Wisr Limited (WZR) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Wisr Limited FY '20 Half Year Results Conference Call. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Anthony Nantes, Chief Executive Officer. Please go ahead.

Good morning, everyone, and thank you for joining us for the Wisr first half results call. I'm Anthony Nantes, the CEO of Wisr. Joining me today is Andrew Goodwin, our CFO. The first half of the FY '20 year has been without a doubt the most impactful and pivotal half in the company's history. We've really spent the last few years building the foundations of marketing technology in place and really proving our truly innovative lending model. In this particular half, we reached one of our most important turning points by turning on our [indiscernible] mature stage debt funding plan, our NAB-backed debt warehouse facility, which really changes the entire economics in the company -- the business. That facility approximately triples the average margin for each loan written across the company and really sets up for some really exciting results in the coming periods. Our management team's delivered on all its strategic goals across the first half. Our team remains incredibly energized and excited about the opportunity in front of us, and we're really striving to stretch ourselves across the next few periods as well around the opportunity in front of us and what we can actually achieve. That involves really capturing more market share, growing the company safely, aggressively and in line with our risk appetite. And fundamentally, there is really an exciting opportunity for Wisr to build a company of significant scale, purpose and profitability in a way that hasn't been done before. And the path ahead is an exciting one. And the half that we've just come out of has been a pivotal stepping stone for us to start that journey. Turning to the results deck and straight to Slide #5, our key numbers. You can see that the company continues to deliver on key milestones and really keep our promises particularly for those who have been on the journey with us over the last few periods. Our revenue growth was up 83% in this half-on-half period, being very mindful, of course, that the new funding model, the new loan economic -- the unit economic model was really in place for the last 6 weeks of the half. So this half in terms of the underlying economic results is really a transitional half, where we've run off our old model and onto the new model. Our half-on-half loan origination results are up 90% to $54.9 million of loan originations across the first half. And our Wisr Ecosystem growth is also about double, with over 125,000 new customers entering the Wisr Ecosystem as of 31st of December, which doubled where we were at the start of the half. On top of the strong growth numbers, we've maintained or slightly improved our actual Net Promoter Scores right across all the key areas we're measuring: 68 in customer; 66 in the broker area; and 66 across our employee base. And all of those numbers are being well above 60 and heading towards 70, really market leading and stark contrast where most financial services, [ the encumbered ] financial services companies find themselves in terms of customer feedback. On top of that strong growth, the performance in loan book itself has continued to improve. Our 90-day-plus arrears rate has dropped from 1.85% as of 31st December 2018, down to 1.51%. So we continue to drive not only impressive loan volume growth but delivering that with a really strong loan book performance. We bring over $160 million in loans to date. And it really is just the beginning of that journey for us with the new economic model coming onboard, giving us greater scope and flexibility to really grow the business. Additionally, the company is now exceptionally well capitalized, with $10.2 million of cash as of the 31st of December. And then in addition to that, in January, we obviously ran a capital raising to raise now $36.5 million to get the company somewhere around the $45 million of cash available to really go and drive into this opportunity we see ahead of us. I think that combination of the proof points that we see on this page combined with the pivotal half that we just had, which transforms the economics in the company, and the capital now available for us to pursue this opportunity, sets us up to really take advantage in the next coming few periods. Slide 6 really talks to this business evolution. Phase 1 for us is really about proving we could build that best-in-class loan origination engine, write that first $100 million of loans in a very low-margin way. Phase 2 was really about building out this differentiated model of the type of lender we want to be, we call the neo-lender model, with a strong brand, with an ecosystem of products, innovation tools, and services that customers can use that give us a really clear differentiator in the space. And now we're heading into Phase 3, and the first half of this year has been beginning of this next phase. We're really got a chance to genuinely scale the company. Slide 7 is a nice affirmation for us around, internally, the management team. We've seen the success of the products, the innovation and the way we've approached customers. It's nice to hear the industry also recognizing some of that as well. In particular, one of our most recent awards at the bottom here is the Gold Award from RateCity, where Wisr has just been recognized for our secured vehicle lending product with the new car loan lender Gold Award as of February this year. It's a really nice award for a brand-new product we've just put in market. Slide 8 actually really talks to that total addressable market and the really big opportunity that sits ahead of Wisr. I won't spend so much time on this slide. I'll just say that where we are today is really the beginning of our opportunity set. We've continued to increase our market share, but the opportunity really lies ahead of us over the next 3 to 5 years. Jumping to Slide 10. We can see how we've actually gone about approaching -- taking some of that market share. Our loan origination numbers continue to be strong, with $31.6 million quarterly loan originations in the most recent quarter, taking it to $163.8 million of total loan originations. That's an accelerated rate of lending. And the last quarter and the last half -- this most previous half has really given us the ability with the new funding models coming online, and ability to really accelerate from where we were previously. Our loan book in terms of total loan book amount has grown to $114 million. And you can see in the top right-hand corner, the small blue area of $22.6 million now running on the new facility. So it's a great start in the last 6 weeks of the year to start filling up that new facility and transitioning the company from the old model to a new model. Turning to Slide 11. We can see that along with that really sustained growth in our loan originations, we continue to win Australia's best customers with market-leading, consistent credit quality lead indicators. And the data on this page is done from Equifax, which compares the average Equifax 1.1 credit scores for loan inquiries between Wisr in the green line to the big 4 banks in the blue line and the remaining set of peers. You can see the Wisr trajectory over the last 2 to 3 years has been an improvement in the average credit score that we've seen coming towards the average credit score per customer. And we've maintained that along with exceptional growth that we have delivered across the last half, and that growth hasn't come at the expense of the quality of the customers that are coming to Wisr. Slide 12 shows more of a lag indicator in the book and performance of the book holistically. And as at December '19, our 90-day-plus arrears rate was down to 1.51%. These are really great indicators we're not only growing the business aggressively but growing it safely. For Slide 13, I'm going to pass over to Andrew Goodwin, our Chief Financial Officer.

