Wrkr Ltd (WRK) Earnings Call Transcript & Summary

Thanks all for joining us this morning. We would like to run through an update and most of you will have read that as it's published last week, the capital raise information and the quarterly update. So we do want to run through that with you, give you a little bit of detailed context and then take as much time as we can for opening Q&A. So we welcome all of your questions. [Operator Instructions] We are recording this and it will be posted to our Investor. So obviously, Karen Gilmour, our CFO, on the right-hand side, and I'm Trent Lund, your CEO. Let's jump in. We'll start with company performance and outlook and talk a little bit about the capital raising and the intention maybe behind it. I'll dive straight in. Just for those who are new on the call, really, just a reminder, we are a regtech company, regulation technology, so effectively moving regulated transactions, particularly around Super with focus on compliance all the way through to retirement. Superannuation is the market. We've really started our positioning. We're delighted with the position that that's in right now. And obviously, that is because it gave us the greatest reach to customers in the market. In particular, payroll and HR professionals who are our target audience. The purpose of the business making compliance effortless. The more complex compliance gets out there, the more relevant we are. The harder our job is but obviously, the more required by the market. And we operate off one unified platform. So as we grow and expand into other segments, we will see our cost benefits really start to roll through. A reminder to people and really an understanding of our business, we do talk a lot about Super because that is the here and now of our business. It's really our business evolves across 4 segments. So the main segment today is Super. We believe there's a very large addressable market. And we've already seen fairly substantive success there, 6 out of 10 of the largest funds use our software in one way or another today, but we are also growing in our footprint, in particular through our MUFG partnership. That reach, we have a little over 5 million contracted users right now and so a long way towards our 7 million target, of course, getting them on board, getting them transacting and paying their Super is the critical juncture we're at right now. That said, we don't see Super stopping at that end. We do see growth. We see growth across other funds. We also see growth as we move into the de-accumulation phase. Actually, there's been a lot of reporting on that lately in the AFR. So, I think a fair bit of conjecture and conversation, but actually we're very well poised in helping them working with the funds as people move out into the decumulation away from accumulation using the same technology we provide to them. The other segments are critical for us as we move into pay, so wage payment, disbursements, single-touch payroll and through the acquisition of PaidRight, paychecks and pay compliance. All of those, we actually have a fairly substantive experience in. It is really bringing the customer base on first to be able to provide those products. And then credential being the latter segment, we see that as a more lucrative segment, but it really benefit from having infrastructure that is robust, secure and trusted as opposed to how it's dealt with today, which is through many, many small providers dealing with PII information. That's not as secure. Long-term strategy, of course, is direct to the consumer. We're engaging a consumer in their data around their credentials, around their pay and around their Super, it opens up the door for benefits, helping them navigate their health and wealth into the future. But right now, we're grounded in the present. So I'll let Karen talk a little bit about the performance to date, and then we'll jump in to the ramping up of users and also the capital.

Thanks, Trent, and good morning to everyone. Thank for joining. I just wanted to jump into the quarterly results. The year finished really strong. We had a very strong year in terms of cash receipts. That was really driven by bringing the funds come in the development and implementation work that we have done across the key funds. Obviously, we are starting to onboard across the AustralianSuper and REST. The quarter also saw us bring on smaller boutique funds [indiscernible] . So it was great to see all that happens without incident, not to get those people on boarding. Additionally, we had some good cash receipts for our annual license fees across our Platform-as-a-Service customers and also with MUFG, it's a component of license fees. So that's what really drove the Q4 cash receipt up $2.5 million from the prior quarter. That then obviously gave us quite a neutral operating cash position. We've spoken about the fact that we've invested quite a lot of resource in making sure that the implementation goes well across the funds that included data migration projects, that included IT support, that included release management on our feature development to reduce friction in the platform and onboarding, improve the security posture. There's a lot of fraud in the industry around payments generally and so making sure that, that is as robust and send signals in the market. Also when we went live with Payday Super on 1 July, and that came with feature development in terms of the way that changes happened and also introducing PID. So, there was a lot going on in the quarter, and it was really great to see the team working together achieving the go-live with Payday Super. That leads me into the full year. So cash receipts of $18.2 million, our best year on record. increasing from $9.9 million in FY '25. So, quite an increase in the receipt. As I said, a lot of that is implementation and development work underlying that into the back end of the year and approximately $2 million of ARR that we will take into FY '27 on the development. Now we're just looking forward to getting all of the employers onboarded that they start making contributions, we're definitely seeing, start to increase in our ARR. In terms of our cost base. So we ended up with a negative operating cash flow of $1 million over the year due to the reasons that I mentioned before and I feel that we're [indiscernible]. We've had quite a lot of investment in the platform as well during the year, $8 million of capital investment, really, we're seeing some of the amazing features in the platform. Onboarding and taking no time at all for the people to get their first contribution made once they are onboarded. I mean I've gone through those AML and KYC checks. They're getting good feedback as well. We'll see that stabilized into the first half of the year as sales continue to increase on platform, continue feature development. We're also focusing on the PaidRight integration and making sure that [Technical Difficulty]. So stabilizing cost base [Technical Difficulty]. Yes, if they are any of your questions, we can take it at the end of our call. Trent?

Thank you, Karen. So I want to talk about the numbers and the flow of customers. So just a couple of things to explain on the slide is out there, but the control onboarding ramp as a choice. Just want to give our shareholders a context here and a couple of elements. Number one, although we built data migration in and with the funds, so that was a large investment as well as fraud controls that increased our costs. But actually, it has made for a much smoother transition, but there are 2 factors that have been at play. So just so everybody has context here. Number one is we put very tight fraud control into the sector. As a simple example, you can't take a photo of yourself or a photo of a photo. Our technology can see that and understand it. So we red flag you and block you from being able to come on and make payments. That increase friction, good result has put us in a very unique field of [indiscernible] . That's enormous when you consider the amount of advertising, marketing and awareness that went on by the fund to bring people toward either REST pay, AussiePay or AussieSolution or the other in particular. So while we're really happy with that, we were able to use that control period to now reduce that friction by around 90% without actually increasing any risk. So we continue to monitor. That is one of our highest -- our most critical programs. But that's an excellent result, right? But it means you put friction in the system, it slows users down. The other side of that consequence is AustralianSuper and REST have had major transformation with their contact center, taking their contact centers in-house. That means when you put friction, you provide lots of phone calls for them to have to deal with. So they have stabilized how many invites go out users to ensure that they have the capacity to handle those calls. Now where we sit this week, just to give you an indication, the highest invite list for customers 3 weeks ago, 4 weeks ago, would be 10,000 businesses. We now go out to market this week, one of the funds alone of 46,000 business. That gives you an indication of their level of confidence of their ability to bring customers on very, very quickly without unnecessary friction. What does that mean? It really meant we brought customers on a slower pace than we would have liked. That impacts the total ARPU per user this year because many users will be on for 3 months less than we would have typically liked, 3 months less transaction. So that's a bit of a background on the controlled ramp. I think it was well balanced. We're really happy with the position that puts us in, but we'll -- as we now see, the jump has been quite significant, and I'll jump through those numbers a little bit with you. So across the clearinghouse, we've contracted about 4.4 million users across the funds. We also have our users are on top of that, that are growing at quite a fast pace, over 600,000. And it looks to be close to 700,000 by the time we migrate them on, about 111,000 organization. We have set a target of ourselves of 250,000 organizations. So where have the months been? At the 20th of each month, so most recent data we could pull for you, at about 6,000 organizations on. They loaded their users, about 1 million users and then sat quite still, didn't make any processing. They went through and clean data and got their data ready. 221,000 users their data already. 221,000 users, total contribution to process about $100 million. So that's May. Moving into June, 18,000 organizations, uploaded themselves onto the system by the 20th. That added about another 590,000 tax file numbers, unit tax file numbers. So actually, a lot small businesses in that cohort, 404,000 paid their Super. So that's ahead of Payday. So not surprising, given small businesses will try delay, we think a little bit longer, then hit June as at a week ago with our 35,000 businesses, 1.9 million, 720,000 and about $1.36 billion in monies that are processed over the clearing house. So the ramp-up is actually quite significant. We see that total number for the year, just to give you an idea, processing around about $20 billion. So $1.3 billion at the 20th of the first month. Thereabout, we see that growth take pretty high, It's stabilizing. At the moment, it's about $50 million of transactions every day, in terms of users, and this is the number that really matters for the last week, we've seen the uptick stabilize at about 30,000 users per day. So that's 30,000 tax file numbers per day. We believe that will maintain at least over the next quarter, but likely drop off as we move to the tail end of customers. To give you an indication, our maintenance funds have now deadlines in place. So the small business clearing house that's used by REST and the big fund moves to read-only at the end of July, so into August and AustralianSuper complete their migrations at the end of October. Now we expect we'll keep the system live and help support them for an extra month of lag customers. But on the most part, they are driving forward now with ambition because they feel incredibly confident on where they're at in the platform. What does that mean for the revenue? So let's just talk about that. The gray along the bottom here, the $18 million that was achieved last year, of that total revenue what was ARR? So license-based revenue is sitting at around $9.9 million. We expect that to go organically, it's already growing. We expected to finish the year close to $11 million. So for those who have been around the business for a while these are our license contracts with the other funds ART and so on. ART, Commonwealth Super Corporation, IOOF as well as the ClickSuper revenues. The green line is our revenue line because revenue lags our onboarding of members because our ARPU of $7, takes a full year to achieve it. But if we take the bottom line, the brown -- yellow brownish color. That rate is 15,000 users a day. So if we were to maintain 15,000 users per day, the end of this financial year, we would be sitting at around $37 million of total ARR. So that means FY '28 starts on a minimum base of $37 million of ARR revenue because we've really moved out of consulting and lumpy revenues there. Obviously, if we can maintain the 30,000 to 35,000, we will achieve all of our contracts and have ourselves above the $40 million and our revenue line will be much higher. Earlier and ahead of schedule in April. It means we'll have capacity and be hunting for more funds, bring more users on board to the platform. So the numbers that you can see in front of you are really the MUFG contract on top of our existing license contracts. So revenue, the green line does lag the ARR, the ARR is an exit rate. So it's the average of the last 3 months. So annualized revenue, license revenue, that build forward. So we get that forever into the future until these contracts are no longer. So actually, overall, really healthy position to be for the company. And I can bring this chart back up when we get to the Q&A, if that's helpful.

So one question that was raised, I'll just head off here. Could our revenue be higher in the year? Yes, absolutely. And that's -- we don't have business targets at that line, we are pushing the business targets higher. But we want to set expectations because there are 2 things here. That we don't have visibility of where I sit in front of you today and that's the quality of users. How many users coming on are weekly and fortnightly versus monthly transaction players. We won't have full visibility of that until about midway through next month. The second thing that drives variance, obviously, there is a lag in payment. Traditionally, it's about -- at the end of the month, we bill, we then get paid 30 days later, although traditionally, we've seen the payment at the 60-day month, which means cash is about 90 days beyond, it's the green line beyond the brown line. So that's very much the focus for the year. We feel actually it's incredibly strong position. which leads into the capital raise conversation, we had quite a lengthy debate in the business around the meaning for cash or not. I'll talk to that a bit in a bit of detail just so you can't understand the conversation of the decisions that we took seriously. So, where are we? Effectively our confidence, we are looking to be incredibly confident when all eyes are on Wrkr. So where are we right now? We are still in a sales process of 4 funds on top of the existing front. Obviously, 2 outside of MUFG, the 2 obvious candidates within MUFG. We felt that being close to our cash reserves was not the right thing going into that space, and we actually felt it made us vulnerable as a business around payments and payment terms. And we want to be in a position in negotiating the strength with our partners and also with our upcoming funds. In effect, we're not in a position where we're negotiating on price because our price discount has been set by AustralianSuper bringing the volume they bought to any venture. And so that was really what was important to us. So confidence in front of prospect funds confidence in front of AustralianSuper and REST who are having to make the call to turn off and hard switch from their prior system. So what is that means there is no going back. That's really good for our business, but we need to be rock solid for that. But also, we've acquired a PaidRight. We have assets already in play in paying credentials, but we want to get on with and scaling, and we don't want to be deferring that for 12 months because we know that there is build to be done, and the revenue will significantly lag build. So we want FY '28 to have all of the growth engines in play. We really felt we had been to be in that capital position. What that meant was, as you will have all read, we took decision to go and take a placement of $10 million. We chose a placement on the basis of speed and cost to execute. We didn't want this to be a lag or distraction on the business. Look, lots of conjecture. I'll talk a little bit about it from the market perspective. But in this market where there is uncertainty around capital gains, tax rulings where we look like we're spending money ahead of the uptake of users and look to come raise, look like we're likely to raise. We just felt it was doing damage to share price stability and the interest in our stock. That was certainly one external element. We also felt the markets themselves are quite vulnerable at the moment. We've seen the discussion on SaaS-mageddon. The reality is we use a SaaS pricing model, but we are a regulated transaction-based business. So we're not vulnerable to the concerns of SaaS companies and also AI, which cannot be used on the data that we use, but actually can be used to fast track new products and services in the market. We see it as a distinctive advantage, not a threat. That said, you've got to explain that to the market that it's fickle and we've seen most SaaS companies come down as far as around the 50% mark. That really drove our decision to say be prudent and be on the front foot, give you an insight, the