Announcement PDF Investor Presentation H1 FY24 Results 28 February 2024 Delivering innovative & scalable payments solutions Payments solutions provider driving innovation in the u Change leverages innovative and scalable technology to provide tailored payment solutions, card issuing and testing to 150+ banks & fintechs across 40+ countries u Two core products in the banking & payments ecosystem – Vertexon & PaySim banking ecosystem Banking as a Service Payment testing Payments as a Service Physical & virtual card issuing 2 Transaction processing for all major card schemes Digital payments (Apple, Google & Samsung Pay), BNPL Full payment simulation ATM & POS emulation 67% 33% of H1 FY24 Revenue of H1 FY24 Revenue Visa, Mastercard, UnionPay, Amex, JCB validation H1 FY24 Summary Successful validation and de-risking of Vertexon PaaS ALL building blocks now in place Completed ALL necessary regulatory and licensing requirements for issuing in NZ, US & AU NZ: material de-risking of the business with the PaaS platform fully operational US: PaaS platform live with initial card programs in pilot phase platform; focus now AU: achieved Mastercard certification, first clients expected to launch imminently shifted to accelerating Currently 19,000+ cards on the platform (across NZ & US) sales Focus on driving new sales Clear organisational focus on accelerating new client wins Leverage emerging foothold in NZ market given marquee clients AU and US market activity increasing following launch of Vertexon platform in region Convert PaySim and Vertexon sales pipeline opportunities to new clients wins Improving financial profile H1 FY24 revenue of US$4.5m (A$6.9m), up 5% on pcp (minimal PaaS revenue contribution) H1 FY24 EBITDA loss of US$0.7m (A$1.1m), a 31% improvement on pcp Meaningful improvement driven by modest revenue growth & stable fixed cost base (4% down on pcp) – capable of supporting material revenue growth with minimal fixed cost increase Positive outlook Stable existing client base coupled with increasing transactional revenue from signed PaaS clients Remaining c.60% of cards from NZ financial institution clients expected to be issued in H2 FY24 (estimated to contribute annualised revenue of US$2.1m+ once all cards migrated) Targeting to achieve monthly EBITDA positive and cashflow breakeven run rate by June 2024 3 AUD/USD = 0.65 (A$ amounts are converted for representation purposes to assist the reader) H1 FY24 Financial Results Financial Dashboard Revenue (US$m) – H1 vs H2 Revenue growth and stable cost base driving $8.3m improved EBITDA $6.3m EBITDA (US$m) – H1 vs H2 $8.7m FY21 4.4 4.5 FY22 (1.2) FY23 (0.2) 4.2 $(1.3)m FY21 4.5 4.3 3.8 2.1 FY22 FY23 (1.4) H2 FY24 H1 FY23 H1 FY23 2% 1% Latin America USA 17% 42% 33% 5 $(2.5)m H1 FY24 Oceania Rest of World H1 H2 Revenue by Service Offering (%) SE Asia 4% (0.8) $(2.6)m Revenue by Region (%) 4% (0.7) (1.1) (1.7) +5% FY24 24% 21% H1 FY24 Licence Maintenance & Support 5% Professional Services 11% Other 10% 29% 47% 3% 26% 64% 56% Profit & Loss Well positioned to scale Profit & Loss Summary the business incurring (US $000's) H1 FY24 H1 FY23 Var % Revenue COGS Gross Profit 4,472 4,472 4,280 4,280 4.5% n/a 4.5% Employee expenses Program expenses Professional services & insurance Technology & hosting Other expenses Operating Expenses (3,175) (207) (552) (696) (507) (5,137) (3,140) (315) (547) (922) (423) (5,346) 1.1% (34.3%) 1.0% (24.5%) 19.9% (3.9%) (734) (1,066) (31.1%) D&A Finance costs PBT (764) (13) (1,442) (623) (60) (1,748) 22.6% (77.9%) (17.5%) Tax NPAT (91) (1,533) (216) (1,964) (57.8%) (21.9%) only minimal incremental costs given core capabilities across client onboarding, fraud management, risk, compliance and treasury now in place EBITDA Note: H1 FY24 EBITDA excludes $69k of interest included as Revenue in the Appendix 4D statutory accounts Key Comments H1 FY24 revenue of US$4.5m (A$6.9m1), up 5% on pcp Modest growth driven by professional services revenue from existing clients Minimal Vertexon PaaS revenue generated in H1 FY24 PaaS revenue, particularly from NZ clients, expected to meaningfully contribute to revenue in H2 FY24 Processing & Issuing (P&I) by clients on the Vertexon PaaS platform has added ‘COGS’ – currently included within Program expenses Moving forward COGS will be shown as a separate item as they become more meaningful Operating expenses down 4% on pcp Ability to add material revenue growth whilst keeping fixed cost base relatively steady (albeit COGS will increase