Credit Clear Limited (CCR) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to the 2026 Results Presentation for Credit Clear Limited. By way of introduction, my name is Joshua Reid, and I recently started as an Executive Director of the group and will be commencing as Managing Director from -- formally from the 1st of September with Andrew Smith handing over the reins. I'm also joined today by our Chief Operating Officer, Jason Serafino, say hello, Jason; and our Chief Financial Officer, Victor Peplow. Apologies, we all were attempting to be in the same boardroom today, but a little bit of a technical hitch. But anyway, hopefully, that shouldn't be a bother. Before formally commencing, I wanted to pay tribute to Andrew, specifically for a wonderful contribution to the business. We're also very pleased that Andrew will remain with the business as an Executive Director up until the AGM and Nonexecutive Director thereafter, specifically helping the business with sales and client relationships, which he is so fantastic at. Okay. So moving on. In my time with the business thus far, I've had the time to reflect on and assess where we are positioned. The business has a number of very strong attributes, which stand us in good stead for future prosperity. In particular, as I sort of looked at the business, we are a key service provider to a large, growing and diverse blue-chip client base, which drives recurring revenue. We enhanced the financial and customer outcomes for those clients, creating loyalty and leading to repeatable organic growth. We continue to strive for and drive operating leverage, whereby underlying earnings growth outstrips the revenue growth. This trend is supported by increasing digital collections and operational enhancements. AI-based tools and selective offshoring are a key driver of many of those enhancements. We have a dedicated and talented executive and senior leadership team, and they are committed to driving the business forward. We've also, you noticed, entered the U.K. market, which we estimate to be 4x the size of our home Australian market with a lot of similar attributes that this provides us a new medium-term growth platform. We continue to see good growth opportunities across digital and traditional channels in the Australian market, particularly in banking, insurance and utilities industries. Operating cash flows have grown and the capital raising was completed during the period to assist with the U.K. acquisitions, leading to a strong balance sheet, which will be an enabler for future expansion. So moving to this first slide that we've got here. You will have seen this slide before. It really summarizes the group well. We are a tech-enabled full-service debt collection business from an early-stage SaaS platform via Credit Clear and now the DTS business following that acquisition to what we'd call a tech-enhanced traditional provider via ARMA and now ARC Europe in the U.K. and finally, later-stage collection via our legal services firm Oakbridge. If we can move forward now. And now to the numbers. 2026 has been a very successful year with strong growth in all key metrics. Revenue was up 28% to $60 million. This was driven by both organic growth and initial contributions from the ARC Europe and DTS acquisitions. Key drivers of the organic revenue growth have been continued digital-first adoption across the core Australian collections business, growth in the client base and increased share of wallet. Underlying EBITDA was up 41% to $10.5 million. Continuing operating leverage is evident with the underlying EBITDA margin increasing from 15.9% to 17.5%. Increasing high-margin digital collections and operational enhancements aid this trend. In particular, AI-based tools will continue to be a key driver for many of those enhancements. These AI-based tools are increasingly assisting our team in their customer discussions. Underlying NPATA was up 65% to $6.7 million. This is a new measure we are tracking going forward as it approximates an underlying cash NPAT for the business, and we believe should further assist shareholders in assessing value. Next slide, Mel. Thanks. Thank you. Underlying earnings per share was up 45% to $0.014 per share. This was calculated as the underlying NPATA divided by the weighted average diluted share count. This is taking into account the in-the-money share rights under the executive incentive program. Operating cash flows were also strong in the period. Underlying operating cash flow was up 25% to $8.3 million, and the net cash position at balance date was $16.9 million. We'll move forward again. Thank you, Mel. Just looking at the attribution of the performance, specifically looking at the revenue bridge here. Organic revenue growth was $4 million or 9%. We also obviously had the initial contributions from the ARC Europe and DTS acquisitions with a contribution of $9.1 million. If we were to pro forma 12-month contribution from those acquisitions, the pro forma annual revenue would be $70 million. Moving to the likewise, the underlying EBITDA. Organic EBITDA growth was $1.3 million or 17%. And again, the initial contribution from the ARC Europe and DTS acquisitions was approximately $1.7 million. Jason will talk a little bit more on those acquisition performances, but they're ahead of investment case, which is very pleasing. Again, if we were to pro forma 12-month contribution from ARC Europe and DTS, pro forma underlying EBITDA would be $12 million. Moving forward, again, more numbers. This shows the detail reconciling the underlying EBITDA that we've spoken about to the reported NPAT. Some items to call out. An accounting thing, there was a $2.8 million credit to the P&L upon the fair value of the ARC Europe contingent payment because part of that payment is payable in 2 years' time. This payment is to be made in a set number of shares and this fair value change reflects a reduction in our share price. So as I said, just a noncash accounting charge. There was approximately $2.4 million in nonoperating costs, the main of which relates to the costs associated with our busy acquisition year and a smaller amount of legal costs relating to the ACCC matter, which we'll touch on shortly. The share-based costs reflect the noncash costs associated with the executive incentive plan and the dilutionary impact of this plan is reflected in the underlying EPS numbers that we've already stated. The depreciation and amortization captured the AASB 16 charges on our rental properties and also the amortization of capitalized software costs. Moving on. Thank you, Mel. Just a little more information here about Related to this and following on, I guess, from the previous slide. This shows the bridging items between the reported NPAT of 4.3 million and the underlying NPATA of $6.7 million that we've called out. In particular, a few things there. The tax credit reflects a further addition to the deferred tax assets, which are now on balance sheet. It is therefore expected that no tax will be payable for up to the next 2 financial years. The amortization on the intangible assets is added back. We've spoken earlier about the fair value of the deferred consideration. The tax adjusted nonoperating costs and the share-based costs are also added back in the way that we've calculated this underlying NPATA. Moving on to the balance sheet. Thanks, Mel. That's better. The balance sheet is in a strong position. The cash and liquidity position is strong and has improved over the period. The net cash position was $16.9 million on that balance date. Intangible assets increased as a result of the ARC Europe and DTS acquisitions. Further, we entered into a new debt facility with ANZ in the period. The initial loan was $6 million, reducing over a 3-year period. This new relationship provides funding flexibility for future growth plans, which I think places us in good stead as we look forward to grow. Share capital increased over the period by net $17 million. We raised approximately $21 million in equity for acquisitions, offset partially by the share buyback program that we announced during the year, which was approximately $8 million. The balance related to shares issued is part of the ARC Europe acquisition. There was a sudden movement in shares relating to the executive incentive plan. Next one. Thank you, Mel. Just talking about our cash flow here, which was very good in the period. Cash generation and conversion was strong. Underlying operating cash was up 25% to $8.3 million. This number adjusts for the costs associated with the acquisitions, which was about $1.7 million. The reported cash was also up 14% to $6.6 million, and this represents good cash conversion, which is very pleasing. Investing cash was $14 million for the acquisitions and a further $2 million across both capitalized IT costs and plant and equipment. Finally, we've sort of touched on this, the financing cash captures the net equity and debt raised from various raising activities, offset by the share buybacks and the cost of the rental leases. So I will now hand over to Jason, who will run you through some various items as well. Thanks, Jason.

Thanks a lot, Josh. This is a nice slide to start on. We're very pleased how this one is looking. So as you can see, we have a large, growing and very diverse blue-chip client base, very evident here. Great to see the expansion into new geographies, both our 2 recent acquisitions in DTS and ARC have strong client bases into the U.K., which will be a focus for us for growth into the coming year. A smaller footprint into the U.S. and Canada with somewhat of a niche offering from DTS servicing libraries there. So to the next slide, thank you. So now peering under the hood of the numbers. As Josh said, one of the key contributors to improving margin is the use of digital. The numbers here show payments on our digital platform. So this is when a customer clicks on an SMS or an e-mail, WhatsApp message that we send them, makes a payment through our web portal without human intervention. And these kinds of payments are higher margin than when our team is on the phone with the customer taking payments that way. And so you can see our top line organic revenue growth was 9% but our digital payments grew by 26%, and that's one part of what is underpinning the 41% growth in underlying EBITDA. So we're pleased to see that. The numbers there are not including acquisitions. So we haven't put DTS or ARC in there just to keep that story simple. But however, with these acquisitions, Software as a Service, SaaS revenue now accounts for 18% of company revenue, and that's very pleasing to see because not only is it high margin, but it's very sticky because we integrated into our clients' back-end collection processes. Next slide. Talking more about digital and AI, we do see further opportunity to expand the use of digital automation and AI across the business for further operating leverage increase. That's through automating the tasks that are currently done by our teams today, more and more of those tasks. In the center here, I have a diagram of our platform capabilities, either live today or in development and expected to be released over the course of this financial year. So starting at 12:00 and going clockwise, we have digital communications, our self-service capabilities, human operators and documents and their current and very mature capabilities that we've been leveraging for many years to get to the kind of results that we have today. But adding to those capabilities, we now have a number of new technologies in play for this year. So we've recently added digital voice with the addition of the DTS digital IVR technology. So that allows us to make outbound inbound phone calls using prerecorded messages that you use your keypad on your phone. If you've ever made a phone to your electricity company or similar on IVR, you know what that experience looks like. And it's just another technique for us to remove these higher-cost activities from our call center. Further around the dial there, we are also investing into the exciting new world of agentic AI that everybody is talking about at the moment, I suppose, and I think ChatGPT and other technologies. We're starting with e-mails because it's a big overhead in our teams. They spend a lot of time answering e-mails from customers. In fact, in our insurance team where it's the highest to spend 3.5 hours per day per operator doing that. And we think that there's a significant opportunity to reduce this by having an AI read the customer e-mail, draft the response, but still have a human review that before it goes back to the customer so that we've got human loop, and it keeps it safe. We're also looking at deploying AI voice, which is where we have robots speaking to customers in voice calls. I do not want to overhype that technology at this point. It's got a lot of promise, but there's a lot of risks and issues to work through in our space, particularly in collections where we're dealing with customers in vulnerable circumstances. So there's a lot a lot to do in terms of evolving that technology and getting the right guardrails in place. But we do plan to remain on the forefront of that technology and continue to invest in that space. Finally, in the center, we have our own AI agent, ARI. This is a rebrand of our Next Best Action AI that we've been winning awards for all the way back to 2021. And that sits in the center, optimizing the best channels, approaches, strategies to use with an individual customer in order to achieve the best collection result but in order to optimize our costs as well. So we're very excited to continue to invest in that technology. To the next slide. Thanks, Mel. Turning to the acquisitions now. So we're very pleased with how both the acquisitions are progressing. First, here, we have ARC Europe. This is our U.K.-based debt collection agency. We -- presenting a couple of numbers here. We've got the revenue and EBITDA as was announced and then we've taken the first half of this calendar year and annualized that to give you a sense of how that's progressing. And as you can see, in both cases there, it's meeting, perhaps exceeding our expectations, which is very pleasing to see. The integration has gone very well. Financial integration is complete. We've developed a road map, a tech road map to combine ARC DTS which is also in the U.K. and the Credit Clear technology, and we're working through the implementation of that over this year. Sales pipeline is very strong. So we're in very promising discussions with a number of blue-chip opportunities with the combined ARC DTS and CCR services. We had a successful launch event a month ago. It was very well attended. And very pleasingly, we already have our first new Tier 1 client in onboarding. So this will be a big focus for us for growth in -- across this year. To the next slide, Mel. Similarly, with DTS, as I mentioned, it's a technology provider of collections capabilities, so voice and other capabilities that we're leveraging. DTS is strong in the U.K. as well as presence in New Zealand, Australia and as I mentioned, a bit of a niche presence in the U.S. Again, a blue-chip customer base, really great opportunities to cross-sell ARC and CCR services. The -- again, the transition and integration are complete. All the technology services have been transitioned over that went very smoothly. And we'll be, again, looking for growth in this area, but also some rationalization of infrastructure costs in order to improve EBITDA. Over to you, Josh.

Thanks, Jason. Yes, despite these positive advancements, business is often not plain sailing and we were served with legal proceedings on the 24th of June, brought against us by the ACCC. We are working through this. We are well represented and are defending the proceedings. In terms of an update, look, the matter is following usual legal procedure. In this regard we confirm that there was an initial federal court case management hearing. So it's not a trial, but a case management hearing that occurred on the 31st of July. There were various procedural orders made by the judge at that time, the first of which was the ACCC would provide further and better particulars to their concise statement by the 14th of June (sic) [ 14th of August ]. So that has occurred. We, being ARMA and Force Legal, are to file and serve any sort of adjustments to that by the 18th of September and probably the most substantive update that we can share is that there's a further case management hearing on the 16th of October this year. The matter has not impacted our day-to-day sort of financial results or operations in a material manner at the present time. Of course, we'll provide material updates as and when required under our continuous disclosure obligations. To the next slide. Thanks, Mel. So now looking forward, that was the year that was. We're very pleased with it. It was -- made a lot of great strides. But looking forward to the 2027 year, we remain confident in the future prospects of the group with an expectation of continued organic revenue and earnings growth across core operations in both Australia and the U.K. At present, the ACCC proceedings have not materially impacted the financial results, as I sort of said. So on this basis, the company provides the following guidance for FY '27. FY '27 revenue, we expect to be in the range of $73 million to $77 million. We expect underlying EBITDA to be in the range of $12 million to $14 million. We expect to skew to the second half performance consistent with prior periods. Also noting that ARC Europe are further weighted in this half also that's important to note as we look forward into '27. And this guidance assumes no material operational impact from the ACCC proceedings. A couple of other things that we've called out here. we're expecting good growth on the U.K. side. We've got a couple of new sort of sales executives there to help build out and grow the business there. And likewise on the SaaS and BPO side, we're expecting some good growth there. And to Jason's point, we're expecting further AI deployment and enhancements across the group. There's a few interesting technologies that we're looking at there. So to wrap up, Mel, just the final slide, almost a bit of a summary that we sort of touched on at the start. But key attributes that really looking at here that I've certainly been impressed by since I started here is there's a blue-chip client base here, which is growing a loyal client base. That leads to all the repeatable organic growth, and we're expanding our expertise in collections into a new market in the U.K. So we sort of see that as a medium-term growth platform. Operating leverage is a key focus internally with the management team looking to get earnings growing more than revenue from all those efficiency measures that Jason has referred to. Good domestic market opportunity as well, particularly we sort of see in the banking, insurance and utility sector. We still see good growth in those areas, particularly. And importantly, we've got a strong balance sheet, good capital position and a fantastic sort of executive and senior leadership team. So very pleased with the year, and we're looking forward to FY '27. And that's it for the formalities, Mel. Happy to open to Q&A at your convenience.

We have Larry Gandler from Shaw online. Larry, if you would like to ask your questions live?

Yes. Can you hear me, Mel?

Yes.

Great. Josh, welcome aboard. Congrats on your appointment, and congrats to Andrew moving up to the Board. First question is, when you look at your guidance and not wanting to pressure cook the organization, but when you look at the guidance at the midpoint, I think it's something like $14-plus million of revenue growth. And then looking to EBITDA, it's $2.5 million of EBITDA growth at the midpoint. Normally, Credit Clear has sort of a higher conversion for marginal profits. But then when I think that there might be synergy with the acquisitions or some acquisition investment unwinding, it seems like maybe $2.5 million is very conservative or that guidance -- EBITDA guidance range is conservative. Can you talk to what factors have gone into that EBITDA guidance range?

Yes. I mean, look, we're always looking to be -- with guidance, you've got to strike the balance between a confident position but also being sufficiently conservative. I guess all I can say is the -- we're very focused on organic revenue growth and being efficient with turning that into profitability. So yes. I mean, they are some of the key factors we have sort of thought about.

Okay. Did you have some integration costs in FY '26 that might unwind in FY '27, Josh?

Well, we've called out sort of the one-off costs in the FY '26 result, those one-off costs we've called out.

And that might be already captured below the sort of management EBITDA number. Okay. I see that. All right. And the other question I had is SaaS as a proportion of your revenue kind of steps up with the acquisitions. Just wondering maybe, Jason, you could talk to, is that DTS, which is largely integrated with its customers? How does that change that SaaS?

Yes, that's correct, Larry. That's -- DTS is entirely SaaS business integrated with the customers, part of their collections process.

Josh, can I just talk to the ACC? What specific systems or processes and governance changes have been made in response to the matters underlying the proceedings? And what independent assurance has the Board obtained that those historical issues cannot recur and how is Credit Clear engaging with the ACCC regarding that remediation?

Yes. I'll hand that to you to start with, Jason.

Yes. Let me cover the first part of that question in terms of operational changes. So certainly, we specifically reviewed all the allegations and put in place improvements around those. But let me say, though, more broadly, we're in a process of continually reviewing these things and the areas that the ACCC look, to the same areas that our clients and our internal order functions, et cetera, look. And with all of our major clients, we will be in an annual and quarterly audit, largely compliance focused. And with many of them, we have a monthly review as well. So we genuinely are constantly reviewing and improving the processes around all of these points all the time. And we are actively encouraging our clients to do that. And as you can imagine, post the ACCC announcement, many of our larger clients did come in and do exactly that, do a deep order. And I'm pleased to say weren't able to identify any issues at all out of that. So very confident about the state of play of our compliance and controls.

On that last point Mel, I think you sort of said to what extent are ACCC involved with us on those that they aren't involved. This is something we're doing independently of them, but it's not something that we're liaising with ACCC directly on at this point.

And maybe just to continue with that, Jason, you touched on it in terms of compliance and customers. But could you maybe talk about your pipeline conversion rate with customers? And if the proceedings have affected the group's ability to win new business at all?