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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
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☐
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Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 |
For the transition period from to
Commission file number 001-38633
BM Technologies, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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82-3410369 |
(State or other jurisdiction of incorporation or
organization) |
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(I.R.S. Employer Identification No.) |
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201 King of Prussia Road, Suite 350 |
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Wayne, Pennsylvania
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19087 |
(Address of Principal Executive) |
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(Zip-Code) |
(877) 327-9515
Registrant's telephone number, including area code
(Former name, former address, and former fiscal year, if changed
since last report)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common Stock |
BMTX |
NYSE American LLC |
Warrants, each whole warrant exercisable for one share of Common
Stock at an exercise price of $11.50 per share |
BMTX-WT |
NYSE American LLC |
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports); and (2) has been subject to such filing requirements
for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of large accelerated filer, accelerated filer,
non-accelerated filer, and emerging growth company in Rule 12b-2 of
the Exchange Act.
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☒
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Yes
☐
No ☒
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes
☐
No ☒
The registrant had issued and outstanding 12,238,447 shares of
common stock, par value $0.0001 per share, as of November 14,
2022.
Table of Contents
Part I - Financial Information
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS — UNAUDITED
(amounts in thousands, except share and per share
data)
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September 30,
2022 |
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December 31,
2021 |
ASSETS |
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Cash and cash equivalents |
$ |
26,433 |
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$ |
25,704 |
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Accounts receivable, net allowance for doubtful accounts of $149
and $79
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8,614 |
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9,194 |
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Prepaid expenses and other assets |
6,951 |
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2,099 |
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Total current assets |
41,998 |
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36,997 |
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Premises and equipment, net |
575 |
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346 |
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Developed software, net |
24,025 |
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28,593 |
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Goodwill |
5,259 |
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5,259 |
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Other intangibles, net |
4,509 |
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4,749 |
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Other assets |
— |
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398 |
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Total assets |
$ |
76,366 |
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$ |
76,342 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Liabilities: |
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Accounts payable and accrued liabilities |
$ |
10,503 |
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$ |
6,947 |
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Taxes payable |
— |
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1,807 |
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Current portion of operating lease liabilities |
— |
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416 |
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Deferred revenue, current |
11,262 |
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15,387 |
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Total current liabilities |
21,765 |
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24,557 |
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Non-current liabilities: |
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Deferred revenue, non-current |
2 |
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190 |
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Liability for private warrants |
3,997 |
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13,614 |
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Total liabilities |
$ |
25,764 |
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$ |
38,361 |
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Commitments and contingencies (Note 8) |
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Shareholders’ equity: |
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Preferred stock: Par value $0.0001 per share; 10,000,000 shares
authorized, none issued or outstanding at both September 30,
2022 and December 31, 2021
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$ |
— |
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$ |
— |
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Common stock: Par value $0.0001 per share; 1 billion shares
authorized; 12,238,447 shares issued and outstanding at
September 30, 2022; 12,193,378 shares issued and outstanding
at December 31, 2021
|
1 |
|
|
1 |
|
Additional paid-in capital |
69,901 |
|
|
60,686 |
|
Accumulated deficit |
(19,300) |
|
|
(22,706) |
|
Total shareholders’ equity |
$ |
50,602 |
|
|
$ |
37,981 |
|
Total liabilities and shareholders’
equity |
$ |
76,366 |
|
|
$ |
76,342 |
|
See accompanying notes to the unaudited consolidated financial
statements.
BM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) — UNAUDITED
(amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Operating revenues: |
|
|
|
|
|
|
|
|
Interchange and card revenue |
|
$ |
5,325 |
|
|
$ |
6,529 |
|
|
$ |
17,283 |
|
|
$ |
21,530 |
|
Servicing fees from Partner Bank |
|
10,163 |
|
|
11,823 |
|
|
37,650 |
|
|
31,774 |
|
Account fees |
|
2,110 |
|
|
2,569 |
|
|
6,872 |
|
|
7,847 |
|
University fees |
|
1,357 |
|
|
1,474 |
|
|
4,406 |
|
|
4,129 |
|
Other revenue |
|
903 |
|
|
446 |
|
|
1,702 |
|
|
4,164 |
|
Total operating revenues |
|
19,858 |
|
|
22,841 |
|
|
67,913 |
|
|
69,444 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Technology, communication, and processing |
|
7,731 |
|
|
5,082 |
|
|
21,944 |
|
|
21,903 |
|
Salaries and employee benefits |
|
10,773 |
|
|
9,137 |
|
|
30,656 |
|
|
27,253 |
|
Professional services |
|
2,454 |
|
|
3,496 |
|
|
7,225 |
|
|
7,359 |
|
Provision for operating losses |
|
1,564 |
|
|
1,067 |
|
|
5,006 |
|
|
3,797 |
|
Occupancy |
|
160 |
|
|
192 |
|
|
875 |
|
|
866 |
|
Customer related supplies |
|
225 |
|
|
828 |
|
|
676 |
|
|
1,475 |
|
Advertising and promotion |
|
242 |
|
|
176 |
|
|
461 |
|
|
492 |
|
Merger and acquisition related |
|
— |
|
|
— |
|
|
290 |
|
|
— |
|
Other expense |
|
989 |
|
|
614 |
|
|
2,467 |
|
|
1,537 |
|
Total operating expenses |
|
24,138 |
|
|
20,592 |
|
|
69,600 |
|
|
64,682 |
|
Income (loss) from operations |
|
(4,280) |
|
|
2,249 |
|
|
(1,687) |
|
|
4,762 |
|
Non-operating expenses: |
|
|
|
|
|
|
|
|
Gain (loss) on fair value of private warrant liability |
|
(1,369) |
|
|
6,042 |
|
|
6,916 |
|
|
17,989 |
|
Interest expense |
|
— |
|
|
— |
|
|
— |
|
|
(96) |
|
Income (loss) before income tax expense (benefit) |
|
(5,649) |
|
|
8,291 |
|
|
5,229 |
|
|
22,655 |
|
Income tax expense (benefit) |
|
(729) |
|
|
1,167 |
|
|
1,823 |
|
|
4,262 |
|
Net income (loss) |
|
$ |
(4,920) |
|
|
$ |
7,124 |
|
|
$ |
3,406 |
|
|
$ |
18,393 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding - basic |
|
11,938 |
|
|
11,900 |
|
|
11,944 |
|
|
11,834 |
|
Weighted average number of shares outstanding - diluted |
|
11,938 |
|
|
11,904 |
|
|
12,215 |
|
|
12,359 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic |
|
$ |
(0.41) |
|
|
$ |
0.60 |
|
|
$ |
0.29 |
|
|
$ |
1.55 |
|
Net income (loss) per share - diluted |
|
$ |
(0.41) |
|
|
$ |
0.60 |
|
|
$ |
0.28 |
|
|
$ |
0.03 |
|
See accompanying notes to the unaudited consolidated financial
statements.
BM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY —
UNAUDITED
For the Three and Nine Months Ended September 30, 2022 and
2021
(amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
Shares of Common Stock Outstanding |
|
Common Stock |
|
Additional Paid in Capital |
|
Accumulated Deficit |
|
Total |
Balance at December 31, 2021 |
|
12,193,378 |
|
|
$ |
1 |
|
|
$ |
60,686 |
|
|
$ |
(22,706) |
|
|
$ |
37,981 |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
3,964 |
|
|
3,964 |
|
Share-based compensation expense |
|
52,569 |
|
|
— |
|
|
2,919 |
|
|
— |
|
|
2,919 |
|
Conversion of private warrants to public warrants |
|
— |
|
|
— |
|
|
725 |
|
|
— |
|
|
725 |
|
Tax paid on behalf of employees related to net settlement of
share-based awards |
|
— |
|
|
— |
|
|
(225) |
|
|
— |
|
|
(225) |
|
Balance at March 31, 2022 |
|
12,245,947 |
|
|
$ |
1 |
|
|
$ |
64,105 |
|
|
$ |
(18,742) |
|
|
$ |
45,364 |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
4,362 |
|
|
4,362 |
|
Share-based compensation expense |
|
(7,000) |
|
|
— |
|
|
3,053 |
|
|
— |
|
|
3,053 |
|
Balance at June 30, 2022 |
|
12,238,947 |
|
|
$ |
1 |
|
|
$ |
67,158 |
|
|
$ |
(14,380) |
|
|
$ |
52,779 |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
(4,920) |
|
|
(4,920) |
|
Issuance of common stock as compensation |
|
6,000 |
|
|
— |
|
|
37 |
|
|
— |
|
|
37 |
|
Share-based compensation expense |
|
(6,500) |
|
|
— |
|
|
2,706 |
|
|
— |
|
|
2,706 |
|
Balance at September 30, 2022 |
|
12,238,447 |
|
|
$ |
1 |
|
|
$ |
69,901 |
|
|
$ |
(19,300) |
|
|
$ |
50,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
Shares of Common Stock Outstanding |
|
Common Stock |
|
Additional Paid-in Capital |
|
Accumulated Deficit |
|
Total |
Balance at December 31, 2020 |
|
6,123,432 |
|
|
$ |
1 |
|
|
$ |
64,017 |
|
|
$ |
(39,749) |
|
|
$ |
24,269 |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
16,059 |
|
|
16,059 |
|
Valuation of private warrants |
|
— |
|
|
— |
|
|
(30,839) |
|
|
— |
|
|
(30,839) |
|
Recapitalization transaction |
|
4,759,911 |
|
|
— |
|
|
16,148 |
|
|
— |
|
|
16,148 |
|
Issuance of common stock as compensation |
|
1,317,035 |
|
|
— |
|
|
2,323 |
|
|
— |
|
|
2,323 |
|
Share-based compensation expense |
|
— |
|
|
— |
|
|
811 |
|
|
— |
|
|
811 |
|
Balance at March 31, 2021 |
|
12,200,378 |
|
|
$ |
1 |
|
|
$ |
52,460 |
|
|
$ |
(23,690) |
|
|
$ |
28,771 |
|
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
(4,790) |
|
|
(4,790) |
|
Share-based compensation expense |
|
— |
|
|
— |
|
|
2,389 |
|
|
— |
|
|
2,389 |
|
Balance at June 30, 2021 |
|
12,200,378 |
|
|
$ |
1 |
|
|
$ |
54,849 |
|
|
$ |
(28,480) |
|
|
$ |
26,370 |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
7,124 |
|
|
7,124 |
|
Share-based compensation expense |
|
6,000 |
|
|
— |
|
|
2,462 |
|
|
— |
|
|
2,462 |
|
Balance at September 30, 2021 |
|
12,206,378 |
|
|
$ |
1 |
|
|
$ |
57,311 |
|
|
$ |
(21,356) |
|
|
$ |
35,956 |
|
See accompanying notes to the unaudited consolidated financial
statements.
BM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
|
2022 |
|
2021 |
Cash Flows from Operating Activities: |
|
|
|
|
Net income |
|
$ |
3,406 |
|
|
$ |
18,393 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Depreciation of premises and equipment |
|
239 |
|
|
147 |
|
Loss on disposal of premises and equipment |
|
38 |
|
|
— |
|
Amortization of developed software |
|
8,581 |
|
|
8,467 |
|
Amortization of other intangible assets |
|
240 |
|
|
240 |
|
Amortization of leased assets |
|
398 |
|
|
644 |
|
Provision for bad debt |
|
70 |
|
|
103 |
|
Share-based compensation expense |
|
8,715 |
|
|
8,019 |
|
Gain on fair value of private warrant liability |
|
(6,916) |
|
|
(17,989) |
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable, net |
|
510 |
|
|
96 |
|
Prepaid expenses and other current assets |
|
(4,851) |
|
|
295 |
|
Other assets |
|
— |
|
|
(366) |
|
Accounts payable and accrued liabilities |
|
3,556 |
|
|
(375) |
|
Taxes payable |
|
(1,807) |
|
|
1,103 |
|
Operating lease liabilities |
|
(416) |
|
|
(535) |
|
Deferred revenue |
|
(4,313) |
|
|
3,840 |
|
Net Cash provided by Operating Activities |
|
7,450 |
|
|
22,082 |
|
Cash Flows from Investing Activities: |
|
|
|
|
Development of internal use software |
|
(4,013) |
|
|
(501) |
|
Purchases of premises and equipment |
|
(506) |
|
|
(51) |
|
Net Cash used in Investing Activities |
|
(4,519) |
|
|
(552) |
|
Cash Flows from Financing Activities: |
|
|
|
|
Repayments of borrowings from Partner Bank |
|
— |
|
|
(21,000) |
|
Recapitalization transaction |
|
— |
|
|
16,888 |
|
Repurchase of private warrants |
|
(1,977) |
|
|
— |
|
Payments related to net settlement of share-based compensation
awards |
|
(225) |
|
|
— |
|
Net Cash used in Financing Activities |
|
(2,202) |
|
|
(4,112) |
|
Net Increase in Cash and Cash Equivalents |
|
729 |
|
|
17,418 |
|
Cash and Cash Equivalents – Beginning |
|
25,704 |
|
|
2,989 |
|
Cash and Cash Equivalents – Ending |
|
$ |
26,433 |
|
|
$ |
20,407 |
|
|
|
|
|
|
Supplementary Cash Flow Information: |
|
|
|
|
Income taxes paid, net of refunds |
|
$ |
7,704 |
|
|
$ |
3,124 |
|
Interest paid |
|
$ |
— |
|
|
$ |
178 |
|
Noncash Operating, Investing, and Financing Activities: |
|
|
|
|
Shares issued to settle Megalith accounts payable in connection
with Recapitalization transaction |
|
$ |
— |
|
|
$ |
740 |
|
See accompanying notes to the unaudited consolidated financial
statements.
