Alkami Technology, Inc. (NASDAQ:ALKT) is a leading provider of cloud-based digital banking solutions, empowering regional and community financial institutions (FIs) to compete with large, technologically advanced banks. The company's flagship product, the Alkami Digital Banking Platform, enables FIs to onboard and engage new users, accelerate revenues, and improve operational efficiency through a proprietary, true cloud-based, multi-tenant architecture.

Business Overview

Alkami was founded in 2011 with the mission of leveling the playing field for FIs against their larger counterparts. The company has invested significantly in building a robust technology stack that prioritizes innovation velocity and speed-to-market, recognizing the importance of product depth and functionality in winning and retaining clients.

In recent years, Alkami has expanded its capabilities through strategic acquisitions. In 2020, the company acquired ACH Alert, LLC to pursue adjacent product opportunities, such as fraud prevention. In 2021, Alkami acquired MK Decisioning Systems, LLC, a technology platform for digital account opening, credit card, and loan origination solutions. Most recently, in 2022, the company acquired Segmint, a leading cloud-based financial data analytics and transaction data cleansing provider.

Alkami's digital banking platform offers an end-to-end suite of software products, including account opening, marketing, data insights, card experience, money movement, customer service, commercial banking, financial wellness, security, and fraud protection. The company's typical client relationship begins with a core set of functional components, which can then be expanded over time to include a broader suite of products.

Alkami primarily generates revenue through a per-registered-user pricing model, with incremental fees above certain contractual client minimum commitments for each licensed solution. The company's pricing is tiered, with per-registered-user discounts applied as clients achieve higher levels of customer penetration, incentivizing FIs to internally market and promote digital engagement.

Financials

For the fiscal year ended December 31, 2023, Alkami reported annual revenue of $264.8 million, a 26.9% increase from the prior year. However, the company incurred a net loss of $62.9 million during the same period, driven by significant investments in sales, marketing, product development, and post-sales client activities.

Alkami's annual operating cash flow was -$17.8 million, and its annual free cash flow was -$24.1 million, reflecting the company's focus on growth and expansion.

In the first quarter of 2024, Alkami continued its strong performance, reporting revenue of $76.1 million, a 26.9% increase compared to the same period in 2023. The company's SaaS subscription revenues, which accounted for 95.9% of total revenues, grew by 27% year-over-year.

Alkami's registered user base grew to 18.1 million as of March 31, 2024, up 19.8% from the prior year period. The company's revenue per registered user (RPU) also increased to $16.71, a 5.2% improvement compared to March 31, 2023.

Gross Margin and Profitability

Alkami's non-GAAP gross margin for the first quarter of 2024 was 61.7%, representing a 360 basis point expansion compared to the same period in the prior year. This improvement was driven by enhanced hosting cost efficiency and operating leverage across the company's post-sale operations.

The company's operating expenses for the first quarter of 2024 were $43.6 million, or 57.3% of revenue, reflecting an operating leverage of 680 basis points. This was primarily driven by scale efficiencies in research and development (R&D) and general and administrative (G&A) expenses.

Alkami reported adjusted EBITDA of $3.8 million for the first quarter of 2024, a significant improvement from the $2.9 million loss in the same period of the prior year. The company expects adjusted EBITDA to be the lowest in the second quarter of 2024 due to the timing of expenses, such as its annual client conference.

For the full year 2024, Alkami provided guidance for revenue in the range of $328.5 million to $333 million, representing total revenue growth of 24% to 26% and subscription revenue growth of 26% to 28%. The company also expects adjusted EBITDA to be in the range of $20.5 million to $23.5 million.

Growth Drivers and Opportunities

Alkami's growth is primarily driven by its ability to expand its FI client base, deepen client customer penetration, and continuously enhance its product suite. The company's client base grew to 244 FIs as of March 31, 2024, and it serves over 650 clients when including unique clients only subscribing to one or a combination of ACH Alert, MK, or Segmint products.

The company's focus on innovation and platform enhancements has been a key differentiator, enabling Alkami to deliver a comprehensive suite of digital banking solutions that address the evolving needs of its clients. The company's 300+ integrations with back-office systems and third-party fintech solutions provide scalability and extensibility, allowing FIs to seamlessly integrate Alkami's platform with their existing infrastructure.

Alkami's data platform, which includes 29 million deposit accounts with 20 billion historical transactions and 20 million new transactions added daily, is a significant competitive advantage. This data-rich environment enables the company to offer advanced analytics and AI-powered solutions to its clients, helping them drive fraud prevention, personalized offers, and improved customer engagement.

Risks and Challenges

Alkami operates in a highly competitive market, facing competition from both large, well-resourced banks and other digital banking solution providers. The company's ability to maintain its technological edge and continue innovating its product suite is crucial to its long-term success.

The company's sales cycle can be lengthy, ranging from 3 to 12 months, with implementation timelines typically spanning 6 to 12 months. Alkami's ability to efficiently onboard new clients and retain existing ones is essential to its growth strategy.

Regulatory changes and evolving data privacy and security requirements in the financial services industry pose ongoing risks that Alkami must navigate. The company's ability to comply with these regulations and protect its clients' data is paramount.

Conclusion

Alkami Technology, Inc. is well-positioned to capitalize on the growing demand for digital banking solutions among regional and community FIs. The company's robust technology platform, strategic acquisitions, and focus on innovation have enabled it to deliver a comprehensive suite of products that address the evolving needs of its clients.

Despite the company's recent net losses, Alkami's strong revenue growth, expanding gross margins, and improving profitability metrics suggest a promising path forward. With a healthy sales pipeline, a growing registered user base, and a robust product roadmap, Alkami appears poised to continue its trajectory as a leading provider of digital banking solutions for the regional and community FI market.