This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Moneyline's innovative financial literacy initiative aimed at filling the gap in money education across the United States. MLU will provide a compelling curriculum centered around real-world money education and skills to Moneyline customers, delivered via long-form and short-form videos covering topics such as budgeting, building credit, investing, and understanding financial inequities. We also launched a docuseries, Money Like a Girl, that follows women who turn their passions into careers. Our ownership of a content studio truly gives us differentiated customer acquisition and retention capabilities. And finally, in November, we established a multi-year marketing partnership that makes Moneyline the official money app of the NBA's G League Ignite. This partnership represents our commitment to owning the culture of money, putting Moneyline at the center of people betting on themselves. These are just a handful of examples of how we are differentiating our value proposition with consumers through our engaging and personalized content. We continue to see our investments in content and culture translate into higher levels of engagement through our consumer ecosystem, including our mobile app, our website, and all of our social media properties and shows. As we noted last quarter, we saw a strong increase in day zero customer engagement driven by the expansion of our content feed. We saw three times increase quarter over quarter in overall engagement across our platform, illustrating the growing stickiness of our platform. All of this content is available throughout Moneyline's consumer ecosystem and very soon will be available to a lot of our enterprise clients as well to enrich their own customer acquisition retention and marketing strategies. So what does all of this add up to? It means Moneyline is becoming what we set out to build, the daily destination for all things money as we continue to add creators, product partners, engaging content, and overlay contextual data to personalize the content each of our customers experiences. We added 780,000 new customers in Q3 and end of the quarter with 5.4 million total customers. representing over 100% year-over-year growth. As a reminder, we had just 1.4 million customers at the end of 2020, illustrating an incredible accomplishment of how much we have scaled to date. Turning to key operating metrics by the end of Q3, 11.3 million total products were consumed on our platform, an incremental 1.2 million compared to Q2. Total originations were 446 million in Q3, up 63% year over year. Taking a closer look at our credit quality, our provision as a percentage of originations in the third quarter was 5.3%, down from 5.4% in Q2, and within our target range, reflecting our focus on high quality customers. Consistent with our focus on profitability, we targeted flat quarter over quarter origination levels. We have increasingly prioritized profitability over growth across our business as we adjust to the macro climate. It's important to note that new customers tend to underperform returning customers, and we're fortunate to have a highly recurring customer base to continue to grow revenues efficiently. Rick will discuss this point more later. Our ability to consistently manage credit performance is a reflection of our incredibly talented team with nearly 10 years of expertise and experience navigating different economic environments. This expertise relies on our vast analytics and artificial intelligence capabilities that allow us to make near real-time operational decisions to react to changes in economic circumstances at both the consumer and the macro level. We will continue to take a conservative approach towards the direction of the economy in order to optimize credit performance and continue to drive operating leverage. In our enterprise business, we use our software platform to connect and match consumers with real-time personalized financial product recommendations from banks, insurance, and fintech companies on mobile apps and websites by enabling the display of offers for financial products to consumers. This extensive network covers a breadth of products including loans, credit cards, mortgages, savings, and insurance products, and distribution channels comprising high intent customers. Our infrastructure leverages machine learning and advanced data science to solve a significant pain point in financial services customer acquisition, bridging financial institutions referred to as product partners and new sites or content publishers referred to as channel partners via our API and embedded finance marketplaces. Our unique combination of content, data, and product marketplace drives self-reinforcing benefits. I'll briefly touch on each of these now. First, our large top of funnel has been a consistent driver of both our efficient customer acquisition strategy and our data advantage. We saw over 28 million consumer inquiries in Q3, bolstering our ability to offer personalized offerings and content. Second, our data advantage is fueled by our large top of the funnel. Approximately 32 million user profiles have passed through our platform to date. benefits from the vast amount of contextual data that we see compounds over time, allowing us to drive better outcomes for our customers. Third, our extensive suite of products bolstered by our network of over 1,000 enterprise partners gives us a broader set of solutions to better match customers with the best products for them. Collectively, this creates a virtuous cycle of customer acquisition, personalization, monetization, and retention that only becomes more valuable with scale. We've been talking about our powerful business model for a while now, but now we can proudly say that our results in 2022 have demonstrated the flywheel in action. With a consistently low CAC, a compounding data strategy, and an expanding network of enterprise partners, we're able to both drive better outcomes for our customers and scale our business efficiently. With that, I'd like to pass it over to our CFO, Rick Correa for a financial update.
