Wise Group plc (WSE) Earnings Call Transcript & Summary

[Audio Gap] Director of One Relations, and I'm joined by our CFO, Emmanuel Thomassin. Emmanuel is going to run through the results before we go into Q&A. Before we start, just a reminder that we will be making some forward-looking statements today, including statements regarding Wise's future performance. These statements aren't guarantees and can involve risks and uncertainties and other factors that may cause 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, and thank you for joining us for Q2 '27 results call. I'm pleased to present our financial results for the second quarter of our financial year 2027. I'm going to focus on the number today, but we've made great progress operationally with this quarter to with our ninth direct integration in Malaysia, launching the wires account and card in Thailand, introducing assets to New Zealand, along with new platform partners. Christa will tell you more about this progress on a higher half year presentation next month. So now I go through our performance. For this quarter, we continued to drive strong growth in both active customers and volumes. And today, I'm going to take you through 3 main points. The first 1 of financial highlights in the quarter. The second, the drivers of our revenue growth and our approach to pricing -- and lastly, I'll provide an update on our expectations for the year before handing over for Q&A. But now starting with our financial highlights for Q2 2027. During the quarter, we continued to see solid growth in our main performance metrics as our customers are increasively using Wise for everyday needs and not only for corresponder transactions. In Q2, our active customer base increased by 20% year-on-year to $12.5 million. Our cross-border volume increased by 22% year-on-year to $72 billion with strong growth in Wise business of 32% year-on-year. Customer holdings grew by 28% year-on-year, totaling $44 billion, including $11.5 billion held through Wise assets. A customer spend more with their card with card spend up 30% year-on-year to $14 billion. Firstly, looking at what it means from a cross-border revenue. So cross border revenue is a function of the volume we delivered together with the price we charge. The cross-border volume increased by 22% year-on-year to $72 billion. We continue to see strong growth in our active personal and business customers driving growth in cross-border volume. Volume are particularly strong for business customers, up 32%. We did see lower growth in higher volume transaction from the U.S. given the slight depreciation in the dollar compared to Q1. Looking at the take rate, it has reduced from 52 basis points in Q2 2026 to 49 basis points in Q2 '27. This quarter, the take rate reduced by 1 basis point to 49 basis points compared to 50 at their Q1 2027. So you will notice that this overall decrease is lower at the expected 2 basis points I have previously shared with you. And this is partially due to the timing partially due to the volume mix. We implemented the most recent price reduction in August. And as we mentioned just before, we saw lower high-volume transaction from the U.S., which are typically at the lower take rate. Given cross-border volume growth of 22%, combined with the 3 basis points reduction year-on-year in the take rate, our cross-border revenue increased by 16% to $355 million. I will now take you through our total revenue growth in the quarter. In Q2 '27, as I just said, we generated $355 million in cross border revenue from customers sending or converting currency. But we also generated $206 million in cards in other revenues from customers using the card, the Wise card abroad and at home -- investing in our assets product through the wise account and additional customers' activities such as domestic transactions. This represents a year-on-year increase of 35 34% and with an increase mainly due to card revenue. This was driven by a rise in business card spending in the U.S. and also personal card adoption grew significantly in the U.S. and in APAC. Taken together, transaction revenue totaled $551 million, representing a year-on-year growth of 22%. As we have highlighted in our past calls, customers are also trusting Wise more and more with their money. At the end of September 2026, the customers held $32 billion on the Wise account up 22% compared to the previous year. As we invest this fund in liquid instruments, we generated $238 million in interest income during the quarter, up 18% year-on-year. Growth in customer balance didn't fully translate to interest income growth as we saw a reduction in gross yields from 3.1% in Q2 '26 to 2.9% in Q2 '27. This shift reflects Central Bank decisions taking place during the past year, while we have seen some central banks increasing interest rates over the recent months. So the growth fully transparent in interest income growth as we saw the reduction I mentioned before. And our assets on the custody continue to grow extremely strong tier, reaching EUR 11.4 billion. This drive our total combined customers' assets to $44 billion, demonstrating deep and sustained customer trust. So I just convert, the different layers of customer activity including sendings and converting money, spending with a Wise card and growing with Wise assets and holding balance with us. Together, this drove our net revenue growth. In Q2 '27, we delivered $739 million in net revenue, up 21% year-on-year. With an increasingly diversified revenue base with $52 million of net revenue being driven by non cross-border activity this quarter. As usual, I would like to remind you of our investment framework and key areas of investments for long-term value generation. Overall, we believe in driving growth through continuous investment. Our investment framework is a clear evidence of this. By targeting medium term, 15% to 20% income before tax margins, assuming we were able to pay our target interest income back to 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 capacity for reinvestment and allowing us to return capital to shareholders as we are with our current buyback. So finally, looking ahead, I'd like to provide an update on our expectations for the rest of the year as we expect to see a continued trend of rapid growth and we aim to continue to invest to achieve this. We have seen some increase in rates from the Fed and the ECB, and these are reflecting in our expectations. However, we do not include potential future increases in the remainder of the year. Giving this for this year, we now expect that net revenue growth will be in the upper half of the 15% to 20% range on a constant currency basis. We continue to expect the full year '27 income before tax margin around at the top of the 2025 range. For the half year of this year, you know now that net revenue growth has been around 22% on a constant currency basis, and we expect the bit merging margin to be around 23%, including one-off expense equivalent to around 2 percentage points. This includes circa $15 million relating to the dual listing of Wise. We will provide further details in our half year '27 results including the progress we are making in unlocking transaction and efficiency and reinvesting these gains to drive future growth. And now let's move to the Q&A session.

Thanks, Emmanuel. Anyone who wants to ask a question, please raise your hand in Zoom. We'll take the first question from Cris Kennedy at William Blair.

Thank Emmanuel, you mentioned some of the trends of high-value Sends from the U.S. Can you give us any other color from a geographic Perspective? .

Yes. I think like what I mentioned is basically that due to some, say, depreciation or weakness in the U.S. dollar, we've seen a slowdown on the high-volume transaction in the U.S. But overall, the U.S. market in North America and the U.S. market, especially are growing extremely fast in the regions followed by APAC. So we can see a lot of traction in the U.S. This is due to the fact that we've been launching, obviously, a marketing campaign in the U.S. But also like we're serving the businesses quite attractively. We have a quite significant growth in business overall I mean I mentioned before, 20% growth for active customers to EUR 12.5 million. I should highlight also that the business grew by 26% in terms of active customers. So U.S. in general is by far as faster regions. And that's the reason why we're so excited to move to the U.S. and the U.S. listing, but also investing in this country.

Yes. Great. And then if you could just touch quickly on some of the investments that you're making to drive growth of the SMB business. whether it's integrating with local accounting platforms or onboarding initiatives.

No, Cris, thank you very much. I really love these questions because this is very exciting. Actually, as we've done several initiatives to drive the businesses. The first 1 is within the servicing team. We have been dedicated a team that is basically proactively reaching out to businesses. So not only we're reacting to the demand and questions that they may have 24/7, we also reach out to the business proactively to make sure that they can use in full the servicing that we offer. And I think that's quite unique or kind of approach, if you compare to maybe legacy banks in this industry. The second part of it is, as you rightly mentioned, we are getting more and more included in the internal workflow. One aspect is not only the approval of invoices or the addition of invoices. This is also to be to provide an API or to be able to be included in their, I would say, local champions accounting software. As you surely know, small businesses, we're not opt for or color of this world. They are by far too big, but then they will choose like local champions. With that, I will mention companies like Visa and Nordisk, you could think about Sage in the U.K. or Tate in Germany. And that, I think, is an investment that will pay off because the businesses will appreciate the fact that this is getting them more transparency.

Can we have the next question from Gus Gala. please.

Can you talk a little bit about how you're thinking of the elasticity of the price cuts versus the volume? Just any sense on the early reads versus the prior price cutting cycles pretty clear on the cadence of that. But anything we should be thinking about in terms of the competitive environment or the volume response around the pace of the pricing investment -- and I'll just squeeze in my follow-up. How do you think of the marketing investment sensitivity, especially in North America relative to the speed and timing around getting the license applying for that? Is there anything we should be thinking about that about the the time -- the timing of that?

Thank you very much. I mean pricing is really core of our -- I would say, almost a mission. I mean we want to offer money without network every borders means like an infrastructure that allow customers to transfer money extremely fast, but also not only minimum at the minimum fee. So maximum is minimum fees at the best at the higher speed that you can offer and price matter to the customers. This is the #1 reason to come to us. So by saying this, we are doing everything every month, every wiser is looking at efficiency gain. And this efficiency gain will be then reinvest. This efficiency gain will be translated in profitability or cash flow. And then basically, at the end, we will decide how do we invest this success of this profitability either in OpEx or to go back to pricing. And the pricing philosophy here is that we want to be agnostic on every single transaction that will take place on our platforms are on Wise. And that's true for retail. That's true for SMEs. That's true for partners. So we follow the cost plus margin logic, and we are in a driving seat. We only take this kind of decisions when we are in a sustainable manner. So when we have the evidence that we are in a place where we can reduce the take rate and still generate the margin that we are targeting only then we will pass it to the customers. or begin reinvesting in our OpEx. And this is like a long-term game. We know the price elasticity is not something that you should expect for the next quarter. It's a long-term trends that we basically were following. This is true again for retail. This is also true for our partners that are joining the platform. And you asked about the sensitivity on marketing. I think in general here, and I think you combine it with the license. I think I will distinguish both, if I may. Today, as I said, the U.S. market is a very attractive market for us, the fastest-growing region when I compare to others. I think the marketing campaign that we are launching is to build on a hope funnel to make sure that people are aware but Wise. The license is is not having an impact on our business. I mean, our business is strong. We already transfer money very, very quickly at a very, very attractive take rate. That said, we want to have license at some point maybe in the future, to make sure that basically we can potentially reduce the take rate, but also like as the volume will grow, be able to be more efficient when you transfer money.

Next question from Greg at Morgan Stanley.

Maybe the first 1 would be on the one-off costs that you mentioned in the press release. Can you maybe expand a bit more on what's in there basically? You mentioned that this is part of I mean part of them are due to the dual listing, but it looks like there is a bit more to it. And basically, what's in this cost that surprised you that basically you were not expecting. I think last year already, you were mentioning some your listing costs. So what is actually coming on top there that's you did see coming. And more on the take rate. So can you expand a bit more on the phasing of the take rate until the the end of the year? And how should we think about that for the next quarter? And how much control do you have over that given that it's also depending on the mix of the volumes.

Yes. If you don't mind, Gregor, I will start with the second one, and then I will go back to the one-offs. The take rate, we mentioned at the beginning of the year that we would like to reduce the take rate by 1 basis point to 2 basis points for the quarter. We did so in the first quarter, 1 basis point. We also did this in a second, while not apparent here because of the volume mix I mentioned before. And we aim to continue to do this during the year. but that it will depend on our investment capacities or efficiency gain. That's linked together. Once we have this efficiency we will then reinvest in the business, and we're really happy with the investments we've done in this first half year. We were able to invest in a very profitable manner and we see the growth rate that in diverse KPIs today. And if we have the room, we will continue to reduce the pricing for the next 2 quarters as we announced to the market, which around 1 basis point. but that will always depend on our certainty that these investments depress the reduction will have a positive impact and will not jeopardize the margin that we are targeting. On the one-offs, the nature of one-off is that they are one-off in nature. That means that basically, they are not something that is recurrent. Our U.S. listing is 1 of those. We listed in May, a certain cost occur once this listing was successful. We were looking at contracts that we had with some providers, and we wanted to make sure that we are only when we are listing successfully, we might face some fees to be paid. The others are different kind of sort of one-offs. They are very tiny when you look at the other -- the completely the size of the business. So that would be more in more in administrative and administration categories.

And on to Justin from UBS.

Emmanuel and Sarah. I hope you can hear me -- just a couple of questions from my end. First, I wanted to talk a little bit about the bank license environment. A couple of things there. So -- could you just give a status update on where you are with clearing the outstanding consent orders that you had getting back to the -- I think it was the 2024 action brought by the several states and the pretty small fine that you had there. something an event that might lead you to potentially planning on as you kind of alluded to, reapplying for an OCC charter and any updates on the time line, which we might expect that? And separately, in recent days, we've seen quite a lot from violations of different AML money laundering, et cetera. regulations in the U.S. for quite sizable amounts. And do you think that says anything about the compliance infrastructure that Wise has built with a much lower severity of fines. Maybe I'll start there, and I'll ask my follow-up afterwards.

No, thank you very much for that, Justin. I think like in terms of -- because you mentioned the consent order in the U.S. and the bank environment in general, I'm pleased to report that basically, we have provided the full remediation on every point that were part of this consent order. We are now waiting for the feedback from the authorities, but we delivered every single remediation that were basically highlighted from them. So that's the status quo today. And once we get the positive feedback from the states, obviously, we'd be happy to inform you. On the time line, you mentioned, I think like your while we're considering the time line for the U.S. listing, we will also consider everything other remediation that we are working on today. And as you know, we're working on the NBB 1. So I think the time line is is open today, and I don't have a definitive one. And then on the U.S. fine, I would say like this is -- this is a reflection of what we try to explain. I mean we've been investing so much in compliance in KYP, KYC over the last 15 years. And yet -- and we -- 1/3 of our investments, ongoing investments always going somehow in compliance. This is core to our heart. We know our reputation will depend on this kind of situation. And the -- I can't comment on the other banks, what they are facing. But I think this is a reflection of how difficult it is to want to get everything right when you do AML in this -- in the development of the technology. But overall, like we continue to invest in this area because we think -- we know this is very important and very important for Kristo and the rest of the team that have been driving this company for 15 years.

Got it. That's super, super helpful. And then just my second question, I wanted to ask, and I hate to be the person to do this every quarter, but on platforms, -- is there any update you can give on just the ramp of some of the existing customers, whether there's some success stories you can share, incremental, say, currencies you're enabling for some of your partners, incremental functionalities. Obviously, we've seen some of the nice wins come in recently, Oak North, I think you flagged, but anything you can provide on the progression and perhaps the run rate exiting the quarter, if that's a percentage fine or even just case studies that you can share?

Well, I don't -- today, we don't -- I don't have case studies to present to you. But what I can tell you is that basically, we are ramping up the customers that we have. So you have to think about every month when we review the activities, we will add some routes with customers. So we don't have -- if we don't have new names that basically, we add new routes, exports -- and I'm also happy to report that we onboard a U.K. company, Otmar, that is basically also new to the platform, and they will use our platform to serve their customers. So they sign with us, we are live. And another 1 is called Vivid. They also live with us -- so we still have names. We still onboard new partners. I'm pretty excited by the pipeline, quite frankly. And in terms of percentage because you mentioned this in -- at the end of this quarter and on track for, well, basically, the percentage that we give midterm 10% of the correspondent volume.

And next, we have a question from Mo at Goldman Sachs.

Great. Can you hear me?