BM Technologies(BMTX) - 2021 Q3 - Quarterly Report

Part I - Financial Information Unaudited Consolidated Financial Statements This section presents the unaudited consolidated financial statements for BM Technologies, Inc. as of September 30, 2021, and for the three and nine-month periods then ended Consolidated Balance Sheets As of September 30, 2021, the company's financial position strengthened compared to year-end 2020, with total assets increasing to $69.9 million and total liabilities decreasing to $34.0 million, leading to a substantial growth in shareholders' equity Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $69,876 | $63,961 | | Cash and cash equivalents | $20,407 | $2,989 | | Total Liabilities | $33,977 | $39,271 | | Borrowings from partner bank | $0 | $21,000 | | Liability for private warrants | $12,850 | $0 | | Total Shareholders' Equity | $35,899 | $24,690 | Consolidated Statements of Income (Loss) The company demonstrated a significant turnaround in profitability, reporting net income of $8.8 million for Q3 2021 and $25.8 million for the nine months ended September 30, 2021, driven by increased servicing fees and a non-cash gain on warrant liability Key Income Statement Data (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $21,974 | $18,338 | $69,250 | $49,528 | | Servicing fees from partner bank | $11,823 | $5,814 | $31,774 | $15,604 | | Income (loss) from operations | $3,998 | $610 | $11,976 | ($7,236) | | Gain on fair value of private warrant liability | $6,042 | $0 | $17,989 | $0 | | Net income (loss) | $8,794 | $250 | $25,847 | ($8,403) | | Diluted (loss) earnings per share | $0.74 | $0.04 | $0.65 | ($1.37) | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased from $24.7 million at the end of 2020 to $35.9 million at September 30, 2021, primarily due to net income and recapitalization, partially offset by warrant valuation - Key drivers of the change in shareholders' equity during the first nine months of 2021 included net income, a significant valuation adjustment for private warrants, and the effects of the recapitalization transaction[13] Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, the company generated significantly more cash from operations ($22.1 million), while cash used in financing increased due to debt repayment, resulting in a $17.4 million overall increase in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $22,082 | $11,668 | | Net Cash Used in Investing Activities | ($552) | ($3,152) | | Net Cash Used in Financing Activities | ($4,112) | ($326) | | Net Increase in Cash | $17,418 | $8,190 | Notes to Unaudited Consolidated Financial Statements The notes provide critical context to the financial statements, detailing the company's business model, the significant merger transaction accounted for as a reverse recapitalization, and key accounting policies - On January 4, 2021, the company completed a merger with Megalith Financial Acquisition Corp., which was accounted for as a reverse recapitalization with BankMobile treated as the accounting acquirer[28][29] - Private warrants are accounted for as liabilities and marked-to-market each period, resulting in a non-cash gain of $18.0 million for the nine months ended September 30, 2021, which significantly impacted net income[67][68] - Subsequent to the reporting period, on November 15, 2021, the company announced a definitive agreement to merge with First Sound Bank for approximately $23.0 million in cash[113] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the strong performance in the first nine months of 2021 to a 40% increase in operating revenues, driven by a 104% rise in servicing fees from its partner bank due to higher average deposit balances Results of Operations For the nine months ended September 30, 2021, revenues grew 40% to $69.3 million, while operating expenses increased by only 1%, resulting in income from operations of $12.0 million, a significant reversal from a $7.2 million loss in the prior-year period Revenue Comparison - Nine Months Ended Sep 30 (in thousands) | Revenue Stream | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Servicing fees from partner bank | $31,774 | $15,604 | 104% | | Interchange and card revenue | $21,109 | $20,053 | 5% | | Other revenue | $4,283 | $1,326 | >150% | | Total operating revenues | $69,250 | $49,528 | 40% | - The increase in servicing fees was directly related to a 123% increase in average deposits, which grew from $0.7 billion to $1.5 billion for the nine-month period[147] - Total operating expenses for the nine-month period remained nearly flat, increasing just 1% year-over-year from $56.8 million to $57.3 million, demonstrating significant operating leverage[151] Liquidity and Capital Resources The company's liquidity position improved substantially, ending the period with $20.4 million in cash, driven by increased operating cash flow and recapitalization proceeds used to repay all outstanding debt - Cash and cash equivalents increased to $20.4 million as of September 30, 2021[152] - Net cash provided by operating activities increased by $10.4 million (89%) to $22.1 million for the nine months ended September 30, 2021, compared to the prior year[153][155] - During the period, the company fully repaid $21.0 million of borrowings from its partner bank[155] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is identified as credit risk concentration within its accounts receivable, with a significant portion from a single banking-as-a-service partner - As of September 30, 2021, a single banking-as-a-service partner accounted for approximately 39% of the company's accounts receivable[158] Controls and Procedures Based on an evaluation conducted by management, including the CEO and CFO, the company concluded that its disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[162] Part II - Other Information Legal Proceedings The company is involved in legal proceedings arising in the ordinary course of business but does not expect the outcomes to have a material effect on its financial condition or results of operations - Management believes that potential liability from all current legal proceedings will not have a material effect on the company's financial position[163] Risk Factors The company reports that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020, and its Q2 2021 Form 10-Q - There have been no material changes to the Risk Factors disclosed in the company's prior annual and quarterly reports[164] Unregistered Sales of Equity Securities and Use of Proceeds On January 4, 2021, in connection with its merger, the company's predecessor conducted a private placement (PIPE Financing), selling approximately 1.9 million shares of Class A Common Stock for aggregate gross proceeds of about $20.0 million - The company raised approximately $20.0 million in gross proceeds from a PIPE financing transaction on January 4, 2021, by selling 1,927,058 shares at $10.38 per share[165] Other Information On September 30, 2021, the Board of Directors granted service-based and performance-based Restricted Stock Units (RSUs) to key executives under the company's 2020 Equity Incentive Plan Executive RSU Grants (Number of Units) | Employee | Service-Based RSUs | Performance-Based RSUs | | :--- | :--- | :--- | | Luvleen Sidhu (CEO) | 250,000 | 250,000 | | Jamie Donahue | 40,000 | 40,000 | | Robert J. Diegel | 30,000 | 30,000 | | Robert Ramsey (CFO) | 15,000 | 15,000 | Exhibits This section lists the exhibits filed with the Form 10-Q, including the required certifications by the Chief Executive Officer and Chief Financial Officer - The exhibits filed with the report include CEO and CFO certifications under Rule 13a-14(a)/15d-14(a) and 18 U.S.C. 1350[168]