What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-24 · 111 added, 108 removed, 298 unchanged (42% of the section changed)

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We inspire and empower community, regional and super-regional financial institutions (“FIs”) to compete with large, technologically advanced, and well-resourced banks in the United States.

Our 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.

Our solution, the Alkami Digital Banking 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.

We cultivate deep relationships with our clients through long-term, subscription-based contractual arrangements, aligning our growth with our clients’ success and generating an attractive unit economic model.

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

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

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

In April 2022, we acquired Segmint, a leading cloud-based financial data analytics and transaction data cleansing provider.

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

Due to our architecture, adding products through our single code base is fast, simple, and cost-effective.

The key differentiators of the Alkami Platform include:

The key differentiators of the Alkami Digital Banking Platform include:

• User experience :

Personalized and seamless digital experience across user interaction points, including mobile, chat and SMS, establishing durable connections between FIs and their customers.

Personalized and seamless digital experience across user interaction points, including desktop, mobile, chat and SMS, establishing durable connections between FIs and their customers.

• Integrations :

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Data synchronized and stored from back-office systems and third-party fintech solutions and synthesized into meaningful insights, targeted content, and other areas of monetization.

The Alkami Platform offers an end-to-end set of software products.

Our typical relationship with an FI begins with a set of core functional components, which can extend over time to include a rounded suite of products across account opening, card experience, client service, extensibility, financial wellness, security and fraud protection, marketing and analytics and money movement.

The Alkami Digital Banking Platform offers an end-to-end set of software products.

Our typical relationship with an FI begins with a set of core functional components, which can extend over time to include a rounded suite of products across account opening and loan origination, card experience, client service, extensibility, financial wellness, security and fraud protection, marketing and analytics and money movement.

We primarily go to market through an internal sales force.

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

We derive our revenues predominantly from multi-year contracts for the Alkami Platform that are based on an average contract life of approximately 70 months as of December 31, 2022.

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

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

We derive our Alkami Digital Banking Platform revenues almost entirely from multi-year contracts that are based on an average contract life of approximately 70 months as of December 31, 2023.

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

Our pricing is tiered, with per-registered-user discounts applied as clients achieve higher levels of customer penetration, incentivizing our clients to internally market and promote digital engagement.

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Recent Developments

Merger with Segmint .

On April 25, 2022, the Company consummated its previously announced merger with Segmint, pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), dated March 25, 2022, with Segmint surviving as a wholly owned subsidiary of the Company.

Segmint operates a marketing analytics and messaging delivery platform with patented software that enables financial institutions and merchants to understand and leverage data, interact with customers and measure results.

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

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

Banking and Regulatory Environment Developments.

On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as receiver.

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

Additionally, our overall liquidity and financing has not been impacted.

During the periods presented, we did not experience any losses on our deposits of cash, cash equivalents or marketable securities.

Amendment to Office Lease.

On September 5, 2023, the Company entered into a Sixth Amendment to the Amended and Restated Office Lease, which, among other things, reduces the leased space in Plano, Texas from approximately 125,468 square feet to 83,939 square feet, effective December 31, 2023, and also extends the term for the remaining reduced leased space to August 31, 2033.

Factors Affecting our Operating Results

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

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

As of December 31, 2023, we served 236 FIs through the Alkami Digital Banking Platform and over 650 clients when including unique clients only subscribing to one or a combination of ACH Alert, MK or Segmint products.

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

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Our ability to maintain a differentiated platform and offering is dependent upon our pace of innovation.

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

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

We remain committed to investing in our platform, notably through our research and development spend, which was 32.0% of our revenues for the year ended December 31, 2023.

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Components of Results of Operations

Our client relationships are predominantly based on multi-year contracts for the Alkami Platform that have had an average contract life of 70 months as of December 31, 2022.

Our client relationships are predominantly based on multi-year contracts for the Alkami Digital Banking Platform that have had an average contract life of approximately 70 months as of December 31, 2023.

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

For each client, we invoice monthly a contractual minimum fee for each licensed solution.

In addition, we invoice monthly an additional subscription fee for the number of registered users using each solution and the number of bill-pay and certain other transactions those registered users conduct through our digital banking platform in excess of their contractual minimum commitments.

