Synergy CHC Corp. (Uplisting) Q2 2023 Earnings Call Transcript

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August 10, 2023

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to Payfair's 2023 Q2 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 3 qualified analysts on the call. Instructions will be provided at the time for you to queue up for questions.

Operator

I would like to remind everyone that this conference call is being recorded. I will now turn the conference over to Mr. Jian Cin kai, Head of Investor Relations and Corporate Development. Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. Joining me on the call this morning is Marco Margiotta, Payfair's CEO and founding partner and Charles Park, Payfair, 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 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, 2022, which is available on www.zedarplex. Ca.

Speaker 1

Except as may be required by Canadian securities laws, 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 UniPear 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. Payfair.com/investors last night. I will now turn the call over to Marco Margena.

Speaker 2

Good morning. Thanks, Yan. Let's start off by Slide 3. I'm once again proud to present another record operating quarter for Paper. This was our 3rd consecutive IFRS earnings positive quarter While generating return on equity of 32%.

Speaker 2

Our ROE profile in 2023 continues to track well ahead of the largest financial institutions in Canada, While our free cash flow growth is industry leading in the earn rate access base based on industry data that we track. Profitability is always at the heart of every decision made at Payfair. That includes signing on new partners, entering new markets as we review capital deployment opportunities. That being said, we also take a long term view on enhancing our ROI, And we'll make upfront investments required to build long term value as we have done in the first half of twenty twenty three. Moving to Slide 4, I am pleased to announce that Paper successfully won 2 RFP processes to deliver instant payout to digital banking experiences for globally recognized strategic partners.

Speaker 2

Both of these opportunities were in our own backyard in Canada. In the Q2, we were head down working on setting up and investing or integrating these new programs. In terms of impact to paper, at scale, the combined opportunity can account for 10% to 15% of our active user base over time. We expect to announce further details on these programs with our partners closer to commercial launch, which could be late 2023 or very early in 2024. On new credit offerings, we have made progress with our Jig platform and banking partners on an overdraft, which we expect to launch in the second half of the year.

Speaker 2

Each of our platform partners have expressed their desire for an overdraft feature, We continue to work with our processing and banking partners to deliver on the needs of our customers. Finally, On earn wage access for W2 or T4 employees, large employers continued knocking on our door, asking us for a solution Given our leading track record in instant pay for the gig economy space, we are actively working to build payroll and time to tenant platform integrations to deliver on this massive market opportunity. Turning to Slide 5. The first quarter was another record for revenue and GDV, both up 43% and 46% year over year, respectively. Our revenue and GDP growth continues to outpace our user growth, which demonstrates that Paycer is winning additional wallet share with our users.

Speaker 2

Slide 6. So I think highlights our user growth, which was up 34% year over year and in line with expectations we communicated on our last conference call Mid single digit quarter over quarter growth levels. Our 2nd quarter user growth reflects Normal seasonality in the gig economy, which has been echoed by each of our current partners in their 2nd quarter earnings releases. East Partner has also reiterated plans for worker expansion in the back half of the year, which we believe is a positive tailwind for PayPay's user growth The macro backdrop continues to be positive for big worker supply, and we saw healthy gains across the board in the second quarter. With that, I will turn it over to Charles to review our Q2 financials.

Speaker 3

Thanks, Marco, and good morning, everyone. Turning to Slide 7, we generated record revenue of $46,500,000 up 43% year over year. This increase was primarily driven by ongoing marketing initiatives and organic growth in each of our programs with DoorDash, Lyft and Uber. Gross profit in the 2nd quarter was also a record $11,100,000 at a 24% margin. Gross profit dollars were up 74% year over year and up 19% from the prior quarter.

Speaker 3

Our gross margin primarily benefited from volume based pricing improvements with our higher active user base and GDV volumes. We continue to significantly expand adjusted EBITDA, which was $4,800,000 in Q2, up $4,200,000 year over year and achieved a record margin of 10.2%. As we grew our users and GED in the quarter, We realized benefits in vendor pricing and scale. This was slightly offset by additional hiring in the quarter to deliver on new contract wins and product enhancements for existing partners this year, which we believe will drive long term EBITDA and cash flow growth. I'd like to take a moment to highlight free cash flow growth in Q2.

Speaker 3

Our operating cash flow before non cash Working capital adjustments was a record $4,200,000 in the quarter. This was primarily offset by a temporary increase A non cash working capital consumption of $2,200,000 From time to time, our working capital fluctuates based on The timing of our BIG platform partners funding their MFA accounts with our banking partner. This will reverse over time Over the balance of the year and on a full year basis, our free cash flow generation should continue to closely track our adjusted EBITDA after CapEx investments. As a free cash flow positive company, we are not dependent on external financing to operate our business Our current and prospective partners, as they evaluate the financial condition of their vendors, they can rest assured that Payfair We'll be there for the long term despite a challenging fundraising environment. On Slide 8, we summarize our current financial condition.

Speaker 3

We ended the quarter with $52,000,000 in cash. Our financial condition is strong. We have minimal capital needs To fund our organic growth opportunities, our core business is self financing. Our balance sheet is well capitalized, And we continue to remain debt free. We are well positioned to deploy capital to grow our business.

Speaker 3

I'll now turn it over to Jehan for a capital markets update.

Speaker 1

Thank you, Charles. And let's flip to Slide 9. This is the familiar chart that compares our share price performance to the ETFMG Prime Mobile Payments ETF since our IPO. We're happy to see that we have outperformed our benchmark by 42% over this period despite elevated market volatility seen over the last 12 months. PayCare has seen best in class share price performance for technology companies that IPOed in 2021 in both Canada and the U.

Speaker 1

S. This outperformance is a direct function of achieving positive adjusted EBITDA generation, positive free cash flow generation and positive earnings while exceeding guidance. Slide 10 shows where our stock is trading relative to other high growth payments companies. I want to point out that all figures in this table are in U. S.

Speaker 1

Dollars And all forward looking information reflects analyst consensus estimates and our 2023 revenue and adjusted EBITDA guidance. While we can't control market multiples, we have levers to pull to close the valuation gap with our peers. The first lever is expanding on adjusted EBITDA, cash Earnings profitability, which we expect to continue in 2023. The second lever is expanding our gig platform partnerships. As Marco mentioned, we successfully won 2 RFPs in the 2nd quarter.

Speaker 1

3rd lever is new products. We are well on our way to launch an overdraft product for our current Programs which should maintain our momentum and increase in penetration with our partners. Our share price performance this year has also expanded our opportunity set to deploy capital strategically. We look forward to delivering updates on these initiatives over the coming months. And with that, operator, we are now ready to take questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Questions will be taken in the order received. Thank you. And your first question comes from the line of Hal Choj from B.

Operator

Riley Securities. Please go ahead.

Speaker 4

In this quarter. Just wanted to get your perspective on how that might continue and what are the gating factors for that?

Speaker 1

Apologies, you came in a little bit choppy there. If you could please repeat your question. Certainly. I want to get your perspective on

Speaker 4

the volume based discounts. And Is there any additional visibility you can share with other volume points you might hit later on in the year end 2024, 2025?

Speaker 2

Hey, Charles, sorry. Yes. Hal, I can take that.

Speaker 3

Thanks for your question, Hal. So Hal, In terms of additional kind of volume tiers, we definitely have them with all of our major vendors on the COGS side. In terms of when we will hit them during 2023 2024 and beyond, we definitely will hit Some additional tiers later this year and the forecast is for 2024 and beyond that we would hit the upper tiers as well, which where we would benefit One thing to kind of note is that in addition to our existing kind of agreements and our existing terms and We continue to work with our vendors to extract maximum benefits for us from a COGS perspective as well. So over and above I'll leave both agreements or amendments that have been made. There's always an opportunity for additional savings that we can negotiate as we continue to grow our base and our GEE volumes.

Speaker 4

Okay, great. If I could ask one follow-up. Could you just give us a perspective on The work is going to go into leveraging the PayStar platform and the earned wage access to integrate into The payroll company and the employees that want to offer this to their employees. Thanks.

Speaker 2

Hey, Hal. It's Marco. Thanks for the questions. Yes, I would say the vast majority of the technology we have today, if that's you guys from a technology We'll be utilized for that. So at its core, we have the digital banking app, which for us, we've taken the white label solution, converted that into the paid app.

Speaker 2

The paid app is now going to be used on both sides, the EWA side as well as the gate side. So on the consumer facing front, The vast majority of the technology is there. It's just when we're talking EWA, there's obviously some time and attendance and payroll integrations that we need to I would say both the view of what they've earned as well as being able to make sure we get repaid back any advances that go out. So more on the payroll side. I think, yes, there's not much CapEx there required even to do the latter In terms of integrations with time and attendance platforms, each one will probably take anywhere from 3 to 5 weeks would be our best guess, But we'll do that on a customer by customer basis depending on where those payroll platforms reside within that employer or Which employer has which payroll platform or time to attend platform needed?

Speaker 2

So we're talking about a long Kind of grinds to kind of get there one platform at a time. But like we've mentioned before, our path is still looking at different targets to M and A and finding out or finding some of those EWA players that have all the integrations done for us where we can ingest that plumbing.

Speaker 4

All right. Terrific. That sounds great. Thank you very much. I'll hop back in the queue.

Speaker 2

Thanks, Hal.

Operator

Thank you. And your next question comes from the line of Joseph Faffee from Canaccord. Please go ahead.

Speaker 2

Yes. Good morning. Nice to see the continued good results. So congratulations on that. Maybe just to start on GBV growth here, another nice gain.

Speaker 2

Maybe you could parse out a little more color here On how you look at that in a customer add contribution versus, I guess per user spend or revenue driving the GDP growth? And then I have a quick follow-up.

Speaker 3

Hey, Joe, it's Charles. Thank you again for your question. In terms of GDP breakdown, Joe, Obviously, in our MD and A, we don't really break it down by program, but I can provide a little bit of color that might help answer your question. And one of the positives that we've highlighted in 2023 is the growth of our Lyft business as well. Obviously, our Lyft user base was hit pretty hard during COVID time, and we're happy to report that we've gone to pre COVID levels And we continue to see growth in that program.

Speaker 3

And what's Typical or different about Lyft relative to, let's say, a DoorDash is a typical Lyft driver tends to earn More money and puts more money on their card as a result. So that would be kind of a direct driver of kind of GDV growth Per user, if you look at it from that perspective, that will ultimately lead to additional revenues as well. So to the extent that our Lyft business continues And we rolled that out in terms of the revanch of that program. We expect to see Healthy growth on the top line on both GDV and the resulting revenue from that as well.

Speaker 2

Great. Thanks, Charles. And then just maybe one follow-up here. I know, Marco, you mentioned an overdraft product, which makes sense. Could you maybe Go down a little bit more in the rollout strategy on the rollout, how you may market it to the user base and then what it may mean for Margins and the P and L.

Speaker 2

Thanks a lot. Thanks, Jill. Yes, the white label side of things where we're offering over Yes. We'll call it the existing Jig Platform Partners. We probably want a product that's not really offering this as a So to kind of generate meaningful revenue from, it's more to incentivize and motivate their Best performing workers out there.

Speaker 2

And so from that perspective, we think it will mainly benefit us from Increased penetration into adoption of the product or the DASHL Direct app or Lyft Direct app, if you will, as an example. Over and above that, overdraft on the paid app side would be something we could definitely monetize and probably Have a different view on what the ultimate goal is and seek high margins. We're not looking to Take advantage, if you will, of any other cardholders that are out there. This is something that's meant to be A product where we're trying to innovate and offer something that we think will be super compelling at a very reasonable Offering or price point where they otherwise wouldn't get it to any of our traditional clients institutions that they might be dealing with. So On the paid app side, I would say there's a lot more room for margin, where the goal there would be more of a loan performance kind of view As opposed to some of our white label partners that would want more of a retention and The loyalty factor, their main or top performing gig workers that are out there.

Speaker 2

So different view on things, but ultimately, I think it boosts the profile of not only the Adoption of the product across the gamut, whether it's white label or through the paid app, but ultimately the margin expansion will definitely come more from the paid app side than the white label solution. Sure. That makes sense. Thanks for that color, Marco. And again, nice results.

Speaker 2

Thanks, Joe.

Operator

Thank you. And your next question comes from the line of Adi Katze from 8 Capital. Please go ahead.

Speaker 5

Hey, good morning, guys. And let me add my congratulations on the quarter, just solid execution. I wanted to ask on the 2 RFP wins. I understand the private label partnership. Can you unpack the embedded finance portion of it?

Speaker 5

I didn't quite understand that. Thanks.

Speaker 2

Yes. So I guess, good morning, Adi. Thanks for the question. The way the embedded finance piece, there's certain customers or potential customers in the pipeline that don't want a separate app to deal with. They'd rather have an integrated solution within their own app or native to their own app.

Speaker 2

It reduces a lot of friction. It reduces a ton of different Flows that are likely unnecessary if you had it all embedded within the same app. But ultimately, it's the exposure that they want through their own app, 100% of the user base will see it. Whereas if you break that apart and create a separate app, the chances of that diminish. And so A lot of interest in terms of the RFPs we're seeing and some of the ones that are deeper along in the process in our sales pipeline are Requesting embedded finance and it's certainly getting a lot of traction and we definitely see the need for it.

Speaker 2

So for us, it's just changing where the user Interface with us and from what we're seeing early days, obviously, it makes a lot of sense when you can be directly embedded within an app. The exposure related penetration gets a lot greater. So we need to have both. We need to equip Ourselves with everything in order to make that those platforms or potential customers More of an easy layup kind of decision when it comes to getting involved and then kind of rolling out these programs. So having that in our arsenal is definitely going to help us going forward.

Speaker 5

Understood. And then from, call it, a margin profile, would we kind of see any maybe degradation to the margins as this program ramps outside of marketing costs or some of the extra personnel you've had to hire as the program really starts to ramp?

Speaker 3

Hey, Adir, it's Charles. I can answer that. What I would say right now, Adir, is From a modeling perspective for the 2 RFPs that you outlined in our MD and A, we're still working out the details. And Obviously, in the coming months, we'll share some more details in terms of how we're forecasting that and their contributions to And on the bottom line, both on the gross margin side and on the adjusted EBITDA side. So I would just say be patient and we'll share more details as they come, but we're still working through those details right now.

Speaker 5

Understood. And I'm just going to sneak one last one in here. We've seen the DoorDash program really start to ramp significantly after you had announced it. Do you guys have a kind of like a timeline to that 10% to 15% user penetration number? Would it be similar to the strong ramp we've seen in the past with the DoorDash program or would it kind of take a little bit longer?

Speaker 5

Just any color around that would be super helpful.

Speaker 3

Yes. I think For forecasting into the future, we would like all of our ramps, new ramps to mimic what happened with DoorDash as well. So That's obviously the model that we are looking to follow and execute on. So that's our hope, But in some cases, it may take a little bit more time to do the REM for the year. So We'll kind of wait and see, but all efforts are going to be put into kind of executing the same way we did on the DoorDash side of things and

Operator

And your next question comes from the line of Josh Zeigler from Cantor Fitzgerald. Please go ahead.

Speaker 5

Hey, team. This is Will Carlson on for Josh Siegler. First question, how have you been effectively deploying marketing spend

Speaker 3

Hey, Will, it's Charles. Thanks for your question. In terms of marketing spend, well, what I would say is that it is Kind of be working partnership with our customers or partners to kind of roll out various programs throughout the year. The second half of the year is probably going to be a busy one for us and that our partners have said even in their publicly These results and commentary that they're looking to invest more in the second half of the year in terms of customer acquisition and retention. So To the extent that we participate to a certain extent in that process, there may be some elevated levels of marketing, but Nothing that would be historically off from a percentage of revenue perspective is what I would say.

Speaker 3

But if there's a specific opportunity that's presented to us That we feel will have an outsized kind of return. We would definitely make that investment every single time.

Speaker 5

Great. Thanks for the color. And then second question, could you possibly walk us through the process of being selected for these 2 RFPs? And do you expect these programs to act as a launch point for future embedded offerings moving forward?

Speaker 2

I can take that. Thanks, Will. Embedded Finance seems to be a big shift where Not only people are recognizing that Burnley's Access is here to stay. A lot of them are looking at it as a crucial cornerstone anchor of their product offering to the marketplace, whether it's the gig side and even on the payroll side. So I think embedded finance is Going to be a big part of what's happening over the next few years.

Speaker 2

And so naturally, the answer would be yes. I can't see it going away. I don't think this is a one off. We're seeing a lot of activity around a lot of different companies looking at Integrating it directly given how impactful it is and what they've seen in the marketplace through our wet noodle products. As far as these RFP process, it's pretty standard.

Speaker 2

I think a lot of it, I will say, comes It's no surprise to anyone. We have a sales force team of 2. We get a lot of inbound interest with very little effort, Just given who we are and how we're in the payments ecosystem, a lot of the referrals You have them directed towards us just given the traction and success and leadership in the space. So it usually starts off with a very boring introduction. And then within there, they're obviously going to do their efforts to kind of bring in some other players just to make sure They've selected the best vendor possible.

Speaker 2

And for me, anyways, we have a very good head start going into the process. But certainly, once we're involved and they find out more and they see how innovative and how much success and the volumes we're doing, Relative pricing, all those great things that make us who we are, it certainly shines. So There's not too many formal RFP processes we go through, but so far, the hit rate has been exceptional. And so we have a Other RFPs that we're looking at, we also have dozens of Inbounds have requested access to the paid app, which is also going to keep us quite busy for the second half of the year.

Speaker 5

Great. Really appreciate the color guys and congrats on the quarter.

Speaker 2

Thanks, Will.

Operator

Thank you. And your next question comes from the line of Stephen Volund from Raymond James. Please go ahead.

Speaker 1

Good morning. First question, Marco, is the relationship with Marketa. I'm just wondering if it's not something that's been Talked about, I think, in 2 or 3 quarters. Maybe you could just talk about it. Is there any progression with the partnership?

Speaker 1

Has it born and grew yet? Is that still to come? Maybe just a little bit of an update on that.

Speaker 2

It's still to come, Steve. I'm sorry, good morning, Steve. It's still to come that there's still aspects of Marketo that Handles certain processing capabilities that other vendors might not. That's where we see a fit. It's not to say that we wouldn't partner with them on things that they would bring to us or certainly certain Items that we need certain capabilities on, well, we would go to them.

Speaker 2

And so it's still there. There hasn't been an immediate need to utilize some of their infrastructure just yet. But there's just so much opportunity in the pipe that I'm sure at some point that would make sense. So Outside of just having another second processor in the mix to make sure that we have every aspect of processing capabilities covered and include Geography as well. That partnership is still there for quite some time.

Speaker 1

Okay. And maybe my second question, hopefully this is not too delicate, but certainly we get calls from investors about your share sales in the market. I know it's a program. I guess, we are getting questions about It is an ultimate that you're still committed to the company for a good portion. I don't know how much color you can give, but if you can provide a little bit, that would be great, just to see what's happening there.

Speaker 2

No problem at all, Steve. Yes, happy to talk about that. It's not a pay share issue, certainly. I mean, the numbers speak for themselves. We're feeling incredibly bullish on what we see.

Speaker 2

I've also put well over $1,000,000 into the stock at higher prices just a few months ago. So the offer in this is not a Payfair related issue. It's more of a Marco Marjada personal situation. I have $1,200,000 or so to exercise an option before the end of the year, with minimal trading windows From here to there and with minimal volumes, I don't want to kind of wait till the end Because that might put pressure. So I'm slowly trying to build up cash so that by the end of the year, I can exercise those $1,200,000 of options.

Speaker 1

Yes. It's different to me, but it is what

Speaker 2

it is. I can't frown upon it. You just got to keep executing. And I do believe in the Where eventually these numbers will pan out and give us the higher share price we're all after. Okay.

Speaker 3

I appreciate that, Marco. Thanks very much, guys.

Operator

Thank you. At this time, this concludes our question and answer session. Ladies and gentlemen, that does conclude our conference for today.

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