Raiz Invest Limited (5HK.F) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Raiz Invest FY '26 Financial Results Webinar. On our call today, we have Craig Keary, CEO; and we have Alex Gao, the CFO. The presentation today will run for about 20 minutes, and then we will open up for Q&A. [Operator Instructions] So now I'd like to hand over to Craig. Over to you.

Good morning, and thank you, Katie, and good morning to everybody. Happy Friday. If we can just go to the next slide, Katie. So it's really pleased to be here and as my first results update as CEO, I really -- as I said, really delighted to be here. In terms of the key sort of metrics, we've got sitting at 351,362 active customers. Our FUM has gone up to $2.32 billion -- FUM, sorry. And we've had strong industry recognition, in particular, with the various different WeMoney Awards there as well as really positive ratings from SuperRatings. If I think about the -- sorry, the vision or the mission for Raiz, we are that wealth platform for all Australians, and that's something that really does come through as we look at some of the data later on. But also, as I said, our vision is to allow Australians to achieve that financial wellbeing regardless of that -- of their situation. And that's something that I'm really pleased to be here at Raiz to help deliver on that vision. And as I said, it's a really, really strong set of -- really strong purpose. Next slide. In terms of the key highlights, in terms of financial metrics, really strong revenue growth that is driving that sustainable profitability, which is really terrific. Revenue is up to $29.2 million. It's up 21%. Underlying EBITDA is sitting at $5.5 million, up 93%. Operating cash flow of $5.1 million, up 30%. And we've got a healthy cash balance of $15.4 million, up 18%. In terms of the core business drivers, active customers are up this year to -- sorry, up this year to 351,362, up 7%. ARPU is up to $85.87, up 13%. FUM has grown to $2.3 billion, up 28%. And we've had $219 million of netflows. So that's up about 4%. Just the next slide. We're really seeing that accelerating momentum in the core business drivers. As I said, the overall, we're seeing active customer growth. That CAGR over the last, sort of, number of years is running at 5%. I want to talk a little bit more in the back part of the presentation about how we can increase our active customers. But also our FUM has grown really healthily. We're sitting there with a CAGR over the last number of years of 25.4% and with $2.3 billion -- circa $2.3 billion of FUM, which is really terrific to see. So good momentum in the core business drivers. Next slide, please. We've got strong growth in revenue really delivered -- sorry, really driven by that ARPU. So we've got revenue was up 21.4%. That is outpacing customer growth of 6.7% and growing at a 4-year CAGR of 15.1%. Our ARPU is up 13.5% to $85.87, and that's growing at that 4-year CAGR of 9.7%. The key factors contributing to ARPU growth was the fee increase that became effective in August '25. Also, we're seeing growth in higher revenue products such as Raiz Plus and Raiz Super. And we've obviously got higher account balances, which are driving those FUM-based fees. So as I said, really strong growth in revenue, which is driven by that ARPU number. Next slide. We're also seeing innovation, which is driving increased customer engagement. In particular, Kids FUM, which is a product that's been launched, that is seeing -- that FUM is now sitting at $123 million. We've seen really healthy growth in that FUM. We're sitting at a CAGR of 135-odd percent. And also our Plus FUM is now at sort of $424 million. That's sitting at a CAGR of 54.7%. So really, that innovation that we've had in the business and we will continue to have in the business is driving that increased customer engagement. If I think about Raiz, we're really on the way to and are evolving into a broader wealth platform. If I look at this slide, we've got -- we've started out as Raiz Invest. You can see where we've added Raiz Plus, Raiz Rewards, Raiz Invest Super, the Raiz Kids, Raiz Jars, our Lite product as well as our Academy. So those are all sort of different features within our platform that sort of go to the point of us being a broader wealth platform. And as I sort of think about it, really being there for a customer's full life cycle of investing. FY '27 is still -- sorry, in progress in FY '27 is still launching direct trade for U.S. listed equities and ETFs, followed by direct ASX trading as well. If we go to the next slide. So if you just go to the financial results and just look at this, the core drivers are really delivering that strong financial performance. As I said, our revenue has increased by 21% to $29 million. Our underlying operating expenses are up 12% to $23.8 million. But our underlying EBITDA is at $5 million -- sorry, $5.5 million, up 93% at a 19% margin. The second half net profit before tax result includes nonrecurring CEO transition and corporate advisory options expenses of around $1.3 million, and that has been excluded from underlying EBITDA. And our statutory NPAT is sitting at $3.5 million, which includes $3.2 million of noncash tax benefit from recognition of prior year carryforward losses. So that was -- sorry, and as per the disclosure in the first half FY '26 results. So the core business drivers -- sorry, the core drivers are really delivering that strong financial performance. Next slide, please. We do have that strong growth in EBITDA. I look at it and we go, we've got a 93% growth. We've got that 6.7% increase in active customers. We've got that 13.5% increase in ARPU, and we've got positive jaws that are driving that margin of 18.7%. And we've got 3 consecutive years of positive EBITDA. So really good strong growth, and that's really pleasing to see. We've got a positive operating and free cash flow. Our operating cash flow of $5.1 million, that's up 30%, representing a conversion -- sorry, representing 94% conversion of underlying EBITDA. Our development costs of $2.5 million are down 20%. And our free cash flow -- we've got free cash flow of $2.7 million, up from $900,000, really driven by that underlying earnings growth and lower development costs. And we're sitting at a closing cash balance of $15.4 million compared to a closing cash balance in FY '25 of $13 million, and we've got no corporate debt. So really, as I said, really positive operating and free cash flow with a really healthy cash balance, which is terrific. The next few slides, I wanted to talk about transformation really to deliver on what I would call ambition. When I joined Raiz, I was really focused on how we can take Raiz to the next level. And the word that I used very much from the first day that I've started, both internally and externally is ambition. If I look at the reason why that I think is a good word to anchor to. First of all, our customers are ambitious. The reason why they join Raiz as a customer is they want to grow their wealth and they want to have a better life for themselves, and that shows ambition. Our shareholders are equally ambitious. They want to see Raiz grow and be a broader wealth platform. And really -- so as a result, as I said, shareholders are ambitious. And also employees or the Raiz team, they also want to see ambition. So ambition is a really, I think, a really good word to anchor around, and it's something that I've been, as I said, been using very much since the day that I started, and was the real driver for the initial engagement I had with the Board about coming on as CEO. We're looking to transform from a micro investing -- sorry, just go back to that slide, Katie, sorry. We're looking to transform from a micro investing platform to a wealth management platform. If I think about Raiz, we've got a really solid brand and that foundation is a micro investing platform. We've got really strong customer engagement. We've got really strong recognized technology capability. I've been incredibly impressed with the technology capability that we have here at Raiz. And we've got a proposition that really reduces barriers to saving and investing. But what we want to do is we want to build a wealth management platform that really delivers on customer innovation, really delivers on that disciplined execution and it actually is appealing and relevant to customers through that broader customer life cycle. So the transformation that I'm looking to undertake will enable stronger capability, execution performance and internal processes, which are critical for the next phase of growth for Raiz. Katie, next slide. The 4 key areas that I really want to focus on in the transformation are really as follows. And our strong capital position really supports an investment in the business. The first one is customer acquisition, conversion and lifetime value. We want to make sure we're implementing systems, processes and capabilities and in strengthening our customer engagement and that marketing enablement. That will help us drive increased customer growth, improved customer retention and really allow us to fulfill those -- that ambition of that being that broader wealth platform. We also want to look at brand evolution and market positioning. We want to reposition the -- sorry, the Raiz brand to reflect its evolution to that broader wealth platform. As I sort of said at the start, we've got a really well-recognized and regarded technology platform. So we want to look at what I would call AI-enabled customer engagement. So how can we incubate, test and launch tools that are going to improve the customer engagement, personalization and the overall customer experience. And the fourth one is that broader wealth platform enablement. It's really assessing opportunities and features that provide customers with that greater choice. The key aspect of this is the right -- we're making sure that we've got the right capability will be directed to the highest priority activities and that the transformation will strengthen the business without embedding that unnecessary cost. So we're going to approach this in a very disciplined and a structured manner. Next slide. It's also -- the transformation program is also enabled by sort of 4 critical shifts under new leadership with respect to me as the CEO. The first one is about enhancing our leadership capability. The second one is about building a high-performance culture, and I'll come back to a bit more detail on that in a second. The third one is about continuing to improve our internal processes to really make sure that we can deliver on that ambition of being that broader wealth platform. And the fourth one, which I'll talk a little bit -- in a little bit more detail in a second as well, is exploring strategic M&A opportunities. A high-performance culture is something that is really important for us to achieve our goals in terms of the ambition that we have for Raiz, but equally, the goal of building that broader wealth platform. Myself and the leadership team have got together. We've worked through a new leadership charter. There's actually a lot more detail behind this, but it's really super important. Culture is critical to any form of transformation, and it's really critical when you're looking at having a growth business. So we've got a new leadership charter that will really underpin the leadership and cultural changes that are required for that sustainable growth. The 3 pillars of high-performance leadership are really around consistency, openness and courage. And these behaviors will represent the minimum standard expected by the leaders and the team at Raiz rather than an aspiration. And that this charter will be embedded into recruitment and development, performance assessment, role descriptions and succession planning and so on. So the culture is a really important aspect of this transformation, and it's something that we've -- as I said, we've worked on as a leadership team, which I'm really proud of the team for doing so. The next slide, we continue to innovate towards the broader wealth platform. So the launch of U.S. listed equities and ETFs and direct ASX trading remains a high priority for FY '27. The proposed go-to-market approach will be staged initially cross-selling the -- sorry, the capability to existing Raiz customers and then using it as a way to potentially target new customers. Australian share trading will follow U.S. equities and ETF launch and greater discipline will be applied to the project planning and delivery around these key projects. So we're looking to launch U.S. equities and ETFs first, and that will be followed very much by the Australian direct trading following after that. So that is very much a high priority for the business and something that we're really working through now the exact date for when we will go live. If I look at the opportunity and why this is really an old slide, what I would say, we're seeing -- there's roughly around 1.3 million online investors. Now this is old ASX data. That has actually grown. But as I look at that, we've got a really strong opportunity to acquire new customers, but we've also got a strong opportunity for reengagement and cross-promotion. And as I said, you can see there where we think that with the right element of marketing capability and processes, we've got an opportunity to reengage, which will ultimately lead to greater outcomes for the business. The next slide, please. This is a really interesting piece, which really around Gen Z Australians. So research indicates that regular investing is really becoming increasingly established behavior among younger Australians. And that's a super exciting trend that we're seeing. As I said, really key stats here. And why does it matter? Why does it matter for Raiz? Gen Z is adopting regular technology-enabled saving and investing at an early age. And this really aligns strongly with our proposition of helping customers invest smaller amounts regularly and build that long-term wealth. So we've got a really engaged cohort of investors that are looking to invest, and our platform is really fit for purpose with that cohort, which is really exciting. Next slide, please. This is something that I think is a huge opportunity for Raiz. And when I look at the -- particularly when I look at things like Kids accounts as the sort of the funnel for this for what of a better word. The numbers around the intergenerational wealth transfer are significant. And what we're looking to do is to build that trusted brand for the next generation of investors, which obviously are the beneficiaries of the wealth transfer. There's going to be roughly $5.4 trillion that will be transferred between -- over the next 20 years. I've actually seen sort of higher numbers than this, but this is the sort of the recent, sort of, research from treasury. And if I think why our Kids account, in particular, is well positioned to support this, we've got the account, which allows simple to -- it's very simple to set up. And then the family can contribute and engage early, building that relationship for life. So we do see that as a really -- as an opportunity to really build the next generation of investors and particularly as they become beneficiaries of this wealth transfer. The next slide, please, Katie. The maximizing customer lifetime value. This is just -- I think it's a slide that I'm sure a number of you have seen before. It's -- look, I really like this slide. It shows you that we've got a range of different customer sort of groups, everything from Kids right through to boomers. We've got the -- in terms of features, we've got the Academy. We've got the Raiz Invest. We've got a Raiz Invest Super. We've got Jars. We've got Rewards. We've got our U.S. -- we've got our road map, which is around U.S. listed equities and ETFs and direct ASX trading. And then we've also got the AI-driven customer experience improvements. And as I said, then, we're catering for customers from under 18 right through to starting retirement. And that's where I think about really maximizing that customer lifetime value. Next slide, Katie. And then really exploring strategic M&A opportunities. So management is -- will continue to explore selective M&A and other strategic opportunities that really have the potential to accelerate our strategy. The primary focus will be on opportunities that really expand or accelerate our distribution capability, increase our customer reach, accelerate the product road map or add relevant technology talent or organizational capability and also create that sustainable value for our customers, but also very much so yourselves as our shareholders. And what I will say is an opportunity will be assessed against very clear strategic, financial, operational and execution criteria. So we are -- I flagged that in the fourth quarter results that, that was a priority. And I'm just sort of highlighting here the sort of the framework that we're going to look at with respect to M&A. And then the final one really there is the disclaimer. I'm happy to pause there and take any questions.

[Operator Instructions] We have also got Alex, the CFO, who is joining us there as well to answer any questions. So the first one, Craig, this has come up a few times. We've been asked by a few investors about FY '27 guidance or the absence of it this year. Can you just talk a little bit to your thinking and the Board's thinking about that for FY '27?

So we're looking through -- obviously, we flagged that we want to undertake a transformation. We want to do that in a very disciplined and structured manner. And we're looking through how we can focus on the investment that's required, particularly around that customer acquisition, conversion and retention number -- sorry, retention sort of need and as well as exploring some of the other things that I put on the transformation slide. So that is still work in progress. So we're still forming that up. But we're going to -- as I said, we're going to adopt that a very disciplined and structured approach to that. Equally, we're still working out the exact sequencing regarding when U.S. trading will go live. So with all of those factors at play, we're not 100% -- we're just working through where we think guidance -- where we think we could land. So it's -- that's why we actually haven't issued guidance at this stage.

Yes. Okay. And we've got sort of a follow-on question there. Do you still expect EBITDA growth after those investments? Or are you not going to talk about that just in the context of what you just said?

I think we've got a bit of work as a management team over the next short period of time to work through the transformation program. But as I said, we're going to -- it's going to be -- we're going to adopt a very structured and disciplined approach to that. It's work in progress, Katie.

Okay. No problem. You mentioned in the presentation that U.S. trading was coming before ASX trading. Are you able to talk a little bit about why the U.S. is coming first?

It's a great question. Our customer research shows us that particularly a number of our customers, particularly Gen Zs are interested in U.S. trading. We use external research to validate that, and it shows a really strong trend that, that cohort of Gen Z investors are -- really have a strong connection with U.S. trading. And therefore, we see it as a critical feature to both attract and retain that younger cohort of investors.

Okay. And what type of revenue model are you proposing for direct share trading?

We're still working through that. It's part of the go-to-market plan and approach for that. There's different ways to work through that revenue, but we're still working through it.

We've got a question here that there's been lots of talk in the transformation program about culture and leadership and processes. So can you just talk a little bit about sort of what your observations when you joined as CEO and sort of where the areas for improvement were?

Thank you. Look, if I look at the business, it's been running for 10 years, and there's a lot to be proud of. Strong foundations are really 351,000 customers, really great size of FUM profitable. So as I said, a lot to be proud of with the business. Where I sort of come in is I look at what do we need to do to take it to the next level from a growth perspective. And the key enablers to that are really, firstly, around culture. You need to have a culture that is really focused around high performance, really focused around ambition. That is what high-growth companies have, and it's something that I'm really committed to making sure that we have at Raiz. The second one is, as we look at being a broader wealth platform, you will need enhanced leadership capability. So that's something that we're really focusing on. And then the third one is the investment in internal processes. As we go from that micro investing platform to a broader wealth platform, it's that continued need to -- I wouldn't say invest, actually, it is invest, that continued need to invest in making sure that our processes and controls are really fit for purpose as you become a broader business.

We've got a question here on reengagement. So I think this refers to customers that were on the platform that have churned off the platform, representing the low-hanging fruit. What is the company doing to reengage these old customers? Is there more activity planned in this area in the future?

It's a great question. And it's something we need to really focus on. It's a high priority for me. It's about making sure that we've got the right technology capability, the right people capability to drive that reengagement. I completely agree that it is low-hanging fruit. We've got a number of customers that have left us or may have signed up that haven't funded us -- sorry, haven't funded with us. So that is a substantially -- that is a substantial opportunity, and it's a high priority for myself and the team.

We've got a question here on ARPU and that significant increase in the past year, if that has led to a measurable change in customer retention or churn?

In terms of -- we're seeing that number being relatively consistent would be my observation. I still think we have more work to do as a business to reduce churn. And I think that's a really important sort of priority. And I've sort of flagged that, I think, as part of the transformation, which is how do we make sure that we systematize that in a way that -- so that we can reduce churn. The U.S. trading platform will help to some extent with that. But we've really got to -- as a business, I want to make sure that we've really got strong systems and discipline around that acquisition, conversion, retention and making sure that we're using technology to identify where there's the prospect of churn, and we can make interventions as required.

We've got a question here on the monetization of your data. So sort of the question here is framed up that Raiz sits on a large and growing pool of demographic and spending behavior data. Some listed fintechs have started treating this aggregated data as a monetizable asset. Has the Board sized up the revenue potential of licensing or partnering on these de-identified data insights? Is that something that you're looking at?

It is on a list to look at, and it's something that -- but the key priority for me in the first aspect is really on those key priorities around the transformation priorities that I established. It doesn't mean that looking at monetizing the data isn't a priority, but I want the other ones to come first at this point in time.

There was a little bit of talk a while back about a white label product. Is that still on the radar in terms of a white label product offering?

Look, we're always open if there's opportunities if somebody approaches us. I'll just leave it at that, maybe at the moment.

We've got a question here on the share price, but that we've had a good few days, but I'll sort of leave that there. So we've got a question about the underlying operating costs increased 12% in FY '26. As the business scales, does management expect cost -- what's the trajectory of sort of the cost line, the CapEx or the operating expenses?

So my philosophy really around costs, and I think I made -- I think it was a comment I made, I think, in the start of -- I think it was the transformation slide. We will look at how we're going to spend money in a very disciplined and structured manner. We want to make sure that we've got our resources and capability pegged to the right activities. So as a business, yes, we always look at what are our revenue opportunities, but we're continuing to look at what can we do with respect to costs and are there ways to improve our spend with -- basically, are there ways to look at how we optimize that spend.

Will ASX trading support CHESS sponsorship, quite a specific question there.

That's -- we're still going through the -- that's the current plan, yes.