10-Q 1 alk-20220930.htm 10-Q alk-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 001-40321
alk-20220930_g1.gif
ALKAMI TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware45-3060776
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer Identification No.)
5601 Granite Parkway,Suite 120
Plano,TX75204
(Address of Principal Executive Offices)(Zip Code)
(877) 725-5264
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareALKTThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Smaller reporting company
Accelerated filer
Emerging growth company
Non-accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No 
The number of shares of registrant’s common stock outstanding as of September 30, 2022 was 91,477,997.



TABLE OF CONTENTS
i    


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(UNAUDITED)
September 30,December 31,
20222021
Assets
Current assets
Cash and cash equivalents$96,636 $308,581 
Marketable securities 112,215  
Accounts receivable, net26,304 20,821 
Deferred implementation costs, current7,053 6,272 
Prepaid expenses and other current assets13,108 9,487 
Total current assets255,316 345,161 
Property and equipment, net13,468 11,828 
Deferred implementation costs, net of current portion21,013 17,991 
Intangibles, net44,290 11,164 
Goodwill146,036 48,091 
Other assets5,162 2,275 
Total assets$485,285 $436,510 
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Current portion of long-term debt$2,125 $1,563 
Accounts payable3,214 3,649 
Accrued liabilities25,276 19,083 
Deferred rent and tenant allowance, current750 705 
Deferred revenues, current portion8,673 8,198 
Total current liabilities40,038 33,198 
Long-term debt, net82,415 23,053 
Deferred revenues, net of current portion13,597 13,873 
Deferred rent and tenant allowance, net of current portion4,620 5,190 
Deferred income taxes341 85 
Other non-current liabilities16,400 16,500 
Total liabilities157,411 91,899 
Commitments and contingencies (Note 11 and 13)
Stockholders’ Equity (Deficit)
Preferred stock, $0.001 par, 10,000,000 shares authorized and 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021
  
Common stock, $0.001 par, 500,000,000 shares authorized; and 91,477,997 and 89,954,657 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
91 90 
Additional paid-in capital695,324 658,374 
Accumulated deficit(367,541)(313,853)
Total stockholders’ equity 327,874 344,611 
Total liabilities and stockholders' equity$485,285 $436,510 

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.


1


ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
Three months ended September 30,
Nine months ended September 30,
2022202120222021
Revenues53,412 39,761 $148,732 $109,724 
Cost of revenues(1)
25,844 17,387 69,081 49,064 
Gross profit27,568 22,374 79,651 60,660 
Operating expenses:
Research and development18,222 12,877 48,973 35,897 
Sales and marketing9,721 7,216 27,822 17,858 
General and administrative18,337 12,415 54,114 34,348 
Acquisition-related expenses, net737 915 155 2,177 
Amortization of acquired intangibles370 93 796 274 
Total operating expenses47,387 33,516 131,860 90,554 
Loss from operations
(19,819)(11,142)(52,209)(29,894)
Non-operating income (expense):
Interest income851 223 1,383 364 
Interest expense(1,185)(300)(2,336)(908)
Loss on financial instruments(59) (446)(3,035)
Loss before income taxes(20,212)(11,219)(53,608)(33,473)
Provision (benefit) for income taxes(163) 80  
Net loss$(20,049)$(11,219)$(53,688)$(33,473)
Less: cumulative dividends and adjustments to redeemable convertible preferred stock   (277)
Net loss attributable to common stockholders:$(20,049)$(11,219)$(53,688)$(33,750)
Net loss per share attributable to common stockholders:
Basic and diluted$(0.22)$(0.13)$(0.59)$(0.60)
Weighted average number of shares of common stock outstanding:
Basic and diluted91,182,235 87,641,416 90,703,061 56,320,288 
(1) Includes amortization of acquired technology of $1.4 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively, and $2.6 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively.


The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.


2    


ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
(UNAUDITED)

Three months ended September 30, 2022
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance June 30, 2022
 $ 91,036,107 $91 $682,946 $(347,492)$335,545 
Stock-based compensation— — — — 12,147 — 12,147 
Issuance of common stock upon restricted stock unit vesting— — 114,029 — — —  
Common stock issued under Employee Stock Purchase Plan (ESPP)— —  —  —  
Exercised stock options— — 327,861 — 827 — 827 
Payments for taxes related to net settlement of equity awards— — — — (596)— (596)
Net loss— — — — — (20,049)(20,049)
Balance September 30, 2022
 $ 91,477,997 $91 $695,324 $(367,541)$327,874 


Three months ended September 30, 2021
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance June 30, 2021 $ 87,186,730 $87 $640,457 $(289,285)$351,259 
Stock-based compensation— — — — 3,352 — 3,352 
Exercised stock options— — 749,800 1 1,480 — 1,481 
Exercised warrants— — 211,323 — 645 — 645 
Net loss— — — — — (11,219)(11,219)
Balance September 30, 2021 $ 88,147,853 $88 $645,934 $(300,504)$345,518 

3    


ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
(UNAUDITED)

Nine months ended September 30, 2022
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance December 31, 2021
 $ 89,954,657 $90 $658,374 $(313,853)$344,611 
Stock-based compensation— — — — 33,596 — 33,596 
Issuance of common stock upon restricted stock unit vesting— — 392,337 — — — — 
Common stock issued under Employee Stock Purchase Plan (ESPP)— — 199,887 — 1,841 — 1,841 
Exercised stock options— — 931,116 1 2,109 — 2,110 
Payments for taxes related to net settlement of equity awards— — — — (596)— (596)
Net loss— — — — — (53,688)(53,688)
Balance September 30, 2022
 $ 91,477,997 $91 $695,324 $(367,541)$327,874 

Nine months ended September 30, 2021
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance December 31, 2020
72,225,916 $443,263 4,909,529 $5 $ $(263,528)$(263,523)
Stock-based compensation— — — — 7,793 — 7,793 
Exercised stock options— — 4,120,002 4 6,413 — 6,417 
Exercised warrants— — 211,323 — 645 — 645 
Payment of Series B Dividend upon initial public offering— (4,969)— — — — — 
Cumulative dividends and adjustments to redeemable convertible preferred stock— 277 — — (277)— (277)
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions— — 6,900,000 7 192,803 — 192,810 
Conversion of redeemable convertible preferred stock to common stock upon initial public offering(72,225,916)(438,571)72,225,916 72 438,498 — 438,570 
Conversion of redeemable convertible preferred stock warrants to common stock warrants upon initial public offering— — — — 5,727 — 5,727 
Costs in connection with initial public offering— — — — (5,674)— (5,674)
Repurchase of common stock— — (218,917)— 6 (3,503)(3,497)
Net loss— — — —  (33,473)(33,473)
Balance September 30, 2021
 $ 88,147,853 $88 $645,934 $(300,504)$345,518 

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.








4    


ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
Nine months ended September 30,
20222021
Cash flows from operating activities:
Net loss
$(53,688)$(33,473)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense5,512 2,384 
Accrued interest on marketable securities, net(67) 
Stock-based compensation expense33,596 7,793 
Amortization of debt issuance costs112 39 
Gain on revaluation of contingent consideration(2,700) 
Loss on financial instruments
446 3,035 
Deferred taxes(80) 
Changes in operating assets and liabilities:
Accounts receivable(3,688)(5,741)
Prepaid expenses and other current assets(2,802)(689)
Accounts payable and accrued liabilities3,590 12,758 
Deferred implementation costs(3,804)(1,612)
Deferred rent and tenant allowances(525)(397)
Deferred revenues53 (899)
Net cash used in operating activities
(24,045)(16,802)
Cash flows from investing activities:
Purchase of marketable securities(164,093) 
Proceeds from maturities and redemptions of marketable securities51,500  
Purchases of property and equipment(964)(870)
Capitalized software development costs(2,778)(1,275)
Acquisition of business, net of cash acquired(1)
(131,339)(18,326)
Net cash used in investing activities
(247,674)(20,471)
Cash flows from financing activities:
Proceeds from issuance of long-term debt85,000  
Principal payments on debt(24,688) 
Debt issuance costs paid(773) 
Proceeds from exercise of warrants 645 
Proceeds from ESPP issuance1,841  
Payments for taxes related to net settlement of equity awards(596) 
Proceeds from stock option exercises2,109 6,417 
Deferred IPO issuance costs paid (4,520)
Repurchase of common stock (3,497)
Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and commissions 192,810 
Payment of Series B dividend (4,969)
Net cash provided by financing activities
62,893 186,886 
Net (decrease) increase in cash and cash equivalents and restricted cash (208,826)149,613 
Cash and cash equivalents and restricted cash, beginning of period312,954 171,663 
Cash and cash equivalents and restricted cash, end of period$104,128 $321,276 

(1) See Note 3 for additional information regarding noncash investing activities for the nine months ended September 30, 2022 and 2021, related to the acquisition of MK.

