UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended September 30, 2021
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from
to
to
Commission File Number: 001-39544
BAKKT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 98-1550750 | |||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||
10000 Avalon Boulevard, Suite 1000 Alpharetta, Georgia | 30009 | |||||
(Address of principal executive offices) | (Zip Code) | |||||
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading | Name of each exchange on which registered | ||||||||||||
Class A Common Stock, par value $0.0001 per share | BKKT | The New York Stock Exchange | ||||||||||||
Warrants to purchase Class A Common Stock | BKKT WS | The New York Stock Exchange | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and “emerging growth company” in Rule12b-2oftheRule 12b-2 of the Exchange Act.
non-accelerated
filer,| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||||||||||||||||||
| Emerging growth company | ☒ | |||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined inRule12b-2ofthein Rule 12b-2 of the Exchange Act). Yes ☒.Yes ☐ No ☐☒
As of November30, 2021,May 6, 2022, there were 57,164,26675,267,422 shares of the registrant’s Class A common stock, $0.0001 par value188,464,933 shares of Class V common stock, and 7,140,829 public warrants issued and outstanding.
Table of Contents
Page | |||||||||||
PART | |||||||||||
Item 1. | (Unaudited) | ||||||||||
| Item 5. | |||||||||||
| Item 6. | |||||||||||
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Unless the context otherwise requires, all references to “Bakkt,” “we,” “us,” “our,” or the “Company” in this Quarterly Report on Form 10-Q (this “Report”) refer to Bakkt Holdings, Inc. and its subsidiaries.
The Company makes forward-looking statements in this Report and in documents incorporated herein by reference. All statements, other than statements of present or historical fact included in or incorporated by reference in this Report, regarding the Company’s future financial performance, as well as the Company’s strategy, future operations, financial position, estimated revenues, and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would,” the negative of such terms, and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations, assumptions, hopes, beliefs, intentions and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. The Company cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of the Company and incident to its business. Forward-looking statements in this Report may include, for example, statements about:
• our future financial performance;
• changes in the market for our products and services; and
• expansion plans and opportunities.
These forward-looking statements are based on information available as of the date of this Report and management’s current expectations, forecasts and assumptions, and involve a number of judgments, known and/ or unknown risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable law.
You should not place undue reliance on these forward-looking statements. Should one or more of a number of known and unknown risks and uncertainties materialize, or should any of our assumptions prove incorrect, our actual results or performance may be materially different from those expressed or implied by these forward- looking statements. Some factors that could cause actual results to differ include, but are not limited to:
• our ability to grow and manage growth profitably;
• changes in the market in which we compete, including with respect to our competitive landscape, technology evolution or changes in applicable laws or regulations;
• changes in the digital asset markets that we target;
• changes to our relationships within the payment ecosystem;
• the inability to launch new services and products or to profitably expand into new markets and services;
• the inability to execute our growth strategies, including identifying and executing acquisitions and our initiatives to add new partners and customers;
• the inability to develop and maintain effective internal controls and procedures;
• the exposure to any liability, protracted and costly litigation or reputational damage relating to our data security;
• the possibility that we may be adversely affected by other economic, business, and/or competitive factors;
• the impact of the novel coronavirus pandemic;
• our inability to maintain the listing of our securities on the NYSE; and
• other risks and uncertainties indicated in this Report, including those set forth under “RiskFactors.”
3
September 30, 2021 | December 31, 2020 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 708,642 | $ | 1,177,678 | ||||
Prepaid expenses | 134,813 | 234,959 | ||||||
Total Current Assets | 843,455 | 1,412,637 | ||||||
Cash and investments held in Trust Account | 207,396,111 | 207,376,213 | ||||||
TOTAL ASSETS | $ | 208,239,566 | $ | 208,788,850 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
Liabilities | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 6,144,562 | $ | 893,415 | ||||
Accrued offering costs | 0 | 2,230 | ||||||
Total Current Liabilities | 6,144,562 | 895,645 | ||||||
Warrant liabilities | 29,599,970 | 22,513,065 | ||||||
Deferred underwriting fee payable | 7,258,021 | 7,258,021 | ||||||
Total Liabilities | 43,002,553 | 30,666,731 | ||||||
Commitments and Contingencies | 0 | 0 | ||||||
Class A ordinary shares subject to possible redemption, 20,737,202 shares at $10.00 per share as of September 30, 2021 and December 31, 2020 | 207,372,020 | 207,372,020 | ||||||
Shareholders’ Deficit | ||||||||
Preference shares, $0.0001 par value; 1,000,000 shares authorized; 0shares issued and outstanding | 0 | 0 | ||||||
Class A ordinary shares, $0.0001 par value; 200,000,000 shares authorized at September 30, 2021 and December 31, 2020 | 0 | 0 | ||||||
Class B ordinary shares, $0.0001 par value; 20,000,000 shares authorized; 5,184,300 shares issued and outstanding at September 30, 2021 and December 31, 2020 | 518 | 518 | ||||||
Additional paid-in capital | 0 | 0 | ||||||
Accumulated deficit | (42,135,525 | ) | (29,250,419 | ) | ||||
Total Shareholders’ Deficit | (42,135,007 | ) | (29,249,901 | ) | ||||
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | 208,239,566 | $ | 208,788,850 | ||||
Item 1. Financial Statements.
Bakkt Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except unit data)
| Successor | |||||||||||
As of March 31, 2022 (Unaudited) | As of December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 355,196 | $ | 391,364 | |||||||
| Restricted cash | 16,500 | 16,500 | |||||||||
| Customer funds | 630 | 551 | |||||||||
| Accounts receivable, net | 19,458 | 18,142 | |||||||||
| Prepaid insurance | 27,863 | 32,206 | |||||||||
| Other current assets | 8,395 | 4,784 | |||||||||
| Total current assets | 428,042 | 463,547 | |||||||||
| Property, equipment and software, net | 10,679 | 6,121 | |||||||||
| Goodwill | 1,527,119 | 1,527,118 | |||||||||
| Intangible assets, net | 383,091 | 388,469 | |||||||||
| Deposits with clearinghouse, noncurrent | 15,151 | 15,151 | |||||||||
| Other assets | 19,917 | 13,879 | |||||||||
| Total assets | $ | 2,383,999 | $ | 2,414,285 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 64,321 | $ | 64,090 | |||||||
| Customer funds payable | 630 | 551 | |||||||||
| Deferred revenue, current | 4,385 | 4,629 | |||||||||
| Due to related party | 367 | 617 | |||||||||
| Other current liabilities | 3,193 | 3,717 | |||||||||
| Total current liabilities | 72,896 | 73,604 | |||||||||
| Deferred revenue, noncurrent | 4,120 | 4,819 | |||||||||
| Warrant liability | 14,996 | 17,424 | |||||||||
| Deferred tax liabilities, net | 8,449 | 11,593 | |||||||||
| Other noncurrent liabilities | 18,251 | 12,674 | |||||||||
| Total liabilities | 118,712 | 120,114 | |||||||||
| Commitments and Contingencies (Note 13) | 0 | 0 | |||||||||
| Class A common stock ($0.0001 par value, 750,000,000 shares authorized, 57,164,488 shares issued and outstanding as of March 31, 2022 and 57,164,388 shares issued and outstanding as of December 31, 2021) | 6 | 6 | |||||||||
| Class V common stock ($0.0001 par value, 250,000,000 shares authorized; 206,003,270 shares issued and outstanding as of March 31, 2022 and 206,271,792 shares issued and outstanding as of December 31, 2021) | 21 | 21 | |||||||||
| Additional paid-in capital | 579,957 | 566,766 | |||||||||
| Accumulated other comprehensive loss | (14) | (55) | |||||||||
| Accumulated deficit | (105,470) | (98,342) | |||||||||
| Total stockholders’ equity | 474,500 | 468,396 | |||||||||
| Noncontrolling interest | 1,790,787 | 1,825,775 | |||||||||
| Total equity | 2,265,287 | 2,294,171 | |||||||||
| Total liabilities and stockholders’ equity | $ | 2,383,999 | $ | 2,414,285 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
statementsBakkt Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
| Successor | Predecessor | |||||||||||||
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||
| Revenues: | ||||||||||||||
Net revenues (includes related party net revenues of $20 and affiliate net revenues of $(26), respectively) (1) | $ | 12,532 | $ | 8,145 | ||||||||||
| Operating expenses: | ||||||||||||||
| Compensation and benefits | 35,088 | 15,233 | ||||||||||||
| Professional services | 4,675 | 913 | ||||||||||||
| Technology and communication | 4,358 | 2,786 | ||||||||||||
| Selling, general and administrative | 9,435 | 6,109 | ||||||||||||
| Acquisition-related expenses | 516 | 7,820 | ||||||||||||
| Depreciation and amortization | 5,851 | 2,794 | ||||||||||||
Related party expenses (affiliate in Predecessor period) (1) | 367 | 471 | ||||||||||||
| Other operating expenses | 728 | 429 | ||||||||||||
| Total operating expenses | 61,018 | 36,555 | ||||||||||||
| Operating loss | (48,486) | (28,410) | ||||||||||||
| Interest income (expense), net | 61 | (49) | ||||||||||||
| Gain from change in fair value of warrant liability | 2,428 | — | ||||||||||||
| Other expense, net | (462) | (338) | ||||||||||||
| Loss before income taxes | (46,459) | (28,797) | ||||||||||||
| Income tax benefit (expense) | 3,138 | (23) | ||||||||||||
| Net loss | (43,321) | $ | (28,820) | |||||||||||
| Less: Net loss attributable to noncontrolling interest | (36,193) | |||||||||||||
| Net loss attributable to Bakkt Holdings, Inc. | $ | (7,128) | ||||||||||||
| Net loss per share attributable to Bakkt Holdings, Inc. | ||||||||||||||
| Class A common stockholders per share: | ||||||||||||||
| Basic | $ | (0.12) | (2) | |||||||||||
| Diluted | $ | (0.14) | (2) | |||||||||||
(1)As a result of the Business Combination, ICE and its affiliates are no longer our affiliates. Refer to Note 7 for our related party disclosures.
(2)Basic and diluted loss per share is not presented for the Predecessor period due to lack of comparability with the Successor period.
The accompanying notes are an integral part of these consolidated financial statements.
Bakkt Holdings, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
(Unaudited)
| Successor | Predecessor | |||||||||||||
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||
| Net loss | $ | (43,321) | $ | (28,820) | ||||||||||
| Currency translation adjustment, net of tax | 188 | 79 | ||||||||||||
| Comprehensive loss | $ | (43,133) | $ | (28,741) | ||||||||||
| Comprehensive loss attributable to noncontrolling interest | (36,046) | |||||||||||||
| Comprehensive loss attributable to Bakkt Holdings, Inc. | $ | (7,087) | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
For The Three Months Ended September 30, | Nine months Ended September 30, | For the Period from July 31, 2020 (Inception) through September 30, | ||||||||||
2021 | 2021 | 2020 | ||||||||||
General and administrative expenses | $ | 2,241,776 | $ | 5,822,575 | $ | 17,543 | ||||||
Loss from operations | (2,241,776 | ) | (5,822,575 | ) | (17,543 | ) | ||||||
Other income (expense): | ||||||||||||
Other Income | — | 4,476 | — | |||||||||
Interest earned on investments held in Trust Account | 2,669 | 19,898 | 164 | |||||||||
Change in fair value of warrant liabilities | 1,755,959 | (7,086,905 | ) | (2,260,000 | ) | |||||||
Offering costs—warrants | — | — | (754,990 | ) | ||||||||
Total other income (expense), net | 1,758,628 | (7,062,531 | ) | (3,014,826 | ) | |||||||
Net loss | $ | (483,148 | ) | $ | (12,885,106 | ) | $ | (3,032,369 | ) | |||
Weighted average shares outstanding of Class A ordinary shares | 20,737,202 | 20,737,202 | 3,870,968 | |||||||||
Basic and diluted net loss per share, Class A | $ | (0.02 | ) | $ | (0.50 | ) | $ | (0.34 | ) | |||
| Weighted average shares outstanding of Class B ordinary shares | 5,184,300 | 5,184,300 | 5,000,000 | |||||||||
Basic and diluted net loss per share, Class B | $ | (0.02 | ) | $ | (0.50 | ) | $ | (0.34 | ) | |||
Bakkt Holdings, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Successor)
(in thousands, except unit data)
(Unaudited)
| Class A Common Stock | Class V Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | Noncontrolling Interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | $ | Shares | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 57,164,388 | $ | 6 | 206,271,792 | $ | 21 | $ | 566,766 | $ | (98,342) | $ | (55) | $ | 468,396 | $ | 1,825,775 | $ | 2,294,171 | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation (Note 10) | — | — | — | — | 13,190 | — | — | 13,190 | — | 13,190 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Unit-based compensation (Note 10) | — | — | — | — | — | — | — | — | 1,118 | 1,118 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Forfeiture and cancellation of common units (Note 10) | — | — | (268,522) | — | — | — | — | — | (60) | (60) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants (Note 8) | 100 | — | — | — | 1 | — | — | 1 | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net of tax | — | — | — | — | — | — | 41 | 41 | 147 | 188 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (7,128) | — | (7,128) | (36,193) | (43,321) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | 57,164,488 | $ | 6 | 206,003,270 | $ | 21 | $ | 579,957 | $ | (105,470) | $ | (14) | $ | 474,500 | $ | 1,790,787 | $ | 2,265,287 | |||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Class A Ordinary Shares | Class B Ordinary Shares | Additional Paid-in Capital | Accumulated Deficit | Total Shareholders’ Deficit | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance – January 1, 2021, as restated (see Note 2) | 0 | $ | 0 | 5,184,300 | $ | 518 | $ | 0 | $ | (29,250,419 | ) | $ | (29,249,901 | ) | ||||||||||||||
Net loss | — | — | — | 0 | 0 | (33,671,616 | ) | (33,671,616 | ) | |||||||||||||||||||
Balance – March 31, 2021, as restated (see Note 2) | 0 | $ | 0 | 5,184,300 | $ | 518 | $ | 0 | $ | (62,922,035 | ) | $ | (62,921,517 | ) | ||||||||||||||
Net income | — | — | — | 0 | 0 | 21,269,658 | 21,269,658 | |||||||||||||||||||||
Balance – June 30, 2021, as restated (see Note 2) | 0 | $ | 0 | 5,184,300 | $ | 518 | $ | 0 | $ | (41,652,377 | ) | $ | (41,651,859 | ) | ||||||||||||||
Net loss | — | — | — | 0 | 0 | (483,148 | ) | (483,148 | ) | |||||||||||||||||||
Balance – September 30, 2021 | 0 | $ | 0 | 5,184,300 | $ | 518 | $ | 0 | $ | (42,135,525 | ) | $ | (42,135,007 | ) | ||||||||||||||
| Class A Voting Units | Class B Voting Units | Class B Warrant | Class C Voting Units | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Member's Equity | Incentive Units | Total Mezzanine Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Units | $ | Units | $ | Warrants | $ | Units | $ | Units | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 400,000,000 | $ | 2,613 | 182,500,000 | $ | 182,500 | — | $ | 5,426 | 270,270,270 | $ | 310,104 | $ | (112,504) | $ | 191 | $ | 388,330 | — | $ | 21,452 | $ | 21,452 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Class A voting units (Note 9) | — | 110 | — | — | — | — | — | — | — | — | 110 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unit-based incentive compensation (Note 10) | — | — | — | — | — | — | — | — | — | — | — | — | 870 | 870 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net of tax | — | — | — | — | — | — | — | — | — | 79 | 79 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | (28,820) | — | (28,820) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | 400,000,000 | $ | 2,723 | 182,500,000 | $ | 182,500 | — | $ | 5,426 | 270,270,270 | $ | 310,104 | $ | (141,324) | $ | 270 | $ | 359,699 | — | $ | 22,322 | $ | 22,322 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A Ordinary Shares | Class B Ordinary Shares | Additional Paid-in Capital | Accumulated Deficit | Total Shareholders’ Deficit | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance – July 31, 2020 (inception) | 0 | $ | 0 | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||
Issuance of Class B ordinary shares to Sponsor | — | — | 5,750,000 | 575 | 24,425 | — | 25,000 | |||||||||||||||||||||
Accretion | 0 | (24,425 | ) | (23,521,731 | ) | (23,546,156 | ) | |||||||||||||||||||||
Forfeiture of Founder Shares | — | — | (565,700 | ) | (57 | ) | 57 | — | ||||||||||||||||||||
Net loss | — | — | — | — | — | (3,032,369 | ) | (3,032,369 | ) | |||||||||||||||||||
Balance – September 30, 2020, as restated (see Note 2) | 0 | $ | 0 | 5,184,300 | $ | 518 | $ | 0 | $ | (26,554,043 | ) | $ | (26,553,525 | ) | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Bakkt Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Successor | Predecessor | ||||||||||||||||
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | ||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net loss | $ | (43,321) | $ | (28,820) | |||||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||||||
| Depreciation and amortization | 5,851 | 2,761 | |||||||||||||||
| Non-cash lease expense | 334 | 365 | |||||||||||||||
| Share-based compensation expense (Note 10) | 13,190 | — | |||||||||||||||
| Unit-based compensation expense (Note 10) | 157 | 1,256 | |||||||||||||||
| Recognition of affiliate capital contribution (Note 7) | — | 110 | |||||||||||||||
| Amortization of customer consideration asset (Note 9) | — | 581 | |||||||||||||||
| Deferred income tax benefit | (3,144) | — | |||||||||||||||
| Impairment of long-lived assets | — | 57 | |||||||||||||||
| Gain from change in fair value of warrant liability | (2,428) | — | |||||||||||||||
| Cancellation of common units (Note 10) | (60) | — | |||||||||||||||
| Other | 280 | 226 | |||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Accounts receivable | (1,316) | 99 | |||||||||||||||
| Prepaid insurance | 4,343 | 348 | |||||||||||||||
| Deposits with clearinghouse affiliate | — | 20,409 | |||||||||||||||
| Accounts payable and accrued liabilities | (1,683) | 2,900 | |||||||||||||||
Due to related party (affiliate in Predecessor period) (1) | (250) | (1,981) | |||||||||||||||
| Deferred revenues | (943) | (241) | |||||||||||||||
| Operating lease liabilities. | 79 | (321) | |||||||||||||||
| Customer funds payable | 79 | 133 | |||||||||||||||
| Other assets and liabilities (Note 10) | (4,324) | 1,144 | |||||||||||||||
| Net cash used in operating activities | (33,156) | (974) | |||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Capitalized internal-use software development costs and other capital expenditures | (3,122) | (4,054) | |||||||||||||||
| Net cash used in investing activities | (3,122) | (4,054) | |||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Payment of finance lease liability | — | (31) | |||||||||||||||
| Proceeds from the exercise of warrants (Note 8) | 1 | — | |||||||||||||||
| Net cash provided by (used in) financing activities | 1 | (31) | |||||||||||||||
| Effect of exchange rate changes | 188 | 79 | |||||||||||||||
| Net decrease in cash, cash equivalents, restricted cash and customer funds | (36,089) | (4,980) | |||||||||||||||
| Cash, cash equivalents, restricted cash and customer funds at the beginning of the period | 408,415 | 91,943 | |||||||||||||||
| Cash, cash equivalents, restricted cash and customer funds at the end of the period | $ | 372,326 | $ | 86,963 | |||||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||||||||
| Cash paid for income taxes | $ | — | $ | — | |||||||||||||
| Non-cash operating lease right-of-use asset acquired | 5,696 | — | |||||||||||||||
| Supplemental disclosure of non-cash investing and financing activity: | |||||||||||||||||
| Issuance of Class A voting units in exchange of capital contribution (Note 9) | $ | — | $ | 110 | |||||||||||||
| Capitalized internal-use software development costs and other capital expenditures included in accounts payable and accrued liabilities. | 1,909 | 1,810 | |||||||||||||||
| Reconciliation of cash, cash equivalents, restricted cash and customer funds to consolidated balance sheet: | |||||||||||||||||
| Cash and cash equivalents | $ | 355,196 | $ | 70,248 | |||||||||||||
| Restricted cash | 16,500 | 16,500 | |||||||||||||||
| Customer funds | 630 | 215 | |||||||||||||||
| Total cash, cash equivalents, restricted cash and customer funds | $ | 372,326 | $ | 86,963 | |||||||||||||
(1)As a result of the Business Combination, ICE and its affiliates are no longer our affiliates. Refer to Note 7 for our related party disclosures.
Nine months Ended September 30, 20 21 | For the Period from July 31, 2020 (Inception) Through September 30, 2020 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (12,885,106 | ) | $ | (3,032,369 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Change in fair value of warrant liabilities | 7,086,905 | 2,260,000 | ||||||
Formation cost paid by Sponsor in exchange for issuance of founder shares | — | 6,606 | ||||||
Interest earned on investments held in Trust Account | (19,898 | ) | (164 | ) | ||||
Transaction costs allocated to warrants | — | 754,990 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | 100,146 | (278,363 | ) | |||||
Accounts payable and accrued expenses | 5,248,917 | 0 | ||||||
Net cash used in operating activities | (469,036 | ) | (289,300 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Investment of cash into T rust Account | — | (200,000,000 | ) | |||||
Net cash used in investing activities | — | (200,000,000 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from sale of Units, net of underwriting discount paid | — | 196,000,000 | ||||||
Proceeds from sale of Private Placement Units | — | 6,000,000 | ||||||
Payment of offering costs | — | (397,793 | ) | |||||
Repayment of promissory note – related party | — | (82,729 | ) | |||||
Net cash provided by financing activities | — | 201,519,478 | ||||||
Net Change in Cash | (469,036 | ) | 1,230,178 | |||||
Cash – Beginning of period | 1,177,678 | 0 | ||||||
Cash – End of period | $ | 708,642 | $ | 1,230,178 | ||||
Non-Cash investing and financing activities: | ||||||||
Offering costs included in accrued offering costs | $ | — | $ | 2,230 | ||||
Offering costs paid by Sponsor in exchange for issuance of founder shares | $ | — | $ | 18,394 | ||||
Offering costs paid through promissory note | $ | — | $ | 82,729 | ||||
Initial classification of Class A ordinary shares subject to possible redemption | $ | — | $ | 207,372,020 | ||||
Deferred underwriting fee payable | $ | — | $ | 7,000,000 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
statements.(Unaudited)
1.Organization and Description of Business
Organization
VPC Impact Acquisition Holdings (the “Company”(“VIH”) iswas a blank check company incorporated as a Cayman Islands exempted company on July 31, 2020. The CompanyVIH was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (a “Business Combination”entities. VIH’s sponsor was VPC Impact Acquisition Holdings Sponsor, LLC (the “Sponsor”).
The registration statement for the Company’sVIH’s Initial Public Offering was declared effective on September 22, 2020. On September 25, 2020, the CompanyVIH consummated the Initial Public Offering of 20,000,000 units (the “Units” and, with respect to the Class A ordinary shares included in the Units sold, the “Public Shares”), generating gross proceeds of $200,000,000 which is described in Note 4.
$200.0 million. Simultaneously with the closing of the Initial Public Offering, the CompanyVIH consummated the sale of 6,000,000 warrants (the “Private Placement Warrants”“private placement warrants”) at a price of $1.00 per Private Placement Warrant in a private placement to VPC Impact Acquisition Holdingsthe Sponsor, LLC (the “Sponsor”), generating gross proceeds of $6,000,000, which is described in Note 5.
$6.0 million. On September 29, 2020, the underwriters notified the CompanyVIH of their intention to partially exercise their over-allotment option on October 1, 2020. As such, on October 1, 2020, the CompanyVIH consummated the sale of an additional 737,202 Units, at $10.00 per Unit, and the sale of an additional 147,440 Private Placement Warrants,private placement warrants, at $1.00 per Private Warrant, generating total gross proceeds of $7,519,460.
Following the closing of the Initial Public Offering on September 25, 2020 and the partial exercise of the underwriter’s over-allotment on October 1, 2020, an amount of $207,372,020approximately $207.4 million ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrantsprivate placement warrants, net of transaction costs, was placed in a trust account (the “Trust Account”).
On October 15, 2021 (the “Closing Date”), VIH and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940,Bakkt Opco Holdings, LLC (then known as amendedBakkt Holdings, LLC, "Opco") and its operating subsidiaries consummated a business combination (the “Investment Company Act”“Business Combination”), with a maturity of 185 days or less, or in any open-ended investment company that holds itself out as a money market fund investing solely in U.S. Treasuries and meeting certain conditions underRule 2a-7ofthe Investment Company Act, as determined contemplated by the Company, untilAgreement and Plan of Merger entered into on January 11, 2021 (as amended, the earliest of: (i)“Merger Agreement”). In connection with the completion of a Business Combination, VIH changed its name to “Bakkt Holdings, Inc.” and changed its jurisdiction of incorporation from the Cayman Islands to the State of Delaware (the “Domestication”).
Unless the context otherwise provides, “we,” “us,” “our,” “Bakkt,” the “Company” and like terms refer (i) prior to the Closing Date, to Opco and its subsidiaries and (ii) after the distribution ofClosing Date, to Bakkt Holdings, Inc. and its subsidiaries, including Opco.
Immediately following the fundsDomestication, we became organized in the Trust Account to the Company’s shareholders, as described below.
In connection with the preparationBusiness Combination, a portion of the Company’s financial statements asVIH shares were exchanged for cash for shareholders who elected to execute their redemption right. The remaining VIH shares were exchanged for newly issued shares of September 30, 2021, management determined it should restate its previously reported financial statements. The Company determined, at the closing of the Company’s Initial Public Offering and shares sold pursuant to the exercise of the underwriters’ overallotment, it had improperly valued itsour Class A ordinarycommon stock. Additionally, all outstanding membership interests and rights to acquire membership interests in Opco were exchanged for Opco common units and an equal number of newly issued shares subject to possible redemption.of our Class V common stock. The Company previously determined the Class A ordinary shares subject to possible redemption to be equal to the redemption valueexisting owners of
As Previously Reported | Adjustment | As Restated | ||||||||||
Balance Sheet as of March 31, 2021 (unaudited) | ||||||||||||
Class A ordinary shares subject to possible redemption | $ | 139,450,500 | $ | 67,921,520 | $ | 207,372,020 | ||||||
Class A ordinary shares | $ | 679 | $ | (679 | ) | $ | — | |||||
Additional paid-in capital | $ | 43,531,612 | $ | (43,531,612 | ) | $ | — | |||||
Accumulated deficit | $ | (38,532,806 | ) | $ | (24,389,229 | ) | $ | (62,922,035 | ) | |||
Total shareholders’ equity (deficit) | $ | 5,000,003 | $ | (67,921,520 | ) | $ | (62,921,517 | ) | ||||
Number of shares subject to redemption | 13,945,050 | 6,792,152 | 20,737,202 | |||||||||
Balance Sheet as of June 30, 2021 (unaudited) | ||||||||||||
Class A ordinary shares subject to possible redemption | $ | 160,720,160 | $ | 46,651,860 | $ | 207,372,020 | ||||||
Class A ordinary shares | $ | 467 | $ | (467 | ) | $ | — | |||||
Additional paid-in capital | $ | 22,262,164 | $ | (22,262,164 | ) | $ | — | |||||
Accumulated deficit | $ | (17,263,148 | ) | $ | (24,389,229 | ) | $ | (41,652,377 | ) | |||
Total shareholders’ equity (deficit) | $ | 5,000,001 | $ | (46,651,860 | ) | $ | (41,651,859 | ) | ||||
Number of shares subject to redemption | 16,072,016 | 4,665,186 | 20,737,202 | |||||||||
Statement of Cash Flows for the three months ended March 31, 2021 (unaudited) | ||||||||||||
Change in value of Class A ordinary shares subject to possible redemption | $ | 33,671,610 | $ | (33,671,610 | ) | $ | — | |||||
Statement of Cash Flows for the six months ended June 30, 2021 (unaudited) | ||||||||||||
Change in value of Class A ordinary shares subject to possible redemption | $ | (12,401,950 | ) | $ | 12,401,950 | $ | — | |||||
Statement of Operation for the three months ended March 31, 2021 (unaudited) | ||||||||||||
Weighted average shares outstanding, Class A ordinary shares | 20,737,202 | — | 20,737,202 | |||||||||
Basic and diluted net income per share, Class A ordinary shares | $ | — | $ | (1.30 | ) | $ | (1.30 | ) | ||||
Weighted average shares outstanding, Class B ordinary shares | 5,184,300 | 0 | 5,184,300 | |||||||||
Basic and diluted net loss per share, Class B ordinary shares | $ | (6.50 | ) | $ | 5.20 | $ | (1.30 | ) | ||||
Statement of Operation for the three months ended June 30, 2021 (unaudited) | ||||||||||||
Weighted average shares outstanding, Class A ordinary shares | 20,737,202 | — | 20,737,202 | |||||||||
Basic and diluted net income per share, Class A ordinary shares | $ | — | $ | 0.82 | $ | 0.82 | ||||||
Weighted average shares outstanding, Class B ordinary shares | 5,184,300 | — | 5,184,300 | |||||||||
Basic and diluted net loss per share, Class B ordinary shares | $ | 4.10 | $ | (3.28 | ) | $ | 0.82 | |||||
Statement of Operation for the six months ended June 30, 2021 (unaudited) | ||||||||||||
Weighted average shares outstanding, Class A ordinary shares | 20,737,202 | — | 20,737,202 | |||||||||
Basic and diluted net income per share, Class A ordinary shares | $ | — | $ | (0.48 | ) | $ | (0.48 | ) | ||||
Weighted average shares outstanding, Class B ordinary shares | 5,184,300 | — | 5,184,300 | |||||||||
Basic and diluted net loss per share, Class B ordinary shares | $ | (2.40 | ) | $ | 1.92 | $ | (0.48 | ) | ||||
11
Our Class A common stock and warrants are listed on the New York Stock Exchange under the ticker symbols “BKKT” and “BKKT WS,” respectively.
Description of Business
We offer a platform with three complementary aspects - a digital asset marketplace, a loyalty redemption service, and an alternative payment method.
Digital Asset Marketplace. Our digital asset marketplace enables participants to seamlessly transact in a growing universe of digital assets and has applications for individual consumers, businesses and institutions. In Bakkt Trust Company LLC (“Bakkt Trust”), we have an institutional-grade custodian for bitcoin and ether. Bakkt Trust is a New York limited-purpose trust company that is chartered by and subject to the supervision and oversight of the New York Department of Financial Services (“NYDFS”). Certain informationIn September 2019, Bakkt Trust, along with ICE Futures U.S., Inc. (“IFUS”) and ICE Clear US, Inc. (“ICUS”), both of which are wholly-owned subsidiaries of ICE, brought to market an institutional-grade, regulated infrastructure for trading, clearing, and custody services for bitcoin. Bakkt Trust acts as a qualified custodian for bitcoin and ether, which enables Bakkt Trust to offer end-to-end regulated, physically-delivered bitcoin futures and options contracts to financial institutions and market makers. In addition, Bakkt Trust offers non-trading- related, standalone custody of bitcoin and ether to institutions and certain high net worth individuals in cryptoassets, subject to NYDFS regulatory oversight.
Loyalty Redemption. Our institutional-grade loyalty redemption service provides seamless and cost-effective options for consumers to use their loyalty points. Our loyalty redemption platform, which is cloud-based and delivered through major web browsers and mobile devices, connects loyalty programs to leading commerce partners allowing consumers to redeem a spectrum of loyalty currencies for merchandise, services and gift cards.
Alternative Payments. Our alternative payments platform provides choice and convenience to both consumers and merchants. Through Bakkt Marketplace, LLC (“Bakkt Marketplace”), we have an integrated platform that enables consumers and enterprises to transact in digital assets. Alternative payments users have a digital wallet that enables them to purchase, sell, convert, and or footnote disclosures normally includedspend digital assets. Users can also use their digital wallet to spend fiat currency with various retailers and convert loyalty and rewards points into fiat currency. We have received money transmitter licenses from all states throughout the U.S. where such licenses are required (other than Hawaii, where we do not presently operate) , have obtained a New York State virtual currency license, and are registered as a money services business with the Financial Crimes Enforcement Network of the United States Department of the Treasury. Bakkt Trust’s custody solution provides support to Bakkt Marketplace with respect to bitcoin and ether functionality within the consumer app.
2.Summary of Significant Accounting Policies
Our accounting policies are as set forth in the notes of our Form 10-K.
Basis of Presentation
As a result of the Business Combination, we evaluated if VIH or Opco is the predecessor for accounting purposes. In considering the foregoing principles of predecessor determination in light of our specific facts and circumstances, we determined that Opco is the predecessor for accounting purposes. The financial statement presentation includes the financial statements of Opco as “Predecessor” for periods prior to the Closing Date and the financial statements of the Company as “Successor” for the period after the Closing Date, including the consolidation of Opco.
The accompanying unaudited interim consolidated financial statements are prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SECUnited States generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting.information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes necessaryrequired by U.S. GAAP for a complete presentation of financial position, results of operations, or cash flows.statements. In the opinion of management, the accompanying unaudited condensedinterim consolidated financial statements include the accounts of the Company and our subsidiaries. All
12
intercompany balances and transactions have been eliminated in consolidation. In addition, certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements in order to conform to current presentation.
In the opinion of management, all adjustments consisting(consisting of a normal recurring nature, which areaccruals), considered necessary for a fair presentation have been included. The interim results for the three months ended March 31, 2022 are not necessarily indicative of the financial position, operating results and cash flowsthat may be expected for the periods presented.
Except as described below, for the three and nine months ended September 30, 2021 are not necessarily indicative ofMarch 31, 2022, there were no significant changes to the results to be expected for the period ending December 31, 2021 or for any future interim periods.
3.Revenue from Contracts with Customers
Disaggregation of Revenue
We disaggregate revenue by service type and by platform, respectively, as follows (in thousands):
| Successor | Predecessor | ||||||||||||||||
| Service Type | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||||
Transaction revenue, net(a) | $ | 6,518 | $ | 3,295 | |||||||||||||
| Subscription and service revenue | 6,014 | 4,850 | |||||||||||||||
| Total revenue | $ | 12,532 | $ | 8,145 | |||||||||||||
(a)Amounts are net of incentives, rebates and liquidity payments, reductions related to the contribution agreement entered into between Bakkt and ICE in connection with ICE’s formation of Bakkt (“Contribution Agreement"), and consideration payable pursuant to an agreement with a strategic partner of approximately $0.3 million for the three months ended March 31, 2022 and approximately $0.9 million for the three months ended March 31, 2021. Included in these amounts are amounts earned from related parties of less than $0.1 million for the three months ended March 31, 2022 and amounts earned from affiliates of less than $0.1 million for the three months ended March 31, 2021 (Note 7).
| Successor | Predecessor | ||||||||||||||||
| Platform | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||||
Digital asset marketplace(b) | $ | 79 | $ | 87 | |||||||||||||
| Loyalty redemption platform | 12,736 | 8,529 | |||||||||||||||
Alternative payment platform(c) | (283) | (471) | |||||||||||||||
| Total revenue | $ | 12,532 | $ | 8,145 | |||||||||||||
(b)Amounts are net of incentives, rebates and liquidity payments and reductions related to the Contribution Agreement of less than $0.1 million for the three months ended March 31, 2022 and approximately $0.3 million for the three months ended March 31, 2021.
(c)Amounts are net of incentives and consideration payable pursuant to an agreement with a strategic partner of $0.3 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively.
We have 1 reportable segment to which our revenues relate.
Deferred Revenue
Contract liabilities consist of deferred revenues for amounts invoiced prior to us meeting the criteria for revenue recognition. We invoice customers for service fees at the time the service is performed, and such fees are recognized as revenue over time as we satisfy its performance obligation. Contract liabilities are classified as “Deferred revenue, current” and “Deferred revenue, noncurrent” in our consolidated balance sheets. The activity in deferred revenue for the three months ended March 31, 2022 and 2021, respectively, was as follows (in thousands):
| Successor | Predecessor | |||||||||||||
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||
| Beginning of the period contract liability | $ | 9,448 | $ | 8,385 | ||||||||||
| Revenue recognized from contract liabilities included in the beginning balance | (1,322) | (1,158) | ||||||||||||
| Increases due to cash received, net of amounts recognized in revenue during the period | 379 | 917 | ||||||||||||
| End of the period contract liability | $ | 8,505 | $ | 8,144 | ||||||||||
Remaining Performance Obligations
As of March 31, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations related to partially completed contracts is $26.4 million, comprised of $17.9 million of subscription fees and $8.5 million of service fees that are deferred. We will recognize our subscription fees as revenue over a weighted-average period of 42 months (ranges from 3 months – 54 months) and our service fees as revenue over approximately 2 years.
As of March 31, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations related to partially completed contracts is $14.1 million, comprised of $5.9 million of subscription fees and $8.2 million of service fees that are deferred. We will recognize our subscription fees as revenue over a weighted-average period of 15.5 months (ranges from 1 month – 39 months) and our service fees as revenue over approximately 3 years.
Contract Costs
For the three months ended March 31, 2022 and 2021, we incurred no incremental costs to obtain and/or fulfill contracts with customers.
14
| Successor | |||||
| Balance as of December 31, 2021 | $ | 1,527,118 | |||
| Foreign currency translation | 1 | ||||
| Balance as of March 31, 2022 | $ | 1,527,119 | |||
| Predecessor | |||||
| Balance as of December 31, 2020 | $ | 233,429 | |||
| Foreign currency translation | (16) | ||||
| Balance as of March 31, 2021 | $ | 233,413 | |||
No goodwill impairment charges have been recognized in the periods presented.
Intangible assets consisted of the following (in thousands):
| Successor | |||||||||||||||||||||||
| March 31, 2022 | |||||||||||||||||||||||
| Weighted Average Useful Life (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||
| Licenses | Indefinite | $ | 241,320 | $ | — | $ | 241,320 | ||||||||||||||||
| Trademarks / trade names | Indefinite | 39,470 | — | 39,470 | |||||||||||||||||||
| Technology | 4.2 | 67,310 | (7,407) | 59,903 | |||||||||||||||||||
| Customer relationships | 8 | 44,970 | (2,572) | 42,398 | |||||||||||||||||||
| Total | $ | 393,070 | $ | (9,979) | $ | 383,091 | |||||||||||||||||
| Successor | |||||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Weighted Average Useful Life (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||
| Licenses | Indefinite | $ | 241,320 | $ | — | $ | 241,320 | ||||||||||||||||
| Trademarks / trade names | Indefinite | 39,470 | — | 39,470 | |||||||||||||||||||
| Technology | 4.2 | 67,310 | (3,415) | 63,895 | |||||||||||||||||||
| Customer relationships | 8 | 44,970 | (1,186) | 43,784 | |||||||||||||||||||
| Total | $ | 393,070 | $ | (4,601) | $ | 388,469 | |||||||||||||||||
Amortization of intangible assets for the three months or less when purchased to be cash equivalents. The Company did 0t have any cash equivalents as of September 30,ended March 31, 2022 and 2021, was $5.4 million and December 31, 2020.
Gross proceeds | $ | 207,372,020 | ||
Less: | ||||
Proceeds allocated to Public Warrants | $ | (13,275,495 | ) | |
Class A ordinary shares issuance costs | $ | (11,138,216 | ) | |
Plus: | ||||
Accretion of carrying value to redemption value | $ | 24,413,711 | ||
Class A ordinary shares subject to possible redemption | $ | 207,372,020 | ||
Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | For the Period from July 31, 2020 (Inception) Through September 30, 2020 | ||||||||||||||||||||||
Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||||
Basic and diluted net loss per ordinary share | ||||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Allocation of net loss, as adjusted | $ | (368,518 | ) | $ | (96,630 | ) | $ | (10,308,085 | ) | $ | (2,577,021 | ) | $ | (1,323,216 | ) | $ | (1,709,153 | ) | ||||||
Denominator: | ||||||||||||||||||||||||
Basic and diluted weighted average shares outstanding | 20,737,202 | 5,184,300 | 20,737,202 | 5,184,300 | 3,870,968 | 5,000,000 | ||||||||||||||||||
Basic and diluted net loss per ordinary share | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.50 | ) | $ | (0.50 | ) | $ | (0.34 | ) | $ | (0.34 | ) | ||||||
15
| March 31, 2022 | |||||
| Year ending December 31: | |||||
| Remainder of 2022 | $ | 16,433 | |||
| 2023 | 21,811 | ||||
| 2024 | 21,871 | ||||
| 2025 | 18,896 | ||||
| 2026 | 7,628 | ||||
| Thereafter | 15,662 | ||||
| Total | $ | 102,301 | |||
5.Consolidated Balance Sheet Components
| Successor | ||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Trade accounts receivable | $ | 14,177 | $ | 11,404 | ||||||||||
| Unbilled receivables | 3,995 | 5,448 | ||||||||||||
| Other receivables | 1,496 | 1,500 | ||||||||||||
| Total accounts receivable | 19,668 | 18,352 | ||||||||||||
| Less: allowance for doubtful accounts | (210) | (210) | ||||||||||||
| Total | $ | 19,458 | $ | 18,142 | ||||||||||
Other Current Assets
Other current assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the Company’s condensed consolidated balance sheets, primarily due to their short-term nature, with the exceptionconsisted of the warrant liabilities (see Note 10).
following (in thousands):| Successor | ||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Prepaid expenses | $ | 8,395 | $ | 4,784 | ||||||||||
| Total | $ | 8,395 | $ | 4,784 | ||||||||||
16
| Successor | ||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Internal-use software | $ | 7,191 | $ | 3,550 | ||||||||||
| Purchased software | 23 | 17 | ||||||||||||
| Office furniture and equipment | 19 | 19 | ||||||||||||
| Other computer and network equipment | 3,874 | 2,991 | ||||||||||||
| Leasehold improvements | 778 | 277 | ||||||||||||
| Property, equipment and software, gross | 11,885 | 6,854 | ||||||||||||
| Less: accumulated amortization and depreciation | (1,206) | (733) | ||||||||||||
| Total | $ | 10,679 | $ | 6,121 | ||||||||||
Deposits with Clearinghouse
Deposits with clearinghouse, noncurrent, consisted of the period from Julydefault resource contribution (Note 7). The default resource contribution amounted to approximately $15.2 million as of each of March 31, 2020 (inception) through September 30, 2020, the Company incurred $30,000, $90,000 and $0 in fees for these services, respectively. As of September 30, 20212022 and December 31, 2020, $110,000 and $30,000 remained unpaid2021.
On January 19, 2021, ICUS self-certified a rule change with the CFTC, reducing Bakkt Trust’s financial contribution to the ICUS guaranty fund to approximately $15.2 million from $35.4 million. Following the two-week self-certification period, in which no comments were received from the accrued expenses line item onCFTC, ICUS proceeded with the condensed balance sheets, respectively.reduction. On February 3, 2021, ICUS returned $20.2 million to Bakkt Trust. The default resource contribution includes less than $0.1 million of cash margins held with ICUS.
Other Assets
Other assets consisted of the following (in thousands):
| Successor | ||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Operating lease right-of-use assets (Note 16) | 16,563 | 11,239 | ||||||||||||
| Other | 3,354 | 2,640 | ||||||||||||
| Total | $ | 19,917 | $ | 13,879 | ||||||||||
Accounts Payable and Accrued Liabilities
| Successor | ||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Accounts payable | $ | 12,265 | $ | 10,646 | ||||||||||
| Accrued expenses | 19,919 | 20,130 | ||||||||||||
| Purchasing card payable | 20,330 | 17,698 | ||||||||||||
| Salaries and benefits payable | 6,482 | 13,349 | ||||||||||||
| Other | 5,325 | 2,267 | ||||||||||||
| Total | $ | 64,321 | $ | 64,090 | ||||||||||
Other Current Liabilities
Other current liabilities consisted of the Company’s officers and directors may, but are not obligated to, loanfollowing (in thousands):
| Successor | ||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Participation units liability, current (Note 10) | $ | 1,547 | $ | 2,027 | ||||||||||
| Current maturities of operating lease liability | 331 | 615 | ||||||||||||
| Other | 1,315 | 1,075 | ||||||||||||
| Total | $ | 3,193 | $ | 3,717 | ||||||||||
Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the Company funds as may be required (“Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes may be repaid upon completion offollowing (in thousands):
| Successor | ||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Participation units liability, non-current (Note 10) | $ | 1,547 | $ | 2,027 | ||||||||||
| Operating lease liability, noncurrent (Note 16) | 16,704 | 10,647 | ||||||||||||
| Total | $ | 18,251 | $ | 12,674 | ||||||||||
6.Tax Receivable Agreement
On October 15, 2021, we entered into a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of notes may be converted upon completion of a Business Combination into warrants at a price of $1.00 per warrant. Such warrants would be identicalTax Receivable Agreement with certain Opco Equity Holders. Pursuant to the Private Placement Warrants. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. As of September 30, 2021 and December 30, 2020, the Company had 0outstanding borrowings under the Working Capital Loans.
The exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Opco. These increases in tax basis may reduce the amount of tax that we would otherwise be required to pay in the future. These increases in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
The MergerTax Receivable Agreement provides for the payment by us to exchanging holders of Opco common units of 85% of certain net income tax benefits, if any, that among other things and upon the terms and subjectwe realize (or in certain cases is deemed to the conditions thereof, the following transactions will occur (together with the other agreements and transactions contemplated by the Merger Agreement, the “Proposed Transaction”): (i) at the closing of the transactions contemplated by the Merger Agreement, Merger Sub will merge (the “Merger”) with and into Bakkt, the separate corporate existence of Merger Sub will cease and Bakkt will be the surviving limited liability company, to be renamed Bakkt Opco Holdings, LLC (“Bakkt Opco”); (ii) immediately prior to the closing of the PIPE Investment and the effective time of the Merger, the Company will be renamed “Bakkt Holdings, Inc.” (referred to hereinafter as “Bakkt Pubco”); and (iii)realize) as a result of these increases in tax basis and certain other tax attributes of Opco and tax benefits related to entering into the Merger,Tax Receivable Agreement, including tax benefits attributable to payments under the aggregate consideration to be received in respect of the Merger by all of the Bakkt interest holders will beTax Receivable Agreement. This payment obligation is an aggregate of 208,200,000 common units of Bakkt Opco (“Bakkt Opco Units”) and 208,200,000 shares of class V common stock of Bakkt Pubco, which will benon-economic voting shares of Bakkt Pubco.
7.Related Parties
ICE Management and Technical Support
In December 2018, we entered into an intercompany services agreement with ICE to provide management and technical support services. For the three months ended March 31, 2022 and 2021, expenses of zero and $0.5 million, respectively, have been recorded in connection with this agreement and are reflected as “Related party expenses (affiliate in Predecessor periods)” in the statements of operations. Prior to the Business Combination, ICE also made various payroll distributions and payments to vendors on behalf of Opco and made unitary state income taxes on behalf of DACC Technologies, Inc., and Digital Asset Custody Company, Inc. (collectively with DACC Technologies, Inc., “DACC”).
Upon consummation of the Business Combination, we entered into a Transition Services Agreement (“TSA”) with ICE, which superseded the intercompany services agreement pursuant to which ICE will provide insurance, digital warehouse, data center, technical support, and onother transition-related services in exchange for quarterly service fees to be paid by us. We recognized $0.4 million of expense related to the termsTSA for the three months ended March 31, 2022, which is reflected as “Related party expenses (affiliate in Predecessor periods)” in the statements of operations and “Due to related party (affiliate in Predecessor period)” in the balance sheets.
Triparty Agreement
The Triparty Agreement provides for IFUS to list for trading one or more digital currency futures and/or options contracts, and for ICUS to serve as the clearing house to provide central counterparty and ancillary services for such contracts. The Triparty Agreement also governs our PDF Contracts. Refer to Note 8 to our consolidated financial statements included in our Form 10-K for additional description of the Triparty Agreement.
We recognized revenues related to the Triparty Agreement of less than $0.1 million for each of the three months ended March 31, 2022 and 2021, net of rebates and incentive payments (contra-revenue) of less than $0.1 million and $0.3 million for the three months ended March 31, 2022 and 2021, respectively.
The Triparty Agreement also required Bakkt Trust to make, and, subject to the conditions of which, the PIPE Investors have collectively subscribed for 32,500,000 Bakkt Pubco Class A Shares for an aggregate purchase price equalcertain limits, to $325,000,000 (the “PIPE Investment”). The PIPE Investment willreplenish as needed a $35.4 million default resource contribution to ICUS, to be consummated immediately prior to the closing of the Merger Agreement. The Subscription Agreements provide for certain customary registration rights for the PIPE Investors. The Subscription Agreements will terminate with no further force and effect upon the earliest to occur of: (a) such date and time as the Merger Agreement is terminatedused by ICUS in accordance with its terms; (b) the mutual written agreementICUS rules. As described in Note 5, the contribution requirement was reduced to $15.0 million in 2021. The contribution is included in the “Deposits with clearinghouse” noncurrent balance. Interest earned on the contribution, net of certain fees and costs, is paid to Bakkt Trust from ICUS. We did not earn any interest for the three months ended March 31, 2022 and 2021.
Prior to the Business Combination, we also recognized a capital contribution for the cost of the partiestrading and clearing services provided by IFUS and ICUS pursuant to such Subscription Agreement; and (c) December 31, 2021.
the Contribution Agreement, which reduced revenue attributableAs of September 30,
2021and DecemberMarch 31,2020, there were 0preference shares issued or outstanding.
2021
2022 and December 31, 2020,
Other Contractual Relationships with ICE
Prior to the withdrawal of Bakkt Clearing’s ICUS membership on May 20, 2020, Bakkt Clearing was required to hold shares of ICE stock for ICUS membership privileges. These shares were carried at cost basis and evaluated periodically for impairment. In connection with the withdrawal of Bakkt Clearing’s ICUS membership, these shares were remeasured at fair value, with unrealized gains and losses being reflected as “Other income (expense), net” in the statements of operations. In June 2021, we sold all of our shares of ICE stock. During the three months ended March 31, 2021, we recorded an unrealized loss on the sale of shares of affiliate stock of approximately $0.1 million which is included in “Other expense, net”. We did not recognize a loss on the sale of shares of affiliate stock during the three months ended March 31, 2022.
8.Warrants
As of March 31, 2022, there were 5,184,300 Class B ordinary shares issued and7,140,935 public warrants outstanding.
During the three months ended March 31, 2022, we received less than $0.1 million in proceeds from the exercise of the public warrants. We recognized a gain from the change in fair value of the warrant liability during the three months ended March 31, 2022, of $2.4 million.
9.Stockholders’ Equity
Preferred Stock
We are authorized to issue 1,000,000 shares of preferred stock with respecta par value of $0.0001 per share. The holders of a series of preferred stock shall be entitled only to such voting rights as shall expressly be granted thereto by the Private Placement Warrants):Certificate of Incorporation (including any certificate of designation relating to such series of preferred stock). As of March 31, 2022, no shares of preferred stock have been issued.
Common Stock
Class A Common Stock
We are authorized to issue 750,000,000 shares with a par value of $0.0001 per share. Each holder of Class A common stock is entitled to one vote for each share of Class A common stock held of record by such holder on all matters on which stockholders generally or holders of Class A common stock as a separate class are entitled to vote, including the election or removal of directors (whether voting separately as a class or together with one or more classes of our capital stock). As of March 31, 2022, there were 57,164,488 shares of Class A common stock issued and outstanding.
Liquidation
Class V Common Stock
We are authorized to issue 250,000,000 shares with par value $0.0001 per share. These shares have no economic value but entitle the holder to one vote per share. Each Opco common unit, when coupled with one share of our Class V common stock is referred to as a “Paired Interest.” Paired Interests may be exchanged for one share of our Class A common stock or a cash amount in accordance with the Third Amended and Restated Limited Liability Company Agreement of Opco, and the Exchange Agreement. Holders of Paired Interests become eligible on April 16, 2022 under the Exchange Agreement, dated October 15, 2021, to exchange their Paired Interests for Class A common stock or, at our election, cash in lieu thereof. As of March 31, 2022, there were 206,003,270 shares of Class V common stock issued and outstanding.
Following the expiration of the six-month lock-up period on April 16, 2022, holders of Paired Interests exchanged an aggregate of 17.5 million Paired Interests for our Class A common stock, and the Company did not elect to settle any 20 trading days withinsuch exchanges in cash.
Liquidation
Restrictions
In the event that any outstanding share of Class V common stock ceases to be held directly or indirectly by a holder of a Opco common units, such funds with respectshare will automatically be transferred to their Public Warrants, norus and cancelled for no consideration. We will they receive any distribution fromnot issue additional shares of Class V common stock after the Company’s assets held outsideeffectiveness of the Trust Account with respect to such Public Warrants. Accordingly, the Public Warrants may expire worthless.
Members’ Equity
Prior to the Business Combination, Opco had three classes of voting units – Class A, Class B and Class C voting units – and incentive units granted under the Opco Incentive Equity Plan (the “Opco Plan”) (Note 10).
In connection with the Business Combination, the Opco equity holders converted 400,000,000 Opco Class A voting units, 192,453,454 Opco Class B voting units, and 270,270,270 Opco Class C voting units to 189,933,286 shares of
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Class V common stock on a pro rata basis. Additionally, we issued 17,473,362 shares of Class V common stock related to the outstanding Opco incentive units.
Issuance of Class B Warrant
On February 19, 2020, Opco issued a warrant to a strategic partner to purchase 15,000,000 of Opco’s Class B voting units (“Class B Warrant”), at an issue price or effective issueexercise price of less than $9.20$1.00 per unit, exercisable upon issuance, that expires 3 years from issuance.
On April 6, 2021, the strategic partner elected to net exercise its Class B Warrant in exchange for 9,953,454 of Class B voting units.
Issuance of Class C Warrant
In May, 2020, Opco issued a warrant to a minority investor to purchase 3,603,600 of Opco’s Class C voting units (“Class C Warrant”), at an exercise price of $1.11 per unit. Refer to Note 10 to our consolidated financial statements included in our Form 10-K where the Class C Warrant is described in detail.
In connection with the Business Combination, the modified warrant units automatically converted into the right to purchase 793,352 Paired Interests in Opco at an exercise price of $5.04 per Paired Interest. As of March 31, 2022, 172,055 modified warrant units have vested but have not been exercised, and the remaining 621,297 warrant units have not vested or been exercised. As of March 31, 2021, no warrant units had vested or been exercised. No expenses were recorded during the three months ended March 31, 2022 and 2021, since the service conditions were not probable of being met in those periods.
10.Share-Based and Unit-Based Compensation
2021 Incentive Plan
Our 2021 Omnibus Incentive Plan (the “2021 Incentive Plan”) became effective on the Closing Date with the approval of VIH’s shareholders and the Board of Directors. The 2021 Incentive Plan allows us to make equity and equity-based incentive awards to employees, non-employee directors and consultants. There are 25,816,946 shares of Class A ordinary share (with such issue price or effective issue price tocommon stock reserved for issuance under the 2021 Incentive Plan which can be determined in good faith bygranted as stock options, stock appreciation rights, restricted shares, restricted stock units (RSUs), performance stock units (PSUs), dividend equivalent rights and other share-based awards. No award may vest earlier than the Company’s boardfirst anniversary of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of grant, except under limited conditions.
Share-Based Compensation Expense
During the consummation of a Business Combination (net of redemptions),three months ended March 31, 2022, we granted 6,969,070 RSUs and (z) the volume weighted average trading price4,865,378 PSUs, which represents 100% of the Class A ordinary shares duringtarget award, to employees and directors of Bakkt and Bakkt Trust. The majority of these grants were related to initial employment agreements for executives, which were approved by the 10 trading day period starting on the trading day prior to the day on which the Company consummates a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise priceCompensation Committee of the warrantsBoard of Directors. We recorded $13.2 million of share-based compensation expense for the three months ended March 31, 2022 which is included in “Compensation and benefits” in the statements of operations.
Unrecognized compensation expense as of March 31, 2022 was $55.8 million for the RSUs and PSUs. The unrecognized compensation expense will be adjusted (to the nearest cent) to be equal to 115%recognized over a weighted-average period of the higher2.72 years.
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RSU and the Newly Issued Price, and the $18.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
PSU ActivityThe Private Placement Warrants are identical tofollowing tables summarize RSU and PSU activity under the Public Warrants underlying2021 Incentive Plan for the Units sold in the Initial Public Offering,three months ended March 31, 2022 (in thousands, except that the Private Placement Warrants and the Class A ordinary shares issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and benon-redeemable,except as described above, so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.per unit data):
| Successor | |||||||||||||||||||||||
| RSUs and PSUs | Number of RSUs and PSUs | Weighted Average Remaining Contractual Term (years) | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | |||||||||||||||||||
| Outsanding as of December 31, 2021 | 2,142 | $ | 9.18 | ||||||||||||||||||||
| Granted | 11,834 | $ | 4.33 | $ | 51,260 | ||||||||||||||||||
| Forfeited | (194) | ||||||||||||||||||||||
| Outsanding as of March 31, 2022 | 13,782 | 2.72 | $ | 5.08 | |||||||||||||||||||
| Vested as of March 31, 2022 | — | ||||||||||||||||||||||
The fair value of the Company’sRSUs and PSUs is based on the closing price of our common stock on the grant date.
Performance stock units provide an opportunity for the recipient to receive a number of shares of our common stock based on our performance during fiscal year 2022, 2023 and 2024, as measured against objective performance goals as determined by the Board. The actual number of units earned may range from 0% to 150% of the target number of units depending upon achievement of the performance goals. PSUs vest in three equal annual installments, subject to a catch-up provision over the three annual performance targets. Upon vesting, each performance stock unit equals one share of common stock of the Company. We accrue compensation expense for the PSUs based on our assessment of the probable outcome of the performance conditions.
Opco Plan
Preferred incentive units and common incentive units (collectively, “incentive units”) represent an ownership interest in Opco and are entitled to receive distributions from Opco, subject to certain vesting conditions. Participation units, issued directly by Opco to Opco Plan participants, do not represent an ownership interest in Opco but rather provide Opco Plan participants the contractual right to participate in the value of Opco, if any through a cash payment upon the occurrence of certain events following vesting of the participation units. Refer to Note 11 to our consolidated financial statements included in our Form 10-K where the modifications to the Opco Plan are described in detail.
Upon consummation of the Business Combination, the 76,475,000 outstanding preferred incentive units and 23,219,745 outstanding common incentive units were converted into 17,473,362 Successor common incentive units, and the 10,811,502 outstanding participation units were converted into 1,197,250 Successor participation units. Contemporaneously with the conversion, approximately one-third of the awards in the Opco Plan vested. In November 2021, we made total payments of $5.2 million to settle the vested participation units. The second and third one-third tranches will generally vest on the one-year and two-year anniversary date of the closing, respectively, although under the terms of the Opco Plan, employees who are terminated without cause after the Closing Date will vest in the unvested portion of their awards immediately upon their termination date.
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Unit-Based Compensation Expense
Unit-based compensation expense for the three months ended March 31, 2022, was as follows (in thousands):
| Successor | |||||||||||||||||
| Type of unit | Compensation Expense | Statement of Operations and Comprehensive Loss Classification | Balance Sheet Classification | ||||||||||||||
| Common incentive unit | $ | 1,058 | Compensation and benefits | Noncontrolling interest | |||||||||||||
| Participation unit | (961) | Compensation and benefits | Other noncurrent liabilities | ||||||||||||||
| Total | $ | 97 | |||||||||||||||
Unit-based compensation expense for the three months ended March 31, 2021, was as follows (in thousands):
| Predecessor | |||||||||||||||||
| Type of unit | Compensation Expense | Statement of Operations and Comprehensive Loss Classification | Balance Sheet Classification | ||||||||||||||
| Preferred incentive unit | $ | 507 | Compensation and benefits | Mezzanine equity | |||||||||||||
| Common incentive unit | 363 | Compensation and benefits | Mezzanine equity | ||||||||||||||
| Participation unit | 386 | Compensation and benefits | Other noncurrent liabilities | ||||||||||||||
| Total | $ | 1,256 | |||||||||||||||
Unrecognized compensation expense as of March 31, 2022 was approximately $4.5 million and $0.5 million for common incentive units and participation units, respectively. The unrecognized compensation expense will be recognized over a weighted-average period of 1.54 years.
Unit Activity
The following tables summarize common incentive unit activity under the Opco Plan for the three months ended March 31, 2022 (in thousands, except per unit data):
| Successor | ||||||||||||||
| Common Incentive Units | Number of Common Incentive Units | Weighted Average Remaining Contractual Term (years) | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||||
| Outsanding as of December 31, 2021 | 16,339 | 1.79 | $ | 6.30 | $ | 133,240 | ||||||||
| Granted | — | |||||||||||||
| Forfeited | (269) | $ | 6.30 | |||||||||||
| Outsanding as of March 31, 2022 | 16,070 | 1.54 | $ | 6.30 | $ | 131,050 | ||||||||
| Vested as of March 31, 2022 | 11,533 | $ | 94,049 | |||||||||||
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The following tables summarize preferred incentive unit and common incentive unit activity under the Opco Plan for the three months ended March 31, 2021 (in thousands, except per unit data):
| Predecessor | ||||||||||||||
| Preferred Incentive Units | Number of Preferred Incentive Units | Weighted Average Remaining Contractual Term (years) | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||||
| Outsanding as of December 31, 2020 | 76,475 | 6.75 | $ | 0.42 | $ | 88,711 | ||||||||
| Granted | — | |||||||||||||
| Forfeited | — | |||||||||||||
| Outsanding as of March 31, 2021 | 76,475 | 6.5 | $ | 0.42 | $ | 141,058 | ||||||||
| Vested as of March 31, 2021 | — | |||||||||||||
| Predecessor | ||||||||||||||
| Common Incentive Units | Number of Common Incentive Units | Weighted Average Remaining Contractual Term (years) | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||||
| Outsanding as of December 31, 2020 | 26,833 | 6.75 | $ | 0.43 | $ | 25,760 | ||||||||
| Granted | — | |||||||||||||
| Forfeited | — | |||||||||||||
| Outsanding as of March 31, 2021 | 26,833 | 6.5 | $ | 0.43 | $ | 25,760 | ||||||||
| Vested as of March 31, 2021 | — | |||||||||||||
There were no participation units granted during the three months ended March 31, 2022 and 2021. As of March 31, 2022 and December 31, 2021, the total number of participation units outstanding were 0.6 million and 0.7 million, respectively. The fair value of the participation units as of March 31, 2022 and December 31, 2021 was 3.1 million and 4.1 million, respectively. Participation units are settled in cash and the balance is recorded within other current liabilities and other noncurrent liabilities as described in Note 5.
The outstanding units under the Opco Plan were issued prior to the Business Combination and the plan was frozen upon execution of the merger agreement. No future units can be granted under this plan.
Determination of Fair Value
The fair value of incentive and participation units granted is calculated through a Monte Carlo simulation based on various outcomes. Opco determined that a Monte Carlo simulation was an appropriate estimation model because of the market condition associated with the vesting of the units. The determination of the fair value of the units is affected by Opco’s stock price and certain assumptions such as Opco’s expected stock price volatility over the term of the units, risk-free interest rates, and expected dividends, which are determined as follows:
•Expected term – The expected term represents the period that a unit is expected to be outstanding.
•Volatility – Opco has limited historical data available to derive its own stock price volatility. As such, Opco estimates stock price volatility based on the average historic price volatility of comparable public industry peers.
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•Risk-free interest rate – The risk-free rate is based on the U.S. Treasury yield curve in effect on the grant date for securities with similar expected terms to the term of Opco’s incentive units.
•Expected dividends – Expected dividends is assumed to be zero as Opco has not paid and does not expect to pay cash dividends or non-liquidating distributions.
•Discount for lack of marketability – an estimated two year time to exit Predecessor awards and the six month lock-up restriction on Successor awards is reflected as a discount for lack of marketability estimated using the Finnerty model.
11.Net Loss per share
Basic earnings per share is based on the weighted average number of shares of Class A common stock issued and outstanding during the Successor period. Diluted earnings per share is based on the weighted average number shares of Class A common stock issued and outstanding and the effect of all dilutive common stock equivalents and potentially dilutive share-based awards outstanding during the Successor period. For the Successor period, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to our net loss position. The potentially dilutive securities that would be anti-dilutive due to our net loss are not included in the calculation of diluted net loss per share attributable to controlling interest. The anti-dilutive securities are included in the table below.
The following is a reconciliation of the denominators of the basic and diluted per share computations for net loss (in thousands, except share and per share data):
| Successor | |||||
| Three Months Ended March 31, 2022 | |||||
| Net Loss per share: | |||||
| Numerator – basic and diluted: | |||||
| Net loss | $ | (43,321) | |||
| Less: Net loss attributable to noncontrolling interest | (36,193) | ||||
| Net loss attributable to Bakkt Holdings, Inc. – basic | (7,128) | ||||
| Net loss and tax effect attributable to noncontrolling interests | (28,787) | ||||
| Net loss attributable to Bakkt Holdings, Inc. – diluted | $ | (35,915) | |||
| Denominator – basic and diluted: | |||||
| Weighted average shares outstanding – basic | 57,164,421 | ||||
| Effect of dilutive securities: | |||||
| Opco common units | 201,453,166 | ||||
| Weighted average shares outstanding – diluted | 258,617,587 | ||||
| Net loss per share – basic | $ | (0.12) | |||
| Net loss per share – diluted | $ | (0.14) | |||
Potential common shares issuable to employee or directors upon exercise or conversion of shares under our share-based and unit-based compensation plans and upon exercise of warrants are excluded from the computation of diluted earnings per common share when the effect would be anti-dilutive.
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The following table summarizes the total potential common shares excluded from diluted loss per common share as their effect would be anti-dilutive:
| Successor | |||||
| Three Months Ended March 31, 2022 | |||||
| RSUs and PSUs | 13,781,817 | ||||
| Public warrants | 7,140,935 | ||||
| Opco warrants | 793,352 | ||||
| Opco unvested incentive units | 4,537,296 | ||||
| Total | 26,253,400 | ||||
12.Capital Requirements
Bakkt Trust is subject to certain NYDFS regulatory capital requirements. These capital requirements require Bakkt Trust to maintain positive net worth at the greater of $15.0 million or the sum of the required percentage established for transmitted assets, cold wallet, and hot wallet custody assets. As of March 31, 2022 and 2021, Bakkt Trust had determined that $16.5 million, respectively should be set aside to satisfy these, which is reflected as “Restricted cash” in the balance sheets.
Bakkt Clearing is registered as a futures commission merchant (“FCM”) with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). Bakkt Clearing is subject to CFTC Regulation 1.17, and the NFA capital requirements. Under these requirements, it is generally required to maintain “adjusted net capital” equivalent to the greater of $1.0 million or the sum of 8 percent of customer and noncustomer risk maintenance margin requirements on all positions, as defined. These margin requirements may change from day to day, but as of March 31, 2022, Bakkt Clearing had adjusted net capital of $2.0 million.
Bakkt Marketplace is required to maintain tangible member’s equity of a minimum amount, plus the amount of customer funds held in transit since it holds a number of money transmitter licenses and has a virtual currency license (or “BitLicense”) from the NYDFS, which subjects it to NYDFS’ oversight with respect to such business activities conducted in New York State and with New York residents. Tangible member’s equity means member’s equity minus intangible assets and liabilities reflects management’s estimateas of amountsMarch 31, 2022 and December 31, 2021, tangible member’s equity amounted to approximately $5.6 million and approximately $11.0 million, respectively.
The minimum capital requirements to which our subsidiaries are subject may restrict their ability to transfer cash. We may also be required to transfer cash to our subsidiaries such that they may continue to meet these minimum capital requirements.
13.Commitments and Contingencies
401(k) Plan
We sponsor a 401(k) defined contribution plan covering all eligible U.S. employees. Both Company and employee contributions to the 401(k) plan are discretionary. For the three months ended March 31, 2022 and 2021, we recorded approximately $0.7 million and $0.5 million, respectively, of expenses related to the 401(k) plan.
Litigation
As described above, in October 2021, we completed our Business Combination with VPC Impact Acquisition Holdings (“VIH”), pursuant to which VIH changed its name to Bakkt Holdings, Inc. and the current directors and officers of the Company would have receivedreplaced the directors and officers in place prior to the Business Combination. On April 21, 2022, a
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putative class action complaint was filed against Bakkt Holdings, Inc. and certain of its directors and officers prior to the Business Combination in the U.S. District Court for the Eastern District of New York on behalf of certain purchasers of securities of VIH and/or purchasers of Bakkt Class A common stock issued in connection with the saleBusiness Combination. The complaint alleges that VIH made false or misleading statements and omissions of purportedly material fact, in violation of federal securities laws, in connection with disclosures relating to certain of VIH’s financial statements, business, operations, and compliance policies. The complaint alleges that the assetsfalse or paidmisleading statements and omissions were contained in the registration statement filed in connection with the transferBusiness Combination and in other SEC filings made by VIH. The complaint alleges that VIH traded at artificially inflated prices as a result of the liabilitiesallegedly misleading statements and omissions. Plaintiff seeks certification of a class of purchasers of (1) VIH/Bakkt securities between March 31, 2021 and November 19, 2021, both dates inclusive and/or (2) Bakkt Class A common stock pursuant and/or traceable to the registration statement filed in an orderly transaction between market participants at the measurement date. In connection with measuring the Business Combination and in such other SEC filings. The complaint seeks damages, as well as the plaintiff’s fees and costs. Bakkt intends to vigorously defend against the allegations. No allegations have been made against any current officer or director of Bakkt other than one current board member, who was both an officer and director of VIH and has continued as a director of Bakkt.
Other legal and regulatory proceedings have arisen and may arise in the ordinary course of business. However, we do not believe that the resolution of these matters will have a material adverse effect on our financial position, results of operations or cash flows. However, future results could be materially and adversely affected by new developments relating to the legal proceedings and claims.
Commercial Purchasing Card Facility
We, through our loyalty business, have a purchasing card facility with a bank that we utilize for redemption purchases made from merchant partners as part of our loyalty redemption platform. Expenditures made using the purchasing card facility are payable monthly, are not subject to formula-based restrictions and do not bear interest if amounts outstanding are paid when due and in full. Among other covenants, the purchasing card facility requires us to maintain a month-end cash balance of $40.0 million. In January 2021, the purchasing card facility was extended to April 15, 2022 in order to facilitate a long-term agreement on more favorable terms to us. Bakkt Holdings, Inc. serves as the guarantor on behalf of our subsidiary under the commercial purchasing card facility. In April 2022, we further extended the maturity date of the purchasing card facility to August 12, 2022.
On April 7, 2022, we entered into a corporate card services agreement with Bank of America to provide a new purchasing card facility. Total borrowing capacity under the facility is $35 million and there is no defined maturity date. Expenditures made using the purchasing card facility are payable monthly, are not subject to formula-based restrictions and do not bear interest if amounts outstanding are paid when due and in full. The purchasing card facility requires us to maintain a concentration account with the lender subject to a minimum liquidity maintenance requirement of $7.0 million as collateral along with the accounts receivable of our subsidiary, within the loyalty business. Bakkt Holdings, Inc. serves as the guarantor on behalf of our subsidiary under the commercial purchasing card facility.
Purchase Obligations
In December 2021, we entered into a four-year cloud computing arrangement which includes minimum contractual payments due to the third-party provider. As of March 31, 2022, our outstanding purchase obligations consist of the following future minimum commitments (in thousands):
| Payments Due by Period | |||||||||||||||||||||||||||||
| Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||||||||||||||||||||
| Purchase obligations | $ | 2,250 | $ | 8,750 | $ | 9,000 | $ | — | $ | 20,000 | |||||||||||||||||||
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14.Income Taxes
As a result of the Business Combination, the Company acquired a controlling interest in Opco, which is treated as a partnership for U.S. federal income tax purposes, and in most applicable state and local income tax jurisdictions. As a partnership, Opco is not itself subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Opco is passed through to and included in the taxable income or loss of its partners, including the Company following the Business Combination, on a pro rata basis. The Company's U.S. federal and state income tax benefit (expense) primarily relates to the Company’s allocable share of any taxable income or loss of Opco following the Business Combination. Opco’s wholly owned corporate subsidiaries that are consolidated for U.S. GAAP purposes but separately taxed for federal, state, and foreign income tax purposes as corporations are generating federal, state, and foreign income tax expense.
Our effective tax rate of 6.8% for the three months ending March 31, 2022 differs from statutory rates primarily due to the loss allocated to noncontrolling interest that is not taxed to the Company and the non-deductible fair value gains and losses related to the changes in our warrant liability.
Our effective tax rate of its(0.1)% for the three months ending March 31, 2021 differs from statutory rates primarily due to the impact of losses in which no tax benefit is expected to be recognized. The income tax benefit during the period related to our operations in Canada.
Deferred tax assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilitiesare reduced by a valuation allowance if, based on the observable inputsweight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Our realizability of our deferred tax assets, in each jurisdiction, is dependent upon the generation of future taxable income sufficient to utilize the deferred tax assets on income tax returns, including the reversal of existing temporary differences, historical and unobservable inputs used in orderprojected operating results and tax planning strategies. We assessed that certain of its deferred tax assets were not more likely than not to value the assets and liabilities:
be realized.15.Fair Value Measurements
| Successor | ||||||||||||||
| As of March 31, 2022 | ||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||
| Liabilities: | ||||||||||||||
| Warrant liability—public warrants | $ | 14,996 | $ | 14,996 | $ | — | $ | — | ||||||
| Total Liabilities | $ | 14,996 | $ | 14,996 | $ | — | $ | — | ||||||
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| Successor | ||||||||||||||
| As of December 31, 2021 | ||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||
| Liabilities: | ||||||||||||||
| Warrant liability—public warrants | $ | 17,424 | $ | 17,424 | $ | — | $ | — | ||||||
| Total Liabilities | $ | 17,424 | $ | 17,424 | $ | — | $ | — | ||||||
Our public warrant liability is valued based on quoted prices in active markets and is classified within Level 1.
The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivables, unbilled accounts receivables, due from related party, deposits with clearinghouse, due to related party, accounts payable and accrued liabilities, and operating lease obligations approximate their fair values due to their short-term nature. The balance of deposits with clearinghouse not invested in U.S. government securities are in the form of cash, and therefore approximate fair value.
16.Leases
The Company leases real estate for office space under operating leases and office equipment under finance leases. As of March 31, 2022, we do not have any active finance leases. We consider a lease to have commenced on the date when we are granted access to the leased asset. Several of these leases include escalation clauses for adjusting rentals.
During the three months ended March 31, 2022, we also entered into a new real estate lease for office space in New York, New York, that commenced on January 31, 2022.The lease has a term of 94 months and the total fixed lease payments over the term of the lease are $7.3 million.
Our real estate leases have remaining lease terms as of March 31, 2022 ranging from 13 months to 126 months, with one of our leases containing an option to extend the term for a period of 5 years exercisable by us, which we are not reasonably certain of exercising at September 30, 2021 and December 31, 2020 and indicatescommencement. None of our leases contain an option to terminate the lease without cause at the option of either party during the lease term. Certain equipment leases contain options to purchase the asset at the fair market value, hierarchyavailable with the Company.
Certain of our real estate leasing agreements include terms requiring us to reimburse the lessor for its share of real estate taxes, insurance, operating costs and utilities which we account for as variable lease costs when incurred since we have elected to not separate lease and non-lease components, and hence are not included in the measurement of lease liability. There are no restrictions or covenants imposed by any of the valuation inputsleases, and none of our leases contain material residual value guarantees.
The discount rates for all of our leases are based on our estimated incremental borrowing rate since the Company utilizedrates implicit in the leases were not determinable. Our incremental borrowing rate is based on management’s estimate of the rate of interest we would have to determine such fair value. The gross holding gainspay to borrow on a fully collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
We have elected the practical expedient under which lease components would not be separated from the non-lease components for all our classes of underlying assets. Accordingly, each lease component and fair value ofheld-to-maturitysecurities at September 30, 2021 and December 31, 2020the non-lease components related to the lease component are as follows:
Description | September 30, 2021 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Cash and Investments held in Trust Account | $ | 207,396,111 | $ | 207,396,111 | $ | 0 | $ | 0 | ||||||||
Liabilities: | ||||||||||||||||
Warrant Liability – Public Warrants | $ | 16,694,484 | $ | 16,694,484 | $ | 0 | $ | 0 | ||||||||
Warrant Liability – Private Placement Warrants | $ | 12,905,486 | $ | 0 | $ | 0 | $ | 12,905,486 | ||||||||
Description | December 31, 2020 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | ||||||||||||
Assets: | ||||||||||||||||
Cash and Investments held in Trust Account | $ | 207,376,213 | $ | 207,376,213 | $ | 0 | $ | 0 | ||||||||
Liabilities: | ||||||||||||||||
Warrant Liability – Public Warrants | $ | 11,509,147 | $ | 11,509,147 | $ | 0 | $ | 0 | ||||||||
Warrant Liability – Private Placement Warrants | $ | 11,003,918 | $ | 0 | $ | 0 | $ | 11,003,918 | ||||||||
periods presented.
On April 25, 2022, we signed a lease agreement to expand the office space of our call center in Alpharetta, Georgia. The Private Placement Warrants were valued usinglease has a Black-Scholes Option Pricing Model, which is considered to be a Level 3 fair value measurement. The measurementterm of 48 months and total fixed lease payments over the term of the Public Warrants after the detachment of the Public Warrants from the Units is classified as Level 1 due to the use of an observable market quote in an active market. For periods subsequent to the detachment of the Public Warrants from the Units, the close price of the Public Warrant price was used as the fair value of the Public Warrants as of each relevant date.
lease are approximately $3.1 million.September 30, 2021 | December 31, 2020 | |||||||
Stock price | $ | 10.11 | $ | 10.08 | ||||
Exercise price | $ | 11.50 | $ | 11.50 | ||||
Risk-free rate | 0.98 | % | 0.36 | % | ||||
Volatility | 27.0 | % | 25.0 | % | ||||
Term (in years) | 5.0 | 5.0 | ||||||
Dividend yield | 0.0 | % | 0.0 | % | ||||
Private Placement | ||||
Fair value as of January 1, 2021 | $ | 11,003,918 | ||
Change in fair value | 12,110,456 | |||
Fair value as of March 31, 2021 | $ | 23,114,374 | ||
Change in fair value | (9,592,439 | ) | ||
Fair value as of June 30, 2021 | $ | 13,521,935 | ||
Change in fair value | (616,449 | ) | ||
Fair value as of September 30, 2021 | $ | 12,905,486 | ||
Overview
Our mission is to power commerce by connecting the digital economy across asset classes for consumers, business and institutions. The digital asset ecosystem is broad, including cryptoassets, loyalty and rewards points, gift cards, in-game assets, and non-fungible tokens (“NFTs”). We are working to unlock new ways to participate in the growing digital economy by expanding access to, and improving liquidity for, digital assets. We believe we are opportunistically positioned at the center of this digital asset ecosystem, with approximately 0.7 million transacting accounts on our platform for the three months ended March 31, 2022. We define “transacting accounts” as unique accounts that perform transactions on our platform each month, which is indicative of how users across our platform use our services.
Through our institutional-grade platform, we offer four key pillars to our partners and customers. These include: crypto services, through which we enabling crypto buy and sell capabilities for platform partners, banks and credit unions and other providers to provide to their customers, as well as crypto solutions for institutions; crypto rewards, for partners to enable their customers to earn rewards in or redeem existing rewards into crypto; digital asset payments for paying with or getting paid in assets like crypto; and a wide range of loyalty redemption services for large financial institutions, merchants such as apple and travel and entertainment providers.
We believe that our platform is uniquely positioned to offer each of these four pillars to our partners and institutions by utilizing a combination of three complementary aspects – a digital asset marketplace, a loyalty redemption service, and an alternative payment method.
•Digital Asset Marketplace. Our digital asset marketplace is designed to enable participants to seamlessly transact in digital assets and has applications for individual consumers, enterprises (whom we define as consumer-facing merchants, retailers, and financial institutions), and institutional investors. Intercontinental Exchange, Inc. (“ICE”), our controlling shareholder prior to the Business Combination, has decades of experience building institutional products and solutions. We leveraged that expertise to build an institutional-grade custodian for bitcoin and ether, Bakkt Trust Company LLC (“Bakkt Trust”), which is regulated by the New York Department of Financial Services (“NYDFS”). This custodian, marketed as the Bakkt Warehouse, provides custody services that anchor the first end-to-end regulated and physically-delivered bitcoin futures and options contracts (“PDF Contracts”), which are traded on ICE Futures U.S., Inc. (“IFUS”) and cleared on ICE Clear US, Inc. (“ICUS”), and also provides custody services to institutions and certain high net-worth individuals on a standalone basis as approved by the NYDFS. Our custodian also operates as the backbone of many of our consumer- and enterprise-focused offerings. For example, it enables consumers to use our app to transact in bitcoin in real-time. In the future, contingent upon achieving the necessary regulatory approvals and/or partnering with an existing licensed broker-dealer, we plan to add the ability to transact in securities such as derivatives, and ETFs. We believe that our institutional-grade infrastructure underpins our ability to expand and scale consumer solutions. We earn revenue in the digital asset marketplace by providing standalone custody services for cryptoassets assets for our
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institutional customers, which we recognize on a pro rata basis over the term of the custody contract. Separately, as a result of our Triparty Agreement with IFUS and ICUS (the “Triparty Agreement”), we earn the net revenues for providing stand-ready custody services to IFUS and ICUS in connection with the offering of PDF Contracts. Our standalone custody revenue and revenue recognized under the Triparty Agreement are currently immaterial. For more information, see Note 2 to our audited consolidated financial statements included in our Form 10-K.
•Loyalty Redemption. Leveraging our acquisition of Bridge2 Solutions (as described below), our loyalty redemption capabilities support enterprises with leading loyalty and rewards programs (which we call “loyalty partners”), such as Citibank, Delta Air Lines, United Airlines, Choice Hotels, Wells Fargo Bank, Bank of America and Mastercard. While many loyalty partners have very popular loyalty programs, the points that are outstanding to customers represent material liabilities on the loyalty partners’ balance sheets. Our redemption capabilities, particularly our exclusive arrangements with leading consumer brands, provide seamless and cost-effective alternatives for consumers to spend their loyalty points and enable loyalty partners to reduce these financial liabilities. We earn and recognize Loyalty Redemption revenue through a combination of: (i) platform subscription fees, which are fixed fees charged for access to our platform and customer support services, and which are recognized on a straight-line basis over the related contract term as the customer receives benefits evenly throughout the term of the contract; (ii) transaction fees for processing transactions on our platform, which are recognized in the period in which the related transaction occurs; (iii) revenue share fees, which are rebates from third-party commerce merchants, and which are recognized in the period in which the related transaction occurs; and (iv) service fees related to the implementation and customization of new services on our loyalty platform, which are recognized on a straight-line basis, beginning when the new service is operational, over the longer of the remaining anticipated customer life and the estimated useful life of our internally developed software. Our Loyalty Redemption revenue represents substantially all of our current revenue. For more information, see Note 2 to our audited consolidated financial statements included in our Form 10-K.
•Alternative Payment Method. Our platform delivers consumer choice and convenience with an alternative payment method that allows consumers to spend the value of their digital assets with merchants in our ecosystem and also enables merchants to gain access to consumers’ increased spending power, tapping into the trend for alternative payment methods. Merchants, such as Starbucks, that accept our alternative payment method can displace transactions off existing payment card infrastructure, which results in significant reductions in payment fees and, over time, faster settlement. We earn and recognize alternative payment method revenue through a merchant discount rate (or percent of the transaction tender) at the time of each transaction and these transaction fees are reduced by consideration payable to a customer, when applicable. For more information, see Note 2 to our audited consolidated financial statements included in our Form 10-K.
Our Platform
Our platform is built to operate at the intersection of cryptoassets, loyalty and payments, and offers partners the flexibility to choose some or all of our capabilities, and the manner in which these capabilities are enabled for consumers, based on their needs and objectives. Some partners may choose to enable our capabilities directly in their experience, while others may want a “ready-to-go” storefront and leverage capabilities such as our consumer app. Our core platform and infrastructure is built to provide integrations for crypto buy/sell trading, loyalty redemption, payments and exchange, and supports these use cases regardless of where the consumer experience lives. Our institutional-grade platform, born out of ICE, supports "know your customer" ("KYC"), anti-money laundering ("AML"), and other anti-fraud measures to combat financial crime.
Key Factors Affecting Our Performance
Attractiveness of Platform
We primarily generate revenue when users of our platform buy, sell, convert, spend and send digital assets through the platform, and our success depends in part on transaction volume. Business growth will come from growing users and the transaction fees associated with users buying, selling, converting and spending with digital assets, and the
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margin earned in connection with consumer purchases and the sale of cryptoassets. We will lookto grow our base of active and transacting users to grow these revenue streams.
In addition, growing partners on our platform increases our ability to grow revenue streams. To date, management has been focused on building through partners within a business-to-business-to-consumer (“B2B2C”) model. Our goal is to provide these partners opportunities to leverage our capabilities either through their existing environment or by leveraging our platform. Expanding the platform capabilities leveraged by our partner set, as well as expanding with new partners, will be key to our business and revenue growth. We expect that revenues related to loyalty redemption transactions, cryptoasset trades, subscriptions and services will be significant drivers of our business. The risks and uncertainties related to each such revenue generating activityare largely the same. Specifically, to the extent we are unable to grow our partner base and/or organically grow our active and transacting user base (who buy, sell, convert and spend with digital assets, and from whom we can earn the margin paid in connection with consumer purchases and sale of cryptoassets), or to the extent the cost of such growth (including our average customer acquisition cost) is greater than we anticipate, the corresponding growth of our business may occur more slowly than we expect, or may not occur at all. Our ability to execute on our business plan is dependent on successfully executing on several key components of our business, principally including: (i) the technological success of our platform; (ii) the integration of our platform with the platforms of our partners; (iii) growth in the number and diversity of the loyalty brands, associated merchants and retailers, and cryptocurrencies and other digital assets that we support; and (iv) our resulting ability to create a network effect with growth in active and transacting users.
Regulations in U.S. markets
We are subject to many complex, uncertain and overlapping local, state and federal laws, rules, regulations, policies and legal interpretations (collectively, “laws and regulations”) in the markets in which we operate. These laws and regulations govern, among other things, consumer protection, privacy and data protection, labor and employment, anti-money laundering, money transmission, competition, and marketing and communications practices. These laws and regulations will likely have evolving interpretations and applications, particularly as we introduce new products and services and expand into new jurisdictions.
We are seeking to bring trust and transparency to digital assets. We will progressively be subject to laws and regulations relating to the collection, use, retention, security, and transfer of information, including the personally identifiable information of our clients and all of the users in the information chain. We have developed and frequently evaluate and update our compliance models to ensure that we are complying with applicable restrictions.
We continue to work with regulators to address the emerging global landscape for digital assets. As investment continues, the intersection of technology and finance will require ongoing engagement as new applications emerge. Digital assets and distributed ledger technology have significant, positive potential with proper collaboration between industry and regulators.
COVID-19 Impacts
In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The COVID-19 pandemic has adversely affected global economic activity and, in 2020, contributed to significant declines and volatility in financial markets. The COVID-19 pandemic had an impact on our business during the year ended December 31, 2020, primarily in that it (i) decreased revenue from our loyalty and travel businesses, and (ii) impacted our ability to expand our relationships with existing loyalty partners, and to conclude relationships with new loyalty partners, whose businesses similarly have been adversely affected by the pandemic. During 2021, our business operations started to recover from the impacts of the pandemic. Our business operations have continued to recover in 2022 from the impacts of the pandemic, including revenue from the loyalty and travel business.
Business Combination
On October 15, 2021, Bakkt (f/k/a VPC Impact Acquisition Holdings, a Cayman Islands exempted company (“VIH”)) and VIH completed the Business Combination contemplated by the Merger Agreement. Pursuant to the Merger
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Agreement, VIH acquired a majority voting interest in Bakkt Opco Holdings, LLC (“Opco”) through a series of mergers, with Opco becoming a direct subsidiary of VIH. In connection with the completion of the Business Combination, VIH changed its jurisdiction of incorporation from the Cayman Islands to the State of Delaware and changed its name to “Bakkt Holdings, Inc.”
The Business Combination resulted in Bakkt continuing as the surviving entity and being organized as an umbrella partnership corporation, or “up-C,” structure in which substantially all our assets and business are held by Opco and its subsidiaries, with the existing owners of Opco being considered as noncontrolling interests in the audited consolidated financial statements.
Upon completion of the Business Combination, VIH was deemed the accounting acquirer and Opco the accounting acquiree. Under the acquisition method of accounting, VIH’s assets and liabilities retained their carrying values and the assets and liabilities associated with Opco were recorded at their fair values measured as of the acquisition date. The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill. In connection with the Business Combination, all outstanding membership interests and rights to acquire membership interests in Opco were exchanged for an aggregate of 208,200,000 Opco Common Units and an equal number of newly issued shares of our Class V common stock, par value $0.0001 per share (“Class V common stock”), which are non-economic, voting shares of the Company, of which 207,406,648 are outstanding and 793,352 reserved for issuance upon the exercise of a warrant agreement. Each Opco Common Unit, when coupled with one share of our Class V common stock is referred to as a “Paired Interest.” Paired Interests may be exchanged for one share of our Class A common stock or a cash amount in accordance with the Third Amended and Restated Limited Liability Company Agreement of Opco, and the Exchange Agreement between the Company and certain holders of Bakkt Common Units, dated as of October 15, 2021. Following the Closing, the Company owned approximately 20.3% of the Opco Common Units and with the remaining Opco Common Units being owned by the equity owners of Opco prior to the Merger.
As a result of the Business Combination, our financial results are broken out between the Predecessor periods (January 1, 2021 through March 31, 2021) and the Successor period (January 1, 2022 through March 31, 2022).
Our Corporate Structure
We own and consolidate entities formed during the year ended December 31, 2019, including Bakkt Trust and Bakkt Marketplace. We also own and consolidate entities that were acquired during the year ended December 31, 2019, including DACC Technologies, Inc., Digital Asset Custody Company, Inc. (collectively with DACC Technologies, Inc., “DACC”), and Bakkt Clearing, LLC (“Bakkt Clearing”), formerly known as Rosenthal Collins Group, L.L.C. We continued to operate these entities through fiscal year 2021 and also acquired Bridge2 Solutions in February 2020.
Bakkt Trust is a New York limited-purpose trust company that is chartered by and subject to the supervision and oversight of the NYDFS. In September 2019, Bakkt Trust, along with IFUS and ICUS, both of which are wholly-owned subsidiaries of ICE, brought to market an institutional-grade, regulated infrastructure for trading, clearing, and custody services for bitcoin. Bakkt Trust acts as a qualified custodian for bitcoin, which enables Bakkt Trust to offer end-to-end regulated, physically-delivered bitcoin futures and options contracts to financial institutions and market makers. In addition, Bakkt Trust has been approved by the NYDFS to offer non-trading- related, standalone custody of bitcoin and ether to institutions and certain high net worth individuals in cryptoassets, subject to NYDFS regulatory oversight.
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The below graphic illustrates the structure of the physically-delivered bitcoin futures and options and custody offerings.
Bakkt Marketplace has created an integrated platform that enables consumers and enterprises to transact in digital assets. Bakkt Marketplace users have a digital wallet that enables them to purchase, sell, convert, and or spend digital assets. Users can also use their digital wallet to spend fiat currency with various retailers and convert loyalty and rewards points into fiat currency. Bakkt Marketplace has received money transmitter licenses from all states throughout the U.S. where such licenses are required, has obtained a New York State virtual currency license, and is registered as a money services business with the Financial Crimes Enforcement Network of the United States Department of the Treasury. Bakkt
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rust’s custody solution provides support to Bakkt Marketplace with respect to bitcoin and ether functionality within the consumer app.
Bakkt Clearing is registered as a futures commission merchant (“FCM”) with the Commodity Futures Trading Commission (“CFTC”) and a member of the National Futures Association (“NFA”).
Bakkt’s white label loyalty redemption platform is largely carried on by its subsidiary, Bridge2 Solutions, LLC, which Bakkt acquired in February 2020.
Our Relationship with ICE and the Triparty Agreement
Prior to the consummation of the Business Combination, we were an indirect majority-owned subsidiary of ICE. ICE is a global market infrastructure provider with a history of developing and implementing leading technologies. ICE operates exchanges, clearinghouses, and listing venues for the financial markets alongside offering data-driven technology services to support the trading, lending, investment, risk management, and connectivity needs of customers. In building our platform, ICE and minority investors contributed capital and assets valued at approximately $483 million prior to the Business Combination, leveraging ICE’s leading competency of creating and operating market infrastructure. Upon our formation, ICE made a cash capital contribution and granted us the right to access ICE’s existing futures and clearing platforms.ICE also partners with us with respect to certain institutional product offerings.
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Results of Operations
The following table is our consolidated statements of operations for the Successor period and the Predecessor periods (in thousands):
| Successor | Predecessor | |||||||||||||
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||
| Revenues: | ||||||||||||||
Net revenues(1) | $ | 12,532 | $ | 8,145 | ||||||||||
| Operating expenses: | ||||||||||||||
| Compensation and benefits | 35,088 | 15,233 | ||||||||||||
| Professional services | 4,675 | 913 | ||||||||||||
| Technology and communication | 4,358 | 2,786 | ||||||||||||
| Selling, general and administrative | 9,435 | 6,109 | ||||||||||||
| Acquisition-related expenses | 516 | 7,820 | ||||||||||||
| Depreciation and amortization | 5,851 | 2,794 | ||||||||||||
Related party expenses (affiliate in Predecessor period)(2) | 367 | 471 | ||||||||||||
| Impairment of long-lived assets | — | — | ||||||||||||
| Other operating expenses | 728 | 429 | ||||||||||||
| Total operating expenses | 61,018 | 36,555 | ||||||||||||
| Operating loss | (48,486) | (28,410) | ||||||||||||
| Interest income (expense), net | 61 | (49) | ||||||||||||
| Gain from change in fair value of warrant liability | 2,428 | — | ||||||||||||
| Other income (expense), net | (462) | (338) | ||||||||||||
| Loss before income taxes | (46,459) | (28,797) | ||||||||||||
| Income tax benefit (expense) | 3,138 | (23) | ||||||||||||
| Net loss | $ | (43,321) | $ | (28,820) | ||||||||||
| Less: Net loss attributable to noncontrolling interest | (36,193) | |||||||||||||
| Net loss attributable to Bakkt Holdings, Inc. | (7,128) | |||||||||||||
| Net loss per share attributable to Bakkt Holdings, Inc. | ||||||||||||||
| Class A common stockholders per share: | ||||||||||||||
| Basic | $ | (0.12) | (3) | |||||||||||
| Diluted | $ | (0.14) | (3) | |||||||||||
(1)The revenue for the three months ended March 31, 2022 and 2021 includes net revenues from related party of $20 and net revenues from affiliate of $(26), respectively.
(2)As a result of the Business Combination, ICE and its affiliates are no longer our affiliates.
(3)Basic and diluted loss per share is not presented for the Predecessor period due to lack of comparability with the Successor period.
Three Months Ended March 31, 2022 (Successor) compared to Three Months Ended March 31, 2021 (Predecessor)
Financial Summary
The three months ended March 31, 2022 included the following notable items relative to the three months ended March 31, 2021:
•Revenue increased $4.4 million, or 54%, primarily driven by strong transaction revenue from the loyalty redemption business; and
•Operating expenses increased $24.5 million, or 67%, primarily driven by increases in non-cash compensation and headcount.
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Revenue
| Successor | Predecessor | |||||||||||||||||||||||||
| ($ in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net revenues | $ | 12,532 | $ | 8,145 | $ | 4,387 | 53.9 | % | ||||||||||||||||||
Net Revenues
Net revenues consist of transaction revenue and subscription and service revenue. Transaction revenue is net of incentives, rebates and liquidity payments under the Triparty Agreement, reductions in connection with the contribution agreement entered into between Bakkt and ICE in connection with ICE’s formation of Bakkt (the “Contribution Agreement”), and consideration payable to a customer pursuant to an agreement with a strategic partner.
Net revenues increased by $4.4 million, or 53.9%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was comprised of $3.2 million of increased transaction revenue and $1.2 million of increased subscription and service revenue. The increase in transaction revenue was driven by $2.5 million from higher customer activity in our loyalty redemption services business. The increase in subscription and service revenue was primarily related to the addition of new services for an existing loyalty customer.
Operating Expenses
Operating expenses consist of compensation and benefits, professional services, technology and communication expenses, selling, general and administrative expense, acquisition-related expenses, depreciation and amortization, affiliate expenses, impairment of long-lived assets, and other operating expenses.
Compensation and Benefits
| Successor | Predecessor | |||||||||||||||||||||||||
| ($ in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Compensation and Benefits | $ | 35,088 | $ | 15,233 | $ | 19,855 | 130.3 | % | ||||||||||||||||||
Compensation and benefits expense include all salaries and benefits, compensation for contract labor, incentive programs for employees, payroll taxes, unit-based compensation and other employee related costs. Compensation and benefits expense is the most significant component of our operating expenses, and we expect that our compensation and benefits expense will continue to increase in absolute dollars as we continue to expand our business, as described below.
Headcount has increased, and will continue to increase, across functions to further strengthen our service offerings and enhance our systems, processes, and controls. We intend to grant equity awards as part of the compensation package for new employees. We expect that our compensation and expenses will decrease as a percentage of our revenue over time. Compensation and benefits increased by $19.9 million, or 130.3%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to increases of $4.0 million in additional salaries, wages and benefits, $1.5 million in contract labor for software development, and $12.6 million in non-cash compensation and incentive bonuses. As a newly public company, we issued restricted stock units (“RSUs”) in the fourth quarter of 2021 that will vest in the second quarter of 2022. These awards accounted for $9.1 million of the total share-based compensation during the three months ended March 31, 2022 period. As we typically grant RSUs with a three-year vesting period, the impact of share-based compensation expenses is expected to be reduced in future periods.
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Professional Services
| Successor | Predecessor | |||||||||||||||||||||||||
| ($ in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Professional Services | $ | 4,675 | $ | 913 | $ | 3,762 | 412.0 | % | ||||||||||||||||||
Professional services expense includes fees for accounting, legal and regulatory fees. Professional services increased by $3.8 million, or 412.0%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to increases of $1.1 million in professional and other fees, $1.9 million in audit and tax fees, and $0.8 million in legal fees.
Technology and Communication
| Successor | Predecessor | |||||||||||||||||||||||||
| ($ in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Technology and Communication | $ | 4,358 | $ | 2,786 | $ | 1,572 | 56.4 | % | ||||||||||||||||||
Technology and communication costs represent all non-headcount related costs to deliver technological solutions. Such costs principally include amounts paid for software licenses and software-as-a-service arrangements utilized for operating, administrative and information security activities, fees paid for third-party data center hosting arrangements, and fees paid to telecommunications service providers and for telecommunication software platforms necessary for operation of our customer support operations. These costs are driven by customer requirements, system capacity, functionality and redundancy requirements.
Technology and communications expense also includes fees paid for access to external market data and associated licensing costs, which may be impacted by growth in electronic contract volume, our capacity requirements, changes in the number of telecommunications hubs, and connections with customers to access our electronic platforms directly. Technology and communications expense increased by $1.6 million, or 56.4%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to an increase of $1.4 million in hardware and software license fees.
Selling, General and Administrative
| Successor | Predecessor | |||||||||||||||||||||||||
| ($ in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Selling, General and Administrative | $ | 9,435 | $ | 6,109 | $ | 3,326 | 54.4 | % | ||||||||||||||||||
Selling, general and administrative expenses include marketing, advertising, business insurance, rent and occupancy, bank service charges, dues and subscriptions, travel and entertainment, rent and occupancy, and other general and administrative costs. Our marketing activities primarily consist of web-based promotionalcampaigns, promotional activities with partners, conferences and user events, and brand-building activities. Selling, general and administrative expenses do not include any headcount cost, which is reflected in the compensation and benefits financial statement line item. Our selling, general and administrative expenses will continue to increase in absolute dollars to support the projected growth in our business and requirements of being a public company, including increased insurance premiums and disclosure processes. However, we expect these costs will decrease as a percentage of our revenue in future years as we gain improved operating leverage from our projected revenue growth.
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Selling, general and administrative costs increased by $3.3 million, or 54.4%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to increases of $4.0 million in insurance expense and $0.4 million in rent, partially offset by a reduction of marketing expenses of $1.7 million. The majority of marketing expenses are web-based promotional campaigns. We expect to increase marketing efforts as part of our broader growth initiatives, which is expected to result in increased selling, general and administrative expenses in future periods.
Acquisition-related Expenses
| Successor | Predecessor | |||||||||||||||||||||||||
| ($ in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Acquisition-related expenses | $ | 516 | $ | 7,820 | $ | (7,304) | (93.4 | %) | ||||||||||||||||||
Acquisition-related expenses decreased by $7.3 million, or 93.4%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Acquisition-related expenses for the three months ended March 31, 2021 consist of fees for investment banking advisors, lawyers, accountants, tax advisors and public relations firms directly related to the Business Combination, which did not recur during the three months ended March 31, 2022. The amount and timing of acquisition-related expenses is expected to vary across periods based on potential transaction activities.
Depreciation and Amortization
| Successor | Predecessor | |||||||||||||||||||||||||
| ($ in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Depreciation and amortization | $ | 5,851 | $ | 2,794 | $ | 3,057 | 109.4 | % | ||||||||||||||||||
Depreciation and amortization expense consists of amortization of intangible assets from business acquisitions, internally developed software and depreciation of purchased software and computer and office equipment over their estimated useful lives. Intangible assets subject to amortization consist primarily of acquired technology and customer relationships from the Business Combination. Depreciation and amortization increased by $3.1 million, or 109.4%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to increases of $3.2 million related to the step-up in basis of the technology and customer relationships acquired in connection with the Business Combination, partially offset by a decrease of $0.1 million related to amortization of trade names during the three months ended March 31, 2021, which is no longer amortizable following the Business Combination in 2021.
Gain from Change in Fair Value of Warrant Liability
| Successor | Predecessor | |||||||||||||||||||||||||
| ($ in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Gain from change in fair value of warrant liability | $ | 2,428 | $ | — | $ | 2,428 | n/m | |||||||||||||||||||
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We recorded a gain of $2.4 million during the three months ended March 31, 2022 for the change in fair value on the revaluation of our warrant liability associated with our public warrants. This is a non-cash gain and is driven by fluctuations in the market price of our warrants.
Other expense, net
| Successor | Predecessor | |||||||||||||||||||||||||
| ($ in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Other expense, net | $ | (462) | $ | (338) | $ | (124) | 36.7 | % | ||||||||||||||||||
Other expense, net primarily consists of non-operating gains and losses. During the three months ended March 31, 2022, we had other expense of $0.5 million as compared to other expense of $0.3 million for the three months ended March 31, 2021. The increase in other expense of $0.1 million was primarily driven by foreign currency transaction losses.
Income tax benefit (expense)
| Successor | Predecessor | |||||||||||||||||||||||||
| ($ in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | $ Change | % Change | ||||||||||||||||||||||
| Income tax benefit (expense) | $ | 3,138 | $ | (23) | $ | 3,161 | n/m | |||||||||||||||||||
Income tax benefit during the three months ended March 31, 2022 primarily consists of deferred tax benefit from net loss allocated to Bakkt Holdings, Inc. during the period.
Liquidity and Capital Resources
Our predecessor principally financed its operations through equity financings in the form of capital contributions from its members and, to a lesser degree, from customer revenues. In addition, in 2018, ICE contributed certain developed assets and rights to use exchange and clearing licenses enabling Bakkt to commence operations. In connection with the closing of the Business Combination, our predecessor’s cash position was supplemented by $532.4 million, which included $325.0 million in proceeds from the closing of a private placement of shares of our Class A common stock and $207.4 million that had previously been held in trust.
As of March 31, 2022, we had $355.2 million and $16.5 million of cash and cash equivalents and restricted cash, respectively, which amounts included the net proceeds raised in connection with the Business Combination, the amounts used to fund redemptions in connection with the Business Combination and the amounts received upon exercise of the public warrants through such date. Cash and cash equivalents consist of cash deposits at banks and money market funds. Restricted cash is held to satisfy certain minimum capital requirements pursuant to regulatory requirements.
We intend to use our unrestricted cash to (i) increase our sales and marketing efforts, (ii) expand our research and product development efforts, and (iii) maintain and expand our technology infrastructure and operational support. In addition, we may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies or intellectual property rights. However, we have no agreements or commitments with respect to any such acquisitions or investments at this time.
Our expected uses of the available funds from the Business Combination are based upon our present plans, objectives and business condition. We have not determined all of the particular uses for the available funds, and
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management has not estimated the amount of funds, or the range of funds, to be used for any particular purpose. As a result, our management retain broad discretion over the available funds.
Our future cash requirements will depend on many factors, including our revenue growth rate, the timing and extent of hiring and associated overhead to support projected growth in our business, sales and marketing costs to drive revenue growth, and software development investments to continue adding features and functionality to our technology platforms to align with market needs. We continue to accelerate our hiring plans along with increasing our marketing and promotional efforts, which we expect to continue in the near future. We may also enter into arrangements to acquire or invest in complementary businesses, services, and technologies which will likely require us to increase our cash consumption.
In addition, we have evaluated the impact of the COVID-19 pandemic on our liquidity and capital needs, and we anticipate that its effects will be largely neutral.
Depending on the foregoing and other factors that may affect our business in the future, we may be required to seek additional capital contributions or debt financing in the future. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.
The following table summarizes our cash flows for the periods presented (in thousands):
| Successor | Predecessor | |||||||||||||
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||
| Net cash flows used in operating activities | $ | (33,156) | $ | (974) | ||||||||||
| Net cash flows used in investing activities | $ | (3,122) | $ | (4,054) | ||||||||||
| Net cash flows provided by (used in) financing activities | $ | 1 | $ | (31) | ||||||||||
Operating Activities
Since our inception, we have yet to achieve positive cash flow from operations. Our primary uses of cash include compensation and benefits for headcount-related expenses, investment in software and product development of our technology platforms, most significantly our platform, and associated non-headcount technology and communication cost to develop, operate and support our customer-facing technology platforms.
Net cash flows used in operating activities of $33.2 million for the three months ended March 31, 2022 was primarily related to our net loss of $43.3 million and changes in our operating assets and liabilities of $4.0 million, offset by non-cash charges of $14.2 million. The non-cash charges for the combined 2021 period primarily consisted of share-based compensation of $13.2 million and depreciation and amortization of $5.9 million, offset by a gain from change in fair value of warrant liability of $2.4 million. Net cash outflows from changes in our operating assets and liabilities for the three months ended March 31, 2022 resulted primarily from an increase in accounts receivables of $1.3 million, a decrease of accounts payable and accrued liabilities of $1.7 million and an increase in other assets and liabilities of $4.3 million, which were partially offset by a decrease in prepaid insurance of $4.3 million.
Net cash flows used in operating activities of $1.0 million for the three months ended March 31, 2021 is primarily attributable to our net loss of $28.8 million, offset by non-cash charges of $5.4 million and changes in our operating assets and liabilities of approximately $22.5 million. Non-cash charges primarily consisted of $1.3 million of unit-based compensation expenses and $2.8 million of depreciation and amortization. Net cash inflows from changes in operating assets and liabilities resulted from the return of a deposit with our clearinghouse affiliate of $20.4 million, a $2.9 million increase in accounts payable and accruals and a $1.1 million increase in other assets and liabilities, which were partially offset by a $2.0 million decrease in amounts due to affiliates.
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Investing Activities
Net cash flows used in investing activities of $3.1 million for the three months ended March 31, 2022 consisted of capitalized costs of internally developed software. Capital expenditures were primary related to capitalized expenses associated with internally developed software for our technology platforms.
Net cash flows used in investing activities of $4.1 million for the three months ended March 31, 2021 consisted of capitalized costs of internally developed software and other capital expenditures.
Financing Activities
Net cash flows provided by financing activities of less than $0.1 million for the three months ended March 31, 2022 resulted from proceeds from the exercise of public warrants.
Net cash flows used in financing activities of less than $0.1 million for the three months ended March 31, 2021 resulted from payments for capital leases during the period.
Tax Receivable Agreement
Concurrently with the completion of the Business Combination, we entered into a Tax Receivable Agreement with certain Bakkt Equity Holders. Pursuant to the Tax Receivable Agreement, among other things, holders of Bakkt Common Units may, subject to certain conditions, from and after April 16, 2022, exchange such Common Units (along with a corresponding number of shares of our Common Stock), for Class A common stock on a one-for-one basis, subject to the terms of the Exchange Agreement, including our right to elect to deliver cash in lieu of Class A common stock and, in certain cases, adjustments as set forth therein. Bakkt will have in effect an election under Section 754 of the Internal Revenue Code for each taxable year in which an exchange of Bakkt Common Units for Class A common stock (or cash) occurs.
The exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Bakkt. These increases in tax basis may reduce the amount of tax that we would otherwise be required to pay in the future. These increases in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
The Tax Receivable Agreement provides for the payment by us to exchanging holders of Bakkt Common Units of 85% of certain net income tax benefits, if any, that we realize (or in certain cases is deemed to realize) as a result of these increases in tax basis and certain other tax attributes of Bakkt and tax benefits related to entering into the Tax Receivable Agreement, including tax benefits attributable to payments under the Tax Receivable Agreement. This payment obligation is an obligation of the Company and not of Bakkt. For purposes of the Tax Receivable Agreement, the cash tax savings in income tax will be computed by comparing our actual income tax liability (calculated with certain assumptions) to the amount of such taxes that we would have been required to pay had there been no increase (or decrease) to the tax basis of the assets of Bakkt as a result of Bakkt having an election in effect under Section 754 of the Code for each taxable year in which an exchange of Bakkt Common Units for Class A common stock occurs and had we not entered into the Tax Receivable Agreement. Such increase or decrease will be calculated under the Tax Receivable Agreement without regard to any transfers of Bakkt Common Units or distributions with respect to such Bakkt Common Units before the exchange under the Exchange Agreement to which Section 743(b) or 734(b) of the Code applies. As of March 31, 2022, no such exchanges have occurred.
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Contractual Obligations and Commitments
The following is a summary of our significant contractual obligations and commitments as of March 31, 2022 (in thousands):
| Payments Due by Period | |||||||||||||||||||||||||||||
| Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||||||||||||||||||||
| Purchase obligations(1) | $ | 2,250 | $ | 8,750 | $ | 9,000 | $ | — | $ | 20,000 | |||||||||||||||||||
| Future minimum operating lease payments(2) | (2,642) | 5,537 | 5,765 | 14,536 | 23,196 | ||||||||||||||||||||||||
| Total contractual obligations | $ | (392) | $ | 14,287 | $ | 14,765 | $ | 14,536 | $ | 43,196 | |||||||||||||||||||
(1)Represents minimum commitment payments under a four-year cloud computing arrangement.
(2)Represents rental payments under operating leases with remaining non-cancellable terms in excess of one year.
Additionally, we, through our loyalty business, have a purchasing card facility with a bank that we utilize for redemption purchases made from merchant partners as part of our loyalty redemption platform. Expenditures made using the purchasing card facility are payable monthly, are not subject to formula-based restrictions and do not bear interest if amounts outstanding are paid when due and in full. Among other covenants, the purchasing card facility requires that we maintain a month-end cash balance of $40.0 million. In January 2021, the purchasing card facility was extended to April 15, 2022 in order to facilitate a long-term agreement on more favorable terms for us. In April 2022, we further extended the maturity date of the purchasing card facility to August 12, 2022.
On April 7, 2022, we entered into a corporate card services agreement with Bank of America to provide a new purchasing card facility. Total borrowing capacity under the facility is $35 million and there is no defined maturity date. Expenditures made using the purchasing card facility are payable monthly, are not subject to formula-based restrictions and do not bear interest if amounts outstanding are paid when due and in full. The purchasing card facility requires us to maintain a concentration account with the lender subject to a minimum liquidity maintenance requirement of $7.0 million as collateral along with the accounts receivable of our subsidiary, within the loyalty business. Bakkt Holdings, Inc. serves as the guarantor on behalf of our subsidiary under the commercial purchasing card facility.
Non-GAAP Financial Measures
We use non-GAAP financial measures to assist in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that presenting non-GAAP financial measures is useful to investors because it (a) provides investors with meaningful supplemental information regarding financial performance by excluding certain items that we believe do not directly reflect our core operations, (b) permits investors to view performance using the same tools that we use to budget, forecast, make operating and strategic decisions, and evaluate historical fact includedperformance, and (c) otherwise provides supplemental information that may be useful to investors in thisevaluating our results.
Adjusted EBITDA
We present Adjusted EBITDA as a non-GAAP financial measure.
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We believe that Adjusted EBITDA provides relevant and useful information, which is used by management in assessing the performance of our business. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, amortization and certain non-cash and/or non-recurring items that do not contribute directly to our evaluation of operating results. Adjusted EBITDA provides management with an understanding of earnings before the impact of investing and financing transactions and income taxes, and the effects ofaforementioned items that do not reflect the ordinary earnings of our operations. This measure may be useful to an investor in evaluating our performance. Adjusted EBITDA is not a measure of our financial performance under GAAP and should not be considered as an alternative to net income (loss) or other performance measures derived in accordance with GAAP. Our definition of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.
In addition to the items above, Adjusted EBITDA as a non-GAAP financial measure also excludes interest income (expense) and other income (expense), and income tax (expense) benefit, as these items are not components of our core business operations.
Non-GAAP financial measures like Adjusted EBITDA have limitations, should be considered as supplemental in nature and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:
•Share-based and unit-based compensation expense, which has been excluded from Adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations, has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy;
•the intangible assets being amortized, and property and equipment being depreciated, may have to be replaced in the future, and the non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments; and
•non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs.
Because of these limitations, the non-GAAP financial measures should be considered alongside other financial performance measures, including without limitation,net loss and our other financial results presented in accordance with GAAP.
The following table presents a reconciliation of net loss, the most directly comparable GAAP operating performance measure, to our Adjusted EBITDA for each of the periods indicated (in thousands):
| Successor | Predecessor | |||||||||||||
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||
| Net loss | (43,321) | (28,820) | ||||||||||||
| Depreciation and amortization | 5,851 | 2,794 | ||||||||||||
| Interest (income) expense | (61) | 49 | ||||||||||||
| Income tax (benefit) expense | (3,138) | 23 | ||||||||||||
| EBITDA | (40,669) | (25,954) | ||||||||||||
| Acquisition-related expenses | 516 | 7,820 | ||||||||||||
| Share-based and Unit-based compensation expense | 13,347 | 1,256 | ||||||||||||
| Gain from change in fair value of warrant liability | (2,428) | — | ||||||||||||
| ICE transition services expense | 367 | — | ||||||||||||
| Cancellation of common units | (60) | — | ||||||||||||
| Adjusted EBITDA | (28,927) | (16,878) | ||||||||||||
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Adjusted EBITDA for the three months ended March 31, 2022 decreased by $12.0 million or 71.4% as compared to the three months ended March 31, 2021. The decrease was primarily due to a $7.9 million increase in compensation and benefits resulting from an increase in headcount to support the projected growth in our business, a $3.8 million increase professional services including fees for accounting, legal and regulatory fees, and a $3.3 million increase in selling, general and administrative expenses to support the projected growth in our business and requirements of being a public company, including increased insurance premiums and disclosure processes.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which requires us to make estimates and apply judgments that affect the reported amounts. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows may be affected.
Due to the COVID-19 pandemic and the military conflict in Eastern Europe, there has been uncertainty and disruption in the global economy and financial markets, which requires us to make certain estimates and assumptions that affect the amounts reported in our consolidated financial statements. The significant estimates and assumptions that affect the financial statements may include, but are not limited to, those that are related to income tax valuation allowances, useful lives of intangible assets and property, equipment and software, fair value of financial assets and liabilities, determining provision for doubtful accounts, valuation of acquired tangible and intangible assets, the impairment of intangible assets and goodwill, and fair market value of Bakkt common units, incentive units and participation units. We have assessed the impact and are not aware of any specific events or circumstances that required an update to our estimates and assumptions or materially affected the carrying value of our assets or liabilities as of the date of issuance of this “Management’sReport. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
For a description of our critical accounting policies and estimates, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategyin our Form 10-K. There have been no material changes to our critical accounting policies and the plansestimates since our Form 10-K.
Recently Issued and objectives of management for future operations,Adopted Accounting Pronouncements
Recently issued and adopted accounting pronouncements are forward-looking statements. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and variations thereof and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report onForm 10-Koriginally filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2021 (as amended and restated on May 24, 2021 and December 7, 2021). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Evaluation of Disclosure Controls and Procedures
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disclosed by us in Rules13a-15(e)and15d-15(e)reports that we file under the Exchange Act) were not effective, due solelyAct is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the material weaknesstime periods specified in our internal control over financial reporting related to the Company’s accounting for complex financial instruments. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Amended Form10-Qpresent fairly in all material respects our financial position, results of operationsrules and cash flows for the period presented.
Changes in Internal Control Over Financial Reporting
There were no changes in the system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
The results of any litigation cannot be predicted with certainty, and an unfavorable resolution in any legal proceedings could materially affect our future business, results of operations, or financial condition. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Unregistered Sales of Equity Securities
and Use of Proceeds
None.
None.
Not applicable.
None.
-49-
| Incorporated by Reference | ||||||||||||||||||||
Exhibit Number | Description | Form | File No. | Exhibit | Filing Date | |||||||||||||||
| 3.1 | 8-K | 001-39544 | 3.1 | October 21, 2021 | ||||||||||||||||
| 3.2 | 8-K | 001-39544 | 3.2 | October 21, 2021 | ||||||||||||||||
| 31.1* | ||||||||||||||||||||
| 31.2* | ||||||||||||||||||||
| 32.1† | ||||||||||||||||||||
| 32.2† | ||||||||||||||||||||
| 101.INS* | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||||||||||||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||||||||||||||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||||||||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||||
| 104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||||||||||||||
* Filed herewith.
† These exhibits are furnished with this Quarterly Report on Form 10-Q and are not deemed filed as part of, orwith the Securities and Exchange Commission and are not incorporated by reference into, this Quarterly Report onForm 10-Q.in any filing of Bakkt Holdings, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Bakkt Holdings, Inc. | ||||||||||||||
| Date: | By: | /s/ Gavin Michael | ||||||||||||
| Gavin Michael | ||||||||||||||
Chief Executive Officer (Principal Executive Officer) | ||||||||||||||
| Date: | By: | /s/ Andrew | ||||||||||||
| Andrew | ||||||||||||||
Chief Financial Officer (Principal Financial Officer) | ||||||||||||||