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spk06: Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I will now turn the call over to Anne DeVries, Head of Investor Relations at FACT. Please go ahead.
spk07: Good evening, and thank you for joining us for BAC's fourth quarter earnings call. Today's presentation, including the separate earnings call presentation that can be found at our investor relations website at www.investors.bac.com, will contain certain forward-looking statements. These statements are based on management's current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in such forward-looking statements. For a more complete discussion on forward-looking statements and the risks and uncertainties related to BAC's business, please refer to its filings with the Securities and Exchange Commission. During today's presentation, in addition to discussing results that are calculated in accordance with generally accepted accounting principles, we will refer to certain non-GAAP financial measures. For more information on this, the basis of presentation for our financial results and our non-GAAP measures, please refer to our earnings release, which was filed this afternoon with SEC. Joining me on today's call are Andy Main, that's incoming Chief Executive Officer, and Karen Alexander, Chief Financial Officer. After our prepared remarks, we will answer questions we received from our investors through the SAFE Technologies platform. After that, Andy and Karen will be available to answer questions from the analyst community. I'll now turn it over to Andy.
spk03: Thank you, Anne. Anne, good evening, everyone. It's great to speak to you on my first BAC earnings call. Let me firstly start off by saying how excited I am to be BAC's CEO. I want to thank you for being here today and for your ongoing interest in BAC. Seeing it's our first time together, I thought I should do a quick introduction with a focus on my most recent experience. I've been working in digital platforms, championing technologies and selling products for the bulk of my career. Starting in 2013, I was the head of Deloitte Digital and over seven years grew that business from a startup into a multi-billion dollar business and a globally recognized brand. After that, in 2020, I moved on to become Ogilvy's global CEO, where I led a rapid turnaround of a then-lagging business to become the world's leading creative agency in just two years, one year ahead of market expectations. I have also been a BACT board member since October 2021. I've certainly gained a lot of satisfaction from achieving the ambitions of those businesses. So that's enough about me, and now on to talking about BACT. So on page four, I'm excited to share my perspectives on the business. Let's first start by talking about what's happening in the markets. 2023 undoubtedly brought some challenges, and as the market spent the first half of the year rebounding from the industry events of 2022. But with the new milestones, like the approval of spot Bitcoin ETFs and new record Bitcoin price highs, we finally began to see strong tailwinds. In Q1 2024, we are already seeing higher transaction volumes from our retail clients as their target audiences and customers are showing greater interest in crypto. So we're cautiously optimistic that with all the positive developments we have seen in crypto, the markets will continue to stabilize and improve. Moving on to BACT. We have a strong foundation and I'm very proud of what the company has accomplished to date. Our team has spent significant time and resources developing the BAT platform. And I can say with confidence that our products are in a strong position. We have robust custody and trading solutions that appeal to both institutional and retail clients, who along with BAT are positioned to benefit from the positive market turn. My perspective on our clients and partnerships is that we are well positioned to grow from the strong base. We provide a strong value product proposition to clients and emphasize that we offer the leading client experience in the industry. For example, taking as little as a few weeks to activate our solutions for our clients. This speed of activation makes BAT a strong partner for growth. And in fact, BAT, your partner for growth, is the North Star of our business, which we will amplify and demonstrate via our behavior in the marketplace. Next, I'd like to address what this moment means for the company. The reason the board appointed me as CEO is because BAC is at an inflection point. Given our strong position with the BAC platform, the focus at this particular inflection point is now to scale the business. And to build on what I said as part of my introduction, I've got the experience in commercializing powerful product platforms, scaling young businesses, and being market, client, and partner focused. And the board believes that these are some of the ingredients and the skills that BACT needs now. In addition to the inflection point around scale, we're also at a financial inflection point. We were pleased to quickly close the transaction of our recent capital raise and can confidently say that the proceeds and the other available cash alleviate the conditions that initially raised doubt about our ability to continue as a going concern. This additional capital significantly adds to our balance sheet and will help fund the future of our business, providing stability as we continue to focus on executing for our clients and partners, broadening our network and driving revenue. I understand the circumstances of the transaction have resulted in dilution of our stock, which has contributed to the drop in our share price. As we've recently received notice from the New York Stock Exchange that our stock price does not currently meet the minimum share price requirement, I want to assure folks that we are committed to remaining publicly listed. We understand disappointment and frustration in response to this recent news, but it's important to know that this notice does not result in immediate delisting. To resolve this issue, we plan to pursue a reverse stock split, which we subject to shareholder vote. Ultimately, we strongly believe that this capital raise is the best path forward to scale our business and drive back towards profitability. Now is the time for growth, and the good news is that I believe we have the right platform, the right products, the right strategy, and the right team in place to make that happen. We are laser focused on enhancing shareholder value by executing on top line growth and being disciplined about costs. We will focus on scaling the business by driving efficient and focused execution. Over time, you'll see us shift our business mix to include more recurring revenue streams, which is not only great for our clients, but helps back a longer term predictable client relationships. We'll also focus on prudent expense management to demonstrate strong operational performance. I believe there are several opportunities we can focus on to fine tune our operations and put us on that path towards profitability. Together, these actions will accelerate our drive towards self sustainable growth. Lastly, I look forward to capitalizing on the market opportunity in crypto. We see that the demand environment is improving, which is driving increased volumes through the BAT platform. And I'm very excited about the position we are in. Moving on to slide five, I'd like to elaborate on the overall strength and efficiency of the BAT platform, which we've spent years investing in, is unique in the market and differentiates us from most other crypto providers. When you look at why our clients choose Bakkt, there are three compelling reasons I'd like to walk through today. First and foremost, Bakkt stands out because of her status as a highly regulated public company listed on the New York Stock Exchange. Our clients can have confidence that Bakkt will prioritize the safety of their assets. And let's not forget about the Bakkt Trust. Our custody solution is operated under BAC Trust Company LLC, NYDFS regulated custodian. We keep BAC's custody and trading functions separate to provide additional protection and minimize potential conflicts of interest. BAC's custody entity maintains a separate and independent board solely focused on upholding safe and effective operations. our experience and expertise in the complexity of security and compliance give our clients the peace of mind that they deserve and they need and in fact we continue to invest heavily in these areas and incorporate the latest standards and best practices and a great example of this is a recently launched collaborative custody which addresses single point of failure risk the second compelling reason why clients choose us is that we partner with clients to enable their growth. Crypto moves fast, and so does our ability to scale up and grow quickly when the markets shift. The BAC platform is very versatile, and we work closely alongside our clients to help their product offerings grow, which creates a compelling growth life wheel for BAC's own business. And the third reason why clients choose BAC is that we help solve for accessibility Our experience across both traditional finance and crypto means that we can help our clients navigate both worlds seamlessly. BAC serves as the on-ramp to crypto for our clients. So in turn, they can offer dynamic, flexible solutions for their customers. Moving along to slide six. In the year ahead, we're going to be laser focused on three strategic priorities. Firstly, growing our client network. and going deeper with existing relationships. Secondly, expanding our products, solutions, and the bat ecosystem. And thirdly, currently managing our expenses. Let me just touch on each of these very quickly. So what does that look like in practice on the client side? Well, that means continuing to execute on our land and expand strategy, expanding our business internationally, forming new relationships globally, and growing a network of crypto-native neobank and fintech clients. On the product side, not only will we be bringing back products to more businesses, but we'll also expand our product offering by introducing complementary institutional crypto capabilities, such as collaborative custody and institutional trading. And as we do this, a major driver is to strengthen and extend the BAT ecosystem through greater focus on our marketplace relationships with our business partners and then on the expense side you know we're going to clearly grow our business while prudently managing expenses we've already made progress on this front and we're going to continue to identify opportunities to strategically allocate capital and manage our operating costs so these three strategic priorities are how we will accomplish our goals of creating sustainable shareholder value and reinvigorating our investors' confidence in us. Moving on to slide seven, I'd like to talk about retail crypto trading as a driver of our growth in 2024. Our crypto trade offering is a dynamic platform that allows us to offer a suite of solutions, including trade, coin transfer, and fee on ramps. Throughout 2023, we strengthened our product offering and signed new clients to our retail trading network, which positions us to drive revenue in 2024. We'll be providing our advanced end-to-end capabilities to new retail clients, including notable crypto native names like Mobilum and Bitgen. International expansion also continues to be a key focus when it comes to scaling our business. We recently shared that we've gone live at the digital brokerage SogoTrade in Hong Kong and Singapore, both very fast moving crypto hubs. We continue to expand the long-term relationship with Happy, a stock trading platform. We're now live together in Brazil, Guatemala, and Spain, which builds already on live capabilities in Argentina and Mexico. Since these recent expansions, we've also gone live in Taiwan. which will broaden our reach in Asian markets even further. As we enter new international markets, we're working with our clients to cater to their preferences and position backed technology and offering to meet each market's demands. This includes investing in the support of new coin pairs in order to lay the groundwork for more trading volume as we expand. We have built a broad network of clients that allows us to take advantage of the tailwinds we've seen industry-wide. Our notional trading volumes have been very strong this month, with March quarterly volume up over 206% from Q4 2023. Our client assets under custody also continues to trend upwards, having recently surpassed 1 billion US dollars. The crypto industry has undoubtedly been volatile over the past few years, but I believe we're beginning to see indicators that the trading environment is improving and BAT is well positioned to take advantage of this positive market shift. Moving ahead to slide eight, let's talk about how we will further expand our institutional crypto capabilities, which will provide significant opportunities for growth. Since back we launched our custody platform in Q4, we witnessed the industry reach important milestones, such as the SEC approval for spot Bitcoin ETFs. This has led to astonishing institutional interest in growth in crypto. For our institutional client segment, BAC's highly secure and compliance-first approach to crypto, as well as our institutional-grade custody foundation, uniquely positions us. For example, I'm very excited to share that BAT just signed an agreement and intends to provide our secure custodial services to a new Bitcoin ETF provider, 7RCC. And their investment manager launching an ETF combining Bitcoin and carbon credits. We are in advanced discussions with other Bitcoin ETF providers as well. We also serve as a custodian for newly signed client BlockWire. a full-stack fintech infrastructure platform that has a focus on payments, but also offers custody, trading, and banking. We've also been appointed as a custody provider for 2 Prime, an SEC registered investment advisor that works with family offices, institutions, and corporate treasuries seeking exposure to digital assets. The company has an expertise in risk management and utilizes bespoke investment strategies for each client. Our custody solution is highly sticky and we will build incremental higher margin solutions on the stack. For example, we've added additional capabilities to our institutional crypto offerings. BAT is now available as a key agent for unchained enterprise collaborative custody product. This model helps Bitcoin holders increase security when safeguarding their assets through the use of a vault. secured by multiple institutional key agents. By enabling access to our NYDFS regulated custody through unchanged unique platform, we've created a simple and efficient way for us to continue to scale our custody business. We are also actively working to launch our own high performance institutional trading venue, also known as an electronic communications network or ECN. For those not familiar, an ECN is a technology-based solution that enables streamlined high-speed access, lower costs, and lower latency to spot crypto transactions for institutional clients. Collaborative Custody and ECN are perfect examples of high-demand products that can be developed at speed by taking advantage of the investment in consumable services that already exist on the back platform. In turn, this further sharpens our competitive edge and enables opportunities for high-quality revenue streams at low costs with minimal capital requirements, driving us towards profitability. I'm excited to share more about our growing capabilities throughout 2024. Now, I'm going to turn it over to Karen, who will speak about our financial results. So, Karen, over to you.
