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What changed in Bakkt Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Bakkt Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+727 added−558 removedSource: 10-K (2024-03-25) vs 10-K (2023-03-24)

Top changes in Bakkt Holdings, Inc.'s 2023 10-K

727 paragraphs added · 558 removed · 363 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

77 edited+176 added−41 removed29 unchanged
Biggest changeWe believe we will benefit from a positive network effect, where the value of our network will generally increase as we add new clients, vendors, customers and crypto to our platform. -10- Table of Content s Customer Care Our customer service channels are at the core of our offerings to clients, providing seamless and easy-to-leverage support for the wide array of cryptoasset transactions on our platform.
Biggest changeCustomer Care Our customer service channels are at the core of our loyalty and travel redemption offerings to clients, providing seamless and easy-to-leverage support for the wide array of loyalty and travel redemption transactions on our platform. We strive to provide our clients and their customers with a high-quality experience.
As our business continues to expand in the United States and potentially beyond, and as laws and regulations continue to be passed and their interpretations continue to evolve in numerous jurisdictions, additional laws and regulations may become relevant to us. Regulatory authorities around the world are considering numerous legislative and regulatory proposals concerning privacy, data protection and cybersecurity.
As our business continues to expand in the United States and beyond, and as laws and regulations continue to be passed and their interpretations continue to evolve in numerous jurisdictions, additional laws and regulations may become relevant to us. Regulatory authorities around the world are considering numerous legislative and regulatory proposals concerning privacy, data protection and cybersecurity.
Bakkt Trust is also subject to FinCEN requirements as a financial institution. We are subject in certain jurisdictions to licensing and regulatory requirements as a result of offering our clients the ability to aggregate, buy, sell, convert, spend and send virtual currency through our platform.
Bakkt Trust is also subject to FinCEN requirements as a financial institution. We are subject in certain jurisdictions to licensing and regulatory requirements as a result of offering our clients the ability to aggregate, buy, sell, convert, and send virtual currency through our platform.
As part of this approach, we have developed our platform to be flexible and scalable to accommodate how different clients may want to implement our offerings. Depending on each client’s specific needs and objectives, that client can choose to add one, some or all of our capabilities, and can also choose the manner in which those capabilities are enabled.
As part of this approach, we have developed our platform to be flexible and scalable to accommodate how different clients may want to implement our solutions. Depending on each client’s specific needs and objectives, that client can choose to add one, some or all of our capabilities, and can also choose the manner in which those capabilities are enabled.
Our ability to stand up capabilities within client ecosystems makes our platform an attractive solution for such financial institutions seeking an intuitive, tightly-integrated, low risk solution to offer crypto and loyalty services. Value of Partnerships. We believe our growing network of clients provides potential for increased scale and substantiates the viability of our business plan.
Our ability to stand up capabilities within client ecosystems makes our platform an attractive solution for such financial institutions seeking an intuitive, tightly integrated, low risk solution to offer crypto and loyalty services. We believe our growing network of clients provides potential for increased scale and substantiates the viability of our business plan.
Consequently, we must comply with laws, rules and regulations promulgated pursuant to the New York Banking Law with respect to the cryptocurrency custody services we provide through Bakkt Trust, including those related to capitalization, corporate governance, anti-money laundering, disclosure, reporting and examination, as well as supervisory guidance and requirements.
Consequently, we must comply with laws, rules and regulations promulgated pursuant to the New York Banking Law with respect to the crypto custody services we provide through Bakkt Trust, including those related to capitalization, corporate governance, anti-money laundering, disclosure, reporting and examination, as well as supervisory guidance and requirements.
Customers include customers of our loyalty clients who use our platform to transact in loyalty points, as well as customers of our clients who transact in crypto through, and have accounts on, our platform (except as defined for ASC 606 purposes above). • Loyalty points means loyalty and/or reward points that are issued by clients to their customers.
Customers include customers of our loyalty clients who use our platform to transact in loyalty points, as well as customers of our clients who transact in crypto through, and have accounts on, our platform (except as defined for ASC 606 purposes above). • “Loyalty points” means loyalty and/or reward points that are issued by clients to their customers.
We provide regular trainings to help our employees understand and comply with the many regulations in our industry and with our company policies. We expect managers to set the tone for their teams and to lead by example, including by embracing ethical behavior and sharing its importance with their team.
We provide regular training to help our employees understand and comply with the many regulations in our industry and with our company policies. We expect managers to set the tone for their teams and to lead by example, including by embracing ethical behavior and sharing its importance with their team.
At Bakkt, we strive to challenge the status quo with new ideas, have open and honest communications, appreciate our diversity of thought, take ownership and accountability for delivering valuable results and act with integrity, respect and reliability. In a complex industry, it is critical for employees to act ethically.
At Bakkt, we -26- Table of Contents strive to challenge the status quo with new ideas, have open and honest communications, appreciate our diversity of thought, take ownership and accountability for delivering valuable results and act with integrity, respect and reliability. In a complex industry, it is critical for employees to act ethically.
Our core locations are Alpharetta, GA, Scottsdale, AZ, New York City, NY and San Francisco, CA. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Our core locations are Alpharetta, GA, Scottsdale, AZ and New York City, NY. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Although we do not believe that we have any single direct competitor for the full range of products we provide through our platform, we compete with a wide range of parties, including crypto exchanges, peer-to-peer payment systems, and loyalty program redemption solutions for similar services.
Although we do not believe that we have any single direct competitor for the full range of products we provide through our platform, we compete with a wide range of parties, including crypto exchanges, custodians, payment systems, and loyalty program redemption solutions, for similar services.
Further, additional laws and regulations may apply to our businesses as we expand outside of the United States in the future. For more information, please see our risk factors described in “Item 1A. Risk Factors - Risks Related to Regulation, Taxation and Laws”. Regulation of Our Payments Business.
Further, additional laws and regulations may apply to our businesses as we expand outside of the United States in the future. For more information, please see our risk factors described in “Item 1A. Risk Factors - Risks Related to Regulation, Taxation and Laws”. Regulation of Our Money Transmission Business.
Any actual or perceived failure to comply with these requirements may result in, among other things, revocation of required licenses or registrations, loss -11- Table of Content s of approved status, regulatory or governmental investigations, administrative enforcement actions, sanctions, civil and criminal liability, private litigation, reputational harm, or constraints on our ability to continue to operate.
Any actual or perceived failure to comply with these requirements may result in, among other things, revocation of required licenses or registrations, loss of approved status, regulatory or governmental investigations, administrative enforcement actions, sanctions, civil and criminal liability, private litigation, reputational harm, or constraints on our ability to continue to operate.
Business Overview In this section and elsewhere in this Annual Report on Form 10-K, we use the following terms, which are defined as follows: • Client means businesses with whom we contract to provide services to customers on our platform, and includes financial institutions, hedge funds, merchants, retailers, and other businesses (except in the accompanying notes to the consolidated financial statements, where we refer to revenue earned from customers, instead of clients.
Business Overview In this section and elsewhere in this Annual Report on Form 10-K, we use the following terms, which are defined as follows: • “Client” means businesses with whom we contract to provide services to customers on our platform, and includes financial institutions, hedge funds, merchants, retailers, third party partners, and other businesses (except in the accompanying notes to the consolidated financial statements, where we refer to revenue earned from customers, instead of clients.
For example, traditional financial institutions are facing increased competition from a broader group of financial technology entrants (“fintechs”). We expect that the pressure on them to provide innovative products and increased competition will continue to grow.
For example, traditional financial institutions are facing increased competition from a broader group of fintech entrants. We expect that the pressure on them to provide innovative products and increased competition will continue to grow.
Therefore, our crypto services offered through our platform or our limited purpose trust company may become subject to regulation by other authorities and/or may subject us to additional requirements. Broker-Dealer Regulation. The Exchange Act requires that any person who is a broker or a dealer and effects or induces securities transactions must register with the SEC.
Therefore, our crypto services offered through our platform may become subject to regulation by other authorities and/or may subject us to additional requirements. Broker-Dealer Regulation . The Exchange Act requires that any person who is a broker or a dealer and effects or induces securities transactions must register with the SEC.
As our partnerships go live, we will deploy marketing resources to drive consumer adoption and usage of our platform. The successful activation and implementation of these partnerships are expected to be a significant driver for our transaction growth and associated revenue, including crypto trading revenue.
As our partnerships go live, we will offer to retail clients marketing resources to drive consumer adoption and usage of our platform. The successful activation and implementation of these partnerships are expected to be a significant driver for our transaction growth and associated revenue, including crypto trading revenue.
We also maintain controls aligned to the Payment Card Industry Data Security Standard ("PCI-DSS") for in-scope systems where cardholder data is stored or processed. We comply with NYDFS cybersecurity requirements which imposes strict rules related to establishing a detailed cybersecurity plan, enacting a comprehensive cybersecurity policy, and maintaining an ongoing reporting system for cybersecurity events.
We also maintain controls aligned to the Payment Card Industry Data Security Standard ("PCI-DSS") for in-scope systems where cardholder -23- Table of Contents data is stored or processed. We comply with NYDFS cybersecurity requirements which impose strict rules related to establishing a detailed cybersecurity plan, enacting a comprehensive cybersecurity policy, and maintaining an ongoing reporting system for cybersecurity events.
Our platform moves a significant amount of volume across asset classes every day, and we handle customer service for many of the largest financial institutions in the country. We believe these pillars, when applied to the rapidly evolving crypto space, provide confidence to consumers, merchants, institutions and loyalty clients that participate in our ecosystem. Sales and Marketing B2B2C Model .
Our platform moves a significant amount of volume across asset classes every day, and we handle customer service for many of the largest financial institutions in the country. We believe these pillars, when applied to the rapidly evolving crypto space, provide confidence to customers, merchants, institutions and loyalty clients that participate in our ecosystem.
We will comply with new license requirements as they arise. Bakkt Marketplace is also registered as a "Money Services Business" with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
We will comply with new license requirements as they arise. Bakkt Marketplace and Bakkt Crypto are also registered as a "Money Services Business" with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
In order to be able to act as a broker and advise clients interested in transactions that involve securities, we acquired a registered broker-dealer, Bumped.
In order to be able to act as a broker and advise clients interested in transactions that involve securities, we acquired Bakkt Brokerage, a registered broker-dealer.
Our AML compliance program is comprised of policies, procedures, reporting protocols, including reporting requirements for suspicious transactions, and internal controls, including the designation of a compliance officer, training for employees, and a regular independent review of the -13- Table of Content s program.
Our AML compliance program is comprised of policies, procedures, reporting protocols, including reporting requirements for suspicious transactions, and internal controls, including the designation of a compliance officer, training for employees, and a regular independent review of the program.
The custody platform is purpose-built to safeguard crypto , with multi-signature wallet policies, hardware security modules and offline storage of private key material, blockchain surveillance and AML/KYC compliance integrated into the core of the platform.
The custody platform is built to safeguard crypto with multi-signature wallet policies, hardware security modules and offline storage of private key material, blockchain surveillance and AML/KYC compliance integrated into the core of the platform and our operation team’s procedures.
We hold our employees to high standards, both in work product and ethics, and aim to create a culture of accountability and results. Our performance expectations and attributes empower our company. They reflect how we expect employees to operate, collaborate and make decisions.
Human Capital Our employees are essential in propelling our success. We hold our employees to high standards, both in work product and ethics, and aim to create a culture of accountability and results. Our performance expectations and attributes empower our company. They reflect how we expect employees to operate, collaborate and make decisions.
Anti-Money Laundering and Counter-Terrorism Regulation. We are subject to AML laws and regulations in the United States, including the BSA, as amended, and its implemented regulations enforced by FinCEN, as well as laws designed to prevent the use of the financial systems to facilitate terrorist activities.
We are subject to AML laws and regulations in the United States, including the BSA, as amended, and its implemented regulations enforced by FinCEN, as well as laws designed to prevent the use of the financial systems to facilitate terrorist activities.
As of December 31, 2022, we had a total of 1,037 employees, all of whom were full-time employees, and all of whom are located in the United States. We also engage temporary employees and consultants as needed to support our operations. Collectively, approximately 18% of our workforce is dedicated to engineering, design, or product roles.
As of December 31, 2023, we had a total of 747 employees, all of whom were full-time employees, and are located in the United States. We also engage temporary employees, consultants and employers of record as needed to support our operations. Collectively, approximately 16% of our workforce is dedicated to engineering, design, or product roles.
We aim to promote diversity and inclusion through a number of employee engagement events including internal and external speaker sessions to foster learning on relevant and important topics. Our employees come from a wide variety of backgrounds to work toward a common vision for the Company.
We embrace our employees’ differences, while valuing a diverse, inclusive and safe workplace. We aim to promote diversity and inclusion through a number of employee engagement events including internal and external speaker sessions to foster learning on relevant and important topics. Our employees come from a wide variety of backgrounds to work toward a common vision for the Company.
For instance, the Securities and Exchange Commission (the “SEC”) has indicated that it considers certain cryptocurrencies to possibly constitute securities. The SEC has yet to issue any formal regulation on this point, though it has put forth some guidance on overarching frameworks and relevant factors to consider in this analysis.
For instance, the Securities and Exchange Commission (the “SEC”) has indicated in various enforcement actions and other contexts that it considers certain crypto assets to constitute securities. The SEC has yet to issue any formal regulation on this point, though it has put forth some guidance on overarching frameworks and relevant factors to consider in this analysis.
We use our investor relations website to post important information for investors, including news releases, analyst presentations, and supplemental financial information, and as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.
We use our investor relations website to post important information for investors, including news releases, analyst presentations, and supplemental financial information, and as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. We use these channels as well as social media to communicate with the public about our company.
We provide cryptocurrency custody services through Bakkt Trust, a limited purpose trust company that is chartered under the New York Banking Law and subject to the supervision and oversight of the NYDFS.
Regulation of Our Virtual Currency Business. We provide crypto custody services through Bakkt Trust, a limited purpose trust company that is chartered under the New York Banking Law and subject to the supervision and oversight of NYDFS.
For more information, please see our risk factors described in “Item 1A. Risk Factors - Related to Our Business, Finances and Operations”. Revenue Model We generate revenue when consumers use our services to acquire or use crypto and loyalty points across our platform in the following key areas: • Subscription and service revenue.
For more information, please see our risk factors described in “Item 1A. Risk Factors - Related to Our Business, Finances and Operations”. Revenue Model We primarily generate revenue when clients or their customers use our services to buy, sell and/or store crypto or transact in loyalty points across our platform in the following key areas: • Subscription and service revenue.
Bakkt Marketplace, LLC (“Bakkt Marketplace”), our subsidiary, maintains a money transmitter license in each jurisdiction in which we operate that requires such a license for our activities. In all other jurisdictions where Bakkt Marketplace operates, we have established with the applicable licensing body that a money transmitter license is not required at this time.
Bakkt Marketplace and Bakkt Crypto maintain a money transmitter license in each jurisdiction in which they operate that requires such a license for our activities. In all other jurisdictions where Bakkt Marketplace and Bakkt Crypto operate, we have established with the applicable licensing body that a money transmitter license is not required at this time.
At Bakkt, we understand that our success is built by operating as a unified company – one culture and team across the crypto landscape, with a focus on growth and innovation. We are committed to diversity throughout our company.
At Bakkt, we understand that our success is built by operating as a unified company – one culture and team across the crypto landscape, with a focus on growth and innovation. We are committed to diversity throughout our company. It is our policy that employees are treated, and treat each other, with fairness, respect and dignity.
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 Marketplace holds a New York State virtual currency license (commonly referred to as a “BitLicense”), and money transmitter licenses from all states throughout the United States (“U.S.”) where such licenses are required for the operation of its business, and is registered as a money services business with the Financial Crimes Enforcement Network of the U.S. Department of the Treasury.
We enable responsible and secure access to crypto for our clients. Our compliance measures, controls and rigorous risk management practices are at the core of how we -9- Table of Content s operate. Our infrastructure provides multiple layers of protection and provides heightened security and compliance.
We enable responsible and secure access to crypto for our clients. Our compliance measures, controls and rigorous risk management practices are at the core of how we operate. Our infrastructure provides multiple layers of protection and provides heightened security and compliance. This includes a separate and independent board for Bakkt Trust.
Additionally, we regularly utilize independent and reputable external parties to assess and provide added assurance that our products are appropriately secured and resilient against modern cyber threats. We currently maintain independent SSAE-18 SOC 1 and SOC 2 attestation reports for our crypto and loyalty platform.
Additionally, we regularly utilize independent external parties to assess and provide added assurance that our products are designed appropriately and operating effectively. We currently maintain independent SSAE-18 SOC 1 Type II and SOC 2 Type II attestation reports for our crypto platform and SOC 2 Type II attestation reports for our loyalty platform.
The term customers is in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers .) • Cryptoassets (or crypto ) means an asset that is built using blockchain technology, including cryptocurrencies, stablecoins, and other tokens.
The term customers is in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers .). • “Crypto” or “Crypto asset” means an asset that is built using blockchain technology, including virtual currencies (as used in the State of New York), coins, cryptocurrencies, stablecoins, and other tokens.
We believe we are well-positioned to provide secure, licensed product solutions and grow with this evolving market. We believe our platform is well positioned to power commerce by enabling consumers, brands, and financial institutions to better manage, transact with and monetize crypto in exciting new ways.
We believe we are well-positioned to provide innovative, multi-faceted product solutions and grow with this evolving market. Our platform is well positioned to power commerce by enabling businesses, institutions, and consumers, to better manage, transact with and monetize crypto.
We also have in place an active program to continue to secure, police and enforce trademarks, service marks, trade dress, logos, trade names, and domain names that correspond to our brands in markets of interest.
We also have in place an active program to continue to secure, police and enforce trademarks, service marks, trade dress, logos, trade names, and domain names that correspond to our brands in markets of interest. We have filed patent applications in the U.S. covering certain aspects of our proprietary technology and new innovations.
We maintain a comprehensive cyber security program, managed by a dedicated team of security professionals, leveraging multiple layers of defenses to protect consumer data and crypto wallets, including cryptocurrency that is kept in custody. For example, we operate a combination of administrative, technical, and physical controls.
We maintain a comprehensive cyber security program, managed by a dedicated team of security professionals, leveraging multiple layers of defenses to protect our loyalty and crypto clients’ consumer data, as well as crypto wallets, including crypto that is kept in custody.
Our growth strategies include the following: • Adding clients. We are focused on continuing to build strong client relationships. Acquiring customers through our clients is an efficient and scalable way to grow our business. Our goal is to provide these clients opportunities to leverage our capabilities either through their existing environment or by leveraging our platform.
Our growth strategies include the following: • Adding clients. We are focused on continuing to build strong client relationships. Acquiring customers through our clients is an efficient and scalable way to grow our business.
In addition, under the Electronic Fund Transfer Act, we are required to disclose the terms of, and any fees applicable to, our electronic fund transfer services to consumers prior to their use of the service, among other requirements. We are further required to extend error resolution and limited liability protections to customers who use our card product.
In addition, under the Electronic Fund Transfer Act, we are required to disclose the terms of, and any fees applicable to, our electronic fund -25- Table of Contents transfer services to consumers prior to their use of the service, among other requirements.
Our modern embedded web experiences and agile API-enabled platform allow us to partner and easily integrate with clients, including through the following: • Our loyalty redemption service is provided as SaaS and powers rewards redemption for leading loyalty programs.
Our modern embedded web experiences and API-driven platform allow us to partner and easily integrate with clients, including through the following: • Via standard SSO and API integrations, our multi-storefront loyalty redemption platform is provided as SaaS and powers rewards redemption for several of the top loyalty programs in the US.
Crypto that we custody is held by our subsidiary, Bakkt Trust Company LLC (“Bakkt Trust”), a limited purpose trust company that is supervised by the New York State Department of Financial Services (“NYDFS”) and governed by an independent Board of Managers. • Crypto Connect .
Bakkt Trust: Bakkt Trust Company LLC (“Bakkt Trust”) is a New York limited-purpose trust company that is chartered by and subject to the supervision and oversight of New York Department of Financial Services (“NYDFS”) and governed by an independent Board of Managers.
This acquisition is currently under review by FINRA and remains subject to receiving FINRA’s approval. -12- Table of Content s Broker-dealers are subject to regulation, examination, investigation, and disciplinary action by the SEC, FINRA, and state securities regulators, as well as other governmental authorities and self-regulatory organizations with which they are registered or licensed or of which they are a member.
Broker-dealers are subject to regulation, examination, investigation, and disciplinary action by the SEC, FINRA, and state securities regulators, as well as other governmental authorities and self-regulatory organizations with which they are registered or licensed or of which they are a member. Bakkt Brokerage is registered as a broker-dealer in 52 U.S. states and territories.
We partner with leading brands and expect to grow customers on our platform through those relationships. We have already built an extensive network of clients across numerous industries including financial institutions, merchants and travel and entertainment. These clients include MasterCard, Visa, Global Payments, Fiserv, and Caesar’s.
Growth Strategy We go to market using a platform strategy, driven by our clients. We partner with leading companies and expect to grow customers on our platform through those relationships, in addition to our direct institutional clients. We have already built an extensive network of clients across numerous industries including financial institutions, merchants and travel and entertainment.
By increasing the acceptance of cryptocurrency investing in the institutional space, we believe that these additional products can further increase interest in cryptocurrency generally among consumers, benefiting our platform.
We expect to expand our crypto capabilities to products and services that will appeal to both retail and institutional clients. Our institutional-grade crypto custody solution is our foundation. By increasing the acceptance of crypto investing in the institutional space, we believe that these additional products can further increase interest in crypto generally among consumers, benefiting our platform.
Bakkt Marketplace also has a virtual currency license (“BitLicense”) from the NYDFS, which subjects it to NYDFS's oversight with respect to business activities conducted in New York State and with New York residents. The laws and regulations applicable to crypto are rapidly evolving and subject to interpretation and change.
Bakkt Marketplace and Bakkt Crypto also have virtual currency licenses (“BitLicenses”) from the NYDFS, which subject them to NYDFS's oversight with respect to business activities conducted in New York State and with New York residents.
Our existing clients provide us with an addressable market of well over 100 million users, who we will focus on bringing onto our platform. • Expanding our offering. We aim to increase the breadth and depth of our product offering in order to increase its appeal to clients and customers.
We are focused on activating our existing clients and supporting our clients in marketing campaigns to drive new customer acquisition and engagement of existing customers. Our existing clients provide us with an addressable market of well over 100 million potential users, who we will focus on bringing onto our platform. • Expanding our offering.
Our goal is to provide our clients with opportunities to leverage Bakkt’s capabilities through their existing customer digital experiences. We have built an extensive vendor network across various industries including financial services, travel and entertainment, retail and platform companies. While we have made significant headway building partnerships in these industries, there remain significant untapped growth opportunities in each area.
This data is used to complete required processes ( e.g., Customer Identification Program and KYC verification) and to service customers. We have built an extensive vendor network across various industries including financial services, travel and entertainment, retail and platform companies. While we have made significant headway building partnerships in these industries, there remain significant untapped growth opportunities in each area.
We have routinely entered into confidentiality and invention disclosure and assignment agreements with our employees and contractors, and non-disclosure agreements with external parties with whom we conduct business to control access to, and use and disclosure of, our proprietary information. Human Capital Our employees are essential in propelling our success.
We also rely on contractual restrictions to protect our proprietary rights where appropriate when offering or procuring products and services. We have routinely entered into confidentiality and invention disclosure and assignment agreements with our employees and contractors, and non-disclosure agreements with external parties with whom we conduct business to control access to, and use and disclosure of, our proprietary information.
Clients can choose to fully or partially embed our capabilities within their digital environment, or they can leverage our capabilities in a “ready-to-go” storefront. We believe our growth will come from adding clients and correspondingly, their users, and increasing transaction activity as well as strategic acquisitions.
Clients can choose to fully or partially embed our capabilities directly through Bakkt hosted user interfaces such as our Custody client portal. We believe our growth will come from adding clients and correspondingly, their customers, and increasing transaction activity as well as strategic acquisitions.
As loyalty programs seek new ways to leverage customer data and behaviors to deliver value, we believe our platform will enable clients to more effectively acquire, re-activate and engage customers. We expect to fund continued growth in our business using a portion of the net proceeds from our business combination with VIH, which closed on October 15, 2021.
As loyalty programs seek new ways to leverage customer data and behaviors to deliver value, we believe our platform will enable clients to more effectively acquire, re-activate and engage customers.
Our Clients Our clients include merchants, retailers, and financial institutions, and with the anticipated acquisition of Apex Crypto, as discussed below, will include fintechs, broker-dealers, neobanks and registered investment advisers. Our crypto-related capabilities will facilitate new asset acquisition and reward opportunities for their customers.
Our Clients Our clients include financial institutions, fintechs, broker-dealers, neobanks, registered investment advisers, funds, merchants, and other businesses. Our crypto-related capabilities facilitate new asset acquisition opportunities for their customers, in addition to the secure safekeeping of acquired crypto assets and crypto assets stored on behalf of institutional clients.
Some of these controls include the use of biometrics, hardware security modules, advanced cryptographic algorithms, dedicated security monitoring, separation of duties and other controls to protect and restrict unauthorized movement of crypto assets to and from the custody operations conducted by Bakkt Trust.
Our administrative, technical, and physical controls include the use of separation of duties, physical and logical access controls, biometrics, hardware security modules, advanced cryptographic algorithms, dedicated security monitoring, and other controls to protect our environment and restrict unauthorized access.
We receive a recurring subscription revenue stream from client platform fees as well as service revenue from software development fees and call center support • Transaction revenue. We generate transaction revenue though loyalty redemption volumes where we get a take rate on the volume and from crypto buy/sell where we make a spread on both legs of the transaction.
We receive a recurring subscription revenue stream from client platform fees as well as service revenue from software development fees and call center support. • Transaction revenue.
We have invested heavily in customer support to provide our clients and their customers with the best possible experience. Leveraging our staff of customer service representatives, we provide 24x7 support for our clients. Our customer service agents undergo a rigorous training program and are continually monitored and trained as new capabilities are added to the platform.
We provide customer service that is designed to meet the requirements of our clients. Our customer service agents undergo a rigorous training program and are continually monitored and trained as new capabilities are added to the platform. New clients are able to leverage our deep expertise in customer support as they roll out new offerings to their customer bases.
Founded in 2018, Bakkt operates technology that connects the digital economy by offering a platform for crypto and redeeming loyalty points. We enable our clients to deliver new opportunities to their customers through an interactive web experience or API solutions that unlock crypto and drive loyalty. The global market for crypto, while nascent, is rapidly evolving and expanding.
Founded in 2018, Bakkt builds technology that enables our clients to deliver new opportunities to their customers through Software as a Service (“SaaS”) and A pplication Programming interface (“ API”) solutions that unlock crypto and drive loyalty, powering engagement and performance. The global market for crypto, while nascent, is rapidly evolving and expanding.
By partnering with these brands and their existing customer bases, we believe consumers are more likely to embrace the new asset classes offered on our platform. We also believe that, as a relatively new brand, this approach will allow us to scale users and revenue more quickly. • Institutional-grade platform.
We seek to leverage our existing and new client relationships with leading brands to add customers to our platform. By partnering with these brands and their existing customer bases, we believe customers are more likely to embrace the new asset classes offered on our platform.
As the narrative for crypto shifts, we will look to enhance our crypto capabilities, including layer 2 protocols like Bitcoin’s Lightning Network and stablecoins, to drive increased utility in the crypto economy. • Market expansion. We expect to expand our platform into new markets. We believe that our Apex acquisition will enable us to accelerate our entry into new markets.
As the narrative for crypto shifts, we will look to enhance our crypto capabilities, including layer 2 protocols like bitcoin’s Lightning Network and stablecoins, to drive increased utility in the crypto economy initially by providing more efficient settlement rails for fiat to fiat remittances. • Evaluate additional strategic acquisitions.
As a result, over time, we expect loyalty revenue, which has been the source of substantially all of our revenue historically, to decrease as a percentage of overall revenue as the revenue from our crypto service offerings grows. Growth Strategy We go to market using a client-led strategy.
As a result of our acquisition of Bakkt Crypto, we expect loyalty revenue, which prior to the Bakkt Crypto acquisition was the source of substantially all of our revenue, to be a smaller percentage of overall revenue in the future as the revenue grows from our crypto product and service offerings.
Over time, we will continue to invest in our business to provide best-in-class products and services. Some of those longer-term planned enhancements include: • Crypto enhancement s. We expect to expand our crypto capabilities to products and services that will appeal to both retail and institutional clients. Our institutional-grade cryptocurrency custody solution is our foundation.
Ultimately, the decision as to when and where to expand continues to be driven by client and customer demand and the regulatory environment in those markets. Over time, we will continue to invest in our business to provide best-in-class products and services. Some of those longer-term planned enhancements include: • Crypto enhancement s.
We believe that Apex will accelerate our product road map by providing new capabilities to our platform including the addition of over 30 coins to our platform, deposit and withdrawal functionality for BTC, BCH and LTC and the ability to stake a limited number of coins.
We believe Bakkt Crypto accelerated our product road map by providing new capabilities to our platform including the addition of 6 coins to our platform and deposit and withdrawal functionality in jurisdictions where permitted.
Our redemption solutions span a variety of rewards categories including merchandise (such as Apple products and services), gift cards and digital experiences. Our travel solution offers a retail e-commerce booking platform with a powerful search capability, as well as live-agent booking and servicing. Our platform provides a unified shopping experience that is configurable for companies and their programs.
Our redemption catalog spans a variety of rewards categories including travel, gift cards and merchandise, including a unique Apple product and services storefront. Our travel solution offers a retail e-commerce booking platform with direct supplier integrations, as well as a U.S.-based call center for live-agent booking and servicing.
We have taken the time and resources to obtain a BitLicense from the New York Department of Financial Services ("NYDFS"), a limited-purpose trust charter (also from NYDFS), state money trasmitter licenses, insurance policies, and to implement robust policies and programs that govern crypto-related activity, such as a cyber security program, information security policy, global anti-money laundering (“AML”) policy, and Bank Secrecy Act (“BSA”)/Office of Foreign Assets Control (“OFAC”) of the U.S.
We have robust policies and programs that govern crypto-related activity, such as a cyber security program, information security policy, global AML policy, and Bank Secrecy Act (“BSA”)/Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury program. These measures are all designed to protect our clients and stockholders. • Client-led strategy.
Our revenue has seasonality and is typically higher in the fourth quarter, driven by holiday spending and travel bookings. Revenue generated from our crypto service offerings has been immaterial to date.
Our loyalty revenue has seasonality and is typically higher in the fourth quarter, driven by holiday spending and the travel bookings. -19- Table of Contents Revenue generated from our crypto services had been immaterial prior to our acquisition of Bakkt Crypto; however, revenue from crypto services is now a significant driver of our business, and we expect crypto services revenue to increase as we grow our client base and our customers.
Our platform architecture is engineered to natively support crypto across a wide range of classes, with scalability and strong regulatory and compliance controls. Our platform includes a custody platform that we designed and built in partnership with our majority investor, ICE.
We also believe that, as a relatively new brand, this approach will allow us to scale customers and revenue more quickly. • Institutional-grade platform. Our platform architecture is engineered to natively support crypto across a wide range of classes, with scalability and strong regulatory and compliance controls.
Our go-to-market strategy is “business-to-business-to-consumer”, or “B2B2C”, where we acquire customers primarily via client relationships. We believe our focused approach on building scalable partnerships will drive strong growth in end users. We also believe this approach is more efficient and scalable than a direct-to-consumer strategy, and we have seen early evidence that this belief is warranted.
Sales and Marketing Our go-to-market strategy is “business-to-business-to-consumer”, or “B2B2C”, in which we acquire customers primarily via client relationships. We believe our focused approach on building scalable partnerships with valued brands will drive strong growth in customers. Our goal is to provide our clients with opportunities to leverage Bakkt’s capabilities to drive mutually beneficial customer acquisition and engagement.
Our platform was designed with these principles in mind to provide safe, reliable infrastructure for consumers in their everyday use. • Trusted and scalable capabilities. Our approach, built to scale with technology, privacy, security and compliance at the core, is informed by our team's decades of collective experience.
We believe that it also serves as a springboard for additional products and services, particularly with respect to the institutional crypto space. • Trusted and scalable capabilities. Our approach, built to scale with technology, privacy, security and compliance at the core, is informed by our team's decades of collective experience.
Accordingly, investors should monitor our investor relations website, in addition to following press releases, SEC filings and public conference calls and webcasts. The information on our website is not incorporated by reference into this Annual Report on Form 10-K.
It is possible that the information we post on social media could be deemed to be material information. Accordingly, investors should monitor our investor relations website as well as the social media channels listed on our investor relations website. The information on our website or any other website is not incorporated by reference into this Annual Report on Form 10-K.
We believe that this strategy will enable us to add transacting accounts and volume more -7- Table of Content s quickly and more efficiently than a direct-to-consumer model, especially as a relatively young company operating in a space like crypto that may be novel to some users.
These clients include Webull, Public.com, Blockchain.com, Swan Bitcoin, and Caesars. We believe this strategy will enable us to add transacting accounts and volume more quickly and more efficiently than a direct-to-consumer model, given our limited operating history and the novelty of the crypto space for some customers.
Our platform provides consumers, businesses and institutions with the ability to buy, sell and store crypto in a simple, intuitive digital experience accessed via application programming interfaces (“APIs”) or embedded web experience.
Our Corporate Structure We operate primarily through the following entities: Bakkt Marketplace: Bakkt Marketplace, LLC (“Bakkt Marketplace”) and Bakkt Crypto Solutions, LLC (“Bakkt Crypto”) - through these entities we operate integrated platforms that provide customers with the ability to buy, sell and store crypto in a simple, intuitive digital experience accessed via APIs or embedded web experience.
Finally, we maintain a privacy program designed to meet applicable privacy laws or regulations. This includes the capability to effectively respond to consumer data subject requests or regulatory requests. Regulation Federal and state laws and regulations apply to many key aspects of our business.
Regulation International, federal and state laws and regulations apply to many key aspects of our business.
Our platform enables transactions in certain supported cryptocurrencies. • Customer means an individual user of our platform.
Our platform enables transactions in certain supported crypto assets. For purposes of this Form 10-K, we use crypto assets, virtual currency, coins, and tokens interchangeably. • “Customer” means an individual user of our platform.
We have thoughtfully built a unique and powerful platform, melding together institutional-grade loyalty services to complement our institutional-grade crypto capabilities. Our platform capabilities include end-to-end services, including easily digestible technology services, 24/7 customer support and marketing playbooks, for our clients.
We recognize that businesses want to offer consumers choice, innovation and a frictionless experience, and our platform and service offerings were constructed with this in mind. We have thoughtfully built a unique and powerful platform with end-to-end services, including easily consumable technology services, customer support and compliance infrastructure, for our clients.
We believe that Apex will significantly expand our crypto client base into a number of new and rapidly growing client verticals, such as fintech, app trading platforms and neo-banks. • Adding customers. We are focused on activating our existing clients and will launch joint marketing campaigns with our clients to engage with their customers.
Bakkt Crypto has significantly expanded our crypto client base into a number of new and rapidly growing client verticals, such as fintechs, trading and brokerage platforms and neobanks.
We made numerous enhancements to our platform over the last year including the implementation of real-time funding, pay with points capabilities and increased points and rewards redemption options.
With respect to our retail product offerings, we made numerous enhancements to our platform over the last year in addition to the expanded capabilities from the acquisition of Bakkt Crypto, which has been enhanced with the addition of fiat funding.
Removed
Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” the “Company,” or “Bakkt” refer (i) prior to the closing of our business combination with VPC Impact Acquisition Holdings (“VIH”) (the “Closing”), to Bakkt Opco Holdings, LLC (f/k/a Bakkt Holdings LLC, “Opco”) and its subsidiaries and (ii) after the Closing, to Bakkt Holdings, Inc. and its subsidiaries, including Opco.
Added
Our platform is built to operate across various crypto assets and offers clients 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.
Removed
Our institutional-grade technology platform is at the core of everything we do. It is secure and licensed, born out of our heritage with our former parent company, Intercontinental Exchange, Inc. (“ICE”) (NYSE: ICE). Through these elements, we provide, or are working to provide, simplified solutions focused in the following areas: Crypto • Custody.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFurther, even if we do obtain the required approvals, the timing of those approvals may be later than we project, which would have a material adverse effect on our revenue projections; • our ability to retain the existing clients of Apex, and expand those relationships, is a key growth driver for us; • we plan to replace and/or augment many of our existing systems and relationships (e.g. agreements with crypto liquidity providers) with those presently used by Apex; • Apex’s platform currently processes significantly more volume than our platform, and we need to be able to accommodate this significant increase in volume; • Apex currently lists more cryptoassets on its platform than we do on ours, and there can be no assurance that some or all of those additional cryptoassets will not be deemed to be “securities” or otherwise restricted from trading by regulators; and • The commercial relationship with Apex Clearing that is a part of the pending acquisition is a key growth driver for us, but that relationship may not produce the benefits that we envision.
Biggest changeIn particular, the acquisition of Bakkt Crypto presents risks to our business, including because: • our ability to retain the legacy clients of Bakkt Crypto, and expand those relationships, is a key growth driver for us; • we are in the process of replacing and/or augmenting many of our existing systems and relationships (e.g., agreements with crypto liquidity providers) with those historically used by Bakkt Crypto; • we may need to be able to accommodate the significantly increased volume on our platform; • the completion of the integration of the Bakkt Crypto business—which includes, among other things, merging legal entities, eliminating duplicative licenses, and adjusting the amount of regulatory capital associated therewith—remains subject to regulatory approval, the delay of which extends the timeline for our recognition of the full benefits of the transaction; -36- Table of Contents • we may have increased liability and/or regulatory risk from the list of additional crypto assets on our platform and from the pre-acquisition activities of Bakkt Crypto, even after we elected to delist certain of the crypto assets on the Bakkt Crypto platform; and • the commercial relationship with Apex Clearing Corporation that is a part of the acquisition of Bakkt Crypto is a key growth driver for us, but that relationship may not produce the benefits that we envision.
On January 25, 2023, the NYDFS released guidance regarding crypto custody practices, providing that a “virtual currency entity custodian” must: (1) separately account for and segregate customer assets from proprietary assets, (2) take possession of customer assets only for the limited purpose of carrying out custody and safekeeping services, (3) request approval before implementing any sub-custody arrangements, and (4) provide adequate disclosure to customers.
On January 25, 2023, NYDFS released guidance regarding crypto custody practices, providing that a “virtual currency entity custodian” must: (1) separately account for and segregate customer assets from proprietary assets, (2) take possession of customer assets only for the limited purpose of carrying out custody and safekeeping services, (3) request approval before implementing any sub-custody arrangements, and (4) provide adequate disclosure to customers.
We intend to cause Opco to make distributions to holders of Opco Common Units, pro rata , in aggregate amounts sufficient to cover all of our applicable income taxes, payments required to be made by us under the Tax Receivable Agreement and dividends, if any, declared us.
We intend to cause Opco to make distributions to holders of Opco Common Units, pro rata , in aggregate amounts sufficient to cover all of our applicable income taxes, payments required to be made by us under the Tax Receivable Agreement and dividends, if any, declared by us.
In 2019, the IRS released Revenue Ruling 2019-24 and a set of “Frequently Asked Questions”, or the Revenue Ruling & FAQs, that provide some additional guidance, including guidance to the effect that, under certain circumstances, hard forks of crypto currencies are taxable events giving rise to ordinary income and guidance with respect to the determination of the tax basis of crypto currency.
In 2019, the IRS released Revenue Ruling 2019-24 and a set of “Frequently Asked Questions”, or the 2019 Revenue Ruling & FAQs, that provide some additional guidance, including guidance to the effect that, under certain circumstances, hard forks of crypto currencies are taxable events giving rise to ordinary income and guidance with respect to the determination of the tax basis of crypto currency.
Numerous and evolving cybersecurity threats, including advanced and persistent cyberattacks, cyberextortion, ransomware, denial-of-service attacks, spear phishing and social engineering schemes, the introduction of computer viruses or other malware, and the physical destruction of all or portions of our information technology and infrastructure could compromise the confidentiality, availability and integrity of the information (including consumers’ personal data) in our systems.
Numerous and evolving cybersecurity threats, including advanced and persistent cyberattacks, cyberextortion, ransomware, denial-of-service attacks, spear phishing and social engineering schemes, the introduction of computer viruses, ransomware or other malware, and the physical destruction of all or portions of our information technology and infrastructure could compromise the confidentiality, availability and integrity of the information (including consumers’ personal data) in our systems.
Although we have developed systems and processes designed to protect information we manage, prevent data loss and other security breaches and effectively respond to known and potential risks, and we expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security or prevent breaches, security incidents or attacks, in particular, as the frequency and sophistication of cyberattacks increases.
Although we have developed systems and processes designed to protect information we manage, prevent data loss and other security breaches and effectively respond to known and potential risks, and we expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security or have prevented or will prevent breaches, security incidents or attacks, in particular, as the frequency and sophistication of cyberattacks increases.
Many aspects of our business also involve substantial litigation risks, including potential liability from disputes over terms of a trade, the claim that a system failure or delay caused monetary losses to a customer, that we entered into an unauthorized transaction, that we provided materially false or misleading statements in connection with a transaction or that we failed to effectively fulfill our regulatory oversight responsibilities.
Many aspects of our business involve substantial litigation risks, including potential liability from disputes over terms of a trade, the claim that a system failure or delay caused monetary losses to a customer, that we entered into an unauthorized transaction, that we provided materially false or misleading statements in connection with a transaction or that we failed to effectively fulfill our regulatory oversight responsibilities.
We may be subject to disputes regarding the quality of customer order execution, the settlement of customer orders or other matters relating to our services. Litigation, even claims without merit, might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, financial condition and results of operations.
We may be subject to disputes regarding the quality of customer order execution, the settlement of customer orders or other matters relating to our services. Litigation, even claims without merit, could result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, financial condition and results of operations.
It is unclear whether the conversion to cash or crypto of loyalty points by means of using our platform is or may become subject to information reporting by us. In our capacity as the facilitator of an exchange on which such transactions occur, we may be deemed to have certain information reporting obligations to the IRS or another taxing authority.
It is unclear whether the conversion to crypto of loyalty points by means of using our platform is or may become subject to information reporting by us. In our capacity as the facilitator of an exchange on which such transactions occur, we may be deemed to have certain information reporting obligations to the IRS or another taxing authority.
Further, any future changes in U.S. generally accepted accounting principles (“GAAP”) that require us to change the manner in which we account for our crypto held for our customers could have a material adverse effect on our financial results and the market price of our securities.
Any future changes in U.S. generally accepted accounting principles (“GAAP”) that require us to change the manner in which we account for our crypto held for our customers could have a material adverse effect on our financial results and the market price of our securities.
(“FINRA”). Platforms that bring together buyers and sellers of assets that are classified as securities in the United States constitute securities exchanges and will be either required to register as such with the SEC, or to operate pursuant to an exemption, as an alternative trading system (“ATS”).
Platforms that bring together buyers and sellers of assets that are classified as securities in the United States constitute securities exchanges and will be either required to register as such with the SEC, or to operate pursuant to an exemption, as an alternative trading system (“ATS”).
If the IRS were to successfully challenge our position with respect to its information reporting obligations or if it were ultimately determined that the conversion of loyalty points to cash or crypto is subject to information reporting obligations, we could potentially be subject to penalties for any failure to satisfy such information reporting obligations.
If the IRS were to successfully challenge our position with respect to its information reporting obligations or if it were ultimately determined that the conversion of loyalty points to crypto is subject to information reporting obligations, we could potentially be subject to penalties for any failure to satisfy such information reporting obligations.
Among other things, the Certificate of Incorporation and By-Laws include provisions regarding: • a classified Board with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of the Board; • the ability of the Board to issue shares of Preferred Stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the limitation of the liability of, and the indemnification of, our directors and officers; • the right of the Board to elect a director to fill a vacancy created by the expansion of the Board or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the Board; • the requirement that directors may only be removed from the Board for cause and upon the affirmative vote of the holders of at least 66 2/3% of the total voting power of then outstanding Class A Common Stock; • a prohibition on stockholder action by written consent (except for actions by the holders of Class V Common Stock or as required for holders of future series of Preferred Stock), which forces stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors; -55- Table of Content s • the requirement that a special meeting of stockholders may be called only by the Board, the Chairman of the Board or our Chief Executive Officer, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; • controlling the procedures for the conduct and scheduling of the Board and stockholder meetings; • the requirement for the affirmative vote of holders of at least 66 2/3% of the total voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal certain provisions in the Certificate of Incorporation which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Board and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; • the ability of the Board to amend the By-Laws, which may allow the Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the By-Laws to facilitate an unsolicited takeover attempt; and • advance notice procedures with which our stockholders must comply to nominate candidates to the Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control.
Among other things, the Certificate of Incorporation and By-Laws include provisions regarding: -69- Table of Contents • a classified Board with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of the Board; • the ability of the Board to issue shares of Preferred Stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the limitation of the liability of, and the indemnification of, our directors and officers; • the right of the Board to elect a director to fill a vacancy created by the expansion of the Board or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the Board; • the requirement that directors may only be removed from the Board for cause and upon the affirmative vote of the holders of at least 66 2/3% of the total voting power of then outstanding Class A Common Stock; • a prohibition on stockholder action by written consent (except for actions by the holders of Class V Common Stock or as required for holders of future series of Preferred Stock), which forces stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors; • the requirement that a special meeting of stockholders may be called only by the Board, the Chairman of the Board or our Chief Executive Officer, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; • controlling the procedures for the conduct and scheduling of the Board and stockholder meetings; • the requirement for the affirmative vote of holders of at least 66 2/3% of the total voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal certain provisions in the Certificate of Incorporation which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Board and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; • the ability of the Board to amend the By-Laws, which may allow the Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the By-Laws to facilitate an unsolicited takeover attempt; and • advance notice procedures with which our stockholders must comply to nominate candidates to the Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in the Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control.
While many of the factors that will determine the amount of payments that we will make under the Tax Receivable Agreement are outside of our control, we expect that the payments we will make under the Tax Receivable Agreement will be substantial and could have a material adverse effect on our financial condition.
While many of the factors that will determine the amount of payments that we will make under the Tax Receivable Agreement are outside of our control, the payments we will make under the Tax Receivable Agreement could be substantial and could have a material adverse effect on our financial condition.
On March 31, 2022, the SEC issued Staff Accounting Bulletin No. 121, which represents a significant change regarding how a company safeguarding crypto held for its platform users reports such crypto on its balance sheet.
Further, on March 31, 2022, the SEC issued Staff Accounting Bulletin No. 121, which represents a significant change regarding how a company safeguarding crypto held for its platform users reports such crypto on its balance sheet.
Furthermore, laws relating to privacy and data protection, including with respect to the use of data in artificial intelligence and machine learning, are rapidly evolving, extensive, complex and include inconsistencies and uncertainties.
Furthermore, laws relating to privacy, data protection and cybersecurity, including with respect to the use of data in artificial intelligence and machine learning, are rapidly evolving, extensive, complex and include inconsistencies and uncertainties.
The price of our securities may fluctuate due to a variety of factors, including: • changes in the industries in which we operate, including, in particular, the crypto industry; • changes in laws and regulations affecting our business; • developments involving our competitors or other companies in our industries; • variations in our operating performance and the performance of our competitors in general; • actual or anticipated fluctuations in our quarterly or annual operating results; • publication of research reports by securities analysts about us or our competitors or our industry; • the public’s reaction to our press releases, our other public announcements and our filings with the SEC; • actions by stockholders; • additions and departures of key personnel; • commencement of, or involvement in, litigation involving the combined companies; • changes in our capital structure, such as future issuances of securities or the incurrence of debt; • the volume of our Class A Common Stock available for public sale; and • general economic and political conditions, such as recessions, inflation, volatility in the markets, increases in interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability, pandemics or other public health emergencies and acts of war or terrorism, such as the ongoing geopolitical tensions related to Russia’s actions in Ukraine, resulting sanctions imposed by the U.S. and other countries, and retaliatory actions taken by Russia in response to such sanctions.
The price of our securities may fluctuate due to a variety of factors, including: • changes in the industries in which we operate, including, in particular, the crypto industry; • changes in laws and regulations affecting our business; • developments involving our competitors or other companies in our industries; • variations in our operating performance and the performance of our competitors in general; • actual or anticipated fluctuations in our quarterly or annual operating results; • publication of research reports by securities analysts about us or our competitors or our industry; • the public’s reaction to our press releases, our other public announcements and our filings with the SEC; • actions by stockholders; • the exercise of warrants to purchase our securities; • additions and departures of key personnel; • commencement of, or involvement in, litigation involving the combined companies; • changes in our capital structure, such as future issuances of securities or the incurrence of debt; • the volume of our Class A Common Stock available for public sale; and • general economic and political conditions, such as recessions, inflation, volatility in the markets, increases in interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability, pandemics or other public health emergencies and acts of war or terrorism, such as the war in the Middle East and ongoing geopolitical tensions related to Russia’s actions in Ukraine, resulting sanctions imposed by the U.S. and other countries, and retaliatory actions taken by Russia in response to such sanctions.
Because some of the cryptoassets that are anticipated to be available on our platform have not previously been available for the uses our platform is intended to cover, it is difficult to predict the preferences and requirements of clients or customers, and our platform, design and technology may not appeal to such clients or customers, or may be incompatible with new or emerging forms of crypto or related technologies.
Because some of the crypto assets that are anticipated to be available on our platform have not previously been available for the uses our platform is intended to cover, it is difficult to predict the preferences and requirements of clients or customers, and our platform, design and technology may not appeal to such clients or customers, or may be incompatible with new or emerging forms of crypto or related technologies.
Furthermore, on March 2, 2022, a group of United States Senators sent the Secretary of the United States Treasury Department a letter asking Secretary Yellen to investigate its ability to enforce such sanctions vis-à-vis bitcoin, and on March 8, 2022, President Biden announced an executive order on cryptocurrencies that seeks to establish a unified federal regulatory regime for cryptocurrencies.
Furthermore, on March 2, 2022, a group of United States Senators sent the Secretary of the United States Treasury Department a letter asking Secretary Yellen to investigate its ability to enforce such sanctions vis-à-vis bitcoin, and on March 8, 2022, President Biden announced an executive order on crypto that seeks to establish a unified federal regulatory regime for crypto.
Significant estimates and judgments involve those related to revenue recognition, internal-use software development costs, valuation of our stock-based compensation awards, including the determination of fair value of our common stock, accounting for income taxes, the carrying value of operating lease right-of-use assets and useful lives of long-lived assets, among others.
Significant estimates and judgments involve those related to going concern, revenue recognition, internal-use software development costs, valuation of our stock-based compensation awards, including the determination of fair value of our common stock, accounting for income taxes, the carrying value of operating lease right-of-use assets and useful lives of long-lived assets, among others.
Any such exercise increases the number of shares outstanding and eligible for future resale in the public market and results in dilution to our stockholders. As of December 31, 2022, our warrants to purchase an aggregate of 7,140,814 shares of Class A Common Stock are exercisable in accordance with the terms of the warrant agreement.
Any such exercise increases the number of shares outstanding and eligible for future resale in the public market and results in dilution to our stockholders. As of December 31, 2023, our warrants to purchase an aggregate of 7,140,814 shares of Class A Common Stock are exercisable in accordance with the terms of the warrant agreement.
We are from time to time subject to legal proceedings and claims that arise in the ordinary course of business, such as securities class action litigation or other shareholder litigation, claims brought by our clients or customers in connection with commercial disputes, or employment claims made by our current or former employees, and patent litigation.
We are from time to time subject to legal proceedings and claims as well as regulatory proceedings that arise in the ordinary course of business, such as securities class action litigation or other shareholder litigation, claims brought by our clients or customers in connection with commercial disputes, or employment claims made by our current or former employees, and patent litigation.
Actual or perceived breaches of our or our vendors’ security could, among other things: • interrupt our operations; • result in our systems or services being unavailable or degraded; • result in improper disclosure of information (including consumers’ personal data) and violations of applicable privacy and other laws; • materially harm our reputation; • result in significant liability claims, litigation, regulatory scrutiny, investigations, fines, penalties and other legal and financial exposure; • cause us to incur significant remediation costs; • lead to loss or theft of customer crypto or loyalty points; • lead to loss of customer confidence in, or decreased use of, our products and services; • divert the attention of management from the operation of our business; • result in significant compensation or contractual penalties from us to our customers as a result of losses to them or claims by them; and • adversely affect our business and results of operations.
Actual or perceived breaches of our or our vendors’ security could, among other things: • interrupt our operations; • result in our systems or services being unavailable or degraded; • result in improper disclosure or other processing of information (including consumers’ personal data) and actual or perceived violations of applicable privacy and other laws; • materially harm our reputation; • result in significant liability claims, litigation, regulatory scrutiny, investigations and other proceedings, fines, penalties and other legal and financial exposure; • cause us to incur significant remediation costs; • lead to loss or theft of customer crypto or loyalty points and other harm to customers; • lead to loss or theft of intellectual property; • lead to loss of customer confidence in, or decreased use of, our products and services; • divert the attention of management from the operation of our business; • result in significant compensation or contractual penalties from us to our customers as a result of losses to them or claims by them; and • adversely affect our business and results of operations.
We have implemented remote and hybrid working protocols and offer work-issued devices to certain employees, but the actions of employees while working remotely may have a greater effect on the security of our infrastructure, networks, and the information, including personal data, we process, including for example by increasing the risk of compromise to systems or information arising from employees’ combined personal and private use of devices, accessing our networks or information using wireless networks that we do not control, or the ability to transmit or store information outside of our secured network.
We have implemented remote and hybrid working protocols and offer work-issued devices to certain employees, but the actions of employees while working remotely may have a greater effect on the security of our infrastructure, networks, and the information, including personal data, we process, including for example by increasing the risk of compromise to systems or information arising from employees’ combined personal and private use of devices, accessing our networks or information -63- Table of Contents using wireless networks that we do not control, or the ability to transmit or store information outside of our secured network.
In order for our sales efforts to large organizations to be successful, we often must be able to engage with senior officers of the organization. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly for each clients, with sales to large enterprises typically taking longer to complete.
In order for our sales efforts to large organizations to be successful, we often must be able to engage with senior officers of the organization. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly for each client, with sales to large enterprises typically taking longer to complete.
Additionally, changes in applicable laws and administrative guidance could impose such obligations on us. For example, under the Infrastructure Investment and Jobs Act of 2021 (Pub. L. 117-58), we may be treated as a “broker” with respect to crypto transactions we facilitate.
Additionally, changes in applicable laws and administrative guidance could impose such obligations on us. For example, under the Infrastructure Investment and Jobs Act of 2021 (Pub. L. 117-58) (the “Infrastructure Act”), we may be treated as a “broker” with respect to crypto transactions we facilitate.
For example, the accounting treatment for revenues from cryptocurrency transactions is under review and subject to change. To the extent we account for revenue from cryptocurrency transactions in a manner that is different than the manner ultimately established by the SEC and GAAP, such revenue information, and the timing of revenue recognition, could vary materially and require subsequent adjustment.
For example, the accounting treatment for revenues from crypto transactions is under review and subject to change. To the extent we account for revenue from crypto transactions in a manner that is different than the manner ultimately established by the SEC and GAAP, such revenue information, and the timing of revenue recognition, could vary materially and require subsequent adjustment.
For instance, in the United States, Bakkt Marketplace has obtained licenses to operate as a money transmitter (or its equivalent) in the states where it operates and where such licenses are required, as well as in the District of Columbia and Puerto Rico, and as a virtual currency business with the State of New York.
For instance, in the United States, each of Bakkt Marketplace and Bakkt Crypto has obtained licenses to operate as a money transmitter (or its equivalent) in the states where it operates and where such licenses are required, as well as in the District of Columbia and Puerto Rico, and as a virtual currency business with the State of New York.
Furthermore, many foreign countries and governmental bodies have laws and regulations concerning the collection, use, processing, storage, and deletion of personal information obtained from their residents or by businesses operating within their jurisdiction. These laws and regulations often are more restrictive than those in the United States.
Furthermore, many foreign countries and governmental bodies have laws and regulations concerning the collection, use, processing, storage, and deletion of personal data obtained from their residents or by businesses operating within their jurisdiction. These laws and regulations often are more restrictive than those in the United States.
Unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to our systems or facilities through various means, including, but not limited to, hacking into our systems or facilities or those of our customers or vendors, and attempting to fraudulently induce users of our systems (including employees and customers) into disclosing customer names, passwords, payment card information, or other sensitive information, which may in turn be used to access our information technology systems, or to steal crypto stored by our customers.
Unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to our systems or facilities through various means, including, but not limited to, hacking into our systems or facilities or those of our customers or vendors, and attempting to fraudulently induce users of our systems (including employees and customers) -62- Table of Contents into disclosing customer names, passwords, payment card information, or other sensitive information, which may in turn be used to access our information technology systems, or to steal crypto stored by our customers.
We also rely on facilities, components, applications and services supplied by third parties, including data center facilities and cloud storage services, which subjects us to risks in the nature of those discussed in this “ Risk Factors ” section under the caption “ We face operational, legal and other risks related to our reliance on third party vendors, over which we have no control. ” From time to time, such third parties may cease to provide us with such facilities and services.
We also rely on facilities, components, applications and services supplied by third parties, including data center facilities and cloud storage services, which subjects us to risks in the nature of those discussed in this “ Risk Factors ” section under the caption “ We face operational, legal and other risks related to our reliance on third party vendors, over -64- Table of Contents which we have no control. ” From time to time, such third parties may cease to provide us with such facilities and services.
Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, incremental expenses or the write-off of goodwill, any of which could harm our financial condition or results of operations, and the trading price of our common stock could decline.
Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, incremental expenses or the write-off of goodwill, any of which could harm our financial condition or results of operations, and the trading price of our Class A Common Stock could decline.
We compete primarily on the basis of the following: • ability to attract, retain and engage clients (and in turn, customers) on our platform; • ability to demonstrate to clients that they may achieve incremental revenue and attract new customers by using and offering our services to their customers; • confidence in the safety, security, privacy and control of customer information on our platform; • ability to develop products and services across multiple commerce channels, including crypto and loyalty points; and • system reliability, regulatory compliance and data security.
We compete primarily on the basis of the following: • ability to attract, retain and engage clients (and in turn, customers) on our platform; • ability to demonstrate to clients that they may achieve incremental revenue and attract new customers by using and offering our services to their customers; • confidence in the safety, security, privacy and control of customer information on our platform; -33- Table of Contents • ability to develop products and services across multiple commerce channels, including crypto and loyalty points; and • system reliability, regulatory compliance and data security.
If we experience rapid growth, we could face significant challenges in: • maintaining and developing relationships with existing and new clients • securing funding to maintain our operations and future growth; • maintaining adequate financial, business and risk controls; • implementing new or updated information and financial risk controls and procedures; • navigating complex and evolving regulatory and competitive environments; • attracting, integrating and retaining an appropriate number of qualified, skilled employees; • training, managing and appropriately sizing our workforce and other components of our business on a timely and cost-effective basis; • expanding within existing markets; • entering new markets and introducing new solutions; • continuing to develop, maintain, protect and scale our platform; • effectively using limited personnel and technology resources; and -27- Table of Content s • maintaining the security of our platform and the confidentiality of the information, including personally identifiable information, provided and utilized across our platform.
If we experience rapid growth, we could face significant challenges in: • maintaining and developing relationships with existing and new clients • securing funding to maintain our operations and future growth; • maintaining adequate financial, business and risk controls; • implementing new or updated information and financial risk controls and procedures; • navigating complex and evolving regulatory and competitive environments; • attracting, integrating and retaining an appropriate number of qualified, skilled employees; • training, managing and appropriately sizing our workforce and other components of our business on a timely and cost-effective basis; • expanding within existing markets; • entering new markets and introducing new solutions; • continuing to develop, maintain, protect and scale our platform; • effectively using limited personnel and technology resources; and -40- Table of Contents • maintaining the security of our platform and the confidentiality of the information, including personally identifiable information, provided and utilized across our platform.
Further, we expect to reduce our operating expenses in the foreseeable future, and we may not achieve or sustain profitability to absorb our targeted expense base. We were founded in 2018 and have experienced net losses in the periods from inception through December 31, 2022.
Further, we expect to reduce our operating expenses in the foreseeable future, and we may not achieve or sustain profitability to absorb our targeted expense base. We were founded in 2018 and have experienced net losses in the periods from inception through December 31, 2023.
Non-compliance with those requirements may lead to injunctions, penalties and sanctions against us as well as the person seeking to hold, acquire or increase a controlling interest, may subject the relevant transactions to cancellation or forced sale, and may result in increased regulatory compliance requirements or other potential regulatory restrictions on our business (including in respect of matters such as corporate governance, restructurings, mergers and acquisitions, financings and distributions).
Non-compliance with those requirements may lead to injunctions, penalties and sanctions against us as well as the person seeking to hold, acquire or increase a controlling interest, may subject the relevant transactions to cancellation or forced sale, and may result in increased regulatory compliance requirements or other potential regulatory restrictions on our business (including in respect of matters such as corporate governance, restructurings, mergers and acquisitions, financings -59- Table of Contents and distributions).
Other factors that may cause fluctuations in our quarterly results include: • our ability to attract and retain clients and customers; • transaction volume and mix; • rates of repeat transaction and fluctuations in usage of our platform, including seasonality; • the amount and timing of our expenses related to acquiring clients and customers and the maintenance and expansion of our business, operations and infrastructure; • changes to our relationships with our clients; • general economic, industry and market conditions; • competitive dynamics in the industry in which we operate; -19- Table of Content s • the amount and timing of stock-based compensation expenses; • network outages, cyberattacks, or other actual or perceived security incidents or breaches or data privacy violations; • changes in laws and regulations that impact our business; • the cost and outcomes of existing or potential claims or litigation; and • the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired technologies or businesses.
Other factors that may cause fluctuations in our quarterly results include: • our ability to attract and retain clients and customers; • transaction volume and mix; • rates of repeat transaction and fluctuations in usage of our platform, including seasonality; • the amount and timing of our expenses related to acquiring clients and customers and the maintenance and expansion of our business, operations and infrastructure; • changes to our relationships with our clients; • general economic, industry and market conditions; -31- Table of Contents • competitive dynamics in the industry in which we operate; • the amount and timing of stock-based compensation expenses; • network outages, cyberattacks, or other actual or perceived security incidents or breaches or data privacy violations; • changes in laws and regulations that impact our business; • the cost and outcomes of existing or potential claims or litigation; and • the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired technologies or businesses.
If these entities suffer from cyberattacks or other security incidents (whether from hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, the inadvertent transmission of computer viruses or other malware, other forms of malicious attacks, malfeasance or negligent acts of its personnel, or via other means, including phishing attacks and other forms of social engineering), of for financial or other reasons cease to perform these functions, the functioning of the blockchains on which the ownership of a cryptoasset is recorded and the valuation based may be jeopardized.
If these entities suffer from cyberattacks or other security incidents (whether from hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, the inadvertent transmission of computer viruses, ransomware or other malware, other forms of malicious attacks, malfeasance or negligent acts of its personnel, or via other means, including phishing attacks and other forms of social engineering), of for financial or other reasons cease to perform these functions, the functioning of the blockchains on which the ownership of a crypto asset is recorded and the valuation based may be jeopardized.
Further, banks may not provide banking services, or may cut off banking services, to businesses that provide crypto-related services, which could dampen liquidity in the market and damage the public perception of crypto generally or any one cryptoasset in particular, which could decrease the trading volume of crypto.
Further, banks may not provide banking services, or may cut off banking services, to businesses that provide crypto-related services, which could dampen liquidity in the market and damage the public perception of crypto generally or any one crypto asset in particular, which could decrease the trading volume of crypto.
To the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), after we cease to qualify as an emerging growth company, we will continue to be permitted to make certain reduced disclosures in our periodic reports and other documents that we file with the SEC.
To the -67- Table of Contents extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), after we cease to qualify as an emerging growth company, we will continue to be permitted to make certain reduced disclosures in our periodic reports and other documents that we file with the SEC.
We can give no assurance that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.
We can give no assurance that material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.
Because our platform is not yet registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to facilitate the offer and sale of cryptoassets on our platform, we currently only permit transactions in cryptoassets that we have determined are not securities.
Because our platform is not yet registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to facilitate the offer and sale of crypto assets on our platform, we currently only permit transactions in crypto assets that we have determined are not securities.
Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us (including premium increases or the imposition of large deductible or co-insurance requirements).
Insurance may not cover such claims, may not provide sufficient payments to cover all the costs to resolve one or more such claims, and may not continue to be available on terms acceptable to us (including premium increases or the imposition of large deductible or co-insurance requirements).
We also require regulatory approvals, including, for example, to add new cryptoassets, products, and functionalities to our platform, and may require additional licenses and/or consultation with or approval of regulators to add, modify or discontinue certain aspects of our business model, which could lead to delays or other complexities in effectuating such changes and have a material adverse effect on our business and plan of operations.
We also require regulatory approvals, including, for example, to add new crypto assets, products, and functionalities to our platform, and may require additional licenses and/or consultation with or approval of regulators to add, modify or discontinue certain aspects of our business model, which could lead to delays or other complexities in effectuating such changes and have a material adverse effect on our business and plan of operations.
Our agreements with our clients have terms that range from approximately three to five years, and in some cases, our existing clients can generally terminate these agreements without cause upon 30 to 90 days’ prior written notice.
Our agreements with our clients have terms that range from approximately one to three years, and in some cases, our existing clients can generally terminate these agreements without cause upon 30 to 90 days’ prior written notice.
You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and accompanying notes, before making a decision to invest in our securities.
You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated -27- Table of Contents financial statements and accompanying notes, before making a decision to invest in our securities.
On April 21, 2022, a putative class action was filed against Bakkt Holdings, Inc. and certain of its directors and officers prior to the VIH Business Combination in the U.S.
For example, on April 21, 2022, a putative class action was filed against Bakkt Holdings, Inc. and certain of its directors and officers prior to the VIH Business Combination in the U.S.
These risks are described more fully below and include, but are not limited to, risks relating to the following: Risks Related to Our Business, Finances and Operations • Our business model is newly developed and may encounter additional risks and challenges as it grows. • Our platform is still in the early stages of its release and is largely untested. • Our ability to add additional functionalities and cryptoassets to our platform may adversely affect future growth. • We have limited operating history and a history of operating losses. • If we are unable to attract, retain or grow our relationships with our existing clients, our business, financial condition, results of operations and future prospects would be materially and adversely affected. • Some of our current and prospective clients require the approval of their own regulators in order to deploy our solutions, especially our crypto solutions, and if they are unable to obtain those approvals on a timely basis, or at all, our results of operations and future prospects would be materially and adversely affected. • A large percentage of our revenue is concentrated with a small number of clients; the loss of any such client would materially and adversely affect our business, financial condition, results of operations and future prospects.
These risks are described more fully below and include, but are not limited to, risks relating to the following: Risks Related to Our Business, Finances and Operations • Our business model is newly developed and may encounter additional risks and challenges as it grows. • Our platform is still in the early stages of its release, will be further developed, and is largely untested. • We have limited operating history and a history of operating losses. • If we are unable to attract, retain or grow our relationships with our existing clients, our business, financial condition, results of operations and future prospects would be materially and adversely affected. • Some of our current and prospective clients require the approval of their own regulators in order to deploy our solutions, especially our crypto solutions, and if they are unable to obtain those approvals on a timely basis, or at all, our results of operations and future prospects would be materially and adversely affected. • A large percentage of our revenue is concentrated with a small number of clients; the loss of any such client would materially and adversely affect our business, financial condition, results of operations and future prospects.
We have experienced from time to time, and may experience in the future, security incidents or breaches due to human error, malfeasance, insider threats, system errors, bugs, vulnerabilities, or other irregularities.
We have experienced from time to time, and may experience in the future, security incidents or breaches due to human error, malfeasance, insider threats, system errors, bugs, vulnerabilities, or other causes.
Any such loss could make our platform less appealing to existing and potential customers. Accordingly, the loss of any significant client relationship could materially and adversely affect our business, results of operations, financial condition and future prospects. Acquisitions, strategic investments, partnerships, or alliances may be difficult to identify.
Any such loss could make our platform less appealing to existing and potential customers. Accordingly, the loss of any significant client relationship could materially and adversely affect our business, results of operations, financial condition and future prospects. -35- Table of Contents Acquisitions, strategic investments, partnerships, or alliances may be difficult to identify.
In 2014, the IRS released Notice 2014-21, IRB 2014-16, or IRS -46- Table of Content s Notice, discussing certain aspects of “convertible virtual currency” (that is, crypto currency that has an equivalent value in real (or fiat) currency or that acts as a substitute for fiat currency) for U.S. federal income tax purposes.
In 2014, the IRS released Notice 2014-21, IRB 2014-16, or IRS Notice, discussing certain aspects of “convertible virtual currency” (that is, crypto currency that has an equivalent value in real (or fiat) currency or that acts as a substitute for fiat currency) for U.S. federal income tax purposes.
We are unable to predict the nature or extent of new and proposed legislation and regulation affecting the cryptocurrency industry, or the potential impact of the use of cryptocurrencies by Specially Designated Nationals or Blocked Persons, which could have material adverse effects on our business and our industry more broadly.
We are unable to predict the nature or extent of new and proposed legislation and regulation affecting the crypto industry, or the potential impact of the use of crypto by Specially Designated Nationals or Blocked Persons, which could have material adverse effects on our business and our industry more broadly.
In many cases, these laws apply not only to third-party transactions, but also to transfers of information between or among us, our subsidiaries and other parties with which we have commercial -43- Table of Content s relationships. Regulatory scrutiny of privacy, data protection and the collection, storage, use and sharing of personal data is increasing across multiple jurisdictions.
In many cases, these laws apply not only to third-party transactions, but also to transfers of information between or among us, our subsidiaries and other parties with which we have commercial relationships. Regulatory scrutiny of privacy, data protection and the collection, storage, use and sharing of personal data is increasing across multiple jurisdictions.
We are subject to a number of laws, rules, directives and regulations (“privacy laws”) relating to the collection, use, retention, security, processing and transfer of personally identifiable information about our consumers, employees, and other individuals (“personal data”) in the jurisdictions where we operate.
We are subject to a number of laws, rules, directives and regulations (“privacy laws”) relating to the collection, use, retention, security, transfer and other processing of personal information about our consumers, employees, and other individuals (“personal data”) in the jurisdictions where we operate.
Any such interruption could result in loss of crypto and/or its value. In addition, over the past several years, crypto mining operations have evolved from individual users mining with computer processors, graphics processing units and first-generation application specific integrated circuit (“ASIC”) -32- Table of Content s machines to “professionalized” mining operations using proprietary hardware or sophisticated machines.
Any such interruption could result in loss of crypto and/or its value. In addition, over the past several years, crypto mining operations have evolved from individual users mining with computer processors, graphics processing units and first-generation application specific integrated circuit (“ASIC”) machines to “professionalized” mining operations using proprietary hardware or sophisticated machines.
If the SEC, foreign regulatory authority, or a court were to determine that bitcoin or any other cryptoasset to be offered, sold, or traded on our platform in the future is a security, we would not be able to offer such cryptoasset for trading until we are able to do so in a compliant manner, such as through an alternative trading system approved to trade cryptoassets that constitute securities, and such determination may have adverse consequences for such supported cryptoassets.
If the SEC, foreign regulatory authority, or a court were to determine that bitcoin or any other crypto asset to be offered, sold, or traded on our platform in the future is a security, we would not be able to offer such crypto asset for trading until we are able to do so in a compliant manner, such as through an alternative trading system approved to trade crypto assets that constitute securities, and such determination may have adverse consequences for such supported crypto assets.
We could be subject to legal or regulatory action in the event the SEC, a foreign regulatory authority, or a court were to determine that a supported cryptoasset bought, sold, converted, spent or sent through our platform is a “security” under applicable laws.
We could be subject to legal or regulatory action in the event the SEC, a foreign regulatory authority, or a court were to determine that a supported crypto asset bought, sold, converted, spent or sent through our platform is a “security” under applicable laws.
Some of our current and potential competitors have larger customer bases, broader geographic scope, volume, scale, resources and market share than we do, which may provide them significant competitive advantages. Some competitors may also be subject to less burdensome licensing, anti-money laundering, counter-terrorist financing and other -21- Table of Content s regulatory requirements.
Some of our current and potential competitors have larger customer bases, broader geographic scope, volume, scale, resources and market share than we do, which may provide them significant competitive advantages. Some competitors may also be subject to less burdensome licensing, anti-money laundering, counter-terrorist financing and other regulatory requirements.
We may not be able to attract, develop and maintain the skilled workforce necessary to operate our business and labor expenses may increase as a result of a shortage in the supply of qualified personnel, which would negatively impact our business.
We may not be able to attract, develop and maintain the skilled workforce necessary to operate our business and labor expenses may increase as a result -39- Table of Contents of a shortage in the supply of qualified personnel, which would negatively impact our business.
The theft or misappropriation of crypto held in custody by us would likely result in financial loss, reputational damage, potential lack of trust from our customers, negative press coverage, and diversion of our -30- Table of Content s management’s time and focus. The secure storage and transmission of crypto and data over networks is a critical element of our operations.
The theft or misappropriation of crypto held in custody by us would likely result in financial loss, reputational damage, potential lack of trust from our customers, negative press coverage, and diversion of our management’s time and focus. The secure storage and transmission of crypto and data over networks is a critical element of our operations.
Our business is subject to laws, rules, regulations, policies and legal interpretations in the markets in which we operate, including, but not limited to, those governing money transmission, virtual currency business activity, consumer protection, anti-money laundering, counter-terrorist financing, privacy and data protection, cybersecurity, economic and trade sanctions, commodities, derivatives, and securities.
Our business is subject to laws, rules, regulations, policies and legal interpretations in the markets in which we operate, including, but not limited to, those governing money transmission, crypto asset business activity, consumer protection, anti-money laundering, counter-terrorist financing, privacy and data protection, cybersecurity, economic and trade sanctions, commodities, derivatives, and securities.
Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. -56- Table of Content s Any person or entity purchasing or otherwise acquiring any interest in any of our securities will be deemed to have notice of and consented to this provision.
Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in any of our securities will be deemed to have notice of and consented to this provision.
As we expand our business activities into jurisdictions beyond the United States, including as a result of the Apex acquisition, if consummated, our practices, offerings, or platform could fail, or be alleged to fail to meet applicable requirements in the jurisdictions we operate.
As we expand our business activities into jurisdictions beyond the United States, including as a result of the Apex acquisition our practices, offerings, or platform could fail, or be alleged to fail to meet applicable requirements in the jurisdictions in which we operate.
If any of this were to occur, it could damage our reputation, limit our growth and materially and adversely affect our business, financial condition and results of operations. -45- Table of Content s Our tax information reporting obligations with respect to transactions involving loyalty points or other incentives are subject to change.
If any of this were to occur, it could damage our reputation, limit our growth and materially and adversely affect our business, financial condition and results of operations. Our tax information reporting obligations with respect to transactions involving loyalty points or other incentives are subject to change.
These risks include the following, among others: • obtaining the requisite regulatory approvals necessary to consummate the transaction the acquisition, or to integrate the acquired business with our own; • difficulty in assimilating the operations, systems, and personnel of the acquired business; • difficulty in effectively integrating the acquired technologies or products with our current products and technologies; • difficulty in maintaining controls, procedures and policies during the transition and integration; • disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues; • difficulty integrating the acquired business’s accounting, management information and other administrative systems; • inability to retain key technical and managerial personnel of the acquired business; • inability to retain key customers, vendors and other business clients of the acquired business; • inability to achieve the financial and strategic goals for the acquired and combined businesses; • incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our results of operations; -24- Table of Content s • regulatory changes that affect the value of the businesses we acquire or our plans for integration of those businesses, or that expose us to additional regulation or litigation in connection with the acquired businesses; • significant post-acquisition investments which may lower the actual benefits realized through the acquisition; • potential failure of the due diligence process to identify significant issues with product quality, legal, and financial liabilities among other things; and • potential inability to assert that internal controls over financial reporting are effective.
These risks include the following, among others: • difficulty in assimilating the operations, systems, and personnel of the acquired business; • difficulty in effectively integrating the acquired technologies or products with our current products and technologies; • difficulty in maintaining controls, procedures and policies during the transition and integration; • disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues; • difficulty integrating the acquired business’s accounting, management information and other administrative systems; • inability to retain key technical and managerial personnel of the acquired business; • inability to retain key customers, vendors and other business clients of the acquired business; • inability to achieve the financial and strategic goals for the acquired and combined businesses; • incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our results of operations; • regulatory changes that affect the value of the businesses we acquire or our plans for integration of those businesses, or that expose us to additional regulation or litigation in connection with the acquired businesses; • significant post-acquisition investments which may lower the actual benefits realized through the acquisition; • potential failure of the due diligence process to identify significant issues with product quality, legal, and financial liabilities among other things; and • potential inability to assert that internal controls over financial reporting are effective.
Our business relies on the processing of data and the movement of data, and, as a result, much of the personal data that we process, especially financial information, may be regulated by multiple privacy laws.
Our business relies on the processing of data and the movement of data, and, as a result, much of the personal data that we process, especially financial information, may be -57- Table of Contents regulated by multiple privacy laws.
Threats can come from a -48- Table of Content s variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage and insider threats. Certain efforts may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect.
Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage and insider threats. Certain efforts may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect.
We may also face reputational damage in the event that we do not meet the ESG standards set by various constituencies. -28- Table of Content s Furthermore, if our competitors’ corporate social responsibility performance is perceived to be better than ours, potential or current investors may elect to invest with our competitors instead.
We may also face reputational damage in the event that we do not meet the ESG standards set by various constituencies. -41- Table of Contents Furthermore, if our competitors’ corporate social responsibility performance is perceived to be better than ours, potential or current investors may elect to invest with our competitors instead.
See “ Risks Related to Risk Management and Financial Reporting – Future changes in financial accounting standards may significantly change our reported results of operations. ” -31- Table of Content s Crypto does not have extensive historical precedent and distributed ledger technology continues to rapidly evolve.
See “ Risks Related to Risk Management and Financial Reporting – Future changes in financial accounting standards may significantly change our reported results of operations. ” Crypto does not have extensive historical precedent and distributed ledger technology continues to rapidly evolve.
Our business -50- Table of Content s interruption insurance coverage may be insufficient to compensate us for all losses that may result from interruptions in our service as a result of systems failures and similar events. Implementation of new systems and technologies is complex, expensive and time-consuming.
Our business interruption insurance coverage may be insufficient to compensate us for all losses that may result from interruptions in our service as a result of systems failures and similar events. Implementation of new systems and technologies is complex, expensive and time-consuming.
Moreover, because of our B2B2C go-to-market model, the loss of any client – regardless of the reason – increases the risk that the customers that originally emanated from that client will transition to another provider or stop doing business with us, which would harm our business. • We may not realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions – including the pending acquisition of Apex Crypto LLC – and integration of these acquisitions may disrupt our business and management.
Moreover, because of our B2B2C go-to-market model, the loss of any client – regardless of the reason – increases the risk that the customers that originally emanated from that client will transition to another provider or stop doing business with us, which would harm our business. • We may not realize the anticipated benefits of past or future investments, strategic transactions, or acquisitions and integration of these acquisitions may disrupt our business and management.
While we continue to negotiate partnership terms, we may be unable to agree to terms with such clients on commercially advantageous terms or at all, which may adversely affect our business and prospects.
While we continue to negotiate client agreement terms, we may be unable to agree to terms with such clients on commercially advantageous terms or at all, which may adversely affect our business and prospects.
The attractiveness of our platform depends upon, among other things: • the number and variety of assets and other capabilities in which customers can transact through our platform; • our reputation, as well as clients’ and customers’ experience and satisfaction with, and trust and perception of, our platform; • technological innovation; • regulatory compliance and data security; and -17- Table of Content s • services and products offered by competitors.
The attractiveness of our platform depends upon, among other things: • the number and variety of assets and other capabilities in which customers can transact through our platform; • our reputation, as well as clients’ and customers’ experience and satisfaction with, and trust and perception of, our platform; -29- Table of Contents • technological innovation; • regulatory compliance and data security; and • services and products offered by competitors.
Risks Related to Regulation, Taxation and Laws • We are subject to extensive government regulation, oversight, licensure and appraisals and our failure to comply could materially harm our business. • The regulatory regime governing blockchain technologies and crypto is uncertain, and new regulations or policies may alter or significantly adversely affect our business practices with respect to crypto. -16- Table of Content s • A cryptoasset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, and if cryptoassets on our platform are later determined to be securities, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition. • We are subject to significant litigation risk and risk of regulatory liability and penalties.
Risks Related to Regulation, Taxation and Laws • We are subject to extensive government regulation, oversight, licensure and appraisals and our failure to comply could materially harm our business. -28- Table of Contents • The regulatory regime governing blockchain technologies and crypto is uncertain, and new regulations or policies may alter or significantly adversely affect our business practices with respect to crypto. • A crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, and if crypto assets on our platform are later determined to be securities, we may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition. • We are subject to significant litigation risk and risk of regulatory liability and penalties.
Its ability to pay taxes and operating expenses, make payments under the Tax Receivable Agreement (the “Tax Receivable Agreement”) and pay dividends (if any) will depend on the financial results and cash flows of Opco and its -38- Table of Content s subsidiaries and the distributions it receives from Opco.
Its ability to pay taxes and operating expenses, make payments under the Tax Receivable Agreement (the “Tax Receivable Agreement”) and pay dividends (if any) will depend on the financial results and cash flows of Opco and its subsidiaries and the distributions it receives from Opco.
We may encounter technical issues in connection with the integration of supported cryptoassets and changes and upgrades to their underlying networks, which could adversely affect our business. In order to support any particular cryptoasset, a variety of front and back-end technical and development work is required to integrate such supported cryptoasset with our existing technical infrastructure.
We may encounter technical issues in connection with the integration of supported crypto assets and changes and upgrades to their underlying networks, which could adversely affect our business. In order to support any particular crypto asset, a variety of front and back-end technical and development work is required to integrate such supported crypto asset with our existing technical infrastructure.
In that event, the trading price of our securities could decline, and you could lose part or all of your investment. -15- Table of Content s Risk Factor Summary Our business is subject to numerous risks and uncertainties that you should consider before investing in our securities.
In that event, the trading price of our securities could decline, and you could lose part or all of your investment. Risk Factor Summary Our business is subject to numerous risks and uncertainties that you should consider before investing in our securities.
For certain cryptoassets, a significant amount of development work is required and there is no guarantee that we will be able to integrate successfully with any existing or future cryptoasset. In addition, such integration may introduce software errors or weaknesses into our platform, including our existing infrastructure.
For certain crypto assets, a significant amount of development work is required and there is no guarantee that we will be able to integrate successfully with any existing or future crypto asset. In addition, such integration may introduce software errors or weaknesses into our platform, including our existing infrastructure.
Our historical revenue was achieved largely as the result of our white-labeled loyalty redemption product, which reflects little revenue from the launch of our broader crypto platform, and therefore should not be considered indicative of our future performance.
Prior to the Bakkt Crypto acquisition, our historical revenue was achieved largely as the result of our white-labeled loyalty redemption product, which reflects little revenue from the launch of our broader crypto platform, and therefore should not be considered indicative of our future performance.
A determination by the SEC, a foreign regulatory authority, or a court that an asset that we support for trading on our platform constitutes a security may also result in a determination that we should remove such asset from our platform, as well as other assets that have similar -37- Table of Content s characteristics to such asset deemed to be a security.
A determination by the SEC, a foreign regulatory authority, or a court that an asset that we support for trading on our platform constitutes a security may also result in a determination that we should remove such asset from our platform, as well as other assets that have similar characteristics to such asset deemed to be a security.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties Facilities We lease facilities under operating leases in Alpharetta, Georgia, our corporate headquarters, one for approximately 50,000 square feet with an expiration date in October 2032, and another for approximately 44,000 square feet with an expiration date in April 2026 , in Scottsdale, Arizona, our principal customer service center, for approximately 21,000 square feet with an expiration date in April 2023, and in New York, New York, our satellite corporate office, for approximately 10,000 square feet with an expiration date in 2030.
Biggest changeProperties Facilities We lease facilities under operating leases in Alpharetta, Georgia, one for our corporate headquarters with an expiration date in October 2032, and another for a call center with an expiration date in April 2026 , in Scottsdale, Arizona, our principa l customer service center with an expiration date in September 2030, and in New York, New York, our satellite corporate office with an expiration date in March 2030.
Removed
In March 2023, we signed an amendment to our Scottsdale, Arizona lease that extended the lease term through September 2030. Additionally, ICE provides us with approximately 800 square feet in its facilities in Sandy Springs, Georgia pursuant to the Transition Services Agreement.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor information on legal proceedings, refer to Note 14 in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Item 4. Mine Safety Disclosure Not applicable. -59- Table of Content s PART II
Biggest changeFor additional information on our ongoing legal proceedings, refer to Note 14 in our audited consolidated financial statements included in this Annual Report on Form 10-K. Item 4. Mine Safety Disclosure Not applicable. -76- Table of Contents PART II
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.
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 -75- Table of Contents resources, and other factors.
Added
Prior to its acquisition by the Company, Bakkt Crypto received requests from the SEC for documents and information about certain aspects of its business, including the operation of its trading platform, processes for listing assets, the classification of certain listed assets, and relationships with customers and service providers, among other topics.
Added
The SEC has since made a number of follow-up requests for additional documents and information, and the Company has continued to respond to those requests on a timely basis. Based on the ongoing nature of this matter, the outcome remains uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of March 20, 2023, we had 82,287,949 shares of Class A Common Stock issued and outstanding held of record by 25 holders, 183,279,887 shares of Class V Common Stock issued and outstanding held of record by 5 holders, and 7,140,808 Public Warrants issued and outstanding, each exercisable for one share of Class A Common Stock, held of record by one holder.
Biggest changeAs of March 18, 2024, we had 141,798,069 shares of Class A Common Stock issued and outstanding held of record by 171 holders, 179,883,479 shares of Class V Common Stock issued and outstanding held of record by 3 holders, and 7,140,808 Public Warrants issued and outstanding, each exercisable for one share of Class A Common Stock, held of record by 1 holder.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOur digital asset conversion volume was $832.3 million in 2022, $262.8 million of which occurred in the fourth quarter of 2022. -64- Table of Content s Results of Operations The following table is our consolidated statements of operations for the Successor periods and the Predecessor period (in thousands): Successor Predecessor Year Ended December 31, 2022 October 15, 2021 through December 31, 2021 January 1, 2021 through October 14, 2021 Revenues: Net revenues (includes related party net revenues of $42 and $71, respectively, and affiliate net revenues of $136) (1) $ 54,567 $ 11,481 $ 27,956 Operating expenses: Compensation and benefits 139,049 62,180 91,275 Professional services 11,483 3,034 5,175 Technology and communication 17,079 3,056 10,384 Selling, general and administrative 35,414 8,521 20,309 Acquisition-related expenses 5,675 1,603 24,793 Depreciation and amortization 25,350 5,422 9,620 Related party expenses (affiliate in Predecessor period) (1) 1,168 617 1,484 Goodwill and intangible assets impairments 1,822,089 — — Impairment of long-lived assets 11,494 1,196 3,598 Restructuring expenses 2,336 — — Other operating expenses 2,343 398 1,379 Total operating expenses 2,073,480 86,027 168,017 Operating loss (2,018,913) (74,546) (140,061) Interest income (expense), net 1,877 11 (247) Gain (loss) from change in fair value of warrant liability 16,638 (79,373) — Other income (expense), net (856) 832 487 Loss before income taxes (2,001,254) (153,076) (139,821) Income tax benefit (expense) 11,320 (11,751) 602 Net loss (1,989,934) (164,827) $ (139,219) Less: Net loss attributable to noncontrolling interest (1,411,829) (120,832) Net loss attributable to Bakkt Holdings, Inc. $ (578,105) $ (43,995) Net loss per share attributable to Class A common stockholders: Basic $ (8.12) $ (0.81) (2) Diluted $ (8.12) $ (0.81) (2) (1) As a result of the VIH Business Combination, ICE and its affiliates are no longer our affiliates.
Biggest changeAssets under custody were $701.6 million and $15.8 million as of December 31, 2023 and December 31, 2022, respectively. -82- Table of Contents Results of Operations The following table is our consolidated statements of operations for the years ended December 31, 2023 and December 31, 2022, respectively (in thousands): Year Ended December 31, 2023 Year Ended December 31, 2022 Revenues: Crypto services $ 726,988 $ 1,745 Loyalty services, net 53,148 54,479 Total revenues 780,136 56,224 Operating expenses: Crypto costs 718,511 1,657 Execution, clearing and brokerage fees 3,772 — Compensation and benefits 102,042 139,049 Professional services 10,382 11,483 Technology and communication 20,837 17,079 Selling, general and administrative 33,385 35,414 Acquisition-related expenses 4,299 5,675 Depreciation and amortization 13,932 25,350 Related party expenses 3,902 1,168 Goodwill and intangible assets impairments 60,499 1,822,089 Impairment of long-lived assets 30,265 11,494 Restructuring expenses 4,608 2,336 Other operating expenses 1,592 2,343 Total operating expenses 1,008,026 2,075,137 Operating loss (227,890) (2,018,913) Interest income, net 4,338 1,877 (Loss) gain from change in fair value of warrant liability (1,571) 16,638 Other expense, net (245) (856) Loss before income taxes (225,368) (2,001,254) Income tax (expense) benefit (444) 11,320 Net loss (225,812) (1,989,934) Less: Net loss attributable to noncontrolling interest (150,958) (1,411,829) Net loss attributable to Bakkt Holdings, Inc. $ (74,854) $ (578,105) Net loss per share attributable to Class A common stockholders: Basic $ (0.84) $ (8.12) Diluted $ (0.84) $ (8.12) Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Financial Summary The year ended December 31, 2023 included the following notable items relative to the year ended December 31, 2022 : • Revenue increased $723.9 million primarily driven by a significant increase in crypto services revenue due to our acquisition of Bakkt Crypto; and -83- Table of Contents • Operating expenses decreased $1,067.1 million primarily driven by goodwill and intangible asset impairments recorded in the prior year, partially offset by increased crypto trading costs in connection with our acquisition of Bakkt Crypto Revenue Revenues consist of crypto and loyalty revenue.
During the year ended December 31, 2022, we recorded impairment charges of $8.7 million related to certain internally developed software assets pursuant to our fourth quarter impairment described in Note 5 to the consolidated financial statements included in this report on Form 10-K and $2.8 million in unrelated charges for another software product that was cancelled prior to being placed in service.
During the year ended December 31, 2022, we recorded impairment charges of $8.7 million related to certain internally developed software assets pursuant to our fourth quarter impairment described in Note 5 to the consolidated financial statements included in this Annual Report on Form 10-K and $2.8 million in unrelated charges for another software product that was cancelled prior to being placed in service.
General Economic and Market Conditions Our performance is impacted by the strength of the overall macroeconomic environment and crypto market conditions, which are beyond our control. Negative market conditions may hinder client activity, including extended decision timelines around implementing crypto strategies.
General Economic and Market Conditions Our performance is impacted by the strength of the overall macroeconomic environment and crypto market conditions, which are beyond our control. Negative market conditions hinder client activity, including extended decision timelines around implementing crypto strategies.
We have taken steps to mitigate the potential risk of loss for the crypto we hold for other parties, including holding insurance coverage specifically for certain cryptoasset incidents and using secure cold storage to store the vast majority of crypto that we hold.
We have taken steps to mitigate the potential risk of loss for the crypto we hold for other parties, including holding insurance coverage specifically for certain crypto incidents and using secure cold storage to store the vast majority of crypto that we hold.
Pursuant to the TRA, among other things, holders of Bakkt Common Units may, subject to certain conditions, from and after April 15, 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.
Pursuant to the TRA, 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.
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 are based upon our present plans, objectives and business condition.
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 available funds are based on our present plans, objectives and business condition.
Additionally, we recognize variable compensation expense for liability-classified participation units based on changes to the fair value of the awards at each reporting date. We elect to account for forfeitures as they occurred. See Note 11 to our audited consolidated financial statements for additional disclosures related to unit-based compensation.
Additionally, we recognize variable compensation expense for participation units based on changes to the fair value of the awards at each reporting date. We elect to account for forfeitures as they occurred. See Note 11 to our audited consolidated financial statements for additional disclosures related to unit-based compensation.
Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, amortization , acquisition-related expenses, share-based and unit-based compensation expense, goodwill and intangible assets impairments, restructuring charges, changes in the fair value of our warrant liability and certain other non-cash and/or non-recurring items that do not contribute directly to our evaluation of operating results and are not components of our core business operations.
Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, amortization , acquisition-related expenses, share-based and unit-based compensation expense, goodwill and intangible assets impairments, restructuring charges, changes in the fair value of our warrant liability and certain other non- -92- Table of Contents cash and/or non-recurring items that do not contribute directly to our evaluation of operating results and are not components of our core business operations.
We classify as assets or liabilities any equity-linked contracts that (1) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside our control) or (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
We classify as assets or liabilities any equity-linked contracts that (1) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside our control) or (2) give the counterparty a choice of net-cash settlement or settlement in -96- Table of Contents shares (physical settlement or net-share settlement).
Our ability to meet the capability demands of our clients will allow us to continue to grow revenue. Competition The crypto marketplace is highly competitive with numerous participants competing for the same clients. We believe we are uniquely positioned with our ability to provide capabilities around emerging cryptoassets alongside loyalty points on a single, highly secure, institutional-grade technology platform.
Our ability to meet the capability demands of our clients will allow us to continue to grow revenue. Competition The crypto marketplace is highly competitive with numerous participants competing for the same clients. We believe we are well positioned with our ability to provide capabilities around emerging crypto assets alongside loyalty points on a single, highly secure, institutional-grade technology platform.
The non-cash charges for the year ended December 31, 2022 primarily consisted of goodwill and intangible assets impairments of $1,822.1 million, share-based compensation of $31.6 million, depreciation and amortization of $25.4 million, gain from change in fair value of warrant liability of $16.6 million, deferred tax expense of $11.6 million and impairment of long-lived assets of $11.5 million.
The non-cash charges for the year ended December 31, 2022 primarily consisted of goodwill and intangible assets impairments of $1,822.1 million, share-based compensation of $31.6 million, depreciation and amortization of $25.4 million and impairment of long-lived assets of $11.5 million, partially offset by the gain from the change in fair value of our warrant liability of $16.6 million and deferred tax expense of $11.6 million.
Our platform is built to operate across various cryptoassets and offers clients 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.
Our platform is built to operate across various crypto assets and offers clients 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.
Bakkt will have in effect an election under Section 754 of the Internal -74- Table of Content s 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.
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.
We are acting as the agent to facilitate order fulfillment services on behalf of the loyalty program sponsor. Revenues generated from our loyalty redemption platform are included in “Net revenues” include the following: • Platform subscription fees: Monthly fixed fee charged to clients to access the redemption platform and receive customer support services.
We are acting as the agent to facilitate order fulfillment services on behalf of the loyalty program sponsor. Revenues generated from our loyalty redemption platform include the following: • Platform subscription fees: Monthly fixed fee charged to clients to access the redemption platform and receive customer support services.
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.
The significant estimates and assumptions that affect the financial statements may include, but are not limited to, going concern, 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 credit losses, 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.
The following items require significant estimation or judgement: Business Combinations We account for our business combinations using the acquisition accounting method, which requires us to determine the fair value of identifiable assets acquired and liabilities assumed, including any contingent consideration, to properly allocate the purchase price to the individual assets acquired and liabilities assumed and record any residual purchase price as goodwill in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations .
Business Combinations We account for our business combinations using the acquisition accounting method, which requires us to determine the fair value of identifiable assets acquired and liabilities assumed, including any contingent consideration, to properly allocate the purchase price to the individual assets acquired and liabilities assumed and record any residual purchase price as goodwill in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations .
We classify as equity any equity-linked contracts that (1) require physical settlement or net-share settlement or (2) give us a choice of net-cash settlement or -79- Table of Content s settlement in our own shares (physical settlement or net-share settlement).
We classify as equity any equity-linked contracts that (1) require physical settlement or net-share settlement or (2) give us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement).
We recorded an impairment of goodwill and other intangible assets of $1,822.1 million during the year ended December 31, 2022. Refer to Note 5 in our consolidated financial statements included in this Report on Form 10-K for further information. Impairment of our remaining goodwill or intangible assets may be necessary in the future.
We recorded impairments of goodwill and other intangible assets of $1,822.1 million during the year ended December 31, 2022 . Refer to Note 5 in audited our consolidated financial statements included in this Annual Report on Form 10-K for further information. Impairment of our remaining goodwill or intangible assets may occur in the future.
Should we conclude that it is more likely than not that the recorded goodwill and intangible assets amounts have been impaired, we would perform the impairment test.
Should we conclude that it is more -94- Table of Contents likely than not that the recorded goodwill and intangible assets amounts have been impaired, we would perform the impairment test.
Our contracts related to our -78- Table of Content s loyalty redemption platform consist of two performance obligations: (1) access to our SaaS-based redemption platform and customer support services and (2) facilitation of order fulfillment services. We are the principal related to providing access to our redemption platform.
Our contracts related to our loyalty redemption platform consist of two performance obligations: (1) access to our SaaS-based redemption platform and customer support services and (2) facilitation of order fulfillment services. We are the principal related to providing access -95- Table of Contents to our redemption platform.
Expenditures made using the purchasing card facility are payable monthly, are not subject to formula-based restrictions and -75- Table of Content s do not bear interest if amounts outstanding are paid when due and in full.
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.
We began using the purchasing card facility in August 2022. 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.
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.
Such change will be calculated under the TRA 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 December 31, 2022, 22,475,871 Opco common units were exchanged for Class A common stock.
Such change will be calculated under the TRA 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 December 31, 2023, 25,952,197 Opco common units were exchanged for Class A Common Stock.
We define transacting accounts as unique accounts that perform transactions on our platform each month. We use transacting accounts to reflect how users across our platform use the variety of services we offer, such as redeeming loyalty points for travel or merchandise, buying and selling crypto to facilitate everyday purchases, or converting loyalty points to cash or gift cards.
We use transacting accounts to reflect how users across our platform use the variety of services we offer, such as buying and selling crypto to facilitate everyday purchases, redeeming loyalty points for travel or merchandise, or converting loyalty points to cash or gift cards.
Actual results and outcomes may differ from management’s estimates and assumptions and such differences may be material to our audited consolidated financial statements. -80- Table of Content s Recently Issued and Adopted Accounting Pronouncements Recently issued and adopted accounting pronouncements are described in Note 2 to our audited consolidated financial statements .
Actual results and outcomes may differ from management’s estimates and assumptions and such differences may be material to our audited consolidated financial statements. Recently Issued and Adopted Accounting Pronouncements Recently issued and adopted accounting pronouncements are described in Note 2 to our audited consolidated financial statements . Item 7A.
Investing Activities Net cash flows used in investing activities of $172.0 million for the year ended December 31, 2022 primarily consisted of $306.6 million related to the purchase of available for sale debt securities and $30.5 million of capitalized costs of internally developed software for our technology platforms, partially offset by the receipt of $165.2 million of proceeds from the sale of available-for-sale securities.
Net cash flows used in investing activities of $172.0 million for the year ended December 31, 2022 primarily consisted of $306.6 million related to the purchase of available for sale debt securities and $30.5 million of capitalized costs of internally developed software for our technology platforms, partially offset by the receipt of $165.2 million of proceeds from the sale of available-for-sale securities. -90- Table of Contents Financing Activities Net cash flows used in financing activities of $2.6 million for the year ended December 31, 2023 resulted from proceeds from the repurchase and retirement of Class A Common Stock of $2.6 million.
Impairment of our remaining long-lived assets may be necessary in the future.
Impairment of our remaining long-lived assets may occur in the future.
We believe we are well-positioned to provide innovative, multi-faceted product solutions and grow with this evolving market. Our platform is uniquely positioned to power commerce by enabling consumers, brands, and financial institutions to better manage, transact with and monetize crypto in exciting new ways.
The global market for crypto, while nascent, is rapidly evolving and expanding. We believe we are well-positioned to provide -77- Table of Contents innovative, multi-faceted product solutions and grow with this evolving market. Our platform is uniquely positioned to power commerce by enabling consumers, brands, and financial institutions to better manage, transact with and monetize crypto in exciting new ways.
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.
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. The non-GAAP financial measures should be considered alongside other financial performance measures, including net loss and our other financial results presented in accordance with GAAP.
Other income (expense), net primarily consists of non-operating gains and losses. During the year ended December 31, 2022, we recorded expense of $1.2 million for the loss on sale of assets, partially offset by $0.3 million of foreign currency transaction gains.
During the year ended December 31, 2022, we recorded expense of $1.2 million for the loss on sale of assets, partially offset by $0.3 million of foreign currency transaction gains.
As of December 31, 2022, the safeguarding obligation liability related to crypto held for other parties was $15.8 million.
As of December 31, 2023, the safeguarding obligation liability related to crypto held for other parties was $701.6 million.
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. Selling, general and administrative costs increased by $6.6 million, or 22.8%, for the year ended December 31, 2022 compared to the combined 2021 period.
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. Selling, general and administrative costs decreased by $2.0 million, or 5.7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
We recorded a gain of $16.6 million during the year ended December 31, 2022 for the change in fair value on the revaluation of our warrant liability associated with our public warrants.
(Loss) Gain from Change in Fair Value of Warrant Liability ($ in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022 $ Change % Change (Loss) gain from change in fair value of warrant liability $ (1,571) $ 16,638 $ (18,209) (109.4 %) We recorded a loss of $1.6 million during the year ended December 31, 2023 for the change in fair value on the revaluation of our warrant liability associated with our public warrants.
Excluding the cash purchase price to acquire Apex, we expect our cash usage in 2023 to decline from 2022 levels driven by the combined impact of increased revenue and expense reductions related to the completion of large-dollar investments in 2022 and benefits from restructuring actions.
Excluding the cash purchase price to acquire Bakkt Crypto, we expect our operating cash usage in 2024 (exclusive of potential acquisitions or other strategic initiatives) to decline from 2023 levels driven by the combined impact of increased revenue and expense reductions related to the completion of large-dollar investments in 2023 and benefits from restructuring actions.
We do not allow users to purchase crypto on margin, and crypto held on our platform does not serve as collateral for margin loans. We hold crypto in custody for users in one or more omnibus cryptoasset wallets; we do -63- Table of Content s not presently utilize third-party custodians.
We do not allow users to purchase crypto on margin, and crypto held on our platform does not serve as collateral for margin loans. We hold crypto in custody for users in one or more omnibus crypto wallets.
Technology and communications expense increased by $3.6 million, or 27.1%, for the year ended December 31, 2022 compared to the combined 2021 period. The increase was primarily due to an increase of $3.8 million in hardware and software license fees.
Technology and communications expense increased by $3.8 million, or 22.0%, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily due to an increase in software license fees.
Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are also reviewed at least annually for impairment or more frequently if conditions exist that indicate that an asset may be impaired. We recorded impairment of goodwill and other intangible assets of $1,822.1 million during the year ended December 31, 2022.
Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are also reviewed at least annually for impairment or more frequently if conditions exist that indicate that an asset may be impaired.
We do not expect potential future cash flows associated with the cryptoasset safeguarding obligation liability. Key Performance Indicators We have previously disclosed two key performance indicators (“KPIs”) that are key to understanding our business performance, as they reflect the different ways we enable clients to engage with our platform. • Transacting accounts.
We do not expect potential future cash flows associated with the crypto safeguarding obligation liability. -81- Table of Contents Key Performance Indicators We use four key performance indicators (“KPIs”) that are key to understanding our business performance, as they reflect the different ways we enable clients to engage with our platform. • Crypto-enabled accounts.
Net Revenues Net revenues consist of transaction revenue and subscription and service revenue. We receive revenue when consumers use our services to buy, sell, and spend crypto and loyalty points. We generate revenue across our platform in the following key areas: • Subscription and service revenue.
We earn revenue when consumers use our services to buy, sell, and store crypto and redeem loyalty points. We generate revenue across our platform in the following key areas: • Subscription and service revenue.
Safeguarding Obligation Liability and Safeguarding Asset Related to Crypto Held for Other Parties As detailed in Note 18, upon the adoption of Staff Accounting Bulletin 121 (“SAB 121”), we recorded a safeguarding obligation liability and a corresponding safeguarding asset related to the crypto held for other parties.
Safeguarding Obligation Liability and Safeguarding Asset Related to Crypto Held for Other Parties As detailed in Note 18 to our audited consolidated financial statements included in this Annual Report on Form 10-K, upon the adoption of Staff Accounting Bulletin 121 (“SAB 121”), we recorded a safeguarding obligation liability and a corresponding safeguarding asset related to the crypto held for other parties.
If the estimated future undiscounted cash flows demonstrate the long-lived assets are not recoverable, an impairment loss would be calculated based on the excess of the carrying amounts of the long-lived assets over their fair value. See Note 6 to our audited consolidated financial statements for additional disclosures related to impairment of long-lived assets.
If the estimated future undiscounted cash flows demonstrate the long-lived assets are not recoverable, an impairment loss would be calculated based on the excess of the carrying amounts of the long-lived assets over their fair value.
Acquisition-related expenses for the combined 2021 period consisted of fees for investment banking advisors, lawyers, accountants, tax advisors and public relations firms directly related to the VIH Business Combination. The amount and timing of acquisition-related expenses is expected to vary across periods based on potential transaction activities.
Acquisition-related expenses for the year ended December 31, 2022 consisted of fees for investment banking advisors, lawyers, accountants, tax advisors and public relations firms directly related to the acquisition of Bakkt Crypto and Bakkt Brokerage. The amount and timing of acquisition-related expenses is expected to vary across periods based on potential transaction activities.
We recorded a loss of $79.4 million during the period from October 15, 2021 through December 31, 2021 for the change in fair value on the revaluation of our warrant liability associated with our public warrants. This is a non-cash charge and is driven by fluctuations in the market price of our warrants.
We recorded a gain of $16.6 million during the year ended December 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 charge and is driven by fluctuations in the market price of our warrants.
Our revenue has seasonality and is typically higher in the fourth quarter, driven by holiday spending and the booking of travel. Revenue generated from our crypto services has been immaterial to date.
Our loyalty revenue has seasonality and is typically higher in the fourth quarter, driven by holiday spending and the booking of travel.
See Note 5 to our audited consolidated financial statements for additional disclosures related to the impairment of goodwill and other intangible assets. The carrying value of our tradename intangible asset was equal to its fair value and our single reporting unit had no cushion on its goodwill impairment analysis immediately after the impairment was recorded.
The carrying value of our tradename intangible asset was equal to its fair value and our single reporting unit had no cushion on its goodwill impairment analysis immediately after the impairment was recorded.
Therefore if there are further delays in our ability to execute on our strategy or negative deviations from the budgets utilized in these analyses further impairment of our assets is possible.
Therefore if there are further delays in our ability to execute on our strategy, negative deviations from the budgets utilized in these analyses or further declines in our market capitalization further impairment of our assets is possible. Crypto Revenue Recognition Bakkt Crypto offers customers the ability to purchase or sell certain crypto on its platform.
Unit-Based Compensation The Successor period unit-based compensation expense relates to the replacement incentive units and phantom units (“participation” units) granted during the Predecessor period that were issued to employees as purchase consideration.
Unit-Based Compensation Unit-based compensation expense relates to the replacement incentive units and phantom units (“participation” units) granted prior to the VIH Business Combination on October 15, 2021, that were issued to employees as purchase consideration.
(2) Represents rental payments under operating leases with remaining non-cancellable terms in excess of one year. Additionally, we, through our loyalty business, had a purchasing card facility with a bank that we utilized for redemption purchases made from vendors as part of our loyalty redemption platform.
Additionally, we, through our loyalty business, had a purchasing card facility with a bank that we utilized for redemption purchases made from vendors as part of our loyalty redemption platform.
The increases in these expenses were partially offset by the increases in revenue of $15.1 million and a reduction of marketing expenses of $10.1 million. 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.
The decrease was primarily due to a $15.6 million decrease in compensation and benefits expense, a $4.3 million reduction of marketing expenses and a $1.3 million reduction in professional services fees. 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.
Income tax expense in the year ended December 31, 2022 primarily consists of $11.6 million of deferred tax benefit resulting from book-tax differences stemming from investments in Opco and its subsidiaries.
Income tax expense in the year ended December 31, 2022 primarily consists of $11.6 million of deferred tax benefit resulting from book-tax differences stemming from investments in Opco and its subsidiaries. -88- Table of Contents Liquidity and Capital Resources As of December 31, 2023, we had $52.9 million and $31.8 million of cash and cash equivalents and restricted cash, respectively.
As a result, over time, we expect loyalty revenue, which has been the source of substantially all of our revenue historically, to decrease as a percentage of overall revenue as the revenue from our other product and service offerings grows.
As a result of our acquisition of Bakkt Crypto, we expect loyalty revenue, which prior to the Bakkt Crypto acquisition was the source of substantially all of our revenue, to be a smaller percentage of overall revenue in the future as the revenue from our crypto product and service offerings grows.
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.
Our future cash requirements will depend on many factors, including our revenue growth rate, the timing and extent of overhead, sales and marketing expenditures to support projected growth, and our ability to limit our software development investments to features and functionality with a clear line of sight to revenue generation.
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 are seeking to bring trust and transparency to crypto . We are and will continue to 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.
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 consumer app, and associated non-headcount technology and communication cost to develop, operate and support our customer-facing technology platforms. -73- Table of Content s Net cash used in operating activities of $117.6 million for the year ended December 31, 2022 was primarily related to our net loss of $1,989.9 million, offset by non-cash charges of $1,869.4 million and changes in our operating assets and liabilities of $2.9 million.
Net cash used in operating activities of $117.6 million for the year ended December 31, 2022 was primarily related to our net loss of $1,989.9 million, offset by non-cash charges of $1,869.4 million and changes in our operating assets and liabilities of $2.9 million.
References in this section to “we,” “us,” “our,” “Bakkt” or the “Company” and like terms refer to (i) Bakkt Opco Holdings, LLC and its subsidiaries (the “Predecessor”) for the period from January 1, 2021 through October 14, 2021 (the "Predecessor Period") and (ii) Bakkt Holdings, Inc. and its subsidiaries (the “Successor”) for the period from October 15, 2021 through December 31, 2021 and for the year ended December 31, 2022 (each referred to herein as a “Successor Period”), unless the context otherwise requires.
References in this section to “we,” “us,” “our,” “Bakkt” or the “Company” and like terms refer to Bakkt Holdings, Inc. and its subsidiaries for the years ended December 31, 2023 and December 31, 2022, unless the context otherwise requires.
We receive a recurring subscription revenue stream from client platform fees as well as service revenue from software development fees and call center support. • Transaction revenue. We generate transaction revenue though loyalty redemption volumes where we receive a percentage fee based on the volume and from crypto buy/sell where we earn a spread on both legs of the transaction.
We generate transaction revenue from crypto buy/sell trades where we earn a spread on both legs of the transaction (reported gross) and through loyalty redemption volumes where we receive a percentage fee based on the volume (reported net of associated costs).
Compensation and benefits expense include all salaries and benefits, compensation for contract labor, incentive programs for employees, payroll taxes, unit-based compensation and other employee related costs.
Compensation and Benefits ($ in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022 $ Change % Change Compensation and benefits $ 102,042 $ 139,049 $ (37,007) (26.6 %) Compensation and benefits expense include all salaries and benefits, compensation for contract labor, incentive programs for employees, payroll taxes, share-based and unit-based compensation and other employee related costs.
Net cash inflows from changes in our operating assets and liabilities for the combined 2021 period resulted primarily from an increase in accounts payable and accrued liabilities of $3.6 million and the return of a deposit with our clearinghouse affiliate of $20.2 million, which were partially offset by an increase in prepaid insurance of $31.5 million, an increase in other assets and liabilities of $8.1 million and an increase in accounts receivable of $7.7 million.
Net cash inflows from changes in our operating assets and liabilities for the year ended December 31, 2023 resulted primarily from a $32.3 million increase in customer funds, a non-recurring return of a $15.2 million deposit with ICE Clear US, Inc., a decrease in prepaid insurance of $9.8 million, and an increase in amounts due to related parties of $2.1 million, which were partially offset by an increase in accounts payable and accrued liabilities of $8.0 million, an increase in operating lease liabilities of $3.0 million, and an increase in accounts receivable of $10.0 million.
Net cash used in operating activities of $134.3 million for the combined 2021 period was primarily related to our combined 2021 period net loss of $304.0 million, offset by non-cash charges of $193.8 million and changes in our operating assets and liabilities of $24.1 million.
Net cash used in operating activities of $60.7 million for the year ended December 31, 2023 was primarily related to our net loss of $225.8 million, offset by non-cash charges of $123.2 million and changes in our operating assets and liabilities of $41.9 million.
Impairment of long-lived assets expense increased by $6.7 million, or 139.8%, for the year ended December 31, 2022 compared to the combined 2021 period.
Impairment of long-lived assets ($ in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022 $ Change % Change Impairment of long-lived assets $ 30,265 $ 11,494 $ 18,771 163.3 % Impairment of long-lived assets expense increased by $18.8 million, or 163.3%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Contractual Obligations and Commitments The following is a summary of our significant contractual obligations and commitments as of December 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 $ 15,500 $ — $ — $ 17,750 Future minimum operating lease payments (2) 4,271 9,301 6,397 12,319 32,288 Total contractual obligations 6,521 24,801 6,397 12,319 50,038 (1) Represents minimum commitment payments under a four-year cloud computing arrangement.
Contractual Obligations and Commitments The following is a summary of our significant contractual obligations and commitments as of December 31, 2023 (in thousands): Payments Due by Period Less than 1 year 1-3 years 3-5 years More than 5 years Total Purchase obligations (1) $ 6,800 $ 14,100 $ — $ — $ 20,900 Future minimum operating lease payments (2) 4,993 9,624 7,549 10,704 32,870 Total contractual obligations 11,793 23,724 7,549 10,704 53,770 -91- Table of Contents (1) Represents minimum commitment payments under a four-year cloud computing arrangement and a separate five-year marketing partnership.
The non-GAAP financial measures should be considered alongside other financial performance measures, including net loss and our other financial results presented in accordance with GAAP. -76- Table of Content s 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 Year Ended December 31, 2022 October 15, 2021 through December 31, 2021 January 1, 2021 through October 14, 2021 Net loss $ (1,989,934) $ (164,827) $ (139,219) Depreciation and amortization 25,350 5,422 9,620 Interest (income) expense (1,877) (11) 247 Income tax (benefit) expense (11,320) 11,751 (602) EBITDA (1,977,781) (147,665) (129,954) Acquisition-related expenses 5,675 1,603 24,793 Share-based and unit-based compensation expense 32,114 45,914 33,877 Cancellation of common units (185) (192) — (Gain) loss from change in fair value of warrant liability (16,638) 79,373 — Goodwill and intangible assets impairments 1,822,089 — — Impairment of long-lived assets 11,494 1,196 3,598 Restructuring expenses 2,336 — — ICE transition services expense 1,168 617 — Gain on extinguishment of software license liability — (1,301) — Non-recurring bitcoin sale income, net — — (1,024) Adjusted EBITDA loss $ (119,728) $ (20,455) $ (68,709) Adjusted EBITDA loss for the year ended December 31, 2022 increased by $30.6 million, or 34.3%, as compared to the combined 2021 period.
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): Year Ended December 31, 2023 Year Ended December 31, 2022 Net loss $ (225,812) $ (1,989,934) Depreciation and amortization 13,932 25,350 Interest income, net (4,338) (1,877) Income tax expense (benefit) 444 (11,320) EBITDA (215,774) (1,977,781) Acquisition-related expenses 4,299 5,675 Share-based and unit-based compensation expense 16,761 32,114 Cancellation of common units (13) (185) Loss (gain) from change in fair value of warrant liability 1,571 (16,638) Goodwill and intangible assets impairments 60,499 1,822,089 Impairment of long-lived assets 30,265 11,494 Restructuring expenses 4,608 2,336 Transition services expense 3,902 1,168 Adjusted EBITDA loss $ (93,882) $ (119,728) Adjusted EBITDA loss for the year ended December 31, 2023 decreased by $25.8 million, or 21.6%, as compared to the year ended December 31, 2022.
To date, management has been focused on building through clients within a business-to-business-to-consumer (“B2B2C”) model. Our goal is to provide these clients opportunities to leverage our capabilities either through their existing environment or by leveraging our platform. Our acquisition of Apex complements our B2B2C growth strategy by broadening our business partnerships to fintechs and neo-banks.
We collaborate with leading brands and have built an extensive network across numerous industries including financial institutions, merchants and travel and entertainment. To date, management has been focused on building through clients within a business-to-business-to-consumer (“B2B2C”) model. Our goal is to provide these clients opportunities to leverage our capabilities either through their existing environment or by leveraging our platform.
The increase was primarily due to increases of $12.4 million in insurance expense and $2.4 million in occupancy costs, partially offset by a reduction of marketing expenses of $10.1 million. The majority of marketing expenses are web-based promotional campaigns.
The decrease was primarily due to a $4.3 million reduction in marketing expenses and decreased travel and entertainment expenses of $0.3 million, partially offset by increases of $1.2 million in occupancy costs, $1.0 million in dues and subscriptions and $0.3 million in regulatory filing fees.
We intend to use our unrestricted cash and proceeds from maturity of available for sale debt securities to (i) maintain our sales and marketing efforts and activate crypto clients, (ii) maintain our research and product development efforts, (iii) optimize our technology infrastructure and operational support and (iv) fund the $55.0 million cash purchase price to acquire Apex.
We intend to use our unrestricted cash, inclusive of the net proceeds from the Concurrent Offerings, and proceeds from maturity of available-for-sale debt securities to (i) fund our day-to-day operations, including, but not limited to funding our regulatory capital requirements, compensating balance arrangements and other similar commitments, each of which is subject to change, (ii) activate new crypto clients, (iii) maintain our product development efforts, and (iv) optimize our technology infrastructure and operational support.
We continue to work with regulators to address the emerging global landscape for crypto . As investment continues, the intersection of technology and finance will require ongoing engagement as new applications emerge. C ryptoasset and distributed ledger technology have significant, positive potential with proper collaboration between industry and regulators. For more information around regulations, please see “Item 1. Business”.
C rypto asset and distributed ledger technology have significant, positive potential with proper collaboration between industry and regulators. For more information around regulations, please see “Item 1. Business”.
Restructuring expenses of $2.3 million for the year ended December 31, 2022 consist of severance costs as part of our business simplification initiatives to focus on capabilities with strong product market fit and scalability. -70- Table of Content s Gain (loss) from Change in Fair Value of Warrant Liability Successor Predecessor ($ in thousands) Year Ended December 31, 2022 October 15, 2021 through December 31, 2021 January 1, 2021 through October 14, 2021 $ Change (1) % Change (1) Gain (loss) from change in fair value of warrant liability $ 16,638 $ (79,373) $ — $ 96,011 (121.0 %) (1) Change represents the year ended December 31, 2022 compared to the combined 2021 periods.
Restructuring expenses of $2.3 million for the year ended December 31, 2022 consist of severance costs as part of our business simplification initiatives to focus on capabilities with strong product market fit and scalability.
We enable our clients to deliver new opportunities to their customers through software as a service (“SaaS”) and API solutions that unlock crypto and drive loyalty, powering engagement and performance. The global -60- Table of Content s market for crypto, while nascent, is rapidly evolving and expanding.
Risk Factors.” Overview Founded in 2018, Bakkt builds technology that connects the digital economy by offering one ecosystem for crypto and loyalty points. We enable our clients to deliver new opportunities to their customers through software as a service (“SaaS”) and API solutions that unlock crypto and drive loyalty, powering engagement and performance.
Capital expenditures were primary related to capitalized expenses associated with internally developed software for our technology platforms. Financing Activities Net cash flows used in financing activities of $2.6 million for the year ended December 31, 2022 resulted from proceeds from the repurchase and retirement of Class A common stock of $2.6 million.
Net cash flows used in financing activities of $2.6 million for the year ended December 31, 2022 resulted from proceeds from the repurchase and retirement of Class A Common Stock of $2.6 million. Tax Receivable Agreement Concurrently with the completion of the VIH Business Combination, we entered into a Tax Receivable Agreement (“TRA”) with certain Bakkt Equity Holders.
Professional services expense includes fees for accounting, legal and regulatory fees. Professional services increased by $3.3 million, or 39.9%, for the year ended December 31, 2022 compared to the combined 2021 period.
Professional services decreased by $1.1 million, or 9.6%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Markets We are subject to many complex, uncertain and overlapping local, state and federal laws, rules, regulations, policies and legal interpretations (collectively, “laws and regulations”) in the markets in which we operate. These laws and regulations govern, among other things, consumer protection, privacy and data protection, labor and employment, anti-money laundering, money transmission, competition, and marketing and communications practices.
See “Crypto Market Developments” above. -80- Table of Contents Regulations in US & International Markets We are subject to many complex, uncertain and overlapping local, state and federal laws, rules, regulations, policies and legal interpretations (collectively, “laws and regulations”) in the markets in which we operate.
Depreciation and amortization expense consists of amortization of intangible assets from business acquisitions, internally developed software and depreciation of purchased software and computer and office equipment over their estimated useful lives. Intangible assets subject to amortization consist primarily of acquired technology and client relationships from the VIH Business Combination.
Depreciation and Amortization ($ in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022 $ Change % Change Depreciation and amortization $ 13,932 $ 25,350 $ (11,418) (45.0 %) 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.
The following table summarizes our cash flows for the periods presented: Successor Predecessor Year Ended December 31, 2022 October 15, 2021 through December 31, 2021 January 1, 2021 through October 14, 2021 Net cash flows used in operating activities $ (117,597) $ (83,387) $ (50,915) Net cash flows provided by (used in) investing activities $ (171,961) $ 27,259 $ (10,342) Net cash flows provided by (used in) financing activities $ (2,584) $ 256,925 $ (97) Operating Activities Since our inception, we have yet to achieve positive cash flow from operations.
Please see “Risk Factors - Risks Related to Our Business, Finance and Operations - We might not be able to continue as a going concern.” for more information. -89- Table of Contents The following table summarizes our cash flows for the periods presented: Year Ended December 31, 2023 Year Ended December 31, 2022 Net cash used in operating activities $ (60,697) $ (117,597) Net cash provided by (used in) investing activities: $ 65,970 $ (171,961) Net cash used in financing activities: $ (2,634) $ (2,584) Operating Activities Since our inception, we have yet to achieve positive cash flow from operations.
The non-cash charges for the combined 2021 period primarily consisted of loss from change in fair value of warrant liability of $79.4 million, unit-based compensation of $78.8 million, depreciation and amortization of $15.0 million and impairment of long-lived assets of $4.8 million.
The non-cash charges for the year ended December 31, 2023 primarily consisted of intangible and long-lived asset impairments of $90.8 million, share-based compensation of $15.5 million, depreciation and amortization of $13.9 million, non-cash lease expense of $3.1 million and the loss from the change in fair value of our warrant liability of $1.6 million, partially offset by the change in fair value of the contingent consideration of $3.0 million .
Acquisition-related expenses decreased by $20.7 million, or 78.5%, for the year ended December 31, 2022 compared to the combined 2021 period. Acquisition-related expenses for the year ended December 31, 2022 consist of fees for investment banking advisors, lawyers, accountants, tax advisors and public relations firms directly related to the acquisition of Apex and Bumped.
Acquisition-related expenses for the year ended December 31, 2023 primarily consisted of fees for investment banking advisors, lawyers, accountants, tax advisors and public relations firms -86- Table of Contents related to the acquisitions of Bakkt Crypto and Bakkt Brokerage.
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 crypto .
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.
Depreciation and amortization increased by $10.3 million, or 68.5%, for the year ended December 31, 2022 compared to the combined 2021 period.
Compensation and benefits decreased by $37.0 million, or 26.6%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
In 2022, the crypto markets were impacted by, among other things, significant volatility in cryptoasset prices, bankruptcies of several cryptocurrency exchanges, regulatory actions and adverse publicity. Although we did not have any exposure to the companies that halted activities in 2022, we were nonetheless impacted by the broader conditions in the crypto markets.
Although we did not have any exposure to these companies, and we do not have material assets that may not be recovered or may otherwise be lost or misappropriated due to the bankruptcies, we were nonetheless impacted by, and continue to be impacted by, the broader conditions in the crypto markets.
We expect to limit future hiring and leverage the team we have built in 2022 as well as our Apex acquisition to execute our growth strategy.
We expect to leverage the team we have built to date as well as our Bakkt Crypto acquisition to execute our growth strategy. We are undertaking further strategic analysis of our headcount and expense base and will take further action to right-size both in 2024.
We expect that our compensation and benefits expenses will decrease as a percentage of our revenue over time. Compensation and benefits decreased by $14.4 million, or 9.4%, for the year ended December 31, 2022 compared to the combined 2021 period.
Compensation and benefits expense is a significant component of our operating expenses, and we expect this will continue to be the case. However, we expect that our compensation and benefits expenses will decrease as a percentage of our revenue over time.

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