“I believe that banking institutions are more dangerous to our liberties than standing armies. “- Thomas Jefferson
Today, we take our first in-depth look at BM Technologies (BMTX). Like so many companies in the Fintech, AI, EV or SaaS sectors, the shares have taken their lumps in recent months.
BM Technologies is headquartered just outside of Philadelphia. The company facilitates deposits and banking products and services between customers and FDIC-insured partner banks through its fintech banking platform. The company provides access to a suite of banking products, including checking, savings, personal loans, credit cards, and student refinancing.
The company’s main focus areas are:
A) Higher education and student banking
B) Banking-as-a-service or “white label banking”
C) Workplace banking
BM Technologies operates one of the largest digital banking platforms in the country with approximately 2 million account holders. The company has acquired a leading share (almost a third) of the US higher education student disbursement market and is providing approximately $ 10 billion in disbursements annually, and this is currently the company’s main business.
Access to these sorts of customers could enable the company to have customers for life and the ability to cross-sell as they start their professional lives and move through the milestones of life (buying first house, starting family, opening new business, etc.) . Currently, the stock of BM Technologies trades just over $ 9.00 a share and sports an approximate market capitalization of $ 115 million.
Third Quarter Results:
On November 15th, the company reported third quarter results. GAAP earnings per share came in at 74 cents as revenues rose 20% on a year-over-year basis to just under $ 22 million. Net income increased to $ 8.8 million from just $ 250,000 in 3Q2020. It is important to note that $ 6 million of this was due to a non-recurring non-cash gain on the revaluation of the private warrant liability. Core net income increased to $ 2.8 million or 23 cents a share from $ 500,000 or nine cents a share in the same period a year ago. Core EBITDA increased to $ 7 million compared to $ 3.7 million in the third quarter of 2020.
Some other interesting tidbits from the earnings report.
- Average serviced deposits totaled $ 1.7 billion in the quarter; an over 125% increase on a year-over-year basis.
- 157,000 new accounts were opened in the third quarter, and 350,000 have been opened in the first nine months of FY2021.
- Debit card spend was up four percent to $ 773 million in the quarter. New business debit spend increased 44% compared to the year-ago quarter.
- Through the end of October, the company has signed a dozen new colleges and universities, and active accounts in its Higher Education business rose 11% over 3Q2020.
- New Business average serviced deposits increased by more than 400% in the quarter.
Finally, leadership raised FY2021 EBITDA guidance $ 2 million to $ 26 million and reiterated their previous 2021 revenue guidance of $ 92 million. Interestingly, fourth quarter results have not come out yet and seem a few weeks overdue based on the calendar.
The same as its last earnings release, the company announced it will merge with Seattle-based community bank First Sound (OTCPK: FSWA). This will involve $ 23M payable in consideration. This deal should close in the second half of this year and comes with First Sound’s bank charter. This will enable BM Technologies from being just a deposit gathering entity and it will be able to provide other product like loans. The name of the new company will be BMTX Bank. The company will continue to operate on a fintech-based model with a full suite of digitally-advanced banking products.
Analyst Commentary & Balance Sheet:
There has been very little analyst activity around this stock over the past year. Northland Securities initiated the shares as a new Buy around eight months ago with a $ 20 price target. On November 17th, Maxim Group maintained a Buy rating and a $ 25 price target on the shares. Finally, a week later, Chardan Capital initiated the shares with a new Buy and $ 21 price target.
There has been no insider activity in the shares so far in 2021. No insider has sold any shares since the company’s IPO. The company ended the last quarter with just over $ 20 million of cash and marketable securities on its balance sheet (most of which will go to purchase of First Sound) as well as an unused $ 10 credit facility. Almost one in four shares appear to be sold short currently.
The current analyst consensus has BMTX earning roughly anywhere between 25 cents to $ 1.15 a share in FY2022 as revenues rise some 15% to just north of $ 105 million.
I find BM Technologies to be somewhat of an intriguing name, despite the carnage in the overall market right now. The amount of short interest in the stock and the fact that fourth quarter earnings have not come out yet does give some pause. However, at just over one times forward sales and less than five times EBITDA for a fintech company with solid growth prospects, BMTX seems worthy of a small ‘watch item‘position at the moment it would appear.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. “- Henry Ford
Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum