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

Welcome to Qliro Q1 2024 Report Presentation. For the first part of the presentation, participants will be in listen only mode. [Operator Instructions] Now I will hand the conference over to CEO, Christoffer Rutgersson, and CFO, Robert Stambro. Please go ahead.

Hey, everyone, and welcome to Qliro's presentation for the first quarter 2024. I'm Christoffer Rutgersson, CEO of Qliro. And with me today, I have our CFO, Robert Stambro. The agenda for today is 4 topics. First, we will run through our business strategy update. Then I will hand over to Robert to run through our financial update, and we'll talk quickly about an outlook for the year and then hand back to the operator for questions and answers. Moving into our business and strategy update. So first of all, with the focus on payment solutions, our mission is to deliver a world-leading experience for merchants and their customer journey. This is something we have clarified over the last year. When clearly, we have transformed it back to its core, focusing on the merchants, focusing on e-commerce and seeing the end customer as the merchants consumer. This is a big differentiation versus competitors and a solid reason for many of the merchants that have joined Qliro this year have chosen us as a partner. We continued growing pipeline of merchants, both in the SME and Enterprise segment with a patient to significantly boost our total payments volume considering this new focus. The value for merchants lies primarily in helping them improve their checkout conversion, which drives more sales for the merchants, helping them drive more sales to improve their order value and creating loyal consumers that come back again and again to buy at the merchants where they came from. We are during this year, launching significant product improvements in all of these areas that we continue to see it strengthen our offering. We have also, as you know, launched unified payments. We've talked about this for a couple of quarters. We continue to see positive development in -- from both a product perspective and a commercial perspective in relation to Unified Payments. We are launching all relevant payment methods for the Nordic market where we historically focused more on our own consumer credit offerings, we are now expanding into all relevant payment methods, packaging this to reduce administration for the merchants, enabling quicker onboarding, fewer payouts, less reconciliation. And with one contract, it also improves our onboarding as well as kind of more flexibility and simplicity impacting for the merchants. This is also a major reason for why we are able to accelerate in SME as well as kind of simplifying administration for our larger merchants. So far, we are now kind of accelerating to over 20% of our total Pay Now volumes processed in Unified Payments by the end of the first quarter. We have increased the number of merchants on the Unified Payments platform with a total of 6 of our top 10 merchants signed up to activate unified payments. Some of them are already live and some of them expect to go live before the summer. During the quarter, we also added both trust and mobile pate offering, and we expect to add more payment methods going forward. Moving on to our 2 business highlights. For Q1, I want to highlight a few updates on our progress and how this align with this aligned with our strategy. We see continued growth in profitability in our recovering e-commerce market, with a total operating income growth to 80% and notably, our Payment Solutions segment witnessed an operating income growth of 12%. The growth combined with improved cost efficiency has translated into increased profitability with an operating income rising by SEK 4 million to SEK 5.3 million in the quarter. We're thrilled to report a significant 44% growth in the number of active merchants on the platform, largely driven by the SME segment and enabled by our launch of Unified Payments. Moreover, we have signed new enterprise agreements laying the groundwork for accelerated growth going forward. Noteworthy contracts are, for example, Skruvat Reservdelar and Bythjul Norden, boosting a total payments volume exceeding SEK 1 billion. Looking ahead, we have also recently secured a new contract with Make Webo with a total payment volume of approximately SEK 500 million, further fueling our growth trajectory. Lastly, we was extended and signed a partnership with our existing merchant iPiccolo, with now volumes exceeding SEK 500 million to be processed within Unify payments, demonstrating our commitment to expanding partnerships and transaction volumes with existing merchants. We can also showing the value of Unified Payments also in our enterprise portfolio. I also want to highlight a few updates on our progress and how this align with our overall strategy. Over the past 5 quarters, we have consistently achieved profitability. This access made a solid foundation for ongoing investment in growth initiatives. As we during this period, we've also scaled up our commercial activities and product investments. I'm also pleased to announce the appointment of our new Chief Credit Officer, leading the work to enhance our credit scoring more dose and modernized platform for credit scoring. We will also see a significant milestone in the remarkable 44% increase in number of merchants live on our modernized platform. This progress is particularly crucial as it reflects the growing demand for our services among e-commerce and [indiscernible]. It indicates that we're delivering the solutions they desire and perceive as valuable. This growth in our merchant base not only reflect positively on our platform, but also strengthen our position in the market. Operationally, we're currently focusing on the onboarding process in order to speed up the process and automate as much as possible to increase scalability when new merchants going live on the platform going forward. We have signed a lot of SME merchant is expected to go live in the second quarter. An important part of this work related to the launch of Unified Payments which also simplifies the own body, we simplified the agreement and having everything in one place for the merchants. We have our first Norwegian merchant live, and our establishment of the owed market continues as planned, including the ongoing recruitment of a local team with experience in payment solutions. We expect to launch fully in the market by second half 2024. And in the long term, geographical expansion alongside the acceleration in enterprise and SME are an important part of our growth strategy. With it, I hand over to Robert to move into the financial updates.

Thank you, Christoffer. Qliro generated an operating profit of SEK 5.3 million in the quarter. The e-commerce market is regaining strength and growth with 11% according to Svensk Handel's indicator. This is driven by more capital-intensive segments, which indicate an increased purchase power for customers in Sweden, which is good for clear role long term. Income grew with 8% in the quarter, driven by Payment Solutions. The realizations of efficiencies within the profitability program combined with tight cost control, is keeping the cost base flat year-over-year. Credit losses is lower than Q4 2023 and higher than last year same period. And given the improved macro environment, credit reserves was released in the quarter. Worth to notice is that income grew faster than credit losses contributing to the improved operating profit of SEK 4.2 million versus last year. So to sum up, the e-commerce market is regaining momentum with an 11% growth. Income grew with 8% driven by Payment Solutions. They grew by 12%, and we made yet another quarter of profit. Moving into the cost side. Investments in automation, efficiencies and digitalization continue to give long-term results. Total costs in Q1 amounted to SEK 79 million and in line with previous quarters during 2023, except Q4, that included onetime effects such as VAT that held the cost down somewhat in that quarter. Other than Q4, the cost structure in the quarter resembles previous quarters in 2023. Also notice is that we, from the beginning of the year, capitalized direct costs associated with the completion of development cost of projects. This affected the quarter positively by SEK 1.6 million. So all in all, we can see that investments in automation has given long-term results and cost. We are going to continue to invest in growth, but not on the expense of profitability. Payment Solutions continued to show progress in the quarter. New sales resources are starting to come up to speed. The pipeline continues to grow, and we signed enterprise agreement with Make Webo with SEK0.5 million of pay now volumes and screw with a total payment volume of SEK 1 billion. The number of new onboarded merchants grew with 44% year-over-year, and we grew our merchant base with 27 additional merchants. Total payment volume was unchanged compared to last year, driven primarily by various growth among different categories within the enterprise segment. Some parts of the segments show strong growth. The customer reach of Qliro continued to grow, and 5.6 million consumers have used our checkout the last 12 months, a growth of 40,000 unique consumers. The clear shift in the consumer preference towards BNPL volume seen throughout 2023 in favor of invoices continuing in Q1. Invoices decreased with 14% and BNPL volume increased with 4%. The increase in BNPL volume in combination with 9% increased payment balances and previously adjusted consumer prices improved the margins. The take rate, which is the operating income divided by total payment volume from both Pay Now and Pay Later grew from 3.2% to 3.6%. And in other words, we are yielding 40 basis points better on every volume krona processed on our Payment Solutions platform than 1 year ago. Income grew with 12% or SEK 10.7 million in the quarter. As mentioned, the growth is driven by the favorable mix shift in between invoice and BNPL throughout the year, combined with the adjustments made to consumer pricing. Credit losses continue to grow in nominal terms compared to the same period last year, but at a slower rate than operating income. Credit losses grew with SEK5.6 million and income by SEK 10.7 million. The credit losses in relation to Pay Later volume increased in comparison to previous year, but was unchanged in comparison to the fourth quarter in 2023, 1.8%, which indicates a more stabilized credit loss level. Also remember is that lending in the segment is characterized by millions of loans issued. And just in Q1, we processed 1.3 million Pay Later transactions. Small loan sizes, we had an average order value of SEK 985 in Q1. And it's a high turnover of the loan book. The average duration is low and is on average repaid within 3 to 4 months. That means that we can adjust the loss level relatively quickly in the segment. And we continue to modernize our platform and our models for high precisions in the credit assessment. So to sum it up, income grew with 12% in the quarter or with SEK 10.7 million, income grow faster than losses compared to the same period last year. Digital banking is a smaller part of our income generation compared to 1 year ago. The digital banking loan book continued to shrink in size and have lost 11% since last year. The 10% reduction in income generation is driven primarily by the reduction of the loan book size. And the reason for the 20 basis points increase in margin is due to the gradual movement in the customer mix throughout the year, where we lose more low-risk customers than we attract. This has caused operating margin to go up and consequently increased credit losses. So to sum up, the segment, Digital Banking continued to be a smaller part of our income generation and the reduction of income generation is primarily driven by the reduction of the loan book. Let's look briefly at the capital and liquidity position before I turn over -- hand over to Christoffer. Qliro has a capital headroom of 6.1% to regulatory requirement. During the quarter, the Swedish FSA have completed their Pillar 2 assessment. This is an assessment that the FSA do for all Swedish financial institution in accordance to their recurring SREP process. Based on the SREP process, the FSA is recommending clear to hold a capital buffer of 3.5% above the capital requirement. The guidance came into force on the 21 March, and was in line with our expectation. The liquidity position is strong, which is proven by LCR of 489% and net stable funding ratio of 141%. The lending activities are focused on the Nordic countries and funded mainly by deposits in Sweden and in Germany. Lending in Norway and Denmark is financed by the swap market. And with that, I hand over to you again, Christoffer.

Thank you, Robert. So looking ahead, we are continuing to focus on growth and profitability initiatives within our Payment Solutions segment. In the near term, we are expanding our Unified payments offering and volumes. We see a continued acceleration both within our SME and Enterprise segment focusing on operational excellence across the business and especially within our onboarding given the increased volumes in combination with also increased investment in automation and digitalization of our processes to improve scalability. With an ongoing onboarding process for a large number of merchants, especially in the SME segment, but also the enterprise segments that we have announced during the last few months. Currently, we're at in discussions with more new merchants than ever, some with the potential to significantly boost our total payments volume. We see an increased [indiscernible] market, also through our Norway launch, but also through the launch of new e-commerce platform integrations that we expect to launch during the year. With that said, I want to thank the Qliro team for their efforts in the first quarter to deliver these results. And we want to hand over to the operator to open up for Q&A. Thank you.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments?

Thank you for today.