Wisr Limited (WZR) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us today for our FY '23 results call. With me today is Matt Brown, our Non-Executive Director and Interim Chairman, who will be providing an update on the events of recent weeks. I'm also joined by my colleague, Joanne Edwards, our recently promoted Chief Operating Officer and former Chief Risk and Data Officer. I'll now pass to Matt Brown to give an update.

Good morning, everyone. As Andrew said, I'm Matthew Brown, the Interim Chair of the Wisr Board. Before I hand back to our Chief Executive Officer, Andrew Goodwin to talk about the performance of the business, I would like to address some matters that have occurred over the past week. Firstly, the Wisr Board terminated the employment of Anthony Nantes on the 16th of August. The Board formed the view over recent months that Anthony was unable to perform the role of CEO to the level required by the Board and as such took action in terminating his employment agreement. As we have stated in our ASX announcements, Anthony's termination was not occasioned by any financial irregularity or regulatory contravention, and the company continues to conduct its business as usual under the leadership of Andrew and our Chief Operating Officer, Joanne Edwards. Joanne and Andrew have the full support of the Board, and we are very confident that they are the right team to lead the business forward. Secondly, as most of you know, Wisr's Chairman, John Nantes, is the brother of Anthony Nantes. John was not involved in the Board discussions or decision-making process of [ Anthony's ] employment. Whilst John was not involved in the decision -- announcement on Monday this week that he supports the actions taken by the Board. In the interest of good and transparent governance and to allow for the efficient deliberation on and management of issues associated with Anthony's tenure as CEO and his termination, John has requested a 2-month leave of absence as chair. As it's been reported, there are criminal matters that involve Anthony. As these matters are before the courts, it would not be appropriate to comment further on it -- ongoing support from our shareholders and your interest in us. And I'll now hand back to Andrew to walk you through the results and the performance of the business. Thank you.

Thanks, Matthew. So FY '23 has clearly been a year of change on many levels, and it's been a year of recalibration for the business. We went from a very high-growth business, delivering 25 consecutive quarters of growth historically to one focused on profitability given the changes in the macroeconomic environment. What we detailed on this slide is the objectives we set ourselves at the start of FY '23 and factual proofs that these have all been delivered. Number one is a focus on near-term profitability. To achieve this, we moderated our loan origination volume, and we increased the front book yield on new loan originations. As you can see, this went up to 13% and a NIM of 5% on a run rate basis. And I'll talk more about this on the NIM slide. Cost management has been a key focus this year. We've had 2 material reductions in headcount and had a real focus on external spend, including marketing. We've also adjusted our growth spend on strategic initiatives, again, with our focus on profitability in mind. All of this is culminated in delivering $7.4 million in operating cash flow, along with a 78% improvement in EBTDA, which included 2 positive quarters in Q2 and importantly in Q4 as we enter FY '24 to set the business up. The dual platform strategy continues to deliver. Obviously, historically, we've spoken about the financial wellness platform in the context of loan origination and the reduction in CAC. Joanne is going to talk later about the use of the financial wellness platform more broadly within the business and its application to our customers and the benefits that provides. Just to talk to some of the specific numbers. We moderated lending growth, but still delivered $495 million of new loan originations. We've originated $1.6 billion in loan originations since inception. Pleasingly, the average credit score actually ticked up 1 point from 780 to 781, 2022 versus 2023. The loan book at $931 million, which is a 19% increase on FY '22. Maintenance of balance sheet strength is a key priority in these times. We delivered our inaugural SVL ABS transaction in February this year, and that's our third ABS transaction delivered. The business is well capitalized with $23.1 million of unrestricted cash, which includes $1.4 million of loans available. So I'll talk a little bit more about that later. As discussed, the focus on profitability is paramount. We've increased revenue 55% to $92 million in FY '23 and as discussed, diluted $1.6 million in EBTDA, which included that positive Q4 quarter along with Q2. 90-plus arrears of 1.25% remains well within our risk parameters, and Joe will talk more about that later. And again, the financial wellness platform is 758,000 profiles set up and $6.3 million of roundups towards customer debt delivered as at 30 June 2023. I think this slide largely speaks for itself. So the business delivered $7.4 million of operating cash flow in FY '23 on the back of all the initiatives that I've just discussed. From a profitability metric perspective, and as I said, EBTDA of $1.6 million which is 78% improvement on FY '22 and I think for me, the most pleasing thing about this slide is the operational leverage which is very evident. So 55% growth in revenue and a 20% reduction in OpEx really speaks to the duals opening on this business as we head into the next financial year. Write-offs were at 1.59% book. Again, Joe will touch on that later. And as is well documented, this result was delivered notwithstanding, obviously, the significant increases in funding costs on the back of largely unprecedented monetary timing through the rising cash rate that's happened both at the end of FY '22 and well into FY '23, and that tightening cycle is arguably still underway. We talked a little about that NIM and loan unit economics and a key focus for the business is expansion of NIM. The reason for that is our cost of doing business increased so significantly, both at the end of FY '22 and FY '23 with a rising cost advance. And so what I'd call out here is the new business that we're writing, that the yield on that front book is at 13%. The yield on the total book at the moment is at 10.25%. So the clear message there is the more business we write at the current run rate settings, the more that NIM will expand. And so that's obviously a key focus for the business, but we intend to do it in a very prudent way. So really, what we're targeting, we're at the 5% run rate now. We want to get to around a 6% NIM level over the medium term as we get scale. And in our view, and again, this is an illustrative example, and it's important to point out, we'll deliver a highly profitable business. I'll now pass to Joe Edwards for the write-offs piece.

Yes. Firstly, our provisions that we hold on the portfolio at June 30 were 2.9% of the loan book. And that's very prudent compared to the net write-offs that we see at 1.59%. Our ECL charge, so that's the P&L charge, which is the provision movement plus the net write-offs at 2.4% is in line with previous years and down compared to a long-term trend. The slight increase year-on-year is reflective of higher growth in our stage 2 and 3 balances. However, when we looked at back testing this model, what we've seen is that we are conservative on our provision settings. And rather than releasing that, what we've decided to do is hold that back so that we've got a conservative view going into the current economic conditions. When we look at how that transpires in net write-offs compared to average balance, we're at 1.5% for the FY, which is up compared to previous year at 1.17%. And that's really reflective of the book maturing. So as we've originated a lot of balances over the last couple of years, those balances tend to only work through to losses in the sort of year 2 and 3. So that increase is somewhat expected and well within our risk appetite, combined with the fact that we've been moderating our growth, so the decreasing growth rates on the loan book have resulted in that percentage looking higher than what it did in previous years where our quarter-on-quarter growth was at 20% compared to 6% in the most recent financial year. Again, when we look at our dual platform strategy, we've consistently delivered growth year-on-year. In the last financial year, we've delivered a total of $1.6 billion in origination to date. And even with the slightly more moderating $495 million compared to $611 million, we've continued to serve more customers with both personal loans and secured vehicle loans. At the same time, the financial wellness platform has continued to grow. And now after 5 to 6 years, we've over 750,000 Australians creating a profile and accessing the different services that we now provide through that platform. This growth is reflected within the continued growth of our loan book, which as at the end of June, is $931 million in loan balances, and that transpires through into revenue, which is seeing a 55% growth year-on-year.

Thanks, Joe. I'll now talk about our funding platform. Pleasingly, we have another $1.1 billion of funding facilities in place, again, which is testament just to the way this business has been built over a number of years now. We have delivered 3 ABS transactions in market, the most recent of which was our inaugural SVL ABS deal as discussed in February of this year. We still have our dedicated warehouses in place, warehouse 1 and warehouse 2, which are basically a loan product wise. So warehouse 1 is our personal loan product and warehouse 2 is our secured vehicle loan product. Pleasingly, we've made credit approved by another Big 4 bank which is still alongside our existing Big 4 bank partner through a third warehouse, which is obviously a pleasing development. And importantly, we have $150 million of capacity in place as at 30 June for future loan origination. So this is a relatively new slide just to provide some further color on our capital position. So as discussed, we obviously have $23.1 million. We define there as cash and cash equivalents or essentially unrestricted cash. We also have $48.3 million of equity of our own capital sitting within our loan book is collateral against that loan book. It is possible to release some of that capital. And we proved that in June of this year, where we released $3.6 million out of that first term deal basically into our free cash position. And the reason for that without looking to get too technical is as term deals amortized down the leverage reduces, and therefore, you're able to release some of your equity. So it's a very important point to note that we do have that capital, which is our capital sitting within our loan book, which will eventually flow back to us. And so it's a real set of capital management piece and important to point it out. I'll pass back to Joe on the financial wellness platform.