as volumes increase) Employee costs in line with pcp despite additional capabilities introduced for card issuing Technology & hosting costs down 24.5% on pcp primarily due to hardware purchased for resale to clients in pcp 6 1. AUD/USD = 0.65 (A$ amounts are converted for representation purposes to assist the reader) Revenue model transition – financial benefits to be seen in H2 FY24 Vertexon – Old Revenue Model Transitioning from Vertexon – New Revenue Model Licence Processing Processing & Issuing (P&I) On premise solution – client responsible for card issuing Cloud hosted – client responsible for card issuing Cloud hosted – Change responsible for card issuing Upfront licence fee in perpetuity with ongoing S&M (20% of licence fee p.a.) Volume & transaction-based fee revenue Incremental volume & transaction-based fee revenue + other revenue (e.g. interchange) licence & project fee revenue model to a PaaS revenue model Minimal volume related fees One – Off Recurring Revenue Streams – Vertexon + PaySim 7 1. 2. H2 FY24+ Trend (% Total Rev) 56% ↓ - ↑ Revenue Type Model Type Support & Maintenance (S&M) Licence • Existing clients on ‘licence model’ - equal to c.20% licence fee p.a. • % of total revenue will fall over time as SaaS revenue grows Processing or P&I • Recurring monthly / annual charges • Potential for material revenue growth as processing, transaction volumes, cards on issue & spend increases • Transitioning existing ‘licence model’ clients to PaaS will drive revenue uplift Licence • Upfront one-off licence fees • Existing clients charged licence fee for additional features 10% ↓ All models • Implementation, new products, features, upgrades, client requests • % revenue may fall slightly, albeit will form base reflecting consistent new wins 29% ↔ Volume & Transactional Revenue (PaaS)1 Licensing Implementation & Projects Description H1 FY24 Revenue %2 Minimal PaaS revenue was recorded during the period and will be present from H2 FY24 onwards Additional 5% of revenue was earned from Other revenue streams Balance Sheet Material investment in Vertexon PaaS platform during the period to enable go-live in core target markets Balance Sheet (US $000's) Dec 23 Jun 23 Cash & equivalents Receivables Current tax asset Other current assets Current Assets Intangibles Deferred tax asset Fixed assets Other non-current assets Non-Current Assets Total Assets Payables Contract liabilities - current Employee provisions Other current liabilities Current Liabilities Contract liabilities - non-current Other non-current liabilities Non-Current Liabilities Total Liabilities 3,152 1,674 132 628 5,586 6,652 108 283 487 7,530 13,116 (902) (2,872) (1,164) (118) (5,056) (1,022) (129) (1,151) (6,207) 5,351 2,121 849 8,321 6,343 103 209 325 6,980 15,301 (1,294) (3,291) (1,060) (121) (5,766) (1,007) (91) (1,098) (6,864) Net Assets 6,909 8,437 8 1. AUD/USD = 0.65 (A$ amounts are converted for representation purposes to assist the reader) Key Comments Cash balance of US$3.2m (A$4.9m¹) Excludes additional cash backed security guarantees of US$0.5m (A$0.8m) Other non-current assets are security guarantee requirements of Change’s scheme and processing partners to enable PaaS offering Intangibles represent the carrying value of software including capitalised development costs Deferred income of US$2.9m (A$4.5m) represents maintenance, service fees and project fees invoiced in advance of the service being provided - will be recognised as revenue over next 12 months as work is delivered Other non-current liabilities includes US$1.0m incentive payment received in June 2023 from Mastercard Will be progressively recognised as revenue in future periods as various transaction related milestones are achieved now that PaaS clients are live in Oceania Cashflow Continued investment in core products, particularly Vertexon, to deliver future revenue growth Cashflow (US $000's) H1 FY24 H1 FY23 Receipts from customers Payments to suppliers / employees Other Operating cash flow 4,362 (5,421) 8 (1,052) 4,607 (5,378) (223) (994) Payment for plant & equipment Investment in software Receipts from sub lease Receipts (payments) for security deposits Investing cash flow (20) (994) (162) (1,176) (1) (691) 45 (646) Proceeds from share issue Proceeds from (repayment of) borrowings Cost of funding Lease liabilities Financing cash flow (48) (48) 3,867 (488) (325) (59) 2,996 5,351 (2,276) 77 3,152 1,501 1,356 (57) 2,800 Opening cash balance Net increase (decrease) in cash held FX adjustment Closing Cash Balance Key Comments Cash receipts of US$4.4m (A$6.8m¹), down 5% on pcp Decrease primarily attributable to delayed invoicing of several key clients (due to client processes) – invoices issued in early January with payment expected to be received in H2 Cash receipts expected to smooth over time as PaaS clients go-live (will invoice monthly in arrears) Cash payments to suppliers / employees of US$5.4m (A$8.3m), broadly in line with pcp Key competencies added to the business for card issuing with new hires in fraud management, compliance and onboarding Additional costs incurred in relation to scheme costs for PaaS platform go-live in NZ, US and AU; transaction costs for PaaS clients and partial overnight settlement funding (pending completion of funds flow automation) Software investment relates to capitalised software development primarily on the Vertexon platform Investment in software expected to moderate in H2 with the PaaS platform live in core target markets H1 is typically a higher cash usage period relative to H2 – H2 operating cash outflow expected to materially improve over H1 9 1. AUD/USD = 0.65 (A$ amounts are converted for representation purposes to assist the reader) Key Achievements Metrics Significant progress migrating NZ financial institution clients and cards to Change After a significant period of investment, Change now has live Key milestone and driver of early growth in PaaS metrics clients processing and Auckland Credit Union and Police Credit Union have completed migration of all cards to Change issuing on the Vertexon PaaS platform Remaining c.60% of cards expected to be migrated throughout remainder of FY24 US clients Rolling Thunder and PlutusM now with live cards issued – following pilot, targeting public release imminently Total Cards on Issue 21,000 18,000 15,000 12,000 9,000 6,000 3,000 - Monthly Transactions Processed Monthly Transaction Volumes (US$m1) 180,000 160,000 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 - 140,000 120,000 100,000 80,000 60,000 40,000 20,000 Oct '23 1. Nov '23 Dec '23 Jan '24 Feb '24 (as at 23 Feb) Oct '23 Transactions are denominated in local currencies and have been converted to USD, Change’s reporting currency, for reporting purposes. Nov '23 Dec '23 Jan '24 Feb '24 (as at 23 Feb) Delivering on Key Milestones Clear and focussed operational roadmap to deliver shareholder value 1 Shared Success & Growth Transition NZ card programs to Change which will drive transactional revenue growth – IN PROGRESS 19,000+ cards issued to PaaS clients with migrations expected to continue throughout H2 FY24 Onboard US clients – IN PROGRESS Rolling Thunder’s Latin Pay and PlutusM – have been issued live cards Drive new client wins by leveraging Vertexon and PaySim technology and partner ecosystem – ONGOING FY24 FOCUS H1 Vertexon Client Wins: HealthNow (NZ & AU), Simply Zibra & Fintech Actuator (AU), Onni (US), advanced stages of scoping a significant project with an existing on-premise client to expand product partnership with Change (SE Asia) H1 PaySim Client Wins: four new licence sales plus additional module sales 12 Delivering on Key Milestones (cont.) Clear and focussed 2 operational roadmap to Operational Excellence Achieve go-live for NZ EFTPOS acceptance – COMPLETE deliver shareholder Strengthen core operations and capabilities – compliance, security, fraud & transaction monitoring – COMPLETE value Now well positioned to scale the platform, incurring only minimal incremental fixed costs as client base grows Continue working with existing Vertexon on-premise clients to upgrade or migrate to PaaS – ONGOING FY24 FOCUS Upgrades or migrations will also drive substantial operational efficiencies for Change 3 Market Leading Solutions Mastercard technical certification in Australia – COMPLETE Australian BINs now live Mastercard debit card issuing approval in the US – COMPLETE Launch latest version of Vertexon PaaS platform in US market – COMPLETE Undertake PaySim modernisation program (UX/UI improvements) – H2 FOCUS Program is expected to increase lead generation and improve sales conversions, particularly in FY25 13 Outlook H2 FY24 Operational Milestones Clear and focussed 1 operational roadmap to Shared Success & Growth Complete migration of NZ financial institution client cardholders to Vertexon deliver shareholder Targeting to have 40,000+ cards on the NZ platform by June 2024 value Complete onboarding of contracted US clients to progress from pilot to public release Launch first contracted card programs in AU Continue to work with existing clients to drive mutual value – project work, increase PaaS volumes, etc. Drive new client wins by leveraging Vertexon and PaySim technology and partner ecosystem Hire a Chief Commercial Officer (CCO) with deep sales and marketing experience across the fintech / payments landscape 2 Operational Excellence Rationalise Vertexon on-premise versions to improve efficiency and reduce operating overhead Automate settlement and reporting processes including funds flows and reconciliation Continue to bed down and refine core PaaS operations and capabilities as client / card numbers and volumes increase Well positioned to scale the platform and operations 3 Market Leading Solutions Complete digital tokenization and certification to roll out Apple Pay & Google Pay to PaaS clients Complete native SDK and API development including enablement of dynamic CVC and spend controls Undertake PaySim modernisation program (UX/UI enhancements) 15 Investment Highlights Following a significant period of investment, Building Blocks Now In Place Entering Growth & Scale Phase Completed all regulatory and licensing requirements for card issuing via Vertexon in NZ, AU & US Australian Financial Services Licence in in AU & Financial Service Provider in NZ Issuing bank partner in US (Axiom Bank) Global relationship with Mastercard H1 FY24 revenue of US$4.5m (A$6.9m) Additional US$2.1m+ annualised PaaS revenue to build over H2 FY24 from already live & migrating clients Stable fixed cost base able to support material increase in new PaaS revenue Targeting monthly EBITDA positive and cashflow breakeven run rate by June 2024 Early validation of PaaS platform via several key customer wins in Oceania Long-term relationship with two of the largest banks in the Philippines 5 of the top 10 digital payment companies globally use PaySim for payments testing¹ Product Offering Long-term Contracts Market Tailwinds Vertexon: leading card management system for processing & issuing PaySim: default standard for eftpos testing in Australia. All participants must use PaySim to validate their technology and systems Longer term client relationships with initial contract terms typically 3-5 years Given critical nature of service provided, challenging to switch from Vertexon Continued move towards digital payments as cash usage declines High barriers to entry to become card issuer with extensive regulatory and licensing requirements providing a strong moat for Change Marquee Customers Change is entering the commercialisation phase with a strong focus on growth and scale 16 1. https://www.emergenresearch.com/blog/top-10-leading-digital-payment-companies-in-the-world Appendix Vertexon in the payments process Change’s role in the payments process depends on the region, client type and services provided u Processing: An Issuer (Change’s client) using the Vertexon Platform (technology only) to manage their cards – client is the Issuer and cards can be issued on any card network supported by Vertexon 1 u Processing & Issuing (P&I): A client using the Vertexon Platform (technology) to manage their cards with Change as Issuer (regulatory & licence) – Change is the Issuer and cards are issued on the Mastercard Network 2 3 2 3 Transaction submitted – merchant acquirer asks card network to get authorisation from the issuer (i.e. customer’s bank) Change (as Issuer) 1 5 Acquiring Bank (Acquirer) Merchant 5 Issuing Bank (Issuer) Card Networks 5 Processing: Authorisation requested – card network submits transaction to issuer for authorisation P&I: Authorisation requested – card network submits transaction to Change (as Issuer) for authorisation Processing: Authorisation response – using Vertexon Platform issuer authorises the transaction and routes the response back via the card network and acquirer P&I: Authorisation response - using the Vertexon Platform Change (as Issuer) authorises the transaction and routes the response back via the card network and acquirer Processing: Settlement – card network debits the issuer and pays the acquirer who in turn makes payment to the merchant 5 6 6 P&I: Customer pays with a Change issued Mastercard & purchases goods/services from a merchant Payment authenticated – the merchant point-of-sale system captures the customer’s account information & securely sends it to the acquirer (i.e. merchant’s bank) 4 4 Processing: Customer pays with card (all card networks supported) & purchases goods/services from merchant P&I: Settlement – card network (Mastercard) debits the issuer (Change) and pays the acquirer who in turn makes payment to the merchant 18 Cards can be physical and virtual cards (inc. Apple Pay, Google Pay, etc.) available via Vertexon Vertexon product offering Vertexon offering can Processing Processing & Issuing be tailored by client to Overview • Provide core technology to enable card issuing and management including: o Transaction processing o Card management o Fraud monitoring o Digital and virtual cards o BNPL functionality • Platform offers innovative processing capabilities to rival the major banks in a capital efficient manager (Change responsible for PCI DSS compliance, hosting etc) • Client responsible for card issuing – client holds the necessary scheme and regulatory licences • Provide Processing capability + the following key card Issuing capabilities: o Card design and production o Card issuing o AML / CTF o Settlement and reconciliation o KYC & Onboarding • Change responsible for card issuing – Change holds the necessary scheme (Mastercard) and regulatory licences (i.e. AFSL / FSP / Issuing Bank Partner) Cards Supported • Prepaid, Debit and Credit • Prepaid and Debit Target Clients • Banks & financial institutions • Large entities with direct issuing capability • Migration of key existing Vertexon on-premise clients • Mid / Small banks & financial institutions incl. credit unions • Fintechs and corporates • BIN sponsorship (Australia & New Zealand only) Regions • Global - processing does not require scheme or regulatory licences • Australia, New Zealand and the US offer services that best suit client and end customer needs Supported Schemes 19 Vertexon issuing capabilities Change has completed all necessary regulatory and licensing requirements to enable card issuing in Australia, NZ and the US All regulatory and licensing requirements Change can now issue debit and prepaid cards in Australia, NZ and the US for card issuing in Mastercard Principal Memberships in Australia and New Zealand enables Change to offer BIN Sponsorship in these regions Australia, New Zealand Enables clients without local issuing capabilities to access Change’s principal issuing status with Mastercard to issue and manage prepaid and debit cards and the US are now in place Also provides an efficient and cost-effective solution for clients looking to expand their service offerings in the region 1. 20 Regulatory Licence Mastercard Issuing Licence Mastercard Certified Processor Mastercard Prepaid Issuing Mastercard Debit Issuing¹ New Zealand Registered FSP Licenced Certified Live Live Australia AFSL Licenced Certified Live Live United States Issuing Bank Partner Licenced Certified Live Approved Debit issuing requires a partner bank (US) or clients to be a licensed deposit taking entity (NZ & AU) PaySim: critical payments infrastructure testing tool Software facilitates remote testing without the need for physical devices such as ATMs & POS u Simulates the full transaction lifecycle, enabling banks & fintechs to complete end-to-end testing of their payment platforms, processes & scheme rule compliance u Enables financial institutions to test their payment systems to meet the reliability & performance expectations of their customers terminals Licence Model Growth Strategy Description Revenue type Licences Additional Modules SaaS Model Maintenance New licence sales to New licence sales for c.20% p.a. of licence new clients additional features & module sales One-off upfront One-off upfront Recurring Monthly Subscription Key benefits of SaaS solution for client All in monthly subscription fee u Reduced capex Recurring u Access to new features & updates as they are Target clients Primary sales channels 21 New banks, financial institutions & fintechs Partnerships (e.g. EFTPOS mandate), resellers & direct Existing clients Direct & retargeted marketing - - New banks, financial institutions & fintechs Partnerships (e.g. EFTPOS mandate), resellers & direct released u API & cloud focused solution (improves scalability) Disclaimer Change Financial Limited ASX: CCA Important Notice This presentation has been prepared by Change Financial Limited (Change Financial) in good faith. 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Such forwardlooking statements only speak as at the date of this announcement and Change Financial assumes no obligation to update such information. 22 Thank you. Get in touch investors@changefinancial.com