Change Financial Limited

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[ Audio Gap ] Change, and I'm joined by Tom Russell, Executive Director. Similar to our usual webinar format, Tom and I will run through a presentation and then take Q&A at the end.

If you have any questions, please submit them through the chat function on this webinar. Okay.

So what do we do at Change Financial? Many of you would have already heard this overview, but for those of you who are new to the business, I'll run through this pretty quickly.

We provide innovative and scalable payment solutions for over 150 clients across more than 40 countries. We're a B2B business with 2 core products.

The first one is Vertexon, which is our Payments as a Service or PaaS offering, which provides card issuing, card management, and transaction processing. Vertexon supports prepaid, debit, and credit card issuing, and there are 2 main models under Vertexon.

The first one is processing only. So under this model, Change provides the technology, which is a card management system, to clients to run their card program.

So the client holds a necessary scheme, typically Visa or Mastercard, and regulatory licenses to issue cards. So, processing is only available globally and supports all major schemes.

So we have clients using Vertexon in Southeast Asia and Latin America, including 2 of the largest banks in the Philippines, running over 40 million cards on the platform. The second model is processing and issuing.

So this is only available in Australia and New Zealand. And under this model, clients utilize Vertexon for processing capabilities and leverage our regulatory and scheme licenses and issuing capabilities.

So under this model, Change is the card issuer of record and provides treasury, fraud, and compliance services. So it's a far more comprehensive service when you're doing processing and issuing.

Vertexon generated 85% of the group's revenue in Q1. Our other core product is PaySim, and that is software, which enables end-to-end testing of payment platforms, processes, and scheme rule compliance.

The PaySim software is based on global messaging standards and can be sold globally. PaySim is the default testing standard for FPOS in Australia and has a blue-chip client base, including 5 of the top 10 global digital payments companies.

PaySim contributed 15% of the group's revenue in Q1. Importantly, both Vertexon and PaySim are proprietary payment technology platforms, which are owned and developed in-house by Change.

So this is important from a value and control perspective for the company. Okay.

If we look at the key highlights, we've had a really strong financial performance in Q1, which is great for us to start FY'26. Another record quarterly revenue result of USD 4.6 million, which is up 25% on the prior year.

70% of revenue was derived from recurring sources. So this provides a very solid base of revenue for us to grow from.

The one-off revenue, which is our licenses and professional services, is still a very important driver of overall financial performance, though. Underlying EBITDA for the quarter was USD 900,000.

So to add some context around that, in FY '25, we delivered underlying EBITDA for the whole year of $200,000. So this really starts to show that operating leverage pull-through that we've been talking about, the combination of revenue growth and a stable fixed cost base, driving materially improved bottom-line performance.

So, as a business, we've talked about this previously; we are scaling. We're not at scale.

So we want to continue to drive that operating leverage in FY'26 and beyond. PaaS is a key driver of our growth, and we have seen strong growth in PaaS metrics across the board.

And I'll talk more about that on the following slide. In terms of our PaaS metrics, we've got over 89,000 cards active in Australia and New Zealand.

So the increase in cards was driven by growth in our existing client base, particularly one of our fintech clients, which added a significant number of new cards in late September. We will continue to drive revenue growth through new clients already signed.

So we're currently onboarding 2 clients and further client wins. The Personal Wealth Management client we secured in Q2 FY'25, which can now be revealed as Sharesies, went live in early October.

So we're super excited about the launch and to see the success of the program as it continues to roll out. There's a large backlog of registered interest in the Sharesies card.

So great to see that really starting to hit its stride. We are very focused on growing the PaaS platform to drive the scale benefits.

So we have the product and the team in place to add significantly more clients and volume without having to increase our fixed cost base. I won't go through the PaaS revenue sources in detail as we have covered this previously, but it is there for reference.

Just looking at the PaaS timeline. So as you can see, steady cadence of new client wins and a significant shortening of time frames between signing clients and launching programs over time.

So with the PaaS platform fully live and operational in New Zealand and Australia, we want to increase the number of client wins, particularly in Australia, and continue to shorten the onboarding time frames. You can see at the top right of the slide, Sharesies is launching in early Q2.

So that will contribute monthly revenue from October onwards. We also have 2 more PaaS clients that I mentioned that are currently onboarding, and they will contribute monthly revenue once those programs launch.

Thanks, Tony. So, turning to the financial metrics for the quarter.

So we had another great revenue quarter, as Tony said, USD 4.6 million or AUD 7.1 million. So that was up 25% on Q1 FY'25 and a record by quite a way.

That's now 7 record revenue quarters out of the last 8 for the company. PaaS revenues from our Australia and New Zealand clients are up 38% on the quarter 12 months ago.

And as Tony mentioned, earlier this month, following the end of the quarter, Sharesies has gone live, so we'll start to see PaaS revenues from them in Q2. We are also currently onboarding an additional 2 new, already contracted PaaS clients.

We'll start to see these clients adding to our PaaS revenues as they go live in the next couple of quarters. A question we have got this morning is why the a slight drop in quarterly PaaS revenue.

This is just due to the weakness in the New Zealand dollar during the quarter. A reminder that most of our PaaS revenue is invoiced in USD, but there is a portion of our New Zealand clients invoiced in New Zealand dollars.

As a reminder, PaaS, along with our support and maintenance, is our recurring revenue stream. Now, these do have some seasonality in them and can fluctuate, particularly PaaS, but because the underlying cardholders of our clients are buying groceries and paying for their streaming subscriptions, et cetera, using change cards, these revenues are quite predictable.

We are also continuing to see the benefits of the recurring revenue base we have been building, our PaaS and support, and maintenance revenue. For the quarter, our recurring revenues totaled USD 3.2 million, AUD 4.9 million, which is approximately 70% of our revenue.

In terms of the nonrecurring revenue, we continue to generate from professional services and licenses. During the quarter, we delivered USD 1.4 million in one-off revenue.

Over the last couple of quarters, we have flagged our strong focus on one-off revenue and the significant late-stage pipeline. Again, this quarter, we are seeing the efforts and the work the sales team has been doing dropping through in terms of financial performance, but also a great job winning a number of new opportunities in Q1, which continues to build the pipeline of contracted work and future opportunities and revenue to unlock in future quarters.

We have a large amount of contracted work to deliver, which helps us build confidence on top of our recurring revenue and being able to deliver on our guidance for FY'26. In terms of EBITDA, very pleasingly, after delivering a maiden EBITDA positive result of $200,000 for the full year in FY'25, we delivered more than 4x that in underlying EBITDA of USD 900,000 or AUD 1.4 million in Q1.

Turning to the cash flow for a second. Cash receipts for the quarter of USD 4 million were up 16% on the prior corresponding period.

Cash payments from operating activities were broadly in line with Q1 last year, up only 4% which was driven by an increase in COGS on increased revenue, which is obviously what we expect. As we have said before, we have all the key roles and staff in place to add significant revenue without a lot of new hires, and we continue to see evidence of that with staff costs actually down 10% due to our exit from U.S.

operations during FY'25. CapEx has also remained steady and, as expected, is in line with FY'25.

We have a healthy cash position of USD 3.7 million, just under AUD 6 million, and we hold an additional $900,000 in cash-backed security deposits.

Thanks, Tom. So we've gone through the market opportunity in the last few results updates.

So I'm not going to go through that in detail. There are more slides in the appendix for those of you who wish to read around the addressable market opportunity.

But we have a very large opportunity for Vertexon and PaySim. So what is our focus as a business to capitalize on these opportunities?

Firstly, it identified target markets. So for Vertexon, this is New Zealand, Australia, and Southeast Asia.

These are the regions where we are gaining traction and winning. For PaySim, it is global as the product can be sold without modification and does not require any licenses to be sold.

Secondly, there's a pivot towards outbound sales hunting. So we appointed 2 new strategic BDMs in Q3 FY'25, and they are focused on outbound sales.

So we'll continue to aggressively target outbound sales across the business. Thirdly, we want to grow and leverage the partner ecosystem.

So we want to expand our partner ecosystem and work more closely with existing partners to drive mutual value. That partner ecosystem provides a one-to-many sales approach and can be very effective for both Vertexon and PaySim to scale quickly, particularly in offshore jurisdictions.

Fourthly is around cross-sell and upsell. So we work with our existing Vertexon and PaySim clients to drive project work.

And for Vertexon clients, the on-premises clients, continue that journey towards migrating to PaaS or the latest on-premises version, and also upsell modern functionality and features to our clients, which drives incremental revenue across both Vertexon and PaySim. In terms of our outlook, we provided guidance for FY'26 on the 10th of July.

