ALKAMI TECHNOLOGY, INC. Q3 FY2023 earnings

Alkami Technology reported third-quarter fiscal 2023 revenue of $67.7 million, up 26.8% from the prior-year quarter. Gross profit rose 32.6% to $36.55 million, and gross margin expanded to 54.0% from 51.6%. The company narrowed its operating loss to $15.79 million from $19.82 million, a 20.3% improvement. Net loss narrowed 22.8% to $15.48 million, and diluted loss per share narrowed 27.3% to -$0.16. Operating cash flow turned positive at $3.13 million, compared with negative $4.75 million in the year-ago quarter. Capital expenditures were $0.36 million, up 17.4%.

Operational momentum continued. Annual recurring revenue reached $275.0 million as of September 30, 2023, up 28.7% from $213.6 million a year earlier. Registered users rose 23.1% to 16.9 million. Revenue per registered user increased 4.6% to $16.28. Alkami added 23 new digital banking platform clients in the first nine months of 2023, including 7 in the third quarter. The company had 35 new clients and add-on sales orders in implementation, representing $42 million in annual recurring revenue. It served 229 financial institutions through the Alkami Digital Banking Platform as of September 30, 2023, and had six client renewals in the quarter. Remaining performance obligations were $987.40 million, up 30.7% from the prior-year quarter. Deferred revenue, current portion, was $9.31 million, up 7.4%. The platform had more than 290 real-time integrations as of September 30, 2023. Alkami reported over 600 clients when including unique clients only subscribing to ACH Alert, MK or Segmint products. Its average contract life was approximately 70 months, and a typical sales cycle ranges from approximately three to 12 months, with implementation generally taking six to 12 months.

Profitability metrics showed progress. Adjusted EBITDA was $0.8 million, compared with a loss of $4.6 million in the year-ago quarter. Non-GAAP gross margin was 58.7%, compared with 56.8%. The GAAP operating margin improved to negative 23.3% from negative 37.1%. Year to date, revenue was $193.46 million, up 30.1%, and net loss narrowed 6.5% to $50.20 million. Operating cash flow for the nine months remained negative at $12.20 million, but that was a 49.6% improvement from negative $24.22 million. The company continued to invest in growth, with research and development, sales and marketing, and general and administrative expenses all changing from the prior-year periods. The net loss reflects significant stock-based compensation and ongoing investment in the platform.

Guidance and risks. For the fourth fiscal quarter ending December 31, 2023, Alkami guided Adjusted EBITDA to $2.5 million to $3.0 million. For the full fiscal year ending December 31, 2023, the company guided an Adjusted EBITDA loss of $2.1 million to $1.6 million. It also provided GAAP revenue guidance for both the fourth quarter and the full fiscal year. Management noted good visibility into fourth-quarter digital banking platform decisions and anticipated robust new client wins. Risks include the company's limited operating history, its history of operating losses, the unpredictable and time-consuming nature of sales cycles, reliance on third-party software and hosting, integration with client systems, intense competition, and a potential downturn or consolidation in the financial services industry. The company also faces cybersecurity, regulatory, and privacy risks. Alkami addressed the March 2023 Silicon Valley Bank receivership, stating it did not believe it had exposure to loss and that liquidity and financing were not impacted. It amended its Plano office lease to reduce space and extend the term to August 31, 2033. The Amended Credit Agreement includes a liquidity covenant requiring $20.0 million or more and an annual recurring revenue growth covenant requiring recurring revenues in any four consecutive fiscal quarter period to be 10% greater than the corresponding period in the previous year.