MoneyOnMobile's (CLPI) CEO Harold Montgomery on Q1 2017 Results - Earnings Call Transcript

| About: MoneyOnMobile, Inc (MOMT)

MoneyOnMobile, Inc. (CLPI) Q1 2017 Earnings Conference Call September 19, 2016 11:00 AM ET

Executives

Jon Cunningham - RedChip Companies, Inc

Harold Montgomery - CEO

Scott Arey - CFO

Analysts

Operator

Good day, everyone. Welcome to the MoneyOnMobile Inc. Q1 2017 Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Jon Cunningham. Please go ahead.

Jon Cunningham

Thank you [technical difficulty] and everyone for joining us on Money-On-Mobile earnings call covering first quarter fiscal year 2017, which closed out at June 30, 2016. You could find the presentation for today’s call at http://public.viavid.com/index.php?id=121162, one more time http://public.viavid.com/index.php?id=121162. At the end of this call, we will be opening up for general questions and answers. [Operator Instructions].

Now the safe harbor provision. This presentation contains forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. With the exception of historical information, the matters discussed in this presentation are forward-looking statements that involve a number of risks and uncertainties. The actual future results of MoneyOnMobile Inc. could differ significantly from those statements. Factors that could cause actual results to differ materially include risks and uncertainties such as the inability to finance the company’s operations, inability to hire and retain certain qualified personnel, and changes in the general economic climate, as well as the risk factors disclosed in MoneyOnMobile Inc.’s Form 10-Q filed on September 16, 2016.

MoneyOnMobile Inc. may, in some cases use terms such as anticipates, continues, estimates, predicts, believes, potential, proposed, expects, plans, intends, may, could, should, might, will, or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. These statements are only predictions. Although we believe the expectations reflected in the forward-looking statements are reasonable, such statements should not be regarded as a representation by MoneyOnMobile or any other person, that such forward-looking statements will be achieved.

MoneyOnMobile Inc. undertakes no duty to update or any of the forward-looking statements, which as a result of new information, future events or otherwise. In light of the foregoing, readers are cautioned not to place undue reliance on such forward-looking statements. This presentation does not constitute an offer to sell or a solicitation of offers to buy any securities of any entity.

It’s now my pleasure to introduce MoneyOnMobile’s Chairman and CEO, Harold Montgomery. Harold, please go ahead.

Harold Montgomery

Thanks Jon. Good morning to you and good morning everyone participating in the call today, I appreciate your time, attention and support for Money-On-Mobile. This is Harold Montgomery, I’m the Chairman and CEO of MoneyOnMobile Inc. formally known as Calpian Inc. and I want to welcome you to MoneyOnMobile Inc.’s earnings call, which accompanies the release of our 10-Q report for the quarter ended June 30, 2016 joining -- I’m in San Francisco today and joining me from our Dallas Headquarters [technical difficulty] is Scott Arey, our Chief Financial Officer.

But before we discuss the financial results, I would first like to focus on a few business updates including an operational updates as well as some business highlights. As you may have seen from our recent press releases we’ve officially changed the name of the company from Calpain Inc to MoneyOnMobile Inc. Our ticker symbol will soon be changing as well and we’ll let you know when that happens. This is the final step in refocusing the business away from our U.S. legacy payment processing business. We are now fully focused on growing our Indian [ph] subsidiary MoneyOnMobile. I want to thank everyone on the call for their support and in voting for the name change as well as shareholders for not participating today [indiscernible] and we’ll keep you posted on the change on that ticker symbol as we get it from [indiscernible].

Moving on, in the benefit of shareholders who may be new to our company MoneyOnMobile is a mobile money transfer system catering to India’s vast unbanked and under banked populations with simple transaction services for everyday needs. MoneyOnMobile allows consumer to use cash to make payments digitally using the cell phone, even the simplest feature phone will do. They give their cash to one of our agents and we have over 300,000 agents now. The agent deposits that cash with our company where we keep it as a digital balance, just as you might keep cash in your bank account here.

Its digital currency in our computerized records and the consumer or the agent acting on behalf of the consumer can perform financial transaction such as bill payment, money transfer, buying prepaid cell phone time or prepaid television time with only the mobile phone via an SMS text message string. The system is very cheap, very reliable and safer much easier than transacting in all cash. The Indian market is the largest unbanked and under banked population in the world with approximately 600 million to 800 million individuals. And MoneyOnMobile is now India’s largest mobile money system.

As of June 30th, 2016 we’ve served over 180 million cumulative customers and we now have over 319,000 in participating agents for consumer’s cumulative [ph] cash. Over the last 12 months, we’ve processed over $845 million worth of transactions. MoneyOnMobile offers a wide range of payment solutions as you can see in this slide, including but not limited to domestic remittance which is person-to-person transfers, bill payment for electricity and other utility bills, mobile top-up that’s a purchase and prepaid mobile airtime, satellite TV that’s also prepaid in India. We do ticketing, travel ticketing and now we’re beginning to add ecommerce and even insurance solutions as well.

Here are some examples of MoneyOnMobile in action. Here is a picture of the digital receipt for example confirming a domestic remittance transaction for 5,000 Indian Rupees you can on the screen. This SMS based receipt replaces the paper based receipt you or I would receive from a typical credit card based transaction here in the United States. And here is a picture I took in Kolkata on my recent trip, this is one of our 319,000 agents on the left and you can see our agent on the right counting out the days processing volume in the circle on the right hand side. That’s about 2000,000 Indian rupees right there.

Those of you who participated in our last earnings call may remember that we announced our partnership with the Kalighat Society for Development Facilitation in Kolkata but for those who are not the call, the Kalighat Society is an NGO that’s a non-governmental organization headquartered in Kolkata, India working with approximately 75,000 female ambassadors who are involved in financial education and creating income opportunities for India’s women in underserved areas like Bihar, Jharkhand, Bengal, some of India’s poorest states.

As a follow-up our last call, I’m pleased to announce that we have kicked off training of these female ambassadors now. The gentleman on the left in this picture is leading one of those training session were the women learn how to operate MoneyOnMobile with the goal of making them agents for our services. This will provide them with an income generating opportunity with very low investment while brining basic financial services to remote areas in a successful partnership with MoneyOnMobile.

You can think of these new agents as independent business women earning their own income based on providing MoneyOnMobile services to friends, neighbors and relatives and many of them will be earning our own money for the first time in their life. We are very proud of this relationship and we’re very excited about its roll out over the course of the coming year. And it fits very nicely with our corporate ethic of doing well by doing good. But at this time, I want to assure you that this is a commercially successful relationship for MoneyOnMobile and in fact for all the participants in the delivery chain.

On fund raising, you will see our recent press release here that we kicked off fund raising campaign with U.S. capital partner, a San Francisco based investment bank, but the goal of breaking 10 million to fuel our growth. We’re excited about working with them on rounding out, our Series E fund raise, which was announced earlier in this summer. And the management team, I want to talk to you about for just a moment and both the United States and India have over six years of team and experience, Ranjeet Oak has taken reigns as our CEO in India and he is doing a wonderful job there, we’re very pleased with the team’s performance and continue to look forward to adding strength to our team overtime.

Now, I’d like to turn it over to Scott Arey, our Chief Financial Officer, to present financial results for the quarter ending June 30, 2016. Scott?

Scott Arey

Thanks, Harold. I’d like to present a financial overview and talk about the trends in processing volume, revenue, and the gross margin comparing Q1 2017 to Q1 2016. We look at Slide 13 comparing the first quarter 2016 to that of 2017, net revenue was $1.4 million for the first quarter 2017, compared to $1.3 million for the prior year, up 11%. On a currency neutral basis, our revenue grew 17% for the first quarter 2017, the fiscal quarter ended June 30, 2016.

The currency neutral measure of growth is important, because it eliminates the effect foreign currency translation from India Rupees and with all transactions are recorded in the U.S. dollar, which is are public reporting currency. While increasing our revenue, cost of goods sold declined $660,000 from $750,000, which represents 11% decrease on a reported basis, and 6% increase on a currency neutral basis. This is a result of diversification of our product base into higher margin products, primarily money transfer.

As a result of this, our gross margin increased 42% on an as reported basis and 50% on a currency neutral basis. This translates into a 12 point increase in our reported gross margin from 41.1% in Q1 fiscal 2016 to 52.9% for our most recent quarter. It should be noted that while this is significant improvement for the company, company continues to post operating losses as we build this business.

