CEO Series: Larry Diamond – Retail Investor Earnings Call (first ever!) | Zip Co (ASX: Z1P)

HOSTS Alec Renehan & Bryce Leske|1 August, 2021

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

Here at Equity Mates, it’s no secret that our goal is to make markets accessible and to give companies the opportunity to speak directly to retail investors. For way too long direct contact has been difficult for retail investors to get access to, so it’s why we decided to launch this new series – Retail Investor earnings call – where instead of analysts, we have retail investors asking the questions to the companies we know and love!

Our first guest for this series is a long-term friend and previous guest of the show – Larry Diamond. Larry is the CEO and co-founder of Zip (ASX: Z1P), and in this conversation Bryce and Alec ask him the questions you helped put together – in our Equity Mates Facebook Discussion Group. Listen to his previous episode here.

Pre order the book on Booktopia or Amazon now. 

If you want to let Alec or Bryce know what you think of an episode, contact them here

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All information in this podcast is for education and entertainment purposes only. Equity Mates gives listeners access to information and educational content provided by a range of financial services professionals. It is not intended as a substitute for professional finance, legal or tax advice. 

The hosts of Equity Mates Investing Podcast are not financial professionals and are not aware of your personal financial circumstances. Equity Mates Media does not operate under an Australian financial services licence and relies on the exemption available under the Corporations Act 2001 (Cth) in respect of any information or advice given.

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For more information head to the disclaimer page on the Equity Mates website where you can find ASIC resources and find a registered financial professional near you. 

In the spirit of reconciliation, Equity Mates Media and the hosts of Equity Mates Investing Podcast acknowledge the Traditional Custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people today. 

Bryce: [00:01:35] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down the barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my Equity Mates Ren. How are you going? [00:01:49][14.8]

Alec: [00:01:50] I'm very good Bryce very excited for this episode. We have one of our favorite CEOs returning, which I think that says something about the the Equity Mates poll. You know, once they come, they come back [00:02:03][13.2]

Bryce: [00:02:04] and see this right. Our goal here at Equity Mates is to make markets as accessible as possible and also to give companies the opportunity to speak directly to retail investors, because for far too long, that direct contact with management team we feel has been too difficult. And we're going to try a bit of a new format today, and that is to do a bit of a retail investor earnings call, Ren for for a while. Well, up until now, this is potentially a world first. Earnings calls have always been with analysts asking the questions. But we are lucky enough to have an ASX listed CEO with us to answer the retail investor questions for his company. So it is our absolute pleasure to welcome back to Equity Mates Larry Diamond, CEO and co-founder of Zipp. Larry, welcome. [00:02:49][44.4]

Larry: [00:02:49] Hey, guys. Good good to be back and looking forward to chatting to Bryce and Ren. [00:02:53][4.0]

Bryce: [00:02:54] So, Larry, today we really want to take the opportunity to get an update on what's happening at Zeph. We've had so many questions come through from the community, not only on business update, but on the new brand share price and other business activities. So let's treat this as a bit of an earnings call and we're going to just fire some questions at you and leave it open to you. Has that town [00:03:18][24.3]

Larry: [00:03:19] fire away, as they say? [00:03:20][1.3]

Bryce: [00:03:21] So to start, can you give us an update on the business? Where is it at after Q4? What? Twenty one? [00:03:29][7.2]