spk01: Thanks, Steve. Good morning to everyone. I look forward to sharing details about our record financial performance and unit economics driven by our key metrics that Dee presented. As we are going through the financials, please note that unless otherwise stated, I will be referring to adjusted results and all quarterly period references referred to the third quarter of 2022 versus the third quarter of 2021. Our GAAP consolidated financial statements and non-GAAP reconciliations are available in today's earnings release and our 10Q filings. As a reminder, in Q1 2022, we realigned our financials to better reflect our consumer and enterprise businesses and KPIs. Let's take a deeper look at these two businesses in terms of their respective revenue streams. Our consumer business generates revenue from four broad categories. Instacash. This is our popular earned wage access product, which generates revenues in the form of instant transfer convenience fees and tips. RoarMoney. This is our first-party banking product. Roar Money generates revenues in the form of interchange, payment network, and cardholder fees. Investing. We offer our customers the ability to invest in managed investment accounts and crypto. These offerings include auto investing, roundups, and rewards functionality to help our customers develop healthy investing habits. We generate rev share on crypto transactions and a monthly per account fee on investment accounts. Credit Builder Plus. This is our membership product, which has helped many of our customers increase their credit scores and improve their financial lives. Revenues from this product comprise membership fees and interest income. Our enterprise business revenue includes affiliate fees. We work with various affiliate partners that provide third-party products on our marketplace in our consumer app. We earn performance-based revenue based on a range of criteria such as a completed transaction or a share of revenue generated by the affiliate partner. Similarly, our enterprise market business earns performance-based revenue through our network outside of the app. Enterprise SaaS. Moneyline also earns revenue from SaaS contracts for providing infrastructure to our enterprise accounts for connecting product partners to channel partners. Advertising Fees. Additionally, given our deep understanding of customers' interest in transactions, we are able to offer our customers targeted content and offers that generate advertising fees. And lastly, our media division generates revenue from providing content and production services to creators, influencers, and corporate clients, or what we sometimes refer to as content as a service. In Q3, our revenue mix remained relatively stable with the second quarter at about 40% enterprise and 60% consumer. The deceleration in our mix shifting towards our 50-50 steady state revenue split expectation was a result of the weakness in enterprise product partners' ad spend impacting our marketplace business. While we continue to expect our mix to move towards 50-50 consumer enterprise over time, the timing has become less certain in the current environment. That said, given our focus on improving our offering and adding additional product and channel partners during periods of softness in the industry, we are positioning ourselves for an outsized rebound in demand for our enterprise offering as the market returns to a more normalized state. Our unit economics showed continued strength in the third quarter. Our POO was $68 in Q3, slightly lower from last quarter as we continue to scale our user base at a significant pace. This lower ARPU represents a growing mix of new customers, which historically reach higher ARPU levels as they mature. We saw another great quarter for customer acquisition costs with a fully loaded CAC of $8. As we continue to see industry forces pressure higher CAC from many of our peers, our low cost advantage fuels our ability to acquire more customers for less over time. As we look forward, We expect to maintain attractive unit economics regardless of the macro climate. I'd also like to take a moment to discuss the realignment of our total customers metric, given the integration of the marketplace business. Previously, total customers included a relatively small cohort of marketplace customers that submitted for or clicked on an offer, but were not necessarily monetized, which we changed beginning this quarter in order to more accurately align with management's view of our customers. The total customers for all prior periods have been recast to present the updated definition of total customers. Our corresponding change has also been reflected in total products. Turning to retention, another continued great story for us where we continue to see constructive trends across our business. As you can see, our adjusted revenue retention for historical cohorts in both our consumer and enterprise businesses has remained robust despite the more challenging macro backdrop. Notably, our adjusted revenue retention in Q3 2022 was positive across all 2021, 2020, 2019, and pre-2019 enterprise customer cohorts. This speaks to the stickiness of our marketplace offerings. Altogether, these retention trends are differentiated in the industry and are an indicator that gives us confidence in our ability to drive recurring revenue across any economic cycle. Despite the softer than expected top line revenues in our enterprise business, we again delivered an improvement in adjusted EBITDA on the third quarter. We saw a $14 million adjusted EBITDA loss in Q3, in line with our guidance range and about a $4 million improvement over Q2 2022. As we reduced our cash burn rate, we ended the third quarter with $189 million in cash, which provides more than adequate runway through profitability and future growth. We are continuing to make progress towards reaching profitability and realizing acquisition synergies. Continuing these efforts, we are actioning over $15 million in annualized run rate fixed cost savings in Q4 2022. Adjusted revenue for the quarter grew 103% year-over-year to $85 million, another record quarter for us and our seventh consecutive quarter with 100% plus year-over-year growth. While we continue to scale our business, we are taking a more deliberate focus on reaching profitability. We are revising our full year 2022 adjusted revenue guidance to $320 to $330 million, reflecting the ongoing weakness in ad spend that is impacting our enterprise business. In Q3 2022, we generated $49 million of adjusted gross profit representing about a 58% gross margin and within our previously guided range of 55% to 60%. We continue to expect our gross margins to return to the 60% to 65% range over the medium term as we realize synergies in our consumer business with more product offerings, scale our enterprise SaaS business, and prioritize high-quality enterprise customers. As mentioned, macroeconomic conditions have led to an increase in consumer demand for financial products, as well as a reduction in advertising spend across the industry in which our enterprise customers operate. As a result, we were revising our full year 2022 guidance and removing the timing of our adjusted EBITDA breakeven target. We now expect full year 2022 adjusted revenue of $320 to $330 million and adjusted EBITDA loss of $70 to $65 million. As mentioned, we are reducing our annualized fixed costs by 15 million this quarter, which, along with our strong balance sheet, provides adequate runway well beyond the point at which we reach near-term profitability. Overall, our business continues to drive towards profitability without sacrificing growth. We're uniquely positioned and committed to continue making progress towards both profitability in the near term while scaling the business for the long term. With that, I'll turn it over back to Dee for closing remarks.
spk02: Thanks, Rick. 2022 has been a challenging year for our customers, our peers in the industry, and for market participants broadly. Nevertheless, we remain incredibly excited about what we are building, and we are confident in our ability to navigate through economic cycles. Industry-wide macroeconomic conditions have impacted areas of our business, no doubt. But we have taken important steps to optimize our cost structure, to keep scaling our business, while progressing each quarter towards our path to profitability. Our fundamental performance remains incredibly strong, with Q3 marking yet another quarter of triple-digit top-line growth and adjusted EBITDA improvement. Looking ahead, we're confident that we will come out the other side of this economic cycle in an even better position. We will continue to focus on what we can control while building on our powerful two-sided marketplace underpinned by our content data, and marketplace assets that continue to redefine how consumers think about and consume money-related products. Thank you very much for joining us today, and we look forward to taking your questions.
spk00: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2. if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. Once again, that's star one to ask a question at this time. One moment while we pose our first question. Our first question comes from George Sutton with Craig Hallam. Please proceed.
spk05: Good morning, Dee, Rick, and Sean. This is James on for George. Thanks for taking my questions. If possible, could you provide any insight or quantify the mix of net news that you're seeing come through even financial channel partners, channels associated with Malka and then some of your direct channels?
spk02: Hey, James. Good morning. I'm going to turn it over to Rick to answer that.
spk01: Yeah, absolutely. I think what you'll see, James, is that the synergies that we talked about that we would be realizing through the EVEN and the bulk acquisitions are really manifesting themselves in the new customer ads. We don't kind of break out the separation between what comes through the consumer business versus the enterprise business. We are realizing those synergies both through what we're seeing from the excess demand and as we were showing on the demand curve and starting to kind of realize those customers as we address that excess demand through expanding the number of credit partners as well as the number of other asset class partners that we're adding into the enterprise platform.
spk02: Yeah, I'll add that, look, it's been a quarter of a lot of mix shifts and substitution effects. We talked in the prepared remarks about the slowdown in advertising and marketing spend on the enterprise side of our business. But we saw an opportunity there really to execute in expanding the product partners to really be much more diversified than they were in the past, right? So when there's, of course, the percentage of applications that are being funded, when that dries up, it's an opportunity for us to expand the product partners on the network. The elegance of having a real bidding system in that network allows us to, again, continue to really drive that makeshift over time, which makes up for some of the weakness that we're seeing from our core customer base there.
spk05: Great. And then your motto of helping customers in times of excess and times of need. Since we're likely in and moving more and more into a time of need, I'm just curious, can you talk about what you're seeing in terms of any changes in user behavior on the platform and any change in adoption of new products or engagement on the app in the last few months?
spk02: Yeah, look, I think we saw another very strong quarter of the consumer. Credit performance across our consumer businesses has been actually holding up very well. As we mentioned in our prepared remarks, we've taken a more conservative approach to managing that credit performance. You know, the products that we're seeing the most engagement from are our daily content feed, you know, the content that we're creating, the curating as well from creators. And, of course, the combination of our digital banking product combined with the Instacash product continues to show continued product market fit. On the consumer marketplace side, we're seeing, again, our ability to use what we know about the consumer. Right now, we've talked a lot about our data advantage. Given the bank transaction data, given the intent and the preference data that the consumer tells us, we're now able to provide a lot of advice on what the next best product is at any given financial inflection point. And we're seeing consistent engagement with those capabilities. The American consumer remains strong through our vantage point. What we see as potential headwinds in Q1 and Q2 is forcing us to take a much more conservative approach to managing that. But nevertheless, given that we have pillars of advice and content, we're still able to fulfill the demand for different products through education, through literacy, through engagement in our mobile applications, as well as throughout the ecosystem.
spk05: And then lastly for me, if I could, the lower marketing spend makes sense, but I'm curious what you can do internally to sort of continue to grow or stabilize the even financial business through what could be continued declines in marketing spend over the next few quarters.
spk01: Yeah, that's actually one of the big opportunities that we are seeing. So when you look at the demand curve, we added the largest publishers and finance companies to the platform, which drove that unprecedented demand in the marketplace. So in terms of the headwinds in the macro tightening of risk based on increased cost of capital from lenders in the marketplace, that temporarily causes them to reduce that product supply. But the massive opportunity is that while we can't control the macro environment, we can control meeting that excess demand. And that's very much in our control. Leverage is really what MoneyLion does exceptionally well, which is execution. So our ability to now efficiently expand the number of credit partners, new asset class partners is going to kind of increase that equilibrium point over the coming months and quarters. So we kind of view this much more as an opportunity for growth. versus kind of stabilizing the enterprise platform.
spk05: Great. Thanks for taking my questions.
spk01: Thanks, James.
spk00: Thank you. Our next question comes from Josh Siegler with Cantor Fitzgerald. Please proceed.
spk03: Hi, this is Will Carlson. I'm for Josh Siegler at Cantor Fitzgerald. As you look forward kind of into 2023, and you touched on this a little bit, but where do you see kind of the product mix shifting and of that 1.2 million and the incremental products for the quarter, was that consistent with the current product mix or are you kind of like noticing certain products increasing in adoption specifically? And then that quarter over quarter increase in overall engagement of three times, kind of, yeah, where are you seeing that beyond just the live product feed that you've mentioned? Thanks.
spk02: Yeah, hey, Will. Thanks for the question. So I'll kick it off. You know, we're continuing to see, as we said, a lot of product market fit on the consumer side for the platform approach that we've taken. Our ability to create our own content really diversifies and creates a unique reason for consumers to download the Moneyline app. If you look at our social strategies, if you look at our acquisition strategies through some of the partnerships that we've done with the NBA G League, with influencers and creators, with the NIL programs, we're expanding the type of consumer that wants to engage with financial literacy, money hacks, money tips. They want to learn how to really think about the first investment account, how to think about taxes, how to think about almost every financial inflection point, we are becoming the go-to destination for that conversation. We're having a investor day on the 8th of December. We're super excited about unveiling really the combination of the acquisitions that we've made and what that relates to by way of our product roadmap. Really showing the future state of a form factor change in how Americans consume financial literacy is what we're going to be unveiling on the 8th. And we're super excited to show that to you. As it relates to, you know, where is the three times spike coming from engagement? It's again, look, it's air, land and sea in a lot of ways. You know, our referrals, our peer to peer programs are working very well combined with roundups, right? I mean, given where the financial markets are, it's an excellent time for first time investors to start legging in to auto investing 10 cents, 15 cents with every transaction, $10, $5 every day into guided portfolios. So we're taking a lot of effort from our go-to-market strategies to be the voice of reason to our customers. Oftentimes they're not privy to the expansive financial literacy that maybe everybody on this call has. So we are the beacon for them in terms of that first foray into the financial markets. And that's helping us become a trustworthy source for that daily conversation. So all of that together is all leading to culminating into what we've set it out to really execute on is to be that daily destination for financial content, financial advice, and financial literacy.
spk03: Super helpful color. And yeah, I'm a big fan of the strategy and look forward to seeing the team in December. Awesome.
spk00: Once again, to ask a question, that's star one on your telephone keypad. Our next question comes from Hal Getsch with Loop Capital. Please proceed.
spk04: Hey guys, I just wanted to ask you about your guidance in the CFPB. You mentioned you're removing kind of your targeted EBITDA profitability kind of timeline. And, you know, since conditions really changed in the last six to eight weeks. Just wanted to get your perspective, you know, since you have great cost control and the business is still growing, you know, why you're making that move right now. And probably it's pushed out, you know, maybe a quarter or two, and most of us were expecting that anyhow. So give us your thoughts on that.
spk01: Yeah, hey, Hal. Thanks for the question. You know, when it comes to the, you know, focus on EBIT break-even, you know, we continue to make great progress towards that, as you can see from the quarter. And we mentioned taking out about $15 million of annualized fixed costs out of the platform as well. So we continue to realize more and more synergies, you know, across the acquisitions that we've done. You know, when we think about the macro headwinds, you know, we want to be very focused on continuing to hit that near-term profitability. And so that's somewhat out of the control for the enterprise business in terms of the near-term or revenue impact that that business is seeing. And so I think we feel really confident in continuing to make that march towards being EBITDA break-even. And we see that the steps that we're taking from the fixed cost extraction along with the expansion of the product partners that we have within the platform currently, and we're going to be adding over the coming months and quarters, put us on a great trajectory. We have more than adequate cash from that perspective, exiting with $189 million of cash. It gets us kind of well through that near-term profitability date and allows us to also fund our growth that we're planning for the next year.
spk04: Okay. Thanks, Rick. Well, just to follow up, it seems like many, many companies in fintech or specialty finance are really taking a hard look at how they add initial customers. Because I agree with Dee's statement that you're returning customers, you have so much data on them, they're so much more profitable. But it seems like everyone else is out there, everyone is cutting back from that, serving a new customer to a certain extent. You guys seem to be alluded to that, but your new customers are still growing, you still have great momentum. In a time of need, what would it take for Moneyline to be you know, that place to go for that first time customer in time of need. It was another question on that, but it seems like the time is, you know, maybe you're prioritizing, is it because you're prioritizing profitability over growth right now? Is that kind of the answer right now, given this uncertainty?
spk02: Yeah, Hal, so remember our credit products, it's a great question. Our credit products are high velocity, short duration, and it works like a payments product, right? So we actually have the ability not to necessarily take that much risk with a new customer while we get to know them, right? So what you'll see in the industry right now that we're seeing all time highs in fraudulent accounts being created. And this is really where our machine learning and artificial intelligence shines because of the data advantage that we have, because we've been doing it almost for a decade now and the team's been working together cohesively for a decade. we're able to offer those payments-like products to more people than a lot of our peers, frankly. And because we don't have the longer-duration personal loan on our balance sheet, we're then able to get that customer that we're getting to know into our marketplace. So when Rick was talking about the addition of product partners that give us visibility to increased margin in Q1 and Q2 and next year, it's because we're able to take vetted users and present them to our network for some of our product partners to then provide products to in a very seamless way. That is a really unique part of the secret sauce that makes the margin profile work here.
spk01: I think we should be deliberate in this state, which is we are the go-to destination for helping customers in need. We saw 27 million leads in the quarter. Customers are coming to us, and the strategy around having that optionality of both first-party products and third-party products increases our ability now to help our customers. And that's been something we've been executing as we acquired the marketplace business. And now that opens up the ability for us to be a more important partner. You can see it in a couple places. You can see it in our ability to acquire customers. You can see it in our ability to acquire customers at a lower CAC. You can see it in the cohort trend that we've presented, where we're continuing to show our ability to retain customers, and the customers that we're bringing in continue to reflect customers that had a great performance profile from a first-party credit perspective. And where that isn't the right answer, you can see that we've added an increasing number of customers through the enterprise business.
spk04: Great. Last one for me, if I can. I have to ask about the CFPB and your subscription product. Wanted to get your thoughts on how long you think that might take to be resolved.
spk02: Hey, I'll take that one. So, look, we're early in the litigation, so we can't comment too much on the specifics of that. I'd really encourage you to look at the press release we issued where, you know, really what we said there was that this litigation impacts certain elements of our membership program, right? So, we've actually innovated significantly with the membership program. And the amount of features and elements that we have in there is industry-leading, right? But it's important to remember that it's just one of the many products that we offer on our platform, and it comprises a relatively small part of our P&L. So overall, we continue to believe that these claims are meritless, and we intend to vigorously defend ourselves in court with that. And I think outside of that, I think our lawyers would tell us that that's probably all we could say.
spk04: I agree. Thanks a lot. That's what I had to ask, though.
spk00: Thank you. We have come to the end of the Q&A session, and I would like to thank everyone for joining today's conference call. This concludes today's conference, and have a great day.
Disclaimer