QuickFee Limited (QFE.AX) Earnings Call Transcript & Summary

Good morning, everyone, and good evening to those joining us from the U.S. Welcome to QuickFee's FY '25 Full Year Results Presentation. On our call today, we have Simon Yeandle, CFO; and James Drummond, Acting President, North America to run through the presentation. And we also have the Chair, Dale Smorgon, on the call as well. And my name is Katie Mackenzie, Investor Relations for QuickFee. After James and Simon conclude the presentation, we'll open it up for Q&A. If you have any questions, please type them into the Q&A tab at the top of the screen. And now I'd like to hand over to Simon Yeandle.

Thank you, Katie, and hello, everyone. We're glad you could join us today. Before we dive into the numbers, just a quick reminder of what our core business is. QuickFee's business is built around a simple proposition, helping professional services firms get paid faster. We do this by accelerating and automating accounts receivable collections, while at the same time providing cash flow solutions for their clients, which in turn help them grow their business. So on to the FY '25 results. FY '25, we were extremely pleased to achieve a significant milestone by delivering positive underlying EBITDA for the full year for the very first time. Group revenue was up 25% on the prior fiscal year to AUD 25.3 million, and underlying EBITDA was positive AUD 2.4 million, a significant turnaround of $5.6 million on the prior year. So a great result. Our U.S. Pay Now business delivered another record year of transaction volumes with over USD 1.5 billion processed, and we originated over AUD 115 million of loans across the group, which is a 15% improvement over last year. So a very pleasing set of financial results, which show the sustainability of our business model and evidence that the implementation of our growth strategies are paying off. Importantly, as we expect to build on the underlying profitability in FY '25, I'm pleased to share that we are issuing earnings guidance for FY '26 of EBITDA in the range of AUD 5.5 million to AUD 6.5 million. On a more detailed look at transaction volumes and revenues, we have continued to deliver consistent revenue growth over several years with a compound annual revenue growth rate of 32% over the past 3 years, including U.S. Finance growth this year of 15% to USD 3 million and U.S. Pay Now revenue growth of 13% to USD 5.3 million and Australian Finance revenue growth of 38% to AUD 10.9 million. The product revenue growth was driven by corresponding transaction volumes and yield growth. In particular, U.S. Finance total transaction volumes or TTV were up 9% to USD 29.1 million. U.S. Pay Now TTV was up 12% to $1.5 billion and U.S. Finance TTV increased 15% to AUD 63.7 million. We're really pleased to show in these full year results that we've reached an inflection point in terms of profitability, not only with revenue growth, but improving our gross margin percent. We've reduced our cost of ACH processing in the U.S. and our group gross margin has increased 200 basis points to 64%, and that's gross profit over revenue. Additionally, our operating expenses were $13.9 million in FY '25, which is down $1.9 million or 12% on FY '24. And that's been across all expense categories as we continue to be diligent with our spend and eliminate nonessential costs from the business. We'll dive into more detail on that later in the presentation. Of course, I refer to growth in underlying EBITDA in this presentation and the results were marred by a significant credit loss provision. To say that was disappointing this year is an understatement, but it was a significant impairment, and it's worth just providing some background on that. And over the course of March and April this year, we saw dishonored payments from several clients of one of our U.S. firms. We attempted to collect these back from the firm under the guarantee that it provides as part of our standard terms, and those payments failed also. It's highly unusual for multiple clients of one firm to have all payments fail at once. So we commenced an investigation with our lawyers and have commenced legal proceedings against the firm and its clients. We're also investigating all avenues of recovery through our insurance policies, and we're leaving no stone unturned in our efforts to recover what we can. The firm in question does provide professional services but is outside our usual CPA and legal verticals. And the maximum exposure was approximately AUD 3.4 million. And because the amount we might recover remains uncertain, we've taken the conservative view to provide for it in full and record that noncash credit loss expense in the P&L of AUD 3.4 million. We can't provide any further information about the litigation prospects at the moment of this, but we will update the market at the appropriate time to any -- to the extent any outcome is material. But it is important to note that we believe this is a one-off. We've conducted a detailed review across our entire lending books and our processes, and we don't believe there are any further risks, certainly not of this nature or size. So we do refer to underlying EBITDA before that credit loss provision in our numbers today, and that's a more useful measure of how the business has performed across the group and the underlying profitability importantly of the base of the group as we enter FY '26. We are hyperfocused on restoring that U.S. Finance lending volumes in FY '26, and we believe we're very well placed to grow revenue and underlying EBITDA further this financial year that we're in. So in summary, we've had a very encouraging track record of revenue growth, improved revenue yield with further fixed cost leverage benefits to come through the recurring software subscription revenue stream. We have a stable cost base and a prudent strategy and team to execute that strategy. So we're very, very well placed to deliver that earnings guidance in FY '26. I'll hand over to James just to give a review of the U.S. business and the results now.

Thank you, Simon, and hello, everyone. When we look at why firms choose QuickFee, really comes down to 4 main reasons. First, they want to reduce their accounts receivable. AR is typically one of the largest line items on a firm's balance sheet, and we help turn that into cash for them. Second, they want to grow their business. With so many priorities competing for cash, QuickFee helps firms and their clients unlock more of it. Third, they want automation. We help firms become more efficient while improving the experience for both their employees and their clients. And finally, they want to save on fees. By passing credit card surcharges on to their customers, firms can save thousands and sometimes hundreds of thousands of dollars in merchant fees. QuickFee offers 3 core solutions to help meet their needs. First is Pay Now. This is our digital payments option where clients can pay invoices by ACH or Card. Second is QuickFee Finance. This is our proprietary Pay Over Time solution that allows clients to spread payments across 3, 6, 9 or 12 monthly installments, while the firm still gets paid upfront and at no cost to them. And finally, Connect, which is a big growth opportunity for us. Our existing customers have combined annual revenue of around [Technical Difficulty] only $1.4 billion of annual revenue [Technical Difficulty] through QuickFee. That means $8.6 billion is still primarily being paid by check. Connect is designed to capture that opportunity for us. Connect provides integration into the 5 leading practice management systems used in the accounting vertical. Instead of manual paper-based invoicing, firms can send invoices via e-mail with a payment link that takes clients straight to the QuickFee payment page. We now integrate with CCH ProSystem fx, CCH Axcess, IRIS Practice Engine, Practice ERP and Thomson Reuters Practice CS. Of course, we have competitors we run up against, and there are some very specific ways that we differ from our competition. QuickFee is designed specifically for professional service firms. We generally have no invoice maximum for QuickFee Finance, and we integrate with the leading practice management systems as well as having pricing that works for firms of all sizes. We have the best solution to meet the needs of the largest segment of the accounting vertical, and we have a very competitive subscription pricing model. So what did we achieve in FY '25? We have built the Connect integrations with 5 of the leading practice management systems in the accounting vertical now. Approximately 100 firms are already signed up to the Connect platform and sent out over 127,000 invoices to our firms' clients. We launched a new payment portal, which offers expanded functionality and keeps our product competitive in the market. And our strategic partnerships with organizations like Allinial Global, IRIS Software Group, Knuula and Mango are actively contributing to firm sign-ups and TTV growth. As you know by now, Connect is a key strategic focus for us, and there's a few data points worth noting here. We've introduced a new subscription model to the market, starting with an implementation fee of USD 1,995 and monthly subscription fees ranging from $499 to $3,999 based on the size of the firm. Connect is important for our future earnings growth for 3 reasons. First, it has a subscription model with monthly recurring revenue streams. Second, it increases transaction volumes across our ACH, Card and Finance solutions. And third, it introduces a very competitive offering that is ideal for firms that want to build their own tech stack, which is becoming increasingly important to firms of all sizes. As mentioned, we delivered over 127,000 firm invoices via Connect in FY '25, which was up from 19,000 in FY '24. Annual recurring revenue from Connect subscriptions is currently at USD 413,000 with the potential to grow significantly throughout FY '26. We have around 350 existing customers with a Connect-enabled practice management system that are not yet subscribed. So the opportunity is huge within our existing customer base alone. And we continue to benefit from the structural tailwinds driving increased adoption of digital payments across the accounting and legal industries in the U.S. We shared this slide previously, but given it's the foundation of our strategy and key focus areas, I wanted to revisit it for a few moments. This flywheel illustrates the 5 areas that we believe will unlock transformational growth in the U.S. market. Importantly, we are already starting to see these drivers deliver results. QuickFee Finance is our most powerful growth lever. The revenue yield for the Finance solution is around 25x higher than our Pay Now offerings. It's the reason we came to the U.S., and it remains instrumental in delivering transformational growth. Equally critical is QuickFee Connect. Firms that have adopted Connect have seen their transaction volumes grow by over 40% in the same period over last year. By integrating with the most widely used practice management systems in the U.S., Connect unlocks automation capabilities those systems cannot deliver on their own. If we want to capture maximum transaction volume from our customers, Connect is the key. In addition to QuickFee Finance and Connect, we need to deliver differentiated technology, build strategic partnerships with industry leaders to expand our reach, drive awareness and acquire customers at scale. And also, we need to leverage automation across every aspect of the business. In the U.S., we delivered strong revenue growth with U.S. revenue up 14%, driven by 15% growth in U.S. Finance revenue to AUD 4.6 million and 13% growth in Pay Now revenue to AUD 8.1 million. Our gross margin was up 23% in dollar terms and up 500 basis points in percentage terms as we benefited from reduced ACH processing costs from bringing our ACH processing in-house. We're also starting to see the high-margin Connect software subscription revenue start to drive gross margin percentage higher, too. OpEx was down a pleasing 19% and the U.S. delivered improved underlying EBITDA of AUD 3.3 million, up significantly on the prior year. And finally, new customer acquisition saw growth in the number of active firms, which was up 4% to 806. The U.S. also saw increasing transaction volumes across all products. Our Pay Now transaction volumes continues to increase and Connect is certainly playing a role in driving volume as firms continue to automate their processes and their clients adopt online payments in lieu of checks. Finance transaction volumes decreased in Q4 FY '25 due to the termination of the defaulting firm that Simon spoke about earlier. However, overall, for FY '25, Finance TTV was up 9% and restoring quarterly Finance TTV growth is the highest priority for myself as well as the sales and account management teams. I'll now hand back to Simon to review the Australian business performance, a general financial overview and provide some closing remarks.

Thank you, James. So taking a look back at the Australian business in FY '25, we had another outstanding year with revenue up 36%. We saw record lending volumes and also record yields from both the fee funding and legal disbursement funding products. For a mature market, it's a fantastic result and a testament to all the hard work the team has put in over the year. The disbursement funding product delivers higher revenue per dollar originated than the traditional fee funding product as the interest on it compounds. And this has contributed to increased revenue yields as the disbursement funding book grows, and that book is now approximately 39% of the entire Australian loan book at 30 June '25. Our BNPL product, branded Q Pay Plan, which provides finance to the homeowner services market that grew strongly as well in FY '25 with TTV up 76% to AUD 6 million of originations. And the gross margin was stable, a slight increase in operating expenses to fund that lending growth. The Australian business posted a positive segment EBITDA of AUD 4.1 million, so consistent strong growth. So very pleasing to see. Diving a little deeper into the Australian metrics, you can see the strong quarterly revenue growth. Finance revenue up 38% on the back of a 15% increase in TTV. So revenue growing faster than volume is a sign of that significant yield expansion from the growth in the disbursement funding book. Revenue is recognized on existing loans as well as on new originations in that DF book. The success of the QuickFee brand in Australia is really built on the long-standing reputation for excellent customer service and the deep penetration we have in the accounting and legal markets here. We continue to have low credit losses in this market and a stable and long-serving team led by our founder, Bruce Coombes, and you can see some of the quality firms we deal with on this slide. So a bit more detail on the financials. We've been through the top line P&L numbers already. So just a few extra callouts on this page. You'll see on the right-hand side, the 4 OpEx categories, general and admin, selling and marketing, customer acquisition and product development expenses and a decrease in all those categories, which was a significant contributor to the underlying EBITDA improvement, and there's a bit more analysis on the slide here. I'd also call out that depreciation and amortization expenses have increased that's due to the accelerated amortization of borrowing costs that are capitalized, the establishment costs of facilities. And as the existing debt facilities with Northleaf and Wingate were replaced before their maturity in the second half of FY '25 and replaced with that new Viola Credit facility, we accelerated the amortization of those existing borrowing costs on those debt facilities. So that noncash expense increased. And our FTE count at 30 June was 36, 20 in the U.S., 14 in Australia that includes 1 in the Finance team and 2 non-exec directors are also in Australia. So a little bit more on the continued reduction in operating expenses, which were down 12% year-on-year. This slide, we can see the trend on consecutive half years. And you can see the decrease across all categories as we continue to remove nonessential costs from the business. We further reduced some selling and marketing costs and customer acquisition costs and PD, product development costs also reduced really because the build of the Connect integrations has largely been completed. So there will be more maintenance going forward rather than new build of Connect integrations. And importantly, we expect FY '26 OpEx to remain broadly in line with the FY '25 levels. So we're not expecting at this point any increases or any significant increases in any of those categories in FY '26. Quick look at the balance sheet. We have $6.9 million in unrestricted cash, plus a further $6.8 million of cash in transit that's related to the ACH processing. So adding those together, you get the $13 million, but [ then ] the $6.9 million of cash that's available to operate the business. The Australian loan book was up 17% to [ $47.2 million ], and the U.S. loan book was down to USD 7.5 million. It's really due to the one-off credit loss that comes off that number, as we previously mentioned, where as we did see some weaker lending in Q4 FY '25. In total, our borrowings are up to $53.3 million, and that increase is really due to funding the growth in the Australian loan book. Cash flow slide, it's quite detailed. The left-hand side is a more traditional cash flow statement. And on the right-hand side is the reconciliation from loss for the period to operating cash flow. I'll just call out 2 main sort of lines here, which are the 2 top left. The first line is the net cash flow from operating activities, and that represents our operating cash flow from running the business, which at $1.1 million is the first year that's been positive. So it's great news that reflects our underlying profitability for the year, which shows that our business is now generating cash. The second line, net cash outflow from loan book/firm funding of negative $4.4 million. That represents the cash outflow from funding loan book growth. That's funded by a mixture of debt facilities and our own funds. So as our loan book grows, that second line will continue to be negative. That's a good thing because we're lending more money. And the important point is that as a business, we're actually generating cash from operations. I'll talk about the refinancing of our credit facilities. We've now expanded our funding capacity. The new facilities run for a further 3 years. The Viola Credit facility is an asset-backed receivables facility, so it funds the loan book. It's a 3-year $118 million total revolving facility. The initial commitments were AUD 45 million and USD 15 million, and there are additional optional amounts of AUD 25 million and USD 15 million subject to Viola's approval as the loan book grows. And as I mentioned, that's totally replaced the Northleaf and Wingate facilities that were paid out in full at 30 June. And we also closed a $5 million term loan facility with Fancourt Capital Group, an Australian-based alternative asset investor, and that funds further loan book growth in both markets and provides additional liquidity to the business to support the momentum. And as most of you would know, we raised $1.5 million via a share placement and share purchase plan late in FY '25. And important to note that all directors participated in that placement for a total of $359,000. So with all that, we're very well placed financially in addition to expecting to generate increased positive cash flow in FY '26. And as we do expect to move into a phase of generating positive cash flow, it's worth mentioning the Board are very mindful of the need to consider all the options that we have regarding if the business is generating surplus cash, whether we pay down debt, retain it for investment, make distributions, et cetera. But the Board are very, very mindful to do whatever we believe will maximize shareholder return into the future there. In terms of sort of closing out with an outlook, as we look ahead to FY '26, we'll continue to have a focus on sustained profitability. [ We've ] proven we can run this business and generate profits. So we're going to increase that in FY '26, supported by acceleration of transaction volumes and revenue from our higher-yielding Finance and Connect products, Connect integrations and the tailwinds from the digital adoption that James mentioned in the U.S. will continue to drive increasing demand and opportunity. It allow us to win new customers and drive Pay Now and Finance volumes as well as more revenue through the Connect subscription model. So Connect is a key component of the growth strategy in FY '26. But we do expect the Australian business to continue to deliver the impressive growth we saw this year, and we'll continue to manage costs carefully. And as mentioned, with the very, very pleasing underlying EBITDA for FY '25, we do expect FY '26 EBITDA to be in that range of AUD 5.5 million to AUD 6.5 million. So our outlook for '26 is very, very positive. It's strongly supported by the track record of past performance and the momentum with which we've entered this new financial year. So we really thank you for your time today and hope that you share our enthusiasm around our momentum, strategy and results. We remain super optimistic about QuickFee's prospects. I'll hand it over to Katie now to manage the Q&A section of the meeting. And please put any questions you may have into the Q&A box.

Great. Thanks so much, Simon and James for that presentation. So we do have a few questions here. And as Simon mentioned, please feel free to type them into the Q&A box as well. So Simon, just to kick off, how is the search going for a replacement for Jennifer? Is there any update that you can provide to the market on that one?

Yes. Thanks, Katie. We are still considering a range of options for a U.S. leader. We're not rushing an appointment. We want to make sure that any appointment is appropriate with the right skill set. But without wishing to embarrass, James, we have a very capable leader there. He was pretty much employee #1 in 2016 when we started the business in the U.S. and has overseen that growth to $1.5 billion plus. He knows every aspect of the business. We have a well-documented strategy that Jennifer put in place. It's delivering impressive results, and we have a stable team across all parts of the business. So no one's looking around wondering what to do or what direction to go in. All parts of the business are very, very well managed. And myself, Bruce and Dale oversee it very closely as well. But it's a testament to the current leadership we have in the business and the Board's confidence that we have the right product and go-to-market strategy. So we're still, as I say, making sure we don't rush that.

Okay. Thanks, Simon. So we've got another question here. In previous releases, you have mentioned interest in the U.S. business. Do you have any updates on that, that you can share with us on the call today?

Yes, great question. We've already reported we received inbound inquiries from more than one party interested in acquiring some or all of our U.S. business. At this time, we don't have anything further to update the market on. We will, of course, keep the market informed if there are material developments that occur. But at this stage, there's nothing further to update the market on.

Okay. No problems. Then we've got a few questions coming in here from the audience. So I know you've given guidance here today, EBITDA guidance. I think we've got a question here on expected revenue for FY '26. I'm not sure, Simon, if you're going to give revenue guidance for FY '26, but perhaps also a little bit of a breakdown between the U.S. and Aussie revenue for FY '26. Is that -- are you comfortable talking about that?

Yes, we haven't given revenue guidance as such, but the expected EBITDA growth that we expect from the underlying $2.4 million in FY '25, most of that will all be generated from additional revenue. So we expect OpEx to stay mainly the same. So that sort of revenue uplift is -- the quantum is pretty much there for all to see. And I'd expect over half of that to come from the U.S. in terms of the revenue growth. And that will -- the majority of that U.S. growth will probably be coming from Connect and the Pay Now business. We'll see -- expect to see increased yields in certainly Card. We've made some tweaks to the business there. And we'll also -- Connect has a pretty low cost base. And you can see from the annualized recurring revenue of USD 413,000 that we've got today, we will start to see that drop through the bottom line as well.

Yes. Okay. And could you talk a little bit about what you're expecting for U.S. Finance TTV in FY '26? Obviously, it took a little bit of a hit in Q4, which we've spoken about in the presentation. What steps are you taking to improve that through FY '26? And how do you sort of -- how do you see that playing out?

Yes, it's still early days in terms of the financial year to see really sort of -- see how much of [indiscernible] is being restored, but we've recruited another relationship manager. There's some additional sales hires. And [indiscernible] James is very, very focused on restoring all that Finance revenue. So it's a big focus of the team to make sure that we keep delivering some growth there.