Zip Co Limited (ZIP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Zip Co Limited Half Year '24 Results Briefing. [Operator Instructions] I would now like to hand the conference over to the Director of Investor Relations and Sustainability for Vivienne Lee.

Good morning, and thank you for joining Zip's First Half 2014 earnings call. To open the call, I'd like to begin by acknowledging the traditional owners of the land on which we meet today, the Gadigal of the Eora nation. and pay my respects to elders past and present. This conference call is also being webcast, and both the results presentation and call details are available on the ASX. I'm joined today by Zip's group CEO, Cynthia Scott, Group CFO, Gordon Bell, and the group's executive team from Zip. We will start this call with some prepared remarks and then open up to questions. With that, I'll now hand over the call to our CEO, Cynthia Scott.

Thanks, Vivienne. Good morning, everyone, and welcome to Zip's First Half 2014 Results presentation. At the start of FY '24, we said that we would achieve positive cash EBITDA during the first half of '24. We achieved this important milestone in Q1, and have gone on to report a strong positive cash EBITDA results for the half of $30.8 million. This result was driven by successful execution of our strategy in our 2 core markets, ANZ and the Americas. And we're focused on maintaining that discipline and execution for the remainder of FY '24. Our key financial highlights are set out on Slide 3. As you can see from the chart, the positive group cash EBITDA of $30.8 million for the half is a turnaround of $64 million from the prior corresponding period. Cash net transaction margin expanded 90 basis points to 3.5%, and cash gross profit was up 45.9% with credit losses remaining stable at 1.9% of TTV. This performance was achieved despite a challenging external environment and a significant increase in interest rates, reinforcing the continued relevance of our products and the important role they play for our customers and merchants. Turning now to operating highlights on Slide 4. In the first 6 months of the year, we delivered $5 billion in transaction volumes from more than 38 million transactions. This was driven by a particularly strong performance in U.S. volumes, and increased customer engagement. Group revenue was up 28.9% to $430 million, and our revenue margin increased 130 basis points to 8.5%. Active customer has finished the half at $6.3 million with customer growth impacted by our deliberately conservative risk settings. Merchants on our platforms grew 9.3% to over 76,000 reflecting the strong demand from merchants to have this available for their customers. Turning to Slide 5, and our progress against our FY '24 strategy. At the beginning of the year, we set out 3 clear priorities aligned to our regional strategies, capabilities and competitive position. We said that we would focus on driving profitable growth in our 2 core markets, innovate new products for our customers and merchants and continued to strengthen our balance sheet and deliver operating leverage. As you can see on the left, the U.S. had a particularly strong seasonal half with record volumes up 33.3% year-on-year. This was achieved while maintaining strong credit performance, in line with our strategy to deliver sustainable, profitable growth. In Australia, we launched a new product in November, Zip Plus, driving the next horizon of growth and designed for an environment where we may see higher for longer interest rates. In delivering on operational excellence, we took further actions to strengthen and simplify our balance sheet with a new $150 million 4-year corporate debt facility. We also saw continued deleveraging of the balance sheet with Zip convertible notes reducing from a total of $340.2 million in June to $68.8 million at 31 December. Finally, we took actions to simplify our shareholder register, completing a small shareholding sale facility, which will deliver administrative cost savings to this. The collective impact of these actions can be seen on the next slide, which captures the significant improvement in our financial performance. 12 months ago, we reported a loss of $33 million. Today's result is positive cash EBITDA of $30.8 million, reflects disciplined execution of our simplified strategy and reinforces our position as a self-sustaining business. Turning now to Slide 7. This is committed to delivering sustainable outcomes for all its stakeholders. For our customers, we remain committed to responsible lending, advocating fit-for-purpose regulation with strong consumer safeguards like Zip has in place, and supporting customers to develop financially responsible behavior such as through our work with debt relief, charity way forward for or our financial education modules, will provide U.S. customers through our app. Zip remains focused on continuous improvement to our cybersecurity resilience and the protection of customer privacy and data. And during the half, we uplifted our policies and controls to align with the latest international information security standards. We're committed to driving gender balance at all levels of the company. Female representation is currently 43% of our total workforce with 60% female representation on our board. Finally, we continued our commitment to being climate-neutral and progressed our work on climate-related disclosures. We measured and disclosed our Scope 1, 2 and 3 greenhouse gas emissions and invested in carbon offsetting initiatives to neutralize our emissions as we've done for the past 3 years. Before I step into the detailed performance of each region, Slide 9 is a reminder of the important and unique role in each of our core market holes in the longer-term opportunity of Zip. As we continue our focus on driving sustainable profitability, in ANZ, we will leverage our position as a profitable at scale business with significant market share in unsecured consumer finance solutions. We're continuing to focus on product innovation that will drive the next phase of growth in Australia. This will include new capital-light products that broaden our financial services offerings, increase our engagement with customers, and deliver new revenue streams. In the U.S., having reached cash EBITDA profitability, we're well-positioned to drive incremental profitable growth and scale, while we continue to innovate for our customers and merchants. On to Slide 10 to discuss the performance of the Americas business. Having spent some time earlier this month in the U.S., I was reminded of the sheer size of the $11 trillion payments opportunity, and how early the point-of-sale credit journey is in the U.S., which is still below 2% of total payments, and which is well-positioned to capture. There's a tremendous opportunity -- growth opportunity across both online and in-store for this product. With more Americans wanting to budget in a way that is inclusive and flexible, Zip is playing a greater role in providing short-term unsecured credit to the over 100 million adult Americans underserved by the traditional finance industry. With a firm focus on strategy execution, the Americas business generated strong positive cash EBITDA in the first 6 months of FY '24, demonstrating the potential of this market. Record top line growth of $3.1 billion in transaction volumes and $214.7 million in revenue was generated during a particularly strong seasonal uplift during the half. This was driven by increased customer engagement through higher-margin channels, such as the app and installs. As reflected in the chart, TTV and transactions per active customer were up 36.2% and 30%, respectively, well ahead of FY '23 levels on an annualized basis. While customer numbers declined slightly versus the first half of '23, we've seen good momentum in the customer base with MTUs up 10% on average versus the prior corresponding period. Our product strategy is progressing very well with high engagements through our app. We're demonstrating product market space with our physical cards, which is continuing to drive incremental volumes and engagement. We've continued to add cardholders who are now generating over 30% of in-store volumes, up 311% year-on-year. And we've outperformed relative to the macro environment with Zip's volume growth at 33%, highlighting the strength of our product offering. Turning now to Slide 11. This slide covers U.S. credit performance in more detail and shows that as volume growth has accelerated, we've successfully maintained bad debt performance below our partner levels. This reinforces the capabilities of our sophisticated credit decisioning platform that enables us to provide appropriate credit to America's underserved customers, and respond quickly to changing market conditions throughout the credit cycle. Our focus on credit performance saw Zip maintain loss levels at or below 1.4% of cohort TTV as we scale new product features to drive responsible repayment behavior. These included features such as enabling self-service for payment date changes, flexible installments, and gamified repayments. We've continued to strengthen our proprietary credit decisioning capabilities with cash flow underwriting and new machine learning models for returning customers, which will provide ongoing support to the business as we scale further. Turning now to ANZ on Slide 12. The ANZ business continues to deliver very strong results. Revenue was up 23% year-on-year, with revenue margins expanding 320 basis points to 11%, reinforcing the strength and benefits of our 2-sided business models. While TTV and customer growth were tempered by deliberate adjustments to our credit risk settings, we delivered a solid cash EBITDA results as revenue growth more than offset the significant increase in funding costs over the period. With 2.3 million active customers, and over 10 years of operating data, we have a deep understanding of our customer needs. In November, we launched a new product in Australia Zip Plus, to an existing group of Zip customers, providing access to greater spending power and financial flexibility. Zip Plus is being designed for an environment where we may see higher for longer interest rates, and is expected to drive TTV and margin growth over time. While it's early days, customer engagement has been strong, with 93% of customers liking or loving the new product, and recent transactions for MTU have been double that to Zip Pay customers. During the half, we also launched with a number of new merchants in targeted verticals, including telcos with Amaysim,, and bolstering our presence in health care with HBF Dental. Verticals where we continue to see ongoing consumer spending despite the softer retail environment. Our strong market position in the travel vertical is performing well, and our differentiated Zip Money products positions us strongly in these verticals. Moving to Slide 13 for more detail on the performance of the Australian loan book. With our account-based product construct in Australia and well over $2 billion in receivables, returns and metrics on the loan book is the best way to think about the performance of the business and the significant future upside. The chart on the left-hand side shows the return on the loan book or excess spread, similar to a net interest margin measure. Highlights from the Australian portfolio with the improvement in yields to 17.5%, up 338 basis points over the last 12 months, and the increase in excess spreads. Excess spread was up 106 basis points to 6.2% despite a $27 million increase in funding costs versus the first half '23, demonstrating the resilience of its business model in a rising interest rate environment. The right-hand side provides further detail on our credit performance. The chart shows an improvement in the inflation arrears that we saw in the second half of '23 as a result of the softening in the broader consumer credit market. As we've consistently demonstrated, we have a proven ability to manage credit outcomes through different external cycles. Our product contracts and capital recycling provides Zip with a unique advantage and the ability to respond quickly and adjust risk setting as needed. Actions such as tightened lending criteria and reduced exposure to higher risk customer cohorts have driven an improvement in credit quality and loss performance, which you can see particularly as we exited the first half of '24. And we expect net bad debt to continue to trend down during the second half. I'll hand over to Gordon to cover this financial performance.

Thanks, Cynthia. Moving to the income statement on Slide 15. As highlighted earlier in the presentation, Zip achieved an outstanding positive cash EBITDA result of $30.8 million. I'll focus my comments on the overall P&L and provide detail on specific line items shortly. For the half, Zip delivered a statutory net profit after tax of $73 million. The main movements on the rest of the P&L include movements on non-cash items. Firstly, a decrease in effective interest on convertible notes due to the reduction in face value outstanding as if undertook liability management activities and following those holder conversions during the period. Secondly, the provision for expected credit losses has fallen to 4.9% of our receivables compared to 5.5% at the end of last year, primarily as a result of the improved performance of our Australian receivables portfolio, offset by an increased macro overlay. And finally, the corporate and one-off adjustments line includes the impact of $139.7 million gain on Zip's senior convertible notes post the consent solicitation process, which although announced in June 2023, was completed in July 2023. Slide 16 covers Unit Economics, showing strong results across the board. And Slide 17 provides a chart illustrating the key movements in cash NTM. Turning to Slide 17. This shows the very strong improvement we delivered in margins despite the rising interest rate environment. The 130 basis point improvement in revenue margin was the main contributor to NTM expansion, driven by the benefit of Zip's 2-sided revenue model and growth in higher-margin products. This increase more than offset the 50 basis point increase in interest expense. Net bad debts remained stable at 1.9% of TTV, reflecting ongoing discipline with credit settings and portfolio management in both core markets. The resulting 90 basis point increase in our cash transaction margin is a very strong result in the current environment. On to Slide 18 for cash OpEx. Overall cash OpEx was down 4.4% on the first half '23 levels, reflecting continued discipline to manage costs across the group and deliver operating leverage as the business scales. Salaries and employment-related costs declined 12.9%, reflecting actions taken in FY '23, streamline our operations and cost base. Marketing costs also declined 18% year-on-year due to lower merchant commitments, particularly in the U.S. The movement in IT costs reflected proactive actions taken to review and rationalize our supplier costs. And finally, other operating costs increased due to higher professional service fees and costs related to corporate debt facilities when compared to prior periods. Turning to Slide 19 and the balance sheet. I'll cover our cash position in a little more detail on the following slide. Starting with receivables on Slide 19. The growth, which is reported net of unearned income and allowance for bad debt reflects revenue growth primarily in the Americas business. The increase in trade and other payables was driven by an increase in merchant payables as a result of higher transaction volumes, particularly in the U.S., and the increased prefunding by our partners to cover trading days prior to 31st of December. The movement in borrowing includes an increase in the corporate loan balance from the new $150 million corporate debt facility we executed and put in place in December 2023. This was offset by a reduction in convertible notes, which is shown in the other liabilities line as the outstanding face value of these convertible notes reduced from $340.2 million at 30 June 2023 to $68.8 million at 31 December 2023. If I move to Slide 20, it shows the walk from our reported to available cash position. And as you can see on left-hand side, on 31 December, Zip had $303.8 million of cash. After allowing for cash held at balance date that was unavailable and including cash that may be withdrawn from our funding vehicles, the Zip has what we deem $81.3 million in available cash and liquidity as at 31 December 2023. On the right-hand side chart, you can see the improvement in our available cash position, and this is driven by both operating and non-operating cash flows. Pleasingly, operating cash flows comprising cash EBITDA, CapEx, working capital and funding requirements contributed a positive $4 million of inflows. This was driven by the group's strong operating results, offsetting the substantially higher funding requirements at this time of the year for seasonal peak volumes. Non-operating movements included additional cash and liquidity from Zip's corporate facility, the release of restricted cash from funding facilities, and the repayment of $10.8 million in principal and interest for the CVI convertible notes. Collectively, these actions delivered a $24 million improvement in our available cash balance since June, further strengthening our balance sheet as of 31 December 2023. If I move to a funding update now on Slide 21. In line with our focus on operational excellence, we made great progress on our funding facilities during the period. This funding facilities are made up of 2 distinct components. The first are the asset-backed components, which fund consumer receivables in warehouse facilities and in public term deals. The second component is the corporate debt component, which supports working capital, and this is made of our corporate debt facility and our convertible notes. In December, as Cynthia highlighted, we strengthened and simplified our balance sheet with a new $150 million corporate debt facility, and this was used to repay our maturing facility, fund the cash component of the incentivized conversion of the remaining 40 million CVI notes and to provide additional liquidity for growth. On receivable funding, we are well placed to support our strategic growth initiatives. In Australia, during the period, we completed a $300 million rate of note issuance with the senior tranche rated AAA and refinancing, we also refinanced one of its receivable warehouses. In the U.S., we refinanced our USD 225 million facility in December with a 3-year term to December 2026. Across Australia and the U.S., we have ample funding headroom to support receivables growth, currently standing at AUD 237 headroom in Australia and USD 78 million headroom in the U.S. Finally, and pleasingly, our year-to-date progress is evidence of the strong support we're seeing from existing and new investors, and we are well progressed on upcoming refinancing and new funding transactions. I'm confident we have the sufficient capacity and available to fund receivables growth in the second half and beyond. If I move to Slide 22, as Cynthia mentioned, we've delivered a significant reduction in Zip's convertible note funding as a result of actions taken to deleverage our balance sheet. The combined impact of the consent solicitation process and the subsequent conversion of Zip's semi-convertible notes as well as the incentivized conversion of the CVI convertible notes. Collectively reduced Zip's convertible note outstanding face value from $340.2 million to $68.8 million during the first half. In addition to this, since the end of the first half, we've seen a further conversion, reducing the balance again to $34.6 million as of last Friday, the 23rd of February, and this delivers approximately $5 million of interest cost savings to us on an annualized basis. Now, I'll hand back to Cynthia to make some comments on our strategy, full year '24 priorities and our outlook.

Thanks, Gordon. Moving to Slide 24, which is a reminder of our FY '24 strategic priorities that we set out at the beginning of the financial year, that in line with our regional capabilities and competitive position. And we remain committed to these priorities in the second half of FY '24. Firstly, we'll maintain our focus on driving profitable growth in our 2 core markets through customer engagement initiatives, further penetration of targeted verticals, and strong credit performance outcomes. Secondly, we'll continue to unlock new customer and market segments as we scale a Zip Plus offering in Australia. In the U.S., we will scale initiatives such as cash flow underwriting and progress testing of Pay in 8, providing customers with new ways to pay and budget responsibly. Finally, we will continue to invest in our processes, platforms and systems to support further scale and deliver operating leverage as we continue to grow. Turning now to the outlook on Slide 25. The medium-term targets we presented at the FY '23 results remain unchanged. You'll see that in the middle column, we've updated our comments for expected FY '24 outcomes, reflecting year-to-date achievements, our expectations for the second half and external market conditions. Over the medium term, revenue as a percentage of TTV is targeted between 8% and 9% as we grow higher-margin products and drive customer lifetime value. For FY '24, we expect our results to be at the upper end of this type of range. We continue to have cost of sales as a percentage of TTV of between 5% and 6%, and cash NTM for FY '24 is expected to be around the midpoint of our target range of 3% to 4%. On OpEx, we expect to benefit from the actions we took in FY '23, and we'll continue to exercise a disciplined approach as we scale. We remain on target for the dollar value of cash OpEx to be no greater than FY '23. On cash EBITDA, we expect to deliver 1% to 2% of TTV in the medium term, which is unchanged from prior guidance. As we approach this range in FY '24, our earnings over the full year will be weighted towards our first half results of $30.8 million, which includes the very strong seasonal performance delivered by the U.S. business in the second quarter. Turning now to the final slide, where I'd like to make some closing remarks about how Zip is positioned for the second half of '24 and beyond. Zip has absolutely delivered on becoming a stronger, simplified and profitable digital consumer finance company. And we remain committed to the 3 strategic pillars we've prioritized for FY '24, profitable growth, product innovation, and operational excellence. Zip is very well-positioned to capitalize on the near- and medium-term opportunities we see in our core markets of ANZ and the Americas. Our strong momentum has continued into the second half, and we have the right settings, platforms, and business models to drive continued profitable growth and long-term value for our stakeholders. On behalf of the group executive team, I would like to thank the entire Zip team for their focus and execution in the first half '24, and to our customers, merchants, partners and shareholders for their ongoing support. That ends the formal part of the presentation, and we'll now open the call for Q&A.

[Operator Instructions]. Your first question comes from John Marrin with CLSA.

Hi, Cynthia, Gordon. Great job on delivering everything you said you would. Peter, I think we could take that back as far as 24 months ago. So back when things are looking pretty tough, but some kudos from me for riding the ship guys. I'd just like to hear some more about the opportunity in the U.S. It's pretty clear that you've now earned the right to grow with stronger access to funding. And just hoping you could discuss what you're looking at in terms of the composition of that growth in the U.S., and understanding it's about MTU growth and engagement. But maybe if you could just highlight the levers that you're pulling on to drive each? And then maybe also discuss any updates you have on the merchant acquisition strategy and shifting dynamics there on pricing?

Yes, absolutely. We'll do. Thanks, John. So, I'll just make some comments and then I might pass to Larry, who's also on the call just to give some added perspective as well. So just in terms of the composition of U.S. growth, you're right, the bulk of the growth that we've seen in the first half has been from existing customers, and we do expect that, that will continue. So if I think customers are performing well, and we're seeing those customers transacting more often in our higher-margin channels as we discussed in the comments, but we're also seeing a higher level of engagement from those existing customers and higher average order value. So that's all very positive, and we anticipate that, that will continue. That being said, we are also anticipating that customer growth will reestablish in the U.S. market. So, through FY '23, we really do throttle growth in customer numbers in the U.S., and we're starting to see that open up again. And as you say, John, a big part of that is going to be driven by merchant growth. And we do have a focus, and Larry, in particular, is very focused on bringing new merchants onto the platform in the U.S. And given the earlier stage of the U.S. market, that customer growth will be driven by those new merchants coming on to the platform and we'll be looking forward to announcing some great new merchant names over the second half to you. As part of that, we will be seeing an expansion into new verticals in the U.S. So a lot of the merchants that are on our platform at the moment in the U.S. are more typically from fashion, retail marketplaces, et cetera. But as we've seen, Best Buys, some of the platform who were exclusive with, we are moving into electronics, white goods. You'll start to see us moving into some of those other verticals where the products can be used, and where the average order value is particularly a bit higher. So I might throw to Larry, though, if you're on the line, Larry, you want to make any additional comments? If you can unmute Larry, maybe, or perhaps not. So John, we don't seem to be able to have Larry able to be unmuted. But hopefully, that gives you enough sufficient answer on merchants and U.S. price.

Your next question comes from Siraj Ahmed with Citigroup.

Last 2 questions. Just first one, just to clarify, in terms of the U.S. momentum, clearly in the chart you're showing that it's accelerating in December. Should we be thinking about it still picking up on that line charts going up? Just can you just clarify on that?

Yes. Thanks, Siraj. No, remember December, that quarter is absolutely our seasonal peak. So we've been indicating that 20% to 25% growth in the U.S., and that's how you should think about the U.S. growth over the medium term.

Yes. Sorry, just to clarify, so 20 to 25 is the second half, are you saying a pretty meaningful deceleration because you're saying it's positive. Confused?

No, no, it's not a deceleration. We're just saying that the strongest period of growth is typically that October, November, December period in the U.S.

Okay. Got it. Okay. But you had a positive start of the second half. But just clarifying that you had a good start to the second half in the U.S. with things improving?

Look, as we've indicated across the portfolio, the strong momentum that we saw in the first half is continuing in the second half year. But we do note that obviously we have our seasonal peak in that Q2.

Got it. In terms of the excess spread in ANZ, how should we think about that in the second half '24? Because I know there's a few moving parts here. I think revenue yield, you're expecting to go up, but you have some funding renewals. So can you just talk us through how you think about the exit spread?

Yes, absolutely. So in terms of the 2 components, yes, as we've indicated, revenue margins should continue to increase in ANZ, and that's particularly as a result of the actions that we took in '23 that are now slightly through for the full year in the portfolio, but also as Zip Plus continues to come online, that is providing that revenue margin accretion that we've indicated. So we are starting to see the early signs of that, which is very encouraging. And on the funding side, there's 2 components to it. Obviously, there's the absolute level of interest rates. And while interest rates have obviously gone up over the last 12 to 24 months, that means as we roll off old -- no issuance in old financing that, that absolute level of interest rate is likely to be higher now than it was when we put those older facilities in place. But then the other dynamic is the credit spread. And pleasingly, we're beginning to see the credit markets responding to the transformation of financial performance, and we're beginning to see improved interest in investing in Zip's credit, and that's been resulting in greater price tension in those spreads coming down.

The other inputs, Siraj, will be continued improvement in credit performance. Obviously, we declared that our losses were peaking in early Q2 and early stage are trending down, and losses will continue to follow that trend.

So all that particular, can you confirm that you would expect a better excess spread in the second half then? That'd be fair.

That's the objective.

Your next question comes from John Marrin with CLSA.

Hey, guys. Sorry, I didn't really realize I'd be so quick in the queue again. Just on the Pay in 8 products. Can you just discuss the motivation there, what you're thinking about this product, how it might be rolled out to the customer base, and what the key KPIs are relative to the pay and for?

Yes, sure. And John, I think we have got Larry on the line, and maybe Larry can give a bit more of a granular answer. But the strategic rationale behind the Pay in 8 is that it gives our customers the ability to make larger scale purchases with a higher average order value that they can then obviously spread over a more period of time. And that -- our customers are responding very well to that ability to spread their expenses and the budget responsibly over a longer period of time. It also enables us to unlock different verticals as I referred to earlier. So that's the strategic rationale to give that payment flexibility and controls budgeting put back in the hands of our consumers. But Larry, are you unmuted now? No. All right. We thought you were unmuted, but perhaps not. But John, hopefully, that gives you enough certain indication in relation to the rationale. And I will say that as the U.S. team have done a great job building out the technology to enable Pay in 8, which is in early parler. We've actually built the flexibility to offer pay in there. So we can -- over time, we can look at further product refinement in the U.S.

It's a good point of differentiation and also opens up additional verticals that we might be able to target strategically, John. And obviously, we've developed a core competency for credit. So we're certainly well placed to support larger ticket purchases.

Okay. Great. And just -- I know when people hear about underserved populations. I mean, I think there's a mistake that's pretty common about underserved being also undeserving. I mean, can you just clarify some of that for us? And who are these people? Why are they underserved, how are you targeting them, et cetera?

Yes. No, it's a really good point. And look, this is one thing that really hunt me when I spent time with the team in the U.S. earlier this month. There's 100 million adult Americans who are underserved by traditional financial services provider. And so that, to your point, that doesn't mean that they are all lower socioeconomic or that they are all lower FICO scores. And certainly, we are talking about customers who typically have a FICO score of less than 700. However, it's also customers who have a thin file or no file. It's also customers who might have just relocated to the U.S. or immigrated to the U.S. and don't have a credit history. And so, these customers absolutely have an ability to pay, they just don't have access to traditional credit product or traditional financial services in the U.S. So John, just on that in relation to our strategy. As you've seen, we've talked about some of the financial inclusion and financial education work that we've been doing in the U.S. We've also talked about the gamification of repayments. So our strategy is really to look for those customers where through our credit decisioning, we can identify that we bring them on to the platform, and we have what we refer to as a low and grow strategy. We bring them on, we help them responsibly budget and repay. And then on the back of that proven credit history, we will then look at giving them moderate credit limit increases.

Your next question comes from Jonathon Higgins with Unified Capital Partners.

Hey, team. Great set of results. I appreciate you taking the time to answer some questions today. My first one, just more broadly, just asking a question following from Siraj with regards to the international environment. We've seen some of the CompCos, the larger CompCos that you have doing a number of different things on product construct, fees, subscription, and we're seeing rising margins like sector-wise. Can you talk more broadly as to where the sector currently sits in regards to that and how you see that playing out with your product in the U.S.?

Yes, sure. Thanks, Jon. So you're talking specifically about the U.S. market and the competitive landscape?

Yes, I suspect so. I mean I think it's probably best to focus on that one just because I think that's where most of the international guys have got a lot of their volumes. Thank you.

Yes, just a couple of comments. We've got a very rational competitive environment in the U.S. So given the scale of opportunity for the industry and the sectors to grow, we're still seeing very rational behavior. And some of the things that you've highlighted, though, Jon, are the fact that our construct of our products in the U.S., and is that we do have the unique 2-sided revenue model. And so, we have installment fees, and we have merchant service fees. And so yes, we have seen others start to replicate a similar structure to end up also with a 2-sided revenue models. But it's interesting, as others are innovating in and around the product set, obviously, we're doing the same. And we've had very good success from the product innovation that we've undertaken in the U.S. in terms of physical card and in terms of gamifying repayments, variable first installments et cetera. And so I think it's just an indication that there is room for everyone to grow in the U.S. market because there's really strong demand from customers and from merchants to have the flexible consumer finance solutions and other checkout.

I appreciate the context. Just a couple more for me. When a business is undergoing a turnaround, sometimes hard to use seasonality, particularly when you're putting through changes in yields on the product and throttling TTV in one market and releasing in the other market. My back of the envelope, normally, the U.S. is almost a 50-50 market when you've got growth coming through in that market. And usually, there's a bit of a slower second half in the second half in ANZ. But can you just remind us just -- is that the expectation you think playing out, noting there was an exit in the U.S. that was pretty strong and it's been going through the half?

Yes. I mean we -- I mean, you're right, Jon. There has been a transformation in the business across both the ANZ and the U.S. But it is typically the case that we do have a stronger first half than second half, and that was the case in '23. So that's certainly our expectation. So '24, there is momentum in the business, absolutely, but it is typical that our peak seasonal period is in the first half, not in the second half. So we expect the same for the '24.

I appreciate that. Last one for me. Just on the seasonality approach with the margins. When I was looking at your Australia and New Zealand performance, you can see the excess spread opened up in December, understanding that you did make some product changes, I think, in November, December. And usually, there's some seasonality to customer fees in both ANZ, and also to a lesser extent in the USA. Could you comment on what seasonality you'd expect in terms of revenue margins in Q3?

Yes. I think the revenue margin is probably less based on seasonality, Jon. It's more a combination of initiatives that we've undertaken candidly over the previous 12 months. Obviously, a huge contributor to the improvement in December was the improvement to credit losses. And as we had indicated, they were likely to peak in October and November, and it's running according to management expectations, and they will continue to improve as well. So there's a marginal uptick free seasonality, I guess, with regards to increased transaction volume. But obviously, as a percentage of receivables, margin improvements don't shed significantly due to seasonality.

[Operator Instructions]. Your next question comes from Siraj Ahmed with Citigroup.

Just a quick follow-up. In terms of the funding facilities, I think you have one coming up in April. Anything you could share on how you're tracking on that, and also the margin that you are discussing? I think you mentioned it's a bit better, but the senior clarity on that would be helpful. Thank you.

Yes, Siraj, it's Gordon. We're well advanced on the refinancing for BFN1, which has a rollover date of the 10th of March, and we expect to be disclosing that in the very near future. In terms of margins, pleasingly, we've seen a significant improvement to what we saw in the second half of calendar year '23. And that's true to both existing and new investors looking to be a part of that trade. So we'll have more details on that shortly, but very more advanced.

The next question comes from Roger Samuel with Jefferies Australia.

Well, good morning, guys. Very good results. Just one question on -- I appreciate that your revenue margin should improve in the second half. What about the TTV? Do you expect TTV to grow over second half '23? Or is it continue to decline in the second half?

Yes. Hey, Rogers, please. Yes, so I think for the remainder of FY '24, we do expect TTV to be tempered. We have obviously adjusted some portfolio settings over the previous 6 months, which has delivered there's a significant improvement to performance and the reset of margins and seeing the business for high to longer interest rates. That's where we expect TTV to significantly start to grow again in FY '25 off the back of that reset and further penetration of new products like Zip Plus. So, reasonably tempered for the remainder of this financial year, but accelerating again quite strongly in FY '25, not dissimilar to how the U.S. has reset their business probably on a profile 6 to 12 months ahead of ANZ.

There are no further questions at this time. I'll now hand the conference back to Ms. Scott for closing remarks.

Thanks very much. And I'll just finish by saying thanks very much to everyone for joining us today. I will look forward to catching up with many of you over the next couple of weeks as we head out on the road. And if you have any further questions, then probably in the first instance, it's best to send them through to Vivienne. So thanks again for joining us.

That does conclude our conference for today. Thank you for participating. You may now disconnect.