ALKAMI TECHNOLOGY, INC. Q2 FY2021 earnings

Alkami Technology reported fiscal 2021 second quarter revenue of $36.7 million, up 37.6% from the prior-year quarter. Gross profit rose faster, up 52.8% to $20.5 million, and gross margin expanded to 55.9% from 50.4%, a gain of 5.6 percentage points. SaaS subscription services made up 94.3% of total revenues in the quarter, the same share as the prior-year quarter. For the six months ended June 30, 2021, revenue was $70.0 million, up 40.3%, and gross margin was 54.7% against 49.6% a year earlier, up 5.1 percentage points.

The bottom line moved the other way. The operating loss was $9.8 million for the quarter, and that loss widened 38.0% from the prior-year quarter. Net loss was $11.4 million, 56.5% wider than a year ago, and $22.3 million for the six months, wider by 27.0%. Diluted loss per share was $0.15 for the quarter, narrower than the prior-year quarter loss of $1.63, and $0.56 for the six months. Operating margin was negative 26.7%, flat against negative 26.7% a year earlier. Expense growth tells much of the story. General and administrative expense climbed 87.0% to $12.8 million on higher headcount, public company insurance, and accounting, audit and consulting costs tied to the April IPO. Research and development rose 23.8% to $12.1 million, equal to 33.0% of revenues, and sales and marketing rose 38.5% to $5.4 million.

The operating metrics kept climbing. Annual recurring revenue reached $144.7 million as of June 30, 2021, up $39.7 million, or 37.8%, from $105.0 million a year earlier. Registered users totaled 10.7 million, up 2.4 million, or 28.9%, from 8.3 million, and management said the company added more than 740,000 digital banking users during the quarter. Alkami served 161 financial institutions on its platform plus 102 clients through ACH Alert, which it described as 87.9% annual client growth since June 30, 2020. The platform carried 229 integrations as of June 30, 2021, and the average contract life was roughly 70 months. The company logged two client renewals in the quarter and four in the first half, and it secured three new key banks during July. Non-GAAP gross margin was 57.5%, an expansion of over 680 basis points, and the Adjusted EBITDA loss narrowed to $5.4 million from $6.0 million.

Guidance points to steady investment and continuing losses. For the third quarter ending September 30, 2021, management expects an Adjusted EBITDA loss of $7.5 million to $6.5 million. For the full year ending December 31, 2021, the outlook is an Adjusted EBITDA loss of $24.5 million to $22.5 million. Management said it will keep funding go-to-market capacity and product innovation while it works toward profitability.

Cash is the softer part of the story. Operating cash flow was negative $10.3 million for the quarter, down 98.5% from negative $5.2 million in the prior-year quarter. For the six months, operating cash flow was negative $12.3 million, up 38.5% from the prior-year period. Capital expenditures were $0.3 million in the quarter, up 42.8%, and $0.5 million for the six months, down 66.0%. Deferred revenue, current portion, stood at $6.6 million, while remaining performance obligations were $536.0 million at June 30, 2021. The April IPO brought in $192.8 million of net proceeds.

The risk list in the filing is long and familiar. Alkami cites its limited operating history and history of operating losses, intense competition, reliance on third-party software and services, the need to prevent security breaches and unauthorized access to client data, and any downturn or consolidation in financial services technology spending. COVID-19 work-from-home arrangements have made sales and implementations harder to execute. The credit agreement, which matures on October 16, 2023, carries a covenant requiring recurring revenues in any four consecutive fiscal quarters to be 10% above the comparable prior-year period, plus a minimum liquidity test of $10.0 million each month. Meeting those tests while spending heavily is the near-term task.