Tyro Payments Limited (TYR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Tyro Payments Limited FY '24 Results Investor Presentation. [Operator Instructions]. I would now like to hand the conference over to Mr. Jon Davey, CEO and Managing Director. Please go ahead, sir.

Good morning, and thank you to everyone for joining our call this morning. My name is Jon Davey. I'm the CEO and Managing Director of Tyro, and it's my pleasure to present our results for the 2024 financial year. I'd like to acknowledge that I'm hosting this meeting in Sydney on the land of the traditional owners, the Gadigal people. I pay my respect to elders' past, present, and emerging. I'm joined today by our Chief Financial Officer, Prav Pala; and our Head of Investor Relations, Martyn Adlam.  Today's Prav's final results presentation, I'd like to take this opportunity to thank him for the 10 years of service he has given to the business and the support he has provided to me since I was appointed CEO. Prav will finish with Tyro in mid-November, following a handover with our new CFO, Emma Burke, who joins us from Stockland. The presentation we're about to share was released this morning and is available on the ASX website and the Tyro Investor Center. It will also be displayed on this morning's webinar. Both Prav and I will refer to the slide number as we speak, making it easier for those calling in to follow. So, to begin, can I ask you to turn to Slide 3?  On our call this morning, I will begin with an introduction and summarize our key successes for the year. I will then talk to how we are progressing against our strategic delivery initiatives. Prav will take us through our execution of our strategy that has driven our 2024 financial performance before I close with our medium-term outlook and FY '25 guidance. We will then open the meeting for Q&A.  Before we begin, and for the benefit of those who may be relatively new to Tyro, I'd like to highlight who Tyro is and the role we play in the Australian payments industry. Tyro has been providing payment solutions to Australian merchants for 21 years. The business was created because our founders had a belief that business is needed and deserves better payment solutions. They set out to challenge the status quo. Today, we exist to serve more than 70,000 customers and to make payments the easiest part of doing business. This ambition manifests in 3 strategic objectives. These are to create industry-specific payment solutions, seamless payment experiences and sales, service and partner experiences that are valued by our customers. Product innovation, digital-first experiences, and excellent customer service.  If you now turn to Slide 5. Three themes characterize our performance for the year and our strong belief in the future of our business. We will cover each of these throughout the presentation. The 3 themes are: firstly, we've made good progress against our strategic initiatives. Secondly, we have delivered strong financial performance; and thirdly, we are uniquely positioned for growth. Moving now to Slide 6. Our focus on product innovation is not only delivering better products and product features, but it is positioning Tyro for an evolving payments landscape. I will discuss some of Tyro's product innovation initiatives later in the presentation. Our pricing transformation program and our disciplined approach to operating efficiency is delivering improved financial results.  The pricing transformation program was announced just over 12 months ago, a simplified process for our sales and servicing team, driven higher numbers of automated customer approvals and delivered a fairer pricing outcome for Tyro's customers. Operating efficiency is and will remain a core focus for my team. Over the past 18 months, we've adopted a disciplined approach to cost analysis, and we've established ROI hurdles for capital investments. We will continue to drive efficiency in all aspects of our business and ensure that the investments we make drive excellent customer outcomes while also supporting improved profitability.  Finally, growth is at the forefront of our priorities. And in FY '24, we've made good progress in expanding our market opportunity and building the partnerships necessary to enter into new verticals. I'll provide further details on these shortly. Turning now to Slide 7. The second of our teams is the delivery of strong financial performance reflected in our transition to a significantly more profitable business. I am really pleased to share these results as they reflect the hard work that has gone into bringing our strategy to life. Prav will talk through our financial results in more detail, but I will summarize the high-level outcomes. Firstly, our gross profit for the year increased by 9.1% to $210.8 million, which is within our guided range of $208 million and $215 million.  Secondly, our EBITDA increased by 31.6% to $55.7 million. This represents an EBITDA margin of 26.4%, up from 21.9% last year. This was also within EBITDA guidance of $54 million to $58 million and an EBITDA margin of circa 26%. Importantly, we delivered a significant improvement in bottom-line profitability with net profit after tax increasing from $6 million last year to $25.7 million. Finally, we are now a far more cash-generative business. Our free cash flow of $30.4 million was more than 5x the free cash flow generated last year. Turning now to Slide 8.  We firmly believe that Tyro is uniquely positioned for profitable and sustainable growth. We have several strengths that we will leverage, including our strong balance sheet, our payments technology platform, including industry-specific capabilities, which we own and control, a combination of direct partner and retail distribution channels, and our integrated payments and banking solution that delivers a better customer experience and earnings diversification. By leveraging these strengths, we are confident of delivering growth in our addressable market, diversity in our customer base, better customer economics, and improved profitability. Turning to Slide 10. In my half-year presentation in February, I spoke about how the payments landscape is changing and how we're seeing more integrated payment offerings across the market. I shared 2 of the main ways we're innovating to ensure that we continue to provide solutions that merchants value. Combined, we refer to these as unified payments. The first of these is a bundled payment and pause offer where Tyro invoices merchants with a single price for integrated payments and posit solution. Many merchants want the simplicity of the single price provided, and this offer has helped us compete with POS businesses that are selling bundled payment solutions. So far, we're working with 36 partners to offer bundled solutions. Merchant response has been strong with almost 1,000 businesses using this bundled proposition.  The second item that I spoke about was a device and pas-agnostic embedded payments, enabled by our easy-to-integrate SDK. This solution opens payment opportunities that are not possible with traditional terminal solutions. For example, on unattended devices such as in car parks and vending machines or mobile devices that are used to queue busting at restaurants and bars. We are now live in processing payments via an integration with Abacus, one of Australia's largest post providers in the hospitality sector, and we're in the final stages of certification with a further 10 POS partners. Moving to Slide 11. I'd like to talk through 2 examples of partners leveraging Tyro's capabilities to build cutting-edge solutions for our shared customers. The first is a partnership we recently entered into with StoreConnect, the world's first salesforce-based point-of-sale CRM for small businesses. I'm sure that everybody joining the call has heard of Salesforce CRM, as you understand how embedded into operations that has become for many businesses. StoreConnect to integrate directly to Tyro provides us with a huge opportunity.  The second example, which you may have read about is our partnership with Hello Clever. Hello Clever is an Australian buy-to-earn platform with more than 100,000 users. Hello Clever users earn cash on purchases made anticipating merchants. With Tyro, Hello Clever had been able to revolutionize cashback by providing a real-time rewards program when a customer shops at one of more than 70,000 Tyro-involved merchants. Tyro's loyalty APA allows us to match credit and debit card details in a highly secure way for customers that shop and pay at a Tyro merchant. These card details can then be linked back to a Hello Clever customer. For Tyro merchants who choose to participate, it provides an at-scale loyalty program with the network benefits that Tyro's 70,000 merchants bring. Turning to Slide 12. I want to share with you some of our banking performance and highlight how our strategy to integrate payments and banking is resonating. Firstly, banking gross profit increased by almost 30% during the year to $12.6 million. This is a good result and reflects increased earnings, predominantly on lending. Prav will talk through this shortly. However, key to our strategy and to delivering a better payment experience is driving greater penetration of the Tyro bank account into our payment's customer base. This provides not only a low-cost source of funds that can be invested in higher-earning assets, but it increases the pool of Tyro merchants eligible for our lending products.  During the year, we saw a 27% increase in the number of active Tyro bank accounts. These are merchants who use their Tyro bank account to settle payments. I'm extremely pleased to see so many more of our merchants unlocking the value that Tyro can offer. It's clear to us that both existing and new merchants value our integrated payments and banking proposition, which remains core to our strategy. However, we hold ourselves to a high standard, and we didn't meet our internal targets.  