Zip Co Limited (ZIP) Earnings Call Transcript & Summary

Thank you for standing by and welcome to the Zip Co Limited Annual Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Larry Diamond, Chief Executive Officer. Please go ahead.

Thank you very much, and welcome to the Zip Co Limited Financial Year 2020 Results Presentation. 2020 has been another monumental year for Zip as we delivered a set of -- a record set of financial results whilst also navigating the unprecedented impact of COVID and also transforming the business with a number of game-changing products and business acquisitions. A big shout out to our staff who we call Zipsters, to our merchants and customers who have all been incredibly supportive and enabled these great results. With me today, I have Peter Gray, Co-Founder and Chief Operating Officer; Martin Brooke, Chief Financial Officer; and Tommy Mermelshtayn, Chief Strategy Officer. And before we start, we just would like to say we hope everyone out there is keeping safe during these times. In today's presentation, we will run through a quick refresher on the company. We'll jump into the results update and the growth levers, customers, merchants and global expansion, before looking further into the financial results and the 2021 outlook. On Slide 5, Zip's purpose is the freedom to own it. We allow customers to own the experience, the moment and their financial well-being. It also talks to our merchants, many of them SMBs, where we provide them the freedom to acquire new customers and drive conversions and level the playing field. It also speaks to our financial responsibilities that we issue micro credit in real time, and we own the responsibilities that are associated with that. And finally, it speaks to our culture, how we're architecting the company under the hood, where we provide our staff the freedom to develop, become better and equally, they are accountable back to the company. And our mission is to be the first payment choice for everyone, everywhere and every day. And clearly, we've got a long way to go. On Slide 6, about a year ago, Zip was reasonably an Australian centric buy now, pay later company. And when you fast forward 12 months, we now have a clear pathway into 5 markets. On Slide 7, if you go back to the beginning of Zip, where we started approximately 7 years ago, what we saw was a broken -- a fundamentally broken credit card model, one that was focused on customers racking up high balances with difficult terms and high revolving interest. And this aversion to the credit card, what started as a trickle, is now clearly becoming a time here in Australia. And just in the last year, over $10 billion of credit card balances were reduced, which is approximately a 20% decline year-on-year. And if we jump across to Slide 8, this phenomenon that we've seen in Australia is certainly becoming a global story and is a big reason behind our strategy shifts. If we just drill into the U.S. and the U.K. in particular, the U.S. has the lowest penetration for credit cards for under 35 since the 1980s. And in the U.K., we've seen credit cards start -- credit card growth to climb and starting to flatline. And in that market, in particular, many consumer finance offerings are still gravitating towards 30% interest terms to customers. And so we see huge opportunity for interest free. And millennials are seeing this and what's also extending into Gen Z and Gen X, and we expect these trends to continue and to, in fact, accelerate over the coming years. And so on Slide 9, when we started Zip, it was really to disrupt the unfair credit card by offering a better and fairer digital alternative. And ultimately, our model is connecting customers with retailers to this fair and value payments experience. And why we really love this space is because it really is a win-win-win. The customers, we provide payment flexibility, interest-free terms, great checkout experiences and a great mobile app. For merchants, we help drive growth, deliver them new customers, and we've started to provide more value-added services, which we'll talk about later on. And on Slide 10, although we are a payments company, we do issue micro credit in real-time and responsibility has been at the DNA of the organization since we started, a big focus on interest-free rather than interest-bearing, significant investment in our credit decisioning and running credit and ID checks on all applicants since inception, even looking at bank transactional data to really understand our customer segments. We developed a model that does not rely on customers falling behind, and we've delivered and have Pocketbook really as a key part of our tool set, which is a free app providing financial incumbents to customers. So now we'll drill into the business update on Slide 12. As I mentioned earlier, it has been a real transformational year for Zip in many, many ways. And here are the key highlights. This year, Zip really cements its position as a buy now, pay later leader. There are very few companies out there that can provide buy now, pay later services in multi jurisdictions. And we'll talk about the QuadPay acquisition, which is a key part of that. During the year, we also exceeded our target of $2.2 billion in transaction volumes and delivered positive cash EBTDA despite the investments for growth, maintaining strong cash gross profit margins at circa 50%. We also continued our push into enterprise land, developing a number of strategic partnerships with brands such as Amazon, Cotton-On, Petbarn, Bunnings and eBay for small business. We are aligning ourselves with the flights online and categories in the industries where customers are looking to spend. The brand as well saw enormous uplift. We -- from moving from 1 in 2 Aussies to now 1 in -- sorry, from 1 in 4 Aussies to 1 in 2 Aussies who now recognize the Zip brand, which just drives conversion right throughout the funnel, and we'll talk about that in a little bit more detail; while downloads and transaction numbers were up over 100%. The credit performance was a big call out during COVID, where we delivered significantly strong results outperforming management expectations and our peers. We delivered 2.24% in net bad debt. And a reminder, that's calculated as a percentage of the receivables. We also saw a decline in our arrears from 1.89% to 1.33%, which is a demonstration of the credit decisioning capability. And on the capital management side, we now have over $1 billion in receivables funding through a mix of bank warehousing and public markets. We raised $60 million last year in December. And on Monday, we will vote to close up to another $200 million in strategic equity. Now just jumping into the global story on Slide 13. On Monday at the EGM, we will be voting to complete the transaction of QuadPay, which really is a transformational acquisition for Zip. We really had to be in the U.S. It was really important for us to have the U.S. in our global footprint to really consider ourselves a global player. And we were able to align with a couple of founders over in the U.S. who interestingly built their business on the codebase, our international technology codebase. And our approach to going global is developing a coalition of founders, and we have leaders in different markets working towards a common set of goals, similar values, strong innovation. And if you look at the combined business post acquisition, we'll be growing our annualized TTV by about 40%, revenue by about 36% and customer numbers by 100%. And that shift to U.S. will also result in investment in management team below Adam and Brad and also looking to add a U.S. board member. On Slide 14, if we look at just the key results scorecard, we delivered $2.1 billion in transaction volume, up 90% year-on-year. Similarly on revenue, $161 million, which was growth of just over 90% year-on-year. We finished the year with 2.1 million customers across Australia and New Zealand. The receivables grew to $1.2 billion. And interestingly, towards the end of the year, we started to see the capital start to recycle even quicker. And with the acquisition of QuadPay, we should continue to see that. Retail partners finished at 24,500 partners and net bad debt at 2.24%. On Slide 15, Zip really is a growth company. And if you just look at the last 3 years, being able to demonstrate close to 100% CAGRs on TTV revenue customers and receivables. But what's important as a growth company is maintaining very strong unit