Q2 2022 Bakkt Holdings Inc Earnings Call
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Greetings and welcome to the back second quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation. As a reminder, this conference call is being recorded I will now turn it over to Ann debris head of Investor Relations at <unk>. Please go ahead.
Good morning, and thank you for joining us for <unk> second quarter earnings call today's presentation, including the separate earnings call presentation that can be found on our Investor Relations website at www dot investors that back dot com will contain certain forward looking statements about that these statements are based on the current expectations of the management.
And are subject to uncertainty and changes in circumstances, many of which are beyond <unk> control, 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 uncertainties related to <unk> business. Please refer to <unk> filing with the Securities and Exchange Commission, including the discussion of <unk> risk factors.
In its most recent annual report on Form 10-K, and its subsequent quarterly report on Form 10-Q. 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 the basis of presentation for our financial results and our non-GAAP measures. Please refer to earn.
Release, which was filed this morning with the SEC.
Joining me on today's call, Kevin, Michael Chief Executive Officer, and Karen Alexander Chief Financial Officer. After our prepared remarks, we will answer questions. We received from our investors say technologies platform after that Gavin and Kevin will be available to answer questions from the analyst community ill now turn it over to Kevin.
Thank you Ed good morning, everyone and thanks for joining with.
We've stated our vision before we the leading platform that is connecting the digital economy.
This means powering commerce, and enabling consumers businesses and institutions to unlock value from digital assets, while providing trust and transparency.
I'm incredibly proud of the strong momentum we've gained as we continued to grow during what's been a very challenging environment.
Now, let me talk about the market for a moment.
It shifted considerably around us from both the macroeconomic and market perspective.
Headwinds that consumers and businesses with inflation higher interest rates risk of recession and volatility in the markets across many asset classes.
Crypto market has clearly been challenging as the collapse some coins and other company filings caused stretch to investors lending platforms and abroad itself.
These external factors would clearly weighed on the bottle with some companies elongated decision timelines on strategic priorities such as crypto clients.
Recent events have also led to more attention from regulators on the crypto space and the market anticipates more stringent rules when customer protections to come.
Our view is unchanged greater regulatory clarity will bring additional clarity to the crypto economy and help the market mature.
We will continue to watch this space closely and.
Collaborate with regulators would say characterization evolves.
Beyond <unk>, we are seeing the impact of summer travel supply constraints reduced opportunities to consumers to redeem their loyalty points could travel experiences like slides.
Even amid all of this challenge we remain in a solid position.
With $315 million of available cash and other liquid assets at the end of Q2, we are well capitalized to continue building through this time.
We can be opportunistic and ready for the eventual upswing.
Our platform has diverse revenue streams across loyalty crypto and payments that provides stability in a volatile environment.
It's what helped us achieve strong revenue growth this quarter and enables us to solve part of the pain points and shape creative new approaches for example, enabling banks to appeal to a younger more tech savvy customer or enabling consumers to use our brands reward points to pay for their everyday purchases.
There is real consumer demand driving these shifts.
Our robust risk management framework enables partners to feel it's sure that we are well prepared for various market environments. Our.
Our infrastructure provides multiple layers of protection and provides heightened security and compliance and we will go deeper on what that means in just a moment.
And we are disciplined in our capital allocation decisions.
Ruthlessly prioritizing our product plans to ensure we can build both our long term roadmap.
And were there any slowness in the market.
Strong companies use challenging market conditions to be opportunistic and come out of this cycle, even stronger while others are slowly and halting growth to learn we continue to hire and expand to future growth.
It's been a great market to do so.
We are well positioned to be the site trusted and innovative platform of choice to deliver widespread utility to our partners and consumers.
Let's talk about how our platform meets shifts in the market.
First and foremost crypto isn't going away and there's still interest and momentum with our partners. Many of whom are multinational companies who've been watching this space for a long time and understand the peaks and troughs.
Jim or interest in crypto also remained solid.
Our recent morning consult study shows only a 3% drop in U S. Adults considering Doug purchases from January to June of this year.
With that being said, we anticipate that some partners may move at a slightly more conservative pace than we previously expected.
<unk> continued to make steady progress with our partners across the board and still expect to activate our crypto services in the second half of this year with an increased ramp up in 2023.
We are continuing to win a crypto capabilities to meet shifting market demands.
Crypto shifts from being viewed as an investable asset to a more widespread utility across consumers businesses and institutions.
Decided to work with our partners to unleash its full functionality and utility.
And loyalty, we're seeing recent shifts in consumer behavior.
Consumers are valuing their loyalty points, even more in a challenging economic environment as.
As a way to offset rising costs consumers are looking to find ways to maximize their buying power.
This presents an opportunity for royalty programs to differentiate their brands and drive affinity by providing additional opportunities for customers to redeem their points.
And that's where we come in.
Our increasing engagement with our royalty platform users through funded offers and incentives and expanding our storefront options to provide much more choice.
Crypto rewards also plays into this opportunity.
Is it through redemption of points to crypto.
Earning crypto through everyday spending consumers have an opportunity to possibly acquire a new asset class and brands can attract new customers through innovative loyalty initiatives.
So let's discuss how our platform is designed to make us a trusted and reliable partner.
From inception.
<unk> was built to enable investors and consumers alike to transacting crypto currency and other digital assets using our platform that meets the highest standards for security risk and compliance.
Crypto solution utilizes two separate individually regulated subsidiaries.
<unk> Trust company, our qualified custodian of bitcoin and Isa.
And back to marketplace, which operates our consumer facing crypto currency platform.
The separation of custody and exchange functions provides additional protection to investors and minimize any potential conflicts of interest.
Backs marketplace, how the virtual currency license <unk> license from the New York State Department of financial services.
DSS.
This is often considered the gold standard of state financial services regulators.
Back to marketplace also has money transmitter licenses from every state in the U S where required including New York.
<unk> Trust company is a limited purpose trust company supervised by NY DFS.
It is overseen by a separate and independent board of managers, whose focus is on the site and effective operation of our crypto custody operations.
Custody solution Leverages, both warm and cold storage, we have insurance policies.
Crypto held is solely regarded as the consumers property and it's never used for lending sledging or other similar purpose.
Lastly, <unk>.
All crypto currency that is made available to consumers within the backed ecosystem is sourced by backed market place from its bilateral trading arrangements with other institutional trading firms.
When that crypto is bought into the ecosystem back to uses industry, leading blockchain analysis techniques to ensure that it is not linked to illegal or initial activities.
The crypto currency markets are volatile by nature, and Thats not always a bad thing volatility presents opportunities for investors and made increased transaction activity.
But with volatility you need a strong partner platform to operate all one that isn't going to make any risky decisions and disappear when those bets.
Favor.
Our platform is built for this.
We will continue to lean into our compliance first approach.
It will lead to long term sustainability of our business.
Our platform provides a foundation for broad and long term utility of digital assets.
Most product suite, including our crypto and loyalty platform capabilities enables us to work with partners on several fronts to take advantage of market opportunities.
We're investing in things that have staying power.
And while the opportunity for our partners may be plentiful.
Important to understand that our platform is really designed for simplicity.
We have a single platform with flexible API and institutional grade Tech stack.
What we're doing is changing the presentation of the technology. So the scalability across our platform is highly leverage able.
It is designed to integrate quickly and support our partners at scale.
Create solutions they need to engage customers at every step of say journey.
Flexible simple powerful say compliance focused.
These are what differentiate us and make back the platform of choice for partners and consumers alike.
Our platform provides a stable foundation upon which our partners can innovate to develop products and services that really delight their customers.
We bring that creative ideas July , enabling new and innovative customer experiences.
We have built to make these types of opportunities.
With low barriers to entry.
With complexity that comes with crypto and an increasing regulatory focus the BACS platform continues to grow in relevance to partners.
The staying power of digital assets.
We remain steadfastly focused on execution.
We continue to deliver results to our partners and our customers even in this challenging macro environment.
Since our last earnings announcement, we've remained hard at work on our partner product integration engaging with new partners and launching new offerings.
A few examples of what we've accomplished this last quarter.
We signed a strategic alliance with visa and we're excited to provide our solutions to visa has extensive network.
We're delighted to be working with the mayor of Miami to activate the Cd's crypto ecosystem.
We signed a partnership with Sullivan bank, making them the newest bank joined the backed crypto connect platform.
We've collaborated closely with Pfizer to enhance our market readiness processes and this includes training developing sales collateral and launching on their app market.
We've processed more than 50 billion loyalty point redemptions on our platform in the first half of 2022.
And we continue to grow our redemption offerings. For example, we've introduced cruises onto the platform and we continue to work for additional opportunities to collaborate with partners to delight customers.
We're making progress every day towards achieving our vision and we're not slowing down every step we take brings us closer to achieving our vision of connecting the digital economy.
We remain focused on building scalable and repeatable processes and working with our partners to build awareness and understanding.
Worked with Fiserv is making progress in our collective go to market plans across engineering sales marketing and product.
We've completed the training of fiserv relationship managers on crypto connect and we're starting to co develop the go to market model on our other drug products, such as backed crypto rewards and backed quick payout. This is all based on the model we've established put back to connect.
Enabled the fiserv rins to have active partner conversations about backed and our offerings with financial institutions.
The work underway with Pfizer illustrates the power of our B to B to C go to market approach and the scale and reach that it can help us achieve.
By working with our partners and making our capabilities available today clients, we're better able to drive awareness and adoption of backed crypto products.
That in turn can reach millions of customers.
We're leveraging other partner distribution channels and have been collaborating on <unk> sales and marketing activities.
And this means everything from educational support materials to landing pages marketplaces, and Webinars. Here's an example of the great work that we've already done with fenestra.
Closely with sales marketing and technology teams to go to market and our integration with them is nearly complete.
We're pleased with the overall progress and we're working closely with partners to constantly test the market and evaluate our path forward.
While our primary marketing strategy is joined co marketing campaigns with our partners, we're making strides to further build out our brand awareness and provide education and thought leadership on the crypto economy.
Our brand awareness is building through multiple initiatives, including the launching of our ask the expert series.
Our active product marketing campaigns.
And launching thought leadership materials, and establishing primary research, which provides valuable data to inform focus areas.
Our back pad has growing to almost 2000 participants only just three months.
Despite all the work we're doing to build awareness around backed the way we go to market without partners does not present any brand or channel conflict.
We operate in such a way that our partners can fully embed our platform and use their own branding rather than ours.
Fact buybacks.
And with that I'm delighted to pass it along to our newly appointed CFO , Karen Alexander to review, our financial results for the quarter.
Thank you Kevin and good morning, everyone I will now walk you through the second quarter financial results. As a reminder, we use the term predecessor to represent the results of backed holdings LLC prior to October 5th.
These results exclude any results from BPC impact acquisition of holdings.
Successor represents the results of backed Holdings, Inc. From October 15th forward, which is the post merger period.
Combined referenced that it's the combination of predecessor and successor for the applicable period. This is a non-GAAP take care.
Turning to slide 14, we have our second quarter 2022 financial results. We saw strong net revenue for the quarter of $13 $6 million, which increased by $5 1 million or 60% compared to the second quarter of 2021.
Primarily driven by strong activity from our royalty production.
<unk> recent partners. The key driver here is the rebound in travel as we've come out of the pandemic.
We have had.
Seven 1 million of operating expense in the period.
Is up $17.3 million or 43% year over year.
Due to an increase in noncash compensation and head count the net loss for the quarter was $27 $6 million, which resulted in a diluted net loss of five cents a share on an average diluted share base at 71 2 million shares net loss allocated to non controlling interest in the operating cash.
With $23 $7 million, leaving a $3 9 million loss attributable to backed holdings, Inc. For a net loss of five cents a share on an average basic share count of 71 2 million shares.
The diluted EPS calculation considers the tax benefit from the <unk> utilization that would be created if the partnership shares converted to class a shares as a reminder, any dilution from the partnership shares in the future will be dependent on the usage of their mainly bts.
And slide 15, we have our EBITDA and adjusted EBITDA for the second quarter of 2022.
Adjusted EBITDA reflects adjustments for noncash and acquisition related items that impacted the period.
EBITDA and adjusted EBITDA for the quarter were losses of $26, eight and $29 $6 million respectively.
<unk> adjusted EBITDA was primarily due to increased investment in growing the company.
In the second quarter, we had 39 $7 million of cash burn as we invested in our business to drive future growth.
For us with about $315 million of cash and other highly liquid assets readily available representing significant liquidity as Gavin discussed earlier, we have plenty of liquidity available to south bend, our roadmap should macroeconomic headwinds continue.
On Slide 16, we show net revenue broken out between subscription and service revenue and transaction revenue.
Total net revenue in the second quarter of 2020 to $13 $6 million and increased 60% compared to the second quarter of 2021.
Revenue growth that we have seen in the most recent two quarters is the result of an increase in enterprise customers and return to travel volume to pre pandemic 2019 levels through may as COVID-19 impacts have subsided.
Service revenue is tied to volume in our contact centers. So can be more variable depending on activity levels. While subscription revenue is more of a recurring stream of revenue transaction revenue is directly tied to customer redemption and crypto by cell activity.
Turning to slide 17, we have total operating expense total expense for the second quarter was $57 $1 million, which was up 43% year over year.
Compensation expense of $34 $2 million increased 72% compared to the second quarter of 2021.
This is driven by noncash compensation charges related to the issuance of restricted stock units as well as increased head count as we invest in the business to build our product roadmap and public company infrastructure.
On slide 18, we have akshay performance indicators.
Kpis reflect the full breadth of Howard capabilities, our access across both partner and best experiences and across crypto and loyalty experiences we have.
Look at transacting accounts as an important metric to reflect activity and our overall platform from our b to B to C model transacting accounts across the bank platform were 681000 in the second quarter of 2022.
A 10% year over year.
Digital asset conversions are a dollar weighted measure and were directly aligned to revenue growth.
<unk> of $205 million for the quarter was up 60% year over year, which reflects strong growth, let me start in loyalty redemption, particularly travel.
Crypto buy sell volume is currently a relatively smaller portion of our overall platform activity.
We expect this to increase materially in 2023, as we activate the partners, we have announced as well as build new relationships, while our travel volume is seasonal and historically highest in the first quarter.
Sign increasing travel volume this quarter compared to the second quarter of 2021, reflecting strong post COVID-19 demand for travel.
On slide 19, we thought it would be useful to provide updated guidance for the full year 2022.
This revised outlook reflects the market conditions that Kevin described earlier net.
Note that our guidance assumes no further significant disruptions from the COVID-19 pandemic and any potential.
Acquisitions are not included in our projections or guidance is also subject to market conditions through the remainder of the year.
Net revenue for the full year is expected to be between $57 million to $62 million, an increase of approximately 45% to 60% compared to 2021 combined net revenue.
This outlook reflects the elongated decision time frames that gap and described in the crypto market.
We expect to activate our batch crypto services with partners in the second half of this year. We now expect the increased ramp up to occur in 2023.
We're still seeing demand for crypto products from our consumers and partners.
More a matter of when partners will develop that crypto strategies not yes. The updated revenue outlook also reflects a softening and travel loyalty redemption volume that we have seen sales channel.
There is still strong demand from consumers to use their loyalty points for travel.
Limited airlines supply and high prices have reduced some of these opportunities we have begun to see airfares receipt in late July .
The low end of our revenue guidance reflects the risk that travel volumes do not return to the 2019 seasonally adjusted levels that we saw from February through May.
The high end of our revenue guidance reflects our expectation of our strong merchandize and other transaction volume during Q4 as.
As Gavin mentioned earlier, we believe the current macroeconomic conditions present opportunities for our loyalty redemption platform as consumers are looking to use rewards to increase their buying power.
<unk> seen evidence of this in the customer activity on our royalty platform. We are seeing a higher conversion rate of website visitors redeeming points compared to 2021.
We are responding to this volatile macroeconomic and crypto currency market by prudently, reducing our cash burn. So we can remain well capitalized to meet market demand while building out product capabilities that have long term utility in the cryptocurrency market.
We are targeting using $135 million to $140 million of cash available and other highly liquid assets of the entire course of 2022.
This estimate reflects a reduction in the second half of 2022 cash burn at <unk>.
Keen to 20% versus the first half of 2020 here we.
We are managing our capital allocation by reducing discretionary expenses, while still investing in our platform. We believe these platform investments presents the best opportunity to provide returns to our shareholders as they provide the foundation for future growth we.
We will adjust our plan as needed according to observe business trends and as additional opportunities appear our capital allocation strategy is expected to leave us with an estimated $250 million to $255 million in cash and other highly liquid assets at the end of the year.
We are continuing to invest capital to grow our business and therefore expect to operate at a quarterly loss throughout 2022.
That concludes my section on the financial results I will now turn it back over to Gavin for his closing remarks.
Our priorities remain consistent from previous earnings reports and aligned with our vision to connect the digital economy.
As I've said before we're laser focused on execution and we're not slowing down we're well positioned and agile being able to adapt to shifting macro environment, we have a strong balance sheet with plenty of liquidity.
We have a diversified business that provides flexibility and our revenue streams and also what we can offer our partners.
We have robust risk management practices the best.
System was created from day, one with safety and soundness at its core differentiating us from many other players in this space.
We're highly disciplined in making capital allocation decisions and our focus is on long term growth and we will.
To achieve this by bringing products that provide widespread utility.
Consumers.
I hope you can feel our enthusiasm and passion for the team and collective Jud, we're committed to delivering long term sustainable value to our partners.
Customers and to our shareholders.
Now I'll turn it over to Ed to manage Q&A.
Thanks, Kevin lets move over to questions from the Investor community, leading into our Q&A session. We will start by answering the top questions from say ranked by number of votes given the value of the questions. We have seen we will look to skip those questions that were addressed in our presentation, particularly those around strategy and long term vision, which Kevin touched upon earlier will also good.
The other questions that share common themes after that we will turn to live questions from the analyst community. Our first question is from Sarah <unk>.
Who asked what happens to the Apple pay integration Kevin can you. Please take this one yes sure let me do this one yes.
<unk> platform is already integrated as a payment option on Apple pay our customers had the ability to seamlessly.
The point of sale with their digital assets via the back debit card anywhere Apple pay is accepted.
B to B to C go to market strategy provides a strong distribution channel to make this functionality more widely used.
For example, we went live with Wyndham rewards members on our platform earlier this year and now their rewards members can use their points to pay for purchases anywhere Apple pay is accepted.
Our Apple store fronts available as part of our loyalty redemption offerings is another great part of our platform and our relationship with Apple that truly differentiates us from others.
Thanks, Kevin Karen. This next question is for you Justin J wants to know with this current recession and being a new company is there any concern of bankruptcy or lack of growth.
And while there are certainly headwinds in the market. We believe we are well positioned to be opportunistic and to continue to grow our business. We have strong liquidity with over $315 million of available cash and other highly liquid assets on our balance sheet. This capital puts us in a position to self fund our roadmap and achieve.
Our growth targets shut the macroeconomic environment continue to remain challenging for a prolonged period.
Furthermore, the diverse nature of our business allows us to lean into various aspects of our platform with partners depending on what their needs are we feel confident that our platform capabilities and with an addressable market of well over 100 million users. There are existing partners, we will achieve our growth plans also.
I just wanted to note that in the highly unlikely event of a bankruptcy customer assets are protected by the bank trust segregation of customer assets as a key mechanism for protecting them, which is why we are structured in that way.
Thanks, Karen next up Timothy Dws, when more back to have the ability to then crypto to an external wallet.
I'll take this one.
Thanks for the question, we're very focused on this enabling the ability for our partners to allow their consumers to directly deposit and withdraw crypto to the best platform remains a top priority.
As with everything we do we don't sacrifice security of regulatory compliance with any of our new features products and services as we had done some.
So work is well underway to ensure that we have the right tools controls have monitoring in place on the compliance side to ensure we protect our customers and comply with all of the relevant regulations.
Our rollout of this capability is subject to regulatory approval and we look forward to providing you with additional updates in the near future as more of our partners go lives.
We will take one more question from the same platform. Our last question is from working Pease, who notes that at 8% to 10% inflation factors, losing purchasing power of its cash balance and wants to know why haven't we considered a share buyback of $40 million to $50 million are there limitations around ice ownership increasing beyond the threshold.
And I can take that question.
Best use of our cash right now, especially given the current macro environment, but in the long term growth of our company.
We understand that it might be attempting to do with share repurchase at this environment. We do not want to make short term decisions that could negatively impact our long term growth goals.
We think it makes more sense for us to think about returning cash to shareholders. When we are generating positive adjusted EBITDA.
Thanks, Karen.
That I would now like to turn the call back over to the operator to open up the phone lines to take questions from the analyst community.
Thank you if you would 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.
To ask a question press star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question. Our first question comes from the line of Owen Lau with Oppenheimer. Your.
Your line is now open.
Good morning, and thank you for taking my questions could.
Could you please add more color on your strategic alliance with visa.
It's Steven partnership different from your partnership with Mastercard and if you can also give us an update on the progress of activation.
On basket cost that would be great. Thank you.
Sure. Good morning, it's Kevin I'll take that thanks for the question.
With respect to these look we've just signed a strategic alliance, it's very early days.
Working closely to collaborate on what Scott.
We're really excited to be working with them.
We don't see it creating any issues with our other partners. We have robust agreements that really don't have any conflicts when we look across our landscape.
So we're excited to be working with a lot more to come in terms of overall activations. We continue to see strong traction in the go to market model across our partners.
Not.
Not just part of the traction the thing Thats really helpful is that we're becoming part of the crypto marketing Cryptos sales process.
Seeing a number of expense of opportunities ahead of US we're doing significant work as we've said before around the integration for multiple use cases with our partners to connect our capabilities into their platforms in a very seamless way.
We're expecting to see the early wins that we've had with signing of several of the community banks, we see activations in the second half of this year and obviously an increased ramp as we go through 2023, we're really working right now to ensure that what we build.
As robust.
Capability behind it and is ready to launch at scale in a highly repeatable fashion.
Another thing just to note is that we are a b to b to C business model, but theres enormous amount of work that happens with the Middleby without partners goes on behind the scenes.
Not many people really get to see the collaborations.
<unk> is a cross a joint engineering teams our go to market teams and going live with each of these partners is obviously not an endeavor that we take lightly in any respect what we're doing is being very thoughtful and very careful so that when we do go lives. It is a very seamless experience for our partners and for their customers.
We.
We truly believe that we want to see our partners get the very best and that's what we're striving to deliver for them.
So we expect to see Activations in the second half and then ramping through 'twenty three.
Got it Thats very helpful. My follow up is.
Could you please share more information about your engagement with EMEA of Miami, what other use cases, you're exploring with bill pay al capabilities, but I guess more broadly.
How do you see the penetration of the blockchain applications in the payment space over or do you see.
Do you see a more pushback or do you see you have auction continue it's more broadly speaking.
Yes, we're excited to be working with demand. It's early days again in the in the collaboration we see.
Boeing payout capability to be used to allow people to get paid in crypto, we've spoken about that before where we see traction in appeal with people wanting to receive a portion of their wages salaries of fees in crypto and Thats. Another example of some of the work that we're doing we also see broader application as we bring.
80 to the crypto economy to allow payments and rewards to really come to life inside of the work that we're doing more broadly, yes, we're seeing it shifted narrative around the way that the.
The crypto is being viewed.
I see.
Move from providing not just the ability for people to buy.
Buy and hold crypto to people to be able to earn it and get paid.
That's really just the very beginning the store of value use cases, certainly there over time and we really believe the digital gold narrative of load is too limited. It was designed as a peer to peer electronic cash and that's the way it's meant to be used it's not meant to be just held.
So while we see that people have shown a desire to acquire group with the hope of participating in some form of appreciation over time, we don't believe that takes away from the applications and the utility of it in a much broader sense.
Whilst we see the digital gold as the first we don't see it as the last application of Bitcoin and so we're working to understand how you could programmatically.
Is.
Sure.
Big coin, how you can look and stream as you think of it as a new form of payment. We're looking to how do we establish new forms of payment through the use of the technology over time, that's the focus as we move forward.
Got it thank you very much.
Okay.
Thank you for your question. Our next question comes from the line of Trevor Williams with Jefferies.
Your line is now open.
Great. Thanks, Good morning, so on some of the big partnerships I'm thinking fenestra Fiserv Mastercard I know you just touched on those but maybe asked a different way just gavin with the time that's elapsed since those were announced maybe just give us a sense for kind of how things are tracking relative to what your expectations would have been at the time of the announcement maybe.
Where you've been surprised both positively and negatively and if youre expecting any contribution from either of the three in the second half it sounds like Youre thinking now kind of a steeper ramp in 2023, but any help there would be great. Thanks.
Yes. Good morning. Thanks for the question, we certainly the partnership's themselves certainly present, the same degree of potential they did when we announced them. We're excited by the leverage that these give us and the b to B to C model by expanding our reach we spoke during the presentation.
The work that's happening with Fiserv and was fenestra as we enable they go to market and the sales teams and you can see that you continue to see us announce partners that come through that those relationships like Sullivan bank today.
Our focus has really been on getting the integration of the platforms.
Happened in a very seamless way.
We expect to see the early activation through the second half and then the ramp in 2023 I think that's always been our belief is we've entered into these partnerships and whilst the macro presents some.
Some potential challenges in the way decisions are being made we still see the full potential that we saw when we originally announced.
Partnerships.
Got it okay. That's good.
And then just on the cut to the second half cash burn on the lower expenses can you just put a little finer point on where specifically you're pulling back in terms of investment if theres anything specifically you would call out on the product roadmap, that's getting pushed out or if it's more on the sales and marketing side any color there would be great. Thank you guys.
<unk>.
Thanks, Josh I can take that one.
As we are continuing to work on investing in the product road map to activate those.
And be ready for the Activations that will help.
Start happening on the partner side in 2022, and really ramp up in 2023.
We had originally anticipated.
A certain amount of expense associated with partner Activations happening.
At a higher volume in the second half of 2022, so that's certainly a piece of it.
And then even beyond that in this macroeconomic environment really taking a look at the discretionary expenses to make sure that we're laser focused on at the expenses that we'll build out the road map and activate partnerships and respond to where we see that we can meet our.
The needs of our customers and key partners is really where those cuts are coming from.
Got it okay. Thanks, so much.
Thank you for your question. Our next question comes from the line of Pete Christiansen with Citi P. Your.
Your line is now open.
Thank you and good morning. Thanks for the question here I just wanted to hit on that on that last point real quick I think it makes sense.
<unk> cash spend would go down with some revenue being pushed out.
Can you talk about being increasingly prudent in this environment.
But in terms of the reduced.
Cash burn outlook and juxtaposing that with what you said earlier about continuing to hire and to scale and given the current environment actually is conducive for that.
How should we.
Internal scaling at this point and the pace of it.
And.
Do you still remain on track for that internal scaling.
Yes.
Yes, if Gavin mentioned, we are continuing to hire we do believe this is a good market actually just given what's going on in the environment to find great talent that can help us build out our product roadmap.
Looking at our hires were really focused on the hires that you know frankly draw a direct line to the revenue growth that we expect to see as we build out and activate the partnerships and so I think we're one of the areas, we're being more prudent and hiring is real.
Looking at the door.
The non sales and non tech development areas, where we can work smarter more efficiently.
Really look for efficiencies with our service providers to make sure that the hires in the investments we are making are directly contributing to the build out of say products and the activation of the car types.
We are still hiring.
Okay. That's helpful.
Follow up Kevin I was just wondering if we could dig a little bit into.
Some of the elongation of decision making.
That that Youre seeing here.
Just trying to understand how broad based is that is it really concentrated on.
<unk>.
Just a select few of integrations or sign ons or.
Is it something more broadly given what we've seen in and regulatory on the crypto side, but also just the price level is coming down and then a follow up to that is.
How are you feeling about <unk>.
This development productivity at this point.
Given some of the corrections we've seen in the market.
Hey, Thanks for the question nice to hear from you with respect to the decision cycles I think what we've said and what we're seeing is kryptos here to stay it's got proven staying power. What we are seeing is in the power of our platform is that our partners are looking for different entries into the group to our economy.
To work with them simple trading solutions, maybe there's a hesitancy and whether they want to enter that given the volatility of the market be switch that around you talk about what we can do with crypto rewards, how we can enable crypto payout and all of a sudden the discussions.
Take on a new a new bed I think what you see and what we've emphasized constantly is the ability for us to be able to expose our capabilities in new and creative ways to allow our partners to be able to innovate on our platform in a very safe secure and scalable manner. So when we talk about any location.
The cryptos going away, it's just simply that people are forming whats the right entry point into the market and the great thing about the platform is it allows us to be able to have those discussions in those varying contexts.
With respect to the to the second part.
Yes.
Our view is.
That actually can you just remind me of the second part.
Well, Yeah first I wanted to follow up on what you just settlement.
I'll ask the second part again, but.
Is there any concern on your potential pipeline here the partners there associated with it.
Are they look given we're starting to start see a lot more on the legislative front, particularly in crypto as it does that become a hang up.
At all in their decision processes.
No.
As I say that people realize its here to stay our partners realize it say at the state and Theyre looking for different and increasingly innovative ways to enter the market and that's the strength of the platform.
The ability to be able to redeem a set of points into crypto.
<unk> ability to be able to.
Group donor and everyday spend is a very different proposition from a simple buy sell and trading.
<unk> ability.
So we're excited still by the fact that we're able to service a range of these cuts to a range of these customer and partner dialogues with respect to productivity around ourselves team. It continues to grow as we get more.
Refined and the way the message is being delivered and you saw some of that and the way in which we're doing the marketing and brand building. We now have ask the expert series, we have product marketing functionality, we have great short leadership, that's coming out and importantly, and to the point about what what our partner <unk>. We have primary research capability now.
Helps verify and validate many of the con.
Concepts and.
Products that were taking to market.
So I think the productivity continues to increase and the engagement is still there with our partners.
No that's helpful.
That's actually.
Good news given regulatory shifts here that deterring any activity here one last one and you just talked about this we're finding the marketing message and showing.
In a number of the surveys.
That you offer I think are pretty.
Yeah.
Do we drop when do we lose particular members would be interested in things.
Pete apologies, but you you cut out for a couple of seconds can you repeat the question. Please.
Yes, yes.
As it relates to refining your marketing messages and I know that you've put forth a lot of compelling survey work.
<unk>, which can be convincing I think for a potential partner.
Have partners.
Or prospects considered surveys within their own community to see how.
Adoption of crypto loyalty programs, and so on and so forth would be up applicable to their own offerings.
So I think.
Taking a combination of approaches they're obviously looking internally into the customer segments as they serve us both.
Proactively and Reactively given inbound requires that they often get from from from their own customer set they are using our research to help validate hypotheses across the broader market because much of what we're doing when we work with them is not just about trying to deepen the engagement within their own consumer space been helping.
Hum.
Helping them acquire new customers. So understanding the appeal of an offering both with your existing customers and then in a broader base allows them to make those decisions in a far more expedient way and importantly in a data driven way, so they're able to be able to understand validate their business cases their assumptions.
Say by internally and externally and we help them with both.
That's compelling okay. Thank you.
Pleasure Thanks, Mike.
Thank you for your question. Our next question comes from the line of John Roy with Water Tower Research John Your line is now open.
Great. So given all in everything all in together what is your thinking on your path to profitability has that shifted.
Out or is it just a matter of you are going to invest more maybe.
Actually.
Things will be cheaper, what's your thinking on your path to profitability.
Yes.
Yes, John I can take that question.
We initially did the transaction in October of 2021, with the IH that gave us a significant cash investment that the in the intent to always was to use the first two years of the business plan post that transaction to build out the brand.
Matt.
And.
Activate partners and capabilities. So we at this point, while not giving guidance beyond 2022 at this point our longer term expectation has always been batch.
We can work with this investment to activate our products.
And.
Activate partnerships could get to an adjusted EBITDA breakeven EBITDA in year, three which would basically be 2024, if you look at what when that timeline began with the transaction.
Great. Thank you and maybe Kevin one thing on I know you've talked a lot obviously, a lot about the crypto and the changing narrative. There maybe if you could kind of summarize what you see happening in the broader space are we going to.
Two coin world or what are you actually seeing out there and what people are telling you about the narrative around crypto and its usages.
Sure.
Thanks for the question.
Definitely seeing as I've said before that.
There's a changing narrative, we say it from a shift of store of value to a more widespread utility across consumers across businesses across institutions. Our goal is to work with the partners to unleash its full functionality at school utility and to provide them with optionality.
We don't know exactly how it's all going to unfold and the power of the platform is the ability for us to be able to be very agile and adapt whether thats a discussion that starts with I want my consumers to be able to buy and trade or I wanted to reward them differently, they're able to come to us through a single set of <unk>.
As you can get access to a single solution that will scale as they are thinking matures. So it's about that shifted narrative, it's about helping us unleash its full functionality and utility and importantly, it's about being agile and creating opportunity and optionality for our partners and for our consumers.
Great. Thank you so much Cisco that sounds like a good plan.
Yeah.
Okay.
Thank you for your question. There are currently no more questions registered so I will pass the call back to Andy <unk> for closing remarks. Thank you.
Thank you everyone for attending our earnings call. This morning, we look forward to connecting with you again soon.
Okay.
Yeah.
This concludes today's call. Thank you for your participation you may now disconnect your lines.
Uh huh.
Yeah.