Q3 2023 Bakkt Holdings Inc Earnings Call
Yeah.
Thank you for your patience today's back Q3 2023 earnings call will begin shortly please stay on the launch.
[music].
Greetings and welcome to the <unk> third quarter 2023 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 tide and every bit of Investor Relations. Please go ahead.
Good morning, and thank you for joining us for Baxter quarter earnings call today's presentation, including a separate earnings call presentation that can be found our investor relations website at www dot investors that that got 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 factors. Please refer to its filings with the Securities and Exchange Commission.
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 of 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 Gavin My co Chief Executive Officer inherent Alexander Chief Financial Officer.
After our prepared remarks, we will answer questions that we received from our investors through the C technologies platform after that Gavin and Kevin will be available to answer questions from the analyst community I'll now turn it over to Kevin.
Thank you Ed good morning, everyone and thanks for joining.
Earlier this year, we communicated our plan to simplify our business and allocate our capital towards areas of the business with strong product market fit scalability and a clear path to profitability.
During the course of 2023, we've made substantial progress against this goal.
Our specific priorities for the year included expanding a crypto platform.
Expanding and activating our client network.
Strategically allocating capital.
Our teams have been nimble and flex to deliver on all of these priorities despite challenging market conditions.
The U S. Crypto market remains challenging we still lack of clear regulatory framework and headwinds from bad actors in the space have muted trading volumes. However, we are seeing green shoots with institutional investors looking to participate in crypto Etfs and digit asset <unk>.
We've been flexible in adjusting our strategy as needed to meet these challenges we've made international expansion of key priority and we've demonstrated our ability to act quickly.
With our capabilities active in nine new markets by the end of this year.
And there is more to come on the international front. This is just the beginning for US this will generate strong revenue growth for us as we look to 2024.
We continue our focus on custody and signing up new clients with the recent flight to quality that we've experienced as well as delivering enhancements to our offering the.
The custody product.
Diversifies, our future revenue streams, given it's not as reliant on trading volumes.
We've also reduced our reliance on market volumes and the related volatility in our revenue stream by signing on new clients with more of a subscription based revenue model.
Lastly in light of the challenging market and slower revenue opportunities. This year, we've been focused on controlling expenses. We've made a lot of hard decisions to make cuts and have been very prudent with our spend.
It hasn't always been easy, but it has paid off with our core operating expenses, excluding crypto costs and impairment charges down 26% year over year.
That's real progress and we will continue to focus on that.
2023 has been a year of enhancing our industry, leading platform across advanced trading capabilities and secure compliant custody, that's built to evolve and adapt with the changing regulatory landscape.
Our platform has reliable infrastructure that supports our trading and custody capabilities.
<unk> market events, including SBS guilty verdict, all underscore how important it is to crypto responsibly and how critical it is to have a partner like backed who are upholds the highest standards of transparency security and compliance.
Our loyalty redemption capabilities also continue to be a strength as we provide our clients with a full spectrum of flexible and comprehensive solutions.
While we remain committed to expanding in the U S market, we've adjusted our strategy to quickly overcome the challenging U S crypto trading environment.
With that we've capitalized on opportunities to expand with new and existing clients into attractive international markets with more regulatory clarity and sizeable addressable markets.
We are currently live with crypto trading in Spain, and several Latin American regions, including Argentina, Brazil and Mexico.
We plan to continue to further expand without partners in Latam, such as happy and IDEXX.
As we shared last week backup plans to offer our crypto trading and custody services to $3 over in the UK.
<unk>, Australia, and throughout Asia, including Singapore, and Hong Kong.
All anticipating activation by year end these.
These examples adjust the beginning stages of our international expansion efforts as we enter into new markets, we will follow our land and expand strategy.
Following our initial launches, we will expand our network and reach with other clients.
The hardest part of expanding into new markets is the initial landing once we've done that further expansion is relatively painless as we've already taken steps to ensure we are compliant and regulatory first within these markets, we can confidently and quickly broaden our reach to millions of new customers going forward.
In addition to the international clients, we continue to grow in the U S as well expanding our broad network and further emphasizing our product market fit.
