Bakkt Holdings, Inc.

Greetings, and welcome to the BACT Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. And as a reminder, this conference call is being recorded. I will now turn it over to Anne DeVrie, Head of Investor Relations at BACT. Please go ahead.

Good morning, and thank you for joining us for BACT's Third Quarter Earnings Call. Today's presentation, including a separate earnings call presentation that can be found on our Investor Relations website at www.investors.bact.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 BAC's 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 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'll answer questions that we received from our investors through the State 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. Earlier this year, we communicated our plan to simplify our business and allocate our capital towards areas of the business with strong product market fit, scalability, and a clear path to profitability. During the course of 2023, we've made substantial progress against this goal. Our specific priorities for the year included expanding our crypto platform, expanding and activating our client network, and strategically allocating capital. Our teams have been nimble and flexed to deliver on all of these priorities, despite challenging market conditions. The US crypto market remains challenging. We still lack a clear regulatory framework, and headwinds from bad actors in the space have muted trading volumes. However, we are seeing green shoots. with institutional investors looking to participate in crypto ETFs and digit asset tokenization. We've been flexible in adjusting our strategy as needed to meet these challenges. We've made international expansion a key priority, and we've demonstrated our ability to act quickly, with our capabilities active in nine new markets by the end of this year. And there's more to come on the international front. This is just the beginning for us. This will generate strong revenue growth for us as we look to 2024. We continue our focus on custody and signing up new clients with the recent flight to quality that we've experienced, as well as delivering enhancements to our offering. The custody product further diversifies our future revenue streams, given it's not as reliant on trading volumes. We've also reduced our reliance on market volumes and the related volatility in our revenue stream by signing on new clients with more of a subscription-based revenue model. Lastly, in light of the challenging market and slower revenue opportunities this year, we've been focused on controlling expenses. We've made a lot of hard decisions to make cuts and have been very prudent with our spend. It hasn't always been easy, but it's paid off. with our core operating expenses, excluding crypto costs and impairment charges, down 26% year over year. That's real progress, and we'll continue to focus on that. 2023 has been a year of enhancing our industry-leading platform across advanced trading capabilities and secure, compliant custody that's built to evolve and adapt with the changing regulatory landscape. Our platform has reliable infrastructure that supports our trading and custody capabilities. Recent market events, including SBF's guilty verdict, all underscore how important it is to crypto responsibly and how critical it is to have a partner like Bakkt who upholds the highest standards of transparency, security, and compliance. Our loyalty redemption capabilities also continue to be a strength. as we provide our clients with a full spectrum of flexible and comprehensive solutions. While we remain committed to expanding in the US market, we've adjusted our strategy to quickly overcome the challenging US crypto trading environment. With that, we've capitalized on opportunities to expand with new and existing clients into attractive international markets with more regulatory clarity and sizable addressable markets. We're currently live with crypto trading in Spain and several Latin American regions, including Argentina, Brazil, and Mexico. We plan to continue to further expand with our partners in LATAM, such as HAPI and IBEX. As we shared last week, Bakkt plans to offer our crypto trading and custody services to 3.0verse, in the UK, the EU, Australia, and throughout Asia, including Singapore and Hong Kong, all anticipating activation by year end. These examples are just the beginning stages of our international expansion efforts. As we enter into new markets, we will follow a land and expand strategy, meaning following our initial launches, we will expand our network and reach with other clients. The hardest part of expanding into new markets is the initial landing. Once we've done that, further expansion is relatively painless. As we've already taken steps to ensure we are compliant and regulatory first within these markets, we can confidently and quickly broaden our reach to millions of new customers going forward. In addition to the international clients, we continue to grow in the US as well. expanding our broad network and further emphasizing our product market fit. On the trading front, BAC's secure platform is resonating with crypto-native companies in the industry, such as OpenNode, which intends to use our advanced end-to-end solutions. Events of the past year have shown the value and need for qualified custodians, and in turn, we've seen increased interest in our secure and highly regulated platforms. We're expanding with institutionally-backed companies like EDX Markets, a digital asset marketplace for crypto native firms, and large FIs. Bakkt, as a qualified custodian, has preliminary agreed to join their clearinghouse and custodial network. We've entered the family offices and high net worth space with our new live client, Libo BTC Ledger Group, a firm that helps investors seamlessly access the most liquid digital asset markets for the acquisition and safe storage of cryptocurrencies. These customers have unique needs and Bakkt is well positioned to serve them as a qualified custodian. And finally, we've agreed to enter Unchained's enterprise custody network. Unchained allows their clients to securely take control of their Bitcoin with their cold storage vaults. As part of the custody network, Bakken tends to serve as the institutional signatory, also known as a key agent for customers' collaborative custody multi-sig vaults. We've made substantial strides this quarter, expanding our trading and custody network. And as this expanded network allows us to reach new industries and new international markets in our work together. These recent wins, a testament to the product market fit of our capabilities and the continued focus on growing our core crypto solutions. As our crypto business matures and we grow both internationally and domestically, we expect that our revenue mix will also evolve with an increasing share of our revenue coming from subscription-based annual recurring revenue, which will provide stability during uncertain crypto markets. We're executing at a faster rate than ever before, moving quickly with newly signed clients in order to activate and go live efficiently. We offer seamless integration and customer experiences, which enable clients to integrate in around 45 days, adding active traders to our platform quickly. We're currently live with blockchain.com, Libo BTC, Happy, and FinEquities due to our smooth onboarding and activation experience. We continue to expand our relationships with our current partners. Investor recently appointed backed as its US crypto provider with migration of the existing customer accounts expected by year end. We're also expanding our crypto capabilities with Blockchain.com into new U.S. regions, including Hawaii, Louisiana, Nevada and Virginia. We executed rapidly with Webull to facilitate a smooth Webull Pay app launch, and we're now enabling account signups. During this quarter, Webull finished migrating customers to Webull Pay. Due to the migration during the quarter, we experienced a slowdown in client activity on our platform. We've been working closely with the Webull team to monitor customer activity and roll out enhancements to improve their customers' experience and drive deeper engagement levels. We're pleased to continue expanding our relationship with Webull Pay. As some other clients have decided to exit the crypto business, Webull Pay has created a model to transition crypto accounts and maintain them on the Bakkt platform. We're also working to expand our relationship with Webull on new and exciting use cases. We have been working closely with the Caesars team to bring our crypto rewards capabilities to their members. Once live, Caesars rewards members will have the option to redeem their rewards credits for Bitcoin via Bakkt's user-friendly experience. Our teams are excited to bring crypto capabilities to the more than 60 million members of the worldwide, highly acclaimed Caesars Rewards platform early in Q1. We are relaunching our custody platform with increased capabilities, including segregated wallet structure and a flexible policy engine. Our platform offers a foundation for our clients to safeguard their crypto assets. In collaboration with our clients, We will offer off-exchange trading, settlement service, and co-custodial service, illustrating the breadth of the platform. We'll be expanding the coins that can be custodied on our platform to include a total of eight coins. Bitcoin, Ethereum, Bitcoin Cash, Dogecoin, Ethereum Classic, Litecoin, Shibuino, and USD Coin. A redeveloped offering has already been awarded Best Digital Asset Custodian by the Digital Banker, and we've notably increased our marketing efforts to continue to spread awareness of our offering. We've gained significant interest in our upgraded platform from both existing clients and prospects, with many now operating in our sandbox. While trading and custody will always be at BAP's core, We've spoken many times about the evolution of crypto and Bitcoin from a speculative asset to powering everyday utility. With this, we've been investing in the Lightning Network, and we're looking forward to the near-term launch of our Lightning service to select clients. This service will allow them to leverage for cross-border remittances, B2B settlement, instantaneous deposits, and withdrawals for trading and global interoperable P2P. We have partnered with two of the leading Lightning service providers to collaboratively build out our global network of compliant on and off ramps. A multifaceted relationship with IBEX includes working together on Lightning. And we recently shared the news that we'll be collaborating with LightSpark to support a new open standard for money transmission, universal money addresses, or UMAs. UMA makes sending money as simple as sending an email, and the new service can be leveraged for a number of use case. We have a vision for internet native payments that is shared by LightSpark and IBEX. These partnerships are a natural fit for our business. So with that, I'll turn it over to Karen to discuss our financial and operating results for the quarter.