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MoneyLion Q2 2022 Earnings Review: a SPAC that didn't go wrong
“MoneyLion is empowering hardworking Americans to take control of their financial lives through powerful products that make it easier to borrow, save, invest and earn. All in one app.” This was MoneyLion’s pitch to investors when the company announced its intention to go public via a SPAC merger in early 2021. The company was building a financial “super app” by launching its own and integrating third-party products.
However, since then, the company acquired Malka Media, a content agency, and Even Financial, an affiliate network connecting financial service providers like LendingClub, SoFi, and Marcus, with content publishers. MoneyLion stopped bringing everyone to their “one app” and started using Even Financial technology to promote third-party products on news portals and comparison websites, as well as through their own app.
The acquisitions of Malka Media and Even Financial have been transformational for the company: MoneyLion is one of the very few SPACs that is delivering on their forecasts, the acquired businesses are expected to generate half of the revenues in a quarter or two, and the company is on track to reach profitability by the end of this year (for now, on an Adjusted EBITDA basis). It is definitely fun to follow this transformation!
If you are new to MoneyLion, I recommend reading my previous reviews:
👉🏻 MoneyLion: are investors missing out on this rapidly growing neobank?
👉🏻 MoneyLion Q1 2022 Earnings: are they pivoting away from consumer banking?
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On the consumer side, MoneyLion onboarded a million new customers, finishing the quarter with 4.9 million customers onboard. As a reminder, following the acquisition of Even Financial, MoneyLion extended its definition of customers to include people that “submitted for, received and clicked on at least one offer, including loans, credit cards, mortgages, savings and insurance products, from a Product Partner via our Even Financial marketplace.” Naturally, customer growth accelerated with Even Financial becoming an integral part of the company.
On the enterprise side, the company started reporting the number of channel and product partners. The company finished Q2 2022 with 433 Product Partners and 578 Channel partners. MoneyLion defines Product Partners as “financial institutions and financial service providers”, and Channel Partners as “organizations that allow us to reach a wide base of consumers, including but not limited to news sites, content publishers, product comparison sites and financial institutions.”
There are synergies between the two businesses, i.e. consumers using the MoneyLion mobile app can buy products from the company’s Product Partners, or the company can use the reach of its Channel Partners to promote its own Instacash product. Therefore, it is important to follow the development on both, the Enterprise and Consumer, sides of the business.
The company originated $439 million in Instacash advances and secured loans (Credit Builder Plus) during the quarter, which represents an 85% growth in originations compared to Q2 2021, and a 7.5% growth sequentially. As I will argue below (and argued in my previous review), higher origination volumes and consequently higher provisions for credit losses, negatively impact the profitability of the Consumer segment and the whole MoneyLion business. However, my understanding is that Instacash and Credit Builder Plus are critical products to attract new customers.
Due to the short-term nature of MoneyLion credit products, the total balance of receivables increased only marginally compared to the previous quarter. As can be seen from the table below, finance receivables (outstanding balances owned by the company’s customers) increased from $138.6 million at the end of Q1 2022 to $104.6 million at the end of Q2 2022.
MoneyLion reported $87.3 million in revenue for the quarter, which represents a 129% growth compared to Q2 2021, and a 25% growth sequentially. However, to a large extent, Q2 2022 revenue increased from the acquisitions of Malka Media and Even Financial. Thus, Malka Media was acquired in Q4 2021 and Even Financial was acquired in Q1 2022, so Q1 2021 results exclude income from both companies.
The company continues diversification of its revenue between the Consumer and Enterprise segments. Thus, the Enterprise segment revenues, as a percentage of the total revenue, increased from 30% in Q1 2022 to 39% in Q2 2022. The management reiterated its ambition to have an equal (50/50%) split between segment revenues.
As a reminder, the acquired Malka Media is a content agency, and Even Financial acts as an affiliate network, connecting consumers with providers of financial services (i.e. lenders). Thus, enterprise segment revenues primarily “include lead generation services, advertising services, and digital media and content production services designed to promote enterprise clients’ products and services.”
The company’s management guided for Adjusted Revenue of $85-90 million in Q3 2022, which implies sequential growth. The company adjusts GAAP revenue by provisions for fees and subscription receivables, as well as amortization of loan origination costs. Adjusted Revenue for Q2 2022 was $84.1 million. The company also guided for $330-340 million in revenue for the full year.
The company reported $48.1 million in gross profit for the quarter, which represents a 116% growth compared to Q2 2021, and 19% growth sequentially. Again, please note that the growth compared to Q2 2021 partially came from the acquisitions.
I will continue arguing that the company’s calculation of gross profit does not make much sense. The key revenue drivers in the consumer segment are the company’s Instacash and Credit Builder Plus products, which are short-term lending products. Thus, the calculation of gross profit should include provisions for credit losses and funding costs (interest expenses).
For example, after accounting for the provisions for credit on finance receivables ($23.6 million) and interest expenses ($7.6 million in total interest expense less $2.7 million in interest on corporate debt = $4.9 million), gross profit for the quarter was $19.6 million (or 22% of the revenue). Essentially, higher usage of Instacash and Credit Builder Plus products leads to lower gross profit margins due to higher provisions and interest expenses.
The company’s management guided for a 55-60% Adjusted Gross Profit margin in Q3 2022, as well as for the full year. Adjusted Gross Profit is almost identical to the Gross Profit reported under GAAP, as the only adjustment made is the exclusion of the revenues from the discontinued products. Adjusted Gross Profit in Q2 2022 was $48.1 million, and the Adjusted Gross Profit margin (Adjusted Gross Profit / Adjusted Revenue) was 57%.
MoneyLion reported $114.3 million in total operating expenses for the quarter, which represents a 122% increase compared to Q2 2022, and a 14% increase sequentially. The company finished the quarter with a Net loss before other (expense) income of $26.9 million, an increase from a Net loss before other (expense) income of $13.4 million a year ago.
The operating expenses spiked after the company went public and consolidated Malka Media and Even Financial. However, operating expenses, as a percentage of revenue, were decreasing for the last two consecutive quarters, as the company is heading toward profitability. The company’s management reiterated the ambition to exit the year with a break-even Adjusted EBITDA.
Most of the operating expenses increased due to the consolidation of Malka Media and Even Financial expenses, so it doesn’t make much sense to look at the YoY changes. However, I would like to highlight two expense items: provisions for credit losses and marketing expenses. Thus, as can be seen from the chart below, provisions for credit losses increased relative to the origination volumes sequentially. My understanding is that it indicates the company’s expectations of worsening economic conditions. This is definitely a critical metric to monitor in the current economic environment.
On a positive note, the company made a significant improvement in terms of Customer Acquisition Costs (CAC). As can be seen from the chart below, the average CAC decreased from $19.0 in Q1 2022 to $9.5 in Q2 2022. Of course, we should note that following the acquisition of Even Financial, MoneyLion started counting people that interact with partner offers (in partner channels) towards the new customer figure (while previously only people signing up for the MoneyLion products were counted).
Overall, the company is doing meaningful progress towards its goal of Adjusted EBITDA break-even; however, provisions for credit losses might derail this plan should the economic conditions deteriorate further.
Net Income (Loss) and Adjusted EBITDA
The company reported a Net loss of $23.1 million for the quarter, an improvement from a Net loss of $39.2 million in Q2 2021. However, changes in the fair value of warrant liability and convertible notes, as well as acquisitions, complicate YoY comparison. These are non-cash items that still impact GAAP Net Income.
The company reported an Adjusted EBITDA of $18.5 million for the quarter, compared to an Adjusted EBITDA of $13.6 million in Q2 2021. As can be seen from the table above, the company makes adjustments for income tax, depreciation and amortization, stock-based compensation, one-time expenses, as well as changes in the fair value of warrants and contingent considerations from M&A (earnout to the sellers of Malka Media and Even Financial).
The company’s management guided for a negative Adjusted EBITDA of $10-15 million in Q3 2022, as well as reiterated the plan to exit the year with a break-even Adjusted EBITDA. The company guided for a negative Adjusted EBITDA of $55-65 million for the full year. At least for now, the management has managed to deliver on their guidance, let’s see if they can continue doing that.
The company exited Q2 2022 with $154 million in unrestricted cash and $217 million in total (restricted + unrestricted) cash.
Things to Watch in 2022
Path to profitability. The company’s management reiterated its ambition to exit the year at break-even Adjusted EBITDA profitability. Until now, they have been consistently delivering on their guidance, so hopefully, they will be able to deliver on this promise as well. My only concern would be the rising provisions for credit losses, which can derail the plan, so this is a critical metric to follow.
Enterprise segment growth. Acquisitions of Malka Media and Even Financial were, in my opinion, transformational for the company. Instead of competing with other neobanks by expanding its product offering, MoneyLion chose a smarter path of connecting providers of financial services with consumers. Further growth of the enterprise segment revenue would prove that this strategy works.
Economy. A severe recession will hurt MoneyLion given that it serves the subprime customer segment. In the short-term, higher inflation might be fueling the demand for credit products (MoneyLion’s credit products, like Instacash, and products advertised by their Network Partners); however, further deterioration of the economy would eventually lead to higher credit losses and lower marketing spend from Network Partners.
In summary, MoneyLion delivered a great quarter, and it is a lot of fun to follow their transition away from a pure neo-banking play. The acquisition of Malka Media and Even Financial seems to be paying off, so let’s keep our fingers crossed for the future success of the company.
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Source of the data used above: Investor Relations
Disclosure & Disclaimer: despite rocky performance in 2021 and the first half of 2022, I own shares in most of the companies covered in this newsletter, as I am extremely bullish on the transformation in the financial services industry. However, none of the above is financial advice, and you should do your own research.