debate was really going down, to be honest, between ego and commerciality. If we backed my ego, we would run and thread the needle and we would have managed our cost line, and we would have gone into '27 in a very good position. However, and good advice from the Board and good healthy discussion, but to be in a position in November, to need to raise I think it would have been a difficult position for me to look my investors in the eyes and say we backed my ego as opposed to the common sense. So we've made the decision to raise now and be in a healthy position to move forward. And we believe that's going to pay dividends for us. So the final bit is so we've spoken about the why we're raising that just where does the money go? Obviously, we're still going to spend very cautiously from here until we can see this current run rate of 30,000 continued. If that continues, then we are free and clear on our core business. But customer on boarding and revenue generation is the #1 focus still. Payroll integration. We continue to work in the payroll integration. We are Obviously, we had paying existing from the ClickSuper world that we've been able to migrate. But we've actually gone far deeper with both SAP and with Workday, and we feel that provide us a healthy opportunity. In particular, they serve a lot of customers that are not with our existing funds. The term, obviously, product innovation needs to continue in this business. We want the asset to be yielding dividends. So this is not a world of only one Super and that's the end of this company. Super is one segment. We want to be prepared to grow in the other. But working capital is key and obviously the capital raising. So that really is the summary of it. I would say a couple of insights before we jump in. Program has been an amazing success. I won't disclose the numbers, but our fees are a fraction of what has been spent by the major super funds, in building out this transformation program to use our software and take ownership of their call centers and the total experience of employers. They are powerhouses and anyone who's driven to a billboard in Melbourne or Sydney will know it because you've seen AustralianSuper advertising on billboards, which is pretty unique. They haven't been in a position to be doing that for a long time. REST pay, we're finding it difficult to beat them on digital marketing right now because their investments are heavily out there and being successful, which is fantastic for us. So customers are proud, their clients are proud, there was a collective caution as we went through the rollout. We are very confident through that. I think 46,000 invites, the turn-off date of their existing clearing houses is a clear answer to that. The friction, well, I'm glad we did it. We had to train our software to understand the fraud detection and now we're still at 0, but with low friction. I think that puts us in a very good state. Fantastic quarter, even though we extended hypercare. So that is a positive for the business, a very strong ramp since July. So that tells us even though the ATO may not be fining aggressively out there in the market for Payday Super. There are enough organizations that are making the move and we should also keep in mind that the concern for an organization is about cash flow management of paying Super, not the cost of multiple transactions because that deal has been picked up by the funds because they pay the transaction pay to the worker. So management are bullish. We're really excited about where the company is going to. Yes, we feel a lot more confident having running the start of the year with about $20 million in the bank for sure. We think that makes us a stronger partner, particularly as we continue to navigate and work with MUFG on bringing on the last couple of funds. But the opportunities sitting in front of us are excellent right now. That's where I would leave it for you. But please fire up with questions. We'd love to hear what you're interested in. And well, as you know, you know it by now, we'll answer straight.

I've got a few questions, but I'll kick off with -- What's the outlook for investment spend in FY '27 and [indiscernible] project.

A good question, John. The spend at the moment, we expect about the same profile of capitalization, but if I keep it really brief, we've set a ceiling on our cost base, so the cost base, including PaidRight, sits at $32 million. While we'll run a small buffer, up and down over the year, the net position for the year is forecasting set to remain at $32 million. If you assume our current revenue run rate, obviously the revenue or cash received will run under that $32 million position. We would be [ obviously looking to target either ] the $24 million line that you saw. There is an $8 million, roughly, expected for capitalization this year in project. And that is predominantly geared for these latter projects, and that was payroll integration and PaidRight. So that sets us, really, in a position we would be expecting EBITDA positive, through this year when you take into account capitalization. But for major projects, we have no acquisition planned at this stage. We think we've bit off and up. We want to make sure that we are positive revenue in position before any more bolt-on acquisitions. But that said, the investment of Pay comes on the same platform, so we don't expect to be adding entire bill. It's fairly small. The ARR chart, can you comment on where you think the rev might land between the minimum rev base? Yes. Look, I don't want to set the wrong expectations or forecast here. We obviously -- everybody likes a line they could jump over. We are targeting, though, for or just below $28 million, subject to timing. For our business, we're engineering towards that, feel good about that. It could be better if we get a much faster take-up. We've got the switching over of the [ interfund ] gateway, which happens in November. If that happens, in the correct timing that the current project plan is at, then we'll actually be in better shape. If that's delayed, there'll be a lag on the second leg of transactions. So -- hence the conservative figure, but we are expecting to go well above that. So, circa 2028.

Yeah, I think just adding to that, so the conservative position that we show in the chart in the green line is the $24 million revenue figure. The dotted lines are really that ARR. If -- we're looking at the ramp-up rate at the moment in terms of how many users are being onboarded per day. And just we have -- depending on how we see that continue or slow down, will really depend on where that exit ARR rate at the end of the year, will drive the revenue that we've entered into FY 2028 with. The longer it takes, the less ARR we build up over the year. The shorter that it takes, is I think that signals the better that ARR acquisition will be.

Second question on the respective, Cam. We see a really -- in the shorter, so FY 2028, we see $50 million being the ARR, so the annualized contracted revenue through the segment. We can see Pay being an equal segment, particularly with the PaidRight asset as well as wages, Single Touch Payroll, and other reporting, that we have the natural data flows for. And it will take longer to build to that $50 million, but it won't take a large cost base because the core product development will be far, far less than what the Super platform has been. Just as an example, complexity in our platform are things like complex org. So when someone like Guzman y Gomez comes on and they have many, many different stores with different ownership of the stores, different payment rights and approvals inside between group ownership versus singular ownership, we've had to accommodate for all of that. It makes our system very, very robust. But when you add wage payment, we don't need to make any changes to those elements. So at that end, we think there is a similar opportunity but won't be as near term in the mop-up. I think there will be more M&A to achieve that, the mop-up of credentials. It's a more lucrative segment. We think $50 million is a sensible target. Rule of thumb, each segment in our business only exists as a segment because we believe it is a $50 million ARR potential segment. So there is enough TAM, there is enough relevance in our product. We'll get faster as we grow those off the same base. So hopefully that answers for you, Michael. I'm going to go to Hayden.

Yes. Can you hear me?

There we go. Got you.

So cash costs are running at $36 million. What's coming out if you're saying it's a $32 million ceiling?

Switching out speakers. Sorry, Hayden, do you mind repeating the question, please?

Yes. So I was just saying cash costs from last quarter was running at $36 million. If you're saying we're going to be $32 million for next year, what's coming out if CapEx is staying the same?