Executive Summary

Operating revenues were $14.741M in Q3 2023, up 14% QoQ and down from $19.858M YoY; diluted EPS was $(0.34), improving from $(0.39) in Q2 2023, with net loss of $(3.952)M and third straight sequential improvement in Core EBITDA loss to $(0.789)M .
Management expects Q4 2023 to be “close to breakeven” Core EBITDA with positive operating cash flow, a notable inflection from Q3’s loss, driven by seasonal strength and cost actions .
The transfer of Higher Education deposits to First Carolina Bank (Durbin-exempt) is expected on or around December 1, enabling roughly 20 bps higher interchange rates; had Durbin-exempt been in place, HE interchange revenue in Q2–Q3 would have been ~50% higher on a gross basis — a key near-term revenue catalyst .
Higher Education engagement improved: new checking account sign-ups rose 85% QoQ, ending serviced deposits increased to $636M, and spend per active account rose, supporting revenue momentum into the transfer and product rollouts planned for Q1 2024 (cash-back rewards and ID verification) .

What Went Well and What Went Wrong

What Went Well

Durbin-exempt bank transition on track: “we expect the transfer will be completed on or around December 1st… [and] begin earning Durbin-exempt interchange rates,” a “critical milestone in significantly improving the Company’s operating revenues and profitability” .
Cost discipline: Core operating expense base ~15% lower YoY; Q3 marked the third sequential improvement in Core EBITDA loss, reflecting PEP execution and seasonal revenue lift .
Strong HE momentum: 99% institutional retention, $3.6B in FAR disbursements, 85% QoQ increase in new checking sign-ups, and rising deposits/spend per active account .

What Went Wrong

Year-over-year revenue and interchange pressure: operating revenues were $14.741M vs $19.858M in Q3 2022, and interchange/card revenue fell to $2.652M vs $5.325M a year ago, reflecting the temporary absence of Durbin-exempt rates .
BaaS deposits remain rate-sensitive: average serviced deposits fell to $853M (from $922M in Q2 and $1.615B in Q3 2022), driven largely by BaaS runoff amid higher rates .
Continued net losses and seasonal OpEx variability: net loss of $(3.952)M; technology/processing costs rose QoQ in Q3 due to peak transactional seasonality, diluting near-term margin improvements .

Financial Results

Revenue, EPS, Core EBITDA and Margins (Oldest → Newest)

Metric	Q3 2022	Q1 2023	Q2 2023	Q3 2023
Total GAAP Operating Revenue ($USD Millions)	$19.858	$13.484	$12.987	$14.741
Interchange & Card Revenue ($USD Millions)	$5.325	$3.079	$1.804	$2.652
Servicing Fees ($USD Millions)	$10.163	$6.632	$7.700	$8.658
Account Fees ($USD Millions)	$2.110	$2.140	$1.910	$1.931
University Fees ($USD Millions)	$1.357	$1.506	$1.373	$1.412
Other Revenue ($USD Millions)	$0.903	$0.127	$0.200	$0.088
Net (Loss) Income ($USD Millions)	$(4.920)	$(4.960)	$(4.456)	$(3.952)
Diluted EPS ($USD)	$(0.41)	$(0.43)	$(0.39)	$(0.34)
Core EBITDA (Loss) ($USD Millions)	$1.458	$(1.891)	$(0.906)	$(0.789)
Core EBITDA (Loss) Margin (%)	7%	(14%)	(7%)	(5%)

Segment/Category Composition

Category ($USD Millions)	Q3 2022	Q1 2023	Q2 2023	Q3 2023
Interchange & Card	$5.325	$3.079	$1.804	$2.652
Servicing Fees	$10.163	$6.632	$7.700	$8.658
Account Fees	$2.110	$2.140	$1.910	$1.931
University Fees	$1.357	$1.506	$1.373	$1.412
Other Revenue	$0.903	$0.127	$0.200	$0.088
Total GAAP Operating Revenue	$19.858	$13.484	$12.987	$14.741

KPIs and Operating Metrics

KPI	Q3 2022	Q1 2023	Q2 2023	Q3 2023
Debit Card POS Spend – Higher Ed ($M)	$524	$616	$490	$567
Debit Card POS Spend – BaaS ($M)	$158	$171	$168	$171
Total POS Spend ($M)	$683	$787	$658	$737
Ending Serviced Deposits – Higher Ed ($M)	$603	$507	$408	$636
Ending Serviced Deposits – BaaS ($M)	$967	$575	$439	$357
Total Ending Deposits ($M)	$1,570	$1,082	$848	$994
Average Deposits – Higher Ed ($M)	$482	$524	$429	$466
Average Deposits – BaaS ($M)	$1,133	$655	$494	$387
Total Average Deposits ($M)	$1,615	$1,179	$922	$853
New Account Sign-ups (#’000s)	—	105	108	200
Higher Ed Institutional Retention (%)	99%	98%	98%	99%

Estimates vs Actuals

S&P Global consensus estimates for BMTX were unavailable in our system at the time of analysis; therefore, a direct comparison to Street estimates could not be performed. Values from S&P Global were unavailable due to a missing mapping for BMTX.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Core EBITDA	H2 2023	Positive Core EBITDA in H2 2023	Q4 2023 “close to breakeven” Core EBITDA	Clarified to near-breakeven in Q4
Operating Cash Flow	H2 2023	Positive operating cash flow in H2 2023	Positive operating cash flow in Q4 2023	Maintained; specified Q4
HE Deposit Transfer to FCB	Late 2023	Transfer completed no later than end of 2023	Transfer expected on/around Dec 1, 2023	Timeline tightened/affirmed
Interchange Rate (HE)	Ongoing	Durbin-exempt expected to materially benefit interchange	~20 bps increase in interchange rates; HE interchange would have been ~50% higher gross in Q2–Q3 under Durbin-exempt	Quantified benefit
Product Rollouts	Q1 2024	Exploring AI, product upgrades	Cash-back rewards (Kard) and BMTX IDV fraud/identity services in Q1 2024	New initiatives set with timing

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2023)	Current Period (Q3 2023)	Trend
Durbin-Exempt Transition	Regulatory approval underway; targeted transfer by end-2023	Transfer on/around Dec 1; ~20 bps interchange uplift; ~50% higher HE interchange gross if in place in Q2–Q3	Execution nearing completion; revenue uplift imminent
Cost Actions (PEP)	Targeting ~$15M savings; ~50–60% achieved; variable servicing fee margins +150–175 bps	Core OpEx base ~15% lower YoY; third consecutive Core EBITDA improvement	Ongoing savings; margin tailwinds
Technology/AI Initiatives	Acquired Envel tech; unified platform plan; AI to automate finance	NetSuite implementation; automation; robust AI tools for productivity/fraud/customer service	Increasing operational leverage
Higher Education Momentum	98–99% retention; FAR disbursements seasonality; rising engagement	99% retention; $3.6B FAR; 85% QoQ sign-ups; higher deposits/spend per active account	Strengthening through peak season
BaaS Industry Backdrop	Extension of largest BaaS partnership; deposits rate-sensitive	Cautious stance; regulatory pressure; disintermediation risk; focus on niche, profitable use cases	Selective growth; de-emphasized near term

Management Commentary

“We expect the transfer will be completed on or around December 1st. Once complete, we will begin earning Durbin-exempt interchange rates… This is a critical milestone in significantly improving the Company’s operating revenues and profitability.” — Luvleen Sidhu, CEO .
“Q3 2023 represents the third sequential quarter of improvement in the Company's Core EBITDA results… With that update… the company expects close to breakeven core EBITDA and positive operating cash flow [in Q4].” — James Dullinger, CFO .
“We are convinced we want to double down on improving and growing our student business… We believe there is still tremendous untapped growth potential in this segment.” — Luvleen Sidhu .
“Beginning in the second quarter… servicing fee margins have improved by approximately 175 basis points… under the amended deposit servicing agreements.” — James Dullinger .
“Robust AI tools to improve employee productivity, fraud detection, and customer service.” — Company highlight on strategic growth initiatives .

Q&A Highlights

Capital allocation: Share buyback remains “on the table” for 2024; management leaning conservative given macro but focused on highest-return options for shareholders .
OpEx seasonality: Technology/processing costs increased sequentially due to peak transactional volumes in Q3 (return-to-school season), a normal variable component .
Deposits outlook: De-emphasizing rate-sensitive BaaS deposits; focus on HE ecosystem growth via product/technology upgrades with expected impact in back half of 2024 .
Core processing: 3-year extension after competitive RFP; no incremental cost expected from the renewal .
Product roadmap: Launching cash-back rewards program in Q1 2024 to address top customer ask and create rev-share; ID verification tool for universities to address enrollment fraud .

Estimates Context

S&P Global consensus estimates were unavailable for BMTX in our system at the time of analysis (missing Capital IQ mapping), so we cannot assess beats/misses versus Street expectations. As a result, estimate-based comparisons are not provided.

Key Takeaways for Investors

Near-term catalyst: The Durbin-exempt transfer around Dec 1 is poised to lift interchange economics materially in HE, supporting Q4/Q1 revenue momentum; monitor transactional spend as uplift flows through .
Improving profitability trajectory: Core EBITDA loss narrowed for the third consecutive quarter, with management guiding to near-breakeven Core EBITDA and positive operating cash flow in Q4 — a potential inflection .
Higher Education engagement strength: 85% QoQ sign-up growth and higher deposits/spend per active account underpin revenue resilience; product rollouts in Q1 2024 should aid retention and monetization .
Cost structure discipline: PEP delivering a ~15% YoY Core OpEx base reduction, with incremental savings expected into H1 2024; sustaining margin leverage despite seasonal OpEx variability .
BaaS prudence: Management is selective given regulatory headwinds and potential disintermediation; expect focus on niche, profitable use cases rather than scale-chasing .
Watch guidance execution: Confirm the FCB transfer timing, track Q4 Core EBITDA/OCF delivery, and validate early traction from Q1 2024 initiatives (cash-back, IDV); these are key stock-reaction drivers .
Estimates gap: With Street consensus unavailable in our system, price discovery may hinge more on qualitative catalysts and reported KPIs; reassess valuation once broader coverage resumes.

BM Technologies, Inc. (BMTX)·Q3 2023 Earnings Summary