Zip Co Limited (ZIP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Zip Co Limited Half Year 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. Thank you, and on behalf of the Zip Board, I'd like to welcome everyone to Zip Co's First Half Fiscal 2021 Results Investor Presentation. In the room with me today is Peter Gray, Co-Founder and Chief Operating Officer. I also have with me Martin Brooke, our Chief Financial Officer. I have Tommy Mermelshtayn, our Chief Strategy Officer. And we're pleased to also be hosting the COs from the U.S., QuadPay founders Adam Ezra and Brad Lindenberg. Before we kick off, I'd also like to thank the hard efforts of the entire Zip team, our Zipsters. We'd also like to thank retailers and, of course, our customers and loyal shareholders for what has been a bumper half. And also before we continue, I'd like to formally welcome Diane Smith-Gander as our new Chair, very excited to have her onboard. And also say farewell to Philip Crutchfield, who's been a fantastic mentor, adviser to us, and has steered the ship for the last 5 years. And finally, welcome Pippa Downes as well, as a Nonexecutive Director who chairs our Audit and Risk Committee. Today, I'll go through a few sections, a quick update on Zip. I will then talk about the U.S., which is a real growth engine for the business, followed by a look at Australia and New Zealand. Then look at the globe and some of the other initiatives. I'll then hand over to Martin Brooke to look at the financial results and then we'll talk about what's next. So if we just flip to Page 4. A quick summary, a refresher on Zip. Our purpose is the freedom to own it. And that really speaks to quite a few vectors for us here at Zip: customers, merchants, responsibility and our culture. It gives customers the freedom to own the dress, own the moment, own the experience, own their financial well-being. It talks to merchants where we give them the freedom to own a particular small business community where they can grow their top line, get another customer and now access working capital from Zip. We also own the responsibilities that come with issuing microcredit and financial services in real time. And fourth, which we are most excited about and we see as a big differentiator, is the culture, the freedom to own it, where we build up an organization of single [ thread ] owners who are empowered to run different parts of the org. We reward with Zip stock, we feel like business owners and we accelerate together. And our mission is to be the first payment choice everywhere and every day, and we've clearly got a long way to go. On Slide 5, I'd just like to talk to 5 key differentiators about the Zip business versus the peers that are out there. First of all, our product. We offer interest-free installments for both short- and long-dated periods, and that really allows us to play across any category set globally. And we are on a road map this year to deliver feature parity across all of our markets. The second big differentiator is we derive income both from customers and merchants. And that really gives us the ability to again play in any category, any gross profit category that our customers see as always fair, simple, transparent and easy to understand, and we have proof points on that. The business model is both a closed loop network where we acquire customers directly and have directly integrated commercial relationships, but we also have open loop. And that allows customers to shop everywhere, which drives habit, and we'll talk to that later today. We are actually one of very few BNPL players where a single merchant can integrate with us, and we can open up multiple markets, which is really important as commerce gets globalized. And finally, risk and financial responsibility is at our core. Since inception, we've done identity and credit checks, and it's our superior risk positioning and investment in these characteristics that enables us to grow quickly but also manage the risk ahead. On Slide 6 is just a quick summary. We finished December run rating is just over $7.5 billion and annualized revenue of $480 million. And what's really interesting, if you look at the geographic spread, is that we have 4 core markets being the U.S., Australia, New Zealand and we just launched in the U.K. We also have a number of strategic investments, which are forming part of our network, and that we can access and offer up to merchants whether it's in Eastern Europe, the Middle East or South Africa. Now if we turn to Slide 7. We started out the year really with 4 key strategic priorities focused on payment acceptance, app engagement, global expansion and Zip business. And so just a quick update on how we're tracking to those 4 priorities. On payments acceptance, particularly in Australia, we became a principal issuer with Visa, and we were able to really unlock the in-store potential. And in late October we finished that project. And customers can now use the Zip wallet to shop everywhere in physical, and that's really stepped up our engagement rates, and we'll talk to that. The U.S. has already had this functionality. In the U.S. as well, they rolled out a Chrome extension which allowed the shop anywhere experience to be delivered via web as well as the app, and we'll talk about that. And through a mixture of these techniques, we're not just available everywhere but also driving a lot of everyday spend, which is [ why they happen ]. And pleasingly, we grew the merchant base 73% year-on-year. On app engagement, it was really a standout for the half. In Australia, we became the #1 downloaded BNPL app and that carried through into January, which is a great result for us with our relentless focus on app and UX over the last few years. And in the U.S., the QuadPay app was the second most downloaded credit app during the holiday season with over 2.8 million app downloads in the half and the customer base grew to 5.7. On global, we obviously completed the QuadPay acquisition in late August, with September being the first month, and that's been a great story, and we'll talk more about that. We launched in the U.K. in December, and that's really exciting, pipeline's building. We'll talk about that shortly. And we made a number of strategic minority investments around the globe, underpinned by our new markets team. And then finally, Zip business, this is really in beta post COVID and a great team just working on what our product fit was going to be. That launched towards the end of last year under the rebranded Zip business, which we'll talk about, and secured 2 exciting partnerships in Facebook and eBay. So really, really good results there by the team. If we turn to Slide 8. I think you could just go through the quick highlights. We've seen again year-over-year growth across our key metrics of transaction volume, revenue and customers north of 100%. As we've always said, growth really underpins our business model to take advantage of the BNPL opportunity globally. QuadPay, we completed in August as an entry into the U.S. to accelerate growth. And just since the beginning of September, the TTV for the U.S. has grown over 130%, which is just absolutely remarkable and has been transformational for our business. We've also, the Board, we've made 2 key appointments, which I spoke about earlier, Diane and Pippa, very excited to be working with them. We also, during the half, we raised $176 million via an institutional placement and a share repurchase plan. And really, that was to fuel our global growth with a large chunk of that going into the U.S. And again, we had really outstanding support from our loyal retailer base, and we were very pleased to accept all of the share purchase plans over subscription. And again, pleased to see that price is trading well north of where they anticipated. We spoke about product innovation, quite a few highlights there, which we spoke about, and key partnerships in Australia, Harvey Norman joined the platform and Domayne. We've also secured Boohoo, JD Sports, and we'll get into the merchant list a little bit later on. Just turning over to Slide 9. What we've tried to do here is take another approach to how we show unit economics. This really is in line with our peers, not just here but also in the U.S. and it really looks at unit economics on a per transaction basis. What is revenue as a percentage of transaction volume, less cost of sales, which are the transaction costs, being processing data and losses, to get to what we call a cash gross profit as a percent of TTV, what they call a net transaction margin or transaction margin over in the U.S. And I think pleasingly, when you look here, transaction volume grew 141% year-on-year. The revenue of $159.8 million represented just north -- just shy of 6.9% of TTV. And if you go down, we have a margin of about 3.71%. And I think what you've seen there in the movement year-on-year is the shift in the business mix and also some exposure to more everyday categories. That's a really pleasing result and kind of shows the disciplined [ economics that will be ] underpinning the growth of our business. Also, what's pleasing to note is cash EBITDA was positive, which is really a great result, considering that we have a mature Aussie business but are also investing for growth globally, and Martin will talk more in detail about our financial results. Moving over to Slide 10. What we can see here is really a proven ability to execute across the globe. We finished the half with $2.3 billion in transaction volume. And that's on an actual basis. That's only including QuadPay transactions from the 1st of September. On a pro forma, that was $2.5 billion. Revenue, we finished the half at just shy of $160 million which is a great result. If you look at our fiscal '20, that entire year was only $160 million and really a great result there. The U.S. though clearly is becoming a much larger share of the business. Just in December, they contributed 40% of TTV, and we expect them to overtake the Australian side very, very soon. Also pleasingly, transactions were up. That number is actually a pro forma number. If you look at our word release, you can see the actuals of 14.6 million transactions for the half, so a really strong engagement. And then finally, on Slide 11, this is really an interesting story here where since the acquisition of QuadPay in late August, beginning of September, you can really see a step change in the business, where payments have really accelerated from -- we've been issuing installments from about 6 weeks to 48 months, with an average of about 6 months [ with assets ] on the balance sheet. And what you can really see here is a shortening of 6 months all the way down to 3, really being driven by the mix of the U.S. shorter [ date of ] installment, but also in Australia post COVID, better UX, better repayment flexibility. And that's having a much more efficient effect on our capital recycle, and that should underpin our future growth. Also if you look at the return on capital. Our revenue yield, which is revenue as a function of average receivables, has really stepped up from 16% to 25%, again showing really strong return on capital. So when you combine our net transaction margin that we spoke about on the earlier page and this improved capital recycling, we think we are in a really good place to accelerate growth, drive our operating leverage and future economics. And then finally, on Slide 12, as we always say, even though we're 7 years in, it really feels like we are only getting started. BNPL penetration is about 1.6% online. And when you look in mature markets, that's about 20%, so a long, long way to go. And what we see across our business is 80% of our global customers are millennials and Gen Z, which will really become the purchasing power leaders over the next 10 years. And so we've got a really exciting long-term road ahead. Jumping into the U.S. on Slide 14. Really great results right across all of the key metrics, almost 200% up on most of the key metrics. The pro forma TTV was up 2.5x year-on-year to just under $1 billion. Our customer numbers grew to 3.2 million, again up 2x year-on-year. And the pro forma revenue, which is very exciting, grew 2.5x year-on-year to just under $70 million. And even though December was a real standout for the U.S. business, if you look in the January data is showing us that on a TTV basis the business is almost back to November levels, so a really good start to calendar 2021. The business continues to deliver market-leading economics with net transaction margins north of 2%. And the app, which I'm going to talk about a little bit later, is a really exciting story. Slide 15 really talks to the offering buy now pay later is important, but you have to offer it across all user journeys. And in the U.S., you can now pay later at checkout integrated, you can pay later anywhere in store, you can pay later anywhere online with merchants that we aren't integrated with, which we'll talk to shortly. And you can integrate -- you can pay anywhere using the Chrome extension, which enables virtual card issued in the checkout, and is showing really strong promise. The merchant base continues to expand, retailers are critical to the business model, and we saw names like GameStop, which has obviously been in the press, and we see it had another big jump last night, but a really great business and great fit for our buy now pay later. Fanatics. And we just rolled out with Sunglass Hut in store, which is showing really strong promise. So it's the retailers are the key. And what we're finding is that the global footprint is really helping out our sales effectiveness and the pipeline is really exciting. And of course, strategic partnerships are also a key part of the business model. How we get to not just 1:1 merchants but to 1 to many. And we have a number of relationships here that we are working with such as Fiserv and others are going to be a key part of our growth story over the coming years. And Slides 17 and 18 really talk to the exciting business model that we have over in the U.S. A really strong ability to acquire customers directly and organically via the app as well as through merchants. These customers come into the app, they are able to then shop, and we're able to introduce and refer customers to our integrated partners, driving incremental transactions. But at the same time, we're able to offer customers places to shop outside the closed network, which is driving habit and buying preference. We can then use that data to go back in and talk to merchants around the directly acquired relationship, which is really starting to feed itself. It's driving really exciting transactions per monthly transacting user, and that's really underpinning the engagement model. And Slide 18 just quickly shows you the incredible growth in the app. A huge investment has gone into the app with beautiful UX, a lot of experimentation. And this organic growth is really providing a real strong moat around the business. And then finally, with regard to the app on Slide 19, the QuadPay app had over 2 million downloads just in the half. And pleasingly, reached 15 in the shopping category during the shopping season on iOS. So really bumping into some of the biggest names and really a testament to the work and laser focus of the U.S. team. And engagement by the app is up over 90% year-on-year. So real good leading indicators to