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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 September 30, 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/4b792643256627ea678e12df3f326f56-alk-20210930_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 September 30, 2021 was 88,147,853.


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)
September 30,December 31,
20212020
Assets
Current assets
Cash and cash equivalents$314,402 $166,790 
Accounts receivable, net20,281 14,103 
Deferred implementation costs, current5,736 4,745 
Prepaid expenses and other current assets10,399 7,598 
Total current assets350,818 193,236 
Property and equipment, net10,891 10,461 
Deferred implementation costs, net of current portion15,478 14,858 
Intangibles, net11,309 8,266 
Goodwill48,391 16,218 
Other assets4,905 6,127 
Total assets$441,792 $249,166 
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities
Current portion of long-term debt$1,250 $313 
Accounts payable2,538 360 
Accrued liabilities24,732 13,099 
Deferred rent and tenant allowance, current691 596 
Deferred revenues, current portion6,893 6,116 
Total current liabilities36,104 20,484 
Long-term debt, net23,668 24,566 
Warrant liability 2,692 
Deferred revenues, net of current portion13,234 14,424 
Deferred rent and tenant allowance, net of current portion5,375 5,867 
Other non-current liabilities17,893 1,393 
Total liabilities96,274 69,426 
Commitments and contingencies (Note 13)
Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock, $0.001 par, 0 and 72,799,602 shares authorized and 0 and 72,225,916 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
 443,263 
Stockholders’ Equity (Deficit)
Preferred stock, $0.001 par, 10,000,000 and 0 shares authorized and 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
  
Common stock, $0.001 par, 500,000,000 and 101,671,156 shares authorized and 88,147,853 and 4,909,529 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
88 5 
Additional paid-in capital645,934  
Accumulated deficit(300,504)(263,528)
Total stockholders’ equity (deficit)345,518 (263,523)
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)$441,792 $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 September 30,
Nine months ended September 30,
2021202020212020
Revenues$39,761 $28,941 $109,724 $78,817 
Cost of revenues17,387 13,776 49,064 38,914 
Gross profit22,374 15,165 60,660 39,903 
Operating expenses:
Research and development12,877 9,898 35,897 29,367 
Sales and marketing7,309 3,998 18,132 12,548 
General and administrative13,330 7,859 36,525 21,868 
Total operating expenses33,516 21,755 90,554 63,783 
Loss from operations
(11,142)(6,590)(29,894)(23,880)
Non-operating income (expense):
Interest income223 8 364 46 
Interest expense(300)(22)(908)(225)
Loss on financial instruments (14,743)(3,035)(14,810)
Loss before income taxes
(11,219)(21,347)(33,473)(38,869)
Provision for income taxes    
Net loss
$(11,219)$(21,347)$(33,473)$(38,869)
Less: cumulative dividends and adjustments to redeemable convertible preferred stock (4,459)(277)(5,013)
Net loss attributable to common stockholders:$(11,219)$(25,806)$(33,750)$(43,882)
Net loss per share attributable to common stockholders:
Basic and diluted$(0.13)$(5.34)$(0.60)$(9.38)
Weighted average number of shares of common stock outstanding:
Basic and diluted87,641,416 4,833,079 56,320,288 4,679,933 

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)

Three months ended September 30, 2021
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance June 30, 2021
 $ 87,186,730 $87 $640,457 $(289,285)$351,259 
Stock-based compensation— — — — 3,352 — 3,352 
Exercised stock options— — 749,800 1 1,480 — 1,481 
Exercised warrants— — 211,323 — 645 — 645 
Net loss— — — — — (11,219)(11,219)
Balance September 30, 2021
 $ 88,147,853 $88 $645,934 $(300,504)$345,518 

Three months ended September 30, 2020
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance June 30, 2020
57,220,137 $249,535 4,651,174 $5  $(213,356)$(213,351)
Issuance of redeemable convertible preferred stock, net of issuance costs15,005,779 188,992 — — — — — 
Stock-based compensation— — — — 439 — 439 
Exercised stock options— — 341,121 — 143 — 143 
Cumulative dividends and adjustments to redeemable convertible preferred stock— 4,459 — — (582)(3,877)(4,459)
Net loss— — — — — (21,347)(21,347)
Balance September 30, 2020
72,225,916 $442,986 4,992,295 $5 $ $(238,580)$(238,575)

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 CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
(UNAUDITED)

Nine months ended September 30, 2021
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance December 31, 2020
72,225,916 $443,263 4,909,529 $5 $ $(263,528)$(263,523)
Stock-based compensation— — — — 7,793 — 7,793 
Exercised stock options— — 4,120,002 4 6,413 — 6,417 
Exercised warrants— — 211,323 — 645 — 645 
Payment of Series B Dividend upon initial public offering— (4,969)— — — — — 
Cumulative dividends and adjustments to redeemable convertible preferred stock— 277 — — (277) (277)
Issuance of common stock upon initial public offering, net of underwriting discounts and commissions — — 6,900,000 7 192,803 — 192,810 
Conversion of redeemable convertible preferred stock to common stock upon initial public offering(72,225,916)(438,571)72,225,916 72 438,498 — 438,570 
Conversion of redeemable convertible preferred stock warrants to common stock warrants upon initial public offering— — — — 5,727 — 5,727 
Costs in connection with initial public offering(5,674)(5,674)
Repurchase of common stock— — (218,917)— 6 (3,503)(3,497)
Net loss— — — — — (33,473)(33,473)
Balance September 30, 2021
 $ 88,147,853 $88 $645,934 $(300,504)$345,518 

Nine months ended September 30, 2020
Redeemable Convertible Preferred StockCommon StockAdditional Paid-in CapitalAccumulated DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountSharesAmount
Balance December 31, 2019
54,290,383 $210,033 4,537,955 $5 $335 $(195,730)$(195,390)
Issuance of redeemable convertible preferred stock, net of issuance costs17,935,533 227,940 — — — — — 
Stock-based compensation— — — — 1,348 — 1,348 
Preferred Series E Tranche Liability— — — — (892)— (892)
Exercised stock options— — 454,340 — 241 — 241 
Cumulative dividends and adjustments to redeemable convertible preferred stock— 5,013 — — (1,032)(3,981)(5,013)
Net loss— — — — — (38,869)(38,869)
Balance September 30, 2020
72,225,916 $442,986 4,992,295 $5 $ $(238,580)$(238,575)

The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.
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ALKAMI TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
Nine months ended September 30,
20212020
Cash flows from operating activities:
Net loss
$(33,473)(38,869)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense2,384 1,970 
Stock-based compensation expense7,793 1,348 
Amortization of debt issuance costs39 39 
Loss on financial instruments
3,035 14,810 
Changes in operating assets and liabilities:
Accounts receivable(5,741)(2,565)
Prepaid expenses and other current assets(689)(1,711)
Accounts payable and accrued liabilities12,758 4,107 
Deferred implementation costs(1,612)(2,158)
Deferred rent and tenant allowances(397)213 
Deferred revenues(899)(306)
Net cash used in operating activities
(16,802)(23,122)
Cash flows from investing activities:
Purchases of property and equipment(870)(1,478)
Capitalized software development costs(1,275) 
Acquisition of business(1)
(18,326) 
Net cash used in investing activities
(20,471)(1,478)
Cash flows from financing activities:
Borrowings on line of credit 13,000 
Payments on line of credit (13,000)
Proceeds from stock option exercises6,417 241 
Proceeds from exercise of warrants645  
Proceeds on sales of preferred stock, net of issuance costs 218,040 
Deferred IPO issuance costs paid(4,520) 
Payments on capital lease obligations (11)
Repurchase of common stock(3,497) 
Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts and commissions192,810  
Payment of Series B dividend(4,969) 
Net cash provided by financing activities
186,886 218,270 
Net increase in cash and cash equivalents and restricted cash
149,613 193,670 
Cash and cash equivalents and restricted cash, beginning of period171,663 11,982 
Cash and cash equivalents and restricted cash, end of period$321,276 $205,652 

(1) See Note 3 for additional information regarding noncash investing activities for the nine months ended September 30, 2021, related to the acquisition of MK.


The above financial statements should be read in conjunction with the Notes to the Unaudited Condensed Consolidated Financial Statements.
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ALKAMI TECHNOLOGY, INC.
Notes to the Unaudited 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 its 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). Prior to the Company’s IPO, deferred offering costs, which consist of legal, accounting, consulting and other direct fees and costs relating to its IPO, were capitalized in prepaid expenses and other current assets. Upon consummation of the Company’s IPO, these costs were offset against the proceeds from its IPO and recorded in additional paid-in capital. In addition, in connection with its 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. With the proceeds of its IPO, the Company paid in full accumulated dividends on its previously outstanding shares of Series B redeemable convertible preferred stock, which totaled approximately $5.0 million. 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 and were classified as equity immediately prior to the effectiveness of the Company’s registration statement.

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 final prospectus (the “Prospectus”) for the Company’s IPO filed with the SEC on April 15, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2021.

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, and valuation of the Company’s stock options.
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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, stock warrants and contingent consideration. 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, and weighted average expected life in years. Changes in the fair value of warrant liabilities are recognized as a gain or loss within non-operating income (expense). In connection with the Company’s IPO, warrants converted from a liability instrument to an equity instrument resulting in a reduction of the warrant liability to $0. The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows.

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 September 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation:

Fair Value at Reporting Date Using
(In thousands)September 30, 2021Level 1Level 2Level 3
Assets:
Money Market Accounts$14,647 $14,647 $ $ 
    Total Assets$14,647 $14,647 $ $ 
Liabilities:
Contingent consideration payable$(15,500)$ $ $(15,500)
Total Liabilities$(15,500)$ $ $(15,500)

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)

The reconciliations of the beginning and ending balances during the nine months ended September 30, 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
Adjustment for conversion to equity accounting treatment upon IPO
Ending Level 3 Fair Value at September 30, 2021
Warrant Liabilities$(2,692)$(3,035)$5,727 $ 

The following table represents the changes to the Company’s contingent consideration payable (in thousands):
Balance at January 1, 2021$ 
Business Combination
15,500 
Balance at September 30, 2021$15,500 




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Restricted Cash

The Company defines restricted cash as cash that is legally restricted as to withdrawal or usage. The amounts included in restricted cash on the condensed consolidated balance sheets at September 30, 2021 and December 31, 2020 represent 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”). In addition, restricted cash representing additional cash proceeds in deposit with an escrow agent for satisfaction of a holdback provision related to the acquisition of MK Decisioning Systems, LLC (“MK”) is included in the condensed consolidated balance sheets at September 30, 2021. See Note 3 for further information.

September 30,December 31,
(in thousands)20212020
Cash and cash equivalents$314,402 $166,790 
Restricted cash included in Prepaid expenses and other current assets3,500  
Restricted cash included in Other assets3,374 4,873 
Total cash and cash equivalents and restricted cash$321,276 $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 $1.3 million in capitalized internal software development costs as of September 30, 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 September 30, 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 condensed consolidated balance sheets.

Stock-Based Compensation

Stock Options

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, and weighted average expected life. 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”).

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. 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.

Initial Public Offering Price and Options Granted Subsequent to April 13, 2021. The Company’s stock became actively traded upon the completion of its IPO in April 2021. For grants issued upon or subsequent to its IPO the Company establishes fair value based on the Company’s stock price.

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Volatility: As the Company does not have the necessary 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 paid to holders of the Company’s Series B redeemable convertible preferred stock upon the effectiveness of the Company’s IPO. 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.
In addition to assumptions used in the Black-Scholes option-pricing model, the Company estimates a forfeiture rate to calculate the stock-based compensation expense for its option awards. 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.

Restricted Stock Units

Restricted stock units (“RSUs”) issued upon and subsequent to the Company’s IPO vest upon the satisfaction of a time-based condition only. These RSUs are generally earned over a service period of three to four years and the compensation expense related to these awards is based on the grant date fair value of the RSUs and is recognized on a ratable basis over the applicable service period.

Employee Stock Purchase Plan

The Company’s 2021 Employee Stock Purchase Plan (the “ESPP”) permits employees to purchase the Company's common stock through payroll deductions during six month offerings. The offering periods begin each May 16 and November 16, or such other period determined by the compensation committee. In accordance with the guidance in ASC 718-50 - Compensation - Stock Compensation, the ability to purchase shares of the Company’s common stock for 85% of the lower of the price on the first day of the offering period or the last day of the offering period (i.e. the purchase date) represents an option and, therefore, the ESPP is a compensatory plan. Accordingly, stock-based compensation expense is determined based on the grant-date fair value as estimated by applying the Black-Scholes option-pricing model and is recognized over the withholding period.
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 and nine months ended September 30, 2021 and 2020. As of September 30, 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 condensed consolidated balance sheets and disclosing key information about leasing arrangements. The Company anticipates that the adoption of Topic 842 will impact its condensed 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. The Company expects to adopt this new standard in interim periods beginning in 2022. This ASU is not expected to have a material impact on the Company’s financial statements.

Note 3. Business Combination

ACH Alert, LLC

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).

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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 $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 and nine months ended September 30, 2021, the Company recognized compensation expense of $0.6 million and $1.9 million, respectively, 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 was 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 condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020.

MK Decisioning Systems, LLC

On September 10, 2021, the Company acquired substantially all of the assets of MK for approximately $20 million in cash consideration due at closing subject to a $2 million holdback provision held in escrow with $1 million to be released at the 12-month anniversary of close and the remainder to be released at the 18-month anniversary of close. The Company also agreed to assume certain liabilities associated with MK’s business. The integrated set of assets and activities acquired from MK through the acquisition meet the definition of a business under ASC 805, as updated by ASU 2017-01.

In addition to the base purchase price, the MK acquisition also included a potential earn-out that is tied to revenue of MK from sales of its products and services within two 12-month periods (the “First Earn-Out Period” and “Second Earn-Out Period”), with the First Earn-Out Period beginning on January 1, 2022 and ending on December 31, 2022 and the Second Earn-Out Period beginning on January 1, 2023 and ending on December 31, 2023. Pursuant to the terms and conditions set forth in the purchase agreement, the earn-out amount payable, if any, to the former owners, will be a maximum of $7.5 million and $17.5 million for the First Earn-Out Period and Second Earn-Out Period, respectively, contingent on achievement of certain revenue milestones. In certain circumstances within both Earn-Out Periods, the earn-out amounts are payable in a mix of cash and shares (based on a reference price of $35 and limited to $20 million in earn-out shares) of the Company’s common stock subject to the election of the former owners. Earn-out amounts, if any, would be payable no later than 170 days after the end of each Earn-Out Period.

The Company has classified the amounts held in escrow as restricted cash on the condensed consolidated balance sheets. The fair value of the contingent earn-out as of September 30, 2021 is $15.5 million for which the balance is included in Other non-current liabilities on the condensed
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consolidated balance sheets. The fair value of the contingent earn-out is included as contingent consideration in the total purchase price. The Company will remeasure the fair value of the contingent consideration on an ongoing basis and will record the adjustment to operating income or loss.

Assumptions used to estimate the fair value of contingent consideration include various financial metrics (revenue performance targets and stock price forecasts) and the probability of achieving the specific targets using a geometric binomial model. Based on the preliminary purchase accounting, the Company determined that approximately 62% of the maximum contingent consideration would be paid to the seller in accordance with the terms of the purchase agreement.

The Company’s preliminary fair value estimates and assumptions to measure the assets acquired and liabilities assumed are subject to change as the Company obtains 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:
(in thousands) Preliminary Fair Value as of September 10, 2021
Trade accounts receivables$437 
Other current assets56 
Property and equipment41 
Goodwill31,849 
Intangible assets3,670 
Total assets acquired$36,053 
Accounts payable and accrued liabilities $43 
Deferred revenues, net of current510 
Total liabilities assumed553 
Net assets acquired$35,500 

As of September 30, 2021, the allocation of the purchase price for MK has not been finalized, and the one-year measurement period has not ended. The preliminary purchase price allocations are based upon the valuation of assets and liabilities. These estimates and assumptions are subject to change as the Company obtains additional information during the measurement period.

The table below outlines the purchased identifiable intangible assets:
Weighted Average Amortization PeriodTotal
(in years)(in thousands)
Customer relationships15$170 
Developed technology53,500 
Total identifiable intangible assets$3,670 

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. This goodwill is expected to be deductible for tax purposes.

Transaction costs are included in the condensed consolidated statements of operations for both the three and nine months ended September 30, 2021 were $0.3 million. For the nine months ended September 30, 2021, the Company had noncash investing activities of $17.5 million related to unpaid consideration for the acquisition of MK.

Note 4. Property and Equipment, Net

Depreciation expense was $0.6 million and $1.8 million for the three and nine months ended September 30, 2021, respectively, and $0.7 million and $2.0 million for the three and nine months ended September 30, 2020, respectively.

(in thousands)Useful LifeSeptember 30, 2021December 31, 2020
Software
1 to 3 years
$1,997 $722 
Computers and equipment3 years4,647 3,821 
Furniture and fixtures5 years3,977 3,930 
Leasehold improvements
3 to 10 years
11,677 11,650 
$22,298 $20,123 
Less: accumulated depreciation(11,407)(9,662)
Property and equipment, net$10,891 $10,461 

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Note 5. Revenue and Deferred Costs

The Company derives primarily all of its revenues from software-as-a-service (“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 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 and nine months ended September 30, 2021 and 2020:

Three months ended September 30,
Nine months ended September 30,
(in thousands)2021202020212020
SaaS subscription services$37,486 $27,065 $103,582 $73,723 
Implementation services1,591 1,419 4,604 3,741 
Other services684 457 1,538 1,353 
Total revenues$39,761 $28,941 $109,724 $78,817 

The Company recognized approximately $2.1 million and $5.8 million of revenue during the three and nine months ended September 30, 2021, respectively, and $2.9 million and $7.4 million during the three and nine months ended September 30, 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 that were wholly or partially unsatisfied as of September 30, 2021, minimum contracted subscription revenues to be recognized in future periods total approximately $553.4 million. The Company expects to recognize approximately 47.0% of this amount as subscription services are transferred to customers over the next 24 months, an additional 33.6% 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 $0.8 million in deferred commissions costs during the three and nine months ended September 30, 2021, respectively and $0.3 million and $1.1 million for the three and nine months ended September 30, 2020, respectively, and recognized amortization of $0.6 million and $1.6 million during the three and nine months ended September 30, 2021, respectively, and $0.4 million and $1.1 million for the three and nine months ended September 30, 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 condensed consolidated balance sheets in the amount of $8.4 million and $9.0 million as of September 30, 2021 and December 31, 2020, respectively.

The Company capitalized implementation costs of $1.3 million and $4.0 million during the three and nine months ended September 30, 2021, respectively, and $1.0 million and $3.2 million for the three and nine months ended September 30, 2020, respectively, and recognized amortization of $0.7 million and $1.9 million during the three and nine months ended September 30, 2021, respectively, and $0.5 million and $1.5 million for the three and nine months ended September 30, 2020, respectively. Amortization expense is included in cost of revenues in the accompanying condensed consolidated statements of operations.

The Company periodically reviews the carrying amount of deferred costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. No impairment loss was recognized in relation to these capitalized costs for the three and nine months ended September 30, 2021 and 2020.

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Note 6. Accounts Receivable

Accounts receivable includes the following amounts at September 30, 2021 and December 31, 2020:
September 30,December 31,
(in thousands)20212020
Trade accounts receivable$15,507 $11,804 
Unbilled receivables3,776 2,081 
Other receivables1,211 702 
Total receivables20,494 14,587 
Allowance for doubtful accounts(57)(323)
Reserve for estimated credits(156)(161)
$20,281 $14,103 

Note 7. Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2021 and December 31, 2020:
September 30,December 31,
(in thousands)20212020
Bonus accrual$6,804 $2,636 
Accrued vendor purchases1,950 2,542 
Commissions accrual1,118 1,309 
Accrued hosting services