Tyro, which counts Mike Cannon-Brookes’ Grok as its top shareholder, swings to profitability

The takeover target, which counts Mike Cannon-Brookes’ Grok as its largest shareholder, has posted positive free cashflow for the first time since going public.

Potentia takeover target Tyro has posted its first set of profitable results since 2015, with the payments outfit reporting record earnings and achieving positive free cashflow for the first time since it became a publicly listed company.

Tyro, which was rebuffed by Westpac after early discussions about a takeover in December, lifted its earnings before interest taxes depreciation and amortisation a whopping 600 per cent to a record $19.5m for the six months to December 31, from $2.8m a year earlier.

The profit for the group compared to an $18.1m loss in the prior corresponding period, while it posted interim positive free cash flow of $600,000.

Tyro chief executive Jon Davey attributed the strong turnaround to an increased focus on growth, cost management and delivery excellence, as well as inflation.

“The highlight of the result was probably the statutory net profit of $1.1m, and positive free cashflow of $600,000, which is the first time Tyro as a listed company has delivered a profitable result,” Mr Davey said in an interview. “It was driven by merchant growth of 9 per cent; and we’ve really started to push up our loans and lending in the banking side of the business.

“We’ve seen a strong start to the year and as yet no discernible change to discretionary spending by consumers. So overall from our perspective it’s been a pretty positive first half, and we think we’ve got some pretty good momentum in the into the second half.”

The group reported a strong start to the second half of the 2023 financial year, with transaction values from January 1 to February 24 lifting 23 per cent on the same period last year to $6.3bn and loan originations up 30 per cent to $22.5m.

Mr Davey said that inflation was the main reason behind the uptick in transaction value.

“We’ve seen about a 4 per cent increase in average basket size, which we really put down to inflation,” he said. “Our focus is on three industry verticals, hospitality, retail and health, and the numbers are growing in all of those.

“We’re not seeing any discernible slowdown at all.”

The total number of merchants using Tyro’s platform grew 8.7 per cent year-on-year to 66,884.

Tyro reaffirmed its EBITDA guidance range of between $37m and $41m.

Shares in Tyro were up 2.1 per cent to $1.67 around lunchtime, after being up by as much as $1.71.

Tyro, which counts Mike Cannon-Brookes’ Grok as its largest shareholder, is currently in due diligence with Potentia Capital, with the companies in talks since late last year about a potential takeover.

Mike Cannon-Brookes is an Australian billionaire, the co-founder and co-CEO of the software company Atlassian.

“Clearly, the board will always act in the best interests of shareholders and will consider any credible change of control proposition,” Mr Davey said. “We are going through a due diligence process at the moment with Potentia but from a management perspective, our focus is absolutely on running and managing the business on a day-to-day basis. And that’s certainly where my focus is. And that’s where the focus of the team is.”

Tyro is currently chaired by technology veteran David Thodey, who is set to hand over the reins to Fiona Pak-Poy in March.

The company announced this month it had settled a Federal Court class action initiated after a three-week outage of Tyro’s Eftpos machines in January 2021.

Former Telstra CEO David Thodey. Picture: Tracey Nearmy/AAP Image

“Payment of the settlement amount is not expected to involve any additional cost or expense to Tyro,” the company said this month.

“In agreeing to resolve the class action, Tyro makes no admission as to liability.”

UBS analyst Tim Piper said the result was pleasing to see, with price increases “successfully offsetting interchange increases” and increases in international in the mix.

“Adjusted Free Cash Flow (ex-banking) recorded a marginal positive result which was a significant improvement, though capital expenditure was slightly higher than UBS (expectations), driving a small miss vs. our expectations,” Mr Piper said.