Bakkt, Inc. (Bakkt Holdings, Inc.) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are USD unless stated otherwise. Comparisons are between 2022 “Successor” and 2021 “Predecessor” periods; the October 2021 business combination means the periods are not fully comparable.
Business context
Bakkt provides crypto services, crypto rewards, digital-asset payments, and loyalty redemption. Loyalty redemption generated nearly all reported revenue: $13.4 million of Q2 2022 revenue. Digital asset marketplace revenue remained small.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net revenue | $13.6m | $8.5m | $26.1m | $16.6m |
| Operating loss | $(43.6)m | $(31.3)m | $(92.0)m | $(59.7)m |
| Net loss | $(27.6)m | $(31.9)m | $(71.0)m | $(60.7)m |
| Adjusted EBITDA, non-GAAP | $(29.6)m | $(24.9)m | $(58.5)m | $(41.7)m |
| Operating cash flow | — | $(60.4)m | $(18.7)m |
Q2 loss attributable to Bakkt Holdings, Inc. was $3.9 million; basic and diluted loss per share were $0.05. Six-month loss attributable to the company was $11.0 million; basic and diluted loss per share were $0.17 and $0.18, respectively.
At June 30, cash and cash equivalents were $126.8 million, restricted cash was $16.5 million, and available-for-sale U.S. Treasury securities were $188.7 million. Total current assets were $532.8 million and current liabilities were $220.1 million; these include matching $147.1 million crypto safeguarding asset and obligation balances. Total liabilities were $273.5 million. The filing reports no conventional borrowings on the balance sheet; warrant liability was $4.7 million.
Investing cash outflow was $203.9 million for the first half, including $189.2 million of Treasury purchases and $14.8 million of capitalized software and other capital expenditures. Cash, restricted cash, and customer funds together were $143.9 million at period end. The company has not achieved positive operating cash flow.
Material changes versus prior comparable periods
- Revenue rose 59.9% in Q2 and 57.0% for the first half. Growth came from increased loyalty redemption activity and new services for an existing loyalty customer; first-half transaction revenue also benefited from lower incentives and rebates.
- Operating expenses increased 43% in Q2 and 55% for the first half, with compensation, headcount, and non-cash compensation among the principal drivers. First-half compensation and benefits rose 97%.
- Adjusted EBITDA losses widened to $29.6 million in Q2 and $58.5 million for the first half, versus $24.9 million and $41.7 million, respectively.
- Q2 and first-half GAAP net losses include non-cash warrant remeasurement gains of $10.3 million and $12.7 million, respectively. These gains reduced reported losses but do not represent operating cash inflows.
- After the six-month lock-up expired, holders exchanged 17.6 million Opco units for Class A shares. Bakkt’s ownership of Opco increased to 29% at June 30, from 22% at December 31, 2021.
Outlook, risks, contingencies, and unusual items
- No specific revenue, earnings, or cash-flow guidance was provided. Management expects to continue investing in hiring, marketing, product development, and technology, and says additional capital could be needed depending on business needs and other factors.
- Management expects loyalty revenue to decline as a share of total revenue over time if crypto trading, payments, and subscription offerings grow. Those newer offerings had generated immaterial revenue to date.
- The company adopted SEC Staff Accounting Bulletin 121 retrospectively from January 1, 2022, recognizing $147.1 million each for cryptoassets held in custody and the corresponding safeguarding obligation. Bakkt says it does not own those assets, but notes that bankruptcy treatment is unsettled and fact-dependent.
- A putative securities class action filed in April 2022 alleges misleading disclosures relating to VIH’s financial statements, business, operations, and compliance policies in connection with the business combination. Bakkt intends to defend the case; the outcome cannot be predicted.
- The Tax Receivable Agreement gives eligible holders 85% of certain realized tax benefits. No liability was recorded because realization was not considered probable; potential payments were estimated to range from zero to $10.3 million at June 30, 2022.
- Purchasing-card arrangements include a $35 million Bank of America facility with a $7 million minimum liquidity requirement, and the prior facility required a $40 million month-end cash balance during its transition. Contractual purchase obligations were $20 million, principally for cloud computing; disclosed future minimum operating lease payments were $29.4 million.
- Other risks include digital-asset market volatility, evolving regulation, partner and user growth, competition, cybersecurity and safeguarding exposure. The company withdrew Bakkt Clearing’s CFTC registration and NFA membership, effective June 20, 2022.
Investor facts to verify
- Whether loyalty transaction growth can continue and diversify beyond the currently dominant loyalty business.
- Cash burn, operating expense growth, and the timing and scale of any need for external financing.
- How custody controls, insurance, and legal protections would operate in a loss event or bankruptcy.
- The status and potential financial impact of the securities litigation and Tax Receivable Agreement.
- How share-based compensation, Opco unit exchanges, and noncontrolling interests affect per-share results and dilution.