Monitise PLC (OTCPK:MONIF) Q4 2013 Earnings Conference Call February 19, 2014 9:30 AM ET
Alastair Lukies - CEO
Brad Petzer - CFO
Lisa Stanton - President of U.S. Business
Mohammed Moawalla - Goldman Sachs
Brendan D'souza - WH Ireland
Gareth Evans - Progressive Equity Research
Bob Liao - Canaccord Genuity
Okay, good. Thanks very much. Sorry about the delay. So welcome to everyone viewing, good afternoon and welcome to the London Stock Exchange for the Interim Results for Monitise in the financial year FY13-14, so up to December, end of December 2013. Thanks very much everybody for being here this afternoon and thank you for those that are watching as well. I am Al Lukies, the CEO and Founder of Monitise. I think most of you know me. Here today we have Brad Petzer, our Chief Financial Officer; Lee Cameron, our Chief Commercial Officer and we have Lisa Stanton here who is the President of our U.S. Business and looks after our Global Visa Inc. relationship. So, again thanks for being here. The forward-looking statements and the important blurb before a very snazzy thank you marketing team.
Introduction to some highlights which I will cover the business and the strategy, hand over to Brad for the financial summary and then hopefully get into what has increasingly become a very good and healthy Q&A I think that’s where we get most out of us. So, we will try and rattle through the presentation and then onto some of your excellent questions.
It’s been another very busy, I don’t think I agree with the article that I read today that said it was fanatic six months, someone described as that, so I don’t think it was fanatic, it was certainly very busy and full of activity and progress. With 67% revenue growth if you look at the equivalent half of the year before. User numbers is rising to 28 million and obviously continuing to rise and then a big uplift in the value of transactions across the platform.
One thing I will definitely pick out, and we are going to talk about a bit today is the launch of Vantage, our platform in America. Many of you know that we acquired a company called Clairmail there some time ago and at the time we said obviously when you make an acquisition for a number of reasons but yes, people, landscape, geography and also for contracts but also there was some technology and we have blended together the platforms for what is I think by a long way the most advanced platform in that market. Some very large industrial scale projects, we have said for a long time now that this space is going to get mainstream and hopefully by the end of today’s presentation you all agree and accept it is now a very mainstream space and there are big budgets being spent in this space. And big upside for those of us that are well placed in it and continued expansion through both acquisitions and also evolution of our joint ventures. And a big team now of dedicated mobile experts and the pure play element of our company when I talk about a bit today finishing that period debt free with 66.2 million net cash on the balance sheet.
What do we do? Again I hope many of you know this but this keeps evolving because this slide would have shown you a couple of years ago that we sell to a lot of organizations but now we sell to through and with a lot of organizations. We are very much and have always positioned ourselves to be an industry partner far more so than a software vendor because the payments industry is all about the ecosystem and partnerships and core partition which we are going to talk about a bit today as well.
So, an ever growing list of partners and customers. Why did I use this? Well, the time to market thing is becoming much more tangible, much more important and it’s going to be much more important to Monitise, talk about that a bit today as well that we really do embrace, leverage and exploit fully this window of opportunity that we worked 10 hard years to put ourselves in a position to leverage. So, the use is for a speed to market because it’s a complex thing and you have all seen the pyramid slide before and the complexity behind it but it’s not about building an iPhone app, this is not about downloading a game. This is a very complicated space to make everything work right the way to the supply chain. I mean the network effect, you don’t just get technology from Monitise, you also get access to a whole ecosystem of partners. So, it’s much more than just the technology that you are binding to.
Our revenue model, well above that box is where our focus is, I don’t think that should come as news to anybody. We've been very pleased and very proud to be able to create top-line growth over the years to be able to get more systems integration revenue and get people to pay us to integrate our platform and give us product licenses. But the real price here the real price is the 10% of a big number is a lot better than a 100% of nothing and that’s all about annuity revenue streams driven by consumer usage. And then obviously there are those other revenue types that we talked about before.
And then competitive position, I have got a slide on this because it’s obviously such a commonly asked question. There is nothing worse I know because I watch other people present and someone in the tech company stand up and said we don’t have any competition because that just makes you nervous. There is competition but there is competition to different elements of what we do and I will explain that in more detail in a little while.
So, just click on I hope. Mobile banking please do if you want to check that I am not making this up and reinventing history, go back to our first public company presentation in 2007. We have consistently said that mobile banking is the beachhead, it’s the foundation, it’s the basis of the platform that get secure eyeballs onto the platform, it gets consumers in a bank rate PCI compliant way to register themselves to a mobile-based service with their payment credentials then stored in a secure place. So it’s a very long winded way of explaining that.
If someone signed up to a mobile banking service they may not realize that that mobile banking service is going to evolve over time, but it is, and that consumer doesn’t have to do anything about it, they don’t have to start again, they don’t have to delete the app and download a new one. It’s all about taking a consumer on an evolutionary journey.
And at the bottom of this pyramid is this MSISDN/PAN database and you're going to hear more and more and more regulators and central banks around the world talk about the central databases for consumer identity and for payments and for commerce. Because they want to get cash out of the economy and drive more trackable income so it contributes to GDP. So yes, it’s great, there are 6 billion mobile phones, 7 billion mobile phones on the planet, and 92.5 billion bank accounts and there’s a big delta, but just moving a shadow economy of cash to a shadow economy of digital doesn’t solve anyone’s problems, so watch out of for these databases.
And then once you’ve got people on to the platform securely, you can add more functionality. So someone who is doing a balance enquiry yesterday can suddenly send money to their friends or family tomorrow or they can go and make a purchase tomorrow within the same environment using the same browser, using the same API’s. And that’s been the strategy for a long-long time now and we are executing against that.
I mean trends are starting to go in our favor, you know early days I see Gareth here when I was trying to convince him -- I don’t know eight years ago that this was a good idea. In the early days we were talking about a concept space. We were talking about a real vision of something that might be rather than something that was. Now all of the data is showing us that it’s going this way. So every CEO of every bank I talk to will say mobile is top of our agenda, its top five.
Mobiles are top five things, we see that’s where our customers are going and I'll show you some stats on that in a minute. And yet, IT spend doesn’t go up with that yet. So that’s a great opportunity. We still see in the early fairly modest days of banks realizing they have to re-architect their platforms for the fact that consumers are now mobile. Mobile first, that’s where you are going to begin your relationship with your bank.
Anyway here is a bank that has always prided itself on being a pioneer of new things, many people may not realize Visa was born within Bank of America. Bank of America was the bank to issue a plastic card and then suddenly realized well if it's only a Bank of America card then why is every merchant going to take it, because the merchant doesn’t want to have to build a relationship with every single bank and that’s how Visa was born, and that’s now the world’s biggest payments brand.
So Bank of America have publicly gone out and said yes we spent 0.5 billion on mobile and we think it’s more than justified because look at the cost savings we’re getting on self-service. So that’s the way the industry is going. And yes it's not just them that are saying it, some independent research, the one I drew out 45% of people ask this is executive within banks expect at least a 33% decline over the next three or four years in that branch real estate and you can see some examples of that going on here. So there's one of the trends, it’s not everything, it’s not the only answer but that’s one of the trends.
And then this is the trend that’s happening on the other side of the coin which of course is really exciting, which is smartphones and adoption. So you see the sea source is going to swing, this is a sizable shift -- Peter our Chairman, he's here today. He was up until recently the CEO of Visa Europe, talked about the fact that by 2020 he expected 50% of Visa's transactions to be initiated from a mobile phone, that’s six years, 50% of Visa's transactions.
So you look at that and you say well 47% of 18 to 25 year olds that have got a smartphone are doing mobile banking already. So why on earth are they going to go to a branch? Why are they going to ask for a check book? The first thing they’re going to do is interact with their bank and they’re going to ask their mates via Instagram or Twitter or Facebook or whatever it is, which bank do you bank with, which has got the best app. Right, that’s the bank I'm choosing, that’s where I get my loyalty, that’s where I get my special offers, that’s where I store and look after my money. So that's just going to happen, whether we're here or not. That's going to happen.
And so then what you have to do is you have to make sure that your technology is the most intuitive and of course we have seen the best examples of this over the last decade. Haven't we? If you look at what Amazon have done to retail and so many retailers sat there and said www dot what? You know. I've got an internet site, isn’t that the same as Amazon. They got a really intuitive front-end, very easy payment mechanism in one click, people purchase and then the products follow, the content follows the traffic, Apple with iTunes, Apple with the iPhone. Really intuitive design that makes it very easy to snack on the mobile device.
So a banking app that tells me where money was drawn through ATM is needs to look great, a consumer, a 15-year-old kid or 16-year-old kid is used to see a fantastic graphic design, but the same app on the same platform then needs to be able to take the consumer on a journey, so that that consumer then within the same app can suddenly drive more capability. Sends money to someone, pay a bill and then after that why wouldn’t I if I'm 27 times a month going into this app first thing in the morning, everyday sitting on the train and the people that bring me the approximately also are the people that see my spending behavior and how I budget and the card transactions that I process every day and they are going to bring me special offers and discounts and ability to me to get more from my money, those of you that do watch TV will see pretty much every bank at the moment advertising rewards for spending with your debit card. So you’ve got an easy debit card in this retail, and we’re going to give you 1% cash back. It’s exactly the same thing here. Mobile commerce is just an extension of what’s already happening today.
So what are our great drivers as a company? We’ve talked about m-banking growth, that’s just natural now. I’m not saying there is any of them in this room, but there were plenty of people telling me five years ago that I was complete raving lunatic and why would anyone use a mobile banking app when they’ve got internet banking and you can just browse the internet through your mobile phone, different paradigm different channel.
So, outsourcing growth, I think the pressure that banks are under, not just banks but let’s stick with banks for now, a proven trusted partner that says we can do this for you with a flexible business model is really well placed as long as we continue to land graph it’s very important. Approximately penetration growth, the discovery is just so much easier now finding an app, downloading an app, getting going through the app stores is just much easier than it used to be in the early days. We have to convince people with their java phone you would download an app and where did it go, was it in games or was it in tunes or where am I going to find the discovery so much easier.
And then in payments growth we see, the statistics speak for themself, how comfortable people are making payments, transfers, and that’s going to continue to grow as well and then m-commerce, because I’ll talk about it in a minute. If I’ve got 28 million in, 50 million in, 200 million then 0.5 billion people that are securely going into an app every day and we’ve got a payment credential for them and making use that device to make a purchase either remotely or in store, surely that platform becomes a very powerful conduit between the advertiser and the potential purchaser. But the difference being, why would we charge for the eyeball when we only need to charge for the purchase, why would we go and say Mr. Bank has seen that a consumer who has search for an umbrella they didn’t buy it but because we’re going to play the role of Google we’re going to charge you for a bit of advertising space anyway, it’s not about that. It’s a paper purchase model we’ll talk about that I get in a sec.
So the battleground is hosing up. When we first showed these slides nine years ago there were some other brands in there, a little worse than others who aren’t around anymore. But, so it changes all the time but it’s the same industries that are suddenly seeing mobile, I think it was the CEO of Yahoo wasn’t it recently, he said that the average adult interact with their phone a 150 times a day, 150 times a day. We’re talking here about industries that say well if you walk past my branch or my shop once a week that’s a great opportunity for me to intercept you, 150 times a day.
So I really do, this is not forced empathy with all of you analysts and investors in the room, this is a really difficult space to unpick because the noise is incessant and there is this huge PR battleground for the number of companies I’ve seen that I know for a fact don’t really do anything in mobile but they’ve now put mobile on top of every slide because it’s the hot space. It’s very difficult to see the wood for the trees. But I think we’ve been consistent in saying actually the battleground is in the infrastructure. The battleground in payments is all about the interconnectivity between all of the players in the space. And that’s what we’ve been quietly getting on with for a long time now.
We started by having a partnership with Link in the UK, the ATM network, and in Visa and Metavante in America and mobile operators and individual banks. So we’ve been doing a lot of piping and a lot of wiring and again none of this means we’re going to win okay but there is a lot of displacement value in there, it's very difficult to start disconnecting all of that infrastructure that we’ve put in place.
And we’re starting now if you were here in 2008 or 2009, you will have entered that’s why we’ve played more than a feeling when you walked in because it really was a feeling and its more of a feeling now because it’s tangible because all of that hard work we’ve done in infrastructure is now leading to consumers in their millions coming on to the platform and it knows to monetize platform half a million to a million customers a month join the journey, they didn’t know that it monetizes providing our service and that’s great, that suite is absolutely fine with quietly in the background continuing to plug in the wiring.
And in the last 12 months and particularly the six month period we’re talking about now, here we have built a lot of new partnerships. Please remember what I said earlier, this doesn’t mean we float a bit of software, this doesn’t mean we handed over a disk and say best of luck and call us if you’ve got a problem, these are partnerships that we’re in for long periods of times with three to five year contracts roll-in partnerships, so that infrastructure will continue to be stitched together.
And I just want to select a couple of them. The IBM is a partnership we’ve been working on for a long time. We started talking about it a while ago and I last week was speaking at IBM Partner World where we won an award for their best new partner. And if you think of the journey we’re on, we’re right in a strategic sweet spot of the bank at the moment. We don’t have a lot of difficulty in speaking to the CEO or the Chief Marketing Officer of a bank who really needs to get their head around mobile. They’ve been told for years by their staff we can do mobile, we’ll build you an approximately, no problem at all, yes turkey is really for Christmas isn't it, technology guys turning out and say we need someone else to help us do it. So they’ve been told for ages that mobile is just about having an app and it’s not hopefully you can see why it’s not, it’s about infrastructure and interconnectivity and new revenue streams.
So suddenly then we’re getting a lot of buying and a lot of senior engagement from a bank’s business, but then you’ve got a technology department to deal with as well and we are still a modestly sized company and the demand globally is massive, so there's two big barriers to entry for us to close all these deals.
First of all we are trying to monetize your faith in us, so we charge this upfront fee or we charge systems integration. It becomes quite a bigger bank IT project. The bank has to go through a purchasing cycle, so that’s a bit of delay to get into everyone to get to which is eyeballs in consumers.
And then the second one is, accredited vendors, we are a very proven and trusted company now in this space but not everywhere in the world and banks work with IBM in every single market in the world. I believe over third of IBMs $100 plus billion turnover comes from financial services. So for them to be able to reassure the CIOs that actually them integrated Monitise is the best thing for the business just helps us through the service channel.
So it’s a great partnership. We've also made really good progress. Lee sitting there does deserve most of the credit for these acquisitions and the integration but we acquired a company called Grapple and I sit here ahead of the game because as everyone gets mobile now everybody we speak to gets mobile and they say we want to have the best mobile, it’s like web 1.0, its just when people are setting up a website thought it was about putting brochures and then realized its transactional, its actually about reinventing your business model and so we’ve got tons of little tactical opportunities where someone hasn’t quite brought into the whole journey yet. We’re not ready to buy that and make a big strategic mobile commerce but we've got to have an app and Monitise create has been just a fantastic success story over the last six months, winning lots of new business, building some of the best apps that are out there, winning lots of awards and that opens up the conservation for us to go in and talk about the real m commerce strategy of that business. So that’s going incredibly well.
Monitise Asia Pacific, we have a strong track record, a strong tradition of entering joint ventures to penetrate new markets, 50% is a big number, 100% or nothing and then with that partner deciding what's the optimal time revolve that business. And we just felt maybe because of the partnership that I mentioned a few minutes ago that market is now really ready for us to start to grow a bit more aggressively into and our partner first east and there's been a fantastic partner remains a big help to us in opening doors, but real it's time for us to start pushing that business ourselves now.
And then a big highlight on the technology that I mentioned earlier. In North America particularly with the big and medium sized banks, they like to have the technology behind that firewall. They buy into cloud model as I said earlier that’s why Visa was born. Visa is the world’s first ever cloud company but they won’t -- some of the infrastructure behind that firewall, so what we have done is built this hybrid platform where the bank can have the best of both worlds.
They take a deal with Vantage, they get the technology for the mobile banking element behind the firewall and then that comes already APIed into our cloud. So they don’t lose any of the benefits of the open ecosystem.
Positron, this was post the financial period we’re talking but I thought I just mention it briefly here today we’ve got some of the Positron team here today, the Monetize Middle East -- Turkey Middle East team here today and this is a great business and the team has done an amazing job, I know from the last 11 years in the UK herding the cats of trying to get multiple banks to all agree to use your technology is a really difficult thing to do and in that region they’ve done a stunning job with some of the best brands in the region and into the Middle East and I think it’s fair to say if you think back to that last slide that marketplace is really right for this now. So what Positron have done is get everyone on the journey, built some brilliant apps, get people excited about what mobile can do and now we’re going to come in with the entire mobile money story for them.
Telefónica, something that we’ve highlighted a number of times since we entered the partnership. Couple of reasons why scale, it’s a hugely scaled opportunity, 300 plus million subscribers around the world, brilliant business, great brand franchise, such great relationship between their customers and the brand here I think the music franchise here in UK with O2.
But also because they’re one of the first operators that I think, mobile operators, that really get to this space, this idea of 10% of a big number is a lot better than 100% of nothing. Telefónica aren't trying to disrupt the ecosystem, they are not trying to compete with other mobile operators in other banks, what they’re trying to do is connect their infrastructure into all of the players in the ecosystem because they’re all threatened by the same threats. The over the top providers who leverage the network that they've invested in and then take all the upside for themselves are the threat to the banks and the mobile operators. Telefónica’s relationship we’re incredibly excited about and watch this space over the next few months to see the sort of things we’ll be rolling out with them.
Visa obviously by a long way our most important and ongoing relationship and shareholder and just a quick highlight of the sort of things working on with them, Visa Inc., we’re working in a number of different areas of mobile innovation with them and they’re then acting as the channel into the banks, some of the leading banks in the world and then obviously consumers benefiting from our technology and our share in the upside of that.
In Europe, we -- it’s now always easy to talk publically because there is a number of people in the supply chain and not every PR department and commerce department wants to sign off the press release, you understand all that. But we’re pleased to say that over 30 banks are now on boarding our technology in Europe through the Visa, Europe relationship. I mean in India we have this joint venture with these and I am highlighting that because the number of companies that have tried to set up a mobile money service in India is endless, and to get regulatory approval in that market to have the right to launch the service and with two of the leading banks there, those two banks represent 10% of that 400 million card base is a really great asset that we spend a number of years building, and although it will continue to be a slow burn it’s a market you have to approach in the idea of a marathon not a sprint. We’re making some really good steady progress in that market as well.
So just very quickly and then I’ll hand over to Brad, a reminder of what I mean when I talk about mobile banking, mobile payments and mobile commerce, bank anywhere, pay anyone, buy anything. When you think about staying in touch with your finances, that’s obvious it’s mobile banking, I showed you some of the stats earlier about how much is being used.
Think about pay anyone, that’s not shopping, when we talk about payments we’re talking about receiving a card payment through an m m-Pulse for a small business or why that man who doesn’t have to now get a check from you and hope it clears, he can go out with his mobile phone and receive a call payment, we signed a fantastic deal in Finland recently with a big bank there for that service through to taking a picture of a check. I still remember to this day, Lee and Mike our CIO is in the States today, calling me and saying we need to build remote deposit capture, and I said I have got no idea what you are talking about. And I said this is where someone can take a picture of a check and send the pictures to the bank and the bank will redeem the check and I genuinely laughed and thought it was April Fools or they have been drinking.
And that service is now used by hundreds and thousands of people every single month. And the same technology that we used to take the image of the check is now being used in a mobile commerce paradigm because you can take a picture of a product and get that product sent straight to your home like Amazon One Click, so we’re learning all the time.
And we go to market either directly which is all about these big industrial partnerships, I want to do more of them, we have an opportunity to do more of them, we have to make sure our business model stays flexible so that we can do more of them. We’ve got to stop building barriers to entry to get in all technology out there, because this is the land grab; we’re in the land grab phase of this industry.
And then there is the broadening reach, because we just can’t be everywhere all the time and the opportunity is huge. So these partnerships are helping us participate in the ecosystem 10% of a big number is a lot better than a 100% of nothing.
So always ask the question about competition, you can’t be the only guys doing this, we’re not the only guys doing this. There are thousands of companies doing this. They’re just doing it in a slightly different way. So yes I talked about the battle for middle earth and the banks and their IT department, that’s not going to stop. There is still going be banks building their own technology, increasingly they’re building fusions of technology. So they are taking a little bit of ours, maybe a little bit of somebody else’s and putting their own strategy together.
But even banks that have built all their own mobile banking capability themselves can still benefit from the cloud, they can still benefit from the mobile commerce and from the Visa P2P service. Number of those banks that we mentioned are on board in Visa P2P already have their own mobile banking service, but they didn’t have a person to person payment service, so we just augmented with our technology. So if people often ask me, say did you build that bank’s app? Not necessarily, but is there elements of our technology within that bank’s app? Absolutely. And that’s the strategy of the company.
Are there other vendors, yes we have acquired some of them, Clairmail in America was a pure play mobile banking company but it was limited both geographically, it was only a North American company and it was limited in functionality, because it only did mobile banking. And so there is going to be lots of those in every market we go into, some will die and wither, some will be potential targets for us, but mainly if you are bank, you want to work with someone that loads of other people have worked with and have got a big tick in the box in their PCI compliance on their scales. You don’t want to risk people's money on a vendor, and that was the hardest thing we had in the early years. We didn’t have a customer site to show people, didn’t have a showcase.
The processes, so you will notice at the top I use this word co-petition that is the payments industry. Everyone in the payments industry competes with each other and collaborates, that’s why you can get off a plane in Japan with your bank cards, put it into an ATM that you have never heard of -- the bank you have never heard off, out the same fourth digit pin in and get cash out. That’s because below the surface under the iceberg lots of people have worked together to make those transactions possible. It’s exactly the same as mobile money, exactly the same in every payments paradigm. So we partner with these companies and they probably have other offerings that they want to take out to customers as well. That’s why it’s a land grab.
And then finally, these are the partners of ours. So let’s not kid ourselves, if IBM feel that they can win an architectural transformation program for a major bank, that’s going to generate them EUR200 million, Monitise isn’t going to be front of their mind, they’re going to be saying we’ll do everything for you, we’ll do mobile, we’ll do internet, we’ll do branch, we’ll do ATM, that’s the big ticket items that they work on.
But increasingly this whole space is about mashing together all the best of breed technologies. And so we work with these companies, we work through these companies, we got a number of banks now that are saying to us can you go and plug into that provider, and that provider and that provider to open up the eco-system for me. And the moment that happens because the bank mandates it; suddenly we’re now an accredited partner of another partner. So the eco-system is just growing all the time.
So if I just handover to Brad to run through the finances quickly and then come back and answer any questions you have, thanks very much.
Good afternoon, everyone, it’s really good to see you all here this afternoon and really good to know that many people following us on the webcast too. And let`s take you through the financial summary for the six months ended 31 December 2013.
I think I’ll start by saying that we are very pleased with the set of results that we’re putting forward today. Topline growth of 67% up to 46.5 million, gross margins at 73%, up from 72% in the same period in the prior year.
EBITDA loss of 10.2 million which is an improvement of 4.5 million over the comparable period and we closed with net cash of 66.2 million leaving us with a strong balance sheet.
Like for like period revenue growth and it shows a very pleasing trend, but let’s get a bit deeper into those revenues. As I explained the last time I was standing in front of you I saw two broad revenue types, user generated and dev/integration. User generated includes product licenses where customer will pay a license up front to exploit our software, our platform. It also includes subscription type revenues where they might pay us a fee per user per month or per annum. And the real revenues that we all seeking and are targeting into the future the revenue share income, the click fees, commissions and so on. Dev/integration is very typical professional services, system integration type revenues where we are deploying our people to go and build solutions and integrate them into our customers’ systems.
And we’ve spoken about this desire to move our mix of revenues from Dev/integration across to user generated revenues and you can see that trend on the slide over here. Within the 27.3 million of user generated revenues in the period just passed we had 11.1 million of product license revenues, against 13.7 in the second half of last year causing that reduction in the absolute number, but nevertheless growth in underlying user generated revenues.
The growth in the Dev/integration revenues from the second half of last year to the first half of this fiscal year off the back of the significant work we’re doing with our big industrial sized partners as I’ll describe [indiscernible] of the back of the deals we signed with Telefonica and Visa Europe, we are doing a lot of work and deploying a lot of efforts to bring those, their services and their technologies to the market. But that clearly has an impact on the gross margin.
If we move on to the next slide, you can see the dev/integration gross margins have declined over the period and that’s just a mix effect really, we've got a lot of people focusing on delivering solutions to those big industrial grade customers and clearly they are going to demand a much keener day rates on that sort of work, but we’d normally expect our margins in that space to operate around the mid-50s, and you can see that gives a net revenue margins have, remains consistent.
So achieving 73% for the half year above the 70% sort of target that we had set ourselves. We provided an adjusted income statement so we can try and give you a real sense of underlying trading of the business, so that excludes acquired amortization, impairments, share based payments and any exceptionals, and there is a reconciliation to the statutory income statement at the back of your packs, you want to have a look what that’s telling you.
And the key thing to draw out of this P&L is the growth in Op Ex and it’s grown by 27%, that’s really off the back of our continued investment in this business. We spoke, last time I was up here that we need to continue growing this business, investing in the platform, investing in the robustness of our solutions and showing the resilience and scalability of what we do to soak up that customer demand that’s increasing all the time. So we’re seeing quite, sizable growth in the Op Ex line.
Depreciation and amortization is following the investments made by the business over the preceding periods and the share of losses in JVs and the funding of the JVs as we see in the next slide is also declining, post the acquisition of those JVs being M&A and monetization specific. So we close the net loss for a period of 16.4 million.
On the summary cash flow, free cash flows for the period were negative 20.3 million, CapEx came out at 9.1 million for the period and is in line with our expectations for the year, exceptionals are 1.2 million and that covers things like corporate activity costs, the M&A activity that we’ve undergone, and some litigation expenses.
[Indiscernible] I brought on that slide is the pay down of the debt in the comparable period of the prior year, so essentially leaving us in a position today where we are essentially debt free. Gross cash at 67.2 million, considering that net cash is some small finance leases that we have on the balance sheet. So we iterate our full year guidance of approximately 50% growth in the top line, margins remaining about 70% and we are still considering a move to the main market in the 2014 calendar year.
I just want to sum up by saying that I joined the business 10 months ago, business was going places, is a very exciting business. Secondly, a fair amount of time to get to understand that business and the industry and I can appreciate why a lot of people find this industry really hard to get their heads around. There are many, many players in this space. It’s a very broad ecosystem and every week we, as Al say, we are getting a lot of hype, lots of new things come to the market. It’s hard to understand where it fits in and who will be the winners in this space.
I think what’s been really exciting for me is to see how Monitise is focused on growing that platform very much at the network, at infrastructure level as I showed you on the slide earlier. And Al and his team have done a fantastic job in bringing together these key players in this ecosystem, connect them together [indiscernible] agnostic enabler sitting in the middle and making this all happen. So, that has left Monitise in a very clear position, I think a prime position to again exploit the opportunities that are coming our way and are increasing on a daily basis. So, in my view now is the time to be investing. We need to be growing that mobile banking user base as fast as we can, so if we make sure we are in the right place when commerce really starts becoming an everyday occurrence on the mobile phone. I will leave it there. Thanks.
Thank you very much, Brad. So, as you can see hopefully the explanation of the infrastructure I think we have been talking about for years but now the tangible more than a feeling, said that it’s coming through my -- always love a quote, someone else’s quote. But I think when we started the company, this was clearly a complete concept because in 2002-‘03 we don't only just -- I seem to remember in the papers, I don’t get very excited because New Year’s eve a billion text messages have been sent and I think that happens every hour now of every single day.
So, mobiles just moving so incredibly fast, but what I learned very early own in this space from our partnership with Link and then our partnership with Visa and having Peter on board is a hugely positive for Monitise and its shareholders is that while still this hype is going on, while this space is a fad and like crazy for ringtones, everyone is saying who has got the best app and the best ringtone and everything else that’s great because it drives interest in this space.
But it's very, very -- if you are trying to pick that needle in a haystack and you are saying which one of those is going to be the winning app, of all of the VoIP companies how did you pick Skype, of all of the websites how did you or search engines how did you pick Google. But actually in the payments industry, it’s all one and lost in that infrastructure because even if you build the best app. Jack Dorsey and Square is a great company but it still has to ride on the existing rails. It still has to go through all of the ecosystem that exist today for you to be able to accept the payments that’s where the battleground is and I think we picked a smart path by saying look, we are not going to try and compete with those people. We are going to stand on their shoulders and we are going to being innovation to the giants that already exist in the ecosystem and that is our strategy. It’s always been our strategy, nothing’s changed.
I think as Brad said, we as a team have never felt in the years we have been doing this more committed, excited and convinced that we are in the perfect place, we just got to accelerate and really take advantage of the position we have given ourselves.
So, thank you very much, I look forward to answering some questions. That was very quick. I need to take questions, real time.
Mohammed Moawalla - Goldman Sachs
Thanks. It’s Mohammed Moawalla from Goldman Sachs. Al can you elaborate a little bit more on Vantage and sort of the opening up of the APIs because am I reading this correct that this could potentially mark an interesting inflection point in terms of your ability to get into a lot of customers evolve sort of shapes and sizes and co-exist alongside some of the co-petition you talked about. And first of all, how ready is this or is there more work needed on this front?
And then secondly, could this then potentially drive a kind of big inflection point in kind of the user adoption or the volume adoptions? And I just have a follow up after that.
Yeah, thank you, it’s a great question. Mo maybe has the advantage that he has been kindly tracking us for quite a long time. So, I don’t think a lot of this is coming as a shock to him but we have always said that the space and I showed that slide earlier with all the different industries heading into the middle was going to be about mass market scale, mass market distribution and connecting buyers with sellers. We have always said that was going to be what it is all about. And you will constantly as a team and as a board and with some of our shareholders monitoring the space to say when is the right time for us to really go for it. We've got to be pragmatic. We will control the things we can control. If we’d gone into an open API model for m-commerce three years ago, would have been way too early, would have just been too early for the space.
We didn’t have enough eyeballs, so then you get into the chicken and egg situation, you go talk to a retailer and say would you like to put your content into this platform for us to resell stuff for you and they say how many users have you got? I say we got a couple of million, and I say yes, but I get calls every day from someone who's got a couple of million. When you get to where we've got to which is if you look at the addressable market of the infrastructure that we’re now connected into -- the banks, Visa, the processes, the partners, the IBMs and people couldn’t see the curve we’re on, it’s a natural sizable shift to this channel. People start to take you much more seriously and so if you then make adopting the platform as easy as possible, so you harden up the APIs, you build them to industry standards. I think we mentioned publicly a while ago we had hired a guy called Adam Banks, the ex-CTO of Visa Europe, who's got great experience of doing this because he has just spent the last eight years doing it for Visa, 3600 members across 36 countries, so he is kind of knows what he is talking about.
And you will harden those APIs. Then really it is about that land grab, it’s about that tipping point and it’s going out and saying other people are going to see how valuable this infrastructure we’re creating is and they are going to throw a lot of people out of it, big companies. We know about Google Wallet, we know about companies that are trying to get into the space. Some of them have the challenges they're seen as a threat, we're not. We only enable. We are part of the ecosystem and so yes, I do feel that we’re hitting a bit of tipping point and I think it’s very important now that we continue to do what we are very good at which is on board banks, bring more consumers on, run great mobile banking services but by opening up the APIs we not only drive new revenue streams at banks, we also of course cement ourselves as essentially ecosystem, so yes, feels like the time is now definitely.
Mohammed Moawalla - Goldman Sachs
And just a follow up. The revenue growth that you’re clearly tracking in each one ahead of what you’re guiding to for the full year, you’re investing as you said at the same time. You know as you look at sort of the next 12 to 18 months, are you inclined to kind of re-invest any incremental revenue upside you get back in this sort of land grab and further enhancing the platform and sort of what’s your view in terms of kind of break even or profitability now?
Yes, look I think as you know and hopefully we've been quite clear to consistent to say there are elements to monetize this business, we’ve been profitable before, there are elements to monetize this business that are highly profitable today. So if we as a board and as a management team and as a set of shareholders, say actually the only priority now is EBITDA positive consistently for the next four quarters of next couple of years and then we'll look at the market again and we will potentially grow organically and leverage up and borrow some money or -- then that’s what we do.
I think we've consistently shown that we’ve got a unique role to play in this ecosystem and I think that we have to continue driving the growth that we drive. So as I say keep saying control the controllables, we have numbers to hit, we have deals to be done. But I think it’s very important that we don’t get ourselves in this trap of doing suboptimal deals to hit to wrong APIs, so go in and agree in a big license deal with someone that might provide us great short-term revenue but we’re giving away with the upside in the future.
And if I can go out and I can do a deal with a massive global partner who says if I can plug into your APIs and I can give you distributions of my hundreds and millions of customers and it's a 50-50 revenue split because the space is improving yet so it’s 50% upside for me and it is 50% upside for you. We've got the unfair advantage that we know the space we created the space in some way. So I'd love to be doing more deals like that. So I think we on a deal by deal basis as you know look at it and say what's the optimal thing for our shareholders whilst being cognizant of the fact we still got to show the KPIs are coming through. That was very implicitly the correct answer.
Brendan D'souza - WH Ireland
Just got a few questions. First is on -- can you give us kind of a breakdown between revenues on m-banking, m-payments and m-commerce if possible?
Obviously, we could and then if we would, at some stage it may well be that yes, we decide to segment that way. I think the way we do it at the moment is we say look at what’s system integration, professional services, look at what’s user generated and there is nothing to hide here, user generated could well be, because the consumer is on a per user, per month free. So with certain banks we'll get paid per user per month unlimited balance enquiries, unlimited mini statements and other bits and bobs and then we get a little click. For example if someone pays a bill, an additional click or someone does a person to person payment, we get an additional click.
And then the other element of user generated is we are going to negotiate with very big organizations who we're trying to convince to pay us a big upfront fee, so they are saying, okay, but I am going to buy a whole lot of suite licenses. If I'm paying you x million upfront my first 3 million customers for those products that we bought, I've got that bundled in thanks very much. So that’s user generated licenses as well. But that doesn’t mean that we have a miss out on the click fees when they come through.
So you have seen the splits on user generated and systems integration where we want to get to and where I think we are going to get to quite quickly now is that as well as these license fees and the per user per month to mobile banking which makes up a decent percentage above 50% of the user generated today. We want to get into these high-margin commissions. So we act as the conduit between a mobile phone network that’s just received a mobile phone top up from someone's bank account and there is a 3.5% commission in there we’re taking 50%, the bank is taking 50%. Bank loves it, because it’s a revenue stream, we love it because it’s all margin so that’s where we’re going to head and I think the segments in then across that period will make much more sense.
Brendan D'souza - WH Ireland
Okay. And just coming to the development and integration margins so that’s kind of declined to 46% how do we model that in the second half of the year, would we just keep that at the same kind of level or see a bit of a decline there maybe to 45% or 44% something like that?
Maybe I’ll answer that with a slide. If you think about these big contracts that we’re talking about, you sort of got this big license which feels great so very exciting but then there is obviously the hard work begins because that’s in some way paying us back for years of R&D and an excellent bit of technology but what we’re really interested is the stuff in the outer years. Now depending on the size of the company that you’ve negotiated with depends on what they’re going to pay as a day rate and we fight hard for it but I’ve got -- you can probably sense a little bit of the passion drops out of me now because we’re not a systems integrator, day rate is -- there is lots other companies that do that for a living. We’re a product company and we want to get to here as fast as we can and when we get here we want to be sharing in the upside because we believe passionately in this space.
So if we see a little decline on a particular contractor which is the blip you’ve seen in the last half and it will correct itself in this half then that's because we’ve given a good day rate to a partner that’s committed to take a 100 of our people for five years, right so it’s a very big deal for us. But again I’d love us all to look to the future and not really see any of that revenue. I’d love us all to look to a future where we’ve got hundreds of millions of users each one driving us somewhere between $5 and $10 million ARPU a year and our margins are still 75% plus, that’s where we’ve got to try and get to.
Brendan D'souza - WH Ireland
Okay, I think that’s fair enough because the user generator is about 90 if you can maintain that, that’s pretty good. Just the last thing is on the revenue guidance, now you guys I think have just maintained the same revenue guidance of approximately 50% but first half ’14 or rather first half ’13 revenue was 38% of the full year. First half ’14 is actually 43% at 50%. So my quick calculation using my smartphone only was it will work out to something like 70% up year-on-year so it’s quite a light guidance wouldn’t it be?
I always remember my dad says to when you walk out on to the rugby field, even if you are feeling like you’ve had a good session in the gym that week, don’t walk out to the biggest bloke and say you’re going to smack him in the mouth. Look we could easily -- I think this might be a UK PLC thing, it’s not going to be around, but if we do achieve 50% top line growth which is clearly what we’re guiding at the moment, and then you look at the landscape we’re in the next biggest mobile money company that there was in the in existence was Clairmail and that was the next biggest company we acquired and we acquired them for $170 million I believe and I think they were doing in the teens of dollars of revenues, millions of dollars of revenue.
So in this space with no other comparable 50% top line growth and to 110 million, 109 million certainly in revenue will be a fantastic achievement. We would like as I hope I've passionately explained today to be entering deals that are the right ones for the long term. So I could spend the next four months going and signing up a whole lot of big product license deals where we maybe get 5% of the upside in the future but I don’t think I’ll be doing my shareholders a great service. So I think the reason the guidance is where our guidance is, is it gives us the flexibility to do the optimal deals for shareholder value but obviously if we have a feel that we’re going to knock it out the park you’ll be the first to know, because we have a fiduciary responsibility to update you.
Gareth Evans - Progressive Equity Research
Yes. It’s Gareth Evans from Progressive. Just a quick question regarding Asia and obviously given the fact that you’ve acquired in the JV stake there. The slide that you showed about Asian -- about mobile banking technology spend globally, so just as Asian banks are spending about four times as much proportionately as American banks and about twice as much proportionally compared to European banks. What are they spending on differently or they just doing more of the same sort of things or if they’ve got an early or sort of late stage view which is altering the way that they’re addressing the market?
It’s a great question. A lot of it’s because of the geographic landscape they're in because if you think of a mobile banking service for a bank in North America, no offense, Lisa does an amazing job, the bank population is very understood, they have and on banks population in American but it’s not a massive one. You look at the opportunity in many parts of Asia it’s a very fast growing middle class, I think predicted by 2018 that China will have 600 million middle class. So they’re not just building mobile banking for people who have bank accounts, they’re building mobile banking for the on banks, for the under banks, for micro finance, for lots of other things because it’s the only way basically the simple ready reckoner is do I roll out other branches also or do I build a really sophisticated mobile banking service. And that’s why I’m glad you picked up on it, that’s why we feel the time is right. We’re getting a lot of income and interest from that region. No way, we’re going to cover it organically. We’ve talked about partnerships, watch this space, yes, we’ll be with right partners but it’s a very exciting space.
Bob Liao - Canaccord Genuity
Hi, it’s Bob Liao from Canaccord Genuity and just on that very slide where you’re talking about most of the value added coming from the m-commerce, it seems to me that moving to that area you’ll need both perhaps ownership or control of data and perhaps the ability to analyze it quite well in a very sophisticated way. I guess my question is, one are you at a point where you think you can negotiate the ability to analyze data across for example Telefónica and the Royal Bank of Scotland and across Visa and combine all that data to provide real insight?
And then secondly, do you think you actually have the technology in terms of whatever business intelligence tools you may have at your disposal to do that or are you going to have rely on the banks for that?
Great, question, Bob. Well, first of all data which again off course is such a hot topic at the moment is absolutely heart of everything we do. I started show the pyramid, let’s go to the IBM partnership, I started showing the pyramid eight years ago and always at the bottom of it was that MSISDN/PAN database. And we always said the data that would be in that MSISDN/PAN database I think we’ve now said 4 billion, 3.5 billion transactions on an annualized basis growing very-very fast. So, think of that, those transactions are people’s money transactions, they are balance enquires, payments, bill payments, person-to-person payments, purchases. So it’s a very rich very valuable data.
One thing we all know because we’ve seen the car crashes of companies that have abused or not probably treated data is that sacrosanct, so utilizing people’s data for their benefit is something that only they can decide on and that’s why we love, Lee made this point brilliantly earlier in an interview, we love regulated environments that’s where Monitise’s heartland is that’s why in emerging markets you’ve seen fantastic mobile wallets being built but there’re only moving a shadow economy of cash to a shadow economy of mobile. When consumers are asked by their bank, would you like to be able to receive rewards 1% cash back on your card, you can imagine the amount of work that goes in compliance for that data permission to be ticked. So for you Mr. Consumer to receive your 1% cash back, you have to enable us to talk to this merchant about the fact you’re spending that merchant.
So all that stuff has to happen and obviously we’re involved in those conversations but it’s not all data, it’s the customers’ data, the bank's the custodian of it and we’re a technology custodian of that. So that sort of complicated is another great barrier to entry. It's another complicated supply chain.
If you then add into that we have partnerships with retailers and mobile operators, same conversation. We’re an aggregator of that data if the right permissions are in place.
So it’s the second part of your question, one of things that we’ve been working on since the capital raise at 30P 14 months ago when we’ve raised the 100 million was making sure that the platform started to have all the functionality it needs to have to enable this m-commerce journey to most. Question earlier, do we feel the time is right, it’s getting very close. So we’ve been working with IBM and other partners to make sure that our data analytics capacity is ready but just we're clear not monetize end consumers, not us manipulating consumers’ data without their permission, us working at the center of the ecosystem with all the Ts and Cs been done through a PCI compliant environment. Bur yes I think we are very near to read.
I was going to ask a similar question there that is one that if -- I’m Tim Green, [indiscernible] with Mobile Money Revolution. I was going to ask about Zap because they are marking a lot of noise about integrating commerce and merchants with native banking apps. And I wonder if this is an opportunity for you or is some kind of competition?
I think we’re probably as you know, Tim, we began our journey with VocaLink. We had a joint venture with Link. We still connect Interlink and we still drive quite a lot of the UK’s mobile banking apps through the Link infrastructures. So we would be a beneficiary of a lots of the initiatives that are going on in this space. But I’d say VocaLink probably fit into that co-petition category like a lot of our partners. The good thing for me is that this is a tangible space now with real players putting together good propositions and that’s not been the case historically.
So I think back to the question about tipping point, back to the question about data to your very good point about industries like Zap and Weave and I-Sys in North America and MCX and I’m surely Lee is going to talk about far more. These are really big companies now coming together and we see the size of the price and we want to get into it but there are still very-very few if any, companies that do the knitting in the middle as their job which is what we do and so we participate I think in a lot of these schemes. Monitise will make a lot of noise about it, we're always involved. Who else have I missed, Lisa from all the different initiatives in North America or is it again?
No you got the majority of them, yes.
Good, so there -- I mean there are examples of mobile operators getting together, joint venture we’re going to launch a mobile payment service, retailers getting together, we’re going to launch a mobile payment service. And it’s so analogistic to the ATM networks in the early days, every bank saw the ATM as a differentiator, so they said we have got more ATMs on more street corners than any other bank and they sort of went so well actually. Because when Link came along and ATMs and ATM, you can go to an ATM and you can use your card anywhere around the world and then Visa comes along and you can use your Visa card at any single terminal. Mobile money is going to be exactly the same. You are witnessing history in the making, as long as we stick to our job, which is say, we’re friend to everyone and foe to no one. We’re selling picks and shovels for the gold rush, we’re not going hunting for gold ourselves, I think we’re really well positioned.
[Question Inaudible] perhaps you guys is something a crypto currency like Bitcoin, I don't know if you have a position on that.
My favorite question at the moment. So the Bitcoin thing, obviously I am often asked of my view on Bitcoin. I think Bitcoin is like any other currency and I wish them the best of British, if they are British. It’s a currency, so there is pounds and pence, there is euro and cents, there is dollars and cents there is lots of different currencies, payments needs to be fluid. Needs to flow like water, I need to be able to go to a terminal, change my dollars into pounds. If Bitcoin builds momentum, it still needs to go through the existing infrastructure to be cash in, cash out, I still need my Bitcoins to become pounds or dollars to spend them in stores.
So we would be as open through our APIs to a Bitcoin transaction as we would to any other transaction.
You have been doing a few bolt-on acquisitions in a grapple the Turkish acquisition. Is your thinking changing in terms of doing something more substantial as the platform is starting to take off or is it just -- are we going to continue to see more of these kind of infill tuck in acquisitions?
I am going to continue to consult with the best analyst in the market and ask their opinion. I think these acquisitions have been brilliantly executed again, lead such a huge amount of credit where there is an opportunity for us to land grab the market, where organically you would never get in. I mean Turkey is a very difficult market to organically grow into. So they have been the right thing to do for that specific opportunity and I think we’ve got a good track record of integrating them, making them part of the Monitise family and then sort of moving on.
If you don’t mind me being a bit political about it and twisting your question slightly to say, how would I prefer to accelerate, if acceleration is what we’re all talking about. I think we’ve got a lot of the ingredients to win here, I really do. And I think we have got a car that’s humming pretty well now if you want to use that analogy; it knows the track very, very well because we have been doing this for a long, long time, its dent free and the engine is working and there is some fuel in the tank. So I think as long as we keep that going, we’ve got a fantastic opportunity ahead of us. But we just got to keep accelerating, because monetizing eyeballs and infrastructure and connectivity is a lot easier once you have got scale then it is if you are trying to do every step of the way and it’s amazing to me when you look at some of the companies out there and I think Twitter is a huge exciting business and some of the social networks are huge exciting businesses. And they talk about monetizing their assets and eyeballs but they are taking a massive leap of fate that they can do that and retain the eyeballs. Because if someone's joined something, because it’s a communication channel and suddenly you feel your trying to be monetized, that I as a consumer find that odd.
Our channel is as transparent about your money as it can possibly be. This is about your spending pattern, this is about your budgets, this is about the way that you feed your family. So the stretch of the imagination for me to use the same app that I bank on to make purchases and get rewards, for me is not a leap of faith at all. Something that I use for something else popping out at me and saying pretty please spend money down this channel is a different mindset. So I think that we’ve got to just keep doing more of the same as fast as we can.
So obviously as well as the team here please feel free to ask questions, we've got various members of the team [talking] about the Chairman, he shouldn’t get away with a few questions as well [indiscernible] for good corporate governance balance there as well. So listen thank you very much, it means a lot to us that you have an interest in what we’re doing. So thank you all very much, thanks for coming today. Bye, bye, cheers, thank you.
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