Wisr Limited (WZR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Wisr H2 FY '23 company update. Thanks for joining us this morning. I'm Anthony Nantes Wisr CEO and join me today is also Andrew Goodwin Wisr, CFO. So jumping to into our results. And look at speed plan as a nonbank lenders digital lending platform, the first 6 months of this financial year is obviously quite challenging with the macroeconomic quite rapidly. It's no doubt been very [indiscernible] time for this sector. I think pleasingly, the work we've done as a management team and as a company has really put the business into the strongest cost position on the back of this period. I think we have taken prudent steps to manage the company safely and with a real strong focus on the short-term profitability of the company. But at the same time, whilst really protecting the short-term trajectory of the company, we have continued to protect long-term shareholder value by continuing to innovate, continuing to place the company into a position to really win and grow as the market and conditions settle become more favorable for a business like ourselves. So as we look forward from today, we expect more normalization of the market and normalization of significant movements for us like in cost of funds. As we get some stability in those types of metrics, we've put the company into a position to be profitable, to grow, to grow strongly and also to continue to find a unique competitive advantage in this sector. In the last half, we have delivered around $300 million just over $300 million of loan origination. And we've done that with a significantly reduced cost base. So we actually reduced operating expenses by 14% half-on-half, which is a significant achievement. And whilst we've taken operating expenses down, we've delivered operating revenue up 5% -- and so operating revenue has gone to $43 million. We've reduced operating expenses. And really, as a platform like ours pruning operational leverage is fundamentally important. And we think this past our ability to quickly and dynamically pivot, make changes to our business tool levers required in our business to protect it and really demonstrate that operational leverage has been demonstrated in this half. And so we're really, really proud of that result. On the loan book heading towards $1 billion, up 62% per core period with a reviews still within our tolerance risk appetite. Ultimately, we are trying to do with something quite different and unique in this space. We have a really great digital lending platform, which is delivering scale, we're just showing operational leverage. In addition to that, we're building out a true competitive advantage through a financial wellness platform, which provides differentiation allows us to engage customers at a completely different part of their life cycle, both before they're looking to take out a loan product, but also after their borrowed from us, our ability to build a relationship with them, sustained relationship and ultimately provide optionality for this company to be significantly bigger and stronger in this space remains part of our unique strategy and a unique proposition of Wisr. In the last 6 months, we've really delivered a lot. Like I said, we critically and materially reduced our cost base by around that reduction in cost base, along with the continued increase in our revenue allowed us to actually deliver a profitable second quarter. And in the second quarter, we delivered about $500,000 of PTA, about $1.5 million of positive cash flow. So again, as we saw the market conditions changed, albeit to very rapidly respond, which we did in the first quarter, delivered immediate results into the second quarter. So should give the market and our shareholders, good confidence in our ability to really manage the company to pivot when required to put the levers required to make sure that we navigate through these times. Whilst we did that, we still were able to find areas to win. -- areas are the right, good business, areas to right. What's really important to us, profitable business. were over $300 million in loans with a significantly reduced cost base. And importantly, we wrote profitable loans. We were able to adjust our lending metrics. We're able to adjust our position in the market as our cost of funds incredibly rapidly increased over the last calendar year. We've been able to lift our pricing. We've been able to respond to that, protect our NIM, protect our medium- and long-term profitability as a company. And in addition to all that, throughout the first half, we also decided to strengthen our balance sheet. We drew down another $25 million of capital into the business. Again, just to provide that prudent management of the business. There are uncertain times still ahead for us in the next 3, 6 months. We want to make sure that we can navigate whatever happens over this period. Strengthening our balance sheet has been a really important part of that. And so, we're now well capitalized with a strong cash balance, that additional capital into the business provides that surety of our path going forward, so we can protect our short term. And obviously, the result in the second quarter being delivering a profitable outcome through that quarter puts the company in really good stead. In addition to that, subsequent to the end of the year and the reporting period, we also delivered our first secured vehicle ABS transaction, a $200 million transaction, which again shows that we've got the support of the credit market that we can continue to tap that really important structure. It reduces our cost of funds. And if we can do that at this point in time in the cycle, then again, it's a good vote of confidence from the credit market that says, as this period normalizes and our book continues to perform as it does, we expect to continue to get support of that sector. In addition to that, we've obviously continued to build our financial wellness platform where we stated we were heading towards 1 million profile goal. We're on track to get to that million profile target. And really importantly, in the period, we also launched a brand-new product. So whilst we've strengthened the balance sheet, deliver profitability, we've reduced costs, we have increased revenue, we've put more capital onto the balance sheet. We've delivered profitability. We've also continued to innovate. And so, as that group of first things that we did really protects our short-term view, protecting shareholders' interests and returns over the near to long term is about innovation. It's about taking out a place to find true competitive advantage in this sector. We've continued to do that. We've continued to innovate. We launched it today in the second quarter are really a global first product that focuses on helping individuals change spending habits. And whilst it's very, very early days, and that product has already had 19,000 downloads since launch in the second quarter. It is its own revenue-generating line. And whilst that revenue is not material today against the $43 million coming from our lending business. Over time, we see potentially becoming material. And the fact where I was actually monetized after the first time that part of our business is a really great data point for us. So a really, really strong half. And as a final sort of additional bit of stability, we've also received credit approval for a third warehouse facility. Obviously, we've got 2 house facilities operational at the moment, one for unsecured loans and one full secured. We received credit approval from another big 4 bank to bring online a third warehouse facility. So again, along with the ABS transaction, along with strengthening our balance sheet, we have set the company up well to put us into a period of growth when the market conditions are going to reward that. And so the position of the company today, if we look back at where we were 6 months ago, I think what we've achieved in the last 6 months is extraordinary as a team to put us the company in this position today is, I think, a gray achievement and the whole company should be very, very proud of it. As I said, we continue to grow both parts of our business. Our leading platform continues to grow over $1.5 billion worth of loans written now. And like I said, even with oil reduced cost base, we still delivered over $300 million of lending. And with that $300 million of lending, like I said, a profitable stepping quarter to show that, that operational leverage is really starting to be delivered. And at the same time, building long-term shareholder value through a unique and differentiated strategy through our financial wellness platform, continue to invest in it, continuing to innovate and delivering both a good set of short-term leverable for our shareholders at the same time, looking forward to the medium to long term, stating the company up to be able to scale, grow and win in this space. Our loan book heading towards $1 billion now. And as you can see on the right, great half year revenue now at $43 million, putting us in a really strong trade. So as we continue to be able to manage our costs prudently, I think we've demonstrated we can keep our fixed cost base near where it is today. There's some variable costs that will increase as we continue to scale and expand the business. But by and large, the company is now set to really scale from this point of view. You can see the revenue forward view as our loan book continues to grow in scale, the revenue will flow through from that, and that operational leverage will continue to open. Obviously, in the last half, the majority of what would otherwise have been profits for the company fell through our cost of funds and are very rapidly rising cost of funds, which is out of our control. I think -- what we were able to do in terms of responding to that by pivoting the business by making sure that we protected the business lifting yield only writing profitable business. This has been a period of adjustment. And whilst our cost of funds continues to move around, we will need a period of adjustment. Once we get stability in that cost of funds and most macroeconomists will be telling us the next 6 to 12 months should bring stability for us. Once we get to build that cost of funds, our is. We know how to be profitable in this space, and we can build it and grow and scale a very, very profitable business. All of that has to be done as our core commitment is around being a prime lender in this space. So from a risk-adjusted point of view, delivering really great risk-adjusted profit for our shareholders. And we do that by going after very prime customers. Traditional nonbank lenders are typically there to say, yes, when the banks say no. That's never been our business model. Our business model has always been about going after the very most creditworthy customers in Australia taking market share from the big 4 banks and writing really strong risk-adjusted returns for our shareholders. And we continue to do that. Our credit scores continue to be in that prime and super prime sector. Our arrears and losses continue to be well within our risk appetite and key to be proof points for that as do our term deals. And so, as we take significant parts of our book out to market to Avios transactions, we continue to achieve really, really strong results in those types of transactions on the back of delivering really, really strong credit. Again, as this cycle plays through the nonbank lending set or through finance tile, there are concerns around potential increases in customers' ability to pay pressures on customers. And again, I would say, if that's to happen, you want to be right in the kind of business that we've been writing for the last 6 or 7 years. We have purposely and considerably written business in this prime space. so that we could be a capital-light play out in the visual learning space. Our intention was always to withstand cycles to withstand changes in customers' performance through cycles. And we do that by being very, very time focused, allowing our credit book to perform through cycles. We've got significant tolerance in our book today to allow for deterioration in customers' performance. And that being said, whilst there are no early warning signs in the moment, we don't see any data in our book that tells us conditions deteriorating. We do look at the macro conditions, and we are thinking that there might have this risk in creating customer conditions. And in order to navigate that, we continue to write really, really prime business, prime business that we will perform profitably through a cycle. -- and business that will allow the strength of our financial wellness platform to also be a factor in giving us competitive advantage. If there are changes in credit conditions, the fact that we have a whole other tool, a suite of tools which are focused on improving an individual's financial wellness, helping them manage their spend, helping them understand their stress points and understand their financial position allows us to have a different type of conversation with those customers. And we think over the MEMS long term, will allow us to outperform when it comes to arrears and losses in this space. We've touched on this already a bit of a deep dive into our half yearly results. Obviously, the key, I think, takeaway here has been that the improvement, 6% improvement on the cash after results for the half -- the real clear demonstration of operational leverage being delivered 55% increase in revenue compared to a 14% decrease in operating expenses across the half, really set the business up well and strongly and very, very rapidly as we took corrective action in Q1, delivered an immediate return in the second quarter to a profitable outcome in that quarter. I'll now hand over to Andy to talk through a few more of these items...

Thanks, Anthony. Good morning, everyone. At the halves of the profitability metric cash EBTDA improved 66% or $1.3 million loss, which included a positive cash EBTDA of $1.5 million for Q2 as discussed. The result was strong evidence of operational leverage with a 65% increase in revenue and 14% decrease in OpEx. I -- the OpEx decrease is on the back of the material cost out program in Q1 with head count and other reductions. The net loan write-offs increased with growth in one book size and represented 1.3% of average loan book for the half, which is well within risk appetite. Finance costs increased with growth in loan book size along with the well-documented increase in the cash rate, Wisr has responded to this by increasing the yield on front book loan originations to protect margins Again, just representing the operating cash flow number. So further to achieving positive cash EBTDA in Q2, positive operating cash flow of $1.5 million was also delivered on the back of the revenue growth and OpEx reduction as discussed. The Wisr funding platform remains in strong shape with over $1 billion in facilities and in excess of $200 million available for future loan origination across the personal loan and secured vehicle loan warehouses. Both warehouses were extended for a further 12 months during the half. After period ending February, as Art discussed, Wise delivered its inaugural secured vehicle loan ABS transaction, our third ABS transaction, alongside the 2 personal loan ABS transactions already delivered, which continue to perform well. Wisr strengthened its balance sheet during the half with a new $25 million debt facility, $20 million was initially drawn and $5 million remains under loan and available. We have credit approval from another Big 4 bank for a third warehouse to both personal loan and secured vehicle loan origination to sit alongside our existing warehouses with senior funded NAD and mezzanine partners. And finally, we have credit approval for an intraday credit facility in order to fund loan origination prior to sale into warehouses. This has the impact of freeing up working capital for the business -- just in terms of our capital position. So this is a new slide to provide more granularity and detail on our overall capital position. So the $58 million of cash on our balance sheet consists of both restricted and unrestricted cash. So the $24.5 million of unrestricted cash is essentially free cash for general use within the business. The restricted cash consists of cash held in the Wisr warehouses and includes customer loan repayments and unutilized note subscriptions for funding future loan origination. The $2.4 million loans available for sale at period end are subsequently sold into warehouses and converted into cash. As mentioned, we also have the $5 million available from the $25 million facility, which as at this stage remains undrawn. And finally, Wisr hold Circuit $45 million of equity in notes across our 4 warehouses, which again hopefully gives a really detailed view of our overall capital position.

So obviously, you can see the strong position we've put the company in delivering a very rapid response to what was sort of incredible changes in the macroeconomic conditions and clearly to our planning and budgeting and forecasting around our cost of funds, which rapidly changed mark-on month every month through 2 -- our dose rapidly adjust that delivered really, really strong results. But at the same time is that we continue to invest in and believe that we will win eventually in this space through a really unique model. Having a financial wellness platform sitting alongside a learning platform provides a huge abrupt optionality for us and significant advantages at very, very different points of the customer cycle. It allows us to engage customers well before they're looking to take out a lending product. And so really, to market differently, to put our brand in market differently to have a different message in market to resonate with customers at different points of their cycle becomes really, really material. And so, we can see through the platform that we've built, that not only do we enable -- doesn't enable us to engage customers but actually build really, really strong relationships with them. Ultimately, though, there's a really genuine problem here around financial wellness, which we're attempting to solve. And by playing a role in solving it, it allows us to build our brand with customers. It allows us to be relationships with customers and importantly, create database relationships with customers. Where we know quite a lot about these customers. We might be seeing their transaction data. We might understand their total liabilities position. We will see their income. We'll understand their credit score. We'll understand what loan products they have out with other parties. We understand that have already got an existing personal loan. If they've got a mortgage, if they're making their payments on their more or they're making the repayments on another loan. And so, by building a platform that's built around data in this space, we're able to build what we call a bank-like relationship with a customer without actually being a bank. In the same way, some like a CBA would understand, have deep, really data-driven analysis of its customer base through its deposit accounts. We can build similar Star relationships with customers through a different range of products -- we continue to innovate in this space, and we're really proud of the announcement and launch that we took to market in the first half of a new product in our financial owner space called Wisr today. Wise's really a global first. It's a product which is focused around helping customers with habit change. The majority of customers who are struggling financially actually do earn enough, but they're spending too much. It's the #1 problem for most customers financial wellness is how much they're spending, what they're spending on. And what they're spending on is typically a result of the habits reformed. And so, building a product which is focused around helping a customer to change a specific habit, trending on habit at a time, changing one spend to have it can make a really material difference -- and whilst it's very, very early for this product, it was only a few months since going public, we've already had almost 20,000 downloads. We're seeing that the habits, the customers want us to help them focus on our takeaway. Uber Eats delivery route, the classic ones we're seeing perpetually come up in customers spending patterns, shopping for clothing, the use of bone or pay lead up, and we're seeing coffee transport and other items being particularly Ubers and those types of taxi services being key habits that we're seeing is wanting us to help change. Again, whilst the data is very, very early, we're seeing that this product is making real significant and material change in customer spending has. We're seeing that, on average, customers who are used in the product, putting themselves on track to save over 3,500 annually, just by changing one particular habit. And if they can change the multiple habits, those savings can increase rapidly. This is also, importantly, a revenue-generating product for us. It's a subscription-based product. And whilst the contribution from a revenue point of view isn't material yet. The fact that we're able to actually start driving revenue from this part of our business is a really great early data point. But importantly, the fact that the product really is making customers make a change, it's helping customers to spend less, allows us to think about other areas where we can help address this issue. And so, as I've talked about before, the fact that we can look at how can we flex our financial Wales platform to help with arrears management to help with customers going through potentially a cycle of increased pressure becomes a really exciting opportunity for us as a company. So as a quick recap, I think we've talked about this enough. We delivered a very, very rapid response in the first quarter of this half. We reduced costs. We continue to drive revenue and deliver a positive cash A outcome in the second quarter as a result. With that moderated spend, we continue to grow our actual loan originations, grow revenue. And whilst we've tempered that growth rate, which is prudent to do at the moment to protect our balance sheet and protect the short-term view. We have set the company up by strengthening our balance sheet both by bring in more capital by getting approval for a third warehouse, getting approval for an intra credit facility to free up working capital as well as plus the close of these results and ABS transaction. So a huge amount of work delivered in this period. Importantly, we've been able to flex and rapidly adjust our levers in the company to protect our NIM and protect the medium- to long-term profitability of the company by adjusting our yield, and we'll continue to do so as our cost of funds moves. Ultimately, we think we've built a really, really strong, clearly profitable company that's delivering operational leverage at the moment, and we'll continue to do so and doing it in a way which has a very, very unique strategy in this place. that is focused around being more than just a digital lender, but being in visual and with optionality around financial wellness that enables us to engage customers in a really different way. I think through a very trying period a difficult period, the company and the team has navigated this period exceptionally well. We've delivered everything I think we would have hoped to retreat in the last 6 months, and we're setting ourselves up to continue to deliver a really great company for our shareholders.

I'll just jump into questions now to wrap up. I'm mindful of time, which comments that I'll try and pick out the key questions. First question here is around the process around getting a warehouse approved do the banks and others see nonpublic information. The answer is absolutely, they do. Not only do they see it at the time of doing that, that they get an ongoing view into the business, they can send auditors in to look at things like different parts of our process. They can order our platform, they can audit different parts of our business, which wouldn't be public information. So absolutely, they see all the controls, the governance, the way we manage loans on a day-to-day basis, the operational controls that we have in place as well as all the way through into our decisioning. So they'll get to see the part of our credit decisioning process, which would have been public information and protected IP, IT under the covers and really understand how we go about assessing our credit in order to get these warehouses live. And similarly, as we go out into the ABS transactions with through the Moody's rating process, we have similar access to potentially nonpublic information as well. There's a question here around analyst coverage. We do have a couple of pieces of coverage at the moment, Wilsons provide coverage and a view on the business. As do MST have analysts and research coverage out on the company. So there's 2 pieces of coverage in place. And our goal as a business is to try and get 3 parts, 3 bits of analyst coverage available for shareholders and for the market to provide a consensus. And so, our goal over the coming 6 months will be to make sure that we can try and get those tribute of coverage. Obviously, that's not our discretion, and it's up to the other players, whether they choose to provide coverage on the company or not. There's a question here on come to provide some color and comment on the collections process. I think what I'll say to this is it's not been a significant material part of the business for the last couple of years, as we've been scaling and growing, it's been a relatively minor item in our balance sheet. It is becoming material now. And so, over the last 12 months, we've invested significantly in making sure that we can achieve what we aim to have, which is best in market and best in the sector, collections and arrears performance. I think there's a lot of things that you need to do in order to deliver that. But I think hardened competitive advantage in this space and what we aspire to deliver over the coming 12 to 24 months is really flexing our broader financial wetness platform. To say there's something unique about what we have for our customers. There's something unique in the types of customers that might borrow from us and the types of products we can offer them around financial wellness. And so how can we better use those products to deliver best-in-market outcomes around arrears and collections management. So that's not been a primary driver for us over the last couple of years, it's not been material enough. But I think as we go through this part of the business, it's now becoming a material part of our P&L. And importantly, as we look forward, with potentially uncertain economic times, I think having a best-in-market approach for arrears and collections management is really important for us. And so, we wanted our key deliverables over the coming 6 to 12 months.