Wisr Limited (WZR) Earnings Call Transcript

Good morning, everyone. Thank you for joining for the Q1 FY '27 market update for Wisr. My name is Andrew Goodwin. I'm CEO of the business. I'm joined by the CFO, Matt Lewis. We're looking forward to running you through the presentation lodged with the ASX this morning. As always, this webinar will be recorded and we will post on the Wisr website later today. [Operator Instructions] Q1 FY '27 has been an exceptional quarter for Wisr. The result that we've delivered, and I'll talk about shortly, is out of a continued and effective execution of our strategy since returning to growth in FY '25. I just want to start with our guidance. Obviously, investors are very focused on this, and it is a very important thing to talk about. Very pleasingly, we are upgrading our FY '27 cash NPAT guidance by 40% to at least $7 million of cash NPAT for FY '27. Previously, at the start of the financial year, that was at least $5 million. I'll talk more about throughout the presentation what has driven this large upgrade, and it really is driven by the incredible results that the business has delivered this quarter. So cash NPAT ultimately is driven by loan book growth and most importantly, operational leverage. Now this is something we've spoken about at length, and we've very clearly passed through a key threshold where the growth that we're now enjoying is not being achieved as a result of growth in cost base but as a result of operational leverage. And you can really see that in the numbers that we've delivered. Certainly, for FY '25 and FY '26, the cash NPAT will have gone from minus $5.3 million to positive $1 million, and obviously, the guidance for FY '27 for at least $7 million. We do have a strong track record in terms of our guidance. Now we started providing guidance to the market in FY '25. This is now the third financial year we've been providing guidance. And every year, we have upgraded and exceeded that guidance. I'd also note that for FY '28, and this is consistent with what was previously advised, we do expect further substantial growth in cash NPAT on FY '27, again, driven by that ongoing operational leverage that the business is enjoying. And finally, just as an important note, we do have a significant tax shield in the form of carried forward tax losses of $97.9 million, which again, will protect those profits from tax for a period of time as and when they are achieved and grow. So really the highlight number for this quarter is the breakout in loan originations that we've achieved. So $254 million for the quarter puts us on a $1 billion run rate and it's 73% up on PCP. As you can see, we've had strong growth across both of our products in personal loans and secured vehicle loans. We have skewed more towards autos as we have advised. It is a bigger market. There is more growth in that segment, even though both of our products are growing. But really, again, I'd just call out that just the breakout number that we've achieved, not only 73% on PCP but 28% on the last quarter. That loan origination growth has driven strong loan book growth. So as you can see, we've grown the loan book by 40% to $1.2 billion. As I said, 40% on PCP and 12% on the last quarter. You can see that growth across both our personal loan and our secured vehicle loan, again, with more growth in our secured vehicle book, given the larger market and the larger loan origination share that we're doing in that book -- in that product, I should say. An important point to note, so our book runs off at about 3 to 4 years. And so really, when we look at this number, there is quite a nice annuity stream of revenue that generates off the back of that. So as I said, we do write loans at 3-, 5- and 7-year terms, and the book runs off at about a sort of 3- to 4-year cadence. So just some key results for Q1. So that loan book growth and obviously, loan originations that I spoke about were great outcomes. We achieved that growth not at the cost of basically taking on more credit risk. So as you can see, the average credit score in our book remains very strong at north of 800. In terms of financials, revenue has grown by 32% to $33.1 million. We've managed to maintain stable portfolio yield. It's worth noting that during the quarter, there was a lot of movement in the base rates given the macroeconomic environment. We've managed our front book pricing very closely and obviously achieved a great stable outcome in that portfolio yield. NIM is down due to the skew more towards auto loans that I've spoken about. They do have a lower headline yield and NIM, but lower loss rates, which flows through to the risk-adjusted margin, which is a number after losses, which is stable, which is very pleasing. Further to that, our 90-plus net losses have decreased significantly. So 28 bps and 44 bps, again, continued great performance in the loan book, the result of historical investment in our collections platform and just a really pleasing outcome. Our focus on customers remains resolute. So as you can see, our product is really focused on speed and reliability. So what we've done is we've made our assessment process simpler. We've set up how we can approve loans for our customers in terms of ID checks and so on. And we've got an AI service agent for customer self-service. Our Net Promoter Scores are very strong at 80 and 81, and we won WeMoney's Innovation of the Year for debt reduction, known as our product DebtBustr, which allows customers to calculate how much they could save through consolidating their debt with Wisr. So just Wisr at a glance, and I have spoken a lot about these numbers. Really, the key highlight of this slide is the automation that we're focused on. So we're now 82% automated for credit decisioning and 52% for verification. I will call out, we've now originated well north of $3 billion. We have an extremely well-established warehouse and ABS platform, a huge number of brokers on our panel and obviously, the NPS number that I've spoken to. So this just really highlights, I think, the mutual reinforcement of our strategic priority. I spoke about the result in Q1 being the result of continued execution of our strategy. And really, what this highlights is, as I said, that ongoing growth in loan volume and revenue on a flat cost base and the operational leverage that's driving. So really what that has been investment in AI, driving automation, enhancing distribution and the speed at which we can deliver our product to market is just producing these fantastic results that you're now seeing. I've spoken about this slide before. We are participating in a huge TAM. So about $60 billion. We've taken 3.7% market share in personal loans, almost 1% in secured vehicle loans, so a huge opportunity. There are structural tailwinds with the incumbent major banks fundamentally not focused on the products that we underwrite given their focus on deposits, mortgages and business lending. And also, we've seen a shift in these assets from banks' balance sheets to ABS markets, as you can see there. And that FY '26 number is obviously just year-to-date. So you can really see the strength in the ABS markets that are buying and investing in this paper. I'll now pass it to Matt Lewis.

Thanks, Andy. So now turning to yields and margins in a bit more detail. So portfolio yield was 11.03% for the quarter. That's up 3 basis points on prior quarter. As Andy mentioned, we did implement front book pricing increases during Q1. That was partially offset by the continuing shift we're seeing towards secured vehicle loans, which we say carry lower yields, but more importantly, lower credit losses. When we transfer across to NIM, NIM was down 21 basis points from Q4. The key driver of this compression, again, is that portfolio mix shift we're seeing to secured vehicle loans. And as I said before, that's the lower yield, but again, lower credit losses. Accordingly, the metric we'd like to focus on most, which is a real true measure of our underlying economics is our risk-adjusted NIM. So that's our NIM less our net loan losses for the period. That was 3.71% for the quarter, which is down 10 points on prior quarter, but it's actually 7 basis points higher than PCP. So the continued improvement we're seeing in net losses, which I'll talk to in a couple of pages time, has largely offset the NIM compression that we're seeing and our post-loss economics are holding up despite the shift we're seeing to lower-yielding secured vehicle loans. I think another important point here is to discuss the timing. So when we write a secured vehicle loan, the lower yield shows up immediately in our metrics. However, the benefit of lower losses really materializes over the life of the loan. So when secured vehicle loan originations are up 138% PCP, you see the yield and the NIM impact before the full losses benefit realizes in future quarters. Okay. This is a refresher slide for those who haven't seen our prior deck. But given the rate environment, it's worth a quick recap. So what this slide explains is that for every loan we originate, it's written at a fixed customer rate. And on the funding side, our warehouses are originally priced on a floating BBSW. What we then do is convert that fixed monthly -- that fixed rate -- to a fixed rate, sorry, on a monthly basis using interest rate swaps. So both the asset yield and the funding costs are effectively locked in at origination. This means that the NIM that we're writing on each loan doesn't change over its life. So if the BBSW increases, the benefit of funding comes through by the swap. And if BBSW falls, the funding cost is offset by the swap also. So in both cases, the margin is maintained. So that's particularly relevant in the current environment. So swap rates have moved over the quarter, driven by geopolitical developments and inflation expectations that everyone is aware of. Any future volatility doesn't impact the margin on our existing $1.2 billion loan book because it's already fixed. It does, however, affect the funding cost on new originations, which is why we continue to adjust front book pricing to match. At a portfolio level, reported NIM will still move marginally with mix and warehouse utilization. But on a loan-by-loan basis, the margin we underwrite is the margin that we earn, and that predictability over that $1.2 billion loan book is a core feature of the model, and that supports our profitability and the guidance metrics that we provided. Credit performance, again, a highlight for the quarter, improving trend in both 90-plus arrears and net losses quarter-on-quarter. So on a 90-plus basis, we finished September at 0.86%. That's down 15 basis points on the June quarter and 28 basis points lower than a year ago. That's the strongest arrears position in Wisr's history. Net losses tell the same story, 1.19% for the quarter, 11 basis points better than Q4 and 44 basis points better than PCP. As I've previously discussed, the improvement here is structural. Our average credit scores are high. We're writing high-quality customers and that increasing proportion of the loan book is shifting to secured vehicle loans, which inherently suffer lower losses. If we also look at early-stage arrears, say, the 30-plus bucket, it's tracking favorably against historical rates as well, which is positive. And this, combined with the investment I've talked about previously over the last 2 years in our arrears management platform, that's really feeding through to earlier intervention and better collections. So when we bring this all together, it's enabled us to grow the book quickly and also improve credit performance at the same time. Turning to funding. Our 3 warehouse facilities carry a total commitment of $887 million. That's consistent with June '26. We've got $165 million of undrawn capacity. At the corporate level, we've drawn $30 million of our $50 million corporate facility. That leaves $20 million undrawn. Unrestricted cash is $13 million, which together with the undrawn corporate facility gives us total liquidity of $33 million to support growth. When we turn to the next page, we'll actually illustrate what we can actually do with that liquidity. As I said, this slide pulls together the liquidity picture and shows what that liquidity can support. So before I go through it, just to see the note on the page, it's an illustrative scenario. It's not a forecast. But as I mentioned on the previous page, total liquidity is $33 million. If we deploy, say, $25 million of that liquidity into warehouse and ABS seller notes, it supports around $0.8 billion of additional loan book. And if we combine that with our existing loan book of $1.2 billion, that results in an overall loan book of approximately $2 billion. The reason a relatively modest amount of capital supports a loan book of that size is that Wisr provides an advance rate to our warehouse and ABS structures that averages approximately 3% of the loan value across the cycle. So that represents our contribution to the first loss piece on our funding facilities with our senior and mezzanine partners funding the rest of the stack. So illustratively, at that scale, using the yield and risk-adjusted margins that we're currently achieving, the book would generate annualized revenues of $220 million and annualized risk-adjusted margin of $74 million. I think the most important point on this slide is that at a loan book of $2 billion, the business is actually beyond what's required for the operating cash flows of the business to support future loan growth, which if I put it in another way, we have the capital that we need available to support both our growth plans, and we don't need additional capital to -- from equity capital markets to get there. Andy, I'll hand back to you.

Thanks, Matt. So just in summary, really, the key message that I want to leave everyone. We've given you a lot of metrics, a lot of data. We have passed through as a business a key inflection point. We've delivered a record quarter. The operational leverage and really essentially operational leverage is, is revenue growing at a faster rate than cost is extremely evident and really that is reflected in our guidance numbers. So we've increased guidance by 40% for FY '27 cash NPAT to $7 million from $5 million. Again, that is driven by the historical investments we've made in automation and technology, which is allowing us to achieve these great outcomes, again, with substantial growth in FY '28 and those tax losses as a tax shield going forward. We've got great revenue momentum and improving credit performance. Our loan book and originations are continuing to grow in a large market. So as you know, the TAMs are large. There's a structural tailwinds in the market we're enjoying. We expect that to continue. AI automation driving efficiency and customer experience. We are so focused on the speed and reliability of the product we deliver to our broker partners and customers. This is reflected in the NPS scores that we achieved at 80 and 81, and we never let up. We remain so focused and vigilant on making sure the product we ultimately deliver to market is as good as it can possibly be. So yes, that's me. Thanks for joining, everyone, and we'll go to Q&A now.

Okay. So having a look at the Q&A. So thanks, Andy. We now invite research analysts to ask questions. [Operator Instructions] So just looking at the questions here. I think maybe this one for you, Andy, on guidance. You've upgraded FY '27 cash NPAT guidance to 40% to at least $7 million, only 1 quarter into the year. Why move so early? And is $7 million now a conservative number?

So look, at the start of the financial year, I would not have envisaged with the upgrade by as much as we are or as quickly as we are after just 1 quarter. The reality is and it's very evident that the business has gone through a step change. And I think the strategy we've been focused on for a number of years is really seeing those results come through. And so in our view, it was absolutely appropriate to guide the market where we think appropriate. We do say at least because there are a number of variables we need to navigate through until 30 June next year, as I think are very evident, how big will our growth be, obviously, making sure the ABS markets and our funding markets and that whole piece of the business remains strong. Our front book pricing, managing our losses, obviously, cost base, we had very good control over. So guidance is always a double-edged sword, damned if you do and damned if you don't. But hopefully, the market takes this as a very strong leading indicator. Again, looking at how we've performed historically on guidance where we've always upgraded and exceeded. That's certainly what we want to achieve again for FY '27.

