come with the complexity of the pension system. And we can see that interest in pensions is absolutely growing as reflected by the fact that a greater proportion of people chose to consolidate their pensions in 2022 compared to 2020. And so not only is the U.K. consumer market enormous with around 23 million pension holders, but the total asset market is enormous as well. We believe that in the U.K., there's approximately GBP 1.2 trillion of transferable pensions which are essentially pensions that have been left behind through previous periods of employment or are sitting in older style personal pension plans. And therefore, that creates a substantial opportunity for PensionBee to continue growing its market share. Further underpinning the growth of this market is, of course, the fact that individuals continue to save. And so there are clear and evident increases in median defined contribution pension parts as they continue to grow through individual and employer contributions in the country. I mentioned that PensionBee and the PensionBee brand has been an incredibly valuable asset of ours, and we've invested GBP 55 million in achieving household brand name awareness, meaning one in two consumers have heard of PensionBee. Over the course of 2023, we focused on very cost-effective channels leveraging our relationships with radio networks, focusing on sports sponsorship and advocating on behalf of our customers. As a result of those brand investments, we can see that consumers are increasingly coming to PensionBee spontaneously as measured by our organic traffic growth. Approximately half of our traffic last year was spontaneous arrivals to the PensionBee domain. And not only has our brand awareness increased, but our cost per invested customer has decreased as a result of more people knowing who PensionBee is and our substantial investment in understanding the data behind our marketing, we have reduced the cost per invested customer to approximately GBP 213 last year. At the same time, we have increased the net inflows of pension assets per pound of marketing spend by 69% and over the course of the year. And that was coupled with strong overall customer growth with total invested customers growing to approximately 230,000. We know that our customers rely on us to plan for a happy retirement. And so investing in our product has been incredibly important. Over the past year, we prioritized a number of initiatives. The first one is content and content is incredibly valuable because it gives our customers the educational information that they need to plan. We made that content easily available and accessible through our app store. We also enhance the experience for our customers looking to make withdrawals from their pensions and pay themselves a salary in retirement which also helped us to attract customers over the age of 55, looking to consolidate their pensions and then start to take income from those parts. And finally, taking a more holistic approach to retirement planning, we launched a partnership with LifeSearch which enables our customers to acquire life insurance and other forms of protection so that they know their coverage should the worst happen. Throughout the course of the year, we continue to prioritize customer service. We believe that our customers deserve high-quality rapid response times and we regularly measure our success in that area. We were fast to respond on the phone, on e-mail and on live chat and had a 4.6% Trustpilot rating on behalf of 10,000 Trustpilot reviews. Last year, we also prioritized meeting our customers in person and hosted in-person roadshows in Brighton, Birmingham and Manchester reflecting the priority that we place on serving our customers as well as we possibly can. We continue to maintain value for money in our product and focus on our customers' investment needs. At PensionBee, we have a curated set of investments designed to meet the needs of the majority of consumers. And so it's important to us that our range always reflects the choice and the value that our customers place on it. Last year, we launched our impact plan subject to customer feedback and developed with customer feedback that enables our customers to invest in companies addressing the world's great social and environmental needs while also growing their pensions at the same time. We engage with our customers on a range of topics, including voting and how they would like us to vote on the assets held in their pensions so that we are representing their views with respect to long-term material issues in the companies they invest in. Our external governance advisory arrangement gave PensionBee an excellent score in value for money for our retirement product range. We also furthered our investment in our technology with a particular focus on productivity. PensionBee made the decision about 10 years ago that it's important to invest in incredibly scalable cloud-native systems. And so we have been developing the proprietary technology and know-how to continue to offer pension solutions to our customers while increasing automation and productivity. And you can see on the right-hand side that our productivity has increased substantially since 2020, effectively doubling when measured as invested customers per staff member. When we compare ourselves to the industry, it's important to know where we thrive and where we stand out. Consumer finance company borrowing money has assessed 24 companies in the consumer categories that matter. And PensionBee, we're very proud to be first for customer support, quality of communication and tools and in addition to be in the top 5 for a variety of other factors, including website experience, value for money, app experience, ease of use, trust and articles. We also earned a number of best buy badges, including best buy pensions, best investment app, best for beginners, best for low-cost pensions, best for customer service and overall value for money. From a corporate perspective, we also continue to develop our profile. We contributed to a number of ESG frameworks in relation to areas that are material to our business. We were included in the FTSE All-Share and also in the FTSE4Good Index by the end of the year. Looking forward to the rest of 2024, we continue to prioritize the factors that have made us successful. These include efficient investment in customer acquisition looking to maintain our brand and reduce our cost per invested customer, while increasing the net inflows per pound of marketing spend. We are seeking to maintain our leadership in product by investing in the customer experience. We will continue to optimize our technology by investing in productivity and automation while prioritizing customer service and remaining available to our customers. We'll review our core plan range to ensure it aligns with our customers' expectations over the next 5 to 10 years. And of course, we will prioritize resilience making sure that we're available to our customers and that we prioritize their security. I would now like to hand over to our Chief Financial Officer, Christoph Martin, who will take you through the financial update.

Thank you very much, Romi. Hello and warm welcome to everyone. I'm pleased to cover the financial section of the full year announcement. In this section, I will cover the core financial aspects of PensionBee's business model. First, I will outline the long-term business model of PensionBee, which is addressing a vast structurally growing and underserved consumer market. Second, I will elaborate on the aspects that make our revenue base recurring and predictable in nature. Afterwards, I will expand on the nature and structure of our cost base and how its scalability helps to drive operating leverage and visibility on profitability. Lastly, I will conclude with the forward guidance. I would like to start talking about the addressable market and long-term business model. First of all, PensionBee is serving the vast and structurally growing an underserved transferable pensions market with our scalable business model. We are serving the market by solving a genuine customer pain points through offering an easy-to-use consolidation and pension product. Second, we charge a simple transparent fee of between 50 to 95 basis points with an average of 64 basis points. This fee covers all aspects of our service including asset management. Thanks to our high retention rate of 96%. Continued contributions and consolidations of our customers, coupled with resilient revenue margin, our revenue base is recurring and predictable in nature. Lastly, we have a scalable cost base, which consists of discretionary marketing costs to drive growth, variable money manager costs paid to our reputable and recognized asset manager partners and primarily fixed technology platform costs. In conclusion, we are addressing a vast and structurally growing addressable market with a predictable, scalable and long-term business model. Having covered the vast and structurally growing markets we are serving, I would like to cover what makes our revenue base, recurring and predictable in nature. We continue to deliver consistent robust growth from existing customers through our high retention rates, recurring and compounding asset growth, which subsequently translate into strong revenue growth, thanks to our resilient revenue margin. We are pleased to report continuous high customer and asset retention rates of greater than 95% of existing customers who are continuously consolidating further pots and contributing into the lifetime pension pot at PensionBee. Similar to previous periods, the data showed all customer cohorts delivered positive net inflows in 2023. This serves as a good reminder of the long-duration compounding nature of our asset base with an average age of around 40, our customers demonstrate a long-term commitment to saving with PensionBee, growing their assets with us every single year. As a result, we maintain high visibility on our asset base every single year. Next, we convert the compounding asset growth into recurring revenue growth, thanks to our resilient revenue margin, which was 64 basis points. As a result, we converted the asset growth into revenue growth of 35%. In conclusion, thanks to our effective new customer acquisition and high retention rate, we generate a compounding [indiscernible] rate base, which due to the resilient revenue margin leads to a recurring and predictable revenue base. The revenue base is thereby highly predictable and visible for future years. In addition to driving strong growth, in Q4 2023, we have delivered our long-standing goal of achieving ongoing adjusted EBITDA profitability. Consistent with guidance since our initial public offering in 2021 and despite substantial macroeconomic volatility we have witnessed over the previous few years. On this page, we shed more light on our controllable scalable cost base, which allows us to generate operating leverage and can be broadly categorized into 3 categories. First of all, we continue to see scale benefits in our marketing cost base. In 2023, we spent approximately half the marketing budget while achieving higher gross inflows compared to previous year. Second, the scalability of our technology platform and other operating expenses, the scalability of the technology platform is underscored by the fact the technology platform expenditure only grew by circa 7%, while revenue grew by 35% year-on-year. Third, money manager costs, which are variable in nature and represent 14% of revenue, growing by 15% year-on-year, while the revenue base grew by 35%. As a result, in 2023, our overall cost base reduced by 14%, while our revenue increased by 35%. Our business delivered strong growth, while at the same time, demonstrating the scalability of our cost base and resulting profitability in Q4 last year. This also serves as a rate across for 2024 where we expect to deliver our full year profitability target with strong growth driven by net flows from new and existing customers, coupled with continuous strong cost discipline thanks to our ongoing automation and efficiency improvements. In our balance sheet, we have a strong cash position recording GBP 12.2 million in cash at the end of December. The predictable nature of our business becomes even more visible over the longer time horizon. Our financial visibility is rooted in; first the revenue base, where the majority of revenue is already acquired from assets accumulated in previous years; and second, the scalable and highly controllable cost base. First, on revenue. The data shows a high retention rate, top left chart, plus resilient revenue margin, top middle chart, which leads to a recurring and predictable revenue base, top right chart, where the majority of revenue is already substantially derisked and infact visible at the beginning of the year, thanks to the previously acquired cohorts. Second, on cost, the controllable and scalable cost base is achieved, thanks to increasing efficiency in marketing spend, bottom left chart, coupled with a fully invested and continuously scaling technology platform, bottom middle chart, to facilitate an increasing revenue base that provide us the confidence in our forward predictability on profitability and cash flow, bottom right chart. In conclusion, PensionBee's business model has forward visibility, thanks to our visible revenue and scalable and controllable cost base. Next, we want to provide further future long-term guidance for our U.K. business. We are pleased to reiterate our guidance, confirming that we aim to deliver sustained high revenue growth while we have demonstrated significant growth to date, we remain of the few that our focus on the mass market of pension savers will enable us to deliver substantial further growth as we pursue a market share of around 2% of the GBP 1.2 trillion of transferrable pension market over the next 5 to 10 years. We are preparing to onboard approximately 1 million invested customers with GBP 20,000 to GBP 25,000 in the pensions creating a revenue opportunity of about GBP 150 million in the long term. At the same time, having invested in our brand technology over many years, and having achieved ongoing adjusted EBITDA profitability in the final quarter of last year, we are poised to continue delivering increasingly profitable growth over the medium to long term. Our primary financial goal for 2024 is to deliver full year financial profitability by the end of the year, being also clear that we will consider this goal on a full year basis while on a quarterly basis. As we look forward to the next few years after 2024, we expect to grow our marketing investments and invest in our growth, always maintaining our focus on profitability as an underpin. We have recently announced our proposed U.S. expansion in partnership with a large U.S.-based global financial institution. Under the proposed strategic relationship, the U.S.-based partner will provide its expertise and substantial marketing funding. Correspondingly, PensionBee's financial contribution will be financed from existing resources of PensionBee Group PLC. As a result, our U.S. business does not change our existing guidance. I will now hand back to Romi to update with more information on the proposed U.S. expansion.

