Bakkt reports third quarter 2023 results

ALPHARETTA, Ga.--(BUSINESS WIRE)--Bakkt Holdings, Inc. (“Bakkt”) (NYSE: BKKT) announced its financial and operational results for the quarter ended September 30, 2023.

“This quarter we clearly demonstrated our ability to execute and strengthen our company despite highly challenging crypto market conditions,” said Gavin Michael, President and CEO of Bakkt. “Given headwinds facing the U.S. crypto industry, we made international expansion a key priority, successfully launching our crypto capabilities in Latin America and Spain, and we plan to go live in the United Kingdom, Hong Kong, Singapore and Australia by the end of this year. International markets will remain a key focus area for us with additional markets already in our pipeline. Our relentless focus on delivering for our clients enabled us to onboard and activate most of the new clients that we signed last quarter. We made strong traction broadening our crypto trading and custody network. We also further enhanced our secure custody platform, with the imminent relaunch of our custody solution followed by the expansion of the number of coins that we custody. Our leading platform and focused execution will continue to drive us to success.”

Recent Strategic Highlights

International expansion – Expanding with our clients 3.0verse and Hapi into new international markets with planned further expansion with IBEX. Our platform is currently live with certain clients in Latin America and Spain. We plan to further expand our crypto capabilities in the United Kingdom, Hong Kong, Singapore and Australia by year-end.

Crypto trading – Significant progress activating and broadening our client network including:

• Seamless execution for existing clients – Provided a swift and seamless onboarding and activation experience for recently signed crypto clients. We onboarded nearly all of the new clients that were signed in the prior quarter. Our time to activate is consistent with historical trends of ~45 days.
• Expansion of client base – Our advanced crypto trading capabilities continue to attract strong interest from new clients, which includes many crypto native institutions such as 3.0verse. OpenNode and Legend Trading also intend to utilize our advanced crypto trading capabilities.

Crypto custody – Our highly-regarded custody solution has been enhanced with the imminent relaunch of its core platform followed by additional coin support. We made strong progress expanding our platform and client network including:

• Relaunch of Bakkt® Custody– Ground up redevelopment of the Bakkt Trust custody solution is complete and launching this month. The foundational redevelopment adds key features such as segregated wallets, a flexible policy engine, and enables the rapid addition of future functionality.
• Expanding support for additional coins – An example of Bakkt® Custody’s enhanced functionality that the relaunch provides is the expansion of asset support, which will follow shortly after the release of the new platform. This release will expand custodial support from Bitcoin (BTC) and Ethereum (ETH) to create parity with our trading platform, adding Bitcoin Cash (BCH), Dogecoin (DOGE), Ethereum Classic (ETC), Litecoin (LTC), Shiba Inu (SHIB) and USD Coin (USDC), with more coins to come early next year.
• Expansion of client base – Our secure, reliable and trusted custody platform continues to benefit from a flight to quality and we made strong progress expanding our client network. Recently signed new clients include Unchained and LeboBTC. As we announced last week, we intend to join EDX’s clearing house and custodial network initially serving as a back-up qualified custodian. We have also received significant inbound client interest regarding our enhanced custody capabilities, which will be launched soon.

Lightning Network – As we drive crypto’s evolution towards increased utility, we are investing in the Lightning Network. We recently announced that we will be launching Lightning Services to select clients. Clients will be able to leverage these capabilities for cross-border remittances, B2B settlement, instantaneous deposits and withdrawals for trading, or global, interoperable P2P¹. We will be partnering with two leading Lightning Service Providers, Lightspark and IBEX, to build out a global network of compliant on and off-ramps. Additionally, we announced that we are a founding infrastructure provider for UMA, a new Universal Money Address standard aimed at simplifying sending money.

 ¹ Use cases are subject to applicable regulatory approvals.

Bakkt Third Quarter Financial Highlights (unaudited)

Third quarter 2023 results include Apex Crypto, which we acquired on April 1, 2023. In accordance with GAAP, we are presenting crypto services revenue and crypto costs and execution, clearing and brokerage fees on a gross basis since we are a principal in those transactions.

• Key performance indicators (including historical Apex Crypto data for comparison purposes):
  • Crypto enabled accounts of 6.1 million have continued to increase steadily.
  • Transacting accounts of 1.0 million decreased 13% year-over-year, due to industrywide slowdown in crypto activity.
  • Notional traded volume of $366.1 million decreased 45% year-over-year, due to industrywide decline in crypto trading volumes and lower hotel and rental car loyalty redemption activity.
  • Assets under custody of $505.7 million decreased 28% year-over-year, primarily due to lower coin quantities.
• Revenues of $204.8 million reflect a significant increase in gross crypto services revenues driven by our acquisition of Apex Crypto. Net loyalty revenues of $13.0 million increased 2% year-over-year driven by higher customer activity.

• Total operating expenses of $257.6 million reflect a significant increase in crypto costs and execution, clearing and brokerage fees driven by our acquisition of Apex Crypto. Third quarter expenses included a non-cash intangible assets impairment charge of $23.3 million. This charge was in accordance with generally accepted accounting principles and a result of lower revenue growth expectations for the loyalty business.
• Operating loss of $52.9 million decreased year-over-year due to larger goodwill and intangible assets impairments recorded in the prior year.
• Net loss of $51.7 million decreased year-over-year.
• Adjusted EBITDA loss (non-GAAP) of $21.6 million decreased 30% year-over-year primarily due to a reduction in compensation and benefits costs.

Updated Full Year 2023 Outlook

We are updating our full year 2023 guidance to reflect the current market environment:

• Full year 2023 revenues expected to be ~$750 million - ~$1,268 million; includes gross crypto revenues of ~$697 million - ~$1,215 million and net loyalty revenues of ~$53 million.
• Full year 2023 crypto costs expected to be ~$693 million - ~$1,208 million, in line with gross crypto revenues.
• Full year 2023 net cash used in operating activities expected to be ~($86 million) – ~($89 million). Prior full year 2023 guidance of ($78 million) - ($84 million).
• Full year 2023 free cash flow (non-GAAP) expected to be ~($99 million) - ~($102 million). Prior full year 2023 guidance of ($90 million) - ($96 million). Change in guidance reflects lower revenue partially offset by reductions in operating expenses.

Preliminary Full Year 2024 Outlook

• Full year 2024 revenues expected to be ~$3,461 million - ~$9,071 million; includes gross crypto revenues of ~$3,406 million - ~$9,015 million and net loyalty revenues of ~$55 million.
• Full year 2024 crypto costs expected to be ~$3,386 million - ~$8,976 million, in line with gross crypto revenues.
• Full year 2024 net cash used in operating activities expected to be ~($35 million) – ~($55 million).
• Full year 2024 free cash flow (non-GAAP) expected to be ~($43 million) - ~($63 million).
• Expect to be approximately breakeven on an adjusted EBITDA basis by end of 2024.

Webcast and Conference Call Information

Bakkt will host a conference call at 9:00 AM ET, November 14, 2023. The live webcast of Bakkt’s earnings conference call can be accessed at https://investors.bakkt.com, along with the earnings press release and accompanying slide presentation. Investors and analysts interested in participating in the call are invited to dial (833) 470-1428 or (404) 975-4839, and reference participant access code 178790 approximately ten minutes prior to the start of the call. A replay will be available promptly after the call and can be accessed by dialing (866) 813-9403 and entering the access code 984736. The replay will be available through December 11, 2023.