MONEYLION INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF MONEYLION
Unless the context otherwise requires, all references in this section to "we,"
"us," "our," "Company" or "MoneyLion" refer to MoneyLion Technologies Inc. for
the periods prior to the Closing Date (as defined in our unaudited interim
financial statements) and to MoneyLion Inc. for the period thereafter. "Fusion"
refers to Fusion Acquisition Corp. for the periods prior to the Closing Date.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this Quarterly Report on Form
10-Q. Some of the information contained in this discussion and analysis includes
forward-looking statements that involve risks and uncertainties. You should
review the sections titled "Cautionary Note on Forward-Looking Statements" and
"Risk Factors" for a discussion of forward-looking statements and important
factors that could cause actual results to differ materially from the results
described in or implied by the forward-looking statements contained in the
following discussion and analysis.
Overview
MoneyLion offers a full-service digital financial platform (the "Platform") that provides convenient, low-cost access to banking, borrowing, and investing solutions tailored for our customers, rooted in data, and delivered through our proprietary technology platform. The Platform is based upon analytical models that power recommendations which are designed to help customers achieve their financial goals, ranging from building savings, improving credit health, and managing unexpected expenses. The Platform is delivered through a mobile application and an online dashboard.
The Company's key product offerings include:
Membership programs - We introduced the ML Plus membership in late 2017, allowing our customers to, among other things, access affordable credit through asset collateralization, build savings, improve financial literacy, and track their financial health. This program evolved into the Credit Builder Plus membership, introduced in 2019 and intended to emphasize the program's ability to help our customers build credit while also saving. We offer these programs directly to our customers. Members also receive access to premium mobile banking services, managed investment services, credit tracking services, rewards, and increased limits to interest-free Instacash advances. We earn revenue from monthly membership fees paid by our customers. These fees are reflected in membership subscription revenue. Secured personal loans - We provide our customers with access to Credit Builder Plus loans, personal term loans that are partially secured by the customers' assets maintained by ML Wealth and held at our third-party broker-dealer partner. These loans are provided directly byMoneyLion and accessed as part of the Credit Builder Plus Membership program and are not available on a standalone basis. In addition to a free standard disbursement option, we also offered our customers an option to disburse their funds to theirMoneyLion -serviced RoarMoney bank account or external bank account on an expedited basis for an instant transfer fee. This instant disbursement option for Credit Builder Plus loans was removed in the second quarter of 2021. We earn revenue from interest income, reflected in net interest income on finance receivables, and prior to the removal of the instant disbursement option, instant transfer fees, reflected in fee income. Instacash - We offer our customers access to Instacash, an interest-free advance product, which allows them to access funds based primarily on a percentage of income or other recurring income amounts detected through a linked external bank account or through direct deposit to their RoarMoney bank account. Instacash is provided directly byMoneyLion and is available to our customers on a standalone basis. While access to Instacash is free for our customers, we provide them the option to leave us a tip. In addition to a free standard disbursement option, we also offer our customers an option to disburse their funds to their RoarMoney bank account or external bank account on an expedited basis for an instant transfer fee. We earn revenue from tips and instant transfer fees, both reflected in fee income. 22 RoarMoney Premium Mobile Banking - Through our bank partnership with MetaBank, we provide our customers aFDIC -insured digital demand deposit account, which includes issuance of a physical and virtualMoneyLion -branded debit card with features such as up to two-day early direct deposit and rewards. Our RoarMoney account is available to our customers on a standalone basis. We earn revenue from interchange fees from payment networks based on customer expenditures on the debit card. We also earn revenue from cardholder fees such as a small monthly administrative fee charged to our customers and a fee charged to customers when an out-of-network ATM is utilized to withdraw cash. Both interchange fees and cardholder fees are reflected in fee income. We incur direct costs, which include fees paid to the payment networks and our partner bank.
Affiliate marketing program - We work with various affiliate partners that offer products or services that we may recommend to our customers via display ads, offers or campaigns through our digital platform. Our customers can access these offers on a standalone basis. We earn revenue from fees from our affiliate partners in exchange for meeting certain success metrics related to their campaigns such as customers' clicks, impressions or completed transactions. This revenue is reflected in affiliates income. Managed investing - Through our partnership with various third parties, we offer our customers automated investing tools with various diversified investment options tailored to their risk tolerance preferences. Our customers are also able to invest in thematic portfolios, such as ones focused on cash flow growth or innovation. Our managed investment account is available on a standalone basis. We earn revenue from a small monthly administration fee from our customerswho use this product, which is reflected in fee income. Cryptocurrency - Through our partnership with Zero Hash, we introduced a cryptocurrency offering on a limited basis in the third quarter of 2021, which was formally launched in early Q4 2021. This offering allows our customers to buy and sell digital currencies, which are limited at launch to Bitcoin and Ether. Under the terms of the partnership agreement,MoneyLion is not directly involved in any cryptocurrency transactions or the exchange of fiat funds for cryptocurrency taking place at or through Zero Hash. We earn revenue from Zero Hash as they pay us a share of the fees they earn from our customers in exchange forMoneyLion enabling Zero Hash to effect digital currency-related transactions for our customers. This revenue is reflected in fee income and is immaterial to revenue in the third quarter of 2021. Financial Tracking - We offer our customers access to financial tracking tools such as Financial Heartbeat® and credit score tracking. Financial Heartbeat is an intelligent, automated advice platform that guides customers on their financial journey. Financial Heartbeat evaluates customers' financial situation across four key dimensions: SAVE (savings and financial preparedness), SPEND (spending and personal budget), SHIELD (insurance needs and coverage) and SCORE (credit tracking and health). Customers can review the key issues impacting their financial situation, decide what actions to take, evaluate which products to use and receive guidance on how to stay motivated on their journey towards financial wellness. Financial tracking tools are offered to our customers at no cost and we do not earn revenue. Unsecured personal loans - Through our partnership with a third party as well as directly byMoneyLion , we offered unsecured personal loans to our customers of up to$15,000 . These loans were available on a standalone basis and their average duration was 13.4 months. The funding process for unsecured personal loans was the same as our Credit Builder Plus loans. While we do not provide a guarantee for the performance of loans and other receivables that we originate, we sell these loans and other receivables at a discount of approximately 10% to IIA. The credit policy for automated decisioning and manual reviews was developed and executed byMoneyLion . For loans made within our partnership with a third party, the credit policies were also reviewed and approved by the third party. We earn revenue from interest income, which is reflected in net interest income on finance receivables, and fees, which are reflected in fee income. We phased out this offering in the first quarter of 2020 and it is not expected to contribute to revenue going forward. Credit-related decision servicing -MoneyLion provided credit-related decision servicing to third parties. We earned revenue from fees generated from this service. These fees are reflected in fee income. We phased out this offering in the first quarter of 2020 and it is not expected to contribute to revenue going forward.
Receivables originated on our platform are currently financed through IIA. IIA was formed in 2016 and is an indirect wholly owned subsidiary ofMoneyLion Inc. As ofDecember 31, 2020 , IIA had assets of approximately$86 million , primarily from institutional investors, and has been our primary source of funding for originated receivables since 2018. IIA is organized as aDelaware limited liability company and is treated as a partnership forUnited States income tax purposes. IIA's membership interests are issued in separately designated series, with each series consisting of Class A Units and ClassB Units . IIA investors own all non-voting ClassB Units of the applicable series they invest in, which entitles them to a targeted, non-guaranteed, preferred return of typically 12% per year. ML Capital III, an indirect wholly ownedMoneyLion subsidiary, is the managing member of IIA and owns the Class A Units of each series, which entitles ML Capital III to returns that exceed the targeted preferred return on the ClassB Units . IIA uses proceeds from the sale of ClassB Units to investors to purchase borrower payment dependent promissory notes from Invest inAmerica Notes I SPV LLC and Invest inAmerica Notes SPV IV LLC , each an indirect wholly ownedMoneyLion subsidiary. The collateral consists of a portfolio of underlyingMoneyLion loans and advance receivables. Investors in ClassB Units fund their investment into IIA at the time of subscription, which proceeds are used to finance receivables originated onMoneyLion's platform. 23 Recent Developments
Recent events impacting our business are as follows:
COVID-19 - InMarch 2020 , theWorld Health Organization recognized a global pandemic known as the coronavirus or COVID-19. Due to the economic uncertainty that this has and can continue to cause, there is an added risk factor in the overall future outlook of the Company. In response to the economic uncertainty caused by the pandemic, we made certain operational changes, including reductions to our marketing activities such as advertising through digital platforms, that have since returned to pre-pandemic levels. We also reduced our sponsorship arrangements with third parties. We implemented underwriting policy changes on a targeted basis as pockets of risk and opportunity had been identified, to more closely manage credit risk while we further evaluated market conditions. Our underwriting models are dynamic relative to real time changes in our customer's income and credit profiles and our credit performance remained steady as our underwriting models quickly adapted to these changes. To further support our customers, we expanded our payment deferral options and reduced certain fees, while providing them with relevant content and resources on topics like unemployment insurance and stimulus checks. For our secured personal loan customers with no prior missed payments, we offer payment deferrals based on a customer's payment frequency, ranging from one payment deferral for monthly payments and up to three payment deferrals for weekly payments. For our Instacash customers with an outstanding advance, we allow them to change the scheduled repayment date by up to 14 days. Once the advance is repaid, the customer could request another change to scheduled repayment on another salary advance. While there is no limit to the number of changes a customer may be granted, they are limited to one at a time and per salary advance. These programs are immaterial to our performance. While there has been an increase in economic uncertainty due to the pandemic, there was an uptick in the number of customers on our platform in the second quarter of 2020 due to factors including government-initiated lockdowns and temporary or continued closure of local branches of many banks and credit unions. We expect this trend to continue although the rate of customer acquisition as a result of COVID-19 may be slower. InApril 2020 , the Company borrowed$3.2 million from a bank under the SBA's Paycheck Protection Program introduced as part of theU.S. Government's COVID-19 relief efforts (the "PPP Loan"). InJune 2021 , the SBA approved the Company's application for forgiveness with respect to the entire outstanding balance
of the PPP Loan.
Management will continue to monitor the nature and extent of potential impact to the business as the pandemic continues.
Business Combinations - DuringDecember 2020 , we acquiredWealth Technologies, Inc. ("WTI"). Additionally, we merged withFusion Acquisition Corp. ("Fusion") onSeptember 22, 2021 . See below for further discussion.
? WTI Acquisition - In
outstanding common stock and Series A redeemable convertible preferred shares
of
Series C-1 Redeemable Convertible Preferred Stock, resulting in total
consideration of approximately
specializing in market-leading wealth management decisioning and
administration. The co-founder and equity holder of WTI was also a significant
stockholder of Series A redeemable convertible preferred stock of Legacy
the date of the transaction. The purchase price has been allocated to the
assets acquired and liabilities assumed based upon their respective fair market
values. The excess of the aggregate purchase price over the fair values of the
net assets acquired was recognized as goodwill of approximately
? Merger with Fusion - On
and became a publicly traded company. The Business Combination was accounted
for as a reverse recapitalization in accordance with
Legacy
Business Combination was accounted for as a reverse recapitalization, no
goodwill or other intangible assets were recorded, in accordance with
GAAP. Under this method of accounting, Fusion was treated as the "acquired"
company for financial reporting purposes. Operations prior to the Business
Combination are those of Legacy MoneyLion. See Note 3 to our unaudited interim
financial statements for additional information.
Factors Affecting Our Performance
The Company is subject to a number of risks including, but not limited to, the need for successful development of products, the need for additional capital (or financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary technology, dependence on key individuals, and risks associated with changes in information technology.
New customer growth and increasing usage across existing customers
Our ability to effectively acquire new customers through our acquisition and marketing efforts, and drive usage of our products across our existing customers is key to our growth. We invested in the platform approach and believe our customers' experience is enhanced by using our full product suite as we can better tailor the insights and recommendations. In turn, this generates higher revenue and lifetime value from our customer base.
Product expansion and innovation
We believe in the platform approach and providing relevant products to our
customers to help them better manage their financial lives, both in times of
need and excess. We will continue to invest in enhancing our existing suite of
products and developing new products. Any factors that impair our ability to do
so may negatively impact our efforts towards retaining and attracting customers.
24
General economic and market conditions
Our performance is impacted by the relative strength of the overall economy, market volatility, consumer spending behavior, and consumer demand for financial products and services. The willingness of our customers to spend, invest, or borrow may fluctuate with their level of disposable income. Other factors such as interest rate fluctuations or monetary policies may also impact our customers' behavior and our own ability to fund loan volume. Competition We compete with several larger financial institutions and technology platforms that offer similar products and services. We compete with those that offer both single point solutions similar to any one of our products as well as more integrated, complete solutions. Some of our competitors may have access to more resources than we do and thus may be able to offer better pricing or benefits to our customers. Pricing of our products We derive a substantial portion of our revenue from fees earned from our products. The fees we earn are subject to a variety of external factors such as competition, interchange rates and other macroeconomic factors, such as interest rates and inflation, among others. We may provide discounts to customerswho utilize multiple products to expand usage of our platform. We may also lower pricing on our products to acquire new customers. For example, we offer our customers discounts such as Shake 'N' Bank cashback and other cashback rewards opportunities as part of our RoarMoney bank account product offering and such discounts are provided to customers based on eligibleMoneyLion debit card transactions. On average, approximately 50% of our eligible RoarMoney bank account customers receive this benefit. We also offer our Credit Builder Plus members access to our Lion's Share Loyalty Program where members can earn up to$19.99 per month. The size of the Lion's Share reward depends on a customer's number of logins into theMoneyLion app and purchases using their RoarMoney account in that month. On average, approximately 40% of our Credit Builder Plus memberswho met the minimum eligibility criteria received a Lion's Share reward. Product mix We provide various products and services on our platform, including a membership program, loans, earned income advances, investment and bank accounts, and each product has a different profitability profile. The relative usage of products with high or low profitability and their lifetime value could have an impact on our performance.
Access and cost of financing
Our credit products and other receivables are currently financed through IIA and associated special purpose vehicles. Loss of one or more of the financing sources we have for our credit products and other receivables could have an adverse impact on our performance, and it could be costly to obtain new financing.
Key Performance Metrics We regularly review several metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Total Originations We define total originations as the dollar volume of the secured personal loans originated and Instacash advances funded within the stated period. We consider total originations to be a key performance metric as it can be used to measure the usage and engagement of the customers across our secured personal lending and Instacash products and is a significant driver of net interest income on finance receivables and fee income. Total originations were$274 million and$117 million for the three months endedSeptember 30, 2021 and 2020, respectively. Total originations were$700 million and$255 million for the nine months endedSeptember 30, 2021 and 2020, respectively, and were originated
directly byMoneyLion . Total Customers
We define total customers as those customers that have opened at least one account, including banking, membership subscription, secured personal loan, Instacash advance, managed investment account, cryptocurrency account or affiliate product. We consider total customers to be a key performance metric as it can be used to understand lifecycle efforts of our customers, as we look to cross sell products to our customer base and grow our platform. Total customers were 2.7 million and 1.2 million as ofSeptember 30, 2021 and 2020, respectively. For the years endedDecember 31, 2020 and 2019, approximately 33% and 46%, respectively, of our total customers that have opened a banking or managed investment account have funded accounts. For the years endedDecember 31, 2020 and 2019, approximately 53% and 57%, respectively, of our total customers have engaged in any activity on our platform. 25 Total Products We define total products as the total number of products that our total customers have opened including banking, membership subscription, secured personal loan, Instacash advance, managed investment account, cryptocurrency account, affiliate product, or signed up for our financial tracking services (with either credit tracking enabled or external linked accounts), whether or not the customer is still registered for the product. If a customer has funded multiple secured personal loans or Instacash advances, it is only counted once for each product type. We consider total products to be a key performance metric as it can be used to understand the usage of our products across our customer base. Total products were 6.9 million and 4.0 million as ofSeptember 30, 2021 and 2020, respectively. Adjusted Revenue Adjusted revenue is defined as total revenues, net, plus amortization of loan origination costs less provision for loss on membership receivables, provision for loss on fees receivables, revenue from products that have been phased out, and non-operating income. We believe that adjusted revenue provides a meaningful understanding of revenue from ongoing products and recurring revenue for comparability purposes. Adjusted revenue is a non-GAAP measure and should not be viewed as a substitute for total revenues, net. Refer to the "Non-GAAP Measures" section below for further discussion.
Our adjusted revenue is further broken into the following categories:
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands) (in thousands)
Fees $ 32,841 $ 15,427 $ 86,392 $ 40,495
Payments 2,990 1,434 10,450 4,505
Advice 3,394 719 7,208 1,957
Interest 2,755 1,581 6,886 3,645
Adjusted Revenue $ 41,979 $ 19,160 $ 110,935 $ 50,603
This breakdown of adjusted revenue across the categories of fees, payments,
advice, and interest helps provide our management with a better understanding of
adjusted revenue by type and may help to inform strategic pricing and resource
allocations across our products.
Adjusted Gross Profit
Adjusted gross profit is defined as gross profit less revenue derived from
products that have been phased out and non-operating income. We believe that
adjusted gross profit provides a meaningful understanding of one aspect of
profitability based on our current product portfolio. Adjusted gross profit is a
non-GAAP measure and should not be viewed as a substitute for gross profit
(loss). Refer to the "Non-GAAP Measures" section below for further discussion.
26
Results of Operations for the Three Months and Nine Months Ended
The following table is reference for the discussion that follows.
Three Months Ended
September 30, Change Nine Months Ended September 30, Change
2021 2020 $ % 2021 2020 $ %
(in thousands, except for percentages) (in thousands, except for percentages)Revenue Net interest income on finance receivables$ 2,293 $ 1,654 $ 639 38.6 %$ 5,716 $ 3,617$ 2,099 58.0 % Membership subscription revenue 8,347 8,435 (88 ) -1.0 % 23,709 22,778 931 4.1 % Affiliates income 3,175 518 2,657 512.9 % 6,444 1,368 5,076 371.1 % Fee income 30,402 12,471 17,931 143.8 % 79,659 28,924 50,735 175.4 % Other income 3 39 (36 ) -92.3 % 21 174 (153 ) -87.9 % Total Revenues, net 44,220 23,117 21,103 91.3 % 115,549 56,861 58,688 103.2 % Operating expenses Marketing 13,531 2,921 10,610 363.2 % 27,060 7,404 19,656 265.5 % Provision for loss on receivables 15,238 10,456 4,782 45.7 % 36,644 14,587 22,057 151.2 % Other direct costs 1,828 1,183 645 54.5 % 6,983 3,137 3,846 122.6 % Interest expense 1,627 865 762 88.1 % 4,947 2,316 2,631 113.6 % Personnel expenses 15,483 4,672 10,811 231.4 % 30,736 15,704 15,032 95.7 % Underwriting expenses 2,158 1,137 1,021 89.8 % 5,702 4,553 1,149 25.2 % Information technology expenses 1,195 1,725 (530 ) -30.7 % 5,009 5,089 (80 ) -1.6 % Bank and payment processor fees 6,770 3,697 3,073 83.1 % 18,526 8,987 9,539 106.1 % Change in fair value of warrant liability (6,551 ) (228 ) (6,323 ) - 42,239 (228 ) 42,467 - Change in fair value of subordinated convertible notes - - - - 49,561 - 49,561 - Professional fees 4,678 1,879 2,799 149.0 % 12,715 4,516 8,199 181.6 % Depreciation expense 486 286 200 69.9 % 1,502 811 691 85.2 % Occupancy expense (46 ) 314 (360 ) -114.6 % 719 913 (194 ) -21.2 % Gain on foreign currency translation (135 ) (43 ) (92 ) 214.0 % (178 ) (155 ) (23 ) 14.8 % Other operating expenses 8,242 (257 ) 8,499 - 6,221 393 5,828 1483.0 % Total operating expenses 64,504 28,607 35,897 125.5 % 248,386 68,027 180,359 265.1 % Net loss before income taxes (20,284 ) (5,490 ) (14,794 ) 269.5 % (132,837 ) (11,166 ) (121,671 ) 1089.7 % Income tax benefit (1 ) - (1 ) - 41 (13 ) 54 -415.4 % Net loss$ (20,283 ) $ (5,490 ) $ (14,793 ) 269.5 %$ (132,878 ) $ (11,153 ) $ (121,725 ) 1091.4 % Revenues
We generate revenues primarily from originating loans, providing membership subscriptions, various product related fees and promoting affiliate services.
Total revenues increased by$21.1 million , or 91.3%, to$44.2 million for the three months endedSeptember 30, 2021 , as compared to$23.1 million for the
same period in 2020.
Total revenues increased by$58.7 million , or 103.2%, to$115.5 million for the nine months endedSeptember 30, 2021 , as compared to$56.9 million for the
same period in 2020.
Net Interest Income on Finance Receivables
Net interest income on finance receivables increased by$0.6 million , or 38.6%, to$2.3 million , for the three months endedSeptember 30, 2021 , as compared to$1.7 million for the same period in 2020. Net interest income on finance receivables increased by$2.1 million , or 58.0%, to$5.7 million , for the nine months endedSeptember 30, 2021 , as compared to$3.6 million for the same period in 2020. Net interest income on finance receivables is generated by interest earned on unsecured personal loans, ML Plus loans, and Credit Builder Plus loans, which is offset by the amortization of loan origination costs. 27
Net interest income on finance receivables is comprised of the following:
Credit Builder Plus loans
Net interest income related to Credit Builder Plus loans increased by$1.4 million to$2.8 million for the three months endedSeptember 30, 2021 , as compared to$1.4 million for the same period in 2020. The increase is largely attributable to the growth of Credit Builder Plus loans, across both existing and new customers.
Net interest income related to Credit Builder Plus loans increased by$4.2 million to$6.9 million for the nine months endedSeptember 30, 2021 , as compared to$2.7 million for the same period in 2020. We launched Credit Builder Plus in 2019 and it became our only secured personal loan product in the second quarter of 2020 as we transitioned from ML Plus loans, which contributed to the increase in net interest income as Credit Builder Plus loans increased across both existing and new customers. ML Plus loans Net interest income related to ML Plus loans decreased by$0.2 million to$0.0 million for the three months endedSeptember 30, 2021 , as compared to$0.2 million for the same period in 2020. We transitioned from originating ML Plus loans in the second quarter of 2020 as we offered our new and existing customers our Credit Builder Plus loans. Net interest income related to ML Plus loans decreased by$1.0 million to$0.0 million for the nine months endedSeptember 30, 2021 , as compared to$1.0 million for the same period in 2020. We transitioned from originating ML Plus loans in the second quarter of 2020 as we offered our new and existing customers our Credit Builder Plus loans. Therefore, these loans are immaterial to our ongoing performance as they represent less than 1% of receivables on our consolidated balance sheets. Unsecured personal loans
Net interest income related to unsecured personal loans decreased by
Net interest income related to unsecured personal loans decreased by$1.5 million to$(0.1) million for the nine months endedSeptember 30, 2021 , as compared to$1.3 million for the same period in 2020. During the first quarter of 2020, we phased out originating unsecured personal loans. Therefore, these loans are immaterial to our ongoing performance as they represent less than 1% of receivables on our consolidated balance sheets. The amortization of loan origination costs increased by$0.3 million , or 124.5%, to$0.5 million for the three months endedSeptember 30, 2021 , as compared to$0.2 million for the same period in 2020. The amortization of loan origination costs decreased by$0.3 million , or 23.8%, to$1.0 million for the nine months endedSeptember 30, 2021 , as compared to$1.4 million for the same period in 2020.
Membership Subscription Revenue
Membership subscription revenue decreased by
Membership subscription revenue increased by$0.9 million , or 4.1%, to$23.7 million , for the nine months endedSeptember 30, 2021 , as compared to$22.8 million for the same period in 2020 due to an increasing number of customers using the Credit Builder Plus membership program. This was slightly offset by a lower monthly membership fee charged to customers as we still offered the higher priced ML Plus membership in the first and second quarter of 2020, and a non-recurring adjustment of$1.8 million in the third quarter of 2020. Revenue would have increased$2.7 million during this period excluding this adjustment. Affiliates Income Affiliates income increased by$2.7 million , or 512.9%, to$3.2 million , for the three months endedSeptember 30, 2021 , as compared to$0.5 million for the same period in 2020. This increase was primarily attributable to an increase in income generated from running campaigns promoting various affiliate partners through our digital platform. Affiliates income increased by$5.1 million , or 371.1%, to$6.4 million , for the nine months endedSeptember 30, 2021 , as compared to$1.4 million for the same period in 2020. This increase was primarily attributable to an increase in income generated from running campaigns promoting various affiliate partners through our digital platform. Fee Income
Fee income increased by
28
Fee income increased by
Fee income is primarily comprised of the following:
Instant transfer fees Fee income related to instant transfer fees on Instacash, Credit Builder Plus loans and ML Plus loans increased by$13.8 million to$21.2 million , for the three months endedSeptember 30, 2021 , as compared to$7.5 million for the same period in 2020. The increase is largely attributable to the growth of Instacash advances, across both existing and new customers. We launched the instant transfer disbursement option for Instacash customers in 2019 and have since seen a consistent percentage of our Instacash customers elect this disbursement option. This was slightly offset by the decrease in instant transfer fees on Credit Builder Plus loans as beginning in Q2 2021, the instant transfer disbursement option was removed for Credit Builder Plus loans. Fee income related to instant transfer fees on Instacash, Credit Builder Plus loans and ML Plus loans increased by$37.3 million to$52.7 million , for the nine months endedSeptember 30, 2021 , as compared to$15.3 million for the same period in 2020. The increase is largely attributable to the growth of Instacash advances, across both existing and new customers. We launched the instant transfer disbursement option for Instacash customers in 2019 and have since seen a consistent percentage of our Instacash customers elect this disbursement option. This was slightly offset by the decrease in instant transfer fees on Credit Builder Plus loans as beginning in Q2 2021, the instant transfer disbursement option was removed for Credit Builder Plus loans. Tips
Fee income related to tips from Instacash increased by
Fee income related to tips from Instacash increased by$8.1 million to$15.8 million , for the nine months endedSeptember 30, 2021 , as compared to$7.7 million for the same period in 2020. This increase was driven by the growth of Instacash advances, across both existing and new customers. Interchange fees Fee income related to interchange fees from our bank account increased by$1.2 million to$2.3 million , for the three months endedSeptember 30, 2021 , as compared to$1.2 million for the same period in 2020. This increase was driven by an increase in bank account customers. Fee income related to interchange fees from our bank account increased by$5.0 million to$8.7 million , for the nine months endedSeptember 30, 2021 , as compared to$3.7 million for the same period in 2020. This increase was driven by an increase in bank account customers. Cardholder fees Fee income related to cardholder fees from our bank account increased by$0.4 million to$0.7 million , for the three months endedSeptember 30, 2021 , as compared to$0.3 million for the same period in 2020. This increase was primarily driven by a small monthly administration fee that we began charging our bank account customers in the third quarter of 2020 as well as an increase in bank account customers. Fee income related to cardholder fees from our bank account increased by$1.0 million to$1.8 million , for the nine months endedSeptember 30, 2021 , as compared to$0.8 million for the same period in 2020. This increase was primarily driven by a small monthly administration fee that we began charging our bank account customers in the third quarter of 2020 as well as an increase in bank account customers. Administration fees Fee income related to administration fees from our managed investment account increased by$0.0 million to$0.2 million , for the three months endedSeptember 30, 2021 , as compared to$0.2 million for the same period in 2020. 29 Fee income related to administration fees from our managed investment account increased by$0.2 million to$0.7 million , for the nine months endedSeptember 30, 2021 , as compared to$0.5 million for the same period in 2020. We charge our investment account customers a small administration fee, which we transitioned from a quarterly to monthly frequency, while holding the fee amount the same, in the fourth quarter of 2020.
Credit-related decision services fees
Fee income related to credit-related decision services decreased to zero, for the three months endedSeptember 30, 2021 , as compared to$0.0 million for
same period in 2020. Fee income related to credit-related decision services decreased to zero, for the nine months endedSeptember 30, 2021 , as compared to$0.7 million for same period in 2020.
These decreases in revenue are due to the phasing out of this offering in the first quarter of 2020. We do not expect this to contribute to revenue going forward.
Operating Expenses
Our operating expenses consist of the following:
Marketing Marketing increased by$10.6 million , or 363.2% to$13.5 million for the three months endedSeptember 30, 2021 , as compared to$2.9 million for the same period in 2020. This increase resulted primarily from an increase in costs related to advertising through digital platforms of$9.3 million and other marketing related activities of$1.6 million , offset by a decrease in costs related to sponsor agreements with third parties of$0.3 million . Marketing costs also included$0.8 million in the third quarter of 2021 related to the Business Combination. Marketing increased by$19.7 million , 265.5%, to$27.1 million for the nine months endedSeptember 30, 2021 , as compared to$7.4 million for the same period in 2020. This increase resulted primarily from an increase in costs related to advertising through digital platforms of$16.0 million , sponsor agreements with third parties of$0.2 million and other marketing related activities of$3.5 million . Marketing costs also included$1.1 million in the nine months endedSeptember 30, 2021 , related to the Business Combination.
Provision for loss on receivables
Provision for loss on receivables increased by$4.8 million , or 45.7%, to$15.2 million for the three months endedSeptember 30, 2021 , as compared to$10.5 million for the same period in 2020. This increase resulted primarily from an increase to provision related to Instacash principal receivables of$3.7 million , Instacash instant transfer fees and tips of$1.2 million and Credit Builder Plus loan receivables of$0.0 million , both evidenced by the increase in total originations from$117 million for the three months endedSeptember 30, 2020 compared to$274 million for the same period in 2021. Provision related to membership fees decreased by$2.3 million due to a non-recurring adjustment of$2.3 million in the third quarter of 2020. Provision related to membership fees would have decreased$0.0 million during this period excluding this adjustment. Related to the ML Plus loans, a legacy product we transitioned from in the second quarter of 2020, the provision increased by$2.2 million , from$(2.5) million in the three months endedSeptember 30, 2020 compared to$(0.3) million for the same period in 2021.
Provision for loss on receivables increased by$22.1 million , or 151.2%, to$36.6 million for the nine months endedSeptember 30, 2021 , as compared to$14.6 million for the same period in 2020. This increase resulted primarily from an increase to provision related to Instacash of$18.4 million , Instacash instant transfer fees and tips of$2.9 million and Credit Builder Plus loan receivables of$1.1 million , both evidenced by the increase in total originations from$255 million for the nine months endedSeptember 30, 2020 compared to$700 million for the same period in 2021. Related to the ML Plus loans, a legacy product we transitioned from in the second quarter of 2020, the provision increased by$2.2 million , from$(3.1) million in the nine months endedSeptember 30, 2020 compared to$(0.9) million for the same period in 2021. These increases were offset by a decrease in provision related to membership fees of$2.5 million due to a non-recurring adjustment of$2.3 million in the third quarter of 2020. Provision related to membership fees would have decreased$0.1 million during this period excluding this adjustment. 30 Provision for loss on receivables consists of amounts charged during the period to maintain an allowance for credit losses. The allowance represents management's estimate of the credit losses in our loan portfolio and is based on management's assessment of many factors, including changes in the nature, volume, and risk characteristics of the finance receivables portfolio, including trends in delinquency and charge-offs and current economic conditions that may affect the borrower's ability to pay. Other direct costs
Other direct costs increased by$0.6 million , or 54.5%, to$1.8 million for the three months endedSeptember 30, 2021 , as compared to$1.2 million for the same period in 2020. This increase resulted from an increase in costs related to our bank account offering, paid to our partner bank, card associations and third-party service providers, which is largely driven by the increase in bank account customers. Other direct costs increased by$3.8 million , or 122.6%, to$7.0 million for the nine months endedSeptember 30, 2021 , as compared to$3.1 million for the same period in 2020. This increase resulted from an increase in costs related to our bank account offering, paid to our partner bank, card associations and third-party service providers, which is largely driven by the increase in bank account customers. Interest expense Interest expense increased by$0.8 million , or 88.1%, to$1.6 million for the three months endedSeptember 30, 2021 , as compared to$0.9 million for the same period in 2020. This increase resulted from an increase in interest expense incurred related to our debt. Interest expense increased by$2.6 million , or 113.6%, to$4.9 million for the nine months endedSeptember 30, 2021 , as compared to$2.3 million for the same period in 2020. This increase resulted from an increase in interest expense incurred related to our debt. Personnel expenses Personnel expense increased by$10.8 million , or 231.4%, to$15.5 million for the three months endedSeptember 30, 2021 , as compared to$4.7 million for the same period in 2020. This increase resulted from an increase in personnel related costs of$10.6 million , including$6.3 million in non-recurring, discretionary incentive bonus expense related to the Business Combination, and stock-based compensation of$0.2 million . Personnel expense increased by$15.0 million , or 95.7%, to$30.7 million for the nine months endedSeptember 30, 2021 , as compared to$15.7 million for the same period in 2020. This increase resulted from an increase in personnel related costs of$13.7 million , including$6.3 million in non-recurring, discretionary incentive bonus expense related to the Business Combination, and stock-based compensation of$1.3 million . Underwriting expenses Underwriting expense increased by$1.0 million , or 89.8%, to$2.2 million for the three months endedSeptember 30, 2021 , as compared to$1.1 million for the same period in 2020. This increase resulted primarily from an increase in data costs and administrative fees for total originations. Underwriting expense increased by$1.1 million , or 25.2%, to$5.7 million for the nine months endedSeptember 30, 2021 , as compared to$4.6 million for the same period in 2020. This increase resulted primarily from an increase in data costs for total originations. IT expenses IT expense decreased by$0.5 million , or 30.7%, to$1.2 million for the three months endedSeptember 30, 2021 , as compared to$1.7 million for the same period in 2020. This decrease resulted primarily from a decrease in software licenses and subscriptions of$0.8 million , which includes a non-recurring adjustment of$1.0 million in the third quarter of 2021. IT expense would have increased by$0.5 million during this period excluding this adjustment. This was offset by an increase in internet hosting expenses of$0.3 million . 31
IT expense decreased by$0.1 million , or 1.6%, to$5.0 million for the nine months endedSeptember 30, 2021 , as compared to$5.1 million for the same period in 2020. This decrease resulted primarily from a decrease in software licenses and subscriptions of$0.6 million , which includes a non-recurring adjustment of$1.0 million in the third quarter of 2021. IT expense would have increased by$0.9 million during this period excluding this adjustment. This was offset by an increase in internet hosting expenses of$0.5 million .
Bank and payment processor fees
Bank and payment processor fees increased by$3.1 million , or 83.1%, to$6.8 million for the three months endedSeptember 30, 2021 , as compared to$3.7 million for the same period in 2020. This increase resulted primarily from an increase in payment processing fees driven by the growth in total originations and total customers. Bank and payment processor fees increased by$9.5 million , or 106.1%, to$18.5 million for the nine months endedSeptember 30, 2021 , as compared to$9.0 million for the same period in 2020. This increase resulted primarily from an increase in payment processing fees driven by the growth in total originations and total customers.
Change in fair value of warrant liability
Change in fair value of warrant liability was
Change in fair value of warrant liability was$42.2 million for the nine months endedSeptember 30, 2021 , as compared to$(0.2) million for the same period
in 2020.
Change in fair value of subordinated convertible notes
Change in fair value of subordinated convertible notes was zero for the three months endedSeptember 30, 2021 , as compared to zero for the same period in 2020. The Subordinated Convertible Notes were converted into common stock immediately prior to the Closing of the Business Combination, and the noteholders subsequently received shares of MoneyLion Class A common stock ("MoneyLion Common Stock" or "MoneyLion Class A Common Stock") upon the Closing of the Business Combination. Change in fair value of subordinated convertible notes was$49.6 million for the nine months endedSeptember 30, 2021 , as compared to zero for the same period in 2020. This resulted from the issuance of the convertible subordinated notes inDecember 2020 andJanuary 2021 , which were converted into common stock immediately prior to the Closing of the Business Combination, and the noteholders subsequently received shares of MoneyLion Class A Common Stock upon the Closing of the Business Combination. Professional fees
Professional fees increased by$2.8 million , or 149.0%, to$4.7 million for the three months endedSeptember 30, 2021 , as compared to$1.9 million for the same period in 2020. This increase resulted primarily from an increase in fees related to accounting or consulting services of$1.6 million and legal services of$1.2 million , resulting in part from supplemental accounting and legal support related to the Business Combination. Professional fees increased by$8.2 million , or 181.6%, to$12.7 million for the nine months endedSeptember 30, 2021 , as compared to$4.5 million for the same period in 2020. This increase resulted primarily from an increase in fees related to accounting or consulting services of$5.5 million and legal services of$2.7 million , resulting in part from supplemental accounting and legal support related to the Business Combination. Other Operating Expenses
Other operating expenses increased by$8.5 million to$8.2 million for the three months endedSeptember 30, 2021 , as compared to$(0.3) million for the same period in 2020. The increase is driven by$5.3 million in losses for unrecovered customer purchase transactions related to our banking product,$1.5 million related to a reserve for costs related to ongoing legal matters,$0.8 million insurance expenses and other general operating expenses. Other operating expenses increased by$5.8 million to$6.2 million for the nine months endedSeptember 30, 2021 , as compared to$0.4 million for the same period in 2020. The increase is driven by$5.3 million in losses for unrecovered customer purchase transactions related to our banking product,$1.8 million related to a reserve for costs related to ongoing legal matters,$0.8 million insurance expenses and other general operating expenses. This is offset by the gain related to the forgiveness of loans of$3.2 million as the SBA approved the Company's application for forgiveness with respect to the entire outstanding balance of the PPP loan in the second quarter of 2021. 32 Non-GAAP Measures
In addition to total revenues, net, and net income (loss) and gross profit, which are measures presented in accordance withU.S. GAAP, management believes that adjusted revenue and adjusted gross profit provide relevant and useful information which is widely used by analysts, investors, and competitors in our industry in assessing performance. Adjusted revenue and adjusted gross profit are supplemental measures ofMoneyLion's performance that are neither required by nor presented in accordance withU.S. GAAP. Adjusted revenue and adjusted gross profit should not be considered as substitutes forU.S. GAAP metrics such as total revenues, net, net income (loss), gross profit or any other performance measures derived in accordance withU.S. GAAP and may not be comparable to similar measures used by other companies. We define adjusted revenue as total revenues, net plus amortization of loan origination costs less provision for loss on membership receivables, provision for loss on fees receivables, revenue from products that have been phased out, and non-operating income. We believe that adjusted revenue provides a meaningful understanding of revenue from ongoing products and recurring revenue for comparability purposes.
We define adjusted gross profit as gross profit less revenue derived from products that have been phased out, and non-operating income. We believe that adjusted gross profit provides a meaningful understanding of one aspect of profitability based on our current product portfolio.
Adjusted revenue and adjusted gross profit are useful to an investor in evaluating our performance because these measures:
? Are widely used by investors to measure a company's operating performance;
? Are metrics used by rating agencies, lenders and other parties to evaluate our
credit worthiness; and
? Are used by our management for various purposes, including as measures of
performance and as a basis for strategic planning and forecasting.
The reconciliation of total revenues, net to adjusted revenue for the three and
nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Total revenues, net $ 44,220 $ 23,117 $ 115,549 $ 56,861
Add back:
Amortization of loan origination
costs(1) 464 207 1,039 1,364
Less:
Provision for loss on receivables - membership receivables (2) (1,025 ) (3,355 ) (2,204 ) (4,713 ) Provision for loss on receivables - fees receivables (3) (1,671 ) (479 ) (3,563 ) (632 ) Revenue derived from products that have been phased out(4) (6 ) (311 ) 119 (2,167 ) Non-operating income(5) (3 ) (18 ) (6 ) (112 ) Adjusted Revenue$ 41,979 $ 19,160 $ 110,935 $ 50,603
(1) Amortization of loan origination costs are included within net interest
income from finance receivables.
(2) We deduct provision for loss on receivables related to membership receivables
from total revenues, net as they are related to revenue-based receivables.
For
to membership receivables is included within provision for loss on
receivables on the statement of operations. Refer to the "Critical Accounting
Policies" section below for further discussion.
(3) We deduct provision for loss on receivables related to fees receivables from
total revenues, net as they are related to revenue-based receivables. For
fees receivables is included within provision for loss on receivables on the
statement of operations. Refer to the "Critical Accounting Policies" section
below for further discussion.
(4) Revenue derived from products that have been phased out includes net interest
income and fees related to unsecured personal loans, included within net
interest income from finance receivables and fee income, and credit-related
decision servicing fees, included within fee income. Revenue from unsecured
personal loans was
loans was
30, 2021 and 2020, respectively. Revenue from credit-related decision
servicing was zero and
2021 and 2020, respectively. Revenue from credit-related decision servicing
was zero and
2020, respectively.
(5) Non-operating income is included within other income and consists of interest
income earned on cash balances and is considered non-operating.
33
The reconciliation of gross profit, which is prepared in accordance with U.S.
GAAP, to adjusted gross profit for the three and nine months ended September 30,
2021 and 2020 is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands) (in thousands)
Total revenue, net $ 44,220 $ 23,117 $ 115,549 $ 56,861
Less:
Cost of SalesBank and payment processor fees (6,770 ) (3,697 ) (18,526 ) (8,987 ) Underwriting expenses (2,158 ) (1,137 ) (5,702 ) (4,553 ) Provision for loss on receivables - membership receivables (1) (1,025 ) (3,355 ) (2,204 ) (4,713 ) Provision for loss on receivables - fees receivables (2) (1,671 ) (479 ) (3,563 ) (632 ) IT expenses (1,633 ) (1,294 ) (4,493 ) (3,817 ) Professional fees (978 ) (632 ) (2,460 ) (2,037 ) Personnel expenses (1,015 ) (815 ) (2,805 ) (2,662 ) Other direct costs (1,828 ) (1,183 ) (6,983 ) (3,137 )
Other operating (income) expenses (184 ) 419 (285 ) 337 Gross Profit$ 26,960 $ 10,944 $ 68,529 $ 26,662 Less: Revenue derived from products that have been phased out(3) (6 ) (311 ) 119 (2,167 ) Non-operating income(4) (3 ) (18 ) (6 ) (112 ) Adjusted Gross Profit$ 26,951 $ 10,614 $ 68,643 $ 24,383
(1) We deduct provision for loss on receivables related to membership receivables
from total revenues, net as they are related to revenue-based receivables.
For
to membership receivables is included within provision for loss on
receivables on the statement of operations. Refer to the "Critical Accounting
Policies" section below for further discussion.
(2) We deduct provision for loss on receivables related to fees receivables from
total revenues, net as they are related to revenue-based receivables. For
fees receivables is included within provision for loss on receivables on the
statement of operations. Refer to the "Critical Accounting Policies" section
below for further discussion.
(3) Revenue derived from products that have been phased out includes net interest
income and fees related to unsecured personal loans, included within net
interest income from finance receivables and fee income, and credit-related
decision servicing fees, included within fee income. Revenue from unsecured
personal loans was
loans was
30, 2021 and 2020, respectively. Revenue from credit-related decision
servicing was zero and
2021 and 2020, respectively. Revenue from credit-related decision servicing
was zero and
2020, respectively.
(4) Non-operating income is included within other income and consists of interest
income earned on cash balances and is considered non-operating.
34
Changes in Financial Condition as of September 30, 2021 and December 31, 2020
September 30, December 31, Change
2021 2020 $ %
Assets
Cash and restricted cash $ 299,002 $ 20,927 $ 278,075 1328.8 %
Receivables 129,281 68,794 60,487 87.9 %Allowance for losses on finance receivables (16,791 )
(9,127 ) (7,664 ) 84.0 % Receivables, net 112,490 59,667 52,823 88.5 % Property and equipment, net 588 502 86 17.1 %
Goodwill and intangible assets, net 29,606
30,840 (1,234 ) -4.0 % Other assets 26,913 11,707 15,206 129.9 % Total assets$ 468,599 $ 123,643 $ 344,956 279.0 % Liabilities, Redeemable Convertible Preferred Stock, Redeemable Noncontrolling Interests and Stockholders' Deficit Liabilities: Debt arrangements$ 43,626 $ 46,602 $ (2,976 ) -6.4 % Accounts payable and accrued liabilities 46,134
20,968 25,166 120.0 % Warrant liability 22,916 24,667 (1,751 ) -7.1 % Total liabilities 112,676 92,237 20,439 22.2 % Redeemable convertible preferred stock (Series A-1, A-2, A-3, B, B-2, C, C-1) - 288,183 (288,183 ) - Redeemable noncontrolling interests 123,549
71,852 51,697 71.9 % Stockholders' deficit: Common stock 23 - 23 - Additional paid-in capital 671,906 - 671,906 - Accumulated deficit (429,855 ) (327,629 ) (102,226 ) 31.2 % Treasury stock (9,700 ) (1,000 ) (8,700 ) - Total stockholders' deficit 232,374 (328,629 ) 561,003 -170.7 % Total liabilities, redeemable convertible preferred stock, redeemable noncontrolling interests and stockholders' deficit$ 468,599 $ 123,643 $ 344,956 279.0 % Assets Cash and restricted cash Cash and restricted cash increased by$278.1 million to$299.0 million as ofSeptember 30, 2021 , as compared to$20.9 million as ofDecember 31, 2020 . Refer to the "Cash Flows" section below for further discussion on the net cash provided by (used in) operating activities, investing activities and financing activities during the period. Receivables, net
Receivables, net increased by$52.8 million , or 88.5%, to$112.5 million as ofSeptember 30, 2021 , as compared to$59.7 million as ofDecember 31, 2020 . This increase was primarily driven by the increase in total originations, including Credit Builder Plus loans and Instacash advances, membership fees and Instacash tips and instant transfer fees as Instacash continues to see strong growth. This was offset by the decrease in ML Plus loans as we completed our transition to Credit Builder Plus loans in 2020 as well as unsecured personal loans as we phased out this offering in 2020. Refer to the "Results of Operations for the Three and Nine Months EndedSeptember 30, 2021 and 2020" section above for further discussion on the changes in revenues and provisions for loss on receivables. Other assets
Other assets increased by$15.2 million , or 129.9%, to$26.9 million as ofSeptember 30, 2021 , as compared to$11.7 million as ofDecember 31, 2020 . This is primarily attributable to an increase in prepaid expenses of$8.5 million , including$7.3 million in insurance premiums, and receivable from payment processor - debit card collections of$6.1 million . Liabilities Debt arrangements Debt arrangements decreased by$3.0 million , or 6.4%, to$43.6 million as ofSeptember 30, 2021 , as compared to$46.6 million as ofDecember 31, 2020 . This decrease is attributable to the conversion of the fair value convertible note of$14.0 million , repayment of the$5.0 million related party loan and forgiveness of the PPP loan of$3.2 million , offset by the additional$20.0 million borrowings on the second lien loan. Refer to the "Financing Arrangements" section below for further discussion on financing transactions during the period. 35
Accounts payable and accrued expenses
Accounts payable and accrued expenses increased by$25.2 million , or 120.0%, to$46.1 million as ofSeptember 30, 2021 , as compared to$21.0 million as ofDecember 31, 2020 , which is attributable to an increase in operating expenses during the period and$11.1 million of transaction costs related to the Business Combination that remain unpaid as ofSeptember 30, 2021 . Refer to the "Results of Operations for the Three and Nine Months EndedSeptember 30, 2021 and 2020" section above for further discussion on operating expense activity during the period. Warrant liability Warrant liability decreased by$1.8 million , or 7.1%, to$22.9 million as ofSeptember 30, 2021 , as compared to$24.7 million as ofDecember 31, 2020 . Refer to the "Results of Operations for the Three and Nine Months EndedSeptember 30, 2021 and 2020" section above for further discussion on the change in fair value of warrant liability during the period.
Liquidity and Capital Resources
As a result of the Business Combination, we raised net proceeds of$301.1 million including the contribution of cash held in Fusion's trust account from its initial public offering of$91.1 million , post redemption of Fusion's Common Stock held by Fusion's public stockholders prior to the Business Combination, and$250.0 million of private investment in public equity ("PIPE") at$10.00 per share of MoneyLion Common Stock, net of transaction expenses. Prior to the Business Combination, the funds received from previous common stock and redeemable convertible preferred stock equity financings, as well as the Company's ability to obtain lending commitments, provided the liquidity necessary for the Company to fund its operations. We believe our existing cash and cash equivalents and cash flows from operating activities will be sufficient to meet our operating working capital needs for at least the next twelve months. Our future financing requirements will depend on several factors including our growth, the timing and level of spending to support continued development of our platform and the expansion of marketing activities. In addition, growth of our finance receivables increases our liquidity needs, and any failure to meet those liquidity needs could adversely affect our business. We continue to evaluate third-party sources of funding for our finance receivables. Additional funds may not be available on terms favorable to us or at all. If the Company is unable to generate positive operating cash flows, additional debt and equity financings may be necessary to sustain future operations.
The following table presents the Company's cash, restricted cash, and receivable
from payment processor, as of
September 30, December 31,
2021 2020
(in thousands)
Cash $ 295,645 $ 19,406
Restricted cash 3,357 1,521
Receivable from payment processor - Debit card collections 11,679 5,600
Receivable from payment processor - Other
1,363 1,936
36
Cash Flows
The following table presents cash provided by (used in) operating, investing and
financing activities during the nine months ended September 30, 2021 and 2020:
Nine Months Ended
September 30,
2021 2020
(in thousands)
Net cash provided by (used in) operating activities
(91,215 ) (23,505 )
Net cash provided by financing activities 371,352 (941 )
Net decrease in cash and restricted cash $ 278,075 $ (23,044 )
Operating Activities
Net cash used in operating activities was$2.1 million for the nine months endedSeptember 30, 2021 and was primarily due to the net loss of$132.9 million and net cash outflow from changes in other assets of$15.2 million and gain on loan forgiveness of$3.2 million , offset by the provision for losses on receivables of$36.6 million , changes in accounts payable and accrued liabilities of$13.7 million , and stock compensation expense of$2.4 million . Other adjustments to arrive at net cash from operating activities include$42.2 million from the change in fair value of warrants and$49.6 million from the change in fair value of subordinated convertible notes. Net cash provided by operating activities was$1.4 million for the nine months endedSeptember 30, 2020 and was primarily due to the net loss of$11.2 million and net cash outflow from changes in other assets of$4.2 million , offset by provision for losses on receivables of$14.6 million and stock compensation
expense of$1.1 million . Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was
Financing Activities Net cash provided by financing activities was$371.4 million for the nine months endedSeptember 30, 2021 and was primarily due to proceeds from the reverse capitalization, net of transaction costs (related to consummation of the Business Combination) of$301.1 million , contributions from redeemable noncontrolling interests of$53.0 million , proceeds from issuance of subordinated convertible notes of$36.8 million and borrowings from secured lenders of$20.0 million , offset by redeemed stock options of$10.7 million , redemption of founder's common stock of$9.7 million , redemptions by redeemable noncontrolling interests of$4.6 million , distributions to redeemable noncontrolling interests of$7.1 million and repayment of a related party loan of$5.0 million .
Net cash used by financing activities was$0.9 million for the nine months endedSeptember 30, 2020 and was primarily due to the repayments to secured lenders of$18.3 million , redemptions by redeemable noncontrolling interests of$13.1 million and distributions to redeemable noncontrolling interests of$3.0 million , offset by borrowings from secured lenders of$16.7 million , issuance of Series C-1 redeemable convertible preferred stock of$12.0 million and proceeds from the issuance of a related party loan of$5.0 million . Financing Arrangements
The following transactions have provided
Secured Loans SecuredBank Loan - InSeptember 2018 , the Company entered into a Loan and Security Agreement ("SecuredBank Loan ") with a bank for a 6.75%$20 million loan. Interest only was payable monthly throughSeptember 27, 2019 . According to the terms of the SecuredBank Loan , the outstanding principal on that date was converted to a term loan payable with principal and interest payable in 36 monthly installments, maturing onSeptember 27, 2022 . The loan was secured by all assets of the Company, including capital stock of all subsidiaries, except for capital stock and assets in certain excluded subsidiaries, as defined, including IIA and all of the related SPVs. Under the terms of theSecured Bank Loan, the Company was subject to certain covenants, as defined, including the requirement to maintain a cash balance, as defined, at the bank of$15 million . The SecuredBank Loan was paid off in 2020. 37 SecondLien Loan - InApril 2020 , the Company entered into a Loan and Security Agreement ("SecondLien Loan ") with a lender for a second-lien loan facility with an initial principal balance of$5.0 million . The SecondLien Loan bears interest at the greater of (a) 12%, and (b) a fluctuating rate of interest per annum equal to the Wall Street Journal Prime Rate plus 5.75%, not to exceed 15%. Interest only is payable untilApril 30, 2022 , and thereafter outstanding principal will be repaid in twelve equal installments through the facility maturity date ofMay 1, 2023 . The SecondLien Loan is secured by substantially all assets of the Company, including capital stock of all subsidiaries, except for capital stock and assets in certain excluded subsidiaries, as defined, including IIA and all of the related SPVs. Under the terms of the Loan and Security Agreement the Company is subject to certain covenants, as defined. The Company used the SecondLien Loan proceeds for general corporate purposes. OnAugust 27, 2021 , the Company entered into a Second Amendment to the Loan and Security Agreement that refinanced the SecondLien Loan and increased principal borrowings up to an aggregate principal amount of$25.0 million , and withMonroe Capital Management Advisors, LLC replacing MLi Subdebt Facility 1 LLC as collateral agent and administrative agent for the lenders. The other material terms of the loan remained the same. Upon the consummation of the Business Combination, the Company repaid the original$5.0 million principal balance owed to MLi Subdebt Facility 1 LLC, together with accrued interest and fees. As ofSeptember 30, 2021 , the$20.0 million principal balance owed to affiliates ofMonroe Capital Management Advisors, LLC remains outstanding. FirstLien Loan - InJuly 2020 , the Company entered into a Loan and Security Agreement ("FirstLien Loan ") with a bank for a$25.0 million first-lien loan facility consisting of a$20.0 million revolving credit line and$5.0 million term loan. The revolving line bears interest at the greater of (i)Wall Street Journal Prime Rate+2.25% and (ii) 6.50%. The revolving line matures onMay 1, 2022 . The term loan bears interest at the greater of (i)Wall Street Journal Prime Rate+3.25% and (ii) 7.50%. Interest only on the term loan was payable untilSeptember 1, 2021 , and thereafter outstanding principal is payable in thirty-nine equal installments through the facility maturity date ofMay 1, 2024 . The FirstLien Loan is secured on a first-priority basis by all assets of the Company, including capital stock of all subsidiaries, except for capital stock and assets in certain excluded subsidiaries, as defined, including IIA and all of the related SPVs. Under the terms of the Loan and Security Agreement, the Company is subject to certain covenants, as defined. Additionally, the Company granted the bank lender warrants to receive 12,792 shares of the Company's common stock at an exercise price as defined in the FirstLien Loan . The Company used the FirstLien Loan proceeds to repay in full the SecuredBank Loan and for general corporate purposes.
Secured Debt Agreements - InMarch 2018 , and then inApril 2018 ,IIA Notes SPV II LLC andIIA Notes SPV III LLC , indirect wholly owned subsidiaries of the Company, entered into Loan and Security Agreements (the "Secured Debt Agreements") with separate lenders establishing a total credit facility of a minimum of$20.0 million , which could have been increased to$27.0 million upon mutual agreement between the lenders and the Company. Borrowings under these agreements were secured by a security interest in certain consumer finance loans. These agreements matured at various dates through 2020 and carried a total interest rate of 14%. The Company borrowed a total of$22.0 million under these credit facilities. InJanuary 2019 , the Company repaid$11.0 million of the outstanding Secured Debt. As ofDecember 31, 2019 , the balance due under the Secured Debt Agreements was$11.0 million . InAugust 2020 , IIA Notes SPV III repaid in full the approximately$11.5 million that was outstanding under the Secured Debt Agreements and terminated the facility. Subordinated Convertible Notes - InDecember 2020 , the Company sold to a third-party lender$10 million of 3% subordinated convertible notes maturing onJuly 31, 2021 , the proceeds of which were used to conduct its business. InJanuary 2021 , as part of the same series of notes issued inDecember 2020 , the Company sold to third-party lenders$36.8 million maturing onJuly 31, 2021 (collectively, the "Subordinated Convertible Notes"). OnJuly 22, 2021 , the Subordinated Convertible Notes were amended to extend their maturity date toSeptember 30, 2021 . The Company elected the fair value option to account for the Subordinated Convertible Note and recorded it at fair value and subsequently remeasured it to fair value at the reporting date. Changes in fair value were recognized as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. The Subordinated Convertible Notes were converted into common stock immediately prior to the Closing of the Business Combination., and the noteholders subsequently received 10,068,133 shares of MoneyLion Class A Common Stock upon the Closing of the Business Combination. Prior to the conversion, the carrying value of the convertible
notes was$100.3 million . 38 Other
InAugust 2016 , the Company entered into a$50 million credit and security agreement (the "2016 Credit Agreement") with a lender for the funding of finance receivables. The 2016 Credit Agreement allowed for increases in the maximum borrowings under the agreement up to$500 million , bore interest at a rate as defined in the 2016 Credit Agreement and matures inFebruary 2023 . The 2016 Credit Agreement also required the Company to adhere to certain financial covenants along with certain other financial reporting requirements. The Company did not meet certain of these covenant requirements as ofDecember 31, 2019 , for which it received a waiver from the lender. The 2016 Credit Agreement was terminated upon the Closing of the Business Combination by mutual agreement of the Company and the lender; there was no outstanding balance under the 2016 Credit Agreement at the time of termination. In connection with the 2016 Credit Agreement, the Company granted warrants allowing the lender to purchase up to 2.5% of Legacy MoneyLion's outstanding common stock, or 255,402 warrants. The warrants vested in tranches based upon the occurrence of certain advance events. ThroughSeptember 30, 2021 , all tranches were exercised and converted into MoneyLion Common Stock in connection with the Business Combination. InApril 2020 , the Company borrowed$3.2 million from a bank under the SBA's Paycheck Protection Program introduced as part of theU.S. Government's COVID-19 relief efforts (the "PPP Loan"). InJune 2021 , the SBA approved the Company's application for forgiveness with respect to the entire outstanding balance
of the PPP Loan. InSeptember 2021 , ROAR 1SPV Finance LLC , an indirect wholly owned subsidiary of the Company (the "ROAR 1 SPV Borrower"), entered into a$100 million credit agreement (the "ROAR 1 SPV Credit Facility") with a lender for the funding of finance receivables, which secure the SPV Credit Facility. The ROAR 1 SPV Credit Facility allows for increases in maximum borrowings under the agreement of up to$200 million , bears interest at a rate of 12.5% and matures inMarch 2025 , unless it is extended toMarch 2026 . Under the terms of the ROAR 1 SPV Credit Facility, the ROAR 1 SPV Borrower is subject to certain covenants. As ofSeptember 30, 2021 , there was no outstanding principal balance. Equity Common Stock After the Closing of the Business Combination,MoneyLion's new Charter authorized the issuance of an aggregate of 2,200 million shares of capital stock, consisting of 2,000,000,000 shares of MoneyLion Class A Common Stock,$0.0001 par value per share and 200,000,000 shares of preferred stock,$0.0001 par value per share. Immediately following the Business Combination, 970,000 shares of MoneyLion Class A Common Stock were redeemed for$9.7 million .
Redeemable Convertible Preferred Stock
Each share of Legacy MoneyLion's redeemable convertible preferred stock was convertible at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into a number of fully paid and non-assessable shares of common stock as is determined by dividing the applicable original issue price by the applicable conversion price in effect at the time of conversion. Pursuant to the Merger Agreement, all outstanding shares of Legacy MoneyLion's redeemable convertible preferred stock automatically converted into 116,264,374 shares of MoneyLion Class A Common Stock upon the closing
of the Business Combination. Contractual Obligations
The table below summarizes debt, lease and other minimum cash obligations
outstanding as of
Payments Due by Period
Total 2021 2022 - 023 2024 - 2025 Thereafter
(in thousands)
First lien loan $ 25,000 $ 1,111 $ 23,334 $ 555 $ -
Subordinated convertible notes, at
fair value 14,000 14,000 - - -
Second lien loan 5,000 - 5,000 - -
Other debt 3,207 - 3,207 - -
Operating lease obligations 2,519 1,119 822 578 -
Total $ 49,726 $ 16,230 $ 32,363 $ 1,133 $ -
39
Off-Balance Sheet Arrangements
At
Critical Accounting Policies
See Note 2 to our unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of Critical Accounting Policies.
Recently Issued and Adopted Accounting Pronouncements
See Note 2 to our unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements that may potentially impact our results of operations, financial condition or cash flows.
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