Raiz Invest Limited (5HK.F) Earnings Call Transcript & Summary

Good morning, everyone. My name is Kelly Humphreys, Chair of Raiz Invest. Welcome to our half year financial results webinar. At our AGM in November, we updated investors on our revised strategy to focus on core Australian operations and noted our confidence in being well positioned to successfully deliver on our strategy focused on attracting, retaining and reengaging customers, developing innovative products and services that customers value and building our brand awareness and reputation as a leading wealth management app. Very pleasingly, we're seeing improved results and running us through those results today is Brendan Malone, our Managing Director and CEO. Brendan's presentation will run for about 15 to 20 minutes, and we'll then open up for Q&A, which is being facilitated today by Katie Mackenzie, Investor Relations. [Operator Instructions] If we don't have time to get through all of the questions today, Brendan will be happy to reach out to you directly following on from the webinar. Over to you, Brendan.

Good morning, and thank you, Kelly. Good morning, fellow shareholders, and welcome to the investor update on the Raiz Invest Limited's half year financials for the period ended 31st December 2023, as released on the ASX earlier this morning. This morning, I'll talk through an overview of the financial results and highlights to show that the focus on our core strategy is delivering growth in customers, growth in revenue with positive operating cash flows over the period as we approach a positive inflection point in the business. It is clear we are tracking towards a positive EBITDA. And we'll run through our product offering, showing that we continue to innovate and deliver product development to make sure we deliver the right product at the right stage of our customers' wealth journey. These results reflect our focus on investment in the right places, including a marketing and reengagement strategy together with product development and continued listening to our customers. We remain very confident in the significant growth potential in the Australian market. Before we get into the details, I'll take this opportunity to thank the shareholders for your continued support but also the Raiz team and the Raiz Board members for the great amount of work and determination over the last 12 months to get the company into this position. All right. Let's go through our presentation. Some very good highlights on this page. And I think the subheading of a strong start to half 2 FY '24 is very important as we look forward and where we're heading. The H1 FY '24 key highlights include strong revenue growth with the Raiz Platform revenue up 22% on prior corresponding period to $10.7 million. Our active customers were up 2% over the year to 293,000 at the end of December. Our annualized average revenue per user, or ARPU, as [ you all ] will refer to later in [ this ] presentation, is up 21% to $69 in the half -- first half of FY '24 compared to 57% as at 30th June or FY '23. The Raiz funds under management continues to grow, up 17% on the prior comparison period to $1.2 billion. Revenue growth has been strong, but we've also continued to focus on disciplined cost control with total expenses being down 12% on the prior comparison period. All this adds up to tracking towards a positive EBITDA, with the EBITDA loss being reduced by 85% over the period to -- down from $3 million in the first half of FY '23. Our cash position is healthy, with our cash from operating activities over the period of positive $1.1 million. There has been significant improvement in profitability with the losses attributable to the parent entity of $1.5 million, which is well down on the $4.2 million from the prior comparison period. And as I said, this has shown a strong start to the second half of FY '24 with Australian active customers well over the 300,000, now at 301,580, and funds under management at $1.3 billion as at Friday's close of business, 23rd of February. Some key metrics here in the Australian business, in particular, is the active customer that is up 3% since the 31st of December. It's 3% for the month of January and February, to the 23rd of February. Our FUM as well has increased 6%, showing new inflows over this period with our new customer acquisition. And the average annualized revenue per user is up to a nice healthy $69. I think that shows some key strength in the relationships and the customer service and feedback that we provide to our customers. On the financial side, Raiz revenue -- on the revenue side of the P&L were up 22%, which is a significant improvement. I won't go through those -- these numbers, but I think there's a few things I'd like to talk about, and one of them is the reduction in costs that we saw professional fees down 54% and employees -- employee benefits down 16%. And the question that we always get asked is our marketing expense. It did increase 12.7% or 13% to $2.7 million over the period. But it does include $1.3 million of noncash Seven West Media spend and we'll come to that later in the presentation. But with that, our other marketing expenses did decrease over the period of -- by 19.6% or 20% over the prior comparison period as we refocus our marketing strategy and reengagement exercises. The balance sheet remained stable. I think the important there is that our cash and cash equivalents are totaling $8.5 million. So we're moving in the right direction there, especially with the operating cash flows over the quarter as we stream together quarter-on-quarter in close. And there's the cash flow there. Now just coming back to a high level of where we are in Raiz at a glance. Just remember, we break down the barriers for first-time investors for as little as $5, offering a range of investment portfolios. Now we offer nine portfolios ranging from the original conservative to aggressive as well as Emerald, which is our socially responsibly themed portfolio; the Sapphire, which gives a 5% allocation to Bitcoin. We also now, this last financial year, increase the opportunity on our property portfolio, which is our own Australian residential property fund. And we have what we released on the 1st of August, and we'll talk a bit more about later is the Raiz Plus portfolio. So all this is accumulating in the last 12 months of the hard work to bring our customer base now or active customer base in Australia to over 301,000 people and funds of $1.3 billion. So what are our products? There's five key products in our system at the moment: Raiz Invest, Raiz Plus, Raiz Invest Super, Raiz Rewards and Raiz Kids. What I'm very pleased to see is that we're focusing on the reengagement and the cross-sell of our customer base to make sure all our customers are aware of these various products as we have listened to our customers over the last 8 years, and delivered products and product offerings that they have requested and would like to use. So it's a very strong product suite there that we have. Investors ask me, "So where's our Raiz FUM come from?" And it's key here to show that there is various ways for our FUM to grow. And as FUM grows, engagement and retention of our customers is maintained with recurring savings goals, lump sums, roundups, super, dividends and Raiz Rewards. Important from an investor point of view in the P&L is that our revenue is independent of market performance. As we can see, circa 80% or just over 80% of our revenue is not impacted by market performance. We have four key revenue streams at this point in time. And I'd say there's a significant opportunity in all four streams going forward into the new year. One important part of the actual process that we're doing at the moment is the improvement and the proactive marketing strategy. And this is where our important relationships with Seven West Media comes in. We've continued to strengthen this relationship over the last 6 months with the Raiz Your Game campaign that went live with Trent Copeland in December 2023 or the summer of cricket as we know here on Australia. We've also worked very hard over the last 6 weeks to get the AFL and AFLW campaign live as part of the Raiz Your Game with Abbey Holmes contributing to that, which