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BH

Bakkt Holdings, Inc. (BKKT)·Q3 2022 Earnings Summary

Executive Summary

  • Net revenue was $12.9M, up 41% year over year, driven by loyalty redemption strength in travel; adjusted EBITDA was a loss of $(30.7)M, and GAAP diluted EPS was $(6.11) due to a non-cash impairment of $1,547.7M .
  • Management announced a definitive agreement to acquire Apex Crypto (initial $55M cash plus up to $145M in stock/notes tied to aggressive earn-out targets), expected to be accretive to adjusted EPS and drive at least 20% operating margin expansion in 2023 post-close .
  • Guidance: 2022 revenue expected at the low end of the prior $57–$62M range; 2022 cash usage within the $135–$140M range excluding a one-time $9.2M payment; restructuring charge expected in Q4 to refocus and cut costs .
  • Macro/crypto backdrop (FTX fallout) heightened compliance focus; management emphasized “no exposure to FTX,” and leaned into utility use cases and loyalty amid elongated partner decision cycles .

What Went Well and What Went Wrong

What Went Well

  • Net revenue rose 41% YoY to $12.9M on strong loyalty redemption activity, with digital asset conversion volumes up 73% YoY to $182M .
  • Announced Apex Crypto acquisition to accelerate crypto capabilities, expand client verticals, and target >20% operating margin expansion in 2023; deal structure links consideration to robust gross profit growth targets (~175% in 2023; ~50% in 2024) .
  • Management emphasized risk discipline and compliance-first approach amid market volatility: “We have no exposure to FTX or any of the impacted parties or tokens,” underscoring platform resilience .

What Went Wrong

  • Recorded a non-cash goodwill/intangible impairment of $1,547.7M (following an Oct. 28 pre-announcement estimating $1.3–$1.4B goodwill and $150–$160M intangible), driving GAAP EPS to $(6.11) .
  • Continued softening in travel loyalty volumes due to supply constraints and high prices, tempering transaction revenue momentum in H2 .
  • Cash used in Q3 was $42.1M (including $7.8M capex and a one-time $9.2M facility migration payment), highlighting the need to moderate burn and implement restructuring .

Financial Results

MetricQ1 2022Q2 2022Q3 2022
Net Revenue ($USD Millions)$12.5 $13.6 $12.9
Net Loss ($USD Millions)$(43.3) $(27.6) $(1,592.5)
Diluted EPS ($USD)$(0.14) $(0.05) $(6.11)
Adjusted EBITDA ($USD Millions)$(28.9) $(29.6) $(30.7)

Segment breakdown (Q3 2022):

SegmentQ3 2022
Subscription & Service Revenue ($USD Millions)$6.3
Transaction Revenue ($USD Millions)$6.6

KPIs:

KPIQ1 2022Q2 2022Q3 2022
Transacting Accounts (000s)681678 678
Digital Asset Conversion Volume ($USD Millions)$182$205 $182

Notes: Q3 GAAP losses reflect the non-cash impairment of $1,547.7M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Revenue ($USD Millions)FY 2022$57–$62M Expect low end of range Lowered to low end
Cash Usage ($USD Millions)FY 2022$135–$140M Within range, excluding one-time $9.2M payment Maintained (excl. one-time)
Operating Margin ExpansionFY 2023N/A≥20% from Apex Crypto (excl. deal costs) New (Raised outlook)
Cumulative Free Cash FlowThrough 2025N/A~$80M from acquisition + restructuring (excl. deal costs) New
Restructuring ChargeQ4 2022N/AWill implement restructuring plan and recognize charge New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2022)Current Period (Q3 2022)Trend
Crypto market/regulatoryEmphasis on NYDFS licensing, trust structure; anticipating more stringent rules; elongated partner decision timelines “No exposure to FTX”; expect regulatory clarity; compliance-first risk posture Increased focus on compliance and risk separation
Partner activationsExpected strong H2 acceleration (Q1); activations in H2 with ramp in 2023 (Q2) Initial pilot with Global Payments; Apex adds >30 fintech partners and pipeline of >220 AFS clients Ramp shifting more visibly to 2023 with Apex scale
Loyalty/travel dynamicsRebound in travel supporting loyalty volumes (Q1) Softening in travel volumes continued in Q3 due to supply constraints/high prices H2 travel weakness vs early 2022 strength
Cash/burn and balance sheetAvailable cash $355M; investment year (Q1) Available cash & liquid assets $273.7M; used $42.1M cash; plan to moderate burn in 2023 Burn moderating with restructuring and Apex synergies
Apex Crypto acquisitionN/A$55M cash + up to $145M stock/notes; accretive to adjusted EPS; earn-out tied to GP growth (~175% in 2023; ~50% in 2024) Strategic acceleration; contingent consideration aligned to performance

Management Commentary

  • Strategy and risk posture: “We have no exposure to FTX or any of the impacted parties or tokens… We’ve always taken a mature and thoughtful approach to risk.” — Gavin Michael, CEO .
  • Apex acquisition impact: “We are targeting an operating margin expansion in 2023 of at least 20%… We expect free cash flow of ~$80M through 2025 from the acquisition and associated restructuring initiatives.” — Gavin Michael / Karen Alexander .
  • Balance sheet/liquidity: “We ended the third quarter with $273.7 million of available cash and other highly liquid assets… leaving significant liquidity to self-fund our roadmap and finance the cash component of the Apex transaction.” — Karen Alexander, CFO .
  • Global Payments pilot: “Pilot is due to run through the next several months… get ready to take it into broader launch as we start to see the right demand.” — Gavin Michael .

Q&A Highlights

  • Crypto/FTX fallout and regulation: Management expects greater regulatory clarity and stressed their compliance-first model separating custody from trading; focus on utility use cases beyond pure trading .
  • Cash burn moderation: Burn expected to slow in 2023 via revenue ramp (crypto activations + Apex) and expense discipline/restructuring; specifics to come with 2023 guidance .
  • Global Payments pilot: Internal pilot with NetSpend employees to validate functionality ahead of broader launch .
  • Apex accounts definition: ~5M “crypto-enabled accounts” represent registered accounts able to trade; active trading will be a subset .
  • Crypto price volatility: Downturns don’t necessarily hurt Bakkt; volatility can increase trading volume, and Bakkt makes back-to-back offsetting trades, holding little on balance sheet .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2022 EPS, revenue, EBITDA was unavailable at time of retrieval. We attempted to fetch “Primary EPS Consensus Mean,” “Revenue Consensus Mean,” and “EBITDA Consensus Mean” for Q3 2022; access was not available due to system limits. As a result, comparisons vs consensus cannot be provided. Values would normally be retrieved from S&P Global.
  • Given the significant non-cash impairment in Q3, investor focus should be on net revenue trajectory and adjusted EBITDA rather than GAAP EPS for forward estimate alignment .

Key Takeaways for Investors

  • Revenue momentum in loyalty persisted YoY, but H2 travel softness and elongated crypto partner decisions capped near-term growth; Apex adds immediate scale to crypto distribution and capabilities .
  • The $1.55B non-cash impairment reflects market cap decline and delayed crypto activation timing, not liquidity stress; balance sheet remains strong with $273.7M in cash/near-cash .
  • Expect 2022 revenue at the low end of $57–$62M and cash usage within the $135–$140M range (excl. one-time), with a Q4 restructuring to right-size costs and bolster 2023 margin trajectory .
  • Apex earn-out is aggressive (GP growth ~175% in 2023; ~50% in 2024), aligning contingent consideration with performance and offering upside to adjusted EPS and operating margin if achieved .
  • Compliance-first positioning (no FTX exposure) and segregation of custody/trading should be a relative advantage as regulatory scrutiny rises; utility-centric crypto use cases (rewards, payouts) may find faster adoption in current market .
  • Near-term trading lens: stock reaction likely tied to impairment optics and Apex strategic rationale; medium-term thesis hinges on crypto partner ramp in 2023, Apex integration synergies, and cost actions supporting margin expansion .

Appendix: Additional Relevant Press Releases

  • Oct. 28, 2022 impairment pre-announcement: goodwill impairment estimated ~$1.3–$1.4B and indefinite-lived intangible ~$150–$160M; non-cash and no impact on liquidity or operating cash flows .