Q1 2021 Alkami Technology Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the coupon 2021 financial results conference call.
At this time all participants are in a listen only mode.
All participants this presentation there'll be a question and answer session to ask a question. During this time, you will need to press star and the number one on your telephone keypad.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Mr. Rhett Butler, Vice President of Investor Relations. Please go ahead Sir.
Thank you Elaine.
Good afternoon, and welcome to Alkermes earnings call for the first quarter ended March 31, 2021 with me on today's call are Mike Hansen Alchemy, Chief Executive Officer, Steven Bohannan, Alchemy, <unk> co founder and Chief strategy, and sales Officer, and Bryan Hill, Alkermes, Chief Financial Officer during.
The course of today's conference call, we may make forward looking statements, including statements regarding trends strategies and the anticipated performance of the company. These forward looking statements are based on management's current views and expectations and are subject to various risks and uncertainties, including risks relating to our operating and <unk>.
Financial performance.
Our actual results may differ materially from those contemplated by these forward looking statements and we can give no assurance that such expectations or any of our forward looking statements will prove to be correct.
Please refer to the risk factors included in our filings with the Securities and Exchange Commission, which are available on our Investor Relations website and the press release distributed earlier. This afternoon regarding the financial results. We will discuss today to review important factors that could cause actual results to differ.
Really from those reflected in the forward looking statements.
Looking statements made during the call are being made as of today May 11, 2021 based on the facts available to us today, and we undertake no obligation to update or revise any forward looking statements also unless otherwise stated all financial measures discussed on this call will be on a non-GAAP.
Basically because we believe these measures to be useful to investors in the understanding of our financial results.
A reconciliation of each comparable GAAP metric can be found in today's earnings release, which is available on our website investors that alchemy dot com and as an exhibit to the form 8-K furnished with the SEC today with that thank you for joining us and I'll turn it over to Mike.
Well, thanks, Rick and thanks, everyone for joining us today on our first quarterly earnings call will come from.
Since this is our first I'd like to start with a brief review of who we are and then move right into some context around what has happened in the banking space over the last year or so and then a few comments about Q1.
For those on this call that are new to us alkermes on 11 year old vertical SaaS company focused on one thing the.
Democratizing digital banking technology for community and regional banks and credit unions, we call them generally financial institutions in the U S. Alchemy enables these financial institutions to level, the digital playing field against the Megabanks Neo banks, and other technology advanced or well resource competitors.
In partnership with our clients on our partners. We believe we are ultimately contributing to long term success of community and regional financial institutions.
And thereby contributing to growth greater financial choices on results for consumers and businesses.
We offer a single highly configurable and cloud based digital banking platform to financial institutions that delivers their unique brand or strategies or offerings to all of their consumers and all of their business customers on remembers digitally.
Like many of the most recognizable innovative technology platforms on the world, we employ a multi tenant architecture, along with a single code base seamlessly orchestrate millions of combinations and permutations of systems conversions and configurations and vendors and data models and devices.
User preferences, and we utilized technology to allow us to deliver this innovation rapidly continuously and at scale to more than 240 clients today, bringing a speed to market advantage of scale to digital banking that we believe is unmatched.
We serve what we estimate to be about a 7 billion dollar addressable market today, consisting of approximately 10000 financial institutions.
185 million digital users, excluding the Mega banks and we are acutely focused on the top 2000 financial institutions within this segment, which contain the densest concentration of resources and digital users.
It's not an exaggeration to say that 2020 was an unprecedented year for U S financial institutions, and especially so for alkermes clients as well as our target clients.
The story of how our end market performed in 2020, and its financial health and positioning in 2021 really has three parts.
First at the height of the pandemic when U S business has struggled to take advantage of available federal loan programs regional and community financial institutions really stepped up and delivered for their trusted commercial relationships. These institutions were key to the timely application and funding processes. These loan programs and once again proved the strategic.
<unk> to the financial system that these institutions represent.
Secondly events of 2020 drove customer and member engagement for these financial institutions, especially digital engagement to unprecedented levels across a variety of metrics as.
On the government stimulus payments were being made to households in the middle of widespread stay at home orders and unprofitable Bank branch closures, our clients' digital banking systems were dependent upon at levels not seen before.
A number of Ceos have commented to me how tremendously important our platform has been to their missions in service of their clients. During these times.
In addition, even early 2021 when stimulus payments began being deployed mid March and this latest wave we saw a significant increase in online traffic again.
We handle this increased volume with 100% uptime and no degradation events.
As it should be really as it should be.
This performance gives us confidence and the scalability, we build into our architecture for the times when it is needed most.
We're fixtures, particularly aware of the fact that on a year with digital user growth overall accelerated prudential financial institutions across the board alkermes clients as a whole grew their digital users approximately 50% to 100% faster than the rate of the market overall organically up 17% year on year we.
I believe this growth in digital users is a testament to our client strategies and execution as well as the highly high quality secure and reliable user experience, we enable our clients to deliver to their consumers and business customers with our platform.
Finally based upon call report data on our own research. We estimate these financial institutions have significant capacity and capitalization to support their customers' needs and to continue investing in digital technologies like <unk> like alkermes.
We believe the events of 2020 in 2021 improve that the right phone.
Digital technology investments are even more mission critical financial institutions going forward. These.
These events also demonstrated the strength and the creativity on the commitment and the results of these community financial institutions bring to their consumer and business customers in their in their communities and our hats off to them for that.
Moving on to the quarter. The start to 2021 has been historic for alchemy. After an arduous process I'll call it and launching during what some have called a rough pace.
Successfully completed our IPO on April 14th.
Importantly, during this time, we maintained our focus on the business and achieved strong year over year results in revenue and <unk> growth of 43% and 39% respectively.
Our overall financial performance was solid at or above our expectations across the board.
Brian will dig into the financials in more detail momentarily.
These results well, we have been essentially 100% work from home for the past year understand underscore the immense importance.
The group of 626, alchemists, or so and Theyre competence caring and dedication to what we do for our customers.
Right.
During the quarter. We also achieved nearly 10 million digital users on our platform.
We estimate that this group of live clients is the largest on in terms of average client size as a group in terms of digital users in the industry today at over 63000 users per client.
In addition, we're beginning to see more results of our multiyear strategy to build out industry, leading business banking functionality.
In the quarter, we signed one of our largest banks in our history.
While Stephen will speak more about incremental investments in business banking and the moment Liberty Bank a $7 billion.
Connecticut based banking.
Underscores our proof points in the bank segment on our platforms capabilities and our long term business strategy day.
Mitchell's quote in our recent press release announcing the partnership said it so well.
Well on all.
Our customers expect on anytime anywhere highly personalized banking experience.
Rivals that of media and entertainment and online shopping.
We needed a partner who could provide the ability to add new features and functions quickly with an open digital banking platform alkermes deep expertise in retail and business banking translates into platform innovations like extensibility with API and expenses software development kit plus modern UX with cyber security tools on.
World Class data center.
Unquote consider better and were excited and honored to be working with Liberty Bank and our partnership.
I'd also say our Q4 2020 acquisition of ACTH alert has been another proof point for us a little over six months in now as we look back on our strategy and plans relative to the acquisition.
<unk> CH alert is a prototype of the type of space and the type of client success on the client with talent.
What type of offering on the type of integration processes, we would employ and the type of financial results. We would plan to replicate multiple multiple times over as we go forward.
As we enter 2021 I want to highlight three of the key strategic focus areas for us and provide a bit of color for each of these three our enhanced client success with our platform, new and existing product innovation and go to market strategies and activities.
I will touch on the first of these focus areas, let Steven our chief strategy and sales officer and powder speak to the last couple.
For those of you who know US well this will come as no surprise, but clients are the lifeblood of alchemy virtually everything we do as an organization aligns with their strategic and operational imperatives.
While efficiently and effectively driving their digital success. After all our vision is to create thriving digital communities for financial institutions of all sizes.
Particularly within our target market of the top 2000.
We're very much a client driven and people driven company and we're committed to putting our best foot forward.
And delighting clients throughout the entire plant lifecycle pre and post implementation.
In that vein, we are investing in several areas that will benefit our clients and us over the long term.
One of the key pillars of our growth strategy as our clients' success with our platform.
There are success drives digital user growth and drives engagement, which increases users and revenues for us a classic win for them and a win for us.
For newly launched clients, we are advancing a number of innovative automation techniques to improve the efficiency and quality of new platform implementations, we call on them Google go lives.
And while we do not expect these efforts to significantly shorten implementation times, we do expect them to allow us on our clients to more efficiently navigate the.
The increasingly complex digital offerings are today and in the future and ensuring we are implementing them better and with less effort.
For our live clients. We found we can do even more to to help them capitalize upon the opportunities afforded by our platform and our community and our ecosystem.
As you can think of it in many ways, we are capitalizing or supporting the digital transformation effort underway on our clients as a part of these projects. We have found ideas best practices and programs leveraging our platinum a form can be offered to accelerate these efforts.
In terms of client success and our success. Another important aspect is to continue to future proof our architecture.
We all know and see examples of new technologies, continuing to advance all around us and increasing velocities be it cloud enhancements automation server list technologies Cross platform mobile development frameworks API ecosystems edge computing machine learning artificial intelligence crypt.
So security.
Alchemy is continuing to invest here, we're relentlessly focused on not only functional and product expansions and enhancements, but also on advancing our architecture to take advantage of these new capabilities and technologies.
These ongoing architectural advancements in our platform and been part key part of our DNA and will further drive velocity stability security and thereby client success and satisfaction.
We've seen historical results from an intense focus on our clients on their success and we expect our strategies here will benefit us over the long term from a retention and cross sales perspective.
So now I'll turn it over to Steven to talk about the other two team strategies I've mentioned, our innovation and our go to market activities and I'll be back for some closing comments just before the Q&A with that I'll turn it over to Susan Alright. Thanks, Mike.
So as we look at our innovation focused on cadence for 2021, how much of it will be centered around adding incremental feature functionality across our eight product categories. In 'twenty six products. In addition to the architectural areas. Mike mentioned, however, we do have some specific focus areas for 'twenty, one which are expanding and enhancing our business banking solutions.
Our overall user experience with an emphasis on mobile our data solutions and our extensibility solutions, namely our SDK on API offerings I'll highlight each area briefly before moving on to new sales performance first our business banking strategy is paying off as we now have approximately half of the platform installed base leveraging our business banking solutions.
As Mike mentioned, we are extremely pleased that signed up one of the largest commercial banks for retail small business and commercial banking solutions is validation of our overall product progress on vision. Historically alchemy has made big strides delivering functionality to the micro business in SMB banking segment, but recently, we've invested functionality aimed at middle market and corporate cash.
Management end users that we believe will enable us to legitimately compete for more sophisticated and demanding banks and credit unions that need these robust commercial banking capabilities.
And we're always updating our user experience.
We expect to incorporate some significant changes during 2021 to our mobile app experience to that end, we are incorporating our design system called Iris throughout the mobile experience. This will result in a refreshed modernized flexible and more customizable experience. Additionally, we believe this broader mobile initiative lays the foundation for us to significantly improve our development speed for mobile feed.
Going forward, we call it mobile fast another important aspect of our focus on enhancing our mobile solution is enabling our SDK users which include clients in Fintech partners to add extend and customize native mobile app functionality, our product feedback groups, including our client Advisory board have been very supportive of these enhancements and are excited to risk.
The benefits of this area of innovation.
Next in line with our vision of delivering a true platform ecosystem and building upon the theme of flexibility and customization. We're also seeing increased demand from our clients for our SDK and API solutions to quota recent article by a prominent industry consultant quote the old buy versus build dichotomy is dead banks and credit unions have to buy <unk>.
And build and integrate and enhance unquote, we certainly concur and we are seeing that trend where financial institutions of all sizes understand the need to move with speed and to differentiate themselves to the digital channel.
Alkermes platform ecosystem grows each day and it is helping <unk> achieve these goals to date over 40 of our clients have purchased our SDK and we also have six third parties, which include software companies in Fintech that leverage our SDK. Additionally, we have trained over 203rd party developers on our extensibility tools, which has resulted in over 172 modules in <unk>.
<unk> built by this community for use by our clients on our platform in Q1 alone. We had nearly 150 SDK project submissions and updates and we are very pleased with the momentum of our solution as a true platform. A recent example in up and coming bill payments and money movement provider leveraged our SDK to create a complete money movement user experience fully integrated to.
Their Apis this solution actually launch during the first quarter of this year by providing a platform with extensibility and an ecosystem that is healthy and growing it enables the delivery of innovation to our clients without alchemy incurring the significant development investment directly we love This model and we expect to see more examples of this across our client base and the broader fintech ecosystem.
Some were asked from time to time about the need for larger financial institutions, requiring custom functionality as illustrated the extensibility of our platform conserve virtually any financial institutions' needs as well as seamlessly integrate third party Fintech innovation.
Finally data the market is continuing with its relentless focus on data and leveraging it to run their business. It's rare that we speak with a client or prospective client that does not have a significant enterprise projects related to data and we're in a position to be a material part of those initiatives currently approximately 45% of our platform install base leverages at least one of our premium data products.
Our clients use our data products, primarily to inform decisions lower cost to mitigate fraud and identified targeted cross sell on a revenue opportunities are great example of valuable cross sell data. We provide today, we have approximately 800000 external accounts, which are accounts held at a competing financial institution and a repository of over 4 billion cleansed and categorize trans.
Actions that our clients can leverage for targeted offers and product cross sell this is similar to what large direct to consumer PFM and credit monitoring solutions do with their customers. Today. We believe this type of data is a game changer for our clients is that unleashes a significant revenue opportunity, enabling them to leverage data to effectively target products held a competing institutions in order to cash.
Even greater wallet share we're still relatively early in our data solution offerings, but the momentum in demand from the market is very encouraging moving.
Moving onto sales momentum.
We typically measure new sales productivity in several ways, including trailing 12 month's production totaled deal activity and key wins analyzing trailing 12 months performance normal performance normalized this quarter to quarter variations in contract signing and gives us a more informed sense of the next 12 months revenue achievement based on a six to 12 months average implementation timeframe during the.
Quarter trailing 12 months <unk> grew over 30% compared to the prior year period as part of that new logo T. C. D. Total contract value traction grew 28% and add on sales grew 53% overall the number of Rfps and total active deals we are participating in for credit unions and commercial banks are growing while we have maintained a strong.
Momentum in trust, we built on the credit Union segment, which have been and will continue to be invaluable partners due to the investments. We've made on the business banking side. We are now seeing significant interest from commercial banks, which now comprise roughly one third of our pipeline.
And of course beyond just activity, we're looking at key wins like Liberty Bank to give us confidence we're moving on the right direction with our platform and sales strategy, our new sales performance. So far through 2021 is in line with our plan and consistent with our financial expectations I believe our traction so far this year on over the past 12 months serves to validate the overall uniqueness of the company platform in <unk>.
Alex we built and gives us confidence that the key strategic innovation initiatives, we're working on put us on the right path for growth finally, as we consider go to market and cross sell capabilities over the past year and as a result of the pandemic, we've dramatically accelerated and scaled our digital go to market engine. We also hired a seasoned CFO Alison Sarah Who's a very experienced technology.
I can give to lead that group under Allison's leadership, we expect to leverage the digital marketing pivot we achieved during the pandemic and increase our investments in motion to provide us with a stronger foundation to efficiently reach prospects and clients with targeted messaging based on digital signals.
Given the digital banking as a strategic pursuit for <unk>, we will continue to bring the power of the ecosystem to the purchase decision be it in the co marketing initiatives, we launched without coming partners or the essential engagements. We foster with consultants, we expect our investments here will drive <unk> expansion as we aggressively highlight product adoption opportunities to our install base on I'll hand, I'll now hand the call.
Brian to discuss our Q1 financial performance.
Thanks, Steven and good afternoon, everyone.
Echo Mike's comments is we have achieved a great deal. So far in 2021 now I'd like to thank all of the ALCHEMIST that not only continue to focus on the business, but also those that help pave our way for a successful IPO.
As a reminder, alkermes long term operating model is to achieve 25% revenue growth, 60% to 65% gross margin and an adjusted EBITDA margin of at least 25%.
Our financial model affords fantastic unit economics with long term contracts that have averaged approximately 70 months 830000 in revenue per client.
Net dollar retention of mid to high teens, and an LTV to CAC at over 10.
So the visibility provided by our financial model combined with our modern SaaS architecture gives us confidence and flexibility as we go after a very attractive market opportunity.
Moving on to our financial performance for the first quarter of 'twenty. One total revenues for the first quarter exhibited strong growth of 43% compared to the first quarter of 'twenty.
Our subscription revenue for the first quarter increased 47% and represented 95% of our total revenue our subscription revenue mix was over 200 basis points higher compared to the prior year period.
This performance underscores further improvement in what historically has been a very high quality revenue mix annual recurring revenue or <unk> of $134 million represented strong year over year growth of 39, 5% driven by registered user growth of 28%.
And <unk> expansion of 9%.
We exited Q1 with nearly 10 million registered users on our platform.
User growth was driven primarily from existing clients growing third digital users at approximately 15% net of attrition and represented just over half of our user growth.
ARPA growth was driven by new clients added to the platform at $18 per registered user combined with continued traction from our client sales team that is responsible for add on sales and client renewals.
I'll remind everyone that RP you from new client implementations will vary depending on the size of the financial institutions implemented onto the platform you will recall, our $34 blended ARPA you assumption used to quantify our Tam includes a thorough segmentation of price per registered user at.
Each EFI size segment.
And the products each segment will buy simply stated larger clients, bringing greater scale to the platform receive a lower cost per registered user in.
In addition, as we make further inroads into the bank segment of the market. These clients will possess an even higher ARPA, you, reflecting adoption of our business banking functionality.
Each quarter in essence will be driven by a theme unique to that quarter. However, it is important for you to understand we are onboarding, new business well above our overall average <unk> of $13 40 for the first quarter of 2021.
