EML Payments falls 15% as Arlo cost blowout overshadows FY26 result

EML Payments reported underlying EBITDA of $48.2 million for FY26, within the guidance range of $47–50 million. The shares fell around 15% on the day, from 34.5c before the open to 28.8c by mid-afternoon.

The underlying figure was struck after approximately $34 million of adjustments. These included around $9.5 million relating to stored card value written off and $15 million in restructuring costs. Share-based payments of $15 million were recorded separately, equal to about 10% of gross profit and more than 10% of a market capitalisation of roughly $130 million.

Project Arlo, the technology migration program, was originally scoped at $15–20 million with expected annual savings of about $12 million. The cost is now put at $34–36 million. That increase had not been disclosed to the market before Tuesday's release.

The timetable has also moved. Arlo is in client testing in the UK, with Asia-Pacific rollout scheduled for FY28, against an earlier expectation of production during FY26. Management now points to FY28 as the year of material free cash flow.

Earlier guidance had EML at around $95 million of EBITDA by FY28. The midpoint of FY27 guidance implies about $52 million, below the FY25 result. Company forecasts put FY28 free cash flow at $30–35 million as remediation and Arlo build costs fall away.

The balance sheet shows cash of $37.8 million against debt of $89.3 million, or net debt of $51.6 million. The migration is unfinished, which is a factor for any acquirer assessing the business.

Operating metrics were stronger. Revenue rose 8% to $56.5 million and active benefit accounts grew 14%. The pipeline stands at $109 million, with around $50 million described as being in final stages, and top-30 client retention has been maintained. A partnership with Tendren targets the fuel and mobility market from FY28.

Conversion of new client wins into revenue has run behind management's earlier indications across several reporting periods. That record is the basis on which the market is discounting FY27 and FY28 forecasts.

The stock traded at $1.03 twelve months ago and closed the session near 29c. The class action has been settled, removing one item from the FY27 picture.