ALKAMI TECHNOLOGY, INC. 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 in our other filings with theSecurities and Exchange Commission ("SEC"), including the audited consolidated financial statements and the accompanying notes for the fiscal year endedDecember 31, 2021 , which are included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 25, 2022 .
Unless the context otherwise requires, all references in this report to the
"Company," "
Cautionary Note Regarding Forward-Looking Statements
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 Annual Report
on Form 10-K, may materially affect such forward-looking statements:
•our ability to manage our rapid growth;
•our ability to attract new clients and retain and broaden our existing clients'
use of our solutions;
•our ability to maintain, protect and enhance our brand;
•our ability to predict the long-term rate of client subscription renewals or
adoption of our solutions;
•the unpredictable and time-consuming nature of our sales cycles;
•our integration with and reliance on third-party software, content and
services;
•defects, errors or performance problems associated with our solutions;
•retaining our management team and key employees and recruiting and retaining
new employees;
•managing the increased complexity of our solutions and a higher volume of
implementations;
•providing client support;
•mergers and acquisitions;
•intense competition in the markets we serve;
•our focus and reliance on the financial services industry as the source of our
revenue;
•evolving technological requirements and changes and additions to our solution
offerings;
•regulations applicable to us, our clients and our solutions;
•security breaches or other compromises of our security measures or those of
third parties upon which we rely, including in connection with cybersecurity
•increased privacy concerns and our processing and use of the personal
information of end users;
•protecting our intellectual property rights and defending ourselves against
claims that we are misappropriating the intellectual property rights of others;
•open-source software in our solutions;
•litigation or threats of litigation;
•the fluctuation of our quarterly and annual results of operations relative to
our expectations and guidance;
•the way we recognize revenue, which has the effect of delaying changes in the
subscriptions for our solutions from being reflected in our operating results;
•changes in financial accounting standards or practices;
•our limited operating history, our history of operating losses and our ability
to use our net operating loss ("NOL") carryforwards;
•our ability to raise sufficient capital and the resulting dilution and the
terms of our credit agreement;
•stock price volatility and no intention to pay dividends;
•maintaining proper and effective internal controls;
•expenses and administrative burdens as a public company; and
•anti-takeover provisions in our charter documents and Delaware law.
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.
17
--------------------------------------------------------------------------------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 inthe 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 acquiredACH Alert, LLC ("ACH Alert") to pursue adjacent product opportunities, such as fraud prevention and to expand our addressable market. InSeptember 2021 , we acquiredMK Decisioning Systems, LLC ("MK"), a technology platform for digital account opening, credit card and loan origination solutions. InApril 2022 , we acquiredSegmint Inc. ("Segmint"), a leading cloud-based financial data analytics and transaction data cleansing provider. 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 more than 270 real-time integrations to back office systems and third-party fintech solutions as ofJune 30, 2022 , 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 Alkami Platform revenues almost entirely from multi-year contracts that are based on an average contract life of approximately 70 months as ofJune 30, 2022 . 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 endedJune 30, 2022 and 2021, our total revenues were$50.5 million and$36.7 million , respectively, representing a 37.7% increase period-over-period. SaaS subscription revenues, as further described below, represented 94.6% and 95.0% of total revenues for the three and six months endedJune 30, 2022 , respectively and 94.3% and 94.6% of total revenues for the three and six months endedJune 30, 2021 , respectively. We incurred net losses of$20.2 million and$33.6 million for the three and six months endedJune 30, 2022 , respectively, and net losses of$11.4 million and$22.3 million for the three and six months endedJune 30, 2021 , respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.
Recent Developments
Merger with Segmint. OnApril 25, 2022 , the Company consummated its previously announced merger with Segmint, pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), datedMarch 25, 2022 , with Segmint surviving as a wholly owned subsidiary of the Company. Segmint operates a marketing analytics and messaging delivery platform with patented software that enables financial institutions and merchants to understand and leverage data, interact with customers, and measure results. The aggregate consideration paid in exchange for all of the outstanding equity interests of Segmint at closing was approximately$135.5 million . A portion of the consideration was placed into escrow to secure certain post-closing indemnification obligations in the Merger Agreement. 18 --------------------------------------------------------------------------------
Factors Affecting our Operating Results
Growing our FI Client Base. A key part of our strategy is to grow our FI client base. As ofJune 30, 2022 , we served 182 FIs through the Alkami Platform and over 320 clients through the ACH Alert, MK and Segmint products, representing 91.3% annual client growth sinceJune 30, 2021 . Each of our digital banking 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 more than 270 integrations as ofJune 30, 2022 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. We had one and five client renewals in the three and six months endedJune 30, 2022 , 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 32.8% and 32.3% of our revenues for the three and six months endedJune 30, 2022 , respectively. 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, the status of ongoing measures varies widely. We transitioned our employee base to work-from-home inMarch 2020 , creating challenges in executing sales and implementations that have resurfaced due to the renewal of certain actions and restrictions in response to the ongoing COVID-19 pandemic and which may be exacerbated if such actions or restrictions are prolonged. We continue to face significant uncertainty concerning the duration of the COVID-19 pandemic as well as the severity of any future infection surges.
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 ofJune 30, 2022 . 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 requests 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. 19 --------------------------------------------------------------------------------
The following disaggregates our revenues for the three and six months ended
Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
(In thousands)
SaaS subscription services $ 47,781 $
34,604
2,004 1,636 3,581 2,936
Other services 745 461 1,149 854
Total revenues $ 50,530 $ 36,701 $ 95,320 $ 69,963 See Note 5 of the Notes to our Unaudited Condensed Consolidated Financial Statements for additional detail.
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 services and other third-party intellectual property included in our solutions, the amortization of acquired technology, the amortization of capitalized internal use software, 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 endedJune 30, 2022 was 54.0% and 54.6%, respectively, and 55.9% and 54.7% for the three and six months endedJune 30, 2021 , respectively. The major components of cost of revenues represented the following percentages of revenues for the three months endedJune 30, 2022 : third-party hosting services (7.8%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.0%), our implementation team (10.7%), our client success team (5.5%), our development team responsible for maintaining and releasing updates to our platform (4.1%) and amortization of intangible assets (1.8%). The major components of cost of revenues represented the following percentages of revenues for the three months endedJune 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 six months endedJune 30, 2022 : third-party hosting services (7.7%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.0%), our implementation team (10.5%), our client success team (5.6%), our development team responsible for maintaining and releasing updates to our platform (4.1%) and amortization of intangibles (1.3%). The major components of cost of revenues represented the following percentages of revenues for the six months endedJune 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%). Operating Expenses Research and Development. Research and development costs consist primarily of personnel-related costs for our engineering, information technology and products, including salaries, bonuses, 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 and other event expenses. 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 20 -------------------------------------------------------------------------------- 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. Acquisition-Related Expenses, net. Acquisition-related expenses include the accrual of deferred compensation due to the former owner of ACH Alert, in addition to acquisition related-expenses associated with the acquisitions of MK and Segmint, primarily related to legal, consulting, and professional fees. In addition, these expenses are inclusive of any (gain) loss on revaluation of contingent consideration.
Amortization of Acquired Intangibles. Amortization of acquired intangibles represents the amortization of intangibles recorded in connection with our business acquisitions, which are amortized on a straight-line basis over the estimated useful lives of the related assets.
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, unrealized losses on marketable securities, loss from extinguishment of debt, and changes in fair value of warrants, and tranche rights.
Provision for Income Taxes
As a result of our valuation allowance, provision for income taxes consists primarily of state income taxes and deferred taxes related to the tax amortization of acquired goodwill. Our effective tax rate differs from the statutory tax rate primarily due to the impact of the valuation allowance against our deferred tax assets.
21
--------------------------------------------------------------------------------Results of Operations
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 consolidated statements of operations data for the three and six months endedJune 30, 2022 and 2021. Three months ended June 30, Six months ended June 30, ($ In thousands, except share and per share amounts) 2022 2021 2022 2021 Revenues$ 50,530 $ 36,701 $ 95,320 $ 69,963 Cost of revenues(1)(2) 23,257 16,180 43,237 31,677 Gross profit 27,273 20,521 52,083 38,286 Operating expenses(2): Research and development 16,595 12,107 30,751 23,020 Sales and marketing 10,204 5,326 18,101 10,641 General and administrative 18,731 12,185 35,777 21,932 Acquisition-related expenses, net 796 625 (582) 1,263 Amortization of acquired intangibles 331 91 426 182 Total operating expenses 46,657 30,334 84,473 57,038 Loss from operations (19,384) (9,813) (32,390) (18,752) Non-operating income (expense): Interest income 424 127 532 141 Interest expense (787) (298) (1,075) (608) Loss on financial instruments (254) (1,391) (387) (3,035) Loss on extinguishment of debt (76) - (76) - Loss before income taxes (20,077) (11,375) (33,396) (22,254) Provision for income taxes 156 - 243 - Net loss$ (20,233) $ (11,375) $ (33,639) $ (22,254) (1) Includes amortization of acquired technology of$0.9 million and$0.1 million for the three months endedJune 30, 2022 and 2021, respectively, and$1.2 million and$0.2 million for the six months endedJune 30, 2022 and 2021, respectively.
(2) Includes stock-based compensation expenses as follows:
Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
($ in thousands)
Cost of revenues $ 1,056 $ 465 $ 2,034 $ 698
Research and development 2,580 702 4,464 1,001
Sales and marketing 997 240 1,747 344
General and administrative 6,635 1,616 12,797 2,398
Total stock-based compensation
expenses $ 11,268 $ 3,023 $ 21,042 $ 4,441
22--------------------------------------------------------------------------------
The following table presents our reconciliation of GAAP net loss to adjusted EBITDA for the periods indicated.
Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
($ in thousands)
Net loss $ (20,233) $ (11,375) $ (33,639) $ (22,254)
Provision for income taxes 156 - 243 -
Loss on financial instruments 254 1,391 387 3,035
Interest expense, net 363 170 543 466
Amortization of intangible assets 1,244 209 1,646 418
Amortization of capitalized internal use
software 75 - 75 -
Depreciation 625 587 1,241 1,164
Stock-based compensation expense 11,268 3,023 21,042 4,441
Legal settlement 52 - 52 -
Loss on extinguishment of debt 76 - 76 -
Acquisition-related expenses, net (1) 796 625 (582) 1,263
Adjusted EBITDA (2) $ (5,324) $ (5,370) $ (8,916) $ (11,467)
(1) Acquisition-related expenses, net include the accrual of deferred
compensation due to the former owner of ACH Alert, in addition to
acquisition-related expenses associated with the acquisitions of MK and Segmint,
primarily related to legal, consulting, and professional fees. In the six months
ended June 30, 2022 , these expenses are offset by the $2.7 million gain on
contingent consideration related to the purchase of MK.
(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;
provision for income taxes; loss on financial instruments; interest expense,
net; amortization of intangible assets; amortization of capitalized internal use
software; depreciation; stock-based compensation expense; legal settlement; loss
on extinguishment of debt; and acquisition-related expenses, net. 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
$(5.3) million and $(8.9) million for the three and six months ended June 30,
2022 , respectively, and $(5.4) million and $(11.5) million for the three and six
months ended June 30, 2021 , 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
$204.5 million as of June 30, 2022 and $144.7 million as of June 30, 2021 , an
increase of $59.8 million , or 41.3%.
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 13.3 million registered users as of June 30, 2022 and
10.7 million as of June 30, 2021 , an increase of 2.6 million, or 24.3%.
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 $15.33 as
of June 30, 2022 and $13.48 as of June 30, 2021 , an increase of $1.85 , or 13.7%.
23
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Comparison of Three and Six Months ended
Revenues
Three months ended June 30, Change Six months ended June 30, Change
2022 2021 $ % 2022 2021 $ %
($ in thousands)
Revenues $ 50,530 $ 36,701 $ 13,829 37.7 % $ 95,320 $ 69,963 $ 25,357 36.2 %
June 30,
2022 2021
Annual Recurring Revenue
(ARR) $ 204,492 $ 144,685 $ 59,807 41.3 %
Registered Users 13,339 10,730 2,609 24.3 %
Revenue per Registered
User (RPU) $ 15.33 $ 13.48 $ 1.85 13.7 %
Revenues increased
The increase of$13.8 million in revenues for the three months endedJune 30, 2022 was primarily due to registered user growth from new and existing clients, RPU growth, as well as the acquisition of Segmint completed onApril 25, 2022 , which contributed$2.3 million for the three months endedJune 30, 2022 . The increase of$25.4 million in revenues for the six months endedJune 30, 2022 was primarily due to registered user growth of 2.6 million, comprised of 1.4 million in registered user growth from existing clients (net of attrition) and 1.2 million in registered users from new clients implemented through our digital banking platform (contractual minimums). In addition, increased revenues were due to RPU growth of 13.7%. RPU growth was primarily driven by cross-sell activity to existing clients, higher average RPU of new clients implemented in the last 12 months on our digital banking platform compared to aggregate RPU and the acquisition of Segmint completed onApril 25, 2022 , which contributed$2.3 million in the six months endedJune 30, 2022 . The average RPU of users from new clients implemented on our digital platform in the last 12 months of$16.46 as ofJune 30, 2022 , is 7.4% higher than the aggregate RPU as ofJune 30, 2022 .
Cost of Revenues and Gross Margin
Three months ended June 30, Change Six months ended June 30, Change
2022 2021 $ % 2022 2021 $ %
($ in thousands)
Cost of revenues $ 23,257 $ 16,180 $ 7,077 43.7 % $ 43,237 $ 31,677 $ 11,560 36.5 %
Percentage of revenues 46.0 % 44.1 % 1.9 % 4.3 % 45.4 % 45.3 % 0.1 % 0.2 %
Cost of Revenues
Cost of revenues increased $7.1 million , or 43.7%, and $11.6 million , or 36.5%,
for the three and six months ended June 30, 2022 , respectively compared to the
same periods in 2021, generating a gross margin of 54.0% and 54.6% for the three
and six months ended June 30, 2022 , respectively, compared to a gross margin of
55.9% and 54.7% for the same periods in 2021.
The increase in cost of revenues for the three months ended June 30, 2022 was
primarily driven by a $2.3 million increase in personnel-related costs (which
includes stock-based compensation of $0.5 million ) resulting from headcount
increases supporting our growth in site reliability engineering, client
implementation and client support, as well as $2.4 million in higher costs of
our third-party partners where we resell their solutions as part of the digital
platform, $0.7 million increase in hosting costs, $0.7 million related to the
acquisition of Segmint (which includes stock-based compensation of $0.1 million )
and $0.8 million of amortization of intangibles, $0.7 million of which is
related to the acquisition of Segmint.
The increase in cost of revenues for the six months ended June 30, 2022 was
primarily driven by a $4.6 million increase in personnel-related costs (which
includes stock-based compensation of $1.2 million ) resulting from headcount
increases supporting our growth in the following teams: site reliability
engineering, client implementation and client support, as well as $4.3 million
in higher cost of our third party partners where we resell their solutions as
part of the digital platform and $0.6 million in incremental hosting costs,
incurred from an increase in revenues derived from existing and new client
growth. In addition, we incurred $0.7 million related to the acquisition of
Segmint (which includes stock-based compensation of $0.1 million ) and $1.0
million of amortization of intangibles, $0.7 million of which is related to the
acquisition of Segmint. We expect the cost of revenues will continue to increase
as SaaS subscription services and the associated implementation services
increase over time.
24
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Operating Expenses
Three months ended June 30, Change Six months ended June 30, Change
2022 2021 $ % 2022 2021 $ %
($ in thousands)
Research and development $ 16,595 $ 12,107 $ 4,488 37.1 %$ 30,751 $ 23,020 $ 7,731 33.6 % Sales and marketing 10,204 5,326 4,878 91.6 % 18,101 10,641 7,460 70.1 % General and administrative 18,731 12,185 6,546 53.7 % 35,777 21,932 13,845 63.1 % Acquisition-related expenses, net 796 625 171 27.4 % (582) 1,263 (1,845) (146.1) % Amortization of acquired intangibles 331 91 240 263.7 % 426 182 244 134.1 % Total operating expenses 46,657 30,334$ 16,323 53.8 %$ 84,473 $ 57,038 $ 27,435 48.1 % Percentage of revenues 92.3 % 82.7 % 88.6 % 81.5 % Research and Development Research and development expenses increased$4.5 million , or 37.1%, and$7.7 million , or 33.6%, for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021. For the three months endedJune 30, 2022 , the increase was primarily due to a$3.3 million increase in personnel-related costs (which includes stock-based compensation of$1.4 million ) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation. In addition, we incurred$1.1 million related to the Segmint acquisition (which includes stock-based compensation of$0.5 million ),$0.4 million in higher consulting costs and$0.1 million of higher hosting costs associated with internal usage. These expenses were partially offset by an increase of$0.6 million in capitalized development costs related to new strategic projects. For the six months endedJune 30, 2022 , the increase was primarily due to a$6.7 million increase in personnel-related costs (which includes stock-based compensation of$3.0 million ) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation, as well as$1.0 million in higher consulting costs and$1.1 million related to the Segmint acquisition (which includes stock-based compensation of$0.5 million ). These expenses were partially offset by an increase of$1.8 million in capitalized development costs related to new strategic projects.
Sales and Marketing
Sales and marketing expenses increased$4.9 million , or 91.6%, and$7.5 million , or 70.1%, for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021. For the three months endedJune 30, 2022 , the increase was primarily due to a$2.2 million increase in personnel-related costs (which includes stock-based compensation of$0.7 million ) resulting from headcount growth in our sales and marketing teams. In addition, we incurred$0.8 million related to the Segmint acquisition (which includes stock-based compensation of$0.1 million ),$0.1 million in higher consulting costs, as well as$0.4 million in higher travel costs for the sales team and$1.4 million in higher costs related to industry conferences and trade shows as we return to pre-COVID-19 pandemic sales activities such as our in-person client conference, Co:Lab. For the six months endedJune 30, 2022 , the increase was primarily due to a$4.3 million increase in personnel-related costs (which includes stock-based compensation of$1.3 million ) resulting from headcount growth in our sales and marketing teams. In addition, we incurred$0.8 million related to the Segmint acquisition (which includes stock-based compensation of$0.1 million ),$0.3 million in higher consulting costs, as well as$0.3 million in higher travel costs for the sales team and$1.8 million in higher costs related to industry conferences and trade shows as we return to pre-COVID-19 pandemic sales activities such as our in-person client conference, Co:Lab.
General and Administrative
General and administrative expenses increased$6.5 million , or 53.7%, and$13.8 million , or 63.1%, for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021. For the three months endedJune 30, 2022 , the increase was primarily due to a$5.5 million increase in personnel-related and other costs (which includes stock-based compensation of$4.9 million ). In addition, we incurred a$0.3 million related to the Segmint acquisition (which includes stock-based compensation of$0.1 million ),$0.2 million increase in insurance costs for public company director and officer coverage and$0.3 million higher software costs. For the six months endedJune 30, 2022 , the increase in general and administrative expenses was primarily due to an$11.2 million increase in personnel-related and other costs (which includes stock-based compensation of$10.3 million ). In addition, we incurred a$0.3 million related to the Segmint acquisition (which includes stock-based compensation of$0.1 million ),$1.3 million increase in insurance costs for public company director and officer coverage and$0.7 million higher software costs. 25 --------------------------------------------------------------------------------
Acquisition-related expenses, net
Acquisition-related expenses, net increased$0.2 million and decreased$(1.8) million for the three and six months endedJune 30, 2022 , respectively, compared to the same periods in 2021. For the three months endedJune 30, 2022 , the increase was primarily due to additional acquisition expenses related to legal, consulting, and professional fees for the acquisition of Segmint. For the six months endedJune 30, 2022 , the decrease was primarily due to the$2.7 million gain on contingent consideration related to the purchase of MK, partially offset by$0.8 million of acquisition expenses related to legal, consulting, and professional fees for the acquisition of Segmint.
Amortization of acquired intangibles
Amortization of acquired intangibles increased$0.2 million and$0.2 million for the three and six months endedJune 30, 2022 , respectively, primarily due to additional amortization of intangible assets related to the acquisitions of MK inSeptember 2021 and Segmint inApril 2022 .
Non-Operating Income (Expense), Net
Non-operating expense decreased$0.9 million and$2.5 million for the three and six months endedJune 30, 2022 , respectively compared to same periods in 2021. For the three months endedJune 30, 2022 , the decrease was primarily due to$1.3 million in non-operating loss related to the increase in fair value of our warrant liabilities for the three months endedJune 30, 2021 , partially offset by net$0.3 million of other non-operating expenses for the three months endedJune 30, 2022 . For the six months endedJune 30, 2022 , 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$0.5 million of net interest expense for the six months endedJune 30, 2021 , partially offset by net interest expense of$0.5 million ,$0.3 million of unrealized losses on marketable securities, and$0.1 million related to loss on extinguishment of debt for the six months endedJune 30, 2022 . Provision for Income Taxes The Company recorded$0.2 million and$0.2 million of provision for income taxes for the three and six months endedJune 30, 2022 , respectively, resulting in an effective tax rate of (0.8)% and (0.7)%, respectively, compared to no income tax expense for the three and six months endedJune 30, 2021 . Our effective tax rate differs from the statutory tax rate primarily due to state income taxes and deferred taxes related to the tax amortization of acquired goodwill. Our 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.
Liquidity and Capital Resources
As ofJune 30, 2022 , we had$213.4 million in cash and cash equivalents and marketable securities, and an accumulated deficit of$347.5 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 Amended Credit Agreement (as defined below). OnApril 15, 2021 , we completed our initial public offering ("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$5.0 million . Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support client usage and growth in our client base, increased research and development expenses to support the growth of our business and related infrastructure, increased general and administrative expenses associated with being a publicly traded company, investments in office facilities and other capital expenditure requirements and any potential future acquisitions or other strategic transactions. We believe that our existing cash resources, including our Amended Credit Agreement, will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses we expect to incur as a public company for the short term (at least the next 12 months) and longer term. We may from time to time seek to raise additional capital to support our growth. Any equity financing we may undertake could be dilutive to our existing stockholders, and any additional debt financing we may undertake could require debt service and financial and operational requirements that could adversely affect our business. 26 --------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Six months ended June 30 ,
(in thousands) 2022 2021
Net cash used in operating activities$ (19,369) $
(12,288)
Net cash used in investing activities (259,576)
(1,446)
Net cash provided by financing activities 62,584
185,422
During the six months endedJune 30, 2022 , net cash used in operating activities was$16.3 million , which consisted of a net loss of$33.6 million , adjusted by non-cash charges of$22.3 million and net cash outflows from the change in net operating assets and liabilities of$8.1 million . The non-cash charges were primarily comprised of a non-operating loss related to depreciation and amortization expense of$3.0 million , and stock-based compensation expense of$21.4 million , partially offset by a gain on revaluation of contingent consideration of$2.7 million . The net cash outflows from the change in our net operating assets and liabilities were primarily due to a$4.8 million increase in accounts receivable, a$3.5 million increase in prepaid expenses and other current assets and a$1.4 million increase in deferred implementation costs, partially offset by a$1.6 million increase in accounts payable and accrued liabilities. During the six months endedJune 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 endedJune 30, 2022 , net cash used in investing activities was$259.6 million , primarily consisting of$143.6 million for the purchase of marketable securities,$132.0 million related to our acquisition of Segmint,$2.4 million related to capitalized software development costs, and capital expenditures related to updates for computer and other equipment of$0.6 million , partially offset by$19.0 million in proceeds from maturities and redemptions of marketable securities. During the six months endedJune 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 .
Net Cash Provided by Financing Activities
For the six months endedJune 30, 2022 , net cash provided by financing activities was$62.6 million , which was primarily due to proceeds of$85.0 million from issuance of long-term debt,$1.3 million from the exercise of stock options to purchase 0.6 million shares of our common stock, and proceeds from issuances under the Employee Stock Purchase Plan ("ESPP") of$1.8 million , partially offset by$24.7 million of principal payments on debt and debt issuance costs paid of$0.9 million . For the six months endedJune 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 . Amended Credit Agreement OnApril 29, 2022 , we entered into an amended and restated credit agreement withSilicon Valley Bank ,Comerica Bank , and Canadian Imperial Bank of Commerce (the "Amended Credit Agreement"). The Amended Credit Agreement amends and restates the prior credit facility provided bySilicon Valley Bank andKeyBank National Association . The Amended Credit Agreement matures onApril 29, 2025 . The Amended Credit Agreement includes the following, among other features:
•Revolving Facility: The Amended Credit Agreement provides
•Term Loan: A term loan of$85.0 million (the "Amended Term Loan") was borrowed on the closing date of the Amended Credit Agreement. The additional proceeds received from the Amended Term Loan were used to replenish cash used to fund the acquisition ofSegmint Inc. , which closed onApril 25, 2022 .
•Accordion Feature: The Amended Credit Agreement also permits us, subject to
certain conditions, to request additional revolving loan commitments in an
aggregate principal amount of up to
Amended Revolving Facility loans under the Amended Credit Agreement may be voluntarily prepaid and re-borrowed. Principal payments on the Amended Term Loan are due in quarterly installments equal to an initial amount of approximately$1.1 million , beginning onJune 30, 2023 27 --------------------------------------------------------------------------------
and continuing through
Borrowings under the Amended Credit Agreement bear interest at a variable rate
based upon the Secured Overnight Financing Rate ("SOFR") plus a margin of 3.00%
to 3.50% per annum depending on the applicable recurring revenue leverage ratio.
If the SOFR rate is ever less than 0%, then the SOFR rate shall be deemed to be
0%. The Amended Credit Agreement is subject to certain liquidity and operating
covenants and includes customary representations and warranties, affirmative and
negative covenants and events of default.
Obligations under the Amended Credit Agreement are guaranteed by our subsidiaries and secured by all or substantially all of our assets and our subsidiaries' assets pursuant to an Amended and Restated Guarantee and Collateral Agreement executed contemporaneously with the Amended Credit Agreement.
The Amended 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$15.0 million or more. The Amended Credit Agreement also contains customary events of default, which if they occur, could result in the termination of commitments under the Amended 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 endedJune 30, 2022 was$0.8 million and$1.1 million , respectively, and$0.6 million and$0.2 million for the three and six months endedJune 30, 2021 , respectively. In conjunction with closing the Amended Credit Agreement in 2022, we incurred issuance costs of$0.8 million , which were deferred and were scheduled to be amortized over the three-year term. Unamortized debt issuance costs totaled$0.6 million and$0.1 million as ofJune 30, 2022 andDecember 31, 2021 , respectively. Amortization expense was less than$0.1 million and$0.2 million for the three and six months endedJune 30, 2022 , respectively. Amortization expense was$0.2 million and$0.4 million for the three and six months endedJune 30, 2021 , respectively.
Contractual Obligations and Commitments
There were no material changes to our contractual obligations and commitments as ofJune 30, 2022 compared to those discussed as ofDecember 31, 2021 in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 25, 2022 .
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
In preparing our unaudited condensed consolidated financial statements in conformity with GAAP, we must make decisions that impact the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of relevant circumstances, historical experience, and actuarial valuations. Actual amounts could differ from those estimated at the time the condensed consolidated financial statements are prepared. 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 our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 25, 2022 .
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 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 consolidated financial statements may
not be comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.
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