Wisr Limited (WZR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Wisr FY '21 results. Glad to be with you all this morning. I'm Anthony Nantes, CEO of Wisr. And joining me is Andrew Goodwin, our CFO, as well. Very exciting for us today. It's an incredibly strong set of results, and very, very pleasing after quite of hard work to get us in this position. It's really amazing for us to come out on the back of the year that we've had, which has really been quite an extraordinary year. And so I'm very, very excited and happy to be actually sharing the results with everyone today. So just -- this should be an intro. I know I won't be long on the call today. You know who we are and what we do. But for those of you who aren't as familiar, we're a purpose-led, a high-growth consumer finance platform. Well, I think purpose-led, we have a real focus on our customers on FI to be honest. And what that does is really allow us to create a very unique tone of voice, a very meaningful brand in this space that we're seeing more and more to be a really true competitive [indiscernible] for us. And that's really core to what we're trying to build. We are a very high-growth company with products that originally started with personal loans and recently a secured vehicle loan was added to the mix as well. And the typical Wisr loans, we have $25,000 over 5 years at the start of its tenure. But typically, we help our customers to pay those off in about 4 years. So that's what a typical Wisr product looks like today. We're a company having a high growth. We've had 20 consecutive quarters of growth, which is really a pretty phenomenal result. In this last year, we were down $27 million of operating revenue. We expect a 280% increase, taking us to about $611 million in total loan originations. I think one thing that really does make Wisr to stand out in this group, and it really talks to what we're trying to do in the long term, and have really true differentiated strategy, is we are -- our ability 2 platforms at the same time. And we're going to talk about both of them today a little bit. The lending platform and the numbers we're seeing coming off the lending platform has been really, really strong. The team has been strong. But our second platform, the financial wellness platform is integral to what we're trying to build in the long term. And again, we're seeing some really great growth across our platform. And over the medium to long term, the data that we're seeing, the early independent metrics are telling us that strategy is going to pay off for us. And we're seeing some great results and what we've been keen to invest in that. I touched on this already on the last slide, just noting our revenue this year, 280% up on the previous year. And then that's really following the 20 consecutive quarters of growth that we've been able to deliver. On the right-hand side here on this graph, you can see the last 3 years on revenue, from sort of circa around $3 million to $7 million last year to $27 million this year. So in space of 24 months, going from $3 million to $27 million really is a pretty outstanding result, and it sets us up for some really strong growth in the periods to come. One of the things I will point out though, it's not just we've been growing revenue at that rate. In this last year, we increased our operating expenses of about 43%. And what that tells the market is that we are getting to a point of scale and true operational leverage, to grow our revenue at 280% and our cost base only at 43%. You can really see the jaws are same. They're opening for us now. And as we get to a point of scale, and most of all the -- in business is there, we can see that we can continue that into the next year and going forward. So we've built a lot of what we need now. We've got a great team, a great environment, a great tech platform this year with some really strong evidence in that operational levers that we're delivering, and we expect to see more of that in the next couple of years. We've -- right across the team, we have accomplished an incredible amount in the last 12 months. It's really when we sit back and look, it's very extraordinary. $366 million in new loan originations which is up 170% -- 169% on the previous year, taking our total loans to $611 million, about $379 million of those are seen in our debt [indiscernible] or our newly issued securitization deal. And that's really driven that growth in our operating revenue. So $27 million operating revenue, up 280% from $7 million last year. Our EBTDA result, and Andy will talk a little bit more of that in some detail in a minute, we're just at 30%. Again, I think it's a very strong result, down from $14 million last year. The financial wellness platform, that second platform we'll be investing so much in, we're seeing great metrics come out of, almost doubling, quite double this year. We've got close to doubling 250,000 [ overseas ] on that this time last year. And as we hit with -- through June, we've got 450,000. So seeing great growth in that platform and really starting to give a material benefit to the company. And in an asset, the weakening of the market is still massively undervaluing. And I think though, there's Europe, too, as we grow that, as later we're going to show more of the metrics we see internally, the power of that platform, the data that we see, relationships we're building with that platform, I think we're starting to see the market really value that as a true asset. We're continuing to manage really good credit. We'll talk about that in a little bit as well. And in this last year, we [ lowered ] just our cost of funds by about 50%, mostly through the term -- on the issuance of that initial term deal. It is worth noting, like I said, $366 million of new loan originations this year. There was a really great growth coming out of the last half and it was quite back end, it's a $221 million in H2, and $120 million in the last quarter alone. So our run rate exiting this last financial year is really pushing closer to that $500 million, $408 million if you take the $122 million from the last quarter, but just around that $500 million in annual loan origination as an exit velocity for us. So we're really setting it to a size and scale that's material and allows us to grow and really do business. In this year, we launched our second credit product, the secured vehicle product, about a quarter or 2 ago. So just before Christmas we had launched that, so we've it 2 quarters or so [indiscernible] of that in market. It's always started to be a material contributor for us. The size in that market is kind of particularly about 2x, our initial product, the unsecured personal loan. And so over time, if we map the market, it might be the case that, that product ends up being twice as big as our other product. It's early days, but it's still being a material contributor today. And it's great to hear that second product in the market this year. We issued our inaugural ABS transaction this year, $225 million of loan assets securitized with what we think is kind of pretty close to an unprecedented result, a AAA rating from Moody's for inaugural issuer for fully unsecured consumer debt. That achieved an all-in cost of funds around a 1.5% plus BBSW. That top tranche, that AAA rating tranche, which had an attachment point, I think, about 67% [indiscernible]. It's not far off what a lot of mortgage deals are getting in terms of pricing, 75 basis points or thereabouts, that top tranche. So again, when that happens, when Moody's looks at that credit, looks at the business we write, they go all the way through our business, and we get to get that, not in a AAA rating, but the pricing that we achieved was really, really [ trying ] -- and should give the market enormous confidence in the quality of wins we have, the quality of the processes, the controls, the platform and our approach to underlay and what we're doing. So a really big issuance for us. Towards the end of the year, we shored up our balance sheet, which is very, very prudent. We think to do another [ $55 million ] into the business, which gives us about $65 million of unrestricted cash. And with -- one of the reasons we want to do that is just to kind of lift the ceiling going forward in the share price. We don't -- we were thinking we might have to go back to the market at any point of time. There's a lot of great things we can do with that capital. We do need a big bunch of capital to get to support our loan book as we get to $1 billion and beyond to $2 billion and beyond. We're going to need capital to support that. And so we wanted to make sure we have that capital sitting there. So it puts the company in an incredibly, incredibly strong position. There's a lot of ratings we've done this year and there's a lot of great stats. There's a lot of great outcomes that we've achieved. But certainly, my experience in my career, Wisr is the best place line of the work. Most people you talk to who work at Wisr will say the same thing. We've got some really great recognition from 2 of the biggest independent players this year around Wisr being in the top 10 places to work. And that really goes to the level of performance where we live it up. People love coming to work at Wisr, and it allows us to achieve these really outstanding results, go the extra effort, and it's a really great thing that we're doing here. In this year as well, we also made a small investment into a business in the year. It's a great little financial wellness platform, looking to do some things that are like similar to Wisr. It's a very small investment for us at this stage, but it's something we can watch and see over the next couple of years, and it gives us some optionality potentially to expand that model. The model that Wisr has in this market of being a really great digital lender along with building a financial wellness platform that can touch customers right through their entire life cycle is really unique. And it's actually not just unique in Australia, it's actually unique globally. So we are mindful of the fact that we've been very, very successful in this market, but taking with [indiscernible] out of the market as well. So that's a little hedge for us that we're going to consider. One of the other things you would have seen us doing this year is we launched our own brand, the website and really updated that look and feel. We would say experience coming to the Wisr website, it's not like going to any other consumer finance company in Australia. The look and feel of our digital experience of our website, of the complete offerings for everyone really is something quite unique in this space, and so we're really, really proud of that as well. I think I've already touched on a few of these slides, just showing the growth we have delivered from our lending platform in the last few years. Total loans up to now $611 million. Our total actual loan portfolio is at $432 million. You can see that on the top right. The Wisr Warehouse, which is kind of our -- on balance sheet, debt facility, including also the turnout deal, is in that $379 million or thereabouts. And that's what's contributing to this great acceleration in revenue growth that you're seeing. $27 million on a year, and really well set up to consume some pretty substantial growth into FY '22. One of the great things about having revenue rapidly growing as we are is getting results like this. So we even talked about this in our last update that, in June, we actually delivered our maiden positive operating cash flow result for the month of June, a really tremendous result. And just talked to just the pace of revenue that's going in our business, and we are continuing to spend. We are continuing to build and innovate but revenue is growing at a rate that sometimes just outpacing some of our abilities to invest, which is a great result, actually. And this is probably the next extension of that. So what we're doing in this slide, and we've been doing this for quite a while now is it actually just break up the cost base for those 2 platforms to allow people to say, well, if Wisr was just a digital lending platform. [indiscernible] around, and you look more like in the traditional nonbank lenders or other digital lenders, and that's all we were doing. That's kind of that yellow box in the space. So ratings related to running our lending platform, acquiring loans, processing an area that goes into us running our lending business is in the yellow bucket. And what you can see is in this last year, if that's all we did, where we've been well beyond tax rate breakeven just in that core business or with the revenue in significant outpacing OpEx. That being said, though, we are investing in growth. There's a lot of things we are doing in our financial wellness platform. We continuously to be, not only major in competitive advantage, but very strategic in the optionality it provides for us. If we didn't do that and could potentially, somebody decided not to and go back to just being a really great digital lender, we'd be already delivering a little bit of profit there potentially, sort of a cash flow across that pool of business. I think -- we think that there's kind of a limit to how big an opportunity just being a really great digital lenders, and then we'll become a $1 billion, $2 billion, $3 billion company, but there's a much bigger price paying towards the consumer finance. We want to be positioned as well as, if not better than anyone else for that big price in the next few years. We think our financial wellness platform is doing that for us. It is a great asset. We're going to keep investing in it. We're going to keep investing in innovation, and look at how we build a business which is much, much bigger and is really quite unique and different in the space. I'll hand over to Andy now to talk through some of the team numbers in the break now.

Yes. Thanks, Anthony. So the key operating number here around the cash EBTDA. This obviously reference us back to our statutory P&L number at the bottom there. So we delivered a cash EBTDA of $9.6 million or minus $9.6 million, which is a 30% improvement on FY '20. And that obviously includes all that growth spend that Anthony just spoke to on the last slide. And the important thing that this illustrates is just the operational leverage of the business is experiencing. So 280% growth in operating revenue versus 43% in OpEx is very significant, and obviously, one that we would like to see continuing, and sets the business up very well as we continue to scale. I'll just call out a couple of key points within these numbers. So one is the loan write-off number, so you can see the sort of $2.2 million there. That represents about 0.95% of our average loan book balance in FY '21, which speaks to the quality of the credit we're writing. Obviously, we have a rapidly growing loan book, but the quality we're writing and talking to a bit later continues to be extremely strong, and that's evidenced in that number. Obviously, we do need to take a larger provision in our P&L. Obviously, AASB 9, which is that forward-looking sort of whole [ advice ] credit loss provision. You can sort of see that down there a bit on cash section, that $5.7 million. And that's detailed in more granularity on Slide 26. And ultimately, from a statutory P&L perspective, we've improved that number by 25% in FY '21, which, again, is a very good result and sees the businesses continue to go from strength to strength. Thanks, Ant.

I'm just going to back on the slides. So there's something else I just want to point out in the last 2 slides, actually. Around of that positive operating cash flow, particularly around this part of that -- if we adjust the digital lending business, our end of -- at the first of June, our loan book was, I think, an improvement around $379 million. The average for the year, I'm assuming, it's probably going to be sitting around $100 million between $200 million-ish. Yet...

$200 million to $250 million, yes.

Yes. $200 million to $250 million is an average loan book size across the year. Yet, with that size loan book, our core lending business would have been profitable. And if you look at other businesses that are potentially in our space, they might return about $1 billion-plus loan book to achieve that. So that just talks, I think, really strongly to just the incredible efficiency in our platform, the efficiency in our technology. The way we run that lending business is really, really, really strong.

In terms of our funding platform -- so again, a breakout year in FY '21 for the strength of our funding platform. So obviously, we only went by in that warehouse about 18 months ago. Now it seems like a lot longer, but it actually wasn't that long in November 2019 with a $50 million facilities. We expanded that to $350 million during the year, and obviously achieved our inaugural term deal, the $225 million transaction, in our AAA Moody's top rating and so on that Ant spoke to, and there's a lot more detail on Slide 29 for your reference. Importantly, we have $184 million of spare or available capacity in that existing $350 million warehouse as we stand here today. As we've called out to the market previously, we now have 2 lending products funded via that warehouse. So it's our traditional personal loan product and our secured vehicle loan that we'll talk to more shortly. What we have called out is we can always establish a dedicated warehouse for that secured vehicle product that we expect to have flow on cost of funds and loss rate benefits, and ultimately, as we term out benefits there as well. And so that's a big development for FY '22 that the market expects. And then just finally, in May 2021, obviously, this is prior to our capital raise. We took a view to just shore up our balance sheet at that time with a $21.5 million head co loan facility. We drew $6.5 million of that. It provides significant flexibility just for the business as we continue to grow. Thanks, Ant.

Thanks, Andy. Just a few bits of data here. We've talked about kind of the type of customers we attract previously. I think the slide on the right is the Equifax data that we've shown. It just talks about the very strong consistency that we have maintained despite the 20 consecutive quarters of growth, but that we've been able to deliver. So we continue to grow our loan book. We continue to do it in a very, very high-quality prime way. And the testament to that, I mean, this is greatly indicated -- the real true indicator is the term deal, the biggest credit funds and credit experts in the world, looking at our assets, looking at performance and pricing that deal where they did at 1.5% over a swap for a fully unsecured consumer book. So I think that's a great testament. This is another data to just show generally where we play, and we continue to be able to attract some of the best customers in Australia in this space. And I'm mindful of the time, always [indiscernible] waste your time on this slide of our loan book, follow the data, it's there. The one thing I will put out though in the top right hand corner, you will see, when we talk about customer, employment status, around 80% of all the customers that we've been to are in full-time employment. We don't [indiscernible] soft employer category lending. Particularly in the recent periods through COVID, through lockdowns, we considered a lot of those places to relatively higher risk. And then just talk to the type of quality in the business we aim to [ try ]. I sort of touched on this already. It is worth noting, the secured vehicle book, now made of about 20% of our Wisr -- the sort of loan book that we have. It's small, but it is growing really, really well. Like I said, general percentage is the market size for that is probably that double initial products. So over the next 2 or 3 years, that product alone gives us a significant growth opportunity. In terms of going forward, we've talked about this slide before. It's been a couple [ last ] iterations. We talked about big in terms of a scenario of $1 billion loan. We're actually looking well beyond that now. $1 billion is a nice number. It makes easier to deal with -- how we're going to think about how the business would operate at that level. We've made a couple of adjustments to this model, on the right, as we've progressed the business. Just noting again, this is not another forecast, but if we took where the business is today and where it's likely to go, where we get to that kind of $1 billion loan book and then through it. But at $1 billion, we'd be delivering kind of revenue of $110 million to $130 million. Our net interest margin after cost of funds, which has come down a little bit, down to 2 -- kind of 2.75% and a loan loss rate. Typically for us has been that 1.2%, we're being a bit conservative and [ set ] that to like get to 1.5%. We're delivering a NIM for us of about $75 million to $90 million. We are flagging here that OpEx might raise a little bit. There's a lot of thing that we want to do. There's more innovation, there's more growth, there's more opportunity, so we want [indiscernible] that capital to work. So that's been offset really by that reduction in cost of funds delivering a fairly similar result. Speaking of balance sheet, there's 3 big things that we want to be doing. One is to grow the loan book. Like I said, our exit velocity is circa, it's kind of $500 million around, [ $488 million ] per annum, $379 million in the book that's at June 30. So you can see kind of the run rate for us to get 2 and then quite good position through that the [indiscernible]. And so we'll continue to make sure we've got the capital available to do that. And we would have gone [indiscernible] significant bigger than that. We'll continue to invest in the financial wellness platform and other technology and be a real leader in that space. And also exploring other opportunities. We think there are some growth opportunities for us to expand our TAM, to build a much, much bigger business over the coming years. And we'll start to put some of our capital work to make sure that we've been very, very well positioned to some of those opportunities. In terms of the platform itself, the financial wellness platform continues to evolve, to grow, the features get better, engagement gets better. It's approaching AUD 0.5 million there now. We've had a kind of tied it to -- well, trying to get to $1 million over the medium term. And the gap on the right, what we've talked about before, the last time we presented this data was in February, where we talked about the 70% more cost-effective channel for our lending business than any other channel that we're working. You can see we've put more effort in our -- more experience with improved conversion and actually just the size of the platform itself and another customers on it has gone bigger at the same time, too. So the overall platform has gotten much, much more effective for us now. It's now at 88% more cost effective in terms of acquiring customers for us for lending. And so again, it's really -- putting some really great data behind the strategy that we have for a business that, over the medium to long term, looks very different in the space and had really to build some of that's really quite big impactful. One of the things we did do and we're meeting this -- is post June '21 that we -- when we launched our first big, major national campaign for the brand. We did it around Tokyo Olympics and the broadcasting of Tokyo Olympics. From our mind, it was a very, very unique opportunity to be a challenger brand in Australia, and to try to take a challenger brand to almost a household name is almost impossible these days. Reach is very scarce, attention is scarce. And if you're like me, and like most of I know, I've had to watch [indiscernible] TV in the last 3, 4, 5 years. But when the Olympics was on for 2 weeks, it was running full time in my house. And so we saw it as a really great opportunity for us to really -- get a really huge return on investment. That 20 million Australians who watched the Olympics, the data we've gotten back from our partners about 16.5 million Australians were reached. [indiscernible] to that campaign over that period. And you see some data here from the bottom right, where we had -- this is some independent data we had, doing some benchmarking for us before and after. And we were -- prior to this campaign, we were actually sitting down at the end there between competitor 4 and 5, and we've moved ourselves to be #1 in terms of advertising awareness and brand awareness on the back of that kind of plan. So there [indiscernible]. I think the important thing to note is that kind of brand awareness, that opportunity to tap retention for a very short period of time, sets us up for, not this quarter, not the quarter after, but for the next few years. So a really great outcome for us. And it gets done with us having just an incredible team. I think our senior team is a team which punches well more above its weight for where we are as a company. I think we have that capability, that level of talent, capability and expertise in the business because we have much, much bigger ambitions to the type of company we're going to deal with, and it is fantastic to work on side.

Question -- I have a copy of mindful of -- there's 2 questions coming through, so I will just try and kind of jump on to these. And here's just a question on the loan losses at $2.2 million. Can you just talk to that perhaps?