ALKAMI TECHNOLOGY, INC. Q2 FY2023 earnings

Alkami Technology reported second quarter fiscal 2023 revenue of $65.76 million, up 30.1% from the prior-year quarter. Gross profit was $35.47 million, up 30.1% as well. Gross margin was 53.9%, flat against the prior-year quarter. The operating loss narrowed to $17.87 million, and the net loss narrowed to $17.76 million. Diluted loss per share was $0.19, an improvement from the prior-year quarter. Adjusted EBITDA loss was $2.5 million, against $5.4 million a year earlier.

Customer metrics kept moving in the right direction. Alkami ended June 30, 2023 with Annual Recurring Revenue of $256.8 million, up 25.6% from $204.5 million a year earlier, and 15.8 million registered users, up 18.8%. Revenue per registered user continued to expand, helped by add-on sales and by new clients that tend to onboard at a higher average revenue per user. The company added 16 new digital banking platform clients in the first half of 2023, including 10 in the second quarter, and signed 6 banks so far in 2023. It served 218 financial institutions on the digital banking platform, or more than 600 clients when unique ACH Alert, MK and Segmint clients are counted. Management pointed to 40 new clients and significant add-on sales orders in implementation, representing $48 million in Annual Recurring Revenue over the next 12 months. That pipeline is the core of the growth story.

Backlog and deferred revenue told a mixed story. Remaining performance obligations were $966.50 million, up 38.9% from the prior-year quarter. The current portion of deferred revenue was $8.81 million, down 4.6%. Operating margin improved to negative 27.2%, still deeply negative but better than a year ago.

Cash generation remains negative, though the gap is closing. Operating cash flow was negative $5.71 million for the quarter, an improvement of 48.7% from the prior-year quarter. Year to date, operating cash flow was negative $15.32 million, an improvement of 21.3%. Capital expenditures were $0.19 million in the quarter, down 7.4%, and $0.42 million year to date, down 14.0%.

Guidance points to further improvement in profitability. For the third fiscal quarter ending September 30, 2023, which is the next quarter, Alkami guided adjusted EBITDA loss in the range of $1.25 million to $0.25 million. For the full calendar year ending December 31, 2023, the company guided adjusted EBITDA loss in the range of $4.25 million to $2.25 million. It also issued GAAP total revenue guidance for both the next quarter and the full calendar year. The outlook is based on current expectations and does not include a reconciliation of adjusted EBITDA to GAAP net loss, because certain items are not available without unreasonable effort.

The risks are familiar but real. Alkami sells to financial institutions, and recent banking stress, including the closure of Silicon Valley Bank and liquidity concerns at other institutions, could slow technology spending or delay decisions. Sales cycles run about three to 12 months, and implementation runs six to 12 months, so new bookings convert slowly. Competition is intense, the company depends on third-party hosting and software, and it has a history of operating losses. Cost of revenues and operating expenses are expected to keep growing in absolute dollars as the business scales, which puts pressure on the path to profitability.