QuickFee Limited (QFE) Earnings Call Transcript & Summary

And we now will switch over to our final company of this morning's set of 4. I'm delighted to welcome back quickly. We've got Jennifer and Simon here, Jennifer, Head of the North American business. Simon, who is CFO of QuickFee. Simon, I think you are sharing the presentation. Is that correct?

That's correct. Yes.

I'll let you know when I can see it now. Yes, it's status is just loading. And Jeff, if you can discuss a full-screen mode or slide show mode, just so we get the full screen effect.

Are we good?

No.

No. We're still seeing it with the slides coming down in the left-hand side, we're not getting the full effect of this.

Is it in presentation mode, Simon?

It is.

There you go.

There we go. That's much better. And you can take it away, I'm not sure who's leading off, Jennifer or Simon?

Sure. I'll kick it off. Thank you so much, Mark, for having us today. We're really excited to share with you some of what has been happening in the QuickFee business over the last little while, a lot is going on. And we're going to jump right in. We're going to give you a bit of a speed tour through what we do and make sure that we leave room for some questions, but I also want to provide you with some of the context around our focus areas in the business. For those of you that aren't familiar with what we do, QuickFee has been offering B2B payments and financing for professional service firms, namely accountants and lawyers. And essentially, we're in the business of helping professional service firms get paid faster. That's what we do. And we offer 2 different types of payment options. We have our PayNow option, which is ACH or EFT and card. And then we have a pay over time option, which is our proprietary financing product, and we'll talk more about that as we go through the presentation. All of our payment options are offered through a secure online payment platform. So if you want to get an idea of what it looks like if you're actually a firm that is transacting and using QuickFee for payments, this is one of our customers, Munck Wilson. And this showcases really the simplicity of what we're offering. This is actually Munck Wilson's website, and you can see that when you go to their website and you say you'd like to make a payment, you go to this page, and it allows you to either pay with EFT or ACH, credit card or financing. When you click on one of those 3 options, you go are right through to the next page, which is our QuickFee payment portal. And this is as simple as it is, the client can pick whether they want a monthly payment plan of 3, 6, 9 or 12 months or if they want to pay ACH or card. In the case of card, the client pays the surcharge fees. There's no charge to the firm. So firms love it and clients like the flexibility of payments. We often get asked who our target customers are and where we're really focused in the market. And on the next slide, we'll cover just at a high level of where we play. We are very, very focused on professional services. There are a lot of different types of industries and businesses that are interested in our services, but we're very focused on professional services with a B2B focused customer base. Our primary verticals in both the U.S. and the Australian market are accounting and legal or solution providers that sell into or provide services to accounting and legal like a CPA state society, for example. In the U.S., we have some secondary professional services verticals, architects, engineers, management consulting. However, 100% of our sales and marketing efforts go into our primary verticals. For our firms, our key requirements are that they are qualified or licensed and that they have greater than $1 million in revenue for our primary verticals or $2 million for our secondary verticals. We often get asked what makes us unique in the market. What are our competitive advantages to other solutions that are out there. Number one is we have no credit checks for the firm clients. So we underwrite the firm and as a default, all of their customers are approved. So when they go to get a loan with us, it's automatically approved because they're sold based on the fact that the firm already has credit with us. The credit card surcharges are paid by the firm clients. There's no cost to the firm, which is a huge savings. The pay-over-time financing option is at no charge to the firm. So the firm gets paid in full upfront and the client gets the flexibility of being able to pay their invoice over time. We integrate with major practice management solutions, and we'll get into that in just a few moments. And I think it's something that makes us different than those others and I just heard the last speaker speaking to this as well, is we support accounts receivable beyond just technology. And so we really pride ourselves in having a great level of customer service. And sometimes it takes an extra call or it takes an extra nudge you got an accounts receivable invoice paid and we're right there partnering with the firms, helping them get paid faster. So we work beyond technology. And I'm going to hand it over to Simon, and he's going to talk a little bit about how we make money.

