Splitit Ltd

ASX:SPT

Earnings Call Transcript

[Catherine Strong]

Thank you for the bearing with us while we had a couple of minor technical glitches. My name is Catherine Strong from Citadel-MAGNUS. On behalf of Splitit Payments Limited, I'd like to welcome you to the webinar. [Operator Instructions] I would like to now turn the call over to John Harper, Interim CEO of Splitit. John?

[John T. Harper, Interim Chief Executive Officer]

Thank you, Catherine. Good morning, everyone. My name is John Harper, and I'm the interim CEO of Splitit. And joining me today is our CFO, Ben Malone, for Splitit's Q3 quarterly results. I want to thank everyone for joining us today. You can see a few of our Q3 highlights on this slide, including our Merchant Sales Volume was a record $93 million for the quarter, up 31% year-over-year. Our Active Merchants were up 85% year-over-year to 1,200 for the quarter, and Active Shoppers were up 61% to 300,000.During the quarter, we announced our availability on the Discover Global Network and our new integration with Salesforce Commerce Cloud, 2 very important announcements. From a financial perspective, we saw a 43% reduction in interest expense quarter-on-quarter, and we continue to have a strong balance sheet. Ben is going to get into much more detail on the numbers in just a few minutes. But first, I'm going to take a few minutes to introduce myself, talk about my first impressions with the company and our first thoughts on a path forward and strategy for Splitit.I joined the company about 2 months ago to help Splitit continue to grow in this exciting market. I've spent nearly 40 years in retail, most recently serving as the Chief Operations Officer at Macy's. In that role, I managed the merchandise execution, supply chain management, digital fulfillment, managed all 600 stores along with the company's technology strategy. This experience provides valuable insight for Splitit as we continue to grow and adjust our merchant acquisition strategy.One of the things that truly excited me about Splitit was the core product and the huge potential the company can address. As I immersed myself in the company and had the chance to speak with the team, retail customers, partners and shareholders, a few things really stood out for me. The first was just how passionate and dedicated the Splitit team was. I spent the majority of my first couple of weeks spending time with the employees. Many of our people joined the company because of our product and its potential. We have highly skilled and talented people across the board, who all have played a key role in getting Splitit to where we are today.Second is the explosive growth opportunities in the buy now, pay later and installment landscape. The third is how differentiated and complementary our core product is within that landscape. When I dug into the market, I saw a significant potential. Data shows that the point-of-sale financing market will reach $182 billion by 2023. Many of our competitors will tell you credit cards are a dying industry, but the numbers really beg to differ. While there's always a shift in the credit markets, there's nearly a $1 trillion opportunity in the U.S. alone. We bring the best of both worlds, because of our unique position utilizing the available credit on the shopper's existing credit cards.Now I wanted to share with you our strategy and path forward as a company. One is to optimize the team. One of my top priorities with the organization is the people. And we've already made strides in becoming a more cohesive team in the short time I've been with the company, but we must go further. We've begun the work to ensure that we have the right people in the right positions. And we're going to continue fostering closer collaborations with our global team to ensure we're all moving in the same direction towards the same goals.Part of this means strengthening our sales teams and our marketing teams to be able to execute with impact. Another priority is to hire a Chief People Officer. We're in the final stages of our search and have met with high-quality candidates that are finalists for the role, and we hope to have that person in the role shortly. We are also investing in expanding the product team to ensure our technical engineers can continue to innovate and remain connected to the product needs of our current and future customers. We've made our first hire in Products, who will be starting next week, reporting directly to me.Priority two is narrowing our geographic and product focus. We are operating in a market that is moving and growing quickly. We need to bring a greater sense of urgency to capitalize on this opportunity from a sales perspective. To do this means we need to narrow our geographic focus and improve our entire product experience. The first step is realigning and improving our sales process, and focusing on the North American and U.K. markets to win higher-value merchants. We will still explore compelling opportunities in other markets, as we did with Google Japan and tabby. But we will concentrate on these key growth markets that have a tremendous amount of untapped potential.I have been through a process of assessing our competing priorities to help ascribe the greatest value from our investments. Overall, we will have a tighter focus on costs, putting the emphasis on revenue-generating spending. The majority of our existing development sales resources are going to be focused on supporting and improving our core product, both in its branded and white label offerings, to attract new merchants that will deliver the MSV needed for us to grow. We will continue building a scalable SMB acquisition strategy enabled by tools such as self-onboarding in Splitit Plus.Third priority is differentiating ourselves via our marketing message. Splitit has an exceptionally compelling and differentiated product, but we need to do a better job effectively articulating our value. We need a clear message for both our merchants and our shoppers. Our strengths and points of differentiation are clear. We help shoppers use their existing credit more intelligently. There's no application or credit check. We let shoppers still earn all the cash back, rewards, miles and purchase protections built into their cards. We keep the customer on the site for our merchants. And we don't market their customers to other merchants.We're now in the process of evolving and simplifying our message. Once we have that defined, we must ensure consistent messaging and appearance in all of our assets from our website, to our sales presentations, and the entire customer journey and checkout experience.Now I'm going to turn it over to Ben for a deeper dive into the numbers. Ben?

[Ben Malone, Chief Financial Officer]

Thanks, John. So we're just on Slide 8 now. As the charts on screen show, Q3 has seen continued growth for Splitit with our highest quarter of MSV, coupled with ongoing growth in active merchants and shoppers. For the quarter, we recorded USD 93 million of MSV. That represents 31% year-on-year growth, and on an annualized basis, that's around USD 372 million. If we remove the deliberate shift away from debit card acceptance, which we explained in prior quarter announcements, this year-on-year growth rate would have been around 41%. In addition to strong contributions from larger brands such as Google Japan, Canyon, James Allen and Purple, Splitit also now has a much more diversified portfolio that also includes healthy growth from many other merchants of all sizes.Revenues also continued to grow year-on-year, reaching $2.6 million for Q3, over a $10 million run rate. The previously mentioned point on merchant diversification did lead to a slightly lower year-on-year revenue growth rate of 20% when compared to the MSV growth rate of over 30%. And that's just a function of the mix of basic versus funded plans, and also within the funded product, the loan lengths within there. Merchant growth is also reflected in the chart on the top right of the screen, and that shows 85% year-on-year Active Merchant growth rate, which is now at 1,200. And finally, Active Shopper growth has also increased at a healthy 61% year-on-year, reaching 300,000.I'll now just move across to Slide 9 to talk about a couple of balance sheet metrics. So 2 major numbers to call out here in terms of balance sheet health of the business and what that means as we look forward. We have $47.5 million in net cash, which comprised of $45 million in the bank, $53 million of receivables and about $50.5 million of debt. We also closed the quarter with $144 million in liquidity, which is the cash at bank as well as the undrawn component of loans. This was a planned reduction on prior quarter after the repayment in July of the final higher cost and short-term credit facility, which we communicated in the past. And that debt consolidation has already started to reflect in the numbers with the 43% quarter-on-quarter reduction in interest paid.Looking ahead, the Goldman $150 million facility alone can support around $650 million of annual MSV, further highlighting the strong foundations on which we can support future growth.So I'll now just continue on to some of the operating numbers. If we just go over to Slide 11. So if we can just go to the -- thank you. So over the past 12 months, Splitit's merchant growth has included a large number of major brands, and this slide shows just some of those brands accepting Splitit. And whilst we have a very healthy contribution from the whole top row on screen, and we're especially pleased with Google Japan's continued growth, as we previously mentioned, we're also very pleased that there's a more even contribution from many other merchants on this slide and also many others that are not mentioned on this slide. As our average order value remains over USD 1,000, we continue to see ongoing strong acceptance in the home, sports and outdoors, and luxury brands.If we can now just move over to the following slide, and I'll just talk a little more about the partnerships. This quarter, we saw continued progress on the partnership front. We began offering Splitit installments to Discover Global Network cardholders worldwide under a new partnership agreement, and that includes Discover card and Diners Club. And also, our Salesforce Commerce Cloud integration means that we have seamless integrations now with 5 of the largest e-commerce platforms, also including Shopify, Magento, WooCommerce and BigCommerce. We expect that this will help with conversations and adoption with large merchants. With an ever growing list of partners and integration, Splitit's unique position within the complex payment and ecosystem continues to be a competitive advantage for us.I'll now hand back over to John to wrap things up.

[John T. Harper, Interim Chief Executive Officer]

Thanks, Ben. So just to summarize, in Q3, we saw a record MSV. We saw growth in Active Merchants and Active Shoppers. The things that genuinely excite me about our future are, we have a passionate team, and we have a very compelling core product. I feel there are significant opportunities for both our branded and our white label products. We continue to grow our partner ecosystem as we saw recently with the partnership with Discover and the integration with Salesforce Commerce Cloud.And finally, we have that strong balance sheet. And we've significantly reduced our quarter-on-quarter interest expenses, and we have the $150 million Goldman Sachs credit facility. So in short, Splitit has a clear path ahead with the united team focused on sales of our differentiated core products in our key markets.So now we're going to take some time for questions.

[Catherine Strong]

Thank you, John and Ben for that. [Operator Instructions] So going to first question. First question Is from Ravi, who asks about financial metrics. He asks, in the financial year ended 2020, the business recorded a baseline profit from income less sales. However, it recorded a total comprehensive loss of more than 18% larger than total comprehensive loss from the previous year, largely on account of the increases in employment expenses, which were, he indicates, 2.5x year-on-year higher and operating expenses, which were 50% higher year-on-year. So the question is, in the current financial year, how is the business tracking across these metrics? And please, can you comment on the road map towards profitability?

[Ben Malone, Chief Financial Officer]

Sure. I'm happy to take this one. So -- thanks, Ravi. So I mean -- 2 things I'll point you to our appendix 4C for some more information here. And also recent half year announcements. I will note that the 4C is obviously a cash flow statement. So it may not refer to other comprehensive income and some of the other numbers you've said, and we won't give a running commentary on those as we report those half yearly and at full year. However, broadly, I will say that we are mindful of costs. Our cost base for the current year is around the same as the previous year despite the fact that MSV is growing. So I think that really answers your first point. In terms of other comprehensive income, I'd refer back to the half year announcement, and I'm also happy to take any specific questions on line items within there on foot and offline, if that will help as well.But very -- much more broadly, I would say that the cost base is -- we're very mindful of it. It's tracking at a similar level to previous year despite increased growth. In terms of long-term profitability, look, we are mindful that we are a growth company, and we are investing at the moment. We do see that our model compared to many other peers has a lot more operating leverage at scale, and we see a pathway there in terms of a specific time frame. We don't provide guidance to the market, but we really are quite confident that we can get there in the medium term.

[Catherine Strong]

Thanks, Ben. The next question is from Adam Thompson. Is there any update on Google moving the Splitit offering into other markets?

[John T. Harper, Interim Chief Executive Officer]

Yes. Thanks, Adam, for the question. I would say that both parties, Google and ourselves, are very happy with the relationship that we have in Japan and the results that we've gotten so far. And we're constantly engaged with Google, but we have no announcements at this point in time as far as rolling out.

[Catherine Strong]

Thank you very much, John. The next question comes from [indiscernible]. John, how do you see -- do you see yourself working at the company long term? Are you involved in selection process for the next CEO position? [indiscernible] has always pushed Splitit as a company that complements the other noncredit card competitors. Is this the message that you see in the next CEO or yourself pushing in order to grow the company?

[John T. Harper, Interim Chief Executive Officer]

Yes. So let me take the second part of that first. Absolutely, we are a company that complements the other noncredit card competitors. We can coexist very easily alongside those and really appeal to a totally different customer than many of them. So that is certainly a message that we're going to continue to push with our merchant partners.As far as working with the company long term, certainly interested in that, but that's obviously not my decision. That's the Board's decision. I've been working very closely with the Board and have their full support on everything I need to do to move forward. And I'm sure they'll [indiscernible] for my recommendations on the needs for the next CEO, but that will certainly be the Board's decision. And I think that, that decision will come over the next few months.

[Catherine Strong]

Thanks, John. This question comes from another attendee. Can you provide an update on UnionPay and your other partnerships, such as being the Mastercard, et cetera, and Discover and give us an overview of those, please?

[John T. Harper, Interim Chief Executive Officer]

Ben, do you want to take that one?

[Ben Malone, Chief Financial Officer]

Sure. So broadly, in terms of UnionPay and Discover, I'll start there. I mean their acceptance. So in terms of the update, the updates really are that we are now accepted with any Discover Network or UnionPay card. So that's that one. In terms of Visa or Mastercard, both those partnership agreements obviously remain on foot where, we're highly engaged with both parties. As we've mentioned previously, they're very broad. So we have various card marketing initiatives that are ongoing, particularly with the Mastercard side and various sort of products initiatives and things like that, that are ongoing as well within their own installment sort of offerings. And I believe, actually, even just recently, we were mentioned as 1 of Visa's partners in 1 of their own announcements as well. So they're ongoing, continuing and definitely on foot.

[Catherine Strong]

Thank you, Ben. The next question comes from Mark Gold. How have you addressed the simplification in messaging of Splitit's core products to the market? And also how is staff training going with regard to this? Do you feel as though more merchants would have signed up in the last 18 to 24 months, if the value of Splitit had it been better understood?

[John T. Harper, Interim Chief Executive Officer]

Yes. Thanks, Mark. It's a great question. You heard me talking about 1 of our priorities being better articulating our value through our marketing message. And I think we have to do a better job simplifying that message and differentiating ourselves from our competition. I think as you look at the checkout, especially, it's not clear why you should pick Splitit in some cases, over our competition. So we are working very hard on that now. We've already changed some of our messaging.I don't think we're at the endpoint yet, but it is a major priority to make sure that our message is very differentiated and that it's clear. That all those points I talked about earlier are brought up and that people understand why they should pick us over our competition. So I think it's a very, very important part of our ongoing strategy.

[Catherine Strong]

Thanks, John. The next question comes from Bill Phillippo. Thanks for the presentation, John. It appears that it's a weaker quarter in terms of merchant growth and MSV since the last quarter. Is there any reason for the flatness and what were the challenges? In addition, at the current cash burn rate, how many quarters do we have left before further cash injection is required?

[John T. Harper, Interim Chief Executive Officer]

Yes. Thanks, Bill. I'll take the first part of this and then maybe turn it over to Ben for the second part. I think that the fact that I talked about the priorities that I'm talking about now is [indiscernible] where our challenges have been. I think looking at merchant acquisition a little differently, and not only going after those smaller merchants, but also trying to get some larger value merchants is a key part of the strategy going forward, and something I can help open doors to given my experience. And I think that marketing message that we just talked about was another big reason.I just don't think we did a great [indiscernible] pointing out the differences between our competition and Splitit, and what makes us different and what makes us better, and what makes us more valuable to both the merchant and the customer. And I think it's an important thing to talk about too, making sure our sales team understands those differences and points them out to the merchants. And the fact that we're not going to be marketing their customers to other merchants, and that we're not going to make people leave their website to fill out an application, are important things for us to really point out and will help us drive the growth we need going forward. And Ben, you want to talk about our cash flow?

[Ben Malone, Chief Financial Officer]

Yes, sure. Yes. Look, I'd probably refer back to some of the earlier slides. However, I mean with -- balance sheet health is very -- balance sheet is very healthy. We have a lot of cash balance as well. There's a lot of debt still remaining under the Goldman facility. So we've got about $144 million in total liquidity. We are very mindful of the burn, and we monitor costs very closely. We'll always assess opportunities to sort of -- to strengthen that balance sheet in the future, but we're not looking at anything in the shorter term at all.

[Catherine Strong]

Thanks, Ben. Another question from Adam Thompson. [indiscernible] shareholders expect some significant growth from major new merchant sign-up announcements?

[John T. Harper, Interim Chief Executive Officer]

Yes. So we are obviously constantly working on our pipeline, Adam. Thank you again for the question. The new merchant sign-ups are happening constantly. Obviously, the larger merchants take a little longer. Those are not a month or two project. And we are working on those as we speak and believe me as we can make announcements, we will do that.

[Catherine Strong]

Another question from [indiscernible]. Perhaps the company considered a joint listing on the NASDAQ. Would this possibly benefit the company and the share price?

[Ben Malone, Chief Financial Officer]

Could in time, and it is something that we -- there's a series of steps to get there in time. We will make further announcements in this area in the future, and I say that now, because I know that the public filings to the SEC are publicly available and have been noted by some already, but the first step generally is what's called an ADR program, which is just listing the foreign shares in the U.S. Then there's optionality in the future in terms of if we take it to the next level. So we're very mindful of increasing liquidity and having more visibility in the U.S. market, and that's the first step to get there.

[Catherine Strong]

Thank you, Ben. I will just now check if we have any questions from the webinar via the Raise Hand facility or if we should continue now for questions by the Q&A. We just have a couple of left -- questions left in the Q&A. I'll just take 1 from the Q&A at the moment. Adam Thompson asks, can you share your thoughts on the growth we can expect in the current quarter? And how has October kicked off?

[John T. Harper, Interim Chief Executive Officer]

Yes. We're obviously not going to give any forecast of our future growth, but October has started off slightly better than we actually thought. But I would say that the fourth quarter is really driven by Black Friday and Cyber Monday, and that's going to determine what our quarter looks like. And I think on top of that, obviously, there's a lot of -- our larger merchants are putting cold freezes for the months of November and December, as most of you know. So, as far as new merchants jumping in, in the November, December time frame, that will be minimal. But the quarter's off, like I said, a little better than expected, but what drives the quarter is really still to come.

[Catherine Strong]

Thank you, John. I believe we've addressed most questions. There are some questions that we will come back to via e-mail that reflect questions that have already been answered, but we will come back individually to each of you. Given that, I'd like to thank everyone for attending today's presentation. We have an investor e-mail address, which you are very welcome to send through any questions to. I'd like to hand over now to Ben and John for some closing remarks.

[John T. Harper, Interim Chief Executive Officer]

I would just like to say, number one, thank you all for joining and your interest in the company. It's really important to us. Please send us any questions you have, and I look forward to leading the company into the future and getting the growth that I think that we deserve and increasing the shareholder value.

[Ben Malone, Chief Financial Officer]

Thank you, everyone. Thanks for your support as always.

[Catherine Strong]

Thank you, everyone. This concludes the webinar. Have a good day.