what's ahead. And then finally, just on credit performance, I think these 2 charts really tell a good story. Returning customers, which obviously will deliver improved loss rates over time, has jumped from just north of 50% to 85% of monthly transactions. And so if you kind of contrast that, in Australia by way of comparison, we are over 95%. And as a result of that we're seeing really improved loss curves, charge-offs as a function of monthly transaction volume really coming down and again testament to the Chief Risk Officer [ cost hub ] over there and the decision technology that really underpins how customers are onboarded, how risk is discerned. And you can see as well on the chart how COVID was really dealt with, being able to respond in real time to the portfolio and the application funnel. Moving across to ANZ. We're really pleased with the results in ANZ with TTV up close to 60% to 1.5 billion, and really strong metrics results across all of the metrics. They had more customers join the platform than ever, which talks to the compounding of network effects. And our customers completed 2.5 million transactions just in the month of December, which was up 140% year-on-year, again, showing that customers that are joining the network are becoming much more engaged, they're coming into a world with better merchants and a better app. Jumping to -- I might skip over Slides 23 and 24 and just say, by way of reminder, we are unique in Australia being able to offer interest-free installments, small dollar and long duration, which is really important to merchants. And we can play in any category. We also signed a number of great names over the period, including . adore Beauty and Harvey Norman. A great result for the team on Slide 25 was that the Zip app was the most downloaded BNPL app in Australia, which is a great title to have grabbed. And you can see just on the right that monthly downloads have really scaled. And I think for us, we called out the app as the centerpiece to the relationship, and we see payments as the access point for the relationship with customers, and it's really important that we continue to remain laser focused on that asset. And on Slide 26, what's really interesting is that, each year, we try to do better. We try to make sure that customers that are joining the Zip platform are more engaged. And we can see a 70% growth in transactions per monthly transacting user year-over-year from about 2x per month to 3.5x per month, which is just north of 40 transactions if you calculate that on an annual basis. So we are becoming more and more important to our customers. Revenue as well as for cohorts is getting better year-on-year. In 2020, look, it was slightly up, but really what we're seeing here is the engagement has been through the roof. And as I spoke about earlier, payments, easy access point to us and the customer, the more times that customers are using us, the more important we become and the more valuable and the greater the LTV or long-term value is of the customer. And then finally, on credit performance, again, our credit decisioning engine, which has been a consistent focus for us, really since we started 7 years ago. What began as a rules-based engine is now a full machine learning model, particularly up to a few thousand dollars, then we go all out to $20,000, $30,000. And really [ this decision ] engine that digests conventional and nonconventional data is showing improved cohort performance as we look from 2017 to 2020, and pleasingly net bad debts of 1.9%. Which shows our ability to really control the front end, control the portfolio and during COVID that was really tested. So a great result by our credit team and our data and risk team. And then moving over just to Slide 4, which encapsulates the global this business and Pocketbook. This business was launched really towards the end of last year under the brand Zip business. The products that we have now gone to market with is Zip Trade, and we were very pleased to sign both Facebook and eBay late last year. We're thankful that small businesses can now advertise now and pay later, and we have a great team behind this part of the business. The road ahead over the next months is incredibly exciting. The daily engagement rates and acquisition rates are all heading in the right direction. And we expect to report on those results later this year. So most of the activities happening in the every day buy now pay later up to about $5,000. The team is looking to also roll out a Trade Plus, so slightly larger SMEs that might be looking for working capital, and we're really excited about the road ahead for our Zip business. It also really talks to the ecosystem play that we are trying to build, where sellers can offer Zip as a payment acceptance, but they themselves can also become Zip buyers and hopefully we can get more commerce happening around the Zip ecosystem. Moving onto Slide 30. Zip launched officially in the U.K. in December and really off to a great start if you look at both December and January. We signed a couple of -- sorry, just over 100 small merchants, which was good to get things going. The [ plesinger ] team has been able to sign some real marquee names in Boohoo, JD, Cotton:On, and something that we're starting to see as well, the ability to port our U.S. merchants into the U.K., similarly our Aussie merchants into the U.K. So really when you look at the go forward, our great technology platform now in the U.K., which is on the same technology stack that QuadPay has built and all of the feature set we have in the U.S. will be brought across to the U.K., which enables great app, great sign-up, virtual card, and shopping everywhere, as well as closed loop networks and the global and the retailer pipeline is very, very exciting. [ Anthony Drew ] and the team is doing a fantastic job, and we look forward to reporting updates on the U.K. throughout the calendar 2021. Lastly, under our Chief Strategy and Global Officer, Tommy Mermelshtayn, we established a new markets function, which was a team specifically developed to look at both opportunistic and strategic expansion opportunities. They were behind the QuadPay deal, behind getting U.K. going. And it's a team that has regulatory, product, tech, risk and market launches. They've done a range of things this year, which is really exciting. We've had a number of minority investments with great founding teams, in Eastern Europe with twisto, and they have the ability to passport license it across the EU. We also made a small investment in the Middle East, which we see as a really exciting region, again a great founding team. And we're just starting to mobilize a small team in Canada. But really the purpose there, given that the QuadPay stack just moves really nicely into that region, is really to support our U.S. business, to help us acquire and retain our U.S. merchants. And so we're looking for a soft launch there. As well, we've moved our global integrations into new markets so that a single merchant can integrate with us once, and we can now open up multiple markets, which is increasingly becoming exciting to more global retailers. On Slide 32, Pocketbook is obviously a key part of our product set, up to 812,000 users. It's a free app that allows customers to track budget and save. Our view has always been that some customers are eligible for credit, some customers don't want credit, and we have a duty and responsibility to engage and provide market-leading experiences for them. And you'll see a lot more coming from this over the next year. That's it for a summary of the business. And obviously, we'll take questions later, but I'll now hand over to Martin Brooke, our Chief Financial Officer.

Thanks, Larry. So starting with Slide #34. We take a look at our information by segment. We split it between Australia and global and Zip business. And the exciting thing to see is that the U.S., which is part of the global segment, is already 38% of our average. And that's with only 4 months of transactions going into there. Also, we previously said that we would invest in growth while maintaining cash EBTDA [ all within the AU ] business. And clearly, you can see that we've done that, generating a positive cash EBTDA of $3.1 million and also an overall positive cash EBTDA of $200,000, so clearly a strong result there. Obviously, this business is a small part of the group at the moment, but strong growth rate aspirations for the next half. Turning now to Slide 35. We touched on the operating income previously. Operating income [ we now ] has been split between portfolio income and transactional income to reflect the additional revenue streams acquired and also the new revenue streams at Zip. Transactional income really relates to a fee at revenue interchange and service fees. And the portfolio income is of the traditional merchant fees, establishment fees, monthly fees recognized over the repayment profile where the transaction income is recognized when earned. Cash cost of sales, $73.7 million, obviously, the inclusion of Quad makes a huge difference to these numbers. The key thing to point out here is that on the interest side, the reduction in the [ PDSW ] by the percent over the year [ flows into ] the average interest cost. The bank fees and data cost, which are pretty significant. The volumes there give us a great opportunity to investigate reductions in the unit prices in line with those volumes on both a local and global scale. [ Health ] unit economics, as we talked about previously, reflecting the cash gross profit of 54%, up from 52% in the previous year. We covered a little on the [ back ] about that slide on previous slides. On the operating cost side, increased by $51.5 million predominantly due to the acquisition of Quad. We're increasing headcounts to scale the business globally and obviously, we have an increased marketing cost to drive not only transaction volumes across all markets in the season's strongest quarter, but we also incurred additional cost in driving the launch of Tap & Zip. [ Sounds whether ] we had a cash EBTDA of $0.2 million against $1.5 million in the previous year as the [ count code ] on the previous slide. If we look at the, in terms of the provision for expected credit loss. The important thing to note there is that we have reduced our overall provision from 4.4% to 3.8% across the group. And that largely reflects the improvement in [ row ] rates in the Australian business, slightly faster repayment profile [ in the debt ] money and a significant reduction in the number of hardships in the business portfolio. We have maintained the economic overlay at the same level as [ was struck in June ], which obviously reflected the economic conditions at the time. Just turning over to Page 36. A couple of key things to point out here. A significant increase in share-based payments, largely relating to the acquisition of Quad, which shareholders approved [ from ] tenure performance shares. Those tenure performance shares, that's obviously based on tenure and the performance of the business. Very pleased to announce that the first hurdle on the performance share side has been achieved and there will be USD 50 million in shares issued no later than September this year. All of the tenure and performance sales are linked to ongoing employment. They need to be reported as part of the P&L account and not really considered part of the cost of investment in Quad. Fair value loss and the adjustment on Quad we'll look at in the next couple of slides. If we look at the Slide 37, we recorded our QuadPay acquisition adjustment at net of some $306 million. If you look at the -- this obviously has no bearing on cash or the QuadPay business. But obviously the achievement of the first performance hurdle suggests that the business has gone very strongly, which it obviously is. When we were negotiating Quad prior to COVID beginning in March, we were obviously in ongoing discussions. When COVID hit the share price of Zip fell quite considerably, the other U.S. exchange rate deteriorated. And in order to remove those market forces from the discussions we agreed a share ratio with the vendors of Quad. That share ratio being essentially that shares would be issued equal to 23.3% of the issued share capital at completion. So that potentially fixed the number of shares that we were going to be issuing and all that was left was the price. Accounting standards demand that we use the price at the date shareholders approve the transaction, which was [ they put forward ] share price of $9.16. For the purposes of recording the initial purchase price, there is no choice. That is considered fair value. If you look at the slide -- on the graph on Slide 37, I think it would be pretty -- there wouldn't be many people who would think that $9.16 was a fair value, so -- and that was our view. So in conjunction with independent valuers, we looked at volume-weighted average pricings up to the date of the transaction and formed a view that a fair value equivalent to some $6.50 was much more appropriate. In conjunction with the fair value adjustment, we also had to value -- revalue our existing 14.09% shareholding. So if you look at the sequence, [ step one ], on acquisition, we revalued our 14.09% up to $9.16, which required us to report a fair value adjustment of $109 million. And then a day after, we revalued [indiscernible] share value adjustment of $415.9 million to reflect a fair value equivalent of $6.50 as opposed to the $9.16. So those of you who were looking to multiply the number of shares issued by the difference between the $9.16 and $6.50, that won't work because that adjustment applies to all of the consideration for -- paid for Quad, which was the shares issued -- which was the replacement options issued to both employees and non-employees. Net adjustment of $306 million, purely accounting, no impact on the business. Turning on to Page 38. When we were -- when we announced the -- or were looking to announce the acquisition of Quad, it was very important that we had funding to go with it. At the time, we looked at various different options. Our share price was down at $3.70. The market for equity was not that great, quite turbulent. Looking at those options, we came to the view that the issue of convertible notes and warrants, we have a much less dilutive impact on shareholders. And therefore, we issued $100 million in convertible notes with initial conversion price of 53 -- $5.53 and $100 million in warrants with an exercise price of $5.16, of significance to the prevailing -- significant [ prelude ] to the prevailing share price. When we account for these things in the convertible note, you have to split it between a debt and an embedded derivative. The warrants are a derivative, and we have to value the embedded derivative in the convertible notes and the warrants at fair value at each reporting date. So in coming out with that value at December, using a share price of $5.29, we ended up having to report a fair value loss of $33.2 million. It should be noted that that the fair value is very sensitive to our share price. So if we get to double the share price between now and June 30, at June 30, it's at sort of [ 10 60 ], we will be required to book a further fair value adjustment at that point of around $160 million. So fairly volatile. Turning on to the balance sheet on 39. Obviously, very much influenced by the addition of Quad. Significant cash on the balance sheet at December, largely reflecting the capital raise just prior to the end of the half year. Normally, we would have as much of money as we can in the funding vehicles. Obviously, it's better for us to use our money to fund receivables rather than draw down on our financiers. But obviously, we were coming through fairly close to the end of the year that we weren't -- we were [ unable ] to do that. The customer receivables number is always the biggest number on the balance sheet, supported by the increase in borrowings further down on the balance sheet. Investments that we made in Spotii, Twisto all coming through in those investments lines. Other big things to call out is on the acquisition of Quad, we had to value -- acquire intangible assets, which we have done on a provisional basis. So that will be finalized at June 30. And provisionally, we've recognized a $253.7 million of acquired intangibles, which comprise the brand name, software platform and partner relationships. So they're all valued as at the acquisition date. The other big item on the balance sheet, goodwill, obviously not related predominantly to the goodwill arising on the acquisition of Quad, being the difference between the purchase price post adjustment and the acquired intangible net assets and [indiscernible] assets. And that goodwill number is around sort of $730-odd million. Looking further down the balance sheet, obviously, with bigger volumes across global businesses, the trade and other payables is largely payments to merchants, which has grown significantly. The financial liabilities is the debt host and the fair value of the embedded derivatives in the notes and warrants of $133.6 million. On the deferred tax liability, [ arising ] on those acquired intangibles [ in the Quad business ]. So just moving on to the cash flow. Obviously, a positive cash flow of $13.9 million, $20 million if you exclude the acquisition costs, up from $6.7 million in the previous year. Key call-outs, I think, on there, we paid [indiscernible] largely in shares, acquiring Quad, [ we've added ] net $26 million into the group, rolling down the proceeds obviously from the issue of the convertible notes of $96.8 million that's net of cost. We had a capital raise where we received $120 million in the year and the money from the share purchase plan through January. That's obviously not reflected in those numbers. And overall, an increase in cash of $187.2 million compared to the position at June. Moving to the funding update. Obviously, we're well placed to support our growth plans with the funding programs in place. The key call-out there is that in -- within our consumer receivables portfolio in Australia, we have variable funding of about [ $873 million ] that enables us to generate new receivables from both new and existing customers. We [ drew that all ]. We then [ turned ] it out to the rated markets, repaid the variable funding providers and then we kind of repeated the process. That's a great position to be in within our most significant funding position. The excellent performance of our receivables portfolio is that we were able to receive a 2 notches improvement in the rating of our senior note. Not quite a AAA yet, but we would expect to get there shortly. And overall, we were able to get a 10 basis point reduction in the average rate across that transaction compared to the first transaction. We have a $150 million facility in the U.S. with Goldman Sachs because of the nature of the seasonality of the business. Obviously, huge volumes over Black Friday, Cyber Monday, repaid by the time we get to January, and we were able to repay USD 25 million of the drawn amount in January. Final thing to point out there is that we've talked a little bit about the expectations for the business segment to grow in the next 6 months. We established $100 million facility with Victory Park Capital during the half to fund that growth. And you may recall that they were the initial funders of the Zip business -- to Zip back in the day, back in 2015, so have a long and healthy relationship with those guys. And on that note, I'll pass back to Larry.

Thank you, Martin. And just finally, Section 6, what's ahead? Half year '21 was our biggest result yet and it is providing strong momentum into the second half. And I think we're going into it with really strong tailwinds. We've got a great head start in the buy now, pay later space and a global footprint, ready to take charge. The flight to online, which we saw accelerate last year as a result of the pandemic, we really believe, is here to stay. The aversion to the credit card is continuing at pace. It's happened significantly over here in Australia. We're seeing these trends globally. And we would argue that increased competition is increasing retail awareness, which actually is a huge net positive for us given our footprint globally. And of course, we are competing against the really slow banks. So I think we're in a really, really good place as long as we keep innovating and moving at Zip speed. The U.S. acquisition was clearly transformational to Zip. And as we have global momentum, there is going to be a huge focus in the U.S., U.S., U.S., U.S., as the [indiscernible] says. We also like to continue looking for opportunities and continue to accelerate our growth in the U.K. We're going to remain focused on those 4 key strategic priorities really at the top, which is continue the payments acceptance route, which is around getting customers to transact everywhere and every day through an increase in closed-loop network. We need to continue to drive app engagement that is the heart of the relationship. And we need to remain focused on that. And we spoke about global expansion and Zip business. There'll be a big focus on global sales. We have a great pipeline. We're in discussion with a lot of great names. And our ability to offer, not just Australia, but the U.S., U.K., and other regions is increasingly favorable for these retailers, and we look forward to announcing some names -- more names over the coming period. And while we focus on growth, as we've kind of shown on the slide around transaction margin, we'll continue to make sure that the transaction margins remain healthy, unit economics remain sustainable, and as we invest in fixed costs, we see the operating leverage come through as volume starts to expand. So we're really excited about the road ahead, and thank you for listening. We'll now hand over to the moderator for questions.