Thanks, Jennifer. We really have 3 main revenue streams, 2 under the PayNow banner and our financial product. So on the PayNow, ACH or EFT, we collect up to 0.5% of the ACH volume from the firms in the U.S. There's no charge for EFT in Australia, as you may imagine, although we do charge a monthly hosting fee for our Australian firms as show on the last line on that table. For credit card, we receive approximately 0.14% of the card volume in the U.S. from that 3% surcharge that's paid by clients. In Australia, while we recognized a 1.5% surcharge as revenue, the margin in Australia after Visa and Mastercard scheme costs is negligible really. The highest margin product, though, is our financing product, and that generates about 25x the PayNow margin fee's dollar processed. And that's because it's effectively an interest charge, that's charged to the client, and we'll charge up to 12.95% as a flat fee on a 12-month loan to a lower fee for shorter loan terms. And that works out to be having APRs roughly in the low 20s in both Australia and the U.S. And the important thing to note about that financial product, it is very, very low credit risk because even though the client is repaying QuickFee, the installments, if the client does default, then the firm has given us a guarantee that they will then make us whole on any unpaid principal. So you both need the clients and the firm to default for us to incur any bad debt at all. And that's why our bad debts are running at about 0.1% of lending on an average over the past 5 years. It is a very, very secure product from that perspective. We also generate revenue from our homeowner services pay-over-time product built around the Jim's Group franchise in Australia. You may have heard Jim's name, set around about 4,500 franchisees, and we make a small amount of money out of that business as well. So in terms of where we've come from, just put some charts together here to look at how we're continuing to grow. We're well and truly past the impact of COVID from 2 years ago. The top left chart here, which showing rolling annual volume shown by quarter for the last 3 years for our U.S. pay-now product, and you can see the continued annual growth every quarter up to $1.2 billion processed in FY '23. Over the top right, we have the same chart for our financing product. You can see in the past 12 months, as we've narrowed our focus just to the professional services market. The growth in the financial product has increased on an annualized basis every quarter since the beginning of 2022. And then bottom left, it's a similar financing chart for Australia. You can see the steady recovery over the past 8 quarters since the beginning of 2022 and the last quarter in FY '24, as we'll talk about was a record lending quarter in Australia. We recently released our full year results guidance for FY '23, which shows group revenue up from AUD 10.9 million in FY '22 to between AUD 14.5 million, AUD 15.5 million in FY '23. And net profit after tax improving from a AUD 13.5 million loss in FY '22 to between $8 million to $9 million loss in FY '23. And that reflects obviously the revenue growth, but also the cost reduction and that is in the business that we've implemented as we track towards profitability. I'll now pass it over to Jennifer to talk a bit about the U.S. market that does present the biggest opportunity of growth for us.

Thanks, Simon. So I think as we shared a little bit earlier and as I was going through some of my slides, we obviously have a very simple business model, and it makes sense. But what's the size of the market opportunity? And how much have we already been able to penetrate in the U.S. market. This slide is a little bit of an eye trip but I'm going to walk you through it because it really does a great job of articulating what that opportunity is. In the U.S., our total serviceable addressable market is about $38 billion in revenue for accounting firms. This is just for the accounting market. This just doesn't even get into legal. Of that $38 billion, we have about $10 billion that are already doing business with us today. So we still have the remaining $27 billion, $28 billion that we can go after that are not our customers today. So we have a huge portion of the market. We're just getting started. However, another click down is even more exciting because of the $10 billion in annual revenue for firms that do business with us today, we're only capturing about 11% in our ACH and card payments. We're only capturing 11%. Why is this? And how are firms getting paid? If you flip to the next slide, Simon, this starts to give you a little bit of an idea of the market dynamics. And the U.S. is behind as it relates to digital transformation and adoption of e-invoicing and as you'll see here, we've actually just compared the U.S. and the Canadian markets, 55% of U.S. accounting firms are sending less than 50% of their invoices electronically. You can see the complete reverse in Australia where they're almost all sending them electronically. So when you look at that piece of pie, and you see that we're getting 11% of their overall revenue through our PayNow platform, the rest is all coming through checks. And I call that out because there are people in other markets that are like checks, we haven't seen checks in 10 years. But in the U.S., that's very common in some firms, all they take is checks. And so we're behind on the digital transformation. But that means as the market itself matures and that digital transformation journey continues, we will pick up -- just through the actual market changes, we will pick up a bunch of that volume. I talked earlier about the practice management integrations that we have been focusing on. This has been a huge amount of our development time over the course of this calendar year. And in this year so far, we have released 4 different integrations with practice management solutions, which you can see here. And those -- that represents a majority of the largest practice management solutions that are in the market. However, we have a number of other integrations that we're planning in this calendar year as well. And you'll see some of those noted below. So between all of these, this is -- it's rare that we run into a sales conversation or a firm -- an accounting firm that isn't using one of the practice management solutions you see on the screen. That integration saves them a great deal of time and helps automate a lot of the AR process and that bill-to-cash workflow in their firm. So it represents a huge time and cost savings. When we look at where our near-term priorities are for the U.S. market, we actually have 3 pillars that are -- all of our near-term strategic priorities are falling under. First is around driving organic growth. We have essentially transformed our sales, marketing and our new customer acquisition process over the last 9 months. And through that, we -- you've seen some of the results that Simon shared a little bit earlier. We've set up a territory-based sales plan. We have new commission plans, and we're very targeted on the events that we know are important in the market to be able to help us continue our momentum. On the next part, it's around building and executing around strategic alliances. This is really important when you think about the growth that we have now and when you think about having a sales team, I kind of consider that transactional growth. When you start to think about strategic lines of the partnership, that becomes about exponential growth because one partner can have you get in front of 1,000 firms as an example. So it's a real game changer. We've hired someone recently who spent their whole career in the area of strategic alliances for accounting partnerships. And so he hit the ground running and has already made a difference in the business. And the final part is around accelerating cost-effective product development and being really focused on where we do it. We've done a great job over the last 9 months of incorporating a lot of voice of the customer in what we're doing and making sure that the value that we deliver is something that's going to be impactful for our customers and the market that we don't have as customers yet and our target customer base. We're going to continue developing our Connect integrations, but equally as important is around delivering an unparalleled firm experience and making sure that we have a best-in-class UI/UX. When we looked at the integrations that I shared with you, Connect is actually kind of the hub that all of the integrations go through. And essentially, what Connect does is it allows you to take the invoices that are created in that practice management solution and send them out digitally with a link to get paid right away. And so Connect is a really important part of our strategy because it helps drive greater penetration into the firm.

