Beforepay Group Limited (B4P) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Beforepay's Investor Webinar for the financial year '26 results. My name is James Lennon, and I help with the company's Investor Relations. Today, you'll be hearing from Beforepay's CEO, Jamie Twiss, and CFO, Laavanya Pari. The presentation will take about 15 minutes and will be followed by a Q&A session. [Operator Instructions] I would now like to hand you over to Jamie. Please go ahead.

Thank you, James, and good morning to everybody. Thank you all for joining us today. Delighted to be presenting our FY '26 annual results. As James said, I'm Jamie Twiss. I'm the CEO of Beforepay Group, joined by Laavanya Pari, our Chief Financial Officer, and we'll run through the highlights of the results and then very happy to take your questions after that. So I would like to start by acknowledging the traditional custodians of the land on which we meet, and I'd like to pay my respects to Elders, past, present and emerging. And then we actually have quite a number of new names on the webinar with us today. So first of all, welcome. We're delighted to have you here, and thank you for your interest in Beforepay Group. I know many of you are very familiar with what we do, but I will recap it briefly because there are so many new people on the call today. Beforepay is a mission-driven consumer lender operating in Australia, with our Carrington Labs software subsidiary operating globally as well. Our flagship products within Australia and the lending business are the pay advance, which is our first and still largest product. And that's an affordable small dollar short duration loan ranging from $50 up to $2,000, with terms up to 62 days. And then more recently, we've introduced the personal loan product, which is a larger and longer duration loan. That currently goes up to 12 months in duration and a $5,000 limit. And we've said a number of times that we expect to -- we've increased those limits and durations a number of times already, and we expect to continue doing so as we get more data to train our risk models. Both of those lending products are underpinned by Carrington Labs. Carrington Labs is the credit risk capability of the group. It's one of the key pieces of what's made Beforepay so successful on the lending side. And we also do offer it on a Software-as-a-Service basis to external clients, mostly lenders in the United States at this point. So I'll start by noting that we have introduced some additional metrics to our disclosures and to our presentation this time. These are industry standard metrics that many of our peers and other digital lenders report, cash NPAT being the most notable of those. And we had requests from a number of you to provide those similar metrics in order to make it easier to compare our performance to that of other listed companies in that digital lending space. Of course, all of our statutory metrics are still available as we have always presented. Before I hand it over to Laavanya to talk through some of the specifics around the numbers, I will just step back a little bit and talk about what made FY '26 such a remarkable year for Beforepay Group. As you can see from these numbers, it was a year of very, very strong performance, I think, by a wide margin, the strongest year we've had with records on the top line, records on the bottom line, terrific margins, very, very strong credit performance. So it was a really remarkable genuinely transformative year. I think it has rebased the business for FY '27 and beyond. And there are really two big things that happened this year. The first one is we moved through a repricing of that pay advance product. So we used to charge a flat 5% fee, and we've introduced an interest component to that, which takes the average price to the consumer into the mid- to high 6s, just under 7% of the amount originated. It's a relatively modest increase for the consumer. And indeed, we haven't seen any meaningful shifts in customer behavior off the back of that. But that obviously flows through to the bottom line, and that's had a significant impact on the financials of the company. Then the second thing that happened this year was we introduced personal loans previously, but FY '26 was the year when we genuinely began to scale those. So without stealing Laavanya's thunder, originations were up several hundred percent from FY '25. And we'll talk more about that and the outlook for personal loans as we go. But those two changes, in addition to a number of other things we did, both delivered that breakout performance that we had this year as well as set us up for a very, very strong FY '27. And I'll come back to FY '27 at the end of this presentation. Laavanya will take us through the numbers.

Thanks, Jamie, and good morning, everyone. So our cash NPAT was $15.7 million, which was 57% up on the prior year, and I'll jump into a bit more detail on that in a few slides later on. Our total advances for the year were $963 million, which was up 19% on $807 million in FY '25. This was driven by the pay advance average advance size increasing during the year, as well as personal loans really scaling and are starting to see that in our advance number. Those contributed to the revenue increase as well as the repricing that Jamie mentioned earlier, which drove our revenue number up to $50.6 million, which was up 26% on the $40.3 million in FY '25. Net bad debts, which is a new metric included and is calculated as the receivables written off divided by total advances, was 0.5% for the year, which was up on 0.2% in FY '25. This increase was due to the inclusion of the Personal Loan product, which has, as planned, has a higher net bad debt compared to the pay advance product, as well as an exceptionally low pay advance net bad debt in the prior year. The cash NPAT per FTE was $314,000, which was an increase of 35% on the prior year. This is due to increased profitability as well as continued operational efficiencies that we've had.

And I think, just to pause on that, and that's a metric we're very proud of. That would be one of the highest profitability per employee figures that you would find. And it stems from the fact that we are an incredibly lean business, issuing more than 2 million loans last year with about 50 people.

We also announced during the year, or just after the year, that we have a new $100 million debt facility, which was executed in July. This is up from the $55 million facility that we had previously, and it's got significantly improved rates on that of around 3% to 4% compared to the previous facility. So based on a $40 million facility for a year, we would save over $1 million. So jumping into the net -- jumping into the cash NPAT, you can see we had a 57% increase from $10 million in the prior year, up to $15.7 million. And in the last 2 years, we've actually increased our cash NPAT by 4x. This is a record for us in terms of our profitability and continues to show how the underlying economics of the business are really pulling through.

I feel compelled to just clarify in the spirit of not issuing forecast. We are not promising to double profitability every year into the indefinite future. But it's pleasing that we've been able to do it for the last couple of years.

Looking at our pay advance product, you can see that our advances have increased by 18%, from $805 million up to $946 million. As I mentioned earlier, the average advance size for pay advance was a contributing factor for why that happened, and that increased from $390 up to $450, which was a 15% increase. The net bad debts increased from FY '25 from 0.2% up to 0.4%. As we've mentioned in the past, our FY '25 number in particular, was low, and we continue to optimize our average advance size and our net bad debts to ensure that we maximize our profitability. So this 0.4% is well within our planning. On our personal loans, you can see that advances have increased by 728% from $2 million last year up to $16.9 million in FY '26. The average advance size for personal loans was $3,124 and around 57% of our loans originated in Q4 were 12-month loans. So we're certainly seeing that our customers are opting for longer-term loans when they're eligible. Our net bad debts for personal loans was 3.3%. So as we mentioned previously, the unit economics for a personal loan is different from a pay advance. So this 3.3% is up on the pay advance product, but certainly within our expectations. Here, we've got a reconciliation from our statutory NPAT to our cash NPAT, showing that the revenue -- the revenue increase that we've generated has been able to flow through to our profitability metrics. And again, you can see the underlying economics of the business are very strong. On our balance sheet, we have a very healthy balance sheet, as we say in all the 4Cs, but you can see that our loan book through our receivables line has increased driven by that average advance size and advances increasing on the pay advance product as well as personal loans scaling significantly during the year. And our equity position, very healthy, $48.9 million, which is a 25% increase on the prior year.

So turning to the outlook from here. So I'll start by saying, and I think this is a really important point, that if we did nothing different from where we are right now, FY '27 would still be a dramatic uplift on FY '26. The reason for that being, these big changes that we put through last year, the scaling of the personal loans and the repricing of the pay advance, they occurred over the course of the year and the repricing, in particular, wasn't completed until partway through the fourth quarter of the year. So these very strong FY '26 numbers that you've seen in this presentation only represent a relatively small fraction of the benefit that we expect to get in FY '27. And those of you that joined us for the fourth quarter webinar would have heard us say, and I think we've said it again in this release, that the actual interest realized on pay advances in FY '26 was less than $2 million. If we had been charging it at the exit rate, it would have been 12.5%. So there's obviously a tremendous upside just from kind of running the business through FY '27, the way that we finished FY '26. Now of course, we don't plan to stand still. We have a number of things that we're pretty excited about. And so I'll just talk through our plans for the coming year and the things that we're thinking about on this page. The first one is optimizing pay advance limits. And again, those of you that have been with us for a while, probably heard me talk about the way that we think about the intersection of revenue and risk and defaults in such a way that we are able to optimize the best limit for any individual customer by looking at that elasticity of default and figuring out what's the loan offer of everything we could offer them with the highest expected value and then making that offer. That's been something that's been tremendously productive for us over the years because of the -- partially because of the repricing, but also because we've got a new generation of significantly powerful risk models coming online over the course of calendar year 2026. As those things happen, that actually means that we have an opportunity to go back and look at those limits and because essentially, you skew that kind of marginal contribution curve further to the right, we then have an opportunity to raise limits. So I think we will be doing that work in the coming months as these new models bed down. And what you should expect to see off that is probably an increase in that average advance size and probably an increase in net bad debts, although, again, we don't make forecasts. The second thing that we're thinking about are the personal loan risk models. So we're now at that exciting part of -- we're starting that virtuous circle whereby by originating more loans, we then get more data that enables to train sharper models, that enables us to put more offers out there because we only ever put out an offer where we see it as a positive expected value thing to do. And then those -- more offers obviously lead to more loans, leads to more data. And that has been -- that's what has driven the pay advance business to the level of success we see now, and we are starting that process with the personal loans. So something I'm personally very excited about is watching that data come in from these new cohorts of loans we're issuing and then the ability to retrain ever sharper models and then again, to kind of expand eligibility limits off the back of that. Those models then power the third thing on this page, extend the product loan product -- personal loan product range. As you heard me say earlier and have heard me say many times before, we started with $3,000 3-month loans. We moved them up to $4,000 to $5,000. We've moved from 3 months to 6 to 12. We certainly don't expect to stop there. We expect that durations will continue to extend. We expect that limits will continue to extend. And when you pencil out the multiplier effect of putting out money for 2 years instead of 1, 3 years instead of 2, when you move from 5,000 to 10,000 to 15,000, you can see kind of the -- how that flows through the economics of the business, and it's very significant. And so I think we are now at the beginning of that virtuous cycle with data and issuance that will allow us to keep moving on that. Then the last one, you can see there's a lot of focus on personal loans in FY '27 is building out our distribution for personal loans. Many of you would have seen the release we put out recently that we crossed over 2 million registrations. We do have a large and loyal installed user base, and that's obviously a great opportunity for us with the personal loan product, people who we know well. We understand their risk. They like us from the pay advance product. But we are -- we do also offer the loan to new-to-group customers, people who pay advance isn't something that they would use as their first product. They would go straight to a personal loan. We're offering that now, and I think we will look to build out our path to those customers, looking at new channels and in line with our expected value mindset, increasing how we market to those customers. And then finally, beneath all of this, of course, is always the continued investment in Carrington Labs. This is really one of the distinctive things about the company, is our IP around credit risk management. And that capability continues to get stronger. It has driven the successes in the lending business. It will drive this next generation of risk models that I think will be pretty meaningful and of course, continues to be an externally facing client offering as well. So again, even just from that run rate effect of running FY '27 the way that we exited FY '26, even just from that, there is very significant uplift in the business, and we do expect a very strong FY '27. In addition, we do think that the initiatives on this page will accelerate the business even further and faster. And so we are -- I personally am very, very excited about where we're going to be in FY '27 and beyond. And again, as always, for those of you that are new, we're delighted to have you joining us at what feels like just the right time. And for those of you that have been with us for a while, we're delighted that we're in a position to reward you for the time that you've spent with us over the recent years. With that, thank you very much, and we are happy to move to your questions.

All right. Thank you, Jamie and Laavanya. We'll now move to the Q&A session. [Operator Instructions] Your first question is in relation to personal loans. Larry Gandler has asked, the ECL of $3.6 million seems high relative to the $17 million personal loan originations and only 3.3% of write-offs. Can you help me understand?

So I think there are a couple of things going on there. One of them is -- so FY '26 was still a year of some experimentation in terms of writing loans that as the risk models mature, we will probably -- you wouldn't write on a commercial basis. But in terms of eligibility limits, who we're extending what to, we definitely kind of pushed the boat out a fair ways in order to get kind of a richer data set around that. I think also in the absence of kind of really seasoned tenured cohort performance, we -- as many of you know, we tend to take a cautious approach to these sorts of things. And then the final thing I'd mention is quite -- just a kind of technical accounting thing, which is that the way that we are required to account for personal loans is at the moment of writing a personal loan, we take the expected 12 months of credit losses, but the revenue is recognized over the life of the loan. So if we write a $5,000 loan on June 30, then we would be recognizing a few hundred dollars in losses within FY '26. But the revenue from that loan would be -- sorry, mental math. So do your own research if this number is important to you, but it would be sort of between $3.5 and $4. So we will always see that ECL number in these periods of rapid growth outstrip the longer-term loss rates.

Great. Thank you. Another one from Larry. Looking at Slide 17, gross write-offs as previously disclosed for FY '24 have changed. In FY '24, gross write-offs were disclosed at $17.8 million and recoveries at $7.6 million. Is there a change in definition?

Yes. So previously, we were taking the net default, so the expense essentially on the ECL provision divided by the advances plus the interest and principal. Here, we're taking the net bad debt. And so this is consistent with our peers. We're taking our net bad debts written off during the year. So the recovery number is unchanged and the total -- divided by the total advances. So those numbers at the top, you can match that to our financial statements, including the previous years.

Another and final one from Larry. Has customer behavior in response to pay advance price increase noticeably changed since the quarterly result announcement?

No. As we said in Q4, and I think this answer still holds, because we look at so many different numbers here, when we look at -- we've looked at probably a few dozen different numbers in regards to default rate, throughput, reuse rate, we've segmented by customer risk score, by kind of amount size. We've looked at kind of A/B tests and before and after kind of time box control groups. And again, when you look at kind of dozen and dozen numbers, there are always a few where if you squint a certain way, maybe as that one moved, but there's been no meaningful change that's caused us to think that there'll be a significant commercial or consumer impact from the change in pricing.

Great. One here from Thomas Sima. Net bad debts ticked up from 0.2% to 0.5% this year, driven primarily by scaling personal loans. As personal loan growth increases towards a larger portion of the total advances, where do you expect peak bad debt rates to settle? And what is your target nonperforming loan threshold?

So I'd say a couple of things. So first of all, on the 0.5%. So there are two things going on there. The 0.2% in FY '25, as Laavanya noted, that was a low number. And at the time, I said that actually, I was worried that our defaults were too low, that we were leaving money on the table as we try to optimize those limits. We were being -- we were under lending. And that proved to be the case, as you can see with the increase in the average limit to $450 this year. That is more than compensated for the 0.2 to 0.4 on the pay advance side that we saw. Then the 0.4 to 0.5, that is the impact of personal loans. So to answer the question, I'd say two things. So yes, by -- sort of as you'd expect, as personal loans become a larger proportion of the book, the net bad debts across the group are weighted average between the pay advance figure and the personal loan figure. And so that group-wide number will get closer to the personal loan figure over time. We actually don't run to a specific target. The way that we always think about this, and again, it comes back to that optimization function is for any given customer, we can model -- in fact, this is what we do. We model out if we gave you a $50 pay advance, $100 pay advance all the way up to $2,000 on the pay advance and then if we gave you a $2,500, $3,000, $5,000 personal loan and in due course will be $8,000 or $10,000 personal loan. What do we think is the likelihood that you will take out that loan? And then what is the expected default rate off the back of that? And then we map our gross -- our net contribution margin with those default models -- default outcomes into that. And we find the value of each of those possible offers to us, and we put the highest offer in front of you. So the net bad debt rate is an outcome of that process. Obviously, we will always look to optimize value overall, which means there needs to be ample headroom between the net bad debt rate and the revenue figure minus those funding costs, but we don't have a specific target in mind. We will be [indiscernible].