On the trading front back secure platform is resonating with kryptonite of companies in the industry, such as open node, which intends to use our advanced end to end solutions.
Events of the past year have shown the value and need for qualified custodians and in turn we have seen increased interest in a secure and highly regulated platform.
We're expanding with institutionally backed companies like AVX markets, a digital asset marketplace for crypto native firms and La <unk> backed as a qualified custodian as preliminary agreed to join the clearinghouse and custodial network.
We've entered the family offices and high net worth space without new life Clyde Leabo BTC Ledger group affirm that helps investors seamlessly access the most liquid digital asset markets through the acquisition and safe storage of crypto currencies.
These customers have unique needs and backed is well positioned to serve them as a qualified custodian.
And finally, we have agreed to enter Unchains enterprise custody network.
And that allows that slides to securely take control of the bitcoin with a cold storage vaults.
As part of the custody network backed intends to serve as the institutional signatory.
Also known as a key agent for customers collaborative custody multi six volts.
We've made substantial strides this quarter, expanding our trading and custody network.
And as this expanded network allows us to reach new industries, and new international markets and our work together.
These recent wins are testament to the product market fit of our capabilities and the continued focus on growing our core crypto solutions.
As a crypto business matures and we grow both internationally and domestically we expect that our revenue mix will also evolve.
With an increasing share of our revenue coming from subscription based annual recurring revenue, which will provide stability during uncertain crypto markets.
We're executing at a faster rate than ever before moving quickly with newly signed clients in order to activate and go lives efficiently.
We offer a seamless integration and customer experiences, which enable clients to integrate and around 45 days.
The active traders to our platform quickly.
We're currently live with block chain Dot Com Levo, BTC happy and seen equities due to smooth onboarding and activation experience.
We continue to expand our relationships with our current partners Investor recently appointed backed as its U S. Crypto provider with migration of the existing customer accounts expected by year end.
We're also expanding our crypto capabilities with blockchain dot com into new U S regions, including Hawaii, Louisiana, Nevada, and Virginia.
We executed rapidly with weibo to facilitate a smooth weibo pay at launch and we're now enabling account sign ups.
During this quarter, we bought finished migrating customers to Weibo pay Judy.
Due to the migration during the quarter, we experienced a slowdown in client activity on our platform.
We've been working closely with <unk> team to monitor customer activity and rollout enhancements to improve their customers experience and drive deeper engagement levels.
We're pleased to continue expanding our relationship with Weibo pay.
Some other clients have decided to exit the crypto business. We will pay has created a model to transition crypto accounts and maintain them on the <unk> platform.
We're also working to expand our relationship with Weibo on new and exciting use cases.
We have been working closely with the Caesars team to bring our crypto rewards capabilities to their members once live Caesars rewards members will have the option to redeem their rewards credits for bitcoin buybacks user friendly experience.
It seems they are excited to bring crypto capabilities to the more than 60 million members of the worldwide highly acclaimed Caesars rewards platform early in Q1.
We are re launching a custody platform with increased capabilities, including segregated wallet structure and a flexible policy engine.
Our platform offers a foundation for our clients to safeguard their crypto assets in collaboration with our clients. We will off of off exchange trading settlement service and co custodial surface illustrating the breadth of the platform.
We will be expanding the coins that can be tested on our platform to include a total of eight coins.
Bitcoin Ethereum bitcoin cash those coin cerium classic litecoin scuba arena and USD coin.
Ah Redeveloped offering has already been awarded best digital asset custodian by the digital bank and we have notably increased our marketing efforts to continue to spread awareness of our offering.
<unk> gained significant interest in our upgraded platform from both existing clients and prospects with many now operating in that sandbox.
While trading and custody will always be at that call.
We've spoken many times about the evolution of crypto and bitcoin from a speculative asset to powering everyday utility.
With this we've been investing in the Lightning network and we're looking forward to the near term launch of a lightning service to select clients.
Service will allow them to leverage cross border remittances.
<unk> settlement.
<unk> tiny as deposits and withdrawals for trading and global interoperable pay to pay.
