Beforepay Group Limited (B4P) Earnings Call Transcript

Thank you all for joining us this morning. As James said, I'm Jamie Twiss, the CEO of Beforepay Group, joined by Laavanya Pari, our Chief Financial Officer. And we're here to present our fourth quarter results for FY '26. I am delighted to be presenting these results, and I'm delighted to be presenting these results not only because the numbers are outstanding as those of you that have seen the ASX release will know, but also because the way in which these numbers are outstanding represents actually something of a turning point for Beforepay Group. And indeed, I think it's the culmination of the last couple of years of work and a number of things that we've been thinking about and working about -- working on and talked about for a while, but now we are seeing them truly pan out the numbers. Laavanya will talk through the numbers in more detail, but I think just to pull out a couple of high points. So first of all, as you will have seen, we have truly started scaling personal loans. So originations were up 47% quarter-on-quarter, I think more than $7 million. So that product is now well and truly launched, and we expect that to become pretty meaningful for the group over the course of FY '27. And then as we noted in the release, we have completed the repricing of our Pay Advance product. And again, you are seeing that flow through to the numbers as well. I think the actual results of the quarter pretty clearly speak for themselves. So revenue -- quarterly revenue was up 43% year-on-year. Profit before tax was up 68% year-on-year. And so I think kind of those initiatives are not only now well and truly underway, but are actually materially contributing to the group, and we expect the benefits from that work to continue into the future as well. So it is a very meaningful quarter for us. And I think, again, really shows that upwards rebasing of the business in the light of the initiatives and how they're starting to come to fruition. Laavanya, do you want to take us through the numbers in more detail?

Thanks, Jamie. I'll now go through the financial results for the quarter. So Advances were up 22% compared to the prior year, up to $255.4 million. So that was a combination of the average advance size increasing on the Pay Advance product as well as growth in the personal loan book. Revenue grew by 43% compared to the prior year, up to $14.8 million. So in addition to the reasons that I just gave for advances growing, we also had the repricing of the Pay Advance product. So by the end of June, substantially all the loans issued were attracting interest, resulting in that increase. When you move down to the net transaction margin, we had a record quarter at $9.2 million, which was an increase of 26% on the prior year and 16% compared to the prior quarter. On Pay Advances, we continue to optimize our advances and our net defaults, resulting in that improved net transaction margin. It's also important to note on the personal loan side that we take 12 months' worth of the expected credit loss provision upfront at originations. So from a timing perspective, that results in higher provision costs upfront, while the revenue for personal loans extends over the life of the loan. So it's just important to keep that in mind when considering the net transaction margin. The operating expenses were $5.9 million for the quarter, which was down 13% compared to the prior quarter. So we had some reductions in employment costs as well as on the digital marketing expenses, including some one-offs that were included in that number. So that combination of the improved revenues, growing net transaction margin and reducing operating expenses gave us a net profit before tax of $2.4 million for the quarter, which was 68% up compared to the prior year and 566% up compared to the prior quarter. When you move over to the balance sheet, you can see that we had $12.9 million from a cash perspective. That includes the funding and settlement accounts. Our equity position was $48.6 million. So a very strong and healthy balance sheet that we have. We also drew a further $5 million on our debt facility during the quarter on the existing debt facility prior to the change, and that was to support the growth in the personal loan book. I'll now hand it back over to Jamie.

Thanks, Laavanya. So I'll just finish where I started. So as those of you that have been on this journey with us for some time know, as a company, our preference is always to underpromise and then overdeliver. So we'd always rather do the thing first and then talk about the thing once we've done it. And I think that's where we stand now. So this quarter, we demonstrated that personal loans can scale and become pretty material. We obviously completed the new debt facility, which will have significant financial benefits to us, but also unlock significant balance sheet growth in the months and years ahead. And then finally, the completion of that repricing work, introducing interest on the Pay Advance product is very significant for us. And we expect the benefits of all 3 of those accomplishments to continue into FY '27 and beyond. I think it was a fantastic quarter. We expect FY '27 to be very, very strong as well as a result of this progress. So thank you. And with that, happy to take your questions.

Thank you Jamie. We will now move to the question-and-answer session. [Operator Instructions] We have a couple of questions in the screen already. The first one is in relation to your release today, the new payment model or the pricing model for Pay Advances. Can you just please talk about what this might mean for earnings in FY '27?

Yes. So -- and just to clarify that. So we have always charged a 5% origination fee on our Pay Advances. Over the course of FY '26, we progressively rolled out an interest charge as well, 2% per month. That has now largely been completed with a few minor exceptions here and there. So essentially, all of our Pay Advances are now paying that slightly higher rate. We did point out in the advance today that if you took the FY '26 volume and you had applied interest at the current level to all of the advances originated in FY '26, disregarding second order effects and any other moving parts, the increase in profit would have been $12.5 million. That -- while, of course, there are always ups and downs and moving parts, and that is essentially the right way to think about it for FY '27 as well, depending, of course, on how sort of the actual volumes and duration and things like that evolve, but we do expect a number of that magnitude to be incremental to FY '27.

Okay. We've got another one here from Luke Alexander. It's quite a long one. Congratulations, Jamie and the team on what appears to be one of the strongest quarterly updates I have seen in years. Aggregating the quarterly figures suggest a full year profit of approximately $7 million to $8 million. Looking ahead into next year, if we factor in the anticipated $12.5 million in interest income alongside the expected $1 million in savings from the new debt facility plus adjusted user loan interest fees, is it reasonable to assume company net profit approach $20 million, assuming all other variables remain constant?

So we don't make a forecast. So I don't want to actually put forward a view on what will happen in FY '27. The way that you were thinking about our business and the different moving parts is correct. So of course, there will always be moving parts and there will always be ups and downs, but the different pieces that you have put together to think about FY '27 are the right pieces.

One additional point on that, just with the debt facility. So the savings that we've -- the $1 million savings that we've included assumes a debt facility of $40 million. At the moment, we have drawn $35.9 million under the existing debt facility. So with our growth in the personal loan product, we expect to continue to utilize the debt facility, but I think that's just one clarification on that.

Great. I got a question here from Dean [indiscernible]. There's always a balance between writing more or larger loans and increasing bad debts. Where is the company thinking they will move on this scale?

So let's talk about Pay Advance and personal loans slightly differently, although we have the same methodology on both. So one of the things that we do when we are thinking about the size of actually an advance or a loan is for that individual user, we estimate the likelihood of a default or a loss based on different possible sizes of loans or advances we could give them. And essentially, when we map our product economics on to that, we find that you get this kind of -- you generally get this kind of curve where the smaller end, you have lower losses, but not enough revenue. At the high end, you have more revenue, but the losses can be high. But we actually literally calculate that net contribution curve, that transaction margin curve between them. And subject to these a few other things that we do, we essentially set the limit for that individual at the top. So we are very mindful of this trade-off, and we have an analytic approach that I think in a fairly rigorous way will optimize that trade-off for any one individual. In terms of how that actually plays out at any point in time, we go where the data tells us. So if we saw, for example, that if default rates were to decrease because of a more powerful risk model, and this is essentially what's been happening over the last few years, essentially, that curve kind of starts to shift a bit to the left, my left your left, and we would see limits go up overall. So when you look at the increase in average advance size, Q4 FY '25 $390 to $454 in Q4, that's what's happened. So defaults have come down a little bit, and we've chosen to take that gain in the mathematically optimal combination of how that flows through to both the defaults and revenue at the same time.

Great. Got a follow-on question related to that. How is the retention rate looking at the moment?

So very strong. So it's a pretty loyal and sticky customer base. The most significant driver of churn is actually if somebody is blocked from using the product for any reason often because of a default or falling out of our eligibility criteria. So sometimes just a little bit of voluntary churn, but we haven't seen any material changes.

Okay. We've got one here on -- do you still expect roughly 80% advance rate on the new debt facility for future loans?

So we haven't given any more information when -- within our release specifically on that. So I can't give you, but we're not retracting from the 80%.

It's -- yes. It's not a material change.

Okay. One more here from an anonymous attendee. Are you marketing personal loans to both new and existing customers?

Yes. So we have opened up the personal loan to new to group customers. Most of the volume is still coming from the existing customer base simply because we know those people so well. I mean we have hundreds and hundreds of thousands of loyal active users where we deeply understand their risk, and we have excellent communication and good loyalty from them. So the bulk is still from existing users. But yes, if new to group customers download the app, log in and then are eligible for a personal loan, they have the option to take that out.

And a related one from Thomas [indiscernible]. With active users flat to modest at 267,000, is the future growth narrative shifting from net new user acquisition to deepening monetization per user through larger advances sizes and personal loans?

Yes, that's a great question. I think the answer is in line with what we've been saying for a little while now, which is that the active user number is something we've reported for a very long time. So we don't want to not give it to people. In practice, the economics of the business are focused on the lower-risk users who are taking out on the pay advance side, $1,000, $1,500, $2,000 advances or taking out a personal loan. The active user number has a whole lot of people who are taking out $50 advances. And while they're valuable customers and we want to be helpful to them, they're not as financially material to the group. So about 18 to 24 months ago, we started shifting both the way we thought about eligibility as well as our marketing to be much more focused on those lower risk, higher average balance users. And so what we're seeing is that sort of like riskier kind of lower value tail that has been sort of shrinking as a proportion of the book overall. And you can see that in that increase in average advance size. So I think the answer to your question is probably yes, not so much because we -- an individual user is necessarily getting a very different offer than they got last year or next year, but because that mix is shifting as we kind of focus more on value-creating customer acquisition.

Great. One here from Philip [indiscernible]. Congratulations team. Is the new average net loss rate inclusive of personal loans? What are the loss rates for each product type?

So they are inclusive of personal loans. We actually haven't broken it out between the two of them yet. You should expect that personal loans will run at a higher loss rate than Pay Advances. And as personal loans becomes a more material part of the business and starts to contribute on its own 2 feet, then obviously, we'll look to provide...