Thanks, Jennifer. I'll just cover a little bit about Australia. Australia is where the business was founded in 2009. Any of you who followed Quickfee over the past, would probably remember that Bruce Coombes was the founder, who IPOed the business in 2019. He remains on our Board running the Australian business, doing what he loves best, going out and talking to accounting firms. We've currently got about 40% of the market in Australia, the accounting and law fee funding market with firms like KPMG, RSM, Piper Alderman. The business is profitable. However, we do see opportunities for growth, both organically in the accounting space as economic conditions continue to be challenging. We all know it's going to happen with home loans in Australia over the next few months and that has a knock-on effect through small business into requirements for accounting law firms to not only manage their cash flow but provide lending solutions to their clients. But also through our legal disbursement funding business, there are opportunities there. They probably are the fastest-growing part of our Australian business at the moment. And the good fee business in Australia is sustainable, and we expect its contribution to the group to continue to increase. I'll take you through some of the highlights from our recent Q4 update. It's released. It's very much a story of a strong quarter growth across all products and the positive momentum in both Australia and the U.S. entering FY '24 and particular highlights: Record Q4 transaction volumes across all products in the U.S. and Australia, to PayNow and financing. Revenue for Q4 was up 23% to $4.3 million, and we have 50% revenue growth in both financing products in the U.S. and Australia, and some of that's driven by increasing the rates we charge clients as our borrowing costs have increased with increased interest rates, but also volumes going up. The month of June, we have an underlying cash EBITDA of negative AUD 55,000, so very close to breakeven. And that demonstrates the significant progress we've made to track towards operating profitability, which is what we're aiming for, for FY '24. Continued reduction in operating expenses in the quarter and across FY '23. Importantly, as a leading indicator in the U.S., we signed 120 CPA firms in FY '23 and 49 of those had signed up for the financing product. And that firm sign up is a useful lead indicator of both improving transaction volumes and revenue yields to come into FY '24. So it's very much a story of ending '23 pretty strong and starting FY '24 strong as well. I'll hand over to Jennifer to just a quick wrap up on our strategic priorities and outlook.