Larry: [00:03:29] Yes, we put out our quarterly release for the June the June quarter, which is Q4 of financial twenty one end of end of end of another, another year. A crazy, I think, for everyone out there. And I think if we're going to go through a few of the a few of the factors, we'll look at financials and then also look at some of the strategic goals that we set in general. When you look at our critical financial metrics, we look at transaction volume. That's a big driver of growth. We look at revenue, we look at transactions, customers end and merchants and of course, unit economics. So I think if you look at a lot of the metrics, really pleasing results, you know, revenue generated one hundred thirty dollars million for the for the quarter, up one hundred percent year on year. And that's run writing just over five hundred and thirty million a year, which is a great number to see. You know, we probably when we started it, we would have dreamed for 300 grand to see 500, 30 million annualized. It's pretty awesome transaction volume. We did one point eight billion for the for the quarter, which was up again over over 100 percent year on year. And pleasingly, the transactions which actually shows how engaged customers are, was up well over 200 per cent. Okay, so that's that's a metric that we look at very closely. It's not just the transactions, but actually customers and the number of transactions per customer, because the more customers use you, the more important that we are to them and the greater chance we have of building a great a great relationship. We're now annualizing at over seven billion dollars in transaction volume across across across the globe. And and customers were up to seven point three million and merchants up to fifty thousand. So I think when you look at the financial metrics, yeah, pretty good. I think we we we want to be a growth business. And that is how do we drive triple digit growth year over year? Right. That's that's sort of how we how we go forward. And then, you know, revenue wise, seven per cent as a percentage of of TV. So we look at that metric very, very closely. And we also look at gross profit margin divided by TV, which is our net net transaction margin, which we will show at the end of the financial year. So I think if you look at the financial numbers, a pretty good scorecard. Right. And we give ourselves a little a little pat on the back in terms of regions. You know, a year ago we were really just in Australia and a bit of a New Zealand business. When you fast forward today, when you integrate with ZIP, we're now in 12 markets. So it's just quite incredible to look at the growth. Now, of course, most of the story is about the US, which has been a fantastic story for us. The growth there has been phenomenal. The founders are doing an amazing job, continue to drive growth. We just had our budget review today with our CFO and financial director, and we looked at just what we had budgeted and where we went and the guys smashed out of the parts. I think that's just good validation. We were sitting here a year ago and we set the budgets. They've just blown straight, straight through them. So I think it just shows the the opportunity UK we went into a little bit of a hiatus last year because of Covid. Right. We kind of shrunk a lot of our investment. We shrunk our expansion as we try to preserve the ship and faced into the uncertainty of of Covid. So we kind of put that. Is this really on ice and an hour later there, Anthony really had a very small team and just thinking about the future this year, we've really rebooted that business and we're really excited about that. They've been out on the scoreboard. So, you know, small numbers. But the pipeline, the opportunity that we see there is is is significant. Also, we've rolled out in we've started processing payments in Mexico, in Canada. And so what you're seeing is our global technology stack is actually the pie stack. Right. Which is a different technology stack to our Australian business. And that has got is just built amazingly well, helping us drive organically into new markets or enter markets through financial services partnership. So I think that's been great. On the merchant side, the US has done a fantastic job and globally we've brought on names like Boohoo, JD Sports, Microsoft brands that we would have dreamed when we set up with our investor pitch for one hundred and seventy grand eight years ago, I'm sure would have had a logo like Microsoft on there. Right. So it's just awesome to see them come come to life. And now we can show up as a single unified payment brand to global merchants. So expect us to cut more more of those deals here in Australia. JB Hi-Fi, that logo is definitely on my original pitch deck. And so and it's kind of warm and fuzzy to have them on board. And then internally, as our Zip's does. Right for us, our future is not just it's two sides of the coin. It's how well we're doing outside telling our story, but it's how our troops feeling and the culture inside it is going really great. They're handling the pace. They're very resilient. And we focus a lot on engagement. And it was great to use our platform to talk about new policies and and really take a takeaway for. So employee engagement is not a massive metric that we track and we've done really, really well. That's a huge investment in in people. So I think by and large, we're actually quite happy with the with the results. You know, obviously the share market had a little bit of a different view. But I think if you look at those internal metrics, really good scorecard. [00:08:38][308.5]

Alec: [00:08:38] Yeah, great scenarios, Bryce said. We've gone out to the Equity Mates community. We've looked online to crowdsource a number of questions. We'll get some of our own in as well. Don't you worry. I'm sure you will. We'll start we'll start with a question from Morgan from the Equity Mates community. You mentioned that you're in the US, the UK, you've started processing payments in Mexico and Canada. Morgan wants to know where is it going next with so many countries already with Zipp, are there any other countries in the pipeline? [00:09:10][31.6]

Larry: [00:09:11] Good question, William. You know, for us, what's really important is, you know, the market is valuing the business a lot today on the success of markets like the US, Australia and and New Zealand and increasingly the UK. So I think the first call that is we have to drive growth in those markets. You know, otherwise the present value of those cash flows, if you like, is more weighted towards those markets. We have to nail that brief. So I want to just keep that first and foremost, US, Australia and UK. We really have to Niall. Now we are starting to place flags in other markets, right? Because we believe that payments, payment companies have to be global in nature. Right. The technology behind it has to be global in nature. When retailers integrate, they want to deal with one payment provider and increasingly customers. They want to have affinity with one wallet as they move from country to country. So what we really want to do now is try and bed down a lot of the markets and actually prove to you guys that we can drive growth in Mexico, we can drive growth in the Middle East. And so I think that's really important. The cost to enter a market is very low. And so we're not going to invest huge amounts of capital spending up the similar cost base, let's say, in Western Europe. So Western Europe, Europe is a one point, one trillion dollar ecommerce market. We have to be in Europe. And you've seen us buy a great team over in Central and Eastern Europe, Twista. So we have to be in Europe, but we're not going to spin up a huge cost base like what we've done in Australia and the US. We have to be much, much smarter. So we've got the technology we have to enter with partnerships. Right, because the technology should just once we get the licensing, the regulatory and all those requirements, hopefully it's really just a sales and marketing front and our platform can deliver the products and services. So I think we've got a good footprint today. We would like to see, as I say, a bit more in Western Europe. I think that's an important place for us to play, but we don't want to put huge cost into that equation. So we have to leverage the efficiencies in the platform. That's why I spoke about earlier. The quad pie stack is a fantastic stack and it's just proven already to you guys the fact that we can just turn on in Canada. We've gone live in Mexico. We don't make a huge song and dance. We just opened it up and we're now going to start rolling. So that's what we want to bring to the to the global expansion story, Larry. [00:11:22][131.3]

Bryce: [00:11:22] This one comes from Cody, and he's interested to know how you see Zip's competitive advantage versus the other by now later players and given the lay. Denouncements from papel, which we already knew was coming, but also Apple, you know, how do you see yourselves against those and the planning accordingly? [00:11:41][19.1]

Larry: [00:11:42] Every day we hear about another day. Next week, we're going to hear Bryce pay. I've heard I've heard rumors. Right. And so I think the good news is for when we started this eight years ago, it was a relatively Bonnar Pelada was relatively unknown. So I think the great news is the awareness is just going bananas and in fact, it's bringing the future forward. Right. This idea that you're getting to the total addressable market, the TAM is bigger today because of these these players entering. So I actually see that as a as a positive now competition. If we were if we were fearful of competition, we never would have taken our first step. Right. I mean, I remember my mother telling me, how are you going to do it? This the banks, there's PayPal. You're going to need billions of dollars of capital. You're raising one hundred grand. So I think what you see in our business is fearless attitude. And you do have to play the long game. And then and that's what you've seen here today. So we are we are fearless. We think competition is healthy and a rising tide lifts all boats and increasing the total addressable market. Now, what that's doing, I guarantee you, because Apple and this is all speculation, we haven't seen Apple or Goldman's come out formally and actually say anything. But if you would assume it's true, what are all the other technology businesses and all the other financial services firms going to do? They're going to get a bit of foamer, right, Ifeoma? They're going to go into their boardrooms and they're going to start thinking, do we buy, do we build, do we innovate, do we partner? And so I think we show ourselves to be amazing partners. We've partnered with merchants. We've partnered with payment platforms. We've either integrated into banks before. So if we can become the stripe of BNP will have amazing technology and IP infrastructure to enable people everywhere, I think we can actually be part of this rising, rising tide. And so we do back ourselves to cut transformational deals and inject ourselves into the ecosystem of payments, not just at web checkout native apps. We can plug into financial services businesses so that they can offer Bienville to their to their customers. So I think that's that's on the competition front. I think where we are different is our DNA is installments. It's quite different to a business that's just rolling out a feature or plugging a hole here or plugging a plug in demand. So when you think about Zipp, we want you to think about zipping a transaction and that's whether it's a two hundred dollar and you pay it back in a couple of weeks, whether it's two thousand dollars and you pay it back in six months or 12 months, or whether you're a small business paying installments, you want to zip a transaction. And I think when you look at that versus the the overall, Piers, that is very, very different. Okay, so being able to zip a transaction everywhere and focus on that entirely means whether it's closed loop, open loop, you can you can spin spin a transaction. The second big differentiator is that we are at one of the very few global players. So we are investing heavily in getting licenses, regulatory and covering all that stuff in these markets so that our promise to the merchant is integrate once and behind the curtain. We'll do all that hard stuff. We'll go into difficult markets, will go and get licenses, will handle the conversion and the and the and the economics. And I think, thirdly, we make money both from merchants and also customers. And what that means is we're happy to to charge customers if it's fair, transparent, easy to understand. Customers can pay, are happy to pay for value. So it means we can actually play in any category. Some categories have very low gross profit margins. They can't sustain very high merchant fees. Some categories have very high gross profit margins and can handle higher merchant fees. Our ability to play in all categories will mean we can actually be part of all or all payments. So it is noisy? Yes, it is noisy and analysts do get scared about that. We get invigorated. [00:15:36][233.4]

Alec: [00:15:37] Larry, you mentioned there zombies, which when we look online, there's there's a lot of excitement around that. I guess that element of your business, some sentiment online thinks that Afterpay is going off to consumers and Zipp is going after businesses. So I guess the first question is, is that accurate? And then the second question is, how do you think about the competitors in the business space, places like Square and the like? [00:16:05][28.3]

Larry: [00:16:06] If you just look at the differences between us, I mean, we we we're all about the consumer. And so if you're buying a dress for two hundred dollars, paying that back in eight weeks is reasonable because, you know, it's time to get a new dress after after eight weeks. If I get the the furniture or the mobile phone, I can't pay it back in eight weeks. It's like a mortgage and I need more affordable times. Six, twelve, twenty four. And so we play right across that spectrum. Bryce Afterpay is very focused on the on their pain. And so we've put four billion dollars in long term consumer finance through our three platforms, we have heritage. And so that's why we say Zipp should be able to split any any transaction. No us for four for that. And if I look at the asset here, it's pretty good, pretty good competition. Right. So I think we're in a good place there. But again, a small business for us in a way, particularly trainee's and micro proprietor's. The credit risk is almost like you're taking credit risk on the principal, on the person. You know, it's very different to a big capital loan. You're looking at the company's balance sheet. And so we see small business as a huge opportunity. We integrated into Facebook so a small business can effectively buy advertising, acquire customer customer pays, and then and then sort of pays us back. So we kind of see that as our as our frontier. Now we are going to bump into competitors like Square, the banks and so forth. I think Australia, we are uniquely placed in building out the ecosystem. Right. This idea. Imagine this world where a customer opens up their wallet, goes to a merchant that's that's offerings it. Now, that customer could be a customer paying in could be paying, you know, getting a set of airports, could be a customer going and getting a television. Right. So short and long installments, it could be a small business getting computers for their for their for their business. Or it could be a customer who says, you know what, I don't want to pay on credit. I want to pay now from my from my bank account that then goes into the merchant whose offerings it all that all that money gets settled into a zip merchant account. And now that business can now shop online using their zip wallet, either from funds that we've issued as credit or from funds that we've let them. And so you can kind of see this amazing ecosystem. Now, it's going to take a while to get there. But I think in Australia we've got a really redhot chance of building that out. In other markets, we take a bit of a different approach going early with the with the consumer [00:18:28][142.3]

Bryce: [00:18:29] to close out sort of business update on the reporting side. This one's from Colin and he says, When does it project to be net profit after tax positive? And how do you intend to achieve this, given your margin and cost structure that make it seem quite challenging? [00:18:44][14.9]

Larry: [00:18:45] A good question, Colin. Right at the end of the day, we have to deliver value for shareholders and value to shareholders. Ultimately, you know, the most common method that people use is forecast out cash flows over five, seven or 10 years at a at a terminal value and discount that back to the present value and then divide that by the number of shares. Now, you can have to make a number of guesses. Right. And this is what the analysts do and everyone does. Well, what actually is going to be the total volume that is going to generate over the next ten years? Also, what are the margins that it's going to generate over the over those over that volume? And what's the cost structure to support that that business right now? And and you've got to make a call. We've what we've proven here in Australia is, you know, we've been cash flow breakeven for 10, 10 quarters. So we show that we can control our costs, but we are investing in growth. Now to do that, it's important as you invest in growth is it's not just growth at all costs. So you have to you have to be able to see it, see the key metrics and then extrapolate out and then go on. Based on those assumptions, do we think that the business kind of gets there? So what you need to look at is what is our revenue as a percentage of OK Tedi? Now, revenue, as you remember earlier, comes from both customer fee and merchant fee. And as I mentioned earlier, it's not just merchant. We drive a lot of income from fair and easy to understand customer fees, which arguably are less at risk from competition. So we actually we we believe we have quite a robust revenue profile. But you have to look at revenue divided by TV. Then we look at our costs being cost of debt, bad debts and processing costs to get to a gross profit. Yep. And that's what also people call a net transaction margin. And and so I'd encourage you to look at those metrics. And if those metrics suggest which which we believe they do good unit economics, as you pump more volume through that, you'll start to get the operating leverage coming through gross profit and funding the cost base. So the cost base. So that's that's sort of the view that we're taking. And we are driving to net profit, but it just is being pushed out a few years because the opportunity before us is is is is so big. But we're starting to get the synergies through the cost base. And as I mentioned to you earlier, as launching in Canada, Mexico, if we took the original approach, would have cost us huge amounts of money to build the product, the technology, the kind of infrastructure. So we are very mindful of profitability because that's what drives present value of cash flow. But if you look at, you know, revenue as a percentage of TV was seven percent net transaction margin, we haven't released the latest figures to market will do that soon. But if you look at our last our last half year, you'll see that and the other. Point is that the capital is recycling, we, our capital used to recycle every six to 12 months, then it was six months, now it's every three months. We're also getting a much higher return on capital, which then means that we need less capital to drive that that revenue. So if you look at that, those charts that we've shown in our recent results, that will that that shows you that as long as we keep the net transaction margin looking healthy and we drive fast, return on capital, and we don't let our costs get ahead of ourselves in the fixed cost as a percentage of those metrics, then it's just backing us to actually deliver on those on those goals. [00:22:05][200.2]

Bryce: [00:22:06] So, Larry, let's let's move on from business update and talk about Brand. We've had a lot of a lot of questions come in regarding this. So let's start at the top. I think the big question is the rebrand. What was the decision behind that? [00:22:18][12.2]