Our pricing is tiered, with per-registered-user discounts applied as clients achieve higher levels of customer penetration, incentivizing our clients to internally market our products and promote digital engagement.

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Occasionally, our clients request custom development and other professional services, which we provide.

These are generally one-time

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

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

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

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Cost of revenues is comprised primarily of salaries and other personnel-related costs, including employee benefits, bonuses, stock-based compensation, travel, and related costs for employees supporting our SaaS subscription, implementation and other services.

This includes the costs of our implementation, client support and client success teams, development personnel responsible for maintaining and releasing updates to our platform, as well as third-party cloud-based hosting services.

This includes the costs of our implementation, client support, and development personnel responsible for maintaining and releasing updates to our platform, as well as third-party cloud-based hosting services.

Cost of revenues also includes the direct costs of bill-pay services and other third-party intellectual property included in our solutions, the amortization of acquired technology and depreciation.

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Other costs not directly recoverable from future revenues are expensed in the period incurred.

We intend to continue to increase our investments in our implementation, client support and client success teams and technology infrastructure to serve our clients and support our growth.

We intend to continue to increase our investments in our implementation, client support teams and technology infrastructure to serve our clients and support our growth.

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

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The major components of cost of revenues represented the following percentages of revenues for the year ended December 31, 2023:

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

third-party hosting services (7.5%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (17.4%), our implementation and client support teams (12.7%), our development team responsible for maintaining and releasing updates to our platform (3.3%), stock-based compensation (2.1%), amortization (2.5%), and depreciation (0.1%).

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

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

third-party hosting services (7.8%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (16.3%), our implementation and client support teams (14.8%), our development team responsible for maintaining and releasing updates to our platform (3.6%), stock-based compensation (2.1%), amortization (2.2%), and depreciation (0.1%).

Operating Expenses

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

We expect research and development costs to increase as we expand our platform with new features and functionality as well as enhance the existing Alkami Platform.

We expect research and development costs to increase as we expand our platform with new features and functionality as well as enhance the existing Alkami Digital Banking Platform.

Sales and Marketing.

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

Sales and marketing expenses consist primarily of personnel-related costs of our sales, marketing, and our client success employees, including salaries, bonuses, commissions, other incentive-related compensation, employee benefits and stock-based compensation.

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

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

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

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

Amortization of Acquired Intangibles.

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

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

Non-operating Income (Expense)

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

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

Provision (Benefit) for Income Taxes

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

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

Results of Operations

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Interest expense (7,384) (3,850) (1,186)

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

Gain (loss) on financial instruments 534 (200) (3,035)

Loss on extinguishment of debt (409) (18) —

Loss before income taxes

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Provision (benefit) for income taxes 44 (461) 172

Loss on financial instruments 200 3,035 15,818

Interest expense, net 1,172 699 434

(Gain) loss on financial instruments (534) 200 3,035

Interest (income) expense, net (711) 1,154 699

Depreciation and amortization 10,631 8,075 3,443

Stock-based compensation expense 51,231 44,592 14,535

Expenses related to tender offer — — 6,091

Acquisition-related expenses, net (1)

263 (12,529) 2,983

Loss on extinguishment of debt 409 18 —

Adjusted EBITDA (2)

$ (1,580) $ (17,551) $ (21,955)

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

In the year ended December 31, 2022, these expenses were offset by the $15.5 million gain on contingent consideration related to the purchase of MK.

(1) Acquisition-related expenses, net, for the year ended December 31, 2023 includes expenses associated with the acquisition of Segmint, primarily related to legal, consulting, and professional fees.

Acquisition-related expenses, net, for the year ended December 31, 2022 include the accrual of deferred compensation due to the former owner of the acquired business, ACH Alert, in addition to acquisition related-expenses associated with the acquisition of MK and Segmint, primarily related to legal, consulting, and professional fees.

These expenses are offset by the $15.5 million gain from contingent consideration related to the purchase of MK.

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

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

loss on financial instruments;

interest expense, net;

(gain) loss on financial instruments;

interest (income) expense, net;

depreciation and amortization;

stock-based compensation expense;

expenses related to tender offer;

and acquisition-related expenses, net.

acquisition-related expenses, net;

and loss on extinguishment of debt.

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

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Annual Recurring Revenue (ARR).

We calculate ARR by aggregating annualized recurring revenue related to SaaS subscription services recognized in the last month of the reporting period as well as the next 12 months of expected implementation services revenues for all clients on the platform in the last month of the reporting period.

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

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We price our digital banking platform based on the number of registered users, so as the number of registered users of our digital banking platform increases, our ARR grows.

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

We had 17.5 million, 14.5 million, and 12.4 million registered users as of December 31, 2023, 2022, and 2021, respectively, representing an increase of 3.0 million registered users, or 20.4%, from 2022 to 2023 and an increase of 2.2 million registered users, or 17.7%, from 2021 to 2022.

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Revenues $ 264,831 $ 204,270 $ 60,561 29.6 %

Annual Recurring Revenue (ARR) $ 291,049 $ 226,096

Registered Users 17,502 14,536

Revenue per Registered User (RPU) $ 16.63 $ 15.55

Revenues increased $60.6 million, or 29.6%, for 2023 compared to 2022.

The increase in revenues was primarily due to registered user growth of 2.2 million, comprised of 1.1 million in registered user growth from existing clients (net of attrition) and 1.1 million in registered users from new clients implemented through our digital banking platform (contractual minimums).

The increase in revenues was primarily due to registered user growth of 3.0 million, comprised of 1.5 million in registered user growth from existing clients and 1.5 million in registered users from new clients implemented through our digital banking platform (contractual minimums).

In addition, increased revenues were due to RPU growth of 6.9%.

RPU growth was primarily driven by cross-sell activity to existing clients, higher average RPU of new clients implemented in 2023 on our digital banking platform compared to aggregate RPU and the subscription revenue contribution from the Segmint acquisition of $6.2 million.

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

than the aggregate RPU as of December 31, 2022.

The average RPU of users from new clients implemented on our digital platform in the last year of $17.94 as of December 31, 2023, is 8.0% higher than the aggregate RPU as of December 31, 2023.

Cost of Revenues and Gross Margin

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The increase in cost of revenues was primarily driven by a $5.7 million increase in personnel-related costs (which includes stock-based compensation of $1.1 million) resulting from headcount increases supporting our growth in the following teams:

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

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

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

client implementation, site reliability engineering and client support, as well as $13.0 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform, $3.9 million in incremental hosting costs incurred from an increase in revenues derived from existing and new client growth, $1.4 million of higher amortization of intangibles, primarily related to the acquisition of Segmint in April 2022, $0.1 million in higher computer hardware and software costs, and higher miscellaneous other costs of $0.7 million.

Operating Expenses

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Research and Development

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

Research and development expenses increased $15.3 million, or 22.1%, for 2023 compared to 2022, primarily due to a $15.7 million increase in personnel-related costs (which includes stock-based compensation of $4.6 million) resulting from headcount growth, $1.7 million in higher hosting costs, and higher miscellaneous other costs of $0.2 million.

These expenses were partially offset by an increase of $1.8 million in capitalized development costs and a decrease of $0.5 million in consulting costs.

Sales and Marketing

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The increase was primarily due to a $9.7 million increase in personnel-related costs (which includes stock-based compensation of $3.2 million) resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $2.7 million of additional costs related to the Segmint acquisition (which includes stock-based compensation of $0.4 million), $0.5 million in higher consulting costs, $0.4 million in higher travel costs, and $1.0 million in higher costs related to industry conferences and trade shows, as we return to pre-COVID-19 pandemic sales activities, such as our in-person client conference, Co:Lab.

In addition, we incurred $0.9 million in higher costs related to industry conferences and trade shows, including enhanced client experiences at our in-person client conference, Co:lab, $0.6 million higher travel costs for the sales team, and higher miscellaneous other costs of $0.5 million.

General and Administrative

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

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

General and administrative expenses increased $1.7 million, or 2.3%, for 2023 compared to 2022, the increase was primarily due to a $1.9 million increase in personnel-costs (which includes lower stock-based compensation of $2.3 million) resulting from headcount growth, and higher software costs of $1.1 million.

