Bakkt Holdings, Inc.

Greetings, and welcome to the BACC second quarter 2022 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 it over to Anne DeVries, head of investor relations at BACC. Please go ahead. Good morning, and thank you for joining us for BACC's second quarter earnings call.

Today's presentation, including the separate earnings call presentation that can be found on our investor relations website at www.investors.bac.com, will contain certain forward-looking statements about BAC. These statements are based on the current expectations of the management of BAC and are subject to uncertainty and changes in circumstance, many of which are beyond BAC's control, which may cause actual results to differ materially from those expressed or implied in such forward-looking statements. For more complete discussion on forward-looking statements and the uncertainties related to BAC's business, Please refer to its filing with the Securities and Exchange Commission, including the discussion of BAC's risk factors in its most recent annual report on Form 10-K and its subsequent quarterly report on Form 10-Q. During today's presentation, in addition to discussing results that are calculated in accordance with generally accepted accounting principles, we will refer to certain non-GAAP financial measures. For more information on this, the basis of presentation for our financial results and 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 Michael, Chief Executive Officer, and Karen Alexander, Chief Financial Officer. After our prepared remarks, we will answer questions we received from our investors through the State Technologies Platform. After that, Gavin and Karen will be available to answer questions from the ALS community. I'll now turn it over to Gavin.

Thank you, Anne. Good morning, everyone, and thanks for joining. We've stated our vision before to be the leading platform that is connecting the digital economy. This means powering commerce, and enabling consumers, businesses and institutions to unlock value from digital assets while providing trust and transparency. I'm incredibly proud of the strong momentum we've gained as we continue to grow during what's been a very challenging environment. And let me talk about the market for a moment. It shifted considerably around us from both a macroeconomic and market perspective. There are a lot of headwinds for consumers and businesses, with inflation, higher interest rates, risk of recession and volatility in the markets across many asset classes. The crypto market has clearly been challenging as the collapse of some coins and other company failures caused stress to investors, lending platforms and a broader sell-off. These external factors have clearly weighed on the market, with some companies elongating decision timelines on strategic priorities such as their crypto plans. Recent events have also led to more attention from regulators on the crypto space, and the market anticipates more stringent rules and customer protections to come. Our view is unchanged. Greater regulatory clarity will bring additional clarity to the crypto economy and help the market mature. We will continue to watch this space closely and collaborate with regulators as the conversation evolves. Beyond crypto, we're seeing the impact of summer travel supply constraints reduce opportunities for consumers to redeem their royalty points for travel experiences like flights. Even amid all of this challenge, we remain in a solid position. With $315 million of available cash and other liquid assets at the end of Q2, we are well capitalized to continue building through this time so that we can be opportunistic and ready for the eventual upswing. Our platform has diverse revenue streams across loyalty, crypto, and payment that provide stability in a volatile environment. It's what's helped us achieve strong revenue growth this quarter, and that's because it's got the right to pay for it and the strength to create new approaches. For example, we've been able to invest in a more tech-savvy customer, or enabling consumers to use a brand's rewards points to pay for their everyday purchases. There is real consumer demand driving these shifts. Our robust risk management framework enables partners to feel assured that we are well prepared for various market environments. Our infrastructure provides multiple layers of protection and provides heightened security and compliance. And we'll go deeper on what that means in just a moment. and we're disciplined in our capital allocation decisions. We're ruthlessly prioritizing our product plans to ensure we can build both our long-term roadmap and weather any slowness in the market. Strong companies use challenging market conditions to be opportunistic and come out of the cycle even stronger. While others are slowing and halting growth demands, we continue to hire and expand for future growth. and it's been a great market to do so. We are well positioned to be the safe, trusted, and innovative platform of choice to deliver widespread utility to our partners and consumers. Let's talk about how our platform meets shifts in the market. First and foremost, crypto isn't going away, and there's still interest and momentum with our partners, many of whom are multinational companies who've been watching this space for a long time and understand the peaks and troughs. Consumer interest in crypto also remains solid. A recent morning consult study shows only a 3% drop in U.S. adults considering crypto purchases from January to June of this year. With that being said, we anticipate that some partners may move at a slightly more conservative pace than we previously expected. We continue to make steady progress with our partners across the board and still expect to activate our crypto services in the second half of this year with an increased ramp up in 2023. We're continuing to innovate our crypto capabilities to meet shifting market demands. As crypto shifts from being viewed as an investable asset to more widespread utility across consumers, businesses and institutions, We're excited to work with our partners to unleash its full functionality and utility. In loyalty, we're seeing recent shifts in consumer behavior. Consumers are valuing their loyalty points even more in a challenging economic environment as a way to offset rising costs. Consumers are looking to find ways to maximize their buying power. This presents an opportunity for loyalty programs to differentiate their brand and drive affinity by providing additional opportunities for customers to redeem their points. And that's where we come in. We're increasing engagement with our royalty platform users through funded offers and incentives and expanding our storefront options to provide much more choice. Crypto rewards also plays into this opportunity, either through redemption of points for crypto or earning crypto through everyday spending, consumers have an opportunity to passively acquire a new asset class, and brands can attract new customers through innovative loyalty initiatives. So let's discuss how our platform is designed to make us a trusted and reliable partner. From inception, Backtwist built to enable investors and consumers alike to transact in cryptocurrency and other digital assets, using a platform that meets the highest standards for security, risk, and compliance. Our current solution is a few separate individual rate-based features. That's trust-free, a prototype solution for Bitcoin and ETH. And that's not a pledge. connections to investors and minimizes potential conflicts of interest. BAC's marketplace holds a virtual currency license or BIT license from the New York State Department of Financial Services or NYDFS. This is often considered the gold standard of state financial service regulators. BAC's marketplace also has money transmitter licenses from every state in the US where required, including New York. BATS Trust Company is a limited purpose trust company supervised by NYGFS. It's overseen by a separate and independent board of managers whose focus is on the safe and effective operation of our crypto custody operations. Its custody solution leverages both warm and cold storage with insurance policies. Crypto held is solely regarded as the consumer's property and it's never used for lending, pledging or other similar purpose. Lastly, all cryptocurrency that is made available to consumers within the backed ecosystem is sourced by backed marketplace from its bilateral trading arrangements with other institutional trading firms. When that crypto is bought into the ecosystem, BATS uses industry-leading blockchain analysis techniques to ensure that it is not linked to illegal or illicit activities. The cryptocurrency markets are volatile by nature, and that's not always a bad thing. Volatility presents opportunities for investors amid increased transacting activities. But with volatility, you need a strong partner platform to operate on, one that isn't going to make any risky decisions and disappear when those bets don't play in their favor. Our platform is built for this, and we will continue to lean into our compliance-first approach because it will lead to long-term sustainability of our business. Our platform provides a foundation for broad and long-term utility of digital assets. Our diverse product suite, including our crypto and loyalty platform capabilities, enables us to work with partners on several fronts to take advantage of market opportunities. We're investing in things that have staying power. And while the opportunity for our partners may be plentiful, it's important to understand that our platform is really designed for simplicity. We have a single platform with flexible APIs and institutional-grade tech stack. What we're doing is changing the presentation of the technology so the scalability across our platform is highly leverageable. It is designed to integrate quickly and support our partners at scale and create solutions they need to engage customers at every step of their journeys. Flexible, simple, powerful, safe, compliance-focused. These are what differentiate us and make back the platform of choice for partners and consumers alike. Our platform provides a stable foundation upon which our partners can innovate to develop products and services that really delight their customers. We bring their creative ideas to life. enabling new and innovative customer experiences. We are built to make these types of opportunities easy with low barriers to entry. With complexity that comes with crypto and an increasing regulatory focus, the VAC platform continues to grow in relevance to partners that see the staying power of digital assets. We remain steadfastly focused on execution, We continue to deliver results to our partners and our customers, even amid this challenging macro environment. Since our last earnings announcement, we've remained hard at work on our partner product integration, engaging with new partners, and launching new offerings. You know, a few examples of what we've accomplished this last quarter. We've signed a strategic alliance with Visa, and we're excited to provide our solutions to Visa's extensive network. We're delighted to be working with the Mayor of Miami to activate the city's crypto ecosystem. We've signed a partnership with Sullivan Bank, making them the newest bank to join the backed Crypto Connect platform. We've collaborated closely with Fiserv to enhance our market readiness processes, and this includes training, developing sales collateral, and launching on their app markets. We've processed more than 50 billion royalty point redemptions on our platform in the first half of 2022, and we continue to grow our redemption offerings. For example, we've introduced cruisers onto the platform, and we continue to look for additional opportunities to collaborate with partners to delight customers. We're making progress every day towards achieving our vision, and we're not slowing down. Every step we take brings us closer to achieving our vision of connecting the digital economy. We remain focused on building scalable and repeatable processes and working with our partners to build awareness and understanding. Our work with Fiserv is making progress in our collective go-to-market plans across engineering, sales, marketing and product. We've completed the training of Fiserv relationship managers on CryptoConnect and we're starting to co-develop the go-to-market model on our other crypto products, such as Bakkt Crypto Rewards and Bakkt Crypto Payout. This is all based on the model we've established for Bakkt Crypto Connect. We've enabled the Fiserv RNs to have active partner conversations about Bakkt and our offerings with financial institutions. We work underway with Fiserv illustrates the power of our B2B2C go-to-market approach and the scale and reach that it can help us achieve. By working with our partners and making our capabilities available to their clients, we're better able to drive awareness and adoption of backed crypto products that in turn can reach millions of customers. We're leveraging other partner distribution channels and have been collaborating on shared sales and marketing activities. And this means everything from educational support materials to landing pages at marketplaces and webinars. Here is an example of the great work that we've already done with Finestra. We work closely with their sales, marketing, and technology teams to go to market, and our integration with them is nearly complete. We're pleased with the overall progress and we're working closely with partners to constantly test the market and evaluate our path forward. While our primary marketing strategy is joint co-marketing campaigns with our partners, we're making strides to further build out our brand awareness and provide education and thought leadership on the crypto economy. Our brand awareness is building through multiple initiatives including the launching of our Ask the Expert series, our active product marketing campaigns, development and launching thought leadership materials, and establishing primary research which provides valuable data to inform focus areas. Our backpack has grown to almost 2,000 participants in only just three months. Despite all the work we're doing, to build awareness around BACT, the way we go to market with our partners does not present any brand or channel conflict. We operate in such a way that our partners can fully embed our platform and use their own branding rather than ours. BACT by BACT. And with that, I'm delighted to pass it along to our newly appointed CFO, Karen Alexander, to review our financial results to the COSA.