ALKAMI TECHNOLOGY, INC. Q3 FY2021 earnings

Alkami Technology reported third-quarter revenue of $39.8 million, up 37% from the prior-year quarter. The company closed its acquisition of MK Decisioning Systems in September 2021 for about $20 million in cash. Management said the deal expands the total addressable market by over $2.5 billion and adds digital account opening, credit card, and loan origination capabilities. Alkami also announced that Alex Shootman will become chief executive officer on November 5, 2021. Mike Hansen, the outgoing CEO, will remain on the board. The quarter included six new digital banking clients with product adoption levels above the company's historical norms. Alkami sells multi-year contracts with an average contract life of 70 months, and its sales cycle can run three to 12 months with implementation taking six to 12 months.

GAAP gross margin was 56.3%, an expansion of nearly 390 basis points year over year. Non-GAAP gross margin reached 57.9%, up more than 520 basis points. The top line growth and margin gains did not produce GAAP operating leverage. The operating loss widened to $11.1 million, and operating margin was -28.0%. GAAP net loss narrowed to $11.2 million from a larger loss in the prior-year quarter. Diluted EPS was a loss of $0.13. Adjusted EBITDA loss was $6.1 million, compared with a $5.4 million loss in the prior-year quarter. Operating cash flow was negative $4.5 million for the quarter. Year to date, operating cash flow was negative $16.8 million, an improvement from the prior-year period. The gap between GAAP net loss and adjusted EBITDA reflects non-cash and non-recurring items, including stock-based compensation, depreciation, amortization, and acquisition-related costs. The non-GAAP gross margin excludes amortization of intangible assets and stock-based compensation.

Alkami ended the quarter with 11.4 million digital banking users, up 2.4 million or 26.1% from September 30, 2020. The company added over 675,000 users during the third quarter. Annual recurring revenue was $154.8 million, up 35.9% from $113.9 million a year earlier. Management attributed the gains to registered user growth and cross-sell activity with existing clients. The company served 169 financial institutions through the Alkami Platform and 114 through ACH Alert, which management said represents 92.5% annual client growth since September 30, 2020. Alkami reported 230 real-time integrations as of September 30, 2021. It had three client renewals in the quarter and seven in the first nine months. Remaining performance obligations were $553.4 million, and current deferred revenue was $6.9 million. Management highlighted the six new clients as having significantly higher product adoption than historical wins, which could support deeper expansion of existing relationships over time.

Management guided fourth-quarter adjusted EBITDA loss of $6.0 million to $5.0 million. For the full year ending December 31, 2021, it guided adjusted EBITDA loss of $23.5 million to $22.5 million. The fourth-quarter guidance covers the period ending December 31, 2021, while the full-year guidance covers the calendar year ending December 31, 2021. The company also provided a total revenue outlook for the fourth quarter and the full year. The business remains unprofitable on a GAAP basis. Risks include a limited operating history and a history of operating losses, intense competition, reliance on third-party software and services, and the need to prevent security breaches. Alkami also faces uncertainty from the COVID-19 pandemic, the challenge of integrating the MK acquisition, and the need to attract and retain key employees. The CEO transition comes after Alkami completed its IPO earlier in 2021. The credit agreement includes covenants tied to recurring revenue growth and minimum liquidity. Management will need to keep scaling the platform to improve margins and cash generation.