Bakkt, Inc. (Bakkt Holdings, Inc.) — Q2 2023 Form 10-Q
Business context and reporting period
Reports the quarter and six months ended June 30, 2023. Bakkt provides crypto trading and custody technology, alongside loyalty and rewards services. Results include Bakkt Crypto (formerly Apex Crypto) from its acquisition date, April 1, 2023; therefore, year-over-year comparisons are not like-for-like. The company had one reportable segment.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $347.6m | $14.0m | $360.8m | $27.1m |
| Operating loss | $51.1m | $43.6m | $96.5m | $92.0m |
| Net loss | $50.5m | $27.6m | $95.4m | $71.0m |
| Net loss attributable to Bakkt Holdings, Inc. | $16.8m | $3.9m | $30.8m | $11.0m |
| Adjusted EBITDA loss (non-GAAP) | $24.5m | $29.6m | $53.3m | $58.5m |
| Operating cash flow | Not separately provided for the quarter | $(78.5)m | $(60.4)m |
Q2 crypto services revenue was $335.3m, while crypto costs were $331.8m and execution, clearing and brokerage fees were $2.2m. Because Bakkt reports crypto trades gross as principal, the acquisition-driven revenue increase largely reflects trading volume and should not be read as equivalent growth in net economics. Loyalty services revenue was $12.3m, down from $13.4m. Q2 operating loss was approximately 14.7% of revenue.
At June 30, cash and cash equivalents were $84.5m, restricted cash $24.9m, and available-for-sale securities $14.9m. Total assets were $1,023.7m and total liabilities $763.9m. Liabilities include a $659.7m crypto safeguarding obligation matched by an equal safeguarding asset; these are customer assets and obligations, not conventional borrowings. No conventional debt balance is reported in the supplied filing text. Total equity was $259.9m.
Material changes versus the prior comparable period
- Revenue rose by $333.6m in Q2 and $333.7m for the six-month period, principally because Bakkt Crypto was consolidated from April 1, 2023. Crypto transaction revenue was $335.3m in Q2 versus $0.7m a year earlier.
- Operating expenses rose by $341.1m in Q2, mainly from crypto costs associated with the acquired trading business. The company remained loss-making; consolidated Q2 net loss increased by $22.9m year over year.
- Q2 Adjusted EBITDA loss improved by $5.1m year over year, which management attributed chiefly to lower contract labor and marketing costs. This non-GAAP measure excludes, among other items, acquisition and restructuring expenses and share-based compensation.
- Cash and cash equivalents declined from $98.3m at year-end 2022 to $84.5m. Available-for-sale securities fell from $141.1m to $14.9m, primarily reflecting maturities and use of funds.
Outlook, commentary, risks and unusual items
- Management expected 2023 cash usage, excluding the Bakkt Crypto purchase price, to decline from 2022, citing revenue growth, lower investment spending and restructuring. It planned to limit hiring and focus on activating crypto clients, product development and technology infrastructure. The filing does not provide quantified revenue, earnings or cash-flow guidance.
- Bakkt acquired Apex Crypto for reported total consideration of $79.2m, including cash, shares and estimated contingent consideration. Additional stock consideration of up to $100m may be payable subject to performance through 2025. The purchase-price allocation was preliminary. The fair value of contingent consideration reached $13.4m at June 30; the company recorded $10.4m of Q2 expense from remeasurement.
- Crypto-market volatility, reduced market liquidity, client activity, regulatory uncertainty and the legal classification of crypto assets pose risks. Following its review of acquired assets, Bakkt delisted or decided to delist a substantial majority of the crypto assets previously available on Bakkt Crypto’s platform, which could affect revenue, customer retention and expected acquisition benefits.
- Bakkt Crypto is responding to ongoing SEC document and information requests concerning its platform, asset listings and related matters. The company said the outcome and potential impact cannot currently be estimated.
- A securities class action settlement for $3.0m remained subject to court approval; the company expected insurance coverage less its retention. A related opt-out action was filed in June 2023. A related derivative action was dismissed in July 2023 without settlement or compromise.
- IFUS delisted most Bakkt Bitcoin futures and all Bakkt Bitcoin options effective July 28, 2023. The company did not expect a material effect on future financial performance and anticipated release of its $15.2m clearinghouse contribution after open interest closes.
- Management stated disclosure controls were effective. Bakkt Crypto was excluded from the internal-control assessment during integration; the filing cautions that future assessment could identify control deficiencies.
Important facts for investors to verify
- How much of acquired crypto revenue converts into durable net spread and contribution after crypto costs, brokerage fees and customer incentives.
- Whether the acquisition’s partner relationships, trading volumes and anticipated synergies persist, particularly after asset delistings.
- Cash burn, liquidity and regulatory capital restrictions; the company reported negative operating cash flow and stated future financing might be needed depending on business conditions.
- Progress and potential consequences of the SEC inquiry, crypto-asset regulation and pending litigation.
- Final acquisition accounting and contingent consideration, including performance-linked potential stock payments through 2025.
- Potential dilution: the filing lists 206.3m potential common shares excluded from diluted loss per share as anti-dilutive, including 181.2m Opco common units; these are not all equivalent to currently outstanding Class A shares.