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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-25 · 114 added, 148 removed, 292 unchanged (47% of the section changed)

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

A discussion regarding our financial condition and results of operation for the fiscal year ended December 31, 2022, compared to the fiscal year ended December 31, 2021, is presented below.

A discussion regarding our financial condition and results of operations for fiscal year ended December 31, 2021, compared to the fiscal year ended December 31, 2020, can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022.

Alkami is a cloud-based digital banking solutions provider.

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

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

In addition, in September 2021, we acquired MK Decisioning Systems, LLC (“MK”) a technology platform for digital account opening, credit card and loan origination solutions In April 2022, we acquired Segmint, a leading cloud-based financial data analytics and transaction data cleansing provider.

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

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• Integrations :

Scalability and extensibility driven by 230 real-time integrations to back office systems and third-party fintech solutions as of December 31, 2021, including core systems, payment cards, mortgages, bill pay, electronic documents, money movement, personal financial management and account opening.

Scalability and extensibility driven by more than 280 real-time integrations to back office systems and third-party fintech solutions as of December 31, 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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We primarily go to market through an internal sales force.

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

We derive our revenues almost entirely from multi-year contracts for the Alkami platform that are based on an average contract life of approximately 70 months as of December 31, 2021.

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

We derive our revenues predominantly from multi-year contracts for the Alkami Platform that are based on an average contract life of approximately 70 months as of December 31, 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 years ended December 31, 2021, 2020, and 2019, our total revenues were $152.2 million, $112.1 million, and $73.5 million, respectively, representing growth rates of 35.7% from 2020 to 2021 and 52.5% from 2019 to 2020.

For the years ended December 31, 2022, 2021, and 2020 our total revenues were $204.3 million, $152.2 million, and $112.1 million, respectively, representing a growth rate of 34.2% from 2021 to 2022 and 35.7% from 2020 to 2021.

SaaS subscription revenues, as further described below, represented 95.2%, 94.4%, and 93.7% of total revenues for the years ended December 31, 2022, 2021, and 2020, respectively.

We incurred net losses of $46.8 million, $51.4 million, and $41.9 million for the years ended December 31, 2021, 2020, and 2019, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.

net losses of $58.6 million, $46.8 million, and $51.4 million for the years ended December 31, 2022, 2021, and 2020, respectively, largely due to significant continued investment in sales, marketing, product development and post-sales client activities.

Recent Developments

Initial Public Offering.

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

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

Acquisition of MK.

On September 10, 2021, the Company acquired substantially all of the assets of MK for approximately $20 million in cash consideration due at closing subject to a $2 million holdback provision held in escrow with $1 million to be released at the 12-month anniversary of close and the remainder to be released at the 18-month anniversary of close.

The Company also agreed to assume certain liabilities associated with MK’s business.

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

Merger with Segmint .

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 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.

Factors Affecting our Operating Results

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

As of December 31, 2021, we served 177 FIs through the Alkami Platform and an additional 123 clients through the ACH Alert suite of solutions, representing 32.2% annual client growth since December 31, 2020.

As of December 31, 2022, we served 199 FIs through the Alkami Platform and over 350 clients through the ACH Alert, MK and Segmint products.

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

Furthermore, expanding our product suite expands our RPU potential.

Furthermore, expanding our product suite expands our Revenue per Registered User (“RPU”) potential.

For additional information regarding RPU, see “Key Business Metrics.”

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

We had twelve client renewals in the year ended December 31, 2021.

We had 22 client renewals in the year ended December 31, 2022.

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

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

COVID-19 Impact.

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

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

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

We continue to face significant uncertainty concerning the duration of the COVID-19 pandemic as well as the severity of any future infection surges.

Components of Results of Operations

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

Our client relationships are predominantly based on multi-year contracts for the Alkami Platform that have had an average contract life of 70 months as of December 31, 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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Occasionally, our clients request custom development and other professional services, which we provide.

These are generally one-time requests and involve unique, non-standard features, functions or integrations that are intended to enhance or modify their licensed SaaS solutions.

These are generally one-time

requests and involve unique, non-standard features, functions or integrations that are intended to enhance or modify their licensed SaaS solutions.

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

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The major components of cost of revenues represented the following percentages of revenues for the year ended December 31, 2022:

third-party hosting services (8.6%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.5%), our implementation team (9.6%), our client success team (5.6%) and our development team responsible for maintaining and releasing updates to our platform (4.1%).

The major components of cost of revenues represented the following percentages of revenues for the year ended December 31, 2020:

third-party hosting services (8.7%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (15.9%), our implementation team (11.2%), our client success team (6.4%) and our development team responsible for maintaining and releasing updates to our platform (5.0%).

third-party hosting services (7.8%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.3%), our implementation team (10.3%), our client success team (4.5%) our development team responsible for maintaining and releasing updates to our platform (3.6%), stock-based compensation (2.1%), amortization of intangible assets (1.9%), and other expenses (0.3%).

The major components of cost of revenues represented the following percentages of revenues for the year ended December 31, 2021:

third-party hosting services (12.6%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (17.5%), our implementation team (13.8%), our client success team (9.1%) and our development team responsible for maintaining and releasing updates to our platform (5.6%).

third-party hosting services (8.6%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.0%), our implementation team (9.4%), our client success team (5.2%), our development team responsible for maintaining and releasing updates to our platform (3.8%), stock-based compensation (1.3%), amortization of intangible assets (0.5%), and other expenses (0.2%).

Operating Expenses

Research and Development.

Research and development costs consist primarily of personnel-related costs for our engineering, information technology and products, including salaries, bonuses, commissions, 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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Sales and marketing expenses consist primarily of personnel-related costs of our sales, marketing and a portion of account management employees, including salaries, bonuses, commissions, other incentive-related compensation, employee benefits and stock-based compensation.

Sales and marketing expenses also include travel and related costs, outside consulting fees and marketing programs, including lead generation, costs of our annual client conference, advertising, trade shows, other event expenses and amortization of acquired client relationships.

We expect sales and marketing expenses will continue to increase as we expand our direct sales teams to pursue our market opportunity.

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 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, 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.

Amortization of Acquired Intangibles.

Amortization of acquired intangibles represents the amortization of intangibles recorded in connection with our business acquisitions, which are amortized on a straight-line basis over the estimated useful lives of the related assets.

Non-operating Income (Expense)

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

Provision for Income Taxes

Our effective tax rate differs from the statutory tax rate primarily due to the impact of the valuation allowance against our deferred tax assets, partially offset by the tax benefits related to stock-based compensation.

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

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

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.

This was offset in 2022 by a deferred tax benefit attributable to the partial release of the Company’s pre-existing valuation allowance related to the Segmint business combination.

Results of Operations

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General and administrative 71,247 50,398 36,437

Acquisition-related expenses, net (12,529) 2,983 839

Amortization of acquired intangibles 1,155 368 91

Total operating expenses 166,013 126,723 94,259

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Interest expense (3,868) (1,186) (489)

(Loss) gain on financial instruments

(3,035) (15,818) 509

Loss on financial instruments (200) (3,035) (15,818)

Loss before income taxes

(59,061) (46,650) (51,355)

Provision for income taxes 172 — —

Provision (benefit) for income taxes (461) 172 —

$ (58,600) $ (46,822) $ (51,355)

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Net loss $ (58,600) $ (46,822) $ (51,355)

Provision for income taxes 172 — —

Loss (gain) on financial instruments 3,035 15,818 (509)

Interest expense (income), net 699 434 (157)

