EML Payments Balances Restructuring Gains With Profit Squeeze

EML Payments Ltd. ((AU:EML)) has held its Q2 earnings call. Read on for the main highlights of the call.

EML Payments’ latest earnings call struck a cautiously optimistic tone as management balanced solid operational progress with clear financial headwinds. Executives pointed to restructuring milestones, a growing sales pipeline, and improving cash conversion, while acknowledging revenue and EBITDA declines, interest income pressure, and sizeable one‑off cash outflows.

Restructuring Progress and EML 2.0 Execution

The company reported strong momentum on its EML 2.0 transformation, highlighting substantial H1 work on the FY ’26 restructuring program. Project Arlo and broader organizational changes are on track, with management reiterating its goal to substantially complete the major restructuring by June 30, 2026.

Pipeline Growth and Conversion Metrics

Commercial momentum continued to build, with the overall pipeline expanding to $102 million, surpassing earlier targets. EML has secured about $24 million in program revenue, is converting at roughly 51%, and already has $10.3 million of that pipeline launched and active on its systems.

Project Arlo Build and Deployment Timelines

Project Arlo, the core technology platform, is in full build mode and remains central to the company’s strategy. Management expects the core build to be substantially complete by the end of the calendar year, with U.K. deployment midyear and migration planning enabling new client launches from those dates.

Efficiency Gains and Cost Management

Cost discipline is beginning to show through, with quarter‑on‑quarter cost improvement of $3.6 million reported. The GlobalOps Centre is delivering an estimated 35% saving on roles versus traditional markets, while group net overheads were kept broadly stable at $53.1 million.

APAC Strength and Existing-Client Growth

The Asia‑Pacific region stood out, with customer revenue up 10% and GDV rising 13%, showcasing the benefits of EML’s diversified footprint. Across the group, existing‑client growth excluding runoff is tracking in line with EML 2.0 expectations at around 4–5%, and the top‑five customers account for roughly a quarter of revenue, supporting a well‑spread client base.

Improved Cash Conversion Excluding One-Offs

Underlying operating cash flow, excluding one‑off items, reached $22.2 million in the half, equating to a 79% EBITDA‑to‑cash conversion ratio. Management emphasized that, adjusting for extraordinary outflows, they expect cash conversion to continue improving as restructuring benefits and technology efficiencies flow through.

Product Development and Mobility MVP

Product development has been restored as part of business‑as‑usual operations, with a renewed focus on strategic offerings. A key initiative is a mobility product aimed at digitizing vehicle expense management, with an MVP expected around midyear and co‑design discussions progressing with several cornerstone clients.

Revenue Decline and Growth Headwinds

Despite these operational gains, group revenue fell 6% year‑on‑year to $108.4 million, while customer revenue excluding float interest slid 4% to $79.4 million. Management blamed the drag on growth partly on terminated customers from the second half of FY ’24, which continues to mask underlying momentum.

Underlying EBITDA Contraction

Profitability softened as underlying EBITDA dropped 16% to $28 million compared with the prior corresponding period. This was driven largely by the absence of one‑off non‑recurring income seen in H1 FY ’25 and the ongoing effect of terminated client programs that were removed during 2024.

Interest Income Pressure and Lower Float Yields

Interest revenue declined 11% to $29 million as lower central bank rates filtered through to earnings on stored value balances. While float balances increased 5% to $2.6 billion, the annualized yield fell from 3.7% to 3.1%, with an exit rate of 2.8% at December 31, compressing a key profit lever for the business.

European Weakness and Customer Terminations

Europe remained a soft spot, with regional revenue down 12% to $60.1 million and customer revenue there declining 13%, largely due to terminated customers. GDV in the region still rose 5% to $3.4 billion, but net overheads climbed 11%, driven mainly by irrecoverable VAT, pressuring margins.

Cash Outflows and One-Off Payments

Statutory cash movements were dominated by sizeable one‑off items, resulting in an $11.5 million reduction in cash during the half. The period included a provisional class action settlement payment of $40.9 million, PCSIL liquidator repayments of $13.3 million, and $4.4 million of Arlo‑related CapEx, partially offset by a $44 million debt drawdown.

Onboarding Lags and Activation Delays

Management flagged operational bottlenecks in onboarding new clients, noting an average four‑month lag between signing and activation. These delays, caused by internal, partner, and client‑side processes, forced EML to tighten its guidance range and have become a clear execution focus for the leadership team.

Regional Cost Pressures and Overheads

While group‑wide efficiency initiatives are progressing, certain regions saw rising overheads, with Europe up 11%, North America 13%, and APAC 5%. The company also expensed $4.5 million of Arlo product costs in the period, which were excluded from net overheads and underlying EBITDA but nonetheless represent a meaningful near‑term investment.

Guidance and Strategic Outlook

Looking ahead, EML narrowed its FY‑26 guidance to $58–$60 million, down from $58–$64 million, citing onboarding delays but keeping its FY‑28 ambitions broadly intact. Management aims to grow the pipeline to about $125 million by year‑end, maintain existing‑client growth near 4–5%, complete core Arlo build by year‑end with U.K. rollout in coming months, and ultimately reduce ICT spend from around $30 million to about $20 million as migrations progress.

EML Payments’ earnings call painted a picture of a business in transition, with restructuring, technology investment, and pipeline wins setting the stage for cleaner results beyond the current year. Investors will be watching closely to see if management can convert the expanding pipeline, tame regional cost pressures, and lift profitability as one‑off cash drags fade and Arlo goes live at scale.