BM TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF THE BUSINESS
BM Technologies, Inc. (“BMTX” or “the Company”) (formerly known as
BankMobile) provides state-of-the-art high-tech digital banking and
disbursement services to consumers and students nationwide through
a full service fintech banking platform, accessible to customers
anywhere and anytime through digital channels.
BMTX facilitates deposits and banking services between a customer
and our Partner Bank, Customers Bank (“Customers Bank”), a
Pennsylvania state-chartered bank, which is a related party and is
a Federal Deposit Insurance Corporation (“FDIC”) insured bank.
BMTX’s business model leverages partners’ existing customer bases
to achieve high volume, low-cost customer acquisition in its Higher
Education Disbursement, Banking-as-a-Service (“BaaS”), and niche
Direct to Consumer (“D2C") Banking businesses. BMTX has four
primary revenue sources: interchange and card revenue, servicing
fees from BMTX’s Partner Bank, account fees, and university fees.
The majority of revenues are driven by customer activity (deposits,
spend, transactions, etc.) and may be paid or passed through by
BMTX’s Partner Bank, universities, or paid directly by
customers.
BMTX is a Delaware corporation, originally incorporated as Megalith
Financial Acquisition Corp (“Megalith”) in November 2017 and
renamed BM Technologies, Inc. in January 2021 at the time of the
merger between Megalith and BankMobile Technologies, Inc. Until
January 4, 2021, BankMobile Technologies, Inc. was a wholly-owned
subsidiary of Customers Bank, a wholly-owned subsidiary of
Customers Bancorp, Inc. (the “Bancorp” or “Customers
Bancorp”).
BMTX’s Partner Bank holds the FDIC insured deposits that BMTX
sources and services and is the issuing bank on BMTX’s debit cards.
BMTX’s Partner Bank pays the Company a deposit servicing fee for
the deposits generated and passes through interchange income earned
from debit transactions.
BMTX is not a bank, does not hold a bank charter, and does not
provide banking services, and as a result, it is not subject to
direct banking regulation, except as a service provider to our
Partner Bank. BMTX is also subject to the regulations of the
Department of Education (“ED”), due to its student disbursements
business, and is periodically examined by it. BMTX’s contracts with
most of its higher education institution clients require it to
comply with numerous laws and regulations, including, where
applicable, regulations promulgated by the ED regarding the
handling of student financial aid funds received by institutions on
behalf of their students under Title IV of the Higher Education Act
of 1965; the Family Educational Rights and Privacy Act of 1995
(“FERPA”); the Electronic Fund Transfer Act and Regulation E; the
USA PATRIOT Act and related anti-money laundering requirements; and
certain federal rules regarding safeguarding personal information,
including rules implementing the privacy provisions of the
Gramm-Leach-Bliley Act (“GLBA”). Other products and services
offered by BMTX may also be subject to other federal and state laws
and regulations.
NOTE 2 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
These interim unaudited consolidated financial statements have been
prepared in conformity with U.S. Generally Accepted Accounting
Principles (“U.S. GAAP”). Any reference to applicable guidance is
meant to refer to the authoritative GAAP as found in the Accounting
Standards Codification ("ASC") and Accounting Standards Update
("ASU") of the Financial Accounting Standards Board ("FASB"). These
interim unaudited consolidated financial statements reflect all
normal and recurring adjustments that are, in the opinion of
management, necessary to present a fair statement of the financial
position and the results of operations and cash flows of BMTX for
the interim periods presented.
The preparation of interim unaudited consolidated financial
statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the interim unaudited consolidated
financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Significant estimates
include valuation of deferred tax assets, valuation of private
warrants, goodwill, and intangible asset impairment analysis.
Actual results could differ from those estimates.
ASC 205-40,
Presentation of Financial Statements - Going Concern,
requires management to assess an entity’s ability to continue as a
going concern within one year of the date the financial statements
are issued. In each reporting period, including interim periods, an
entity is required to assess conditions known and reasonably
knowable as of the financial statement issuance date to determine
whether it is probable an entity will not meet its financial
obligations within one year from the financial statement issuance
date. Management has performed this required assessment as of
November 15, 2022 including consideration of the effect of the
First Amendment to Deposit Processing Services Agreement (the “DPSA
Amendment”) entered into between the Company and Customers Bank on
November 8, 2022, see
Note 15 - Subsequent Events
for additional information, and believes there is sufficient funds
available to support its ongoing business operations and continue
as a going concern for at least the next 12 months with projected
liquidity of not less than $5 million even with the anticipated
termination of the DPSA Amendment not later than June 30,
2023.
Management’s assessment is subject to known and unknown risks,
uncertainties, assumptions, and changes in circumstances, many of
which are beyond our control including the impact of the
macroeconomic environment, and that are difficult to predict as to
timing, extent, likelihood, and degree of occurrence, and that
could cause actual results to differ from estimates and forecasts,
potentially materially. Continued increases in interest rates by
the Federal Reserve Bank will cause management to consider raising
interest rates on certain of its serviced deposit accounts thereby
reducing yields on such deposits, negatively impacting projected
profitability and cash flow.
The Company is actively evaluating multiple strategic alternatives
to the DPSA Amendment including internalizing services upon closing
of the previously announced merger with First Sound Bank or
negotiating a new deposit servicing agreement with new potential
bank partners. Failure to timely execute upon one or more of these
strategic alternatives prior to the second quarter of 2023 could
cast substantial doubt upon the Company’s ability to meet its
financial obligations thereafter without additional liquidity and
capital resources.
Based upon the results of Management’s assessment, these interim
unaudited consolidated financial statements have been prepared on a
going concern basis. The interim unaudited consolidated financial
statements do not include any adjustments that could result from
the outcome of the aforementioned risks and
uncertainties.
Prior Period Adjustments
Certain prior period amounts have been adjusted to conform to the
current period presentation.
Balance Sheet Adjustments
In preparation of the Company’s interim unaudited consolidated
financial statements as of and for the three and nine months ended
September 30, 2022, the Company identified that its reserve
for losses resulting from fraud or theft-based transactions that
have generally been disputed by BMTX serviced deposit account
holders and a related receivable were previously presented on a net
basis as a component of
Other assets.
The Company reviewed this presentation and concluded that these
amounts are better presented on a gross basis including the reserve
for losses as a component of
Accounts payable and accrued liabilities
and including the receivable for any billable reimbursements from
our Partner Bank as a component of
Accounts receivable, net.
In addition, the MasterCard quarterly fee assessment was
reclassified from
Accounts payable and accrued liabilities
to
Accounts receivable, net
to better present the fee assessment balance.
Finally, the Company identified certain prepaid taxes that were
previously included as a component of
Other Assets.
The Company reviewed this presentation and concluded that these
amounts are better presented as a component of
Prepaid expenses and other current assets
due to their short-term nature.
The effect of these immaterial adjustments has increased
Accounts receivable, net
by $33 thousand and
Accounts payable and accrued liabilities
by $86 thousand, decreased
Other assets
by $439 thousand, and increased
Prepaid expenses and other current assets
by $320 thousand at December 31, 2021.
Statement of Income (Loss) Adjustments
In preparation of the Company’s interim unaudited consolidated
financial statements as of and for the three and nine months ended
September 30, 2022, the Company identified certain expenses
that were previously included as a component of
Customer related supplies
and
Occupancy
that are better presented as a component of
Technology, communication, and processing.
In addition, the Company identified card replacement fees
reimbursed from a BaaS partner were recognized as a component
of
Account fees
when only the margin of those fees should have been recognized as
revenue and the reimbursable expense should have been recognized as
a component of
Customer related supplies.
The effect of these immaterial adjustments for the three months and
nine months ended September 30, 2021:
•Decreased
revenue from
Account fees
by $59 thousand and $108 thousand,
respectively,
•Decreased
revenue from
Other revenue
by $31 thousand and $119 thousand,
respectively,
•Decreased
expenses from
Customer related supplies
by $189 thousand and $203 thousand,
respectively,
•Increased
expenses from
Technology, communication, and processing
by $189 thousand and $28 thousand, respectively,
and
•Decreased
expenses from
Occupancy
by $90 thousand and $52 thousand,
respectively.
The impact of these adjustments had no effect on
Net income (loss) from operations.
Significant Accounting Policies
These interim unaudited consolidated financial statements should be
read in conjunction with the 2021 audited consolidated
financial statements and related notes of BMTX, which describe
BMTX’s significant accounting policies. There have been no material
changes to BMTX’s significant accounting policies during the nine
months ended September 30, 2022. Certain information and
footnote disclosures normally included in the annual consolidated
financial statements have been omitted from these interim unaudited
consolidated financial statements as permitted by U.S. GAAP and
pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission (the “SEC”).
As an emerging growth company (“EGC”), the Jumpstart Our Business
Startups Act (“JOBS Act”) allows the Company to delay adoption of
new or revised ASUs applicable to public companies until such
pronouncements are applicable to private companies. The Company has
elected to use the extended transition period under the JOBS
Act.
Accounting Pronouncements Issued but Not Yet Adopted
From time to time, new accounting pronouncements are issued by the
FASB that are adopted by BMTX as of the required effective dates.
The following paragraphs related to new pronouncements should be
read in conjunction with Significant Accounting Policies of the
notes to the audited consolidated financial statements included in
our 2021 Form 10-K. Unless otherwise discussed, management believes
the impact of any recently issued standards, including those issued
but not yet effective, will not have a material impact on the
Company’s consolidated financial statements taken as a
whole.
ASU 2020-04 -
Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial
Reporting
provides optional expedients and exceptions for applying U.S. GAAP
to contracts, hedging relationships, and other transactions
affected by reference rate reform if certain criteria are met. This
ASU is effective beginning as of its date of effectiveness, March
12, 2020. The guidance is temporary and can be applied through
December 31, 2022. The guidance has not impacted the consolidated
financial statements to date. The Company will continue to monitor
the impact of the ASU on our consolidated financial statements in
the future.
In August 2020, the FASB issued ASU 2020-06,
Debt - Debt with Conversion and Other Options (Subtopic
470-20)
and
Derivatives and Hedging - Contracts in Entity’s Own Equity
(Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity’s Own Equity
(“ASU 2020-06”), which simplifies the accounting for certain
financial instruments with characteristics of liabilities and
equity.
This ASU (1) simplifies the accounting for convertible debt
instruments and convertible preferred stock by removing the
existing guidance in ASC 470-20,
Debt: Debt with Conversion and Other Options,
that requires entities to account for beneficial conversion
features and cash conversion features in equity, separately from
the host convertible debt or preferred stock; (2) revises the scope
exception from derivative accounting in ASC 815-40 for freestanding
financial instruments and embedded features that are both indexed
to the issuer’s own stock and classified in stockholders’ equity,
by removing certain criteria required for equity classification;
and (3) revises the guidance in ASC 260,
Earnings Per Share,
to require entities to calculate diluted earnings per share for
convertible instruments by using the if-converted method. In
addition, entities must presume share settlement for purposes of
calculating diluted earnings per share when an instrument may be
settled in cash or shares.
As a smaller reporting company, ASU 2020-06 is effective for BMTX
for fiscal years beginning after December 15, 2023. Entities should
adopt the guidance as of the beginning of the fiscal year of
adoption and cannot adopt the guidance in an interim reporting
period. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020. The Company is currently
evaluating the impact that ASU 2020-06 may have on its consolidated
financial statements and related disclosures.
NOTE 3 — ACCOUNTS RECEIVABLE
Accounts receivable, net
primarily relate to billings for deposit processing services to our
Partner Bank, MasterCard incentive income, uncollected university
subscription and disbursement services fees, and receivables from
our BaaS partners, and are recorded at face amounts less an
allowance for doubtful accounts. Management evaluates accounts
receivable and establishes the allowance for doubtful accounts
based on historical experience, analysis of past due accounts, and
other current available information.
Accounts receivable deemed to be uncollectible are individually
identified and are charged-off against the allowance for doubtful
accounts. The allowance for doubtful accounts was $0.1 million at
September 30, 2022 and $0.1 million at December 31,
2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
Beginning Balance |
Additions |
Reductions |
Ending Balance |
Allowance for doubtful accounts |
|
|
|
|
|
Nine months ended September 30, 2022
|
|
$ |
79 |
|
$ |
137 |
|
$ |
(67) |
|
$ |
149 |
|
Twelve months ended December 31, 2021
|
|
$ |
— |
|
$ |
171 |
|
$ |
(92) |
|
$ |
79 |
|
NOTE 4 — PREMISES AND EQUIPMENT AND DEVELOPED SOFTWARE
Premises and Equipment
The components of premises and equipment were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
Expected Useful Life |
|
September 30,
2022 |
|
December 31,
2021 |
Leasehold improvements |
|
5 years |
|
$ |
— |
|
|
$ |
28 |
|
Furniture, fixtures and equipment |
|
10 years |
|
135 |
|
|
243 |
|
IT equipment |
|
3 to 5 years
|
|
1,383 |
|
|
1,813 |
|
|
|
|
|
1,518 |
|
|
2,084 |
|
Accumulated depreciation |
|
|
|
(943) |
|
|
(1,738) |
|
Total |
|
|
|
$ |
575 |
|
|
$ |
346 |
|
Depreciation is recorded in
Occupancy
expense on the unaudited
Consolidated Statements of Income (Loss).
For the three and nine months ended September 30, 2022, BMTX
recorded depreciation expense of $0.1 million and $0.3 million,
respectively. For the three and nine months ended
September 30, 2021, BMTX recorded depreciation expense of less
than $0.1 million and $0.1 million, respectively.
Developed Software
The components of developed software were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
Expected Useful Life |
|
September 30,
2022 |
|
December 31,
2021 |
Higher One Disbursement business developed software |
|
10 years |
|
$ |
27,400 |
|
|
$ |
27,400 |
|
Internally developed software |
|
3 to 7 years
|
|
41,885 |
|
|
41,683 |
|
Work-in-process |
|
|
|
2,533 |
|
|
421 |
|
|
|
|
|
71,818 |
|
|
69,504 |
|
Accumulated amortization |
|
|
|
(47,793) |
|
|
(40,911) |
|
Total |
|
|
|
$ |
24,025 |
|
|
$ |
28,593 |
|
Amortization is recorded in
Technology, communication and processing
expense on the unaudited
Consolidated Statements of Income (Loss).
BMTX recorded amortization expense of $2.8 million and $8.6 million
for the three and nine months ended September 30, 2022,
respectively. BMTX recorded amortization expense of $2.8 million
and $8.5 million for the three and nine months ended
September 30, 2021, respectively.
NOTE 5 — GOODWILL AND OTHER INTANGIBLES
Goodwill
represents the excess of the purchase price over the identifiable
net assets of businesses acquired through business combinations
accounted for under the acquisition method.
Other intangibles, net
represent purchased assets that lack physical substance but can be
distinguished from goodwill because of contractual or other legal
rights. We have one intangible asset which is being amortized on a
straight-line basis over twenty years.
Goodwill
is reviewed for impairment annually as of October 31 and between
annual tests when events and circumstances indicate that impairment
may have occurred. There was no goodwill impairment for the three
and nine months ended September 30, 2022 and
2021.
Other intangibles, net
includes assets subject to amortization that are reviewed for
impairment under FASB ASC 360,
Property, Plant and Equipment.
There was no impairment for
Other intangibles, net
for the three and nine months ended September 30, 2022 and
2021.
The components of
Other intangibles, net
as of September 30, 2022 and December 31, 2021 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
Expected Useful Life |
|
September 30,
2022 |
|
December 31,
2021 |
Customer relationships – universities |
|
20 years |
|
$ |
6,402 |
|
|
$ |
6,402 |
|
Accumulated amortization |
|
|
|
(1,893) |
|
|
(1,653) |
|
Total |
|
|
|
$ |
4,509 |
|
|
$ |
4,749 |
|
Amortization is recorded in
Other expense
on the unaudited
Consolidated Statements of Income (Loss).
BMTX recorded amortization expense of $0.1 million and $0.2 million
for the three and nine months ended September 30, 2022,
respectively. BMTX recorded amortization expense of $0.1 million
and $0.2 million for the three and nine months ended
September 30, 2021, respectively.
The customer relationships - universities will be amortized in
future periods as follows:
|
|
|
|
|
|
|
|
|
Remainder of 2022 |
|
$ |
80 |
|
2023 |
|
320 |
|
2024 |
|
320 |
|
2025 |
|
320 |
|
2026 |
|
320 |
|
After 2026 |
|
3,149 |
|
Total |
|
$ |
4,509 |
|
NOTE 6 — LEASES
At September 30, 2022, BMTX leased one office under an
operating lease with an original 5-year lease term with options to
renew the lease or extend the term annually or with mutual
agreement. The original lease included variable lease payments that
are based on an index or rate, such as an annual increase in
operating expenses over the initial lease year’s expenses. Variable
lease payments were not included in the lease liability or
right-of-use (“ROU”) asset and were recognized in the period in
which the obligations for those payments were incurred. BMTX’s
operating lease agreement did not contain any material residual
value guarantees or material restrictive covenants. As BMTX’s
operating lease did not provide an implicit rate, BMTX utilized the
incremental borrowing rate of Customers Bank, its former parent,
based on the information available at the adoption of FASB ASC
842,
Leases
when determining the present value of lease payments.
The original lease matured on September 30, 2022. Effective October
1, 2022, the Company entered into a 3-month short-term lease
extension for this office under substantially identical terms and
conditions as the original lease.
The following table summarizes operating lease ROU assets and
operating lease liabilities and their corresponding classification
on the Company’s
Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
Classification |
|
September 30,
2022 |
|
December 31,
2021 |
Assets: |
|
|
|
|
|
|
Operating lease ROU assets |
|
Other assets |
|
$ |
— |
|
|
$ |
398 |
|
Liabilities: |
|
|
|
|
|
|
Operating lease liabilities |
|
Operating lease liabilities |
|
$ |
— |
|
|
$ |
416 |
|
Operating lease expenses are recorded in
Occupancy
on the
Consolidated Statements of Income (Loss).
BMTX recorded lease expense of less than $0.1 million and $0.4
million for the three and nine months ended September 30,
2022, respectively. BMTX recorded lease expense of $0.2 million and
$0.5 million for the three and nine months ended September 30,
2021, respectively.
Cash paid pursuant to operating lease liabilities totaled $0.1
million and $0.4 million for the three and nine months ended
September 30, 2022, respectively. Cash paid pursuant to
operating lease liabilities totaled $0.2 million and $0.5 million
for the three and nine months ended September 30, 2021,
respectively. These cash payments are reported as cash flows used
in operating activities in the unaudited
Consolidated Statements of Cash Flows.
NOTE 7 — BORROWINGS FROM PARTNER BANK
In 2021, BMTX had a $10.0 million line of credit with our
Partner Bank, which is a related party of the Company. The amount
that may be borrowed was subject to a borrowing base limit based on
a percentage of BMTX’s accounts receivable balance. The
$10.0 million line of credit carried an interest rate equal to
one-month LIBOR plus 375 bps. LIBOR means the One Month London
Inter-Bank Offered Rate as published in the Money Section of the
Wall Street Journal on the last U.S. business day of the month, but
in no event shall the LIBOR rate used for the line of credit be
less than 50 basis points. Interest was paid monthly in arrears
with the principal due in its entirety at the maturity date per the
original arrangement. Borrowed funds could have been repaid at any
time without penalty. The line of credit was originally scheduled
to mature on January 4, 2022. On November 30, 2021, BMTX and our
Partner Bank agreed to terminate the line of credit. There was zero
balance outstanding under the line of credit as of
September 30, 2022 and as of December 31,
2021.
NOTE 8 — COMMITMENTS AND CONTINGENCIES
Loss contingencies, including claims and legal actions arising in
the ordinary course of business, are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss
can be reasonably estimated. Management does not believe there are
any such matters that will have a material effect on the unaudited
interim consolidated financial statements that are not currently
accrued for. However, in light of the uncertainties inherent in
these matters, it is possible that the ultimate resolution may have
a material adverse effect on BMTX’s results of operations for a
particular period, and future changes in circumstances or
additional information could result in accruals or resolution in
excess of established accruals, which could adversely affect BMTX’s
results of operations, potentially materially.
NOTE 9 — SHAREHOLDERS’ EQUITY AND PRIVATE WARRANT
LIABILITY
The
Consolidated Statements of Changes in Shareholders’ Equity
reflect the reverse recapitalization and merger with Megalith as of
January 4, 2021. Since BMTX was determined to be the accounting
acquirer in the transaction, all periods prior to the consummation
of the transaction reflect the balances and activity of BMTX (other
than shares which were retroactively restated in connection with
the transaction).
Common Stock
The Company is authorized to issue 1,000,000,000 shares of common
stock, par value $0.0001 per share. At September 30, 2022,
there were
12,238,447 shares of
common stock issued and outstanding, which includes the 300,000
performance shares discussed below. At December 31, 2021 there
were 12,193,378 shares of common stock issued and
outstanding.
Each holder of common stock is entitled to one vote for each share
of common stock held of record by such holder on all matters on
which stockholders generally are entitled to vote. The holders of
common stock do not have cumulative voting rights in the election
of directors. Generally, all matters to be voted on by stockholders
must be approved by a majority (or, in the case of election of
directors, by a plurality) of the votes entitled to be cast by all
stockholders present in person or represented by proxy, voting
together as a single class.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred
stock, par value $0.0001 per share, with such designations, voting
and other rights and preferences as may be determined from time to
time by the Company’s board of directors. At September 30,
2022 and December 31, 2021, there were no shares of preferred
stock issued or outstanding.
Performance Shares
The Company has 300,000 common shares, par value $0.0001 per share,
issued and outstanding that contain a restrictive legend, subject
to release only if the vesting criteria are met before the seventh
anniversary of the closing date of the merger with Megalith. If the
vesting criteria are not met prior to the
seventh anniversary of the closing date of the merger, the
shares will be forfeited and cancelled. The vesting criteria are
met when either (1) the volume weighted average price of the
Company’s common stock on the principal exchange on which such
securities are then listed or quoted shall have been at or above
$15.00 for twenty (20) trading days (which need not be consecutive)
over a thirty (30) trading day period; or (ii) the Company sells
shares of its capital stock in a secondary offering for at least
$15.00 per share, in each case subject to equitable adjustment for
share splits, share dividends, reorganizations, combinations,
recapitalizations and similar transactions affecting the shares of
the Company’s common stock after the merger, and possible reduction
for certain dividends granted to the Company’s common stock, or (2)
the Company undergoes certain change in control or sales
transactions. None of the vesting criteria for the performance
shares have been met as of September 30, 2022 and no expense
has been recognized.
Dividend Policy
We have not paid any cash dividends on our common stock to date and
have no present intention to pay cash dividends in the future. The
payment of cash dividends by the Company in the future will be
dependent upon the Company’s revenues and earnings, capital
requirements, and general financial condition. The payment of any
dividends will be within the discretion of the board of directors
of the Company.
January 4, 2021 Share-Based Compensation Award
In connection with its January 4, 2021 divestiture of the Company,
Customers Bank, the Company’s former parent, granted 1,317,035 of
the merger consideration shares of the Company it received to
certain employees and executives of the Company. The share-based
compensation award is subject to vesting conditions, including a
required service condition from award recipients through January 3,
2023. The grant date fair value of the award, totaling
$19.6 million, is recorded as share-based compensation expense
in the Company’s
Consolidated Statements of Income (Loss)
on a straight-line basis over the two year post-grant vesting
period, net of any actual forfeitures. The shares awarded are
restricted until fully vested. The holders of restricted shares may
elect to surrender a portion of their shares on the vesting date to
cover their income tax obligations. During the three and nine
months ended September 30, 2022, 88,889 of the shares awarded were
fully vested as a result of the occurrence of certain conditions
other than required service.
The change in unvested shares under the January 4, 2021 Share-Based
Compensation Award is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Awards |
|
Weighted-Average
Grant-Date Fair
Value Per Award |
Balance as of December 31, 2021
|
1,283,535 |
|
|
$ |
14.87 |
|
Granted |
— |
|
|
$ |
— |
|
Vested |
(88,889) |
|
|
$ |
14.87 |
|
Forfeited |
(26,500) |
|
|
$ |
14.87 |
|
Balance as of September 30, 2022
|
1,168,146 |
|
|
$ |
14.87 |
|
For the three and nine months ended September 30, 2022, the
share-based compensation expense related to these awards totaled
$2.4 million and $6.9 million, respectively. For the three and nine
months ended September 30, 2021, the share-based compensation
expense related to these awards totaled $2.4 million and $7.1
million, respectively.
In addition, and in connection with the January 4, 2021 divestiture
of the Company, Customers Bank accelerated the vesting for existing
restricted stock units and stock options previously granted to
certain employees of the Company. The share-based compensation
expense, net of forfeitures, associated with the accelerated
vesting totaling $0.8 million was incurred during the three
months ended March 31, 2021 and was recorded as a component
of
Salaries and employee benefits
expense. No such transactions exist for the three and nine months
ended September 30, 2022.
Equity Incentive Plan
Our 2020 Equity Incentive Plan (the “Equity Incentive Plan”)
provides for the grant of incentive stock options, or ISOs,
nonstatutory stock options, or NSOs, stock appreciation rights,
restricted stock awards, restricted stock unit awards,
performance-based stock awards, and other forms of equity
compensation, or collectively, stock awards, all of which may be
granted to employees, including officers, non-employee directors,
and consultants of both the Company and its affiliates.
Additionally, the Equity Incentive Plan provides for the grant of
performance cash awards. ISOs may be granted only to employees. All
other awards may be granted to employees, including officers, and
to non-employee directors and consultants.
The aggregate number of shares of common stock that may be issued
pursuant to stock awards under the Equity Incentive Plan will not,
and currently does not, exceed 10% of the issued and outstanding
shares of our common stock. Grants were made under the Equity
Incentive Plan for the three and nine months ended
September 30, 2022 as described within
Restricted Stock Units
below.
Restricted Stock Units (“RSUs”)
On September 30, 2021, the Company granted 695,000 RSUs to certain
executives split equally between service-based and
performance-based awards. The RSUs granted to these executives will
vest over
three to five years upon achievement of certain
service-based, performance-based, and market conditions. The
vesting commencement date was January 4, 2021. We recognize the
compensation cost starting from the grant date in accordance with
ASC 718-10-55-108.
In addition to the executive RSU awards granted on September 30,
2021, the Company periodically grants individual awards with
service-based vesting. During the nine months ended
September 30, 2022 and 2021, the Company granted 81,790 and
12,600 service-based RSU awards under the Equity Incentive Plan,
respectively.
For service-based RSUs, we recognize the share-based compensation
cost on a straight-line basis over the required vesting period. For
performance-based RSUs with milestones, each quarter we determine
whether it is probable that we will achieve each operational
milestone, and if so, the period when we expect to achieve that
operational milestone. When we first determine that achievement of
an operational milestone is probable, we allocate the full
share-based compensation expense over the period between the grant
date and the expected vesting condition achievement date and
recognize a catch-up expense for the periods from the grant date
through the period in which the operational milestone is deemed
probable. This is re-assessed at the end of each reporting period.
For performance-based RSUs with a market condition, we used a Monte
Carlo simulation to determine the fair value of the RSUs on the
grant date, and recognize the share-based compensation expense over
the derived service period.
For the three and nine months ended September 30, 2022, the
share-based compensation expense related to RSU awards totaled $0.3
million and $1.7 million, respectively. For the three and nine
months ended September 30, 2021, the share-based compensation
expense related to RSU awards totaled less than $0.1 million
and $0.1 million, respectively. Share-based compensation
expense is recorded in
Salaries and employee benefits
in the unaudited
Consolidated Statement of Income (Loss).
The change in unvested RSUs awarded is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of RSUs |
|
Weighted-Average Grant-Date Fair Value Per RSU |
Balance as of December 31, 2021
|
704,600 |
|
|
$ |
8.96 |
|
Granted |
81,790 |
|
|
$ |
6.79 |
|
Vested |
(90,075) |
|
|
$ |
9.02 |
|
Forfeited |
(12,000) |
|
|
$ |
9.18 |
|
Balance as of September 30, 2022
|
684,315 |
|
|
$ |
8.88 |
|
Employee Stock Purchase Plan (“ESPP”)
The Company has an ESPP (the “BM Technologies Inc. 2021 Employee
Stock Purchase Plan”) which has an effective date of May 1, 2021.
The purpose of the ESPP is to provide eligible employees with an
incentive to advance the interests of the Company and its
Subsidiaries, by affording them an opportunity to purchase stock of
the Company at a favorable price. As of September 30, 2022,
there are no shares purchased on behalf of employees under the
ESPP, as the program has not yet been made available for employee
participation.
Warrants
At September 30, 2022 and 2021, respectively, there were
22,703,004 and 23,874,667 warrants to purchase our common stock
outstanding. The warrant totals for each period-end consist of
17,227,189 and 16,928,889 public warrants and 5,475,815 and
6,945,778 private warrants as of September 30, 2022 and 2021,
respectively.
Each whole warrant entitles the registered holder to purchase one
whole share of common stock at a price of $11.50 per share. The
warrants will expire five years after the completion of the merger
with Megalith (January 4, 2026) or earlier upon redemption or
liquidation; the Company has redemption rights if our common stock
trades above $24.00 for 20 out of 30 days. The private warrants are
identical to the public warrants except that the private warrants
are non-redeemable and exercisable on a cashless basis so long as
they are held by the sponsor and certain other original
holders.
As of September 30, 2022, 1,600 of the Company’s outstanding
public warrants have been exercised and 1,169,903 of the private
warrants have been repurchased by the Company from related parties
at $1.69 per warrant. In addition, as of September 30, 2022,
300,000 of the private warrants have been reclassified to public
warrants based upon a sale of the private warrants by the original
holders which resulted in a modification of terms that effect
classification as public warrants. In the three and nine months
ended September 30, 2022, there were 0 and 100 public warrants
exercised, respectively. During the comparative three and nine
month period ended September 30, 2021 there were no
repurchases, exercises, or reclassifications related to the private
or public warrants.
The private warrants and the public warrants are treated
differently for accounting purposes, as follows:
Private Warrants
In accordance with FASB ASC Topic 480,
Distinguishing Liabilities from Equity,
the private warrants are accounted for as liabilities and are
marked-to-market each reporting period with the change in fair
value recognized in earnings. In general, under the mark-to-market
accounting model, as our stock price increases, the private warrant
liability increases, and we recognize additional expense in
our
Consolidated Statements of Income (Loss)
– with the opposite when our stock price declines. Accordingly, the
periodic revaluation of the private warrants could result in
significant volatility in our reported earnings.
Opening Balance Sheet Impact:
As of the date of our merger with Megalith on January 4, 2021, the
$30.8 million fair value of the private warrants was recorded as a
warrant liability on our
Consolidated Balance Sheets
in
Liability for private warrants
with a corresponding offset to
Additional paid-in-capital
within equity. The fair value of the private warrants was estimated
using a modified version of the Black-Scholes option pricing
formula. We assumed a term for the private warrants equal to the
contractual term from the merger date, and then discounted the
resulting value to the valuation date. Among the key inputs and
assumptions used in the pricing formula at January 4, 2021: a term
of 5.0 years; volatility of 20%; a dividend yield of zero; an
underlying stock price of $14.76; a risk free interest rate of
0.38%; and a closing price of the public warrants of $2.50 per
share.
Income Statement Impact:
Subsequent to the close of the merger, any change in fair value of
the private warrants is recognized in our
Consolidated Statements of Income (Loss)
below operating profit as
Gain (loss) on fair value of private warrant liability
with a corresponding amount recognized in the
Liability for private warrants
on our
Consolidated Balance Sheets.
For the three and nine months ended September 30, 2022, we
recognized a loss of $1.4 million and a gain of $6.9 million,
respectively, related to the revaluation of the private warrants.
For the three and nine months ended September 30, 2021, we
recognized gains of $6.0 million and $18.0 million, respectively,
related to the revaluation of the private warrants.
Balance Sheet Impact:
The private warrant liability is presented in the account
Liability for private warrants
in the long-term liabilities section of our
Consolidated Balance Sheets.
As noted above, the change in fair value of the underlying private
warrants results in a corresponding change in the balance of the
warrant liability on our
Consolidated Balance Sheets.
When warrants are exercised, the fair value of the liability is
reclassified to
Additional paid-in capital
within equity. Cash received for the exercise of warrants is
reflected in
Cash and cash equivalents
with a corresponding offset recorded in
Common stock
and
Additional paid-in capital
within equity.
Cash Flow Impact:
The impact of the change in fair value of the private warrants has
no impact on our cash flows as it is a noncash adjustment. Cash
received for the exercise of warrants is recorded in cash flows
from financing activities. Cash paid for the repurchase of warrants
is recorded in cash flows from financing activities. During the
nine months ended September 30, 2022, the Company repurchased
private warrants from related parties for cash consideration
totaling $2.0 million. No such transactions occurred for the
nine months ended September 30, 2021.
Shareholders’ Equity Impact:
The impact to
Additional paid-in-capital
as of the opening balance sheet is described above. Exercises of
private warrants results in a reduction of the
Liability for private warrants
on the
Consolidated Balance Sheets
with a corresponding increase to
Common Stock
and
Additional paid-in-capital.
Public Warrants
In accordance with FASB ASC Topic 480,
Distinguishing Liabilities from Equity,
the public warrants are treated as equity instruments under U.S.
GAAP. The public warrants are not marked-to-market each reporting
period, thus there is no impact to earnings. Exercises of the
public warrants are recorded as cash is received and are recorded
in
Cash and cash equivalents
with a corresponding offset recorded in
Common stock
and
Additional paid-in-capital
within equity. Cash proceeds from public warrant exercises totaled
less than $0.1 million and zero, respectively, during the nine
months ended September 30, 2022 and 2021.
NOTE 10 — REVENUES
Revenues
BMTX recognizes operating revenue in accordance with FASB ASC
606,
Revenue from Contracts with Customers.
The following table presents BMTX’s revenues disaggregated by
nature of the revenue stream and the pattern or timing of revenue
recognition for the three and nine months ended September 30,
2022 and 2021. The Company has one reportable segment and all
revenues are earned in the U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
(amounts in thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Revenues: |
|
|
|
|
|
|
|
|
Revenue recognized at point in time: |
|
|
|
|
|
|
|
|
Interchange and card revenue |
|
$ |
5,325 |
|
|
$ |
6,529 |
|
|
$ |
17,283 |
|
|
$ |
21,530 |
|
Servicing fees from Partner Bank |
|
10,163 |
|
|
11,823 |
|
|
37,650 |
|
|
31,774 |
|
Account fees |
|
2,110 |
|
|
2,569 |
|
|
6,872 |
|
|
7,847 |
|
University fees - disbursement activity |
|
175 |
|
|
380 |
|
|
932 |
|
|
918 |
|
Other |
|
903 |
|
|
446 |
|
|
1,702 |
|
|
4,164 |
|
Total revenue recognized at point in
time |
|
18,676 |
|
|
21,747 |
|
|
64,439 |
|
|
66,233 |
|
Revenue recognized over time: |
|
|
|
|
|
|
|
|
University fees - subscriptions |
|
1,182 |
|
|
1,094 |
|
|
3,474 |
|
|
3,211 |
|
Total revenue recognized over time |
|
1,182 |
|
|
1,094 |
|
|
3,474 |
|
|
3,211 |
|
Total revenues |
|
$ |
19,858 |
|
|
$ |
22,841 |
|
|
$ |
67,913 |
|
|
$ |
69,444 |
|
Deferred Revenue
Deferred revenue consists of payments received from customers, most
significantly from our Partner Bank, prior to the performance of
services. Deferred revenue is recognized over the service period on
a straight-line basis or when the contractual performance
obligation has been satisfied. The Company classifies deferred
revenue on the
Consolidated Balance Sheets
in
Deferred revenue, current
and
Deferred revenue, non-current
based upon the expected timing of revenue recognition.
The deferred revenue balances were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands) |
|
September 30,
2022 |
|
December 31,
2021 |
Deferred revenue (current and non-current) |
|
$ |
11,264 |
|
|
$ |
15,577 |
|
During the nine months ended September 30, 2022, the Company
recognized revenue of approximately $15.4 million included in
deferred revenue at the beginning of the period. During the nine
months ended September 30, 2021, the Company recognized
revenue of approximately $11.5 million included in deferred revenue
at the beginning of the period.
Unbilled receivables
The Company had $2.0 million of unbilled receivables, or amounts
recognized as revenue for which invoices have not yet been issued,
as of September 30, 2022, and $2.1 million as of
December 31, 2021. Unbilled receivables are reported in
Accounts receivable, net
on the
Consolidated Balance Sheets.
NOTE 11 — INCOME TAXES
The Company’s effective tax rate was 12.9% and 34.9% for the three
and nine months ended September 30, 2022, respectively. The
Company’s effective tax rate was 14.1% and 18.8% for the three and
nine months ended September 30, 2021, respectively. The
effective tax rate differs from the Company’s marginal tax rate of
27.3% due to the non-taxable fair value adjustments related to the
non-compensatory private warrant liability being recorded through
earnings, offset by changes to the valuation allowance established
against deferred tax assets.
The deferred tax asset at September 30, 2022 and 2021 was
$30.5 million and $27.5 million, respectively. These balances
consisted mainly of Section 197 intangibles. These Section 197
intangibles resulted from a step-up in tax basis of the assets
acquired from BankMobile Technologies, Inc., which for GAAP
purposes, were not recorded at fair value.
A full valuation allowance has been recorded against the deferred
tax asset balance for all periods presented. The Company has no net
operating loss or other carryforward deferred tax assets. A
valuation allowance is recognized when it is more likely than not
that all, or a portion of, the deferred tax asset will be realized
based on the weight of the available positive and negative
evidence. Management determined the verifiable negative evidence
from the three years of cumulative losses outweighs any available
positive evidence as of September 30, 2022, but will continue
to evaluate this determination each quarterly period going
forward.
NOTE 12 — EARNINGS (LOSS) PER SHARE
The following are the components and results of operations and
earnings (loss) per common share calculations for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
(amounts in thousands, except per share data) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Net income (loss) available to common shareholders - used in
calculating basic EPS |
|
$ |
(4,920) |
|
|
$ |
7,124 |
|
|
$ |
3,406 |
|
|
$ |
18,393 |
|
Adjustment for private warrant liability1
|
|
— |
|
|
— |
|
|
— |
|
|
17,989 |
|
Net income (loss) - used in calculating diluted EPS |
|
$ |
(4,920) |
|
|
$ |
7,124 |
|
|
$ |
3,406 |
|
|
$ |
404 |
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding – basic |
|
11,938 |
|
11,900 |
|
11,944 |
|
11,834 |
Weighted-average common shares outstanding –
diluted |
|
11,938 |
|
11,904 |
|
12,215 |
|
12,359 |
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - basic |
|
$ |
(0.41) |
|
|
$ |
0.60 |
|
|
$ |
0.29 |
|
|
$ |
1.55 |
|
Net income (loss) per common share - diluted |
|
$ |
(0.41) |
|
|
$ |
0.60 |
|
|
$ |
0.28 |
|
|
$ |
0.03 |
|
1
Diluted earnings per share for the nine months ended
September 30, 2021 is calculated based on adjusted net income
of $0.4 million due to the elimination of the revaluation gain on
the private warrant liability.
The following table presents the reconciliation from basic to
diluted weighted average shares outstanding used in the calculation
of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
(amounts in thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Weighted average shares used in computing net income (loss) per
common share, basic |
|
11,938 |
|
|
11,900 |
|
|
11,944 |
|
|
11,834 |
|
Add: |
|
|
|
|
|
|
|
|
Public warrants |
|
— |
|
|
— |
|
|
— |
|
|
372 |
|
Private warrants |
|
— |
|
|
— |
|
|
— |
|
|
152 |
|
Service-based RSUs |
|
— |
|
|
4 |
|
|
271 |
|
|
1 |
|
Weighted average shares used in computing net income (loss) per
common share, diluted |
|
11,938 |
|
|
11,904 |
|
|
12,215 |
|
|
12,359 |
|
For basic earnings per share, the performance shares are subject to
forfeiture and they are considered share-indexed instruments and
not outstanding shares until they are vested. During the three and
nine months ended September 30, 2022 and 2021, the vesting
criteria has not been met and they are not included.
For the three and nine months ended September 30, 2022, our
performance shares, public warrants, and private warrants were
excluded from the computation of diluted weighted average shares
outstanding as the necessary conditions had not been achieved for
the performance shares and the average stock price for the period
was below the strike price for the warrants. The performance shares
are only considered in the calculation for diluted earnings per
share if they are dilutive in nature. The performance shares are
only dilutive when the average share price is greater than the
strike price and when positive net income is reported. During the
three and nine months ended September 30, 2022, the average
share price was below the strike price and these shares were not
included in the diluted earnings per share calculations. For the
three and nine months ended September 30, 2022, our
performance based and market condition RSUs were also excluded
because the vesting is contingent upon the satisfaction of certain
conditions which had not been achieved as of September 30,
2022. For the three and nine months ended September 30, 2022, 343
and 72, respectively, of our service-based RSUs were also excluded
as the effect would be anti-dilutive.
For the three and nine months ended September 30, 2021, our
performance shares were excluded from the computation of diluted
weighted average shares outstanding as the necessary conditions had
not been achieved. For the three months ended September 30,
2021, our public warrants and private warrants were excluded as the
net loss for the period would make their inclusion anti-dilutive in
nature. For the nine months ended September 30, 2021, our
public warrants and private warrants were included as the average
stock price for the period was above the strike price for the
warrants. For the three and nine months ended September 30,
2021, our performance based and market condition RSUs were excluded
because the vesting is contingent upon the satisfaction of certain
conditions which had not been achieved as of September 30,
2021 For the three and nine months ended September 30, 2021,
there were 4 and 1, respectively of service-based RSUs vested which
were included in the computation of diluted weighted average shares
outstanding.
The following table presents the potentially dilutive shares that
were excluded from the computation of diluted net income (loss) per
share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
(amounts in thousands) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Performance shares |
|
300 |
|
|
300 |
|
|
300 |
|
|
300 |
|
Public warrants |
|
17,227 |
|
|
16,929 |
|
|
17,227 |
|
|
— |
|
Private warrants |
|
5,476 |
|
|
6,946 |
|
|
5,476 |
|
|
— |
|
Performance based and market-condition RSUs |
|
348 |
|
|
348 |
|
|
348 |
|
|
348 |
|
Service-based RSUs |
|
343 |
|
|
— |
|
|
72 |
|
|
— |
|
Total |
|
23,694 |
|
|
24,523 |
|
|
23,423 |
|
|
648 |
|
NOTE 13 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS
BMTX uses fair value measurements to determine and disclose the
fair value of its financial instruments. FASB’s ASC
825, Financial
Instruments,
requires disclosure of the estimated fair value of an entity’s
assets and liabilities considered to be financial instruments. For
fair value disclosure purposes, BMTX utilized the fair value
measurement criteria under FASB ASC 820,
Fair Value Measurements
(“ASC 820”).
In accordance with ASC 820, the fair value of a financial
instrument is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Fair value is best
determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for BMTX’s financial
instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Accordingly,
the fair value estimates may not be realized in an immediate
settlement of the instrument.
The fair value guidance provides a consistent definition of fair
value, focusing on an exit price in an orderly transaction (that
is, not a forced liquidation or distressed sale) between market
participants at the measurement date under current market
conditions. If there has been a significant decrease in the volume
and level of activity for the asset or liability, a change in
valuation technique or the use of multiple valuation techniques may
be appropriate. In such instances, determining the price at which
willing market participants would transact at the measurement date
under current market conditions depends on the facts and
circumstances and requires the use of significant judgment. The
fair value is a reasonable point within the range that is most
representative of fair value under current market
conditions.
The fair value guidance also establishes a fair value hierarchy and
describes the following three levels used to classify fair value
measurements:
|
|
|
|
|
|
Level 1: |
Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical, unrestricted assets or
liabilities. |
|
|
Level 2: |
Quoted prices in markets that are not active, or inputs that are
observable either directly or indirectly, for substantially the
full term of the asset or liability. |
|
|
Level 3: |
Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable (i.e.,
supported with little or no market activity). |
A financial instrument’s level within the fair value hierarchy is
based on the lowest level of input that is significant to the fair
value measurement.
The following methods and assumptions were used to estimate the
fair value of BMTX’s financial instruments as of September 30,
2022 and December 31, 2021:
Cash and cash equivalents
Cash and cash equivalents
reported on the
Consolidated Balance Sheets
consists of non-interest bearing demand deposits, for which
carrying value approximates fair value.
Accounts receivable, net
The carrying amount of accounts receivable approximates fair value
because of the short-term nature of these items.
Liability for Private Warrants
The fair value of the private warrants was estimated using a
modified version of the binomial lattice model incorporating the
Cox-Ross-Rubenstein methodology at September 30, 2022 and a
modified version of the Black-Scholes option pricing model for
European calls at December 31, 2021. We assumed a term for the
private warrants equal to the contractual term from the date of the
merger with Megalith and then discounted the resulting value to the
valuation date. Among the key inputs and assumptions used in the
pricing formula at September 30, 2022 were the following: a
term of 3.25 years; volatility of 34%; a dividend yield of zero; an
underlying stock price of $6.69; a risk free interest rate of
4.18%; and a closing price of the public warrants of $0.72 per
share. The warrant liability is classified as a Level 3 fair value
based upon the lowest level of input that is significant to the
fair value measurement.
The estimated fair value of BMTX’s financial instruments at
September 30, 2022 and December 31, 2021 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2022 |
(amounts in thousands) |
|
Carrying Amount |
|
Estimated Fair Value |
|
Quoted Prices in Active Markets for Identical Assets
(Level 1) |
|
Significant Other Observable Inputs (Level 2) |
|
Significant Unobservable Inputs (Level 3) |
Assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
26,433 |
|
|
$ |
26,433 |
|
|
$ |
26,433 |
|
|
$ |
— |
|
|
$ |
— |
|
Accounts receivable, net |
|
8,614 |
|
|
8,614 |
|
|
8,614 |
|
|
— |
|
|
— |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Liability for private warrants |
|
$ |
3,997 |
|
|
$ |
3,997 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2021 |
(amounts in thousands) |
|
Carrying Amount |
|
Estimated Fair Value |
|
Quoted Prices in Active Markets for Identical Assets
(Level 1) |
|
Significant Other Observable Inputs (Level 2) |
|
Significant Unobservable Inputs (Level 3) |
Assets: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
25,704 |
|
|
$ |
25,704 |
|
|
$ |
25,704 |
|
|
$ |
— |
|
|
$ |
— |
|
Accounts receivable, net |
|
9,194 |
|
|
9,194 |
|
|
9,194 |
|
|
— |
|
|
— |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Liability for private warrants |
|
$ |
13,614 |
|
|
$ |
13,614 |
|
|
$ |
— |
|
$ |
— |
|
|
$ |
13,614 |
|
NOTE 14 — RELATIONSHIP WITH OUR PARTNER BANK
The Company has several relationships with our Partner Bank,
Customers Bank, which is a related party of the Company. These
relationships are described below.
Cash management
All the Company’s cash and cash equivalents are on deposit with our
Partner Bank.
Debt financing
As disclosed in
Note 7- Borrowings from Partner Bank,
our Partner Bank previously provided the Company with lines of
credit, all of which have been terminated as of December 31,
2021.
Servicing fees and interchange income from Partner
Bank
On January 4, 2021, we entered into a Deposit Processing Services
Agreement (the “Deposit Servicing Agreement”) with our Partner
Bank, which provided that our Partner Bank would establish and
maintain deposit accounts and other banking services in connection
with customized products and services offered by us, and we would
provide certain other related services in connection with the
accounts. Our Partner Bank retains any and all revenue generated
from the funds held in the deposit accounts, and in exchange, pays
us a 3% servicing fee based on average monthly deposit balances,
subject to certain contractual adjustments, and a monthly
interchange fee equal to all debit card interchange revenues on the
demand deposit accounts, plus the difference between Durbin exempt
and Durbin regulated interchange revenue.
On June 29, 2022, the Company received written notice from
Customers Bank that it did not intend to renew the Deposit
Servicing Agreement with the Company. The 180-day notice was given
in accordance with the terms of the Deposit Servicing Agreement, as
a result of which, the Deposit Servicing Agreement would terminate
effective December 31, 2022.
On November 8, 2022, the Company and Customers Bank entered into
the First Amendment to Deposit Processing Services Agreement (the
“DPSA Amendment”) to extend the Deposit Servicing Agreement
termination date to the earlier of the Company’s successful
completion of the transfer of the Company’s serviced deposits to a
new sponsor bank or June 30, 2023.
See
Note 15 - Subsequent Events
for additional information.
Transition Services Agreement
On January 4, 2021, we entered into a Transition Services Agreement
with our Partner Bank, pursuant to which each party agreed for a
period of up to twelve months to provide certain transition
services listed therein to the other party. A limited number of
these transition services were subsequently extended through March
31, 2022. In consideration for the services, we paid our Partner
Bank a service fee of $12,500 per month, plus any expenses
associated with the services.
The Transition Services Agreement included a provision for
providing the Company with assistance in the establishment and
administration of a 401(k) plan for the benefit of Company
employees. Effective April 9, 2021, the Customers Bank 401(k) plan
became a multi-employer plan, as defined by the U.S. Department of
Labor in accordance with the Employee Retirement Income Security
Act of 1974, covering both the full-time employees of Customers
Bank and the Company. The Company provides a matching contribution
equal to 50% of the first 6% of the contributions made by its
eligible participating employees. The Company’s employer
contributions to the 401(k) plan for the benefit of its employees
for the three months ended September 30, 2022 and 2021 were
$0.2 million, and $0.1 million, respectively. For the
nine months ended September 30, 2022 and 2021, the Company’s
employer contributions totaled $0.6 million and
$0.5 million, respectively. These contributions are recorded
in
Salaries and employee benefits
in the
Consolidated Statements of Income (Loss).
Other
On January 4, 2021, the Company entered into a Software License
Agreement with our Partner Bank which provides it with a
non-exclusive, non-transferable, royalty-free license to utilize
our mobile banking technology for a period up to 10 years. The
Software License Agreement is cancellable by our Partner Bank at
any time, without notice, and without penalty, and for any reason
or no reason at all. To date, our Partner Bank has not utilized the
Company’s mobile banking technology and zero consideration has been
paid or recognized under the Software License
Agreement.
On January 4, 2021, the Company entered into a Non-Competition and
Non-Solicitation Agreement with our Partner Bank providing that our
Partner Bank will not, for a period of 4 years after the closing of
the divestiture, directly or indirectly engage in the Company’s
business in the territory (both as defined in the Non-Competition
Agreement), except for white label digital banking services with
previously identified parties and passive investments of no more
than 2% of a class of equity interests of a competitor that is
publicly traded. Our Partner Bank also agreed not to directly or
indirectly hire or solicit any employees of the
Company.
On November 29, 2021, the Company entered into an agreement with
our Partner Bank which terminated the $10.0 million letter of
credit and gave the Company the right to any shares that were
forfeited as part of the
January 4, 2021 Share-Based Compensation Award.
During the three and nine months ended September 30, 2022,
respectively, 6,500 and 26,500 forfeited shares were reacquired by
the Company from our Partner Bank.
Both the President and Executive Chairman of the Board of our
Partner Bank are immediate family members of the Company’s CEO, and
together with their spouses, own less than 5.0% of the Company’s
outstanding common stock at September 30, 2022.
On March 1, 2022, the Company reached an agreement, with settlement
on March 11, 2022, to reacquire 1,169,963 private warrants at a
price of $1.69 per warrant, or a total cost of $2.0 million,
from Ms. Sherry Sidhu and Mr. Samvir Sidhu, who are immediate
family members of our CEO. The transaction price was established
based on the range of market prices during the repurchase
conversations and was approved by the Company’s Audit
Committee.
On April 20, 2022, the Company entered into a Special Limited
Agency Agreement with our Partner Bank that provides for marketing
assistance from the Company for originating consumer installment
loans funded by Customers Bank. In consideration for this marketing
assistance, the Company receives certain fees specified within the
Special Limited Agency Agreement which are recorded as a component
of
Other Revenue
within the
Consolidated Statements of Income (Loss).
