ALKAMI TECHNOLOGY, INC. 10-Q

Item 1. Financial Statements ALKAMI TECHNOLOGY, INC. C ONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) (UNAUDITED) September 30, December 31, 2024 2023 Assets Current assets Cash and cash equivalents $ 80,956 $ 40,927 Marketable securities 20,033 51,196 Accounts receivable, net 42,408 35,499 Deferred costs, current 12,046 10,329 Prepaid expenses and other current assets 13,563 10,634 Total current assets 169,006 148,585 Property and equipment, net 21,038 16,946 Right-of-use assets 14,875 15,754 Deferred costs, net of current portion 34,666 30,734 Intangibles, net 30,718 35,807 Goodwill 148,050 148,050 Other assets 3,840 3,949 Total assets $ 422,193 $ 399,825 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 5,591 $ 7,478 Accrued liabilities 28,049 19,763 Deferred revenues, current portion 13,088 10,984 Lease liabilities, current portion 1,309 1,205 Total current liabilities 48,037 39,430 Deferred revenues, net of current portion 16,267 15,384 Deferred income taxes 1,774 1,713 Lease liabilities, net of current portion 17,395 18,052 Other non-current liabilities 216 305 Total liabilities 83,689 74,884 Stockholders’ Equity Preferred stock, $ 0.001 par value, 10,000,000 shares authorized and 0 shares issued and outstanding as of September 30, 2024 and December 31, 2023 — — Common stock, $ 0.001 par value, 500,000,000 shares authorized; and 100,496,654 and 96,722,098 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively 100 97 Additional paid-in capital 806,962 760,210 Accumulated deficit ( 468,558 ) ( 435,366 ) Total stockholders’ equity 338,504 324,941 Total liabilities and stockholders' equity $ 422,193 $ 399,825 The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements. 1 ALKAMI TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) (UNAUDITED) Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Revenues $ 85,906 $ 67,703 $ 244,193 $ 193,462 Cost of revenues (1) 35,289 31,153 100,773 89,300 Gross profit 50,617 36,550 143,420 104,162 Operating expenses: Research and development 24,133 21,755 70,862 63,170 Sales and marketing 14,406 11,933 45,213 36,694 General and administrative 22,147 18,290 62,074 53,608 Acquisition-related expenses — — 195 220 Amortization of acquired intangibles 359 359 1,076 1,076 Total operating expenses 61,045 52,337 179,420 154,768 Loss from operations ( 10,428 ) ( 15,787 ) ( 36,000 ) ( 50,606 ) Non-operating income (expense): Interest income 1,147 2,080 3,490 5,822 Interest expense ( 180 ) ( 1,931 ) ( 327 ) ( 5,514 ) Gain on financial instruments — 201 — 421 Loss before income taxes ( 9,461 ) ( 15,437 ) ( 32,837 ) ( 49,877 ) Provision (benefit) for income taxes ( 19 ) 39 355 323 Net loss $ ( 9,442 ) $ ( 15,476 ) $ ( 33,192 ) $ ( 50,200 ) Net loss per share attributable to common stockholders: Basic and diluted $ ( 0.09 ) $ ( 0.16 ) $ ( 0.34 ) $ ( 0.54 ) Weighted-average number of shares of common stock outstanding: Basic and diluted 99,435,002 94,675,358 98,165,903 93,477,486 (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. The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements. 2 ALKAMI TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands, except share data) (UNAUDITED) Three months ended September 30, 2024 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance June 30, 2024 98,985,370 $ 99 $ 786,201 $ ( 459,116 ) $ 327,184 Stock-based compensation — — 15,633 — 15,633 Issuance of common stock upon restricted stock unit vesting 716,460 1 ( 1 ) — — Exercised stock options 794,824 — 5,154 5,154 Payments for taxes related to net settlement of equity awards — — ( 25 ) — ( 25 ) Net loss — — — ( 9,442 ) ( 9,442 ) Balance September 30, 2024 100,496,654 $ 100 $ 806,962 $ ( 468,558 ) $ 338,504 Three months ended September 30, 2023 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance June 30, 2023 94,228,876 $ 94 $ 729,607 $ ( 407,177 ) $ 322,524 Stock-based compensation — — 14,326 — 14,326 Issuance of common stock upon restricted stock unit vesting 484,736 — ( 1 ) — ( 1 ) Exercised stock options 648,175 1 4,484 — 4,485 Payments for taxes related to net settlement of equity awards — — ( 4,204 ) — ( 4,204 ) Net loss — — — ( 15,476 ) ( 15,476 ) Balance September 30, 2023 95,361,787 $ 95 $ 744,212 $ ( 422,653 ) $ 321,654 Nine months ended September 30, 2024 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance December 31, 2023 96,722,098 $ 97 $ 760,210 $ ( 435,366 ) $ 324,941 Stock-based compensation — — 44,895 — 44,895 Issuance of common stock upon restricted stock unit vesting 1,737,951 2 ( 2 ) — — Common stock issued under Employee Stock Purchase Plan (ESPP) 216,174 — 2,598 — 2,598 Exercised stock options 1,820,431 1 12,081 — 12,082 Payments for taxes related to net settlement of equity awards — — ( 12,820 ) — ( 12,820 ) Net loss — — — ( 33,192 ) ( 33,192 ) Balance September 30, 2024 100,496,654 $ 100 $ 806,962 $ ( 468,558 ) $ 338,504 Nine months ended September 30, 2023 Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance December 31, 2022 92,112,749 $ 92 $ 706,407 $ ( 372,453 ) $ 334,046 Stock-based compensation — — 39,143 — 39,143 Issuance of common stock upon restricted stock unit vesting 1,488,164 1 ( 1 ) — — Common stock issued under ESPP 271,880 — 2,407 2,407 Exercised stock options 1,488,994 2 7,285 — 7,287 Payments for taxes related to net settlement of equity awards — — ( 11,029 ) — ( 11,029 ) Net loss — — — ( 50,200 ) ( 50,200 ) Balance September 30, 2023 95,361,787 $ 95 $ 744,212 $ ( 422,653 ) $ 321,654 The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements. 3 ALKAMI TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (UNAUDITED) Nine months ended September 30, 2024 2023 Cash flows from operating activities: Net loss $ ( 33,192 ) $ ( 50,200 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization expense 7,854 7,841 Accrued interest on marketable securities, net ( 928 ) ( 2,059 ) Stock-based compensation expense 43,822 37,914 Amortization of debt issuance costs 161 110 Gain on financial instruments — ( 430 ) Gain on lease modification — ( 375 ) Deferred taxes 61 118 Changes in operating assets and liabilities: Accounts receivable ( 6,909 ) ( 5,020 ) Prepaid expenses and other current assets ( 2,619 ) ( 2,631 ) Accounts payable and accrued liabilities 6,316 5,223 Deferred costs ( 5,067 ) ( 3,959 ) Deferred revenues 2,987 1,271 Net cash provided by (used in) operating activities 12,486 ( 12,197 ) Cash flows from investing activities: Purchase of marketable securities ( 30,721 ) ( 109,593 ) Proceeds from sales, maturities and redemptions of marketable securities 62,812 97,852 Purchases of property and equipment ( 1,036 ) ( 774 ) Capitalized software development costs (1) ( 5,009 ) ( 3,843 ) Net cash provided by (used in) investing activities 26,046 ( 16,358 ) Cash flows from financing activities: Principal payments on debt — ( 2,125 ) Debt issuance costs paid ( 363 ) ( 341 ) Proceeds from ESPP issuances 2,598 2,407 Payment of holdback funds from acquisition — ( 1,000 ) Payments for taxes related to net settlement of equity awards ( 12,820 ) ( 11,029 ) Proceeds from stock option exercises 12,082 7,287 Net cash provided by (used in) financing activities 1,497 ( 4,801 ) Net increase (decrease) in cash and cash equivalents and restricted cash 40,029 ( 33,356 ) Cash and cash equivalents and restricted cash, beginning of period 40,927 112,337 Cash and cash equivalents and restricted cash, end of period $ 80,956 $ 78,981 (1) See Note 3 for additional information regarding non-cash investing activities for the nine months ended September 30, 2024 and 2023 related to capitalized software development costs. The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements. ALKAMI TECHNOLOGY, INC. Notes to the Unaudited Condensed Consolidated Financial Statements (in thousands, except share and per share data) (Unaudited) Note 1. Organization Description of Business Alkami Technology, Inc. (the “Company”) is a cloud-based digital banking solutions provider. The Company inspires and empowers community, regional and super-regional financial institutions (“FIs”) to compete with large, technologically advanced and well-resourced banks in the United States. The Company’s solution, the Alkami Digital Banking Platform, allows FIs to onboard and engage new users, accelerate revenues and meaningfully improve operational efficiency, all with the support of a proprietary, true cloud-based, multi-tenant architecture. The Company cultivates deep relationships with its clients through long-term, subscription-based contractual arrangements, aligning its growth with its clients’ success and generating an attractive unit economic model. The Company was incorporated in Delaware in August 2011, and its principal offices are located in Plano, Texas. Note 2. Summary of Significant Accounting Policies The accompanying condensed consolidated financial statements reflect the application of significant accounting policies as described below. Basis of Presentation and Consolidation The interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All intercompany accounts and transactions are eliminated. In the Company's opinion, the accompanying interim unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods indicated. Certain information and disclosures normally included in the notes to the annual consolidated financial statements prepared in accordance with GAAP have been omitted from these interim unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2023, which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2024. The Company has no sources of other comprehensive income, and accordingly, net loss presented each period is the same as comprehensive loss. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions include determining the timing and amount of revenue recognition and business combinations. Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU No. 2023-07 amended the existing segment reporting requirements by requiring disclosure of the significant segment expenses based on how management internally views segment information and by allowing the disclosure of more than one measure of segment profit or loss, as well as by expanding the interim period segment requirements. The ASU also requires single-reportable segment entities to report the disclosures required under ASC Topic 280, Segment Reporting. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact the updated standard will have on its financial statement disclosures. In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 expands disclosures in the rate reconciliation and requires disclosure of income taxes paid by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 should be applied prospectively; however, retrospective application is permitted. The Company is currently evaluating the impact the updated standard will have on its financial statement disclosures. Note 3. Property and Equipment, Net Depreciation and amortization expense was $ 1.0 million and $ 2.8 million for the three and nine months ended September 30, 2024, respectively, and $ 1.0 million and $ 2.8 million for the three and nine months ended September 30, 2023, respectively. Property and equipment, net, includes the following amounts at September 30, 2024 and December 31, 2023: (in thousands) Useful Life September 30, 2024 December 31, 2023 Software 2 to 5 years $ 198 $ 920 Capitalized software development costs 5 years 17,895 12,263 Computers and equipment 3 years 2,336 6,359 Furniture and fixtures 5 years 426 3,988 Leasehold improvements 3 to 10 years 10,228 12,312 $ 31,083 $ 35,842 Less: accumulated depreciation and amortization ( 10,045 ) ( 18,896 ) Property and equipment, net $ 21,038 $ 16,946 For both the nine months ended September 30, 2024 and 2023, the Company had non-cash investing activities of $ 0.6 million for capitalized stock-based compensation related to capitalized software development costs. Additionally, the Company recognized stock-based compensation expense through the amortization of capitalized stock-based compensation associated with capitalized software development costs of less than $ 0.1 million and $ 0.1 million for the three and nine months ended September 30, 2024, respectively, and none for both the three and nine months ended September 30, 2023. Note 4. Revenues and Deferred Costs The Company derives the majority of its revenues from recurring monthly subscription fees charged for the use of its software-as-a-service (“SaaS”) subscription services. Subscription revenues are generally recognized as revenue over the term of the contract as a series of distinct SaaS services bundled into a single performance obligation. Clients are usually charged a one-time, upfront implementation fee and recurring annual and monthly access fees for the use of the online digital relationship banking solution. Implementation and integration of the digital banking platform is complex, and the Company has determined that the one-time, upfront services do not transfer a promised service to the client. As these services are not distinct, they are bundled into the SaaS series of services, and the associated fees are recognized on a straight-line basis over the subscription term. Other services include professional services and custom development. The following table disaggregates the Company's revenue by major source for the three and nine months ended September 30, 2024 and 2023: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 SaaS subscription services $ 82,054 $ 64,758 $ 233,437 $ 183,446 Implementation services 1,832 2,077 5,790 6,961 Other services 2,020 868 4,966 3,055 Total revenues $ 85,906 $ 67,703 $ 244,193 $ 193,462 The Company recognized approximately $ 6.5 million of revenue during the nine months ended September 30, 2024 that was included in deferred revenues in the accompanying condensed consolidated balance sheets as of the beginning of the reporting period. For those contracts that were wholly or partially unsatisfied as of September 30, 2024, the Company’s remaining performance obligation totaled approximately $ 1.3 billion. The Company expects to recognize approximately 47.0 % of these remaining obligations as revenue over the next 24 months, an additional 35.4 % in the next 25 to 48 months, and the remaining balance thereafter. This estimate does not include estimated consideration for excess user and transaction processing fees that the Company expects to earn under its subscription contracts. Contract assets totaled $ 1.2 million and $ 1.5 million as of September 30, 2024 and December 31, 2023, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets. Deferred Cost Recognition The Company capitalized $ 3.1 million and $ 6.0 million in deferred commissions costs during the three and nine months ended September 30, 2024, respectively, and $ 1.6 million and $ 4.4 million for the three and nine months ended September 30, 2023, respectively, and recognized amortization of $ 1.3 million and $ 3.8 million during the three and nine months ended September 30, 2024, respectively, and $ 1.0 million and $ 2.7 million during the three and nine months ended September 30, 2023, respectively. Amortization expense is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations. Deferred commissions are considered costs to obtain a contract and are included in deferred costs in the accompanying condensed consolidated balance sheets in the amount of $ 23.4 million and $ 21.2 million as of September 30, 2024 and December 31, 2023, respectively. The Company capitalized implementation costs of $ 2.4 million and $ 7.6 million during the three and nine months ended September 30, 2024, respectively, and $ 2.3 million and $ 6.4 million for the three and nine months ended September 30, 2023, respectively, and recognized amortization of $ 1.4 million and $ 4.1 million during the three and nine months ended September 30, 2024, respectively, and $ 1.3 million and $ 3.6 million for the three and nine months ended September 30, 2023, respectively. Amortization expense is included in cost of revenues in the accompanying condensed consolidated statements of operations. These deferred costs are considered costs to fulfill client contracts and are included in deferred costs in the accompanying condensed consolidated balance sheets in the amount of $ 23.4 million and $ 19.8 million as of September 30, 2024 and December 31, 2023, respectively. The Company periodically reviews the carrying amount of deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. No material impairment losses were recognized in relation to these capitalized costs for the three and nine months ended September 30, 2024 and 2023. Note 5. Accounts Receivable Accounts receivable includes the following amounts at September 30, 2024 and December 31, 2023: September 30, December 31, (in thousands) 2024 2023 Trade accounts receivable $ 33,927 $ 30,111 Unbilled receivables 8,712 5,975 Total receivables 42,639 36,086 Allowance for credit losses ( 27 ) ( 59 ) Reserve for estimated credits ( 204 ) ( 528 ) $ 42,408 $ 35,499 Note 6. Accrued Liabilities Accrued liabilities consisted of the following at September 30, 2024 and December 31, 2023: September 30, December 31, (in thousands) 2024 2023 Bonus accrual $ 10,733 $ 7,798 Accrued vendor purchases 121 174 Commissions accrual 1,072 2,026 Accrued hosting services 1,739 428 Client credit liability 484 660 Accrued consulting and professional fees 444 713 Accrued tax liabilities 584 1,166 ESPP liability 1,751 682 Other accrued liabilities 11,121 6,116 Total accrued liabilities $ 28,049 $ 19,763 Note 7. Debt 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 3.0 x. Revolving Facility loans under the Amended Credit Agreement may be voluntarily prepaid and re-borrowed. 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. Before the Financial Covenant Trigger Date, the following covenants are applicable: (i) an annual recurring revenue growth covenant requiring the loan parties to have recurring revenues in any four consecutive fiscal quarter period in an amount that is 10 % greater than the recurring revenues for the corresponding four consecutive quarter period in the previous year; and (ii) a liquidity (defined as the aggregate amount of cash in bank accounts subject to a control agreement plus availability under the Revolving Facility) covenant, requiring the loan parties to have liquidity, tested on the last day of each calendar month, of $ 20.0 million or more. After the Financial Covenant Trigger Date, the existing annual recurring revenue growth and liquidity financial covenants are no longer applicable, and the following covenants take effect: (i) a consolidated total leverage ratio requiring the ratio, as calculated at the last day of such fiscal quarter for the period of 12 consecutive months then ending, to be less than 3.50 :1.00; and (ii) a consolidated 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 September 30, 2024. Note 8. Stockholders' Equity Equity Compensation Plans Stock-based compensation expense was included in the condensed consolidated statements of operations as follows: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Cost of revenues $ 1,407 $ 1,507 $ 3,932 $ 4,140 Research and development 4,492 4,116 12,746 11,854 Sales and marketing 2,327 1,906 6,649 5,309 General and administrative 7,031 6,389 20,495 16,611 Total stock-based compensation expenses $ 15,257 $ 13,918 $ 43,822 $ 37,914 Note 9. Income Taxes 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. The Company’s effective tax rate for the three and nine months ended September 30, 2024 and 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 recognizes deferred tax assets and liabilities based on the estimated future tax effects of temporary differences between the financial statement basis and tax basis of assets and liabilities given the provisions of enacted tax law. Management reviews deferred tax assets to assess their future realization by considering all available evidence, both positive and negative, to determine whether a valuation allowance is needed for all or some portion of the deferred tax assets, using a “more likely than not” standard. The assessment considers, among other matters: historical losses, future reversals of taxable temporary differences, the duration of statutory carryback and carryforward periods, and ongoing prudent and feasible tax planning strategies. As a result, the Company has established a valuation allowance against most of its deferred tax assets as realization is not reasonably assured based upon a “more likely than not” threshold. The Company reassesses the realizability of deferred tax assets regularly, and it will adjust the valuation allowance as sufficient objective positive evidence becomes available. Note 10. Fair Value of Financial Instruments The Company’s financial instruments consist primarily of cash, cash equivalents, marketable securities, accounts receivable and accounts payable. The carrying values of cash, cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these instruments. Cash equivalents include amounts held in money market accounts that are measured at fair value using observable market prices. Marketable securities include debt securities that are measured at fair value using observable inputs. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2. Significant other inputs that are directly or indirectly observable in the marketplace. Level 3. Significant unobservable inputs that are supported by little or no market activity. The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. The following tables summarize the Company’s financial assets measured at fair value as of September 30, 2024 and December 31, 2023 and indicate the fair value hierarchy of the valuation: Fair Value at Reporting Date Using (in thousands) September 30, 2024 Level 1 Level 2 Level 3 Assets: Cash equivalents (1) $ 71,497 $ 71,497 $ — $ — Marketable securities: Corporate bonds 4,315 — 4,315 — Commercial paper 786 — 786 — U.S. Treasury debt securities 14,932 14,932 — — Total marketable securities 20,033 14,932 5,101 — Total Assets $ 91,530 $ 86,429 $ 5,101 $ — (1) Includes insured cash sweep account, cash sweep account, money market account and money market funds that have investments primarily in U.S. Government Agency debt, U.S. Treasury debt, U.S. Treasury Repurchase Agreements, U.S. Government Agency Repurchase Agreements, and corporate bonds that have a maturity of three months or less from the original acquisition date. Fair Value at Reporting Date Using (in thousands) December 31, 2023 Level 1 Level 2 Level 3 Assets: Cash equivalents (1) $ 34,463 $ 34,463 $ — $ — Marketable securities: Corporate bonds 16,206 — 16,206 — Commercial paper 7,279 — 7,279 — U.S. government-sponsored enterprise securities 3,500 — 3,500 — U.S. Treasury debt securities 22,067 22,067 — — International debt securities 2,144 — 2,144 — Total marketable securities 51,196 22,067 29,129 — Total Assets $ 85,659 $ 56,530 $ 29,129 $ — (1) Includes insured cash sweep account, cash sweep account, money market account and money market funds that have investments primarily in U.S. Government Agency debt, U.S. Treasury debt, U.S. Treasury Repurchase Agreements, U.S. Government Agency Repurchase Agreements and corporate bonds that have a maturity of three months or less from the original acquisition date. Note 11. Earnings Per Share Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Because the Company has reported a net loss for the three and nine months ended September 30, 2024 and 2023, the number of shares used to calculate diluted net loss per share attributable to common stockholders is the same as the number of shares used to calculate basic net loss per share attributable to common stockholders for the period presented because the potentially dilutive shares would have been anti-dilutive if included in the calculation. The computation of basic and diluted net loss per share attributable to common stockholders is as follows for the three and nine months ended September 30, 2024 and 2023: Three months ended September 30, Nine months ended September 30, (in thousands, except shares and per share amounts) 2024 2023 2024 2023 Net loss $ ( 9,442 ) $ ( 15,476 ) $ ( 33,192 ) $ ( 50,200 ) Weighted-average shares of common stock outstanding - basic and diluted 99,435,002 94,675,358 98,165,903 93,477,486 Net loss per common share - basic and diluted $ ( 0.09 ) $ ( 0.16 ) $ ( 0.34 ) $ ( 0.54 ) The following potential shares of common stock were excluded from diluted net loss per share as the Company had a net loss in each of the periods presented: As of September 30, 2024 2023 Stock options 2,058,570 4,688,972 Restricted Stock Units 6,848,002 8,074,490 ESPP 72,849 94,635 Total anti-dilutive common share equivalents 8,979,421 12,858,097 Note 12. Commitments and Contingencies Legal Proceedings The Company may become party to various legal actions during the ordinary course of business. Defending such proceedings is costly and can impose a significant burden on management and employees, it may receive unfavorable preliminary or interim rulings during litigation, and there can be no assurances that favorable final outcomes will be obtained. In addition, the Company’s industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets and other intellectual property and proprietary rights. Companies in our industry are often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Furthermore, client agreements typically require the Company to indemnify clients against liabilities incurred in connection with claims alleging its solutions infringe the intellectual property rights of a third party. From time to time, the Company has been involved in disputes related to patent and other intellectual property rights of third parties, none of which has resulted in material liabilities. The Company expects these types of disputes may continue to arise in the future. Based upon present information, the Company believes that its liability, if any, arising from such pending legal proceedings, asserted legal claims and known potential legal claims, which are likely to be asserted, is not reasonably likely to be material to the Company’s financial position, results of operations, or cash flows, taking into account established accruals for estimated liabilities. Note 13. Leases The Company leases office space under non-cancellable operating leases for its corporate headquarters in Plano, Texas pursuant to a 10-year lease agreement, under which the Company leases approximately 125,468 square feet of office space with an initial term that expires on August 31, 2028, with the option to extend the lease for either two additional terms of five years each or one additional term of 10 years. Renewal options were not included in the right-of-use (“ROU”) asset and lease liability calculation. On September 5, 2023, the Company entered into an amendment to its office lease, which, among other things, reduces the leased space in Plano, Texas from approximately 125,468 square feet to 83,939 square feet, effective December 31, 2023, and also extends the term for the remaining reduced leased space to August 31, 2033. The Company determined that the amendment would be treated as a lease modification. The modification resulted in a remeasurement of the operating lease ROU asset and lease liability, and the effect was an increase to the ROU asset and lease liability of $ 3.1 million and $ 2.7 million, respectively, as of December 31, 2023. In addition, the Company recorded a gain on lease modification of $ 0.4 million during the three months ended December 31, 2023, which was included in general and administrative expenses in the consolidated statements of operations. Operating lease expense consisted of: (in thousands) Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Operating lease expense $ 672 $ 745 $ 2,015 $ 2,313 Short-term lease expense and other (1) 297 ( 22 ) 729 611 Total lease expense $ 969 $ 723 $ 2,744 $ 2,924 (1) Other lease expense includes variable lease expense. The three and nine months ended September 30, 2023 include sublease income and a gain on lease modification. Supplemental Cash Flow Information Nine months ended September 30, Cash flow information (in thousands) 2024 2023 Cash paid for operating lease liabilities $ 1,993 $ 2,924 Non-cash adjustment to operating lease right-of-use assets from lease modification (1) $ — $ 3,108 (1) For the nine months ended September 30, 2023, the non-cash adjustment includes an increase of $ 8.0 million related to the extension of the office space lease to 2033 for the remaining leased space, net of a $ 4.9 million decrease related to the reduction of the leased space effective December 31, 2023. The future maturities of operating lease liabilities are as follows: (in thousands) September 30, 2024 2024 (three months remaining) $ 672 2025 2,707 2026 2,648 2027 2,620 2028 2,777 Thereafter 14,981 Total minimum lease payments 26,405 Less: present value discount ( 7,701 ) Total lease liability balance $ 18,704 Note 14. Goodwill and Other Intangibles Goodwill and intangible assets deemed to have an indefinite life are not amortized, but are reviewed annually for impairment of value or when indicators of a potential impairment are present. As part of the Company’s business planning cycle, the Company performs an annual goodwill impairment test in the fourth quarter of the fiscal year. There were no indications of impairment of goodwill noted as of September 30, 2024. Goodwill had a carrying value of $ 148.1 million as of both September 30, 2024 and December 31, 2023. Total intangibles, net, consisted of the following as of September 30, 2024 and December 31, 2023: As of September 30, 2024 (in thousands) Carrying Value Accumulated Amortization Net Carrying Value Finite-lived: Customer Relationships $ 20,470 $ ( 3,843 ) $ 16,627 Developed Technology 27,700 ( 14,165 ) 13,535 Tradenames 750 ( 219 ) 531 Total amortizable intangible assets 48,920 ( 18,227 ) 30,693 Website domain name (Indefinite-lived) 25 — 25 Total intangible assets $ 48,945 $ ( 18,227 ) $ 30,718 As of December 31, 2023 (in thousands) Carrying Value Accumulated Amortization Net Carrying Value Finite-lived: Customer Relationships $ 20,470 $ ( 2,820 ) $ 17,650 Developed Technology 27,700 ( 10,151 ) 17,549 Tradenames 750 ( 167 ) 583 Total amortizable intangible assets 48,920 ( 13,138 ) 35,782 Website domain name (Indefinite-lived) 25 — 25 Total intangible assets $ 48,945 $ ( 13,138 ) $ 35,807 Amortization expense recognized on intangible assets was $ 1.7 million and $ 5.1 million for the three and nine months ended September 30, 2024, respectively, and $ 1.7 million and $ 5.1 million for the three and nine months ended September 30, 2023, respectively. The following table shows the estimated annual amortization expense of the definite-lived intangible assets for the next five years and thereafter (in thousands): 2024 (three months remaining) $ 1,697 2025 6,786 2026 6,554 2027 3,162 2028 1,435 Thereafter 11,059 $ 30,693