OZFRY (OZFRY) Q2 2027 Earnings Report, Transcript and Summary

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Thank you, Ash, and thank you, everyone, for joining the call. As Ash mentioned, I'm joined by James Georgeson, our CFO; and Matt Gregorowski from Sodali & Co. who leads our Investor Relations program. James and I will take you through the pages and then there'll be some time for Q&A. The presentation will cover 4 sections: An overview, the performance update, first half financials and the fiscal year '27 priorities and outlook, and then we'll go to Q&A. So let's move to Slide 4 in the pack. The main focus of our update is on the pivot to profitability that is underway after several years of strong investment in our transformation. That investment, along with softer top line growth, has significantly impacted our recent earnings. But before getting into that, I want to make a brief comment on the strategic review. Discussions with Equals continue on a nonexclusive basis. The Board is very engaged. The opportunity is still being assessed and both parties continue to apply resources to reach a conclusion. Understandably, I cannot comment in any detail on the substance of discussions given their confidential nature. At the outset of the strategic review, we stated that we would consider our organic and inorganic options. We would consult with our stakeholders to get their views, and we would ultimately recommend what we believe to be the best path forward. Since the review started, we've been doing that work, building proof points on the transformation and its effect on our outlook. We've engaged in lengthy and comprehensive discussions with Equals and others, and we've sought and received feedback from our investors. So when we reach the point of making a recommendation, I'm confident we will have completed a very thorough process with a broad range of inputs and views. Pleasingly, the proof points on the transformation are starting to become more evident, and we're starting to see a more scaled [indiscernible]. I'll go into that in more detail later, but the single most important reason we undertook this, which was to grow with our clients and access a larger total addressable market is becoming increasingly evident. As you'll see later, those clients who have FX and at least one other product, whether existing clients who we have migrated or new clients to the platform are showing that they are twice as valuable in terms of the average revenue per client that they deliver and 3x stickier versus clients who only transact FX with us. It is very encouraging to see quarter-on-quarter revenue growth and see that in both first quarter versus the fourth quarter and second quarter versus first quarter and October has been a good start to the third quarter. This growth in revenue, coupled with the cost actions we have taken signal the end of the investment phase and point to a return to stronger profitability in the second half and beyond. The cost actions were highly targeted and largely in areas where the cost is not directly supporting revenue generation. Now let's turn to Slide 6 and review performance in the first half. Our clients tell us that business conditions are very tough in most of the markets we operate in, and we saw that reflected in a soft top line over the half, with NOI of $89.2 million, down 15% versus prior corresponding period, although this was down 2.7% versus second half '26. NOI margin was down 4 basis points versus prior corresponding period, but steady versus second half '26 and improving through the second quarter. Underlying EBITDA for the first half was $4 million and net available cash was $36.6 million. These are both down significantly versus prior corresponding period. James will walk through the drivers of this in detail. As you will see in our outlook, we expect a material improvement in both in the second half. Average revenue per client or ARPC as an annual measure was slightly down versus prior corresponding period and broadly flat versus the second half. Pleasingly, the non-FX revenue from products such as cards, subscriptions and payment methods continues to grow, up to $1.8 million in the first half or 290% growth and the wallet balances from clients are also up to just under $295 million or around 390% versus prior corresponding period. Turning to Slide 7. The macro environment continues to be tough in all markets with business confidence remaining low, consumer confidence declining, interest rates increasing and inflation persisted. Somewhat surprisingly, volatility in currency movement was also low compared to the long-term trend. The weak confidence and the low volatility meant ATVs remain subdued by historical standards as our corporate clients remain prudent in buying inventory and employing staff, preferring to do regular somewhat smaller transactions. Pleasingly, we started to see the shift in the second quarter with more larger value payments, the penetration of forwards is growing slightly and our new corporate revenue growing around 15% in second quarter versus the first quarter. The low volatility also somewhat dampened the larger value consumer transactions, contributing to a decline in our consumer revenue of just under 7% versus the second half of '26. Pleasingly, our Enterprise segment again performed well in this environment, up 32% versus the second half of '26. Moving to Slide 8. We're delighted with the progress we're making in providing more products to our clients. And I'll share the key data points here that give us confidence going forward that the transformation efforts are already bearing fruit. On the left-hand side, you can see that the multiproduct adoption continues to grow in the client base with 11.7% of all our corporate active clients now holding more than 1 non-FX product, up from 10.1% in the second half of '26. That is very encouraging. Breaking down further, new clients continue to adopt more than 1 non-FX product at a rate of over 25%. And now around 6.5% of our migrated clients also have more than 1 non-FX product. I'll get into the effect that has on revenue in a moment. But for now, the first effect of this multiproduct adoption has -- is on active clients. You can see in the middle chart that the client base, excluding OLS and Firma clients is steady. We're looking at this on an annualized active client basis, which is our traditional definition. When we look at active clients on a quarterly basis, in other words, those who transact in quarter, we can see that the total quarterly active client number is lower at approximately 15,600 clients versus the 27,900 active clients on an annual basis. However, we can see that they've grown slightly since the fourth quarter, and that is largely due to the proportion of these that have used us for FX and at least 1 other product. In fact, we would have seen a small decline in this number if it weren't for the growth in multiproduct clients. It's a small increase, but it's encouraging. And as we mature, this will be a key factor in our ability to grow active clients and activity. Moving to Slide 9. What is more encouraging is the activity of these multiproduct clients and the revenue and retention they show. When we look at ARPC on a quarterly basis, we see a very healthy trend in multiproduct clients versus FX-only clients. Going back a year, in the first half of '26, we saw the quarterly ARPC is roughly similar between FX-only clients and multiproduct [ FX ] clients. But by the second quarter of this year, we have seen a significant divergence with the ARPC for multiproduct clients now almost double the FX-only ARPC. And what's especially interesting is that around half of that incremental ARPC is actually coming from more FX, meaning the other half is the non-FX. Further, we don't include the interest income from client wallet balances in this measure, but if we did, there'd be an even bigger effect. On the right-hand side, also incredibly encouraging, although not surprising, is that the lapse rate of multiproduct clients is around 3x lower than the FX-only clients, and it has been that way for some time. In other words, multiproduct clients give us almost double the ARPC in the quarter and lapse at around 1/3 of the FX-only clients. And as the new clients continue to be onboarded with 25% plus of them taking multiproducts and as we continue to provide more product to existing clients, this will have a very positive effect on both our total active clients and our ARPC. Moving to Slide 10. As I mentioned before, what the increase in multiproduct clients is doing as well as the shift to providing wallets for clients to manage their FX is done is to create new revenue sources. This is now scaling at a very reasonable rate, over $10 million in annualized revenue when adding the non-FX revenue and the interest from client wallet balances. This is already just under 10% of our total corporate revenue and around 5% of our group revenue, and it's growing at a very healthy rate with non-FX revenue growing at around [ 275% ] versus prior calendar period -- prior corresponding period and taken over 30% quarter-on-quarter. What is especially encouraging is that we really only finished migrating corporate clients in the fourth quarter of '26. So the marketing and commercial efforts of the client base is still very much in their infancy. To summarize, whilst our performance at an absolute level looks soft, the signs are there for a strong return to profitability in the second half of '27 and beyond. Now let me hand over to James to give us more detail on the financial performance.