economics at the heart of the model, which we will continue to do. When we look at COVID, so really the -- before COVID, many of us have certainly remember the year. I feel that the last 4 months have been incredibly busy in many, many ways. But I think what we've seen when we look back at incredible resilience from Zip. Our staff being able to move and adapt to remote working and maintain productivity. The business model of Zip, which has -- which is the credit card disruptor has exposure to many different sectors and industries. And I think that diversity and exposure to online and every day help drive solid results. The product construct, which we offer, which is an account concept over here in Australia allows customers the flexibility to choose their repayments whether it's weekly, fortnightly, monthly and that has been a key enabler. The robust revenue model, which drives income both from customers and merchants and our credit performance, where interestingly, we actually saw repayments significantly increased and arrears decrease, which probably wasn't our expectation at the outset of COVID, but pleasing to see those results. And finally, on the credit side, which Pete will go to in a lot more detail, as you can see, in any given month, about 1 in 100 customers are late. Contrast that with other pay laters and credit cards, which are 1 in 6, and the average credit score is higher than the big 4 credit card applicant, testament to the credit decision and capability that we have invested in over the years. And again, Pete will touch on that. And finally, on the people front, who we call Zipsters, we ended the year with 370 global Zipsters doing a lot of work on the global alignment, with a significant investment in product and engineering to really drive efficiencies and value to the hands of our customers. Over the year, we also really step changed our executive team. About 50% of our execs are new, they've been here for about 6 to 9 months and adding incredible value on the commercial side with Hamish, on the people side with Anna, the customer side with Steve, and the product engineering side with Patrick. And that may have definitely raised the bar for Zip. We'll now drill a little bit deeper into some of the segments, customers, merchants and global expansion. On the customer front -- I'm on Slide 21. We continue to invest in the mobile app. This is a really important relationship with our customers, and Zip continues to be a top Australian app loved by its users. We've now had over 2 million downloads in the region. But pleasingly, our monthly active users is around 815,000, which is just showing the growth coming from the investment in the utility, the offers, the functionality and the jobs to be done inside the native app. On Google and Apple, we're at 4.9, 4.8, and all of this is driving retransactions. And when we look at engagement, we measure engagement both in repayments as well as transactions, and we've seen some really, really strong results there. And again, this is a key focus for us as we move from web to a pure native focus. Interestingly, we've done a lot more work this year to understand our customers, a lot of research under our research function, and we continue to demonstrate that our product does have strong market fit and relevance with our customers. And it's important to build this muscle, so we really understand our customer segments. Why do customers like Zip? What are the problems that we are trying to solve? We're helping to spread out payments, help customers budget. And again, particularly Zip Pay, the idea that you can pay without interest, is resonating extremely strongly. Our sign-up processes are very strong and easy compared to the credit card and the acceptance of Zip. We're also starting to measure NPS. We had a 55 NPS score, very strong when you compare it against other financial services companies with really strong satisfaction. And this will be -- these metrics and measures, we now have a really good pulse on, and we'll be driving our product road map and thinking inside Zip. Looking at the customer cohorts on Slide 23. What's really interesting to see is that we're getting great results not just from our old loyal Zip users but also the new user cohorts. And when you look at the 2 charts on the right-hand side, what we're seeing is new cohorts are transacting 2x more than in the first year, if we just look at that as a measure, versus the older cohorts. And why that is? They're coming into a much more exciting world for a Zip user, a great app with great utility that meets the needs of them. A lot of great retailers where they shop every day and a brand that resonates a lot stronger. So it's great to see those stats and the business getting smarter and better. But equally, the older cohorts, if you just look at those that originated in -- during the FY '16, '17 year, a year later, they're transacting 1.8x more than their first year. And by the third year, they're transacting 3.5x more than the first year. So again, it's showing that the app and the environment that we deliver both online, in native app and in-store payments experiences are meeting the needs of customers and the product and [ engineering ] are really nailing there. And the app is really the cornerstone. As I've mentioned, we have about 80% who downloaded in the first month. And what started out, if you remember, Zip really was a web-based business when we first started out about 6 years ago. It's only been in the last 2, 2.5 years that we had the app, and this is continuing to demonstrate really, really strong results. And on the customer side, what's really interesting is that Zip is resonating with tech-savvy millennials, young families. If you look at the median age, it's actually 34, it's a slightly older millennial. 50% are slightly older than that bracket. And again, why? We're looking at customers that have steady incomes, want to take control of their finances, which is how the product construct works. With females, about 60%. So this year, we've seen a large number of sign-ups in the male segment. And as you can see, 80% of our transactions are now online versus in-store. And obviously, COVID has played a role in that. On Slide 25, and this has been a real success story for the business, 3 years ago, 1 in 5 Australians knew about Zip. A year ago, it was 1 in 4 and now about 1 in 2. It's important for us to keep pushing that number higher because it just improves all the conversion right from the top of funnel down to the bottom of the funnel and helps us build a really strong and respectable brand in the financial services space in Australia. And it's also starting to attract many, many different segments. So this is a great result by the business and one that we hope to see continue over the next 12 months. If you look at some of the product and engineering features that we delivered in the year, the app really has step changed this year. One of the big features that actually accelerated from customer feedback, one of the biggest problems we have is that customers, one of the reasons they don't use it is because they can't use Zip over this merchant or that merchant. So we wanted to get into the virtual card technology space. We rolled out a pilot, and we actually accelerated it for release at the outset of COVID, which allowed customers in the app to transact with merchants where Zip hadn't yet signed up. And that's been a huge success story. Interestingly, the top merchants that are being transacted are the ones that we haven't yet signed up the business, and we are actively trying to sign up. And it's been very well received by our customer segments. And finally, Pocketbook, which is one of Australia's leading nonbank financial management apps. For those of you who don't know, it's a free app. It allows customers to track budget and save, and it's all about driving financial well-being. It has had a big step change just in the last couple of months where we've refreshed the UI, look and feel. Initial results are really exciting. And giving users the ability to really stay on top of their finances is incredibly critical not just in the COVID world, where we've been able to satisfy their understanding of cash flow. But also as it relates to the services that Zip provides, and there will be some exciting projects there. It's really joining up with our product and engineering squads. I'll now hand over to Pete to take us through the merchant segment.

Thanks, Larry. As Larry touched on, we are a growth business, and one of the critical drivers or stakeholders in our business model, which allows us to accelerate rapidly, is the merchant side of the business. Unlike other buy now, pay later providers, we really are a true credit card disruptor. And we play in a significant broader range of categories than the competitive peer set. So a key strategic objective here is to continue to increase the number of merchants where Zip is directly accepted and to continue to penetrate the everyday spend verticals. Currently, Zip is directly integrated into our 25,000 merchants globally. 78% of Australian merchants now love Zip. So our average order value of Zip transactions are at $180, which demonstrates the incrementality in terms of the value proposition when compared to other payment methods. As is demonstrated in Slide 29, particularly, we have a broad penetration with regard to merchant spreads and where our consumers love to use this, including everyday spend category, bills and groceries. So again, really is a critical piece of the Zip business model to increase this acceptance piece. Talking to Slide 30. We -- a key highlight for the year was we launched Amazon Australia, that we became Amazon's first installment products at checkout in Australia, delivering on our mission to provide customers with a better everyday payment of choice. Strong innovation in terms of the product side was delivered as part of this integration. It's particularly deep integration with the tech capability delivered a very seamless onboarding and linking where Zip customers can directly link their Zip account to their Amazon wallet. This includes the display of the Zip balance on the Amazon site, allowing our customers to understand that the full capacity they have to make a purchase on Amazon. It's resonating particularly well and has certainly been noticed in the success of this program through Amazon on a global basis. More importantly, this is -- the tech that we have built here to support this integration is able to be used at other similar integrations in the future. Very excited to launch an additional piece of the merchant or the business puzzle. It's the formal launch of the Zip Business program, which essentially is a buy now, pay later and cash-based solution product for small business. It's a very large opportunity in terms of 2.3 million small to medium businesses in Australia. Many of these are underserved by the banks in need of cash flow solutions. We really are uniquely placed to penetrate and accelerate rapidly here. Many of the incumbents in this space have distressed receivables book in response to COVID, so they actually have legacy issues to deal with while we are ready to plug and play with our real-time decision technology and through our merchant platform. So what we've done in the previous 6 months, we've validated our buy now, pay later beta. And we've demonstrated a good product market with some strong demand and momentum building. We've acquired the Spotcap business, which essentially is the credit engine, which will underpin our real time decision. Spotcap has been in market since 2015 and has underwritten almost $300 million in small business credit lines. What we've seen through COVID is that there has been some clear winners in both industry vertical and channel. We have the ability to target our Zip Business launch through online merchants relatively aggressively, and they have been very successful throughout this period. And of course, what's better online merchant to partner with the launch than eBay. We're extremely pleased to formally close the eBay partnership arrangements yesterday, and we announced to market. On Slide 32, it's clearly a huge opportunity and a great relationship for Zip business to launch. eBay has 40,000 sellers on market, 80 of Australia's top 100 merchants and 2 out of every 3 of the top SMEs. So we really do have the ability to offer the suite of products, giving their merchants the freedom to purchase inventory, cover short-term expenses, including marketing campaigns and really just to manage their everyday cash flow requirements with flexible lines of credit. Even more exciting is we see this is the first in an exciting series of integrated products and solutions, which will continue to launch throughout the financial year, which really will accelerate significant opportunity for the Zip business product range. Handing back to Larry to work through our global expansion plans.