Thank you, Anthony, and good morning, everybody. What we've provided here is a P&L waterfall reconciliation for H1 FY '20. What it essentially shows is that the core business with the new funding model acquired for the whole half is effectively profitable, as shown by the first 2 bars on the top left hand of the chart. Significant growth investment has also occurred into the Wisr Ecosystem and the secured vehicle product during the half, the benefits of which we anticipated to flow through to revenue going forward. There were 2 significant noncash items during the half requiring upfront recognition: 1 with share-based payments of circa $5 million, the majority of which relates to the reset during the half of Board and staff incentive plan for the next 3 financial years along with the expected credit loss provision under AASB 9 of circa $1 million. If we move on to Slide 14. This slide really signified what Anthony has been discussing around the significant improvements in our loan unit economics. Under the new funding model, which went live in November 2019, we've approximately tripled the average loan unit economic compared to the old model, as signified by the chart. It's important to note that this is an illustrative example with the key assumptions provided on the right-hand side. As you'll see, with the funding cost of 3.5% per annum, we believe Wisr has achieved market-leading cost of funds for our products. It also speaks to the prime nature of the product that we are providing in the market. The final point to note on this slide is that the full gross yield is recognized in the P&L going forward given consolidation of the warehouse trust. Onto the next slide, Slide 15. This really describes the loan funding model in more detail, which we now have in place. As described, we had $114 million total loan book as at 31 December 2019 across 3 different structures. Now that we've ended the scale phase of our business, the warehouse structure is very much the go-forward facility given the vastly improved loan unit economics that were described. In terms of the warehouse trust as at 31 December 2019, we had $22.6 million of funding drawn with $50 million committed, so we still have some headroom along with the ability to expand to $200 million. There are 4 classes of notes within the structure from blue chip institutions, with NAB as a senior funder, Wisr Class 4 notes with 5% of the capital structure. The new secured vehicle product will be funded by the warehouse trust. The next section provides the financial statements for H1 FY '20, which we'll take as read for the purpose of this call. I'll now pass it back to Anthony.

Thanks, Andrew. Turning to Page 21 under the section growth and outlook. We've described already some of the key metrics across the business. But beyond that, there's a whole range of other key objectives which the company delivered in this half. Obviously, we executed the NAB warehouse facility deal, strong credit performance loan growth, customer growth, credit quality as well as great feedback and metrics around customer satisfaction. But additionally, in the half, we launched the Wisr App on Android for the first time. We launched our first partnership models across various different industries. We launched a newly updated WisrCredit platform, which for the first time brings insights and features to customers to leverage cognitive reporting data, making it one of the chosen market-leading platforms credit scores. And importantly, we launched successfully our secured vehicle loan pilot in the half. Page 22 describes these same areas as focus areas for us going forward across 2020. Growth, people, innovation, customer and productivity all remain our key areas strategically where we're driving the business. Turning to Page 23. One of the things that we've done in the previous half was piloting our secured vehicle product. Importantly, that pilot was incredibly successful. On the back of that successful pilot, we've now done a range of things to set ourselves up for future growth. We have turned on a significant debt funding facility for secured vehicles, utilizing the same debt warehouse structure we had in place for our unsecured lending product, which give us tremendous scale [ and features ] to really grow this product. It is a significant market for us to enter. It's a market where we see the major lenders really retreating, creating a significant opportunity for Wisr as a company and as a brand to leverage its market-leading technology, our consumer reach, and our brand that's already established as well as our ability and capability to underwrite personal loans. We've already received the Golden Award from RateCity for new car loan lending product. And it's a great testament to the opportunity in front of us here with this product. As we launch it into the next quarter, we expect it through FY '21 to be a significant contributor to our loan origination numbers. Slides 24 and 25 talk to the continued growth of the Wisr Ecosystem, which we rolled out across calendar year 2019. By the end of this half, we've had over 120,000 Australians enter this ecosystem. It really is a differentiated option for us as a company as we're starting to build really strong bank-like debt fund relationships with our customers without any of the capital requirements of being a bank. So we're seeing transaction data. We're seeing total liabilities and credit scores and credit information on these customers, delivering them great outcomes and great services and which can be a true win-win for both the customer and for Wisr. So in summary, on Slide 26, I truly think Wisr delivers a compelling investment case. We're ready to scale. Phase 1 and 2 of the business was delivered on plan with market leading technology built and a proven business model. We have compelling underlying metrics across loan origination growth, revenue growth, credit performance, customer growth and customer feedback scores across this half demonstrating that. We've now got significantly improved unit economics in place. Our mature model debt warehouse is now live, driving significant revenue growth across the coming period as we transition to this new model. We are operationally strong. Our core underlying operation is profitable, and we are investing in growth to take advantage of the opportunity in front of us. We're well capitalized with $10.2 million in cash as of 31st of December and an additional $36.5 million raised in January, giving us significant capabilities to truly pursue the market opportunity that is presented to the company. We have a remarkably differentiated strategy, and we're primed for growth with that strategy. The unique Wisr Ecosystem, which is unique not just in Australia but on a global scale, combined with the launch of more lending products and more innovation coming through in the pipeline, will allow us to attract more customers with more credit products and grow faster by building bank-like relationships with customers without the capital requirements of being a bank. This in addition to the capital and the unit economics in place sets the company up for significant growth. In addition to all this, we have a strong track record of delivering to or exceeding our plan and keeping our commitments. With new senior hires recently joining, improving an already highly capable team, we're very confident in our ability to deliver on this opportunity in front of us. I'd like to thank everyone for joining us this morning. Appreciate your ongoing interest and support in the company.

[Operator Instructions] The first question comes from Stuart Turner with Blue Ocean Equities.

Congratulations on seriously good results and fantastic progress with the strategy. I just -- I've got 3 questions. Firstly, can you give us a back of the beer coaster on the secured vehicle unit economics given you're able to use the existing warehouse facility? And second question probably one for you, Andrew, just to clarify because I've kind of forgotten the treatment under the new model of the origination fee. And thirdly, probably one back to you, Anthony, just channel trends and where the loan growth coming through, is it still through broker channels? Or are you seeing the strategy sort of start to yield growth in new channels like through the ecosystem?

Yes. Thanks, Stuart, and appreciate the feedback. Look, I'll take your first questions, and I'll pass it to Andy for the fee treatment. Look, in terms of the unit economics on secured, we are utilizing the existing debt warehouse facility for that product to begin with, which already has an incredibly low cost of fund, essentially one of the lowest cost of funds for any unsecured facility in Australia. So there's really strong unit economics for that. Over time, it will probably make sense for us to separate that going -- as we really scale that product and have a dedicated facility for secured. In terms of unit economics, it's hard to predict because we haven't seen how the portfolio will be shaped. We have some old range of models and assumptions on how the portfolio will be shaped across the different risk bands. And we know what target pricing we're looking for and our expectation around how that portfolio will be shaped. But until we really put some scale behind that product and have built a portfolio with some track record behind it, I mean, I'd be cautious about giving any guidance around how that portfolio will actually flow through. But we're very, very confident that there's going to be a very profitable channel for us. We see, particularly in the secured vehicle area, a lot of the majors pulling back. It's becoming hard for them to do that business well. I think one of the things that we know we do really well in unsecured is that customer experience, the turnaround time, the tech, the overall brand experience and the combination of providing them with products which not only do they get the product, but they get us going on the journey with them to help them repay that loan a little bit faster. We know [ we're talking about parts ] and trials, but that same type of messaging to customers looking to purchase a vehicle has played really, really well. And so customers that see that they got the right vehicle. They know that someone like Wisr is on the journey with them and help them pay back vehicle a lot faster, has been a really strong proof point for us. So we expect that channel [ will do ] well for us. In terms of channel trends, the broker channel has been one of our majority channels. Over time, the broker channel is both growing in raw numbers but reducing as a percentage of its contribution to Wisr at the same time, which is a great trend to have. We expect that trend to continue that -- as a raw number channel because the broker channel can get to grow but will reduce its contribution to the business. Particularly, we see our ecosystem products in the next couple of quarters will end up to contribute more meaningfully. In addition to that, some of the other channels that have not been profitable channels for us to play in, become options for us now. There's other areas around just digital acquisition, where we could play if we want to now, which has reasonable unit economics given now our low cost of funds and the increased margin we make on customers. Those channels, as I said [ to everyone, has been generous for -- ] are dependable channels, but there is a role to be played in those as well. So we see an increased presence from Wisr probably likely across those other channels as well. Andy, do you want to take the fee?

Sure. The loan origination fee will continue to be capitalized into each loan. It will then flow through the effective interest rate on each loan, and the revenue will be recognized over the life of the loan. Hopefully that answers your question.

Yes. Perfect.

The next question comes from Wassim Kisirwani with Jarden.

Can I just ask a question? Obviously, following a very strong December quarter with the new facility active, we saw that loan origination really step up. Are you able to give any color on how you've traded subsequently in terms of loan growth?

No. I'll leave that one for our results coming out at the end of the next quarter.

Okay. And just on -- in terms of OpEx outlook over the second half and going into next year, would you be able to sort of provide any indications of what you're sort of budgeting in that respect?

No. Again, I think not at this stage. I think as we mature and some parts of the business becomes easier for us to do that. A good example is the transparency I would now provide on the debt warehouse facility. So as we have clear transparency and we can provide reliable guidance to the market, we'll always provide it to make sure that the market is fully informed and they can create the models accordingly. So as the model matures, as our portfolio matures and as some of our channels mature, we will then bring onstream as well some appropriate guidance.

The next question comes from Brendon Kelly with Moelis Australia.

A couple of questions from me. Firstly, just on the secured vehicle product. Now that that's been operational for a couple of quarters, just wanting to understand a little bit better how that's starting to ramp up and what that will look like over the next 6 to 12 months.

Yes. So I think I'd just clarify that it hasn't been operational for a couple of quarters. We launched a very limited pilot in December quarter. We've subsequently in this quarter launched an expanded pilot, including by platforms like RateCity, which is one of our pilot partners for that product, as we just proved out some of our own, learnings. And the response has been incredibly strong, but it's been a very, very limited pilot. Importantly, one of the channels that we haven't launched into yet is the broker channel, where we have almost 10,000 Australian brokers who can already write a Wisr unsecured personal loan. We're on all the major aggregated panels. And those brokers typically write a lot more secured vehicle finance than they do unsecured personal ones. That's a channel that we haven't launched to yet. We're expecting to launch into that channel before the end of this financial year. And we see that particular channel being a really big catalyst for us to drive the growth in that product. As we launch into that broker channel, we'll also be launching the product across all of our other channels. So we'll go in digital. We'll be going through our own ecosystem channel, through our partner channels as well as through all of our [ scores ] comparison engine site, staff channels as well. So we're expecting between now and June a full launch of that product outside of the very, very highly controlled pilot channels we've [indiscernible].