Wise Group plc (WISE) Earnings Call Transcript & Summary

[Audio Gap] Wise, and welcome to our Q1 FY '27 Results Call. I'm Sarah Lewandowski, Director of Investor Relations. I'm joined by our CFO, Emmanuel Thomassin. Emmanuel is going to run through our results before giving you a chance to ask questions. Before we start, we have a reminder that we will be making forward-looking statements today, including statements regarding Wise's future performance. These statements are not guarantees and can involve risks and uncertainties and other factors that may cause actual results to differ. Please refer to our SEC filings for more information on these risk factors. All forward-looking statements made in this call are based on current expectations, assumptions, estimates and beliefs and we undertake no obligation to update any forward-looking statement, except as required by law. And with that, I'll now hand over to Emmanuel.

Hello, everyone. Thank you for joining us for our Q1 results call. Well, I'm pleased to present the financial results for the first quarter of the financial year 2027. We started the year with continued growth in customers and volumes. Today, I'm going to take you through first our financial highlights in the quarter; second, the drivers of our revenue growth; third, our approach to pricing. And lastly, I'll cover guidance for the year before handing over for Q&A. But now starting with our financial highlights for Q1 2027. During the quarter, we continued to see significant growth in our performance metrics as our customers accelerate the usage of Wise for more and not only for cross-border transactions but also for everyday needs. Our active customer base increased by 21% year-on-year to almost 12 million. Our cross-border volume increased by 26% year-on-year to $69 billion with especially strong growth in Wise Business of 39% year-on-year. Customer holdings grew by 31% year-on-year to $41.2 billion, including $10 billion held through Wise Assets. I will now take you through what this means for revenue growth in the quarter. In Q1, we generated $350 million in cross-border revenue from customers sending or converting currency. This represents a growth of 22% year-on-year. This increase is a little lower than the 26% growth in volume, reflecting a reduction of the average take rate from 52 basis points in Q1 '26 to 50 basis points in Q1 '27. We also generated $191 million in card and other revenues from customers using the Wise card abroad and at home, but also investing in our asset products and additional customer activities such as domestic transactions. This represents a year-on-year increase of 38% with the increase mainly due to card revenue, driven by the rise in business card spending in North America and growing personal card adoption in the U.S. and APAC. Taken together, transaction revenue totaled $541 million, representing a year-on-year growth of 27%. As highlighted in our full year results just 2 weeks ago, customers are also trusting Wise more and more with their money. At the end of June '26, customers held $31 billion on the Wise Account, up 24% compared to the previous year. As we invested these funds in liquid instruments, we generated $225 million in interest income during the quarter, up 15% year-on-year. Growth in customer balance didn't fully translate to interest income growth as we saw a reduction in gross yield from 3.3% in Q1 '26 to 2.9% in Q1 2027 as a consequence of the Central Bank decisions during 2026. So I covered different layers of our customer activities, including sending and converting money and growing with Wise assets, but also holding balance with us. Together with revenue from using the Wise Card and other revenue streams, including the fees from assets, this drive our net revenue growth. In Q1, we delivered $714 million in net revenue, up 25% year-on-year with an increasingly diversified revenue base with 51% of net revenue being driven by non-cross-border activities this quarter. So moving to a reminder of our investment framework. Overall, we believe in driving growth through continuous investment. Our investment framework is a clear evidence of this. And by targeting a medium-term 15% to 20% income before tax margins, assuming we are able to pay our target interest income back to the customers, we are able to invest in our growth and into our pricing. This, in exchange, drives more scale and operational efficiencies, providing us with additional margin for capacity or for reinvestment. With our investment framework alongside our direct investments in the business, we seek to invest into sustainable reductions in our prices. We do this always in a position of strength. This remains a long-term goal, driving down prices for customers while building a sustainable profitable business. In our full year '26 results, I gave details on how we expect to reduce the take rate this year. We expect to continue sharing efficiency with customers as we generate extra capacity for investments. This quarter, the take rate reduced to 50 basis points, down from 51 basis points last quarter and down from 52 basis points a year ago. As I said a few weeks ago, for 2027 and depending on the additional capacity that we can generate, we expect this to be reflected in a reduction of 1 to 2 basis points in each of the following quarters. Our investments into pricing are a core feature of our business model, which supports the long-term sustainability of our business. Finally, looking ahead, we expect to see a continuing trend of rapid growth, and we'll continue to invest to achieve this. For this year, we continue to expect net revenue growth to be around the middle of a 15% to 20% range on a constant currency basis. Due to the phasing of our investments into pricing, we expect this growth to be more pronounced in the first half of the year. We have seen this in Q1 with growth of 25% in net revenue year-on-year. And we also expect that the scheduling of our investments will drive a comparable trend in our income before tax margins. While we expect full year margins to be around the high end of the 20%, 25% range, we expect this to be front half weighted, delivering results slightly above this target in H1. Well, now let's move to the Q&A session.

[Operator Instructions] And our question is from Mohammed Moawalla from Goldman Sachs.

Great. Emmanuel and Sarah, well done on the results. I had 2, if I may, Emmanuel. The first one, I know you sort of had flagged that you'd be running kind of ahead of your kind of annual guide in the first half of the year. When you look at the kind of the growth in Q1, I mean, was that sort of in line or above your expectations? And if we sort of assume this robust run in the first half, it would suggest that even for the 9 months, right, your kind of implied growth rate is kind of more to the low end of your guide for the remaining quarters. So does that suggest that maybe the landing zone is more likely kind of not at the midpoint, but more in the kind of upper half or towards the upper end? And if it isn't, what are the kind of factors that we should consider? And then secondly, I noticed business had a pretty strong performance. Can you also give us a sense, I know you don't always give us quarterly breakdown of platform volume and kind of unpack the kind of drivers around the strength in business, please?

Yes. Thank you very much, Mo. In terms of growth that we've seen in our Q1 2027, obviously, we are very pleased with what we see. This is in line with what we saw last year and also like confirmed our strategy to invest and reinvest the efficiency in our business. So we think the growth that we saw in Q1 is in line with our expectations. And concerning the full year, as you know, we expect to continue to pass the efficiency that we get also into pricing. I mean like this quarter, in April, we lowered our take rate by 1 basis point. We announced 3 weeks ago that we will do 2 basis [indiscernible] in the second quarter, followed by probably one and one in Q3 and Q4. So the first part of the year is obviously not impacted or not so much by the price reduction, while the rest of this -- or the second half of the year will be. So on a projection, we guide you or we guide the market that we would be at the middle of the range from 15% to 20%. It's fair to say that we always take a conservative view. And we feel comfortable with this guidance as of today. On platform, as you can imagine, we're super excited. This is always -- we leverage our infrastructure. This is the best way to acquire customers. We don't need to acquire them one by one. But then we provide this infrastructure to partners, which in reverse, opened the -- we again then indirectly their customers using us. So we are extremely bullish. We have a nice pipeline. And I'm very happy to announce that today, we're at 6%, roughly around 6% of our total cross-border volume generated by the partners. So as also Kristo mentioned, like 2 weeks ago, we have a nice pipeline. And yes, we're looking ahead with confidence.

And next, we have Aditya from Bank of America.

Thanks for taking my questions. Just a couple. So customer growth was quite strong, up 21%. Could you just comment on how that maybe looked like by region? Are you starting to see some of the benefits of the marketing spend you've been doing across some of those markets? And second, you mentioned very strong spending on business cards in North America and growing adoption of the personal card in U.S. and APAC. Any color on that as well in terms of what's driving that and maybe is that more features or just part of the marketing of -- push as well?

Yes. Thank you for your questions. Well, in general, we have growth across the regions. We invest in all regions. As you know, because you mentioned marketing last year, we've done campaign in all segments almost. But we're very pleased with what we see the evolution in APAC, but especially in America, I mentioned businesses today, which are growing very nicely in terms of active customers and also volumes. That's fair to say that these regions is benefiting from our investments that we've done. And we will disclose a bit more in half year in terms of region development, but APAC as we mentioned before, and the North America, especially U.S., are overperforming. In terms of APAC card revenues, this is in line with the customer activities. And I think there is -- you could expect that APAC and also Americas are performing extremely well here.

Thank you. Now we have Justin Forsythe from UBS.

Emmanuel and Sarah, a couple of questions, if I don't mind. The first one here, I just wanted to talk a little bit between the relationship between revenue growth and the IBT guidance. So both were confirmed here, and you're pointing everybody to the midpoint of the revenue guide and reiterating the high end of the IBT guide. So should we think about it as the 17.5%, let's say, the midpoint equals that, call it, 24%, 25% IBT margin, meaning if you were to overshoot and do, say, 20%, the high end of the revenue guide, how does the correlation with margins work there? Would you then invest down to the IBT margin, say, with price cuts, with additional headcount or something of that nature? And then second question, you flagged personal card adoption in the U.S., and that's really interesting because I feel like in the past, you've flagged actually challenges to winning in card adoption in the U.S. given all of the rewards from interchange that customers can get in spend. And so I just wonder if you could elaborate a little bit more on how you're winning in the U.S. Is that expats that are spending elsewhere? Is it people that are spending in the U.S.? I assume you mean U.S. domiciled people spending elsewhere on the Wise card. So maybe if you could just elaborate on that a little bit, if you don't mind.

Yes, absolutely. So yes, I mean, within the guidance on IBT that we give today, this is assuming that we will be at the middle of the range for our net revenue guidance, so between 15% and 20%. You mentioned like if we overperform what will be our reaction or what would be the consequence on IBT, we will first look at do we have space to reinvest, add good return. We will as mentioned, invest, not spend. So for us, we will consider to accelerate these investments. But if we don't find room to invest, then the consequence would be like it could have an impact on IBT. But it's too early to say. I think like today, we feel comfortable with this guidance. And we will always first look at reinvestment because these reinvestments are paying off. We see the growth rate in all metrics. And then we will continue -- as such, we feel like do we have enough room to invest and radically to gain more market share in terms of total TAM that you know is really, really large. In terms of card adoptions, this is correlated to our business customer growth. Clearly, in America, we see a very acceleration of these business customers. And accordingly, you have a correlation to the card spending and card revenue that we generate from this.

Got it. I thought -- Emmanuel, I thought you did also say personal card adoption in the U.S. was strong as well. But maybe, maybe I misinterpreted that. And thanks again for the questions and congrats on a great quarter. I appreciate it.

Thank you very much. I mean this is both. But like obviously, business will have larger volumes and hence, we generate more revenue per customer, if you will if you look at the business revenue on cards.

Great. Thanks, Justin. Next question is from Cris Kennedy from William Blair.

Historically, you've talked about or you've given some interesting statistics about the outcomes when you establish direct connections in certain countries. Can you provide any color on kind of the benefits that you're seeing from Japan or Brazil, some of your more recent direct connections relative to history?

Yes. Thank you, Chris. I mean in general, as you know, this is core to our value proposition. This direct integration make us so unique. This is why we know we get partners joining us that they're using our platform or direct integrations. In general, the direct integration are beneficial for our cost base. I mean we generate efficiency with us. This is true with servicing direct -- instant payments, and we had 77% of instant payment in Q1 we continue to increase this percentage from 75% to 77% have their -- not only satisfying our customers, but also reduce the number of contacts that we have with the servicing. So this is direct cost savings. With that, also direct integrations, we are avoiding to work with partner banks for certain countries because then we can provide the liquidity faster. So that have also some savings on the cost of sales. So in general, direct connection, and we see that with all direct connection, a beneficial for, for efficiency, efficiency that we can then decide to reinvest either in OpEx or in pricing.

Got it. And just to follow up, are the benefits in Brazil and Japan in line with the other direct connections that you've had? Or any observations within those 2 markets.

Sure. Absolutely. I think like I'm not able to tell you right now exactly the amplitude of the savings. I mean, like as you know, in the past, we've seen like the [ cost EBITDA ] by 9x in the U.K. It's too early to say right now for this, but we will give you more color as we go through, and then we can start with H1 results.

And now we have Sven from Barclays.

Maybe first, can you comment what revenue growth was in the quarter on a constant FX basis and if there was any change in the underlying trends from where you exited the year? And then secondly, it's very encouraging to see that business active customer growth has accelerated again and now accelerated for a few quarters. I would be interested if you could share any color on how you see this developing from here?