Alkami Technology, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission (“SEC”), including the audited consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2024, which are included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 28, 2025.

Unless the context otherwise requires, all references in this report to the “Company,” “Alkami,” “we,” “us” and “our” refer to Alkami Technology, Inc., a Delaware corporation, and its consolidated subsidiaries taken as a whole.

Cautionary Note Regarding Forward-Looking Statements

Any statements made in this Quarterly Report on Form 10-Q that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as “anticipates,” “commits,” “expects,” “suggests,” “plans,” “believes,” “intends,” “estimates,” “targets,” “projects,” “seeks,” “should,” “can,” “could,” “would,” “may,” “will,” “forecasts” “strategy,” “future,” “likely” or the negative of these terms or other similar expressions. We base these forward-looking statements on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances at such time. Forward-looking statements are not guarantees of future performance or results and are subject to and involve risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. The following important factors, along with the factors discussed in “Risk Factors” in the Annual Report on Form 10-K, may materially affect such forward-looking statements:

• managing our rapid growth;
• attracting new clients and retaining and broadening our existing clients’ use of our solutions;
• maintaining, protecting and enhancing our brand;
• predicting the long-term rate of client subscription renewals or adoption of our solutions;
• the unpredictable and time-consuming nature of our sales cycles;
• integration with and reliance on third-party software, content and services;
• integrating our solutions with other systems used by our clients;
• satisfying our clients and meeting their digital banking needs;
• our dependence on the data centers operated by third parties and third-party internet hosting providers;
• defects, errors or other performance problems associated with our solutions;
• retaining our management team and key employees and recruiting and retaining new employees;
• managing the increased complexity of our clients’ integration and functionality requirements;
• shifts in the number of account holders and registered users of our solutions, their use of our solutions and our clients’ implementation and client support needs;
• acquiring or investing in other companies or pursuing business partnerships;
• natural or man-made disasters;
• use and reliance upon technology and development resources in India;
• environmental and social matters;
• cybersecurity breaches or other compromises of our security measures or those of third parties upon which we rely;
• privacy and data security concerns, laws, regulations and standards and our processing and use of the PI of end users;
• intense competition in the markets we serve;
• reliance on the financial services industry as the source of our revenue in the event of any downturn, consolidation or decrease in technological spend in such industry;
• evolving technological requirements and changes and additions to our solution offerings;
• reliance on the development of the market for digital banking solutions;
• regulations and laws applicable to us, our clients and our solutions, including the impact of tariff and trade policies on us and our clients;
• protecting our intellectual property rights and defending ourselves against claims that we are misappropriating the intellectual property rights of others;
• using open-source software in our solutions or risks resulting in the disclosure of our proprietary source code to our clients;
• complying with license or technology agreements with third parties and our ability to enter into additional license or technology agreements on reasonable terms;
• litigation or threats of litigation;
• the fluctuation of our quarterly and annual results of operations relative to our expectations and guidance;
• the way we recognize revenue, beginning from the live use of the service, which causes changes in client subscriptions to not be immediately apparent in our reported operating results;
• our limited operating history, our history of operating losses and our ability to use our net operating loss carryforwards;
• risks from our indebtedness and liabilities;
• our ability to raise sufficient capital and the resulting dilution and the terms of our Amended Credit Agreement (as defined below);
• our ability to raise necessary funds to repurchase the 2030 Convertible Notes (as defined below) or to pay any cash amounts due upon their maturity or conversion;
• counterparty risk with respect to the Capped Calls (as defined below);
• unanticipated changes in tax laws or regulations;
• loss of emerging growth company status;
• future strategic initiatives, including acquisitions of businesses and strategic investments;
• future sales of shares of our common stock, our lack of an intention to pay dividends and significant influence of our principal stockholders; and
• anti-takeover and exclusive forum provisions in our governing documents.

Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Overview

Alkami is a cloud-based digital banking solutions provider. We inspire and empower community, regional and super-regional financial institutions (“FIs”) to compete with large, technologically advanced and well-resourced banks in the United States. Our solution, the Alkami Digital Banking 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. We cultivate deep relationships with our clients through long-term, subscription-based contractual arrangements, aligning our growth with our clients’ success and generating an attractive unit economic model.

Alkami was founded to help level the playing field for FIs. Since then, our vision has been to create a platform that combines premium technology and fintech solutions in one integrated ecosystem, delivered as a software-as-a-service (“SaaS”) solution and providing our clients’ customers with a single point of access to all things digital. We have invested significant resources to build a technology stack that prioritized innovation velocity and speed-to-market given the importance of product depth and functionality in winning and retaining clients. In October 2020, we acquired ACH Alert, LLC (“ACH Alert”) to pursue adjacent product opportunities, such as fraud prevention and to expand our addressable market. In September 2021, we acquired MK Decisioning Systems, LLC (“MK”), a technology platform for onboarding and account opening, credit card and loan origination solutions. In April 2022, we acquired Segmint, Inc. (“Segmint”), a leading cloud-based financial data analytics and transaction data cleansing provider. In March 2025, we acquired Fin Technologies, Inc., dba MANTL (“MANTL”), an onboarding and account opening solutions provider that allow financial institutions to acquire commercial, business and retail customers through a variety of channels for many deposit account types.

During 2024, we established a new subsidiary in India to support potential future operational needs. As of June 30, 2025, this entity had immaterial operations and did not have a significant impact on our consolidated financial results. We will continue to assess the impact of this entity as operations evolve.

Our domain expertise in retail and business banking has enabled us to develop a suite of products tailored to address key challenges faced by FIs. Due to our architecture, adding products through our single code base is fast, simple and cost-effective. The key differentiators of the Alkami Digital Banking Platform include:

• User experience: Personalized and seamless digital experience across user interaction points, including desktop, mobile, chat and SMS, establishing durable connections between FIs and their customers.
• Integrations: Scalability and extensibility driven by more than 300 real-time integrations to back-office systems and third-party fintech solutions as of June 30, 2025, including core systems, payment cards, mortgages, bill pay, electronic documents, money movement, personal financial management and account opening.
• Deep data capabilities: Data synchronized and stored from back-office systems and third-party fintech solutions and synthesized into meaningful insights, targeted content, and other areas of monetization.

The Alkami Digital Banking Platform offers an end-to-end set of digital banking products. Our typical relationship with an FI begins with a set of core functional components, which can extend over time to include a rounded suite of products across account opening, marketing, data insights, card experience, money movement, customer service, business banking, financial wellness, security and fraud protection and extensibility.

We primarily go to market through an internal sales force. Given the long-term nature of our Alkami Digital Banking Platform contracts, a typical sales cycle can range from approximately three to 12 months, with the subsequent implementation timeframe generally ranging from six to 12 months depending on the depth of integration.

We derive our Alkami Digital Banking Platform revenues almost entirely from multi-year contracts that are based on an average contract life of approximately 70 months as of June 30, 2025. We predominantly employ a per-registered-user pricing model, with incremental fees above certain contractual client minimum commitments for each licensed solution. In these cases, our pricing is tiered, with per-registered-user discounts applied as clients achieve higher levels of customer penetration, incentivizing our clients to internally market and promote digital engagement.

To support our growth and capitalize on our market opportunity, we have increased our operating expenses across all aspects of our business. In research and development, we continue to focus on innovation and bringing novel capabilities to our platform, extending our product depth. Similarly, we continue to expand our sales and marketing organization focusing on new client wins, cross-selling opportunities and client renewals.

For the three months ended June 30, 2025 and 2024, our total revenues were $112.1 million and $82.2 million, respectively, representing a 36.4% increase period-over-period. For the six months ended June 30, 2025 and 2024, our total revenues were $209.9 million and $158.3 million, respectively, representing an increase of 32.6% period-over-period. SaaS subscription revenues, as further described below, represented 94.5% and

94.7% of total revenues for the three and six months ended June 30, 2025, respectively, and 95.4% and 95.6% of total revenues for the three and six months ended June 30, 2024, respectively. We incurred net losses of $13.6 million and $21.4 million for the three and six months ended June 30, 2025, respectively, and net losses of $12.3 million and $23.8 million for the three and six months ended June 30, 2024, respectively, largely on the basis of significant continued investment in sales, marketing, product development and post-sales client activities.

Recent Developments

Merger with MANTL. On March 17, 2025, the Company consummated its previously announced merger with MANTL, pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated February 27, 2025, with MANTL surviving as a wholly owned subsidiary of the Company. MANTL provides onboarding and account opening solutions that allow financial institutions to acquire commercial, business and retail customers through a variety of channels for many deposit account types. The aggregate consideration paid in exchange for all of the outstanding equity interests of MANTL was approximately $375 million, net of cash acquired. Approximately $9.1 million of the consideration was placed into escrow to secure certain post-closing indemnification obligations in the Merger Agreement. See Note 3 to the Notes to the Unaudited Condensed Consolidated Financial Statements for additional details.

Third Amendment to Amended and Restated Credit Agreement. In connection with the acquisition of MANTL, on February 27, 2025, the Company entered into a Third Amendment (the “Third Amendment”) to its Amended and Restated Credit Agreement dated as of April 29, 2022 (as amended, the “Amended Credit Agreement”), which, among other things, extended the maturity date of the Revolving Facility, increased the amount of the Revolving Facility commitment, extended the Financial Covenant Trigger Date (as defined therein), reduced the applicable interest rate margins, permitted the acquisition of MANTL pursuant to the terms of the Merger Agreement, permitted certain convertible indebtedness and equity derivative transactions, subject to certain restrictions, and modified certain covenants. See Note 8 to the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

Issuance of Convertible Senior Notes. On March 13, 2025, the Company issued $345 million principal amount of its 1.50% Convertible Senior Notes due 2030 (the “2030 Convertible Notes” or “Notes”). The Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of March 13, 2025, between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Pursuant to the purchase agreement between the Company and the representatives of the initial purchasers of the Notes, the Company granted the initial purchasers an option to purchase, for settlement within a period of 13 days from, and including, the date the Notes are first issued, up to an additional $45 million principal amount of Notes. The Notes issued on March 13, 2025 include $45 million principal amount of Notes issued pursuant to the full exercise by the initial purchasers of such option. See Note 8 to the Notes to the Unaudited Condensed Consolidated Financial Statements.

Factors Affecting our Operating Results

Growing our FI Client Base. A key part of our strategy is to grow our FI client base. As of June 30, 2025, we served 280 FIs through the Alkami Digital Banking Platform and more than 900 clients when including unique clients only subscribing to one or a combination of ACH Alert, Segmint, or MANTL products. Each of our digital banking client wins is a competitive takeaway, and as such, our historical ability to grow our client base has been a function of product depth, technological excellence and a sales and marketing function able to match our solutions with the strategic objectives of our clients. Our future success will significantly depend on our ability to continue to grow our FI client base through competitive wins.

