Wisr Limited (WZR.AX) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the Wisr FY '25 Results Investor Presentation. With us this morning, we have CEO, Andrew Goodwin; and CFO, Matthew Lewis, who will take us through the presentation that was lodged with the ASX this morning. As always, before we kick off, just a little bit of housekeeping. We invite research analysts to ask questions at the end of the presentation. [Operator Instructions] As always, this webinar is also being recorded, and we will post the recording on to the Wisr website later today. And with that, I will now hand it over to Andrew.

Thanks, Eleonora, and good morning, everyone. Thanks for joining us. So just to kick off, we live in an evolving world. And as part of this, our vision has also evolved as part of our annual strategic review process, and this is all about meeting the evolving needs of our customers. As many of you may know, our DNA is all around financial wellness. That has really been the core purpose of the business from day 1. This has evolved to a world where people have the power to progress. In terms of the customer proposition, we believe it's clear. We are aiming to remove friction, provide clarity and reduce mental load in the context of people's financial journeys. We believe that these will provide real and measurable progress for people, and we'll talk more about that as we go through. As part of the refreshed vision, our purpose has also evolved. So our purpose is now to power people's progress towards what matters to them. You may notice limited delegation of financial, obviously, very sort of on brand. We have a fantastic brand in terms of Wisr that resonates very well with our customers. This is really all around stating that finance is such an integral part of people's lives. However, we want to get it out of people's way and actually not work against them and enable them to progress as we say, towards what matters to them. Our brand promise remains unchanged, smarter money decisions made easy. So a little bit about our journey, and it's been an interesting one, and I guess most in certainly are. So FY '17 to '22 was really around establishing market presence. We are a high-growth pre-profit business. And so those bar charts down the bottom of the slide are our quarterly loan originations, a huge amount was delivered. And in very many ways, it was, I think, emblematic and representative of the state of the markets at the time in terms of cost of funds, liquidity, et cetera, which I think is all very well documented. In FY '23 and '24, the world changed. Obviously, macroeconomic uncertainty took hold. I think the inflation and interest rate thematic globally and certainly in Australia is very well documented. And we took a conscious decision to deliberately moderate growth, manage costs and recalibrate the business. Pleasingly, in FY '25, we came out of that winter and returned to growth in a serious way. And obviously, this chart is an actual -- it's not a forecast, and I think it is very clear in terms of what has been delivered. And we're going to talk more about that today. And as we look to FY '26 and beyond, it's all about scale and profitability, learning from what has occurred in the past and actually building upon the strong foundation that we have in place as a business. So at the start of FY '25, we communicated the objectives down the left-hand side to the market. It truly was a year of growth. So we started the year saying that our guidance was to grow loan originations by at least 75%. That guidance was upgraded at the end of Q3 to 90% plus. And ultimately, for FY '25, we delivered 101% loan origination growth, significantly exceeding our guidance, an exceptional outcome. As part of this, our loan book also grew. And so we closed the year at $824 million, which was up from around $770 million at the start -- I believe mid-$700s at the start of FY '25. In terms of profitability, we delivered EBITDA profitability for the year, which I think is a great outcome. All of our metrics were improved. Portfolio yield, NIM, 90-plus losses, net losses, our average credit score is stronger. And pleasingly, we closed our third warehouse with Barclays, that was a $267 million deal and reduced our overall funding cost. Our distribution channel focus remains. Obviously, we're diversified across distribution channels. We have a very strong NPS at 75, and our Liger loan origination platform won an award for good design. Obviously, customer connection and customer relationships are integral to everything that we do. We have differentiation in our platform through our Wisr app and the financial wellness tools and products that we provide, empowering people to progress. We won the WeMoney Award for Best Mobile Experience, and our customers engaged in our platform are 33% further ahead on their loan repayments versus those that aren't, which is, I think, a very powerful data point in terms of what we're enabling our customers to do. So literally, every metric on this page has improved. Loan originations and loan book and credit score we have spoken about. Yield is up, NIM is up, 90-plus is down, net losses are down. We've delivered EBITDA profitability, which is a multimillion dollar turnaround. Although revenue was broadly flat half-on-half revenue grew, and that will continue to flow through with ongoing growth in the loan book. The business remains well capitalized. Obviously, we now have significant warehouse capacity to fuel that growth that we're going to have coming towards us in FY '26 and beyond. And obviously, on the customer piece, we've spoken about the NPS and the benefits around those additional loan repayments that the platform provides. We are a tech business first and foremost. Our automation journey continues to go from strength to strength. 80% of our loans are now automatically approved on our platform, 40% of our verification steps are now automatically approved. Our arrears management platform, which we've invested in, is starting to show genuine benefits in terms of our 90-plus and our 180-plus numbers. All of this is about scale, efficiency and operational leverage. We've spoken about this a few times and really, these structural tailwinds just continue. So the RBA chart on the bottom left-hand side, we've shown a number of times. The big four banks or the major incumbent bank share of personal lending has gone from 73% to 58% in the last 5 years. We expect that to continue. Mortgages have remained very flat at around 95%, which is obviously a product that we don't play in. The ABS markets in terms of how these products are being funded are really shifting from bank balance sheets to ABS funded warehouse and term deal facilities. And I think these numbers are extremely self-evident. And finally, we are just playing very big TAMs. The opportunity in front of us is significant. A little snapshot of our customers. So about 2/3 of our book of personal loans, about 1/3 of secured vehicle loans, average loan size of around $35,000, very strong credit score. The uses of our loans, majority vehicles, debt consolidation, home improvement, content, things like wedding, medical travel, any major life event that people have and want to take out a lend of that 35,000, that's an average number is really what our customers are all about across Australia. We're very well diversified across Australia and the majority of our customers are full-time employees. I think this chart is extremely evident. Obviously, the 101% growth is very well documented. The quarter-on-quarter growth also very well documented. We updated the market during the year on that. Just very exciting, obviously, to deliver these numbers. And as I said, very much just at the beginning, this is only our first year of being back to growth. And I think to deliver this in the first year is an exceptional outcome. That loan origination growth, as I said, has generated loan book growth as well. We closed at 30 June at $824 million, which is around 7% increase for the full year. You can see within the quarter that particularly in Q4, we've seen that acceleration really start to take hold. And this is ultimately what is going to drive revenue and profitability as we continue to scale. I'll now pass to CFO, Matt Lewis.

Thanks, Andy. If we now focus on margins and credit quality, we can see on the left-hand side of the page that our portfolio yield, which has increased to 11.2% for the year, which is a 30 basis point uplift from prior year. That has then translated to an improved portfolio NIM of 5.46%. As Andy mentioned before, we've continued to see improvements to our portfolio credit score. So that's jumped from 794 to 804, that's important because it illustrates we're not compromising credit quality to be able to achieve the stronger unit economics and the origination growth that occurred in FY '25. I'll also mention that over the last 18 months or so, we've repriced the portfolio. And we're now at a point where we feel the unit economics are well balanced, so competitive enough to support origination growth and loan book growth whilst also delivering strong sustainable returns. Turning to arrears and losses. We've continued to see the positive impact of the investments we've made in the collection system and our arrears platform. Our 90-plus day arrears have declined from 1.58% to 1.4%, and our net losses have reduced significantly from 2.4% to 1.79%. Over the medium term, as the loan book continues to scale and the collections processes and platforms mature further, we expect to see continued incremental improvements in those loss rates. If we now focus on the income statement, so revenue for the year was $91.6 million, which is broadly flat compared to FY '24. We did have strong origination growth. However, there is a natural lag between originations and revenue recognition. With the loan book returning to growth from December, the impact of the very strong second half is only just starting to feed through to revenue. And as Andy mentioned, quite importantly, if we look at the half-on-half comparison, half 2 of FY '25 grew versus half 1. So we are now starting to see the acceleration of that revenue. If we look at margins, we've seen the 30 basis point improvement to yield, which has flowed through to the 5.46% NIM margin. So while the top line revenue was relatively flat, the quality of those earnings in terms of yield and NIM is improving. If we look at net losses, there's been a significant improvement here, a 30% improvement in our net losses for the year to $14.3 million. So as mentioned before, the improvements we're seeing in those collection processes and systems is really flowing through to the bottom line. So that means on a risk-adjusted basis, we actually see a 5% improvement in risk-adjusted margin to $29.2 million. If we move on to OpEx, OpEx has increased 7% to $28.4 million. That needs to be considered in the context of the significant origination growth we saw in the year, so 101% origination growth for the year. So we are already starting to see the operating leverage in the model. And as the loan book continues to scale, we'll continue to see that benefit. And then when we take that down to the EBITDA line, as Andy mentioned before, we achieved an EBITDA profit of $0.8 million for the year. That's a significant turnaround from the prior year, a $3.1 million improvement to EBITDA. I think it's also worth mentioning with the release of these results, if we look at our balance sheet, the business has $88 million worth of deferred tax losses recognized. So as the business moves into profitability, that will reduce our effective tax rate and support cash generation in the following years. If we look at the funding program, on the right-hand side, we show our 3 warehouses and 3 term deals. Our total warehouse capacity currently sits at $917 million following the new Barclays facility, which we added in the June quarter. Undrawn warehouse capacity is $287 million. So that gives us lots of capacity to fund future loan book growth. The addition of the Barclays is an important milestone for the business. It diversifies funding partners, increases competitive tension and reduces our overall weighted average funding cost. If we look at our cash position, so total cash on balance sheet at 30 June is $43.6 million. Of that number, $14.1 million sits in unrestricted cash for any business purpose. We've got $47.4 million worth of capital collateral supporting our loan book across the different warehouses and ABS structures, and there's $15 million undrawn within the corporate facility. We do also have future capital recycling initiatives planned. We will be calling our Freedom 22 ABS transaction in the current quarter. And with loan book growth, we will now start to look at reentering the ABS markets, both of which will recycle capital and boost liquidity within the business.

Yes, thanks, Matt. So we just want to give the market a little bit of a view of our outlook. And clearly, this is a horizon approach with Horizon 1, 1 to 2 years, Horizon 2, 2 to 3 and Horizon 3, 3+. We are ultimately here to serve our customers through building a purpose-led platform that grows enterprise value over time. If we look at Horizon 1, it's all about strengthening the foundations that we've already built. This will drive scale and profitability across our existing business. And keep in mind, we've only been back to growth for 12 months and look at all we've delivered. So we're very excited about essentially nailing our core really in Horizon 1 and delivering that profitability piece that's been well discussed. Horizon 2 is around acceleration through market verticals and products. This will include both product and customers, and we really want to embed our business into people's everyday lives and experiences. Horizon 3, we want to build -- we are in the process of building a platform business, delivering network effects embedded in customers' lives and diversifying revenue beyond lending. And really to all of this is consolidating and building upon the exceptional that Wisr brand currently exists and that we know that customers love. So FY '25 was the year of growth. FY '26 is going to be the year of progress. We wanted to provide specific guidance to the market on what we're aiming to achieve in FY '26, and I'll run through those now. Loan origination growth of 40% plus, revenue growth of 15% plus, cost-to-income ratio improvement to less than 29%. And we just want to make really clear, we remain focused on significantly improving cash NPAT through acceleration in loan book growth, disciplined cost management and operating efficiencies.

Thank you, Andrew and Matt. We will now open it up for questions. [Operator Instructions] I have had a couple come through. First one is for you, Andrew. Now the FY '25 saw a significant growth in your loan originations. How sustainable is this pace of growth? And what external or internal factors could temper this momentum in FY '26?

So we play in very big TAMs and the overall system size is very large. Although we had great growth in FY '25, we're not even back to our previous peak, although we are well on our way. And clearly, we want to go through that. Consumer sentiment and Lucidity monetary policy are pretty important components of this overall market. And clearly, the strong employment environment in Australia is a good thing. Our distribution channels obviously remain very important. We have diversification across distribution channels. And this is obviously, I think, a growth lever in terms of that ongoing growth. And then ultimately, it's around the service that we provide in terms of our product, our brand, our automation, how we deal with our stakeholders. And finally, it's the structural tailwinds that I spoke about. So the incumbent majors basically not being focused on the products that we're operating within, creating a lot of fertile ground for ourselves and I think the broader sort of nonbank market to participate.

Thank you, Andrew. Next one is probably also for you, Andrew, which is with FY '26 guidance targeting a 40% plus loan origination growth, what segments the personal versus secured vehicle loans will drive this expansion?

Sure. So it's going to be both ultimately. The secured vehicle market is bigger, notwithstanding the personal loan market is very large. In terms of our FY '25 originations, personal loans is around 69%. Obviously, secured vehicles is coming off a lower base. We do expect that mix to shift somewhat. Exactly where it lands, we don't sort of have further control over, but we do expect it to go from kind of 69-31 to maybe more like a 60-40, for example.

We've got another one come through for Matt, just on the warehouse facilities. So beyond the warehouse facilities, what other funding strategies is Wisr considering to support future loan book growth?

So as mentioned previously, the focus this year was bringing on the new warehouse at Barclays, which is a mixed-use warehouse. That provides competitive tension, lowers our weighted average margin. What that means now is we're moving into a phase of optimization. And with the loan book growing, that provides us with a lot more flexibility to reenter term markets as those warehouses start to fall, further reducing our weighted average margin. We'll also start to see some of our existing term deals mature. And when that happens, we call those and release additional capital. So the focus over the next 12 months is really optimizing that funding cost and releasing capital to continue growth.