Zip Co Limited

Welcome to the Zip Full Year 2022 Financial Results Call-In Webcast. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the prepared remarks. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Lastly, If you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Vivian Lee, Director of Investor Relations at Zip. You may begin, ma'am.

Good morning, and thank you for joining Zip's FY22 earnings call. To open the call, I would like to acknowledge the traditional owners of the land, the Gadigal of the Eora Nation, and pay my respects to the Elders, both past, present and emerging. By now, you would have seen the release of Zip's FY22 results across the ASX and have a copy of the investor presentation. I'm joined today by Zip co-founder and global CEO, Larry Diamond, Zip co-founder and global CEO, Peter Gray, and CFO, Martin Brooke. We'll start this call with some prepared remarks and then open up to questions. With that, I'll now hand over the call to Larry.

Thanks, Vivian. Good morning and welcome to ZipCo's FY22 results presentation. We founded Zip nine years ago to create a more financially fearless world and we are just getting started. We've been on a mission to be the first payment choice everywhere and every day and to create a world where people can live fearlessly today knowing that they're in control of tomorrow. We continue to believe that when you give people knowledge, access and the ability to control their financial lives, you give people the ability to live every day with confidence. So in short, when users click our button at checkout, they know we have their backs. And at a time of heightened inflation and increasing cost of living pressures, the NPL becomes an even more important budgeting tool for everyday use and a real necessity for all merchants. While FY22 has been a year of change and consolidation, we remain committed to this responsibility with a sharpened focus in FY23. For today's call, I will speak to the highlights and the business performance Pete will speak to our financial performance and unit economic analysis. Martin will step through a quick review of our financial statements, and I'll summarise our priorities and outlook at the end before opening up for questions. Our key operating metrics are set out on slide five and confirm another year of strong performance. We delivered $8.7 billion in transaction volume, up over 50% year over year. This was derived from our valued merchants and customers, which at June 30 stood at 11.4 million customers and over 90,000 integrated merchants globally. And if we look beyond our integrated merchants, our customers shopped at hundreds of thousands of more outlets. Pleasingly, the number of ZIP transactions was up 80%, so over 74 million, demonstrating a healthy increase in customer engagement. Slide six is a summary of our key financial metrics. As you can see here, revenue growth was strong, up 57% to $620 million, while revenue margins lifted to 7.1%, driven by a differentiated and robust revenue model. While delivering impressive top-line growth, we have clear focus on our path to group profitability. The cash transaction margin, while still very solid at 2.3%, was down from last year, and we have taken actions to improve our gross profit in both Australia and the US. Cash Viva TDA was a loss of $207 million for the year, which was in line with expectations, and we recognise that in a shifting external environment, there is still work to do here. We have the plan, and we'll talk to this in more detail throughout the presentation. And finally, our cash position remains strong with $279 million of available cash and liquidity, which we are confident will see us through to group positive cash EBITDA in FY24. Turning to slide seven. From a highlights perspective, firstly, some of the operating metrics I just spoke to continue to demonstrate strong top line growth the business continues to deliver with both TTV revenue customers and merchants all up more than 50%, again, demonstrating the healthy continued demand for BNPL out there. The incremental value we bring to merchants continues to resonate. We signed with a number of marquee brands, including Best Buy, Bed Bath & Beyond in the US, and in Australia, we entered new verticals, including making our plane travel with Qantas and Virgin. In FY22, we added 4.1 million new customers to the Zip platform, And as we bring customers to more merchants and verticals, we can see that our proposition continues to drive deep engagement. Transactions per active customer in core markets increased 45% in the year. One number that we really wanted to highlight was the cash EBITDA of the Australian business of $28 million. This clearly demonstrates the operating leverage of the business model and proof of its potential to deliver strong EBITDA growth at scale. And finally, I'd like to thank all of our dear shareholders who have supported us over the years and in particular the capital raising earlier this year. We started the year executing on our global strategy at a rapid pace, opening up many ZIP markets and taking advantage of the early BNPL adoption curve. But as we spoke about a few months ago, the world changed drastically and we had to respond. We proactively refined our strategy to focus on sustainable growth, strong unit economics and cost management. And I'm pleased to say there are a number of initiatives we have delivered on helping to accelerate our path to profitability. Providing value to our customers is part of our DNA. We launched new products and services with zip installments in Australia and physical cards in the US tackling the in-store opportunity. Product innovation and evolution of experience is a common theme as we strive to meet our customers where they are. This year, we also enhanced our rewards program with a key partnership with Qantas. We also added in-store rewards to the Zip app. With regards to unit economics, there are a number of actions we've taken to maintain and increase margins, including repricing initiatives, as well as the considerable response underway to manage credit losses, which Pete will take you through later in the presentation. On the right, we talk about reducing cash burn with reductions in people cost base and our global footprint. This is in line with our aim to allocate capital with a focus on markets that are profitable or have a near and clear path to profitability. As such, we've made a number of decisions to pause or wind down non-core products and non-core markets. We announced the decision to close the Singapore business in Q4, and we are announcing today the decision to close the UK business, reducing the group cash burn further. We also want to thank our dedicated teams in those regions for their efforts over the years. In tandem, we have also been undertaking a strategic review of our rest of world footprint to determine how we can best allocate capital to generate long-term shareholder value. And we'll come back to you with more details on the outcome of this review. In line with this, the ANZ business also made a number of proactive changes to its product set in FY22, allowing us to focus all our resources on core products and setting up the business for further margin expansion and EBITDA growth. Now let's move to slide nine. As a global organization, we remain committed to operating responsibly and in a way that positively impacts all of our stakeholders. Supporting financial empowerment for our communities is central to our vision for a financially fearless world. And in FY22, we're proud to launch a partnership with Young Change Agents, which is a non-for-profit supporting financial literacy and entrepreneurial skills for youth across Australia. For our customers, we remain committed to responsible lending and driving smart money management. We look forward to bringing more features into the Zip app in FY23. As our business matures, so have our practices to support environmental sustainability. We have continued our commitment to operating as a climate-neutral organisation. Next, diversity, equity, inclusion are key to our employees feeling like they can bring their whole selves to work. And we revised our measurable objectives for gender balance this year, as you can see, which we are committing to at 40-40-20 across all levels by FY26. And finally, we also continue our commitment to inclusion in our communities through partnering with Women Who Code and the Pinnacle Foundation. And the last point on this slide, you know, at Zip, our employees' health and wellbeing is a top priority, particularly in a world with COVID and some of these changing conditions. This focus encompasses all colleagues of all genders, ethnicities and orientations in all the countries we operate in. And one of the key changes we made to our bereavement leave policy that took effect in June this year was to enable US employees to safely access abortion treatment. We'll now move on to slide 11 as we discuss some of the more regional performance. So first on the US, As you can see here, we saw strong transaction volume growth over the year, up 67%. The app, which is a key measure of engagement, saw volume up over 80% year over year, and the number of unique transacting customers in the app increased by 38%. As mentioned earlier, we're also excited to launch with great merchants like Best Buy and Bed Bath & Beyond, which continue to increase our customer acquisition funnel. It's early days in the Best Buy relationship, But through initial customer engagement, we see it's quite pleasing with NPS at 84 in July, evidencing that the offering is extremely productive for their customers. The US market remains a sizeable opportunity with only 14 of the top 40 US retailers currently offering a BNPL product. And so we continue to innovate for our customers and merchants. We recently launched a physical card pilot in June of this year, And post-pilot, we are aiming to scale this card in FY23, where in-store is a huge untapped opportunity, particularly as customers are returning in-store post-pandemic and shifting spend from online into in-store. And moving forward to FY23, our focus here is going to be on accelerating the path to EBITDA profitability and focusing on those initiatives that deliver increased revenue and optimized costs. If we just look on the next slide, slide 12, as you can see here, engagement continues to increase in the American market with both overall app and spend per active customer continuing to grow. As you can see on the chart on the left, in FY22, this is annual spend per customer for $725, which grew 30% year-over-year. And if you look at the chart on the right, Through the steepening of the curve, you can see that revenue per customer continues to increase over time, demonstrating our customers' long-term engagement with Zip and the continued investments we make through product and engineering in the Zip app. Now let's move on to ANZ. ANZ revenue grew at 40% year-over-year, which was, as we note, a faster clip than the transaction volume growth. This was led by increasing customer purchase frequency and lifetime value. In fact, dual users of both ZipPay and ZipMoney, who we know are materially more profitable, lifted by 30% year over year. Another initiative that we rolled out were installments on the ZipMoney product, and this gives customers the ability to pay installments at any online checkout, unlocking a much broader range of retailers. In FY23, we are going to be focused on driving growth from this profitable and big-ticket financing product, which we see even more important with the higher inflationary environment. As mentioned earlier, we were also incredibly pleased to announce both Virgin and Qantas, which joined our payment platform, and we signed eBay earlier this year. So finally, with close to 60% brand awareness for under 45s in Australia, a strengthened leadership team led by our ANZ managing director, Cynthia Scott, and the actions we took to focus the business on core products in FY22, we believe we have the team and plan to deliver even more in FY23 from our already strong and profitable business. On slide 14, Here again, you can see our engagement metrics on a customer basis. Customers are increasingly adopting BNPL products as their preferred payment option versus traditional consumer credit products. With recent industry data pointing to 6 million active BNPL accounts in Australia, with almost half of them not using a credit card. Leveraging our differentiated account-based product in this market, customer transaction frequency is on the rise. And you can see in FY21, cohorts transacted at over 70 times a year. And as we finished FY22, that number was 63, and the cohorts haven't yet fully seasoned. So very, very encouraging statistics. And again, on the right, for most of the US, we're seeing a steepening of the curve as customers that join the platform are driving more lifetime revenue and the team is very focused on this across product engineering and data analytics as we move on to the next slide and cover the rest of world here this largely covers our high growth emerging markets portfolio now these businesses continue to live a strong growth and while we confirmed we are undertaking a strategic review we remain of the view that there is significant unmet opportunity in these markets. So a few quick highlights here. If we look at Central and Eastern Europe, our Twisto business, they delivered TDB and revenue growth of 64% and 82% year-over-year respectively. And considering the challenges in the region, this was a reasonable result. Spotty, which is based in the Middle East, is a top three player in the region and had a good year with downloads growing nicely and signed brands like Pan Emirates and Virgin Mobile. Mexico and Canada continue to scale with a strong pipeline emerging in Mexico, and Canada is now fully integrated into the US operating model. And finally, South Africa, our brand Payflex, which is number one player over there, continues to sign up the top merchants, adding tape a lot recently, and is on a clear path to profitability. And just the last slide of the section, on slide 16, we discussed active customers. Now, this is a measure that, of course, we monitor internally across our RFM custom models, which looks at recency, frequency and monetary, and we will now be reporting on the 12-month active customer to more closely align with our peers. These are customers that have engaged any transaction activity in the last 12 months. With that in mind, in FY22, we report 7.5 million active customers. And pleasingly, we saw this segment actually increase the average spend by just under 30% year-over-year and transactions by 45% year-over-year across our core markets. With our differentiated proposition, we believe we can continue to drive higher spend, and our revenue is very strong when you compare it to our peers. I will now hand over to Pete to take us through the financial performance.