Wisr Limited (WZR) Earnings Call Transcript & Summary

We're just going to give it a couple of seconds so that a few more people join the call, and then we'll kick things off. All right. I think we'll kick off. Good morning, everybody, and welcome to the Wisr quarterly update presentation for the second quarter of FY '25. With us this morning, we have Andrew Goodwin, the CEO, who will take us through the presentation that was lodged with the ASX this morning. Unfortunately, Matthew Lewis, the CFO of Wisr, is unwell, and therefore, won't be able to join us today. However, you are in good hands with Andrew. Just a bit of housekeeping before we kick off. Just like last quarter, we are going to be recording today's webinar, which will include the Q&A, and we will post this on the Wisr website following the completion of the webinar. If you would like to ask a question, please type in into the online Q&A function and we will get to them at the end of the meeting. And with that, I will now hand it over to Andrew.

Thanks, [ Eleanor ], and good morning, everyone. Thanks for joining us. Okay. So for those that have been on the journey with us for a while, you will recall that back in May last year, we recapitalized the business and strengthened the balance sheet with a $50 million facility with Nomura. On the back of that facility, we pivoted back to growth after around 18 months of moderated loan volume settings. So this is now our second quarter where we've been back to growth, and we're very pleased with the results that we're delivering today. So we had a 77% increase in loan originations to $93.5 million. This is notwithstanding the seasonally slower December period and Christmas period, so still a fantastic quarterly result. Also very pleasingly, for the first time in 18 months, we have recommenced loan book growth, and we closed at 31 December at $757 million. We've seen that continuation in both portfolio yield and NIM with both of those improving to 11.2% and 5.93%, respectively. Our average credit score remains strong and particularly pleasing as well is we've seen our second consecutive quarter decrease in net losses, closing at 31 December at 1.72%. Importantly, the business is also very well capitalized as we continue to scale, grow and aim for profitability. So Wisr at a glance, just as a refresher for people. We have always been a purpose-led business with a mission around financial wellness. Wisr's focus is around helping Aussies reach their financial and personal goals, which is more relevant than ever given the cost of challenge -- cost of living challenge that exists in society today. We've supported over 65,000 customers with borrowing money, and that doesn't include the vast number of non-loan customers that participate on our platform every day using our financial wellness tools and products. We've originated over $2 billion of loan originations and are very well established in debt capital markets. If we look at the borrowers who are engaged in our financial wellness products versus those that aren't, the group that are 27% further ahead on their loan repayments, which is very much proof of our purpose and that the platform is actually working in the goal it's setting out to achieve. In terms of our customers and our loan book, so we're very well diversified across Australia. We have a prime loan book. The vast majority of our customers are full-time employed. And if you look at the loan purposes that we have, the vast majority are cars, so about 2/3 of the book, in addition to debt consolidation, home improvements and so on. The average loan size is around $34,000 and the average credit score is almost 800. So just on that growth thematic. So as we said and as is very evident in this chart here, this is our second quarter since our pivot back to growth. So we achieved 77% growth on PCP and 21% on the prior quarter. If we break down that growth across our 2 products being personal loans and secured vehicle loans. Personal loans make up a greater number in absolute dollars, so $54.4 million versus $39.1 million for secured vehicle. However, the increase, and we're coming off a lower base in our secured vehicle loans is a huge 230%. This is a very big market that we're playing in, and we're very excited to see that growth trajectory that we're currently on. So if we look at our portfolio margins and our credit quality. So at a portfolio level, our yield increased by 69 basis points to 11.2%. Our portfolio NIM increased by 60 basis points to 5.93%. You also see the split of SVL originations, and that was what I spoke about previously, is now up to 42% of our total originations. And that average credit score, particularly on the front book, you'll see has skewed very prime for Q2. And really what that is evidenced by is the larger number of secured vehicle loans that we are writing. The result of that was slightly lower front book yield, notwithstanding the growth in portfolio yield. However, you can see that, that is driven by the high quality of loans that are coming into our mix. We do risk-based price. We have a whole range of risk categories. And this particular month and quarter, we happen to get a large proportion in that sort of prime end. And actually, what that means as we go forward is the performance of those loans in the broader loan book should actually improve from a loss perspective, which is also very encouraging. However, if you actually take the January month-to-date, and this is really to prove -- well, to show the point, that, that front book yield can bounce around anywhere from 50 to 100 basis points month-to-month or quarter-to-quarter. We're actually tracking 50 basis points ahead of where we were on that December run rate. So again, very encouraging, and the book is really well placed to grow and scale. So now the losses, and I have alluded to this, you can see that very stable portfolio credit score, 90-plus arrears ticked up slightly. So what we do see in that sort of December and January period is a slight seasonal uptick where people might miss a payment or so, often inadvertently given Christmas and spending and so on. And usually, that's made up as we head into the following quarter and year. Again, really pleasingly, that net loss number has reduced for a second consecutive quarter down to $3.2 million or 1.72% of loan book. Our funding platform remains very strong. We have good available capacity within our warehouses to fund a lot of the growth that's coming at us, basically around [ $150 million ] of capacity, along with $15 million undrawn in our HeadCo facility to fund and scale. We've also called out that we are well progressed on bringing in a third warehouse provider that will be a mixed-use warehouse for both personal loans and secured vehicle loans and basically a new senior and mezz fund, which is bringing new funders to our platform, great for diversification and so on. And so that's an exciting development that's underway. Importantly, the business is very well capitalized. So we have $17.9 million of cash -- unrestricted cash on balance sheet, along with that $15 million available that we've called out. So just to wrap up, it has been a fantastic quarter. So origination growth continues at 77% growth in loan originations that I've called out. And pleasingly, we reaffirm our guidance that we gave at the beginning of the financial year of 75% plus growth in loan originations for FY '25. Our losses are improving. So this is a great sign that the loan book is performing well. Our net losses are down for the second consecutive quarter to 1.72% as called out and 90-plus arrears very much in line within risk appetite. We've seen both portfolio growth and margin improvement. So the loan book has recommenced growth for the first time in 18 months, and we've seen both those portfolio yields and NIMs improve as has been called out. And finally, the business is very well capitalized to fund the growth that is coming at us as we build a sustainable profitable business over the long term. We're also looking forward to presenting our half year results to the market in about a month or so.

Great. Thanks, Andrew. So we will now open it up for questions. [Operator Instructions] We've got a couple that have come through. So the first one, this quarter marks a return to loan book growth. What is your anticipated time line and likelihood of achieving that $1 billion loan book, which seems to be a key skill milestone?

Yes. Thanks, Eleanor. So we obviously haven't put out guidance around loan book number. We have put out guidance around, obviously, loan originations for FY '25, which is that 75% number. However, I can talk broadly around what we expect for the business and obviously, as a result of that, the loan book. So we really do expect FY '26 to be a breakout year for the business. This is just our second quarter back to growth, and we think FY '26 looks extremely exciting. And so if you broadly extrapolate the guidance that we've provided, we see breaking that $1 billion mark sometime in late '26, early '27. Again, not a forecast, but just trying to give the market an idea of what we're anticipating. The other thing that, again, is really important to point out, and I've made this point a few times is that we are laser-focused on building a sustainable profitable business over the long term. Growth for growth's sake is not necessarily a good ambition. And it's important to make that point that we are growing with focus on growth, but it's smart growth.

Right. Another one that's come through is, what is your main strategy for increasing market share? Are secured car loans your primary focus? Or are there other segments where you see opportunities for growth?

Yes. So if we just look at our current -- 2 current products, we're planning around about $100 billion market. And to put that in context, our current book is obviously $757 million. I do see a lot of space to grow in that space. We are committed to both of our products, SVL and PLs. However, SVL is a bigger product in terms of just the size of the market. And you would have seen in our growth numbers, 230% growth in our SVL products. So we're obviously coming off a lower base. So we do see a lot of upside and potential in that product alongside our PL product. There's also some structural tailwinds. So for those that aren't aware, the Big 4 banks have largely -- if you look at Westpac Macquarie, basically exited auto finance, okay? So they're very much focused on deposits, mortgages, business lending. And what that has created is a lot of space for the nonbank lender group to come through and actually take a lot of that volume. And that's really what we're starting to see both in absolute terms and also the ABS markets, which fund this volume. Also, we have a multichannel approach. So we're very active in the broker channel, the direct channel through our own financial wellness platform and also strategic partnerships. And I think a couple of things that we're doing really well and continue to focus on in addition to having a great product is obviously the tech, the customer experience and the brand.

I just got a couple more. So how much of the front book NIM reduction is attributable to the growth in the secured vehicle loan book versus repricing and/or changes in cost of funds?

Yes. So look, again, the first thing that I'd point out, if we look at a portfolio basis, right, December is 1 month. But on a portfolio basis, yield and NIM are up 69 basis points and 60 basis points, respectively. Obviously, NIM is made up of yield and cost of funds. From a yield perspective, we did skew very prime in the month of December. And what that means is that we originate a lot of high-quality auto loans that actually should have lower losses and so on, actually should be really beneficial on a net basis for the book. We also really focus on unit economics. So for every loan that we write in every risk category, we run NPV model, so we know exactly what we're making on every loan based on the assumptions that we make. And the average tenor of loans is about 4 years, okay? If you do think about the bounce around month-to-month, quarter-to-quarter, there is about a 50 to 100 basis point movement. And as I said in the presentation, month-to-date in January, we're actually up 50 basis points on a front book yield basis. I guess, the other point that I'd make is around just cost of funds, which is the other key component of NIM, notwithstanding that's been broadly flat. We were quite buoyed by the inflation number that came out yesterday and certainly, the market noise and consensus around what that could mean for rates potentially in February, potentially later in 2025.

So there's a few questions in regards to -- a couple of questions on capital requirements. Thanks for the positive updates today. Can you provide more guidance of cash on hand for the business in calendar 2025? Do you anticipate the need to capital raise or similar?

Yes. So look, just to reiterate those numbers. So unrestricted cash is at $17.9 million, and we have $15 million available to draw. That gives us significant runway from a capital perspective and we have called out previously. We essentially see today the business is in a self-sustaining capital position as we pass through that profitability barrier and start obviously flowing cash down to our bottom line. So absolutely well capitalized. We have capacity in our warehouses to fund our growth. And so absolutely no intention of the need to raise capital or anything like that.

We've also got a few questions just on profitability and cash flow. Question here. This is one of the first presentations without the forward-looking hypothetical scenarios, which is pleasing to see, however, what needs to happen for the business to start generating meaningful profitability and cash flow.

Yes. So look, loan book growth typically translates into growing revenue, growing NIM and profitability. These businesses and certainly our business, as we scale, the operational leverage will become very evident, which means costs won't increase at the same rate as revenue. And so there's absolutely a point in time where that occurs. We're laser-focused on it, right? Like we've said this in the market numerous times. We are very cognizant and aware and focused on getting this business to profitability and cash generation. And that will happen as we scale but scale effectively. And again, to come back to the point I made earlier, growth for growth's sake, in my view, is not necessarily a smart strategy. We want to grow smart and there's absolutely a point. And obviously, we run a whole range of models and scenarios where that occurs and we have the capital to get there. And so, yes, obviously, without being able to provide a specific forecast, there's absolutely a point in the not-too-distant future where we anticipate that sort of dynamic being evident in the business.

We've got a question just on cost out. What is the business doing about cost out things like automation and AI?

Yes. So obviously, we'll provide a lot more info on OpEx and so in our half year results. We'll be producing full accounts for the market, and those will be out at the end of February. You would have seen historically, we've been very focused on OpEx and cost and obviously minimizing -- or I should say, managing our OpEx for the business that we are now and the business that we want to be. And so obviously, looking forward to presenting those numbers in around a month or so. What I can say is that automation and AI, look, I know these buzzwords are thrown around for the want of a better word and obviously extremely topical this week at a geopolitical level and a company level. But what I would say is that automation, certainly for the last 12 months has been a huge focus for the whole business. And actually, we absolutely have the data to prove it. We can show the percentage in terms of our process and touch points that are now fully automated with no human touch requirement, and that number is continuing to increase, which is extremely pleasing. In terms of AI, there are a bunch of tools that we do use. I think there's a balance to strike there. The market in this space and the products available is literally growing every day. And I think there's an element of knee-jerk reaction or let's do this, let's do that. Like, we have a very specific organic plan for what we're trying to do. I do see these tools that are now out there in addition to the ones we're already using, is enhancing efficiency, effectiveness, and we're staying very closely attuned to what is going on, obviously, in addition to what we're doing already.

Thanks, Andrew. Another question just come through. How much tailwinds do you see from the Central Bank starting to cut interest rates maybe as soon as February?

Look, I think the -- there's a number of factors there, right? And so what I would say is that unemployment is and always has been the key risk for this business. Even when rates were going up at a rate of knots and I think the market was largely expecting the consumer to fail, losses to increase significantly and so on. It really hasn't eventuated. And actually, what we're seeing is unemployment remain at very benign levels and actually potentially a soft landing for the economy. The challenge for us during that time was actually running a business while your biggest cost line, sort of 10x is in the space of 6 months has clear inherent challenges. And so really, for us, stability is the key focus. And since rates have flattened out, hopefully, you've seen in the last couple of quarters what we've been able to do with that certainty. So actually, wherever the rate is at, we can adjust and run the business. However, obviously, the tailwind from rates coming off by the Central Bank in terms of consumer confidence, available cash to spend, people wanting to do home improvements, buy cars, go on holidays is net positive for our business, obviously, in addition to the potential cost of funds benefit that could and should flow through.

We've got another question here on the share price. So the share price is up around 24% over the past week. Do you have a view on what's driving the strong performance?

Yes. Look, it's a great question, and there's many theories on it. I mean my view, obviously, when the rate environment changed, again, I think the investor sentiment was loss-making businesses were by and large, unpalatable virtually overnight. I think there was concern around the performance of the loan book, which I should say is very much a prime one. And just obviously, the ability to function where access to capital has become more scarce, more expensive, concern around the consumer and so on. I think the investor concern is shifting. And certainly, a number of installs that I speak to do see kind of a rate reduction as a bit of a reentry point for the stock. I can say the conversations that I'm having and interest in the sector is only growing, which is extremely encouraging. So I think it's really a number of factors. But I think at a macro level, it's just investors potentially being more comfortable on the outlook, notwithstanding we always have confidence in our ability to operate through the cycle we've just been through and obviously coming out the other side. But obviously, investors form their own view and have their own risk settings on when they see reentry, yes.

So I can't see any -- we have no further questions on the Q&A. So we've got -- I've got just one more that's just come through. Do you anticipate entering into new loan products, higher average loan sizes to achieve strong loan growth?

So if we just look at the loan size point quickly, we're at about $30,000, which I think is at a good average loan level. We have actually increased our maximum on SVL fairly recently, so just on the size point. I think in terms of products, we have PLs and SVLs at the moment. There's absolutely a road map for this business that sees additional products in the future. Like we won't be here in a number of years' time just doing the 2 products that we're currently doing. Obviously, we haven't disclosed anything specific around that, but the intention from a consumer finance market, I think what we can actually do for customers and what they need, there's a lot of opportunity in additional products for the business and indeed for the sector.

All right. There's a question that's come through on capital costs capital thing. Is capital -- our capital, I think, there might be a misunderstanding. Why do you say capital cost is increasing when it is decreasing?

I'm not sure what that means.

Yes. I haven't looked at that. I think that's -- I think we've gone through all the questions. So I just wanted to thank everybody for attending. A reminder that a recording for this quarterly update presentation and the Q&A will be made available on the Wisr website. Thank you.

Thanks, everyone.