Earlypay Limited (EPY) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Earlypay's Full Year Results Webinar. Today is Thursday, the 27th of August 2026. I'm once again pleased to welcome Earlypay's management team, James Beeson; and Paul Murray, who will be today's presenters. Just a bit of housekeeping before we kick off. There will be a Q&A session at the end of the formal presentation. [Operator Instructions] I will now hand over to James to commence his presentation. Thank you.

Thank you, Grace. Good morning, everyone, and thanks for joining us. Financial year '26 was a mixed year for Earlypay. We grew the portfolio strongly, but earnings were below what we expected at the start of the year. We did, however, finish the year in a much better position than we started it. Funds in use in June was $308 million. Invoice Finance was back to growth. Equipment Finance continued to grow strongly, and we've now completed the major Invoice Finance platform migration. Trading has also improved through the fourth quarter, and that momentum has continued into financial year '27. Paul and I will take you through the financial year '26 results, and we'll also spend some time on where the business is now and why we expect materially higher earnings in financial year '27. Just quickly before we get into the numbers, a reminder of what we do. We provide working capital finance to Australian SMEs. Invoice Finance is our core product. It gives businesses access to cash that is otherwise tied up in unpaid invoices. It's our highest margin product and generates most of our net revenue. Equipment Finance helps SMEs fund equipment purchases. It can also provide working capital against assets they already own. Equipment Finance is a very large market. It has become an important area of growth for us, and it's also where many of our broker relationships start. That's important because those same brokers and their SME clients often have broader working capital needs, which creates opportunities for Invoice Finance as well. We also have a small Trade Finance portfolio after substantially reducing the larger exposures that were outside our risk appetite. In the first half of '27, we'll start slowly growing Trade Finance again alongside Invoice Finance for better-quality SMEs where they need additional working capital. I'll come back to that later. Financial year '26 saw strong portfolio growth but lower earnings. June funds in use was $308 million, up 23% year-on-year, and that's the highest it's been in more than 3 years. Funds in use across financial year '26 was $269 million, up 8% on the prior year, and net revenue increased by 7% to $36 million as we maintained strong margins. But that growth didn't flow through to earnings. We had higher Equipment Finance credit costs. Invoice Finance funds in use was lower than expected in the first half, and we continue to invest in product, distribution and new platform. Underlying NPAT was $3.7 million and underlying EPS was $0.014 per share. That was in line with the revised guidance we gave at the half, but clearly below what we expected going into financial year '26. The important difference as we enter financial year '27 is the starting point. The average portfolio that generated the financial year '26 result was $269 million. We finished June at $308 million, and we have very good new business momentum. We also finished with net tangible assets of $36.2 million or $0.1476 per share compared to a share price yesterday of $0.12. We have declared a fully franked dividend -- fully franked final dividend of $0.0018 per share, and this was limited by our retained earnings at year-end rather than our capital position. Since the half year results, we have achieved the 2 main objectives we set for the remainder of financial year '26. We finished the Invoice Finance platform migration in August, and we can now start getting the benefits from that investment. And we enter financial year '27 with a much stronger portfolio and earnings base. Trading for Invoice Finance and Equipment Finance improved through Q4, and that's continued into financial year '27. So while we weren't happy with the financial year '26 earnings results, we did what we said we would do at the half, and we put the business in a much better position for financial year '27. There are 3 key areas I'd like to mention. First, growth. Invoice Finance is growing again, supported by distribution through commercial finance brokers and Equipment Finance grew 39%. The Invoice Finance portfolio is also less concentrated than it was historically, so we're less exposed to movements in individual large clients. Margins remain attractive. Invoice Finance credit performance remains very sound. Equipment Finance credit costs did pick up from low prior period levels. Secondly, the platform. We moved from 3 Invoice Finance systems onto 1 platform. That means less complexity, more automation and our technology team can now focus on improving the business rather than completing the migration. We're expecting core operating expenses to be flat to lower this year despite putting more resources into growth. And thirdly, statutory earnings will move much closer to underlying earnings. The Timelio amortization ended in May and the material platform implementation costs are now behind us, meaning there will be materially less one-off costs in financial year '27. That's important because it will help retained earnings rebuild and increase our capacity to pay dividends. So we've done a lot of the building and financial year '27 is about getting the benefit from that work. I'll now hand over to Paul to take you through the financial year '26 performance and the 2 segments.

Thanks, James. As James mentioned, FY '26 was a year where revenue grew, but underlying earnings fell. On an underlying earnings basis, 2 things drove the decline: a lower Invoice Finance funds in use across the year and higher Equipment Finance credit loss. Underlying NPAT was $3.7 million, down 29%. Statutory NPAT was $0.4 million. Let me take you through the detail. Funds in use for FY '26 was up 8% to $269 million, but the annual figure understates where we ended for the year. The second half was materially stronger and funds in use for June '26, the closing month, was up 23% to $308 million. That's the base we carry into FY '27. Net revenue increased 7% to $36 million. Net interest margin improved, though the mix is shifting towards the lower-margin Equipment Finance book. On costs, core operating expenses were $23.1 million, up 3.1%. This measure strips out credit impairment, recovery costs, commissions and adjusting items. So it's the underlying cost of running the business. Commissions expense increased in line with origination volumes. Separately, as James mentioned, we incurred $2.3 million before tax of platform migration, restructuring and corporate activity costs. These are the items that we add back to reach underlying NPAT. On credit, credit loss expense increased to 1.2% from 0.8%. This measure is specific provision expense divided by funds in use. The increase was driven by Equipment Finance. As James mentioned, looking forward to next year, as a result of the changes in relation to the customer amortization and the finalization of the Invoice Finance platform, statutory earnings are expected to be much closer to underlying earnings in FY '27. Turning to the 2 segments. Firstly, Invoice and Trade Finance. Two funds in use numbers on this slide tell the story for the year. FY '26 FIU, funds in use, was down 14% to $122 million. That's the average across the year. However, funds in use for June '26, our closing month, was up 7% to $134 million. Growth strengthened towards the end of the year, and this included the confidential Invoice Finance product that we rolled out during the year. On trade, as James mentioned before, our target portfolio reduction is substantially complete and we'll reactivate trade on a measured basis for selected Invoice Finance clients in the first half of this year. Net revenue was down 4% despite the lower volume because margin improved. Net revenue margin increased from 18.5% to 20.7%, reflecting lower funding costs and a better client mix following the exit of larger, lower-margin Timelio clients. Credit loss expense of 0.81% was consistent with FY '25. This book has performed very well. Lastly, core operating expenses decreased modestly despite continued investment in product and distribution. As James mentioned, we implemented further cost initiatives late in the year and the benefits of these will come through FY '27. Turning to the Equipment Finance segment. Overall, we're pleased with the growth in this business. We have a very deliberate niche in this large market and believe we can grow it with appropriate risk-adjusted returns. This business also builds the broker network that assists with taking Invoice Finance to market. June 26 funds in use was up 39% to $174 million, with originations up 32% for the year. Fourth quarter originations of $35 million were the highest quarterly level in more than 4 years. Revenue growth followed portfolio growth and net interest margin improved through lower funding costs. Core operating costs increased, reflecting investment in product and operations and a higher allocation of shared costs as the book has grown. The existing team and systems can support a larger portfolio without proportionate cost increases. On credit, credit loss expense increased to 1.53%. That follows several years of low losses. The current level is elevated, but it is consistent with our through-the-cycle range. The increase in credit loss expense and higher core operating costs drove underlying segment profit fall from $2.1 million to $0.7 million. Finally, looking at the balance sheet funding and capital. Net tangible assets were $36.2 million or $0.1476 per share. At the year-end, we had $9.7 million of unrestricted cash. We have no corporate debt. All the borrowings are held against receivables. Surplus capital and strong cash generation give us financial flexibility. The funding structure is deliberately simple, $386 million across 2 warehouse facilities, senior funding from Tier 1 Australian banks and a single mezzanine provider across both warehouses. Each warehouse requires around 5% of Earlypay capital, which means portfolio growth needs relatively little incremental equity. We have ample capacity to fund continued growth. On capital management, we bought back 52.4 million shares over the last 3 years, reducing shares on issue by 17.6% to 245 million. As James mentioned, the final dividend of $0.0018 is modest and was constrained by retained earnings. As statutory and underlying earnings converge, this constraint will ease. I'll hand back to James to talk about our strategy and outlook.

Thanks, Paul. I'll spend the next few minutes talking about 3 things. Where do we see growth coming from, what completing the platform migration allows us to do, and what it means for financial year '27 performance. When we look at where the growth can come from, we're really doubling down on the channel that's already working for us. Commercial finance brokers play a very important role in helping SMEs find finance in the same way homeowners use mortgage brokers. That's why the broker channel is a key part of our distribution and growth strategy. There are 3 parts to it. Firstly, we want to deal with more brokers. Equipment finance is a very large market, and there are still thousands of commercial finance brokers who either don't know Earlypay or don't deal with us today. So there's plenty of room to keep growing Equipment Finance in its own right and at the same time, expand the number of brokers we work with. Second, doing more with the brokers we already know. A lot of brokers who deal with us still know Earlypay mainly for Equipment Finance. When a broker sends us an Equipment Finance application, we get quite a lot of information about that client's business, including detailed bank statement history. That can tell us they may also have a working capital need. Rather than waiting for the broker to identify an Invoice Finance opportunity, we can identify it and take it back to them. That's an important change in how we're approaching the channel. Third, having more ways to help the client. Disclosed Invoice Finance is our traditional product that works very well for smaller SMEs. Confidential Invoice Finance is gaining traction with larger, stronger businesses. It's also becoming a larger part of our Invoice Finance portfolio. And for better quality SMEs, Trade Finance can sit alongside Invoice Finance where they need additional working capital. We're also working on making the whole experience simpler for brokers to introduce the product and for clients to use. We continue to add our own connections to the software our clients already use, and we're exploring other forms of receivables finance to serve a larger addressable market. Over time, closer integration with nonfinancial platforms can also create opportunities for embedded finance, but that's longer term. We're not relying on that for financial year '27. For now, we want to make the most of the opportunity in front of us: deal with more brokers, do more with the brokers we already know and give them more ways to help their clients with simple-to-use working capital finance. We've spent a lot of time and money on the Invoice Finance platform migration. So the bigger question now is, what do we get from it? And there are 3 main areas. Firstly, more capacity. We've moved from 3 Invoice Finance systems to 1 platform. This means simpler processes, more automation and less time spent managing different systems. The technology and project team can now -- also now focus on improving the business rather than finishing the platform migration. And despite putting more resources into growth, we're expecting core operating expenses to be flat to lower in financial year '27. Secondly, we can build things much faster. We've been using AI to help with development, and it's made a real difference to how quickly we can build and improve our own tools. Projects that would have taken months in the past can now take us weeks. We've already built and deployed tools that are helping our credit, risk, settlements and collections teams. And now -- and we're now working towards a single credit assessment process across Invoice Finance, Trade Finance and Equipment Finance. This is an important capability. It means we can move much faster on projects to support growth and improve efficiency. And thirdly, we can make the product better. We want Earlypay to be easier to deal with. This means faster credit decisions, simpler onboarding and less work for brokers and clients. We're continuing to connect with software our clients already use, which makes Invoice Finance a simpler and easy-to-use product. Labor hire is a good example. We connect with the workforce management system the client already uses. This helps us verify the work behind an invoice much more easily, allowing us to provide funding to the client faster while still managing risk carefully. That makes Invoice Finance simpler for the client and it gives us better information as well. So completing the migration isn't the end of the technology story; it's really just the starting point. We can now move past yesterday's legacy constraints to use our strong capability we've built to make the business simpler and more efficient and most importantly, to spend much more of our time on growth. So bringing all of that together, we enter financial year '27 from a much stronger starting position. We have $308 million of funds in use as of June, the highest in more than 3 years. Invoice Finance is growing again and Equipment Finance entered the year with the benefit of the lending we've already written. There's plenty of room to grow through the broker market, both by reaching more brokers and doing more with the brokers we already know. The platform migration is complete. That allows us to be a lot more focused on growth and core operating expenses are expected to be flat to lower in '27. Statutory earnings will also move much closer to underlying earnings because the Timelio amortization and the material platform implementation costs are now behind us. That will rebuild retained earnings and increase our ability to pay dividends. Credit is, of course, also very important. We've built our financial year '27 expectations around credit performance broadly in line with '26. We're not assuming losses to go back to the very low levels we've seen in previous periods. And given the uncertain economic environment, we'll remain disciplined on credit as we grow. Trading improved through the fourth quarter, and that has continued into financial year '27. Against that background, we're guiding to underlying NPAT of between $4.8 million and $5.2 million, which is around 30% to 40% higher than last year, and underlying earnings per share is approximately $0.02. As retained earnings rebuild, the Board expects to move towards paying around 70% of statutory NPAT as fully franked dividends while keeping enough capital in the business to support growth opportunities. Our focus in financial year '27 is to grow the business, maintain credit discipline, keep costs under control and turn the stronger portfolio into higher earnings and shareholder returns. Thank you. Paul and I are happy to take questions.

Thanks, James and Paul. I've got one question. What is the expected funds in use at the end of FY '26 (sic) [ FY '27 ]? And what value of one-offs are expected in FY '27? Sorry, that's meant to be by FY '27.

The one-offs -- the Timelio amortization is finished, so that's very good. And the one-offs, there will be a moderate amount in July and August, but then that should largely run off. And the convergence between statutory and underlying should approach 80% to 90%.