2023-09-17 11:11:18 ET
Summary
- Alkami Technology provides cloud-based digital banking solutions for smaller banks, helping them serve customers more efficiently.
- Despite revenue growth and narrowing EBITDA losses, GAAP losses have not decreased, causing caution in the market.
- The company's stock has been range-bound, but there is hope for operating leverage as EBITDA losses are expected to narrow in 2023.
In the fall of last year, I believed that shares of Alkami Technology ( ALKT ) were showing consolidation. The company hiked the guidance in a minimal fashion at the time, just when valuations across the entire technology and IPO market were coming down. With the overall investment bar being raised, I was awaiting some operating leverage before potentially considering an allocation.
While continued growth on the topline has been seen, as well as narrowing EBITDA losses, GAAP losses are not really coming down amidst an increased gap between both earnings metrics, making me still naturally cautious here.
Helping Banks
Founded in 2009, Alkami provides cloud-based digital banking solutions for financial institutions. The idea is that these services allow banks to serve customers in a more efficient and effective manner, all while customer expectations are on the increase.
The company typically focuses on smaller banks, often regional and community banks, as they have been lagging their bigger peers in terms of technological adoption. Besides customer service demand, banks often require such solutions for regulatory and safety purposes.
Soon after the IPO in April 2021, shares traded in the $40s, granting the business a $2 billion valuation. This was applied to a business, which generated $73 million in sales in 2019, on which it posted operating losses of $42 million. Revenues rose some 52% to $112 million in 2020 as operating losses narrowed to $35 million.
Through the fall of 2022 shares had fallen to the $15 mark amidst a pullback in the wider technology sector. This came after the business had grown 2021 sales to $152 million, on which net losses were reported at $47 million. The company guided for 2022 sales to advance to $190 million, yet EBITDA losses were seen at $18-$21 million, virtually unchanged from a $22 million loss on that metric reported in 2021.
The much lower valuation and higher sales rapidly narrowed the sales multiples, but the issue was that the market mantra changed and that losses were no longer coming down, with the market penalizing a lack of operating leverage.
Through 2022, the company hiked the full-year sales guidance above $200 million, in part driven by a bolt-on deal for Segment, and even as the business maintained a net cash position, I failed to get too upbeat with leverage being painfully slow to materialize.
Largely Range Bound
Since the fall, shares of Alkami have traded in an $11-$18 range, now trading towards the higher end of the range at $17 per share.
In February of this year the company posted its 2022 results, a year in which revenues grew 34% to $204 million, on which the company posted a huge $57 million operating loss, marking some deleverage from a $43 million loss in 2021. Following aggressive adjustments, the company posted an adjusted EBITDA loss of $17 million and change.
For 2023, Alkami saw revenues increase further to $255-$260 million, and more important is that EBITDA losses are set to narrow to $4-$7 million, which marks some operating leverage, although that increasing stock-based compensation expenses have the potential to limit the potential on the bottom line.
In May, Alkami posted a solid 34% increase in first-quarter sales to $60 million as adjusted losses actually increased to $17 million, even as EBITDA losses narrowed to less than $3 million. The company upped the full-year revenue guidance to a midpoint of $259 million, with EBITDA losses seen around $4 million. This was actually rather comforting as the (regional) banking crisis was in full swing at the time, but actually cooled down rather quickly.
In August, Alkami posted a 30% increase in second-quarter sales to $66 million, with operating losses stabilizing around $18 million. While EBITDA losses narrowed further to $2.5 million, the increased gap between both metrics is due to higher stock-based compensation expenses.
On the back of the stronger momentum, the company hiked the full-year guidance to $263 million, with EBITDA losses seen at $3 million and change. This reveals that EBITDA profitability is seen in the second half of the year, but this does not mean that break-even is seen on the bottom line, in fact, the company is a long way from achieving so on a GAAP basis.
And Now?
With the 93 million shares now trading at $17, the company commands a near $1.6 billion equity valuation, and about $1.5 billion enterprise valuation with net cash approaching the $100 million mark. Given the sales reported here, the company has seen sales multiple compress to 6 times (or a bit less) which looks alright given that sales growth still comes in around 30%.
The issue is that while continued EBITDA improvements are made, the same can not necessarily be said for real GAAP operating losses. While the market has been a bit more forgiven on this, amidst a rally in technology names, I am still cautious here. This comes as the pace of operating leverage is still a bit slow, with real work still to be done.
For further details see:
Alkami Technology: Still No Alchemy