Greetings and welcome to the Bakkt Fourth Quarter and Full Year 2022 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 it over to Ann DeVries, Head of Investor Relations at Bakkt. Please proceed.

Good afternoon and thank you for joining us for Bakkt's fourth quarter earnings call. Today's presentation, including the separate earnings call presentation that can be found on our Investor Relations website at www.investors.bakkt.com, will contain certain forward-looking statements. These statements are based on management's current expectations and are subject to risks and uncertainties, which 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 Bakkt'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 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; and Karen Alexander, Chief Financial Officer; and given the market's recent interest in the regulatory environment, Marc 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 Say Technologies platform. After that, Gavin, Karen, and Marc will be available to answer questions from the analyst community. I'll now turn it over to Gavin.

Thank you, Ann. 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 Crypto, 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 have 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…

Thank you, Gavin, and good afternoon, everyone. I will now walk you through the fourth quarter financial results. As a reminder, we use the term Predecessor to represent the results of Bakkt Holdings, LLC prior to October 15, 2021. These results exclude any results from VPC Impact Acquisition Holdings. Successor represents the results of Bakkt Holdings, Inc. from October 15, 2021 forward, which is the post-merger period. Combined represents the combination of Predecessor and Successor for the applicable period. This is a non-GAAP figure. Turning to Slide 14, we have our fourth quarter 2022 financial results. We had net revenue for the quarter of $15.6 million, which increased by $1.9 million or 14% compared to the fourth quarter of 2021, primarily driven by transaction activity from loyalty redemption. Similar to recent quarters, the key driver here is 2022 travel volume relative to 2021, which was impacted by the pandemic. This quarter included a $271.9 million non-cash goodwill and intangible asset impairment charge. Similar to last quarter, we took this charge in accordance with GAAP as a result of the revenue impact from the elongated timing for expected cryptoasset product activations, as well as the decline in our market capitalization compared to the end of September, as well as our decision to sunset the consumer app. Note that in accordance with GAAP, the financial impacts from our pending acquisition Apex Crypto is not factored into the valuations that resulted in the impairment charge given that the deal has not yet closed. The charge is non-cash and does not have any impact on our future operations or affect the liquidity or cash flow from operating activities. Excluding the non-cash charge for goodwill and intangible asset impairment, our operating expenses were $73.2 million in the period, which is guided $65.4 million or 47%…

Thanks, Karen. We’ve reviewed a lot during this call, so just a few closing thoughts from me. We’re really excited about our future. We know there are some near-term external headwinds that make the market challenging and that we can’t control. So we’re focused on everything that we can control, like leveraging our core strengths that differentiate our platform to win. This includes our regulatory and compliance first approach, strong balance sheet and broad partner network. These help us stand out in this type of environment and will use these strengths to our full advantage. Although, the near-term environment still faces some challenges, we’re seeing green shoots and we believe 2023 will provide some pockets of growth. Our focus for this year will be on balancing strategic capital allocation with select investments in our crypto capabilities and our partner network, while maintaining a disciplined approach to our overall expenses. We’re eager to invest in areas where we see growth opportunities and pull back our resources where we don’t. Thank you for joining us today. I’ll now turn it over to Ann to manage our Q&A.

Thanks, Gavin. Let’s move over to questions from the investor community. Leading into our Q&A session, we’ll start by answering the top questions from Say, ranked by number of votes. After that, we’ll turn to live questions from the analyst community. Our first question comes from Working P, who asks what can Bakkt do to 10x the revenue in the next three to four years? How is Bakkt thinking about generating revenue given the slowdown in crypto and delayed partnership activations? Karen, can you take this question?

Sure. I’m happy to. Thank you for the question. Our focus is on generating long-term value and everything we are doing today is geared towards that. Our platform and B2B go-to-market strategy are based on robust repeatable processes that are easy for partners to integrate and scalable. We’ve designed the entire business with the ability to ramp quickly and grow with our partners in the overall market. We are confident that we have the right core infrastructure, platform capabilities and strategy all in place, and we expect the acquisition of Apex Crypto to accelerate our growth by adding 33 signed partners and exciting cross-selling opportunities. This is still a relatively nascent market. As market conditions improve and the market has a bit more time to mature, we believe we will say our platform really take off and recognizes economic potential. We’re fortunate to have built a business with a diversified revenue base that could withstand a temporary slowdown in crypto. Our Q4 2022 revenues were up 14% year-over-year, even during an incredibly turbulent time in the market. Subscription and service revenues are about half of our current revenue base and represent a steadier source of recurring revenue to us. While this question was about revenue, I do want to point out that we have and will continue to manage our firm-wide expenses as a general practice and even more aggressively if our top line revenue growth is under pressure. Our prudent expense management is expected to enable us to improve free cash flow usage by 25% to 30% in 2022, while also achieving 15% to 30% revenue growth.

Thanks, Karen. Our next question is on whether there is a risk of by Bakkt or ICE pulling out of crypto investments given the general slowdown in the market. Gavin, can you take this one?

Yes. Look, happy to share thoughts on this. The short answer is no, there isn’t a risk of us pulling out of crypto. We firmly believe crypto is clearly here to stay and we see significant future growth potential for this space. Our most recent research is showing us that even post FTX, the majority of consumers believe that crypto is the future of money. It has the potential to be a driving force in financial services innovation. All of our conversations with partners, prospects and other leading market participants affirm our belief that crypto is not going anywhere. Some of our partners are extending their activation timelines to find the right time to enter the market given the volatility that we’re seeing. Many are waiting for regulatory clarity, which we also welcome. But are they completely saying they’re no longer interested in pursuing a crypto strategy? Definitely not. Companies like ours are using this temporary lull in the market to be very opportunistic, to create value and build out their capabilities so that when the market rebounds, they’re ready to take off. I mentioned earlier on this call that one of our key priorities in 2023 is to expand our crypto platform by investing in custody, integrating Apex Crypto onto our platform and driving crypto to utility and to payments. Crypto is a core part of our long-term strategy. We’re definitely not pulling back from this space.

Thanks, Gavin. Our next question is from Working P, who asks, what is the market opportunity for Bakkt given recent changes to this business model? For example, you decided recently to sunset your consumer facing app. Gavin, can you take this question?

Okay, so let’s start off with our decision to sunset our consumer app. Our focus is on providing scalable B2B2C crypto and loyalty solution that enable businesses to offer their customers unique experiences. We decided to sunset the consumer app because it wasn’t core to our approach. It also ensures that we’re supporting the relationship our partners and clients have with their customers rather than competing in any way, whether real or perceived. Our market opportunity is not negatively impacted as a result of our decision to sunset the app. Now that we’ve eliminated the app, we can focus our resources on B2B partners who can provide much more scalability to our existing partner network. Our reaches well in excess of a 100 million consumers. Our reach will continue to expand with our acquisition of Apex Crypto. We’re confident that the decision to eliminate the app will ultimately drive positive value for the company.

Thanks, Gavin. Next question is from Abraham G [ph], who asks, what will you do to help Bakkt plan shareholders gain confidence in holding the stock? Seems like there’s no recovery and 99% of investors are underwater. Karen, can you opine on this?

Of course. I can appreciate the frustrations that our shareholders have helped. It hasn’t been an easy journey, and I thank you for sticking with us. I want to remind folks that there’s been a market wide reset over the past year in valuations for many types of firms, including both who are a high growth tech or crypto focus as a result of macroeconomic environment. This isn’t a, in a Bakkt specific phenomenon, nor one that we could necessarily control. That said, we are focused on driving positive shareholder value through the things we can control. This includes balancing strategic capital investments in areas where we see a path to profitability in the current environment with discipline, expense management and cost cutting to align cost to revenue opportunities. We’re continuing to build value, so that when the market conditions improve, we’re positioned to win scale rapidly and deliver the results we know we are capable of. That’s ultimately what’s going to drive recovery in our share price.

Thanks, Karen. A final question from the Say Technologies platform is from Michael G, who asks, when can we expect to see adoption of the Bakkt platform by larger financial institutions and does Bakkt plan to use distributed ledger technology in the future? Gavin, can you take this one?

Yeah, look, let’s clarify that we already work closely with a number of large financial institutions today. Most of the major money center banks today are our clients. They leverage our platform’s loyalty redemption capabilities. Our institutional grade platform is already very capable of handling large scale transaction processing volumes for sizable institutions. On the crypto front, we’ve already signed up several large financial firms to our platform, both with Bakkt as well as with Apex Crypto. On the Bakkt side, most of the institutions we’ve signed up historically have been platform partners and traditional finance firms. The uncertainty in the regulatory environments caused some of these players to hit pause, temporarily delay activating their crypto strategies. But as we’ve discussed at length in the past, we’ve done much of the integration work with them already, and we’re really just waiting for the right time to enter the market. Meanwhile, Apex Crypto has 33 sign clients with many of them active and sizable in nature. Apex acquisition will provide immediate scale to our platform with their existing and pipeline client roster. Regarding, the part of the question on distributed ledger, today we integrate with two public blockchains, Bitcoin and Ethereum. We have plans to support more protocols for both trading and custody over the course of this year, but we do not have plans to add distributed ledger technology beyond the support for public blockchains at this time.

Thanks Gavin. And with that, I would now like to turn the call back over to the operator to open up the phone line to take questions from the analyst community.

We will now begin the QA session. [Operator Instructions] The first question comes from the line of Andrew Bond with Rosenblatt. Please proceed.

Hey, good evening. Just a couple on the Apex acquisition. Just in addition to the state regulatory approvals, which appear to be moving along pretty well, can you update us on any discussions with the SEC, and you guys are still guiding to that first half close, but could the timeline change at all moving forward given the recent rhetoric and enforcement actions we’ve seen from the SEC? Marc D’Annunzio: Hey, Andrew, it’s Marc D’Annunzio. I think that we are – we remain very much on track to close that acquisition and the timeframe that we’ve previously told the market. Obviously there’s a lot of activity both at the federal and state level in terms of enforcement actions and additional guidance, but we feel good about where we sit right now.

Got it, thanks. And I believe there was a $45 million payout based on certain gross profit targets for Q4. In, in the presentation you mentioned a $9 million stocker. Now is that the only payment due for Q4? And maybe if you can, what was the growth metric that triggered this payout?

Yes, Andrew, it’s Karen. Yes. So the terms of the transaction had one potential additional stock payment related to Q4 performance of a value up to $45 million. And as everybody can realize this has been a very tough quarter, Q4 has been in the crypto space. So I think, looking at Apex’s results and the fact that this earnout was based on net revenue and they were able to achieve approximately $9 million earnout, I think is basically is a testament to how they're performing in a tough cycle. But it is the only measurement we haven't had before to answer your question.

Okay, great. And just lastly, could you update us on the status of some of the partnerships that have been announced over the past year or two? I think Finastra and Fiserv are two the larger ones and perhaps our activations are trending with the legacy Crypto Connect business with some of the banks to announce partnerships with. Are many of these connected businesses still in wait and see mode, given the current environment or do you expect an uptick in revenue contribution this year?

Andrew, why don't I start. In terms of where we are with the partners that we announced, most of the partners that we announced were obviously connected with a more traditional finance part of the sector. Many of those are definitely in a wait and see mode. We mentioned before the elongation that we see in the decision cycles about when the right time to enter the market is with our platform based partners you mentioned MasterCard, for example, what continues on the integration of our systems on working to develop together with a strong focus on crypto rewards. In that case, both the ability to redeem and to look at potentially other applications of the rewards use case across what we do with MasterCard with Global Payments, for example. It's been somewhat similar. We ran a pilot towards the end of last year, which I think we've spoken about with respect to NetSpend and again, where we've used our APIs to integrate into the global payments systems. So I think what happens with the platform partners is we continue to integrate, we continue to work with them. When you think about where we are with some of the announced partnerships, many of those are in a wait and see mode as they look for regulatory clarity.

Got it. Okay. Thanks for taking the questions.

Thanks, Andrew.

Thank you.

The next question comes from the line of Jeff Cantwell with Wells Fargo. Please proceed.

Hey, thank you very much. I appreciate you taking these questions. So my first one is on the decision to transition from your consumer facing app to B2B2C. Can you talk a little more about the reasons why now? And also kind of help us think about understand what that means for the company going forward? Would like to get a good sense of why that positioning makes the most sense in this market from your perspective? Thank you.

Yes, sure. Jeff, it's Gavin. I'll take the question. Look, when we look at all of our offerings in the market, we continue to test product market fit. Do we think that we can achieve rapid scale efficient and effective scale? We've spoken from the onset of the company around the fact that what we have and what we take to market as a platform and our focus on driving B2B2C volume through that platform. Through the course of 2022, we continue to add partners onto the platform and to build out those capabilities around Crypto Connect, Crypto Rewards and Crypto Payout. As we rounded the year, we started to look at how efficient and effective we'd been in the marketplace with respect to all parts of our offerings. And it became apparent with the app that it really was detracting from the focus that we had around being that platform that scalable company that is really providing market level infrastructure without any channel conflict or brand conflict to our partners. And it was through those discussions that we led to the decision to sunset the app. As I said at the outset, I think that this provides opportunity for us in terms of focus, obviously in terms of simplification because we have a very clean and efficient go-to-market model now, and it really is showing that the company's strength exists in its ability to generate growth through being a platform-based business. I don't think that's a strong deviation from where we've been because we've always spoken about the platform and the app being a part of that. By retiring the app, we're shifting our focus entirely to the platform.

Okay. Appreciate that. The second one I wanted to ask you is on Silvergate. I think it does make sense to discuss how that development impacts a company like Bakkt. Perhaps it makes sense to discuss Apex and whether the trading platform, as you guys are understanding it or thinking about it, can potentially capture share in this environment as we all are trying to factor in developments with SEN, for example and so forth. And what that means for trading in this space. So I was hoping you kind of give us your thoughts high level, if you don't mind, on Silvergate SEN and where you may potentially be seeing opportunity? Thank you.

Sure. So, so let's just start with Silvergate. Our exposure to Silvergate is limited to the consumer funds that we hold as part of the app and the use of their ACH services to sort of facilitate customer flows in and out. We've obviously as many we've been anticipating issues with where Silvergate is for some time. We've been working with multiple other providers to minimize any sort of service disruption we've accelerated that work with the recent news regarding liquidation. We're taking rapid action really to fully migrate off Silvergate entirely. Ensure that, that any of the consumer funds are protected and minimal service disruptions to those that will continue to be part of our app through a web-based experience as we've spoken about before. With respect to Apex, I mean, the – again that's a reinforcement of our B2B2C model, it's where we embed our services into those of others. Clearly, what we're seeing across the across the market is dislocation. And through that dislocation we see opportunity and we'll continue to chase those market growth opportunities where we think we can be effective, efficient and scale and using the platform as a point of leverage.

Got it. And if I could squeeze one last one in, I just want to make sure that I'm understanding your 2023 guidance; and so what you're saying is that your revenue guidance, the range you're giving does not include Apex. And I'm also curious if there has been any moving of expectations in terms of the accretion from that deal over the past few months since you've last spoken with us? Thanks very much.

Yes, and I can take that. You are correct in your – how you followed our guidance. So you've given that the deal has not yet closed. At the moment, we're giving guidance on the organic performance of that. We would expect to update that guidance with a view on Apex after the Apex acquisition closes. I think in terms of, can you remind me the other part of your question?

Yes. I'm just trying to figure out, sorry, sorry to take up so much of your cue, but I wanted to figure out if your prior commentary on the accretion from the deal is still relevant or if there may be any change in and how you guys are thinking about the deal? Thank you.

Yes. And so we provided guidance last year or our clarification last year based on the underwriting that we did on the deal. So we are – our plan at this point is to update that guidance once the acquisition closes.

Got it. Thank you very much.

Thank you. The next question comes from the line of Trevor Williams with Jefferies. Please proceed.

Hi, this is Yvonne Jeng on for Trevor. Thanks for taking my question. Just a quick-one on expenses; can you give us a sense for how the focus on expenses will translate into the pace of OpEx growth in 2023 and how we should think about the quarterly run rate for expenses? Thank you.

Yes. So I mean, clearly with the actions that we're taking and the focus on capital allocation decisions, our operating expenses will definitely decrease relative to where we were in 2022. So to think about what we did in terms of guidance, we have a range of revenue guidance that then builds into where we think will be on a free cash flow basis. And then from there you can see the, basically the usage of cash from an operating expense perspective is going down roughly from a cash operating expense perspective is going down roughly $40 million from where we were in 2022 on at the mid-point.

Thank you.

Thank you. The next question comes from the line of Pete Christian with Citi. Please proceed.

Thank you. Good evening. Gavin, I was wondering if you could talk a little bit – dig a little bit more into, I guess one of the priorities for investment this year is in Custody. Just wanted to dig a little further into that, what areas are you investing within Custody. And generally how are you seeing Custody pricing kind of evolve? I guess there's a bit of a notion that you've seen some commoditization in the space and pricing has kind of come down. Just your thinking on how you could differentiate there in the Custody side, and then I have a follow up?

Yes. Sure. Look, I think when I look at Custody; obviously we see it as a core offering to what we do. We're upgrading our work to be on a more modern architecture, that'll help increase our agility to meet both B2B2C partner needs and institutional needs. So think about things like automated hot wallets to enable consumer deposits and withdrawals. The ability for us to be able to support an increased range of tokens and protocols including things like stablecoin and yield generating offerings as well. In consideration for things like Staking, we see custody as a growth area. There are more and more of our partners are looking to work with custodial operations like ours. We've spoken before about the fact that we run the trust. We are a QC in that respect. The trust is run as a, as an independent legal entity within our framework. It has its own board of managers as we spoke about during the presentation. In terms of pricing, we're still seeing the ability for us to be able to take an aggressive approach there just given the specialized features that we think we're able to offer as we move forward. And the fact that we're not just providing the technology that underpins it, it's the risk management practices, it's for compliance, the cyber, it's everything that goes around it to build that custody opportunity and operation out.

Thank you. That's helpful. And then just curious, we've noticed other crypto players; the average crypto consumer is just an extremely passive in the last several months, given the environment. And I was just curious if what you're seeing on the, on demand for like things like crypto rewards and whether or not, you're seeing a focus groups and the appeal to for that feature is as strong as it’s holding up relative to what we're seeing in the broader market.

Yes, Pete, I look I think it is holding up. I think the announcement we made today with Caesars is testament to that. I think the ability for Caesars Rewards customers to be able to use those rewards to purchase crypto and that gives us access to millions of customers is a good example of this passive acquisition, this new way to earn as something that is still showing relevance in the market. We continue to work with a number of partners on what the rewards value proposition could look like. Many are interested in it because it allows them to build new engagement with their consumers in their everyday lives. And so we feel that the demand is still there and we think it's an offering that is somewhat unique by the way we are taking it to market. And we think it's something that again continues to differentiate us with other players in the space.

Thank you. And last one for me, Karen I was just curious earn out for Apex. Is that still applicable for 1Q if the deal is not completed by then?

Yes. If you recall how we structured the purchase price, we had a earn out of up to $45 million related to Q4 2022 performance, and then there is an additional earn out of an up to another a $100 million of stock-based on 2023, 2024 and a little bit into 2025 performance. So that'll be measured over time, but the Q4 window where they earned relative to the $45, that is just based on Q4 performance.

Okay. That's helpful. Thank you.

Thank you. The next question comes from the line of John Roy with Water Tower Research. Please proceed.

Great, thank you. So Gavin let me just mentioning Caesars there. Maybe you could give us a little more color on how that came to happen. What do you expect to see from it and, could we see others in the future?

Yes, thanks John. We, this strategic alliance that we've announced today, I think has a huge amount of potential, as I said earlier, just largely in the fact that, we're offering the ability for Caesars Rewards members to really have access to crypto rewards through our platform. They can redeem Caesars Rewards points for cryptocurrency, but it doesn't stop there. We're also looking for our ability to look around innovating further using things like our crypto payout facility. I think what's so exciting about this is it's a new client vertical. So we've gone into a different space in the entertainment sector and a space that we think with Caesars as an anchor client will actually start to lead to more demand generation as we move forward. So we're excited by the move into the new vertical. We're excited by the fact that we're taking rewards to scale to market through a partner like Caesars. And we think it then opens up additional opportunities as you start to think about the applicability of this in a broader entertainment context.

So maybe as a follow onto that from the regulatory approval standpoint, do you think it's significantly harder because it's of Caesars gambling environment? Or is it that not really that much of an impact on you?

For us, it's subject to regulatory approval across all of our regulators right now. We don't see it as a, we see it as a, an exercise in briefing them on what it is that we're doing. I think the way in which we've structured the agreements and the way in which the transaction actually works, it's it looks like a crypto buy at the end of the day and a crypto sell. So we think it's a reasonably straightforward, but it is subject to regulatory approval.

Great. Thank you.

Thank you. [Operator Instructions] There are no additional questions at this time. I will hand it back to the management team for closing remarks.

Thank you everyone for attending our earnings call this evening, and we look forward to connecting with you again soon. Have a good night.

That concludes today's conference call. Thank you. You may now disconnect your lines.