Payfare Inc

TSX:PAY

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, ladies and gentlemen. Welcome to Payfare's 2022 Q1 Financial Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now turn the conference over to Mr. Cihan Tuncay, Head of Investor Relations and Corporate Development. Please go ahead.

[Cihan Tuncay, executive]

Thank you, operator, and good morning, everyone. Joining me on the call this morning is Marco Margiotta, Payfare's CEO and Founding Partner; and Charles Park, Payfare's CFO. Payfare would like to note that the company's remarks and answers to your questions today may contain forward-looking statements that are based upon management's current expectations. All such statements are made pursuant to the safe harbor provisions of and are intended to be forward-looking statements under applicable Canadian securities legislation. When relying on forward-looking statements to make decisions with respect to the company, you should carefully consider the risks set forth in the Risk Factors section of the annual MD&A for the year ended December 31, 2021. It is available on www.sedar.com. Except as may be required by Canadian securities laws, the company does not undertake any obligation to update any forward-looking statements as a result of new information.

We would also like to remind listeners that Payfare uses certain non-GAAP and supplementary financial measures to arrive at adjusted results to test its business and to measure overall performance. Payfare believes that these financial measures provide readers with a better understanding of how management views the company's overall performance.

Throughout the call, we will also refer to a slide deck, which is posted on our website last night, that's corp.payfare.com/investors/. I will now turn the call over to Marco Margiotta.

[Marco Margiotta, executive]

Thanks, Cihan. Let's turn on Page 3 of the slide deck. The first quarter was a record for Payfare on all of our operating and financial metrics. We generated just under $25 million in revenue, which was up 393% over the prior year and 44% over the prior quarter. We also surpassed $1.4 billion in quarterly GDV. I would like to point out that our revenue increased by more than the growth in GDV, which indicates to us that our users are not only earning more, but also spending more on our cards. Our strategy to offer our cardholders instant or near instant earnings deposits, combined with a robust suite of everyday rewards programs, is bearing proof as we continue to capture additional wallet share.

Turning to Page 4, you will see our user growth. Earning active users were up 374% year-over-year and 36% quarter-over-quarter in Q1. At the end of March, we partnered with Lyft and DoorDash to offer our cardholders cash back on fuel purchases. The program with Lyft was set to run until the end of June, and the program with DoorDash was recently extended to the end of August from April.

Since these announcements, we have seen record activity levels in user sign-ups and point-of-sale spending. We expect Q2 to be another record for active user growth. Importantly, these are new users that now enjoy the benefit of free and some payouts and cash back rewards for the first time that otherwise may not have been aware of our products. Our cardholder retention is quite strong, and we think that the users who signed up for cash back on fuel will continue to bank with us well beyond the incentive period.

On Page 5, you will see our financial highlights and updates on our strategic objectives for 2022. Since day 1, we have been focused on profitability. We are pleased to report record gross profit and gross margin levels for the quarter. Charles will elaborate on our financial outlook shortly, but we expect to begin generating positive EBITDA in Q4 of this year and expect a significant ramp-up in profitability for next year.

We recently announced a 26% increase at the midpoint of our annual revenue guidance to $115 million to $125 million. This is a function of higher than previously expected end of -- sorry, previously expected point-of-sale volume and GDV growth. Our launch of Paid App remains on schedule for the second quarter. There is a robust pipeline of new partnerships ahead of us from late-stage discussions, RFPs and LOIs to implementing final agreements. The aggregate GDV of our pipeline is in the several billion dollar range. And it's the combination with Paid App partners and white label solutions. We are evaluating several new gig economy verticals, including the creator economy, rapid grocery delivery and others.

On the product front, we have several products in development pipeline, including a food as a benefit pay card for enterprises. Our new card will allow employers to give their workers a credit for ordering meals, whether they are working from home or in the office. We expect to update the market on this product in the coming months.

We continue to have an eye for international expansion. As our gig platform partners grow internationally, we want to be ready to grow with them. Our initial focus will be on Canada, Australia, the U.K. and Europe.

With that, I will turn it over to Charles to review our Q1 financials.

[Charles Park, executive]

Thanks, Marco. Turning to Page 6, you will see our summary income statement. In the first quarter, we generated revenue of $24.9 million, up 44% from the prior quarter and up 393% from Q1 2021. This increase was primarily driven by ongoing marketing initiatives and organic growth in the DoorDash program, a gradual recovery and drive share activity for both Lyft and Uber.

Gross profit for the first quarter was a record $4.3 million versus a negative gross profit of $169,000 in the prior year. I would like to highlight that in the first quarter, we reclassified inactive cards account setup and KYC costs either cost of services to operating expenses. We did this because of -- because our cost of services are now more aligned with revenue generated from active users.

Importantly, while this change in presentation contributed to gross margin expansion, our gross margin primarily benefited from volume-based pricing improvements with our higher active user base and GDV volumes. We also realized material cost savings on customer support and card production.

On an apples-to-apples basis, we have presented here comparative gross margin expansion for the quarter, excluding the impact of reclassifying inactive user expenses. On this basis, we generated a gross margin of 13% in Q1, more than double the 5% gross margin generated in Q4 2021. We remain on the path to boost our gross margin to a 25% range over the balance of the year. We continue to hire more personnel and invest in our underlying technology. Despite this investment in growth, we were within touching distance, but positive adjusted EBITDA for the quarter. We expect to be adjusted EBITDA positive by Q4 of this year as we expect top line growth to outpace G&A now that the development of Paid App is complete.

While we have not issued guidance for 2023, we would like to highlight the key drivers of our financial performance for the year ahead. First will be a full year of contribution of users we add for the balance of 2022 plus organic growth with our existing partners. DoorDash continues to expand on Friday restaurant delivery, and we look forward to rideshare recovery and growing past pre-pandemic loans. Potential partnerships, both White Label and through Paid App could also contribute to additional revenue growth in 2023.

From an adjusted EBITDA perspective, we believe we have the potential to realize margins of 15% to 20% plus in this scenario for 2023. Free cash flow is our driving star, and with the organic growth opportunities ahead, combined with our efficient cost structure, we expect to generate positive free cash flow and earnings in 2023.

On Page 7, we summarize our current financial condition. We ended the quarter with almost $42 million in cash. Our financial condition is strong. We had no incremental capital needs to fund our 2022 strategic objectives. Our balance sheet is well capitalized, and we remain debt-free.

I will now turn it over to Cihan for Capital Markets Update. Thank you.

[Cihan Tuncay, executive]

Thank you, Charles. Let's flip to Page 8. This is a familiar chart that compares our share price performance for the ETFMG Prime Mobile Payments ETF since our IPO. We're happy to see that we have outperformed our benchmark by 46% over the period despite elevated market volatility in recent weeks.

Page 10 shows where our stock is trading relative to other high-growth payments companies. I want to point out that all figures in the table are in U.S. dollars, and all forward-looking information reflects analyst consensus estimates in the midpoint of our revenue guidance for 2022.

While we can't control market multiples, we have levers to pull to close the valuation and gap with our peers. The first lever is continued top line growth, which is reflected in our updated revenue guidance for this year. The second is expanding our Gig platform partnership. As Marco mentioned, we are excited about our current sales pipeline.

The third lever is profitability. We were pleased to report record gross margin expansion in the first quarter, and Charles has outlined his views on potential adjusted EBITDA generation through 2023. We look forward to delivering updates on these initiatives over the coming months.

And with that, operator, we are now ready to take questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Joseph Vafi from Canaccord.

[Joseph Vafi, analyst]

Wondering if we could dig in any more on that pipeline of customers for the Paid App and some of the others. And we have a feeling of how quickly those could react once Paid App is launched.

[Marco Margiotta, executive]

It's Marco. I could take that. Yes, I would say since the real adoption of the customers we have on board, including over the past year, specifically over the past few months, we continue to receive a number of inbound inquiries from other players in the gig economy looking for similar solutions. And so that pipeline is building significantly as each day passes. I mean, at this point, I think what we've done is created table stakes in the gig economy. I think it can pay out to the way of the future. We've said that all along. When the leaders in the space are doing it, others seem to follow. And so we're seeing the exact kind of strategy that we outlined pay out.

And so now, in addition to some of the inbound inquiries, we're looking at building a sales team now that the platform or the Paid App platform specifically is about the rollout, which should happen this quarter, specifically closer to June. In that, we've mentioned before this billions of GDV sitting there, and the thing that we think is most exciting about all this is the Gig platforms and partnerships that we would have never imagined existed. And so the breadth of what's out there in the gig economy is exceptional. And some of the inbound inquiries are actually taking us out to even platforms that are just outside the gig economy.

I mentioned food is a benefit. That's something we wouldn't have jumped up on our own. The opportunity came to us. We're looking at it. We're kind of on the cusp of getting more material movement there. And so we'll be happy to update when the time is right. But, yes, it's very robust. We're seeing a lot of small to midsized gig platforms to reach out, which is exactly where we want to be, but we're also seeing some branded solution opportunities that caught the attention and would have names that everyone would recognize. So it's coming.

And I think over time, that's just going to build as we build the sales team and we start getting some outbound calls going. I mean, when you think about what we've done with 1 salesperson, which is Ryan, that's it's been a phenomenal run. But we know this is always the game plan and we're just getting started, it's the most exciting part.

[Joseph Vafi, analyst]

That's great. And then just trying to follow up on the hiring of the sales force. It feels like your business model does have some leverage to it as you ramp in terms of not really having to hire or expand expenses that much. But do you have some initiatives this year in R&D, other things to continue to make that organic investment in the business?

[Marco Margiotta, executive]

Joe, I think I can take that as well. And others, Cihan and Charles, feel free to jump in. So you're right. I mean there's lots of leverage that can grow with what we've built. We've built a phenomenal platform. Now especially with the launch of Paid App, all those efficiencies of onboarding those clients happen quite quickly. And so that's where you could ramp and start targeting the smaller parts of the gig economy to kind of stack the TAM and address that market. But not only just the gig economy, as we've always said. At the end of the day, we built a platform that's really robust and allows us to pay any large workforce that is looking to pay a large amount of users in a quick fashion along with the same benefits we've created, which is the free bank account along with the kind of cash back and loyalty rewards.

So it's forever expanding the TAM, which could easily be done given the technology we've built. So let's not forget, some of the investments we've made, not only just in the Paid App platform, which is now behind us for the most part, there's a slew of things we always pause just to accommodate the fact that you need the users to get the product out there in a much more efficient manner. So now that the robust platform is built, now we could start -- and there's a bunch of users that are on board. At the end of the quarter, we had 700 -- almost 700,000 active users and growing. That doesn't look like it's slowing anytime soon.

So when you have that captive audience, we can now start layering on new products. And so we've mentioned this in the past, things like lending products would be very keen to our users and a very profitable and rewarding opportunity for us, given how unique that could be, right? Having visibility of the earnings, history of where they spend money, how they're spending their money and spending habits, and then more importantly, the capability of repayment in a very risk effective way.

And so those are things we'll continue to invest in. But with the resources we have on board, those can all get captured, to be able to take that platform that's now built and now we can kind of move that focus over to more products -- high-margin product opportunities.

[Operator]

Your next question comes from the line of Mike Rizvanovic.

[Mehmed Rizvanovic, analyst]

Marco, I wanted to go back to your comment on international expansion and growing with the gig platforms. So I guess it's a 2-part question. So, A, what sort of infrastructure do you have in place outside of Canada? Or how expensive is it to get to where you need to be to go, assuming gig platforms do look to do some sort of large-scale expansion outside of their footprint how they currently look?

And the second part of that is, do you have a sense of the scale of that opportunity with DoorDash or Lyft? Not sure if in your discussions, you could give us some color on that. But just trying to get a ballpark if you can provide it on how big of an opportunity that could potentially be over the longer term?

[Marco Margiotta, executive]

Yes. So for the first part, it's actually a good segue from the previous question that Joe had asked in terms of how scalable the platform is, global expansion, there's no exception to that. And so the 1 thing I'll highlight a lot of the vendors we pick from day 1 have global scale. And so when you think about processes like ICC and Marqeta, we have that capability already integrated. Even some of the onboarding capacities, KYC, AML, call center capability and support, all that is already ready to go, and it would give us global capability in the markets we want to be in for the foreseeable future.

So really, what we're talking about is CapEx around integration to local issuers. And more specifically, for those that aren't that familiar with it, it's just local bank sponsorships that we would want to not only partner with, but also these integration, which would give us the capability of issuing a visa or MasterCard product and getting on those rails. So even at investment, it is very minute and small compared to the opportunities that they represent. And so that's really the only CapEx that kind of goes with it directly from a shopper development perspective.

Outside of that, building teams locally would mainly be a sales effort, if anything. And so we're talking about the vault and the vast majority of the platform we built is now at a very, very, very scalable roadway or path. And so that's what should drive a lot of activity in a very quick fashion because all those developments have already occurred and the CapEx is now behind us.

And so one of the other things not to forget, there is local compliance issues. And so a local compliance team would be another aspect of it. Obviously, language and all the implications that we have. But for the most part, it's just white labeling and repurposing a lot of the stuff that we've already built and utilizing a lot of the integrations we've already integrated with in terms of different vendors that support us to all of the platform we do.

Outside of that, in terms of the clients that we have at the table and global expansion, to highlight DoorDash, they just recently acquired Wolfson. I think it takes them in 23 or 27 different markets. And we see them expanding in a very big way. Similar to us, they have a platform that they can bolt on. So it's a different geographical expansions, and so it plays into what we've created. We have always had that in mind, so it's not difficult for us to pivot and kind of join them along that line.

So when you do it for the client in a very big way, you need to handle the biggest and best market and you're showing that in other markets you can also do the same already, it gives them a lot of comfort knowing that you can grow with them and alongside them. So we look forward to some of those discussions continuing on. We've said from day 1, those discussions are always in the mix, and some of them contractually have some language in there to reflect that as well. So there's already a segue and pathways to kind of further that relationship to beyond the borders what we're dealing it now.

[Mehmed Rizvanovic, analyst]

Okay. And then 1 quick one. Just in terms of expanding outside of the gig economy, and I know it's something that is clearly on the agenda. But if you could point to sort of the dynamics around getting to that -- to the point where you're sort of selling your offering into the non-gig areas, is it a major headwind to get that done? And what I mean is it's not maybe as obvious as it would be to a gig driver that has to pay more high cost on fuel and needs the money upfront, but it does seem like it's a pretty good value proposition for a lot of different potential industries. But is it difficult to break into that? And you're sort of introducing a new concept that doesn't currently exist for a lot of these target areas that you're talking about. Just some of the dynamics from that would be helpful.

[Marco Margiotta, executive]

Yes, for sure, Mike. So I say it all the time, if you simplify the platform, really, we're onboarding a massive amount of users in a very efficient manner, right? Our automated beyond belief where AML, KYC is not lost. In fact, it's very robust even though it's automated. There's also scrub that happened months ago beyond that. That's just an example of that, plus the fact that we can hand out those cards in the macro distribution channel, which we do now any cardholder from any part in the U.S., almost to any zip code can kind to receive a card within days. That is another example. The fact is we built a platform so that we can handle [indiscernible] an efficient way of paying out any large workforce and it doesn't have to be just a workforce. The date we stayed lately to focus on the gig economy. So you've seen or heard just now through the introduction of this corporate spend card type of product for the food is a benefit kind of industry, which is really growing at places we didn't think even existed.

And I think that, in a large part, the pandemic on what that's created in the working home environment. These are solutions that weren't necessarily needed before, but now are kind of front and center. And so with the robustness of the platform, it really pulls down to paying any large group of users in a very efficient manner because of all the automation and integrations we've done and the partnerships we have in place that really utilize the efficiencies of the technology and what is was out there today.

And so that will forever expand. We talked about -- you mentioned how we talked -- how we addressed the gig platforms and gig users and the need for addressing the pain point, which today was fuel. That doesn't stop there. At the end of the day, with this platform and the issuing platform we've built. I've always spoken about this almost since day 1. At the end of the day, when you have a large cardholder base, and that cardholder base grows, maybe even outside the gig economy, all the efficiencies you pick up along the way and purchasing power. Think about the other rewards discounts we can offer directly at some point where we can walk into any large retailer and say, hey, we have x amount of users that spend x amount of their stores. How do you like to introduce them to another concept or product offering that you might have in a very quick way. And without any integration, we could just feed you back all the spend from our side, so they won't have a poor user experience whether it has to scan a barcode to redeem some redemption, which might be efficient, they just have them spend in the store.

So those are very margin-enhancing products that we can offer, and that also helps -- it's a win-win-win. It helps the employer or a gig platform, help user retention and all the metrics we think about often. It also helps the cardholder base get access to things that otherwise wouldn't get on their own, such as discounted offerings, and clearly helped us in terms of very margin heavy product offering that we could do with a flip of a switch.

[Operator]

Your next question comes from Adhir Kadve.

[Adhir Kadve, analyst]

Congrats on the quarter here. Marco, I wanted to touch on a comment that you made on the engagement of the users who are signing up with the cash incentive programs. These programs have been online for a couple of weeks now. Can you maybe tell us what's driving your confidence? Is it maybe their spending behavior of that cohort? Are they only using the card for cash back? Or are you seeing them kind of using it -- are they using it for food and other areas? Or is it kind of simply in just the fuel area?

[Marco Margiotta, executive]

Yes, it's -- so what's -- we're in the competence, think about it inherently in what we've built. So I guess, some of the questions and the feedback I used to get early days from some of the investors, well, you're giving a free product, you're giving a free bank account tied to an instant access to the earnings for free after reaching every tax, so we're getting kind of cash back and loyalty rewards otherwise they wouldn't get. And so inherently, we would expect that not many people would not want to take that product on. But now in an inflationary environment where the bulk of the spend or the cost of goods sold, they have to operate their mini business or a gig worker to think of them as a small business or a micro small business.

If you can help alleviate some of the pricing pressure they are feeling and throw in a fuel discount, well, now the most difficult part of getting someone over is usually the fact that you're switching out of bank account. So for gig workers, that take this work as their primary source of income as an example. They really revere the fact that it's a segregated bank accounts because it segregates all their personal activity from their business activity. And so now have one clean look at what's going on.

So if that didn't incline you earlier, the fact that you would get a 10% discount might push you to kind of make that move. And the reality is once you make that move and now you have a bank account that's giving you instant access your earnings after each and every trip, it's pretty difficult to move away from that cash cycle, because if you're getting paid after every tax, you're probably not going to wait around anymore to get paid once a week or pay $2 to get access to the funds you've earned earlier.

Now you layer on all the other cash back or loyalty rewards, and we've captured that user in a very meaningful way. And so it's just making that shift over, once that shift is made, it's very unlikely that they would kind of migrate away from that for the reasons I mentioned.

I think over and above that, in terms of what they're spending, typically, the gig workers that we're seeing specifically its fuel and fast food is where to spend the bulk of the money. And so once they're on our card, to rehighlight this, we do capture 100% of our earnings. And so naturally, it's not going to be just on the fuel, just to get that discount. They're spending it across the board because it doesn't stop them from taking the funds they've earned, they are now going to that card and sending it somewhere else. And I think we highlighted that -- sorry, I think I know we highlighted that in some of the commentaries I made to open up. We're not only seeing increased user count, we're seeing increased GDV and increased spend.

And so that's all because once that migration happens to our cards, we're seeing the -- all the spend come off the card, not just to get access to a fuel discount.

[Adhir Kadve, analyst]

Great. And then maybe just one more. You guys kind of highlighted a positive profitability here and ending profitability -- ending this year being EBITDA profitable. Is that mainly because of the GDV that you're seeing? If we kind of just run rate this quarter to GDV, you're looking at about $6 billion in GDV cost throughout the next 12 months, let's say.

Are you seeing those big scale discounts? And is that really what's driving the profitability moving forward?

[Marco Margiotta, executive]

I'll turn it over to Charles. Charles, do you want to take that one?

[Charles Park, executive]

Yes, sure, Marco. In terms of the path to profitability, what I would say here is our gross margin expansion that we expect for the later half of 2022 is really driven off the fact that we've focused on reducing costs for our major cost of service line items, whether that's processing, that's quite purchasing and whether that's customer service costs. So whether it's renegotiating with new vendors or going back to our old vendors and asking for more volume-based discounts, all of that, we should see the benefits of all that hard work come through in 2022, and obviously, well into 2023 as well.

So it really starts at the gross margin line where we see further expansion kind of to the 25% level that kind of mentioned earlier. But also from an OpEx perspective, we really do have a lot of leverage where we're not trying to double our headcount any time soon, and we can do the same amount of work with very little increase to our headcount. So a lot of the extra margin that we're bringing to the table with the increased growth is really going to just translate to the bottom line to EBITDA and interest.

[Operator]

Your next question comes from the line of Stephen Boland.

[Stephen Boland, analyst]

Maybe just a couple of numbers questions. First, I mean, I assume you don't publish the ARPU number and you switched to GDV. What was the rationale there? Just curious like did you just find it not to be a useful number in terms of disclosure?

[Charles Park, executive]

I can take that one if...

[Marco Margiotta, executive]

Okay. Charles, go ahead please.

[Charles Park, executive]

Yes. So we've mentioned this in our previous calls, but the reason we stopped disclosing ARPU, what we found in 2021 with especially in periods of rapid groom and where you have varying different programs with different economics. The movement in ARPU was unnecessarily kind of confusing to investor base in terms of the ultimate direction the company was taking in terms of strives and growth in the overall business. What we thought was a better measure and more correlated to revenue growth, we're just speaking about total B2B, which is the ultimate driver of our revenue.

So rather than speaking about ARPU in different programs and it being somewhat not normalized because we had a high net additions during a particular quarter or month, GDV kind of across all programs. It's kind of a very simple way to understand growth and not being kind of bogged down by some of an ARPU number that is perhaps too generic when it's applied to multiple programs.

We're going to get to a point down the road where as we diversify our base, however, we're introducing ARPU in more sense, if we aggregate these programs into various groups. But to the extent that it was a blended number, we felt that total GDV was a much better measure of our current and future success.

[Stephen Boland, analyst]

Okay. That makes sense. And maybe a second one for you, Charles. Can you be inactive user expenses? I mean, I guess, if they're inactive, what expenses were they incurring? And how material was that to as your overall expenses? Was it a minor amount? I'm just curious how material it was.

[Charles Park, executive]

Yes, sure. I can answer that. So from an expense perspective, the biggest cost is really the cards. So if they user signs up for a program, that ultimately doesn't end up loading any earnings on to their card. There is a cost of the plastic that we do incur. There's just minor setup costs associated with [indiscernible]. So the whole point of incurring these costs is you need to make it super simple and easy for truckers to convert over. But to the extent that they don't convert over, it's somewhat confusing kind of readers of the financials that those particular costs are buried in the main cost item with no offsetting revenue.

So that's kind of the main drivers in terms of the cost. In terms of what that amount was, for comparative purposes, we've included no disclosures, both in our MD&A and [indiscernible]. That kind of highlight what the quarter-over-quarter impact to us. For Q1, in particular, for this year, and I kind of highlighted this earlier on, if we were to kind of go off with the old accounting and having those costs included in the COGS line item, we would have ended Q1 at 13% gross margin as opposed to just over 17%. But the best -- the margin expansion that I spoke about later in 2022, the whole reclassing of the cost becomes less and less a relevant number becomes a smaller number because of some changes that we've recently made with an agreement we have made with our vendors, we're going to need a lot of those costs going forward.

[Stephen Boland, analyst]

Okay. And then one for you, Marco. In your earlier comments, you said there's several billions of GDV available. When you're doing 1.4% this quarter with 700,000 users, is that kind of what the average you want to be like basically you're saying like -- do you expect to go from 700,000 users with these new platforms and expansion to 1.5 million to 2 million like we use the same sort of proportion? I'm just trying to get a gauge on where several billion dollars of GDVs coming from?

[Marco Margiotta, executive]

Yes. I would say, I've a point I wanted to add, when you were asking about the ARPU metric going away as well, so the one thing I really want to highlight just to put it in very simple terms, as we aggregate more and more users from different platforms, that ARPU number as we left it will bounce around like crazy. And so it's nothing more than the impact that we're using that we're onboarding. Now making substantially different amounts of income. So if we're talking about a handyman service platform that has a lot of skilled labor, you might see ARPUs skyrocket because the average income they make would be substantially higher than a part-time gig worker, right?

You might have $80,000 of GDV being loaded versus a gig platform worker generically making $1,000 a month. And so that's where that number was bounced around in a very substantial way. And for now, it doesn't make any sense. A better proxy just overall GDV. And I guess that segues into your question.

And so when we say there is billions of GDVs, mainly because the breadth of who we're looking at in our sales pipeline is very robust. And so the average stream of that workforce or different workforces we're dealing with in the sales pipeline, it is significantly different than a typical gig worker. And so it's mainly a driver of how much the earning strategy GDV and then GDV ultimately drives revenue streams for us, most importantly, the interchange.

And so ARPU would make things to go and deviate, we can move away from the core offering as we layer on products and have greater control over the underlying behavior outside of the GDV lending product, as an example, and we want to measure how well those loans are getting out there and how well the adoption is and profitability around that specific product, ARPU might come back or will come back. I should say not might. But for now, I mean, as we're onboarding more and more of these platforms, we'll start to see the ARPU kind of swap around.

So it just wasn't a relevant metric for us. But Yes. And it highlights how impactful this could be based on which workforces we're talking to. And maybe that's kind of motivate which areas of focus that we're targeting. Obviously, the higher income earners are the preferred ones. But for the most part, the contribution to that is most of those workers are typically very well banked. And so that's the trade-off. It's finding that happy median. We're addressing the specific needs of gig workers that they wouldn't otherwise find for traditional bankers or bank accounts.

[Operator]

Your next question comes from the line of Keeler Patton.

[Keeler Patton, analyst]

This is Keeler on for Josh at Cantor. We're really interested in the improvement in gross margin this quarter, even accounting for -- the accounting change you made. To get to the 25% gross margin target that you pointed out before, will that further improvement come from more volume discounts as you scale? Or are there other efficiencies you're looking out there on the gross margin line?

[Marco Margiotta, executive]

It's Marco. Charles, I will throw it over to you, but just maybe clarify around the accounting classification as opposed to an accounting change.

[Charles Park, executive]

That's right. And as Marco mentioned, it's more of a presentation change as opposed to a change in accounting policy. But to answer your question, it's a combination really of all the things that we talked about. So process or charges represent the lion's share of our cloud base. So the [indiscernible] rebates that we get as we split the higher [indiscernible] into our GDV and POS volumes, we're going to benefit from that throughout 2022 as we grow kind of the volumes that we put through our system. But over and above that, I've mentioned that we broke up new deals with our card purchase vendor and customer service costs vendor who are -- they still represent a significant portion of our COGS. So to the extent that we extract additional savings from there, we hope to see the benefits of that for all of 2022, but that's how we get to the path to 25% by the end of the year.

[Keeler Patton, analyst]

Okay. That's very helpful. And then just a quick follow-up. So as economic forecasts have been reined in recently. How are you guys viewing how Payfare might perform in a potentially recessionary environment given the kind of cyclical nature of the gig workers that we've seen over the last couple of years?

[Marco Margiotta, executive]

I could take that and if you guys want to chime in, feel free. A few things. We've mentioned this in the last call as well. So you see how inflationary pressure is actually benefiting us in terms of the fuel discount and the impact for a couple reason. One is the gig worker now is spending way more money on fuel than they ever have. And so introducing that discount is obviously a huge benefit. Secondly, if inflationary questions are causing shorts of cash, that leads to more workers migrating [indiscernible] trying to supplement our income leading to more user growth. People typically not looking at that workforce as a way of making NV, which is beneficial for us as well.

And so underneath all that, keep in mind, the bulk of our revenues generated operating change. And so as interchange -- so as more inflationary pressures caused things to go up in price, more of that spend is hopping off our cards. And so net-net, it's a very beneficial environment, but that is all pending the underlying activity of those platforms. And so we'll see how discretionary spend impacts travel and rideshare. We'll also see how it impacts restaurant goods. And one of the things that I want to highlight, most of the platforms we're dealing with now are migrating to last mile delivery, which kind of moves away from just the restaurant delivery component. So naturally, we're getting some diversification along the way. But there's a number of factors that play in. Most of the ones immediately are positive. But if this environment continues, I mean we could see some downward pressure on the underlying activity of our gig platforms, meaning everything else will -- we would do with them a lot by then, will also feel some pressure as well.

So Charles, do you have some comments you want to add as well? Or Cihan?

[Charles Park, executive]

Yes, I think Cihan have some points to mention.

[Cihan Tuncay, executive]

It's Cihan here. So it's a really good one, and it's something that we track really closely and think about how it's going to impact the business. So just maybe to add a couple of things to Marco's points on inflation. If we kind zoom in a little bit further, we're talking about recessionary environment, if there is an uptick in unemployment, for example, we actually think that benefits the gig economy workforce and the proliferation of gig economy work is becoming very important for people that are in transitionary employment situation.

One significant I can tell you that the DoorDash published from what recently is that around 75% of their Dashers sign up because they have either reduced hours at their primary job or if they have lost their job. And so the gig economy actually becomes what we see it as a safety net in case traditional unemployment levels took higher. So what else can you do if you've lost your job? What can you do right now to go make money, to put food on the table, pay your bills, et cetera? And in addition to that, just the concept of gig work and how that helps, and it really speaks to our product offering, too. There's nothing else that you can really do. Not only can you sign up to be a gig worker right away, but there's nothing else you can do to get paid immediately instantly after every time.

So we think from a recessionary perspective, it will be positive for user growth and overall good work of growth as well. So that's kind of how we think about that.

[Keeler Patton, analyst]

Congrats again on the great, great first quarter.

[Marco Margiotta, executive]

Thank you.

[Operator]

[Operator Instructions] There are no further questions at this time. Marco Margiotta, I turn the call back over to you.

[Marco Margiotta, executive]

Thank you very much, operator, and thank you, everyone, for joining. Really looking forward to the next quarter and really appreciate your time this morning. Thank you very much.

[Operator]

This concludes today's conference call. You may now disconnect.