I'm very excited to see get live on 7th of March in a few weeks. Early signs of the integrated campaign as seen in our customer numbers is performing well with record new active customers in January and February this year. Our Seven West Media contract spend, as alluded to in the P&L, is a noncash expense with $2.8 million in advertising credits remaining on the balance sheet at 31st December, and we look to use these credits over the next year as they expire in January 2025. It is expecting that both the marketing campaign, and as you can see above in some of the diagrams, the Morning Show, some other work on 7NEWS, 7NEWS.com, working with 7RED and 7+, we'll use the remaining of these credits over the next 12 months. There are some images. We had Trent doing the summer of sports, summer of cricket in the middle, and we've got Abbey Holmes coming up from the 7th of March in a strong campaign moving forward. So where is the opportunity in the Australian business -- in the Australian market? Raiz breaks down these barriers to investing for first-time investors while delivering financial education and hands-on experience. As you can see from the diagram on the bottom right, we have -- we've referred to this previously, our customer funnel. We have 1.5 million Australians signed up. We have 695,000 investment accounts on the Australian platform, and we have an active user base now of 301,000. There is a big opportunity to reengage that circa 400,000 or 390,000-plus between active users and investment accounts. What we need them to realize and what the Seven West campaign is going to do is not only bring new customers into the funnel but create brand awareness for the customers that may have used us previously but are inactive at the moment. And the campaign that Emma and her team are working on to deliver the Seven West campaign for brand awareness, but also reengagement is key to the opportunity and the significant opportunity that we can see in the Australian market. And the graph on the left shows where we're sitting at 300,000 customers with 1.3 million investors -- online investors, and we see there's a massive opportunity as our product suite grows to capture more of these customers. So the strategy to maximize our lifetime value. This is key in our core strategy. And as you can see, we have a wide breadth of customer base in our system. And what we're trying to do is to build the pipeline through Raiz Kids, attract them early, engage parents and create brand awareness. We have market-leading products with first-time investors, but that's not all. We also have a broader product range appealing to wealth accumulators, and that is the millennials and the Gen Xs as they go through their financial services journey, all through these life cycles, our customers' support do a very good job in creating brand and loyalty and trust with our customers and therefore driving and keeping retention of our customer base, which we're really proud of. So there is a big spotlight on our Raiz Invest Super product with the opportunity to engage first-time investors through their wealth journey. As you can see, Raiz only has a very small sliver of the superannuation pool out there in the Australian market. There is a huge opportunity, and we're working with various partners at the moment for new channels of acquisition for our super customers. I think it's important to remember that we have never actually spent money or any cash or expenses on superannuation acquisition activities or campaigns through the cycle of Raiz. We've now offered the Raiz Super product for 5 years, and we've done very well, as you can see, at least over the last 12 months to accumulate our $250 million of Australian super, which can only grow. So there's a massive opportunity. There's a massive reengagement. We are working very hard on the app, the app flow and the registration process to make sure all our customers are aware of the different products that we have. And we see Raiz Super as a huge opportunity moving forward. We've also got some very excitement -- very exciting innovative product development in the process at the moment and we're working very hard with our trustee so that we can have the Raiz Plus product, which allows ASX-listed stocks, ETFs quoted on the ASX and our residential property fund in the -- customers can customize their own superannuation plus portfolio. So where do we sit in the competitive market? I think it's fair to say that anybody taking retail deposits at the moment can be seen as a customer. But with our direct peers, I think this table highlights the penetration and the trust and the relationship we have with our customers over time as we continue to push -- improve customer development -- improve customer service and product development for the retention and retaining of these customers. So as you all know, we've redefined our strategy over the last 12, 14 months, and we aim to consistently deliver on our strategy, and I think these numbers today show this. We want to maintain best-in-class infrastructure. We're focusing on our Australian business. We want to continue a low cost of acquisition, at the same time of increasing the lifetime value of our customers, and above all, maintaining a discipline on our costs, which we've managed to achieve. Executing on our strategy is key. We've used this slide previously in our AGM to remind our shareholders that we do have a structure and we are executing on it. We want to focus on five key pillars, one of them being customer growth and experience. And I think the numbers that are coming through now for the start of the H2 FY '24 shows this, and we're well on our path to 500,000 active customers that we said last year over the next 3 years. We continue with the brand awareness that Seven West partnership is delivering to drive attraction conversion but also retention. We've got a strong outlook on maintaining our brand and reputation, and that is key to deepen the trust and brand loyalty with our customers. There, we have strong and robust systems and it's front of mind for all our staff on our infrastructure for the financial security of our customers. The exceptional product development and service. As I mentioned earlier, we continue to listen to our customers and that is key. We define our product road map based on our customer feedback. The Australian business is generating positive cash flow -- is developing -- is generating positive operating cash flow to support further investment and growth in our product offering. We want to cross-sell, increase reengagement and develop partnerships to grow the super product, as I mentioned. And then above all, we want to make sure we're here for the long run with a sustainable organization, with the efficient use of capital and prudent cost savings to focus on TSR and EPS. The team is doing well. The team is very culturally driven to deliver the benefits for our customers, and I'm looking forward to working with the team moving forward. So a couple of six quick phrase investment highlights. We are the #1 leading platform in Australia with a highly engaged digital investment base, unlocking financial freedom and driving customer growth, and the business is scalable. Above all, we are aiming to focus on the lifetime value and nurture the relationship. We now have an experienced marketing team, we're driving new channels for opportunities with strong customer retention, delivering our revenue growth. There is exceptional customer service. And as I say, to the frontline team, it's them that are making the difference. We have a strong and well-credentialed management team with extensive financial markets and technology experience. Innovation, we listen to our customers with a robust pipeline ahead of us with significant cross-sell opportunities to capitalize on our data-rich product suite. We do have the best-in-class technology with a proprietary full-stack tax platform, enabling growth and providing customer data analytics. And then as we've mentioned, we're on path to a positive EBITDA. The first step to that was the operating activities cash flow positive, which has now been for 2 quarters leading into December 2023. Katie, on that note, I'll hand over to you for any questions.

