What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-11-04 · 151 added, 231 removed, 351 unchanged (52% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30, December 31,

March 31, December 31,

Current assets

6 unchanged sentences

Property and equipment, net 14,214 13,561

Right of use assets 14,108 14,670

Deferred implementation costs, net of current portion 25,060 24,783

3 unchanged sentences

Total assets $ 482,064 $ 488,885

Liabilities and Stockholders' Equity (Deficit)

Liabilities and Stockholders' Equity

Current liabilities

2 unchanged sentences

Accrued liabilities 21,720 21,643

Deferred rent and tenant allowance, current 750 705

Deferred revenues, current portion 9,850 8,835

Lease liabilities, current portion 3,118 3,657

Total current liabilities 42,101 41,614

1 unchanged sentence

Deferred revenues, net of current portion 13,712 13,904

Deferred rent and tenant allowance, net of current portion 4,620 5,190

Deferred income taxes 1,791 1,712

Lease liabilities, net of current portion 15,608 15,817

Other non-current liabilities 350 400

Total liabilities 153,937 154,839

Commitments and contingencies (Note 11 and 13)

Stockholders’ Equity (Deficit)

Preferred stock, $ 0.001 par, 10,000,000 shares authorized and 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021

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

and 91,477,997 and 89,954,657 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

Stockholders’ Equity

Preferred stock, $ 0.001 par value, 10,000,000 shares authorized and 0 shares issued and outstanding as of March 31, 2023 and December 31, 2022

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

and 92,864,741 and 92,112,749 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 717,450 706,407

6 unchanged sentences

(In thousands, except share and per share data)

Three months ended September 30,

Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

Revenues 59,996 44,790

14 unchanged sentences

Interest expense ( 1,757 ) ( 288 )

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

Gain (loss) on financial instruments 210 ( 133 )

Loss before income taxes ( 16,767 ) ( 13,319 )

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

Provision for income taxes 196 87

Net loss $ ( 16,963 ) $ ( 13,406 )

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

Net loss attributable to common stockholders:

$ ( 20,049 ) $ ( 11,219 ) $ ( 53,688 ) $ ( 33,750 )

Net loss per share attributable to common stockholders:

2 unchanged sentences

Basic and diluted 92,397,341 90,208,871

(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.

(1) Includes amortization of acquired technology of $ 1.3 million and $ 0.3 million for the three months ended March 31, 2023 and 2022, respectively.

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

ALKAMI TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share data)

Three months ended September 30, 2022

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

Shares Amount Shares Amount

Balance June 30, 2022

Three months ended March 31, 2023

Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity

Shares Amount

Balance January 1, 2023

92,112,749 $ 92 $ 706,407 $ ( 372,453 ) $ 334,046

1 unchanged sentence

Issuance of common stock upon restricted stock unit vesting 292,591 — — — —

Common stock issued under Employee Stock Purchase Plan (ESPP) — — — — — — —

Exercised stock options 459,401 1 1,415 — 1,416

1 unchanged sentence

Net loss — — — ( 16,963 ) ( 16,963 )

Balance September 30, 2022

— $ — 91,477,997 $ 91 $ 695,324 $ ( 367,541 ) $ 327,874

Three months ended September 30, 2021

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

Shares Amount Shares Amount

Balance June 30, 2021 — $ — 87,186,730 $ 87 $ 640,457 $ ( 289,285 ) $ 351,259

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

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

Exercised warrants — — 211,323 — 645 — 645

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

Balance September 30, 2021 — $ — 88,147,853 $ 88 $ 645,934 $ ( 300,504 ) $ 345,518

ALKAMI TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share data)

Nine months ended September 30, 2022

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

Shares Amount Shares Amount

Balance December 31, 2021

Balance March 31, 2023

92,864,741 $ 93 $ 717,450 $ ( 389,416 ) $ 328,127

Three months ended March 31, 2022

Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity

Shares Amount

Balance January 1, 2022 89,954,657 $ 90 $ 658,374 $ ( 313,853 ) $ 344,611

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

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

Common stock issued under Employee Stock Purchase Plan (ESPP) — — 199,887 — 1,841 — 1,841

Exercised stock options 432,930 — 936 — 936

Payments for taxes related to net settlement of equity awards — — — — ( 596 ) — ( 596 )

Net loss — — — ( 13,406 ) ( 13,406 )

Balance September 30, 2022

— $ — 91,477,997 $ 91 $ 695,324 $ ( 367,541 ) $ 327,874

Nine months ended September 30, 2021

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

Shares Amount Shares Amount

Balance December 31, 2020

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

Stock-based compensation — — — — 7,793 — 7,793

Exercised stock options — — 4,120,002 4 6,413 — 6,417

Exercised warrants — — 211,323 — 645 — 645

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

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

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

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

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

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

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

Net loss — — — — — ( 33,473 ) ( 33,473 )

Balance September 30, 2021

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

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

Balance March 31, 2022 90,469,637 $ 90 $ 669,284 $ ( 327,259 ) $ 342,115

ALKAMI TECHNOLOGY, INC.

1 unchanged sentence

(In thousands)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

6 unchanged sentences

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

Loss on financial instruments

(Gain) loss on financial instruments

Deferred taxes 47 34

4 unchanged sentences

Deferred implementation costs ( 859 ) ( 469 )

Deferred rent and tenant allowances ( 525 ) ( 397 )

Deferred revenues 824 ( 384 )

6 unchanged sentences

Capitalized software development costs 1

Acquisition of business, net of cash acquired (1)

( 1,141 ) ( 1,206 )

Net cash used in investing activities

Net cash provided by (used in) investing activities

15,765 ( 113,567 )

Cash flows from financing activities:

Proceeds from issuance of long-term debt 85,000 —

Principal payments on debt — ( 313 )

Debt issuance costs paid ( 773 ) —

Proceeds from exercise of warrants — 645

Proceeds from ESPP issuance 1,841 —

Payments for taxes related to net settlement of equity awards ( 1,984 ) —

Proceeds from stock option exercises 1,416 936

Deferred IPO issuance costs paid — ( 4,520 )

Repurchase of common stock — ( 3,497 )

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

Payment of Series B dividend — ( 4,969 )

Net cash provided by financing activities

62,893 186,886

Net (decrease) increase in cash and cash equivalents and restricted cash ( 208,826 ) 149,613

Net cash (used in) provided by financing activities

Net increase (decrease) in cash and cash equivalents and restricted cash 5,582 ( 121,289 )

Cash and cash equivalents and restricted cash, beginning of period 112,337 312,954

Cash and cash equivalents and restricted cash, end of period $ 117,919 $ 191,665

(1) See Note 3 for additional information regarding noncash investing activities for the nine months ended September 30, 2022 and 2021, related to the acquisition of MK.

(1) See Note 2 for additional information regarding noncash investing activities for the three months ended March 31, 2023 and 2022 related to capitalized software development costs.

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

18 unchanged sentences

Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2022, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 24, 2023.

Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2022.

Operating results for the three months ended March 31, 2023 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2023.

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

Reclassification.

Acquisition-related expenses, net and amortization of acquired intangibles previously included in general and administrative expense and sales and marketing expense, respectively, were reclassified into separate individual captions within the condensed consolidated statement of operations to conform with the current year presentation.

The Company has reclassified certain amounts on its consolidated statements of operations and consolidated statements of cash flows in the prior period to conform to current period presentation.

Use of Estimates

2 unchanged sentences

Significant estimates and assumptions include determining the timing and amount of revenue recognition, recoverability and amortization period related to costs to obtain and fulfill contracts, deferred implementation costs, revaluation of contingent consideration, and business combinations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents and marketable securities.

The Company invests its cash equivalents in highly rated money market funds.

The Company’s marketable securities consist of debt securities issued by highly rated corporate entities, foreign governments, and the U.S.

federal government.

Deposits may exceed federally insured limits, and the Company is exposed to credit risk on deposits in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation (“FDIC”).

The Company is closely monitoring ongoing events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, including developments related to Silicon Valley Bank (“SVB”).

On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation and the FDIC was appointed as receiver.

On March 12, 2023, the U.S.

Department of the Treasury, Federal Reserve Board, and FDIC released a joint statement announcing that the FDIC would complete its resolution of SVB in a manner that fully protected all depositors at SVB and that depositors would have access to all of their money starting March 13, 2023.

On March 26, 2023, the FDIC announced that First-Citizens Bank & Trust Company would assume all of SVB's deposits and loans as of March 27, 2023.

In light of the foregoing, the Company does not believe that it has exposure to loss as a result of SVB’s receivership.

Additionally, the Company’s overall liquidity and financing has not been impacted.

During the periods presented, the Company has not experienced any losses on its

deposits of cash, cash equivalents or marketable securities.

Restricted Cash

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

The amounts included in restricted cash on the condensed consolidated balance sheets at September 30, 2022 and December 31, 2021 represent the additional cash proceeds in deposit with an escrow agent for satisfaction of contingent consideration related to the acquisition of ACH Alert, LLC (“ACH Alert”).

In addition, restricted cash representing additional cash proceeds in deposit with an escrow agent for satisfaction of a holdback provision related to the acquisitions of MK Decisioning Systems, LLC (“MK”) and Segmint Inc.

(“Segmint”) is included in the condensed consolidated balance sheets at September 30, 2022 and December 31, 2021.

The amounts included in restricted cash on the condensed consolidated balance sheets at March 31, 2023 and December 31, 2022, represent the additional cash proceeds in deposit with an escrow agent for satisfaction of holdback provisions related to the acquisitions of MK Decisioning Systems, LLC (“MK”) and Segmint Inc.

See Note 3 for further information.

September 30, December 31,

March 31, December 31,

(in thousands) 2023 2022

1 unchanged sentence

Restricted cash included in Prepaid expenses and other current assets 3,632 3,617

Restricted cash included in Other assets 3,100 1,000

Total cash and cash equivalents and restricted cash $ 117,919 $ 112,337

Marketable Securities

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

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

Capitalized Software Development Costs

3 unchanged sentences

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

The Company had $ 5.3 million and $ 2.6 million in capitalized internal software development costs as of September 30, 2022 and December 31, 2021, respectively.

The Company had $ 6.8 million and $ 5.7 million in capitalized internal software development costs, net of accumulated amortization as of March 31, 2023 and December 31, 2022, respectively.

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

For the three months ended March 31, 2023 and 2022, the Company had noncash investing activities of $ 0.2 million and $ 0.1 million, respectively, for capitalized stock-based compensation related to capitalized software development costs.

Contract Balances

1 unchanged sentence

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

Contract assets totaled $ 0.5 million and $ 0.7 million as of September 30, 2022 and December 31, 2021, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets.

Contract assets totaled $ 0.7 million and $ 0.5 million as of March 31, 2023 and December 31, 2022, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets.

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

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the consolidated balance sheets and disclosing key information about leasing arrangements.

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

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

The Company continues to evaluate quantitative impacts that the adoption of this standard will have.

The Company expects total assets and liabilities reported will increase relative to such amounts prior to adoption.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326),” which modifies the measurement of expected credit losses of certain financial instruments with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

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

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

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

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if the acquiring entity had originated the related revenue contracts.

This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted, including interim

periods within those fiscal years.

An entity that early adopts this guidance in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application.

The Company early adopted the standard during the second quarter of 2022, has applied the related accounting to the business combination completed in the current fiscal year and will apply the standard to all business combinations completed prospectively.

The adoption of ASU 2021-08 did not have a material impact on the consolidated financial statements.

The Company reviewed recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial statements.

Business Combination

ACH Alert, LLC

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

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

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

For the three and nine months ended September 30, 2022, the Company recognized compensation expense of $ 0.5 million and $ 1.7 million, respectively, and for the three and nine months ended September 30, 2021, the Company recognized compensation expense of $ 0.6 million and $ 1.9 million, respectively, related to this agreement.

MK Decisioning Systems, LLC

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

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 released at the 12 -month anniversary of close and the remainder released at the 18 -month anniversary of close.

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

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

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

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

3 unchanged sentences

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

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

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

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

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

For the three and nine months ended September 30, 2022, the Company recorded a gain on revaluation of contingent consideration of $ 0 and $ 2.7 million, respectively.

As of September 30, 2022, the fair value of the contingent earn-out was $ 12.8 million.

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

As of March 31, 2023 and December 31, 2022, the fair value of the contingent earn-out was zero .

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

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

As of September 30, 2022, the Company determined that approximately 51 % of the maximum $ 25 million contingent consideration would be paid to the seller in accordance with the terms of the purchase agreement.

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

For the nine months ended September 30, 2022 and 2021, the Company had noncash investing activities of $ 12.8 million and $ 17.5 million, respectively, related to unpaid consideration for the acquisition of MK.

As of December 31, 2022, the Company determined that 0 % of the maximum $ 25 million contingent consideration would be paid to the seller in accordance with the terms of the purchase agreement as a result of changes in the expected timing of new customer sales and implementations.

