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

Good morning, ladies and gentlemen. Thank you for attending the shareholder update. Last week, we announced that we've secured the funding to bring our RentBond product in-house. RentBond has been one of our star products for a while now, and we've managed to grow the demand for it quite significantly, doubling application volume compared to 2 years ago. So it made sense for us to see if there's a better way for us to make use of this customer demand, especially since we already have the staff with the relevant experience, the licensing, compliance, platform processing capability, et cetera, within our RentPay platform. Before we delve into that, let me just give you a bit of background on RentBond first. One of the most stressful and expensive periods anyone goes through is when they move in-house. For renters, the whole time line is even more condensed than for someone buying a house. From starting a search for a property through to moving takes roughly 6 weeks on average. And once someone has been accepted for a property, they cannot hang around, especially in the tight rental market like we currently have. Property managers expect the renter to deposit the bond and 2 weeks' rent in advance just to secure the property, but their existing bond is still kept by the previous property manager until after they've moved out. So they have the gap. And this is where RentBond shines. While most renters will repay the loan over its normal term, which is on average about 12 months, a renter can repay the RentBond loan in full within 21 days, for example, if they get their previous bond back, and they won't incur any costs at all. The first issue most new businesses need to solve is where to get customers, but we don't have that problem. RentBond was launched in 2014. And while we've had a series of funding partners, we've been able to continuously operate throughout that time, including during the COVID period. To date, we've helped more than 37,000 customers secure a home over that period and with around $1 million in loans per month being advanced, a total of $84 million in bond loans to date. Over the past 2 years, we've opened up RentBond to referral partners, and now we have twice the volume of applicants than we did in FY '22. But we've also seen higher percentages of customers drop out when we pass them across to our funder's website. By bringing the whole process in-house, keeping them on the RentPay -- on the RentBond platform rather, we expect that we can use the data they've already given us for their rental application and make the whole process a lot smoother, and therefore, we can get more customers through to the point where we can actually decide on whether to lend them money or not. So we expect that we can grow volumes above that current $1 million a month without relaxing our credit rules at all. And on the subject of credit rules, the fact that often surprises people is who the typical RentBond customer is. The biggest segment that we have is what we call the Whistlestop Warren person. So typically, this is a late 30s to -- sorry, late 20s to early 30s couple or a young family, and they're saving for their forever home. They see dipping into their savings as a slippery slope and are happy to take it -- out a 12-month loan to smooth their cash flow and not distract them from that longer-term saving for a house deposit. We see this reflected in the good quality -- good credit quality of the average applicant. About 65% of borrowers have more than -- a credit score of more than $500 (sic) [ 500 ]. For these customers, RentBond operates in an underserved space. Most banks and larger nonbank lenders don't want to less lend than $5,000 or for terms less than 24 months. At the other end of the scale, you've got payday lenders who lend amounts that are too small to cover the deposit or bond and are much more expensive. RentBond sits squarely in the middle of that gap with an average loan just over $3,000 and for an average term of about 12 months. Now for us, that 12-month average term and a smaller loan size is a perfect balance that's great for cash flow, and so it's a win-win situation. While most RentBond applicants have good credit and most have already been approved for a property by a real estate agent, RentBond is not for everyone. We won't lend money to people with bad credit or to people who cannot afford to repay the loan. Not only is that not compliant, but it's just bad business. To ensure we're making the best possible decisions, we're using Experian's PowerCurve platform, which is used by many other lenders in the space and accessing credit, bank account, transaction data from their sister company, illion, and we're also using their greenID for ID verification and fraud alerts. These all plug into the new user flow, which is fully within our platform, to deliver a seamless experience for customers. Where they've consented to, we have -- and we have the information, we will pre-fill as much of the application as possible for the customer to verify. And if we can't help them, we will seamlessly deliver them to a panel of alternate lenders to maximize their chance of getting a loan. We not only have the customers and the systems already, but we also have a team that knows how to operate a lending business. Across each of the key focus areas, we have managers who are skilled and experienced in consumer lending, and they're supported by team members that also have relevant experience. Via our RentPay platform, we've already processed more than $0.5 billion in payments, averaging at around $6 million per week. So we definitely have the skills and experience to make a success of this. And what success looks like is we expect the improved process and the ability to offer tailored offers to renters to be a boost for our customers, but there is a significant benefit for us, too. Based on an average loan of just over $3,000, we expect to earn up to 6x the revenue over the life of the loan than we do today. Of course, the key lies in the phrase life of the loan. In the first month, as you can see on the chart on the left, we will earn less revenue than we do today; but by month 2, if you look at the chart on the right, we'll actually be ahead. And by the end of month 12, we've earned 6x the revenue that we do today. And it's not just the revenue but the nature of the revenue that's important for us. We know that the rental sector is both seasonal and cyclical, in other words, big swings from 1 quarter to the next and from 1 year to the next. Our aim of getting more consistent recurring revenue was a key driver behind us launching RentPay a couple of years ago, and RentBond accelerates that transition to recurring revenue for us. RentBond is also right at the heart of the critical moving phase, so it should improve our ability to attach other products at the same time, such as RentConnect or getting people onto the RentPay platform. As I mentioned earlier, the rental market is very seasonal and the transactional nature of the revenue from our Rent.com.au site, which caters to the 5% of renters that are moving at any point in time, is susceptible to the seasonality, and you've all seen this in our results in the past. To address the other 95% of renters who are not moving or what we call in tenancy and to start generating recurring revenue streams, we launched RentPay. There's a lot more growth to come from RentPay, both through increases in customer numbers as well as in ARPU via greater usage of the platform as well as adding new products and features to that platform. Bringing RentBond in-house is another mechanism by which we can engage our rental customers over a longer period. As I mentioned, the average term of a loan is 12 months, but the loan term ranges from 3 to 24 months. RentBond also generates recurring revenue streams, and it's our intention to keep growing recurring revenues so that will comprise more than 2/3 of Rent Group revenue in the future, making sure that we are insulated from seasonal swings. And that transition has already started. And why is recurring revenue so important to us? Well, we just have to look at the biggest businesses in the world to see that the effects of stable recurring revenues have a significant impact on the company's valuation. From Netflix and Spotify through to homegrown businesses like Atlassian and Canva, recurring revenues drive value. We're still pretty early in that transition, and total revenue is still more important to us than specifically where it comes from. But RentPay is already generating annualized recurring revenue of more than $1 million, and recurring revenue comprises more than 1/4 of Rent Group revenue today. We've also recently signed an agreement with CoreLogic to license some of our data for them to use in their data products. This is also recurrent in nature. Effectively, it's a subscription and is expected to go live in July 2025 and last for 36 months. In the short term, we'll continue to prioritize total revenue as we drive towards profitability, but wherever we can, we will seek to add subscription-style revenue to our mix. I'll try to keep that relatively short and sweet and give you a bit of background on RentBond and why we're transitioning to this, but I'll throw it open to shareholder questions now. [Operator Instructions] While you do that, thanks to the people that sent questions into our [email protected] inbox. As always, don't hesitate to send us questions. It doesn't have to be during the webinar, but it can be afterwards as well.

So the first question I had comes from [ Andrew ]. He's actually asked 2 questions. So the first one is, specifically, can management please outline the company's primary strategy for scaling its customer base over the next 12 to 24 months. Specifically, what channels or partnerships are being prioritized to drive meaningful user and revenue growth? Well, [ Andrew ], our immediate focus in the next 6 months is getting RentBond in-house and running the way it is at the moment, so that -- we expect to keep adding customers at the current rate of about 300 to 400 loans per month. But we expect, as I mentioned before, by bringing it in-house and having a much smoother user flow, we expect to significantly increase those volumes. We have almost 60% of customers drop out between starting an application and getting to the point where we can make a credit decision today. So we expect that we can grow significantly just from that, but we will maintain our referral partnerships as well. For RentPay, agents remain our primary channel, specifically the large pipeline that we have where we've already got agents signed up but not their entire rent roll is using RentPay. We need to work harder in closing this. But we will continue to do industry events and conferences. And long term, we've seen that about 20% to 25% of our RentPay users are organic, i.e., they come off the street and the other 80% comes from real estate agents. And so we expect to continue seeing that trend over the next 12 to 24 months. The second question from [ Andrew ] is does the Board see Rent.com.au or any of its platforms, RentPay, RentBond, et cetera, as continuing to grow as a stand-alone platform. Or is there a strategic intent to integrate with or be acquired by a major player in the real estate tech sector, such as REA or Domain? Now [ Andrew ], I can't speak for REA and Domain. They've got their own agendas and issues. Domain is currently in the process of being taken over by a U.S. company. REA has got ACCC issues. That's for them to comment on. From our side, we're focused on building a large and empowered renting community, and we think we're well on the way there. And certainly, I wouldn't want somebody to come in and lob a bid for Rent.com.au of its current valuation. We believe, obviously, that we're well undervalued. And we're determined to prove that that's the case by showing the results that follow. Another question in from [ David ]. Can you provide specific measurable targets for RentBond loan volumes, rent per user growth and expected revenue from a possible data partnership over the next 6 to 12 months and how those metrics tie into a breakeven time line? I guess the main thing there is there's a lot of rules around the ASX -- or from the ASX about giving specific forecasts. So I am going to duck that one a little bit. What I can point to is this presentation will be going up on the ASX shortly. Management have been issued some incentive targets, which include having EBITDA breakeven at specific dates, and that's probably as much guidance as I can offer on that at this point. A question from [ Jason ]. A significant proportion of RentBond users that applied to the previous provider were rejected. Even experienced financial providers have over 90-day arrears of 2% to 4% and loan write-offs of 2% or more. How will Rent manage this group? And what is Rent's expectations regarding an acceptable write-off percentage of loans? Well, [ Jason ], you're right. While we are going to be very strict in terms of who we approve for a loan, and we do see really good credit quality customers come through, there will inevitably be some customers that, for whatever reason, fall behind in their payments. We would expect that loss rates would be similar to industry standards, and that's our understanding of what the current performance is. And so I'm kind of, I guess, guiding you towards that sort of 2% to 4% range. Our strategy for mitigating that is we are one of the few that will be doing positive credit reporting. So if a customer keeps their account in good standing, we will be reporting that to the credit bureaus so that the customers are rewarded for making payments on time. So it's not just about the stick of defaulting them if they don't pay. There's the carrot of building their credit score as well. As I mentioned before, a big segment of our customers actually do have the money. It's just tied up in sort of their savings for a house deposit. Those customers are not prepared to risk a default when they're getting ready to apply for a home loan. So we do expect good performance from that. Obviously, we will have -- and we currently already have staff in-house because we do follow up on RentPay payments that are missed, although the responsibility there ultimately lies with the real estate agent. But the point is that we've got people that are experienced at collecting money already in-house, and so we will continue working on that and refining our processes there. We'll just give another few minutes for any questions to come through, but that's all that we've had so far. As I mentioned, this presentation will be on the ASX platform shortly. The recording of this video will also be made available to all shareholders via our website, which is investors.rent.com.au. If ever you have any questions, please feel free to e-mail them to [email protected], and we'll try and respond to you as soon as we can. But thank you for your attendance this morning. Thank you for your support, and onwards and upwards from here. Goodbye, everyone.