What changed in this filing

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Item 1. Financial Statements

2022-05-06 compared with 2021-11-05 · 211 added, 378 removed, 290 unchanged (67% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30, December 31,

March 31, December 31,

Current assets

Cash and cash equivalents $ 187,291 $ 308,581

Marketable securities 111,988 —

Accounts receivable, net 23,350 20,821

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Total assets $ 430,903 $ 436,510

Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

Liabilities and Stockholders' Equity (Deficit)

Current liabilities

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Long-term debt, net 22,438 23,053

Warrant liability — 2,692

Deferred revenues, net of current portion 13,678 13,873

Deferred rent and tenant allowance, net of current portion 5,002 5,190

Deferred income taxes 118 85

Other non-current liabilities 12,800 16,500

Total liabilities 88,788 91,899

Commitments and contingencies (Note 13)

Redeemable Convertible Preferred Stock

Redeemable convertible preferred stock, $ 0.001 par, 0 and 72,799,602 shares authorized and 0 and 72,225,916 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Commitments and contingencies (Note 11 and 13)

Stockholders’ Equity (Deficit)

Preferred stock, $ 0.001 par, 10,000,000 and 0 shares authorized and 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Common stock, $ 0.001 par, 500,000,000 and 101,671,156 shares authorized and 88,147,853 and 4,909,529 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Preferred stock, $ 0.001 par, 10,000,000 shares authorized and 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021

Common stock, $ 0.001 par, 500,000,000 shares authorized;

and 90,469,637 and 89,954,657 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital 669,284 658,374

Accumulated deficit ( 327,259 ) ( 313,853 )

Total stockholders’ equity (deficit) 345,518 ( 263,523 )

Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) $ 441,792 $ 249,166

Total stockholders’ equity 342,115 344,611

Total liabilities and stockholders' equity $ 430,903 $ 436,510

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

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(In thousands, except share and per share data)

Three months ended September 30,

Nine months ended September 30,

2021 2020 2021 2020

Three months ended March 31,

Revenues $ 44,790 $ 33,262

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(In thousands, except share data)

Three months ended September 30, 2021

Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit)

Shares Amount Shares Amount

Balance June 30, 2021

— $ — 87,186,730 $ 87 $ 640,457 $ ( 289,285 ) $ 351,259

Stock-based compensation — — — — 3,352 — 3,352

Exercised stock options — — 749,800 1 1,480 — 1,481

Exercised warrants — — 211,323 — 645 — 645

Net loss — — — — — ( 11,219 ) ( 11,219 )

Balance September 30, 2021

— $ — 88,147,853 $ 88 $ 645,934 $ ( 300,504 ) $ 345,518

Three months ended September 30, 2020

Three months ended March 31, 2022

Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit)

Shares Amount Shares Amount

Balance June 30, 2020

Balance January 1, 2022

— $ — 89,954,657 $ 90 $ 658,374 $ ( 313,853 ) $ 344,611

Issuance of redeemable convertible preferred stock, net of issuance costs 15,005,779 188,992 — — — — —

Stock-based compensation — — — — 9,974 — 9,974

Issuance of common stock upon restricted stock unit vesting — — 82,050 — — — —

Exercised stock options — — 432,930 — 936 — 936

Cumulative dividends and adjustments to redeemable convertible preferred stock — 4,459 — — ( 582 ) ( 3,877 ) ( 4,459 )

Net loss — — — — — ( 13,406 ) ( 13,406 )

Balance September 30, 2020

Balance March 31, 2022

— $ — 90,469,637 $ 90 $ 669,284 $ ( 327,259 ) $ 342,115

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

ALKAMI TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share data)

Nine months ended September 30, 2021

Three months ended March 31, 2021

Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit)

Shares Amount Shares Amount

Balance December 31, 2020

Balance January 1, 2021

72,225,916 $ 443,263 4,909,529 $ 5 — $ ( 263,528 ) $ ( 263,523 )

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Exercised stock options — — 2,064,567 2 2,827 — 2,829

Exercised warrants — — 211,323 — 645 — 645

Payment of Series B Dividend upon initial public offering — ( 4,969 ) — — — — —

Cumulative dividends and adjustments to redeemable convertible preferred stock — 277 — — ( 277 ) — ( 277 )

Issuance of common stock upon initial public offering, net of underwriting discounts and commissions — — 6,900,000 7 192,803 — 192,810

Conversion of redeemable convertible preferred stock to common stock upon initial public offering ( 72,225,916 ) ( 438,571 ) 72,225,916 72 438,498 — 438,570

Conversion of redeemable convertible preferred stock warrants to common stock warrants upon initial public offering — — — — 5,727 — 5,727

Costs in connection with initial public offering ( 5,674 ) ( 5,674 )

Repurchase of common stock — — ( 218,917 ) — 6 ( 3,503 ) ( 3,497 )

Net loss — — — — — ( 10,879 ) ( 10,879 )

Balance September 30, 2021

— $ — 88,147,853 $ 88 $ 645,934 $ ( 300,504 ) $ 345,518

Nine months ended September 30, 2020

Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit)

Shares Amount Shares Amount

Balance December 31, 2019

54,290,383 $ 210,033 4,537,955 $ 5 $ 335 $ ( 195,730 ) $ ( 195,390 )

Issuance of redeemable convertible preferred stock, net of issuance costs 17,935,533 227,940 — — — — —

Stock-based compensation — — — — 1,348 — 1,348

Preferred Series E Tranche Liability — — — — ( 892 ) — ( 892 )

Exercised stock options — — 454,340 — 241 — 241

Cumulative dividends and adjustments to redeemable convertible preferred stock — 5,013 — — ( 1,032 ) ( 3,981 ) ( 5,013 )

Net loss — — — — — ( 38,869 ) ( 38,869 )

Balance September 30, 2020

Balance March 31, 2021

72,225,916 $ 443,540 6,755,179 $ 7 $ 3,974 $ ( 277,910 ) $ ( 273,929 )

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(In thousands)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

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Depreciation and amortization expense 1,018 786

Accrued interest on marketable securities, net ( 42 ) —

Stock-based compensation expense 9,974 1,418

Amortization of debt issuance costs 10 13

Gain on revaluation of contingent consideration ( 2,700 ) —

Loss on financial instruments

Deferred taxes 34 —

Changes in operating assets and liabilities:

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Cash flows from investing activities:

Purchase of marketable securities ( 112,079 ) —

Purchases of property and equipment ( 282 ) ( 180 )

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Cash flows from financing activities:

Borrowings on line of credit — 13,000

Payments on line of credit — ( 13,000 )

Principal payments on debt ( 313 ) —

Proceeds from stock option exercises 936 2,829

Proceeds from exercise of warrants 645 —

Proceeds on sales of preferred stock, net of issuance costs — 218,040

Deferred IPO issuance costs paid — ( 1,345 )

Payments on capital lease obligations — ( 11 )

Repurchase of common stock — ( 3,497 )

Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and commissions 192,810 —

Payment of Series B dividend ( 4,969 ) —

Net cash provided by financing activities

186,886 218,270

Net increase in cash and cash equivalents and restricted cash

Net cash provided by (used in) financing activities

623 ( 2,013 )

Net decrease in cash and cash equivalents and restricted cash ( 121,289 ) ( 4,715 )

Cash and cash equivalents and restricted cash, beginning of period 312,954 171,663

Cash and cash equivalents and restricted cash, end of period $ 191,665 $ 166,948

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

Supplemental disclosure of noncash financing activities

Deferred IPO offering costs not yet paid $ — $ 2,122

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

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The Company was incorporated in Delaware in August 2011, and its principal offices are located in Plano, Texas.

