Zip Co Limited (ZIP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Zip Co Limited FY '24 Results Briefing. [Operator Instructions] I'd now like to hand the conference over to the Director of Investor Relations and Sustainability, Rachel Cooper. Please go ahead.

Good morning, and thank you for joining this FY '24 earnings call. To open, 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 respect to elders past and present. This conference call is also being webcast, and an archive will be available on the Zip website. I'm joined today by Zip's Managing Director and Group CEO, Cynthia Scott; and Group CFO, Gordon Bell. We will start this call with some prepared remarks and then open up for questions. With that, I'll now hand over to our group CEO, Cynthia Scott.

Thanks, Rachel. Good morning, and welcome to Zip's FY '24 results presentation. This morning, I'll cover the FY '24 highlights and regional business performance. Then Gordon will take us through the financial performance, and I'll conclude with remarks regarding our FY '25 strategy and outlook. Turning to Slide 4. We began FY '24 with a clear and simplified strategy to deliver profitable growth, product innovation, and to drive operational excellence across the business. This executed strongly against each of its strategic priorities. We delivered profitable growth in both core markets and achieved record group profitability. We simplified our balance sheet and reset our capital structure, providing greater operational flexibility to drive future growth. Importantly, we've materially strengthened its foundation and have the right settings, products, and strategy in place to deliver on our significant future growth opportunities. Our key financial highlights for the group are set out on Slide 5. Revenue rose 28.2% to $868 million, while revenue margins continue to expand, increasing 96 basis points to 8.7% of TTV. Our cash net transaction margin expanded 96 basis points to 3.8%, and net bad debt fell to 1.7% of TTV, down 18 points over the year. Across the group, we delivered $10.1 billion in transaction volumes, up 14% on the prior year, driven by deeper customer engagement across the business. Our merchant growth continued, increasing 9.6% with over 79,000 merchants on our platform, reflecting the strong demand we see from merchants to have this available for their customers. Turning now to Slide 6. Our focus on execution saw Zip deliver 4 quarters of profitable growth, resulting in record profitability for FY '24. Zip achieved normalized group cash EBITDA of $69 million, a $117 million turnaround on FY '23. This includes the impact of cash STI payments of approximately $10 million, which means that underlying cash EBITDA was $79 million or $127 million turnaround versus the prior financial year. In the Americas, cash EBITDA was a record $77.2 million, up $101.3 million or 420% from a loss of $24.1 million in FY '23. Our ANZ business recorded a cash EBITDA result of $33 million, a $19.1 million improvement on FY '23 despite a more challenging operating environment. This crossed a key inflection point in FY '24, where economies of scale opened up significant operating leverage for the business. Over the year as a group, Zip achieved a 28% revenue growth, which translated to more than 240% growth in cash EBITDA. We will look to continue this focus on operating leverage in FY '25 while making measured investments to support future growth. Moving now to Slide 7 and our execution against our strategic priorities. As highlighted, we delivered growth and sustainable profitability and focused on product innovation, launching a new product in Australia Zip Plus, and piloting a new Pay in 8 products in the U.S. With a focus on operational excellence, we strengthened and simplified our balance sheet, removing all convertible note liabilities and repaying all corporate debt by an oversubscribed institutional equity placement and share purchase plan in July 2024. These actions have put us in a very strong position with no corporate debt and sufficient equity and free cash flow generation to support our growth opportunities. Turning now to Slide 8, covering this focus on sustainability. Our business model is built on being a responsible lender and doing what's right by our customers, merchants, and other stockholders. We recognize the importance of financial well-being and inclusion and continue to focus on offering accessible, fair, and flexible products that cater to diverse financial needs and circumstances. This year, we posted a financial literacy hub for our most engaged U.S. app users. The response from customers has been very positive, and we'll look to expand the hub to a broader range of customers in the coming year. For our Zip Group, engagement levels remain high at 80%, with minimal gaps between genders in our engagement scores. We remain committed to driving gender balance, including through our gender balance targets, and are pleased to report that 43% of our workforce are women and that we have 50% female representation on our board. During FY '24, we continued our commitment to calculating and offsetting our greenhouse gas emissions across all 3 scopes and increased our ESG transparency participating in the Carbon Disclosure Project and Corporate Sustainability Assessment. Turning now to Slide 10. Before I cover the operating results for each of our core markets, I'd like to provide some insight into how does this leadership team drives performance, both at a regional and group level. As you'll see on the slide, at a regional level, we measure growth in performance through total transaction volume and the number and engagement levels at active customers. As highlighted earlier, managing our cost base and delivering scalable operating leverage is a key component to delivering strong results through the cycle for Zip. For regional profitability, we assess revenue margins, cash net transaction margin, and regional cash EBITDA generation. And at a group level, our primary profitability measure is operating margin, and we monitor our return on allocated capital to ensure we're operating in an efficient amount. Moving to Slide 11 and the operating performance of the U.S. Our Americas business had an outstanding year. We delivered record TTV growth of 39.5% and revenue growth of 45.6%, driven by continued optimization across product and underwriting and deepening customer engagement. Although active customer numbers were slightly subdued during the year, we've seen strong growth from existing customers in both revenue per customer and transactions per customer, particularly in higher-margin channels such as the app. The Americas business delivered 420% turnaround in cash EBITDA versus FY '23 with a result of $77.2 million, demonstrating the capital efficiency of the U.S. business and its ability to produce sustainable profit at scale. Higher margin channels, including the physical cards, saw strong in-store engagement with card volumes up nearly 150% versus the prior year and in-store volumes now driving 20% of all U.S. TTV. And we expanded into new verticals, including automotive and commenced vertical-specific marketing efforts, including sponsorships with NASCAR and Speedway Motorsports and signing brand ambassador, WNBA Star, and Olympic gold medalist, Kelsey Plum. Slide 12 covers credit performance, U.S. credit performance in more detail, and demonstrates how Zip has delivered significant growth while maintaining loss rates below our target range. The U.S. business exited FY '24 with significant momentum. And in July, we welcomed Joe Heck as U.S. CEO, with Larry Diamond assuming the role of U.S. Chairman and remaining as an Executive Director on the Zip Board. I'd like to recognize and thank Larry for the significant contribution he's made to strengthening the foundation and leading what has been an outstanding milestone year for the U.S. business. Moving on to operating results now on Slide 13. The ANZ business continued to deliver very strong results. In addition to record cash EBITDA results, Zip ANZ saw strong revenue growth of 13.5% and revenue margins widened nearly 290 basis points to 11.7%. As we've discussed throughout the year, in FY '24, the ANZ business settings focused on driving yields, and ANZ TTV and customer growth were tempered by deliberate adjustments made to credit risk settings in response to the external environment. However, pleasingly, we've seen early success in our Q4 initiatives to pivot the ANZ business to focus on profitable growth with an increase in customer engagement in June versus March. We've also seen strong customer engagement and positive improvements to margins with the launch of our low-rate virtual credit card product, Zip Plus, which complements our existing Zip Money and Zip Pay products. Our new merchant growth remains strong with an uplift across targeted verticals, including travel, ticketing, telecommunications, and health care. Turning to Slide 14 for more detail on the performance of the Zip Co loan book. Increased yield, strong portfolio management, and ongoing initiatives to tighten funding costs delivered a strong excess spread from the Australian line portfolio. We're pleased with this result, particularly when compared to the Australian consumer credit market more broadly. And our net bad debt shown in the graph on the right-hand side, we reached a seasonal peak in June 2024, which has begun to normalize in July, down 40 basis points month-on-month. Arrears are also trending favorably, which supports future loss performance. I'll now hand over to Gordon to cover the group's financial performance.

Thank you, Cynthia. Starting with Slide 16. As highlighted earlier, Zip achieved an outstanding positive cash EBITDA result of $69 million for the full year 2024. Cash gross profit was $372.9 million, up 52.8% from the full year '23. This is driven by the strong performance in revenue as a result of TTV growth in the Americas and further yield expansion in the Australian portfolio. During the year, we continue to exercise a disciplined approach to managing costs across the group, as demonstrated by our cash operating expense outcome. Now the Zip has reset the baseline for operating costs, we will manage costs going forward in conjunction with growth opportunities and the unit economics we have developed. For the full year, Zip delivered a statutory net profit before tax of $25.1 million. And I'm pleased to be able to say today, this is the first year in Zip's corporate history we have delivered a statutory profit before tax. The appendix shows the breakdown of the noncash items and the reconciliation from cash EBITDA just as profit. The main movements relate to depreciation, amortization, and the one-off adjustments in FY '24 from convertible note transactions and the extinguishment of the corporate debt facility. Moving to Slide 17. As Cindy outlined, during FY '24, we focused on improving all aspects of our business, which will translate into great outcomes and leverage in our unit economics. Throughout the year, we're able to absorb the increased cost to fund receivables and manage both bad debt and other costs of sales to generate a 52.8% increase in cash gross profit. The bad debts written off as a percentage of TTV were particularly strong results against the general worsening of credit conditions in the Australian and the U.S. economies, which have seen an increase in delinquencies and a number of other asset classes. The performance for all aspects of unit economics contributed to the 96-basis point increase in our cash net transaction margin to 3.8%. Moving to Slide 18. This provides the year-on-year walk for the cash NTM. The 96-basis points improvement in revenue margin was the key contributor to NTM expansion driven by the benefits of Zip's 2-sided revenue model and higher-margin products. This increase more than offset the 30-basis point increase in interest expense, reflecting the impact of rising interest rates, mainly on the Australian cost of funds. Net bad debt improved to 1.7% of TTV, reflecting ongoing discipline with credit settings and active portfolio management in both core markets. The resulting 96-basis point increase in cash transaction margin is a very strong result in the current environment, where margins have been challenged across other sectors. Moving to Slide 19 on cash operating expenses. Overall, cash OpEx was up 2.6% on FY '23 levels. However, when adjusting for the $9.8 million of STI to be paid in cash and enabling a like-for-like year-on-year comparison, the FY '24 cash OpEx would have been $297.1 million, which is marginally down on the FY '23 number of $299.3 million. This outcome is especially pleasing when considering the inflation backdrop in both Australia and the U.S. over the past 12 months. Strong cost discipline shown across the group in FY '24 has delivered the operating leverage we'll continue to use as the business scales. Salaries and employment-related costs declined 3.8%, reflecting actions taken in late FY '23 and continuing into the full year FY '24, which streamlined our operations and our cost base. Marketing costs declined 7.6% year-on-year due to disciplined merchant promotions, particularly in the U.S. The movement in IT costs reflects proactive actions taken to review and rationalize supplier costs. Finally, other operating costs increased due to a larger corporate debt facility compared to the prior year. Moving to Slide 20. The next few slides starting with this cover the group's balance sheet and capital position. Slide 20 provides the breakdown of our cash position along with the year-on-year movement in available cash. In the chart on the left-hand side, you'll see the breakdown of Zip's 353 million total cash position. After we allow for cash held at balance date that was unavailable and we include cash that may be withdrawn from our funding vehicles, Zip had $80.4 million in what we define as available cash on 30 June 2024. On the right-hand side, you'll see the material movement and improvement in our available cash position was driven by both operating and non-operating cash flows. Pleasingly, operating cash flows, which comprise cash EBITDA, CapEx, working capital, and funding requirements contributed a positive $18.4 million of cash inflows. This was driven by the group's strong operating results, offset by floats and working capital required to fund the TTV growth in the U.S. Nonoperating cash flows of $4.7 million include inflows from the release of restricted cash and funding facilities and the exit of noncore businesses completed in the full year '24. This is offset by the partial repayment of the corporate debt facility of $20 million, which occurred in the fourth quarter, and the repayment of $10.8 million in principal and interest for the CBI convertible notes in the first half '24. Collectively, and altogether, these actions delivered a $23.1 million improvement in our available cash balance since June 2023, further strengthening our balance sheet. Following the year-end in late August, Zip finalized the share purchase plan portion of the announced equity raise. This contributed an additional $50 million of cash available to the group. Slide 21 outlines the financial facilities in place for Zips receivables and our headroom for future growth. Over the course of FY '24, Zip refinanced $1.97 billion of receivables across Australia and the U.S. With the improvement in corporate performance and our receivables credit performance, we have been able to refinance a majority of our financing facilities, especially in the second half with extended tenor and have materially improved credit margins. In the U.S., we refinanced our $225 million facility in December with a 3-year term to December 2026. This facility also has the option to upsize to USD 300 million with the finance year. In Australia and New Zealand during the year, we completed a number of refinancing arrangements. The highlights included 2 $300 million rate issuances with the senior tranches both being AAA rated. We refinanced our primary warehouse VFN1 in March. And in April, established a new $300 million facility VFN3, with new investors. We also repaid early one of Zip's smaller receivables warehouses, VFN2, on commercial grounds. Pleasingly, our progress this year on financing is evidence of the strong support we're seeing from both existing and new investors. Australian refinancing activities for the first half of '25 are well progressed with 2 initiatives in their closing stages to refinance the September ABS bond maturity of $700 million, you'll see in the table on the right. Firstly, we are on track to settle a new $300 million warehouse facility, labeled VFN4, we're at the documentation stage and we agreed pricing with new and existing investors involved in this transaction. Secondly, last week, we launched and priced a $350 million rated ABS public issuance, label series 2024-2, which had a weighted average margin of 2.13%, which is tighter than our April bond deal. Of note, the demand and interest from existing and new investors enabled us to upsize this from the original launch of $300 million notional amount. And this bond will settle in September. Across the Australia and U.S. marketplaces, we have sufficient funding headroom to support receivables growth, currently sitting at $269 million of headroom in Australia and USD 37 million headroom in the U.S. with an additional USD 75 million available through our facility upsizing option. Our refinancing activity through the year has positioned us well to support our strategic growth initiatives as we move into FY '25. Moving to Slide 22. On the capital structure, during FY '24, Zip executed a number of transactions to simplify the capital structure and set our group up for the future. These transactions have resulted in the extinguishment or conversion of all of the $340 million of convertible notes, which were present at the start of the year. The conversion into equity for the public convertible notes and the completion of the shareholder sales facility earlier this year enabled an increase in ordinary shares available, which have largely been taken up by institutional investors and strengthened the share register. As at 30 June 2024, Zip had $130 million of corporate debt outstanding, which was repaid in July following our successful institutional equity placing. I'm pleased to announce that today, Zip has no corporate debt. Overall, our strengthened financial position and our available capital has Zip well-positioned for future growth. I'll now hand back to Cynthia to cover the group's strategy and outlook.

Thanks, Gordon. Now moving to Slide 24. I'd like to make a few observations on the external operating environment for Zip. There are several aspects that have continued to evolve over the course of FY '24, and Zip remains well-positioned across each of them. There have been regulatory developments in both our core markets during the past year, and Zip is well positioned as a result of our commitment to responsible lending and our current business practices. In terms of the shift in consumer preferences for credit products, as demonstrated by the growth in TTV this year, our product set is resonating with customers and merchants. We've continued to expand our margins despite the higher interest rate environment and a more challenging macro backdrop and are well-placed to meet evolving consumer credit demand in ANZ and the U.S. On Slide 25. Our business model is a robust 2-sided network, where we drive demand, increase basket sizes, and improve conversion rates for our merchant partners. We're proud to partner with some of the world's most recognizable brands. For FY '25, we have a group-wide focus on leveraging our strategic partnerships in the payments and e-commerce ecosystem, deepening our engagement with distribution partners, such as Stripe and Google Pay to further accelerate growth. Moving to Slide 26 and the U.S. market growth opportunity. In terms of the total addressable market, this currently represents $4.2 billion of the approximately $104 billion BNPL market, which remains in its infancy relative to the USD 12.3 trillion market. We have a clear strategy to grow our customer base and transaction volumes through growing our existing Pay in 4 products by expanding into new merchant verticals and leveraging strategic partnerships such as the recently announced with Stripe, which enables seamless integration for Stripe merchants accessing Zip in the U.S. market; and secondly, scaling our U.S. Pay in 8 product, which will become available to more customers and merchants in FY '25 and opens up new verticals uses with higher average order values, such as travel and automotive. We're often asked about expectations for growth in the U.S. market in terms of TTV. And what I would say is that looking at our peers' performance, we've observed an average market growth rate of 30% to 32% year-on-year for comparable U.S. installment products over the last 6 months. This backdrop and our own strong momentum have Zip well positioned to grow above the average market rate for installment products in FY '25, subject to trading conditions. Turning to Slide 27. Zip has operated in Australia for over 11 years now and is privileged to have a network of around 10% of the adult population of active Zip customers and over 55,000 merchants. We see strong headroom for growth in our ANZ business and are focused on executing on 3 market opportunities. Firstly, deeper penetration of the $98 billion personal lending market through scaling our virtual low-rate credit card Zip Plus, and also offering personal loans to our customers. Secondly, we still see growth in the $870 billion ANZ payments market through our core products, Zip Pay and Zip Money, including through strategic partnerships and our targeted merchant verticals. And finally, we're also exploring options to participate in other consumer lending segments such as home loans, through capital-light propositions that leverage our engaged customer base and deliver a diversified revenue stream. Moving now to Slide 28. Our FY '25 strategic priorities remain broadly the same with a continued focus on growth, but with an increased emphasis on customer engagement. We'll continue to deliver product innovation and as we said earlier, driving operating leverage as the business scales further. Turning to Slide 29. Our outlook has been updated for the next 2 years and reflects the results delivered in FY '24, our streamlined operations, and our market opportunity. We're targeting the following 2-year ranges and have noted several areas of focus for FY '25. Firstly, revenue as a percentage of TTV is targeted to be between 8% and 9%, as we expect the contribution of the U.S. business to increase over the next 2 years given the growth rates we're experiencing. Our cash NTM range has been narrowed to now be between 3.5% and 4%, and on cash EBITDA, we're targeting to deliver more than 1% of TTV in FY '25 and between 1% and 2% over the next 2 years. And finally, consistent with how we manage the business, we're now including operating margin as a performance metric, which would have been 9.8% on a pro forma basis in FY '24 when you exclude the corporate interest costs and is now expected to reach between 12% and 17% over the next 2 years. So finally, in closing, Zip executed very well on its strategic priorities in FY '24, becoming a stronger, simplified, and sustainably profitable business. We began FY '25 with great momentum, the right foundation, and a very clear strategy to drive ongoing profitable growth and enhanced customer and merchant experiences. Zip continues to demonstrate we're well-positioned to capitalize on our significant growth opportunity and drive long-term value creation for shareholders. On behalf of the executive team, I'd like to thank our Zip team for everything that they have achieved in FY '24 and our shareholders for their ongoing support. So that concludes the formal part of our presentation. I'll now hand back to the operator to take questions. Thank you.

[Operator Instructions]. Your first question comes from Jonathon Higgins from Unified Capital Partners.

Great set of results. Just a couple from me. Just firstly, on the U.S., there's a lot of emphasis on the U.S.A. Can you just sort of give us any comments on how that's sort of currently trading and the like? Is there any reason to think that, that market slowed down or accelerated or continued at the same sort of pace firstly?

Yes. Thanks, Jonathon. And I will say we're also joined on the call by Pete and Larry and I might throw to either of them just to add some comments after I answer the question. But just in terms of the U.S., we are seeing continued strong momentum in the U.S., and our loss rates continue around that 1.3% of TTV. But I think the external operating environment, we still see very constructive consumer sentiment and constructive retail sales. And then the other big shift in the U.S. is, of course, we're starting to see more commentary in relation to interest rates coming down, which, as we've talked about, is a definite tailwind both for its customers, but also for our own financial performance. So very constructive operating environment in the U.S.

Excellent. Maybe just a second one just on that. You've had some sort of large partnerships that have been announced over sort of the last 6 months. You've got the expansion with Google Pay, you're operating Pay in 8. I mean, if I was going to describe FY '24 to be sort of operating leverage in ATV in the U.S. Can you sort of talk towards what those partnerships could mean towards active customers and sort of that virtuous circle of active customers times ATV?

Yes, that's a good question, Jonathon. And yes, customer numbers have been subdued in the U.S. And the FY '24 performance was really largely driven by existing customers being even more engaged and increasing their average spend each time they engage. And there have been several initiatives that we undertook to stimulate the existing customer base. Going forward to FY '25, there is a very strong focus on both bringing net new customers directly to this -- particularly directly to our app, but also prioritizing merchant integrations for embedded finance, but also, as you mentioned, the channel partnership. So we've just announced the extension of our strategic partnership with Stripe. Stripe has literally 4 million merchants on their platform in the U.S. So it is a very significant opportunity for us to partner with the likes of Stripe and GPay, and others.

Excellent. Last one for me. Just on the medium-term targets. Great to see that you're putting a sort of a number to that on the 2-year range. Is it sort of a bit of a cheeky question to ask what sort of TTV growth goes into the right-hand side column at the cash EBITDA line? And secondly, I'd just say on the net margins, we're sort of at the top end of that range, even though you've timed it just sort of your comments on current net margin stream.

Yes. So just on the TTV, I mean, I think at the end of the day, there is a limit to the amount of exact guidance we're going to give on everything. But you can infer, I think from the comments that we've made in relation to -- if you look at the U.S. business, we've been clear in our indication that our U.S. business at the moment is growing above the market rate. So over the last 6 months, we see comparable installment products growing at sort of 30% to 32% in terms of TTV. We've obviously been growing stronger than that. So for FY '25 for TTV in the U.S., we would see our business continuing to grow above that 30% to 32% growth. And then as an overall percentage of Zip business, the ANZ -- sorry, excuse me, the U.S. business will continue to grow. The other thing to bear in mind, Jonathon, with respect to the margins is the TTV growth in the U.S. is significant and will continue to be significant. That obviously impacts the denominator. And so that will then have an impact on the revenue margin.

Your next question comes from Lucy Huang from UBS.

I've got 3 as well. Maybe I'll just start off with customer growth. I think you mentioned like in the U.S., you're looking to see growth above that kind of 30% to 32% market rate. Just how much of that do you think will come from new customers? And I guess your net bad debt in the U.S. is still really low. So how aggressively are you willing to, I guess, use that labor to drive new customer acquisitions? Just trying to get a sense as to how fast customers could contribute into next year.

Thanks, Lucy. And you're just poking specifically there on the U.S. side?

U.S. and then I'll probably ask around Australia too.

Okay. So just in terms of the customer growth, yes, I mean, look, we have seen an increase in MCUs in the U.S. and an increase in transactions per active customer and the AOV per active customer. And we will continue to undertake initiatives in the U.S. to drive that dynamic to continue in the U.S., but really the net new -- the additional growth will come from net new customers that we'll bring in through merchants or direct to the app. So we're not giving guidance in terms of customer growth numbers. That 30% to 32% was on TTV. And your question in relation to net bad debt.

Yes, Lucy, it's Gordon. I think on the bad debt we are just below that range, as you highlight. I think what I would say in FY '24, we have seen a really strong repeat business with existing customers who we know really well. And if you recall, our product there turns over fairly frequently every 6 weeks or so. And so, the credit decision and the credit platform that we operate enables us to, frankly, drive a really good outcome there. As we do scale and as we do bring on new customers, and as we do generate more flows from paying other products, that's why we've kept that range a little bit higher where it is so that we do have the flexibility to maximize on that growth.

Yes. No, that makes sense. And then what about Australia? Are we starting to see in the early days of FY '25 TTV growth starting to turn positive? And also, do you have any comments on customer acquisition as well and how that's trending?

Yes. So a couple of the initiatives that we undertook a bit in the middle of Q4, towards the end of last financial year in the ANZ business were designed to reposition the ANZ business for growth. And so that was things like turning back on credit limit increases, cross-selling between Zip Pay and Zip Money, et cetera. But we've also -- and I should say, and as a result of those initiatives, we've now seen monthly transacting users between March and June pickup in ANZ, which is, as we've talked about before, is a positive leading indicator for us in terms of customer activity. In terms of FY '25, the new customer growth will come from not only bringing new merchants onto the platform, but also particularly from Zip Plus. So we have actually done a soft launch of Zip Plus already, but we will go above the line with Zip Plus and there'll be external marketing, et cetera, from Q2. And that product is really designed for customers who are looking for a low-rate virtual card, given it had all the great functionality of Zip Pay but also behaves more like a credit card and has a very low competitive rate on it.

Yes. Wonderful. And then just sorry, my last question on the cash EBITDA target of 1% to 2%. I mean, what are the key levers to kind of get that metric into the mid-range of that target? Like are we thinking it's more to do with TTV growth? Or do you think there's still more to do on COGS or OpEx over the next 2 years?

Yes. Lucy, it's Gordon. It's primarily around growth. We will look to keep generating upside through unit economics. However, with the material improvement this year, there's obviously a limit to how far that can go. So we are looking primarily for growth on that.

Your next question comes from Phil Chippindale from Ord Minnett.

First question, just on the TTV expectations for FY '25. I might have got to be confused here. So I just want to clarify. So for FY '25, are you just saying you're expecting to take market share? Is that what that final bullet point is on Slide 29 combined with the footnote? And just so, again, just so I understand it, is the footnote just saying, look, the market grew 30% to 32% in the last 6 months and you did better than that? And so, therefore, it is showing that you're already taking market share. Have I understood this correctly?

Yes. So it's the latter. Yes, we're saying that the market -- so for comparable pay installment products, the market grew 30% to 32%. We grew stronger than that. And then in terms of our FY '25 expectations, we expect to continue to grow stronger than the market.

Yes, whatever that growth level may be?

Correct.

Great. Just on the Stripe partnership, obviously, that's due to launch or sort of broaden rather. I know you've got some rollout to some extent. But when are you expecting that to sort of hit the ground running? Is that sort of before sort of October sales season?

Yes. I mean, I might ask Larry to comment specifically on that.

Yes. We're pretty excited about the Stripe partnership. As you might recall, the U.S. actually built a lot of its infrastructure on Stripe issuing and acquiring. So this is really the next chapter of that growth. And there's a lot of sponsorship from the top down on that go market. So we are now effectively live in America, so merchants can turn us on. So we've got a go-to-market campaign jointly with Stripe that's coming over the next quarter. We've already brought the Stripe partnership to life in Australia, and that stilled really, really healthy fruit. So we've had hundreds and hundreds of merchants that have been turned on here. And I guess it's part of what we're seeing just more generally in digital acquiring where the Adyen and Stripe allowing merchants much more easily to be able to turn on alternative payment methods. And we're also live now with Adyen in America as well. And again, so through both of these PSP partnerships, we're hoping that improves our pipeline over the next year.

Okay. And the final question for me. I just want to touch on Slide 19 and the cost expectations for the '25. I mean, given the last 6 months, you've had cash NTM at 3.9% with the improvements from the savings in the corporate facility alone, the cash EBITDA is basically knocking on the door of 1% at the moment. So I'm just trying to understand what the expectations are on the OpEx side of things into FY '25, particularly salaries, marketing, and IT costs. Could you perhaps just give us a sense of what sort of growth you're expecting here?

Yes. Thanks, Phil, it's Gordon. So with regard to costs, we will take a disciplined approach. So we'll grow those in line with business needs. We don't want to constrain a growing business, I guess, is my first comment there. We would look to have that commensurate with what we need to grow the business. So I think we had somewhere between 6% to 10% would be reasonable. But we will make a call on that as we go throughout the year.

Your next question comes from John Marrin from CLSA.

I guess one final congratulations on a nice job with FY '24. Also appreciate the strategy update and the 2-year outlook. I guess, maybe just on that 2-year outlook, is there some glide path you can provide us like what FY '25 and FY '26 might look like over that time frame on some of those categories?

Well, yes, thanks, John. And then sort of goes to the comments that I made earlier, I mean, in terms of cash EBITDA, we are expecting FY '25 that we will be above the 1%. So we'll be inside the range for FY '25. And then in terms of operating margin, similarly, we'll be inside the range for FY '25. So that was the comment that I made earlier in the prepared remarks.

In terms of the revenue margin, 8% to 9%, I guess I thought it could be a bit higher, and I guess I'm sort of reverse engineering when I think that it's probably U.S. growth that's diluting that a bit continue.

It is. Yes, that's spot on. So the way to think about the revenue margin is as we've said for a while, the U.S. business is sort of sustainably at a 7% revenue margin as we generate significant growth, particularly in TTV from the U.S., obviously, it's nominal growth, but you've got a greater percentage of that group revenue margin being contributed by a business that's running at a 7% revenue margin. So that's why we've maintained that 8% to 9% range.

Right. And in terms of upside on the ANZ business, is there some upside from where it is today?

Yes, there is still an upside in the ANZ business, particularly as it continues its rollout because the unit economics plus and the impact on the portfolio yield is favorable.

Yes. Okay. And then I guess maybe just on these initiatives that you have to drive engagement in ANZ and sort of focusing on these 4 of the 3 focus areas. I mean, can you just talk to maybe some of the SG&A that you might be putting back on just to sort of drive those initiatives? Just really speaking to that wide, the cash EBITDA guidance of 1% to 2% is a pretty wide range there. And it sounds like you're putting costs back in.

Well, John, the way to think about that at a high level is that we've got a highly engaged customer base in Australia, who we've had a long-term relationship with. There are adjacent financial services, products, and opportunities that we can distribute to that customer base. The majority of the largest of those would be something like home loans, which would fall into the category of a capital-light proposition. So it would not be balance sheet-intensive. It would be the revenue of crises because we'd be adding margin without building and funding the product. And so that's the way to think about some of those opportunities.

Your next question comes from Siraj Ahmed from Citigroup.

But just in terms of FY '25 for the U.S., I thought you said you are targeting 30%-plus growth in FY '25. Is that not the case?

No. What we said was that we see the comparable market growth in the order of 30% to 32% and that we will be growing -- we're targeting growing above that range for U.S. TTV.

Yes. Sorry, just -- so you are targeting U.S. TTV growth of more than 30% in '25. Is that right?

That's right.

Okay. So just on that, just keen to understand what you have assumed to get there, right? I mean, clearly, momentum is quite strong right now. I think you -- I mean, Stripe's been announced as well. You were talking about some new merchants as well. Is that what's been assumed for that? Or do you think that's not required to get to 30% plus?

No. Yes, Siraj. It's a combination of all of that, Siraj. It's both the channel partnerships, bringing new merchants onto the platform. It's just to remember the scale of the opportunity in the U.S. is significant given the much lower penetration of this product. So we still represent less than 2% of total payments in the U.S. And so even as the penetration of the product grows, that is a growth lever or growth driver for our U.S. business. So it really is a combination of all of those factors.

Got it. But you're still assuming some big merchants or strong merchants in the near-term, right? Because I'm just -- I think what it goes, they stop integrating new partners by October, right, typically.

It's both channel partnerships such as Stripe and Adyen and the others we've been talking about because that will bring particularly small- to medium-sized enterprises, but it also is integrated with larger merchants. And Siraj, the other comment I'd make, as we talked about in Q4, is the U.S. business has also been undertaking a number of activities to raise brand awareness of this and to bring customers direct to the Zip app, which is obviously how we acquire customers in markets like Australia.

Got it. Secondly, just on regulation. CFPB, I think the last thing you're saying you'll be ready for the changes. I think I saw online about some that you've stopped in Maryland or something might be temporary. Any potential implications that you may not be able to provide Zip in some states of the U.S.

Okay. Yes. So in terms of the CFPB interpretive rule. So the requirement for us to comply with the interpretive rule was by the end of July, and we have adjusted all of our operating processes and procedures to ensure that we are compliant with the CFPB interpretive rule. So we met that deadline. There are some specific licensing requirements in some states. And one of them you mentioned is Maryland. In a very small number of states, we have some further work to do to make sure that we've got compliance from a licensing perspective. And then that's why at the moment, Maryland, we're just going through the process of getting that compliant before we turn that back on. But it's not material to rage in the context of our overall flows in the U.S.

Yes. So you're still seeing growth in spite of that. Lastly, in terms of Australia, I understand the marketing for Zip Plus which should drive growth. I think one thing which Pete mentioned the 4Q update is being impacted by early repayments by customers. Is that still the case in Australia? Or is that headwind no longer the case?

Yes, Siraj, it's Gordon. What you tend to see is you tend to see different periods of the year. So there's seasonality there, there are some earlier repayments around the June and July time of the year as it comes to financial year-end. But I think probably nothing on to worry.

Your next question comes from Julian Mulcahy from E&P.

Just a couple of questions on the Stripe arrangement. Can you sort of talk through what the revenue share is? I mean, do you just take a clip of their interchange sort of fee? Or will you charge merchants an extra fee on top of that?

Well, it is obviously a commercial arrangement, but I'll ask Larry to make some comments at a high level around the general way it's structured.

Yes. Essentially, players like Adyen and Stripe, we can set up a master merchant agreement. So effectively, wholesale rates then they can retail it out to the market. But that's defined very much in line with our disciplined unit economics. And so, it's a very healthy channel for us. A lot of our customer acquisition comes through the checkout channel and then those customers ultimately work into a where we drive a much healthier net transaction margins over time. And you can see in the latest results, just how those 2 flywheels work together. And that will be consistent with all other alternative payer methods or pay group as well.

So even though you're kind of sharing a fee with them, you can still maintain that 7% revenue to TTV margin for the U.S.?

Yes, yes. And again, it's a combination. We take a portfolio view. So it's the 2 flywheels that work virtuously together both to check out, economics and then the app economics. And so, we do tend to be a little bit more competitive on the unit economics at the checkout channel, knowing that we ultimately activate those customers in the app and then we build that lifetime financial partnership with the customers. And you can see a lot of the work that we're doing that's going into driving activity, Pay in 8, portfolio management, propensity modeling that we're doing a lot as well, and the product road map that we've got coming out over the next year.

Right. And where like cards are used in nonaligned merchants, how do you maintain your revenue margin on those usages?

I mean, if the transaction happens inside the is app, so we were one of the first to issue virtual cards in the U.S., but actually with the Stripe, we have the Stripe team in office a few years ago and innovated there. And that obviously came off the back of customers unable to use it at a big merchant. And so, to do that, we issue a virtual card and we own interchange on that card. So transactions that happen in the Zip app, we derive the interchange. Obviously, there can be some affiliate income and then sometimes some customer income as well.

And just finally, on the user numbers, I mean, active customers down a bit. What have the monthly transaction users been in the last quarter because you haven't provided a figure for a little while?

Well, There's a number of the deck on monthly transaction usage, which is actually up very healthy year-over-year just north of 16%. But what I would say is we've seen brand awareness grow into 20%. And we've seen our NPS scores. So these are all really healthy trend indicators on how customer acquisition is growing the automation of the brand, the brand activity. So we are expecting healthier activity this coming year. And again, some of the tailwinds actually across the industry are going to be very, very helpful here. The strong customers, and particularly our competitive set in credit cards and private label credit cards are probably suffering a little bit out some of the macro data with delinquencies up higher rates and then potentially late fee cap. So it's increasing, I'd say, the overall TAM that's coming into the NPL.

Your next question comes from Roger Samuel from Jefferies Australia.

I've got 2 questions. First one, just on your bank fees and data cost line item. Given your partnerships with Adyen and also Stripe, can we sort of kind of infer that your bank fees as a percentage of TTV would actually go down as well as you become more efficient in your processing? And also, I think the Fed is proposing to lower the debt exchange fee in the middle of next year. And I just want to hear from you, that's going to be a tailwind or is it a headwind in terms of a lower exchange fee that you can earn from your transaction?

Okay. Yes. Thanks, Roger. So in terms of the bank fees as a percentage of TTV actually not so much to Stripe partnerships that would bring that down. It's more initiatives such as moving to ACH or lease cost routing and so forth that we're working on that will bring down the cost of bank fees as a percentage of TTV.

Yes. I don't think it's got any material. I'm just looking at the modeling. I wouldn't say it's a material change for us. I think bank fees year-on-year. I mean, they've gone up given volumes gone up. But we have generated some leverage and efficiency there. I wouldn't say it's going to be material going forward in terms of efficiency or drop.

Got it. Yes. My second question is on your initiative in Australia to offer home loans. So you mentioned it's a capital-light model. So is it going to be something like a lead generation business?

Yes. Well, just to clarify, what we're talking about on that slide is just the strategic direction of moving into more of a next-gen financial services provider. So there won't be any loans being offered in the very near future. Initially, we will be looking at expanding our penetration into personal lending and making sure that we expand Zip Plus to a broader customer base, and we really go after the low-rate virtual credit card market. We use timelines as an example of an obvious adjacency where we know that our very engaged customer base, there's about 600,000 of them who do have mortgages and obviously, about $100,000 in refinance each year. So there is an opportunity for us in a capital-light way to look exactly as you say, is sort of a lead gen revenue generation model so that we are not the producer of that product, and we're not the balance sheet funder of that product.

[Operator Instructions]. Your next question comes from Jack Lynch from RBC Capital Markets.

Most of my questions have been asked, but maybe just one on the pricing environment, just spoken about it being nationally in the past. I guess, have you seen any changes there recently? And how should we be thinking about that coming into FY '25.

Yes. Thanks, Jack. Yes, it's still very rational. Particularly, I guess you're talking about in the U.S., where our competitors, and we're not taking market share from one another, necessarily the whole market is growing. And so, we continue to see a very rational approach, particularly to marketing spend and to competition. So no change from a pricing perspective or a marketing expense perspective.

And maybe just one on the revenue margin in the U.S. 7%. I know we've got the changes coming with the Pay in 8, the sort of the AOB and maybe the higher-margin verticals that we're going into. Is 7% sort of the way to think about it? Or is that maybe a little bit conservative?

I still think that's still the way to think about it. It is a different product construct than ANZ where we've got more of a line of credit and where our products -- some of our products have got back-end interest rates. So people always have a situation where given the product construct, the ANZ business will have a higher revenue margin than the U.S. So 7% is still a fair assessment for FY '25.

Your next question is a follow-up from Phil Chippindale from Ord Minnett.

Just one follow-up. I don't think it's been covered, but can you make a comment on U.S. TTV growth in the first 7 to 8 weeks of the financial year?

Well, I mean, other than to say the business continues to exhibit really strong momentum, and it gives us confidence to indicate that the U.S. business from a TTV perspective is growing stronger than the market. So continue to definitely have momentum pointing in the right direction.

Thank you. As there are no further questions at this time, I'll now hand the conference back to Ms. Scott for any closing remarks.

Thank you, and thanks, everyone, for joining us. We look forward to over the next couple of days and weeks. We've got meetings, one-on-one and group meetings with many of you. And in the interim, if you've got additional questions, then please in the first instance, direct them to Rachel. But thanks very much, everyone, for joining our presentation today.

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