Thanks, Pete. So if we look at the third growth lever for the year, it really was all about global expansion, where we set up Integrate PartPay and invest in new markets. As we spoke about it a year ago, for us, this phenomenon is happening globally. The opportunity is significant, and we have to take our learnings abroad. And so -- and as we sit here today, we obviously have Australia and New Zealand going well. We'll be launching the U.K. later in the year. And we always knew that PartPay would lead us to QuadPay. That was all part of the plan. Glad that we were able to execute on that strategy. There were a lot of questions last year and the year before. Why don't we go to the U.S.? Why don't we go in the U.S.? So we're very pleased that we were able to partner with Adam and Brad over there. And we've also invested significantly in a new market function under Tommy really to help us move abroad, explore new markets, look at new opportunities and help build a global presence. And as part of that, we've been investing in the technology. One of the big pieces has been the development of a single merchant interface, which allows us to -- allows us to partner with merchants, particularly global multi-jurisdiction merchants through a single integration. And we know that retail players are increasingly looking for global solutions. Customer across border of the world, is globalized when it comes to payments, and this is a key piece of that artillery. And the first merchant that we delivered onto that global API platform was at Cotton-On, which is now live in all 5 markets -- or 4 markets and the U.S. coming soon. Now we gave a little bit of an update to the U.S. earlier in the week. And again, we will be voting at the EGM this coming Monday. The Quad business, a bit of an update there. They did USD 70 million last month, which is up about 30% on the quarter-to-quarter average, with over 130,000 customers joining the platform. Their customer numbers are really accelerating, which is really pleasing to see. And what was really exciting is their announcement of the Fanatics transaction, which really came about from this strategic partnership, which they were able to develop with Fiserv, which is 1 of the largest U.S. payment processors over there, working very closely to introduce relationships to installments, which obviously is very early on in the U.S. but incredibly accelerating. To support the growth, they were also able to secure a $200 million facility led by Goldman Sachs, and that will give them the ability to process close to $2.5 billion. So they get a lot of growth capacity from that debt partnership. Zip is also investing more globally in its treasury function now to support our global ambitions. And just on Slide 37, you can see the charts for the U.S. QuadPay [indiscernible] the close of the month in customer numbers at 13% average, average growth rate, now about 2 million, just shift over that earlier this month. And the growth in monthly transaction volume, the chart on the right, you can really see really good growth toward the end of last year, there's a seasonal dip that we saw early in the year. And the guys did a lot of work on risk tightening at the outset of COVID much similar to this, in fact, when management was looking ahead, a lot of uncertainty as to how customers are going to react, both on the demand side, but also the credit side. And so what you can see there is really this return to growth and the pipeline is looking incredibly attractive in the lead up to the Christmas shopping season, which we expect to be quite large this year, as retailers look to get rid of a lot of old stock and the deals that they've announced recently will be looking to be live. As we cast our eyes to the other markets, New Zealand again delivered a really solid result, growing 100% year-on-year. They rolled out the native app, which has been very well received and helping to drive in-store volume. And the Stage 4 lockdown there has really accelerated the growth to online. But also, we've been able to start to share some of our retail relationships across the Tasman, Bunnings and Chemist Warehouse are perfect example there. We have good relationships with them here, and we've been able to get them live over in New Zealand. So the retail piece is really key to the global story. As I mentioned, the U.K., we were hoping to launch towards the end of financial 2020. As COVID started, we really put that business on ice just given the uncertainty. And as you will recall, in March, the company made a lot of decisive actions in terms of head count reduction, reducing costs and reducing CapEx as we're extremely concerned about the future, as we started to see online trends really growing strongly, credit performance really healthy and resonating with this product size, and we started to release some of those constraints. And the U.K. was part of that. So really large market, 3 to 5x the size of Australia and with online penetration really significant. So it's important that we are there. We have a great leader, Anthony Drury who is an absolute warrior during these times and hoping to launch by the end of this calendar year. And a quick update from our 25% interest in Payflex, which again was built on the Zip's technology stack, really starting to show some really good momentum, signing Cotton-On, Superbalist as well. And we're looking forward to seeing some really good results coming out of South Africa as well. Very low online penetration but the trends that we're seeing globally, no doubt, we're getting there very, very shortly. That's the end of the business update. We're now going to go a little bit deeper into the financials, and I'll now hand over to Pete to kick off.

Thanks, Larry. So working through Slide 40 in the investor presentation. Even though we're all about growth, and we have a significant focus on growth and the addressable opportunity we have before us, we continue to deliver and maintain strong unit economics. And this really is the blueprint that will deliver us profit and scale, and we really have proven this time in Australia being cash flow breakeven for the last 24 months, provides us significant levers to pull when we really do achieve that scale. So we have maintained this while notwithstanding significant spend across our global platforms in PartPay and the acquisition of Spotcap. The cash EBTDA for Zip AU was higher at $9 million for the group. We really have maintained the strong unit economics, as Larry touched on earlier, maintaining cash -- gross cash profit margin consistently above or around that 50% mark. In terms of yield on the receivables, which is a measure we provide, really has remained largely flat, averaging about 16.2%. In the next 12 months, we expect this to be supported strongly by the Pay in 4 product and the launch of the Zip Business, which will certainly drive a high yield on receivables. So very well placed in terms of the receivables, which will deliver these strong unit economics at scale. In terms of credit performance, as Larry touched on earlier, the performance -- the underlying performance of the overall receivables has remained outstanding. And in fact, has improved significantly in the last 6 months. Bad debts, which are net of recoveries at around 2.24%. This is in line with pre COVID guidance, where we advised that in management's view, the bad debts were probably slightly too low for a business model of our type. We sort of provided guidance at an optimum range somewhere between 2.5% and 3%. So we're certainly well within management expectations. The arrears performance was astounding, and we closed the year at 1.33%, which is effectively a decrease of -- from 1.89% over the period. We saw a very, very strong repayment profile, particularly in the last 3 months, with approximately 15% of the receivable coming back in any given month. So this is a very healthy metric. It shows the books recycling every 6 months. It gives us the ability to quickly make risk adjustments to our appetite on the front end, which flow through the receivables very quickly. With the onset of COVID, we saw an increase in hardship request at the end of March, but that's quite quickly flattened out to pre COVID levels by the end of April and currently, less than 0.1% of the receivables is under hardship. So again, very, very strong in terms of credit performance of underlying receivables, which is really is a testament to the investment we've made in our credit decision technology. Moving to Slide 42 and a funding update. The financial year saw us launch the Zip Master Trust in August 2019. It was a global first in terms of an incorporated buy now, pay later and unregulated receivables inside a public market's master trust. So this master trust is a robust and scalable funding vehicle that will support Zip's growth in the future. And over time, we estimate it will deliver cost savings in the vicinity of 1% to 1.5% in the medium term. Over the period, we reduced the weighted average interest on loans outstanding from 4.7% down to 3.7%. Overall, the group is extremely well placed with regard to funding or debt funding. In Australia, we -- for the consumer book, we have approximately $180 million currently available. We recently secured a $100 million facility by the Victory Park Capital to support the launch of the Zip Business platform. And QuadPay recently signed a $100 million facility supported by Goldman Sachs, the ability to scale up to $200 million. So overall, the group is extremely well placed with funding in place to support our aggressive growth ambitions. I'll just hand over to Martin, our CFO, to work through the income statement.