Deepening Client Customer Penetration. We primarily generate revenues through a per-registered-user pricing model. Once we onboard a client, our ability to help drive incremental client customer digital adoption translates to additional revenues with very limited additional spend. Our FI clients are incentivized to market and encourage digital account sign-up based on identifiable improvement in customer engagement, as well as discounts received based on certain levels of customer penetration. We expect to continue to support digital adoption by client customers through continued investments in new products and platform enhancements. Our future success will depend on our ability to continue to deepen client customer penetration.

Expanding our Product Suite. Product depth is a key determinant in winning new clients. In a replacement market, we win based on our ability to bring a product suite to market that is superior to the incumbent, as well as to our broader competition. Of equal importance is the ability to cohesively deliver a deep product suite with as little friction as possible to the client customer. The depth of our product suite is a function of technology and platform partnerships. Our platform model with more than 300 integrations as of June 30, 2025 enables us to deliver thousands of configurations aligned with the digital platform strategies adopted by our clients. We expect our future success in winning new clients to be partially driven by our ability to continue to develop and deliver new, innovative products to FI clients in a timely manner. Furthermore, expanding our product suite expands our Revenue per Registered User (“RPU”) potential. For additional information regarding RPU, see “Key Business Metrics.”

Client Renewals. Our model and the stability of our revenue base is, in part, driven by our ability to renew our clients. In addition to extending existing relationships, renewals provide an opportunity to grow minimum contract value, as over the course of a contract term our clients often grow, or their needs evolve. Client renewals are also an important lever in driving our long-term gross margin targets, as we generally achieve approximately 70% gross margin upon renewal. We had 6 and 10 client renewals for the three and six months ended June 30, 2025, respectively. We expect client renewals to continue to play a key role in our future success.

Continued Leadership in Innovation. Our ability to maintain a differentiated platform and offering is dependent upon our pace of innovation. Our single code base, built on a multi-tenant infrastructure and combined with continuous software delivery enables us to bring new, innovative products to market quickly and positions us with what we believe is market-leading breadth in terms of product offerings and feature sets. We remain committed to investing in our platform, notably through our research and development spend, which was 27.0% and 27.2% of our revenues for the three and six months ended June 30, 2025, respectively. Our future success will depend on our continued leadership in innovation.

Components of Results of Operations

Revenues

Our client relationships are predominantly based on multi-year contracts for the Alkami Digital Banking Platform that have had an average contract life of approximately 70 months as of June 30, 2025. We derive the majority of our revenues from SaaS subscription services charged for the use of our digital banking solution. Subscription services are recognized over time on a ratable basis over the client agreement term beginning on the date our solution is made available to our client. The promised consideration may include fixed or variable amounts and termination fees for clients leaving our digital banking platform. For our clients with enterprise license contracts, they are invoiced on an agreed upon monthly rate throughout the contract term, which may include fixed monthly or annual rate escalations. Fixed dollar or percentage escalations that are not based on registered users are considered part of the fixed transaction price and recognized on a straight-line basis over the SaaS subscription period evenly. The majority of our client contracts are based on registered users, which we invoice monthly a contractual minimum fee for each licensed solution. In addition, we invoice monthly an additional subscription fee for the number of registered users using each solution and the number of bill-pay and certain other transactions those registered users conduct through our digital banking platform in excess of their contractual client minimum commitments. Our pricing is tiered, with per-registered-user discounts applied as clients achieve higher levels of customer penetration, incentivizing our clients to internally market our products and promote digital engagement. Variable consideration earned for subscription fees in excess of contractual minimums is recognized as revenues in the month of actual usage. SaaS subscription services also include annual and monthly charges for maintenance and support services, which are recognized on a straight-line basis over the contract term.

We receive implementation and other upfront fees for the implementation, configuration and integration of our digital banking platform. We typically invoice these services as a fixed price per contract. These fees are not distinct from the underlying licensed SaaS subscription services. As a result, we recognize the resulting revenues on a straight-line basis over the client’s initial agreement term for our licensed SaaS solutions, commencing upon launch.

Occasionally, our clients request custom development and other professional services, which we provide. These are generally one-time requests and involve unique, non-standard features, functions, conversions, or integrations that are intended to enhance or modify their licensed SaaS solutions. We recognize revenues at the point in time the services are transferred to the client.

The following table disaggregates our revenues for the three and six months ended June 30, 2025 and 2024 by major source:

(in thousands)

See Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional detail.

Cost of Revenues and Gross Margin

Cost of revenues is comprised primarily of salaries and other personnel-related costs, including employee benefits, bonuses, stock-based compensation, travel and related costs for employees supporting our SaaS subscription, implementation and other services. This includes the costs of our implementation, client support and development personnel responsible for maintaining and releasing updates to our platform, as well as third-party cloud-based hosting services. Cost of revenues also includes the direct costs of bill-pay services and other third-party intellectual property included in our solutions, depreciation, and the amortization of acquired technology.

We capitalize certain personnel costs directly related to the implementation of our solutions to the extent those costs are recoverable from future revenues. We amortize the costs for an implementation once revenue recognition commences. The amortization period is typically five to seven years, which represents the expected period of client benefit. Other costs not directly recoverable from future revenues are expensed in the period incurred.

We intend to continue to increase our investments in our implementation, client support teams and technology infrastructure to serve our clients and support our growth. We expect cost of revenues to continue to grow in absolute dollars as we grow our business, but to vary as a percentage of revenues from period to period as a function of the utilization of implementation and support personnel and the extent to which we recognize fees from bill-pay services and other third-party functionality integrated into our solutions. Our gross margin for the three and six months ended June 30, 2025 was 58.6% and 58.8%, respectively, and 59.4% and 58.6% for the three and six months ended June 30, 2024, respectively.

The major components of cost of revenues are represented in the following table as percentages of revenues for the three and six months ended June 30, 2025 and 2024, respectively:

Operating Expenses

Research and Development. Research and development costs consist primarily of personnel-related costs for our engineering, information technology and product employees, including salaries, bonuses, other incentive-related compensation, employee benefits and stock-based compensation. In addition, we also include third-party contractor expenses, software development and testing tools, allocated corporate expenses and other expenses related to developing new solutions and upgrading and enhancing existing solutions. We expect research and development costs to increase as we expand our platform with new features and functionality, as well as enhance the existing Alkami Digital Banking Platform.

Sales and Marketing. Sales and marketing expenses consist primarily of personnel-related costs of our sales, marketing and our client success employees, including salaries, bonuses, commissions, other incentive-related compensation, employee benefits and stock-based compensation. Sales and marketing expenses also include travel and related costs, outside consulting fees and marketing programs, including lead generation, costs of our annual client conference, advertising, trade shows and other event expenses. We expect sales and marketing expenses will continue to increase as we expand our direct sales teams to pursue our market opportunity.

General and Administrative. General and administrative expenses consist primarily of personnel-related costs for our executive, finance, legal, human resources, information technology, security and compliance and other administrative employees, including salaries, bonuses, commissions, other incentive-related compensation, employee benefits and stock-based compensation. General and administrative expenses also include accounting, auditing and legal professional services fees, secondary offering costs, travel and other unallocated corporate-related expenses, such as the cost of our facilities, employee relations, corporate telecommunication and software. We expect that general and administrative expenses will continue to increase as we scale our business and as we incur costs associated with being a publicly traded company, including legal, audit, business insurance and consulting fees.

Acquisition-Related Expenses. Acquisition-related expenses are primarily related to legal, consulting and professional fees.

Amortization of Acquired Intangibles. Amortization of acquired intangibles represents the amortization of intangible assets recorded in connection with our business acquisitions, which are amortized on a straight-line basis over the estimated useful lives of the related assets.

Loss on Impairment of Intangible Assets. Loss on impairment of intangible assets related to the impact of the acquisition of MANTL to certain historical developed technology, customer relationships and capitalized developed software assets.

Non-operating Income (Expense)

Non-operating income (expense) consists primarily of interest income from our cash balances, interest expense from borrowings under our Revolving Facility (as defined below) and 2030 Convertible Notes, amortization of debt discount and deferred debt costs, unrealized gains or losses on marketable securities and realized gains on sales of marketable securities.

(Benefit from) Provision for Income Taxes

Our effective tax rate differs from the statutory tax rate primarily due to the impact of the valuation allowance against our deferred tax assets and state tax expense. As a result of our valuation allowance, benefit from income taxes consists primarily of state income taxes and deferred taxes related to the tax amortization of acquired goodwill, offset by a deferred tax benefit attributable to the partial release of the Company’s pre-existing valuation allowance related to the MANTL business combination. See Notes 3 and 10 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Results of Operations

The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this filing. The financial results of MANTL, for the period of March 18, 2025 through June 30, 2025, are included in the Company’s condensed consolidated financial statements and notes. The following table presents our selected condensed consolidated statements of operations data for the three and six months ended June 30, 2025 and 2024.

(in thousands)

(1) Includes amortization of acquired technology of $4.9 million and $1.4 million for the three months ended June 30, 2025 and 2024, respectively, and $6.8 million and $2.7 million for the six months ended June 30, 2025 and 2024, respectively.

(2) Includes stock-based compensation expenses as follows:

(in thousands)

The following table presents our reconciliation of GAAP net loss to adjusted EBITDA for the periods indicated.

(in thousands)

(1) Adjusted EBITDA is a non-GAAP financial measure and should not be considered an alternative to GAAP net loss as a measure of operating performance or as a measure of liquidity. For additional information regarding adjusted EBITDA, see “Key Business Metrics.”

Key Business Metrics

Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure and should not be considered an alternative to GAAP net loss as a measure of operating performance or as a measure of liquidity. We define adjusted EBITDA as net loss before (benefit from) provision for income taxes; loss on financial instruments; interest expense (income), net; depreciation and amortization; stock-based compensation expense; acquisition-related expenses; and loss on impairment of intangible assets. We believe adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations.

Annual Recurring Revenue (ARR). We calculate ARR by aggregating annualized recurring revenue related to SaaS subscription services recognized in the last month of the reporting period, as well as the next 12 months of expected implementation services revenues in the last month of the reporting period. We believe ARR provides important information about our future revenue potential, our ability to acquire new clients, and our ability to maintain and expand our relationship with existing clients.

Registered Users. We define a registered user as an individual or business related to an account holder of an FI client on our digital banking platform and has access as of the last day of the reporting period presented. We exclude individuals or businesses that solely use the products and services of our acquisitions. We price our digital banking platform based on the number of registered users, so as the number of registered users of our digital banking platform increases, our ARR grows. We believe growth in the number of registered users provides important information about our ability to expand market adoption of our digital banking platform and its associated software products, and therefore to grow revenues over time.

