Tyro upgrades earnings amid takeover rumour

Fast-growing payments company Tyro will undergo a ‘difficult’ multimillion-dollar cost-cutting program amid murmurs banks or private equity are circling.

Tyro Payments CEO Jon Davey says the company must make ‘difficult but necessary decisions’ to grow. Picture: File

A week into the job and Tyro Payments’ new chief executive is already making his mark, taking a knife to costs and upgrading earnings guidance amid speculation one of the major banks has been running the ruler over the fintech.

Tyro boss Jon Davey, who started in the role this month, replacing Robbie Cooke, on Monday confirmed he had kicked off a new cost-reduction program to save $11m annualised, with a $5m benefit to come through in the current financial year.

The program includes an overall reduction in headcount, changes to the mix of permanent employees and onshore and offshore contractors in technology, and reduced operational and discretionary spending.

As a result of the cost savings, Tyro also lifted its guidance for the current year, with operating leverage now expected to a midpoint of 82 per cent, down from 85 per cent, and EBITDA before share-based payments of between $28m and $34m – up from between $23m and $29m.

The program was targeted at reducing costs in non-revenue generating parts of the business and was “difficult but necessary” to position the company for future growth, Mr Davey said.

“These are difficult but necessary decisions. It is imperative that Tyro continues to invest for growth, but that we do so within an operating approach that reflects long-term sustainability.

“Our people are a key asset and we will be diligently managing any changes that impact our team and providing support to our departing team members”.

In the same update, Tyro said its merchants recorded $10.37bn in transaction value for the three months through September 30, a 59 per cent jump on the prior corresponding period, while merchant loan originations rose 116 per cent to $32.7m.

Tyro is the country’s largest eftpos provider after the major banks.

Mr Davey, who headed up Tyro’s health business before moving into the CEO role, said the quarterly results were driven by “record transaction value growth, customer applications and loan originations, as well as a focus on cost management.”

“All our operating metrics are either in line with, or exceeding, expectations which, together with our new cost reduction program, gives us the confidence to lift guidance for fiscal 2023.”

The new CEO added that the company would release its Tyro Pro and Tyro Go products before January 2023.

The cost-reduction program and updated guidance comes amid speculation one of the banks has been considering a purchase of Tyro Payments, with National Australia Bank now said to be close to making an offer, according to sources close to negotiations.

Tyro’s board last month also rejected an “opportunistic” $1.27 per share offer from a private equity consortium led by Potentia Capital that valued the business at $658m. The offer “significantly” undervalued the company and was not in shareholders’ best interests, the board said.

Tyro’s largest shareholder, Atlassian co-founder Mike Cannon-Brookes, at the time agreed to deal his 12.5 per cent stake, which he owns through his private company Grok Ventures, to Potentia, backed by former MYOB boss Tim Reed and ex-Archer Capital executives.

According to The Australian’s DataRoom column, there have also been suggestions that outgoing boss Mr Cooke is there to see the business sold – he resigned to head Star Entertainment effective October 3 but will stay on at Tyro until December 31 to ensure a seamless transition with Mr Davey.

At the same time, the fintech is facing a renewed campaign against it from Bannister Law, which last month wrote to customers urging them to join a class ­action over a widespread eftpos outage in January 2021.

The outage, lasting more than a week, forced thousands of small businesses to accept cash-only transactions while the fintech scrambled to remedy a software issue.

Tyro shares closed up 1.7 per cent at $1.51, after trading most of the day in the red.

Originally published as Tyro upgrades earnings amid takeover rumour