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.
5    


ALKAMI TECHNOLOGY, INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)

Note 1. Organization

Description of Business

Alkami Technology, Inc. (the “Company”) is a cloud-based digital banking solutions provider. The Company inspires and empowers community, regional and super-regional financial institutions (“FIs”) to compete with large, technologically advanced and well-resourced banks in the United States. The Company’s solution, the Alkami Platform, allows FIs to onboard and engage new users, accelerate revenues and meaningfully improve operational efficiency, all with the support of a proprietary, true cloud-based, multi-tenant architecture. The Company cultivates deep relationships with its clients through long-term, subscription-based contractual arrangements, aligning its growth with its clients’ success and generating an attractive unit economic model. The Company was incorporated in Delaware in August 2011, and its principal offices are located in Plano, Texas.

Note 2. Summary of Significant Accounting Policies

The accompanying financial statements reflect the application of significant accounting policies as described below.

Basis of Presentation and Consolidation

The interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All intercompany accounts and transactions are eliminated.

In the Company's opinion, the accompanying interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Certain information and disclosures normally included in the notes to the annual consolidated financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2021, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 25, 2022. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2022.

The Company has no sources of other comprehensive income, and accordingly, net loss presented each period is the same as comprehensive loss.

Reclassification. Acquisition-related expenses, net and amortization of acquired intangibles previously included in general and administrative expense and sales and marketing expense, respectively, were reclassified into separate individual captions within the condensed consolidated statement of operations to conform with the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates and assumptions include determining the timing and amount of revenue recognition, recoverability and amortization period related to costs to obtain and fulfill contracts, deferred implementation costs, revaluation of contingent consideration, and business combinations.

6    


Restricted Cash

The Company defines restricted cash as cash that is legally restricted as to withdrawal or usage. The amounts included in restricted cash on the condensed consolidated balance sheets at September 30, 2022 and December 31, 2021 represent the additional cash proceeds in deposit with an escrow agent for satisfaction of contingent consideration related to the acquisition of ACH Alert, LLC (“ACH Alert”). In addition, restricted cash representing additional cash proceeds in deposit with an escrow agent for satisfaction of a holdback provision related to the acquisitions of MK Decisioning Systems, LLC (“MK”) and Segmint Inc. (“Segmint”) is included in the condensed consolidated balance sheets at September 30, 2022 and December 31, 2021. See Note 3 for further information.

September 30,December 31,
(in thousands)20222021
Cash and cash equivalents$96,636 $308,581 
Restricted cash included in Prepaid expenses and other current assets4,392 3,373 
Restricted cash included in Other assets3,100 1,000 
Total cash and cash equivalents and restricted cash$104,128 $312,954 

Marketable Securities

The Company classifies its fixed income marketable securities as trading securities based on its intentions with regard to these instruments. Accordingly, marketable securities are reported at fair value, with all unrealized holding gains and losses reflected in the condensed consolidated statements of operations.

Capitalized Software Development Costs

Software development costs relate primarily to software coding, systems interfaces, and testing of the Company’s proprietary systems and are accounted for in accordance with ASC 350-40, Internal Use Software. Internal software development costs are capitalized from the time the internal use software is in the application development stage until the software is ready for use. Business analysis, system evaluation, and software maintenance costs are expensed as incurred. The capitalized software development costs are reported in property and equipment, net in the condensed consolidated balance sheets.

The Company had $5.3 million and $2.6 million in capitalized internal software development costs as of September 30, 2022 and December 31, 2021, respectively. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally three to five years from when the asset is placed in service.

Contract Balances

Client contracts under which revenues have been recognized while the Company is not yet able to invoice results in contract assets. Generally, contract assets arise as a result of reallocating revenues when discounts are more heavily weighted in the early years of a multi-year contract or the client contract has substantive minimum fees that escalate over the term of the contract. Contract assets totaled $0.5 million and $0.7 million as of September 30, 2022 and December 31, 2021, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets.

Contract liabilities are comprised of billings or payments received from the Company’s clients in advance of performance under the contract and are represented in deferred revenues in the condensed consolidated balance sheets.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the consolidated balance sheets and disclosing key information about leasing arrangements. The Company anticipates that the adoption of Topic 842 will impact its consolidated balance sheets as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and corresponding operating lease liabilities upon the adoption of ASU 2016-02. The Company expects to adopt the standard in fiscal year 2022 using the modified retrospective transition approach and for interim periods beginning 2023. The Company continues to evaluate quantitative impacts that the adoption of this standard will have. The Company expects total assets and liabilities reported will increase relative to such amounts prior to adoption.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326),” which modifies the measurement of expected credit losses of certain financial instruments with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The effective date for adoption of the new standard was delayed until calendar years beginning after December 15, 2022, with early adoption permitted. The Company expects to adopt the standard in its annual report on Form 10-K for the year ending December 31, 2022 and for interim periods beginning in 2023. This ASU is not expected to have a material impact on the Company’s financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if the acquiring entity had originated the related revenue contracts. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including interim
7    


periods within those fiscal years. An entity that early adopts this guidance in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company early adopted the standard during the second quarter of 2022, has applied the related accounting to the business combination completed in the current fiscal year and will apply the standard to all business combinations completed prospectively. The adoption of ASU 2021-08 did not have a material impact on the consolidated financial statements.

Note 3. Business Combination

ACH Alert, LLC

On October 4, 2020, the Company announced the acquisition of substantially all of the assets of ACH Alert for approximately $25 million in cash consideration. The ACH Alert acquisition also involved $4.9 million of additional cash consideration that the Company placed on deposit with an escrow agent to be paid upon the continued employment of one of the owners of ACH Alert, of which $2.5 million was paid in October 2021 and $2.4 million was paid in October 2022. The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets and is accruing the estimated payouts over the requisite service period as a component of acquisition-related expenses on the condensed consolidated statements of operations. For the three and nine months ended September 30, 2022, the Company recognized compensation expense of $0.5 million and $1.7 million, respectively, and for the three and nine months ended September 30, 2021, the Company recognized compensation expense of $0.6 million and $1.9 million, respectively, related to this agreement.

MK Decisioning Systems, LLC

On September 10, 2021, the Company acquired substantially all of the assets of MK for approximately $20 million in cash consideration due at closing subject to a $2 million holdback provision held in escrow with $1 million to be released at the 12-month anniversary of close and the remainder to be released at the 18-month anniversary of close. The Company also agreed to assume certain liabilities associated with MK’s business. The integrated set of assets and activities acquired from MK through the acquisition meet the definition of a business under ASC 805, as updated by ASU 2017-01.

In addition to the base purchase price, the MK acquisition also included a potential earn-out that is tied to revenue of MK from sales of its products and services within two 12-month periods (the “First Earn-Out Period” and “Second Earn-Out Period”), with the First Earn-Out Period beginning on January 1, 2022 and ending on December 31, 2022 and the Second Earn-Out Period beginning on January 1, 2023 and ending on December 31, 2023. Pursuant to the terms and conditions set forth in the purchase agreement, the earn-out amount payable, if any, to the former owners, will be a maximum of $7.5 million and $17.5 million for the First Earn-Out Period and Second Earn-Out Period, respectively, contingent on achievement of certain revenue milestones. In certain circumstances within both Earn-Out Periods, the earn-out amounts are payable in a mix of cash and shares (based on a reference price of $35 and limited to $20 million in earn-out shares) of the Company’s common stock subject to the election of the former owners. Earn-out amounts, if any, would be payable no later than 170 days after the end of each Earn-Out Period.

The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets. The fair value of the contingent earn-out both upon acquisition and as of December 31, 2021 was $15.5 million, for which the balance was included in Other non-current liabilities on the condensed consolidated balance sheets. This initial estimated fair value was included as contingent consideration in the total purchase price. The Company remeasures the fair value of the contingent consideration on an ongoing basis and records the adjustment to the condensed consolidated statements of operations. For the three and nine months ended September 30, 2022, the Company recorded a gain on revaluation of contingent consideration of $0 and $2.7 million, respectively. As of September 30, 2022, the fair value of the contingent earn-out was $12.8 million.

Assumptions used to estimate the fair value of contingent consideration include various financial metrics (revenue performance targets and stock price forecasts) and the probability of achieving the specific targets using a geometric binomial model. Based on the final purchase accounting, the Company estimated that approximately 62% of the maximum $25 million contingent consideration would be paid to the seller in accordance with the terms of the purchase agreement. As of September 30, 2022, the Company determined that approximately 51% of the maximum $25 million contingent consideration would be paid to the seller in accordance with the terms of the purchase agreement.

Transaction costs included in the condensed consolidated statements of operations for both the three and nine months ended September 30, 2021 were $0.3 million. For the nine months ended September 30, 2022 and 2021, the Company had noncash investing activities of $12.8 million and $17.5 million, respectively, related to unpaid consideration for the acquisition of MK.

Segmint Inc.

On April 25, 2022, the Company consummated its previously announced merger with Segmint pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), dated March 25, 2022 with Segmint surviving as a wholly owned subsidiary of the Company. Segmint operates a marketing analytics and messaging delivery platform with patented software that enables financial institutions and merchants to understand and leverage data, interact with customers and measure results.

The aggregate consideration paid in exchange for all of the outstanding equity interests of Segmint was approximately $135.0 million (the "Merger Consideration"). A portion of the Merger Consideration of approximately $3.1 million was placed into escrow to secure certain post-closing indemnification obligations in the Merger Agreement.

As of September 30, 2022, the allocation of the purchase price for Segmint has not been finalized. The preliminary purchase price allocations are based upon the preliminary valuation of assets and liabilities. These estimates and assumptions are subject to change as the Company obtains additional information during the measurement period. The following table summarizes the fair value amounts recognized as of the
8    


acquisition date for each major class of asset acquired or liability assumed, as well as adjustments made during the measurement period:

(in thousands)Preliminary Fair Value as of April 25, 2022Measurement Period AdjustmentsAdjusted Fair Value as of September 30, 2022
Cash $ $601 $601 
Trade accounts receivables1,788 7 1,795 
Other current assets323 (8)315 
Property and equipment35 — 35 
Goodwill99,310 (1,365)97,945 
Intangible assets35,400 1,100 36,500 
Total assets acquired$136,856 $335 $137,191 
Accounts payable$768 $16 $784 
Accrued liabilities188 73 261 
Deferred revenues, current145 — 145 
Deferred tax liability 336 336 
Other non-current liabilities625 — 625 
Total liabilities assumed1,726 425 2,151 
Net assets acquired$135,130 $(90)$135,040 
Less cash acquired (601)(601)
Total cash consideration for acquisition, less cash acquired$135,130 $(691)$134,439 

The measurement period adjustments recorded for the three months ended September 30, 2022 are related to post-closing working capital adjustments, cash account amounts received as part of assets, revised estimates for intangible assets, and assumption of deferred tax liabilities.

The table below outlines the purchased identifiable intangible assets:

Weighted Average Amortization PeriodTotal
(in years)(in thousands)
Customer relationships15$15,200 
Developed technology520,600 
Trade names10700 
Total identifiable intangible assets$36,500 

Goodwill resulted from the acquisition as it is intended to augment and diversify the Company’s single reportable segment and provide a complimentary solution to its existing platform offering. The Company accounted for the acquisition as a business combination. As a result of the acquisition of the stock of Segmint, the goodwill is not deductible for tax purposes.

The Company estimated and recorded a net deferred tax liability of $0.3 million after offsetting the acquired available tax attributes with the intangible assets shown in the table above. Refer to Note 10 for discussion of the partial release of the Company’s pre-existing valuation allowance relating to the net deferred tax liability.

For the three and nine months ended September 30, 2022, the Company recognized acquisition-related expenses of $0.2 million and $1.1 million, respectively, related to the acquisition of Segmint.

Note 4. Property and Equipment, Net

Depreciation and amortization expense was $0.6 million and $1.9 million for the three and nine months ended September 30, 2022, respectively, and $0.6 million and $1.8 million for the three and nine months ended September 30, 2021, respectively.

Property and equipment, net includes the following amounts at September 30, 2022 and December 31, 2021:

(in thousands)Useful LifeSeptember 30, 2022December 31, 2021
Software
2 to 5 years
$6,442 $3,299 
Computers and equipment3 years5,453 4,854 
Furniture and fixtures5 years3,984 3,980 
Leasehold improvements
3 to 10 years
11,715 11,712 
$27,594 $23,845 
Less: accumulated depreciation and amortization(14,126)(12,017)
Property and equipment, net$13,468 $11,828 

9    


Note 5. Revenue and Deferred Costs

The Company derives the majority of its revenues from recurring monthly subscription fees charged for the use of its software-as-a-service (“SaaS”) subscription services. Subscription revenues are generally recognized as revenue over the term of the contract as a series of distinct SaaS services bundled into a single performance obligation. Clients are usually charged a one-time, upfront implementation fee and recurring annual and monthly access fees for the use of the online digital relationship banking solution. Implementation and integration of the digital banking platform is complex, and the Company has determined that the one-time, upfront services do not transfer a promised service to the client. As these services are not distinct, they are bundled into the SaaS series of services, and the associated fees are recognized on a straight-line basis over the subscription term. Other services includes professional services and custom development.

The following table disaggregates the Company's revenue by major source for the three and nine months ended September 30, 2022 and 2021:

Three months ended September 30,
Nine months ended September 30,
(in thousands)2022202120222021
SaaS subscription services$50,697 $37,486 $141,287 $103,582 
Implementation services1,922 1,591 5,503 4,604 
Other services793 684 1,942 1,538 
Total revenues$53,412 $39,761 $148,732 $109,724 

The Company recognized approximately $12.5 million of revenue during the nine months ended September 30, 2022 which was recognized from deferred revenues in the accompanying condensed consolidated balance sheets as of the beginning of the reporting period. For those contracts that were wholly or partially unsatisfied as of September 30, 2022, minimum contracted subscription revenues to be recognized in future periods total approximately $755.2 million. The Company expects to recognize approximately 47.1% of this amount as subscription services are transferred to customers over the next 24 months, an additional 32.0% in the next 25 to 48 months, and the balance thereafter. This estimate does not include estimated consideration for excess user and transaction processing fees that the Company expects to earn under its subscription contracts.

Deferred Cost Recognition

The Company capitalized $2.3 million and $4.0 million in deferred commissions costs during the three and nine months ended September 30, 2022, respectively, and $0.3 million and $0.8 million for the three and nine months ended September 30, 2021, respectively, and recognized amortization of $0.7 million and $2.1 million during the three and nine months ended September 30, 2022, respectively, and $0.6 million and $1.6 million for the three and nine months ended September 30, 2021, respectively. Amortization expense is included in sales and marketing expenses in the accompanying statements of operations. Deferred commissions are considered costs to obtain a contract and are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $12.7 million and $10.8 million as of September 30, 2022 and December 31, 2021, respectively.

The Company capitalized implementation costs of $1.9 million and $4.8 million during the three and nine months ended September 30, 2022, respectively, and $1.3 million and $4.0 million during the three and nine months ended September 30, 2021, respectively, and recognized amortization of $1.0 million and $2.9 million during the three and nine months ended September 30, 2022, respectively, and $0.7 million and $1.9 million for the three and nine months ended September 30, 2021, respectively. Amortization expense is included in cost of revenues in the accompanying condensed consolidated statements of operations. These deferred costs are considered costs to fulfill client contracts and are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $15.4 million and $13.5 million as of September 30, 2022 and December 31, 2021, respectively.

The Company periodically reviews the carrying amount of deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. No impairment loss was recognized in relation to these capitalized costs for the three and nine months ended September 30, 2022 and 2021.

Note 6. Accounts Receivable

Accounts receivable includes the following amounts at September 30, 2022 and December 31, 2021:
September 30,December 31,
(in thousands)20222021
Trade accounts receivable$22,201 $15,991 
Unbilled receivables4,034 3,677 
Other receivables588 1,355 
Total receivables26,823 21,023 
Allowance for doubtful accounts(183)(39)
Reserve for estimated credits(336)(163)
$26,304 $20,821 

10    


Note 7. Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2022 and December 31, 2021:
September 30,December 31,
(in thousands)20222021
Bonus accrual$7,105 $3,725 
Accrued vendor purchases1,275 2,276 
Commissions accrual1,469 2,302 
Accrued hosting services847 1,264 
Client refund liability322 1,004 
Deferred compensation payable2,384 625 
Accrued consulting and professional fees371 657 
Accrued tax liabilities3,005 3,724 
MK acquisition holdback provision2,000 1,000 
ESPP liability877 821 
Other accrued liabilities5,621 1,685 
Total accrued liabilities$25,276 $19,083 

Note 8. Debt

On April 29, 2022, the Company entered into an amended and restated credit agreement with Silicon Valley Bank, Comerica Bank, and Canadian Imperial Bank of Commerce (the “Amended Credit Agreement”). The Amended Credit Agreement amends and restates the prior credit facility provided by Silicon Valley Bank and KeyBank National Association (“the Original Credit Agreement”). The Amended Credit Agreement matures on April 29, 2025. The Amended Credit Agreement includes the following among other features:
Revolving Facility: The Amended Credit Agreement provides $40.0 million in aggregate commitments for secured revolving loans (“Amended Revolving Facility”).
Term Loan: A term loan of $85.0 million (the “Amended Term Loan”) was borrowed on the closing date of the Amended Credit Agreement. The additional proceeds received from the Amended Term Loan were used to replenish cash used to fund the acquisition of Segmint, which closed on April 25, 2022.
Accordion Feature: The Amended Credit Agreement also permits the Company, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $50.0 million.

Amended Revolving Facility loans under the Amended Credit Agreement may be voluntarily prepaid and re-borrowed. Principal payments on the Amended Term Loan are due in quarterly installments equal to an initial amount of approximately $1.1 million, beginning on June 30, 2023 and continuing through March 31, 2024, and increasing to approximately $2.1 million beginning on June 30, 2024 through the Amended Credit Agreement maturity date. Once repaid or prepaid, the Amended Term Loan may not be re-borrowed. Debt issuance costs paid for the execution of the Amended Credit Facility were $0.9 million, of which $0.1 million was included in prepaid expenses and other current assets and $0.2 million was included in other assets on the condensed consolidated balance sheets.

Borrowings under the Amended Credit Agreement bear interest at a variable rate based upon the Secured Overnight Financing Rate (“SOFR”) plus a margin of 3.00% to 3.50% per annum depending on the applicable recurring revenue leverage ratio. If the SOFR rate is ever less than 0%, then the SOFR rate shall be deemed to be 0%. The Amended Credit Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default. The Company is required to pay a commitment fee of 0.25% per annum on the undrawn portion available under the Amended Revolving Facility, and variable fees on outstanding letters of credit. The Company has a standby letter of credit in the amount of $0.3 million, which serves as security under the lease relating to the Company’s office space that expires in 2028.

Obligations under the Amended Credit Agreement are guaranteed by the Company’s subsidiaries and secured by all or substantially all of the assets of the Company and its subsidiaries pursuant to an Amended and Restated Guarantee and Collateral Agreement executed contemporaneously with the Amended Credit Agreement.

The Amended Credit Agreement contains customary affirmative and negative covenants, as well as (i) an annual recurring revenue growth covenant requiring the loan parties to have recurring revenues in any four consecutive fiscal quarter period in an amount that is 10% greater than the recurring revenues for the corresponding four consecutive quarter period in the previous year and (ii) a liquidity (defined as the aggregate amount of cash in bank accounts subject to a control agreement plus availability under the Revolving Facility) covenant, requiring the loan parties to have liquidity, tested on the last day of each calendar month, of $15.0 million or more. The Amended Credit Agreement also contains customary events of default, which if they occur, could result in the termination of commitments under the Amended Credit Agreement, the declaration that all outstanding loans are immediately due and payable in whole or in part, and the requirement to maintain cash collateral deposits in respect of outstanding letters of credit. The Company was in compliance with all covenants as of September 30, 2022.

11    


Long-term Debt

The following table summarizes long-term debt obligations as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022December 31, 2021
Term Debt$85,000 $24,688 
Less unamortized debt issuance costs(460)(72)
Net amount84,540 24,616 
Less current maturities of long-term debt(2,125)(1,563)
Long-term portion$82,415 $23,053 

Maturities of long-term debt outstanding as of September 30, 2022, are summarized as follows (in thousands):

2022 
20233,188 
20247,438 
202574,374 
Thereafter 
Total$85,000 

Note 9. Stockholders' Equity (Deficit)

Equity Compensation Plans

Stock-based compensation expense was included in the condensed consolidated statements of operations as follows:
Three months ended September 30,
Nine months ended September 30,
(in thousands)2022202120222021
Cost of revenues$1,244 $544 $3,278 $1,242 
Research and development3,023 793 7,487 1,795 
Sales and marketing1,112 266 2,859 609 
General and administrative6,535 1,748 19,332 4,147 
Total stock-based compensation expenses$11,914 $3,351 $32,956 $7,793 


Note 10. Income Taxes

The Company recorded an income tax benefit of $0.2 million and an income tax expense of $0.1 million for the three and nine months ended September 30, 2022, respectively, resulting in an effective tax rate of 0.8% and (0.2)%, respectively, compared to no income tax expense for the three and nine months ended September 30, 2021.

The difference in the effective tax rate for the three and nine months ended September 30, 2022 as compared to the same periods in 2021 is primarily due to state income taxes and deferred taxes related to the tax amortization of acquired goodwill. This was partially offset by a $0.3 million deferred tax benefit attributable to the partial release of the Company’s pre-existing valuation allowance related to the Segmint business combination, recorded in the three months ended September 30, 2022.

The Company’s effective tax rate differs from the statutory tax rate primarily due to the impact of the full valuation allowance against its deferred tax assets.

During the three and nine months ended September 30, 2022, the acquisition of Segmint resulted in the recognition of a net deferred tax liability of $0.3 million. See Note 3 for further information. Prior to the business combination, the Company had a full valuation allowance on its net deferred tax assets. The net deferred tax liability generated from the business combination is considered an additional source of income to support the realizability of the Company’s pre-existing deferred tax assets. As a result, we released a portion of the pre-existing valuation allowance against the deferred tax assets and recorded a provisional deferred tax benefit of $0.3 million for the three and nine months ended September 30, 2022.

The Company recognizes deferred tax assets and liabilities based on the estimated future tax effects of temporary differences between the financial statement basis and tax basis of assets and liabilities given the provisions of enacted tax law. Management reviews deferred tax assets to assess their future realization by considering all available evidence, both positive and negative, to determine whether a valuation allowance is needed for all or some portion of the deferred tax assets, using a “more likely than not” standard. The assessment considers, among other matters: historical losses, a forecast of future taxable income, the duration of statutory carryback and carryforward periods, and ongoing prudent and feasible tax planning strategies. As a result, the Company has established a valuation allowance against most of its deferred tax assets as realization is not reasonably assured based upon a “more likely than not” threshold. The Company reassesses the realizability of deferred tax assets regularly, and it will adjust the valuation allowance as sufficient objective positive evidence becomes available.

12    


Note 11. Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, restricted cash and cash equivalents, accounts receivable, accounts payable, long-term debt, and contingent consideration. The carrying values of cash, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values due to the short-term nature of these instruments. The carrying value of long-term debt approximates its fair value due to the variable interest rate. Cash equivalents include amounts held in money market accounts that are measured at fair value using observable market prices. The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. The significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are forecasts of expected future annual revenues as developed by the Company's management and the probability of achievement of those revenue forecast. Significant increases (decreases) in these unobservable inputs in isolation would likely result in a significantly (lower) higher fair value measurement.

The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2. Significant other inputs that are directly or indirectly observable in the marketplace.

Level 3. Significant unobservable inputs which are supported by little or no market activity.

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. The following tables summarize the Company’s financial assets measured at fair value as of September 30, 2022 and December 31, 2021 and indicate the fair value hierarchy of the valuation:

Fair Value at Reporting Date Using
(In thousands)September 30, 2022Level 1Level 2Level 3
Assets:
Cash equivalents:
  Money Market Accounts(1)