We've had a really strong start to FY'26. And whilst it's still early days, we are on track to deliver on guidance.

Revenue has grown strongly, with Q1 revenue up 25% versus the prior year at USD 4.6 million. This revenue growth, coupled with a stable fixed cost base, is driving a strong increase in operating leverage that we've talked about in Q1, underlying EBITDA of USD 900,000.

So that's a great result to start FY'26. Positive operating cash flow quarter.

So typically, as Tom said, H2 is a stronger cash flow period, and we expect that to be the case in FY'26 as well. So overall, a great start to FY'26.

We've delivered strong financial results. And operationally, we have continued to deliver on our operating plan.

This start to the year has us really well placed to deliver on our targets for FY'26. That's it for the formal presentation from Tom and I.

We do open it up now for Q&A. I think, Tom, we may have received some as well.

Yes. So thanks, Tony.

I'll read some of these out. And this first one is for you.

How is the sales pipeline progressing?

Yes. So the sales pipeline is in a really great place at the moment.

We are focused on those regions that I mentioned in the presentation as well. In terms of Vertexon Australia, New Zealand, and Southeast Asia, we are getting some really good traction as well, and interest is up in Southeast Asia.

I think our presence, particularly with those 2 major banks up in the Philippines, is helping. We've talked about referenceability in Australia and New Zealand.

That same applies to regions in Southeast Asia, like the Philippines as well. So big focus across the business to continue to build that pipeline and drop that through.

And really, Australia for PaaS clients is a real focus for us as well to continue to focus on winning new clients in this region, so that we can add more volume to the PaaS platform.

Okay. Next one here.

Have you observed any potential hesitation on new card programs due to the ANZ regulatory uncertainty?

Yes, I'll take that, Tom. So not really.

We haven't seen really any hesitation there. I think we operate in the debit and prepaid space predominantly.

We are licensed to issue credit cards in Australia. Credit, particularly around the interchange regulations, that's one of the card types that's that's more impact.

It's not an area we currently play in a lot. We are looking to play in that space.

But at this stage, we are not seeing any sort of hesitation across Australia and New Zealand due to the regulatory environment. And remembering there's a lot of that regulatory impact is on the acquiring side.

We are an issuer. So it is slightly different, understanding that interchange impacts on issuers, but not at this stage.

Great. Thanks.

I'll take this next one. Given your currency exposure, what actions do you take to hedge this?

So we don't have any formal hedging arrangements in place. But what we do is our COGS, which are in USD, and we charge revenue in USD as well.

So there's a natural hedge in terms of those COGS and that revenue. Our fixed cost base, so our staff and our offices and all those things, they're all sitting in Australia and New Zealand.

So we hold all our cash in Australian and New Zealand dollars. So from a cost base perspective, we're hedged against movements in the currencies from a cost perspective.

As we continue to grow, further hedging might be required. But at the moment, we've sort of got a strategy to deal with it and the small fluctuations, although we have seen, obviously, currency markets move a lot more volatile in recent months.

Okay. When a client is looking for a card issuer, does Mastercard have a referral program at all that may help with ANZ customers?

Tony, I'll let you answer that one.

Yes. Thanks, Tom.

Good question there. So Mastercard does have a number of issuers in Australia and New Zealand, a small number, I should say, that are similar to Change Financial.

There are opportunities that come through to Mastercard that we do receive similar, I am assuming, to other competitors to change as well in the market, but we have successfully worked with Mastercard on opportunities and converted them to live clients as well. So there is a referral program that works where Mastercard partners with an issuer like us to bring on new clients onto that Mastercard brand as well.

So that does help us with new client wins in Australia and New Zealand.

Okay. Great.

I'll take this next one. Given that you achieved USD 900,000 in the first quarter for EBITDA and the top end of your guidance is $3.5 million, less than $900,000 per quarter.

Is this suggesting EBITDA for future quarters should drop from here? No, it's not.

It's very early in the financial year. You will note that the revenue and the EBITDA were driven by one-offs as well.

I've said we've got a strong pipeline of that to keep delivering, but we've got to keep delivering that. We'll let a bit more time pass and see how the next quarter goes, and then we'll make any assessments if we need to.

That's it for the current questions.

Okay. If there are no more questions, we might wrap that up there.

Thank you for taking the time to join us for our Q1 FY'26 results. We're very pleased with the start to the financial year.

Look forward to updating you in the coming months as well. Thanks a lot.