QuickFee Limited (QFE) Earnings Call Transcript

Thank you for standing by, and welcome to the QuickFee Limited H1 FY '20 Results Overview Investor Call. [Operator Instructions] I would now like to hand the conference over to Mr. Bruce Coombes, Chief Executive Officer. Please go ahead.

Thanks very much, and thank you to everybody who's taken some time during this busy, busy sort of reporting season to learn a little bit more about where QuickFee is at and where we're going. So I'll just follow the slides, which we uploaded into ASX yesterday, and take you through. So turning to Slide 2 which deals with, I guess, the highlights of the first half of our financial '20. Continued growth, I guess, is the theme. We've got more firms signed up in the United States. We've got a very solid increase in lending in Australia that's up 29%; a 57% increase in the United States, which means our entire business has grown 33% in lending for December '19 versus December '18. So it's good to see that continued growth. 6 months ago, we did our IPO. We did our IPO for the purposes of having capital to grow our business in United States. The first bullet point summarizes what we've been doing: investing to build out our business, principally building out our sales team under direction of Richard Formoe, our Chief Revenue Officer. We've added additional salespeople, additional account managers, and we have now appointed a CTO. I'll come to our tech strategy a little bit later in this presentation. But I don't think any of us would be surprised to know that connectivity is the expectation of any business user of any solution. We've also started our channel partner program, and that only started right at the start of January. So we've had some very solid interest in the program. And I'll detail a little bit more how that works a little bit later on. In terms of Slide 3 where we get to simply some graphics, revenue is up significantly, up from AUD 2.8 million to AUD 3.7 million in H1. Our loan book is growing, and our total lending has grown. So the key things that we are -- that we started this business to do, which is lend money to the SME clients or professional services firms, have seen continued growth. Diving into the financials on Page 5 of the presentation. You can see that our business is profitable before the cost of customer acquisition. So that means that we are running a company which, if we decided to cease investing in customer acquisition, continues to be profitable. We raised our capital to take advantage of our first-to-market position in the United States, and we will continue to invest in acquiring more professional services firms. Our business in the United States is showing increased levels of acceptance and increased levels of firm satisfaction, so we will continue to invest in acquiring more and more customers. Our revenue in the United States is almost double compared to the previous corresponding year. Moving to Slide 6. The balance sheet shows that we have ample capital to continue our expansion strategy in United States and to support growth in our loan book. We've got surplus IPO proceeds lodged against our challenger debt facility in Australia, and that's greater than $3 million. So combined with the existing cash, there is almost AUD 9 million of capital available to fund our continued growth in our U.S. loan book and to fund the cost of customer acquisition going forward. If we roll forward to Slide 8, many of you may have seen this slide before. We do a survey of the firms with whom we deal and last year and this year conducted a survey of the actual borrowers. So we have surveyed those people who've taken a loan from QuickFee to pay their [ accounting and law ] to test their level of satisfaction with the product we have. I'm very glad -- very pleased to say that that satisfaction level remains at 90% this year, the same as last year; meaning that 90% of people say that having tailored plans to pay the professional adviser is very important and rated extremely easy to use. We even had one respondent tell us that using QuickFee to get the advice they needed ensured the survival of their business. So we are clearly helping these small and medium business owners in Australia and United States get the advice they need, and the satisfaction of our firms is similar. Turning to Slide 9. Our Australian business makes money from the lending of money to clients of professional services firms. That is the vast majority of the revenue as you can see. That revenue continues to grow. And on Slide 10, you can see that focusing on just Australia, the lending is up, and the legal market continues to represent almost 1/4 of our business. 3 years ago, that was 7%. So we’ve got little growth in our legal business, and we have 2 of the big 4 now using QuickFee's solution. We've integrated, as you would expect, with software used by accounting firms to chase their clients for overdue invoices. That product’s called Cerebiz. It integrates with an MYOB product called MYOB Accountants Enterprise, which is one of the main solutions used by multipartner firms as their ERP. Turning to technology on Slide 11. As I alluded to, there's an expectation of connectivity. In Australia, there is a move at the smaller end of the professional services firms towards fixed fees, removing time sheets and using agreed fixed monthly fee as the method of payment. At the larger firms, that's not particularly prevalent. QuickFee's mission is to be all things payments, all things receivables for professional services firms. Building integration into the products, like we have on the left-hand side, means that every time a client receives an invoice, the option to pay using QuickFee becomes possible. Looking at the tech stack diagram on the right-hand side, the ability to offer recurring EFT transactions for firms with clients on fixed monthly fees; offer a payment system for any type of payment, whether it's EFT or credit card; and provide an integrated reminder solution and e-billing solution so that firms can send their clients the -- any invoices and electronic reminders is part of our tech ambition. We've appointed our CTO to make it possible for us to become a much more integrated provider of receivables management solutions and payment solutions for professional firms in our chosen markets. Turning specifically to the United States. The number of invoices sent by professional firms electronically is well under 1/3 of the rate of adoption in Australia. We don't have a single firm in Australia that sends less than half their invoices electronically. In the United States, it is the exact opposite. It is our opportunity to bring electronic invoicing to our clients and our prospects in the United States, and that will drive revenue for QuickFee by way of delivery of the solution, delivery of payment plans and delivery of pay-in-full services. If we jump to Slide 12, the relevance of the pay-in-full services becomes clear. The United States banking system is slower, more clunky than what we have here in Australia. You can see from Slide 12 that our revenue in the last 6 months from nonloan transactions is almost the same as our revenue from loan transactions. Comparing that to Australia, where virtually all of our revenue comes from loan transactions, what this means is that QuickFee has brought online payments to the professionals in the United States. And we are literally just getting started. Looking at the U.S. in particular on Slide 13, 57% increase in lending; 18% of the top 200 accounting firms now are QuickFee customers. The last bullet point is about a piece of software called Practice Engine. This is a piece of software that is essentially cloud and used only by top 300 firms. So whilst the number of firms using them is significantly less than that of, say, CCH or other major providers, the number of the licenses, the number of seats that they have is very high. We have integration with Practice Engine, and that integration goes both ways. Not only can we extract invoice data; we can receive back. This is a very powerful integration with a great product. These things drive lending, and they drive transaction revenue. They also made the client relationship more sticky. By appointing Francesco as our CTO, we're able to now harness the power of integration with a range of systems. And so let’s move to the channel partner program, and Damien Kennedy heads up that program in the United States. And I'm very proud to say that we now have not only endorsement by the California Society of CPAs, which is the largest state-based CPA society in the world; we are actually used by California CPA. So California CPA members receiving invoices are given the option to pay using QuickFee. You don't get a much more powerful endorsement of our solution and the largest state-based society using it itself. And that's just the start. Damien is working to build out our independent sales agent program along with more endorsements and closer relationships with -- providing the solutions to accounting and law firms and with [ finance and ] professional advice. Turning to Slide 14, what I want to share here is the power of our transactional revenue business. What the table shows is the level of transactions that went through the QuickFee payment platform for firms which joined in the date ranges in the left-hand column. So for example, firms which joined between the 1st of October 2019 and 31 December 2019 have only been with QuickFee a very short period of time. It takes time for an accounting firm to embrace a new payment method and a new invoicing method. That also takes time for their clients to become accustomed with a new way to pay and a new way to transact with their firm. Firms which joined us in that 3 months had just $1.6 million of transaction value. If we compare that to firms on the fifth row, which joined us between the 1st of January '18 and 31 December '18, now they're $70 million. The firms which joined us before that date was $94 million. There is enormous momentum within the existing customer base. Our current annualized transaction revenue run rate is just under AUD 1 million -- USD 1 million. It's about AUD 1.4 million. That has grown almost 300% compared to the same period last year. By providing rapid online secure payments, we are creating a significant revenue stream in addition to the revenue we enjoy from our lending products. Our story is very much a U.S. growth story. So looking at Slide 16 now. Firms in the United States are modernizing. They are moving away from paper-based delivery of invoices and documentation to portal-style delivery of tax returns, accounts, order reports, et cetera, and electronic delivery of invoices. Broadly speaking, if a firm sends an invoice in the post, there is almost a slight psychological response of sending the response to that invoice in the post, i.e., mailing a check. If QuickFee can help firms accelerate their movement to electronic invoicing, the response by their clients is more likely to be electronic, i.e., pay using QuickFee. And that can be paid using a QuickFee payment plan, i.e., take a loan; or can be pay using QuickFee in full. Either way, QuickFee is earning revenue. Our Australian portal, where firms are literally delivering invoices electronically -- in many cases, 100% of the time -- see 14% of its transactions convert to a loan. In the United States, the conversion rate is lower. If we were to extrapolate the same rate of conversion of transactions to loans from Australia to the United States by accelerating the rate at which firms invoice electronically, we would have lent $26 million compared to $5.6 million the last 6 months. QuickFee's technology investment is designed to drive an increase in electronic invoicing and greater connectivity with the main practice management systems used by accounting and law firms in the United States. Moving the U.S. firms to the level of electronic invoicing that we've seen in Australia will make this happen. As firms modernize, QuickFee is in a position where we are already in the market with a proven solution used by significant numbers of top 200 firms and an incredible level of customer satisfaction. Going forward to Slide 17. We're thinking that we've got this first-mover advantage coupled with structural tailwinds that we want to capitalize on. The accounting and legal market is a $447 billion market in the United States according to IBISWorld. A small percentage of that, where we earn 0.5% on transactions, translates to a large amount of money. Our job is to make this happen whilst we remain the only provider of the lending solution coupled with our payment portal in the United States. And moving forward to Slide 18. We've got a long way to go, and we've got an amazing team to help us get there. We've built out a great team. We've built out a great product, and we are now embarking on significant technology investments to let us take advantage of our first-to-market position. These things will grow our loan book and will grow our revenue and enable us to become a long-term, sustainable, profitable business into the future. I'm more than happy to take any questions. And I really appreciate you taking the time to listen to what we've had to say, and I certainly appreciate you being an investor in our company.

[Operator Instructions] Your first question comes from Chris Steptoe from DMX.

Yes, it looks like that U.S. transaction business is doing really well. What sort of margins are you getting on that?

So we get an average of just under 0.5% of the transaction, and the cost to deliver it is actually fixed cents per transaction that we pay. So as a rough guide, if you do the 90% [ GP ] on half year value, that's fairly close to it.

Yes. Okay. Cool. And just looking at the loan book for -- if we just think about the first half of the loan book across the business, kind of the first half -- or first quarter was -- seemed to be stronger than the second quarter. Yes, do you know what's driving that?

Yes. I mean one of the challenges is in trying to grow the loan book, of course, all our customers keep paying us back. And our average tenor of a loan in Australia is probably 10.5 months, whereas the average length of the loan in the United States is probably closer to 7. A lot of our firms don't even offer their clients the full 12-month term in the U.S. It's a new product. They're getting a bit used to it. So the lending actually is quite -- growing quite rapidly, but the actual loan book suffers -- well, not suffers, but enjoys the fact that people are going to keep paying us back pretty quickly particularly in the U.S.

Yes. And so I think the -- is it the first time you've published the acquisition cost metric?

Yes. I really wanted to focus, I suppose, investors on -- investors put their money in the IPO stage for us to acquire customers. So I wanted to be able to call out, this is how that investment is being spent to build out a long-tail life of a customer even though we're spending the money today.

Yes. Is there -- is it a people cost as opposed to a marketing cost?

It's a bit of both. The -- I would say, out of the $1.085 million that we spent in the 6 months to 31 December '19, the marketing element is probably 15% to 20% of that; including conferences, probably closer to 20%; the rest is people.