What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-12 · 115 added, 91 removed, 269 unchanged (43% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our final prospectus (the “Prospectus”) for the Initial Public Offering (“IPO”) of our common stock, filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”).

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our final prospectus (the “Prospectus”) for our Initial Public Offering (“IPO”) of our common stock, filed with the Securities and Exchange Commission (“SEC”) on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”).

Unless the context otherwise requires, all references in this report to the “Company,” “Alkami,” “we,” “us” and “our” refer to Alkami Technology, Inc., a Delaware corporation, and its consolidated subsidiary taken as a whole.

39 unchanged sentences

• Integrations :

Scalability and extensibility driven by 220 real-time integrations to back office systems and third-party fintech solutions as of March 31, 2021 , including core systems, payment cards, mortgages, bill pay, electronic documents, money movement, personal financial management and account opening.

Scalability and extensibility driven by 229 real-time integrations to back office systems and third-party fintech solutions as of June 30, 2021 , including core systems, payment cards, mortgages, bill pay, electronic documents, money movement, personal financial management and account opening.

• Deep data capabilities :

2 unchanged sentences

Our typical relationship with an FI begins with a set of core functional components, which can extend over time to include a rounded suite of products across account opening, card experience, client service, extensibility, financial wellness, security and fraud protection, marketing and analytics and money movement.

We go to market through an internal sales force.

We primarily go to market through an internal sales force.

Given the long-term nature of our contracts, a typical sales cycle can range from approximately three to 12 months, with the subsequent implementation timeframe generally ranging from six to 12 months depending on the depth of integration.

We derive our revenues almost entirely from multi-year contracts that had an average contract life of approximately 70 months as of March 31, 2021.

We derive our revenues almost entirely from multi-year contracts that are based on an average contract life of approximately 70 months as of June 30, 2021.

We predominantly employ a per-registered-user pricing model, with incremental fees above certain contractual minimum commitments for each licensed solution.

3 unchanged sentences

Similarly, we continue to expand our sales and marketing organization focusing on new client wins, cross-selling opportunities and client renewals.

For the three months ended March 31, 2021 and 2020, our total revenues were $33.3 million and $23.2 million, respectively, representing a 43.3% increase.

SaaS subscription revenues, as further described below, represented 94.9% and 92.7% of total revenues for the three months ended March 31, 2021 and 2020, respectively.

We incurred net losses of $10.9 million and $10.3 million for the three months ended March 31, 2021 and 2020, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.

For the three months ended June 30, 2021 and 2020 our total revenues were $36.7 million and $26.7 million, respectively, representing a 37.6% increase period-over-period.

For the six months ended June 30, 2021 and 2020 our total revenues were $70.0 million and $49.9 million, respectively, representing a 40.3% increase period-over-period.

SaaS subscription revenues, as further described below, represented 94.3% and 94.6% of total revenues for the three and six months ended June 30, 2021, respectively and 94.3% and 93.5% for the three and six months ended June 30, 2020, respectively.

We incurred net losses of $11.4 million and $22.3 million for the three and six months ended June 30, 2021, respectively, and net losses of $7.3 million and $17.5 million for the three and six months ended June 30 2020, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.

Recent Development

Initial Public Offering.

On April 13, 2021, the Company's registration statement relating to the IPO of its common stock was declared effective by the SEC.

In connection with the IPO, the Company issued and sold 6,900,000 shares of common stock (including 900,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional shares) at a public offering price of $30.00 per share for net proceeds of $192.8 million, after deducting underwriters' discounts and commissions (excluding other IPO costs as of April 13, 2021).

On April 13, 2021, the Company's registration statement relating to our IPO of our common stock was declared effective by the SEC.

In connection with our IPO, the Company issued and sold 6,900,000 shares of common stock (including 900,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional shares) at a public offering price of $30.00 per share for net proceeds of $192.8 million, after deducting underwriters' discounts and commissions (excluding other IPO costs as of April 13, 2021).

Factors Affecting our Operating Results

1 unchanged sentence

A key part of our strategy is to grow our FI client base.

As of March 31, 2021, we served 156 FIs through the Alkami Platform and an additional 87 clients through the ACH Alert suite of solutions, representing 88.4% annual client growth since March 31, 2020.

