Q3 2022 Bakkt Holdings Inc Earnings Call
[music].
Okay.
Greetings and welcome to the bat, Eric later, 2022 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 it over to Ian Debride head of Investor Relations at <unk>. Please go ahead.
Good morning, and thank you for joining us for Baxter <unk> quarter earnings call today's presentation and created a separate earnings call presentation that can be found at 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 backed in.
And are subject to uncertainty and changes in fact 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 relate to box business. Please refer to its filings with Securities and Exchange Commission, including the discussion of box.
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 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 in our non-GAAP measures. Please refer to our earnings release, which was filed this morning with the SEC.
Joining me on today's call are 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 I will now turn it over to Kevin.
Thank you and good morning, everyone and thanks for joining us.
Our goal remains the same.
We're working to connect the digital economy by enabling consumers businesses and institutions to unlock value from digital assets with.
Our core focus our strong market position enables us to invest through the cycle like with our acquisition of Apex Creek, which.
Which we expect to be transformative Tibet and we'll discuss later in the call.
We recognize that there is still significant economic headwinds for consumers and businesses from inflation and rising interest rates to the continued volatility both in traditional markets and in crypto.
Looking at the events in crypto. This week, we can see that the shockwaves that continuing and the fallout may not be limited to the initial parties involved.
We have no exposure to SPX or any of the impacted parties or tokens.
We are focused on building for the long term in a sustainable way.
Always taken a mature and thoughtful approach to risk.
With this in mind, we're being intentional strategic and disciplined with how we utilize capital.
We will continue to invest in enhancing our core product offerings and activating with partners, but at the same time, we will be even more prudent in our cash usage and optimize the business by simplifying processes and driving productivity.
Now moving onto the BACS platform. Our platform is unique and also as businesses scale consumer experiences across crypto and loyalty.
Underpinned by our institutional grade technology stack.
Our services spend from buy sell or hold crypto significantly further scaled with the addition of apex crypto.
Loyalty solutions, which offer access to merchandise travel and co products fully customizable <unk> partners.
We provide valuable experiences for our partners within these defined product areas.
The platform is very focused on doing these well because we've seen that they resonate in the marketplace in a position to scale quickly.
We continue to drive simplification in our product suite and leaning into products that have significant consumer demand and a clear path to profitability.
Not only.
Each of these offerings powerful individually.
But theyre also rich opportunities for crypto and loyalty to work in tandem.
Without crypto rewards.
As the narrative around crypto continues to develop.
We believe that it will be increasingly viewed as more than just an investable asset and move to widespread utility across consumers businesses and institutions.
We're still very early in the stages of the kinds of utility adoption the factors looking to drive.
Our complimentary crypto and loyalty solutions position us for any market environment.
Loyalty programs are extremely relevant in tough markets as consumers look to rewards programs to offset costs.
<unk> seen this with consumer spending behaviors on our loyalty platforms.
Looking for opportunities to offer more to their customers. During this time.
So let's dig in deeper into some of the things that we've been working on.
I'm incredibly excited that we've entered into a definitive agreement to acquire apex crypto from apex Fintech solutions.
Apex crypto has more than 30, crypto trading clients, including leading Fintech and the addition of these clients to our already robust platform will enable us to scale faster reached new client segments and also advanced crypto solutions sooner to add significant revenue and bolster.
Our path to profitability.
We also continue to grow our organic business building out our product Roadmaps and working with our partners to co market and activate in the market.
With five setup, we continuing to accelerate our sales and marketing initiatives and expand our relationship with their sales team to build pipeline across products.
So this means ongoing webinars thought leadership content and other opportunities.
We are jointly participating to educate their teams and their clients.
We continue to invest in back loyalty solutions, and we've expanded our store fronts to provide customer choice across travel and merchandise. This includes expanded content options from a number of named Brian partners, including shop premium outlets to meet customer demand for more redemption opportunity.
We activated instant funding to enable quicker consumer flows into the backed ecosystem.
This update has already resulted in increased conversion and transaction rights. For example, we've seen new users rose at 10 times more likely to lead to a debit card as a funding source versus a bank account and new uses the linker debit card and more than two times more likely to buy crypto.
As users link a bank account.
We're extremely excited by our acquisition of apex Crypto. This is a unique asset that is complementary to the bank platform.
The acquisition significantly accelerates, our crypto strategy, providing immediate revenue generation and opening the doors to meaningful new client verticals.
Steve will provide scale and differentiated client segments and meaningful transaction volume with more than 30 partners.
Enables us to offer new and expanded crypto capabilities more quickly to our clients as well as growing segments, where were not already present.
We also get to welcome talented individuals with expertise across crypto engineering technology and training to further deepen our bench.
This deal is transformational for our company with the addition of <unk> to our platform. We are poised to be a crypto provider of choice across industries with financial institutions, Fintech merchant and loyalty programs, just add significantly to our capabilities and leapfrog that road.
Matt.
Able to offer advanced features to new and existing clients.
The structure of this deal is extremely financially attractive.
As we've shared the initial payment is $55 million in cash with up to $145 million in back stock and seller notes all depending on the achievement of financial targets by the acquired business through to 2025.
The structure of this deal is intentional.
The acquired business meets its financial targets and additional purchase price is high.
Beneficial to banks and our overall revenue picture to jail is expected to be accretive and we will have a significant impact on our crypto revenue upon close.
As we've said we expect this transaction to bolster our path to profitability. So let's look more closely at what that really means.
The acquisition of apex, crypto will be accretive to EPS free cash flow and our revenue growth rate.
Spec. The addition of apex crypto business to be accretive to adjusted EPS in the full year following the deal close.
We are targeting an operating margin expansion in 2023 of at least 20% excluding deal costs, we expect free cash flow.
$80 million through 2025 from the acquisition and associated restructuring initiatives.
We also expect meaningful cash savings in the range of $20 million to $25 million from this transaction through 2025.
Primarily driven by head count and technology efficiencies.
Our revenue opportunities will only continue to grow as we expect to double the 30 active partnerships through 2020 for leveraging the apex pipeline.
We're excited by the significant financial benefits from the transaction and driving incremental revenue and growing our operating margin.
As I said the structure of this deal maximizes the financial benefit to backed and incentivize apex Fintech solutions for ongoing involvement.
Aside from the cash payment of $55 million at closing.
Just price includes contingent consideration of up to $145 million of back stock and sell a notes to apex Cleantech solutions based on achieving financial targets that drive significant incremental revenue to backed.
The transaction value of this deal is clearly linked to the financial performance of the apex crypto business.
The contingent earn out gross profit growth targets are robust with year over year growth targeted at more than 175% in 2023 and more than 50% in 2024.
We believe these earn out targets for apex crypto are appropriately aggressive and ensure that this transaction provides the right returns for our shareholders.
Apex crypto must achieve these full year gross profit growth targets to receive the full amount of back stock issuance laid out in the deal terms.
Gross profit growth below these targets, which results in proportionally lower amounts of stock issuance or no issuance at all if below 25% obviously on that.
These growth targets were established to be accretive to EPS and we feel confident that this deal will show its impact on back immediately upon closing.
Now, let's go deeper on apex, cryptos capabilities, and how they will enhance our platform and accelerate our product roadmap.
With the acquisition, we will offer more than 30 clients with partners, having the ability to choose the coins offered to their customers.
Hello move seamless deposits and withdrawals regarding functionality to bitcoin bitcoin cash. Unlike coin. We will also be able to work with safety and capabilities for a limited number of coins.
<unk> enables consumers to earn passive income from the creek that they hold a very attractive capability for many who are transacting crypto today and the capability that we expect to become increasingly relevant going forward.
We will also be able to offer access to NFS changed through an order management system that <unk> payment and Fiat currency.
This removes friction from how nfc's transact today and enables more widespread adoption and applicability to a much broader range of consumers.
Apex crypto comes from our heritage of deep trading expertise and we're excited to harness that proprietary bested office systems and limited order technology for our clients.
And we will have access to additional liquidity providers, enabling deep market access and a more competitive pricing to customers.
These capabilities are attractive to new and existing partners and we will be able to continually build upon the strong foundation and offer more features to extensive client verticals.
These new capabilities greatly accelerate our product roadmap by adding them to our platform. We can scale back on the investments we have been making here and streamline the resources, but we need to achieve our goals.
