BM Technologies, Inc.

Good morning, everyone, and welcome to the BM Technologies first quarter and 2024 earnings call. Please note that this event is being recorded. Following management's prepared remarks, we will hold a question and answer session. For those joining us on the webcast, you can submit your questions online where the management team can see them. At this time, I'd like to turn the conference call over to Brian Preneville, Investor Relations for BM Technologies. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us for BM Technologies' first quarter earnings call. Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking. These forward-looking statements are subject to a number of risks and uncertainties that may cause actual performance results to differ materially from what is currently anticipated. Please note that these forward-looking statements speak only as of the date of this presentation and we undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws. Please refer to our SEC filings, including our Form 10-K and 10-Qs, for a more detailed description of the risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the Investor Relations section of our website. At this time, I will turn the call over to Lavleen Sidhu, VM Technologies CEO. Lavleen?

Thanks, Brian, and good morning, everyone. Joining me on today's call is A.J. Asija, our CFO, and Jamie Donahue, our President and Chief Technology Officer. Together, we are excited to share with you our financials for the first quarter of 2024 and reiterate our strategy going forward with an emphasis on our technology transformation and growth initiative. We are very pleased that the foundational steps our team took over the last 18 months have begun to show through the financial results. Revenue increased 21% compared to the first quarter last year, and we delivered $1.4 million of positive core EBITDA. This represents a $3.2 million improvement compared to the first quarter of last year. Similarly, first quarter net income of $748,000 was a $5.6 $5.7 million increase compared to the first quarter of last year. AJ will provide further details about the significant financial improvement. However, at a high level, the transfer of deposits to our new Durban exempt partner bank coupled with variable rate deposit pricing in a stabilized interest rate environment contributed to our increased revenue. Additionally, the profit enhancement plan introduced last year is showing year-over-year benefits as we have meaningfully lowered our cost structure. These initiatives delivered improvements throughout the P&L as evidenced by higher revenue, expanding margins, and solid profitability. The first quarter of 2024 represents the fifth consecutive quarter of sequentially improved core EBITDA performance. We're happy about the first quarter results and our progress, and we will continue to pursue the strategies we've discussed over the past year, doubling down on our higher education business and executing on our customer for life strategy. Jamie will provide further updates on our technology modernization efforts that are the precursor to delivering on this plan that positions our company for an exciting future of growth and innovation. The market opportunity remains ripe for growth, The statistics of our core customer market remain the same as what we've discussed in recent quarters, with ample opportunity to deepen customer relationships, increase customer lifetime value, and unlock new revenue streams. This is a unique opportunity only available to BMTX due to our distinctive customer acquisition model and longstanding contractual relationships with colleges and universities across the country. The first quarter marks a return to profitability, but we are not done. We aim to continue enhancing our technology stack to improve the overall user experience with technology and capabilities that appeal to student banking customers and customers beyond their student years. We believe that by executing on our long-term growth strategy, we will be able to build upon a foundation of excellent financial results and continue to drive growth and profitability. I will now hand it over to AJ to review our financial performance in the first quarter in more detail and to provide more context.

Thank you, Lavleen. During the first quarter of 2024, the company earned $16.2 million of operating revenue, up 21% compared to $13.4 million in the prior year. Servicing fee for the first quarter of 2024 totaled $9.0 million as compared to $6.6 million in the prior year. Servicing fees were up 35% due to higher deposit yields under the new variable rate deposit processing service agreement. Interchange and card revenue totaled $3.4 million for the first quarter of 2024 as compared to $3.0 million in the prior year. Interchange and card revenue were up 15%, driven primarily by the change in partner banks, with Durban exempt interchange rates and higher overall spend. Average service deposits total $828 million for the first quarter of 2024, an increase from $805 million for the fourth quarter of 2023, but a decrease from $1.2 billion in the first quarter of 2023. All of this balance reduction occurred within our BAS vertical due to the interest rate sensitivity of a large portion of these accounts. Average deposits in our higher education vertical were 2.5% higher than the first quarter of 2023. Deposits for 90-day active accounts in our higher education vertical at December 31st, 2024 averaged $2,025 up from $1,947 compared to the first quarter of 2023. Spend total $809 million for the first quarter of 2024, up both from $714 million for the fourth quarter of 2024 and $787 million in the first quarter of 2023. Spend per 90-day active accounts for the first quarter of 2024 averaged $2,396 within our higher education vertical and $1,666 within our BAS vertical. Annualized debit card spend for highly active BAS users, those with both direct deposits in a minimum of five customer-driven transactions per month, was approximately $20,100 during the first quarter of 2024. This very attractive cohort makes up approximately 23% of our active accounts at March 31st, 2024, as compared to 21% in the year-ago period. There were approximately 100,000 new account sign-ups in the first quarter of 2024. Account fees and university fees TOTAL 3.7 MILLION FOR THE FIRST QUARTER OF 2024, UP SLIGHTLY FROM 3.6 MILLION IN THE PRIOR YEAR. DURING THE FIRST QUARTER OF 2024, THE COMPANY RETAINED 99% OF ITS HIGHER EDUCATION AND INSTITUTIONAL CLIENTS. WE PROCESSED OVER 4.3 BILLION OF STUDENT FINANCIAL AID REFUND DISBURSEMENTS DURING THE FIRST QUARTER OF 2024. approximately 12% or $523 million was disbursed into bank mobile by checking accounts. Core operating expenses totaled $14.8 billion for the first quarter of 2024, comparing favorably to the $15.3 million incurred in the first quarter of 2023, primarily from the implementation of our PEP plan. Total expenses decreased meaningfully to $15.5 million from $19.7 million in the first quarter last year. This reduction was primarily the result of lower expenses from the implementation of our PEP plan, lower depreciation and amortization costs from full amortization of a portion of the internally developed software in a one-time reduction in share-based compensation expense. Core net income before interest, taxes, depreciation, and amortization totaled $108,000 for the first quarter of 2024, a substantial increase from the core net loss of 5.0 million in the first quarter of 2023. Core EBITDA was a positive 1.4 million compared to a core EBITDA loss of negative 1.9 million in the first quarter last year. Q1 2024 marked a turnaround in the company with the first positive core EBITDA since Q3 of 2022. Liquidity remained strong at March 31, 2024, with $14.6 million of cash, $4.8 million of working capital, and no debt. Given the strong start to the year and continued impact of the 2023 PEP, We anticipate delivering positive core EBITDA for the full year 2024. And with that, I'd like to turn the call over to Jamie for his discussions on our technology investments and improvement. Jamie?

Thank you, AJ, and good morning. As we shared last quarter, BMTX is well on its way to executing on our technology transformation. We are happy to announce that we have launched our new mobile and web experiences for our BankMobile VIVE customers this quarter. with exciting new features to enhance the overall user experience. Our technology transformation was driven by our vision to modernize our platform architecture and offer innovative products and services to our customers. We are executing on that vision and delivering exciting new features for our clients. Our main focus over the next few quarters will be to add a rewards engine to allow our students to take advantage of their everyday spending and encourage primary banking behavior. We are also looking to enhance our direct deposit flow and external account linking for easy funding. All these changes will make the Bank Mobile Vibe account a feature-rich, lifelong checking and savings account that will grow with our student population. Our technology platform will also enable us to integrate with partners more easily so we can truly add value to our customers from a product and partnership standpoint over time. I'm also excited to announce that we have successfully launched our first new product and service to our university clients to diversify beyond our original refund disbursement product. The product is called Identity Verification Service, or IDV. It is a SAS revenue product that assists universities with one of their biggest pain points, which is enrollment fraud. The product we have launched mitigates fraud vulnerabilities during a student enrollment process. We've signed nine clients to date and have a strong pipeline of over 50 schools we are working on over the next several quarters. We are excited as this offering increases stickiness and lifetime value of our existing higher education relationships and opens doors to new clients. In a few minutes, I will turn the call back over to Lovleen, but before I do, I want to update you on our progress executing on the automation and machine learning front within BMTX. We're happy to share that since we met with you last, we've deployed three more robotic processing automation agents, RPA modules, bringing our production total to 10. within our back office that have increased efficiency, reduced error rates, and lower overall expenses. As an example, just one of these automated intelligence agents has handled over 83,000 cases since its launch in January. We estimate some 5,000 hours were saved in this application of AI and ML alone. We are executing on expanding these functions working across the larger organization in the coming quarters. In addition to this, we are leveraging our new AI innovation lab on a few fronts. The first is leveraging our proprietary large language model that employs our data set to direct marketing to our existing and prospective clients in deeply meaningful ways. And frankly, that was just not available on our legacy platform. We've also built an API to automate and predict fraudulent activity across the portfolio. This new API is in production and actively being tuned and trained. We are also developing a press of assistance that will help answer support questions, provide detail on account activity, and we believe add immense value to our Bank Mobile Vibe customers. Thank you for your time this morning. I will close with this thought. We are extremely proud of the hard work and dedication of our talented team that makes this amazing technology come to life. I look forward to keeping the positive momentum going. And with that, I turn the call back over to Lavleen for some closing thoughts.

Thank you, Jamie. As you can tell, there is a lot of excitement amongst our leadership team about the trajectory of our business and the opportunities that lie ahead. Our technology is an enabler that opens up new revenue streams and positions us to offer our customers products and partnerships we never could before. This year, we are particularly focused on three key tactics to drive growth now that we have our technology in place. First, A new product launch for our student Vibe checking account. This will be our cashback rewards engine launching in Q2. Second, a new product launch for our university clients. This is our IDB product, which we have nine signed clients to date. Third, provide personalized omni-channel marketing to increase funnel conversion and engagement. With the advantages of AI, we are better positioned for micro-personalization. We believe that these three focused efforts will help us attract new customers, increase engagement with existing customers, and improve our revenues. We have created a unique marketplace with universities on one side and student customers on the other. Over time, our goal is to keep offering new products and services to each side of our marketplace to provide our customers with the best value and also increase our revenue potential. Our go-forward roadmap will be based on listening to and understanding our customers' wants and needs, and then delivering. We are optimistic about our future and what we are building. The first quarter of 2024 was a great step in our future direction. I want to thank you for joining us on our call today, and we will now open the line for questions.

Ladies and gentlemen, we will now begin the question and answer session. In order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Greg Pendi with Chardin. Please go ahead.

Hey, guys. Just a couple of questions. I'm not sure if you put much value into it, but the Fed survey earlier this week noted that expectations for college education, they're supposed to increase 9%. or a two and a half percent increase. That's a big uptick for next year. What would be the, if this starts to gain momentum or people start to raise expectations for a big bump next year, what are the puts and takes we should be thinking about for next year to your business?

Yeah. Hey, Greg, nice to hear from you. This is Jamie. So what we think is, You know, we have a market dominant position in this person's business. So anything that happens in that space boosts that side. And then, you know, the output of that is more clients signing up for the Vibe account. So that's how we see it. So it's what we work on hard every day. The team's laser focused on how to convert those, what we call prospects or people through the funnel into bank mobile Vibe customers.

Okay, great. And then it looks like you maintained your outlook for core positive EBITDA for the year. I know rates have fluctuated, and we just heard from you 30 days ago, but is there any color you'd want to provide on, you know, you put up positive core EBITDA in this quarter, any kind of thing that has changed notably in that thought process?

Yeah, hi, it's AJC. Let me take that question. So, you know, consistent with what we told you a month ago or so, we expect continued growth in the higher education business and the several growth initiatives that Lavleen and Jamie have talked about. So we are optimistic about the future, but we're not providing a guidance at this time.

Okay, fair enough. And then just, can you just go into one final question, just your provision for operating losses? You know, downtip from 4Q and then the year-over-year change. Anything you're seeing there?

Yeah, so the provision for operating losses were up from first quarter of last year. It was primarily related to third-party fraud, related to unauthorized card transactions. But as you can see, it was down from Q4 as well.

Okay, very helpful, and you're working on that. I take it with the initiative you announced. Okay, great. Perfect. Thanks a lot. That's all I have. Thanks.

Your next question comes from the line of Mike Gundow with Northland Securities. Please go ahead.

Hey, thank you. You know, I know you're putting a little bit less emphasis on the BAS, new business, But what is kind of your outlook for deposits there the next couple quarters?

So, you know, we, as you saw last year, the deposits were down meaningfully in the Bass business. The business has mostly stabilized. There is a little bit of a runoff. There's still a little bit of a runoff in the deposits, but for the most part, it's stabilized.

Got it. Got it. Good. And could you kind of describe the revenue model for the IDV business? It sounds like you have nine clients signed. I don't know, maybe the average revenue per school, just so we can get a feel for that business and its revenue model.