As of June 30, 2021, we served 161 FIs through the Alkami Platform and an additional 102 clients through the ACH Alert suite of solutions, representing 87.9% annual client growth since June 30, 2020.

Each of our new client wins is a competitive takeaway, and as such, our historical ability to grow our client base has been a function of product depth, technological excellence and a sales and marketing function able to match our solutions with the strategic objectives of our clients.

11 unchanged sentences

The depth of our product suite is a function of technology and platform partnerships.

Our platform model with 220 integrations as of March 31, 2021 enables us to deliver thousands of configurations aligned with the digital platform strategies adopted by our clients.

We expect our future success in winning new clients to be partially driven by our ability to continue to develop and deliver new, innovative products to FI clients in a timely manner.

Our platform model with 229 integrations as of June 30, 2021 enables us to deliver thousands of configurations aligned with the digital platform strategies adopted by our clients.

We expect our future success in winning new clients to be partially driven by our

ability to continue to develop and deliver new, innovative products to FI clients in a timely manner.

Furthermore, expanding our product suite expands our RPU potential.

4 unchanged sentences

Client renewals are also an important lever in driving our long-term gross margin targets, as we generally achieve approximately 70% gross margin upon renewal.

We had two client renewals in the three months ended March 31, 2021.

We had two and four client renewals in the three and six months ended June 30, 2021, respectively.

We expect client renewals to continue to play a key role in our future success.

2 unchanged sentences

In particular, our single code base, built on a multi-tenant infrastructure and combined with continuous software delivery enables us to bring new, innovative products to market quickly and positions us with what we believe is market-leading breadth in terms of product offerings and feature set.

We remain committed to investing in our platform, notably through our research and development spend, which was 32.8% of our revenues for the three months ended March 31, 2021.

We remain committed to investing in our platform, notably through our research and development spend, which was 33.0% and 32.9% of our revenues for the three and six months ended June 30, 2021.

Our future success will depend on our continued leadership in innovation.

COVID-19 Impact.

The temporary closures of many businesses, shelter in place orders, travel restrictions, social distancing guidelines and other governmental, business and individual actions taken or restrictions implemented in response to the COVID-19 pandemic have impacted our business.

The continued global impact of COVID-19 has resulted in various measures to combat the spread of the virus.

With the development of variants and increased vaccinations rates, the status of ongoing measures varies widely.

We transitioned our employee base to work-from-home in March 2020, creating challenges in executing sales and implementations that have resurfaced due to the renewal of certain actions and restrictions in response to the COVID-19 pandemic and which may be exacerbated if such actions or restrictions are prolonged.

In terms of demand, while general economic headwinds have adversely impacted the technology budgets of certain clients, we believe actions and restrictions in response to the COVID-19 pandemic have served to highlight the criticality of our products, which we expect to drive increased demand over time.

The full extent to which the ongoing COVID-19 pandemic affects our financial performance will depend on future developments, many of which are outside of our control, are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the effectiveness of actions to contain the virus or treat its impact and how quickly and to what extent normal economic and operating conditions can resume.

The COVID-19 pandemic could also result in additional governmental restrictions and regulations, which could adversely affect our business and financial results.

In addition, a recession, depression or other sustained adverse market impact resulting from the COVID-19 pandemic could materially and adversely affect our business and our access to needed capital and liquidity.

Even after the COVID-19 pandemic has lessened or subsided, we may continue to experience adverse impacts on our business and financial performance as a result of its global economic impact.

We believe actions and restrictions in response to the COVID-19 pandemic have served to highlight the criticality of our products, which we expect to drive increased demand over time.

Components of Results of Operations

Our client relationships are primarily based on multi-year contracts that have an average contract life of 70 months as of March 31, 2021.

Our client relationships are primarily based on multi-year contracts that have an average contract life of 70 months as of June 30, 2021.

We derive the majority of our revenues from SaaS subscription services charged for the use of our digital banking solution.

7 unchanged sentences

These fees are not distinct from the underlying licensed SaaS subscription services.

As a result, we recognize the resulting revenues on a straight-line basis over the client’s initial agreement term for its licensed SaaS solutions, commencing upon launch.

As a result, we recognize the resulting revenues on a straight-line basis over the client’s initial agreement term for our licensed SaaS solutions, commencing upon launch.

Occasionally, our clients request custom development and other professional services, which we provide.

1 unchanged sentence

We recognize revenues at the point in time the services are transferred to the client.

The following disaggregates our revenues for the three months ended March 31, 2021 and 2020 by major source.

Three months ended March 31,

The following disaggregates our revenues for the three and six months ended June 30, 2021 and 2020 by major source.

Three months ended June 30,

Six months ended June 30,

2021 2020 2021 2020

(In thousands)

3 unchanged sentences

Total revenues $ 36,701 $ 26,666 $ 69,963 $ 49,876

See Note 5 to our Condensed Consolidated Financial Statements for disaggregation of our revenues by major source.

See Note 5 of the Notes to our Unaudited Condensed Consolidated Financial Statements for disaggregation of our revenues by major source.

Cost of Revenues and Gross Margin

8 unchanged sentences

We expect cost of revenues to continue to grow in absolute dollars as we grow our business but to vary as a percentage of revenues from period to period as a function of the utilization of implementation and support personnel and the extent to which we recognize fees from bill-pay services and other third-party functionality integrated into our solutions.

Our gross margin for the three months ended March 31, 2021 and 2020 was 53.4% and 48.7%, respectively.

The major components of cost of revenues represented the following percentages of revenues for the three months ended March 31, 2021:

third-party hosting services (10.3%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.2%), our implementation team (9.5%), our client success team (5.9%), our development team responsible for maintaining and releasing updates to our platform (4.3%) and amortization of intangibles (0.4%).

The major components of cost of revenues represented the following percentages of revenues for the three months ended March 31, 2020:

Our gross margin for the three and six months ended June 30, 2021 was 55.9% and 54.7%, respectively, and 50.4% and 49.6% for the three and six months ended June 30, 2020, respectively.

The major components of cost of revenues represented the following percentages of revenues for the three months ended June 30, 2021:

third-party hosting services (8.3%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (15.3%), our implementation team (9.9%), our client success team (5.9%), our development team responsible for maintaining and releasing updates to our platform (4.3%) and amortization of intangible assets (0.3%).

The major components of cost of revenues represented the following percentages of revenues for the three months ended June 30, 2020:

third-party hosting services (9.1%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (18.1%), our implementation team (11.3%), our client success team (6.3%) and our development team responsible for maintaining and releasing updates to our platform (4.9%).

The major components of cost of revenues represented the following percentages of revenues for the six months ended June 30, 2021:

third-party hosting services (9.2%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (15.7%), our implementation team (9.7%), our client success team (5.9%), our development team responsible for maintaining and releasing updates to our platform (4.3%) and amortization of intangible assets (0.3%).

The major components of cost of revenues represented the following percentages of revenues for the six months ended June 30, 2020:

third-party hosting services (9.3%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (17.3%), our implementation team (11.7%), our client success team (6.8%) and our development team responsible for maintaining and releasing updates to our platform (5.4%).

Operating Expenses

12 unchanged sentences

Non-operating Income (Expense)

Non-operating income (expense) consists primarily of interest income from our cash balances, interest expense from borrowings under our revolving line of credit, amortization of deferred debt costs and changes in fair value of warrants (In connection with our IPO, warrants converted from a liability instrument to an equity instrument resulting in a reduction of the warrant liability to $0.).

Provision for Income Taxes

2 unchanged sentences

The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this filing.

The following table presents our selected condensed consolidated statement of operations data for the three months ended March 31, 2021 and 2020.

Three months ended March 31,

The following table presents our selected condensed consolidated statements of operations data for the three and six months ended June 30, 2021 and 2020.

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

($ In thousands, except share and per share amounts)

14 unchanged sentences

Loss on financial instruments

(1,391) (66) (3,035) (67)

Loss before income taxes

3 unchanged sentences

(1) Includes stock-based compensation expenses as follows:

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2020 2021 2020

($ in thousands)

5 unchanged sentences

The following table presents our reconciliation of GAAP net loss to adjusted EBITDA for the periods indicated.

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

2021 2020 2021 2020

($ in thousands)

7 unchanged sentences

Acquisition-related expenses (1)

625 — 1,263 —

Adjusted EBITDA (2)

12 unchanged sentences

stock-based compensation expense;

tender offer-related costs;

and acquisition-related costs.

We believe adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations.

Adjusted EBITDA was $(6.1) million for the three months ended March 31, 2021, and $(9.1) million for the three months ended March 31, 2020.

For additional information regarding adjusted EBITDA, including the reconciliation to net loss, the most directly comparable GAAP financial measure, see “Results of Operations.”

Adjusted EBITDA was $(5.4) million and $(11.5) million for the three and six months ended June 30, 2021, respectively and $(6.0) million and $(15.1) million for the three and six months ended June 30, 2020, respectively.

Annual Recurring Revenue (ARR).

1 unchanged sentence

We believe ARR provides important information about our future revenue potential, our ability to acquire new clients, and our ability to maintain and expand our relationship with existing clients.

ARR was $133.8 million as of March 31, 2021 and $95.9 million as of March 31, 2020, an increase of 39.5%.

ARR was $144.7 million as of June 30, 2021 and $105.0 million as of June 30, 2020, an increase of $39.7 million, or 37.8%, period-over-period.

Registered Users.

2 unchanged sentences

We believe growth in the number of registered users provides important information about our ability to expand market adoption of our digital banking platform and its associated software products, and therefore to grow revenues over time.

We had 10.0 million registered users as of March 31, 2021 and 7.8 million as of March 31, 2020, an increase of 27.8%.

We had 10.7 million registered users as of June 30, 2021 and 8.3 million as of June 30, 2020, an increase of 2.4 million, or 28.9%, period-over-period.

Revenue per Registered User (RPU).

1 unchanged sentence

We believe RPU provides important information about our ability to grow the number of software products adopted by new clients over time, as well as our ability to expand the number of software products that our existing clients add to their contracts with us over time.

RPU was $13.40 as of March 31, 2021 and $12.27 as of March 31, 2020, an increase of 9.2%.

Comparison of Three months ended March 31, 2021 and 2020

Three months ended March 31,

RPU was $13.48 as of June 30, 2021 and $12.64 as of June 30, 2020, an increase of $0.84, or 6.6%, period-over-period.

Comparison of Three and Six Months ended June 30, 2021 and 2020

Three months ended June 30,

Change Six months ended June 30,

2021 2020 $ % 2021 2020 $ %

1 unchanged sentence

Revenues $ 36,701 26,666 $ 10,035 37.6 % $ 69,963 $ 49,876 $ 20,087 40.3 %

Annual recurring revenue (ARR) $ 133,807 $ 95,944 $ 37,863 39.5 %

Registered users 9,989 7,817 2,172 27.8 %

Revenue per registered user (RPU) $ 13.40 $ 12.27 $ 1.13 9.2 %

Revenues increased $10.1 million, or 43.3%, for the three months ended March 31, 2021 compared to the same period in 2020.

The increase in revenues primarily was due to registered user growth of 2.2 million, primarily driven by 1.2 million in registered user growth from existing clients (net of attrition) and 1.0 million in registered users from new client wins.

Revenues increased $10.0 million, or 37.6%, and $20.1 million, or 40.3%, for the three and six months ended June 30, 2021, respectively compared to the same periods in 2020.

The increase of $10.0 million in revenues for the three months ended June 30, 2021 primarily was due to registered user growth from new and existing clients, RPU growth, as well as the acquisition of ACH Alert completed on October 4, 2020, which contributed $1.3 million in three months ended June 30, 2021.

The increase of $20.1 million in revenues for the six months ended June 30, 2021 primarily was due to registered user growth of 2.4 million, comprised of 1.4 million in registered user growth from existing clients (net of attrition) and 1.0 million in registered users from new clients implemented through our digital banking platform.

In addition, increased revenues were due to RPU growth of 6.6%.

RPU growth primarily was driven by cross-sell activity to existing clients and new client average RPU of $18.00 for the 12 months ended March 31, 2021, which is 34.4% higher than the aggregate RPU.

An additional contributing factor to the increase in revenues is the acquisition of ACH Alert completed on October 4, 2020, which contributed $1.1 million in the three months ended March 31, 2021.

RPU growth primarily was driven by cross-sell activity to existing clients and an average RPU of new clients acquired in the last year of $15.95 as of June 30, 2021, which is 18.3% higher than the aggregate RPU as of June 30, 2021.

An additional contributing factor to the increase in revenues is the acquisition of ACH Alert completed on October 4, 2020, which contributed $2.4 million in the six months ended June 30, 2021.

Cost of Revenues and Gross Margin

Three months ended March 31,

Three months ended June 30,

Change Six months ended June 30,

2021 2020 $ % 2021 2020 $ %

3 unchanged sentences

Cost of Revenues

Cost of revenues increased $3.6 million, or 30.2%, for the three months ended March 31, 2021 compared to the same period in 2020, generating a gross margin of 53.4% for the three months ended March 31, 2021 compared to a gross margin of 48.7% for the same period in 2020.

The increase in cost of revenues primarily was driven by a $0.9 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount increases supporting our growth in the following teams:

site reliability engineering, client implementation and client support, $1.5 million in higher third-party costs and $1.3 million in incremental hosting costs, both incurred from an increase in revenues derived from existing and new client growth.

Cost of revenues increased $2.9 million, or 22.2%, and $6.5 million, or 26.0%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, generating a gross margin of 55.9% and 54.7% for the three and six months ended June 30, 2021, respectively, compared to a gross margin of 50.4% and 49.6% for the same periods in 2020.

The increase in cost of revenues for the three months ended June 30, 2021 was primarily driven by a $1.3 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount increases supporting our growth in the following teams:

site reliability engineering, client implementation and client support, $0.7 million in higher cost of our third party partners where we resell their solutions as part of the digital platform and $0.7 million in incremental hosting costs, both incurred from an increase in revenues derived from existing and new client growth.

The increase in cost of revenues for the six months ended June 30, 2021 was primarily driven by a $2.2 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount increases supporting our growth in the following teams:

site reliability engineering, client implementation and client support, $2.2 million in higher cost of our third party partners where we resell their solutions as part of the digital platform and $1.9 million in incremental hosting costs, both incurred from an increase in revenues derived from existing and new client growth.

We expect the cost of revenues will continue to increase as SaaS subscription services and the associated implementation services increase over time.

1 unchanged sentence

Operating Expenses

Three months ended March 31,

Three months ended June 30,

Change Six months ended June 30,

2021 2020 $ % 2021 2020 $ %

6 unchanged sentences

Research and Development

Research and development expenses increased $1.2 million, or 12.6%, for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to a $1.4 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation.

This was offset by a $0.2 million decrease in other miscellaneous costs.

Research and development expenses increased $2.3 million, or 23.8%, and $3.6 million, or 18.2%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020.

For the three months ended June 30, 2021, the increase was primarily due to a $2.5 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation.

This was partially offset by a $0.1 million decrease in other miscellaneous costs.

For the six months ended June 30, 2021, the increase was primarily due to a $3.9 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation.

This was partially offset by a $0.3 million decrease in other miscellaneous costs.

Sales and Marketing

Sales and marketing expenses increased $0.8 million, or 16.5%, for the three months ended March 31, 2021 compared to the same period in

2020, primarily due to a $1.1 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our sales and marketing teams and higher new sales productivity as well as higher customer success engagement costs.

Sales and marketing expenses increased and $1.5 million, or 38.5%, and $2.3 million, or 26.6%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020.

For the three months ended June 30, 2021, the increase was primarily due to a $1.3 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $0.3 million in higher consulting costs.

These costs were partially offset by $0.2 million in lower costs related to industry conferences and trade shows, all primarily due to the work-from-home business environment during the COVID-19 pandemic.

For the six months ended June 30, 2021, the increase was primarily due to a $2.4 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $0.4 million in higher consulting costs.

These costs were partially offset by $0.2 million in lower travel costs for the sales team, as well as $0.5 million in lower costs related to industry conferences and trade shows, all primarily due to the work-from-home business environment during the COVID-19 pandemic.

General and Administrative

General and administrative expenses increased $3.2 million, or 45.1%, for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to a $2.1 million increase in personnel-related and other costs (which includes stock-based compensation) from increased headcount including the acquisition of ACH Alert, and a $0.6 million increase in non-personnel related costs from the acquisition of ACH Alert.

In addition, we incurred a $0.5 million increase in accounting, audit and consulting expenses primarily in support of the IPO, and a $0.3 million increase in software costs.

These costs were partially offset by $0.3 million less travel, employee related, and other costs, all primarily due to the work-from-home business environment during the COVID-19 pandemic.

Non-operating expense, net increased $1.9 million for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to $1.6 million in non-operating loss related to the increase in fair value of our warrant liabilities and a $0.2 million increase in net interest expense.

General and administrative expenses increased $6.0 million, or 87.0%, and $9.2 million, or 65.6%, for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020.

For the three months ended June 30, 2021, the increase was primarily due to a $3.0 million increase in personnel-related and other costs (which includes stock-based compensation) from increased headcount, including the impact from the acquisition of ACH Alert, and a $0.6 million increase in non-personnel related costs from the acquisition of ACH Alert.

In addition, we incurred a $1.0 million increase in insurance costs for public company D&O coverage, a $0.8 million increase in accounting, audit and consulting expenses, primarily in support of our IPO and public company operations, and a $0.3 million increase in software costs.

For the six months ended June 30, 2021, the increase was primarily due to a $5.1 million increase in personnel-related and other costs (which includes stock-based compensation) from increased headcount, including the impact from the acquisition of ACH Alert, and a $1.3 million increase in non-personnel related costs from the acquisition of ACH Alert.

In addition, we incurred a $1.3 million increase in accounting, audit and consulting expenses primarily in support of our IPO, a $1.0 million increase in insurance costs for public company D&O coverage and a $0.6 million increase in software costs.

Non-Operating Expense, Net

Non-operating expense, net increased $1.4 million and $3.3 million for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020.

For the three months ended June 30, 2021, the increase was primarily due to $1.4 million in non-operating loss related to the increase in fair value of our warrant liabilities.

For the six months ended June 30, 2021, the increase was primarily due to $3.0 million in non-operating loss related to the increase in fair value of our warrant liabilities and a $0.3 million increase in net interest expense.

In connection with our IPO, warrants converted from a liability instrument to an equity instrument resulting in a reduction of the warrant liability to $0.

Provision for Income Taxes

We had no provision for income taxes for the three months ended March 31, 2021 and 2020.

We had no provision for income taxes for the three and six months ended June 30, 2021 and 2020.

Our effective tax rate differs from the statutory tax rate primarily due to the impact of the full valuation allowance against our deferred tax assets.

Liquidity and Capital Resources

As of March 31, 2021, we had $162.1 million in cash and cash equivalents, and an accumulated deficit of $277.9 million.

As of June 30, 2021, we had $338.5 million in cash and cash equivalents, and an accumulated deficit of $289.3 million.

Our net losses have been driven by our investments in developing our digital banking platform, expanding our sales, marketing and implementation organizations and scaling our administrative functions to support our rapid growth.

We have financed our operations primarily through the net proceeds we have received from the sales of our redeemable convertible preferred stock and common stock, cash generated from the sale of SaaS subscription services and borrowings under our Credit Agreement.

On April 15, 2021, we completed our IPO, in which we issued and sold 6,900,000 shares of our common stock, including 900,000 shares of common stock that were sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares of common stock at $30.00 per share.

The IPO resulted in net proceeds of $192.8 million after deducting underwriting discounts, commissions and other offering costs.

With the proceeds of the IPO, the Company paid in full accumulated dividends on our previously outstanding shares of Series B redeemable convertible preferred stock, which totaled approximately $5.0 million.

Our IPO resulted in net proceeds of $192.8 million after deducting underwriting discounts, commissions and other offering costs.

With the proceeds from our IPO, the Company paid in full accumulated dividends on our previously outstanding shares of Series B redeemable convertible preferred stock, which totaled approximately $5.0 million.

Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support client usage and growth in our client base, increased research and development expenses to support the growth of our business and related infrastructure, increased general and administrative expenses associated with being a publicly traded company, investments in office facilities and other capital expenditure requirements and any potential future acquisitions or other strategic transactions.

We believe that our existing cash resources will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses we expect to incur as a public company for at least the next 12 months.

We believe that our existing cash resources, including our Credit Agreement, will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses we expect to incur as a public company for at least the next 12 months.

We may from time to time seek to raise additional capital to support our growth.

Any equity financing we may undertake could be dilutive to our existing stockholders, and any additional debt financing we may undertake could require debt service and financial and operational requirements that could adversely affect our business.

adversely affect our business.