Initial Public Offering

On April 13, 2021, the Company's registration statement relating to the initial public offering ("IPO") of its common stock was declared effective by the Securities and Exchange Commission ("SEC").

In connection with its 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).

Prior to the Company’s IPO, deferred offering costs, which consist of legal, accounting, consulting and other direct fees and costs relating to its IPO, were capitalized in prepaid expenses and other current assets.

Upon consummation of the Company’s IPO, these costs were offset against the proceeds from its IPO and recorded in additional paid-in capital.

In addition, in connection with its IPO, the Company's certificate of incorporation was amended and restated such that the total number of shares of common stock authorized to be issued was increased to 500,000,000 shares and the total number of shares of preferred stock authorized to be issued was reduced to 10,000,000 shares.

Immediately prior to the effectiveness of the Company’s registration statement, the Company’s outstanding shares of redeemable convertible preferred stock converted into an aggregate of 72,225,916 shares of common stock.

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

All of the Company’s outstanding warrants exercisable for shares of redeemable convertible preferred stock converted into warrants exercisable for 212,408 shares of common stock and were classified as equity immediately prior to the effectiveness of the Company’s registration statement.

Summary of Significant Accounting Policies

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Certain information and disclosures normally included in the notes to the annual consolidated financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC.

Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2020, which are included in the final prospectus (the “Prospectus”) for the Company’s IPO filed with the SEC on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2021.

Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2021, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.

Operating results for the three months ended March 31, 2022 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2022.

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

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Actual results could differ from those estimates.

Significant estimates and assumptions include determining the timing and amount of revenue recognition, recoverability and amortization period related to costs to obtain and fulfill contracts, and valuation of the Company’s stock options.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, restricted cash and cash equivalents, accounts receivable, accounts payable, long-term debt, stock warrants and contingent consideration.

The carrying values of cash, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values due to the short-term nature of these instruments.

The carrying value of long-term debt approximates its fair value due to the variable interest rate.

Cash equivalents include amounts held in money market accounts that are measured at fair value using observable market prices.

Warrant liabilities are valued using the Black-Scholes option pricing method and are presented at estimated fair value at the end of the reporting period.

The assumptions used in preparing the Black-Scholes option pricing calculation include weighted average grant date fair value, volatility, risk-free interest rate, dividends, and weighted average expected life in years.

Changes in the fair value of warrant liabilities are recognized as a gain or loss within non-operating income (expense).

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

The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows.

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

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

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

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

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period.

The following table summarizes the Company’s financial assets measured at fair value as of September 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation:

Fair Value at Reporting Date Using

(In thousands) September 30, 2021 Level 1 Level 2 Level 3

Money Market Accounts $ 14,647 $ 14,647 $ — $ —

Total Assets $ 14,647 $ 14,647 $ — $ —

Contingent consideration payable $ ( 15,500 ) $ — $ — $ ( 15,500 )

Total Liabilities $ ( 15,500 ) $ — $ — $ ( 15,500 )

Fair Value at Reporting Date Using

(In thousands) December 31, 2020 Level 1 Level 2 Level 3

Money Market Accounts $ 143,277 $ 143,277 $ — $ —

Total Assets $ 143,277 $ 143,277 $ — $ —

Warrant Liabilities $ ( 2,692 ) $ — $ — $ ( 2,692 )

Total Liabilities $ ( 2,692 ) $ — $ — $ ( 2,692 )

The reconciliations of the beginning and ending balances during the nine months ended September 30, 2021 for Level 3 assets and liabilities are as follows (in thousands):

Asset and liability categories Beginning Level 3 Fair Value at January 1, 2021

Fair value adjustment Adjustment for conversion to equity accounting treatment upon IPO

Ending Level 3 Fair Value at September 30, 2021

Warrant Liabilities $ ( 2,692 ) $ ( 3,035 ) $ 5,727 $ —

The following table represents the changes to the Company’s contingent consideration payable (in thousands):

Balance at January 1, 2021 $ —

Business Combination

Balance at September 30, 2021 $ 15,500

Restricted Cash

The Company defines restricted cash as cash that is legally restricted as to withdrawal or usage.

The amounts included in restricted cash on the condensed consolidated balance sheets at September 30, 2021 and December 31, 2020 represent the additional cash proceeds in deposit with an escrow agent for satisfaction of contingent consideration related to the acquisition of ACH Alert, LLC (“ACH Alert”).

In addition, restricted cash representing additional cash proceeds in deposit with an escrow agent for satisfaction of a holdback provision related to the acquisition of MK Decisioning Systems, LLC (“MK”) is included in the condensed consolidated balance sheets at September 30, 2021.

The amounts included in restricted cash on the condensed consolidated balance sheets at March 31, 2022 and December 31, 2021 represent the additional cash proceeds in deposit with an escrow agent for satisfaction of contingent consideration related to the acquisition of ACH Alert, LLC (“ACH Alert”).

See Note 3 for further information.

September 30, December 31,

March 31, December 31,

(in thousands) 2022 2021

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Total cash and cash equivalents and restricted cash $ 191,665 $ 312,954

Marketable Securities

The Company classifies its fixed income marketable securities as trading securities based on its intentions with regard to these instruments.

Accordingly, marketable securities are reported at fair value, with all unrealized holding gains and losses reflected in the condensed consolidated statements of operations.

Capitalized Software Development Costs

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The capitalized software development costs are reported in property and equipment, net in the condensed consolidated balance sheets.

The Company had $ 1.3 million in capitalized internal software development costs as of September 30, 2021 and no ne as of December 31, 2020.

The Company had $ 3.8 million and $ 2.6 million in capitalized internal software development costs as of March 31, 2022 and December 31, 2021, respectively.

Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally three to five years from when the asset is placed in service.

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Client contracts under which revenues have been recognized while the Company is not yet able to invoice results in contract assets.

Generally, contract assets arise as a result of reallocating revenues when discounts are weighted more heavily in the early years of a multi-year contract or the client contract has substantive minimum fees that escalate over the term of the contract.

Contract assets totaled $ 0.8 million and $ 0.8 million as of September 30, 2021 and December 31, 2020, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets.

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

Stock-Based Compensation

Stock Options

Stock options are accounted for using the grant date fair value method.

Under this method, stock-based compensation expense is measured by the estimated fair value of the granted stock options at the date of grant using the Black-Scholes option pricing model and recognized over the vesting period with a corresponding increase to additional paid-in capital.

Determining the fair value of stock-based awards at the grant date requires significant judgement.

The determination of the grant date fair value of stock-based awards using the Black-Scholes option-pricing model is affected, for periods prior to the Company’s IPO, by the Company’s estimated common stock fair value as well as other subjective assumptions including the volatility, risk-free interest rate, dividends, and weighted average expected life.

The assumptions used in the Company’s option-pricing model represent management’s best estimates.

These assumptions and estimates are as follows:

Fair Value of Common Stock.

Given the absence of an active market for the Company’s shares of common stock prior to its IPO, the fair value of the shares of common stock underlying the Company’s stock options was determined by the Company’s board of directors (the “Board”).

• Preliminary Offering Price and Options Granted Subsequent to December 31, 2020.

During February 2021, the Company granted stock options to purchase shares of its common stock.

The Company established the fair value of these grants based on a straight-line interpolation from its December 31, 2020 valuation and the mid-point of its initial price range in order to determine the appropriate stock-based compensation expense for financial reporting purposes.

• Initial Public Offering Price and Options Granted Subsequent to April 13, 2021 .

The Company’s stock became actively traded upon the completion of its IPO in April 2021.

For grants issued upon or subsequent to its IPO the Company establishes fair value based on the Company’s stock price.

As the Company does not have the necessary trading history for its common stock the selected volatility used is representative of expected future volatility.

The Company bases expected future volatility on the historical and implied volatility of comparable publicly traded companies over a similar expected term.

Risk-Free Interest Rate:

The Company bases the risk-free interest rate on the rate for a U.S.

Treasury zero-coupon issue with a term that closely approximates the expected life of the option grant at the date nearest the option grant date.

The Company has never declared or paid any cash dividends and does not presently intend to pay cash dividends in the foreseeable future, other than the aggregate accumulated dividends paid to holders of the Company’s Series B redeemable convertible preferred stock upon the effectiveness of the Company’s IPO.

As a result, the Company used a dividends assumption of zero.

Weighted Average Expected Life in Years:

The expected term of employee stock options reflects the period for which the Company believes the option will remain outstanding.

To determine the expected term, the Company applies the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award.

In addition to assumptions used in the Black-Scholes option-pricing model, the Company estimates a forfeiture rate to calculate the stock-based compensation expense for its option awards.

The Company’s forfeiture rate is based on an analysis of its actual forfeitures.

The Company will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors.

Restricted Stock Units

Restricted stock units (“RSUs”) issued upon and subsequent to the Company’s IPO vest upon the satisfaction of a time-based condition only.

These RSUs are generally earned over a service period of three to four years and the compensation expense related to these awards is based on the grant date fair value of the RSUs and is recognized on a ratable basis over the applicable service period.

Employee Stock Purchase Plan

The Company’s 2021 Employee Stock Purchase Plan (the “ESPP”) permits employees to purchase the Company's common stock through payroll deductions during six month offerings.

The offering periods begin each May 16 and November 16, or such other period determined by the compensation committee.

In accordance with the guidance in ASC 718-50 - Compensation - Stock Compensation, the ability to purchase shares of the Company’s common stock for 85% of the lower of the price on the first day of the offering period or the last day of the offering period (i.e.

the purchase date) represents an option and, therefore, the ESPP is a compensatory plan.

Accordingly, stock-based compensation expense is determined based on the grant-date fair value as estimated by applying the Black-Scholes option-pricing model and is recognized over the withholding period.

Concentrations of Credit Risk

Significant concentrations of credit risk arise from the Company’s revenues and accounts receivable.

Management believes that its contract acceptance, billing, and collection policies are adequate to minimize potential credit risk.

No client represented more than 10% of revenue for the three and nine months ended September 30, 2021 and 2020.

As of September 30, 2021 and December 31, 2020, no client represented more than 10% of accounts receivable.

Generally, contract assets arise as a result of reallocating revenues when discounts are more heavily weighted in the early years of a multi-year contract or the client contract has substantive minimum fees that escalate over the term of the contract.

Contract assets totaled $ 0.7 million and $ 0.7 million as of March 31, 2022 and December 31, 2021, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, “Leases (Topic 842),” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the condensed consolidated balance sheets and disclosing key information about leasing arrangements.

The Company anticipates that the adoption of Topic 842 will impact its condensed consolidated balance sheets as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and corresponding operating lease liabilities upon the adoption of ASU 2016-02.

2016-02, “Leases (Topic 842),” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the consolidated balance sheets and disclosing key information about leasing arrangements.

The Company anticipates that the adoption of Topic 842 will impact its consolidated balance sheets as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and corresponding operating lease liabilities upon the adoption of ASU 2016-02.

The Company expects to adopt the standard in fiscal year 2022 using the modified retrospective transition approach and interim periods beginning 2023.

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The effective date for adoption of the new standard was delayed until calendar years beginning after December 15, 2022, with early adoption permitted.

The Company expects to adopt this new standard in interim periods beginning in 2022.

The Company expects to adopt the standard in its annual report on Form 10-K for the year ending December 31, 2022 and for interim periods beginning in 2023.

This ASU is not expected to have a material impact on the Company’s financial statements.

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On October 4, 2020, the Company announced the acquisition of substantially all of the assets of ACH Alert for approximately $ 25 million in cash consideration.

The integrated set of assets and activities acquired from ACH Alert through the acquisition meet the definition of a business under ASC 805, as updated by ASU 2017-01.

A term loan of $ 25.0 million (“Term Loan”) was borrowed on October 16, 2020 to partially fund the acquisition of ACH Alert (see Note 8).

The ACH Alert acquisition also involved $ 4.9 million of additional cash consideration that the Company placed on deposit with an escrow agent to be paid upon the continued employment of one of the owners of ACH Alert, of which $ 2.5 million is to be paid in October 2021 and $ 2.4 million is to be paid in October 2022.

Since the payouts are contingent upon the continued and future employment of the former owner, these amounts have been excluded from the purchase price.

The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets and is accruing the estimated payouts over the requisite service period as a component of general and administrative expense on the condensed consolidated statements of operations.

For the three and nine months ended September 30, 2021, the Company recognized compensation expense of $ 0.6 million and $ 1.9 million, respectively, related to this agreement.

The Company’s preliminary fair value estimates and assumptions to measure the assets acquired and liabilities assumed were subject to change as the Company obtained additional information during the measurement period.

The following table summarizes the fair value amounts recognized as of the acquisition date for each major class of asset acquired or liability assumed, as well as adjustments made during the measurement period:

(in thousands) Preliminary Fair Value as of October 4, 2020 Measurement Period Adjustments Adjusted Fair Value as of March 31, 2021

Trade accounts receivables $ 915 $ — $ 915

Other current assets 47 ( 14 ) 33

Property and equipment 20 — 20

Goodwill 16,218 324 16,542

Intangible assets 8,450 — 8,450

Total assets acquired $ 25,650 $ 310 $ 25,960

Accounts payable $ 61 $ 5 $ 66

Accrued liabilities — 4 4

Deferred revenues, current 170 — 170

Deferred revenues, net of current 346 ( 25 ) 321

Total liabilities assumed 577 ( 16 ) 561

Net assets acquired $ 25,073 $ 326 $ 25,399

As of March 31, 2021, the allocation of the purchase price for ACH Alert was finalized.

The table below outlines the purchased identifiable intangible assets:

Weighted Average Amortization Period Total

(in years) (in thousands)

Customer relationships 15 $ 5,100

Developed technology 7 3,300

Trade names 2 50

Total identifiable intangible assets $ 8,450

Goodwill is mainly attributable to advantages expected from the acquisition such as giving the Company a complimentary solution to its existing platform offering, especially for banks.

It is also expected to position the Company to better penetrate the banking market.

This goodwill is expected to be deductible for tax purposes.

No material transaction costs are included within the condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020.

The ACH Alert acquisition also involved $ 4.9 million of additional cash consideration that the Company placed on deposit with an escrow agent to be paid upon the continued employment of one of the owners of ACH Alert, of which $ 2.5 million was paid in October 2021 and $ 2.4 million is to be paid in October 2022.

The Company has classified the amounts held in escrow as restricted cash on the consolidated balance sheets and is accruing the estimated payouts over the requisite service period as a component of general and administrative expense on the consolidated statements of operations.

For the three months ended March 31, 2022 and 2021, the Company recognized compensation expense of $ 0.6 million and $ 0.6 million, respectively, related to this agreement.

MK Decisioning Systems, LLC

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The integrated set of assets and activities acquired from MK through the acquisition meet the definition of a business under ASC 805, as updated by ASU 2017-01.

In addition to the base purchase price, the MK acquisition also included a potential earn-out that is tied to revenue of MK from sales of its products and services within two 12-month periods (the “First Earn-Out Period” and “Second Earn-Out Period”), with the First Earn-Out Period beginning on January 1, 2022 and ending on December 31, 2022 and the Second Earn-Out Period beginning on January 1, 2023 and ending on December 31, 2023.

In addition to the base purchase price, the MK acquisition also included a potential earn-out that is tied to revenue of MK from sales of its

products and services within two 12 -month periods (the “First Earn-Out Period” and “Second Earn-Out Period”), with the First Earn-Out Period beginning on January 1, 2022 and ending on December 31, 2022 and the Second Earn-Out Period beginning on January 1, 2023 and ending on December 31, 2023.

Pursuant to the terms and conditions set forth in the purchase agreement, the earn-out amount payable, if any, to the former owners, will be a maximum of $ 7.5 million and $ 17.5 million for the First Earn-Out Period and Second Earn-Out Period, respectively, contingent on achievement of certain revenue milestones.

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The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets.

The fair value of the contingent earn-out as of September 30, 2021 is $ 15.5 million for which the balance is included in Other non-current liabilities on the condensed

consolidated balance sheets.

The fair value of the contingent earn-out is included as contingent consideration in the total purchase price.

The Company will remeasure the fair value of the contingent consideration on an ongoing basis and will record the adjustment to operating income or loss.

The fair value of the contingent earn-out both upon acquisition and as of December 31, 2021 was $ 15.5 million, for which the balance was included in Other non-current liabilities on the condensed consolidated balance sheets.

This initial estimated fair value was included as contingent consideration in the total purchase price.

The Company remeasures the fair value of the contingent consideration on an ongoing basis and records the adjustment to the condensed consolidated statements of operations.

For the three months ended March 31, 2022, the Company recorded a gain on revaluation of contingent consideration of $ 2.7 million.

As of March 31, 2022, the fair value of the contingent earn-out was $ 12.8 million.

Assumptions used to estimate the fair value of contingent consideration include various financial metrics (revenue performance targets and stock price forecasts) and the probability of achieving the specific targets using a geometric binomial model.

Based on the preliminary purchase accounting, the Company determined that approximately 62 % of the maximum contingent consideration would be paid to the seller in accordance with the terms of the purchase agreement.

The Company’s preliminary fair value estimates and assumptions to measure the assets acquired and liabilities assumed are subject to change as the Company obtains additional information during the measurement period.

The following table summarizes the fair value amounts recognized as of the acquisition date for each major class of asset acquired or liability assumed:

(in thousands) Preliminary Fair Value as of September 10, 2021

Trade accounts receivables $ 437

Other current assets 56

Property and equipment 41

Goodwill 31,849

Intangible assets 3,670

Total assets acquired $ 36,053

Accounts payable and accrued liabilities $ 43

Deferred revenues, net of current 510

Total liabilities assumed 553

Net assets acquired $ 35,500

As of September 30, 2021, the allocation of the purchase price for MK has not been finalized, and the one-year measurement period has not ended.

The preliminary purchase price allocations are based upon the valuation of assets and liabilities.

These estimates and assumptions are subject to change as the Company obtains additional information during the measurement period.

The table below outlines the purchased identifiable intangible assets:

Weighted Average Amortization Period Total

(in years) (in thousands)

Customer relationships 15 $ 170

Developed technology 5 3,500

Total identifiable intangible assets $ 3,670

Goodwill is mainly attributable to advantages expected from the acquisition such as giving the Company a complimentary solution to its existing platform offering, especially for banks.

This goodwill is expected to be deductible for tax purposes.

Transaction costs are included in the condensed consolidated statements of operations for both the three and nine months ended September 30, 2021 were $ 0.3 million.

For the nine months ended September 30, 2021, the Company had noncash investing activities of $ 17.5 million related to unpaid consideration for the acquisition of MK.

Based on the final purchase accounting, the Company determined that approximately 62 % of the maximum $ 25 million contingent consideration would be paid to the seller in accordance with the terms of the purchase agreement.

As of March 31, 2022 the Company determined that approximately 51 % of the maximum $ 25 million contingent consideration would be paid to the seller in accordance with the terms of the purchase agreement.

Property and Equipment, Net

Depreciation expense was $ 0.6 million and $ 1.8 million for the three and nine months ended September 30, 2021, respectively, and $ 0.7 million and $ 2.0 million for the three and nine months ended September 30, 2020, respectively.

(in thousands) Useful Life September 30, 2021 December 31, 2020

Depreciation expense was $ 0.6 million and $ 0.6 million for the three months ended March 31, 2022 and 2021, respectively.

(in thousands) Useful Life March 31, 2022 December 31, 2021

Software 1 to 3 years

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Revenue and Deferred Costs

The Company derives primarily all of its revenues from software-as-a-service (“SaaS”) subscription services charged for the use of its digital banking solutions.

Revenues are recognized net of the most likely amount of sales credits and allowances and presented net of sales and usage-based taxes collected from clients on behalf of governmental authorities.

SaaS subscription services are generally recognized as revenue over the term of the contract as a series of distinct SaaS services bundled into a single performance obligation.

Clients are typically charged a one-time, upfront implementation fee and recurring annual and monthly access fees for the use of the Company’s digital banking solution.

Implementation and integration of the digital banking platform is complex, and the Company has determined that the one-time, upfront services are not distinct.

In determining whether implementation services are distinct from subscription services, the Company considered various factors including the significant level of integration, interdependency, and interrelation between the implementation and subscription service, as well as the inability of the clients’ personnel or other service providers to perform significant portions of the services.

As a result, the Company defers any arrangement fees for implementation services and recognizes such amounts over time on a ratable basis as one performance obligation with the underlying subscription revenue commencing when the client goes live on the platform, which corresponds with the date the client obtains access to the Company’s digital banking solution and begins to benefit from the service.

The Company’s performance obligation for the SaaS series of services includes standing ready over the term of the contract to provide access to all of the clients’ users and process any transactions initiated by those users.

The Company invoices clients each month for the contracted minimum number of registered users with an additional amount for users in excess of those minimums.

The Company recognizes variable consideration related to registered user counts in excess of the contractual minimum amounts each month.

SaaS subscription revenues also includes annual and monthly charges for maintenance and support services which are recognized over the subscription term.

As mentioned above, SaaS contracts include a single performance obligation that consists of a series of distinct SaaS services transferred over time that are substantially the same each month.

Standalone selling prices are not required to allocate revenue amongst the distinct services within the series.

The Company uses an analysis of pricing and discounting objectives, expected volume of users above contracted minimums and transactions, and client characteristics to ensure the revenue standards’ allocation objectives have been met.

In limited circumstances when a contract calls for certain discounting to be triggered by volumes above contracted minimums, the Company is required to estimate these volumes in order to calculate revenue recognition in line with the standard’s allocation objectives.

The following table disaggregates the Company's revenue by major source for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30,

Nine months ended September 30,

The Company derives the majority of its revenues from recurring monthly subscription fees charged for the use of its software-as-a-service (“SaaS”) subscription services.

Subscription revenues are generally recognized as revenue over the term of the contract as a series of distinct SaaS services bundled into a single performance obligation.

Clients are usually charged a one-time, upfront implementation fee and recurring annual and monthly access fees for the use of the online digital relationship banking solution.

Implementation and integration of the digital banking platform is complex, and the Company has determined that the one-time, upfront services do not transfer a promised service to the client.

As these services are not distinct, they are bundled into the SaaS series of services, and the associated fees are recognized on a straight-line basis over the subscription term.

Other services includes professional services and custom development.

The following table disaggregates the Company's revenue by major source for the three months ended March 31, 2022 and 2021:

Three months ended March 31,

(in thousands) 2022 2021

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Total revenues $ 44,790 $ 33,262

The Company recognized approximately $ 2.1 million and $ 5.8 million of revenue during the three and nine months ended September 30, 2021, respectively, and $ 2.9 million and $ 7.4 million during the three and nine months ended September 30, 2020, respectively, which was recognized from deferred revenues in the accompanying condensed consolidated balance sheets as of the beginning of each reporting period.

For those contracts that were wholly or partially unsatisfied as of September 30, 2021, minimum contracted subscription revenues to be recognized in future periods total approximately $ 553.4 million.

The Company recognized approximately $ 1.9 million and $ 1.7 million of revenue during the three months ended March 31, 2022 and 2021, respectively, which was recognized from deferred revenues in the accompanying condensed consolidated balance sheets as of the beginning of each reporting period.

For those contracts that were wholly or partially unsatisfied as of March 31, 2022, minimum contracted subscription revenues to be recognized in future periods total approximately $ 662.3 million.

The Company expects to recognize approximately 45.3 % of this amount as subscription services are transferred to customers over the next 24 months, an additional 33.1 % in the next 25 to 48 months, and the balance thereafter.

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Deferred Cost Recognition

The Company capitalized $ 0.3 million and $ 0.8 million in deferred commissions costs during the three and nine months ended September 30, 2021, respectively and $ 0.3 million and $ 1.1 million for the three and nine months ended September 30, 2020, respectively, and recognized amortization of $ 0.6 million and $ 1.6 million during the three and nine months ended September 30, 2021, respectively, and $ 0.4 million and $ 1.1 million for the three and nine months ended September 30, 2020, respectively.

The Company capitalized $ 0.7 million and $ 0.3 million in deferred commissions costs during the three months ended March 31, 2022 and 2021, respectively, and recognized amortization of $ 0.7 million and $ 0.5 million during the three months ended March 31, 2022 and 2021, respectively.

Amortization expense is included in sales and marketing expenses in the accompanying statements of operations.

Deferred commissions are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $ 8.4 million and $ 9.0 million as of September 30, 2021 and December 31, 2020, respectively.

The Company capitalized implementation costs of $ 1.3 million and $ 4.0 million during the three and nine months ended September 30, 2021, respectively, and $ 1.0 million and $ 3.2 million for the three and nine months ended September 30, 2020, respectively, and recognized amortization of $ 0.7 million and $ 1.9 million during the three and nine months ended September 30, 2021, respectively, and $ 0.5 million and $ 1.5 million for the three and nine months ended September 30, 2020, respectively.

Deferred commissions are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $ 10.8 million and $ 10.8 million as of March 31, 2022 and December 31, 2021, respectively.

The Company capitalized implementation costs of $ 1.3 million and $ 1.3 million during the three months ended March 31, 2022 and 2021, respectively, and recognized amortization of $ 0.8 million and $ 0.6 million during the three months ended March 31, 2022 and 2021, respectively.

Amortization expense is included in cost of revenues in the accompanying condensed consolidated statements of operations.

The Company periodically reviews the carrying amount of deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit.

No impairment loss was recognized in relation to these capitalized costs for the three and nine months ended September 30, 2021 and 2020.

No impairment loss was recognized in relation to these capitalized costs for the three months ended March 31, 2022 and 2021.

Accounts Receivable

Accounts receivable includes the following amounts at September 30, 2021 and December 31, 2020:

September 30, December 31,

Accounts receivable includes the following amounts at March 31, 2022 and December 31, 2021:

March 31, December 31,

(in thousands) 2022 2021

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Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2021 and December 31, 2020:

September 30, December 31,

Accrued liabilities consisted of the following at March 31, 2022 and December 31, 2021:

March 31, December 31,

(in thousands) 2022 2021

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Accrued tax liabilities 3,814 3,724

MK acquisition holdback provision 2,000 1,000

ESPP liability 2,109 821

Other accrued liabilities 4,250 1,685

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The Credit Agreement replaced the prior credit facility provided by Comerica Bank.

The Credit Agreement matures on October 16, 2023.

The Credit Agreement includes the following:

The Credit Agreement was scheduled to mature on October 16, 2023.

The Credit Agreement included the following:

• Revolving Facility:

The Credit Agreement provides $ 25.0 million in aggregate commitments for secured revolving loans, with sub-limits of $ 10.0 million for the issuance of letters of credit and $ 7.5 million for swingline loans (“Revolving Facility”).

A Term Loan of $ 25.0 million was borrowed on the closing date of the Credit Agreement.

The Credit Agreement provided $ 25.0 million in aggregate commitments for secured revolving loans, with sub-limits of $ 10.0 million for the issuance of letters of credit and $ 7.5 million for swingline loans (“Revolving Facility”).

A term loan of $ 25.0 million (the “Term Loan”) was borrowed on the closing date of the Credit Agreement.

The proceeds from the Term Loan were used to fund the acquisition of ACH Alert, which closed on October 4, 2020.

• Accordion Feature:

The Credit Agreement also allows the Company, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $ 30.0 million.

Revolving Facility loans under the Credit Agreement may be voluntarily prepaid and re-borrowed.

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 Loans may not be re-borrowed.

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

The minimum LIBOR rate to be applied is 1.00 %.

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.

The Company’s minimum interest rate applied to term debt was 4.00 % as of September 30, 2021.

The Company is 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.

All outstanding principal and accrued but unpaid interest is due, and the commitments for the Revolving Facility terminate, on the maturity date.

The Term Loans are subject to mandatory repayment requirements in the event of certain asset sales or if certain insurance or condemnation events occur, subject to customary reinvestment provisions.

The Company may prepay the Term Loans 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 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.

The Company was in compliance with all covenants as of September 30, 2021.

The Credit Agreement also allowed the Company, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $ 30.0 million.

Revolving Facility loans under the Credit Agreement were permitted to be voluntarily prepaid and re-borrowed.

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

Once repaid or prepaid, the Term Loan were not permitted to be re-borrowed.

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

The minimum LIBOR rate to be applied was 1.00 %.

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

The Company’s minimum interest rate applied to the Term Loan was 4.00 % as of March 31, 2022.

The Company was 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.

