Recent Developments

Bakkt Trust Exit In October 2024, Bakkt began investigating winding down and dissolving its Bakkt Trust subsidiary due to lack of market traction and high regulatory capital requirements. Bakkt is exploring strategic alternatives for Bakkt Trust as this process continues.

Revolving Credit Facility In August 2024, Bakkt secured a $40 million revolving credit facility with its parent company Intercontinental Exchange Holdings. This provides Bakkt with additional working capital and liquidity.

Reverse Stock Split In April 2024, Bakkt executed a 1-for-25 reverse stock split to increase its stock price above the $1 minimum required for listing on the New York Stock Exchange. This reduced the total number of authorized shares.

Concurrent Registered Direct Offerings In February and March 2024, Bakkt raised $46.5 million in net proceeds from concurrent registered direct stock and warrant offerings with institutional investors and its parent company ICE.

Crypto Market Developments

The crypto market remained volatile in 2024 due to broader macroeconomic conditions like high inflation and interest rates. Regulators also increased scrutiny on crypto companies, with the SEC bringing charges against several exchanges. However, the approval of spot bitcoin and ethereum ETFs drove increased institutional investment in crypto.

Bakkt Crypto Solutions Acquisition

In April 2023, Bakkt acquired 100% of Bakkt Crypto Solutions, a crypto trading platform. This expanded Bakkt’s B2B2C business by allowing it to offer crypto trading services to fintech and neobank clients. Bakkt reviewed and delisted certain crypto assets on the Bakkt Crypto platform in 2023 due to regulatory concerns, but has since added new crypto assets.

NYSE Listing Notification

In March 2024, Bakkt was notified by the NYSE that its stock price was below the $1 minimum requirement. Bakkt regained compliance in June 2024 after executing the reverse stock split.

Executive Officer Transition

In March 2024, Bakkt’s CEO Gavin Michael resigned and was replaced by Andrew Main. Bakkt also saw changes in its Chief Accounting Officer role during 2024.

Key Factors Affecting Performance

Bakkt’s performance is influenced by several key factors:

Growing Client Base Bakkt’s ability to add new clients to its B2B2C platform is crucial for driving revenue growth. The Bakkt Crypto Solutions acquisition helped expand Bakkt’s fintech and neobank partnerships.

Product Expansion and Innovation Bakkt needs to continue innovating its crypto and loyalty platform capabilities to meet client demands and stay competitive.

Competition The crypto market is highly competitive, but Bakkt believes its institutional-grade technology platform and ability to offer both crypto and loyalty services gives it an advantage.

General Economic and Market Conditions Bakkt’s performance is impacted by broader macroeconomic factors and crypto market volatility, which are outside of its control.

Regulations in U.S. & International Markets As a crypto company, Bakkt must navigate a complex and evolving regulatory landscape, which can impact its product offerings and operations.

Safeguarding Crypto Held for Clients Bakkt holds a significant amount of crypto on behalf of its clients, and must ensure proper safeguarding and legal treatment of these assets.

Key Performance Indicators

Bakkt tracks four key metrics to measure its business performance:

1. Crypto-Enabled Accounts: The total number of crypto accounts open on Bakkt’s platform, which grew from 6.2 million at the end of 2023 to 6.5 million by Q3 2024.

2. Transacting Accounts: The number of unique accounts that performed transactions each month, which averaged 0.6 million in Q3 2024 and 2.1 million for the first 9 months of 2024.

3. Notional Traded Volume: The total notional value of transactions across Bakkt’s crypto and loyalty platforms, which was $476.5 million in Q3 2024 and $2,189.5 million for the first 9 months.

4. Assets Under Custody: The total value of crypto assets held by Bakkt on behalf of its clients, which grew from $701.6 million at the end of 2023 to $938.7 million by Q3 2024.

Results of Operations

Bakkt’s revenue increased significantly in 2024 compared to 2023, driven by growth in its crypto services business following the Bakkt Crypto Solutions acquisition. Crypto services revenue was $316.3 million in Q3 2024, up 65% from the prior year quarter. Loyalty services revenue was relatively flat year-over-year.

On the expense side, Bakkt’s crypto costs, which represent the value of crypto sold by customers, increased 65.2% in Q3 2024 in line with the higher trading volume. Execution, clearing and brokerage fees also rose due to the increased trading activity.

Compensation and benefits expense decreased 14.3% in Q3 2024 as Bakkt reduced headcount, while professional services costs increased 172.5% due to higher legal and audit fees. Bakkt also recorded a $20 million non-cash gain from the change in fair value of its warrant liability during Q3 2024.

For the first 9 months of 2024, Bakkt’s revenue grew 199.3% to $1.7 billion, while operating expenses increased 148.2% to $1.8 billion compared to the same period in 2023. The significant revenue growth was driven by the Bakkt Crypto Solutions acquisition, while the expense increase was primarily due to higher crypto trading costs.

Bakkt’s net loss for the first 9 months of 2024 was $63.1 million, an improvement from a $147.1 million loss in the prior year period. Adjusted EBITDA loss decreased 22.7% year-over-year to $57.9 million for the first 9 months of 2024.

Liquidity and Capital Resources

As of September 30, 2024, Bakkt had $29 million in cash and cash equivalents, plus $35.3 million in restricted cash and $6.7 million in available-for-sale debt securities. The $46.5 million in net proceeds from Bakkt’s concurrent stock and warrant offerings in early 2024 provided additional liquidity.

In August 2024, Bakkt also secured a $40 million revolving credit facility with its parent company ICE, which can be used for working capital and general corporate purposes. No amounts were drawn on this facility as of September 30, 2024.

Bakkt expects to use its available cash, proceeds from debt securities maturities, and the ICE credit facility primarily to fund day-to-day operations, maintain regulatory capital requirements, activate new crypto clients, continue product development, and optimize its technology infrastructure. Bakkt believes its current liquidity, along with the ICE credit facility, will be sufficient to fund operations for at least the next 12 months based on its current forecasts.

However, Bakkt notes there are certain risks associated with this liquidity assessment, and it may need to take further actions to reduce expenses or raise additional capital in the future. The company’s future cash needs will depend on factors like revenue growth, overhead and marketing costs, and its ability to limit software development investments.

Conclusion

Bakkt made significant progress in 2024, growing its crypto services revenue by 65% in Q3 2024 through the integration of Bakkt Crypto Solutions. The company also shored up its liquidity position through a credit facility and stock offerings.

However, Bakkt continues to face headwinds from the volatile crypto market and regulatory uncertainty. Its ability to further expand its client base, innovate its product offerings, and control costs will be critical to driving improved financial performance going forward. Bakkt’s transition to a new CEO and other executive changes also introduce some uncertainty.

Overall, Bakkt appears to be taking the necessary steps to position itself for long-term success in the rapidly evolving crypto and loyalty services landscape, but significant challenges remain. Investors will be closely watching Bakkt’s execution in the coming year.