What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 110 added, 85 removed, 300 unchanged (39% of the section changed)

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• our limited operating history, our history of operating losses and our ability to use our net operating loss (“NOL”) carryforwards;

• our ability to raise sufficient capital and the resulting dilution and the terms of our Amended Credit Agreement (as defined below);

• our ability to raise sufficient capital and the resulting dilution and the terms of our Second Amended Credit Agreement (as defined below);

• our status as an emerging growth company;

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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 April 2022, we acquired Segmint, Inc.

(“Segmint”), a leading cloud-based financial data analytics and transaction data cleansing provider.

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

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• Integrations :

Scalability and extensibility driven by more than 300 real-time integrations to back-office systems and third-party fintech solutions as of March 31, 2024 , including core systems, payment cards, mortgages, bill pay, electronic documents, money movement, personal financial management and account opening.

Scalability and extensibility driven by more than 300 real-time integrations to back-office systems and third-party fintech solutions as of June 30, 2024 , including core systems, payment cards, mortgages, bill pay, electronic documents, money movement, personal financial management and account opening.

• Deep data capabilities :

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Given the long-term nature of our 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 March 31, 2024.

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 June 30, 2024.

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

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

For the three months ended March 31, 2024 and 2023, our total revenues were $76.1 million and $60.0 million, respectively, representing a growth rate of 26.9% period-over-period.

SaaS subscription revenues, as further described below, represented 95.9% of total revenues for both the three months ended March 31, 2024 and 2023.

We incurred net losses of $11.4 million and $17.0 million for the three months ended March 31, 2024 and 2023, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.

For the three months ended June 30, 2024 and 2023, our total revenues were $82.2 million and $65.8 million, respectively, representing a 24.9% increase period-over-period.

For the six months ended June 30, 2024 and 2023, our total revenues were $158.3 million and $125.8 million, respectively, representing an increase of 25.9% period-over-period.

SaaS subscription revenues, as further described below, represented 95.4% and 95.6% of total revenues for the three and six months ended June 30, 2024, respectively, and 93.0% and 94.4% of total revenues for the three and six months ended June 30, 2023, respectively.

We incurred net losses of $12.3 million and $23.8 million for the three and six months ended June 30, 2024, respectively, and net losses of $17.8 million and $34.7 million for the three and six months ended June 30, 2023, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.

Factors Affecting our Operating Results

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

As of March 31, 2024, we served 244 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.

As of June 30, 2024, we served 254 FIs through the Alkami Digital Banking Platform and over 700 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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Once we onboard a client, our ability to help drive incremental client customer digital adoption translates to additional revenues with very limited additional spend.

Our FI clients are incentivized to market and encourage digital account sign-up based on identifiable improvement in customer engagement as well as

discounts received based on certain levels of customer penetration.

Our FI clients are incentivized to market and encourage digital account sign-up based on identifiable improvement in customer engagement, as well as discounts received based on certain levels of customer penetration.

We expect to continue to support digital adoption by client customers through continued investments in new products and platform enhancements.

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

Our platform model with 300 integrations as of March 31, 2024 enables us to deliver thousands of configurations aligned with the digital platform strategies adopted by our clients.

Our platform model with 300 integrations as of June 30, 2024 enables us to deliver thousands of configurations aligned with the digital platform strategies adopted by our clients.

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

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

We had 6 client renewals for the three months ended March 31, 2024.

We had six and 12 client renewals for the three and six months ended June 30, 2024, respectively.

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

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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 30.0% and 34.3% of our revenues for the three months ended March 31, 2024 and 2023, respectively.

We remain committed to investing in our platform, notably through our research and development spend, which was 29.1% and 29.5% of our revenues for the three and six months ended June 30, 2024, respectively.

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

Components of Results of Operations

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 March 31, 2024.

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 June 30, 2024.

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

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

The following disaggregates our revenues for the three months ended March 31, 2024 and 2023 by major source:

Three months ended March 31,

The following table disaggregates our revenues for the three and six months ended June 30, 2024 and 2023 by major source:

Three months ended June 30,

Six months ended June 30,

(in thousands) 2024 2023 2024 2023

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

Our gross margin for the three months ended March 31, 2024 and 2023 was 57.8% and 53.6%, respectively.

The major components of cost of revenues represented the following percentages of revenues for the three months ended March 31, 2024:

Our gross margin for the three and six months ended June 30, 2024 was 59.4% and 58.6%, respectively, and 53.9% and 53.8% for the three and six months ended June 30, 2023, respectively.

The major components of cost of revenues represented the following percentages of revenues for the three months ended June 30, 2024:

third-party hosting services (5.9%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (17.5%), our implementation and client support teams (9.7%), our development team responsible for maintaining and releasing updates to our platform (3.6%), amortization (2.2%), and stock-based compensation (1.6%).

The major components of cost of revenues represented the following percentages of revenues for the three months ended March 31, 2023:

The major components of cost of revenues represented the following percentages of revenues for the three months ended June 30, 2023:

third-party hosting services (7.8%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (17.3%), our implementation and client support teams (13.0%), our development team responsible for maintaining and releasing updates to our platform (3.1%), amortization (2.5%), stock-based compensation (2.3%), and depreciation (0.1%).

The major components of cost of revenues represented the following percentages of revenues for the six months ended June 30, 2024:

third-party hosting services (6.2%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (18.0%), our implementation and client support teams (9.6%), our development team responsible for maintaining and releasing updates to our platform (3.8%), amortization (2.2%), and stock-based compensation (1.6%).

The major components of cost of revenues represented the following percentages of revenues for the six months ended June 30, 2023:

third-party hosting services (7.7%), the direct costs of bill-pay and other third-party intellectual property included in our solutions (17.4%), our implementation and client support teams (13.2%), our development team responsible for maintaining and releasing updates to our platform (3.1%), amortization (2.6%), stock-based compensation (2.1%), and depreciation (0.1%).

Operating Expenses

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

The following table presents our selected consolidated statements of operations data for the three months ended March 31, 2024 and 2023.

Three months ended March 31,

The following table presents our selected condensed consolidated statements of operations data for the three and six months ended June 30, 2024 and 2023.

Three months ended June 30,

Six months ended June 30,

(in thousands) 2024 2023 2024 2023

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Interest expense (74) (1,826) (147) (3,583)

Gain on financial instruments 112 210

(Loss) gain on financial instruments (112) 10 — 220

Loss before income taxes

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$ (12,317) $ (17,761) $ (23,750) $ (34,724)

(1) Includes amortization of acquired technology of $1.3 million for both the three months ended March 31, 2024 and 2023.

(1) Includes amortization of acquired technology of $1.4 million for both the three months ended June 30, 2024 and 2023, and $2.7 million for both the six months ended June 30, 2024 and 2023.

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

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(in thousands) 2024 2023 2024 2023

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

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

(in thousands) 2024 2023 2024 2023

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Provision for income taxes 185 88 374 284

Gain on financial instruments (112) (210)

Interest (income) expense, net (1,009) 31

Loss (gain) on financial instruments 112 (10) — (220)

Interest income, net (1,187) (190) (2,196) (159)

Depreciation and amortization 2,613 2,560 5,175 5,146

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

gain on financial instruments;

interest (income) expense, net;

(loss) gain on financial instruments;

interest income, net;

depreciation and amortization;

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

Adjusted EBITDA was $3.8 million and $(2.9) million for the three months ended March 31, 2024 and 2023, respectively.

Adjusted EBITDA was $4.6 million and $8.4 million for the three and six months ended June 30, 2024, respectively, and $(2.5) million and $(5.5) million for the three and six months ended June 30, 2023, respectively.

Annual Recurring Revenue (ARR).

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

ARR was $302.7 million as of March 31, 2024 and $240.1 million as of March 31, 2023, an increase of $62.6 million, or 26.1%.