Thank you, Skander, and good morning, everyone. It's great to be here presenting the results for OFX for the first half of 2027. Moving to Slide 12. As you just heard, our financial results reflect a period of softer trading against the backdrop of challenging business conditions in most of the markets we operate in. Whilst our results are lower than the prior half year, we have seen modest improvement across the half year with quarter-on-quarter revenue growth across each of the last 2 quarters. Fee and trading income was $92.2 million for the half year, down 15.5% versus the corresponding period, but less than 3% lower than the second half of '26. The reduction versus the prior period reflects the ongoing macroeconomic uncertainty that continues to dampen business confidence. This softness versus same time last year was seen across all regions with reductions in APAC and North America of 9% and 15%, respectively. EMEA was down 22%, reflecting the prior period benefiting from some larger transactions that have not repeated this period. The reduction in revenue half-on-half came from lower cross-currency volumes and lower margins. We have seen lower cross-currency volumes and lower average transaction value over the last 12 to 18 months, which we believe is cyclical and reflects the macroeconomic environment and the pressure on small and medium-sized businesses. Our net operating income or NOI, was $89.2 million, which is down 15% versus the prior period. The NOI margin was down 9 basis points or only down 4 basis points when excluding higher same currency flows. That decline was largely a result of the lower corporate margins, which include lower forward volumes, partly offset by the growth in non-FX revenue. Whilst our forward book is well down compared to 12 to 18 months ago, we have started to see more forward transactions over the half, which supported corporate margins versus the second half of last year. Pleasingly, we've also started to see a more meaningful contribution from non-FX revenue, $1.8 million for the half year, which is 3x higher than the first half of '26. We also hit an important milestone in the half with the quarterly non-FX revenue exceeding $1 million for the first time in Q2. In addition, interest revenue continues to grow as client wallet balances grow. First half '27 contribution from interest revenue was $5.6 million, up almost 50% from the first half of last year. Underlying operating expenses reduced 5.9% to $85.2 million following decisive cost actions and lower performance incentives. I will talk through the movements in operating expense outlook in more detail on Slide 14. Despite the cost reduction, the impact of the softer trading environment on revenues resulted in an underlying EBITDA of $4 million for the half, down to $14.5 million from the first half of last year and down to $10.7 million versus the second half of last year. Once depreciation, amortization, interest and taxes are taken into account, we reported an underlying loss after tax of $3.3 million for the half and a statutory loss of $6.7 million, including the impact of one-off items. Our balance sheet remains solid with net cash held at $63.3 million at the end of the half. While it is a bit lower than the prior corresponding period, as I'll talk to a bit later, we expect that to pick up in the second half. As you can see on Slide 13, we have shown the main drivers of the reduction in underlying EBITDA versus the prior corresponding period. This has reduced to $4 million in the half compared to $14.5 million in the first half of '26, with NOI down $15.8 million, partially offset by a $5.3 million improvement from lower operating expenses. As I've just outlined, the reduction in revenue half-on-half came from lower cross-currency volumes and lower margins. The lower volumes contributed just over half of the reduction, about $8.6 million with margins of $6.8 million impact. Non-FX revenue and interest revenue were up a combined $2.9 million, showing the value of the transformation that Skander has just outlined. This was partly offset by the lower treasury revenue, which mainly reflects the flow impact of the lower trading volumes. Whilst NOI was down $15.8 million, operating expenses reduced by $5.3 million following the decisive cost actions and lower performance incentives. Those cost actions will deliver approximately $10 million in savings in the second half. Moving to Slide 14, you can see the composition of our operating expenses. Operating expenses are down 5.9%, as I just touched on, mainly from the lower employment expenses, which are down 7.9% following the completion of the corporate client migration to the new client platform and reshaping our product and technology teams. This resulted in 65 fewer FTEs when compared to 12 months ago. As you would expect, given the softer revenue outcomes, performance-related costs and commission expenses were lower in the half. Promotion expenses were also slightly lower than first half last year as well as the second half last year. Our continued refinement of our go-to-market activities resulted in a small consecutive improvement in new revenue despite the reduction in promotion expenses. Corporate NTCs excluding OLS were up 4.8% on the prior corresponding period and up 13.5% in the second half of '26. The reduction in employment and promotion expenses reflected the expected return to the pre 2.0 investment levels. However, disappointing bad debts were $3.8 million for the half year, $0.6 million higher than the first half of last year. The main driver of these continue to be the direct debit fraud -- continue to be direct debit fraud in North America. The bad debt expense for the half includes approximately $1.6 million of adjustments to existing items that are not expected to recur and $1.1 million of consumer losses. Residual bad debt expenses in line with typical levels, and we have implemented additional controls in our consumer business through the half. Accordingly, we would expect the second half bad debts to reduce relative to the first half as we continue to pursue recoveries and benefit from the strengthening of our risk settings and controls. [indiscernible] bad and doubtful debt should level out at circa 2% of revenue going forward. There have been no losses relating to the cyber event. As Skander covered earlier, we took decisive cost actions in the half, largely in areas where the costs were not directly supporting revenue generation. These actions amounting to $15 million of annualized cost reductions were largely taken at the end of the half and predominantly related to OpEx-related roles and costs. We expect $10 million of these savings in the second half of '27 and the residual $5 million in full year '28. Of the $15 million in annualized cost reductions, approximately 2/3 relate to employment cost savings with the residual amount comprising targeted promotion expense reductions and other non-FTE savings. Restructuring costs incurred in the half were $1.9 million and are reported outside of underlying operating expenses. We expect to report second half '27 operating expenses of between $74 million and $77 million, which implies a full year operating expense base of between $159 million to $162 million. These actions will support a strong uplift to EBITDA in the second half of this year and into full year '28. Turning to Slide 15. The group's balance sheet remains healthy, although cash generation was lower versus the prior corresponding period given the lower revenue and continued CapEx investments in NCP. Despite the lower operating cash flow generation, cash conversion remained above 100% in the period, reflecting the efficiency of the business model and also favorable timing differences. Net cash held was $63.3 million, down 5.8% since year-end. After deducting collateral and bank guarantees, net available cash totaled $36.6 million, down $13 million since the year-end. Of this $13 million in the half, $4.6 million (sic) [ 4.7 million ] related to movements in collateral and bank guarantees, which are principally timing related, and we would expect to reverse in the second half of the year. There was $3.4 million related to one-off cost items associated with the strategic review, restructuring costs and the residual Firma and Paytron integration costs. And the residual net reduction of $5 million comprised the operating cash flows, offset by the continued investment in our technology platforms. As discussed previously, we have been investing to create a path to growth and better long-term performance, but that investment has now peaked and is expected to slow in the second half and into full year '28. Accordingly, we expect full year CapEx investments approximately $17 million to $19 million, slightly lower than our prior guidance. As I discussed earlier, $10 million of the $15 million of annualized cost savings will flow through to net available cash in the second half of '27, which will support an improved cash balance by year-end. The unwind of the timing differences on collateral and bank guarantees is also expected to further improve net available cash. Our remaining debt balance now stands at $18 million. Given the backdrop of the strategic review, we will be expecting to either refinance or extend the facility ahead of its due date in early full year '28. I'll now hand back to Skander to take you through the outlook for the remainder of the year and into full year '28.

Thank you, James. That excellent summary of the financials. Turning to Slide 17. Let me close by providing some detail on what we expect second half fiscal year '27 to bring along with our initial view on where that takes us in fiscal year '28. But first, just to recap, the accelerated and incremental investment in our transformation is now largely complete. Over the last 3 years, we have invested over $57 million in CapEx and lifted our OpEx from just over $160 million in fiscal year '24 to over $170 million in fiscal year '26 to build our new client platform, to migrate our corporate clients, to create a world-class client experience. We've also invested to migrate Firma clients off the Firma platform and ultimately on to NCP and integrated the Paytron platform into OFX as well as enhanced it radically to make it more secure and more global. We have completely changed our go-to-market model, impacting our commercial product and marketing teams. We have reorganized our global operating model to focus on the B2B and B2C segments and asked our functional teams to realign accordingly. That is a lot of hard work and a lot of investment, which continued through the first half of '27, but that is now in the rearview mirror. I am incredibly grateful to the OFX team for their extraordinary commitment and to the Board for their belief and support and of course, to our investors for your support. Over fiscal year '27, thanks to the cost actions James mentioned earlier, we expect our underlying OpEx to be down to between $159 million and $162 million or a decline of around $10 million. We're targeting NOI to grow modestly in the second half, building on the momentum in the first half. We are always mindful that the operating environment remains challenging, although this does not depend on any significant improvement in business confidence. Combined, we believe that we will generate positive operating leverage on an underlying basis and clearly a much stronger underlying EBITDA in the second half. Fiscal year '28, assuming we can again generate modest NOI growth, we expect again to generate operating leverage with our cost base slightly down on fiscal year '27, including the impact of resuming STI funding, short-term incentive funding, to 100%. And again, we are not expecting any material uplift in trading conditions. We will achieve that OpEx profile by realizing the additional $5 million in cost savings from the actions we've already taken and see a return to more normal and modest bad debts. With that, now let me hand back to Ash for questions. Thank you.

[Operator Instructions] Your first question today comes from Michael James Trott with MST Financial.

Skander and James, can you hear me?

Yes, Michael.

Thanks for, I guess, some more positive light into how the business is transforming, and it's good to see, I guess, some of the initial steps coming through from Q1 and Q2 as well. Just wanted to touch upon, I guess, the FY '27 NOI growth of 2% to 3% or the second half '27 NOI growth of 2% to 3%. And the time line you've got there assumes current macro conditions. So just wanting to understand how -- what the trading volumes are kind of looking like at the moment, especially since the midterms and the massive volatility that's come through there? And is that kind of the macro conditions you're referring to? And if so, is it quite a conservative 2% to 3%, suggesting that perhaps if it was more consistent macro conditions, it could actually be to the upside of that if it was normalized over the next few periods?

Thanks for the question, Michael. Let me have a first go and you can maybe add some color as well. So the guidance we've said for the second half of the year is 2% to 3% NOI growth, which is obviously growth on the first half results. We grew at circa 2% and 3% quarter-on-quarter across the first half. So we sort of put it in a similar sort of banding across the second half. Look, the conditions, we probably think of them, I guess, in the broader backdrop of the economic conditions, you look at the interest rate environment, obviously, in Australia, we've seen interest rate rises recently. Canada is obviously facing tough economics, which is one of our other large markets, although despite the U.S. being reasonably strong economically. So we would sort of say we're sort of assuming that this current backdrop of interest rates, business confidence and those kind of things are sort of fairly steady. There are clearly pockets of opportunity/volatility that arise, such as the midterms. We have seen some good trading around that through the last week to 10 days. It's not smashing the lights out, but it's definitely -- we've definitely seen better, stronger volumes in the last week or so. So our assumption is more that the broader backdrop is staying broadly unchanged. You may get pockets of opportunity that happen normally in terms of when there may be obviously other moves around other central bank rates. But I think that's the way we sort of thought about it. Do you want to add anything?

I wouldn't add anything to that though.

Great. Just then turning to, I guess, the -- it's the operating expense guidance from -- it's beyond more FY '28. So previously, you've spoken to just targeting inflation previously. It's clear that the [indiscernible] has been completely reset, I guess, this half or this year. And so then with broadly flat next year, will it be that same inflation growth line for beyond FY '28? Or will it -- are you expecting it to again be flat over the medium to longer term?

Look, we obviously might haven't said anything beyond '28 at this stage. We're doing our planning through the second half of the year, which would then allow us to sort of have a formed view for '29. I think you take sort of Skander's comments in mind as well. We think we peaked through this transformation expenditure period where we had to migrate businesses, migrate clients, get the platform really ready and set. But that has now passed -- the peak of that passed. So we would hope that, that would create some tailwind on expenses. We've always said CapEx was one area where we had to build up our investment and to get into the platform. We'd always indicated approximately $5 million of further savings to CapEx would be available once we get right through the investment cycle, which we're sort of thinking is into '28 and '29. So look, I think we would definitely be looking to try to keep within those bounds, but it will also be subject to what kind of revenue growth that we can deliver. So if we could deliver a return to the stronger revenue growth that we were seeing a few years ago, which might mean that you might want to spend a bit more on promotion or frontline teams, we think that, that might be a good investment. But again, if we don't deliver the revenue growth and are more in the subdued level, we would manage costs more tightly. So I think it will be a little bit to sort of see how conditions play out as we do our plan through the next 6 months. And when we come to the full year, we can give a better view of what '29 would be.

Okay. And just one last one. Just with the exclusivity now lapsed with Equals, you've previously spoken to the many interested parties that you were having discussions with prior to entering into the exclusivity. Just wanting to understand, has there been, I guess, any recouping of those discussions or circling back on it at all? Like no specifics or anything, just, I guess, a vague interest of what's going on with external parties, if you can provide that.

Yes. Maybe I'll take that one. I mean, obviously, it's very sensitive. So there's only so much I can say, but I guess the short answer is yes.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Skander Malcolm for closing remarks.

Thank you, Ash, and thank you, everyone, for joining, and we look forward to the conversations we'll have with individual investors over the next week.