QuickFee Limited (QFE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the QuickFee Half Year of 2021 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Bruce Coombes, Managing Director. Please go ahead, sir.

Thanks, Judith, and thanks, everybody, for taking the time to join us on this call. I know it's a very busy results season. So thank you very much for all the people who have taken the time to join us on this call. And also thank you for being on the journey as a shareholder with us. The deck is up on the ASX, of course. So if you go to Slide 2 of the deck, it explains what QuickFee is. For those people who are new to the story, we serve businesses that serve. So we have a very clear focus on service businesses. They fall into 2 main categories in terms of the groups that we serve. Traditionally, professional services firms of a size that we might call the enterprise-grade size, typically above $5 million, but as small as $1 million, have been our traditional market. Professional services firms account in similar ways, primarily. Recently, that changed with the introduction of a brand-new solution that enables us to provide buy now, pay later solution, which we like to see as advice now, pay later for professional services firms; and service now, pay later for the other service businesses that we're now able to offer a product to that we couldn't before. So if you think of QuickFee, think of us of providing all things payments, all things receivables for services businesses. Looking at Slide 3 in the deck, the one with the 8 boxes on it, that explains some financial highlights from the last 6 months. For those of you who are unfamiliar with us, we provide financial support to the clients of services businesses through either a 4-month interest-only payment plan or an up to 12-month interest-bearing payment plans, depending on the industry and depending on their need. We also provide a full payment -- sorry, online payment gateway in Australia and the United States, and have been responsible for helping many, many firms and their clients move away from checks in the United States. There are 18 billion checks being written in the United States, so our online payment solution allows us to capitalize on a market, which is modernizing in the United States. And you can see there in the 6 months to 31 December, we had an increase of 182% in that area of our business. We processed $285 million in the 6 months, $500 million in the 12 months to 31 December 2020. The other figures are there, you can see them all. Each figure is as at 31 December, except for the third box on the top row, which is talking about our brand-new Installments product. We only went live with that product in December, and we've had 277 service businesses sign up for that solution. Moving through to Slide 4. You can see some graphs there presenting the data that I showed you. We've seen a 41% increase in the lending activity in our U.S. business, where we lend money to the clients' professional services teams to enable the firm to be paid on time and the client to enjoy time to pay. U.S. loan book, however, grew by only a smaller amount, that is primarily a function of the shorter-term of the loans that we write in the United States in our traditional products. In Australia, nearly all our borrowers on our traditional QuickFee Finance solution take a 12-month term. Many of the firms we deal with in the United States restrict their clients to 6 months. So whilst the lending can be up, the actual impact on the loan book can be less as the loans amortize faster in the U.S. than they do in Australia. In Australia, our lending and our book were down as a result of the level of government stimulus that went into the Australian economy. That has affected us in both markets, and particularly in the United States where the business has a larger footprint. The amount of money put into the economy by the Australian government by way of stimulus exceeds the amount of money taken out of the economy by the pandemic, reducing the need for a lending solution in the short term. I'll come to the outlook a little bit later in this deck, there has been some positive change as JobKeeper have been wound back. Moving through to Slide 5. This is very focused on our U.S. business. This is the growth story of QuickFee. We are fortunate to be the only provider of a payment gateway offering EFT, credit card and our unique payment plan solution in the United States. We're fortunate to be in that position. The growth in our EFT transactions and revenue is a function of that. We've seen 182% growth in those transaction values. Additional firms signed up for our brand-new QuickFee installment products, lending up. And importantly, the appointment of additional key senior executives to enable us to capitalize on the fortunate position in which we find ourselves. Until December last year, we provided our traditional solutions in both markets, meaning our knowledge of how professional services firms worked enabled us to offer our solutions, leveraging what we've learned in Australia into the United States. With the introduction of QuickFee Installments as a solution for all types of service businesses and the significant increase in pay in full transactions meant that we need to add additional skill to ensure we capitalize on the opportunity that we find for ourselves. We appointed a new leader, brand-new position in the United States, the President of our North American business, Eric Lookhoff, L-O-O-K-H-O-F-F. I really encourage to have a look at Eric's profile on LinkedIn. Back in October, we were fortunate enough to have Simon Yeandle join us as our CFO, and in the short time Simon has been with us, he's done an amazing job of really grabbing all of the financial activity that we have. And you'll actually hear from him now as he takes you through the financial highlights. An additional senior executive we've appointed is a guy by the name of Jay, J-A-Y, Alsup, A-L-S-U-P. We encourage you to have a look at his LinkedIn profile as well. He's joined us as our Chief Marketing Officer with a depth of experience in payments we are very fortunate to have access to now that he's in the team. I'll hand over to Simon, who will take you through the financial information.

Thank you, Bruce, and good morning, everyone. If you turn to Slide 7 in the deck, we've got a group profit and loss statement here. And our financial performance reflects the lending and transactional activity Bruce has described, importantly, overlaid with substantial investment across all areas of the business. Our revenue, as mentioned, was up 22% to AUD 4.5 million, and net income, which is after interest expense on our loan borrowings, was up 34%. Platform and finance costs increased $0.1 million, and our gross operating profit was $3.2 million, up 39% on H1 FY '20. Our 4 main categories of expense, general and admin, selling and marketing, customer acquisition and product development all grew, reflecting the increased investment in growing customers and building out our product suite. So this translates into a net loss after tax of AUD 2.8 million. And we continue to operate a very low credit risk business model for our traditional recourse product with bad debt write-offs averaging per year 1.8% of revenue since FY '17. And this would place us very favorably compared to our ASX peers. Turning on Slide 8. Our balance sheet remains strong. We have $30.5 million in cash at 31 December through recent facility increases last June and the recent share placements in September and October. Our total liquidity and growth capacity has increased $21 million since June. This metric measures cash plus undrawn facilities available based on our loan books, plus agreed facility headroom available to fund further loan book growth. We used surplus cash to offset borrowing costs as much as possible. But for the purposes of the 31 December balance date, withdrawn against borrowings to profile our available cash. Our Australian loan book has decreased in the 6 months as lending has been subdued. And we expect repayments to exceed new loans in Australia for a few more months until lending demand improves. Over on Slide 10, the operational overview introduction. We take a little bit of look at both our markets in a bit more detail. So on Slide 10, we're looking at the U.S. And as Bruce mentioned, the conversion of paper checks to online payments, our growth in firm and client numbers continue to drive growth in transaction volumes. As a reminder, in the U.S., we make money on ACH payments through our gateway as well as interest income from QuickFee financing. And for those new to QuickFee, ACH stands for automated clearing house, which is the U.S. equivalent of EFTs. With firm numbers up 33% from H1 FY '20, lending up 41% and pay in full transaction volumes up 182%, both revenue streams have increased substantially. On Slide 11, we look a little bit more in detail at the performance of the U.S. Lending growth drove net interest income up 88% and growth in total pay in full transaction volumes or TTV delivered platform and merchant income growth of 121% time. So before customer acquisition costs, the U.S. operation was profitable to the tune of AUD 413,000, P&L is in Aussie dollars. We have shown an adjusted EBITDA measure here, which is statutory EBITDA less operating interest on our loan borrowings profile, more of a property net cash inflow number. In the U.S., we have total of 34 staff in the U.S. at 31 December, of which 21 are directly charged to the U.S. segment on this slide, and they're mainly sales, marketing and operations. The others being mainly product development, which allocated centrally to a separate central segment called product development. Moving over to Slide 12. Finished the period with a TTV annualized run rate of USD 0.7 billion. So that is the total volume going through our payment gateway on pay in full products in the U.S. The chart on the right-hand slide is an updated graphic representation of a table we've previously shown, which shows how any cohort of firms grow their usage of our payments platform over time. So for example, the cohort of firms that joined in the December 2018 quarter, which is the fourth column from the left, generated USD 42.9 million transaction. USD 42.9 million in transaction volumes in FY '20, and is on track to exceed $57 million in FY '21. So each cohort is growing at these sorts of rates, but new firms signing up delivers a multiplying effect on our payments platform growth. These figures are all from firms signed up to our traditional platform or financing product. Bruce will talk more about the Installments product a bit later. On Slide 13, we've kept this chart in from previous announcements because it's still relevant and underlines the structural tailwinds still prevalent in the U.S. around payments modernization and the size of the opportunity ahead of us. The blue bars shows the percent of Australian firms sending out invoices electronically, and the black bars are U.S. firms. So for example, the red top black bar on the left represents 29% of all firms sending less than 10% of their invoices electronically. And the very bottom black bar represents 19% of U.S. firms sending over 19% electronically as opposed to the blue bars, which are the Australian firms. So that very bottom blue bar represents 56% of firms in Australia are sending over 90% of their invoices electronically. So the opportunity here is to move the black bars to the same profile as the blue, which is the modernization of invoicing in the U.S., and that trend is continuing and represents significant upside opportunity for us. We'll now take a look at Australia over on Slide 14. And as Bruce mentioned, in Australia, while certain sectors of the economy have been impacted severely by COVID, many accountants and lawyers and their SME clients have been winners from JobKeeper and other stimulus measures. As we've mentioned previously, Australia's lending has been impacted by these stimulus measures. And for the half year, lending was down 45% to AUD 13.3 million. November and December showed early signs of improvement, and we expect that improvement to continue. In fact, in the 6 weeks from 1 January of this year, the 45% year-on-year decline in the first half has halved, so we're -- now the decline is in the low 20s for that 6-week period based on the same 6-week period last year. So it is an encouraging time, and we do expect that improvement to continue throughout the rest of FY '21. To ensure the success of the QuickFee Installments product and to increase our focus on existing firms' account management, we've created a new role in Australia, a head of sales role, and have appointed a gentleman by the name of Tony Yousef, who's recently [indiscernible] in this role. He's already made a positive impact on our sales activity since joining in late December. So we're investing in shoring up one of our most important markets, which is Australia as well as the U.S. Over on Slide 15, a little bit of a look at some of the Australian segment performance. It clearly reflects the lower lending interest income down 19%. However, pay in full platform transaction volumes grew 9%. So this is the same TTV metric that we earn revenue from in the U.S. We don't earn revenue from it in Australia. But the fact that it's grown 9% is an encouraging sign that firms are still using QuickFee, and the usage has not declined. In fact, EBITDA after adjusting for operating interest expense grew 4% to AUD 598,000. And adding back customer acquisition costs grew 10% to AUD 932,000. So the Australian business remains profitable. And I will now pass back to Bruce to talk about the new opportunities our Installments product brings and to wrap up.

Absolutely fantastic. Thank you, Simon. Thanks again for the amazing work you and your team do, looking after the presentation of things like this, our 4-D and everything else in the finance function. If we roll forward to Slide 16, I want to spend a little bit of time talking about our brand-new QuickFee Installments product. If you are an investor in Splitit, you understand what it does, you can tune out for the next 30 seconds. For those of you who don't know how Splitit works, the license that we have to use the Splitit technology enables us to secure the outstanding balance of a payment plan against the unused value of a client credit card. 71% of people around the world have a credit card and do not use the full balance. Responsible use of their credit card. That means that hard-earned credit, that credit their bank has already given them when they issued them their card can be used to access services using a QuickFee Installments product. Splitit has some patented technology that pre-authorizes the unpaid balance of a QuickFee payment plan against that unused balance that 71% of cardholders have. It's very similar to what happens when you check into a hotel, and they say to you, can we preauthorize some few hundred dollars against maybe minibar or other incidentals. We've taken that to a new level with our partnership with Splitit. And we're using that to preauthorize the unpaid balance of the payment plan. Using the example on the slide of a $2,000 payment plan to pay a service provider like say, a vet, a dentist, an accountant or lawyer, some sort of service provider. We would take the first $500 installment out of the 4 monthly installments we offer on this product. The remaining $1,500 is pre-authorized against the unused balance of the customers' credit card. No risk to us, no credit risk to the service provider either. Each month, we will debit the $500 against the client's card as they make each installment payment as we debit it and then reauthorize the remaining balance until their payment plan is reduced to 0. What this means, when you look at Slide 17, is that we have moved from serving just these enterprise-grade professional services firms to much smaller professional services firms in our traditional accounting and law markets, but also any service business. We go back to what I said right at the start of this presentation, QuickFee serves those who serve. And with this QuickFee Installments, we're enabling service businesses to rebuild. Whether it's an accountant or a lawyer providing essential advice to a small and medium business, or a small medium business wanting to provide more services to their customers as they rebuild in 2021, this product is enabling them to do that by offering interest-free payment plans to their customers. So we've had 277 firms -- 277 service providers signed up for this solution since it went live in December. Moving forward then to Slide 18. This is just 1 example. Legal services in California alone. Our L.A. office -- our office in the United States is in L.A., California, so we just chose this. It's an area that we know most of our team are based in. As you can see, only 1/3 of people that have a legal problem access it. A large part of that is because of the capacity to pay. Using QuickFee Installments, we can help more people get the advice they need, and this is just 1 small segment in 1 state of the United States. So as we turn to Slide 19. The opportunity we have with QuickFee Installments, the opportunity we have with QuickFee PayNow, our payment gateway for professional services businesses, and the opportunity we have from the slides that Simon showed you regarding the level of e-invoicing that is not happening in the United States compared to Australia mean that building out fresh technology to capitalize on these 3 things is a priority. We have moved into a significant payments processor for professional services firms, and we've added the capability in people, in money through our recent capital raising, and in technology with our own tech team, building our own products to our requirements. The QuickFee Installments product sits entirely on technology built by the QuickFee Technology team. As calendar 2021 rolls out, we will see our e-invoicing and automated receivables management system released by 30 June 2021 to capitalize on the move from paper invoicing to e-invoicing and capitalizing on the move from checks to online payments. We'll see significant marketing spend and channel endorsement to rapidly grow our QuickFee Installments business. And we will move more and more technology on our own platforms as we go through the year. This is why the appointment of senior executives like Simon, Eric Lookhoff and Jay Alsup are so key to the success of this business in capitalizing on the rate of change now happening in the United States and the level of opportunity we have. On Slide 21, you can see TTV up 2.4x in the first 6 weeks of this year. This is a part of our business that's been traditionally doubling each year. We are seeing 2.4x of a much larger base from last year. The U.S. market due to COVID and just the need to ultimately modernize means that online payments are a great opportunity for us as it's moving attorneys and accountants to invoicing in an electronic fashion. Structural change creates opportunity, but we are here to do it with the capital that our shareholders have entrusted us with to make the best of the opportunities we have. Slide 22, we can sum it up there. Our QuickFee PayNow payment gateway continues to be sold to more and more firms. Slides that Simon showed you is not just that more firms join and this revenue source increases, but that as they become more accustomed to it and as do their clients, there is significant organic growth in the existing customer base for that product. On the right-hand side, QuickFee Installments is brand-new, specifically for monthly, not fortnightly, monthly installments to service businesses. The bottom-left corner, our traditional QuickFee financing product continues to be sold, continues to see more firms join up. We have around 30% of the top 400 CPA firms in the United States on that product already. And QuickFee ConnectAR, our integrated, automated e-invoicing and accounts receivable management tool out in the middle of the year. More than happy to take questions from investors, and I thank you again for being an investor in QuickFee.

[Operator Instructions] The first question comes from [ Brandon Kelly ] of [ Alcion ].

Just wondering if you can just tell us what the number of active firms are through the 2 geographies? And just how they've trended, the ones that are actually using the product for lending?

Yes. Thanks, [ Brandon ]. The -- in Australia, the number of firms which would have done a payment plan in the last 12 months would be around the 320 mark. And in the United States, the number of firms which have done a payment plan in the last 12 months would be similar to that. It's probably just under 300 as it sits today, it's about 300 in each market.

Sure. And how has that trended over the last 12 months? I'm just wondering, mostly in relation to the Australian originations volume, if that's a factor of customers actually declining or if it's just not needing to borrow?

No, it's a function of the latter. It's a not needing to borrow. And we haven't -- it's not like a loss of customers. We haven't suffered any loss of customers of any significance. It's not they're leaving, it's just the clients don't need them, mate. Accountants have had the best year of their lives during this pandemic.

Yes. So -- but still on the platform that they just don't need it...

They don't need it.

Yes. Okay.

And one of the things Simon shared was the increase in just the pay in full transactions. So it proves that they're still on the platform. The clients are transacting, but they're transacting with a pay in full rather than a payment plan.

Yes, it's up 9% in Australia.

Actually, just to round that out, just on the back of [ Brandon's ] question. We have seen this change. We've seen it already start to shift back as JobKeep has been turned off in some sectors. We have seen an increase in lending again in Oz.

Our next question comes from [ Richard Chow ] of [ Storage PD-1 Limited ].

Just had a question in terms of the revenue figure of $4.5 million, how do you -- what's the difference there between the net income of $3.9 million and the $4.5 million in the revenue figure that you quote? Where is that kind of difference of that $0.6 million? Could you just explain that difference and how you're calculating the revenue of $4.5 million?

Yes. Richard, that's a great question. We've condensed the P&L in the deck in the 4-D. You've got interest income of about $2.6 million, less interest expense of $0.6 million, gives you a net interest income figure of $2 million. And then revenue from contracts with customers, which are those ACH fees, credit card, portal subscription fees, et cetera, are about $1.8 million. So the sum of those 2, the grossing -- sorry, gross interest income and the revenue from contract with customers comes to about $2.9 million. And then you've got sort of $2.8 million, and you've got $600,000 of interest expense.

Okay. I understand that. Okay. So the difference is pretty much the interest expense, the $588,000. Okay. I can see that.