The Company’s determination has not changed as of March 31, 2023.

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.

2 unchanged sentences

A portion of the Merger Consideration of approximately $ 2.6 million was placed into escrow to secure certain post-closing indemnification obligations in the Merger Agreement.

As of September 30, 2022, the allocation of the purchase price for Segmint has not been finalized.

As of March 31, 2023, the allocation of the purchase price for Segmint has been finalized.

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

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

The following table summarizes the fair value amounts recognized as of the

acquisition date for each major class of asset acquired or liability assumed, as well as adjustments made during the measurement period:

(in thousands) Preliminary Fair Value as of April 25, 2022 Measurement Period Adjustments Adjusted Fair Value as of September 30, 2022

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

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

(in thousands) Preliminary Fair Value as of April 25, 2022 Measurement Period Adjustments Adjusted Fair Value as of March 31, 2023

Cash $ — $ 601 $ 601

14 unchanged sentences

Total cash consideration for acquisition, less cash acquired $ 135,130 $ ( 691 ) $ 134,439

The measurement period adjustments recorded for the three months ended September 30, 2022 are related to post-closing working capital adjustments, cash account amounts received as part of assets, revised estimates for intangible assets, and assumption of deferred tax liabilities.

The measurement period adjustments were related to post-closing working capital adjustments, cash account amounts received as part of assets, revised estimates for intangible assets, and assumption of deferred tax liabilities.

The table below outlines the purchased identifiable intangible assets:

8 unchanged sentences

As a result of the acquisition of the stock of Segmint, the goodwill is not deductible for tax purposes.

The Company estimated and recorded a net deferred tax liability of $ 0.3 million after offsetting the acquired available tax attributes with the intangible assets shown in the table above.

Refer to Note 10 for discussion of the partial release of the Company’s pre-existing valuation allowance relating to the net deferred tax liability.

For the three and nine months ended September 30, 2022, the Company recognized acquisition-related expenses of $ 0.2 million and $ 1.1 million, respectively, related to the acquisition of Segmint.

Property and Equipment, Net

Depreciation and amortization expense was $ 0.6 million and $ 1.9 million for the three and nine months ended September 30, 2022, respectively, and $ 0.6 million and $ 1.8 million for the three and nine months ended September 30, 2021, respectively.

Property and equipment, net includes the following amounts at September 30, 2022 and December 31, 2021:

(in thousands) Useful Life September 30, 2022 December 31, 2021

Depreciation and amortization expense was $ 0.9 million and $ 0.6 million for the three months ended March 31, 2023 and 2022, respectively.

Property and equipment, net, includes the following amounts at March 31, 2023 and December 31, 2022:

(in thousands) Useful Life March 31, 2023 December 31, 2022

Software 2 to 5 years

7 unchanged sentences

Property and equipment, net $ 14,214 $ 13,561

Revenue and Deferred Costs

Revenues and Deferred Costs

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

4 unchanged sentences

Other services includes professional services and custom development.

The following table disaggregates the Company's revenue by major source for the three and nine months ended September 30, 2022 and 2021:

Three months ended September 30,

Nine months ended September 30,

The following table disaggregates the Company's revenue by major source for the three months ended March 31, 2023 and 2022:

Three months ended March 31,

(in thousands) 2023 2022

3 unchanged sentences

Total revenues $ 59,996 $ 44,790

The Company recognized approximately $ 12.5 million of revenue during the nine months ended September 30, 2022 which was recognized from deferred revenues in the accompanying condensed consolidated balance sheets as of the beginning of the reporting period.

For those contracts that were wholly or partially unsatisfied as of September 30, 2022, minimum contracted subscription revenues to be recognized in future periods total approximately $ 755.2 million.

The Company recognized approximately $ 2.1 million of revenue during the three months ended March 31, 2023 that was included in deferred revenues in the accompanying condensed consolidated balance sheets as of the beginning of the reporting period.

For those contracts that were wholly or partially unsatisfied as of March 31, 2023, minimum contracted subscription revenues to be recognized in future periods total approximately $ 902.9 million.

The Company expects to recognize approximately 46.5 % of this amount as subscription services are transferred to customers over the next 24 months, an additional 32.5 % in the next 25 to 48 months, and the balance thereafter.

1 unchanged sentence

Deferred Cost Recognition

The Company capitalized $ 2.3 million and $ 4.0 million in deferred commissions costs during the three and nine months ended September 30, 2022, respectively, and $ 0.3 million and $ 0.8 million for the three and nine months ended September 30, 2021, respectively, and recognized amortization of $ 0.7 million and $ 2.1 million during the three and nine months ended September 30, 2022, respectively, and $ 0.6 million and $ 1.6 million for the three and nine months ended September 30, 2021, respectively.

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

Deferred commissions are considered costs to obtain a contract and are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $ 12.7 million and $ 10.8 million as of September 30, 2022 and December 31, 2021, respectively.

The Company capitalized implementation costs of $ 1.9 million and $ 4.8 million during the three and nine months ended September 30, 2022, respectively, and $ 1.3 million and $ 4.0 million during the three and nine months ended September 30, 2021, respectively, and recognized amortization of $ 1.0 million and $ 2.9 million during the three and nine months ended September 30, 2022, respectively, and $ 0.7 million and $ 1.9 million for the three and nine months ended September 30, 2021, respectively.

The Company capitalized $ 0.8 million and $ 0.7 million in deferred commissions costs during the three months ended March 31, 2023 and 2022, respectively, and recognized amortization of $ 0.9 million and $ 0.7 million during the three months ended March 31, 2023 and 2022, respectively.

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

Deferred commissions are considered costs to obtain a contract and are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $ 16.2 million and $ 16.2 million as of March 31, 2023 and December 31, 2022, respectively.

The Company capitalized implementation costs of $ 2.1 million and $ 1.3 million during the three months ended March 31, 2023 and 2022, respectively, and recognized amortization of $ 1.1 million and $ 0.8 million during the three months ended March 31, 2023 and 2022, respectively.

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

These deferred costs are considered costs to fulfill client contracts and are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $ 15.4 million and $ 13.5 million as of September 30, 2022 and December 31, 2021, respectively.

These deferred costs are considered costs to fulfill client contracts and are included in deferred implementation costs in the accompanying condensed consolidated balance sheets in the amount of $ 17.3 million and $ 16.4 million as of March 31, 2023 and December 31, 2022, respectively.

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

No impairment loss was recognized in relation to these capitalized costs for the three and nine months ended September 30, 2022 and 2021.

No impairment loss was recognized in relation to these capitalized costs for the three months ended March 31, 2023 and 2022.

Accounts Receivable

Accounts receivable includes the following amounts at September 30, 2022 and December 31, 2021:

September 30, December 31,

Accounts receivable includes the following amounts at March 31, 2023 and December 31, 2022:

March 31, December 31,

(in thousands) 2023 2022

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Total receivables 29,257 27,033

Allowance for doubtful accounts ( 183 ) ( 39 )

Allowance for credit losses ( 459 ) ( 467 )

Reserve for estimated credits ( 369 ) ( 320 )

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Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2022 and December 31, 2021:

September 30, December 31,

Accrued liabilities consisted of the following at March 31, 2023 and December 31, 2022:

March 31, December 31,

(in thousands) 2023 2022

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Client refund liability 317 279

Deferred compensation payable 2,384 625

Accrued consulting and professional fees 502 187

Accrued tax liabilities 1,185 1,147

MK acquisition holdback provision 2,000 1,000

MK and Segmint acquisition holdback provision 3,632 3,618

ESPP liability 2,165 717

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• Revolving Facility:

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

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 March 31, 2023.

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

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• Accordion Feature:

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

The Amended Credit Agreement also permits the Company, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $ 50.0 million, and there were no outstanding borrowing as of March 31, 2023.

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

The Company was in compliance with all covenants as of September 30, 2022.

The Company was in compliance with all covenants as of March 31, 2023.

On March 26, 2023, the FDIC announced that First-Citizens Bank & Trust Company would assume all of SVB's deposits and loans as of March 27, 2023.

This resulted in no impact to the Company’s condensed consolidated financial statements or changes to the terms of the Amended Credit Agreement.

Concentration of Credit Risk for additional information.

Long-term Debt

The following table summarizes long-term debt obligations as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021

The following table summarizes long-term debt obligations as of March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

Term Debt $ 85,000 $ 85,000

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Long-term portion $ 80,375 $ 81,392

Maturities of long-term debt outstanding as of September 30, 2022, are summarized as follows (in thousands):

Maturities of long-term debt outstanding as of March 31, 2023, are summarized as follows (in thousands):

Total $ 85,000

Stockholders' Equity (Deficit)

Stockholders' Equity

Equity Compensation Plans

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

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

(in thousands) 2023 2022

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Total stock-based compensation expenses $ 11,244 $ 9,774

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.

The Company recorded income tax expense of $ 0.2 million and $ 0.1 million for the three months ended March 31, 2023 and March 31, 2022, respectively, resulting in an effective tax rate of ( 1.2 )% and ( 0.7 )%, respectively.

The slight change in the effective tax rate for the three months ended March 31, 2023 as compared to the same period in 2022 is primarily due to a decrease in the valuation allowance recorded in the current period.

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

During the three and nine months ended September 30, 2022, the acquisition of Segmint resulted in the recognition of a net deferred tax liability of $ 0.3 million.

See Note 3 for further information.

Prior to the business combination, the Company had a full valuation allowance on its net deferred tax assets.

The net deferred tax liability generated from the business combination is considered an additional source of income to support the realizability of the Company’s pre-existing deferred tax assets.

As a result, we released a portion of the pre-existing valuation allowance against the deferred tax assets and recorded a provisional deferred tax benefit of $ 0.3 million for the three and nine months ended September 30, 2022.

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

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

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

As a result, the Company has established a valuation allowance against most of its deferred tax assets as realization is not

reasonably assured based upon a “more likely than not” threshold.

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

Fair Value of Financial Instruments

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

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

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

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

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

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

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

Marketable securities include debt securities that are measured at fair value using observable inputs.

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

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

The following tables summarize the Company’s financial assets measured at fair value as of September 30, 2022 and December 31, 2021 and indicate the fair value hierarchy of the valuation:

The following tables summarize the Company’s financial assets measured at fair value as of March 31, 2023 and December 31, 2022 and indicate the fair value hierarchy of the valuation:

Fair Value at Reporting Date Using

(In thousands) September 30, 2022 Level 1 Level 2 Level 3

(In thousands) March 31, 2023 Level 1 Level 2 Level 3

Cash equivalents (1)

Money Market Accounts (1)

$ 67,089 $ 67,089 $ — $ —

Total cash equivalents 95,498 95,498 — —

Marketable securities:

Corporate bonds 3,024 — 3,024 —

Commercial paper 36,458 — 36,458 —

government-sponsored enterprise securities 13,255 — 13,255 —

Treasury debt securities 15,881 15,881 — —

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Total Assets $ 138,196 $ 85,459 $ 52,737 $ —

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

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

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

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

Money Market Accounts (1)

Cash equivalents (1)

$ 28,173 $ 28,173 $ — $ —

Marketable securities:

Corporate bonds 26,037 — 26,037 —

Commercial paper 36,407 — 36,407 —

Treasury debt securities 22,731 22,731 — —

International debt securities 2,460 2,460 — —

Total marketable securities 87,635 25,191 62,444 —

Total Assets $ 115,808 $ 53,364 $ 62,444 $ —

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

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

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

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

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

Balance at December 31, 2021

Total fair value adjustments reported in earnings (Acquisition-related expenses, net) ( 2,700 )

Balance at September 30, 2022

Earnings Per Share

Net loss attributable to common stockholders used in computing basic and diluted earnings per share (“EPS”) has been calculated as the net loss less Series B cumulative dividends and other adjustments to redeemable convertible preferred stock of $ 0 for both the three and nine months ended September 30, 2022 and $ 0 and $ 0.3 million for the three and nine months ended September 30, 2021, respectively.

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

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

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

Because the Company has reported a net loss for the three and nine months ended September 30, 2022 and 2021, the number of shares used to calculate diluted net loss per share attributable to common stockholders is the same as the number of shares used to calculate basic net loss per share attributable to common stockholders for the period presented because the potentially dilutive shares would have been antidilutive if included in the calculation.

The computation of basic and diluted EPS is as follows for the three and nine months ended September 30, 2022 and 2021:

Three months ended September 30,

Nine months ended September 30,

Because the Company has reported a net loss for the three months ended March 31, 2023 and 2022, the number of shares used to calculate diluted net loss per share attributable to common stockholders is the same as the number of shares used to calculate basic net loss per share attributable to common stockholders for the period presented because the potentially

dilutive shares would have been anti-dilutive if included in the calculation.

The computation of basic and diluted EPS is as follows for the three months ended March 31, 2023 and 2022:

Three months ended March 31,

(In thousands, except shares and per share amounts) 2023 2022

Net loss $ ( 16,963 ) $ ( 13,406 )

cumulative dividends and adjustments to redeemable convertible preferred stock

— — — ( 277 )

Net loss attributable to common stockholders $ ( 20,049 ) $ ( 11,219 ) $ ( 53,688 ) $ ( 33,750 )

Weighted-average shares of common stock outstanding - basic and diluted 92,397,341 90,208,871

Loss per common share - basic and diluted $ ( 0.22 ) $ ( 0.13 ) $ ( 0.59 ) $ ( 0.60 )

For the three and nine months ended September 30, 2022 and 2021, the following potential shares of common stock were excluded from diluted EPS as the Company had a net loss in each period presented:

As of September 30,

Net loss per common share - basic and diluted $ ( 0.18 ) $ ( 0.15 )

For the three months ended March 31, 2023 and 2022, the following potential shares of common stock were excluded from diluted EPS as the Company had a net loss in each of the periods presented:

Three months ended March 31,

Stock options 5,781,937 7,423,122

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Commitments and Contingencies

Operating Lease Commitments

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

Rent expense under operating leases was $ 1.1 million and $ 3.2 million for the three and nine months ended September 30, 2022, respectively, and $ 1.2 million and $ 3.5 million for the three and nine months ended September 30, 2021, respectively.

Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at September 30, 2022 were as follows (in thousands):

Operating Leases

2022 (remaining three months) $ 936

Thereafter 6,736

Total minimum lease payments $ 23,139

Deferred Rent and Tenant Allowances

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

As of September 30, 2022 and December 31, 2021, the Company had deferred rent and tenant allowance balances as follows:

(in thousands) September 30, 2022 December 31, 2021

Deferred rent and tenant allowance $ 5,370 $ 5,895

current portion ( 750 ) ( 705 )

Deferred rent and tenant allowance, net of current portion $ 4,620 $ 5,190

Legal Proceedings

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

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

Renewal options were not included in the ROU asset and lease liability calculation.

The Company elected the practical expedient to not provide comparable presentation for periods prior to adoption.

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

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

Sublease income was $ 0.1 million and $ 0.1 million for the three months ended March 31, 2023 and 2022, respectively.

Operating lease expense consisted of:

(in thousands)

Three months ended March 31,

Operating lease expense

Short-term lease expense and other (1)

Total lease expense

$ 1,102 $ 1,110

(1) Other lease expense includes variable lease expense and sublease income.

Supplemental Cash Flow Information

Three months ended March 31,

Cash flow information (in thousands)

Cash paid for operating lease liabilities

The future maturities of operating lease liabilities are as follows:

(in thousands) March 31, 2023

2023 (nine months remaining) 2,835

Thereafter 2,712

Total minimum lease payments $ 21,265

present value discount ( 2,539 )

Total lease liability balance $ 18,726

Goodwill and Other Intangibles

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

There were no indications of impairment of goodwill noted for the three months ended September 30, 2022.

In April 2022, the Company recorded $ 99.3 million to goodwill related to the acquisition of Segmint under the preliminary purchase price allocation.

In September 2022, the Company adjusted goodwill related to the acquisition of Segmint to $ 97.9 million.

See Note 3 for further information.

Goodwill had a carrying value of $ 146.0 million and $ 48.1 million as of September 30, 2022 and December 31, 2021, respectively.

Total intangibles, net, consisted of the following as of September 30, 2022 and December 31, 2021:

As of September 30, 2022

There were no indications of impairment of goodwill noted for the three months ended March 31, 2023.

Goodwill had a carrying value of $ 148.1 million and $ 148.0 million as of March 31, 2023 and December 31, 2022, respectively.

Total intangibles, net, consisted of the following as of March 31, 2023 and December 31, 2022:

As of March 31, 2023

(In thousands) Carrying Value Accumulated Amortization Net Carrying Value

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Total intangible assets $ 48,945 $ ( 6,352 ) $ 42,593

Amortization expense recognized on intangible assets was $ 1.7 million and $ 3.4 million for the three and nine months ended September 30, 2022, respectively.

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

Amortization expense recognized on intangible assets was $ 1.7 million and $ 0.4 million for the three months ended March 31, 2023 and 2022, respectively.

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

2022 (remaining three months) $ 1,697

2023 (remaining nine months)

Thereafter 12,462

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

What changed 10-Q

Item 1. Financial Statements