Lending originations were down 9%. While this was partly the result of a more conservative credit management approach, given the softer macroeconomic environment, it also reflects that we haven't yet delivered the level of merchant take-up that we would like for our banking products. To drive greater adoption of our bank accounting lending and for more of our merchants to get differentiated value from Tyro, our product offering needs richer features. We're looking at ways to expedite the implementation of these features, which may include a combination of in-house build as well as external partners. Moving now to Slide 13. In the 20 months since being appointed CEO, we're focused on embedding financial discipline across the business and operating in a far more efficient way. One of the initiatives that we have progressed is our pricing transformation. The goal of this program is to ensure that pricing to merchants is simple, fair, and more transparent. It has helped ensure that the cost of payments across different segments, verticals, and card schemes is appropriately allocated. This program has been successfully delivered, and we have seen the financial benefits.  During FY '24, we undertook 3 activities: 1 in December 2023, where we moved approximately 16,000 merchants onto a card-based pricing structure, where the price of merchant pay through a transaction depends on the card used by the customer. In May, we followed this up by moving approximately 14,000 Bendigo powered by Tyro merchants onto card-based pricing. Then in June, we reviewed the pricing for around 2,700 Tyro's health merchants. This was a significant program that helped build a new margin-focused discipline within the business. It has been well received by merchants with a small number of inbound queries or pricing-related churn. And by allocating costs more effectively, the program has had a net positive impact on our gross payment margin for FY '24. Prav will cover this later.  To improve operating efficiency, we've been more selective about the number of initiatives, prioritizing those that will have the biggest customer or financial impacts. We've also worked hard to introduce further automation, whether that be for onboarding new merchants or the trial of AI tools for our service agents. Doing this allowed us to right size teams and allocate head count into areas that will drive more growth. For example, our sales and account management teams. On a net basis, our head count is lower by about 20% at the end of this year compared to last and significantly down compared with 2 or 3 years. We have some ways to get to the level we want, but our operating efficiency and the pricing transformation program has played a critical role in driving increased profitability. I'll spend the next few slides talking about growth, an area that has been and will continue to be a top priority for my team. Starting on Slide 14, I'd like to share some highlights on payment volumes.  When we review Tyro's customer base, there are 2 categories to consider each with its own dynamics. The first is our discretionary verticals of retail and hospitality and our Bendigo merchants. Retail and hospitality are the largest verticals and continue to be strategically important. However, transaction growth has been challenging. Consumers and small businesses struggled in the face of high inflation, high interest rates, and cost of living pressures. For many small businesses, this has been too much, and we are still seeing elevated levels of business closure. Our Bendigo customer base is reduced this year. Churn was largely driven by delays to migration. And while this hasn't yet been offset by new business, pleasingly, we are seeing stabilization and we have very strong alignment with the Bendigo team on activities required to drive growth. Early signs this year are very encouraging. Across this category, volumes reduced by circa $900 million or 2.7%. 2/3 of the reduction or $600 million came from Bendigo with hospitality reducing by about $300 million. Retail was flat year-on-year.  The second category and nondiscretionary verticals of health and services have continued to deliver strong growth. Across these 2 verticals, we delivered $1.3 billion in growth, equivalent to a growth rate of about 15%. This has been important in offsetting tougher conditions in our discretionary verticals. It reinforces that these verticals have great fundamental growth prospects, and we have valuable diversification across our book that can help provide downside protection when the cyclical sectors face challenges. At $9.8 billion, health and services made up just under 23% of our total transaction value. In gross profit terms, they contributed $50.1 million, up 13.5% from last year and representing 27% of total payments GP. Not only are these verticals growing much faster, but they've been delivering a better margin.  The largest component of our non-discretionary verticals is health, which makes up $6.5 billion of the total $9.8 million. This is a vertical that Tyro has had capability in for several years but has been accelerated following the acquisition of Medipass in 2021. If you can please turn to Slide 15, I will share more about our health business. Tyro's Health is a high-growth business that will generate durable cash flows into the future. There are 3 reasons for this. Firstly, Tyro's Health is growing quickly in our market where our share is low. Secondly, we've built competitive advantages by solving much of the complexity and uniqueness of health payments. And finally, we believe we can leverage the expertise and capabilities we have in health to solve payment problems in other industries and sub-verticals. The processing of health payments is complex. Health merchants received payments from patients, private health insurers, state and federal governments, and government agencies. It requires digital connectivity to a vast network of interconnected groups. Without digital connectivity, merchants and their patients need to manually claim the payments. The only way for a payment process to acquire this capability is to systematically learn, build, and integrate into a network of practice management systems, funders, and insurers.  The capability Tyro has is truly vertically specific. Replicating it would require a huge amount of time, knowledge, and investments. This complexity and the platform we have built provide a protective mask around our business. On a stand-alone basis, Tyro Health is a significant business. In FY '24, we processed $6.5 billion of card payments. Transaction volume growth increased by 21%, and we expect growth to be strong over the medium term. This will come by increasing market share, targeting new sub segments, rolling out new solutions and by improving our sales and marketing efforts. The non-discretionary nature of the industry will also support growth with Australian health-related spend forecast to continue to grow over the medium to long term. Importantly, there are adjacent verticals where we can leverage our health platform and other unique capabilities to help make payments the easiest part of doing business. I would like you to turn to Slide 16. Last year, we announced that we are targeting new verticals. And with our half-year results in February, I said we would make an announcement in the 2024 calendar year. I'm pleased to share today that we've identified those verticals. We've made good progress, and we expect to start transacting during FY '25. In the first, we will leverage our health platform and extend this into an adjacent vertical where our experience and expertise sets us up for success. This is a highly attractive vertical given the similarities to health and the market is large and growing. We're currently finalizing commercial terms. So, I will share more as soon as we can, but we're excited about the opportunity, and we believe this is perfectly aligned with our strategy.  The second driver of growth is our entry into the unattended device market. Again, this is a large and growing market. What we've learned as we've been exploring this vertical is that success requires ownership of payment switch and expertise in building third-party integrations, both of which are core Tyro's strengths. We will begin our entry into unattended devices by partnering with one of Australia's largest providers of unattended payment infrastructure for parking, EV charging, and vending machines. I'm pleased with the progress our teams have made on these 2 new verticals. Both are directly aligned to our strategy to leverage Tyro's capabilities and expertise to build out specialized payment propositions.  Scale is important to our business, and more so when we consider the benefit we get from adding volume to our fixed-cost payments infrastructure. I will provide more information in the coming months. Moving now to my final slide of this section, Slide 17. Our focus is on delivering growth and doing this profitably and sustainably. On this slide, I've laid out the 5 things we will prioritize. We will continue to embed Tyro within the payment's ecosystem, so that Tyro's infrastructure is leveraged beyond the single processing of a payment, making us increasingly valuable to a wider range of partners and merchants. We will enhance our go-to-market and prioritize the allocation of resources to those activities that allow us to continue growing. Retail and Hospitality remain core to our growth plans. We will continue to drive multiproduct adoption, in-store payments in e-commerce, banking, and in health, our claiming solutions. We will leverage capabilities and expertise to grow into new verticals. As announced, we have 2 lined up, and our priority is to get these lives. Finally, we will leverage our balance sheet and explore inorganic growth opportunities to enhance our capabilities, strengthen our position in an existing vertical, or give us new capability that will allow us to open another vertical or channel. I would now like to hand to Prav, who will take us through how the execution of our strategy has driven our 2024 financial performance.

Thank you, Jon. A very good morning to everyone on the call. My name is Prav Pala, and I'm going to spend some time talking through our financial performance for the year-ended 30th June 2024. If you would please turn to Slide #19. In our last report, we talked about our focus on building a resilient and more profitable business. Our full-year results demonstrate strong progress against this with improvement in all key financial metrics. Our financial performance for the period showed 3 things: firstly, increased gross profit; secondly, strong EBITDA outcomes as a result of our margin optimization program, and finally, record free cash flow generation. Taking each of these in turn, starting on the left.  Our gross profit grew 9% or $17.6 million year-on-year. This was driven by a combination of our pricing transformation initiative, complemented by an increased contribution from both banking and corporate. I'll share with you shortly how our top line is becoming more diversified. The middle graph shows our EBITDA of $55.7 million, representing a margin of 26.4%. Both these metrics were new highs for Tyro and is an outstanding result considering the macroeconomic backdrop over the period. Operating expenses and losses remained broadly unchanged from last year, including $3.9 million in one-off expenses incurred in the first half. The EBITDA has not been normalized and is presented inclusive of all one-off costs and the $55.7 million represents an increase of 31.6% year-on-year.  With gross profit growth and an increase in EBITDA margin, our free cash flow has progressively improved. We are pleased to report a free cash flow of $30.4 million for the year, a more than fivefold increase compared to last year. Even after adjusting for any one-offs, our operating free cash flow was $22.6 million. The financial performance is discussed in more detail over the next slides. If you could please now turn to Slide 20 for an analysis of our increasingly diverse top line. We consider gross profit, our core measure of top-line performance as it combines both growth and margin. Our gross profit increased by $17.6 million or 9.1% to $210.8 million. The majority of the gross profit came from the payments business with an increasing contribution from banking and corporate. Payments gross profit represented a growth of 5.2% to PCP, outpacing the transaction value growth. We segment payments between our core verticals of hospitality, retail, health, and services. We have categorized hospitality and retail as discretionary verticals, while health and services have been classed as non-discretionary. Starting with the table on the left, our discretionary verticals contributed $136.6 million in gross profit, up 2.5% from FY '23.  Our non-discretionary verticals performed strongly, growing 13.5% to $50.1 million, adding up to the total payments gross profit of $186.7 million. The banking segment delivered $12.6 million in gross profit, a growth of 29.4% over the prior comparative period. While loan originations were subdued in the year, our banking gross profit increased strongly due to better margins on the merchant cash advance products as well as earning a positive spread on excess deposits held. I will talk more about the performance of the banking business later in the slides.  Corporate gross profit was mainly reflective of the higher interest rate environment. The income is earned on new capital generated and the working capital required for the payments business. The chart on the right of the page demonstrates the increasing diversification of our gross profit over the years. Contribution from our non-discretionary verticals has been gradually increasing, now making up 24% of gross profit in FY '24. Similarly, banking, while small, has been contributing an increasing proportion in recent years, a trend that we expect to continue. Greater adoption of banking will drive better customer economics and support our medium-term gross profit growth. We are becoming less concentrated in the discretionary verticals as we build a more diversified and stable business.  In the next few slides, I will go through the performance of our payments and banking business in more detail. Firstly, to review the contribution from payments. Please turn to the next slide, Slide 21. This slide provides some analysis on transaction value by vertical for the Tyro core business, which excludes the Bendigo book. The transaction value for the core book grew by $0.9 billion or 2.4% to a total value process of $38.1 billion. Walking through each vertical, merchants in hospitality were highly impacted by the economy and the discretionary nature of consumer spend. In hospitality, we processed $18 billion in the year, which was a 2% decline to FY '23. The retail vertical held fairly steady. At $10.3 billion of transaction value process, it performed slightly better than we expected. As mentioned in our last presentation, we lost one of our large merchants as we don't specialize in providing a global solution. Excluding transactions from this merchant, retail, in fact, grew by 2% year-on-year. The sum of hospitality and retail represents our discretionary verticals, transacted a total of $28.3 billion, which was down 1.3% to FY '23. Moving on to the nondiscretionary verticals. You heard Jon talk about the strength of the health business, which was evident in our results. Health spend proved highly resilient to external factors and locked the strongest performance across all our verticals, growing $1.1 billion or 21% year-on-year. Health recorded a total transaction value of $6.5 billion. Finally, the services vertical, which is still an emerging vertical for us, grew 5% to $3.3 billion. In total, therefore, transaction value for the nondiscretionary verticals was $9.8 billion, or an increase of 14% from FY '23. The graphs on the right show how the transaction value translated into gross profit. For our non-discretionary verticals, gross profit grew 13.5% to $50.1 million. Furthermore, the gross profit for the discretionary verticals grew by 5.5% to $120.3 million despite a small decline in transaction value. The result is due to an improved margin in this vertical from the pricing transformation program, which I will talk through in the next slide. Please turn to Slide #22. For context to pricing more broadly, on the left-hand side of the slide is an illustrative representation of the relative margin and transaction value we see across different segments of our book that is micro merchants transact relatively small amounts, but the unit margin tends to be high. The opposite is true for large and enterprise merchants, the unit margin is lower and the higher transaction value more than compensates to gross profit. And somewhere in between is where Tyro is most represented in what we consider our sweet spot. These are SMBs who transact around an average of $650,000 per annum and contribute a healthy unit margin. My point here is that we do serve the micro and large segments, and we may serve even larger merchants in the future. And while the unit margin on these merchants may be lower, we generate benefits of scale from the higher TTV process, given the fixed costs of our switch.  On to pricing more specifically, one of the initiatives we announced last year was the Pricing Transformation program to optimize margins. The program mainly focused on simplifying card-based pricing applicable to our small and medium businesses being the majority of our portfolio. We are pleased to report that we successfully completed our planned initiatives for the year with some final milestones to fall into FY '25. As a result of the program, the payment margin of our Tyro core book increased to 46.4 basis points, an increase of a total of 5 basis points compared to early FY '23. For your reference, we've shared a summary of our key pricing structures in the appendix to this presentation. I will now move on to the banking performance. So please turn to Slide 23.  Our banking proposition comprises the Tyro bank account, emerging cash advance products, and term deposit accounts. The Tyro bank account is a fee-free interest-bearing merchant transaction account that provides a stable and low-cost source of funding. The Tyro bank account allows merchants to receive same-day settlement, including on weekends. They can also choose the time of day they wish to receive their settlements.  From an economic perspective, we are able to use the account to earn a positive spread, either by funding the merchant cash advance product or investing the excess deposits. The balance on this account increased from $70.7 million to $74.2 million at year-end. The emerging cash advance product is a short-term loan, allowing merchants to conveniently supplement their cash flow requirements at a set upfront fee.  We originated $136.7 million in loans for FY '24, which was a decrease of 8.7% last year. The lower originations were a result of us tightening our current policies as well as the reduced appetite of our customers to invest given the economic challenges. While our overall number of drawdowns increased by 3%, the average loan drawn down decreased by 12% from 47,400 per loan in FY '23 to $41,900 per loan in FY '24. 83% of originations were from repeat customers, highlighting the increased lifetime value of customers that use this product. The banking returns are broken down into its components on the right. The annual net return after lending losses on the merchant loans shown on the top light green line was 16.2% on an average loan balance of around $43 million. The 16.2% net return compared favorably to 12.4% in FY '23 and was attributed to a higher upfront fee, offset by a slightly longer loan duration. On average, each loan was fully repaid over 5.4 months compared to 4.7 months in the PCP. As mentioned, we were also able to achieve a positive spread on merchant deposits. The net return on deposits was 2.3%, down from 2.9% in the previous year. While excess deposits were invested at a weighted average rate of 4.7% compared to 4.1% in the PCP, interest expenses were higher due to the introduction of wholesale term deposits, which started only at the end of FY '23. As a result, the banking book as a whole had a net return of 8.2% for the year, up from 7.9% in the PCP. As the book performance is a function of spread over a short duration, the profitability of the business is less susceptible to the external interest rate environment. Our ADI license allows us to raise stable and low-cost funding, which we will continue to leverage as part of our strategy. Turning to the next slide, Slide 24. I'd like to talk to the improved operating efficiency for the year.  As Jon spoke about earlier, we have been taking deliberate steps to improve our operating efficiency through more disciplined cost management. The majority of this has come from rightsizing our organization progressively since October 2022. As you saw in one of the early slides, we finished the year at a total head count of 626, which is a reduction of 16% from a high of 748 just over 2 years ago. As a result, we have been able to successfully maintain our cost base despite salary increases of circa 4%, high inflationary pressures, and further investing in marketing. Including all one-offs, our total operating expenses, in fact, decreased by $1.4 billion year-on-year. While keeping a constant cost base, we grew gross profit by $17.6 million to $210.8 million. As a result, our operating jaws improved by almost $20 million to a positive $60.7 million in FY '24. Reflecting on just over 2 years ago, the operating jaws has improved by over 5x when you consider the FY '22 results of $11.8 million. The next slide provides a summary of the financial performance of the business.  Firstly, we significantly improved our EBITDA for the period, up 31.6% to $55.7 million at a margin of 26.4%, up 4.5 points on last year. The result was underwritten by a diversified and stable top line supported by 3 things: strong growth in our non-discretionary verticals, success of pricing transformation, and an increased contribution from banking. This improvement in EBITDA supported large increases in both our free cash flow and statutory earnings. Free cash flow generation was more than fivefold this year at $30.4 million. Included in this number are one-offs totaling $7.7 million relating to compensation from the counter litigation and insurance recovery for our incident remediation. This was offset by restructured termination costs and an independent review of our strategy. In addition, statutory net profit after tax was 4x higher than FY '23 at $25.7 million. This represents earnings per share of $0.491 compared to $0.116 in FY '23. We are pleased to demonstrate that progress against our strategic initiatives has helped transition Tyro to a significantly more profitable business while continuing to focus on growing sustainably. That is a summary of the performance of the business. On the next slide, I will briefly talk about the strength of our balance sheet. Please turn to Slide 26.  On this slide, I will talk about 2 key metrics underpinning our strong balance sheet. We ended the year with a total capital of $124.9 million, representing a capital ratio of 65%, which was multiples above our prudential capital requirements. The increase in capital was attributed largely to the net profit after tax of $25.7 million after incorporating regulatory adjustments. This capital is available for reinvesting into the business, pursuing growth opportunities, or returning to shareholders as appropriate. As a regulated ADI, any form of capital return requires APRA approval. We announced the intention for a buyback at our Strategy Day, and we continue to engage with APRA on this.  Separately, having recently obtained clearance, we have now established the Tyro Employee Share Trust, which will enable us to purchase shares on the market to fulfill future employee share-based commitments. We will be looking to purchase circa $5 million worth of shares this financial year to cover expected commitments. The mechanism serves to allow us to utilize our capital more efficiently and mitigate dilution to our current shareholder base from shares expected to be issued in the next 12 months. With our banking license and the ability to take deposits, we ended the year with a strong liquidity position. Our total liquid assets, which shows the total amount of cash and financial investments increased to $138 million, up from $113 million at 30 June '23. The increase was mostly driven by the additional cash resulting from our improved profitability. On the next slide, I would like to summarize the 3 key things that stand out for me from our results for FY '24.  Firstly, increased gross profit, which continues to drive a more diverse top line; secondly, our ability to continue improving EBITDA margin and finally, becoming more cash generated as demonstrated by the strong free cash flow in the period. These are a pleasing set of final results from me after almost a decade of rewarding experiences at Tyro. I would like to take this opportunity to thank the entire Tyro team over the years as well as the support from you, our investors, and analysts over this incredible journey. I look forward to following the success of the company from the sidelines and being on the other side of the call at the next reporting day. I will now pass back to Jon, who will talk through the outlook and updated guidance for the business over the medium-term.

Thanks, Prav. I'd now like to reinforce why we are uniquely positioned for growth and provide our outlook for FY '25 and beyond. We'll then open for Q&A. Turning to Slide 29, please. Tyro was the payment provider of choice for more than 70,000 merchants. We've captured the share of the market because we're focused on building better payment solutions for customers. We will leverage our unique capabilities to power future growth. These capabilities include, firstly, ownership of our end-to-end tech stack. This means we have complete control and flexibility to build vertical-specific solutions and to integrate seamlessly with partners. Secondly, we've targeted distribution channels that we can leverage to enhance our go-to-market efforts. Tyro currently acquires customers directly through POS and PMS partners and through independent sales organizations. Each has its own focus with some suited to certain types and sizes of merchants.  Finally, merchants value the benefits that come with our integrated payments and banking proposition. This solution provides businesses with same-day access to their funds and helps Tyro merchants manage their cash flow. Looking ahead then, what will these 3 strengths allow us to do? Firstly, they will enable us to unlock more of the addressable market in Australia, giving us greater opportunity for growth. Launching into new verticals is exciting. However, there are still plenty of opportunities within our existing business. Second, as we build greater momentum adoption into our banking and lending products, we will see better customer economics flow to a wider population of our book. This will be hugely supportive of gross profit growth. Finally, with growth in payments and banking driving top-line growth, plus our ongoing commitment to improving operating efficiency, we are confident in our ability to keep delivering improved profitability over the medium-term. It's on this point that I would now like you to turn to Slide 30. Reflecting our belief that we will drive improved profitability over the medium-term while ensuring we also invest for growth; we've presented a framework that illustrates how to think about gross profit growth and EBITDA margins over the next 3 years. Our medium-term guidance is based around the commonly used Rule of 40 concept. Using this concept, we'll have a score, which is the sum of our normalized gross profit plus our EBITDA margin. We are targeting a minimum score of 40 from FY '26. This means that we need to drive top-line growth that balances with improved profitability.  To outline this concept in the context of FY '24, we delivered gross profit price of 9.1% and an EBITDA margin of 26.4%. When you sum those 2, we get 35.5%. That's our score under the Rule of 40 concepts. To get a score of 40, we would need to either improve gross profit growth or our EBITDA margin, and that would need to be 4.5 percentage points decline. Setting this trajectory, we believe, gives you as owners of the business, greater visibility over the medium-term and demonstrates our commitment to profitable and sustainable growth. To add further detail, we will deliver an increase to the EBITDA margin in each year. For FY '25, we expect an EBITDA margin of 28%. In FY '26, this will be circa 29%. And in FY '27, it will be circa 31%. Turning finally to Page 31, I'd like to talk through our expectations for FY '25.  You've heard throughout the presentation today that we are performing well in our non-discretionary verticals, and we're focused on improving the growth in our discretionary verticals and banking. We recognize, however, that many businesses face significant cost pressures and remain sensitive to inflation and interest rates. In the first weeks of this financial year, we continue to see softness in the discretionary retail and hospitality verticals. And while we're positive for FY '25 overall, we're mindful of this in our near-term outlook. Taking into consideration the current economic conditions our growth initiatives and to drive to improve the contribution from banking, we expect to deliver gross profit for the year of between $218 million and $226 million. As you would expect, given the economic uncertainties, we've been cautious, but realistic in providing the immediate gross profit guidance. As we work to improve our operating efficiency further, we also expect to deliver improved EBITDA, and we're guiding to a margin of approximately 28% for this year. That brings an end to the formal part of the presentation. We will now open the call for Q&A.

[Operator Instructions]. Your first question is from the line of Bob Chen with JPMorgan.

A few questions for me. Just on your improved pricing outcomes, your mass margins is up 9% in the second half. How should we be thinking about that margin into next year? Can we annualize that into next year?

Prav, I might ask you to take that one.

Bob, thanks for the question. So, the way you think about it, we announced our pricing transformation early in the year. As Jon mentioned, we migrated 16,000 merchants in December 2023 to that card-based pricing. Now that added about an overall 2 basis points in the second half to the overall portfolio. The other additional one that we did was about 14,000 bids from the Bendigo book, so pretty much the entire pending book, which was in May this year. So, this year, it only had about a month's benefit come through to that.  So, I would say the second-half increase of 2 basis points can just get carried forward into next year. There will be an additional 0.5 basis points from the Bendigo book. The only caution I would have is based on the segment mix that I talked about earlier, which was we will continue to target our SMBs. However, there could be larger merchants, which could come at a dilutive margin but with more transaction value. So, in providing the outlook, we've considered both a mix of small, medium, and large businesses to come through. With the current competition as well, we have allocated some amount of that into retention strategies, as you'd expect, to balance both growth and profitability. So, I would probably say the exit rate of FY '24 can safely be extrapolated into FY '25.

And then just looking at your guidance for next year on gross profit growth at plus 3% to 6%, I mean, taking into account the improvement in your NAS margin, it sort of implies you're maybe looking at a sort of flattish revenue outcome. Is that fair?

Yes. So again, I might take it and then Jon can add some additional color to that. So, I think in coming up with the guidance, we've tried to split what we can control or what we can't control. And the economy on the discretionary spend is probably the biggest uncertainty. I think in the second half, we guided towards hospitality being a bit more negative and Bendigo being a bit more negative as well as retail. I think on the retail, we were pleasantly surprised. On hospitality, it was probably slightly worse than we expected, whereas Bendigo was slightly better. So, if you just take that forward, I think the way we've combined it and which is why we haven't actually given a transaction value guidance but overall gross profit, we've taken that discretionary TTV would be, say, very low negative to a flat growth early into next year, whereas we expect nondiscretionary to grow in the mid-teens for the full year. I think, like I said, payments margin just managed between 45 and 46 basis points, which should give you about a $7 million to $12 million increase from the payment side. On the banking side, we will probably remain really cautious still. So, you'd maintain a flat gross profit to up to a $3 million increase. So overall, in GP, I think we forecast between $7 million to $15 million, which is the range from this year. On the expenses, I think in each of the scenarios, we will look to continue being disciplined and expenses is something we can control. So, under each of the gross profit low to high-end range at 28%, you will see that the expenses increase, including lending losses, are between flat and up to 5% for investments build.

And just a final one. The 2 sort of new verticals, especially maybe the unattended systems there. I mean, how should we think about the margin profile of those verticals compared to your current business?

Bob, we probably can't share too much about the way that we're thinking about margin there just because we're still finalizing some of the commercial terms. I think in the unattended though, it's reasonable to assume that this is predominantly something that we'll drive from a scale perspective. And the margins will be smaller than they are on most of the traditional parts of our book.

Our next question is from the line of Tim Piper with UBS.

Just the first one, again, on the OpEx space. We can back out what your kind of assumption there is in '25. Just looking at your sort of medium-term targets from here would assume sort of a rough acceleration again in OpEx growth into '26. How sort of conservative are you being thinking about cost growth from here in the business? It looks to be sort of mid-single digits at the midpoint of guidance in next year and then sort of closer to 10% in '26. Is that just being conservative?

Look, I think it's probably taking a reasonably conservative approach, Tim. I think that what we've been able to demonstrate over the last few years is that we are taking a really disciplined approach to cost management. There are a few things that we need to invest in just to make sure that we get some of these verticals to market -- these new verticals to market over the short to medium-term. But I think that it's probably fair that we are taking a reasonably conservative approach there.

Just maybe adding on to that a little bit as well, again, to balance growth and profitability. So, we've got about close to 30% of our expense base, which is in the growth functions. So obviously, as we pursue growth, that will be variable to the growth side of things. We are also looking to migrate some of our on-premises infrastructure onto the cloud as well. So, if you look at the annual report, you will see some increases in expenses there. As we finish that migration, we should see an increase in the P&L costs for those, but lower CapEx requirements going into the future.

Got it. And sorry, just another follow-up on OpEx. When you look at -- looking at your '25 guidance, you've obviously got these 2 new verticals coming in, which sort of look like organic lead growth channels. You've factored in additional OpEx, are those new verticals expected to be a little bit of a drag to begin with before sort of ramping up volume-wise?

Pretty minimal. I'd say. I think from a planning perspective, we haven't assumed huge transaction value growth in those for the FY '25 financial year. We will absolutely see transaction value starting to come through. But that will be I'd say, on a relative basis at the lower end, we'll probably see the real value start to come through in the following financial year. There is some development costs associated with building out, integrating some of these solutions, but we'll be able to largely manage that within the teams that we have.

Yes. And just to add on that, the development side of it, we'll have to assess it from an accounting perspective, but I would say a majority of that would be capital in nature as well, Tim.

Got it. And just one on churn. Just on transaction value churn, I think you called out the impact from one large merchant. Can you maybe give us a sense on how that transaction value churn trended through the half? Did it sort of progressively improve into year-end? And what are you expecting? I think previously, you sort of called out a few one-offs in churn numbers before. Is there a way you can kind of break it down in a similar way for the second half of '24?

Yes, it's largely similar to what we call in the first half. So obviously, from the large merchant we talked about, they were rolling off in the second half last year. So that remained steady and slightly improved in the second half. We did lose a few merchants due to, unfortunately, business closures in the first half as well as some competition, which we spoke about earlier. Given that we lost them pathway through the first half, obviously, that churn was for the full second half. So that was probably an elevation of an additional 1% in the second half. More concentrated in the hospitality segment.

Our next question is from the line of Jack Daley with Shaw and Partners.

Congrats on today's results. Well done. Just the first one for me. Just on surcharging. You've called out in the past around 20% of your merchants have been surcharging. Can you give an indication here, especially from the front book as well? How you're seeing that demand there?

Yes, Jack, Jon here. Yes, so the number of merchants we have surcharging is actually close to 30% at the moment. We have seen a small increase in that over the second half, which is probably not entirely surprising as we look at merchants who are looking to offset the cost of payment acceptance. We do see that a little bit more so in some of those more discretionary spend categories. When we see front book, really the number of merchants, there is probably sort of operating at about that same about that same sort of 30% or so level. We are seeing a little bit more take-up, but we've got different surcharging propositions, as you aware, we've got a no-cost debt cost, and we've got the ability for merchants to be able to set the surcharging rates for both credit and debit. No cost FPS does seem to be a really, really popular product, and we're seeing some fair bit of demand for it. But on a relative basis, it's still a pretty small part of our overall book.

Would you got to give a sense at all on the margin profile? Obviously, you called out discretionary and nondiscretionary, what the margin profile looks like for charging merchants?

No, sorry, when I ask that now. The overall margin profile in the nondiscretionary is higher on a portfolio basis and probably by about 3 basis points, which is great. But no, we don't analyze merchants that we set surcharges in both the discretionary and nondiscretionary verticals. Overall, the merchants that tend to surcharge tend to be less price sensitive. So, we have seen that there are one, there are smaller merchants, which expect a higher unit margin to begin with, probably less sensitive to price changes. I would also say, Jack, just at a high level. We see less of our merchants in our nondiscretionary categories surcharging. Just the nature of a health merchant, for example, they are far less likely to provide surcharging. And it is in those, as we indicated, as Prav indicated, it is in those non-discretionary verticals where our margin is slightly better. So, while I don't have the data to hand, I would say that we have a better margin in nondiscretionary and we see less surcharge in nondiscretionary.

And just quickly on banking. You called out 20% of banking as a percentage of GP, just confirming that's by FY '27 as you've outlined in the past.

Yes, that's the target we're working towards, Jack, absolutely.

Our next question is from the line of Cameron Halkett with Wilsons Advisory.

Can we just touch on the RBA's comments into merchant fee regulation? They seem to be looking the most at least cost routing surcharging and merchant fees on smaller businesses. Could we get your view here if the RBA does enact ever to remove surcharging and or reduce fees on small businesses? Would there be any negative impact do you think to Tyro if so?

The first one on reducing fees. I think that will be an interesting one. If you look on a global basis, mention acquiring fees in Australia are relatively low compared to other markets. And we need to -- I think the RBA would need to look at how they would reduce those fees, whether that be by greater regulation on the schemes and reducing interchange and scheme costs or exactly how they would do that. But it's a bit early on that one to sort of state what we think the impact would be. I think on surcharging is an interesting one. While I say that -- while I mentioned that 30% of our merchants are surcharging, we have the ability to be able to set surcharging and the amount that the surcharged to either a credit or debit level. Therefore, it depends on the decision that the RBA would make. And sort of at a high level, we look at it and say there are possibly 3 potential outcomes.  Number one, they ban surcharging completely. Number two, they cap the amount that can be surcharged, or number three, they perhaps then surcharge on certain transaction types. We've done the analysis of the impact for Tyro, and we think that the impact is pretty minor really. And we think that we've got the capability to be able to manage that and to help our merchants manage that pretty well. So, in our views, pretty minor, and we had started to get some questions from the RBA and we're working through some of those with them at the moment.

Yes. That's extremely helpful. I would have expected, I mean, a certain degree as well if they are looking to lower merchant fees, particularly in smaller businesses, and it makes more sense perhaps to lean on interchange and skin given this makeup far more of the merchant fee than does the acquiring margin. Do you give any view as well, I suppose, then on the side of lease cost routing? I know Tyro certainly ranks better in terms of enablement with its merchants relative to some other players in the market. But would you see an instance perhaps where lease cost ratio would be mandated rather than a letter?

I mean, I think the thing about lease costs rating, we often think about lease cost routing enabling POS transactions. Lease cost routing actually requires us to be able to ramp transactions to the lowest cost rails, whichever one that might be. Do I think that they could mandate it? I think what we have seen in the -- RBA came out with our most recent figures last week or the week before. I think that we're starting to see some good progress by many acquirers and you would have seen Tyro's made some really good progress on that one over the last half. I think the broader question on lease cost routing probably is related to the pricing that is set for each of the different schemes and how that will impact the overall cost of acceptance. That's probably the question for me.

And potentially bring down the surcharges placed on consumers, right, as more debit transactions around cost, then the surcharge should at the margin also reduce.

Yes. I mean, that's right. But I also think that we just need to make sure that we separate sort of cost of payment acceptance and the role that lease costs out in place from surcharging. There are 2 different issues. You could leave the cost of payment acceptance where it is in band surcharging and it would just be the fee that the merchant needs to pay. So, there are 2 -- I can understand how people see them as being related, but they are actually 2 different issues.

We take our last question from the line of ZheWei Sim with Jefferies.

My question is just in regards to the Rule of 40. Just in terms of that slide that we've got there talking about the margin versus the gross split going forward. Is that illustrative? Or is that kind of like how we expect things to play out? And then just following on from that, is this kind of like an aspiration? Or is it part of our LTIs?

No, I would say that's the way we would expect it to play out. And obviously, we need to see how FY '25, and we set the guidance there around our target there, but the Rule of 40 is the way that we would expect it to play out. What we've clearly done there is to set some greater level of clarity guidance around what we'd expect the EBITDA margin to be. We're not suggesting that our gross profit growth will be limited to the numbers in that particular slide. We'd certainly like to see gross profit growth higher than that. But we really look at it in FY '26 and FY '27 as being a minimum of 40% in both of those years. Does that answer your question there, ZheWei?

Yes, the first part. And then just the second one as to whether this is somehow structured within our incentive framework.

I'd say, yes, it is in our incentive framework, certainly within our LTI. And with that clearly going into the details, our LTI target, if we were to achieve the Rule of 40 in FY '26 and '27, we may not still achieve our LTI targets. So, we have a higher benchmark for those targets than we have established in this minimum outlook that we've provided.  Thank you very much. I think that's all we have time for this afternoon or this morning. Thank you all very much for joining our call today. With that, I might finally just thank you -- thank all of our teams, thank partners, and there's a huge amount of work that's gone into delivering this result by the Tyro team. So, thank you all to the Tyro team, and thank you to everyone for joining our call today.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect your lines.