Thanks, Pete. So if you look at the income statement on Page 43, we started the year stating that we would be investing in growth to remaining cash flow positive, and we've achieved that, notwithstanding the investment in PartPay and Spotcap. PartPay and Spotcap added about $10 million of revenue in the year and reduced EBITDA by approximately $9 million. As covered before, portfolio income hit record levels at $159 million, an increase of 92%. Just as a reminder, portfolio income, this includes revenue on an accruals basis using the effective interest method. Merchant fees, establishment fees and monthly fees are recognized over the expected repayment profiles as Zip Pay and Zip Money customers, respectively, being 6 and 12 months. Fees added to customer accounts but not yet recognized as income are reported as unearned future income and shown in the balance sheet as a reduction in gross customer receivables. Revenue generated by both PartPay and Spotcap is also recognized over the estimated repayment profile due to the effective interest method. Cash cost of sales, which comprises interest, bank fees, data costs, third-party revenue split and net bad debt written-off, increased 101% and cash gross profit 85% to $79.4 million. We'll look at cash cost of sales in more detail in a later slide. Cash GP was 50% of portfolio income compared to 52% in the prior year, and as covered previously, we'd expect to see an improvement in these figures as we achieve reduced funding costs in the master trust structure and reduce the unit cost of both bank fees and dollar costs in line with volumes. Cash operating costs, excluding acquisition costs, increased $42.4 million, and the group reported positive cash earnings before tax depreciation and amortization of $3.5 million. The movement in the bad debt provision reflects the increase in the receivable balance and the increased economic overlay applied in the calculation of expected credit losses across these 3 segments. If we look at the Australian business' roll rate between aging buckets, they've improved year-on-year, which would suggest a lower provision is required. However, as a result of the economic uncertainty arising from COVID-19, we've increased the economic overlay in the model. And as a result, we've provided the rate of 4.18% of closing receivables compared to 3.75% previously. It should also be noted that the [indiscernible] other operations are provided conservatively in the current environment, albeit they don't have a material effect on the receivable -- on the numbers. Overall, the impact of the increased economic overlay will be estimated to have an impact of about $12 million on the group's results. The amortization of finance costs includes the cost associated with entering the group's funding programs amortized over the term of the respective facility and obviously includes the cost associated amortizing the establishment of the master trust in the year. Share-based payments have increased due to the issuance of warrants to Amazon Australia during the year, $6 million being recognized on inception and a further $1.2 billion has been recognized on the basis that the performance hurdles applying to the future warrants will be met in assessment of likelihood. Also includes a one-off issue for advisory services and an increase in the amounts relating to employee-related share-based payments. Acquisition costs related to PartPay, Spotcap and costs incurred at June 30 on the Quad acquisition. The fair value gain is an interesting one. The investment in QuadPay has been revalued at 30th of June, calculated based on the merger ratio between Quad and Zip, using Zip share price at 30th of June, adjusted for the risk of the deal not completing and a premium for control. So as a consequence of that, we recognized a fair value gain of $47.5 million. Depreciation and amortization increased by $84 million, including $3.9 million due to the acquisition of acquired intangibles. Included in that is $1.9 million relating to the write-off of PartPay brand on rebranding to Zip. We recognized $2.5 million in depreciation of the right-of-use assets, which is a creation of accounting standard AASB 16, where we have to report an asset on balance sheet [indiscernible] corresponding lease liabilities. Earnings before tax was a loss of $20.6 million, including a number of nonrecurring items, as we set out on Page 44. The nonrecurring items, including the acquisition costs, the write-off of the PartPay brand and one-off share based payments in relation to the Amazon warrants divested on inception and the one-off advisory issuance. Turning now to Page 45. Looking at the cost as a percentage of average quarterly receivables. Cash cost of sales are 8.1%, down from 8.3%. As Pete previously pointed out, recognizing the strong unit economics that the business is delivering. Interest cost dropped from 4.8% to 3.9% of average quarterly receivables due in combination of overall interest rates being lower as the business scales. [indiscernible] has obviously fallen, and we have used funds from the capital raise to fund receivables. Bank fees and data costs have been pretty steady at 1.1%. Following the inclusion of Spotcap in the group results, we have included third-party revenue split in cost of sales. This comprises amounts paid to Spotcap's distributors and amounts paid to platform providers under revenue sharing agreements. Net bad debt is better considered as a percentage of closing receivables, but in the financial year, we wrote off a net amount of $27.8 million compared to $10.8 million previous year, with recoveries running about 9% of the matching results. Just as a reminder, Zip retains ownership of debts written off, and we use the services of a third party help in the collection process, paying a percentage of the amount they collect. Staff cost is the largest component of our operating cost base, representing 57% of cash operating costs. Permanent headcount totaled 371 at the end of June compared to 354 the end of December. At the end of December, we were in a hiring and growth mode, so that number obviously increased over the period to March. And then as we set out in our announcement in March or April, we did unfortunately have to let a number of sites go. Included in the 371, 63 employees by Spotcap and PartPay. The increase is largely related to investment in the product tech teams, data and risk and marketing teams. And obviously, we've also added to the executive team, as I previously pointed out. Marketing costs increased by 6.1 million. We launched a brand of campaigns in the first half of the year and we've branded PartPay to Zip. And also, we increased our spending on direct marketing promotions and partner integrations. We've expanded our IT infrastructure to support the growth of the business both locally and globally, adding monitoring of the software tools to further develop both the customer and merchant experience and to reflect some of the points that Larry made earlier in the presentation. We now move on to look at the balance sheet. For the $32.7 million, of which $8.4 million was held in the accounts of trust, this is reported as restricted and it's not available to [indiscernible] company. Reported cash balance delivered higher as we had very strong repayments in June, as Pete pointed out earlier. Growth in receivables is obviously supported by an increase in borrowings. Prior to COVID, we increased the floor space to fit that out, but that was included in property, plant and equipment. Other intangibles includes $11.3 million in acquired intangibles on the acquisition of Spotcap and PartPay and $17.1 million of additional investments in our proprietary software applications, including $4.1 million to acquire licenses to support product releases that we're launching in the new financial year. As you'll remember, acquired intangibles were provisionally valued at December 31, and we've had them independently valued in the period of June 30. There's an overall reduction in value of acquired intangibles of about $1.3 million as a consequence of this change with the corresponding increase in [indiscernible]. Investment is our investment in core in the U.S., which has obviously been revalued in June 30, I mentioned, and the investment associated with the investment in Payflex in South Africa, negative share losses. Deferred consideration relates to amount we paid to the vendor PartPay on general transaction volumes over the '22 and '21 years. I'm pleased to advise that they met the hurdles for the 2020 year, and that will be settled in shares. Goodwill increased by 47 million on the acquisition of PartPay and $2 million acquisition of stock of Spotcap. Turning to the cash flow. We generated a positive cash flow from operations of 15 million. If you add back the acquisition cost, it's about $23 million, which is kind of in line with last year. As I mentioned, we fitted out additional floor in Sydney, including over to the plant and equipment. We covered our investment in our propriety software development, about $17 million. As we largely paid for acquisitions in shares, we had a net $2.7 million in cash in the balance sheet and acquisition [ added ] $16.6 million safer investment in Quad up to 15% and $100,000 to increase our investment in Payflex. Movement in receivables largely reflect revenue borrowings. We've raised $61.9 million from the capital raise and $0.2 million from the conversion of opportunity carrying costs at $2.1 billion. Cost is $2.9 million to -- for the expansion of our funding facilities, most of which obviously went on the establishment in the master trust. And the final number, the repayment of lease liability is the payment for our leases as required under AASB 16 to be shown in financing activities. On that point, I'll conclude covering the financials and hand back to Larry.

Thanks, Martin. And so just as we wrap up, we're now going to look at Section 4, which is the outlook for FY '21. So as we look ahead, we like to drill into probably 3 key themes that we're seeing around the dynamic buy now pay later landscape. On the left, we're seeing the credit cards facing sustained decline, and we saw in November last year, just in Australia, the debit card dollar volume overtook credit card dollar volume. We also think that COVID has accelerated contactless payments. And the debit card, if you recall, has actually been one of the key enablers of the success of buy now pay later, where you can sign up in real time, attach a debit [ skin ] card and use that to collect direct debit authority. So it's a key driver there, and that's going to be supporting continued growth. The other big theme has really been the acceleration of e-commerce due to COVID. McKinsey thinks between 3 and 5 years, we have raced ahead in terms of online penetration, online adoption. And if we just look at the U.S., for example, groceries for online grew 110% year-on-year. So Australia, a lot of markets are starting to see this, and these trends, we believe, are absolutely here to stay. And then finally, these have come out recently and estimated the global installed market of approximately $1.2 trillion and you contrast that with about $22 trillion in retail globally. But if you look at payments more generally, which is how Zip looks at things, that number is insignificantly larger. And so the next 24 months is going to see huge adoption; Australia, 20% of a lot of online checkouts are attributable to buy now pay later, and we expect these trends to become really strong globally. So on Slide 50, as we look at the year ahead, Zip is going to make a number of really important commitments, and I just want to touch on those. Firstly, to our people, who we refer to as Zipsters, big focus on a diverse and inclusive workforce. That's a big, big focus for us. Continuing to invest in women at Zip. We have about 37% female talent. We want to actively develop that diversity of thought and diversity of all things are really important to solving crunchy business opportunities, and that's a big focus for us. And during the new COVID, where some staff come to work, some staff work at home, it is a very different working environment. And we believe mental well-being and health is really important. And that's going to be a big focus for us as we look at the new operating rhythm for the business whilst continuing to drive value and productivity. For our customers, for both consumers and businesses, we will continue to maintain our financial responsibility. We've done that since day 1, to ensure that the right customers come onto the platform. Big focus on helping our small businesses grow, [ attributed to ] online business focus, continue to deliver customer first, seamless payment experiences, and that's really getting the whole focus of the entire company and continue to develop the -- to proactively develop the hardship policy, and as Pete touched on earlier, less than 0.1 of a percent are currently in there. So it shows a really good fit for our product. And on governance, as the company gets larger, there's going to be a big focus on Board independence, moving to a majority independent Zip Board. We've already kicked off the process and have a number of candidates in the running. As I mentioned earlier, we will be looking to add a Board member from the U.S. as well to help us with our global strategy. We will continue to strengthen our risk management, which has been a key pillar of the business, and we will continue to ensure compliance with all regulatory requirements are investing in that, further inside the business. And in terms of the goals for financial year 2021 on Slide 51, I mean, the key comment is we need to maintain a really strong core business over here in Australia and New Zealand. We touched on that earlier. Continue to maintain a really strong business here while we invest for growth globally and capitalize on what is an immediate opportunity. One that we have to incredibly fast track given the land grab. Growth in goals for next year really has 4 pillars to it. The first one is around payment acceptance. As you know, Zip's mission is to be the first payment choice everywhere and every day. We have to really step change that this year with a big focus on all payment checkout journeys, particularly in-store as well. The second pillar is around app engagement. We need to continue to invest to ensure that we maintain one of Australia's top financial services apps. We'll be looking at new customer segments. And as the brand awareness moves from 1 in 2 to about 50% further and further, we should have a really good crack at that. Our business is about more customers transacting every day. Customer segments now include consumer credit. That also now includes small business credit, which is really exciting as we build the ecosystem. The third pillar is all about global expansion. A year ago, words like global didn't really exist. Now they're really a big part of our future story. Post completion, we need to rapidly accelerate QuadPay's growth, drive synergies. We're already working incredibly closely together, helping beef out the management team, drive retail relationships and technology cooperation. And we're really excited about that. We also launched in the U.K. at the end of this year. And under new market function, we're already underway exploring other market opportunities as well. We are able to do this because we have strong executive teams in Australia and strong founders and leaders overseas. And the fourth pillar to growth FY '21 is all about this business, which Pete touched on, rolling out buy now pay later solutions to small business to help them with their everyday needs, cash flow management and budgeting. When we look back in 12 months, we really expect this to be a real success story for Zip. We have some strong leadership in that side of the business. So some people actually came from [indiscernible] overseas as well, and we think it's going to be a big, big pillar of growth. So I think we might wrap up there. The final slide just talks about the investment case, which you all should know familiar and can look at that in your own time. We'll hand over to the moderator to open up to any questions.