The following table summarizes our cash flows for the periods indicated:

Three months ended March 31,

Six months ended June 30,

(in thousands) 2021 2020

1 unchanged sentence

Net cash used in investing activities (1,446) (1,403)

Net cash (used in) provided by financing activities (2,013) 13,041

Net cash provided by financing activities 185,422 24,966

Net Cash Used in Operating Activities

During the three months ended March 31, 2021, net cash used in operating activities was $2.0 million, which consisted of a net loss of $10.9 million, adjusted by non-cash charges of $3.9 million and net cash inflows from the change in net operating assets and liabilities of $5.1 million.

During the six months ended June 30, 2021, net cash used in operating activities was $12.3 million, which consisted of a net loss of $22.3 million, adjusted by non-cash charges of $9.1 million and net cash inflows from the change in net operating assets and liabilities of $0.9 million.

The non-cash charges primarily were comprised of a non-operating loss related to the increase in fair value of warrant liabilities of $3.0 million, depreciation and amortization expense of $1.6 million, and stock-based compensation expense of $4.4 million.

The net cash inflows from the change in our net operating assets and liabilities primarily were due to a $7.4 million increase in accounts payable and accrued liabilities, offset by a $1.2 million increase in prepaid expenses and other current assets and a net $1.1 million in other balance sheet changes.

During the three months ended March 31, 2020, net cash used in operating activities was $14.8 million, which consisted of a net loss of $10.3 million, adjusted by non-cash charges of $1.1 million and net cash outflows from the change in net operating assets and liabilities of $5.6 million.

The net cash inflows from the change in our net operating assets and liabilities were primarily due to a $7.9 million increase in accounts payable and accrued liabilities, partially offset by a $3.3 million increase in prepaid expenses and other current assets and a net $3.7 million in other balance sheet changes.

During the six months ended June 30, 2020, net cash used in operating activities was $20.0 million, which consisted of a net loss of $17.5 million, adjusted by non-cash charges of $2.3 million and net cash outflows from the change in net operating assets and liabilities of $4.8 million.

Non-cash charges primarily were comprised of depreciation expense of $1.3 million and stock-based compensation expense of $0.9 million.

The net cash outflows from the change in our net operating assets and liabilities primarily were due to a $2.4 million decrease in accounts payable and accrued liabilities, a $1.7 million increase in prepaid expenses and other current assets, a $1.2 million increase in accounts receivable, and a net $0.3 million in other balance sheet changes.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $3.1 million increase in accounts receivable, a $1.6 million increase in prepaid expenses and other current assets, a $1.5 million increase in deferred implementation costs, partially offset by a net $1.3 million in other balance sheet changes.

Net Cash Used in Investing Activities

During the three months ended March 31, 2021, cash used in investing activities was $0.8 million, primarily consisting of $0.3 million related to the finalization of working capital adjustments on our acquisition of ACH Alert, capital expenditures related to updates for computer and other equipment of $0.2 million and capitalized software development costs of $0.2 million.

During the three months ended March 31, 2020, net cash used in investing activities was $1.2 million, primarily consisting of capital expenditures related to the expansion and updates to our corporate facilities of $1.0 million and purchases of computer and other equipment of $0.2 million.

Net Cash (Used in) Provided by Financing Activities

For the three months ended March 31, 2021, net cash used in financing activities was $2.0 million, which primarily was due to the repurchase of common stock in the amount of $3.5 million and $1.3 million of deferred IPO issuance costs paid, partially offset by cash proceeds of $2.8 million from the exercise of options to purchase 2.1 million shares of our common stock.

During the three months ended March 31, 2020, cash provided by financing activities was $13.0 million, consisting of proceeds from borrowings on a line of credit.

During the six months ended June 30, 2021, net cash used in investing activities was $1.4 million, primarily consisting of $0.6 million related to capitalized software development costs, $0.3 million related to the finalization of working capital adjustments on our acquisition of ACH Alert, and capital expenditures related to updates for computer and other equipment of $0.5 million.

During the six months ended June 30, 2020, net cash used in investing activities was $1.4 million, primarily consisting of capital expenditures related to the expansion and updates to our corporate facilities of $1.1 million and purchases of computer and other equipment of $0.3 million.

Net Cash Provided by Financing Activities

For the six months ended June 30, 2021, net cash provided by financing activities was $185.4 million, which primarily was due to the receipt of proceeds from our IPO of $192.8 million and proceeds of $4.9 million from the exercise of stock options to purchase 3.4 million shares of our common stock, partially offset by the cash payment of our Series B dividend of $5.0 million upon the consummation of our IPO, the $3.9 million payment of deferred IPO issuance costs, and the repurchase of shares of our common stock in the amount of $3.5 million.

During the six months ended June 30, 2020, cash provided by financing activities was $25.0 million, consisting primarily of proceeds from the sale of preferred stock of $24.9 million.

Credit Agreement

6 unchanged sentences

A term loan of $25.0 million (“Term Loan”) was borrowed on October 16, 2020.

The proceeds of the Term Loan were used to partially fund the acquisition of ACH Alert.

The proceeds from the Term Loan were used to partially fund the acquisition of ACH Alert.

• Accordion Feature:

2 unchanged sentences

Principal payments on the Term Loan are due in quarterly installments equal to an initial amount of approximately $0.3 million, which begin December 31, 2021 and continue through September 30, 2022 and increase to approximately $0.6 million beginning on December 31, 2022 through the Credit Agreement maturity date.

Once repaid or prepaid, the Term Loan may not be re-borrowed.

repaid or prepaid, the Term Loan may not be re-borrowed.

Borrowings under the Credit Agreement bear interest at a variable rate based upon, at our option, either the LIBOR rate or the base rate (in each case, as customarily defined) plus an applicable margin.

1 unchanged sentence

The applicable margin for LIBOR rate loans ranges, based on an applicable recurring revenue leverage ratio, from 3.00% to 3.50% per annum, and the applicable margin for base rate loans ranges from 2.00 to 2.50% per annum.

Our minimum interest rate applied to term debt was 4.00% as of March 31, 2021.

Our minimum interest rate applied to term debt was 4.00% as of June 30, 2021.

We are required to pay a commitment fee of 0.30% per annum on the undrawn portion available under the Revolving Facility, and variable fees on outstanding letters of credit.

2 unchanged sentences

We may prepay the Term Loan in whole or in part at any time without premium or penalty.

The 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 $10.0 million or more.

The 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 $10.0 million or more.

The Credit Agreement also contains customary events of default, which if they occur, could result in the termination of commitments under the 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.

Total interest expense, including commitment fees and unused line fees, for the three months ended March 31, 2021 and 2020 was $0.3 million and $0.1 million, respectively.

Total interest expense, including commitment fees and unused line fees, for the three and six months ended June 30, 2021 was $0.6 million and $0.2 million, respectively, and $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively.

In conjunction with closing the Credit Agreement in 2020, we incurred issuance costs of $0.1 million which were deferred and will be amortized over the three-year term.

Unamortized debt issuance costs totaled $0.1 million and $0.1 million as of March 31, 2021 and December 31, 2020, respectively.

Amortization expense totaled $0.2 million for the three months ended March 31, 2021.

The Company recognized no amortization expense for the three months ended March 31, 2020.

Unamortized debt issuance costs totaled $0.1 million and $0.1 million as of June 30, 2021 and December 31, 2020, respectively.

Amortization expense totaled $0.2 million and $0.4 million for the three and six months ended June 30, 2021, respectively.

The Company recognized no amortization expense for the three and six months ended June 30, 2020.

Contractual Obligations and Commitments

There were no material changes to our contractual obligations and commitments as of March 31, 2021 compared to those discussed as of December 31, 2020 in the Prospectus filed with the SEC on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act.

There were no material changes to our contractual obligations and commitments as of June 30, 2021 compared to those discussed as of December 31, 2020 in the Prospectus filed with the SEC on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act.

Off-Balance Sheet Arrangements

7 unchanged sentences

Recently Issued Accounting Pronouncements

See Note 2 of the Notes to our Condensed Consolidated Financial Statements (Unaudited) included elsewhere in this report for a discussion of recent accounting pronouncements and future application of accounting standards.

See Note 2 of the Notes to our Unaudited Condensed Consolidated Financial Statements included elsewhere in this report for a discussion of recent accounting pronouncements and future application of accounting standards.

Emerging Growth Company Status

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis