Alkami Technology, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Alkami provides cloud-based digital banking software to financial institutions; most revenue comes from recurring SaaS subscriptions.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $53.4 million | $39.8 million | $148.7 million | $109.7 million |
| Gross profit / margin | $27.6 million / 51.6% | $22.4 million / 56.3% | $79.7 million / 53.6% | $60.7 million / 55.3% |
| Operating loss | $(19.8) million | $(11.1) million | $(52.2) million | $(29.9) million |
| Net loss | $(20.0) million | $(11.2) million | $(53.7) million | $(33.5) million |
| Adjusted EBITDA (non-GAAP) | $(4.6) million | $(6.1) million | $(13.6) million | $(17.5) million |
- Q3 revenue grew 34.3%; nine-month revenue grew 35.6%. SaaS subscriptions contributed $50.7 million in Q3 and $141.3 million for the nine months.
- Q3 basic and diluted loss per share was $0.22, compared with $0.13 a year earlier. Nine-month loss per share was $0.59 versus $0.60.
- Gross margin declined year over year, reflecting higher personnel, third-party partner, hosting, and acquired-intangible amortization costs. Operating expenses rose 41.4% in Q3 and 45.6% for the nine months.
- Stock-based compensation was $11.9 million in Q3 and $33.0 million for the nine months, contributing materially to operating expenses.
Cash, debt, and liquidity
- At September 30, 2022, cash and cash equivalents were $96.6 million and marketable securities were $112.2 million, totaling $208.9 million. Restricted cash was an additional $7.5 million.
- Nine-month operating cash use was $24.0 million, versus $16.8 million in 2021. Investing cash use was $247.7 million, including the Segmint acquisition and purchases of marketable securities. Financing provided $62.9 million, including $85.0 million of term-loan proceeds.
- Debt was $85.0 million gross and $84.5 million net of issuance costs at quarter-end; the term loan matures in April 2025. The company also had a $40 million revolving facility. Borrowings carry variable-rate interest based on SOFR plus 3.00%–3.50%.
- The credit agreement requires at least $15 million of defined liquidity and recurring-revenue growth of at least 10% under its covenant test. The company reported compliance with all covenants at September 30, 2022.
- Management said existing resources, including the credit agreement, should fund operations and planned needs for at least the next 12 months. This is management’s assessment, not a guarantee.
Material changes and operating trends
- Alkami acquired Segmint in April 2022 for approximately $135 million. Segmint contributed $3.3 million of Q3 revenue and $5.6 million for the nine-month period. The preliminary allocation included $97.9 million of goodwill and $36.5 million of identifiable intangibles; purchase accounting remained subject to adjustment.
- ARR was $213.6 million, up 38.0% year over year; registered users increased 20.3% to 13.7 million; revenue per registered user rose 14.7% to $15.57. The company served 190 Alkami Platform financial institutions and more than 330 clients across its products.
- Revenue growth reflected user additions, higher revenue per user and Segmint. The company implemented 29 new financial institutions over the nine months, while client losses reduced users by 0.4 million.
- The company recorded a $2.7 million nine-month gain from revaluing MK acquisition contingent consideration; its quarter-end fair value was $12.8 million. The potential earn-out depends on revenue milestones and can total up to $25 million.
Outlook, risks, and contingencies
- No specific revenue, earnings, or cash-flow guidance is provided in the filing. Management expects cost of revenue and investment in research and development, sales and marketing, implementation, and support to increase as the business grows.
- Management cited risks involving client acquisition and retention, customer adoption, sales and implementation cycles, competition, reliance on financial institutions, cybersecurity and privacy, third-party services, acquisitions and integration, and the company’s continued operating losses.
- Debt is secured by substantially all company and subsidiary assets and carries variable interest rates. The filing discusses covenant and default risks; management reported compliance at quarter-end.
- The company reported no litigation it believed would have a material adverse effect and no material changes to previously disclosed risk factors. It noted that intellectual-property disputes may arise, though known proceedings were not expected to be material.
Important facts for investors to verify
- Whether revenue growth, ARR expansion, user adoption, and higher revenue per user continue, including the contribution and integration of Segmint.
- Whether gross margin can stabilize as partner, hosting, support, implementation, and acquired-intangible costs rise.
- Cash burn, liquidity, debt service costs, and ongoing compliance with the revenue-growth and minimum-liquidity covenants.
- The effect of stock-based compensation and acquisition-related items on reported losses and the non-GAAP adjusted EBITDA measure.
- Final Segmint purchase accounting and the timing and amount of any MK earn-out payments.