Wisr Limited (WZR) Earnings Call Transcript & Summary

Let's kick off. Good morning, everybody, and welcome to the Wisr results presentation for the first half of FY '26. 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 earlier this morning. As always, just let me know that 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'll now hand it over to Andrew.

Thanks, Eleonora, and good morning, everyone. Thank you for joining us for our H1 FY '26 update. So the Wisr purpose, powering people's progress, smarter money decisions made easy, just as a reminder of why we're here, what we're doing and the people that we're serving. So this is a bit of a condensed version of the historical chart that we've typically shown. So you'll see our quarterly loan originations, obviously, in those bar charts. And just to talk about the last couple of years in context, FY '24, we were under deliberate moderated growth settings given macroeconomic conditions, waiting for basically the rate environment, the inflation environment and so on to smooth out before rapidly returning to growth in FY '25. We've now delivered 6 quarters of consistent strong growth. That has all culminated in actually achieving cash NPAT profitability in Q2 FY '26. This is a key inflection point for the business. Obviously, we have guided H2 FY '26 profitability to achieve it in Q2, we're very pleased. Obviously, the business is running very well, and yes, obviously very excited about the future. So again, just to put that number into context, and these are obviously half-on-half. So since H2 FY '24, we've grown the loan book by 21%. Obviously, that's been driven by those loan originations you saw on the previous bar chart. At the same time, we've improved cash NPAT from negative $4.4 million to negative $0.7 million, a $3.7 million improvement. And as I said, within the half in Q2, so the last quarter, we obviously achieved cash NPAT profitability. So just some of the key results backing up those numbers. So obviously, the strong loan book growth we've spoken about, that's 23% up. Loan originations of $311 million, that's 82% up. The average credit score has improved just that continued prime credit quality that we attract within our business and within our loan book. The loan book growth has driven 14% revenue growth to $51.5 million. If you look through our HeadCo facility, we actually achieved $2 million of EBITDA. So the only cost essentially below that EBITDA line -- EBITDA line is the HeadCo facility cost. So the cash NPAT line, obviously at negative $0.7 million and profitable within that Q2. The yield was broadly flat. NIM was slightly down. Matt Lewis will talk more about that shortly in terms of our warehouse structures and how that was partly driven by optimizing or prior to optimizing some of those structures once we bought on Warehouse 3. However, once you back out arrears and you look at our risk-adjusted NIM, it's actually increased, and Matt will talk more about that later on. Obviously, 90-plus is well down as is our net loss number. The business is well capitalized, strong unrestricted cash. Obviously, that HeadCo facility that we refinanced in November. And again, we'll talk about those capital initiatives that we undertook during the half, strong warehouse capacity. In terms of our customers, we have that instant settlement capability, an extremely strong customer Net Promoter Score of 82 and continued improvement and optimization of our partner portal. So that is where our partners, brokers, et cetera, basically plug into Wisr and interact with us when we're underwriting loans for their customers and so on. We are an automation-first fintech. Obviously, we have spoken about this over the last few quarters. 83% of our credit decisions are now automatically approved. You can see the growth that's gone under over the last 12 months, and that's continuing to improve. 43% of the verification process is now automated. Instant loan settlements I spoke about and really what this provides as the business scales and as we've shown huge growth over the last 6 quarters, we expect negligible growth in operating costs. And actually, you'll see that in the P&L that we produced for the half. We achieved 82% growth in loan originations, 23% growth in loan book, negligible growth in OpEx. It was about 7%, and Matt Lewis will talk shortly about that. So that is really the proof of these statements around automation and being a tech-first business. The structural tailwinds I've spoken about at length. So these products that we operate within personal loans secured vehicle loans, the incumbent providers of these products are just fundamentally not focused on them. Indeed, they're actually the companies that provide us the warehouse facilities to write these loans. And so what you'll see on the bottom left-hand side there is the proportion of lending within personal loans done by the big 4 banks. It's gone from 73% to around 57%. Over the last 5 years, we expect that to continue. Obviously, mortgages remain a key focus for them. We've just put that across the top line, just to give context of where their focus is, and that's obviously very well documented. These assets have shifted from bank's balance sheets to ABS markets in which we are extremely active. We'll talk more about the funding platform shortly. The growth is quite extraordinary. In the last 5 years, ABS issuance in autos and equipment has 5x. Again, just proof on the structural shift that is taking place. Our customers, so we're very well diversified across Australia, prime book, 807 average credit score, $35,000 average lend. The majority of what we do is autos. We obviously have other use cases around debt consolidation, home improvements, contents, et cetera. The majority of our customers are full-time employed. The loan book growth I've spoken about at length now, obviously grew within the quarter, 23% half-on-half or at least prior half H1 FY '25. And yes, obviously, strong growth across both of our products. That's driven by the loan origination, so 82% growth up to $311 million, and you can see the strong growth quarter-on-quarter as well. I'll now pass to Matt Lewis.

Thanks, Andy. So if we start on this page with portfolio yield. So that was 11.08% for the half, which is essentially stable over the recent periods. That stability is really encouraging considering the shift from PL to SVL loans, which carry a lower headline rate, but also deliver lower funding costs and lower losses. On NIM, portfolio NIM was 5.26% for the half, with Q2 higher at 5.3%. The higher NIM recorded in the 2 earlier periods really reflects our pre-Warehouse 3 funding structure. So as expected, the third Warehouse introduced temporary upfront ramp costs that weighed on Q1 and Q2, but those costs are now normalizing as utilization increases. The recovery to 5.3% is the beginning of that. You can see that coming through. So together with the Warehouse restructuring and the recent ABS pricing we've achieved, they're both there to really provide NIM support going forward. I think the most important metric on this page is actually our portfolio risk-adjusted NIM. So this is our NIM after net losses, which Andy mentioned before. This was 3.89% for the half, which is slightly above PCP, but 24 bps higher than the prior half. So while the headline NIM has moderated from peak levels, the margin retained after credit losses has strengthened. So that's really a reflection of the disciplined underwriting, the high-quality originations, and I've spoken to a few times now the improvement in our arrears management platform over time. So the key takeaway for this slide is really that portfolio yield has remained stable and our risk-adjusted margin is now at the strongest level across the past 3 periods, and that's the metric that really flows through to our earnings numbers, which I'll present later. Okay. Given the rate environment, I think it's worth walking through the mechanics of how we protect our margin, which is really a refresher of what I talked to during our Q2 presentation. So every loan that was at rights is a fixed rate loan, but our warehouse funding costs are floating BBSW. But what we do is we convert that fixed cost by an interest rate swap at the point of origination every month. So effectively, we're matching a fixed income stream with a fixed funding cost at the outset of the transaction. So this slide sets out how that funds flow works. So the net effect is that irrespective of where the benchmark rate moves, whether it goes up or whether it goes down after we originate, the economics of that loan remains stable. So if BBSW rises, the swap will compensate for that. If BBSW falls, the underlying cost will drop by the same amount. Now the reported NIM can shift and will shift around over time because of mix, timing and different utilization dynamics in the warehouse structures. However, on a loan-by-loan basis, the margin we underwrite at origination is the margin that we earn over the life of the loan. And that predictability is really important as we continue to scale the business. Okay. If we look at credit losses and arrears, one of the strongest contributors to our half year performance. So on arrears, 90-plus is ended December at 1.13%, which is 42 bps lower than the same time last year and 27 bps better than June. The chart on the slide makes the relationship clear. You can see the average credit score of the book increasing from 798 to 807 and you can see arrears tracking lower at the same time. On net losses, 1.38% for the half which is 49 basis points improvement on PCP. The benefit, I think, is really illustrated when you look at it in dollar terms. So if you look at the half, $6 million worth of losses were recorded compared to $7.2 million PCP despite that loan book growing 23% in the 12 months. I will just note that December quarter does typically benefit from strong recoveries and collections activities. So we do expect a small amount of normalization in Q3 as we see sort of post-Christmas seasonality effects taken into consideration. But overall, the trajectory is clear. We've invested significantly in our risk management platform, which I've spoken about a number of times. And the direction of the travel of credit quality and losses is firmly entrenched in a downward trajection, which you'll see later when we go to the P&L is having a really positive impact on our margins and our profits. Okay, the income statement. So this is where all of the individual parts come together. So if you look at cash NPAT for the half, it was negative $0.7 million. That represents a $1.6 million improvement on the prior corresponding period. Importantly, as Andy mentioned, Q2 delivered a positive cash NPAT for the first time. And that really reflects the combined impact of growth in the loan book, that improved losses performance we've talked through and also the benefits of the recent capital and funding initiatives that were put in place in the half. If we run through some of the key lines, revenue increased 14% to $51.5 million off the back of that larger loan book. Dollar NIM was $23.1 million, up $1.1 million in the period. And I've already covered the NIM percentage dynamics and improvement in trajectory going forward on the previous slide. The net losses came in at $6 million. So that's a $1.1 million improvement. And as I've said, that's on a bigger book. And what that's meant is it's delivered a risk-adjusted margin of $17 million, which is an increase of $2.3 million or close to 15%. Operating costs increased 7.9% to $15 million, but that is against origination growth of 82%. So that's the operating leverage story really one single comparison. And the cost-to-income ratio for the half were 29.2%, improvement of 30.8% and tracking to our guidance of less than 29% for the year. As Andy mentioned previously, we're expecting minimal increases in OpEx in the second half of the year, really, as we said, our investments in automation starting to pay dividends for us. If we look at the corporate facilities, so those costs have stepped down. They'll step down more meaningfully in the second half following the refinancing that we did in November, which saw a lower overall balance and also a lower rate. And then if you look at our EBITDA, that's doubled to $2 million for the half. Q2 was a cash NPAT turning point. And I think you can summarize this page by saying that the earnings trajectory now is clear and it's also evident in the numbers. And the guidance for cash NPAT profitability in half is really supported by the structural improvements that we've already put in place. Okay. This slide talks to the capital initiatives undertaken in the half, and it's been a very busy 6 months on the capital front. So in July, we had the first full month contribution of our third warehouse from Barclays. So that's a $260 million mixed-use warehouse. So that broadened our funder base and increased competitive tension when we come to renewal time. So as I've mentioned, it came with temporary higher upfront costs whilst we built up that utilization. In September, that saw us close our fifth ABS term deal at $250 million deal. With the loan book growth now firmly entrenched, we're steadily migrating more of the book into these longer-dated lower cost term funding structures. That deal was priced at a weighted average margin of 1.39% over BBSW, plus it also allowed us to release capital into the business for future growth. In November, we raised $10.6 million of equity and applied $7.5 million of that in corporate debt. That really served a dual purpose. It reduced the drawn balance on the facility. And with the balance sheet in a stronger position, it really allowed us to negotiate improved terms on that facility. So not only do we have a lower drawn balance, we have a much materially lower margin on that facility. And then in December, we rightsized our warehouse commitment. So the intent here is to really improve that utilization, reduce our undrawn fees and create a faster or better rhythm to go to tender market. So when you take all of these things together, they've reduced the cost of capital, they've improved balance sheet resilience. They contributed to achieving that cash NPAT profitability in Q2, and they were the catalyst really for upgrading our cash NPAT guidance to profitability in the second half. Okay. This slide gives us the full picture on funding capacity. So on the warehouse side, total commitment of $767 million, $165 million undrawn at December. The restructure I mentioned earlier, will continue to shift the funding mix. So we've got -- at December, we had 35% of the loan book in term deal funding compared to 25% at June. This shift carries a number of benefits, in particular, an overall lowering of our funding cost and a lower equity contribution. And then if we look at the corporate facility, drawn balance of $27.5 million, a $50 million facility in total, $10.5 million committed and $12.5 million uncommitted. So when we look at the overall position here on funding, this funding structure really gives us the capacity, the diversification and the cost efficiency that we need. Okay. This slide covers our liquidity, our capital reserves and the equity contributions we make to our warehouses. So at the end of the half, we had total cash of $75.5 million. Of that, $16.3 million is unrestricted cash. And if you combine that with the undrawn corporate facility of $22.5 million, it's approximately 30 -- $39 million, sorry, of available equity, which is a meaningful buffer for us. The slide also shows the $37 million of equity that we contribute to our warehouses and term deal structures. So that underpins the funding relationships with our funders and also aligns our interest with those capital partners. So I'd say, in summary, the balance sheet supports our growth plan and our path to sustained profitability. We've got the liquidity. We've got the capacity and the reserves to deliver on growth objectives without the need to come back to shareholders for additional equity. I'll hand back over to Andy.

