Payfare Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 9 speakers on the call.

Operator

Good evening, ladies and gentlemen. Welcome to the Payfair Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session with prequalified analysts on the call and instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being recorded.

Operator

I will now turn the conference over to Mr. Jihan Tung Kai, Head of Investor Relations and Corporate Development. Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Joining me on the call this afternoon is Marco Margiado, Payfair's CEO and Founding Partner and Charles Park, Payfair's CFO. Payfair would like to note that the company's remarks and answers to your questions today may contain forward looking statements that are based upon management's current expectations. All such statements are made pursuant to the Safe Harbor provisions of and are intended to be forward looking statements under applicable Canadian Securities Legislation. When relying on forward looking statements to make decisions with respect to the company, you should carefully consider the risks set forth in the Risk Factors section in the annual MD and A for the year ended December 31, 2023, which is available on www.sedarplus.

Speaker 1

Ca. Except as may be required by Canadian securities laws, the company does not undertake any obligation to update any forward looking statements as a result of new information. We would also like to remind listeners that Payfair uses certain non GAAP and supplementary financial measures to arrive at adjusted results to assess its business and to measure overall performance. Payfair believes that these financial measures provide readers with a better understanding of how management views the company's overall performance. Throughout the call, we will also refer to a slide deck, which is posted on our website, corp.

Speaker 1

Payfair.com/investors. I will now turn the call over to Marco for an update on Payfair's business.

Speaker 2

Thanks, Ian. Starting on Slide 3 of our presentation deck, I am once again proud to present another record operating quarter for Payfair. This was our 6th consecutive quarter of earnings or sorry, earnings positive quarter. Our profitability and free cash flow growth continues to be industry leading in the earned wage access space. Our mission is to financially empower every worker with immediate access to earnings and wages in real time as work is performed.

Speaker 2

Our primary financial goal is to maximize long term free cash flow per share. Our total addressable market Moving

Speaker 3

to Slide 4,

Speaker 2

I would like to Moving to Slide 4, I would like to comment on the progress we have made so far in our 2024 strategic objectives. 1st, we reaffirm our 2024 revenue and adjusted EBITDA guidance of $235,000,000 to $245,000,000 $30,000,000 to $35,000,000 respectively, which equates to midpoint growth of 29% 51% over 2023. In addition to growth, we recently signed a long term contract extension with Lyft to continue powering the Lyft Direct platform. When we launched the program in December of 2019, we revolutionized the earned wage access industry by developing the first product in market to offer free instant pay after every ride at a no cost with a no cost companion bank account. Stay tuned for significant new product developments within LiftDirect, including saving products and wealth management tools.

Speaker 2

These new features will further enhance the value proposition to Lyft drivers, fostering increased adoption of Lyft Direct. On the topic extensions for commercial reasons, similar to the approach we took with our other marquee clients, we are not able to comment further on contract discussions with DoorDash at this time. Having said this, we believe in the strength of our offering beyond a simple instant disbursement platform. Our secret sauce is bringing together a cutting edge tech stack, value enhancing ancillary benefits to cardholders such as cash back rewards and insurance products and leading fraud compliance and AML tools. I would especially like to emphasize our strength in compliance and AML given the recent collapse of large scale banking as a service FinTechs and the corresponding regulatory actions taken by the Fed, the FDIC and the OTC against underlying banks of large neobank distributed card programs.

Speaker 2

Our business development pipeline is as strong as ever with active opportunities in aggregate of close to doubling our current GEV. The strength and stability in our platform from a technology, operations and compliance perspective are standout differentiators from competitors in new contract discussions. We look forward to providing updates on new business development initiatives in the coming months. Reviewing Slide 56, the 2nd quarter was another record for revenue and GDV, both up 26 percent sorry, 20% 31% year over year respectively. Our GDV growth continues to outpace our user growth, which demonstrates that Payfair is winning additional wallet share with our users.

Speaker 2

With that, I will turn it over to Charles to review our Q2 financials.

Speaker 4

Thanks, Marco. Turning to Slide 7, we generated record quarterly revenue of 56,000,000 dollars up 20% year over year. This increase was primarily driven by ongoing marketing initiatives and organic growth in each of our programs. Gross profit in the Q1 or the 2nd quarter was also a record $13,900,000 of the 24.8 percent margin. Gross profit dollars were up 25% year over year.

Speaker 4

Our gross margin primarily benefited from volume based pricing improvements with our higher active user base and GDV volumes. Specifically, I would like to emphasize that we have crossed over $1,200,000,000 per month in GDV, which highlights a significant scale of our business. This is one of the key drivers in our gross margin expansion in the quarter and on a year over year basis. We continue to expand adjusted EBITDA, which was $6,600,000 in Q2, up 39% year over year. On Slide 9, we summarize our current financial condition.

Speaker 4

We ended the quarter with $67,000,000 in cash and $28,000,000 in liquid high yield deposit investments. Our financial condition is strong. We have minimal capital needs to fund our organic growth opportunities as our core business is self financing. Our balance sheet is well capitalized and we remain debt free. We will remain well positioned to deploy capital to grow our business.

Speaker 4

Operator, we are now ready to take questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Joseph Vafi from Canaccord. Please go ahead.

Speaker 5

Thank you, operator. Hey, guys. Good afternoon. Nice to see solid results. I was wondering if you could kind of I know you reiterated your guide for the year and the guide does imply acceleration during the year.

Speaker 5

Could you just kind of walk us through again some of the factors that are driving that, the reiteration of the guide and what's implied in acceleration? And then I'll have a follow-up.

Speaker 4

Joe, it's Charles here. I can take that question. Yes, Joe, so in terms of the guidance from a revenue perspective, as you know, our stronger quarters tend to be on the latter half of the year. In addition to that, we've had a really successful launch of our most recent program, the Uber Pro Canada program, which has onboarded quite a few active users. In addition to that, the continuing growth that we've seen in our existing platforms as well or programs with both Lyft and DoorDash, those are the main drivers.

Speaker 4

As you know, those are key clients that we have on board. So, both kind of driven by kind of new programs that have launched and continued growth with our existing programs with kind of the seasonality that we've always seen in the second half of the year. Those are the main drivers.

Speaker 5

Drill down on the Uber Canada, I believe the launch is going pretty well and you're signing a lot of drivers because you're still really driving your business from these 3 big partners today. Maybe if you could provide a little more color on where Uber Canada sits today versus where it was under the previous program, that would be helpful.

Speaker 4

Sure, Joe. So, we don't disclose specific numbers, but maybe I can take talk to you in quantums of percentages. Year over year, we're looking at an increase of over 400% just in terms of the user base. And quarter over quarter, we're looking at well over 100%, just to give you

Speaker 5

And then just maybe a quick update on your announcement with ADP Canada. I know that's set for a little later in the year. Any updates to provide to everybody here on progress on that? Thanks a lot, guys.

Speaker 2

Hey, Joe, it's Marco. I guess nothing more to update at this point other than we're on track to kind of hit the targets we had set out, which was to be live at some capacity beyond just testing in Q4. And so as that progresses, we'll certainly keep everyone sorry, everyone aware of what the progress has been, and then reaffirming the launch time of early Q4.

Speaker 5

Got it. Thanks a lot guys. Much appreciated.

Speaker 2

Thanks Joe.

Speaker 6

Your next question comes from the line of Adhir Kadvi from 8 Capital.

Speaker 7

Congratulations on the quarter. Big box retailer seems to be live now. Expectations for that kind of as we head into the back half of the year and beyond that?

Speaker 2

Dhir, I'm not sure if it was just me, but it kind of cut out, but I think I got the bulk of it. If I haven't, maybe Charles step in. But I think the question was around the big box retailer we had recently launched. It is launched, I can confirm that. In terms of the opportunity itself, it's not going to have any meaningful implications as of right now, but there's already talks about expanding the program elsewhere potentially, as well as giving good footprint into another market we're keen on entering into.

Speaker 2

And so when that kind of becomes public knowledge and we're able to share what those details look like, we'll certainly do that. But the playbook for us there was launched a program with another marquee name and then rapidly expand it into other markets where we can actually pick up significant business activity and leverage the infrastructure we'll use in those new markets.

Speaker 7

When you talk about the pipeline, I think you mentioned you have a pipeline that could potentially double the GDV. What verticals are those coming from? Is that kind of ongoing new gig partnerships? Or is it kind of new EWA players from like maybe the ADP partnership that

Speaker 2

Yes. Gig platforms, everyone would know. Yes, I mean, we can leave it at that, but no surprise, it would be large scale gig platforms delivery, to be specific. And so, yes, those are in the pipe. We're not banking on them just yet, but they are there and there's significant volume as well as markets we're already established in.

Speaker 2

So it could come sooner than later, but we're just not sure on timing. And hopefully, we could get to a point where we could have that all signed up and announced in short order.

Speaker 4

Got it.

Speaker 7

And then maybe one last one, just on the corporate development executive that you signed, Alex Sabalos, that he's going to be leading your international expansion efforts. Is that largely also kind of to coincide with the international big box retailer and expanding that into new markets? Or do you see kind of stuff beyond just the gig platforms and that big box retailer in terms of expansion into international markets?

Speaker 2

Yes. Alex brings a wealth of experience, as you can imagine, and what was highlighted in the press release. Even just the tenure of all the things he's done at Amazon, as well as NewBank and several other companies that he's helped out over the years, He brings a wealth of experience that certainly aligns with what we're after right now, which is global expansion as well as inorganic expansion. And so we thought it would be an amazing fit for our strategic moves and where we're going next. What's specifics around the big box retailer?

Speaker 2

There is a market in there that he's very familiar with, and so that certainly does play a part. We were looking at that market irrespective for some other initiatives we have. And so it was just a perfect fit in that regard. So it's not just for that big box retailer, it's more of a global expansion effort, which in order for us to do this efficiently, we are looking to grow organically or inorganically rather. And I think he could play a big part in that as well.

Speaker 6

Your next question comes from the line of Stephen Bolland from Raymond James. Your line is now open.

Speaker 2

Thanks, guys.

Speaker 3

Mark, maybe just go back to the EWA, the ADP partnership. I mean, is that your preferred method to get more into payroll is partnering with tech providers like that as opposed to some of the EWA providers out there that are kind of, I think we've talked in the past, like block and tackle, signing up restaurant chains on an individual basis. I mean, is there a lot of ADPs out there that you can try and partner with, like to offer similar products?

Speaker 2

Hey, Steve. How are you? Sorry, I hope everything is well. Yes, I think the clear path for us is partnering with major distribution channels. Well, when you think of payroll, I mean, obviously, we're speaking about payroll providers.

Speaker 2

And so in that regard, if we were to partner with payroll providers along the way, we would certainly get access to the data and infrastructure we need to actually execute those EWA advances. And so we wouldn't look necessarily to other EWA providers in assisting them, although we can and we have looked at that for a certain number of players in the market. The preferred pass is definitely the major distribution channels. I know you mentioned because of all the different platforms that those restaurants might be on aggregating that kind of volume rather than finding one employer that might have 50,000 employees under one payroll program is a lot simpler than finding a few 1,000 restaurants that only have 20 to 30 employees each. And so there's a number of different ways we can help the whole EWA market, but our preferred path to start is definitely leveraging the distribution from major payroll

Speaker 3

providers. You mentioned on the GEB, how it's grown and how much you're doing on a monthly basis now. I think in the past you talked about your ability to negotiate higher interchange fees when you hit a certain scale. Is those discussions happening or is it happened? I'm just curious if you're in a position now to earn a bigger fraction of the pie from some of your partners?

Speaker 2

I could take that initially, Charles, and then you could take over from there. But I guess we've already done a phenomenal job in prearranging what those scales could look like and what the different tiers could be. We've done that almost since day 1, but certainly with the recent growth we've had over the past 2, 3 years especially, we did go get ahead of it and kind of anticipate that all those tiers come down even further. And we extended out some of those tiers as well. But I'll turn it over to Charles to talk to any specific highlights he wants to mention.

Speaker 4

Yes. Thanks, Marco, and thanks, Steve, for the question. In terms of getting more under the pie, we've obviously negotiated the additional tiers as Marco talked about. But one thing I think we've done kind of year in, year out is we really revisited those numbers as our growth has increased as well. So, the fact that we have certain kind of tiers in place doesn't necessarily mean that they're going to stay the same.

Speaker 4

We are always having ongoing conversation at a minimum quarterly or annually that we have with all of our major vendors who contribute to the COGS line to get the best pricing. And I think history shows that we've done a pretty good job in terms of extracting additional value for our shareholders and we'll continue to do that on a go forward basis.

Speaker 3

Okay. Just last one for me.

Speaker 4

There was sorry, this is probably a couple

Speaker 3

of years since I've asked this question, but Marketo was a partnership you announced as a similar well, not a similar, but a relationship with DoorDash. You're looking at ways you could strengthen your relationship. Has anything progressed out of that? I probably asked you this a year ago. I'm just going back and looking at some of my old notes.

Speaker 2

I could take that, Steve. I guess what I would say, the relationship is still definitely there. We looked at things on a program by program basis. And so when the need arises, where specific functionality or benefits or economics could be different versus different providers or other processors specifically as it relates to Marketa. We definitely look at that.

Speaker 2

And so there are paths right now that we are looking at with them. And so there is still that partnership that's not necessarily exactly where we wanted it to be, given the lack of program activity that's there right now, but it's not a thing that we purposely drew out. It just happened to be a matter of timing and when the opportunity arose, amongst other things, so more of a timing thing more than anything else. But that relationship is there. We'll continue to look at different programs on a case by case basis and determine which provider provides the better stack in terms of what our offering needs to be and who can help accommodate whatever those new needs are for those specific programs that we expect to launch.

Speaker 2

Okay.

Speaker 3

I appreciate that update. All right. Thanks, guys.

Speaker 2

Thanks,

Speaker 6

Your next question comes from the line of Hal Goetz from B. Riley Securities. Your line is now open.

Speaker 8

Hey Marco, great results and great commentary about the future potential.

Speaker 7

Could you just explain to everyone

Speaker 8

what are the technology resources or capabilities that your typical payroll company doesn't have that they need that they partner with you? Like, is it real time capabilities? Is it real time payments? Like, what are the assets you have that they don't have and they're not about to try to develop those internally? What are your thoughts on that?

Speaker 8

Thanks.

Speaker 2

Hey, Hal. Thanks for the question. Yes, I guess it's dependent on each provider, each payroll provider and what they have in their stack and what they may lack or may not or how they view UWA and whether they want to go all in on it. It's kind of the broad way I'll start it off by describing the landscape. Because there are providers like Ceridian that do have their own EWA advanced solution.

Speaker 2

And then there's others that look at their platform as just a data gateway where they have all the payroll data and they're kind of monetizing access to that data, which is how they're earning their piece of the EWA market. And so depending on which partner you might get, different scenarios play out. But specifically, many for the most part, and this is kind of painting with a wide brush here, a lot of them don't want to enter the space. It's much different than the current service offerings they have. It is more a financial service than a payroll product.

Speaker 2

And so with that comes all the different regulations and with the way the markets are now and the way EWA is right now, those regs don't exist, which is probably another reason why they're not willing to enter it right now. Although they're playing in it, they don't want to go full tilt and do all this on their own. But it's more disbursements are part of it. They can certainly acquire those disbursement solutions and disperse to any bank account. But that's not all of it.

Speaker 2

There would actually be the wallet and all the different details that they would need, especially around aggregating different time and attendance platforms that might not be in their arsenal. So if you think about it, some employers might have one company doing their payroll service or payroll services, but they might use someone else for a time and attendance platform. And the EWA companies that are involved take the data from both those sets in order to perform the EWA advances where comparable companies themselves might not have access to the time and attendance platform. And so all those integrations are different outside of their own stack. And so it gets it's a long winded answer, but it is a very different question for all the different payroll providers out there.

Speaker 2

But it's not technology that they possess and in many cases nor do they want to have that necessarily on their books or managing that whole process that's not core to payroll as it stands today.

Speaker 6

There are no further questions at this time. We will now conclude the conference call. Thank you. You may now disconnect.

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Key Takeaways

  • Payfair delivered a record Q2 with $56 million in revenue (up 20% YoY), $13.9 million gross profit (up 25% YoY), monthly GDV exceeding $1.2 billion, and $6.6 million in adjusted EBITDA (up 39% YoY), marking its sixth consecutive profitable quarter.
  • The company reaffirmed full-year 2024 guidance of $235–245 million in revenue and $30–35 million in adjusted EBITDA (midpoint growth of 29%/51%), and extended its long-term contract with Lyft Direct while planning new savings and wealth-management features.
  • Payfair’s business development pipeline could nearly double current GDV, driven by active discussions with large gig platforms, with its technology, compliance, and AML capabilities cited as key differentiators.
  • International and payroll expansion is on track, as Uber Pro Canada saw a >400% increase in active users YoY and the ADP Canada partnership remains set for a Q4 launch, backed by a newly appointed corporate development executive.
  • The balance sheet remains strong with $67 million in cash, $28 million in liquid investments, zero debt, and minimal capital needs, supporting self-financed organic growth and strategic capital deployment.
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Earnings Conference Call
Payfare Q2 2024
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