Slide 1: HY23 Investor Presentation
Zip Co Limited HY23 Investor Presentation 23 February 2023 1
Slide 2: Our Mission Our Purpose
Our Mission Our Purpose To be the first payments choice To create a world where people can live everywhere and every day. fearlessly today, knowing they are in control of tomorrow. 2
Slide 3: Agenda
Agenda 01 Highlights 02 Business performance 03 Financial performance 04 Financial statements 05 Priorities and outlook 3
Slide 4: Highlights
01. Highlights 4
Slide 5: Strong operating performance in HY23
TTV ($) Transactions (#) +10% YoY 4.9b +17% YoY 42.2m 4.5b 36.1m 2.4b 15.7m Strong operating performance in HY21 HY22 HY23 HY21 HY22 HY23 HY23 Active Customers1 (#) +4% YoY Merchants (#) +20% YoY 7.3m Solid growth despite external 7.0m 97.5k 81.5k environment and tighter risk settings 4.5m 38.2k 32.
Slide 6: Financial performance
Financial performance Revenue1,2 ($) Revenue margin (% of TTV) Credit Losses4 (% of TTV) +19% YoY 351.0m +50bps YoY -50bps improvement YoY 2.4% 295.8m 7.1% 6.6% 1.9% HY223 HY23 HY223 HY23 HY223 HY23 Cash gross profit ($) Cash transaction margin (% of TTV) +20% YoY 121.7m +20bps YoY Core Cash EBTDA5 1
Slide 7: HY23 highlights
HY23 highlights A record half across key operating metrics: TTV up 10% YoY to $4.9b; Revenue up 19% YoY to $351.0m; Growth total transactions up 17% YoY to 42.2m and total merchant partners up 20% YoY to 97.5k. Zip continued to add to its merchant footprint, in AU consolidating its leading position
Slide 8: HY23 included >$140m in non-core, non-operating and one-off cash outflows
HY23 included >$140m in non-core, non-operating and one-off cash outflows HY23 movements in available cash and Key movements in HY23 explained liquidity, ($m) Operating: execution of strategy driving significant improvement a significant improvement of HY22 1 ● Core Cash EBTDA ($33.2m) in HY23 33.2 2 ●
Slide 9: Significant improvement expected in cash flows in 2H23
Significant improvement expected in cash flows in 2H23 HY23 movements in available cash and Cash flow expectations for 2H23 liquidity, ($m) 1 Improvement of up to 50% in Core Cash EBTDA (vs 1H23) driven by strategic focus on profitable growth, transaction 33.2 margins and ongoing cost reduction actions
Slide 10: +27.3m YoY improvement in Core Cash EBTDA
+27.3m YoY improvement in Core Cash EBTDA HY22 Cash EBTDA ($m) HY23 Cash EBTDA ($m) EMEA and Core Cash Core Cash Cash EBTDA Cash EBTDA EMEA re-brand EBTDA EBTDA (33.2) (43.4) (60.5) (10.2) (87.8) (27.3) Up to 50% improvement expected in Core Cash EBTDA 2H23 vs 1H23 10
Slide 11: Cash EBTDA improvement driven by strategy execution; strong QoQ momentum into 2H23
Cash EBTDA improvement driven by strategy execution; strong QoQ momentum into 2H23 HY23 Cash EBTDA, ($43.4m) HY23 Core Cash EBTDA, ($33.2m) QoQ breakdown QoQ breakdown 1Q23 2Q23 1Q23 2Q23 ($4.7m) ($1.4m) ($31.8m) Core Cash EBTDA Core market performance, improvement driven by RoW actions and reduced
Slide 12: Zip is delivering on FY23 priorities
Zip is delivering on FY23 priorities Growth in core markets Improve unit economics Reduce cost base ● Deeper engagement driving +9% YoY ● Revenue margins remained healthy ● Strategic review finalised with increase in spend per active at >7% decisions made to divest, wind down customer in the US in th
Slide 13: Strategic review finalised with RoW cash burn to be neutralised in 2H23
Strategic review finalised with RoW cash burn to be neutralised in 2H23 Key Outcomes Actions taken Discontinued operations Cash burn from RoW1 will be neutralised During HY23, Zip completed the wind down of UK, Singapore and in 2H23 Mexico. Zip is currently in the process of winding down operations i
Slide 14: Zip is committed to sustainability and social impact
Zip is committed to sustainability and social impact Financial empowerment DEI and community engagement ● Continued partnership with Young Change Agents, ● 44% women across our global workforce (from promoting financial literacy and entrepreneurial skills for 42% at 30 June), including an increase at
Slide 15: Business performance
02. Business performance 15
Slide 16: US - Achieving profitable growth
US - Achieving profitable growth Profitable Growth Customer focus Key performance metrics ($AUD) Delivered positive cash EBTDA in Transactions per active customer in 2.3 12.8 TTV Transactions November and December. the 12 months to December increased 11.8 $b 2.1 #m 23% compared to same period last Top
Slide 17: App engagement in the US is driving increasing spend and customer lifetime value
App engagement in the US is driving increasing spend and customer lifetime value Spend per US active customer1 ($USD) Revenue per US active customer1 ($USD) 49 800 50 725 700 39 40 600 554 HY23 only HY23 only 500 30 25 389 24 400 316 20 300 222 200 11 148 8 10 100 0 0 FY18 FY19 FY20 FY21 FY22 HY23 F
Slide 18: The US opportunity is significant and early in the cycle
The US opportunity is significant and early in the cycle Opportunity Demand Growth The addressable market in the US is Adoption and usage continues to deepen Demand continues to drive market significant1 penetration US total addressable market 2021 BNPL adoption is growing in the US across BNPL volume
Slide 19: ANZ - Delivering profitable growth
ANZ - Delivering profitable growth Profitable growth Customer engagement Key performance metrics1 Two-sided revenue model delivered Zip continues to build deeper Transactions TTV 2.2 2.2 23.9 strong revenue growth up 23% YoY customer relationship with dual Zip #m $b and revenue margins expanding to Pa
Slide 20: Cross-product adoption and deeper engagement is delivering higher spend and customer lifetime value in AU
Cross-product adoption and deeper engagement is delivering higher spend and customer lifetime value in AU Spend per active AU customer1 ($AUD) Revenue per active AU customer1 ($AUD) 2,000 1,849 150 142 1,610 123 124 1,500 1,372 HY23 only 105 HY23 only 1,122 100 983 81 1,000 50 500 0 0 FY19 FY20 FY21
Slide 21: Evolving market dynamics and product utility strengthen Zip's market position in AU
Evolving market dynamics and product utility strengthen Zip’s market position in AU Zip’s market Market consolidation Regulatory changes Higher cost of living; reduced position discretionary spend Increased demand for Zip 10 years of experience operating products by consumers and a regulated credit
Slide 22: Zip supports fit-for-purpose regulation in AU and is ready for change
Zip supports fit-for-purpose regulation in AU and is ready for change Treasury has three options Zip capabilities aligned to all AU industry state of play for regulation Treasury options ● In 2019 Zip made a series of ● Option 1: Strengthen code plus Current capabilities and practices see Zip recomme
Slide 23: Financial performance
03. Financial performance 23
Slide 24: Strong unit economics
Strong unit HY23 HY221 Change economics TTV $4.9b $4.5b +10% Revenue $351.0m $295.8m +19% Strategic focus on unit economics delivered NTM expansion to 2.5% (within target range) and 20% Revenue 7.1% 6.6% +50bps (% of TTV) increase in cash gross profit: ● Strong revenue growth, up 19% YoY. Transaction
Slide 25: In AU bad debts are trending to target range
In AU bad debts are trending to target range Decisioning and risk management driving Ongoing account management actions are bad debts towards target range managing arrears AU net bad debts written-off, as a % of TTV1 AU arrears as a % of total receivables -30bps 2.4 2.4 3.0 2.4 2.3 2.3 2.1 2.1 2.1 2
Slide 26: US bad debt performance has improved by ~150bps YoY
US bad debt performance has improved by ~150bps YoY ● Targeted actions in the US (i.e. US monthly cohorts, 120 day loss performance as a % of optimised decisioning, cohort TTV collections management) are driving superior credit 3.2 3.1 3.1 3.0 3.0 2.9 2.8 performance 2.8 2.6 2.7 2.4 2.3 ● Bad debts
Slide 27: Financial statements
04. Financial statements 27
Slide 28: Segment financials
Zip Segment financials HY23 $m APAC AMERICAS EMEA Business Total ● APAC growing strongly and continuing to deliver cash Revenue 171.8 153.0 17.4 8.7 350.9 EBTDA outcomes despite interest rate pressures Group 49.0% 43.5% 5.0% 2.5% 100.0% ● Americas improving cash EBTDA outcomes, reducing contribution
Slide 29: Income statement
Income statement $m Revenue HY23 351.0 HY221 295.8 2 • Revenue grew 19%, hitting record levels, on strong growth in Cash cost of sales (229.3) (194.6) TTV and revenue margins up 0.5% Interest expense (71.2) (33.8) • Zip has diverse income streams, from merchants, customers, Bank fees and data costs
Slide 30: Corporate items and one-off adjustments
Corporate items and $m HY23 HY221 one-off adjustments Reported EBTDA (95.0) (137.6) Share of loss of associates (2.6) (3.0) Acquisition costs - (3.3) • Payment made to Sezzle on the mutual termination of the merger agreement Termination payment (16.3) - • Incentive payment paid to Zero Coupon Senior
Slide 31: Adjusted loss before tax
Adjusted loss $m HY23 HY221 before tax Earnings Before Tax (236.0) (192.4) Add back: Termination payment 16.3 - • Earnings before tax include a number of non-recurring items Fair value loss relating to the investment 19.7 - • Excluding these items, the Group reported an adjusted Incentive payments t
Slide 32: Balance sheet
Balance sheet $m Cash and cash equivalents Dec-22 153.9 Jun-22 241.3 • $153.9m of cash and cash equivalents at Dec-22 Restricted cash 115.8 58.4 • Restricted cash up due to increase in transaction Other receivables 89.6 72.8 volumes and number of securitisation vehicles Term deposit 8.2 3.9 • Invest
