Wisr Limited (WZR) Earnings Call Transcript & Summary

All right. Good morning, everybody, and welcome to the Wisr quarterly update presentation for the third quarter 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. Before we kick off, just a bit of housekeeping. [Operator Instructions]. And as always, the webinar is being recorded, and we will post the recording on to the Wisr website later today. And with that, I will now hand it over to Andrew.

Thank you, [ Eleanor ], and good morning, everyone. Thank you for joining us. So we are in our third quarter of our return back to growth. So Q3 FY '25 was a great quarter for the business, and we produced some really good results. Strong loan origination growth, loan book growth and strong asset quality. The structural tailwinds that are benefiting the whole sector and indeed our business and that growth that I'll talk about a little bit later, our automation investments and strategy continues, and the business is well capitalized. And the really pleasing piece of news today in addition to others is that we're upgrading our guidance that we provided at the beginning of FY '25 to 90% plus loan origination growth for FY '25, which is up from 75%. So just some of the key numbers in this market update. Loan originations were up 115% to $111 million. We delivered our second consecutive quarter of loan book growth. We're now at $777 million, very much just at the beginning of that return to loan book growth journey and the strong average credit score of 800 remains. In terms of the broader financials, everything is moving in the right direction. Yield is up, NIM is up, losses are down. So the business is very well placed. And as I alluded to, as the loan book does grow, we expect that revenue growth to flow through as well at that time. The business is very well capitalized, over $22.5 million of unrestricted cash and $15 million undrawn in our corporate facility and strong warehouse capacity. From a customer perspective, some really good sort of financial wellness metrics there, but really pleasing that Net Promoter Score. And also, we won for the second year in a row through our Wiser app, the best mobile experience, which is, I think, a fantastic testament to what we're doing within the business. Wisr at a Glance, and a lot of you will be familiar with this, but really, we've been at this for around 8 years. We are focused on supporting Australians on their financial journey, helping them to make smarter money decisions. And we help both our loan and our non-loan customers. And so we are a genuine tech business. We have built our platform from the ground up, and we constantly iterate that. And I think a key data point just there is the automation we now have in our platform, the credit approval process for applications we're at almost 80% or 79% automatically approved by our platform, which does talk to the capacity for operational leverage within the business. We've originated well over $2 billion of loans since inception, very well established in the debt capital markets. And just our customers, when we compare those that are engaged on the broader platform, they are further ahead on their loan repayments, which is a good data point. Just on the automation point, we've shown this slide before, but just to reiterate that continued increase in credit decision automation. And I think the key message here is as we scale, the operational leverage within the business will become very evident. And so those are really the key points, along with investments we've made in our arrears platform and our loan ledger platform. We're very well diversified across Australia. Our book is very much a prime book. Majority of our customers are full-time employed. We're currently around 2/3 personal loans, 1/3 auto and quite a mixed use of use cases there. Average loan size just over 33,000 and that strong credit score that we spoke about. So just really quickly, the structural tailwinds that we referenced in the last results, the big 4 bank share of personal lending has gone from 74% to 61% in the last 5 years. This is a trend that we expect to continue and creates a structural tailwind for the nonbank lending sector and indeed Wisr as a business and the growth that we are witnessing, I think, is testament to that. So just on the loan origination growth, 115% up. This is our third quarter since our return to growth, 90% up on last quarter and 115% up on PCP, which is just fantastic growth. And as I said, very much just the beginning of the journey. We're taking a small portion of market share within our TAM, which again is very motivating and encouraging for us as a business. That second consecutive quarter of loan book growth, which will flow from that loan origination growth. You can see the chart here, it's very evident and very pleasing to see this start to -- well, the recommencement of loan book growth and the continuation of that. I'll now pass to the CFO, Matt Lewis.

Thanks, Andy. If we now touch on portfolio metrics and credit quality. At the portfolio level, we achieved portfolio yield of 11.25% for the quarter. That is a 54 basis point improvement from PCP and a 5 basis point improvement from the prior quarter. If we look at the chart on the right-hand side, you can see incremental improvements in credit score over time, up to 800 in the current quarter. So you can see that we've achieved that improvement in portfolio yield without sacrificing credit quality. If we move on to portfolio NIM, we achieved portfolio NIM of 5.6% for the quarter compared to 5.24% PCP. So that's an improvement of 36 basis points. There was a slight decline from the previous quarter, which in effect was partly driven by the roll-off of some favorable hedges in the current quarter impacting funding costs. But if we consider the portfolio metrics more broadly, we spent the last 18 months or so repricing the book, and we're now at a level where we feel the unit economics that we're currently achieving on the portfolio are well balanced, which will enable us to achieve both origination and loan book growth, but also positions us to scale the business profitably on a go-forward basis. Turning to arrears and losses. We do continue to see the impact of the positive outcomes from our investments in collection processes and systems. On the top chart, we can see an improvement in our 90-plus day arrears to 1.48% for the quarter. That's an improvement from 1.55% in the previous quarter and 1.71% PCP. When we look at losses, we have maintained the overall downward trajectory, recording losses of 1.99% for the current quarter, down from 2.22% pcp. There was a small uptick relative to the prior quarter. In the short term, we do expect losses to track broadly within the range of Q2 and Q3, over the medium term, we anticipate further improvements in losses on a percentage basis from growth in the loan book and continued benefits from the automation and improvement in processes and systems that Andy talked about previously. If we look at our funding profile, we show on the right-hand side there, our 2 warehouses, the 3 term deals we currently have in place in our corporate facility. SVL warehouse total capacity and PL warehouse combined is $650 million. We have, over the life of Wisr, achieved or put down term deals to the effect of $875 million, which shows that we are successful and have a track record of executing in term deal markets. If we look at what's available, overall available capacity is $114 million, $99 million of that is in relation to our 2 warehouses and we have a further $15 million available in our corporate facility. In March '25, we also released some term deal capital with the sale of $5 million of Freedom23 G1 notes, which improved our cash position at the end of the quarter. And we're continuing work on a third warehouse, which will be a mixed PL and SVL warehouse with both new senior and mezzanine funders. If we look at our capital position, total cash on balance sheet is $49.1 million. If we look at unrestricted cash, that's $22.5 million, up on $18 million at December. The key driver of that is the release of the term deal funds I spoke to previously. We also have undrawn corporate facility of $15 million, and we have holdings sitting in our warehouses on an equity basis of $42.8 million. So the business is very well capitalized to support our growth objectives. And there's no requirement based on what we see from a capital position to tap equity markets for further equity capital.

Yes. Thanks very much, Matt. So just to sum it up, in the quarter, we have delivered strong loan origination growth, and we've updated our guidance. So 115% quarterly growth. Our guidance for FY '25 is at 90% plus from 75%. Loan book growth and margin improvement across both yield and NIM, losses are down and the business is well capitalized for the growth that we are expecting as we continue to scale.

Thank you, Andrew and Matt. We will now open it up for questions. [Operator Instructions]. I have had a couple come through. The first one, I'll pass to you, Andrew, is just on the personal loan originations. They were up significantly this quarter, not just compared to the prior comparable period, but also versus the prior quarter. Could you elaborate on the drivers of this growth?

Yes, sure. So we are seeing overall system growth, and a lot of that is driven by those structural tailwinds that I spoke about. Some of the growth is just a function of being back in market. It's only our third quarter of being back to growth. Efficiency and speed in that automation piece I spoke about is a key driver. And finally, strong funnel conversion rates across our different distribution channels.

Thank you, Andrew. I've got another one here, which I think I'll pass that to you, Matt, just in regards to the fact that the loan book is now growing again. And when can we expect the revenue start growing again on the back of that?

Well, loan book size is directly correlated to revenue. But now that we're starting to achieve meaningful growth in the loan book, we will start to see revenue growth commence, and we'll start to see the benefits of scale in the business over our cost base and improved profitability. We did report at the half year, the business is currently EBITDA positive. As we scale that loan book and our revenue, our goal is to achieve positive cash NPAT as soon as possible in the short term. The work we're doing on automation, the scale benefits that we will receive over our cost base will help us get there.

Great. Thank you, Matt. I've just got another one come through, which is on the new arrears management system. I'll just read out. Can you please discuss the new arrears management system in more detail? Is this a new model in the system or a new procedure or a new third-party collection service? How long does it take to implement? And when should we see improvements in recoveries or reduced write-offs, which is from Larry.

So the new system has been in place for just over a quarter now. That system enables us to stratify our customer base and our debtors in much more detail. It also does have functionality for us to identify when we should be reaching out to customers and improving our financial assistance team's efficiency and the number of calls that they can make to customers. So from an improvement perspective, we already are seeing the benefits of that improvement. We can see over the last 4 to 5 quarters an overall trend of improvement in arrears and also an improvement in losses. When we look kind of more micro at our roll rates into the different aging categories, we are starting to see benefits in relation to that. From an outsourcing perspective, we do outsource recoveries, and we do outsource some very late-stage debtors, but the majority of the debtors is in-house.

Great. Thank you, Matt. I've got another question. Just -- could you please talk us through the dynamic where loan book growth outpaced loan originations growth? MSG. We might leave that for now. There's another one that has come through.

I mean just very quickly, there is runoff in the loan book. And so loan origination growth, you sort of take the net basis. So it's gross originations less runoff, which does bounce around a little bit. And this quarter, clearly, we did $111 million, and that resulted in approximately a $20 million to $25 million incremental growth in our loan book. So I'm not sure if that answers the question, but all things being equal, as originations are higher and exceed runoff, the loan book will grow at a higher rate, which is what we expect.

Andy, this might be one for you. Have you had to reprice your products in order to sustain your growth? And do you expect you need to reprice in the future to attract more customers and keep growing the loan book?

So the growth we've achieved has been done while achieving growth in both portfolio yield and NIM. And so I guess, in short, no. We are constantly optimizing for price, and there are many segments within which we do that. There is a broad process and cost of funds are also a key component of price. So obviously, we've seen the cash rate come off somewhat, which generally speaking should help us from a NIM perspective. We don't have perfect control over what comes in the funnel, but we are very focused on unit economics and clearly building a profitable business.

And then I think this might be the final one here, Matt, are you able to talk more to the release of the term deal capital and the additional $5 million in cash? Specifically, what does this mean for your corporate funding costs?

Yes, sure. So just to provide a little bit of context, when Wiser executes a term deal in the ABS markets, we're required to contribute a small portion of equity to that deal. And as that term deal runs off over time, the relative contribution of Wisr's equity stake increases on a percentage basis, which does give us the opportunity to release some of that capital by selling some of those notes, which is what we've done in the quarter. In terms of impact of funding costs, there is a benefit to the business. The most simplistic benefit is that by increasing our cash balance, we are delaying the point which we need to draw further on the corporate facility.

One final one that's come through. This is also about asking about demand side changes. So are you seeing any demand side changes from the macro backdrop in any of the categories being vehicles and home loans, home improvements, et cetera?

So by macro, I mean, I guess there's a couple of pieces. There's a geopolitical uncertainty. But if we talk about just the rate environment, the lower rate environment in the context of a stable unemployment scenario is very good for lending businesses. We are seeing growth in the overall system size. And so the demand is really strong and further buoyed by the structural tailwinds with the big 4 or incumbents less focus on the products that we do. So that means that the demand side is really well placed for us to continue scaling.

All right. And then just on warehouses, can the process to create a new warehouse be consistent with securitization over the next 12 months?

So we are in the process of putting in a new warehouse to support our growth into the future. That will mean that we'll probably then with that extra capacity, going after term markets is probably something that will happen towards the end of the calendar year, early next calendar year. I'm not sure if that answers the question.

Thanks, Matt. It doesn't look like we've got any further questions at this point. So I just wanted to thank everybody for attending. And just a reminder that a recording of this quarterly update presentation and the Q&A will be made available on Wisr's website. Thank you.

Thanks, everyone.