All outstanding principal and accrued but unpaid interest was due, and the commitments for the Revolving Facility were scheduled to terminate, on the maturity date.

The Term Loan was subject to mandatory repayment requirements in the event of certain asset sales or if certain insurance or condemnation events occurred, subject to customary reinvestment provisions.

The Company was permitted to prepay the Term Loan, in whole or in part, at any time without premium or penalty.

The Credit Agreement contained 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 contained customary events of default, which if they occurred, could have resulted in the termination of commitments under the Credit Agreement, the declaration that all outstanding loans were immediately due and payable in whole or in part, and the requirement to maintain cash collateral deposits in respect of outstanding letters of credit.

The Company was in compliance with all covenants as of March 31, 2022.

Long-term Debt

The following table summarizes long-term debt obligations as of September 30, 2021 and December 31, 2020 (in thousands):

September 30, 2021 December 31, 2020

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

March 31, 2022 December 31, 2021

Term Debt $ 24,375 $ 24,688

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Long-term portion $ 22,438 $ 23,053

Maturities of long-term debt outstanding as of September 30, 2021, are summarized as follows (in thousands):

Maturities of long-term debt outstanding as of March 31, 2022, are summarized as follows (in thousands):

Total $ 24,375

Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

In connection with its IPO, the Company's certificate of incorporation was amended and restated such that the total number of shares of common stock authorized to be issued was increased to 500,000,000 shares and the total number of shares of preferred stock authorized to be issued was reduced to 10,000,000 shares.

Repurchase of Common Stock

During the three months ended March 31, 2021, former employees obtained a third-party offer for the purchase of 0.2 million shares of common stock held in the Company.

As the Company had the right of first refusal for the sale of these shares, the Company repurchased the shares for $ 3.5 million from the former employees at the price offered.

Redeemable Convertible Preferred Stock

As of December 31, 2020, the Company was authorized to issue seven classes of stock:

common stock, Series A redeemable convertible preferred stock, Series B redeemable convertible preferred stock, Series C redeemable convertible preferred stock, Series D redeemable convertible preferred stock, Series E redeemable convertible preferred stock and Series F redeemable convertible preferred stock.

These preferred shares were classified as temporary equity within the Company’s consolidated balance sheet as of December 31, 2020.

Immediately prior to the effectiveness of the Company’s registration statement relating to its IPO, the Company’s outstanding shares of redeemable convertible preferred stock converted into an aggregate of 72,225,916 shares of common stock.

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

As of September 30, 2021, there was no preferred stock issued or outstanding.

In conjunction with financing arrangements with prior lenders, the Company issued warrants for the purchase of shares of the Company’s redeemable convertible preferred stock.

All warrants were exercised for aggregate proceeds of $ 0.6 million during the three months ended September 30, 2021.

Equity Compensation

On February 25, 2021, the Board approved, subject to stockholder approval which, was obtained on March 23, 2021, the ESPP, pursuant to which employees would be able to purchase shares of the Company’s common stock at a 15 % discount.

The Board provided for a share reserve with respect to the ESPP of 2 % of the total number of shares outstanding after the Company’s IPO.

The Board further provided that the share reserve will be refreshed by an evergreen provision of 1 % of the Company’s outstanding common stock at the end of the prior year, or such lesser amount as the Board or its Compensation Committee may determine.

The Company reserved 2,205,790 shares of common stock for future issuance under the ESPP.

On February 25, 2021, the Board approved, subject to stockholder approval, which was obtained on March 23, 2021, the Company’s 2021 Incentive Award Plan (the “2021 Plan”), pursuant to which incentive awards may be awarded to employees, directors and consultants.

provided that the maximum number of shares of common stock (subject to stock splits, dividends, recapitalizations and the like) issuable under the 2021 Plan is equal to a number of shares equal to (i) 11.0 % of the shares of common stock outstanding immediately prior to the effectiveness of its IPO after giving effect to the number of shares being sold in its IPO (including shares subject to outstanding equity awards, and the 2021 share reserve and the ESPP share reserve (as described above)) and assuming no exercise of the underwriters’ option to purchase additional shares, plus (ii) an annual increase on the first day of each year beginning in 2022 and ending in 2031, equal to the lesser of:

(a) 5.0 % of the shares outstanding on the last day of the prior fiscal year or (b) such lesser amount as determined by the Board, plus (iii) any shares underlying awards outstanding under the 2011 Long-Term Incentive Plan, as amended (the “2011 Plan”), as of immediately prior to the effectiveness of its IPO, that are thereafter forfeited, terminated, expired or repurchased for the original purchase price thereof, subject to certain statutory limits related to “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code.

The Company reserved 12,131,846 shares of common stock for issuance pursuant to future awards under the 2021 Plan.

Stock Options

During the nine months ended September 30, 2021, the Company granted an aggregate of 2,811,098 stock options to purchase shares of its common stock to officers and employees pursuant to the 2011 Plan and 2021 Plan, with a weighted average exercise price of $ 19.92 per share.

The fair value of options granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions (i) expected term of 6.03 years, (ii) expected volatility of 36.9 %, (iii) risk-free interest rate 0 .7 % and (iv) expected dividend yield of 0 %.

Restricted Stock Units

In the nine months ended September 30, 2021, the Company granted an aggregate of 467,351 RSUs to officers and employees pursuant to the 2021 Plan.

The RSUs vest and settle upon the satisfaction of a service condition.

The service condition for the awards is satisfied over generally three to four years .

Employee Stock Purchase Plan

The first offering period commenced on May 15, 2021, and as of September 30, 2021, no shares had yet been issued under the plan.

Stock-based compensation expense was included as follows:

Three months ended September 30,

Nine months ended September 30,

Stockholders' Equity (Deficit)

Equity Compensation Plans

Stock-based compensation expense was included in the condensed consolidated statements of operations as follows:

Three months ended March 31,

(in thousands) 2022 2021

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Total stock-based compensation expenses $ 9,774 $ 1,418

The amount of stock-based compensation capitalized as part of deferred implementation costs was insignificant for the three and nine months ended September 30, 2021 and September 30, 2020.

Due to net operating losses, there was no tax expense or benefit recorded in connection with stock-based compensation expense.

The provision for income taxes in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 was $ 0 .

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

The Company recorded $ 0.1 million of income tax expense for the three months ended March 31, 2022, resulting in a negative effective tax rate of ( 0.7 )%, compared to no income tax expense for the three months ended March 31, 2021.

The decrease in the effective tax rate for the three months ended March 31, 2022 as compared to the same period in 2021, is primarily due to state income taxes and deferred taxes related to the tax amortization of acquired goodwill.

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

The Company recognizes deferred tax assets and liabilities based on the estimated future tax effects of temporary differences between the financial statement basis and tax basis of assets and liabilities given the provisions of enacted tax law.

Management reviews deferred tax assets to assess their future realization by considering all available evidence, both positive and negative, to determine whether a valuation allowance is needed for all or some portion of the deferred tax assets, using a “more likely than not” standard.

The assessment considers, among other matters:

historical losses, a forecast of future taxable income, the duration of statutory carryback and carryforward periods, and ongoing prudent and feasible tax planning strategies.

As a result, the Company has established a valuation allowance against most of its deferred tax assets as realization is not reasonably assured based upon a “more likely than not” threshold.

