Earlypay Limited (EPY.AX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Annual General Meeting of Earlypay Limited. My name is Geoff Sam. I'm the Chair of Earlypay and Chair of today's meeting. I would like to start by acknowledging and paying respect to the Traditional Custodians of the land, wherever those participating in this meeting are located. This meeting is being held virtually, and shareholders will be able to participate, ask questions and cast direct votes at the appropriate times whilst the meeting is in progress. As the time is now past 10 a.m., the company has complied with the relevant requirements for convening this meeting, and a quorum is present. I formally declare the meeting open. I'm joined today by my fellow Board members, James Beeson, our CEO and Managing Director; Ilkka Tales, Non-Executive Director; and Steve White, Non-Executive Director. Also present are Paul Murray, our CFO and Joint Company Secretary; and Mathew Watkins, our Joint Company Secretary. Mr. Rod Shanley, the company's audit partner from Pitcher Partners, is also in attendance and will make himself available to answer any questions on the accounts at the appropriate time. The Notice of Meeting has been given in accordance with the company's constitution, and copies of the notice are available for you on the company's website, the share registry's online voting site or on the ASX market announcements platform. I do note that the company has withdrawn Resolution 3 and 4 prior to the meeting as announced to the ASX on 17th November 2025, and therefore, these resolutions will not be considered at today's meeting. Unless there are any objections, I will take the Notice of Meeting and the explanatory statement as read. The format of today's meeting will be a Chair address from myself. We will then have an operations presentation from our CEO and Managing Director, James Beeson. Mathew Watkins, our Joint Company Secretary, will then explain the meeting participation process. We will then address the formal business on today's agenda, and this will be followed by a Q&A session, following which shareholders will be able to ask questions and vote on the resolutions. I would now like to present the Chair address. In FY '25, we continued to reshape Earlypay into a stronger, simpler business that is back to profitability, with higher margins, a more capital-efficient balance sheet and funding structures now effectively in their optimal state. From this position of strength, we are deliberately investing for growth so we can scale with more confidence. We have refined our mission to backing Australian businesses with flexible and reliable working capital finance. Our focus remains on invoice finance and equipment finance, with an enhanced product suite, more balanced risk settings and a clearer value proposition to support a broader set of Australian businesses and their advisers. In invoice finance, we are strengthening our offering for smaller businesses while building our capability to support medium-sized businesses with a lighter-touch offering more suitable to their working capital needs. In equipment finance, we are leaning into our ability to provide working capital through capital raises against unencumbered assets as well as funding new and quality secondhand equipment. We also plan to cautiously reactivate a limited trade finance offering for selected invoice finance customers, focused on paying their suppliers for finished goods. We delivered 30% growth in underlying earnings per share in FY '25, expanded revenue margins, reduced credit losses and generated strong cash flow. We simplified and strengthened funding by repaying the corporate facility and moving all debt into efficient warehouse structures, including a new equipment finance warehouse completed in the first quarter of FY '26. This gives us scalable, capital-efficient funding with headroom to grow with minimal equity requirements. Our liquidity position remains strong, with around $9 million of surplus capital. The on-market share buyback has been extended for a further 12 months and alternative uses of the surplus capital include retention to support accelerated organic growth and/or to pursue M&A opportunities should they arise. We intend to pay fully franked dividends to shareholders to the extent we have retained profits. FY '26 dividends are expected to be weighted towards the full-year dividend, reflecting the timing of investment and one-off costs. We're proud of our high customer satisfaction levels and are investing to increase them further. A major ongoing initiative is the migration of our invoice finance customers to a single API-friendly core loan management platform that incorporates the best of Earlypay's proprietary IP that our customers value. The migration is tracking well and is due for completion by the end of FY '26. We are confident this will be the market-leading platform that further improves customer experience, delivers meaningful operational efficiencies, and lays the foundation for a much-expanded use of AI. To further strengthen our operational discipline and data security, we are also on the pathway to ISO 9001 and ISO 27001 accreditation. Turning to the current year. FY '26 has started well. Funds in use in invoice finance and equipment finance have both been growing month-on-month, with strong margins and credit performance, and an increasingly diversified portfolio. Growth in invoice finance has been supported by low customer attrition, strong new originations and existing customers making greater use of their facilities. Our focus on being flexible, reliable and putting customers first, together with enhanced products, more balanced risk settings and stronger distribution, positions us to write larger volumes with more businesses in an expanded addressable market. Given the investments I've outlined, operating expenditure is elevated in the near term as these costs are being expensed as they are incurred. This is expected to fall in coming periods however, enabling the business to capture operating leverage as revenue grows faster than costs. The decisions we are taking now are about building a larger, more resilient and more profitable Earlypay, and with a clear mission and sustained investment in people, systems and distribution, we are confident in our ability to deliver increased earnings and long-term shareholder value. On behalf of the Board, I would like to thank James Beeson, Paul Murray and the entire Earlypay team for their commitment and execution, and my fellow Directors for their guidance. I also extend a special thank you to Sue Healy, who stepped down from the Board in April '25 after 12 valuable years of service. And finally, I would like to thank you, our shareholders, for your ongoing support and confidence. Earlypay enters FY '26 with clarity of purpose, strong foundations and a platform that positions us well to deliver sustained value creation in the years ahead. Thank you. As advised earlier, we will now have a presentation from our CEO and Managing Director, James Beeson, followed by formal business and Q&A time. Thank you, James.

