Chime Financial, Inc. (CHYM) Q3 2025 Earnings Call Transcript

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Overview

The earnings call reveals strong financial performance, member growth, and improved margins, with significant product development and strategic partnerships. Despite management's reluctance to provide specific guidance, the overall sentiment is positive due to record high activations, reduced CAC, and promising new channels like Enterprise. The company's leadership in fintech and strong cohort performance indicate a positive outlook. However, lack of guidance on some aspects tempers the sentiment slightly, but not enough to negate the positive indicators.

Key Financial Performance

Revenue $2 billion revenue run rate, 29% year-over-year growth. Reasons: Growth driven by a 21% year-over-year increase in active members to 9.1 million and the success of new products like MyPay.

Adjusted EBITDA Margin 5%, up 9 percentage points year-over-year. Reasons: Improved operating leverage and cost efficiencies, including reduced cost to serve and higher transaction margins.

Active Members 9.1 million, a 21% year-over-year increase. Reasons: Strong member acquisition strategies and early engagement initiatives.

Purchase Volume $32.3 billion, up 15% year-over-year. Combined with OIT volume, $32.9 billion, up 18% year-over-year. Reasons: Resilient payments-based revenue model and introduction of outbound instant transfers (OIT).

Average Revenue Per Active Member (ARPAM) $245, up 6% year-over-year. Reasons: Increased product attach rates and strong primary account relationships.

MyPay Transaction Margin Over 45%, with loss rates below 120 basis points. Reasons: Improved underwriting and product enhancements.

Cost to Serve Reduced by 20% over the last 2 years. Reasons: Investments in proprietary technology like ChimeCore and operational efficiencies.

Gross Margin Expected to increase to close to 90% in Q4. Reasons: Completion of migration to ChimeCore, reducing reliance on third-party processors.

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Operating Highlights

Chime Card: Launched in September, offering 1.5% cash back on everyday spend categories for direct depositors and a titanium card option. It is a secured credit card that helps members earn rewards while improving their credit score. Early results show new members using it for 80% of their spend.

MyPay: Enhanced short-term liquidity product with a $350 million annual run rate and a transaction margin of over 45%. Loss rates fell below 120 basis points in Q3, showing significant improvement.

Market Position: Chime is leading the shift towards digital banking in mainstream America, with 9.1 million active members and a $2 billion revenue run rate in a $400 billion market. It was ranked the #1 banking brand in the U.S. for 2025 by TIME.

Chime Enterprise: Early traction in the employer channel with partnerships with Workday and UKG. Signed new employer partners like Maxwell Group, Ubiquity, and Etech, with high employee adoption rates of direct deposit.

ChimeCore Migration: Completed migration to proprietary transaction processing core and ledger ahead of schedule, improving efficiency and enabling faster product innovation. Expected to increase gross margin to close to 90% in Q4.

Cost to Serve: Reduced cost to serve by 20% over the last 2 years while growing ARPAM by 18%. Operating leverage improved, with non-GAAP OpEx growing just 7% year-over-year in Q3.

Share Repurchase: Announced a $200 million share repurchase authorization to buy back shares at attractive values while maintaining a strong cash position.

Future Product Roadmap: Plans to launch a premium membership tier, joint accounts, custodial accounts, and investment products in 2026 to expand offerings and deepen member engagement.

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Risk or Challenges

Macro risks and consumer health: Despite resilience among members, there are concerns about macroeconomic risks and consumer health, which could impact spending and financial behavior.

Credit risk: Chime maintains low credit risk through short-duration liquidity products underwritten by recurring direct deposits, but any changes in member employment or deposit behavior could pose risks.

Competition: Chime faces competitive pressures from both legacy banks and fintechs, which could impact its market share and growth.

Cost to serve: While Chime has reduced its cost to serve, maintaining this advantage requires continued efficiency improvements and innovation.

Enterprise sales cycles: Chime Enterprise sales cycles are long, which could delay revenue realization from this channel.

Regulatory and contractual risks: The termination agreement with Galileo involves a one-time expense of $33 million, and maintaining contractual relationships until March 2026 could pose risks.

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Guidance & Outlook

Revenue and Adjusted EBITDA Guidance: Chime has raised its Q4 and full-year 2025 guidance for revenue and adjusted EBITDA. For Q4, revenue is expected to be between $572 million and $582 million, representing 20%-23% year-over-year growth. Adjusted EBITDA is projected to be between $43 million and $48 million, with an adjusted EBITDA margin of 8%. For the full year, revenue is expected to range from $2.163 billion to $2.173 billion, and adjusted EBITDA is forecasted between $113 million and $118 million.

2026 Financial Outlook: Chime anticipates continued strong top-line growth, additional transaction margin expansion, and significantly slower OpEx growth in 2026. Incremental adjusted EBITDA margin for 2026 is expected to exceed the mid-50% range guided for Q4 2025.

Product Roadmap for 2026: Chime plans to launch a new premium membership tier, joint accounts, custodial accounts, and investment products in 2026. These innovations aim to deepen member engagement and expand Chime's product ecosystem.

ChimeCore Migration: The migration to ChimeCore, Chime's proprietary transaction processing core, has been completed ahead of schedule. This is expected to increase gross margin to nearly 90% in Q4 2025 and accelerate product innovation and cost efficiency in 2026.

Chime Enterprise Growth: Chime Enterprise, targeting employer partnerships, is expected to contribute to growth. Early traction has been observed with partnerships like Workday and UKG, and employee adoption rates of direct deposit have exceeded expectations.

Cost Management and Operating Leverage: Chime expects to keep headcount flat over the next year, translating to significantly slower OpEx growth in 2026 compared to 2025. This is expected to enhance operating leverage and profitability.

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Shareholder Return Plan

Share Repurchase Authorization: Chime announced a $200 million share repurchase authorization, which they expect to implement in the coming months. The company highlighted its robust cash position and strong outlook on free cash flow generation as enabling factors for this buyback program. The repurchase is aimed at buying back shares at attractive values while continuing to invest in the growth of the business.

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Key Q&A

Q:What is the current competitive position of the company in terms of member growth?

A:The company continues to see strong momentum and feels good about its competitive position. It is the #1 destination for people switching their direct deposits, particularly for those earning up to $100,000 annually. J.D. Power reaffirmed its leadership in this area. The company has added 1.6 million active members in the last 12 months, an acceleration from the 1.2 million added in the previous 12 months.

Q:What are the key drivers of the company's member growth?

A:Key drivers include strong top-of-the-funnel growth, high conversion rates on direct deposits, and early engagement strategies such as easier account funding, credit building, and MyPay usage. Over 50% of new active member growth comes from referral and organic channels.

Q:What is the impact of early engagement initiatives on the business?

A:Early engagement initiatives have led to record activations among new checking account openings, a 10% year-over-year reduction in CAC for three consecutive quarters, and higher monetization rates. Recent cohorts are engaging with more products earlier, and transaction profit CAC payback has improved to 5-6 quarters from 7 quarters in previous cohorts.

Q:What is the trend in payment volume per user and consumer health?

A:Overall transaction volumes are consistent year-to-date. A mix shift from payments to platform revenue is observed due to the adoption of outbound instant transfers (OIT). Combined payments and OIT platform revenue grew 20% year-over-year in Q3. Consumer spending remains robust, with discretionary spending outpacing essential spending among tenured members. Average balances are up nearly double-digit year-over-year.

Q:What is the company's path to margin expansion?

A:The company expects gross margins to reach close to 90% in Q4 due to the migration to ChimeCore, which lowers transaction processing costs. MyPay loss rates have improved significantly, falling from 1.7% in Q1 to below 1.2% in Q3, with a target of 1% in the coming quarters.

Q:What is the progress and future outlook for MyPay and instant loans?

A:MyPay has reached a $350 million run rate in just a year with great margins. Loss rates are improving due to better underwriting and cohort seasoning. The company does not plan to compromise gross margins for growth. Instant loans have an NPS of 80 and are being rolled out conservatively, with no separate guidance provided yet.

Q:What is the status and potential of the Enterprise channel?

A:The Enterprise channel, launched in April/May, is showing adoption rates exceeding expectations. Strategic partnerships with Workday and UKG are expected to drive growth. While the sales pipeline looks promising, the company is not providing separate guidance for Enterprise yet. Medium to long term, this channel is expected to drive significant growth at a lower CAC.

Q:What is the impact of ChimeCore on the business?

A:ChimeCore is expected to uplift gross profit margins to close to 90% starting in Q4. It enables faster product development, such as the Chime Card, premium membership tiers, joint accounts, custodial accounts, and investment services. The Chime Card rollout is showing promising early results, with 80% of purchase volume coming from credit spend for users who select it.

Q:What is the company's approach to traditional credit cards?

A:The company sees significant demand for a traditional credit card and believes it has a unique underwriting advantage due to superior transaction data and its position at the top of the repayment stack. However, it plans to remain asset-light and does not expect this to be a material contributor by 2026.

Q:What is the competitive environment and the company's position?

A:The primary competition is from large banks, not smaller fintechs. The company is the largest among fintechs in terms of primary account relationships and is only 3% penetrated in its TAM. It offers the lowest-cost products in the market and continues to lead in primary account acquisition, as confirmed by J.D. Power.

Q:What is the outlook for ARPAM growth?

A:ARPAM growth is expected to moderate in Q4 as the company laps the initial rollout of MyPay. However, strong cohort-level ARPAM growth continues, with the most tenured cohorts exceeding $350. New products and higher monetizing card transactions are expected to drive further growth.

Q:What is the seasonal impact on the business in Q4?

A:Q4 typically sees slightly higher spend per active member due to the holidays but is otherwise a standard quarter. The most significant seasonality occurs in Q1 and Q2 due to tax refunds.

Q:Review of Unclear Management Responses

A:Management avoided providing specific guidance or detailed data on several topics, including the future growth rate of the Enterprise channel, the rollout timeline and financial impact of instant loans, and the attach rates and rewards costs for the Chime Card. Additionally, they did not provide a specific target for transaction margins on MyPay or detailed plans for a traditional credit card offering.

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Earnings Word Cloud

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