The Company reassesses the realizability of deferred tax assets regularly, and it will adjust the valuation allowance as sufficient objective positive evidence becomes available.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, restricted cash and cash equivalents, accounts receivable, accounts payable, long-term debt, and contingent consideration.

The carrying value of long-term debt approximates its fair value due to the variable interest rate.

Cash equivalents include amounts held in money market accounts that are measured at fair value using observable market prices.

The significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are forecasts of expected future annual revenues as developed by the Company's management and the probability of achievement of those revenue forecast.

Significant increases (decreases) in these unobservable inputs in isolation would likely result in a significantly (lower) higher fair value measurement.

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

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

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

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

The following table summarizes the Company’s financial assets measured at fair value as of March 31, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation:

Fair Value at Reporting Date Using

(In thousands) March 31, 2022 Level 1 Level 2 Level 3

Cash equivalents:

Money Market Accounts (1)

$ 182,214 $ 182,214 $ — $ —

Treasury debt securities 4,997 4,997 — —

Total cash equivalents 187,211 187,211 — —

Marketable securities:

Corporate bonds 49,873 — 49,873 —

Treasury debt securities 62,115 62,115 — —

Total marketable securities 111,988 62,115 49,873 —

Total Assets $ 299,199 $ 249,326 $ 49,873 $ —

Contingent consideration payable $ ( 12,800 ) $ — $ — $ ( 12,800 )

Total Liabilities $ ( 12,800 ) $ — $ — $ ( 12,800 )

(1) Includes cash sweep account, money market account, and money market funds that have investments primarily in U.S.

Government Agency debt, U.S.

Treasury debt, U.S.

Treasury Repurchase Agreements, U.S.

Government Agency Repurchase Agreements, and corporate bonds that have a maturity of three months or less from the original acquisition date.

Fair Value at Reporting Date Using

(In thousands) December 31, 2021 Level 1 Level 2 Level 3

Money Market Accounts (1)

$ 308,128 $ 308,128 $ — $ —

Total Assets $ 308,128 $ 308,128 $ — $ —

Contingent consideration payable $ ( 15,500 ) $ — $ — $ ( 15,500 )

Total Liabilities $ ( 15,500 ) $ — $ — $ ( 15,500 )

(1) Includes cash sweep account, money market account, and money market funds that have investments primarily in U.S.

Government Agency debt, U.S.

Treasury debt, U.S.

Treasury Repurchase Agreements, U.S.

Government Agency Repurchase Agreements, and corporate bonds that have a maturity of three months or less from the original acquisition date.

The following table represents the changes to the Company’s contingent consideration payable (in thousands):

Balance at December 31, 2021

Total fair value adjustments reported in earnings (General and administrative expenses) ( 2,700 )

Balance at March 31, 2022

Earnings Per Share

Net loss attributable to common stockholders used in computing basic and diluted earnings per share (“EPS”) has been calculated as the net loss less Series B cumulative dividends and other adjustments to redeemable convertible preferred stock of $ 0.3 million for the nine months ended September 30, 2021 and $ 4.5 million and $ 5.0 million for the three and nine months ended September 30, 2020, respectively.

Net loss attributable to common stockholders used in computing basic and diluted earnings per share (“EPS”) has been calculated as the net loss less Series B cumulative dividends and other adjustments to redeemable convertible preferred stock of $ 0 and $ 0.3 million for the three months ended March 31, 2022 and 2021, respectively.

The holders of the Company’s redeemable convertible preferred stock did not have a contractual obligation to share in the Company’s losses;

therefore, no amount of total undistributed loss was allocated to redeemable convertible preferred stock.

Upon the consummation of its IPO, all preferred stock converted to common stock, and therefore the Company had no issued or outstanding preferred stock as of September 30, 2021.

Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Because the Company has reported a net loss for the three and nine months ended September 30, 2021 and 2020, the number of shares used to calculate diluted net loss per share attributable to common stockholders is the same as the number of shares used to calculate basic net loss per share attributable to common stockholders for the period presented because the potentially dilutive shares would have been antidilutive if included in the calculation.

The computation of basic and diluted EPS is as follows for the three and nine months ended September 30, 2021 and 2020:

Three months ended September 30,

Nine months ended September 30,

Because the Company has reported a net loss for the three months ended March 31, 2022 and 2021, the number of shares used to calculate diluted net loss per share attributable to common stockholders is the same as the number of shares used to calculate basic net loss per share attributable to common stockholders for the period presented because the potentially dilutive shares would have been antidilutive if included in the calculation.

The computation of basic and diluted EPS is as follows for the three months ended March 31, 2022 and 2021:

Three months ended March 31,

(In thousands, except shares and per share amounts) 2022 2021

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cumulative dividends and adjustments to redeemable convertible preferred stock

— ( 4,459 ) ( 277 ) ( 5,013 )

Net loss attributable to common stockholders $ ( 13,406 ) $ ( 11,156 )

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Loss per common share - basic and diluted $ ( 0.15 ) $ ( 2.00 )

For the three and nine months ended September 30, 2021 and 2020, the following potential shares of common stock were excluded from diluted EPS as the Company had a net loss in each period presented:

As of September 30,

For the three months ended March 31, 2022 and 2021, the following potential shares of common stock were excluded from diluted EPS as the Company had a net loss in each period presented:

As of March 31,

Stock options 7,423,122 12,190,570

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Warrants — 212,408

Restricted stock units (RSUs) 467,351 —

RSUs 4,572,703 —

ESPP 167,842 —

Total anti-dilutive common share equivalents 12,163,667 84,628,894

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Operating Lease Commitments

The Company leases office space under non-cancelable operating leases for its corporate headquarters in Plano, Texas pursuant to a ten-year lease agreement under which the Company leases approximately 125,000 square feet of office space with an initial term that expires on August 31, 2028, with the option to extend the lease for either two additional terms of five years each or one additional term of ten years .

Rent expense under operating leases was $ 1.2 million and $ 3.5 million for the three and nine months ended September 30, 2021, respectively, and $ 1.2 million and $ 3.4 million for the three and nine months ended September 30, 2020, respectively.

Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at September 30, 2021 were as follows (in thousands):

The Company leases office space under non-cancelable operating leases for its corporate headquarters in Plano, Texas pursuant to a 10-year lease agreement under which the Company leases approximately 125,000 square feet of office space with an initial term that expires on August 31, 2028, with the option to extend the lease for either two additional terms of five years each or one additional term of ten years .

Rent expense under operating leases was $ 1.1 million for both the three months ended March 31, 2022 and 2021.

In August 2021, the Company entered into an agreement to sublease certain premises of its offices in Plano, Texas.

The sublease is classified as an operating lease and has a term of less than three years.

The Company has sublease income of $ 0.1 million for the three months ended March 31, 2022.

Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at March 31, 2022 were as follows (in thousands):

Operating Leases

2022 (remaining nine months) $ 2,788

Thereafter 6,736

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Deferred rent and tenant allowances are amortized and applied against rental expense over the lease term on a straight-line basis.

As of September 30, 2021 and December 31, 2020, the Company had deferred rent and tenant allowance balances as follows:

(in thousands) September 30, 2021 December 31, 2020

As of March 31, 2022 and December 31, 2021, the Company had deferred rent and tenant allowance balances as follows:

(in thousands) March 31, 2022 December 31, 2021

Deferred rent and tenant allowance $ 5,722 $ 5,895

10 unchanged sentences

Based upon present information, the Company believes that its liability, if any, arising from such pending legal proceedings, asserted legal claims and known potential legal claims which are likely to be asserted, is not reasonably likely to be material to the Company’s financial position, results of operations, or cash flows, taking into account established accruals for estimated liabilities.

Related Party Transactions

CU Cooperative Systems, Inc.

(“CU Cooperative”), a stockholder of the Company who is also a vendor, was paid fees of $ 1.3 million and $ 3.4 million, for the three and nine months ended September 30, 2021, respectively, and $ 1.0 million and $ 3.7 million for the three and nine months ended September 30, 2020, respectively, which relate to services resold to the Company’s clients.

As of September 30, 2021, the Company had no payable balance due to CU Cooperative, and as of December 31, 2020, accounts payable included amounts due to CU Cooperative of $ 0.3 million.

Todd Clark, who has served as President and Chief Executive Officer of CU Cooperative since 2016, is a member of the Board and was designated to serve as a member of the Board by CU Cooperative.

CU Cooperative held 5 % or more of the Company’s capital stock as of December 31, 2020.

For the three and nine months ended September 30, 2021, the Company employed a former owner of the acquired business ACH Alert.

For certain operating and lease payments made on the former owner’s behalf and lockbox cash receipts due to the Company, a receivable of $ 1.4 million from the former owner was included in prepaid expenses and other current assets as of December 31, 2020.

The Company had no significant receivable balance from the former owner as of September 30, 2021.

Goodwill and Other Intangibles

Goodwill and intangible assets deemed to have an indefinite life are not amortized, but are reviewed annually for impairment of value or when indicators of a potential impairment are present.

As part of the Company’s business planning cycle, the Company will perform an annual goodwill impairment test in the fourth quarter of the fiscal year beginning in 2021.

There were no indications of impairment of goodwill noted for the three months ended September 30, 2021.

Goodwill had a carrying value of $ 48.4 million and $ 16.2 million as of September 30, 2021 and December 31, 2020, respectively.

The Company recorded $ 31.8 million to goodwill during the three and nine months ended September 30, 2021 due to the purchase of MK and recorded $ 0.3 million during the nine months ended September 30, 2021 due to a change in the purchase price allocation for ACH Alert as is appropriate during the measurement period.

See Note 3 for additional information.

Total intangibles, net, consisted of the following as of September 30, 2021 and December 31, 2020:

As of September 30, 2021

As part of the Company’s business planning cycle, the Company performs an annual goodwill impairment test in the fourth quarter of the fiscal year.

There were no indications of impairment of goodwill noted for the three months ended March 31, 2022.

Goodwill had a carrying value of $ 48.1 million as of both March 31, 2022 and December 31, 2021.

Total intangibles, net, consisted of the following as of March 31, 2022 and December 31, 2021:

As of March 31, 2022

(In thousands) Carrying Value Accumulated Amortization Net Carrying Value

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Total intangible assets $ 12,445 $ ( 1,281 ) $ 11,164

Amortization expense recognized on intangible assets was $ 0.2 million and $ 0.6 million for the three and nine months ended September 30, 2021, respectively.

The Company did not recognize amortization expense related to intangible assets for the three and nine months ended September 30, 2020.

Amortization expense recognized on intangible assets was $ 0.4 million and $ 0.2 million for the three months ended March 31, 2022 and 2021, respectively.

The following table shows the estimated annual amortization expense of the definite-lived intangible assets for the next five years and thereafter (in thousands):

2022 (remaining nine months) 1,200

Thereafter 3,437

Subsequent Events

On November 3, 2021, the Board of Directors of the Company (“Board”), appointed Alex Shootman as Chief Executive Officer of the Company, effective November 5, 2021, replacing Michael Hansen who will remain with the Company as Advisor to the Board, effective November 5, 2021, and will continue to serve on the Board.

The Company entered into an employment agreement with Mr.

Under the employment agreement, Mr.

Shootman will serve as Chief Executive Officer of the Company and a member of the Board.

Shootman is also entitled to be granted 1,000,000 restricted stock units that vest as to 25 % of the restricted stock units on December 8, 2022 and in equal quarterly installments over three years thereafter.

In connection with Mr.

Hansen’s departure, the Company entered into a transition and separation agreement with Mr.

Under the transition and separation agreement, Mr.

Hansen will transition to the role of Advisor to the Board and remain employed by the Company through December 17, 2021.

The transition and separation agreement also provides that Mr.

Hansen will serve as a member of the Board through December 31, 2022.

Hansen’s sole compensation while serving on the Board will be in the continued vesting of his outstanding equity awards.

In the event Mr.

Hansen continues to serve on the Board through December 31, 2022, the vesting of all of his outstanding equity awards will be accelerated as of that date.

Hansen will have one year after the end of his Board service date to exercise any vested options.

The Company is evaluating the accounting for the modification of Mr.

Hansen’s unvested equity awards and the Company expects the acceleration of vesting to be significant to its consolidated financial statements.

Merger with Segmint Inc.

On April 25, 2022, the Company completed its previously announced merger with Segmint Inc.

Pursuant to the Merger Agreement, Segmint merged with and into a wholly owned subsidiary of the Company.

Segmint operates a marketing analytics and messaging delivery platform with patented software that enables financial institutions and merchants to understand and leverage data, interact with customers, and measure results.

The aggregate consideration paid in exchange for all of the outstanding equity interests of Segmint at closing was approximately $ 135.5 million.

A portion of the consideration was placed into escrow to secure certain post-closing indemnification obligations in the Merger Agreement.

Credit Facility Amendment

On April 29, 2022, Alkami Technology, Inc.

entered into an amended and restated credit agreement with Silicon Valley Bank, Comerica Bank, and Canadian Imperial Bank of Commerce (the “Amended Credit Agreement”).

The Amended Credit Agreement amends and restates the prior credit facility provided by Silicon Valley Bank and KeyBank National Association.

The Amended Credit Agreement matures on April 29, 2025.

The Amended Credit Agreement includes the following among other features:

• Revolving Facility:

The Amended Credit Agreement provides $ 40.0 million in aggregate commitments for secured revolving loans (“Amended Revolving Facility”).

A term loan of $ 85.0 million (the “Amended Term Loan”) was borrowed on the closing date of the Amended Credit Agreement.

The additional proceeds received from the Amended Term Loan were used to replenish cash used to fund the acquisition of Segmint Inc., which closed on April 25, 2022.

• Accordion Feature:

The Amended Credit Agreement also allows the Company, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $ 50.0 million.

Amended Revolving Facility loans under the Amended Credit Agreement may be voluntarily prepaid and re-borrowed.

Principal payments on the Amended Term Loan are due in quarterly installments equal to an initial amount of approximately $ 1.1 million, beginning on June 30, 2023 and continuing through March 31, 2024 and increasing to approximately $ 2.1 million beginning on June 30, 2024 through the Amended Credit Agreement maturity date.

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

Borrowings under the Amended Credit Agreement bear interest at a variable rate based upon the Secured Overnight Financing Rate (“SOFR”) plus a margin of 3.00 % to 3.50 % per annum depending on the applicable recurring revenue leverage ratio.

If the SOFR rate is ever less than 0 %, then the SOFR rate shall be deemed to be 0 %.

The Amended Credit Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default.

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

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 1. Financial Statements