Wisr Limited (WZR) Earnings Call Transcript & Summary

All right. Good morning, everybody, and welcome to the Wisr results presentation for the first half of FY '25. With us this morning, we have CEO, Andrew Goodwin; and CFO, Matthew Lewis, who will take us through the presentation that was lodged with the ASX this morning. As always, a quick bit of housekeeping before we kick off. Today's webinar is being recorded, and we will post this on the Wisr website following the completion of the webinar. [Operator Instructions]. And with that, I will now hand it over to Andrew and Matthew.

Thanks, [ Eleanor ], and good morning, everyone, thanks for joining. So just to kick off, it has been a great half for Wisr H1 FY '25, and the key message really is that we are very much set up for sustainable growth. The 4 key highlights for the half were: Strong loan origination growth; improved loan book performance; expanding margins and pleasingly delivering EBITDA profitability; and the fact that the business is very well capitalized for growth. A couple of key drivers I just wanted to call out, I'm going to talk a little bit more about in the presentation are the structural tailwinds that are increasing non-bank lender market share and technology-driven automation, which is now a very key part of our business. So firstly, just the key results. I won't go through every one individually, but just to highlight a few of them. Very pleasingly, new loan originations up 66% to $170.8 million. The loan book within the half has recommenced growth, that was Q2 on Q1 after around 18 months of basically declining, and we expect as that loan origination growth continues now that we are back to growth, we should see that loan book grow, which is the key driver of revenue, and we expect to see that come through. The average credit score has remained very strong. Portfolio yield and NIM have both grown strongly. As I pointed out earlier, we've delivered that $0.8 million in EBITDA, which is extremely pleasing, and the book performs very well. So 90-plus arrears down slightly and net loss is down actually quite significantly, which is extremely pleasing. The business is well capitalized both from a free cash on balance sheet perspective and also an undrawn warehouse capacity perspective to basically fund that growth, that loan book growth and some really good customer metrics just around additional loan repayments, roundups and a really strong Net Promoter Score. So Wisr has been a purpose-built business from day 1. We have a proprietary award-winning technology platform focused on supporting our customers in their financial lives and helping them get ahead. It's never been more relevant than recent periods, which is obviously very well documented given the challenging cost of living dynamics that have been playing out in the economy, and obviously very pleasing to see the RBA decision last week, very much in a soft landing sort of scenario. And again, we'll talk a little bit more about that later as well. So we have 2 key -- our 2 loan products, personal loan and a secured vehicle loan. We have a whole range of non-lending products on our platform that basically anyone can use for free to enhance their financial lives and ideally get ahead. And obviously, you can also access our loan products on that platform. We have over $2 billion and a very well-established in debt capital markets, serving over 65,000 customers just in our loan customers, there's a whole additional bunch of non-loan customers there as well. And we have very well-established proof points that engagement with the platform actually does result in customers making better decisions on their financial journey. So this is a new slide. However, it's something we've been working on in the background, in particular, in the last 12 months, but essentially for the last number of years. It is very topical in the market. I do get asked about a lot from investors, so I thought it important just to give some more color and actually some data on exactly what we're doing. We've obviously been in moderated growth settings prior to this half, and that was a great time to invest in our technology, our automation and just get ourselves as well prepared as possible for scale. And that's absolutely what we've done. So firstly, automation of our loan approval. So every loan application that comes to our platform, 78% of those are automatically improved by an AI-powered decision engine, that's up 66% in just 12 months. Finally, the verification process. So this is documentation, et cetera, that needs to be compliant and approved. The automation of that process is up 134% in H1 FY '25. Pleasingly, we now have an industry-leading arrears management platform, which we've invested significantly in, and that very much sets us up for scale. It is data-driven. The customer experience on that platform, in my view, is just vastly improved to what we've had historically, and so that is a great development. And finally, our loan ledger platform. So this is essentially built from the loan book portfolio platform. We've automated a lot of the processing, a lot of the payments, improved reporting and decision-making. And really, I think we've summed up down the bottom what these 3 initiatives do around automation. And the important point to note is it's not just automation. It's also operating leverage at scale as we automate. And so you can see those highlights down the bottom of the slide there in terms of what we expect those to deliver. And just to sum up, we are a true tech business, which I think is a really important point to note. Finally, our customers, we have a very well-diversified customer base, diversified around Australia, majority full-time employed and around 2/3 of our book are cars. That is a bigger market, and we'll talk more about that shortly. But yes, this is just a nice snapshot of our customer base around Australia. And this is just our structural tailwinds that I spoke about in the first slide. And so what we've seen over the last 5 years is the major banks really -- basically, their market share has gone from 74% to 61%, and we're actually seeing that trend increase. They are more focused on mortgages, deposits, and business lending. And that's really seen the rise of the non-bank lender group, obviously, including ourselves being the beneficiaries of that volume. The big 4 banks really are the engine behind our capital as well, which I think talks to the point of that partnership thematic given one of the big 4 banks is our major warehouse provider, and so those relationships are actually very strong. And I think the dynamic is also evident when you look at the ABS market. So that bottom slide there, traditionally, banks fund through deposits on balance sheet. The ABS market has gone from strength to strength. A lot of foreign money now coming into Australia. Obviously, the whole private credit thematic is well documented, and it's very evident there, just the huge volume we're seeing funded by ABS transactions of these products. So if you look at the bottom left there as well, the market opportunity is significant. So obviously, secured vehicles are a much bigger market, 0.2% market share, if anything, gets me excited. It is a huge market. We're just at the beginning of our return to growth and that journey to scale. And personal loans as well, only 1.6% market share. So just really well placed and obviously, already putting good growth numbers on the board this 6 months. So just that return to growth. So again, May this year or May last year, I should say, we executed that HeadCo facility for $50 million. That was after around 18 months of moderated loan volumes as is very evident from H1 FY '23 down to H1 FY '24 -- H2 FY '24, I should say. And that return to growth is obviously very graphically evident. So we've grown 66% versus H1 FY '24 and 60% versus H2 FY '24. And this is very much just the beginning of our journey back to growth. And as I said, that growth will drive loan book growth, which will drive revenue, which will drive scale, and we'll talk more about that as we go through. I'll pass to CFO, Matt Lewis.

Thanks, Andy. If we focus on the loan book numbers on the top left-hand side of the page there, as Andy mentioned, we did go through a period of moderated loan volumes over the past 18 months. The Nomura facility kicked in, in May, and we've now started growing originations rapidly. We did see a small decrease of 2% in the loan book to $757 million as we transition out of those moderated settings. But importantly, we did reach an inflection point at the end of the second quarter. And the loan book has recommenced scaling compared to the first quarter, which is supported by that loan origination growth that Andy just spoke to. If we focus on revenue, we achieved revenue of $45 million for the half, which is a slight 1% decline on the previous half, primarily due to lower average loan balance in that period, partially offset by improved yield. It is important to note, though, that despite that lower revenue, the business did achieve positive EBITDA of $0.8 million for the period, which is 0.6% improvement over the prior half. And we'll discuss that a little bit in the page shortly. Finally, we've just presented the loan originations in the bottom right-hand side chart, split between SVL and PL, which Andy just spoke to previously. If we look at our portfolio margins and our credit quality, at a portfolio level, our yield increased 69 basis points to 11.2%, and our portfolio NIM increased by 42 basis points to 5.75%, as we continue to see the pricing benefits of repricing the book. Importantly, you can see we haven't done this by sacrificing credit quality, which has ticked up slightly to 798 as we continue to focus on prime customers. We've also just presented in the bottom left-hand chart there, the split of SVL originations. As Andy spoke to previously, SVL is now makes up 36% of our total originations for the half. And what that means on a go-forward basis is the performance of those loans and the broader loan book should actually improve losses, which is encouraging. Really great news story on arrears and losses. We're now starting to see the benefits of the investments Andy talked about in collection processes and systems. And you can see we've maintained our average credit quality with a credit score of 798. So as I mentioned, we've expanded the yield and NIM without sacrificing that credit quality. If we look at arrears, which we define as 90-plus, we've seen an improvement from 1.58% to 1.5% (sic) [ 1.55% ] this half, and this is despite that small reduction in the loan book over the period. Net losses is the really good news story, which has improved for the second consecutive half down to $7.2 million of the average loan book, which again is a function of those improvements we've made to collection processes and systems, but we're also now starting to transition beyond the losses caused by the maturing of the loan cohorts written in our earlier growth phase. If we look at our ECL or expected credit loss provision at December '24, we held a total ECL provision of $22.5 million or 2.97% of the loan book. That's a reduction from the July or 30 June balance of $24.5 million. Important to note, the ECL provision and the expected credit loss expense we show here are essentially noncash accounting calculations, which we hold for future potential losses. The $2 million decrease in the provision coverage we experienced in the current period is really a combination of that slightly slower loan book, which means a lower requirement for an expense, combined with the stronger recoveries and improvement in late-stage arrears we're seeing from improvements in process and systems we talked to. If we now cover the income statement. So pleasingly, we've seen positive growth in EBITDA with an increase from $0.2 million in the previous half to $0.8 million in the current half. The key drivers contributing to the growth are stronger loan unit economics and a reduction in net losses, which has offset the small reduction in revenues we've seen in the half. We have seen OpEx increase by 6.3% to $13.9 million for the half. This reflects the incremental investment required to support both the current growth and the future loan origination growth. It's important to note, we have grown originations by 66% in the half, yet our increase in OpEx is only 6%. So as Andy mentioned earlier in the presentation, we significantly increased automation, loan approval verification processes, and that has reduced the investments we otherwise would have required to scale our cost base as we grow originations. With the loan book now reaching that inflection point at the end of Q2 FY '25, and we start to scale that loan book up, we will start to see an increase in operating leverage as both revenues increase in line with the loan book. So we very much remain focused on operational efficiency and are broadly targeting a cost-to-income ratio between 25% to 27% at a $1 billion loan book, and we'd see further improvements as the business continues to scale from that point. If we look at our funding platform, on the right-hand side there, we've just presented our current 3 term deals, our 2 warehouses and the corporate facility we have in place. We've got in total $168 million of committed undrawn funding available, $153 million of that is in our warehouses and a further $15 million remains undrawn in our corporate facility. Importantly, during the half, we did renew our 2 warehouses for the customary 1-year rolling basis, we're actually able to achieve improvements in pricing on both those warehouses, which is in part contributing to the improvement we've seen in our NIM for the half. The funding platform is in great shape. We know work is continuing on a third warehouse with a senior funder. That's really to focus on diversification of funding partners and to support our growth plans into the future. If we look at our capital position, we've got cash on balance sheet of $51.9 million, unrestricted cash of $18 million, and we've got an undrawn capacity, as I mentioned before, in our corporate facility of $15 million. We've also got holdings in our equity warehouses of $46 million. So in summary, we're very well capitalized. We've got layering of capital to help us support our growth objectives.

Yes. Thanks, Matt. So I'll just provide the summary of what we've presented today. So again, the message I just want to leave with people around the key drivers is those -- are those structural tailwinds driving that nonbank lender market share and the technology-driven automation that we are now very much focused on and have been for a period of time. So just to highlight those 4 key summary points: Strong loan origination growth, 66% up half-on-half. Obviously, that growth in loan book in Q2 and obviously on the pathway to that $1 billion and beyond loan book. And pleasingly, we reaffirm our guidance of 75% plus loan origination growth for the whole of FY '25. We've had improved loan book performance. Obviously, 90-plus has remained stable. Net losses have reduced quite significantly. Margins are expanding, and we've pleasingly delivered EBITDA profitability for the half. And finally, we're very well capitalized both from a free cash on balance sheet and a warehouse capacity perspective to fund the growth that's going to be coming at us.

Great. We will now open it up for questions. [Operator Instructions]. I have got a couple that have come through. So the first one is on interest rates, Andrew, I might hand it to you. How does the recent reduction in interest rates impact Wisr?

So the interest rate reduction has obviously been spoken about for an extremely extended period of time, given the environment that we've obviously been in for around 2 years and, in fact, longer. So I'd say the biggest benefit of that reduction, and it's important to note that the reduction is in the context of a soft landing. It's not in the context of a macro shock or a broader macro shock that requires material interest rate reductions. It's because inflation is now under control, which as a general rule, significantly should benefit the consumer in terms of cost of living. My view is there's still a way to go. Obviously, 25 bps is something. But really, I think on that soft landing point, the key risk for our business is unemployment. And pleasingly, that has remained at fairly benign levels, which is obviously, again, for our business, very pleasing and indeed for the broader economy in terms of you want people and jobs. And really, the combination of lower rates and strong employment is consumer sentiment. People want to now do stuff in their lives, they want to put in a pool, they want to do a home improvement, go on a holiday, consolidate debt to a lower rate to get into a better financial position, buy a car. All these sorts of things just basically drive volume, and we're starting to see that in the broader data. As a general rule, people have more money in their pocket. It should be good for arrears and loan book performance, and there should be some cost benefit to us. Obviously, 25 bps is something. The sentiment around a sustained reduction in the cash rate over a period of time, we'll see that benefit flow through because we hedge the sort of 3- or 4-year curve, which matches our asset loan book. And so we do see some benefit. We do have a proportion of floating rate exposure, but we also take quite a conservative view in terms of how we manage, obviously, our balance sheet and the potential exposure to rates. So let me just finish by saying the final thing is that as a general rule, under these economic conditions, lower rates are generally a great driver for small-cap equities, which is pleasing for us.

Great. Now we've got a question on loan origination growth and also a little bit on the mix. So what are the key drivers behind the 66% increase in loan origination. Can you provide some more insight? And do you expect this momentum to further accelerate, particularly do you anticipate SVL originations to continue increasing as a percentage of that total origination?

Yes. So look, I think the origination growth, as I said, we are a fraction of the overall market share, and we've only been back to growth for 6 months and already have got a great result on the board. So that PL and SVL, SVL is a bigger market. We have seen more growth in that product. It is a bigger market, and we do expect more, I guess, market share in that product, but PLs as well. I think that's an important point. We have a multichannel distribution strategy, which includes our own proprietary platform. Obviously, we're very active in the broker channel. So it's really a function of getting back out in market. We're not looking to spend extensively on marketing. My view is that's not the best OpEx for sustainable growth that we could make. And so we're being very prudent in how we think about that. And really, our products. So I think when I spoke about that automation, really what all that translates to is a better customer experience for brokers, our customers, our potential customers, the market more broadly. It just makes that UX better, which flows through. And then you obviously need the brand, you need the pricing, the relationships, the quality. There's a whole range of things that go into the mix that we need to be good in all of, and I think we're doing a great job so far.

Great. I've got another one here. This is on EBITDA profitability. Matt, probably one for you. Wisr has improved EBITDA in the half, which is great to see. Can you give some further insights into this growth and some commentary in relation to the increase in OpEx?

Yes, sure. I'll elaborate a little bit further in the comments I provided earlier. So the key drivers contributing to that growth is really the stronger loan unit economics. So we saw NIM increase from 5.3% to 5.7% in the current half. What that's done is it's taken the edge off that reduction in revenue a little bit. So the reduction in revenue is not as pronounced once we get to the NIM level. And then the other key driver is our losses performance, which has been really, really strong for the half. So as I mentioned, we've made improvements to processes and systems, and then we're also transitioning from that high-growth scenario where we're seeing some losses come through from kind of the 18 to 2 months -- to 2 years ago. So when you combine that together with also seeing some really strong recoveries from the half, we're seeing the key contributors to what's driving EBITDA. When we look at the -- as I mentioned, when we look at the cost base, I think it's really important to mention although the cost base has gone up by 6.3% in the half, our origination growth is substantial at 66%. And so what we are seeing is if you were to look more at a ratio of kind of origination growth rather than just pure revenue, which will follow in the next 6 to 12 months, we are already starting to see some leverage over the cost base for the work that's being done within all the automation that Andy spoke to earlier. So if we look at the fact that the loan book has now turned the corner, it's reached that inflection point in the second quarter. We will see both origination growth and loan book growth into the second half and into FY '26, that will then start to impact the cost-to-income ratio itself. So we're targeting and expect to see cost-to-income ratios as we grow the loan book to about $1 billion at the 25% to 27% mark. And then as I mentioned, we see that improving further as we continue to scale. I think it's really important to note that cost base and efficiency is one of the key focuses of the business, and we will continue to focus on that going forward to make sure that we're delivering a profitable and scalable business going forward.

Thanks, Matt. Just a couple of questions on technology automation. Andy, this is probably one for you. Can you talk a little bit more about the automation piece and what you've done in that area?

Yes, sure. So I think as I mentioned, the moderated settings we were under allowed us to really focus on investing in the technology platform and how we're actually going to grow this business as I knew we would come out of those settings as the macro environment stabilized as the balance sheet was strong, and we've absolutely done that in the last 6 months. And so it was a great opportunity for us to focus on. And we have been focused on historically, but as a lot of people know, when you're in a high-growth business, there are a lot of priorities that need to be managed. And so it really allowed us to go deep into that piece. And just to talk about some of the data points. So our automated credit decisioning has gone from 66% to 78% in the last 12 months. And the automation of our verification process has increased by 134% in the 6 months. And so we have an AI-driven credit decision automation and verification platform. We use a combination of machine learning and traditional predictive models. If you think about the data that we use to make decisions, that's both historical and existing. It includes transaction data, demographics, age. There's a whole range of data points, it's actually a very significant number that go into this platform. And as part of that, we've also built our own scorecard. So we do use the credit bureau data. We've also built our own scorecard based on our own observations and insights of the $2 billion worth of loans that we've written. And there's a huge amount of richness in that data, and that is just increasing every day. And we do a lot of hindsight reviewing as well around the decisioning. So we're not just set and forget. It is constantly iterated because you obviously learn a lot by looking back. And there's obviously, I think, broader information that we factor in as well. So yes, I think it's still very early days for us, but I think where we're at sees us extremely well placed to automate at scale. We're already automating. But as Matt sort of pointed out, that operational leverage piece at scale. If you scale and just increase costs, there's no point. You kind of need that revenue to go up and your OpEx to stay flat or go down on a relative basis. So yes, I think we're very excited about what's going on in the space, and it's just -- yes, it's just getting better.

Great. Just running through a few more here. This is on loan book size, Matt, I might pass this to you. In your presentation, you referenced target cost-to-income ratio at a $1 billion loan book. What's your anticipated time line and likelihood of reaching a $1 billion loan book?

Okay. We have issued guidance to the market at the end of FY '24 that in FY '25, our loan originations will grow 75% plus compared to FY '24, which we reiterated today. We haven't put a forecast out on loan book sizing and when we would get to a $1 billion loan book. We are set up for scale, and we are growing rapidly. When we get to $1 billion loan book, we'd see that in the relatively short term. We haven't put a forecast out to market in respect of that. Will we get to $1 billion loan book? I think with the question is -- the answer is definitely yes. In respect of cost-to-income ratio, we really expect FY '26 to be the breakout year as we see the benefits of the scale of the loan book growing and then revenue growing with it, which will then see us get the benefits of that leverage over the cost base, combined with the benefits of automation that we've discussed.

Great. Thank you. This is probably another one for you. Just on capital strategy. Are there any plans to raise additional capital or explore alternative funding sources to support expansion?

Okay. Short answer is no. Unrestricted cash is $17.9 million. We've got $15 million available to draw on our corporate facility. So we've got significant runway from a capital perspective. And we've called this out previously. We essentially see today the business is self-sustaining based on our growth profile. As we continue to scale, we'll start to see profit and cash flow, flow to the bottom line, which will then enable us to support future origination growth. So we're well capitalized. We've got capacity in the warehouses to fund growth. We're looking at a third warehouse for diversification purposes. So we've got no intention to be raising capital.

Great. I've just got one question here on the headcount. So do you have sufficient headcount to scale and do you anticipate any changes here?

Yes. So in the half, so we have basically achieved an OpEx base that's kind of now done and ready to scale. And so the capacity we have within the business, both with that OpEx base, but also the automation piece I've spoken about, sees us doing origination levels well beyond where we are today. And so I think that's a really important point is that as we head into H2, we're obviously in H2 and heading to FY '26, there's not this need to drastically increase OpEx by any stretch of the imagination. So yes, the headcount piece is in a really good place. The team is humming, and it's all looking good.

Right. All right. No further questions. I just wanted to thank everybody for attending. And a reminder that a recording of this results presentation and the Q&A will be made available on Wisr website. Thank you.

Thanks, everyone.