Pensionbee Group PLC

LSE:PBEE

Earnings Call Analysis

PensionBee Achieves Growth with Strong U.K. Performance and U.S. Expansion Plans

PensionBee's Q3 results reveal robust growth, with assets under administration reaching GBP 5.5 billion, a 41% increase year-on-year. Revenue also grew 41%, reflecting effective cost management and productivity improvement, leading to positive adjusted EBITDA for two consecutive quarters. Going forward, the company projects 2024 revenue above GBP 30 million and aims for breakeven profitability. Furthermore, they are expanding into the U.S. market, leveraging GBP 63 million in brand investment, and anticipate medium-term revenue exceeding GBP 100 million and long-term revenue above GBP 250 million as they grow their customer base.

PensionBee's Journey Toward Profitability

PensionBee, in its Q3 2024 results, illustrated a robust growth trajectory, showcasing a strong increase in assets under administration (AUA), which reached GBP 5.5 billion, marking a significant 41% year-on-year increase. This growth is reflected in their annual run-rate revenue of GBP 34 million, which also demonstrates a 41% year-over-year growth, and an increase in invested customers to 260,000, a 16% year-on-year rise. Notably, PensionBee not only maintained a stable cost per invested customer at GBP 244, but they also reported a positive adjusted EBITDA for the second consecutive quarter, reaffirming expectations for full-year breakeven profitability.

Strategic Marketing Initiatives and Brand Expansion

PensionBee has committed GBP 63 million towards building its brand, achieving a record brand awareness of 58%. The company’s innovative data-driven advertising yielded substantial marketing efficiency, generating GBP 85 in net inflow for every pound spent. As the company looks to the future, they anticipate increasing their marketing budget, particularly in the U.K. to accelerate further growth, aiming to reach 1 million invested customers. The company's expansion into the U.S. market, estimated to be worth USD 24 trillion, is being facilitated by partnership with State Street Global Advisors, targeting attracting customers through diverse marketing efforts over the next 5 to 7 years.

Focus on Scalability and Customer Retention

PensionBee's business model is underpinned by predictable, recurring revenue from a durable customer base. The company has confirmed a net retention rate exceeding 100%, indicating that cohorts of customers acquired in previous years are continuously generating revenue. The projected revenue margin of 64 basis points enables the conversion of AUA growth into revenue growth (40% year-over-year). The scalability of their operations is further demonstrated by significant improvements in productivity, where they doubled the number of customers served per employee, effectively reducing costs as a proportion of revenue.

Guidance and Long-term Goals

Looking ahead, PensionBee has set ambitious targets. They project revenue exceeding GBP 30 million for 2024 and aim to break even on an adjusted EBITDA basis. Over the next 3-5 years, they aspire to surpass GBP 100 million in revenue, with profitability from the U.K. significantly contributing to overall group performance. In the longer term (5-10 years), targeting to generate over GBP 250 million in revenue with an adjusted EBITDA margin of 50% suggests a strong growth trajectory.

Market Opportunities and Regulatory Considerations

The potential for market growth is substantial, especially with the anticipated introductions of government-backed pension dashboards, which are expected to help consumers locate lost pensions, a segment valued between GBP 25 to GBP 50 billion. While focusing on U.S. expansion, PensionBee acknowledges the regulatory challenges but feels well-prepared to capture opportunities while complying with local regulations, helped by their prior market experience.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, ladies and gentlemen, and good morning to those joining from the U.S., and welcome to the PensionBee Q3 results update. [Operator Instructions] Before we begin, we'd like to submit the following poll. And I'm sure the company will be most grateful for your participation.

I'd now like to hand over to CEO, Romina Savova. Good afternoon.

[Romina Savova, executive]

Good afternoon, and welcome to PensionBee's Q3 2024 Results Announcement, covering trading for the period ending 30 September 2024. I'm Romi Savova, the CEO of PensionBee Group. For those of you who are new to the PensionBee story, we are creating a global leader in the consumer retirement market. we exist to help our customers prepare for and enjoy a happy retirement.

