Beforepay Group Limited ($B4P)

Good morning, and welcome to the Beforepay Q3 2026 Investor Webinar. My name is Jacqueline Pfenninger, and I help with Investor Relations for Beforepay. With me this morning, we have the CEO of Beforepay, Jamie Twiss; and CFO, Laavanya Pari. Before I hand over to Jamie, just to note that we will be having a Q&A session at the end. If you have any questions, please type them into the Q&A box on the screen. I would now like to hand over the webinar to Jamie. Please go ahead.

Well, good morning, everybody, and thank you for joining us today. As Jackie said, I'm Jamie Twiss, the CEO of Beforepay Group. I'm going to start by apologizing for the nonstandard setup for this webinar, I am currently traveling in the United States for work. So thank you for your patience with that. I'm very pleased to be presenting our numbers for Q3. Laavanya will shortly go through the numbers in a bit more detail, and you can find these in the ASX announcement that we've recently released. I'll just cover off a couple of quick highlights first before we go into the detail. The first thing is that, of course, as you can see, the core business continues to perform well. Credit quality has been very, very good. Top line growth is solid, and we're very pleased with where that the core lending business is today. In addition, we've been saying since the full year results last year, that we were going to be scaling the personal loan over the course of FY '26 when we felt it was the appropriate time to do so. And I'm very pleased that Q3 was the appropriate time to do so. We've finished a lot of the testing, a lot of the credit work, a lot of work around how we think about eligibility and limits. And so in Q3, we really started to ramp up the volumes of the personal loan product. As part of that, we increased limits and duration. So the maximum limit is now $5,000 for up to 6 months in duration. We also did some work around fine-tuning limits. And as a result, as you can see, the -- a number of loans increased 61% quarter-on-quarter with the dollar volume increasing 73% quarter-on-quarter. Importantly, this was also the quarter in which we turned on eligibility for personal loans for new to Beforepay Group customers. So previously, only existing customers of the Group who had taken out and repaid 1 or more Pay Advances were eligible for that larger personal loan. And starting in Q3, we are now, still on a selective trial basis, opening it up to new to group customers. This obviously unlocks a very significant pool of potential new customers for our future growth. Beyond that for the details and the numbers of Q3, I'll hand over to Laavanya.

Good morning, everyone. Jumping into the numbers. So advances for the quarter increased by 20% compared to the prior year from $200.6 million to $241.4 million. This was driven by a 17% increase in the average advanced size, which grew from $388 to $455 in addition to a small increase in active users growth from 265,437 to 272,191. Similar to the prior quarters in FY '26, we continue to see improvements in the credit risk modeling and the performance marketing, resulting in the higher value customers, and therefore, average advanced size continued to increase. The 20% increase in advances went straight through to a 20% increase in revenue from $10.1 million to $12.1 million. Net defaults improved, decreasing by 13% from 1.26% in the prior year to 1.09% in the current year. Similar, again, the improvements in the credit risk modeling contributed to that result. The increase in revenue and decrease in net defaults resulted in a 34% increase in the net transaction margin from $5.9 million in the prior year to $7.9 million in the current quarter. This was offset by an increase in the operating expenses. Operating expenses increased as a result of a write-back in prior periods bonus accruals as well as increases in marketing and depreciation and also filling vacant positions in the current quarter. Operating costs are expected to stabilize and support operating leverage as the business scales. Overall profit before tax for the quarter was $0.4 million. On the balance sheet side, we continue to see strong performance with the $6.1 million growth in the loan book from increases in advances from both the Pay Advance and the personal loan side, supported through the existing cash in the business rather than drawing down further on the debt facility, which remained at a drawn amount of $30.9 million. The current quarter results or the quarter that we're in right now are expected to come through as seasonal expectations remain on track. I'll just hand it back over to Jackie now.

[Operator Instructions] So we do have some questions already. Your first question. What was the increase in marketing spend between Q3 vs PCP?

So we tried a number of new things in marketing this quarter. Some of them were -- I'd call them sort of relatively technical adjustments to some of our digital advertising that we do across a number of different platforms. We experimented with different ways of setting targets. We switched some ad sets and some campaigns between specific marginal ROI target versus broader budget-based or acquisition-based targets. I think for the most part, though, it was worth trying those things, but we spent -- we ended up reverting most of that back to the way we've been doing it previously. We also did have the large fortune cookie promotion where we distributed a number of fortune cookies with Beforepay branding through restaurants in the Greater Melbourne area as well. So I'd say the increase in marketing spend, I don't know if I'd necessarily call it a one-off because we don't -- because we always look to spend marketing dollars up to the point where they cease to be value creating, but it was definitely an elevated quarter in that regard. And unless we're very, very successful with how we spend money in Q4, I wouldn't expect it to reach the same levels again as it did in Q3.

Your next question, what was the amount of staff incentive payments recognized this quarter? And is this the first quarter with incentive expenses recognized in this financial year?

So from that perspective, the reason for the increase was actually a write-back in the previous quarter. The current quarter results reflect a very average amount of bonus accruals being recognized. So it's more the write-back in the previous quarter rather than the recognition in the current quarter creating that deviation.

Your next question. Great to hear that personal loans are scaling well. How are the early indications of credit losses looking in this area?

Yes. So I think I would say, broadly in line with expectations. With the caveat that I think we still have lots we can do in terms of how we think about that limit to default -- limit default balance. I think we've really optimized very, very successfully on the Pay Advance side. obviously, given the unit economics of the personal loan are quite different to the Pay Advance, it is -- and the nature of the product is different, it is higher, and we always expected it higher. And if it weren't higher, it would be mismanaging it because we do want to get that revenue to credit loss trade-off correct again. But I'd say broadly speaking, they're in line with expectations. And certainly, I'm pretty content with where that is at so far. As we continue to push out limits and durations, we'll think about the -- and as with the scale normalizes, we'll think about how to best report that back.

We have a few questions around Carrington Labs, so I'll merge them together. Can you give us a bit of an update on Carrington Labs? Can we expect announcements in this area? And is the pipeline as strong as it's been in the past? And are you -- how are you looking at Carrington Labs this quarter and in the future?

Yes. So as we noted in the release itself, so we don't have any material announcements for Carrington Labs this quarter. I think we continue to be committed to the business and feel quite positive about it. I think, as you guys know, we're a big underpromise and overdelivered company. So I think what I'm thinking more about is we're keen to kind of keep working away on that and then tell you when we've got something worthwhile and interesting to tell you on that. More broadly, I think we continue to feel confident about the future of the business. The pipeline is still, I think, pretty full. As we've noted in previous quarters, the pipeline tends to move quite -- opportunities can move quite slowly through the pipeline. So I think the total number of opportunities doesn't necessarily tell you very much about what is likely to happen to when. But we still continue to feel positive about that business.

Your next question comes from Larry Gandler. Were there any defaults from personal loans that help you learn about the product? Is the default rate different on Personal Loans than Pay Advance?

Yes. Yes, both halves of the question are very sharp. So as I said earlier, the default rate is different, and it is higher and it should be higher. If we ran it at the same level as personal -- as Pay Advances and we'd be leaving a great deal of value on the table. The way we will think about that with the way we are thinking about it, but we will continue to operationalize over time is getting that optimization correct between the limit and also durations vary for personal loans. Balancing limit and duration with the propensity of default and as a result, optimizing that gross net transaction margin dollar contribution figure. That's the same way we do it on Pay Advance as we get more data and as we -- the kind of limits and duration of the personal loan products start to mature a bit, we'll sharpen up our approach on that. And so it is higher. On the first part of your question, Larry, absolutely, we've learned a great deal, I think, from the defaults that we've had. We've -- now that we've done thousands of these loans, absolutely, we've seen a number of them default in whole or in part. A lot of those lessons are quite technical ones about kind of resistant limits on how much some kind of a different risk score can handle. Some of those are around -- the elements of the Pay Advance risk model that translates to personal loan risk more or less completely. So yes, I think our intention with that kind of testing period that we've been in for several previous quarters was precisely to do that to get more insight and data on personal loan credit performance to give us the confidence to scale. And obviously, in this quarter, we felt we had that confidence and started to increase those volumes.

You have now a question -- another question. Can you please comment on the interest on Pay Advance?

Yes. So as we said in the announcement, indeed, as we said last quarter, we started charging interest on a subset of Pay Advances in previous quarters. So for advances that are subject to interest today, it's a 2% monthly interest charge, which is in addition to the 5% origination fee. So it's a higher-margin product for us. Over the course of the entire quarter by dollar volume, which is more relevant than by count of advances because it's not a random sub sample. Over the entire quarter, 2.7% of those advances where -- our advances were subject to interest. That did increase notably over the course of the quarter as we note. And so the exit rate the last 7 days of the quarter -- just over 16% of advances by dollar volume were subject to that higher price through the application of interest.

[Operator Instructions] Right. We don't have any more questions coming through. So that concludes the Q&A session. And I will now hand back to Jamie for any closing remarks. I'm sorry. There's 1 more that came through. Any updates or movements on loan facility, i.e., refinance?

Yes. So discussions on the debt facility and refinancing are well underway, and we're feeling very confident that we'll have something locked in, in the next few months.

Thank you, Laavanya. All right. This concludes the Q&A session, and I will hand -- sorry, another question -- from Larry Gandler. Do you fix the rate on the loan book over the entire duration?

Well, so if the question is, is the interest rates applied over the duration of both the Pay Advance and the loan, the interest term is similar. Yes, the answer is yes. Obviously, that's only applied to the outstanding balance. So given that the -- both Pay Advances and Personal Loans amortize over time, the effective realized rate over the life of the loans obviously reflects that amortization. But yes, it's charged over the life of the loan.

Larry Gandler was actually referring to Beforepay funding rate.

Okay. We're considering different options. So either we're considering both the fixed or the floating in that, and we haven't landed on exactly which one. The existing facility is a fixed rate, but we're looking at both options at this point.

You have another question. Please comment on the recent executive movement with the deputy promotion in terms of the focus of the executive team.

So Kasey Kaplan, our Chief Commercial Officer, has been promoted to Deputy Chief Executive Officer. And there are 2 pieces to this. The first 1 is Kasey has been instrumental in our success over the last roughly 4 years, 4.5 years, I think Kasey has been here now. And this is probably overdue recognition of everything he's contributed to the business across many, many different facets. It also -- the intention is to -- for Kasey to play a bigger role in many of the day-to-day operations of the -- current operations of Beforepay Group. That frees up more time for me to work on, first of all, more on some strategic initiatives. And then also, as many of you know, I'm very, very passionate about the core analytics and credit risk modeling, both on Beforepay and Carrington Labs side. So I'm excited to have more time to work directly on a number of those models. It doesn't fundamentally change the nature of the other executive roles. Obviously, Rajini Carpenter is still our Chief Technology Officer; Laavanya Pari is our Chief Financial Officer. But it does -- but Kasey is looking after more the day-to-day elements of the business.

[Operator Instructions] Okay. I think we can say that this now concludes the Q&A session. I will now hand back to Jamie for any closing remarks.

Look, as always, I just want to thank all of you for being on this journey with us. Some of you have been with us for many years now. And it's exciting that we're in a position now to really start realizing the full power of many of our capabilities obviously, in the Pay Advance business, but also as we start to scale the personal loans as well. We look forward to seeing all of you at our next results release, which will be after Q4, which will be followed shortly by our full year results in August. So thank you, everybody, for joining us, and have a good day.

Thank you, Jamie and Laavanya, and to all the participants, you may now disconnect.