MoneyLion Inc. (NYSE:ML) Q4 2023 Earnings Call Transcript

MoneyLion Inc. (NYSE:ML) Q4 2023 Earnings Call Transcript March 7, 2024

MoneyLion Inc. beats earnings expectations. Reported EPS is $-0.00116, expectations were $-0.59. ML isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and welcome to MoneyLion Inc.’s Fourth Quarter and Full Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. We will have a question-and-answer session following the formal presentation. [Operator Instructions] Please note this conference is being recorded. Before we go further, I would like to turn the conference over to Sean Horgan, MoneyLion’s Head of Investor Relations. [Technical Difficulty] Ladies and gentlemen, we thank you for your patience. We will now resume our event. Sir, please go ahead.

Sean Horgan: Thank you, operator. Hi, everyone. Thank you for joining us for our fourth quarter and full year 2023 earnings conference call. MoneyLion’s CEO, Dee Choubey; and CFO, Rick Correia are here with me today to discuss our results. You can find a presentation accompanying our earnings release on our Investor Relations website at investors.moneylion.com. Please note that any forward-looking statements made in this commentary are subject to our Safe Harbor statement found in our SEC filings and in our earnings press release. With that, I will turn the call over to Dee.

Diwakar Choubey: Thank you, Sean. Good morning, and thank you all for joining us for our fourth quarter and full year 2023 earnings call. I’m excited to share that MoneyLion had its strongest year ever in 2023. We achieved record financial performance for the year and were positioned to scale efficiently going into 2024. In 2023, we prioritized profitability and we exceeded the guidance we provided on profitability. In 2024 we are well positioned for an efficient growth stance. We’re going to play offense while remaining disciplined on costs and we’re very confident we can do this. Now, let me provide our key investor takeaways for 2023. First, we achieved record revenue of $423 million for 2023. That represents 24% year-over-year growth.

We generated record revenue across both our consumer and enterprise businesses for the year 2023, representing the strength of our two-sided ecosystem. It’s worth repeating we have a diversified revenue model. Our marketplace solutions, technology advantage, customer acquisition and monetization products have set us up nicely as the gateway to American financial services. This diversification provides durability and importantly, it will continue to propel MoneyLion forward and position the company for accelerating growth. Second, we saw gross profit margin expansion for both the full year and the fourth quarter of 2023. Our gross profit margin was 60% in 2023, up from 57% in 2022. We exited the year even higher with a 63% gross profit margin in Q4 2023, up from 61% in Q3 of 2023.

These results exceeded our full year gross profit margin guidance of 58% to 59% and notably, this was our third consecutive quarter of gross profit margin expansion, really demonstrating our ecosystem advantage. Our third key takeaway, we generated record adjusted EBITDA of $46 million in 2023, which represents nearly $110 million improvement compared to the prior year. I want to take this opportunity really to congratulate the entire MoneyLion team for this incredible achievement. This represented an adjusted EBITDA margin of 11%. In Q4, we reached 14.6% adjusted EBITDA margin, up from 12.1% in Q3 2023. This result exceeded our full year guidance of $39 million to $45 million. Q4 2023 also marked our fourth consecutive quarter of positive adjusted EBITDA, demonstrating our ability to scale while funding our growth through organic cash flow generation.

And lastly, we’re setting our sights on our next profitability milestone to reach our first positive GAAP EPS quarter in 2024 and the proof point is that we’re getting really close. Our net loss before other income and expenses and income taxes was only $5.3 million for the year 2023, down from a loss of $98.7 million in 2022 and moreover, in Q4, net loss per share was only $0.41, so positive GAAP EPS inside of 2024 is certainly in our targets. And finally, the fourth and final takeaway I would like to highlight today is the performance of our leading marketplace technology. We saw approximately 205 million total customer inquiries in 2023, up 78% from approximately 115 million in 2022. We are getting to great scale here. I can’t emphasize enough how big of an advantage this is for us as we’re becoming a key component of the broader financial industry’s customer acquisition and monetization infrastructure.

The increasing inquiries also gives credence to our strategy of building value-add data products for our enterprise clients, which is a new growth area for us. Separately, we’re expanding the distribution capabilities of our marketplace technology. We will be focusing more on distribution deals in 2024 and a great proof point was our new strategic alliance with EY. We’re incredibly excited about that relationship and what it means for our business and we’ll discuss it further in a moment. Lastly, we continue to focus on expanding the product verticals offered in our marketplace beyond our core lending verticals. Increasing the mix of revenue from non-lending products helps support our growth through a macro environment marked by higher interest rates throughout 2023.

And now we’ll be leaning into this even further in 2024 as we develop and deepen our presence in areas like insurance, credit cards, mortgages, while building on the foundational strength of our lending and credit verticals. And now turning to total customers, we ended 2023 with over 14 million total customers, representing over 115% year-over-year growth. This means we added more than 7.5 million total customers in 2023. And next to total products, over 23 million total products were consumed on our platform through the end of 2023, compared to 12.9 million at the end of 2022. By the end of the fourth quarter of 2023, 48% of the products consumed were third party products, up from 26% through Q4 2022. This increasing mix of third party product consumption demonstrates the successful execution of our marketplace first approach, which enables us to scale and bring new customers onto our platform through our vast network, which can be accessed both inside and outside of the MoneyLion app ecosystem.

We are positioned to serve each of our customers throughout their financial lives. As we nurture these customer relationships over time, incremental product adoption represents a significant revenue growth and profit opportunity over time for us. As a result, we continue to see inbuilt growth tailwinds in these financial KPIs. As we noted last quarter, we are rapidly approaching the rule of 40, which represents the concept that a company’s revenue growth rate and profitability margin should equal or exceed 40. We believe this is an important target for us as we aim to strike the right balance of growth and profitability. In 2023, our revenue growth was 24% year-over-year and our adjusted EBITDA margin was 11%, representing a total of 35. We’re going to reach the rule of 40 through continued execution.

We’ll focus on continued growth in a few ways. First, continued strength in our consumer businesses, where we now have over a decade of experience building must have consumer finance products and experiences will drive our progress. Second, we’ll relentlessly optimize the very large scaled funnel on behalf of our enterprise partners and find more pathways for cross-sell automation with our ever improving proprietary Mar [ph] tech stack. Third, as we said earlier, we’ll deepen our presence in new vertical coverage across insurance, mortgages and credit cards. And finally, we’ll look to expand our distribution and go-to-market strategies. Rick will discuss this further when he talks through the guidance, but before he discusses our financial performance, I’ll provide a brief update on our business from a product and experience perspective and how that translates into growth opportunities for 2024.

Starting with our consumer business, our personal financial management platform provides any consumer the ability to save, borrow, spend, invest and find personalized financial guidance through a rich and growing community of Americans looking to make their best financial decisions. We have shortened the distance between inspiration and education and conversion, bridging the GAAP that has historically prevented people from taking action. All of this functionality is supported by the latest advancements in AI powered LLM enhanced search, which provides our customers with valuable insights that empower them to budget more effectively and find the right products and offers importantly with context and personalization. It’s also important to note here that we are developing the core underlying technology and data structures to efficiently allow consumers to converse with their money.

Deep consumer research is underway on how artificial intelligence can automate workflows and make better consumer experiences while delivering on the high compliance and regulatory standards that are set for the industry.

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MoneyLion:

MoneyLion:

MoneyLion: So zooming out to our holistic offering more generally, if you look at what we’ve built, it’s the most full featured PFM in the industry. It includes a robust consumer finance platform with many great categories including first party products like our digital wallet, Instacash, full service investing and an entire completion product set through third party integrated products and offers. And of course it comes with intuitive and helpful product applications like calculators for loans, investments, retirement and high-yield savings accounts. All of these help consumers make better decisions for their families. We’ve talked about AI powered search. We talked about the investments we’ve made in the technology here. But from a consumer’s perspective, cutting edge insights and easier budgeting tools than what’s available in the industry are now right around the corner as a natural progression of cutting edge technologies that we’re seeing.

We’re of course at the forefront of delivering those through an application layer directly to our consumers. These tools help us engage and retain our consumer base on our platform with a trusted and meaningful relationship. Our curated content feed is based on each customer’s individual interests and behavior, providing guidance through their financial journey. We’re providing behavioral insights that provide unique benefits that translate to savings. For example, our driver score now tracks how customers drive, potentially saving them significant money on auto insurance. We’re offering credit monitoring. This is a useful tool for consumers as they navigate their financial lives, whether it’s today or tomorrow. And of course, lastly, all of this compounds into and builds up to personalized offers.

These are a function of the one to many network of offers we provide through our marketplace, and our ability to smartly make a next best offer recommendation based on the massive amount of data that we ingest each day becomes really interesting.

MoneyLion: You’ve seen us talk about this slide many times, but it’s a good illustration of our two-sided enterprise network. In 2023, our enterprise business achieved record annual revenue. In our enterprise marketplace during the year, we experienced heightened headwinds in our lending verticals. In particular in Q4, there was a quarter-over-quarter decline in the enterprise business, which we attribute exclusively to the macro environment. However, we have great confidence in this business and see it as a continued pillar to our growth going forward, and we’ll continue to combat these dynamics through our ongoing diversification efforts. In 2023, approximately 60% of our enterprise marketplace revenue was from our personal loan cycle, importantly down from 85% in 2022.

This reflects a tremendous amount of progress in expanding into non-lending verticals. Moreover, it also represents a latent catalyst for growth once the macro environment normalizes. Our network of 1100 plus enterprise partners drove approximately 205 million total customer inquiries in 2023. What does this represent? As we continue to expand our top of funnel with more suppliers and publishers joining our network, our data advantage grows. It also means there’s a large opportunity in front of us to increase conversions for enterprise partners and scale growth. You might have noticed with each passing quarter that the lines between our consumer and enterprise businesses have become increasingly blurred. This is by design. We believe that MoneyLion has the ultimate marketplace solution.

It includes a vast network of enterprise partners who want one to many industry connectivity with simple to use compliance first technology, embedded marketplace technologies that are developer friendly, recommendation and decisioning engines targeting and marketing channel tools and capabilities, a content feed, content as a service capabilities and in-house production and much more. In short, MoneyLion combines the technology, data and AI capabilities, content and product knowledge to help our partners easily acquire, grow and importantly, monetize consumers at scale. And our alliance with EY is a perfect proof point of how we’re bringing this all to market. Thousands of bricks-and-mortar banks, your local credit union or main street bank, are playing catch-up as today’s consumers want more of their financial service to be delivered online.

They’re also fighting deposit consolidation of the top 20 banks. This is where we can really help. MoneyLion brings embedded finance and leading marketplace technology to the table. EY brings decades of trusted expertise in the banking sector and relationships with banks, and together we will deploy turnkey solutions to enable smaller banks to serve an increasingly digital first consumer. Like I’ve said before, distribution is key and this is a great example of the type of alliances we’re building. Both the MoneyLion and the EY teams are excited about this partnership as we begin to ramp up in 2024, and we’ll look forward to providing updates on our progress along the way. And with that, now I’ll turn the call over to Rick to walk through our financials in detail.

Richard Correia: Thanks Dee and good morning to everyone. I look forward to sharing details about our financial performance for the fourth quarter and full year ending December 31, 2023. I will also discuss our guidance and outlook for the first quarter of 2024. For more information, please refer to our GAAP consolidated financial statements and non-GAAP reconciliations, which are available in today’s earnings release and our 10-K filing. Turning to our customer acquisition and lifecycle strategy, our top of funnel drove approximately 205 million total customer inquiries, up 78% from roughly 115 million in 2022. This converted into about 7.5 million new total customers in 2023 and over 10 million total products consumed during the year.

We continue to scale our customer base due in large part to our massive top of funnel. Going forward, one of our key initiatives is to drive incremental uplift in our conversion rates. A small increase here represents a large opportunity. Turning to unit economics, in 2023, our customer acquisition cost was under $15 and our payback period was around three months, consistent with prior periods. Turning to ARPU, ARPU was around $41 for the full year of 2023 and around $34 in the fourth quarter. As we said in prior quarters, we’ve been focused on expanding our TAM and introducing more customers to our platform, and it’s working. This continues to be a deliberate, strategic decision to capture customers in the near-term and then focus on accelerating growth and increasing lifetime value with those customers.

Longer term, we believe we can continue to provide value to new customer cohorts, which will drive ARPU expansion as we expand our relationship with them and then they come back to MoneyLion time and time again for additional content and products. As we’ve demonstrated, quarter after quarter, our revenue continues to be primarily recurring in nature starting with consumer. In the full year of 2023, approximately 80% of our consumer revenue came from historical cohorts. Take a look at 2022, in that cohort you can see that we are successfully deepening our product penetration and revenue expansion, a real proof point for the platform approach to consumer finance. In our enterprise business, over 90% of revenue came from our marketplace from prior year cohorts.

Investments that we make in acquiring new partners has meaningful recurring SaaS like revenue contribution. Shifting gears to total originations. In the fourth quarter of 2023, total originations were $644 million, up 30% year-over-year and 14% just quarter-over-quarter, a real testament to the product market fit and AI-driven underwriting and risk management of consumer originations. And for 2023, total originations were $2.3 billion, up 27% year-over-year. Credit performance trends remained stable in Q4 2023 and for the full year of 2023, our provision expense as a percentage of total originations was 3.4% for the full year of 2023. This demonstrates our continued ability to optimize credit quality as we continuously implement changes and leverage over a decade of experience helping customers meet their liquidity needs with our leading fintech solution.

You’ve heard me say this before, but it’s really worth reiterating that we solved for the origination’s performance outcome and we flex up or we slow down based on our AI signals which allow us to grow and abstract away from the macro environment. Now, turning to some of our other key financial metrics. Revenue for the year grew 24% year-over-year to $423 million. This performance was driven by strength across our entire business, with record revenue in both our consumer and enterprise businesses. Looking at gross profit, gross profit margin for 2023 was 60%, up from 57% in 2022. We exited the year even higher with 63% gross profit margin in the fourth quarter of 2003, up from 61% in the third quarter of 2023. Now on to our path to profitability.

During 2023, we generated $46 million of adjusted EBITDA, making a positive adjusted EBITDA year in parallel with record annual revenue. For the fourth quarter, Q4 marked our fourth consecutive quarter of positive adjusted EBITDA and further margin expansion adjusted EBITDA was $17 million compared to $13 million in the third quarter of 2023. This represents an adjusted EBITDA margin of approximately 14.6%, representing about 250 basis points of expansion compared to 12.1% in the third quarter of 2023. As for our cash position, we closed the year with $92 million of cash compared to $94 million in Q3, while also paying down $10 million of senior debt in Q4. For the full year of 2023, we paid down a total of $25 million of senior debt and we don’t have any additional senior debt principally repayments due until 2026.

As part of our efforts to proactively manage our balance sheet, we are in the process of entering into a new forward flow financing arrangement to finance our originations as an alternative to our current warehouse financing facility. This forward flow arrangement, which we currently expect to enter into in Q2 2024, will simplify our balance sheet and importantly, is a more cash efficient method to finance our originations, allowing us to reinvest in our business. As we continue to drive towards positive GAAP net income, it’s important to note that in Q4 2023, we incurred other expenses of $6 million, of which the majority is attributable to the total litigation related reserves for our previously disclosed litigations. Excluding this one-time nonrecurring expense, MoneyLion would have generated breakeven net income for Q4 2023.

While we are proud of our progress on adjusted EBITDA, we’re always looking forward. As Dee mentioned, we are setting our sights on our first positive GAAP EPS quarter within fiscal year 2024 and based on recent performance and management execution capabilities, we say this with a high degree of confidence. Turning to our results relative to guidance, revenue was $423 million, within our guidance range of $420 million to $425 million. Gross profit margin was 60%, exceeding the high end of our guidance of 58% to 59% and adjusted EBITDA was $46 million, exceeding the high end of our guidance of $39 million to $45 million. This represents an 11% adjusted EBITDA margin, approximately a 30 percentage point improvement relative to 2022. Before I turn to our guidance for the first quarter of 2024, I’d like to discuss key growth drivers for 2024 and why we are expecting to achieve the rule of 40 alongside record revenue, EBITDA and net income.

We believe we are well positioned for growth acceleration in 2024, supported by the following four pillars of growth, continued growth in the consumer business. Our consumer business continues to deliver strong results regardless of the macro environment. Demand for our consumer products remains robust, providing value for our customers. Moreover, this business is growing increasingly efficient and profitable. Our consumer business will continue to serve as a growth engine throughout the year. Relentless funnel optimization. We ingest a tremendous amount of data into our top of funnel. As we’ve mentioned before, we see hundreds of millions of total customer inquiries across our platform each year. While this translated into an impressive number of new customers, we are highly focused on optimizing conversions as a small uplift represents substantial upside to our top line.

Vertical expansion. In addition to continue our market leading position as a credit marketplace, we are working in real time to expand and deepen the number of product verticals we offer in our marketplace. We saw tremendous ROI in the vertical expansion investments in 2023 and are therefore prioritizing this again in 2024. Namely, we are focused on the insurance, credit cards and mortgage verticals. This will continue to diversify our marketplace revenue on the products that we see high demand for over the near and medium-term. Expanded distribution. As Dee mentioned, we are working on strategic partnerships to expand the distribution of marketplace technology. One notable milestone on this front is our recently announced alliance with EY.

We are in the early innings of this alliance, but we’re incredibly excited about the prospect of delivering our marketplace technology to the thousands of banks in the U.S. This represents a massive opportunity and our alliance already has a ready built pipeline that only represents upside to our previously communicated targets. Underpinning these growth pillars a reversion in the macro environment provides additional upside to growth in 2024. As our marketplace business would benefit from a rebound in approval rates within our lending verticals, any positive macro trend that lowers rates will increase conversion, which has material benefits to revenue and unit economics. Now, I’ll turn to our first quarter 2024 guidance. For the first quarter of 2024, we expect revenue between $115 million to $118 million representing 23% to 26% year-over-year growth an acceleration from the 19% year-over-year growth in Q4 2023, adjusted EBITDA of $15 million to $18 million, representing 13% to 15% plus adjusted EBITDA margin.

Going forward, we will no longer be providing financial guidance for gross profit margin as one of our key performance metrics. Due to differences in accounting under the forward floor arrangements versus warehouse facilities, we do not expect gross profit and gross profit margin to present comparable measures of our performance going forward versus historicals as we transition from our current warehouse facility to the new, more cash efficient forward flow arrangement. To be clear, our unit economics remains strong and continued to improve, which is evidenced by our revenue growth, EBITDA and net income targets. Last quarter, we noted that we have a financial profile that is rapidly approaching the rule of 40. Our Q1 guidance reflects that we continue to trend in that direction, implying a rule of 40 metric of 36 to 41 for the first quarter of 2024.

As we look back at 2023, we’re incredibly proud of the progress we’ve made and look forward to another strong year in 2024. With that, I’ll turn it back over to Dee for his closing remarks.

Diwakar Choubey: Thank you, Rick. In closing, I’ll leave you with a couple of final thoughts. 2023 was another great year of performance for MoneyLion and important in our evolution to becoming an industry stalwart. We have come a long way in scaling the business and driving operational efficiency, generating record results in 2023 across our key metrics. While the year was great, we don’t settle for good enough. We’re always looking forward to the next milestone in MoneyLion’s evolution. How can we innovate on our technology, differentiate the value proposition for millions of Americans and scale our financial KPIs further and we have no doubt we’ll continue to drive strong results. On the heels of our record performance in 2023, we couldn’t be better positioned for the setup for 2024.

Our plan hinges on our growth pillars, including continued execution in our consumer business, aided by our plan to move towards a more cash efficient financing mechanism that makes us balance sheet light. It will also hinge on funnel optimizations on the enterprise side, bringing new data products to our partners, deepening our product verticals and expanding our distribution. And of course, as the macro interest rate environment reverts at some point, a rising tide will lift all ships, providing MoneyLion built-in revenue growth for more credit oriented matches on our network. Importantly, due to our increasing scale, we’re now a credible complement and alternative to Google and Facebook for customer acquisition in the financial services sector.

These factors, coupled with disciplined execution, will continue to propel MoneyLion forward in 2024 and beyond and we’re just getting started. Thank you all very much. I will now turn the call back over to the operator before we take your questions.

Operator: Thank you. [Operator Instructions] Our first question comes from George Sutton from Craig-Hallum. Please proceed.

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Q&A Session

George Sutton: Thank you. Wonderful job, guys. Great numbers. So I’m curious, as we look at this EY partnership. You mentioned, it’s not embedded in your guidance, but you have built a pipeline. We’re certainly aware of their competence in the financial services sector, but can you give us a little better sense of how big can this EY opportunity be and are there other partnerships like this that you would look to pursue?

Diwakar Choubey: Hey, George, good morning, it’s Dee. Great question. So, look, I think as we said in our prepared remarks, the idea here is really to co-build turnkey digital solutions alongside EY. And as you can imagine, that we didn’t stumble upon this relationship by mistake, and that there’s been a lot of time spent by both companies, multiple quarters, really setting us up for success. So in that process, we’ve actually had a lot of conversations with potential clients and the demand for the product is actually pretty acute. And if you think about some of the dynamics in the marketplace in terms of midsized financial institutions, do they have access to the right fraud tools, the right KYC tools, the right onboarding tools?

And ultimately everyone’s looking to diversify their deposit acquisition strategies in the world that we’re in with interest rates, as well as their noninterest income and fee generation capabilities. So we can help on all three elements. Right? So this is where EY really opens the door for the distribution element, the trustworthiness element, the relationship element that’s really important in the banking world. And we provide the benefit of the 11 plus years now of building consumer facing technologies. Right. So that’s why, as we’ve taken that to market, we’re seeing a lot of resonance with that product set. So it’s early innings, but we do expect it to be fairly meaningful to our contribution later this year and certainly in 2025.

Richard Correia: Yes, I think we love this question because we didn’t make a big splash with EY, because this is going to be small. And so when we think about the fee pools that are available, it’s in the $20 billion range. And as you know, when MoneyLion sets its sights on a fee pool, we take market share. And so we’re going after the digital transformation of the regional banks, the national banks, the credit unions with our marketplace technology. And so this is really that kind of mosaic coming together in terms of MoneyLion moving very aggressively into providing marketplace technology into the most important customers that we have within our spectrum.

George Sutton: Awesome stuff. One other question. So the CFPB came out and has tapped down the credit card late fees. That is expected to create a fairly significant amount of change in credit availability. I would think for you, being able to provide a breadth of solutions would ultimately be a nice beneficiary of this, particularly as you’re just now entering the credit card vertical. Can you just give us a sense of thoughts there?

Diwakar Choubey: Yes, look, I think, first of all, it’s two days since that’s been announced, so I think the industry will digest it and then they’ll have their proper response that we think will take a while for it to actually get to reality. But the American financial services ecosystem, the industry is incredibly dynamic. The credit card vertical is incredibly dynamic. You have everything from secured cards to subprime to near prime to prime, and they all have different unit economics. Right? So the United States runs on credit card line availability. It’s going to have a multiplier effect for sure in those different verticals. But as it relates to your question around how it impacts potentially the credit products that we offer, both on a first and third party basis, our positioning as a marketplace really sets us up well.