We enable our customers to combine their old retirement accounts into a new online plan. we enabled them to make contributions to invest in line with their objectives with money managed by the world's largest asset managers and ultimately to withdraw and spend their retirement savings. Our aspiration is to build a lifetime relationship with our customers, generating predictable and scalable revenue for our company and for our investors.

Over the third quarter of 2024, we continued to record strong growth in assets under administration, revenue and invested customers. As a result of our revenue growth, effective cost control and increasing productivity, we achieved positive adjusted EBITDA for PensionBee Group in Q3 2024. The second consecutive quarter of adjusted EBITDA profitability, reaffirming our expectation of achieving group breakeven on the same basis for the full year 2024.

In the United Kingdom, we were pleased to deliver significant growth with assets under administration of GBP 5.5 billion, representing 41% year-on-year growth. Annual run rate revenue of GBP 34 million, representing 41% year-on-year growth and 260,000 invested customers, representing 16% year-on-year growth. To continue capturing the market opportunity, we believe it is important to own our customer relationships so that we can fully understand the evolving needs of the consumer base and ultimately serve them more effectively.

To that end, we have invested GBP 63 million in the PensionBee brand cumulatively and our prompted brand awareness now stands at an all-time high of 58%. Our data-led advertising approach, combined with our household brand name, has continued to deliver marketing efficiency. Each pound of marketing expenditure generated GBP 85 over the first 9 months of 2024, an increase of 10% year-on-year in the net inflow AUA generated per pound of marketing spend.

At the same time, we continue to maintain a stable cost per invested customer of GBP 244. Over the third quarter, we entered the U.S. market, the world's largest defined contribution pension market with $24 trillion in assets in partnership with State Street Global Advisors, a long-standing asset management partner of ours in the United Kingdom. State Street will provide meaningful marketing support over the next 5 to 7 years, enabling PensionBee to deploy its diversified multichannel marketing approach while reducing risk. Our U.S. expansion will enable PensionBee to become a global leader in the consumer retirement market.

We are currently in the initial period of life testing. And over this quarter, we were pleased to see a positive consumer response to our marketing approach and to have developed local features to facilitate easier rollovers.

I would now like to hand over to Christoph Martin, PensionBee Group's CFO, who will cover the financial update.

[Christoph Martin, executive]

Thank you very much, Romi. Hello and warm welcome to everyone. I'm pleased to cover the financial section of the Q3 trading update. PensionBee has performed strongly in the last quarter, owing to our 2 powerful value drivers of, first, predictable and recurring revenue; and second, business scalability.

The first value driver is PensionBee's predictable and recurring revenue, which is generated from a durable base of assets under administration and is derived from the assets of existing and new customers. In Q3, we have seen a 41% year-on-year AUA growth to circa GBP 5.5 billion. The vast majority of our AUA base is derived from existing customers. So customers who remain with PensionBee for a long period of time and continue to build up their pension savings with us resulting in value generation for decades to come.

This is because our average customer is around 40, and they build up their pension savings with PensionBee, which means that cohorts on an underlying value basis are growing over time. In fact, PensionBee is a net retention business, meaning that our net retention is greater than 100%, which means that looking at the underlying cash movements of any particular cohort, taking into account consolidation, contribution, withdrawals and attrition, but excluding any positive impact from market growth that number is positive.

Net retention of greater than 100% demonstrates the inherent growth on a cash basis that we see in cohorts acquired in previous years, year after year after year. That means cohorts for which we spend marketing budget acquiring customers in the past, keep on delivering revenue year after year. As a result, on a year-to-date basis, we have seen positive growth of all our existing customer cohorts, even the ones acquired very early on in our corporate journey, a trend we consistently observed across cohorts and time.

Next, AUA is also derived from new customers acquired through our proven acquisition approach. Strong brand assets and acquisition capabilities allow for new cohorts to come onto a technology platform with increasingly attractive economics. As a result, the compounding area base is subsequently converted into our revenue base owing to our resilient revenue margin.

In Q3 2024. We have seen a revenue margin of 64 basis points, which enables us to convert the 41% of year-on-year asset growth into ARR growth of 41% in last 12 months, revenue growth of 40%. In conclusion, owing to our compounding AUA based and resilient revenue margin, we have driven highly predictable and recurring revenue.

The second value driver is pensions business scalability owing to the controllability of our cost base, which is thereby declining as a proportion of revenue. that consistent margin improvement is generated across all cost categories. As a result, we derive margin improvements over time, achieving our second consecutive quarter of profitability in Q3.

With respect to our 2025 guidance framework for PensionBee as a group, outline our short, medium and long-term targets. In 2024, we expect the group to generate revenue of above GBP 30 million. We further target the group to be at breakeven profitability point. In the short to medium term, spending around 3 to 5 years, we target the group to generate revenue of above GBP 100 million and group adjusted EBITDA margin of [indiscernible] by the year 5, whereby the U.K. is considerably contributing to group profitability. In the long term, spending 5 to 10 years, we expect the group to generate above GBP 0.25 billion in revenue and target group adjusted EBITA margin of 50%.

I would now like to hand back to Romi for concluding remarks.

[Romina Savova, executive]

Thank you very much, Christoph. As you can see, it has been another excellent quarter for PensionBee as we continue on our well established and developed strategy in the U.K. and as we continue to prioritize growth opportunities in the U.S. We will be taking questions. And for this particular platform, only written questions are enabled. So please do submit your questions on the right-hand side, and I would be happy to take them.

[Operator]

[Operator Instructions] Romi you've had a number of questions throughout the update that you've just provided us. Thank you very much indeed to everybody for your engagement. If I may just hand back to you, Romi, just to read out these questions. I'll pick up from you at the end.

[Romina Savova, executive]

Great. Let's begin with our first question. PensionBee has set ambitious revenue targets aiming for GBP 100 million in the medium term and GBP 250 million in the longer term. Could you outline the key milestones and challenges you anticipate in achieving these targets. So Christophe, this is a question about group guidance. And now I hand over to you to discuss the considerations behind the group guidance on the revenue part in particular.

[Christoph Martin, executive]

Yes. Very happy to take this one. So the best way to really think about the guidance of how we get from where we are today to our medium and long-term guidance is in the following way. I think it's a very good perspective to look at the business from a segment perspective. And thereby, you can look at the U.K. and the U.S. separately. So as you can see in the various data that we report on, the U.K. business is delivering like clockwork quarter after quarter. And so thereby, we would expect that trajectory to continue, given all the data that we have seen so far.

So what does it mean? Specifically, as you have seen, the U.K. has now turned into a profitable business, and we want to -- and the U.K. will be run as a profitable business going forward. and it will become increasingly cash flow generative. So there's a huge opportunity to now redeploy that excess cash back into the business to really capitalize on our position in the GBP 1.2 trillion market. So that's on the U.K. side, which is again -- which is again delivering that clock book.

So the U.S., on the other side is at the earlier stage of the compounding growth journey, as you know, and therefore, has a different risk profile, but tremendous upside and return potential. And there, we continue scaling the U.S. business to become a more meaningful contributor over the medium to long term. I hope that answers the question, but happy to take any follow-ups.

[Romina Savova, executive]

Thank you very much. I'll move on to the next question, which is a question around increasing marketing spend. in order to drive faster invested customer growth. And as Christoph just alluded to, we will indeed be increasing our marketing budget for pension in the U.K. next year. We see tremendous opportunities to keep growing our invested customer base. At our recent Capital Markets Day that we hosted only [ first of October ], we outlined our plan of getting to 1 million invested customers.

In order to get there over the next -- over the next couple of years and over the medium to long term, as we've outlined, we would simply need to keep doing what we have been doing now plus increasing our marketing budget, benefiting from our brand and prioritizing in some segments that we have currently left untouched because our marketing budget has been somewhat muted compared to historical standards.

But yes, from 2025 onwards, you can expect our marketing budget to increase in pound terms. That means that our revenue will also be growing healthily over the same period and will indeed be funding that marketing expenditure as we keep the U.K. business profitable? I hope that answers your question.

I'll move on to the next question, which is, does the recent announcement that the government will prioritize money helper over commercial dashboards affect PensionBee's outlook? So our expectation around pension dashboard is that they will absolutely be a good thing for consumers to find their lost pensions, which we believe is an opportunity that we and others have sized at somewhere between GBP 25 million to GBP 50 billion of the GBP 1.4 trillion U.K. market.

So certainly not an insignificant opportunity to find lost accounts. And of course, the dashboard will help reunite individuals with those lost accounts. We at PensionBee, by when the dashboard does become available, hopefully, by the end of this decade, would expect to be a beneficiary of those lost pensions finding a new home. More recently to the question, the government has announced that the government's own dashboard, the money Helpershboard will be coming to market first and our intention was always to leverage the public dashboard in any case in order to prompt consumers to have a look to prompt our customers to have a look and make sure that they haven't left behind any of their old accounts that they can then bring over to PensionBee. I hope that answers your question.

The next question is around the U.S. Could you provide more details on the early consumer response from your U.S. expansion? How do you see this market contributing to PensionBee's overall revenue growth over the next few years? As alluded to in this presentation and as covered in a bit more detail during our Capital Markets Day just a few weeks ago. The U.S. is in the early stages of live testing. We have deployed a number of our marketing channels, including paid search, paid social, PR, organic search and so on. You are very welcome to follow us on some of our social channels where we are increasingly ramping up and releasing fresh content.

And what we can see in terms of the consumer appetite and consumer demand is that there is substantial appetite and substantial demand for an easy way for people here in the U.S. to manage their retirement savings. And so we have been very pleased with the initial results of the marketing tests we have conducted. We continue to make very good pace on the technology side as well. The platform is live and operational, and we are able to onboard new customers.

At the moment, we are investing in making the rollover journey or the transfer journey as simple as possible for our customers because we know that they want to have a smooth experience. If there's one thing we've learned from the U.K., it's that customers always want to do kind of the easiest possible thing when it comes to finding a good home for their savings. And so the focus will be on that in the next couple of months.

In terms of the trajectory over the next couple of years, I would refer you back to the group guidance and the expectations that we have set forward there. We, of course, do anticipate the U.K. to be a substantial and major contributor to the group guidance and that the U.S. will start making an impact on those numbers as soon as it possibly can. But of course, the U.K. has 10 years under its belt and therefore, we expect the U.K. to be a primary driver of the group numbers over the next couple of years.

I will take the next question, which is how does pension be view its position relative to competitors, particularly metrics like brand awareness and market presence, both in the U.K. and internationally. Well, certainly, in the U.K., which is where we have had the past 10 years of operation, we believe that we have been very successful in terms of brand building, certainly on a prompted brand awareness, we now stand at around 60% from the brand awareness, which really puts us at the household level name.

It's always incredibly motivating to hear that more than one in 2 people have heard of PensionBee before. That being said, we believe that really kind of high brand awareness is possibly in the 80s to 90% zone, particularly in the U.K. and where we have looked at some of the household brands that are perhaps a bit more prominent in the banking sector. And so our ambition is actually to keep growing our brand awareness in the U.K. because we want to be very much top of mind for any U.K. consumer who is minded to consolidate their pensions.

And we know that those moments can can happen in different times, whether that's job switch or having a baby or moving house. And so we always want to be top of mind for when it is the right time for a consumer to take action.

With regards to our brand awareness internationally, we are establishing brand awareness in the U.S. right now. I think certainly on the fintech scene, we are well known. We haven't measured brand awareness yet here. But as we continue to expand on the marketing efforts, you can be sure that we will be looking at that and looking to grow that and looking to prioritize awareness of our service and of our product here in the U.S.

The next question is with PensionBee's SEC registration and partnership with State Street Global Advisors, what are the main regulatory challenges you foresee in the U.S. market? And how do you plan to navigate them? So a great question around regulation. I would start by saying that, in the U.S., the service and the product that we offer is very similar to the service and the product that we offer within the U.K., specifically, it enables consumers to consolidate old accounts with us. And therefore, there are, as you would expect, some substantial similarities within the regulatory frameworks of each country, whether those are frameworks around marketing, around around product, around communication.

There is definitely a fair amount of overlap. So we -- from the past 10 years, we are well -- I think, well educated and wellbore some of the factors that regulators prioritize. Of course, we are treating each market as a local market because there are differences. There are differences in marketing. There are differences in language and there are definitely differences in regulation. And therefore, we are taking our broad experience of what regulators care about in consumer markets related to retirement savings, but of course, localizing them for each market through a dedicated local resource on that front. I hope that answers your question.

I'll move to the next question. Can you share more about the specific technological advancements made on the platform and how they contribute to long-term scalability? This is an excellent question around the technology and how we continue to evolve the technology. The technology is, of course, designed to be one that is incredibly scalable from the get-go because we have chosen, cloud native platforms that are designed to scale to millions and millions of users. From inception, we already have scalability built into the technology.

A lot of the current scalability initiatives and efforts that we focus on as a product and technology team really relate to making it easier for our customers to do transactions and to self-serve without needing to get in touch as much as we love speaking to our customers on the phone, we know that our customers prefer to get things done as easily as possible. And therefore, our focus is on giving them the information they need before they think to ask and before they think to to ask us about it.

That includes some of the features that we have released around investment transparency and making it easier for our customers to view and monitor their investments and predict some of the outcomes they may have from those investments. It also includes critically investments in some of the pension transfer technology in the U.K. where with the wealth of experience that we have working with various providers, we have been able to and we continue to automate significant aspects of the transfer journey, such that no human needs to touch a pension, which is, of course, our goal.

And then third, around the technology. As you will have seen at our Capital Markets Day, we demonstrated some of the ways that we are leveraging AI to analyze our customer conversations to continue informing and developing features that will enable customers to serve themselves before they think they need help from us. So I hope that answers your question.

[Christoph Martin, executive]

Yes. Maybe just one point to add on the business scalability. So with regards to the merger platform and the scalability, we did provide a very rich data set, just very recently at the Capital Markets Day. And what you will see there in that reporting and is thHat we actually doubled the number of customer per FTE that we can serve on our technology platform. And so that means it makes us much, much more productive actually.

And the financial implication of that you can further see in the long-term time series because when you look at the costs as a proportion of revenue that has consistently come down as we scale the business. And as we have executed on very strict cost control, what that basically means is that on a profitability or adjusted EBITDA margin that has improved alongside as we have reduced the cost proportion of revenue. Hope that makes sense.

[Romina Savova, executive]

Thank you, Chris. And I see 2 questions on the side. For those who are keenly following our announcement, you will have seen that we have announced the commencement of a placing for obvious reasons. I cannot comment on the pacing, but all of the information that you need to know around that is available in the RNS in and of itself. And of course, we will be providing more information in due course around that the primary purpose of which is to accelerate the U.S. growth trajectory, which I do understand is absolutely a top topic of discussion amongst investors and a strong desire amongst investors following our Capital Markets Day.

[Operator]

That's correct.

[Romina Savova, executive]

I don't have any other question.

[Operator]

No, you've taken all the questions. So thank you once again to everybody for their engagement this afternoon, Romi, Christoph. Thank you very much indeed for addressing all of the questions that are coming from investors.

Romi, I know investor feedback is particularly important to you and to Christoph and to the company, and I'll shortly read those on the call to give you their thoughts and expectations, but perhaps before doing so, Romi, I could just ask you for a couple of closing comments, after which I redirect investors to give you their feedback.

[Romina Savova, executive]

Well, thank you very much -- thank you very much for joining us today. We are always pleased to have the opportunity to interact and engage with the capital markets community. And we look forward to having further conversations over the coming days. Thank you again.

[Operator]

Perfect. Romi, Christoph, thank you once again for updating attendees. Can I please ask attendees not close session as we're now automatically redirect you for the opportunity to provide your feedback, in order that the management team can better understand your views and expectations. It may take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of PensionBee Group plc. I would like to thank you for attending today's presentation, and good afternoon, and good morning to you all.