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Good morning, everyone, and welcome to Openpay's Q1 FY '21 Results Investor Briefing. My name is Jane Lowe, and I'm the Managing Director of IR Department. And it's my pleasure to have supported Openpay with Investor Relations through what's been another very strong quarter. Thank you to all who have made time to join today's call where we will discuss Openpay's results for Q1 FY 2021, the quarter ended September 31. Presenting today will be CEO and Managing Director, Michael Eidel; and Openpay's new CFO, Jussi Nunes. Michael and Jussi will present from the announcement that was lodged with the ASX this morning. [Operator Instructions] I'd like now to hand over to your CEO, Michael Eidel. Thanks, Michael.
Thank you, Jane, and good morning, everyone. Thank you for making time to attend today's Q1 FY '21 results presentation. I will comment on 3 aspects of the business. First, our business performance along our key metrics. Second, some highlights regarding merchant and partner wins, and there have been a number of good wins there. And third, our achievements on our growth investment strategy. So starting with the performance during the September quarter. Despite, again, far-reaching global economic slowdown due to COVID-19, which has continued in Victoria until now literally and also in the U.K., we have still maintained a very strong momentum across all our key operating metrics during the September quarter. We are, first of all, very proud to have passed the 1 million mark in active plans and to have achieved a new record growth rate of active customers. So relative to the prior corresponding period, active plans increased by 235% to $1.06 million, and active customers increased by 145% to 372,000 relative to PCP. TTV grew to $68 million for the first quarter up by 95% PCP. Looking a bit more into details in terms of active customers and active plans, increases were again particularly strong in retail and our U.K. business where we focus, as you know, on retail e-commerce. It's encouraging to see that the percentage of repeat customers continues to increase, finishing the quarter at 78% from 72% in Q4 FY '20, which is really a great increase of that important metric. 46% of our customers had concurrent plans with us in Q4, also, they have a very strong positive trend and solidifying the trend that customers are making it routine to use our Buy Now, Pay Smarter product to manage their cash flow. Looking into the third leading indicator, active merchants. Across Australia and the U.K., active merchants as at end of Q1 FY '21 were 2,279, which is up 35% on PCP including a number of significant merchant wins, both in Australia and in the U.K. markets. The quality and size of recent merchant wins together with our strategic partnerships demonstrates our strategy of focusing on larger active merchant acquisitions to efficiently drive growth in active customers and active plans. And that's something what I think is important to acknowledge. We had, over the last quarters, a slight decrease in the number of active merchants. However, an above-average growth of active plans and active customers really confirming the strategy of focusing very strongly on enterprise to scale more quickly. And this has worked so far really very well across Australia and the U.K. Looking at some of the merchant wins in Q1, outstanding examples have been in Australia, the win of Kogan, including their brands, DickSmith and Matt Blatt, and the Australian business of JD Sports, which we have signed but not launched yet. Both highlighting our capability to acquire leading enterprise retailers and with JD Sports even across multiple regions. The strong growth in large active merchant clients has been complemented by significant wins in our verticals, driving a healthy mix of complementary high-margin businesses in auto health at home with the high growth relationships in retail to keep the focus on our market-leading gross revenue yield, which is simply revenue divided by TTV, which has been 9.1% in Q1 and the, kind of, the continuation of having that metric sitting above 9%, market-leading in buy now, pay later. We're also very pleased to announce our hard launch into the new vertical of memberships. In August, we announced our revenue-sharing merchant agreement with sports, leisure and hospitality, Software-as-a-Service provider, MSL Solutions, which gives us access to their 400 golf clubs and up to 135,000 golfers to spread the payments for golf membership fees over a longer period of time. We have also been able to lately sign a fully integrated partnership with Stack Sports in Australia, New Zealand and the U.K. Stack Sports offer services to thousands of sporting clubs across multiple countries, who represent major sporting organizations, including the AFL, Football Federation of Australia, NRL and New Zealand Rugby League. Openpay will provide the players, members and parents of sports clubs with the opportunity to pay for their membership and registration fees in plans up to 6 months and all interest-free.The initial agreement with Stack Sports is for 3 years with us being the exclusive buy now, pay later provider for an initial period of 12 months. So we've been really working hard to get this significant merchant win in membership signed. And with that, this is now another key vertical for us and further growth too expected over the upcoming periods. We have also kicked some goals, to keep it in that term, in secure partnerships with business platforms to grow our business at scale, particularly in health care, we are very proud of the partnership, which went live with leading veterinary practice management software provider, ezyVet, to provide payment solutions for the growing and lucrative veterinary care market.During the quarter and finally, our innovative B2B solution Openpay For Business was switched on with major Australian retailer, Woolworths. Their first business customers are now successfully transacting online with stores to follow. Over the coming months, we have planned for the majority of existing trade accounts to be migrated onto our platform in preparation for Woolworths to sign new business customers. So fantastic to see this now live, and this will also help us to accelerate some of the conversations with other enterprise retailers in Australia and in the U.K. to understand and adopt this highly promising Openpay For Business for them as well. Some words to the U.K. We have experienced our strongest quarter of growth to date with active plans increasing 59% compared to 30 June 2020 to now 297,000, contributing 44% to our total active plans growth. And U.K. active customers were up 37% to 149,000, again, compared to 30 June 2020, contributing 82% of all growth in active customers for the quarter. So really, the U.K. really contributing very nicely from a small basis but now very strongly to the overall growth aside the very strong growth in Australian retail. Notable merchant wins in the U.K. were as reported before, The Hut Group, above and beyond WatchNation, Tessuti, Size and the luxury brand, The Rug Company. Thanks to our relationship with retail and sports systems, both Fulham Football Club and Wolverhampton Wanderers FC, 2 English Premier League football clubs, have launched with Openpay to enable merchandise purchases through their online store as well, which is great and works really very promisingly. So to conclude on these leading metrics and recent merchant partner wins, we have been extremely happy with the company's strong operational performance in Q1 FY '21. We have made substantial progress on our goal to create a great business and company. And we have done this in line with our vision to change the way people pay for the better under the core pillars of our growth strategy. We feel particularly encouraged by the excellent growth rates of our leading indicators in Australia and in the U.K. particularly active plans, active customers and TTV and the positive ratings and feedback, which we continue to get from our customers, merchants and consumers alike. With this, I will now hand over to our CFO, Jussi, who will discuss our financial position in some more detail. Thank you.
Thanks, indeed, Michael, and good morning, everyone. Look, from my perspective, what I want to do today is just firstly to reflect on some of the portfolio drivers that Michael mentioned earlier and then translate that into financial outcomes that what we're seeing and against which we measure ourselves. So firstly, and as Michael mentioned earlier, we're very pleased with the continued growth in TTV, which had a 95% growth rate against the prior comparative period and in conjunction with our other leading indicators really positions us well to continually accelerate our strong performance. And in terms of that growth, whilst domestic volume or TTV performance is continuing to trend positively, thanks to what Michael also mentioned earlier towards retail and e-commerce direction, particularly in Victoria in the last quarter or so, we're also seeing strong signs of early volume growth in the U.K. as well. And the benefits of that in addition to top line growth, this trend has also slightly improved our capital efficiency, pardon me, insofar as the group being able to recycle its funding slightly faster or more rapidly and then creating some funding cost efficiencies as well. So that's on the top line. Then if we look at revenue, which at $6.2 million for the quarter represents a gross revenue yield of 9.1%. And it's something that we're very pleased about, and we pay particular attention to. Look, as Michael mentioned, it is a market-leading rate, and that market-leading rate at 9.1% is firmly within our expectations, and a metric that we consider foundational for profitability once scale is achieved. Just a couple of points on comparatives. The movement against PCP, or prior competitive period, is driven by a slight mix shift in the volumes, whereas the quarter-on-quarter dynamic, as explained by a one-off accounting treatment change that we did and communicated in Q4 last year. So other than that, the yield has performed well, and we're happy with the stability. Look, on the revenue performance as well and top line. Michael also mentioned that during the quarter, we switched on our first Openpay B2B customer, Woolworths, which we're now seeing transacting. Once this was -- this has very positive implications from being able to offer our products to a wider set of customers, it will also have a very positive yield impact. I really see it as a key component over the longer term of maintaining and really enhancing our revenue yield, or contribution margin, if you wish, simply from a further diversified Software-as-a-Service or a SaaS-based revenue signature and a source of very capital-efficient returns. And in terms of touching more on that contribution margin, we can move to the portfolio's credit performance. Again, we're very pleased with steady portfolio profile, which resulted in a net bad debt ratio of 1.6% of TTV in the quarter with arrears within accepted parameters as well. And then finally, to one of the life bloods of the company, it's a lending runway. As at the end of the first quarter, we have a funding runway of 16 quarters, which translates into an excess of $140 million in cash at bank and undrawn funding facilities that will support our continued growth. So wrapping up, from a financials perspective, I'm very happy with the start of the financial year, with all portfolio settings well positioned for continued growth. And I'll hand it over to Michael just to mention some closing remarks.
Thanks very much, Jussi. So as you've heard, the September quarter has delivered very strong results across all dimensions of our business from top to bottom line and provides us with a very healthy basis for further accelerated growth into this financial year. The key points really, strategic partnerships with enterprise retailers' integrations into large business platforms with significant numbers of users accessible, if you like, in one strike, product innovation to engage our customers, B2C and B2B and our geographic expansion will set us up for the next level of scale and growth over the upcoming periods. So a bit more details to further international growth. We are currently undertaking a strategic review of the U.K. for the launch of our specialized verticals, health care and automotive and of further promising markets in the European Union and in other geographies and look at really determining the commercial opportunities and product market fit for our differentiated Buy Now, Pay Smarter product and B2B products. So we are very strongly encouraged by the uptake of our products in the U.K. in retail and the continued success in our home market. This both provides us with the confidence to make our solution available more globally over the next 1 to 2 years. And obviously, coming up with news as soon as we have landed some of these geographies to announce our launch into.On a more micro level, and I've mentioned this before, the continued significant growth rates of buy now, pay later providers of all colors has taught us that this new value proposition of deferred payments will not disappear. To the contrary, it has proven its potential to become the most preferred way people pay at global scale. And we continue to deliver consistently on our end against our strategic growth drivers, feeling extremely well positioned with this to take a significant share of the huge opportunity in further markets, adding value to our customers, merchants and consumers and to our shareholders. And this is a very exciting time and there's much more to come and to be achieved. So I keep it with this for the moment. We look forward to keeping you updated of our progress, and thanks for your attention and your support. And I will now hand back to Jane for the Q&A part of this call. Thank you.
Thank you, Michael. I'd like to now open up the session to questions. [Operator Instructions] If you do have that we don't get filled in the time that we have, please feel free to send it through to investors@openpay.com.au after this session. So we do have quite a number that have come through the chat function already. Thank you, everyone. So start with this first one on revenue yield. So your revenue yield is looking quite strong. How likely is it that you can maintain the same level of yield moving forward?
I'll start with this one. It's a very good question. Probably the main driver of this revenue yield is our capability with our differentiated longer-term and higher-value products to not only get fees from our merchant as a percentage of transaction value, we also can charge our customers from our 3-month plans. And I think with this mix of 55% of our fees from consumers and 45% from merchants, we from the outset have a business model in place, which leads to a significantly higher structural gross revenue yield with our business model. If you take on top the fact that more than 75% of our business is originated in the 3- to 4-month plans that we have already consumer fees and much less below than 10% in the 2 months where we only rely on merchant fees, we are very, very confident that we see a continued very healthy development of gross revenue margin with this kind of revenue contribution from both sides, the consumer and the merchant. And we acknowledge there is a significant margin compression on the highly contested 2-month plan end with all the existing players with PayPal as an incumbent with their Pay in 4. On the 3-month plan and longer, competition is much less. And we see so far a continued strong success for us to, kind of, keep that margins on the merchant side and continue to also get revenue from the consumer. So being north of 9% and above is a very healthy place to be. And as Jussi mentioned, with the operating leverage over time to scale, and then reduce all the cost of doing business relative to strong TTV growth will also lead to a net transaction margin, which is probably higher than the market also over time as we scale. So I think a great starting base and we continue to keep that high gross revenue yield, which is good and important.
And perhaps maybe I'll just add a couple of comments there. Michael, absolutely correctly. I mean the business model is clearly predicated on having that relatively strong margin or contribution margin to offset fixed costs. And on top of that as well, we look forward to really growing that SaaS revenue platform, et cetera, that will contribute to the contribution margin enhancement. Whilst might not directly be related to a gross revenue margin as a portion of TTV, but certainly contributes directly to the margin to cover fixed costs.
Okay. Terrific. We might now move to one on strategy. So you move -- you mentioned reviewing your geographic strategies. Where do you think you'll go first after the U.K.?
Look, before we go first after the U.K., just to mention there is a lot to win in the U.K. As I said before, we have started there for very obvious reasons in retail and e-commerce to scale more quickly, what has worked exceptionally well. The strategy very clearly, and we have done this well in Australia, is then to enter the other verticals subsequently and cross-pollinate interesting customer profiles. The older demographics, the more finance heavy and affluent customers who we get now onto our platform with our initial focus on retail. Also on kind of cross-pollinate them into our verticals. So the really next step within the U.K. is to launch into these other verticals, and we are making good progress. What we want there from the outset is this credit authorization with the FCA to give us more flexibility in longer-term higher-value plans, but also pricing more flexibly, including consumer fees. So that's an important constituent element of not only launching into these verticals, but making a reasonable commercial outcome as we do here in Australia. And then to your point, we look now as we speak into the product market fit into some of the large European EU markets. There's a very promising markets where also culturally, people are kind of inclined to adopt this type of innovative payment and digital lending product. So kind of initial feedback of some market screenings has been very, very positive to the type of product which we intend to offer in these markets. And too early to say which will be the first one, but there are some large EU markets, which we look into and where we believe we can also deliver a sustainable -- kind of sustainably valuable product into merchants and consumers.
Okay. And then a related question, I suppose, about the current U.K. business. So has COVID-19 forced any kind of change to your current U.K. strategy?
Not really. We have been from the outset been focusing on e-commerce in retail. The plan continues to be to also open up over time as merchants send us the signal, it's now time to do it when, kind of, we get back to a probably different new normal, but kind of when in-store becomes more a sought-after channel for retail merchants again, which has been, kind of, slowing a bit over the last period. So we continue to intend to launch into in-store. We have the capability in place. So we can do this over the upcoming months, listening to our merchants when the right time would be and then, what I said before, launching also into these verticals. So no change of strategy and on track to deliver against our plans and strategy in the U.K.
Okay. And I guess, again, probably related to current strategy. So active merchant seems to be growing at a slower rate than your other metrics. Can you comment on why that is?
That's right. This is where explicitly has been a focus over the last few months to accelerate growth. And we have been focusing lately in, kind of, our merchant acquisition efforts on more the big end of town, which is, on the one hand side, larger enterprise merchants across all the verticals, but also kind of technology and platform partnerships like ezyVet and like the 2, which I mentioned before, Stack Sports and MSL Solutions in memberships. And this gives us, as we have seen in the number, an accelerated growth profile when it comes to active plans and active customers, which ultimately drives TTV and revenue growth. So this has worked really very, very nicely. At the same time, we are also, and I mentioned this in one of the calls before, working towards our automated self-service for smaller merchants, which will not have such an important impact on TTV from the outset, but kind of enriching customers' choice purchasing with Openpay into different brands and exciting shopping experiences. And we will start launching this automated onboarding, what we call from contact to contract automatically, as a self-service starting in November. And probably see from there, kind of, done by technology an increase in active merchants as well, again, not with a significant immediate impact on TTV. So with the focus on enterprise, we have been really focusing on increasing active plans, active customers and TTV, which has worked well. And we will continue kind of to work through our sales team to focus on enterprise and then technology supporting the rest, particularly smaller merchants to come on board more -- even more easily.
Okay. Question here about Pentana. So has there been any impact on the Pentana agreement through COVID-19?
I think really independent on COVID-19 and lockdown, the plan with Pentana has been now over the recent months since we have announced this partnership to get us into their new eraPower car dealership management software. So they had a change of their technology on their end as well, which they have been completely working through now. And the plan is now to launch into Pentana-supported car dealerships over the upcoming months to be then available at least up to 2,600 car dealerships across the country. And we are very excited after it has now been a while to announce this partnership and work with their team in a very, kind of, succinct way on the integration to launch now very soon. And it will, in auto, give us a nice booster into the continued financial year to accelerate growth there as well. So that's coming in very soon.
Thank you. We've got a few questions now from Danny Younis who is, of course, the analyst at Shaw that covers Openpay. Thank you, Danny. So this is quite a good one. Sounds like the second quarter will be massive given larger retailer wins from Kogan and JD Sports Australia, wins in the U.K., Woolworths deal going live now and upside from Pentana and MSL too. Is this how we should view 2Q with all of that coinciding and timing perfectly? With an anticipated strong Christmas trading that it could be a huge, in caps, quarter for you?
It's great to see our analysts to be so excited about the upcoming growth opportunity and we agree there's a massive opportunity. I think we are now really very nicely lined up across all our verticals and geographies to really capture the peak season of the year, which is Q2 with Black Friday now coming up next month already. And then leading towards Christmas. It -- I think we are in a very good position from today's perspective to see an accelerated growth profile across our key metrics in Q2. So yes, I think we can expect good numbers coming through. You always know when the quarter is finished, what the numbers really have been. But from the outset, we believe we are very strongly positioned with recent wins and the continued growth with existing ones. There's many more to mention, which have been in the mix for a while and still continue to grow very, very strongly across e-commerce and in-store. So I think we are well set up for success and further growth, yes.
Okay. I think we've got a couple here from Danny that we've already sort of answered through other questions, but I will ask this one because it's an obvious question. So is there a sense of FOMO, or fear of missing out for those unfamiliar with the term, in not chasing the U.S. at the moment? Like all of your listed peers, Afterpay, Zip, Sezzle, et cetera, is your differentiated product ready for the U.S. landscape where the vast majority offer exactly -- exact replicas of short-term Afterpay-type plans?
Yes, for sure, we look into further markets overseas. And obviously, North America is a massive opportunity for any innovative payment and digital lending business like ours, and even more as we are very differentiated and not just replicate what others have been demonstrating well over the recent periods. I believe from a broader platform and product capabilities perspective, I think we are in a very good spot to continue to launch our product into further markets. And we talked about Europe before. We look into further geographies, as I also said in the announcement. And we -- nevertheless, we are very kind of -- also, we are responsible in our approach, and we'll do things when we feel ready and when we have our [backslide] up in a row to really then being able to service the market with success from the outset. And we continue to look into these further markets and will act as soon as we are ready and would obviously then announce accordingly.
Okay. I'm conscious of time. I think we're getting pretty close to time, so we might just take 2 more questions and then I'll wrap it up. So one here, I would like to hear more about Openpay's partnership wins. The market really hasn't heard much from Openpay lately, and the share price has plummeted. Given the tech fall in September, all other BNPL stocks recovered whilst OPY continue to go backwards even until this very day. Please, we need to hear more news.
Yes. Thank you for the feedback. And I got it now a bit more repeatedly from -- over the last few days from different stakeholders and probably that's a bit of a learning for us to maybe go back to the ASX a bit more frequently with some significant wins like Kogan probably could have been a great announcement in its own right. Nevertheless, I believe we have still seen a strong performance of our share price over the recent period. And -- we have seen also for the credit of our competitors, some also very compelling news from our -- yes, from the other providers with buy now, pay later in the market, we have seen some nice innovations. So looking back, there's obviously a bit of a period where others had more news and then we came back in very strongly. We had an outperforming June month where our share price probably has topped anything what we have seen from our other competitors. So there will be more news in the near future. Again, and I'm not worried at all about the continued strong positive trend of our share price development. But I take that feedback to come back with more news, which we undoubtedly have. I think, today's announcement has been rich of them to go back to the ASX a bit more frequently and let our excited retail and in-store investor base know about the great things which we do and continue to do.
Okay. Thank you. We might just finish with a product-related question, so -- and then perhaps hand back to you, Michael, for closing comments. So can you explain and describe the way you assist customers with car purchases? What portion of the market do you cover now and what are the future plans?
Yes, car purchases is not what we support. We don't provide asset finance with our product. So what we -- where we really start is car services, car repairs and accessories, kind of, after sales market, if you like. So the ongoing maintenance of a car's performance and safety in other words. This is a very, very important business for us already. We have a number of good conversations in that particularly market in auto as we speak. And what I mentioned before, seeing Pentana launching with us as a natively integrated opportunity for car dealers to put out our plans for their customers is an opportunity to really see an accelerated profile of our business in auto. Auto is a significant contribution to our business. I don't have the very latest number, but somehow contributing around 15% to 20% of our overall TTV origination, and this will only increase. But again, car purchases, what we will not support and it's not planned to do it. But I think there's a massive, continued opportunity across markets in this aftermarket, if you like, services and accessories.
Okay. In fact, if you don't mind, we might have said this one last question in because it's come up quite a lot in the Q&A, which is -- so relates to -- I'll read this question out. So Zip has Westpac as a financial institution to back them up. What is the financial institution behind Openpay in Australia or what plans might you have in that regard?
Yes. There is definitely an opportunity for us to work with the larger banks over time for different aspects, particularly now growing our book, our receivables book so significantly over the last period from a funding perspective. We're already in conversation with some of the banks for that capital market capability, if you like, so supporting the growth of our book through probably more kind of universally applicable funding lines across geographies and currencies. So warehouse financing structures and securitization type of funding construct. So this is a conversation which we have. We are very, very happy with our current specialized debt funding providers, but probably we outgrow this over time and will then switch into bank-provided funding facilities. And obviously, if you look at our competitors, there is further partnerships with large banks also from a distribution perspective. We have seen lately Westpac with Afterpay announcing a partnership on Westpac's Banking Software-as-a-Service to -- from Afterpay perspective to enable their customers also to have more money-managing products, savings and transaction accounts available. We will see these things from other competitors as buy now, pay later probably innovates no more into adjacent opportunities and demands of consumer customers, and we will, over time, also contribute to this. But I agree there is, going forward, ample opportunity to work with banks, and we will see more coming up over the next periods.
Terrific. Thank you. Well, I must say we didn't manage to get through all of the questions today. So again, if you had a question that we didn't manage to address, please feel free to e-mail us via investors@openpay.com.au. And with that, I'll pass back to you for closing remarks, Michael.
Thanks very much, Jane. And ladies and gentlemen, to wrap up, thank you very much for joining us on today's call. I look forward to updating you, maybe a bit more frequently even, on our progress. And as always, as Jane mentioned, more than happy to answer questions, which we haven't been able to answer this call subsequently and looking forward also to getting in conversations again with many of you over the upcoming weeks. And thank you again for your support.