What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 108 added, 118 removed, 306 unchanged (42% of the section changed)

58 unchanged sentences

• Integrations :

Scalability and extensibility driven by more than 270 real-time integrations to back office systems and third-party fintech solutions as of June 30, 2022 , including core systems, payment cards, mortgages, bill pay, electronic documents, money movement, personal financial management and account opening.

Scalability and extensibility driven by more than 270 real-time integrations to back office systems and third-party fintech solutions as of September 30, 2022 , including core systems, payment cards, mortgages, bill pay, electronic documents, money movement, personal financial management and account opening.

• Deep data capabilities :

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

We derive our Alkami Platform revenues almost entirely from multi-year contracts that are based on an average contract life of approximately 70 months as of June 30, 2022.

We derive our Alkami Platform revenues almost entirely from multi-year contracts that are based on an average contract life of approximately 70 months as of September 30, 2022.

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

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

For the three months ended June 30, 2022 and 2021, our total revenues were $50.5 million and $36.7 million, respectively, representing a 37.7% increase period-over-period.

SaaS subscription revenues, as further described below, represented 94.6% and 95.0% of total revenues for the three and six months ended June 30, 2022, respectively and 94.3% and 94.6% of total revenues for the three and six months ended June 30, 2021, respectively.

We incurred net losses of $20.2 million and $33.6 million for the three and six months ended June 30, 2022, respectively, and net losses of $11.4 million and $22.3 million for the three and six months ended June 30, 2021, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.

For the three months ended September 30, 2022 and 2021, our total revenues were $53.4 million and $39.8 million, respectively, representing a 34.3% increase period-over-period.

For the nine months ended September 30, 2022 and 2021, our total revenues were $148.7 million and $109.7 million, respectively, representing a 35.6% increase period-over-period.

SaaS subscription revenues, as further described below, represented 94.9% and 95.0% of total revenues for the three and nine months ended September 30, 2022, respectively and 94.3% and 94.4% of total revenues for the three and nine months ended September 30, 2021, respectively.

We incurred net losses of $20.0 million and $53.7 million for the three and nine months ended September 30, 2022, respectively, and net losses of $11.2 million and $33.5 million for the three and nine months ended September 30, 2021, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.

Recent Developments

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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.

The aggregate consideration paid in exchange for all of the outstanding equity interests of Segmint was approximately $135.0 million.

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

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

As of June 30, 2022, we served 182 FIs through the Alkami Platform and over 320 clients through the ACH Alert, MK and Segmint products, representing 91.3% annual client growth since June 30, 2021.

As of September 30, 2022, we served 190 FIs through the Alkami Platform and over 330 clients through the ACH Alert, MK and Segmint products, representing 70.1% annual client growth since September 30, 2021.

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

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

Our platform model with more than 270 integrations as of June 30, 2022 enables us to deliver thousands of configurations aligned with the digital platform strategies adopted by our clients.

Our platform model with more than 270 integrations as of September 30, 2022 enables us to deliver thousands of configurations aligned with the digital platform strategies adopted by our clients.

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

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Client renewals are also an important lever in driving our long-term gross margin targets.

We had one and five client renewals in the three and six months ended June 30, 2022, respectively.

We had six and 11 client renewals in the three and nine months ended September 30, 2022, respectively.

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

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

We remain committed to investing in our platform, notably through our research and development spend, which was 32.8% and 32.3% of our revenues for the three and six months ended June 30, 2022, respectively.

We remain committed to investing in our platform, notably through our research and development spend, which was 34.1% and 32.9% of our revenues for the three and nine months ended September 30, 2022, respectively.

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

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Components of Results of Operations

Our client relationships are primarily based on multi-year contracts that have an average contract life of 70 months as of June 30, 2022.

Our digital banking client relationships are primarily based on multi-year contracts that have an average contract li fe of 70 mont hs as of September 30, 2022.

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

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

The following disaggregates our revenues for the three and six months ended June 30, 2022 and 2021 by major source:

Three months ended June 30,

Six months ended June 30,

The following disaggregates our revenues for the three and nine months ended September 30, 2022 and 2021 by major source:

Three months ended September 30,

Nine months ended September 30,

2022 2021 2022 2021

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

Our gross margin for the three and six months ended June 30, 2022 was 54.0% and 54.6%, respectively, and 55.9% and 54.7% for the three and six months ended June 30, 2021, respectively.

