ALKAMI TECHNOLOGY, INC. 10-Q

Item 1. Financial Statements ALKAMI TECHNOLOGY, INC. C ONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) (UNAUDITED) June 30, December 31, 2022 2021 Assets Current assets Cash and cash equivalents $ 89,117 $ 308,581 Marketable securities 124,237 — Accounts receivable, net 27,367 20,821 Deferred implementation costs, current 6,717 6,272 Prepaid expenses and other current assets 13,652 9,487 Total current assets 261,090 345,161 Property and equipment, net 13,503 11,828 Deferred implementation costs, net of current portion 18,917 17,991 Intangibles, net 44,918 11,164 Goodwill 147,402 48,091 Other assets 5,280 2,275 Total assets $ 491,110 $ 436,510 Liabilities and Stockholders' Equity (Deficit) Current liabilities Current portion of long-term debt $ 1,063 $ 1,563 Accounts payable 3,787 3,649 Accrued liabilities 22,624 19,083 Deferred rent and tenant allowance, current 734 705 Deferred revenues, current portion 9,236 8,198 Total current liabilities 37,444 33,198 Long-term debt, net 83,391 23,053 Deferred revenues, net of current portion 13,219 13,873 Deferred rent and tenant allowance, net of current portion 4,814 5,190 Deferred income taxes 247 85 Other non-current liabilities 16,450 16,500 Total liabilities 155,565 91,899 Commitments and contingencies (Note 11 and 13) Stockholders’ Equity (Deficit) Preferred stock, $ 0.001 par, 10,000,000 shares authorized and 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021 — — Common stock, $ 0.001 par, 500,000,000 shares authorized; and 91,036,107 and 89,954,657 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively 91 90 Additional paid-in capital 682,946 658,374 Accumulated deficit ( 347,492 ) ( 313,853 ) Total stockholders’ equity 335,545 344,611 Total liabilities and stockholders' equity $ 491,110 $ 436,510 The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements. 1 ALKAMI TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (UNAUDITED) Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Revenues $ 50,530 $ 36,701 $ 95,320 $ 69,963 Cost of revenues (1) 23,257 16,180 43,237 31,677 Gross profit 27,273 20,521 52,083 38,286 Operating expenses: Research and development 16,595 12,107 30,751 23,020 Sales and marketing 10,204 5,326 18,101 10,641 General and administrative 18,731 12,185 35,777 21,932 Acquisition-related expenses, net 796 625 ( 582 ) 1,263 Amortization of acquired intangibles 331 91 426 182 Total operating expenses 46,657 30,334 84,473 57,038 Loss from operations ( 19,384 ) ( 9,813 ) ( 32,390 ) ( 18,752 ) Non-operating income (expense): Interest income 424 127 532 141 Interest expense ( 787 ) ( 298 ) ( 1,075 ) ( 608 ) Loss on financial instruments ( 254 ) ( 1,391 ) ( 387 ) ( 3,035 ) Loss on extinguishment of debt ( 76 ) — ( 76 ) — Loss before income taxes ( 20,077 ) ( 11,375 ) ( 33,396 ) ( 22,254 ) Provision for income taxes 156 — 243 — Net loss $ ( 20,233 ) $ ( 11,375 ) $ ( 33,639 ) $ ( 22,254 ) Less: cumulative dividends and adjustments to redeemable convertible preferred stock — — — ( 277 ) Net loss attributable to common stockholders: $ ( 20,233 ) $ ( 11,375 ) $ ( 33,639 ) $ ( 22,531 ) Net loss per share attributable to common stockholders: Basic and diluted $ ( 0.22 ) $ ( 0.15 ) $ ( 0.37 ) $ ( 0.56 ) Weighted average number of shares of common stock outstanding: Basic and diluted 90,707,381 74,831,512 90,459,503 40,399,138 (1) Includes amortization of acquired technology of $ 0.9 million and $ 0.1 million for the three months ended June 30, 2022 and 2021, respectively, and $ 1.2 million and $ 0.2 million for the six months ended June 30, 2022 and 2021, respectively. The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements. 2 ALKAMI TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (In thousands, except share data) (UNAUDITED) Three months ended June 30, 2022 Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance March 31, 2022 — $ — 90,469,637 $ 90 $ 669,284 $ ( 327,259 ) $ 342,115 Stock-based compensation — — — — 11,475 — 11,475 Issuance of common stock upon restricted stock unit vesting — — 196,258 — — — — Common stock issued under Employee Stock Purchase Plan (ESPP) — — 199,887 — 1,841 — 1,841 Exercised stock options — — 170,325 1 346 — 347 Net loss — — — — — ( 20,233 ) ( 20,233 ) Balance June 30, 2022 — $ — 91,036,107 $ 91 $ 682,946 $ ( 347,492 ) $ 335,545 Three months ended June 30, 2021 Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance March 31, 2021 72,225,916 $ 443,540 6,755,179 $ 7 $ 3,974 $ ( 277,910 ) $ ( 273,929 ) Stock-based compensation — — — — 3,023 — 3,023 Exercised stock options — — 1,305,635 1 2,105 — 2,106 Payment of Series B Dividend upon initial public offering — ( 4,969 ) — — — — — 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 ) Net loss — — — — — ( 11,375 ) ( 11,375 ) Balance June 30, 2021 — $ — 87,186,730 $ 87 $ 640,456 $ ( 289,285 ) $ 351,258 3 ALKAMI TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (In thousands, except share data) (UNAUDITED) Six months ended June 30, 2022 Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance December 31, 2021 — $ — 89,954,657 $ 90 $ 658,374 $ ( 313,853 ) $ 344,611 Stock-based compensation — — — — 21,449 — 21,449 Issuance of common stock upon restricted stock unit vesting — — 278,308 — — — — Common stock issued under Employee Stock Purchase Plan (ESPP) — — 199,887 — 1,841 — 1,841 Exercised stock options — — 603,255 1 1,282 — 1,283 Net loss — — — — — ( 33,639 ) ( 33,639 ) Balance June 30, 2022 — $ — 91,036,107 $ 91 $ 682,946 $ ( 347,492 ) $ 335,545 Six months ended June 30, 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 72,225,916 $ 443,263 4,909,529 $ 5 $ — $ ( 263,528 ) $ ( 263,523 ) Stock-based compensation — — — — 4,441 — 4,441 Exercised stock options — — 3,370,202 3 4,932 — 4,935 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 — — — — — ( 22,254 ) ( 22,254 ) Balance June 30, 2021 — $ — 87,186,730 $ 87 $ 640,456 $ ( 289,285 ) $ 351,258 The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements. 4 ALKAMI TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (UNAUDITED) Six months ended June 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 33,639 ) $ ( 22,254 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 2,962 1,582 Accrued interest on marketable securities, net ( 36 ) — Stock-based compensation expense 21,449 4,441 Amortization of debt issuance costs 29 26 Gain on revaluation of contingent consideration ( 2,700 ) — Loss on financial instruments 387 3,035 Deferred taxes 162 — Loss on extinguishment of debt 76 — Changes in operating assets and liabilities: Accounts receivable ( 4,757 ) ( 1,487 ) Prepaid expenses and other current assets ( 3,473 ) ( 3,319 ) Accounts payable and accrued liabilities 1,649 7,851 Deferred implementation costs ( 1,371 ) ( 1,051 ) Deferred rent and tenant allowances ( 347 ) ( 233 ) Deferred revenues 240 ( 879 ) Net cash used in operating activities ( 19,369 ) ( 12,288 ) Cash flows from investing activities: Purchase of marketable securities ( 143,589 ) — Proceeds from maturities and redemptions of marketable securities 19,000 — Purchases of property and equipment ( 590 ) ( 477 ) Capitalized software development costs ( 2,366 ) ( 643 ) Acquisition of business ( 132,031 ) ( 326 ) Net cash used in investing activities ( 259,576 ) ( 1,446 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 85,000 — Principal payments on debt ( 24,688 ) — Debt issuance costs paid ( 851 ) — Proceeds from stock option exercises 1,282 4,935 Proceeds from ESPP issuance 1,841 — Deferred IPO issuance costs paid — ( 3,857 ) Repurchase of common stock — ( 3,497 ) Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and commissions — 192,810 Payment of Series B dividend — ( 4,969 ) Net cash provided by financing activities 62,584 185,422 Net (decrease) increase in cash and cash equivalents and restricted cash ( 216,361 ) 171,688 Cash and cash equivalents and restricted cash, beginning of period 312,954 171,663 Cash and cash equivalents and restricted cash, end of period $ 96,593 $ 343,351 Supplemental disclosure of noncash financing activities Deferred IPO offering costs not yet paid $ — $ 663 The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements. 5 ALKAMI TECHNOLOGY, INC. Notes to the Unaudited Condensed Consolidated Financial Statements (In thousands, except share and per share data) (Unaudited) Note 1. Organization Description of Business Alkami Technology, Inc. (the “Company”) is a cloud-based digital banking solutions provider. The Company inspires and empowers community, regional and super-regional financial institutions (“FIs”) to compete with large, technologically advanced and well-resourced banks in the United States. The Company’s solution, the Alkami Platform, allows FIs to onboard and engage new users, accelerate revenues and meaningfully improve operational efficiency, all with the support of a proprietary, true cloud-based, multi-tenant architecture. The Company cultivates deep relationships with its clients through long-term, subscription-based contractual arrangements, aligning its growth with its clients’ success and generating an attractive unit economic model. The Company was incorporated in Delaware in August 2011, and its principal offices are located in Plano, Texas. Note 2. Summary of Significant Accounting Policies The accompanying financial statements reflect the application of significant accounting policies as described below. Basis of Presentation and Consolidation The interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All intercompany accounts and transactions are eliminated. In the Company's opinion, the accompanying interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Certain information and disclosures normally included in the notes to the annual consolidated financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2021, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on February 25, 2022. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2022. The Company has no sources of other comprehensive income, and accordingly, net loss presented each period is the same as comprehensive loss. Reclassification. Acquisition-related expenses, net and amortization of acquired intangibles previously included in general and administrative expense and sales and marketing expense, respectively, were reclassified into separate individual captions within the condensed consolidated statement of operations to conform with the current year presentation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions include determining the timing and amount of revenue recognition, recoverability and amortization period related to costs to obtain and fulfill contracts, deferred implementation costs, revaluation of contingent consideration, and business combinations. 6 Restricted Cash The Company defines restricted cash as cash that is legally restricted as to withdrawal or usage. The amounts included in restricted cash on the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021 represent the additional cash proceeds in deposit with an escrow agent for satisfaction of contingent consideration related to the acquisition of ACH Alert, LLC (“ACH Alert”). In addition, restricted cash representing additional cash proceeds in deposit with an escrow agent for satisfaction of a holdback provision related to the acquisitions of MK Decisioning Systems, LLC (“MK”) and Segmint Inc. (“Segmint”) is included in the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021. See Note 3 for further information. June 30, December 31, (in thousands) 2022 2021 Cash and cash equivalents $ 89,117 $ 308,581 Restricted cash included in Prepaid expenses and other current assets 4,376 3,373 Restricted cash included in Other assets 3,100 1,000 Total cash and cash equivalents and restricted cash $ 96,593 $ 312,954 Marketable Securities The Company classifies its fixed income marketable securities as trading securities based on its intentions with regard to these instruments. Accordingly, marketable securities are reported at fair value, with all unrealized holding gains and losses reflected in the condensed consolidated statements of operations. Capitalized Software Development Costs Software development costs relate primarily to software coding, systems interfaces, and testing of the Company’s proprietary systems and are accounted for in accordance with ASC 350-40, Internal Use Software. Internal software development costs are capitalized from the time the internal use software is in the application development stage until the software is ready for use. Business analysis, system evaluation, and software maintenance costs are expensed as incurred. The capitalized software development costs are reported in property and equipment, net in the condensed consolidated balance sheets. The Company had $ 4.9 million and $ 2.6 million in capitalized internal software development costs as of June 30, 2022 and December 31, 2021, respectively. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally three to five years from when the asset is placed in service. Contract Balances Client contracts under which revenues have been recognized while the Company is not yet able to invoice results in contract assets. Generally, contract assets arise as a result of reallocating revenues when discounts are more heavily weighted in the early years of a multi-year contract or the client contract has substantive minimum fees that escalate over the term of the contract. Contract assets totaled $ 0.6 million and $ 0.7 million as of June 30, 2022 and December 31, 2021, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets. Contract liabilities are comprised of billings or payments received from the Company’s clients in advance of performance under the contract and are represented in deferred revenues in the condensed consolidated balance sheets. Recent Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the consolidated balance sheets and disclosing key information about leasing arrangements. The Company anticipates that the adoption of Topic 842 will impact its consolidated balance sheets as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and corresponding operating lease liabilities upon the adoption of ASU 2016-02. The Company expects to adopt the standard in fiscal year 2022 using the modified retrospective transition approach and interim periods beginning 2023. The Company continues to evaluate quantitative impacts that the adoption of this standard will have. The Company expects total assets and liabilities reported will increase relative to such amounts prior to adoption. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326),” which modifies the measurement of expected credit losses of certain financial instruments with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The effective date for adoption of the new standard was delayed until calendar years beginning after December 15, 2022, with early adoption permitted. The Company expects to adopt the standard in its annual report on Form 10-K for the year ending December 31, 2022 and for interim periods beginning in 2023. This ASU is not expected to have a material impact on the Company’s financial statements. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if the acquiring entity had originated the related revenue contracts. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including interim 7 periods within those fiscal years. An entity that early adopts this guidance in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company early adopted the standard during the second quarter of 2022 and has applied the related accounting to the business combination completed in the current fiscal year and will apply the standard to all business combinations completed prospectively. The adoption of ASU 2021-08 did not have a material impact on the consolidated financial statements. Note 3. Business Combination ACH Alert, LLC On October 4, 2020, the Company announced the acquisition of substantially all of the assets of ACH Alert for approximately $ 25 million in cash consideration. The ACH Alert acquisition also involved $ 4.9 million of additional cash consideration that the Company placed on deposit with an escrow agent to be paid upon the continued employment of one of the owners of ACH Alert, of which $ 2.5 million was paid in October 2021 and $ 2.4 million is to be paid in October 2022. The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets and is accruing the estimated payouts over the requisite service period as a component of acquisition-related expenses on the condensed consolidated statements of operations. For the three and six months ended June 30, 2022, the Company recognized compensation expense of $ 0.6 million and $ 1.3 million, respectively, and for the three and six months ended June 30, 2021, the Company recognized compensation expense of $ 0.6 million and $ 1.2 million, respectively, related to this agreement. MK Decisioning Systems, LLC On September 10, 2021, the Company acquired substantially all of the assets of MK for approximately $ 20 million in cash consideration due at closing subject to a $ 2 million holdback provision held in escrow with $ 1 million to be released at the 12 -month anniversary of close and the remainder to be released at the 18 -month anniversary of close. The Company also agreed to assume certain liabilities associated with MK’s business. The integrated set of assets and activities acquired from MK through the acquisition meet the definition of a business under ASC 805, as updated by ASU 2017-01. In addition to the base purchase price, the MK acquisition also included a potential earn-out that is tied to revenue of MK from sales of its products and services within two 12 -month periods (the “First Earn-Out Period” and “Second Earn-Out Period”), with the First Earn-Out Period beginning on January 1, 2022 and ending on December 31, 2022 and the Second Earn-Out Period beginning on January 1, 2023 and ending on December 31, 2023. Pursuant to the terms and conditions set forth in the purchase agreement, the earn-out amount payable, if any, to the former owners, will be a maximum of $ 7.5 million and $ 17.5 million for the First Earn-Out Period and Second Earn-Out Period, respectively, contingent on achievement of certain revenue milestones. In certain circumstances within both Earn-Out Periods, the earn-out amounts are payable in a mix of cash and shares (based on a reference price of $ 35 and limited to $ 20 million in earn-out shares) of the Company’s common stock subject to the election of the former owners. Earn-out amounts, if any, would be payable no later than 170 days after the end of each Earn-Out Period. The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets. The fair value of the contingent earn-out both upon acquisition and as of December 31, 2021 was $ 15.5 million, for which the balance was included in Other non-current liabilities on the condensed consolidated balance sheets. This initial estimated fair value was included as contingent consideration in the total purchase price. The Company remeasures the fair value of the contingent consideration on an ongoing basis and records the adjustment to the condensed consolidated statements of operations. For the three and six months ended June 30, 2022, the Company recorded a gain on revaluation of contingent consideration of $ 0 and $ 2.7 million, respectively. As of June 30, 2022, the fair value of the contingent earn-out was $ 12.8 million. Assumptions used to estimate the fair value of contingent consideration include various financial metrics (revenue performance targets and stock price forecasts) and the probability of achieving the specific targets using a geometric binomial model. Based on the final purchase accounting, the Company estimated that approximately 62 % of the maximum $ 25 million contingent consideration would be paid to the seller in accordance with the terms of the purchase agreement. As of June 30, 2022 the Company determined that approximately 51 % of the maximum $ 25 million contingent consideration would be paid to the seller in accordance with the terms of the purchase agreement. Segmint Inc. On April 25, 2022, the Company consummated its previously announced merger with Segmint pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), dated March 25, 2022 with Segmint surviving as a wholly owned subsidiary of the Company. Segmint operates a marketing analytics and messaging delivery platform with patented software that enables financial institutions and merchants to understand and leverage data, interact with customers and measure results. The aggregate consideration paid in exchange for all of the outstanding equity interests of Segmint at closing was approximately $ 135.1 million (the "Merger Consideration"). A portion of the Merger Consideration of approximately $ 3.1 million was placed into escrow to secure certain post-closing indemnification obligations in the Merger Agreement. As of June 30, 2022, the allocation of the purchase price for Segmint has not been finalized, and the one-year measurement period has not ended. The preliminary purchase price allocations are based upon the preliminary valuation of assets and liabilities. These estimates and assumptions are subject to change as the Company obtains additional information during the measurement period. The following table summarizes the fair value amounts recognized as of the acquisition date for each major class of asset acquired or liability assumed: 8 (in thousands) Preliminary Fair Value as of April 25, 2022 Trade accounts receivables $ 1,788 Other current assets 323 Property and equipment 35 Goodwill 99,310 Intangible assets 35,400 Total assets acquired $ 136,856 Accounts payable $ 768 Accrued liabilities 188 Deferred revenues, current 145 Other non-current liabilities 625 Total liabilities assumed 1,726 Net assets acquired $ 135,130 The table below outlines the purchased identifiable intangible assets: Weighted Average Amortization Period Total (in years) (in thousands) Customer relationships 15 $ 14,700 Developed technology 5 20,000 Trade names 10 700 Total identifiable intangible assets $ 35,400 Goodwill resulted from the acquisition as it is intended to augment and diversify the Company’s single reportable segment and provide a complimentary solution to its existing platform offering. The Company accounted for the acquisition as a business combination. As a result of the acquisition of the stock of Segmint, the goodwill is not deductible for tax purposes. For the three and six months ended June 30, 2022 the Company recognized acquisition-related expenses, net of $ 0.2 million and $ 0.8 million, respectively, related to the acquisition of Segmint. Note 4. Property and Equipment, Net Depreciation and amortization expense was $ 0.6 million and $ 1.2 million for the three and six months ended June 30, 2022, respectively, and $ 0.6 million and $ 1.2 million for the three and six months ended June 30, 2021, respectively. Property and equipment, net includes the following amounts at June 30, 2022 and December 31, 2021: (in thousands) Useful Life June 30, 2022 December 31, 2021 Software 2 to 5 years $ 5,908 $ 3,299 Computers and equipment 3 years 5,239 4,854 Furniture and fixtures 5 years 3,984 3,980 Leasehold improvements 3 to 10 years 11,720 11,712 $ 26,851 $ 23,845 Less: accumulated depreciation and amortization ( 13,348 ) ( 12,017 ) Property and equipment, net $ 13,503 $ 11,828 Note 5. Revenue and Deferred Costs The Company derives the majority of its revenues from recurring monthly subscription fees charged for the use of its software-as-a-service (“SaaS”) subscription services. Subscription revenues are generally recognized as revenue over the term of the contract as a series of distinct SaaS services bundled into a single performance obligation. Clients are usually charged a one-time, upfront implementation fee and recurring annual and monthly access fees for the use of the online digital relationship banking solution. Implementation and integration of the digital banking platform is complex, and the Company has determined that the one-time, upfront services do not transfer a promised service to the client. As these services are not distinct, they are bundled into the SaaS series of services, and the associated fees are recognized on a straight-line basis over the subscription term. Other services includes professional services and custom development. 9 The following table disaggregates the Company's revenue by major source for the three and six months ended June 30, 2022 and 2021: Three months ended June 30, Six months ended June 30, (in thousands) 2022 2021 2022 2021 SaaS subscription services $ 47,781 $ 34,604 $ 90,590 $ 66,173 Implementation services 2,004 1,636 3,581 2,936 Other services 745 461 1,149 854 Total revenues $ 50,530 $ 36,701 $ 95,320 $ 69,963 The Company recognized approximately $ 9.3 million of revenue during the six months ended June 30, 2022 which was recognized from deferred revenues in the accompanying condensed consolidated balance sheets as of the beginning of the reporting period. For those contracts that were wholly or partially unsatisfied as of June 30, 2022, minimum contracted subscription revenues to be recognized in future periods total approximately $ 696.0 million. The Company expects to recognize approximately 47.9 % of this amount as subscription services are transferred to customers over the next 24 months, an additional 31.9 % in the next 25 to 48 months, and the balance thereafter. This estimate does not include estimated consideration for excess user and transaction processing fees that the Company expects to earn under its subscription contracts. Deferred Cost Recognition The Company capitalized $ 1.0 million and $ 1.7 million in deferred commissions costs during the three and six months ended June 30, 2022, respectively, and $ 0.2 million and $ 0.5 million for the three and six months ended June 30, 2021, respectively, and recognized amortization of $ 0.7 million and $ 1.4 million during the three and six months ended June 30, 2022, respectively, and $ 0.5 million and $ 1.0 million for the three and six months ended June 30, 2021, respectively. Amortization expense is included in sales and marketing expenses in the accompanying statements of operations. Deferred commissions are considered costs to obtain a contract and are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $ 11.1 million and $ 10.8 million as of June 30, 2022 and December 31, 2021, respectively. The Company capitalized implementation costs of $ 1.6 million and $ 2.9 million during the three and six months ended June 30, 2022, respectively, and $ 1.3 million and $ 2.7 million during the three and six months ended June 30, 2021, respectively, and recognized amortization of $ 1.1 million and $ 1.9 million during the three and six months ended June 30, 2022, respectively, and $ 0.7 million and $ 1.2 million for the three and six months ended June 30, 2021, respectively. Amortization expense is included in cost of revenues in the accompanying condensed consolidated statements of operations. These deferred costs are considered costs to fulfill client contracts and are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $ 14.5 million and $ 13.5 million as of June 30, 2022 and December 31, 2021, respectively. The Company periodically reviews the carrying amount of deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. No impairment loss was recognized in relation to these capitalized costs for the three and six months ended June 30, 2022 and 2021. Note 6. Accounts Receivable Accounts receivable includes the following amounts at June 30, 2022 and December 31, 2021: June 30, December 31, (in thousands) 2022 2021 Trade accounts receivable $ 23,355 $ 15,991 Unbilled receivables 3,800 3,677 Other receivables 457 1,355 Total receivables 27,612 21,023 Allowance for doubtful accounts ( 60 ) ( 39 ) Reserve for estimated credits ( 185 ) ( 163 ) $ 27,367 $ 20,821 10 Note 7. Accrued Liabilities Accrued liabilities consisted of the following at June 30, 2022 and December 31, 2021: June 30, December 31, (in thousands) 2022 2021 Bonus accrual $ 4,857 $ 3,725 Accrued vendor purchases 642 2,276 Commissions accrual 1,463 2,302 Accrued hosting services 1,473 1,264 Client refund liability 575 1,004 Deferred compensation payable 1,875 625 Accrued consulting and professional fees 854 657 Accrued tax liabilities 3,138 3,724 MK acquisition holdback provision 2,000 1,000 ESPP liability 303 821 Other accrued liabilities 5,444 1,685 Total accrued liabilities $ 22,624 $ 19,083 Note 8. Debt On April 29, 2022, the Company entered into an amended and restated credit agreement with Silicon Valley Bank, Comerica Bank, and Canadian Imperial Bank of Commerce (the “Amended Credit Agreement”). The Amended Credit Agreement amends and restates the prior credit facility provided by Silicon Valley Bank and KeyBank National Association (“the Original Credit Agreement”). The Amended Credit Agreement matures on April 29, 2025. The Amended Credit Agreement includes the following among other features: • Revolving Facility: The Amended Credit Agreement provides $ 40.0 million in aggregate commitments for secured revolving loans (“Amended Revolving Facility”). • Term Loan: A term loan of $ 85.0 million (the “Amended Term Loan”) was borrowed on the closing date of the Amended Credit Agreement. The additional proceeds received from the Amended Term Loan were used to replenish cash used to fund the acquisition of Segmint Inc., which closed on April 25, 2022. • Accordion Feature: The Amended Credit Agreement also permits the Company, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $ 50.0 million. Amended Revolving Facility loans under the Amended Credit Agreement may be voluntarily prepaid and re-borrowed. Principal payments on the Amended Term Loan are due in quarterly installments equal to an initial amount of approximately $ 1.1 million, beginning on June 30, 2023 and continuing through March 31, 2024, and increasing to approximately $ 2.1 million beginning on June 30, 2024 through the Amended Credit Agreement maturity date. Once repaid or prepaid, the Amended Term Loan may not be re-borrowed. Debt issuance costs paid for the execution of the Amended Credit Facility were $ 0.9 million, of which $ 0.1 million was included in prepaid expenses and other current assets and $ 0.2 million was included in other assets on the condensed consolidated balance sheets. Borrowings under the Amended Credit Agreement bear interest at a variable rate based upon the Secured Overnight Financing Rate (“SOFR”) plus a margin of 3.00 % to 3.50 % per annum depending on the applicable recurring revenue leverage ratio. If the SOFR rate is ever less than 0 %, then the SOFR rate shall be deemed to be 0 %. The Amended Credit Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default. The Company is required to pay a commitment fee of 0.25 % per annum on the undrawn portion available under the Amended Revolving Facility, and variable fees on outstanding letters of credit. The Company has a standby letter of credit in the amount of $ 0.3 million which serves as security under the lease relating to the Company’s office space that expires in 2028. Obligations under the Amended Credit Agreement are guaranteed by the Company’s subsidiaries and secured by all or substantially all of the assets of the Company and its subsidiaries pursuant to an Amended and Restated Guarantee and Collateral Agreement executed contemporaneously with the Amended Credit Agreement. The Amended Credit Agreement contains customary affirmative and negative covenants, as well as (i) an annual recurring revenue growth covenant requiring the loan parties to have recurring revenues in any four consecutive fiscal quarter period in an amount that is 10 % greater than the recurring revenues for the corresponding four consecutive quarter period in the previous year and (ii) a liquidity (defined as the aggregate amount of cash in bank accounts subject to a control agreement plus availability under the Revolving Facility) covenant, requiring the loan parties to have liquidity, tested on the last day of each calendar month, of $ 15.0 million or more. The Amended Credit Agreement also contains customary events of default, which if they occur, could result in the termination of commitments under the Amended Credit Agreement, the declaration that all outstanding loans are immediately due and payable in whole or in part, and the requirement to maintain cash collateral deposits in respect of outstanding letters of credit. The Company was in compliance with all covenants as of June 30, 2022. In April 2022, the Company applied extinguishment accounting for the debt arrangements related to the Original Credit Agreement upon entering into the Amended Credit Agreement resulting in a loss on extinguishment of debt of $ 0.1 million that is included in the condensed consolidated statements of operations. 11 Long-term Debt The following table summarizes long-term debt obligations as of June 30, 2022 and December 31, 2021 (in thousands): June 30, 2022 December 31, 2021 Term Debt $ 85,000 $ 24,688 Less unamortized debt issuance costs ( 546 ) ( 72 ) Net amount 84,454 24,616 Less current maturities of long-term debt ( 1,063 ) ( 1,563 ) Long-term portion $ 83,391 $ 23,053 Maturities of long-term debt outstanding as of June 30, 2022, are summarized as follows (in thousands): 2022 — 2023 3,188 2024 7,438 2025 74,374 Thereafter — Total $ 85,000 Note 9. Stockholders' Equity (Deficit) Equity Compensation Plans Stock-based compensation expense was included in the condensed consolidated statements of operations as follows: Three months ended June 30, Six months ended June 30, (in thousands) 2022 2021 2022 2021 Cost of revenues $ 1,056 $ 465 $ 2,034 $ 698 Research and development 2,580 702 4,464 1,001 Sales and marketing 997 240 1,747 344 General and administrative 6,635 1,616 12,797 2,398 Total stock-based compensation expenses $ 11,268 $ 3,023 $ 21,042 $ 4,441 Note 10. Income Taxes The Company recorded $ 0.2 million and $ 0.2 million of income tax expense for the three and six months ended June 30, 2022, respectively, resulting in an effective tax rate of ( 0.8 )% and ( 0.7 )%, respectively, compared to no income tax expense for the three and six months ended June 30, 2021. The decrease in the effective tax rate for the three and six months ended June 30, 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. The Company’s effective tax rate differs from the statutory tax rate primarily due to the impact of the full valuation allowance against its deferred tax assets. The Company recognizes deferred tax assets and liabilities based on the estimated future tax effects of temporary differences between the financial statement basis and tax basis of assets and liabilities given the provisions of enacted tax law. Management reviews deferred tax assets to assess their future realization by considering all available evidence, both positive and negative, to determine whether a valuation allowance is needed for all or some portion of the deferred tax assets, using a “more likely than not” standard. The assessment considers, among other matters: historical losses, a forecast of future taxable income, the duration of statutory carryback and carryforward periods, and ongoing prudent and feasible tax planning strategies. As a result, the Company has established a valuation allowance against most of its deferred tax assets as realization is not reasonably assured based upon a “more likely than not” threshold. The Company reassesses the realizability of deferred tax assets regularly, and it will adjust the valuation allowance as sufficient objective positive evidence becomes available. 12 Note 11. Fair Value of Financial Instruments The Company’s financial instruments consist primarily of cash, restricted cash and cash equivalents, accounts receivable, accounts payable, long-term debt, and contingent consideration. The carrying values of cash, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values due to the short-term nature of these instruments. The carrying value of long-term debt approximates its fair value due to the variable interest rate. Cash equivalents include amounts held in money market accounts that are measured at fair value using observable market prices. The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. The significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are forecasts of expected future annual revenues as developed by the Company's management and the probability of achievement of those revenue forecast. Significant increases (decreases) in these unobservable inputs in isolation would likely result in a significantly (lower) higher fair value measurement. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2. Significant other inputs that are directly or indirectly observable in the marketplace. Level 3. Significant unobservable inputs which are supported by little or no market activity. The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. The following tables summarize the Company’s financial assets measured at fair value as of June 30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation: Fair Value at Reporting Date Using (In thousands) June 30, 2022 Level 1 Level 2 Level 3 Assets: Cash equivalents: Money Market Accounts (1) $ 89,402 $ 89,402 $ — $ — Total cash equivalents 89,402 89,402 — — Marketable securities: Corporate bonds 68,772 — 68,772 — U.S. Treasury debt securities 53,016 53,016 — — International debt securities 2,449 2,449 — — Total marketable securities 124,237 53,016 68,772 — Total Assets $ 213,639 $ 142,418 $ 68,772 $ — Liabilities: 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 Assets: Money Market Accounts (1) $ 308,128 $ 308,128 $ — $ — Total Assets $ 308,128 $ 308,128 $ — $ — Liabilities: 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 $ 15,500 Total fair value adjustments reported in earnings (Acquisition-related expenses, net) ( 2,700 ) Balance at June 30, 2022 $ 12,800 13 Note 12. 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 for both the three and six months ended June 30, 2022 and $ 0 and $ 0.3 million for the three and six months ended June 30, 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. 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 six months ended June 30, 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 and six months ended June 30, 2022 and 2021: Three months ended June 30, Six months ended June 30, (In thousands, except shares and per share amounts) 2022 2021 2022 2021 Net loss $ ( 20,233 ) $ ( 11,375 ) $ ( 33,639 ) $ ( 22,254 ) Less: cumulative dividends and adjustments to redeemable convertible preferred stock — — — ( 277 ) Net loss attributable to common stockholders $ ( 20,233 ) $ ( 11,375 ) $ ( 33,639 ) $ ( 22,531 ) Weighted average shares of common stock outstanding - basic and diluted 90,707,381 74,831,512 90,459,503 40,399,138 Loss per common share - basic and diluted $ ( 0.22 ) $ ( 0.15 ) $ ( 0.37 ) $ ( 0.56 ) For the three and six months ended June 30, 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 June 30, 2022 2021 Stock options 7,068,202 10,934,687 Warrants — 212,408 RSUs 6,665,691 213,500 ESPP 24,484 — Total anti-dilutive common share equivalents 13,758,377 11,360,595 Note 13. Commitments and Contingencies Operating Lease Commitments 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 $ 1.0 million and $ 2.1 million for the three and six months ended June 30, 2022, respectively, and $ 1.2 million and $ 2.3 million for the three and six months ended June 30, 2021, respectively. Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at June 30, 2022 were as follows (in thousands): Operating Leases 2022 (remaining six months) $ 1,864 2023 3,773 2024 3,835 2025 3,898 2026 3,961 Thereafter 6,736 Total minimum lease payments $ 24,067 14 Deferred Rent and Tenant Allowances Deferred rent and tenant allowances are amortized and applied against rental expense over the lease term on a straight-line basis. As of June 30, 2022 and December 31, 2021, the Company had deferred rent and tenant allowance balances as follows: (in thousands) June 30, 2022 December 31, 2021 Deferred rent and tenant allowance $ 5,548 $ 5,895 Less: current portion ( 734 ) ( 705 ) Deferred rent and tenant allowance, net of current portion $ 4,814 $ 5,190 Legal Proceedings The Company may become party to various legal actions during the ordinary course of business. Defending such proceedings is costly and can impose a significant burden on management and employees, it may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained. In addition, the Company’s industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights. Companies in its industry are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Furthermore, client agreements typically require the Company to indemnify clients against liabilities incurred in connection with claims alleging its solutions infringe the intellectual property rights of a third party. From time to time, the Company has been involved in disputes related to patent and other intellectual property rights of third parties, none of which has resulted in material liabilities. The Company expects these types of disputes may continue to arise in the future. 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. Note 14. 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 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 June 30, 2022. In April 2022, the Company recorded $ 99.3 million to goodwill related to the acquisition of Segmint under the preliminary purchase price allocation. Goodwill had a carrying value of $ 147.4 million and $ 48.1 million as of June 30, 2022 and December 31, 2021, respectively. Total intangibles, net, consisted of the following as of June 30, 2022 and December 31, 2021: As of June 30, 2022 (In thousands) Carrying Value Accumulated Amortization Net Carrying Value Finite-lived: Customer Relationships $ 19,970 $ ( 767 ) $ 19,203 Developed Technology 27,100 ( 2,105 ) 24,995 Tradenames 750 ( 55 ) 695 Subtotal amortizable intangible assets 47,820 ( 2,927 ) 44,893 Website domain name 25 — 25 Total intangible assets $ 47,845 $ ( 2,927 ) $ 44,918 As of December 31, 2021 (In thousands) Carrying Value Accumulated Amortization Net Carrying Value Finite-lived: Customer Relationships $ 5,270 $ ( 428 ) $ 4,842 Developed Technology 7,100 ( 822 ) 6,278 Tradenames 50 ( 31 ) 19 Subtotal amortizable intangible assets 12,420 ( 1,281 ) 11,139 Website domain name 25 — 25 Total intangible assets $ 12,445 $ ( 1,281 ) $ 11,164 Amortization expense recognized on intangible assets was $ 1.2 million and $ 1.6 million for the three and six months ended June 30, 2022, respectively. Amortization expense recognized on intangible assets was $ 0.2 million and $ 0.4 million for the three and six months ended June 30, 2021, respectively. 15 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 six months) $ 3,323 2023 6,633 2024 6,633 2025 6,633 2026 6,401 Thereafter 15,270 $ 44,893 16