Alkami Technology, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Alkami provides cloud-based digital banking software to financial institutions, primarily through multi-year SaaS subscriptions.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $67.7 million | $53.4 million | $193.5 million | $148.7 million |
| Gross profit | $36.6 million | $27.6 million | $104.2 million | $79.7 million |
| Gross margin | 54.0% | 51.6% | 53.8% | 53.6% |
| Operating loss | $15.8 million | $19.8 million | $50.6 million | $52.2 million |
| Net loss | $15.5 million | $20.0 million | $50.2 million | $53.7 million |
| Adjusted EBITDA (non-GAAP) | $0.8 million | $(4.6) million | $(4.6) million | $(13.6) million |
Q3 revenue grew 26.8% year over year; nine-month revenue grew 30.1%. SaaS subscription services were 95.7% of Q3 revenue and 94.8% for the nine-month period. Revenue growth reflected more registered users and higher revenue per user, including cross-selling and new client implementations.
Cash, liquidity, debt, and other metrics
- At September 30, cash and cash equivalents were $76.4 million and marketable securities were $101.9 million; together, $178.2 million. Restricted cash was an additional $2.6 million.
- Operating cash use was $12.2 million for the first nine months, compared with $24.2 million in 2022. Investing cash use was $16.4 million; financing cash use was $4.8 million.
- Debt was $82.9 million gross ($82.4 million net of issuance costs), including $6.4 million current and $76.1 million long-term. No revolving-facility borrowings were outstanding; the revolving commitment was $60 million.
- Annual recurring revenue (ARR) was $275.0 million, up 28.7% year over year. Registered users increased 23.1% to 16.9 million; revenue per registered user rose 4.6% to $16.28.
- Accumulated deficit was $422.7 million. The company reported 95.4 million shares outstanding at September 30, 2023.
Material changes and notable items
- Gross margin improved 2.4 percentage points in Q3, while nine-month margin increased 0.2 points. Operating expenses rose 10.4% in Q3 and 17.4% year to date, below revenue growth.
- Research and development and sales and marketing costs increased as the company expanded engineering, implementation, client support, and sales teams. Stock-based compensation was $37.9 million for the first nine months.
- The June 2023 credit amendment increased revolving commitments by $20 million, extended maturity to April 2026, and added a free-cash-flow covenant. The company said it was compliant with covenants at quarter-end.
- A September office lease amendment reduces Plano space from about 125,468 to 83,939 square feet effective December 31, 2023, and extends the remaining lease through August 2033. The modification produced a $0.4 million gain.
Outlook, commentary, and risks
Management stated that existing cash resources and the credit agreement should fund operations, growth plans, and capital expenditures for at least the next 12 months and longer term. The filing provides no numerical revenue or earnings guidance. Management expects continued investment in product development, sales, implementation, and client support, and expects cost of revenue to grow in absolute dollars.
Key risks include attracting and retaining financial-institution clients, renewals and user adoption, long sales and implementation cycles, competition, reliance on third-party hosting and integrations, cybersecurity and privacy exposure, and the company’s continuing losses. The filing reports no material changes to previously disclosed risk factors and no pending legal matter expected to have a material adverse effect. Management said SVB’s receivership did not affect the company’s liquidity or financing.
Important facts for investors to verify
- Whether user growth, client renewals, and cross-selling sustain ARR and revenue growth.
- Whether improved gross margin and quarterly positive adjusted EBITDA persist as operating expenses increase; adjusted EBITDA is non-GAAP.
- Cash consumption, debt repayment requirements, interest costs, and compliance with the amended credit agreement’s covenants.
- The impact of the reduced and extended office lease and the company’s ongoing stock-based compensation and share dilution.