ALKAMI TECHNOLOGY, INC. 10-Q

Item 1. Financial Statements ALKAMI TECHNOLOGY, INC. C ONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) (UNAUDITED) March 31, December 31, 2023 2022 Assets Current assets Cash and cash equivalents $ 114,287 $ 108,720 Marketable securities 71,108 87,635 Accounts receivable, net 28,429 26,246 Deferred implementation costs, current 8,438 7,855 Prepaid expenses and other current assets 14,238 11,709 Total current assets 236,500 242,165 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 Intangibles, net 40,897 42,593 Goodwill 148,050 148,017 Other assets 3,235 3,096 Total assets $ 482,064 $ 488,885 Liabilities and Stockholders' Equity Current liabilities Current portion of long-term debt $ 4,250 $ 3,188 Accounts payable 3,163 4,291 Accrued liabilities 21,720 21,643 Deferred revenues, current portion 9,850 8,835 Lease liabilities, current portion 3,118 3,657 Total current liabilities 42,101 41,614 Long-term debt, net 80,375 81,392 Deferred revenues, net of current portion 13,712 13,904 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 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 93 92 Additional paid-in capital 717,450 706,407 Accumulated deficit ( 389,416 ) ( 372,453 ) Total stockholders’ equity 328,127 334,046 Total liabilities and stockholders' equity $ 482,064 $ 488,885 The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements. 1 ALKAMI TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (UNAUDITED) Three months ended March 31, 2023 2022 Revenues 59,996 44,790 Cost of revenues (1) 27,858 19,980 Gross profit 32,138 24,810 Operating expenses: Research and development 20,549 14,156 Sales and marketing 10,878 7,898 General and administrative 17,111 17,046 Acquisition-related expenses, net 186 ( 1,378 ) Amortization of acquired intangibles 360 94 Total operating expenses 49,084 37,816 Loss from operations ( 16,946 ) ( 13,006 ) Non-operating income (expense): Interest income 1,726 108 Interest expense ( 1,757 ) ( 288 ) Gain (loss) on financial instruments 210 ( 133 ) Loss before income taxes ( 16,767 ) ( 13,319 ) Provision for income taxes 196 87 Net loss $ ( 16,963 ) $ ( 13,406 ) Net loss per share attributable to common stockholders: Basic and diluted $ ( 0.18 ) $ ( 0.15 ) Weighted-average number of shares of common stock outstanding: Basic and diluted 92,397,341 90,208,871 (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. 2 ALKAMI TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands, except share data) (UNAUDITED) 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 Stock-based compensation — — 11,612 — 11,612 Issuance of common stock upon restricted stock unit vesting 292,591 — — — — Exercised stock options 459,401 1 1,415 — 1,416 Payments for taxes related to net settlement of equity awards — — ( 1,984 ) — ( 1,984 ) Net loss — — — ( 16,963 ) ( 16,963 ) 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 — — — — Exercised stock options 432,930 — 936 — 936 Net loss — — — ( 13,406 ) ( 13,406 ) Balance March 31, 2022 90,469,637 $ 90 $ 669,284 $ ( 327,259 ) $ 342,115 3 ALKAMI TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (UNAUDITED) Three months ended March 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 16,963 ) $ ( 13,406 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 2,586 1,018 Accrued interest on marketable securities, net ( 398 ) ( 42 ) Stock-based compensation expense 11,440 9,920 Amortization of debt issuance costs 45 10 Gain on revaluation of contingent consideration — ( 2,700 ) (Gain) loss on financial instruments ( 210 ) 133 Deferred taxes 47 34 Changes in operating assets and liabilities: Accounts receivable ( 2,183 ) ( 2,915 ) Prepaid expenses and other current assets ( 2,654 ) ( 172 ) Accounts payable and accrued liabilities ( 1,290 ) 628 Deferred implementation costs ( 859 ) ( 469 ) Deferred revenues 824 ( 384 ) Net cash used in operating activities ( 9,615 ) ( 8,345 ) Cash flows from investing activities: Purchase of marketable securities ( 20,987 ) ( 112,079 ) Proceeds from maturities and redemptions of marketable securities 38,122 — Purchases of property and equipment ( 229 ) ( 282 ) Capitalized software development costs 1 ( 1,141 ) ( 1,206 ) Net cash provided by (used in) investing activities 15,765 ( 113,567 ) Cash flows from financing activities: Principal payments on debt — ( 313 ) Payments for taxes related to net settlement of equity awards ( 1,984 ) — Proceeds from stock option exercises 1,416 936 Net cash (used in) provided by financing activities ( 568 ) 623 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 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. 4 ALKAMI TECHNOLOGY, INC. Notes to the Unaudited Condensed Consolidated Financial Statements (In thousands, except share and per share data) (Unaudited) Note 1. Organization Description of Business Alkami Technology, Inc. (the “Company”) is a cloud-based digital banking solutions provider. The Company inspires and empowers community, regional and super-regional financial institutions (“FIs”) to compete with large, technologically advanced and well-resourced banks in the United States. The Company’s solution, the Alkami Platform, allows FIs to onboard and engage new users, accelerate revenues and meaningfully improve operational efficiency, all with the support of a proprietary, true cloud-based, multi-tenant architecture. The Company cultivates deep relationships with its clients through long-term, subscription-based contractual arrangements, aligning its growth with its clients’ success and generating an attractive unit economic model. The Company was incorporated in Delaware in August 2011, and its principal offices are located in Plano, Texas. Note 2. Summary of Significant Accounting Policies The accompanying financial statements reflect the application of significant accounting policies as described below. Basis of Presentation and Consolidation The interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All intercompany accounts and transactions are eliminated. In the Company's opinion, the accompanying interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Certain information and disclosures normally included in the notes to the annual consolidated financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the SEC. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 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 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. 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 The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions include determining the timing and amount of revenue recognition, recoverability and amortization period related to costs to obtain and fulfill contracts, deferred implementation costs, revaluation of contingent consideration, and business combinations. 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 5 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 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. (“Segmint”). See Note 3 for further information. March 31, December 31, (in thousands) 2023 2022 Cash and cash equivalents $ 114,287 $ 108,720 Restricted cash included in Prepaid expenses and other current assets 3,632 3,617 Total cash and cash equivalents and restricted cash $ 117,919 $ 112,337 Capitalized Software Development Costs Software development costs relate primarily to software coding, systems interfaces, and testing of the Company’s proprietary systems and are accounted for in accordance with ASC 350-40, Internal Use Software. Internal software development costs are capitalized from the time the internal use software is in the application development stage until the software is ready for use. Business analysis, system evaluation, and software maintenance costs are expensed as incurred. The capitalized software development costs are reported in property and equipment, net, in the condensed consolidated balance sheets. The Company had $ 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 Client contracts under which revenues have been recognized while the Company is not yet able to invoice results in contract assets. Generally, contract assets arise as a result of reallocating revenues when discounts are more heavily weighted in the early years of a multi-year contract or the client contract has substantive minimum fees that escalate over the term of the contract. Contract assets totaled $ 0.7 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 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. Note 3. Business Combination 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 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 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. Pursuant to the terms and conditions set forth in the purchase agreement, the earn-out amount payable, if any, to the former owners, will be a maximum of $ 7.5 million and $ 17.5 million for the First Earn-Out Period and Second Earn-Out Period, respectively, contingent on achievement of certain revenue milestones. In certain circumstances within both Earn-Out Periods, the earn-out amounts are payable in a mix of cash and shares (based on a reference price of $ 35 and limited to $ 20 million in earn-out shares) of the Company’s common stock, subject to the election of the former owners. Earn-out amounts, if any, would be payable no later than 170 days after the end of each Earn-Out Period. The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets. The fair value of the contingent earn-out 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 6 operations. 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 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. Segmint Inc. On April 25, 2022, the Company consummated its previously announced merger with Segmint pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), dated March 25, 2022, with Segmint surviving as a wholly owned subsidiary of the Company. Segmint operates a marketing analytics and messaging delivery platform with patented software that enables financial institutions and merchants to understand and leverage data, interact with customers and measure results. The aggregate consideration paid in exchange for all of the outstanding equity interests of Segmint was approximately $ 135.0 million (the "Merger Consideration"). 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 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 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 Trade accounts receivables 1,788 7 1,795 Other current assets 323 ( 8 ) 315 Property and equipment 35 — 35 Goodwill 99,310 649 99,959 Intangible assets 35,400 1,100 36,500 Total assets acquired $ 136,856 $ 2,349 $ 139,205 Accounts payable $ 768 $ ( 282 ) $ 486 Accrued liabilities 188 371 559 Deferred revenues, current 145 — 145 Deferred tax liability — 2,350 2,350 Other non-current liabilities 625 — 625 Total liabilities assumed 1,726 2,439 4,165 Net assets acquired $ 135,130 $ ( 90 ) $ 135,040 Less cash acquired — ( 601 ) ( 601 ) Total cash consideration for acquisition, less cash acquired $ 135,130 $ ( 691 ) $ 134,439 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: Weighted-Average Amortization Period Total (in years) (in thousands) Customer relationships 15 $ 15,200 Developed technology 5 20,600 Trade names 10 700 Total identifiable intangible assets $ 36,500 Goodwill resulted from the acquisition as it is intended to augment and diversify the Company’s single reportable segment and provide a complimentary solution to its existing platform offering. The Company accounted for the acquisition as a business combination. As a result of the acquisition of the stock of Segmint, the goodwill is not deductible for tax purposes. 7 Note 4. Property and Equipment, Net 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 $ 8,656 $ 7,253 Computers and equipment 3 years 5,740 5,606 Furniture and fixtures 5 years 3,988 3,986 Leasehold improvements 3 to 10 years 11,715 11,715 $ 30,099 $ 28,560 Less: accumulated depreciation and amortization ( 15,885 ) ( 14,999 ) Property and equipment, net $ 14,214 $ 13,561 Note 5. 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. Subscription revenues are generally recognized as revenue over the term of the contract as a series of distinct SaaS services bundled into a single performance obligation. Clients are usually charged a one-time, upfront implementation fee and recurring annual and monthly access fees for the use of the online digital relationship banking solution. Implementation and integration of the digital banking platform is complex, and the Company has determined that the one-time, upfront services do not transfer a promised service to the client. As these services are not distinct, they are bundled into the SaaS series of services, and the associated fees are recognized on a straight-line basis over the subscription term. Other services includes professional services and custom development. The following table disaggregates the Company's revenue by major source for the three months ended March 31, 2023 and 2022: Three months ended March 31, (in thousands) 2023 2022 SaaS subscription services $ 57,519 $ 42,809 Implementation services 1,670 1,577 Other services 807 404 Total revenues $ 59,996 $ 44,790 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. This estimate does not include estimated consideration for excess user and transaction processing fees that the Company expects to earn under its subscription contracts. Deferred Cost Recognition The Company capitalized $ 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 $ 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 months ended March 31, 2023 and 2022. 8 Note 6. Accounts Receivable Accounts receivable includes the following amounts at March 31, 2023 and December 31, 2022: March 31, December 31, (in thousands) 2023 2022 Trade accounts receivable $ 25,067 $ 21,665 Unbilled receivables 3,912 4,621 Other receivables 278 747 Total receivables 29,257 27,033 Allowance for credit losses ( 459 ) ( 467 ) Reserve for estimated credits ( 369 ) ( 320 ) $ 28,429 $ 26,246 Note 7. Accrued Liabilities Accrued liabilities consisted of the following at March 31, 2023 and December 31, 2022: March 31, December 31, (in thousands) 2023 2022 Bonus accrual $ 3,793 $ 6,199 Accrued vendor purchases 294 1,496 Commissions accrual 428 2,280 Accrued hosting services 2,332 930 Client refund liability 317 279 Accrued consulting and professional fees 502 187 Accrued tax liabilities 1,185 1,147 MK and Segmint acquisition holdback provision 3,632 3,618 ESPP liability 2,165 717 Other accrued liabilities 7,072 4,790 Total accrued liabilities $ 21,720 $ 21,643 Note 8. Debt On April 29, 2022, the Company entered into an amended and restated credit agreement with Silicon Valley Bank, Comerica Bank, and Canadian Imperial Bank of Commerce (the “Amended Credit Agreement”). The Amended Credit Agreement amends and restates the prior credit facility provided by Silicon Valley Bank and KeyBank National Association (“the Original Credit Agreement”). The Amended Credit Agreement matures on April 29, 2025. The Amended Credit Agreement includes the following, among other features: • Revolving Facility: The Amended Credit Agreement provides $ 40.0 million in aggregate commitments for secured revolving loans (“Amended Revolving Facility”), and there were no outstanding borrowing as of March 31, 2023. • Term Loan: A term loan of $ 85.0 million (the “Amended Term Loan”) was borrowed on the closing date of the Amended Credit Agreement. The additional proceeds received from the Amended Term Loan were used to replenish cash used to fund the acquisition of Segmint, which closed on April 25, 2022. • Accordion Feature: The Amended Credit Agreement also permits the Company, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $ 50.0 million, 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. Principal payments on the Amended Term Loan are due in quarterly installments equal to an initial amount of approximately $ 1.1 million, beginning on June 30, 2023 and continuing through March 31, 2024, and increasing to approximately $ 2.1 million beginning on June 30, 2024 through the Amended Credit Agreement maturity date. Once repaid or prepaid, the Amended Term Loan may not be re-borrowed. Debt issuance costs paid for the execution of the Amended Credit Facility were $ 0.9 million, of which $ 0.1 million was included in prepaid expenses and other current assets and $ 0.2 million was included in other assets on the condensed consolidated balance sheets. Borrowings under the Amended Credit Agreement bear interest at a variable rate based upon the Secured Overnight Financing Rate (“SOFR”) plus a margin of 3.00 % to 3.50 % per annum depending on the applicable recurring revenue leverage ratio. If the SOFR rate is ever less than 0 %, then the SOFR rate shall be deemed to be 0 %. The Amended Credit Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default. The Company is required to pay a commitment fee of 0.25 % per annum on the undrawn portion available under the Amended Revolving Facility, and variable fees on outstanding letters of credit. The Company has a standby letter of credit in the amount of $ 0.3 million, which serves as security under the lease relating to the Company’s office space that expires in 2028. Obligations under the Amended Credit Agreement are guaranteed by the Company’s subsidiaries and secured by all or substantially all of the assets of the Company and its subsidiaries pursuant to an Amended and Restated Guarantee and Collateral Agreement executed contemporaneously with the Amended Credit Agreement. 9 The Amended Credit Agreement contains customary affirmative and negative covenants, as well as (i) an annual recurring revenue growth covenant requiring the loan parties to have recurring revenues in any four consecutive fiscal quarter period in an amount that is 10 % greater than the recurring revenues for the corresponding four consecutive quarter period in the previous year and (ii) a liquidity (defined as the aggregate amount of cash in bank accounts subject to a control agreement plus availability under the Revolving Facility) covenant, requiring the loan parties to have liquidity, tested on the last day of each calendar month, of $ 15.0 million or more. The Amended Credit Agreement also contains customary events of default, which if they occur, could result in the termination of commitments under the Amended Credit Agreement, the declaration that all outstanding loans are immediately due and payable in whole or in part, and the requirement to maintain cash collateral deposits in respect of outstanding letters of credit. The Company was in compliance with all covenants as of 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. See Note 2. Concentration of Credit Risk for additional information. Long-term Debt 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 Less unamortized debt issuance costs ( 375 ) ( 420 ) Net amount 84,625 84,580 Less current maturities of long-term debt ( 4,250 ) ( 3,188 ) Long-term portion $ 80,375 $ 81,392 Maturities of long-term debt outstanding as of March 31, 2023, are summarized as follows (in thousands): 2023 3,188 2024 7,438 2025 74,374 Thereafter — Total $ 85,000 Note 9. Stockholders' Equity Equity Compensation Plans Stock-based compensation expense was included in the condensed consolidated statements of operations as follows: Three months ended March 31, (in thousands) 2023 2022 Cost of revenues $ 1,146 $ 978 Research and development 3,775 1,884 Sales and marketing 1,590 750 General and administrative 4,733 6,162 Total stock-based compensation expenses $ 11,244 $ 9,774 Note 10. Income Taxes 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. The Company recognizes deferred tax assets and liabilities based on the estimated future tax effects of temporary differences between the financial statement basis and tax basis of assets and liabilities given the provisions of enacted tax law. Management reviews deferred tax assets to assess their future realization by considering all available evidence, both positive and negative, to determine whether a valuation allowance is needed for all or some portion of the deferred tax assets, using a “more likely than not” standard. The assessment considers, among other matters: historical losses, a forecast of future taxable income, the duration of statutory carryback and carryforward periods, and ongoing prudent and feasible tax planning strategies. As a result, the Company has established a valuation allowance against most of its deferred tax assets as realization is not 10 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. Note 11. Fair Value of Financial Instruments 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. The carrying value of long-term debt approximates its fair value due to the variable interest rate. Cash equivalents include amounts held in money market accounts that are measured at fair value using observable market prices. 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: Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2. Significant other inputs that are directly or indirectly observable in the marketplace. Level 3. Significant unobservable inputs which are supported by little or no market activity. The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. The following tables summarize the Company’s financial assets measured at fair value as of March 31, 2023 and December 31, 2022 and indicate the fair value hierarchy of the valuation: Fair Value at Reporting Date Using (In thousands) March 31, 2023 Level 1 Level 2 Level 3 Assets: Cash equivalents (1) $ 67,089 $ 67,089 $ — $ — Marketable securities: Corporate bonds 3,024 — 3,024 — Commercial paper 36,458 — 36,458 — U.S. government-sponsored enterprise securities 13,255 — 13,255 — U.S. Treasury debt securities 15,881 15,881 — — International debt securities 2,489 2,489 — — Total marketable securities 71,107 18,370 52,737 — Total Assets $ 138,196 $ 85,459 $ 52,737 $ — (1) Includes cash sweep account, money market account, and money market funds that have investments primarily in U.S. Government Agency debt, U.S. Treasury debt, U.S. Treasury Repurchase Agreements, U.S. Government Agency Repurchase Agreements, and corporate bonds that have a maturity of three months or less from the original acquisition date. Fair Value at Reporting Date Using (In thousands) December 31, 2022 Level 1 Level 2 Level 3 Assets: Cash equivalents (1) $ 28,173 $ 28,173 $ — $ — Marketable securities: Corporate bonds 26,037 — 26,037 — Commercial paper 36,407 — 36,407 — U.S. 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 $ — (1) Includes cash sweep account, money market account, and money market funds that have investments primarily in U.S. Government Agency debt, U.S. Treasury debt, U.S. Treasury Repurchase Agreements, U.S. Government Agency Repurchase Agreements, and corporate bonds that have a maturity of three months or less from the original acquisition date. Note 12. Earnings Per Share 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 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 11 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 ) Weighted-average shares of common stock outstanding - basic and diluted 92,397,341 90,208,871 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, 2023 2022 Stock options 5,781,937 7,423,122 RSUs 15,317,477 4,572,703 ESPP 190,971 167,842 Total anti-dilutive common share equivalents 21,290,385 12,163,667 Note 13. Commitments and Contingencies Legal Proceedings The Company may become party to various legal actions during the ordinary course of business. Defending such proceedings is costly and can impose a significant burden on management and employees, it may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained. In addition, the Company’s industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights. Companies in its industry are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Furthermore, client agreements typically require the Company to indemnify clients against liabilities incurred in connection with claims alleging its solutions infringe the intellectual property rights of a third party. From time to time, the Company has been involved in disputes related to patent and other intellectual property rights of third parties, none of which has resulted in material liabilities. The Company expects these types of disputes may continue to arise in the future. Based upon present information, the Company believes that its liability, if any, arising from such pending legal proceedings, asserted legal claims and known potential legal claims which are likely to be asserted, is not reasonably likely to be material to the Company’s financial position, results of operations, or cash flows, taking into account established accruals for estimated liabilities. Note 14. Leases 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, 2023 2022 Operating lease expense $ 784 $ 784 Short-term lease expense and other (1) 318 326 Total lease expense $ 1,102 $ 1,110 (1) Other lease expense includes variable lease expense and sublease income. 12 Supplemental Cash Flow Information Three months ended March 31, Cash flow information (in thousands) 2023 2022 Cash paid for operating lease liabilities $ 938 $ 922 The future maturities of operating lease liabilities are as follows: (in thousands) March 31, 2023 2023 (nine months remaining) 2,835 2024 3,835 2025 3,898 2026 3,961 2027 4,024 Thereafter 2,712 Total minimum lease payments $ 21,265 Less: present value discount ( 2,539 ) Total lease liability balance $ 18,726 Note 15. Goodwill and Other Intangibles Goodwill and intangible assets deemed to have an indefinite life are not amortized, but are reviewed annually for impairment of value or when indicators of a potential impairment are present. As part of the Company’s business planning cycle, the Company performs an annual goodwill impairment test in the fourth quarter of the fiscal year. There were no indications of impairment of goodwill noted for the three months ended 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 Finite-lived: Customer Relationships $ 20,470 $ ( 1,797 ) $ 18,673 Developed Technology 27,700 ( 6,137 ) 21,563 Tradenames 750 ( 114 ) 636 Subtotal amortizable intangible assets 48,920 ( 8,048 ) 40,872 Website domain name 25 — 25 Total intangible assets $ 48,945 $ ( 8,048 ) $ 40,897 As of December 31, 2022 (In thousands) Carrying Value Accumulated Amortization Net Carrying Value Finite-lived: Customer Relationships $ 20,470 $ ( 1,455 ) $ 19,015 Developed Technology 27,700 ( 4,800 ) 22,900 Tradenames 750 ( 97 ) 653 Subtotal amortizable intangible assets 48,920 ( 6,352 ) 42,568 Website domain name 25 — 25 Total intangible assets $ 48,945 $ ( 6,352 ) $ 42,593 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. 13 The following table shows the estimated annual amortization expense of the definite-lived intangible assets for the next five years and thereafter (in thousands): 2023 (remaining nine months) 5,090 2024 6,786 2025 6,786 2026 6,554 2027 3,194 Thereafter 12,462 $ 40,872 14