So through our own research, finance is the #1 cause of stress for people. And our experience tells us that customers' experiences are different. They're highly individualized and often very complex. So rather than having a transactional relationship with our customers, what we've tried to do is quite different to other lenders and go on a journey with our customers throughout their life cycle to try and provide them different experiences that can help them at different life stages that they're at. We've been doing this over a number of years, building out different products. And what we've been focusing on over the last period is really bringing all this together into one succinct customer experience that can help them throughout different stages that they're going to. So initially, trying to help customers understand where they are financially providing free access to credit scores from multiple bureaus, that gives them insight around liabilities that they have indicators of stress and also indicators of the eligibility around credit. Through that platform as well, we provide alerts when scores change for them and tips and information about what they can do and how they could improve their best goal. Leading on to providing that ongoing coaching and experience, daily coaching, teaching them about saving habits, spending habits, helping them to understand what credit scores are and how they can improve their scores, complemented with the roundup service that rounds up the digital spare change from daily purchases and can use that change to pay off debts or save and generally improve their finances. And these 2 pieces of data that we use in these processes really help us make a credit assessment on those customers. So we have both the credit score inside the liability information, the affordability information, combined with their transactional data, and we can use that to create a very targeted specific loan offer for customers around how they access credit in line with their requirements and objectives. What we've been doing a lot with this platform more recently is really helping customers understand how to manage their loan once they have a loan with Wisr. So looking at monitoring their repayments, looking at making additional repayments to that loan using the roundup service and also more recently, looking to make one-off extra payments, which has been really important for customers in those early stages of arrears who can now get a digital interaction for us and then make an online automatic payment to help pay off that arrears and help them manage any sort of early arrears that they have. All of this comes together with kind of continued platform access throughout the life of the loan, helping them manage their scores, helping them monitor their scores, helping them make payments, helping them improve their money habits and helping them get access to credit in the future. And this is really starting to show within the data around how we're actually monitoring and seeing loan customers improve their financial health. So we've been monitoring our customers who have engaged with this platform throughout FY '23. And on average, 41% of customers who engage with this platform are further ahead on their repayments of their loan balances. A customer with a $30,000 loan that pays an extra $50 a month using the roundup feature will be 5 months ahead of schedule on their loan. And that will help them save interest over the life.

Thank you, Joe. And so just to summarize, Wisr has delivered run rate profitability in FY '23, along with positive operating cash flow, the metrics of which are very evident, the $7.4 million around 78% improvement in EBTDA. We've recalibrated the business to be one of moderated growth with expanded operational leverage with a focus on reducing OpEx, and we've maintained strength in our balance sheet. A focus on NIM remains and obviously, that was very well detailed as a focus. We've increased our front book yield that we're charging our customers as we continue to originate loans that would flow through the NIM and ultimately profitability. And finally, the strategy growth remains unique and the financial wellness platform alongside the digital platform, and hopefully, that additional color that Joe provided today has been useful to you all. The last thing I just sort of wrap up on this slide by saying is for the business more broadly, notwithstanding getting more recently that Matt spoke about is very much business as usual for myself, Joe, the Board and the team, and we thank you for your ongoing support.

We've had a few questions come through. So one is, will you return to high growth? And if so, when? So prime consumer lending businesses are scale businesses. The key question is how do you get to scale. Obviously, we're at $1 billion book now. Our intention is certainly well beyond that level and as it was illustrated in those NIM examples that were provided. You obviously need to take stock of the broader economic environment you're operating within. Obviously, capital is more scarce and more expensive, obviously, given the cash rate increases and so on and that need to be very closely monitored on that type of scale. As you would have heard in our quarterly results, we are monitoring the broader environment very closely, particularly for -- basically the tightening of the monetary policy and the cash rate to stop and ideally start coming down, at which point our intention is to start growing loan volume again. It will be done in a very prudent way with a real focus on balance sheet strength. And pleasingly, it is actually quite easy relative to sort of moderating growth to turn channels back on. The way that we have moderated growth is literally turning off loan purposes and selling and use cases to basically stop that flow coming in, but it is actually fairly effective just to turn those back on and scale back our position when we choose to. We have another question here. What is management's view on the current level of arrears and losses, and I'll pass that one to you Joe.

So yes, currently, arrears and losses are well within risk appetite. And as I mentioned previously, our provision levels are conservative, which is prudent in this environment. It's a strategic focus for us as a business to continue to invest in this area. And as I mentioned previously, the tools that we've developed within the financial wellness platform are really helping us do that, along with enhancements in technology and analytics that really help us manage our arrears customers. Within our current arrear rate seasonality is at play, and that's very common in the second quarter of the financial year, which we've seen here and experienced across industry. Economically, there are additional signs of stress given cost of living pressures. However, we continue to monitor the unemployment rate for us, which is really a driver of -- the main economic factor within our portfolio, which is likely to have more of an impact. What we have seen is our homeowner base that customers with homeowners who have loans with us are still performing very well. So that pressure in the economy hasn't really played through yet. But obviously, we'll continue to monitor and continue to invest.

Thank you, Joe. And it's worth calling out, we mentioned this in the commentary we've now launched the Wisr Investor Hub, which you can see in the commentary or on our website. And that basically has a whole range of content for investors and the ability to submit further Q&A for example, if anyone on this call more broadly would wish to do so. And again, just to wrap up, I'd like to thank you, thank Matt Brown for joining today from the Board and my colleague, Joanne Edwards. And obviously, I'd like to thank you all for taking the time to listen to our results for FY '23. We're very excited about the year ahead. And thank you all for your ongoing support. Thank you.