We have partnered with two of the leading lightning service providers to collaboratively build out our global network of compliant on and off ramps.
Our multifaceted relationship with IBEX includes working together on Lightning and we recently shared the news that we will be collaborating with white spot to support a new open standard for money transmission Universal money addresses <unk>.
Your may make sending money as simple as sending an E mail and the new service can be leveraged for a number of use cases.
We have a vision for it.
Internet native payments that is shared by light spot and IMAX. These partnerships are a natural fit for our business.
So with that I'll turn it over to Karen to discuss our financial and operating results for the quarter.
Thanks, Kevin I'll now walk you through our third quarter financial results. A quick reminder, that in accordance with GAAP, We presented crypto services revenue.
Cos execution clearing and brokerage fees on a gross basis since they are a.
And the services, we provide our customers by contrast, where an agent and apparel redemption surfaces provide I hope of LTE customers. So royalty revenue is presented and up online net basis, crypto costs and execution clearing and brokerage fees, which we referred to as crypto costs and ECB for the remainder of it.
This call Brian first scripted services revenue and the difference between these line items represents crypto trading its contribution to margin.
Please see the next section of our earnings presentation for additional detail on crypto services revenue and related costs.
Turning to slide 13, we have Arthur F 2023 financial results.
Had total revenue of $204 $8 million.
$191 million of.
Great scripted services revenue.
Total revenues increased significantly year over year due to our acquisition of apex crept down which closed on April one 2008, great.
$15 <unk> million dollars net loyalty services revenue.
Operating expenses were $257 $6 million, which reflects a significant year over year increase in crypto Clos and ECB driven by crypto services activity during the third quarter in accordance with generally accepted accounting principles, we conducted our annual goodwill and intangible assets impairment testing.
<unk>.
Earlier this year, we spoke about strategically allocating more of our capital towards scripted business, while maintaining existing offerings and relationships in the landscape business. We made this decision given our expectations for which products have a clearer path to profitability given the pullback in significant investments in our loyalty business.
Our long term revenue growth expectations for this business.
As a result.
No, it's a $23 3 million noncash intangible asset impairment charge.
Technology and customer relationship intangible assets and the back brand name intangible.
The charge is noncash and does not have any impact on our future operations or affect the liquidity or cash flow from operating activities.
Operating expenses, excluding crypto question, ECB, and noncash goodwill and intangible asset impairment charges were $44 $2 million. This represents a decrease of 26% year over year.
This improvement is primarily due to a reduction in total compensation and benefits and we are continuing to recognize the benefit from earlier expense actions.
The net loss for the quarter with $51 $7 million, which resulted in a diluted net loss of <unk> 19 per share and an average diluted share base of 91 4 million shares net loss allocated to the Noncontrolling interest in the operating company with $34 $4 million.
$17 3 million dollar loss attributable to <unk> Holdings, Inc.
Net loss of <unk> 19 per share and an average basic share count of 91 4 million shares.
Our total share count as of September 30th.
$274 7 million chips ice remains our largest shareholder.
64% of our aggregate shares which has remained relatively consistent with your shareholding in prior periods.
Got the percent ownership is down slightly year over year due to new class a share issuances and Matt to the sale of shares by ice and.
On slide 14, we have our EBITDA and adjusted EBITDA for the third quarter of 2023.
Adjusted EBITDA reflects adjustments for noncash and acquisition related items that impacted the period.
EBITDA and adjusted EBITDA for the quarter were losses at $48 7 million and $21 $6 million respectively.
Adjusted EBITDA loss improved during the prior year period, primarily due to lower compensation and benefit cost.
On Slide 15, we show revenues for the company.
Total revenue for the third quarter of 2023 with $204 $8 million.
Gross crypto services revenue for the quarter.
$191 $8 million.
The quarter over quarter decline that we saw in the third quarter due to a slowdown in overall industry wide activity levels as well as lower customer activity. During the migration of global accounts that we have okay, which Gavin mentioned earlier on this call with them working closely with the Weibo team to monitor customer activity and roadmap enhance.
Smith to improve their customers experience and drive deeper engagement levels and the new App.
As Gavin mentioned earlier is our crypto business matures, we expect that our revenue mix will also level with an increasing share of our revenue coming from our subscription based annual recurring revenue.
This should reduce our reliance on industry activity volumes will provide stability to our revenue stream during uncertain market activity levels.
Net royalty revenues of $13 million increased 2% year over year. This was driven by an increase in transaction revenue, which was $6 8 million for the quarter up 5% year over year. This improvement was primarily due to higher air travel activity in Atlanta.
Sure.
Subscription and service revenues of $6 $2 million were relatively flat year over year.
Turning to slide 16, we have total operating expense total expense for the third quarter of $257 $6 million $191 million of credit costs and ECB. These costs are driven by crypto trading volumes.
SG&A expenses of $7 $4 million were down 4% year over year reduction in marketing expenses.
Total compensation expense of $24 $6 million declined 35% compared to the third quarter of 2022 due to lower head count and a decrease in non cash compensation expense.
Other expenses of $12 $1 million were down 16% year every year.
Depreciation and amortization and acquisition related expenses.
We're pleased that our disciplined approach to expense management is paying off we will remain prudent around our costs to ensure that we are strategic with where we spend and how we allocate our capital towards opportunities that provide the highest returns.
Turning to slide 17, we have a slide comparing gross crypto services revenue.
Their costs and ECB gratis services revenue of $191 $8 million with impacted by lower industry wide volumes and lower activity levels from weibo pay customers crypto costs, and ECB $191 million for the quarter during.
During the quarter, we adjusted our revenue share agreement with Weibo pay for the rest of the year to increase revenue per came buyback, while we will pay engagement stabilizes. The benefit from this adjustment is reflected in the results for the quarter and acts as a partial offset to the declining <unk> revenue.
Results, if you compare the two columns.
Q3, 23 in the graph you will see that the contribution to margin from crypto trading activities also known as our take rate was higher this quarter compare to historical periods. The Q3, 2000, and <unk> take rate approximately 80 basis points of gross crypto services revenue is higher than the historical average.
Between 30, and 40 basis points, which will continue into Q4 'twenty three.
And slide 18, we have our key performance indicators as a reminder, we have included apex crypto and the historical Kpis figures on this slide for comparison purposes.
We had $6 1 million crypto enabled accounts at the end of the third quarter, which reflects a steady increase over time.
Next we have Rick transacting accounts, which we breakout into crypto and loyalty accounts.
There were 1.0 million transacting accounts in the third quarter of which 593000 square foot loyalty redemption and 454000 were for crypto creates loyalty redemption transacting accounts were down 13% year over year due to a decline in hotel rental car gift card activity.
Cryptic transacting accounts were up 3% sequentially due to increased activity related to the de listing of certain clients.
Notional traded volume, it's also broken out between crypto in loyalty redemption.
Total notional traded volume was $366 million of which 191 million with from crypto and $176 million related to loyalty redemption.
On this chart. We have also included the crypto industry trading volumes, which is the Orange line as depicted here our crypto trading volumes were down a substantial amount on a sequential basis during the quarter volumes were impacted by lower activity levels from levo pay customers and build a listing of certain clients.
If you normalize for these factors the quarter over quarter decline in our crypto trading volumes was right in line with the overall crept end market industry, which was down one 8%.
Meanwhile, loyalty redemption volume was down 4% year over year.
Our assets under custody of $506 million declined 23% sequentially due to the impact from divesting certain claims and a reduction in certain when prices.
Turning to slide 19, we have our condensed balance sheet we.
We ended the third quarter with $90 $9 million of cash cash equivalents and available for sale securities.
Our cash usage for the quarter with $8 $5 million during the quarter. We had a nonrecurring edition of cash of $15 $2 million, which was returned to us from ice clearing and as it related to that to get listing of futures and options contracts.
Leaving the return of cash from ice clearing our cash usage from operating activities was $19 1 million.
Which was slightly higher than the second quarter cash usage of $18 $2 million, although we saw improvements in our operating expense base, including lower acquisition related expenses marketing and insurance expense.
Revenues were lower due to crypto trading volumes, which we discussed earlier, which led to the slight pickup in cash usage.
Recall that last quarter, we updated our 2023 outlook for both revenue and free cash flow utilization with an expectation that net revenue contribution from loyalty crypto revenue activities would be between 64 and $70 million and our free cash flow utilization would be between 90 and 90.
$6 million.
Since that update we have seen continued softness and loyalty travel redemption levels as well as lower market retail crypto transaction activity.
Additionally, our recently announced international retail crypto clients will begin to contribute to revenue in late Q4, 2023, which is a bit later than the timing previously anticipated last quarter's outlook update occur.
Accordingly, we are reducing our expectation of net loyalty net cryptos revenue activity contribution for 2023% to 57% to $60 million.
<unk> gross crypto revenues of $697 million to $215 million.
Royalty revenues at $53 million less crypto costs of $693 million to $208 million.
This directly impact free cash flow utilization, notwithstanding continued progress in reducing cash expenses.
As such we now expect great casually utilization for 2023 to be approximately $100 million.
The progress we have highlighted in signing new retail and institutional crypto customers put drives strong backlog going into 2024, our preliminary guidance for 2024 provides color on the timeline to revenue from these new customers.
We preliminarily expect gross crypto revenues of 3000 $406 million to 9000 $15 million.
Royalty revenues of approximately $55 million in crypto costs, a 3380 $6 million to 8970 $6 million. This translates into loyalty and crypto revenue activities driving $75 million to $95 million.
<unk> revenue contribution in 2024.
The increased revenue expectation is driven by new retail and institutional customers with royalty revenue is expected to increase slightly.
As Gavin mentioned earlier the 2020 for revenue outlook includes an expectation of increased diversity of crypto revenue, both geographically with the ramp up in international retail crypto.
And by customer segment with the growth in institutional custody revenue. It also includes an expectation of approximately 25% to 50% increase subscription revenue driven by subscription base retail strip that revenue.
24 free cash utilization is expected to be 43% to $63 million, reflecting further reductions to our cash expenses.
At the high end of our revenue range, we see a pathway to be approximately breakeven on an adjusted EBITDA basis by the end of 2024.
I will now pass it back to Gavin for his closing remarks.
Thanks, Karen just a few final thoughts we've made substantial progress this past quarter and we're building momentum for future growth and success. This was another consecutive quarter, where we clearly demonstrated our ability to execute and leverage our industry leading platform.
Stronger.
Our acquisition of apex, crypto win new clients and deliver results for our existing ones.
We're actively executing our international growth strategy crypto capabilities will be live in nine attractive international markets by year's end.
This is a significant milestone for us and Testament to how we push forward when faced with challenges in this case a difficult environment in the U S around crypto regulation.
Our team is flexible adaptable and quick to find other paths to success.
We're still going strong with adding new clients to our roster. We're building an extensive network of clients and a diverse group of industries as the synergies of our expanded crypto capabilities and industry, leading infrastructure resonates with market participants.
We're pleased with the progress, we're making but what's even more important is that we're moving quickly to onboard all of these clients and activate our crypto capabilities expeditiously.
Lastly, we will continue to be prudent on how we allocate capital and manage our expenses our results. This quarter clearly demonstrate that our disciplined approach to managing expenses.
<unk> results.
But we want to skimp on making investments in areas that makes sense and have a clear path to profitability such as the redevelopment of our custody foundation to make it even stronger for our clients all the investments that we're making in the lightning network to increase Cryptos utility.
Our being smart with where we spend our hard earned money and look forward to sharing with you in the future how those investments are reaping rewards.
Thank you for joining us today and with that I'll turn it over to Ed to manage Q&A.
Thanks, Kevin lets move over to questions from the Investor community, leading into a Q&A session will start by answering the top questions from say rank by number of boats. We've consolidated some of the questions that address similar themes. After that we will turn to live questions from the analyst community.
The first question, we will address it is that our stock price, which several investors, including working P. H and Jefferies be submitted they would like to know what our plan is to raise the stock price, whether we are at risk or delisting and why we arent using cash to do stock repurchases. Karen can you answer the question.
Of course.
Now that the downward pressure on our stock price has been incredibly frustrating to all of our shareholders as a fellow shareholder I have certainly been disappointed by the stock price performance. We are closely monitoring our stock price and should we receive at the listing notice we would take necessary action to remediate such as the reverse stock split we are.
Committed to our shareholders in remaining a public company ultimately, we believe the best way to allocate our capital to generate higher returns for our shareholders is to invest in the business deliver on milestones and accelerate our path to profitability.
That's what will drive our stock price higher.
Consider all options and Raleigh stock repurchase sounds tempting to ultimately will not provide sustainable growth and returns that investing in our business as well.
All of our shareholders for sticking with us it hasnt been an easy journey, but I believe there are better days ahead for this company and our shareholders.
Thanks, Karen our next question hits on a few themes from two barrel each site, each and Sheila asked around the status of partnerships, including Mastercard and our plan drive future success. Gavin can you take this one.
Yes, sure I think there was a comment from one of the investors mentioned that we haven't had any major partnerships since we announced the acquisition of apex crypto a year ago.
I don't quite agree with that we.
We signed up numerous new clients since April one which is when we closed our acquisition of apex crypto and have a number of other clients in late stage negotiations. So we expect to announce before too long.
Our new relationships spanned across new and diverse industries and also marks a foray into new international markets.
One enable us to land and expand and greatly broadens our reach across the world. We formed strategic alliances with industry leaders, such as plant and fireworks, which provides an extensive network of prospective clients.
Also prior to closing our acquisition, we signed up Caesars Entertainment as a new client, which as I mentioned, we will launch early in Q1. This marks our entry into the gaming and entertainment industry, which should provide exciting opportunities to expand.
<unk> said this before and I'll reiterate that we greatly value our relationship with Mastercard and continue to work with them on being able to provide our troops our capabilities to their customers irrespective.
Our respective teams have completed the development work and we're in the process of testing.
We expect to be able to commence a collective sales efforts.
But that said and told the U S regulatory environment for Crypto gets fixed I think many <unk> companies will remain on the sidelines and wait to activate their crypto strategies will be here ready to resume our work with when that happens, but I think that catalyst really does need to happen to us.
Our last question from the same platform is from Sayed, who asks if we are involved in any of the spot Etfs application.
Kevin can you give your thoughts on this one.
Yes look thanks for the question the applications themselves have been a stamp of approval from traditional finance and SEC approval of spot Bitcoin Etfs will be a positive step towards mainstream acceptance and legitimacy in the financial World. We're excited to see this happen and for the opportunities this will bring.
<unk> to the larger market with custody being a core anchor product for bags approval would open up the market for us and we're prepared to serve as a qualified custodian. We're looking forward to providing you with updates when appropriate.
And with 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.
And if you would like to ask a question today. Please press star followed by one on the telephone keypad now.
Our first question comes from Trevor Williams from Jefferies. Trevor Your line is open. Please go ahead.
Hi, This is Yvonne Chang on for Trevor Williams, Thanks for taking my question.
My first one relates to the crypto services revenue and the increase in the take rate. This quarter can you provide more color about the change in the revenue share agreement with Weibo pay and how we should expect the take rate to trend going forward.
And my second question is what do you see as a normalized pace of Opex growth beyond 2023, excluding crypto constant ECP fees. Thank you.
You.
Hi, Barry This is Karen I'm happy to take that question.
Starting with the take rate as we mentioned earlier.
Yes.
Correct.
Excess fleet completed a migration.
So I have two accounts over to Weibo pay during the third quarter.
That migration required existing customers to activate new accounts that we will pay to be to continue to create crypto.
Was it surprising that we saw some disruption and decrease in trading engagement metrics from that group of customers as they were acclimating themselves chip at new Bill pay experience.
So we've been working actually very closely with legal to monitor this customer activity and rollout of enhancements and in the meantime, I think the adjustment that we've made to our Rev share agreements.
<unk> allow us to retain more of that reduced gross volume of trading is really a testament to the aperture collaboratively relationship.
So we expect that to continue through the end of the year and then the expectation at this point is as the Weibo pay customer experience continues to evolve we will see those trading levels return and we will revert back in 2024.
Our more historical take rate, which is typically been if you will conclude the call.
<unk> historical apex history.
Between 30 and 40 minutes.
And then just in terms of the second question can you just repeat it one more time just to make sure I have it.
Yeah I was just curious what you see as a more normalized pace of expense growth beyond this year, excluding crypto costs and ECB fees.
Yes, so on the expense growth.
Thanks, Matt Yeah. We've highlighted is we take a lot of actions in 2023 to reset arms.
Brent.
We are seeing and continue to see a lot of opportunities to.
Increased efficiencies through the integration of the apex team and systems with the legacy back team. So we actually expect our our cash expenses to continue to come down in 2024.
When you look at the guidance the preliminary guidance that I gave for 2024 in terms of free cash flow utilization.
<unk> reflects again when you compare that to the revenue guidance that we've provided.
We're looking at continued reductions to our expense guidance.
Right in 2024.
Probably expenses somewhere in the <unk>.
Hundred $30 million rate on a cash basis.
Thank you so much that's super helpful.
No problem.
The next question comes from Andrew <unk> from Rosenblatt Securities. Andrew Your line is open. Please go ahead.
Thanks, Hey, good morning.
Just wanted to start with guidance on the revenue side for 2024, you're expecting a pretty big ramp in gross and net revenue from the current run rate.
So just wanted to get an idea of is primarily from the international edition and kind of what are your assumptions on the broader volume environment given <unk>.
This activity.
And Additionally, how are volumes tracking quarter to date with the stronger October for crypto.
Okay. Thank you happy to take that question.
In terms of the outlook for 2020 for I guess first off we thought it was important and helpful to give a preliminary outlook on 2024, given the fact that we have made traction in signing new client relationships as been mentioned earlier in the call.
A lot of these are.
Set for activation towards the very end of 2023.
Yes, well, we don't see a lot of.
Impact of these new relationships in 2023, we do see it as a strong backlog as we get into 2024.
The range that I provided when you break down that revenue and you put it on a net basis for <unk> now.
Somewhere between 20 and $40 million and that really is that range reflects eight.
Yes.
A variance and what we expect market engagement to be as well as timeline for activation.
The international component is going to be a big component of that range. So if you look under any scenario, we think that international retail script of revenue can be.
Half of that net crypto revenue coming into 2024.
And again, we look at that as.
Not only the progress that we've made signing fees.
Relationships internationally as Gavin mentioned, it really is a land and expand as we activate and Gamestop holds in today's markets.
Also.
These international relationships.
They have signed up for a more of a subscription model and how we will.
You generate revenue.
That they will sign up for a tier of trading where they basically flat.
Flat about car within a certain tier and if they go above that volume that had over to more of a volume based model. So.
In terms of the composition of that it would be a component of that also provides.
Bye bye.
Thank you.
Our guidance at least nationally 2024.
Okay.
Just on that recurring subscription piece.
And they expect to sit there can you remind us what kind.
Kind of what percentage.
Your revenue is currently recurring and where do you expect that to get to over the next 12 months as you kind of onboard some of these international partners with us.
Description plan.
Yes, so right now.
Scripps some portion of our revenue stream is in the royalty part of our business.
Curious about if you breakdown the royalty revenues by $10 million of the revenues are purely subscription based revenues and then looking at what the potential is for 2024, we can see that increasing anywhere from 25% to 50% on a dollar basis based on the contribution.
Of crypto.
A R contracts in particular from international, but we're certainly not eliminating Steven.
International for that type of thing.
Okay, and just lastly for me on the capital front.
How are you guys feeling your position heading into next year.
Just given your current run rates.
Particularly if the volume environment doesn't improve much from here.
Plans in adults on the capital front.
Yeah.
Yes, so as I mentioned when we.
Yes.
About the outlook for 2024.
Looking at the progress that we're making in reducing expenses and the potential revenue outlook.
We continue to see a path to breakeven on an adjusted EBITDA basis by the end of 2024.
At the moment, we have sufficient cash to finance our operations, Yes, certainly as you think about the company's journey. The original fund raising that we did from the east back was intended to fund a three year roadmap. So I think as we get into 2024, we would be naturally a booking.
At the.
The next steps for the company in terms of a capital raise but is that something that would be imminently.
Execute on.
The plans that we outlined in the guidance that we gave.
Great. Thanks, Kevin.
The next question comes from Peter Christiansen from Citi P. J. Your line is open. Please go ahead.
Good morning, Thanks for the question a quick one.
We build disruption just curious was that throughout the quarter or.
That's why our towards the end.
Thanks Darren.
On the relaunch of the cost of the product.
Curious if youre seeing.
Incremental value whether that generally.
Value based pricing.
We continually hear that plus repricing has.
Has been under pressure.
Just curious if.
The re launch and some of the new capabilities is helping you.
Drive drive pricing. Thank you.
Hey, Pete.
The first part of the question on Weibo pay so we will started their migration of customers over to the new Bill pay experience at the beginning of Q3. So in July. So we started to see that impact on engagement levels at the beginning of the third quarter and the adjustment to the Rev share.
<unk> that we executed with them is retroactive to July 1st.
In terms of the custody.
Our product and what we're seeing in terms of pricing.
Most of the pricing that we're executing is a AUC fee model that has scale to the amount of AUC that we bring onto the platform. There are some minimums. So it's not completely volatile, but there are other elements.
How should we have services that have a more of a subscription component as well. So for instance disaster recovery is something that we've talked about.
It's a capability that we see the market coming to us for that.
That is more of a monthly subscription amount. So I would say mostly be on AUC with some opportunities for it.
The additional subscription based revenue and certainly as we expand those capabilities, we see that opportunity for subscription or AOR type revenue to increase.
Yeah.
Great. Thank you Kevin appreciate it.
As a reminder, that star Philip I wanted to know telephone keypad to ask a question next.
Our next question comes from John Roy from Booster Research John Your line is open. Please go ahead.
Sure Great I got two questions.
Unchained networks love to get a little more color on that and anything on timing would be useful.
Hey, John I'll take I'll take the unchanged one.
Being part of this network is really.
Added dimension to what we're doing for <unk>. So if you think about it.
It turns out.
In response to <unk> question that we have the assets under custody model, but what we're seeing in these value added services that are coming into the market.
Partnership with unchanged is one of those where we're holding part of the key as I said in the prepared remarks.
And then where we are.
Acting as one of the key signs in the transaction we like this model.
Usually scalable we anticipate being active in that network by five by year's end.
Yeah.
Great and then maybe transition a little bit to the international I was curious obviously the U S market need some regulatory clarity to say at least.
Which markets do you see of having the best setup or the least barriers for you outside the U S.
John I think it's one that we've spoken about this morning, where we see strong regulatory clarity, we see a strong pathway.
For our for our entry we've already demonstrated with markets like Spain, where we live today together with with some of the maritime market.
And we're working with regulators, who have provided good guard rails for how the assets and the training should operate and we're working with partners, who really wanted to take advantage of that shifting sentiment within the market as we see regulatory clarity, we see the consumer sentiment returns were very positive.
This level so the ones that we've spoken about this morning, those in last time, Hong Kong Singapore.
The overall market. So we like to work together with the U K and parts of Europe.
Churn as I mentioned the shift to.
On IRR model to a subscription model as we are growing and evolving the business I mean <unk>.
Provides good underpinnings to the forecast.
Outlook for the current guide.
As part of the presentation, I think us being able to take advantage of that regulatory clarity consumers. Thanks, Aman together with strong backlog against in a recurring revenue model is really giving us great confidence as we move into 'twenty four.
Great. Thanks, so much.
We have no further questions around the coupon to the management team for any concluding remarks.
Okay.
Thank you everyone for attending our earnings call. This morning, we look forward to connecting with you again soon.
This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.
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