Great. I would like now to hand over the webinar to Jamie. Please go ahead.
Thank you, Jackie, and thank you everybody for joining us this morning. I'm delighted to be presenting our second quarter results for the quarter that ended on December 31, 2025. As Jackie noted, I'm Jamie Twiss, the CEO, joined by Lavanya Pariyar, our CFO. We'll run through the numbers and the highlights from the quarter to start, and then we'll take questions at the end. As Jackie mentioned, you can type in questions at any time into the box that should be available on your screen. So I'm very pleased with the quarter that we just had and with the results that we've printed.
Those of you that have been following our story for a few years know that the second quarter of each year is where we traditionally see an increase in defaults, as a result of the holiday season spending that people do. And as a result, we do see that higher default rate compresses margins, so we see a lower profit number in Q2 very reliably every year. So it's happened this quarter, it happened last year and the year before as well. Because of that, what we tend to do when we look at Q2 to decide if it was a good quarter or not, is we look at two things. We look at top-line growth in the core business, and then we look at our progress on the strategic growth initiatives that we have underway.
I was very pleased with how both of those turned out. Lavanya will go through the numbers, in more detail, but we had an 18%, year-on-year revenue increase, which driven primarily by increases in the average advance size. And then we've had a number of, meaningful, wins and progress, steps on the strategic growth initiatives, which I'll come back to at the end. So I'm pleased where we're at overall for the quarter, and I'll hand over to Lavanya to talk through the core business.
Thanks, Jamie. So as Jamie said, we've had some progress on our revenue numbers, driven by the average advance size increasing to AUD 470, as an average number, which has grown 18% year-on-year. That has directly led to our advances increasing by 17%, up to AUD 240 million, which then has translated into our revenue numbers, which have grown by 18%, up to AUD 12 million. So as Jamie said, our net defaults are seasonally higher than the previous quarter, but as we would expect, at 1.85%. This has led through to our net transaction margin at AUD 5.9 million, which is pleasingly 22% up year-on-year.
So as our operating expenses, as you go through our P&L, has increased to AUD 5.2 million, and this is predominantly because of marketing expenses, as well as an increase in our salary numbers, which is because of growth in our business,
That's driven primarily by the investments in our growth initiatives, particularly around Carrington Labs and then the personal loans business as well.
That has led to AUD 0.3 million net profit before tax. I'll just hand it back to Jamie.
Yeah, so I think the numbers are very straightforward. It continues to be an easy business to understand. So the core business continues to perform well. If I think about where we're trading in the quarter that's currently underway, everything we're seeing is in line with the normal trends we would expect. So we do anticipate that number to come back down as the holiday season is now over. We'll see those margins normalize over time, and traditionally, Q3 we see a potentially slower growth number than Q2, but a better margin and profit number. So feeling good about where we are in terms of current quarter, which is trading in line with expectations. Now, on the strategic growth initiative side, it's been a very productive quarter for us.
We've had a lot of good news coming out of Carrington Labs. I'm delighted that we were able to announce another client win with Flexcar, which is a significant car leasing business in the United States. It's nice to have an automotive client, and it's a very sharp organization. We're really enjoying working with them. We also have a new partner that we're excited about, Sea.dev. So they work in automation and particularly around document automation in financial services. And so they're a great partner for us because they sit adjacent to Carrington Labs and the value chain. A lot of what they do is bringing data into a lending origination workflow, and so that obviously is a natural input point for us as well.
So really pleased that we're working closely with them, and we think that's gonna be very helpful for joint clients going forward. And then finally, and we did previously put out a market announcement about this, we launched an MCP Server, which is a way that will enable banks and other lenders who are building AI agentic AI workflows to integrate Carrington Labs tooling into those workflows as well. So a very productive quarter for Carrington Labs. We continue to feel quite confident about the prospect for that business. As Lavanya noted, our OpEx is up off the back of investing primarily in those growth initiatives. I think if we had known how well the Carrington Labs product was going to be working and where the demand would be, we probably would have made these investments even earlier.
But we've added additional resources to our U.S.-based team, and we've upped the tempo in terms of our activity there. So, feeling very confident about Carrington Labs and where that's at. And then on the personal loan side, which is a little bit the quiet achiever that we're just quietly growing and scaling in the background, we continued to ramp that business. We published the origination figures in the quarter. We'll continue to put out loans at increasing scale there. Those of you that look, compare last quarter to this quarter and do the math about the loans that we're issuing now will note that the average loan size for the personal loan has increased to about AUD 3,200 from the previous quarter.