Yeah, Michael, at this time, we aren't providing guidance on that. But at a high level, what we want to say is that we're very excited about the product. We have seen that the pipeline is actually multiples of refund disbursement. And the reason why is because the pain point that we have identified is so urgent for our schools. And the beauty of the revenue model at a high level is it's a mix of recurring annual subscription fees but also like a SAS model where there's a variable per student cost as students go through the enrollment verification process. And so it's a diversified new revenue stream for us, and we're really excited to share more as we launch more of these schools and continue to build upon the pipeline.

Got it. And any guess what the mix between sort of the recurring subscription and the transactional per student cost will be?

Yeah, Mike, Jamie, Jamie here. Yeah. So the subscription is, you know, as a SAS offering, right, would be a subscription to get into the dance. And then as students come through the enrollment side is where we see the per the per use usage. There's you know, it's an interesting play and a value proposition that helps us identify fraud at the top of our funnel. Right. Because without this gate, the universities might enroll some suspect Folks, I mean, I think you're aware it's public that, you know, there was about $5 billion of CARES Act fraud, right, that really hit this space hard. This was an answer to that. So the revenue is on the subscription side. Just think SaaS model when you're looking for the revenue. And as Wembley outlined, we felt pretty strongly that we wanted some signed contracts to build you guys' models in the coming quarters to share with you what that looks like.

And I guess just one last question is, Would a university that signed up, do they put all of their enrollees through the process, or do they just kind of select the enrollees they want to be ID verified?

Is it kind of an all? Yeah, it's a great question, and that's, from our side, the beauty in this, right? You know, the applicants far outpace the seats available, right, across the spectrum, so the plan is We take that enrollment file from the university and push all of the applicants through as a screening mechanism. And then the university, they all have different rules, right? State rules, different private rules. So they make their decisions based on our scoring that we provide them. But yes, it's everyone. Got it.

And then last question, just for the higher ed business, are you seeing any changes in the competitive environment there? Um, if you could talk about that.

No, I think, I think we're no to answer you directly. Um, that the players that are out there are still out there. Uh, we think we have a, as we've said, and we believe we have a unique value proposition that takes a burden off of our universities, provides valuable service and gives, um, the fastest, nearly the fastest access to money to our students. So we, we think on both sides and what we described. We're providing a service to the higher education universities themselves and a real value to our bank mobile vibe customers. Got it. Sure, sure. Thank you.

Thanks, Mike.

Your next question comes from the line of Bill DeZellum with Titan Capital. Please go ahead.

Thank you. Let's start with interchange and card revenues. which were down in the fourth quarter, but then switched to not only being up, but up 15% in the first quarter, what changed?

Let me take that question, Bill. It's AJ and Cesar over here. So the interchange and card revenue were up primarily because of the new DPSA with First Carolina Bank. that allows us to earn the interchange revenues on a Durban exempt basis. Plus the spend was a little bit higher as well. So those two are the big reasons.

And speaking of the spend, the spend was up. Is this correct that the spend was up? versus the fourth quarter? I'm thinking $809 million versus $714 million. And if so, why was that the case? Because I guess in my mind, the holiday spend would have driven a seasonality where Q4 would have been higher.

Yeah, so Bill, Jamie, so we think of that as a sign of of our work that we did the year prior, our direct marketing, some of our campaigns, some of the features we added before ahead of our technology refresh, which we implemented in April. So we believe that some of the some of the marketing and our campaigns and some of the services we added on the legacy tech are our drivers to that. And plus, we've seen the other thing I think that contributes to that number being higher is the runoff has stabilized and flattened out, especially in that higher ed business. So those two factors we think are positive signs.

Additionally, though, I would just add to that, there's seasonality in our business, and so there's a winter peak. So students enroll January, February. That tends to be a high-volume refund disbursement time. And similarly, in that Q3 period, Beginning of Q4, it's kind of that August through October is another bump from a seasonality standpoint in our business.

Right. Okay. Thank you. And then the rewards engine that you are going to be implementing, what's going to be required to put that into place?

Yes. It's a tech lift. a partnership agreement which we have in place um and so it's it's as you've seen with some of the other credit cards but this is with a debit card right so we're going to incentivize uh the users can enroll in this program and pick pick where they want rewards to be generated from um so it's we're really really excited and our surveys tell us that it's the number one feature request of that cohort so we're really we're really excited to see the impact that that'll have to drive you know, primary banking experience.

And so, Jamie, when you say they get to pick, does this mean they can choose the retailers that they want rewards at? So if Safeway I could care less about, but Kroger I'm excited about, and so we'll make that selection? Or what are you referring to there?

Yeah, Bill, right on. You hit the nail right on the head. There are retailers – that have signed up for our consortium that are part of our offering, and the individual users get to steer where they get those rewards.

Got it. Okay. And then the last questioner asked about the identity verification revenue split between subscription and the per student fees. Which of those two do you anticipate to be larger?

um subscription or or the per student uh as you push them through the funnel um so this is jamie again bill the um the way we see it is university size you know matters here right we have some specialized um schools that are on the smaller side so that that's going to be a mix uh we priced it we believe that's that's fair for all sizes but on the larger or larger universities obviously the the know the funnel is larger for them so the per the per unit cost might outpace the subscription by substantial numbers um in that scenario but but again we service you know a high percentage of all higher education universities trade schools um and colleges universities so we think it's a mix so in some cases uh the subscription could be the larger

um more than half of the revenue that this school would pay you but in other situations it could be where the the per student applicant or the per applicant fee that ends up being the larger the larger piece then that's spot on that's spot on okay that is helpful and do you have time for me to take a couple more questions or shall i step back in the queue go ahead go ahead bill yeah Okay, so two additional questions. First of all, the technology communications and processing expense declined down to 4.7 million from 6.8 million in the fourth quarter. So a couple million dollar decline sequentially. What led to that?

AJ, you're on mute.

AJ, you're on mute. I'm sorry. I apologize. Bill, it's AJC. Let me take that question. So the expenses were down because we had an internally developed piece of software that had $1.9 million in quarterly amortization, and we amortized it down to zero last quarter. So that's the largest part of the change in that expense category.

Great. Thank you. You referenced that in your opening remarks, and I just didn't appreciate the magnitudes. Thank you. And then there was a reference in the opening remarks about micro personalization. Would you talk about that plan and the, I guess, number one, the timeline, and number two, really what you're wanting to accomplish through that plan?

Yeah, Bill, it's a phased approach for us, and we were starting with finding the right marketing automation partner at the top of the year, which we're excited about the partner that we picked. It's industry-leading. Braze is the platform that we're using there. Coupled with really data mining our customers at a level that we haven't before, which is been accelerated by the new technology platform that Jamie and team have created that allows us to understand our customer base better. So you have the marketing automation tools plus the data that allows you to segment the portfolio on a new level that we haven't before. And then third is leveraging marketing automation tools as well as AI that allows us to be able to not just do historical A-B testing and marketing for certain segments, but can become much more granular and focus students at a very individual level in our messaging, which wasn't possible before. So, you know, that's at a high level, Bill. I think more tangible as we kind of execute, we might be able to give some more examples, but that's how we've prepared for this. And that's the sort of technology that now exists that allows us to message and engage at those types of individual levels.

And Loveline, what are you ultimately from an end game perspective wanting to accomplish with those efforts?

Yeah, the end goal would be that, you know, when you are able to segment at that type of level of personalization, the hypothesis is that the conversion and the engagement improves because you're meeting the customer at a level that they feel understood. There's empathy in the messaging. There's understanding about what's individual, unique, and important to them. So that's the hypothesis.

Great. Thank you. And then lastly, do students have the ability to transfer money from one student to another through student A's VIBE account to student B's VIBE account?

Yeah, Bill. We're really happy to announce that's one of the feature enhancements in our new platform is peer-to-peer payment. It's a homegrown. We've written the software for ourselves. It's an in-house solution. It not only does let funds move between Vibe accounts, but also encourages enrollment for those that aren't Vibe accounts. So you can send it to somebody that isn't a Vibe money from cash from one account to another and then have them enroll and then accept the money. So we're really excited about that. that as a feature that's going to encourage primary backing.

Great. Thank you, and congratulations for implementing that.

Thank you, Bill. Thank you, Bill.

I will now turn the call back over to Brian Prenevo to take any questions submitted on the webcast. Please go ahead.

Thank you. At this time, I don't see any web submitted questions, so I will turn the call back over to Lovelene for some concluding remarks.

Great. Thank you, everyone, for joining us this quarter, and we look forward to touching base soon. Have a good one. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.