Payfare Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 6, 2024

There are 6 speakers on the call.

Operator

Good evening, ladies and gentlemen, and welcome to Payfair's 2024 Third Quarter Earnings 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 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. I will now turn the conference over to Mr.

Operator

Jihan Tung Kai, Head of Investor Relations and Corporate Development. Please go ahead.

Speaker 1

Thank you, operator, and good evening, everyone. Joining me on the call today is Marco Margiotta, 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 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 statement 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.paycar.com/investors.

Speaker 1

I will now turn the call over to Marco for an update on PayCAR's business.

Speaker 2

Thanks, Jihan. Good evening, everyone. First, I would like to address the DoorDash non renewal. The outcome is, of course, disappointing for all Payfair stakeholders. I want everyone to know that we did absolutely everything we could to extend the contract.

Speaker 2

We offered all of the same product enhancements launched in our other programs, including credit, savings accounts and other financial and wellness benefits. To be clear, the outcome was not a function of program economics. We would have considered and accommodated any such request. We also know that Dasher Direct has been incredibly successful with penetration levels approaching 60% of active Dashers and being consistently ranked top financial services app in America according to UnitQ. The details of their new product have recently been announced publicly.

Speaker 2

Dashers have also made their opinions known on social media. Based on what has been announced and taking into account user feedback, we continue to believe Dasher Direct is a superior product. Ultimately, DoorDash wants to take the product in a completely different strategic direction. We thank DoorDash for its partnership over the past 4 years and wish them success in the future. Having said this, DoorDash and Payfair have not yet agreed to transition terms and the existing agreement expiring in early 2025 remains in effect.

Speaker 2

We will continue to pursue the best outcome for PayFirst stakeholders. Given the sensitive nature of these discussions, we are not able to address any questions related to transition negotiations. Following the DoorDash non renewal announcement and the impact of the share price, the Board of Directors agreed to launch a strategic review process that was the best course of action to chart the path forward for Payfair. We like the gig economy space and there are significant new opportunities in our pipeline, but there are only so many potential customers in that space. The concentration risk may continue to be an overhang on our business.

Speaker 2

The ultimate goal of the strategic review process is to diversify our revenue streams. All options being reviewed, including acquisitions, strategic investments, commercial partnerships and the sales of business. Following the announcement, we have had a significant amount of inbound and outbound interest.

Speaker 3

We are working through all possible options with our advisors KBW and we'll update the market accordingly if there is something to share. Given the confidentiality of these discussions at this stage, we are not able to take questions on

Speaker 2

the strategic review process. Looking ahead, our business development pipeline remains active. As previously discussed, there were 2 significant U. S.-based gig economy opportunities under review. These have progressed to technical, operational and commercial due diligence.

Speaker 2

During the Q3, we were also invited to participate in a 3rd new RFP process. We believe any combination of 2 of the 3 pipeline opportunities could offset the lost DASHO Direct GDV on a fully ramped basis. On ADP, we have launched our pilot earn wage access product to offer EWA C4 employees in Canada. This is a significant opportunity with ADP processing payroll for approximately 4,000,000 Canadians. We will provide more detail on the rollout of our EWA offering in the coming weeks.

Speaker 2

Our program with Lyft and Uber continued to achieve record activity levels. As a reminder, we announced long term extensions for both these programs earlier this year and the associated cash flows from these programs are expected for the years ahead. For Lyft, we also announced new value added product enhancements to Lyft Direct, including balance protection, Lyft Direct Savings and more. Active Lyft Direct users have increased more than 50% year to date, demonstrating the ongoing success of the programs. Users on Payfair's Uber ProCard program have increased by more than 5 times compared to the legacy program that was replaced by Uber Pro earlier this year.

Speaker 2

I will now pass the call over to Charles for our financial outlook.

Speaker 4

Thanks, Marco, and good evening, everyone. With respect to our financial outlook for 2025, we have visibility to achieve $50,000,000 to $60,000,000 in revenue on our existing programs, excluding any contribution from DoorDash. As Marco mentioned, the discussions with DoorDash are still fluid and we expect Dasha Direct to continue contributing to revenue at a minimum through the end of the term of the existing contract, which expires in early 2025. With respect to cost savings, we are in a position to right size our G and A expenses to match the revenue profile of our ongoing business. This is entirely within our control and dependent upon visibility of the pipeline opportunities that Mark will discuss.

Speaker 4

In an extreme conservative scenario, if all of those pipeline opportunities are pushed out to future periods, we have levers to pull on OpEx cost savings to operate the business at adjusted EBITDA breakeven and profitability growth as penetration of Uber Pro and Lyft Direct expands in future periods. Our balance sheet remains as strong as ever to facilitate a transition period for our business. As at September 30, 2024, Payfair has over CAD100 1,000,000 in cash, cash equivalents and guaranteed investment certificates. We do not expect any significant changes to our liquidity position going forward, considering the ongoing contribution of Dasher Direct through sometime in Q1 2025 and the timing of OpEx cost saving initiatives that we get as we get visibility in our business development pipeline. Operator, we are now ready to take questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Adhir Kadvi from 8 Capital. Your line is now open.

