Release Date: February 25, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• EarlyPay Ltd (ASX:EPY) has expanded its net revenue margin despite a decrease in net revenue, indicating improved efficiency.
• The company has successfully reduced its exposure to riskier trade finance, focusing on more profitable invoice and equipment finance.
• EarlyPay Ltd (ASX:EPY) has paid off a significant portion of its corporate debt, which will reduce interest expenses in the future.
• The company has seen strong growth in equipment finance, with originations surpassing the previous financial year.
• EarlyPay Ltd (ASX:EPY) is making strides in technology integration, simplifying invoice finance for SMEs and enhancing its competitive edge.

Negative Points

• Average funds in use decreased by 9%, impacting overall revenue.
• Net revenue fell by 5% compared to the previous period, reflecting challenges in maintaining growth.
• The company's effective tax rate is high at 43%, due to non-deductible amortization expenses.
• EarlyPay Ltd (ASX:EPY) faces liquidity challenges, with its stock being described as illiquid.
• There is uncertainty regarding the company's strategic initiatives and potential corporate transactions, which are still in preliminary stages.

Q & A Highlights

• Warning! GuruFocus has detected 8 Warning Signs with ASX:EPY.

Q: What's driving the compression of management, admin revenues, and interest income compared to volumes of invoice finance underwritten? A: Unidentified_1 explained that the compression in dollar terms relates to lower funds in use. Although the non-interest income margin increased, the dollar amount of fees fell due to a lower base of funds in use.

Q: Is there a cap on the price EarlyPay is willing to pay on the buyback, given the stock's illiquidity? A: Unidentified_1 stated that the buyback is discretionary, and decisions are made based on what is considered the most accretive behavior for shareholders.

Q: Do the M&A discussions preclude EarlyPay from buying back stock? A: Unidentified_1 mentioned that while discussions are at preliminary stages, it makes market participation awkward. The board is conservative, avoiding market activity in gray areas.

Q: Can you provide a view on the FY26 outlook based on the exit run rate at the end of FY25? A: Unidentified_1 expects FY26 to be stronger than FY25, given the momentum anticipated in the second half and already observed in the first half.

Q: What is the nature of clients coming through new channels compared to traditional ones? A: Unidentified_1 noted that client size is similar across channels, with industries related to the platform type. Credit quality is slightly better in new channels due to easier access to early payment of invoices.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.