Harold Goetsch

Harold Goetsch inquired about Purchasing Power's history as an ABS issuer, their typical interest rates, and the potential for PROG Holdings to improve these economics. He also asked for qualitative and quantitative insights into Four Technologies' exceptional growth, including commentary on losses and merchant success.

Answer

Steve Michaels, President and Chief Executive Officer, confirmed that Purchasing Power is a seasoned ABS issuer and PROG Holdings is actively working to replace an expiring facility, expecting to improve economics. Regarding Four Technologies, Mr. Michaels attributed its strong growth to a smaller base, effective organic and paid customer acquisition, high acceptance of the Four+ subscription service, and a successful direct-to-consumer model via the Four app. He noted disciplined underwriting and seasonal dynamics, expecting growth rates to decelerate from a high level as the business scales.

Harold Goetsch inquired about Purchasing Power's history as an ABS issuer, their typical interest rates or cost of capital for these transactions, and the potential for PROG Holdings to improve these economics. He also asked for qualitative and quantitative insights into Four Technologies' outstanding growth, including commentary on losses and merchant success.

Answer

CEO Steve Michaels confirmed that Purchasing Power is a seasoned ABS issuer and that PROG Holdings is currently in the market to replace an expiring facility, expecting to improve economics upon closing. Regarding Four Technologies, Steve Michaels attributed its growth to a smaller base, strong organic and paid customer acquisition, high acceptance of the Four+ subscription service, and a successful direct-to-consumer model via the Four app. He noted that while growth rates are expected to decelerate from a high level, the team is motivated to exceed projections while maintaining disciplined underwriting.

Harold Goetsch from B. Riley Securities asked about the proper range for Antalpha's net interest margin, specifically if it could reach 2%, and sought an update on the average loan amount per customer. He also requested the total number of customers at quarter-end for each segment.

Answer

Herman Yu, Head of Strategy for Antalpha, explained that net interest margins have been improving due to pricing power and brand scaling, with potential for further growth, especially with U.S. expansion. He noted that net interest margins vary by product line (e.g., machines vs. hash rate loans) due to differing risks. Paul Lang, CFO of Antalpha, stated that the average loan amount per customer for supply chain loans was roughly $32 million and for margin loans was approximately $47 million, both growing over 50% year-over-year. He clarified that the total number of institutional clients was approximately 80, advising against segment-specific breakdowns due to customer overlap across products.

Harold Goetsch from B. Riley Securities asked about the optimal range for Antalpha's net interest margin (NIM), questioning if it could reach 2%, and noted the company's position as a low-cost producer. He also requested information on the average loan amount per customer and the total number of customers broken down by segment at quarter-end.

Answer

Herman Yu, Head of Strategy, clarified that the 5.18% figure refers to the cost of funding, which has decreased. He explained that net interest margins for both machine and hash rate loans have been improving due to pricing power, branding, and scale, with potential for further growth through U.S. expansion. Yu also noted that NIM varies by product line due to different risk profiles. Paul Lang, CFO, provided average loan amounts: approximately $32 million for supply chain loans and $47 million for margin loans, both growing over 50% year-over-year. Lang added that there are close to 50 supply chain loan customers and over 40 margin loan customers, with a total net of approximately 80 institutional clients.

Harold Goetsch of B. Riley Securities inquired about the reasons for the steep increase in median transaction size, asked for KPIs on transaction counts for mature kiosks, and questioned the business trends in California a year after significant regulatory changes.

Answer

Executive Christopher Buchanan explained the jump in median transaction size was a function of crossing a long-standing $200 KYC tier, which had previously anchored the median. CEO Brandon Mintz added that mature kiosks typically see transaction counts in the mid-double-digit range (10-20 per month). Regarding California, Mintz stated the company has reduced its kiosk count in the state by approximately 80% since the rule change, which has lessened the state's overall impact on the business despite the remaining kiosks performing at lower levels than in other states.

Harold Goetsch questioned the timeline to breakeven and potential cash burn for the Australian expansion, asked about business development efforts to increase transaction velocity, such as point-of-sale spending partnerships, and requested KPIs for mature, high-productivity kiosks.

Answer

COO and Interim CFO Christopher Buchanan acknowledged an initial cash burn in Australia during the deployment phase but stated the impact would be minimal to the overall business. He clarified that the company's core value is being a cash on-ramp to crypto, not facilitating spending. Regarding kiosk productivity, Buchanan did not have specific KPIs on hand for machines over 24 months old but confirmed that kiosks that remain in place for long periods generally show very strong performance.

Harold Goetsch of B. Riley inquired about the productivity ramp of new kiosks deployed in 2024, asking if they are tracking along the same trajectory as historical cohorts and seeking color on their median performance in the first 90 days.

Answer

Executive Scott Buchanan confirmed that newly deployed kiosks are ramping up in volume as they mature, consistent with historical trends. He added that, on average, a new kiosk is doing a 'couple of grand' a month by the end of its first 90 days, providing a specific performance benchmark.

Harold Goetsch of B. Riley Securities asked about the unit economics of combining Arculus authentication with payment capabilities and sought an update on the market expansion of metal cards beyond elite customers to the mass affluent segment.

Answer

CEO Jon Wilk explained that combining Arculus authentication and payment improves unit economics and contribution margin, with a long-term goal of building a software revenue stream. Regarding metal cards, Wilk confirmed the market continues to broaden from high-net-worth to mass affluent and even the upper-end of the mass market, noting a particularly strong appeal among the younger, 25-35 demographic.

Harold Goetsch from B. Riley Securities sought more clarity on the Q4 costs associated with building out the M&A infrastructure, asking if this represents a permanent increase in the company's fixed cost structure and requesting a potential ongoing quarterly cost estimate.

Answer

CEO Jon Wilk confirmed that the company is making investments to build in-house M&A capabilities, which includes bringing on the team that identified CompoSecure as an acquisition target. He described these as critical ongoing expenses for the future but declined to provide a specific quarterly cost estimate, cautioning that the implied number would not be an accurate guide.

Harold Goetsch from B. Riley Securities requested further details on the whole loan sales conducted during the quarter and how they contributed to the overall origination results.

Answer

CEO Raul Vazquez explained that within the $469 million of total originations, two key components were the growth in secured personal loans, which drove 19% of the growth, and the sale of $32 million in loans to partners. Vazquez positioned the loan sales as a positive signal of the high quality and attractiveness of Oportun's assets to third-party investors.

Harold Goetsch from B. Riley Securities asked for color on the strong Q4 originations and the drivers of top-of-funnel activity, and also requested a repeat of the financial impact from the credit card portfolio sale.

Answer

CEO Raul Vazquez clarified that the 19% originations growth was driven by confidence in their credit performance, which allowed for increased marketing investment, rather than loosening credit standards. CFO Jonathan Coblentz and CEO Raul Vazquez reiterated the credit card sale's impact: $34 million in revenue for full-year 2024 and an expected absence of $12 million in revenue for Q1 2025 compared to the prior year.

Harold Goetsch inquired about the potential industry disruption and opportunities for CoreCard from the Global Payments and FIS consolidation, and also requested clarification on the full-year 2025 revenue growth guidance excluding Goldman Sachs.

Answer

Chairman and CEO Leland Strange stated that he views the Global Payments/FIS deal as a good move for both parties and expects minimal disruption, though it may create some minor opportunities for CoreCard. Executive Matthew White confirmed that the expected full-year revenue growth, excluding Goldman Sachs and other specified items, remains between 30% and 35%.

Harold Goetsch inquired about the potential industry impact from the FIS acquisition of Global Payments' card issuing business and sought clarification on CoreCard's full-year revenue growth forecast excluding its largest customer, Goldman Sachs.

Answer

CEO Leland Strange stated that he views the FIS and Global Payments deal as a good move for both parties and expects minimal disruption, though it may create some small opportunities for CoreCard. Executive Matthew White confirmed that the expected revenue growth for 2025, excluding Goldman Sachs and other specified items, remains between 30% and 35%.

Harold Goetsch of The Goetsch Company inquired about the potential impact of industry consolidation, specifically the Global Payments spin-off to FIS, on CoreCard's business. He also requested clarification on the full-year revenue growth guidance excluding the company's largest customer, Goldman Sachs.

Answer

Chairman and CEO Leland Strange characterized the Global Payments/FIS deal as a natural fit and expects minimal disruption, noting that while CoreCard might find some small opportunities, the event's impact should not be overstated. Executive Matthew White confirmed that the expected revenue growth for 2025, excluding Goldman Sachs and other specified items, remains between 30% and 35%.

Harold Goetsch inquired about the 2025 guidance of no license revenue and its implications for the new customer pipeline. He also sought clarification on the revenue model for new clients, the expected trend in operating expenses for 2025, and wanted to confirm the 15 million card figure mentioned for the platform.

Answer

CEO James Strange and executive Matthew White clarified that the company's focus is now on its processing business, so new customers will be onboarded as processing clients rather than through license sales. White confirmed new clients generate initial professional services revenue, followed by ongoing processing and maintenance fees. Regarding costs, White stated that no significant increase in operating expenses is anticipated for 2025 beyond normal cost-of-living adjustments. Strange confirmed CoreCard has approximately 15 million revolving credit cards on its platform, contrasting this scale with other modern processors.

Harold Goetsch of The Benchmark Company inquired about the drivers behind the increased non-Goldman revenue growth guidance, the outlook for license revenue in 2025, and the potential timing for a sale of the Apple Card program, particularly if a buyer like JPMorgan were to take it in-house.

Answer

CFO Matthew White explained that the improved non-Goldman guidance was driven by new programs coming online, reflected in higher third-party revenues. Both White and CEO James Strange clarified that 2025 license revenue is not being counted on due to the timing of the GM program deconversion. Regarding the Apple Card, Strange stated that the timing of a potential sale is unknown and that while a buyer could take processing in-house, it might be less disruptive to continue using CoreCard's platform.

Harold Goetsch of The Benchmark Company inquired about the current business environment, specifically the tone of RFPs from banks versus fintechs, share repurchase activity in the quarter, and the potential revenue scale of large new clients in the pipeline.

Answer

Chairman and CEO Leland Strange explained that business inquiries have shifted, with more interest from smaller banks and less from fintechs. He defined a large potential client as generating $2 million to $8 million in annual revenue, noting that new wins de-risk the platform for future customers. Executive Matthew White confirmed the company repurchased 147,040 shares for $2.1 million during the second quarter.

Harold Goetsch asked about a potential acceleration in the re-engagement of former customers and whether larger ExtraCash origination sizes are attracting higher-income users or if it's a result of the CashAI model. He also sought clarity on the timeline for new, longer-duration products from the Coastal partnership.

Answer

Executive Jason Wilk reported that customer reactivation is performing as usual with no significant changes. He explained that larger origination amounts are a combination of rewarding tenured customers and offering better initial credit to new users, enabled by the new fee structure. Executive Kyle Beilman added this creates a 'win-win' flywheel. Regarding new products, Wilk stated the company would not discuss results until 2026.

Harold Goetsch asked about using debit card spend as a proxy for adoption, the percentage of volume previously on the freemium model, the company's capital allocation strategy given high cash generation, and potential future lending products.

Answer

CEO Jason Wilk clarified that debit spend is not a direct proxy for user adoption due to external funding sources and noted a 'not insignificant' number of users previously accessed credit for free. On capital allocation, Wilk highlighted a recent net settlement to reduce dilution and mentioned future buybacks, R&D, and M&A as possibilities. He also hinted at developing longer-duration credit products to complement ExtraCash, a key reason for partnering with Coastal Community Bank.

Harold Goetsch asked for more detail on the drivers behind the outstanding credit performance from Cash AI and the factors contributing to the continued improvement in customer acquisition costs (CAC).

Answer

Executive Jason Wilk attributed the strong credit performance to a new Cash AI model that uses hundreds more data points and has been fully rolled out, leading to lower loss rates, better conversion, and higher retention. Executive Kyle Beilman added that record-high member retention contributes to better credit performance, as longer-tenured customers are a durable tailwind for lower loss rates.

Harold Goetsch of The Analyst's Desk, LLC inquired about the characteristics of Sezzle's new merchant pipeline, including merchant size and type. He also asked about the competitive landscape, specifically whether Sezzle acts as the sole BNPL provider in new verticals, the performance uplift from the 'on-demand' product, and the reason for the sequential decline in notes receivable despite strong growth.

