Laybuy Holdings Limited (ASX:LBY) Co-Founder and Managing Director Gary Rohloff discusses quarterly results, restructuring of the company and outlook.Tim McGowen: We are talking today with Gary Rohloff, who is the Co-Founder and Managing Director of Laybuy
(ASX:LBY). Laybuy's got a market cap of around $30 million. Gary, welcome back. We haven't seen you for a while.
Gary Rohloff: Thanks, Tim. Great to be here, as always. Appreciate your time.
Tim McGowen: Now, Gary, the buy now, pay later sector had a massive turnaround last week, albeit off very depressed levels. How does the overall sector look to you?
Gary Rohloff: I think the market probably overcooked the sell-off. You know, right across the world, FinTech and tech stocks have been sold quite hard. The sector has obviously now bottomed, I would like to think. All of the industry players are pointing towards a path to profitability, whether that's short or long, as their focus. And investors have said, "Well, hey, these businesses, if they can generate those profits that they're promising, they're a good business, and the bulk of the model works." So, yeah, I'm quite excited about it. I think it's going to be great.
Tim McGowen: Because I know, in talking to you in the past, one of the areas of opportunity is the participation rate's still reasonably low. Is that still the case in the UK?
Gary Rohloff: Oh, absolutely. You know, I think we get somewhat lulled into a sense of "Oh, it's a mature market down here in Australasia." You know, the penetration of buy now, pay later in the payment sector in the UK is about 2 per cent. In Australia, I think it's around 14. In New Zealand, it's close to 10. So, it's a heck of a runway left yet, that's for real.
Tim McGowen: You put out your quarterly update last week. It really surprised the market with its good numbers. What were some of the highlights?
Gary Rohloff: Oh, look, I think the major highlight for us, Tim, is that we are on our path to profitability. That does come at a cost in terms of some of the restructuring we have to do. It is heartbreaking for our family as co-founders that we are having to let a large number of our people go. No one wants to do that ever. But, for the benefit of the business and those people who will remain within the company, it is the right thing to do. The other side of that coin is the improvement we've been able to achieve over the last four or five months in our NTM. And you will have seen from the March quarter at negative 0.5 per cent, there's just about a 2 per cent turnaround in NTM to 1.4 positive. But we will be profitable by Q4 FY23, which is January to March, for our financial year.
Tim McGowen: When do you expect operating cashflow to turn positive?
Gary Rohloff: Yeah, we'd expect that to turn positive in that quarter as well, Tim, but just bear in mind we are funding a growing debtor book. So, we just need to be mindful of that.
Tim McGowen: And you touched on your net transaction margin, and that's recovered well in the first quarter. How do you expect that margin to track in coming quarters, and what's the long-term net transaction margin you're expecting?
Gary Rohloff: Yeah. Look, we've seen it improve again in June. So, the business in June recorded a net transaction margin of 1.9 per cent, with 1.7 in the UK. I would like to see that have a two in front of it, that number. We will determine what that looks like as we evolve through July and then into August, and we'll keep the market informed. On a long-run basis, you'd want to see that NTM above two. Ironically, Tim, and I mentioned this on our recent investor call, we were pilloried by an analyst for having too high an NTM not long after we listed, but that was a different time with a different sentiment.
Tim McGowen: And can you improve that margin with higher-quality customers and a leaner cost structure? Is that the plan?
Gary Rohloff: Yeah. Look, the cost structure doesn't come into NTM. It's all around that quality of customer that makes the difference, and that's certainly what we're seeing with the efforts we're putting in right across the business.
Tim McGowen: And Gary, you've had some significant improvements in fraud detection. Can you talk through some of those changes?
Gary Rohloff: Certainly, Tim. Our improvement's quite marked. We have dropped gross losses falling from 4.9 per cent to 2.8 per cent quarter on quarter. And while we don't want to call out individuals, because it is a team effort right across the business, it would be unfair not to recognise Jamie Byles, our recently-appointed CRO, and his team. Jamie's a 25-year veteran in the fraud and credit risk management area of finance. He comes out of HSBC. The disciplines and toolset he was able to bring to the party have paid dividends, and we can see those continuing to improve through June and into July.
Tim McGowen: And in your recent ASX announcement, you noted that there's no requirement for any capital raising in the medium term. Can you give us some colour around your longer-term capital requirements?
Gary Rohloff: Yeah, look, what it means for us come January as a profitable organisation is we become self-sustaining. So, with the growth projection, which is still growing, albeit at a pace that will be significantly lower than what we have achieved in the hyper growth phase, we'll still be a growing business, we'll be growing profitably, and as a consequence, we have no requirement for new capital in the medium term.
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