PensionBee Group plc (PBEE) Earnings Call Transcript & Summary

Good afternoon, and welcome to PensionBee Group plc Q2 Results Investor Presentation. [Operator Instructions] 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 publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. Thank you. I would now like to hand you over to Romi Savova, CEO. Good afternoon.

Good afternoon. I'm Romi Savova, the CEO of PensionBee. Welcome to our Q2 2025 results presentation. Today, we are pleased to share our progress over the quarter as we continue executing on our vision to build a global leader in the consumer retirement market. For those of you who are new to the PensionBee story, we exist to help our customers prepare for and enjoy a happy retirement. We operate in the enormous defined contribution pension market, representing over $30 trillion in assets and close to 100 million consumers in the U.K. and U.S. alone. Our customer-focused offering helps consumers to feel retirement confident. We enable our customers to combine their old retirement accounts into a new online account. We enable them to make contributions to invest in line with their objectives with money managed by the world's largest asset managers and ultimately to withdraw and spend their retirement savings. Our long-term ambition is to build lifelong relationships with our customers. This approach not only delivers value to them throughout their retirement journey, but also drives predictable, scalable revenue for our business and strong returns for our investors. In Q2 2025, we sustained strong momentum by continuing to grow our customer base in the U.K. and laying robust foundations for long-term growth in the U.S. We acquired 11,000 new invested customers and assets under administration reached GBP 6.3 billion or close to $9 billion. Group revenue for the quarter increased by 22% to GBP 10 million. In the U.K., we increased our marketing expenditure, hitting record brand awareness levels and materially expanding our new customer pipeline for ongoing growth in invested customers in H2 2025. We are successfully attracting a younger demographic, mirroring our strategy during similarly volatile macroeconomic conditions in 2022. In the U.S., we have established and continue to grow our brand awareness through national channels and enhance our product offering through transfer automations and retirement planning tools. Our Safe Harbor IRA is being well received as multiple employers are nearing the final discussion stage to adopt our consumer-centric offering and longer term, consultant-led prospects representing circa 20,000 potential new customer accounts. Group adjusted EBITDA was marginally negative this quarter, while PensionBee U.K. achieved profitability of GBP 0.3 million for the quarter and GBP 3.2 million on an LTM basis. These successful results were driven by strong revenue and improved operating leverage. We remain confident in our U.S. expansion and are on track for full year U.K. adjusted EBITDA profitability. In the U.K., we continue to invest in marketing over the first 6 months of 2025, increasing spend by 30% year-on-year to GBP 7.6 million in order to capitalize on our U.K. growth opportunity. This investment drove record levels of both prompted and unprompted brand awareness, which were 59% and 25%, respectively, making PensionBee one of the most recognized pension providers in the country. Brand investment is a long-term endeavor, yet we were pleased to see it contributing to the successful onboarding of approximately 11,000 new invested customers over the quarter. Brand investment has also resulted in an increased pipeline of customer registrations and transfer requests, which will translate into further growth in invested customers in the second half of this year, distinguishing the second half of 2025 compared to 2024. Our industry-leading technology platform continues to scale effectively, driving operational efficiency and the consistent delivery of excellent customer service. We delivered an 18% productivity improvement over the second quarter with approximately 1,500 invested customers per staff member in the U.K. while maintaining our industry-leading customer satisfaction rates as reflected in our excellent Trustpilot rating and customer and AUA retention rates of over 95%. Looking forward to the second half of the year, we expect to deliver substantial innovations to support long-term growth and productivity. The incremental introduction of a new customer interface will modernize and enhance customers' product experience, while simultaneously supporting long-term efficiency in future product development. Beetrix, the company's AI internal copilot, continues to drive significant efficiencies across customer service and other operational teams. The focus remains on completing the technical underpinning for customer deployment in the near term. Turning now to the U.S. Our focus on building brand awareness and trust is a top priority, and we are growing national brand channels that scale with a focus on social media, customer advocacy through the press and search. Our multichannel campaigns are generating strong traction across platforms such as YouTube, Meta, TikTok and LinkedIn, where we see exponential growth in our follower base. We're pleased to see prompted brand awareness in the U.S. already registering at 5%. As our U.S. product nears product parity with our U.K. product and we complete our transfer automations, we will soon be ready to supercharge our brand while investing in customer growth. From a brand perspective, in the second half of the year, we will launch advertising campaigns in 12 metro areas with connected TV through ESPN, Hulu, Warner Bros. and Peacock. We will support this campaign on YouTube. In 3 of the 12 metros, New York, Chicago and Seattle, we will deploy out-of-home advertising, billboards and radio advertising on commuter corridors. Simultaneously, we are in the process of developing a range of distribution partnerships focused on our core consolidator target audience and also our self-employed audience. These partnerships are structured on an invested customer completion basis, thereby representing the most attractive economics for PensionBee. To meet our long-term goals, the overall objective is to continue maintaining the growth of our U.S. trajectory above the trajectory we followed in the U.K. from a customer and AUA perspective. Our U.S. product continues to be developed. And over the course of the last quarter, we advanced our transfer automations and core functionality in line with our objectives. We expect to achieve predominant parity with our U.K. product by the end of the year. As of Q2 2025, we have released transfer automations in a live testing environment that will be capable of handling over 50% of our requested transfers. Finally, over Q2, we have continued to develop our Safe Harbor IRA for employers, offering a consumer-oriented solution in a market that is desperate for innovation. Our research uncovered exorbitant fees that erode customer accounts to 0, including by sweeping up to 4% of interest out of these customer accounts. We successfully deepened engagement with consultants and employers around our Safe Harbor IRA offering, which offers a more consumer-friendly proposition for employers and employees. With a number of employers now nearing the final discussion stage and PensionBee participating in consultant-led processes representing circa 20,000 new customer accounts, this business line is demonstrating growing traction. I would now like to hand over to Christoph Martin, our CFO, who will cover the financial update for the quarter.

Thank you very much, Romi. Hello, and welcome to everyone to the finance section of our Q2 2025 results. Turning focus to our U.K. performance. Scalable cost base drives operating leverage and profitability. We delivered a 2-year revenue CAGR of 37% on an LTM to June 2025 basis, while maintaining strict cost discipline. This resulted in achieving U.K. adjusted EBITDA profitability of circa GBP 3 million on an LTM basis, giving us confidence in continued profitable growth of the U.K. business in line with our public commentary for the U.K. Over the Q2 2025, we continue to deliver predictable and recurring revenue growth. The underlying reason for our predictable and recurring revenue is fundamentally a high retention rate of greater than 95% of customers. Our average customer is around 40 years of age and therefore, still building up their retirement saving with us for decades to come. As a result, existing cohorts are growing over time on an underlying basis, excluding markets. Growth of existing cohorts combined with efficient new customer acquisition generates a consistent AUA growth over time on an underlying basis. We have seen a resilient revenue margin of mid-60s basis points consistently at those levels over the last 6 years, which translates strong AUA growth into a consistent, predictable and recurring revenue growth. From a long-term perspective, the scalability of the technology platform becomes even more apparent as evidenced in the decline of our cost base as a proportion of revenue. As we scale the business, which can be seen on the long-term trend on the left-hand side of this page, we drive adjusted EBITDA margin in the long term, which can be seen on the right-hand side. In conclusion, the scalability of our business and our efficient cost control allows us to bring costs down consistently as a proportion of revenue, as shown historically, thereby positively improving adjusted EBITDA margin. With regards to our guidance, in the short to medium term, spanning around 3 to 5 years, we target the group to generate revenue of above GBP 100 million and the group adjusted EBITDA margin of circa 20% by year 5. In other words, over that time horizon, we see the U.K. to contribute the vast majority of revenue and profits to the group. In the long term, spanning 5 to 10 years, we expect the group to generate above GBP 0.25 billion in revenue and target a group adjusted EBITDA margin of circa 50%. Over the time horizon, we see the 2 segments to contribute equally to the group guidance. For 2025, while the U.K. business will be run on a profitable growth basis, the U.S. business receives State Street reimbursement for the marketing expenditures and will be run on a strict cost discipline basis during the building phase. I will now hand back to Romi for conclusions and closing remarks.

Thank you very much, Christoph. We're pleased to report another quarter of growth and look forward to engaging with investors on the questions that are coming through.

Fantastic. Thank you very much indeed. [Operator Instructions] As you can see, we've had a number of questions come through. So perhaps I can just start with the first one here. Perhaps one for you, Christoph, in the first instance. Ben, thank you. What do you expect to see as a normalized margin? And at what level of AUA do you expect to see the operational gearing dropping to bottom line profit at a group level?

Yes, I'm very happy to take this one. So let me start maybe with the group guidance. So the group guidance that we made public is an indication of the normalized long-term margin over the next 5- to 10-year period, where we target, again, over or around 50%. I think as we would scale from that point onwards, it would not be unreasonable to expect that it could potentially go above that point. I think if you look at it from the journey from now to that point, there are differences in terms of the 2 segments of how they contribute to the margin and profitability because they're also at different stages in their growth cycle. So with the U.K., for instance, the U.K. is obviously at profitability and we drive and grow the business profitable. Here, you could expect that we are investing the incremental profit that we generate over the next few years back into the business because the U.K. market alone is still enormous with GBP 1.3 trillion of preserved pension, and we have over GBP 6 billion of that. So we have a market share that is well below 1%, and we have a very unique positioning in the market. So there's still a long runway for us to actually deploy capital with very attractive unit economics and build our market share. So for that reason, we would probably spend a lot into growth to further scale the U.K. business. That means that the margin as a consequence will be -- will remain at the current levels, if you will, because of that. Once we reach around GBP 17 million of marketing spend, the marketing budget will grow a little bit slower. And I think at that point, you could potentially expect that you will see much stronger margin improvements from that point onwards. The U.S. is the second segment. Of course, this is currently in the building phase. As we have mentioned, the J curve that we have to go through in the U.S. is much shallower, if you will, compared to the U.K. This is due to synergies that we generate on one side of the technology stack as well as the marketing expenditure. To your question around the scale of the business, I think you could reasonably expect that the margin potential to get closer to, let's say, a run rate stage to be around GBP 20 billion, GBP 25 billion of [ AUA ] from that point onwards, we probably expect the margin to come through, much more stronger. I hope that answers the question. If there's anything else, I'm happy to dive into further details.

Super, Christoph. A couple of parts to these. Let's start with the first one. U.S. progress. Is the U.S. ramp-up in line with your expectations? Have you started signing customers in the U.S.? And what is the milestone customer number in the U.S. when you start to report -- and when are you starting to report this metric?

Some great questions around growth and development in the U.S., and I think really echoes along quite nicely from the comments Christoph made around group guidance. The U.S. business is very much in its buildup phase, both with respect to the direct-to-consumer offering, but also with respect to the Safe Harbor IRA offering. And on the direct-to-consumer side, we've laid out a very clear road map around the level of product expansion that we expect to be delivering in the first half and then also in the second half with a real critical focus on making sure that our transfer automations are working in the way that we have grown accustomed to them working in the United Kingdom. And so we've made great progress on that front. We have around 50% of the transfer automations in a live testing environment. That means that they can handle simple transfer requests and therefore, we are indeed onboarding some customers that are going through that. But there is additional build work to be done here to handle for some of the edge cases that we also see. And we really think that, that is quite a precondition before we start ramping up the marketing spend in the U.S. What you can see, though, is that for the limited amount of marketing spend that we have had, and I think it totals to around $2 million over the past year, we've already established a 5% brand awareness, which is exceptionally high given the kind of trajectory that we had in the U.K., for example, where we were at around 17% in 2021, so kind of 5 to 6 years after operations having spent a lot more. So from a brand building perspective, it's definitely going faster. From a kind of product development perspective, it's also going faster. In the U.K., it took us 1.5 years to get our first customer, and we have already kind of passed that milestone in the U.S. So I would say, yes, on track with the expectation that we will be developing the U.S. at a faster trajectory than we developed the U.K. at around a similar time.

The second part of the question we got here, number two, I'm going to combine with Adam. Adam, thank you for your question as well. If I may just read them both out, both relating to marketing. The first reads, how should we think about the marketing spend in the U.K. and U.S. going forward? Should we anticipate higher or lower cost ramp-up in the coming quarters? And Adam's point, marketing spend rose 30% year-on-year with customer growth steady. How are you thinking about long-term acquisition efficiency and ROI?

Yes, very happy to take that one. In the U.S., perhaps we can start there. We have spent around $2 million so far, and we expect to spend a total of $5 million for the year. So that gives you a sense of the trajectory for the second half. We expect to be ramping up spend significantly with that spend being reimbursed by our partner, State Street, and we have highlighted some of the areas in the presentation where that will be deployed. There'll be a focus, of course, on the kind of bread and butter paid performance channels that we have, but also a continued focus on building brand awareness because we think that getting to national level of recognition within the U.S. will be just as important for us as it was in the U.K. And then coming to the U.K., we have indeed increased our U.K. marketing budget around 30% on a year-on-year basis, just looking at the first half. Quite a lot of that increase has come through in the second quarter. And so we can already see some of the results of that, not only in the invested customers that have come through, but also in the pipeline that we have built through new registrations and new transfer requests that we expect we will continue to convert into the second half of the year. And when we really think about 2025, H2 2025, we think it will look quite different to H1 to H2 2024, which was a period where we had quite a constricted marketing spend kind of coming on for a full 2 years. So we do expect to continue growing the marketing budget and to continue growing the invested customer base as a result of that.

Yes. I think the only thing to add further is that within Q2, if you look at the individual months, so April, May, June, you see actually each month on a year-on-year basis, we saw an increase in incremental customers joining the platform. I think there were a few -- I think there are basically 2 factors. Really, one of them is, as Romi mentioned, the increase year-on-year marketing spend. But then also there was another, let's say, external factor that was impacting us, too. You may recall on the 2nd of April's announcement around Liberation Day, the trade negotiations that subsequently impacted capital markets and volatility that also had a further impact on sentiment of customers, so that customers in that particular month may have observed that and remained a little bit more on the fence. I think now the last few -- the months subsequently, as this have normalized, we see that to reside and actually normalize. So this is one of the impact that, let's say, the spend early in the quarter didn't see immediate conversion, but we see that now slowly coming through. And that is the second, let's say, consideration around -- that's a little bit external driven. But then again, as Romi said, the first one is on the year-on-year growth in marketing. And so the expectation for H2 would then be stronger, as just mentioned.

Fantastic. Could you expand on the Safe Harbor IRA offering and the discussions with the U.S. employers? Do you expect to convert the 20,000 new customer accounts post the finalization of this process?

Yes, very happy to take this one. And then I do believe we have a live question from William as well that's coming through. On the Safe Harbor IRA, there are essentially 2 kinds of employer segments that we are seeing at the moment. The one is kind of quicker to onboard employers. These processes are not necessarily consultant-led. They tend to be for employers that are perhaps smaller in size and are much more attuned with rapid decision-making. And we are very much in the final discussion stages with a number of employers of that magnitude. The second type of employer that we see is sort of very large consultant-led RFP-led kinds of employers. And this is really where the 20,000 customer number is stemming from. We are currently in the process on a number of RFPs that collectively will result in around 20,000 invested customers if we win those processes. And so while there is no guarantee that we will win these RFPs, we think it's a really important metric to share with you to illustrate the size of the customer pipeline within this business and as a sheer kind of example of how quickly we have been growing the Safe Harbor IRA business line, given we've only launched this a couple of months ago.

Fantastic. That's great. William would like to verbally ask a question. If you could bear with me one second. Let me just request to turn on your microphone. Accept that request, please. William, your microphone is live. Please ask your question. If you could please ask your question, that would be fantastic. I'm not hearing you, William. Perhaps what we do is we will move on and come back to you again in a moment. Okay. Let's just move on to the next question here, Colby. In the second half of full year '25, do you expect to see a step-up in invested customer account growth in the U.K. driven by the change in strategy to a high number of low-value accounts this year?

I will take the question, but perhaps modify some of the understanding. So we certainly do expect to see a growth in invested customers in the second half of 2025 and certainly compared to the second half of 2024, where we were coming off a period of constricting marketing spend for 2 years in a row. In the second half of 2025, not only do we expect to keep our marketing spend elevated compared to the second half of last year, but also we will continue to benefit from the increased spend of the first half of 2025, much of which came through in the second quarter. In terms of the value of the accounts, one of the stats that we've shared within the presentation is around the age of the customers. We saw in the first half of this year that the customer cohorts that we onboarded were a little bit younger compared to the customer cohorts that we onboarded in the first half of 2024. And as you know, within pensions, even a year of pension contributions makes around GBP 3,000 difference to average account sizes. So you can kind of think of every year as accounting for a GBP 3,000 difference in the average incoming customer size. Now that being said, over the longer term, of course, younger customers are expected to remain on the platform for longer as it will take them longer to decumulate and longer for them to begin accessing their pension in the first place. But yes, we do expect to see a trend of growing customers into the second half. We are, now that sentiment has normalized a little bit, kind of seeing a return of customers over the age of 50 with slightly higher sentiment and propensity to transact. And so we will see where the second half shakes out, but certainly growth in customer numbers overall.

Fantastic. Okay. We've got another question here. In the latest net customer add, how has the CAC trended?

It's a great question. We won't know that until later on this year. So a lot of the marketing spend that we do because transfers are not instant, they can take 2, 3, 4 months and so on. We will see the CAC establish over time. We've guided for quite a while that we expect it to be at around the GBP 250 mark and that the lifetime value as a proportion of the CAC continues to remain very attractive on that basis.

Fantastic. Thank you very much indeed. William, I think as well, if you want to type in your question or pop it on afterwards the team can pick that up. That concludes all the questions that we've had through. So look, thank you both for updating investors today. And of course, any further questions that do come through, the company will have the opportunity to review those questions and publish responses where appropriate to do so on the Investor Meet Company platform. Could I please ask attendees not to close the session and will now be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of PensionBee Group plc, we'd like to thank you for attending today's presentation. That concludes today's session, and good afternoon to you all.