QuickFee Limited (QFE) Earnings Call Transcript & Summary

Welcome to the QuickFee Q3 FY '25 Results Overview. My name is Jennifer Warawa, and I'm the outgoing President for North America. I'm joined today on this webinar by James Drummond, Acting President for North America; and Simon Yeandle, our CFO. As a reminder, for those of you who are new to our story, we have a very simple business focus. We help professional service firms automate and accelerate accounts receivable, while at the same time supporting them as they grow their firms. If you'd like to stay up to date with our latest news and updates, we encourage you to sign up to the QuickFee Investor hub and details are shown on the screen. Now let's take a look at our performance in the third quarter of FY '25. In Q3, QuickFee delivered another record revenue quarter, and we're pleased to share that we were EBITDA positive in Q3. Revenue for the quarter increased by 29% year-over-year, reaching AUD 6.3 million. This growth was broad-based across regions and product lines. In the U.S., finance revenue rose 29% and Pay Now revenue grew by 20%, reflecting increased usage across our platform. In Australia, finance revenue was up 30%, continuing the strong growth trajectory that we've seen all year. Total transaction value or TTV, also saw meaningful increases on the prior corresponding period. U.S. finance TTV rose by 12%, U.S. Pay Now TTV increased by 14%, and Australia Finance TTV grew by 8%. These results demonstrate the effectiveness of our focus on high-value firms and deeper product engagement leading to consistent scalable growth across the business. Building on the momentum from earlier in the year, Q3 FY '25 marked our second consecutive quarter of record revenue demonstrating the consistent execution of our strategy and the scalability of our plan. A key contributor to this result was the sharp uplift in activity through Connect in the U.S. where invoices delivered grew 18% quarter-over-quarter. We launched the Connect platform just under a year ago, and we're really pleased with the market traction so far, although we're just scratching the surface on the market potential. The acceleration in the transaction volume in Q3 reflects both deeper penetration with existing customers and the onboarding of new customers to the platform. With 64 firms now onboarded and a strong growing pipeline, we expect this trajectory to continue. As we look to Q4, it's worth noting that this quarter has historically been seasonally stronger position us well to carry this momentum through the remainder of the financial year. The consistency in rolling 12 months revenue growth, now reaching AUD 24.1 million speaks to the solid foundations we've made for long-term reoccurring revenue generation. For those of you who are familiar with our story, you would have seen this slide before, but for those who are new to QuickFee, we've included it as a bit of background. When we look across our customer base as to why our customers work with QuickFee or when we win a new customer, it typically boils down to 1 of 4 reasons. And sometimes it's a combination of these. First, they want to reduce accounts receivable. AR is typically 1 of the highest line items on a firm's balance sheet, and we help turn AR into cash. Second, they want to grow their business. There are many priorities competing for cash, and we can help find more of it for firms and their clients. Third, they want to automate their processes. We increase efficiency while improving the client and employee experience. And finally, they want to save on fees. Firms can save thousands and sometimes even hundreds of thousands of dollars on credit card merchant fees simply by passing on credit card surcharges to their customers. Now let's take a look at our solutions. QuickFee's payment platform allows the firm's clients to pay their invoice by ACH or card, which we refer to as Pay Now. Think of this as traditional digital payments. We also offer a lending option that's proprietary to QuickFee called QuickFee Finance. This pay-over-time option allows clients to pay monthly payments over 3, 6, 9 or 12 months, while the firm gets paid in full at absolutely no cost to the firm. Finally, our Connect product is a significant growth enabler in the U.S. market. Connect provides integration into leading practice management solutions helping turn a manual primarily paper-based invoice and collection process into an automated digital process by sending out the invoices generated within the practice management solution by e-mail. Those invoices have a payment link on them, which sends the customers directly to the QuickFee payment page. We now have 5 Connect integrations with leading practice management solutions that are driving volumes on our Connect platform. Of course, we have some competitors that we run up against, but there are some very specific ways that we differ from our competition. QuickFee is designed specifically for professional service firms. We have no invoice maximum for QuickFee Finance. We have no hard credit checks for clients of firms, which is important because someone doesn't own a black mark on their credit or simply because they paid an invoice over time. We integrate with the leading practice management solutions and we have pricing that works for all sizes of firms. We are the best solution that meets the needs of the largest segment of the accounting market, and we have a very competitive subscription pricing model. QuickFee Finance in the U.S. delivered a strong Q3 with Finance revenue up 29% year-on-year to USD 0.9 million and Pay Now revenue up 20% to USD 1.2 million. This top line performance was supported by both volume growth and margin expansion, reflecting the increase in quality and depth of customer engagement. Looking at volumes, U.S. Finance TTV rose 12% to USD 7.6 million in Q3 FY '25 and Pay Now TTV increased 14%, driven by firm growth and expanded platform usage. Importantly, we also saw an uplift in revenue yields. In Finance, yield improved by 150 basis points compared to Q3 FY '24. While originations in the quarter were seasonally softer, the shift in product mix with increased contribution from finance contributed to a stronger overall revenue yield performance. Our rolling 12-month metrics further validate this trajectory with U.S. Finance TTV reaching USD 30.6 million and U.S. Pay Now climbing to USD 1.49 billion, both marking consistent quarter-on-quarter growth. Meanwhile, our U.S. loan book expanded from USD 9.9 million in June 2024 to USD 14.3 million by March 2025, reinforcing the momentum that we're seeing across our lending products. The economic uncertainty during Q3, driven by evolving U.S. policy dynamics led to slower decision-making among accounting firms and their clients. Well, this caution has tempered short-term option of new services, it has also highlighted the growing need for payment flexibility, an area where QuickFee is well positioned to support firms in navigating financial pressure. Our continued focus on efficiency and profitability ensures we remain resilient amid these market conditions. QuickFee Connect continues to be a key enabler of increased transaction volume growth and reoccurring revenue, enabling firms to automate their engagement to cash process with seamless integrations into leading practice management solutions. We now have almost 100 Connect customers with about 2/3 having completed the onboarding process and the other 1/3 currently underway. The real progress we made in Q3 with Connect was around getting firms that had already signed up live and sending invoices. As you know, having firms commit to changing their technology during their busy tax season, which runs January to April, is very unlikely, and we knew this going into Q3. That said, we're really pleased with the increasing transaction volumes on the Connect platform in the past quarter with firm invoices delivered via Connect up 118% quarter-on-quarter. Connect is proving to be a powerful tool in driving new subscription revenue while also increasing overall transaction volume across ACH, card and finance. As more firms on board, we expect to see continued acceleration in transaction processing and revenue generation. We're also focused on building an ecosystem that integrates the firm's existing tech stacks providing a scalable and seamless experience. Additionally, there are around 200 existing QuickFee customers that use a compatible practice management solution but have yet to subscribe to Connect, representing a significant opportunity for cross-sell in our customer base. Now that tax season is wrapped up, our focus on targeting these 200 customers is all of our focus. We expect that the recurring revenue streams from this subscription model will comprise a more meaningful component of U.S. revenue over time. Our Australian business delivered another strong solid quarter in Q3 of FY '25 with Finance revenue up 30% year-on-year to AUD 2.6 million, reflecting continued strength across both fee funding and disbursement funding or DF products. Finance TTV in Australia increased 8% to AUD 14.1 million. This included 18% growth in fee funding, while disbursement funding was down 28% versus Q3 FY '24 due to a high volume of new DF lending firms in the prior year. Despite that timing impact, the legal disbursement funding book continues to grow, now making up 35% of the Australian loan portfolio. We're also seeing continued margin expansion in the Australian business with revenue yield improving by 360 basis points year-on-year. This is being driven by product mix, particularly the growing contribution from higher-yielding DF lending as well as seasonally softer originations in the quarter. Importantly, there were no credit losses recorded during the quarter, underscoring the quality of our lending and credit management practices. Altogether, these results reflect a healthy and profitable Australian business that remains a reliable contributor to group performance. I'm now pleased to introduce you to James Drummond, Acting President for North America.

Thank you, Jennifer. Hello, everyone. I'm delighted to introduce myself to you today. My history with QuickFee goes back to 2016 when I set up the U.S. business from scratch with Bruce Coombes. I've been a COO role since that time, looking after all operations and execution as we have grown QuickFee into a business processing $1.5 billion in payments annually. Over the past 2.5 years, I have worked closely with Jennifer and the leadership team on strategy development and execution. And our primary focus in the U.S. is now on continuing that execution of that strategy. We remain focused on our highest margin products, QuickFee Finance and Connect, and we are already starting to see exciting growth in the Connect volumes being generated as more and more firms go live on Connect. Furthermore, we have a talented and experienced team that knows exactly what needs to be done, and I will be leading them in that execution. I'm pleased to report that our underlying business continued to perform well. QuickFee has consistently demonstrated a strong pattern of revenue growth across each financial year, with an uplift from Q1 to Q3 and again from Q2 to Q4. This trend held true in FY '25 with H1 revenue up 26% year-on-year and interest revenue up 39%. A strong contributor to future earnings is our contracted future interest revenue, which increased 44% year-on-year to AUD 4.9 million as at 31 December 2024 compared to AUD 3.4 million a year early up. The interest is already embedded in our loan book and will be progressively recognized over time offering a predictable and recurring revenue stream. It's important to understand the seasonality in our revenue performance. Q2 and Q4 typically outperformed Q1 and Q3, driven by Pay Now our seasonal volumes and broader business activity patterns. In the U.S., Q2 benefits from the January tax season lead up, while Q4 reflects post tax season and backlog catch up. In Australia, Q1 marks the start of the financial year, and Q4 is the lead up to end of financial year billing activity. Q3 is seasonally softer due to the U.S. tax season and AU summer break. Despite these seasonal variations, our revenue continues to build steadily, underpinned by contracted income client growth and scalable infrastructure. I'll now hand it over to Simon with some financial updates and the outlook and also to wrap things up.

Thank you, James. At 31 March, the company had AUD 5.3 million unrestricted cash on hand with borrowing capacity of a further AUD 1.5 million from existing facilities available to fund future loan good -- book growth. The Northleaf Capital facility matures in November 2025 and we're busy refinancing that as we speak. At 31 March, that facility was drawn to AUD 50 million and the Wingate facility that supports the DF book was drawn to $8.5 million from a total available of $10 million. The company has seen substantial loan book growth in the financial year at a group level up AUD 9.6 million, which is 17% to AUD 64.8 million. This growth has been funded approximately 85% by borrowings and 15% with own funds. Refinancing discussions are progressing in line with expectations with new funding facilities expected to be finalized by the end of June. This will ensure QuickFee continues to be funded sufficiently to achieve sustainable profitability. With cash on hand and recent positive EBITDA quarters, QuickFee's balance sheet remains strong. I'd now like to just highlight a provision for potential credit impairment that we've experienced. In recent weeks, several clients of 1 of our U.S. firms failed to pay a finance loan installments and we have been unsuccessful in collecting approximately USD 450,000 from the firm under the guarantee that it provides as a part of our standard terms of business. We've commenced an internal investigation into the firm and its clients to establish the reasons for these defaults, extend to any credit impairment and any recovery available to QuickFee through avenues such as legal proceedings and insurance policies. The amount ultimately recoverable remains uncertain. However, the maximum exposure of this firm today is approximately USD 2.2 million, which is AUD 3.3 million. And in order to best protect the company's interests in this manner, the Board has resolved today to commence legal proceedings against the firm and its clients. So we're doing all we can to recover what we can. Based on all information that we currently have available, we've determined that we should record a provision in our books for this exposure in full and recorded a noncash credit loss expense of approximately AUD 3.3 million in the company's April financial results. We will update the market on any progress made in recovering funds, but due to confidentiality around the legal proceedings, we won't be able to provide updates on how they are proceeding. We see a very unusual circumstance of QuickFee. The firm is not in our core accounting vertical. It is an atypical firm in that respect, and its clients have been paying on time for the past 4 years. So it is a one-off occurrence. And the rest of our book remains strong, and we cannot expect to see anything like this at any time of the future. As mentioned, our underlying business continues to perform well, and excluding the credit impairment provision, we are on track to deliver our previous earnings guidance in FY '25 with EBITDA in the range of 1.5 to 2.5. However, given the uncertainty related to these loans, we've recorded the provisions for credit impairments and hence, we are amending our FY '25 EBITDA guidance by the amount of the impairment provision. So our FY '25 statutory EBITDA guidance has been amended to between negative AUD 0.8 million and negative AUD 1.8 million. So to wrap up today's presentation, we remain firmly focused on 2 key priorities: growing profitability and unlocking transformational growth in the U.S. On profitability, we're committed to driving maximum return through QuickFee's Finance and Connect, both of which is scaling effectively and delivering margin uplift. We'll continue to manage our cost base with discipline while investing in automation across the Connect product to enhance efficiency and create additional revenue opportunities. Organic growth in Australia remains steady, and we expect that to grow, and we're progressing the refinancing initiatives to support continued expansion of our loan book. In parallel, we're building for the long-term growth in the U.S., our tech infrastructure is scalable and resilient, and we're advancing key strategic partnerships to help us access new firms at scale. With the next phase of our Connect subscription model and additional integration is underway, we're positioned to further grow adoption and recurring revenue in this critical market. We're pleased with the momentum so far in FY '25, and we're confident in our ability to continue delivering strong outcomes in both the short and long term. Thank you for your time today. Please feel free to post any questions you may have in the investor hub, and we will be happy to answer them.