The major components of cost of revenues represented the following percentages of revenues for the three months ended June 30, 2022:

Our gross margin for the three and nine months ended September 30, 2022 was 51.6% and 53.6%, respectively, and 56.3% and 55.3% for the three and nine months ended September 30, 2021, respectively.

The major components of cost of revenues represented the following percentages of revenues for the three months ended September 30, 2022:

third-party hosting services (7.7%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (17.7%), our implementation team (10.8%), our client success team (5.4%), our development team responsible for maintaining and releasing updates to our platform (4.2%) and amortization of intangible assets (2.5%).

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

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

third-party hosting services (7.9%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (17.0%), our implementation team (9.3%), our client success team (5.4%), our development team responsible for maintaining and releasing updates to our platform (3.8%) and amortization of intangible assets (0.3%).

The major components of cost of revenues represented the following percentages of revenues for the six months ended June 30, 2022:

The major components of cost of revenues represented the following percentages of revenues for the nine months ended September 30, 2022:

third-party hosting services (7.7%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.6%), our implementation team (10.7%), our client success team (5.5%), our development team responsible for maintaining and releasing updates to our platform (4.2%) and amortization of intangibles (1.7%).

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

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

third-party hosting services (8.8%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.2%), our implementation team (9.6%), our client success team (5.7%), our development team responsible for maintaining and releasing updates to our platform (4.1%) and amortization of intangible assets (0.3%).

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Research and Development.

Research and development costs consist primarily of personnel-related costs for our engineering, information technology and products, including salaries, bonuses, other incentive-related compensation, employee benefits and stock-based compensation.

Research and development costs consist primarily of personnel-related costs for our engineering, information technology and product employees, including salaries, bonuses, other incentive-related compensation, employee benefits and stock-based compensation.

In addition, we also include third-party contractor expenses, software development and testing tools, allocated corporate expenses, and other expenses related to developing new solutions and upgrading and enhancing existing solutions.

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General and Administrative.

General and administrative expenses consist primarily of personnel-related costs for our general and administrative teams including salaries, bonuses, commissions, other incentive-related compensation, employee benefits and stock-based compensation associated with our executive, finance, legal, human resources, information technology, security and compliance as well as other

administrative personnel.

General and administrative expenses also include accounting, auditing and legal professional services fees, travel and other unallocated corporate-related expenses such as the cost of our facilities, employee relations, corporate telecommunication and software.

General and administrative expenses consist primarily of personnel-related costs for our executive, finance, legal, human resources, information technology, security and compliance and other administrative employees, including salaries, bonuses, commissions, other incentive-related compensation, employee benefits and stock-based compensation.

General and administrative expenses also

include accounting, auditing and legal professional services fees, travel and other unallocated corporate-related expenses such as the cost of our facilities, employee relations, corporate telecommunication and software.

We expect that general and administrative expenses will continue to increase as we scale our business and as we incur costs associated with being a publicly traded company, including legal, audit, business insurance and consulting fees.

Acquisition-Related Expenses, net.

Acquisition-related expenses include the accrual of deferred compensation due to the former owner of ACH Alert, in addition to acquisition related-expenses associated with the acquisitions of MK and Segmint, primarily related to legal, consulting, and professional fees.

Acquisition-related expenses, net, include the accrual of deferred compensation due to the former owner of ACH Alert, in addition to acquisition-related expenses associated with the acquisitions of MK and Segmint, primarily related to legal, consulting, and professional fees.

In addition, these expenses are inclusive of any (gain) loss on revaluation of contingent consideration.

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Non-operating Income (Expense)

Non-operating income (expense) consists primarily of interest income from our cash balances, interest expense from borrowings under our revolving line of credit, amortization of deferred debt costs, unrealized losses on marketable securities, loss from extinguishment of debt, and changes in fair value of warrants, and tranche rights.

Provision for Income Taxes

As a result of our valuation allowance, provision for income taxes consists primarily of state income taxes and deferred taxes related to the tax amortization of acquired goodwill.