spk04: Thanks, Andy. I'll now walk you through our fourth quarter financial results. A quick reminder that, in accordance with GAAP, we present crypto services revenues and crypto costs and execution clearing and brokerage fees on a gross basis since we are a principal in the crypto services we provide our customers. By contrast, we are an agent in the loyalty redemption services we provide our loyalty customers, so loyalty revenue is presented on a one-line net basis. Crypto costs and execution clearing and brokerage fees which we will refer to as crypto costs and ECB for the remainder of this call, drive gross crypto services revenue. And the difference between these line items represents crypto trading's contribution to margin. Please see the notes section of our earnings presentation for additional detail on crypto services revenue and related costs. Turning to slide 10, we have our fourth quarter 2023 financial results. We had total revenue of $214.5 million, of which $199.4 million was gross crypto services revenue. Total revenues increased significantly year over year due to our acquisition of Bakcrypto, which closed on April 1st, 2023. We had $15.1 million of net loyalty services revenue. Operating expenses were $293 million. which reflects a significant year-over-year increase in crypto costs in ECB, driven by related crypto services activity. During the fourth quarter, in accordance with generally accepted accounting principles, we conducted our annual goodwill and intangible asset impairment testing. Earlier this year, we spoke about strategically allocating more of our capital towards the crypto business while maintaining existing offerings and relationships in the loyalty business. Given the pullback of significant investments in the loyalty business, we lowered long-term revenue growth expectations for this business. Additionally, the impairment accounting rules do not allow us to consider operating forecasts for new products and markets without an observable performance track record. As a result, we recognized non-cash intangible asset impairments of $37.2 million and non-cash long-lived asset impairments of $30.2 million. These charges are non-cash and do not have any impact on our future operations or our liquidity or cash flow from operating activities. Operating expenses, excluding crypto costs and ECB, and non-cash, goodwill, intangible asset, and long-lived asset impairment charges were $27.8 million. This represents a decrease of 55% year over year. This improvement is primarily due to a reduction in total compensation and benefits and acquisition-related expenses and reflects our commitment to maintaining disciplined expense management. The net loss for the quarter was $78.7 million, which resulted in a diluted net loss of 29 cents per share on an average diluted share base of 93.1 million shares. Net loss allocated to the non-controlling interest in the operating company was $52 million, leaving a $26.7 million loss attributable to Back Holdings, Inc., or a net loss of 29 cents per share, and an average basic share count of 93.1 million shares. Following our recent capital raise, our total share count as of March 15th is 321.7 million shares. Following the capital raise, ICE still remains our largest shareholder, as they own 55% of our aggregate shares. Note that their percent ownership is down due to new Class A share issuances, and not due to the sale of shares by ICE. On slide 11, we have our full year 2023 financial results. Total revenue of $780.1 million increased significantly year over year due to our acquisition of Bath Crypto. Net loyalty services revenue of $53.1 million was in line with previously provided guidance. Total operating expenses of $1,008 million represents a significant year-over-year increase in crypto costs in ECB driven by related crypto services activity. Operating expenses excluding crypto costs and impairment charges were $195 million, down 19% year-over-year, driven by lower compensation and benefits expense resulting from the execution of firm-wide expense management initiatives over the course of the year. On slide 12, we have our EBITDA and adjusted EBITDA for the fourth quarter of 2023. Adjusted EBITDA reflects adjustments for non-cash and acquisition-related items that impacted the period. EBITDA and adjusted EBITDA for the quarter were losses of $76.4 million and $19 million, respectively. On slide 13, we show revenues for the company. Total revenue in the fourth quarter of 2023 was $214.5 million. Gross crypto services revenue for the quarter was $199.4 million. The quarter-over-quarter increase that we saw in the fourth quarter was due to higher overall industry-wide transaction activity levels. Net loyalty revenues of $15.1 million decreased 2% year-over-year. This was driven by a 9% year-over-year decline in subscription and services revenue to $7.1 million. as volume-based service revenue, which includes technology development services that we offer our loyalty clients, came in lower. Note that revenue related to development services can be lumpy as it varies based on timing of client customized development requests. Transaction revenue of $8 million was up 2% year-over-year. This improvement was primarily due to higher travel and merchandise-related redemption revenue. Turning to slide 14, we have total operating expense. Total expense for the quarter of $293 million includes $197.8 million of crypto cost in ECB. These costs are driven by crypto trading volumes. As we mentioned earlier on the call, in accordance with generally accepted accounting principles, we recognize non-cash intangible asset impairments of $37.2 million and non-cash long-lived asset impairments of $30.2 million during the quarter. SG&A expenses of $11.7 million increased 39% year-over-year due to the recognition of a $3.6 million marketing expense associated with a strategic marketing agreement. Total compensation expense of $16.2 million declined 49% compared to the fourth quarter of 2022 due to lower headcount and a decrease in incentive bonuses and benefits. Other expenses of $30.2 million includes the non-cash long-lived asset impairment charge I referred to earlier. We're pleased with the continued progress we have been making in reducing our expense base through our disciplined approach towards allocating capital. This will remain a key focus for us as we look ahead for the remainder of the year, and we're committed to continuing this trend, as I'll describe further when I address our outlook for 2024. Turning to slide 15, We have a slide comparing gross crypto services revenue and crypto costs in ECB. Gross crypto services revenue of $199.4 million increased 4% quarter-by-quarter and was impacted by improving industry-wide volumes. This was offset by lower activity levels from Webull paid customers, a trend we first discussed last quarter and continued in the fourth quarter. Crypto costs in ECB were $197.8 million for the quarter. As a reminder, we continue to recognize a benefit related to the adjustment that we made to our revenue share agreement with Webull Pay to increase revenue retained by VAT while Webull Pay engagement stabilizes. This was reflected in our results for the quarter and acts as a partial offset to the declining gross revenue. The difference between crypto services gross revenue and crypto costs in ECB represents the net revenue contribution of retail crypto trading services. On a percentage basis, The net contribution for Q4-24 of $1.6 million is a take rate of approximately 80 basis points. This is higher than BAT Crypto's historical take rate of approximately 30 to 40 basis points prior to Q3-23 due to the adjustment of the Webull Pay revenue share agreement in Q3. We expect the take rate to revert back closer to pre-Q3-23 levels as Webull Pay activity levels increase. On slide 16, we have our key performance indicators. As a reminder, we have included back crypto in the historical KPI figures on this slide for comparison purposes. We had 6.2 million crypto-enabled accounts at the end of the fourth quarter, which reflects a steady increase over time. Next, we have our transacting accounts, which we break out into crypto and loyalty accounts. There were 915,000 transacting accounts in the fourth quarter, of which 700,000 were for loyalty redemption and 215,000 were crypto trades. Loyalty redemption transacting accounts were down 13% year over year due to a decline in hotel, rental car, and gift card activity. Crypto transacting accounts were down 53% sequentially as the third quarter reflected increased activity related to the delisting of certain coins. While the number of transacting accounts declined sequentially, we saw an increase of about 80% of the notional amount per trade. This led to a sequential increase in notional traded volume for crypto, which we will cover next. Total notional traded volume was $442 million, of which $203 million was from crypto, and $239 million was related to loyalty redemption. On this chart, we also have included crypto industry trading volumes, which is the orange line. As depicted here, our crypto trading volumes were up 6% on a sequential basis, but less than the overall industry, which was up over 100% sequentially. During the fourth quarter, our volumes continued to be impacted by the lower activity levels from We Will Pay customers. Also, recall that in the third quarter, our activity levels were elevated related to the delisting of certain coins. While we don't normally provide intra-quarter updates, I was happy that Andy could share the additional color on what we're seeing in Q124 trading engagement to date. We're pleased with the increased volume activity and higher coin prices we have seen in the market so far this year. Meanwhile, loyalty redemption volume was down 9% year over year due to lower redemption activity across most categories. While overall volumes were down, we did have some benefit related to the mixed shift from lower margin products such as air travel to higher margin products such as hotels. Our assets under custody of $702 million increased 39% sequentially due to higher point prices. As Andy mentioned earlier on the call, this trend has continued in 2024 with our current assets under custody surpassing $1 billion. Turning to slide 17, we have our condensed balance sheet as of December 31st, 2023. We ended the year with $70.3 million of cash, cash equivalents, and available for sale securities. Our cash usage for the fourth quarter was $20.8 million and included $4.4 million of insurance spend. Our cash usage for the full year was $169.1 million and includes $55 million of cash used to purchase back crypto. Our cash usage from quarter to quarter may include contractual payments where timing is not always consistent, as well as normal operating expenses. Excluding some of these lumpier items, we are continuing to see improvements in our operating expense base, which I'll cover more on the next slide. Our recent capital raise strengthens our balance sheet and provides us with additional liquidity to fund our operations for at least the next 12 months. As of February 29, 2024, we had $38.1 million of cash, cash equivalents, and available for sale securities. Our January and February cash burn was unusually high due to the timing of certain annual payments, such as taxes on stock vesting, as well as a $4.9 million increase in cash collateral required by our security bond insurers. We received net proceeds of approximately $38 million from the preliminary close of the capital raise on March 4th. We expect to have cash, cash equivalents, and available for sale securities of between $68 million to $72 million at the end of March. Our expected cash burn for the month of March includes a $7 million increase in restricted cash due to the conversion of the compensating balance arrangement for our purchasing cart facility to a pledged escrow account. We are committed to maintaining a strong liquidity position through prudent expense management and judicious capital allocation decisions. In 2023, we brought down our expense base significantly with second half 2023 operating expenses including crypto cost and impairment charges, declining 42% from the first half of the year. As Andy mentioned, expense management will remain a key priority for us in 2024. We expect to continue to bring down expenses, with full-year 2024 operating expenses expected to decline 13% to 18% from 2023. We are proud that we were able to take the necessary measures, some of which required very difficult decisions. to alleviate the conditions that raise substantial doubt about our ability to continue as a going concern. We are committed to doing everything possible to move onward, succeed as a business, and we are focused on enhancing value to our shareholders. Moving on to slide 19, we have updated the 2024 full-year outlook, which we first provided as preliminary guidance on last quarter's earnings call. Since we provided that preliminary guidance, we've had a few months of client activity and engagement metrics to fine-tune the wide range that we provided in November. Accordingly, we are updating our expected outlook for 2024. We expect total revenues to be in the range of $3,292 million to $5,114 million. This range includes gross crypto revenue of $3,239 million to $5,057 million. There are several factors that influence that wide range. First, we have considered a range of potential trading engagement metrics based on observed trading engagement in 2023, as well as longer-term historical trading engagement metrics. with the third quarter of 2023 being a low point for both our platform as well as the broader market. As we mentioned earlier, we've seen improved trading activity so far in the first quarter of 2024, with March volume to date being exceptionally strong. Our expected revenue range for the full year 2024 considers a reversion to 2023 engagement metrics at the low end of the range and a steady improvement engagement metrics at the high end of the range. It does not assume that the exceptional trading volume we are observing this month will continue for the rest of the year. Second, we have considered a range of possible scenarios for the activation of new clients currently in our pipeline. The range of assumed timing and conversion rate of these pipeline opportunities is reflected in the range of expected gross crypto revenue in 2024. One metric we have considered is the increase in crypto-enabled accounts from new clients. We are expecting our crypto trading accounts to grow by two to three times with a significant portion of that growth coming from new clients. Third, as Andy had mentioned earlier, we are enhancing our trading platform to support crypto coin pair trading offerings that are in high demand by international retail traders. The expected revenue range assumes that crypto coin pairs will be activated in the second half of 2024 to support this demand. Finally, our expected growth crypto revenue range assumes the addition of institutional clients beginning in the second quarter of 2024, with steady ramp-up in AUC from those clients in the second half of 2024. We expect net loyalty revenues of $53 to $57 million, consistent with the performance of that business in 2023. We expect crypto costs in ECB of $3,220 million to $5,027 million. driven by the range of expected gross crypto revenue. We expect total operating expenses of $160 million to $170 million. This range assumes expense efficiencies that we believe we will achieve through the integration of our regulated crypto trading entities beginning in 2024. It does not anticipate any acquisition or inorganic transaction expenses like the acquisition expenses we incurred in 2023 related to the acquisition of fast crypto. Included in operating expenses are $13 million to $16 million of non-cash compensation and about $1 million of depreciation and amortization. The range of expected operating expenses assume no further long-lived asset and intangible asset impairment charges and non-cash compensation expenses consistent with 2023 levels. The net of operating expenses and non-cash expenses represents our expected operating expenses for 2024. Expected operating cash flow usage of $58 million to $72 million reflects both the expected revenue and expense ranges I have walked through. Free cash flow, which is a non-GAAP metric, is expected to be a usage of between $65 to $79 million. We expect to end the year with $35 to $50 million of available cash, cash equivalents, and available for sale securities. We believe we have sufficient cash to fund our operations in 2024. As you will note from this range, we expect our cash utilization to reduce over the course of 2024 as we achieve our revenue growth and expense reduction targets. I will now pass it back to Andy for his closing remarks.
spk03: Thanks, Karen, for taking us through the financials. Before we close, I just want to emphasize how excited I am to be in this role alongside the rest of the BACT team at this pivotal time. BACT has built a formidable platform and product suite serving a real human need to help businesses bring the benefits of crypto to their customers and grow alongside the ever-changing digital economy. Our focus on compliance, security, and flexible and scalable solutions gives our clients the confidence they need to incorporate the latest technology innovations, specifically crypto, directly into their own products. While there have been ups and downs in the last few years, now that we're able to put the going concern behind us, we look forward to leveraging our product suite for our clients while expanding the client base to more businesses so they can better serve their customers. With the recent momentum in the crypto markets, we are now intensely focused on enhancing shareholder value and excited about the opportunity ahead. And at the end of the day, BAT helps our clients innovate their business models to solve for unmet or even unknown human needs. And this is why this market is so exciting and why BAT is very well positioned. People are buying and selling crypto, investing in it, paying with it, and holding onto it to see the power it has to transform our global financial system. They see the innovation, the convenience, and they want to participate firsthand in that innovation. In some cases, they want to own a piece of this. And in order to do these things, they turn to companies they trust to help meet their needs while managing the risk that's inherent in new innovations. And that's the same reason why our clients turn to BANT. Thank you, everyone, for your ongoing interest in BANT. And I'll now turn it over to Anne to manage the Q&A. So Ann, over to you.
spk07: Thanks, Andy. Let's move over to questions from the investor community. Leading into our Q&A session, we'll start by answering the top questions from Say, ranked by number of votes. We have consolidated some of the questions that address similar themes. After that, we'll turn to live questions from the analyst community. The first question we will address is around our share price. A number of investors, including Jason S. and Reggie S., would like to understand why our stock price is underperforming while prices for Bitcoin and other crypto have been very strong this year. Karen, can you please provide your thoughts on this?
spk04: Sure, I can take that question. First off, I want to convey that I understand the frustration from our shareholders over the stock price. As a fellow shareholder with a vested interest in seeing our company and stock price do well, it's been incredibly difficult to witness our stock underperform the market by so much. There are a few factors which have negatively impacted our stock. The first is related to a series of amended SEC filings, which contain certain statements around risks to our ability to continue as a going concern that were negatively interpreted by some participants in the media and investors. These amended SEC filings were part of a process for us to obtain an effective shelf registration in order to access the capital markets. As you may recall, we started the process of seeking an effective shelf in April of 2023. and work diligently with the SEC throughout the course of the year to meet the requirements. This process took an extraordinarily long time. By the time our shelf is deemed effective, we needed to raise a relatively large amount of capital to address the risk of whether we could continue as a going concern under the conservative forecasting parameters required by the accounting rules. The capital raised in and of itself also created downward pressure on our stock price as the relatively large size created dilution to our shareholders. Notably, we now believe we have alleviated the issues that led to the disclosure of the going concern risk. I know many of you have been frustrated that we haven't been in the news recently with updates around our positive achievements. As a public company, we are held to the highest standards around compliance. We pride ourselves on our approach to being compliance first focused in everything we do. That's what differentiates us to our clients and prospects. We take this very seriously. As a public company, we have to obey the rules around blackout periods in the weeks leading up to our earnings release, where we are restricted in what we are able to share publicly. I know the last few months have been challenging, and I hope that you will remain patient. We believe our stock price will react positively once we're able to demonstrate a consistent track record of building scale and driving financial results towards profitability.
spk07: Thanks, Karen. Our next question is from Working P, who wants to understand why Bakkt has not been named a custodian for the Bitcoin ETFs and what we are doing to address this. Karen, can you please take that question?
spk04: Yes, I can jump in here. As Andy mentioned earlier on this call, we're pleased to have signed an agreement with our intention to be the custody provider for 7RCC, which is an investment manager launching an ETF combining Bitcoin and carbon credits. We're excited to be entering the Bitcoin ETF space. We're in advanced conversations with several other market participants and hope to have additional updates on our progress in this space with these things.
spk07: Thanks. Next up, investors including Laura H. and Brandon C. would like to understand what BAC plans to do to increase share price and break out of penny stock territory. Andy, can you please answer this question?
spk03: Anne, thanks so much for the question. I think Karen touched on this before, but we believe by demonstrating a consistent track record of building scale, And driving our financial results towards profitability will ultimately be the impetus for driving long term shareholder value. We are committed to making this happen and will put our resources behind this to drive us forward to that successful outcome. In order to resolve potential delisting issues around our current stock price in the short term, we plan to pursue a reverse stock split, which will be subject to shareholder vote.
spk07: Thanks, Andy. Next up, Janet and Braden L. and Syed H. want to better understand the future of the company, our growth plans, and whether we can remain in business. Andy, can you please take this one too?
spk03: Yes, Anne, I'm very happy to. So we are intensely focused on making every possible effort to increase value for our shareholders. We spent the time and resources to build a robust foundation for the company, which includes being publicly traded and NYDFS regulated embedded crypto platform with separate trading and custody functions and comprehensive security and operational controls. And as I mentioned earlier, we believe we are an inflection point. Our key focus as we move forward is on leveraging a robust foundation to commercialize and scale our platform to drive shareholder value. We'll achieve this with our partnerships and growing the BAC ecosystem, strategically shifting our business mix to more recurring revenue streams, prudently managing expenses to demonstrate strong operational leverage, and continuing to innovate our products by building upon our acquisition of BAC crypto and growing our institutional capabilities. I firmly believe we have the right platform, the right products, the right strategy, and the right team in place to drive growth for our company. And I'm excited to be joining the company at this time to lead us onward.
spk07: Thanks, Andy. Our last question from the SAVE platform is from Syed H., who wants to know what FAC will do to regain the confidence of our shareholders. Andy, can you take this one as well?
spk03: Yes, sure. Thanks so much for the question. I know that we've obviously had a lot of activity lately. which have been the ups and downs of building a cutting-edge digital business you our shareholders have dealt with much of this volatility and i thank you for your continued support to us i'm excited too about our opportunities ahead to efficiently scale and deliver financial results that we as a team can be proud of i'm eager to deliver strong results for our shareholders Well, you don't know me well yet. I'm confident that with my experience, combined with back strong product foundation and core competencies, we can deliver results that will help us regain confidence from the market.
spk07: Thanks, Andy. And with that, I would now like to turn the call back over to the operator to open up the phone line to take questions from the analyst community.
spk06: Of course. We will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from the line of Andrew Bond with Rosenblatt Securities. Your line is now open.
spk01: Thanks. Hey, good evening. Andy, you mentioned the goal of being EBITDA break-even, you know, with kind of no target. And I think that the company's original target was the end of 2024. So just wanted to know what you think you guys can reach that adjusted EBITDA break-even target.
spk04: Hey, Andrew. It's Karen. Good to talk to you. In our comments, and obviously in how we've been organizing our targets, we're still striving to achieve that break even on an adjusted EBITDA basis. And we're actually optimistic about our ability to continue to activate revenue from new clients, manage expenses, and recognize the synergies from the integration of the regulated entities, which we received approval on last week. To be candid, some of the noise that we experienced in the recent disclosures about conditions that raised doubt about our ability to continue as a going concern did impact the timing of some of our commercial execution. We were obviously very pleased to report on this call in the 10K that we have resolved that risk. And that is providing the tailwinds that we need make sure that we are reinvigorating those commercial discussions, and we're seeing good traction on those. So, you know, given the disruption that we saw over the past month with some of those disclosures, we, you know, we haven't put any comments on here in terms of timing to break even on an adjusted basis, although it still remains our longer-term goal. Again, we want to just take a quarter or two to process through what's happened in terms of the pacing of our commercial discussions before we provide a more specific outlet.
spk01: Got it. Follow up in terms of the custody business, and you mentioned some potential growth from some of the ETF providers. But Vax made a bunch of announcements around partnerships and enhancements to the platform. and potential wins. So just in terms of visibility of revenue growth, when can you expect to see some of this kind of hit the top line?
spk04: Yeah, and that's a great question. So when we provided guidance both back in November and then what you saw today, I haven't broken out the institutional portion of crypto. Historically, it has not been material to our results, but we do expect that to pick up, especially in the second half of the year. Yeah, we are seeing traction in terms of names. For instance, the Unchained relationship that we announced the other week, the exciting announcement that we have with 7RCC. It's just going to take until the second half of the year before you start seeing that contribute to the overall crypto revenue picture.
spk01: Got it. And just lastly, on the trading volume quarter-to-date increase,
spk04: um i believe it's 260 from last quarter how does that translate um or how should we think about that from a net revenue perspective yeah so you know in terms of just the revenue for the year for crypto um you know that that that range that we have now on a net basis of 20 to 30 million um we you know we are definitely expecting a strong first quarter um You know, we have at the moment, you know, we're almost finished with March. You know, we see volumes, notional volumes going, you know, in the range of $560 million so far for March. So, we expect it to be a strong volume quarter. You know, in terms of the take rate on that, our take rate, as I mentioned, has been influenced by the adjustment that we had with our rev share agreement with We Will Pay. So, yeah, we were at an 80 basis point takeover for Q4. I expect that to come down a little bit, but I still think it's going to be higher than the 30 to 40 bps that we had seen before Q3. So I would expect to, you know, I think we're excited to be able to share the full Q1 trading results, but you'll see a significant uptick in the contribution of retail trading.
spk01: Cool. Got it, Karen. Thank you.
spk06: Thank you for your question. The next on the line is Peter Christensen with Citi. Your line is now open.
spk05: Thank you. Good evening. Welcome, Andy. I wish you the best of luck here. Thank you. The guide for the year end cash, is that free and unrestricted or does that include restricted cash?
spk04: Hey Pete, it's Karen again. That does not include any restricted cash. So that's truly cash that we have available to funder operations. Our restricted cash has had some movement in it as I mentioned during the call. So in 2024 to date, we did actually have to post some additional collateral related to the surety bonds that were required to hold. We did also move some cash that we've always disclosed as supporting the Bank of America purchasing card facility into a facility that will not be restricted cash. So we've taken all of that into account when I have provided the expectation that we'll end the year at about 35 to 50 million.
spk05: That's super helpful. And as I think about, like, the business going through a scaling phase, I would assume that would acquire additional collateral for some of your business lines. Just how are you thinking about that and factoring that throughout this year?
spk04: Yeah. So, you know, as we mentioned, we saw an exceptionally strong Q1, an exceptionally strong March in particular. We actually work with a number of liquidity providers to make sure that we have multiple sources of liquidity for every coin we offer on the platform. So we've been able to manage those liquidity relationships with the cash flows that we have on hand. The forecast that I provided has what we believe to be the best estimate in terms of what's truly available for cash and operations and does not anticipate any significant increases in, for instance, you know, segregated, restricted cash accounts in that regard. And so far with what we've seen in trading in March, that has sustained, you know, that assumption has sustained itself.
spk05: That's helpful. And then I guess, I mean, thinking towards the end of the year, uh i'm not going to make any presumptions about 2025 and the need for cash at that point but assuming that the company will need to raise further capital uh and given the process uh filing the shelf and stuff is that something you feel like you're in a better position to expedite for potential future funding um just just want to get a sense of that thank you
spk04: Yeah, so certainly having the shelf helps us quickly access additional liquidity should we need that. As I mentioned on the call, we believe we have sufficient liquidity for at least the next 12 months. And so it's not 12 months and we fall off. There's at least 12 months from how we have to think about disclosing the liquidity position of the company. So at the moment, there is no anticipation in the near term that we would have to access the capital markets again. But certainly having the effective S3 gives us the ability to do that should a situation change.
spk05: That's great. And then I guess I wanted to ask Andy real quick about collaborative custody and the pockets of demand that you're seeing there. I was just wondering if you could put some color on that business and some of the demands that you're seeing from clients for this product. and really how back fits in.
spk03: Yeah, yeah. So thanks for the question. So that's a really exciting area for this. And it's, you know, we view it as really innovative, right? So like what it does, right? And we're working with Unchained Capital as our partner in bringing this to market. But unlike traditional custody, where we as custodians have full control over over the client's key material. In collaborative custody, we only hold and secure a portion of the key. So it's just like a really good solution to give clients more control over their assets, which is super important, right, for an offer. So you're right. I mean, it's opening the door to new revenue streams. And so we're really going after the market here. And we think with this, it will increase our assets under custody as a result, which is only good for BAC's overall revenue picture.
spk05: That's helpful. Thanks all for the deep transparency. Thank you.
spk06: Thank you for your question. Our next question comes from the line of John Roy with Water Tower Research. Your line is now open.
spk02: Great. Thank you. Andy, certainly there's been a lot of discussion about scaling up this year and in future years. I wonder if you could give us a little more color on your experience that would relate to how you would scale up and how your background can help manage this process.
spk03: Yes, thanks for the question. I think a lot of people also have that same question as well. So first of all, I know back super well, right? Because I was on the boards for the last couple of years, even before the D-SPAC. So I've been very intimately involved with the business and particularly in my role on the board, I was working a lot with product development, marketing and sales. So I was really helping in the market with our teams there. So that's built in relationships. And then secondly, the crypto market overall is something I'm very passionate about in terms of the needs it solves for people who want to participate in this, not only in consumers, but also like institutions who are, you know, taking positions in crypto on behalf of their larger investors too. And then, you know, most recently, I would say that I am a business builder. And I think that's been evidenced from the fact I was one of the folks who, scaled Deloitte Digital into a multi-billion business from a fairly it's basically a startup to begin with clearly within a large company but we scaled that into a very large business and then recently I was the global CEO of Ogilvy you know the advertising marketing creative agency company and basically led a turnaround of that business and got it back on a path to sustainable growth and higher profitability, but did that also well ahead of market expectations. So bringing all these things together, I believe, is a really good confluence and all these intersections that will work in the context of BAT. And then just when I was at Deloitte Digital, as BAT is a digital platform business, Deloitte Digital very much is part of this business. It was all about digital platforms like connectivity, speed, convenience, with great branding and great service and all that good stuff and the latest technology. And certainly got a very good aptitude towards how to build and get leverage from digital platforms. And one thing that excites me about Bakkt is that we built this amazing platform and we've got all these services that are there for consumable to build on future offers. So our ROI what we built thus far should be super good because we've got all that to play with to take us forward so but that's why that's why i do that um like my prior experience can come in very helpful in this rollback that um that i've taken on all right thanks andy so karen has a slightly different question um if you look at the linearity of net revenue through the year
spk02: Can you give us any kind of color on how we should be thinking of that from a modeling perspective?
spk04: Sorry, Jen. Were you asking about the revenue or the operating expenses? I didn't catch that piece of it.
spk02: Revenue, net revenue.
spk04: Yeah. So, I mean, in terms of, we've obviously provided a guidance range. You know, when you take the revenue numbers that we have provided on the crypto side, and deduct the crypto cost in ECB from the gross crypto revenues, we're getting a range of 20 to 30 million. And so what we try to do in thinking about that range is consider a variety of potential things that could influence where we land. One of them is clearly what we are seeing in terms of retail crypto trading demand. As we mentioned several times, March has been exceptionally strong. In the high of my range, I'm not assuming that that exceptionally strong levels continue at the same level. But I do think that when you think about how the platform has performed in 22 and 23, I think we are coming out of the dearth of trading that we saw in the third quarter of 23. I also commented a bit in terms of what we are expecting and working on in terms of new client activation. So there's certainly timing considerations there. There's also things where, you know, as Andy mentioned, we've been listening to the voice of our customer in terms of what's going to make them and their customers most successful in terms of what they're seeking out of crypto. So, for instance, internationally, we know that USDC and crypto coin pairs is really important to that customer base. So we're working on getting that stood up and we should see some influence on that in the second half of the year. And then, you know, thinking about what we're seeing on the institutional side, as I mentioned from a previous call, I think you're really going to see that, you know, start picking up with, you know, us getting assets under custody in the second quarter and then seeing those steadily ramp up through the year. So hopefully that gives our investors some sense in terms of the things that we're looking at both internally and within the market that will influence where we'll land on a revenue basis.
spk06: Thank you for your question, John. That concludes today's call. Thank you for your participation and enjoy the rest of your day.
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