During the three and nine months ended September 30, 2022,
less than $0.1 million of revenue has been realized under the
Special Limited Agency Agreement.
Positions with our Partner Bank are presented on our
Consolidated Balance Sheets
in
Accounts receivable, net,
Deferred revenue, current,
and
Accounts payable and accrued liabilities.
The
Accounts receivable
balances related to our Partner Bank as of
September 30, 2022
and
December 31, 2021
were
$1.8 million
and
$5.5 million,
respectively. The Deferred
revenue
balances related to our Partner Bank as of
September 30, 2022
and
December 31, 2021
were
$7.8 million
and
$12.7 million,
respectively. The
Accounts payable and accrued liabilities
balances related to our Partner Bank as of
September 30, 2022
and
December 31, 2021
were
$0.9 million
and
$0.4 million,
respectively.
The Company recognized
$17.3 million
and
$60.9 million
in revenues from our Partner Bank for the
three and nine
months ended
September 30, 2022,
respectively. Of these amounts,
$4.3 million
and
$13.8 million
are paid directly by
MasterCard or individual account holders to the Company for the
three and nine
months ended
September 30, 2022,
respectively. The Company recognized
$20.6 million
and
$60.0 million
in revenues from our Partner Bank for the three and
nine
months ended
September 30, 2021,
respectively. Of these amounts,
$5.2 million
and
$14.7 million
are paid directly by
MasterCard or individual account holders to the Company for the
three and nine
months ended
September 30, 2021,
respectively. These amounts are included in
the
Consolidated Statements of Income (Loss).
The Company recognized zero and less than $0.1 million of
expenses from our Partner Bank for the
three and nine
months ended
September 30, 2022,
respectively. The Company recognized less than
$0.1 million
and
$0.2 million
of expenses from our Partner Bank for the
three and nine
months ended
September 30, 2021,
respectively. These amounts are included in
the
Consolidated Statements of Income (Loss).
NOTE 15 — SUBSEQUENT EVENTS
On November 8, 2022, the Company and Customers Bank entered into
the First Amendment to Deposit Processing Services Agreement (the
“DPSA Amendment”). The Amendment, among other things, will
facilitate the transfer of the Company’s serviced deposits to a new
sponsor bank and extends the termination date of the Deposit
Servicing Agreement until the earlier of: (i) entry into a
definitive agreement with a new sponsor bank to transfer the
Company’s serviced deposits to such sponsor bank and the successful
completion of such transfer; or (ii) six months from December 31,
2022. The Amendment also removes Customers Bank’s obligation to pay
the Company the difference between the Durbin exempt and Durbin
regulated interchange revenues. The other terms of the Deposit
Servicing Agreement remain in effect through the new termination
date.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The purpose of this Management’s Discussion and Analysis
(“MD&A”) is to facilitate an understanding of significant
factors influencing the quarterly operating results, financial
condition, and cash flows of BM Technologies, Inc. (“BMTX”).
Additionally, this MD&A conveys our expectations of the
potential impact of known trends, events, or uncertainties that may
impact future results. You should read this discussion in
conjunction with our interim unaudited consolidated financial
statements and related notes included in this Quarterly Report on
Form 10-Q and our Annual Report for the year ended
December 31, 2021. Historical results and percentage
relationships are not necessarily indicative of operating results
for future periods. Unless the context otherwise requires, for
purposes of this Management’s Discussion and Analysis, references
to the “Company,” “we,” “us”, and “our” refer to the business and
operations of BM Technologies, Inc. (“BMTX”) and its
subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are neither
statements of historical or current fact nor are they assurances of
future performance and generally can be identified by the use of
forward-looking terminology such as “believes”, “expects”, “may”,
“will”, “could”, “should”, “projects”, “plans”, “goal”, “targets”,
“potential”, “estimates”, “pro forma”, “seeks”, “intends”, or
“anticipates”, or similar expressions. Forward-looking statements
include discussions of strategy, financial projections (including
our statements regarding cash flow projections and funding of
ongoing operations), guidance and estimates (including their
underlying assumptions), statements regarding plans, objectives,
expectations, or consequences of various transactions or events
(including the expected completion date or benefits of the First
Sound Bank transaction), and statements about our future
performance, operations, products, and services, and should be
viewed with caution.
Because forward-looking statements relate to the future, they are
subject to known and unknown risks, uncertainties, assumptions, and
changes in circumstances, many of which are beyond our control, and
that are difficult to predict as to timing, extent, likelihood, and
degree of occurrence, and that could cause actual results to differ
materially from the results implied or anticipated by the
statements. Important factors that could cause our actual results
and financial condition to differ materially from those indicated
in the forward-looking statements include, but are not limited to
the following:
•negative
economic and political conditions that adversely affect the general
economy, the job market, consumer confidence, the financial
condition of our borrowers and consumer spending habits, which may
affect, among other things, our revenues and provision for
operating losses;
•COVID-19’s
continuing effects on the economic and business environments in
which we operate;
•strategic,
market, operational, liquidity and interest rate risks associated
with our business;
•our
concentration of credit risk and any potential deterioration in the
financial quality of our partner bank;
•the
risks of expansion into new product markets;
•risks
with respect to recent, pending, or potential future mergers or
acquisitions, including our ability to successfully obtain
regulatory, and when required, shareholder approval and thereafter,
to complete acquisitions and successfully integrate or expand
businesses and operations that we acquire;
•our
ability to attract and retain key employees;
•competition
from financial institutions and other financial service providers,
including non-bank financial technology providers, and our ability
to attract customers from other financial
institutions;
•losses
due to fraudulent and negligent conduct of our customers, third
party service providers, or employees;
•cybersecurity
risks and the vulnerability of our network and the systems of
parties with whom we contract, to unauthorized access, computer
viruses, phishing schemes, spam attacks, human error, natural
disasters, power loss, and other security breaches that could
adversely affect our business and financial performance or
reputation;
•our
reliance on third parties to provide key components of our business
infrastructure and services required to operate our
business;
•the
risk that we may be required to make substantial expenditures to
keep pace with regulatory initiatives and the rapid technological
changes in the financial services market;
•the
availability of and access to capital;
•legislative,
regulatory, or accounting changes that may adversely affect
us;
•adverse
results (including judgments, costs, fines, reputational harm,
inability to obtain necessary approvals, and/or other negative
effects) from current or future litigation, regulatory proceedings,
examinations, investigations, or similar matters, or developments
related thereto;
•failure
to maintain an effective system of disclosure controls and internal
control over financial reporting and fully remediate the previously
identified material weaknesses in our internal control over
financial reporting;
•any
event or development that would cause us to conclude that there was
impairment of any asset, including intangible assets, such as
goodwill; and
•other
risks and uncertainties disclosed in documents filed or furnished
by us with or to the SEC, any of which could cause actual results
to differ materially from future results expressed, implied, or
otherwise anticipated by such forward-looking
statements.
We caution readers that the foregoing list of factors is not
exclusive, is not necessarily in order of importance, and readers
should not place undue reliance on forward-looking statements.
Additional factors that may cause actual results to differ
materially from those contemplated by any forward-looking
statements may also be found in our 2021 10-K (including the “Risk
Factor” section of that report), Quarterly Reports on Form 10-Q,
and Current Reports on Form 8-K filed with the SEC and available at
the SEC’s website at http://www.sec.gov. We do not intend to and,
except as required by law, hereby disclaim any obligation to update
or revise any forward-looking statement contained in this Quarterly
Report on Form 10-Q, which speaks only as of the date of its filing
with the SEC, whether as a result of new information, future
events, or otherwise.
BUSINESS OVERVIEW
BM Technologies, Inc. (“BMTX” or “the Company”) (formerly known as
BankMobile) provides state-of-the-art high-tech digital banking and
disbursement services to consumers and students nationwide through
a full service fintech banking platform, accessible to customers
anywhere and anytime through digital channels.
BMTX facilitates deposits and banking services between a customer
and our Partner Bank, Customers Bank, (“Customers Bank”), a
Pennsylvania state-chartered bank, which is a related party and is
a Federal Deposit Insurance Corporation (“FDIC”) insured bank.
BMTX’s business model leverages partners’ existing customer bases
to achieve high volume, low-cost customer acquisition in its Higher
Education Disbursement, Banking-as-a-Service (“BaaS”), and niche
Direct to Consumer (“D2C") Banking businesses. BMTX has four
primary revenue sources: interchange and card revenue, servicing
fees from BMTX’s Partner Bank, account fees, and university fees.
The majority of revenues are driven by customer activity (deposits,
spend, transactions, etc.) and may be paid or passed through by
BMTX’s Partner Bank, universities, or paid directly by
customers.
BMTX is a Delaware corporation, originally incorporated as Megalith
Financial Acquisition Corp (“Megalith”) in November 2017 and
renamed BM Technologies, Inc. in January 2021 at the time of the
merger between Megalith and BankMobile Technologies, Inc. Until
January 4, 2021, BankMobile Technologies, Inc. was a wholly-owned
subsidiary of Customers Bank, a wholly-owned subsidiary of
Customers Bancorp, Inc. (the “Bancorp” or “Customers
Bancorp”).
BMTX’s Partner Bank holds the FDIC insured deposits that BMTX
sources and services and is the issuing bank on BMTX’s debit cards.
BMTX’s Partner Bank pays the Company a deposit servicing fee for
the deposits generated and passes through interchange income earned
from debit transactions.
BMTX is not a bank, does not hold a bank charter, and does not
provide banking services, and as a result it is not subject to
direct banking regulation, except as a service provider to our
Partner Bank. BMTX is also subject to the regulations of the
Department of Education (“ED”), due to its student disbursements
business, and is periodically examined by it. BMTX’s contracts with
most of its higher education institution clients require it to
comply with numerous laws and regulations, including, where
applicable, regulations promulgated by the ED regarding the
handling of student financial aid funds received by institutions on
behalf of their students under Title IV of the Higher Education Act
of 1965; the Family Educational Rights and Privacy Act of 1995
(“FERPA”); the Electronic Fund Transfer Act and Regulation E; the
USA PATRIOT Act and related anti-money laundering requirements; and
certain federal rules regarding safeguarding personal information,
including rules implementing the privacy provisions of the
Gramm-Leach-Bliley Act (“GLBA”). Other products and services
offered by BMTX may also be subject to other federal and state laws
and regulations.
BMTX’s higher education serviced deposits fluctuate throughout the
year due primarily to the inflow of funds typically disbursed at
the start of a semester. Serviced deposit balances typically
experience seasonal lows in December and July and experience
seasonal highs in September and January when individual account
balances are generally at their peak. Debit spend follows a similar
seasonal trend, but may slightly lag increases in
balances.
On November 15, 2021, the Company announced the signing of a
definitive agreement to merge with First Sound Bank (“FSB”), a
Seattle, Washington-based community business bank. BMTX will pay up
to $7.22 in cash for each share of FSB common stock, or
approximately $23 million in aggregate consideration, subject to
certain closing conditions and adjustments as outlined in the
definitive agreement. The combined company, expected to be named
BMTX Bank, will be a fintech-based bank focused on serving
customers digitally nationwide, supported by its community banking
division that is expected to continue serving the greater Seattle
market. Although an application was submitted to approve the
merger, we now plan to resubmit that application in order to
respond to questions posed by regulators. No action will be taken
by regulators until the application is resubmitted. We are
currently targeting the resubmission of the application within the
next 60 days. In addition to regulatory approvals, the transaction
remains subject to other customary closing conditions and is now
targeted to close in the first half of 2023. Closing after December
31, 2022 will require an amendment to extend the termination date
of the agreement. Although we currently believe that all parties
intend to proceed with the transaction, and discussions are
underway to extend the termination date, it has not been extended
at this time and no assurances can be given whether, or for how
long, the termination date will be extended.
During the quarter ended June 30, 2022, the Company achieved a key
milestone with the execution of agreements to provide technology to
a new BaaS partner. This new BaaS partner has global operations and
tens of millions of U.S. customers. BMTX was awarded this
relationship through a competitive RFP process, underscoring the
competitiveness of our BaaS offering in the marketplace. With the
addition of this new partner, the Company will have expanded its
roster of large well-known brand-name partners. This relationship
may become even more valuable if the Company is able to vertically
integrate this new partnership with the addition of a banking
charter. To protect this partner’s launch strategy, the Company
will not identify the partner by name until commercial launch,
which is expected to occur in early 2023, but the Company began
development work with this partner during the quarter ended June
30, 2022, continued development work during the quarter ended
September 30, 2022, and expects to complete additional development
work through the remainder of 2022. Although this partnership could
be of significant future benefit to the Company, there can be no
assurances that this relationship will be expanded to other
products or services, including those that would be possible with
the potential addition of a bank charter.
Merger with Megalith Financial Acquisition Corp
On January 4, 2021, BankMobile Technologies, Inc. (“BankMobile”),
Megalith, and MFAC Merger Sub Inc., consummated the transaction
contemplated by the merger agreement entered into on August 6,
2020, as amended. In connection with the closing of the merger,
Megalith changed its name to BM Technologies, Inc. Effective
January 6, 2021, Megalith’s units ceased trading, and the Company’s
common stock and warrants began trading on the NYSE American under
the symbols “BMTX” and “BMTX-WT,” respectively.
The merger was accounted for as a reverse recapitalization in
accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”). Under U.S. GAAP, BankMobile was treated as the
“acquirer” company for financial reporting purposes and as a
result, the transaction was treated as the equivalent of BankMobile
issuing stock for the net assets of Megalith, accompanied by a
recapitalization. The excess of the fair value of the shares issued
over the value of the net monetary assets of Megalith was
recognized as an adjustment to shareholders’ equity. There was no
goodwill or other intangible assets recorded in the
merger.
As a result of the merger transaction, BankMobile used proceeds
from the recapitalization transaction to pay down its
$15.6 million outstanding loan from Customers Bank, its former
parent, received $1.3 million of cash, net of transaction
costs, and issued an additional 6,076,946 shares of common
stock.
COVID-19
In March 2020, the outbreak of COVID-19 was recognized as a
pandemic by the World Health Organization. The spread of COVID-19
created a global public health crisis that resulted in
unprecedented uncertainty, economic volatility, and disruption in
financial markets and in governmental, commercial, and consumer
activity in the United States and globally, including the markets
that BMTX serves. In response to the pandemic, we enabled nearly
all our employees to work remotely and limited business travel. We
are a “Remote First” company and most of our employees have no
assigned work location or regular in-office work
requirement.
With the initial outbreak of COVID-19 in 2020, the Company
experienced an initial decline in revenues as compared to the
pre-COVID-19 period. On March 27, 2020, the “Coronavirus Aid,
Relief, and Economic Security (“CARES”) Act” was signed into law
and contained substantial tax and spending provisions intended to
address the impact of the COVID-19 pandemic and stimulate the
economy, including cash payments to taxpayers, increased
unemployment benefits, and to support higher education through the
Higher Education Emergency Relief Fund (“HEERF”). This stimulus
resulted in increased serviced deposit balances, debit card spend,
and revenues, a trend that continued into 2021; however, growth has
slowed in 2022 as compared to the accelerated growth rate we
experienced during early 2021.
BUSINESS MEASUREMENTS
We believe that the following business measurements are important
performance indicators for our business:
•Debit
card POS spend (higher education and new business).
Spend represents the dollar amount that our customers spend on
their debit cards through a signature or PIN network. Spend is a
key performance indicator, as the Company earns a small percentage
of every dollar spent as interchange income and spend is the
primary driver of our card revenues.
•Serviced
deposits (ending and average; higher education and new
business).
Serviced deposits represent the dollar amount of deposits that are
in customer accounts serviced by our Company. Our deposit servicing
fee is based on a contractual arrangement with our Partner Bank and
the average balance of serviced deposits is the primary driver of
our deposit servicing fees. Average deposits have the strongest
correlation to current period serviced deposits, but ending
deposits provide information at a point in time and serve as the
starting point for the following period.
•Higher
education retention.
Retention is a key measure of our value proposition with higher
education customers. We measure retention in terms of Signed
Student Enrollments (“SSEs”), which represents the number of
students enrolled at higher education institutions. Retention is
calculated by subtracting lost SSEs from starting SSEs and taking
that amount as a percentage of the starting SSEs.
•Higher
education financial aid refund disbursement.
Represents the dollar amount of all funds that we process for a
college or university partner, whether it is distributed by ACH,
check, or into a BankMobile Vibe account. This is a measure of the
business we process for our higher education partners in exchange
for their subscription and other fees, as well as a measure of the
potential that we have the opportunity to capture into our serviced
accounts.
•Higher
education organic deposits.
Organic deposits represent the dollar total of all deposits made
into a higher education BankMobile Vibe account except for funds
processed through a college or university partner. Because this
includes funds that the account holder adds to the account and
excludes the funds processed through the higher education
institution, it is viewed as a strong indicator of traction with
the customer.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For information regarding our critical accounting policies and
estimates, please refer to our Annual Report on 10-K for the fiscal
year ended December 31, 2021. There have been no material
changes to the critical accounting policies and estimates
previously disclosed in that report.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB has issued accounting standards that have not yet become
effective and that may impact BMTX’s interim unaudited consolidated
financial statements or its disclosures in future periods.
Note 2 — Basis of Presentation and Significant Accounting
Policies
provides information regarding those accounting
standards.
RESULTS OF OPERATIONS
The following discussion of our results of operations should be
read in conjunction with our interim unaudited consolidated
financial statements, including the accompanying
notes.
The following summarized tables set forth our operating results for
the three and nine months ended September 30, 2022 and
2021:
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Three Months Ended
September 30, |
|
Change |
|
%
Change |
(dollars in thousands, except per share data) |
|
2022 |
|
2021 |
|
|
Operating revenues |
|
$ |
19,858 |
|
|
$ |
22,841 |
|
|
$ |
(2,983) |
|
|
(13) |
% |
Operating expenses |
|
24,138 |
|
|
20,592 |
|
|
3,546 |
|
|
17 |
% |
Income (loss) from operations |
|
(4,280) |
|
|
2,249 |
|
|
(6,529) |
|
|
NM |
Gain (loss) on fair value of private warrant liability |
|
(1,369) |
|
|
6,042 |
|
|
(7,411) |
|
|
(123) |
% |
Interest expense |
|
— |
|
|
— |
|
|
— |
|
|
— |
% |
Income (loss) before income tax expense (benefit) |
|
(5,649) |
|
|
8,291 |
|
|
(13,940) |
|
|
NM |
Income tax expense (benefit) |
|
(729) |
|
|
1,167 |
|
|
(1,896) |
|
|
NM |
Net income (loss) |
|
$ |
(4,920) |
|
|
$ |
7,124 |
|
|
$ |
(12,044) |
|
|
NM |
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|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
(0.41) |
|
|
$ |
0.60 |
|
|
$ |
(1.01) |
|
|
NM |
Diluted earnings (loss) per share |
|
$ |
(0.41) |
|
|
$ |
0.60 |
|
|
$ |
(1.01) |
|
|
NM |
NM refers to changes greater than 150%.
For the three months ended September 30, 2022, net income
decreased $12.0 million, which included a $7.4 million decrease in
the gain (loss) on fair value of the private warrant liability as
compared to the three months ended September 30, 2021. Income
(loss) from operations for the three months ended
September 30, 2022 decreased $6.5 million as compared to the
three months ended September 30, 2021. Operating revenues
decreased by $3.0 million or 13% and operating expenses increased
by $3.5 million or 17%. Changes in quarterly operating revenues and
expenses are discussed in greater detail below. Basic and diluted
earnings (loss) per share, which decreased to $(0.41), are both
driven by the impact of the total net loss in the current year on
the earnings (loss) per share calculations.
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Nine Months Ended
September 30, |
|
Change |
|
%
Change |
(dollars in thousands, except per share data) |
|
2022 |
|
2021 |
|
|
Operating revenues |
|
$ |
67,913 |
|
|
$ |
69,444 |
|
|
$ |
(1,531) |
|
|
(2) |
% |
Operating expenses |
|
69,600 |
|
|
64,682 |
|
|
4,918 |
|
|
8 |
% |
Income (loss) from operations |
|
(1,687) |
|
|
4,762 |
|
|
(6,449) |
|
|
(135) |
% |
Gain on fair value of private warrant liability |
|
6,916 |
|
|
17,989 |
|
|
(11,073) |
|
|
(62) |
% |
Interest expense |
|
— |
|
|
(96) |
|
|
96 |
|
|
(100) |
% |
Income before income tax expense |
|
5,229 |
|
|
22,655 |
|
|
(17,426) |
|
|
(77) |
% |
Income tax expense |
|
1,823 |
|
|
4,262 |
|
|
(2,439) |
|
|
(57) |
% |
Net income |
|
$ |
3,406 |
|
|
$ |
18,393 |
|
|
$ |
(14,987) |
|
|
(81) |
% |
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.29 |
|
|
$ |
1.55 |
|
|
$ |
(1.26) |
|
|
(81) |
% |
Diluted earnings per share |
|
$ |
0.28 |
|
|
$ |
0.03 |
|
|
$ |
0.25 |
|
|
NM |
NM refers to changes greater than 150%.
For the nine months ended September 30, 2022, net income
decreased $15.0 million, which included a $11.1 million decrease in
the gain on fair value of the private warrant liability as compared
to the nine months ended September 30, 2021. Income (loss)
from operations for the nine months ended September 30, 2022
decreased $6.4 million as compared to the nine months ended
September 30, 2021. Operating revenues decreased by $1.5
million or 2% and operating expenses increased by $4.9 million or
8%. Changes in year to date operating revenues and expenses are
discussed in greater detail below.
Basic and diluted earnings per share, which decreased and increased
to $0.29 and $0.28, respectively, are both driven primarily by the
impact of the private warrant adjustments on the earnings per share
calculations. During the nine months ended September 30, 2022,
the average common stock share price was below the warrant strike
price, and as a result, the warrants are not considered dilutive.
During the nine months ended September 30, 2021, the average
common stock share price was greater than the warrant strike price
resulting in the warrants being considered dilutive.
Operating Revenues
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|
|
Three Months Ended
September 30, |
|
|
|
%
Change |
(dollars in thousands) |
|
2022 |
|
2021 |
|
Change |
|
Revenues: |
|
|
|
|
|
|
|
|
Interchange and card revenue |
|
$ |
5,325 |
|
|
$ |
6,529 |
|
|
$ |
(1,204) |
|
|
(18) |
% |
Servicing fees from Partner Bank |
|
10,163 |
|
|
11,823 |
|
|
(1,660) |
|
|
(14) |
% |
Account fees |
|
2,110 |
|
|
2,569 |
|
|
(459) |
|
|
(18) |
% |
University fees |
|
1,357 |
|
|
1,474 |
|
|
(117) |
|
|
(8) |
% |
Other revenue |
|
903 |
|
|
446 |
|
|
457 |
|
|
102 |
% |
Total operating revenues |
|
$ |
19,858 |
|
|
$ |
22,841 |
|
|
$ |
(2,983) |
|
|
(13) |
% |
Total revenues decreased $3.0 million, or 13%, in the three months
ended September 30, 2022 as compared to the three months ended
September 30, 2021. This decrease is primarily attributable to
a $1.7 million or 14% decrease in
Servicing fees from Partner Bank,
a $1.2 million or 18% decrease in
Interchange and card revenue
which was primarily driven by a 15% reduction in spend volume in
the Higher Education business, a $0.5 million, or 18%,
decrease in
Account fees,
and a $0.1 million, or 8%, decrease in University fees. The
decrease in
Servicing fees from Partner Bank
is due to a 5% decrease in average serviced deposit balances; $1.6
billion for the three months ended September 30, 2022 as
compared to $1.7 billion for the three months ended
September 30, 2021; and an approximate $1.0 million increase
in interest paid to serviced deposit account holders for the three
months ended September 30, 2022 as compared to the three months
ended September 30, 2021. These decreases were partially offset by
a $0.5 million, or 102%, increase in
Other revenue
due to an increase in development projects for our BaaS partners
which vary based on project status, contracts, and
milestones.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
|
|
%
Change |
(dollars in thousands) |
|
2022 |
|
2021 |
|
Change |
|
Revenues: |
|
|
|
|
|
|
|
|
Interchange and card revenue |
|
$ |
17,283 |
|
|
$ |
21,530 |
|
|
$ |
(4,247) |
|
|
(20) |
% |
Servicing fees from Partner Bank |
|
37,650 |
|
|
31,774 |
|
|
5,876 |
|
|
18 |
% |
Account fees |
|
6,872 |
|
|
7,847 |
|
|
(975) |
|
|
(12) |
% |
University fees |
|
4,406 |
|
|
4,129 |
|
|
277 |
|
|
7 |
% |
Other revenue |
|
1,702 |
|
|
4,164 |
|
|
(2,462) |
|
|
(59) |
% |
Total operating revenues |
|
$ |
67,913 |
|
|
$ |
69,444 |
|
|
$ |
(1,531) |
|
|
(2) |
% |
Total revenues decreased $1.5 million, or 2%, in the nine
months ended September 30, 2022 as compared to the nine months
ended September 30, 2021. This decrease is primarily
attributable a $4.2 million, or 20%, decrease in
Interchange and card revenue
driven primarily by lower spend volume as well as a
$1.0 million, or 12%, decrease in
Account fees,
and a $2.5 million decrease in
Other revenue
due to a reduction in development projects for our BaaS partners
which vary based on project status, contracts, and milestones.
These decreases were partially offset by a $5.9 million, or
18%, increase in
Servicing fees from Partner Bank.
The increase is primarily due to an increase in average serviced
deposit balances for the period which increased approximately 24%
to $1.9 billion for the nine months ended September 30, 2022
as compared to $1.5 billion for the nine months ended
September 30, 2021.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
|
|
%
Change |
(dollars in thousands) |
|
2022 |
|
2021 |
|
Change |
|
Technology, communication, and processing |
|
$ |
7,731 |
|
|
$ |
5,082 |
|
|
$ |
2,649 |
|
|
52 |
% |
Salaries and employee benefits |
|
10,773 |
|
|
9,137 |
|
|
1,636 |
|
|
18 |
% |
Professional services |
|
2,454 |
|
|
3,496 |
|
|
(1,042) |
|
|
(30) |
% |
Provision for operating losses |
|
1,564 |
|
|
1,067 |
|
|
497 |
|
|
47 |
% |
Occupancy |
|
160 |
|
|
192 |
|
|
(32) |
|
|
(17) |
% |
Customer related supplies |
|
225 |
|
|
828 |
|
|
(603) |
|
|
(73) |
% |
Advertising and promotion |
|
242 |
|
|
176 |
|
|
66 |
|
|
38 |
% |
Merger and acquisition related |
|
— |
|
|
— |
|
|
— |
|
|
100 |
% |
Other expense |
|
989 |
|
|
614 |
|
|
375 |
|
|
61 |
% |
Total operating expenses |
|
$ |
24,138 |
|
|
$ |
20,592 |
|
|
$ |
3,546 |
|
|
17 |
% |
For the three months ended September 30, 2022, operating
expenses increased $3.5 million, or 17%, as compared to the three
months ended September 30, 2021. The increase is primarily
attributable to a $2.6 million increase in
Technology, communication, and processing,
a $1.6 million increase in
Salaries and employee benefits,
a $0.5 million increase in
Provision for operating losses,
and a $0.4 million increase in
Other expense.
These increases were partially offset by a $1.0 million
decrease in
Professional services
and a $0.6 million decrease in
Customer related supplies.
The increase in
Technology, communication, and processing
is related to the negotiation of a service agreement with a service
provider during the prior year, which included retroactive pricing
benefits and a one-time credit reducing the quarterly expense in
the three month period ended September 30, 2021 as compared to
September 30, 2022 by approximately $2.5 million. The increase
in
Salaries and employee benefits
is driven by an increase in average headcount, annual merit raises,
and the vesting of equity awards granted in September 2021. The
increase in
Provision for operating losses
is driven by adverse losses experienced in the serviced deposit
accounts. The increase in
Other expense
is driven primarily by increased insurance expenses and employee
travel expenses as compared to the prior year. The decrease
in
Professional services
is driven by reduced audit, consulting, and other professional
services spend and internalization of previously outsourced
personnel in the current year. The decrease in
Customer related supplies
is driven by reduced consumption of customer related supplies and
vendor credits provided and utilized in the current year under the
new service agreement negotiated in the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
|
|
%
Change |
(dollars in thousands) |
|
2022 |
|
2021 |
|
Change |
|
Technology, communication, and processing |
|
$ |
21,944 |
|
|
$ |
21,903 |
|
|
$ |
41 |
|
|
— |
% |
Salaries and employee benefits |
|
30,656 |
|
|
27,253 |
|
|
3,403 |
|
|
12 |
% |
Professional services |
|
7,225 |
|
|
7,359 |
|
|
(134) |
|
|
(2) |
% |
Provision for operating losses |
|
5,006 |
|
|
3,797 |
|
|
1,209 |
|
|
32 |
% |
Occupancy |
|
875 |
|
|
866 |
|
|
9 |
|
|
1 |
% |
Customer related supplies |
|
676 |
|
|
1,475 |
|
|
(799) |
|
|
(54) |
% |
Advertising and promotion |
|
461 |
|
|
492 |
|
|
(31) |
|
|
(6) |
% |
Merger and acquisition related |
|
290 |
|
|
— |
|
|
290 |
|
|
100 |
% |
Other expense |
|
2,467 |
|
|
1,537 |
|
|
930 |
|
|
61 |
% |
Total operating expenses |
|
$ |
69,600 |
|
|
$ |
64,682 |
|
|
$ |
4,918 |
|
|
8 |
% |
For the nine months ended September 30, 2022, operating
expenses increased $4.9 million, or 8%, as compared to the
nine months ended September 30, 2021. The increase is
primarily attributable to a $3.4 million increase in
Salaries and employee benefits,
a $1.2 million increase in
Provision for operating losses,
and
a $0.9 million increase in
Other expense.
These increases were partially offset by a $0.8 million
decrease in
Customer related supplies.
The increase in
Salaries and employee benefits
is driven by an increase in average headcount, annual merit raises,
and the vesting of equity awards granted in September 2021. The
increase in
Provision for operating losses
is driven by adverse losses experienced in serviced deposit
accounts. The increase in
Other expense
is driven primarily by increased insurance expenses, employee
travel expenses, and the timing of certain taxes and fees as
compared to the prior year. The decrease in
Customer related supplies
is driven by reduced consumption of customer related supplies and
vendor credits provided and utilized in the current year under the
new service agreement negotiated in the prior year.
Income Tax Expense
The Company’s effective tax rate was 12.9% and 14.1% for the three
months ended September 30, 2022 and 2021, respectively. The
Company’s effective tax rate was 34.9% and 18.8% for the nine
months ended September 30, 2022 and 2021, respectively. The
effective tax rate differs from the Company’s marginal tax rate of
27.3% due to the non-taxable fair value adjustments related to the
non-compensatory private warrant liability being recorded through
earnings, offset by changes to the valuation allowance established
against deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Our
Cash and cash equivalents
consist of non-interest bearing, highly-liquid demand deposits. We
had $26.4 million of
Cash and cash equivalents
at September 30, 2022 as compared to $25.7 million of
Cash and cash equivalents
at December 31, 2021.
We currently finance our operations through cash flows provided by
operating activities. We continue to project positive operating
cash flows for the 2022 fiscal year and we intend to fund our
ongoing operating activities with our existing cash and expected
cash flows from operations. However, should additional liquidity be
necessary, the Company could consider equity or debt financing, but
there are no assurances that additional capital would be available
or on terms that are acceptable to us.
ASC 205-40,
Presentation of Financial Statements - Going Concern,
requires management to assess an entity’s ability to continue as a
going concern within one year of the date the financial statements
are issued. In each reporting period, including interim periods, an
entity is required to assess conditions known and reasonably
knowable as of the financial statement issuance date to determine
whether it is probable an entity will not meet its financial
obligations within one year from the financial statement issuance
date. Management has performed this required assessment as of
November 15, 2022 including consideration of the effect of the
First Amendment to Deposit Processing Services Agreement (the “DPSA
Amendment”) entered into between the Company and Customers Bank on
November 8, 2022, see
Note 15 - Subsequent Events
for additional information, and believes there is sufficient funds
available to support its ongoing business operations and continue
as a going concern for at least the next 12 months with projected
liquidity of not less than $5 million even with the anticipated
termination of the DPSA Amendment not later than June 30,
2023.
Management’s assessment is subject to known and unknown risks,
uncertainties, assumptions, and changes in circumstances, many of
which are beyond our control including the impact of the
macroeconomic environment, and that are difficult to predict as to
timing, extent, likelihood, and degree of occurrence, and that
could cause actual results to differ from estimates and forecasts,
potentially materially. Continued increases in interest rates by
the Federal Reserve Bank will cause management to consider raising
interest rates on certain of its serviced deposit accounts thereby
reducing yields on such deposits, negatively impacting projected
profitability and cash flow.
The Company is actively evaluating multiple strategic alternatives
to the DPSA Amendment including internalizing services upon closing
of the previously announced merger with First Sound Bank or
negotiating a new deposit servicing agreement with new potential
bank partners. Failure to timely execute upon one or more of these
strategic alternatives prior to the second quarter of 2023 could
cast substantial doubt upon the Company’s ability to meet its
financial obligations thereafter without additional liquidity and
capital resources.
The table below summarizes our cash flows for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
|
|
%
Change |
(dollars in thousands) |
|
2022 |
|
2021 |
|
Change |
|
Net cash provided by operating activities |
|
$ |
7,450 |
|
|
$ |
22,082 |
|
|
$ |
(14,632) |
|
|
(66) |
% |
Net cash used in investing activities |
|
(4,519) |
|
|
(552) |
|
|
(3,967) |
|
|
NM |
Net cash used in financing activities |
|
(2,202) |
|
|
(4,112) |
|
|
1,910 |
|
|
(46) |
% |
Net increase in cash and cash equivalents |
|
$ |
729 |
|
|
$ |
17,418 |
|
|
$ |
(16,689) |
|
|
(96) |
% |
NM refers to changes greater than 150%.
Cash flows provided by operating activities
Cash provided by operating activities was $7.5 million in the nine
months ended September 30, 2022 which is a $14.6 million
decrease as compared to the nine months ended September 30,
2021.The decrease in net cash provided by operating activities is
driven primarily by $8.2 million reduced sources of cash
from
Deferred Revenue,
$4.8 million increased use of cash for
Prepaid expenses and other assets,
and $2.9 million increased use of cash for
Taxes payable.
Cash flows used in investing activities
Cash used in investing activities increased $4.0 million in the
nine months ended September 30, 2022 as compared to the nine
months ended September 30, 2021, primarily due to increased
capitalization of development costs related to internal use
software.
Cash flows used in financing activities
Cash used in financing activities decreased $1.9 million as
compared to the nine months ended September 30, 2021,
primarily due to the private warrant repurchase transaction during
the current period versus the recapitalization transaction and
payoff of borrowings in the prior period.
ITEM 3. QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Credit Risk
We are exposed to economic risks in the normal course of business
such as concentration of credit risk. Potential concentration of
credit risk consists primarily of accounts receivable from our
Partner Bank, BaaS partners, MasterCard, and higher education
institution clients. Historically, we have not experienced any
material losses related to these balances and believe that there is
minimal risk of expected future losses. However, there can be no
assurance that there will not be losses on these
balances.
At September 30, 2022 and December 31, 2021, our Partner
Bank accounted for 21% and 61% of our total
Accounts receivable, net,
respectively. At September 30, 2022 and December 31,
2021, a BaaS partner accounted for 25% and 13% of our total
Accounts receivable, net,
respectively. At September 30, 2022 and December 31,
2021, a second BaaS partner accounted for 28% and 0% of our
total
Accounts receivable, net,
respectively. At September 30, 2022 and December 31,
2021, Universities accounted for 18% and 9% of our total
Accounts receivable, net,
respectively. At September 30, 2022 and December 31,
2021, MasterCard accounted for 8% and 17% of our total
Accounts receivable, net,
respectively.
Financial instruments that potentially subject the Company to
credit risk consist principally of cash held in the Company's
operating account. Cash is maintained in accounts with our Partner
Bank, which, at times may exceed the FDIC coverage of $250,000.
At
September 30, 2022,
the Company has not experienced losses on these cash accounts and
management believes, based upon the quality of our Partner Bank,
that the credit risk with regard to these deposits is not
significant.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management,
including our Chief Executive Officer (our principal executive
officer) and our Chief Financial Officer (our principal financial
officer), we conducted an evaluation of our disclosure controls and
procedures, as defined in Exchange Act Rule 13a-15(e), as of
September 30, 2022.
We identified material weaknesses in our internal control over
financial reporting, as described in Part II, Item 9A of our Annual
Report on Form 10-K for the year ended December 31, 2021, which
were not fully remedied as of September 30, 2022. A material
weakness is a deficiency or combination of deficiencies, in
internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual
or interim financial statements will not be prevented or detected
and corrected on a timely basis. Accordingly, our principal
executive officer and principal financial officer concluded that
our disclosure controls and procedures were not effective as of the
end of the period covered by this report.
(b) Changes in Internal Control Over Financial
Reporting
Except as set forth in the following sentences, no change in our
internal control over financial reporting (as that term is defined
in Exchange Act Rule 13a-15(f)) occurred during the fiscal quarter
ended September 30, 2022 that materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
As of December 31, 2021, we had concluded that our internal control
over financial reporting was not effective. During 2022, we have
been implementing and will continue to implement changes that are
both organizational and process-focused to improve the control
environment of the Company.
As of September 30, 2022, and as a result of these changes,
substantial progress has been made to remediate the previously
identified material weaknesses in our internal control over
financial reporting. These weaknesses will not be considered fully
remediated, however, until the applicable controls operate for a
sufficient period-of-time, and Management has concluded, through
testing, that these controls are operating effectively. There is no
assurance that additional remediation steps will not be necessary.
We expect that the remediation of these material weakness will be
fully implemented and validated as of December 31,
2022.
These remedial measures were considered changes to our internal
control environment which had a material effect on internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS
Except as follows, there have been no material changes to the Risk
Factors disclosed in Part I, Item 1A of our Annual Report on Form
10-K, as amended, for the year ended December 31, 2021: The risk
factor entitled “We face a number of risks relating to our
announced plan to merge with First Sound Bank” is amended to add
the following: “The merger agreement with First Sound Bank may be
terminated (in which case the merger would not occur) if the
transaction has not been consummated on or prior to December 31,
2022. We target the transaction to close in the first half of 2023;
however, without an extension of the termination date, the merger
agreement could terminate”.
ITEM 6. EXHIBITS
See exhibit index below for a list of the documents filed or
furnished as part of this Quarterly Report on Form
10-Q:
|
|
|
|
|
|
|
|
|
Exhibit
No. |
|
Description |
3.1 |
|
|
3.2 |
|
|
10.1 |
|
|
31.1 |
|
|
31.2 |
|
|
32 |
|
|
101 |
|
|
104 |
|
|
* Filed or furnished herewith |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, BM Technologies, Inc. has duly caused this Quarterly
Report on Form 10-Q to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Wayne, Commonwealth of
Pennsylvania, on the 15th day of November, 2022.
|
|
|
|
|
|
|
|
|
|
BM Technologies, Inc. |
|
|
|
|
By: |
/s/ Luvleen Sidhu |
|
|
Luvleen Sidhu |
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
BM Technologies, Inc. |
|
|
|
|
By: |
/s/ Robert Ramsey |
|
|
Robert Ramsey |
|
|
Chief Financial Officer (Principal Financial Officer) |
BM Technologies (AMEX:BMTX)
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