Wisr Limited (WZR) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the Wisr quarterly update presentation for the first quarter of FY '25. With us this morning we have Andrew Goodwin, the CEO of Wisr and Matt Lewis, the CFO, who will take us through the presentation that was lodged with the ASX this morning. Just a bit of housekeeping -- today's webinar is being recorded and we intend to post this on the Wisr's website following the completion of the webinar that will include Q&A. And if you would like to ask a question, please type them into the online Q&A function, and we'll get to them at the end of the meeting. And with that, I'll hand over to Andrew.

Thanks very much, [ Eleanor ], and good morning, everyone. Thank you for joining us. I'm so very pleased to be presenting our Q1 FY '25 results for you today, and before we get into the sort of Wisr at a glance and a refresh of what the business is about, it's just worth calling out -- it's our first full quarter of return to growth after 12 to 18 months of moderated growth settings. So it's very exciting for the business. And on the back of that, we've delivered $77 million in loan originations for Q1, which is a 54% increase on PCP. So we just look at Wisr at a glance, just to refresh people's minds and memories for those that are existing and indeed new to the business. Since 2018, Wisr has supported the Australians in reaching their personal and financial goals. We are a sophisticated purpose-built fintech with a proven track record of executing on debt capital markets, and we have a mission around improving Australian's financial health and basically giving them a reinvented experience in terms of lending and their broader consumer finance journey. And we are an award-winning proprietary tech platform business. We have strong and diversified distribution channels, including the broker network throughout Australia, along the direct-to-customer via our proprietary platform that I'll talk more about. Just implying numbers, we've originated almost $2 billion of loans since inception. That's equivalent to almost 63,000 customers or borrowers. In terms of that debt capital markets comment, we have 2 warehouses, 3-active term deals and 1 called term deals. So very well established in those debt capital markets. And again, if we just look at the data point at our loan customers, if we compare those that are using our other products and services in addition to our lending products versus those that aren't. The ones that are -- are at 17% further ahead on their loan repayments, which really talks to delivering on that purpose of the business. So as I said, Wisr is a purpose-built business all aimed at making smart money decisions for our customers. Our proprietary tech platform makes it easy for Australians to both access finance and stay on track with their financial goals. So if we look at what the business actually does and provides to our customers. So we've got 2 products in market currently. That is a Peronal Loan and a Secured Vehicle Loan. Along with those loans, we have tools and products on the Wisr app where people can access and manage their finance. In addition to tools and products aimed at establishing long-term relationships with our customers. These products are for both loan and non-loan customers and include Credit Score Checks, Round Up to pay off your debt quicker, our Debt Bustr debt consolidation tool, Money Hacks, which is a whole bunch of content just aimed at empowering people on their financial journey and BreachAlert, which is where if e-mails have been breached, basically, we can notify when people can then go and rectify that with their provider. Looking at our customer base in terms of our loan book. We're very well diversified across Australia. The vast majority of our customers are full-time employed. It's worth pointing out, we are a prime lender. We have a prime loan book and that's evidenced in our credit score, which is an average of 782. If you look at the purpose of what our customers are using our loans for? Almost 2/3 are for vehicles, it's worth pointing out that although the loan book itself, 1/3 is Secured Auto and 2/3 is Personal Loans. We actually do Unsecured Vehicle as well. So we've done vehicles since day 1. We brought personal loans -- it actually is our first product -- and then a few years later, we brought in secured vehicle loans, which is part of the reason for the split of that loan book. Also when we moderated growth settings, we did pull back on the secured vehicle deliberately more so. And so coming off a lower base as we reenter growth. Average loan size is about $32,000 and I've already touched on the credit score. So just to call out our results and again, at a higher level, we're growing by 54% while growing NIM and also reducing our arrears on losses. And just to talk to those specifically. So as I said, $77 million in loan originations, a 54% increase on PCP. Average credit scores is being maintained, a very slight tick down in the loan book. Again, that was expected given the moderated growth settings. We do expect that to turn around as we continue our return back to growth. Our portfolio yield is at 11.12%, which is almost 80 bps up on the prior period. Revenue has ticked down slightly again on the back of that lower loan book. Both portfolio NIM and front book NIM have both grown by 29 bps and 78 bps respectively. And the key point here is, as we keep originating our front book at these higher NIMs, the overall portfolio NIM will follow. Also, very pleasingly, our 90+ arrears is down by 18 basis points to 1.4% and losses is down 69 basis points to 2.06%. The business is very well capitalized. So for those who recall, we executed a $50 million corporate facility in May with Nomura. Again, that just sees the balance sheet significantly strengthened. We have about $24 million of unrestricted cash, and we have $50 million undrawn on that facility for future growth. In terms of the customer, so we've facilitated significant additional loan repayments of $33 million and almost $10 million in debt run-ups. Again, I've obviously touched on this point, very pleasing to be coming out of those moderated growth settings. 54% loan origination growth versus PCP and 40% versus last quarter, again, very pleasing numbers. If we look at the comparison of our Personal Loans versus our Secured Vehicle Loan, we'll see the Secured Vehicle Loan has grown by more than our Personal Loan, that is because we are coming off a lower base. Again, I see this as very much -- as just a start of our return to growth and very excited to be back over these settings. Again, this is a slide that we produced when we executed on the corporate facility that $50 million facility. What that has done for the business is basically given us an incremental $25 million -- essentially a balance sheet to fund future loan growth. What that translates to is about $650 million in new lending. If we imply our run rate yield and NIM to that new lending opportunity, it translates into an annualized $83 million of revenue and $42 million of NIM. Keep in mind this is an illustrative example that we're providing of what we think this could look like. And it's also on an annual basis -- keep in mind that actually the average loan that we write runs throughout the 4 years. And so really, this facility and this return to growth and the strength of our balance sheet is a game changer for the business. And again, I think we've executed really well in our first quarter of that return to growth. I'll now pass to the CFO, Matt Lewis, to talk more about some of our numbers.

Thanks, Andy. So just touching on margin expansion and just building on some of the comments that Andy made earlier. If I draw your attention to the right-hand side of the chart there, we're showing a current quarterly portfolio yield of 11.12%. So that represents the interest rate that we've achieved on the whole loan book, which is higher than what we achieved in the prior comparative period of 10.33%. If we look at the loans written in the month of September, we achieved a front book yield of 12.76%, which illustrates we've successfully repriced that front book, and you can also see over time how that repricing is slowly building the portfolio yield quarter-on-quarter. This in turn has helped us drive the improvement in our portfolio NIM. So we've achieved a portfolio NIM of 5.64% versus the prior comparative quarter of 5.35%. Also the front book portfolio NIM sitting at 6.47%, this illustrates that we're well placed to continue growing that portfolio NIM over time. It's also really important to note that we've achieved this improvement in yield and NIM without any sacrifice to credit scores and the quality of the loans that we're writing. On this page here, we've just shown some illustrative EBITDA and financial metrics. And what we're showing is -- utilizing the September yield and run rate numbers that we've achieved to date, and what that looks like if we apply $1 billion loan book. And just noting this is very much indicative in our forecast. So what these numbers illustrate is if we continue to grow the loan book at our current September NIM, and we apply -- or extrapolate our current -- where we think losses in OpEx will be. We grow a profitable business with an EBITDA of $11.7 million and taking that further down to cash NPAT -- a profitable cash NPAT of $4.8 million. We've also shown on the right-hand side, continued scale and growth over the OpEx space, which illustrates that at a $10 billion loan book, where we're growing at significantly profitable business. So I've got some really good news to share in respective of arrears and losses. We're now really starting to see the benefits of the investments we made in collection processes and systems. As you can see on the left-hand side of the chart, we've maintained our average credit score at around a 782 level. So as I mentioned, we've expanded yield to NIM, and we've done that without sacrificing on quality. If you look at the arrears, which are defined as 90+, we've seen an improvement from 1.58% down to 1.4% this quarter. And this is despite a small reduction in the loan book. If we look at the net losses, that's improved to 2.06% for this quarter versus 2.75% in the prior quarter. Again, that's a function of the improvement we've seen in collection processes, but we're also now starting to see a transition beyond the losses that were caused by the maturing of loan books -- of loans written in the earlier high-growth phase. Moving on to Funding Program. On the right-hand side, just shown our current term deals plus our 3 ABS transactions and the Corporate Facility. We've got $209 million of available funding in place. On the left-hand side, we've just given a bit of an overview there of our ABS transactions and warehouse transactions. Importantly, during the quarter, we have renewed our 2 warehouses as part of the customary 1-year renewal process, and we've achieved improved pricing on both of those facilities, which is really good news. That's also contributing to the improvement in fund book NIM that we're seeing. That funding platform is in great shape. And just note that we're working on a third warehouse at the moment with a new senior funder, really focused on diversification and setting up the business to support our ongoing growth plans. If we look at the capital position, we've got total cash on balance sheet of $49.8 million. Unrestricted cash is sitting at $23.7 million. We do have a restricted cash balance of around $26 million. That's funds -- that sits with inside our warehouse trust, and it represents the undistributed customer loan repayments and unutilized note subscriptions. On the page, we're also showing we've got $43.7 million of capital collateral sitting against the loan book. So in summary, we're well capitalized and have extensive layering of capital throughout the business to support our growth objectives going forward. Handing back to Andy, to the finish on Exec Summary.

Yes. Thanks, Matt. So just before we head to questions, I'll just sum up where we're at. So obviously, for the quarter, really strong origination growth. So 54% on PCP to $77 million and reaffirming the guidance we provided for FY '25 of 75%-plus growth in loan originations for the full financial year. The reason losses have improved significantly, so 90+ is down 80 basis points to 1.4% and losses down to 2.06%, which is a reduction of 69 basis points. Yield to NIM expansion continues, and again, importantly, this is while maintaining credit quality. So both our run rate yeild and our NIM at those levels of 12.76% and 6.47%, respectively -- really do deliver settings that see us able to now deliver a very profitable business at scale as we continue to execute at those broad levels. And finally, on funding of capital, both warehouses were renewed in the quarter with improved pricing, which is a fantastic result. We're very well capitalized for growth and also will progress on a third warehouse for both PL and SVL project with that single warehouse with a new senior funder and just aggregating some funding diversification. So just to wrap up before we head to questions. I'd just like to thank the whole Wisr team for all the work they've done during the quarter. I'd like to thank you all for joining today. And now I'll hand back for questions. Thank you.

Yes, we will now open it up for questions. Just a reminder, if you would like to ask a question, please put your question in the online Q&A function. And we -- will answer them for you. First question that has come through just on -- it's one for you, Andy -- on growth. So why is the reported growth in secured vehicle is 67% and personal loans of 49%. Can you talk more broadly about what industry trends or shifts in demand you're seeing between the different segments that are hoping to drive this growth?

Yes, absolutely. So I think the first segment that I call out as I mentioned, unremoderated -- unremoderated volume settings come. We deliberately reduced our SVL volume by more than our PL volume again, deliberately so. And so when we look at the book, we're about 2/3 [ PL for auto ], and so very exciting to be coming off that lower base in auto, which is actually a bigger market when you look at Australia. And so the total TAM of both our products depending how you define it is broadly $100 billion. When you put that in the context of our loan book, there is a huge amount, I think, of TAM there, which -- in the existing products that we do. And really, what that means is we do expect growth in both products. But probably the bigger opportunity is in auto. When I look at the structural tailwinds in the auto market, so really what we've seen is the historical deposit-taking institutions actually exit that product in that market. And the 2 examples there are both Westpac and Macquarie. And the people that feel that spaces -- are really -- essentially the non-bank ABS -- non-bank ABS funded players including ourselves that are filling that capacity. And also what that's creating -- given that ABS funding structure is actually the traction of more offshore capital into Australia because I think has just grow more broadly as a thematic and just [indiscernible] i'm are very excited about the opportunity ahead.

Right. Thank you. Another one will be for Matt. How do you see the loan book quality and credit performance evolving as a -- as Wisr's loan book grows? Have there been any adjustments in the underwriting standard to risk assessment criteria? How are you ensuring the resilience of your portfolio?

I'd say we're committed to maintaining the high quality of the loan book. As you've seen in some of the previous charts, our credit quality and the loans we're writing have been fairly stable at those high -- those high ratings. So we continue to target high-quality customers. Importantly, as I mentioned in the presentation, we're still targeting those high quality customers that are achieving improvements in front book yields and NIM. And so again, as the portfolio renews, we'll continue to see improvements in that portfolio over time. And as mentioned in the portfolio, we're seeing improvements in 90+ and losses at the same time, which is really pleasing.

Great another gentleman has come through us on -- our NIM. So you've achieved improvements in NIM. How do you expect it to evolve these scales?

So final for the previous question -- as the business scales, we're seeing improvements in the front book NIM. So 6.47% versus 5.69% for the portfolio. So as we continue to write those loans at the stronger NIM that portfolio NIM will continue to increase. We're also starting to see some tailwinds on funding costs, let's say. So we've just repriced the warehouses at a lower rate. We're also seeing improved margins coming through on our publicly rated term deals. In addition, as we continue to ascribe scale and fill our warehouses, we will see lower commitment fees as the warehouse utilization increases. So therefore, I think we're well placed to grow volume, and that will continue to benefit the portfolio NIM.

Great. Now another question has come through. Can you give us an understanding of the distribution -- of how distribution channels are contributing to the growth?

Yes. I'll take that one, Eleanor. So when we look at our distribution channels, there are really three broad ones. So one is the broker network. The second one is what I call direct -- so that's just the technology platforms, comparison sites, Google, et cetera. The third one is our proprietary channel. So that's our Financial Loans platform that I touched on it. And really how I sum those three up is -- the broker channel historically has been extremely effective for us in just it's reliability is rich -- across Australia. And so it's a very effective channel on which to build critical mass. And we're already seeing that flow through, obviously, in our Q1 return to growth, but that is our -- currently our majority channel. However, the part of the strategy that we always had as a business is building that channel that we own, and that group of customers that -- although they may not be taking our loan today -- when they do, we want them to [ be Wisr ] and that's why we offer those nonfinancial or non-lending tools and products to basically attract customers build those long-term relationships, so when they do want to take out a loan -- we're a top of mind. And we do see good organic volume through that channel as well, and we do expect that to grow as the business scales.

Yes. Another one that's come through is how our relationships with brokers now that your back, who are your main competitors?

Our main lending competitors or [indiscernible]?