ALKT • 10-Q • Q3 2025 • Positive

Alkami's Digital Banking Growth Accelerates Despite Market Headwinds

October 31, 2025 • 1 min read

TL;DR

Alkami delivered strong Q3 results with revenue growth accelerating to 34% YoY, reaching $71.5M. Digital banking platform adoption continues to expand with 15 new logos added, bringing total financial institution clients to 205. Gross margins improved 210bps to 57.3% on increased operational leverage, though continued R&D investments kept operating margins negative. Management raised FY2023 guidance, signaling confidence in continued momentum despite broader fintech market uncertainty.

Financial Performance Overview: Q3 revenue of $71.5M exceeded consensus by $2.3M, with subscription revenue growing 36% YoY to represent 95% of total revenue. Gross margins expanded 210bps YoY to 57.3% on improved hosting efficiency and platform scale. Operating loss narrowed to ($8.4M) from ($11.2M) last year despite 42% increase in R&D spend. Annual Recurring Revenue (ARR) grew 32% YoY to $285M, with net revenue retention of 121%.
Strategic Initiatives and Operational Changes: Management is accelerating investment in AI-powered features with new fraud detection and personalization capabilities launching in Q4. Strategic partnership with Kasasa expanded TAM by 400+ community banks. Platform modernization initiative on track with 60% of clients migrated to new microservices architecture. Focus on cross-sell driving 28% increase in products per customer YoY.
Market Position and Competitive Dynamics: Alkami maintained leadership in digital banking platform RFPs, winning 65% of competitive deals in Q3. Average contract value increased 18% YoY to $1.2M on expanded product suite. No material competitive losses in quarter, though Q2 Banking entering mid-market segment. Community bank consolidation creating both risks and opportunities as surviving institutions seek modern platforms.
Operational Efficiency and Profitability: Gross margin expansion driven by hosting optimization and increased scale, with 80% of new clients on AWS infrastructure. Sales efficiency improved with CAC payback period declining to 24 months from 30 months last year. R&D spend at 28% of revenue expected to moderate in 2024. Path to profitability extended as management prioritizes growth investments.
Growth Catalysts and Material Risks: Near-term catalysts include expansion into credit unions, launch of commercial banking features, and acceleration of cross-sell motion. Macro risks from regional bank stress and potential IT budget constraints partially offset by modernization imperative. Customer concentration decreasing with no client >5% of revenue. Security and compliance costs rising but viewed as competitive advantage.

Revenue

$71.5M ( YoY, QoQ) with subscription revenue

↑ +34%

Rd Spend

$20.1M ( YoY) representing of revenue

↑ +42%

Net Income

($8.4M) loss, improved from ($11.2M) YoY

Gross Margin

(+210bps YoY) driven by hosting efficiency

↑ 57.3%

Free Cash Flow

($5.2M) with subscription revenue retention

↑ 93%

Operating Margin

(+520bps YoY) with continued investment focus

↓ -11.7%

Growth Indicators

$285M ( YoY)

↑ +32%

Customer Count 205 total clients (+15 new logos in Q3)

Retention Metrics ↑121% net revenue retention

Key Risks

Regional banking stress impacting IT budgets and decision timelines
Rising security/compliance costs pressuring margins
Platform modernization execution risk during client migration
Increasing competition in mid-market segment

Key Opportunities

Credit union expansion targeting $10B+ TAM with 15% current penetration
AI-powered features driving increased adoption and retention
Commercial banking capabilities unlocking larger contracts
International expansion beginning with Canada entry in 2024

Bottom Line

Alkami delivered strong Q3 results that demonstrate continued momentum in digital banking platform adoption despite market uncertainty. Revenue growth acceleration and gross margin expansion validate the company's strategy and execution, though path to profitability remains extended as management prioritizes growth investments. While near-term risks exist from regional banking stress, Alkami's modern platform and compliance-first approach position it well as financial institutions accelerate digital transformation efforts. Key metrics to watch include net revenue retention, new logo additions, and progress on AI feature adoption. The contrarian take is that banking industry stress may actually accelerate platform modernization as institutions seek competitive differentiation through digital experiences.