Alkami Technology, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Alkami provides cloud-based digital banking software, primarily through multi-year SaaS subscriptions to U.S. financial institutions. The company completed its IPO in April 2021.
Financial performance
| Metric | Q3 2021 | Q3 2020 | First 9 months 2021 | First 9 months 2020 |
|---|---|---|---|---|
| Revenue | $39.8 million | $28.9 million | $109.7 million | $78.8 million |
| Gross profit / margin | $22.4 million / 56.3% | $15.2 million / 52.4% | $60.7 million / 55.3% | $39.9 million / 50.6% |
| Operating loss | $11.1 million | $6.6 million | $29.9 million | $23.9 million |
| Net loss | $11.2 million | $21.3 million | $33.5 million | $38.9 million |
| Adjusted EBITDA (non-GAAP) | $(6.1) million | $(5.4) million | $(17.5) million | $(20.5) million |
- Q3 revenue increased 37.4%; nine-month revenue increased 39.2%. SaaS subscription services accounted for about 94% of revenue in both 2021 periods.
- Gross margin improved year over year. Management attributed the improvement to operating scale and lower cost of revenue as a percentage of sales.
- Operating expenses rose 54.1% in Q3 and 42.0% for the first nine months. Q3 increases included R&D investment, higher sales and marketing staffing and conference costs, and higher G&A, including public-company insurance and acquisition costs.
- Nine-month operating cash use was $16.8 million, versus $23.1 million in 2020. Investing cash use was $20.5 million, including the MK acquisition; financing provided $186.9 million, mainly from IPO proceeds.
- At September 30, cash and cash equivalents were $314.4 million; cash, cash equivalents and restricted cash totaled $321.3 million. Total liabilities were $96.3 million.
- Debt included a $25.0 million term loan, reported net of issuance costs at $24.9 million. The $25.0 million revolving facility had no reported borrowings. The company said it was compliant with debt covenants.
Changes, business metrics and transactions
- ARR was $154.8 million, up 35.9% year over year. Registered users increased 26.1% to 11.4 million, and revenue per registered user rose 7.8% to $13.57.
- The company reported 169 Alkami Platform financial-institution clients and 114 ACH Alert clients. It cited 92.5% annual client growth across these measures.
- In September, Alkami acquired substantially all MK Decisioning Systems assets. The preliminary purchase accounting recorded $31.8 million of goodwill and $3.7 million of intangibles. The agreement includes up to $25 million in revenue-based earn-outs; estimated fair value at quarter-end was $15.5 million. Purchase-price allocation remained preliminary.
- The IPO generated $192.8 million of net proceeds. Preferred shares converted to common stock, leaving 88.1 million common shares outstanding at quarter-end.
- Goodwill increased to $48.4 million, principally reflecting the MK acquisition. No goodwill impairment indicators were identified for the quarter.
Outlook, commentary and risks
- No specific revenue, earnings or cash-flow guidance was provided. Management said existing cash resources and the credit agreement should fund operations, growth plans and capital expenditures for at least 12 months.
- Management expects operating costs to grow with the business and expects gross margin to improve over time through scaling. It also described continued investment in product development, sales, marketing, implementation and client support.
- Management cited COVID-related restrictions as potentially disrupting sales and implementations, while also saying increased digital-banking needs could support demand.
- Key risks include sustaining client acquisition and renewals, increasing registered-user penetration, integrating products and acquisitions, competition, cybersecurity and data protection, regulatory compliance, retaining talent, and managing growth and expenses. The filing reported no material change to previously disclosed risk factors.
- Debt bears variable interest and is subject to recurring-revenue growth and minimum-liquidity covenants. The company reported no material impact from a hypothetical 10% interest-rate change, assuming the facility were fully drawn.
- Subsequent to quarter-end, the company announced Alex Shootman would become CEO effective November 5, 2021, replacing Michael Hansen, who would remain an adviser and director. The company expects equity-award vesting acceleration associated with Hansen’s transition to be significant to its financial statements; the accounting was still being evaluated.
- The filing describes routine legal and intellectual-property dispute exposure but says pending matters were not expected to have a material adverse effect based on information available. It also identifies $26.8 million of future minimum operating lease payments.
Important facts for investors to verify
- Whether revenue and ARR growth translate into improving operating performance, cash generation and sustainable margins, given continued operating losses.
- The contribution and integration progress of MK, final purchase accounting, and whether earn-out payments are triggered.
- Cash burn, IPO-proceeds deployment, debt covenant headroom and exposure to variable interest rates.
- The expected financial impact of the CEO transition and accelerated equity-award vesting.
- Client renewal, implementation and penetration trends, along with the effects of competition, security events and COVID-related operating disruptions.