Speaker 3

Hey guys, thanks for taking my questions. I fully appreciate that you won't be taking any questions on DoorDash. So maybe I'll just ask on Marco's final comments there in his prepared remarks on the new RFP process and any combo of those 2 offsetting the loss of GDV from DoorDash. Can you give us a sense of timeline as to when those programs would be potentially announced? Kind of give us a little bit more granularity on where you are in those in the RFP process?

Speaker 3

And ultimately, of course, when an announcement could potentially come up?

Speaker 2

Hey, Adeo. Thanks for the question. I would say in terms of a definitive agreement, we're probably looking at late Q4, very early Q1, if that's the stage it gets to. We are very late stage. We're doing technical and other forms of diligence as part of that process.

Speaker 2

Those are later stages. Those have been around for quite some time. There's a 3rd RFP that we mentioned that we're in the mix for. That one's much earlier stage, but could equally be in a definitive agreement stage, maybe mid Q1.

Speaker 3

Okay, excellent. And then what would you have to, I guess, see from these 3 programs in order to give you a sense of the level of investment that you will have to make? Or do you guys kind of already have a lot of good visibility on that? I guess what I'm wondering is like let's say by the Q4 call in March let's say of 'twenty five, will you have visibility on what you would be spending on for fiscal 2025 and beyond?

Speaker 4

Yes. Adir, it's Charles. I can answer that. If you're talking about the ramp up costs for the programs, we have a pretty good history in terms of ramping large programs. So, we would have a general visibility into that just knowing what the parameters are of the programs that Marco mentioned or kind of highlighted.

Speaker 4

If you're referring to kind of more on the OpEx size and rightsizing, that will have clear visibility into as well depending on the timing of the different programs or at what stage we're on in that pipeline. So I don't know if I've answered your question, but if I've missed if I haven't, you can just maybe clarify and I'll try to be more specific to it as well.

Speaker 3

No, I think that was good, Charles. I guess maybe then I'll ask the question a different way. Was there a level of investment that you intended on making for the DoorDash program next year that you can potentially see falling off? Like just using your Q3 Q2 numbers, you had approximately a run rate of, call it, dollars 40,000,000 in OpEx. Was there what portion of that, I guess, were you intending on giving or spending towards the DoorDash program?

Speaker 3

Because I guess that's the one thing that we can kind of talk about that may not be continuing next year that could definitively drop off at this point right now?

Speaker 4

Yes. So for that specific question, Adir, I would say that we spend roughly $5,000,000 to $6,000,000 a year kind of in capital intangible assets and capitalized labor. Most of the work, if any, would it come in the form of capitalized labor that's capitalizing our intangible assets and kind of amortized over a 2 year time period. So, it would have kind of been in that kind of ballpark high level, but that would have been combined with some of the other programs that we are looking to onboard. I believe if we were to have extended the agreement with DoorDash, so there probably would have been changed to kind of more the OpEx economics that would have just flowed through on a quarterly basis as opposed to kind of a lump sum amount.

Speaker 3

Okay, got it. And then last question and I'll pass the line guys. Just I guess on the ADP ramp, do you guys still kind of continue to see the program ramping here in Q4 and through fiscal 2025 or is there any update to that

Speaker 1

timeline?

Speaker 2

I could take that. So I would say the path is still what we had highlighted earlier, which was Q4 nothing meaningful. It's still going to be much more of a trial period, if you will, with much more activity coming Q1 and Q2 and forward from there. But I wouldn't expect anything material to transpire in Q4 from the ADP side of things.

Operator

Your next question comes from the line of Joseph Vafi from Canaccord. Your line is now open.

Speaker 5

Hey, guys. Good afternoon. And once again, sorry about the DoorDash contract. I know you guys worked really hard on it. On these new logos, just maybe just one other follow-up from the previous questions.

Speaker 5

Are there existing providers in there right now? Or are these kind of and are they gig? Or are they kind of more T4W2 opportunities? Just trying to frame where they may be coming from in terms of what they already have in place? And then I have a quick follow-up.

Speaker 2

Hey, Joe, it's Marco. Thanks for the question. I would the 2 that are late stage are in the gig space, like we had mentioned. There is another one that just came in that's not gig. But for the 2 that are a little bit different in each scenario, one of them has more of a program that's out in market, probably with not the success that they expect, just given all the numbers and metrics that we could produce and have produced since we've pioneered the space.

Speaker 2

And so that word is getting out there. We've had a ton of success. It's not only just a function of what we did for DoorDash, but even with the more recent success with what we have with our 2 other clients, the numbers we highlighted there, we think we'll get to those levels and beyond at some point in terms of penetration levels for those programs. But to stick to your the question you had asked, the penetration rates that we would expect under our ecosystem and our offering would be substantially different than what these 2 gig players have in the market today.

Speaker 5

Got it. Thanks for that color, Marco. And I know you're going undergoing a strategic review and obviously can't talk about that. But if you come out the other side and indeed you're still cranking away, are you I know you had your paid app, your kind of product into the broader market outside of the megagig platforms. Wondering if you're looking at that as an opportunity to kind of recharge and move forward here in 2025?

Speaker 5

Thanks a lot, guys.

Speaker 2

Thanks, Joe. Yes, the way I'd sum it up for the paid up, we've built that with the purpose of having more of a neobank off the shelf or an offering off the shelf that we could provide both in Canada and the U. S. Markets. In Canada, that will come through the form of our EWA product, which we'll use the full technology we built for that and some, and we'll continue to layer on new products and services.

Speaker 2

On the U. S. Side, that paid app could become a neobank offering for gig workers, specific to gig workers, taking everything we've learned under these white label scenarios and figuring out what the commonalities would be for a 1099 and something to that effect. So there's definitely a lot of thought around it. And as the strategic review process kind of goes through its course, we're definitely seeing a lot of opportunities to use the paid app in different facets, and that's what's of interest to us.

Speaker 2

Most of it would be $10.99 but there's very specific niches of groups of 10.99 independent contractors that the paid app would be useful for, whether it's paid app on its own or taking that same platform and then creating a specific paid app tailored towards those certain niche opportunities, much like we've done for the gig space itself on the rideshare and food delivery side. So it's built and it's ready to be deployed on any distribution channels that take us outside of just a gig economy that we've been focused on and had a lot of success with. Hope that answers your questions.

Speaker 5

Yes, that was helpful, Marco. Thanks a lot, guys, and best of luck here through the end of the year.

Speaker 2

Thanks, Joe. Appreciate it.

Operator

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

Speaker 1

I'm just wondering if we could take a step back in terms of the progression of like with the DoorDash, was that a public RFP or was that exclusive negotiations or did you find out later that there was somebody else in the tent? I'm just curious what the timing of that happened because I think even in the last call, you kind of talked about that maybe negotiations were ongoing. So maybe you could just give us a little bit of a time there, timeline?

Speaker 2

Yes, Steve, thanks for the question. We have been pushing. We typically in any contracts that we renewed, including the 2 that we just renewed, we try to get well ahead of it and have those negotiations ahead of time. So we kept going back with a number of different, like we said in the script, products, features, functions that we wanted to add, knowing that we've seen success in other areas where we think we can add more products, features and functionality to take the penetration rates even north of where we have them, which is close to 60% down. That was ongoing.

Speaker 2

That continues to be ongoing. As a rule of thumb, that's just not for renewals. That's in any program we have. We're always kind of reinventing and kind of staying ahead with technology and what we could offer. So that obviously amps up during a time we're getting close to renewal, and that's where we've been focused on trying to throw as much as we can.

Speaker 2

We had discussions around economics and willing to kind of listen and hear where that could go. In other renewals that we've been through, it necessarily wasn't about economics. It was more about product features and functions, and that's where we kind of stuck. But we did make it clear that we would be looking at economics if that was a pain point as well. It just became clear to us more recently that there was another player in the mix and that the contemplation was there.

Speaker 2

And so knowing what we know now and what's in market and what they think they're going to go to market with, it's substantially different than what we would offer. I think they've taken a path that they want to be parlaying the success we've had and taking a much deeper look at how they want to offer this and the different products that they want to offer as part of it. And so we don't know the exact details of what that entails, but just looking at what they've announced to date, I would say it's substantially behind the current offering we have. So I would expect there's more to come. You

Speaker 1

announced this strategic review, but you're also trying to get new customers on board. Is that not a barrier? Like, are the companies or these gig platforms not coming to you and saying, like, I mean, strategic reviews can include a lot of things including sale of the company, strategic partnerships, things of that sort. Is that not a question or a barrier to landing some new material contracts?

Speaker 2

No. I mean, at this point, it hasn't been. There will be questions at some point. If anything, the way we've addressed it is by highlighting that this will be a net benefit to all stakeholders. So including potential new customers that are inbound potentially.

Speaker 1

And just for clarity

Speaker 2

on that, Steve, just to be very specific because one thing I didn't appreciate before knowing a strategic review process the way I do now at this point, there's an automatic assumption that a strategic review involves selling the company. We have every option on the table, much like we've highlighted. Every option out there, it's not to trigger any sale. It's to trigger whatever extracts the most value. We've been trying to fight concentration risk for some time.

Speaker 2

Even if we landed these other customers, we're still going to face that same battle. And so long term contracts with the ones we have, hopefully some new contracts with more long term value to be added there. But we have to take the technology we have and kind of move away from this concentration risk. So with that in mind, if anything, if you could chart a more long term view of what the success of the company will be, even for potential new inbound clients, I think they get comfort more than fear from that.

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Earnings Conference Call
Payfare Q3 2024
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