BM Technologies, Inc. (BMTX) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the BM Technologies’ First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. I would now like to turn the call over to Bob Ramsey, CFO of BM Technologies. Please go ahead.
Bob Ramsey: Thank you and good morning everyone. Thank you for joining us for BM Technologies first quarter 2021 earnings conference call and webcast. Our earnings release was issued last night, along with our investor presentation and both are posted on the investor relations page of our website at ir.bmtxinc.com. Our investor presentation includes important details that we’ll be walking through on this morning’s webcast, and I urge everyone to pull up a copy.
Luvleen Sidhu: Thank you, Bob. Good morning everyone, and thank you so much for joining BM Technologies first ever earnings call. We are excited to be here today and really appreciate your interest in BMTX. I feel privileged to be joined today by Bob Ramsey our CFO; Bob Diegel, our COO; Jamie Donahue, our CTO; Melanie Mathias, our Director of Marketing; and Hans Fleming, our Director of Business Development. Bob Ramsey and I will be leading the call today, but the team is available for broader Q&A if needed. To begin, we are excited to report to you record performance in the first quarter of 2021, even in the challenging environment, we are pleased to report Q1 2021 EBITDA of $8.7 million up 10 times year-over-year and core Q1 revenues over $24 million, a 54% year-over-year increase. Both Bob and I will later provide more details about the financials. But before that, I wanted to share with you a little about BMTX and our strategy. Starting on Slide 3. To provide a recap for those of you joining us for the first time, BMTX is one of the first publicly-traded neo banking fintechs of 2021. We are also one of the largest digital banking platforms in the country today with over two million accounts and are opening nearly 450,000 accounts a year. I’m proud to share again that we ended 2020 strong with $960 million in deposits, a 139% increase compared to 2019 and it also ended the year EBITDA positive at $3.5 million, which sets us apart from other neo banking fintechs in the market. We continue to employ a B2B2C strategy or Banking-as-a-Service strategy, which allows us to acquire bank customers at high volumes and at very low costs. Today, we are acquiring customers at less than $10 versus a traditional bank, which is acquiring customers in the $300 to $1,500 range. This provides a tremendous competitive edge for us. At the same time, we are enabling our partners to offer fully branded financial services products to their customers and to their employees to better attract, engage, and retain them. In essence, we enable them to offer branded banking services at a fraction of the cost and at a fraction of the time, it would take them to roll this out on their own.
Bob Ramsey: Thanks, Luvleen. So first of all everyone, we really are excited about the growth and the results we’ve had this quarter. I wanted on Slide 7 to first of all talk about the significant growth that we’ve seen in our new business verticals. And just as a reminder to everyone, when we refer to new business or referring to everything outside of the legacy higher education business. We’re excited to report that we had 61% year-over-year growth in the number of accounts, 137% growth year-over-year in debit card spend, and 734% growth year-over-year in ending service deposits. On the per account metrics, if we’ve got at the bottom of this slide, Luvleen just discussed previously, how these are growing nicely, both deposits for active account or spend for active account. And we believe this is a clear sign of growing traction with these account holders as the account seasoned.
Luvleen Sidhu: Thanks Bob. We can go to Slide 11, please. I would like to now provide you with a few key business updates. In the higher education vertical, in addition to the significant increase in account level deposits and spend, which I have already covered, we continue to see additional positive trends. For example, we retained more than 99% of our higher education institution and disperse $4.2 billion in refunds to students up 10% year-over-year of which almost $600 million flowed into BankMobile Vibe Accounts held at our partner bank.
Operator: Your first question comes from Mike Grondhahl with Northland Securities. Your line is open.
Mike Grondhahl: Hey, thank you, and congrats on a really good start to 2021. Hey, first off, could you kind of talk about what drove the growth in Higher Ed and new business? Higher Ed, I’d say looked to be good, new business was exceptionally strong, just marketing there. What kind of drove that both areas, if you would?
Luvleen Sidhu: I’ll take the first, Bob…
Bob Ramsey: Go ahead, Luvleen. Good morning, Mike.
Mike Grondhahl: Good morning.
Luvleen Sidhu: We have spoken a lot about the status of both the student business, as well as new business. But what drove growth in both these verticals was really threefold. One, new opened account; two, deposit growth; and three, increased spend. Not only do we have solid account growth, but we are getting deeper engagement within our customer base. This is driven by increased awareness about our accounts, seasoning of the portfolio, improved marketing strategies and also benefit from stimulus. The revenue benefit of stimulus is probably estimated to be about a $1 million and we will likely continue to benefit a bit in Q2. Hope, that’s helpful, Mike?
