Bitcoin Depot - Q2 2023

Transcript

Operator (participant)

Good morning, and welcome to Bitcoin Depot's second quarter 2023 conference call. My name is Jordan, and I'll be your operator today. Before this call, Bitcoin Depot issued its final results for the second quarter, ended June 30th, 2023, in a press release. A copy of which will be furnished in a report on Form 8-K, filed with the SEC and will be available in the investor relations section of the company's website. Joining us on today's call are Bitcoin Depot's CEO, Brandon Mintz, CFO, Glen Leibowitz, and COO, Scott Buchanan. Following their remarks, we will open the call for questions. Before we begin, Alex Kovtun from Gateway Group will make a brief introductory statement. Mr. Kovtun, please proceed.

Alex Kovtun (Director)

Great. Thank you, operator. Good morning, everyone, and welcome to Bitcoin Depot's second quarter 2023 conference call. Before management begins their formal remarks, we would like to remind everyone that some statements we're making today may be considered forward-looking statements under securities laws and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and assumptions relating to forward-looking statements, please see disclosures in our earnings release and public filings made with the Securities and Exchange Commission. We disclaim any obligation or any undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. We refer you to our filings with the Securities and Exchange Commission for detailed disclosures and descriptions of our business, as well as uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified under the caption "Risk Factors" in our recent filings. You may get Bitcoin Depot's Securities and Exchange Commission filings for free by visiting the SEC website at www.sec.gov. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the investor relations section of Bitcoin Depot's website. A supplemental earnings presentation highlighting our Q2 performance has also been made available on our IR website.

Now, I will turn the call over to Bitcoin Depot's CEO, Brandon Mintz. Brandon?

Brandon Mintz (President and CEO)

Thanks, Alex. Good morning, everyone. It's an exciting moment for us to be hosting you for Bitcoin Depot's first earnings call as a public company after closing our business combination with GSR II Meteora Acquisition Corp and listing on the Nasdaq in early July. Before sharing some recent highlights, I want to briefly introduce the company for those of you who are new to our story. I started Bitcoin Depot in 2016 after having difficulty in purchasing Bitcoin from an online exchange. The experience was extremely frustrating and ultimately, after a few weeks, I still didn't have my Bitcoin. I found another way to buy Bitcoin with cash that was easier, quicker, and more secure, which ultimately inspired me to start Bitcoin Depot.

We started the company with just a few machines and have expanded our footprint over the last seven years to become the largest Bitcoin ATM operator in North America, with approximately 6,350 kiosk locations across 49 U.S. states and 10 Canadian provinces, supporting approximately 24,000 monthly active users. Our mission is simple: We aim to bring Bitcoin to the masses. We do this by allowing users to convert cash to Bitcoin at our kiosks or at thousands of name brand retail locations through our BD Checkout offering, which is our no hardware solution. Since 2016, we have completed $1.7 billion of total transaction volume over 2.9 million transactions, these figures continue to grow as we expand our footprint. Let me now talk about our users and why they use our products to purchase Bitcoin.

We primarily support the cash-based economy and the underbanked population in very convenient ways. According to survey data, about two-thirds of our users say that they are purchasing Bitcoin to be able to use it for online purchases and money transfer or remittances. Many of our users either don't have bank accounts or choose not to have bank accounts, which limits their ability to purchase Bitcoin from an online exchange. This really just shows that the customer base for Bitcoin Depot is very different than that of an online exchange. We know that underbanked and unbanked users in a cash economy have to physically go out many times to use services such as prepaid cards, bill pay kiosks, money remitters, or check cashing services to manage their financial needs.

Now people in this population segment can efficiently complete nearly all of those alternative financial services transactions from smartphones using Bitcoin. We also offer amazing customer support that is very quick to respond over email, over text, or phone calls and chat, so we really provide a more personalized and quick experience than many other industry options to purchase Bitcoin. The process for purchasing Bitcoin through our kiosks or our BD Checkout program is very simple, and users will have access to their purchased Bitcoin in minutes. For users at our kiosk locations, they complete KYC verification, scan their QR code from their Bitcoin wallet app using the Bitcoin Depot app or another Bitcoin wallet of their choice, insert cash, and then the user will receive Bitcoin to their wallet immediately.

We, of course, recommend the Bitcoin Depot wallet because it is completely self-custodial, which means we don't maintain custody of users' funds within this wallet. Only the user has access to their Bitcoin. The process for BD Checkout is also really straightforward. Users first download our mobile app, place an order to buy Bitcoin, complete KYC verification, generate a barcode on the app and scan it at the register, hand over cash, and then convert to Bitcoin in their Bitcoin Depot wallet app. We've seen meaningful customer engagement since 2016, and our median transaction size has increased quite rapidly as well. During the second quarter, the median transaction size was $200, which is an 18% increase compared to the second quarter of 2022. We typically see our kiosks ramp up in volume over time as they continue to attract customers and generate additional volume.

From our kiosk cohort analysis, we found that transaction volumes have accelerated from their first year in operation, and this is a trend we continue to see with our new deployments from relocated kiosks as well. This engagement has also translated to very strong revenue growth as we delivered record quarterly revenue at $197.5 million in revenue for the second quarter, an 18% increase compared to the second quarter of 2022. Importantly, at 19%, we continue to maintain our industry-leading market share. Customers are attracted to the accessibility and user experience of Bitcoin ATMs as an entryway into the broader digital financial ecosystem. Our kiosks are located in convenient locations across the country through existing partnerships with 40 major retailers, including major national and regional retailers.

Our largest retail agreement is with Circle K, where we're in close to 1,500 of their stores. With Circle K operating in roughly 15,000 stores globally, there's a lot of room to grow within this retailer. In addition to our kiosk footprint, we also allow consumers to purchase Bitcoin right at the counter at approximately 5,200 participating retail locations through our BD Checkout program. We offer this service through a partnership with a leading global payment supplier, it allows us to expand our access points without deploying a physical kiosk. In aggregate, our kiosks and BD Checkout access points are located in zip codes addressing over 51% of the U.S. population today. Ultimately, our goal is to become the most trusted, quickest, and most efficient way to purchase Bitcoin with cash across the largest network of retail locations possible.

Our current pipeline of expansion opportunities remains very strong. Over the last several months, we've announced multiple partnerships with convenience store brands and recently expanded our BD Checkout program into two additional states. We're excited about the numerous growth opportunities ahead and are well positioned to support mass crypto adoption as the world's leading Bitcoin ATM network. I'll now turn things over to our CFO, Glen Leibowitz, to update you on our financial performance and business outlook. Glen?

Glen Leibowitz (CFO)

Thanks, Brandon, good morning, everyone. Revenue for the second quarter of 2023 increased 18% to $197.5 million, compared to $167.9 million for the second quarter of 2022. The increase was attributable to higher transaction size and customer acquisition. Gross profit for the second quarter of 2023 increased 73% to $24 million, compared to $13.9 million for the second quarter of 2022. Gross margin in the second quarter of 2023 was 12%, compared to 8% in the second quarter of 2022. Adjusted gross profit, a non-GAAP measure for the second quarter of 2023 increased 62% to $30.2 million, compared to $18.7 million for the second quarter of 2022.

Adjusted gross margin in the second quarter of 2023 was 15%, compared to 11% in the second quarter of 2022. Turning to total operating expenses for the second quarter of 2023 were $22.4 million, which included $16.2 million in other selling, general and administrative costs, and $6.3 million in depreciation and amortization expenses. For the year-ago comparable period, the operating expenses were $12 million. We saved approximately $2 million in software licensing fees during the second quarter through our acquisition of Bitaccess Inc, which equals about 1% of our revenue. Turning to net loss.

Our GAAP net loss for the second quarter of 2023 was a loss of $6.1 million, compared to net income of $4.1 million for the second quarter of 2022. Adjusted EBITDA, a non-GAAP measure for the second quarter of 2023, increased 63% to $21 million, compared to an Adjusted EBITDA of $12.9 million for the second quarter of 2022. The improvement was driven by higher revenue and an improvement in margins. Adjusted EBITDA margin in the second quarter of 2023 was 11%, compared to 8% in the second quarter of 2022. Lastly, on our balance sheet, we ended the second quarter with approximately $27 million in cash and cash equivalents, and $36 million of debt.

As part of our completion of the business combination, we have reduced our debt in half and are now less than 1x net debt to EBITDA. Turning to our guidance, which is unchanged from what we introduced in our preliminary Q2 results press release in July. Based on current market conditions, we expect revenue in 2023 to range from $700 million-$730 million, which is an 8%-13% improvement compared to revenue of $647 million for the full year of 2022. We expect Adjusted EBITDA in the range of $56 million-$59 million, representing a 37%-44% increase in Adjusted EBITDA year-over-year. That completes my financial summary. I'll pass it over to our COO, Scott Buchanan, to discuss our growth strategy. Scott?

Scott Buchanan (COO)

Thanks, Glen. We're excited about the growth opportunities ahead and are focused on three main priorities. First, we continue to improve profitability through the relocation of our kiosks to new locations with lower rent and higher customer traffic, which continues to reduce expenses while driving higher transaction volume. We've expanded our marketing efforts and are driving customer acquisition to our kiosks, which resulted in 31,000 new customers in the second quarter of 2023. Importantly, we continue to see revenue growth with the same fleet of kiosks as we haven't deployed any incremental kiosks since 2021. We also continue to focus on enhancing vendor pricing and optimizing the markup for customers to enhance our margins. Second, we are continuing to pursue additional licenses and expanding BD Checkout as part of our compliance initiatives.

During the second quarter, we added several state money transmitter licenses and are focused on adding more during the second half of the year. We continue to explore M&A. We think there's an enormous opportunity for market consolidation, particularly considering our industry-leading market share. About 95% of all Bitcoin ATMs in the world are in the U.S. and Canada. The international market is virtually untapped. We think in the coming years, there's a strong opportunity for us to expand outside of North America as well. In summary, we had record results and accelerating growth and several milestones we're proud of as we head into the second half of the year.

Operator (participant)

At this time, I'd like to remind everyone, in order to ask a question, press star, then 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We have compiled the Q&A roster. Our first question comes from the line of Mike Colonnese from H.C. Wainwright.

Mike Colonnese (Managing Director and Senior Technology Analyst)

Hi, good morning, guys, and congrats on the listing in your first quarter as a public company. Bitcoin Depot has established itself as an industry leader. I was wondering, you know, in your view, what do you attribute this to, and what gives you confidence that you can defend your market-leading position going forward?

Brandon Mintz (President and CEO)

Good morning, Mike, and thank you. Moving forward, we would try to maintain a market-leading position as much as we possibly can through many things that we've already accomplished and arguably proven ourselves on. One of those would be our ability to secure very large retail relationships with some of the largest retailers in the world. Also, our ability to conduct M&A activities. For example, our purchase of BitAccess in 2021 and integrating all of our kiosks to that software, which saved us a few million dollars a year annually. And just also our ability to scale very quickly. A couple of years ago, we went from just over 1,000 kiosks to nearly 6,000 in the same year in 2021.

With being a public company now, we just have a lot more access to capital, and we could use our stock now for acquiring talent, but also for acquisitions and partnerships. With all of those factors combined, and our industry-leading market share at nearly 20%, we believe that we will be the leading Bitcoin ATM company moving forward and have the most opportunities in front of us versus any of our competitors.

Mike Colonnese (Managing Director and Senior Technology Analyst)

Great. Second one for me. If you can, highlight some of the underlying assumptions that went into informing your revenue and Adjusted EBITDA guidance for 2023, and the primary revenue drivers and KPIs we should be looking at for you.

Scott Buchanan (COO)

Mike. The biggest things for us is the average the median transaction size is important because as we see that rise, we're getting more incremental profit out of each customer. Then I would also focus on our volume per kiosk, which you can see in our all our filings by taking our total revenue divided by the number of kiosks in operation. You can see how much that's continued to grow over the past few quarters. Then lastly, new customer acquisition, which we also have disclosed in this most recent filing, as we continue to see that grow as well.

Mike Colonnese (Managing Director and Senior Technology Analyst)

Great. Thank you for taking my questions.

Operator (participant)

Your next question comes from the line of Michael Kupinski from Noble Capital Markets. Your line is live.

Michael Kupinski (Director of Research and Senior Media and Entertainment Analyst)

Thank you. Congratulations on being a public company as well. A couple of questions. Can you comment on the pipeline you mentioned in your press release about new retail partners? Could you talk a little bit about, in terms of your guidance, what are the targets in terms of the number of kiosks in the next quarter? Anything that we should look for there? Then also, I would assume that there would be some margin impact on that. Is that embedded in your guide? Then also, in terms of your EBITDA guide, are there costs associated with being a public company embedded in that? If you can kind of give us some thoughts about how significant that expense might be.

Brandon Mintz (President and CEO)

Thanks, Michael, for the question. Related to our guidance this year, this is all just organic operating activity for the company, and we, we do not have any additions of kiosks that we're operating, in that guidance beyond what we have operating today. I do wanna make a note for you that we have, roughly 600+ kiosks in a warehouse right now, that have been prepared to be deployed, whenever our sales team, acquires additional retailer contracts that would allow the deployment of some or all of those kiosks. To answer the, the second part of your question, there are public company costs embedded, in this guidance as well. I'll let Scott shed a little bit more color on that, but, a large portion of that is our D&O insurance.

Scott Buchanan (COO)

D&O is the biggest piece for sure, since we didn't have that prior to being public, and now it's multiple millions of dollars. Then there's also just incremental costs of the public company audit with KPMG, and the legal costs involved in all the SEC filings and that type of stuff. That's baked into our forecast that we provided to the market.

Michael Kupinski (Director of Research and Senior Media and Entertainment Analyst)

Gotcha. I believe you stated that transaction volumes have historically not been correlated with the price of Bitcoin. Nonetheless, you know, Bitcoin surging roughly 75% year to date. I was wondering if, do you notice any trends in the business or customer profile that might have changed or, you know, anything that's different, you know, given the fact that we've seen the Bitcoin surging?

Brandon Mintz (President and CEO)

Far, trends have been pretty similar. You have probably noticed our median transaction size has been $200 now for quite a few months, and over multiple quarters. It still does not appear to have any sort of correlation to Bitcoin Depot's operating business.

Michael Kupinski (Director of Research and Senior Media and Entertainment Analyst)

Has the customer profile changed at all just because of the fact that it's been rising? Have you seen a different profile of the customer demographic, for instance?

Brandon Mintz (President and CEO)

No, we haven't noticed any difference in customer profile from the price increase of Bitcoin this year.

Michael Kupinski (Director of Research and Senior Media and Entertainment Analyst)

That's all I have. Thank you.

Brandon Mintz (President and CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Kevin Dede from H.C. Wainwright.

Kevin Dede (Managing Director and Senior Technology Analyst)

Hi, Brandon. Thanks for taking my questions. I guess, I'd just like to dial in a little bit on your strategic thinking and expansion within U.S. Where are you on the New York BitLicense? What other money transmitter licenses are you looking at, and what's your proposed timeline?

Brandon Mintz (President and CEO)

Thanks, Kevin. On the New York BitLicense, there is no timeline that has been provided to us. We are coming up on 3 years in terms of being in that process. Typically, from what we have seen, it does take a few years to be able to get a license. But there's no specific amount of time we've been told until we would receive approval, if we would receive approval at all. As far as other money transmitter licenses go, typically the process is for every state that we're operating in, we will do our own due diligence as well as contact the state to see if a money transmitter license is required.

Depending on our risk tolerance, based on their answer, we would decide to get a license or determine to continue operating without a license, because it may be determined that it's not necessary. I can say that we have over 13 money transmitter licenses today, and that number has grown by a handful over the past year. Typically with our, our risk tolerance, we're more likely than not to get additional money transmitter licenses.... We do operate in 48 states today, outside of New York and Hawaii. In terms of Hawaii, it's just a matter of a sales effort, and it does not appear to be license related for us to expand there. Does that answer your question?

Kevin Dede (Managing Director and Senior Technology Analyst)

Fair enough. Yes, I appreciate it, Brandon. Thanks. I think previous question touched on retail relationships. Obviously, you've got a great one with Circle K. Where else do you think that could go? Who else, can you talk to, and how much of a strategic emphasis are you putting on it?

Brandon Mintz (President and CEO)

It's always an important area of focus for us, even if we're not actively buying additional kiosks. There are kiosks that we do relocate to higher performing locations, and we do have a very strong retailer pipeline at the moment, and it's been building up for quite some time. I'm not able to name specific names, but we continue to focus on the convenience store and grocery segment. If you look at the top, let's say, 25 retailers in the grocery and convenience store space, still the majority of them do not have a Bitcoin ATM provider. Most of the smaller convenience store and grocery operators had more tolerance early on to be able to move quickly and allow Bitcoin ATMs in their store.

It's just like any industry, you know, the larger companies are going to move slower with a new product. So there's an abundant amount of opportunity there, with some of the top retailers in the U.S. and Canada, to be able to expand to, just because there's not a lot of supply of Bitcoin ATMs in those large retailers.

Kevin Dede (Managing Director and Senior Technology Analyst)

Can we look at a cross-section of some of the transfers that Bitcoin Depot has allowed? Do you have a breakdown between what's U.S.-centric and what's U.S. international?

Brandon Mintz (President and CEO)

Just to get some clarification, what type of transfers are you talking about?

Kevin Dede (Managing Director and Senior Technology Analyst)

Just, you referenced that your customers like Bitcoin access so they can transfer it, right? I was just wondering if you had a view to how it's transferred and where it goes.

Brandon Mintz (President and CEO)

In terms of how Bitcoin Depot functions, those users actually are just purchasing Bitcoin from us. I think what you're referencing is in our survey data, a large portion of those users, it's somewhere around 30%, say that they're using Bitcoin for money transfer, either domestically or internationally. If that's what you're asking, we don't have specific data on the breakdowns. We just ask the question on what are you using your Bitcoin for after you purchase it from us?

Kevin Dede (Managing Director and Senior Technology Analyst)

Understood. Okay. That's exactly where I was going, Brandon. Thanks for the color. Appreciate you taking the questions.

Brandon Mintz (President and CEO)

You're welcome.

Operator (participant)

Again, if you'd like to ask a question, press star, then the number 1 on your telephone keypad. Your next question comes from the line of Brian Dobson from Chardan Capital Markets. Your line is live. Brian, your line is live. It seems Mr. Dobson has withdrew his question. There are no further questions at this time. I'd like to now turn the call back over to Brandon Mintz.

Brandon Mintz (President and CEO)

Thank you, everyone, for joining the call today. We really appreciate your time and interest in the company and your questions. I want to also note that we did have some technical difficulties, and there was a section that our COO, Scott Buchanan, was going to read, and due to the technical difficulties, he was not able to. If you would like to read his section, please just see the official transcript in print. Thank you, everyone.