8-K: BM Technologies Reports 10% Revenue Growth in First Half of 2024, Driven by Interchange and Card Revenue

BM Technologies reported a 10% year-over-year increase in first-half 2024 revenue, reaching $28.7 million, with significant growth in interchange and card revenue.

Summary

• BM Technologies, a digital banking platform, announced its second quarter and first half 2024 results.
• First half revenue reached $28.7 million, a 10% increase compared to the same period last year.
• Second quarter revenue was $12.5 million, slightly down from $12.6 million in Q2 2023.
• Interchange and card revenue increased by 57% year-over-year in the second quarter.
• The company experienced a net loss of $4.8 million in Q2 2024, or $0.41 per diluted share, which includes $1.6 million in one-time costs related to technology implementation.
• Core EBITDA loss for Q2 2024 was $0.9 million, while the first half Core EBITDA was $0.5 million.
• The company has $12.5 million in cash, $0.4 million in working capital, and no debt.
• Average serviced deposits were $685 million, and ending serviced deposits were $642 million at the end of June 2024.
• Debit card spend totaled $631 million in Q2 2024 and $1.4 billion in the first half of 2024.
• The company added approximately 60,000 new accounts in Q2 2024 and 160,000 in the first half of the year.
• Higher education organic deposits totaled $366 million in Q2 and $814 million in the first half of 2024.
• The company retained 99.3% of its higher education institutional clients and signed three new colleges in the first half of 2024.
• The company disbursed over $1.9 billion in refunds to students in Q2, with 12% going into BankMobile Vibe checking accounts.
• A new cash back rewards engine was launched in July for Vibe customers.
• The company has signed 15 universities for its IDV product year-to-date.
• The BaaS business is currently unprofitable and is expected to expire in February 2025, with a potential $1 million per quarter increase in core EBITDA if wound down.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with strong revenue growth in some areas offset by losses and challenges in others. The positive growth in interchange revenue and the launch of new products are encouraging, but the net loss and the unprofitable BaaS business are concerning. The sentiment is neutral to slightly negative.

Positives

• The company achieved a 10% year-over-year revenue increase in the first half of 2024.
• Interchange and card revenue saw a significant 57% year-over-year increase in Q2 2024.
• The successful implementation of the NextGen technology platform is expected to drive future growth.
• The launch of the IDV product provides a new revenue stream and enhances the company's value proposition.
• The company has a strong cash position with $12.5 million and no debt.
• The company retained 99.3% of its higher education clients.
• The launch of a cash back rewards engine is expected to increase transaction volume.
• The company signed three new colleges and universities in the first half of 2024.

Negatives

• The company reported a net loss of $4.8 million in Q2 2024.
• Q2 2024 Core EBITDA loss was $0.9 million.
• The BaaS business is currently unprofitable.
• Debit card point of sale spend decreased by 4% in the higher education vertical and 6% in the BaaS vertical during Q2 2024.
• Average deposits in the BaaS vertical declined 47% from Q2 2023.
• Total ending deposits decreased by 24% year-over-year.

Risks

• The company faces risks related to general economic conditions, consumer adoption, technology, and competition.
• Continuing interest rate volatility poses a risk to the company's financial performance.
• The company is exposed to regulatory risks and risks associated with the higher education industry.
• The performance of the company's partners, including bank partners, higher education partners, and BaaS partners, could impact results.
• The BaaS relationship is set to expire in February 2025 and is currently unprofitable.
• The company's higher education business is seasonal, with the second quarter typically being the weakest.

Future Outlook

The company anticipates revenue growth in 2024 driven by investments in the Higher Education vertical and the full year effect of Durbin-exempt interchange rates. They also expect a positive Core EBITDA in 2024 based on higher revenues and stricter cost controls.

Management Comments

• Luvleen Sidhu, BMTX's Chair, CEO, and Founder, stated, 'This quarter we have made strong progress towards our strategy of digital transformation and setting the stage for growth in our higher education business going forward.'
• Luvleen Sidhu also stated, 'the year-over-year increase in interchange and card revenue is validating our strategy of switching to a Durbin exempt bank.'
• Jamie Donahue, President and Chief Technology Officer stated, 'Our technology transformation is driven by our vision to modernize our platform architecture and offer innovative products and services to our customers.'

Industry Context

The company's focus on digital banking and BaaS aligns with the broader trend of financial technology companies seeking to disrupt traditional banking. The emphasis on higher education also positions them in a niche market with specific needs.

Comparison to Industry Standards

• While the company's revenue growth of 10% in the first half of 2024 is positive, it is important to compare this to other fintech companies in the digital banking space. Companies like SoFi and LendingClub have shown varying growth rates, and a detailed comparison would be needed to assess BMTX's performance relative to its peers.
• The 57% year-over-year increase in interchange and card revenue is a strong indicator of the success of their Durbin-exempt bank strategy, but this needs to be compared to the interchange revenue growth of other similar companies.
• The company's net loss of $4.8 million in Q2 2024 is a concern, and it is important to compare this to the profitability of other fintech companies. Many fintech companies are not profitable in their early stages, but a comparison to similar companies would be needed to assess the severity of the loss.
• The company's cash balance of $12.5 million is relatively low compared to some of its larger competitors, and this could limit their ability to invest in future growth. A comparison to the cash balances of other similar companies would be needed to assess the company's financial health.
• The company's BaaS business is currently unprofitable, which is a concern. It is important to compare this to the profitability of other BaaS providers. Some BaaS providers are profitable, while others are not, and a comparison would be needed to assess the company's performance in this area.

Stakeholder Impact

• Shareholders may be concerned about the net loss and the unprofitable BaaS business.
• Employees may be impacted by the company's cost control measures.
• Customers may benefit from the new products and services being launched.
• Higher education partners may benefit from the IDV product and the company's focus on the higher education vertical.
• The company's bank partners may be impacted by the company's performance and strategy.

Next Steps

• The company plans to launch a new product before the end of the year providing financial, insurance, and wellness benefits.
• The company will enhance its direct deposit experience and external account linking for funding.
• The company will host a conference call and webcast on August 15, 2024, to discuss its second quarter 2024 results.

Key Dates

Keywords

digital banking, BaaS, interchange revenue, card revenue, higher education, technology platform, IDV, SaaS, EBITDA, deposits, debit card spend