Thank you. So at a high level, Simon spoke to one of our strategic priorities being reaching profitability, and that continues to be our #1 goal and being very smart about not only where we spend our money, but also where we spend our time and making sure that we're very focused on what's going to make the greatest impact on the business. The second key strategic priority is really around leveraging our most valuable assets, and that's our firms, our customers. And we have a lot of new opportunity to go out into the market and present some of our new solutions like Connect and our integrations as well as better position our finance product and firms are taking to that really well. So continuing to look for those new opportunities while continuing to build and execute strategic partnerships. And then finally, just making sure that we have -- we continue to enhance our systems redundancy and make sure that we've got business continuity into our services. Of course, we've always done that, but that is paramount and important for us. We want to make sure that we always are able to meet the needs of our customers. And we've learned over the last year that there can be little changes in the market that need to be addressed really quickly and so making sure that we have whole redundancy is important for us. And finally, before we wrap up and get into questions, we have really strong momentum heading into FY '24. We've had -- we've come out of great quarters and great years in both the U.S. and Australia. We've got some economic tailwinds, and we talk a little bit about even some of the tailwinds just in the U.S. market as well. We finished -- we have a strong finish to FY '23, which we've shared, and it's given us a lot of confidence. And actually, July has been great as well. So we continue to see that push through into the new fiscal year. We have a steady reduction on our cash burn, and that is something that's continued from FY '23, but that march to profitability continues and then making sure that we're tracking towards operating profitability within our existing cash and borrowing facilities. So all of these things are items that, Simon, myself and the rest of the leaders in the business as well as the board are tracking on a day-to-day basis. But we're really excited. I'm energized by the opportunity. We've been able to attract some great talent into the business because they see that we have something that's very unique in the market and different than what anyone else is offering. And I think that the world is our oyster, and we're just getting going. And with that, I'll hand it back over to Mark for questions.

Thanks, Jennifer. Thanks, Simon. So maybe one for you to kick off. I just want to talk about the financing product. And obviously, as you alluded to, we've seen a big jump up in rates both in Australia and in -- and in the U.S., I mean, globally over the last 12 months. And I know you touched on you've raised rates. But in raising rates have you been able to maintain that net interest margin? And then kind of a follow-on question from that is, as the book gets bigger, do different financing options, whether that's warehousing or club facilities with banks come into play and have scope to be getting better deals because you've got a much larger book and it started to become much more attractive to lenders.

That's a good question. I think in terms of sort of rising interest rate environment, not only is our current net interest margin, pretty strong. We're currently paying about 10.5% on our borrowing facilities and the APRs as you saw, was low 20s. So that margin will continue. And the way the product works, if you raise rates or the fixed interest charge by 1%, it will have a 2% to 3% APR impact. So we don't raise rates every month, central banks do, with [indiscernible] twice in the past 9 to 12 months in each country. But the -- in terms of demand, you don't really see a decline in demand for the product from clients if we do increase rates. And the reason for that is it's so simple for clients to take out a loan. The firms aren't paying, the clients are paying. There are no credit checks. It's literally they go into the portal, they take out the payment plan at the click of a button. So it's very price elastic as a product. So we are able to raise rates without any decline in demand or volume, which is interesting. And yes, as the book grows, we will look at our additional opportunities and facilities to reduce those -- that cost of funding for sure. The current book the facility we have with Northleaf Capital Partners funds most -- I think 90% of the accounting book is USD 40 million, which is about AUD 55 million, AUD 53 million and we are not at -- anywhere near drawing to that full extent yet. But we will continue to look at alternative providers.

Jennifer, maybe one for you. When you're pitching to -- if we just talk about the accounting segment that you walked through on the slide, and that $28 billion that's still up for grabs. Are you competing against other players in the market to get that? Or is the biggest competitor, in fact, inertia from firms -- this is the way we've always done it and we don't kind of really see the benefit of offering this to our clients. It's not something they're coming to us kind of wanting or looking for. Where -- what's going to be, I guess, the main impediment to kind of capturing more of that market that's currently untapped?

Yes, that's a great question, Mark. I'd start by saying the status quo is definitely the lead competitor. And if we can get firms moving customers off of paying with check and moving to electronic payments, that is a huge advantage. There are -- of course, we run into competitors in the market. There are others that are offering payment options like ACH and card, but that isn't what I would consider to be the crown jewel of our solution, which is our finance product, and there isn't anyone in the market that we come up against that's offering a like-for-like finance product. And so it's easy to overcome that -- it's easier to overcome a competitor in the market than it is to get a firm that is behind on adoption of digital. That said, I mean, we -- you go from talking to someone who takes 100% checks, and they don't take any online payments to a firm that's wondering when they're going to need to start accepting cryptocurrency. So you see a really wide range of where firms are at in their digital adoption. And so it's -- we're kind of meeting everyone where they're at.

Okay. Simon, we've got a question on CapEx, obviously, Jennifer mentioned this in one of her slides of the integrations with some of the partners and some to come in FY '24 and not to mention upgrades to UI/UX. How should we think about CapEx as we look forward into FY '24? Should it model something simpler to FY '23? Or has it kind of peaked in that last year?

Yes. I mean, as a reminder, we expense all our product development, there was a line in the P&L, group product development. And that will be -- I mean I think it was AUD 5.2 million in FY '22. That will come down to near AUD 3.54 million in FY '23. And then we'll probably see a similar reduction of anywhere from roughly about $0.5 million in FY '24, but we will need to continue to invest, particularly on the Connect product. As Connect is how you basically drive a firm's clients to paying all their invoices through the portal. So the current 11% or 12% that we're capturing Connect, basically, can move that to theoretically 100% of firms' invoices being paid through our portal. There will clearly be some checks in there. So you may not ever get to 100%, but Connect is what can drive that 11% to 100% in theory. So we're continuing to accelerate that to integrate as many practice management systems into our Connect product as possible. But there will be some reduction next year.

Okay. But we've kind of seen the peak of it for now. And Jennifer, just on the secondary verticals. You say that market into these which you have -- pick them up. Is that true people changing jobs, finance staff moving from one industry to another. And is there a case be made to -- given that you said it's a $2 million revenue business rather than the $1 million revenue business. Is there a be case made for putting some marketing dollars behind attracting the architectural segment or engineering segments or digital marketing segment at some point in FY '24?

Yes. That's another great question, Mark. But I think a lot of time -- just to answer your first question, when an engineering firm, an architectural firm finds us, it's usually 1 of 2 ways. Number one, they've been referred potentially by their accountant or their lawyer, and they've gone on to pay their own invoice and like, "wait a minute, this is a great way to pay. Could I offer this to my customers?" And of course, they've already had a relationship with a client that we work with and we want to be able to accommodate and work with them. So it's -- that is certainly how we get most of them today or they're finding us just online, but it's primarily through referrals. I think what we've learned over the last couple of years, we were trying for a few years to be too many things to too many people. And you saw probably mentioned multiple times throughout our presentation, the word focus. And so it's really important for us at this point in time just to get really laser-focused on accounting and legal and all of our outbound efforts or focus there. When we have that nailed and that machine, like we've got everything running like clockwork and our customer service is just everything that's humming along, then we'll say, "okay, what makes sense for us to expand the business? Is it another market? Is it another industry?" But at the moment, it's just this year, like my word, it's focus. And so we're just going to stay really focused on our core verticals.

All right. And then can we just squeeze in one more question if we can. In terms of a customer signing up to when they start contributing revenue. So if we take on a decent size accountancy practice to when they're actually contributing to revenue. Is that relatively quick, like a one-to-one process, get the technology integrated into their practice management software in the back end? Or is it something longer. So if we see deals announced over the next 12 months, how should people think about that flowing into the accounts?

Sure. It's -- I would say historically, when we signed up a new customer, we did not have a team of people that was focused on that time to value. And we have since changed that. So we have a team of relationship managers and they're focused on making sure that we accelerate that time to value because it's not just time to value for us. It's for our firms to recognize this ability to get paid online and get paid faster. We know that typically, a week from when one signs up to when we can have them live, it could be done in as short as 7 days. Is that what we're achieving every time right now? No, it's not -- there's a lot of moving parts and there's people in the firm that are involved and there's -- if they have Connect, it's the integration, et cetera. But we know that 7 days is achievable. And so we have that group, I just had a meeting on it earlier today. We're watching those numbers and saying, how do we continue to tighten that up because we know if we can take what would normally naturally happen as it relates to penetration in a firm over 2 or 3 years, if we can shorten that down into 1 year or 6 months, that means a great deal from our transaction volume and our revenue. So accelerating time to value is a huge focus area for us.

Okay. Great. Jennifer Simon, unfortunately, we're going to have to leave it there. We're just over time. And thank you very much for coming in and giving us an update. That's been a bit of a long time between drinks since Bruce was here. So it was good to get an update and hopefully, we can have you guys back in maybe the back end of this year or maybe early 2024.

Great. Thank you for having us, Mark. Appreciate it.

Thank you, Mark.

Thanks, Simon. And that wraps up this morning's session. Thank you to all our presenters, and we will leave it there, and I wish everybody a good rest of their Tuesday.