Thank you very much, Christoph. As we have announced, we have entered into an exclusive nonbinding term sheet with a large U.S.-based global financial institution in order to expand into the United States of America, the world's largest defined contribution pension market with around $22.5 trillion in assets. The U.S. market is incredibly attractive from a defined contribution perspective because it will enable us to address essentially the entire global market together with our U.K. presence. The U.S. market is similar to the U.K. in the fact that it has been undergoing a transition from defined benefits defined contribution pensions over a number of years. And this long-standing system of defined contribution pension savings will be further bolstered through new reforms that will bring more Americans into the saving system. When we looked at the overall structure of the U.S. market, we discovered a lot of similarities with the U.K. market. Although the IRA market, the individual retirement account market is vast, the focus is predominantly on affluent consumers. Looking more closely, we can see that a majority of Americans do not have an individual retirement account which is exactly what PensionBee would be offering by consolidating old workplace pensions, old 401(k)s into a new IRA. We can see that the individuals who do not yet have an IRA are more likely to have a household income that is below that of individuals who do have an IRA, they're likely to be slightly younger, and they are less likely to be married or cohabiting. We can see that this maps across well to our existing U.K. presence, where many of our customers had previously never had a personal pension and PensionBee was the first personal pension that they have acquired. We can also see that consumers in the U.S. are very receptive to transferring and consolidating what is known as rollovers. Similar to the U.K., the primary -- the primary motivation is to maintain control and to have convenience around bringing their assets together. Consumers don't want to keep their workplace savings with their old employer. They want to bring together, they want to be able to eventually retire from one pot. And when considering whether our proposition would translate well into the U.S. market, we considered the 5 core factors that have made us successful in the U.K. We looked at our ability to deploy our marketing know-how into a new market and whether our brand name would resonate and found that consumers were attracted to our brand proposition and to the ethos of the company. We considered whether the product would be intuitive and easy to use and would add value to the U.S. consumer and discovered that 401(k) transfers and rollovers are indeed very difficult. And there is a strong desire, especially amongst those who have not yet consolidated their old workplace assets to bring them into one place in a straightforward way. We considered our approach to technology and our approach to customer service, validating that consumers would value the personalized level of customer service that we provide through individual Bee keepers. And finally, we considered our approach to investing and the putting forward of a curated sets of investments that would enable consumers to make straightforward decisions about their long-term retirement savings. Overall, we felt confident that our key USPs in the U.K. market would translate well into the U.S. market as well. When considering the economic opportunity of the U.S., it was important to us to do this in partnership with a large and existing institution that would also contribute its expertise to the proposition. And therefore, we are pleased to have advanced the U.S. expansion together with a partner. The underlying economics are also very attractive. We believe the median defined contribution pension in the United States will be approximately $55,000, which will be higher than the median amount that we see in the United Kingdom of approximately GBP 20,000, owing to the fact the defined contribution pension savings haven't existed in the U.S. for much longer. At the same time, we believe that the cost of customer acquisition, given the size of the U.S. market, will be very achievable and deliverable and in comparison to our U.K. cost of customer acquisition. I'll conclude with our investment highlights. We're a leading online pension provider, and we solve genuine problems for consumers. We operate in the enormous defined contribution pension market, which is underpinned by structural growth factors as consumers continue to save for retirement. We've built a brand and have harnessed a data asset that enables us to have the appropriate marketing strategy to acquire customers. Our scalable technology developed over the past decade has given us a sustainable competitive advantage to continue growing rapidly. And our simple long-term business model demonstrates growth and underlying profitability. I'll finally conclude on current trading in 2024, which is positive and tracking well against our objectives. We aim to increase net flows in absolute terms relative to 2023 and also net flows on a per pound of marketing spend basis. We're looking forward to engaging more with the investor community and we publish our annual report and head into our Q1 trading update in April. And that concludes the content of the presentation.

That's great. Christoph and Romi, thank you very much indeed for your presentation and for updating investors relation. [Operator Instructions] Christoph, Romi, as you can see, you've had a number of questions from investors this afternoon. So firstly, thank you to everybody for your engagement. And if I may Romi, I may just hand back to you just to take us through the Q&A and I'll pick up from you at the end.

Very happy to. The first question is as follows. What investment is planned this year in terms of broadening brand recognition. Thank you very much for the question. It's incredibly important to us to continue to maintain our household brand name status because we can see that it reduces the ultimate cost per invested customer and enables us to increase the net inflows per pound of marketing spend. So of course, this is an absolute priority. Our approach around brand investment has always been to focus on diversification and make sure that we're having multiple different touch points with consumers. And that means being present across a variety of channels. Historically, those channels have included television, radio, sports sponsorship and consumer advocacy on behalf of our customers. We're doing a lot of exciting new things in those areas. You may have spotted our National Geographic sponsorship, which is live and will be live for a number of months. We also currently have an always on approach to radio which ensures that anyone listening to us in the car is keeping PensionBee top of mind. And as you know, we have a long-standing sponsorship of Brentford, who are also the Bees, and there are a lot of opportunities to continue to bring PensionBee to the forefront of the consumer's mind. I hope that answers your question. The next question is what measures does PensionBee take to ensure high levels of customer satisfaction. Customer satisfaction has been a priority of ours since day one, and we've made the important decision that every customer should have an individual behaver our approach to customer service is, therefore, to be available to our customers and to ensure that we are responding to them rapidly. And to that end, we engage with them on a number of channels including phone, live chat and e-mail. We also actually engaged in-person last year. Throughout the channels we use, we monitor our response times and our satisfaction rates on a daily basis. In fact, the reviews that customers leave us are shared across our company in a real-time basis so that we can ensure we're delivering the quality that our customers expect and where there are areas of improvement that we are addressing them promptly. I hope that answers your question. The next question is about ongoing CapEx. Could you elaborate on the ongoing CapEx in technology infrastructure and cybersecurity measures how does PensionBee ensure the resilience of its platform to withstand potential operational disruptions. Christoph, would you like to cover the CapEx point?

Yes, very happy to. The first point I would like to make around CapEx is that we actually, from an accounting perspective, so when you look at our P&L, don't capitalize any of our expenses. So we are very conservatively capturing all our expenses directly onto the P&L within our profitability metrics. So the profitability that we call includes that investment in technology platform and other kind of platform required to scale the business. So that's the first point, the expenses is captured in the profitability number. The second point I would like to tease out around our technology platform, which is hugely scalable. And maybe I flip to one of the pages to illustrate my answer. On Page 23, you can see how that cost base has scaled as we have grown the business. When you look here at the bottom middle chart, that shows you the technology platform cost as a multiple of revenue. And so what you can see here is that this cost base, which is primarily fixed in nature, how it has developed as a multiple of revenue. And what this chart shows you is that as we have grown the top line and scaled the business, the cost base as a multiple of revenue has sharply declined. And this is a key lever for us to really drive operating leverage and drive the margin profile of the business. And that we have done, obviously, historically, which you can see at the bottom right, that also pave the way to profitability. And it's a key lever also going forward to drive that margin profile -- sorry.

I was going to cover our cybersecurity point. happy to pause if there's anything more to add on.

No, I was actually done. That was great.

Okay. On the cybersecurity question, we are ISO-27001 certify, and we take cybersecurity incredibly seriously, and we continue to therefore invest in it our approach to cybersecurity culminates in our proprietary Bee secure strategy and which is based on best practice principles of keeping data safe. We have recently invested in a stock, which monitors our perimeter and informs us of any suspicious activity on a preemptive basis and that is one part of the ways in which we continue to deploy cutting-edge technology and invest in training for our team to keep our technology operationally resilient. I hope that answers the question. Can you discuss competition? And how do you plan to win market share, is the next question. The U.K. market is incredibly large as is the U.S. market. And we believe that our position is very much focused on the consumer with a particular priority on the mass market consumer. In our experience, this segment of the market remains fairly ignored by many of the existing financial institutions who are focused on other aspects of their businesses. For example, the workplace savings market or the adviser market. As a result, we believe that we are one of the only, if not the only, exclusive pension provider focusing on the consumer mass market. And in order to win and succeed in this market, we prioritize the factors that make us attractive to consumers. Those are, of course, our brand presence and our brand ethos, the investment in our product, ensuring that our systems are scalable and secure, our customer service and pushing forward the appropriate investment range for our customers. So we believe that our package and the way that we have brought our key competencies together is the best way to serve the mass market of consumers who continue to remain fairly ignored in what is already an enormous overall pensions market here in the U.K. and also U.S. And our final question today is as follows: with the proposed expansion in the U.S. market, could you provide insight into the strategic rationale behind this move, including potential challenges and opportunities. Additionally, how do you envision PensionBee's competitive positioning in the U.S. DC market? And what are the key milestones for success in this endeavor? Well, the U.S. market is an incredibly important global market, representing approximately 80% of total DC assets. And so the strategic rationale is very clear. We will be able to extend our existing assets, including our technology investment and our know-how with respect to product and customer service and marketing approach to another very large market. The key behind this decision has been the fact that we're doing it in partnership with an existing U.S.-based financial institution who will also contribute their expertise. We believe that U.S. is, of course, a different market. We will need to localize the product for the local conditions. And we think it's important to recognize those differences early on to ensure that we are delivering the right product. And of course, our partnership will enable us to leverage the historical experience and expertise of that institution. With regards to PensionBee's competitive positioning the market, Again, this is an absolutely enormous opportunity with $22.5 trillion in U.S. DC assets. And what we can see from historical data is that approximately $500 billion tends to roll over or consolidate in a given financial year. As a result of that, our opportunity to grow and scale is fairly uninfluenced by the overall competitive dynamic within the country. And our key priority is to make sure that we are giving consumers, U.S. consumers a service that is solving their problems and enabling them to plan for a happy retirement because the market is big enough to be able to absorb a company like ours and our growth ambition.

That's great. Romi, Christoph, You've taken every question from investors. So thank you to everybody for engaging this afternoon. And Romi, Chris, thank you very much indeed, of course for your time. Romi, Christoph, I know investor feedback will be particularly important to you, both are shortly redirect investors on the call to give you their thoughts and expectations. Before doing so, I wonder if I may Romi, just come back to you for a couple of closing comments. And then as I say, I'll redirect investors to give you their feedback.

Absolutely. Thank you. We appreciate everyone's time today and the time you've dedicated to hearing us present about PensionBee. We're very excited about the opportunities in front of us. The opportunity in the U.K. is absolutely enormous and phenomenal, and we're excited to continue growing in our home market. We are also delighted to have the opportunity to extend and export our technology to a new market, and we are looking forward to that growth opportunity as well. And we remain very open to investors and hope to engage with many of you in the future again.

That's great. Romi, Christoph, thank you once again for your time this afternoon. Can I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will take a few moments to complete, but I'm sure we'll be greatly valued by the company. On behalf of the management team of PensionBee Group plc. I would like you for attending today's presentation, and good afternoon to you all.