ARR was $321.3 million as of June 30, 2024 and $256.8 million as of June 30, 2023, an increase of $64.5 million, or 25.1%.

Registered Users.

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

We had 18.1 million registered users as of March 31, 2024 and 15.1 million as of March 31, 2023, an increase of 3.0 million, or 19.8%.

We had 18.6 million registered users as of June 30, 2024 and 15.8 million as of June 30, 2023, an increase of 2.7 million, or 17.3%.

Revenue per Registered User (RPU).

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

RPU was $16.71 as of March 31, 2024 and $15.88 as of March 31, 2023, an increase of $0.83, or 5.2%.

Comparison of Three Months ended March 31, 2024 and 2023

Three months ended March 31,

RPU was $17.29 as of June 30, 2024 and $16.20 as of June 30, 2023, an increase of $1.09, or 6.7%.

Comparison of Three and Six Months ended June 30, 2024 and 2023

Three months ended June 30,

Change Six months ended June 30,

(in thousands) 2024 2023 $ % 2024 2023 $ %

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Revenue per Registered User (RPU) $ 17.29 $ 16.20 $ 1.09 6.7 %

Revenues increased $16.1 million, or 26.9% for the three months ended March 31, 2024, compared to the same period in 2023.

The increase of $16.1 million in revenues for the three months ended March 31, 2024 was primarily due to registered user growth of 3.0 million when compared to March 31, 2023, 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 5.2% when compared to March 31, 2023.

Revenues increased $16.4 million, or 24.9%, and $32.5 million, or 25.9%, for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023.

The increase of $16.4 million in revenues for the three months ended June 30, 2024 was primarily due to registered user growth from new and existing clients, and RPU growth.

The increase of $32.5 million for the six months ended June 30, 2024 was primarily due to registered user growth of 2.7 million when compared to June 30, 2023, comprised of 1.4 million in registered user growth from existing clients and 1.3 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 6.7% when compared to June 30, 2023.

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

The average RPU of users from new clients implemented on our digital platform in the last 12 months of $19.33 as of March 31, 2024, is 15.7% higher than the aggregate RPU as of March 31, 2024.

The average RPU of users from new clients implemented on our digital platform in the last 12 months of $20.41 as of June 30, 2024, is 18.0% higher than the aggregate RPU as of June 30, 2024.

Cost of Revenues and Gross Margin

Three months ended March 31,

Three months ended June 30,

Change Six months ended June 30,

(in thousands) 2024 2023 $ % 2024 2023 $ %

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Cost of Revenues

Cost of revenues increased $4.2 million, or 15.2%, for the three months ended March 31, 2024 compared to the same period in 2023.

Our revenue growth outpaced our cost of revenues growth, leading to an improved gross margin of 57.8% for the three months ended March 31, 2024, compared to a gross margin of 53.6% for the same period in 2023.

The increase in cost of revenues for the three months ended March 31, 2024 was primarily driven by $3.5 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform, a $0.3 million increase in hosting costs and $0.4 million in higher various other costs.

Cost of revenues increased $3.1 million, or 10.2%, and $7.3 million, or 12.6%, for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023.

Our revenue growth outpaced our cost of revenues growth, leading to an improved gross margin of 59.4% and 58.6% for the three and six months ended June 30, 2024, respectively, compared to a gross margin of 53.9% and 53.8% for the same periods in 2023, respectively.

The increase in cost of revenues for the three months ended June 30, 2024 was primarily driven by $3.0 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform and $0.5 million in higher various other costs.

These expenses were partially offset by lower personnel-related costs of $0.2 million and lower hosting costs of $0.2 million.

The increase in cost of revenues for the six months ended June 30, 2024 was primarily driven by $6.5 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform, a $0.1 million increase in hosting costs, and $0.7 million in higher various other costs.

Operating Expenses

Three months ended March 31,

Three months ended June 30,

Change Six months ended June 30,

2024 2023 $ % 2024 2023 $ %

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Research and Development

Research and development expenses increased $2.3 million, or 11.1%, for the three months ended March 31, 2024, compared to the same period in 2023.

For the three months ended March 31, 2024, the increase was primarily due to a $1.2 million higher costs for consulting and an $0.8 million increase in personnel-related costs (which includes stock-based compensation of $0.2 million), resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation.

In addition, we incurred $0.1 million higher costs for hosting and $0.2 million of higher various other costs.

Research and development expenses increased $3.0 million, or 14.6%, and $5.3 million, or 12.8%, for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023.

For the three months ended June 30, 2024, the increase was primarily due to $1.3 million in higher costs for consulting and a $1.3 million increase in personnel-related costs (which includes stock-based compensation of $0.3 million), resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation.

In addition, we incurred $0.3 million in higher costs for hosting and $0.1 million in higher various other net costs.

For the six months ended June 30, 2024, the increase was primarily due to $2.5 million in higher costs for consulting, a $2.3 million increase in personnel-related costs (which includes stock-based compensation of $0.5 million), resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation, $0.4 million in higher hosting costs, and $0.1 million in higher various other net costs.

Sales and Marketing

Sales and marketing expenses increased $3.0 million, or 27.3% for the three months ended March 31, 2024, compared to the same periods in 2023.

For the three months ended March 31, 2024, the increase was primarily due to a $1.8 million increase in personnel-related costs (which includes stock-based compensation of $0.4 million), resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $0.6 million of higher costs for consulting, $0.4 million of higher travel costs for the sales team, and $0.2 million of higher various other costs.

Sales and marketing expenses increased $3.1 million, or 22.2%, and $6.0 million, or 24.4%, for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023.

For the three months ended June 30, 2024, the increase was primarily due to a $2.2 million increase in personnel-related costs (which includes stock-based compensation of $0.5 million), resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $0.5 million in higher costs related to industry conferences and trade shows, including enhanced client experiences at our in-person client conference, Co:lab, $0.3 million in higher travel costs for the sales team, and $0.1 million in higher various other net costs.

For the six months ended June 30, 2024, the increase was primarily due to a $4.0 million increase in personnel-related costs (which includes stock-based compensation of $0.9 million), resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $0.8 million in higher consulting costs, $0.7 million in higher travel costs for the sales team, and $0.5 million in higher costs related to industry conferences and trade shows, including enhanced client experiences at our in-person client conference, Co:lab.

General and Administrative

General and administrative expenses increased by $2.2 million, or 12.9% for the three months ended March 31, 2024, compared to the same periods in 2023.

For the three months ended March 31, 2024, the increase was primarily due to a $1.6 million increase in stock-based compensation, $0.7 million of higher audit and consulting costs, $0.3 million of higher software costs and $0.2 million of higher various other costs, partially offset by a decrease of $0.2 million in personnel-related costs (exclusive of stock-based compensation), $0.2 million of lower facilities costs and $0.2 million of lower insurance costs.

General and administrative expenses increased by $2.4 million, or 13.2%, and $4.6 million, or 13.1%, for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023.

For the three months ended June 30, 2024, the increase was primarily due to a $2.2 million increase in personnel-related costs (which includes stock-based compensation of $1.6 million), $0.3 million of higher software costs, $0.2 million in higher audit and consulting costs, and $0.2 million in higher various other costs.

These expenses were partially offset by a decrease of $0.3 million in facilities costs and a decrease of $0.2 million in insurance costs.

For the six months ended June 30, 2024, the increase was primarily due to a $3.7 million increase in personnel-related costs (which includes stock-based compensation of $3.2 million), $0.9 million in higher audit and consulting costs, $0.6 million in higher software costs, and $0.2 million in higher various other costs.

These expenses were partially offset by a decrease of $0.4 million in facilities costs and a decrease of $0.4 million in insurance costs.

Acquisition-Related Expenses

Acquisition-related expenses, decreased $0.1 million for the three months ended March 31, 2024, compared to the same period in 2023.