These expenses are partially offset by $0.6 million lower insurance costs, a gain on lease modification of $0.4 million, and $0.3 million lower miscellaneous other costs.

Acquisition-Related Expenses, Net

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

Acquisition-related expenses, net increased $12.8 million for the year ended December 31, 2023 compared to 2022, primarily due to the $15.5 million gain from revaluation of contingent consideration related to the purchase of MK included for the year ended December 31, 2022, partially offset by $3.0 million accrual of deferred compensation due to the former owner of the acquired business, ACH Alert, in addition to acquisition related-expenses associated with the acquisition of MK and Segmint, primarily related to legal, consulting, and professional fees for the year ended December 31, 2022.

Amortization of Acquired Intangibles

Amortization of acquired intangibles increased $0.8 million for the year ended December 31, 2022 compared to 2021, primarily due to additional amortization of intangible assets related to the acquisitions of MK in September 2021 and Segmint in April 2022.

Amortization of acquired intangibles increased $0.3 million for the year ended December 31, 2023 compared to 2022, primarily due to additional amortization of intangible assets related to the acquisitions of Segmint in April 2022.

Non-Operating Income (Expense)

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

Non-operating income increased $2.2 million for 2023 compared to 2022, primarily due to higher net interest income of $1.9 million and an increase in gain on financial instruments of $0.7 million, partially offset by a $0.4 million increase in loss on extinguishment of debt.

Provision (Benefit) for Income Taxes

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

The Company recorded a provision for income taxes of less than $0.1 million and a benefit for income taxes of $0.5 million, resulting in an effective tax rate of (0.1)% and 0.8% for 2023 and 2022, respectively.

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

This was offset by a $2.1 million deferred tax benefit attributable to the partial release of the Company’s pre-existing valuation allowance related to the Segmint business combination, recorded in the year ended December 31, 2022.

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

This was offset by a $1.8 million of deferred tax expense related to the net operating loss carryforwards subject to Section 382 limitation., recorded in the year ended December 31, 2023.

The difference in the effective tax rate for the year ended December 31, 2023 as compared to 2022 is primarily the result of deferred tax expense related to the net operating loss carryforwards subject to Section 382 limitation and the impact of tax expense (benefits) related to stock-based compensation recorded in each of the respective periods.

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

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

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

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

Any equity financing we may undertake could be dilutive to our existing stockholders, and any additional debt financing we may undertake could require debt service and financial and operational requirements that could adversely affect our business.

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

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

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

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Net cash used in operating activities $ (17,502) $ (38,045)

Net cash used in investing activities (224,008) (22,023)

Net cash provided by financing activities 61,179 192,273

Net cash provided by (used in) investing activities $ 33,911 $ (223,751)

Net cash (used in) provided by financing activities $ (87,819) $ 61,179

Net Cash Used in Operating Activities

During the year ended December 31, 2023, net cash used in operating activities was $17.5 million, which consisted of a net loss of $62.9 million, adjusted by non-cash charges of $58.2 million and net cash outflows from the change in net operating assets and liabilities of $12.8 million.

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

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

The non-cash charges were primarily comprised of depreciation and amortization expense of $10.6 million, stock-based compensation expense of $51.2 million, partially offset by accrued interest on marketable securities of $3.2 million, and other net activity of $0.4 million.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to an $7.7 million increase in deferred implementation costs and a $9.3 million increase in accounts receivable, partially offset by a $3.6 million increase in deferred revenues, $0.4 million decrease in prepaid expenses and other assets, and a $0.1 million increase in accounts payable and accrued liabilities.

During the year ended December 31, 2022, net cash used in operating activities was $38.0 million, which consisted of a net loss of $58.6 million, adjusted by non-cash charges of $36.5 million and net cash outflows from the change in net operating assets and liabilities of $15.9 million.

The non-cash charges were primarily comprised of a non-operating loss related to the increase in fair value of warrant liabilities of $3.0 million, depreciation and amortization expense of $3.4 million, and stock-based compensation expense of $14.5 million.

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

Net Cash Used in Investing Activities

The non-cash charges were primarily comprised of depreciation and amortization expense of $8.1 million and stock-based compensation expense of $44.6 million, partially offset by a $15.5 million gain from revaluation of contingent consideration and a $0.7 million benefit from deferred taxes.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to an $7.8 million increase in deferred implementation costs, $3.2 million increase in prepaid expenses and other assets, a $4.0 million increase in accounts receivable, and a $1.4 million decrease in accounts payable and accrued liabilities, partially offset by a $0.5 million increase in deferred revenues.

Net Cash Provided by (Used in) Investing Activities

During the year ended December 31, 2023, net cash provided by investing activities was $33.9 million, primarily consisting of $181.0 million in proceeds from sales, maturities and redemptions of marketable securities, partially offset by $140.8 million for the purchase of marketable securities, $5.2 million related to capitalized software development costs, and capital expenditures related to updates for computer and other equipment of $1.1 million.

During the year ended December 31, 2022, net cash used in investing activities was $223.7 million, primarily consisting of $187.2 million for the purchase of marketable securities, $131.8 million related to our acquisition of Segmint, $3.4 million related to capitalized software development costs, and capital expenditures related to updates for computer and other equipment of $1.1 million, partially offset by $99.8 million in proceeds from maturities and redemptions of marketable securities.

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

Net Cash Provided by Financing Activities

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

For the year ended December 31, 2021, net cash provided by financing activities was $192.3 million, which was primarily due to the receipt of proceeds from our IPO of $192.8 million, proceeds of $9.1 million from the exercise of stock options to purchase 5.8 million shares of our common stock, and proceeds from issuances under the ESPP of $3.0 million, partially offset by the cash payment of our Series B dividend of $5.0 million upon the consummation of our IPO, the $4.5 million payment of deferred IPO issuance costs, and the repurchase of shares of our common stock in the amount of $3.5 million.

Net Cash (Used in) Provided by Financing Activities

For the year ended December 31, 2023, net cash used in financing activities was $87.8 million, which was primarily due to $85.0 million of principal payments on term debt, payments for taxes related to net settlement of equity awards of $16.0 million, payment of acquisition related holdback of $3.6 million and debt issuance costs paid of $0.3 million, partially offset by proceeds of $13.0 million from the exercise of stock options to purchase 2.2 million shares of our common stock and proceeds from issuances under the Employee Stock Purchase Plan (“ESPP”) of $4.1 million.

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

Amended Credit Agreement

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

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

The Amended Credit Agreement matures on April 29, 2025.

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

On June 27, 2023, the Company entered into a First Amendment to the Amended Credit Agreement with SVB, Comerica Bank, and Canadian Imperial Bank of Commerce.

The First Amendment provided for Citibank, N.A.

to join as a new lender, increased the amount of the Revolving Facility (as defined below) commitment by $20.0 million and extended the maturity date of the Amended Credit Agreement to April 29, 2026, as well as other changes discussed below.

The Amended Credit Agreement, inclusive of changes established by the First Amendment, 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 December 31, 2022.

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

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

The Amended Credit Agreement provides $60.0 million in aggregate commitments for secured revolving loans (“Revolving Facility”), of which there were no outstanding borrowings as of December 31, 2023.

A term loan of $85.0 million (the “Term Loan”) was borrowed on April 29, 2022, the proceeds of which were used to replenish cash used to fund the acquisition of Segmint, which closed on April 25, 2022.

On December 29, 2023, the Company paid the remaining outstanding principal balance of its term loan of $82.9 million.

The Company recorded a loss on extinguishment of debt of $0.4 million related to the payoff of the term loan which was included in non-operating income (expense) within the consolidated statements of operations.

• Accordion Feature:

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

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

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

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

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

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

The Amended Credit Agreement 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, of which there were no outstanding borrowings as of December 31, 2023.

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

Principal payments on the Term Loan are due in quarterly installments equal to an initial amount of approximately $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 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 consolidated balance sheets.

Debt issuance costs paid for the execution of the First Amendment were $0.3 million, of which $0.1 million was included in prepaid expenses and other current assets and $0.1 million was included in other assets on the consolidated balance sheets.

Upon the payoff of the Term Loan on December 29, 2023, debt issuance costs of $0.4 million were written off and recorded as a loss on extinguishment of debt which was included in non-operating income (expense) within the consolidated statements of operations.

The First Amendment added additional covenants that begin each fiscal quarter ending on or after April 29, 2025 (the “Financial Covenant Trigger Date”).

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

After the Financial Covenant Trigger Date, borrowings under the Amended Credit Agreement bear interest at a variable rate based upon the SOFR plus a margin of 1.50%, 2.00%, 2.50% or 3.00% per annum, depending on the applicable consolidated total leverage ratio.

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

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

Obligations under the Amended Credit Agreement are guaranteed by our subsidiaries and secured by all or substantially all of our assets and our subsidiaries’ assets pursuant to an Amended and Restated Guarantee and Collateral Agreement executed contemporaneously with the Amended Credit Agreement.

The Amended Credit Agreement contains customary affirmative and negative covenants, as well as (i) an annual recurring revenue growth covenant requiring the loan parties to have recurring revenues in any four consecutive fiscal quarter period in an amount that is 10% greater than the recurring revenues for the corresponding four consecutive quarter period in the previous year and (ii) a liquidity (defined as the aggregate amount of cash in bank accounts subject to a control agreement plus availability under the Revolving Facility) covenant, requiring the loan parties to have liquidity, tested on the last day of each calendar month, of $15.0 million or more.

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

The Company is required to pay a commitment fee of 0.25% per annum on the undrawn portion available under the 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 2033.

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.

The Amended Credit Agreement contains customary affirmative and negative covenants.

Before the Financial Covenant Trigger Date, the following covenants are applicable:

(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 $20.0 million or more.

After the Financial Covenant Trigger Date, the existing annual recurring revenue growth and liquidity financial covenants are no longer applicable, and the following covenants take effect:

(i) a consolidated total leverage ratio requiring the ratio, as calculated at the last day of such fiscal quarter for the period of 12 consecutive months then ending, to be less than 3.50:1.00;

and (ii) a consolidated fixed charge ratio requiring the ratio, for any fiscal quarter ending as calculated at the last day of such fiscal quarter for the period of 12 consecutive months then ending, to be more than 1.25:1.00.

The First Amendment also added, applicable beginning June 30, 2023, a free cash flow covenant requiring, as calculated at the last day of such fiscal quarter for the period of 12 consecutive months then ending, free cash flow to be not less than $(75.0) million for the fiscal quarters ended June 30, 2023 and September 30, 2023, respectively, and $(50.0) million for the fiscal quarter ended December 31, 2023 and each fiscal quarter ending thereafter.

Total interest expense, including commitment fees and unused line fees, for the years ended December 31, 2023, 2022, and 2021, was $7.4 million, $3.9 million, and $1.2 million, respectively.

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

In conjunction with closing the Amended Credit Agreement in 2022 and the First Amendment in 2023, we incurred issuance costs of $0.8 million and $0.3 million, respectively, which were deferred and were scheduled to be amortized over the remaining term of the agreement.

Unamortized debt issuance costs totaled $0.3 million, $0.7 million, and $0.1 million as of December 31, 2023, 2022, and 2021, respectively.

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Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

During the periods presented, we did not have, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Contractual Obligations and Commitments

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

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

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

On December 29, 2023, the Company paid the remaining outstanding principal balance of its term loan of $82.9 million.

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

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These services are distinct performance obligations recognized when control of the enhancement is transferred to the client.

Deferred Costs to Obtain Client Contracts

We capitalize certain commissions as incremental costs of obtaining a client contract if we anticipate that the costs will be recoverable under the contract.

Costs include commissions earned by sales teams and leaders due to the execution of client contracts along with associated employer taxes.

Capitalized amounts do not include commissions which are contingent on continued employment over a substantive service period.

Contingent commissions are accrued as liabilities and expensed over the requisite employment service period.

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

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

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

Deferred Implementation Costs

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

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

We begin amortizing deferred implementation costs ratably over the expected period of client benefit once access to our SaaS solution is transferred to the client.

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

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

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

Business Combinations

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

Contingent consideration classified

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

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

Recently Issued Accounting Pronouncements

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Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”).

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

2 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis