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BAKKT HOLDINGS, INC.

(BKKT)
  Report
Delayed Nyse  -  04:00 2022-09-23 pm EDT
2.210 USD   -2.64%
09/21Bakkt appoints chief accounting officer
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09/12BAKKT HOLDINGS, INC. : Change in Directors or Principal Officers, Financial Statements and Exhibits (form 8-K)
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09/12Bakkt Names Chip Goodroe Chief Accounting Officer
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BAKKT HOLDINGS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/11/2022 | 04:13pm EDT
The following discussion and analysis of financial condition and results of
operations should be read together with the accompanying consolidated financial
statements and related notes. 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 three and six months ended June
30, 2021 (referred to herein as a "Predecessor Periods") and (ii) Bakkt
Holdings, Inc. and its subsidiaries (the "Successor") for the three and six
months ended June 30, 2022 (the "Successor Periods"), unless the context
otherwise requires. Some of the information contained in this discussion and
analysis or set forth elsewhere in this document, including information with
respect to our plans and strategy for our business, includes forward-looking
statements. Such forward-looking statements are based on the beliefs of our
management, as well as assumptions made by, and information currently available
to, our management. Actual results could differ materially from those
contemplated by the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those factors
discussed above in "Cautionary Statement Regarding Forward-Looking Statements"
and "Item 1A. Risk Factors."

Overview


Bakkt's vision is to connect the digital economy. Our platform, which operates
at the intersection of cryptoassets ("crypto"), loyalty and rewards, and
payments, is uniquely positioned to enable consumers, brands, and financial
institutions to better manage, transact with and monetize those assets in new
ways.

We believe we are well positioned to provide innovative, multi-faceted product
solutions and grow with the evolving digital assets market. Our institutional
grade technology platform is at the center of everything we do. It is secure and
regulated, 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, products and services in four key areas:

•Enabling Crypto Services. Our platform provides consumers, businesses and
institutions easy access to crypto buy and sell capabilities. We enable
businesses - particularly those not native to the crypto space, such as platform
partners, financial institutions and wallet providers - to provide their
customers with the ability to transact in crypto directly in their trusted
environments. Our platform provides secure, regulated and institutional-grade
infrastructure in a simple, intuitive digital experience.

•Fueling Crypto Rewards. We are in the process of enabling merchants of all
sizes to offer loyalty and rewards to their customers in the form of crypto -
either by earning crypto rewards, or by redeeming existing reward currencies,
such as points or miles, into crypto. We believe this capability will enhance
merchants' existing loyalty programs and enable merchants to attract younger,
affluent, digital-native audiences and to increase loyalty with existing
customers by offering the potential to increase the long-term value of their
rewards.

•Paying with Digital Assets. We enable consumers to make everyday purchases
using their existing rewards points or new assets like crypto. Our solution
enables assets to be easily converted at checkout, making merchant integrations
simple, fast, and flexible and facilitating settlement in fiat currency. Our
payment capabilities also extend to enable companies to disburse payments in
crypto (for instance, to gig economy or marketplace participants such as
freelancers, content providers, and delivery workers).

•Powering Loyalty. We offer a full spectrum of content that retailers and
financial institutions can make available to their customers when redeeming
loyalty currencies, driving consumer loyalty and engagement. Our redemption
solutions span a variety of rewards categories including merchandise (such as
Apple products and services), gift cards, digital experiences and charitable
giving. 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. Capabilities include a mobile-first user
experience, a multi-tier construct to accommodate loyalty tiers, comprehensive
fraud protection capabilities and a split-tender payments platform to accept
both points and credit cards as a form of payment. We recognize
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that businesses want to offer consumers choice, innovation and a frictionless experience, and our platform was constructed with this in mind.

Our Platform


Our platform is built to operate at the intersection of cryptoassets, loyalty
and payments, and offers partners the flexibility to choose some or all of our
capabilities, and the manner in which these capabilities are enabled for
consumers, based on their needs and objectives. Some partners may choose to
enable our capabilities directly in their experience, while others may want a
"ready-to-go" storefront and leverage capabilities such as our consumer app. Our
core platform and infrastructure are built to provide integrations for crypto
buy/sell trading, loyalty redemption, payments and exchange, and supports these
use cases regardless of where the consumer experience lives. Our
institutional-grade platform, born out of ICE, supports "know your customer"
("KYC"), anti-money laundering ("AML"), and other anti-fraud measures to combat
financial crime.

Key Factors Affecting Our Performance

Attractiveness of Platform


We primarily generate revenue when users of our platform buy, sell, convert,
spend and send digital assets through the platform, and our success depends in
part on transaction volume. Business growth will come from growing users and the
transaction fees associated with users buying, selling, converting and spending
with digital assets, and the margin earned in connection with consumer purchases
and the sale of cryptoassets. We will look to grow our base of active and
transacting users to grow these revenue streams.

In addition, growing partners on our platform increases our ability to grow
revenue streams. To date, management has been focused on building through
partners within a business-to-business-to-consumer ("B2B2C") model. Our goal is
to provide these partners opportunities to leverage our capabilities either
through their existing environment or by leveraging our platform. Expanding the
platform capabilities leveraged by our partner set, as well as expanding with
new partners, will be key to our business and revenue growth. We expect that
revenues related to loyalty redemption transactions, cryptoasset trades,
subscriptions and services will be significant drivers of our business. The
risks and uncertainties related to each such revenue generating activity are
largely the same. Specifically, to the extent we are unable to grow our partner
base and/or organically grow our active and transacting user base (who buy,
sell, convert and spend with digital assets, and from whom we can earn the
margin paid in connection with consumer purchases and sale of cryptoassets), or
to the extent the cost of such growth (including our average customer
acquisition cost) is greater than we anticipate, the corresponding growth of our
business may occur more slowly than we expect, or may not occur at all. Our
ability to execute on our business plan is dependent on successfully executing
on several key components of our business, principally including: (i) the
technological success of our platform; (ii) the integration of our platform with
the platforms of our partners; (iii) growth in the number and diversity of the
loyalty brands, associated merchants and retailers, and cryptocurrencies and
other digital assets that we support; and (iv) our resulting ability to create a
network effect with growth in active and transacting users.

Regulations in U.S. Markets


We are subject to many complex, uncertain and overlapping local, state and
federal laws, rules, regulations, policies and legal interpretations
(collectively, "laws and regulations") in the markets in which we operate. These
laws and regulations govern, among other things, consumer protection, privacy
and data protection, labor and employment, anti-money laundering, money
transmission, competition, and marketing and communications practices. These
laws and regulations will likely have evolving interpretations and applications,
particularly as we introduce new products and services and expand into new
jurisdictions.

We are seeking to bring trust and transparency to digital assets. We will progressively be subject to laws and regulations relating to the collection, use, retention, security, and transfer of information, including the personally

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identifiable information of our clients and all of the users in the information chain. We have developed and frequently evaluate and update our compliance models to ensure that we are complying with applicable restrictions.


We continue to work with regulators to address the emerging global landscape for
digital assets. As investment continues, the intersection of technology and
finance will require ongoing engagement as new applications emerge. Digital
assets and distributed ledger technology have significant, positive potential
with proper collaboration between industry and regulators.

COVID-19 Impacts


In March 2020, the World Health Organization declared the COVID-19 outbreak a
global pandemic. The COVID-19 pandemic has adversely affected global economic
activity and, in 2020, contributed to significant declines and volatility in
financial markets. The COVID-19 pandemic had an impact on our business during
the year ended December 31, 2020, primarily in that it (i) decreased revenue
from our loyalty and travel businesses, and (ii) impacted our ability to expand
our relationships with existing loyalty partners, and to conclude relationships
with new loyalty partners, whose businesses similarly have been adversely
affected by the pandemic. During 2021, our business operations started to
recover from the impacts of the pandemic. Our business operations have continued
to recover in 2022 from the impacts of the pandemic, including revenue from the
loyalty and travel business.

Business Combination

On October 15, 2021, Bakkt (f/k/a VPC Impact Acquisition Holdings, a Cayman
Islands exempted company ("VIH")) and VIH completed the Business Combination
contemplated by the Merger Agreement. Pursuant to the Merger Agreement, VIH
acquired a majority voting interest in Bakkt Opco Holdings, LLC ("Opco") through
a series of mergers, with Opco becoming a direct subsidiary of VIH. In
connection with the completion of the Business Combination, VIH changed its
jurisdiction of incorporation from the Cayman Islands to the State of Delaware
and changed its name to "Bakkt Holdings, Inc."

The Business Combination resulted in Bakkt continuing as the surviving entity
and being organized as an umbrella partnership corporation, or "up-C," structure
in which substantially all our assets and business are held by Opco and its
subsidiaries, with the existing owners of Opco being considered as
noncontrolling interests in the audited consolidated financial statements.

Upon completion of the Business Combination, VIH was deemed the accounting
acquirer and Opco the accounting acquiree. Under the acquisition method of
accounting, VIH's assets and liabilities retained their carrying values and the
assets and liabilities associated with Opco were recorded at their fair values
measured as of the acquisition date. The excess of the purchase price over the
estimated fair values of the net assets acquired was recorded as goodwill. In
connection with the Business Combination, all outstanding membership interests
and rights to acquire membership interests in Opco were exchanged for an
aggregate of 208,200,000 Opco common units and an equal number of newly issued
shares of our Class V common stock, par value $0.0001 per share ("Class V common
stock"), which are non-economic, voting shares of the Company, of which
207,406,648 are outstanding and 793,352 reserved for issuance upon the exercise
of a warrant agreement. Each Opco common unit, when coupled with one share of
our Class V common stock is referred to as a "Paired Interest." Paired Interests
may be exchanged for one share of our Class A common stock or a cash amount in
accordance with the Third Amended and Restated Limited Liability Company
Agreement of Opco and the Amended and Restated Exchange Agreement between the
Company and certain holders of Bakkt Common Units, dated as of October 15, 2021.
Following the Closing, the Company owned approximately 20.3% of the Opco common
units and with the remaining Opco common units being owned by the equity owners
of Opco prior to the Merger. Holders of Paired Interests became entitled to
exchange their Paired Interests in accordance with the Amended and Restated
Exchange Agreement in the second quarter of 2022. As of August 5, 2022,
exchanges and forfeitures had resulted in the Company's ownership of Opco common
units increasing to 29.0%.
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As a result of the Business Combination, our financial results are broken out
between the Predecessor periods (January 1, 2021 through June 30, 2021) and the
Successor periods (January 1, 2022 through June 30, 2022).

Safeguarding Obligation Liability and Safeguarding Asset Related to Cryptoassets Held for Other Parties


As detailed in Note 17, upon the adoption of SAB 121, we recorded a safeguarding
obligation liability and a corresponding safeguarding asset related to the
cryptoassets held for other parties. As of June 30, 2022, the safeguarding
obligation liability related to cryptoassets held for other parties was
approximately $147.1 million. We have taken steps to mitigate the potential risk
of loss for the cryptoassets 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 cryptoassets that we hold. SAB
121 also asks us to consider the legal ownership of the cryptoassets held for
other parties, including whether the cryptoassets held for other parties would
be available to satisfy general creditor claims in the event of our bankruptcy.

The legal rights with respect to cryptoassets held on behalf of third parties by
a custodian, such as us, upon the custodian's bankruptcy have not yet been
settled by courts and are highly fact-dependent. However, based on the terms of
our terms of service and applicable law, in the event that we were to enter
bankruptcy, we believe the cryptoassets that we hold in custody for users of our
platform should be respected as users' property (and should not be available to
satisfy the claims of our general creditors). We do not allow users to purchase
cryptoassets on margin, and cryptoassets held on our platform do not serve as
collateral for margin loans. We hold cryptoassets in custody for users in one or
more omnibus cryptoasset wallets; we do not presently utilize third-party
custodians. We hold cryptographic key information and maintain internal record
keeping for the cryptoassets we hold in custody for users, and we are obligated
to secure such assets from loss or theft. Our contractual arrangements state
that our customers and trading partners retain legal ownership of the
cryptoassets custodied by us on their behalf; they also benefit from the rewards
and bear the risks associated with their ownership, including as a result of any
price fluctuations. We have been monitoring and will continue to actively
monitor legal and regulatory developments and may consider further steps, as
appropriate, to support this contractual position so that in the event of our
bankruptcy, the cryptoassets custodied by us should not be deemed to be part of
our bankruptcy estate. We do not expect potential future cash flows associated
with the cryptoasset safeguarding obligation liability.

Our Corporate Structure


We own and consolidate entities formed during the year ended December 31, 2019,
including Bakkt Trust and Bakkt Marketplace. We also own and consolidate
entities that were acquired during the year ended December 31, 2019, including
DACC Technologies, Inc., Digital Asset Custody Company, Inc. (collectively with
DACC Technologies, Inc., "DACC"), and Bakkt Clearing, LLC ("Bakkt Clearing"),
formerly known as Rosenthal Collins Group, L.L.C. We continued to operate these
entities through fiscal year 2021 and also acquired Bridge2 Solutions in
February 2020.

Bakkt Trust is a New York limited-purpose trust company that is chartered by and
subject to the supervision and oversight of the NYDFS. In September 2019, Bakkt
Trust, along with IFUS and ICUS, both of which are wholly-owned subsidiaries of
ICE, brought to market an institutional-grade, regulated infrastructure for
trading, clearing, and custody services for bitcoin. Bakkt Trust acts as a
qualified custodian for bitcoin, which enables Bakkt Trust to offer end-to-end
regulated, physically-delivered bitcoin futures and options contracts to
financial institutions and market makers. In addition, Bakkt Trust has been
approved by the NYDFS to offer non-trading- related, standalone custody of
bitcoin and ether to institutions and certain high net worth individuals in
cryptoassets, subject to NYDFS regulatory oversight.
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The below graphic illustrates the structure of the physically-delivered bitcoin futures and options and custody offerings.

[[Image Removed: bakkt-20220630_g1.jpg]]


Bakkt Marketplace has created an integrated platform that enables consumers and
enterprises to transact in digital assets. Bakkt Marketplace users have a
digital wallet that enables them to purchase, sell, convert, and or spend
digital assets. Users can also use their digital wallet to spend fiat currency
with various retailers and convert loyalty and rewards points into fiat
currency. Bakkt Marketplace has received money transmitter licenses from all
states throughout the U.S. where such licenses are required, has obtained a New
York State virtual currency license, and is registered as a money services
business with the Financial Crimes Enforcement Network of the United States
Department of the Treasury. Bakkt
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rust's custody solution provides support to Bakkt Marketplace with respect to bitcoin and ether functionality within the consumer app.

[[Image Removed: bakkt-20220630_g2.jpg]]


Bakkt Clearing was registered as a futures commission merchant ("FCM") with the
Commodity Futures Trading Commission ("CFTC") and a member of the National
Futures Association ("NFA"). On May 20, 2022, we withdrew our registration with
CFTC and membership in NFA, which was effective on June 20, 2022.

Bakkt's white label loyalty redemption platform is largely carried on by its subsidiary, Bridge2 Solutions, LLC, which Bakkt acquired in February 2020.

Our Relationship with ICE


Prior to the consummation of the Business Combination, we were an indirect
majority-owned subsidiary of ICE. ICE is a global market infrastructure provider
with a history of developing and implementing leading technologies. ICE operates
exchanges, clearinghouses, and listing venues for the financial markets
alongside offering data-driven technology services to support the trading,
lending, investment, risk management, and connectivity needs of customers. In
building our platform, ICE and minority investors contributed capital and
assets, leveraging ICE's leading competency of creating and operating market
infrastructure. Upon our formation, ICE made a cash capital contribution and
granted us the right to access ICE's existing futures and clearing platforms.
ICE also partners with us with respect to certain institutional product
offerings.
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Results of Operations

The following table is our consolidated statements of operations for the Successor period and the Predecessor periods (in thousands):

                                            Successor                     Predecessor              Successor                    Predecessor
                                           Three Months                                            Six Months
                                              Ended                   Three Months Ended             Ended                    Six Months Ended
                                          June 30, 2022                  June 30, 2021           June 30, 2022                 June 30, 2021
Revenues:
Net revenues(1)                           $    13,572                $            8,486          $    26,104                $          16,631
Operating expenses:
Compensation and benefits                      34,247                            19,916               69,335                           35,150
Professional services                           1,910                               760                6,585                            1,673
Technology and communication                    4,164                             3,916                8,521                            6,702
Selling, general and administrative             9,769                             8,956               19,203                           15,065
Acquisition-related expenses                      178                             2,489                  694                           10,309
Depreciation and amortization                   6,098                             3,034               11,949                            5,828
Related party expenses (affiliate in
Predecessor period)(2)                            267                               471                  634                              942
Other operating expenses                          490                               269                1,219                              697
Total operating expenses                       57,123                            39,811              118,140                           76,366
Operating loss                                (43,551)                          (31,325)             (92,036)                         (59,735)
Interest income (expense), net                    153                               (94)                 214                             (143)
Gain from change in fair value of warrant
liability                                      10,283                                 -               12,711                                -
Other income (expense), net                       374                              (311)                 (89)                            (649)
Loss before income taxes                      (32,741)                          (31,730)             (79,200)                         (60,527)
Income tax benefit (expense)                    5,100                              (161)               8,238                             (184)
Net loss                                  $   (27,641)               $          (31,891)         $   (70,962)               $         (60,711)
Less: Net loss attributable to
noncontrolling interest                       (23,744)                                               (59,936)
Net loss attributable to Bakkt Holdings,
Inc.                                           (3,897)                                               (11,026)

Net loss per share attributable to Bakkt
Holdings, Inc.
Class A common stockholders per share:
Basic                                     $     (0.05)                                 (3)       $     (0.17)                                (3)
Diluted                                   $     (0.05)                                 (3)       $     (0.18)                                (3)


(1)The revenue for the three and six months ended June 30, 2022 includes net
revenues from related party of $14 and $34, respectively. The revenue for the
three and six months ended June 30, 2021 includes net revenues from affiliate of
$(17) and $(43), respectively.
(2)As a result of the Business Combination, ICE and its affiliates are no longer
our affiliates.
(3)Basic and diluted loss per share is not presented for the Predecessor period
due to lack of comparability with the Successor period.
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Three Months Ended June 30, 2022 (Successor) compared to Three Months Ended June 30, 2021 (Predecessor)

Financial Summary

The three months ended June 30, 2022 included the following notable items relative to the three months ended June 30, 2021:


•Revenue increased $5.1 million, or 60%, primarily driven by strong transaction
revenue from the loyalty redemption business; and
•Operating expenses increased $17.3 million, or 43%, primarily driven by
increases in non-cash compensation and headcount.

Revenue

                                          Successor                       Predecessor
                                      Three Months Ended               Three Months Ended
($ in thousands)                        June 30, 2022                    June 30, 2021             $ Change             % Change
Net revenues                          $        13,572                $             8,486          $  5,086                   59.9  %


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 digital assets. We generate revenue across our platform in the following
key areas:

•Subscription and service revenue. We receive a recurring subscription revenue
stream from partner 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 make a spread on both legs of the transaction.

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
service offerings in the digital asset marketplace and payments has been
immaterial to date. However, we expect that revenues from cryptoasset trades,
spending digital assets and other transactions and subscription fees will be
significant drivers of our business, and we expect those revenues to increase as
we grow our partner base and our users. 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.

Transaction revenue is net of incentives, rebates and liquidity payments,
reductions in connection with the contribution agreement entered into between
Bakkt and ICE in connection with ICE's formation of Bakkt (the "Contribution
Agreement"), and consideration payable to a customer pursuant to an agreement
with a strategic partner.

Net revenues increased by $5.1 million, or 59.9%, for the three months ended
June 30, 2022 compared to the three months ended June 30, 2021. The increase was
comprised of $3.5 million of increased transaction revenue and $1.6 million of
increased subscription and service revenue. The increase in transaction revenue
was primarily driven by $2.3 million from higher customer activity in our
loyalty redemption services business. The increase in subscription and service
revenue was primarily related to the addition of new services for an existing
loyalty customer.
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Operating Expenses


Operating expenses consist of compensation and benefits, professional services,
technology and communication expenses, selling, general and administrative
expense, acquisition-related expenses, depreciation and amortization, affiliate
expenses, impairment of long-lived assets, and other operating expenses.

Compensation and Benefits

                                                Successor                       Predecessor
                                            Three Months Ended               Three Months Ended
($ in thousands)                              June 30, 2022                    June 30, 2021             $ Change             % Change
Compensation and Benefits                   $        34,247                $            19,916          $ 14,331                   72.0  %


Compensation and benefits expense include all salaries and benefits,
compensation for contract labor, incentive programs for employees, payroll
taxes, unit-based compensation and other employee related costs. Compensation
and benefits expense is the most significant component of our operating
expenses, and we expect that our compensation and benefits expense will continue
to increase in absolute dollars as we continue to expand our business, as
described below.

Headcount has increased, and will continue to increase, across functions to
further strengthen our service offerings and enhance our systems, processes, and
controls. We intend to grant equity awards as part of the compensation package
for new employees. We expect that our compensation and expenses will decrease as
a percentage of our revenue over time. Compensation and benefits increased by
$14.3 million, or 72.0%, for the three months ended June 30, 2022 compared to
the three months ended June 30, 2021. The increase was primarily due to
increases of $4.7 million in additional salaries, wages and benefits, $2.7
million in contract labor for software development, and $4.6 million in non-cash
compensation and incentive bonuses.

Professional Services

                                               Successor                          Predecessor
                                        Three Months Ended June             Three Months Ended June
($ in thousands)                               30, 2022                             30, 2021                $ Change             % Change
Professional Services                   $              1,910                $                 760          $  1,150                  151.3  %


Professional services expense includes fees for accounting, legal and regulatory
fees. Professional services increased by $1.2 million, or 151.3%, for the three
months ended June 30, 2022 compared to the three months ended June 30, 2021. The
increase was primarily due to increases of $0.6 million in professional and
other fees and $1.0 million in legal fees, partially offset by a decrease of
$0.6 million in audit and tax fees.

Technology and Communication

                                               Successor                         Predecessor
                                        Three Months Ended June               Three Months Ended
($ in thousands)                               30, 2022                         June 30, 2021              $ Change             % Change
Technology and Communication            $              4,164                $             3,916          $     248                    6.3  %


Technology and communication costs represent all non-headcount related costs to
deliver technological solutions. Such costs principally include amounts paid for
software licenses and software-as-a-service arrangements utilized for operating,
administrative and information security activities, fees paid for third-party
data center hosting arrangements, and fees paid to telecommunications service
providers and for telecommunication software platforms necessary for operation
of our customer support operations. These costs are driven by customer
requirements, system capacity, functionality and redundancy requirements.
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Technology and communications expense also includes fees paid for access to
external market data and associated licensing costs, which may be impacted by
growth in electronic contract volume, our capacity requirements, changes in the
number of telecommunications hubs, and connections with customers to access our
electronic platforms directly. Technology and communications expense increased
by $0.2 million, or 6.3%, for the three months ended June 30, 2022 compared to
the three months ended June 30, 2021. The increase was primarily due to an
increase of $0.9 million in hardware and software license fees, partially offset
by a decrease of $0.8 million in hosting fees.

Selling, General and Administrative

                                          Successor                         Predecessor
                                   Three Months Ended June               Three Months Ended
($ in thousands)                          30, 2022                         June 30, 2021              $ Change             % Change
Selling, General and
Administrative                     $              9,769                $             8,956          $     813                    9.1  %


Selling, general and administrative expenses include marketing, advertising,
business insurance, rent and occupancy, bank service charges, dues and
subscriptions, travel and entertainment, rent and occupancy, and other general
and administrative costs. Our marketing activities primarily consist of
web-based promotional campaigns, promotional activities with partners,
conferences and user events, and brand-building activities. Selling, general and
administrative expenses do not include any headcount cost, which is reflected in
the compensation and benefits financial statement line item. Our selling,
general and administrative expenses will continue to increase in absolute
dollars to support the projected growth in our business and requirements of
being a public company, including increased insurance premiums and disclosure
processes. However, we expect these costs will decrease as a percentage of our
revenue in future years as we gain improved operating leverage from our
projected revenue growth.

Selling, general and administrative costs increased by $0.8 million, or 9.1%,
for the three months ended June 30, 2022 compared to the three months ended
June 30, 2021. The increase was primarily due to increases of $4.0 million in
insurance expense and $0.5 million in rent, partially offset by a reduction of
marketing expenses of $4.3 million. The majority of marketing expenses are
web-based promotional campaigns. We expect to increase marketing efforts as part
of our broader growth initiatives, which is expected to result in increased
selling, general and administrative expenses in future periods.

Acquisition-related Expenses

                                                     Successor                         Predecessor
                                              Three Months Ended June               Three Months Ended
($ in thousands)                                     30, 2022                         June 30, 2021             $ Change             % Change
Acquisition-related expenses                  $                178                $             2,489          $ (2,311)                (92.8  %)


Acquisition-related expenses decreased by $2.3 million, or 92.8%, for the three
months ended June 30, 2022 compared to the three months ended June 30, 2021.
Acquisition-related expenses for the three months ended June 30, 2021 consist of
fees for investment banking advisors, lawyers, accountants, tax advisors and
public relations firms directly related to the Business Combination, which did
not recur during the three months ended June 30, 2022. The amount and timing of
acquisition-related expenses is expected to vary across periods based on
potential transaction activities.

Depreciation and Amortization

                                         Successor                         Predecessor
                                  Three Months Ended June               Three Months Ended
($ in thousands)                         30, 2022                         June 30, 2021             $ Change             % Change
Depreciation and amortization     $              6,098                $             3,034          $  3,064                  101.0  %


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Depreciation and amortization expense consists of amortization of intangible
assets from business acquisitions, internally developed software and
depreciation of purchased software and computer and office equipment over their
estimated useful lives. Intangible assets subject to amortization consist
primarily of acquired technology and customer relationships from the Business
Combination. Depreciation and amortization increased by $3.1 million, or 101.0%,
for the three months ended June 30, 2022 compared to the three months ended
June 30, 2021. The increase was primarily due to increases of $3.0 million
related to the step-up in basis of the technology and customer relationships
acquired in connection with the Business Combination.

Gain from Change in Fair Value of Warrant Liability

                                      Successor                      Predecessor
                                  Three Months Ended              Three Months Ended
($ in thousands)                    June 30, 2022                   June 30, 2021            $ Change            % Change
Gain from change in fair value of
warrant liability                 $        10,283                $               -          $ 10,283                      n/m


We recorded a gain of $10.3 million during the three months ended June 30, 2022
for the change in fair value on the revaluation of our warrant liability
associated with our public warrants. This is a non-cash gain and is driven by
fluctuations in the market price of our warrants.

Other income (expense), net

                                                   Successor                         Predecessor
                                            Three Months Ended June               Three Months Ended
($ in thousands)                                   30, 2022                         June 30, 2021              $ Change             % Change
Other income (expense), net                 $                374                $              (311)         $     685                 (220.3  %)


Other expense, net primarily consists of non-operating gains and losses. During
the three months ended June 30, 2022, we had other income of $0.4 million as
compared to other expense of $0.3 million for the three months ended June 30,
2021. The increase in other expense of $0.7 million was primarily driven by
foreign currency transaction gains and losses.

Income tax benefit (expense)

                                         Successor                         Predecessor
                                  Three Months Ended June               Three Months Ended
($ in thousands)                         30, 2022                         June 30, 2021             $ Change            % Change
Income tax benefit (expense)      $              5,100                $              (161)         $  5,261                     n/m



Income tax benefit during the three months ended June 30, 2022 primarily consists of deferred tax benefit from net loss allocated to Bakkt Holdings, Inc. during the period.

Six Months Ended June 30, 2022 (Successor) compared to Six Months Ended June 30, 2021 (Predecessor)


Financial Summary

The six months ended June 30, 2022 included the following notable items relative to the six months ended June 30, 2021:

•Revenue increased $9.5 million, or 57%, primarily driven by strong transaction revenue from the loyalty redemption business; and

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Revenue

                          Successor                Predecessor
                      Six Months Ended          Six Months Ended
($ in thousands)        June 30, 2022             June 30, 2021        $
Change      % Change
Net revenues         $          26,104         $          16,631      $  9,473         57.0  %


Net Revenues

Net revenues increased by $9.5 million, or 57.0%, for the six months ended
June 30, 2022 compared to the six months ended June 30, 2021. The increase was
comprised of $6.7 million of increased transaction revenue and $2.8 million of
increased subscription and service revenue. The increase in transaction revenue
was driven by $4.8 million from higher customer activity in our loyalty
redemption services business and $1.4 million from lower incentives and rebates.
The increase in subscription and service revenue was primarily related to the
addition of new services for an existing loyalty customer.

Operating Expenses


Operating expenses consist of compensation and benefits, professional services,
technology and communication expenses, selling, general and administrative
expense, acquisition-related expenses, depreciation and amortization, affiliate
expenses, impairment of long-lived assets, and other operating expenses.

Compensation and Benefits

                                   Successor                Predecessor
                               Six Months Ended          Six Months Ended
($ in thousands)                 June 30, 2022             June 30, 2021        $ Change      % Change
Compensation and Benefits     $          69,335         $          35,150      $ 34,185         97.3  %


Compensation and benefits increased by $34.2 million, or 97.3%, for the six
months ended June 30, 2022 compared to the six months ended June 30, 2021. The
increase was primarily due to increases of $8.7 million in additional salaries,
wages and benefits, $4.1 million in contract labor for software development, and
$17.2 million in non-cash compensation and incentive bonuses. As a newly public
company, we issued restricted stock units ("RSUs") in the fourth quarter of 2021
that vested in the second quarter of 2022. These awards accounted for $9.9
million of the total share-based compensation during the six months ended
June 30, 2022. As we typically grant RSUs with a three-year vesting period, the
impact of share-based compensation expenses is expected to be reduced in future
periods.

Professional Services

                             Successor                Predecessor
                         Six Months Ended          Six Months Ended
($ in thousands)           June 30, 2022             June 30, 2021        $ Change      % Change
Professional Services   $           6,585         $           1,673      $  4,912              n/m


Professional services increased by $4.9 million for the six months ended
June 30, 2022 compared to the six months ended June 30, 2021. The increase was
primarily due to increases of $1.6 million in professional and other fees, $1.5
million in audit and tax fees, and $1.8 million in legal fees.
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Technology and Communication

                                             Successor                       Predecessor
                                          Six Months Ended                 Six Months Ended
($ in thousands)                           June 30, 2022                    June 30, 2021            $ Change             % Change
Technology and Communication            $           8,521                $           6,702          $  1,819                   27.1  %


Technology and communications expense increased by $1.8 million, or 27.1%, for
the six months ended June 30, 2022 compared to the six months ended June 30,
2021. The increase was primarily due to an increase of $2.3 million in hardware
and software license fees, partially offset by a decrease of $0.7 million in
hosting fees.

Selling, General and Administrative

                                        Successor                       Predecessor
                                     Six Months Ended                 Six Months Ended
($ in thousands)                      June 30, 2022                    June 30, 2021            $ Change             % Change
Selling, General and
Administrative                     $          19,203                $          15,065          $  4,138                   27.5  %


Selling, general and administrative costs increased by $4.1 million, or 27.5%,
for the six months ended June 30, 2022 compared to the six months ended June 30,
2021. The increase was primarily due to increases of $8.0 million in insurance
expense and $0.9 million in rent, partially offset by a reduction of marketing
expenses of $6.0 million.

Acquisition-related Expenses

                                                   Successor                       Predecessor
                                                Six Months Ended                 Six Months Ended
($ in thousands)                                 June 30, 2022                    June 30, 2021            $ Change             % Change
Acquisition-related expenses                  $             694                $          10,309          $ (9,615)                (93.3  %)


Acquisition-related expenses decreased by $9.6 million, or 93.3%, for the six
months ended June 30, 2022 compared to the six months ended June 30, 2021.
Acquisition-related expenses for the six months ended June 30, 2021 consist of
fees for investment banking advisors, lawyers, accountants, tax advisors and
public relations firms directly related to the Business Combination, which did
not recur during the six months ended June 30, 2022. The amount and timing of
acquisition-related expenses is expected to vary across periods based on
potential transaction activities.

Depreciation and Amortization

                                       Successor                       Predecessor
                                    Six Months Ended                 Six Months Ended
($ in thousands)                     June 30, 2022                    June 30, 2021            $ Change             % Change
Depreciation and amortization     $          11,949                $           5,828          $  6,121                  105.0  %


Depreciation and amortization increased by $6.1 million, or 105.0%, for the six
months ended June 30, 2022 compared to the six months ended June 30, 2021. The
increase was primarily due to increases of $6.2 million related to the step-up
in basis of the technology and customer relationships acquired in connection
with the Business Combination, partially offset by a decrease of $0.1 million
related to amortization of trade names during the six months ended June 30,
2021, which is no longer amortizable following the Business Combination in 2021.
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Gain from Change in Fair Value of Warrant Liability

                                       Successor                        Predecessor
                                    Six Months Ended                  Six Months Ended
($ in thousands)                     June 30, 2022                     June 30, 2021             $ Change            % Change
Gain from change in fair value of
warrant liability                 $          12,711                $                 -          $ 12,711                     n/m


We recorded a gain of $12.7 million during the six months ended June 30, 2022
for the change in fair value on the revaluation of our warrant liability
associated with our public warrants. This is a non-cash gain and is driven by
fluctuations in the market price of our warrants.

Other income (expense), net

                                   Successor                Predecessor
                               Six Months Ended          Six Months Ended
($ in thousands)                 June 30, 2022             June 30, 2021        $ Change       % Change
Other income (expense), net   $             (89)        $            (649)     $     560       (86.3  %)


During the six months ended June 30, 2022, we had other expense of $0.1 million
as compared to other expense of $0.6 million for the six months ended June 30,
2021. The decrease in other expense of $0.6 million was primarily driven by
foreign currency transaction gains and losses.

Income tax benefit (expense)

                                       Successor                       Predecessor
                                    Six Months Ended                 Six Months Ended
($ in thousands)                     June 30, 2022                    June 30, 2021            $ Change            % Change
Income tax benefit (expense)      $           8,238                $            (184)         $  8,422                     n/m



Income tax benefit during the six months ended June 30, 2022 primarily consists
of deferred tax benefit from net loss allocated to Bakkt Holdings, Inc. during
the period.

Liquidity and Capital Resources


Our predecessor principally financed its operations through equity financings in
the form of capital contributions from its members and, to a lesser degree, from
customer revenues. In addition, in 2018, ICE contributed certain developed
assets and rights to use exchange and clearing licenses enabling Bakkt to
commence operations. In connection with the closing of the Business Combination,
our predecessor's cash position was supplemented by $532.4 million, which
included $325.0 million in proceeds from the closing of a private placement of
shares of our Class A common stock and $207.4 million that had previously been
held in trust.

As of June 30, 2022, we had $126.8 million and $16.5 million of cash and cash
equivalents and restricted cash, respectively, which included the net proceeds
raised in connection with the Business Combination, the amounts used to fund
redemptions in connection with the Business Combination and the amounts received
upon exercise of the public warrants through such date, partially offset by cash
used in operations and investments in available for sale debt securities of
$189.2 million during the three and six months ended June 30, 2022. As of
June 30, 2022, we had $188.7 million of available for sale debt securities that
mature over the next 5 to 15 months. Cash and cash equivalents consist of cash
deposits at banks and money market funds. Restricted cash is held to satisfy
certain minimum capital requirements pursuant to regulatory requirements.
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We intend to use our unrestricted cash and expected proceeds from maturity of
available for sale debt securities to (i) increase our sales and marketing
efforts, (ii) expand our research and product development efforts, and (iii)
maintain and expand our technology infrastructure and operational support. In
addition, we may in the future enter into arrangements to acquire or invest in
complementary businesses, services, technologies or intellectual property
rights. However, we have no agreements or commitments with respect to any such
acquisitions or investments at this time.

Our expected uses of available funds are based upon our present plans,
objectives and business condition. We have not determined all of the particular
uses for the available funds, and management has not estimated the amount of
funds, or the range of funds, to be used for any particular purpose. As a
result, our management retain broad discretion over the available funds.

Our future cash requirements will depend on many factors, including our revenue
growth rate, the timing and extent of hiring and associated overhead to support
projected growth in our business, sales and marketing costs to drive revenue
growth, and software development investments to continue adding features and
functionality to our technology platforms to align with market needs. We
continue to accelerate our hiring plans along with increasing our marketing and
promotional efforts, which we expect to continue in the near future. We may also
enter into arrangements to acquire or invest in complementary businesses,
services, and technologies which will likely require us to increase our cash
consumption.

In addition, we have evaluated the impact of the COVID-19 pandemic on our liquidity and capital needs, and we anticipate that its effects will be largely neutral.


Depending on the foregoing and other factors that may affect our business in the
future, we may be required to seek additional capital contributions or debt
financing in the future. In the event that additional financing is required from
outside sources, we may not be able to raise it on terms acceptable to us or at
all.

The following table summarizes our cash flows for the periods presented (in
thousands):

                                                                 Successor                       Predecessor
                                                              Six Months Ended                 Six Months Ended
                                                               June 30, 2022                    June 30, 2021
Net cash flows used in operating activities                 $         (60,430)               $         (18,662)
Net cash flows used in investing activities                 $        (203,937)               $          (6,482)
Net cash flows provided by (used in) financing activities   $               2                $             (64)


Operating Activities

Since our inception, we have yet to achieve positive cash flow from operations.
Our primary uses of cash include compensation and benefits for headcount-related
expenses, investment in software and product development of our technology
platforms, most significantly our platform, and associated non-headcount
technology and communication cost to develop, operate and support our
customer-facing technology platforms.

Net cash flows used in operating activities of $60.4 million for the six months
ended June 30, 2022 was primarily related to our net loss of $71.0 million and
changes in our operating assets and liabilities of $2.1 million, offset by
non-cash charges of $12.6 million. The non-cash charges primarily consisted of
share-based compensation of $21.2 million and depreciation and amortization of
$11.9 million, offset by a gain from change in fair value of warrant liability
of $12.7 million. Net cash outflows from changes in our operating assets and
liabilities for the six months ended June 30, 2022 resulted primarily from an
increase in accounts receivables of $3.3 million, a decrease of accounts payable
and accrued liabilities of $2.6 million and an increase in other assets and
liabilities of $4.0 million, which were partially offset by a decrease in
prepaid insurance of $8.6 million.
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Net cash flows used in operating activities of $18.7 million for the six months
ended June 30, 2021 is primarily attributable to our net loss of $60.7 million,
offset by non-cash charges of $9.9 million and changes in our operating assets
and liabilities of approximately $32.2 million. Non-cash charges primarily
consisted of $2.5 million of unit-based compensation expenses and $5.8 million
of depreciation and amortization. Net cash inflows from changes in operating
assets and liabilities resulted from the return of a deposit with our
clearinghouse affiliate of $20.2 million, a $14.5 million increase in accounts
payable and accruals and a $2.0 million increase in other assets and
liabilities, which were partially offset by a $1.5 million increase in accounts
receivables and a $1.3 million decrease in amounts due to affiliates.

Investing Activities


Net cash flows used in investing activities of $203.9 million for the six months
ended June 30, 2022 consisted of $189.2 million related to the purchase of
available for sale debt securities and $14.8 million of capitalized costs of
internally developed software for our technology platforms.

Net cash flows used in investing activities of $6.5 million for the six months
ended June 30, 2021 consisted of $8.2 million of capitalized costs of internally
developed software, partially offset by $1.8 million related to the proceeds
from sale of shares of affiliate stock.

Financing Activities


Net cash flows provided by financing activities of less than $0.1 million for
the six months ended June 30, 2022 resulted from proceeds from the exercise of
public warrants.

Net cash flows used in financing activities of less than $0.1 million for the
six months ended June 30, 2021 resulted from payments for capital leases during
the period.

Tax Receivable Agreement

Concurrently with the completion of the Business Combination, we entered into a
TRA with certain Bakkt Equity Holders. 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. Bakkt will have in effect an election under Section 754 of
the Internal Revenue Code for each taxable year in which an exchange of Bakkt
Common Units for Class A common stock (or cash) occurs.

The exchanges are expected to result in increases in the tax basis of the
tangible and intangible assets of Bakkt. These increases in tax basis may reduce
the amount of tax that we would otherwise be required to pay in the future.
These increases in tax basis may also decrease gains (or increase losses) on
future dispositions of certain capital assets to the extent tax basis is
allocated to those capital assets.

The TRA provides for the payment by us to exchanging holders of Bakkt Common
Units of 85% of certain net income tax benefits, if any, that we realize (or in
certain cases is deemed to realize) as a result of these increases in tax basis
related to entering into the TRA, including tax benefits attributable to
payments under the TRA. This payment obligation is an obligation of the Company
and not of Bakkt. For purposes of the TRA, the cash tax savings in income tax
will be computed by comparing our actual income tax liability (calculated with
certain assumptions) to the amount of such taxes that we would have been
required to pay had there been no increase to the tax basis of the assets of
Bakkt as a result of Bakkt having an election in effect under Section 754 of the
Code for each taxable year in which an exchange of Bakkt Common Units for Class
A common stock occurs and had we not entered into the TRA. 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 June 30, 2022, 17,554,639 Opco common units were exchanged for
Class A common stock. Based on the Company's
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history of taxable losses, the Company has concluded that it is not probable to
expect cash tax payments in the foreseeable future and as such, no value has
been recorded under the TRA.

Contractual Obligations and Commitments

The following is a summary of our significant contractual obligations and commitments as of June 30, 2022 (in thousands):

Payments Due by Period

                                   Less than 1                                                  More than 5
                                       year              1-3 years           3-5 years             years               Total
Purchase obligations(1)           $     2,250          $    8,750          

$ 9,000 $ - $ 20,000 Future minimum operating lease payments(2)

                              (883)              9,209               7,283               13,797             29,406

Total contractual obligations $ 1,367 $ 17,959 $ 16,283 $ 13,797 $ 49,406

(1)Represents minimum commitment payments under a four-year cloud computing arrangement. (2)Represents rental payments under operating leases with remaining non-cancellable terms in excess of one year.


Additionally, we, through our loyalty business, have a purchasing card facility
with a bank that we utilize for redemption purchases made from merchant partners
as part of our loyalty redemption platform. Expenditures made using the
purchasing card facility are payable monthly, are not subject to formula-based
restrictions and do not bear interest if amounts outstanding are paid when due
and in full. Among other covenants, the purchasing card facility requires that
we maintain a month-end cash balance of $40.0 million. In January 2021, the
purchasing card facility was extended to April 15, 2022 in order to facilitate a
long-term agreement on more favorable terms for us. In April 2022, we further
extended the maturity date of the purchasing card facility to August 12, 2022,
which may be extended to the extent necessary to transition over to the
purchasing card facility with Bank of America described below.

On April 7, 2022, we entered into a corporate card services agreement with Bank
of America to provide a new purchasing card facility. Total borrowing capacity
under the facility is $35 million and there is no defined maturity date.
Expenditures made using the purchasing card facility are payable monthly, are
not subject to formula-based restrictions and do not bear interest if amounts
outstanding are paid when due and in full. The purchasing card facility requires
us to maintain a concentration account with the lender subject to a minimum
liquidity maintenance requirement of $7.0 million as collateral along with the
accounts receivable of our subsidiary, within the loyalty business. Bakkt
Holdings, Inc. serves as the guarantor on behalf of our subsidiary under the
commercial purchasing card facility.

Non-GAAP Financial Measures


We use non-GAAP financial measures to assist in comparing our performance on a
consistent basis for purposes of business decision-making by removing the impact
of certain items that management believes do not directly reflect our core
operations. We believe that presenting non-GAAP financial measures is useful to
investors because it (a) provides investors with meaningful supplemental
information regarding financial performance by excluding certain items that we
believe do not directly reflect our core operations, (b) permits investors to
view performance using the same tools that we use to budget, forecast, make
operating and strategic decisions, and evaluate historical performance, and (c)
otherwise provides supplemental information that may be useful to investors in
evaluating our results.

We believe that the presentation of the following non-GAAP financial measures,
when considered together with the corresponding GAAP financial measures and the
reconciliations to those measures provided herein, provides investors with an
additional understanding of the factors and trends affecting our business that
could not be obtained absent these disclosures.
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Adjusted EBITDA

We present Adjusted EBITDA as a non-GAAP financial measure.


We believe that Adjusted EBITDA provides relevant and useful information, which
is used by management in assessing the performance of our business. Adjusted
EBITDA is defined as earnings before interest, income taxes, depreciation,
amortization and certain non-cash and/or non-recurring items that do not
contribute directly to our evaluation of operating results. Adjusted EBITDA
provides management with an understanding of earnings before the impact of
investing and financing transactions and income taxes, and the effects of
aforementioned items that do not reflect the ordinary earnings of our
operations. This measure may be useful to an investor in evaluating our
performance. Adjusted EBITDA is not a measure of our financial performance under
GAAP and should not be considered as an alternative to net income (loss) or
other performance measures derived in accordance with GAAP. Our definition of
Adjusted EBITDA may not be comparable to similarly titled measures used by other
companies.

In addition to the items above, Adjusted EBITDA as a non-GAAP financial measure
also excludes interest income (expense) and other income (expense), and income
tax (expense) benefit, as these items are not components of our core business
operations.

Non-GAAP financial measures like Adjusted EBITDA have limitations, should be
considered as supplemental in nature and are not meant as a substitute for the
related financial information prepared in accordance with GAAP. These
limitations include the following:

•Share-based and unit-based compensation expense, including changes in the fair
value of our participation unit liability, which has been excluded from Adjusted
EBITDA because the amount of such expenses in any specific period may not
directly correlate to the underlying performance of our business operations, has
been, and will continue to be for the foreseeable future, a significant
recurring expense in our business and an important part of our compensation
strategy;

•changes in the fair value of our warrant liability, which in any specific
period may not directly correlate to the underlying performance of our business
operations, and do not necessarily reflect future cash outlays as the liability
is remeasured at each reporting date;

•the intangible assets being amortized, and property and equipment being depreciated, may have to be replaced in the future, and the non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments; and

•non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs.

Because of these limitations, the non-GAAP financial measures should be considered alongside other financial performance measures, including net loss and our other financial results presented in accordance with GAAP.

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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                    Successor                         Predecessor
                                       Three Months Ended                  Three Months Ended             Six Months Ended                   Six Months Ended
                                          June 30, 2022                       June 30, 2021                 June 30, 2022                      June 30, 2021
Net loss                                     (27,641)                            (31,891)                      (70,962)                            (60,711)
Depreciation and amortization                  6,098                               3,034                        11,949                               5,828
Interest (income) expense                       (153)                                 94                          (214)                                143
Income tax (benefit) expense                  (5,100)                                161                        (8,238)                                184
EBITDA                                       (26,796)                            (28,602)                      (67,465)                            (54,556)
Acquisition-related expenses                     178                               2,489                           694                              10,309
Share-based and Unit-based                     7,062                               1,256                        20,409                               2,512
compensation expense
Gain from change in fair value of            (10,283)                                  -                       (12,711)                                 

-

warrant liability
ICE transition services expense                  267                                   -                           634                                  

-

Cancellation of common units                     (15)                                  -                           (75)                                  -
Adjusted EBITDA                              (29,587)                            (24,857)                      (58,514)                            (41,735)


Adjusted EBITDA for the three months ended June 30, 2022 decreased by $4.7
million or 19.0% as compared to the three months ended June 30, 2021. The
decrease was primarily due to a $8.6 million increase in compensation and
benefits resulting from an increase in headcount to support the projected growth
in our business, a $1.2 million increase professional services including fees
for accounting, legal and regulatory fees, and a $0.8 million increase in
selling, general and administrative expenses to support the projected growth in
our business and requirements of being a public company, including increased
insurance premiums and disclosure processes. The increases in these expenses
were partially offset by the increase in revenue of $5.1 million over the same
periods.

Adjusted EBITDA for the six ended June 30, 2022 decreased by $16.8 million or
40.2% as compared to the six months ended June 30, 2021. The decrease was
primarily due to a $16.5 million increase in compensation and benefits resulting
from an increase in headcount to support the projected growth in our business, a
$4.9 million increase professional services including fees for accounting, legal
and regulatory fees, and a $4.1 million increase in selling, general and
administrative expenses to support the projected growth in our business and
requirements of being a public company, including increased insurance premiums
and disclosure processes. The increases in these expenses were partially offset
by the increase in revenue of $9.5 million over the same periods.

Critical Accounting Policies and Estimates


Our consolidated financial statements are prepared in accordance with GAAP,
which requires us to make estimates and apply judgments that affect the reported
amounts. We base our estimates on historical experience, as appropriate, and on
various other assumptions that we believe to be reasonable under the
circumstances. Changes in the accounting estimates are reasonably likely to
occur from period to period. Accordingly, actual results could differ
significantly from the estimates made by our management. We evaluate our
estimates and assumptions on an ongoing basis. To the extent that there are
material differences between these estimates and actual results, our future
financial statement presentation, financial condition, results of operations and
cash flows may be affected.

Due to the COVID-19 pandemic and the military conflict in Eastern Europe, there
has been uncertainty and disruption in the global economy and financial markets,
which requires us to make certain estimates and assumptions that affect the
amounts reported in our consolidated financial statements. The significant
estimates and assumptions that affect the financial statements may include, but
are not limited to, those that are related to income tax valuation allowances,
useful lives of intangible assets and property, equipment and software, fair
value of financial assets and liabilities,
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determining provision for doubtful accounts, valuation of acquired tangible and
intangible assets, the impairment of intangible assets and goodwill, and fair
market value of Bakkt common units, incentive units and participation units. We
have assessed the impact and are not aware of any specific events or
circumstances that required an update to our estimates and assumptions or
materially affected the carrying value of our assets or liabilities as of the
date of issuance of this Report. These estimates may change as new events occur
and additional information is obtained. Actual results could differ materially
from these estimates under different assumptions or conditions.

For a description of our critical accounting policies and estimates, refer to
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" in our Form 10-K. There have been no material changes to our
critical accounting policies and estimates since our Form 10-K.

Recently Issued and Adopted Accounting Pronouncements

Recently issued and adopted accounting pronouncements are described in Note 2 included in this Report.

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Analyst Recommendations on BAKKT HOLDINGS, INC.
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