Thanks so much, Brendan, for that interesting presentation and the comprehensive update. [Operator Instructions] So Brendan, we have had a few investor questions coming sort of prior to the webinar on Indonesia. So in the announcement today, you say that you are advancing the process to transfer equity ownership to cease further obligations with respect to Indonesia. Can you provide a little bit more detail on what is happening?

Yes. So as the note says, and I do refer any investors to our previous announcements dated the 18th of January 2024 at the 4C or the Indonesian update specifically issued on the 21st of December, we are along the lines -- we are in budget and pretty much on track to reduce our equity holdings in the Indonesian business as soon as possible. And we're going to -- in line with any disclosure requirements, as we've said, we'll get any updates out as soon as possible, but the paperwork has progressed since the last announcement on the 8th of January.

Okay. Thank you. Thanks for that. We have also had several questions coming -- relating to customer growth moving forward. And sort of specifically, where do you see that customer growth coming from?

That's a good question, and that's a question I get asked a lot. And I think the huge opportunity in the Australian market ahead of us with various different channels of customer growth. As I mentioned, the Seven West Media campaign, which is the Raiz Your Game campaign kicking off on the 7th of March with five different ad formats across the 7 months of the AFL and AFLW season, culminating even in an ad spot in the grand final in September. This campaign will provide not only the top of funnel for new customers, but it also provides brand awareness for our existing customers or our inactive customers to remind them of our product suite. At the same time, as I mentioned, because the team is working hard to use our data and to focus on the reengagement activities to make sure all our previously active customers that are now inactive are aware of the wider product suite that we now have. I think if you -- I think it was Slide 16 previously that I just went through showing that there is around 390,000 potential active customers for reengagement in our environment.

Okay. And there has been no further questions come through. So I think we will wrap it up there. Thank you for your presentation and thank you to everybody who joined the call today. We appreciate your interest in Raiz and certainly feel free to reach out to Brendan or myself if you got any further questions Thanks, everybody. Have a great day.

Thanks, Katie. Thank you, all.

Thanks.