Bakkt Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 12, 2025

There are 5 speakers on the call.

Operator

Greetings and welcome to the Bakkt First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference call is being recorded. I will now turn it over to Cody Fletcher, Investor Relations Advisor at Bakkt. Please go ahead.

Speaker 1

Hello, everyone, and thank you for joining Bakkt's first quarter twenty twenty five earnings call. Before we get started, I'd like to remind everyone that today's earnings call includes a separate supplemental presentation that can be found at our Investor Relations website at www.investors.bakt.com. During today's call, we will make certain forward looking statements, including statements regarding our cooperation agreement with DTR, the proposed commercial agreement with DTR expected by Q3 twenty twenty five and the anticipated integration of DTR's stablecoin and AI payment infrastructure with Bakkt's regulated platform. We'll also discuss our strategic transformation to a pure play crypto infrastructure company, including divestiture of our custody business to ICE, including expected time lines and ongoing discussions regarding our loyalty business as well as expectations regarding the stablecoin payments market, regulatory environment and our product roadmap. 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.

Speaker 1

For additional information regarding forward looking statements and risk factors, please refer to our filings with the Securities and Exchange Commission, including our quarterly report on Form 10 Q for the first quarter of twenty twenty five. Further, in addition to discussing results that are calculated in accordance with generally accepted accounting principles, we also make reference to certain non GAAP financial measures. For more detailed information on our non GAAP financial disclosures, please refer to our earnings release, which can be found on our Investor Relations website. Thank you. And I'll now turn the call over to Andy.

Speaker 2

Thank you, Cody, and hello, everyone. Thanks for joining Bakkt's first quarter twenty twenty five earnings call, and it's great to connect with you all again. With me today is Karn Alexander, our Chief Financial Officer, and I am excited to introduce Akshay Meheta, Founder of Distributed Technologies Research or DTR, who officially joined back as Co CEO on March 21. Starting with our Q1 performance, we navigated a slower crypto market following the post election rally of late twenty twenty four with our total transaction volume reaching $1,060,000,000 for the quarter. This represents a 40% sequential decline from our strong Q4 results and a 23% below the broader market.

Speaker 2

On a year over year basis, our performance reflects a more positive story with volumes growing 23% outpacing the growth of our broader market benchmark. This achievement is particularly meaningful considering we are comparing against the period that included March significant activity and price surge driven by Bitcoin ETF purchases and the meme coin rally we saw from SHIB and DOGE. Despite softer market conditions, this volume represents substantial progress for BAT as we continue to grow our market presence. We believe these metrics demonstrate our platform's resilience. While we adjust to current market dynamics, we believe our year over year performance relative to the industry demonstrates the strength of our value proposition and expanding customer base.

Speaker 2

For the quarter, total revenues net of crypto costs, execution, clearing and brokerage fees decreased 25.9% year over year to $12,600,000 Total operating expenses excluding crypto costs and execution, clearing and brokerage fees decreased 36.3% year over year to £31,100,000 Net income improved 176.5% year over year from a loss to a profit of 16,200,000.0 Adjusted EBITDA loss, non GAAP, improved 11% year over year to CHF14.5 million. From an operational standpoint, we are making progress on our transformation to a pure play crypto infrastructure company. The sale of BATTRUST Company to Intercontinental Exchange is expected to close on or about May 15. And as mentioned on our previous earnings call, we continue to explore strategic alternatives for our loyalty business and are in discussions with potential buyers. We believe this represents the best path forward, eliminating ongoing operational losses while focusing our resources on higher growth and higher margin opportunities.

Speaker 2

These initiatives reflect our sharpened focus on core crypto infrastructure. We are deepening our strength in crypto trading and expect to expand into stablecoin payments ecosystem through our planned collaboration with DTR, steps that we believe will accelerate our evolution and position us to capture more potential opportunity in the digital asset space. As Akshay will describe in more detail shortly, we remain committed to disciplined expense management. With our cooperation agreement with DTR signed and the negotiation of a commercial agreement and integration with DTR underway, we are taking a bottom up rather than top down approach to operational efficiency, methodically evaluating each aspect of our business to identify opportunities for improvement while preserving our ability to capture growth. We believe this granular approach will help ensure that we are making strategic decisions about resource allocation without compromising our competitive positioning.

Speaker 2

During this period of refinement, we are suspending our practice of providing quarterly guidance as we work to finalize the definitive commercial agreement with DTR and complete our optimization review. Lastly, we have brought on key hires who are seasoned leaders in crypto and payments. Philip Lord, President of BAT International and Ankit Kemka, Chief Product Officer for BAT. Akshay will explain a little more about their backgrounds and how they bring tangible value to the table. With our sharpened strategic focus, I want to take a moment to articulate our vision for BAT's future.

Speaker 2

Through our cooperation agreement and pending commercial agreement with DTR, BAT intends to power how businesses and consumers interact with digital payments. We are transforming to be not just a crypto trading platform, but an essential infrastructure layer for the future of finance. The regulatory tailwinds we are experiencing have created unprecedented opportunities in crypto trading, stablecoin related payments infrastructure and agentic commerce. We believe that this favorable environment coupled with our combination of regulated infrastructure and cutting edge technology positions us at the forefront of a multi trillion dollar transformation in global financial services. I'd now like to hand over to Akshay Nejeta to share more about DTR and our partnership.

Speaker 2

Akshay?

Speaker 3

Thank you, Andy, and thank you everyone for joining us today. I would like to preface my remarks by saying how optimistic I am for the future of Bakkt at this pivotal time as we stand at the cusp of transforming Bakkt into a prime gateway for programmable money. By leveraging our position as a regulated publicly traded entity with comprehensive license coverage across The U. S, a SOC two compliant tech stack, robust liquidity solutions and brokerage in a box capabilities, I believe Bakkt has a strong foundation to capture the significant opportunities ahead. In addition, I believe Bakkt's highly sophisticated and trusted infrastructure and regulatory moat gives us a competitive opportunity to leverage DTR's stablecoin and AI payments technology, allowing us to enter the global payments and remittance ecosystems.

Speaker 3

Most excitingly, we believe that the expected integration of DTR's APIs for AgenTic Global Payments will harness the power of AI to create intelligent programmable money solutions that transform how businesses and consumers interact with digital assets in their daily transactions. This collaboration aims to transform Bakkt into a pure play crypto infrastructure company by combining complementary strengths. Bakkt's established regulatory framework and trading capabilities provide the secure foundation essential for institutional adoption and consumer trust. The planned DTR integration will introduce innovative technology that enables seamless movement of money by bridging national payment rails and currencies with stablecoins. We believe that this will result in a powerful convergence of regulated innovation between traditional and decentralized finance and will create an agentic infrastructure well suited for supporting the next generation of digital commerce at a global scale.

Speaker 3

Now let me walk you through our go to market strategy and implementation timeline. While the commercial agreement is not yet complete, there will be engineering work to integrate DTR into Bakkt and finalize our ability to secure API enabled fiat rails in The U. S. This timeline reflects our expectations for a clear phased approach to bring our combined capabilities to The U. S.

Speaker 3

Market. The foundation of this partnership will be a comprehensive commercial agreement between Bakkt and DTR, which we expect to complete by Q3 of this year. Significantly, the collaboration agreement already executed by Bakkt and DTR included an option for Bakkt to acquire DTR, creating a potential path to full integration of our complementary technologies and teams. Following the execution of the commercial agreement, we expect to move into the integration phase, connecting DTR and back systems across three critical dimensions, risk and compliance frameworks, USD fiat rails and our payments product suite. We believe this technical integration will create the infrastructure backbone necessary to deliver our enhanced offering.

Speaker 3

By Q3 twenty twenty five, we expect to begin product launch for our early access premium partners. These early adopters will be key strategic clients that can provide valuable feedback and validation as we refine our offering. We believe the careful testing phase will help ensure that we execute successfully. One thing to note, timing of the initial launch will depend on backed securing a reliable and efficient API enabled Fiat rail in The US, and those efforts are already actively underway. By the end of Q3, we anticipate a market wide launch extending our integrated offering to the broader marketplace.

Speaker 3

We believe the space rollout strategy balances speed to market with client experience to ensure we capitalize on immediate opportunities while also building for sustainable long term success. As we focus the company to capitalize on becoming a gateway to programmable finance, I want to highlight the three key pillars of transformation. As Andy mentioned before, we believe the pending divestiture of our custody business and our ongoing discussions for divesting our loyalty business will streamline Bakkt to concentrate on its core strengths. In parallel, we expect to implement comprehensive cost reduction initiatives and optimize the efficiency of our organizational structure and technology stack. We believe these initiatives will strengthen our strategic priorities as we emerge as a more entrepreneurial company with scale trading systems, strengthen leadership and enhance capabilities technology.

Speaker 3

I'm excited to introduce these two exceptional leaders to our executive team. They bring world class experience to accelerate our strategic transformation. Philip Lord joins us as President of Bakkt International leveraging his significant growth experience across global platforms, leadership at crypto payments platform, Ubit, and extensive involvement in the DeFi space for over ten years. And Ankit Khemka comes aboard as chief product officer, bringing his expertise in scaling hyper growth tech companies like Revolut and his proven track record in product innovation across international markets. Both executives bring invaluable expertise in crypto payments and global expansion that will be instrumental as we integrate DTR's capabilities and expand our footprint in the programmable money ecosystem.

Speaker 3

Now I'd like to shift our focus to the transformative potential of our collaboration where we believe BAC's regulated infrastructure and DTR's cutting edge stablecoin and AI technology when integrated will create a powerful combination that has the potential to help redefine digital payments globally. Let me highlight the transformative capabilities we believe DTR will bring to enhance Bakkt's ecosystem. We expect that DTR's technology will integrate frictionless global payments infrastructure with Bakkt's trusted regulatory framework. DTR's user centric intent driven architecture works invisibly behind existing interfaces, allowing customers to continue using familiar wallet and messaging systems without disruption. We believe DTR's lightning fast settlement technology will revolutionize transaction processing delivering instant FX conversions while maintaining the regulatory guardrails essential in today's environment.

Speaker 3

DTR's extensive ION network, which is anticipated to span more than 90 countries by Q3 twenty twenty five will include relationships with local banking partners worldwide solving the complex puzzle of cross border payments and regulatory requirements. All of this will operate within a comprehensive security and compliance framework that will incorporate industry leading KYC AML protocols. We anticipate that this powerful combination will create a seamless bridge between TradFi and next generation digital payments, bringing institutional grade infrastructure to power the future of programmable money. We believe the payments landscape is on the cusp of a massive transformation with stablecoins emerging as a key catalyst. The numbers highlight the enormous opportunity in front of us.

Speaker 3

Cross border payments reached $195,000,000,000,000 in 2024 and are projected to hit $320,000,000,000,000 by 02/1932 according to FXC intelligence. Today, stablecoins command just 3% of this payments market at $5,850,000,000,000 but industry projections indicate the share will surge to 20% of $64,000,000,000,000 by 02/1932, a remarkable growth trajectory driven by three factors. One, consumer demand is intensifying for faster, cheaper and more trustworthy payment solutions with stablecoins delivered through instant settlement, lower validation based fees and blockchain transparency. Two, the regulatory environment is increasingly favorable with the STABLE Act moving through Congress, major institutional players reportedly exploring stablecoin issuance and three, the U. S.

Speaker 3

Positioning itself to become the crypto capital of the world, we believe this convergence of market size, technological capabilities and regulatory tailwinds will create an unprecedented opportunity for Bakkt and DTR when integrated to capture significant market share in this rapidly evolving ecosystem. What you're seeing here is a planned architectural blueprint of our technology stack where Bakkt's regulated infrastructure will serve as the essential bridge between traditional and decentralized financial systems. On the left, we connect seamlessly with TradFi's established payment rails, fiat currencies and institutional infrastructure, while on the right, we plan to extend into the innovative on chain ecosystems through AI agents, stablecoins, and plug and play APIs and chatbots. We believe this unified approach will eliminate many of the traditional barriers between these worlds, creating a financial system that will combine the regulatory compliance and stability of traditional finance with the programmability, transparency, and efficiency of blockchain technology. By facilitating this convergence, we aim not just to enhance existing financial services, but to enable entirely new capabilities that neither ecosystem could achieve independently.

Speaker 3

Through this expected integration, we will create a frictionless, programmable, and fully auditable payment ecosystem that reimagines our transactions are initiated and completed. The process will begin with agent triggers where AI will be able to intelligently initiate transactions based on predetermined conditions or real time needs with enhanced functionalities through our combined payments infrastructure. Critical to the system is the customer approval checkpoint, which will ensure that despite AI initiation, humans maintain control through verification requirements, preventing scenarios where the AI could autonomously execute transactions uncontrollably. We believe this balance between automation and human governance will be essential for compliance and responsible deployment. BAC's rails will provide the secure processing layer, leveraging regulated infrastructure to ensure every transaction meets compliance requirements while maintaining the highest security standards throughout the payments journey.

Speaker 3

The final component, Global Settlement, will deliver instant completion across borders, currencies and financial systems, eliminating the days long settlement times typical in traditional cross border transactions. Together, these four components aim to create a payments ecosystem that will combine AI efficiency with human oversight, fraud prevention, and regulatory compliance with technological innovation while dramatically reducing friction in global commerce. The following products you'll see on this road map represent DTR's current capabilities that will be integrated into Bakkt's offering following the expected signing of our commercial agreement estimated by Q3 twenty twenty five. With technical integration and testing already underway, which we believe will ensure we are prepared for our expected launch with premium partners in q three twenty twenty five followed by our expected market wide launch targeted for the end of q three twenty twenty five. While previously noted, the timing of the initial launch is contingent on back securing reliable and efficient API enabled fiat rails in The U.

Speaker 3

S, a process that is actively underway today. Bakkt checkout will represent our gateway solution for merchants to seamlessly integrate stablecoin payments into their existing commerce infrastructure. We expect that this product will enable merchants to accept stablecoin payments with real time confirmations, significantly lower fees compared to traditional payment processor and instant settlement directly into fiat currency in over 46 countries. We will design the solution so that implementation is remarkably straightforward. Merchants simply add crypto as a payment option to their checkout page, and our system will handle all the complexity of blockchain transactions, currency conversions, and regulatory compliance behind the scenes.

Speaker 3

As you can see from the illustrative interface on the right, we have designed the customer experience to be intuitive and familiar, such that paying with stablecoins is as simple for the consumer as any traditional payment method while delivering significant efficiencies. Back agent will be a white label AI powered plug in that will transform any messaging interface with just a few lines of code into a programmable money box. We expect that this solution will deliver a native experience that uses existing app interfaces, eliminating the need for users to download new wallets or learn complex crypto flows. The core functionality will enable chat based transfers where users can send, receive, and convert funds through natural interactions like voice commands, text messages, or even images. The intended result will be seamless global money movement, permitting transfers of both fiat and stablecoins worldwide through the familiar conversational interfaces people already use.

Speaker 3

Our design will ensure that developers can quickly integrate this powerful functionality into their existing applications with minimal technical overhead, dramatically reducing time to market for advanced payment capabilities. Thank you for your time today as we have outlined our vision for the future of Bakkt in the world of programmable money. Looking forward, as we continue to further strengthen the leadership team, launch new products and sign up new customers and partnerships, I believe that we are poised to accelerate sustainable growth, thereby unlocking significant value for Bakkt's customers and shareholders. Now I'll pass the call to Karen for her review of Bakkt's financials for the first quarter.

Speaker 4

Thank you, Hase. I will now walk you through Bakkt's first quarter KPIs and financial results. As a reminder, in accordance with GAAP, we present crypto services revenue and crypto costs and execution clearing and brokerage fees on a gross basis as we are a principal in the crypto services we provide our customers. By contrast, we are an agent in the loyalty redemption services we provide our loyalty customers. Therefore, revenue is presented on a one line net basis.

Speaker 4

Starting on Slide 20, I'll walk you through our Q1 KPIs, which provide insight into the underlying trends driving our business. We concluded the first quarter with 6,800,000 crypto enabled accounts, demonstrating continued steady growth over the past twelve months despite the broader market volatility. Regarding transacting accounts, we recorded a total of 777,349 active accounts in the first quarter segmented into 377,679 loyalty redemption accounts and 399,765 crypto trading accounts. While this represents a sequential decline from Q4 twenty twenty four, it aligns with the broader crypto markets cooling period following the exceptional activity we experienced in the fourth quarter driven by post election optimism. The year over year comparison is relatively flat.

Speaker 4

As Andy highlighted earlier, our notional volumes reflected the market's moderation after last quarter's record breaking performance. Total notional volumes in Q1 reached $1,210,000,000 comprising 1,060,000,000 from crypto trading and $153,000,000 from royalty redemptions. Our crypto volumes underperformed market benchmarks on a sequential basis that outpaced the market on a year over year comparison demonstrating our resilience over longer timeframes. Loyalty redemption volumes declined both sequentially and year over year. Finally, assets under custody at our custodian partners for our brokerage business totaled $1,873,000,000 at quarter end.

Speaker 4

This represents an 18.7% decrease from the previous quarter, but a 52.5% increase year over year with movements primarily driven by fluctuations in underlying crypto asset prices rather than significant changes in customer holdings. On Slide 21, we show our total revenue broken out between crypto and loyalty products. Total revenue for the first quarter of twenty twenty five was $1,080,000,000 up 25.8% year over year and down 40.2% sequentially. Gross crypto services revenue for the quarter was $1,070,000,000 up 27.7% year over year and down 40.3% sequentially. As noted earlier, the sequential decline in gross crypto services revenue reflects the market's moderation after a record breaking performance in the fourth quarter of twenty twenty four, while year over year increase demonstrates the improved market sentiment that we have seen in crypto since the fourth quarter of twenty twenty four.

Speaker 4

Crypto services revenue, net of crypto costs and execution clearing and brokerage fees or ECB, totaled $3,500,000 reflecting a 5.4% decrease year over year and a 47.8% decrease sequentially. Net royalty revenues were $9,200,000 down 30.3% year over year and 17.1% sequentially. Of this amount, royalty transaction revenues contributed $5,000,000 while subscription and services revenues were $4,200,000 The year over year decline was primarily related to the exit of a loyalty client in 2024 as well as reduced volume based service revenue and transaction volume. Moving to Slide '22. Total operating expenses for the quarter were $1,090,000,000 including $1,060,000,000 of crypto costs and ECB, which are correlated to crypto trading volumes.

Speaker 4

SG and A expenses were $3,800,000 down 51.3% year over year and 19.1% sequentially, driven by reductions in insurance, marketing and promotion and occupancy costs. Total compensation expense was $17,800,000 down 27.3 year over year and up 17.1% sequentially. The year over year decline reflects lower salaries, wages and benefits driven by our restructuring actions in 2024. The sequential increase in compensation expense is driven by a migration away from cash bonuses towards stock based incentive compensation. Our Q4 twenty twenty four results included a $4,000,000 reversal of cash bonus accrual reflecting the change in compensation strategy that did not repeat in Q1 twenty twenty five.

Speaker 4

Turning to Slide '23, we present our condensed profit and loss statement. Net income for the quarter was $16,200,000 up 176.5% year over year, improving from a loss of $21,300,000 for the last year. Dollars 8,500,000.0 was attributable to the non controlling interest from the operating company and $7,700,000 was attributed to BAC Holdings resulting in an income of $1.18 per basic share on an average share base of 6,400,000.0 shares. On Slide 24, we have our condensed balance sheet as of 03/31/2025. We ended the quarter with $23,000,000 of cash and cash equivalents and $22,800,000 in restricted cash, including after taking into account the $5,000,000 drawn on ice line of credit in the quarter.

Speaker 4

Cash and cash equivalents decreased by $16,000,000 in Q1. Excluding the $5,000,000 drawn on Icelandic credit, we utilized $23,100,000 of available cash in the first quarter of twenty twenty five. As Andy mentioned, the sale of our trust business is now presented as an asset held for sale on the balance sheet for $3,500,000 The closing of that transaction is expected to occur on or about May 15. On Slide 25, we have our adjusted EBITDA for the first quarter of twenty twenty five. Adjusted EBITDA reflects adjustments for certain non cash and restructuring and transaction related items that impacted the period.

Speaker 4

Adjusted EBITDA for the first quarter of twenty twenty five was a loss of $14,500,000 The year over year improvement in adjusted EBITDA loss, neared by 11%, was primarily due to the overall decrease in compensation and benefits and SG and A expenses, partially offset by an increase in professional fees. Thank you, everyone. That concludes the prepared remarks section of our first quarter twenty twenty five earnings call. I will now pass it back to Cody for a quick moment.

Speaker 1

Thank you, Karen, Andy, Akshay, and everyone for attending our earnings call. We look forward to connecting with you again soon.

Operator

Ladies and gentlemen, this concludes our event. You may now disconnect. Thank you.

Powered by Quartr
Earnings Conference Call
Bakkt Q1 2025
00:00 / 00:00