Larry: [00:22:19] Yeah, good, good, good question. So we believe, as we've touched on earlier, that we've had brands that have been designed for local markets, whether it's safe in Australia, in the in the US. And so we are moving from local regional markets to really becoming a global payments brand. And so investing in a single brand, a brand that customers and merchants can trust, trust is one of the most important factors in in brand affinity, particularly in financial services, and really show up in our markets as a single unified front. So that really was the genesis and not really controversial at all was always in the plan. Kopay itself was an incredible brand to support the growth of painful in the category. It literally means painful and and has been a really fantastic story there as as it came about. And we looked at the future as a sort of touch on earlier zipping a transaction. It's painful. It's pain. Second sort of pain, 12. So we also needed a brand that conflicts and scale with us because we're not going to be just known for paying for, but we are going to be known for moving at Zipp speed, which is what all the whole team in the US has been. And like they innovate, they hustle and move quickly and it just resonates incredibly well. So we needed a brand that can really extend with us everywhere. And when merchants integrate, they don't see Twista in Europe or Spotty in in the Middle East, they see Zipp. And what it means is integrate once and behind the curtain will handle all the complexity, regulatory, licensing and customers equally if they're doing cross-border Mexico into Canada, Mexico into the US, Canada, you need a single, a single. So I think that that was really uncontroversial. It's really the timing. And for us, we felt this was this was the the best time. A lot of we've got a lot of great global retail relationships and as we take them global. This was a really important part of that equation. Now, back here in Australia, you know, I think there's definitely been a little bit more shock Bryce moving from even for me. I wear this brand every day on my shirt and it's quite it's a very visually different, different, different logo. And it does take a fearless brand to to change. But if you look at the brand itself, driving purpose, driving mission, putting merchants and customers at the center of all that we do is really important brands that have good mission, good, why do succeed over over time? And I think one of the other elements is when you see Zipp, you know, they're not not a confusing logo. Mark, if you remember, when we go overseas, we're going to be dancing with with elephants. We're gonna be competing with pretty strong brands out there. We need something unique, but it's something that is distinct. When you see it, you know it. And really, this was a great design. The feedback from merchants has been really positive because they see how it can actually work together. And and we'll be rolling out, you know, later later next month with with the brand across across all the markets. And we we are pretty excited about it, mostly because we get new merch. [00:25:17][178.6]

Bryce: [00:25:18] Everyone loves merch. That's right. So in terms of share price, Larry, there's a lot of noise around the short term price movement, you guys reported a pretty amazing result, yet saw a drop in share price and many of our audience are invested in it. So how many times, I guess, do you spend focused on today's share price versus the sort of tomorrow's business? [00:25:49][31.5]

Larry: [00:25:50] Look, I empathize with everyone out there because I am also a shareholder. So I feel I ride the ups, I ride the downs, but I'm still here. I think that's that's the point. And so and so the rest of the zipser is equally excited about the opportunity. Of course, though, look, you know, it's not it's not great to see people lose having bought at higher prices and it's suffering where it is today. But I think as long as we are still confident, we're still passionate and we believe that the opportunity before us is is enormous, then we must go. And so, I mean, ultimately, vindication will be in in the results. There's a lot of short we can talk about some of the other short term volatility vectors that that might be playing out here. But as long as we focus on the long term, which is around that transaction volume, the revenue that comes off it, the gross profit and the and the cash net profit, then we get to a great result. So we do try and focus on the long term fundamentals, but it is important to keep markets informed and ensure that there is no confusion out there. And so we are spending a lot more time, I would say, with the feedback that we're hearing from Equity Mates community, from Koppa, and just in general, we are taking that very seriously. And so we're doing a lot of work internally on a couple of fronts. One is we are in market for an investor relations hit to get Pete and myself and a lot of investor relations, but actually bolstering our investor relations capability. We're also looking at how we talk to you guys, the retail investors. Some people call us the punters Bryce. We are doing a lot of work about how we can talk to you guys, how we can communicate and create more of a more of a dialog, because we do think there is asymmetry and it's important for us to democratize access, not just to the insiders, the big end of town who get meetings in rooms with rich mahogany and and lovely Evian water. [00:27:43][113.1]

Bryce: [00:27:44] We've had a meeting in a room with rich mahogany, Larry. [00:27:47][2.4]

Larry: [00:27:48] There was there was no on tap water, buddy. And we're all about putting people at the center, not just customers and merchants, it's investors. And I think we're incredibly fortunate that we've got such a huge retail base. And I think if we can just work better together in America, we see there is the GameStop and Redditt phenomenon. But, you know, that's at the other end of town. But this this world where consumers and investors can actually be the same thing. People can sign up to our products. They can invest in our business. And I think, therefore, there's a lot of alignment there. But, yeah, we're going to do a better job at talking to our retailers, retail investors. There's well over one hundred thousand of you guys. Right. Which is just awesome. And so we've got to do a better job and we are listening. [00:28:34][46.3]

Alec: [00:28:35] So, Larry, you mentioned there some other short term volatility vectors and one that comes up a little bit online is around shorts and the volume of short interest in zip. How are you thinking about the short volume and is there anything that management's doing to, I guess, address this? [00:28:53][18.3]

Larry: [00:28:54] I think we've obviously seen the short volume. It's always been a little bit high for our for our liking, just kind of generally relative to our peers. And then definitely over the last few months, we've seen a huge a huge uptick. We were at one stage on Schwartzmann dot com. We were like we were one or two. And it's tick over 10 percent, which for us personally, as far as our team and long term investors, we are not very happy about. And China, which actually try to understand exactly what is going on here. We are talking to some of the advisors to try to understand where where it's coming from. There's nothing like the retail army fighting, fighting the hedge funds. We could we could be right to blow them away, but also just some additional information when we do the when we do the four hundred million dollar unsecured convertible note earlier earlier this year, Bank of America did what they call a Delta hedge, which is for some of the installs coming in. They wanted to protect themselves on on the share price. And so there was some volume that came into that that Delta hedge, nowhere near the volume that we're looking at today. But that definitely is a fact. That's also why you see Bank of America moving sometimes on the substantial share notice. So there was a little bit of shorting associated with that. Is it bad? Is it good? It was actually a really important part of the structure, which ultimately meant that instead of raising capital at prices of today, the strike price is well over twelve dollars. So that's actually a real positive for shareholders of guys. We're not going to raise money at today's prices. We're going to raise money at tomorrow's prices of. 12 billion plus, so it was a piece, but we're still trying to get to the bottom of exactly what's going on here. Obviously, there are some institutions trying to take a bet against it, bet against us. And we take that personally, right. Because it's basically a bet against us. It's a bet against all the hipsters here working their ass off, trying to do the impossible. So we're going to hold firm [00:30:47][113.5]

Bryce: [00:30:48] nice, I guess, in terms of the share price at the moment, down from where it was in February, highs this year, that the risk is the need to tap capital markets at such a low price. How do you think about Zip's need to raise further capital? What's what's the balance sheet like at the moment? [00:31:08][20.7]

Larry: [00:31:09] We only raise that 400 million dollars a few a few months ago. And really it was spawned from discussions. We also having sort of board level talking about our aspirations and growth opportunities around the world, particularly in the US, but also also around the world. It's actually why we went bigger then than what we would have expected. You know, we've we've been generating as we sort of touched on earlier. Good, good, good. Cash flow break even here in Australia. And that this gives us really growth capital to kind of go. So balance sheet looking very good. It's covering us for, you know, ultimately it's really our choice how hard we we want to go. And so what this did was give us a lot more flexibility in in how we grow. So I'd say the balance sheet is in a very good place, the coffers of Phil, and and that should cover us for for the good journey. And so we did that as well ahead of we're having discussions as to when is the best time to go and what is the right structure to go with. And earlier this year, we took the view that the unsecured convertible note market was really competitive and its ability to get very low cost, zero per cent coupon get raising capital at future stock prices and going early and going big was what was the move? That's exactly why we did that, because we don't really want to be subject to short term share price volatility. We need to kind of have the coffers filled so we can focus on execution. [00:32:36][86.4]

Alec: [00:32:37] Yeah, Larry, I think we've you enough about the share price here. I think I want to. But as we move on to other business, I think it's worth noting that Bryce and I, both long term investors and every expert we spoke to, you know, talks about the benefits of long term investing. And I think Zipp obviously had a massive run up post covid February high. But you just have to zoom out on the stock price and a lot of investors have done incredibly well. So I think it's good you're focusing on the long term business and investing for growth. But look, we're not here to compliment you. We're here to ask you all the hard questions. So we'll we'll get into some other business. So one thing we saw a little bit on line was around the new partnerships that Zip's announcing. And an area of criticism is around a perhaps a lack of communication around some of those partnerships. Do you think that's fair? How you how do you think about that, that criticism? [00:33:32][55.7]

Larry: [00:33:33] Yeah, look, I think I think it's fair. I think we need to understand when do we need to speak and how do we speak? Right. There's obviously a lot of news flow that's happening every day, is it? New merchants are rolling out on the platform every day. And you can see that publicly when we when we went live with BUJU or Microsoft or JD or or JB Hi-Fi. Now we we report quarterly to the stock market. It's not an obligation anymore. We we we passed that obligation a couple of years ago. So we're doing that, though, to keep the investor community updated. Right. And where we bundled all together and every 90 days, which is not that long, we basically summarize it all. Yep. So in in the most recent one, we heard about the likes of Microsoft. We heard about this, the stripe and adiam partnerships. If it's big and meaningful and we think it warrants its own, then we will put out a specific release. We've done that in the past with regards to baby JB Hi-Fi or Amazon, and we'll and we'll continue to do that. But I do think that and it's kind of what I was touching on earlier today, there might be better ways for us to update the retail investor community, who it might be hard to see which merchants went live, what products rolled out. But it's not necessarily market sensitive. Right, because the ASX also slap on the wrist. If you try and push out news flow, that's not market sensitive and you're using it almost as your news news channel, which we do get away with. But we do want to see if we can create a better communication dialog. Right. And so we actually that internally, some companies write new newsletters, videos, whatever it is. But we are trying to see if we can provide better, better, better updates. In the old days before the Internet, Westfield used to send out newsletters every every second month to the retail shareholders because they were so excited by the brand and what was happening, not necessarily because it's market sensitive, but to give people a bit of a bit more of an inside scoop as to how things are. So, well, I would say today is we are internally thinking about how we do a better job, if it is material and sensitive, we will include it. Otherwise it will be in our 90 day update, which is a bit of work. But we're happy to continue doing that right, because it's great to show how things are going. You could argue it's too short term focused. And in fact, when people look at the US, they legally have to report quarterly and that can change, right? It can change how businesses think about running in the business. If you're focused on, quote unquote, a growth look at Amazon, they went for real long term value creation at the at the other end of the spectrum. [00:36:02][149.6]

Alec: [00:36:03] So, Larry, right now there's a Senate inquiry in Australia into mobile payments and digital wallets. And it feels like there's a lot of, I guess, fingers being pointed might be the way to phrase it. Your co-founder, Peter Gray, criticized the banks for anti-competitive conduct. The banks turned around and criticized Apple for anti-competitive conduct. So there's a lot of noise coming out of that inquiry. Given we've got you on the show. Can you explain the concern that Peter raised in the inquiry? [00:36:34][30.4]

Larry: [00:36:35] It's always good to see fintech banks and technology companies all coming out and having a say so. Always good. You know, what Pete was touching on was one of the number one reasons when customers close accounts. So we track everything. We have our customer service team actually working really closely with our with our product teams every single day. So if we hear things and see reason codes, we try and get to the root cause and then understand how we can fix it. And one of the top reason codes for closing a zip account is because of the banks. Well, that's just that's just fact. And so what Pete's touching on is there's obviously conversations going on there when they are applying for a mortgage where we feel that they are do you call it third line forcing? They're basically getting them to close their accounts. And if you're only paying 40 dollars a month, surely that is affordable when you're applying for mortgages and doing your responsibility checks. So we think there's something funny going on there. And I wouldn't hazard whether they might be closing the zip account, offering a mortgage and then giving them a credit card or paying for product like I'm pretty sure it's happening, too. So that's that's what we're calling it. We feel that's that's unfair. And that's what people sort of touching on. And then I think we saw that play play a little bit in the press. [00:37:53][77.8]

Bryce: [00:37:54] Fair call, Larry. We've seen online the rumor mill in full flight when it comes to takeover talk of Kloner and also Bank of America buying Zipp. So given that we have got you right now, are you able to address these concerns or rumors? [00:38:13][19.1]

Larry: [00:38:14] Yeah, sure. Ask me anything, as they say. So we talk to the Bank of America. Substantial shareholder notice was linked more to the Delta hedge short borrow. That was part of the unsecured note and then probably their their prime broking relationship. So we really probably need to look into that too much as that comes out publicly. The client is featured in Straight Talk, which as we know is the greatest rumor mill of all. They've had many rumors about us in there that have turned out to be true and some to be completely not true. And all I will say is that we obviously review our register every couple of weeks, every every month, and we can see exactly all all shareholders. If if the shareholder becomes meaningful, i.e. substantial, they legally have to put out a disclosure. But once they get about five percent, because if you're below five percent, it's not really meaningful, it's not substantial. You can't call a shareholder meeting. You can't you can't have a crack at the board cause the spill due to all of these things. I'm just, you know, counsel the community to really look at more substantial. And unless you see a substantial, let's just assume it's business as usual. [00:39:29][75.1]

Alec: [00:39:30] Now, Larry, while we're talking rumors, there's obviously a number of rumors out there around a potential US listing. I think, you know, that really went into overdrive after Afterpay and sessile have both sort of indicated that they're going to list in the US. Is a US listing on the cards for. [00:39:49][18.7]

Larry: [00:39:49] Yep. Yeah. So that was that was in the press a while ago. And, you know, we never actually stated that we were doing that. The media sort of again embellished and and put that out there. So unlike the peers who have come out and said that listing on the US, zip, zip is not said that. So now the question for us, though, if we're talking about shareholder value creation as a board with our advisors, we're always looking at how we maximize value for our shareholders. And it could be around access to capital relative multiples, whether it's revenue multiples, multiples. And so what I would say is we're always going to look at it. You know, I'm. I'm an ex investment banker, and so these are things that we talk about all the time, particularly with my chief of strategies, how do we maximize value for the shareholders? Never say never, but there are no immediate plans to draw the US listing. And what about all the retail investors? I mean, that's how do we if we do it, how do we take them on the journey? Because we think we've got a lot further to to run. So I wouldn't ever take it off the cards. But if we were to do it, we would have to think seriously about our our our supporters and how we and how we take them on the journey. And that's a bit that's that's a little bit harder to do. Not impossible, but we'll always look at all options. Nothing currently on the cards. [00:41:08][79.2]

Bryce: [00:41:09] So, Larry, before we move to closing comments for our retail investor, call here with you. Final question from the community is around the digital currency that Zipp seem to be entering into. Are you able to shed any more light on that and provide any more information? [00:41:27][17.6]

Larry: [00:41:28] Yes. So some people say the the financial diet of the millennials is the NPL crypto and fractional shares. Right. Right, right. So we only do people. What about the other two? Right. So I think the NPL is a great entry product. So it's why the banks are looking at it, because you can sign up quickly. It's a great product for customers because it's fee free, it's interest free, it's easy. But the question is, how do you drive more lifetime value LTV? And so the question financial services players like us to think about as well, what else should go into the wallet to drive, drive engagement, but also drive long term value creation? And so when we serve that customers crypto is definitely one of the big one of the big items. And for us, how we can give customers a way to pay, save and invest is is is really important, but it has to be linked to our mission. And our mission is to be the first payment choice everywhere and every day. So we're not just going to buy a Volt that you put your gold bullion with us and don't use us every day. It must be OK. This means that my Zipp virtual zip credential is the reason that I'm going to pay every every day. So that's how we in our product teams think about what we put into the app, how we drive people opening up the app and sticking very, very closely. So we think we think crypto is is a great space to play. Digital currencies are obviously gaining enormous storm and the investment coming not just from, you know, you're seeing the big end of town really, really wake up. So it's our view is that that it is a form factor and currency that is here to stay. And then over time as well as volatility reduces and it turns less into, you know, a crazy investing market, it will become an asset class. So we are we are looking at it as we are looking at a range of those other features that that we can put into the wallet to really drive engagement and where we have a right to win. Because the other thing is we can't pretend that we're going to have a better crypto wallet than Coinbase. Hmm. Yeah. So you've got to be really mindful of who are you and how are you going to play? There's no point just replicating someone else's because that's not our business. Yeah. So we we've got to be mindful on how we do that. [00:43:40][131.8]

Alec: [00:43:40] So, Larry, Jack Dorsey, the Square CEO, has come out and said that Bitcoin adoption would massively accelerate Square's growth plans just because it's a global digital currency. That's the same everywhere. Do you do you think the same for Zipp? [00:43:54][13.7]

Larry: [00:43:55] Yes. So we do believe as an asset commodity class, it is it is very important. What we are also excited about, although no immediate plans with it yet, is really is actually the block chain technology. How can you bring block chain technology to the payments ledger and how payments are processed between customer and customer or customer, a merchant or customer and overseas. And so we think that can actually transform the payments infrastructure, ultimately reduce costs and create better accountability, a kind of governance. I think that is where we can have a huge, huge impact. Obviously, wallets, as more customers do see the point with Bitcoin is it's too volatile to currently be used as a as Fiat. It just moves by, too, because until it becomes more stable, it's more more an investment class. But we do expect these asset classes to become substitutions for currency, which you'll start to see while it starts to adopt en masse. Spending is still a way to go for the stability to move into those form factor. So I think I'd love to see Block change completely redesign the Visa MasterCard networks. Right. And kind of almost change the balance of power between payments and the different stakeholders and put more value into put more back into the hands of customers and and merchants. [00:45:19][84.6]

Bryce: [00:45:20] Now, it's been a fascinating call. We've covered a lot of ground and answered many of the questions from the community, both Equity Mates community and. And abroad to close out, I know we've we've taken a lot of your time. What is this sort of final message to shareholders? What do you want Zipp investors and those considering as an investment to leave this call with? [00:45:41][20.3]

Larry: [00:45:41] I think, first of all, get everyone, tell your friends, tell your family to sign up and use it, whether you're a consumer or or you're a merchant. We have to get into every checkout and we need to get to five to 10 million active customers over here in Australia. So that's sort of first and foremost because more of that drives drives volume. The second is we are really at the beginning of this phenomenon, right. One point five percent of e-commerce is going through by now, hour later. And that's the current total addressable market. So we're at the beginning of a generational shift that is going to completely disrupt not just retail, but financial services. The the big credit card companies are looking at it going, oh, what are we going to do? What are we going to do? The average credit card customer in the state is 50. So if you city if you are Goldmans, who are going to be the six largest issuers of the millennial and post-millennial, and that's where we think Zipp can play a major role to be one of the global players there. And that journey is literally day one. Right. So stick with us. But we've got a long a long way to go. And thanks for your support. Share with us. Tell us, you know, if we're doing things right, if we're doing things wrong, if there are new opportunities or things we we should consider because we are listening. [00:46:55][73.8]

Bryce: [00:46:56] Well, I think from our point of view, this is another great example of speaking to a CEO. And it just reiterates the fact that as shareholders, we often get caught up in the day to day movement of share prices. And I guess forget to zoom out and think about the longer term and the fact that management and management are they're also thinking very long term when it comes to building their businesses. So, yeah, we very much appreciate you coming on, Larry. For our first retail investor call, I'm sure we will have many more and a huge thanks to everyone in both our community, Equity Mates and also other forums online who have helped to pull together a bunch of questions that are important to the retail investors in Zipp, as well as, as I said, those who are looking to add it to their portfolio. So great shot and look forward to catching up at the next earnings. [00:47:41][45.9]

Larry: [00:47:42] Awesome. Thanks for having me, guys, keep well. [00:47:42][0.0]

[2735.0]

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