Business context and reporting period
Bakkt Holdings, Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2023. The company provides technology for crypto custody and transactions and loyalty redemption; loyalty generated nearly all reported revenue. Figures below are in U.S. dollars, generally millions unless noted.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Net revenue | $13.0 | $12.5; up 3.6% |
| Operating loss | $(45.4) | $(48.5) |
| Net loss | $(44.9) | $(43.3) |
| Net loss attributable to Bakkt | $(14.0) | $(7.1) |
| Adjusted EBITDA loss (non-GAAP) | $(28.9) | $(28.9), approximately unchanged |
| Operating cash flow | $(47.2) | $(33.2) |
| Cash and cash equivalents | $50.8 | $98.3 at Dec. 31, 2022 |
| Available-for-sale securities | $66.8 | $141.1 at Dec. 31, 2022 |
| Total liabilities | $115.1 | $119.4 at Dec. 31, 2022 |
Revenue comprised $7.5 million of transaction revenue and $5.5 million of subscription and service revenue. Loyalty redemption generated $12.8 million; crypto services generated $0.2 million. The filing does not present a gross margin. Operating expenses were $58.4 million. No conventional borrowings are listed on the balance sheet; the company does have operating lease liabilities and a $35 million purchasing-card facility, payable monthly without interest if paid when due. The filing does not state the facility’s outstanding balance.
At quarter-end, cash also included $19.3 million of restricted cash and $67.2 million held in escrow for the Apex Crypto acquisition; customer funds were $0.6 million. Treasury securities were expected to mature over the following three to six months. These restricted and escrowed balances should not be treated as freely available operating cash.
Material changes versus the prior comparable period
- Revenue rose 3.6%, primarily on higher loyalty redemption activity; transaction revenue increased $1.0 million, partly offset by a $0.5 million decline in subscription and service revenue.
- Operating expenses fell $2.6 million. Lower depreciation and amortization, professional services, and marketing costs were partly offset by $4.3 million of restructuring expense and higher technology costs.
- Net loss widened by $1.5 million, while loss attributable to Bakkt increased from $7.1 million to $14.0 million. The change included a $1.0 million noncash warrant-liability loss in 2023 versus a $2.4 million gain in 2022, and a substantially smaller income tax benefit.
- Operating cash use increased $14.1 million year over year, principally reflecting working-capital outflows, including lower accounts payable and accrued liabilities.
Outlook, management commentary, and risks
- Management expects 2023 cash usage, excluding the Apex acquisition purchase price, to decline from 2022 levels, citing expected revenue growth, expense reductions, and restructuring benefits. The filing provides no numerical earnings or revenue guidance.
- Management intends to limit future hiring and focus on core capabilities and B2B2C growth. It expects Apex Crypto to broaden partner reach, assets offered, and pricing competitiveness, but successful integration is a key dependency.
- Apex Crypto acquisition closed April 1, 2023, after quarter-end. Stated consideration included $55.0 million cash, approximately $9.1 million of stock, and $12.2 million for working capital and cash; up to $100 million of additional stock consideration may depend on targets through 2025. Purchase accounting remained preliminary. The filing says the company did not anticipate paying contingent consideration at the acquisition date.
- Q1 restructuring charges were $4.3 million, including severance and accelerated equity-award vesting. The company retired its direct-to-consumer app in Q1 and plans to focus marketing on B2B2C.
- Risks include continued operating cash burn, uncertain crypto markets and regulation, competition, and the need to integrate Apex. Apex had received SEC information requests before acquisition concerning its platform, asset listings, and business relationships; the outcome and potential impact could not be estimated.
- A securities class action settlement was agreed at $3.0 million, subject to court approval; the company expects insurance coverage less its retention. A related derivative action was filed in February 2023. Management stated ordinary-course proceedings were not expected to have a material adverse effect, but outcomes remain uncertain.
- The company reported $24.1 million of purchase commitments and $36.4 million of future minimum operating lease payments. It also stated that it has not achieved positive operating cash flow and may need additional capital or financing, which may not be available on acceptable terms.
Most important facts for investors to verify
- Liquidity available after excluding restricted cash and acquisition escrow, plus the pace of operating cash burn and Treasury maturities.
- Apex integration progress, realized revenue and cost benefits, final purchase accounting, and any contingent stock consideration.
- Developments in the SEC inquiry involving Apex and the approval and insurance recovery for the $3.0 million settlement, as well as the related derivative action.
- The filing reports Q1 2022 diluted loss per share as $(0.14) in the financial statements and notes, but $(0.12) in the MD&A comparison table; verify the intended comparative figure.
- Whether stated cash-use reductions and growth expectations materialize; these are forward-looking statements, not quantified guidance.