Thanks, Geoff. You've just heard from Geoff about the progress we've made in financial year '25 and the position the business is now in. Now I'll take you a bit deeper to show how that work is translating into our product strategy, technology, funding and our outlook for growth. Starting with a quick look back at the financial year '25 financials. At a headline level, financial year '25 was about getting Earlypay back to a reasonable level of profitability and improving the quality of the portfolio. Underlying NPAT was $5.1 million, up 24% on last year, and underlying EPS was $0.019, up 30% on the prior year, helped by the share buyback, reducing the number of shares on issue. Net revenue margins increased to 13.4% despite the mix shifting towards equipment finance, which earns roughly 1/3 of the margin of invoice finance. Credit performance was solid with credit loss expense of 75 basis points, below our 1% general provision. To capital and dividends, the restructuring of our funding facilities and more efficient use of the balance sheet released meaningful surplus capital, around $0.036 per share as at the first quarter of financial year '26. Profitability and a strong capital base allowed us to pay $0.0079 per share in fully franked dividends into the year, which is almost a 4% yield, noting that dividends remained constrained by retained earnings rather than cash or capital. The main challenge in financial year '25 was that overall funds in use was flat at $249 million. Equipment finance grew strongly, around 1/3 higher on the previous year, but that was offset by a deliberate reduction in trade finance to bring it within our risk appetite and higher-than-expected attrition in invoice finance. As we said at the full year results, our focus now is squarely on growing the portfolio, particularly invoice finance, which has much higher margins alongside continued growth in equipment finance. Growing funds in use and net revenue while maintaining sound credit performance and a disciplined cost base is the key driver of earnings growth from here. We've refined our mission to be backing Australian businesses with flexible and reliable working capital finance. We've learned that many SMEs need more than one tool over time. And if our offering is too narrow, we limit who we can support and how much funding we can give them. So we're evolving our product set, strengthening invoice finance for medium-sized businesses, leaning into capital raises and secondhand equipment and cautiously reactivating trade finance in a measured way, all within our existing strategy and risk appetite. The aim is to be the go-to working capital problem solvers for SMEs and their advisers. When we can solve more of our customers' needs, relationships are deeper, retention is higher and our broker and adviser partnerships become stronger. This gives us a more capable product set that can serve a broader addressable market across both small and medium-sized businesses and a stronger platform for growth. Matt. Now I'll talk about this a bit more at the product level and how we're enhancing what we already do well. So starting with invoice finance, Earlypay has always been strong in disclosed invoice finance for smaller businesses. This is where we contact the debtors directly to verify the invoices, which is necessary as these businesses are not always the strongest. That portfolio gives us around 20% net revenue margins, losses of less than 1% and a very granular portfolio. So for small businesses, the focus is to protect and improve what we already have and make it easier for SMEs and their advisers to use. Historically, we have not had a truly fit-for-purpose invoice finance product that medium-sized, better-quality businesses that want a lighter touch solution that it works for. It's still financed against receivables, but with a simpler customer experience and a different go-to-market approach. We're taking the time to invest and build a strong and compelling proposition for these medium-sized, better-quality businesses before we scale with confidence. On invoice finance, we will always provide CapEx for new purchases, but our real edge is releasing working capital to SMEs through capital raises on unencumbered often secondhand equipment. It's a flexible, well-secured way for SMEs to unlock working capital at a lower cost than unsecured loans and it fits squarely within our mission. The brokers that know us know that we do capital raise as well. So the opportunity is to build awareness of our capability within a broader broker network. Capital raises often open the door to invoice finance as well as the underlying need is for working capital, and we are now better at bundling our products together. And finally, on trade finance. We've learned some hard lessons on trade finance, particularly around funding raw materials for weaker credits. The reactivation you see on the slide is, therefore, very cautious, deliberate and narrow and will likely follow the other initiatives. Trade finance will only be offered to some invoice finance customers that have strong credits. It will only be for supplier payments for finished goods that ideally are backed by purchase orders, so we have full visibility of the stock and cash cycle. It will never be stand-alone and will always be repaid from the invoice finance facility once the invoices are raised. It's designed to support wholesalers and manufacturers whose working capital needs go beyond what IF and EF can cover on their own. I'll emphasize again that this is a cautious reactivation and will follow the work we are doing on invoice finance and equipment finance. So across invoice finance, equipment finance and trade finance, these are product refinements, not a change in strategy. We also acknowledge that we have tried to move up the curve and broaden our product set before and it didn't deliver what we wanted as the execution was poor. The difference this time is that the approach is much more focused and well thought out, grounded in the areas where we know we can compete and supported by the capability and disciplines we now have in place. That gives us confidence that these refinements will give us more of the right tools to support more businesses, meet more of each customer's needs and grow funds in use in a disciplined way. Next, please, Matt. This slide brings together our customer focus and the platform that will support the product enhancements I just spoke about. First, on customer experience and trust. As Geoff said, we're very proud of the level of positive feedback we get from our customers. It tells us that SMEs and their advisers value how we support them. We want to build on that by being flexible, reliable and easy to deal with. To support that, we're upgrading the core platform for invoice finance. We're migrating all invoice finance customers to a single API-friendly loan management system overlaid with the best of Earlypay's proprietary IP that our customers and teams value. The migration is tracking well and is expected to complete by the end of financial year '26. There are some transitory costs in financial year '26 as we implement the new system and processes but we expect meaningful OpEx benefits once the migration is done. A single platform means a faster, simpler, more consistent experience for customers. It reduces complexity internally, lowers our cost to serve and improves our ability to support partner-led and embedded finance integrations. It also lays the foundations for a much broader use of AI in client service and risk management. We're also on the pathway to ISO 9001 for quality management and ISO 27001 for information security, which will strengthen the reliability and robustness of the platform as we scale. Taken together, this program is about more than technology. It's about building a platform that supports better customer outcomes, higher productivity and a business that can handle significantly more volume with confidence. Next, please, Matt. This slide is about how our funding and capital position now supports growth. On the left is the funding structure where we've now effectively achieved our optimal funding model. All of our lending sits in scalable, capital-efficient warehouses that are cost-effective and flexible. We have 2 Australian major banks as senior funders across the invoice and trade finance and equipment finance warehouses, plus a supportive and flexible single mezzanine provider. We only have to put in around 5% first loss equity, which means we need relatively limited equity to support meaningful growth in funds in use. We also now have no corporate debt outstanding. Everything is at the asset level and the warehouses. We continue to be disciplined in how we manage our capital. Through refinancing and the more efficient use of our balance sheet, we've released more than $26 million of capital over the past 2 or 3 years. This has been redeployed into 3 key areas, repayment of all corporate debt, the acquisition of Timelio and the buyback of 32.5 million Earlypay shares for around $6 million. Even after those actions, we still have around $9 million of surplus capital or around $0.034 per share available for further capital management. And depending on conditions, that could be used for fully franked dividends to the extent that we have retained profits, which is our priority, buying back shares through the extended buyback, retaining the capital to support accelerated organic growth or bolt-on acquisitions, should they arise. So in summary, we now have a clean, scalable funding structure and flexible capital position that allows us to grow the business while having surplus capital available to create additional value for shareholders. Matt, please. Now turning to financial year '26 trading so far and our EPS guidance. First, on trading performance. We're seeing consistent month-on-month growth in funds in use across both invoice finance and equipment finance, and we expect average funds in use in December to be above $270 million, up from that $249 million in June that I mentioned before. In invoice finance, growth is being driven by low customer attrition, strong new originations and higher utilization from existing customers. Net revenue margins in both invoice finance and equipment finance remained very strong, and credit losses are around 1%, which is in line with our expectations. Operating expenses are a bit higher, reflecting deliberate investment in sales and distribution, product and capability build out, platform and technology migration and some other transitory costs. Now turning to guidance. We maintain our financial year '26 EPS guidance with EPS expected to be 15% to 20% higher than financial year '25's $0.019 per share. That outlook is underpinned by ongoing funds in use growth, net revenue margin strength and robust credit performance. We also need to be careful with the costs associated with the strategic initiatives in financial year '26. Higher-than-expected costs would weigh on short-term earnings, even though they will support earnings beyond financial year '26 by boosting our outlook for growth, delivering a lower cost base, a more scalable platform and greater operating leverage. Finally, on dividends. The Board intends to pay 100% of retained earnings as fully franked dividends, which will be weighted to the second half given higher operating costs and one-off items in the first half. I'll close with a few brief comments. Earlypay enters the remainder of financial year '26 with strong momentum, a resilient portfolio and a clear strategy. We are investing with discipline to position the business for higher quality, scalable growth, and we are seeing the benefits in our customer activity and our operating platform already. We are mindful of balancing the short-term costs associated with these initiatives with the stronger foundations for improved earnings, stronger margins and greater operation -- operating leverage in the years ahead. We have a capable and committed team, and I'm confident that we can execute successfully and scale the business to where we all want it to be. Thank you for your support.

Thanks, James. I'll now hand over to Mathew, our Joint Company Secretary to outline the meeting participation process.

Thanks, Geoff. As mentioned earlier, shareholders will be able to ask questions, participate and cast direct votes at the appropriate time whilst the meeting is in progress. Visitors and media are reminded that whilst you're welcome at this meeting, it is a shareholder meeting, and you may not make comments or ask questions. We may experience some time lag, and this may cause some delay in your text questions or comments coming to our attention. So we encourage you to lodge them as early as you can. Shareholders wishing to ask questions via text, please take note of the following instructions. Please select the Q&A icon located at the bottom of your screen, type your questions in the Ask a Question box and press to send arrow. Your questions will be addressed at the appropriate time. Shareholders wishing to speak and ask a question, an audio questions facility is available during this meeting, and you can follow the following process. Please select the Raise Hand icon located at the bottom of your screen. You'll be placed in the queue and authorized to speak when we reach the Q&A session. Prior to asking your question, please state your full name and who you are representing. Regarding voting on today's resolutions, all shareholders, proxyholders and authorized corporate representatives and attorneys of shareholders who are entitled to vote will be able to do so via the webinar poll. It's important to note that if you have lodged a proxy form and voted prior to the meeting, you do not need to vote again at this meeting unless you wish to change your proxy instruction. For those proxyholders, shareholders and authorized corporate representatives who have not yet voted prior to the meeting, please cast your votes on each of the resolutions when the poll is open. For proxyholders, you will have a summary of proxy votes, which detail the voting instructions for each item of business. By completing voting via the webinar poll, when instructed to vote in a particular manner, you are deemed to have voted in accordance with those instructions. Where the Chair has been appointed proxy on behalf of a shareholder, Mr. Geoff Sam, as Chair of the meeting, will be voting in favor of all resolutions. When the poll is declared open, a poll window will appear. To vote, simply select the direction in which you would like to cast your vote. That option will then be marked. To submit your vote, simply click the submit button. You'll have the ability to change your vote up until the time voting is closed. Thanks, Geoff.

Thanks, Mathew. Before opening the poll, I wish to remind shareholders that the poll will remain open for an additional 30 seconds after we have considered all resolutions. I now declare the poll open. I now move to the first item of formal business as set out in the Notice of Meeting. If you have a question on this item of business or any other item of business, please follow the questions process, which was previously outlined. We will address your questions after the last resolution. The first item of business relates to the receipt and consideration of the financial report of the company and the related reports of the Directors and the auditors for the year ended 30 June 2025. These items are contained in the annual report, so I will ask that they be taken as read. The annual report is available on the ASX announcement platform or on the company's website. The Corporations Act requires the accounts and reports to be laid before shareholders at the Annual General Meeting. However, except as set out in Resolution 1 to be considered later, there is no requirement for a vote of shareholders to be taken on them. No written questions to the auditor under Section 250PA of the Corporations Act were received by the cutoff date, 5 business days before this meeting. Questions may be directed through myself to the auditor in relation to the conduct of the audit, the audit report, the company's accounting policies or the independence of the auditor. As this matter does not require a vote, we will now move on to the first resolution. I now refer to Resolution 1, which is to consider the adoption of the remuneration report forming part of the Directors' report for the financial year ended 30 June 2025. The remuneration report is set out in the Directors' report in the company's 2025 annual report. The remuneration report sets out the company's remuneration arrangements for the Directors and key management personnel of the company. The vote on this resolution is advisory only and does not bind the Directors of the company. The full resolution is displayed on your screen, along with the proxy votes received for this resolution. I move that shareholders consider, and if thought fit, pass the ordinary resolution. As the next item on the business pertains to my re-election, I'll now hand over the chair to my fellow Director, Steve White.

Thank you, Geoff. I now refer to Resolution 2, which relates to the re-election of Mr. Geoffrey Sam, OAM, as a Director of the company. Mr. Geoffrey Sam, OAM's profile has been provided on Page 8 of the Notice of Meeting. The full resolution is displayed on your screen, along with the proxy votes received for this resolution. I move that shareholders consider, and if thought fit, pass the ordinary resolution. I now hand back to the Chair, Geoff.