What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-05 · 95 added, 93 removed, 291 unchanged (39% of the section changed)

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In fiscal 2020, we acquired ACH Alert, LLC (“ACH Alert”) to pursue adjacent product opportunities, such as fraud prevention and to expand our addressable market.

In addition, in September 2021, we acquired MK Decisioning Systems, LLC (MK) a technology platform for digital account opening, credit card and loan origination solutions.

Our domain expertise in retail and business banking has enabled us to develop a suite of products tailored to address key challenges faced by FIs.

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• Integrations :

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.

Scalability and extensibility driven by 230 real-time integrations to back office systems and third-party fintech solutions as of September 30, 2021 , including core systems, payment cards, mortgages, bill pay, electronic documents, money movement, personal financial management and account opening.

• Deep data capabilities :

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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 are based on an average contract life of approximately 70 months as of June 30, 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 September 30, 2021.

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

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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 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

For the three months ended September 30, 2021 and 2020 our total revenues were $39.8 million and $28.9 million, respectively, representing a 37.4% increase period-over-period.

For the nine months ended September 30, 2021 and 2020 our total revenues were $109.7 million and $78.8 million, respectively, representing a 39.2% increase period-over-period.

SaaS subscription revenues, as further described below, represented 94.3% and 94.4% of total revenues for the three and nine months ended September 30, 2021, respectively and 93.5% and 93.5% for the three and nine months ended September 30, 2020, respectively.

We incurred net losses of $11.2 million and $33.5 million for the three and nine months ended September 30, 2021, respectively, and net losses of $21.3 million and $38.9 million for the three and nine months ended September 30, 2020, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.

Recent Developments

Initial Public Offering.

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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).

Acquisition of MK.

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.

MK expands our total addressable market by over $2.0 billion while gaining new cross-selling opportunities among a larger installed base.

Factors Affecting our Operating Results

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

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.

As of September 30, 2021, we served 169 FIs through the Alkami Platform and an additional 114 clients through the ACH Alert suite of solutions, representing 92.5% annual client growth since September 30, 2020.

Each of our digital banking 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.

Our future success will significantly depend on our ability to continue to grow our FI client base through competitive wins.

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

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.

Our platform model with 230 integrations as of September 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.

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

We had three and seven client renewals in the three and nine months ended September 30, 2021, respectively.

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

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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 33.0% and 32.9% of our revenues for the three and six months ended June 30, 2021.

We remain committed to investing in our platform, notably through our research and development spend, which was 32.4% and 32.7% of our revenues for the three and nine months ended September 30, 2021.

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

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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 June 30, 2021.

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

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

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

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,

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

Three months ended September 30,

Nine months ended September 30,

2021 2020 2021 2020

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Total revenues $ 39,761 $ 28,941 $ 109,724 $ 78,817

See Note 5 of the Notes to our Unaudited 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 additional detail.

Cost of Revenues and Gross Margin

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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 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:

Our gross margin for the three and nine months ended September 30, 2021 was 56.3% and 55.3%, respectively, and 52.4% and 50.6% for the three and nine months ended September 30, 2020, respectively.

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

third-party hosting services (7.9%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (17.0%), our implementation team (9.3%), our client success team (5.4%), our development team responsible for maintaining and releasing updates to our platform (3.8%) 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:

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

third-party hosting services (9.8%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (14.9%), our implementation team (11.4%), our client success team (6.6%) and our development team responsible for maintaining and releasing updates to our platform (5.1%).

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

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

third-party hosting services (8.8%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.2%), our implementation team (9.6%), our client success team (5.7%), our development team responsible for maintaining and releasing updates to our platform (4.1%) 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:

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

third-party hosting services (9.5%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.4%), our implementation team (11.6%), our client success team (6.7%) and our development team responsible for maintaining and releasing updates to our platform (5.3%).

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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 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,

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

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

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

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

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

2021 2020 2021 2020

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$ (6,073) $ (5,386) $ (17,540) $ (20,450)

(1) Acquisition-related expenses are associated with the accrual of deferred compensation due to the former owner of the acquired business, ACH Alert.

(1) Acquisition-related expenses are associated with the accrual of deferred compensation due to the former owner of the acquired business, ACH Alert, in addition to acquisition related-expenses associated with purchase of MK, primarily related to legal, consulting, and professional fees.