Apex Cryptos platform is highly complementary to ours.
Apex crypto enhances our current <unk> hold solution with additional coins and more advanced order and trading it.
It significantly expands our crypto client base into a number of new and rapidly growing client verticals, such as Fintech app trading platforms EMEA.
We will also be able to bring back strength to the clients apex. Crypto currently serves from new customer experiences crypto payments royalty offerings and custody. We are positioned to continue scaling our joint capabilities to a broader universe of businesses pulling from.
Each platform strength, where it makes the most sense and creating a more differentiated product offering that has scale and debt.
Apex crypto provides an attractive addressable market.
Ex crypto already has approximately $5 million crypto enabled accounts and we expect to continue to add more volume to the platform with future growth potential for <unk> other products and services to deepen these customer relationships.
Through apex Fintech solutions, we will jointly target more than 220 clients to grow future revenue together.
The network is another important growth factor going forward.
The customer demographic these thin, Texas, serving represents a huge opportunity.
According to data AI.
50% of customers to top Fintech firms are millennials or Gen Z and according to morning comps what research millennials and Gen Z represent the most crypto ownership in the U S comprising 60% of the crypto space.
This group of customers are more interested in crypto overall and trade much more frequently than other customer segments.
The fin techs and Neo banks in this segment are also moving more quickly towards crypto access to their customers. So we expect to grow in this segment faster.
This acquisition provides value to all stakeholders of backed in apex crypto.
The partners we've spoken we've already identified this as an exciting new chapter.
We will be able to provide a broader product offering speed to market of new features in a single b to b to C platform for crypto and more.
Consumers will get early access to new products and features along with highly competitive pricing and more opportunities to engage in the crypto economy from one destination.
For shareholders. This is immediately financially impactful.
Accretive to EPS free cash flow and revenue growth bolstering our path to profitability.
It also enables us to focus the business to maximize the accretive nature of the deal which includes the talented people we're bringing on.
Karen will get into this more deeply but we expect to implement a restructuring plan in the fourth quarter.
In addition to the acquisition, we've made a lot of necessary investments in our platform in 2022, which enables us to simplify and focus on the core capabilities that we know are critical to our strategy.
We're just so excited to welcome apex crypto team members with expertise across trading technology and crypto to that we have a strong alignment across our cultures, both passionate about innovation and delivery in crypto it.
There are so many elements of this deal that have natural synergy to the BACS platform and alignment to our business I just can't wait to share more on the progress we will make together.
So let's move on to additional strategic highlights from our business.
Going deeper on global payments.
Excited to be making progress on a multifaceted partnership.
Crypto access and utility to the global payments network.
We're working with their teams across engineering sales marketing and product. Our integration work is complete for crypto connect and crypto rewards, which sets us up to collaborate on additional use cases, we've launched a pilot for net spend employees to buy crypto through net spend without crypto capabilities.
We are also working closely with teachers on go to market with the rewards.
In Q3, we significantly expanded our sales presence targeting key partner verticals supported through a refreshed brand, which brings our b to b to C strategy to life.
<unk> backed as a supporter of partner experiences.
We've been expanding marketing initiatives to build awareness and to generate more leads and we're already seeing strong traction with the average monthly qualified leads more than doubling since the beginning of this year.
We continue to see interest in the market related to crypto and custody services.
Even with a slightly longer buying cycle.
Compensation in these channels are providing valuable insights into opportunities to crypto as a form of utility.
The narrative of it's clearly shifting and we can help our partners stay ahead of these emerging trends.
And with that I'll pass it to our CFO , Karen Alexander to review, our financial results for the quarter.
Thank you Devin and good morning, everyone I will now walk you through the third quarter financial results. As a reminder, we use the term predecessor to represent the results backed holdings LLC. Prior to October 15th 2021. These results exclude any results.
BPC impact acquisition holdings.
<unk> represents the without the backed Holdings, Inc. In October 15th 2021 forward.
The post merger period.
<unk> represents the combination of predecessor and successor for the applicable period.
Yeah. Thank you.
Turning to slide 18, we have our third quarter 2022 financial results. We saw strong net revenue for the quarter at 12 9 million.
Which increased by $3 8 million or 41% compared to the third quarter of 2021, primarily driven by strong activity from loyalty.
With that person.
The recent quarter the key driver here as a rebound in travel as we've come out of the pandemic.
Previously disclosed this quarter included a $1 5 billion noncash goodwill and intangible asset impairment charge. As a reminder is charged with in accordance with generally accepted accounting principles.
The decline in our market capitalization and the revenue impact.
David timing for the expected crypto product Activations.
This charge is noncash and does not have an impact on our theater operations or affect our liquidity our cash flow from operating activities.
Excluding this onetime charge, our operating expenses were $60 million in the period, which is up $21 million or 54% year over year, primarily due to an increase in noncash compensation and headcount.
Net loss for the quarter was one $6 billion, which resulted in a basic and diluted net loss of $6 11 per share.
Average basic and diluted share base of $76 6 million shares.
Net loss allocated to the nine controlling interest in the operating company with a $1.2 billion, leaving $468 1 million dollar loss attributable to back Holdings, Inc.
Our total share count as of October 31st.
264 million shares ice remains our largest shareholder with ownership.
66% of aggregate chairs.
With their shareholding as of June 32018.
On slide 19, we have our EBITDA and adjusted EBITDA for the third quarter of 2022.
Adjusted EBITDA reflects adjustments for noncash and acquisition related items that impacted the period.
The goodwill and intangible asset impairment charge, EBITDA and adjusted EBITDA for the quarter losses of $1 $6.037 billion, respectively. The increase in loss in adjusted EBITDA versus the prior year period was primarily due to increased investment in growing the company.
<unk>.
On Slide 20, we show net revenue broken out between subscription and services revenue and transaction revenue.
Total net revenue in the third quarter of 2022.
$9 million and increased 41% compared to the third quarter of 2021.
The strong year over year revenue growth that we have seen in the most recent.
This is the result of an increase.
<unk> customers and higher travel volumes through may to.
So pre pandemic 2019 levels as COVID-19 impacts that subsided.
Last quarter, we mentioned the softening we were seeing in the travel loyalty redemption volumes as a result of supply constraints and high prices. We continue to emphasize the softening in the third quarter.
Turning to slide 21, we have total operating expense total expense for the third quarter, excluding the noncash goodwill and intangible asset impairment charge was $60 7 million, which was up 54% year over year the year over year increase in expense was mainly driven by investments to ramp up.
Our business and expense related to running a public company.
Total compensation expense of $37 $8 million increased 70% compared to the third quarter of 2021 due to noncash compensation charges related to the issuance of restricted stock units.
<unk> increased head count as we invested in the business.
Our product roadmap and public company infrastructure.
The quarter over quarter increase in compensation expense was due to increased headcount related to technology and call Center investments.
We have always expected 2020 to be an investment year after receiving the French from Rd that transaction to grow our business, we invested in hiring and building our team throughout 2022.
Expect to limit future hiring and leverage the team with bill as well as the pending acquisition of Eric's script out to further our roadmap in 2023 Gavin mentioned earlier in the presentation that we are focused on simplifying our business and our acquisition of apex that supports that.
And our efforts and supplier business and given that we have completed most of our initial investments to build out our company, we will be implementing restructuring plan in the fourth quarter.
We think that this is especially true.
Given the headwinds that we have seen this year in the macroeconomic environment.
We believe this will help to ensure that we are well positioned for any environment.
Knowing that we are right sized.
Corporate resources in place as a result, we expect a restructuring.
A restructuring charge in the fourth quarter of 2022.
On slide 22, we have our key performance indicators. These kpis reflect the full breadth of how our capabilities our access across both partner and backed experiences.
Chris Kevin loyalty experiences transacting accounts across the back platform were 678000 in the third quarter of 2022 up 21% year over year.
Asset conversions are a dollar weighted measure and were directly aligned to revenue growth volume of $182 million for the quarter was up 73% year over year.
Which reflects the strong briskly in loyalty redemption, particularly travel.
We expect this to increase materially in 2023, as we activate crypto partners, we have announced as well as building relationships.
We saw an increase in travel volume this quarter compared to the third quarter of 2021, reflecting strong post COVID-19 demand for travel.
Travel volume is higher year over year, we continue to see a softening of travel volume first observed and Jan for instance, traveler preferences for a vacation rental of our hotels have impacted demand for hotels in the third quarter.
Our acquisition of apex, crypto will have a significant impact on these metrics given their scale, but 5 million crypto enabled accounts $31 million total trades on their platform and $11 billion in notional value traded.
We remain highly focused on maintaining a strong balance sheet, especially in light of the challenging macro economic conditions around us.
We ended the third quarter with 273 7 million.
Ample cash and other highly liquid assets.
We believe leaves us with significant liquidity to self fund our branch map and finance the cash component of the apex cryptic transaction.
Also with the noncash goodwill and intangible asset impairment charge, we took this quarter.
Total balance sheet declined to $878 $5 million.
I want to reiterate that the noncash goodwill and intangible asset impairment charge that we took this quarter.
Due to generally accepted accounting principles, given the macroeconomic environment and current market capitalization and does not reflect any long term deterioration of our underlying core business.
Cited about the fundamentals and future growth potential of our business.
Even more so now with the acquisition of apex.
In the third quarter, we used $42 $1 million of cash as we continued investing in our business to drive future growth. This quarter included $7 $8 million of capital expenditures as we continue to invest in our technology platform. We also had a onetime cash payment of $9 2 million.
Related to the migration to a new purchasing card facility, which wasn't reflected in our midyear guidance in light of the challenging macroeconomic environment, we accelerated the move to the new facility to facilitate the benefit of increased interchange income, which resulted in a one time cash payout.
We are expecting cash usage to decline in 2023 from 2022 levels due to increased revenue as we grow our business coupled with expense reductions related to the completion of <unk>.
Large dollar investments in 2022 and benefits from further focusing on our core business.
Next let's move on to our expectations around outlook for 2022, we expect to be at the low end of the revenue range that we provided in Q2 earnings, which rose 57% to $62 million.
<unk> aligned David Crypto decision cycles, and providing disruption to travel volume that we talked about earlier.
Next we expect our cash usage for the year to fall within our previously disclosed range of $135 million to $140 million. Excluding the one time accelerated cash payment of $9 2 million.
As we mentioned earlier, we will implement a restructuring plan as we'd like to further focus our business on our core solutions in the fourth quarter. As a result, we expect to take a restructuring charge in the fourth quarter.
Given all of the strategic updates that we provided on this call I thought it would be helpful to summarize our preliminary view.
The impact on our financials in 2023 and beyond we expect our cash usage in 2023 to decline from 2022 levels.
By the combined impact of increased revenue and expense reductions related to the completion of large dollar investments in 2022 benefits.
Fourth quarter restructuring.
We believe our keen focus on managing our cash usages, especially in light of the possibility of a prolonged challenging macroeconomic environment.
Next we expect material financial benefits from our acquisition of apex stepped out as.
As Gavin mentioned earlier, we are targeting operating margin expansion in 2023 from apex script out of at least 20%.
We also expect the acquisition of apex, crypto and our business restructuring to result in chemo that incremental free cash flow of approximately $80 million through 2025.
I will now pass it back to Kevin for his closing remarks.
Thanks, Karen as part of our relentless focus on execution will be working diligently with key stakeholders, including our regulators to complete the acquisition of apex, crypto and integrate the business onto our platform expeditiously.
Our acquisition of apex, crypto as transformational positioning us to be the provider of choice for any financial institution merchant all loyalty program with crypto and other digital assets.
Ex crypto bolsters, our crypto product offerings, enabling us to offer innovative new products and expand our client verticals, providing us with broader reach across the board.
We are focused on sustainable long term growth, we remain vigilant given the macro economic environment, and we're focused on prudent expense control and maintaining a strong balance sheet.
We will take necessary actions such as the restructuring plan, we will implement in for Q to protect our company and its shareholders.
We will remain highly disciplined with how we allocate our capital through the cycle.
Our research indicates that those here to stay even 60% of the crypto curious in a recent survey.
One trip does see it as the next advancement in modern finance.
It's create crypto has a long runway ahead.
In this for the long term and our capital allocation decisions reflect that mentality.
We will continue to strive every day to provide long term sustainable value and growth to our shareholders.
I'll now turn it over to Anne 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 in our 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 Gavin touched upon earlier we're also.
Together questions that share common themes after that we'll turn to live questions from the analyst community. Our first question is from Rajeev <unk>, who wants to know why is <unk> selling backstops and whether we are concerned about this Karen would you be able to opine on this sure I'd be happy to ice remains our largest shareholder with 66%.
So ownership of our aggregate shares their shareholder ownership has remained consistent and we continue to have a very strong relationship with them.
May have noticed the ice recognized a noncash write down related to their ownership stake him back in the third quarter.
Accounts for its investment in back as an equity method investment generally accepted accounting wells require evaluation of equity method.
For other than temporary impairment based on observable data such as market value.
Isis noncash write down of our investment in back was triggered by our noncash goodwill and intangible asset impairment charge during.
The third quarter.
Thanks for clarifying that Karen. Our next question is from Jonathan B, who act as that continues to rapidly hiring new personnel and acquire new office space essentially taking the company from a small business to a large one could management. Please elaborate on what is the company's goal with these new assets Gavin can you take this one please yeah sure well thanks.
For the question, let's step back for a minute.
<unk> has always been to grow the company and build a scalable business that could be impactful in connecting the digital economy.
That's why we pursued the spec process to become a public company and access the funds necessary to make investments to achieve this goal, including key talent to grow the business a physical location for the teams to be co located and to drive impulse and collaboration.
Our b to B to C positioning and large multinational partners will help us achieve scale and we're investing in our roadmap supports continued growth.
As Kevin mentioned earlier, we used 2022 to invest significantly in the build out of the company and we expect the pace of investment to decline in 2023.
These investments support the creation of long term value to our partners to our customers to our shareholders and to our employees.
Thank you next Stanley C will back the announcing any new partnerships how would the company handle the slow adoption phase Gavin can you take this one.
Yes, I can tell you that one we have a robust pipeline of potential clients that we're working on and we're making strong traction with those names.
<unk> to be to see sales and marketing initiatives that I've described earlier had been very impactful and helping to further develop our pipeline.
Our recent acquisition of apex crypto brings over 30, <unk> fintech partnerships onto our platform and an extensive pipeline with over 220 fintech clients in the ISS ecosystem.
That's one of the key aspects of this acquisition the immediate scale and distribution that it brings to our platform.
So regarding the point on slow adoption based on research studies, we've conducted with consumers and conversations we're having with partners strong interest in crypto remains.
That said given the current crypto environment, we do recognize that some companies are taking the time to determine their entry point into crypto, whether it's product fit all timing.
We work closely with our partners to help them make the right decision to their business.
Additional regulatory clarity will also help drive the adoption and help businesses determine their entry point.
<unk> founding principles.
As an asset class will mature foster in an atmosphere that prioritizes regulation compliance and security, which is why we've built those principles into our platform from day one.
Thank you next step <unk>.
He asked what does back plan to do now that crypto was fading is the company going to go under will be deal with changes and adapt to them and if so how do they plan to do this carrying can you take this one sure.
Sure I can give you my take on that as Gavin just mentioned, we don't believe that Joe is fading.
Are we in the midst of a prolonged period of crypto headwind, yes, I agree with that.
This week is this week's events certainly hasn't helped.
We see companies using this time to build their strategy and be opportunistic so that when market conditions improve they are ready to capitalize on them that said, we do our best to ensure that we have a strong balance sheet and enough liquidity to prepare for any environment, we have over $273 million of available cash.
Another highly liquid assets on our balance sheet. This capital puts us in a position to sustain a prolonged challenging macroeconomic environment, while self funding our roadmap to achieve our growth targets further the diverse nature of our business allows us to lean into various aspects of our platform with partners depending on what their needs.
The market opportunities are.
We are confident that with our platform capabilities, including the new ones that we are acquiring from apex group that we have the ability to be a trusted provider of <unk> services through the cycle. It can be flexible and nimble to adapt to an evolving landscape should the need arise.
Thanks, Karen we have time for one last question from the same platform <unk> asked how do you manage a downturn in crypto prices Karen I think this one is for you again I'm happy to take it.
Now I'm, turning crypto prices it doesn't necessarily have a negative impact on that.
Volatility in crypto prices, whether it's up or down is generally good as it creates more interest in trading volume with customers, we make back to back trades.
Your positions. So we have very little on our balance sheet. As a result, we really don't have a material financial impact from declining crypto prices and as with scale or crypto offerings with data of apex, crypto and new partners coming on line, we would expect to see growth in crypto, even with some volatility as it as a revenue opportunity.
Great.
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.
Certainly if you would like to ask a question. Please press star followed by one on your telephone keypad.
For any reason you would like to remove that question. Please press star followed by two again to ask a question with 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 John Roy with Water Tower Research John Your line is now open.
Thank you. So Gavin you were talking about the pilot with global payments.
Can you give us some more color on that timing, how long its worth last where it might lead et cetera, any color would be helpful.
Yes sure John Good morning. Thank you for the question. So I'll focus on global payments has been across.
A couple of different initiatives. The pilot that we spoke about in the presentation is with net spend allowing at the moment internal net spend employees to be able to use the capability of a buy sell or hold from the net spending account into bitcoin.
And shows the promise of the platform that we've just spoken about by embedding access to crypto assets alongside traditional Fiat currencies.
Pilot is due to run through the course of next.
The next several months, while we understand what the reception is like how the functionality works and get ready to take it into broader launch as we start to see the right demand in the broader in the broader marketplace.
Great and just a follow on obviously apex is important and youre going to get a pipeline with them.
Have you seen any new prospects come to you and say hey, this apex announcements sounds interesting or is that a little too early.
It's a little too early at the moment our focus is.
Working on the closing of the transaction and making sure that we're planning for all of the integration with Jason that we spoken about in today's call. We're incredibly excited about the capabilities that it brings to our platform and an acceleration of brings in our roadmap and the access to the talent of apex cryptography continues to deepen our bench.
Great. Thanks, so much.
Thank you for your question. Our next question comes from the line of Trevor Williams with Jefferies. Trevor Your line is now open.
Great. Thanks, Good morning, Gavin a bigger picture question for you just on crypto more broadly in light of what's happened. This week with <unk> I know you guys have talked for a couple of quarters now just about decision, making timeframes with advisers that have started to get drawn out, but just curious kind of what you think the net impact on the ecosystem.
B from the Fts fallout, whether that's industry structure.
Regulatory clarity.
And then more broadly specific to that just on demand from EB five offering crypt out just trying to get at how much you think this exacerbates what had already been kind of a softening demand backdrop. Thanks.
Hey, good morning, Trevor Thank you for the question.
I think what we see is.
Our proposition to the market has always been that way.
Clients first regulated environment.
Hey, Greg tend to separate intracellular activities from a market trading activities, we really have set about setting up incentive structures that are all about being thoughtful to our approach to risk. We believe that there will be greater clarity around regulation as we've said, we think that that will.
Helped accelerate People's entry into the space in terms of what it does more broadly I think what it is it's showing that there are still use cases that are yet to be developed moving away from straight investing thinking of it as just simply an asset as a store of value and.
Moving into utility type used cases, whether thats changing payments landscape in the way in which we think about streaming payments or micro payments, whether it's thinking about how we continue to drive new capability beyond straight trading into the.
These embedded finance activities trading will always be part of the story, but there is so much more and I think as a result of what we've seen through the course of the last several days.
Continue to see us focus on those other pieces, how do we continue to drive.
The benefits of crypto more broadly than just simply looking at it as an investable asset.
Understood. Thanks, and then just as my follow up on the expectation for the cash burn to moderate next year is there any help you can give us just an order of magnitude for how much it could slow from here I know a number of moving pieces, especially with the dynamics in Q4, but just any help you could give us.
On that just as we think about modeling for 2023, it would be great. Thanks.
Okay.
I can take that one in terms of cash burn and yet as we mentioned earlier.
2022 was always meant to be a building year for us.
We're ramping up in head count.
And building out the capabilities to be a public company.
And we think that has really plateaued.
Where we are as of the third quarter.
At this point when we think about cash burn coming into 2023, and then a couple of places that we're focused on.
First would be on the revenue side, where we do expect further activations.
And then obviously the acquisition of apex.
<unk>.
Give us a revenue stream as well.
On slide we're really looking at.
Looking at solidifying.
Our head count and R. R.
Our expenses to take advantage of some of the synergies that we expect to get from apex crypto.
As well as.
Really capitalize in terms of the.
Leverage that we think our model has naturally built these capabilities.
Leverage in terms of the ongoing operation of the business.
I think in terms of magnitude.
Yes, it's something that we will certainly give more color on at the appropriate time.
Given 2023, but I think youre going to see drivers.
On the revenue side and the expense side.
Great. Thanks, so much guys.
Thank you for your question. Our next question comes from the line of Jeff Cantwell with Wells Fargo. Jeff. Your line is now open.
Hey, Thank you and I appreciate you, allowing me to join these calls.
Wanted to follow up on the.
Couple of couple of questions are being asked.
Regarding our TX and events this week and.
You've always been very thoughtful with perspective on the crypto industry and so forth. So the.
Sure.
I think we're all going to have impact over the next several months is sort of.
From a regulatory perspective.
And I wanted to get your thoughts on where the gaps are right now.
From a regulatory perspective, what what you think.
Dan its approach to crypto why you think it's the right one.
And where we should expect to see the regulatory environment change over time, and what youre doing to sort of get in front of those developments I would love to hear your thoughts on that thanks very much.
Yeah.
Thanks, Jeff Yeah sure look we've always.
Welcome.
Full approach to regulation, we worked very closely with our regulators to help educate them on what we're doing and how we think about our products and the introduction of our products.
And services into the market, obviously, we will continue to evolve as we see the regulatory response has stopped.
To change I think the other thing that is important here is that we've always taken a mature and thoughtful approach to risk avoiding lending qualification.
Average liquid positions.
And I think that becomes important for what do you think about where and how the regulatory response may occur it will be simply around making sure that there's a clear separation of where the consumer money.
So on the custodial side of our business, making sure that that is we will manage very very separate from what's happening in other parts of any business that contains leverage and I think importantly, there'll be continued focus on disclosures, making sure that it's very clear that people understand.
And then how and where the risk is when making these sorts of decisions.
Our goal is to move the debate and the discussion onto utility how do we start to use the infrastructure around the core business, but we have built to continue to drive into one space and you're using crypto as a payout mechanisms and really thinking about.
How do we take the infrastructure and the technology that has been built around what it is that we're doing for crypto and using that to enhance customer impact working closely to bring these services into the market.
Start to fill unmet needs some of that will be around payments some of that will be around the way we start to see the evolution of comments, how do we unlock the power of these digital assets and so I think while we see an approach from our point of view, which is being very thoughtful in the way we think about.
<unk> risk, we think about compliance we welcome regulatory clarity, we'll continue to be nimble in the way, we evolve and we'll continue to start driving this discussion around that brought a sense of.
Utility.
Great and then I appreciate all the color and then on apex, just a follow up.
And this season.
Regards to the <unk>.
Slide 12.
Can you expand a little bit.
The piece, where youre talking about 5 million crypto enabled.
Does that mean active users I'm, just trying to get a sense of whether that's a tam for your.
Kind of like a tam versus weather.
<unk> use.
User base.
Maybe you can kind of.
Give us to help us think through your where your actives will be trending transaction actives will be trending.
It comes on board I appreciate that as well.
Yeah.
I can take that one 5 million enabled accounts are accounts that are registered actively registered.
To be able to transact.
I would think about that.
It's kind of like a subset of the Tam.
Arnold cameras every customer at that.
B.
Yes, the partner half of which.
Subset of <unk> five.
$5 million of setup have signed up to be able to trade from now and then you would expect the percentage of accounts trading to really drive revenue.
Got you thanks very much.
Yeah.
Thank you for your question. There currently no more questions registered so as a brief reminder, it is star one on your telephone keypad to register a question.
There are no more questions waiting at this time I will pass the call back to our management team for closing remarks.
Thank you.
Alright, thanks, everyone for attending our earnings call. This morning, we look forward to connecting with you again soon.
Have a good day.
This concludes today's conference call. Thank you for your participation.