ALKAMI TECHNOLOGY, INC.(TICKER: ALKT) -IPO
Digital Banking Platform going public-2021
Introduction
Alkami (ALKT) provides financial institutions a cloud-based digital banking platform to serve consumers and businesses across their financial journey. Through ALKAMI PLATFORM user interfaces processing systems, Bill Pay, Open accounts, cash management, deposits cards, remote deposit, lending, customer service, banking functions, core card, mortgage loans, and other.
Let’s Talk Business
Here is the quick snapshot of consolidated balance sheet
Cash and cash equivalents grew from approx. $12 million to $167 million in 2019 to 2020, that’s insane amount of cash growth, which is a good signal to look at. During the same period, goodwill went to approx. $16 million from $0, as per Alkami “The excess of the consideration transferred over the fair value of the identifiable assets, liabilities, and non-controlling interest, is recorded as goodwill in the consolidated financial statements.”
Long term debt as of Dec 31, 2020 stood at $25 million, only confusion stands here why would someone borrow money when they got $167 million in cash and equivalents.
Major Customers
From Alkami’s prospectus, as of September 2020, there are 2 customers that contribute towards 44% of account receivables. Low volume of customers seems bit troubling to investors.
Recent Acquisition
Alkami acquired fraud prevention provide ACH Alert. ACH Alert is an award-winning provider of electronic payments fraud prevention technology for FIs of all sizes. The acquisition extends Alkami’s innovative, omni-channel platform to include enhanced fraud prevention and secure money movement functionality.
Risk Factors
Out of various risk factors mentioned in the prospectus, we picked up the one which requires more due diligence before investing.
“We may not accurately predict the long-term rate of client subscription renewals or adoption of our solutions, or any resulting impact on our revenues or results of operations.”
“Our clients have no obligation to renew their subscriptions for our solutions after the expiration of the subscription term, and our clients, if they choose to renew at all, may renew for fewer products or on less favorable pricing terms. Since our client agreements had an average contract life since our inception of 70 months as of December 31, 2020, and since we only began operations in 2009, we have limited historical data with respect to rates of client subscription renewals and cannot be certain of anticipated renewal rates. Our renewal rates may decline or fluctuate as a result of a number of factors, including our clients’ satisfaction with our pricing or our solutions or their ability to continue their operations or spending levels. As we sign more contracts, we will generally have an increasing amount of contracts coming up for renewal. If our clients do not renew their subscriptions for our solutions on similar pricing terms, our revenues may decline and it could have a material and adverse effect on our business, financial condition and results of operations.
Additionally, as the markets for our solutions continue to develop, we may be unable to attract new clients based on the same subscription model that we have used historically. Moreover, large or influential FI clients may demand more favorable pricing or other contract terms from us. As a result, in the past we have had, and expect to be required in the future, to change our pricing model, reduce our prices or accept other unfavorable contract terms, any of which could materially and adversely affect our business, financial condition and results of operations.”
Alkami offering 6 million shares with a target price between $22-$25 per share.
Our Take on Alkami Technology, Inc.
“Buy not on optimism, but on arithmetic.” — Benjamin Graham
There are more positives than negatives to buy the stocks.
As it is digital banking platform providing services to financial institutions with millions of consumers, second, they do have cash available in their balance sheet, third, low debt.
“We currently expect to use the net proceeds from this offering, together with our existing cash and cash equivalents, to finance our growth, develop new or enhanced solutions and fund capital expenditures.
In connection with the completion of this offering, we also plan to pay approximately $4.9 million of the net proceeds in accumulated dividends to holders of our Series B redeemable convertible preferred stock (the “Series B Dividend”), including an aggregate of $3.8 million to certain holders of 5% or more of our capital stock, directors and their affiliated entities and our executive officers”.
They are going public to get influx of funds to support their operations and future expansion. We are bullish on Alkami Technology, Inc., as they have cash reserves and with the shareholder funds, they might use to acquire complementary businesses, expand customers base.
We recommend you to do your own analysis before buying, and where to buy it from? we recommend, Questrade app, with personal experience on using this platform to buy and sell stocks, its great way to start.
