PensionBee Group plc

Hello, I'm Romy Savova, the CEO of PensionBee. Welcome to our Q1 2024 results presentation covering trading for the three months to 31 March 2024. For those of you who are new to the PensionBee story, we are a leading online pension provider. We exist to make pensions simple so that everyone can look forward to a happy retirement. We enable our customers to combine their pensions into one new online plan. We enable them to make contributions, to invest in line with their objectives with money managed by the world's largest asset managers, and ultimately to make withdrawals and enjoy their retirements. Our aspiration is to build a lifetime relationship with our customers, generating predictable and scalable revenue for our company and for our investors. PensionBee had a strong start to 2024, recording approximately £5 billion in assets under administration, representing 44% year-on-year growth. Our focus over the quarter has been to increase our marketing efficiency by investing in our brand appropriately and optimising our online expenditure. As a result of our efforts, net inflows per pound of marketing expenditure increased by 24%, and for every pound of marketing spent this quarter, we brought in 66 pounds of net inflows, putting us on track for a very efficient year. As a result, revenue grew 42% to £7 million for the quarter. To continue capturing the market opportunity, we believe it is important to own our customer relationships so that we can fully understand the evolving needs of the consumer base and ultimately serve them more effectively. To that end, we have invested £59 million in the PensionBee brand cumulatively, and our prompted brand awareness now stands at 55%. Key highlights from this quarter include our National Geographic sponsorship, further investment in our award-winning podcast, partnerships with other financial communities, and our long-standing Brentford FC sponsorship. Our brand investment, coupled with the growing data capability and marketing deployment, resulted in a year-on-year drop in our cost per invested customer. Throughout the quarter, we were proud to serve our customers, particularly during the busy tax year-end, supporting them rapidly and effectively on the phone, over email, and over live chat. This quarter, we were excited to release our onboarding checklist, providing our customers with a handy tool to help them get the most out of their PensionBee experience. The onboarding checklist encourages customers to transfer more pensions to their PensionBee account, and to add contributions. Finally, we continue to invest in our productivity through automations and process simplifications, resulting in an 18% increase in invested customers per FTE over the past year. I will now hand over to our CFO, Christoph Martin, who will cover the financial update for the first quarter.

Thank you very much, Romy. Hello and a warm welcome to everyone. I am pleased to cover the financial section of the Q1 trading update. Over the first quarter of this year, we continued to demonstrate our ability to grow strongly as we reached an asset base of approximately 5 billion pounds at the end of March, having added over half a billion pounds of asset under administration. I would now like to highlight the asset growth drivers in more detail. First of all, we have driven growth through new customer acquisition, adding more than 11,000 new invested customers representing 150 million pounds of asset growth for the period. The average age of customers joining our platform was approximately 40. and the average account size of each new invested customer was approximately £13,000, representing an increase of more than 20% to 2023. Second, we have driven asset growth through existing customers who have continued to accumulate pension savings with PensionBee. Growth from existing customers over the period represented 85 million pounds of asset administration, representing an increase of 10% for the same period last year. Net flows from existing and new customers contributed 235 million pounds of asset growth over the period and which was an increase over last year. Third, as it is customary in the market, pension assets are invested in capital markets and we benefited from market appreciation over Q1, which represented £272 million of asset growth. In summary, we have grown our asset base efficiently with strong net flows, leaving us well placed to deliver on our objective of profitability growth this year. We are pleased to report continuous high customer and asset administration retention rates of more than 95%, which positive underlying growth across all cohorts in Q1 2024. This serves as a good reminder of the long-duration compounding nature of the asset base. We converted the compounding growth of our asset base into predictable annual run rate revenue of £31 million or $38 million, representing a year-on-year growth rate of 41%. In summary, we continue to deliver consistent, predictable revenue growth thanks to the compounding nature of our asset under administration, high retention rates, continuous net flow generation across cohorts, and stable revenue margin. While we delivered revenue growth of 42% in Q1, compared to last year, the cost base was reduced overall by 7% compared to the same time period last year. This was achieved with a combination of stable money manager and technology platform costs growing at circa 1% year on year, as well as a more efficient deployment of marketing costs, reducing by almost 20% while achieving the same amount of net flows as in the same period last year. Q1 is an important growth quarter representing a higher quarterly budget compared to the rest of the year given the tax year ending in April. Nevertheless, we continued to record improving EBITDA margin. In summary, we delivered our predictable revenue growth of more than 40% on the back of our scalable technology platform, positioning us well for continued growth and expected full-year profitability. We are pleased to reiterate our guidance for the UK, confirming that we aim to deliver sustained high revenue growth. While we have demonstrated significant growth to date, we remain of the view that our focus on the mass market of pension savers will enable us to deliver substantial further growth as we pursue a market share of around 2% of the 1.2 trillion pounds transferable pensions market over the next five to 10 years. We are preparing to onboard approximately 1 million invested customers with 20 to 25,000 pounds in their pensions, creating a revenue opportunity of around 150 million pounds in the long term. At the same time, having invested our brand and technology over many years, we are poised to continue delivering increasingly profitable growth over the medium to long term. Our primary financial goal for 2024 is to deliver full year financial profitability, being also clear, as stated in the previous quarters, that we will consider this goal on a full year basis rather than on a quarterly basis. As we look forward to the next few years after 2024, we expect to grow our marketing investment and invest in our growth. always maintaining our focus on profitability as an underpin. We have recently announced our proposed US expansion in partnership with a large US-based global financial institution. Under the proposed strategic relationship, the US-based partner will provide its expertise and substantial marketing funding. Correspondingly, PensionBee's financial contribution will be financed from the existing resources of PensionBee Group PLC. As a result, our US business does not change our existing guidance. I will now hand back to Romy to cover further updates.

Thank you very much, Christoph. We are heartened to see investor excitement and momentum following our US expansion announcement. Our US expansion and work with our partner continues to progress in line with our expectations and in line with our expected launch date in late 2024. The second quarter is developing well, and we look forward to updating investors again in July. Thank you for taking the time. We look forward to engaging with you further.

Thank you. The floor is now open for questions. If you were dialed into the call and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Participants on the webcast can also ask a question by using the Ask a Question button on the webcasting page. Again, for those dialed in on the phone, please press star 1 to join the queue. And your first question comes from the line of William Hawkins from KBW. Please go ahead.

Hi, Romy and Christoph. Thank you for taking my questions. And apologies, I'm still faffing about with numbers, so I hope I can be clear on the questions. Could you help a little bit? Again, you know my focus on net flows, and I understand that we shouldn't get too carried away because these are big numbers leading to a compounding balance sheet. But it's really reassuring, at least for me, to see the resilience and the beat against my expectations in net inflows. I'm still just now trying to think a little bit about any issues we need to think about through for the rest of the year. Again, I know you've got the overall goal of growing that figure. But when we're looking at that two, three, five, to what extent can we just multiply it by four? To what extent is that sort of too crude? What issues of seasonality do we need to be thinking about? So, yeah, just a little bit of an outlook on what at least for me was a reassuring figure, please. And then I guess related to that, again, the marketing spend, I think, again, we've got the full year guidance. That figure is hopefully going to be flat year on year. Just now that we know the first quarter budget, can you just help me understand a little bit about what the next three quarters may look like, please? And then finally, again, you've already made some comments, but could you just sort of Is there anything really important to update on with regards to the U.S. rollout, or do we still have to be holding our breath for a bit more detail at the end of the year? Thank you.

Hi, William. Good afternoon. Very happy to take your questions and happy to begin with part one on the net flows. It certainly has been a good quarter as you've recognized. We have grown net inflows on an absolute basis, but for us, even more importantly, on a net inflow per pound of marketing spend basis. And that has been one of our primary focuses for this quarter. So I think we do also take a lot of comfort in this net inflow figure and in the customer growth figure as well. And looking forward to the rest of the year, you can assume that our focus will very much continue to be on efficiency and ensuring that every pound of marketing spent is indeed generating the optimal level of net inflows. I think historically, if you do look at our net inflows as well, they do tend to be fairly consistent over the year. I think the only variation this year will be that we are extra, extra focused on the efficiency of that marketing expenditure. And so we remain very optimistic about the rest of the year and kind of having seen the start and evolution of the second quarter as well.

I might just add one additional point on that first and second point. So I think another way to get a sense around the outlook for the rest of the year is to look at our annual run rate revenue for Q1, where we reported that this has reached 31 million pounds. And as you can expect, a continuation of net flows for the rest of the year would then increase that number further. So I think another comment that we did already mention in the previous analyst call is around the fixed cost space, particularly the technology platform and other costs. where we made a comment around rightsizing those at the 2023 levels that it is already rightsized for 2024 at those levels. So I think combining then this information also with the net revenue margin that you have seen in Q1 should give you a good sense around the outlook for the rest of the year, because you would have a sense around the top line, the fixed cost base, which we commented on, the net revenue margin, which you see now in Q1, and then obviously our commitment to full year profitability. So I hope that gives you always a little bit of guidance around one and two, which both relate a little bit to the output for the rest of the year.

And then coming back to point three around the US rollout, we will ask you to hold your breath for a little bit longer. The expansion is going well and in line with the deliverables that we've outlined as a part of this process. We have previously stated that we expect to launch in late 2024, and that is still our guidance. And the commercial details around the proposal, which I know everyone is keen to hear more about, will be released a little bit closer to the date. But we remain very excited about the opportunity to help millions of U.S. consumers consolidate their old 401ks into a new business. We remain very excited about that. I hope that answers your questions.

The final part of the answer about the U.S., but I got the point about wait till later. Thank you.

Thank you. Your next question comes from the line of James Allen from Liberum. Your line is open.

Hi. Good afternoon, guys. Hopefully you can hear me okay. I'm calling in from abroad. I've got two questions if I can. On marketing, so we know that you've got a similar marketing budget year on year, but less has been spent in Q1 this time around, I think down from 4.4 million to 3.6 million in Q1 this year. What was the reason for the lower weighting to Q1 this time around? And second question, more just around general sentiment. I know AJ Bell mentioned improving sentiment in D2C earlier in the week. Has that helped you guys with onboarding and reducing the cost per invested customer, given maybe they need less of a push to consolidate their pots? Now we know interest rates have peaked, markets are less volatile, et cetera. Thanks.

Thanks so much, James. And yes, we can hear you well. Happy to take the first question on marketing and Q1 on Q1 differences compared to last year. The primary goal for this year, as you know, on the financial side is to achieve full year adjusted EBITDA profitability. And as a result, we are being very deliberate and conscious around the phasing of the marketing budget. In Q1, our main goal was to improve the efficiency of our investment while delivering an absolute growth in net inflow figures. And that was our primary focus for the quarter. What that means is that we have ample marketing budget remaining for the rest of the year to deploy appropriately and efficiently, always being mindful of that primary EBITDA profitability goal for the rest of the year. So in our judgment, this was the best and most appropriate way to phase the budget this year while taking advantage of the Q1 opportunity and increasing the efficiency of net flows relative to every pound of marketing spent. Your second question around sentiment, I would definitely concur with the assessment that consumer confidence is rebounding. I don't think it's a perfectly smooth and clear journey, but we can certainly see a lot of increasing consumer confidence when it came to contributions, for example, in Q1. And it was exceptionally strong from that perspective. I would still say that inflation is sticky and the banks have not yet cut interest rates in any meaningful way. And so I do think that we have to be conscious of the macro environment around us and any volatility that that may breed in the market, including over the short term. So we certainly remain focused on that, but it does feel that the trajectory and the overall longer trajectory is positive. I hope that answers your questions.

Your next question comes from the line of Alexander Bowers from Barenburg. Your line is open.

Hi, everyone. Just two questions for me. Just firstly, on costs and excluding marketing spend, it's a quarter on quarter pretty flat. Can you give us any updated guidance for the rest of this year to expect sort of similar levels of cost for last year? And you mentioned automation. Would you give us some examples of things you're looking to automate and what else you could kind of automate going further? And my second kind of question topic was on the product suite you've got several different funds offering at the moment are you looking to add more different products to that suite now or do you see it's pretty well rounded and there's sort of nothing else further to add in terms of the UK business thanks hi good afternoon Alex thank you very much for your questions I'm able to take the first one around costs

So it is indeed the case that we, in the previous quarter, gave already a little bit of a steer in terms of how do we think about our post space, particularly the fixed post space, given that this year is quite an important year for us, given that we transitioned to full year profitability and profitable growth thereafter. And you would obviously note that the technology platform and others, so the fixed cost base was a little bit over 19 million pounds in 2023. We think that this cost base is right-sized for 2024. So that means that we see the 2024 cost base for technology platform and other costs at that kind of sitcom. So between 19 to 20 million pounds. Then the next cost base that's obviously relevant is the variable cost base money management costs. And if you look at the last few quarters around the margin, I think it might be a good proxy for how the costs might evolve for the rest of the year. And then lastly, the marketing costs. And I think we have now a few times commented on how we're thinking about sizing that cost bucket. And the 2023 number is probably a good data point to keep in mind. And then overall, what is crucially important, as you know, and I'm happy to reiterate that point as well, is obviously 2024, we are really committed on the profitability. And so all of those costs, the thinking is obviously within the context of the broader strategic order. So I hope that gives you a good steer on the first question around the costs.

And I'm happy to cover some examples around automation. Within automation, there are a number of different areas that we focus on across all of our departments. Ultimately, there is an ambition for our customers to be able to self-serve to the greatest extent possible on the PensionBee product estate. And a lot of our focus is on ensuring that the end-to-end process from the moment that a pension gets requested for transfer on our system, from that moment until the moment that the pension is live and funded in the PensionBee retirement account, that that process is not touched by a human being. And so a lot of the automation continues to be around micro aspects of that journey, given we have to deal with thousands of different providers and their individualistic processes. So lots of improvement there, but absolutely still further improvement to come on the automation side. We also continue to automate a lot of other areas around self-service. So you will have seen that we launched our onboarding checklist, and that checklist guides customers to where they can find particular features within our product estate. So if a customer is onboarding and is curious about where they may be able to find contributions, they can use the onboarding checklist to guide them to that location. So we will certainly continue to focus on that and simultaneously enhancing the customer experience within the product estate. The second question around product more generally and whether we will be introducing new products. At the moment, we feel quite satisfied with our product range. We have a good suite of products that serves the vast majority of needs within the mass market. We do remain very focused on customer feedback, and there are certainly a number of areas that we think are promising for further research and for further improvement as our customers' views evolve. But certainly no major plans to dramatically change the product offering at this stage. Thank you. Thanks.

As a reminder, if you would like to ask a question and are dialed into the call, please press star one on your telephone keypad to raise your hand and join the queue. And your next question comes from the line of Tong Wu from Wuxing Cube Capital Management. Please go ahead.

Yes, hello. First time caller. Just three questions. In one of your page on the results, you have an illustration of the lifetime value of a customer. would you be able to give like a sort of an approximation of let's say for every one pound that you spend to acquire customer what sort of value what sort of lifetime value would you be expecting for each customer and on your US rollout I know you may have potentially touched on this earlier and you may not feel the ability to say how much of your existing technology can you leverage when you roll out your USA product? Or is it a case of you may need to spend more or invest more sort of capex to sort of enhance your USA capability? Thanks.

Hello. Good afternoon, Tom. Welcome, Nicole. So I'm happy to take the first questions around unit economics and how we think about incremental returns on our capital. So let me maybe start with the lifetime value part of the equation. and run you through a numerical example that is illustrative and can be seen based on some of the KPIs that you will see in the rest of the presentation. So let us start with the average account balance of a customer, which is, as of March, around 20%. The gross revenue margin that we charge is 64 basis points, whereby the net revenue margin on that was in the high 80s for Q1. So if you multiply that through, you get to around 50 basis points of net revenue per customer. So if you multiply the 50 basis points with the 20,000 pounds of average box, it gets you to roughly 100 pounds of incremental net revenue per customer. If you then also take some variable costs that we would strip out the technology platform cost buckets and bring into the framework to be most conservative, we would quantify that to be around 20 pounds per customer per year. So if you take that amount of the £100 per customer, you get to roughly £80 of incremental profit per customer per year. Then the question that follows next in order to get the lifetime value is how much, how would you quantify the lifetime part of that equation? And we usually look at our retention rate as a very good proxy to inform that particular question. So our retention rates, as you have seen on one of the pages, on page 10, is 96% that would imply a 4% attrition. If we use a rounded 5% number and invert that, would suggest a roughly 20-year period for an average consumer. So if you then multiply the 80 pounds of incremental profits per consumer with the 20 year horizon, gets you to roughly 1,600 pounds of lifetime value. And then And then the comparison to that lifetime value is then the CAC, or how we define it, the CPIC, so the cost per acquiring an incremental, acquiring a consumer. And we do highlight the cumulative CPIC, which is around £244 per customer. And so if you multiply, if you divide the lifetime value over the CPIC, gets you to around mid to high single digit return on the marketing capital and around a three year payback period on that deployment of capital. So I hope that was a helpful illustration of the economics, but if there are any follow ups, I'm happy to take them. I think that's really helpful.

And separately, I'm very happy to comment on the technology and its extension to the US. As you will have seen, our technology state is pretty broad and includes a number of elements. There is, of course, the consolidation element, which has been absolutely critical in terms of onboarding new customers. But then also the platform for managing the customer experience over that 20-year life period that that we've discussed. And of course, the trading and the unitization and the overall customer experience, which is all done by us. And I think some of the key strategic decisions that we made around the technology very early on including using cloud native providers that already are designed to scale to millions of consumers, have been very helpful as we proceed with the rollout. We also have a number of global suppliers who we have been leveraging to ensure that we can access their services from the United States as well. And so, overall, within the technology estate, we are very confident that the approach that we've taken here lends itself very well to the US market. At the end of the day, a provider is a provider, and the various ways that they transfer pensions and 401 s in the US, you know, I have no doubt that we will have seen that with our vast experience amongst providers here in the UK. So we think that that will certainly leave us in good stead. But we also know that we do need to localize the customer experience. And I think that goes beyond sort of moving from pounds to dollar signs because the U.S. consumer will have an entirely different vocabulary and certain different expectations around the experience and the UX in particular. So... Overall, I think the approach lends itself very well to increasing the number of customers. But certainly we know that we need to localize in order to appeal to our target market across the pond. I hope that answers your question.

Yeah, that's brilliant. Sorry, I just want to go. I just remember that one more question. If you've got time, if not, don't worry. But the one thing I wanted to just get some clarity on is on your outflow. I would imagine it would be a combination of people just want to leave such providers, and people retiring, and unfortunately, maybe early death. Would you be able to provide some sort of color in terms of the sort of breakdown in terms of who are the people that would normally leave? And I would imagine the people who retire would typically be leaving with a much bigger sort of cash pot than, say, somebody who may have sort of died early. Thanks.

Thanks for the question. I think interesting question for sure. And those certainly are the elements of departure. We are, I think, quite focused on ensuring that we have a long retention period with our customers. So we've mentioned the 20-year figure before. And as you know, our average customer age is approximately 40. So that being said, the way that we think about, you know, any potential outflow is to look at it as a proportion of the opening AUA. And from that perspective, we can see over the past couple of quarters and certainly when you compare Q1 on Q1, that it does remain fairly consistent. All three of those cases that you have described are certainly consistent. present, including withdrawals. We recently launched regular withdrawals and that has helped us to acquire some slightly older customers who are looking to access their pensions for the first time or on an ongoing basis. And so the outflows, if you will, or pensions being spent in alternative ways are definitely built within the product and very much in line with our expectations there.

There are no further questions on the conference line. We will now address the questions submitted via the webcast page. The first question is from Jeff Hargraves of Shireburn. Is there any evidence of a slowdown in growth of new customer signups given the static marketing spend?

Thanks very much for that question. Our primary focus for the year is very much on ensuring that we deliver on full year EBITDA profitability. And so to that end, we've been focused on ensuring that the marketing expenditure is as optimized as possible. So this quarter in particular has been primarily dominated by net flows per pound of marketing spend. And you can see that we delivered a 24% improvement compared to Q1 2020. of last year. At the same time, we onboarded approximately 11,000 new invested customers. And so that continues to position us well for our overall goal of reaching a million invested customers over the next five to 10 years, which we consider is very achievable and doable given the overall size of the UK consumer pension market being somewhere between 20 and 30 million individuals. Thank you very much for the question.

And we have a follow-up question from Jeff. How likely is a secondary share issue to help finance US expansion?

Thank you very much for the question. So as part of the U.S. expansion, we've outlined the financial parameters under which it will be conducted. And the key components of that are, of course, our work with a large U.S.-based global financial institution who will contribute substantially to the marketing budget. And PensionBee itself contributes through PensionBee Inc., our US subsidiary, will run the operations and make a contribution to those operations directly from the cash that we have on our balance sheet, which is more than ample to finance that expansion and the growth of the US business.

There are no further questions submitted via the webcast page. I will now hand back over to Romy Savova for closing remarks.

Thank you all very much for your time on the call today. Fantastic to see so many of you here, and we hope that we've been able to answer your questions. If there are any further questions, then please do feel free to reach out to us over email. Thank you all very much.