Zip Co Limited (ZIP) Earnings Call Transcript

Good morning, everybody, and welcome to the full year FY '21 results call for Zip Co. Before we kick off, I'd like to first acknowledge the traditional owners of the land on which we meet today, the Gadigal people of the Eora Nation, and recognize their continuing connection to land, waters and culture. I'd like to pay my respects to their elders past, present and emerging. We're very lucky to be here today sharing our results with you, so it's super important that we recognize the history of where we are. Just before I throw to Larry, sincere apologies for yesterday's situation, not ideal, and we thank you all for your patience and support. To work through the presentation, I'll throw to Larry. [Operator Instructions]. Over to you, Larry.

Thank you, Pete, and it's great to be speaking to everyone today as we announce our full year FY '21 results. It has been a tremendous year for the group. And I would like to make a special thanks to our shareholders, both institutional and retail. I'd also like to make mention of the retailers and customers that have really supported us in getting us here today. I'd also like to say thank you to the entire Zip team, our fearless Zipsters as we like to call them, for their dedication, commitment and passion. We genuinely believe that over time, our competitive advantage will be our people. And while the results have been pleasing, our hearts do go out to those that have been impacted by COVID in many of our countries, particularly in Australia, both mentally and physically. So if we just turn to the next slide. Just a quick summary across our key metrics, really proud of these results. I think when you look here, we can see transaction volume growth 176% year-over-year. Transactions, though, were up 293%. And what we're seeing there really is product innovation, engagement and adding more and more great merchants to our platform. Revenue and cash gross profit were up around 150%. And on a pro forma basis, it's actually around 100%. And that's as we invest in growth. On the next slide, a quick summary. We printed a really good cash transaction margin of circa 3.5%. We did see a slight reduction year-over-year as these figures now include the U.S., which only got consolidated this year and also more every day in Australia, and we'll talk about that a little bit later. And when you look at the capital recycling, that sort of bottom chart, you can see there, really great improvement, about 40% improvement as the loan book has dropped from about 6.5% to 3.9 months. And losses, relatively flat year-on-year when you look at it as a function of transaction volume, even as we've entered new markets. Just on the next slide. As we set out at the beginning of FY '21, we set aside 4 key strategic areas for the business, driving payment acceptance, app engagement, global expansion and Zip Business, which we kicked off in Australia. There's a lot here, which obviously you can read. But I'd like to point -- I'd like to highlight a few things on this page. In terms of payment acceptance, really the innovation of being able to use Zip everywhere has been a real game changer, and we'll talk about that, whether it's the virtual card and Chrome extension in the U.S. or our virtual card technology in Australia. The app is very much the center piece of the relationship between us and customers. And we do see payments as the access point between us and customers. And again, here, really pleasing to see some of the stats here around a number of app downloads, and we'll go into detail with some of the engagement metrics. The other good news, we've obviously had Pocketbook sitting there powering a lot of our underwriting and decisioning technology. The good news is the Pocketbook functionality, personal financial management functionality is currently being integrated into the Zip app. We are incredibly excited about that and it really talks to our purpose. Global has been a standout, and we'll be talking about that a little bit later. Before the year began, U.S. didn't exist, QuadPay didn't exist, and that's obviously been a great stand out, huge effort by the team. And might I say all built through relationships because we have been under COVID the last year. And we'll jump into Zip Business, which you're starting to see some really, really good progress. So if we just move to the next slide. Quick overview. We'll do a recap of -- we'll do an overview of the business for those new to the story, a recap of FY '21. We'll then do a deep dive on the U.S. and Australia and New Zealand, which are obviously our core markets. We'll talk about our global expansion, which is obviously key our future. And then I'll hand over to Pete and Martin, our Chief Financial Officer and Chief Operating Officer, to talk through some of the financials, and then we'll finish off with the FY '22 outlook. So as we move to the next slide, we've just undergone a big rebrand. And if you don't mind, I'd just like to spend a minute or 2 just talking about this. Six months ago, we embarked on a pretty big project, and that was really to look at who we are, our why, what we stand for. We conducted thousands of surveys, countless interviews with Zipsters and also many, many customers. And our view is that great product drives customers, but great purpose drives great product. And when we looked around us, the finance category has spent decades and millions telling us we can while the tech category has given us all the ability to get it now, live in the now. But our view is that the truth is that no one can live in the moment if they are not in control of their future. And so at Zip, we believe we have the opportunity to really rebalance the powering payments by putting people at the center and the new logo literally has that middle section to put people at the center and by building fair and transparent products that generate new value for all. And our belief is 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. And that really brings us to our new purpose. The mission has remained the same, and that is to create a world where people can move fearlessly today knowing that they're in control of tomorrow. Being able to buy now as long as you can pay it later. And what that really means is that when customers select Zip at check out, they go Zip's got my back. And what you'll start to see as well is that really permeate across our product strategy. It's brought us to where we are today, that strong sense of responsibility and doing the right thing in fintech. If we move to Slide 8, which really talks to our model. Really, we're trying to bring customers and merchants