Exodus Movement, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Exodus operates a self-custodial cryptocurrency wallet and earns most revenue from third-party services, particularly digital-asset exchange aggregation.
Financial performance
- Revenue: $29.1 million, up 118% from $13.3 million in Q1 2023. Exchange aggregation contributed $26.8 million (92% of revenue); non-exchange revenue was $2.3 million.
- Gross profit and margin: $18.4 million versus $6.5 million; gross margin was approximately 63.2%, compared with 48.6%.
- Operating income and net income: Operating income was $67.1 million and net income was $54.8 million, compared with $1.0 million and $0.8 million, respectively, in Q1 2023. Q1 2024 results included $56.8 million of net digital-asset gains, including $52.8 million of unrealized remeasurement gains. Net margin was approximately 188%, and therefore does not represent a recurring operating margin.
- Adjusted EBITDA: $13.2 million versus $3.4 million. This non-GAAP measure excludes the net digital-asset gain, among other adjustments.
- Cash flow: Operating activities provided $0.5 million, versus $1.3 million in Q1 2023. Investing activities provided $9.6 million, mainly reflecting digital-asset disposals and treasury-bill activity; financing used $0.3 million, primarily for employee tax withholding on share awards.
- Liquidity and debt: Cash and cash equivalents were $21.0 million; USDC, $0.6 million; and treasury bills, $43.8 million, for reported total liquid assets of $65.4 million. Current assets were $73.3 million and current liabilities $10.8 million. Total liabilities were $26.3 million; the filing does not disclose borrowings or a debt balance. Management said available liquidity should fund operations for at least the next 12 months and the foreseeable future.
- Digital assets: $141.5 million at fair value at quarter-end, principally Bitcoin ($127.6 million). The filing reports a $63.4 million cost basis.
Changes versus Q1 2023 and notable items
- Revenue growth was attributed mainly to increased exchange activity, including more monthly active users and a 102% increase in volume processed by exchange providers. Exchange-related revenue increased about $14.1 million.
- Cost of revenue rose 56% to $10.7 million, reflecting higher compensation, cloud infrastructure costs, API-related costs and amortization, among other factors. General and administrative expense rose 35% to $8.1 million, including higher legal and consulting and foreign-currency expenses.
- Exodus adopted ASU 2023-08 on January 1, 2024, recording a $38.3 million after-tax increase to opening retained earnings from digital-asset fair-value adjustments. Fair-value gains and losses now affect earnings.
- The company disclosed correction of previously issued Q1 2023 EPS and digital-asset cash-flow disclosures; Q1 2023 EPS figures shown in this filing are corrected figures.
- Class A shares were listed on OTCQB in January 2024 and OTCQX in April 2024. In April, the UK FCA removed Exodus from its Warning List. Subsequent to quarter-end, the company approved an increase in authorized Class A shares to 300 million.
Outlook, risks and controls
- No numerical revenue or earnings guidance was provided. Management cited increased platform users and digital-asset market activity as potential revenue drivers, while noting results depend on users, transaction volumes, market prices and third-party relationships.
- Management expects cloud infrastructure and staffing costs to rise as the platform and services expand; additional regulatory-compliance and potentially marketing costs may also increase expenses.
- Key risks include digital-asset price volatility and the ability to convert holdings to U.S. dollars, concentration in third-party API providers, foreign-currency exposure and evolving regulation. The top four API providers generated $21.2 million of exchange revenue in Q1 2024.
- Disclosure controls and procedures were deemed ineffective at March 31, 2024 because of material weaknesses in internal control over financial reporting, including staffing/expertise and control-design and execution issues. Management described remediation efforts that remain in progress.
- Ordinary-course claims and proceedings are disclosed; the company said it could not predict outcomes and that an adverse outcome could be material. The filing provides no quantified loss estimate.
- The board ratified certain RSU grants and related share issuances after identifying authorization defects under Delaware law. The filing states that challenges to the ratification must be brought within 120 days of May 15, 2024.
Important facts for investors to verify
- How much future earnings and cash generation depend on crypto prices and noncash fair-value gains, rather than recurring wallet and service economics.
- Whether user growth, exchange-provider volumes and partner relationships remain strong, and how concentrated revenue remains among API providers.
- Progress in remediating material weaknesses and the effectiveness of financial reporting controls.
- The potential dilution and legal implications of outstanding equity awards and the RSU/share ratification.
- Whether liquid resources remain adequate if digital-asset values decline or conversion to cash becomes difficult.