Praemium Ltd

ASX:PPS

Earnings Call Transcript 2024-Q3

[Anthony Wamsteker, executive]

Hello, good morning, everyone, and thank you for joining us on the call. We noticed there was a strong level of acceptance for this call. So, we look forward to doing this quarterly presentation to you all.And there is a chat function so that people can ask questions through the chat function other than that people are muted to avoid any background noise on the chat function and we will endeavor to get through any questions that are asked.But if there are more questions than we can deal with, we will make an effort to deal with the questions that come through from analysts as a priority and then from our other shareholders.So, if I just go through the slide deck. First of all, we acknowledge the Traditional Custodians of Country. We pay our respect to their Elders past, present, and emerging for they hold the memories, traditions, and culture of First Nations' people.I'd ask you all to note the disclaimer, but you'll be relieved to hear that I'm not going to read it out word for word. Today, I've got David with me who will go through most of the presentation being a net comes by outcome for the quarter. So, I'll leave that with David to go through most of that. But I just want to highlight the progress we're making on the strategy.The reason I do that is that, each time I do an announcement to the market and we have a cycle where there's about 7 announcements to the market through financial presentations at the half and full year, these four quarterly presentations and then the ATM. But each of those, I'd like to just talk about the strategy and reiterate where we're going on that because the strategy is pretty stable. It's not like we're changing strategy from week to week or being reactive.We've got a very disciplined process of following that through. So, I'll take the opportunity to say where we're up to on that. So, if I go to the strategy, the top 5, what we have set our strategy is, the next-generation wrap or IDPS and building out the noncustodial and growing a noncustodial operational transformation, group-wide service enhancements.We intend to get ourselves to being #1 in service, given our target market of the high net worth segment, building up further our superannuation offering and look at M&A opportunities. So, on all of those, the new IDPS, which we still as we are working on launching that with a big new name. We're not going to release the name ahead of that launch.But it's so unfortunate for all of you, you just know it is next-gen IDPS or next-gen power, but it is in the final stages, and we'll launch sometime over the next 3 or 4 months. The mass portfolio, the non-custody very significant growth on that, which David will talk through and very excited about what we're doing on the non-custody front.In terms of the operations aspect of our business, we continue to rate #1 platform on the things that matter to the high net worth and ultra high net worth adviser and a big part of what we've been doing over the last 3 or 4 months has been what we call the EBITDA or profit uplift within a business, and most of that was effective from the 1st of April.In terms of service, I won't say too much about that, but I assure you that behind the scenes, that has been a big focus over the last quarter. Superannuation, we continue to build both our team internally and work with our major suppliers on superannuation and we're very confident about the outlook on the superannuation side of things based on work that we are doing with our major supplier of superannuation Administration Services.And finally, on acquisition, the OneVue purchase completed on the 15th of April, so only 4 days ago now. And I think it's gone very well so far there, bringing the OneVue people into the Praemium world. So, very excited about some of the progress that we've been making. But that's it for me for now, unless something comes up in the questions that I need to deal with.But I'll hand over to David, and we'll go through the times by data.

[David Coulter, executive]

Thank you very much, Anthony. I'll just rattle off some of the key statistics here, net first, net FUA. Concentrating on this slide on our custodial services, although I do have some data points for VMAAS non-custodial. Very significant milestone achieved this quarter in that, not only did we go past $50 billion in funds under administration.We went past it quite significantly to $53.3 billion which is up 22% on the prior comparative period. The addition of OneVue as completed on the 15th of April, actually brings that total to $57.4 million. So, we are drawing ever closer to achieving the sort of scale that should enable us to get significant EBITDA uplift on into future periods.In the platform space, the custodial, we often refer to it, again, absent the OneVue addition. Total platform FUA was $24.3 billion and that was comprised of the SMA at $11.2 billion and Powerwrap at $13 billion. Those of you who know the numbers that I've put out now that I don't really do much about rounding. That's fine. It's actually $24.3 billion. Don't worry about it.Up 19% from March in the case of the SMA and from power up 5% from the prior comparative period. There are detailed tables to this presentation. There are detailed tables in the ASX release that give you a much more significant ins and outs on those, and they're produced at the bottom of the slide.The standout result, and I'll get to it in more detail on the following slide is the VMAAS $29 billion, which is up 32% on the prior comparative period.The actual flows themselves were comprised of $254 million into the SMA and a $53 million outflow from Powerwrap, which is a significant retreat from the very elevated levels of outflow that we experienced in the prior quarter.We are alive to the risk that there are adviser moved between licenses that continue to affect the Powerwrap outcome, and we're monitoring that very closely.Again, in the ASX release, we put a little more detail to that. We are monitoring that position, but we're quite pleased that the Powerwrap outflows are ameliorating to the level they have.And, as with all participants in the market or in the sector, I should say, the market movement has been very kind to us $1.1 billion of the increase in platform FUA was attributable to market movements on equity markets, both international and domestic.The SMA is to stand out here again, $254 million in in-flight, takes us back to a level where we were probably in the first quarter of this year and significantly again, pleasing to see that inflows are returning to elevated levels to achieve that. I made a reference earlier to the fact that VMAAS and VMA were standouts in the quarter, and this provides you with the illustration of that.And in particular, I'd point to that second bullet point, where VMAAS has grown to 9,267 from 7,397, and the FUA is up 32% when compared to March 23. I think this now establishes as the clear market leader in providing these portfolio services on a non-custodial basis, we are seeing very strong cross-sell opportunities out of having taken that leadership position or maintained that leadership position, I should say.And VMA also solved the foundation product for the organization overall, 64,149, up from 59,880 in the prior comparative period. So again, a very strong result. What's really pleasing about this result is it's borne of both the elevated interest from our existing advice groups but also signing up new advice groups. We've got 36 new client firms year-to-date on those services.And that's an outstanding effort from the sales and distribution team, and we'd love to acknowledge their efforts were going over those numbers. So, the detailed tables here, as I said, they're just a reproduction of what's in the ASX release itself. I don't again intend to go over every number on this table, a bit like Anthony with the disclaimer. It is there for you.And it's in a format with which most observers of the company would be very familiar. So, with that, it's just a quick overview of what we've got. I'll turn it over to Anthony for some closing remarks, and I note that the Q&A function is active, and some questions are coming through, which we will endeavor to answer.

[Anthony Wamsteker, executive]

Great. Thanks, David. And so, yes, let's go to the questions. So, the first question is, can we explore the Powerwrap outflows for the period, which seem to ease albeit comments and that suggests the impact of the churn advise aren't fully played out? So, good question. Thanks, Cameron.The Powerwrap outflows, what we said at the half year or the second quarter release was that something like $500 million had gone from advisers who would part of our platform for reasons and had gone elsewhere for reasons that we did not think were likely to apply to a lot of advisers. And we said that, that rate of outflow, which $500 million in a half is $250 million a quarter.We should expect that to happen for the next 6 to 9 months. And I don't think we're far away from that given how much of a crystal ball exercise that is. I think what's happened in the first quarter is relatively close to what we thought might happen. Again, I ask everyone to remember that is a very much crystal ball gazing exercise.It's not a precise science, where you just say is the number and how long it will take. What we are saying is we do anticipate continued outflows at about that rate from advisers who have left our platform for whatever reason, based on decisions in our view, one-off sort of factors. So, we're still saying that. So, I think not a bad bit of crystal ball gazing.We still got a bit of time to go over the next 6 months to see how close we finish up with that forecast. But the reason we put that out, of course, even though it's a difficult exercise to get an accurate projection was because we knew we would get up. So, we just wanted to be transparent about that for everyone in the market rather than having people ask us one-on-one, how much they think is going to go.So, we're still where we were in December in terms of what we're expecting. The thing about Powerwrap, of course, it's grown significantly over the last quarter. And so, the rate of outflow has been offset by other inflows and by market notes.A second question, Cameron, thank you, is on the next gen IDPS, it was on track for March-April launch. I can't remember if we said March-April.I thought we anticipate it would be in this financial year, if I said March and April, maybe I did. I think people will recall that we did subsequently say it was just going to take a backseat for a period of time to our EBITDA uplift, and it did say, but it's back up as our #1 priority. And so, as I say, we think that's in the next 3 to 4 months, we should expect to go live on that.But we're very happy with the progress we made on the EBITDA with that project run on schedule and has delivered to date what we were anticipating. And so, delaying the IDPS for the EBITDA uplift project initiatives, we think was a good decision in terms of the business. But that's why we're now saying maybe we'll just miss this financial year, which was our expectation when we first started talking about it.So, David, I might hand over to you for the question from Tom.

[David Coulter, executive]

Sure. And I should note, we are getting a number of questions through to the extent that some of them hit on the same things, we'll answer broadly to the thrust of the question rather than potentially going through every question that comes in. We are getting a lot of interest and we really do appreciate that.I've been asked about the absolute dollar cash balances on the platform and how they compare to previous periods. There in the ASX release, it's $632 million. On the Praemium SMA and $552 million, the Powerwrap. The Praemium SMA cash balance in absolute terms is virtually stable and it's down marginally in Powerwrap.As a percentage of FUA they're down again, and that's largely a function of the market growth, which outstrips and then there's no need necessarily to allocate greater cash balances within portfolio, simply because there's market growth within your portfolio. So, liquidity margin for trading. So, that explains that. I appreciate the question.There are some more questions on the IDPS or next-gen IDPS. I think broadly, we could just say, look, it is expected that the IDPS will attract both new and existing clients. We've got certain internal models and expectations about how that will roll out, and we will be monitoring that when the IDPS is launched.It is designed to bridge the gap that we think we have or that we know we have in the market in terms of attracting those sort of clients between our SMA level of affluence and the more ultra-high net worth that we tend to attract the Powerwrap.There's a question also then and there's a number of questions coming about the OneVue acquisition. Again, maybe it's best if Anthony just turns its attention to that and just talk about OneVue broadly, I think.

[Anthony Wamsteker, executive]

So, yes, how much of the $4.1 billion is custodial? Well, most of the $4.1 billion is custodial. There's a small amount that's noncustodial but most of it is platform and custodial business.In terms of revenue margins, we only reiterate what we said at the time of the AGM, which was at our EBITDA uplift should have a very positive effect on the revenue margins.But we've just said that we've got all those out for April. So, that'll come up when we do the full year results release in August. But as we've said before, because we are so transparent on the monthly margins, you should get a good guide to what's occurred when we do publish because you'll see what's happened to the chart on a monthly basis of the revenue margin.

[David Coulter, executive]

Okay. And then a number of questions are coming in that concern themselves with the state of our financials. I think Anthony was fairly explicit that we do go to the market twice yearly. With our financials, we're more than aware of our obligations on continuous disclosure.So, if we were tracking one way or another well outside expectations, we would inform the market. I think we best just leave questions on P&L with that as the answer. There are also questions coming through on how it is that we've established the result we have with the VMAAS FUA. So, that again, it's fairly broad.We have won significant new business with our existing clients, and we have won some large accounts as well in the quarter. So, it's been pleasing that it's occurred on both fronts.Among the newer clients, it's fair to say that they are, again, in our sweet spot as far as high net worth and sophisticated advisory groups putting those sort of clients to our services. So, thank you for those questions.There's also questions here, Anthony, on the OneVue pipeline and the existing onboarding. Any observations to make that?

[Anthony Wamsteker, executive]

Yes. So, OneVue, obviously, we've started work from Monday on working at how to migrate those products on to our technology stack. We are not directly supporting the OneVue technology stack as part of a TSA that we have with Iress so they continue to support that to except for the next 12 to 18 months.But the clients themselves don't have to migrate offer existing legal structure or service agreement. They stay with what they do. And we just build out the functionality needed to support that service agreement or scheme on that Praemium technology. But we did a lot of that work leading into the completion, and we're very confident with the time frame that we've suggested earlier on a 12- to 18-month migration program.And we're also very confident early on, but we're very confident of the total cost independent payments to Iress at $7 million or up that we would incur in running the business for the first couple of years prior to having fully integrated on the tax that you might remember, the $7 million was $1.5 million of costs, $1.5 million associated with cost out and $4 million of running the TSA and running the business at a loss for the first couple of years.So, the $7 million is still intact and so that the dynamics are such that we look to have picked up about $11 million of revenue. Ultimately, we are thinking we'll make at least $3 million EBITDA for a cost of about $7 million payment at this stage to Iress and $7 million in costs. So, $14 million all up acquisition for $3 million EBITDA or $11 million revenue.Of course, if the business grows, the earn-out could be higher, and we hope it is because each incremental dollar of revenue is even more profitable for us in the long run and would be well worth time more running up if that was to transpire.

[David Coulter, executive]

We're running now to the end of the questions that have been submitted to us. And as I say, there's a number if we don't get to one specifically that address some of the same things. So, hopefully, we've done a good job of answering those. I would say that, of course, particularly for existing shareholders and broking analysts. You have my number, you have Anthony, you have access to us.And if there's anything you feel that we've left unaddressed, you're more than free to contact us directly. The last question I'm saying here that hasn't really been addressed in the answers today is just on the, I guess, client and customer reaction to the pricing uplift of the EBITDA of the financing referred to in his strategy piece.Anthony, observations there?

[Anthony Wamsteker, executive]

Yes. No big surprises in what we've got there. Obviously, when you do something like what we've done, we get a range from people who are completely unsurprised by it and know that what you offer is very good value for money anyway. And so, that's all fair, particularly in a high inflationary environment right through the -- you're always going to get some per se, they're pretty disappointed to see the price rises get through.But there was no surprises in any of that feedback for us. And so, that part of the project has gone to expectation. I see there is a question, Warren, you've asked a question just about given the strong growth in non-custodial particularly VMAAS, what makes that up? And so, what I would say is, almost all of the firms that use Praemium, all of the advice firms that use Praemium, almost all of them are growing strongly.We have got one firm that has been targeted in the recent past, as you all know, and has been subject to press speculation, but all of our other firms are growing quite strongly. And many of those firms use VMAAS, either VMA or VMAAS, as well as open platform product. That's one of the beauties of our offer is that a firm can have both custodial or non-custodial with the one provider.So, we are seeing good growth in VMAAS from existing firms as well as very strong growth from the new 36 firms that we have won. So, it's a good balance. You don't get the sort of growth that VMAAS have without both your existing cohort of advisers and new advisers all writing strongly to that platform. And I think you hear us say quite a lot, there's more money, particularly in the high net worth segment.There's a lot more money outside of custody than in custody. And so if we're doing our job right, you should expect to see VMAAS grow strongly as we get the message out about how it's the #1 player in the market, and that's for a reason because it is the best product in the market for non-custodial reporting and tax planning and tax reporting.And given it's #1, and yet really at $29 billion, even though we're very proud of that growth. It's well under 10% of the total non-custodial opportunity. So, who are we competing against? We're competing against ad hoc solutions, whether that be Excel spreadsheets or other things that are not nearly as efficient for the advisers.So, we think there's plenty of runway if we get VMAAS right in the sort of growth we've seen now, we would hope can continue.

[David Coulter, executive]

And just to clarify the 36 firms, both being signed during the financial year-to-date. So, over the course of the 3 quarters lapsed for this financial year. Just to clarify there. There are other questions coming through looking ahead to, again, P&L and financial outcomes or asking us maybe to speculate on our fourth quarter.So, if we absolutely knew what we thought was going to happen in fourth quarter, we could take 3 months holiday, I don't think we're going to do that. So, it's not up to us to speculate on that.The observation here in the question is that it's typically a strong quarter. I think maybe some years ago, you could make that observation in a challenged platform space, it's not necessarily the case.Given so much of the growth does come from transitions out of institutional incumbents. So, my caution on that is not to rely on conventional or traditional seasonality. To a degree, you can rely on it for maybe elevated trading activity.But again, we can't go into specifics there, one, because we can't model the degree of exactitude and, two, because we're just not in the business of attempting to put those sort of positions to the market.So, I'm not seeing any other questions come through. We really appreciate everybody making the time this morning with this new format. Happy to hear feedback on the format, of course, as well, having done our own presentation for the first time in maybe a long time or ever for the quarterly results. Thank you for your participation and attention.Any closing remarks?

[Anthony Wamsteker, executive]

No, I think, again, to echo those words. And just on that feedback, I believe there is going to be a short survey straight after the close. For those of you who would be kind enough to fill that out. It's very helpful to us as we communicate with shareholders.Shareholders is a very important part of our stakeholder community. And so, we would love to get any feedback you've got following this call. Let's say a very short survey that will take no more than 30 seconds or a minute to complete.But thank you very much for your attention. I'm sure we'll be in touch with a number of you during the day and coming weeks, but good to talk to you today about the quarterly results. Thank you.