Full Year 2023 SHF Holdings Inc Earnings Call
Good afternoon, and welcome to the Safe Harbor financial Q4, 2023 earnings call.
Please note that this call is being recorded.
All participants are now in listen only mode. After the Speakers' remarks, there will be a question and answer session.
He would like to ask a question. Please press star followed by the number one on your telephone keypad.
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I will now turn the call over to Eric Okay. You may begin your conference.
Eric: Thank you good afternoon, everyone and welcome to the fourth quarter and full year 2023 earnings conference call for Safe Harbor financial before we start. Please note that remarks made today include forward looking statements, including statements with respect to the company's outlook and the company's expectations regarding.
Its market opportunities and other financial operational matters.
Eric: Forward looking statements discussed on today's call are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.
Eric: Actual results and the timing of current events may differ materially from the results or timing predicted or implied by such forward looking statements and reported results should not be considered as an indication for future performance.
Eric: Additional information regarding these factors appears under the heading risk factors in the Companys filings with the Securities and Exchange Commission or the SEC, which are available at www SEC Gov and on our website at IR <unk> S. H financial that work the forward looking statements in this call speak only as of today's date.
Eric: And the company undertakes no obligation to update or revise any of the SEC.
Eric: Also during the call Safe Harbor, well for example, GAAP and non-GAAP financial measures a reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on the company's Investor Relations website on the SEC website.
None: Tyler amounts expressed today are in U S currency presenting today will be Sandy <unk>, Chief Executive Officer, and Jim Kennedy, Chief Financial Officer, Steve Harker, I'll now hand, the call over to Sandy Sandy. Please go ahead.
Sandy: Thank you Erica and welcome to our 2023 year end earnings call.
Sandy: 2023 was another strong year of financial growth to safe Harbor with record revenue of $17 $6 million, an increase of 85, 3% up from $94 8 million in 2022. In addition to our continued year over year growth.
Sandy: We have impacts we elevated our position.
Sandy: One Scott Financial service center for cannabis related businesses across the country building, an extensive suite of compliance financial products and services.
I am also pleased to report that we have reached a point in our evolution, where we have optimized our team.
Sandy: Click platform to deliver multiple high margin revenue streams that are expected to contribute meaningfully to our growth going forward by successfully scaling our platform with new credit and deposit tools. We have continued to differentiate the safe harbor from our peers further demonstrate.
Sandy: The underlying value of our expertise and experience in this complex segment of the finance industry.
Sandy: To better understand our unique market position and capabilities. It is important to understand the role we play as a trusted intermediary between CRB and financial institutions.
Sandy: Safe harbors compliant cannabis infrastructure intuitively interfaces with each of our financial institution partners to seamlessly manage financial transactions, ensuring the highest level of oversight validation and compliance by eliminating the risk that's serving the cash intensive Canada.
Sandy: The industry without interruption and now in our case here.
Sandy: Harbor has established itself as a critical component of the financial transaction process and more importantly, our fintech platform has become a gateway to introducing additional banking solutions to the cannabis industry.
Sandy: The core driver of our business as customer to us.
Sandy: City, which since 2015 has facilitated over $21 5 billion in deposits across 41 states.
Sandy: <unk> thousand 20, <unk>, our goal was to facilitate for $1 billion in deposits in 2023, we facilitated approximately $4 2 billion in deposits, representing an increase of approximately 66, 7% compared to the three 6 billion we reported in 2022.
Sandy: For the full year 2023, as compared to the full year 2022 revenue increased 85, 3% consisting primarily in key components as follows deposit and Onboarding income increased by 42% investment income increased by 175 six.
Sandy: Percent and loan interest income increased by 163% with the loan book increasing 194%.
Jim will provide additional detail on these three revenue components in his review of the fourth quarter and year end financials.
Sandy: The strength of these results is extremely impressive, especially when taking into account. The July 2023 termination of our master services and revenue sharing agreement with Central Bank.
Sandy: As a result, our total number of clients.
Sandy: Greece from 1040 as of March 30, <unk> 2023 to 721 as of December 31 2023.
Sandy: Second the account losses on deposit related fees were first recognized in quarter. Four 2023. Please note that we are actively engaged with potential new financial partners eager to enter the high growth can this banking industry.
Sandy: Against this challenging backdrop, our safe Harbor continued to deliver strong results a testament to our ability to diversify the business launched additional fee generating products and services, which collectively has allowed us to increase our business activity with our valued customer base for example.
Sandy: The average monthly revenue per account increased 35% year over year to $8298 up from $6154 for the same period in 2022. In addition, our average per account balance for the full year 2000.
Sandy: 23 was $219835 compared to $215 million to $16 million in 2022.
The growth in monthly fee revenue is a function of higher business volume.
Sandy: I'll be on a smaller account and deposit base, which is happening across the entire banking sector, even though the deposits are down the velocity of money training through the system is increasing our revenues have historically been driven by depository fees, which are composed of deposits on board.
Sandy: Compliance monitoring and validation fees. However, with the addition of new service offers offerings. Our recent financial results represents a more diversified income stream, which resulted in a strong total revenue growth for fourth quarter and the full year 2023.
Sandy: The diversification of our income streams has allowed us to remain competitive given the fact that most of our competitors are incapable of diversifying their income, especially with lending our proven ability to add new revenue streams, including lending.
Sandy: And deposit offerings as well as investment income represent key areas of differentiation for safe Harbor.
Sandy: As we leverage our expertise to <unk>.
Sandy: The evolving cannabis finance industry and scale our operations to meet increasing demand we are seeing other financial institution desire to exit the market as they do not have our capabilities nor are they solely focused on this market segment.
Sandy: Our team is fully dedicated to Canada financial services, which furthers, our competitive edge and high level competency in our business. Our interests are not divided and this is a key competitive advantage undistracted by other markets requiring banking services.
Sandy: Safe Harbor, <unk> ability to offer highly competitive rates on loans.
Sandy: Two new customers along with the opportunity to provide additional lending services to our established long term customer base allowed us to increase the size of our loan book to 50 $566 million at the end of December 31, 2023. This compares to a loan book of <unk>.
Sandy: <unk> $9 million at the end of December 31, 2022, representing a significant increase of 194% year over year as a result of higher loan activity. We have steadily increased our loan income, creating a powerful new high margin revenue channel.
Sandy: Our safe Harbor total loan interest income from 2023 with $2 $97 million.
Sandy: Representing an increase of 163% up from $103 million in 2022.
Sandy: Further supporting our financial and operational growth last year was the introduction of an expanded line of deposit and credit tools that has allowed us to further optimize our deposit base in July 2023, we launched the first interest bearing commercial deposits accounts.
Broadly available to Kansas businesses nationwide, providing depositors with the opportunity to earn interest income with no maximum unbalanced limitation.
Sandy: In September 2023.
Introduced a new line of credit product to support Canada Enterprises, who historically has face difficulty obtaining debt financing at reasonable terms.
Sandy: Our investment income correlates directly with deposit base and loan book as our financial institution partners collect interest on loans and deposits in line with our increased account activity. We recognized an increase in investment income with investment income increasing 175 six.
Sandy: 258 $4 million in 2023 up from $2, one 2 million in.
Sandy: In 2022.
Sandy: The fact that we have achieved strong financial growth in 2023, while facing market headwinds due to slower industry growth and increased competition, along with the loss of deposit accounts from the termination of our partnership with Central Bank.
Sandy: Volumes to the strength of our business model.
Sandy: It remains our goal to increase our deposit base with more active accounts to grow our investment income and facilitate greater lending opportunities. It is just as important to strengthen our fintech platform with more sophisticated products and services to create additional revenue channels and improved margins we have several.
Sandy: These throughout the remainder of 2024 that we expect to lead to the increase in both our deposit activity and number of accounts.
We are also very optimistic about our continued growth in 2024 and beyond as we continue to see increasing efforts to loosen restrictions on canvas weighted businesses with the advancement of the safer banking app and reclassify and candidates to a schedule III drug as more and more.
Sandy: Canada related businesses advance opportunities to expand their operations and enter new markets, we believe our expertise and streamlining operations and proficiency in compliance management will continue to set us apart, placing us at the forefront of an even larger market by consolidating accounts.
Sandy: Greater size, our clients can take advantage of optimizing efficiencies and navigating the BSA, which will be continued obstacles, even with regulatory changes the BSA requires maintaining rigorous compliance standards, which are crucial to uphold.
Sandy: I'd like to now turn the call over to Jim to discuss our financial results for the year ended December 31 2023, Jim.
Jim Kennedy: Thanks, Sandy and good afternoon, everyone.
Jim Kennedy: For the fourth quarter of 2023 total revenue increased more than 25% to $4 $5 million compared to $3 6 million in the same period last year.
Jim Kennedy: Our results for the fourth quarter of 2023 included incremental revenue of $549000, resulting from a strategic shift that occurred in the fourth quarter of 2023 related to how we apply earn interest for the aggregate average daily balance of our client deposits.
Jim Kennedy: This methodology was applied retroactively at the beginning of 2023 with the incremental revenue recognized in the fourth quarter of 2023.
Jim Kennedy: For the full year ended December 31, 2023, total revenue increased 85% to $17 6 million.
Jim Kennedy: Compared to $9 5 million in 2022.
Jim Kennedy: As Tony previously mentioned in her comments investment income increased by 176% to $584 million in 2023 versus $2 1 million reported in 2022.
Jim Kennedy: Loan interest income increased by 163% to $2 $97 million in 2023 versus a $113 million reported in the prior year.
Jim Kennedy: And deposit activity and Onboarding income increased by 42% to $8 $6 million in 2023 versus $6 $1 million reported in 2022.
Jim Kennedy: Operating expense in the fourth quarter of 2023 decreased by approximately 17% to $6 2 million compared to $7 $4 million in the comparable prior year period.
Jim Kennedy: Lower operating expenses in the fourth quarter were primarily the result of lower compensation related expenses as well as lower professional services and consulting related expenses.
Jim Kennedy: This was offset by $2 million charge for impairment of developed technology has taken in the fourth quarter of 2024.
Jim Kennedy: For the full year ended December 31, 2023, total operating expense increased to $38 3 million versus.
Jim Kennedy: Versus $11 $7 million in 2022.
Jim Kennedy: The increased operating expense versus 2022 was attributable to goodwill and other impairment charges from the second quarter of 2023 related to the abaca transaction.
Jim Kennedy: An impairment charge to develop technology taken in the fourth quarter of 2023 also relates to the Abbott transaction.
Expenses related to a restructuring of the abaca transaction consideration completed in the fourth quarter of 2023.
Jim Kennedy: And stock based compensation expense.
Jim Kennedy: The company reported $2 $5 billion of net income in the fourth quarter of 2023 versus a loss of $37 million in the prior year period.
Jim Kennedy: The driver of the net income produced in the fourth quarter was attributable to the previously mentioned additional investment income captured in the fourth quarter.
Jim Kennedy: For the full year 2023, the company reported a net loss of $17 3 million.
Jim Kennedy: Versus a net loss of $35 million.
Jim Kennedy: In 2022.
Jim Kennedy: Net loss reported for the full year was primarily attributable to the impairment of long lived assets and goodwill.
Jim Kennedy: Higher compensation expense and advocate consideration restructuring charges.
Jim Kennedy: When adjusting net income for interest taxes, and depreciation and amortization expense and further adjustments to exclude noncash unusual <unk> in frequent.
Jim Kennedy: We compute in adjusted EBITDA, which management believes provides an accurate measure to evaluate our operating performance.
A reconciliation of net income to adjusted EBITDA is provided in the press release and 10-K filed earlier today.
Jim Kennedy: Adjusted EBITDA for the year ended December 31, 2023 was $3 $6 million.
Jim Kennedy: Versus $1 3 million in 2022.
Turning to the balance sheet as of December 31, 2023, the company reported cash and cash equivalents of $4 9 million compared.
Jim Kennedy: Compared to $8 $4 million at December 31, 2022.
Jim Kennedy: Cash used in operations for 2023 was $832000 versus cash provided by operations in 2022 of $1 7 million.
Jim Kennedy: While the company reported higher operating expenses in 2023 from being a separate Standalone public company versus our 2022 results. The company managed to consistently reduced core operating expenses throughout 2023, while also significantly growing the business.
Jim Kennedy: Turning now to our liquidity, while the company reported $4 $9 million of cash as of December 31, 2023, The company reported a net working capital deficit of $135000.
This is a significant improvement over the working capital deficit of $39 3 million reported at the end of 2022.
Jim Kennedy: A driver of the current working capital deficit is the current portion of the senior secured note OTA partner, Colorado credit Union.
Jim Kennedy: And the deferred consideration owed to Africa shareholders due in November of 2024.
We expect to reverse the working capital deficit anticipate reporting positive working capital in the ensuing quarters of 2024.
Jim Kennedy: We are pleased with results for the quarter and the year and the progress we are making across many aspects of the business and initiatives to remain a dominant financial services provider to the legal cannabis industry.
None: With that I will now turn the call back to the operator to open the call for questions.
None: Thank you.
None: At this time I would like to remind everyone in order to ask a question. Please press star one.
None: Seeing no questions in queue I'll now turn the call back to Sandy Sea freight for any closing remarks.
I would like to thank everyone again for joining us on today's call and for your continued interest in Safe Harbor financial we have proven the strength and value of our business model now given our strong financial institution partnership network, which continues to grow and our success in advancing new growth.
None: To meet the needs of today's candidates industry participants. We believe we are on a strong path for continued results. We look forward to updating with you on our continued progress on our next quarterly conference call. Thank you and have a great day.
None: This concludes today's conference. Thank you for joining us and you may now disconnect.
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