Zip Co Limited

Thank you for standing by and welcome to Zip Code Limited Half Year 26 results. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press star followed by the number one on your telephone keypad. I would now like to hand the conference over to Director of Investor Relations and Sustainability, Vivian Lee. Please go ahead.

Good morning and thank you for joining ZIP's 2026 Half Year Results Briefing. To open, I'd like to begin by acknowledging the traditional owners of the land on which we meet today, the Gadigal of the Eora Nation, and pay our respects to Elders past and present. This conference call is also being webcast and will be available on ZIP's website. I'm joined today by ZIP's Group CEO and Managing Director, Cynthia Scott. Group CFO, Gordon Bell, and US CEO, Joe Heck. We will start this call with some prepared remarks and then open up for Q&A. With that, I'll now hand over the call to Cynthia.

Thanks, Vivienne, and good morning, everyone. On behalf of the ZIP team, we're pleased to be reporting another very strong set of results, delivering financial performance within each of our full-year guidance ranges provided in August. For the half, we delivered record cash earnings of $124.3 million and significant operating margin expansion underpinned by accelerated momentum across both markets. These results, together with 10 quarters of consistent group profitability, reinforced the strength of our platform and our ability to deliver long-term value creation. Zip today is a high-growth, efficient, and sustainably profitable business with clear strategic differentiators. We operate a scaled, two-sided network with strong customer engagement, growing merchant penetration, and increasingly diversified distribution networks. We take a customer-first approach to innovation with a proven track record as a responsible lender, backed by more than 12 years' experience delivering flexible credit solutions to millions of customers. Our AI-powered decisioning capabilities, built on significant sets of proprietary data, deliver responsible lending outcomes and exceptional experiences for our customers and merchants. This capability is a core competitive advantage and increasingly important as we continue to scale. Moving to the next slide. Our results demonstrate the power and momentum of our platform in action. Total transaction volume reached a record $8.4 billion, up 34% year-on-year, driven by 55 million transactions. Active customer numbers increased 4.1% to 6.6 million, as we delivered on our strategy for customer growth while deepening customer engagement, demonstrating the demand for our products and the trust customers place in Zip. Merchant growth also accelerated at more than 10% to over 90,000 merchants, supported by expanded channel partnerships, including Stripe. Turning to the next slide. We've continued to deliver top-line growth while importantly maintaining the strong unit economics and the operating leverage that we've developed. Gross profit increased 33.5%, reflecting lower funding costs and strong credit discipline. Net bad debts remained comfortably within management targets, while active customers grew by 10% in the US. A key highlight was record cash earnings of $124.3 million, up 86%, driven by significant operating margin expansion to 18.7%. As well as strong cash earnings in the first half, on a statutory basis, we also delivered net profit after tax of $52.4 million. Moving to slide 8, which demonstrates we're now driving outstanding earnings growth in both markets. In the US, which represents around 80% of divisional earnings, cash EBIT TDA increased 70%, which is one and a half times the rate of revenue growth. In ANZ, cash earnings more than doubled, as revenue and Australian receivables returned to growth, and excess spread expanded 241 basis points, a material improvement. The performance across both regions reflects the strength and scalability of our model. Moving to slide nine. We're executing with discipline against our FY26 strategic priorities. Across both markets, we strengthened customer engagement, delivered record outcomes through the peak holiday period, and signed large merchants in targeted verticals. We continue to innovate and expand our products, unlocking greater flexibility and value for our customers and merchants. Joe and I will cover these highlights in more detail in the regional updates. We've also continued to strengthen our platforms to support long-term scale. During the half, we completed the $100 million on-market share buyback, optimised and diversified our funding programs, and strengthened our core systems and processes, including through scaling AI, which is firmly embedded in how we operate, how we build, and how we differentiate. Turning to slide 10. Our ESG focus remains aligned to long-term value creation. In the US, we partnered with Opportunity Knox, a PBS television series supporting underestimated Americans through hands-on financial guidance. reflecting our commitment to financial inclusion. Across the group, 100% of our team have been equipped with secure enterprise versions of generative AI tools and training to support engagement and accelerate innovation. We also continue to invest in carbon offsetting projects with the aim to offset our greenhouse gas emissions. Turning to the next slide. Dual listing on a U.S. stock exchange continues to make strategic sense for Zip, given the scale of our U.S. business and the material growth opportunity ahead of us in that market. As we announced late last year, we submitted a confidential draft registration statement to the U.S. Securities and Exchange Commission in November 2025. We'll continue to monitor market conditions and will only undertake a dual listing when it's in the best interest of Zip shareholders. The potential dual listing still remains subject to a number of required processes, including regulatory and zip board approvals. So with that, I'll hand over to Joe to cover our U.S. performance in more detail.

Thanks, Cynthia. I'm now on slide 13. The U.S. delivered another outstanding set of results for the half. We now have a larger and more efficient platform that drove record TTV and revenue while adding over 400,000 customers and over 2,300 merchants. With over $4 billion in TTV and $292 million in revenue for the half, growth accelerated to 44.2% and 46.4% respectively, and we set a record day and month during the holiday period. Our results reflect deeper customer engagement, with customers now transacting over 11 times per annum, up 20% on-year. We continue to innovate and evolve our offering to meet real customer needs, including making our pay-in-two solution available to all customers in February of 2026, providing greater flexibility and choice for smaller everyday purchases. We're piloting a My Bills feature in-app to support customers with recurring payments. And we're progressing our Money Coach, our agentic guided cash flow management experience, which we piloted with U.S. Zipsters. These initiatives will continue to be rolled out in the second half. Our platform is converting top-line growth at a stronger operating margin, and we deliver credit outcomes within our target range and operating leverage at scale. Turning now to slide 14, we have a compelling and exciting market opportunity in the U.S. where BNPL represents less than 2% of the $12.8 trillion total net payments market, and 6% of e-commerce, far below more established markets. Zip serves a unique customer, the everyday American, of which we estimate there to be over 100 million nationally. This group has been underestimated by traditional financial services providers and are increasingly using short-term installment products such as Zip to smooth their everyday cash flow. Moving on to the next slide. Our product design and experiences are built to meet our customers' needs and preferences, supporting increased usage of our products. Since FY24, we've invested in personalization and enhanced customer experiences, which has delivered quarter-on-quarter growth of transactions and spend per customer. This represents annualized growth of 24% and 31%, respectively. Moving to the next slide. Slide 16 shows how we're able to leverage our experience with everyday Americans. As we underwrite more customers and transactions, we're able to right-size spending power faster and accelerate customer engagement in newer cohorts. In fact, our most recent July 2025 customer cohort experienced a 21% increase in average spend over six months. The 18 and 24-month data points on the right demonstrate these trends continue over longer-term horizons. Turning to slide 17. A key highlight for the half was the acceleration in active customer growth, up 10% year-on-year, which compared to growth of 6% at this time last year. Importantly, we continue to acquire customers efficiently, especially as our merchant network and channel partnerships grow, which increases awareness and adoption of our products. Our new brand campaign, In You We Trust, reflects our belief that people deserve financial tools that work with them, not against them. Double-clicking into our experience with our customer base, we've decision and processed more than 23 billion in installments across 177 million transactions to date. Our proprietary credit models leverage 1.4 billion unique data points from over 13 million first-party customer records, delivering strong credit outcomes when compared to traditional approaches to underwriting. Turning to slide 18, we've successfully expanded our channel partnerships, which is driving merchant growth, customer acquisition, and increased customer engagement. We reached general availability in Stripe in August of 2025, meaning any of the millions of merchants on Stripe can enable Zip in less than 30 seconds on their dashboard. This enables us to scale efficiently both distribution costs and shorter sales cycles through a one-to-many approach. While it's still early days, we've added over 1,400 Stripe merchants in the first half alone, noting we've only been live for four and a half months. To increasingly meet our customers where they live, work, and entertain, we've signed large enterprises such as JD Sports, Goat Group, and also went live with Timu. We also launched a new customer activation initiatives, including collaborations with national brands like Major League Baseball. Our integration with Autofill on Google Chrome serves as a customer acquisition and engagement tool. Customers can now find Zip at checkout when using the Chrome browser, and if approved through their acquisition flow, are prompted to save their Zip details in their browser, delivering a more seamless experience of repeat usage. Customer feedback to date has been positive, with 86% of surveyed Zip customers expressing intent to use the feature again. On to slide 19. We are constantly listening to our customers to understand how they want to pay and manage their everyday spend. Our TTV is increasingly derived from non-discretionary categories with health, education, auto and transport representing some of our fastest growing. Our Pay in Two product is another example of how we're empowering customers with alternatives to traditional high-interest credit products, enabling customers to split a purchase into two installments paid over two weeks. The product has been well received with future use centered on everyday needs like groceries and bills and 95% of surveyed pilot customers express the intent to use pay into again. Turning to the next slide. We've actively pursued and achieved very strong TTV and customer growth while managing losses comfortably within our 1.5 to 2.0 target range. Given the short duration of our product, we remain well placed to proactively manage our portfolio outcomes We will continue to drive new customer growth initiatives which position us well to deliver future profitable growth underpinned by our strong unit economics. Given recent performance in our portfolio, we are confident net bad debts will remain stable within the top half of our targeted range in the second half. Moving to the next slide. We have an efficient and capital-like business which is driving significant operating margin expansion as our platform scales. This half, we've converted every incremental dollar of revenue into $0.34 of cash earnings. Turning to slide 22, we are strategically set to deliver our next phase of growth by capitalizing on structural tailwinds with digital payments and BNPL adoption set to increase, growing our customer base and increasing Zip share of wallet, expanding our distribution and merchant network to enhance the efficiency of our growth engine, and evolving our product set to meet more of our customers' cash flow management needs. Digging deeper into this on slide 23, we see a tremendous opportunity to lean further into everyday non-discretionary spend, given the mismatch between the income structures and the rising essential costs that everyday Americans are facing. While we are supporting customers today in the point of sale installment credit market, there are additional opportunities for us to meet even more of our customers' cash flow needs. An example of this is MyBills, which I mentioned earlier and is due to roll out in the coming months. We will continue to explore other product adjacencies that resonate with our customers, complement our short-duration portfolio, and expand our revenue streams, such as rent and earned wage access. We are excited and energized by what we can unlock for our customers, merchants, and partners as we capture our growth potential and reshape how everyday Americans manage their cash flow. With that, I'll now hand back over to Cynthia.

Thanks, Joe. Turning now to slide 25. The ANZ business delivered an excellent performance this half, achieving 138% increase in cash earnings. This was driven by a material improvement in excess spread and strong momentum in ZIP+, which, as of this month, is now being offered to new customers at higher limits of up to $20,000. We added several large enterprise merchants to the platform, including Didi, Australian Outdoor Living, and White Fox Boutique, and executed strategic integrations, including with Xero via Stripe and Mint payments. Our customer value proposition has been enhanced through new Google Wallet features, which have been adopted by more than 170,000 customers. Our AI-powered chatbot Ziggy is providing increasingly personalised experiences and is now resolving 65% of interactions without human intervention. Turning to slide 26. Excess spread expanded by 241 basis points, underpinning strong earnings growth. This reflects very strong outcomes on receivables financing over the last two years, as well as net bad debts remaining at their lowest levels since FY23. Arrears rates, a leading indicator of future VAD debts, continues to perform well, down 21 basis points year on year. With portfolio yield remaining healthy, the business is well positioned to continue to deliver profitable growth. Moving to the next slide. Our comprehensive product suite provides flexibility and choice, driving strong customer engagement and satisfaction. Transactions and TTV per customer increase 23% and 20% respectively. This performance was driven by enhancements to our app and in-store experience, along with new strategic go-to-market initiatives, as shown on the right-hand side of this slide. We achieved a record number of transactions and zip-anywhere open-loop spend during Black Friday Cyber Monday. Consistent with our increasing frequency, we're seeing strong growth in everyday spend categories, such as groceries, healthcare, education and utilities. We're also seeing higher spend across all age cohorts, with the strongest growth amongst more mature customers, including in discretionary categories such as restaurants, travel and entertainment. Turning to slide 28, we're very pleased with the momentum in ANZ and are investing in future growth. We've undertaken strategic go-to-market initiatives, including around peak trading events. We've also simplified and strengthened the resiliency of our core technology systems, including our credit decisioning platform, enhancing our speed to market. These investments support both top-line growth and cost efficiency, positioning the business to deliver sustainable long-term value. I'll now hand over to Gordon to cover our financial performance.

Thank you, Cynthia, and good morning, everyone. I'll start with slide 30. Zip has had a very strong start to the year. We've achieved material new active customer growth in the US and converted substantial top line revenue growth at an increased operating margin. Our financial results for the first half are all within the full year 2026 target ranges provided to the market in August 2025. A key highlight was our primary metric, the group's operating margin, which expanded 569 basis points to 18.7%. This has been a focus in the year to date, and we're really pleased with the outcome and the momentum. On a statutory or GAAP basis, our net profit after tax more than doubled to $52.4 million, an outstanding result. Moving to the income statement on slide 31, Our focus on operating leverage, disciplined cost management and ongoing investment in our business drove the following outcomes. A 33.5% increase in cash gross profit to $314.3 million, an 85.6% increase in cash EBTDA to $124.3 million and a 127.6% increase in statute net profit to $52.4 million. On an underlying basis, we delivered $54 million of improvement in net profit after tax with no one-off items recorded for the period. Further details are in the appendix to the presentation. Slide 32 covers our unit economics. The group had another fantastic half, growing TTV in both regions to a combined $8.4 billion, or up 34.1%, while maintaining a strong cash net transaction margin of 3.8%. Interest expense as a percentage of TTV improved 38 basis points year-on-year to 1.3%, primarily driven by lower margins on over $2 billion of receivables refinanced in Australia over the past 18 months. Net bad debts were 1.7% of TTV, reflecting our targeted approach to balancing top-line growth and losses. Turning to slide 33, which covers the accounting provision for ECL, or expected loss, for the US business. In alignment with international financial reporting standards, we recognise expected credit losses for our customer receivables book. This is a non-cash item in our P&L. For our short-duration US products, this provides a useful leading indicator of future portfolio performance and loss trajectory. To measure it with our strong momentum through Q1 and Q2, we saw a nominal increase in our US provision. This shift is a direct reflection of our strong volume growth and delivery of new active customer growth of circa 10% year-on-year, both in line with our US strategy. The lower US provision as a percentage of receivables at the end of the second quarter reflects both seasonality and continued proactive management of our short-duration book to deliver profitable growth and to deliver actual losses within the management target ranges. Moving to operating efficiency on slide 34. Our prioritisation of cost discipline has supported material operating margin expansion of 569 basis points to 18.7%, whilst also growing group TTV and revenue north of 30%. This has been achieved while continuing to invest in attractive opportunities that support our growing businesses in both regions. The increased investment in people, processes and information technology was driven mainly by the US to support additional scale. During the period, we invested in marketing to drive strategic growth by building brand and product awareness across both markets. Total marketing spend remained at approximately 0.4% of TTV. At the corporate level, costs increased in the first half, due to spend on activities announced associated with our potential dual listing, as well as innovation initiatives through our Fearless Frontiers Lab to drive the next horizon of growth in our businesses. The next few slides, starting with slide 35, cover the group's liquidity, funding and capital management. We have a very strong balance sheet with available cash and liquidity of $239 million at 31 December, materially up on the full year 25. This outcome reflects ZIP's strong cash flow generation, driven by continued operating results. Cash inflows for the first half totalled $178.3 million, which accounted for CapEx, working capital and funding requirements. Non-operating cash flows of $77.1 million included on-market capital management activities. Slide 36 outlines the financing facilities in place for ZIP's receivables and the capacity for future growth. In Australia, we continue to benefit from constructive funding markets, a significant increase in investor interest and strong corporate performance. Our $400 million two-year public ABS term deal priced at BBSW plus 1.37% in November 2025. Pricing was well inside levels achieved in previous public transactions. In early February 2026, we took the opportunity to further extend portfolio duration with an innovative $300 million law five-year public ABS term deal, which priced at BBSW plus 1.62%. This transaction was supported by domestic and global investors and highlights the significant investor appetite for Zip's longer duration issuance. In the US, we established a $283 million warehouse facility The two-year facility provides enhanced capacity for future growth, delivers a material improvement in funding costs, and further diversifies our funding program. We continue to assess opportunities to optimize our U.S. funding portfolio, with work well progressed to refinance our $300 million warehouse later in the second half of the year. Moving to slide 37. This slide outlines our capital management framework, which establishes principles for the allocation of financial resources to maximise long-term shareholder returns. We executed two key initiatives during the half. Firstly, we completed our $100 million on-market share buyback program in December, with 34.9 million shares repurchased at an average price of $2.86. Secondly, we acquired 5.9 million shares on-market, via our Employee Share Trust to neutralise the impact of share-based incentive programs. Looking ahead, we'll continue to focus on investing capital efficiently to drive long-term value guided through a lens on risk, expected return and strategic alignment. Slide 38 provides a snapshot of our key group performance metrics, demonstrating the outstanding results achieved this half. This financial information is further detailed in the appendix of the presentation, as well as the Appendix 4D financial statements lodged with the ASX this morning. I want to hand back to Cynthia to cover the group strategy and the FY26 outlook.

Thanks, Gordon. I'm now on slide 40. Our FY26 strategic priorities remain unchanged. In the second half, we'll continue to enhance our customer and merchant value propositions, including scaling pay-in-two in the U.S., and unlocking greater spending for Zip Plus customers in Australia. We'll drive innovation across our portfolio, excuse me, across our products, people, and processes through leveraging our in-house capabilities and AI advantage. We're really excited to execute on future growth opportunities and to meet our customers' evolving cash flow management needs. In the US, as Joe outlined, this includes the rollout of MyBills and our agentic experience MoneyCoach, as well as continuing to assess new product adjacencies. In ANZ, we've advanced capital-like propositions through our Fearless Frontiers team led by Peter Gray and expect to have a new offering in market during the second half. As part of our announcements today, we've also shared my intention to relocate to the US. This move reflects our growing presence and significant growth opportunity in the US market, our primary earnings driver. I look forward to deepening engagement with key US stakeholders, including our customers, merchants, strategic partners and investors. Moving to our upgraded FY26 outlooks on slide 41. Firstly, we reconfirm our guidance for revenue margin and cash NTM ranges. Following a strong performance in the first half, we've upgraded our operating margin expectation to be greater than 18%, and for cash EBIT TDA as a percentage of TTV to now be above 1.4%. Taking into account these targets, we expect second half cash EBIT TDA to be broadly in line with the first half. In closing, the first half of FY26 has been a period of accelerated momentum for ZIP. We're confident in the continuation of our growth momentum, supported by our US business delivering strong TTB growth of more than 40% across four consecutive quarters, our ANZ business having successfully returned to growth, having the right strategic settings and scalable platforms in place to drive increased profitability and significant opportunities in both markets to unlock further value. On behalf of the group executive team, I'd like to thank our incredible Zipsters for their passion and focus and our shareholders for your ongoing support. That concludes our formal presentation and we'll now open the call for Q&A.

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. And your first question comes from the line of Jonathan Higgins with Unified Capital Partners. Please go ahead.

Hi guys, thanks for taking the questions today. Congratulations on the US growth there and also good luck for your forthcoming move to the US, Cynthia. Just a couple from me today. Firstly, probably just on pay-in-aid, pay-in-to and some of the things that are occurring there. I think there's probably quite a few questions I'd imagine coming through just on the bad and doubtful debt performance. You've guided for the second half there. Can you talk about some of the moving parts on you know, that guide into the second half towards those sort of targeted levels, please?

Yeah, thanks, Jono. Look, I'll make some initial comments, and I will ask Jo to just give a little bit more detail. So you're right. We launched Pay in 2 – sorry, excuse me, Pay in 8 more than a year ago. So we've now had it in market, and we've now seasoned it. So we've been able to see what the performance of Pay in 8 has been. And as you've noted, it's been really well received by customers and now represents about 20% of our portfolio. It does come with higher losses, as we've talked about, given the longer duration of the product and the larger AOV of the product. So we have indicated that in terms of portfolio construction, we are comfortable keeping Pay in 8 no greater than 20% of the portfolio. Now that we've launched Pay in 2, that obviously the proportion of Pay in 8, Pay in 2 and Pay in 4 in the portfolio will again change. I might ask Joe just to give you some colour given that we've now got Pay in 2 out in market. just to give you some perspectives on how we're thinking about portfolio construction and also the lost performance that we're seeing or what we're expecting going forward.

yeah thanks cynthia um i'll just reiterate uh a couple things cynthia just said is like as uh we now have a full year of pay and eight under our belt um and it represents about 20 of the portfolio it does run just to the longer duration risk it does run a higher loss rate but um we've also put on significant new customer growth as well and and always the The first transaction with new customers is always our riskiest transaction. But I'll reiterate maybe the tightening of our range. We feel very comfortable we're going to stay under the 2%. I'll go back to the chart on losses where even early stage delinquencies down 10% quarter over quarter. And so feel good that the tightening of the range is really the maturity of the portfolio and feel like we're in a good spot there. And then to maybe go towards pay in two, it's an exciting rollout that we see really strong early signs of success with, both from a customer uptake and credit performance standpoint. It's an even shorter duration product than we have. So I'll just reiterate again what we said on the call is the 1.75 to 2 point range is we feel very confident we will be under that 2% moving forward.

I understand. Appreciate the context. Maybe just a couple more that are sort of around as well in terms of portfolio composition. On your outlook, you've retained the 3.8% to 4.2% cash NTM margin guidance. Come in at 3.8%, I think second quarters are always a little bit lower because of revenue yield. This might also help a little bit with expectations of the future, but evidently with US losses probably moving a little bit higher as guided by you guys, but a little bit of a headwind on interest rates. And the USA business is dominating growth, which has a lower blended NTM margin. In terms of on the revenue yield side of things with the new products in the US portfolio, would we expect potentially some reasonable sort of additive growth in revenue margins in the US so that we can get up to that cash MTM guidance? I suppose asking in a roundabout way, obviously losses are a little bit higher on the back of paying eight, but do we get better margins out of them at the top line?

Yeah, John, I'll throw to Gordon. I mean, as you've noted, there's actually a lot of moving parts. You're talking about a change in the portfolio construction. Obviously, losses on Pay in 2 are lower than on Pay in 4 and Pay in 8. Typically, it's a shorter duration product. So, you know, that will also have an impact over the second half and going forward. We would still indicate to you an overall portfolio revenue yield in the US of 7% is the right number to think about. But, Gordon, do you want to add anything in relation to cash MTM products?

Yeah, thank you, John. I'll just run through the components because I think you're on the right direction there. So the bad debts is a portion of that. Joe's outlined where we're at and the range that we are targeting specifically for the second half to balance that. what we feel is growth and margin, so we're comfortable there. On the interest cost side, the other big component of fossil sales, we've got some really nice tailwinds from the refinancing of our facilities, both in Australia and now we're starting to see the benefit of the refinancings coming through in the US. So you do have to take that into account with the bad debt percentage going the other way, and hence why we're comfortable with that range of 3.8% to 4.2%. And then, you know, what I would say is, and I think you called out in one of your notes, you've also got to take into account the, you know, the weighting there, where, you know, the US is a lower MTM business compared to the Australian business, and as the volumes grow there at a faster rate, you know, that also has an impact too. So those are all the component parts, but, you know, comfortable with that range for the full year.

I might grab one last one. Sorry if I'm going to call everyone else, but... In regards to the new product mix and the like, I mean, if I sort of think back 12 months ago, we didn't have a lot of new product iteration sort of in market. You know, we were at the beginning of new active customer growth, and we've had some large partnerships come through. And like many of those things, like Pay in 2, you've publicly said it's gone live this calendar year. Pay in 8's obviously gone out further to the customer base. And then you've got things like the Stripe partnership business. I mean, is there potential in the second half for, you know, a pickup in sort of group run rates or volume? Just interested in what you're seeing in the U.S.

Thank you. Yeah, look, I'll ask Joe to add some comments, but you're right, Jono. There are a number of levers that give us the confidence to continue to guide that the U.S. will grow more than 40%, and it does include things like, you know, the strike partnership really beginning to hit momentum now with 1,400 new merchants. as Joe said, from possible millions of merchants on their platform, as well as the penetration of Google Chrome improving, as well as us signing our own large enterprise merchants. So there's a lot going on on the enterprise merchant side, and we continue to acquire net new customers. But Joe, is there anything in addition to that that you wanted to add?

No, I think you hit on the major points. I think the increased flexibility that we're seeing from PayNZ and the increased efficiency we're seeing just in how the platform is built and how we operate it makes us feel very confident in the numbers we're guiding to.

Thanks, Josh.

Thank you. And as a reminder, please try to keep your questions to one question and one follow-up. Your next question comes from the line of Tim Lawson with Macquarie. Please go ahead.

Hi, thanks for taking my question. Just really interested in your expectations for sort of OPEX growth in the second half, given you've provided that sort of flat versus first half, second half cash EBITDA guidance, but obviously there's momentum still through the top line.

Yeah, thanks, Tim. I'll ask Gordon to address it because, again, there's a couple of different factors at play there in terms of the performance in OPEX that we saw in the first half versus the second half.

Yeah, thanks, Tim. I would say that it's fairly balanced. What I would note is we did see some nice operating margin performance if you have a look at the unit economics slide. from a slightly reduced cash-off expense in the first half. And that really comes down to not a... I wouldn't say not a lack of investment, but it's opportunities for investment. So Joe and Soraya take the opportunities in front of them and invest where they see they're going to get a return from that investment. In the second half, we've got plenty of things that are on what I call the long list for investment, and we'll appraise those as and when they come up. So it's all very much looking forward. looking forward to investing in the second half to get there. I think the second point I'd make just overall is we did upgrade that operating margin metric. So we did have 16% to 19%, and we're now saying for the full year we'll be above 18%. So that should give people comfort that we're still investing, but we're doing it in a disciplined manner.

And just a clarification on slide 20, it's obviously providing that range on the net bad debts to TTV is very clear, but can you just on that bullet point three, you talk about paying for losses remain stable over the half and then paying out while you continue to season. It's just hard to sort of reconcile that comment with the numbers. So I just think maybe you can unpack that comment a little bit, please.

Yeah, sure, Tavis Gordon. I think that if you recall at the first quarter, we talked about losses and forecasting, and it was becoming increasingly difficult because on a cohort basis, your pay in eight is twice the duration. So you're starting to mix two products and... at a time where one was growing you know part seasoning whereas the others were the other product painful was pretty stable so hence why we've we've gone to more of an actual uh percentage of ttv which is you know avoids that apples and oranges piece so that's just the composition piece um what i would say is the pain for performance is is as as the wording suggests it's very stable very comfortable with the product um you know and we've been that frankly we've been calibrating pay-in-eight, pay-in-four and top-line growth to make sure that we are hitting the overall economics we want. So it's stable and we continue to calibrate on the margins to drive the outcomes we want.

So effectively what you're trying to tell us is that while there's a lot of growth and that's obviously driving losses on new business whether it be pay-in-four or pay-in-eight and that's what's driving that into the target range, that 1.84% that overall the performance is stable. There's more mixing that's driving up that loss rate.

Yeah, that's spot on. And I think the only add to that, so what you said is right, but the only add to that, Tim, is that if you recall, as we came into FY26, we had a very conscious new customer acquisition strategy, which Joe and the team have executed on superbly, and we've been growing new active customers at 10% year on year. So the new customer is probably the only add to what you've stated.

Yeah, okay. Thank you.

And your next question comes from the line of Phil Chippendale with Forward Minute. Please proceed with your question.

Good morning, Tim. Thanks for your time. Just firstly, on the second half guidance for cash every TDA to be broadly in line with the first half, clearly FX translation is going to be a headwind here. Can you tell us what sort of FX number you've assumed, or if I can ask that another way, If FX had been flat versus first half, what sort of difference would we be talking sort of half-on-half in dollar-million terms?

Let me run through how we see the FX, and you can tell me if it covers your question. So first half, 25. Average FX rate was about 67 cents. First half, 26, the average was about 67 cents. So, you know, similar like for like. So the first half, you didn't see a lot of impact on a half-on-half basis. No, Phil? Second half 25 average FX rate was again about 67 cents. As we see here today from January, the FX rate was about 70 and I think the forward points are about 70, 71 for June. So straight away you've got that sort of 3 to 4 cent difference if the forecast from the big four banks is appropriate. Three to four cents, I use the US earnings from half one, which was approximately 75, 76 million US dollars. If you do the sensitivity there, it's about $5 million on the numbers I've just given you. So we do have some US dollar calls in place. We put some hedging on in the first half, which will mitigate some of that currency risk. So I would say up to $5 million based on the numbers I've given you. And then you've obviously got to run your sensitivities for the currency moving more than that. Does that run through it for you?

Yeah, that's really useful. Thank you. And then just as a follow-up, just in terms of seasonality, I think Jonathan mentioned covered it off earlier, typically you see better revenue margins, particularly in the March quarter. But just from an OPEX perspective, is there anything we should be taking into consideration here that sort of is a bit of a drag in the second half to sort of bring us back to that flat number?

The main one will be, as we've been consistent in that we're not going to starve growing businesses. So the US has especially got great opportunities to drive growth into 27 and 28. And, you know, there's a number of initiatives which, you know, Joe and the team are looking at in our Q3 and Q4. You know, Q4 is certainly a spend quarter with back to school, you know, summer holidays, et cetera. So, you know, we are keeping, you know, certainly keeping the spend up to make sure that we, you know, can deliver in future years. Probably the best way to describe it. Okay. Thanks, guys.

I'll turn back in the queue.

And your next question comes from the line of Lucy Huang with UBS. Please go ahead.

Thanks, Jim Gordon. So I just have a question on TTV momentum coming into third quarter. I know you're quite confident on second half TTV going 40% plus in the US, but I think some of your payment peers offshore have called that there's been a bit of pull forward as spent into Black Friday. So just trying to see whether you can Give us some early trading trends as to whether you are seeing a bit of a slowdown in trading or whether that kind of mid-40s growth momentum is still continuing.

Yeah, thanks, Lucy. Look, we actually did put in the slides on the Outlook slide. We have actually given an indication of January US TTV performance. And the short answer to your question is no, momentum is still continuing. We're not seeing a slowdown or a pullback.

Oh, wonderful. Sorry, I must have missed that.

No, no, that's okay. It was just in addition to the slide. But we are explicitly saying that the momentum that we've seen in US TTV continues into January.

Yes, understood. And then just a piece on customer growth. Like, how are you thinking about the balance of driving new customers to the platform versus net bad debts? Because I think for us, customer numbers are a bit softer in the US. Like, you know, do you think there's scope to... re-accelerate ads, but that may come at a compromise to bad debts. How do you think about that balance over the next couple of quarters?

Yeah. Thanks, Lucy. So, look, it's the same dynamic as we've spoken about before. Driving net new customers is important, and I think 10% growth in new customers in the US, particularly driving those customers onto the platform ahead of our busy trading period of Black Friday, Cyber Monday, was really important. So it's about driving net new customer growth, but also then once they're on the platform, engaging them. And that's why we've given you more detail around the cohort analysis of more recent customers and how they're accelerating that engagement faster than customers who've been on the platform for longer. And then, yes, so having new customers on the platform will drive TTV, but we also need to balance new customers also typically bring slightly higher losses. And so the thing about, you know, the way that we manage customer growth is that we then season those customers quite quickly. And so it really is that balance. I might just see whether, Joe, is there anything else that you wanted to add in terms of customer growth and just what we're seeing in terms of where the demand is coming from perhaps?

Yeah, I would just say probably referencing some of the merchant expansion and partnership expansion, but also probably a reminder of how we think about the customer. It's a pretty low and grow strategy. So as we gain experience with the customer, We right-sized their spending limits pretty aggressively, so this way we'd limit exposure on that new customer growth. But ultimately, as you would see, particularly on slide 17, this is a seasonal business. We grew customers. For the first time in a while, H1 to H2 in 25, and that set us up for the seasonal back-to-school shopping. Again, we've had growth again in this season. So I would say we're actually feeling very good about the 10% growth in nearly 400,000 customers.

Thank you.

And your next question comes from the line of Suraj Ahmed with Citi. Please go ahead.

Hi. Can you hear me okay?

We can, Suraj.

Morning. Just a question on the U.S. NTM percentage. I understand it's quite a few moving parts, but 3.1% in the second quarter was a bit lower than we expected. Just trying to understand how we should think about this into second half within your guide, and also more importantly into FY27, because I can see the net benefits is increasing, but maybe revenue is a bit better. Yes, that would be quite helpful, because I think the transition to FY27 is what I'm thinking about. Thanks.

Yes, Siraj, it's Gordon. Look, we absolutely, as part of the conscious active customer growth in Q1 and Q2, we've been, again, very conscious that that does come with, to Joe's point, with higher initial losses, and then we manage and season that throughout the portfolio. So we do accept the slightly lower US cash MTM in the quarter to take that into account. And then we look to balance that and grow it as we go further. So in the second half, you know, you can expect that number to go up. And then, you know, that will then contribute to our full year, you know, meeting our full year range. So it is a conscious, you know, acceptance, if you like. And we expect that number to go up as we go forward.

So, Gordon, just clarifying. So, in the second half, even with the net bad that's going up, based on your slide, you're swooping in, because this goes up, right?

Yeah, you've got other tailwinds, though. You've got interest cost tailwinds, which contribute to that as well in the second half. That's right.

Yeah, and then just, I mean, if you're 27, I know it's a bit early, but keeping 3.8 to 4.2 would be a bit tough, given the US is growing this strongly, right? Is that fair?

We'll talk about 27, you know, I think at the end of the year is probably the best way to put it.

Okay. And just one quick thing. In terms of keeping it at 20%, maybe one for Joe, is that just a reflection of that maybe the economics is not as strong? Because the momentum in 4Q is quite strong, and it's saying let's keep it in. 4Q in 25 was strong, right? And you said let's keep it at 20%. Just wondering, you know, are you just managing for the losses being a bit higher, so let's keep it at 20%?

Thanks. Yeah, happy to jump in on that. Suraj, the 20%, I would say it's more of the shape of the portfolio than anything. We save pay in eight for our best customers, and we continue to refine that model. And we're continuing to just optimize across now what will be pay in two, pay in four, and pay in eight. So it's just an ongoing management of the book, more so that we're starting to see it level out now at that 20% threshold.

Siraj, it's Gordon. The other thing on your question on ETM, which I remiss of me not to state, is the other piece that we take into consideration is the gross profit and the dollar increase and the longer term there. So we do actively target customer growth and conversion And then the gross profit per customer or in the longer term is beneficial to us. We obviously have to calibrate that with the initial losses, as we've talked about. So it is a balancing game overall. And right now, you know, cash gross profit growth, you know, being at 33.5% year-on-year is very healthy. So it is a balance in terms of short-term versus medium-term, and that's probably something we look to there on the GP percentage.

So, yeah, so the GDP and the spend is strong. Got it. Thanks.

And your next question comes from the line of John Marin with CLSA. Please go ahead.

Hi, guys. Thank you. Just a quick clarification because I think it's pretty important. I think Gordon just said that there's about $5 million of impact from FX on that recent swing on the AUD USD. And I guess some of that is including the hedge that you have in place. Did I hear that correctly? I mean – Pretty important point.

No, yeah, slightly, I'll slightly amend that. So I think based on the numbers I gave you, so again, if you take the, I've just used the average of the FX forecasts to say, you know, they're forecasting 70, 71 cents a June. So again, you have to take a view on that. And I'm looking at it versus the average of this sort of the second half last year and saying that, you know, today's numbers would tell you there's about a 3% to 4% difference there. So on that, I've just used the sensitivity of the cash EBITDA. We live in the US in the first half, being at roughly $75 million. and that gets you to a number of sort of five to six million. We do have some hedges on. We bought some US dollar calls in the first half, and so that gives us some protection. It's not going to change that number materially, but if the currency gets a lot worse, obviously that protection would become more valuable to us. So I still think, you know, circa $5 million is probably the right way to look at it based on today's numbers. Again, you need to take your own assumption on FX forwards, but based on today's numbers, I think that's the best estimate.

Okay. Yeah, look, it's going to be substantial, and I think we've got to bake that in. But, okay, you also mentioned that your market performance in the first half was strong enough to help you think about, you know, being on your front foot in terms of growth investments in the back half. I just want to pick at that a little bit. And maybe just focusing on marketing spend in the back half and kind of thinking about what that dollar impact might be from the national brand, national advertising campaign that it seems you guys rolled out and what other investments you're thinking about when you say that.

Yeah, thanks, John. Maybe I'll just start by just clarifying, and then I'll throw to Jo just to give you some specific examples about how we're thinking about marketing and spend in the second half. But the marketing spend, including the brand campaign, would still come in under that same bucket of no more than half a percent of TTV. We obviously in the first half delivered underneath that. I think it was 0.4% of TTV in the first half, and that would include the spend on the brand that we refreshed and launched this week. Joe, did you want to add anything in terms of the second half?

Yeah, we continue to expand our partnerships on the merchant side, but I'll reiterate what Cynthia just said. We're conservative on just brand spend in general. You know, we look at the growing – share wallet that BNPL is taking within the U.S. It's a little bit under 2% of total and 6% of e-com. So there's significant headwinds in just customer adoption there. So I would say we're kind of taking a very pragmatic approach given the shape of the business. One exciting thing I think you'll see us push into is we have a new brand campaign that just launched. But that's to accompany kind of the non-discretionary everyday spend associated with paying two in my bills as we push deeper into the engagement model of that non-discretionary everyday American spend. So that's where our focus will continue to be.

Okay.

All right. Thanks, guys. And our next question comes from the line.

of where quo with bank of america please go ahead thanks morning all uh just one question from me uh sorry for the us uh you guys talk to seven percent revenue take rate at the portfolio level uh but if i'm just looking at the pay and a product the fees on the pay and a product looked higher than let's say paying for So I would have thought the revenue take rate on PayNate would be significantly higher. And then maybe if you can talk to just the net transaction margins on PayNate overall, take into account the revenue take rate and the losses versus the paying for product. Thanks.

Thanks, whereas Gordon, I'll joke and talk to you about some specifics, but you're right. 7% is the blended take rate. There's a few ups and downs in that depending on when customers repay and so forth, so hence why we guide to that number. And then in terms of the US, I guess on a go-forward basis, again, we still see that as the best forecast going forward. Joe and team will obviously toggle with Payne 2 and the schedule on that as we start to see momentum in that product. just like they did with Payoneer, to make sure that we're balancing those losses versus take rate versus MTM. So it's not static, is what I would say. It does develop as the product seasons. Joe, do you want to give a little bit more colour on that? That's probably the best way I can describe it.

No, I think you did a good job. I think the net out is we use the portfolio to attract and retain and engage our customer base. So it's important to us to have the flexibility across, you know, the quick everyday spends like groceries, paying two, paying four really help with that. Paying eight's a valuable tool for us in the longer duration, larger purchases. but not getting so far out with this customer base. But it continues to be something we manage very, very actively, you know, availability of customers. each product to make sure that we're optimizing the spend. And I'll maybe point back to our users are now up to 11 times per year with Zip, and we continue to push that forward. And having diversity of product options for our consumer is really important.

Got it. And if I can just ask a quick follow-up question. Not sure if you can disclose this, but it's just wanted to know about the loss rates the relationship between the different duration products so let's say a pain aid versus pain four would the losses be because you're lending it for double the duration would the losses be let's say double for paying forward and half for paying two is that how we think about it from a modeling perspective

Well, yeah, so we don't disclose losses at a product level, but we have given you what the AOV is and what the duration is. And as a general comment, yes, you will have higher losses on a pay in eight and lower losses on a pay in two. But beyond that, no, we don't give product level loss disclosures.

I think the other piece I'd just add, where is that spot on for Cynthia's comment, is I talk quite often about calibration. And I do it because... One of the conversations that, I know Joe's having these daily with his lending team and he and I talk about it every week. It's that calibration between losses, growth, new customers that we're constantly toggling. And with the payday product, we've just got one year under our belt of seasoning. So it's quite hard to sort of pick specifics there. It's kind of an always-on management technique, and it will be the same for paying too. So it would probably be a little irresponsible for us to try and give you more specific details More specifics than that, you know, maybe in years' times when these products are far more mature, we can. But right now, it's part of our sort of ongoing calibration.

Got it. That's clear. Thank you.

Thank you. And unfortunately, that is all the time we have for questions today. I'll hand now the conference back to Miss Scott for closing remarks.

Thank you. Look, I just want to say thanks, everyone, for joining us and for all of your questions. I know there's probably a few more questions, and we are probably going to see most of you in meetings over the next couple of weeks. But in the interim, if there's any specific questions you have, please feel free to contact Vivian in the first instance. Thank you.