Jacob Stephan

Jacob Stephan inquired about the nature and expected impact of Arlo's strategic partnerships with Comcast and ADT, seeking clarification on their structure and potential revenue ramp. He also asked about new hardware product launches planned for 2026 and 2027, specifically regarding attractive end markets and adjacencies. Additionally, Stephan sought insight into the strong Q4 service revenue of $89 million, questioning if it was due to plan simplification or other factors.

Answer

CEO Matthew McRae detailed the progress of ADT's technical integration and go-to-market planning, highlighting its potential to open Arlo to new households. He described the Samsung partnership as a pure service and subscription offering without hardware reliance, expected to broaden across Samsung devices. For Comcast, McRae noted the integration timeline of 9-12 months, anticipating significant revenue ramp in 2027 and beyond, potentially surpassing the Verisure partnership's impact. Regarding new hardware, McRae explained the 2025 comprehensive refresh as a foundation for 2026 sales, with new form factors and product segments planned for this year. He also mentioned a new hardware platform in 2027 focused on AI-native home security and expansion into small business and aging-in-place markets. COO and CFO Kurt Binder clarified that the Q4 service revenue strength was driven by continued service plan optimization, ARPU expansion, and new retail/direct subscribers, with an additional $4 million from non-recurring engineering (NRE) services for a strategic partner.

Jacob Stephan inquired about Arlo's strategic partnerships, specifically the Comcast and ADT collaborations, seeking clarification on their potential impact and comparing Comcast to a Calix-type partnership. He also asked about new hardware products planned for 2026, attractive end markets like routers, and the vision for the new hardware platform launching in 2027, including smart home control, small business, and aging-in-place. Additionally, Stephan sought insight into the drivers behind the strong $89 million service revenue in Q4, questioning if it was linked to the second phase of plan simplification or other factors.

Answer

CEO Matthew McRae provided updates on ADT's go-to-market planning for mid-2026 and the unique SaaS-only partnership with Samsung for emergency response services across SmartThings devices. He noted that the Comcast partnership, while requiring 9-12 months for integration, holds potential to surpass the Verisure partnership in service revenue impact, with revenue ramping in 2027 and beyond. Regarding new products, McRae explained that 2026 would see updates to existing products and new camera form factors, while 2027 would introduce a new hardware platform designed for AI-native home security, smart home control, and a deliberate push into the small business market. He also mentioned exploring adjacent markets like aging-in-place later in 2026. COO and CFO Kurt Binder clarified that the $89 million Q4 service revenue was driven by continued ARPU expansion, new retail/direct subscribers, and a $4 million non-recurring engineering (NRE) windfall from a strategic partner, which slightly impacted service margins but is expected to recur in 2026.

Jacob Stephan of Lake Street Capital Markets inquired about the nature of the new ADT partnership and the financial dynamics of the upcoming major product launch, including its impact on margins and holiday season growth.

Answer

CEO Matthew McRae described the ADT partnership as a substantial and unique deal involving both devices and services, with more details to be shared closer to year-end. Regarding the product launch, he confirmed it's the largest in Arlo's history, featuring COGS reductions of 20-30%. This provides 'dry powder' to absorb tariffs and fund aggressive promotions to achieve the targeted 20-30% year-over-year unit growth in Q3 and Q4, ultimately driving the services business.

Jacob Stephan inquired about Arlo's strategy for managing inventory ahead of potential tariff changes in July and whether the new product refresh would be timed to mitigate these tariffs. He also asked for clarification on the new advertising platform's focus, questioning if it was for third-party advertisers or for promoting Arlo's own products and services.

Answer

COO and CFO Kurt Binder explained that Arlo is actively managing inventory levels and working with suppliers to optimize its position before the July tariff deadline, noting that the majority of revenue is from services and EMEA product sales, which are exempt. CEO Matthew McRae added that the company is modeling a continuation of the current 10% tariff rate post-July and that the new products' 20-35% cost reduction provides a significant buffer. McRae also clarified that Phase 1 of the ad platform, which has already launched, is focused on 'house ads' to drive service upgrades and hardware sales due to strong conversion rates seen in beta testing, with a potential for third-party ads in a later phase.

Jacob Stephan of Lake Street Capital inquired about the doubling of customer acquisition costs (CAC) and whether the resulting 4:1 LTV/CAC ratio is a comfortable level for the company. He also asked for quantification of the expected rebound in product margins from Q4's negative levels and whether the new $17 ARPU includes contributions from the ad platform.

Answer

CEO Matthew McRae confirmed the 4:1 LTV/CAC ratio is a comfortable and 'world-class' level, noting a previous 7:1 ratio represented underinvestment in growth. COO and CFO Kurt Binder did not quantify the product margin rebound but expects it to be 'neutral probably at best' in Q1 after a highly promotional Q4. McRae stated that the new $17 ARPU figure does not include any revenue from the ad platform, which remains in a test phase.

Jacob Stephan asked for clarification on the Q4 Point-of-Sale (POS) forecast, inquiring if a near-doubling of POS implied a doubling of device shipments. He also requested details on the Arlo Secure 5 service rollout, including its availability to the existing customer base, the uptake of premium plans, and any impact on overall subscriber attach rates.

Answer

CEO Matthew McRae clarified that the projected doubling of POS from Q3 to Q4 specifically refers to cameras sold in North America retail, not total global device shipments. He explained that Arlo Secure 5, currently available to new subscribers, has shown impressive early results, with over 40% of new users choosing premium plans—more than double the historical rate—driving ARPU for this cohort to over $14. While in-app purchasing shows potential to lift conversion, the overall attach rate has remained consistent with past performance.

Jacob Stephan inquired about Alkami's 2025 milestones, early 2026 trends, particularly regarding loan activation (go-lives and signings), overall DSSP performance, and the evolving mix and pipeline traction with bank clients.

Answer

CEO Alex Shootman highlighted DSSP's positive impact on win rates by delivering differentiated business outcomes, such as increased deposit origination conversion. He clarified that the loan origination product is still in a 'lighthouse account' build phase, not yet generally available. He noted that the sales pipeline remains consistent with a 50/50 credit union and bank mix, and that improving treasury roadmap, technical skills, and core knowledge are enhancing bank win rates.

Jacob Stephan inquired about Alkami's milestones in 2025, specifically regarding loan activation (two go-lives, 13 signings in Q4), and the overall progress of MANTL and DSSP in early 2026. He also asked about the pipeline for bank clients and the evolving mix over the next 12 months.

Answer

CEO Alex Shootman explained that DSSP is improving win rates by delivering differentiated business outcomes, like increased deposit origination conversion. He noted that the loan capability is still in a 'lighthouse accounts' phase, not yet generally available. Regarding banks, he stated the pipeline remains consistent at about 50/50 credit union and bank, highlighting the long-term growth potential from banks separating online banking from core providers.

Jacob Stephan of Lake Street Capital Markets questioned where the MANTL acquisition is gaining the most traction between banks and credit unions and asked for a breakdown of the implementation backlog.

Answer

CEO Alex Shootman responded that MANTL demand is currently balanced between banks and credit unions, noting a significant tailwind in the credit union space due to their need to attract younger members. CFO Bryan Hill detailed the backlog of 36 new clients, comprising 16 banks with a higher RPU (around $30) and 20 credit unions (under $20 RPU), confirming MANTL was a primary driver of the sequential backlog increase.

Jacob Stephan asked about the timing of the margin impact from the captive offshore model, whether it would accelerate implementation, and if the soft lending environment was increasing client interest in new loan origination solutions.

Answer

CFO Bryan Hill clarified the 1% margin investment for offshoring would be spread ratably through 2025 and is focused on increasing engineering capacity for product development, not accelerating implementations. CEO Alex Shootman added that client demand in lending is for a better 'front-of-house' digital experience for consumers, which is where Alkami would focus, rather than replacing 'back-of-house' administrative systems.

Jacob Stephan asked about the strong B2B results, inquiring if the pipeline growth was driven by larger deals related to the headless API and AI model, the outlook for B2C growth given student enrollment trends, and CFO Dave Kutil's top three areas for improvement.

Answer

Roy W. Olivier, President and CEO, confirmed consistent pipeline growth, with a significant portion now comprising larger API deals integrating with customer workflows. He expressed uncertainty about B2C growth in the second half due to increased competitive digital marketing and lower trial-to-user conversion rates, despite product improvements like patent data. Josh Nicholson, Chief Strategy Officer, emphasized the focus on B2B for higher per-user value and stable contracts. Dave Kutil, Chief Financial Officer, outlined his priorities: operating expense rigor through a cost savings program, understanding and proactively addressing churn, and disciplined working capital management to grow cash flow.

Jacob Stephan with Lake Street Capital Markets inquired about the strong B2B results, specifically asking if the pipeline growth is driven by larger, headless API and AI-related deals. He also asked for an update on the B2C business's potential return to growth in the second half, considering favorable student enrollment trends, and requested CFO Dave Kutil's top three areas of focus for improvement.

Answer

President and CEO Roy W. Olivier confirmed that the pipeline has grown consistently, with a significant portion now comprising larger API deals integrating with customer workflows. He noted that B2C growth is uncertain for the second half due due to increased competitive digital marketing spend and lower trial-to-subscriber conversion rates, despite attracting similar trial volumes. Chief Strategy Officer Josh Nicholson added that product decisions prioritize stable, higher per-user B2B licenses, observing a B2C-to-B2B sales motion. CFO Dave Kutil outlined his top three improvement areas: operating expense rigor through a cost savings program, deep diving with the sales team to understand and proactively address churn, and disciplined working capital management to grow cash balance and fund Scite earn-out obligations from operations.

Jacob Stephan inquired about the drivers behind the sequential increase in Average Selling Price (ASP), specifically whether it was due to cross-sells, upsells, or larger new deal activity. He also asked about the adaptation of Resolute software to the new API strategy for LLMs and the competitive landscape for this headless API strategy.

Answer

William Nurthen, CFO, attributed the ASP increase to larger deals, including several over $100,000, driven by the new Chief Revenue Officer and sales training, as well as the waning churn from Resolute. Roy Olivier, CEO and President, explained that Resolute's strong API and 13 curated databases fit well into the headless strategy, offering valuable data to customers. Josh Nicholson, CSO, emphasized the stickiness of API-first deals embedded in customer infrastructure. Regarding competition, Josh Nicholson noted that while some publishers are exploring direct AI licensing, Research Solutions' pan-publisher position and existing revenue generation make them uniquely positioned as a compliant bridge for AI models.

Jacob Stephan inquired about the drivers behind the sequential uptick in Average Selling Price (ASP), specifically whether it was due to cross-sells, upsells, or larger new deal activity. He also asked about the adaptation of the Resolute software to Research Solutions' new API strategy for Large Language Models (LLMs) and the competitive landscape for this headless API approach.

Answer

William Nurthen, CFO, attributed the ASP increase to larger deals, including several over $100,000, driven by the new Chief Revenue Officer and sales training, noting a build-back in ASP after past churn from Resolute. Roy Olivier, President, CEO & Director, and Josh Nicholson, Chief Strategy Officer, explained that Resolute's strong API and 13 curated databases fit well into the headless strategy, enabling sales of that data to customers and creating sticky contracts. Josh Nicholson added that while some publishers are pursuing direct AI licensing, Research Solutions' pan-publisher position is unique in bridging content licensing and reliable AI output.

Jacob Stephan asked about the sequential uptick in Average Selling Price (ASP), inquiring whether it was driven by cross-sells, upsells, or larger new deal activity. He also questioned the adaptation of the Resolute software to the new API strategy for LLMs and the competitive landscape for this headless API strategy.

Answer

Roy W. Olivier, CEO and President, and William Nurthen, CFO, explained that larger deals, including several over $100,000 ARR, driven by a new Chief Revenue Officer and sales training, contributed to the ASP increase. They noted that churn from Resolute had waned, allowing for ASP rebuilding. Josh Nicholson, Chief Strategy Officer, added that Resolute's strong API and 13 curated databases fit well into the headless strategy, offering significant value to customers. Regarding competition, Josh Nicholson stated that while some publishers are exploring direct AI licensing, Research Solutions is uniquely positioned as a pan-publisher source, acting as an 'arms supplier' for scientific AI infrastructure.

Jacob Stephan from Lake Street Capital Markets asked for an update on the performance of the new logo versus cross-sell teams and inquired about current trends in the B2C business, particularly regarding seasonality as the academic year ends.

Answer

President and CEO Roy W. Olivier reported that new logo teams performed well, accounting for over half of new bookings, with strong results from both the Corporate and newly formed Academic teams. He also confirmed the expected seasonal weakening in B2C trials and sign-ups. CFO Bill Nurthen added that the renewal and upsell team had its best quarter of the year, driven by strong cross-selling of Scite products into the Article Galaxy customer base.

Jacob Stephan of Lake Street Capital Markets asked for an update on the performance of the new logo versus cross-sell sales teams and inquired about current B2C seasonality trends as the academic year concludes.

Answer

President and CEO Roy W. Olivier reported that new logo teams performed well, contributing over half of new bookings, with the Corporate and newly-formed Academic teams performing almost equally. He also noted the renewal/upsell team had a strong quarter. CFO William Nurthen added that the upsell team had its best quarter of the year, driven by cross-selling Scite into the Article Galaxy customer base. Regarding B2C, Olivier confirmed a seasonal weakening in trials and sign-ups is underway, though recent conversion rate improvements have helped.

Jacob Stephan from Lake Street Capital Markets asked for an update on the sales performance of the new logo versus cross-sell teams and inquired about current trends in the B2C business, particularly regarding seasonality.

Answer

President and CEO Roy W. Olivier reported that the new logo teams performed well, contributing over half of new bookings, with both Corporate and Academic teams showing strong results. He also confirmed that the B2C business is experiencing typical seasonal weakening as the academic year ends, though conversion rates have improved. CFO Bill Nurthen added that the renewal and upsell team had its best quarter of the year, driven by cross-selling the Scite product into the Article Galaxy customer base.

Jacob Stephan inquired about the composition of the $1.5 million incremental Annual Recurring Revenue (ARR), the seasonal impact on the B2C business, and the cost trends for the company's AI technology.

Answer

William Nurthen (executive) and Roy Olivier (executive) clarified that the ARR growth was predominantly from new logos, with upselling underperforming expectations, except for Scite cross-sells. They, along with Josh Nicholson (executive), also confirmed the B2C business sees a seasonal slowdown from mid-December to mid-January due to academic holidays. Regarding AI, Nicholson noted that costs have roughly halved as they leverage newer, more efficient models, though Nurthen added this trend is not expected to materially impact short-term financials.

Inquired about the drivers behind lower-than-usual deployments in the quarter, the strength of the demand rebound seen in Q2, and the top priorities for the new Chief Revenue Officer.

Answer

Management attributed the lower Q1 deployments to academic seasonality, underperformance by the upsell team, and higher churn. They confirmed a strong demand rebound in Q2, particularly in B2C ARR growth, and noted record B2B pipelines. The new CRO's primary focus is on implementing a structured sales process and standardized training to accelerate ARR growth after an initial learning period.

Jacob Stephan sought clarification on the Q1 2026 revenue guidance of $6.5 million, specifically what portion is subject to shifting into Q2, customer receptiveness to price increases, and the company's strategy regarding the convertible debt redemption given the materially higher interest rate in 2026.

Answer

Georges Karam, CEO and Chairman, explained that approximately $1 million of Q1 revenue is at risk of shifting to Q2 due to manufacturing and shipment timing, but these orders are not lost. He noted that customers have been surprisingly receptive to price increases, having learned from COVID-era supply issues, and appreciate transparency regarding supply chain tensions in memory, packaging, and substrates. Regarding convertible debt, Karam stated the company is evaluating options, including early redemption, especially if Bitcoin does not rally significantly, and is in good relationship with the main debt holder, having already redeemed 50%.

Jacob Stephan asked for clarification on the Q1 2026 revenue guidance of $6.5 million, specifically the portion at risk of shifting to Q2 due to manufacturing and shipment timing. He also inquired about customer receptiveness to recent price increases and the company's strategy regarding the convertible debt redemption, given the rising interest rates in 2026 and Bitcoin price fluctuations.

Answer

Georges Karam, CEO and Chairman, explained that the Q1 guidance includes orders "on the edge" of the quarter, with a risk of approximately $1 million shifting to Q2 due to timing, but these orders are not lost. He noted that customers have been surprisingly receptive to price increases, understanding the industry-wide supply chain and memory cost pressures driven by AI demand and geopolitics. Regarding convertible debt, Karam stated that the company is evaluating all options, including early redemption, especially if Bitcoin prices do not rally significantly, and is in good communication with the main debt holder, having already redeemed 50% in the past.

Jacob Stephan from Lake Street Capital Markets asked for more detail on ArrowEye's outperformance and its specific contribution to revenue. He also questioned the market opportunity for the CardOnce solution following a government program win and inquired about the growth trajectory of the metal cards business.

Answer

CEO John Lowe stated that ArrowEye's contribution was positive but still a small part of the overall business. He elaborated on the CardOnce expansion into the government sector for social safety net programs, highlighting it as a new recurring revenue vertical with further expansion potential. He also characterized the metal card business as a complementary, value-oriented offering for a niche but growing market segment.

Jacob Stephan asked for clarification on ArrowEye's $10 million revenue contribution and how much it outperformed expectations. He also questioned the market opportunity for the CardOnce solution following a government program win and inquired about the growth and strategy for the metal cards business.

Answer

CEO John Lowe clarified that ArrowEye's contribution was a helpful but relatively small part of the quarter's total revenue. He detailed the CardOnce expansion into government social safety net programs as a new, recurring vertical with further growth potential. Regarding metal cards, he described them as a complementary, value-oriented product for a niche market, positioned competitively against more expensive offerings.

Jacob Stephan of Lake Street Capital Markets asked for quantification of ArrowEye's outperformance, details on the CardOnce solution's expansion into government programs, and clarification on the strategic importance of the metal card business.

Answer

CEO John Lowe noted ArrowEye's contribution was positive but a small part of overall revenue. He detailed the CardOnce expansion into government social programs as a new, recurring vertical and described the metal card offering as a value-focused, complementary product for a niche market.

Jacob Stephan asked about the Arroweye acquisition's impact on the balance sheet, specifically the mix of cash versus revolver debt used for funding, and questioned the broader portfolio application, including potential opportunities with retailers.

Answer

CFO Jeff Hochstadt clarified the financing, stating the company drew approximately $35 million from its revolver and used cash from its balance sheet, which held over $30 million at quarter-end. President and CEO John Lowe confirmed the strategic application extends to retailers, noting Arroweye's nimble, hyper-personalization platform is ideal for brands testing new concepts and opens up a market segment that CPI does not currently service.

Jacob Stephan asked for more specific details on the healthcare vertical within the prepaid segment, including the types of programs driving growth, and inquired about the margin profile of this business compared to traditional prepaid, credit, and debit cards.

Answer

President and CEO John Lowe explained that the healthcare business includes products like FSA and HSA cards, which require high-volume, high-accuracy issuance—a core strength for CPI. He noted it's a relatively new and growing market for the company. Regarding profitability, Lowe stated that while he wouldn't comment on specific vertical margins, the prepaid business broadly maintains strong margins due to the value proposition of its innovative and differentiated solutions.

Jacob Stephan from Lake Street Capital Markets asked for quantification of ArrowEye's outperformance, the market opportunity for the CardOnce solution in the government sector, and the strategic importance of the metal card business.

Answer

CEO John Lowe stated that ArrowEye's contribution was positive but still a small part of the total business. He detailed the CardOnce expansion into government disbursements as a new, recurring vertical with significant growth potential and described metal cards as a value-oriented, complementary niche product.

Jacob Stephan from Lake Street Capital Markets asked about the pipeline for both relaunches of existing metal cards and entirely new card programs, and also inquired about the catalysts for crypto exchanges launching card products beyond regulatory drivers.

Answer

President & CEO Jonathan Wilk stated that intense competition among financial institutions for premium customers is fueling a healthy pipeline for both new and refreshed card programs. He noted the market is expanding into mass affluent and mass market segments, creating a significant growth runway. On the crypto front, Wilk identified the strategic push by major exchanges like Coinbase and Gemini to bridge digital assets and traditional payments as a key catalyst, positioning CompoSecure to support this innovation.

Jacob Stephan from Lake Street Capital Markets inquired about the pipeline for both relaunches of existing metal card programs and entirely new card programs. He also asked about the key factors driving major crypto exchanges to roll out or upgrade their card offerings.

Answer

CEO Jonathan Wilk responded that the company sees a healthy and competitive market for premium cards, which is expanding from high-net-worth to mass affluent and mass market segments, fueling a strong future pipeline. On the crypto front, Wilk expressed excitement about the convergence of crypto and payments, highlighting partners like Coinbase and Gemini, and noted CompoSecure is well-positioned to support emerging trends like spending stablecoins from cold storage.

Jacob Stephan of Lake Street Capital Markets asked about the traction Arculus is gaining with legacy financial issuers and tech companies, particularly around PassKey technology. He also questioned if recent tariff discussions have impacted the M&A pipeline.

Answer

CEO Jon Wilk stated that Arculus authentication is seeing traction across traditional banks, fintechs, and emerging opportunities in sectors like gaming. He noted the broader industry shift to PassKey technology is a tailwind. Regarding M&A, Wilk indicated the pipeline remains very healthy, attributing strong interest in part to the 'Dave Cote factor' and the company's reputation as an attractive acquirer, while reiterating a commitment to discipline.

Jacob Stephan from Lake Street Capital Markets asked for a breakdown of the mid-single-digit revenue growth guidance, specifically the contribution from stabilized card programs versus new and ramping programs. He also questioned whether the current strength in the Arculus business is driven more by its authentication or cold storage solutions.

Answer

CEO Jonathan Wilk explained that growth in 2025 is expected to come from a mix of existing programs, new programs with current clients, and entirely new clients, consistent with previous years. He added that the company is expanding its sales team to accelerate this organic growth. Regarding Arculus, Wilk stated that the momentum is broad-based across both its authentication and cold storage products, though it 'probably' leans more towards the authentication side.

Jacob Stephan of Lake Street Capital Markets asked how the Arculus platform competes with recent fraud prevention solutions, like the one from Capital One and Visa, and what its key differentiators are. He also asked Executive Chairman David Cote to identify internal business areas ripe for efficiency improvements.

Answer

CEO Jon Wilk differentiated Arculus by highlighting its use of the FIDO standard, which ties authentication to an individual, unlike other solutions. He stated Arculus is unique in incorporating a FIDO token into a payment card. Executive Chairman David Cote responded that he sees opportunities for improvement across 'everything'—operations, sales, and M&A—by making all cross-functional processes more efficient and effective, referencing the 'CompoSecure Operating System'.

Jacob Stephan of Lake Street Capital Markets inquired about the specifics of the content restrictions from Cardlytics' largest financial institution (FI) partner, the timing of the debt paydown using the new credit line, and the breakdown of the Q3 billings decrease between partner restrictions and advertiser concerns.

Answer

CEO Amit Gupta explained that the content restriction was broader and more significant than anticipated. CFO Alexis DeSieno clarified that the $50 million credit line was drawn to repay convertible notes maturing in September 2025, consistent with prior plans. DeSieno attributed the majority of the expected Q3 billings decline to the supply change with the single FI partner, noting they are modeling conservatively while learning how to shift volume to other partners.

Jacob Stephan inquired about the market opportunity for the new Cardlytics Rewards Platform (CRP) with non-FI partners, seeking clarification on the first partner's business model and asking if recent consumer spending strength is a significant deviation from prior year trends.

Answer

CEO Amit Gupta described the CRP as a major strategic step that redefines their partner ecosystem, noting the first partner is a large digital sports platform, not a betting site. He added that while it's too early to quantify the market size, the potential is significant. Gupta also confirmed that consumer spending remains strong sequentially, particularly in everyday categories, though some of this may be tariff front-running. CFO Alexis DeSieno added that CRP unlocks new publisher types and advertiser categories, like financial services, that are restricted in FI channels.

Jacob Stephan of Lake Street Capital Markets, LLC sought details on the transition to engagement-based pricing, including the timeline and whether it was elective for customers. He also asked CEO Amit Gupta to outline his top priorities after three months in the role.

Answer

CFO Alexis DeSieno clarified that 38% of total Q3 billings were on engagement-based models (CPT, CPR, CPC), and they expect the majority of advertisers to transition by the end of next year with minimal pushback. CEO Amit Gupta reiterated his focus on four key pillars: increasing supply (bank partners), driving demand (advertisers), improving end-to-end network performance, and integrating the Bridg platform.

Jacob Stephan inquired about the retention metrics associated with the new $3 subscription fee and asked for more detail on the new CashAI V5.5 model, including how low the provision for credit losses could potentially go.

Answer

CEO Jason Wilk and CFO & COO Kyle Beelman emphasized that extensive testing of the $3 fee showed no negative impact on conversion or retention, making it accretive to LTV, which is also benefiting from higher Extra Cash volume. Beelman explained that the new AI model has double the features for better risk splitting. He reiterated that the company's goal is not to minimize the loss rate but to maximize gross profit dollars, and they view the current provision level as healthy for optimizing LTV.

Jacob Stephan questioned the reasons behind the sequential increase in Customer Acquisition Cost (CAC) and which marketing channels were yielding better returns. He also requested an update on the launch timeline for the 'Dave Credit' product.

Answer

Executive Jason Wilk clarified that the company's strategy is to optimize for LTV-to-CAC returns, not the lowest absolute CAC. With LTV increasing, the current $18 CAC is considered highly efficient. He noted a slight spending shift towards higher-LTV iOS devices. For the 'Dave Credit' product, Wilk confirmed they are targeting a friends and family launch later in the year, with public results to be discussed in 2026.

Jacob Stephan inquired about the quantitative or qualitative uplift in the attach rate for Dave Checking and Debit cards following the new fee model implementation, and also asked for a macro perspective on consumer strength based on Dave's underwriting data.

Answer

CEO Jason Wilk stated that while the new fee model has been positive for ExtraCash take rates, it has not caused a step-change improvement or material decline in the conversion rate to the Dave Card. Regarding the macro environment, both Wilk and CFO Kyle Beilman noted that consumer behavior and underwriting risk scores have remained very consistent with prior periods.

Jacob Stephan asked how the company is thinking about balancing top-line growth with EBITDA margin expansion into Q4 and 2025. He also sought clarification on the new fee model, questioning if it would be coupled with a subscription price increase.

Answer

Executive Kyle Beilman explained that the company balances growth and profitability by managing marketing investments based on attractive payback periods, noting that high gross profit flow-through to EBITDA is expected to continue. Executive Jason Wilk clarified that the new model involves a mandatory fee for ExtraCash access, which is separate from subscription pricing, and is designed to replace optional tips and instant transfer fees while maintaining or exceeding customer lifetime value.

Jacob Stephan of Lake Street Capital Markets inquired about the composition of the 30-40 new pharma programs, the timeline for the donor management system, and the gross margin impact of the new patient services contact center.

Answer

Matthew Turner, President of Patient Affordability Services, clarified that the new pharma programs are an even mix of new and existing clients, with a slight lean towards transition programs. CEO Mark Newcomer stated the donor management system is targeting approval by year-end 2025. CFO Jeffery Baker explained the new contact center adds significant costs but is a strategic investment that helps win new business.

Jacob Stephan of Lake Street asked for details on the company's exposure to countercyclical end markets, its role in enabling tariff payments, and whether the Minnesota Wild contract is a gateway to broader opportunities in the sports and venue space.

Answer

CFO Tim O’Leary provided a volume breakdown for key end markets, highlighting that professional services (legal, medical) represent over 16% of the portfolio. CEO Thomas Priore clarified that the primary countercyclical benefit from tariffs is seen in their B2B segment, where clients use their working capital tools to manage costs. He confirmed the Minnesota Wild win is a key entry point into the professional sports vertical, showcasing their unique ability to combine payments and banking to simplify complex venue operations, and noted a 'very healthy pipeline' of similar prospects.

Jacob Stephan of Raymond James inquired about Priority's capital allocation strategy, specifically the balance between debt paydown and investments in CapEx or SG&A. He also asked how the forecast for interest rate cuts in 2025 was factored into the company's guidance.

Answer

CFO Tim O’Leary explained that the company balances shareholder value by focusing on debt paydown to reduce leverage while also evaluating M&A opportunities. He noted the shift from CapEx to OpEx will add efficiencies over time. O'Leary confirmed that the guidance conservatively incorporates the Fed's projected rate cuts. CEO Thomas Priore added that their outlook includes a conservative view on deposit growth and that the company is positioned to capitalize on M&A opportunities in dislocated sectors.

Jacob Stephan of Lake Street Capital Markets asked for color on the cross-selling success between the Enterprise and B2B segments and sought to understand the assumptions behind the Q4 revenue guidance, which appears sequentially flat.

Answer

Executive Thomas Priore explained that the thesis of combining payments and banking is resonating, providing examples in the NIL (Name, Image, Likeness) space and insurance sector where embedded wallets are replacing traditional payments. Regarding guidance, Executive Tim O'Leary stated that while they expect strong year-over-year growth, the sequential view is conservative. He noted that potential upside from new initiatives isn't fully reflected and that expected interest rate cuts also impact the revenue and EBITDA forecast for Q4.

Jacob Stephan asked for a breakdown of the non-transactional sources that constitute 59% of adjusted gross profit, inquired about potential seasonality for the Plastiq business in the second half of the year, and questioned the company's strategy for the remaining $106 million of preferred stock.

Answer

Executive Tim O'Leary clarified that recurring gross profit sources include monthly subscription fees, income from permissible investments, and other regular fees from merchants and resellers. He noted Plastiq's performance is influenced more by the timing of large enterprise deals than by seasonality. Regarding the balance sheet, O'Leary stated the company will continue to evaluate uses of capital for the preferred stock as leverage declines, projecting a drop to near 4x by year-end, which increases financial capacity.

Jacob Stephan asked about healthcare order patterns in Q4 and whether the Q3 revenue level is a stable base for growth. He also inquired about the scale of inventory repurchased during the in-sourcing initiative.

Answer

CEO Jeffrey Graves confirmed that the Q3 healthcare revenue level is a solid foundation to build from, with growth expected from new orthopedic applications, expansion into trauma, and European market focus. On inventory, he stated that while he didn't have a precise number, the company had to repurchase well over $100 million in inventory from contract manufacturers as part of the in-sourcing initiative, which they are now actively working to reduce.

Jacob Stephan of Lake Street Capital Markets asked how recent macro changes, including rate cuts and competitor consolidation, are impacting demand for newer product lines like Origin 2 and Neo. He also inquired if there were further cost-saving opportunities beyond the current $40 million restructuring plan.

Answer

CEO Dr. Yoav Zeif explained that while underlying demand and interest are strong, the main challenge is an elongated sales cycle due to the macro environment. CFO Eitan Zamir clarified that the $40 million savings plan is comprehensive, including non-headcount items like facility closures, and the focus is on full execution to achieve an 8% EBITDA margin, even with flat revenue, which positions the company well for the future.

Speaking for Kevin Kopelman, Jacob Stephan asked for more detail on quarter-to-date trends in October beyond the hurricane impact and for additional color on the company's efforts to regain share in international markets.

Answer

CFO Julie Whalen noted that while the October hurricane impact was material, it was less severe than initially feared, and the underlying health of the business remains strong. CEO Ariane Gorin added that the international strategy is 'surgical,' involving market-by-market analysis of brand strength and the deployment of full-funnel marketing plans to regain share methodically.

Inquired about the commercial sales cycle delays, the health of the sales pipeline, and the relative size and potential of the upcoming RAC Region 3 and 4 contract opportunities.

Answer

Sales cycle delays began after the Change Healthcare breach due to increased security scrutiny from payers but are considered temporary and are not affecting the top of the sales funnel. RAC Region 4 is significantly larger than Region 3.

Inquired about the historical mix of new versus existing client implementations, the strategic impact of the RecordsOne acquisition, and the current dynamics of the government eligibility business.

Answer

The company stated that the Q1 mix of all existing client implementations is not concerning, as there are ebbs and flows and new logos are still in the pipeline. The RecordsOne acquisition is expected to significantly enhance claim selection accuracy and workflow efficiency by leveraging AI and natural language processing, reducing the need for human capital on certain review tasks. Regarding the government eligibility business, the long-standing CMS MSP contract has hit a 'steady state' after years of high growth, and new contract economics are now in place, creating a headwind for year-over-year growth in that specific segment.

Inquired about the drivers for the government business rebound, the margin expansion opportunity from planned 2024 investments, and the average size of deals in the pipeline.

Answer

The rebound in the government segment is attributed to both a recovery in existing business and the ramping of new contracts like RAC Region 2 and HHS OIG. The increased operating expenses are strategic investments in sales and IT (Project Turing) intended to drive revenue scale and long-term workflow efficiencies, which will support margin expansion. The company advised focusing on the total annual contract value of implementations rather than the quarterly count or average deal size, as individual deal sizes can vary significantly.

Jacob Stephan from Lake Street Capital Markets asked about the overall capacity of the U.S. manufacturing facility and the potential for growth in trauma cases beyond the current 3x increase. He also sought clarification on a comment about a CO-AM customer and inquired about the timeline for fully transitioning away from perpetual software licenses.

Answer

Executive Brigitte de Vet-Veithen clarified that the U.S. plant is not at its capacity limit and has room for future expansion. She emphasized that the company is 'only scratching the surface' of the trauma market, indicating significant growth potential remains. She also corrected that the company has many CO-AM customers; the specific comment referred to the first sale that included the partnered DigiFabster solution. Regarding the software model, she stated that while the push to subscription is strong, a complete transition away from perpetual licenses will take a 'very long time' as some market segments will likely retain that model.

Asked about the marketing spend environment and potential CAC impact from the upcoming election, requested an update on the EY nexus partnership, and inquired about a recent 8-K filing regarding a move towards an overdraft framework.

Answer

The company does not expect the election to impact its CAC, citing multiple acquisition levers, and notes that enterprise clients are actually increasing their spend on MoneyLion's platform. The EY partnership is progressing as planned and is expected to contribute in late 2024/early 2025. The 8-K filing was an extension of their partnership with Pathward bank, which now includes the capability to offer overdraft protection as a complementary liquidity product.

Requested more details on the lower conversion rates in the enterprise business and clarification on the sequential step-down in the Q2 EBITDA margin guidance.

Answer

Executives explained that while marketing spend from lending partners is at a trough, they are mitigating this with high consumer demand, product-led growth, and adding more supply partners. The non-lending business conversions are actually up. Regarding guidance, they clarified that the Q2 EBITDA margin guidance midpoint (13.1%-16%) is actually higher than Q1's guidance, and the strong 19.4% achieved in Q1 was partially boosted by seasonality.

Asked about capital allocation priorities between debt reduction and reinvestment, and requested quantitative details on the MoneyLion WOW subscription, such as conversion rates and user numbers.

Answer

The primary focus for capital allocation is reinvesting in the business to accelerate revenue growth through funnel optimization and distribution, as there are no senior debt payments due until 2026. For MoneyLion WOW, it's too early to provide specific user or conversion metrics as it's in a phased rollout, currently focused on upselling to the existing loyal customer base before a wider launch.

Sought clarity on the new lead generation strategy, asked about future capital allocation plans given the strong free cash flow and balance sheet, and requested clarification on the confidence in the ARR growth ramp-up in Q4.

Answer

The CEO described an evolution in lead generation towards a more efficient inbound model using digital technologies and AI. The CFO explained that Q1 free cash flow is seasonally high and will normalize, but they are comfortable with the $80M+ full-year guidance. Capital allocation priorities include internal investment and strategic tuck-in acquisitions like Togai. Confidence in the Q4 ARR ramp is based on the strong installed base, customer needs, pipeline development, and the addition of the new Togai product.

Asked how 'quick land' deals factor into the FY '25 ARR growth outlook and inquired about the implementation timeline differences between SI partners and Zuora's internal team.

Answer

The 'quick land' strategy provides optimism for future growth, as it mirrors the successful 'unbundling' strategies used by top subscription companies, offering customers flexibility. Regarding implementations, the company is 'partner first' and prefers SIs to handle the work. This is reflected in the expectation that the professional services revenue mix will decline from ~11% to ~10% next year as partners take on more implementation business.

Asked for clarification on how the company is balancing adding go-to-market resources with ongoing cost reductions, and inquired about the expected revenue seasonality for 2024.

Answer

Executives explained that the investment in go-to-market is a strategic move to drive growth on the newly optimized cost structure and is baked into their plans. They also confirmed that the revenue seasonality for 2024 is expected to follow the historical pattern of a stronger Q2 and Q4, with a more muted Q3.

Asked about the specific industry verticals showing strength for the new FX10 product and the primary drivers behind the strong growth in subscription services revenue.

Answer

The FX10 is seeing demand from customers needing higher productivity and larger parts for factory floor applications like jigs, fixtures, MRO, and end-use parts. The strength in subscription services is driven by the company's multi-year subscription model and deeper penetration into manufacturing floors where customers require higher service levels and advanced software features.

Asked for details on the announced restructuring, including the timing and quarterly impact of the cost savings, and questioned the drivers behind the strong year-over-year growth in services revenue.

Answer

The company detailed that the $9M-$12M in OpEx savings will be realized across all departments starting in Q1 2024, bringing the annual run rate to $92M-$95M. The strong services revenue growth was attributed to the success of the subscription model introduced a year prior, which has led to higher attach and renewal rates.