Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 790K
2: EX-10.1 Material Contract HTML 36K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 26K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 23K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 23K
13: R1 Cover HTML 77K
14: R2 Condensed Consolidated Balance Sheets HTML 133K
15: R3 Condensed Consolidated Balance Sheets HTML 52K
(Parenthetical)
16: R4 Condensed Consolidated Statements of Operations HTML 113K
17: R5 Condensed Consolidated Statements of Changes in HTML 129K
Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)
18: R6 Condensed Consolidated Statements of Cash Flows HTML 106K
19: R7 Organization HTML 27K
20: R8 Summary of Significant Accounting Policies HTML 87K
21: R9 Business Combination HTML 55K
22: R10 Property and Equipment, Net HTML 36K
23: R11 Revenue and Deferred Costs HTML 47K
24: R12 Accounts Receivable HTML 33K
25: R13 Accrued Liabilities HTML 36K
26: R14 Debt HTML 46K
27: R15 Redeemable Convertible Preferred Stock and HTML 31K
Stockholders' Equity (Deficit)
28: R16 Equity Compensation HTML 45K
29: R17 Income Taxes HTML 26K
30: R18 Earnings Per Share HTML 50K
31: R19 Commitment and Contingencies HTML 39K
32: R20 Related Party Transactions HTML 26K
33: R21 Goodwill and Other Intangibles HTML 56K
34: R22 Summary of Significant Accounting Policies HTML 67K
(Policies)
35: R23 Summary of Significant Accounting Policies HTML 84K
(Tables)
36: R24 Business Combination (Tables) HTML 55K
37: R25 Property and Equipment, Net (Tables) HTML 35K
38: R26 Revenue and Deferred Costs (Tables) HTML 37K
39: R27 Accounts Receivable (Tables) HTML 33K
40: R28 Accrued Liabilities (Tables) HTML 36K
41: R29 Debt (Tables) HTML 41K
42: R30 Equity Compensation (Tables) HTML 40K
43: R31 Earnings Per Share (Tables) HTML 51K
44: R32 Commitment and Contingencies (Tables) HTML 37K
45: R33 Goodwill and Other Intangibles (Tables) HTML 86K
46: R34 Organization (Details) HTML 44K
47: R35 Summary of Significant Accounting Policies - HTML 42K
Narrative (Details)
48: R36 Summary of Significant Accounting Policies - HTML 53K
Schedule of Fair Value of Assets and Liabilities
Measured At Fair Value (Details)
49: R37 Summary of Significant Accounting Policies - HTML 31K
Reconciliation of Cash and Restricted Cash
(Details)
50: R38 Business Combination - Narrative (Details) HTML 41K
51: R39 Business Combination - Schedule of Purchase Price HTML 73K
Allocation (Details)
52: R40 Business Combination - Schedule of Purchased HTML 34K
Identifiable Intangible Assets (Details)
53: R41 Property and Equipment, Net - Narrative (Details) HTML 24K
54: R42 Property and Equipment, Net - Schedule of Property HTML 48K
and Equipment, Net (Details)
55: R43 Revenue and Deferred Costs - Disaggregation of HTML 34K
Revenue (Details)
56: R44 Revenue and Deferred Costs - Narrative (Details) HTML 40K
57: R45 Revenue and Deferred Costs - Remaining Performance HTML 31K
Obligation (Details)
58: R46 Accounts Receivable (Details) HTML 38K
59: R47 Accrued Liabilities (Details) HTML 45K
60: R48 Debt - Narrative (Details) HTML 61K
61: R49 Debt - Schedule of Long Term Debt (Details) HTML 35K
62: R50 Debt - Maturities of Long Term Debt (Details) HTML 34K
63: R51 Redeemable Convertible Preferred Stock and HTML 43K
Stockholders' Equity (Deficit) - Narrative
(Details)
64: R52 Equity Compensation - Narrative (Details) HTML 66K
65: R53 Equity Compensation - Schedule of Stock-based HTML 35K
Compensation Expense (Details)
66: R54 Income Taxes - Narrative (Details) HTML 26K
67: R55 Earnings Per Share - Narrative (Details) HTML 24K
68: R56 Earnings Per Share - Computation of Earnings Per HTML 64K
Share (Details)
69: R57 Earnings Per Share - Schedule of Antidilutive HTML 34K
Securities (Details)
70: R58 Commitment and Contingencies - Narrative (Details) HTML 36K
71: R59 Commitment and Contingencies - Schedule of Lease HTML 38K
Maturity (Details)
72: R60 Commitment and Contingencies - Schedule of HTML 29K
Deferred Rent and Tenant Allowances (Details)
73: R61 Related Party Transactions (Details) HTML 40K
74: R62 Goodwill and Other Intangibles - Narrative HTML 30K
(Details)
75: R63 Goodwill and Other Intangibles - Schedule of Total HTML 44K
Intangibles, Net (Details)
76: R64 Goodwill and Other Intangibles - Schedule of HTML 37K
Future Amortization Expense (Details)
78: XML IDEA XML File -- Filing Summary XML 141K
12: XML XBRL Instance -- alk-20210630_htm XML 1.59M
77: EXCEL IDEA Workbook of Financial Reports XLSX 89K
8: EX-101.CAL XBRL Calculations -- alk-20210630_cal XML 220K
9: EX-101.DEF XBRL Definitions -- alk-20210630_def XML 449K
10: EX-101.LAB XBRL Labels -- alk-20210630_lab XML 1.40M
11: EX-101.PRE XBRL Presentations -- alk-20210630_pre XML 815K
7: EX-101.SCH XBRL Schema -- alk-20210630 XSD 143K
79: JSON XBRL Instance as JSON Data -- MetaLinks 357± 521K
80: ZIP XBRL Zipped Folder -- 0001529274-21-000039-xbrl Zip 269K
Registrant’s Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, $0.001 par value per share
iALKT
iThe
Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Smaller reporting company
i☐
Accelerated
filer
☐
Emerging growth company
i☒
iNon-accelerated
filer
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. i☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
The number of shares of registrant’s common stock outstanding as of June 30, 2021 was i87,186,730.
Deferred
implementation costs, net of current portion
i15,219
i14,858
Intangibles,
net
i7,848
i8,266
Goodwill
i16,542
i16,218
Other
assets
i6,521
i6,127
Total
assets
$
i424,742
$
i249,166
Liabilities,
Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities
Current portion of long-term debt
$
i938
$
i313
Accounts
payable
i2,575
i360
Accrued
liabilities
i18,746
i13,099
Deferred
rent and tenant allowance, current
i676
i596
Deferred
revenues, current portion
i6,618
i6,116
Total
current liabilities
i29,553
i20,484
Long-term
debt, net
i23,967
i24,566
Warrant
liability
i—
i2,692
Deferred
revenues, net of current portion
i13,018
i14,424
Deferred
rent and tenant allowance, net of current portion
i5,553
i5,867
Other
non-current liabilities
i1,393
i1,393
Total
liabilities
i73,484
i69,426
Commitments
and contingencies (Note 13)
i
i
Redeemable Convertible Preferred Stock
Redeemable
convertible preferred stock, $ii0.001/
par, i0 and i72,799,602 shares authorized and ii0/
and ii72,225,916/ shares issued and outstanding
as of June 30, 2021 and December 31, 2020, respectively
i—
i443,263
Stockholders’
Equity (Deficit)
Preferred stock, $ii0.001/
par, i10,000,000 and i0 shares authorized and iiii0///
shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
i—
i—
Common
stock, $ii0.001/ par, i500,000,000
and i101,671,156 shares authorized and ii87,186,730/
and ii4,909,529/ shares issued and outstanding as of
June 30, 2021 and December 31, 2020, respectively
i87
i5
Additional
paid-in capital
i640,456
i—
Accumulated
deficit
(i289,285)
(i263,528)
Total
stockholders’ equity (deficit)
i351,258
(i263,523)
Total
liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)
$
i424,742
$
i249,166
The
above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.
Notes to the Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
Note
1. iOrganization
Description of Business
Alkami Technology, Inc. (the “Company”) is a cloud-based digital banking solutions provider. The Company inspires and empowers community, regional and super-regional financial institutions (“FIs”)
to compete with large, technologically advanced and well-resourced banks in the United States. The Company’s solution, the Alkami Platform, allows FIs to onboard and engage new users, accelerate revenues and meaningfully improve operational efficiency, all with the support of a proprietary, true cloud-based, multi-tenant architecture. The Company cultivates deep relationships with its clients through long-term, subscription based contractual arrangements, aligning its growth with its clients’ success and generating an attractive unit economic model. The Company was incorporated in Delaware in August 2011, and its principal offices are located in Plano, Texas.
Initial
Public Offering
On April 13, 2021, the Company's registration statement relating to the initial public offering ("IPO") of its common stock was declared effective by the Securities and Exchange Commission ("SEC"). In connection with its IPO, the Company issued and sold i6,900,000
shares of common stock (including i900,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional shares) at a public offering price of $i30.00
per share for net proceeds of $i192.8 million, after deducting underwriters' discounts and commissions (excluding other IPO costs). Prior to the Company’s IPO, deferred offering costs, which consist of legal, accounting, consulting and other direct fees and costs relating to its IPO, were capitalized in prepaid expenses and other current assets. Upon consummation of the
Company’s IPO, these costs were offset against the proceeds from its IPO and recorded in additional paid-in capital. In addition, in connection with its IPO, the Company's certificate of incorporation was amended and restated such that the total number of shares of common stock authorized to be issued was increased to i500,000,000 shares and the total number of shares of preferred stock authorized
to be issued was reduced to i10,000,000 shares. Immediately prior to the effectiveness of the Company’s registration statement, the Company’s outstanding shares of redeemable convertible preferred stock converted into an aggregate of i72,225,916
shares of common stock. With the proceeds of its IPO, the Company paid in full accumulated dividends on its previously outstanding shares of Series B redeemable convertible preferred stock, which totaled approximately $i5.0 million. All of the Company’s outstanding warrants exercisable for shares of redeemable convertible preferred stock converted into warrants exercisable for i212,408
shares of common stock and were classified as equity immediately prior to the effectiveness of the Company’s registration statement.
Note 2. iSummary of Significant Accounting Policies
The
accompanying financial statements reflect the application of significant accounting policies as described below.
i
Basis of Presentation and Consolidation
The interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP
for complete financial statements. All intercompany accounts and transactions are eliminated.
In the Company's opinion, the accompanying interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Certain information and disclosures normally included in the notes to the annual consolidated financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Accordingly, these interim unaudited condensed
consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2020, which are included in the final prospectus (the “Prospectus”) for the Company’s IPO filed with the SEC on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2021.
The
Company has no sources of other comprehensive income, and accordingly, net loss presented each period is the same as comprehensive loss.
i
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Significant estimates and assumptions include determining the timing and amount of revenue recognition, recoverability and amortization period related to costs to obtain and fulfill contracts, and valuation of the Company’s stock options.
The Company’s financial instruments consist primarily of cash, restricted cash and cash equivalents, accounts receivable, accounts payable, long-term debt and stock warrants. The carrying values of cash, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values due to the short-term nature of these instruments. The carrying value of long-term debt approximates its fair value due to the variable interest rate. Cash equivalents include amounts held in money market accounts that are measured at fair value using observable market prices. Warrant liabilities are valued using the Black-Scholes option pricing method and are presented at estimated fair value at the end of the reporting period. The assumptions used in
preparing the Black-Scholes option pricing calculation include weighted average grant date fair value, volatility, risk-free interest rate, dividends, and weighted average expected life in years. Changes in the fair value of warrant liabilities are recognized as a gain or loss within non-operating income (expense). In connection with the Company’s IPO, warrants converted from a liability instrument to an equity instrument resulting in a reduction of the warrant liability to $i0.
The
Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2. Significant other inputs that are directly or indirectly observable in the marketplace.
Level 3. Significant unobservable inputs which are supported by little or no market activity.
/
The
Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. iThe following table summarizes the Company’s financial assets measured at fair value as of June 30, 2021 and December
31, 2020 and indicates the fair value hierarchy of the valuation:
iiThe
reconciliations of the beginning and ending balances during the six months ended June 30, 2021 for Level 3 assets and liabilities are as follows (in thousands):
The Company defines restricted cash as cash that is legally restricted as to withdrawal or usage. The amounts included in restricted cash on the condensed consolidated balance sheets at June 30, 2021 and December 31, 2020 represent the additional cash proceeds in deposit with an escrow agent for satisfaction of contingent consideration related to the acquisition of ACH Alert, LLC (“ACH Alert”). See Note 3 for further information.
ii
June
30,
December 31,
(in thousands)
2021
2020
Cash and cash equivalents
$
i338,477
$
i166,790
Restricted
cash included in Other assets
i4,874
i4,873
Total
cash and cash equivalents and restricted cash
$
i343,351
$
i171,663
//
i
Capitalized
Software Development Costs
Software development costs relate primarily to software coding, systems interfaces, and testing of the Company’s proprietary systems and are accounted for in accordance with ASC 350-40, Internal Use Software. Internal software development costs are capitalized from the time the
internal use software is in the application development stage until the software is ready for use. Business analysis, system evaluation, and software maintenance costs
are expensed as incurred. The capitalized software development costs are reported in property and equipment, net in the condensed consolidated balance sheets.
The Company had $i0.6 million in capitalized internal software development costs as of June 30, 2021 and inone
as of December 31, 2020. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally three to ifive years from when the asset is placed in service.
Client contracts under which revenues have been recognized while the Company is not yet able to invoice results in contract assets. Generally, contract assets arise as a result of reallocating revenues when discounts are weighted more heavily in the early years of a multi-year contract or the client contract has substantive minimum fees that
escalate over the term of the contract. Contract assets totaled $i0.9 million and $i0.8
million as of June 30, 2021 and December 31, 2020, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets.
Contract liabilities are comprised of billings or payments received from the Company’s clients in advance of performance under the contract and are represented in deferred revenues in the condensed consolidated balance sheets.
/
i
Stock-Based
Compensation
Stock Options
Stock options are accounted for using the grant date fair value method. Under this method, stock-based compensation expense is measured by the estimated fair value of the granted stock options at the date of grant using the Black-Scholes option pricing model and recognized over the vesting period with a corresponding increase to additional paid-in capital.
Determining the fair value of stock-based awards at the grant date requires significant judgement. The determination of the grant date fair value of stock-based awards using the Black-Scholes option-pricing model is affected, for periods prior to the Company’s
IPO, by the Company’s estimated common stock fair value as well as other subjective assumptions including the volatility, risk-free interest rate, dividends, and weighted average expected life. The assumptions used in the Company’s option-pricing model represent management’s best estimates. These assumptions and estimates are as follows:
Fair Value of Common Stock. Given the absence of an active market for the Company’s shares of common stock prior to its IPO, the fair value of the shares of common stock underlying the Company’s
stock options was determined by the Company’s board of directors (the “Board”).
•Preliminary Offering Price and Options Granted Subsequent to December 31, 2020. During February 2021, the Company granted stock options to purchase shares of its common stock. The Company established the fair value of these grants based on a straight-line interpolation from its December 31, 2020 valuation and the mid-point of its initial price range in order to determine the appropriate stock-based
compensation expense for financial reporting purposes.
•Initial Public Offering Price and Options Granted Subsequent to April 13, 2021. The Company’s stock became actively traded upon the completion of its IPO in April 2021. For grants issued upon or subsequent to its IPO the Company establishes fair value based on the Company’s stock price.
Volatility: As the
Company does not have the necessary trading history for its common stock the selected volatility used is representative of expected future volatility. The Company bases expected future volatility on the historical and implied volatility of comparable publicly traded companies over a similar expected term.
Risk-Free Interest Rate:The Company bases the risk-free interest rate on the rate for a U.S. Treasury zero-coupon issue with a term that closely approximates the expected life of the option grant at the date nearest the option grant date.
Dividends. The
Company has never declared or paid any cash dividends and does not presently intend to pay cash dividends in the foreseeable future, other than the aggregate accumulated dividends paid to holders of the Company’s Series B redeemable convertible preferred stock upon the effectiveness of the Company’s IPO. As a result, the Company used a dividends assumption of zero.
Weighted Average Expected Life in Years: The expected term of employee stock options reflects the period for which the Company believes the option will
remain outstanding. To determine the expected term, the Company applies the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award.
In addition to assumptions used in the Black-Scholes option-pricing model, the Company estimates a forfeiture rate to calculate the stock-based compensation expense for its option awards. The Company’s forfeiture rate is based on an analysis of its actual forfeitures. The Company will continue to evaluate the appropriateness of the forfeiture rate based on
actual forfeiture experience, analysis of employee turnover and other factors.
Restricted Stock Units
Restricted stock units (“RSUs”) issued upon and subsequent to the Company’s IPO vest upon the satisfaction of a time-based condition only. These RSUs are generally earned over a service period of three to ifour
years and the compensation expense related to these awards is based on the grant date fair value of the RSUs and is recognized on a ratable basis over the applicable service period.
The Company’s 2021 Employee Stock Purchase Plan (the “ESPP”)
permits employees to purchase the Company's common stock through payroll deductions during six month offerings. The offering periods begin each May 15 and November 15, or such other period determined by the compensation committee. In accordance with the guidance in ASC 718-50 - Compensation - Stock Compensation, the ability to purchase shares of the Company’s common stock for 85% of the lower of the price on the first day of the offering period or the last day of the offering period (i.e. the purchase date) represents an option and, therefore, the ESPP is a compensatory plan. Accordingly, stock-based compensation expense is determined based on the grant-date fair value as estimated by applying the Black-Scholes option-pricing model and is recognized over the withholding period.
iConcentrations
of Credit Risk
Significant concentrations of credit risk arise from the Company’s revenues and accounts receivable. Management believes that its contract acceptance, billing, and collection policies are adequate to minimize potential credit risk. No client represented more than 10% of revenue for the three and six months ended June 30, 2021 and 2020. As of June 30, 2021 and December 31, 2020, no client represented more than 10% of accounts receivable.
i
Recent
Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the condensed consolidated balance sheets and disclosing key information about leasing arrangements. The standard is effective for non-public entities for fiscal years beginning after December 15, 2020, and interim periods for the fiscal year beginning after December 15, 2021, and early application is permitted. The Company anticipates that the adoption of Topic 842 will impact its condensed consolidated
balance sheets as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and corresponding operating lease liabilities upon the adoption of ASU 2016-02. The Company expects to adopt the standard in fiscal year 2021 using the modified retrospective transition approach and interim periods beginning 2022. The Company continues to evaluate quantitative impacts that the adoption of this standard will have. The Company expects total assets and liabilities reported will increase relative to such amounts prior to adoption.
In June 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments—Credit Losses (Topic 326),” which modifies the measurement of expected credit losses of certain financial instruments with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The effective date for adoption of the new standard was delayed until calendar years beginning after December 15, 2021, with early adoption permitted. This ASU is not expected to have a material impact on the Company’s financial statements.
Note 3. iBusiness
Combination
On October 4, 2020, the Company announced the acquisition of substantially all of the assets of ACH Alert for approximately $i25 million in cash consideration. The integrated set of assets and activities acquired from ACH Alert through the acquisition meet the definition of a business under ASC 805, as updated by ASU 2017-01.
A term loan of $i25.0 million (“Term Loan”) was borrowed on October 16, 2020 to partially fund the acquisition of ACH Alert (see Note 8).
The ACH Alert acquisition also involved $i4.9 million
of additional cash consideration that the Company placed on deposit with an escrow agent to be paid upon the continued employment of one of the owners of ACH Alert, of which $i2.5 million is to be paid in October 2021 and $i2.4 million
is to be paid in October 2022. Since the payouts are contingent upon the continued and future employment of the former owner, these amounts have been excluded from the purchase price. The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets and is accruing the estimated payouts over the requisite service period as a component of general and administrative expense on the condensed consolidated statements of operations. For the three and six months ended June 30, 2021, the Company recognized compensation expense of $i0.6 million
and $i1.2 million, respectively, related to this agreement.
The
Company’s preliminary fair value estimates and assumptions to measure the assets acquired and liabilities assumed were subject to change as the Company obtained additional information during the measurement period. The following table summarizes the fair value amounts recognized as of the acquisition date for each major class of asset acquired or liability assumed, as well as adjustments made during the measurement period:
As
of March 31, 2021, the allocation of the purchase price for ACH Alert was finalized.
i
The table below outlines the purchased identifiable intangible assets:
Weighted
Average Amortization Period
Total
(in years)
(in thousands)
Customer relationships
i15
$
i5,100
Developed
technology
i7
i3,300
Trade
names
i2
i50
Total
identifiable intangible assets
$
i8,450
/
Goodwill is mainly attributable to advantages
expected from the acquisition such as giving the Company a complimentary solution to its existing platform offering, especially for banks. It is also expected to position the Company to better penetrate the banking market. This goodwill is expected to be deductible for tax purposes.
No material transaction costs are included within the condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020.
Note
4. iProperty and Equipment, Net
Depreciation expense was $i0.6 million and $i1.2
million for the three and six months ended June 30, 2021, respectively, and $i0.7 million and $i1.3 million for the three and six months ended June
30, 2020, respectively.
The Company derives primarily all of its revenues from software-as-a-service (“SaaS”) subscription services charged for the use of its digital banking solutions. Revenues are recognized net of the most likely amount of sales credits and allowances and presented net of sales and usage-based taxes collected from clients on behalf of governmental authorities.
SaaS subscription services are generally recognized as revenue over the term of the contract as a series of distinct SaaS services bundled into a single performance obligation. Clients are typically charged a one-time, upfront implementation fee and recurring annual and monthly access fees for the use of the Company’s digital banking solution. Implementation and integration of the digital banking platform is complex, and the Company has determined that the one-time, upfront services are not distinct. In determining whether implementation services are distinct from subscription services, the Company considered various factors
including the significant level of integration, interdependency, and interrelation between the implementation and subscription service, as well as the inability of the
clients’ personnel or other service providers to perform significant portions of the services. As a result, the Company defers any arrangement fees for implementation services and recognizes such amounts over time on a ratable basis as one performance obligation with the underlying subscription revenue commencing when the client goes live on the platform, which corresponds with the date the
client obtains access to the Company’s digital banking solution and begins to benefit from the service.
The Company’s performance obligation for the SaaS series of services includes standing ready over the term of the contract to provide access to all of the clients’ users and process any transactions initiated by those users. The Company invoices clients each month for the contracted minimum number of registered users with an additional amount for users in excess of those minimums. The
Company recognizes variable consideration related to registered user counts in excess of the contractual minimum amounts each month. SaaS subscription revenues also includes annual and monthly charges for maintenance and support services which are recognized over the subscription term. As mentioned above, SaaS contracts include a single performance obligation that consists of a series of distinct SaaS services transferred over time that are substantially the same each month. Standalone selling prices are not required to allocate revenue amongst the distinct services within the series. The Company uses an analysis of pricing and discounting objectives, expected volume of users above contracted minimums and transactions, and client characteristics to ensure the revenue standards’ allocation
objectives have been met. In limited circumstances when a contract calls for certain discounting to be triggered by volumes above contracted minimums, the Company is required to estimate these volumes in order to calculate revenue recognition in line with the standard’s allocation objectives.
i
The following table disaggregates the
Company's revenue by major source for the three and six months ended June 30, 2021 and 2020:
Three months ended June
30,
Six months ended June 30,
(in thousands)
2021
2020
2021
2020
SaaS subscription services
$
i34,604
$
i25,144
$
i66,173
$
i46,658
Implementation
services
i1,636
i1,046
i2,936
i2,323
Other
services
i461
i476
i854
i895
Total
revenues
$
i36,701
$
i26,666
$
i69,963
$
i49,876
/
The
Company recognized approximately $i2.0 million and $i3.7 million of revenue during the three and six months ended
June 30, 2021, respectively, and $i2.7 million and $i4.5 million
during the three and six months ended June 30, 2020, respectively, which was recognized from deferred revenues in the accompanying condensed consolidated balance sheets as of the beginning of each reporting period. For those contracts that were wholly or partially unsatisfied as of June 30, 2021, minimum contracted subscription revenues to be recognized in future periods total approximately $i536.0
million. The Company expects to recognize approximately i45% of this amount as subscription services are transferred to customers over the next ii24/
months, an additional i34% in the next 25 to 48 months, and the balance thereafter. This estimate does not include estimated consideration for excess user and transaction processing fees that the Company expects to earn under its subscription contracts.
Deferred
Cost Recognition
The Company capitalized $i0.2 million and $i0.5
million in deferred commissions costs during the three and six months ended June 30, 2021, respectively and $i0.5 million and $i0.8
million for the three and six months ended June 30, 2020, respectively, and recognized $i0.5 million and $i1.0
million of amortization during the three and six months ended June 30, 2021, respectively, and $i0.4 million and $i0.7
million for the three and six months ended June 30, 2020, respectively. Amortization expense is included in sales and marketing expenses in the accompanying statements of operations. Deferred commissions are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $i8.5 million and $i9.0 million
as of June 30, 2021 and December 31, 2020, respectively.
The Company capitalized implementation costs of $i1.3 million and $i2.7
million during the three and six months ended June 30, 2021, respectively, and $i1.0 million and $i2.2
million for the three and six months ended June 30, 2020, respectively, and recognized amortization of $i0.7 million and $i1.2
million during the three and six months ended June 30, 2021, respectively, and $i0.5 million and $i1.0
million for the three and six months ended June 30, 2020, respectively. Amortization expense is included in cost of revenues in the accompanying condensed consolidated statements of operations.
The Company periodically reviews the carrying amount of deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. iiiiNo///
impairment loss was recognized in relation to these capitalized costs for the three and six months ended June 30, 2021 and 2020.
On October 16, 2020, the Company entered into a credit agreement with Silicon Valley Bank and KeyBank (“Credit Agreement”). The Credit Agreement replaced the prior credit facility provided by Comerica Bank. The Credit Agreement matures on October 16, 2023. The Credit Agreement includes the following:
•Revolving
Facility: The Credit Agreement provides $i25.0 million in aggregate commitments for secured revolving loans, with sub-limits of $i10.0 million
for the issuance of letters of credit and $i7.5 million for swingline loans (“Revolving Facility”).
•Term Loan: A Term Loan of $i25.0 million
was borrowed on the closing date of the Credit Agreement. The proceeds from the Term Loan were used to fund the acquisition of ACH Alert which closed on October 4, 2020.
•Accordion Feature: The Credit Agreement also allows the Company, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $i30.0 million.
Revolving
Facility loans under the Credit Agreement may be voluntarily prepaid and re-borrowed. Principal payments on the Term Loan are due in quarterly installments equal to an initial amount of approximately $i0.3 million, which begin December 31, 2021 and continue through September 30, 2022 and increase to approximately $i0.6 million
beginning on December 31, 2022 through the Credit Agreement maturity date. Once repaid or prepaid, the Term Loans may not be re-borrowed.
Borrowings under the Credit Agreement bear interest at a variable rate based upon, at the Company’s option, either the LIBOR rate or the base rate (in each case, as customarily defined) plus an applicable margin. The minimum LIBOR rate to be applied is i1.00%.
The applicable margin for LIBOR rate loans ranges , based on an applicable recurring revenue leverage ratio, from i3.00% to i3.50% per annum, and the applicable
margin for base rate loans ranges from i2.00 to i2.50% per annum. The Company’s
minimum interest rate applied to term debt was i4.00% as of June 30, 2021. The Company is required to pay a commitment fee of i0.30%
per annum on the undrawn portion available under the Revolving Facility, and variable fees on outstanding letters of credit.
All outstanding principal and accrued but unpaid interest is due, and the commitments for the Revolving Facility terminate, on the maturity date. The Term Loans are subject to mandatory repayment requirements in the event of certain asset sales or if certain insurance or condemnation events occur, subject to customary reinvestment provisions. The Company may prepay the Term Loans in whole or in part at any time without premium or penalty.
The Credit Agreement contains customary affirmative and negative covenants, as well as (i) an annual recurring revenue growth covenant requiring the loan parties
to have recurring revenues in any four consecutive fiscal quarter period in an amount that is i10% greater than the recurring revenues for the corresponding four consecutive quarter period in the previous year and (ii) a liquidity (defined as the aggregate amount of cash in bank accounts subject to a control agreement plus availability under the Revolving Facility) covenant, requiring the loan parties to have liquidity, tested on the last day of each calendar month, of $i10.0 million
or more. The Credit Agreement also contains customary events of default, which if they occur, could result in the termination of commitments under the Credit Agreement, the declaration that all outstanding loans are immediately due and payable in whole or in part, and the requirement to maintain cash collateral deposits in respect of outstanding letters of credit. The Company was in compliance with all covenants as of June 30, 2021.
Maturities
of long-term debt outstanding as of June 30, 2021, are summarized as follows (in thousands):
2021
$
i313
2022
i1,562
2023
i23,125
Thereafter
i—
Total
$
i25,000
/
Note
9. iRedeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
In connection with its IPO, the Company's certificate of incorporation was amended and restated such that the total number of shares of common stock authorized to be issued was increased to i500,000,000
shares and the total number of shares of preferred stock authorized to be issued was reduced to i10,000,000 shares.
Repurchase of Common Stock
During the three months ended March 31, 2021, former employees obtained a third-party offer for the purchase of i0.2 million
shares of common stock held in the Company. As the Company had the right of first refusal for the sale of these shares, the Company repurchased the shares for $i3.5 million from the former employees at the price offered.
Redeemable
Convertible Preferred Stock
As of December 31, 2020, the Company was authorized to issue iseven classes of stock: common stock, Series A redeemable convertible preferred stock, Series B redeemable convertible preferred stock, Series C redeemable convertible preferred stock, Series D redeemable convertible preferred stock, Series E redeemable convertible preferred stock
and Series F redeemable convertible preferred stock. These preferred shares were classified as temporary equity within the Company’s consolidated balance sheet as of December 31, 2020. Immediately prior to the effectiveness of the Company’s registration statement relating to its IPO, the Company’s outstanding shares of redeemable convertible preferred stock converted into an aggregate of i72,225,916
shares of common stock. With the proceeds from its IPO, the Company paid in full accumulated dividends on its previously outstanding shares of Series B redeemable convertible preferred stock, which totaled approximately $i5.0 million. As of June 30, 2021, there was no preferred stock issued or outstanding.
Warrants
In
conjunction with financing arrangements with prior lenders, the Company issued warrants for the purchase of shares of the Company’s redeemable convertible preferred stock. All of the Company’s outstanding warrants exercisable for shares of redeemable convertible preferred stock converted into warrants exercisable for i212,408
shares of common stock and were classified as equity immediately prior to the effectiveness of the Company’s registration statement relating to its IPO.
Note 10. iEquity Compensation
On
February 25, 2021, the Board approved, subject to stockholder approval which, was obtained on March 23, 2021, the ESPP, pursuant to which employees would be able to purchase shares of the Company’s common stock at a i15% discount. The Board provided for a share reserve
with respect to the ESPP of i2% of the total number of shares outstanding after the Company’s IPO. The Board further provided that the share reserve will be refreshed by an evergreen provision of i1%
of the Company’s outstanding common stock at the end of the prior year, or such lesser amount as the Board or its Compensation Committee may determine. The Company reserved i2,205,790 shares of common stock for future issuance under the ESPP.
On February
25, 2021, the Board approved, subject to stockholder approval, which was obtained on March 23, 2021, the Company’s 2021 Incentive Award Plan (the “2021 Plan”), pursuant to which incentive awards may be awarded to employees, directors and consultants. The Board provided that the maximum number of shares of common stock (subject to stock splits, dividends, recapitalizations and the like) issuable under the 2021 Plan is equal to a number of shares equal to (i) i11.0%
of the shares of common stock outstanding immediately prior to the effectiveness of its IPO after giving effect to the number of shares being sold in its IPO (including shares subject to outstanding equity awards, and the 2021 share reserve and the ESPP share reserve (as described above)) and assuming no exercise of the underwriters’ option to purchase additional shares, plus (ii)
an annual increase on the first day of each year beginning in 2022 and ending in 2031, equal to the lesser of: (a) i5.0%
of the shares outstanding on the last day of the prior fiscal year or (b) such lesser amount as determined by the Board, plus (iii) any shares underlying awards outstanding under the 2011 Long-Term Incentive Plan, as amended (the “2011 Plan”), as of immediately prior to the effectiveness of its IPO, that are thereafter forfeited, terminated, expired or repurchased for the original purchase price thereof, subject to certain statutory limits related to “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code. The Company reserved i12,131,846
shares of common stock for issuance pursuant to future awards under the 2021 Plan.
Stock Options
During the six months ended June 30, 2021, the Company granted an aggregate of i2,811,098
stock options to purchase shares of its common stock to officers and employees pursuant to the 2011 Plan and 2021 Plan, with a weighted average exercise price of $i19.92 per share. The fair value of options granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions (i) expected term of i6.03
years, (ii) expected volatility of i36.9%, (iii) risk-free interest rate 0i.7%
and (iv) expected dividend yield of i0%.
Restricted Stock Units
In April 2021, the Company granted an aggregate of i213,500
RSUs to officers and employees pursuant to the 2021 Plan. The RSUs vest and settle upon the satisfaction of a service condition. The service condition for the awards is satisfied over generally three to ifour years.
Employee Stock Purchase Plan
The first offering period commenced on May
15, 2021, and as of June 30, 2021, no shares had yet been issued under the plan.
i
Stock-based compensation expense was included as follows:
Three
months ended June 30,
Six months ended June 30,
(in thousands)
2021
2020
2021
2020
Cost of revenues
$
i465
$
i88
$
i698
$
i180
Research
and development
i702
i101
i1,001
i206
Sales
and marketing
i240
i33
i344
i66
General
and administrative
i1,616
i228
i2,398
i457
Total
stock-based compensation expenses
$
i3,023
$
i450
$
i4,441
$
i909
The
amount of stock-based compensation capitalized as part of deferred implementation costs was insignificant for the three and six months ended June 30, 2021 and June 30, 2020. Due to net operating losses, there was no tax expense or benefit recorded in connection with stock-based compensation expense.
/
Note 11. iIncome
Taxes
The provision for income taxes in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2021 and 2020 was $iiii0///.
The effective tax rate differs from the statutory tax rate primarily due to the impact of the full valuation allowance against the Company’s deferred tax assets.
Note 12. iEarnings Per Share
Net
loss attributable to common stockholders used in computing basic and diluted earnings per share (“EPS”) has been calculated as the net loss less Series B cumulative dividends and other adjustments to redeemable convertible preferred stock of $i0.3 million for both the three and six months ended June 30, 2021 and $i0.3 million
and $i0.6 million for the three and six months ended June 30, 2020, respectively. The holders of the Company’s redeemable convertible preferred stock did not have a contractual obligation to share in the Company’s losses; therefore, no amount of total undistributed loss was allocated to redeemable convertible preferred
stock. Upon the consummation of its IPO, all preferred stock converted to common stock, and therefore the Company had no issued or outstanding preferred stock as of June 30, 2021.
Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Because the Company has reported a net loss for the three and six months ended June 30, 2021 and 2020,
the number of shares used to calculate diluted net loss per share attributable to common stockholders is the same as the number of shares used to calculate basic net loss per share attributable to common stockholders for the period presented because the potentially dilutive shares would have been antidilutive if included in the calculation.
The
computation of basic and diluted EPS is as follows for the three and six months ended June 30, 2021 and 2020:
Three months ended June 30,
Six
months ended June 30,
(In thousands, except shares and per share amounts)
2021
2020
2021
2020
Net loss
$
(i11,375)
$
(i7,267)
$
(i22,254)
$
(i17,522)
Less:
cumulative dividends and adjustments to redeemable convertible preferred stock
i—
(i277)
(i277)
(i554)
Net
loss attributable to common stockholders
$
(ii11,375/)
$
(ii7,544/)
$
(ii22,531/)
$
(ii18,076/)
Weighted
average shares of common stock outstanding - basic and diluted
ii74,831,512/
ii4,635,852/
ii40,399,138/
ii4,602,436/
Loss
per common share - basic and diluted
$
(ii0.15/)
$
(ii1.63/)
$
(ii0.56/)
$
(ii3.93/)
/
i
For
the three and six months ended June 30, 2021 and 2020, the following potential shares of common stock were excluded from diluted EPS as the Company had a net loss in each period presented:
The Company leases office space under non-cancelable operating leases for its corporate headquarters in Plano, Texas pursuant
to a iten-year lease agreement under which the Company leases approximately i125,000 square feet of office space with an initial term that expires on August
31, 2028, with the option to extend the lease for either itwo additional terms of ifive years each or ione
additional term of iten years. Rent expense under operating leases was $i1.2 million and $i2.3
million for the three and six months ended June 30, 2021, respectively, and $i1.2 million and $i2.3 million for the three and six months ended June
30, 2020, respectively.
i
Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at June 30, 2021 were as follows (in thousands):
Operating
Leases
2021
$
i1,833
2022
i3,710
2023
i3,773
2024
i3,835
2025
i3,898
Thereafter
i10,697
Total
minimum lease payments
$
i27,746
/
Deferred Rent and Tenant Allowances
Deferred
rent and tenant allowances are amortized and applied against rental expense over the lease term on a straight-line basis. iAs of June 30, 2021 and December 31, 2020, the Company had deferred rent and tenant allowance balances as follows:
The Company may become party to various legal actions during the ordinary course of business. Defending such proceedings is costly and can impose a significant burden on management and employees, it may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained. In addition, the Company’s industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights. Companies in its industry are often required to defend against litigation claims based
on allegations of infringement or other violations of intellectual property rights. Furthermore, client agreements typically require the Company to indemnify clients against liabilities incurred in connection with claims alleging its solutions infringe the intellectual property rights of a third party. From time to time, the Company has been involved in disputes related to patent and other intellectual property rights of third parties, none of which has resulted in material liabilities. The Company expects these types of disputes may continue to arise in the future. Based upon present information, the Company believes that its
liability, if any, arising from such pending legal proceedings, asserted legal claims and known potential legal claims which are likely to be asserted, is not reasonably likely to be material to the Company’s financial position, results of operations, or cash flows, taking into account established accruals for estimated liabilities.
Note 14. iRelated
Party Transactions
CU Cooperative Systems, Inc. (“CU Cooperative”), a stockholder of the Company who is also a vendor, was paid fees of $i1.0 million and $i2.1 million,
for the three and six months ended June 30, 2021, respectively, and $i1.1 million and $i2.3 million
for the three and six months ended June 30, 2020, respectively, which relate to services resold to the Company’s clients. As of June 30, 2021, the Company had a $i0.3 million payable balance due to CU Cooperative, and as of December 31, 2020, accounts payable
included amounts due to CU Cooperative of $i0.3 million. Mr. Todd Clark, who has served as President and Chief Executive Officer of CU Cooperative since 2016, is a member of the Board and was designated to serve as a member of the Board by CU Cooperative. CU Cooperative held i5%
or more of the Company’s capital stock as of December 31, 2020.
For the three and six months ended June 30, 2021, the Company employed a former owner of the acquired business ACH Alert. For certain operating and lease payments made on the former owner’s behalf and lockbox cash receipts due to the Company, a receivable of $i1.4 million
from the former owner was included in prepaid expenses and other current assets as of December 31, 2020. The Company had no significant receivable balance from the former owner as of June 30, 2021.
Note 15. iGoodwill
and Other Intangibles
Goodwill and intangible assets deemed to have an indefinite life are not amortized, but are reviewed annually for impairment of value or when indicators of a potential impairment are present. As part of the Company’s business planning cycle, the Company will perform an annual goodwill impairment test in the fourth quarter of the fiscal year beginning in 2021. There were no indications of impairment of goodwill noted for the three months ended June 30, 2021. Goodwill had a carrying value of $i16.5 million
and $i16.2 million as of June 30, 2021 and December 31, 2020, respectively. The Company recorded $i0.3 million
to goodwill during the six months ended June 30, 2021 due to a change in the purchase price allocation for ACH Alert as is appropriate during the measurement period. See Note 3 for additional information.
Amortization
expense recognized on intangible assets was $i0.2 million and $i0.4 million for the three and six months ended June
30, 2021, respectively. The Company did not recognize amortization expense related to intangible assets for the three and six months ended June 30, 2020.
The
following table shows the estimated annual amortization expense of the definite-lived intangible assets for the next five years and thereafter (in thousands):
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our final prospectus (the “Prospectus”) for our Initial Public Offering (“IPO”) of our common stock, filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”).
Unless the context otherwise
requires, all references in this report to the “Company,”“Alkami,”“we,”“us” and “our” refer to Alkami Technology, Inc., a Delaware corporation, and its consolidated subsidiary taken as a whole.
Any statements made in this Quarterly Report on Form 10-Q that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as “anticipate,”“expect,”“suggests,”“plan,”“believe,”“intend,”“estimates,”“targets,”“projects,”“should,”“could,”“would,”“may,”“will,”“forecast” and other similar expressions. We base these forward-looking statements on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances at such time. Forward-looking statements are not guarantees of future performance or results and are subject to and involve risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking
statements. The following important factors, along with the factors discussed in “Risk Factors” in the Prospectus, may materially affect such forward-looking statements:
•Our limited operating history and history of operating losses;
•Our ability to manage future growth;
•Our ability to attract new clients and expand existing clients’ use of our solutions;
•Our ability to maintain, protect and enhance our brand;
•Our ability to accurately predict the long-term rate of client subscription renewals or adoption of our solutions;
•Our
reliance on third-party software, content and services;
•Our ability to effectively integrate our solutions with other systems used by our clients;
•Intense competition in our industry;
•Any downturn, consolidation or decrease in technology spend in the financial services industry;
•Our ability and the ability of third parties on which we rely to prevent and identify breaches of security measures and resulting disruptions of our systems or operations and unauthorized access to client customer and other data;
•Our ability to comply with regulatory and legal requirements and developments;
•Our
ability to attract and retain key employees;
•The political, economic and competitive conditions in the markets and jurisdictions where we operate, including the impact of the COVID-19 pandemic and the various governmental, industry and consumer actions related thereto;
•Our ability to maintain, develop and protect our intellectual property;
•Our ability to respond to evolving technological requirements to develop or acquire new and enhanced products that achieve market acceptance in a timely manner; and
•Our ability to estimate our expenses, future revenues, capital requirements and needs for additional financing and our ability to obtain additional capital.
Given
these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Overview
Alkami is a cloud-based digital banking solutions provider. We inspire and empower community, regional and super-regional financial institutions (“FIs”) to compete with large, technologically advanced and well-resourced banks in the United States. Our solution, the Alkami Platform, allows FIs to onboard and engage new users, accelerate revenues and meaningfully improve operational efficiency,
all with the support of a proprietary, true cloud-based, multi-tenant architecture. We cultivate deep relationships with our clients through long-term, subscription-based contractual arrangements, aligning our growth with our clients’ success and generating an attractive unit economic model.
Alkami was founded to help level the playing field for FIs. Since then, our vision has been to create a platform that combines premium technology and fintech solutions in one integrated ecosystem, delivered as a software-as-a-service (“SaaS”) solution and providing our clients’ customers with a single point of access to all things digital. We have invested significant resources to build a technology stack that prioritized innovation velocity and speed-to-market given the importance of product depth and functionality in winning and retaining clients. In fiscal 2020, we acquired ACH Alert, LLC
(“ACH Alert”) to pursue adjacent product opportunities, such as fraud prevention and to expand our addressable market.
Our domain expertise in retail and business banking has enabled us to develop a suite of products tailored to address key challenges faced by FIs. Due to our architecture, adding products through our single code base is fast, simple and cost-effective. The key differentiators of the Alkami Platform include:
•User experience: Personalized and seamless
digital experience across user interaction points, including mobile, chat and SMS, establishing durable connections between FIs and their customers.
•Integrations: Scalability and extensibility driven by 229 real-time integrations to back office systems and third-party fintech solutions as of June 30, 2021, including core systems, payment cards, mortgages, bill pay, electronic documents, money movement, personal financial management and account opening.
•Deep data capabilities: Data synchronized and stored from back office systems and third-party fintech solutions and synthesized into meaningful insights, targeted content
and other areas of monetization.
The Alkami Platform offers an end-to-end set of software products. Our typical relationship with an FI begins with a set of core functional components, which can extend over time to include a rounded suite of products across account opening, card experience, client service, extensibility, financial wellness, security and fraud protection, marketing and analytics and money movement.
We primarily go to market through an internal sales force. Given the long-term nature of our contracts, a typical sales cycle can range from approximately three to 12 months, with the subsequent implementation timeframe generally ranging from six to 12 months depending on the depth of integration.
We
derive our revenues almost entirely from multi-year contracts that are based on an average contract life of approximately 70 months as of June 30, 2021. We predominantly employ a per-registered-user pricing model, with incremental fees above certain contractual minimum commitments for each licensed solution. Our pricing is tiered, with per-registered-user discounts applied as clients achieve higher levels of customer penetration, incentivizing our clients to internally market and promote digital engagement.
To support our growth and capitalize on our market opportunity, we have increased our operating expenses across all aspects of our business. In research
and development, we continue to focus on innovation and bringing novel capabilities to our platform, extending our product depth. Similarly, we continue to expand our sales and marketing organization focusing on new client wins, cross-selling opportunities and client renewals.
For the three months ended June 30, 2021 and 2020 our total revenues were $36.7 million and $26.7 million, respectively, representing a 37.6% increase period-over-period. For the six months ended June 30, 2021 and 2020 our total revenues were $70.0 million and $49.9 million, respectively, representing a 40.3% increase period-over-period. SaaS subscription revenues, as further described below, represented 94.3% and 94.6%
of total revenues for the three and six months ended June 30, 2021, respectively and 94.3% and 93.5% for the three and six months ended June 30, 2020, respectively. We incurred net losses of $11.4 million and $22.3 million for the three and six months ended June 30, 2021, respectively, and net losses of $7.3 million and $17.5 million for the three and six months ended June 30 2020, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.
Recent Development
Initial Public Offering. On April 13, 2021,
the Company's registration statement relating to our IPO of our common stock was declared effective by the SEC. In connection with our IPO, the Company issued and sold 6,900,000 shares of common stock (including 900,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional shares) at a public offering price of $30.00 per share for net proceeds of $192.8 million, after deducting underwriters' discounts and commissions (excluding other IPO costs as of April 13, 2021).
Factors Affecting our Operating Results
Growing our FI Client Base. A
key part of our strategy is to grow our FI client base. As of June 30, 2021, we served 161 FIs through the Alkami Platform and an additional 102 clients through the ACH Alert suite of solutions, representing 87.9% annual client growth since June 30, 2020. Each of our new client wins is a competitive takeaway, and as such, our historical ability to grow our client base has been a function of product depth, technological excellence and a sales and marketing function able to match our solutions with the strategic objectives of our clients. Our future success will significantly depend on our ability to continue to grow our FI client base through competitive wins.
Deepening Client Customer Penetration. We primarily generate revenues through a
per-registered-user pricing model. Once we onboard a client, our ability to help drive incremental client customer digital adoption translates to additional revenues with very limited additional spend. Our FI clients are incentivized to market and encourage digital account sign-up based on identifiable improvement in customer engagement as well as discounts received based on certain levels of customer penetration. We expect to continue to support digital adoption by client customers through continued investments in new products and platform enhancements. Our future success will depend on our ability to continue to deepen client customer penetration.
Expanding our Product Suite. Product depth is a key determinant in winning new clients. In a replacement market, we win based on our ability to bring a product suite to market that is superior
to the incumbent, as well as to our broader competition. Of equal importance is the ability to cohesively deliver a deep product suite with as little friction as possible to the client customer. The depth of our product suite is a function of technology and platform partnerships. Our platform model with 229 integrations as of June 30, 2021 enables us to deliver thousands of configurations aligned with the digital platform strategies adopted by our clients. We expect our future success in winning new clients to be partially driven by our
ability to continue to develop and deliver new, innovative
products to FI clients in a timely manner. Furthermore, expanding our product suite expands our RPU potential. For additional information regarding RPU, see “Key Business Metrics.”
Client Renewals. Our model and the stability of our revenue base is, in part, driven by our ability to renew our clients. In addition to extending existing relationships, renewals provide an opportunity to grow minimum contract value, as over the course of a contract term our clients often grow or their needs evolve. Client renewals are also an important lever in driving our long-term gross margin targets, as we generally achieve approximately 70% gross margin upon renewal. We had two and four
client renewals in the three and six months ended June 30, 2021, respectively. We expect client renewals to continue to play a key role in our future success.
Continued Leadership in Innovation. Our ability to maintain a differentiated platform and offering is dependent upon our pace of innovation. In particular, our single code base, built on a multi-tenant infrastructure and combined with continuous software delivery enables us to bring new, innovative products to market quickly and positions us with what we believe is market-leading breadth in terms of product offerings and feature set. We remain committed to investing in our platform, notably through our research and development spend, which was 33.0% and 32.9% of our revenues for the three and six months ended June
30, 2021. Our future success will depend on our continued leadership in innovation.
COVID-19 Impact. The continued global impact of COVID-19 has resulted in various measures to combat the spread of the virus. With the development of variants and increased vaccinations rates, the status of ongoing measures varies widely. We transitioned our employee base to work-from-home in March 2020, creating challenges in executing sales and implementations that have resurfaced due to the renewal of certain actions and restrictions in response to the COVID-19 pandemic and which may be exacerbated if such actions or restrictions are prolonged. We believe actions and restrictions in response to the COVID-19 pandemic have served to highlight the criticality of our products, which we expect to drive increased demand over time.
Components
of Results of Operations
Revenues
Our client relationships are primarily based on multi-year contracts that have an average contract life of 70 months as of June 30, 2021. We derive the majority of our revenues from SaaS subscription services charged for the use of our digital banking solution. For each client, we invoice monthly a contractual minimum fee for each licensed solution. In addition, we invoice monthly an additional subscription fee for the number of registered users using each solution and the number of bill-pay and certain other transactions those registered users conduct through our digital banking
platform in excess of their contractual minimum commitments. Our pricing is tiered, with per-registered-user discounts applied as clients achieve higher levels of customer penetration, incentivizing our clients to internally market our products and promote digital engagement. Variable consideration earned for subscription fees in excess of contractual minimums is recognized as revenues in the month of actual usage. SaaS subscription services also include annual and monthly charges for maintenance and support services which are recognized on a straight-line basis over the contract term.
We receive implementation and other upfront fees for the implementation, configuration and integration of our digital banking platform. We typically invoice these services as a fixed price per contract.
These fees are not distinct from the underlying licensed SaaS subscription services. As a result, we recognize the resulting revenues on a straight-line basis over the client’s initial agreement term for our licensed SaaS solutions, commencing upon launch.
Occasionally, our clients request custom development and other professional services, which we provide. These are generally one-time in nature and involve unique, non-standard features, functions or integrations that are intended to enhance or modify their licensed SaaS solutions. We recognize revenues at the point in time the services are transferred to the client.
The following disaggregates our revenues for the three and six months ended June 30, 2021 and 2020
by major source.
See
Note 5 of the Notes to our Unaudited Condensed Consolidated Financial Statements for disaggregation of our revenues by major source.
Cost of Revenues and Gross Margin
Cost of revenues is comprised primarily of salaries and other personnel-related costs, including employee benefits, bonuses, stock-based compensation, travel and related costs for employees supporting our SaaS subscription, implementation and other services. This includes the costs of our implementation, client support and client success teams, development personnel responsible for maintaining and releasing updates to our platform, as well as third-party cloud-based hosting services. Cost of revenues also includes the direct costs of bill-pay and other third-party intellectual property included in our solutions, the amortization of
acquired technology and depreciation.
We capitalize certain personnel costs directly related to the implementation of our solutions to the extent those costs are recoverable from future revenues. We amortize the costs for an implementation once revenue recognition commences. The amortization period is typically five to seven years which represents the expected period of client benefit. Other costs not directly recoverable from future revenues are expensed in the period incurred.
We intend to continue to increase our investments
in our implementation, client support and client success teams and technology infrastructure to serve our clients and support our growth. We expect cost of revenues to continue to grow in absolute dollars as we grow our business but to vary as a percentage of revenues from period to period as a function of the utilization of implementation and support personnel and the extent to which we recognize fees from bill-pay services and other third-party functionality integrated into our solutions. Our gross margin for the three and six months ended June 30, 2021 was 55.9% and 54.7%, respectively, and 50.4% and 49.6% for the three and six months ended June 30, 2020, respectively.
The major components of cost of revenues represented the following percentages of revenues for the three months ended
June 30, 2021: third-party hosting services (8.3%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (15.3%), our implementation team (9.9%), our client success team (5.9%), our development team responsible for maintaining and releasing updates to our platform (4.3%) and amortization of intangible assets (0.3%). The major components of cost of revenues represented the following percentages of revenues for the three months ended June 30, 2020: third-party hosting services (9.1%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (18.1%), our implementation team (11.3%), our client success team (6.3%) and our development team responsible for maintaining and releasing updates to our platform (4.9%).
The
major components of cost of revenues represented the following percentages of revenues for the six months ended June 30, 2021: third-party hosting services (9.2%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (15.7%), our implementation team (9.7%), our client success team (5.9%), our development team responsible for maintaining and releasing updates to our platform (4.3%) and amortization of intangible assets (0.3%). The major components of cost of revenues represented the following percentages of revenues for the six months ended June 30, 2020: third-party hosting services (9.3%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (17.3%), our implementation team (11.7%), our client success team (6.8%) and our development team responsible for maintaining and releasing
updates to our platform (5.4%).
Operating Expenses
Research and Development. Research and development costs consist primarily of personnel-related costs for our engineering, information technology and product, including salaries, bonuses, commissions, other incentive-related compensation, employee benefits and stock-based compensation. In addition, we also include third-party contractor expenses, software development and testing tools, allocated corporate expenses, and other expenses related to developing new solutions and upgrading and enhancing existing solutions. We expect research and development costs to increase as we expand our platform with new features and functionality as well as enhance the existing Alkami Platform.
Sales
and Marketing. Sales and marketing expenses consist primarily of personnel-related costs of our sales, marketing and a portion of account management employees, including salaries, bonuses, commissions, other incentive-related compensation, employee benefits and stock-based compensation. Sales and marketing expenses also include travel and related costs, outside consulting fees and marketing programs, including lead generation, costs of our annual client conference, advertising, trade shows, other event expenses and amortization of acquired client relationships. We expect sales and marketing expenses will continue to increase as we expand our direct sales teams to pursue our market opportunity.
General and Administrative. General and administrative expenses consist primarily of personnel-related costs for our general
and administrative teams including salaries, bonuses, commissions, other incentive-related compensation, employee benefits and stock-based compensation associated with our executive, finance, legal, human resources, information technology, security and compliance as well as other administrative personnel. General and administrative expenses also include accounting, auditing and legal professional services fees, travel and other unallocated corporate-related expenses such as the cost of our facilities, employee relations, corporate telecommunication and software. We expect that general and administrative expenses will continue to increase as we scale our business and as we incur costs associated with being a publicly traded company, including legal, audit, business insurance and consulting fees.
Non-operating Income (Expense)
Non-operating
income (expense) consists primarily of interest income from our cash balances, interest expense from borrowings under our revolving line of credit, amortization of deferred debt costs and changes in fair value of warrants (In connection with our IPO, warrants converted from a liability instrument to an equity instrument resulting in a reduction of the warrant liability to $0.).
Provision for Income Taxes
Our effective tax rate differs from the statutory tax rate primarily due to the impact of the full valuation allowance against our deferred tax assets.
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this filing. The following table presents our selected condensed consolidated statements of operations data for the three and six months ended June 30, 2021 and 2020.
(1) Acquisition-related
expenses are associated with the accrual of deferred compensation due to the former owner of the acquired business, ACH Alert.
(2) Adjusted EBITDA is a non-GAAP financial measure and should not be considered an alternative to GAAP net loss as a measure of operating performance or as a measure of liquidity. For additional information regarding adjusted EBITDA, see “Key Business Metrics.”
Key Business Metrics
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure and should not be considered an alternative to GAAP net loss as a measure of operating performance or as a measure of liquidity. We define adjusted EBITDA as net loss before provision for income taxes; (gain) loss on financial
instruments; interest (income) expense, net; amortization of intangible assets; depreciation; stock-based compensation expense; and acquisition-related costs. We believe adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. Adjusted EBITDA was $(5.4) million and $(11.5) million for the three and six months ended June 30, 2021, respectively and $(6.0) million and $(15.1) million for the three and six months ended June 30, 2020, respectively.
Annual Recurring Revenue (ARR). We calculate ARR by aggregating annualized recurring revenue related to SaaS subscription services recognized in the last
month of the reporting period as well as the next 12 months of expected implementation services revenues for all clients on the platform in the last month of the reporting period. We believe ARR provides important information about our future revenue potential, our ability to acquire new clients, and our ability to maintain and expand our relationship with existing clients. ARR was $144.7 million as of June 30, 2021 and $105.0 million as of June 30, 2020, an increase of $39.7 million, or 37.8%, period-over-period.
Registered Users. We define a registered user as an individual or business related to an account holder of an FI client on our digital banking platform who has registered to use one or more of our solutions and has current access
to use those solutions as of the last day of the reporting period presented. We price our digital banking platform based on the number of registered users, so as the number of registered users of our digital banking platform increases, our ARR grows. We believe growth in the number of registered users provides important information about our ability to expand market adoption of our digital banking platform and its associated software products, and therefore to grow revenues over time. We had 10.7 million registered users as of June 30, 2021 and 8.3 million as of June 30, 2020, an increase of 2.4 million, or 28.9%, period-over-period.
Revenue per Registered User (RPU). We calculate RPU by dividing ARR as of the last day of the reporting period by the number of registered
users as of the last day of the reporting period. We believe RPU provides important information about our ability to grow the number of software products adopted by new clients over time, as well as our ability to expand the number of software products that our existing clients add to their contracts with us over time. RPU was $13.48 as of June 30, 2021 and $12.64 as of June 30, 2020, an increase of $0.84, or 6.6%, period-over-period.
Revenues
increased $10.0 million, or 37.6%, and $20.1 million, or 40.3%, for the three and six months ended June 30, 2021, respectivelycompared to the same periods in 2020.
The increase of $10.0 million in revenues for the three months ended June 30, 2021 primarily was due to registered user growth from new and existing clients, RPU growth, as well as the acquisition of ACH Alert completed on October 4, 2020, which
contributed $1.3 million in three months ended June 30, 2021.
The increase of $20.1 million in revenues for the six months ended June 30, 2021 primarily was due to registered user growth of 2.4 million, comprised of 1.4 million in registered user growth from existing clients (net of attrition) and 1.0 million in registered users from new clients implemented through our digital banking platform. In addition, increased revenues were due to RPU growth of 6.6%. RPU growth primarily was driven by cross-sell activity to existing clients and an average RPU of new clients acquired in the last year of $15.95 as of June 30, 2021, which is 18.3% higher than the aggregate RPU as of June 30, 2021. An
additional contributing factor to the increase in revenues is the acquisition of ACH Alert completed on October 4, 2020, which contributed $2.4 million in the six months ended June 30, 2021.
Cost of Revenues and Gross Margin
Three
months ended June 30,
Change
Six months ended June 30,
Change
2021
2020
$
%
2021
2020
$
%
($
in thousands)
Cost of revenues
$
16,180
$
13,236
$
2,944
22.2
%
$
31,677
$
25,138
$
6,539
26.0
%
Percentage
of revenues
44.1
%
49.6
%
(5.5)
%
(11.1)
%
45.3
%
50.4
%
(5.1)
%
(10.1)
%
Cost
of Revenues
Cost of revenues increased $2.9 million, or 22.2%, and $6.5 million, or 26.0%, for the three and six months ended June 30, 2021, respectively,compared to the same periods in 2020, generating a gross margin of 55.9% and 54.7% for the three and six months ended June 30, 2021, respectively, compared to a gross margin of 50.4% and 49.6% for the same periods in 2020.
The increase in cost of revenues for the three months ended June 30, 2021 was primarily driven by a $1.3 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount increases supporting our
growth in the following teams: site reliability engineering, client implementation and client support, $0.7 million in higher cost of our third party partners where we resell their solutions as part of the digital platform and $0.7 million in incremental hosting costs, both incurred from an increase in revenues derived from existing and new client growth.
The increase in cost of revenues for the six months ended June 30, 2021 was primarily driven by a $2.2 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount increases supporting our growth in the following teams: site reliability engineering, client implementation and client support, $2.2 million in higher cost of our third party partners where we resell their solutions as part of the digital platform and $1.9 million in incremental
hosting costs, both incurred from an increase in revenues derived from existing and new client growth. We expect the cost of revenues will continue to increase as SaaS subscription services and the associated implementation services increase over time. However, we expect gross margin to continue to improve due to operational scaling.
Operating Expenses
Three
months ended June 30,
Change
Six months ended June 30,
Change
2021
2020
$
%
2021
2020
$
%
($
in thousands)
Research and development
$
12,107
$
9,780
$
2,327
23.8
%
$
23,020
$
19,469
$
3,551
18.2
%
Sales
and marketing
5,417
3,910
1,507
38.5
%
10,823
8,550
2,273
26.6
%
General and administrative
12,810
6,850
5,960
87.0
%
23,195
14,008
9,187
65.6
%
Total
operating expenses
$
30,334
$
20,540
$
9,794
47.7
%
$
57,038
$
42,027
$
15,011
35.7
%
Percentage
of revenues
82.7
%
77.0
%
81.5
%
84.3
%
Research and Development
Research and development expenses increased $2.3 million, or
23.8%, and $3.6 million, or 18.2%, for the three and six months ended June 30, 2021, respectively,compared to the same periods in 2020. For the three months ended June 30, 2021, the increase was primarily due to a $2.5 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation. This was partially offset by a $0.1 million decrease in other miscellaneous costs.
For the six months ended June 30, 2021, the increase was primarily due to a $3.9 million increase in personnel-related costs (which includes stock-based compensation)
resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation. This was partially offset by a $0.3 million decrease in other miscellaneous costs.
Sales and marketing expenses increased and $1.5 million, or 38.5%, and $2.3 million, or 26.6%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020. For the three months ended June
30, 2021, the increase was primarily due to a $1.3 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our sales and marketing teams. In addition, we incurred $0.3 million in higher consulting costs. These costs were partially offset by $0.2 million in lower costs related to industry conferences and trade shows, all primarily due to the work-from-home business environment during the COVID-19 pandemic.
For the six months ended June 30, 2021, the increase was primarily due to a $2.4 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our sales and marketing teams. In addition, we incurred $0.4 million in higher consulting costs. These costs were partially offset by $0.2 million in lower travel costs
for the sales team, as well as $0.5 million in lower costs related to industry conferences and trade shows, all primarily due to the work-from-home business environment during the COVID-19 pandemic.
General and Administrative
General and administrative expenses increased $6.0 million, or 87.0%, and $9.2 million, or 65.6%, for the three and six months ended June 30, 2021, respectively,compared to the same periods in 2020. For the three months ended June 30, 2021, the increase was primarily due to a $3.0 million increase in personnel-related and other costs (which includes stock-based compensation) from increased headcount, including the impact from the acquisition
of ACH Alert, and a $0.6 million increase in non-personnel related costs from the acquisition of ACH Alert. In addition, we incurred a $1.0 million increase in insurance costs for public company D&O coverage, a $0.8 million increase in accounting, audit and consulting expenses, primarily in support of our IPO and public company operations, and a $0.3 million increase in software costs.
For the six months ended June 30, 2021, the increase was primarily due to a $5.1 million increase in personnel-related and other costs (which includes stock-based compensation) from increased headcount, including the impact from the acquisition of ACH Alert, and a $1.3 million increase in non-personnel related costs from the acquisition of ACH Alert. In addition, we incurred a $1.3 million increase in accounting, audit and consulting expenses primarily
in support of our IPO, a $1.0 million increase in insurance costs for public company D&O coverage and a $0.6 million increase in software costs.
Non-Operating Expense, Net
Non-operating expense, net increased $1.4 million and $3.3 million for the three and six months ended June 30, 2021, respectively,compared to the same periods in 2020. For the three months ended June 30, 2021, the increase was primarily due to $1.4 million in non-operating loss related to the increase in fair value of our warrant liabilities. For the six months ended June 30, 2021, the increase was primarily due to $3.0 million in non-operating
loss related to the increase in fair value of our warrant liabilities and a $0.3 million increase in net interest expense. In connection with our IPO, warrants converted from a liability instrument to an equity instrument resulting in a reduction of the warrant liability to $0.
Provision for Income Taxes
We had no provision for income taxes for the three and six months ended June 30, 2021 and 2020. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the full valuation allowance against our deferred tax assets.
Liquidity
and Capital Resources
As of June 30, 2021, we had $338.5 million in cash and cash equivalents, and an accumulated deficit of $289.3 million. Our net losses have been driven by our investments in developing our digital banking platform, expanding our sales, marketing and implementation organizations and scaling our administrative functions to support our rapid growth.
We have financed our operations primarily through the net proceeds we have received from the sales of our redeemable convertible preferred stock and common stock, cash generated from the sale of SaaS subscription services and borrowings under our Credit Agreement (as defined below).
On April
15, 2021, we completed our IPO, in which we issued and sold 6,900,000 shares of our common stock, including 900,000 shares of common stock that were sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of common stock at $30.00 per share. Our IPO resulted in net proceeds of $192.8 million after deducting underwriting discounts, commissions and other offering costs. With the proceeds from our IPO, the Company paid in full accumulated dividends on our previously outstanding shares of Series B redeemable convertible preferred stock, which totaled approximately $5.0 million.
Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support client usage and growth in our client base, increased research and development
expenses to support the growth of our business and related infrastructure, increased general and administrative expenses associated with being a publicly traded company, investments in office facilities and other capital expenditure requirements and any potential future acquisitions or other strategic transactions.
We believe that our existing cash resources, including our Credit Agreement, will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses we expect to incur as a public company for at least the next 12 months. We may from time to time seek to raise additional capital to support our growth. Any equity financing we may undertake could be dilutive to our existing stockholders, and any additional debt financing we may undertake could require debt service and financial and operational requirements that could
The following table summarizes our cash flows for the periods indicated:
Six months ended June 30,
(in thousands)
2021
2020
Net
cash used in operating activities
$
(12,288)
$
(19,996)
Net cash used in investing activities
(1,446)
(1,403)
Net cash provided by financing activities
185,422
24,966
Net
Cash Used in Operating Activities
During the six months ended June 30, 2021, net cash used in operating activities was $12.3 million, which consisted of a net loss of $22.3 million, adjusted by non-cash charges of $9.1 million and net cash inflows from the change in net operating assets and liabilities of $0.9 million. The non-cash charges primarily were comprised of a non-operating loss related to the increase in fair value of warrant liabilities of $3.0 million, depreciation and amortization expense of $1.6 million, and stock-based compensation expense of $4.4 million. The net cash inflows from the change in our net operating assets and liabilities were primarily due to a $7.9 million increase in accounts payable and accrued liabilities, partially offset by a $3.3 million increase in prepaid expenses and other current assets and a net
$3.7 million in other balance sheet changes.
During the six months ended June 30, 2020, net cash used in operating activities was $20.0 million, which consisted of a net loss of $17.5 million, adjusted by non-cash charges of $2.3 million and net cash outflows from the change in net operating assets and liabilities of $4.8 million. Non-cash charges primarily were comprised of depreciation expense of $1.3 million and stock-based compensation expense of $0.9 million. The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $3.1 million increase in accounts receivable, a $1.6 million increase in prepaid expenses and other current assets, a $1.5 million increase in deferred implementation costs, partially offset by a net $1.3 million in other balance sheet changes.
Net
Cash Used in Investing Activities
During the six months ended June 30, 2021, net cash used in investing activities was $1.4 million, primarily consisting of $0.6 million related to capitalized software development costs, $0.3 million related to the finalization of working capital adjustments on our acquisition of ACH Alert, and capital expenditures related to updates for computer and other equipment of $0.5 million.
During the six months ended June 30, 2020, net cash used in investing activities was $1.4 million, primarily consisting of capital expenditures related to the expansion and updates to our corporate facilities of $1.1 million and purchases of computer and other equipment of $0.3 million.
Net
Cash Provided by Financing Activities
For the six months ended June 30, 2021, net cash provided by financing activities was $185.4 million, which primarily was due to the receipt of proceeds from our IPO of $192.8 million and proceeds of $4.9 million from the exercise of stock options to purchase 3.4 million shares of our common stock, partially offset by the cash payment of our Series B dividend of $5.0 million upon the consummation of our IPO, the $3.9 million payment of deferred IPO issuance costs, and the repurchase of shares of our common stock in the amount of $3.5 million.
During the six months ended June 30, 2020, cash provided by financing activities was $25.0 million, consisting primarily of proceeds
from the sale of preferred stock of $24.9 million.
Credit Agreement
On October 16, 2020, we entered into our credit agreement with Silicon Valley Bank and KeyBank National Association (“Credit Agreement”). The Credit Agreement replaced our prior credit facility provided by Comerica Bank. The Credit Agreement matures on October 16, 2023, and is secured by a first priority lien on substantially all of our tangible and intangible personal property and the tangible and intangible personal property of our subsidiaries that are guarantors. In addition, the Credit Agreement includes the following:
•Revolving
Facility: The Credit Agreement provides $25.0 million in aggregate commitments for secured revolving loans, with sub-limits of $10.0 million for the issuance of letters of credit and $7.5 million for swingline loans (“Revolving Facility”).
•Term Loan: A term loan of $25.0 million (“Term Loan”) was borrowed on October 16, 2020. The proceeds from the Term Loan were used to partially fund the acquisition of ACH Alert.
•Accordion Feature: The Credit Agreement also allows us, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $30.0 million.
Revolving Facility
loans under the Credit Agreement may be voluntarily prepaid and re-borrowed. Principal payments on the Term Loan are due in quarterly installments equal to an initial amount of approximately $0.3 million, which begin December 31, 2021 and continue through September 30, 2022 and increase to approximately $0.6 million beginning on December 31, 2022 through the Credit Agreement maturity date. Once
repaid or prepaid, the Term Loan may not be re-borrowed.
Borrowings
under the Credit Agreement bear interest at a variable rate based upon, at our option, either the LIBOR rate or the base rate (in each case, as customarily defined) plus an applicable margin. The minimum LIBOR rate to be applied is 1.00%. The applicable margin for LIBOR rate loans ranges, based on an applicable recurring revenue leverage ratio, from 3.00% to 3.50% per annum, and the applicable margin for base rate loans ranges from 2.00 to 2.50% per annum. Our minimum interest rate applied to term debt was 4.00% as of June 30, 2021. We are required to pay a commitment fee of 0.30% per annum on the undrawn portion available under the Revolving Facility, and variable fees on outstanding letters of credit.
All outstanding principal and accrued but unpaid interest is due, and the commitments for the Revolving Facility terminate, on the maturity
date. The loans are subject to mandatory prepayment requirements in the event of certain asset sales or if certain insurance or condemnation events occur, subject to customary reinvestment provisions. We may prepay the Term Loan in whole or in part at any time without premium or penalty.
The Credit Agreement contains customary affirmative and negative covenants, as well as (i) an annual recurring revenue growth covenant requiring the loan parties to have recurring revenues in any four consecutive fiscal quarter period in an amount that is 10% greater than the recurring revenues for the corresponding four consecutive quarter period in the previous year and (ii) a liquidity (defined as the aggregate amount of cash in bank accounts subject to a control agreement plus availability under the Revolving Facility) covenant, requiring the loan parties to have liquidity, tested on the last day of
each calendar month, of $10.0 million or more. The Credit Agreement also contains customary events of default, which if they occur, could result in the termination of commitments under the Credit Agreement, the declaration that all outstanding loans are immediately due and payable in whole or in part, and the requirement to maintain cash collateral deposits in respect of outstanding letters of credit.
Total interest expense, including commitment fees and unused line fees, for the three and six months ended June 30, 2021 was $0.6 million and $0.2 million, respectively, and $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively. In conjunction with closing the Credit Agreement in 2020, we incurred issuance costs of $0.1 million which were deferred and
will be amortized over the three-year term. Unamortized debt issuance costs totaled $0.1 million and $0.1 million as of June 30, 2021 and December 31, 2020, respectively. Amortization expense totaled $0.2 million and $0.4 million for the three and six months ended June 30, 2021, respectively. The Company recognized no amortization expense for the three and six months ended June 30, 2020.
Contractual Obligations and Commitments
There
were no material changes to our contractual obligations and commitments as of June 30, 2021 compared to those discussed as of December 31, 2020 in the Prospectus filed with the SEC on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special
purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be significant.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in “Management's Discussion and Analysis of Financial Condition and Results of Operations” set forth in the Prospectus filed with the SEC on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act.
Recently Issued Accounting
Pronouncements
See Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements included elsewhere in this report for a discussion of recent accounting pronouncements and future application of accounting standards.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that
have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates.
Interest Rate Risk
We are subject to interest rate risk in connection with our Credit Agreement. Interest rate changes generally impact the amount of our interest payments and, therefore, our future net income and cash flows, assuming other factors held constant. Assuming the amounts outstanding under our Credit Agreement are fully drawn, a hypothetical 10% change in interest rates would not have a material impact on our condensed
consolidated financial statements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures at June 30, 2021, the last day of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, at June 30, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over
Financial Reporting
There was no change in our internal control over financial reporting, identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) under the Exchange Act, that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we may be involved in various legal proceedings arising from the normal course of business activities. We are currently not a party to any litigation the outcome of which we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.
Item 1A. Risk Factors
There are no material changes to the risk factors previously disclosed under the heading "Risk Factors" in the Prospectus filed with the SEC on April 15,
2021 pursuant to Rule 424(b)(4) under the Securities Act.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sale of Equity Securities
During the quarter ended June 30, 2021, we issued an aggregate of 1,305,635 shares of our common stock upon the exercise of stock options under our 2011 Long-Term Incentive Plan at exercise prices ranging from $0.03 to $15.46 per share, for aggregate proceeds of $2.1 million.
The issuances of the securities described above were
deemed to be exempt from registration under the Securities Act, in reliance on Section 4(a)(2) of the Securities Act, as transactions by an issuer not involving a public offering.
Use of Proceeds from our IPO
On April 13, 2021, the SEC declared effective our registration statement on Form S-1 (File No. 333-254108), as amended, filed in connection with our IPO. On April 16, 2021, we completed our IPO, selling 6,900,000 shares of our common stock at a price of $30.00 per share (including shares subject to the underwriters’ over-allotment option) for net proceeds of $192.8 million after deducting underwriting discounts and
commissions of approximately $14.2 million. The offer and sale of the shares in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-254108), which was declared effective by the SEC on April 13, 2021. The underwriters of the offering were represented by Goldman Sachs & Co., LLC, J.P. Morgan Securities LLC and Barclays Capital Inc. There has been no material change in the use of proceeds from our IPO as described in the Prospectus, where we stated that we would use the proceeds to finance our growth, develop new or enhanced solutions and fund capital expenditures and may, in the future, use a portion of the remaining net proceeds, if any, to acquire complementary businesses, products, services or technologies. As described in the Prospectus, we paid approximately
$5.0 million of the net proceeds in accumulated dividends to holders of our Series B redeemable convertible preferred stock, including an aggregate of $3.8 million to certain holders of 5% or more of our capital stock, directors and their affiliated entities and our executive officers. No other payments from the proceeds were made by us to directors, officers or persons owning 10% or more of our common stock or to their associates, or to our affiliates, other than payments in the ordinary course of business to officers for salaries.
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
** The certifications attached as Exhibit 32.1 and Exhibit 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and
not filed with the SEC and are not to be incorporated by reference into any filing of the Company under the Securities Act or the Exchange Act whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the date set forth below.