On Slide 14, let’s now take a look at the process volume trend over the past nine quarters. If we look at the first quarter 2016 compared to the first quarter for fiscal 2017, our processing volume increased by 108% quarter compared to quarter. The main growth driver in this processing volume increase was domestic remittances. That said, there is a significant decline between Q4 fiscal 2016 and Q1 fiscal 2017 which was about 11% on the currency neutral basis.

As you see on the next slide, this is primarily the result of our team focusing their resources on higher margin generating opportunities which resulted in an improvement in our gross margin from 41% a year ago to 53% this quarter. I would add that our ability to continue growth in money transfer was hurt by the use of capitals to the operating expenses and that to continue to grow money transfer further and improve the margin company -- the support money transfer with some additional capital which we believe we’re in a position to leverage on a go forward basis.

Going to Slide 15, as I just mentioned when we look at revenue on this slide, we see a quarterly trend reported in U.S. dollars where we experience 11% increase in Q1 2017 over Q1 2016. Again, our focus has been on the margin. Going to Slide 16, finally as we look at the last nine quarters of gross margin, we see a significant trend of margin improvement on an absolute dollar basis and on a gross margin percentage basis, company posted a 53% margin for the quarter which is about 12 points over the first quarter of the previous year, largely reflected again from the diversification of products particularly shifts into money transfers.

Again, despite this progress the company still has significant operating losses as we grow the business. However, a great deal of focus on the margins is on the margin and is part of the drive to bring the company to a cash flow positive position in the current year and we remain optimistic we can accomplish this goal in India. The total comprehensive loss which we reported in our 10-Quarter is 2.9 million for this quarter ended June 30, 2016 as compared to 3.3 million for the same quarter a year ago.

Comprehensive loss attributable to MoneyOnMobile Inc shareholders for the quarter ended June 30, 2016 was 2 million compared to 2.8 million for the quarter ended June 30, 2015. These amounts exclude comprehensive loss attributable to the company’s non-controlling interest.

Now, I will hand it back to Harold who will talk about what’s coming up next.

Harold Montgomery

Thanks Scott. We continue to see strong growth opportunities in the Indian market and we intend to continue the growth of MoneyOnMobile along three basic lines. Increasing our store count footprint throughout India is the first.

Our longer term intend is to have a million locations throughout the country and eventually be within a quarter of a mile of about 80% of entire population and we intend to go both broad and throughout the country an deep in the metropolitan areas with higher traffic zones and we’ve been experimenting with branded locations with good results and looking to increase the scope of that program overtime as well.

The second key effort is to increase the frequency of use by our customers and we’ve seen that customers who use MoneyOnMobile tend to use it more as they see more service opportunities emerge, increasing the frequency of use as a key driver for growth in the long-term. And the third basic area is increasing our offerings by increasing the share of high margin transactions, domestic remittance for example is a higher margin transaction as Scott discussed as well as being a higher ticket transaction for us. The combination of these trends in the nature of the market in India I believe meaning there is still a promising growth path for MoneyOnMobile in front of us.

If you like more details about any of our initiatives including the Digital Locker initiative, we announced over the summer in corporation with the Government of India and Microsoft or the Kalighat Society Initiative I referred to earlier in this call, please take a moment to visit our website at investors.money-on-mobile.com for a series of videos, you can also sign-up for monthly e-mail there in which we highlight other business changes and developments.

And now I’d like to go to Q&A. Jon?

Question-and-Answer Session

Q - Jon Cunningham

Thank you, Harold. To submit a question please enter it in the question box on the web link. Our first question is about uplifting. Are you on track for an uplifting to a major exchange and what is your view on the timing of this?

Harold Montgomery

It’s been an express goal of the company for some time to achieve an uplifting and we continue to meet with bankers any the exchanges themselves about the process and what we need to do to take necessary steps to formally begin the process. We believe that we’re well positioned to start the process and achieving uplifting and we’ve been taking concrete steps in that regard including adding Board members which we continue to do, continue to recruiting new Board talent. We believe, we’re well positioned for an uplifting, the exchangers are giving as positive feedbacks, so we’re looking forward to initiating process later perhaps this year.

Jon Cunningham

Thank you. Our next question is on financing. Can you give us some more details about the current status of the fund raising?

Harold Montgomery

Sure. As I mentioned earlier, we launched a fund raising efforts with U.S. capital partners last week and we’re very excited to work with them. It’s a dynamic group out here in San Francisco. You may have seen our 8-K filing showing support for the Series E, as in Edward [ph] fund raised that came out of Europe, that’s another exciting development and we will be working with that group on a continuing basis as well.

Jon Cunningham

Thank you. Let’s see the next question is about your future growth. Harold, what do you see the future growth coming from?

Harold Montgomery

Well, on my recent trades for India, I have been out to traveling areas where our target client base is located, away from major cities for example, where banking services are the lease penetrated and therefore demand for MoneyOnMobile services is very high. I have seen the demand for our services first hand and some of the photographs I showed you really represent the way we’re unlocking pent-up demand in underserved areas. In two different vegetable markets for example I visited in Kolkata, farmers there were selling their produce and sending the money back to the village for the produces grown in amounts totaling hundreds of thousands of Rupees. In one case should we have an agent in Kolkata that sends about 700,000 Rupees every day back to the villages, that’s more than $10,000 a day.

So there is a significant market out there for our services, further we get in terms of our penetration that more we unlock that demand. We intend to expand and to penetrate these markets as we grow our agent footprint and looking longer term. It’s also clear now that there is a need for business-to-business payments and also government payment distribution. So we’re slowly positioning ourselves to take advantage of those two markets as well.

Jon Cunningham

Thank you. Our next question, what can you tell us about the competitive environment in India and they going to ask what are some of the trends that you’re seeing, Harold?

Harold Montgomery

Sure. The payment business in India generally as mostly concentrated on serving the consumer audience with cart based payment solutions. These are services such as PayTM or Citrus Pay, MobiKwik, Freecharge and others Oxygen. These require the consumer to have a previously existing bank account, MoneyOnMobile on other hand is aimed at the remainder of the population that does not have a bank account.

The market for other services is vast and largely unpenetrated. We are seeing some We are seeing some competition from [indiscernible] sponsored service and other local service, but I believe as the market is sufficiently large, that there are many areas which are underserved or not served at all and therefore represent a Greenfield opportunity for us and for all these reasons I believe the growth potential for MoneyOnMobile remains strong and the competitive environment is favorable for us.

Jon Cunningham

Thank you Gerald, our last question what can you tell us about the sale of Citrus.

Harold Montgomery

Sure. CitrusPay is an internet payment gateway serving major clients in India such as airlines and large retailers. The company recently sold for about $130 million and while our businesses are very different in nature, CitrusPay being a bank based card internet gateway, MoneyOnMobile catering to the unbanked. The valuation of CitrusPay however does bode well for a solid comparable valuations for MoneyOnMobile. There is also scarcity value here, there just aren’t many companies in the payment space that are not owned by a major player. MoneyOnMobile being the largest independent remaining I think in this space at this point.

We believe that MoneyOnMobile have the potential to achieve an extraordinary valuation for two key reasons. Number one the size and scale, reach of the company throughout India into markets where others don’t go and second its unique penetration into the unbanked market with a locally theoretic solution. I think these two elements make MoneyOnMobile unique company that could in the end result in an extraordinary value for the enterprise.

Jon Cunningham

Thank you very much Harold. Harold, that wraps us the Q&A. Would you like to give our audience just some final remarks?

Harold Montgomery

Sure John. I just want to say how grateful I am for our dedicated and loyal shareholder group. We’re engaged in a very exciting enterprise in India and the results speak to that. We are making concrete improvements both operationally with our leadership teams on both sides U.S. and India and its starting to show now in our financial results and improving margin and so forth.

Our view for the coming year is to continue to expand the footprint, the visible [ph] footprint in India and the product range and to continue to improve our staffing strength and move forward. So, I very much appreciate everybody’s time and participation in the call today.

Jon Cunningham

Thank you Harold. This will conclude the MoneyOnMobile Incorporated first quarter 2017 earnings call. You may now disconnect.

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