Revenue per Registered User (RPU). We calculate RPU by dividing ARR as of the last day of the reporting period by the number of registered users as of the last day of the reporting period. We believe RPU provides important information about our ability to grow the number of software products adopted by new clients over time, as well as our ability to expand the number of software products that our existing clients add to their contracts with us over time.

Comparison of Three and Six Months ended June 30, 2025 and 2024

Revenues

(in thousands)

Revenues increased $29.9 million, or 36.4%, and $51.6 million, or 32.6%, for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024.

The increase of $29.9 million in revenues for the three months ended June 30, 2025 was primarily due to user growth on our digital banking platform from both existing client digital user growth and new client implementations, selling additional solutions to existing clients resulting in increased RPU, and higher termination fees from customers leaving our digital banking platform due to mergers and acquisitions. The revenue contribution from the MANTL acquisition was $10.3 million for the three months ended June 30, 2025.

The increase of $51.6 million for the six months ended June 30, 2025 was primarily due to user growth on our digital banking platform from both existing client digital user growth and new client implementations, selling additional solutions to existing clients resulting in increased RPU, and higher termination fees from customers leaving our digital banking platform due to mergers and acquisitions. Our existing clients added 1.5 million digital users and we implemented 31 new clients onto our platform representing 1.2 million digital users. In addition, the revenue contribution from the MANTL acquisition was $11.7 million for the six months ended June 30, 2025.

Cost of Revenues

(in thousands)

Cost of revenues increased $13.1 million, or 39.1%, and $21.0 million, or 32.1%, for the three and six months ended June 30, 2025, respectively compared to the same period in 2024. Gross margin for the three months ended June 30, 2025 and 2024 was 58.6% and 59.4%, respectively. The driver for the decrease in gross margin for the three months ended June 30, 2025 compared to the same period in 2024 is primarily related to the increased amortization of intangibles included in cost of revenues due to the acquisition of MANTL. For the six months ended June 30, 2025, our revenue growth outpaced our cost of revenues growth, leading to an improved gross margin of 58.8% compared to a gross margin of 58.6% for the same period in 2024.

The increase in cost of revenues for the three months ended June 30, 2025, was primarily driven by $6.1 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform, a $3.6 million increase in amortization of intangible assets, primarily related to the acquisition of MANTL, a $2.5 million increase in personnel-related costs (which includes stock-based compensation of $0.4 million), $0.5 million in higher hosting costs, and net other miscellaneous costs of $0.4 million.

The increase in cost of revenues for the six months ended June 30, 2025, was primarily driven by $9.9 million in higher costs of our third-party partners where we resell their solutions as part of the digital platform, a $5.6 million increase in personnel-related costs (which includes stock-based compensation of $1.8 million, of which $1.0 million was related to certain unvested equity awards settled in cash in conjunction with the acquisition of MANTL), a $4.1 million increase in amortization of intangible assets, primarily related to the acquisition of MANTL, $0.6 million in higher hosting costs, and net other miscellaneous costs of $0.9 million.

Operating Expenses

($ in thousands)

Research and Development

Research and development expenses increased $6.3 million, or 26.4%, and $10.4 million, or 22.2%, for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024. For the three months ended June 30, 2025, the increase was primarily due to a $5.4 million increase in personnel-related costs (which includes stock-based compensation of $1.2 million) resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation, $0.5 million in higher hosting costs, and net other miscellaneous costs of $0.5 million. These expenses were partially offset by an increase of $0.1 million in capitalized development costs.

For the six months ended June 30, 2025, the increase was primarily due to an $8.3 million increase in personnel-related costs (which includes stock-based compensation of $2.6 million, of which $1.0 million was related to certain unvested equity awards settled in cash in conjunction with the acquisition of MANTL), resulting from headcount growth in our engineering, information technology and product teams dedicated to platform enhancements and innovation, $1.3 million in higher costs for consulting, $0.8 million in higher hosting costs, and $0.6 million in higher various other net costs. These expenses were partially offset by an increase of $0.6 million in capitalized development costs.

Sales and Marketing

Sales and marketing expenses increased $6.0 million, or 35.5%, and $10.1 million or 32.7%, for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024. For the three months ended June 30, 2025, the increase was primarily due to a $5.5 million increase in personnel-related costs (which includes stock-based compensation of $1.3 million), resulting from headcount growth in our sales and marketing teams. In addition, we incurred $0.4 million in higher consulting costs and $0.1 million in higher various other net costs.

For the six months ended June 30, 2025, the increase was primarily due to an $8.3 million increase in personnel-related costs (which includes stock-based compensation of $2.1 million, of which $0.3 million was related to certain unvested equity awards settled in cash in conjunction with the acquisition of MANTL), resulting from headcount growth in our sales and marketing teams. In addition, we incurred $1.0 million in higher costs related to industry conferences and trade shows, including enhanced client experiences at our in-person client conference, Co:lab, $0.4 million in higher consulting costs, and $0.4 million in higher various other costs.

General and Administrative

General and administrative expenses increased by $5.4 million, or 26.3%, and $9.9 million, or 24.8%, for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024. For the three months ended June 30, 2025, the increase was primarily due to a $3.9 million increase in personnel-related costs (which includes stock-based compensation of $1.7 million), $0.5 million in higher audit and consulting costs, $0.4 million of higher software costs, and $0.6 million in higher various other net costs.

For the six months ended June 30, 2025, the increase was primarily due to a $7.9 million increase in personnel-related costs (which includes stock-based compensation of $4.5 million, of which $1.6 million was related to certain unvested equity awards settled in cash in conjunction with the acquisition of MANTL), $0.8 million in higher software costs, $0.6 million in higher audit and consulting costs, and $0.6 million in higher various other net costs.

Acquisition-Related Expenses

Acquisition-related expenses was $0.5 million and $2.9 million for the three and six months ended June 30, 2025, respectively, primarily related to insurance, legal, consulting, and professional fees incurred for the acquisition of MANTL.

Amortization of Acquired Intangibles

Amortization of acquired intangibles was $1.7 million and $2.3 million for the three and six months ended June 30, 2025, respectively, and $0.4 million and $0.7 million for the three and six months ended June 30, 2024, respectively. Amortization of acquired intangibles increased for the three and six months ended June 30, 2025 compared to the same periods in 2024, primarily due to the acquisition of intangible assets as part of the acquisition of MANTL in March 2025 and related additional amortization.

Loss on Impairment of Intangible Assets

Loss on impairment of intangible assets was $1.7 million for the six months ended June 30, 2025, related to impairment of certain historical developed technology intangible assets, customer relationship intangible assets, and capitalized developed software assets (included in property and equipment, net on the condensed consolidated balance sheets) as a result of the acquisition of MANTL.

Non-Operating Income (Expense)

Non-operating expense increased by $3.1 million and $3.9 million for the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024, primarily due to a $3.2 million and $3.9 million increase in net interest expense, respectively.

(Benefit from) Provision for Income Taxes

The Company recorded income tax benefit of $4.3 million and $11.6 million for the three and six months ended June 30, 2025, respectively, resulting in an effective tax rate of 24.0% and 35.1%, respectively, compared to income tax expense of $0.2 million and $0.4 million for the three and six months ended June 30, 2024, respectively, resulting in an effective tax rate of (1.5)% and (1.6)%, respectively.

The Company’s effective tax rates for the three and six months ended June 30, 2025 and 2024 differ from the statutory tax rate primarily due to the impact of the valuation allowance against its deferred tax assets and state tax expense, offset by a deferred tax benefit attributable to the partial release of the Company’s pre-existing valuation allowance related to the MANTL business combination.

The acquisition of MANTL resulted in the recognition of a net deferred tax liability of $12.6 million. See Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information. Prior to the business combination, MANTL had a full valuation allowance on its net deferred tax assets. The net deferred tax liability generated from the business combination is considered an additional source of income to support the realizability of the Company’s pre-existing deferred tax assets. As a result, the Company released a portion of the pre-existing valuation allowance against the deferred tax assets and recorded a provisional deferred tax benefit of $12.0 million.

Liquidity and Capital Resources

As of June 30, 2025, we had $87.1 million in cash and cash equivalents and marketable securities, and an accumulated deficit of $497.6 million. Our net losses have been driven by our investments in developing our digital banking platform, expanding our sales, marketing and implementation organizations and scaling our administrative functions to support our rapid growth.

We funded the acquisition of MANTL through the issuance of the 2030 Convertible Notes, borrowings on our revolving facility under the Amended Credit Agreement (the “Revolving Facility”), and cash from our balance sheet.

We have financed our operations primarily through cash generated from the sale of SaaS subscription services. Our future capital requirements will depend on many factors, including revenue growth and costs incurred to support client usage and growth in our client base, increased research and development expenses to support the growth of our business and related infrastructure, increased general and administrative expenses associated with being a publicly traded company, investments in office facilities and other capital expenditure requirements and any potential future acquisitions or other strategic transactions.

We believe that our existing cash resources, including our Amended Credit Agreement, will be sufficient to finance our continued operations, growth strategy, planned capital expenditures and the additional expenses we expect to incur as a public company for the short term (at least the next 12 months) and longer term (beyond the next 12 months). We may, from time to time, seek to raise additional capital to support our growth, including fund acquisitions, as we did with the issuance of the 2030 Convertible Notes to fund, in part, the acquisition of MANTL. Any equity financing we may undertake could be dilutive to our existing stockholders, and any additional debt financing we may undertake could require debt service and financial and operational requirements that could adversely affect our business.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

(in thousands)

Net Cash (Used in) Provided by Operating Activities

During the six months ended June 30, 2025, net cash used in operating activities was $4.5 million, which consisted of a net loss of $21.4 million, adjusted by non-cash charges of $36.7 million and net cash outflows from the change in net operating assets and liabilities of $19.8 million. The non-cash charges were primarily comprised of depreciation and amortization expense of $11.2 million, stock-based compensation expense of $35.6 million (exclusive of $3.9 million of stock-based compensation expense for unvested equity awards settled in cash related to MANTL acquisition), loss on impairment of intangible assets of $1.7 million, and net other non-cash charges of $0.2 million, partially offset by deferred taxes of $12.0 million. The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $7.5 million increase in accounts receivable, a $15.8 million increase in prepaid expenses and other assets (inclusive of $2.9 million of prepaid stock-based compensation related to the acquisition of MANTL), and a $2.3 million increase in deferred costs, partially offset by a $4.2 million increase in accounts payable and accrued liabilities and a $1.5 million increase in deferred revenues. The increase in prepaid expenses and other assets was primarily due to a $9.1 million pending vendor refund receivable as of June 30, 2025. The Company received the $9.1 million vendor refund in full in July 2025, subsequent to the period end.

During the six months ended June 30, 2024, net cash provided by operating activities was $1.5 million, which consisted of a net loss of $23.8 million, adjusted by non-cash charges of $33.1 million and net cash outflows from the change in net operating assets and liabilities of $7.8 million. The non-cash charges were primarily comprised of depreciation and amortization expense of $5.2 million, stock-based compensation expense of $28.6 million, and net other non-cash charges of $0.1 million, partially offset by accrued interest on marketable securities, net of $0.8 million. The net cash outflows from the change in our net operating assets and liabilities were primarily due to a $3.5 million increase in accounts receivable, a $3.8 million increase in prepaid expenses and other current assets, a $0.7 million decrease in accounts payable and accrued liabilities and a $2.6 million increase in deferred costs, partially offset by a $2.6 million increase in deferred revenues.

Net Cash (Used in) Provided by Investing Activities

During the six months ended June 30, 2025, net cash used in investing activities was $392.4 million, primarily consisting of $375.5 million related to our acquisition of MANTL, $30.0 million in purchases of marketable securities, $3.2 million related to capitalized software development costs and $0.9 million related to capital expenditures related to updates for computers and other equipment, partially offset by $17.2 million in proceeds from sales, maturities, and redemptions of marketable securities.

During the six months ended June 30, 2024, net cash provided by investing activities was $22.3 million, primarily consisting of $41.6 million in proceeds from maturities and redemptions of marketable securities, partially offset by $15.6 million in purchases of marketable securities, $3.0 million related to capitalized software development costs and $0.7 million related to capital expenditures related to updates for computer and other equipment.

Net Cash Provided by (Used in) Financing Activities

For the six months ended June 30, 2025, net cash provided by financing activities was $354.9 million, which was primarily due to proceeds of $335.5 million from the issuance of the 2030 Convertible Notes, proceeds of $60.0 million from revolver loan borrowings, $2.3 million in proceeds from the exercise of stock options to purchase 0.3 million shares of our common stock, partially offset by $33.9 million paid for the Capped Calls, $10.0 million of payments on revolving loan, and $1.9 million of debt issuance costs paid.

For the six months ended June 30, 2024, net cash used in financing activities was $3.3 million, which was primarily due to $12.8 million in payments for taxes related to net settlement of equity awards, partially offset by $6.9 million in proceeds from the exercise of stock options to purchase 1.0 million shares of our common stock and proceeds from issuances under the Employee Stock Purchase Plan of $2.6 million.

Debt Transactions

On February 27, 2025, the Company entered into the Third Amendment and subsequently borrowed $60 million on the Revolving Facility during March 2025, with the proceeds used for the acquisition of MANTL. As of June 30, 2025, $50 million remained outstanding on the Revolving Facility. Refer to Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for more information regarding the Amended Credit Agreement.

On March 13, 2025, the Company issued $345 million 2030 Convertible Notes. The Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of March 13, 2025, between the Company and the Trustee. In connection with the issuance of the 2030 Convertible Notes, the Company entered into the Capped Calls. Refer to Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for more information regarding the 2030 Convertible Notes and Capped Calls.

Total interest expense, including commitment fees and unused line fees, was $3.2 million and $4.0 million for the three and six months ended June 30, 2025, respectively, and $0.1 million for both the three and six months ended June 30, 2024. Interest expense related to the 2030 Convertible Notes and Revolving Facility was $1.7 million and $1.2 million, respectively, for the three months ended June 30, 2025, and $2.1 million and $1.5 million, respectively, for the six months months ended June 30, 2025.

In conjunction with closing the Amended and Restated Credit Agreement in 2022, First Amendment in 2023, Second Amendment in 2024, and Third Amendment in March 2025, we incurred issuance costs of $0.9 million, $0.3 million, $0.4 million, and $0.9 million, respectively, which were deferred and scheduled to be amortized over the remaining term of the agreement. In conjunction with the issuance of the 2030 Convertible Notes, the Company recognized an original issue discount of $9.5 million and debt issuance costs of $0.9 million, which were capitalized as components of the carrying amount and included in Convertible senior notes, net in the condensed consolidated balance sheets. See Note 8 to the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

Unamortized discounts and debt issuance costs totaled $11.2 million and $0.5 million as of June 30, 2025 and December 31, 2024, respectively. Amortization expense related to unamortized discounts and debt issuance costs (included in interest expense in the condensed consolidated statements of operations) totaled $0.5 million and $0.6 million for the three and six months ended June 30, 2025, respectively, and $0.1 million for both the three and six months ended June 30, 2024.

Contractual Obligations and Commitments

There were no material changes to our contractual obligations and commitments as of June 30, 2025, compared to those discussed as of December 31, 2024 in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 28, 2025.

Off-Balance Sheet Arrangements

During the period presented, we did not have, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Significant Judgments and Estimates

In preparing our unaudited condensed consolidated financial statements in conformity with GAAP, we must make decisions that impact the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of relevant circumstances, historical experience, and actuarial valuations. Actual amounts could differ from those estimated at the time the condensed consolidated financial statements are prepared.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in “Management's Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 28, 2025.

Recently Issued Accounting Pronouncements

See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere in this report for a discussion of recent accounting pronouncements and future application of accounting standards.

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates.

Interest Rate Risk

We are subject to interest rate risk in connection with our Amended Credit Agreement. Interest rate changes generally impact the amount of our interest payments and, therefore, our future net income and cash flows, assuming other factors held constant. Assuming the amounts outstanding under our Amended Credit Agreement are fully drawn, a hypothetical 10% change in interest rates would not have a material impact on our consolidated financial statements. Our cash and cash equivalents consist primarily of interest-bearing accounts. Such interest-earning instruments carry a degree of interest rate risk. To minimize interest rate risk in the future, we intend to maintain our portfolio of cash equivalents in a variety of investment-grade securities, which may include commercial paper, money market funds and government and non-government debt securities. Because of the short-term maturities of our cash, cash equivalents, and marketable securities, we do not believe that an increase in market rates would have any significant negative impact on the realized value of our investments.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures at June 30, 2025, the last day of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, at June 30, 2025, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting, identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) under the Exchange Act, that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There are no material changes to the risk factors previously disclosed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 28, 2025 other than the additional risk factors discussed below.

Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under the 2030 Convertible Notes.

Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things:

• increasing our vulnerability to adverse economic and industry conditions;
• limiting our ability to obtain additional financing;
• requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;
• limiting our flexibility to plan for, or react to, changes in our business;
• diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the 2030 Convertible Notes; and
• placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the 2030 Convertible Notes and the Amended Credit Agreement, and our cash needs may increase in the future. If we fail to comply with certain covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

We may be unable to raise the funds necessary to repurchase the 2030 Convertible Notes for cash following a fundamental change or to pay any cash amounts due upon maturity or conversion of the 2030 Convertible Notes, and our other indebtedness may limit our ability to repurchase the 2030 Convertible Notes or to pay any cash amounts due upon their maturity or conversion.

Noteholders may, subject to a limited exception, require us to repurchase their 2030 Convertible Notes following a “fundamental change” (as defined in the Indenture) at a cash repurchase price generally equal to the principal amount of the 2030 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. Upon maturity of the 2030 Convertible Notes, we must pay their principal amount and accrued and unpaid interest in cash, unless they have been previously repurchased, redeemed or converted. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our common stock. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the 2030 Convertible Notes or pay the cash amounts, if any, due upon their maturity or conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the 2030 Convertible Notes or to pay the cash amounts, if any, due upon their maturity or conversion. For example, the Amended Credit Agreement includes restrictions on our ability to settle conversions of the 2030 Convertible Notes in cash. Our failure to repurchase 2030 Convertible Notes or to pay the cash amounts, if any, due upon their maturity or conversion when required will constitute a default under the Indenture. A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the 2030 Convertible Notes.

Provisions in the Indenture could delay or prevent an otherwise beneficial takeover of us.

Certain provisions in the 2030 Convertible Notes and the Indenture could make a third-party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a fundamental change, then, subject to certain exceptions, noteholders will have the right to require us to repurchase their 2030 Convertible Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be required to temporarily increase the conversion rate. In either case, and in other cases, our obligations under the 2030 Convertible Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.

The accounting method for the 2030 Convertible Notes could adversely affect our reported financial condition and results.

The accounting method for reflecting the 2030 Convertible Notes on our balance sheet and accruing interest expense for the 2030 Convertible Notes may adversely affect our reported loss and financial condition.

In accordance with applicable accounting standards, we expect that the 2030 Convertible Notes will be reflected as a liability on our balance sheets, with the initial carrying amount equal to the principal amount of the 2030 Convertible Notes, net of discount and issuance costs. The issuance costs will be treated as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the 2030 Convertible Notes. As a result of this amortization, the interest expense that we expect to recognize for the 2030 Convertible Notes for accounting purposes will be greater than the cash interest payments we will pay on the 2030 Convertible Notes, which will result in higher reported loss.

Furthermore, if any of the conditions to the convertibility of the 2030 Convertible Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the 2030 Convertible Notes as a current, rather than a long-term, liability. This reclassification could be required even if no noteholders convert their 2030 Convertible Notes and could materially reduce our reported working capital.

Transactions relating to our 2030 Convertible Notes may affect the value of our common stock.

The conversion of some or all of the 2030 Convertible Notes would dilute the ownership interests of existing stockholders to the extent we satisfy our conversion obligation by delivering shares of our common stock upon any conversion of such 2030 Convertible Notes. Our 2030 Convertible Notes may become, in the future, convertible at the option of their holders under certain circumstances. If holders of our 2030 Convertible Notes elect to convert their notes, in certain circumstances we will be required to settle our conversion obligation by delivering shares of our common stock, which would cause dilution to our existing stockholders.

In connection with the issuance of the 2030 Convertible Notes, we entered into Capped Calls with certain financial institutions (collectively, the “option counterparties”). The Capped Calls are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2030 Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2030 Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap.

From time to time, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2030 Convertible Notes (and are likely to do so (x) during any observation period related to a conversion of the 2030 Convertible Notes or following any repurchase of the 2030 Convertible Notes by us in connection with any redemption or fundamental change, (y) following any other repurchase of the 2030 Convertible Notes if we elect to unwind a corresponding portion of the Capped Calls in connection with such repurchase and (z) if we otherwise unwind all or a portion of the Capped Calls). This activity could cause or avoid an increase or a decrease in the market price of our common stock.

We are subject to counterparty risk with respect to the Capped Calls.

The option counterparties are financial institutions, and we will be subject to the risk that any or all of them might default under the Capped Calls. Our exposure to the credit risk of the option counterparties will not be secured by any collateral. Past and recent global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the Capped Calls with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.