Alkami Technology, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Alkami provides cloud-based digital banking software to financial institutions through primarily multi-year SaaS contracts. Financial amounts below are in U.S. dollars; statement amounts are in millions unless noted.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $33.3 million | $23.2 million; up 43.3% |
| SaaS subscription revenue | $31.6 million | $21.5 million |
| Gross profit / margin | $17.8 million / 53.4% | $11.3 million / 48.7% |
| Operating expenses | $26.7 million | $21.5 million |
| Operating loss | $(8.9) million | $(10.2) million |
| Net loss | $(10.9) million | $(10.3) million |
| Adjusted EBITDA (non-GAAP) | $(6.1) million | $(9.1) million |
| Operating cash flow | $(2.0) million | $(14.8) million |
- Cash and cash equivalents were $162.1 million at March 31, 2021, versus $166.8 million at year-end 2020. Cash, cash equivalents and restricted cash totaled $166.9 million.
- Debt was $25.0 million of term-loan principal ($24.9 million net of issuance costs); no revolving borrowings were reported. The credit agreement also provides a $25.0 million revolving facility and includes recurring-revenue and minimum-liquidity covenants. Alkami reported covenant compliance at quarter-end.
- Current assets were $191.5 million and current liabilities $28.9 million. The balance sheet reported total assets of $248.0 million and an accumulated deficit of $277.9 million.
Changes and operating metrics
- Revenue growth reflected 2.2 million additional registered users, higher revenue per registered user (RPU), and $1.1 million of ACH Alert revenue. ARR reached $133.8 million, up 39.5% year over year; registered users were 10.0 million, up 27.8%; RPU was $13.40, up 9.2%.
- Gross margin improved by 4.7 percentage points, with management citing operating scale and changes in cost mix. Cost of revenue rose 30.2%, below revenue growth.
- Operating expenses grew 24.3%. General and administrative expense rose 45.1%, reflecting higher staffing and ACH Alert costs and increased accounting, audit and consulting expense related primarily to the IPO.
- Net loss widened modestly despite a lower operating loss, primarily because the company recorded a $1.6 million non-operating loss from an increase in the fair value of warrant liabilities. Stock-based compensation increased to $1.4 million from $0.5 million.
- Operating cash use improved year over year, aided by a $7.4 million increase in accounts payable and accrued liabilities. Investing cash use was $0.8 million; financing cash use was $2.0 million, including a $3.5 million common-stock repurchase and $1.3 million of IPO costs paid, partly offset by option-exercise proceeds.
Outlook, material events and risks
- After quarter-end, Alkami completed an IPO of 6.9 million shares at $30 per share, generating reported net proceeds of $192.8 million. The IPO converted all outstanding redeemable convertible preferred stock into common stock and warrants into common-stock warrants. The company used approximately $5.0 million of proceeds to pay accumulated Series B preferred dividends.
- Management said existing cash resources, including the effect of the IPO, should fund operations, its growth strategy, planned capital expenditures and public-company costs for at least 12 months. The filing provides no specific revenue, earnings or margin guidance.
- Management expects continued investment in product development, sales and marketing, implementation, customer support and infrastructure; it expects costs to rise in absolute terms and gross margin to improve with scale. It also expects additional general and administrative costs as a public company.
- Key risks include continued operating losses, execution of growth and client acquisition, renewal and user-adoption risks, competition, reliance on third-party services and integrations, cybersecurity and data protection, regulatory requirements, hiring and retention, and uncertainty around COVID-19 impacts and technology spending.
- ACH Alert-related contingent payments of $4.9 million are held in escrow and depend on a former owner’s continued employment; $0.6 million of related compensation expense was recognized in Q1. The company disclosed no litigation it believed would have a material adverse effect and no material change to previously disclosed risk factors.
- The company expects adoption of lease accounting standards to increase reported assets and liabilities; it was still evaluating the quantitative impact. Disclosure controls were judged effective at March 31, 2021.
Important facts for investors to verify
- Post-IPO cash, diluted share count and use of proceeds, including the preferred-dividend payment and remaining offering costs.
- Whether user growth, cross-selling and new client wins sustain ARR and revenue growth, and how renewal timing affects reported margins.
- The drivers and durability of gross-margin improvement, operating cash flow and adjusted EBITDA; assess adjusted EBITDA alongside GAAP results.
- Debt terms, covenant headroom, variable-rate exposure and the timing of scheduled term-loan repayments.
- ACH Alert integration, contingent employment-related payments and the treatment of related expense and restricted cash.