QuickFee Limited (QFE) Earnings Call Transcript & Summary

Good morning, everyone, and good evening to those joining us from the U.S. Welcome to the QuickFee Q3 business update webinar. On our call today, we have Simon Yeandle, CFO; and Jennifer Warawa, President, North America, to run through the presentation. My name is Katie Mackenzie, Investor Relations for QuickFee. The presentation will run for about 20 minutes, and then we'll open up for Q&A. [Operator Instructions] If we don't have time to get through all the questions today, we'll reach out to you directly following the webinar. Now I'd like to hand over to Simon Yeandle.

Thank you, Katie. Good morning, everyone, and good evening for those of you in the U.S. If we can move to the next slide. We're very pleased to announce another very strong quarter of revenue growth, up 36% on pcp to AUD 4.9 million. This continues the trend of the 35% revenue growth we saw for H1 FY '24 over H1 FY '23. Our Finance product growth is again the standout. In the U.S., total transaction volume or TTV is up 36% and revenue up 54%. And revenue yield on the Finance product in the U.S. was up 120 basis points. In Australia, Finance TTV was up 20% and Finance revenue was up 50%. Revenue yield was up 310 basis points. Finance revenue is now 63% of group revenue for the quarter. The improvements we made to our firm onboarding process in the U.S. last year are now starting to show in our lending volumes from new firms. We have 3x as many new firms in Q3 FY '24 using the Finance product in the U.S. as in Q3 last year. Additionally, over the last 9 months, the development and operations teams have been working on transitioning our ACH processing to a direct-to-bank model versus transacting through a third party. This project is now complete, and as of 31st of March, all ACH Pay Now transactions in the U.S. are processed through the new model using 2 separate banks for processing. That delivers much more internal control over the core processes, reduced ACH processing costs, they're not paying a third party, and provides full ACH processing redundancy if one of those banks fails. So we're fully set up there. And finally, we're pretty much at operating profitability. March EBITDA after interest was breakeven, and we expect Q4 FY '24 to be stronger than Q3. On the next slide, we've just set out the Q3 metrics as we've mentioned. And you can see the growth across all products in both markets. So continuing the trend we saw for H1. So pleasing, we're still on track. You might be familiar with these charts. This is the Finance product, and it shows the breakdown between price and volume growth in our Finance product. The chart on the top right of this slide shows Australia lending volume for Q3 FY '23 and Q3 FY '24 and revenue yield, the percent that we made from that volume, revenue divided by volume. And on the far right, the current quarter revenue growth over pcp split between growth from volume and growth from yield. In the last column, you can see that $0.3 million of revenue growth is from the higher volume of lending and another $0.4 million is from the increase in the rates we've charged over and above the pcp revenue of $1.3 million. Similarly, bottom right, USD 0.1 million has come from volume growth, and USD 0.1 million has come from yield growth over the prior year's $0.5 million revenue. As you may be familiar with the interest revenue from our lending naturally increases with volume as we write more loans. And importantly to note, we have seen minimal bad debt again this quarter as we did in the first half, and that's really driven by the agreements we have with firms whereby they guarantee the payment plan is taken out by their clients. And as a reminder, the Finance product has a revenue yield of about 25x that of the Pay Now product. So the next slide, we just look at some revenue growth. The chart top right shows annualized rolling 12-month revenue by quarter. We are now in Q4, which is the strongest quarter of the financial year. The revenue growth we've seen over those past quarters is expected to continue in this Q4 quarter. And as a reminder, the reason Q4 is the strongest is that the U.S. tax season finishes middle of April, which is last week. And a backlog of billing is done, and that drives certainly volumes in April and May. And in Australia, it was the lead up to the end of financial year, and our firms want to collect as much cash as possible before 30 June. A lot of firms still have profit shares based on cash collections rather than fees billed. And additionally, our team was in both markets working furiously up to the 30th of June, the last day of the financial year, to maximize our full year results. So it is a very busy period, both internally and for our customers. I'll pass over to Jennifer to take you through the results in more detail.

Great. Thank you, Simon. So I'm going to start by just walking you through an overview of our product lines in the U.S. market. So founded in Australia, QuickFee has been in business since 2009, and we actually entered the U.S. market in 2016. Since our inception, we've really had one mission, and that's to help professional service firms get paid faster. So QuickFee's payment platform allows the firm's clients to pay their invoice by ACH or card, which we refer to as Pay Now. And you'll see that on the left-hand side of the screen. Think of this as traditional digital payments. Then we also offer a lending option that's proprietary to QuickFee called QuickFee Finance. This Pay Over Time action allows clients to pay over 3, 6, 9 or 12 months, while the firm gets paid in full. And it's important to note, this is done at no cost at all to the firm. Finally, our Connect product is a significant growth enabler in the U.S. market. Our existing customers have a combined annual revenue of around $10 billion. Right now, only $1.2 billion of that annual revenue is processed through QuickFee. The remaining $8.8 billion is primarily being received by check. As digital payment adoption in the U.S. accelerates, our total transaction volume organically increases. In other words, as the U.S. market continues to mature in its digital transformation journey, there is over $8 billion in annual revenue that we could capture from our existing customers alone. Now this is where Connect comes in. Connect provides integration into leading practice management solutions, helping turn a manual, often paper-based process into an automated digital process by sending out the invoices generated within the practice management solution via e-mail. Those invoices have a payment link on them, which sends the customers directly to the QuickFee payment page. We currently have 3 integrations, CCH ProSystem fx, CCH Axcess and IRIS Practice Engine with Thomson Reuters integration coming out early this summer. Now like any product in any industry, we actually have competitors in our market, but we're also very well positioned to win against those competitors. In the Pay Now area of our business, the majority of traditional ACH and card processors do not have integration with practice management solutions. This means the processes remain manual, cumbersome, time-consuming and expensive for firms. Additionally, many other processors don't have the option for credit card surcharges to be passed on to their clients. When you think about the fact that QuickFee has shifted over $11 million in credit card surcharges from the firm to their client, this is critical. There are 3 main attributes that differentiate our Pay Over Time offering from other financing providers in the market. Our other competitive products are consumer focused. They typically aren't designed for firms that are serving business clients. They have a very low invoice maximum, typically 17,500, and they require credit check for every single customer. And most customers don't want to have a hit on their credit score simply because they paid an invoice. Our third type of competitor is in the AR automation space. And when you look at other AR automation platforms in the market, we find that our key competitors are designed to serve top tier, very large firms and are often outpriced for midsize or smaller firms. QuickFee is designed for professional service firms. Our Finance solution has no invoice maximum. The clients of firms don't need to get a credit check done. We integrate with leading practice management solutions. And we have pricing that works for small, midsize and very large firms. We are the best fit for the largest portion of the market. Now if you envision a flywheel that when turning at full force compounds the efforts of every single component, that's what I'm trying to represent on this slide here today. This flywheel showcases the 5 areas that we believe will unlock transformational growth in the U.S. market. Our #1 lever on our flywheel is QuickFee Finance. QuickFee Finance has revenue yields that are approximately 25x that of our Pay Now offerings, all while delivering solution to the market that's unmatched by any other company in the U.S. It's the reason we came to the U.S. market, and it's absolutely instrumental in delivering transformational growth. Think of QuickFee Finance as our crown jewel of sorts. Second, QuickFee Connect is a key part of our growth strategy. Early results have shown that firms that adopt Connect have seen their transaction volume grow by over 40% in the same period over last year. In addition to that, by integrating QuickFee Connect with the most widely used practice management solutions in the U.S., firms are able to unlock automation capabilities that simply don't exist in their practice management solution itself. To unlock that $8 billion plus in firm revenue that's not being captured by QuickFee today, Connect is the key. Third, we need to deliver differentiated technology. While the benefits we bring to firms are incredibly compelling, those alone won't drive transformational growth. Our ability to shift our product and development teams from being a cost center to a difference maker that delivers world-class solutions is critical in this flywheel. Fourth, strategic alliances and partnerships are incredibly important. If we want to grow this business at a faster rate than ever before, acquiring firms one by one simply won't be fast enough. By building strong partnerships with other leaders in the industry, we can rapidly grow our reach, drive increased awareness and acquire new customers at scale on a one-to-many basis. Finally, we're looking to leverage automation across all areas of our business. Given our goal is to drive cost-effective growth, every single functional area needs to automate as much as possible, including sales, customer success, finance, operations as well as product and development. I'm here because I believe in our ability to deliver transformational growth. I believe our value proposition supports that growth. And I believe that we have the team to make that a reality. Now a great strategy is only as good as the results that we deliver, and I'm really proud of our Q3 results. On the right-hand side of the slide, you'll see strong and steady growth in our Finance transaction volume and our Finance revenue over the last few years. Additional indicators of momentum in Q3 include a 200% increase in the new firms utilizing Finance in Q3 FY '24 over the same period last year. This was driven by consistent execution of our improved onboarding process, going after and winning larger firms with higher revenue and a number of strategies that we're executing on to capture more of our customers' payment flow. We also continue to nurture our strategic partnerships, including the BDO Alliance, Allinial Global and IRIS Software with our first IRIS User Conference coming up next month. We're also about to launch our new integration partnership with Knuula, which will provide our customers with best-in-class engagement letter functionality, all integrated with a QuickFee payment suite and Connect. Another accomplishment that can't be overlooked in Q3 is the completion of our move to a direct-to-bank model for our ACH processing, which Simon mentioned earlier. This gives us full redundancy. In other words, if something were to happen to a bank that we process through, we could switch to another bank partner in a very short period of time. Additionally, we increased our margins on ACH processing by going direct to the bank versus processing through a third party. When you take a look at our operational metrics in the U.S., the highlight callout is a 36% increase in our U.S. Finance transaction volume, which translates into the 54% revenue growth over the same period last year. Pay Now also delivered strong growth with a 17% increase in TTV, and active firms and customers are also up by 3% and 14%, respectively. In Australia, Bruce Coombes continues to lead the team to sign up new firms and drive organic lending growth. Both TTV and revenue have seen consistent growth over recent years, and we expect to continue to post growth as economic conditions to work in our favor and as we track towards lending -- record lending for the full FY '24 year. Now as you can see on the next slide, in Q3, active customers grew by 25%, which demonstrates the increase in demand from firms and their clients for QuickFee Finance. The growth has been boosted by growth in our legal disbursements funding product, which similar to the rest of our business, provides funding to substantial reputable firms. For those unfamiliar with this product, the disbursement funding or DF product provides funding for disbursement costs for personal injury law firms, which are usually costs for medical reports in personal injury lawsuits. The one key difference about this product compared to funding accounting and legal fees is that interest compounds, and there are no installments repaid during the term of the loan. The loan is repaid in full with all accrued interest at the earlier of when the cases settle or after a maximum term of 24 to 30 months. Interest rates are comparable to the fee funding product, but our funding requirement is higher with disbursement funding because there are no repayments until the end of the loan term. I'll now hand it back over to Simon to share some metrics around our path to profitability and cash position.

Thank you, Jennifer. This slide was presented recently at our Investor Day, and it does show revenue, gross profit and EBITDA and how they're growing progressively half-on-half. We expect those trends to continue in the second half of FY '24. We've shown steady improvement in EBITDA after interest in recent consecutive half years, as you can see. And EBITDA was flat in H1 FY '24 versus the prior half, but H2 is reasonably stronger. And the reason it was flat was really a $0.5 million one-off product development cost relating to some consulting work and transitioning to a lower-cost PD structure going forward in H2. So we expect revenue to continue to trend upwards in H2 and costs to stay relatively flat, which will deliver improved EBITDA in H2 over H1 this financial year. And on the next slide, if we look at our cost base that is split between fixed and variable. About 30% to 35% of revenue is in variable costs, which were about 30% to 40% of total costs. And you can see on the right-hand side, the purple line is revenue and how that's growing. And the dotted line is continuing the revenue growth that we've seen in the first half. And put it all together, you can see those columns in the sort of lighter colors there, a hypothetical sort of future periods. But you can see as revenue grows, how the fixed costs in purple stay relatively flat and how the variable costs are growing in line with revenue. But you can see quite quickly that revenue will outstrip total costs over a period there. The variable costs are really comprising interest, U.S. ACH processing costs and some card processing costs in Australia. So you can see the scalability of the model. Once we hit profitability, it's pretty clear there. Just a quick note on the next slide. In terms of our liquidity position, we had $3.2 million of cash available on hand, and our growth capacity from our borrowing facilities is a further $23.2 million from the existing facilities that we have available to fund future loan book growth. So we have adequate headroom to achieve the sustainable profitability that we're very close to within the existing facilities. And our facilities will fund between 85% and 90% of loan book growth. So we have to contribute 10% to 15% out of our own cash reserves. And the rates of the loan book growth will determine any growth capital required that we need to grow our loan books in both markets. So that will supplement any cash that's generated from operations. So if the loan book growth and the requirement to fund the 10% to 15% our sales outstrips, there's cash that's being generated from the business that will be required for growth capital as we continue to grow. With that, I'll pass back to Jennifer to summarize the outlook for the rest of FY '24 and into next year.

Great. Thank you very much, Simon. So I wanted to wrap up today with a summary of our highest-level strategic priorities for the business for the remainder of FY '24, just a few months left here. For those of you who attended our last business update or attended our Investor Day, you'll note these remain consistent with what we've shared previously, and this is a good thing. We don't want these changing all the time. Our #1 responsibility and assurance to our shareholders is reaching profitability, which is mission-critical and very close on the horizon. We'll continue to be exceptionally diligent in managing our expenses. As I shared earlier, the opportunity in front of us is tremendous, and we're focused on unlocking transformational growth in the U.S. We have the right leadership team. We're leveraging strategic partners to drive exponential growth and continue to develop our Connect product to capture more firm transaction volume. I'm now going to hand it back over to Katie to facilitate any Q&A that came in during the presentation.

Thanks so much, Jennifer and Simon, for the presentation. [Operator Instructions] So just in the meantime, Jennifer, in the Investor Day webinar, you talked a lot about the Connect product, and you said you had 74 customers signed up for Connect. Are you able to sort of give a little bit more detail on the increases in volumes there and how the Connect product is tracking?

Absolutely. So Connect is -- obviously, we've been in tax season. So as far as firms bringing on Connect and getting up and running, they aren't likely to make a significant technology adoption decision during tax season. So we're certainly well queued up on that. But even with that, we've certainly seen the invoice volume exponentially growing. A good example of that is our invoice volume from February 2024 to March of 2024 was more than double. So we are seeing exponential growth even though we're not bringing on a lot of new firms or getting them onboarded. We have a very healthy backlog of firms to onboard now that we're coming out of tax season, and our implementation team is all over that, and we are moving ahead quickly. The other thing that I'd say is we're just about to launch our integration with Thomson Reuters Practice CS. Practice CS is our #1 practice management solution for our customer base, and we have a lot of pent-up interest in that solution. So we're really excited about that launch coming early this summer, and we know that will also help drive that Connect transaction volume.

Okay. Thank you. Just another question as well on the strategic partnerships. So you've talked a lot about that in previous presentations, and in the investor webinar, there was a lot of talk about the one-to-many approach. In this presentation, you talked about Knuula. And it would be good to just get a bit of an update on the different strategic partnerships and the key activities there for Q4.

Yes. We have a very healthy pursuit list as we came into Q4, and we have weekly meetings that are very full on progress. So there's a lot of progress on a week-to-week basis. Knuula is a partnership that I'm incredibly excited about. We have had a lot of feedback from the firms that we work with that they want an improved engagement letter solution. They're not happy with what they're using today, which ranges from a number of different solutions, and Knuula designed their engagement letters based on all of that market feedback. So they've kind of got this best-in-class solution, and now we've got this best-in-class integration. So we've had a couple of customer meetings where we've walked them through Knuula functionality as well as the integration with Connect and QuickFee, and the response has been incredibly positive. So there's a really nice market synergy. We're going to be demonstrating that at the upcoming AICPA ENGAGE conference that's coming up in June. So we're really excited about that. Our other partnerships continue to do well coming out of tax season. We have a very -- we have a lot of BDO area meetings that we are speaking at and attending, and it's a good chance for us to engage with BDO Alliance members. We also have the BDO Evolve conference coming up, which is a top conference for us and a great place to engage with and get a very healthy lead list. And then, of course, IRIS, which was a partnership we announced last year, we continue to see healthy uplift in our transactions and momentum with IRIS. We're excited that coming up in May, we have our first IRIS User Conference. This is where all of the firms that use IRIS solutions get together and hear about what's new from them. We're excited to be presenting to that and sharing an update on our integrations and also helping them understand that they can pay for their practice management bill using QuickFee Finance. So lots of good stuff underway and new contracts to be signed this quarter.

Okay. Thanks very much. Lots of things going on. So I can't see any further questions coming in. Jennifer or Simon, I'm not sure if you can see questions coming in there. Well, thank you, everybody, for attending the Q3 update. We do these webinars every quarter. So we will update the Q4 in July. In the meantime, if you've got any questions, feel free to reach out to either myself or Simon. Excellent. Thanks, everybody, for attending. Have a great day.

Thank you.

Thank you.

Bye.