together through this fair and valuable payments experience. And if we start on the right, our first customer was the merchant. It was Chappelli Cycles in Australia, who brought our first consumer. And so for merchants, we're doing payment acceptance. We're driving new customers to our merchants, and we'll talk about that a little bit later, and we're driving conversion for them. The other great thing is this year, we're actually starting to provide other solutions that can really help them grow, working capital and buy now pay later. For consumers, we offer a range of really exciting services, not just by now pay later, we also offer consumer finance and longer-duration installments. And of course, lots of wallet features, bills, gift cards, subscriptions promotions from our merchants. And budgeting and learning is obviously coming now as well. And that's really how we see our flywheel. And on the next slide, I just want to talk through how we see ourselves relative to the peer set and what we're going to be focused on as we drive our global strategy. Really 5 pieces to it. First of all, when you Zip a transaction, that means you can spread it into installments. And that's both short and long duration. In a single experience, Australia, we obviously have that, both short and long. In the other markets currently paying for, but we will be looking to roll out our Pay Now in the different markets. The second pillar to our business is we have this hybrid open and also integrated network, which, as you'll see in the statistics, really drives frequency and preference and means that you can with Zip buy now pay later, anything everywhere, a big, big differentiator. The third is the business model, being able to generate revenue, both from merchants and customers, and that those customer fees are fair, transparent and easy to understand. And this is really helping us penetrate many verticals with a range of different gross profit margins and still maintain really strong unit economics, not just in Australia, but here in the U.S. is a big stand out. Risk management is a huge focus and really driving conversion at checkout, but still maintaining really healthy receivables management program. And I think finally, we really want to be the Stripe of buy now pay later, integrate once and unlock many markets. And this is really starting to yield fruit. Today, you can integrate once and we can open up 12 markets to through single API integration. So moving to Slide 10. Really, really some great numbers here for FY '21. $5.8 billion of transaction volume generating $403 million of revenue. And we're now well north of 7 million customers, 50,000 merchants, and we have about 1,000 staff now across the group. But pleasingly, when I look at this map of the world, pre-COVID, we were in 2 markets. And today, we are in 12 markets, and we are truly on our way to becoming a global payments company. Still a long way to go, and we still now need to mature in many of these markets, but directionally, very, very strong. And how we've gone to market globally has been the coalition of founders, and that's really helped drive trust and hunger in the businesses. And we see these places really as regional -- as beachheads for regional expansion and inorganic expansion. If we move to the next slide, really, as we -- many of these logos, when we did our original investor decks, we would have been very excited to have. And we're really building strong relationships that started in Australia that are now increasingly moving across the world with big tech, big fashion marketplaces. The strength, really, I'd say, in marketplaces, consumer electronics and the home. Just on the next slide. If you just move one more. I think we've spoken about the brand. We have progressed an enormous amount in the last 12 months, and a big shout out to our entire team, if I contrast where we were a year ago in terms of investment in our people, but also the community. Firstly, for employees, we rolled out a mental well-being program and partnered with a group called Heart On My Sleeve, which is a dynamic not-for-profit organization led by the inspiring, Mitch Wallis, to really reshape the conversation in the workplace. And I think just given the circumstances that many are working under are even more important. We also, given the heightened environment with COVID and more generally, now provide 10 days leave for family and domestic violence. And of course, as you heard in the press earlier in the year, we rolled out the world first miscarriage bereavement leave. So people feel really, they can be themselves when they come to work at Zip. We've also now established global DEI communities within the company in Australia, U.S. and the U.K. to really focus on strategies around awareness and education. As it comes to diversity, equity and inclusion, a lot is happening in the business. We've also partnered with Pinnacle Foundation, Women Who Code. And in the U.S., we've partnered with Aspiritech, which is -- which provides training for QA services for those on the autism spectrum. So a lot has happened for our staff. As I said, it will be our competitive advantage. For customers, we delivered campaigns to help improve financial literacy, focusing in the U.S., in particular, during Pride month and also Financial Well-Being month. In Australia, we initiated a partnership with Young Change Agents, which is a not-for-profit that is building financial literacy and entrepreneurial skills for the next generation, which is a really exciting group. And finally, for the community and for the environment, we worked with Powershop to switch 100% green power at our Sydney HQ. And we adopted a Supplier Code of Conduct and human rights statements, which really reflects our commitment to upholding high ethical standards that support our people, communities and the environment. So really a lot here and really pleased that we've been able to build a lot more muscle around this in the organization as we scale. So just on the next -- next slide. So we'll now move to a recap of FY '21. Many of these points I have covered already. So I'll just draw attention to a few in particular. In terms of the growth, we are a growth company. It's how we've been since day 1. And we've seen really pleasing numbers year-over-year. TTV and revenue up 150% plus. But we've done that while also maintaining really strong unit economics, that 3% plus in cash transaction margin. And what this has done has generated close to $200 million in gross profit, a real big step up from last year and operating cash flow of $44 million. We did generate an EBITDA loss of $23 million, which Martin and Pete will go into a little bit later, but a good result considering the investment in offshore, largely the U.S. growth, which we believe has delivered in spades and has got a lot long further to grow. The other big call-out is in our funding, big improvements in our cost of capital, working with Goldman Sachs over here in the U.S. as the book matures but also the public market issuance that Pete and Martin have led and will go into shortly. And then finally, innovation in payments, whichever market we've been in, we have been first with a range of innovations, whether it's virtual card in Australia, virtual card in the U.S., Chrome. And we've really seen a big, big step up there. And interestingly, even though we have 50,000 integrated merchants, our customers have shopped at over 500,000 unique merchants, both online and in-store. And I think it's connecting these 2 together that's really going to be the secret source for us in the coming years. If we just move to the next slide, 16. So we'll just do a deeper dive in the unit economics. So as I said earlier, if we look at the revenue, and we've used these drivers, given our business is quite large, we wanted to shift to some simple to understand drivers for you to model the business. If you look at transaction volume and you look at the key metrics to gross profit, and then Martin and team will look at it a little bit below. What we've seen here is revenue margin has moved from 7.6% to 7.7%, really healthy number, although it has come down. What's driving that are really 2 things. One has been the shift towards the U.S., but also our exposure to everyday spend in Australia, which has actually generated some really healthy frequency numbers, which we'll talk about shortly. And so even though we've seen a slight deterioration there, customers are spending more with us per month in the region. On the cash cost of sales, we've been able to reduce the percent of TTV by about 300 basis points, largely driven by our cost of funds. And that's really generated a 3.5% cash transaction margin or about a 50% gross profit margin. And if you look at Australia, really as a case in point, we can see there that after 12 consecutive quarters of positive cash flow, we are starting to see the operating leverage come through as we invest for growth below the GP line. The second piece of the value equation on the next slide is really around -- is how the capital moves and the capital frequency. And here, you can see on the chart on the left, over the last 12 months, a real big shift in the business from peaking at 6.3x the book recycle on average down to 3x to 4x, which has obviously improved our revenue yield, our revenue divided by average receivables. And so if you look at the cash transaction margin and our velocity, our gross profit is -- as a function of the book is really starting to look a lot healthier. And why? It's really the shift towards the U.S. and increasingly, the rest of the globe with the shorter duration installments. And as the U.S. becomes more of a dominant contributor to our overall transaction volume and revenue, we do expect the revenue yield and the repayment velocity to improve further. And I think finally, on the next slide, if we look at our credit and risk, really performed well. I think if you look back a year ago at the outset of COVID, we are steering really into an uncertain future, both from the consumption side around how customers would spend, but also on the credit side. And I think it's been pleasing to see that we've been able to keep the net bad debt as a function of transaction volume really flat year-over-year. And what's driving that is huge investments in our decision technology, machine learning models, particularly over in the U.S. as well. And this increasing share of existing customers is also really driving the credit behavior. And we see that repeat customers, are 50% less likely to go bad than their first time. So really important that we continue to see that curve head north. So if we just move now to the next section -- We'll now talk about the U.S. And on the next slide, our U.S. business has really been a standout when you look at these charts. And I would like to congratulate and thank our joint U.S. CEOs, Adam Ezra and Brad Lindenberg, for their leadership, innovation and the results. I think it's a big part of the secret source that we have, having founders and that founder-led mindset really driving the business. And actually in the States at the moment can't be joining the team in Australia, but it's great to see what is happening here. And we've seen tremendous growth in the U.S. business. The last 12 months, really driven by, I think, a couple of things. The network effect of our marketplace as well as the overall acceleration of e-commerce in the COVID world. And our U.S. business was really positioned well going into going into COVID because of the anywhere product, and that really allowed us to capture our proportionate share of spend because of the innovative construct and the ability to be used everywhere. The numbers, really strong, $2.6 billion for the year in transaction volume, customers up to 4.4 million. Revenue of $192 million and really strong app downloads at 5.2 million. We also saw during the half the U.S. overtake Australia, and that's obviously before the run-up in the foreign exchange price. So phenomenal growth, 100% to 200% and really led by the app. And I would say as well, they've done this while maintaining really strong cash transaction margins well north of 2%. We also saw monthly spend per average customer jump quite significantly to about $210 per month. And if we can keep increasing the frequency and amount, that the economics should continue to look very, very good. If we just move to the next slide. Really, this talks to what we have over here in the U.S. The flywheel has accelerated in FY 2021 with integrated merchants really benefiting from the app user growth and also vice versa. So some of the stats, 2/3 of customers are acquired at checkout and they -- from our integrated merchants, but then move into the app. And app customers are transacting twice as much as just pure checkout customers. So it's how we actually use these 2 things together that really makes this model work incredibly well. It also allows us to use the virtual card data to go back to merchants and drive sales, drive integration strategies. And I'm seeing a lot of that over here in Australia, which is driving a really -- sorry, over here in the U.S., which is driving a really healthy pipeline. Just on the next slide. We've seen huge growth across all channels. And what this does is really drive leads to our merchants. Our unique product suite allows customers to enter the Zip ecosystem wherever they shop. So it could be at checkout, could be downloading the app and using it everywhere in-store, using it everywhere online. And also we wrote out a Chrome extension. And as you can see with the stats here year-over-year, really strong growth across all of these channels. Just on the next slide. Yes. So really, I think what we've seen across the industry and particularly investment going into the industry, is that the buy now pay later customer and the LTV of the buy now pay later customer is growing, but also the long-term value that people believe is then -- of course, as proprietors we genuinely believe that. If we look at the chart on the right, pleasingly, we are seeing older cohorts now transacting -- we'll just use the example of September 19, transacting about 29x a year. We're also seeing the steepening of the curve. So those customers that are coming into this ecosystem from checkout into the app are coming into an app that is well oiled, has a much broader merchant set with promotions, deals and other personalization benefits. And so that steepening is really pleasing, pleasing to see. And 30% of the customers that we do acquire through the app are also moving into our integrated network. So this idea of being able to use both sides of the ecosystem is really benefiting for both sides. And we believe this engagement will only continue from here as we innovate around rewards, loyalty, but also CRM, a lot of work going into CRM, a lot of value that we believe is still on the table. Next. And finally, really excited about the region over here. I've come over for a few months to work with the team around product and around growth and also strategic partnerships. We've added quite a few good names to the merchant list. Recently, names like SHEIN, Revolve, Polaris. But the team and the pipeline is looking very, very exciting. And I think a lot of the M&A news that we've seen in the industry is really bringing the future forward across all stakeholder groups, whether it's financial services, whether it's marketplaces, enterprise, everyone is really trying to understand the buy now per later space and access the customer. And I think with the technology, the innovation and the team here, which is truly a wonderful team, we think we're incredibly well placed to really get our fair share. We've also got a range of partnerships here with Stripe, Fiserv and Adyen that are really helping inject us into the payments conversation. And I think as we've sort of spoken today, a real differentiated proposition, an ability to leverage a much more engaged customer, utilizing product and tech to win business and an ability to charge a mix of merchant but also customer fees, allowing us to penetrate a much broader merchant and category set. So now moving on to Australia. Next slide. We've been in Australia since 2013, listing in 2015 and have really shown strong growth results year-over-year. And I think what we're -- and what we're starting to see now is really that operating leverage come through the business and a proven model that we can also exploit globally. Transaction volume was up just over 50% to $3.2 billion. Customers grew 33% to 2.8 million customers, and revenue grew 40% to $214 million. Now with the customer growth, we did see as well good growth in our -- what we focus internally, the monthly transacting user, which is just below -- end of the year just below 1 million. Pleasingly, with the introduction of our Tap & Zip technology and in-store go-to-market, we've seen a real step-up in engagement with the transactions per monthly transacting user up about 90% year-over-year. And we'll look at the data in a second. And some extra data points around that really has been groceries and fuel and service stations really, really jumping up significantly. Also, the investment in our payments technology, we are starting to export globally as well. The guys have built a really, really great system. If we move to the next slide, the app continues to be a source of engagement. And our mission is to be the first payment choice everywhere and every day. And transactions in FY '21 were up around 153%. Now I spoke earlier Late in 2020, we became a principal issuer of Visa, and we introduced Tap & Zip that have really changed the game for us in terms of engagement and in terms of the stats. The other big, big move is we've sent 53 million leads to our merchants over the last 12 months. And again, huge investment in the app, driving people back into the app, driving the monthly active user and the daily active user. We also rolled out a range of new wallet features, subscriptions using our payments and virtual card technology so we can drive that monthly transacting user. We also are piloting Pay Now. Many customers don't want credit or aren't eligible for credit, and they can now Pay Now. And we see that's a really interesting opportunity for us and an ability to access a new segment of the market. And on Slide 28, what you can really see here are probably 2 points I'd like to comment. Really for us, introducing customers into the app and then getting them to take another product, another product is really important. The slide on the left -- the chart on the left, you can see there's been a 2.8x jump over the last 3 years in Zip Pay customers who might come in for sort of the everyday wallet looking to use a Zip-money product for the longer-term installments. And we see that blend really, really important to driving LTV and driving engagement through the app. The big call out, as we talk about, Tap & Zip, has been the cohort. These lines are showing a 12 months' view of different cohorts. And when they adopted Tap & Zip. And that ability to use us in store and really be front of mind to be that first payment choice is starting to yield fruit. We can see here the cohorts that adopted Tap & Zip in October last year have transacted 72x in the last 12 months. That those who adopted in December have transacted 43x. So if we become important to our customers, if they use us more and more, we can generate more LTV, more benefit for our merchants. So really, really exciting. And just moving on to the next slide, just to wrap up. We'll just move one more. Zip Business, Zip Business really became a business during COVID, which really allowed us to start with a fresh and clean and clean canvas. Great team that have really been working on serving what we see as the underserved merchant population. Merchants can accept payments, but now they can also become a buy-now pay-later customer and access working capital. We want to democratize access, really, to not just consumers but also small business. The last quarter of this year, it really came together. We saw a really strong, strong growth, 100% growth quarter-on-quarter, led by our product set. We have Trade and Trade Plus, which really allows merchants, contractors, proprietors to really use it for their everyday needs. We're seeing early stats are showing about 2.7 transactions per user per month and an AOV of about $2,000, which is what we expected. And pleasingly, starting to build really deep relationships with brands like Facebook, eBay and Tradelink. We think we've got a long, long way to go here. If we can be all things to merchants, then we become important to them. And it's not just pushing Zip at checkout. It's then using the wallet to then transact across our network. We brought that in-store recently, and we expect to continue to push this business really as a pilot. And if we can prove it -- when we prove it, should I say, in Australia, we see huge benefits globally. And now just we'll spend the last 5 minutes talking about Global, which you've seen a range of investments, acquisitions, and we'd like to spend a bit of time just talking about the strategy. Next, buy now pay later is obviously a very, very noisy and exciting industry, but still incredibly early. Only 2% of by now -- of e-commerce spend is going through our buy now pay later rails. But things are going to accelerate very, very quickly from here as more and more businesses, marketplaces, customers really come to the well. And within the next for years. It's estimated that buy now pay later will be close to $1 trillion. Next. We really want to be the global buy now pay later proposition. This idea that merchants can integrate once or platforms or ecosystems and access our buy now pay later technology. We've seen that in core markets, there is strong and really good demand, but we're also hearing it from our merchants' platform and technology partners that this is needed everywhere. And we, internally, have a genuine belief that everyone should have access to affordable credit, not just in the developed world, but also in the developing and emerging economies, which over the next 4 to 5 years will accelerate quickly. We also believe that Zip is very well placed to be a global player here and one of very few that can really bring this to life for a range of reasons. Number one, our technology platform. And as we've proven our ability to move into new markets at very light incremental cost is -- has been a real bonus, a big reason why we acquired the QuadPay stack. This ability to use a single technology platform that gets smarter and smarter over time. Our approach to global has been a coalition of founders, founders and founder-led mindsets who understand the local markets and understand how to play and also how to win because you need potentially different toolkits to win. Our decisioning technology, the ability to start in the market, models to train, models to learn and prove that we can get on top of the credit losses is a proven and strong point in our business. And we've established a dedicated new markets team of about 50 people that really understand all aspects of this, regulation, licensing, the tools. And so this -- this -- all of these elements together and the track record that we have with teams really gives us the confidence that we can do this and capitalize on this emerging trend globally. Just on the next slide, I'll just raise through the next few. Our core markets are the Americas, U.K. and the ANZ region. Doing really well, but a long, long way to go here. And even our move into Canada and Mexico have been at a very small cost, really just hiring a few sales and leveraging the technology in the U.S. And we see a lot of opportunity across the Americas here. Pipeline is looking super exciting in these regions, particularly in Mexico. But we're also -- just on the next slide. The U.K., for us, really jumped onto the scoreboard this year. I'd like to say thanks to Anthony Drury, our leader over in the U.K. Last year, obviously, we kind of mothballed the U.K. We've now brought it back to life, really showing strong, strong growth early on. Our playbook here is -- involves a few things. One is leveraging global merchants. And you can see a few brands on here that have really been as a result of our ability to integrate once, open up multiple markets. We're also looking at FCA application right now so that we can extend our product set and also our commercial model so that we can play in a much wider vertical set and also generate the right economic return. And we're hoping that, that will come shortly. And we've got a range of very exciting strategic partnerships that we believe that we can bring to bear. So still -- yes, we are very excited about the U.K. We probably are starting 1 year later than we had expected for obvious reasons, but really excited about what we see there. On the next slide. We have made -- and if we should move to the next slide, we are making small selective bets in the emerging markets where we do see large payoffs but over many, many years. And we finally remember when we started Zip actually reading the book Muhammad Yunus' Banker To The Poor. So over here, we've made a series of regional plays with Michal and Twist in Central and Eastern Europe, with Anuscha and Ziyaad in the Middle East with Spotii, and with Kacper in Asia-Pac. What we're doing here is get inside the team, making a small investment, then proving to us that they are aligned to our mission and North Star. Leveraging our know-how, our expertise, our pipeline and really starting to see the fruits of that pay off. And then we tend to consolidate. That provides us a regional hub to then move across -- into, for example, from Central and Eastern Europe into Western Europe, which is a market of about $1 trillion large; in the U.S., where we can enter at a very low cost, leveraging global partnerships, global relationships and our brand. We're also today, just on the next slide, announcing the full acquisition of PayFlex, which again has followed a similar model. Since we made our first investment in October '19, it's up about 80x. So again, following the path here. And I think -- we'll just skip to the next slide, I'll hand over to Martin and Pete. This really shows how we approach small bets, understanding the team, we're seeing and validating that and then consolidating and joining our platform. It's small bets. And we are continuing to invest in our core markets, which we believe will drive short-term enterprise value. With that, I'd like to hand over to Peter Gray and Martin Brooke.

Thanks, Larry. Just talking to segment financials on Slide 41. Investment has been made to support our strategic initiatives, as Larry sort of touched on, which really do reflect our investment for growth and global expansion. So I think there's been some commentary around some of the cash EBITDA number of the modest loss of $22.9 million. So we really are investing for growth in a broad footprint across the planet in multiple jurisdictions. So might not necessarily have been understood in terms of this global ambition. So that's a reflection in that number. Cash gross profit remains really healthy at circa 50%, and what that's demonstrating in markets like Australia, where we are continuing to grow strongly, but are in a more mature state, with strong unit economics, we are starting to generate very strong cash returns. We expect that to continue as we continue to scale and look forward to increasing that number in the next year or 2. As I touched on with regards to the investments and is what Larry also has touched on, some of the investments in global deliver returns over the medium term. But what we can already see is the significant impact that these investments are making with regard to the contribution to group revenue. So 46% of the revenue from the last financial year was made outside of Australia, largely speaking, that was the U.S., and that will continue to increase going forward as the investments globally pay off and the U.S. continues to scale. And as Larry touched on Zip Business was formally launched during the year, and we're well placed to capitalize and build momentum in that aspect of our business. Talking to Slide 42. Obviously, the addition of Quad has had a material impact on both our income statement and balance sheet. Revenue margins remain very strong, with our differentiated revenue model really continuing to pay off, and it has us well positioned for any competitive outcome. Cash gross profit remained strong at 49% of revenue and 3.5% of underlying transaction volumes. I think looking ahead, the interest margin will reduce in our core U.S. and Australian debt facilities following the renegotiation of the Goldman Sachs facility in the U.S., which will result in a significantly reduced rate of cost of capital, and the improved rating on our notes issued into the local debt markets will deliver lower average WACC in Australia with the notes recently receiving a AAA rating. Also working very closely with our payment processing partners to reduce our processing costs, I think largely speaking, the increase in banking and processing costs were from the U.S. business where processing costs are markedly higher than Australia. We're well placed to significantly reduce this now as we increase our scale and look at alternative methods of processing repayments outside of scheme rails, which will see a significant upside for us in our ability to reduce this cost. Actual net bad debts written off are a reflection of our risk appetite as we balance our risk and revenue in driving growth across our geographies. Typically, write-off costs are higher at early stage of each market entry. So one of the benefits of our model is that loss outcome significantly improved over time, with market maturity, refinement of score card, and as Larry touched on, an increasing penetration of transactions made by known and existing good customers. In terms of people costs, we've grown our team to over 1,000 full-time equivalents, and we'll continue to invest in hiring and developing the team to deliver growth in existing and future markets, so ahead of the curve with regards to that investment. Measured as a percentage of volumes, salaries and employee-related costs are about 1.7%, and that's down from 2.1% previous year. So marketing costs have increased to about 1.2% of underlying volumes. It's a critical piece of the business model and we'll continue to invest in marketing in the short to medium term, particularly as we enter and scale in new markets. We have also rebranded, so there will be a critical piece of marketing support that is required to support that initiative. I guess the callout also, as Larry touched on, were significantly increasing lifetime value for customers that are the outputs of these marketing initiatives, further spend at this stage of market maturities is more than justified and supports our growth strategy. IT and other costs have fallen from 1.1% of transaction volumes to just under 1% at 0.9%. With regards to the provision for expected credit losses, that's increased to 5%. This is much higher than our actuals, which is about 3.5%. So largely speaking, this increase in provision is a result of an increasing component of our revenues and transactions being driven from the U.S. and the buy now pay later Pay in 4 product. So typically, the provision in Australia has not really moved, the Pay in 4 product requires a higher provision given the way that product operates. So again, this increased provision is really driven by that. Just moving to Slide 43 in terms of cash transaction margin. So again, breaking down the cash transaction margin, we continue to deliver very strong revenue as a percentage of TTV or underlying sales. Our interest expense has fallen as our capital now recycle significant [ renegotiation ] of the U.S. facility and our AAA rating will continue to deliver savings, as I touched on. A big callout is that our bad debts have remained constant year-on-year at 1.3% of transaction volumes. This is a great result and testament to our underwriting models, obviously, to deliver that outcome in the face of entering new markets and economic challenges such as COVID has delivered is a great outcome. And obviously, as we've touched on in the previous slide, you can see the impact of processing costs in the U.S. Leveraging volume going forward will deliver significant upside with regard to that line item. So I'll just hand over to Martin quickly to walk us through the next couple of slides.

Thanks, Pete. Looking at the corporate items and one-off adjustments. Acquisition costs include fees incurred in relation to the acquisitions and investments we've made during the year as well as on the issue of the convertible notes and warrants. Worth noting that all of our short-term and long-term incentives are provided in shares to align the team to the success of the group and are reported in share-based payments. Increased expense reflects the increase in headcount and also includes $102.7 million in relation to tenure and performance shares issued to the Quad founders approved by shareholders on the acquisition of Quad. Tenure shares will be issued provided the founders remain employed on the first and second anniversary of the transaction date and the performance shares will be issued on achieving of certain transaction volume hurdles. The first transaction hurdle has been achieved, and there are 2 hurdles that are yet to be achieved. We'll look at the fair value loss and the one-off QuadPay adjustments in subsequent slides. The increase in depreciation and amortization reflects the amortization of intangibles acquired on the acquisition of Quad and the write-off of the QuadPay brand on the rebranding to Zip currently underway. So just moving to the next slide. You will recall seeing this at the half year results. Adjustment has no bearing on cash on the QuadPay business, it's an accounting adjustment only. Business is performing ahead of expectations and the achievement of the first performance milestone is evidence of this. When we were negotiating the acquisition of Quad prior to COVID hitting in March last year, our share price fell and the Aussie exchange rate was deteriorating. In order to eliminate the impact of these market fluctuations, we agreed to share ratio with the vendors, and the ratio was such that the number of shares to be issued on acquisition would be approximately 23% of the issued share capital at completion. This essentially fixed the number of shares to be issued, leaving the share price to be determined. Accounting standards require a share price that we use to determine the cost of acquisition is the share price on the day the transaction is approved by shareholders. So that was the 31st of August. There's no scope to adopt a different date, and this is considered a fair value. As you can see from the share price graph on the slide, it's unlikely a reasonable person would consider the share price of $9.16 the day the transaction was approved at fair value. So in conjunction with our independent values and by looking at the VWAP up to the date of acquisition, we assessed a fair value that equated to a share price of approximately $6.50 as a more reasonable assessment and as a consequence have reported a fair value adjustment. We also have to revalue -- we'll have to revalue our existing shareholding in Quad on the $9.16. So in terms of the sequence of events, on acquisition, we've revalued our existing holding up to $9.16, recording a fair value gain of $110 million, and the day after we report an adjustment of $416 million to reflect a more appropriate assessment of fair value, giving us a net of about $306 million. This is obviously a one-off adjustment and will only appear this year. Just moving along to the convertible notes and warrants. We've issued 2 lots of convertible notes and 1 lot of warrant during the year. When we were looking at the acquisition of Quad, it was important that it will be accompanied by additional funding to ensure that the combined businesses will [ result ] to drive growth. At the time, we looked at raising equity convertible notes and other funding options, but as the share price at the time was around $3.70, a convertible note was assessed as less dilutive for shareholders compared to alternatives. Following approval from shareholders, we issued $100 million of convertible notes at a conversion price of $5.53 and $100 million in warrants with an exercise price of $5.16, both significant premiums to the prevailing share price. When we account for these notes, we have to separate them into a convertible -- into a debt host and embedded derivative. The embedded derivative reflecting the variable conversion terms of notes. And we have to revalue the embedded derivative as well as the warrants fair market value at each reporting date. So using a share price of $7.57 at 30 June, it resulted in a group reporting a fair value loss of $82 million for the year. We will be reporting a fair value loss or gain using this process every reporting period. And just to note, in terms of sensitivity, a 10% movement in our share price would lead to a fair value adjustment of around $23 million. So it's fairly sensitive. In addition, we issued $400 million in zero coupon secured notes in April, which have a 7-year maturity for -- with an option for investors to put their notes to Zip after 4 years at 109.36% of the principal. At maturity, investors have the option to convert into ordinary shares at $12.39 or redeem at 116.96% of the principal. Again, the note is split into a debt and an equity component, but there is no requirement to fair value either component. The second issuance is a very vanilla issuance and will not affect the P&L going forward. Now moving to the balance sheet. Talk a little bit about cash on the next slide. Increase in receivables is really due to an increase in marketing -- prepaid marketing costs and accrued transactional income. The growth in receivables are reported net of earned income or allowance for bad debts and supported by the increase in borrowings in the process by capital raises being used to fund receivables and deferred borrowings until such time we need to fund for investment purposes or to drive growth. Investments that we reported last year included the group's holding in Quad, which has obviously been removed on acquisition. And currently, the 19 million reflects our investment in Twisto. Movement in intangible assets in goodwill reflects the acquisition of Quad. Obviously, we had those valued in conjunction with independent valuers and predominantly is a software platform and partner relationships. Trade and other payables increased due to amount due to merchants and other suppliers, and obviously increases in line with our volumes. The third consideration relates to consideration payable to the vendors of PartPay hitting transaction volumes hurdle over the first and second year post acquisition. Pleased to advise, they hit the first hurdle and the shares were subsequently issued, and they've also hit the second hurdle. We've covered the financial liabilities and the convertible notes and warrants on the previous slide. So just moving to the cash flow. Generated a positive cash flow of $44.2 million, $52 million excluding acquisition costs. Movement in receivables largely supported by borrowings. Investments related to our Spotii, Twisto, Tendo and Payflex investments and the convertible notes raised $491 million of costs and we raised $176 million in the [ capital raised ] and $2 million on convertible options. And then just looking to our available cash position -- next slide, sorry. Have $330 million reported on the balance sheet. An element of value is restrictive both sitting in the trust and funding warehouses or sitting on the balance sheet about to go into the trusting warehouses, so we're adjusting for that. And then we invest surplus funds in our warehouses so that we don't have to draw down from funders. And then as we need those funds to fund operations and make investments, we pull them out with commensurate drawings from the funders. So at 30 June, we have $253 million sitting in our AU trusts and $26 million sitting in the U.S. funding facility that we were able to draw down if required. So at 30 June, our available cash to fund future growth and investments is $461.6 million. I'll now hand over to Pete to talk a little bit more about the funding facilities we have in place.

Yes. Thanks, Martin. So similarly to the previous summary with $460 million available to fund our growth, we're in an equally good position with regards to our debt funding, really well placed to support our growth, a combination of our consumer receivables there. We have almost $1 billion available to support future growth transactions. With the high cycling -- recycling nature of the U.S. facility, we can support $5 billion of transaction volume with the current structures in place. Following our ratings upgrade on our senior notes we've touched on in Australia as a result of our excellent performance of our receivables, we have now received AAA rating. And to sort of put that into some sort of context, our last rate of note issuance priced at a weighted average margin of 1.03% below the previous issuance. So 1% gains on a $500 million tranche is obviously quite a meaningful outcome in terms of bottom line benefit. We're currently in market to replace and refinance our 2019-1 series of $500 million, we would expect a further reduction resulting from that transaction. So really excited about some of the outcomes. And obviously, we have a facility in place to support the business scale with $100 million. So really well placed. Currently, with regard to debt funding, further upside to come with regards to the weighted average cost of capital in this 12-month period. So just back to Larry to summarize our priorities and outlook and close the presentation before questions.

Thanks, Peter. So just on the next slide. Obviously, a really, really big year for the company. And I think what you've seen here today, big step-ups in funding, going global. And you can imagine below the surface of the water, a lot of peddling the team has been doing as we build out a lot of these functions, uplift capability and build our global governance and operating rhythm, but very pleased with the direction it's going. And so as we look forward for FY '22. Four key areas for us as a business. One, continue to drive preference and customer engagement. Two, we have to deliver more value for merchants. Three, our global story. We have to mature and drive growth in our established markets, while also capitalizing on the high-growth markets. And the fourth really connects to our purpose, creating a financially fearless world. We need to do more for the community -- literacy, financial well-being, also providing knowledge and tooling for our customers and supporting our Zipsters internally. And so when we look specifically at the next 12 months, already in this quarter, FY '22 has kicked off strongly considering Australia has a range of states that are currently in lockdown. But again, our everywhere technology and also our diversing exposure to a range of industries is showing that year-to-date we're up in Australia. In the U.S. as well, the growth is continuing, 240% growth year-to-date on TTV versus FY '21. In the year ahead, when we look at Australia, we have 60% brand awareness, which has been a huge step-up from a couple of years ago, and we really just have to capitalize on that. We are one of the leaders in markets. We need to continue to acquire new customer segments. We need to drive more frequency with our customers in the app. It's not just subscriptions [ at all ] and pay now, but the introduction of the PFM tooling means we'll see much more of a customer's everyday wallet and have the ability to control, track and switch payments to be that sort of first, first choice. In Australia as well, at the end of FY '22, expect to see more penetration and exposure to small business. We've seen some really exciting signs for Zip Business and we hope to see that. The U.S., I'm here at the moment, spending a lot of time with the teams. It's very exciting. We are in discussions with many great retailers, technology and financial services business. We're very comfortable that we'll be able to secure a couple of transformational deals. Equally, in-store is a big focus. The return to store, being able to be used everywhere, we need to nail in America. We did an early pilot with physical card that saw, with a small cohort, 5x more spend than other users. So the uniqueness of our construct in this country being able to use -- to be able to pay for everywhere, we really have to double down on. With partners, we've demonstrated in the last year an ability now to show up as one of very few global buy now pay later brands, and that trust and credibility and being able to integrate once, open up multiple markets, is generating really, really good, good business. And again, in the year, we expect to see many more global partnerships. And we're investing a lot more at the merchant level to make that easier. Our promise to merchants is integrate once and we handle all of that complexity behind the curtain, regulatory, conversion, economics and licensing. The COVID trends that we saw in FY '21, we believe, are here to stay. A lot of customers have become very comfortable shopping online. And when we talk to retailers and merchant partners, there's huge CapEx going into 2 key areas: payment choice and fulfillment choice. Meeting the customer where she is, whether it's online, in-store, how she wants to pay, which means that we can really plug into that investment. And it actually makes -- it brings forward a lot of the pipeline activity and alternative payments come to the boil. And as I spoke on the return to store. We've just rebranded, over here in the U.S., from QuadPay to Zip. There was lots of passion around the rebrand in a lot of the social and other channels. But it has landed really, really well and give us a fantastic platform to really create that trusted buy now pay later payments brand focused really on the customer and focused on the merchant. But we'll be investing a lot more. That platform is already starting to see some really interesting, exciting opportunities before us. And we -- and finally, as we sort of touched on, product. Some of -- our secret source is our product and engineering teams in all markets, expect to see more and more innovation. And as we consolidate globally on a single technology stack, we're starting to see the compounding benefits of developing a feature in one market and rolling it out into other markets, and we expect that to compound over time. So it's been a busy 12 months, but -- and even though we're [ 8 years ] into the journey, we are extremely excited about the year ahead. We've got a great leadership team in all the markets. It's very noisy, which is exciting. And we're very confident about the year ahead, with a strong focus, as the team touched on, on maintaining strong unit economics, driving operating leverage in mature markets and investing for growth. So I just want to pause there, thank everyone for listening and we'll open up for questions.

Okay. Thanks, Larry. Obviously, we're a little bit tight on time, so we'll just take a few here.

So we'll open up the line for Roger Samuel for the first question.