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

Good morning, everybody, and welcome to the Wisr quarterly update presentation for quarter 2 of FY '26. With us this morning is CEO, Andrew Goodwin; and CFO, Matthew Lewis, who will take us through the presentation that was lodged with the ASX this morning. [Operator Instructions] We're also recording this webinar, and we will post the recording on to the Wisr website later today. And with that, I'll now hand it over to Andrew.

Thanks, Eleonora, and good morning, everybody. Thank you for joining us. So just a little bit of a snapshot about our history. I won't go into too much detail on this other than to say at the beginning of FY '25, we returned to growth. As we enter and complete actually Q2 FY '26, we are now very much in the scale and profitability phase of our business evolution. There's no question this has been a breakout quarter for the business. We're very excited about the results that we've delivered. And again, we believe this is very much just the beginning or at least the early stages of that next phase for us as a business. So just some of the highlights for the quarter. The loan book growth has accelerated quite significantly. So we closed out at $928 million, fast approaching that $1 billion milestone, which is just a milestone. Clearly, we want to get well beyond that level as well. That loan book size was 23% up on PCP and 7% up on prior quarter. That was driven by strong growth in loan originations. So we delivered $164.2 million, up 76% on PCP and 12% on prior quarter. We saw strong growth across both of our personal loan and secured vehicle lending products. The credit score has remained strong. We're very much a prime lender. We have a prime book, and that's signified by that average credit score on the book. Yield has remained broadly flat, notwithstanding obviously more SVL loans within the portfolio and that strong credit quality. NIM pleasingly actually increased slightly on prior quarter. There's some funding optimizations there that went on that we'll talk more about shortly. And obviously, that stable yield that we spoke about. But almost one of the most pleasing things among quite a number is our 90-plus in net losses numbers, which are down significantly on both prior quarter and PCP. So 90-plus at 1.13% and net losses of 1.15%. That loan book growth that we've delivered has significantly grown revenue as well. So $26.5 million delivered for the quarter, 16% up on PCP and 6% up on prior quarter. The business is very well capitalized. We obviously had a whole number of capital initiatives in the quarter. I'll talk more about those shortly and some really good customer numbers. Obviously, the instant loan settlement capability has expanded its rollout. Our Net Promoter Score has increased to 82, extremely strong. And obviously, we launched our secured personal loan product for those who have been following via our upgraded Wisr partner portal. So those capital initiatives that I spoke about. So at the very beginning, end of Q1, starting Q2, we had a fantastic ABS transaction, the $250 million Freedom deal that we did. In November, we did a $10.6 million capital raise, $7.5 million of that was to reduce our corporate debt facility and the balance of that funding was for ongoing loan origination growth, obviously, part of which has been seen in our Q2 numbers. On the back of that raise, we also refinanced our corporate debt facility to a materially lower margin. So the capital structure of the business is in very good shape. And finally, and as Matt will talk more about, we restructured somewhat our warehousing, the amount of committed capacity, the cadence of our expected term deals, and that is all just in very good shape. And really, the combination of obviously, the operating cadence of the business and those capital initiatives did lead us to upgrade our guidance that we've given to the market around cash NPAT profitability, and that is now expected to be delivered in H2 FY '26 as advised back in November. So just Wisr at a glance. So since 2018, we've been supporting Australians achieve their personal and financial goals. Obviously, we offer a personal loan and a secured vehicle loan product. We're extremely well established now in debt capital markets as called out. We have diversified distribution channels across broker, direct-to-consumer and our own proprietary platform. We've originated around $2.5 billion since inception. We are a tech business, first and foremost, we're a fintech. 83% of our loans are automatically approved, and I'll talk more about that on the next slide. So that automation piece that I just referenced. So 83% of our loans now automatically approved. That increase just continues to deliver. The verification component of our loan process is now up to 43%. That's huge development within 12 months from 20% to 43%. The instant loan settlement piece that I spoke about, historically, we'd have, for example, 2 batch runs. It's now instant settlement. So we are operating around the clock essentially. And really, what this automation piece does as we continue to scale, the operational leverage in the business becomes extremely evident. So we obviously grow volume, we grow revenue, we grow loan book. The costs remain very well controlled, and we'll talk more about that certainly at the half year and a little more later in the presentation. I've spoken about this quite a lot, but just to reiterate, there are genuine structural tailwinds in the market that are enhancing the capability of our business to grow. And really, what that means is the incumbent major banks have determined that personal loans and secured vehicle loans, by and large, are not core to their business. They're very happy for the nonbank group to provide those products and actually provide them warehouse funding to deliver those products. And really, what we've now seen is that those assets have gone from bank's balance sheets to ABS markets, which obviously we've spoken a lot about. And you can see that extreme growth in ABS markets that is just continuing in 2025, and we expect that to continue into next year and beyond. A quick snapshot of our customers. We're well diversified across Australia, majority full-time employed. Vehicles is clearly our biggest use case. It's a prime credit book and the average loan size is around $35,000. So just a graphical representation since we returned to growth. This is our loan book number. So now at $928 million, strong growth across both products, 23% on PCP and 7% on prior quarter. And again, really very much honing in on that $1 billion milestone, as I said at the start. That is driven by strong loan origination growth. So you can see the acceleration here, 76% on prior PCP and 12% on prior quarter at $164 million and good growth again across both products. I'll now pass to Matt Lewis.

Thanks, Andy. First, looking at yield. Our portfolio yield for the quarter was 11.08%, which is broadly stable versus prior quarter and PCP. That stability is important because it's been achieved whilst both improving our portfolio credit score and moving the shift of loans a little bit towards secured vehicle loans, which priced a little bit lower but incurred lower losses. Second, on net interest margin, portfolio NIM was 5.3% for the quarter, which is up 4 basis points quarter-on-quarter. The improvement is modest, but directionally, it's very important. As discussed in previous presentations, we launched warehouse 3 in the final quarter of last year. And therefore, in the first quarter of this year in the early stages of the second quarter, we have incurred higher undrawn costs during the initial ramp-up stage of those loans. As utilizations increased throughout the quarter, those costs have begun to unwind, and you can see that reflected in the quarter-on-quarter improvement of 5.3%. Layered on top of that are some of the benefits that Andy discussed earlier. We've restructured the warehouse and with the successful pricing of the term deal, which together will continue to support margin resilience, particularly in the current rate environment. And finally, just to reinforce quality, portfolio credit score 807, which is firmly in prime territory. Okay. Moving on to arrears and losses, where the good news story in this area continues. We've been really clear over the last few quarters that growth would only be pursued alongside disciplined credit settings, and this data really shows that approach is working. So if we start with arrears, if you look at 90-plus day arrears, that's declined to 1.13% at the end of the quarter. That's down 42 bps year-on-year. And importantly, the improvement in the trend has been seen across multiple quarters. If we move on to net losses, these reduced materially to 1.15%. That's a 57 basis point improvement versus PCP and 48 basis points compared to the last quarter. There is a small amount of seasonality in this quarter, which we typically see strong loss performance and recoveries in December, but the overall theme and trajectory is really clear. The continued benefits we're seeing reflected in both losses and arrears as a result of the improvements to the arrears management platform that we put in place over a year ago now, and we continue to refine on an ongoing basis. So strategically, this is quite important because lower losses support margin resilience, which is particularly important in an evolving interest rate environment. Okay. This page talks to our funding capacity and flexibility. And as Andy mentioned earlier, we did restructure our warehouses in the quarter. So our total warehouse commitments are now $767 million with $165 million of undrawn capacity. That capacity gives us ample headroom to continue to support our origination growth. It's important to note that, that limit reduction was very much deliberate. It improves the efficiency of the warehouses and the commitment costs, and it allows us to increase our term deal cadence, which, in turn, allows us to transition a larger proportion of our loan book to lower-cost ABS structures. If we move on to the equity raise that Andy spoke to, that really strengthened our capital position, enabled us to repay $7.5 million of our corporate debt. That deleveraging was a key enabler for the restructuring of the facility that we undertook in the same month in which we achieved a materially lower margin on that facility. So when we move into the second half of the year, we'll see a material reduction in corporate interest cost expense as a result of both a lower balance on that loan and a significantly lower margin. If we look at the quarter end, $27.5 million of that corporate facility is drawn. It's a $50 million facility, $10 million is committed, $12.5 million remains uncommitted. This structure really just gives us certainty and flexibility, which is what we want in this part of the cycle. Okay. This is an important slide, particularly as we're starting to see some volatility in the interest rate environment at the moment. The key point we want to emphasize with this slide is that Wisr's net interest margin on each loan is effectively locked in at origination. So our customer loans are written at fixed rates. And although our funding costs reference a variable BBSW, we fix those with an interest rate swap on a monthly basis. So economically, what we've done at origination is matched the fixed rate income with a fixed rate funding cost. And the diagram on this page illustrates that. So on a go-forward basis, if BBSW was to rise, the swap will pay out more to us, offsetting the higher funding cost. If BBSW was to reduce, the swap will pay us less, the funding costs reduced correspondingly. So effectively, under both scenarios, the net interest margin on a loan is preserved. So while our reported portfolio NIM can move due to product mix or timing and utilization effects of the funding structures, the underlying economics of each loan are effectively locked in for the life of that loan. And so that structure gives us really good predictability of earnings, which is critical on our path to profitability. Okay. The capital structure. So liquidity, capital strength. At the quarter end, we had $75.5 million of total cash on balance sheet. Of that, $16.3 million is unrestricted cash. If you then include the undrawn component of our corporate facility, we've got meaningful headroom -- cash headroom of $39 million. On this slide, you also see the equity investments we've made in our warehouse and term deal structures, $37.2 million. That underpins the funding program and aligns us with our capital partners. But I think the important point to note following all the work that's been done on these capital initiatives in the quarter is that we are really well capitalized to support growth to profitability and beyond. And we don't need to raise further capital to execute our plans. And we've also now got the flexibility to respond to market conditions as they evolve. I'll hand back to Andy.

Yes. Thanks, Matt. So we just wanted to reiterate the FY '26 guidance provided at the beginning of the financial year and actually upgraded in November. So obviously, that cash NPAT profitability is the major one, right? So previously, that was a directional statement around improvement in cash NPAT profitability. We upgraded that in November on the back of all the great work that we've done to advise that we are expecting to achieve cash NPAT profitability in H2 FY '26. The other guidance that we provided was loan origination growth of 40% plus, revenue growth of 15% plus and cost-to-income ratio of less than 29% relative to the 31% in FY '25. And just to wrap up, accelerating loan book growth, driving revenue and ultimately profitability again, driven by those loan origination numbers that we're achieving. Strong portfolio economics. We remain laser-focused on portfolio yield, NIM, obviously, focusing on losses, the whole value stream of the loans that we write, we remain very focused on, and we have very good visibility over. And obviously, that NIM slide that Matt spoke to hopefully gives investors some more color on how we think about the writing of loans and the economics that we generate from them. Vastly improved loan book performance, so both 90-plus in net losses, extremely strong and extremely pleasing to see given all the work that we've done and just where we're currently at and reflective again of that prime loan book that we have. And as Matt just spoke about, we're very well capitalized for that scale and profitability phase that I spoke about at the beginning. We've done a lot of work to get ourselves into this position is really now around executing and executing well, and we expect the results will follow.

All right. Thank you, Andrew and Matt. We will now invite research analysts to ask any questions. [Operator Instructions] Andrew, this first one will be for you on the loan book. So loan book is now approaching $1 billion. As you scale beyond $1 billion in loans, what are sort of the main constraints, if any, on growth capital funding or credit appetite?

Sure. So I think in the last 6 quarters, we've proven our ability to grow. And clearly, the track record there, I think, speaks for itself and the numbers on the back of that growth. And really, there's an element of just consistency and being back in market. It is a big market that we're playing in. And actually just being back in market, if you're doing what you do well, you will get that growth. And on that basis, we don't really see any -- I don't see any sort of visible constraints at present to continue that growth journey. Risk appetite conceptually is a constraint, but it's also within our control. And just with our existing risk settings, the market we operate in is significant. Coupled with that, we have the structural tailwinds, I think, that I've spoken about that, again, just create a great environment to scale this business. And the other point that I'd note is, from my perspective, I know we talk about the $1 billion book, but we're just very much getting started. And so feeling good about our outlook.

The next one is on portfolio yields. Matt, it's probably one for you. So what portfolio yield has remained broadly stable, as you mentioned in the presentation, yet NIM is down year-on-year. Could you provide some more detail on the key drivers of this disconnect between yield and NIM?

Yes, sure. I think first, I'll mention that the NIM did increase in the quarter by those 4 basis points. I think when we're looking year-on-year, it's very much driven by the funding side of the equation as the portfolio yields, as the question was said, remained fairly stable. And as I explained in the presentation, that year-on-year movement is really a reflection of the funding structures that we put in place, put in place that warehouse 3, which gave us additional pricing power going forward. But in the short term, did result in some higher undrawn fees. So we're now seeing that flow through and out of the portfolio. And we've also started to see the impact of bigger contribution of term deals and the other capital structure changes we talked to before. So effectively, that's why we're seeing -- you may have seen a decline in the first 3 quarters, but we've now seen in the second half of the second quarter, that's starting to improve, which has driven that quarter-on-quarter improvement.

And this might be a bit of a follow-up on that with regards to the warehouse cost. So question is, with the unwind of the temporarily higher undrawn warehouse costs and benefits from the refinancing starting to flow through, where do you see sort of more normalized or stabilized NIM landing over the medium term?

Okay. I'd say the full benefit of the warehouse restructuring and ABS optimization initiatives really began to flow through in full from mid-November. And we'll see those benefits increasingly flow through our numbers in the second half of the financial year. That will also provide us a meaningful buffer against any movements that we might see in underlying BBSW rates going forward, particularly on front book originations. I think looking ahead, current interest rate environment, I'd expect front book pricing to continue to adjust gradually over time. And we're already seeing rational pricing behavior emerge across the market to that effect. I think over the medium term, our goal is really to focus on a sustainable, healthy post-loss margin rather than managing to a fixed point NIM, the NIM at any one point in time can be influenced by the underlying mix of loans, applications flow that goes to the funnel, we can get shifts in secured versus unsecured loans. So for example, any mix shift towards secured vehicle loans naturally would lower the average yield, but that's offset by lower funding costs, which are all considered as part of our risk-based pricing method. And so I think importantly, the continued strong performance in losses is supporting that post-loss NIM and our overall profitability, which gives us some flexibility going forward to balance growth and returns as conditions might evolve.

Great. Thank you. Next one is on cash NPAT profitability. So Andy will probably give it further to you. You have guided to cash NPAT profitability in the second half of FY '26. What sort of the key variables or factors that could influence the timing of achieving that particular outcome?

Yes, sure. So I think the biggest driver, if we just think about sort of top line revenue, first of all, is loan book size and therefore, loan origination growth. And then it's the loan unit economics within those loans. And so that's sort of one, I call that the rate of growth. And then that NIM is impacted by things like funding costs, warehouse optimization, the things that Matt spoke about and then credit performance, so our losses. As I think we've explained today, all of those things are moving in a very good direction. And we've obviously explained the hedging piece as well, which hopefully helped investors understand exactly what that looks like. I guess the other factor clearly is OpEx. That's something we have extremely good control over and has been a real focus of the business and obviously included in our guidance is a significant improvement in that cost-to-income ratio. So I think a combination of those, all of which we have good visibility over will drive, I guess, the timing of when that's achieved.