Bakkt Holdings, Inc.

Greetings and welcome to the BAC's second quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I would now like to turn it over to Anne DeVries, Head of Investor Relations at BAC. Please go ahead.

Good morning, and thank you for joining us for BAC's second quarter earnings call. Today's presentation, including a separate earnings call presentation that can be found on our investor relations website at www.investors.bac.com, will contain fair and 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 BAC's business, please refer to its filing 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 this, the basis of the 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've received from our investors through the SAIT Technologies platform. After that, Gavin and Karen will be available to answer questions from the analyst community. I'll now turn it over to Gavin.

Thank you, Anne. Good morning, everyone, and thanks for joining. We're making meaningful progress executing on the key priorities we set out at the beginning of the year. We expanded our crypto platform through the acquisition and integration of Apex Crypto, while activating and broadening our client network, and we're being prudent with capital allocation. We're winning new custody and crypto trading clients and building strategic alliances with prominent players as our capabilities and best-in-class infrastructure resonates with the market. We're expanding into new international markets alongside our clients, with Latin America expected to launch in the fourth quarter and other markets, such as the UK, European Union, Hong Kong, and Australia to follow. We're focused on delivering solid results for our existing loyalty clients as we work together to grow transaction volume. Lastly, we continue to prudently manage expenses, resulting in improved gross profit margins. We're also updating our full year 2023 operating cash flow outlook. and expect to improve approximately 20% from our prior guidance. Our platform provides end-to-end crypto capabilities, from advanced trading and secure custody to fiat on-ramps. We offer secure custody of assets, founded in traditional finance and built to uphold the shifting regulatory standards, regulated by the NYDFS as a limited-purpose trust company. has reliable infrastructure with multi-layered security for streamlined management and disaster recovery services to help ensure customer funds are safe and recoverable. We offer curated, secure, and regulated crypto trading with API and UI options to activate trading responsibly. This includes unparalleled liquidity and price quality with 100% uptime and seamless integration and customer experience which enables clients to integrate in less than 45 days with instant fund settlement and failover protection. Capabilities also include coin transfer, an advanced order management system, and multiple fee structures. As part of crypto trading, our clients are increasingly utilizing backed fiat on rent via ACH, debit, or wire transfer for a smoother end-to-end customer experience. And we continue to offer innovative ways for consumers to access crypto, including through rewards redemption and by earning or getting paid in crypto. Our loyalty redemption capabilities remain a strength and offer a full spectrum of content, including Apple products and other merchandise, travel and gift cards. We've introduced personalized offerings and additional Apple products while maintaining a strong list of SKUs and modernizing our infrastructure and architecture with cloud capabilities. Through our B2B2C approach, we have a broad client reach in high growth sectors that provide efficient scalability. This network is looking to expand their relationship with their millions of customers, and crypto presents an opportunity to differentiate their services, drive engagement, and revenue growth. And for Bakkt, it enables us to reach millions of end customers across a variety of providers. We've made progress in integrating Apex Crypto into our business, including employee onboarding, integrating our product and technology processes, and managing key functions like compliance and risk, all with minimal impact to our existing client base. We completed the rebrand of Apex Crypto to Bakkt Crypto, and transitioned all necessary documentation and materials for clients. With the integration of this deal mostly done, we're now focused on leveraging the synergies and expanded capabilities from this transformational deal to continue growing and drive further efficiencies on a go-forward basis. Through our client-led model, we're always working with our key clients to grow their business. Our work with Webull is a prime example of our ability to successfully execute, bringing together the combined strengths of legacy-backed and Apex crypto. Webull approached us to develop a new innovative app with ACH funding rails for their crypto customers. Our teams mobilized quickly, bringing together Apex crypto trading and backed funding capabilities to launch Webull Pay in less than 40 days. In solving for this, We also built ACH funding functionality, which provides a competitive advantage, and we're seeing significant interest from other clients and prospects in utilizing Fiat on-ramps. Additionally, I'm pleased to share that BAC will be one of Plaid's crypto solution partners for its customers who are interested in offering crypto solutions to their end users. This is particularly exciting since Plaid has an extensive network of over 8,000 fintechs using their platform today. Through the Plaid and Bakkt partnership, those fintechs will be able to easily and safely explore offering crypto solutions to their users. We're pleased to share that we've expanded our network of crypto trading clients, mostly in the fintech industry. We've recently signed on several new clients and are engaged in late-stage negotiations with a number of additional prospects. We're also making solid progress on our international expansion strategy, actively working with our client base to develop and execute our go-to-market strategy in markets where we see regulatory clarity. We will serve as investors' crypto provider in the U.S., a relationship forced through our commercial agreement with Apex FinTech Solutions. We're also working with Swarm Bitcoin to provide end-to-end Bitcoin trading, fiat on-ramps, and qualified custody. We also signed Blockchain.com, one of the first and largest crypto wallet providers in the world, along with Zayden and CryptoMum to provide end-to-end crypto trading. On the international front, we signed an agreement with IBEX to offer crypto trading for Latin America. These recent wins are a strong testament to the product fit of our capabilities and the continued focus on growing our core crypto solution. Recent market events have highlighted the difficulty in storing digital assets safely and the need for multi-custodian access and self-custodial functionality. Our secure and compliant custody platform offers unparalleled protection and complete customer control over their assets. It utilizes multi-layered technology and the latest breakthroughs in MPC cryptography with hardware isolation, ensuring that customer funds are protected from the various threats, including cyber attacks, internal collusion, and human error. Given this backdrop, we continue to see an increase in new client activity. We've successfully signed new clients and are in late-stage negotiations with multiple prospects, in mining, family offices, registered investment advisors, and corporate treasury industries. Qualified sales opportunities are up 10 times in the first half of 2023 versus the second half of 2022. The custody platform generates stable recurring platform fees as well as assets under custody-based revenue, further diversifying our revenue BAC's institutional-grade custody platform offers the security and licensing clients are looking for, including qualified custodian status with the New York Department of Financial Services, comprehensive security controls, regulatory compliance, and streamlined user management and consensus protocols. Given its prominence as a strong anchor product, we're continuing to invest in our custody offerings to meet demand from new and existing clients. We're redesigning the application to enhance our offering and exceed client expectations and anticipate launching the upgrade throughout the remainder of this year. In this enhanced offering, we'll maintain all of the elements that make back to custody exceptional. It will continue to offer a compliance first focused approach with multiple layers of security and outstanding operational management. These upgrades will make it easy to launch additional products, such as the ability to add new blockchain networks and the assets on those networks, retail open loop, and institutional staking, which adds yield-generating opportunities for our institutional clients. We have a new multifaceted strategic agreement with Fireblocks. As part of this agreement, Bacto will provide disaster recovery services to Fireblocks' off-exchange customers and we will join the Fireblocks qualified custodian network. The Fireblocks off-exchange solution allows participants to maintain control of their private keys without sacrificing the convenience and speed of trading on centralized exchanges. This has become a high-focus product for the market as recent misappropriation of customer funds by exchanges has led to the demand for safe trading solutions. we're also integrating Fireblocks technology to fortify our custody offerings. For disaster recovery services, we will leverage our secure infrastructure to provide backup storage to ensure customer funds are safe and recoverable. Every off-exchange customer will require a disaster recovery package, so there's tremendous opportunity for that in safeguarding these assets. By joining the Fireblocks Qualified Custodian Network, will be connected to the thousands of organizations across the crypto ecosystem who use the network every day, including exchanges, liquidity providers, and custodians. There's only a select group of qualified custodians in this network, and we're proud that our differentiated, secure, and compliance-first focused approach enabled us to be selected. The broad reach of this network will fuel our pipeline of prospects for our full suite of crypto solutions. We'll continue working with Fireblocks to jointly deliver additional use cases and capabilities to the market through this strategic alliance. With that, I'll turn it over to Karen to discuss our financial and operating results for this quarter.