Non-operating income (expense) consists primarily of interest income from our cash balances, interest expense from borrowings under our revolving line of credit, amortization of deferred debt costs, unrealized losses on marketable securities, and changes in fair value of warrants, and tranche rights.

Provision (Benefit) for Income Taxes

As a result of our valuation allowance, provision (benefit) for income taxes consists primarily of 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 valuation allowance against our deferred tax assets.

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

The following table presents our selected consolidated statements of operations data for the three and six months ended June 30, 2022 and 2021.

Three months ended June 30,

Six months ended June 30,

The following table presents our selected consolidated statements of operations data for the three and nine months ended September 30, 2022 and 2021.

Three months ended September 30,

Nine months ended September 30,

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

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Loss on financial instruments (59) — (446) (3,035)

Loss on extinguishment of debt (76) — (76) —

Loss before income taxes

(20,212) (11,219) (53,608) (33,473)

Provision for income taxes 156 — 243 —

Provision (benefit) for income taxes (163) — 80 —

$ (20,049) $ (11,219) $ (53,688) $ (33,473)

(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.

(1) Includes amortization of acquired technology of $1.4 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively, and $2.6 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively.

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

2022 2021 2022 2021

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

2022 2021 2022 2021

1 unchanged sentence

Net loss $ (20,049) $ (11,219) $ (53,688) $ (33,473)

Provision for income taxes 156 — 243 —

Provision (benefit) for income taxes (163) — 80 —

Loss on financial instruments 59 — 446 3,035

Interest expense, net 334 77 953 544

Amortization of intangible assets 1,244 209 1,646 418

Amortization of capitalized internal use software 75 — 75 —

Depreciation 625 587 1,241 1,164

Depreciation and amortization 2,550 802 5,512 2,384

Stock-based compensation expense 11,914 3,352 32,956 7,793

Legal settlement 52 — 52 —

Loss on extinguishment of debt 76 — 76 —

Acquisition-related expenses, net (1)

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

In the six months ended June 30, 2022, these expenses are offset by the $2.7 million gain on contingent consideration related to the purchase of MK.

In the nine months ended September 30, 2022, these expenses are offset by the $2.7 million gain on contingent consideration related to the purchase of MK.

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

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

We define adjusted EBITDA as net loss;

provision for income taxes;

We define adjusted EBITDA as net loss before provision (benefit) for income taxes;

loss on financial instruments;

interest expense, net;

amortization of intangible assets;

amortization of capitalized internal use software;

depreciation;

depreciation and amortization;

stock-based compensation expense;

legal settlement;

loss on extinguishment of debt;

and acquisition-related expenses, net.

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

Adjusted EBITDA was $(5.3) million and $(8.9) million for the three and six months ended June 30, 2022, respectively, and $(5.4) million and $(11.5) million for the three and six months ended June 30, 2021, respectively.

Adjusted EBITDA was $(4.6) million and $(13.6) million for the three and nine months ended September 30, 2022, respectively, and $(6.1) million and $(17.5) million for the three and nine months ended September 30, 2021, respectively.

Annual Recurring Revenue (ARR).

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

ARR was $204.5 million as of June 30, 2022 and $144.7 million as of June 30, 2021, an increase of $59.8 million, or 41.3%.

ARR was $213.6 million as of September 30, 2022 and $154.8 million as of September 30, 2021, an increase of $58.8 million, or 38.0%.

Registered Users.

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

We had 13.3 million registered users as of June 30, 2022 and 10.7 million as of June 30, 2021, an increase of 2.6 million, or 24.3%.

We had 13.7 million registered users as of September 30, 2022 and 11.4 million as of September 30, 2021, an increase of 2.3 million, or 20.3%.

Revenue per Registered User (RPU).

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

RPU was $15.33 as of June 30, 2022 and $13.48 as of June 30, 2021, an increase of $1.85, or 13.7%.

Comparison of Three and Six Months ended June 30, 2022 and 2021

Three months ended June 30,

Change Six months ended June 30,

RPU was $15.57 as of September 30, 2022 and $13.57 as of September 30, 2021, an increase of $2.00, or 14.7%.

