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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 001-40321
https://cdn.kscope.io/a9080b103b9105585c698fa2e2e52b5f-alk-20210331_g1.jpg
ALKAMI TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware45-3060776
State or Other Jurisdiction of
Incorporation or Organization
I.R.S. Employer Identification No.
5601 Granite Parkway,Suite 120
Plano,TX75204
Address of Principal Executive OfficesZip Code
(877) 725-5264
Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareALKTThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Smaller reporting company
Accelerated filer
Emerging growth company
Non-accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No 
The number of shares of registrant’s common stock outstanding as of April 30, 2021 was 85,936,693.


Table of Contents
TABLE OF CONTENTS
i    

Table of Contents
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(UNAUDITED)
March 31,December 31,
20212020
Assets
Current assets
Cash and cash equivalents$162,075 $166,790 
Accounts receivable, net14,614 14,103 
Deferred implementation costs, current5,063 4,745 
Prepaid expenses and other current assets9,742 7,598 
Total current assets191,494 193,236 
Property and equipment, net10,308 10,461 
Deferred implementation costs, net of current portion15,096 14,858 
Intangibles, net8,057 8,266 
Goodwill16,542 16,218 
Other assets6,522 6,127 
Total assets$248,019 $249,166 
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities
Current portion of long-term debt$625 $313 
Accounts payable4,725 360 
Accrued liabilities16,125 13,099 
Deferred rent and tenant allowance, current661 596 
Deferred revenues, current portion6,715 6,116 
Total current liabilities28,851 20,484 
Long-term debt, net24,267 24,566 
Warrant liability4,336 2,692 
Deferred revenues, net of current portion13,835 14,424 
Deferred rent and tenant allowance, net of current portion5,726 5,867 
Other non-current liabilities1,393 1,393 
Total liabilities78,408 69,426 
Commitments and contingencies (Note 13)
Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock, $0.001 par, 72,799,602 shares authorized and 72,225,916 and 72,225,916 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
443,540 443,263 
Stockholders’ Equity (Deficit)
Common stock, $0.001 par, 101,671,156 shares authorized and 6,755,179 and 4,909,529 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
7 5 
Additional paid-in capital3,974  
Accumulated deficit(277,910)(263,528)
Total stockholders’ equity (deficit)(273,929)(263,523)
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)$248,019 $249,166 

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.


1

Table of Contents
ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
Three months ended March 31,
20212020
Revenues$33,262 $23,210 
Cost of revenues15,497 11,902 
Gross profit17,765 11,308 
Operating expenses:
Research and development10,913 9,689 
Sales and marketing5,406 4,640 
General and administrative10,385 7,158 
Total operating expenses26,704 21,487 
Loss from operations
(8,939)(10,179)
Non-operating income (expense):
Interest income14 29 
Interest expense(310)(104)
Loss on financial instruments
(1,644)(1)
Loss before income taxes
(10,879)(10,255)
Provision for income taxes  
Net loss
$(10,879)$(10,255)
Less: cumulative dividends and adjustments to redeemable convertible preferred stock(277)(277)
Net loss attributable to common stockholders:$(11,156)$(10,532)
Net loss per share attributable to common stockholders:
Basic and diluted$(2.00)$(2.31)
Weighted average number of shares of common stock outstanding:
Basic and diluted5,584,182 4,569,020 

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.


2    

Table of Contents
ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
(UNAUDITED)

Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance January 1, 2021
72,225,916 $443,263 4,909,529 $5 $ $(263,528)$(263,523)
Stock-based compensation— — — — 1,418 — 1,418 
Exercised stock options— — 2,064,567 2 2,827 — 2,829 
Cumulative dividends and adjustments to redeemable convertible preferred stock— 277 — — (277)— (277)
Repurchase of common stock— — (218,917)— 6 (3,503)(3,497)
Net loss— — — — — (10,879)(10,879)
Balance March 31, 2021
72,225,916 $443,540 6,755,179 $7 $3,974 $(277,910)$(273,929)

Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance January 1, 2020
54,290,383 $210,033 4,537,955 $5 $335 $(195,730)$(195,390)
Stock-based compensation— — — — 459 — 459 
Exercised stock options— — 71,360 — 52 — 52 
Cumulative dividends and adjustments to redeemable convertible preferred stock— 277 — — (277)— (277)
Net loss— — — — — (10,255)(10,255)
Balance March 31, 2020
54,290,383 $210,310 4,609,315 $5 $569 $(205,985)$(205,411)

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.
3    

Table of Contents
ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
Three months ended March 31,
20212020
Cash flows from operating activities:
Net loss
$(10,879)$(10,255)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense786 652 
Stock-based compensation expense1,418 459 
Amortization of debt issuance costs13 19 
Loss on financial instruments
1,644 1 
Changes in operating assets and liabilities:
Accounts receivable(512)(1,246)
Prepaid expenses and other current assets(1,207)(1,675)
Accounts payable and accrued liabilities7,382 (2,351)
Deferred implementation costs(556)(787)
Deferred rent and tenant allowances(76)(42)
Deferred revenues35 435 
Net cash used in operating activities
(1,952)(14,790)
Cash flows from investing activities:
Purchases of property and equipment(180)(1,195)
Capitalized software development costs(244) 
Acquisition of business(326) 
Net cash used in investing activities
(750)(1,195)
Cash flows from financing activities:
Borrowings on line of credit 13,000 
Proceeds from stock option exercises2,829 52 
Deferred IPO issuance costs paid(1,345) 
Payments on capital lease obligations (11)
Repurchase of common stock(3,497) 
Net cash (used in) provided by financing activities
(2,013)13,041 
Net decrease in cash and cash equivalents
(4,715)(2,944)
Cash and cash equivalents and restricted cash, beginning of period171,663 11,982 
Cash and cash equivalents and restricted cash, end of period$166,948 $9,038 
Supplemental disclosure of noncash financing activities
Deferred IPO offering costs not yet paid$2,122 $ 

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.
4    

Table of Contents
ALKAMI TECHNOLOGY, INC.
Notes to the 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 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.

Initial Public Offering

On April 13, 2021, the Company's registration statement relating to the initial public offering ("IPO") of its common stock was declared effective by the Securities and Exchange Commission ("SEC"). In connection with the IPO, the Company issued and sold 6,900,000 shares of common stock (including 900,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional shares) at a public offering price of $30.00 per share for net proceeds of $192.8 million, after deducting underwriters' discounts and commissions (excluding other IPO costs as of April 13, 2021). Prior to the IPO, deferred offering costs, which consist of legal, accounting, consulting and other direct fees and costs relating to the IPO, were capitalized in prepaid expenses and other current assets. Expected expenses incurred by the Company for the IPO were approximately $5.2 million as of the effectiveness of the registration statement and will be recorded against stockholders’ equity. In addition, effective upon the closing of the IPO, the Company's certificate of incorporation was amended and restated such that the total number of shares of common stock authorized to be issued was increased to 500,000,000 shares and the total number of shares of preferred stock authorized to be issued was reduced to 10,000,000 shares.

Immediately prior to the effectiveness of the Company’s registration statement:

the Company’s outstanding shares of redeemable convertible preferred stock converted into an aggregate of 72,225,916 shares of common stock;
all of the Company’s outstanding warrants exercisable for shares of redeemable convertible preferred stock converted into warrants exercisable for 212,408 shares of common stock (warrants are currently classified as liabilities and marked to market at the end of each reporting period, the warrants will be classified as equity immediately prior to the effectiveness of the Company’s registration statement);
the Company reserved 12,131,846 shares of common stock for issuance pursuant to future awards under the Company’s 2021 Incentive Award Plan;
the Company granted restricted stock units covering 192,000 shares of common stock;
the Company granted options to purchase 101,775 shares of common stock at an exercise price equal to $30.00, the IPO price set forth on the final prospectus (the “Prospectus”) filed with the SEC on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended; and
the Company reserved 2,205,790 shares of common stock for future issuance under the ESPP.

With the proceeds of the IPO, the Company paid in full accumulated dividends on our previously outstanding shares of Series B redeemable convertible preferred stock, which totaled approximately $5.0 million.

Note 2. Summary of Significant Accounting Policies

The accompanying 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 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, 2020, which are included in the Prospectus. Operating results for the three months ended March 31, 2021 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2021.
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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, recoverability and amortization period related to costs to obtain and fulfill contracts, valuation of the Company’s stock options, and warrants.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, restricted cash and cash equivalents, accounts receivable, accounts payable, long-term debt and stock warrants. The carrying values of cash, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values due to the short-term nature of these instruments. The carrying value of long-term debt approximates its fair value due to the variable interest rate. Cash equivalents include amounts held in money market accounts that are measured at fair value using observable market prices. Warrant liabilities are valued using the Black-Scholes option pricing method and are presented at estimated fair value at the end of the reporting period. The assumptions used in preparing the Black-Scholes option pricing calculation include weighted average grant date fair value, volatility, risk-free interest rate, dividends, weighted average expected life in years and estimated forfeiture. Changes in the fair value of warrant liabilities are recognized as a gain or loss within non-operating income (expense).

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 which 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 table summarizes the Company’s financial assets measured at fair value as of March 31, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation:

Fair Value at Reporting Date Using
(In thousands)March 31, 2021Level 1Level 2Level 3
Assets:
Money Market Accounts$150,346 $150,346 $ $ 
    Total Assets$150,346 $150,346 $ $ 
Liabilities:
Warrant Liabilities$(4,336)$ $ $(4,336)
Total Liabilities$(4,336)$ $ $(4,336)

Fair Value at Reporting Date Using
(In thousands)December 31, 2020Level 1Level 2Level 3
Assets:
Money Market Accounts$143,277 $143,277 $ $ 
    Total Assets$143,277 $143,277 $ $ 
Liabilities:
Warrant Liabilities$(2,692)$ $ $(2,692)
Total Liabilities$(2,692)$ $ $(2,692)

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The reconciliations of the beginning and ending balances during the three months ended March 31, 2021 for Level 3 assets and liabilities are as follows (in thousands):
Asset and liability categories
Beginning Level 3 Fair Value at January 1, 2021
Fair value adjustment
Ending Level 3 Fair Value at March 31, 2021
Warrant Liabilities$(2,692)$(1,644)$(4,336)
Restricted Cash

The Company defines restricted cash as cash that is legally restricted as to withdrawal or usage. The amount included in restricted cash on the Condensed Consolidated Balance Sheet at March 31, 2021 and December 31, 2020 represents the additional cash proceeds in deposit with an escrow agent for satisfaction of contingent consideration related to the acquisition of ACH Alert, LLC (“ACH Alert”). See Note 3 for further information.

March 31,December 31,
(in thousands)20212020
Cash and cash equivalents$162,075 $166,790 
Restricted cash included in Other assets4,873 4,873 
Total cash and cash equivalents and restricted cash shown in statements of cash flows$166,948 $171,663 

Capitalized Software Development Costs

Software development costs relate primarily to software coding, systems interfaces, and testing of the Company’s proprietary systems and are accounted for in accordance with ASC 350-40, Internal Use Software. Internal software development costs are capitalized from the time the internal use software is in the application development stage until the software is ready for use. Business analysis, system evaluation, and software maintenance costs are expensed as incurred. The capitalized software development costs are reported in property and equipment, net in the condensed consolidated balance sheets.

The Company had $0.2 million in capitalized internal software development costs as of March 31, 2021 and none as of December 31, 2020. Capitalized software development costs are amortized using the straight-line method over the estimated useful life of the software, generally three to five years from when the asset is placed in service.

Contract Balances

Client contracts under which revenues have been recognized while the Company is not yet able to invoice results in contract assets. Generally, contract assets arise as a result of reallocating revenues when discounts are weighted more heavily in the early years of a multi-year contract or the client contract has substantive minimum fees that escalate over the term of the contract. Contract assets totaled $0.8 million and $0.8 million as of March 31, 2021 and December 31, 2020, respectively, which are included in other assets in the accompanying condensed consolidated balance sheets.

Contract liabilities are comprised of billings or payments received from the Company’s clients in advance of performance under the contract and are represented in deferred revenues in the consolidated balance sheets.

Stock-Based Compensation

Stock options are accounted for using the grant date fair value method. Under this method, stock-based compensation expense is measured by the estimated fair value of the granted stock options at the date of grant using the Black-Scholes option pricing model and recognized over the vesting period with a corresponding increase to additional paid-in capital.

Determining the fair value of stock-based awards at the grant date requires significant judgement. The determination of the grant date fair value of stock-based awards using the Black-Scholes option-pricing model is affected, for periods prior to the Company’s IPO, by the Company’s estimated common stock fair value as well as other subjective assumptions including the volatility, risk-free interest rate, dividends, weighted average expected life and estimated forfeiture rate. The assumptions used in the Company’s option-pricing model represent management’s best estimates. These assumptions and estimates are as follows:

Fair Value of Common Stock. Given the absence of an active market for the Company’s shares of common stock prior to its IPO, the fair value of the shares of common stock underlying the Company’s stock options was determined by the Company’s board of directors (the “Board”).

The Board intends all options to be exercisable at the fair value of its shares of common stock on the grant date. Such estimates will not be necessary in future periods because the underlying shares began trading after the IPO. The assumptions used in the valuation models were based on future expectations and management judgment. The Company used three methods to determine fair value of its common stock as follows:
Discounted Cash Flow Method: the value of the business is estimated on the basis of forecasted cash flows, discounted to present value using an appropriate risk-adjusted discount rate.
Guideline Public Company Method: the value of the business is estimated through the application of multiples observed for public companies engaged in businesses and/or industries that are considered comparable to the Company.
Recent Transactions Method: the value of the business is estimated through the application of multiples observed for M&A transactions
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involving target companies engaged in businesses and/or industries that are considered comparable to the Company.

To allocate the aggregate equity value of the Company to the various equity interests present, the Company has historically (until September 2020) utilized the Option Pricing Method (“OPM”). The OPM values each equity class by creating a series of call options on the equity value, with exercise prices based on the liquidation preferences and conversion terms. Beginning in September 2020, the Company began applying the hybrid method, which combines elements of the OPM and the probability-weighted expected return method (“PWERM”) to determine the value of its shares of common stock. The Company made this change as greater clarity developed regarding a possible IPO or other liquidity event. Under the PWERM, the value of the Company’s shares of common stock is estimated based on the analysis of future values for the enterprise assuming various possible future events, such as an IPO. The future value was discounted to its present value using an appropriate risk-adjusted rate based on the Company’s stage of development. Additionally, the Company applied a discount for lack of marketability. The allocation to each share class is based upon the Black-Scholes options pricing model. Under the hybrid method, the per share values calculated under each exit scenario are probability-weighted to determine the fair value of its shares of common stock.
Volatility: As the Company does not have trading history for its common stock, the selected volatility used is representative of expected future volatility. The Company bases expected future volatility on the historical and implied volatility of comparable publicly traded companies over a similar expected term.
Risk-Free Interest Rate: The Company bases the risk-free interest rate on the rate for a U.S. Treasury zero-coupon issue with a term that closely approximates the expected life of the option grant at the date nearest the option grant date.
Dividends. The Company has never declared or paid any cash dividends and does not presently intend to pay cash dividends in the foreseeable future, other than the aggregate accumulated dividends payable to holders of the Company’s Series B redeemable convertible preferred stock. As a result, the Company used a dividends assumption of zero.
Weighted Average Expected Life in Years: The expected term of employee stock options reflects the period for which the Company believes the option will remain outstanding. To determine the expected term, the Company applies the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award.
Estimated Forfeiture Rate. The Company’s forfeiture rate is based on an analysis of its actual forfeitures. The Company will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors.

Preliminary Offering Price and Options Granted Subsequent to December 31, 2020. During February 2021, the Company granted stock options to purchase shares of its common stock. In light of the difference between the fair value for a share of the Company’s common stock used for stock options granted in February 2021 and the initial price range of the Company’s IPO, the Company established the fair value of these grants based on a straight-line interpolation from its December 31, 2020 valuation and the mid-point of its initial price range in order to determine the appropriate stock-based compensation expense for financial reporting purposes.

Concentrations of Credit Risk

Significant concentrations of credit risk arise from the Company’s revenues and accounts receivable. Management believes that its contract acceptance, billing, and collection policies are adequate to minimize potential credit risk. No client represented more than 10% of revenue for the three months ended March 31, 2021 and 2020. As of March 31, 2021 and December 31, 2020, no client represented more than 10% of accounts receivable.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842),” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the consolidated balance sheets and disclosing key information about leasing arrangements. The standard is effective for non-public entities for fiscal years beginning after December 15, 2020, and interim periods for the fiscal year beginning after December 15, 2021, and early application is permitted. The Company anticipates that the adoption of Topic 842 will impact its consolidated balance sheets as most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and corresponding operating lease liabilities upon the adoption of ASU 2016-02. The Company expects to adopt the standard in fiscal year 2021 using the modified retrospective transition approach and interim periods beginning 2022. The Company continues to evaluate quantitative impacts that the adoption of this standard will have. The Company expects total assets and liabilities reported will increase relative to such amounts prior to adoption.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326),” which modifies the measurement of expected credit losses of certain financial instruments with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The effective date for adoption of the new standard was delayed until calendar years beginning after December 15, 2021, with early adoption permitted. This ASU is not expected to have a material impact on the Company’s financial statements.

Note 3. Business Combination

On October 4, 2020, the Company announced the acquisition of substantially all of the assets of ACH Alert for approximately $25 million in cash consideration. The integrated set of assets and activities acquired from ACH Alert through the acquisition meet the definition of a business under ASC 805, as updated by ASU 2017-01. A term loan of $25.0 million (“Term Loan”) was borrowed on October 16, 2020 to partially fund the acquisition of ACH Alert (see Note 8).

The ACH Alert acquisition also involved $4.9 million of additional cash consideration that the Company placed on deposit with an escrow agent to be paid upon the continued employment of one of the owners of ACH Alert, of which $2.5 million is to be paid in October 2021 and
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$2.4 million is to be paid in October 2022. Since the payouts are contingent upon the continued and future employment of the former owner, these amounts have been excluded from the purchase price. The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets and is accruing the estimated payouts over the requisite service period as a component of general and administrative expense on the condensed consolidated statements of operations. For the three months ended March 31, 2021, the Company recognized compensation expense of $0.6 million related to this agreement.

The Company’s preliminary fair value estimates and assumptions to measure the assets acquired and liabilities assumed were subject to change as the Company obtained additional information during the measurement period. The following table summarizes the fair value amounts recognized as of the acquisition date for each major class of asset acquired or liability assumed, as well as adjustments made during the measurement period:

(in thousands) Preliminary Fair Value as of October 4, 2020Measurement Period AdjustmentsAdjusted Fair Value as of March 31, 2021
Trade accounts receivables$915 $— $915 
Other current assets47 (14)33 
Property and equipment20 — 20 
Goodwill16,218 324 16,542 
Intangible assets8,450 — 8,450 
Total assets acquired$25,650 $310 $25,960 
Accounts payable$61 $5 $66 
Accrued liabilities 4 4 
Deferred revenues, current170 — 170 
Deferred revenues, net of current346 (25)321 
Total liabilities assumed577 (16)561 
Net assets acquired$25,073 $326 $25,399 

As of March 31, 2021, the allocation of the purchase price for ACH Alert has been finalized.

The table below outlines the purchased identifiable intangible assets:

Weighted Average Amortization PeriodTotal
(in years)(in thousands)
Customer relationships15$5,100 
Developed technology73,300 
Trade names250 
Total identifiable intangible assets$8,450 

Goodwill is mainly attributable to advantages expected from the acquisition such as giving the Company a complimentary solution to its existing platform offering, especially for banks. It is also expected to position the Company to better penetrate the banking market. This goodwill is expected to be deductible for tax purposes.

No material transaction costs are included within the consolidated statements of operations for the three months ended March 31, 2021 and 2020.

Note 4. Property and Equipment, Net

Depreciation expense was $0.6 million and $0.6 million for the three months ended March 31, 2021 and 2020, respectively.

(in thousands)Useful LifeMarch 31, 2021December 31, 2020
Software
1 to 3 years
$967 $722 
Computers and equipment3 years3,984 3,821 
Furniture and fixtures5 years3,930 3,930 
Leasehold improvements
3 to 10 years
11,663 11,650 
$20,544 $20,123 
Less: accumulated depreciation(10,236)(9,662)
Property and equipment, net$10,308 $10,461 

Note 5. Revenue and Deferred Costs

The Company derives primarily all of its revenues from SaaS subscription services charged for the use of its digital banking solutions. Revenues are recognized net of the most likely amount of sales credits and allowances and presented net of sales and usage-based taxes collected from clients on behalf of governmental authorities. SaaS subscription services are generally recognized as revenue over the term of the contract as a
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series of distinct SaaS services bundled into a single performance obligation. Clients are typically charged a one-time, upfront implementation fee and recurring annual and monthly access fees for the use of the Company’s digital banking solution. Implementation and integration of the digital banking platform is complex, and the Company has determined that the one-time, upfront services are not distinct. In determining whether implementation services are distinct from subscription services, the Company considered various factors including the significant level of integration, interdependency, and interrelation between the implementation and subscription service, as well as the inability of the clients’ personnel or other service providers to perform significant portions of the services. As a result, the Company defers any arrangement fees for implementation services and recognizes such amounts over time on a ratable basis as one performance obligation with the underlying subscription revenue commencing when the client goes live on the platform, which corresponds with the date the client obtains access to the Company’s digital banking solution and begins to benefit from the service.

The Company’s performance obligation for the SaaS series of services includes standing ready over the term of the contract to provide access to all of the clients’ users and process any transactions initiated by those users. The Company invoices clients each month for the contracted minimum number of registered users with an additional amount for users in excess of those minimums. The Company recognizes variable consideration related to registered user counts in excess of the contractual minimum amounts each month. SaaS subscription revenues also includes annual and monthly charges for maintenance and support services which are recognized over the subscription term. As mentioned above, SaaS contracts include a single performance obligation that consists of a series of distinct SaaS services transferred over time that are substantially the same each month. Standalone selling prices are not required to allocate revenue amongst the distinct services within the series. The Company uses an analysis of pricing and discounting objectives, expected volume of users above contracted minimums and transactions, and client characteristics to ensure the revenue standards’ allocation objectives have been met. In limited circumstances when a contract calls for certain discounting to be triggered by volumes above contracted minimums, the Company is required to estimate these volumes in order to calculate revenue recognition in line with the standard’s allocation objectives.

The following table disaggregates the Company's revenue by major source for the three months ended March 31, 2021 and 2020:

Three months ended March 31,
(in thousands)20212020
SaaS subscription services$31,569 $21,514 
Implementation services1,300 1,277 
Other services393 419 
Total revenues$33,262 $23,210 

The Company recognized approximately $1.7 million of revenue during the three months ended March 31, 2021, and $1.8 million during the three months ended March 31, 2020, respectively, which was recognized from deferred revenues in the accompanying condensed consolidated balance sheets as of the beginning of each reporting period. For those contracts which were wholly or partially unsatisfied as of March 31, 2021, minimum contracted subscription revenues to be recognized in future periods total approximately $521.8 million. The Company expects to recognize approximately 43% of this amount as subscription services are transferred to customers over the next 24 months, an additional 35% in the next 25 to 48 months, and the 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.

Deferred Cost Recognition

The Company capitalized $0.3 million and $0.3 million in deferred commissions costs during the three months ended March 31, 2021 and March 31, 2020, respectively, and recognized $0.5 million and $0.3 million of amortization during the three months ended March 31, 2021 and 2020, respectively. Amortization expense is included in sales and marketing expenses in the accompanying statements of operations. Deferred commissions are included in deferred implementation costs in the accompanying consolidated balance sheets in the amount of $8.8 million and $9.0 million as of March 31, 2021 and December 31, 2020, respectively.

The Company capitalized implementation costs of $1.3 million and $1.2 million during the three months ended March 31, 2021 and March 31, 2020, respectively, and recognized amortization of $0.6 million and $0.4 million during the three months ended March 31, 2021 and 2020, respectively. Amortization expense is included in cost of revenues in the accompanying consolidated statements of operations.

Deferred cost assets are reviewed for impairment annually or more frequently if circumstances indicate there may be an impairment. No impairment loss was recognized in relation to these capitalized costs for the three months ended March 31, 2021 and 2020.

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Note 6. Accounts Receivable

Accounts receivable includes the following amounts at March 31, 2021 and December 31, 2020:
March 31,December 31,
(in thousands)20212020
Trade accounts receivable$11,866 $11,804 
Unbilled receivables2,170 2,081 
Other receivables1,049 702 
Total receivables15,085 14,587 
Allowance for doubtful accounts(327)(323)
Reserve for estimated credits(144)(161)
$14,614 $14,103 

Note 7. Accrued Liabilities

Accrued liabilities consisted of the following at March 31, 2021 and December 31, 2020:
March 31,December 31,
(in thousands)20212020
Bonus accrual$2,332 $2,636 
Accrued vendor purchases3,887 2,542 
Commissions accrual1,179 1,309 
Accrued hosting services1,317 924 
Client refund liability1,098 1,362 
Deferred compensation payable1,250 625 
Accrued consulting and professional fees514 207 
Accrued tax liabilities2,373 2,394 
Other accrued liabilities2,175 1,100 
Total accrued liabilities$16,125 $13,099 

Note 8. Debt

On October 16, 2020, the Company entered into a credit agreement with Silicon Valley Bank and KeyBank (“Credit Agreement”). The Credit Agreement replaced the prior credit facility provided by Comerica Bank. The Credit Agreement matures on October 16, 2023. The Credit Agreement includes the following:
Revolving Facility: The Credit Agreement provides $25.0 million in aggregate commitments for secured revolving loans, with sub-limits of $10.0 million for the issuance of letters of credit and $7.5 million for swingline loans (“Revolving Facility”).
Term Loan: A Term Loan of $25.0 million was borrowed on the closing date of the Credit Agreement. The proceeds of the Term Loan were used to fund the acquisition of ACH Alert which closed on October 4, 2020.
Accordion Feature: The Credit Agreement also allows the Company, subject to certain conditions, to request additional revolving loan commitments in an aggregate principal amount of up to $30.0 million.

Revolving Facility loans under the Credit Agreement may be voluntarily prepaid and re-borrowed. Principal payments on the Term Loan are due in quarterly installments equal to an initial amount of approximately $0.3 million, which begin December 31, 2021 and continue through September 30, 2022 and increase to approximately $0.6 million beginning on December 31, 2022 through the Credit Agreement maturity date. Once repaid or prepaid, the Term Loans may not be re-borrowed.

Borrowings under the Credit Agreement bear interest at a variable rate based upon, at the Company’s option, either the LIBOR rate or the base rate (in each case, as customarily defined) plus an applicable margin. The minimum LIBOR rate to be applied is 1.00%. The applicable margin for LIBOR rate loans ranges , based on an applicable recurring revenue leverage ratio, from 3.00% to 3.50% per annum, and the applicable margin for base rate loans ranges from 2.00 to 2.50% per annum. The Company’s minimum interest rate applied to term debt was 4.00% as of March 31, 2021. The Company is required to pay a commitment fee of 0.30% per annum on the undrawn portion available under the Revolving Facility, and variable fees on outstanding letters of credit.

All outstanding principal and accrued but unpaid interest is due, and the commitments for the Revolving Facility terminate, on the maturity date. The Term Loans are subject to mandatory repayment requirements in the event of certain asset sales or if certain insurance or condemnation events occur, subject to customary reinvestment provisions. The Company may prepay the Term Loans in whole or in part at any time without premium or penalty.

The Credit Agreement contains customary affirmative and negative covenants, as well as (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 $10.0 million or more. The Credit Agreement also contains customary events of default, which if
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they occur, could result in the termination of commitments under the 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 March 31, 2021.

Long-term Debt

The following table summarizes long-term debt obligations as of March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021December 31, 2020
Term Debt$25,000 $25,000 
Less unamortized debt issuance costs(108)(121)
Net amount24,892 24,879 
Less current maturities of long-term debt(625)(313)
Long-term portion$24,267 $24,566 

Maturities of long-term debt outstanding as of March 31, 2021, are summarized as follows (in thousands):

2021$313 
20221,562 
202323,125 
Thereafter 
Total$25,000 

In conjunction with financing arrangements with prior lenders, the Company issued warrants for the purchase of shares of the Company’s redeemable convertible preferred stock. The following tables summarize warrants outstanding as of March 31, 2021 and December 31, 2020 (in thousands, except share and per share data) and issuance price:

Current FMV
SharesIssuance DateIssuance price per shareExpiration dateMarch 31, 2021December 31, 2020
Warrant Series A40,000 12/10/12$1.00 12/10/22$938 $618 
Warrant Series B46,875 7/2/14$1.60 7/7/261,024 657 
Warrant Series B15,000 9/9/14$1.60 9/9/24328 210 
Warrant Series C46,875 7/7/16$3.65 7/7/26928 566 
Warrant Series C34,246 7/21/17$3.65 7/20/27678 414 
Warrant Series E29,412 6/27/19$8.50 6/26/29440 227 
Total212,408 $4,336 $2,692 

The warrants were subject to the same anti-dilution provisions to which the respective series of redeemable convertible preferred stock was subject. The outstanding warrants automatically converted into warrants to purchase common stock in connection with the closing of the Company’s IPO.

Note 9. Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

As of March 31, 2021 and December 31, 2020, the Company was authorized to issue seven classes of stock: common stock, Series A redeemable convertible preferred stock, Series B redeemable convertible preferred stock, Series C redeemable convertible preferred stock, Series D redeemable convertible preferred stock, Series E redeemable convertible preferred stock and Series F redeemable convertible preferred stock. On September 23, 2020, the Board authorized an increase in the number of authorized shares of common stock to 101,671,156 shares and authorized an increase in the number of authorized shares of preferred stock to 72,799,602 shares. All of the outstanding series of redeemable convertible preferred stock converted to common stock upon the IPO.

Repurchase of Common Stock

During the three months ended March 31, 2021, former employees obtained a third-party offer for the purchase of 0.2 million shares of common stock held in the Company. As the Company had the right of first refusal for the sale of these shares, the Company repurchased the shares for $3.5 million from the former employees at the price offered.

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Voting

All classes of stock are entitled to vote. During the three months ended March 31, 2021, Series A through F redeemable convertible preferred stockholders had the right to one vote for each share of common stock into which such holder’s respective shares of redeemable convertible preferred stock could then be converted.

Dividends

As of March 31, 2021 and December 31, 2020, Series A, Series C, Series D, Series E and Series F redeemable convertible preferred stockholders were entitled to an 8% preferred dividend, when, as and if declared by the Board. Series A, Series C, Series D, Series E and Series F preferred dividends are not cumulative. Series B redeemable convertible preferred stockholders were entitled to an 8% preferred return upon redemption or liquidation. The Series B preferred return is cumulative and totaled $7.9 million as of March 31, 2021. This cumulative return is recorded in Redeemable Convertible Preferred Stock on the consolidated balance sheets. Upon the IPO, the Series B redeemable convertible preferred stock was converted into common stock and the holders received a 5% dividend on conversion, which totaled $5.0 million and was paid in cash. Common stockholders are also entitled to dividends, when, as and if declared by the Board. Declared and unpaid dividends for each series of redeemable convertible preferred stock were payable upon liquidation.

Conversion

As of March 31, 2021 and December 31, 2020, holders of Series A, Series B, Series C, Series D, Series E and Series F redeemable convertible preferred stock were entitled to convert their shares into shares of common stock, at the option of the holder, at a 1-for-1 conversion rate based on a conversion price of $1.00, $1.60, $3.65, $6.13, $8.50 and $16.00 per share, respectively. The respective conversion rates were subject to anti-dilution clauses if additional shares of common stock are issued at a price per share below the applicable conversion price. As of March 31, 2021, no such anti-dilution events had occurred.

Liquidation

As of March 31, 2021 and December 31, 2020, upon a liquidation event, as defined by the Company’s certificate of incorporation, including any voluntary or involuntary liquidation, dissolution, winding up or deemed liquidation event, and prior to the payment of other equity holders, liquidation funds, if any, were required to be distributed to Series F redeemable convertible preferred stockholders (entitled to a liquidation preference equal to $16.00 per share plus declared and unpaid dividends), Series E redeemable convertible preferred stockholders (entitled to a liquidation preference equal to $8.50 per share plus declared and unpaid dividends) and Series D redeemable convertible preferred stockholders (entitled to a liquidation preference equal to $6.1278 per share), on a pari passu basis. Thereafter, Series C redeemable convertible preferred stockholders were entitled to a liquidation preference equal to $3.65 per share, after the payment in full of the liquidation preference of Series F, Series E and Series D redeemable convertible preferred stock. Thereafter, Series B redeemable convertible preferred stockholders were entitled to a liquidation preference, after the payment in full of the liquidation preference of the Series F, Series E, Series D and Series C redeemable convertible preferred stock, equal to $1.60 per share plus an accruing amount of 3% per annum on the purchase price of Series B redeemable convertible preferred stock, plus all accrued (including the 5% accruing dividend) but unpaid and any declared but unpaid dividends. Thereafter, Series A redeemable convertible preferred stockholders were entitled to a liquidation preference, after the payment in full of the liquidation preference on all other redeemable convertible preferred stock, equal to $1.00 per share plus any declared, but unpaid dividends. Remaining liquidation funds, if any, were then required to be distributed to both common and Series A redeemable convertible preferred stockholders equally, as if the Series A redeemable convertible preferred stock had been converted to common stock.

Redemption

As of March 31, 2021 and December 31, 2020, holders of all classes of redeemable convertible preferred stock were entitled to require the Company to redeem preferred shares at any time on or after June 27, 2023. Holders of Series A through C vote together with respect to the redemption of Series A, Series B and Series C redeemable convertible preferred stock, Series D and Series E vote together with respect to the redemption of Series D and Series E redeemable convertible preferred stock, and Series F had a separate right with respect to the redemption of Series F redeemable convertible preferred stock. If at least a majority of any such group voted in favor of redemption, the Company was required to redeem one-third of the then-outstanding shares of the applicable group within each series for cash equal to the Liquidation Amount, as defined by each series (“Initial Redemption Date”). The decision of any such group was not binding on any other group and any group’s decision to redeem is independent of any other group’s decision to redeem. The Company would then be required to make additional payments on the one-year and two-year anniversary of the Initial Redemption Date.

In accordance with the SEC guidance on temporary equity, all redeemable convertible preferred stock is presented as mezzanine equity given the cash redemption right that is within the holder’s control. As of March 31, 2021 and December 31, 2020, the preferred shares were not currently redeemable, but it was probable the instruments would become redeemable. Therefore, the Company had elected to recognize changes in redemption value immediately as they occur, as a dividend, and adjust the carrying amount of the instrument such that the carrying value is greater than or equal to the redemption value at the end of each reporting period.

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As of March 31, 2021 and December 31, 2020, the holders of redeemable convertible preferred stock had various rights and preferences as follows:

March 31, 2021December 31, 2020
Shares
Authorized
Shares
Outstanding
Redemption/
Liquidation
Amounts
Shares
Authorized
Shares
Outstanding
Redemption/
Liquidation
Amounts
(in thousands, except for shares)
Series A Redeemable Convertible Preferred Stock8,488,092 8,448,092 $8,448 8,488,092 8,448,092 $8,448 
Series B Redeemable Convertible Preferred Stock8,761,982 8,650,107 21,741 8,761,982 8,650,107 21,464 
Series C Redeemable Convertible Preferred Stock22,600,000 22,228,001 81,132 22,600,000 22,228,001 81,132 
Series D Redeemable Convertible Preferred Stock11,443,749 11,423,349 70,000 11,443,749 11,423,349 70,000 
Series E Redeemable Convertible Preferred Stock12,755,779 12,726,367 108,174 12,755,779 12,726,367 108,174 
Series F Redeemable Convertible Preferred Stock8,750,000 8,750,000 140,000 8,750,000 8,750,000 140,000 
72,799,602 72,225,916 $429,495 72,799,602 72,225,916 $429,218 

Note 10. Equity Compensation

In 2011, the Board established a long-term incentive plan, the Company’s 2011 Long-Term Incentive Plan, as amended (the “2011 Plan”), under which shares of common stock are made available for grants to qualified consultants, directors, or employees of the Company. The vesting of the common stock options is determined by the Company and may be immediately vested in whole, or in part, or all portions may not be vested until a specific date. The exercise price of incentive stock options granted must be at least equal to 100% of the fair value of the Company’s common stock at the date of grant, as determined by the Board.

On February 25, 2021, the Board approved, subject to stockholder approval which, was obtained on March 23, 2021, the Company’s 2021 Employee Stock Purchase Plan (the “ESPP”), pursuant to which employees would be able to purchase shares of the Company’s common stock at a 15% discount. The Board provided for a share reserve with respect to the ESPP of 2% of the total number of shares outstanding after the IPO. The Board further provided that the share reserve will be refreshed by an evergreen provision of 1% of the Company’s outstanding common stock at the end of the prior year, or such lesser amount as the Board or its Compensation Committee may determine.

On February 25, 2021, the Board approved, subject to stockholder approval, which was obtained on March 23, 2021, the Company’s 2021 Incentive Award Plan (the “2021 Plan”), pursuant to which incentive awards may be awarded to employees, directors and consultants. The Board provided that the maximum number of shares of common stock (subject to stock splits, dividends, recapitalizations and the like) issuable under the 2021 Plan is equal to a number of shares equal to (i) 11.0% of the shares of common stock outstanding immediately prior to the effectiveness of the IPO after giving effect to the number of shares being sold in the IPO (including shares subject to outstanding equity awards, and the 2021 share reserve and the ESPP share reserve (as described above)) and assuming no exercise of the underwriters’ option to purchase additional shares, plus (ii) an annual increase on the first day of each year beginning in 2022 and ending in 2031, equal to the lesser of: (a) 5.0% of the shares outstanding on the last day of the prior fiscal year or (b) such lesser amount as determined by the Board, plus (iii) any shares underlying awards outstanding under the 2011 Plan, as of immediately prior to the effectiveness of the IPO, that are thereafter forfeited, terminated, expired or repurchased for the original purchase price thereof, subject to certain statutory limits related to “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code.

Stock Options

On February 5, 2021 and February 10, 2021, following approval by the Board, the Company issued options to purchase an aggregate of 2.4 million shares of the Company’s common stock, with an exercise price of $15.46 per share on the grant date to employees under the 2011 Plan. The stock option grants expire in ten years. Of the stock options, 0.2 million vest 25% after one year and then monthly prospectively for a three-year period with the remaining 2.2 million stock options vesting monthly over a four-year period in 48 equal monthly installments. In order to determine the appropriate stock-based compensation expense for financial reporting purposes, the Company utilized a fair value per share of its common stock as of the date of the awards of $19.35 and $19.72, respectively. The grant date fair value of the stock options granted on February 5, 2021 and February 10, 2021 is approximately $20.0 million, which is expected to be recognized, net of estimated forfeitures, over a requisite service period of 4 years.

On February 25, 2021, following approval by the Board, the Company issued options to purchase an aggregate of 0.3 million shares of the Company’s common stock, with an exercise price of $18.62 per share on the grant date to employees under the 2011 Plan. The stock option grants expire in ten years. The stock options generally vest 25% after one year and then monthly prospectively for a three-year period. In order to determine the appropriate stock-based compensation expense for financial reporting purposes, the Company utilized a fair value per share of its common stock as of the date of the awards of $20.80. The grant date fair value of the stock options granted on February 25, 2021 is approximately $2.9 million, which is expected to be recognized, net of estimated forfeitures, over a requisite service period of generally 4 years.

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The following table summarizes the weighted-average grant date value of options and the assumptions used to develop their fair value using the Black-Scholes option pricing model:
2021
Volatility37.0%
Risk-free interest rate0.7%
Dividends
Weighted average grant date fair value$8.47
Weighted average expected life in years6.03
Estimated forfeiture rate14.3%
Fair value of common stock
$19.35-$20.80

The Black-Scholes option-pricing model requires the input of highly subjective assumptions. The Company continues to assess the assumptions and methodologies used to calculate the established fair value of stock-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies, which could materially impact the fair value determinations.

The Company recorded $1.4 million and $0.5 million of stock-based compensation expense for the three months ended March 31, 2021 and March 31, 2020, respectively. The amount of stock-based compensation capitalized as part of deferred implementation costs was insignificant for the three months ended March 31, 2021 and March 31, 2020. Due to net operating losses, there was no tax expense or benefit recorded in connection with stock-based compensation expense. Stock-based compensation expense was included as follows:


Three months ended March 31,
(in thousands)20212020
Cost of revenues$233 $92 
Research and development299 105 
Sales and marketing103 33 
General and administrative783 229 
Total stock-based compensation expenses$1,418 $459 

Note 11. Income Taxes

The provision for income taxes in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 was $0. The effective tax rate differs from the statutory tax rate primarily due to the impact of the full valuation allowance against the Company’s deferred tax assets.

Note 12. Earnings Per Share

Net loss attributable to common stockholders used in computing basic and diluted earnings per share (“EPS”) has been calculated as the net loss less Series B cumulative dividends and other adjustments to redeemable convertible preferred stock of $0.3 million for the three months ended March 31, 2021 and March 31, 2020. During the three months ended March 31, 2021 and 2020, all of the Company’s outstanding series of redeemable convertible preferred stock were considered to be participating securities. The holders of the Company’s redeemable convertible preferred stock did not have a contractual obligation to share in the Company’s losses; therefore, no amount of total undistributed loss was allocated to redeemable convertible preferred stock.

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 months ended March 31, 2021 and 2020, 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 antidilutive if included in the calculation.

The computation of basic and diluted EPS is as follows for the three months ended March 31, 2021 and 2020:
Three months ended March 31,
(In thousands, except shares and per share amounts)20212020
Net loss$(10,879)$(10,255)
Less: cumulative dividends and adjustments to redeemable convertible preferred stock
(277)(277)
Net loss attributable to common stockholders$(11,156)$(10,532)
Weighted average shares of common stock outstanding - basic and diluted5,584,182 4,569,020 
Loss per common share - basic and diluted$(2.00)$(2.31)

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For the three months ended March 31, 2021 and 2020, the following potential shares of common stock were excluded from diluted EPS as the Company had a net loss in each period presented:
Three months ended March 31,
20212020
Stock options12,190,570 12,958,469 
Redeemable convertible preferred stock72,225,916 54,290,383 
Warrants212,408 212,408 
Total anti-dilutive common share equivalents84,628,894 67,461,260 

Note 13. Commitments and Contingencies

Operating Lease Commitments

The Company leases office space under non-cancelable operating leases for its corporate headquarters in Plano, Texas pursuant to a ten-year lease agreement under which the Company leases approximately 125,000 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 ten years. Rent expense under operating leases was $1.1 million and $1.1 million for the three months ended March 31, 2021 and 2020, respectively.

Future minimum payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at March 31, 2021 were as follows (in thousands):
Operating Leases
2021$2,741 
20223,710 
20233,773 
20243,835 
20253,898 
Thereafter10,697 
Total minimum lease payments$28,654 

Deferred Rent and Tenant Allowances

Deferred rent and tenant allowances are amortized and applied against rental expense over the lease term on a straight-line basis. As of March 31, 2021 and December 31, 2020, the Company had deferred rent and tenant allowance balances as follows:
(in thousands)March 31, 2021December 31, 2020
Deferred rent and tenant allowance$6,387 $6,463 
Less: current portion(661)(596)
Deferred rent and tenant allowance, net of current portion$5,726 $5,867 

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 in the course of 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 its 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 14. Related Party Transactions

For the three months ended March 31, 2021 and 2020, CU Cooperative Systems, Inc. (“CU Cooperative”), an investor who is also a vendor, was paid fees of $1.0 million and $1.2 million, respectively, which relate to services resold to the Company’s clients. As of March 31, 2021, the Company had no accounts payable balance due to CU Cooperative, and as of December 31, 2020, accounts payable included amounts due to CU Cooperative of $0.3 million. Mr. Todd Clark, who has served as President and Chief Executive Officer of CU Cooperative since 2016, is a member of the Board and was designated to serve as a member of the Board by CU Cooperative. CU Cooperative held 5% or more of the Company’s capital stock as of December 31, 2020.

For the three months ended March 31, 2021, the Company employed a former owner of the acquired business ACH Alert. For certain operating and lease payments made on the former owner’s behalf and lockbox cash receipts due to the Company, a receivable of $1.4 million from
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the former owner in prepaid expenses and other current assets as of December 31, 2020. We had no significant receivable balance from the former owner as of March 31, 2021.

Note 15. 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 will perform an annual goodwill impairment test in the fourth quarter of the fiscal year beginning in 2021. There were no indications of impairment of goodwill noted for the three months ended March 31, 2021. Goodwill had a carrying value of $16.5 million and $16.2 million as of March 31, 2021 and December 31, 2020, respectively. The Company recorded $