Alkami Technology, Inc. (NASDAQ:ALKT) Q4 2022 Earnings Conference Call February 23, 2023 5:00 PM ET Company Participants Andrew Vinas - Investor Relations Alex Shootman - Chief Executive Officer Bryan Hill - Chief Financial Officer Conference Call Participants Bob Napoli - William Blair Andrew Schmidt - Citi Charles Nabhan - Stephens Operator Hello and welcome to Alkami's Fourth Quarter 2022 Financial Results Conference call. My name is Marise [ph] and I'll be your operator for today's call. [Operator instr ...

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business.) Alkami delivers cloud-based digital banking solutions to financial institutions, expanding through new client acquisition, user growth, cross-selling, and strategic acquisitions [Overview](index=4&type=section&id=Overview) Alkami offers a cloud-based digital banking platform, with 2022 revenues of **$204.3 million** driven by **17.7%** user growth to **14.5 million**, despite continued net losses from growth investments - Alkami is a cloud-based digital banking solutions provider for FIs, offering its multi-tenant Alkami Platform to help them compete with larger banks[10](index=10&type=chunk) - The company has expanded its capabilities through strategic acquisitions: ACH Alert (fraud prevention) in 2020, MK Decisioning Systems (account opening/loan origination) in 2021, and Segmint (data analytics) in 2022[11](index=11&type=chunk) Key Performance Indicators (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Total Revenues** | $204.3M | $152.2M | $112.1M | | **Revenue Growth (YoY)** | 34.2% | 35.7% | N/A | | **Live Registered Users** | 14.5M | 12.4M | 9.7M | | **User Growth (YoY)** | 17.7% | 27.6% | N/A | | **Net Loss** | ($58.6M) | ($46.8M) | ($51.4M) | - As of December 31, 2022, Alkami served **199 FIs** on its platform, up from 177 in 2021 and 151 in 2020[14](index=14&type=chunk) [Our Industry](index=5&type=section&id=Our%20Industry) The U.S. banking industry, with nearly **$26 trillion** in assets, is undergoing a technology-driven transformation, compelling financial institutions to invest in digital platforms to meet evolving user expectations and competitive pressures - The U.S. banking industry held almost **$26 trillion in assets** across over 9,500 FIs as of December 31, 2021, generating over **$900 billion in gross income** that year[18](index=18&type=chunk) - Key industry trends driving technology spend include: heightened user expectations, digital competition, a complex regulatory environment, and a shift to mobile and cloud-based solutions[19](index=19&type=chunk)[20](index=20&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) - The four largest U.S. banks spent over **$30 billion on technology in 2021**, pressuring smaller FIs to partner with third-party digital platforms to compete[28](index=28&type=chunk)[29](index=29&type=chunk) [Our Platform and Value Proposition](index=7&type=section&id=Our%20Platform%20and%20Value%20Proposition) The Alkami Platform is a multi-tenant, cloud-based solution with over **280 integrations**, offering a premier user experience, versatility, rapid innovation, and robust fraud mitigation - The Alkami Platform is a multi-tenant, single code base, continuous delivery platform built on a true cloud infrastructure[30](index=30&type=chunk) - As of December 31, 2022, the platform maintained over **280 integrations** to more than 1,000 endpoints, enabling FIs to customize their digital offerings[31](index=31&type=chunk) - Key value propositions include a premier user experience, a versatile and scalable platform, rapid innovation velocity, and robust fraud mitigation capabilities[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) [Our Growth Strategies](index=7&type=section&id=Our%20Growth%20Strategies) Alkami's growth strategy involves deepening existing client relationships through cross-selling and increased penetration, winning new financial institution clients, broadening its product suite via R&D, and pursuing strategic acquisitions - **Deepen existing client relationships:** Focus on cross-selling more products (clients used an average of **10 out of 32 available products**) and increasing customer penetration (currently at an estimated **75%** of clients' total customers)[36](index=36&type=chunk)[38](index=38&type=chunk) - **Win new clients:** Continue to gain market share from legacy solutions, with the 2022 new client cohort showing higher annual recurring revenue and revenue per user compared to the 2021 cohort[39](index=39&type=chunk) - **Broaden and enhance product suite:** Continue to invest heavily in R&D, which constituted **33.9% of revenues in 2022**[39](index=39&type=chunk) - **Pursue selective acquisitions:** Strategically acquire companies to accelerate objectives, such as ACH Alert (2020), MK Decisioning Systems (2021), and Segmint (2022)[40](index=40&type=chunk) [Our Solution](index=9&type=section&id=Our%20Solution) The Alkami Platform provides a comprehensive digital banking solution with **32 products** across eight categories and over **280 integrations**, designed to help financial institutions onboard users, grow revenues, and prevent fraud - The Alkami Platform is a complete digital banking solution designed to help FIs onboard users, engage them, grow revenues, and guard against fraud[41](index=41&type=chunk) - As of December 31, 2022, the platform offered **32 products** and over **280 integrations** across eight categories, including Account Opening, Card Experience, Financial Wellness, Security, and Money Movement[43](index=43&type=chunk) - Recent acquisitions have enhanced specific product categories: MK Decisioning Systems bolstered Account Opening & Loan Origination, ACH Alert improved Security & Fraud Protection, and Segmint advanced Marketing & Analytics capabilities[43](index=43&type=chunk)[45](index=45&type=chunk) [Our Technology and Architecture](index=12&type=section&id=Our%20Technology%20and%20Architecture) Alkami's cloud-based platform, hosted on AWS with **99.9% uptime**, leverages a multi-tenant, single code base, and continuous delivery architecture for rapid innovation and real-time data insights - The platform is entirely hosted on AWS, achieving an average of **99.9% uptime** in the year ended December 31, 2022[49](index=49&type=chunk) - The architecture is differentiated by three pillars enabling speed-to-market: Multi-Tenant Architecture, Single Code Base, and Continuous Delivery Model[49](index=49&type=chunk)[50](index=50&type=chunk) - The platform synchronizes data in real-time to create a data warehouse, enabling clients to derive actionable insights for marketing and strategic decision-making[51](index=51&type=chunk) [Our Clients](index=12&type=section&id=Our%20Clients) As of December 31, 2022, Alkami served **199 financial institution clients** on its platform, targeting the top **2,000 FIs** with long-term SaaS contracts averaging **70 months**, and maintaining a diversified revenue base - As of December 31, 2022, Alkami served over **550 clients**, including **199 FI clients** on the Alkami Platform[54](index=54&type=chunk) - The target client base is the top **2,000 FIs** by assets, excluding megabanks[54](index=54&type=chunk) - Contracts have an average life of approximately **70 months** as of December 31, 2022, with no single client representing more than **5% of total revenues** in 2022[55](index=55&type=chunk) [Sales and Marketing](index=14&type=section&id=Sales%20and%20Marketing) Alkami's go-to-market strategy employs a structured sales team for new sales, cross-selling (contributing **37% of TCV** in 2022), and client success, supported by marketing efforts in brand building and lead generation - The sales organization includes teams for new sales, cross-selling, and client success management[57](index=57&type=chunk) - Cross-selling is a significant growth driver, contributing **37% of total contract value (TCV)** in 2022, an increase from **24% in 2021**[58](index=58&type=chunk) - Marketing efforts focus on direct sales support, inbound lead generation, and brand building through various online and offline channels[59](index=59&type=chunk) [Competition](index=14&type=section&id=Competition) Alkami operates in a highly competitive market against established point solution and core processing vendors, differentiating itself through its unified cloud-based platform, innovation speed, user experience, and industry expertise - The market for digital financial solutions is highly competitive, with rivals including point solution vendors, core processing vendors, and internal FI solutions[62](index=62&type=chunk) - Direct competitors for the digital banking platform include NCR Corporation, Q2 Holdings, Inc., and Temenos AG, alongside core processing vendors like Fiserv, Jack Henry, and FIS[63](index=63&type=chunk) - Principal competitive factors include platform functionality, SaaS delivery model, open API integration capabilities, user experience design, security, and rapid innovation[65](index=65&type=chunk) [Human Capital Resources](index=16&type=section&id=Human%20Capital%20Resources) As of December 31, 2022, Alkami had **851 employees**, emphasizing a culture defined by six principles, embracing remote work, and receiving multiple workplace awards in 2022 - As of December 31, 2022, the company had **851 employees**[67](index=67&type=chunk) - The company's culture is defined by six principles: Optimistic Perseverance, Courageous Innovation, Caring Collaboration, Transparent Communication, Trusted Accountability, and Real Fun[67](index=67&type=chunk) - In 2022, Alkami was recognized with multiple workplace awards, including "Best Place to Work in Financial Technology" and "Best Company for Career Growth"[68](index=68&type=chunk) [Government Regulation](index=17&type=section&id=Government%20Regulation) Alkami, as a service provider to U.S. financial institutions, is subject to direct and indirect regulation by agencies like the OCC and FDIC, requiring its solutions to ensure client compliance with evolving laws such as GLBA and CCPA - Alkami is subject to examination by banking regulators (e.g., OCC, Federal Reserve, FDIC) under the Bank Service Company Act due to its role as a third-party service provider to FIs[69](index=69&type=chunk)[70](index=70&type=chunk) - The company is registered as a credit union service organization (CUSO), subjecting it to NCUA reporting requirements[71](index=71&type=chunk) - Alkami's solutions must help clients comply with numerous laws, including the Dodd-Frank Act, Electronic Funds Transfer Act, GLBA, Fair Credit Reporting Act, and data privacy laws like the CCPA and CPRA[72](index=72&type=chunk)[74](index=74&type=chunk) [Item 1A. Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors.) The company faces significant risks including rapid growth management, client retention, third-party reliance, cybersecurity threats, evolving data privacy regulations, intense competition, financial sector dependence, intellectual property protection, operating losses, and public company status [Risk Factor Summary](index=19&type=section&id=Risk%20Factor%20Summary) Principal risks encompass business operations, cybersecurity, industry dynamics, intellectual property, and financial structure, including managing growth, client retention, third-party reliance, data breaches, competition, and operating losses - Business risks include managing rapid growth, attracting and retaining clients, the long sales cycle, and dependence on third-party software and data centers[77](index=77&type=chunk)[79](index=79&type=chunk)[89](index=89&type=chunk) - Cybersecurity and privacy risks involve potential data breaches, compromises of third-party security, and compliance with increasing privacy laws and regulations[77](index=77&type=chunk) - Financial risks include a history of operating losses, fluctuation of quarterly results, the delayed revenue recognition model, and limitations from its credit agreement[77](index=77&type=chunk)[78](index=78&type=chunk) [Risks Relating to Our Business](index=20&type=section&id=Risks%20Relating%20to%20Our%20Business) Business risks include managing rapid growth, long sales cycles, heavy reliance on third-party software and data centers like AWS, potential platform defects, and challenges in client satisfaction and acquisition integration - Rapid growth places significant demands on management and operational infrastructure, and failure to manage it could harm results[79](index=79&type=chunk)[80](index=80&type=chunk) - The sales cycle is unpredictable and lengthy, typically lasting from **three to 12 months**, which can affect cost and revenue predictability[89](index=89&type=chunk)[90](index=90&type=chunk) - The company depends on third-party data centers, principally Amazon Web Services (AWS), and any disruption could impair service delivery and harm the business[101](index=101&type=chunk)[102](index=102&type=chunk) - The Alkami Platform is complex and may contain defects or errors, which could result in significant costs, damage to reputation, and potential client claims[106](index=106&type=chunk)[107](index=107&type=chunk) - Future acquisitions may divert management's attention, result in dilution, and present integration challenges that could prevent the realization of expected benefits[116](index=116&type=chunk)[117](index=117&type=chunk) [Risks Relating to Cybersecurity or Data Privacy](index=28&type=section&id=Risks%20Relating%20to%20Cybersecurity%20or%20Data%20Privacy) Alkami faces significant cybersecurity risks due to handling sensitive data, with potential breaches leading to operational disruptions and reputational harm, alongside complex compliance challenges from evolving data privacy laws like CCPA and GDPR - The company processes and stores sensitive personal information (PI), making it a target for cybersecurity threats, which have increased in sophistication[123](index=123&type=chunk)[124](index=124&type=chunk) - A security breach could result in operational disruptions, loss of client data, regulatory investigations, litigation, and significant financial and reputational harm[129](index=129&type=chunk) - The company is subject to numerous U.S. and international data privacy laws, including the Gramm-Leach-Bliley Act (GLBA), the California Consumer Privacy Act (CCPA), the California Privacy Rights Act (CPRA), and the EU's General Data Protection Regulation (GDPR)[133](index=133&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[139](index=139&type=chunk) - Failure to comply with evolving privacy laws could expose the company to costly litigation, significant fines (e.g., up to **4% of global annual revenues** under GDPR), and could require changes to its business practices[135](index=135&type=chunk)[139](index=139&type=chunk) [Risks Relating to Our Industry](index=33&type=section&id=Risks%20Relating%20to%20Our%20Industry) Alkami faces intense competition and is vulnerable to financial services industry downturns, requiring continuous adaptation to rapid technological advancements and evolving regulatory requirements like ADA accessibility standards - The market for digital solutions for FIs is intensely competitive, with rivals having greater name recognition, larger client bases, and more substantial financial resources[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) - All revenues are derived from the financial services industry; any downturn, consolidation, or decrease in technology spending by FIs could materially harm the business[147](index=147&type=chunk)[148](index=148&type=chunk) - The business is subject to extensive and evolving laws and regulations (e.g., FFIEC guidance, ADA accessibility standards); failure to provide compliant solutions could result in loss of clients, fines, and reputational damage[155](index=155&type=chunk)[156](index=156&type=chunk)[158](index=158&type=chunk) [Risks Relating to Our Intellectual Property, Software and Third-Party Licenses](index=36&type=section&id=Risks%20Relating%20to%20Our%20Intellectual%20Property%2C%20Software%20and%20Third-Party%20Licenses) Alkami's success relies on protecting its intellectual property, facing risks from insufficient patent protection, open-source software use, source code escrow requirements, and potential third-party infringement claims - The company's intellectual property is valuable, and any inability to protect it could reduce the value of its products and brand; as of Dec 31, 2022, it had **26 issued patents** and **6 pending applications**[160](index=160&type=chunk) - The use of open-source software poses risks, as some licenses could require public disclosure of proprietary source code or impose other unfavorable terms[167](index=167&type=chunk)[168](index=168&type=chunk) - Some client agreements require source code to be placed in escrow, which could be released upon events like bankruptcy, potentially limiting IP protection[169](index=169&type=chunk)[170](index=170&type=chunk) - The company may face claims of infringing on third-party IP rights, which could result in substantial costs, litigation, and the need to license technology or redesign products[171](index=171&type=chunk)[172](index=172&type=chunk) [Risks Relating to our Financial Results, Operating History and Capital Structure](index=39&type=section&id=Risks%20Relating%20to%20our%20Financial%20Results%2C%20Operating%20History%20and%20Capital%20Structure) Financial risks include fluctuating results due to revenue recognition, a history of operating losses with uncertain future profitability, limitations on net operating loss carryforwards, and restrictive covenants from its credit agreement - Quarterly and annual results are likely to fluctuate due to timing of client subscriptions, renewals, and other factors outside of the company's control[182](index=182&type=chunk) - The company has a history of operating losses and may not achieve or maintain profitability in the future due to continued significant investment in growth[189](index=189&type=chunk) - The ability to use net operating loss (NOL) carryforwards is subject to limitations under Section 382 of the Internal Revenue Code due to past and potential future ownership changes[194](index=194&type=chunk) - The Amended Credit Agreement contains restrictive covenants, including minimum recurring revenue and liquidity levels, which could limit operational flexibility and require accelerated repayment if breached[196](index=196&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) [Risks Related to Being a Newly Public Company](index=45&type=section&id=Risks%20Related%20to%20Being%20a%20Newly%20Public%20Company) As an "emerging growth company," Alkami benefits from reduced reporting requirements, which may affect comparability of financial statements and attractiveness to some investors, with this status expiring by December 31, 2026, or upon reaching **$1.235 billion** in revenue - The company is an "emerging growth company" and has elected to use the extended transition period for complying with new or revised accounting standards, which may make its financial statements not directly comparable to other public companies[202](index=202&type=chunk)[203](index=203&type=chunk) - The company is exempt from certain reporting requirements, including the auditor attestation of internal controls required by Section 404 of the Sarbanes-Oxley Act, which may make its stock less attractive to some investors[204](index=204&type=chunk) [Risks Related to Ownership of Our Common Stock](index=45&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Risks of common stock ownership include potential price depression from insider sales, reliance on stock appreciation due to no dividends, significant influence by principal stockholders, and anti-takeover provisions that could deter beneficial transactions - The company does not anticipate paying dividends in the foreseeable future; returns will depend on stock price appreciation[206](index=206&type=chunk)[207](index=207&type=chunk) - As of December 31, 2022, directors, officers, and principal stockholders beneficially owned approximately **61% of outstanding shares**, giving them significant influence over corporate actions[208](index=208&type=chunk) - Anti-takeover provisions, such as a classified board and a prohibition on stockholder action by written consent, could delay or prevent a change in control[209](index=209&type=chunk)[211](index=211&type=chunk) - The company's charter designates the Court of Chancery of the State of Delaware as the exclusive forum for certain stockholder disputes and federal district courts for Securities Act claims, which could limit a stockholder's ability to choose a favorable judicial forum[212](index=212&type=chunk)[213](index=213&type=chunk) [Item 1B. Unresolved Staff Comments](index=47&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) The company reports no unresolved staff comments - Not applicable[214](index=214&type=chunk) [Item 2. Properties](index=47&type=section&id=Item%202.%20Properties.) Alkami's principal executive offices are located in Plano, Texas, leasing approximately **125,000 square feet** of office space under a lease expiring August 31, 2028 - The company's corporate headquarters are in Plano, Texas, under a lease for approximately **125,000 square feet** of office space[214](index=214&type=chunk) - The current lease expires on August 31, 2028, with options to extend for two five-year terms or one ten-year term[214](index=214&type=chunk) [Item 3. Legal Proceedings](index=47&type=section&id=Item%203.%20Legal%20Proceedings.) Management believes there are no pending legal claims or actions that would materially impact the company's business or financial condition - Management believes there are no pending legal claims or actions that would have a material impact on the company's business, financial condition, or cash flows[215](index=215&type=chunk) [Item 4. Mine Safety Disclosures](index=47&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[215](index=215&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=48&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) Alkami's common stock has traded on Nasdaq under "ALKT" since its April 2021 IPO at **$30.00 per share**, with no cash dividends paid or anticipated, and net IPO proceeds of **$192.8 million** - Common stock is listed on Nasdaq under the symbol "ALKT" since its IPO on April 15, 2021, at a price of **$30.00 per share**[217](index=217&type=chunk) - The company has never paid cash dividends and does not anticipate paying them in the foreseeable future[218](index=218&type=chunk) - The IPO resulted in net proceeds of **$192.8 million**; a portion, approximately **$5.0 million**, was used to pay accumulated dividends on previously outstanding Series B redeemable convertible preferred stock[219](index=219&type=chunk) [Item 6. [Reserved]](index=50&type=section&id=Item%206.%20[Reserved]) This item is reserved and contains no information - This item is reserved[222](index=222&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=51&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) In 2022, Alkami's revenue grew **34.2%** to **$204.3 million**, driven by user and RPU growth, though net loss widened to **$58.6 million** due to investments, while Adjusted EBITDA improved to a **$17.6 million** loss, maintaining strong liquidity [Key Business Metrics](index=58&type=section&id=Key%20Business%20Metrics) Key business metrics for 2022 show Annual Recurring Revenue grew **33.8%** to **$226.1 million**, registered users increased **17.7%** to **14.5 million**, and Adjusted EBITDA improved to a **$17.6 million** loss Key Business Metrics (as of December 31) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Annual Recurring Revenue (ARR)** | $226.1M | $169.0M | $128.0M | | **Registered Users** | 14.5M | 12.4M | 9.7M | | **Revenue per Registered User (RPU)** | $15.55 | $13.68 | $13.22 | | **Adjusted EBITDA** | ($17.6M) | ($22.0M) | ($23.4M) | [Results of Operations](index=56&type=section&id=Results%20of%20Operations) In 2022, revenues increased **34.2%** to **$204.3 million**, but gross margin declined to **53.0%**, and operating expenses rose **31.0%** to **$166.0 million**, leading to a wider net loss of **$58.6 million** despite a gain from acquisition-related revaluation Comparison of Results of Operations (2022 vs. 2021) | Line Item ($ in thousands) | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | 204,270 | 152,159 | 52,111 | 34.2% | | **Cost of Revenues** | 95,946 | 68,352 | 27,594 | 40.4% | | **Gross Profit** | 108,324 | 83,807 | 24,517 | 29.3% | | **Research and Development** | 69,329 | 48,800 | 20,529 | 42.1% | | **Sales and Marketing** | 36,811 | 24,174 | 12,637 | 52.3% | | **General and Administrative** | 71,247 | 50,398 | 20,849 | 41.4% | | **Acquisition-related expenses, net** | (12,529) | 2,983 | (15,512) | (520.0)% | | **Loss from Operations** | (57,689) | (42,916) | (14,773) | 34.4% | | **Net Loss** | (58,600) | (46,822) | (11,778) | 25.2% | - The **34.2% revenue increase** was driven by **2.2 million new registered users** and a **13.7% growth in RPU**, which was boosted by cross-sells and the Segmint acquisition[262](index=262&type=chunk) - Gross margin decreased from **55.1% to 53.0%** due to increased personnel costs, higher third-party reseller costs, and costs related to the Segmint acquisition[264](index=264&type=chunk)[265](index=265&type=chunk) - Acquisition-related expenses decreased by **$15.5 million** primarily due to a **$15.5 million gain** on the revaluation of contingent consideration related to the MK acquisition[270](index=270&type=chunk) [Liquidity and Capital Resources](index=62&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2022, Alkami held **$196.4 million** in cash and marketable securities, supported by **$192.8 million** IPO proceeds and an **$85.0 million** term loan, with net cash used in operations at **$37.8 million**, ensuring sufficient liquidity for the next 12 months - As of December 31, 2022, the company had **$196.4 million** in cash and cash equivalents and marketable securities[276](index=276&type=chunk) Cash Flow Summary (Year ended Dec 31) | Cash Flow Activity (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(37,788) | $(28,959) | | Net cash used in investing activities | $(224,008) | $(22,023) | | Net cash provided by financing activities | $61,179 | $192,273 | - In April 2022, the company entered into an Amended Credit Agreement providing an **$85.0 million term loan** and a **$40.0 million revolving credit facility**, maturing in April 2025[287](index=287&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=65&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Critical accounting policies involve significant judgments and estimates for Revenue Recognition, deferral and amortization of Sales Commissions and Implementation Costs, and fair value determination in Business Combinations - **Revenue Recognition:** Upfront implementation fees are determined not to be distinct and are deferred and recognized ratably over the client's initial agreement term along with the subscription revenue[299](index=299&type=chunk) - **Deferred Costs:** The company capitalizes incremental costs to obtain contracts (sales commissions) and fulfill contracts (implementation costs), amortizing them over the expected period of client benefit, which requires significant judgment[301](index=301&type=chunk)[302](index=302&type=chunk) - **Business Combinations:** The company uses the acquisition method, which requires estimating the fair value of identifiable assets, liabilities, and contingent consideration; these estimates are inherently uncertain and subject to refinement[303](index=303&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) Alkami's primary market risk is interest rate fluctuation, stemming from its variable-rate credit agreement and short-term investments, with management assessing no material impact from a hypothetical **10%** rate change - The primary market risk is interest rate risk associated with the variable-rate Amended Credit Agreement[308](index=308&type=chunk)[309](index=309&type=chunk) - The company's cash, cash equivalents, and marketable securities also carry some interest rate risk, but due to their short-term maturities, the impact of rate changes on their value is not expected to be significant[309](index=309&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=70&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section presents Alkami's consolidated financial statements for the three years ended December 31, 2022, along with Ernst & Young LLP's unqualified audit opinion confirming fair presentation in conformity with U.S. GAAP [Report of Independent Registered Public Accounting Firm](index=71&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified audit opinion on Alkami's consolidated financial statements for the three years ended December 31, 2022, confirming fair presentation in conformity with U.S. GAAP - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the three years ended December 31, 2022[314](index=314&type=chunk) - The audit was conducted in accordance with PCAOB standards; an opinion on the effectiveness of internal control over financial reporting was not expressed as the company is not required to have such an audit[316](index=316&type=chunk) [Consolidated Financial Statements](index=72&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements show total assets of **$488.9 million** and liabilities of **$154.8 million** as of December 31, 2022, with 2022 revenues of **$204.3 million** and a net loss of **$58.6 million**, reflecting growth investments Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $242,165 | $345,161 | | **Goodwill & Intangibles, net** | $190,610 | $59,255 | | **Total Assets** | $488,885 | $436,510 | | **Total Current Liabilities** | $41,614 | $33,198 | | **Long-term Debt, net** | $81,392 | $23,053 | | **Total Liabilities** | $154,839 | $91,899 | | **Total Stockholders' Equity** | $334,046 | $344,611 | Consolidated Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | **Revenues** | $204,270 | $152,159 | | **Gross Profit** | $108,324 | $83,807 | | **Loss from Operations** | $(57,689) | $(42,916) | | **Net Loss** | $(58,600) | $(46,822) | | **Net Loss per Share** | $(0.64) | $(0.73) | [Notes to the Consolidated Financial Statements](index=78&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Notes to the financial statements detail critical accounting policies, including business combinations (ACH Alert, MK, Segmint), revenue recognition, debt agreements, stockholders' equity, income taxes, and commitments and contingencies - **Note 3 (Business Combinations):** Details the acquisitions of ACH Alert (Oct 2020, ~**$25 million cash**), MK Decisioning Systems (Sep 2021, ~**$20 million cash** plus contingent consideration), and Segmint (Apr 2022, ~**$135 million**); a gain of **$15.5 million** was recorded in 2022 from reducing the fair value of the MK contingent earn-out to zero[399](index=399&type=chunk)[400](index=400&type=chunk)[402](index=402&type=chunk)[405](index=405&type=chunk) - **Note 5 (Revenues):** Disaggregates revenue, showing SaaS subscription services as the primary source (**$194.4 million in 2022**); as of Dec 31, 2022, minimum contracted future subscription revenues totaled approximately **$893.4 million**[416](index=416&type=chunk)[417](index=417&type=chunk) - **Note 8 (Debt):** As of Dec 31, 2022, the company had an **$85.0 million term loan** outstanding under its Amended Credit Agreement, which also provides a **$40.0 million revolving facility**; the company was in compliance with all covenants[426](index=426&type=chunk)[430](index=430&type=chunk)[432](index=432&type=chunk) - **Note 9 (Stockholders' Equity):** Details the 2021 Incentive Award Plan and the Employee Stock Purchase Plan (ESPP); as of Dec 31, 2022, total unrecognized stock-based compensation expense was **$7.8 million** for stock options and **$91.0 million** for RSUs[441](index=441&type=chunk)[443](index=443&type=chunk)[448](index=448&type=chunk) - **Note 10 (Income Taxes):** The company had federal net operating loss carryforwards of **$316.9 million** as of Dec 31, 2022; a valuation allowance of **$96.3 million** has been established against net deferred tax assets, as their realization is not considered more likely than not[456](index=456&type=chunk)[458](index=458&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=110&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) The company reports no changes in or disagreements with its accountants regarding accounting principles, practices, or financial disclosure - None[491](index=491&type=chunk) [Item 9A. Controls and Procedures](index=110&type=section&id=Item%209A.%20Controls%20and%20Procedures.) As of December 31, 2022, management concluded that both disclosure controls and internal control over financial reporting were effective, with no material changes during the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[491](index=491&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework[492](index=492&type=chunk) [Item 9B. Other Information](index=110&type=section&id=Item%209B.%20Other%20Information.) The company reports no other information for this item - None[493](index=493&type=chunk) PART III [Items 10-14](index=110&type=section&id=Items%2010-14) Information for Items 10 through 14, covering directors, executive officers, compensation, security ownership, and related transactions, is incorporated by reference from the company's definitive 2023 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[494](index=494&type=chunk)[495](index=495&type=chunk) PART IV [Item 15. Exhibit and Financial Statement Schedules](index=112&type=section&id=Item%2015.%20Exhibit%20and%20Financial%20Statement%20Schedules.) This section lists financial statements, schedules, and exhibits filed with the Annual Report on Form 10-K, referencing consolidated financial statements under Item 8 and detailing key agreements in the Exhibit Index - The consolidated financial statements are included in Item 8 of this report[498](index=498&type=chunk) - No financial statement schedules have been filed because they are not required or applicable[499](index=499&type=chunk) - The Exhibit Index lists key agreements, including asset purchase agreements for acquisitions, the Amended and Restated Credit Agreement, and various employment and compensation plan documents[501](index=501&type=chunk)[503](index=503&type=chunk) [Item 16. Form 10-K Summary](index=115&type=section&id=Item%2016.%20Form%2010-K%20Summary.) The company reports no information for this item - None[505](index=505&type=chunk)

Alkami Technology, Inc. (NASDAQ:ALKT) Q3 2022 Earnings Conference Call November 3, 2022 5:00 PM ET Company Participants Andrew Vinas - Investor Relations Alex Shootman - Chief Executive Officer Bryan Hill - Chief Financial Officer Conference Call Participants Andrew Schmidt - Citi Sam Salvas - Needham Bob Napoli - William Blair Charles Nabhan - Stephens Operator Hello and welcome to Alkami’s Third Quarter 2022 Financial Results Conference Call. My name is Danielle and I will be your operator for today’s cal ...

Financial Data and Key Metrics Changes - Alkami reported Q2 2022 revenue of $50.5 million, a 38% increase year-over-year, exceeding guidance by approximately $2 million [15][18] - The company exited the quarter with an annual recurring revenue (ARR) of $204 million, a 41% increase, and expects to reach $225 million to $228 million by the end of 2022 [18][21] - The average revenue per user (RPU) was $15.33, up 14% from the previous year, with organic RPU expansion of $0.97 or 7% [16][17] Business Line Data and Key Metrics Changes - Subscription revenue grew 38% year-over-year, representing about 95% of total revenue [18] - Add-on sales accounted for over 40% of new sales in the first half of 2022, compared to 23% in 2021 [18][19] - The company implemented 8 new logos in Q2, bringing the total client count to 182, with 39 new logos in implementation [15][16] Market Data and Key Metrics Changes - Alkami exited Q2 with 13.3 million live registered users, an increase of 2.6 million or 24% year-over-year [16] - The company noted a strong demand for digital banking solutions, with a qualified pipeline at an all-time high, particularly among banks [9][10] Company Strategy and Development Direction - Alkami aims to become the digital banking provider of choice for banks while maintaining its leadership with credit unions [10][14] - The company is focusing on expanding its product offerings and enhancing its platform to support larger institutions [10][14] - Alkami is committed to integrating Segmint and enhancing its platform scalability while remaining agile on potential M&A opportunities [14][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for digital banking solutions despite economic volatility, viewing it as a mandatory innovation for financial institutions [8][9] - The company anticipates continued growth in ARR and strong performance in add-on sales, with a robust pipeline for the remainder of 2022 [18][21] Other Important Information - Non-GAAP gross margin for Q2 was 58%, slightly up from 57.5% year-over-year, with expectations for continued margin expansion in the future [19] - The company ended the quarter with over $213 million in cash and marketable securities, having funded the Segmint acquisition with $61 million in debt and $71 million in cash [21] Q&A Session Summary Question: What are the material differences in the new platform versus the prior platform? - The new mobile platform is built on Flutter, allowing for a single codebase across iOS and Android, enhancing customization and deployment speed [25] Question: Are you still on track for gross margin expansion? - The company expects to achieve its long-term gross margin target of 60% to 65%, but does not anticipate reaching the 200 to 300 basis points expansion target for 2022 due to investments and acquisitions [27] Question: Which add-on products are driving growth? - Significant adoption is seen in money movement products, client service products, and fraud security products [29] Question: What is the size and scope of the banks being won? - Alkami is targeting banks that serve SMB and mid-market customers, which represent a large portion of the U.S. banking institutions [31] Question: Is there any change in the demand environment? - There has been no observed softness in demand, with a strong sales pipeline and increased adoption of digital banking solutions [38] Question: Are there inflationary price escalators in contracts? - Contracts typically include a step-up in minimum commitments rather than inflationary price increases [41] Question: What is the potential for ARPU growth? - There are significant opportunities for ARPU growth across various product categories, particularly in money movement and client services [48]

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial information, including financial statements, management's discussion, market risk disclosures, and controls and procedures [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Alkami Technology, Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2022, and December 31, 2021, including balance sheets, statements of operations, changes in equity, and cash flows, along with detailed notes explaining significant accounting policies, business combinations, revenue recognition, debt, and other financial instrument disclosures [Unaudited Condensed Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific reporting dates | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Total Assets | $491,110 | $436,510 | | Total Liabilities | $155,565 | $91,899 | | Total Stockholders' Equity | $335,545 | $344,611 | - Cash and cash equivalents decreased significantly from **$308,581 thousand** at December 31, 2021, to **$89,117 thousand** at June 30, 2022[11](index=11&type=chunk) - Marketable securities increased from **$0** at December 31, 2021, to **$124,237 thousand** at June 30, 2022[11](index=11&type=chunk) - Goodwill increased substantially from **$48,091 thousand** to **$147,402 thousand**, primarily due to the Segmint acquisition[11](index=11&type=chunk) [Unaudited Condensed Consolidated Statements of Operations](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance over specific periods, presenting revenues, expenses, and net loss | Metric (in thousands) | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $50,530 | $36,701 | $95,320 | $69,963 | | Gross profit | $27,273 | $20,521 | $52,083 | $38,286 | | Loss from operations | $(19,384) | $(9,813) | $(32,390) | $(18,752) | | Net loss | $(20,233) | $(11,375) | $(33,639) | $(22,254) | | Basic and diluted net loss per share | $(0.22) | $(0.15) | $(0.37) | $(0.56) | - Revenues increased by **37.7%** for the three months ended June 30, 2022, and **36.2%** for the six months ended June 30, 2022, compared to the same periods in 2021[14](index=14&type=chunk) - Net loss increased significantly, nearly doubling for the three-month period and increasing by over **50%** for the six-month period, primarily due to increased operating expenses[14](index=14&type=chunk) [Unaudited Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20(Deficit)) This section outlines changes in the company's equity structure, including common stock, additional paid-in capital, and accumulated deficit | Metric (in thousands) | Balance Dec 31, 2021 | Balance June 30, 2022 | | :------------------------------ | :------------------- | :-------------------- | | Common Stock Amount | $90 | $91 | | Additional Paid-in Capital | $658,374 | $682,946 | | Accumulated Deficit | $(313,853) | $(347,492) | | Total Stockholders' Equity (Deficit) | $344,611 | $335,545 | - Stock-based compensation contributed **$21,449 thousand** to additional paid-in capital for the six months ended June 30, 2022[20](index=20&type=chunk) - The accumulated deficit increased by **$33,639 thousand** due to the net loss for the six months ended June 30, 2022[20](index=20&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity (in thousands) | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(19,369) | $(12,288) | | Net cash used in investing activities | $(259,576) | $(1,446) | | Net cash provided by financing activities | $62,584 | $185,422 | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(216,361) | $171,688 | - A significant increase in cash used in investing activities in 2022 was primarily due to the purchase of marketable securities (**$143.6 million**) and the acquisition of Segmint (**$132.0 million**)[24](index=24&type=chunk) - Financing activities in 2022 were driven by **$85.0 million** in proceeds from long-term debt issuance, while 2021 saw substantial proceeds from the IPO (**$192.8 million**)[24](index=24&type=chunk) [Notes to the Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements [Note 1. Organization](index=9&type=section&id=Note%201.%20Organization) This note describes Alkami Technology, Inc.'s business as a cloud-based digital banking solutions provider and its revenue generation model - Alkami Technology, Inc. is a cloud-based digital banking solutions provider, empowering financial institutions with its proprietary, true cloud-based, multi-tenant Alkami Platform[27](index=27&type=chunk) - The company generates revenue through long-term, subscription-based contractual arrangements[27](index=27&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=9&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and policies applied in preparing the interim financial statements, including recent accounting pronouncement adoptions - Interim unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information, omitting some disclosures normally included in annual statements[29](index=29&type=chunk)[30](index=30&type=chunk) - The Company reclassified 'Acquisition-related expenses, net' and 'Amortization of acquired intangibles' into separate captions for current year presentation[31](index=31&type=chunk) - The Company early adopted ASU 2021-08 (Business Combinations) in Q2 2022, applying it retrospectively to current fiscal year business combinations, with no material impact[41](index=41&type=chunk)[43](index=43&type=chunk) - The Company expects to adopt ASU 2016-02 (Leases) in fiscal year 2022, which will increase total assets and liabilities by recognizing right-of-use assets and operating lease liabilities[39](index=39&type=chunk) [Note 3. Business Combination](index=12&type=section&id=Note%203.%20Business%20Combination) This note details the acquisition of Segmint Inc. and the preliminary purchase price allocation, along with revaluation of contingent consideration from a prior acquisition Preliminary Purchase Price Allocation for Segmint Acquisition (as of April 25, 2022) | Asset/Liability | Preliminary Fair Value (in thousands) | | :-------------------------- | :------------------------------------ | | Trade accounts receivables | $1,788 | | Other current assets | $323 | | Property and equipment | $35 | | Goodwill | $99,310 | | Intangible assets | $35,400 | | Total assets acquired | $136,856 | | Accounts payable | $768 | | Accrued liabilities | $188 | | Deferred revenues, current | $145 | | Other non-current liabilities | $625 | | Total liabilities assumed | $1,726 | | Net assets acquired | $135,130 | - The Company acquired Segmint Inc. on April 25, 2022, for approximately **$135.1 million**, with a portion placed in escrow for indemnification[49](index=49&type=chunk) - Goodwill of **$99.3 million** resulted from the Segmint acquisition, intended to augment and diversify the Company's segment[52](index=52&type=chunk) - For the MK Decisioning Systems acquisition (Sept 2021), the fair value of contingent earn-out was remeasured to **$12.8 million** as of June 30, 2022, down from **$15.5 million** at Dec 31, 2021, resulting in a **$2.7 million** gain on revaluation for the six months ended June 30, 2022[47](index=47&type=chunk)[48](index=48&type=chunk) [Note 4. Property and Equipment, Net](index=13&type=section&id=Note%204.%20Property%20and%20Equipment,%20Net) This note provides a breakdown of the company's property and equipment, net of accumulated depreciation and amortization Property and Equipment, Net (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :---------------------- | :------------ | :---------------- | | Software | $5,908 | $3,299 | | Computers and equipment | $5,239 | $4,854 | | Furniture and fixtures | $3,984 | $3,980 | | Leasehold improvements | $11,720 | $11,712 | | Total | $26,851 | $23,845 | | Less: accumulated depreciation and amortization | $(13,348) | $(12,017) | | Net | $13,503 | $11,828 | - Depreciation and amortization expense for property and equipment was **$1.2 million** for the six months ended June 30, 2022, consistent with **$1.2 million** for the same period in 2021[54](index=54&type=chunk) [Note 5. Revenue and Deferred Costs](index=13&type=section&id=Note%205.%20Revenue%20and%20Deferred%20Costs) This note details the company's revenue sources, primarily SaaS subscription services, and information on deferred commissions Revenue by Major Source (in thousands) | Revenue Source | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | SaaS subscription services | $47,781 | $34,604 | $90,590 | $66,173 | | Implementation services | $2,004 | $1,636 | $3,581 | $2,936 | | Other services | $745 | $461 | $1,149 | $854 | | Total revenues | $50,530 | $36,701 | $95,320 | $69,963 | - SaaS subscription services constitute the majority of revenue, representing **94.6%** and **95.0%** of total revenues for the three and six months ended June 30, 2022, respectively[58](index=58&type=chunk) - The Company expects to recognize approximately **$696.0 million** in minimum contracted subscription revenues in future periods, with **47.9%** over the next 24 months[58](index=58&type=chunk) - Deferred commissions capitalized increased to **$1.7 million** for the six months ended June 30, 2022, from **$0.5 million** in the prior year, with amortization of **$1.4 million**[59](index=59&type=chunk) [Note 6. Accounts Receivable](index=14&type=section&id=Note%206.%20Accounts%20Receivable) This note presents a breakdown of the company's accounts receivable, including trade, unbilled, and other receivables, net of allowances Accounts Receivable (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------------------------ | :------------ | :---------------- | | Trade accounts receivable | $23,355 | $15,991 | | Unbilled receivables | $3,800 | $3,677 | | Other receivables | $457 | $1,355 | | Total receivables | $27,612 | $21,023 | | Allowance for doubtful accounts | $(60) | $(39) | | Reserve for estimated credits | $(185) | $(163) | | Net Accounts Receivable | $27,367 | $20,821 | - Trade accounts receivable increased by **$7.36 million** from December 31, 2021, to June 30, 2022[62](index=62&type=chunk) [Note 7. Accrued Liabilities](index=15&type=section&id=Note%207.%20Accrued%20Liabilities) This note provides a detailed breakdown of the company's accrued liabilities at specific reporting dates Accrued Liabilities (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------------------------------ | :------------ | :---------------- | | Bonus accrual | $4,857 | $3,725 | | Accrued vendor purchases | $642 | $2,276 | | Commissions accrual | $1,463 | $2,302 | | Accrued hosting services | $1,473 | $1,264 | | Client refund liability | $575 | $1,004 | | Deferred compensation payable | $1,875 | $625 | | Accrued consulting and professional fees | $854 | $657 | | Accrued tax liabilities | $3,138 | $3,724 | | MK acquisition holdback provision | $2,000 | $1,000 | | ESPP liability | $303 | $821 | | Other accrued liabilities | $5,444 | $1,685 | | Total accrued liabilities | $22,624 | $19,083 | - Total accrued liabilities increased by **$3.54 million** from December 31, 2021, to June 30, 2022[64](index=64&type=chunk) - Other accrued liabilities saw a significant increase from **$1,685 thousand** to **$5,444 thousand**[64](index=64&type=chunk) [Note 8. Debt](index=15&type=section&id=Note%208.%20Debt) This note details the company's debt arrangements, including the Amended Credit Agreement, term loan, and revolving facility, along with maturity schedules - On April 29, 2022, the Company entered into an Amended Credit Agreement, including a **$40.0 million** secured revolving facility and an **$85.0 million** term loan[65](index=65&type=chunk) - The proceeds from the Amended Term Loan were used to replenish cash for the Segmint Inc. acquisition[65](index=65&type=chunk) - The Amended Credit Agreement matures on April 29, 2025, and includes an accordion feature for up to **$50.0 million** in additional revolving loan commitments[65](index=65&type=chunk)[66](index=66&type=chunk) - Borrowings bear interest at a variable rate (SOFR + **3.00% to 3.50%**) and are subject to annual recurring revenue growth and liquidity covenants[67](index=67&type=chunk)[69](index=69&type=chunk) Long-term Debt Maturities (in thousands) | Year | Amount | | :--------- | :----- | | 2022 | — | | 2023 | $3,188 | | 2024 | $7,438 | | 2025 | $74,374 | | Thereafter | — | | Total | $85,000 | [Note 9. Stockholders' Equity (Deficit)](index=17&type=section&id=Note%209.%20Stockholders'%20Equity%20(Deficit)) This note provides details on stock-based compensation expense and its impact on stockholders' equity Stock-based Compensation Expense (in thousands) | Category | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues | $1,056 | $465 | $2,034 | $698 | | Research and development | $2,580 | $702 | $4,464 | $1,001 | | Sales and marketing | $997 | $240 | $1,747 | $344 | | General and administrative | $6,635 | $1,616 | $12,797 | $2,398 | | Total | $11,268 | $3,023 | $21,042 | $4,441 | - Total stock-based compensation expense increased significantly to **$21.0 million** for the six months ended June 30, 2022, from **$4.4 million** in the prior year[73](index=73&type=chunk) [Note 10. Income Taxes](index=17&type=section&id=Note%2010.%20Income%20Taxes) This note outlines the company's income tax expense, effective tax rate, and the valuation allowance against deferred tax assets - The Company recorded **$0.2 million** in income tax expense for both the three and six months ended June 30, 2022, compared to no expense in 2021[74](index=74&type=chunk) - The effective tax rate was **(0.8)%** and **(0.7)%** for the three and six months ended June 30, 2022, respectively, primarily due to state income taxes and deferred taxes related to acquired goodwill amortization[74](index=74&type=chunk) - A full valuation allowance is maintained against most deferred tax assets, as realization is not reasonably assured[75](index=75&type=chunk) [Note 11. Fair Value of Financial Instruments](index=18&type=section&id=Note%2011.%20Fair%20Value%20of%20Financial%20Instruments) This note describes the fair value hierarchy used for financial instruments and presents the fair values of assets and liabilities - The Company uses a three-tier fair value hierarchy (Level 1: quoted prices, Level 2: observable inputs, Level 3: unobservable inputs) for financial instruments[78](index=78&type=chunk) Fair Value of Financial Assets and Liabilities (in thousands) as of June 30, 2022 | Category | Total Fair Value | Level 1 | Level 2 | Level 3 | | :----------------------------- | :--------------- | :------- | :------- | :--------- | | Cash equivalents | $89,402 | $89,402 | — | — | | Marketable securities | $124,237 | $53,016 | $68,772 | — | | Total Assets | $213,639 | $142,418 | $68,772 | — | | Contingent consideration payable | $(12,800) | — | — | $(12,800) | | Total Liabilities | $(12,800) | — | — | $(12,800) | - Contingent consideration payable decreased from **$15.5 million** at December 31, 2021, to **$12.8 million** at June 30, 2022, due to a **$2.7 million** fair value adjustment reported in earnings[80](index=80&type=chunk)[81](index=81&type=chunk) [Note 12. Earnings Per Share](index=20&type=section&id=Note%2012.%20Earnings%20Per%20Share) This note details the calculation of basic and diluted net loss per share, including anti-dilutive common share equivalents Net Loss Per Share Attributable to Common Stockholders | Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to common stockholders (in thousands) | $(20,233) | $(11,375) | $(33,639) | $(22,531) | | Weighted average shares outstanding (basic and diluted) | 90,707,381 | 74,831,512 | 90,459,503 | 40,399,138 | | Loss per common share - basic and diluted | $(0.22) | $(0.15) | $(0.37) | $(0.56) | - Due to net losses, basic and diluted EPS are the same, as potentially dilutive shares would be anti-dilutive[84](index=84&type=chunk) Anti-dilutive Common Share Equivalents (as of June 30) | Category | 2022 | 2021 | | :------------ | :---------- | :----------- | | Stock options | 7,068,202 | 10,934,687 | | RSUs | 6,665,691 | 213,500 | | ESPP | 24,484 | — | | Total | 13,758,377 | 11,360,595 | [Note 13. Commitments and Contingencies](index=20&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) This note outlines the company's future minimum operating lease payments and its assessment of legal proceedings Future Minimum Operating Lease Payments (in thousands) as of June 30, 2022 | Year | Operating Leases | | :------------------------ | :--------------- | | 2022 (remaining six months) | $1,864 | | 2023 | $3,773 | | 2024 | $3,835 | | 2025 | $3,898 | | 2026 | $3,961 | | Thereafter | $6,736 | | Total | $24,067 | - The Company leases its corporate headquarters under a non-cancelable operating lease expiring August 31, 2028[87](index=87&type=chunk) - The Company believes its liability from pending legal proceedings is not reasonably likely to be material to its financial position, results of operations, or cash flows[90](index=90&type=chunk) [Note 14. Goodwill and Other Intangibles](index=21&type=section&id=Note%2014.%20Goodwill%20and%20Other%20Intangibles) This note details the changes in goodwill due to acquisitions and the carrying value and amortization of other intangible assets - Goodwill increased to **$147.4 million** at June 30, 2022, from **$48.1 million** at December 31, 2021, primarily due to the **$99.3 million** recorded from the Segmint acquisition[91](index=91&type=chunk) Total Intangibles, Net (in thousands) | Category | Carrying Value (June 30, 2022) | Accumulated Amortization (June 30, 2022) | Net Carrying Value (June 30, 2022) | | :--------------------- | :----------------------------- | :--------------------------------------- | :--------------------------------- | | Customer Relationships | $19,970 | $(767) | $19,203 | | Developed Technology | $27,100 | $(2,105) | $24,995 | | Tradenames | $750 | $(55) | $695 | | Subtotal amortizable | $47,820 | $(2,927) | $44,893 | | Website domain name | $25 | — | $25 | | Total | $47,845 | $(2,927) | $44,918 | - Amortization expense on intangible assets was **$1.6 million** for the six months ended June 30, 2022, a significant increase from **$0.4 million** in the prior year, largely due to recent acquisitions[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Alkami's financial condition and operational results, highlighting revenue growth driven by client expansion and product adoption, alongside increased operating expenses due to strategic investments, and details key business metrics, liquidity, and capital resources, including the impact of recent acquisitions and debt financing [Overview](index=25&type=section&id=Overview) This section provides an overview of Alkami's business model, strategic acquisitions, and key financial highlights for the reporting periods - Alkami is a cloud-based digital banking solutions provider, enabling financial institutions to compete with larger banks through its Alkami Platform[98](index=98&type=chunk) - The company's strategy involves long-term, subscription-based contracts, primarily using a per-registered-user pricing model with tiered discounts[98](index=98&type=chunk)[102](index=102&type=chunk) - Recent acquisitions include ACH Alert (2020), MK Decisioning Systems (2021), and Segmint Inc. (April 2022), expanding product offerings in fraud prevention, digital account opening, and marketing analytics[99](index=99&type=chunk) Financial Highlights (in millions) | Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | | :----------- | :------------------------------- | :------------------------------- | | Total Revenues | $50.5 | $36.7 | | Net Loss | $(20.2) | $(11.4) | | Metric | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :----------- | :----------------------------- | :----------------------------- | | Total Revenues | $95.3 | $69.9 | | Net Loss | $(33.6) | $(22.3) | [Factors Affecting our Operating Results](index=26&type=section&id=Factors%20Affecting%20our%20Operating%20Results) This section discusses the primary drivers influencing the company's financial performance, including client growth, customer penetration, product expansion, and innovation investments - Key factors include growing the FI client base (**182 FIs**, over **320 clients** across all products as of June 30, 2022, representing **91.3%** annual client growth), deepening client customer penetration, and expanding the product suite[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) - Client renewals are crucial for revenue stability and gross margin targets; the company had **one** and **five** client renewals in the three and six months ended June 30, 2022, respectively[107](index=107&type=chunk) - Continued leadership in innovation, supported by significant R&D investment (**32.8%** and **32.3%** of revenues for the three and six months ended June 30, 2022), is vital for maintaining a differentiated platform[108](index=108&type=chunk) - The COVID-19 pandemic continues to pose uncertainty, potentially impacting sales and implementation activities[109](index=109&type=chunk) [Components of Results of Operations](index=26&type=section&id=Components%20of%20Results%20of%20Operations) This section breaks down the key components of the company's financial results, including revenue recognition, cost of revenues, gross margin, and operating expenses - Revenues are primarily derived from multi-year SaaS subscription services (average contract life of **70 months**), with fees based on contractual minimums and registered users[110](index=110&type=chunk) - Cost of revenues includes personnel costs for implementation, client support, and development, third-party hosting, direct costs of bill-pay services, and amortization of acquired technology[114](index=114&type=chunk) - Gross margin was **54.0%** and **54.6%** for the three and six months ended June 30, 2022, respectively, compared to **55.9%** and **54.7%** for the same periods in 2021[116](index=116&type=chunk) - Operating expenses (R&D, Sales & Marketing, G&A) are increasing due to investments in platform expansion, sales team growth, and public company costs[119](index=119&type=chunk)[120](index=120&type=chunk)[123](index=123&type=chunk) - Acquisition-related expenses include deferred compensation and professional fees, offset by gains on revaluation of contingent consideration[123](index=123&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section presents a detailed comparison of the company's consolidated statements of operations data for the three and six months ended June 30, 2022, and 2021 Consolidated Statements of Operations Data (in thousands) | Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $50,530 | $36,701 | $95,320 | $69,963 | | Cost of revenues | $23,257 | $16,180 | $43,237 | $31,677 | | Gross profit | $27,273 | $20,521 | $52,083 | $38,286 | | Total operating expenses | $46,657 | $30,334 | $84,473 | $57,038 | | Loss from operations | $(19,384) | $(9,813) | $(32,390) | $(18,752) | | Net loss | $(20,233) | $(11,375) | $(33,639) | $(22,254) | Stock-based Compensation Expenses (in thousands) | Category | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues | $1,056 | $465 | $2,034 | $698 | | Research and development | $2,580 | $702 | $4,464 | $1,001 | | Sales and marketing | $997 | $240 | $1,747 | $344 | | General and administrative | $6,635 | $1,616 | $12,797 | $2,398 | | Total | $11,268 | $3,023 | $21,042 | $4,441 | [Key Business Metrics](index=31&type=section&id=Key%20Business%20Metrics) This section highlights the company's key performance indicators, including Annual Recurring Revenue (ARR), Registered Users, Revenue per Registered User (RPU), and Adjusted EBITDA Key Business Metrics | Metric | As of June 30, 2022 | As of June 30, 2021 | Change ($) | Change (%) | | :---------------------- | :------------------ | :------------------ | :--------- | :--------- | | Annual Recurring Revenue (ARR) | $204.5 million | $144.7 million | $59.8 million | 41.3% | | Registered Users | 13.3 million | 10.7 million | 2.6 million | 24.3% | | Revenue per Registered User (RPU) | $15.33 | $13.48 | $1.85 | 13.7% | Adjusted EBITDA (in millions) | Period | Adjusted EBITDA | | :---------------------- | :-------------- | | Three months ended June 30, 2022 | $(5.3) | | Six months ended June 30, 2022 | $(8.9) | | Three months ended June 30, 2021 | $(5.4) | | Six months ended June 30, 2021 | $(11.5) | - Adjusted EBITDA improved for the six months ended June 30, 2022, to **$(8.9) million** from **$(11.5) million** in the prior year[133](index=133&type=chunk) [Comparison of Three and Six Months ended June 30, 2022 and 2021](index=32&type=section&id=Comparison%20of%20Three%20and%20Six%20Months%20ended%20June%2030,%202022%20and%202021) This section provides a detailed comparative analysis of the company's financial performance for the three and six months ended June 30, 2022, versus the same periods in 2021 [Revenues](index=32&type=section&id=Revenues) This section analyzes the changes in the company's total revenues for the comparative periods Revenue Growth (in thousands) | Period | 2022 | 2021 | Change ($) | Change (%) | | :---------------------- | :------- | :------- | :--------- | :--------- | | Three months ended June 30 | $50,530 | $36,701 | $13,829 | 37.7% | | Six months ended June 30 | $95,320 | $69,963 | $25,357 | 36.2% | - Revenue increase for the three months was driven by registered user growth from new and existing clients, RPU growth, and **$2.3 million** from the Segmint acquisition[139](index=139&type=chunk) - For the six months, revenue growth was due to **2.6 million** registered user growth (**1.4 million** existing, **1.2 million** new) and **13.7%** RPU growth, with Segmint contributing **$2.3 million**[140](index=140&type=chunk) [Cost of Revenues](index=32&type=section&id=Cost%20of%20Revenues) This section examines the changes in the cost of revenues and its impact on gross margin for the comparative periods Cost of Revenues and Gross Margin | Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues (in thousands) | $23,257 | $16,180 | $43,237 | $31,677 | | Percentage of revenues | 46.0% | 44.1% | 45.4% | 45.3% | - Cost of revenues increased by **43.7%** for the three months and **36.5%** for the six months, primarily due to higher personnel costs, third-party partner costs, hosting costs, and Segmint acquisition-related expenses[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk) - Gross margin slightly decreased to **54.0%** for the three months ended June 30, 2022, from **55.9%** in the prior year, while remaining stable at **54.6%** for the six-month period[142](index=142&type=chunk) [Research and Development](index=33&type=section&id=Research%20and%20Development) This section analyzes the changes in research and development expenses for the comparative periods Research and Development Expenses (in thousands) | Period | 2022 | 2021 | Change ($) | Change (%) | | :---------------------- | :------- | :------- | :--------- | :--------- | | Three months ended June 30 | $16,595 | $12,107 | $4,488 | 37.1% | | Six months ended June 30 | $30,751 | $23,020 | $7,731 | 33.6% | - Increases were driven by higher personnel-related costs (including stock-based compensation) due to headcount growth in engineering and product teams, Segmint acquisition-related costs, and consulting/hosting costs[146](index=146&type=chunk)[147](index=147&type=chunk) [Sales and Marketing](index=33&type=section&id=Sales%20and%20Marketing) This section analyzes the changes in sales and marketing expenses for the comparative periods Sales and Marketing Expenses (in thousands) | Period | 2022 | 2021 | Change ($) | Change (%) | | :---------------------- | :------- | :------- | :--------- | :--------- | | Three months ended June 30 | $10,204 | $5,326 | $4,878 | 91.6% | | Six months ended June 30 | $18,101 | $10,641 | $7,460 | 70.1% | - Significant increases were primarily due to headcount growth in sales and marketing teams, Segmint acquisition-related costs, higher travel costs, and increased expenses for industry conferences and trade shows (e.g., Co:Lab) as activities return to pre-COVID levels[148](index=148&type=chunk)[149](index=149&type=chunk) [General and Administrative](index=33&type=section&id=General%20and%20Administrative) This section analyzes the changes in general and administrative expenses for the comparative periods General and Administrative Expenses (in thousands) | Period | 2022 | 2021 | Change ($) | Change (%) | | :---------------------- | :------- | :------- | :--------- | :--------- | | Three months ended June 30 | $18,731 | $12,185 | $6,546 | 53.7% | | Six months ended June 30 | $35,777 | $21,932 | $13,845 | 63.1% | - Increases were mainly driven by higher personnel-related and other costs (including stock-based compensation), Segmint acquisition-related costs, increased insurance costs for public company D&O coverage, and higher software costs[150](index=150&type=chunk)[151](index=151&type=chunk) [Acquisition-related expenses, net](index=34&type=section&id=Acquisition-related%20expenses,%20net) This section analyzes the changes in acquisition-related expenses, net, for the comparative periods Acquisition-related expenses, net (in thousands) | Period | 2022 | 2021 | Change ($) | Change (%) | | :---------------------- | :----- | :----- | :--------- | :--------- | | Three months ended June 30 | $796 | $625 | $171 | 27.4% | | Six months ended June 30 | $(582) | $1,263 | $(1,845) | (146.1)% | - The six-month decrease was primarily due to a **$2.7 million** gain on contingent consideration related to the MK acquisition, partially offset by **$0.8 million** in Segmint acquisition expenses[152](index=152&type=chunk) [Amortization of acquired intangibles](index=34&type=section&id=Amortization%20of%20acquired%20intangibles) This section analyzes the changes in amortization of acquired intangibles for the comparative periods Amortization of acquired intangibles (in thousands) | Period | 2022 | 2021 | Change ($) | Change (%) | | :---------------------- | :--- | :--- | :--------- | :--------- | | Three months ended June 30 | $331 | $91 | $240 | 263.7% | | Six months ended June 30 | $426 | $182 | $244 | 134.1% | - The increase was primarily due to additional amortization from intangible assets acquired in the MK (September 2021) and Segmint (April 2022) acquisitions[153](index=153&type=chunk) [Non-Operating Income (Expense), Net](index=34&type=section&id=Non-Operating%20Income%20(Expense),%20Net) This section analyzes the changes in non-operating income and expense for the comparative periods - Non-operating expense decreased by **$0.9 million** for the three months and **$2.5 million** for the six months ended June 30, 2022[154](index=154&type=chunk) - The six-month decrease was primarily due to a **$3.0 million** non-operating loss related to warrant liabilities in 2021, partially offset by net interest expense, unrealized losses on marketable securities, and loss on extinguishment of debt in 2022[154](index=154&type=chunk) [Provision for Income Taxes](index=34&type=section&id=Provision%20for%20Income%20Taxes) This section analyzes the changes in the provision for income taxes for the comparative periods - The Company recorded **$0.2 million** in income tax provision for both the three and six months ended June 30, 2022, compared to none in 2021[155](index=155&type=chunk) - The effective tax rate was negative, primarily due to state income taxes, deferred taxes from acquired goodwill amortization, and a full valuation allowance against deferred tax assets[155](index=155&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to generate and manage cash, including its cash position, financing activities, and debt arrangements - As of June 30, 2022, the Company had **$213.4 million** in cash, cash equivalents, and marketable securities, with an accumulated deficit of **$347.5 million**[156](index=156&type=chunk) - Operations are financed through preferred and common stock sales, SaaS revenue, and borrowings under the Amended Credit Agreement[156](index=156&type=chunk) - The IPO in April 2021 generated **$192.8 million** in net proceeds[157](index=157&type=chunk) Summary of Cash Flows (in thousands) | Cash Flow Activity | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(19,369) | $(12,288) | | Net cash used in investing activities | $(259,576) | $(1,446) | | Net cash provided by financing activities | $62,584 | $185,422 | - The Amended Credit Agreement (April 2022) provides a **$40.0 million** revolving facility and an **$85.0 million** term loan, with an accordion feature for up to **$50.0 million**[166](index=166&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=37&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) This section confirms that there have been no material changes to the company's critical accounting policies and estimates - There have been no material changes to the critical accounting policies and estimates since the Annual Report on Form 10-K for the year ended December 31, 2021[176](index=176&type=chunk) [Recently Issued Accounting Pronouncements](index=37&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section directs readers to Note 2 for information on recently issued accounting pronouncements - Refer to Note 2 of the Notes to Unaudited Condensed Consolidated Financial Statements for discussion of recent accounting pronouncements[177](index=177&type=chunk) [Emerging Growth Company Status](index=37&type=section&id=Emerging%20Growth%20Company%20Status) This section clarifies the company's status as an "emerging growth company" and its election regarding accounting standards - The Company is an 'emerging growth company' and has elected to use the extended transition period for new or revised accounting standards, which may affect comparability with other public companies[178](index=178&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section addresses the Company's exposure to market risks, primarily focusing on interest rate risk associated with its variable-rate Amended Credit Agreement [Interest Rate Risk](index=38&type=section&id=Interest%20Rate%20Risk) This section details the company's exposure to interest rate fluctuations and their potential impact on financial performance - The Company is exposed to interest rate risk due to its Amended Credit Agreement, which bears interest at a variable rate (SOFR plus a margin)[180](index=180&type=chunk) - A hypothetical **10%** change in interest rates is not expected to have a material impact on the consolidated financial statements, assuming the Amended Credit Agreement is fully drawn[180](index=180&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures as evaluated by management - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[181](index=181&type=chunk) [Changes in Internal Control over Financial Reporting](index=38&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes in the company's internal control over financial reporting during the period - There were no changes in internal control over financial reporting during the period that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[182](index=182&type=chunk) [PART II - OTHER INFORMATION](index=39&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the Company is not currently a party to any litigation that would have a material adverse effect on its business, operating results, cash flows, or financial condition - The Company is not involved in any material legal proceedings that would adversely affect its financial condition or operations[184](index=184&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section confirms that there are no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[185](index=185&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[185](index=185&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities[185](index=185&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that there are no mine safety disclosures applicable to the Company - No mine safety disclosures[185](index=185&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - No other information to report[185](index=185&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including the Amended Credit Agreement, Guarantee and Collateral Agreement, and various certifications - Key exhibits include the Senior Secured Credit Facilities Amended and Restated Credit Agreement and the Amended and Restated Guarantee and Collateral Agreement, both dated April 29, 2022[187](index=187&type=chunk) - Certifications of the Principal Executive Officer and Principal Financial Officer are included as Exhibits 31.1, 31.2, 32.1, and 32.2[187](index=187&type=chunk) [SIGNATURES](index=41&type=section&id=Signatures) This section provides the official signatures of the company's principal executive and financial officers, certifying the report's accuracy - The report was signed by Alex Shootman, Chief Executive Officer, and W. Bryan Hill, Chief Financial Officer, on August 5, 2022[191](index=191&type=chunk)

Financial Data and Key Metrics Changes - Alkami reported Q1 2022 revenue of $44.8 million, representing a 35% growth year-over-year, exceeding guidance by $800,000 [16] - Annual recurring revenue (ARR) increased by 32% to $177 million, with $37 million in backlog for implementation over the next 12 months [18] - Non-GAAP gross margin improved to 58% from 55% in the prior year, driven by revenue scale and cost efficiencies [20] Business Line Data and Key Metrics Changes - The company added five new logos and renewed four existing clients, with a total of 179 digital platform clients [16] - Revenue per user (RPU) grew to $13.80, up 3% compared to the prior year [17] - Subscription revenue accounted for 96% of total revenue, growing 36% year-over-year [18] Market Data and Key Metrics Changes - The total addressable market (TAM) is now nearly $11 billion, including $1 billion from the Segmint acquisition [19] - Digital user growth was driven by the implementation of financial institutions supporting 1.3 million users and an increase in client digital user adoption by 1.5 million users [17] Company Strategy and Development Direction - Alkami aims to be the digital banking provider of choice for banks while maintaining leadership with credit unions [13] - The company is focused on growing add-on sales and enhancing its platform to support clients' digital banking infrastructure [14] - Alkami plans to remain agile in M&A activities, as demonstrated by the recent acquisition of Segmint [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of loan demand and the importance of continued innovation for client success [12] - The company anticipates strong demand for digital banking innovation, which is seen as a core strategy for financial institutions [13] - Guidance for Q2 2022 includes revenue expectations of $47.5 million to $48.5 million, with a full-year revenue forecast raised to $198 million to $201 million [25][26] Other Important Information - The company ended the quarter with over $209 million in cash and marketable securities, with a net use of cash of $9 million during the quarter [23] - The Segmint acquisition was closed for $135.5 million, funded through a combination of cash and incremental term debt [24] Q&A Session Summary Question: Can you elaborate on the Segmint acquisition and cross-selling expectations? - Management highlighted the attractiveness of Segmint as a standalone product and the potential for cross-selling within the Alkami customer base, emphasizing strong interest from clients during the recent conference [28][30] Question: What was the mix of new business wins and renewals between banks and credit unions? - The majority of new logos were banks, with four out of five new clients being banks, and the client sales team contributed significantly to total contract value [31][32]

Alkami Technology Inc. (ALTK) Q4 2021 Earnings Conference Call February 23, 2022 5:00 PM ET Company Participants Alex Shootman – Chief Executive Officer Bryan Hill – Chief Financial Officer Steve Calk – Head of Investor Relations Conference Call Participants Andrew Smith – Citi Bob Napoli – William Blair Sterling Auty – JP Morgan Mayank Tandon – Needham Josh Beck – KeyBanc Operator Hello and welcome to Alkami's Fourth Quarter 2021 Financial Results Conference Call. My name is Adriana and I'll be your Operat ...