Qliro AB (publ) (QLIRO) Earnings Call Transcript & Summary

Welcome to Qliro Q2 Report 2023. [Operator Instructions] Now I will hand the conference over to CEO, Christoffer Rutgersson; and CFO, Robert Stambro. Please go ahead.

Good morning, everyone, and welcome to today's quarterly presentation from Qliro. I'm the CEO of the company, Christoffer Rutgersson. With me here today, I have Robert Stambro, our Chief Financial Officer. We are both happy and proud to announce a second quarter with profit due to our profitability program. Our revenues in the quarter are up 12% compared to last year, coming in at SEK 117.7 million in a quite weak e-commerce market in [indiscernible]. We also see continued strong traction of our profitability program, which have not only improved our operational efficiency [ which will lead to ] excellence also through digitalization and automation, strengthening [indiscernible] core increase for kind of both merchant experience, consumer experience and internal efficiency. Overall, our operating costs in the quarter are decreasing 12% compared to last year, roughly SEK 11 million coming in at SEK 82.5 million. We also see positive progress in implementation of our new payment strategy for our Payment Solutions business. From a volume perspective, we see our total payments volume declining only 2% in the quarter compared to the market where which is generated for efficient numbers, 2% decline in April and a 12% decline in May, indicating that the market in e-commerce right now is fairly volatile. Secondly, from a merchant perspective, we now have 65 active merchants on our platform, primarily enterprise merchants, where we are increasing with 4 merchants in the quarter, including a couple of well-known onboarded SME merchants like Syster P, Snoot och FiveSeasons, which are kind of fairly well known in Sweden. Also, we are happy that we are progressing on our product initiatives with -- most importantly, we're collecting payment service provider within the platform, where we now have launched card payments in the quarter successfully with a couple of merchants. We're kind of rolling out this more broadly in the coming quarters. And we will add more payment options over time, and I will come back to this a bit later. Also, last but not least, just after the quarter, we also signed a new contract with an enterprise merchant, Proteinbolaget, which I'm happy to [indiscernible] going forward on that [indiscernible] currently expanding quite quickly both in Sweden and Finland. And with this said, I will hand over to Robert to walk us through the financials. I will come back a bit later, giving you a more of a strategic update.

Thank you, Christoffer. Q2 is another quarter of growth and profitability. Last year in Q2, Qliro's Board of Directors announced the vision to be profitable for the full year '23. Shortly after that, we launched a profitability program. The program ran until year-end with corresponding investment costs and IACs. As we sum up the first half of the year, it's fair to say that the profitability program has been successful. We are now profitable for the second consecutive quarter since we went public in 2020. Income grew in the quarter with 12% driven by Payment Solutions that grew 13%. Cost efficiencies within the profitability program was realized and has pushed down our cost base of SEK 94 million last Q2 to SEK 82 million Q2 of this year, a saving of SEK 11 million. Credit losses was SEK 32.4 million in the quarter, lower than Q1 this year and Q2 last year. The credit loss level in both segments are in line with previous quarters. So to sum it up, we are profitable in yet another quarter. We experienced the best income growth in payments since being listed, 13%. We stand firm with being profitable for the full year '23, but there may be variations in quarters during the remainder of the year. As mentioned, the successfully launched -- launch of the profitability program pushed down the cost base of SEK 11 million from last year. And at the same time, we have tripled the size of the commercial team and launched a team to enhance the speed of onboarding. In Q2, we have been taking on an additional SEK 2 million in costs related to other operating expenses. This is primarily connected to sales and marketing activities, increased visibility of Qliro [indiscernible] brand. One good example of this was the launch of the e-com event growth and profitability held at [ Moderna Museum. ] The event had over 200 guests from the e-market community and some of the largest e-commerce retailers on stage. So all-in-all, the profitability program has pushed down the cost base. We are 1 good step on our way to deliver on the communicated target to deliver for the full year '23. Let's focus on Payment Solutions. Payment Solutions continued to show good progress in the quarter. The progress resembles previous quarters, to a large extent, with the tendency by our customers to choose BNPL in the checkout in favor of invoices. New sales resources continue to progress with new processes and tools and the new CRM system live. The pipeline continued to grow also in the SME segment. The number of active merchants grew with 27% in Q2 year-over-year compared to 17% in Q1 year-over-year. Four additional merchants are now live on the platform. Qliro shows good resilience in a declining e-commerce market. The total payment volume decreased with 2% compared to the market in general, the decrease with 12% in May and 6% for the full year. The consumer reach of Qliro continued also to grow and we now have 5.6 million consumers that have used our checkout the last 12 months. This is a growth of 4% year-over-year or 200,000 new customers. We see -- we have seen a clear shift in the consumer preferences towards BNPL grew with 4% in favor of invoices that decreased with 16% year-over-year. This had a positive impact on our income generation. The take rate, which is the operating income divided by total payment volume grew from 3% to 3.5%. We have now 2 quarters in a row with take rate of 3.5%. In other words, we are yielding better on every volume processed on our Payment Solutions platform than one year ago. As mentioned, Payment Solutions grew with 13% and it was driven by BNPL products and higher take rates. During '22, we launched a new strategy with a clear focus on merchant dining focus on sales, including the SME segment and the introduction of Collecting PSP. During the quarter, this quarter, Collecting PSP for card payments was successfully launched, resulting in reduced administration for merchants connected. More pay now payment methods will be included during the year. This will simplify onboarding of new merchants, improve our merchant experience and enable Qliro to capitalize and pay now our volumes. We continue to work with the improvement of the conversion in the checkout. This will increase profitability both for merchants and for Qliro. In this quarter, we delivered instant pre-scoring in the checkout optimization of card payments and the possibility to save the bank account with Trustly Express. This combined should have a positive effect over time on the income development. Credit losses over Pay Later volume is in line with the 5-quarter average of 1.7% and slightly lower than last quarter in Q2 last year. To sum it up, we have launched improvements in the checkout that will benefit merchants, Qliro and customers over time and Payment Solutions grew with 13%. Let's focus on Digital Banking. The Digital Banking loan book continued to shrink in size, have lost 13% since last year. Now stands for 33% to Qliro's total loan book compared to 38% last year. Worth to note is that the reduction in loan book size is getting less over time. The SEK 127 million reduction of loan book since Q2 last year has not affected the operating income to much extent. The increase in income margins has mitigated all of the loan book drop. Operating income was SEK 90 million in Q2 this quarter, which is SEK 600,000 higher than Q2 last year. The income margin, which measures the income after cost over loan book has at the same time increased by 100 basis points, taking us from 7.5% to 8.5%. The reason for the increased margin is the gradual movement in the customer mix throughout the year, where we lose more low-risk customers than we attract. This have caused operating margin to go up and consequently increased credit losses. By deducting the credit loss level from operating income, we can see that the underlying adjusted income margin has improved with 20% debt -- sorry, 20 basis points in 1 year. In other words, our profitability deducting for cost including credit losses is improving in the segment. To sum it up, total banking is a smaller part of our balance sheet compared to 1 year ago. Improvements in income margin has mitigated the reduction of the loan book. Before I hand over to Christoffer again, let's look at capital and liquidity. Qliro has a capital headroom of 5.7% or SEK 135 million to regulatory requirements. The liquidity position is strong, which has proven by an LCR of over 200% and net stable funding ratio of above 130%. The lending activities are focused on the Nordic countries and are funded mainly by deposits in Sweden and in Germany. Lending in Norway and Denmark is financed by the stock market. And with that, I hand over to Christoffer again.

Thank you, Robert. Let's talk a bit about our payment strategy. From our perspective, our ambition is to make sure we deliver merchant experience in world-class for merchants and their customer journey. And the reason I say this is we're facing both local and global competitors. And I'd say that clearly, you can truly differentiate on working closely with merchants and delivering a superior merchant experience. And that's why we're winning merchants today. And it's also very important to realize that we are managing their customer journey. And it's not our customer journey, but it's the merchant customer journey. And this is also an area where we differentiate towards some of our key competitors. Secondly, looking at kind of [indiscernible] in the quarter, as Robert mentioned, we had a big event. We're launching some of our new products in early June, some of the [indiscernible]. [indiscernible] growth and profitability with e-commerce, which is not only an important topic for us, but also for many of our merchants, given kind of the volatility in volumes into the e-commerce in general as kind of consumer demand is shifting with the current macroeconomic environment. So we had roughly 200 guests talking about this topic, including some of our leading merchants and we see a big interest right now in kind of considering new payments providers or evaluating kind of all options for e-commerce merchants and kind of improving their both top line as well as bottom line. And where we provide value for merchants in this context is not only increasing kind of the leading sector conversion where within the quarter, have launched not only Trustly Express, where consumers can save their account in our checkout, which increased conversion for kind of a loyal kind of returning consumers, but also pre-scoring, as I think, as Robert mentioned earlier, where what we basically do is we optimize which payment method we shows for which consumer on an individual basis. And giving our kind of big volume of consumers, especially in the Nordics we see an uplift of roughly more than 2% that kind of coming from these initiatives. And that only -- not only drives volumes for us, it also drives increased revenue for our merchants. Secondly, we talk a lot about upsell with our merchants. We have specific features in our product that enables merchants to drive more sales within the checkout experience. And the second or third extremely important trade loyal consumers, not only for us but especially for our merchants, where we can drive back consumers to the merchants to buy again and again. And in this kind of environment where I think many merchants are facing challenges with growth or profitability. It's more important than ever to make sure kind of consumers are coming back and are loyal as it's cheaper to work with returning customers than buying new customers. So we see this as a big trend and a topic for discussions with many of the merchants we talked to. Also, we showed this in the first quarter, a bit of details on our strategic direction. I will not go through all the details again. But to give you a shot up on where we are on each of these 5 topics. First of all, when it comes to increasing our addressable market by launching SME, we've signed a couple of SME merchant or onboard capital merchant in the quarter, as mentioned before. But we also launched with 2 new partner platforms, Woo Commerce as well as Vendre. We also launched integration to not through partner [indiscernible] to automate accounting for the SME merchants that are using both Qliro and [indiscernible]. I think this overall kind of strengthens our position and addressable market within the SME segment. Secondly, when it comes to Collecting PSP, we have now launched card payments within the Collecting PSP. And this not only makes it easier for a merchant to sign up with Qliro. It also simplifies administration, it simplifies pricing and it gives us an opportunity to capitalize on the Pay Now payment volumes. We are planning to launch more payment methods within these initiatives, and one of them is Trustly, where we also deepened the partnership within the quarter. When it comes to geographic capabilities, we have not extended geographic capabilities in the quarter, but we see that many of the merchants that are now shifting to and change particularly to have both the ambition to expand geographically and many of them face limits in the kind of current solution where we can support them and kind of optimizing and giving the knowledge of kind of how to set up their business in also markets outside the Nordics. When it comes to conversion, I mentioned some of it before. And I think this is a big topic for us, not only from a product perspective, but also in an analytical perspective. We have made some investments in the quarter, not only in our small scale platform, but also in the analytical tools around this, and we're planning to launch a new analytical suite available for our merchants in the third quarter, also provide this data directly to the merchants. Last but not least, when it comes to scalability, the investments we have done in the profitability program and digitalization, many of our core functions is giving good results in terms of an efficiency. In the quarter, we launched our new [ ELP ] system from a financial perspective with good success. And we start to see all benefits on the consumer side, not only from an efficiency perspective, but also consumer experience improving with our Net Promoter Score, which we kind of measure internally on all kind of our contacts, [indiscernible] kind of about 35% in the quarter, which is very positive. Last but not least, looking ahead, we are further expanding in both Enterprise and SME segment of our payments business, both with merchants but also new partners. Secondly, we want to become a stronger payment partner by focusing not only on conversion but also upsell and building loyal customers, as mentioned. This is an area we'll continue to invest kind of during the rest of the year. We're also launching new payment methods within our Collecting PSP, where we -- initially focus kind of all-in Nordic payment methods and as mentioned, in the coming quarters, we will also introduce with Pay Now bad payments for including all of Europe. And we see some initial benefits of our new merchant success team with translates the foundation for faster onboarding. Onboarding times for new merchants that have onboarded so far is starting to get quicker and quicker. And we think this will become even better in the Q3 and Q4. For the full year, we still guide on profitability for the full year. We're more confident with the second profitable quarter behind us. And with that said, I thank you for today and open up for questions.

[Operator Instructions]

I'm Ermin from Carnegie here. So maybe a first question would be on the rate sensitivity as you see it going forward, both on the funding side and on your 2 different segments. How do you see the ability to continue to pass on higher rates on the lending side? Do you think you can keep doing that on both of the segments? Or is there any kind of a...

The sound is very poor. Could you please repeat the question? I couldn't hear half of it.

Of course. So the question was on the rate sensitivity. If you could talk about how you see your ability to pass on higher rates to your customers on both of the segments and also on the funding side?

We are adjusting our margin on the loan side. So we are compensating for the increased funding costs. We also see a positive mix effect on [indiscernible] Did you hear my response?

Sorry. And it's been quite bad throughout the presentation to be honest.

That's unfortunate. Sorry? Sorry?

It's a bit echoing but it's okay.

Sorry, we seem to have a problem with the sound from the speakers.

Now we hear you very well, actually.

We have the issue with the financial hearing. Can you hear us?

Yes, we hear you now. [Technical Difficulty]