Rent.com.au Limited (RNT.AX) Earnings Call Transcript & Summary

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Thanks Sam. Thank you very much, everyone, for attending online today. I know we've received some questions e-mailed to us. And as Sam said, if there's any questions about the presentation, please use the Q&A function, and we'll read them out at the conclusion of the presentation. Many of you already have seen us, but essentially Rent.com.au exists to make renting more rewarding. By -- what we mean by that is that it's the whole experience of renting that we want to make better. It's not just about providing rewards points, but it's about empowering renters to provide them with innovative ways to pay their bond, rent bills and more, becoming the destination of choice for Australia's renters, who are a huge and underserved audience. Why renting? Well, it's a huge addressable market for us. The population is growing rapidly in Australia and the population of renters or the proportion of renters renting is increasing as well. This has been a long-term trend, and we see it growing to the same as comparable countries like Canada and the U.K., where you've got the mid-40% are renters. Already in our capital cities, we see that more than 50% of people rent. Predominantly, these people are fairly young. Our sweet spot of renter is between 25 and 35 years old. They are young professionals. They are definitely not sort of your [ poor darn in their heels ] person. They're actually pretty well off but are choosing to rent for logical lifestyle reasons. Importantly, they pay $85 billion of rent per year. And every month, more than $200 million in bonds are lodged. To put that in context, we are right at the start of our monetization journey there. Currently, we do about $1 million of bond loans per month. So that's 0.5% of the market share. While we don't think 100% of all bonds will ever be financed, we know that there's still a lot of way for us to grow. More and more of our business is geared towards focusing on renters who are in tenancy. And the reason for that is that's where 95% of renters are. Only 5% of renters at any point in time are searching for or applying and moving into a property. The other 95% are already in tenancy. And for us to make a meaningful difference to renting and make that whole renting process more rewarding, we need to focus more on the tenancy period. This has advantages for us as a business as well because rather than the existing transactional revenue streams that we get through Rent.com.au, we can build solid recurring revenue streams through that tenancy period. Our products that we offer in that space today are RentBond and RentPay. And RentBond, in particular, is -- it actually bridges the gap between the moving period and the tenancy period beautifully. And it provides the platform for us to then add further value through insurance, savings, investments and other services. We've already made a step change in revenue across the course of this year compared to last year, averaging over $300,000 in revenue per month. A lot of that's been driven by RentPay. And as you can see on the chart on the right-hand side, that quarterly recurring revenue has doubled over the last year with minimal impact from RentBond yet because we've only launched that a couple of months ago. Predominantly, that is driven by the 66% year-over-year growth in RentPay revenues. Looking back on the last year, it's been transformational, and I know that word gets bandied around a lot, but we've really set a strong platform for more growth. We're well capitalized. We have a $10 million debt facility from Eldium Income Fund. We've consistently executed against our strategy, and that has translated into share price growth, which provides greater access to capital, and we see that through the strong early exercise of options that has generated more than $5 million already. In total, that's given us a $12.5 million war chest to accelerate our growth to well past expected cash flow breakeven. As I've just touched on, we've also doubled recurring revenue, and that's been driven by RentPay. With RentBond now brought in-house, we expect to see that growth further accelerate through recurring revenues from RentBond. We've built resilience in our revenue streams. In the last quarter, 47% of group revenue was from recurring revenues compared to a year ago where that was just 29%. By the end of June 2026, we're expecting more than 70% of group revenue to be from recurring sources. Recurring revenue is a bit -- I guess that's kind of the real secret in the sauce for us here, and that sets us up for another step change in revenue. Bringing RentBond in-house allows us to generate 6x the revenue per loan compared to the previous model. And that just keeps compounding as we grow both customers as well as the overall loan book. We've already seen 27% revenue growth for the full business over that year-over-year, and that RentBond has not yet played a big role in that. Overall, we're targeting a doubling of total monthly group revenue from the current base of $300,000 per month to about $600,000 by December 2026. Just a little bit on RentBond, and many of you will be familiar with this, but it is an award-winning renter-first product that solves a universal pain point. It's a real -- for me, it's a real indication of how our philosophy works. We've taken what is essentially a pretty standard product in terms of a personal loan, and we've tailored it to meet renter-specific needs and appeal to them. RentBond solves the bond gap. So where a renter has to put down 4 weeks' worth of rent in terms of bonds, they also have to put 2 weeks rent-in-advance down. And that's a pretty sizable outlying cash when they haven't had their bond released from their previous property yet. In addition to that, they can also cover moving costs and things like that. We don't take any security over that loan. And we don't -- importantly, we don't get in the way of normal real estate agency processes. So we don't get involved with the government and have a fight with them over who owns the bond and things like that. It just works completely seamlessly, and that's been a big secret to its success. We've leveraged our existing capabilities to be able to launch this fairly quickly. We only got the funding approval at the end of May, but already by the end of July, we were writing our first loans. The reason we were able to do that so quickly is we've got existing management experience in consumer lending. We've got existing payments and compliance capability within RentPay. For many years, RentPay has had its own credit license. It is a financial product. So it's got an AFSL. It's a representative under an AFSL, and it processes more than $6 million in payments every week. Importantly, for us, we also had existing customer demand. We've been offering RentBond for 10 years and have over 4,000 people applying for loans every single month. So we didn't have to go and find customers, we just had to convert them better, and we're on track with that. So the new things we needed to get were the debt facility, which we -- as I mentioned, agreed with Eldium at the end of May and finalize that by the end of July. We've also added credit assessment tools from Experian, who are a market leader in the space to complement the knowledge that we've gained from over 10 years of offering RentBond. A key thing for us, though, is making sure that this product doesn't just work for Rent.com.au, it absolutely needs to work for our renter customers, too. Very pleasingly, since we've launched, we've yet to receive any bad ratings on RentBond. Predominantly, we get 5-star ratings because we are providing a genuine service, and we will continue to do that as far as we possibly can. As I mentioned before, we expect to earn 6x the revenue per average loan compared to the model before. Previously, we used to earn just over $200 per loan in month 1. Now we actually earn revenue from a customer in January is still providing us revenue in December, and that keeps compounding. So month 2, month 3, month 4, month 5, et cetera, that revenue just keeps compounding so that by the end of month 12, not only as on a per loan basis, are we earning 6x the revenue, but actually our entire group revenue is improving as well. As we can see, and look, I'm not comparing ourselves directly with the likes of Amazon and many of the other top 10 companies in the world, but most of those are built off solid recurring revenues. And so companies with solid recurring revenues can expect far greater valuation multiples than those with variable transaction size revenues. Many questions have been asked in sort of recent weeks and months is, where to -- where can RentBond get to? Well, we're already seeing growth because we've got that current base that we've brought in-house, and that's been proven over 10 years of offering the product. But broadly, you can kind of think of the, I guess, sort of the axis along which we can expand RedBond as being sort of improving the margins and improving sort of product and the other one is adding more customers. Opportunities for us to optimize our existing customer base and get more of those 4,000 people per month into loans. We currently only write about 300 to 400 loans per month out of those 4,000. So there's much better room for us to work there, getting smarter with our decision-making, getting smarter with our user experience. We're looking at expanding and adding more partnerships. We already have a number of key partnerships in the industry that provide leads for us. We've recently started a trial with Gumtree, and they're rolling that out progressively across their platform. And we're in discussions with a number of large real estate portals for them to also offer RentBond to their customers. We haven't yet done any marketing around RentBond, but that is an opportunity for us, but we've got plenty of customers to be converting before we get to that point, but it is another lever, and there are other options as well. We've also -- as a first-time lender, we -- while we really benefit from the fact that we've got the facility through Eldium, there are opportunities as we prove up our capability in this space for us to lower that cost of funds. The capital that we've got through the options allows us to immediately start doing some of that, but there are further opportunities to keep lowering that cost of funds, which allow us to -- and that falls straight to the bottom line in terms of profitability. We've got the opportunity to add other credit products in there and further product extensions as well, including cross-selling to other products that we offer in our platform like utility connections, getting more customers using RentPay and additional future products that I've alluded to around insurance and savings, et cetera. That capital boost from the options really allows us to not only accelerate revenue, but it also brings forward positive operating cash flow through lowering the cost of funds immediately. On to our other tenancy product, which is RentPay. Essentially, what RentPay is about is payment choice and flexibility for a renter. So for example, what we mean by choice is we see a big proportion of the renters that use our platform choosing to use Mastercard credit -- Mastercard, Visa, PayPal, et cetera, to pay their rent rather than traditional forms like direct debit or bank transfer. Obviously, those are still available to people, but we're seeing that flexibility and choice really kind of shining. We also allow flexibility in terms of scheduling. So for example, you may be a graphic designer that invoices your clients once a month. So the proposition to you is when your clients pay you, why don't you keep your rent money aside in your RentPay wallet, and we'll make sure that the agent gets paid on time every time from that. Agents hate having to deal with dribs and drabs and inconsistent amounts of money and having to reconcile that. So we -- I guess, bridge that gap for them. On top of that, we provide cash backs and rewards. Now these are fairly vanilla offerings at this point in time, but we're looking at expanding those through additional partnerships to add more value to renters. The third offering for a renter at the moment is building credit score. In Australia today, your rent does not count towards overall credit. Even though you may be paying the same amount of rent as a mortgage holder, somebody with a mortgage gets a much better benefit from credit score than a renter does. So how we're bridging that gap is we've provided a line of credit to renters. It is optional, obviously. But if they have that line of credit, we report to credit agencies every month to increment their credit score. On the agent side, they get fast receipting notice on us. So we make sure that funds are 100% cleared before we pay it across to the real estate agents, and we provide batch receipting, which allows them to just upload that into their property management system and it automates the trust account reconciliation. Through that and by encouraging renters to prepay rent, et cetera, agents have less chasing that they need to do. And we've proven in a number of case studies that we can lower arrears to as much as 50% less arrears for RentPay customers than others. And because 25% of our users use the product without any agent intervention at all, agents can really position us to their renters as the payment app that renters want to use. We've had consistent growth in terms of both average revenue per user as well as overall customer numbers for RentPay, although I think it is no secret that we would like the customer numbers to be far greater. And many questions I've had recently have been around, well, do we need to persist with RentPay? The answer is unequivocally yes. It is a very big addressable market, as I mentioned before, $85 billion of rent paid per year. We've had a look at this and the opportunities for us are still similar to RentBond are along adding more customers and improving the product and margins. We know that our platform is built. It works beautifully. We process more than $6 million of payments every single week. So that works. So any development we do need to do is purely margin-accretive products that need to be added. Immediately, we've got a number of ways that we can improve our existing payment margins. We've been appointed as a consumer bill services provider. So that allows us to add a margin to credit card payments, which we haven't previously been able to do. We've done a lot of research around what some customer-led product extensions could look like, things like share housing, introducing insurances, savings products, things like that are all on the table for us, and we're evaluating all of those. But probably a big area we haven't really tapped into yet is partnerships. If we look at sort of comparable businesses and certainly the early days of Rent.com.au's growth, advertising and media partnerships were a big catalyst for growth in that space, and we kind of see similar happening with RentPay. On the customer access, there needs to be greater alignment of price and value. And while that's a fairly vague term, allow me to explain that a little bit. What we have at the moment is a pricing structure that we've tried to match for both real estate agents and tenants on a simple $2 per month subscription, everybody pays the same amount, whereas we know that people are getting different value. We know that renters do not see the value in paying $2 a month for the benefit of a direct debit, for example, or a bank transfer, which are methods that they can use for free through their bank. So clearly, they're not getting value through that. So we're not looking to charge them for that. However, where they do access choice in terms of payments, choice in terms of scheduling and additional products and services that we're looking to do, we will introduce tiered products that allow them to do that. From an agency perspective, again, we need to provide value there, and we need to provide a simpler pricing structure, and we're exploring that. We see these relatively modest amendments being able to drive more customer growth, address any churn that we do have and build a solid platform where we can then extend as we benefit from the improved margins, et cetera, we've got a great platform to build. Referral partnerships still play a big part in that, and we will continue to work with agency groups for them to promote RentPay through their networks. We've never really done any consumer marketing around RentPay. So that is another thing that we've got on the table. But before we get to that point, we need to fix the pricing structure and make sure that we can provide a direct nexus between cost and value to a customer. Beyond that, there are other opportunities for us around adding customers to our home network. We've previously spoken about these targets, and pleasingly, we're on track for them. We've said that we want to double our monthly revenue by the end of 2026, so Q2 FY '27, we expect to see a doubling of our current revenues. By that same point, we expect to be positive from an EBITDA perspective for the whole group, not just the rental company part of the business. And we expect more than 70% of revenue to be from recurring sources. The confidence we have around achieving those goals are we're already seeing through the 3 months that we've been offering RentBond, we're already seeing that on a per loan basis, we are generating around 6x the revenue per loan. RentPay revenue is growing beautifully. Collectively, those are driving a doubling in recurring revenues, and we've added things like the data subscription from CoreLogic and other partnership revenue that is on a subscription basis that's driven that 106% year-over-year recurring revenue growth. With an additional $5 million of option money that's come in over the recent months, along with the $6 million that we have from -- left undrawn on the Eldium facility, we've got a huge war chest to accelerate growth and get us to cash flow positive within the near future. I'll now open to any questions. Could you read them for us?

We received a number of questions from shareholders. I'll just go through them one at a time for you. First question comes from Andrew. And he asks, what is behind the early exercise of the RNTO options? And how does this change your plans?

Sorry, can you just repeat the question?

Question is, what is behind the early exercise of the RNTO options? And how does this change your plans?

Look, I think we've said -- we've laid out and we've consistently been transparent around what we're hoping to achieve. The fact that we are executing against that plan, we're achieving what we said we would, I think, has given people the confidence for us to -- that we are going to execute on the future plans, and that's why they're getting in now at a reasonable price.

Thanks, Jan. The second question comes from Mark, who asks, will the money from the options affect your funding arrangement with Eldium at all?

Look, I don't think it affects the funding arrangement with Eldium. What it does do is it does allow us to -- so today, we -- for every $100 that we lend to a customer, we're paying 15% interest on that $100. But what we may do is start moving that down. So for example, we may contribute $20 out of that $100. If we do that, we reduce our cost of funds to, say, 12% on an average basis. 15% -- 7%, that kind of thing. So it kind of allows us to keep the Eldium facility in place but improve our margins from RentBond. It also allows us to start tackling product extensions. For example, we may introduce a line of credit or something like that. Those need to be proven up. We can do that with using our own funds, and we can bank all the profit from that without having to have that funded. At such point as we've proven up the business case, we can then make a compelling case to Eldium and other funders around them financing that and at a reduced cost of funds.

Thanks, Jan. The next question comes from Steve who asks, RentBond is clearly driving momentum for the business. What is the role for RentPay going forward? Is it worth keeping?

Yes. There's a short answer to that. RentPay is definitely worth keeping. $85 billion addressable market, which we're only scratching the surface on. As I've outlined, product improvement, but yes, we definitely want to keep it.

Thanks, Jan. The next question comes from Adrian who asks, what has been holding back RentPay customer growth?