Yes. Thanks, Matt. I just want to reiterate our FY '26 guidance given at the start of the financial year and upgraded in November on the back really of those capital initiatives and the ongoing growth that we're seeing within the business. So obviously, cash NPAT profitability expected in H2 FY '26. As we've called out probably a few times now, we achieved cash NPAT profitability in Q2 of H1. Loan origination growth of 40% plus, revenue growth of 15% plus and a cost-to-income ratio improvement to less than 29%. So just to summarize, obviously, the loan book growth is accelerating, the 23% growth to $928.5 million, driven by that 82% growth in loan originations of $311. The revenue and profitability story is now very clear. Revenue is up 14% to $51.5 million. Obviously, the cash NPAT we have spoken about ad nauseam somewhat, but obviously, we're very pleased with the outcome there. And as I called out, the EBITDA is actually $2 million for the half, looking through that, obviously, HeadCo facility cost. The book performance is extremely pleasing, both 90-plus in net losses down materially. Again, we're getting the benefits of that improvement in our arrears management processes and our investment in the technology that we use to obviously execute on that arrear strategy. And then the business is well capitalized, as Matt just called out, obviously, for sustained growth, profitability and obviously, yes, just ongoing improvements in what we do. Now pass to questions.

[Operator Instructions] We have a few questions come through from various analysts. So a couple on the portfolio NIM, Matt, so I might pass that to you. So portfolio NIM declined to 5.26%. Beyond the temporary sort of warehouse costs, are there any structural pressures, things like competition, mix shift to secured loans, et cetera, that could impact NIM? And where do you see a normalized or steady state NIM?

Okay. So I think just to reiterate that the NIM decline was largely caused by funding dynamics rather than pricing because yields stayed relatively stable, and that was caused largely by the structuring and putting Warehouse 3 in place and the undrawn commitment fees, which we're now starting to see unwind, which is why we're seeing the NIM improve a little bit to 5.3%. We'll also see more benefits from the ABS transactions coming through into the future and what we've done on undrawn fees. And so that will provide us with a level of buffer against the movements that we might be seeing in the underlying BBSW. Just thinking about those questions. So I think on the competition front, so look, pricing does remain rational in the market. We are seeing some increases in pricing that match sort of some of the increases that are coming through in the underlying rates. I expect to see front book pricing adjust gradually over time to take into consideration that environment. I think there's a component on SVL shift. So with SVL, yes, it does have a lower yield attached to it, but it also has lower expected losses and the funding costs are a little bit lower on SVL products as well. So I think when you combine all of that together, and I think it's important to talk about that risk-adjusted margin that I spoke to, we've had that strong credit performance. Net losses have improved. When we're looking at the business, we're really focusing on what -- on achieving a positive and strong risk-adjusted margin rather than trying to target a specific NIM because there can be evolutions in how the portfolio mix gets undertaken. And so as I mentioned, when we looked at that risk-adjusted NIM, it's actually the highest, it's been for at least 3 halves and improved 24 bps despite the reduction in that pre-loss number.

Thanks, Matt. I've just got another one on the -- with 35% of the loan book now term funded, what is the target funding mix? And how does this impact long-term margin stability and capital efficiency?

Okay. Yes. So yes, 35% of the book is now funded through ABS transactions. That's up 23% in June. The strategy is to progressively increase the portion of the book that's funded by ABS. That happens naturally as we grow our originations, we've also accelerated that by reducing the commitments on our warehouse structures. So we are seeing the ABS markets are deep and receptive, particularly to the types of products in the Australian market generally, as Andy talked to in the tailwind slide. We're also considering going into overseas, U.K., European markets to further strengthen our participation in ABS market. So the reduction in the warehouse mix will happen as we increase that ABS cadence, and that will naturally increase the term component. And because it is at lower margin, that will naturally over time, give us benefits from a margin perspective.

