Alkami Technology, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Alkami provides cloud-based digital banking software to financial institutions, primarily through multi-year SaaS subscriptions. Figures below are in millions of dollars unless stated otherwise.
Financial and operating performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $65.8 | $50.5 | $125.8 | $95.3 |
| Gross profit / margin | $35.5 / 53.9% | $27.3 / 54.0% | $67.6 / 53.8% | $52.1 / 54.6% |
| Operating loss | $(17.9) | $(19.4) | $(34.8) | $(32.4) |
| Net loss | $(17.8) | $(20.2) | $(34.7) | $(33.6) |
| Adjusted EBITDA (non-GAAP) | $(2.5) | $(5.4) | $(5.5) | $(9.0) |
Q2 revenue grew 30.1%; first-half revenue grew 31.9%. SaaS subscriptions contributed $61.2 million in Q2 and $118.7 million in the first half. Revenue growth reflected registered-user growth, higher revenue per user (RPU), and the inclusion of Segmint, acquired in April 2022. First-half growth also included 38 new financial institution implementations; management cited 1.5 million users from new implementations, 1.3 million from increased adoption at existing clients, and a 0.3 million decline from client losses.
As of June 30, ARR was $256.8 million, up 25.6% year over year; registered users were 15.8 million, up 18.8%; and RPU was $16.20, up 5.7%. The company served 218 financial institutions on its digital banking platform and more than 600 clients across its products. Contracted minimum subscription revenue remaining to be recognized was approximately $966.5 million; this excludes estimated excess-user and transaction fees.
Cash, debt, and liquidity
- Cash and cash equivalents were $90.3 million and marketable securities were $86.0 million at June 30, totaling $176.3 million. Cash, cash equivalents, and restricted cash were $92.9 million, versus $112.3 million at year-end 2022.
- First-half operating cash use was $15.3 million, compared with $19.5 million in the prior-year period. Investing cash use was $0.1 million, versus $259.5 million, which included the Segmint acquisition. Financing cash use was $4.0 million, compared with $62.6 million provided in the prior-year period.
- Gross term debt was $83.9 million ($83.5 million net of unamortized issuance costs); there were no revolver borrowings. The company had $60 million of revolving commitments, extended the credit facility maturity to April 29, 2026, and reported compliance with all covenants at quarter-end.
- Management stated that existing cash resources and the credit agreement should fund operations, growth plans, capital expenditures, and public-company costs for at least the next 12 months and beyond. This is management’s assessment, not a guarantee.
Material changes and management commentary
- Revenue growth outpaced expense growth in Q2, and the net loss narrowed year over year. For the first half, however, net loss widened modestly. Operating expenses rose 14.3% in Q2 and 21.3% in the first half, led by research and development and sales and marketing investment.
- Gross margin was nearly flat in Q2 and declined 0.8 percentage points for the first half. Management attributed higher cost of revenue mainly to third-party partner fees, personnel, hosting, and acquired-technology amortization.
- On June 27, the company amended its credit agreement, adding Citibank as a lender and increasing revolving commitments by $20 million. The amendment includes a free-cash-flow covenant beginning June 30, 2023: trailing-12-month free cash flow must be at least $(75) million for the June and September 2023 quarters, and $(50) million for December 2023 and subsequent quarters. Other leverage and fixed-charge covenants take effect in 2025.
- Management reported no material impact from Silicon Valley Bank’s receivership and no losses on cash, cash equivalents, or marketable securities. The filing says no material changes occurred in previously disclosed risk factors; it highlights risks including client acquisition and retention, implementation complexity, third-party hosting and integrations, cybersecurity and privacy, competition, financial-services industry conditions, and continuing operating losses.
- The MK acquisition earn-out fair value remained zero at June 30, 2023. The company reported no litigation expected to have a material adverse effect and no goodwill impairment indicators at quarter-end.
Important facts for investors to verify
- Whether ARR, registered-user growth, RPU, client additions, renewals, and client losses continue to support revenue growth.
- Whether gross margins stabilize as hosting, third-party partner, and implementation costs rise, and whether operating investment translates into improved profitability and cash generation.
- Cash burn, available liquidity, debt service and interest costs, and ongoing compliance with the free-cash-flow and other credit covenants.
- The quality and timing of the $966.5 million of contracted minimum subscription revenue, including implementation and renewal risks; the filing does not make this amount equivalent to recognized revenue or guaranteed collections.
- Stock-based compensation and dilution: first-half stock-based compensation expense was $24.0 million, and 14.0 million potential common shares were excluded from diluted EPS as anti-dilutive.