Release Date: August 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gross profit for the year increased by 9.1% to $210.8 million, within the guided range.
- EBITDA increased by 31.6% to $55.7 million, representing an EBITDA margin of 26.4%, up from 21.9% last year.
- Net profit after tax increased significantly from $6 million last year to $25.7 million.
- Free cash flow of $30.4 million was more than five times the free cash flow generated last year.
- Strong growth in non-discretionary verticals, particularly in the health sector, which saw a 21% increase in transaction volume.
Negative Points
- Lending originations were down 9%, partly due to a more conservative credit management approach.
- Transaction growth in discretionary verticals like retail and hospitality has been challenging due to high inflation and interest rates.
- The Bendigo customer base reduced this year, with churn driven by delays to migration.
- Operating expenses and losses remained broadly unchanged from last year, including $3.9 million in one-off expenses.
- The company did not meet internal targets for merchant take-up of banking products, indicating room for improvement.
Q & A Highlights
Q: Just on your improved pricing outcomes, your mass margins are up 9% in the second half. How should we be thinking about that margin into next year? Can we annualize that into next year?
A: (Praveenesh Pala, CFO) We announced our pricing transformation early in the year, migrating 16,000 merchants in December 2023 to card-based pricing, adding about 2 basis points in the second half. We also moved 14,000 Bendigo merchants in May, which had about a month's benefit. The second-half increase of 2 basis points can be carried forward into next year, with an additional 0.5 basis points from the Bendigo book. However, larger merchants could come at a dilutive margin but with more transaction value. The exit rate of FY24 can safely be extrapolated into FY25.
Q: Looking at your guidance for next year on gross profit growth at plus 3% to 6%, it implies you're maybe looking at a flattish revenue outcome. Is that fair?
A: (Praveenesh Pala, CFO) We've tried to split what we can control from what we can't. The economy on discretionary spend is the biggest uncertainty. We've combined discretionary TTV being very low negative to flat growth early into next year, while nondiscretionary is expected to grow in the mid-teens. Payments margin should give about a $7 million to $12 million increase from payments, and banking gross profit is expected to remain flat to up to a $3 million increase. Overall, we forecast a $7 million to $15 million increase in gross profit.
Q: The two new verticals, especially the unattended systems, how should we think about the margin profile of those verticals compared to your current business?
A: (Jonathan Davey, CEO) We can't share too much as we're still finalizing commercial terms. In unattended, it's reasonable to assume that this will drive scale, and margins will be smaller than most traditional parts of our book.
Q: On the OpEx space, looking at your medium-term targets, it assumes a rough acceleration in OpEx growth into '26. How conservative are you being about cost growth from here?
A: (Jonathan Davey, CEO) We're taking a reasonably conservative approach. We've demonstrated disciplined cost management over the last few years. There are a few things we need to invest in to get new verticals to market, but overall, we're being conservative.
Q: On transaction value churn, how did it trend through the half? Did it progressively improve into year-end?
A: (Jonathan Davey, CEO) The churn remained steady and slightly improved in the second half. We lost a few merchants due to business closures and competition, which elevated churn by about 1% in the second half, more concentrated in the hospitality segment.
Q: On surcharging, you've called out around 20% of your merchants surcharging. Can you give an indication of demand, especially from the front book?
A: (Jonathan Davey, CEO) The number of merchants surcharging is close to 30%. We've seen a small increase in the second half, particularly in discretionary spend categories. Front book merchants are operating at about the same 30% level. No-cost FPS is a popular product, but it's still a small part of our overall book.
Q: On banking, you called out 20% of banking as a percentage of GP. Is that by FY27?
A: (Jonathan Davey, CEO) Yes, that's the target we're working towards.
Q: On the RBA's comments into merchant fee regulation, if the RBA removes surcharging or reduces fees on small businesses, would there be any negative impact on Tyro?
A: (Jonathan Davey, CEO) It's early to state the impact. If surcharging is banned or capped, the impact on Tyro would be minor. We've analyzed the potential outcomes and believe we can manage them well.
Q: On the Rule of 40, is the margin versus gross split going forward illustrative or expected? Is it part of your LTIs?
A: (Jonathan Davey, CEO) It's the way we expect it to play out. The Rule of 40 is part of our LTI framework. Achieving the Rule of 40 in FY26 and '27 may not still achieve our LTI targets, which have a higher benchmark.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