Thank you. Next question, Andy, is probably one for you. The -- as loan book approaches $1 billion, what operational constraints, if any, become most critical?

Yes. So look, I mean, I really just see $1 billion. It's a nice milestone, but well below, I think, our broader ambition as a business. I think if you just look at the last 6 quarters that we've delivered and the loan book growth that we've delivered, driven by automation, the structural tailwinds in the market and very negligible growth in cost base, I think it shows that operationally, we're well placed to continue scaling and growing to $1 billion and beyond. And so really, it's a function somewhat of the broader market, which is obviously very large. We're participating in the structural tailwinds, as I referenced before. And risk appetite plays an element as well. So we're very focused on those risk-adjusted returns that we want to earn as a business. So it's not all about growth, it's good growth and profitable growth. So...

I've got a couple of questions that have come through from Larry at Shaw and Partners. Andrew, this is one for you. Wisr has delivered exceptional loan growth and originations in H1 FY '26. The auto market has been a bit soft. Has the soft auto market constrained Wisr's growth? And how has Wisr [indiscernible] economic backdrop?

Yes. So I think if you look at both of our products, so the PL overall system size has actually increased. I'm not saying that sort of necessarily offset the orders. We haven't seen that softness in autos, partly driven by we're coming off a relatively small base, even though we're approaching $1 billion loan book, it's still in relative terms, really quite small. So we actually haven't seen that impact us too much. We also participate across the spectrum. But we do skew towards newer vehicles. I think some of that softness may have been in sort of the newer market. But certainly, in the near new and used market, we still see good volume coming through. And so by and large, we actually haven't been impacted by what Larry is referring to.

Okay. Great. Another one just from Larry here. Where do you see upside and downside risks to loan origination growth over the next 12 months? Are there any factors in your control that could accelerate growth?

Upside and downside risk. And look, I mean, system size is one. But as I said, it is such a large market that we're playing and we're still at such a relatively small size. I think risk appetite, which is absolutely a lever that is within our control. And historically, we've probably had some feedback that we could actually take on more risk. I mean we're very comfortable with the settings we're operating within and actually what we're delivering now. And as I said, it's been 6 quarters of extremely strong quarter-on-quarter growth. And so hopefully, that's becoming pretty clear to the market that we're very comfortable in our execution capacity. And yes, so I mean, in terms of -- other than external factors out of our control, I'd say risk appetite would be the main one. But at this stage, I don't see any need to pull that lever.

I've got a question that's come through from Lachlan Woods at Canaccord. And you may have sort of already answered this a little bit earlier, Matt, but he's asking basically around the breakdown in movements in NIM. Obviously, there's a higher swap cost offset by lower interest rate due to the renegotiated debt facility. Can you give a bit of a quantum on the moving parts? And you probably answered some of this already, but I don't know if you want to add anything to that.

Yes. I suppose you can look at the underlying BBSW rates, they've gone up a fair bit. Overall yield is consistent. Any changes that are happening in those markets are only impacting our front book. So we're getting a lot of support from the fact that the changes we've made now to the warehouse structures and term deal markets have been quite meaningful. So that's given us a buffer against that. It's not to say we're seeing in the market with competition that competitors are putting up prices. I think that will continue to happen. And we assess that on a fortnightly basis, looking at our pricing structures and making sure we're making those risk-adjusted returns. And when we look at how we're performing from a losses basis, it does give us more comfort in kind of the cadence and the risk appetite that we're taking that we're actually achieving kind of the best risk-adjusted returns that we have for a very long time and achieving those growth in loan book numbers.

Great. Staying on the BBSW, Larry had a question with those rising a bit, how competitive is the market? Are competitors passing through funding cost increases, what do you see?

Yes. Look, it's -- there's an element of sort of apples and apples. Everyone's loan book and pricing points. I mean, for example, we have around 75 different risk-based pricing points within our portfolio. It's almost impossible to compare perfectly across lenders. Obviously, we publish a portfolio view. We know what we make on every single loan that we write within that risk framework. And a lot of the numbers obviously publish our averages. We have seen some people move. Obviously, as rates have gone up, we've actually, at the same time, got some benefit from lower broader funding costs in terms of our margin, our warehouse optimization, obviously, those lower loss rates. So if you look at our risk-adjusted margin, we've actually seen that rise even in that rising rate environment. But I do think as the base rates do go up, it is a fairly good catalyst to increase your front book pricing, but it's a matter of how strategically you want to do that. So we certainly have seen some people just across the board say, okay, we're going up 25 basis points, for example. We are actively looking at how we want to, I think, strategically optimize our risk-adjusted return. And part of that will likely include just given what's happened with base rates, some front book tweaks.

I also have a couple of questions comes through from Laf at MST. First question, congratulations on results and appreciate the thorough disclosure. Can I unpack the big improvement in net losses a little bit more? How much of the improvement would you attribute to your improved arrears collection platform versus higher credit scores?

It's both. When you look at the numbers, that arrears management platform improvements happened or started to happen 18 months ago, and then it's been a continual evolution from there. And so when you look at losses, typically, you're not going to see losses on the loan portfolio when they're written over the first 6 months. It takes a little bit longer. So what we're seeing now is we're really starting to see the benefits of those new practices coming through to the period at which you typically start to see losses in the book. So the major component to that, in my view, is the improvements that we've made in the arrears management platform. Of course, there's a contribution in SVL loans in mix do suffer lower losses than personal loans. So that's contributing and the overall credit score as well. So it's a combination of all 3 factors. In my view, the biggest contributor is the improvement to our risk management practices.

Great. And next question from [indiscernible] Second. Over the medium term, are you expecting a continued improvement from the current levels? Or is this as good as it's going to get for net losses?

It's not as good as it's going to get. I think that it was a really, really strong performance in the first half, particularly when you look at the Q2 results. Seasonally, Q3, there will be a little bit of an uptick. We see it every year. For the full year numbers, I'd expect that it will come in at around about the same level as the first half. But then as we continue to grow the book, more and more of that book is under the new arrears management practices. Older loans are rolling off the back of the book, they are written at lower credit scores. We will continue to see improvements in those loss rates beyond the current year into [indiscernible].

I think the other thing that I'd add, and I know Matt absolutely alluded to it, but let's say, sort of FY '24 in moderated growth settings that I called out on the first slide, that was also the time when the former sort of majority of loan we've written were at that kind of 18-month period where the losses were coming through at the same time as the loan book was for one of a better word, shrinking or lower. And so there was some denominator impact there as well. And that's also making the current numbers look even better, although they are very good. But yes, we do expect ongoing improvement as well, as Matt said.

Okay. And then one final question from Laf. Thanks for the color on NIM. Just to be clear and to clarify, so new warehouse as it gets utilized along with cheaper funding should both lead to improving NIM over the coming years?

It will contribute to an improvement in our funding cost, and that provides us with more optionality as to what we do on our front book pricing. So funding costs in our view, on a margin basis will improve because we'll have that better utilization. We've got that -- we'll have a higher cadence of term deals. A greater proportion of our deals will be in -- or greater proportion of our loan book will be in term market. So our overall margin will improve on our funding costs. Obviously, on the front book, movements in the underlying rates will impact front book pricing.

It looks like we've got one final question here from Ben [ Deli ]. Great results. He's got a question. Given the ongoing improvement in loss rates, how are you thinking about balancing higher growth in the loan book with losses?

Yes. So it's a good question. I think it alludes to that risk appetite question that we had earlier, like we see the areas we're playing in as very fertile for future growth and scale. And obviously, it's a very prime book. I think the loss rates are proving that. And so at this stage, we actually don't see the need to pull that lever. Obviously, we do expect some downward pressure further on those loss numbers that Matt spoke to. But it's actually nice to have the option. It's much harder to try and reduce risk and risk appetite as opposed to kind of opening risk appetite. And so it's quite a fortunate position to be in. But at this stage, as I said, I don't think it's a lever that we need to pull.

Right. We have no further questions. So we're going to thank everybody for attending. And a reminder that a recording of this half year results will be made available on Wisr's website. Thank you very much.

Thanks everyone.

Thank you.