PaySauce Results Presentation - For the 6 months ended 30 September 2024

morning and welcome to this presentation on pes's half year results for f25 the uh interim report the media release and this presentation are available on the nzx website and they will shortly be available on our website too I just like to draw your attention to the disclaimer that we have um one of the key points is that nothing in this presentation constitutes Legal Financial tax or other advice uh of the f is available to read so we won't go through it all just now um but we will we will move on um so today we've got our CEO asan who's going to talk to us about the the strategy that we have and our progress towards that and myself Jamie monan CFO I'll talk to the financial results one of the key things in the financial results is that we do use um non-ap measures we use SAS measures to um record our results and we'll talk mostly to those results but the full measures are available within the inter report that's available on the website so we kick in over to you Asanda thanks jmy um I'm delighted to report um that we've had a a really good half year uh as you'll see from the numbers um We are continuing to Trend up on the AR uh where be hit 8.7 million which is 177% year on year uh we continue to maintain profitability um which was a $337,000 Improvement um year on year uh I'm delighted to say that we saw a significant lift in the customer lifetime value which now exceeds 50 million and it's sitting at 50 point or 50.5 that's a 20 20% uh 24% increase year on year um cash which is the the the key the key ingredient to drive any business uh we continue to maintain um the the positive free cash flow position for the year and we were up uh $250,000 year on year so the the key things from the the half year is that we've invested significantly back into the business into Tech into people uh into processes and I'm delighted to see that we are seeing those Investments paying back um so that's what we call the the the building for scalable growth um so as I said we we've seen we've seen a good good lift in ARR we've also seen a continued Improvement in the processing fee revenue and we've increased our customer count so that net customer growth um has continued to increase um with the reduction in the overall ACR number uh ARR impact from interest is not as significant as the interest in Pro the increase in processing fees um that the lift that we got from the interest component of the AR was just 5% um for the period that been looking at um just just a comment on that it's the the external economy has has um been as everyone knows uh these are these have been difficult times that we've been operating in and in time in these kinds of times the the majority of impact is on the smaller end of the market um and like every other provider we've seen some of our customers being impacted by that but we're seeing some really positive Signs Now and and we're seeing that in the number of Deals they closing and the number of customers coming through so looking at um our our plan and our strategy to deliver customer growth um a a key component to what we do is the care we have for our customers um and and that has been represented by some really good stats on the customer satisfaction numbers uh average response time back um and we we've seen a reduction in the churn rate so which again helps us grow the absolute customer numbers going forward so what we have is a really solid platform that allows us to to now get into some really high growth numbers uh which is what the focus is in order to do that in New Zealand um we did a a a significant sales and marketing campaign um we've continued to add and increase our relationships with our partner accounting firms um which is a key referal channel for us and and it's it's great to see uh that yielding good results for us um we've we've seen that if you're just looking at the customer numbers we've seen a 12% year- on-ear increase in new customer numbers that's new net new customer group um the the the customer numbers stood at 7,821 at the close of the half the other the key other key driver for us is ensuring that we are scaled for growth so um there have been two really significant pieces of work done one was the complete rebuild of our pedol engine uh which has been completed that's the Gen 2 pedrol engine the the second piece is infrastructure so we've now migrated um all our Solutions on AWS uh and we successfully did that with minimal disruption to our customers so so we believe that we are on the the right infrastructure platform and and we've we set ourselves up for um for what what's coming up ahead um that's very quickly a summary of of the of the half um to look more detailed into the numbers I'll hand over to Jamie who will talk you through some of the numbers thank you s um so bit more detail of the financials as I said earlier on we do Focus mostly on the the sa measures um but I'll just kind of lean in a little bit more into some of the detail behind those measures so um key component for us is that profitability that we announced at the full year last year we have managed to continue that into the first half of this year which is the first time that we've had a a profit number in the first half and today so we're very very C with that the profitability correlates very highly with the cash flow um so we have been in that position to generate positive cash flow again and we're really proud of the fact that that that cash flow has been sufficient to repay the debt facility that we had um and we've repaid that this year so $650,000 Term Loan that we had on the balance sheet at the end of the full year uh we've now repaid that we've renegotiated that to a an on demand overdraft facility at significantly more favorable rates which is is a good outcome for us um we've also um managed to as Santa said grow our recovering Revenue um so we've increased that 20% year on year During the period that 20% year on year um for the full period has been split evenly between um the processing fees and the interest income but as AA alluded to on the annualized recurring Revenue the interest income component is lesser so that really shows that the strength of the underlying processing fees and the contribution that that core customer delivery is giving to our our botom line uh that comes through as well in the gross margin so the gross margin is up three percentage points and the next slide I'll go into a little bit more detail but that's really a reflection of those increased processing fees as well as holding the cost to serve per customer flat year on year which is a good outcome for us so just going into a way bit more detail on some of those numbers um you can see it over time on the the graph in the top right the the expenses that we have um in this half this the first half of our year is always the more expensive half for us we put a lot of our investment into the first half and then the increase doesn't come through so much in the second half of the year so you can see the stability of that top line revenue growth we obviously can't use that as a predictor of the future um but um you know the cost line were significantly more deliberate in relation to where we put those those dollars coming through and you can see that those uh those increases year on year the revenues increased 27% year on year while the expenditure growth has been limited to 20% year on year which is why we're getting that first half and profit coming through in this year in the the bottom half the cash flow as I said highly correlated with that first um first period that we've had two hands in a row of positive free cash flow which is obviously um you know where we want to be going forward um um looking into the SAS metrics this is really the way that we run our business these are the core metrics that we use when looking at how can we get better at every stage of the customer Journey these metrics are really highly correlated with other SAS companies these are standard measures across SAS industries that can be used to to see how we're fearing against both ourselves in the past and other SAS companies that offer a similar service so we've deliberately set this up to align with our customer Journey so you can see at the top there we have customers that we acquire and so it cost us $575 for every customer that we acquire now that cost has increased slightly this year we have as a Santa said earlier on we put a reasonable investment into some out of home advertising some above the line advertising so that cost of acquiring new customers has increased in the first half we put some um High investment into some digital assets and some some production costs that we have here as well as um investing into the team that we have going out and partnering with those accountants that s spoke about earlier on so that cost to serve has increased it's up at $575 per new customer so we pay that to acquire a customer we then on average earn $92 average revenue per customer per month and that number has come up 8% on last year um but that's the average revenue per user that that we earn and that includes the interest income that's earned so the interest income component is flattening off a we bit but that processing Fe element is increasing we then pay a cost to support those customers the cost includes our bank transaction fees our hosting costs and our customer support team those are the primary costs that we encour in order to support those customers so if each customer is giving us $92 per month and it's costing us $21 per month to serve them a gross margin works out at $71 per month per customer we then look at the turn numbers the turn numbers are um how many customers um don't process a pay in any given month that have processed in the past now it's not a perfect measure and it's an indication and it doesn't give an indication as to what might happen in the future but it's a proxy measure that we use to assess hand many customers um are are are leaving our our books um and how long there therefore we expect them to stay so we're pleased to see that those numbers have um reduced so the turn number has reduced which means that the expected lifetime of a customer how long they stay a customer for us has increased to seven and a half years now when we've looked into that we do know and understand that it relates quite highly to the economic factors that as Santa was referring to before so when customers are um struggling our customers remember are the employers of one to five people they have they're generally owner operators and when things get a bit tougher they end up doing the work themselves so they let the staff go and they don't have staff anymore so our turn numbers more highly related to to those things as opposed to customers leaving our platform to go to another platform um cool so if we have those uh metrics put together um it cost us $575 we earn the margin of $71 and they stay for seven and a half years that equates to you know an approximate value of about six and a half thousand dollar per customer so that's the value of a customer to us assuming all things remain equal and when we look at that and we say okay we divide the cost to acquire that customer by the lifetime that we get we get a ratio of 11 to1 and that's a fairly common that customer lifetime value to customer acquisition cost metric is a very common SAS measure that helps um translate how efficient we are at acquiring new customers so each customer will get what it costs us we get that return back 11 times over which is is a very high number going into the detail behind some of those numbers um Santa referred to it earlier on but if you look at the the new customers so a thous over a thousand new customers joined us in the year in the half year sorry and that's up 12% on the previous year but also pleasing is the actual number of customers who turned who left us during the year so in the bottom right table you can see that 582 customers left us which is lower than the number of customers who left us over the same period last year so we've increased the rate of acquiring new customers and reduced the rate of customers turning and which is driving that overall net customer numbers up by 9% um the other thing that um is really pleasing on that front is the the cost to serve those customers so at the bottom left our cost to serve uh our customers increased in total 8% year on year and if we go back to that net customer growth the customer numbers increased overall 9% year on year so our cost of service increasing at a much lower rate than the increase in the overall number of customers that we have which again is very pleasing and that's helped to keep the cost to serve per customer down at $21 flat while the processing fee element is increasing uh the other key number I'll I'll pull out of this slide is the the rule of 40 number so the ru of 40 has declined before below 40 for us in this period um as we said the first half IS F a lot of costs so um that rule of 40 number if you're not familiar It's a combination of um the rate of growth rate of Revenue growth and the profit number that we're achieving and the profit number is increasing which is um a key impact in there and but that rate of growth relative to last year when we had those very high interest rate increases um is lower than it was previously um okay I will hand you back to ASA uh to talk to where you from here yeah so so based on on the work um the significant pieces of work that we've done over the last 12 18 to 24 months um we've we've given ourselves a solid platform to launch from um we are confident that we've got the technology we've got the people and we've got the processes to build from here uh we seeing the the early early signs of that come true um which is really really pleasing uh we continue to work on making it easier for new customers to join us uh you would have seen we've appointed uh a chief uh product officer in in Jess who's taken on that role and and that is to ensure that we really are in sync with what our customers are looking for and we are able to provide the care and the consideration in all things related to employment our key business is about providing our customers peace of mind and time uh and in order to do that we got to ensure that we can do that at scale and and so therefore the processes and the systems that we're building are absolutely vital uh on the other side we've got a strong relationship with the accounting firms we work with uh that's going and understanding what their requirements are and what their customers requirements are and and making sure that we are delivering on that and and we've got a really good uh understanding of what it is that an accountant is looking for for a pedal system for their clients um we've got we've got a really clear road map of the feature set we need to to build uh there are uh uh there's there's still work to be done on the ux side of things that's the the big project Pro for the next 12 months so that will enable us to have reinvented ourselves both back back and front end before essentially coming up to our 10th year we've essentially will be rebuilding ourselves from the ground up which is I think really important uh to allow us to stay a breast of what's Happening from a technology point of view what's happening from a market point of view rather than be encumbered with uh a technology that that is 10 years old or 20 years old um we will have today's technology for today's customers and that's really really important so um we've also been working hard on understanding and making sure that the key Market that we're looking to serve that's the one to five staff member Market is looked after and and well serviced so that's the that's what we've got we've got an exciting period ahead uh and and and we are confident and optimistic uh with the platform that we played for ourselves that we can continue on this path um that's the um the the the the the outlook for us um thank you so much for your patience and continued confidence in in us um as a business um we we set up to reinvent the space that we operating in and and we are well and truly uh on our way on that mission so uh I'll now check with Todd for any questions that might have come through during this presentation Todd is there questions that have come through thanksa yes there's a few questions have come through uh the first one here is from Joshua Murphy the question is do you have a strategy for 100 million AR and Beyond there obviously mentions around reaching 10 million AR but at the current rate that would be a year or so away that seems to have slowed recently can you comment on why that might be and how that can change from better in the future and also what timeline could they be from more expansion into Australia IND Europe great question Joshua um we we started this business not to be a a another ped company in New Zealand we we we set up with with large ambition uh and 100 million AR is definitely in that score uh um but you know that the 10 million AR is is a good Benchmark for a SAS business to to get to and and as you quite clearly said we are within you know line of sight of that um and in order and that growth and that revenue is predominantly coming out of New Zealand for us to go from where we are today to 100 million will require us to operate outside New Zealand and and we've we've laid some of the groundwork for that uh with the acquisition of smooth pay we've got a customer base that we can use to get a tow hold and and then from there progress into markets obviously the the the interesting one there is Australia um and and so that's a that's a piece of work that is continuing and the new payroll engine will enable us to do that so so the pre-work that allows us to enter new markets to start seeing significant significant increase in in revenues uh has been LED and and and that's the path that we are on great thank you ASA there's another question here this is from John henet we'd like to know when management expects shareholders to receive some tangible return on their investment for the last four years returns as measured by stock price this has been negative specifically how do you plan to turn this around that the the the key thing there is um in in terms of the expectations of the market and and the the only way we're going to do that is by delivering good results that are recognized by the White Market um and you know the what we can control is how will we do and and that's significantly our Focus uh and and as you've seen in the half that's gone uh we we we start to build strongly and and then it is then up to us to tell that story to the The Wider investment public uh to get recognition to understand what we're doing and you would expect um there to be support for for the business and and it's you know it's it's not it's really important to understand that um the staff and management of pesos is significantly invested in this so so your John as much as this is important to you this is as important to us as well um this is for a lot of us our largest investment um I personally I am a 25% shareholder in the business uh and so you know I'm not doing this for a salary I'm doing this for us to achieve success and have a great return as shareholders so our interests are are very closely aligned and and you know that ensures that we continue to be focused on growing shareholder value and we will do be doing everything within our control to make sure we deliver on that right thank you ASA we have another question here through from Matthew chin what is your most recent NPS score uh and are your customers happy with the increased price uh it's a that's that's a really good question we we just completed um at about the same time as we were doing the the annual report and The NPS score was 50 um looking at the commentary through there it was a overwhelmingly positive response to what we're doing uh in terms of pricing we took a decision as a company that we would not be raising our price so we're probably the only payroll provider in New Zealand that did not have a price increase in this last 12 months so we've we've maintain price and and the decision we took was we understand that a significant portion of our customer base are facing significant cost pressures because everybody's been increasing price and and we made the a very deliberate decision to hold price for that reason so that's that's what we have done uh uh and and you know that doesn't mean to say that we have not had prices increase on us just like everybody else we've seen cost increase uh increases from both the labor side and and from also the services side um that we've not passed on wider price increase uh in in in this year so so that's the uh that's what we've done as our contribution to the really important customer base we serve which is the smaller micro end of the market I'll just add to that a little bit one of the reasons if you're referring Matthew to the um the the increase in processing fees per customer the way that comes through is with our go payroll product which is in the Pacific island a lot of those customers pay annually in advance so that the impact of the price increase was effective um last year um but it's it only impacts those people as their annual um subscription rues so that's part of the component coming through the other part of it is that um customers are moving up the value chain so we've got at the moment three subscription prices with a COR P us product and some customers um choose to move up that so we can extract more value from customers without necessarily just increasing the price increases so I hope that helps clarify it but please do email us if there's something that's not quite um clear in that regard um to there any more questions from um from the audience thanks Jamie uh yes there's a a couple more through here so one is from Matt Taylor this is with the falling interest rate environment do you expect the second half of the year to be challenging to maintain positive free cash flow and profitability look we've we've we we are well aware of the the change in interest rates um and and and Jimmy and the finance team do a great job of locking in rats into the the short medium term uh we don't see a significant change in the the interest Revenue profile over the the next six months another question Todd thanks the we have a question here from Malcolm Campbell do you expect to have all your existing smooth pay customers across Oceania converted to pay Source in their home countries by this time year 25 great question Malcolm um yes that's a that that's a that's a project that is current and live so the the first phase of uh migrating that customers are scheduled for in the next 12 months it is one of our very strong Ambitions to become a single solution rather than supporting multiple Solutions um it's something that we've seen uh is is is not ideal um it's one of the big drivers for us to ensure that we're providing a single solution that makes it easy for customers as well as for our engineering team to be on top of rather than having to maintain and manage uh a myriad of different systems and processes so that's very much on on the on the plan for the coming year thanksa got one final question here from Matthew chin uh I'm interested in your digital campaign video on YouTube may I get a link yes yes we can send that through no problem that the questions so thank you very much for uh for participating today uh we're more than happy to take questions by email uh we we always happy to answer questions from shareholders or um investors potential investor please send through your questions email them through uh and and we will look to answer them uh as as soon as we can thank you so much um and look forward to the update at the end of the full year