Non-GAAP gross margin was 54, 5% an expansion of over 530 basis points compared to the same period last year expansion was driven primarily by achieving cost efficiencies and client implementation client support and our site reliability engineering team.
As Mike mentioned, we did experience a surge of traffic during Q1 related to the stimulus check activity. This increased usage placed pressure on our hosting costs, partially offsetting some of the areas of efficiency. Previously mentioned however for 'twenty, one we're off to a great start progressing to our margin expansion.
<unk> for the year and progression towards our longer term gross margin target of 60% to 65%.
Total non-GAAP research and development expense was $10 6 million up 11% compared to the prior year period.
From a percentage of revenue perspective, R&D represented 32%, which is nearly 940 basis points of margin expansion compared to the prior year period.
Despite modestly higher personnel related costs due to increased resources in our engineering information technology and product teams dedicated to platform enhancements and innovation, we achieved significant margin expansion primarily through revenue scale.
Going forward and in line with Stephen's comments, we plan to invest in our lifeblood and that's innovation we.
We expect to continue to drive efficiency throughout this expense category, but believe due to the inherent benefits of our architecture. We can focus less on maintenance on one time client development projects, while shift to eating by shifting even more resources to driving innovation that we believe will impact long term revenue growth.
Total non-GAAP sales and marketing expenses were $5 2 million or 13% higher than the prior year period.
As a percentage of revenue sales and marketing represented 16%, which is nearly 420 basis points of margin expansion. Despite higher employee related costs from head count increases in our sales and marketing teams, we achieved leverage primarily through revenue scale and lower sales travel costs as well as lower cost.
Cost from industry conferences, and trade shows both resulting from the continued impact of the COVID-19 pandemic.
Going forward sales and marketing is an area for investment that we believe can drive returns in terms of revenue growth and support our 25% plus revenue growth objective over the longer term.
On a trailing 12 month basis, and as Stephen mentioned, our client sales team produced 53% more total contract value compared to the prior year period and redo two client contracts during the first quarter.
We expect over time that RP you expansion driven by this team will become an even greater contributor to overall revenue growth as they focus on driving product adoption in our install base as well as our renewals due to the investments on our client sales team and overall sales and marketing investments in general we expect to see a lower magnitude of op.
<unk> leverage as we progress through 2021.
Total non-GAAP general and administrative expense was $9 million up 29% compared to the prior year period G&A represented 27% of revenue, which is 290 basis points of margin expansion, we achieved leverages by higher employee related cost and the addition of cost.
Resulting from public company requirements in the IPO effort.
Going forward, we continue to see an opportunity for leverage within this expense category, albeit at a slower pace in 'twenty one as we continue to add incremental public company cost to our run rate.
Total non-GAAP net loss was $7 million, an improvement of $2 8 million adjusted EBITDA loss for the quarter was $6 1 million an improvement of 3 million Boe.
Both measures of profitability reflect the benefit of revenue scale prioritizing our spend and ultimately achieving operating leverage while we focus on the most balance path to revenue growth and long term profitability.
Moving on to cash.
We had cash of $162 million on balance sheet as of March 31, 21 inclusive of our net proceeds from the IPO in early April our aggregate cash balance exceeds $340 million, we continue to target a free cash flow positive run rate in early 2023, and we expect to use.
Approximately $50 million to $55 million in capital to achieve this operating position.
Now turning to guidance for the second quarter ending June 30, 'twenty. One we expect revenue in the range of 34% to $35 million and adjusted EBITDA loss of seven and a half to $6 5 million.
Our adjusted EBITDA loss increases from Q1, primarily due to added costs for supporting public company requirements and pushing investment initiatives out of Q1 into the balance of 2021.
For the full year ending December 31, 2021, we expect revenue in the range of $144 million to $148 million and adjusted EBITDA loss of 26 on a half to $23 5 million.
Now on closing we are experiencing strong adoption of our digital banking platform underscoring digital as the channel of choice for financial institutions. This has led to performing above our expectations. As we began our public company journey, our execution combined with the predictability of our financial model affords us the opportunity to.
Judiciously invest in areas that can drive continued growth in our opinion shareholder value creation, Mike I'll now hand, the call back to you for some closing comments.
Well, thank you Brian I appreciate that.
So in summary, I feel the start for 2021 in our.
Our life as a public company, it's gotten off to a solid start for us.
I believe our singular and relentless focus on this mission critical but I would.
I'd say, even becoming even more mission critical aspect of banking digital banking represents both an important mission for us and a significant opportunity.
The single focus has been the digital banking partner for community and regional financial institutions, who strategies demand success in this increasingly digital world.
I also believe we have a focused strategy and plan to build on our current position in key ways, including one to accelerate our clients' successes with their digital strategies and win with them.
To boldly invest in innovation through value, creating build partner and buy initiatives to capitalize the expansion of our ecosystem and our role in it.
Number four to expand <unk> through focused cross sell behavior and investments and five to augment our go to market activities with digital marketing and increase resources as Steven mentioned.
On season, our fair share of this market opportunity ahead of US we see a robust end market, where digital banking technology is democratized for regional and community financial institutions, and where financial choice is unlocked for consumers and businesses and bringing the power of a vibrant fintech ecosystem to our clients, we empower them to focus on their core Cup.
Impotent, while remaining in step with the latest technology.
Putting it altogether, a remarkable client base on attractive market opportunity a singular mission powerful unit economics diversified growth drivers in a defined competitive position. We believe this combination positions us to create shareholder value and.
And on alchemy that is uniquely our own.
I'd like to end, there and open it up to Q&A, So I'd like to turn it over to the operator at this time.
As a reminder to ask a question you will need to press star and the number one on your telephone keypad.
And you have a question from.
Korea from Barclays capital.
Okay, Great Hey, guys. Thanks for taking my questions here and congrats on becoming a public company.
Thank you.
I appreciate it.
Sure Mike maybe for you just to start.
Can you just can you just talk a little bit about what your customers are saying.
About.
About potentially opening reopening physical branches and how they may or may not change sort of what <unk> been doing on the digital side as a result.
Well I think I'll bring Stephen on this a little bit too because you will probably have an opinion on this as we go through this we both interact with the clients a lot to.
As you know our client base ranges from essentially no branches to our various physical physical footprint with a lot of branches and we've navigated through the pandemic doing what they can within their strategies.
My sense is that many of them are going to wait and see on what changes they really make here I haven't seen any specific adjustments and what one called the plan changes for the future I think theyre going to wait until the staff's comes back the workforce and the communities pick up see how that works out and make adjustments as how it feels to me.
Stephen would you add anything to that.
The only thing I would say is that youll see more and more of a trend towards using those branches as actually in somewhat of a <unk>.
Right training center for their digital tools, so as people come into the branch one of the primary jobs of the employees in the branch is to actually try to move those transactions to the mobile app right. So and we're already seeing this with some of our customers and I think youre going to see a lot broader set of the Fi base adopt that mindset as a branch you used to get people more.
Comfortable with the digital tools, so they can self service.
Also it feels to us got it.
Yes.
Got it that makes that makes a ton of sense.
Maybe just my follow up for you Brian.
It was a helpful stats on the call I think.
You said six wins in the quarter with about 215000 net new subscribers I guess the question is how do you think about those subscribers layering in into that registered user count.
Your report I guess is that something thats going to happen here in the second quarter or is that something that could take a little bit longer to sort of layer into that user count does that makes sense.
It does.
Yes, we felt like we had a pretty good pretty strong first quarter sales and Liberty bank coming in obviously.
Great validation point for us, but as we think about the registered users that we report those are for live users on the platform and as Steven mentioned in his prepared comments. It takes between six and 12 months to implement.
Our new financial institution, and that's dependent on the complexity of the integrations and and the size of the institution and many other factors. So you will not see those users come on until these financial institutions are alive, what they do though as they go into our backlog for implementation.
So these 215000 users are now part of the $1 6 million that we have an implementation and those will roll out through the course of 'twenty one.
And what's interesting about how users come in if you look at 2020.
On our implementations and digital users. It was more of a first quarter second quarter biased. The story of 'twenty, one will be scheduled implementations, but the majority of those occurring in Q2 and Q3 'twenty. One so each year, we will have its own theme and tie.
Aiming of wind digital users will come on to the platform.
That's very helpful I'll get back in queue. Thanks folks.
Thanks Simon.
And you have a question from Pat Walraven from JMP Securities.
Oh, great. Thank you I'll start with one for you, Brian and then bigger picture ones here.
So.
Obviously your business momentum is really good.
Landed that big deal, but when you look at the guidance sort of.
In line with where we were in.
I'm sure there's a rationale of that but I'm just wondering if you could lay out for us what it is.
Yes.
So on a full year basis, we rolled through our million dollar revenue base, which we're pretty proud of for the quarter for the full year.
As we look out 12 months past the implementations during the quarter are pretty much baked or during the remainder of the 12 months, they're scheduled we know when they're going to come on line and so we know when that incremental revenue will come on line.
So the variations that can occur from quarter to quarter are related to cross sell activity and the speed at which we can implement those add on products and then also the pace at which our clients are growing their users organically. So thats. The variation we have and it's pretty narrow so the guidance that we provided for the full year.
<unk> is at the mid point around a 30% organic revenue guide.
That's 500 basis points above our longer term objective of 25% plus so we feel based on near term visibility.
As good guidance, it's credible guidance and that was the approach that we took.
Okay. So super ratable model right and we just in general we Shouldnt expect a lot of variability is that a fair.
It may not as Rob had I mean, we have we have 95% subscription revenue, which is from my seat a fantastic model to be responsible for.
It's very ratable, what youre not going to see is guidance that is.
Too Conservative and you can't see guidance Thats overly aggressive because it's a very very predictable revenue model.
Alright, Great and then Steve maybe for you what and you touched on this a little bit I think when you were talking about the cash management, but what are sort of the two or three pieces of functionality that you don't have yet.
You'd really like to see added to the platform to make talking an even better fit for banks.
Yes.
Paul If I told you that I'd be giving you that I'd give me given the keys to our competitors there I don't want to give away the secrets.
Oh, no I would say that the.
Generally describe them because I don't think you can actually point to two or three features because it really quite honestly depends on who the prospective client is and who their ultimate commercial customers are so I would say generally described them and say.
As you as you go up into the higher end of the commercial banking kind of stratosphere, you're now youre dealing with holding companies conglomerates youre dealing with people that may have 15% to 20 <unk> across the holding company and people wanting to manage all of those from a single login. They want to have daily cash reported in our intraday cash reporting they want to have on.
All kinds of money movement, whether it be wire international wire ACTH same day ACTH all mixed together.
So what you're just seeing is just a very complex kind of management and money movement and reporting type features that those large commercial clients demand. Those are those are the areas I would say that we are if you'd say generally that we're focusing on to to ensure that we have something that is on par with the other kind of traditional leaders in this space.
Okay cigarette assisting thank you.
And you have a question from Sterling Auty from J P. Morgan.
Hey, guys I'm actually going to go on the opposite order as I'm going to start high level and then go granularity so on a high level.
With interest rates going up I would imagine that net interest margins will start to improve for a lot of your core customers and wondering if that has been more encouraged or more optimistic about doing system transformations in adopting more solutions.
Sterling This is Mike.
Yes.
Discussions I'm, having with Ceos I do see some of the interest.
Margin discussions you mentioned here of course is obviously.
There is also some loan dynamics on mortgage and card and consumer and.
So I'm not feeling a big shift or changed going into 2021 and two.
<unk>.
Invest moons non interest expense.
From the seats that I'm interacting obviously, the balance sheets look pretty solid for the institutions.
Institutions in general so I feel like the ability to support out either asset growth for investments or things that.
It could happen, but I don't feel a big shift to change that.
<unk>.
Would alter the game plan that as we see it right now so when you see anything along that no. Okay.
Alright, understood and then down to the granular level.
Can you give us a sense of when you look at the cross sell.
The incremental modules are you seeing the greatest interest in at the moment do you think.
That's going to change as we move throughout 'twenty one.
Yeah. So good question I think that the business banking side of things is important and sometimes it may be a little ironic that a lot of times people think of credit unions is just consumer focus but actually what we're seeing is that there is a a more heightened sense of not only awareness, but appetite for getting more and more into the commercial banking side of things even with acquisitions of.
Traditional banks by the credit Union segment. So I think you have that force, that's driving and I mentioned this kind of early on my prepared remarks.
How many of our customer base actually had our business banking solutions.
That is one that you will continue to see growth as more and more of what may be traditional consumer models are sorry, consumer based financial institutions kind of expand out and get into the commercial banking side I think the other one would be two that are kind of mixed together data and then I would say financial wellness.
On the data side, which ultimately helps financial wellness, but on its own what we're seeing is that clients as I mentioned have big internal projects on with another one on the use the data in our system or maybe leverage our products to do custom extracts out to their data warehouse systems that they have or use our data for cross sell or fraud mitigation those were on.
All various products that we have that we are seeing.
I would say a lot of interest in and then the last one like I mentioned are kind of intimated was the financial wellness side, we're seeing that actually.
A big increase in the amount of interest in this it's not being used as just nice to have things some socially conscious thing, but not only is it driving great user engagement is helping them be very competitive with the kind of direct to consumer apps that you see out there in this space, but then it's really allowing them to curate and cultivate and leverage the data that comes.
From the financial wellness products, which are things like your balance is your transactions. Your your credit score your savings goal those types of things, it's enabling them to leverage that to to cross sell more products. So.
I would say those and I guess the last one I would add there I know I could probably describe but on the whole list here, but I think the other won't be card management and part experience.
A lot of our clients are driven whether it be on the credit card portfolio side or even on the debit card interchange side.
And being able to bring that card experience together with real time alerts automatic activation automatically adding that to their digital wallet. The Apple card phenomenon really kind of a few people by surprise on our customers said, we need to have that so I would say theres, a big appetite out there to have a great card management.
So.
And I'm getting the hook here that they'd like to only have four.
Uh huh.
Yes.
It makes a lot of sense, but the excitement about all of those solutions.
Could tell the enthusiasm and the opportunity so thank you Scott.
Yes.
And you have a question from Josh Beck from KBC M.
Thank you for taking the question and congrats on on the successful public journey.
Good morning.
Could you just kind of ask a higher level with the surge in digital engagement that we've seen in the last year.
I think banks have worked through a lot of the the triple T and forgiveness.
Items that were really time consuming in 2020, so have you seen maybe a new urgency.
To consider modernizing their digital banking platform, just curious the CEO CIO types of discussions Youre having.
Hey, Josh this is Steve and I'll try to attempt to on that one I would say that keep in mind that the market itself is somewhat throttled, meaning that that this is a 100% replacement market and those contract terms that are coming up with their existing providers. There is a certain kind of pace to those.
So it's harder to tell at least within a three to four months period, you know kind of coming out I would say, we can kind of emerging.
As a country kind of over the last couple of three months, whether or not we're going to see that trend, which we've seen which is obviously very positive in terms of overall deal activity, whether or not that's going to kind of level out over the year or it's going to continue on that pace. So it's kind of hard to say as far as net new logo kind of TCP, but while we can definitely tell you is that of the customers that are there.
At our that are obviously already clients the client sales activity the amount of the amount of demonstrations and sales meetings, we're having to go over kind of the broader feature set we are absolutely seeing that people are more and more interested in having a I guess a more holistic more complete digital offering there and so I think it's probably kind of.
Maybe unleash some of that where they are saying, okay that the basic things of digital banking accounts transactions transfers on bill pay like this is this is now absolutely table Stakes probably was that several years ago to be quite honest. So I think that what we're seeing is that the uptake of those additional products as well as the demand for us to create more more products.
Is the overall trend that we see.
Overall rfps in total deal activity, yes, it all looks very positive, but it's interesting to see if this is almost like a post pandemic surge kind of coming out of this and then it kind of flattens out the rest of the year or if it's going to kind of maintain this high level time will tell and we'll probably be have a more informed view of that probably in the fourth quarter of this year.
Really helpful. Stephen.
Maybe a question for you Brian the new clients are pugh, particularly close to $18. So certainly youre getting strong product adoption among your newer.
How should we think about those two factors not really expecting any specific guidance, but just as we model out revenue and think about users in <unk>, how should we be thinking about those for the balance of the year.
Yes, sure now <unk> expansion during the quarter was 9% over the prior year, which was a great quarter for us about 50% of that came from new clients that were added to the platform at the $18 that you just referenced and the other half which is what we're very excited about came from.
Cross sell activity over the last 12 months. So we're really now seeing both of those levers starting to really pay dividends for us, but as I think about <unk> growth in 2021.
Where would I expect that to come from so between 20% to 25% will be user growth and 5% to 10% expansion in <unk> thats over the prior year. So from the fourth quarter of 2020 that that's the right way to model and think about it.
Really helpful. Thanks, Steve.
And you have a question from Andrew Smith from Citi.
Hey, guys. Thanks for taking my questions here and congrats from me as well on a public company status.
I wanted to ask a question about organic user growth. It's good to see the momentum continue into 2021.
What's the expectation for the remainder of the year, especially as we lap COVID-19.
Is that a lever for potential upside relative to kind of what you're modeling and then kind of.
Secondarily, what's the right way to think about existing user growth over the longer term. Thanks.
So I'll take the latter part of that question first our view on the market as it's growing digital users between 5% on 8% each year and so as we scale and grow our business beyond much higher than the 10 million users that are present.
We on our platform, we feel over time will probably.
Converge back toward the market growth and you see that in the Mega banks when they report digital users you see it in some of our competitors, where they report digital user growth. So we feel that just naturally that will go now the clients that we have today, they're very digital banking.
Leaning in clients or participants in the market. So we're benefiting from their success as Mike mentioned because of our revenue model being a digital user based model and so in 2021 we.
We think we will grow our users between 20 and 25% in total for the full year and you should expect roughly half of that to come from organic user growth from our clients. It was 17% for clients that still existed at Q1, but net of attrition.
It was 15%, which again, that's running well ahead of where the market is today and we haven't modeled that in for the full year. So that would present, an upside opportunity to the model to the extent they beat where we're at.
Got it that's really helpful context, Thank you for that and then.
On the inorganic strategy I Wonder if you can articulate.
Kind of what how we should expect that to play out over time clearly a good pick up on the ECH alert good cross sell opportunity you've got a number of banks.
That came with that but especially with the.
<unk>.
The fresh capital post IPO talk about kind of how you think about sort of M&A and organic growth. Thanks.
Yes, so first of all.
<unk> alert, we think thats the perfect prototype acquisition for US they were a partner of ours. So we resold their service offering we got to know them. They have great functionality theyre performing very well in fact, our sales force has sold its just under 10 <unk> alert deals.
<unk>.
Since acquisition they have some large banks in the pipeline right now they brought on a new a resale or a large reseller that's providing some nice deal flow. So we couldnt be more excited about ACTH alert and what it's doing for alchemy, and if we could just repeat that from an acquisition perspective.
I think we will be doing great in terms of inorganic growth, but the areas of focus it's really a do we do we build new functionality do we acquire functionality or do we partner or some combination of those three so it's really a part of our overall development strategy and then it's.
Also our capital allocation strategy as you might imagine so they have to a potential acquisition has to fit our financial model in terms of accretion for revenue growth SaaS gross margins ability to scale beyond 30% adjusted EBITDA margin and typically that will target of 25%.
<unk> IRR on these type transactions.
It just happens to probably be much better than that which we're super excited about that but that's the way we're thinking about the approach to the market. There is a lot of disparate.
I would characterize them as point solution providers that would extend our platform extend our addressable market and that is the focus that's not to say we would not.
Acquire a small competitor to gain additional digital users, but that would have to be at a very compelling financial return for in order for us to do something like that because we think we're going to win those users over the longer run anyway.
He is a functionality and focus account openings is clearly an area that we would really like to focus on.
Security and fraud, that's another area.
Marketing and data analytics, that's another area of high interest for US, where we think we could drive a lot of value for our clients. So again, we win when our clients win but that's the way we're thinking about acquisition opportunities.
But I would only add one area to the floor on the wheel that you are talking about a new account opening and data and fraud, but it would be in the business banking area payment movement test management Treasury.
That would be a core area I think would fit into our buy build partner R&D slash.
Inorganic strategy as well and there's some great opportunities.
Right.
That's great to hear thanks, Mike Thanks, Brian Congrats again I appreciate it. Thank you. Thank you.
And you have a question from <unk> Tandon from Needham.
Thank you good evening congrats on the quarter I wanted to start with just maybe more of a topical question in terms of the commercial banking opportunity I think Stephen you talked about some of the increased functionality to really make a dent on that market does seem to be several incumbents already in there.
What are the sticking points for many of the banks, who might be reluctant to move to a cloud based offering like alchemy and sort of stick with that legacy provider. So what are some of the challenges you face you try to shift that market more to alkermes.
<unk>.
Yes, good question.
<unk>.
The idea that it's cloud based it's really not I mean, I'm not saying that you couldnt find someone out there that says hey, I'm not comfortable with having the system on the cloud, but I would say that we really kind of crossed over that threshold at least for the large majority of prospective clients out there. So the underlying technology in terms of where it is hosted.
I don't think is at all a barrier I think the biggest thing that you get into it.
The number one thing is this is a big disruptive event to a highly profitable segment of their customers and so it's viewed as very risky right. So it needs to be worth it.
So whenever whenever we go and we talk with these clients I mean, they are they ultimately have to believe that the risk of sustained still has a higher risks.
And potentially worse for them long term, then actually converting to a new system and that's that's what we saw with Liberty Bank.
They had obviously a lot of offerings today, they had some really significant commercial clients, but they wanted to go bigger and they wanted to go faster and they ultimately made the determination that the legacy solution just wouldn't cut it. So I think that every each one has its own story based upon who they are who they compete with what their current current system is but it really is a matter of.
It just kind of reinforcing the theme that.
Digital is where the where the competitive playing field is and if you don't have a leading digital solution with self service functionality for these institutions.
Youll start to lose them or you won't be able to win that when the business. So I'm not sure if that answered your question or not but I'm trying to kind of paint the general picture there about what drives the decision to move.
I know that's a very helpful color Steven Thank you for that and then really quick follow up and I apologize. If you already shared this data, but what can you refresh us on what the number of products today.
Customers are using how do you see that trending over time, and then is it conceivable that some customers may use all 26 products across your AD categories for that sort of really more of a long term target.
Yes, so we have examples of clients using.
Every product that we have.
So our products are we feel the majority of them are relevant for each segment of the market in terms of the financial institution size and so.
We think there is the ability to penetrate all of our products into the base longer term on average today, our client base has a little over nine products per client and what's interesting is the recent trend in new sales cohort from 2018 2019 to 2020, we're seeing a progression.
Of more products being sold on the initial order, it's going from like 10 in <unk> to <unk> 11 in 2019, and it jumped up to 15 in.
In 2020 and on a trailing 12 month basis for the first quarter of 'twenty. One we're still around that 14 to 15 average products per client so.
What we're finding in that and what the takeaway is as we have more products to sell our sales force is becoming more competent and better at selling them more products on that initial order, which is very important for us.
That's helpful. Brian. Thank you so much.
Okay.
And you have a question from Bob Napoli from William Blair.
Thank you I appreciate it and congratulations on the.
The IPO.
Thanks, Bob.
I guess, one thing that I think that you view as a key competency is the pace of innovation.
And so I was just wondering if you could give us some view on how you think about that and how you think about patient pace of innovation I think.
Your engineers are on those.
Half of the staff at the organization moving about 250 in it with the new products the rate of new product development has been pretty.
Pretty impressive so how do you think about.
And the innovation and pace of innovation and is that a key asset on the company.
I wanted to start a little bit here or share of the framework of that and then maybe Brian you can talk a little bit on the allocation of how we allocate the economics around that from Stephen you can pick on kind of the.
On the target areas for Bob think of it as a big.
We have like 20 cross functional teams across the company addressing element of our product from end to end and the platform itself. So imagine 20 teams of roughly 10 or 12 people each.
Designers developers scrum Masters QA talent driving the architects driving each part of the product forward and Theyre doing that based on customer input client input feedback groups, Our advisory board and so you can imagine.
<unk> of 'twenty activities going on side by side very agile, we going forward, which are either customer oriented ideas market oriented ideas, our own created ideas that advances all of those things alone and what we can we can turn on a dime on what we allocate those 20 teams to and priorities based on market on.
<unk> and those are continuously delivered into our single codebase or on a mechanism is fairly agile to navigate opportunities needs and relative we've always said the words, it's 90% of the work. We do every sprint turns goes to 98% of our clients every 90 days.
So the fact that we can deliver that very quickly to all of our clients very fast as a vendor.
On the effective part of kind of our Arsenal in the market opportunities that we have so that's that think of that as the way of what's going on there Brian can kind of tell you how we allocated between.
Realization versus new market opportunity versus platform allocation. Steven you can talk about some of the gear is available just real quickly Bob and this is.
I think we educated a lot of the investors on this but it's good to revisit revisited, but the way that we think about capital allocation in terms of R&D spend on about 50% today, we target for either realizing our existing Tam, meaning some improvement in function.
<unk> to better penetrate areas of the Tam or maybe today, we havent had as much success I think business banking is a great example of that where we've invested a lot of dollars in that over the last 12 months to 18 months and Thats starting to result in wins like Liberty and us being very active.
And bank deals in fact, it's one third of our present sales pipelines. So so that's the way we think about that part also within that 50% is expanding our Tam. So it's just new products. We have about nine products that will be coming online over the next 18 months, we we need to do a little bit more.
Market research on where we're going to actually price point some of these products, but we feel it will take us well above the.
$34 that we have today and addressable market opportunity and probably well above $40 of revenue per user. So that's the return for those investment dollars and then you kind of move over to maintenance activities. It's about 25% our scope is to try to.
Bring that down on our objective is to scope that down over time to then take those dollars that are allocated to maintenance activities on move that more to Tam expansion and Tamara realization and then finally as you know.
Split pretty evenly between one time client projects, which ultimately rolls into the COVID-19 it benefits our entire client community.
Also included in that last component is efficiency activities, so where we're <unk>.
Making modifications to the platform to help the manner in which we support or implement our clients. That's the more holistic approach on how we are allocating dollars to those various teams that Mike just mentioned to either improve the platform or expand our addressable market.
Thank you.
Really helpful.
And just if you could.
I'll just back on the revenue per user.
Dollars was stronger than what we thought.
Can you, which I think you touched on the products.
But in the product pipeline what are the areas of focus in each of those could have the bigger effect on RPM.
Steven I think youre, probably on the best seat of benign things that are in the next 18 months, what's your kind of focusing on that kind of broadly you hear back into the same yes.
Yeah, it's really on I know, we've kind of we kind of hit on a couple of times throughout the throughout the day kind of prepared remarks on the questions, but it's those same themes there Bob it's really on the commercial banking side of things the data side of things.
<unk> fraud protection and then extensibility. So I think those are kind of I would say the general.
Kind of areas of.
I think what Youre asking for is what are the kind of on net new products that you think are going to drive that kind of.
The largest percentage of the net new revenue from those products on that that would be the categories that put them in.
Okay. Thank you appreciate it.
Thank you.
And your last question comes from Chris Merwin from Goldman Sachs.
Great. Thanks for taking my question so.
So I wanted to ask a bit about some of the deals that the larger banks. Obviously, it's impressive win this quarter was with Liberty I know for some of these larger regional sales.
On times require a high degree of customization.
In order to win the business can you talk a bit about your willingness to do that level of.
Customization and sort of how you see the market evolving over time and if some of these banks.
We'll move away from that and more towards taking the high quality out of the box SaaS solutions. Thanks.
Okay.
Yeah sure Hey, Chris. Thanks for the question. This is Steve and I'll attempt to answer that.
One we here we call. It we had alchemy, you say customers kind of a bad word, but I understand its award that's used a lot.
What we've done is been able to is to create a platform. That's built out of the box to be customized without leveraging custom code right without having separate branches that are built on that and we do that through a high degree of configure ability and configuration, we have all kinds of natural extension points within the system. We obviously, you've probably heard early.
We talked about kind of our SDK and API set that allows our customers to go and modify and build their own extensions that are on apps through on widgets within the platform. So that's how we kind of accomplished the quote customization on I was just kind of a general term to choose.
And that's why we feel comfortable actually being able to go in and really kind of.
Be able to satisfy into service these larger financial institutions.
On the on the commercial banking side, obviously Liberty Liberty is a significant client, but but on the credit Union side. We have clients that are multiples of their size quite honestly in terms of users and sometimes.
Certain cases complexities in terms of when it comes to third party integrations. So so we've been kind of doing this for a while on but.
But I think that that that's what we don't want to say is that you have to kind of customize our system you are able to almost personalize it to your needs, but you don't have to use custom code to do it and that's one of the things that alkermes. We believe is really unique in the market net.
Earlier, we talked about the fact that we've got over 40 of our clients right that actually leverage our SDK 203rd Party developers. They built 172 modules within our system. So I think what youre, what youre seeing on I think the quote I gave earlier in my prepared remarks, the old buy versus build dichotomy is dead that is really what youre seeing is that these back.
Thanks in a large credit unions, there, saying I don't want to build all of it I would like to have a platform that I could kind of get out of the box and then kind of let me go from there and kind of ride shotgun with you as Youre building your things on your road map and then allow me to kind of add things that maybe youre not building from the broader client base that they kind of set me apart. So that's really our model.
Obviously, you've been very successful with doing that and we think that it's going to I can tell you at least what we're getting a lot of great reception in the higher or the larger bank market with this with this message.
Perfect. Thank you so much.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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