8-K: Alkami Technology Issues $345 Million Convertible Senior Notes Due 2030

Alkami Technology, Inc. has successfully issued $345 million in 1.50% Convertible Senior Notes due in 2030, outlining the terms of the debt and related agreements.

Summary

• Alkami Technology, Inc. issued $345 million in 1.50% Convertible Senior Notes due 2030 on March 13, 2025.
• The notes are governed by an indenture between Alkami and U.S. Bank Trust Company, National Association.
• Initial purchasers were granted an option to purchase an additional $45 million in notes, which was fully exercised.
• The notes are senior, unsecured obligations and rank equally with Alkami's other senior, unsecured debt.
• Interest is payable semi-annually on March 15 and September 15, beginning September 15, 2025.
• The notes mature on March 15, 2030, unless earlier repurchased, redeemed, or converted.
• Before November 15, 2029, conversion is contingent on certain events; after that date, holders can convert at any time until shortly before maturity.
• Alkami can settle conversions with cash, shares, or a combination, at its discretion.
• The initial conversion rate is 30.4681 shares per $1,000 principal, equivalent to $32.82 per share, subject to adjustments.
• Alkami can redeem the notes for cash after March 20, 2028, if the stock price exceeds 130% of the conversion price and other conditions are met.
• Noteholders can require Alkami to repurchase the notes upon a fundamental change at the principal amount plus accrued interest.
• The company entered into capped call transactions to reduce potential dilution and offset cash payments upon conversion, with an initial cap price of $47.74.
• Alkami used approximately $29.5 million of the net proceeds from the offering to fund the cost of entering into the capped call transactions.
• The remaining proceeds, along with cash on hand, may be used to fund the acquisition of MANTL and for general corporate purposes.
• The completion of the offering is not contingent on the closing of the MANTL acquisition.
• A maximum of 14,453,257 shares of the company's common stock may be issued upon conversion of the notes, based on the initial maximum conversion rate of 41.8935 shares of common stock per $1,000 principal amount of Notes, which is subject to customary anti-dilution adjustment provisions.

Sentiment

Score: 7

Explanation: The sentiment is neutral to positive. The announcement details a financial transaction, and while it involves debt, it also includes strategies to mitigate dilution and provides capital for potential acquisitions and general corporate purposes.

Positives

• The capped call transactions are expected to reduce potential dilution to Alkami's common stock upon conversion of the notes.
• The offering provides Alkami with additional capital for strategic initiatives, including the potential acquisition of MANTL.
• The notes have a relatively low interest rate of 1.50%.
• The notes are redeemable by Alkami, providing flexibility in managing its debt.
• The notes are convertible, giving noteholders the opportunity to participate in potential upside in Alkami's stock price.

Negatives

• The notes are unsecured obligations, meaning they are not backed by any specific collateral.
• The notes are effectively subordinated to Alkami's secured debt and structurally subordinated to the debt of its subsidiaries.
• Conversion rights are limited before November 15, 2029.
• If the market price of Alkami's common stock exceeds the cap price of the capped call transactions, there could still be dilution and/or a lack of offset of cash payments.
• The completion of the offering is not contingent on the closing of the MANTL acquisition.

Risks

• The market price of Alkami's common stock could decline, affecting the value of the notes and the potential for conversion.
• Alkami may not be able to successfully integrate acquired companies or businesses, including MANTL.
• Alkami may not be able to comply with regulatory and legal requirements and developments.
• The option counterparties may modify their hedge positions, which could affect the market price of Alkami's common stock or the notes.
• The capped call transactions may not fully offset potential dilution or cash payments upon conversion.

Future Outlook

Alkami intends to use the net proceeds from the offering to fund the cost of entering into the capped call transactions, and the remainder, together with cash on hand, which may include proceeds from drawing on Alkamis existing credit facility, and restricted stock units issued to continuing employees of Fin Technologies, Inc. dba MANTL (MANTL), to fund the previously announced pending acquisition of MANTL. Alkami expects to use any remaining net proceeds from the Offering for general corporate purposes. If the initial purchasers exercise their option to purchase additional notes, then Alkami intends to use a portion of the additional net proceeds to fund the cost of entering into additional capped call transactions.

Industry Context

This announcement reflects a common strategy among technology companies to raise capital through convertible notes, balancing the need for funding with potential dilution to existing shareholders. The use of capped call transactions is also a typical approach to mitigate dilution.

Comparison to Industry Standards

• Comparable companies that have issued convertible notes include [list comparable companies].
• The terms of Alkami's convertible notes, such as the interest rate and conversion premium, are generally in line with recent market standards for similar offerings.
• The use of capped call transactions is a common practice among companies issuing convertible notes to manage potential dilution.

Stakeholder Impact

• Shareholders may experience potential dilution upon conversion of the notes, although this is mitigated by the capped call transactions.
• Employees may benefit from the potential acquisition of MANTL and the company's continued growth.
• Customers may benefit from the company's ability to invest in new products and services.
• Creditors are structurally senior to the noteholders.

Next Steps

• The issuance and sale of the notes are scheduled to settle on March 13, 2025, subject to customary closing conditions.
• Alkami expects to use the net proceeds from the offering to fund the cost of entering into the capped call transactions and the acquisition of MANTL.
• The initial purchasers may exercise their option to purchase additional notes.

Key Dates