Zip Co raising up to $267 million to pay down debt

With shares in buy-now pay-later giant Zip Co (ASX: ZIP) now trading at their highest levels in more than two years, the leadership has made the call to raise up to $267 million to fund an early repayment of its corporate debt facility.

The raise includes a fully underwritten share placement of $217 million before costs, plus a non-underwritten share puHrchase plan (SPP) seeking an additional $50 million.

The Sydney-headquartered fintech will raise the funds at a floor price of $1.52 per share, representing a 5.3 per cent discount to the last traded share price but still a major improvement on the $0.59 level at the start of 2024.

The maximum amount of 142.8 million shares to be issued under the raise would represent 12.7 per cent of existing capital.

"The equity capital raising we have announced today will further strengthen our balance sheet, optimise our capital structure and provide additional flexibility for Zip to deliver on its growth plans," says Zip group CEO and managing director Cynthia Scott, who has held the role since August last year after leading Zip's Australia-New Zealand (ANZ) business.

"Combined with the outstanding momentum in our businesses as highlighted in our 4Q results, this transaction is consistent with our focus on operational excellence and driving long-term shareholder value."

The company's quarterly results today revealed a 22.1 per cent increase in revenue to $223.6 million in the fourth quarter and a decline in net bad debts to 1.4 per cent, versus 1.9 per cent at the same time last year.

The group's platforms have 2.1 million transacting customers, up 6.1 per cent year-on-year, with 79,300 merchants using its services, signifying a 9.6 per cent lift.

"In another strong performance, the team delivered its fourth consecutive quarter of positive cash EBTDA," says Scott.

"As a result, underlying cash EBTDA for the full year is now expected to be in the range of $77 million to $80 million, a $125-$128 million turnaround on the underlying cash EBTDA loss of $48 million in FY23.

She adds the US continued its outstanding performance with total transaction volume (TTV) growth of 42.6 per cent and revenue growth of 46.8 per cent.

The US operations have recently undergone a leadership change, with former Happy Money CEO Joe Heck leading Zip Co's USA business starting this month. 

It is a role previously held by Zip Co co-founder Larry Diamond after relocating to the United States in October 2022. In the announcement in May this year, it was reported that he would be returning to Australia with his family until Heck was transitioned into the role. 

At $121.5 million, quarterly revenue in the Americas was greater than in Australia-New Zealand ($102.1 million) for the group, although its platforms facilitate more transactions in ANZ at 10.5 million compared to 9.2 million in the Americas.

Scott notes the yield on receivables increased in ANZ increased to 18.4 per cent.

"In line with our operational excellence focus, we further strengthened our balance sheet, extinguishing all outstanding Zip senior convertible notes during the quarter," she says.

"We remain focused on continuing to provide even greater value to our customers and merchants."