Bakkt Holdings, Inc.

Greetings and welcome to the BACT third quarter 2024 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 the conference over to Cody Fletcher, investor relations advisor at BACT. Please go ahead.

Good morning. And thank you for joining BACT's third quarter earnings call. Before we get started, I'd like to remind everyone that today's earnings call includes a separate supplemental presentation that can be found at our investor relations website at www.investors.bact.com. During today's call, we will make 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. Further, in addition to discussing results that are calculated in accordance with generally accepted accounting principles, we also make reference to certain non-GAAP financial measures. For more detailed information on our non-GAAP financial disclosures, please refer to our earnings release, which can be found on our investor relations website. Thank you, and I'll now turn the call over to Andy.

Thank you, Cody, and good afternoon, everyone. Thanks for joining BAC's third quarter 2024 earnings call, and it's great to connect with you all again. With me today is Karen Alexander, our chief financial officer. Before I jump into our third quarter results, I'd like to begin today by discussing BAC's strategic direction and acknowledging the favorable market conditions and increased trading volumes we and the broader market have seen since the US presidential election on November 5th. As you will see on page three of our presentation, an example of the prospects of our trading services correlated to the higher crypto prices we saw a steady ramp up in VATS notional trading volume over the past three months. Then in November, leading up to the election and especially following the election, our notional trading volumes dramatically increased. If you look at November's volumes by day, we saw this increase in reaction to the election results on November 5th, and then trading volume went even higher days later, along with the broader crypto prices and the new all-time high for Bitcoin. As of November 12th, we've already traded $279 million in notional volume, already exceeding October's total volume by $114 million. Compared to the broader market, we've achieved 169% of our total October volume in just the first 12 days of November. while the market as a whole has only reached 78% of its October total, demonstrating our potential for strong performance. While we cannot predict future trading volumes, especially in the current environment, we believe the US presidential election results have provided a meaningful tailwind to the crypto industry, backed not excluded. Turning now to page four, let's jump into the highlights of our Q3 financial performance which Karen will give more detail later on. Q3 crypto and loyalty services revenue, net of crypto costs and execution, including in brokerage fees, was $13.4 million, down approximately 8.8% from Q3 last year. This primarily happened as a result of the third and fourth quarter 2023 benefiting from a one-time adjustment to a revenue share agreement with Webull Pay that resulted in a temporary higher take rate, which became normalized at the start of this year. Note that this dynamic will also impact our Q4 2024 year-over-year comps. Sequentially, our results were down 9.5% and reflected softer trading activities, which were seen across the broader market. But as previously noted, we have seen and expect to continue to see trading volumes improvement in Q4. Q3 operating expenditures, excluding crypto costs and execution and clearing and brokerage fees, were 40.7 million and was 39.7% lower year over year, driven by our cost reduction initiatives. These actions helped reduce our Q3 operating loss by 48.2% compared to Q3 last year. In October, we completed another reduction in force as part of our continued cost improvement initiatives. Moving on to our crypto business operations, most of 2024 has been a challenging execution environment. That said, with the clarity from the recent election results, we are encouraged that the work we have done positions us well in the new environment. We achieved several milestones during the third quarter that broadened our client network and product offerings for the tailwinds we are seeing in the market. Now I'll introduce these accomplishments before diving deeper into our commercial operations. Starting with BACT-X, our institutional electronic communication network. This past quarter, we successfully commenced trading on the BACT-X platform with BACT crypto solutions BAC's retail-facing crypto brokerage business as one of the initial institutional trading clients. This represents the beginning of our broader rollout strategy to institutional clients. This rollout aims to combine the strengths of our strategic partners and the BACx ecosystem, namely BAC's security and compliance expertise, crossover markets, high-performance technology, and sub-10 microsecond matching latency Hidden Roads Global Credit Network for institutions and real-time risk management and operational support, and our new partner, CoinRights, who will provide our clients with the best-in-class trading interface and algorithms. We remain confident BACx will be a significant growth driver for the company, and we look forward to sharing updates in the near future. Further, we are excited to announce that we recently onboarded Blockwire, onto our brokerage infrastructure solution. Blockwire is an AI-driven crypto fintech infrastructure platform offering banking, custody, and payment solutions for B2B and B2B2C customers. BAT will provide end-to-end crypto brokerage infrastructure for Blockwire's spot crypto and stablecoin payments platform, including liquidity and execution, custody services, fiat management, and potential future joint product expansions. This new brokerage client is another demonstration of companies choosing Bakkt as their partner in growth using our preferred trusted platform for buying and selling crypto. As we stated in our Q2 earnings, we recalibrated our go-to-market approach to focus our resources on targeting companies already established in the US and international players coming into the US who may benefit from BAC scalable trading capabilities. We are seeing very good results from this recalibration with an expanding sales opportunity pipeline for potential new clients with many such opportunities in advanced stages of the sales process. In August, we successfully introduced nine new coins to our BAC crypto solutions platform. The response from our clients has been very positive, and many have begun integrating the new coins into their platforms. And in Q3, the new coins contributed a notable improvement in our trading volumes for the quarter. We also just launched six additional coins in November, and we plan on bringing more coins to market in the future. Furthermore, I'd like to give an update on our backtrust and custody operations. In October 2024, we began investigating a possible wind down and dissolution of backtrust due to its lack of market traction and high cost of capital due to regulatory requirements. As this process has progressed, we have also worked to find strategic alternatives for backtrust. This decision was carefully considered and represents the next stage of our strategic initiative to focus on our brokerage and institutional trading services, where we believe we have unique competitive advantages for sustainable long-term growth. Our decision is timely. When you look at the macro environment, the custody space in general has seen significant margin compression, particularly over the past several quarters, along with increased competition from new players and further regulatory reform. This move allows us to focus on our core strengths while also achieving an expected reduction in operating expenses. Additionally, we anticipate a lower regulatory capital requirement during this process, which would free up significant working capital and shows another example of our ultimate goal, maximizing shareholder value. A key point to make with this decision is that our brokerage clients will continue to benefit, as they do today, from our custody offering enabled by our custody solutions partners. So it's business as usual, and there is no impact to our brokerage clients as we evaluate strategic alternatives to BAT Trust. Finally, as you know, BAT operates across several complementary yet distinct business areas. Both management and the board are continually exploring strategic alternatives to maximize shareholder value while advancing our 2024 priorities, backtrust being a prime example. Turning to slide five. Next, I'd like to review some key regulatory and macro developments that we believe are strong indications that crypto is maturing as an asset class and provides favorable tailwinds for back going forward. On the regulatory front, we've seen meaningful progress this year. Notably, FASB's adoption of fair value accounting of crypto assets was a pivotal shift in reporting standards for public companies. As I mentioned on previous calls, the launch of Bitcoin and Ethereum spot ETFs has driven record adoption and capital flows in a very short amount of time. And more recently, the SEC's approval of options trading for BlackRock's iBit ETF and on the NYSE has further reinforced crypto's growing presence in the US capital markets. Meanwhile, We are now seeing that bipartisan support for crypto continues to improve, and with Donald Trump as the president-elect, we expect the narrative on crypto to improve even further, as he has advocated for a more positive regulatory environment. On the monetary front, the Federal Reserve's 50 basis point rate cut in September, following 11 consecutive hikes and the additional 25 basis point cut last Thursday signal a significant shift in monetary policy. These reductions in the U.S. federal interest rates have historically served as positive catalysts for risk assets such as crypto. Taken together, these policy shifts create a highly favorable environment for Bakkt, reinforcing our confidence in the company's strategic direction. Turning to slide six, our strategy of building a robust ecosystem of partners to address the institutional market has positioned us to capitalize on the growing opportunities that drive long-term growth. We have put together what we believe to be a unique combination of strengths to launch BAC-X, namely BAC's advanced infrastructure with crossover markets, high-performance technology, Coinright's trading interface and algorithms, And once we have a definitive agreement with them, Hidden Row is a global credit network for institutions. This combination delivers the unique value proposition for institutions, giving them high performance, sub-10 microsecond matching latency, customizable liquidity streams, and reduced trading costs. The strength of this ecosystem delivers solutions for institutions, that are highly competitive against existing crypto trading venues. To wrap up, we are executing and making significant progress on the three strategic priorities that we laid out at the start of the year. First, we are growing our client network and deepening our existing client relationships. On the brokerage side, we're thrilled to have Blockquire as a new client on our brokerage infrastructure solution. Additionally, we continue to build momentum with Hidden Road, Crossover Markets, and our new partner, CoinRights, which demonstrates our commitment to growing our institutional client base, while deepening relationships with existing partners. We believe these collaborations enhance our offerings and position BAC as a critical player in the broader digital asset ecosystem. Secondly, we are expanding our product solutions and extending the Bakkt ecosystem. With the upcoming rollout of Bakkt X, we are finalizing our high-performance platform to cater to the needs of institutional investors. This is demonstrated through our partnership with Blockwire using our end-to-end infrastructure for their crypto payment processing and brokerage services. These milestones reflect our ongoing commitment to innovation, and creating best-in-class solutions that meet market demands. Lastly, we continue to improve our cost structure, ensuring that we operate efficiently while scaling our business. The integration of new strategic partnerships and our disciplined approach to cost management are already yielding improved results without compromising the high level of service and innovation we deliver for our clients. Thank you for your time. It's been a pleasure to update you on BAC from both a high-level financial and operational perspective. I will now hand it over to our CFO, Karen, who will review our financial performance for the third quarter in more detail. Karen.