Comparison of Three and Nine Months ended September 30, 2022 and 2021

Three months ended September 30,

Change Nine months ended September 30,

2022 2021 $ % 2022 2021 $ %

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Revenues $ 53,412 $ 39,761 $ 13,651 34.3 % $ 148,732 $ 109,724 $ 39,008 35.6 %

September 30,

Annual Recurring Revenue (ARR) $ 213,640 $ 154,805 $ 58,835 38.0 %

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Revenue per Registered User (RPU) $ 15.57 $ 13.57 $ 2.00 14.7 %

Revenues increased $13.8 million, or 37.7%, and $25.4 million, or 36.2% for the three and six months ended June 30, 2022, compared to the same period in 2021.

The increase of $13.8 million in revenues for the three months ended June 30, 2022 was primarily due to registered user growth from new and existing clients, RPU growth, as well as the acquisition of Segmint completed on April 25, 2022, which contributed $2.3 million for the three months ended June 30, 2022.

The increase of $25.4 million in revenues for the six months ended June 30, 2022 was primarily due to registered user growth of 2.6 million, comprised of 1.4 million in registered user growth from existing clients (net of attrition) and 1.2 million in registered users from new clients implemented through our digital banking platform (contractual minimums).

Revenues increased $13.7 million, or 34.3%, and $39.0 million, or 35.6% for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

The increase of $13.7 million in revenues for the three months ended September 30, 2022 was primarily due to registered user growth from new and existing clients, RPU growth, and the acquisition of Segmint completed on April 25, 2022, which contributed $3.3 million for the three months ended September 30, 2022.

The increase of $39.0 million in revenues for the nine months ended September 30, 2022 was primarily due to registered user growth of 2.3 million, or 20.3%, driven by the implementation of 29 new financial institutions supporting 1.2 million digital users and increased digital user adoption from our existing clients of 1.5 million users, or 12%, partially offset by a 0.4 million decrease in users due to client losses.

In addition, increased revenues were due to RPU growth of 14.7%.

RPU growth was primarily driven by cross-sell activity to existing clients, higher average RPU of new clients implemented in the last 12 months on our digital banking platform compared to aggregate RPU and the acquisition of Segmint completed on April 25, 2022, which contributed $2.3 million in the six months ended June 30, 2022.

The average RPU of users from new clients implemented on our digital platform in the last 12 months of $16.46 as of June 30, 2022, is 7.4% higher than the aggregate RPU as of June 30, 2022.

The average RPU of users from new clients implemented on our digital platform in the last 12 months of $17.40 as of September 30, 2022, is 11.75% higher than the aggregate RPU as of September 30, 2022.

Cost of Revenues and Gross Margin

Three months ended June 30,

Change Six months ended June 30,

Three months ended September 30,

Change Nine months ended September 30,

2022 2021 $ % 2022 2021 $ %

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Cost of Revenues

Cost of revenues increased $7.1 million, or 43.7%, and $11.6 million, or 36.5%, for the three and six months ended June 30, 2022, respectively compared to the same periods in 2021, generating a gross margin of 54.0% and 54.6% for the three and six months ended June 30, 2022, respectively, compared to a gross margin of 55.9% and 54.7% for the same periods in 2021.

The increase in cost of revenues for the three months ended June 30, 2022 was primarily driven by a $2.3 million increase in personnel-related costs (which includes stock-based compensation of $0.5 million) resulting from headcount increases supporting our growth in site reliability engineering, client implementation and client support, as well as $2.4 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform, $0.7 million increase in hosting costs, $0.7 million related to the acquisition of Segmint (which includes stock-based compensation of $0.1 million) and $0.8 million of amortization of intangibles, $0.7 million of which is related to the acquisition of Segmint.

The increase in cost of revenues for the six months ended June 30, 2022 was primarily driven by a $4.6 million increase in personnel-related costs (which includes stock-based compensation of $1.2 million) resulting from headcount increases supporting our growth in the following teams:

site reliability engineering, client implementation and client support, as well as $4.3 million in higher cost of our third party partners where we resell their solutions as part of the digital platform and $0.6 million in incremental hosting costs, incurred from an increase in revenues derived from existing and new client growth.

In addition, we incurred $0.7 million related to the acquisition of Segmint (which includes stock-based compensation of $0.1 million) and $1.0 million of amortization of intangibles, $0.7 million of which is related to the acquisition of Segmint.