[Operator Instructions] Your first question comes from Jonathon Higgins from Shaw and Partners.

Obviously, a huge year just past in context and got a lot on the go this year. I was just wondering if you could just talk a little bit around some of these initiatives that you're launching into the first half of '21 that look like you're probably going to aggressively sort of increase growth trajectory. So just firstly, you flagged the U.K. launch in first half of '21, and I've noticed you started hiring a bit more over there. Typically, you've spoken around sort of a flywheel merchant launch over there. Are you able to tell us how that would look, in particular, when you're sort of looking at doing it? Obviously, you've got a key sales period come out. And maybe just touch on the competitive environment in the U.K., please?

Yes. Thanks, Jon. Yes, look, I think, as you can see, whether it's Amazon payments or Google Payments, when you move into different markets, you have to look at angles and find the angle. We feel pretty excited about the things that will come out of there. A lot of work is happening on building out the team and a lot of conversations happening on the retailer side. So for us, there is a couple of market leaders definitely in the -- particularly in the online fashion space. And there's a couple of smaller emerging participants. I think what we bring to the table is the global footprint, which is particularly exciting for a lot of retailers and a lot of strong relationships in other markets. Also our approach to different industries and how we've built the business of Zip, we have really good insights into how customers pay, not just in fashion but also more broadly. But it's absolutely paramount that we are able secure a number of enterprise brands to help amplify the brand, drive customer acquisition. It is the best part of the market versus a direct-to-consumer approach. That's not really the model that we like to use because of the synergies and cost of acquisitions that you get from the retail partnership under a win-win. So definitely expecting to launch this year, but a lot of the growth will need to drive from that point on. And we are still and remain very excited about it.

Just 2 more for me. One, just shifting gear towards the funding side of things. During the year, you've closed that master trust issue, and you've announced some funding for the business receivables with Victory Park Capital and also Quad, which is coming to the group, close that facility. Obviously, you've seen an aggressive sort of repayment profile with your receivables. Are you able to talk about it in terms of the funding for the Quad business? Anything on that front and what we can expect into this half with growth?

So I touched on the group, it's certainly well placed on the debt funding side to -- in terms of runway to support growth in all markets. It's fair to say that the markets are in a reasonable place with regard to additional issuances of the master trust right now. So we're certainly considering whether or not we go back again to increase the available funding while the timing is right because, obviously, we have some aggressive targets in mind to continue to grow. So the debt funding, while well placed, we're always sort of looking to increase capacity without coming at additional overhead in terms of undrawn fees.

Last one for me. Just on QuadPay coming into the group on Monday onwards under Zip's ownership, you did speak about in your release on Monday, I think it was, about this partnership with Fiserv and also one of the credit card providers. Are you able to just give us a bit of an idea of sort of the merchant pipeline with a company like Fiserv with QuadPay? Should we expect sort of further announcements along this into the next quarter?

Yes. I think -- I mean, candidly, QuadPay has done a fantastic job. It started a couple of years ago and it really landed strong brands like fashion Novo. It was key for them to work out how to compete, starting a couple of years behind some of the larger players. Fiserv has been a pivotal one. I think you've kind of seen the fruits of that already with the Fanatics transaction. We do expect a lot more from them. Yes, the channel partnership deals in Australia arguably are more successful than the channel partnership strategies that we've seen in markets like Australia. So it's a much more well-trodden partnership strategy, and so we -- it took us quite a few years to really develop that channel for us. We've seen them move even faster than what we have done in the first few years. So we do expect, yes, a number of big transactions or merchants from them. And equally, what Zip can bring to the table. We've got a lot of retail partnerships and connectivity. And by aligning globally, yes, we're really excited about the next 6-month pipeline.

