Bitcoin Depot Inc. (NASDAQ:BTM) Q4 2023 Earnings Call Transcript

Bitcoin Depot Inc. (NASDAQ:BTM) Q4 2023 Earnings Call Transcript March 25, 2024

Bitcoin Depot Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to Bitcoin Depot's Fourth Quarter 2023 Conference Call. My name is Jericho and I will be your operator today. For this call, Bitcoin Depot issued its financial results for the fourth quarter and full year ended December 31, 2023 in a press release. A copy of which will be furnished in a report on Form 8-K filed with 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: Great. Thank you, operator. Good morning, everyone, and welcome to Bitcoin Depot's fourth 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 our forward-looking statements, please see the disclosures in our earnings release and public filing 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 on 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 Invest Relations section of Bitcoin Depot's website. A supplemental earnings presentation highlighting our Q4 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: Thanks, Alex, and good morning, everyone. Thank you for joining our fourth quarter 2023 conference call. We're excited to share with you the progress we've made since our last quarterly update, our accomplishments during 2023, and our growth strategy for 2024. Let's start with our financial performance for 2023. We grew revenue 7% year-over-year to $689 million as we continue to fortify our industry-leading position with sustained strength in customer traffic and transaction volume. We also remain focused on driving profitability and deliver a 38% year-over-year increase in adjusted EBITDA, which demonstrates the continued strength of our business model as we scale. Importantly, this significant EBITDA growth was delivered even as the company had not placed a bulk order for additional kiosks since 2021.

A close-up of a laptop with a Bitcoin ecosystem monitor running in the background.

This adjusted EBITDA was achieved while operating with a reduced number of active kiosks in 2023 compared to 2022 and improving our margins. Throughout the year we continued to execute our strategic priorities while supporting our mission to safely, securely, and efficiently bring Bitcoin to the masses. These priorities included expanding and improving our retail operations, updating our digital platforms and go-to-market strategy, refining our customer experiences, and enhancing our overall value proposition in the marketplace to both customers and retailers. We're pleased to say that we delivered on all of those objectives in 2023 and are entering 2024 with significant momentum and a strong foundation for future growth. Throughout 2023, we continued to expand the number of Bitcoin access points through BDCheckout across North America, while optimizing our kiosk footprint by relocating underperforming kiosks to more profitable locations.

During 2023, we signed several new agreements with convenience store brands spanning across several states and increased our fleet of deployed kiosks. These include FastLane, Gas Express, High’s, Majors Management, Stinker Stores, GetGo Café + Market, and Jacksons Food Store. We also expanded our BDCheckout program, which is our no hardware Bitcoin purchase solution for our users, to three additional states in over 725 additional locations across a variety of convenience store partners through our payment processing partner, which has a nationwide retail network of over 90,000 locations. We launched BDCheckout in 2022 to facilitate a convenient way for users of the Bitcoin Depot mobile app to purchase Bitcoin with cash at the cash register and we look to expand this program going forward.

The BDCheckout expansion demonstrates our sustained operational momentum in bringing Bitcoin's accessibility to more states without needing to deploy physical kiosks, while continuing to serve as the benchmark for innovation and service for our customers through this program. We also maintained our industry-leading market share with our kiosks and see opportunities for accelerated market share growth due to the reduction of BTMs operating in the US. After a successful 2023, I'm pleased to say that we are carrying this momentum into the early part of 2024. During the first quarter, we ordered 900 kiosks as part of our plan to have roughly 8,000 kiosks installed by the end of 2024, the largest installed fleet of Bitcoin ATMs in our history. To support this goal, we continue to focus on growing our BTM network and building a robust pipeline of major regional and national retail partners.

First, we announced the expansion of our sales team with the hiring of 13 new sales representatives in Q1 2024. This expanded sale force is anticipated to secure over 100 new Bitcoin Depot kiosk locations on a monthly basis once they are ramped up. Second, we secured a mass replacement agreement with a national convenience store retailer in January to install nearly 1,000 Bitcoin Depot kiosks in convenience stores across 24 states. The initial rollout is part of a larger initiative with the opportunity to grow into additional stores. This is the second largest BTM placement deal in our company's history and reinforces our leading position in the market. We also recently announced the sale of 50 new BTMs to Sopris Capital as part of our franchise program which we launched in 2023.

The franchise program is designed to provide additional deployment opportunities to qualified partners as part of our North American expansion strategy. Our franchise partners benefit from Bitcoin Depot's expertise and operating BTMs and integration with Bitaccess software, the premier software suite for Bitcoin ATM operations. Today we have over 100 franchise-owned BTMs operating on our platform, and over 7,300 kiosks installed in location across North America. In summary, we remain encouraged by the trends we're seeing across our business, and are well positioned to continue the momentum so far in 2024 as we firmly establish the foundation for future growth, increased scale, and profitability. 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.

Now, I'll turn the floor over to our CFO, Glen Leibowitz, who will provide more in-depth insights into our financial performance and business outlook. Glen?

Glen Leibowitz: Thanks, Brandon, and good morning, everyone. I'll start with a detailed review of our fourth quarter and full year 2023 results, and we'll finish with a discussion on guidance. Fourth quarter revenue declined approximately 1% year-over-year to $148.4 million compared to $149.7 million for the last year's fourth quarter. This decline was largely driven by a smaller fleet of deployed kiosks in operation compared to Q4 2022 as we continue our focus on optimizing our fleet for maximum profitability. The full year revenue increased 7% to $688.9 million compared to $646.8 million in the prior year. Gross profit for the fourth quarter of 2023 increased 22.3% to $17.9 million compared to $14.6 million for the fourth quarter of 2022.

Gross margin in the fourth quarter of 2023 was 12.1% compared to 9.8% in the fourth quarter of 2022. For the full year gross profit increased 64.1% to $87.8 million and gross margin increased over 440 basis points to 12.7%. This margin growth is largely driven by our kiosk relocation efforts, which allows us to reduce fixed retail space rental costs, while maximizing revenue per kiosk. Total operating expenses for the fourth quarter of 2023 were $17 million compared to $14.8 million for last year's fourth quarter. On a sequential basis, our operating expenses declined 13% from the third quarter of 2023. This improvement was attributable to lower professional services expenses, and we anticipate that trend will continue as we move further away from the [DSPAC] (ph) transaction.

For the full year, operating expenses were $69.8 million and compared to $55.8 million in the prior year. We expect that operating expenses will decline in 2024 as we move away from the DSPAC process and optimize our expenses for life as a public company. GAAP net loss for the fourth quarter of 2023 was $1.5 million compared to net loss of $527,000 for the fourth quarter of 2022. For the full year GAAP net income was $1.6 million compared to GAAP net income of $3.5 million in the prior year. This decline in net income was driven by the DSPAC cost incurred in 2023, which we don't expect to incur in the future. Adjusted EBITDA, a non-GAAP measure for the fourth quarter of 2023 was $9 million compared to an adjusted EBITDA of $11.4 million for the fourth quarter of 2022.

For the full year, adjusted EBITDA increased 37% to $56.4 million compared to $41.2 million in the prior year. Adjusted EBITDA margin, which is derived from adjusted EBITDA divided by revenue in the fourth quarter of 2023 was 6.1% compared to 7.6% margin in the fourth quarter of 2022. For full year, adjusted EBITDA was 8.2% compared to 6.4% in the prior year. Lastly on our balance sheet, we ended the fourth quarter with approximately $26.4 million in cash and cash equivalents and $30.7 million in debt. During 2023, Bitcoin Depot refinanced its term loan facility and continued to pay down its finance leases. We purchased 120,644 shares in the fourth quarter under the stock repurchase plan. Now turning to our financial outlook, but first, I think it's helpful to provide the following market backdrop.

So far in the first quarter, we've deployed over 1,000 kiosks, representing almost 14% of our installed base. While this type of expansion is key to our growth, the magnitude of new machines going into the market in a short amount of time is unprecedented for our company. As those kiosks begin to establish a customer base, we expect to see revenue growth from our kiosk footprint over time. So to be more prudent, we are providing an outlook on a quarterly basis until these machines mature. Having said that, and based on current market conditions, we expect revenue in the first quarter to remain between $137 million and $138 million. This decline relative to both the fourth quarter of 2023 and the first quarter of 2023 as long were driven by two factors.

First, as mentioned previously, we were operating less kiosks to start 2024 than we were in the fourth quarter of 2023 and the first quarter of 2023 as we continue to focus on relocations of underperforming kiosks. Secondly, the unfavorable legislation that was passed in California, which went into effect in January of this year has had a material impact on revenue during the quarter. We are actively engaged in California with their legislature and continue to see constructive changes to the operational limitations that are currently in place in the state. However, our focus remains to drive revenue growth for 2024. Adjusted EBITDA for Q1 2024 is expected to range between $5 million and $6 million. This lower adjusted EBITDA level is driven largely by the deployment of over 1,000 kiosks in the quarter.

These kiosk deployments have significant initial logistic costs and will incur rent to the retailers while we wait for the corresponding revenue to grow. As mentioned, these deployments do not come with an immediate revenue or EBITDA improvement, but they are expected to drive growth later in 2024 and in future years. For the remainder of 2024, we expect to follow a similar seasonality trend as we have described previously, with Q2 and Q3 being significantly higher revenue than what we see in Q1 and Q4. That completes my financial summary. I'll now pass it over to Scott Buchanan, our COO, to discuss our growth strategy. Scott?

Scott Buchanan: Thanks, Glen. As we head into 2024, we remain focused on our key growth opportunities. First, as Brandon previously mentioned, we aim to boost profitability by optimizing our kiosk footprint by relocating our kiosks to high traffic locations, which effectively reduces expenses while increasing transaction volume. This effort was significant in 2023 and will likely slow in 2024 as we have removed the vast majority of our underperforming kiosks. 2024 will be a theme of footprint growth compared to 2023 which was a year more focused on footprint consolidation and optimizing profit margins. During 2023 we successfully optimized our footprint to drive adjusted EBITDA growth and we remain committed to additional operational enhancements to drive profitable growth going forward.

These include improved vendor pricing, lowering special services costs, and optimizing customer markups. Also, the completion of our software conversion to BitAccess across our full Bitcoin ATM fleet during 2023 will eliminate previous annual software licensing fees and strengthen our competitive advantage. Second, we are actively pursuing additional licenses to expand our access points for customers. During the fourth quarter, we expanded our BDCheckout program across a variety of convenience store partners through our ongoing partnership with our payment processing provider. New York state remains a large potential growth opportunity for our kiosk. And we hope to have a resolution on our efforts to secure a license to operate in the state during the second quarter.

We believe that if our New York license is granted, our opportunity for expansion could be even larger than some of our largest current states, such as Texas and Florida. Lastly, we'll be placing additional focus on the franchise program. We are very excited about our partnership with Sopris Capital and we are seeing significant interest from other investors joining this program as well. We see this program as a powerful pathway for us to further enhance our margin profile, while also reducing the need for capital expenditures on our kiosk fleet. While our focus is currently within North America, where approximately 92% of BTMs globally are located, we believe the growing adoption of cryptocurrency as a legal form of payment will offer us an opportunity to establish a presence outside of North America over time.

In summary, we delivered strong results this year and are well positioned heading into 2024 to continue our momentum and execute on our growth strategy. With that, we are now happy to take your questions. Operator?

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