Thanks, Andy. Next question. NIM fell 21 basis points to 4.9% in the quarter and risk-adjusted margin fell 10 basis points to 3.71%. Can you dive into this for us in more detail? So I'll take that one. From a pricing and yield perspective, look, we did see higher swap rates during the quarter, and we responded by increasing front book pricing to match. This increased the portfolio yield by 3 basis points to 11.03%, noting that's a portfolio number. So the full price increase will take time to flow through that portfolio number. Also, those pricing increases were offset by the shift we've seen to secured vehicle loans, which we talked about before. So it's really that mix shift that's driving the impact to reported NIM. So as I mentioned, we do see lower yield. We see lower losses on those loans. Just for context on the mix shift, as Andy mentioned, secured loan originations were up 138% PCP. Personal loans were up 35%. So there was outsized growth in secured vehicle loans. That's understandable in the context of market share. So secured vehicle markets are 4x larger, and we're growing into that larger market. So as I mentioned, we like to focus on the risk-adjusted margin that takes into account those losses. That's 3.71%, down slightly 10 basis points from the prior quarter, but actually up on PCP by 7 points. And I think the important point to note was that point I made around timing. So when we're writing a secured vehicle loan, that yield and NIM will show straight away in our metrics. But the benefit of the lower loss rate, that takes time to materialize because it happens over the life of the loans. So there's a timing asymmetry there that does contribute to the compression we see when we're looking at very short-term quarterly metrics that kind of evens out over time. So ultimately, we're managing the portfolio to achieve cash NPAT. We're pricing both secured vehicle loans and personal loans based on their loss rates, based on their risk profile to be profitable. I think that the 40% guidance upgrade is the evidence that the business that we are writing will convert into earnings. Okay. How confident are you the improvement in arrears and losses is structural rather than a benefit of rapid book growth diluting the arrears denominator? Okay. That's a fair question. So loan book grew 40% in the quarter. So there will be a small denominator effect when you take a percentage of a net dollar loss versus an average loan book. I suppose what makes us comfortable is that's not the only way we look at it. The key way that we look at the performance of the book is on a vintage basis. So we look at the performance of each quarterly vintage over time. And when we compare the vintages we're writing now compared to vintages from 1, 2 and 3 years ago, the performance we're seeing in loss rates at relatively -- at the relative points of the cycle are much stronger for both personal loans and secured vehicle loans. We're also looking at early-stage arrears, so 30-plus, and that's at historical lows as well. So that's performing really strongly. Obviously, what's leading to that is the structural change we're seeing in the book. We're writing more secured vehicle loans, 41% of our loan book is now secured vehicle, and we're originating about 50-50% at the moment. Also, I've spoken previously to the work we've done on the arrears management platform. So that work is really improving the way that we can undertake early intervention and collections capability, and that's really feeding through to the book. Next one, I'll take this one as well, and then maybe Andy, I'll give you a couple after this one. What happens to losses if unemployment rises materially? I think, well, look, firstly, as an indicator, the business has been through periods of stress before, particularly during COVID. The loan book performed very well, particularly because of its prime nature. So -- and the fundamentals of that book. And so the fundamentals of the book have only improved since then. So -- and they continue to strengthen. So obviously, a reminder, Equifax score 802 is prime. The losses and arrears continue to improve. They're kind of at the lowest levels that we've seen, losses 1.19%, arrears 0.86%. We've also shifted heavily into secured vehicle loans, and they materially suffer lower loss severity. And I think what's also interesting is if you actually look at the makeup of the portfolio, there is a level of natural insulation there. So the majority of our borrowers are actually in what I'd call low displacement sectors. So health care, government, mining, construction. Actually, a relatively low percentage of our borrowers are in white collar and technology sectors. Interesting also, when we look at our portfolio, we actually outsized index towards states like Queensland and Western Australia. When we look at the latest ABS statistics on unemployment, those states actually improved. What we've also done is a lot of stress testing. So the RBA put out a paper in 2022, 2023, which looked at the empirical relationship between increases to unemployment and loss rates for personal loan books. And we've applied that analysis to our loan book. And what we're seeing is that even in periods of downturn that kind of match historical recession peaks, the credit impact is very manageable and really sits within our loss tolerances. Okay. I might give this next one to you, Andy. Congratulations on the strong step-up in growth, particularly in SVL. What is particularly resonating as you step into SVL? Why are you relatively winning? And how are you thinking about the trajectory?