Bakkt, Inc. — 2023 Form 10-K Summary
Business context and reporting period
Bakkt Holdings, Inc. reported for the fiscal year ended December 31, 2023. This is an annual filing; the supplied filing text does not provide a clear standalone set of fourth-quarter results. Bakkt provides business-to-business-to-consumer crypto trading and custody technology, alongside loyalty redemption services. The April 2023 acquisition of Apex Crypto, renamed Bakkt Crypto, materially changed the scale and mix of the business.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $780.1 million | $56.2 million |
| Crypto services revenue | $727.0 million | $1.7 million |
| Loyalty services revenue, net | $53.1 million | $54.5 million |
| Operating loss | $227.9 million | $2,018.9 million |
| Net loss | $225.8 million | $1,989.9 million |
| Adjusted EBITDA loss (non-GAAP) | $93.9 million | $119.7 million |
| Cash used in operating activities | $60.7 million | $117.6 million |
Crypto revenue and crypto costs are reported gross because Bakkt determined it acts as principal. Crypto costs were $718.5 million in 2023; revenue less those costs was approximately $61.6 million before other operating expenses, including $3.8 million of execution, clearing and brokerage fees. The resulting operating loss was approximately 29% of revenue. Loyalty revenue declined 2.4% year over year.
Operating expenses totaled $1,008.0 million, including $60.5 million of goodwill and intangible-asset impairment and $30.3 million of long-lived-asset impairment. The prior-year expense base included $1,822.1 million of goodwill and intangible impairments. Compensation and benefits fell 26.6% to $102.0 million, while technology and communication expense rose 22.0% to $20.8 million.
At December 31, 2023, cash and cash equivalents were $52.9 million, restricted cash $31.8 million, and available-for-sale securities $17.4 million. Bakkt reported no long-term debt. Current assets and current liabilities included matching safeguarding amounts of $701.6 million for customer crypto; these entries do not represent unrestricted company liquidity. Total equity was $135.7 million. Management said the March 2024 equity financings and planned operating measures were expected to alleviate substantial doubt about continuing as a going concern for at least 12 months from issuance of the financial statements, but also highlighted uncertainty around revenue growth and future funding.
Customer and operating indicators increased: crypto-enabled accounts were 6.2 million versus less than 0.1 million; monthly transacting accounts averaged 3.8 million versus 3.0 million; notional traded volume was $1,531.7 million versus $832.3 million; and assets under custody were $701.6 million versus $15.8 million.
Material changes versus the prior comparable period
- Revenue rose primarily because the acquired Bakkt Crypto platform contributed $725.9 million of revenue from acquisition close through year-end. The comparison is not fully like-for-like because Bakkt Crypto was not included in 2022 results.
- Operating and net losses narrowed substantially, principally because 2022 included much larger impairment charges; Bakkt nevertheless remained significantly loss-making.
- Operating cash use decreased by $56.9 million. Investing cash flow was positive $66.0 million, largely reflecting proceeds from securities maturities and sales, partly offset by the $47.9 million net cash acquisition of Bakkt Crypto. Financing cash flow was negative $2.6 million.
- Bakkt delisted 37 of 45 crypto assets historically available on the acquired platform, citing regulatory review. The company stated the delisted assets represented approximately 15% of Bakkt Crypto gross profit at acquisition and recognized approximately $27.6 million of transaction revenue associated with delisted assets on September 21, 2023.
- The company received approval in March 2024 to combine Bakkt Marketplace and Bakkt Crypto into one entity, intended to simplify operations and reduce regulatory capital and insurance requirements.
Outlook, risks, contingencies and unusual items
- Management expects 2024 operating cash usage, excluding acquisitions and other strategic initiatives, to decline from 2023, citing revenue growth, expense reductions and completion of major investments. It plans further expense and headcount actions. No numerical revenue or earnings guidance is provided.
- Growth plans include activating existing clients, adding customers, expanding crypto trading and custody, developing loyalty-to-bitcoin rewards, and pursuing selected international markets, subject to client demand and regulatory approvals. Bakkt Payouts, customer-to-customer transfers, staking and NFTs were indefinitely suspended or postponed.
- Revenue is concentrated in a small number of crypto clients: the top three accounted for approximately 86% of 2023 crypto revenue, and one client generated $529.6 million. Loyalty’s top three customers represented approximately 63% of 2023 net revenue.
- Regulatory uncertainty is substantial, particularly whether supported crypto assets may be deemed securities. Bakkt is responding to SEC information requests concerning the acquired platform, asset listings and related matters; the outcome and potential financial impact cannot be estimated from the filing.
- Other important risks include continued operating losses and cash needs, client concentration and attrition, crypto-market volatility, banking access, custody and cybersecurity risks, and the possibility of further asset impairments. The company reported $60.5 million of goodwill and intangible impairment in 2023 and said further declines in market capitalization or execution shortfalls could cause additional impairment.
- In March 2024, Bakkt raised approximately $40 million net in completed registered direct offerings, including approximately $37.6 million net from third-party investors and proceeds from an initial ICE closing. An additional ICE closing could provide $7.6 million gross, subject to stockholder approval and other conditions. The Bank of America purchasing-card facility was reduced from $35 million to $15 million in February 2024, with increased payment frequency and additional collateral requirements.
- The NYSE notified Bakkt on March 13, 2024 that its share price had failed the $1.00 average-price requirement. The company has six months to regain compliance and said it would consider alternatives, including a reverse stock split, subject to stockholder approval.
- CEO Gavin Michael resigned effective March 25, 2024; Andrew Main was appointed effective March 26. The filing describes severance and equity awards associated with the transition.
- The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the company excluded acquired Bakkt Crypto from its internal-control assessment, and the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether the remaining ICE financing closes, and the company’s updated unrestricted cash, restricted cash and cash-burn outlook.
- Whether Bakkt regains NYSE minimum-price compliance within the permitted period, and the consequences of any proposed remedy or dilution.
- Developments in the SEC inquiry and other regulatory requirements, including licensing and supported-asset decisions.
- Retention and activity of the largest crypto clients, and whether revenue concentration and crypto transaction economics improve.
- Progress in combining the crypto platforms, activating clients and delivering expected cost savings without disrupting service.
- Any subsequent impairment charges, custody or cybersecurity incidents, or changes in the treatment of customer crypto in insolvency proceedings.