Amortization of intangible assets 1,072 209 —

Depreciation 2,371 2,566 2,226

Provision (benefit) for income taxes (461) 172 —

Loss on financial instruments 200 3,035 15,818

Interest expense, net 1,172 699 434

Depreciation and amortization 8,075 3,443 2,775

Stock-based compensation expense 44,592 14,535 1,954

Expenses related to tender offer — — 6,091

Acquisition-related expenses (1)

Acquisition-related expenses, net (1)

(12,529) 2,983 839

Adjusted EBITDA (2)

$ (17,551) $ (21,955) $ (23,444)

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

(1) Acquisition-related expenses, net, includes 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 year ended December 31, 2022, these expenses were offset by the $15.5 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 before provision for income taxes;

(gain) loss on financial instruments;

interest (income) expense, net;

amortization of intangible assets;

depreciation;

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

loss on financial instruments;

interest expense, net;

depreciation and amortization;

stock-based compensation expense;

expenses related to tender offer;

and acquisition-related costs.

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.

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Year ended December 31,

Change Year ended December 31,

($ in thousands) 2022 2021 $ %

Revenues $ 204,270 $ 152,159 $ 52,111 34.2 %

Fiscal 2021 Compared to Fiscal 2020

Revenues increased $52.1 million, or 34.2%, for 2022 compared to 2021.

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In addition, increased revenues were due to RPU growth of 13.7%.

RPU growth was primarily driven by cross-sell activity to existing clients and higher average RPU of new clients implemented in 2021 on our digital banking platform compared to aggregate RPU.

The average RPU of users from new clients implemented on our digital platform

in the last year of $14.80 as of December 31, 2021, is 8.2% higher than the aggregate RPU as of December 31, 2021.

Fiscal 2020 Compared to Fiscal 2019

Revenues increased $38.6 million, or 52.5%, for 2020 compared to 2019.

The increase in revenues was primarily due to registered user growth of 2.5 million, primarily driven by 1.2 million in registered user growth from existing clients (net of attrition) and 1.2 million in registered users from new client wins.

In addition, increased revenues were due to RPU growth of 8.1%.

RPU growth was primarily driven by cross-sell activity to existing clients and new client average RPU of $17.14 as of December 31, 2020 which reflects new client adoption that was 29.6% higher than the aggregate RPU.

An additional contributing factor to increased revenues in 2020 is the acquisition of ACH Alert completed on October 4, 2020, contributing $1.0 million to 2020 revenues.

RPU growth was primarily driven by cross-sell activity to existing clients, higher average RPU of new clients implemented in 2022 on our digital banking platform compared to aggregate RPU and the subscription revenue contribution from the Segmint acquisition of $8.3 million.

The average RPU of users from new clients implemented on our digital platform in the last year of $18.04 as of December 31, 2022, is 16.0% higher

than the aggregate RPU as of December 31, 2022.

Cost of Revenues and Gross Margin

Year ended December 31,

Change Year ended December 31, Change

($ in thousands) 2022 2021 $ %

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Cost of Revenues

Fiscal 2021 Compared to Fiscal 2020

Cost of revenues increased $27.6 million, or 40.4%, for 2022 compared to 2021, generating a gross margin of 53.0% for 2022 compared to a gross margin of 55.1% for 2021.

The increase in cost of revenues was primarily driven by a $4.0 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount increases supporting our growth in the following teams:

site reliability engineering, client implementation and client support, $6.8 million in higher costs of our third-party partners where we resell their solutions as part of our digital platform, $3.5 million in incremental hosting costs, both incurred from an increase in revenues derived from existing and new client growth and $0.6 million of increased amortization on intangible assets from our acquisitions.

The increase in cost of revenues was primarily driven by a $9.4 million increase in personnel-related costs (which includes stock-based compensation of $2.2 million) resulting from headcount increases supporting our growth in the following teams:

client implementation, site reliability engineering and client support, as well as $9.1 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform, $2.3 million in incremental hosting costs incurred from an increase in revenues derived from existing and new client growth, and $0.3 million in higher computer hardware and software costs.

In addition, we incurred $2.3 million of additional costs related to the acquisition of Segmint (which includes stock-based compensation of $0.2 million) and a $3.2 million increase in amortization of intangibles, $2.7 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.

However, we expect gross margin to continue to improve due to operational scaling.

Fiscal 2020 Compared to Fiscal 2019

Cost of revenues increased $9.9 million, or 22.9% for 2020 compared to 2019, generating a gross margin of 52.8% for 2020 compared to a gross margin of 41.4% for 2019.

The increase in cost of revenues was primarily driven by a $5.1 million increase in personnel-related costs resulting from headcount increases supporting our growth in the following teams:

site reliability engineering, client implementation and client support, $4.8 million higher third-party costs and $0.5 million in incremental hosting costs, both incurred from an increase in revenues derived from existing and new client growth.

These costs were partially offset by $0.6 million in lower travel and other costs primarily due to the work-from-home business environment during the COVID-19 pandemic.

Operating Expenses

Year ended December 31,

Change Year ended December 31,

($ in thousands) 2022 2021 $ %

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General and administrative 71,247 50,398 20,849 41.4 %

Acquisition-related expenses, net (12,529) 2,983 (15,512) (520.0) %

Amortization of acquired intangibles 1,155 368 787 213.9 %

Total operating expenses $ 166,013 $ 126,723 $ 39,290 31.0 %

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Research and Development

Fiscal 2021 Compared to Fiscal 2020

Research and development expenses increased $8.6 million, or 21.4%, for 2021 compared to 2020, primarily due to an $8.2 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation.

In addition we incurred $0.6 million in higher costs associated with maintaining our corporate infrastructure.

Fiscal 2020 Compared to Fiscal 2019

Research and development expenses increased $7.5 million, or 22.9%, for 2020 compared to 2019, primarily due to a $6.4 million increase in personnel-related costs resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation.

In addition, we incurred an $1.1 million increase in client infrastructure and other costs due to continued growth from our install base and new client growth.

Research and development expenses increased $20.5 million, or 42.1%, for 2022 compared to 2021, primarily due to a $15.4 million increase in personnel-related costs (which includes stock-based compensation of $6.6 million) resulting from headcount growth, information technology and product teams dedicated to platform enhancements and innovation, as well as $0.1 million in higher consulting costs, $0.6 million in higher hosting costs, and $5.0 million of additional costs related to the Segmint acquisition (which includes stock-based compensation of $1.9 million).

Sales and Marketing

Fiscal 2021 Compared to Fiscal 2020

Sales and marketing expenses increased $7.8 million, or 46.3%, for 2021 compared to 2020, primarily due to a $5.2 million increase in personnel-related costs (which includes stock-based compensation) resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $0.8 million in higher conference and trade show costs due to conducting our annual client conference in September 2021 instead of our typical April timing, $0.9 million in higher consulting costs and $0.7 million in higher travel and other costs.

Fiscal 2020 Compared to Fiscal 2019

Sales and marketing expenses increased $1.4 million, or 9.4%, for 2020 compared to 2019, primarily due to a $3.1 million increase in personnel-related costs resulting from headcount growth in our sales and marketing teams and higher new sales productivity as well as higher customer success engagement costs.

These costs were partially offset by $0.8 million lower travel costs for the sales team as well as $1.1 million lower costs related to our annual client conference, industry conferences and tradeshows, all primarily due to the work-from-home business environment during the COVID-19 pandemic.

Sales and marketing expenses increased $12.6 million, or 52.3%, for 2022 compared to 2021.

The increase was primarily due to a $8.3 million increase in personnel-related costs (which includes stock-based compensation of $2.6 million) resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $2.7 million of additional costs related to the Segmint acquisition (which includes stock-based compensation of $0.4 million), $0.5 million in higher consulting costs, $0.4 million in higher travel costs, and $1.0 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

Fiscal 2021 Compared to Fiscal 2020

General and administrative expenses increased $16.1 million, or 43.2%, for 2021 compared to 2020, primarily due to a $13.7 million increase in personnel-related and other costs (which includes stock-based compensation) from the modification of the stock options and restricted stock units (“RSUs”) of the former Chief Executive Officer of the Company and increased headcount, including the impact from the acquisition of ACH Alert and MK, and a $2.1 million increase in non-personnel related costs from the acquisitions of ACH Alert and MK.

In addition, we incurred a $1.8 million increase in accounting, audit and consulting expenses primarily in support of our IPO and public company operations, a $3.2 million increase in insurance costs for director and officer coverage and a $1.4 million increase in software costs.

The increase in general and administrative expenses was offset by a $5.9 million decrease in other expenses primarily due to $6.1 million in compensation expense related to the Company’s tender offer which occurred in 2020 and did not repeat in 2021.

Fiscal 2020 Compared to Fiscal 2019

General and administrative expenses increased $12.4 million, or 49.6% for 2020 compared to 2019, primarily due to $6.1 million in compensation expense related to the Company’s tender offer, $4.3 million increase in personnel-related and other costs from increased headcount including the acquisition of ACH Alert, and a $0.8 million increase in costs related to the acquisition of ACH Alert.

In addition, we incurred a $0.9 million increase in facilities costs, a $0.7 million increase in software costs and a $0.9 million increase in other costs.

These higher costs were the result of additional employees to support our growth initiatives.

These costs were partially offset by $1.3 million less travel, employee-related costs and lower consulting costs, all primarily due to the work-from-home business environment during the COVID-19 pandemic.

General and administrative expenses increased $20.8 million, or 41.4%, for 2022 compared to 2021, the increase in general and administrative expenses was primarily due to a $16.6 million increase in personnel-related and other costs (which includes stock-based compensation of $16.1 million).

In addition, we incurred $1.0 million of additional costs related to the Segmint acquisition (which includes stock-based compensation of less than $0.1 million), $1.6 million of increased insurance costs, $1.1 million in higher software costs, and $0.5 million in higher audit and consulting costs.

Acquisition-Related Expenses, Net

Acquisition-related expenses, net decreased $15.5 million for the year ended December 31, 2022 compared to 2021, primarily due to the $15.5 million gain on revaluation of contingent consideration related to the purchase of MK.

Amortization of Acquired Intangibles

Amortization of acquired intangibles increased $0.8 million for the year ended December 31, 2022 compared to 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)

Fiscal 2021 Compared to Fiscal 2020

Non-operating expense decreased $12.5 million for 2021 compared to 2020, primarily due to $15.8 million in non-operating loss related to the increase in fair value of our warrant liabilities and redeemable convertible preferred stock tranche right for the year ended December 31, 2020, partially offset by $3.0 million in non-operating loss related to the increase in fair value of our warrant liabilities for the year ended December 31, 2021.

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

Fiscal 2020 Compared to Fiscal 2019

Non-operating expense increased $16.9 million, for 2020 compared to 2019, primarily due to $15.8 million in non-operating loss related to the increase in fair value of our warrant liabilities and redeemable convertible preferred stock tranche right.

Provision for Income Taxes

We had a $0.2 million for provision for income taxes for 2021 and no provision for income taxes for 2020 and 2019.

As a result of our valuation allowance, income tax expense for the year ended December 31, 2021 consisted primarily of state taxes and deferred taxes related to the tax amortization of recently acquired goodwill.

Non-operating expense decreased $2.4 million for 2022 compared to 2021, primarily due to a decrease in loss on financial instruments of $3.0 million in non-operating loss related to the increase in fair value of our warrant liabilities for the year ended December 31, 2021, partially offset by higher net interest expense of $0.5 million for the year ended December 31, 2022.

Provision (Benefit) for Income Taxes

The Company recorded a benefit for income taxes of $0.5 million and a provision for income taxes of $0.2 million, resulting in an effective tax rate of 0.8% and (0.4)% for 2022 and 2021, respectively.

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

This was offset by a $2.1 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 year ended December 31, 2022.

The difference in the effective tax rate for the year ended December 31, 2022 as compared to 2021 is primarily the result of a lower valuation allowance recorded in the current year due to utilization of net operating losses, the impact of tax expense (benefits) related to stock-based compensation recorded in each of the respective periods, and state income taxes.

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

Liquidity and Capital Resources

As of December 31, 2021, we had $308.6 million in cash and cash equivalents, and an accumulated deficit of $313.9 million.

As of December 31, 2022, we had $196.4 million in cash and cash equivalents and marketable securities, and an accumulated deficit of $372.5 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.

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

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

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

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

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

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

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During the year ended December 31, 2022, net cash used in operating activities was $37.8 million, which consisted of a net loss of $58.6 million, adjusted by non-cash charges of $37.3 million and net cash outflows from the change in net operating assets and liabilities of $16.5 million.

The non-cash charges were primarily comprised of depreciation and amortization expense of $8.1 million and stock-based compensation expense of $45.4 million, partially offset by a $15.5 million gain on revaluation of contingent consideration and a $0.7 million benefit from deferred taxes.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to an $8.4 million increase in deferred implementation costs, $3.2 million increase in prepaid expenses and other assets, a $4.0 million increase in accounts receivable, and a $1.4 million decrease in accounts payable and accrued liabilities, partially offset by a $0.5 million increase in deferred revenues.

During the year ended December 31, 2021, net cash used in operating activities was $29.0 million, which consisted of a net loss of $46.8 million, adjusted by non-cash charges of $21.1 million and net cash outflows from the change in net operating assets and liabilities of $3.3 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 $3.4 million, and stock-based compensation expense of $14.5 million.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $6.8 million increase in accounts payable and accrued liabilities and a net $0.8 million in other balance sheet changes, partially offset by a $6.3 million increase in accounts receivable, and a $4.7 million increase in deferred implementation costs.

During the year ended December 31, 2020, cash used in operating activities was $38.1 million, which consisted of a net loss of $51.4 million, adjusted by non-cash charges of $20.6 million and net cash outflows from the change in net operating assets and liabilities of $7.4 million.

The non-cash charges were primarily comprised of non-operating loss related to the increase in fair value of warrant and tranche right liabilities of $15.8 million, depreciation and amortization expense of $2.8 million, and stock compensation expense of $2.0 million.

The net cash outflows from the change in our net operating assets and liabilities was primarily due to a $3.8 million increase in deferred implementation costs and a $3.4 million increase in accounts receivable and a net $0.2 million in other balance sheet changes.

During the year ended December 31, 2019, cash used in operating activities was $39.1 million, which consisted of a net loss of $41.9 million, adjusted by non-cash charges of $3.0 million and net cash outflows from the change in net operating assets and liabilities of $0.2 million.

Non-cash charges were primarily comprised of depreciation expense of $2.2 million and stock-based compensation expense of $1.3 million.

Net Cash Used in Investing Activities

During the year ended December 31, 2022, net cash used in investing activities was $224.0 million, primarily consisting of $187.2 million for the purchase of marketable securities, $131.8 million related to our acquisition of Segmint, $3.6 million related to capitalized software development costs, and capital expenditures related to updates for computer and other equipment of $1.1 million, partially offset by $99.8 million in proceeds from maturities and redemptions of marketable securities.

During the year ended December 31, 2021, net cash used in investing activities was $22.0 million, primarily consisting of $18.0 million for the purchase of MK, $0.3 million related to the finalization of working capital adjustments on our acquisition of ACH Alert, $2.6 million related to capitalized software development costs, and capital expenditures related to updates for computer and other equipment of $1.1 million.

During the year ended December 31, 2020, cash used in investing activities was $27.2 million, primarily consisting of the acquisition of ACH Alert of $25.1 million and capital expenditures related to the expansion and updates to our corporate facilities of $1.6 million and computer and other equipment of $0.5 million.

During the year ended December 31, 2019, cash used in investing activities was $3.7 million, primarily consisting of capital expenditures related to the expansion and updates to our corporate facilities of $3.0 million and computer and other equipment of $0.7 million.

Net Cash Provided by Financing Activities

For the year ended December 31, 2021, net cash provided by financing activities was $192.3 million, which was primarily due to the receipt of proceeds from our IPO of $192.8 million, proceeds of $9.1 million from the exercise of stock options to purchase 5.8 million shares of our common stock, and proceeds from issuances under the Employee Stock Purchase Plan (“ESPP”) of $3.0 million, 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.

For the year ended December 31, 2020, net cash provided by financing activities was $225.0 million, which was primarily due to the issuance of redeemable convertible preferred stock in an amount of $213.9 million.

We also borrowed $25.0 million through our term loan under our Credit Agreement for the ACH Alert acquisition.

Cash flows provided from financing activities were partially offset by the repurchase of $11.3 million and $3.2 million of our common stock related to a tender offer and general repurchases, respectively.

During the year ended December 31, 2019, cash provided by financing activities was $30.2 million, primarily consisting of net proceeds of $30.0 million from the issuance of redeemable convertible preferred stock.

Credit Agreement

On October 16, 2020, we entered into our credit agreement with Silicon Valley Bank and KeyBank National Association (“Credit Agreement”).

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

The Credit Agreement matures on October 16, 2023 and is secured by a first priority lien on substantially all of our tangible and intangible personal property and the tangible and intangible personal property of our subsidiaries that are guarantors.

In addition, the Credit Agreement includes the following:

For the year ended December 31, 2022, net cash provided by financing activities was $61.2 million, which was primarily due to proceeds of $85.0 million from issuance of long-term debt, proceeds of $2.4 million from the exercise of stock options to purchase 1.1 million shares of our common stock, and proceeds from issuances under the Employee Stock Purchase Plan (“ESPP”) of $2.9 million, partially offset by $24.7 million of principal payments on debt, payments for taxes related to net settlement of equity awards of $2.7 million, payment of acquisition related holdback of $1.0 million and debt issuance costs paid of $0.8 million.

For the year ended December 31, 2021, net cash provided by financing activities was $192.3 million, which was primarily due to the receipt of proceeds from our IPO of $192.8 million, proceeds of $9.1 million from the exercise of stock options to purchase 5.8 million shares of our common stock, and proceeds from issuances under the ESPP of $3.0 million, 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

On April 29, 2022, we entered into an amended and restated credit agreement with Silicon Valley Bank, Comerica Bank, and Canadian Imperial Bank of Commerce (the “Amended Credit Agreement”).

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

The Amended Credit Agreement matures on April 29, 2025.

The Amended Credit Agreement includes the following, among other features:

• Revolving Facility:

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

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

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

The Amended Credit Agreement provides $40.0 million in aggregate commitments for secured revolving loans (“Amended Revolving Facility”) and there were no outstanding borrowing as of December 31, 2022.

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, which closed on April 25, 2022.

• Accordion Feature:

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

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

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

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

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

The minimum LIBOR rate to be applied is 1.00%.

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

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

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

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

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

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

The Credit Agreement contains customary affirmative and negative covenants, as well as (i) an annual recurring revenue growth covenant requiring the loan parties to have recurring revenues in any four consecutive fiscal quarter periods in an amount that is 10% greater than the recurring revenues for the corresponding four consecutive quarter periods in the previous year and (ii) a liquidity (defined as the aggregate amount of cash in bank accounts subject to a control agreement plus availability under the Revolving Facility) covenant, requiring the loan parties to have liquidity, tested on the last day of each calendar month, of $10.0 million or more.

The Credit Agreement also contains customary events of default, which if they occur, could result in the termination of commitments under the Credit Agreement, the declaration that all outstanding loans are immediately due and payable in whole or in part, and the requirement to maintain cash collateral deposits in respect of outstanding letters of credit.

The Amended Credit Agreement also permits us, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $50.0 million and there were no outstanding borrowing as of December 31, 2022.

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

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

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

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

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

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

Obligations under the Amended Credit Agreement are guaranteed by our subsidiaries and secured by all or substantially all of our assets and our subsidiaries’ assets 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.

Total interest expense, including commitment fees and unused line fees, for the years ended December 31, 2022, 2021, and 2020, was $3.9 million, $1.2 million, and $0.5 million, respectively.

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

Unamortized debt issuance costs totaled $0.1 million as of both December 31, 2021 and 2020, and less than $0.1 million as of December 31, 2019.

Amortization expense totaled $0.2 million for both the years ended December 31, 2021 and 2020 and less than $0.1 million for the year ended December 31, 2019.

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 $0.7 million, $0.1 million, and $0.1 million as of December 31, 2022, 2021, and 2020, respectively.

Amortization expense totaled $0.3 million for the year ended December 31, 2022 and $0.2 million for the year ended December 31, 2021.

Off-Balance Sheet Arrangements

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The Company's material future obligations include the contractual and purchase commitments described below.

The Company has a contractual commitment to repay its long-term debt of $24.3 million based on the defined terms of our debt agreements.

Within the next 12 months, the Company is obligated to pay $1.6 million of this total debt.

The Company has a contractual commitment to repay its long-term debt of $85.0 million based on the defined terms of our Amended Credit Agreement.

Within the next 12 months, the Company is obligated to pay principal of $3.2 million of this total debt.

Refer to Note 8 of the Notes to the Consolidated Financial Statements for further details.

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Refer to Note 13 of the Notes to the Consolidated Financial Statements for further details.

Finally, we have operating leases for real estate, equipment, and other assets that include future minimum payments with initial terms of one year or more.

Finally, we have operating leases for real estate and equipment that include future minimum payments with initial terms of one year or more.

Total future operating lease payments at December 31, 2022 are $22.2 million.

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Deferred commissions are amortized over the benefit period of the client relationship.

Determining the benefit period over which to amortize deferred commissions requires significant judgment.

Determining the benefit period over which to amortize deferred commissions requires judgment.

We determine the period of benefit by considering factors such as the length of the initial SaaS contract, the likelihood of renewal and the estimated useful life of the underlying technology.

Deferred Implementation Costs

We capitalize certain costs to fulfill client contracts such as employee salaries, benefits, and associated payroll taxes that are directly related to the implementation of our solutions and some third-party costs, such as third-party licenses and maintenance.

We only capitalize implementation costs that we anticipate will be recoverable under the contract.

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We recognize the consideration transferred (i.e.

purchase price) in a business combination as well as the acquired business’ identifiable assets, liabilities, and non-controlling interests at their acquisition date fair value.

purchase price) in a business combination as well as the acquired business’ identifiable assets, liabilities, and any non-controlling interests at their acquisition date fair value.

The excess of the consideration transferred over the fair value of the identifiable assets, liabilities, and non-controlling interest, is recorded as goodwill in our consolidated financial statements.

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Contingent consideration meeting the criteria to be classified as equity in the consolidated balance sheets is not remeasured, and its subsequent settlement is recorded within stockholders’ equity (deficit).

Contingent consideration classified as a liability is remeasured to fair value at each reporting date until the contingency is resolved, with any changes in fair value recognized in our consolidated statements of operations.

Contingent consideration classified

as a liability is remeasured to fair value at each reporting date until the contingency is resolved, with any changes in fair value recognized in our consolidated statements of operations.

Recently Issued Accounting Pronouncements

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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-K

Item 7. Management’s Discussion and Analysis