Alkami Technology IPO: A Deep Dive

Tech IPOs: Alkami Technology Advances Amidst Market Slowdown

Despite recent anxieties surrounding initial public offerings, the tech debut landscape isn't entirely stalled. While concerns persist regarding the IPO pipeline, several companies are continuing their progress toward public markets.

Alkami Technology is now included among those moving forward, alongside anticipated events like Coinbase’s direct listing and Robinhood’s planned IPO.

Delving into Alkami Technology

Let's examine Alkami Technology, its software offerings, its investment history, and its previous private valuation. A thorough review of its financials and projected IPO valuation is essential.

With companies like Kaltura pausing their IPO plans, focusing on those still actively pursuing public offerings becomes even more critical.

Alkami’s impending IPO wasn’t widely anticipated, perhaps due to its location. The bank-focused software provider is headquartered in Texas, though its origins lie in Oklahoma.

Funding and Valuation

According to Crunchbase data, Alkami Technology secured a total of $385.2 million in funding throughout its history.

A significant portion of this came from a September 2020 funding round, which totaled $140 million. This round established a post-money valuation of $1.44 billion, as reported by PitchBook.

Now, we will analyze the latest filings submitted to the Securities and Exchange Commission (SEC) by this software unicorn.

Understanding these details is crucial for assessing Alkami’s potential in the current market conditions.

Alkami Technology: A Deep Dive

Alkami Technology distinguishes itself as a cloud-based software provider for banks, avoiding the pitfalls of older companies attempting IPOs during peak market conditions. Its foundation is built upon Amazon Web Services (AWS), and revenue is generated through a subscription-based model.

The company primarily serves financial institutions that fall below the largest tier – specifically, what Alkami defines as “community, regional and super-regional” banks. Its core offering is a software platform that integrates with existing banking systems, simultaneously offering a variety of user interface choices.

Bridging the Gap Between Systems and Users

Essentially, Alkami provides a complete solution, connecting a bank’s internal infrastructure with the customer’s experience. The company itself illustrated this concept within its S-1/A filing.

This depiction is straightforward and easily understood.

Business Performance: A Mixed Assessment

Evaluating Alkami as a business reveals both strengths and weaknesses. The company demonstrates growth, possesses appealing gross margins, and exhibits positive SaaS metrics. However, its overall losses continue to increase.

While these deficits might not have been a significant concern recently, the current shift in investor sentiment towards tech IPOs necessitates a closer examination.

Financial Overview: Income Statement Analysis

Here is a review of Alkami’s income statement:

In 2020, the company achieved revenue growth of 52.5%. This represents a robust figure for a company of its size and is likely to attract investor attention. Furthermore, Alkami’s operating losses experienced a notable reduction last year, suggesting some degree of operational efficiency.

Key Metrics and Growth Trends

Alkami reported a net dollar retention rate (NDR) of 117% as of December 31, 2020, and 114% as of December 31, 2019. However, the company’s definition of NDR is somewhat ambiguous, requiring cautious interpretation of this metric.

Positive trends are also evident in Alkami’s IPO filing. Growth in the fourth quarter of 2020 exceeded the annual average, indicating sustained top-line expansion. Gross margins in Q4 2020 reached 57.8%, an improvement from 47.8% in Q4 2019, signaling positive momentum, though still below some traditional SaaS benchmarks.

Profitability and Cash Flow

The company’s adjusted EBITDA loss was at its lowest point in the most recent quarter, the final three months of 2020, which is encouraging for potential investors. However, operating cash burn remained relatively stable at approximately $38 million for the year.

IPO Pricing and Valuation

Alkami anticipates pricing its shares between $22 and $25 each. The company is offering 6 million shares, with underwriters having the option to purchase an additional 6.9 million. Following the IPO, Alkami will have approximately 83,135,445 shares outstanding, potentially increasing to 84,035,445 if the underwriters exercise their option.

Based on the higher share count, the IPO valuation ranges from $1.85 billion to $2.1 billion. Renaissance Capital estimates a fully diluted valuation of $2.2 billion.

At a $2.2 billion valuation, Alkami is valued at around 20 times its 2020 revenue. Using the Q4 2020 revenue as a run rate, the valuation is approximately 16.5 times recent top-line revenue. These multiples are not insignificant, but are not excessively high, especially considering current market conditions.

Market Outlook

If Alkami successfully completes its IPO at these prices, it would represent a positive development for the IPO market. Following a period of volatility, the U.S. IPO market could benefit from this boost. Further updates will be provided as Alkami announces a revised price range or finalizes the per-share value for its debut.

Please note: The Exchange will be on hiatus from Wednesday, April 7, to Friday, April 9.