Bakkt Holdings, Inc.

Greetings and welcome to the back fourth quarter and full year 2022 earnings conference call. At this time, our 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 VAT. Please proceed.

Good afternoon, and thank you for joining us for BAC's fourth quarter earnings call. Today's presentation, including the separate earnings call presentation that can be found at our investor relations website at www.investors.bac.com, will contain certain forward-looking statements. 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. For more complete discussion on forward-looking statements and the risks and uncertainties related to FACTS business, please refer to its filings with the Securities and Exchange Commission. 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 the basis of presentation for our financial results and our non-GAAP measures, please refer to our earnings release, which was filed this afternoon with the SEC. Joining me on today's call are Gavin Michael, Chief Executive Officer, Karen Alexander, Chief Financial Officer, and given the market's recent interest in the regulatory environment, Mark D'Annunzio, our General Counsel and Corporate Secretary, is also joining us today. After our prepared remarks, we will answer questions we received from our investors through the State Technologies Platform. After that, Gavin, Karen, and Mark will be available to answer questions from the analyst community. I'll now turn it over to Gavin.

Thank you, Anne. Good afternoon, everyone, and thanks for joining. Despite a challenging macro environment and a tumultuous crypto market, we're proud of our 2022 accomplishments. We delivered on our product roadmap for the year, and we've made significant progress with our partner network. And we signed a definitive agreement to acquire Apex Quipco, which we believe will enable us to break into new client verticals and tap into a universe of 5 million crypto-enabled accounts. We have a differentiated approach and platform. We are built to endure. Our competitive mode comes from our regulatory and compliance-first approach, our culture of risk management, our embedded finance solution that meets customers where they are, either through APIs or web-based experiences, and our balance sheet strength. We focused on building responsibly since our founding as part of Intercontinental Exchange in 2018. Our extensive partner network is a potential gateway to rapid, efficient scale. These core strengths really position us to succeed, particularly as we see a flight to quality within the crypto space right now. As we look to 2023, Our priorities seek to appropriately balance growth and discipline. We expect the macro environment to remain challenging this year, but we see opportunity in the market for growth, and that is where we're focused. We will continue to balance disciplined capital allocation decisions towards growth opportunities while prudently managing our overall firm-wide expenses. In 2022, we made progress against our goals through a combination of organic and inorganic activity. We continued the expansion of our B2B partner network, adding leading brands such as Global Payments and Visa. We signed a definitive agreement to acquire Apex Crypto, which when closed, we expect will provide immediate access to a network of fintech partners and accelerate portions of our crypto product roadmap. We delivered several core products such as crypto payout and rewards. We continued to test product market fit and we gained valuable insights on market demand and the biggest opportunities to scale, which is where we are investing as we look ahead. Our platform is differentiated and our approach positions us to win amidst the current economic and crypto market dislocation. The regulatory landscape continues to evolve and we believe our regulatory and compliance first focus separates us from competitors. We see the prospects of crypto regulation as positive for the industry and for Bakkt and a key factor in support of widespread adoption. We've always said that the crypto economy will mature much faster when there's regulatory clarity. We prioritize risk, compliance, and security. We do not co-mingle customer funds. We do not lend or re-hypothecate customers' crypto. And we separate custody and trade execution functions to provide additional customer protection and to minimize potential for conflicts of interest. Custody is managed through a separate entity regulated by the New York Department of Financial Services. The BAC Trust Company has a board of managers that is comprised of seven individuals with current or prior leadership experience at the New York Stock Exchange, ICE, CME, NYMEX, the CFTC, among others. Recently, the SEC proposed a new rule on safeguarding of advisory client assets, and I wanted to quickly cover what this means for BAC custody. While this is still a proposed rule, it provides an avenue for state-chartered trust companies like our custodian, that trust company, to maintain qualified custodian status. We've always placed a high premium on secure, institutional-grade custody as the foundation of our platform. It's why we built that capability before anything else. We're pleased to see federal regulators stepping up their focus on this important function, and we continue to engage in dialogue as the legislative process continues. We've intentionally stayed away from yield and lending products and continue to pursue a risk-focused culture and approach. That meant missing out on some big boom cycles, but we have conviction about the importance of a thoughtful and compliant structure, and that is why we've taken a more measured approach overall. To move to some recent developments, we purchased Bump Financial LLC, a registered broker-dealer, as part of our regulatory and compliant-first approach. This acquisition, which closed in early February, enables us to take over Bump Financial's broker-dealer license. Given the evolving discussions in the crypto regulatory landscape, particularly around which cryptocurrencies may be deemed to be securities, we took a proactive approach and acquired this license. We view it as potentially helpful as these discussions evolve. Lastly, we are intensifying lobbying efforts and increasing our presence in conversations with government officials, their staff and regulators. We are having active conversations and we'll share more on our perspectives as the legislation takes shape. We believe it is extremely important for responsible and trustworthy crypto market players to step up and play a role in the conversations to help the US continue to be a place where crypto innovation can flourish. We've already seen the start of crypto legislation in the EU the UK, Australia, Brazil, and recently Hong Kong. Crypto has arrived on the world stage, and as an industry, we must play a key role in supporting the development of a clear framework that protects consumers while helping to avoid unintended consequences and promote innovation. We have a strong balance sheet and robust liquidity of approximately 239 million dollars, in available cash and cash equivalents and available for sale securities. This position, coupled with prudent expense management, provides capacity that enables us to be opportunistic around inorganic and organic growth, as well as adding stability in a challenging market condition. Our strong partner network is a key differentiator, both through the partners that we have on the backside and those that we will serve following the anticipated closing of the Apex crypto acquisition. We have built a broad network that provides scalable reach to millions of users across client verticals that can be easily turned on. Our B2B partners include fintechs, neobanks, RIAs, traditional finance, platform companies, brands, and merchants. Lastly, we are differentiated through institutional grade security and compliance focused technology that is built to embed into partner experiences. So now turning to our key priorities for this year, we're focused on three distinct areas of opportunity that balance growth and discipline. First, we're elevating and expanding our crypto platform. We're investing in our custody capabilities. to expand the flexibility and features behind our offering and build upon our core approach, which is underpinned by infrastructure that is centered around safety and soundness. Our pending acquisition of Apex Crypto further adds capability to our platform and accelerates the introduction of several roadmap features. For example, open-loop wallet and additional coins. We're also planning to expand into international markets, leveraging Apex Crypto's existing partner footprint. We believe crypto utility is a key part of driving value across the spectrum. We're continuing to focus on enabling new ways to earn crypto, but we're building new ways to transact through the development of a lightning service provider to provide partners with seamless access to Bitcoin and fiat to fiat instant payments and remittances over Bitcoin native rails. We are continuing to activate and expand our partner network to bring capabilities to market, expanding our network with new partners and our pipeline of potential prospects. Lastly, we continue to prudently invest our capital and manage expenses closely. We have aligned our operating and investing expenses to focus on near-term market opportunities and product market fit, while driving operating efficiencies and cost discipline. Our key priorities focus on building value in 2023, and we believe these will propel us to be one of the best positioned crypto companies when market conditions improve. The competitive landscape in crypto has completely changed in the last 12 months, and given the hard work we've been doing since our inception, we're built for this time. To provide more color on how we're working to enhance our crypto capabilities, we wanted to outline our core solutions and areas of investment. The narrative for crypto is moving towards utility, greatly expanding its total addressable market, We are building out our product suite to align to this utility and how crypto is appealing to customers and meeting business needs. Access and storage remain top needs, and we're providing this through custody and Crypto Connect. Crypto custody is a core proficiency of ours, and we continue to invest to ensure we have best-in-class solutions that meet the regulatory and infrastructure needs of all institutions. Crypto as an investable asset continues to be extremely attractive, and we've invested significantly in our Crypto Connect solution, which will be made stronger with the addition of Apex Crypto by accelerating our feature roadmap. We'll be looking for ways that we can continue to enrich this offering for partners when our offerings are combined post-closings. We're also focused on rolling out crypto payouts and crypto rewards to provide new ways to earn and interact with crypto in customers' everyday lives. And then we have an eye for the future. Crypto utility doesn't stop here. We're preparing for additional opportunities as well. We see Layer 2 protocols such as the Lightning Network and Stablecoins to have relevancy, and we're investing in these areas so we can benefit as their utility grows. For example, we see the Lightning Network helping with cross-border payments and offering settlement in seconds versus days at a fraction of the cost. We believe there are a lot of attractive and appealing applications of this technology. Turning to Apex Crypto, we are collaborating closely and making strong progress on closing the acquisition in the first half of this year. As we've noted, the deal requires regulatory approval, and we filed applications with all of the states that must approve the transaction. And we've already received approvals from a majority of those states. And we are engaged in active dialogue with regulators in the remaining states whose approval is outstanding. We continue to work with Apex Crypto in advance of regulatory approval during this interim period We're pleased to see continual sales activity on the APEX side with two new partners signed since the deal was announced in November of 22, bringing the total number to 33 partners. In spite of a challenging fourth quarter in 2022, APEX Crypto continued to deliver results. Their 4Q 2022 net revenue will result in an earn out of approximately $9 million in backed stock to be issued after the deal closes. We're really excited to be able to bring this deal to a close so that we can begin working closely together. Moving to some recent news, we're excited to be expanding our partner network segments with the announcement of a strategic alliance with Caesars Entertainment. Starting later this year and subject to regulatory approvals, Caesars reward members will be able to have access to backed crypto rewards, allowing them to redeem Caesars rewards points for cryptocurrency. We're also continuing to explore and innovate with Caesars around our existing suite of cryptocurrency solutions, like backed crypto payout. We're excited to bring these new options to millions of Caesars online customers. This group is increasingly digitally savvy and providing more options expands the ways Caesars can engage with their customers on an ongoing basis. This announcement is testament to the continuing interest in cryptocurrency, even amidst the crypto downturn. We're thrilled to be entering this space with an industry leader like Caesars. We're looking forward to further solidifying our partnership with Caesars and looking for additional ways to partner in the future. We spoke earlier about how we're focusing our business. As I said, the external environment remains challenging, and we're taking a number of specific and strategic actions to position BACT for strength and durability amidst the broader market disruption. While in this type of uncertain market, there are some factors out of our control, but we see many factors that are within our control. Last year, we began eliminating capabilities that did not have strong product market fit. we're constantly assessing our capabilities and taking decisive actions. This critical review of what we're focused on and continual assessment of scalability is a key part of our overall approach going forward. We will remain disciplined in how we allocate our capital, and we're solely focusing on solutions with scalability and those that accelerate our path to profitability. For crypto, we're continuing to invest in core capabilities that expand partner offerings, markets, and further enable institutional participation. With the recent events in the market, we're experiencing demand from institutional players for certain capabilities, and we'll invest in our platform to provide those offerings and features. In loyalty, we're focused on serving and growing volume, with our existing partners. This means maintaining existing offerings and relationships. We have a strong roster of clients in loyalty and we're focused on continuing to serve them while we always look for ways to innovate in the loyalty space. Going forward, we'll look to do so jointly with our partners when there is a clear path to revenue. we are focusing on the most scalable go-to-market opportunities in our B2B approach. An example of this focus can be seen in sunsetting our consumer app. The products where we're investing have broad applicability and we believe they offer the best opportunity for expansive growth. With this overall simplification, we also implemented a corporate restructuring today. When it comes to our people, Reducing team sizes is extremely difficult. We don't take lightly the impact reduction in force has on people's lives. We'll be approaching our work with leaner team sizes and looking to maximize our impact in core solutions. The continued uncertainty of the environment makes it clear that operating at a lower cost basis is the most prudent thing for us to do to ensure we are investing in the right places and being shrewd in our overall approach to fuel growth. Expense management and discipline will continue to be an important theme for 2023. In a market that we expect to remain challenging this year, we can control expenses and ensure we're being prudent and nimble with our investments with disciplined capital allocation decisions. Simplification initiatives include the recent corporate restructuring in December and today. We expect the actions to result in a 40% decline in the headcount by year end 2023 versus year end 2022. This results in a $29 million cash saving in 2023 and an additional $7 million in cash savings in 2024 for a full year impact of $36 million. We are mindful of the longer term goal we set for being adjusted EBITDA break even by the end of 2024. And we are making decisions that we believe will help us invest appropriately to meet that goal while being smart with each investment we make. Now, I'll hand it over to Karen to guide us through the financial results.