Greetings, and welcome to the Bakkt First 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 call over to Olivia Keavey, Senior Lead of Communications at Bakkt. Please go ahead.

Good afternoon, and thank you for joining us on Bakkt's First Quarter Earnings Call. Today's presentation, including the separate earnings call that can be found at 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 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 Bakkt'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 the non-GAAP financial measures. For more information on this of presentation of 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, Chief Executive Officer; and Karen Alexander, Chief Financial Officer. After our prepared remarks, we will answer questions we received from our investors through the Say 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 Bakkt'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. Beginning on Slide 4, 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 Bakkt ecosystem. And third, realigning our costs and prudently managing expenses. 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' partner in 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…

Thanks, Andy. I will now walk you through our first quarter KPIs and financial results. A quick reminder that, in accordance with GAAP, we present crypto services revenue and crypto costs and execution clearing and brokerage fees on a gross basis, since we are a principal in the crypto services we provide our customers. By contrast, we are an agent in the loyalty redemption services that we provide our loyalty customers. Loyalty revenue is presented on a one-line net basis. Crypto costs and execution clearing and brokerage fees, which we'll refer to as crypto costs and ECB for the remainder of this call, drive gross crypto services revenue, and the difference between these two-line items represents crypto trading's contribution to margin. Please see the note section of our earnings presentation for additional detail on crypto services revenue and related costs. Starting on Slide 13. We have our Q1 KPIs that we believe provide a snapshot to the health of the underlying trends that drive our business. As a reminder, we have included Bakkt crypto in historical KPI figures on this slide for comparison purposes. We had 6.3 million crypto-enabled accounts at the end of the first quarter, which reflects a steady increase over the past 12 months. Next, we have our transacting accounts, which we break out into crypto and loyalty accounts. There were 779,000 transacting accounts in the first quarter, of which 484,000 were for loyalty redemption and 295,000 were crypto trades. While the number of crypto transacting accounts declined year-over-year, we saw an approximately 235% increase in the notional amount per trade year-over-year. This led to a year-over-year increase in the notional traded volume for crypto, which we will cover next. Total notional traded volume was $1041 million, of which $860 million was from crypto and $181 million…

Thank you, Karen for taking us through the financials. Between our ongoing focus on providing the winning client experience, the strategic broadening of our product offering and prudent management of our expenses, I believe, we are positioned to scale and take advantage of a turning market. I look forward to sharing more about our progress in the months to come. Thank you everyone for your ongoing interest in Bakkt. I will now turn it over to Olivia to manage the Q&A.

Thanks, Andy. 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 technology, ranked by number of votes. We have consolidated some of the questions that address similar themes. After that, we'll turn to live questions from the analyst community. Our first question from the investor community comes from Sahid H. and William I. Somewhat the same question but combined here for time. As the United States embarks on a new era of Bitcoin and cryptocurrency advancements, how is Bakkt positioning itself at the forefront of this movement, particularly with the support of the intercontinental exchange and ultimately restoring confidence to shareholders? Andy, can you share your perspective here?

Thank you, Sahid and William, for your question and being fellow stockholders of Bakkt. Just like we mentioned, we are laser focused on our three key priorities. Firstly, expanding our client network. Secondly, broadening our product offerings within the Bakkt ecosystem, primarily our anticipated institutional BakktX ECN offering and thirdly, enhancing our cost management strategies. Having ICE in our corner for support has been a huge help, as we leverage their established infrastructure and market presence. We believe the support in implementing these priorities in due time will bring this company to the forefront of the ever-evolving crypto landscape. We are always looking forward and pursuing ways to stay ahead of the curve, and ultimately deliver value to our stockholders like you.

Next question is from Jeffrey C. Jeffrey asked, why did you pursue the reverse split so quickly after shareholder approval when you had several months to regain good standing on the New York Stock Exchange? Karen, can you take this one?

Of course. Our primary goal was to promptly address the compliance issues with the New York Stock Exchange's minimum price requirements, ensuring the stability and continued listing of our stock. Acting quickly on the reverse split allowed us to minimize uncertainty for our investors and stabilize the market perception of Bakkt's Financial Health, including opening new doors for institutional investors who may have minimum price requirements for their investments. This action is part of our broader strategy to secure our company's financial foundation and improve investor confidence.

Next question is from Working P. Working asks, has your company explored the possibility of collaborating with ICE to secure cryptocurrency custody business from the top four to five ETF providers? Additionally, what steps must Bakkt undertake to successfully acquire business in this sector? Andy, can you provide your thoughts here?

Thank you. Yes. Indeed, we've been and we will continue to leverage ICEs established infrastructure in market presence. We aim to develop robust custody solutions that meet the complex needs of these institutional players. To successfully acquire business in the sector, we are focusing on enhancing our technological capabilities, ensuring compliance with regulatory standards, and building a product suite that aligns with the specific requirements of these large institutional clients. Our ongoing product development and strategic partnerships are geared towards creating a compelling value proposition in the institutional crypto market and securing a large portion of the available market share.

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

[Operator Instructions]. Our first question is from John Roy with Water Tower Research. Your line is now open.

Thank you. So, Karen, on this increase in the estimate for the end of the year cash, you're going to $42 million to $57 million. Is that mainly savings in the OpEx and expense management or is there some non OpEx factors that are going on?

Yes. Hi John. Thanks so much for the question. Obviously, as you could tell from Q1, so far there's a lot of things going on with our available cash that are beyond just what we're seeing from operations with the ins and outs of what we have to hold as restricted cash. So, thinking about where we are so far, as you mentioned, we ended the quarter with $74.6 million of available cash. If you think about the burden rate that's inherent in that number after given the effect of the RDO, we burned about $33.7 million of cash during the quarter. But there's definitely someone-timers in there that I mentioned on the call. So, if you think about the increases that we had to set aside for surety bond collateral and collateral for our purchasing card facility, that's over 10 million of that usage. So, I certainly would do not want to give investors the impression that that $33.7 million is, can just be divided by three, and that would be a monthly run rate. As you can see from the numbers, our run rate is going to come down pretty significantly. So, between the $74.6 that we ended Q4 with or sorry, Q1 with, and then if I maybe take that down to roughly $49.5 million, which is the midpoint of my guidance range, that's a change of $25 million approximately. Included in there, as I mentioned, is about $10 million of restricted cash release that we've built into the expectation of the cash balance, given the fact that we are now able to get some of the efficiencies from being able to integrate our regulated entities. So, when you factor that in to something that looks more like roughly $35million, $36 million cash utilization from operations for the rest of the year, that's more like a $4 million run rate on a monthly basis for the rest of the year. Keep in mind also though that, our cash usage is not straight line. You could certainly see it in the first quarter where we had more cash utilization. The $4 million, it's a simplified straight-line number, but what we'll see is it vary from quarter-to-quarter, which is why I wanted to give the end of year balance as a better indication of what we would utilize for the rest of the year.

Great. That really does kinda clear things up. Thanks, Karen.

Our next question is from Trevor Williams with Jefferies. Your line is now open.

Thanks. Hey, good afternoon. Maybe a bigger picture question just on the regulatory backdrop and being in an election year. But maybe just give us a sense for kind of how you see State of the Union on the regulatory side? How you're expecting things to evolve over the next six months, 12 months, 24 months, and just how you guys are positioning the business for a different range of outcomes, on the regulatory front? Thank you.

Yes, Trevor. Thanks so much for the question. Bakkt being a publicly-traded crypto company, we are just extremely focused on the regulatory front, particularly with the NYDFS and certainly complying to the SEC regulations. Clearly with the election coming up, we certainly are proceeding on the basis that the U.S. Government will certainly support the current crypto regulations and will be in a position to support additional licenses for entrants coming into this market. We're fairly buoyant on the fact that the government, SEC in particular, will support its current crypto position to help this part of the economy develop and flourish. That's very much the position we're taking as we go forward here.

Terrific. Thank you, guys.

We have no further questions at this time, so I'll pass the call back to the management team for any closing remarks.

Thank you everyone for attending our earnings call this afternoon. We look forward to catching with you again soon.

That concludes today's call. Thank you all for your participation. You may now disconnect your line.