For the three months ended March 31, 2024, we incurred $0.1 million of acquisition-related expenses.

For the three months ended March 31, 2023, we incurred $0.2 million of acquisition-related expenses related to legal, consulting and professional fees for the acquisition of Segmint.

Acquisition-related expenses increased $0.1 million for the three months ended June 30, 2024 and decreased by less than $0.1 million for the six months ended June 30, 2024, compared to the same periods in 2023.

For the three months ended June 30, 2024, we incurred $0.1 million of acquisition-related expenses.

We incurred less than $0.1 million of acquisition-related expenses for the three months ended June 30, 2023.

For the six months ended June 30, 2024, we incurred $0.2 million of acquisition-related expenses.

For the six months ended June 30, 2023, we incurred $0.2 million of acquisition-related expenses related to legal, consulting, and professional fees for the acquisition of Segmint.

Amortization of Acquired Intangibles

Amortization of acquired intangibles was $0.4 million for both the three months ended March 31, 2024 and 2023.

Amortization of acquired intangibles was $0.4 million and $0.7 million for the three and six months ended June 30, 2024 and 2023, respectively.

Non-Operating Income (Expense), Net

Non-operating income increased $0.9 million for the three months ended March 31, 2024, compared to the same period in 2023.

For the three months ended March 31, 2024, the increase was primarily due to an increase in net interest income of $1.0 million, partially offset by a decrease of $0.1 million in gain on financial instruments related to marketable securities.

Non-operating income increased $0.9 million and $1.8 million for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023.

For the three months ended June 30, 2024, the increase was primarily due to a $1.0 million increase in net interest income, partially offset by a $0.1 million increase in loss on financial instruments related to marketable securities.

For the six months ended June 30, 2024, the increase was primarily due to a $2.0 million increase in net interest income, partially offset by a $0.2 million increase in loss on financial instruments related to marketable securities.

Provision for Income Taxes

The Company recorded income tax expense of $0.2 million for both the three months ended March 31, 2024 and 2023, resulting in an effective tax rate of (1.7)% and (1.2)%, respectively.

Our effective tax rate for the three months ended March 31, 2024 and March 31, 2023 differs from the statutory tax rate primarily due to the impact of the valuation allowance against its deferred tax assets and state tax expense.

The Company recorded income tax expense of $0.2 million and $0.4 million for the three and six months ended June 30, 2024, respectively, resulting in an effective tax rate of (1.5)% and (1.6)%, respectively, compared to income tax expense of $0.1 million and $0.3 million for the three and six months ended June 30, 2023, respectively, resulting in an effective tax rate of (0.5)% and (0.8)%, respectively.

Our effective tax rate for the three and six months ended June 30, 2024 and June 30, 2023 differs from the statutory tax rate primarily due to the impact of the valuation allowance against its deferred tax assets and state tax expense.

Liquidity and Capital Resources

As of March 31, 2024, we had $87.3 million in cash and cash equivalents and marketable securities, and an accumulated deficit of $446.8 million.

As of June 30, 2024, we had $87.4 million in cash and cash equivalents and marketable securities, and an accumulated deficit of $459.1 million.

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

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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 (beyond the next 12 months).

We believe that our existing cash resources, including our Second 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 (beyond the next 12 months).

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

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

Three months ended March 31,

Six months ended June 30,

(in thousands) 2024 2023

Net cash provided by (used in) operating activities $ 1,499 $ (15,325)

Net cash provided by investing activities $ 6,808 $ 15,765

Net cash provided by (used in) investing activities $ 22,275 $ (96)

Net cash used in financing activities $ (3,269) $ (4,020)

Net Cash Provided by (Used in) Operating Activities

During the three months ended March 31, 2024, net cash provided by operating activities was $1.0 million, which consisted of a net loss of $11.4 million, adjusted by non-cash charges of $15.8 million and net cash outflows from the change in net operating assets and liabilities of $3.4 million.

The non-cash charges were primarily comprised of depreciation and amortization expense of $2.6 million and stock-based compensation expense of $13.6 million, partially offset by accrued interest on marketable securities, net of $0.3 million and a gain on financial instruments of $0.1 million.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $0.2 million increase in accounts receivable, a $1.6 million increase in prepaid expenses and other current assets, a decrease in accounts payable and accrued liabilities of $3.9 million and an increase in deferred costs of $1.3 million, partially offset by an increase of $3.7 million in deferred revenues.

During the three months ended March 31, 2023, net cash used in operating activities was $9.6 million, which consisted of a net loss of $17.0 million, adjusted by non-cash charges of $13.5 million and net cash outflows from the change in net operating assets and liabilities of $6.2 million.

The non-cash charges were primarily comprised of depreciation and amortization expense of $2.6 million and stock-based compensation expense of $11.4 million, partially offset by net other changes in non-cash charges of $0.5 million.

During the six months ended June 30, 2024, net cash provided by operating activities was $1.5 million, which consisted of a net loss of $23.8 million, adjusted by non-cash charges of $33.1 million and net cash outflows from the change in net operating assets and liabilities of $7.8 million.

The non-cash charges were primarily comprised of depreciation and amortization expense of $5.2 million, stock-based compensation expense of $28.6 million, and net other non-cash charges of $0.1 million, partially offset by accrued interest on marketable securities, net of $0.8 million.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $3.5 million increase in accounts receivable, a $3.8 million increase in prepaid expenses and other current assets, a $0.7 million decrease in accounts payable and accrued liabilities and a $2.6 million increase in deferred costs, partially offset by a $2.6 million increase in deferred revenues.

Net Cash Provided by Investing Activities

During the three months ended March 31, 2024, net cash provided by investing activities was $6.8 million, primarily consisting of $15.6 million in proceeds from maturities and redemptions of marketable securities, partially offset by $7.1 million in purchases of marketable securities, $1.4 million related to capitalized software development costs and $0.3 million related to capital expenditures related to updates for computer and other equipment.

During the three months ended March 31, 2023, net cash provided by investing activities was $15.8 million, primarily consisting of $38.1 million in proceeds from maturities and redemption of marketable securities, partially offset by $21.0 million for the purchase of marketable securities, $1.1 million related to capitalized software development costs and capital expenditures related to updates for computer and other equipment of $0.2 million.

During the six months ended June 30, 2023, net cash used in operating activities was $15.3 million, which consisted of a net loss of $34.7 million, adjusted by non-cash charges of $28.4 million and net cash outflows from the change in net operating assets and liabilities of $9.0 million.

The non-cash charges were primarily comprised of depreciation and amortization expense of $5.1 million and stock-based compensation expense of $24.4 million, partially offset by net other changes in non-cash charges of $1.1 million.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $1.9 million increase in accounts receivable, a $1.9 million increase in prepaid expenses and other current assets, a $2.1 million decrease in accounts payable and accrued liabilities, driven by the reduction of accounts payable in the current period, a $2.9 million increase in deferred implementation costs, and a $0.2 million decrease in deferred revenues.

Net Cash Provided by (Used in) Investing Activities

During the six months ended June 30, 2024, net cash provided by investing activities was $22.3 million, primarily consisting of $41.6 million in proceeds from maturities and redemptions of marketable securities, partially offset by $15.6 million in purchases of marketable securities, $3.0 million related to capitalized software development costs and $0.7 million related to capital expenditures related to updates for computer and other equipment.

During the six months ended June 30, 2023, net cash used in investing activities was $0.1 million, primarily consisting of $62.6 million for the purchase of marketable securities, $2.7 million related to capitalized software development costs, and capital expenditures related to updates for computer and other equipment of $0.4 million, partially offset by $65.6 million in proceeds from maturities and redemptions of marketable securities.

Net Cash Used in Financing Activities

For the three months ended March 31, 2024, net cash used in financing activities was $4.5 million, which was primarily due to payments for taxes related to net settlement of equity awards of $5.7 million, partially offset by proceeds of $1.2 million from the exercise of stock options to purchase 0.3 million shares of our common stock.

For the three months ended March 31, 2023, net cash used in financing activities was $0.6 million, which was primarily due to payments for taxes related to net settlement of equity awards of $2.0 million, partially offset by proceeds of $1.4 million from the exercise of stock options to purchase 0.5 million shares of our common stock.

For the six months ended June 30, 2024, net cash used in financing activities was $3.3 million, which was primarily due to $12.8 million in payments for taxes related to net settlement of equity awards, partially offset by $6.9 million in proceeds from the exercise of stock options to purchase 1.0 million shares of our common stock and proceeds from issuances under the Employee Stock Purchase Plan (“ESPP”) of $2.6 million.

For the six months ended June 30, 2023, net cash used in financing activities was $4.0 million, which was primarily due to payments for taxes related to net settlement of equity awards of $6.8 million, principal payments on debt of $1.1 million, debt issuance costs paid of $0.4 million and payments of holdback funds for acquisitions of $1.0 million, partially offset by proceeds of $2.8 million from the exercise of stock options to purchase 0.8 million shares of our common stock and proceeds from issuances under the ESPP of $2.4 million.

Amended Credit Agreement

4 unchanged sentences

• Revolving Facility:

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 March 31, 2024.

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 June 30, 2024.

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.

1 unchanged sentence

• 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, of which there were no outstanding borrowings as of March 31, 2024.

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

18 unchanged sentences

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, 2024.

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.

Total interest expense, including commitment fees and unused line fees, for the three months ended March 31, 2024 and 2023 was $0.1 million and $1.8 million, respectively.

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, which were deferred and were scheduled to be amortized over the remaining term of the agreement.

Unamortized debt issuance costs totaled $0.3 million as of both March 31, 2024 and December 31, 2023.

Amortization expense was less than $0.1 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively.

The Company was in compliance with all covenants as of June 30, 2024.

On July 1, 2024, the Company entered into a Second Amendment (the “Second Amendment”) to the Amended Credit Agreement (as amended by the Amendment, the “Second Amended Credit Agreement”).

Among other changes, the Second Amendment (i) extends the maturity date of the revolving commitment from April 29, 2026 to April 29, 2027, (ii) increases the amount of the revolving loan commitment by $65.0 million, for a total commitment of $125.0 million, (iii) increases the accordion feature from $50.0 million to $100.0 million of funds available to request, (iv) modifies certain existing covenants, including increasing the minimum trailing four quarters free cash flow requirement to $(25.0) million, and (v) for any fiscal quarter ending after the Financial Covenant Trigger Date (which has been extended to April 28, 2026 or such earlier date as designated by the Company), replaces compliance with a fixed charge coverage ratio with compliance of a minimum interest coverage ratio of 3.0x.

Total interest expense, including commitment fees and unused line fees, for the three and six months ended June 30, 2024 was $0.1 million and $0.1 million, respectively, and $1.8 million and $3.6 million for the three and six months ended June 30, 2023, respectively.

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 $0.2 million and $0.3 million as of June 30, 2024 and December 31, 2023, respectively.

Amortization expense was $0.1 million and $0.1 million for the three and six months ended June 30, 2024, respectively, and $0.1 million and $0.2 million for the three and six months ended June 30, 2023, respectively.

Contractual Obligations and Commitments

There were no material changes to our contractual obligations and commitments as of March 31, 2024, compared to those discussed as of December 31, 2023 in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024.

There were no material changes to our contractual obligations and commitments as of June 30, 2024, compared to those discussed as of December 31, 2023 in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024.

Off-Balance Sheet Arrangements

11 unchanged sentences

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.

We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date when we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Based on the market value of our common stock held by non-affiliates as of June 30, 2024, we will cease to qualify as an emerging growth company as of December 31, 2024.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis