Greetings, and welcome to the Bakkt Second Quarter 2023 Earnings Conference Call. This conference call is being recorded. I would now like to turn it over to Ann DeVries, Head of Investor Relations at Bakkt. Please go ahead.

Good morning, and thank you for joining us for Bakkt's Second Quarter Earnings Call. Today's presentation includes a separate earnings call presentation that can be found on our Investor Relations website at www.investors.bakkt.com which 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 the 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 the 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 will answer questions we receive from our investors through the Say Technologies platform. After that, Gavin and Karen will be available to answer questions from the analysts community. I'll now turn it over to Gavin.

Thank you, Ann. Good morning, everyone, and thanks for joining. We're making meaningful progress executing on the key priorities we set out at the beginning of the year. We expanded our crypto platform through the acquisition and integration of Apex Crypto while activating and broadening our client network, and we've been prudent with capital allocation. We're winning new custody and crypto trading clients and building strategic alliances with prominent players as our capabilities and best-in-class infrastructure resonates with the market. We're expanding into new international markets alongside our clients, with Latin America expected to launch in the fourth quarter and other markets such as the U.K., European Union, Hong Kong, and Australia to follow. We're focused on delivering solid results for our existing loyalty clients as we work together to grow transaction volume. Lastly, we continue to prudently manage expenses, resulting in improved gross profit margin. We're also updating our full year 2023 operating cash flow outlook and expect to improve approximately 20% from our prior guidance. Our platform provides end-to-end crypto capabilities from advanced trading and secured custody to fiat on-ramps. We also secured custody of assets founded in traditional finance and built to uphold shifting regulatory standards. Regulated by the NYDFS as a limited-purpose trust company, that custody has reliable infrastructure with multilayered security for streamlined management and Disaster Recovery Services to help ensure customer funds are safe and recoverable. We offer curative, secure and regulated crypto trading with API and UI options to activate trading responsibly. This includes unparalleled liquidity and price quality with 100% uptime and seamless integration and customer experience which enables clients to integrate in less than 45 days with instant fund settlement and failover protection. Capabilities also include coin transfer and advanced order management system and multiple fee structures. As part of crypto trading, our clients are increasingly utilizing fiat onramps via ACH, debit, or wire transfer for a smoother end-to-end customer experience. And we continue to offer innovative ways for consumers to access crypto including through rewards redemption and by earning or getting paid in crypto. Our royalty redemption capabilities remain a strength and offer a full spectrum of content, including Apple products and other merchandise, travel and gift cards. We've introduced personalized offerings and additional Apple products while maintaining a strong list of SKUs and modernizing our infrastructure and the architecture with cloud capabilities. Through our B2B2C approach, we have a broad client reach in high-growth sectors that provide efficient scalability. This network is looking to expand their relationship with their millions of customers, and crypto presents an opportunity to differentiate their services, drive engagement, and revenue growth. And for Bakkt, it enables us to reach millions of end customers across a variety of providers. We've made progress in integrating Apex Crypto into our business, including employee onboarding, integrating our product and technology processes and managing key functions like compliance and risk, all with minimal impact to our existing client base. We completed the rebrand of Apex Crypto to Bakkt Crypto and transitioned all necessary documentation and materials for clients. With the integration of this deal mostly done, we're now focused on leveraging the synergies and expanded capabilities from this transformational deal to continue growing and drive further efficiencies on a go-forward basis. Through our client-led model, we are always working with our key clients to grow their business. Our work with Webull is a prime example of our ability to successfully execute bringing together the combined strength of legacy Bakkt and Apex Crypto. Webull approached us to develop a new innovative app with ACH funding rails for their crypto customers. Our teams mobilized quickly, bringing together Apex Crypto trading and Bakkt funding capabilities to launch Webull Pay in less than 40 days. In solving for this, we also built ACH funding functionality, which provides competitive advantage, and we're seeing significant interest from other clients and prospects in utilizing fiat onramps. Additionally, I'm pleased to share that Bakkt will be one of Plaid's crypto solution partners for its customers who are interested in offering crypto solutions to their end users. This is particularly exciting since Plaid has an extensive network of over 8,000 fintechs using their platform today. Through the Plaid and Bakkt partnership, those fintechs will be able to easily and safely explore offering crypto solutions to their users. We're pleased to share that we've expanded our network of crypto trading clients, mostly in the fintech industry. We've recently signed on several new clients and are engaged in late-stage negotiations with a number of additional prospects. We're also making solid progress on our international expansion strategy, actively working with our client base to develop and execute our go-to-market strategy in markets where we see regulatory clarity. We will serve as Invstr’s crypto provider in the U.S., a relationship sourced through our commercial agreement with Apex Fintech Solutions. We're also working with Swan Bitcoin to provide end-to-end Bitcoin trading, fiat on-ramp, and qualified custody. We also signed Blockchain.com, one of the first and largest crypto wallet providers in the world, along with Zaden and CryptoMom to provide end-to-end crypto trading. On the international front, we signed an agreement with ibex to offer crypto trading for Latin America. These recent wins are a strong testament to the product fit of our capabilities and the continued focus on growing our core crypto solution. Recent market events have highlighted the difficulty in storing digital assets safely and the need for multi-custodian access and self-custodial functionality. Our secure and compliant custody platform offers unparalleled protection and complete customer control over their assets. It utilizes multilayered technology and the latest breakthroughs in MPC cryptography with hardware isolation, ensuring customer funds are protected from various threats, including cyberattacks, internal collusion, and human error. Given this backdrop, we continue to see an increase in new client activity. We've successfully signed new clients and are in late-stage negotiations with multiple prospects in mining, family offices, registered investment advisers, and corporate treasury industries. Qualified sales opportunities are up 10-fold in the first half of 2023 versus the second half of 2022. The custody platform generates stable recurring platform fees as well as asset-under-custody-based revenue, further diversifying our revenue. Bakkt's institutional-grade custody platform offers the security and licensing clients are looking for including qualified custodian status with the New York Department of Financial Services, comprehensive security controls, regulatory compliance, and streamlined user management and consensus protocols. Given its prominence as a strong anchor product, we're continuing to invest in our custody offering to meet demand from new and existing clients. We're redesigning the application to enhance our offering and exceed client expectations and anticipate launching the upgrade throughout the remainder of this year. In this enhanced offering, we'll maintain all of the elements that make Bakkt custody exceptional. It will continue to offer a compliance-first focused approach with multiple layers of security and outstanding operational management. These upgrades will make it easy to launch additional products such as the ability to add new blockchain networks and the assets on those networks, retail open loop, and institutional staking, which add yield-generating opportunities for our institutional clients. We have a new multi-faceted strategic agreement with Fireblocks. As part of this agreement, Bakkt will provide Disaster Recovery Services to Fireblocks' Off-Exchange customers and we will join the Fireblocks Qualified Custodian Network. The Fireblocks Off-Exchange solution allows participants to maintain control of their private keys without sacrificing the convenience and speed of trading on centralized exchanges. This has become a highly focused product for the market as recent misappropriation of customer funds and exchanges has led to the demand for safe trading solutions. We're also integrating Fireblocks' technology to fortify our custody offerings. For Disaster Recovery Services, we will leverage our secure infrastructure to provide backup storage to ensure customer funds are safe and recoverable. Every Off-Exchange customer will require a Disaster Recovery package. So there's tremendous opportunity for Bakkt in safeguarding these assets. By joining the Fireblocks Qualified Custodian Network, we'll be connected to thousands of organizations across the crypto ecosystem who use the network every day including exchanges, liquidity providers, and custodians. There's only a select group of qualified custodians in this network, and we're proud that our differentiated secure and compliance-first focused approach enabled us to be selective. The broad reach of this network will fuel our pipeline of prospects for our full suite of crypto solutions. We'll continue working with Fireblocks to jointly deliver additional use cases and capabilities to the market through the strategic alliance.

Thanks, Gavin. I will now walk you through our second quarter financial results. A quick reminder that this quarter includes the results of Apex Crypto, which we acquired on April 1, 2023. Apex Crypto materially increases our crypto service revenue, such that we now present crypto services revenue as a distinct component of our revenue. In accordance with GAAP, we are presenting crypto service revenue as well as crypto cost and execution clearing and brokerage fees on a gross basis since we are a principal executive services provider to our customers. By contrast, we are an agent in the loyalty redemption services we provide to our loyalty customers. So loyalty revenue is presented on a one-line net basis. Crypto cost and execution, clearing and brokerage fees, which we will refer to as crypto costs and ECB for the remainder of this call, will drive crypto services revenue and the difference between these two line items represents crypto's trading contribution to margins. Please see the notes section of our earnings presentation for additional detail on crypto services revenue and related costs. Turning to our second quarter 2023 financial results. We had total revenues of $347.6 million, of which $335.3 million was gross crypto services revenue, which increased significantly due to our acquisition of Apex Crypto. We had $12.3 million of net loyalty services revenue. Operating expenses were $398.7 million in the period, which reflects a significant increase in crypto cost and ECB, driven by the related crypto services activity. During the quarter, we had $17 million of acquisition-related expenses, with $10.4 million of this being a noncash accrual related to the estimated fair value of the contingent stock earn-out associated with our acquisition of Apex Crypto through 2025. We will update the estimated fair value of the contingent stock earn-out on a quarterly basis based on the forecasted gross crypto revenue plus cost and ECB associated with the Apex Crypto relationships. As such, the approved stock earn-out as of June 30 is subject to change as our revenue forecast changes. The 2023 and 2024 earn-outs will be finalized as part of our 2023 and 2024 year-end reporting. Operating expenses, excluding crypto costs and ECB were $64.7 million. Excluding acquisition-related expenses, operating expenses were $47.7 million, which represents a decrease of 16% year-over-year, primarily due to a reduction in total compensation and benefits as we are starting to see the benefit from earlier expense actions. The net loss for the quarter was $50.5 million, which resulted in a diluted net loss of $0.19 per share on an average diluted share base of 89.8 million shares. Net loss allocated to the non-controlling interest in the operating company was $33.7 million, leaving a $16.8 million loss attributable to Bakkt Holdings Inc. or a net loss of $0.19 per share on an average basic share count of 89.8 million shares. Our total share count as of June 30 was 274.6 million shares. ICE remains our largest shareholder as they own 64% of our aggregate shares, which has remained relatively consistent with our shareholding in prior periods. Note that the percentage ownership is down slightly from prior periods due to new Class A share issuances and not due to the sale of shares by ICE. On Slide 14, we have our EBITDA and adjusted EBITDA for the second quarter of 2023. Adjusted EBITDA reflects adjustments for noncash and acquisition-related items that impacted the period. EBITDA and adjusted EBITDA for the quarter were losses of $47.2 million and $24.5 million, respectively. Adjusted EBITDA loss improved versus the prior year period, primarily due to lower compensation and benefit costs. On Slide 15, we show revenues for the company. Given the increase in crypto revenue resulting from our acquisition of Apex Crypto, we are now presenting revenue broken out between crypto and loyalty revenue in addition to the revenue detail for subscription and service revenue and transaction revenue. Total revenue in the second quarter of 2023 was $347.6 million. As I noted earlier, crypto services revenue is reported on a gross basis. For the second quarter, gross crypto services revenue was $335.3 million, which was the result of the increased crypto transaction volumes from our acquisition of Apex Crypto. Net loyalty revenues of $12.3 million were down 8% year-over-year. This was driven by a decline in subscription and service revenues, which were $5 million for the quarter, down 23% year-over-year. The reduction we saw here was primarily due to lower volume-based service revenue. Service revenue has a variable component and is driven by activity levels at our customer call centers and technology development work on behalf of our clients. Loyalty transaction revenues of $7.3 million increased 6% year-over-year due to an increase in air travel volume. However, this was partially offset by lower hotel and car booking value which remains under pressure since the latter half of 2022. Turning to total operating expense. Total expense for the second quarter was $398.7 million, which includes $334 million of crypto costs in ECB. These costs are driven by crypto trading volume. SG&A expenses of $7.6 million were down 23% year-over-year due to a reduction in marketing expenses. Total compensation expense of $27.1 million declined 21% to the second quarter of 2022 due to lower headcount and a decrease in noncash compensation expense. Other expenses of $30.1 million included $17 million of acquisition-related expenses, of which $10.4 million is the noncash accrual of Apex stock contingent earn-out as noted previously. We are pleased that we're starting to see the benefits in our gross margins from our prudent expense management actions. As a reminder, we expect the impact from earlier restructuring actions in 2023 to be $29 million of expense savings and an incremental $7 million of expense savings expected in 2024. Turning to Slide 17. We have a new slide comparing gross crypto services revenue and crypto costs and ECB on a quarterly basis. You can see on this chart how crypto cost and ECB drive gross crypto services revenue. The gap in the two columns for a given time period depicts the net contribution to margin from crypto trading activities. Gross crypto services revenue of $335.3 million was impacted by lower industry-wide activity levels in May as you will see in our key performance indicators on the next slide. Crypto costs and ECB of $334 million were in line with revenue levels. On Slide 18, we have our key performance indicators. We have made updates to our KPI disclosures to provide additional details on volume activity for legacy Apex Crypto. Although our acquisition of Apex Crypto closed on April 1, 2023, we have included Apex Crypto in the historical KPI figures on this slide for comparison purposes. The KPIs we will not be disclosing are crypto-enabled accounts, transacting accounts, notional trade in volume, and assets under custody. For more information on how we divide these metrics, please see the note section of our earnings presentation. We had $6 million crypto-enabled accounts at the end of the second quarter, which reflects a steady increase over time. Next, we have our transacting accounts, which we break out into crypto and loyalty accounts. There were 1.2 million transacting accounts in the second quarter, of which 740,000 were for loyalty redemption and 441,000 were for crypto trading. Loyalty redemption transacting accounts were up 9% year-over-year due to higher air travel activities. Crypto transacting accounts were down 10% sequentially due to the industry-wide slowdown in the crypto market activity in May. Notional traded volume is also broken out between crypto and loyalty redemption. Total notional traded volume was $531 million, of which $334 million was from crypto and $198 million was related to loyalty redemptions. On this chart, we have also included crypto industry trading volumes, which is the orange line. As depicted here, while our trading volumes were down 25% sequentially, our business outperformed the overall crypto market industry, which was down over 40% during the same time period. Meanwhile, loyalty redemption volume was down 3% year-over-year driven by lower hotel, rental car, and merchandise redemption activity. Our assets under custody of $660 million declined 8% sequentially due to a reduction in certain coin prices. Turning to Slide 19, we have our condensed balance sheet. We ended the second quarter with $99.4 million of cash, cash equivalents, and available-for-sale securities. In the second quarter, we had cash usage of $18.2 million. Second quarter cash usage included $5 million for acquisition-related expenses, a $2.7 million marketing partnership payment, and $1.8 million of insurance costs. On Slide 20, we have updated our full year 2023 outlook. Our updated guidance reflects the impact from the acquisition of Apex Crypto, taking into consideration the disclosure of revenues on a gross basis and associated crypto trading costs as well as the current market environment. For the full year 2023, we expect revenues to be in the range of approximately $2,132 million to $3,771 million. This includes gross crypto revenues of approximately $2,077 million to $3,716 million, which includes the impact from Apex Crypto. Our revised forecast also reflects the solid progress we have made signing up new clients and international expansion, as well as the recent industry-wide slowdown we've seen in crypto market volumes. We expect full-year 2023 crypto trading costs to be in the range of $2,069 million to $3,702 million. This is in line with our expectations for gross crypto revenues. Our full-year 2023 outlook for loyalty net revenues is expected to be around $55 million. We expect loyalty transaction revenues to be relatively flat coming off a strong 2022 post-COVID rebound. This contrasts with our expectations for the loyalty business at the beginning of the year where we expected continued growth in transaction volumes from 2022 levels. What we have seen so far this year is durability of the 2022 loyalty transaction volume, which effectively reset post-COVID. We've also updated our loyalty revenue outlook to reflect the lower royalty service volumes we've experienced in recent quarters. As a reminder, the guidance we gave earlier this year for net revenue was $62 million to $72 million. If you net our crypto costs against gross crypto services revenue and add that to net loyalty revenues, the expected contribution to margin is $64 million to $70 million. For the full year 2023, we expect net cash used in operating activities to be $78 million to $84 million. You will recall that the guidance we provided earlier in the year was operating cash usage of $100 million to $110 million, so a significant improvement here due to our focus on disciplined expense management. Free cash flow usage is expected to be $90 million to $96 million. This compares to our prior guidance of free cash flow usage of $105 million to $115 million. This reflects a 70% to 80% reduction in free cash flow usage for the second half of the year versus the first half as we continue to focus on prudently managing our expense base.

Thanks, Karen. Just a few final remarks. We've made substantial progress this past quarter, and we're building momentum for future growth. We were at a pivotal moment at the beginning of the quarter, having just closed our acquisition of Apex Crypto on April 1. We've been off to the races soon, integrating Apex Crypto, launching new capabilities, expanding internationally, signing new client relationships, and building new strategic alliances with leading brands such as Plaid and Fireblocks. I'm proud of our teams who have worked tirelessly to make this progress happen in such a short amount of time. There's still so much more to come. We pulled a platform that's really ready to take off and grow. We've made many of our big investments, and we're now leveraging the capabilities to scale our business. We will continue to work hard every day to deliver strong results to our clients, our partners, and our shareholders. I'm optimistic about our future. I can't wait to share more as we continue to execute and win. Thank you for joining us today. I'll turn it over to Ann to manage 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 the number of votes. After that, we'll turn to live questions from the analyst community. Our first question comes from a user who would like an update on the progress we've made on previously announced partnerships. They noted that crypto market conditions have improved in the last quarter significantly and want to know what this means for our partnerships. Gavin, can you take the question?

Yes, sure. Look, I'm happy to. Thanks for the question. We discussed in detail during our prepared remarks the substantial progress you've seen us make recently, building out our client base and forging new collaborations with industry leaders such as Plaid and Fireblocks. But we're really pleased with the momentum that we're building, and it really is a proof point of how our acquisition of Apex Crypto could not have happened at a better time. Our ability to expand into the rapidly growing fintech space and into international markets is even more compelling right now. Although we're seeing some more activity in the U.S. around regulation for crypto, we're still not where we need to be. The lack of regulatory clarity for crypto has kept the activation of our client partners on hold. We've long since completed most of the integration and go-to-market work with our client and partners and we'll be ready to go when the time is right to enter the market. We're making good progress with our non-trade clients. With Caesars, we are actively engaged and executing with them to launch crypto rewards. Our cross-functional teams, including engineering, sales, marketing, and design are collaborating closely to activate these capabilities. Stay tuned as we anticipate providing additional announcements on this before not too long.

Thanks, Gavin. Next, we have another question from a user who would like to know why Bakkt was not selected to provide custody solutions for any of the recently announced Bitcoin spot ETF despite our compliance-first approach? Karen, can you take this one?

Sure. Happy to take that question. Custody has always been a very important part of our business. Our secured and reliable platform is trusted by clients and is the backbone of our company. That said, historically, we have focused much of our sales and marketing efforts on more scalable go-to-market opportunities through our B2B2C approach. While custody has always been an important part of the platform, given our focus on B2B2C, we were not always aggressively marketing our custody capabilities to win new business. We have been fortunate that our clients are proactively reaching out to us with interest in our secure, trusted institutional-grade custody platform. This influx of client interest has been even more pronounced following recent disruptive events in the crypto markets, which have highlighted the difficulty in storing digital assets safely and the need for multi-custodian access and secure self-custodial functionality. We have been successfully signing up new clients for our custody products, and we are focused on building this momentum to continue expanding our client base and custody capabilities.

Thanks, Karen. Next, a few people have asked about international expansion and a status update around when we expect to launch. I think we answered this in the prepared remarks. But Gavin, please add any additional thoughts you might have here.

We mentioned earlier in the prepared remarks that we've signed an agreement with ibex to offer crypto trading for Latin America, which we expect to launch in the fourth quarter of this year. We're working closely with our existing clients to bring our capabilities into the United Kingdom, European Union, Hong Kong, and Australia. While we're making solid progress on these efforts and hope to be live soon, as everything we do, we're being careful to ensure that we're following all of the rules and regulations in these markets. Our compliance-first focused approach is what differentiates us, and we do not make compromises with it. We think that we're getting close with expansion into additional markets, and I hope to share more with you soon.

Thanks for that, Gavin. Our final question from the Say platform will be from Jonathan P who asks, will Bakkt be a company that investors will look back on and be proud of having invested their hard-earned money into? Karen, this one is for you.

Sure, happy to take that on. Hopefully, you've gathered some of our strategic highlights for the quarter, a great amount of progress that we've made and the momentum that we're building. We're taking the platform that we've worked tirelessly to build and leveraging it to scale and grow. We've done the heavy lifting with the investments and the infrastructure build and the product development. Now it's our time to scale and grow. I truly believe that Bakkt is well positioned to succeed and win, and our teams work day and night to make that happen. I'm extremely proud to be a part of this organization. And with that, our shareholders will look back and be proud of all that we've accomplished. I know being an investor in our stock has not always been an easy journey, and I thank you for sticking with us. While we can't control all of the market and economic factors that have negatively impacted our stock, we will continue to control what we can to drive positive shareholder value. That includes disciplined expense management, balanced with strategic capital allocation in areas where there is a clear path to profitability.

Thanks, Karen. 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.

Our first question today comes from Trevor Williams from Jefferies.

Great. Maybe to start, Gavin, just would love your perspective on the regulatory environment, all the moving pieces? I know it's a very fluid month-to-month situation, but just maybe kind of the state of the union of how you guys view the regulatory environment, what you're expecting to come out of Congress. If anything, over the next 6 to 12 months, how some of the recent SEC actions in court cases, how many of that affects you guys? So would just love kind of your broader perspective on it.

Thanks for the question. I think when you look overall, it still is a tale of the U.S. versus what's happening outside of the U.S. In the U.S., the ripple decision has been a setback to the SEC with respect to some of the enforcement actions that we've seen against industry participants looking at unregistered securities. But as a whole, I think it will act as a catalyst for where we're going with Congress, and we'll start to see some movement. But the lack of clarity on how crypto should be regulated is still apparent. While I'm hopeful that Congress is paying attention to this, and I'm encouraged by the progress that we've seen, the market structure bill in the house is a good example. As I said, there's a long way to go before it or any of the other bills come for more. We continue to make our voice heard on Capitol Hill to encourage Congress to resolve the lack of clarity quickly. When we look outside of the U.S., I think we're seeing clarity coming to some of the markets that we've spoken about in our prepared remarks and ones that we're excited about, and we see the entry. But here in the U.S., we're still seeing ambiguity, and it's that lack of clarity that's forcing some of the participants to still sit back and continue to watch what's happening with that landscape because without the clarity, they're unsure about what their entry strategy should be.

That's helpful. It's good to see the cash burn decreasing slightly. Could you provide insight on the reallocation of priorities within your investment spending? Specifically, what areas have been deemphasized or emphasized in your updated expense outlook?

I can take that. Trevor, so I'm glad that you noticed that. We're making a lot of great progress in terms of reducing cash burn and being prudent with expenses. The trend that you see for the second quarter, that's going to continue. Our free cash flow for the second half of the year is going to be 70% to 80% less than what we had at the beginning of the year. A lot of that came through tough decisions that we had to make earlier in the year in terms of headcount reductions. But we're also at the point now where we've built a lot of the infrastructure and technology that we need to go to market. We are still investing in the crypto business, but we're being prudent with those additional investments, making sure that we're putting them where there's immediate product market fit. So one of the things that we talked about earlier in the presentation was custody. That's a great example of where the market is coming to us, recognizing what we can contribute with our platform, with our compliance-first approach, and our status as a Qualified Custodian. Custody is one of those areas where we're allocating capital because we see the return there. And we also continue to see the return in the opportunities on the crypto trading piece. Not only with our international opportunities, but as Gavin mentioned, we do see demand for the fiat rails that Bakkt historically has been able to provide. So that's another area where you'll see us continue to add capital. But with the actions that we took, those actions reset the operating expenses by $29 million in 2023 with an additional $7 million reduction in 2024. So we're really looking to have this reset expense base to drive future growth.

So it looks like you guys are definitely starting to make some strong progress across the board here. With regard to custody, just thinking from a modeling perspective, when do you think new customer growth should begin to translate to meaningful revenue there?

Yes, Andrew, it's Karen. In regard to our outlook for 2023, we haven’t separated the specifics between custody and trading. I can provide some insight on how we price our services. Generally, we use a pricing model that incorporates a base rate based on assets under custody as a minimum. Additionally, we generate incremental revenue from transaction activities like withdrawals and deposits. However, as Gavin mentioned, our offerings extend beyond traditional custody. For example, the backup key work we’re doing resembles a platform-based subscription model. Therefore, you can expect to see a mix of these elements as we enhance our services into 2024.

Got it. Okay. And Karen, you mentioned kind of an outperformance in trading relative to the broader market. There was some noted share shift during the quarter among some of your competitors. Can you talk about how you guys are looking at market share dynamics and if anything stands out for Bakkt broadly or particularly within some of the different Apex customer segments you guys have?

So I think when we look at our trading activity compared to what we've seen in the broader market, we have a customer base through the acquisition of Apex that is based in fintech. They are active equity traders, and we see a strong correlation between investors who are active equity traders and their propensity to trade in crypto as well. So comparatively, I think we have an investor base that is probably more active as they see market volatility. I believe that's one of the reasons that we received a little more durability. Our lows did not go as low as the market in general, and then we were able to revamp quickly. As you probably know, May was probably the worst month of the second quarter. I think everybody had a bad May, but our May was not nearly as bad as everybody else, and that's how importantly, our June rebounded faster than the market in general.

Okay. And just lastly, regarding the partnerships with rewards, I know those were asked before, just thinking about the cross-sell opportunities to some of your legacy Apex clients and if there's been any progress there? Have you seen interest from some of the clients that came over from Apex in your reward solutions?

Andrew, I'll take that one. We certainly see it in terms of the discussions that we're having. I mean, there's interest around the engagement that these platforms want to create with their customers. Obviously, they are highly engaged platforms because of the trading activity. What they're looking to do is to look at other ways in which they can potentially diversify their revenue streams or bring people back into their environment on a more frequent basis. We believe some of the reward propositions, particularly on the crypto rewards side, have the ability to do that. So there's definitely been strong discussions with some of those clients. We're hoping to see it turn into opportunity. But right now, their focus is on addressing and ensuring that their trading businesses work in the current backlog.

Great. Thank you. Given that Apex just closed this quarter, how should we be thinking about the take rate on the crypto transactions there?

This is Karen. That's a great question, especially considering the significant increase in crypto revenue. Our income statement is now reflecting substantial gross figures. I believe it would be helpful if I walked you through the statement of operations and explain our perspective on the take rate and its drivers. The majority of our gross crypto services revenue stems from the trading volume we generate with our customers. The crypto cost refers to the expenses associated with providing crypto services, net of the spread we charge. Additionally, we incur execution clearing and brokerage fees as we collaborate with our partners who connect clients to us. When combined, as I mentioned earlier in the call, the gross crypto services revenue minus these costs is the net contribution from crypto trading to our operations. To illustrate, in the second quarter, our take rate was approximately 38 basis points. This reflects the spread in the minimums on trading, adjusted for what we share with our partners, which is a natural outcome of our B2B2C strategy that efficiently reaches many customers. Moving forward, we'll discuss how the take rate fluctuates, as it can be affected by partner fee spreads and various profit-sharing arrangements that differ across tiers. That said, we've consistently seen it remain in the high 30s percentage for an extended period.

Great. Now obviously, there's been a lot of discussion on OpEx. It seems if you adjust for acquisition expense and crypto cost, your operating expenses seem to be coming down. What should we consider as a run rate for OpEx going forward? And any kind of color you can give me on the noncash accrual for acquisition stuff would be helpful as well.

In terms of OpEx, obviously, one of the biggest components is our compensation of benefits expense. So hopefully, the guidance that we provided earlier in terms of the impact of the decisions that we had made earlier in the year are coming down in the second half and you will see additional declines in that OpEx expense in 2024 when you get the full year impact of those decisions of about $7 million. As it relates to the accrual included in the acquisition expense, it's probably a little unusual, but you have to think back to the structure that we put in place when we bought Apex. There was the cash component of the purchase price and then there were stock earn-outs that were dependent on revenue performance over certain periods. What you're seeing there in that $10.4 million noncash accrual is GAAP requires us every quarter to fair value that contingent consideration, the stock consideration that will be paid out through 2024 and 2025 based on our expected outlook of the contribution that Apex Crypto's customer base has to our net revenue. Yes, the fact that we have an accrual is certainly not the whole $100 million potential stock compensation that they could get over 2023 and 2024 performance yet. But we see scenarios where some of that stock comp can get paid out. That’s what we’re accounting for, but that amount is going to change every quarter. And it’s going to take until year-end 2023 and year-end 2024, where we fix those amounts. And again, I remind you that this is not a cash expense; that is all stock earn-out.

It appears we have no further questions. I'd like to hand back to Ann to conclude.

Thank you, everyone, for attending our earnings call this morning. We look forward to connecting with you again soon. Take care.

Ladies and gentlemen, this concludes our event. You may now disconnect.