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

Obviously, a massive first half of '21, a lot of initiatives launched. Just interested just on a couple of points. Firstly, just around the app-based usage, the metrics and sort of the customer adoption in the U.S., we're seeing average balances and average transaction sizes in Australia rising and the U.S. rising materially as well as you've provided some new data on sort of repeat customers in the U.S. that looks pretty high around that 85%, 90% level. Are you surprised as to the level of uptake and adoption in the U.S.? And secondly, just talk us through just like what you are seeing in the U.S. from a competition point of view.

Yes. Thanks for that. We have Brad and Adam in the room. So one of them will take the U.S. question. Look, I don't think we're particularly surprised with the uptake. Our strategy from the outset has really been about enabling buy now, pay later anywhere. And the acceptance size of the Visa network, obviously, allows consumers to shop wherever they want. And that broadness of reach allows for the repeat purchase rates to be higher as they can use it when and wherever they want. And so I think the usage rates are in line with what we expect. And we also expect that to grow over time as people become more used to shopping with Quadpay. And a question on the -- what was the second question, Jon? I just [ heard ] competitive landscape.

Yes. Just talk us through just the competitive landscape and how it's playing out in the U.S. from your view?

Yes. Look, I think we're in a very large market. We truly feel that the market size is very large, and the penetration is low, as you can see in the deck. There's a lot of runway there. There's obviously a number of competitors playing. I think there are differentiated approaches. Some of the key players only have the, like, integrated network, whereas we have both sides and a flywheel, and that really is driving a lot of the outperformance that you're seeing. So yes, I think we're in a great position.