Previously, we were capping loans at AUD 3,000 in 3 months. We've now started testing larger durations and larger volumes as well. I think we continue to feel quite optimistic about that, where that will get to. Very happy with how the core business performed, given the seasonality of Q2, and then really pleased with the progress on both personal loans and Carrington Labs, as well. Going forward, I think we continue to see blue skies ahead for all 3 parts of our business. As Lavanya noted, we are continuing to invest, and you will see that coming through on the OpEx line. Again, I think if we've known how well Carrington Labs in particular is going to go, we probably would have put more money into it earlier.
We think there's a very significant opportunity for us to capture, and we are going to make sure that we invest properly to capture that as well. So, to summarize, I think Q2, the core business performed in line with or actually somewhat better than expectations, and we're very pleased with our progress elsewhere in the business. With that, happy to take your questions.
Thank you, Jamie. Thank you, Lavanya. We will now move to the Q&A session. Once again, if you have any questions, please type them into the box on the screen. I see a few questions coming through. So Jamie, could you provide the quantum of Carrington OpEx, and when will you start publishing Carrington revenue?
Yeah. So on the OpEx, it's a little hard to fully disentangle it because we have a lot of people, such as the two of us, who work across both. I spend quite a bit of time on Carrington Labs, both representing the business in the United States and also hands-on with the tools, writing code, building models, and so on. If you look at the increase in OpEx over the course of the past year, most of that increase has been around building the integrated set of technology and tooling that powers Carrington Labs. It also powers personal loan business, and we're using it in the core business as well. So, we are getting a lot of mileage out of using that investment and that capability across the different aspects of our business.
So I can't quite say that that entire increase is all Carrington Labs, but directionally, the reason that, OpEx is up, you know, AUD 1.6 million over the past year, is because of the strategic growth initiatives and the work that we're doing around supporting them, particularly Carrington Labs. In terms of when we'll publish the revenue, this is a first-world problem to have. Because the core business is going well and growing quickly, you know, we're now approaching AUD 50 million annual run rates, in revenue across the entire group. The Carrington Labs revenue is still not particularly material, to the group as a whole. I think there'll be a point at which it makes sense to break that out separately.
I think we would, for now, tell people, you know, we've been, we've disclosed with the four clients that we're able to talk about at this point. I think you can safely assume that the revenue off the back of those itself is nothing really to write home about. In part, we're trying to kind of continue to get traction and get more reference clients and cases, and I think that's going very well. When it becomes material to the group, obviously, there'll be a point at which we need to break that out separately, but I don't think it'll be a very helpful number at present.
Okay, next question. Can you walk through your customers at Carrington Labs and what stage of launch they're at?
Yeah. So I think I'll talk about the customers that we've mentioned to this point publicly, and I'll talk broadly about where different ones are at. I don't want to go into too much detail about the business of each one and where they're up to and so on. But the customers we've talked about so far is Kiva, which is a kind of micro-business lender. Well, these are all based out of the U.S. Doc2Doc is a specialty medical lender. CCBank is a more sort of just, I want to say, traditional bank. They're quite a forward-thinking bank, but they're a U.S.-based bank. And then most recently, we announced Flexcar, the car leasing company.
I'd say they are at all different stages, from very early to fully live in production. And yeah, they're at all different stages. We find that also, sometimes clients will have sort of a one-off build for something that they need, and then they're using that. Does that feel live or launched or not? It can be a bit definitionally tricky, but we absolutely have a number of clients live in production today.
What do you now have in your pipeline, and how varied are the sizes of these potential customers and current customers?
So we have quite a lot in the pipeline. As I've said in the past, I think one of the things that we've struggled with is having, if anything, an overfull top of pipeline in particular. And so I think, you know, some of the investments we're making are to get people who can help us move those prospects through the pipeline. Particularly as you get into the middle of the point, you're doing a proof of concept, there's more technical work required, not so much on our side in terms of the model building, that's quite heavily automated, but in terms of helping the client understand the data they need to get to us and how they get it to us, and kind of working with them to go through that.
So there's quite a lot in the pipeline. It is quite varied. So we have some the largest banks in the world in that pipeline. And again, I'd never want to overpromise or imply as to what's going to land and when, you know. Large organizations of all kinds, and particularly banks, can be slow and have long sales cycles. But we have some very, very large banks. Well, the banks, we run all the way from the very, very top down to sort of the point at which you would say, actually, that's, you know, the cutoff there is more where it just becomes too small for us to think about. Certainly plenty of fintechs.
I think fintechs and kind of, sort of newer startup lenders of various flavors are good clients for us. They have clean data stacks, they kind of get why this stuff, why this stuff is important. We are having a number of discussions in kind of different types, types of specialty credits. I think one of the things that Carrington Labs is really good at is if you have a customer base or a product that is just not kind of that very middle-of-the-road vanilla product or customer, then traditional approaches, which are very generic, really are not very helpful for you. So, you know, the specialty medical, I think, is a good example of that.
We are still focused primarily on the United States, but I think when you do work in the U.S., you also start to have conversations in Canada. On a selective basis, we are having conversations in other markets as well, and we're conscious of not wanting to spread ourselves too thin, but it's an opportunity-rich environment, and it's a very broad and diverse pipeline. We just need to make sure we invest appropriately the resources to get them through to close.
Good. We have another question here on Carrington Labs. "So with the recent appointment of an SVP Head of Revenue, does this signal that Carrington Labs is now scaling rapidly and generating significant revenue?
So first of all, I'd like to compliment whoever asked that question for picking up that we have indeed appointed a senior sales lead in the U.S. We already had sales resources on the ground, but we've brought in a heavier hitter to come lead that team, and I think feel good about that, that hiring. There's good, there's good progress there. I think... Yes, the answer is yes. The only part that causes me to hesitate is when you say significant revenue, because significant could mean different things. I don't want to overstate the actual revenue coming in the door right now. It's not nothing, but, you know, as I said earlier, it's not material to the overall group.
So I don't want to mislead on that front, but I think you can see that hire as both an expression of the level of activity that we're trying to kind of support and service already, as well as our confidence in what that will look like going forward.
So you have another question here. "Assuming all goes to plan, where do you see Carrington Labs in terms of revenue to the overall group in 12-24 months?
12-24 months. Again, it's first world problem that the core business continues to grow strongly, and I think as personal loans start to kick in, you know, that'll, that'll be another leg of growth as well. So it's a little bit of a moving target, as the core business continues to grow as well. I think if you think about kind of, the sales cycles for the large banks that will generate very meaningful contracts, they are slow. So if you're really only looking 12-24 months out with clients live in production, you know, you're not going to be sort of, like, a very meaningful portion of the group from a, from a revenue point, at that point.
If you're asking sort of longer term, kind of, where can Carrington Labs get to kind of a bigger, core business, then again, without making a forecast or overpromising, of course, it can. The scale of the global financial services market, the value created by a smarter approach of lending, the head start that we have on, on this capability is tremendous. I never want to overpromise on the timeline. As I've said, as I've said a number of times, these are slow sales cycles. If anything, you know, we've been living kind of, you know, 18 months in the future at times, and we find that, some folks are just now starting to understand what it is that we even do.
From a competitive point of view, that head start has been tremendously helpful, and I think will continue to be so. But I don't want to overpromise on timeline, but the potential, absolutely, yeah, I think, I think the where we are putting our time and resources and our focus is a very credible signal that we are very confident in the opportunity.
That's great. Okay, you have another question: "So for existing Carrington Labs customers that are fully live, how does their usage of the product stack up? Example, Plenti's NAB auto loan product has taken longer than the market expected to get traction. So how should we think of uptake of these products, given large companies can be slow movers?
Yeah, I think, they can be. And the truth is, small companies can be slow movers as well, depending on the nature of what they're doing. And it is... I mean, it's not a, it's not a complicated product to use, but what Carrington Labs does is it gives you a better way, usually supplementing, not replacing, but, but it is a better way to do something that is at the very, very core of what it means to be a lender. So, you know, we really are running a wire into the brain of the organization, and that's, that's something that, quite rightly, clients kind of want to get their heads around properly. So, clients can be slow to get through that sort of decision-making selection process, and then, depending on their tech stack...
They can be slow to just actually do the integration and stand things up. It's not hard to use, you just have to call the API, but they may have to do data work on their side, and they have their own risk checks and diligence and things to go on. So again, if you ask me over the long term, kind of like, will the folks that we're talking to, will we see a number of them, you know, successfully convert and get live into production at volume? I think the answer is yes. I just find anytime anybody predicts how quickly a large bank is going to go from an idea to something fully live in production, the odds are you're, it's gonna take longer than you've guessed.
I never wanna overestimate or overpromise on the speed of some of these opportunities.
Your next question is: Are you seeing new competitors to Carrington Labs with the hype around AI?
Yeah, good question. Sort of. So I think there is a lot of hype around AI, and there are a lot of kind of firms that have sprung up out of nowhere, claiming they're gonna do something amazing with AI for financial institutions of various stripes. A lot of those are, again, potential partners, people that could sit adjacent to us in the value chain. People are gonna, you know, aggregate data more effectively off unstructured sources, or people are gonna create new data sources based on whatever. And that's not a competitor, that's actually, if anything, a good thing for us. In the core of what we do, credit decisioning needs to use deterministic statistical approaches. You're...
I don't think even if you felt confident in it, which I don't think anybody would, from a regulatory point of view, you're never gonna be able to use any kind of neural network-based LLM style, black box, kind of unpredictable, approach, just actually decisioning loans. So, I think a lot of folks are kind of like dancing around saying, "AI, AI, AI." I think those of us that have been doing this for a while and are kind of serious about actually, making loan decisions at scale, continue to use machine learning-driven, kinda, usually gradient descent, algorithms. So, a lot of activity, I think the core group of people that actually work on this stuff continues to be a pretty small crew of people who are able to do it.
Your next question: Can you outline the benefits that Carrington Labs customers are seeing when using its loan approval process?
So, you know, whitens teeth, freshens breath, about 60% see weight loss in the first four weeks. In addition, really, the benefits fall into a couple different categories. The thing that's most compelling to most lenders is higher approval rates. So a very meaningful portion of the population either has a thin credit file or no credit file, and so they apply for a credit card, and there's just no way to make a decision on that person, and they're declined. We can absolutely decision that person, and we will do so more effectively than if they had a credit file. That is a tremendously appealing opportunity for most lenders.
A second benefit that I think is actually more significant, if anything, but often is not as well understood, is one of the Carrington Labs products is called a credit offer engine, and essentially what that does is that looks at historical lending data for that lender. It's custom to their product segment, and it builds an elasticity of default curve with reference to the configurable elements of a loan offer and maps that into a multidimensional customer value curve.
That's a fancy way of saying that it models out what's gonna happen based on different things you could offer that customer and tells you the best one to offer, based on kind of like, you know, if you give this person $10 or $20,000, how likely are they to use it, to default, and so on. That has tremendous value in increasing the assets on the book. We would identify as most customers actually could safely and responsibly borrow more. A few should get declined, a few should get less. So the actual balance increases for already approved customers are quite significant. And then the third category, of course, is reduction in defaults. It just gives you a sharper point of view on a customer's risk.
Most lenders have quite conservative risk settings, far more conservative than they realize, I think, once you actually look at who they're lending to and how much they're lending. So many of them don't really kind of focus on that. They're pretty happy with that, but they are excited about the growth. But of course, you know, if economic times tighten and those defaults go up, then, you know, in good times, people are focused on growth, in bad times, are focused on bringing defaults down. Carrington Labs product is very supportive of both.
Okay. Your next question: In terms of the bank customers, how is their uptake of the products? Are the products core or rather agency adjacency cross-sell products for their banks to their existing customers?
So if I understand the question correctly, I think the way to answer that is that this is very much a sale to the bank itself. That is generally not gonna be something the customer knows or cares about. So, the bank is not gonna be reselling our product to a customer or really in any way, kind of exposing them to it, except from a, you know, data, potentially a data collection point of view. The way to think about it is, if you're a bank, let's say you issue credit cards, you currently have a way that people apply, and you make a decision, yes or no, and you decide what limit to give them. We will supplement that with or potentially replace the whole thing, if that's what, you're in the mood for.
We'll supplement that with a much sharper view of that individual's risk. We will look at a much wider factor. You know, we'll look at kind of behavioral indicators, we'll look at kind of historical kind of approaches to the cash flow management. We'll look at kind of, you know, kind of red flags around kind of income volatility and, kind of, potentially personal stability issues. We'll give you a much sharper view on risk.
There'll be some customers where we say, "Actually, that person looks fine from a credit file point of view, credit score is good, but don't lend to them." Much more frequently we say, "This person doesn't have a credit file or doesn't have good credit, but actually they're fine, you can lend to them." And then we will also have a much more rigorous way of helping you understand what the appropriate amount of credit to offer them is. So as a bank, you'll be able to say yes to more customers, and generally, have higher average balances with a lower overall default rate.
Now we're going to shift to a Personal Loans question. Are Personal Loans only offered to existing Pay Advance clients? What is the near-term strategy to expand the distribution of Personal Loans?
Great question. So currently, yes. So currently, we are focusing personal loan distribution on our current clients, and the reason for that is we just understand those clients very well. We have hundreds and hundreds of thousands of them. We understand their risk well. We have previous repayment behavior, so it's a, it's a natural place to start. And we do see a very large portion of the personal lending market, already given the size of the user base. I think over time, we will certainly look at offering that to, new-to-group customers. And the obvious reason for that, of course, as our, personal loan, average sizes increase, it'll just... That's going to be a different customer base for us over time.
Right now we find that the top of our Pay Advance user base is also perfectly suitable for, you know, AUD 3,000 and AUD 5,000-dollar loans, but there'll be a point as we get to kind of AUD 10,000 and AUD 20,000-dollar loans, we're going to be really looking at a different category of customer. As we get there, and we will get there as we feel comfortable with that from an operational and a credit standpoint, of course, we will start to open that up to new-to-group customers as well. We'll do that when, as and when we're ready, but we will do that.
Where do you see your operating expenses going forward? Will they stay at these levels, or increase, or decrease?
So, feel free to jump in if you have a different view on this, Lavanya, but I think there's always a little bit of just quarter-on-quarter volatility, particularly off the way that we do our marketing, which is very much kind of results-based, where when marketing is productive, we put more money into it, or it's less productive, we pull back. So there'll always be a bit of bouncing around, with that, and then a few other things, as well. More broadly, I think we expect that our current growth initiatives that are working today, and we expect them to continue to work and become material contributors to the value of the group over time. And as they do so, of course, we will continue to support those as well.
We obviously feel the accountability for delivering the value off the back of that increase in operating expenses. And so what I think I can say is it's not our intention to, you know, grow operating expenses in a way that isn't clearly generating value for the group. We have a very rigorous way of thinking about ensuring that any dollar that leaves this building, which only happens grudgingly, is going to come back with a friend. So, I think operating expenses, to the extent they continue to increase, will increase as a result of clear value creation in the, in both the core business and our new initiatives as well.
Given that we're a people-based business, it makes sense that our people costs would increase as we grow the business, and so we've had that step change in terms of being able to prepare ourselves, both for the Personal Loans and for Carrington Labs. And so with, again, kind of having that step change, but not expecting it to grow exponentially while we wait. So we're, we're pretty comfortable that we're on top of our operating expenses.
Yeah. If, you know, when we have 50 Carrington Labs clients, then we will be spending more on Carrington Labs, of course. I think we will absolutely reinforce success as it comes.
Now, question on the share price. The stock sold off yesterday. Is there a notable seller in the market that you know of?
We don't pay a huge amount to the day-to-day systematic stock, but we haven't seen anything. Obviously, the market as a whole kind of up and down.
We're coming to our last question. "Jamie, congrats on another very good quarter. I would like to know when you will be a billion-dollar company in terms of market cap. Thanks.
Right. So at the current share count, we'd need to get to about AUD 19 and change, I think. So yeah, that's a great question. If anybody out there knows the answer to that question, please just send through an email. We'd also be very interested to hear that as well.
Thank you, Jamie. That concludes the Q&A session. I will now hand back to Jamie for closing remarks.
I think... Again, thank you all for joining us. I know many of you have been on this journey with us for quite some time now, and it's been a, it's been a pleasure to, you know, continue walking this road with you. We continue to feel very confident about the future of this business. I think the core continues to fire on all cylinders. I think, again, we never want to overpromise on, on, on timelines, but we can just see one step in front of the other on personal loans and on Carrington Labs, and I think great days are ahead of us. So thank you all for being shareholders, and look forward to seeing you at the half year at the end of February.
Thank you, Jamie and Lavanya. To all the participants, you may now disconnect.