(2) Adjusted EBITDA is a non-GAAP financial measure and should not be considered an alternative to GAAP net loss as a measure of operating performance or as a measure of liquidity.

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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 $(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.

Adjusted EBITDA was $(6.1) million and $(17.5) million for the three and nine months ended September 30, 2021, respectively and $(5.4) million and $(20.5) million for the three and nine months ended September 30, 2020, respectively.

Annual Recurring Revenue (ARR).

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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 $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.

ARR was $154.8 million as of September 30, 2021 and $113.9 million as of September 30, 2020, an increase of $40.9 million, or 35.9%, period-over-period.

Registered Users.

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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 10.7 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.

We had 11.4 million registered users as of September 30, 2021 and 9.0 million as of September 30, 2020, an increase of 2.4 million, or 26.1%, period-over-period.

Revenue per Registered User (RPU).

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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 $13.48 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,

RPU was $13.57 as of September 30, 2021 and $12.59 as of September 30, 2020, an increase of $0.98, or 7.8%, period-over-period.

Comparison of Three and Nine Months ended September 30, 2021 and 2020

Three months ended September 30,

Change Nine months ended September 30,

2021 2020 $ % 2021 2020 $ %

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Revenues $ 39,761 $ 28,941 $ 10,820 37.4 % $ 109,724 $ 78,817 $ 30,907 39.2 %

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.

Revenues increased $10.8 million, or 37.4%, and $30.9 million, or 39.2%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020.

The increase of $10.8 million in revenues for the three months ended September 30, 2021 was primarily 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 $1.4 million in three months ended September 30, 2021.

The increase of $30.9 million in revenues for the nine months ended September 30, 2021 was primarily 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 7.8%.

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.

RPU growth was primarily driven by cross-sell activity to existing clients and the acquisition of ACH Alert completed on October 4, 2020, which contributed $3.8 million in the nine months ended September 30, 2021.

The average RPU of new clients implemented on our digital platform in the last year of $16.13 as of September 30, 2021, is 18.9% higher than the aggregate RPU as of September 30, 2021.

Cost of Revenues and Gross Margin

Three months ended June 30,

Change Six months ended June 30,

Three months ended September 30,

Change Nine months ended September 30,

2021 2020 $ % 2021 2020 $ %

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Cost of Revenues

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.

Cost of revenues increased $3.6 million, or 26.2%, and $10.2 million, or 26.1%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, generating a gross margin of 56.3% and 55.3% for the three and nine months ended September 30, 2021, respectively, compared to a gross margin of 52.4% and 50.6% for the same periods in 2020.

The increase in cost of revenues for the three months ended September 30, 2021 was primarily driven by a $0.6 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, $2.4 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform and $0.4 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 nine months ended September 30, 2021 was primarily driven by a $2.8 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, $4.6 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform and $2.3 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.

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Operating Expenses

Three months ended June 30,

Change Six months ended June 30,

Three months ended September 30,

Change Nine months ended September 30,

2021 2020 $ % 2021 2020 $ %

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Research and Development

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.

Research and development expenses increased $3.0 million, or 30.1%, and $6.5 million, or 22.2%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020.

For the three months ended September 30, 2021, the increase was primarily due to a $2.0 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.

In addition we incurred $0.7 million in higher incremental hosting costs.

For the nine months ended September 30, 2021, the increase was primarily due to a $5.9 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.

In addition we incurred $0.5 million in higher incremental hosting costs.

Sales and Marketing

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.

Sales and marketing expenses increased $3.3 million, or 82.8%, and $5.6 million, or 44.5%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020.

For the three months ended September 30, 2021, the increase was primarily due to a $1.5 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 $1.3 million in higher conference and trade show costs primarily due to conducting our annual client conference in September 2021 instead of our typical April timing.

We also incurred $0.3 million in higher consulting costs and $0.2 million in higher travel costs.

For the nine months ended September 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 sales and marketing teams.

In addition, we incurred $0.8 million in higher conference and trade show costs due to conducting our annual client conference in September 2021 instead of our typical April timing, $0.7 million in higher consulting costs and $0.2 million in higher travel and other costs.

General and Administrative

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.

General and administrative expenses increased $5.5 million, or 69.6%, and $14.7 million, or 67.0%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020.

For the three months ended September 30, 2021, the increase was primarily due to a $2.7 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 acquisitions of ACH Alert and MK.

In addition, we incurred a $1.1 million increase in insurance costs for public company D&O coverage, a $0.3 million increase in accounting, audit and consulting expenses, primarily in support of our public company operations, and a $0.4 million increase in software costs.

For the nine months ended September 30, 2021, the increase was primarily due to a $7.8 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 $1.9 million increase in non-personnel related costs from the acquisitions of ACH Alert and MK.

In addition, we incurred a $1.6 million increase in accounting, audit and consulting expenses primarily in support of our IPO and public company operations, a $2.2 million increase in insurance costs for public company D&O coverage and a $0.9 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.

Non-operating expense, net decreased $14.7 million and $11.4 million for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020.

For the three months ended September 30, 2021, the decrease was primarily due to $14.7 million in non-operating loss related to the increase in fair value of our warrant liabilities for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the decrease was primarily due to $14.8 million in non-operating loss related to the increase in fair value of our warrant liabilities for the nine months ended September 30, 2020, partially offset by $3.0 million in non-operating loss related to the increase in fair value of our warrant liabilities for the nine months ended September 30, 2021.

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 and six months ended June 30, 2021 and 2020.

We had no provision for income taxes for the three and nine months ended September 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 June 30, 2021, we had $338.5 million in cash and cash equivalents, and an accumulated deficit of $289.3 million.

As of September 30, 2021, we had $314.4 million in cash and cash equivalents, and an accumulated deficit of $300.5 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.

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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.

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

Six months ended June 30,

Nine months ended September 30,

(in thousands) 2021 2020

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Net Cash Used in Operating Activities

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 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 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.

During the nine months ended September 30, 2021, net cash used in operating activities was $16.8 million, which consisted of a net loss of $33.5 million, adjusted by non-cash charges of $13.3 million and net cash inflows from the change in net operating assets and liabilities of $3.4 million.

The non-cash charges were primarily 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 $2.4 million, and stock-based compensation expense of $7.8 million.

The net cash inflows from the change in our net operating assets and liabilities were primarily due to a $12.8 million increase in accounts payable and accrued liabilities, partially offset by a $5.7 million increase in accounts receivable, a $0.7 million increase in prepaid expenses and other current assets, and a net $3.0 million in other balance sheet changes.

During the nine months ended September 30, 2020, net cash used in operating activities was $23.1 million, which consisted of a net loss of $38.9 million, adjusted by non-cash charges of $18.2 million, and net cash outflows from the change in net operating assets and liabilities of $2.4 million.

Non-cash charges were primarily comprised of depreciation expense of $2.0 million and stock-based compensation expense of $1.3 million.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $4.1 million increase in accounts payable and accrued liabilities, offset by a $2.6 million increase in accounts receivable, a $1.7 million increase in prepaid expenses and other current assets, and a $2.2 million increase in deferred implementation costs.

Net Cash Used in Investing Activities

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.

During the nine months ended September 30, 2021, net cash used in investing activities was $20.5 million, primarily consisting of $18 million for the purchase of MK, $0.3 million related to the finalization of working capital adjustments on our acquisition of ACH Alert, $1.3 million related to capitalized software development costs, and capital expenditures related to updates for computer and other equipment of $0.9 million.

During the nine months ended September 30, 2020, net cash used in investing activities was $1.5 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 $0.4 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.

For the nine months ended September 30, 2021, net cash provided by financing activities was $186.9 million, which was primarily due to the receipt of proceeds from our IPO of $192.8 million and proceeds of $6.4 million from the exercise of stock options to purchase 4.1 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 $4.5 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 nine months ended September 30, 2020, cash provided by financing activities was $218.3 million, consisting primarily of proceeds from the sale of preferred stock of $218.0 million.

Credit Agreement

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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.

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

Once 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.

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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 June 30, 2021.

Our minimum interest rate applied to term debt was 4.00% as of September 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.

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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 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.

Total interest expense, including commitment fees and unused line fees, for the three and nine months ended September 30, 2021 was $0.3 million and $0.9 million, respectively, and none and $0.2 million for the three and nine months ended September 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 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.

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

Amortization expense totaled $0.2 million and $0.6 million for the three and nine months ended September 30, 2021, respectively.

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

Contractual Obligations and Commitments

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.

There were no material changes to our contractual obligations and commitments as of September 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

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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