Bakkt Holdings, Inc.

Greetings and welcome to the BACT first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I'll now turn it over to Olivia Keevey, Senior Lead of Communications at BACT. Please go ahead.

Good afternoon, and thank you for joining us on VAC's first quarter earnings call. Today's presentation, including the separate earnings call presentation that can be found at our investor relations website at www.investors.vac.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 a 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 afternoon with the SEC. Joining me on today's call are Andy Main, BAC's Chief Executive Officer, and Karen Alexander, Chief Financial Officer. After our prepared remarks, we will answer questions we received from our investors through the STAY Technologies platform. After that, Andy and Karen will be available to answer questions from the analyst community. I'll now turn it over to Andy.

Thank you, Olivia, and good afternoon, everyone. Thank you for joining BAC's earnings call. It's great to speak to you all again. I want to start today by recapping three key priorities that we laid out in detail on our last quarter call and provide an update on the progress that we've already made in the first few months of the year against these goals. So beginning on slide four, as we outlined last quarter, we are laser focused on three key strategic priorities in the year ahead. First, growing our client network and deepening our existing client relationships. Secondly, expanding our product solutions and extending the BAT ecosystem. And third, realigning our costs and prudently managing expenses. So I'd like to provide a few highlights for each of our priorities. On the client side, I've had the opportunity to speak with a number of our clients over the past few weeks. For both our loyalty and crypto businesses, our focus on being our clients, partnering growth, combined with our robust solutions and winning client experience, is resonating well. On the product side, we've continued to enhance our trading and custody platform, which caters to both institutional and retail clients. This broad market positioning, combined with the rigor we apply to the complexities of security and compliance in crypto, allows us to serve a diverse range of clients. Our appeal to the market is further enhanced by the trust clients have in us. This can be attributed to the discipline we apply to being a publicly traded crypto company and our NYDFS regulated custody platform. In terms of our expense realignment, we've also significantly reduced our operating expenses through company-wide initiatives. Notably, we conducted a reduction in force on May 2nd that will yield cost savings. This is in addition to the year over year expense reduction of 16% that is reflected in the Q1 2024 actions. Although challenging, these decisions are crucial as we navigate towards profitability and to reallocate our strategic investments to growth areas. Overall, we believe these actions will strengthen our financial foundation as we move forward and optimize our goals to scale. Now I'd like to turn to slide five to discuss our Q1 financial update and operational update. This update demonstrates the success of the team's efforts. Q1 revenue net of crypto services revenue, crypto costs and execution, and clearing and brokerage fees was 17 million, up approximately 33% from Q1 last year. These results were driven by robust crypto trading activity across our platform with notional crypto volume up 94% compared to the same period last year. Further, OpEx excluding crypto costs and execution and clearing and brokerage fees decreased by 16% versus Q1 last year as a result of our cost restructuring initiatives over the past few quarters. The combination of higher revenues and driving down costs helped us improve our net loss by 53% year-over-year and our adjusted EBITDA loss by approximately 44% year-over-year. On the operational side of things, I'd like to call out the progress we're making towards the MVP launch of our Electronics Communication Network, or ECN, an offering for institutional trading and custody. This will represent a significant milestone in expanding our client-based potential and tapping into new market opportunities. Additionally, our strategic partnerships with Unchained and Swan Bitcoin have enhanced our collaborative custody and trading efforts. Our assets under custody at the end of the first quarter grew to a record 1.1 billion. And finally, our loyalty business is performing consistently well for some of the largest credit card programs in the USA. and incentive programs in Canada. This business is benefiting from the changing and growing interest from consumers in all things loyalty. The consumer trends driving the sector forward include maximizing the value of earned loyalty points through a broad range of services and products, as well as leveraging alternative currencies in the market, given the broader macroeconomic pressures on the value of cash. We remain excited about the loyalty business and the growth opportunities it presents for Bakkt and our clients. Moving to slide six. As evidenced in our trading volumes in Q1, we've begun to see positive green shoots in the market and the overall demand environment improving. With more industry activity, higher coin prices and overall higher retail trading volume. Bakkt is taking advantage of this trend. as we have experienced high volume driving through our platform. In Q1 2024, our notional traded volume was 324% higher than Q4 2023, while overall market activity was up 65%. In March 2024, volume on the BAT crypto platform hit an all-time high since we acquired it in April 2023 at $593 million. In April 2024, trading volume dipped slightly from March, but was still 134% higher than the 2023 average. Moving onto slide seven, we are upping the pace on right-sizing our cost structure by intensifying our expense restructuring efforts. Notably, on May 2nd, we completed a workforce reduction of 28 employees that will take effect during the second quarter as part of our broader expense restructuring initiative. The total restructuring plan, which also includes future closure of certain open roles and optimization of BAC's contact center resources, is expected to reduce BAC's planned headcount by 20% at the end of 2024. These actions are estimated to yield $13 million in cash savings on an annualized basis going forward. which seven million dollars will be realized in 2024 excluding any one-time severance costs this was not a decision taken lightly and was carefully planned so our team can continue executing on our key priorities and serving our clients effectively this was in addition to the 9.5 million dollar lower year-over-year opex excluding crypto costs and execution and clearing and brokerage fees in Q1 2024. In addition to this headcount reduction, we will also continue to prioritize cost savings and look for ways to streamline our operations and cost structure, including reducing vendor and discretionary spend. Moving on to slide number eight, I'd just like to say that the board appointed me as CEO to scale the business and guide it towards profitability. The performance required will be achieved by working at the intersections of processing people, platform and products, and with our partners. Using this framework, let's talk more about what the future holds for our business and what we have coming down the pipeline. So in slide nine, I'd like to dive into what we see as a massive untapped market. The crypto trading industry has been built primarily for everyday retail investors who use a central limit order book trading structure. Meanwhile, institutional investors who are offering Bitcoin ETFs are increasingly finding that the retail central limit order book structure is not meeting their large scale needs. BAT has designed a groundbreaking solution to uniquely appeal to the needs of institutional investors. So moving on to slide number 10, This is where our ECN, which we call BAT-X, comes in. Unlike a central limit order book, this platform will be a trading venue designed for institutional traders and market participants within our existing approved regulatory footprint. We believe BAT-X will be a differentiated, innovative platform to enable institutional crypto trading with high performance, low latency, and low cost. The platform is expected to be an industry first, the first foreign exchange-style ECN in the digital asset space that will offer institutional clients a reliable and low-cost trading experience. The brokerage side of our business will be amongst the first clients. We believe this improvement in trading technology will harden our existing relationships and open the door to new clients that demand the most from their infrastructure providers. Second, when combined with our custody capabilities, we will shift from a pure custody provider to a partner that offers more complete solutions for our institutional clients. With a mature retail trading market, institutional investors are eager and ready for a trading venue tailor-made for institutional requirements, and we believe this is the opportune time to launch an innovative market solution serving our targeted high-value segments. Moving on to page number 11, another key element in Shaping Black's progression is the vitality of the ecosystem in which we operate. We have a strong marketplace of relationships that enhance our solutions and processes, which continues to evolve as we innovate our offerings. As I mentioned, we have many high-value client segments, including brokerages, trading desks, asset managers, and crypto natives. In collaboration with our go-to-market technology providers, our capabilities allow us to deepen liquidity for our clients and enhance data and pricing aggregation and analytics. Our goal is to cultivate an ecosystem of solutions tailored to the needs of those diverse clients. The mission of the BAC ecosystem is to bring further value to our clients through comprehensive aggregation analytics, high performance execution, robust liquidity supporting tight spreads, secure clearing and settlement processes upholding the integrity of each transaction, and our New York Department of Financial Services regulated custody solution. This integrated approach with our partners ensures that BAC stands out as the comprehensive ecosystem that empowers our client network to trade confidently and successfully. So thank you for the time allowing me to share more about our current performance and further progress for 2024. Now I'll turn it over to Karen, who will speak to our financial results.