Answer

CEO Charles Youakim and President Paul Paradis explained that the merchant funnel is strong and focused on enterprise-level clients, with a push into new categories like groceries and bills. Paradis noted that merchants often start with one exclusive BNPL provider before adding more. Youakim highlighted that the 'on-demand' product shows strong monthly growth and similar gross margin per user as subscription products, serving as an effective customer acquisition tool. Regarding receivables, CFO Karen Hartje and Youakim clarified that the sequential drop is a typical seasonal pattern, as receivables peak during the Q4 holiday season and are subsequently paid down in Q1, generating significant cash flow.

Harold Goetsch inquired about the strength of the sales funnel for mid-market and enterprise merchants, the potential monetization of the new couponing feature, and the company's capital allocation plans given its increasing profitability and cash generation.

Answer

CEO and Executive Chairman Charles Youakim stated that the enterprise merchant pipeline is strong and improving, particularly as the On-Demand product allows Sezzle to offer more flexible, cost-effective solutions for larger merchants. Regarding couponing, he noted that while it is monetizable, the immediate focus is on using it to drive customer attraction and retention. On capital allocation, he explained that strong profitability provides many options, including buybacks, dividends, or M&A, and the company will evaluate these options without being in a rush.

Harold Goetsch of B. Riley Securities inquired about the UMS breakdown between subscribers and occasional users, and whether the pullback in marketing spend during the election season impacted new subscriber growth.

Answer

CFO Karen Hartje noted that specific UMS source breakdowns are not disclosed. CEO Charles Youakim suggested using relative order frequency as a proxy and confirmed that the high cost of advertising during the political season did crowd out some ROI-focused direct-to-consumer marketing spend. However, he emphasized that the company's traditional merchant-integrated acquisition channel continued to function effectively.

Harold Goetsch asked for details on the Q1 increase in operating expenses, clarification on a recurring '62%' metric, insights into the Minnesota Wild contract win, and the financial impact of fewer processing days in the quarter.

Answer

CFO Tim O’Leary detailed that the SG&A increase was driven by non-recurring items, cloud migration costs, and higher salary expenses from prior headcount additions. He clarified that 62% of gross profit came from the B2B and Enterprise segments, and coincidentally, 62% of total adjusted gross profit was from recurring revenues. CEO Thomas Priore explained the Minnesota Wild win was due to their unified payments and banking platform that accelerates cash flow and simplifies reconciliation. Both executives confirmed that one less processing day in Q1 negatively impacted volumes and revenue.

Harold Goetsch from The Goetsch Company, LLC inquired about the momentum of the Plastiq acquisition, asking for details on its current revenue run rate.

Answer

Executive Tim O'Leary stated that the Plastiq business is performing well, generating $6-7 million in monthly revenue and is now strongly profitable after being integrated into the Priority Payables suite. He noted they are in the early stages of going to market with a unified solution combining Plastiq and CPX, which will help drive future top-line growth.

Harold Goetsch of B. Riley Securities asked about the long-term productivity expectations for newly hired banking teams beyond their initial year. He also inquired about the bank's direct and indirect exposure to potential economic impacts from tariffs.

Answer

President and CEO Sam Sidhu explained that the bank expects new teams to rebuild their books of business over a three-year period to match the scale they managed at prior institutions, ensuring a long runway for growth beyond initial client transfers. He noted that new team hires are underwritten with a breakeven target of one year or less. Regarding tariffs, Sidhu stated that the bank's direct exposure is 'de minimis' due to its focus on specialized verticals like venture banking, fund finance, and healthcare. He acknowledged potential indirect macroeconomic effects but expressed confidence in the portfolio's positioning.

Harold Goetsch asked for an update on the progress made in addressing the issues outlined by the Federal Reserve Bank of Philadelphia. He also inquired about the expected pace and cadence of the elevated professional services costs associated with these efforts.

Answer

President and CEO Samvir Sidhu summarized the progress as enhancements across people, process, and technology. He highlighted the hiring of senior risk executives and the successful migration of all real-time payments clients to the proprietary in-house cubiX platform. Regarding expenses, Sidhu described the costs as following a 'bell curve,' having peaked in December-January. He expects these costs to taper off and return to normalized levels by the middle of 2025.

Harold Goetsch from B. Riley Securities asked for more detail on the competitive advantage of the bank's low commercial real estate (CRE) exposure and how selectively adding CRE volume might impact the stated 10-15% annual loan growth target.

Answer

President and CEO Sam Sidhu explained that competitors' CRE concentration issues create an opportunity for Customers Bank to selectively add high-quality, conservatively underwritten CRE loans for top-tier clients. This strategy is viewed as an opportunistic way to enhance the franchise within the existing growth framework, rather than a change to the overall 10-15% loan growth guidance for the year.

Harold Goetsch sought clarification on the drivers of the prepaid segment's 26% full-year revenue growth, asking about the trade-off between volume and higher pricing from value-added packaging. He also asked if the retail market's shift to more secure packaging is largely complete.

Answer

President and CEO John Lowe clarified the 26% growth was for the full year and resulted from a mix of volume-driven growth in the healthcare vertical and value-driven growth from higher-priced solutions for other customers. He explained that while the transition to secure packaging continues, it's difficult to quantify the total market penetration and that some 2024 strength may have been from one-time replacements, leading to a flatter outlook for the segment in 2025.

Harold Goetsch from B. Riley Securities questioned the composition of the 25% product sales growth, asking if it was primarily normalization from existing customers or driven by new programs.

Answer

CEO John Lowe explained that unlike the record 2022, recent growth is more broad-based, with strong performance from Instant Issuance, Personalization, and Prepaid, while card inventory rebalancing continues. He explicitly confirmed that the company is winning new customers across its portfolio. CFO Jeff Hochstadt highlighted the strong sequential growth from Q1 to Q3 as evidence of momentum.

Harold Goetsch asked about the potential key performance indicators (KPIs) for LoadPay, specifically inquiring about what 'good, better, best' spend levels per user might look like over the long term.

Answer

Executive Todd Ritterbusch explained that LoadPay is designed to capture a carrier's total spend, including fuel and other business expenses via its debit card. He provided an early metric, noting the average interchange rate on debit card transactions was about 1.9% in January, which is lucrative for business-to-business spending. CEO Aaron Graft and Ritterbusch clarified that a single LoadPay account for a small fleet could have multiple active cards, and the company plans to report on active users to provide clarity to investors.

Harold Goetsch of B. Riley Financial asked if the LoadPay revenue model would expand beyond interchange fees to include products like small-dollar advances. He also requested commentary on the bank's strong quarterly deposit growth, particularly in noninterest-bearing accounts.

Answer

CEO Aaron Graft confirmed the LoadPay roadmap includes additional revenue streams like fuel advances, leveraging their data to manage risk, with a rollout expected in 2025. CFO Todd Ritterbusch explained that the strong deposit growth was driven by mortgage warehouse servicing deposits and organic growth in the community bank. He also noted that the bank is already lowering rates on interest-bearing accounts, which is helping the overall cost of funds.

Harold Goetsch sought to confirm his understanding that the recent fair value marks were primarily a result of less favorable ABS structures from the uniquely difficult 2023 funding environment, and that current and future structures are significantly less sensitive to credit changes, improving the 2025 outlook.

Answer

CEO Gal Krubiner confirmed this interpretation. He explained that Pagaya made a strategic investment in 2023 to maintain network flow, which required using less favorable deal structures. He emphasized that structural changes and funding diversification have since reduced risk retention by 40% and created a much higher cushion against future impairments. This structural improvement is a key reason for the company's confidence in achieving GAAP net income profitability during 2025.

Asked for details on new verticals like auto insurance and auto refi, an explanation for a specific EBITDA adjustment, and plans for the company's debt given the growing cash balance.

Answer

The new verticals (auto, mortgage, credit cards) represent large addressable markets where their tech-led strategy is expected to drive high-margin growth. The EBITDA adjustment was due to onetime legal fees. The company is aware its debt is expensive and is exploring opportunities to refinance at a lower cost of capital.