Mike Grondhahl: Yes, it is. So, that was going to be my next question. The stimulus you thought was about $1 million in Q1, and a little bit next quarter. In terms of the – you called out in the press release the $2.5 million of development revenues, is that for a new or an existing customer or a potentially new or an existing customer, and it – could you kind of describe what are development revenues? What are you doing to earn that?
Bob Ramsey: Yes, I’ll take that question, Mike. So, I will just tell you that that those have to do with fees pertaining to development work. We do for a partner, they can be lumpy and really the timing of when that hits our P&L is all dependent on the contract status, milestones, terms, et cetera. And so it’s basically income that we have related to development work that we are doing, but it is going to vary in terms of timing. It’ll be a little bit lumpy.
Mike Grondhahl: Sure. And hey, is that for an existing customer or a potential new one?
Bob Ramsey: This was for an existing customer.
Mike Grondhahl: For an existing customer. Okay. And would you expect to see any of that in Q2, any initial read into it?
Bob Ramsey: I would not anticipate anything like the amount that you saw in the first quarter in Q2. I will tell you that it depends on a number of factors. There are pieces that run through as contracts expense and pieces of that run through as revenue. And so there can be some variability in where it shows up. We do development work all year long. We do expect to have a development work in the second, third and fourth quarters. But again, the timing is hard to predict all of this
Mike Grondhahl: Fair. And you mentioned the Higher Ed sort of a new contract with a Higher Ed services company. Can you speak to how many new colleges that might expose you to in the next – the rest of the year maybe?
Luvleen Sidhu: I think that I’ll take that one Ramsey first, I would like to give the answer that we’re really excited about the new contract that we’ve signed with the Higher Ed service provider. We have a strong non-overlapping pool of schools, which we serve and a noncompeting product lines as well. So, we have an agreement in place to cross-sell each other’s products to our current university clients to provide our schools with a more holistic offering. And so it really becomes a win-win for everyone, a win for us and win for our clients and a win for the partner that we have a relationship with. We also have enhanced your product offerings at school to include a vendor pay solution, which is also revenue generating for schools. So again, it deep win-win there and it really helps deepen our relationships with existing schools as well as potentially win new business. It’s really hard to quantify to your question, but it’s definitely accretive to our revenues.
Mike Grondhahl: Got it. And then another one on the Higher Ed area, the Google co-brand, any development milestones so far this year, or what’s sort of the next milestone we should be watching for there?
Luvleen Sidhu: I would like to say that both Google and BMTX remain excited and committed to our partnership. We still believe strongly that a BankMobile Google Plex account can lead to, significantly more students choosing the bank with us could possibly double our student acquisition. And really that would be great. We continue to believe that this is possible for a few reasons. Number one; there is no competing with Google brands. Number two, the front end UX that the Plex account provides is really focused on providing financial insights and helping with money management, all things that are really helpful to our student demographics. And the fact that the BM Plex account will be part of the broader Google Pay ecosystem would benefit beyond the financial services, accounts that we’re providing some more of the super app concept, it’s another, reason that we feel that our student acquisition could benefit from this. In terms of timing, we really continue to work with Google to bring digital first bank accounts to the market. And I would just reiterate that if not in late 2021 than in 2022.
Mike Grondhahl: Got it. And lastly, then I’ll jump back in the queue. Clearly strong first quarter trend. Is there anything you can say about April or May these continued momentum you saw or how would you kind of handicap that if you could?
Bob Ramsey: So, I’ll take that one Mike. So, we really are today just talking about the first quarter results. What I will tell you is, that we did mention that stimulus came in the first quarter at really strong levels and that we ended the quarter in a really strong position. We have continued to see very healthy levels of deposits and spend as we start the second quarter. But beyond that, we’re not going to provide any updates at this time.
Mike Grondhahl: Got it. Thank you. I’ll jump back in queue.
Luvleen Sidhu: Thank you, Mike.
Bob Ramsey: Thank you. So Luvleen, we do have a couple of questions from the webcast. Maybe we’ll read through a couple of those, and then we can see if Mike has anything else and wrap up. We actually have covered a couple of them. There is a question on stimulus and a question on the higher education partnership. One question we have here though, is remind everyone about the seasonality we have in the business. I would answer that and say, hey, historically with the legacy student business, the first and fourth quarters have been our strongest quarters seasonally, as that becomes a smaller piece of the overall revenue mix. And we do have growth in White Label that seasonality does become less pronounced. I do think that certainly is a factor, but it’s one that as you look at this year compared to last year, you’ll see less seasonality when you look at next year compared to this, that the seasonality, again, we’ll sort of began to become less pronounced, but the first and four there seasonally the strongest quarters. There’s another question here that ask about when the restriction will be lifted for the former customer shareholders, who received shares at BMTX. I’ll remind everyone that according to the merger agreement, the trigger for removing that restriction is either once the share trades above $12 for 20 out of 30 days after 150-day period or else at the end of 12 months at the longest. And so that restriction will be removed sometime between approximately six and 12 months from January 4 of this year. That’s what we’ve got, actually, hold on, let me see. There might be a couple others that are from here to here. So, we’ve got a question here Luvleen, which you answer, asking about the plans around crypto and while this is obviously it’s still very preliminary on the – that the question is that going to be integrated into the Google Plex offerings?
Luvleen Sidhu: Sure. I’d be happy to take that. So, I just want to reiterate that we believe and having a full service digital banking platform, really to drive engagement, to drive value to our customers. And I think that historically fintechs went through a phase of sort of unbundling where fintechs came in, utilize technology and created one part of the ecosystem like personal loans or micro investing better than what was being done before. But now we’re really moving into a rebundling and the expectation is to really be able to address consumers, full financial life. And we believe in that and we’re committed to creating that and building that. As it relates to crypto, we will be building that in our own proprietary technology. I will not be commenting on the Google Plex roadmap, but we are committed as they said within the time range that we said to be able to incorporate crypto and we can define that over time as we bring it to market in which form, where we be engaging or allowing our customers to engage, we will keep you posted and we’re excited to do so.
Bob Ramsey: Thanks Luvleen. We’ve got another question here online that shows, do you think the following quarters are as cash flow positive as Q1? And if yes, since you’re debt free on net cash basis, what do you give insights and plans for that cash, for example, buyback of warrants or attractive M&A? I’ll start with that one. So, as you said, the first quarter is very strong. We feel very good about it. We’re not going to get into giving a quarter-to-quarter guidance, but I will tell you that our full-year outlook is unchanged. You probably saw on the earnings release, we didn’t really rate our full-year EBITDA guidance of $20 million to $22 million. We’ve been gone to free cash flow basis. We are going to be free cash flow positive for the full year. So, we feel good about where we sit today. We will evaluate what makes sense for us. We are aware that there are a number of warrants outstanding that the feedback we have generally got in conversation with investors is that it would be better to do something cashless than with cash as it pertains to addressing the ones. And we’re still evaluating what makes the most sense? What are the right options? We, by no means have made a final decision there. But it’s possible, but I would say it’s not a – there may be cash less options. You’ve asked about M&A, it’s great to have a public currency, which opened some opportunities potentially for M&A. I think you probably saw that in one of Luvleen’s slides. It’s not critical that we go out and do any deals, but it’s great to have both the public currency as well as a little dry powder. And we’ll also see what opportunities that are put in front of us would make sense. So that would be my answer and Luvleen, I don’t know if you’d anything?
Luvleen Sidhu: Yes, it sounds good, Ramsey.
Bob Ramsey: Great. Okay. And to sort of looking B2C if there are any others, there’s a question about expanding on advice investing in crypto. I think Luvleen already covered that one. I think Mike, did you have any other questions?
Operator: Yes. Mike Grondhahl your line is open.
Mike Grondhahl: Hey, thank you. Yes. Hey, three quick follow ups. One is, going back to new business. If we really look at the sequential growth, you grew ending deposits there from about $550 million to almost $900 million. Could you just – is that growth driven primarily by new accounts or more by existing accounts using the service more and adopting direct deposits? How do we just think about that really robust growth 4Q to 1Q, was there new marketing?
Bob Ramsey: I mean, I think Mike it’s a combination of all of the above. I mean, there’s always sort of iterative marketing, right. There’s always an effort to sort of do more and do better, but there wasn’t anything significantly different or new. What I’m telling you, we have given some view on the per account metrics, which helps give a little bit of visibility into the change in accounts versus the change in per account metrics, but it’s a combination. We’ve been opening accounts and we have certainly seen traction and growth in the per account metrics.
Luvleen Sidhu: Yes, I think…
Mike Grondhahl: Got it…
Luvleen Sidhu: How I answered Mike your first question that the portfolio and basically all of our accounts, there’s increased awareness about our accounts to it seasoning of the existing portfolio. And yes, we continue to experiment with different marketing strategies. But there’s no doubt that existing customers are more seasoned at this point. And I’m very proud to be able to give that depth that we did, which is that active, highly active user base, which is 14% of the entire portfolio has annualized spend in excess of $19,000 in average balances of $1,200. So, they’re using this accounts and really spending from this account, which really indicates primary banking type of behavior.
Mike Grondhahl: Great. Great. In terms of operating expenses, sort to ex depreciation and amortization, in that $15 million run rate in the first quarter, is that a fair run rate, should we see that sort of drift up with some of these new hires, how do we think about that in future quarters?
Bob Ramsey: Yes. So, I’ll take that one, Mike. So the first quarter number is a good clean number. So it’s a great starting point as we look at the year it is something where we are focused on expenses. And as you probably recall, we did have reductions at the end of last year, we’ve been managing some key vendors. We continue to work at some of that. And so we continue to look at ways to chip away at costs. So, we are investing in our business, and we do have hires, built into the budget and the path forward. It is our expectation for expenses to grow from the first quarter and not significantly or jump or do anything that would be significantly different, but we are expecting to grow as we invest in the business. What I will tell you though, is that our primary focus and managing the P&L is that EBITDA targets. And so to the extent we’ve got better revenue growth, we will invest more in the business. And to the extent that the revenue growth is a little bit not quite as strong, but still good. And then we’re going to manage the expenses. So EBITDA is really our focus for the first quarter is a good starting point.
Mike Grondhahl: Got it. And lastly, today going to EBITDA, you did $8.7 million in 1Q, and your guidance sort of remains $20 million to $22 million. What’s the takeaway there? Just, maybe that the first quarter had a couple, it had the stimulus benefit of $1 million, which would be really high margin. It had the $2.5 million of development. So, it’s a little bit skewed upwards, and you’re just going to kind of stay at that level to be conservative. I think that’s the takeaway, but when you just – I just want to make sure I understand it.
Bob Ramsey: Yes – go ahead…
Luvleen Sidhu: And if you could – yes. So, as Bob Ramsey had talked about before, Mike, we have a seasonal business, especially in a higher education vertical. There are also some uncertainties around timing and for revenue it’s not it – but when, and it’s, Mike, more of a timing. So for example, timing around the Google launch or timing around when we bring on a new White Label partner. And that is why as Bob Ramsey talked about already, we have a strategy for managing our expenses based on timing of our revenue growth. And if the revenue growth is achieved quicker, we may be able to beat that, but for now we are staying with EBITDA guidance we had given earlier. And again, I just want to reiterate, we are not managing the business for quarter-to-quarter, but really for the long run and the fundamentals for our business remain strong.
Mike Grondhahl: Great to hear. Well, hey, thanks again.
Luvleen Sidhu: Thank you, Mike. Bob, anymore questions or I think, not, let me know.
Bob Ramsey: So, I guess couple others here real quickly. One, there was a question about the splitting accounts between new and legacy business. And we haven’t provided that historically on difference to some of our partners. So that’s not something we’re going to provide. There is a question about why the drawdown on debt? And I just will clarify there wasn’t a drawdown on debt, for people, if you go back and review our financials. We have $40 million of debt outstanding prior to the separation of our business, the merger transaction. We paid that down to $21 million at close or just prior to close. And then in conjunction with the transaction, we paid debt down to $5.4 million. So the debt is actually at the lowest level than it’s ever been. We haven’t drawn any debt and we’ll continue to evaluate, do we continue to pay debt down lower? The last question I think we will take, and I will offer this one to you Luvleen, but there’s a question this will provide some update on the process that we’re going through to explore additional bank partnerships.
Luvleen Sidhu: Sure. Happy to take that one. So all of these relationships take time, and we are hopeful that over the next few quarters, we will have a new bank partner to share with you. We continue to talk to several banks and really our objective is to negotiate the best possible deal, and we will keep you posted. So, I leave it at that. Thank you so much, everyone for listening in. We really look forward to seeing some of you at the Needham Conference later today. And we feel good about timing. We wanted to keep this under 45 minutes, so perfect timing. Thanks, again for all of your support and hope you have a great day.
Bob Ramsey: Thank you everyone. Appreciate it.
Operator: This concludes today’s conference call. You may now disconnect.
