What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-01 · 136 added, 132 removed, 278 unchanged (49% of the section changed)

38 unchanged sentences

• the way we recognize revenue, which has the effect of delaying changes in the subscriptions for our solutions from being reflected in our operating results;

• 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 Second Amended Credit Agreement (as defined below);

• our limited operating history, our history of operating losses and our ability to use our net operating loss carryforwards;

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

• our status as an emerging growth company;

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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 June 30, 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 September 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 June 30, 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 September 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 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.

For the three months ended September 30, 2024 and 2023, our total revenues were $85.9 million and $67.7 million, respectively, representing a 26.9% increase period-over-period.

For the nine months ended September 30, 2024 and 2023, our total revenues were $244.2 million and $193.5 million, respectively, representing an increase of 26.2% period-over-period.

SaaS subscription revenues, as further described below, represented 95.5% and 95.6% of total revenues for the three and nine months ended September 30, 2024, respectively, and 95.7% and 94.8% of total revenues for the three and nine months ended September 30, 2023, respectively.

We incurred net losses of $9.4 million and $33.2 million for the three and nine months ended September 30, 2024, respectively, and net losses of $15.5 million and $50.2 million for the three and nine months ended September 30, 2023, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.

Recent Developments

Second Amendment to Amended and Restated Credit Agreement:

On July 1, 2024, the Company entered into a Second Amendment to its Amended and Restated Credit Agreement dated as of April 29, 2022, which, among other things, extended the maturity date of the revolving commitment, increased the amount of the revolving loan commitment, increased the according feature, and modified certain existing covenants.

See Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional details.

Secondary Offering of Common Stock:

On August 8, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with J.P.

Morgan Securities LLC and entities affiliated with General Atlantic, L.P., S3 Ventures Fund III, L.P., George B.

Kaiser and Brian R.

Smith (collectively, the “Selling Stockholders”), relating to an underwritten secondary offering (the “Offering”) of an aggregate of 5 million shares (the “Shares”) of the Company’s common stock.

Pursuant to the Underwriting Agreement, the Selling Stockholders sold all 5 million Shares.

The Offering closed on August 12, 2024, and the Company did not receive any of the proceeds from the sale of the Shares by the Selling Stockholders.

Factors Affecting our Operating Results

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

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.

As of September 30, 2024, we served 266 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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The depth of our product suite is a function of technology and platform partnerships.

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.

Our platform model with more than 300 integrations as of September 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 six and 12 client renewals for the three and six months ended June 30, 2024, respectively.

We had 14 and 26 client renewals for the three and nine months ended September 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 29.1% and 29.5% of our revenues for the three and six months ended June 30, 2024, respectively.

We remain committed to investing in our platform, notably through our research and development spend, which was 28.1% and 29.0% of our revenues for the three and nine months ended September 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 June 30, 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 September 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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These fees are not distinct from the underlying licensed SaaS subscription services.

As a result, we recognize the resulting revenues on a straight-line basis over the client’s initial agreement term for our licensed SaaS solutions, commencing upon launch.

As a result, we recognize the resulting revenues on a straight-line basis over the client’s initial agreement term for our licensed SaaS solutions,

commencing upon launch.

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

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

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,

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

Three months ended September 30,

Nine months ended September 30,

(in thousands) 2024 2023 2024 2023

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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.

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

We capitalize certain personnel costs directly related to the implementation of our solutions to the extent those costs are recoverable from future revenues.

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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 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 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%).

Our gross margin for the three and nine months ended September 30, 2024 was 58.9% and 58.7%, respectively, and 54.0% and 53.8% for the three and nine months ended September 30, 2023, respectively.

The major components of cost of revenues are represented in the following table as percentages of revenues for the three and nine months ended September 30, 2024 and 2023, respectively:

Three months ended September 30,

Nine months ended September 30,

(Cost component as a % of revenue) 2024 2023 2024 2023

Third-party hosting services 5.7 % 7.8 % 6.0 % 7.7 %

Direct costs of bill-pay and other third-party intellectual property 18.6 % 17.4 % 18.2 % 17.4 %

Implementation and client support teams 9.4 % 12.6 % 9.5 % 13.0 %

Development team (maintenance and updates) 3.5 % 3.4 % 3.7 % 3.3 %

Amortization 2.3 % 2.5 % 2.3 % 2.6 %

Stock-based compensation 1.6 % 2.2 % 1.6 % 2.1 %

Depreciation — % 0.1 % — % 0.1 %

Operating Expenses

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General and administrative expenses consist primarily of personnel-related costs for our executive, finance, legal, human resources, information technology, security and compliance and other administrative employees, including salaries, bonuses, commissions, other incentive-related compensation, employee benefits and stock-based compensation.

General and administrative expenses also include accounting, auditing and legal professional services fees, travel and other unallocated corporate-related expenses, such as the cost of our facilities, employee relations, corporate telecommunication and software.

General and administrative expenses also include accounting, auditing and legal professional services fees, secondary offering costs, travel and other unallocated corporate-related expenses, such as the cost of our facilities, employee relations, corporate telecommunication and software.

We expect that general and administrative expenses will continue to increase as we scale our business and as we incur costs associated with being a publicly traded company, including legal, audit, business insurance and consulting fees.

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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 gains or losses on marketable securities, realized gains on sales of 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 and realized gains on sales of marketable securities.

Provision for Income Taxes

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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 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,

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

Three months ended September 30,

Nine months ended September 30,

(in thousands) 2024 2023 2024 2023

15 unchanged sentences

Interest expense (180) (1,931) (327) (5,514)

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

Gain on financial instruments — 201 — 421

Loss before income taxes

(9,461) (15,437) (32,837) (49,877)

Provision for income taxes 185 88 374 284

Provision (benefit) for income taxes (19) 39 355 323

$ (9,442) $ (15,476) $ (33,192) $ (50,200)

(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.

(1) Includes amortization of acquired technology of $1.3 million for both the three months ended September 30, 2024 and 2023, and $4.0 million for both the nine months ended September 30, 2024 and 2023.

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 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 June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

(in thousands) 2024 2023 2024 2023

Net loss $ (9,442) $ (15,476) $ (33,192) $ (50,200)

Provision for income taxes 185 88 374 284

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

Provision (benefit) for income taxes (19) 39 355 323

Gain on financial instruments — (201) — (421)

Interest income, net (967) (149) (3,163) (308)

1 unchanged sentence

Stock-based compensation expense 15,257 13,918 43,822 37,914

Secondary offering costs (1)

Acquisition-related expenses — — 195 220

1 unchanged sentence

$ 8,318 $ 826 $ 16,681 $ (4,631)

(1) Pursuant to the requirements of the Fourth Amended and Restated Investors’ Rights Agreement, dated as of September 24, 2020, by and among the Company and the investors listed therein, the Company incurred secondary offering costs on behalf of the Selling Stockholders related to the Offering.

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

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

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

(loss) gain on financial instruments;

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

gain on financial instruments;

interest income, net;

1 unchanged sentence

stock-based compensation expense;

secondary offering costs;

and acquisition-related expenses.

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 $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.

Adjusted EBITDA was $8.3 million and $16.7 million for the three and nine months ended September 30, 2024, respectively, and $0.8 million and $(4.6) million for the three and nine months ended September 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 $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%.

ARR was $342.1 million as of September 30, 2024 and $275.0 million as of September 30, 2023, an increase of $67.1 million, or 24.4%.

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 18.6 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%.

We had 19.5 million registered users as of September 30, 2024 and 16.9 million as of September 30, 2023, an increase of 2.6 million, or 15.4%.

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 $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,

RPU was $17.54 as of September 30, 2024 and $16.28 as of September 30, 2023, an increase of $1.26, or 7.7%.

Comparison of Three and Nine Months ended September 30, 2024 and 2023

Three months ended September 30,

Change Nine months ended September 30,

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

Revenues $ 85,906 $ 67,703 $ 18,203 26.9 % $ 244,193 $ 193,462 $ 50,731 26.2 %

September 30,

Annual Recurring Revenue (ARR) $ 342,101 $ 274,976 $ 67,125 24.4 %

1 unchanged sentence

Revenue per Registered User (RPU) $ 17.54 $ 16.28 $ 1.26 7.7 %

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.

Revenues increased $18.2 million, or 26.9%, and $50.7 million, or 26.2%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

The increase of $18.2 million in revenues for the three months ended September 30, 2024 was primarily due to registered user growth from new and existing clients, and RPU growth.

The increase of $50.7 million for the nine months ended September 30, 2024 was primarily due to registered user growth of 2.6 million when compared to September 30, 2023, comprised of 1.4 million in registered user growth from existing clients and 1.2 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 7.7% when compared to September 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 $20.41 as of June 30, 2024, is 18.0% higher than the aggregate RPU as of June 30, 2024.

The average RPU of users from new clients implemented on our digital platform in the last 12 months of $19.12 as of September 30, 2024, is 9.0% higher than the aggregate RPU as of September 30, 2024.

Cost of Revenues and Gross Margin

Three months ended June 30,

Change Six months ended June 30,

Three months ended September 30,

Change Nine months ended September 30,

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

2 unchanged sentences

Cost of Revenues

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.

Cost of revenues increased $4.1 million, or 13.3%, and $11.5 million, or 12.8%, for the three and nine months ended September 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 58.9% and 58.7% for the three and nine months ended September 30, 2024, respectively, compared to a gross margin of 54.0% and 53.8% for the same periods in 2023, respectively.

The increase in cost of revenues for the three months ended September 30, 2024 was primarily driven by $4.2 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform and $0.3 million in higher various other costs.

These expenses were partially offset by lower hosting costs of $0.4 million.

The increase in cost of revenues for the nine months ended September 30, 2024 was primarily driven by $10.7 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform and $1.1 million in higher various other costs.

These expenses were partially offset by lower hosting costs of $0.3 million.

Operating Expenses

Three months ended June 30,

Change Six months ended June 30,

Three months ended September 30,

Change Nine months ended September 30,

2024 2023 $ % 2024 2023 $ %

8 unchanged sentences

Research and Development

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.

Research and development expenses increased $2.4 million, or 10.9%, and $7.7 million, or 12.2%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

For the three months ended September 30, 2024, the increase was primarily due to $1.4 million in higher costs for consulting and a $1.4 million increase in personnel-related costs (which includes stock-based compensation of $0.4 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 hosting costs.

These expenses were partially offset by lower various other net costs of $0.7 million.

For the nine months ended September 30, 2024, the increase was primarily due to $3.9 million in higher costs for consulting, a $3.8 million increase in personnel-related costs (which includes stock-based compensation of $0.9 million), resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation and $0.7 million in higher hosting costs.

These expenses were partially offset by lower various other net costs of $0.6 million.

Sales and Marketing

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.

Sales and marketing expenses increased $2.5 million, or 20.7%, and $8.5 million, or 23.2%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

For the three months ended September 30, 2024, the increase was primarily due to a $2.1 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 $0.5 million in higher consulting costs.

These expenses were partially offset by lower various other net costs of $0.1 million.

For the nine months ended September 30, 2024, the increase was primarily due to a $6.1 million increase in personnel-related costs (which includes stock-based compensation of $1.3 million), resulting from headcount growth in our sales and marketing teams.

In addition, we incurred $1.4 million in higher consulting costs, $0.9 million in higher travel costs for the sales team, and $0.4 million in higher costs related to industry conferences and trade shows, including enhanced client experiences at our in-person client conference, Co:lab.

These expenses were partially offset by lower various other net costs of $0.3 million.

General and Administrative

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.

General and administrative expenses increased by $3.9 million, or 21.1%, and $8.5 million, or 15.8%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

For the three months ended September 30, 2024, the increase was primarily due to a $1.4 million increase in personnel-related costs (which includes stock-based compensation of $0.6 million), $0.8 million of higher software costs, $0.8 million of secondary offering costs, $0.7 million in higher audit and consulting costs, and $0.2 million in higher various other net costs.

For the nine months ended September 30, 2024, the increase was primarily due to a $5.1 million increase in personnel-related costs (which includes stock-based compensation of $3.9 million), $1.6 million in higher audit and consulting costs, $1.4 million in higher software costs, and $0.8 million of secondary offering costs.

These expenses were partially offset by lower various other net costs of $0.4 million.

Acquisition-Related Expenses

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.

Acquisition-related expenses was $0.2 million for both the nine months ended September 30, 2024 and 2023.

Amortization of Acquired Intangibles

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.

Amortization of acquired intangibles was $0.4 million for both the three months ended September 30, 2024 and 2023 and $1.1 million for both the nine months ended September 30, 2024 and 2023.

Non-Operating Income (Expense), Net

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.

Non-operating income increased $0.6 million and $2.4 million for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

For the three months ended September 30, 2024, the increase was primarily due to a $0.8 million increase in net interest income, partially offset by a $0.2 million reduction in gain on financial instruments related to marketable securities.

For the nine months ended September 30, 2024, the increase was primarily due to a $2.9 million increase in net interest income, partially offset by a $0.4 million reduction in gains on financial instruments related to marketable securities.

Provision for Income Taxes

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.

The Company recorded an income tax benefit of less than $0.1 million and income tax expense of $0.4 million for the three and nine months ended September 30, 2024, respectively, resulting in an effective tax rate of 0.2% and (1.1)%, respectively, compared to income tax expense of less than $0.1 million and $0.3 million for the three and nine months ended September 30, 2023, respectively, resulting in an effective tax rate of (0.3)% and (0.6)%, respectively.

Our effective tax rate for the three and nine months ended September 30, 2024 and September 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 June 30, 2024, we had $87.4 million in cash and cash equivalents and marketable securities, and an accumulated deficit of $459.1 million.

As of September 30, 2024, we had $101.0 million in cash and cash equivalents and marketable securities, and an accumulated deficit of $468.6 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 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 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 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:

Six months ended June 30,

Nine months ended September 30,

(in thousands) 2024 2023

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Net cash provided by (used in) investing activities $ 26,046 $ (16,358)

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

Net cash provided by (used in) financing activities $ 1,497 $ (4,801)

Net Cash Provided by (Used in) Operating Activities

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.

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.

During the nine months ended September 30, 2024, net cash provided by operating activities was $12.5 million, which consisted of a net loss of $33.2 million, adjusted by non-cash charges of $51.0 million and net cash outflows from the change in net operating assets and liabilities of $5.3 million.

The non-cash charges were primarily comprised of depreciation and amortization expense of $7.9 million, stock-based compensation expense of $43.8 million, and other non-cash charges of $0.2 million, partially offset by accrued interest on marketable securities, net of $0.9 million.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $6.9 million increase in accounts receivable, $5.1 million increase in deferred costs, and a $2.6 million increase in prepaid expenses and other current assets, partially offset by a $6.3 million increase in accounts payable and accrued liabilities and a $3.0 million increase in deferred revenues.

During the nine months ended September 30, 2023, net cash used in operating activities was $12.2 million, which consisted of a net loss of $50.2 million, adjusted by non-cash charges of $43.1 million and net cash outflows from the change in net operating assets and liabilities of $5.1 million.

The non-cash charges were primarily comprised of depreciation and amortization expense of $7.8 million and stock-based compensation expense of $37.9 million, partially offset by accrued interest on marketable securities, net of $2.1 million and other changes in non-cash charges of $0.5 million.

The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $5.0 million increase in accounts receivable, a $2.6 million increase in prepaid expenses and other current assets, and a $4.0 million increase in deferred implementation costs, partially offset by an increase in accounts payable and accrued liabilities of $5.2 million and a $1.3 million increase 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 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.

During the nine months ended September 30, 2024, net cash provided by investing activities was $26.0 million, primarily consisting of $62.8 million in proceeds from maturities and redemptions of marketable securities, partially offset by $30.7 million in purchases of marketable securities, $5.0 million related to capitalized software development costs and $1.0 million related to capital expenditures related to updates for computer and other equipment.

During the nine months ended September 30, 2023, net cash used in investing activities was $16.4 million, primarily consisting of $109.6 million for the purchase of marketable securities, $3.8 million related to capitalized software development costs, and capital expenditures related to updates for computer and other equipment of $0.8 million, partially offset by $97.9 million in proceeds from maturities and redemptions of marketable securities.

Net Cash Provided by (Used in) Financing Activities

For the nine months ended September 30, 2024, net cash provided by financing activities was $1.5 million, which was primarily due to $12.1 million in proceeds from the exercise of stock options to purchase 1.8 million shares of our common stock and proceeds from issuances under the Employee Stock Purchase Plan (“ESPP”) of $2.6 million, partially offset by $12.8 million in payments for taxes related to net settlement of equity awards and $0.4 million of debt issuance costs paid.

For the nine months ended September 30, 2023, net cash used in financing activities was $4.8 million, which was primarily due to payments for taxes related to net settlement of equity awards of $11.0 million, principal payments on debt of $2.1 million, payments of holdback funds for acquisitions of $1.0 million and debt issuance costs paid of $0.3 million, partially offset by proceeds of $7.3 million from the exercise of stock options to purchase 1.5 million shares of our common stock and proceeds from issuances under the ESPP of $2.4 million.

Amended Credit Agreement

On June 27, 2023, the Company entered into a First Amendment (the “First Amendment”) to the Company’s Amended and Restated Credit Agreement, dated as of April 29, 2022 (as amended by the First Amendment, the “Amended Credit Agreement”), with Silicon Valley Bank (“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 $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.

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

• 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 June 30, 2024.

On July 1, 2024, the Company entered into a Second Amendment (the “Second Amendment”) to the Company’s Amended and Restated Credit Agreement dated as of April 29, 2022 (as amended, the “Amended Credit Agreement”), with Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as administrative agent, and other lenders party thereto.

The Second Amendment, among other things, (i) extended the maturity date of the Revolving Facility from April 29, 2026 to April 29, 2027, (ii) increased the amount of the Revolving Facility commitment by $65.0 million, for a total revolving loan commitment of $125.0 million, (iii) increased the accordion feature from $50.0 million to $100.0 million, (iv) modified 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 was extended to April 28, 2026 or such earlier date as designated by the Company) (the “Financial Covenant Trigger Date”), replaced compliance with a fixed charge coverage ratio with compliance of a minimum interest coverage ratio of 3.0x.

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.

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.

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.

The Amended Credit Agreement previously provided for a term loan, which was fully repaid in December 2023 and cannot be re-borrowed.

The Company has no outstanding borrowings as of September 30, 2024 related to the Amended Credit Agreement.

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 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.

The Amended Credit Agreement contains customary affirmative and negative covenants.

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(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.

and (ii) a consolidated interest coverage 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 3.00:1.00.

The Second Amendment revised the free cash flow covenant, as calculated at the last day of each fiscal quarter for the period of 12 consecutive months then ending, requiring free cash flow to be not less than $(25.0) million for the fiscal quarter ended September 30, 2024 and each fiscal quarter ending thereafter.

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 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.

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

Total interest expense, including commitment fees and unused line fees, for the three and nine months ended September 30, 2024 was $0.2 million and $0.3 million, respectively, and $1.9 million and $5.5 million for the three and nine months ended September 30, 2023, respectively.

In conjunction with closing the Amended Credit Agreement in 2022, First Amendment in 2023 and Second Amendment in 2024, we incurred issuance costs of $0.9 million, $0.3 million and $0.4 million, respectively, which were deferred and were scheduled to be amortized over the remaining term of the agreement.

Unamortized debt issuance costs totaled $0.5 million and $0.3 million as of September 30, 2024 and December 31,

2023, respectively.

Amortization expense was $0.1 million and $0.2 million for the three and nine months ended September 30, 2024, respectively, and $0.1 million and $0.3 million for the three and nine months ended September 30, 2023, respectively.

Contractual Obligations and Commitments

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.

There were no material changes to our contractual obligations and commitments as of September 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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis