ALKAMI TECHNOLOGY, INC. quarterly report, Q2 FY2022

Business context and reporting period

Alkami Technology, Inc. (Nasdaq: ALKT) filed this unaudited Form 10-Q for the quarter ended June 30, 2022. Alkami provides cloud-based digital banking software to financial institutions, primarily through recurring SaaS subscriptions. The company completed its acquisition of Segmint, a financial data analytics and messaging platform, on April 25, 2022.

Financial performance and position

For the first six months of 2022, revenue was $95.3 million, up 36.2%; net loss was $33.6 million versus $22.3 million; and adjusted EBITDA was $(8.9) million versus $(11.5) million. Six-month gross margin was 54.6%, compared with 54.7%.

At June 30, 2022, cash and cash equivalents were $89.1 million and marketable securities were $124.2 million, totaling $213.4 million. Total debt was $85.0 million gross and $84.5 million net of issuance costs. Total liabilities were $155.6 million and stockholders’ equity was $335.5 million. Six-month cash used in operating activities was $19.4 million; investing activities used $259.6 million, including the Segmint acquisition and purchases of marketable securities; financing activities provided $62.6 million.

Material changes versus prior periods

• Q2 revenue increased 37.7%, driven by registered-user growth, higher revenue per user and $2.3 million attributed to Segmint. SaaS subscription revenue was $47.8 million, about 94.6% of quarterly revenue.
• ARR reached $204.5 million, up 41.3% year over year; registered users rose 24.3% to 13.3 million, and revenue per registered user increased 13.7% to $15.33.
• Q2 gross margin declined 1.9 percentage points as cost of revenue grew faster than revenue. Operating expenses increased 53.8%; stock-based compensation was $11.3 million for the quarter, versus $3.0 million a year earlier.
• Goodwill increased to $147.4 million from $48.1 million at year-end, largely reflecting $99.3 million recorded for Segmint. The purchase-price allocation remained preliminary.
• The company amended its credit agreement in April, borrowing an $85 million term loan and obtaining a $40 million revolving commitment. The facility matures in April 2025 and bears variable SOFR-based interest.

Outlook, risks and unusual items

No specific revenue or earnings guidance is provided in the filing. Management said existing cash resources and the credit agreement should support operations, its growth strategy and planned capital spending for at least the next 12 months. Management expects continued investment and rising costs to support product development, sales, implementation and client service.

The amended credit agreement includes a recurring-revenue growth covenant and a minimum liquidity covenant of $15 million, tested monthly; the company reported compliance at June 30. Debt is secured by substantially all company and subsidiary assets. Other disclosed risks include client acquisition and retention, implementation capacity, competition, cybersecurity and privacy, reliance on financial institutions, acquisitions and integration, and continuing operating losses. Management reported no material change to previously disclosed risk factors and no litigation expected to have a material adverse effect. Disclosure controls were assessed as effective.

Unusual items include the Segmint acquisition, a $2.7 million six-month gain from revaluing MK contingent consideration, and a $0.1 million loss on extinguishment of debt. Minimum contracted subscription revenue for unsatisfied contracts was approximately $696 million; the company expects 47.9% to be recognized over the next 24 months. This excludes expected usage-based fees.

Important facts for investors to verify

• Reconcile the cash-flow statement’s $19.4 million of operating cash use with the MD&A narrative, which states $16.3 million.
• Confirm Segmint consideration: the acquisition note reports approximately $135.1 million, while MD&A reports approximately $135.5 million.
• Track integration and final purchase accounting for Segmint, including goodwill, acquired intangibles and related amortization.
• Monitor cash conversion, operating losses, stock-based compensation, gross-margin trends and performance against the credit agreement’s covenants.
• Assess the sensitivity of variable-rate debt costs and the availability of the revolving facility; actual revolver borrowings are not clearly stated in the filing text.