Cost of revenues increased $8.5 million, or 48.6%, and $20.0 million, or 40.8%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, generating a gross margin of 51.6% and 53.6% for the three and nine months ended September 30, 2022, respectively, compared to a gross margin of 56.3% and 55.3% for the same periods in 2021.

The increase in cost of revenues for the three months ended September 30, 2022 was primarily driven by a $2.7 million increase in personnel-related costs (which includes stock-based compensation of $0.6 million) resulting from headcount increases supporting our growth in site reliability engineering, client implementation and client support, as well as $2.3 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform, a $0.8 million increase in hosting costs, $0.8 million of additional costs related to the acquisition of Segmint (which includes stock-based compensation of $0.1 million) and $1.3 million of amortization of intangibles, $1.1 million of which is related to the acquisition of Segmint.

The increase in cost of revenues for the nine months ended September 30, 2022 was primarily driven by an $7.0 million increase in personnel-related costs (which includes stock-based compensation of $1.8 million) resulting from headcount increases supporting our growth in the following teams:

site reliability engineering, client implementation and client support, as well as $6.6 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform, $1.4 million in incremental hosting costs incurred from an increase in revenues derived from existing and new client growth, $0.4 million in higher consulting costs, $0.3 million in higher travel costs and $0.3 million in higher computer hardware and software costs.

In addition, we incurred $1.5 million of additional costs related to the acquisition of Segmint (which includes stock-based compensation of $0.2 million) and $2.2 million of amortization of intangibles, $1.7 million of which is related to the acquisition of Segmint.

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

Operating Expenses

Three months ended June 30,

Change Six months ended June 30,

Three months ended September 30,

Change Nine months ended September 30,

2022 2021 $ % 2022 2021 $ %

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Research and Development

Research and development expenses increased $4.5 million, or 37.1%, and $7.7 million, or 33.6%, for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

For the three months ended June 30, 2022, the increase was primarily due to a $3.3 million increase in personnel-related costs (which includes stock-based compensation of $1.4 million) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation.

In addition, we incurred $1.1 million related to the Segmint acquisition (which includes stock-based compensation of $0.5 million), $0.4 million in higher consulting costs and $0.1 million of higher hosting costs associated with internal usage.

These expenses were partially offset by an increase of $0.6 million in capitalized development costs related to new strategic projects.

For the six months ended June 30, 2022, the increase was primarily due to a $6.7 million increase in personnel-related costs (which includes stock-based compensation of $3.0 million) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation, as well as $1.0 million in higher consulting costs and $1.1 million related to the Segmint acquisition (which includes stock-based compensation of $0.5 million).

These expenses were partially offset by an increase of $1.8 million in capitalized development costs related to new strategic projects.

Research and development expenses increased $5.3 million, or 41.5%, and $13.1 million, or 36.4%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

For the three months ended September 30, 2022, the increase was primarily due to a $3.8 million increase in personnel-related costs (which includes stock-based compensation of $1.5 million) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation.

In addition, we incurred $1.9 million of additional costs related to the Segmint acquisition (which includes stock-based compensation of $0.7 million).

These increases are partially offset by $0.5 million in lower consulting costs.

For the nine months ended September 30, 2022, the increase was primarily due to a $8.8 million increase in personnel-related costs (which includes stock-based compensation of $4.5 million) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation, as well as $0.5 million in higher consulting costs, $0.4 million in higher hosting costs, and $3.0 million of additional costs related to the Segmint acquisition (which includes stock-based compensation of $1.2 million).

Sales and Marketing

Sales and marketing expenses increased $4.9 million, or 91.6%, and $7.5 million, or 70.1%, for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

For the three months ended June 30, 2022, the increase was primarily due to a $2.2 million increase in personnel-related costs (which includes stock-based compensation of $0.7 million) resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $0.8 million related to the Segmint acquisition (which includes stock-based compensation of $0.1 million), $0.1 million in higher consulting costs, as well as $0.4 million in higher travel costs for the sales team and $1.4 million in higher costs related to industry conferences and trade shows as we return to pre-COVID-19 pandemic sales activities such as our in-person client conference, Co:Lab.

