# Bakkt, Inc. (BKKT) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Bakkt, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1820302/000182030223000016/bakkt-20221231.htm
Accession: 0001820302-23-000016
Filing date: 2023-03-24
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BKKT/
All MD&A years: /company/BKKT/mda/
Previous year: /company/BKKT/mda/fy2021/ (FY 2021)
Next year: /company/BKKT/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

The following discussion and analysis of financial condition and results of operations should be read together with our audited consolidated financial statements and the related notes included under Item 8 of this Annual Report on Form 10-K (the “audited consolidated financial statements”). 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. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, 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 as a result of certain factors detailed elsewhere in this Annual Report on Form 10-K.

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. The global

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market for crypto, while nascent, is rapidly evolving and expanding. 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.

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. Some clients 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 web-based technology. Our institutional-grade platform, born out of our former parent company, Intercontinental Exchange, Inc. (“ICE”), supports "know your customer" ("KYC"), anti-money laundering ("AML"), and other anti-fraud measures to combat financial crime.

Recent Developments

On February 8, 2023, we acquired 100% of the units of Bumped, a broker-dealer registered with the SEC and FINRA, for cash consideration of $575,000. This acquisition required Bumped to file a CMA with FINRA, and FINRA is currently reviewing the CMA to ensure that Bumped will continue to meet its regulatory obligations if the filing is approved. After FINRA’s assessment, the CMA will be approved, denied or approved with restrictions.

On November 2, 2022, we entered into a definitive agreement with Apex Fintech Solutions, Inc. (“AFS”) pursuant to which we agreed to acquire all of the membership interests of Apex Crypto, LLC (“Apex”), a financial technology company with an integrated crypto trading platform, for consideration consisting of an initial purchase price of $55.0 million in cash, up to $45.0 million shares of Class A common stock that may be earned if Apex achieves certain profitability growth targets for the fourth quarter of 2022, and up to an additional $100.0 million in shares of our Class A common stock depending on Apex’s achievement of certain financial targets through 2025. Apex’s profitability in the fourth quarter of 2022 results in Class A common stock consideration of $9.0 million based on the earn-out target mechanics. The transaction, which is subject to regulatory approvals, is expected to close in the first half of 2023. Under the terms of the transaction, Bakkt and AFS will, among other things, enter into a commercial agreement that memorializes the continued relationship and provision of Bakkt crypto solutions for AFS’s clients. This acquisition is expected to provide immediate scale and meaningful transaction volume from Apex’s active client base. We expect to leverage Apex’s proprietary trading platform and existing relationships with liquidity providers to provide a wider range of assets and competitive pricing to our clients. Furthermore, on November 2, 2022, Bakkt and certain parties related to the seller entered into a Stockholders’ Agreement, pursuant to which such counterparties agreed to certain lock-up, standstill, and short sale restrictions.

Key Factors Affecting Our Performance

Growing Our Client Base

Our ability to increase our revenue stream depends on our ability to grow clients on our platform. 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. Our acquisition of Apex complements our B2B2C growth strategy by broadening our business partnerships to fintechs and neo-banks. Our ability to grow our

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client and revenue base through the Apex acquisition is dependent on successful integration of the businesses post-transaction close.

Product Expansion and Innovation

The crypto marketplace is rapidly evolving. Our ability to continue innovating our platform will increase the attractiveness of our platform to clients. 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.

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. 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. In addition, during 2022, macroeconomic conditions—including rising interest rates, spikes in inflation rates and market volatility, along with geopolitical concerns, including the war in Ukraine and the sanctions and other measures that have been and continue to be imposed in response to the war—created uncertainty and volatility in the global economy. We expect the macroeconomic environment and the state of the crypto markets to remain dynamic in the near-term, and we will continue to monitor macroeconomic and crypto market conditions, and the potential impacts that any of the foregoing may have on our business.

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 crypto. We will progressively be subject to laws and regulations relating to the collection, use, retention, security, and transfer of information, including the personally identifiable information of our clients and all of the users in the information chain. We have developed and frequently evaluate and update our compliance models to ensure that we are complying with applicable restrictions.

We continue to work with regulators to address the emerging global landscape for crypto. As investment continues, the intersection of technology and finance will require ongoing engagement as new applications emerge. Cryptoasset 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”.

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

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volatility in financial markets. For the year ended December 31, 2022, our business operations have continued to recover from the impacts of the pandemic, and revenue from the travel loyalty transactions has also continued to recover.

VIH Business Combination

On October 15, 2021, Bakkt (f/k/a VPC Impact Acquisition Holdings, a Cayman Islands exempted company (“VIH”)) and VIH completed the VIH 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 VIH 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 VIH 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 VIH 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 VIH 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 were outstanding and 793,352 reserved for issuance upon the exercise of a warrant agreement. Each Opco Common Unit, when coupled with one share of our Class V common stock is referred to as a “Paired Interest.” Paired Interests may be exchanged for one share of our Class A common stock or a cash amount in accordance with the Third Amended and Restated Limited Liability Company Agreement of Opco, and the Exchange Agreement between the Company and certain holders of Bakkt Common Units, dated as of October 15, 2021. Following the Closing, the Company owned approximately 20.3% of the Opco Common Units, with the remaining Opco Common Units being owned by the equity owners of Opco prior to the Merger.

As a result of the VIH Business Combination, our financial results are broken out between the Predecessor period (January 1, 2021 through October 14, 2021) and the Successor periods (October 15, 2021 through December 31, 2021 and January 1, 2022 through December 31, 2022).

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. As of December 31, 2022, the safeguarding obligation liability related to crypto held for other parties was $15.8 million. 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. SAB 121 also asks us to consider the legal ownership of the crypto held for other parties, including whether the crypto held for other parties would be available to satisfy general creditor claims in the event of our bankruptcy.

The legal rights with respect to crypto 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 crypto 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 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

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not presently utilize third-party custodians. We hold cryptographic key information and maintain internal record keeping for the crypto 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 clients retain legal ownership of the crypto 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 crypto 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.

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 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. There were 3.0 million unique monthly transacting accounts in 2022, including 1.0 million in the fourth quarter of 2022.

•Digital asset conversion volume. This KPI refers to the dollar value of transaction volume across our platform, including loyalty redemption, crypto buy/sell and gift card purchase transactions. Our digital asset conversion volume was $832.3 million in 2022, $262.8 million of which occurred in the fourth quarter of 2022.

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Results of Operations

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

[[GREPCENT_TABLE]]
[["","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","","","\u2014","","","","\u2014"],["Impairment of long-lived assets","11,494","","","1,196","","","","3,598"],["Restructuring expenses","2,336","","","\u2014","","","","\u2014"],["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)","","","","\u2014"],["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)"]]
[[/GREPCENT_TABLE]]

(1)As a result of the VIH Business Combination, ICE and its affiliates are no longer our affiliates.

(2)Basic and diluted loss per share is not presented for the Predecessor period due to lack of comparability with the Successor periods.

The comparability of our operating results for the year ended December 31, 2022 as compared to the periods from October 15, 2021 through December 31, 2021 and January 1, 2021 through October 14, 2021 was impacted by the VIH Business Combination in October 2021. We have prepared our discussion of the results of operations by comparing the results of the year ended December 31, 2022 and the combined year ended December 31, 2021, comprising the Successor period from October 15, 2021 through December 31, 2021 and the Predecessor period from January 1, 2021 through October 14, 2021 (together, the “combined 2021 period”). We believe this approach provides the most meaningful basis of comparison and is more useful than a separate analysis of the Predecessor and Successor periods of 2021 in identifying current business trends for the periods presented. The amounts relating to the combined 2021 period

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included in our discussion below are not considered to be prepared in accordance with U.S. GAAP and have not been prepared as pro forma results under applicable regulations. This should not be viewed as a substitute for the results of operations of the Predecessor and Successor periods presented in accordance with U.S. GAAP.

Year Ended December 31, 2022 (Successor) Compared to October 15, 2021 through December 31, 2021 (Successor) and January 1, 2021 through October 14, 2021 (Predecessor)

Financial Summary

The year ended December 31, 2022 included the following notable items relative to the periods October 15, 2021 through December 31, 2021 and January 1, 2021 through October 14, 2021:

•Revenue increased $15.1 million, or 38%, primarily driven by strong transaction revenue from the loyalty redemption business and higher subscription and service revenue from expansion of services for an existing Loyalty client;

•Operating expenses increased $1,819.4 million primarily driven by non-cash goodwill and intangible asset impairment charges

Revenue

[[GREPCENT_TABLE]]
[["","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)"],["Net revenues","$","54,567","","","$","11,481","","","","$","27,956","","","$","15,130","","","38.4","%"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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 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.

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. However, we expect that revenues from cryptoasset trades, spending crypto and other transactions and subscription fees will be significant drivers of our business, and we expect those revenues to increase as we grow our client base and our customers. 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.

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Net revenues increased by $15.1 million, or 38.4%, for the year ended December 31, 2022 compared to the combined 2021 period. The increase was comprised of $11.5 million of increased transaction revenue and $3.6 million of increased subscription and service revenue. The increase in transaction revenue was primarily driven by $7.6 million from higher customer activity in our loyalty redemption services business and $2.5 million from increased interchange fees. The increase in subscription and service revenue was primarily related to the addition of new services for an existing loyalty client, partially offset by reduced development services.

Operating Expenses

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

Compensation and Benefits

[[GREPCENT_TABLE]]
[["","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)"],["Compensation and benefits","$","139,049","","","$","62,180","","","","$","91,275","","","$","(14,406)","","","(9.4","%)"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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. Upon the consummation of the VIH Business Combination on October 15, 2021, one-third of the awards in the Equity Plan vested, which resulted in recognition of $77.8 million of incremental unit-based compensation expense in the combined 2021 period ($30.6 million in the Predecessor period and $47.2 million in the Successor period). The second and third tranches vest on the one-year and two-year anniversary date of the transaction close, respectively.

Headcount increased in 2022 across functions as we invested in strengthening our service offerings and enhancing our systems, processes, and controls. We granted equity awards as part of the compensation package for new employees. 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. The decrease was primarily due a decrease of $48.0 million in non-cash compensation due to the recognition of one time incremental unit-based compensation expense related to the VIH Business Combination in the combined 2021 period, which was partially offset by additional expense from new equity awards granted during the year ended December 31, 2022. The decrease in non-cash compensation was partially offset by increases of $21.9 million in additional salaries, wages and benefits, $10.0 million in contract labor for software development, $1.3 million in payroll taxes, and $1.4 million in severance costs. The majority of the increase in these costs, excluding the amounts related to the VIH Business Combination, resulted from increases in headcount to support the projected growth in our business and increased compliance and reporting requirements as a public company. Compensation and benefits expense is the most significant component of our operating expenses, and we expect that this will continue to be the case after the restructuring efforts in the fourth quarter of 2022 and the first quarter of 2023.

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Professional Services

[[GREPCENT_TABLE]]
[["","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)"],["Professional services","$","11,483","","","$","3,034","","","","$","5,175","","","$","3,274","","","39.9","%"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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. The increase was primarily due to increases of $2.2 million in legal fees and $2.1 million in audit and tax fees, which was partially offset by a decrease in other professional fees of $1.0 million.

Technology and Communication

[[GREPCENT_TABLE]]
[["","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)"],["Technology and Communication","$","17,079","","","$","3,056","","","","$","10,384","","","$","3,639","","","27.1","%"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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 client requirements, system capacity, functionality and redundancy requirements.

Technology and communications expense also includes fees paid for access to external market data and associated licensing costs, which may be impacted by growth in electronic contract volume, our capacity requirements, changes in the number of telecommunications hubs, and connections with customers to access our electronic platforms directly. Technology and communications expense increased by $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.

Selling, General and Administrative

[[GREPCENT_TABLE]]
[["","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)"],["Selling, General and Administrative","$","35,414","","","$","8,521","","","","$","20,309","","","$","6,584","","","22.8","%"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

Selling, general and administrative expenses include marketing, advertising, business insurance, rent and occupancy, bank service charges, dues and subscriptions, travel and entertainment, and other general and administrative costs. Our marketing activities primarily consist of web-based promotional campaigns, promotional activities with clients,

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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 $6.6 million, or 22.8%, for the year ended December 31, 2022 compared to the combined 2021 period. 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. 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

[[GREPCENT_TABLE]]
[["","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)"],["Acquisition-related expenses","$","5,675","","","$","1,603","","","","$","24,793","","","$","(20,721)","","","(78.5","%)"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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 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.

Depreciation and Amortization

[[GREPCENT_TABLE]]
[["","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)"],["Depreciation and amortization","$","25,350","","","$","5,422","","","","$","9,620","","","$","10,308","","","68.5","%"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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 increased by $10.3 million, or 68.5%, for the year ended December 31, 2022 compared to the combined 2021 period. The increase was primarily due to an increase of $12.2 million related to the step-up in basis of the technology and client relationships acquired in connection with the VIH Business Combination, partially offset by a decrease of $1.9 million related to amortization of capitalized software.

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Impairment of goodwill and other intangible assets

[[GREPCENT_TABLE]]
[["","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)"],["Goodwill and intangible assets impairments","$","1,822,089","","","$","\u2014","","","","$","\u2014","","","$","1,822,089","","","n/m"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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.

Impairment of long-lived assets

[[GREPCENT_TABLE]]
[["","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)"],["Impairment of long-lived assets","$","11,494","","","$","1,196","","","","$","3,598","","","$","6,700","","","139.8","%"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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. 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 combined 2021 period, we recorded impairment charges of $1.2 million in the Successor period related to the termination of a software license agreement and $3.6 million in the Predecessor period to measure the fair value of a customer consideration asset at $0 after reassessing the future consideration expected to be received less cost of services from our relationship with a strategic client. Impairment of our remaining long-lived assets may be necessary in the future.

Restructuring expenses

[[GREPCENT_TABLE]]
[["","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)"],["Restructuring expenses","$","2,336","","","$","\u2014","","","","$","\u2014","","","$","2,336","","","n/m"]]
[[/GREPCENT_TABLE]]

(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.

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Gain (loss) from Change in Fair Value of Warrant Liability

[[GREPCENT_TABLE]]
[["","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)","","","","$","\u2014","","","$","96,011","","","(121.0","%)"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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. 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.

Other income (expense), net

[[GREPCENT_TABLE]]
[["","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)"],["Other income (expense), net","$","(856)","","","$","832","","","","$","487","","","$","(2,175)","","","(164.9","%)"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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 combined 2021 period, we recorded income of $1.3 million for the extinguishment of the liability associated with the software license agreement in the Successor period and income of $1.0 million for the sale of crypto outside of the normal course of business in the Predecessor. This income was partially offset by $0.6 million of foreign currency transaction losses in the combined 2021 period.

Income tax (expense) benefit

[[GREPCENT_TABLE]]
[["","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)"],["Income tax benefit (expense)","$","11,320","","","$","(11,751)","","","","$","602","","","$","22,469","","","(201.5","%)"]]
[[/GREPCENT_TABLE]]

(1)Change represents the year ended December 31, 2022 compared to the combined 2021 periods.

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 period from October 15, 2021 through December 31, 2021 primarily consists of $11.7 million of deferred tax expense resulting from book-tax differences stemming from investments in Opco and its subsidiaries. Those future tax liabilities will change prospectively due to ongoing book-tax differences, which include, but are not limited to, (i) differences between book and tax loss allocation from Opco to the Company, (ii) mark-to-market activity related to warrants to purchase the Company's stock, and (iii) exchanges of Opco common units (and the corresponding shares of the Company’s Class V common stock) for shares of the Company’s Class A common stock or cash in lieu of Class A common stock. In

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the predecessor period, Opco and its subsidiaries were classified as partnerships for U.S. federal income tax purposes or other pass through entities resulting in minimal impacts from income tax.

Supplemental Unaudited Pro Forma Financial operations

The following supplemental unaudited pro forma financial information for the year ended December 31, 2021 presents the combined results of operations as if the VIH Business Combination had occurred as of January 1, 2021.

Management believes the supplemental unaudited pro forma information presented below provides a meaningful comparison of operating results; however, it should not be viewed as a substitute for the historical financial results of Bakkt and VIH. The supplemental unaudited pro forma financial information presented below should be read in conjunction with our historical audited consolidated financial statements for the year ended December 31, 2022 and the periods from October 15, 2021 through December 31, 2021 and January 1, 2021 through October 14, 2021 included in Item 8 of this Annual Report on Form 10-K.

The supplemental unaudited pro forma financial information as presented below is for illustrative purposes and does not purport to represent what the results of operations would actually have been if the business combinations occurred as of the date indicated or what the results would be for any future periods. In addition, future results may vary significantly from those reflected in the supplemental unaudited pro forma financial information in the table below and should not be relied upon as an indication of any of our future results of operations. The unaudited pro forma results reflect the step-up amortization adjustments for the fair value of intangible assets acquired, acquisition-related expenses, nonrecurring post-combination compensation expense, unit-based compensation expense under the new capital structure and the related adjustment to the income tax provision. The pro forma information does not reflect any operating efficiencies, post-acquisition synergies or cost savings that we may achieve with respect to the combined companies.

[[GREPCENT_TABLE]]
[["(in thousands)","Year Ended December 31, 2021"],["Bakkt gross revenue","$","1,029"],["Bakkt contra-revenue","(2,085)"],["VIH revenue","\u2014"],["Bridge2 Solutions revenue","40,493"],["Pro forma revenue","$","39,437"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(in thousands)","Year Ended December 31, 2021"],["Pro forma net loss","$","(198,467)"],["Less: pro forma loss attributable to noncontrolling interest","(165,136)"],["Pro forma net loss attributable to Bakkt Holdings, Inc.","$","(33,331)"]]
[[/GREPCENT_TABLE]]

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 client 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 VIH 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 December 31, 2022, we had $98.3 million and $16.5 million of cash and cash equivalents and restricted cash, respectively. Restricted cash is held to satisfy certain minimum capital requirements pursuant to regulatory

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requirements as well as satisfy covenants under our commercial purchasing card facility. Additionally, as of December 31, 2022 we had $141.1 million of available for sale debt securities that mature over the next 2 to 9 months.

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 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. 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. 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. 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 expect to augment our personnel with employees acquired in the Apex transaction. We believe that we substantially completed the necessary investment in our platforms in 2022, which enables us to simplify our organization and focus on the core capabilities that are critical to our strategy. We may also enter into other 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:

[[GREPCENT_TABLE]]
[["","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)"]]
[[/GREPCENT_TABLE]]

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 consumer app, and associated non-headcount technology and communication cost to develop, operate and support our customer-facing technology platforms.

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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. 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. Net cash inflows from changes in our operating assets and liabilities for the year ended December 31, 2022 resulted primarily from a decrease in prepaid insurance of $9.4 million, an increase in operating lease liabilities of $4.2 million, and an increase in accounts payable and accrued liabilities of $0.7 million, which were partially offset by an increase in accounts receivable of $7.2 million, an increase in other assets and liabilities of $2.4 million and an decrease in deferred revenue of $2.4 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. 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. 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.

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 provided by investing activities of $16.9 million for the combined 2021 period primarily consisted of $30.8 million of cash acquired through the VIH Business Combination and $1.8 million of proceeds from sale of shares of affiliate stock, partially offset by $15.7 million of capitalized costs of internally developed software. 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 provided by financing activities of $256.8 million for the combined 2021 period resulted from proceeds from PIPE investments and proceeds from the exercise of warrants amounting to $312.0 million and $37.1 million, respectively which is partially offset by cash outflow due to repurchase of redeemed Class A ordinary shares amounting to $84.5 million and also offset by payment of deferred underwriting fees amounting to $7.3 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. 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. Bakkt will have in effect an election under Section 754 of the Internal

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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 December 31, 2022, 22,475,871 Opco common units were exchanged for Class A common stock. Based on the Company's 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 December 31, 2022 (in thousands):

[[GREPCENT_TABLE]]
[["","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","","","$","\u2014","","","$","\u2014","","","$","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"]]
[[/GREPCENT_TABLE]]

(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, had a purchasing card facility with a bank that we utilized for redemption purchases made from vendors as part of our loyalty redemption platform. Expenditures made using the purchasing card facility were payable monthly, were not subject to formula-based restrictions and did not bear interest if amounts outstanding were paid when due and in full. Among other covenants, the purchasing card facility required 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, to transition over to the purchasing card facility with Bank of America described below. The maturity date of the purchasing card facility was further extended as of August 12, 2022 to January 13, 2023. During September 2022 we paid off the majority of the remaining balance of the purchasing card facility. The purchasing card facility was closed during October 2022.

On April 7, 2022, we entered into a corporate card services agreement with Bank of America to provide a new purchasing card facility. Total borrowing capacity under the facility is $35 million and there is no defined maturity date. Expenditures made using the purchasing card facility are payable monthly, are not subject to formula-based restrictions and

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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. 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. 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.

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, 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 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.

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.

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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):

[[GREPCENT_TABLE]]
[["","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)","","","","$","(139,219)"],["Depreciation and amortization","25,350","","","5,422","","","","9,620"],["Interest (income) expense","(1,877)","","","(11)","","","","247"],["Income tax (benefit) expense","(11,320)","","","11,751","","","","(602)"],["EBITDA","(1,977,781)","","","(147,665)","","","","(129,954)"],["Acquisition-related expenses","5,675","","","1,603","","","","24,793"],["Share-based and unit-based compensation expense","32,114","","","45,914","","","","33,877"],["Cancellation of common units","(185)","","","(192)","","","","\u2014"],["(Gain) loss from change in fair value of warrant liability","(16,638)","","","79,373","","","","\u2014"],["Goodwill and intangible assets impairments","1,822,089","","","\u2014","","","","\u2014"],["Impairment of long-lived assets","11,494","","","1,196","","","","3,598"],["Restructuring expenses","2,336","","","\u2014","","","","\u2014"],["ICE transition services expense","1,168","","","617","","","","\u2014"],["Gain on extinguishment of software license liability","\u2014","","","(1,301)","","","","\u2014"],["Non-recurring bitcoin sale income, net","\u2014","","","\u2014","","","","(1,024)"],["Adjusted EBITDA loss","$","(119,728)","","","$","(20,455)","","","","$","(68,709)"]]
[[/GREPCENT_TABLE]]

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 increase was primarily due to a $33.9 million increase in compensation and benefits resulting from an increase in headcount to support the projected growth in our business, a $14.8 million increase in insurance premiums and occupancy costs, a $4.3 million increase in audit, tax and legal professional services fees and a $3.8 million increase in hardware and software license fees. 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. In our notes to the audited consolidated financial statements, we describe the significant accounting policies used in preparing the consolidated financial statements. Our management has discussed the development, selection, and disclosure of our critical accounting policies and estimates with the Audit Committee of our Board of Directors. 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. We identify and attribute fair values and estimated lives to the intangible assets acquired and allocate the total cost of an acquisition to the underlying net assets based on their respective estimated fair values. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates and asset lives. These determinations will affect the amount of amortization expense recognized in future periods. We

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base our fair value estimates on assumptions we believe are reasonable but recognize that the assumptions are inherently uncertain.

For business combinations effected through a common control transaction, we measure the recognized net assets of the acquiree at the carrying amounts of the net assets previously recognized by our related party. We reflect the operations of entities acquired through a common control transaction in our financial statements as of the first date in the reporting period or as of the date that the entity was acquired by our related party, as applicable.

If the initial accounting for the business combination has not been completed by the end of the reporting period in which the business combination occurs, provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date. Once the measurement period ends, which in no case extends beyond one year from the acquisition date, revisions to the accounting for the business combination are recorded in earnings.

All acquisition-related costs, other than the costs to issue debt or equity securities, are accounted for as expenses in the period in which they are incurred.

Goodwill and Other Intangible Assets

Goodwill and intangible assets that have indefinite useful lives are accounted for in accordance with ASC 350, Intangibles — Goodwill and Other. We allocate the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the acquisition consideration transferred over the fair value of the net assets acquired, including other intangible assets, is recorded as goodwill. Goodwill is tested for impairment at the reporting unit level, and we are organized and operate as a single reporting unit. Goodwill and indefinite-lived intangible assets are tested at least annually or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred. In assessing goodwill and intangible assets for impairment, we first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. In the qualitative assessment, we may consider factors such as economic conditions, industry and market conditions and developments, overall financial performance and other relevant entity-specific events in determining whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. 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. An impairment loss is recognized in earnings if the estimated fair value of a reporting unit or indefinite lived intangible asset is less than the carrying amount of the reporting unit or intangible asset. Significant judgment is applied when goodwill and intangible assets are assessed for impairment.

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. 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. 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. We did not record any impairment charges related to goodwill and intangible assets during the periods from October 15, 2021 through December 31, 2021 and January 1, 2021 through October 14, 2021.

Loyalty Redemption Platform Revenue Recognition

We host, operate and maintain a loyalty redemption platform connecting loyalty programs to ecommerce merchants allowing loyalty point holders to redeem a spectrum of loyalty currencies for crypto, merchandise and services. Our customer in these arrangements is generally the loyalty program sponsor (our client). Our contracts related to our

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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. 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 recognize revenue for these fees on a straight-line basis over the related contract term as the client receives benefits evenly throughout the term of the contract. These fees are allocated to our performance obligation to provide access to our redemption platform, and thus are recognized on a gross basis. Revenue from our platform subscription fees is included in “Subscription and services revenue” in the disaggregation of revenue table by service type in Note 3 to our audited consolidated financial statements.

•Transaction fees: Transaction fees are earned for most transactions processed through our platform. These fees are allocated to our performance obligation to provide order placement services on behalf of the loyalty program sponsor, and therefore are recognized net of the related redemption cost. We allocate transaction fees to the period in which the related transaction occurs. Revenue from our transaction fees is included in “Transaction revenue, net” in the disaggregation of revenue table by service type in Note 3 to our audited consolidated financial statements.

•Revenue share fees: We are entitled to revenue share fees in the form of rebates from third-party commerce merchants and other clients which provide services facilitating redemption order fulfillment. We allocate revenue share fees to the period in which the related transaction occurs. Revenue from our revenue share fees is included in “Transaction revenue, net” in the disaggregation of revenue table by service type in Note 3 to our audited consolidated financial statements.

•Service fees: We earn fees for certain software development activities associated with the implementation of new clients on our loyalty redemption platform and other development activities if a client requests that we customize certain features and functionalities for their loyalty program. We also earn fees from providing call center services to clients. We recognize service fees as revenue on a straight-line basis, beginning when the internally developed software resulting from such implementation or other development activities are operational in our platform over the longer of the remaining anticipated client life and 3 years, which represents the estimated useful life of our internally developed software. Implementation and development service fees are generally billed when the implementation and development activities are performed. We recognize deferred revenue when all such fees are billed. Revenue from our services fees is included in “Subscription and services revenue” in the disaggregation of revenue table by service type in Note 3 to our audited consolidated financial statements.

Deferred Revenue

Deferred revenue includes amounts invoiced prior to us meeting the criteria for revenue recognition. We invoice clients for service fees at the time the service is performed, and such fees are recognized as revenue over time as we satisfy our performance obligation. The portion of deferred revenue to be recognized in the succeeding twelve-month period is recorded as current deferred revenue, and the remaining portion is recorded as non-current deferred revenue. We have determined that these arrangements do not contain a significant financing component, and therefore the transaction price is not adjusted.

Warrants

We account for our ordinary share warrants in accordance with applicable accounting guidance provided in ASC Topic 815, Derivatives and Hedging—Contracts in Entity’s Own Equity (“ASC Topic 815”), as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. 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

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settlement in our own 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 shares (physical settlement or net-share settlement). All public and private placement warrants issued by us were deemed to qualify for liability classification.

Impairment of Long-Lived Assets

Our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We also evaluate the period of depreciation and amortization of long-lived assets to determine whether events or circumstances warrant revised estimates of useful lives. When indicators of impairment are present, we determine the recoverability of our long-lived assets by comparing the carrying value of our long-lived assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. 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.

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. The replacement incentive units and participation units were measured at fair value on the Closing Date, and we recognize expense in “Compensation and benefits” in the accompanying consolidated statements of operations and comprehensive loss over the requisite service period. 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.

The Predecessor period unit-based compensation expense related to incentive units and participation units granted to employees and was measured at fair value on the date of grant and recognized as expense in “Compensation and benefits” in the accompanying consolidated statements of operations and comprehensive loss over the requisite service period, subject to acceleration if certain performance or market conditions were met. Additionally, we recognized variable compensation expense for liability-classified participation units based on changes to the fair value of the awards at each reporting date. The Predecessor elected to account for forfeitures as they occurred. See Note 11 to our audited consolidated financial statements for additional disclosures related to unit-based compensation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our audited consolidated financial statements and accompanying notes. We base our estimates and assumptions on various judgments that we believe to be reasonable under the circumstances. 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. Actual results and outcomes may differ from management’s estimates and assumptions and such differences may be material to our audited consolidated financial statements.

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Recently Issued and Adopted Accounting Pronouncements

Recently issued and adopted accounting pronouncements are described in Note 2 to our audited consolidated financial statements.