Slide 33: Cash flows
Cash flows $m Revenue from customers HY23 352.0 HY221 301.6 Payments to suppliers and employees (165.4) (290.3) • Net cash flow to operations of $226.2m ($209.9m Net increase in receivables (328.3) (602.5) excluding termination payment Borrowing transaction costs (1.5) (1.8) • Paid $43.0m (including a
Slide 34: Available cash
Available cash Zip Group - Total available cash and liquidity at 31 December 2022 Increase Decrease Total ● Zip had $78.5m available cash and liquidity at 31 December 2022 $350 $AUD (m) ● Unavailable cash for the Group of $217.2m at 31 December 2022 includes restricted cash held in $300 $269.7 secur
Slide 35: Funding update
Funding update Facility limits DEC-22 $m JUN-22 $m • In Oct-22, Zip completed its fifth rated note issuance and AU 2,413.8 2,477.6 second AAA-rated issuance under Zip Master Trust 2022-1 for a deal size of $300.0m (upsized from $200.0m launch size) US2 442.8 435.5 maturing in Nov-23. The proceeds fro
Slide 36: Priorities and outlook
05. Priorities and outlook 36
Slide 37: A unique set of competitive advantages enable us to win as operating conditions evolve
A unique set of competitive advantages enable us to win as operating conditions evolve Competitive Product flexibility Business model Regulatory position advantages Unique product driving demand Unique two-sided revenue model 10 years of experience operating for merchants and enabling and risk capabi
Slide 38: We remain committed to our FY23 priorities
We remain committed to our FY23 priorities Growth in core markets (US, ANZ) Improve unit economics Reduce cost base ● Win and scale merchant ● Proactively manage losses ● Neutralise cash burn from partnerships across the credit lifecycle to non-core markets during 2H23 FY23 Priorities target range (
Slide 39: Outlook: Key metrics trending towards targets
Outlook: Key metrics trending towards targets Medium term targets Group HY23 result Core HY23 result (% of TTV) Revenue 7.1% 7.3% 7.0% - 7.5% Cash cost of sales 4.6% 4.6% 4.0% - 4.5% Cash NTM 2.5% 2.7% 2.5% - 3.0% Opex 3.4% 3.4% 1.5% - 2.5% Cash EBTDA -0.9% -0.7% 1.0% - 2.0% ● Core markets are deliv
Slide 40: Momentum to accelerate profitability in 2H23
Momentum to accelerate profitability in 2H23 January Strong January trading with TTV up 9%, revenue up 12% and cash NTM of 3.5% +40bps YoY in performance core markets; US net bad debts for January trending at 1.4% of TTV on a cohort basis Zip’s value Value proposition proving more valuable for custom
Slide 41: Appendix
Appendix 41
Slide 42: Discontinuing operations
1H23 2H22 1H22 TTV $6.8m $29.6m $55.9m Transactions 0.05m 0.24m 0.44m Discontinuing Active Customers 0.1m 0.2m 0.2m operations Merchants 0.1k 0.8k 0.02k Revenue $0.2m $1.7m $3.4m Expenses $(6.4)m $(16.2)m $(22.2)m Loss before tax $(6.2)m $(14.5)m $(18.8)m Note: All figures based on Zip’s unaudited fin
Slide 43: Income statement (HY22 restatement)
Previously Currently Income Restatements HY22 presented $m reported $m $m statement Revenue 297.9 (2.1) 295.8 Cash cost of sales (203.2) 8.6 (194.6) Interest expense (33.8) - (33.8) (HY22 restatement) Bank fees and data costs (55.4) - (55.4) Net bad debts written-off (114.0) 8.6 (105.4) During the fi
Slide 44: Corporate items and one-off adjustments (HY22 restatement)
Previously Currently Restatements HY22 Presented $m Reported $m $m Reported EBTDA (140.5) 2.9 (137.6) Share of loss of associates (3.0) - (3.0) Acquisition costs (3.3) - (3.3) Share-based payments (43.1) - (43.1) Fair value gain on financial instruments 70.9 - 70.9 Corporate items Impairment losses (
Slide 45: Cash flow (HY22 restatement)
Cash flow HY22 Previously Restatements Currently Presented $m Reported $m $m (HY22 restatement) Net increase in receivables - (602.5) (602.5) In accordance with AASB 107 Statement of Cash Flows, this change in presentation was considered Borrowing transaction costs - (1.8) (1.8) appropriate given the
Slide 46: Glossary
Glossary Term Definition FY Financial year ending 30 June of the relevant financial year HY Six months ending 31 December of the relevant financial year H1 Six months ending 31 December of the relevant financial year H2 or 2H Six months ending 30 June of the relevant financial year Q1 Three months ending
Slide 47: Disclaimer and important notices
Disclaimer and important notices The information contained in this presentation has been prepared by Zip Co Limited ACN 139 546 428 (Company). This presentation may contain certain “forward looking statements”. Forward risks, uncertainties and other factors, many of which are outside the control of