For the six months ended June 30, 2022, the increase was primarily due to a $4.3 million increase in personnel-related costs (which includes stock-based compensation of $1.3 million) resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $0.8 million related to the Segmint acquisition (which includes stock-based compensation of $0.1 million), $0.3 million in higher consulting costs, as well as $0.3 million in higher travel costs for the sales team and $1.8 million in higher costs related to industry conferences and trade shows as we return to pre-COVID-19 pandemic sales activities such as our in-person client conference, Co:Lab.

Sales and marketing expenses increased $2.5 million, or 34.7%, and $10.0 million, or 55.8%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

For the three months ended September 30, 2022, the increase was primarily due to a $1.9 million increase in personnel-related costs (which includes stock-based compensation of $0.7 million) resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $1.0 million of additional costs related to the Segmint acquisition (which includes stock-based compensation of $0.2 million), $0.4 million in higher consulting costs, and $0.4 million in higher travel costs for the sales team, partially offset by $1.1 million in lower costs related to timing of our annual client conference.

For the nine months ended September 30, 2022, the increase was primarily due to a $6.2 million increase in personnel-related costs (which includes stock-based compensation of $2.0 million) resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $1.8 million of additional costs related to the Segmint acquisition (which includes stock-based compensation of $0.3 million), $0.6 million in higher consulting costs, $0.6 million in higher travel costs for the sales team and $0.8 million in higher costs related to industry conferences and trade shows as we return to pre-COVID-19 pandemic sales activities such as our in-person client conference, Co:Lab.

General and Administrative

General and administrative expenses increased $6.5 million, or 53.7%, and $13.8 million, or 63.1%, for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

For the three months ended June 30, 2022, the increase was primarily due to a $5.5 million increase in personnel-related and other costs (which includes stock-based compensation of $4.9 million).

In addition, we incurred a $0.3 million related to the Segmint acquisition (which includes stock-based compensation of $0.1 million), $0.2 million increase in insurance costs for public company director and officer coverage and $0.3 million higher software costs.

For the six months ended June 30, 2022, the increase in general and administrative expenses was primarily due to an $11.2 million increase in personnel-related and other costs (which includes stock-based compensation of $10.3 million).

In addition, we incurred a $0.3 million related to the Segmint acquisition (which includes stock-based compensation of $0.1 million), $1.3 million increase in insurance costs for public company director and officer coverage and $0.7 million higher software costs.

General and administrative expenses increased $5.9 million, or 47.7%, and $19.8 million, or 57.5%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

For the three months ended September 30, 2022, the increase was primarily due to a $4.9 million increase in personnel-related and other costs (which includes stock-based compensation of $4.6 million).

In addition, we incurred $0.6 million of additional costs related to the Segmint acquisition (which includes stock-based compensation of $0.2 million), $0.2 million in higher audit and consulting costs, and $0.3 million in higher software costs.

For the nine months ended September 30, 2022, the increase in general and administrative expenses was primarily due to a $16.1 million increase in personnel-related and other costs (which includes stock-based compensation of $14.9 million).

In addition, we incurred $0.9 million of additional costs related to the Segmint acquisition (which includes stock-based compensation of $0.3 million), $1.5 million of increased insurance costs for public company director and officer coverage and $1.0 million in higher software costs.

Acquisition-related expenses, net

Acquisition-related expenses, net increased $0.2 million and decreased $(1.8) million for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

For the three months ended June 30, 2022, the increase was primarily due to additional acquisition expenses related to legal, consulting, and professional fees for the acquisition of Segmint.

For the six months ended June 30, 2022, the decrease was primarily due to the $2.7 million gain on contingent consideration related to the purchase of MK, partially offset by $0.8 million of acquisition expenses related to legal, consulting, and professional fees for the acquisition of Segmint.

Acquisition-related expenses, net decreased $0.2 million and $2.0 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

For the three months ended September 30, 2022, the decrease was primarily due to expenses incurred for the MK acquisition that closed in the three months ended September 30, 2021.

For the nine months ended September 30, 2022, the decrease was primarily due to the $2.7 million gain on contingent consideration related to the purchase of MK, partially offset by $0.8 million of increased acquisition expenses related to legal, consulting, and professional fees for the acquisition of Segmint.

Amortization of acquired intangibles

Amortization of acquired intangibles increased $0.2 million and $0.2 million for the three and six months ended June 30, 2022, respectively, primarily due to additional amortization of intangible assets related to the acquisitions of MK in September 2021 and Segmint in April 2022.

Amortization of acquired intangibles increased $0.3 million and $0.5 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, primarily due to additional amortization of intangible assets related to the acquisitions of MK in September 2021 and Segmint in April 2022.

Non-Operating Income (Expense), Net

Non-operating expense decreased $0.9 million and $2.5 million for the three and six months ended June 30, 2022, respectively compared to same periods in 2021.

For the three months ended June 30, 2022, the decrease was primarily due to $1.3 million in non-operating loss related to the increase in fair value of our warrant liabilities for the three months ended June 30, 2021, partially offset by net $0.3 million of other non-operating expenses for the three months ended June 30, 2022.

For the six months ended June 30, 2022, the increase was primarily due to $3.0 million in non-operating loss related to the increase in fair value of our warrant liabilities and $0.5 million of net interest expense for the six months ended June 30, 2021, partially offset by net interest expense of $0.5 million, $0.3 million of unrealized losses on marketable securities, and $0.1 million related to loss on extinguishment of debt for the six months ended June 30, 2022.

Provision for Income Taxes

The Company recorded $0.2 million and $0.2 million of provision for income taxes 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.

Our effective tax rate differs from the statutory tax rate primarily due to state income taxes and deferred taxes related to the tax amortization of acquired goodwill.

Non-operating expense increased $0.3 million for the three months ended September 30, 2022, compared to same period in 2021, the increase was primarily due to $0.3 million in higher net interest expense.

Non-operating expense decreased $2.2 million for the nine months ended September 30, 2022, compared to same period in 2021, primarily due $3.0 million in non-operating loss related to the increase in fair value of our warrant liabilities for the nine months ended September 30, 2021, partially offset by higher net interest expense of $0.4 million and $0.4 million of unrealized losses on marketable securities for the nine months ended September 30, 2022.

Provision (Benefit) for Income Taxes

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

The difference in the effective tax rate for the three and nine months ended September 30, 2022 as compared to the same periods in 2021 is primarily due to state income taxes and deferred taxes related to the tax amortization of acquired goodwill.

This was partially offset by a $0.3 million deferred tax benefit attributable to the partial release of the Company’s pre-existing valuation allowance related to the Segmint business combination, recorded in the three months ended September 30, 2022.

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.

Liquidity and Capital Resources

As of June 30, 2022, we had $213.4 million in cash and cash equivalents and marketable securities, and an accumulated deficit of $347.5 million.

As of September 30, 2022, we had $208.9 million in cash and cash equivalents and marketable securities, and an accumulated deficit of $367.5 million.

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

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

Six months ended June 30,

Nine months ended September 30,

(in thousands) 2022 2021

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Net Cash Used in Operating Activities

During the six months ended June 30, 2022, net cash used in operating activities was $16.3 million, which consisted of a net loss of $33.6 million, adjusted by non-cash charges of $22.3 million and net cash outflows from the change in net operating assets and liabilities of $8.1 million.

The non-cash charges were primarily comprised of a non-operating loss related to depreciation and amortization expense of $3.0 million, and stock-based compensation expense of $21.4 million, partially offset by a gain on revaluation of contingent consideration of $2.7 million.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $4.8 million increase in accounts receivable, a $3.5 million increase in prepaid expenses and other current assets and a $1.4 million increase in deferred implementation costs, partially offset by a $1.6 million increase in accounts payable and accrued liabilities.

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

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

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

During the nine months ended September 30, 2022, net cash used in operating activities was $24.0 million, which consisted of a net loss of $53.7 million, adjusted by non-cash charges of $36.8 million and net cash outflows from the change in net operating assets and liabilities of $7.2 million.

The non-cash charges were primarily comprised of depreciation and amortization expense of $5.5 million, stock-based compensation expense of $33.6 million, and net other changes in non-cash charges of $0.4 million, partially offset by a gain on revaluation of contingent consideration of $2.7 million.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $3.7 million increase in accounts receivable, a $2.8 million increase in prepaid expenses and other current assets, a $3.8 million increase in deferred implementation costs, and a net $0.5 million in other balance sheet changes, partially offset by a $3.6 million increase in accounts payable and accrued liabilities.

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

The non-cash charges were primarily comprised of a non-operating loss related to the increase in fair value of warrant liabilities of $3.0 million, depreciation and amortization expense of $2.4 million, and stock-based compensation expense of $7.8 million.

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

Net Cash Used in Investing Activities

During the six months ended June 30, 2022, net cash used in investing activities was $259.6 million, primarily consisting of $143.6 million for the purchase of marketable securities, $132.0 million related to our acquisition of Segmint, $2.4 million related to capitalized software development costs, and capital expenditures related to updates for computer and other equipment of $0.6 million, partially offset by $19.0 million in proceeds from maturities and redemptions of marketable securities.

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

During the nine months ended September 30, 2022, net cash used in investing activities was $247.7 million, primarily consisting of $164.1 million for the purchase of marketable securities, $131.3 million related to our acquisition of Segmint, $2.8 million related to capitalized software development costs, and capital expenditures related to updates for computer and other equipment of $1.0 million, partially offset by $51.5 million in proceeds from maturities and redemptions of marketable securities.

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

Net Cash Provided by Financing Activities

For the six months ended June 30, 2022, net cash provided by financing activities was $62.6 million, which was primarily due to proceeds of $85.0 million from issuance of long-term debt, $1.3 million from the exercise of stock options to purchase 0.6 million shares of our common stock, and proceeds from issuances under the Employee Stock Purchase Plan (“ESPP”) of $1.8 million, partially offset by $24.7 million of principal payments on debt and debt issuance costs paid of $0.9 million.

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

For the nine months ended September 30, 2022, net cash provided by financing activities was $62.9 million, which was primarily due to proceeds of $85.0 million from issuance of long-term debt, $2.1 million from the exercise of stock options to purchase 0.9 million shares of our common stock, and proceeds from issuances under the Employee Stock Purchase Plan (“ESPP”) of $1.8 million, partially offset by $24.7 million of principal payments on debt, payments for taxes related to net settlement of equity awards of $0.6 million, and debt issuance costs paid of $0.8 million.

For the nine months ended September 30, 2021, net cash provided by financing activities was $186.9 million, which was primarily due to the receipt of proceeds from our IPO of $192.8 million and proceeds of $6.4 million from the exercise of stock options to purchase 4.1 million shares of our common stock, partially offset by the cash payment of our Series B dividend of $5.0 million upon the consummation of our IPO, the $4.5 million payment of deferred IPO issuance costs, and the repurchase of shares of our common stock in the amount of $3.5 million.

Amended Credit Agreement

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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.

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

• Accordion Feature:

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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.

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.

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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.

Total interest expense, including commitment fees and unused line fees, for the three and six months ended June 30, 2022 was $0.8 million and $1.1 million, respectively, and $0.6 million and $0.2 million for the three and six months ended June 30, 2021, respectively.

Total interest expense, including commitment fees and unused line fees, for the three and nine months ended September 30, 2022 was $1.2 million and $2.3 million, respectively, and $0.3 million and $0.9 million for the three and nine months ended September 30, 2021, respectively.

In conjunction with closing the Amended Credit Agreement in 2022, we incurred issuance costs of $0.8 million, which were deferred and were scheduled to be amortized over the three-year term.

Unamortized debt issuance costs totaled $0.6 million and $0.1 million as of June 30, 2022 and December 31, 2021, respectively.

Amortization expense was less than $0.1 million and $0.2 million for the three and six months ended June 30, 2022, respectively.

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

Unamortized debt issuance costs totaled $0.5 million and $0.1 million as of September 30, 2022 and December 31, 2021, respectively.

Amortization expense was less than $0.7 million and $0.9 million for the three and nine months ended September 30, 2022, respectively.

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

Contractual Obligations and Commitments

There were no material changes to our contractual obligations and commitments as of June 30, 2022 compared to those discussed as of December 31, 2021 in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.

There were no material changes to our contractual obligations and commitments as of September 30, 2022 compared to those discussed as of December 31, 2021 in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.

Off-Balance Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis