Q2 2024 BM Technologies Inc Earnings Call
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Good morning, everyone and welcome to the B M technologies second quarter 2024 earnings call.
Please note that this event is being recorded.
Following managements prepared remarks, we will hold a question answer session.
For those joining us on the webcast you can submit your questions online or the management team can see them.
At this time I'd like to turn the conference call over to Brian Plentiful Investor Relations for P. M technologies. Please go ahead.
Brian Plentiful: Thank you operator, and good morning, everyone.
Speaker Change: Thank you for joining the <unk> technologies second 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Also during the course of today's call the company will be discussing one or more non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the press release, we issued yesterday afternoon.
Speaker Change: This time I will now turn the call over to love leads do B M technologies CEO Lee.
Speaker Change: Yeah.
Lee: Thanks, Brian and good morning, everyone.
Speaker Change: Joining me on today's call is a J C J <unk>, our CFO and Jamie Donahue, our president and Chief Technology Officer.
Speaker Change: Today, we are looking forward to sharing with you our financial results for the second quarter and first half of 2024 and also to discuss our strong progress in our technology transformation and growth initiatives.
Speaker Change: Before getting started I want to provide you with some brief financial highlights.
Speaker Change: Operating revenues for the three and six months ended June 30th 2024, total $12 5 million and $28 7 million, respectively, compared to $12 6 million and $26 million for the three and six months ended June 30th 2023 up 10% in the first half.
Speaker Change: The 2024.
Speaker Change: Our Q2, 2024 interchange and card revenue increased 57% year over year validating our strategy of switching to a durbin exempt bank.
Speaker Change: Our core EBITDA for the second quarter was the proxy with a loss of approximately 880000, a slight improvement compared to our core EBITDA loss of 906000 in the second quarter last year.
Speaker Change: As you May recall, there is a considerable amount of seasonality in our higher education business with the second quarter generally being the weakest quarter of the year, we look forward to the upcoming fall peak when students returned back to school.
Speaker Change: Shortly <unk> will provide further details on our financial performance, but before that I would like to provide some additional commentary for the second quarter.
We made strong progress towards our strategy of digital transformation and setting the stage for growth in our higher education business going forward.
We completed our technology platform transformation and cutting edge micro service architecture platform that unlocks our ability to bring additional products and services to market at an industry leading pace.
Speaker Change: This significant investment enables us to offer student customer base targeted products and services in a compliant manner.
Speaker Change: Our technology rollout was quickly followed by the launch of our first major products for our student customers. In July. This was the launch of our Cashback rewards engine, which is the most important feature that our customers have been asking for it.
Speaker Change: Over the last 12 months, we have already seen great engagement with this new feature with over $20000 and cashback value put back in the pockets of our customers.
Speaker Change: Not only our students benefiting but we are also seeing early engagement.
Speaker Change: Matrix improve.
Speaker Change: Well the customers taking advantage of this feature swiping on average one more time a month than a typical active account customer.
Speaker Change: This feature is the first of many that are expected to increase transaction and deposit volume and thereby revenue.
Speaker Change: What's the next Gen technology, we are very excited in terms of what we can offer our students over the following quarters, increasing the value proposition for the vibe accounts as well as our revenue potential.
Speaker Change: Also in the second quarter, we experienced a strong response to our new identity verification or idd product, which we launched in the first quarter. As a reminder, our ITB product is an innovative software as a service product that assists universities and mitigating fraud blah blah blah.
Speaker Change: All mobility joined the student enrollment process, ideally leverages robust AI and machine learning tool empowering universities to maintain their risk level preferences with data driven insights and significantly enhances their fraud detection capability, we believe adding this product to our technology.
Speaker Change: Stock will attract more college and University partners create a new source of revenue for us and reduce fraud for our University partners and for the company as well.
Speaker Change: Year to date, we have signed on 15 universities for this product and have a strong pipeline and anticipate solid sales through the remainder of the year as part of our improved technology stack and service offering I D. The increase the stickiness and lifetime value of our existing higher education relationships.
Speaker Change: And opens the door for new University relationships as well.
Speaker Change: We continue to view the higher education business as a market with ample opportunity to deepen customer relationships increased customer lifetime value and unlock new revenue streams.
Speaker Change: This remains an unique opportunity only available to be M. T X due to our distinctive customer acquisition model and longstanding contractual relationships with colleges and universities across the country. We are very pleased with the foundational steps our team has taken to transform the outlook of this business and position.
Speaker Change: US for greater profitability in the future as our growth initiatives ramp up.
Speaker Change: I will now hand, it over to Ajay to review our financial performance in the second quarter in more detail and to provide more context.
Ajay: Thank you lovely.
Ajay: During the second quarter of 2024, the company earned $12 5 million of operating revenue in line with revenue in the prior year quarter.
Ajay: Interchange and card revenue totaled $2 3 million for the second quarter of 2024 as compared to $1 5 million in the prior year.
Ajay: Interchange and card revenues were up 57% driven by the change in the partner bank with Durbin exempt interchange rates.
Speaker Change: So everything for you for the second quarter of 2024 totaled $6 9 million as compared to $7 7 million in the prior year.
Speaker Change: Servicing fees were down due to lower average service deposits in the basket.
Speaker Change: Average service deposits totaled 685 million for the second quarter of 2024, a decrease from $828 million for the first quarter of 2024, and 922 million in the second quarter of 2023.
Speaker Change: Compared to the second quarter of 2023 substantially all of the reduction in deposits occurred within our bats vertical with average deposits of $261 million were down 47% compared to $494 million for the second quarter of 2023.
Speaker Change: Due to the interest rate sensitivity with a large portion of these accounts.
Speaker Change: Average deposits in our higher education vertical were relatively flat at $425 million compared to 429 million in the second quarter of 2023.
Speaker Change: Deposits for 90 day active accounts.
Speaker Change: Our higher education vertical.
Speaker Change: At June 30 of 2024 average $1665 up from $1624 compared to the second quarter of 2023.
Speaker Change: Spend totaled 631 million for the second quarter of 2020 for modestly down 4%.
Speaker Change: The second quarter of 2023.
Speaker Change: Spend for 90 day active accounts for the second quarter of 2024 averaged $1853 within our higher education vertical compared to $1855 in the second quarter of 2023.
Speaker Change: In terms of account sign ups. There was 60000, new account sign ups in the second quarter.
Speaker Change: Approximately 160000, new account sign ups in the first six months of 2024.
Speaker Change: Account fees and University piece totaled $3 3 million for the second quarter of 2024, essentially in line with the $3 3 million in the <unk>.
Speaker Change: Second quarter of last year.
Speaker Change: During the second quarter of 2024, the company retained over 99% of its higher education and institutional clients.
Speaker Change: We processed over one 9 billion of student financial aid.
Speaker Change: Fun disbursements during the second quarter of 2024, which compares favorably to the $1 8 billion processed in the second quarter of 2023.
Speaker Change: Of the one 9 billion approximately 12%.
Speaker Change: Or $234 million was dispersed into bank mobile by checking accounts.
With regards to our bass business. This relationship expires in February 2025.
Speaker Change: In the current regulatory and interest rate environment. This business is unprofitable for us.
Speaker Change: In the event of a wind down we expect our pro forma core EBITDA to increase at least $1 million per quarter.
Speaker Change: Run rate basis.
Speaker Change: Core operating expenses totaled $13 4 million for the second quarter of 2024 compared to $13 5 million incurred for the second quarter of 2023.
Total expenses were $17 2 million compared to $17 7 million in the second quarter last year.
Speaker Change: Total operating expenses included $1 6 million of onetime costs related to the implementation of our next gen platform through higher technology and professional services costs.
Speaker Change: Core net loss before interest taxes, depreciation and amortization totaled negative $2 6 million.
For the second quarter of 2024 compared to coordinate loss of negative $4 1 million in the second quarter of last year.
Speaker Change: Core EBITDA was a negative 881000.
Speaker Change: Light improvement over our core EBITDA loss of negative 906000 in the second quarter last year.
Speaker Change: Liquidity remains strong at June 30 of 2024 with $12 5 million of cash.
Speaker Change: 0.4 million of working capital and no debt.
Speaker Change: Note the second quarter is seasonally our weakest quarter, and we anticipate delivering positive core EBITDA for the full year of 2024.
Jamie: And with that I'd like to turn the call over to Jamie what he's discussions on our technology investments and improvement.
Jamie: Jamie.
Jamie: Thank you AJ good morning, and thank you for your time today.
Jamie: I'm happy to update you on our progress on the technology transformation that we've been discussed discussing over the last few quarters.
Jamie: We've launched our new platform architecture and is a foundation for our web and mobile interface for our bank Mobil five customers this quarter.
Jamie: I'd like to remind you that our technology transfer ratio was driven by our vision to modernize our platform architecture and offer innovative new products and services to our customers with exciting new features to enhance the overall user experience.
Jamie: This transformation also allows us to stay ahead of the changing landscape by being able to deliver a full service banking functionality via Apis <unk> embed, our technology and other ecosystems seamlessly.
Jamie: Our investment in our platform has also unlocked our capability to integrate best of breed partners into our products and services rapidly.
Jamie: I would like to discuss exciting new details on two new features that we have brought to market and our own production this quarter.
Jamie: The first offering I want to discuss is our exciting new cashback rewards engine through our partnership with card and mobile in shared this new feature was launched in July and allows customers to earn cashback on everyday debit purchases effortlessly.
Jamie: Helping them save their hard earned money and build a solid financial foundation for the futures.
Jamie: For the future customers benefit from our comprehensive reward solution that contains brands, they know and love, helping them discover new brands maximizes our savings through discounts and rebates on everyday spending.
Jamie: This rapid market launches a working example of our investment in our platform listening to the needs of our customers and introducing products through revenue generating partnerships.
Jamie: Adding cards innovative rewards as a service API into the bank mobile vibe checking account underscores our dedication to innovation, while leveraging our upgraded technology platform.
Jamie: The second product, we have launched is our identity verification service or ITV.
Speaker Change: The Idd solution plays a key role in the University enrollment process, providing enriched identity information to inform University driven business rules for Decisioning on student enrollment applications.
Speaker Change: The solution involves managing data, we already received our disbursement disbursements distribution flow with the higher education clients that have subscribed to the SaaS service.
Speaker Change: We've created a unique delivery point through either a file based batch processing, we're accustom API integration.
Speaker Change: Neither of these methods methods ensure rapid deployment frictionless integration and a secure control over the information shared.
Speaker Change: This is another example would be MTX leveraging the investment of our platform architecture that is the foundation for these and all new offerings, we will launch in the coming quarters.
Speaker Change: We are excited to bring these new features to life at pace, while increasing our partnership value to our higher education and banking all of our customers.
Speaker Change: We have gone live with two higher education clients with 13, others and implementation in Q2 and have a strong pipeline and we're executing on in the current quarter.
Loveline: Before I turn the call back over to Loveline I want to continue to update you on our progress we've made on the AI and machine learning fronts. We.
Loveline: We are committed to being a data driven firm that weaves in AI and machine learning where appropriate to enhance our operational operations and efficiency.
Loveline: We continue to deploy robotic process automation or RPE modules, and our back office to increase efficiency, while reducing our rates are.
Loveline: Our custom develop Rps also lower overall expenses and fraud compliance and our operational teams.
Loveline: On the <unk> on the AI front, we have made significant progress and investment in our own proprietary large language model that leverages, our private secure dataset that we'll anticipate our customers' needs and address potential issues. We are internally piloting this new technology now and hope to release it to our customers over the next few quarters.
Loveline: Before I wrap up I want to take a moment and thank all of our dedicated and talented associates to bring this amazing technology to life. Thank you.
Loveline: I look forward to continuing to continued innovation and an exciting future for BMT X and with that I turn the call back over to Loveline for some closing remarks globally.
Loveline: Thank you Jamie.
Loveline: Our priority in the second quarter was the technology and product enhancements, we made and we believe these investments set the foundation for future growth the trends and momentum in our core business remains strong and we are optimistic about our future as.
Speaker Change: As mentioned earlier, our best partnership is approaching expiration in February 2025, and the current regulatory and interest rate environment. This business is unprofitable for us.
Speaker Change: In the event of a wind down the MTX would be significantly more profitable.
Speaker Change: While we believe we have a superior and valuable product offering for the best programs. We believe the current macro environment makes it challenging to maintain profitability of these programs.
The higher Ed business remains profitable and our primary focus for tackling growth.
Speaker Change: Given the unique nature of this asset and the investments we have been making we have also been receiving inbound interest for our business at values substantially higher than todays stock price and our board has encouraged us to explore all strategic options that enhance shareholder value and.
Speaker Change: In 2024, we have been particularly focused on three key tactics to position us for growth now that we have our technology in place.
Speaker Change: Our first tactic is to drive growth in usage and a student accounts by launching value enhancing products and features for our customers now that we have launched our cashback rewards programs. The next program product, we anticipate launching before the end of the year is in offering providing financial insurance and wellness Ben.
Speaker Change: To our customers. This was also one of the top requested products and our customer survey and we look forward to sharing more as we get closer to a rollout dates are.
Speaker Change: Our second growth tactic is to continue to offer value added products and services to our colleges and universities. This year, we will continue to accomplished through the sale of our new IDB product. We are excited that the pipeline for this product remains strong and lastly, we are investing in an omnichannel marketing approach.
Speaker Change: Leveraging new marketing automation and AI based marketing strategy to better engage with both our university and student customers and a more personalized fashion. We believe these efforts will also lead to improved engagement.
Speaker Change: We have created a unique marketplace with universities on one side and student customers on the other overtime. 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 increased our revenue potential. Our go forward road map will be based.
Speaker Change: On listening to and understanding our customers' wants and needs and then delivering.
Speaker Change: You for joining us on our call today, we will now open the line for questions.
Speaker Change: If you would like to ask a question over the phone. Please press star followed by the number one on your telephone keypad to withdraw any questions Press Star one again, we'll pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from Bill does alone Mike Grondahl from Northland Securities. Please go ahead. Your line is open.
Speaker Change: Yeah, Hey, guys. This is Mike.
Speaker Change: With the potential for the bass wind down.
Speaker Change: Is there like an advance notice period.
Speaker Change: Do you still have to let that customer no like six months in advance 90 days in advance how does that work.
Speaker Change: Jamie you want to take that.
Jamie: Sure Hey, Mike Good morning, Yes, Theres, there with any program wind down those parameters.
Speaker Change: That's all we can say at this point, we just wanted to share with you.
Speaker Change: The our view on that side of our business. So there are parameters. So that's about all I can get it on the call.
Speaker Change: Got it got it okay.
Speaker Change: And then.
Speaker Change: It's nice to see that you know next gen plants for them is in and the rewards program was launched kind of two questions related to that.
Is there any more light you can shed on finance insurance and wellness benefits you know what what type of features that will be specifically.
Speaker Change: And then secondly.
Speaker Change: The the $1 6 million you incurred in two Q do you expect to incur any more.
Speaker Change: Nextgen Alcoa, Inc implementation costs in <unk>.
Speaker Change: Let me take the second one and Jimmie can answer the first part of the question. So the one time cost of one six where we're truly just for Q2, when we do not anticipate.
Jimmie: <unk> them to reoccur in <unk> or <unk>.
Jimmie: Jamie you want to take the first part of the question.
Jimmie: Sure and that was.
Jimmie: Mike You just remind me that was that was what is the wellness. Yes, we will have a water flood insurance and wellness I'm, just kind of wondering what kind of benefits or services those are for the student.
Speaker Change: Well, we will put a press release out ahead of that launch just just as we did with card details the outline but it's it's it's what you can imagine it's a it's to expand on the marketplace globally and has been talking about over the last few quarters to add those detailed financial wellness and.
Speaker Change: Other products will be in there I don't want to I don't want to get too far field on that partnership is is actively being worked but we're really really excited about what features we will bring to our users.
Speaker Change: Okay. Okay. Thank you I'll jump back in the queue.
Speaker Change: As a reminder to ask a question. Please press star followed by one our next question comes from Bill Desert Lemons from Titan Capital. Please go ahead. Your line is open.
Speaker Change: Great. Thank you a a group of questions first of all the I'd verification.
Speaker Change: Will that be sold two universities that you do not currently work with on the disbursement side and so it could be a door opener or is it solely.
Speaker Change: Solely for universities that you are working with currently.
Speaker Change: Hey, Bill Jamie here good morning, good to talk to you again.
Speaker Change: That's that's our plan in fact, we have a number of universities that are not disbursements clients today that are in implementation. So if we think it's a unique.
Speaker Change: Market niche that will open the doors for us for all the business lines.
Speaker Change: And is there.
Speaker Change: Is there any advantage to a to a non disbursement customer or a university that takes on the I'd verification product.
Speaker Change: Then the.
Speaker Change: The question is is there an advantage to them.
Speaker Change: Choosing him to work with you on the disbursement side or are those different enough admissions versus.
Speaker Change: Finance that debt.
Speaker Change: It's only the relationship as opposed to some integration benefit.
Speaker Change: Yeah, Great Great question, we know our existing disbursement clients love the integration and the cemetery, we gave them with because the data Lake as I mentioned in my in my earnings call here.
Speaker Change: Get that file already from the University. So theres no extra lift we do see a symbiotic relationship when customers use the IDB, scoring data along with our disbursements.
Speaker Change: There is a lift in their it department and really that market, where we're in a market dominant position right from the University of perspective right. So this is another way to get.
Speaker Change: Our foot in the door and introduce them to the power of the MTX and as you're aware those contracts are cyclical. Some some universities are part of a larger ecosystem with some big ERP that might do parts of this it really gives us a chance to have a seat at the table with these universities that we don't do that.
Speaker Change: With and we're Super excited about it.
Speaker Change: Okay, given that there that there are synergies.
Speaker Change: As you think about your two to three year roadmap do you have additional products that you are imagining or that are in the works that will that.
Speaker Change: That will be added to the University.
Speaker Change: Quiver.
Speaker Change: Absolutely yes.
Speaker Change: What I can say, it's our roadmap and inside of that 36 month Horizon. You you suggested we think that.
Speaker Change: Because of our relationship and because of our platform architecture that we built we can bring other value added products and services to our university clients for sure.
Speaker Change: Okay, Great. That's helpful and then the universities that and I realize it's a small number but the universities that are using the I'd verification today are they doing it for all students applications or a small portion of those applications that they deem to be higher risk.
Speaker Change: Yeah. So that that's the uniqueness of this scoring idea from an enrollment process. Some large universities have had a similar technology that they've developed in house, but by and large or midsize community colleges Technical University, just don't have that capability. What we're seeing is they are doing samples.
Speaker Change: A sample of their of their what we call a she sees our applicants.
Speaker Change: In the testing phase, but we have had experience where customers have taken their whole enrolment population, which could be as high as 401 for active seats, we're seeing closer to one five.
Speaker Change: Applications to seats, but we've also had customers that have done it I'll look back of existing so all the prior enrolled.
Speaker Change: Just to score them. So they can make some some internal decision. So it's the gamut right now I think as they get more comfortable with with the technology and what value. It provides that we see.
Speaker Change: We see the look back in the all model as the way forward.
Speaker Change: Okay, Let me make sure I just heard what you. What you said Jamie is that you think with what a university should do it.
Jamie: Is use the data to evaluate.
Jamie: The last recent.
Jamie: Recent tranches of students.
Speaker Change: Have that data.
Speaker Change: Our knowledge I'm now thinking machine learning.
Speaker Change: He then can take that and apply that to 100% of their applications.
Speaker Change: And and identify what level of.
Speaker Change: What level of fraud, they are willing to tolerate essentially.
Speaker Change: Yeah, the scoring and then each each university will have their own business logic on that scoring and how they want to handle it but yes.
Speaker Change: Correct that was a correct recap.
Speaker Change: Okay. Thank you I appreciate that and then talking about the new AI technologies that you are piloting.
Now do you anticipate that those will be revenue generating or these.
Speaker Change: The example, the pilot example that you gave on the opening remarks is that primarily going to be used.
Speaker Change: Four.
Speaker Change: Increasing retention, just being higher value and increasing the retention or is it a revenue generator. In addition to retention increaser.
Yes, it's a great great question.
Speaker Change: Initially I think I think where we see that technology landing is it's it's servicing our customers better.
Speaker Change: Keeping them a real time tool to answer questions about their account specific to them help them with financial wellness.
Speaker Change: We think of it in terms of not so much revenue generating or charging folks for it initially, but we do see it as an opex reduction to minimize calls to the call Center.
Speaker Change: And increase engagement with our customers. So we expect a lift on the opex side not necessarily from a.
Speaker Change: Revenue side at this at this point.
Speaker Change: Great. Thank you and then one additional question please.
Speaker Change: The rewards engine have you seen behavioral changes in the in the first month from the students that are that are using this besides I guess you noted the one additional transaction per month do you have any other data.
Speaker Change: And that that that's insightful yeah, yes, so really really really proud of this so we track active customers in all of our active customers that we rolled this out 30% of signed up for the service.
Speaker Change: So that's a pretty good penetration rate and it's what we launched at July 7th.
Speaker Change: So my my statistics are from July 7th August six I think is my latest data looking at my notes correctly and of that 30%. We theres been an increase of one point for more transactions for that for that cohort.
Speaker Change: So and lovely mentioned $20000 had been put back in our and our students pockets in the form of rebates and rewards. So we are you know this has been a long in fact, when we when we surveyed our customers. This was the number one thing that they were looking to us for.
Speaker Change: And the unlock was was our was our technology investment Nextgen, So really really happy really excited about the penetration and how it could help our customers.
Speaker Change: Yeah.
Speaker Change: And how does that.
Speaker Change: One four additional transactions a month compared to what you would have.
Speaker Change: Per month in the month.
Speaker Change: How does that compare to what you would have thought.
Speaker Change: You have hoped for.
Speaker Change: It's actually a little bit above.
Speaker Change: A little above plan and frankly from what we see right now we hope it. It's an early it's early early days and early trends, but we wanted to share with you that we're really impressed with the performance. The adoption is really what we are.
Speaker Change: If they don't adopt it if the users don't don't subscribe to it then we have no chance that those transactions. So we're.
Speaker Change: We're really excited to be able to share some more metrics with you in the coming quarters.
Speaker Change: Hey, Jamie I will actually follow up on what that adoption what does it take for someone to to adopt rewards or sign up I guess, what's the what's the friction to make that happen.
Jamie: Yeah, we really worked hard at the at that making that frictionless I think in total will be because you already have vetted valid bank mobile via customer and because we are using an API integration I think it's three screens in total.
Speaker Change: And three screens for you to sign up.
Speaker Change: And most of those screens are you choosing which which.
Speaker Change: Which vendors you want to do business with which where do you want to get your rewards so because it's API based architecture.
Speaker Change: Our card also as an API platform based architecture and now bank mobile Baidu sits on a platform based architecture that makes it I won't say every everything has a bit of friction you have to choose it but after that it's it's really simple.
Speaker Change: Great. Thank you for taking all the questions.
Speaker Change: No problem.
Speaker Change: As a reminder to ask a question. Please press star followed by the number one on your telephone keypad.
Leslie <unk>: We have no further questions in queue I'll turn the call back over to Leslie <unk> for closing remarks.
Leslie <unk>: Thank you everyone for joining us today, and we look forward to meeting with you next quarter have a good one bye bye.
Speaker Change: Sticking with it.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
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