Jon, I think if you look at our product strategy globally, it is differentiated. So the ability to offer short- and long-term installments, that does resonate with the merchants and gets us alongside some of the peers. The ability to derive income from merchant and customer means we can also play in all gross profit categories. So there's a lot of categories of other players and the global lens, the ability to offer up multiple markets. So as I said earlier, the pipeline is looking -- even though competitive threats are out there, the pipeline is looking great and merchant conversions are accelerating.

Two last ones for me, just weaving on to that question, just in regards to the product portfolio. You are running with a single product internationally or mainly a single product. You've got a significant portfolio of other longer-duration products and various sort of like interest-free and buy now, pay later products. Are you able to sort of give us your thinking around the suitability of those products into the international market and when you'd look to take them there?

Yes. So I think, as we've always said, being able to offer an interest-free installment, whether it's $160 pair of shoes or a $2,000 iPhone, is really important, and we've proven that out here in Australia. Globally, [ Horizon One ] has been paying for, but we're actively working to deliver feature parity across all regions where you can pay in 3, pay in 6. And I think there's a lot of proof points out there of why longer-term installments are really important and make a huge difference for a lot of big retailers out there. So we'll be working on those products to add to the portfolio but more on the consumer side. So don't expect to see business go global anytime soon. It's still very much in a beta phase over here in Australia. We have to earn our stripes, but definitely focused on short, long-term installments in all markets. The U.S. is working on that right now, U.K. as well. And you will see some announcements from us throughout the year.

Last one for me, guys, just on the unit economics. I know it's a real focus for you. Unit economics have held up really well through the half, and you've also delivered a flat result on the cash EBITDA front, which I think was probably a little bit surprising for us with the growth. Are you able to just talk us through just what we should expect around the gross margins into the second half and onwards? I don't think you've split out Quad versus Zip, but Quad, obviously, effectively has a higher turn and higher margin there. It just looks like gross margins are sort of coming in ahead of expectations. How should we think about that moving forward?

Yes, I think -- thanks for the question, Jon. I think we'd be expecting to sustain or improve gross margins over the second half.

I think we called out, that's one of the strengths of our model and differentiated approach, Jon, and I think we expect that to continue to hold and remain a competitive differentiator of the Zip business globally.

Your next question comes from Phil Chippindale with Ord Minnett.

A couple of questions from me. Firstly, probably for Brad and Adam. You specifically mentioned anywhere product being the real focus for you in the U.S...

Sorry, Phil. You sound a bit blurred. Are you able to maybe speak a bit clearly into the microphone louder?

Yes. So my first question just relates to -- just on the anywhere product in the U.S. So a question for Brad and Adam. You mentioned that was a real focus for you guys. I'm just wondering what percentage of your U.S. [indiscernible] comes from the anywhere product against the relationships where you've got direct line of sight into merchants like fashion, et cetera?

Yes. Thanks for the question. Look, we -- whilst we've spoken about the [indiscernible], we are very focused on the integrated partner network. And the business is doing very well, bringing on board a number of well-regarded enterprise merchants. The merchant base is growing rapidly. These 2 models work hand-in-hand together. We -- just based on the performance, the downloads in the app store, that's really driving a lot of first-time new users into the app, which then go into our integrated network and benefit our merchant base. So look, I don't want to be thinking that we're not doing well on the merchant front. That is remaining a huge focus for us. Core model is very important, and terminals are working nicely together.

Yes. There's been a big uptick as well just in the merchant sign-ups as well over the last half. So merchants are being onboarded on an accelerated path, a lot of investments have gone into automated onboarding and big names are now signing to join as well.

Okay. Just turning domestically. The increase in capital efficiency and the rate of turn in the book in Australia, has that really been a function of increased usage with Zip Pay? Just love a comment as to what's driven that domestic increase in efficiency.

I think it's been a function of a number of initiatives, Phil. We're certainly focused on our repayments as a service to our consumers, encouraging them to pay back quicker and offering them more flexibility, understanding the overall benefit it has to that yield concept. So it's certainly been a significant area of focus that we have delivered through the app. So as much as it's Zip Pay's penetration to everyday spend categories, which typically might have a shorter duration in terms of the repayment profile for that type of usage, so it's probably the combination of a number of things. Having said that, Zip Money on the larger ticket stuff has also had improved velocity of repayment as well.