It's likely to be a game changer, a super healthy pipeline of relationships that really will move the needle. So as I touched on, we are hoping for a sequence of partnership announcements.

Our next question comes from Tim Piper from RBC Capital.

Congrats on the result. Actually, just a follow-up from Jon's question there on in that Fiserv agreement in the U.S. Can you just describe that relationship there in terms of, obviously, that Fanatics came through that pipeline? Is Fiserv actively promoting QuadPay over in the U.S.? Are they promoting other buy now pay later financing solutions for merchants as well?

Yes. Thanks. So there is a strategic partnership between QuadPay and Fiserv. Really, they're able to strike that because of their unique technology integration. And you've seen all along, they've really innovated around how they think about merchant, merchant integration and integrating into existing payment rails. I think that definitely was a huge enabler. And as a result, that partnership, they're actively working together. So sales teams are talking to each other, sharing and working out how to deliver a new payment type that is meeting the needs of customers for retail partners. So the rising tide lifts all boats, and this awareness of buy now pay later is only increasing, which means many retailers that last year weren't thinking about it are now asking lots of questions. Fiserv has really healthy, long-standing, multiyear relationships with a lot of the IR top 100, and they're working closely together, which is great to see that, that's such an early stage of the relationship they were able to bring Fanatics out of the box.

Okay. And just one second one, sort of a boring analyst question. But I mean, previously, you talked to where you saw the sort of the fuller 12 months in terms of your cash EBITDA yield on receivables. Now what's sort of changed in the business now you've gone into QuadPay in the U.S., you're launching in the U.K.? I was kind of hoping you might have talked to a little bit of guidance around your operating cost leverage sort of over the next 12 months and where you see that yield kind of heading on an earnings basis.

Yes. Thanks, Tim. So obviously, we have provided the dashboard EBIT sort of currently demonstrated in this deck. Over the course of the next couple of months, with the integration of the Quad business and the expansion and more broadly, the paid for product and also Zip business, we'll be providing an update to this particular sort of measure so that we're able to sort of encapsulate all the different sort of products that are throughout the group, which will sort of give you a different lens on this yield because it does change quite significantly with the paid for and Zip business.

Okay. That would be helpful. And just one follow-up from that. Your comments around revenue yield, expecting to rise on QuadPay, but also the Zip Biz or Biz products that you're launching, that $100 million facility that you've got to support the launch of Biz, assumably, you expect the receivables, the turnover to be higher in that Biz business. I mean, are we sort of thinking that, that facility is going to fund a few hundred million in TTV or GMV? Is that sort of where you see that channel sort of projecting over the sort of the next 12 to 24 months?

Yes, I think that's sort of the right way to think about it. We'll obviously have significant leverage in terms of the addressable TTV the $100 million provides us. I think what you'll see in the coming months through the suite of products that the business will be launching, there will be a sort of a potentially broader suite. Obviously, we see a huge addressable opportunity into buy now pay later installments for sort of everyday working capital requirements. But we also see room for a larger line as well to cover various sort of purchases that are required inventory as well. So we do see a broader suite. So some of the average order values or transaction sizes in that bucket might be higher.

Your next question comes from Sameer Chopra from Bank of America.

Congratulations, a really good set of numbers. I have 2 questions. One is just post the refinancing that happened with Victory Park and new Goldman financing. Do you think the funding costs continue to trend down into '21? And how material would it be? If you can give us a steer towards that? And then the second one was cash gross profit percentage sort of thing. Am I right in reading it that you said that it will be up in FY '21 versus FY '20 as a percentage?

Sameer, I'll take the first part of the question. Yes, we do see the funding cost trending down in the medium term. I think, potentially, the way to look at the Victory Park facility, probably, it's a marginally higher cost facility as we continue to build track record, but it does provide us with the ability to scale. So it's not a dissimilar funding strategy that we've adopted on the consumer side of the business where in the initial stages of product launch, it was a slightly higher cost, which trends down significantly over time once you have that track record and performance. Similarly for the Quad business, the $100 million facility was a great achievement for a business of their size, and they will continue to have access to lower cost of funds over time as the business scales. And thirdly, on the Zip side of the business here in AU, we do expect to continue to drive that cost down, as I touched on throughout the presentation to 1% to 1.5% in the medium term, in terms of upside or benefit side. So I think that's definitely the right way to look at it as we continue to scale and continue to deliver results. Such as we are, we will continue to drive that cost of funds down.

Yes. I think your second question was really around the GP percentage over the next sort of 12 months or short, medium term, we'd expect to see that sort of fairly consistent, just not improving.

And Larry, can I ask you one, too, just in terms of the U.K.? Would you launch ahead of Black Friday? Or would you wait until after Black Friday before you go live in the U.K.?

Yes. We can't give any specifics on that. But we are -- with all things, season, timing and when is the right time as well for teams to scale, just to make sure that we got everything [ batten up ]. So I can't give you a specific date, sorry.

There are no further questions at this time. I'll now hand back to Mr. Diamond for closing remarks.

Yes. Look, thanks, everyone, for listening to the Zip update. It's always funny to do these because we talk about the year that was, when really, for us, we're very focused on the year ahead, working hard to continue to deliver the great results. And thanks for all your support. Cheers.

Thank you.

Thank you.